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Do Dave Ramsey’s Baby Steps Actually Work?

By Spodek Law Group | February 20, 2024

Do Dave Ramsey’s Baby Steps Actually Work?

Dave Ramsey‘s Baby Steps is a popular personal finance system that provides a step-by-step plan for getting out of debt and building wealth. The Baby Steps start with building an emergency fund, then focusing on paying off all non-mortgage debt, before moving on to longer-term goals like saving for retirement and college.But do the Baby Steps actually work in real life? Here we analyze each step and look at the pros and cons based on finance expert and consumer feedback.

Step 1: Save $1,000 for a Starter Emergency Fund

The first baby step is to save $1,000 as a starter emergency fund. The idea is that this provides a small cushion to cover unexpected expenses like car repairs, medical bills, or job loss without needing to take on additional debt.According to Reddit users, this initial $1,000 fund can provide much needed peace of mind and prevent going further into debt when surprise expenses come up. However, some criticize that $1,000 may not be enough of a buffer depending on your monthly expenses and risk factors.Pros:

  • Prevents going into (more) debt for small emergencies
  • Provides psychological benefits


  • $1,000 may not cover larger emergencies
  • Delay paying off debt

Overall, this first step gets the emergency fund started and can help break the cycle of debt for some. But adjusting the target amount based on your personal situation may make more sense.

Step 2: Pay Off All Debt (Except Mortgage) Using the Debt Snowball

This is the core focus of the Baby Steps – becoming 100% debt-free outside of your mortgage using the “debt snowball” method. This involves:

  1. Listing out all debts from smallest to largest balance
  2. Making minimum payments on all debts except the smallest
  3. Putting any extra money towards paying off the smallest debt first
  4. Once the first debt is paid off, roll that payment to the next smallest debt

Dave Ramsey popularized this “debt snowball” strategy, but it has been both widely praised and criticized by other personal finance experts.On the plus side, paying off small debts first can provide quick “wins” and motivation to keep going. Psychologically, seeing debts paid off can encourage people to keep paying down debts faster. There’s also the simplification benefits of only focusing on one debt at a time.However, critics point out that paying off the highest interest debt first technically saves more money overall. But Ramsey counters that becoming debt free quickly is more psychological motivating for most people.So while not optimal mathematically, committing to rapid debt repayment works very well in practice based on consumer feedback. And the debt snowball facilitates this while providing emotional benefits.

Step 3: Save 3-6 Months Emergency Fund

Once all non-mortgage debt is paid off, the next Baby Step is to build up a full emergency fund with 3-6 months of living expenses. This provides an adequate buffer for larger unexpected expenses.The average American has less than $5,000 saved in the bank. Having 3-6 months of living expenses set aside provides a large psychological comfort as well as financial safety net. It prevents going back into debt when large expenses come up.Of course, the exact emergency fund amount should be based on your personal situation. Do you have a stable job or inconsistent income stream? Do you own a home or car that could have large unexpected repairs? What is your health insurance situation? The more financial responsibilities and risk factors, the more you may want to save on the higher end of 3-6 months or beyond.While not a magic bullet, having several months of living expenses in the bank account allows breathing room to address financial challenges from a position of strength rather than desperation.

Step 4: Invest 15% Towards Retirement

Once the first 3 Baby Steps of getting out debt and saving an emergency fund are completed, Ramsey advises investing 15% of your income into retirement accounts. This includes taking full advantage of 401(k) and IRA accounts.The 15% benchmark aligns with common target retirement savings rates amongst financial planners. And investing for retirement early and consistently is widely regarded as smart financial move.That said, some Reddit users note that 15% may not be not enough depending on your age and retirement income needs. Investing more while you can afford it may be prudent.Additionally, Ramsey‘s investment advice tends to focus on general principles like diversification and avoiding unnecessary risk rather than specifics. He advises working with a financial advisor to develop a personal investment strategy.

Step 5: Save for College Education

The Baby Steps focus on rapid debt repayment before saving for longer-term goals like retirement and college tuition. Ramsey cautions against going into debt to pay for college.Instead, he recommends setting aside college savings into 529 plans or other accounts after paying off all other debt and securing retirement savings. Critics counter that paying for a child’s education should be prioritized higher based on today‘s high college costs.Ramsey responds that retirement must come first financially, and kids have options like community college, scholarships, work study programs, and cash-flowing college expenses.In the end, how much emphasis you place on saving for college depends on your personal situation. Having some dedicated college savings is prudent. But Ramsey argues avoiding all debt, including student loans, should be the priority before paying for education.

Step 6: Pay Off Your Home Early

The final Baby Step is to pay off your mortgage early by making extra principal-only payments each month. Any extra monthly cash flow after other steps are complete should go towards the mortgage.While making extra mortgage payments reduces total interest paid and years until the home is owned outright, this step has also been debated. Some data shows investing extra cash rather than prepaying low interest mortgages may make more financial sense.However, Ramsey emphasizes the psychological benefits and sense of security from owning your home free and clear. Given his focus on rapid debt repayment, paying off the mortgage faster aligns well.So while financially debatable, eliminating the mortgage provides simplicity and peace of mind that supports Ramsey’s overall perspective.

Do the Baby Steps Work?

Dave Ramsey‘s Baby Steps presents a clear path for getting out of debt and achieving financial independence. The step-by-step structure can provide much needed guidance for people new to personal finance concepts.Thousands of Ramsey followers swear by the Baby Steps system and becoming debt-free has changed their lives. The focus on quickly paying off debt and saving an emergency fund flips the script on typical consumer financial habits.However, the plan is not without criticisms. Steps are linear and rigid when personal situations may require more flexibility. And some of Ramsey‘s investment and college savings advice in particular may need customization.Overall, the Debt Snowball and other Baby Steps drive home the psychological and behavioral benefits of committing to rapid debt repayment and saving money. For those struggling with debt, Ramsey‘s tough love approach to spending and budgeting can be the wake-up call needed to change financial trajectories for the better.While not optimized for every scenario, the Baby Steps have proven successful for many people. Having a system to follow along with community support can make the difference in actually following through. For those with debt problems willing to commit to lifestyle changes, the Baby Steps plan delivers life-changing results.

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