Dave ramsey total money makeover 7 baby steps

This is a something yr. There we go again with that cheapskate name-calling. Seriously though, one of my prouder moments as a personal finance blogger.

Speaking of that face…awwww… look at it! A little scruff, sport jacket, the hip bendy, frame-less professor glasses, and a smile squint so hearty that it begets an instant man-crush… snap out of it, Miller!!! He has a syndicated radio show on over stations, a plethora of books, a TV show on Fox Business, Sean-Connery good looks, and all kinds of high priced online courses and seminars that you can find out more about at his popular website, Daveramsey.

His 1, square foot garage is bigger than my entire home. An environmental steward, he is not. But his very popular 7 baby-steps? Extreme, they are not. While I can think of a lot worse plans than this, you must remember this when it comes to Dave Ramsey — his incredible success with middle America is largely driven by his acceptability and appeal to the masses.

That would be fine, if you consider yourself average and want to stay there. I agree that establishing an emergency fund should be a priority. Most major auto repairs will cost you more than that.

Any reasonably set home insurance deductible will cost you more than that. The goal is to avoid debt or running out of money when emergency strikes. You need some quick wins in order to stay pumped up about getting out of debt! Figure out the maximum you can put towards your debts and put it all towards the highest interest debt. After that debt is paid off, go to the second highest interest debt, and so on.

This will allow you to save money on debt interest EVERY MONTH until you are completely paid off. If the market tanks and your balance drops below 9 months, look at it as a buy opportunity, and replenish it.

This is the perfect example of over-simplifying with what sounds like a solid rule and making it a general rule for everyone, to their detriment. And, it is often one of the biggest problems with personal finance gurus like Dave Ramsey. That makes no sense. That is free money you are leaving on the table. And for those who it is a good fit for, they should pay at least half to learn personal responsibility. Not everyone should own a home. If you do, paying it off is a great thing if interest rates are modest or high.

I think there needs to be a pre-baby step. Add up all monthly expenses, and see what can be trimmed to fund baby step 1 of creating the emergency fund. I disagree with baby step 6. I think the money could be better used elsewhere than paying off a house early. A house payment, with a fixed interest rate is a fixed payment, with a continuously decreasing loan balance. It is a good way to fight inflation.

I either have to rent or buy shelter, that is the only two choices. If a person is renting for 30 years the monthly payment is always going to increase with inflation.

Baby step 5 needs an asterisk. I totally agree that cutting unnecessary expenses is the first step to building wealth. Cutting these revolving expenses is the easiest way to generate available money for emergency savings. There is nothing more to it. Of course you could take that money and invest it in something with greater returns while you keep paying your mortgage.

But then your not out of debt which is the whole point. The bank owns that home and you are a renter. As soon as you stop paying taxes, the government will step in and show you who REALLY owns the land and everything on it. Mike you obviously are ignorant with money.

You are a slave when you owe someone something. But we all learn in our own special way in time… Good luck with your plan!! You will need it. Mike thinks he can get a better return than paying off his mortgage — more power to him. But if he spends it on a vacation, then yes, he would have been better to pay down the mortgage.

I think that it all depends on your situation. Genius, why do you think DR put investing for retirement 4 above paying off the house 6? Much of the reason for paying off a house more slowly has nothing to do with the rate of return. A mortgage forces the owner to not spend that money other ways.

Consider the extreme case of putting your money in the mattress every month for years on end. Due to inflation, when you go to use that money it will have less value than when you stored it away, but it will have significantly more value than the zero you would have if that same money was spent going out to eat, going on vacation, … This is the same thing as people who paid a lot for their homes having a lot of equity for retirement, even though it is less value than they would have with a small house and a larger retirement investment, because these people would not have put the difference into retirement, but rather would have spent it.

On the other hand, if the house is paid off sooner, then in case of emergency a paid off house means a lower required cash flow every month. I am always looking for ways to save money. Unfortunately tips people usually give are things like cutting luxuries such as cable, eating out just once a week..

Now if only I could get my husband to stop buying books on the internet. As far as paying off your home quickly: If you were to say some debt is acceptable, you can probably make that case. To suggest that debt is preferable over no-debt is silly. How much are you willing to risk for a couple of points of interest assuming your investment goes perfectly? People that choose to pay off the house early are removing the risk involved in having a mortgage sooner, and willing to give up the potential earnings to do it.

That is a guaranteed rate of return, with zero risk of losing that capital, and zero risk of your rate of return going down. Death, Disability, layoffs, other possibilities exist as well that could reduce or eliminate your income.

Your plan looks good on paper, until life gets in the way. Paying down your mortgage is like getting a risk-free 3. However its actually a slightly smaller return, when you figure in the amount your taxes would have decreased if you had paid more mortgage interest.

Beyond that Dave recommends putting money into paying off a home before going into the stock market above retirement or leaving money above the emergency fund sitting in savings or spending it on doo dads. The business also needs an operating cushion. My son is 10 months old now. I think that my wife and I are on the correct financial path and have succeeded with most of these steps. The college funding part is the tough one for us.

You make a good point about teaching responsibility and placing a value on the education received. Net worth for all US households according to the report you referenced http: Also noted that the article referenced only gives data on median net worth, not average net worth. These are 2 different numbers. My understanding is that the more extreme outliers trust fund babies, etc would be on the high side making the average net worth even higher than the listed median net worth.

Median does not tell you a whole lot. Also if we were to look at a real average, it would be useful to know if negative net worths were used, or simply zero for those with no real assets. With SO many people underwater on their homes, It would make a difference. Negative net worth will certainly bring down the average, versus counting them as zero, but it would have ZERO effect on the median. The average would certainly increase. The only point is that the median number is virtually meaningless.

It only tells you the value of the data point in the center of the sample. It tells you nothing about any of the numbers below it, and nothing of the numbers above it. Now we are building it again. Also I wonder aside from the efund being online and with a different, what would be the difference in just dog earing everything and keeping it in one account.

I do disagree partly with step 3 in that the emergency fund should be an investment. I like your idea of making it an investment, but currently my wife and I like to keep our e-fund in a savings account because of the low amount of income we are bringing in. We are on baby step 2 and having that e-fund ready to access without any penalties is important to us right now. I was a little surprised to hear anyone especially on a personal finance blog nonetheless! Can you really count on getting your money out in time if there is an emergency?

If you use a credit card to finance payment for the emergency, you would have between days to cash out the funds and receive them to pay off the card balance.

A Deeper Look at Dave Ramsey's Seven Baby Steps - The Simple Dollar

You could cash out same day, and a transfer of funds can usually be done within 5 days. As I said, if your balance is depleted due to market movements, you can replenish shares at a lower price. Interest rates are at historic lows. When rates go up and they will , bond prices are going to tank. You might need this money tomorrow not years from now. I agree that bonds can be risky with the impending rate increases. This requires a bit more work than sitting it in a money market fund, but in many cases you interest will be better able to counter act inflation.

Having a six month emergency fund does not have to mean having 6 months worth of liquid funds.

Someone could build a five year fund this way that would simply keep rolling over until they are needed, hopefully with no emergency they would be used at retirement. This assumes that your only emergency is going to be job loss. What is the roof leaks? What if the car breaks? What if the rook leaks AND the car breaks down? What about unexpected medical expenses? The liquidity of a specific number of months is specific to loss of a job.

Much like insurance is specific to the type of insurance. Someone with a 30K job and six months of reserves has less money put away than someone with a 90K job and six months of reserves. Yet both have enough to cover 6 months of not being employed. Years ago, listening to those much older than I was, I heard people talk about how their finances progressed over the years leading to retirement.

This is a pattern I saw occasionally. Credit was with specific stores, not general cards like Visa. The first car might be on credit but as the couple got older they would save enough so that any future cars were paid for with cash and the trade in. They bought a starter home and later bought a larger home to raise children.

The mortgage was paid off as quickly as possible so when the kids moved out and the home was paid for, the freed up resources all went towards the retirement fund. The empty space in the home might be rented to a boarder to add to the retirement fund. Starting saving at age 50, retirement was fully funded by age The house ownership was important because that eliminated the single most expensive cost of earlier years. Presents for the wife were often jewelry. If the couple died young, there was lots of jewelry in the estate, if they lived very long, the jewelry paid for the later years.

One thing in common was that most of the people who did this successfully had sufficient insurance. Remember that not all occupations offer a K, this does not mean that they do not offer any pre-tax retirement savings vehicle to its employees.

Who could possibly turn that down if they understand it? Just food for thought, not saying anyone is right or wrong for what they contribute in their K. You obviously have only read the basic baby steps and not actually taken his class because Dave tells you in his class to invest in your K as much as your employer will match, then go to the Roth, and then back to your K.

You obviously are more interested in trying to make Ramsey look bad than to actually understand what he is saying. If you are going to critique his plan as some kind of expert, you really should actually study his plan rather than going off the simplified list. But I agree with Dave — most of these people are so desperate that they need some quick wins to keep up the drudgery of getting out of debt. Also, 6 mos of unemployment benefits should cover at least 3 mos home expenses, that gives you 9 months.

GE, I LOVE Dave Ramsey. There are some incredibly smart people in the world, it just never ceases to amaze me how many smart people are financially illiterate. I am a huge fan of your website as well as Brave New Life and MMM. I consider these sites to be more in line finacial graduate course and for people who actually have a clue about their finances. Dave has great advice, but it really is finance It is meant to spoon feed some of the very basic ideas to people who let their lifestyle inflation spin forward ahead of their finacial abilities.

I know you are not bashing Dave and probably feel he is generally helping people. When I talk to people about finacial stuff I usually tell them to listen to Dave and get out of debt as the biggest priority they have in life. Once they get that far, I tell them to start the next chapter in your finacial plan and introduce them the better site like yours.

You can disagree with him, but what he says works. At times it felt like we were trying to turn the Titanic using a rowboat, but the more we worked at it, the easier it got. Whether or not you agree with the specifics, the overall plan of building an emergency fund, getting out of debt, and saving for your future is the core of what both Mr.

Introduction to Dave Ramsey Baby Steps to Get Out of Debt and Invest

I think some Dave-lovers have interpreted this as a slam on Dave. His impact is a net positive on the world. My version was for those who want to take it to the next level.

I like your blog too, and I know you are not bashing Dave but come on…the guy brought the baby steps to the world and has probably contributed more than anyone one person has in reducing the national debt. He may live large, but he gives large too. Kind of like taking the 10 commandments and making small adjustments to them and making them your own 2. Our son recently graduated with 3 majors history, political science and russian — ha! Can you do an article on this? The money is indeed not an investment, it is a type of self insurance.

People tend to get laid off more when the economy has problems. So if the money is invested then there is a greater likely hood of there being less value when it is actually needed. Curiously enough, I know someone who only keep 3 months liquidity but at the same time has the longest range backup. For many years he bought bonds every three months so that now every three months some bonds mature and are rolled over.

In a financial crises he would simply stop rolling them over. The way he described it, these bonds are his early retirement if there is never a problem and a temporary retirement if there is a problem.

After that, I have a significant distaste for debt. Your twists on some of his steps resonate with me: The ETF bond index alternative to the emergency fund is one. I love the thought around having kids pay a portion of their college education.

This is a glaring understanding gap at his age it may have been true for me as well — The value of money, and the concept of money as the reward for hard work to the benefit of something in society. Dave does say to use your employers match on the k, but not to go higher as they can have high fees see your post today about rolling them over to an IRA.

Holy crap…I never realized that the average net worth of sub 35 year olds was that low! Dave Ramnsey is great for folks who have debt problems. He is terrible for investing.

I would suggest reading his book instead of flipping open the table of contents and taking notes. Im not defending Dave Ramsey, but it makes you seem like a less credible writer when you dont have your facts straight. GE, I was about to chime-in on the k matching, but I see some fellow Dave listeners already beat that dead horse. For the rest of the baby steps, Dave has reasoning for each of your concerns.

So I recommend reading Total Money Makeover and Financial Peace University, if you can stomach the basic concepts long enough to finish them. As some others have mentioned, Dave is speaking to the masses, which are financially…challenged. Same goes for the Debt Snowball. Dave acknowledges that paying off the smallest debts first is not the mathematically correct strategy. His position focuses on the psychology of paying off the smallest amount first and gaining momentum to actually continue and finish.

I love your website, and I visit at least once a day. Not knocking the plans, all sounds good. But what aboutfor the peope who really are making it by the skin of their teeth?

All bills are just under a month, and I make … and of corse that goes to food… my job does not offer any types of benifits… where is the plan for folks like me? Did you ever get a reply to your post?

I was just curious to see if anything has changed for you or if there was another plan for you to follow? Andew, I think the advice would be that you need to increase your income. Some ideas would be to search for a higher paying job, or a second part time job. Maybe your wife could help out another mom who is working by babysitting a few days a week to earn some money.

She could also possibly work a few days or evenings times you are not working and you could watch the baby. I believe there are opportunities out there for you both to contribute to your household income. Now that credit card statements have to show how much would be paid in total and for how long, those credit cards with large balances would be a monthly reminder to stop using credit.

I happened into this post when googling for Dave Ramsey, emergency funds and money market. I enjoyed your post and agree with most of your points. You actually agree with him completely on that note — invest in k as high as your employer matches.

DR suggests investing in mutual funds after that with your remaining percent. I will say that he has high hopes for returns — he estimates the mutual fund returns WAY too high. He also states to stop all retirement contributions while repaying debt. In terms of our debt situation, our k matches outweigh our interest on our debts.

Again, agree with you on home ownership. We are happy renters and plan on being renters until at least our children go off to college which we will help with but not cover entirely or possibly even retirement. As long as you are living within your means, renting can be a great option long term to avoid home owner repairs while still paying less for rent in 30 years than you would pay for the interest on a conventional mortgage.

Dave made his money in the real estate business both the first time around and the second time after his bankruptcy. Not to mention his millions of followers helped buy that garage that my entire family could live in comfortably. He is definitely a great find for the average Joe American that is sky high in debt due to ignorance and stupidity.

Miller, I have a question about your comments regarding Baby Step 4 … First, you indicate that one should max out their employer K match agreed … I get that free money. Especially since I was in the situation where someone should NOT go to the IRA before filling up the K. With an employer K, you are limited to the broker that the employer chooses and the limited number of investment choices.

On the other hand, when you get an IRA you can choose any broker and any funds. Most of the time you can find a broker where the funds can give you a better return and lower fees.

Over the course of your working career the small differences add up. No my situation for a few years was the opposite. I was working for a large brokerage firm with so many choices I had what I wanted and there was NO brokerage fees and low fund fees. In addition we had access to very excellent advice. No IRA or other K ever did so well for me as that one K. But this was something like a 1 in 1, case. I went through the Dave Ramsey program and I will tell you why it worked for us.

First of all, the debt snowball, paying off the smallest amounts first regardless of interest rate gave us the incentive and success to keep going. This is reality in America. We paid off our bills a ton faster so we ended up saving alot on interest.

Yes this is not much and we were lucky not to need to dig in it but we worked our tails off and sacrificed to pay our bills. In 7 years we paid of 4, credit card 6, credit card 7, school loan 18, credit card , in student loans We are now working on paying down our house.

Unfortunately had kids in college already but they are now working and doing fine on their own. There are different routes for everyone to get to a better place.

Dave Ramsey Homepage | yfyrurusus.web.fc2.com

Dave happened to be out there with sound principles, even though you can argue with them. Dave does on his radio show now, tells you to fund your k up to the employers matching fund and then put it in the Roth IRA. That is nice, but has anyone talked about the fees of the IRAs? On a recent PBS Frontline http: It seems like some of us could have much larger portfolios if we investigate further, but who knew this stuff????

My employer says having a home paid for is like having a shoebox full of money under your bed. What is it doing for you? He suggested that if you did pay off your home, then reinvest part of that idle money into a property and build equity and hopefully the value grows, too.

Even in a down market, acreage around my town is still selling for 15k per acre-ten years ago it was 3k per acre. Just religiously pay off your balance and stick to your budget and grocery list!

I will leave you with this. If Nashville is my designation, there are several routes from my home that I can choose to travel. A lot of this is the exact same information that Ramsey preaches. Ramsey is very clear that Roth ks are the way to go as you take the pre-tax benefit.

If you want you finances to be average, do what the average person does. If you want your finances to be extraordinary, you must take extraordinary measures.

You COULD rely on luck to do it for you, but if you want guaranteed success, you have to use a guaranteed plan. If you dig a little deeper Dave essentially says that steps 4, 5, and 6 are happening simultaneously. Although now he does list them in order of priority. Also the priority of college is going vary on circumstances like do you have kids and how old are they.

Another note, part of the point of the 1, emergency fund is to make you feel uncomfortable so you work your bum off to finish baby step 2. Whenever you hear him talk through specific situations on the radio, none of the rules are completely hard and fast. People who really need strict guidance will follow his rules to a T. People who feel a little more confident hopefully justifiably in their financial management skills will fudge it.

I already had more than 1, saved so I kept that, though I eventually used it to pay off my loans completely before saving up again. I also use credit cards and pay them off every month. Dave sets out the goal posts and people can decide for themselves where they want to deviate. Anything that fits into six sentences is going to be dumbed down.

Paying off your home mortgage is not a good investment decision. If you do the math, the leverage you get from a having a home mortgage turns a home into a great investment. My investment return can be calculated as follows:. Increase in home value: This is return is twice the return I would have received if I had paid for my house in full.

I suppose it might make some people happy to pay off their mortgage since it one less thing for them to worry about. It is not a good investment decision though. The reason why Dave and others advise mortgage is because they factor human behavior. Same idea as when people are happy they get a tax refund in the Spring. Some people use it as a forced method to save, because they know they will spend it if they have it.

The strategy of paying down the mortgage is for the people who need that forced discipline, which is likely going to be a majority of people seeking Mr. Remember the name of the system, Financial Peace. Peace being the operative word. No debt, no worry. You over-simplify his steps ironically. But, unless you really study his plan then this blog post is not a helpful critique. If you take his course and revise this with an accurate portrayal of his method, and your response to that, please email me or reply here.

But, 4, 5 and 6 you really need to go back and see what he says about those because you got it wrong. Again, he goes into detail in the FPU course. Additionally, there is nothing wrong for someone to make money. But there are loads of ways to learn about his program in more detail for free vs. In your alteration of baby step 3 you mentioned a month emergency fund in a ETF. But even something ultra conservative has risk.

I would love my money in a bond fund so can you help explain your rationalization here please? If your position drops below a level where you are comfortable with, you can add to the position and benefit on a recovery.

Would you please explain a bit more about your bond fund? If the principal drops from 12 to 6 months then that goes against your point of a 12 month fund. Would you please share some more reasons to have this money in a slightly risky investment and chance the loss of principal when this money needs to be protected for an emergency? I really love this article and agree with every other point you make.

I hope to learn more about your reasoning for this point. Risk is a matter of perspective. In my opinion, that is risky. Why not put your money to use and if the fund drops, backfill it so you can gain on a recovery? His plan is excellent in comparison to no plan at all. It is designed to appeal to the masses, but is not personalized for individual circumstances.

If you are willing to take parts of his advice and personalize it to your particular situation, that is going to serve you better. A couple older than 30 with zero retirement savings should not prioritize debts with low interest over starting that IRA, otherwise they miss out on all of the most important compounding years.

This is for just security purposes — an illness, a flood, your HVAC needs to be replaced if you own. While cutting expenses, you need to be wise about insuring your life. And life insurance especially if you have a spouse and kids. A lot of the goals need to just be balanced with each other. You can start retirement savings while also paying down debts.

I have known far too many kids piss away their college years and get useless degrees because someone else was footing the bill. The best gift you can give your children is the ability to provide for yourself in your retirement so they are not figuring out a way to pay your expenses while starting their own life.

You are making assumptions about his baby step plan without knowing all the facts. Unless your financial situation looks like his how can you say he is wrong about anything? This is the plan he followed himself to dig himself out of a bad financial situation.

You should be taking notes. So it is addressed. So you may want to search it out. He also talks about saving for kids college funds is based on individual situations. Lastly, the I just have to disagree on the paying highest interest rate. Near the end it was difficult to wait until the next bill was paid off, but imagine if I had done that in the beginning?!?!?

I know that you addressed it some, but there is a reasoning behind it. Like a said, not a slam on what you said, but some clarifications. Notify me of followup comments via e-mail. You can also subscribe without commenting. We respect your privacy. Your personal information will not be sold or shared. The Better Version G. January 6, 94 Comments. Keep up the good work sir.

You are 20 years ahead of me. Pop Planting Our Pennies. Andrew, Did you ever get a reply to your post? Tracie ps hang in there!

Very good different point of view here. I agree with you about having a larger emergency fund. My investment return can be calculated as follows: Stephen Comments in a couple areas: EMOTIONAL The reason why Dave and others advise mortgage is because they factor human behavior.

I laughed out loud. Keep up the good work. I am learning a ton. Thanks for your reply. Thanks for sharing your thoughts about dave ramsey. Leave a Reply Cancel reply Notify me of followup comments via e-mail.

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