Have you heard of Dave Ramsey and his 7 Baby Steps money management plan?

Dave Ramsey is a personal finance personality known for his no-nonsense style.

He has a huge following- for a good reason.

He has used his 7 Baby Steps to get millions of people out of debt and get their finances back on track.

While his methods and Baby Steps are helpful, there are a few places where Dave Ramsey and I disagree.

Interested in what they are? Keep reading!

What are Dave Ramsey’s Baby Steps?

Dave Ramsey’s Baby Steps are 7 steps that Dave Ramsey has created to get his followers out of debt and building wealth.

They are designed to be followed in order. Once you complete one Baby Step, you move onto the next one.

The 7 Baby Steps are:

  1. Save $1,000 to begin your emergency fund.
  2. Use the snowball method to pay off all debt, excluding your mortgage.
  3. Save 3-6 months of expenses in your emergency fund.
  4. Invest 15% of your income in a retirement fund.
  5. Save for your children’s college educations.
  6. Pay off your mortgage early.
  7. Build wealth and give to others.

Seems pretty simple and straightforward, right?

Why Do I Disagree with Dave Ramsey’s Baby Steps?

Like I said, these steps are helpful and have gotten a lot of people out of debt.

But personal finance is one thing: personal.

A one-size-fits-all approach doesn’t work for everyone.

And while these steps can work, they aren’t necessarily the best bang for your buck in the long run.

Let’s dig into the reasons why.

A $1,000 Emergency Fund Is Not Enough

I don’t know about you, but I can’t think of a single emergency that I’ve had in the past 5 years that was under $1,000.

  • Hit a massive pothole that messes up the control arm of your car? $1,200
  • Water heater needs to be replaced? $1,800
  • Mold found in your basement walls that now need to be demolished for your health? $2,300

Trust me, I could go on.

A single emergency could bankrupt your entire emergency fund and still not be enough to cover the cost.

And emergencies don’t come one at a time.

The mold we had in the basement walls was caused by a 100-flood.

What is a 100-year flood?

It’s a flood that has a 1-in-100 chance on happening in any given year.

When that 1% chance flood hit, it flooded our entire basement thanks to a backed-up sewer pipe.

And the best part?

No expense of that flood was covered by home insurance.

We had to pay for everything out of pocket- and the total cost was around $4,000.

My answer: A $1,000 emergency fund is a great place to start, but you need to keep building it to protect yourself from going into debt when an emergency hits.

After hitting the base $1,000, you should still save a set amount into your emergency fund with each paycheck.

It doesn’t matter if it’s big or small- it matters that it keeps growing.

If you’re not sure how much you should have in your emergency fund, check out my guide to your emergency fund.

Don’t Invest Until You’ve Paid Off All of Your Non-Mortgage Debt

Once you save your emergency fund, Dave Ramsey believes that you should pay off all of your debt.

Every. Single. Penny.

For him, it doesn’t matter if it’s a tiny balance at a 0% interest rate or a large balance with a 22% interest rate.

Remember that no-nonsense personality I mentioned before? Here it is.

For Dave Ramsey, debt is an addiction, and the only way to manage an addiction is by eliminating the trigger.

But if you’ve dug past Dave Ramsey, you’ll see that this isn’t the way to build wealth.

Yes, you should eliminate all high-interest debt (anything over 8%) as soon as possible.

But if you’re carrying a 3% student loan balance that you’re paying down on a steady schedule, you can make more money by investing any extra payments instead of paying down the balance.

My answer: Debt is NOT evil.

If you do the math and know what you’re doing, you can use debt as a vehicle to create wealth.

You can use low-interest loans, mortgages, and balance transfers to pay down debt at a slower rate while you save and invest.

I’ve gone into the math of this in my post “Should I Invest While Paying Down Debt?” to show you how the numbers work.

It’s important to remember that debt is both mental AND financial.

While it may not make the most financial sense to pay off low-interest debt first, you may find that having any debt is placing extra stress on our mind.

Personal finance is personal, and that means you need to do what’s best for your whole self- including your mental health.

If debt is hanging over your head and causing you stress and anxiety, it’s okay to pay it off first, even if it doesn’t make the most sense with a calculator.

A Debt Snowball Costs More Than a Debt Avalanche.

Dave Ramsey is an advocate of the Debt Snowball- which makes sense, considering he created the concept.

If you haven’t read my Debt Snowball post, here are the basics.

Rather than splitting your money to pay them all down equally, the Debt Snowball method focuses on putting any extra money you have into your smallest debt and paying off the smallest balance before moving onto the next one.

So each time you pay off that small debt, you take the money you were putting into that debt and move it to the next smallest balance.

Over time, your money turns into a bigger and bigger snowball rolling down your debt hill until you eventually hit the bottom debt free!

Sounds great, right?

If you struggle to stay motivated while paying off debt, the Debt Snowball method may be the best option for you.

By paying off your smallest balances first, you achieve small wins by paying off full debts intermittently before taking on your biggest balances.

However, a Debt Avalanche saves you more money and time in the long run.

The Debt Avalanche Method focuses on paying down your debt with the highest interest rate.

This means that you can pay off the same debts in a shorter amount of time AND save more money on interest.

My answer: If you’re looking at your debt paydown in dollars and cents, a Debt Avalanche will save you time and money.

But this method can be frustrating for people who struggle with feeling motivated, since your big wins may take longer during the paydown.

If you’re paying down debt, put your debts in order by interest rate AND by balance and see what works best for you.

The best method is whatever method will help you pay off your debt.

Paying Your Mortgage Off Early Is a Bigger Mental Win Than a Financial Win

When you reach Baby Step 6, Dave Ramsey wants you to pay off your mortgage.

Let’s be clear: his first preference is that you buy a house entirely in cash.

If you live in a high cost of living area (most big cities in the United States), you would have to save upwards of $500,000 in cash to afford a decent house.

Not realistic.

So if you can’t do that, he recommends he recommends that your monthly payment should be no more than 25% of your take-home pay.

If your housing expense is eating up 25% of your monthly budget, it makes sense to try to decrease the monthly expense.

When mortgage rates were averaging 17% in 1981, this made financial sense.

But we live in a world where mortgage rates are historically low.

This means that it costs very little to borrow money for your mortgage.

While it might be nice to stop paying a monthly debt, you can make more by investing the extra payments.

My answer: As we’ve talked about, a mortgage is just another debt that may be hanging over your head.

You may feel like you absolutely have to pay it off for your mental health.

But the dollars and cents answer is to invest any extra payments instead, as long as the expected rate of investment is higher than the mortgage interest rate.

If you want to see how this works, check out my post on “Should I Invest or Pay Down Debt?”– I’ve already done the math for you.

Your Opinion Is Entirely Up to You

Dave Ramsey has inspired millions of Americans to pay off debt and build wealth.

His no-nonsense approach works for a lot of people.

But it doesn’t work for everyone.

Because personal finance is personal, and everyone needs to find what’s right for them.

For me, personal finance is logical more than it’s mental.

My decisions need to follow the most dollars and cents logic for me to feel comfortable making decisions.

And I understand that you may be the same- or you may do best when someone sets up a straightforward framework for you.

You may disagree with Dave Ramsey on a whole other level based on his business practices, and that’s totally fair too.

My job is to give you as much information as possible so you can decide for yourself.

What do you think of Dave Ramsey’s Baby Steps? Have you followed them on your debt journey? Or have you tried another path? Share your thoughts in the comments below!