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Evaluating Dave Ramsey’s Total Money Makeover — Which Baby Step is Right for You?

Dave Ramsey is a hot and controversial subject online. To some he’s the guru who saved their lives, to others he’s annoying, simplistic and illogical. I tend to fall on the side of liking him, but I can see why some people don’t.

I discovered Dave Ramsey on the blogosphere and quickly read his Total Money Makeover and skimmed Financial Peace. We put some of his principles to work, though because of the length of our debt-repayment, we’re not quite gazelles.

When the M-Network did their series on his famous baby steps, I started thinking of Dave in a different way—not just as someone for those in debt but as someone who offers solutions for various steps along your path. He’s not just for those in debt, but also for those looking to escape the cycle of living paycheck-to-paycheck.

So what I’m doing here is dividing up Dave Ramsey’s baby steps with starting points for people at different stages of their financial journey. And so I don’t have to cover as much in this piece, I’ll be linking to the M-Network articles which more fully explain and evaluate each step.

Starting Point for Those in Debt

You’re in debt and you don’t see a clear or simple way to get out. Or maybe you’d just like to find a program to follow, one that’s worked for other people. Then this is the best place to start. (People with only mortgages start down with those living paycheck-to-paycheck.)

Baby Step 0 — No more debt

Before beginning the program, you have to swear off debt. You will not incur new debts and you’ll dedicate yourself to getting rid of it. Mortgages are a gray area.

Ana at DebtFREE-Revolution and Single Guy Money both covered this step.

Baby Step 1 — Emergency Fund

Begin with a $1000 emergency fund. This is to defend yourself against what Dave Ramsey calls “Murphy.” Because Murphy’s law says that if something can go wrong, it will. So you protect yourself against emergencies. Guard this fund jealously, don’t spend it on non-emergencies like dinner out.

Gather Little by Little (Gibble) shares his emergency fund strategies. He’s had to learn important things, like how much his family really needs in their fund and where to put it.

If you have a hard time coming up with this money, try PaidTwice’s snowflaking method. Instead of using your snowflakes to pay down debt, put them in a special account to build up your emergency fund.

Baby Step 2 — Use a Debt Snowball to Pay Off Your Debt

The debt snowball is a way of organizing your debts so that they get paid off faster than if you did the minimums only. It helps you knock out one debt at a time, which feels so good! While not everyone agrees with Dave Ramsey’s method of organizing the debt snowball, the snowball itself is a much better way to pay off debt than haphazardly throwing extra money at randomly chosen debts.

PaidTwice covers Dave Ramsey’s version of the snowball and explains why she does hers differently and how.

For Those Living Paycheck-to-Paycheck

If you want to build wealth but are living paycheck-to-paycheck, this is where you should start in the baby step game. Or if you have debt but it’s only your mortgage. You’ve already committed to baby step 0 of not acquiring new debt and staying current on all your bills. Keep that up!

Baby Step 3 — Fully Fund Your Emergency Fund

Whether you were in debt and had that thousand dollars or you’re just starting, this is the time to build 3-6 months worth of living expenses in an emergency fund. It doesn’t have to be the same as your take-home pay, but rather what your family needs to live.

If you just finished debt repayment, simply turn your debt snowball this way. If you’re starting out, begin your savings snowball or snowflake it if you have to. This is still the point in the game where you’re living without a lot of nice things to get yourself set.

Lynnae of Being Frugal explains some of the reasons behind using a real emergency fund (vs. your 401(k) or HELOC) and her thoughts on what to do with it.

Baby Step 4 — Invest 15% of your income into Retirement

Ok, you’ve finished protecting your present, now start protecting your future. You can use your former savings snowball money to make this happen.

The Dough Roller has some advice on retirement accounts and shows you pretty pictures of how your money will grow. Yay!

Baby Step 5 — Start Saving for Your Children’s College

If applicable, help your kids avoid one of the biggest debt pitfalls out there—student loans. I’m immensely grateful that my parents and grandfather helped me (plus lots of scholarships). This comes after retirement savings because you can’t borrow money for your retirement and it’s much tougher to work your way through it or go without.

David of My Two Dollars covers this step and points out that there’s nothing that says a parent has to pay for their child’s education, but it’s great if you can help.

Baby Step 6 — Pay of Your Mortgage Early

Probably the most controversial step. I’m going to let Pinyo handle this one at Moolanomy. He shows both sides of the issue and why each one might be appealing. There are a number of other bloggers who’ve covered this, so when you’re at this step you can look around and see what’s right for you.

For Those Who’ve Built Wealth

Whether you did the other baby steps or just started here (and if you’ve build wealth without saving for retirement/children’s college, consider going back to those steps), Dave Ramsey has advice for you. He believes that eliminating debt and building wealth aren’t the end-all be-all.

Once you’ve built wealth, you should live and give. If you keep living in a way that makes you miserable, then there’s really not much point in being out of debt, you’re still unhappy. Rather, live responsibly so as not to waste your money but as to maximize it.

Keep investing, not just for your retirement but as a way to build wealth.

And give something back. Ramsey believes strongly in giving. For him, that’s motivated by his faith, but you can have all kinds of reasons to give. Before, you might have felt the pull between giving generously and paying the bills. Now that you’ve built wealth, you don’t have to worry about that.

Plonkee deals with this step and offers some sage advice:

You will always need to live within your means and save for a rainy day. Even if you feel that you have enough money so that you never have to work another day in your life, you won’t have it for long if you spend more than you earn, or you don’t replace the emergency money you use when your boiler breaks down or the cat gets sick.


Now, more than ever, you need to evaluate what you really want out of the rest of your life.

So there you have it. I don’t think Dave Ramsey has all the answers for everyone. But I think that his plan is quite right for a number of people. If you like the plan but don’t feel you can muster the intensity, that doesn’t mean you can’t follow it…just do the plan instead of reading all his books, listening to his show, hanging out in his forums.

On the other hand, I think the passion he generates in others is valuable for a lot of people who need the motivation and support to get out of deep debt. In that case, go all in!

And remember, just because you’re not in debt doesn’t mean Dave Ramsey isn’t for you.

{ 4 trackbacks }

Single Step Personal Finance Challenge
July 14, 2008 at 11:01 am
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August 13, 2008 at 11:15 am
* Dave Ramsey’s Baby Steps Explained
April 26, 2009 at 2:06 pm
Dave Ramsey’s Baby Step 6: Pay Off the House Early
November 16, 2009 at 11:19 am


Glblguy March 11, 2008 at 9:21 pm

Very nice Mrs. Micah, excellent approach. I personally am very found of Dave.

Fiscal Musings March 11, 2008 at 10:23 pm

From what I’ve read I don’t really care too much for Dave Ramsay. Not that what he says doesn’t help a lot of people, but I don’t really agree with all of his advice. I don’t fear every and all debt and think that debt can be used quite wisely and effectively to build wealth.

I do think it’s great though, that his advice has helped so many people improve their financial situations.

ms. m&p March 11, 2008 at 10:51 pm

Great post! I’m on the emergency fund baby step 😉

Debt Free Revolution March 12, 2008 at 12:33 am

Dave Ramsey’s baby steps are indeed rock solid financial advice. I breezed through baby step one, then took 14 months to slog through babys tep 2. Now it’s onwards and upwards in baby step 3, then the big investing!

dawn March 12, 2008 at 12:55 am

Hubby and I are on babystep 6 and can’t wait to get our mortgage eliminated – 8 more years left!!! I think the psychological benefits of having that gone will be fabulous!!!

plonkee March 12, 2008 at 3:26 am

I’m not a Dave Ramsey fan for various reasons, but (as explained by Mrs. Micah) I am actually inadvertently following baby step 4 – working up to having 15% per month going towards my retirement.

I think I’ll take a pass on steps 5 and 6, and go straight to 7 after that though.

kentuckyliz March 12, 2008 at 8:34 am

I’m a Dave fan and still disagree on a few points. He thinks you can just pay for college, and shouldn’t go if you can’t. He doesn’t know enough about the subject and is preventing people from qualifying themselves for higher paying occupations which makes a huge impact on the bottom line over time. One person is thinking about forgoing pharmacy school because DR has her hating student loan debt so bad. That’s a six figure income! If everyone followed that bad advice, there’d be like five doctors in the USA.

Do your best to avoid student loans, but if you need them to qualify for a higher paying occupation, bite the bullet and do it. You can always live like a college student when you’re done and pay them back fast if you hate them so much. You’re investing in your future income which is your most powerful wealth building tool!

He knows nothing about loan forgiveness programs for certain service and health oriented occupations, and he never recommends people go to work for a college with tuition remission benefits to pay for their own or their kids’ educations. He doesn’t ever recommend National Guard service (which will provide a tuition waiver to cover public institution tuition).

Also, I think it’s OK to pay off the mortgage by retirement and invest instead–greater returns, more wealth-building power. Opportunity cost: why invest in your mortgage at 5% when you can invest in equities at 10-12%? Your house appreciates in value at the same rate no matter if you’re carrying a mortgage, making extra payments, or have it paid off. You can’t easily get money out of a house during a crisis without selling it; but you can liquidate investments and keep the house. You lose a lot of liquidity. That house payment starts out feeling like a burden but with rising income, the payment over time becomes ridiculously cheap.

DR is really good at motivating people who are just getting their house in order, who need self-discipline, who are in crisis. No other PF guru serves this audience well at all.

Christine March 12, 2008 at 10:00 am

[note: this comment is irrelevant to this post]

Have you heard of the Dewey Donation System? It’s a book/money drive for libraries in need — this year, for one in Jamaica and one in LA. I think it’s a tremendously worthy cause.

Check it out at .

Debt Free Revolution March 12, 2008 at 10:28 am

Liz, that would be me. I am also looking at time in school vs time in the workforce, in addidition to organic chemistry killing my GPA this year. And I had student loans in the early 90s, and know those things never die (or at least it felt like they didn’t). I can always go back to school after a few years in the workforce. I just spent 14 months crawling out of debt, and am not eager to go back into it.

I guess I should get one of the really good number-crunchers to work out where the break-even point would be.

Cath Lawson March 12, 2008 at 1:05 pm

Hi Mrs M – This is great advice. I’ve heard about Dave Ramsey, but I haven’t read his book yet. It sounds like a good plan though.

Would you recommend the book? Does it have a lot of additional info on how to do this stuff?

Mrs Micah's Mom March 12, 2008 at 7:15 pm

Hi MrsMicah,
I’ve occasionally listened to a personal finance program on WDAC that has some of the same baby steps, though on a different basis. Have you ever looked at their stuff Are they alike regarding things like strict avoidance of student loans?

mrsmicah March 12, 2008 at 7:34 pm

Hi Mommy. I’m not very familiar with Crown, except for hearing some of their radio stuff back when I was living with you. I found something in their online library which says student loans should be a last resort–which I agree with.

wealthy_1 March 12, 2008 at 7:59 pm

I like Dave Ramsey because his approach is practical and methodical. The baby steps are like a check list. I also like his philosophy of paying off a small debt to boost self-confidence. I did that, and it really did boost my self confidence.

Fielding J. Hurst April 8, 2008 at 4:46 pm

Dave is for sure inspiring. I had the most boring Debt Snowball with one home equity debt and we have not been as gazelle on the other steps, but just listening to Dave reminds you to slow down and think before you spend. I have been cash only for about a year and am on the verge of having house paid off. I must say, there is for sure something psychological which is more important than math.


PS – Be Dave yourself. Check out the Dave Ramsey Soundboard. This tool is GREAT for use on pesky credit card collectors that keep calling you.

Fielding J. Hurst April 8, 2008 at 4:47 pm

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