Dave Ramsey is one of those guys that inspires lots of love or lots of criticism in the personal finance world. Some people swear by his methods in the Total Money Makeover, some disagree with his step-by-step plan, and some are turned off by the religious overtones in his writing or the draconian line he draws on credit card use.
I don’t know much about Dave Ramsey and I never felt compelled to do so. But lately, looking at our situation – and our increasing spending, I wondered if the motivation to really accelerate our savings is all that different from the motivation to pay off debt. If Dave Ramsey can inspire people to pay off $40,000 of debt in a year on a $60,000 salary (HOW is that possible?), might we not be inspired to do the same in terms of our savings? And this savings will go directly into our graduate school payments, which means that we will not have to take on as much debt for school. Which sounds fabulous.
Dave Ramsey’s 7 Baby Steps are as such:
- $1,000 in emergency fund – Check!
- pay off all debt with debt snowball – Nope, we both have low-interest and no-interest debt, but I’ve decided that those are not high priority enough for us to defer our other goals.
- 3-6 months of expenses in savings – Check!
- invest 15% of income for retirement – Check!
- college funding – This is the one that we REALLY want to work on. But instead of college for our kids, it will be graduate school for ourselves. Looking at the steps it’s clear that that’s where we need to be.
- pay off home early
- build wealth and give
How do you feel about Dave Ramsey? Any debt-free folks continue to follow his 7 step plan?
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I am definitely in the yay for Dave Ramsey camp, although I do not like some of his views. I have a credit card, which I pay off in full every month, so I sort of just ignore his stance on them, but I find that he gives me the kick in the pants to work hard that I need most of the time.
However I do find, not just with Dave Ramsey, but other financial gurus as well, that their advice is not really tailored to my living situation. For example, when I was saving up for law school last year, I had a hard time trying to figure out what baby step I was on. Technically I was ready to purchase a home and fund my non-existent kids' retirement, but in real life I was about to spend $150,000 on law school.
I did basically the same thing that you outlined above, but just organized it a bit differently. I chose to look at my law school expenses as debt, since that is what it was about to become, and put it into my imaginary debt snowball. So, I needed to save $X for textbooks and $X for rent and $X for tuition. And as I save up money into my law school account, I cross off those "debts".
After I'm finished with that, I will move on to building up my 3-6 month emergency fund.
I like Dave Ramsey because his steps are clear, but I loathe how much he brings religion into the equation. I just try to take the good parts from him and ignore the rest.
I'm a huge Dave Ramsey fan. Honestly the religious aspect was something that held me back a little bit. I was never very religious, raised Catholic, but had some significant "downtime" through college and a bit after college. What I like about the religious parts of what he talks about is that it's very "down-to-earth". It's not the kind of religious message that I knew growing up and pictured in my mind. Dave's teachings are based on the practical parts of the bible that I never really knew existed.
I think the basis of his seven baby steps is focused intensity. He argues that personal finance is vastly controlled by behavior, not math. So by focusing on one step at a time, e.g. attacking debt, you'll have a greater chance at long-term success. Although my "attack" has been reduced since starting my PhD, which I'm earning without student loans, I can attest that I had huge success paying off one of my credit cards by making THAT my goal. I got away from the bounce from one card to the next and decided to get rid of my card with the lowest balance, bye bye Citibank!
I personally am really motivated by his "draconian" view on credit cards. I can't wait to no longer be a slave to the lender and get rid of my only remaining credit card, AmEx!
I don't really like the aspects of Dave's teaching that make him unique but I do like the results that his program generates in his target audience. I actually wrote a post last week on how I feel about his program (in my link).
We're not following the baby steps but if we were we would be stuck somewhere among steps 2 to 4. We also skipped ahead to retirement savings while we have 0% interest debt. We don't have 3-6 months of expenses saved and probably won't for a couple years.
I guess i hadn't read the last step before (I usually hear Dave/people say six steps) but I think it's strange he explicitly says to give in step 7 and not before. I'm assuming he means give MORE once you reach step 7 because I know he encourages tithing throughout the process.
Ramsey is worth reading but seems mostly aimed at people lost in serious financial trouble. Hence the 'baby steps' concept.
my only real objection is that he is way off base on his 12% expected annual returns. What he has done is take an average over decades and present it as a realistic annual expectation.
Over an extended period opt your wealth building, provided you have the courage to stay invested during the gut wrenching drops, you can indeed expect 10%+ returns. (Ramesy’s 12% is an outlier)
but once you are pulling money from your investments, you need to be far more conservative.
12% seems VERY bullish, especially if you are investing in index funds like we are. I do like his clear step-by-step process… and he does seem to motivate folks.
I like Dave Ramsey. I thinks his steps keep people in debt payoff encouraged because those 'small wins' really do give you motivation. Even his religious influx doesn't bother me because it's stuff about being a better person, giving back and helping. Even if one is not 'religious' per say, what is so wrong with those teaches? Just cut the specific religious terms out if its a bother, but the message overall is positive.
The only thing I don't think is really possible for most people is living without borrowing. Most people won't be able to buy a home with cash, so while I do agree that one should save as much money as they can in order to put a substantial amount down, I think mortgages are fine. And credit cards used responsibly are fine because let's face it, most people need that FICO score.
I also like Dave Ramsey for his debt relief thinking. Paying off any debt should be celebrated but saving money needs to be taken into perspective as well. One thing that I also believe highly in is life insurance so that should something happen to me, my family will not have to worry.
Dave Ramsey seems motivational for people who are in serious financial trouble. The problem with many of these books, though, is that there's a lot of life between your last debt payment and having $5 million in the bank (or whatever sum he claims you can get by investing at 12% per year — which yes, is a total outlier. Actual inflation-adjusted market returns are more like 6-7%, and percentage points matter a lot in compound return calculations). I also wonder why it seems like many financial gurus need to be born-again to wise money management. Ramsey talks a lot about having his utilities turned off and other such indignities. I guess this is supposed to be motivational, too. He was once having to sell his car, and now he drives a Jaguar again! (that he got a deal on, of course).
Dave Ramsey rocks, in my world. He inspired me to kick debt out of my life and get serious about my financial future if I wanted to "live like no one else, someday." To me, his baby steps seem to make a lot of sense. I have had trouble following them to a "T", but never the less, I've managed to make it past baby step 3 onto where I am now, baby step 3b. This step is optional, where I choose to save for a house down payment before I start retirement. I may actually continue this step until I have 100% of the down payment. This isn't necessarily against his baby steps, but is certainly questionable to both Dave and outsiders, whether it's a good idea to delay retirement for that long or not. I am committed to doing it either way. Regarding Dave's style, I think it's one of a kind in the personal finance world. I haven't seen anyone motivate and inspire like Dave. No one even comes close in my opinion.
I think Dave Ramsey's steps are quite solid. I'm not quite there are on a few of these, yet, but these aren't impossible goals.
I love listing to Dave Ramsey's radio program though I don't actually agree with everything he says. He kicks me into shape about getting rid of all debt, but I just can't bring myself to cut off my retirement contributions and I don't think $1,000 is enough for an emergency fund. We're paying off our very low interest student loans (some of the loans are deferred while in graduate school) while we contribute 15% to our retirement, which is more in line with Suze Orman. But I have having the student loans and as soon as we have six to eight months of emergency savings, we'll start attacking the student loans.
I have a love/hate relationship with Dave Ramsey. I love that his plan is so simple and easy to follow, plus the steps are logical. But I don't like the one size fits all approach he seems to take. Regardless of a situation, he dispenses the same cookie cutter advice.
I ignore his political rants and religious overtones. They don't bother me but I'm not there for that kind of advice.
Love his podcast. His steps are a good direction, but I like to stick with straight math over emotions for finance stuff. I would never turn off 401k contributions to focus on debt. And I would pay highest interest over smallest balance. It's just better math…
I don't think they're BABY STEPS per say – but I love his guidelines and steps to success
I like Dave's snowball debt pay off. However, we went a completely different route of paying off our debt. But I love the snowball idea. His 1K emergency fund sounds reasonable too, however, I always felt that we needed at least 2K. I think nowadays 1K can be gone really fast.
I like listening to Dave Ramsey. He keeps me motivated. I don't agree to some of his advice but think he is a positive influence on people overall.
I like listening to Dave's podcasts on the train on the way to work. Although I don't agree with everything he teaches (no credit cards, not buying a house unless you can do so with a 15 year mortgage etc.) I do think that his principles are very effective (and life changing) for a lot of people. Obviously he needs to make hard and fast "no credit card" rules or else people will less self discipline would think it was OK for them to use cards. I would imagine the readers who frequent personal finance blogs already have the wisdom and self control to use their credit cards wisely and pay them off in full each month. Ditto on the 15 year mortgage "rule". Obviously a 15 year mortgage is great if you can afford that, but in higher cost of living cities where the cost of home is much higher, a 30 year mortgage is the only way that most people can afford to buy a home. I guess I follow Dave's plan with my own twist.
I've been listening to Dave Ramsey for three years, as much for entertainment as for financial advice. My wife and I save more than 20 percent annually for retirement, drive older cars that are paid for and carry zero credit-card debt. We already had frugal beliefs, but listening to Dave has given us new motivaion to act on them. And no matter what you think of Dave's religious or political views, he preaches a tenet of personal finance that most Americans need to hear: don't try to continually live on more than what you make. As a nation, the last 20 years have been ruinous to so many lives and families because of excess consumer and housing debt. We were told in the 1990s — I remember when I used to get 4-5 credit card appplications a week — that constant debt was good and even desirable. For individuals and the nation as a whole, that's a lie we're now paying for dearly. All Dave does is remind us that this doesn't have to be. We can save, pay as we go and enjoy the good things in life — but only when we can rightly afford them. Further, we can have enough extra to help those less fortunate, which will make us happy in ways that unbridled consumerism cannot.
I think Dave is great for some people who are not so smart with money. He shows people that you don't have to try to live like everyone else, but rather their is a better way to live. Live debt free, and don't allow debt to ruin your life.