Click here to get this post as a PDF and read it later!

Dave Ramsey is one of the most recognized names in the debt-free movement, and rightfully so.

His advice has helped thousands, if not millions of people across the globe get a grip on their finances.

While I do agree with some of his advice and popular “Baby Steps”, there are a handful of things that I think are completely wrong (gasp, I know). This will probably be a controversial post but who cares?!?!

I’ve never been one to shy away from going against the grain, so let’s dig into what he has to say, and I’ll give my own 2 cents. First, I’ll list his baby steps and then we’ll dig a bit deeper.

Dave Ramsey recommends the following, in order, to achieve financial freedom.

• Baby Step 1 – $1,000 to start an Emergency Fund
• Baby Step 2 – Pay off all debt using the Debt Snowball (Smallest debt first, regardless of the interest rate)
• Baby Step 3 – 3 to 6 months of expenses in savings
• Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement funds
• Baby Step 5 – College funding for children
• Baby Step 6 – Pay off home early
• Baby Step 7 – Build wealth and give!

Now, let’s take a look at each one of these in depth.

Baby Step 1 – $1,000 to start an Emergency Fund

This is definitely KEY, however, he started recommended the $1,000 amount about 20 years ago, so I’d bump that up to $2,000 now. Change all of your deductibles on your insurance products to $1,000 (to save money on premiums) AND have another $1,000 in your emergency fund for a total of $2,000 before you move on to the next step.

Why?

What if you wreck your car and have to pay for emergency healthcare AND your car insurance deductible because of your accident? If you have a $1000 deductible, or even a $500 one, plus a healthcare bill (some things are not covered by your car insurance), plus babysitting for your kids because you’re in the hospital, plus missed work without pay…then $1,000 isn’t going to take you very far. In fact, IT WON’T BE ENOUGH.

Here’s another example. What if your furnace breaks and needs replaced? $1,000 won’t replace it. Good luck with that. I could give many more realistic scenarios, but $2,000 is the absolute MINIMUM you should have saved, and I’d go so far to make your “baby” emergency fund an entire month’s worth of expenses if you want to be on track and stay there.

Baby Step 2 – Pay off all debt using the Debt Snowball (Smallest debt first, regardless of the interest rate)

I know this advice is for emotional “wins”, but the math doesn’t work out. I prefer something called the Debt Avalanche.

This is when you pick the HIGHEST interest rate and pay that off first, NO MATTER HOW LONG IT TAKES!

Making decisions based on emotion is bad news.

Dave Ramsey says this himself in other areas (such as when a spouse dies), yet sticks with this advice for paying off debt. The math doesn’t work.

If you pay off a debt with 0% interest first because it’s your smallest, but avoid the debt with 19% interest because it’s larger, until you pay the first one off, that’s stupid with a lot of zeros on the end of it (in the words of Dave himself).

Let me give you an example.

You have 3 debts to pay off (not including your mortgage).

1. $25,000 with 19% interest rate credit cards
2. $15,000 with 0% car loan
3. $19,000 with 4% student loan debt

If you pay off the car loan with 0% interest rate while paying the minimum, EVEN if you pay off that car loan in 7 1/2 months ($2500 a month because you’re eating rice and beans of course), your interest payments on that $25,000 are going to be outrageous while you’re only paying the minimum.

Let me say this again: pay off your highest interest rate debt first, and then, your next highest (apply what you were paying on the first to the next), etc. until it’s all paid off. You will most likely save THOUSANDS of dollars over Dave’s advice.

If you have issues with how you “FEEL” about money, train your brain to start feeling good about facts, math, and logic instead of trying to twist the facts to fit your feelings.

Baby Step 3 – 3 to 6 months of expenses in savings

Don’t skip this step. I agree with it, but, I’d also go one step further to make this 6-12 months of expenses in savings.

BUT – don’t just keep this in your checking account.

At the very minimum, put it in a high-yield savings account, OR, in an IRA that you can use for legitimate emergencies. If you pull from an IRA account and only take out the principal (which means what you put in and NO earnings), you can use IRAs as an emergency fund.

How about we make it even more secure and simple?

Put 3 months of expenses in a high yield savings account and put 3 months in an IRA (you’ll keep adding to that, but wait for it), at the very least.

Check out this list of the 15 Best High-yield Savings Accounts in 2019.

Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement funds

This is good advice for people who want to be a little better than average, but I’m betting you’re reading this because that’s not good enough for you. You’re above average, right?!? I think you should be saving at least 30% and DO NOT put it in managed mutual funds. The fees will kill you. Dave also does his calculations on 12% average return, which is kind of a joke, especially if you’re paying fees with mutual funds.

Here’s what I’d recommend you do instead:

Save 30% or more (heck, save 80% if you can – get creative, make more money, spend less, learn to be content with less, etc) and put it into Vanguard’s VTSAX fund.

Before you do that, buy a hard copy (you’ll want to highlight and refer to this often) and read The Simple Path to Wealth.

Literally, stop what you’re doing RIGHT NOW, open up a new tab, and order this book. Commit to reading it THIS WEEK. It’s imperative that you do this and not follow Dave’s advice on investing. He’s great at riling people up about getting debt free, which is fine, but his investment advice, to be frank, is nowhere near good enough unless you started in your early twenties and never had the debt to begin with. Which, if that’s the case, then you can stay on course and you’ll probably be fine… but if you could make some tweaks and be unbelievably well off, wouldn’t you want to?

You need to have 25 times your yearly expenses to be able to comfortably retire. You probably think you need more than you do, and if you’re going to be carrying debt into your retirement years, yeah, you’re going to have quite a bit to come up with.

However, it’s very easy for a couple to live on $36,000 per year in retirement with a lot of wiggle room which means you’d need $900,000 to retire. It’s called the 4% rule, but if this is confusing, please go read The Simple Path To Wealth now and thank me later!

Baby Step 5 – College funding for children

Nope. Nope. Nope. I really wish Dave would revise his rules!

These are so old-school and it really chaps my rear-end to hear advice like this from a smart and popular financial influencer.

Thankfully, many people are realizing that college isn’t all it’s cracked up to be and there’s a huge need for skilled trades, blue collar jobs (that pay quite well I may add), and entrepreneurs. A traditional 4-year (or more) degree is probably not the best option for at least 50% of our burgeoning young adults.

Even if your children are planning on going to college, there are SO many ways you can hack this so they go for free (or close to it).

I’ll give a few examples, and then point you to a more exhaustive and helpful post about how you can “skip” saving for college, but rather prepare in advance so you don’t have to pay.

1. If you belong to a Union, I recently learned that most (including my husband’s) offer the first 2 years (associates degree which can be applied almost anywhere) at a community college online for FREE! Be sure to ask about this, as this could save you 5 figures even if you did send your kids to a community college for the first two years.
2. No benefits like the above? Still, send your kids to a community college for 2 years. Employers don’t care and don’t know where they got their transferred credits.
3. Make sure your children study for the PSATs in 9th grade, so that in 10th and 11th, when they take the PSATs, they may qualify for the National Merit Scholarship.
4. Download an SAT prep app and ask them questions every day from day number 1 of 9th grade. Get them familiar and used to it.
5. Look up which colleges weigh ACT scores, SAT scores, etc. Some will give you a full ride (Tulsa) if you’re a National Merit Scholar and put Tulsa as your number one choice.
6. Learn to play the games, and don’t be afraid to go out of state or to a “second-tier school” if it’s paid for!
7. Get a job at a local college/university and apply your benefits for your child to attend school for free. My mom did this for my sisters and even though it was a lower-paying job, by the time she put 3 girls through school, it was well over 6-figures!
8. Encourage your children to take every single AP class their school offers while in high school.
9. Look into dual-enrollment options where your child takes AP classes AND local community college classes during their high school years.
10. Look into and apply to every single scholarship option available. Even if you spend 10 hours a scholarship opportunity and get $10,000, you’ve made $1,000 per hour (actually, you’ve saved that before inflation sets in).

Baby Step 6 – Pay off home early

Ok, this is one I KIND OF agree with, but I’d like to add some math to the mix here and let you make up your own mind.

Dave Ramsey advises to not take on a mortgage that’s more than 25% of your take-home pay. I FULLY endorse THIS recommendation and our entire mortgage (and taxes) monthly payment is less than 10% of our take-home pay. I very much enjoy NOT being house poor.

Let me start with this example…

We bought our house and didn’t put a down payment down as Dave Ramsey recommends, rather, we got a USDA loan without PMI (Private Mortgage Insurance), and used the down payment money that we had saved to renovate our home. We did this over 2 years because our home was in a great area, $30K less than comps with the same square footage, and had more land – BUT – it needed cosmetic updates. Our home is now worth about $30K more, without any tax increases but we only put about $15K in because we avoided labor costs.

Looking back, I’m thinking that we could have just put the downpayment down and did the upgrades as we saved up, but whatever, we’re still in a good position because we’ve applied the following rules:

1. Avoid PMI. You can usually only do this if you get a home that’s eligible for a USDA loan (which is generally 15 miles outside of any city limits), or, put 20% down.
2. Add extra payments and round up.

This is another somewhat “emotional” decision, but not entirely. You see, under normal markets, if you’ve got an interest rate under 5%, you’d be better off putting your extra money in VSTAX, not on your mortgage. Ours is about 4%. Just a little over inflation and with extra payments and DIY renovations, hard to beat.

Yet, many people are still upside down in their mortgages 11 years after the 2008 housing crash. You can’t really time these things. Some people might “get lucky” by putting the extra money in an index fund like VSTAX, and others may get screwed. Some people might feel more secure having a paid off house, while others might use that extra money to start small businesses or invest.

I truly believe that this step is a matter of personal preference IF you buy a home that’s “the worst house in the neighborhood” and fix it up yourself.

I do agree with Dave here.

If you currently owe as much as your house could be sold for, or more, throw your extra money at your mortgage, by all means.

If you have a mortgage over 5% or an ARM, consider refinancing.

Don’t take out a HELOC, 2nd mortgage, etc.

Try to improve your home without adding taxes. Basically, do everything you can without a permit inside your home before you improve the outside which will flag a re-assessment. Re-purpose rooms, split up rooms, add a small bathroom without adding on, etc.

To sum up, this is a “borderline” option and I do agree that Dave pushed it to the end. Because of our 50%+ savings rate, we should have our home paid off in just a few years from now, even while contributing to retirement, which equals saving thousands in interest costs.

Baby Step 7 – Build wealth and give!

I feel like building wealth and giving should be #1, but I’m not unaware that this might not be an option for many people. I’ve noticed that when we give, it always comes back in some way.

I’m not talking about some woo-woo secret or spiritual attraction stuff, I’m talking about being blessed mentally and physically when you give to others and are generous. This step can be implemented well before the end for practically everyone (and it should be)!

We used to give 10% to our church automatically straight off the top.

Now, we spread out that 10% each year based on various charities – and to be honest, usually give according to immediate and most desperate need. I’m not sure why we decided to do this, but rather than setting our giving as another “automation”, this is an area where we try to bless those who are close or just removed and not expecting it.

I don’t like to be “counted on” for these things, I prefer to unexpectedly send money to someone who has no hope. Or support specific organizations we really believe in and can see that they’re transparent and making a difference, not just adding fancy new decor to the church sanctuary.

I like to do things anonymously that aren’t counted. Even if you “pay it forward” at a drive-through or monitor your local Facebook group and find a way to contribute to your community or a family that GENUINELY needs help…Whatever you choose to do, do it! It’s worth it. Try not to take credit for it. It’s so much better that way!

There’s another topic that Dave covers that I vehemently oppose.

It’s when he advises other people to take on extra jobs and eat rice and beans until their debt is paid off.

There are several reasons why I don’t agree with this advice.

If you have a family and take on extra hours to make money, you’ll NEVER get that time back with your family.

I’d like to see him say, “Learn how to make passive income” or “Ask for a raise” or “Learn how to maximize your income for the time put in” instead.

Any parent working 70 hours a week is going to take a toll on their marriage and their children. That’s going to cost more in therapy and marriage counseling later on.

Money is renewable, time is not.

If you learn how to save more money (and skip Dave’s mutual funds) taking on extra menial jobs will be optional.

Don’t try to subsist on rice and beans, please.

Now, I think he’s trying to say cut your food costs, but unfortunately, many people will take this literally. Sacrificing your health by cutting out produce and other healthy food groups is not only a recipe for bad health, but it could also lead to a quite expensive health crisis. If you’re careful to not overbuy, use grocery apps that pay you back, and shop at Aldi and use receipt apps, you can feed your family healthy foods at a bargain.

Yes, you should cut out eating out as much as possible, but if your area doesn’t have much to do and you need a date night out with your spouse, it’s a lot less than a counseling session. Enjoy it.

Cutting Up Your Credit Cards and Using a Debit Card

Unless you’ve really got a problem with overspending, the zero-based budget that Dave Ramsey advises people to use should ensure that you’re not spending more than you earn. In fact, rather than blaming credit cards for your poor choices and lack of self-control, why not talk to a therapist and learn WHY you have a problem and HOW to create habits that will replace your shopping sprees?

If you use credit cards responsibly and only charge what you can pay off each month in full, you’d be silly NOT to use them!

Here’s why.

There are MANY credit cards that give bonuses, points, and cash back. You’re essentially getting “interest” FROM the credit card companies rather than paying interest on them. The reason that they can do this is that there are so many people who simply can’t control themselves. If you choose NOT to be one of them, use credit cards to your advantage!

For example, I have the following credit cards and this is how you can benefit from them:

• Chase Sapphire Preferred – Get 50,000 bonus points for a $4000 spend in 3 months. That’s $500 CASH BACK or $625 WORTH IN TRAVEL (airlines, hotels, cars, activities, etc).
• Marriott Rewards (Bonvoy) – Earn 3 FREE Nights at ANY Marriott or Starwood Property after a $3000 spend in 3 months.
• Hilton American Express – Earn 100,000 bonus points for spending $1000 in 3 months. That’s at least a week to 10 days of a hotel stay at any Hilton brand hotel!
• American Express Blue Cash Preferred  – Get $250 CASH BACK after you spend $1,000 in 3 months. Then, keep geting 6% back at grocery stores, 3% back at gas stations.
• IGH Rewards – Get 80,000 bonus points for a $2000 spend in 3 months. This is the equivalent of at least 7 days (sometimes more depending on the hotel chain you choose) in any IGH Hotel chain (Holiday IIntercontinentalntals, Staybridge Suites, Kimptons, etc).

As you can see, if you responsibly use credit cards and pay off the balance in full every month on time, you can get cash back, free travel, and more. If you open 2 cards per year and if you’re married, alternate which spouse opens one (for a total of 4 per year), you could literally get back thousands of dollars worth in cash back and travel rewards if you use your credit cards to pay for almost everything.

Here’s why you SHOULDN’T USE DEBIT CARDS or carry large amounts of cash in envelopes:

• Debit cards have fraud protection, but the money comes out, so depending on how the fraudster swung it, if they committed the fraud at 9 PM on Monday and the mortgage payment was pulled Tuesday at 9 AM, you could be out your mortgage payment, even if your money was returned within 24 hours. That won’t happen with a credit card.
• Debit cards have the same fraud protections as credit cards when swiped as credit but not when swiped as debit.
  When swiped as credit, the payment processor’s policies (Visa/MC/AMEX/Discover) and the law protects you. When swiped as debit, you have no such protection. The protection you have is at the discretion of your bank.
• Many credit cards will refund you the balance of a purchase if the price goes down. Debit cards do not have this option.
• There’s a google talk that Frank William Abigail did that’s awesome. He is the person Catch Me If You Can is based on. He works for the FBI. The talk is on YouTube for free, and he calls the debit card one of the single worst financial tools ever given to the American consumer.
• In the case of the envelope system, you can track this when you spend on your credit card with Apps like YNAB (You Need A Budget). Carrying cash opens you up to the issue of losing it! If you lose cash or if it’s stolen, you have no way to get that back. It’s gone. If you lose a credit card, you simply call your credit card company and tell them. They’ll freeze your account and negate any fraudulent charges – you won’t be out any money.

In Conclusion, Be Reasonable!

I urge you to use logic and math, and PLEASE don’t follow a “celebrity” just because they’ve got a million people on their bandwagon! Seek out other opinions, set your own goals, run the numbers yourself (don’t depend on a hypothetical example – including my own), and learn how to tweak your life to maximize your savings and earnings. Be discerning and always seek out alternative options and advice when it comes to your life, and don’t be afraid to create your own system of freedom.