Dave Ramsey's 7 Baby Steps

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stemikger
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Dave Ramsey's 7 Baby Steps

Post by stemikger » Tue Feb 07, 2012 5:11 am

I listen to Dave Ramsey on the radio and read his book The Total Money Makeover.

He tells people to do things in an exact order and he calls them the Seven Baby Steps. I will put them below:

1. $1,000 In An Emergency Fund
2. Pay Off All Debt With The Debt Snowball
3. 3 To 6 Months Expenses In Savings
4. Invest 15% Of Income Into Roth IRAs And Pre-Tax Retirement Plans
5. College Funding
6. Pay Off Your Home Early
7. Build Wealth And Give!

As you can see investing is Baby Step 4. He claims if you do his plan the way it is supposed to be done with extreme focus on each step, you should be at Baby Step 4 in about 24 months. This plan is the same advice he gives to a 20 year old or a 50 year old. Do you think it is bad telling people not to invest until you are done with the first 3 baby steps.

In fairness to Dave he does say if it is going to take you much longer you should invest something (i.e. at least up until the match).
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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bertilak
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Re: Dave Ramsey's 7 Baby Steps

Post by bertilak » Tue Feb 07, 2012 5:51 am

One thing I disagree with. 401(k)s and IRAs are subsidized so one should probably try to take advantage of that earlier -- don't leave money on the table.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

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fredflinstone
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Re: Dave Ramsey's 7 Baby Steps

Post by fredflinstone » Tue Feb 07, 2012 5:59 am

I could quibble here or there depending on a person's individual circumstances, but for the Average Joe this seems like perfectly good advice.

dailybagel
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Re: Dave Ramsey's 7 Baby Steps

Post by dailybagel » Tue Feb 07, 2012 7:00 am

I think that even DR sometimes says on his shows, "I'm a math nerd and I understand the desire to invest without waiting."

In fact he says that is thr debt-clearing process will take a long time (more than 24 months) that putting off investing might be a bad idea.

Where I think retirement savings is important is when an employer offers a401(k) match. To decline to save seems like turning down additional income from the employer.

leo383
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Re: Dave Ramsey's 7 Baby Steps

Post by leo383 » Tue Feb 07, 2012 7:26 am

I like Dave Ramsey, and think most Americans would be far better off if they had some Ramsey in their lives.

His advice is based more on getting people on the right page behaviorally, rather than what is maybe best for them financially. He says this very often.

My biggest problem with him, and it's a big one, is his investment advice. It's brutal. I have heard him suggest to older investors a portfolio that would be 100% stocks and highly focused on growth.

KSActuary
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Re: Dave Ramsey's 7 Baby Steps

Post by KSActuary » Tue Feb 07, 2012 9:27 am

Plus, he makes a lot of money selling call-in information to local financial advisors.

kuttolas
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Re: Dave Ramsey's 7 Baby Steps

Post by kuttolas » Tue Feb 07, 2012 9:56 am

KSActuary wrote:Plus, he makes a lot of money selling call-in information to local financial advisors.
This is true, but I had generally good experience with two of his financial advisers. What was cool about the first one was that he told me upfront that I could do my own investing using index funds, However if I wanted his help, He would use American Funds with 5.75% Load. I chose not to go with him.

The second adviser helped in creating a portfolio using Vanguard funds, but I did not use that, because I got better advice here from Bogleheads

Nukeboilermaker
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Re: Dave Ramsey's 7 Baby Steps

Post by Nukeboilermaker » Tue Feb 07, 2012 10:09 am

I followed his steps and it helped me tremendously. Since I have always been fairly smart with money I wasn't in to bad of shape. It probably would not have made more than a month or two difference in my personal situation if I had continued to put money towards 401k while finishing step 2. But I tried it "his way" and just put all my focus on paying off debt and I killed it fast... and I mean FAST. Again, it depends on your situation... but if someone was in a near identical situation that I was in I would actually recommend they do the 401k match and 100% of every penny beyond that must go towards debt.

To give you an idea I was able to be debt free in ~14 months... however I cash flowed a wedding/honeymoon (I paid for 100% of it all), car purchase, and gave some financial gifts to my sister to help her to get her back on her feet (start her own salon).

In reflection, about half way through I did start to contribute to my 401k to just the match. As it turns out it was a very smart move, as part of our bonus structure and profit sharing my company will be matching another 1.6% if we contributed at least the match. So now I will be adding another ~1.5k of company match here in a couple of weeks! But if you also have all ready established a decent 401k then knocking out debt may be a better priority. I am sure you have noticed many people on the forum are able to invest the way us Bogleheads do because of the No Debt lifestyle.

Best of Luck!

Nuke

pochax
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Re: Dave Ramsey's 7 Baby Steps

Post by pochax » Tue Feb 07, 2012 10:11 am

His advice is probably better than what 90% of Americans actually do in their real lives.

Yes, one could make the argument that IF:
1) you can contribute to your 401k up to the match AND
2) be as "gazelle-intense" about paying off your debt (whether by snowball method or pay off highest interest rates first) AND
3) avoid his investing advice
you will do a little better than if you followed his advice. But the people who can do 1, 2, AND 3 probably all are on this forum. :wink:

So despite his bad investing advice, DR overall does more good for society than harm.
Last edited by pochax on Tue Feb 07, 2012 10:18 am, edited 1 time in total.

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HardKnocker
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Re: Dave Ramsey's 7 Baby Steps

Post by HardKnocker » Tue Feb 07, 2012 10:12 am

I can agree with Ramsey's advice.

Debt is a cancer.
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett

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Liquid
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Re: Dave Ramsey's 7 Baby Steps

Post by Liquid » Tue Feb 07, 2012 10:27 am

Seems like reasonable advice. His investment advice on the other hand leaves a lot to be desired.

sscritic
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Re: Dave Ramsey's 7 Baby Steps

Post by sscritic » Tue Feb 07, 2012 10:41 am

If you can believe the callers on his show, he inspires people who used to live above their means to now live below their means and well below their means during the period of time they are paying off their debts. People earning $80,000 paying off $60,000 in debt in less than 24 months is typical. His primary message isn't about steps or the snowball or any of the details; his primary message is to live within your means. What boglehead is going to argue with that? Sure, we love to argue about tilt this or tilt that, but that's all fluff compared to living within your means.

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zhiwiller
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Re: Dave Ramsey's 7 Baby Steps

Post by zhiwiller » Tue Feb 07, 2012 10:45 am

It's not an issue of tilt-this, tilt-that, it's that he by every definition advises everyone into undiversified portfolios and then promises them 12% a year.

sscritic
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Re: Dave Ramsey's 7 Baby Steps

Post by sscritic » Tue Feb 07, 2012 10:49 am

zhiwiller wrote:It's not an issue of tilt-this, tilt-that, it's that he by every definition advises everyone into undiversified portfolios and then promises them 12% a year.
Where did you see that I was talking about his investment advice? I was talking about his overall message. What do you think the overall message of the bogleheads is? Is it really about backdoor Roths or something more fundamental?

bberris
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Re: Dave Ramsey's 7 Baby Steps

Post by bberris » Tue Feb 07, 2012 12:30 pm

That didn't take long for DR acolytes to get touchy. Maybe its the infusion of religion that causes them to worship a false idol.
Bogleheads IS about investment advice. Sometimes someone wants to get their roth in the backdoor.

DR advises people on all aspects of their finances and even the debt reduction advice is mostly bad.
What is so complicated about living below your means, especially after a period of living above it?

kirent
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Re: Dave Ramsey's 7 Baby Steps

Post by kirent » Tue Feb 07, 2012 12:33 pm

Suppose there are financial advisers out there who are telling their clients to live below their means so that they can invest more into high-load funds. That doesn't make them very good in my opinion. Living below your means is only a piece of the puzzle. According to the Bogleheads wiki, the Bogleheads principles are:

Live below your means
Invest with simplicity
Maintain correct allocation to bonds
Buy low-cost, widely-diversified funds
Take full advantage of tax-advantaged accounts and aim for tax-efficient taxable accounts
Stay the course

Correct me if I'm wrong, but it looks like Dave Ramsey's advice only covers 1-2 of the 6, while his other advice seems to go against the other 4-5.

I feel he's no different from Suze Orman, which I think is great for people who are still in massive debt, but once they are out of it, there are better sources for financial education. I don't think his "snowball" advice is all that great either, since I feel it is relying too much on human emotions rather than what makes the most financial sense.
Disclaimer: I am not a financial or legal expert and all information I provide is given for entertainment purposes only, at your own risk and with no guarantees of accuracy.

guitarguy
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Re: Dave Ramsey's 7 Baby Steps

Post by guitarguy » Tue Feb 07, 2012 12:52 pm

I posted this same thread/topic a while back.

http://www.bogleheads.org/forum/viewtop ... =2&t=87135

Overall my conclusion was to step back and take a look at who his target is...people riddled with debt, and bad high interest debt at that. For them, his debt advice is perfect because they have a problem and they need a total lifestyle change to come out of it.

Personally, the thought of stopping investing and draining my E-Fund down to $1k was not very appealing. In the end, since all we have is low interest student loans and our mortgage, I opted to keep up the investing and pay extra, as much as we can each month towards the debt.

I like the idea of not putting all our eggs in any one basket. Besides, any $ that you save/invest/pay debt with increases your net worth in the end regardless. :sharebeer

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Re: Dave Ramsey's 7 Baby Steps

Post by bungalow10 » Tue Feb 07, 2012 1:00 pm

We've been on the Dave plan. I don't agree with all of it, but we paid of $110k in debt in 24 months, most of that time my husband was unemployed.

We were already saving agreesively for retirement, so we knocked the 401k back to just the match amount. We stopped the Roth. When we finished we went back and did the 2011 Roth first, so we only missed one year of Roth contributions in that time - which is fine, we are 33 and have been fully funding our 401k and Roth for years.

We are doing the next steps out of order a bit, mostly because I like retirement savings and I think we can get an emergency fund done at the same time and we also want to prioritized kids' college. So we are back to maxing the Roths, 401k and 529.

I can tell you right now, that despite being a saver all my life, I'm happier about money now than I've ever been. DH and I are 33, have a 400k+ net worth, $275k in retirement, and very low monthly expenses. Debt, even if it wasn't consumer debt, was weighing on our budget and our conscious. We still have two mortgages (one on our house, one on our apartment building), but our bills are easily manageable, making life less stressful and more enjoyable.

edit: and I don't agree with Dave on religion or politics. But that's not for this thread.
An elephant for a dime is only a good deal if you need an elephant and have a dime.

bungalow10
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Re: Dave Ramsey's 7 Baby Steps

Post by bungalow10 » Tue Feb 07, 2012 1:03 pm

bberris wrote:That didn't take long for DR acolytes to get touchy. Maybe its the infusion of religion that causes them to worship a false idol.
I didn't see anyone get touchy until your post?
An elephant for a dime is only a good deal if you need an elephant and have a dime.

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Re: Dave Ramsey's 7 Baby Steps

Post by Boglemama » Tue Feb 07, 2012 1:34 pm

stives wrote: I feel he's no different from Suze Orman, which I think is great for people who are still in massive debt, but once they are out of it, there are better sources for financial education. I don't think his "snowball" advice is all that great either, since I feel it is relying too much on human emotions rather than what makes the most financial sense.
+1

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Re: Dave Ramsey's 7 Baby Steps

Post by 3CT_Paddler » Tue Feb 07, 2012 1:42 pm

bberris wrote:That didn't take long for DR acolytes to get touchy. Maybe its the infusion of religion that causes them to worship a false idol.
Lol... who got touchy? You could also argue the opposite to be true. Some people don't seem to like the guy primarily because he is vocal about his faith.

DR has been discussed ad naseum and it always follows the same path. There are many Bogleheads on here who found this site after listening to DR, and his is obviously getting many people motivated and on the right path towards saving money for retirement. Maybe people should just refer to old DR posts instead of starting a new one.

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CyberBob
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Re: Dave Ramsey's 7 Baby Steps

Post by CyberBob » Tue Feb 07, 2012 2:27 pm

stemikger wrote:Do you think it is bad telling people not to invest until you are done with the first 3 baby steps.
Well you kind of are 'investing' when you are paying off your credit cards if you take the point of view that paying off a 17.99% credit card gives you a 'return' of 17.99% risk free. You sure aren't going to get that in a T-bill :D

Bob

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