Dave Ramsey’s Baby Steps: The Better Version

Dave Ramsey – that guy is extreme, man! He wants you to sell your extra cars and pay off your leases and stuff…

As a personal finance writer who isn’t always open about the fact that he is a personal finance writer to new acquaintances, I occasionally come across gems like this about mass market personal finance “gurus” like Dave Ramsey and Suze Orman being extreme.

The result is that I’ve almost entirely bitten my tongue off.

Of course, even my loyal readers think I’m a bit extreme at times. I once received an unintended “reply” to one of my email updates instead of a “forward”, where the sender made the comment,

You might find this email (and his website) interesting. This is a 20-something yr. old guy who writes a lot of good articles.  I will have to admit he does over-do the cheap-skate business sometimes…

There we go again with that cheapskate name-calling. Seriously though, one of my prouder moments as a personal finance writer.

But, this article isn’t about me, it’s about the de-facto face of personal finance, Dave Ramsey.

Dave Ramseys baby steps

Speaking of that face…awwww… look at it! Isn’t he cute?! 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!!!

Who is Dave Ramsey?

If you’re not yet familiar with Dave Ramsey, where have you been? He has a syndicated radio show on hundreds of stations nationwide, a plethora of books, popular YouTube channels, constant appearances on Fox News (after having his own show on Fox Business), Sean-Connery good looks, and all kinds of high priced online courses and seminars (e.g. “FinancialPeace University”) that you can find out more about at his popular website, ramseysolutions.com.

He’s made millions preaching his 7 baby steps. So many millions, in fact, it allowed him to buy this 13,307 square foot compound, valued at $10 million+ – twice that of the home of his neighbor, LeAnn Rimes. His 1,454 square foot garage is bigger than my entire home.

Dave Ramseys house

Best part? His reported $1,285 monthly electric bill almost matches the combined TOTAL living expenses for my wife and I. An environmental steward, he is not.

Dave and I have a bit of a history (I’ve written about him once and he has no idea who I am). The fifth post ever on 20somethingfinance (and one of the most popular to this day) was a disagreement with Dave Ramsey’s view on credit cards, which I think is short-sighted and actually a bit extreme.

But his very popular 7 baby-steps? Extreme, they are not.

Dave Ramsey’s 7 Baby Steps

Just about everything Dave Ramsey preaches can be distilled down to his “7 baby steps”.

So, I thought I’d highlight each of the mega personal finance icon’s steps and my slightly more universal and enhanced versions.

First, here’s an overview of Dave Ramsey’s baby steps:

  1. Save $1,000 for your starter emergency fund.
  2. Pay off all debt (except the house) using the debt snowball.
  3. Save 3–6 months of expenses in a fully funded emergency fund.
  4. Invest 15% of your household income in retirement.
  5. Save for your children’s college fund.
  6. Pay off your home early.
  7. Build wealth and give.

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. The average U.S. personal savings rate is 4% and average net worth for heads of household under age 35 is $3,662, for the record.

Of course, if you’re going to buy $10+ million homes like Dave Ramsey, or maybe just settle for financial independence and a small home that’s paid off, you’re going to have to do better than average.

Here’s my take on each of Ramsey’s baby steps and how you can do a little bit better.

Baby Step 1: Save $1,000 for your starter emergency fund

I agree that establishing an emergency fund should be a priority. However, $1,000 is very low. Most major auto repairs will cost you more than that. Any reasonably set home insurance deductible will cost you more than that. Major medical emergencies (and the deductibles that follow) will almost always cost more than that. The goal is to avoid debt or running out of money when emergency strikes.

#3 calls for an expansion of that emergency fund, but I’d plan on saving $3,000+ in starter emergency savings (more if your monthly expenses average higher than that) before moving on to #2.

Baby Step 2: Pay off all debt (except the house) using the debt snowball

If you’re not sure what the “debt snowball” is, Ramsey suggests paying off your smallest debts first, regardless of interest rate. His reasoning is stated as this, “The point of the debt snowball is simply this: You need some quick wins in order to stay pumped up about getting out of debt!”

I’m a numbers guy. Unless we’re talking about a huge difference in debt balances (e.g. $500 versus $100,000), I think it makes the most sense to pay off your highest interest debts first. 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. This is even more true today now that interest rates have gone up and mortgage rates have followed.

Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund

12 months should be the new standard for emergency funds, with 6 months being the absolute minimum.

Dave goes on to say, “Keep these savings in a money market account. Remember, this stash of money is not an investment”. I completely disagree. Invest those funds in something conservative like a bond ETF (bonus points if you make it a commission-free ETF) or an i bond so that inflation doesn’t eat at your balance. If the market tanks and your balance drops below 9 months, look at it as a buy opportunity, and replenish it. If the market goes up, you’ve just increased your emergency fund.

Update: now that many money market funds have increased to 5% rates, I think they are a fine solution for emergency funds for the time being. But you should still aim for more than 3-6 months.

Baby Step 4: Invest 15% of your household income in retirement

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.

First, why stop at 15% if you can go further? How much should you save? As much as you can! Income fluctuates, and the goal should be to save as much as you possibly can, and nothing less.

Dave does mention taking advantage of your employer’s 401K match. I mostly agree with that. Get your employer’s full match first, potentially up to the maximum 401K contribution, before you look at IRAs. But then Dave suggests a Roth IRA. I think Roth IRAs are overrated, and it should not be a given that you invest there next (an HSA could be far more advantageous, for starters).

Baby Step 5: Save for your children’s college fund

Dave doesn’t get in to specifics on how much you should save for college, what percentage of your kids college you should pay for, or any other particulars. It’s just assumed that you should save for your kids college (because everyone goes to college) and that you should pay for it.

I’ll call this one incomplete. For starters, the U.S. birth rate is in decline and not everyone is having kids these days. And my personal view is that college isn’t right for everyone. And for those who it is a good fit for, they should pay at least half to learn personal responsibility.

Baby Step 6: Pay off your home early

More assumptions. Not everyone should own a home – particularly in very high cost locales where the home price-to-rent ratio is far above the national average. If you do, paying it off is a great thing (if interest rates are modest or high). And should this step come after funding your children’s college? Doing so increases the amount of interest you’ve paid significantly.

Baby Step 7: Build wealth and give

OK. Making money and giving it? Who can argue with that?

That smile won me over, I guess.

Dave Ramsey Baby Steps Discussion:

  • What do you think of Dave Ramsey?
  • What do you think of Dave Ramsey’s baby steps?
  • How would you improve on his (or my) baby steps?


  1. Mike
    • Nick Hovious
    • Brock Andrews
      • ED
        • Robert
          • Mike
    • tannis
      • Scott
        • Isaac
      • LKS473
        • Warren
        • Alice
    • Alexis
    • Mark
      • Rick
        • scott
          • tebici
  2. Frank Pipitone
  3. Danielle
      • Alan
        • Mark
    • Alexis
    • Alexis
      • Alexis
  4. Clint
    • Dave
        • George P Burdell
          • Nick Hovious
        • Warren
          • tebici
          • Warren
          • Warren
  5. JP
      • KC
      • Thomas
        • Mark
          • LKS473
      • Shoshannah
          • Rick
          • Alice
          • Alison Wells
  6. mdenis39
  7. David Schneioder
  8. Mommynator
    • Mary
  9. Hannah
      • Andy
      • jim
  10. warren
    • LKS473
  11. Andrew
  12. Brian G
  13. Mr. Pop @ Planting Our Pennies
  14. Nicholas
  15. ross
    • David Wahl
      • Daniel Riffle
  16. Blake
    • Sarah
  17. Andew English
    • Tracie
    • Sincerely
    • Lyn
  18. Warren
  19. Ashley T.
  20. Kevin R
    • Warren
  21. Jennie
  22. Mark
  23. Kody
    • Kody
  24. Mark
  25. tebici
  26. Stephen Embree
    • scott
    • Rick
      • Lyn
  27. Sofia
  28. Bruce
  29. Ryan
  30. Rick
      • Rick
      • Rick
      • Liza L
  31. Bruce
  32. Bruce
  33. Bruce
  34. Dima
  35. Jennifer R.
  36. Nyetta Abernathy
  37. Dusty
  38. Liza L
  39. Mike Macan
  40. Sarah.
  41. Nick
  42. GM Ellis
  43. Carrie Plank
  44. Heather Lender
  45. Hayden
  46. Anonymous
  47. Rebecca S
  48. Vern Gregory

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