Dave Ramsey’s 7 Baby Steps Review
I recently finished the Total Money Makeover by personal finance guru Dave Ramsey. It was a great read and I thoroughly enjoyed. There are certain personal finance concepts Dave teaches that transforms people’s lives. He uses 7 baby steps to lead people towards financial peace. 7 out of 10 Americans are currently living paycheck to paycheck and are financially out of shape. The 7 baby steps are a guide to get people back into financial shape like a fitness program. Here are the steps below.
Baby Step 1: $1,000 cash in a beginner emergency fund
Dave recommends a mini emergency fund of $1000 for unexpected events that may pop up in life. I personally would recommend at least one month worth of expenses or at least a full paycheck set aside. I don’t think $1k is enough in 2018 for emergencies, but it’s still better than $0 lol.
Baby Step 2: Use the debt snowball to pay off all your debt, but the house
Paying off every dime worth of debt besides your mortgage is what Dave recommends after you set up your baby emergency fund. The debt snowball method is designed to pay off your lowest amount of debt first while making the minimum payments on everything else monthly until the first debt is paid for. Then after the first debt is paid you use whatever the amount you were paying on that debt to roll onto the second lowest amount and so on until all your debts are paid. This method is designed to ignore all interest rates because of the psychological wins we feel after a small victory. I like this method and I definitely used this to tackle my debts.
Baby Step 3: A fully funded emergency fund of 3 to 6 months of expenses
I agree with this step because you never know what may happen. A couple months ago I got into a car accident and my emergency fund came in handy. Car Accident blog It’s like mini insurance for yourself. This money is not meant to be invested for the long term and should be very liquid if you need access to it. I keep my emergency fund with an online high yielding savings account that way I can’t just get to an ATM and withdraw all my money, but if I have an emergency I can transfer money within a couple days to my main checking account.
Baby Step 4: Invest 15% of your household income into retirement
I agree with the percentage of your income you should save for retirement. But I do not agree with delaying your 401k investments until you get out of debt. I believe you should always invest even if you’re buried in debt. Especially if you get an employer match because that is free money year by year.
Baby Step 5: Start saving for college
Opening up a College 529 savings plan if you have children and start saving for their future education. I agree with this step, but if your child doesn’t go to college there are penalties these plans have for withdrawing the money on non-college expenses.
Baby Step 6: Pay off your home early
Now I halfway agree with this step to a certain extent. Yes, you should pay more towards your principal to save on mortgage interest. But I wouldn’t put all of my excess funds towards paying off the mortgage. I would rather invest extra funds towards the stock market following the S&P 500 index.
Baby Step 7: Build wealth and give generously
Finally, the point of working so hard and building wealth is ultimately to give back to the world. Whether it’s your time or through donations, I think being wealthy allows you to have many options. You don’t have the luxury of giving back when your living check to check because you’re just trying to make it to next week. Wealth gives you financial freedom and that is priceless.
One thing I don’t agree with is Dave’s hatred for credit cards but I totally understand that because the average person isn’t responsible enough to pay off their credit every month. I also don’t agree with completely stripping all luxuries of your life until your debt is paid off. That literally would’ve made me go insane. Sometimes you need a drink or splurge on a hobby of yours to relieve stress. In the end, I may not agree with every step or approach of Dave Ramsey’s 7 Baby Steps to Financial peace but, I understand the message. The message is to live like no else now, so you can live like no one else later. You have to temporarily sacrifice things that you want and love in order to gain more in the future. Avoiding debt, sticking to a budget, living below your means and investing the difference are novice financial habits everybody can develop. Dave Ramsey does an incredible job of getting people out of debt. You can transform your life and financial future starting today!! It’s all about your choices and discipline. It has to start from within.