Occasionally, I watch clips of Dave Ramsey.  I have been critical of him at times with his investment advice, along with his hatred of gold.  However, I think he is good on a lot of things, and I believe he has helped a lot of people.

If someone with little knowledge about money management went looking for good resources, I think Dave Ramsey is a decent place to start.

Ramsey is known for his 7 Baby Steps.  They are as follows:

1. Save $1,000 for your starter emergency fund.
2. Pay off all debt (except the house) using the debt snowball.
3. Save 3-6 months of expenses in a fully funded emergency fund.
4. Invest 15% of your household income in retirement.
5. Save for your children’s college fund.
6. Pay off your home early.
7. Build wealth and give.

The last step is rather general and vague.  Many people in the financial independence (FI) or FIRE community are somewhat critical of these steps, and the last one can really leave you hanging.

While many FI people got started with Ramsey’s baby steps, they say that it leaves a lot to be desired, or it is just too elementary.  A lot of people pursuing FI are already at or near Baby Step 7, possibly having skipped some steps, but they are still a long way off from achieving FI.

If you have achieved, or mostly achieved, the first 6 steps, then you are in pretty good shape, at least compared to most Americans or anyone else in the world.  If you are age 65 and just finishing step 6, then maybe you aren’t in good shape, but it depends how long you have been doing Baby Step 4.

Once you get to Baby Step 7, it isn’t really much of a “baby” step at that point.  It is a rather giant leap for many to get to where they want to be.

With evolving laws and possibly high inflation on the horizon, it is interesting to go through the seven steps to see if anything should be updated.

Baby Step 1

Starting right off the bat with Baby Step 1, I think $1,000 is too little.  I understand that this is really for people who are in debt.  You are supposed to accumulate $1,000 before tackling the debt pay off.  The amount is purposely set low to give a sense of desperation on how important it is to pay off debt fast.

So part of me really likes this, because I think having debt (especially credit card and other high-interest debt) is a terrible thing in most circumstances.  People should see this as an emergency that needs to be tackled immediately.

However, in today’s world of rising prices, I think $1,000 is simply too low for some people.  If you are 22 years old with no kids and living in your parents’ garage, then $1,000 is fine.  But if you are 30 years old with two kids and a house, then having $1,000 only is not wise.

If you are 30 with two kids (or any age) and you have $10,000 in the bank with $20,000 of credit card debt, I don’t know that I would recommend using $9,000 to immediately pay off some of the debt.

Life happens, and you don’t know what unexpected (or expected) expenses will pop up.  If you go down to $1,000, you better make sure that you can put $9,000 back on your credit card in case of an emergency.

What happens if your water heater breaks?  What if you have an unexpected medical bill?  What if your car needs an expensive repair?  If you can put all of this on a credit card, then maybe it’s fine.  But you do have to be responsible, especially when others are dependent on you.

Ramsey’s baby steps have been around a long time.  $1,000 isn’t what it used to be.  Inflation is resulting in our money buying less.  I think this amount needs to be a little higher, and it also depends on your personal situation.

Baby Step 2

I have little disagreement with Baby Step 2.  The only caveat is that you may not need to prioritize paying off really low-interest debt ahead of everything else.  Again, there are nuances.  But I don’t think the passing of 20 years changes anything for this step.  Even in a world of higher inflation, you should still pay off your debts.  You don’t know when things will change.

And as I frequently say, you don’t make money by paying interest.  You make money by earning interest.

Baby Step 3

With Baby Step 3, I don’t think any updating is needed.  If your expenses have gone up due to inflation, then the amount will go up.

Going back to Baby Step 1, maybe it should say “Save one-month of expenses for your starter emergency fund”, instead of a dollar amount.

Baby Step 4

With Baby Step 4, I don’t think it needs to be updated because of inflation.  But I wouldn’t necessarily recommend putting 15% into government-designated retirement funds like an IRA or 401k.  I think this locks up a lot of your money, and the government imposes rules on being able to withdraw it (if you can withdraw it at all right now).

I think you should contribute to a 401k up to an employer match.  I also think a Roth IRA can be a good idea, especially for younger people with lower incomes.  But it is probably a good idea to have some wealth sitting outside of retirement accounts, even if it is still intended for retirement.  You also never know if the government is going to change the rules regarding retirement accounts.

Baby Step 5

For Baby Step 5, I believe this needs to be updated.  I don’t think parents are obligated to pay for their children’s college education.

Aside from this, it is important to recognize how much our world is changing and continues to change.  With many of these colleges and universities, it is more about propagandizing these young adults than it is about preparing them with skills for the real world.

In today’s digital world, more and more companies aren’t just looking for college degrees.  They want skills that will make them more productive.  You don’t need a college degree any more to be successful.  Plus, some people decide that they would rather do contracting work or own their own business.

There is also a possibility that the government, in its quest for more socialism, ends up passing legislation to provide “free” college, or at least partially paid-for college.

If you want to save for your children’s college education, then just put the money aside in a non-retirement account, and you can always use it for something else.

Baby Step 6

For Baby Step 6, I have always been an advocate of paying off the mortgage on your primary residence under the right conditions.  Even in a world of inflation, I don’t think you can go wrong doing this.  If anything, this could be higher on the list for me.  It could be done in conjunction with contributing money towards retirement (Baby Step 4).

Baby Step 7

With Baby Step 7, I don’t disagree with it.  You are really building wealth with all of these steps.  It is so broad, it is hard to disagree with it.

If anything, I think steps could be added after this (or before).  For people pursing FI, they will focus on reducing their reoccurring expenses so that they can save more.  If they can keep those expenses down, it will also mean less savings are needed to achieve FI or retirement.

Overall, I think Ramsey’s baby steps are a good place to start.  There is a lot of nuance in there though, so they shouldn’t necessarily be rigidly followed unless you really need that discipline.

When it comes to money management, I think Dave Ramsey is a great place to start.  I still wouldn’t follow what he says when it comes to investing advice.