By: Mark, Updated on June 28, 2021

Introduction: Dave Ramsey Baby Steps Gone Wrong

How dare I suggest you ignore the godfather of personal finance’s advice!

Look, the Dave Ramsey Baby Steps make a good baseline, but I just don’t agree with his generic approach.

Let’s jump right in and look at his steps and how I may see things differently.

Baby Step 1: Save $1,000 for Your Starter Emergency Fund

Having an emergency fund is important, but $1000 dollars is just way too small in 2021! Dave has good intent here, but your goal should be to save 1-3 months of expenses instead of just a static $1000.

This is where my first problem with these steps starts, it’s generic and not built for you.

In the case of a real emergency, how far would $1000 get you? That amount doesn’t even cover my rent. Where would you get the extra money? Get ready to pull out that credit card and add to that balance, again…

A real emergency, like losing your job, getting into a car accident, replacing your AC unit usually comes with a high price tag and that is why $1000 is not enough.

Baby Step 2: Pay Off All Debt (Except the House) Using the Debt Snowball

This step is probably the most controversial of all the things Dave preaches. The debt snowball approach versus the debt avalanche, which is better?

My answer to this is dependent upon your situation. If you have ten high-interest rate credit cards of various balances and six student loans with various balances and low-interest rates, which would you pay off first?

With the debt snowball, you would order them from low to high balances and pay them off. Dave talks about the mental benefits of being able to pay off your small debts quickly.

The debt avalanche method would order your debts by high to low-interest rates and pay them off in that order. The avalanche crowd sees things purely from a mathematical standpoint and how in the long run you will pay less interest.

Both approaches have valid points, but there is an important piece of the big picture that is missing here and that is the tax deductions of certain loans.

Types of debts that can be deducted are mortgage interest credit, business loans, and student loans.

Since interest on student loans is tax-deductible, I would rather pay off my credit cards first and then focus on my student loans. I get zero benefits from having credit card debt, but at least there is some potential benefit from my student loans.

Most of us are not able to pay off thousands of dollars worth of debt overnight so why not delay paying off the debt that has some benefits. I can guarantee you, most millionaires look for all the tax deductions they can get.

Note: I am not a tax accountant, please refer to a professional if you want specifics around your taxes.

Baby Step 3: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund

I think it is appropriate to start step 3 before your finish step 2, but only after you have paid off your non-deductible debt.

If you have some debt that provides you with tax deductions, then I think it would make sense to start building up your emergency fund to create a financial buffer in your life when lightning strikes. The reason I am okay with starting this step early is that lightning will strike at some point in your life and the last thing you need is a weak emergency fund.

I differ from Dave in that I prefer to have 6-12 months of expenses covered in my emergency fund. If you lose your job and only have 3 months of emergency funds, you will probably feel a lot more anxious than if you had a minimum of 6 months.

This is especially important today as technology is replacing workers at an increasing rate. It could take you 3 months to just learn a new skill that is marketable in the job market!

Baby Step 4: Invest 15% of Your Household Income in Retirement

Do you want to get rich in 40 years? Invest 15% of your salary. To read my thoughts on investing click here! I will show you how I automated my investing and how it naturally grows.

I think the important part of this step is to focus on your income. Your goal should be to build multiples streams of income. The average millionaire has multiple sources of income, look here for a list.

Diversify your income and focus on building up your business.

Let’s be honest, Dave didn’t get rich from working in corporate America instead he focused on building up multiple streams of income and his personal brand!

I think we should consider doing the same.

Baby Step 5: Save for Your Children’s College Fund

You have 17-18 years before your child enters college, take advantage of that time. Avoid high fees in these types of accounts, unless you want to put your fund manager’s kids through college and not your own.

Do you want to save up for your child to serve a mission for your church? The same concept applies here, take advantage of time.

Baby Step 6: Pay Off Your Home Early

I think the more important lesson you should learn is to buy a home at a discount and try to build equity much faster than buying a house at market price (which is already overvalued) in the 2021 real estate markets.

Sadly, many people end up buying their first home and locking themselves into high mortgage payments that they don’t have any additional income to invest in a business, retirement, or self-development and their homes become their retirement plan.

DO NOT LET YOUR HOME BECOME YOUR RETIREMENT PLAN.

This is the easiest way to ruin your plans of becoming wealthy, so do your research and don’t rush the home buying process.

I will have to write a post on this topic at a later date, in the meantime check out this post by Bigger Pockets!

Baby Step 7: Build Wealth and Give

Building wealth takes time so focus on building your income quickly and investing your income just as fast. Then one day you will be able to walk away from your job and focus on things that matter to you, whether that is serving in your church or your community!

The real joy in life is in giving, props to Dave for focusing on that point here!

Conclusion: Personalize The Steps

The title was a bit clickbaity, but my point here is that these baby steps should be customized to your needs. This is a long-term journey, and you may not experience financial freedom for 10 to 20 years so you better have a plan of attack that is specific to you!

Comment below what advice of Dave Ramsey you disagree with or have been positively impacted by!