If you are a regular reader of this blog, then you know that I am a supporter of the teachings of Dave Ramsey. There are many bloggers out there who think that Dave Ramsey has too much of an “emotional” approach to personal finance and neglects the math behind personal finance. There is some truth to that, but Ramsey doesn’t ignore the math. He embraces the premise that he believes that 80% of personal finance is behavior-based and 20% is about the numbers. A group of personal finance bloggers have analyzed the seven baby steps that Ramsey teaches for becoming wealthy. I thought that I would pass the links on to you to get their take on each step.
- Overview at Cash Money Life
- Step 0 – No More Debt at Debt Free Revolution and Single Guy Money
- Step 1 – $1000.00 Emergency Fund at Gather Little By Little
- Step 2 – Pay off all debt using the Debt Snowball at I’ve Paid For This Twice Already
- Step 3 – 3 to 6 months of expenses in savings at Being Frugal
- Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement at The Dough Roller
- Step 5 – College funding for children at My Two Dollars
- Step 6 – Pay off your mortgage at Moolanomy
- Step 7 – Build wealth and give! here at Plonkee Money
If you read my page, you’ll read that it was Ramsey’s radio show that changed my way of thinking towards managing money when I was in college. I was an idiot when it came to money, and the appeal to Dave Ramsey is that he gives you straight talk and he’s not afraid to tell you when you made a big mistake. I started listening to all of the people calling in and yelling, “I’m DEBT FREE!!!”, and I wanted a piece of that sense of freedom that those people conveyed in their phone call. It was those long nights driving around town and delivering pizzas that made me want to change the way I handled money and throw out my credit cards. Since then, I’ve paid off $12k in credit card debt, and my wife and I have always carried an initial emergency fund between $2,000 to $3,000 while getting out of debt. My wife graduates from physician assistant school in June, and we will then start our major debt-free plan to pay off $55k in student loans. We’re planning on doing it in 18 months, using Ramsey’s plan. We’ll pay off the smaller student loans first, and then tackle the two big ones last. I will start giving monthly updates about our progress beginning in August.
The one controversial step that many people disagree with Ramsey about is paying off your mortgage early. I encourage you to research why he gives this advice. The whole idea is that the tax deduction savings does not justify the savings you’ll have from NOT having a mortgage payment. Plus, you’ll notice that this is step #6, so he doesn’t encourage people to pay off the mortgage before starting your retirement and college fund investing. What I’ve learned from reading many personal finance book is that Ramsey gets the emotional part about personal finance right. To say that there is no emotional and behavioral component to personal finance is very naive. Making a conscious effort to stop spending too much, stay away from debt, and save for the long-term requires a strong emotional and behavioral response to wanting something better with your money. Ramsey gets this, and that’s why his books and educational tools are sweeping the nation.