Find out why Dave Ramsey's baby steps are outdated!

Dave Ramsey’s Baby Steps Are Outdated

Find out why Dave Ramsey's baby steps are outdated!

It’s true… Dave Ramsey may be the king of the Baby Steps and the Debt Snowball, but his outdated techniques are a disservice to those trying to get out of debt.

Full disclosure – I love Dave Ramsey. He is that brash uncle who doesn’t pull punches and tells you like it is. He started a great movement for people to be debt free and to stop living in chains indebted to the banking industry. Unfortunately – the same steps he created in 1992 are not as applicable today as they once were, yet he continues to profit from and promote them.

I hope I don't get sued by Dave Ramsey

Here’s hoping I don’t get sued by Dave Ramsey…. and if you haven’t heard of Dave Ramsey’s Baby Steps, let’s go over them and see where they may cause you some troubles…

Dave Ramsey’s Baby Steps

  • Baby Step 1 – $1,000 to start an Emergency Fund
  • Baby Step 2 – Pay off all debt using the Debt Snowball
  • 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
  • Baby Step 5 – College funding for children
  • Baby Step 6 – Pay off home early
  • Baby Step 7 – Build wealth and give

A Closer Look At The Steps

Step 1:

Dave Ramsey advises that the first step should be the start of a $1,000 Emergency Fund. In today’s dollars, $1,000 does not cover many emergencies. 2 months ago, the check engine light came on in my SUV and I took it to a local shop. The problem was a dealer specific specialized issue which ended up costing me $2,200. If I started with only $1,000 in my savings before moving on to my debt snowball, I would have added an additional $1,200 to my total debt and been right back in the hole. I would advise that your emergency fund be funded at least $1,500, but a much better number would be $2,000. For advice on starting this fund, please check out my budget article – Budget Isn’t A Bad Word.

Step 2:

For the second step, Dave recommends using the Debt Snowball method which consists paying off the lowest balance first and moving on down the line to the highest balance debt. I totally understand the psychology of this – people often lose motivation if they don’t see progress. For people like me who are determined and unlikely to quit, paying off the highest interest rate makes more sense for me. For instance, if I have $22,000 in credit card debt and $18,000 in student loan debt, Dave recommends paying the student loans first because that is the lower amount.

If the average interest rate on that student loan debt is 5.05% – 6.6%¹, and the average credit card interest rate is 16.71%², why on earth would I spend any amount of time paying off that lower interest student loan? That credit card continues to rack up more and more debt at a rate of 16.71%! I recommend picking the right debt payoff method that will work for you – but I would strongly recommend paying off the highest interest rate first rather than the lowest balance… For more info on where to start, check my related article: Simple Steps To Start Your Debt Free Life!

activity business calculation chart
Don’t let high interest rates derail you

Step 3:

The third step states 3-6 months of living expenses should be saved after your debt is paid off. This is for a worst case scenario of you losing your job and needing to live off these funds until you find employment. Do you feel comfortable you will be able to replace your income in 3 months? With my current income level, I would not feel confident I would be able to replace it in 3 short months. That is why I recommend a minimum of 6 months of living expenses. While this may seem like a lot, keep in mind you will be building this up after you are debt free – it will not take as long as you think.

Step 4:

This is where Dave recommends you start saving for retirement at a rate of 15%. He fundamentally disagrees with investing anything until you have all your debt paid off and your savings built up. I understand the thought process behind this, but there are two things I would do differently. The first and most important difference is an employer match retirement account. If your employer matches 3% or more, (which is common) in a pre-tax retirement account, I recommend you contribute the match limit before you start paying off debt. Why? If you pay the match – that is a 100% return on your investment that will grow with compound interest. Immediately taking advantage of an employer match makes much more mathematical sense and that should be your first step.

The second difference of opinion I have with Dave is the percentage to put in retirement. 15% is a good number to shoot for, but a more realistic number to be comfortable in retirement should be 18% – 20%. Money doesn’t stretch as far as it once did in retirement and 15% may not be enough to live off of for the rest of your life. Make the sacrifice of that extra 3-5% in order to have a healthy and secure retirement.

silver round coins
The magic of compound interest!

Step 5:

Dave recommends investing in a college fund for your children. I recommend doing what works for you. Honestly, my wife and I are not saving for my children’s college at this point. We have no debt and are 2 years from having our house paid off. My oldest is 8 years away from college, so when the time comes we will have 2 options. We will be able to cash flow college without going into debt and my children will also be working when they are in college. They certainly can help pitch in for their school – it’s about growing up and learning responsibility. Before you call Child Protective Services on me, I can tell you that I worked when I went to college – and I think I turned out pretty good…

Step 6:

Pay your house off early. OK, I completely agree with Dave on this one. Yes, mathematically it may make more sense to invest that money rather than pay the house off early. But just think about this. You’re already investing 18% of your income – what is more important to you? A paid off house and no debt what so ever, or making 8% extra on that money and paying a mortgage for another 15+ years? Mathematically it makes more sense to invest – but life doesn’t always work out mathematically. Having no debt gives you peace and security to tackle just about any financial thing life throws at you.

man using virtual reality headset doing an action
Bring it life!

Step 7:

Build wealth and give. I also do not have an issue with this Baby Step – except for Dave Ramsey’s investment advice. I won’t get into it on this post but there are much better investment vehicles to put your money in than those recommended by Dave Ramsey.

Wrapping It All Up

All in all, I agree with much of what Dave Ramsey preaches. He has the heart of a teacher – unfortunately his material is getting a bit dated. In my Debt Payoff Playbook, I have a similar yet updated set of phases to help you become financially secure:

Phase 1: Build a budget

Phase 2: Save $1,500 – $2,000 for emergencies

Phase 3: Attack your debt (using the interest method)

Phase 4: Cash reserves for 6 months

Phase 5: 18-20% of your income into retirement

Phase 6: Save/Invest for future specific plans – not necessarily college

Phase 7: Get rid of that mortgage

Phase 8: Invest for success

As you start this journey, keep your head up – there are many obstacles that will come your way. You can get through all the steps if you refuse to quit. Keep the goal of a financially secure life in the forefront of your mind. You can do it!! You work too hard to be this broke!


Please, please, please, enter your email below to subscribe to my future posts by email – I would be extremely grateful!! If you found this article helpful, please share it across social media. Also, I enjoy reading your comments, please comment below if you have anything to add or have any questions!

Enter your email to subscribe to the best finance blog ever!

Join 10,071 other followers



Published by

Ryan Luke

My name is Ryan Luke and I am a personal finance blogger and a Police Lieutenant for a major city in Arizona. I blog about the best tips and strategies to get out of debt to help others achieve financial independence!

8 thoughts on “Dave Ramsey’s Baby Steps Are Outdated”

  1. Very well put! I think Dave Ramsey’s steps are somewhat oversimplified for those who do not necessarily understand the ins and outs of personal finance. I like the improvements you’ve suggested here!


    1. Thank you! I started out my journey years ago with Dave but I’m a little disappointed he hasnt adapted his strategies as the years have gone by. I’m also not a fan of his investment principles but overall, he started me on this journey so I owe him that.


  2. This is a good post, but I don’t agree with some of the bold claims made against Dave’s baby steps. Primarily because the changes you offer are not logical for all financial situations (whereas Dave’s plan is more universal). Now I don’t follow the steps exactly myself, for example, my emergency fund is being built up as I go and I’m saving to start a business). I am doing the smallest to largest as Dave suggests because I believe that the motivation improves with getting things off the list, but here’s an example of why I disagree with the interest concept you suggest. My debt was in order, invisible braces (0% for a year), car (2.3%), student loans (5.5%). By your method, I should have started with my student loan first; however, those are more than $140,000. That would likely get discouraging quick given that I’m new to understanding the workings of personal finance. Plus I’d have a car payment and a bill for the braces that hinder my ability to pay off the student loans effectively. By doing it Dave’s way, I have paid off the braces ($1300) and will have my car paid off in January (Which had a $9800) balance when I started my debt free journey in August. That’s over $11,000 being paid off in ~5-6months. Then all I’ll have to focus on is my student loans. I’ll stop now, there’s no shade because you make a lot of good points (ex. having a bigger emergency fund); however, I didn’t think it’s fair to attack a plan that has helped so many without giving a little resistance.


    1. Thank you for your rebuttal Johnzelle! In my post I talk about the motivation and psychological factors that can influence a debt payoff. I very much understand Dave’s Debt Snowball method when it comes to psychology, but as far as math and interest goes, it isnt the quickest way. With that being said, if someone quits because they lose motivation, the mathematical approach doesnt make sense.

      In my article I recommend taking the approach that better matches your psychological makeup and I’m so glad you found the plan that works for you and your success!

      For me personally, watching that student loan grow at 5.5% unchecked would drive me batty. Thanks for the thoughtful and personal response!!

      Liked by 2 people

      1. The 5.5% loans on minimum payments is quite daunting. I played with some repayment calculators today and if I did my current minimum payment for the next 28 years, I’d end up paying over double by the time I was eligible for “forgiveness” PLUS the balloon payment. I’m excited that my smaller debts are almost out of the way (did I just call a car a small debt!?) and I’m actually excited to show my consolidated student loan who’s boss!

        Liked by 1 person

  3. As a mathematician, I do agree that the Math does not favor Dave Ramsey steps. Also, his steps cater mostly to the middle class. 5% is where i draw the arbitrary line of bad debt and good debt. The emotional component is the common excuse. This is one of the reasons to separate emotions from finance in general. I wrote 12 toddler steps as a rebuttal. Here are the steps below

    Pay all credit cards
    Have the minimum required emergency fund >/= 1000 dollars.
    Refinance your loans
    Pay off any loan with interest rate >5%
    Utilize your employer 401 k up to the match and if you have money left, then Invest in Roth IRA.
    Now pay off the rest of your debts
    Maximize your retirement savings
    Boost up your emergency savings to 3-6 months of living expenses
    Invest in your children’s future education
    Build wealth – Save 1/3 of your income or at least strive to. Go a little wild, diversify.
    Give – at any stage above too if able to
    Optional pay off mortgage

    There is a great debate on whether mortgage should be consider debts also and to pay off your mortgage early, i fall on the former. There are more use for that money in investments. Here is a link to my full post if you want to tear it apart.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.