Why We Aren’t Following Dave Ramsey Exactly
Finance Paying Off Debt || Tags: Debt, Money ||One of the first books I read on our debt repayment is The Total Money Makeover by Dave Ramsey. For maybe people this book is the “bible” for financial freedom. In fact more than 5 million copies have been sold since it’s release in 2003.
But First, Who IS Dave Ramsey?
Dave Ramsey is an American businessman, author, and he hosts a radio and TV show talking about debt and money issues. He has lived his advice after going bankrupt in 1988. Ramsey created baby steps in order to help people take control of their finances. He inspires people to become debt free and stay that way, paying cash for things like cars and even houses.
His steps are as follows:
- Baby step 1 – $1000 emergency fund
- Baby step 2 – Pay off debt using debt snowball
- Baby step 3 – 3-6 months of expenses in savings
- Baby step 4 – Invest 15% of your household income
- Baby step 5 – college funding for children
- Baby step 6 – Pay off home early
- Baby step 7 – build wealth and give
Do The Baby Steps Make Sense?
First I’ll talk about what I like about these steps, it gives people a plan, and I’m a big fan of having a plan! Having someone lay out a plan for you takes away the overwhelm of figuring out what to do next, which keeps a lot of people from actually getting started.
We are following the steps in order for the most part. We had an emergency fund, now we are doing debt repayment. After the student loan debt is paid off we will work on saving for retirement and paying off our mortgage.
What Are We Doing Differently?
We have more than $1000 in our emergency fund while paying off debt.
I am self employed, so it’s important to me to have a little bigger emergency fund just in case my income goes down, or I’m unable to work.
We aren’t doing the debt snowball.
I have written before about the debt snowball vs the avalanche. To me the snowball just doesn’t make sense because you pay more in interest.
We have credit cards.
Dave Ramsey doesn’t believe anyone should own credit cards because it’s so easy to overspend. We don’t have (and never had) credit card debt. I like having my bills automatically charge to my credit card because it simplifies my life! We ALWAYS pay if off before the end of the month so I don’t see us changing this anytime soon.
We are giving to charity in baby step 2.
I really don’t like that Ramsey doesn’t mention giving until the last step. We are in a position to give a little monthly to charities that mean a lot to us.
We are travelling instead of paying off debt “with gazelle like intensity”.
Ramsey’s plan promotes paying off debt with gazelle like intensity. Don’t do anything else. Just send all your money towards debt. We decided to take a different approach ;). I was okay with delaying our debt repayment by a few months in order to travel. It was worth it to me, because my husband would tell you, I get a little grumpy when I don’t travel!
We are saving for retirement in baby step 2
The magic of compound interest would tell you that the sooner you save for retirement, the better! We aren’t saving much right now but I don’t believe in delaying retirement savings for years to save a little on interest for debt repayment.
Who Should Follow Dave Ramsey’s Program?
I’m not saying that the program is wrong or doesn’t work! The Total Money Makeover is certainly worth reading, I learned a lot from it! The principals are great and if you need help making a plan, it makes things a lot easier!
What do you think of Dave Ramsey’s baby steps? Are you following them?
2 responses to “Why We Aren’t Following Dave Ramsey Exactly”
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Hey Jenn! I’m with ya! I get grumpy when I don’t get to go on adventures too. I agree that Dave Ramsey’s method is awesome in that it gives a good guideline. Here’s where we take liberties:
1. We have $2000 in our emergency fund and we still contribute a tiny amount to it every month
2. We have a tiny amount in a TFSA for retirement and contribute a little bit per month
3. We don’t give up on the things that bring us joy. I think Dave can be pretty harsh on this one. I won’t live off of rice and beans and hermiting for three years. Not sorry. Taking care of our bodies and souls is not uneccessary spending!
Thanks for sharing your view on this. So glad I found a local finance crusher 🙂
Sounds like we are on similar paths! Glad we found each other!! Dave does give a good guideline, but I feel like he hasn’t updated his book to keep up with the changing world.