Know what really gripes me? Being treated like a baby. So, guess what I think about the Dave Ramsey Baby Steps racket.
I would call it a joke, but I'm not laughing.
It's not funny to gain the trust of people and then give them rotten advice.
And I'll tell you right now that Dave Ramsey didn't get where he is today taking baby steps.
He got there by telling everyone else they were babies… and they bought it! (Along with a slew of his equally ludicrous books.)
The BS of Baby Steps
To me, the Dave Ramsey Baby Steps are BS.
Why these so-called experts insist on making the simple complex is not beyond me though.
They want to make investing for retirement sound more complicated than it really is.
That way, Dave Ramsey can keep you a baby.
First off, if he is preparing you for retirement, he's doing a lousy job.
Seriously, in his list of 7 Baby Steps, you don't start thinking about retirement until Step 4?!?
Just over halfway through his steps and now he's talking retirement?!?
Check out the first 4 Dave Ramsey Baby Steps and let me dismantle them for you.
- Save $1,000 for your starter emergency fund.
- Pay off all debt (except your home mortgage).
- Another emergency fund, called the fully-funded emergency fund, requiring 3 to 6 months of living expenses.
- If you made it this far, Dave so kindly lets you start saving for retirement, asking you to plop 15% of your household income into it.
Baby Step 1 BS
Yes, you need an emergency fund, no doubt about it.
But that is a pretty broad brush Dave is painting, saying EVERY American household has the same financial needs.
And that $1,000 is the perfect emergency fund for BOTH a young couple starting out and a family with four kids.
Every family needs an APPROPRIATE emergency fund, but don't depend on Dave to tell you what's appropriate.
Baby Step 2 BS
This one really steams me.
Again, Dave is being very simplistic, using another broad brush.
Of course, you don't want to be neck-deep in debt.
And if your debt got out of control, make a plan to wipe it out.
But tell me this… if you have a car loan at 4% but you know of an investment paying 12%, where should your money go?
Absolutely invest it to earn 12% and slowly pay off that cheap 4% loan!
Put your money where it can perform the best for you.
Baby Step 3 BS
Here we go again with Dave and his obsession with emergency funds!
This one he calls “fully funded” and wants you to wait on investments until you've socked away 3 to 6 months living expenses.
At least he didn't set a firm price tag like in Baby Step 1 BS.
Let's do a quick math calculation on how much longer Dave wants you to wait until he lets you start your retirement plan.
Most people live month to month, but even those able to put away money for emergency and retirement needs don't have that much extra.
Let's be generous and say the Jones family, a household of four, has combined earnings of $5,000 after taxes.
But after the mortgage payment, car payments, health and auto insurance, utilities, food, clothing, school expenses, and miscellaneous, they find themselves left with $1,000.
So that means their living expenses run $4,000 a month. Multiply that by 6 months and you have to put aside another $24,000 (and taking 2 years at $1,000 per month!) before we go to…
Baby Step 4 BS
Now, two years later, Dave finally “let's” you start your retirement plan, telling you to put 15% of your household income into it.
That seems like a good number, but if we're still with the Jones family and still using the same number above, they have $1,000 extra to put away.
But wait! That's 20% of your household income.
Dave says it's 15% and since you are the baby, you better listen!
So instead of saving $1,000 a month, he wants you to save $750.
Good job, Dave.
Enough of the BS Baby Steps!
I tell you what.
Dave may be a good writer (I don't know, I haven't wasted my money on his books) and a popular radio show host.
And who knows, maybe he's great with babies, changing diapers and all, but his advice stinks!
And this is the guy who wants to guide you into 401(k) retirement plans?
In response, I say enough of Dave Ramsey Baby Steps and outdated advice!
If you don't already know that 401k's are a trap, it's time to clear up that fallacy as well.
But more importantly, let's dispense with the nonsense and start with common sense.
First, if you have debt and want to invest, do both!
There is no law making you pay off debt first (except for Dave's law, but I think that has now been properly shredded).
Second, use debt to your advantage.
If you find loans costing less than what you can earn with that money, get that loan!
Even Warren Buffet (not that he needs it!) knows to take out a second mortgage on his home if the rates are right and the investment opportunity is ripe.
Third, use your head when paying off debt.
Always start with the high-interest rate debt and credit cards.
Then go down the line, always focusing on eliminating the most expensive debt you have first.
Fourth, invest as much as possible for retirement.
Commit as much as you can to the future.
If it's 10% of your income, great.
If it's more, even better!
And you know what, soon you'll find yourself cutting out useless and costly frills and splurges as you are inspired by that growing retirement fund.
Meaning, you're really going to have a great lifestyle in retirement.
The style you planned and invested for.
Not some stupid story about baby steps.
Ready for more?
Start here with an exclusive video explaining how we invest for income, your own ‘Fill In The Gap' retirement planner, plus an income investment idea we literally give away FREE to get you started down the path… with big steps!