*The Dave Ramsey 'Baby Steps' Thread*

[Tygerlilly]

We're following a slightly more lenient version of DR. We still take vacations, but we pay for them in cash. My kiddos are young and I want to have memories with them and annual vacations. We also homeschool, so some of our trips are 2 fold: learning experiences and fun trips.

 

[ThereYouSeeHer]

We're following a slightly more lenient version of DR. We still take vacations, but we pay for them in cash. My kiddos are young and I want to have memories with them and annual vacations. We also homeschool, so some of our trips are 2 fold: learning experiences and fun trips.

Welcome! We homeschool, too (which is definitely a budget item in itself). We are always looking for free and educational adventures! Just last month, we went to a National Historical Park that we hadn't been to before. We had so much fun and learned so much.

Yes, cash for vacations is the way to go! Although he only recommends foregoing vacations on Baby Steps 1 and 2, some people still choose to vacation wisely on the earlier steps. He just wants all extra money to plow through those steps as quickly as possible. That way, it doesn't drag on longer than necessary!

 

[barkley]

Congrats to all! I wished they would teach these lessons to high schoolers!

my oldest still complains that when in high school he would have killed to have a financial education course offered to students YET the only students who received any instruction in the subject were those in special ed. my youngest who was in special ed can explain and calculate simple and compound interest, explain the pitfalls of credit card debt...but all the other students who were about to make major financial decisions about college and such-nothing offered.

if someone is looking for a resource-see if a local credit union offers on-line classes. ours used to do in person but with the pandemic they've switched to zoom. i just checked and they offer these on a huge variety of topics including 'become debt free'.

 

[ThereYouSeeHer]

my oldest still complains that when in high school he would have killed to have a financial education course offered to students YET the only students who received any instruction in the subject were those in special ed. my youngest who was in special ed can explain and calculate simple and compound interest, explain the pitfalls of credit card debt...but all the other students who were about to make major financial decisions about college and such-nothing offered.

if someone is looking for a resource-see if a local credit union offers on-line classes. ours used to do in person but with the pandemic they've switched to zoom. i just checked and they offer these on a huge variety of topics including 'become debt free'.

Thanks! That's a good idea about the credit union classes. Wouldn't have thought to look there.

 

[ruadisneyfan2]

my oldest still complains that when in high school he would have killed to have a financial education course offered to students YET the only students who received any instruction in the subject were those in special ed. my youngest who was in special ed can explain and calculate simple and compound interest, explain the pitfalls of credit card debt...but all the other students who were about to make major financial decisions about college and such-nothing offered.

if someone is looking for a resource-see if a local credit union offers on-line classes. ours used to do in person but with the pandemic they've switched to zoom. i just checked and they offer these on a huge variety of topics including 'become debt free'.

I don't know how old your children are, but ours are in their early 20s. Financial Literacy is a half-year course required by the state of NJ for all students as a graduation requirement. I'm glad they have it but our youngest was a bit too immature to appreciate it at the time.

I gave both of them this book at HS graduation.
https://www.amazon.com/Didnt-They-T...02&sprefix=why+didn't+they+tea,aps,789&sr=8-1

We're following a slightly more lenient version of DR. We still take vacations, but we pay for them in cash. My kiddos are young and I want to have memories with them and annual vacations. We also homeschool, so some of our trips are 2 fold: learning experiences and fun trips.

We did this too. I also didn't stop our contributions to our retirement accounts. I realize this lengthened the time it took to pay things off but really, nothing would stop me from contributing besides job loss.

 

[hsmamato2]

Again, full disclosure on the DR plan..... I've always 'modified' it to fit our own needs,and that means using credit cards for purchases,and using the rewards to buy/do things I wouldn't have been able to otherwise. Always used like a checking account- paid in full weekly ,which means calculating what I could afford as if it's cash in my pocket that minute. I realize why DR pushes no cc's at all, given the business he's in, and the general mentality he's trying to get into people's brains. For me personally, nothing he has stated about cc use pertains to how I choose to spend,ever. That said,I really like the rock solid baby steps.

 

[barkley]

Again, full disclosure on the DR plan..... I've always 'modified' it to fit our own needs,and that means using credit cards for purchases,and using the rewards to buy/do things I wouldn't have been able to otherwise. Always used like a checking account- paid in full weekly ,which means calculating what I could afford as if it's cash in my pocket that minute. I realize why DR pushes no cc's at all, given the business he's in, and the general mentality he's trying to get into people's brains. For me personally, nothing he has stated about cc use pertains to how I choose to spend,ever. That said,I really like the rock solid baby steps.

i agree with the credit cards-we use ours similarly. there are also situations when a credit card is needed, if you need to rent a car in an emergency it's generally required. the other tweek we felt was needed for his program was to up the emergency fund amount. $1000 is a nice solid amount but if it's less than your auto or renters or home insurance deductible then it may be better to up it (we had an incident where our home was damaged and we had to be out of it for about a week-insurance company told us to pay for the lodging and provide proof when we had hit our deductible after which they arranged to pay for it).

 

[ruadisneyfan2]

i agree with the credit cards-we use ours similarly. there are also situations when a credit card is needed, if you need to rent a car in an emergency it's generally required. the other tweek we felt was needed for his program was to up the emergency fund amount. $1000 is a nice solid amount but if it's less than your auto or renters or home insurance deductible then it may be better to up it (we had an incident where our home was damaged and we had to be out of it for about a week-insurance company told us to pay for the lodging and provide proof when we had hit our deductible after which they arranged to pay for it).

I agree. I wonder how long ago he came up with the $1000 emergency fund idea. Let’s face it, it’s been at least 10 years. With inflation, it doesn’t cover as many emergencies as it used to. I could see why he’d be reluctant to increase it. For many, just saving up that $1000 is a huge hurdle to overcome before starting to pay down debt #1. Some might even give up before they really get started.

 

[sdoll]

Yeah, it's getting harder to safely carry enough cash around! In general, I also feel more secure using a credit card than a debit card just as a means of separation from my checking account.


This. I am starting to figure out that until our children are past college age, there's not much we can do other than keep moving forward!

I could not agree more. We try but it is so hard to get ahead, I am learning to settle with staying afloat. I can see the light at the end of the tunnel though! which is very bitter sweet!

 

[RamblingMad]

My emergency fund is about half my gross salary.

 

[ThereYouSeeHer]

I could not agree more. We try but it is so hard to get ahead, I am learning to settle with staying afloat. I can see the light at the end of the tunnel though! which is very bitter sweet!

Exactly. Staying afloat and trying not to go backward.

Yes, bittersweet, but I'll find a way to keep 'em around, haha!

 

[ThereYouSeeHer]

My emergency fund is about half my gross salary.

I love this. We're in a rebuilding season (our emergency fund used to have emergency funds!), but I think it's one of those things that should always be evolving.

For example, save 3 months of expenses only, then 3 months padded. 6 months of expenses only, then 6 months padded.

I would love to have a year's gross salary as an emergency fund eventually.

 

[Tygerlilly]

$1000 wouldn't even cover our rent for a month should something happen. It's a good base, but realistically we probably need about $1700-2000 to cover all basic needs for one month.

 

[ruadisneyfan2]

$1000 wouldn't even cover our rent for a month should something happen. It's a good base, but realistically we probably need about $1700-2000 to cover all basic needs for one month.

This is true. Where people disagree is that DR suggests that people should set aside $1000 only for the ‘brief’* time that it takes to pay off debt. It is not meant to be a permanent emergency fund such as to cover expenses during job loss.
It’s more like an EF for maxed out cc users or people without a budget who are trying to get a handle on things. The washer dies, big vet bill. car needs brakes, etc. These are things that would make some people whip out their cc to get through the emergency.

People who follow a budget have funds in place for those common scenarios.

*I say brief time because if you really follow all his advice for Baby Step 2, with gazelle intensity: no vacations, no dinners out, no car loans, no contributing toward 401, etc likely wouldn’t take very long.

Once debt is paid off, Baby Step 3 is building a real emergency fund.

 

[hsmamato2]

This is true. Where people disagree is that DR suggests that people should set aside $1000 only for the ‘brief’* time that it takes to pay off debt. It is not meant to be a permanent emergency fund such as to cover expenses during job loss.
It’s more like an EF for maxed out cc users or people without a budget who are trying to get a handle on things. The washer dies, big vet bill. car needs brakes, etc. These are things that would make some people whip out their cc to get through the emergency.

People who follow a budget have funds in place for those common scenarios.

*I say brief time because if you really follow all his advice for Baby Step 2, with gazelle intensity: no vacations, no dinners out, no car loans, no contributing toward 401, etc likely wouldn’t take very long.

Once debt is paid off, Baby Step 3 is building a real emergency fund.

this.... that $1k is supposed to be very short term,I'm assuming to get people into that mindset. He does preach at least 6 months fully funded.

 

[tzolkin]

this.... that $1k is supposed to be very short term,I'm assuming to get people into that mindset. He does preach at least 6 months fully funded.

But, depending on how much debt someone has, it may not be "very short term". He does not suggest saving any more than the $1000 for an emergency fund until after ALL debt (except mortgage) is paid off. If someone has $250k of debt, even being very determined it may take them several years to pay that off completely. In the meantime, $1000 is not going to cover the cost of a car our home repair so they will inevitably wind up using their credit cards to cover those expenses.

I think his underlying principles are good and he provides valuable information about finance basics that are greatly needed. I do think there is a benefit to the psychology of his suggestions, especially for people who have to unlearn or majorly modify their behavior. I just don't believe that his advice is the best fit for 100% of people.

 

[barkley]

this.... that $1k is supposed to be very short term,I'm assuming to get people into that mindset. He does preach at least 6 months fully funded.

i get that but i still think it's an outdated amount to be reliant on while paying down debt cuz it doesn't happen overnight even in 'stealth mode'. he preaches closing credit cards as soon as they are paid off and to absolutely not accrue any additional debt, but for most people i know (myself included) a claim to my auto or homeowner's insurance would entail well more than $1000 for the deductible and absent having that deductible amount tucked away it would be an automatic default to incurring more debt (if a person were even able to do so-seems like a good number of people who call in to his show are maxed out on every credit card they have).

i like his program but i'm just not with him on some aspects-for example, he says 'no credit cards-ever', well maybe dave ramsey can rent a car or get an airline ticket without a credit card but i've not found a way to. i also find better protection using a credit card for monthly regular expenses vs. a debit card b/c if a debit card is stolen or hacked it's tremendously more difficult and time consuming to get your money back vs. if it happens on a credit card -and from personal experience-if you have overdraft protection on an account associated with a debit card such that it pulls from one or more other accounts you have with that financial institution-put a dollar limit on the protection b/c otherwise a thief can drain every associated account, one after the other in less time than it takes to contact your financial institution and get that debit card blocked-esp. if it's after banking hours and you're stuck with contracted 24 hour customer service .

 

[pigletto]

I think the $1000 emergency fund is probably outdated but the larger point is if you are in heavy debt and don’t even have $1000 you can turn to in case of an emergency, you need to change your finances badly.

That’s where his program comes in.. it is “no more excuses, you’re finances are a mess and here’s a lifeline” advice.

There is literally no program better for getting out of debt.

It’s his personality and general opinions that I don’t have any need for, but I’ll give the man credit, he gets people thinking about their debt and how they can recover. And so many people need that help right now.

 

[ruadisneyfan2]

But, depending on how much debt someone has, it may not be "very short term". He does not suggest saving any more than the $1000 for an emergency fund until after ALL debt (except mortgage) is paid off. If someone has $250k of debt, even being very determined it may take them several years to pay that off completely. In the meantime, $1000 is not going to cover the cost of a car our home repair so they will inevitably wind up using their credit cards to cover those expenses.

I think his underlying principles are good and he provides valuable information about finance basics that are greatly needed. I do think there is a benefit to the psychology of his suggestions, especially for people who have to unlearn or majorly modify their behavior. I just don't believe that his advice is the best fit for 100% of people.

This is true but I’m curious what percent of people carrying debt owe that much?
That is atypical.

Hmmm.. I am curious

 

[tzolkin]

This is true but I’m curious what percent of people carrying debt owe that much?
That is atypical.

Hmmm.. I am curious

These average debt numbers are from the Dave Ramsey website:
Credit Card-- $14k per household
Auto-- $31k per household
Student Loan-- $38k per borrower so x2 for a couple = $76k

That's $121k for an average couple (without counting mortgage) If that's the average, that means some are significantly more in debt than that amount. I know quite a few couples where both spouses have well over $100k in student loans.

My point was really that the debt snowball is not necessarily a "short term" thing that most people can pay off in a few months by cutting out lattes. For many it requires several years of dedicated work to pay everything off. That leaves a lot of opportunities for something to go wrong where you may need more than $1000 to cover an emergency expense.