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Well, it depends on what your goals are
Is he wrong? Maybe not.
What Are Dave Ramsey’s 7 Baby Steps?
Baby Step 1
Save $1,000 for your starter emergency fund.
Baby Step 2
Pay off all debt (except the house) using the debt snowball.
Baby Step 3
Save 3–6 months of expenses in a fully-funded emergency fund.
Baby Step 4
Invest 15% of your household income in retirement.
Baby Step 5
Save for your children’s college fund.
Baby Step 6
Pay off your home early.
Baby Step 7
Build wealth and give.
Dave Ramsey Is A Legit Starting Point
I always recommend Dave Ramsey as the starting point of your financial journey. He offers you a simple foundation you can implement if you know literally nothing about money.
It was pleasure reading his books when I was still learning about money because his concepts were easily digestible and made sense.
However, as I continued to learn more about personal finance, I then realized some of his methods were no longer applicable – especially the debt snowball method.
According to Dave Ramey, I should focus on paying off my debts after building a $1,000 emergency fund.
But what is a $1,000 emergency fund going to do for you? Not much. It can cover maybe one or a few low cost emergency expenses, and then it’s gone.
But if you happen to lose your job, you are SOL.
After you build your $1,000 emergency fund, you’re then encouraged to pay off all your debts (outside of your home).
At baby step 2, you’re still not investing. It could take years for you to pay off all of your debts, which means years of zero investing.
That’s crazy.
Why would I compromise my time by not investing to pay off debt?
Always do both at the same time.
The Debt Snowball Method
Here’s how his debt snowball method works. You list your debts in order from least to greatest. You start paying off the smallest debt while paying the minimum payments on the other debts.
As you put extra money into the smaller debt, you eventually pay it off.
Whatever money you were putting into that debt, you will now put into the next smallest debt.
You continue this pattern until you pay off all of your debts.
But while you do this, you aren’t investing, and you only have $1,000 emergency fund, which doesn’t seem like a healthy financial situation.
Here’s What I Did Instead
I built a six-month emergency fund while investing.
I started paying off my debts while investing.
And I’m so grateful I did this or would have less capital available.
Never delay or pause investing to pay off debts.
If you’re up to your knees in debt, and the interest rates are sky high, then focus on paying the debt while putting a modest percentage away towards investments.
Over time, you will thank yourself for doing this due to compound interest working on your behalf for decades.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.