Dave Ramsey’s take

My younger sister (who doesn’t believe in owning credit cards, and therefore, hasn’t built up much of a credit history at age 31), is a big Dave Ramsey fan and I’ve heard many others talk about him, both digitally (online) and analog (in person).  So, I thought I’d take a look at his site http://www.daveramsey.com and see what I could glean in a 30 second glance. The first thing I lit on were the Baby Steps.  Here they are listed below (directly from the website):

  $1,000 to start an Emergency Fund
  Pay off all debt using the Debt Snowball
  3 to 6 months of expenses in savings
  Invest 15% of household income into Roth IRAs and pre-tax retirement
  College funding for children
  Pay off home early
  Build wealth and give! 
Invest in mutual funds and real estate

This is interesting – the first goal is to build up an Emergency Fund. It goes against what Suze Orman *used* to advise (she has since changed her tune, but more on that later) and it is a little counter-intuitive for me. I understand that it is harder to get credit, now, and that even those who are paying on time and don’t maintain a balance are finding that their card companies are cancelling their credit lines, so it makes sense that you would need to build your own emergency fund for “in case” instead of counting on your credit cards. 

I’m just trying to gauge the practicability of waiting to pay of debt until the $1,000 is saved. At this point, we’d default on our settlements, so I think we’ll just continue on in putting a little aside each month into savings and work on building up the Emergency Fund while co-currently paying down our debt. It will be great to see how much we will have in savings three(ish) years from now when our debt is gone. I suppose I should set a goal.

What is your thought about Dave’s Baby Steps?

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One thought on “Dave Ramsey’s take

  1. I am not a huge fan of Dave Ramsey. I disagree with some of the things he says, in particular when it comes to the debt snowball. But he’s not talking about ignoring your debt payments while saving up the $1,000. You’re supposed to keep making the minimum payments on all of those while you focus on building the emergency fund. This may or may not work for you. The basic idea is that you’ll have some cash built up if you run into a problem and won’t get derailed from the debt repayment. But if you use that money, you’re supposed to rebuild it. So an emergency is going to slow you down regardless.

    I also disagree with his strong anti-credit card stance. So long as you’re paying 100% of the balance every single month, without fail. If you’re carrying a balance, you shouldn’t be charging anything else until it’s completely paid off. And then you charge only as much as you can pay off at the end of the month. It takes discipline but so does everything else in life.

    And, I disagree with paying the loans off in size order. Pay them off by order of interest rates, regardless of the size. Pay the extra to the highest rate loan first and the minimums on the rest. And then repeat. It may take longer until you get that first loan paid off. But you’ll save interest in the end and will pay for a shorter total time period.

    Anyway, I’ve listened to DR a couple times on the radio. He’s very motivating when you’re having a bad day. I take almost all of his advice with a grain of salt but that is how I approach all advice.

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