My Take On the Baby Steps

Dave Ramsey gets a lot of attention on personal finance blogs.  Some love him while others hate him.  My own opinion is somewhere in between.  His baby steps are a simple way to get your finances in order.  Here is my personal take on the baby steps.

1.  Create a $1,000 emergency fund.- I agree with this one and have done this.

2.  Pay off all debt using the debt snowball.- I have special reasons for not paying off my student loans which I’ll detail in a later post.  I do have all other debt paid off.  I don’t have any problem with people using the debt snowball to pay off their debt but I believe I’m disciplined enough that I could pay off the highest interest debts first.

3. Three to six months expenses in savings.- This one also makes sense.  I haven’t done this yet because I’m concentrating on maximizing my retirement savings.

4. Invest 15% of income into Roth IRAs and pre-tax retirement savings.- I do believe you should be doing this but I don’t believe it should be delayed until step 4.  You are limited in how much you can contribute to these accounts each year and if you miss a year you can’t make it up later.  Plus, the earlier you get money into retirement savings the longer compounding works for you.

5. College funding for children.- This one also makes sense but I don’t have children and don’t plant to so it isn’t a concern for me.  I didn’t have any help paying for my college.

6. Pay off home early.- This one I could go either way on.  There is a lot of psychological comfort in having your home paid off but your mortgage is also cheap money.  I don’t own a home but if I did I’d probably pay it off early even if that isn’t the most advantageous financial move.

7. Build wealth and give. Invest in mutual funds and real estate.-  I agree with this one but  I’d also add investing in your own business.  Of course, that would depend on whether you have the desire and ability to run your own business.

That is my take on the baby steps but I don’t think you should blindly follow anyone’s financial advice.  You should study it and determine how well it works for your personal financial situation.