Dave Ramsey Baby Steps Retirement

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Who Is Dave Ramsey What Is His Past

How We Hacked the 7 Dave Ramsey Baby Steps to Retire Early

Dave Ramsey is a business man and radio show host. He has authored several books on personal finance, debt management and other related topics.

Hes been in the financial industry for many years and he continues to do what he does because of his passion towards excellence.

His views on accumulating wealth are like no other which is why people love him so much because he tells it how it is instead of sugar coating everything that we want to hear.

However there are some things about Dave that people should know and one of them I will be sharing with you here today.

Your Kids Are Counting On It

As parents, we naturally want to set our kids up for success in life! We parent them, teach them, train them.

But you know how they learn the most? From watching what we do! If you smoke, guess what theyre more likely to do?

The same is true with finances. Growing up, I learned very little about finances. In fact, I had to learn the hard way how to do things correctly. Dave Ramseys Baby Steps were a big part of that.

But the best legacy I can leave my kids, outside of an actual financial nest egg and paid-for college is the knowledge and wisdom Ive learned from doing things the right way.

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Recommended Reading: Have I Saved Too Much For Retirement

Baby Step : Develop Your Passive Income

Never depend on a single income. Make investment to create a second source. Warren Buffett

At this point, youre debt-free, mortgage-free and youve hit Coast FIRE and hopefully still making a decent income. If you really want to accelerate things and go after some BIG dreams like a career change, early retirement, or an upgrade in your overall lifestyle, youre going to need to increase your income.

If youre like me and you dont have a ton of extra time, passive income through buy-and-hold rental real estate or a taxable brokerage account can be a great way to go.

Perhaps time is on your side. Looking into a profitable small business can do wonders for your overall household income.

Rental Real Estate

This is a topic Ive explored a lot.

Through some interviews on my weekly podcast, Ive learned that you can get in the rental real estate game by getting a mortgage or buying with cash .

If you go through the cash route, youll have to save for quite a while, but if youre used to the Dave Ramsey crockpot methodology then waiting and saving shouldnt affect you too much.

Once youre able to secure your first property and those monthly rent checks start to come in, youll have a consistent and secure passive income source.

Yes, youll need to play landlord or hire a property management company to support you, but either way, you now have that coveted second income source that gets you closer to your big dreams.

Brokerage Account

Small Business

Dave Ramseys Baby Step : Invest 15% Of Your Household Income For Retirement

Dave Ramsey Baby Steps 1 Through 7 Explained

If youre following Dave Ramseys baby steps, then you know that step four is to invest 15% of your household income for retirement. This may seem like a lot, but if you start early, it can be easy to accomplish.

There are a few different ways to invest your money for retirement. The best way will depend on your unique situation. One option is to invest in stocks and bonds in a retirement fund. This can be a good choice if you want the potential for high returns, but you also risk losing money if the market drops.

Another option is to invest in mutual funds or target date funds. These types of investments are less risky than stocks and bonds, but they usually dont offer the same potential. The upside is that they are typically managed by fund managers so you wont have to worry about doing your own research or making trades.

Its best to speak with a financial planner if you want more information on investing for retirement. A good one should look at your whole situation, including your age, income, and current investments, before giving advice. Your financial planner can also help you figure out the amount of money that you should be saving for retirement each month. You may not be able to save 15% right now but even starting with .5 or 1% is better than nothing!

Dave offers Financial Peace University, that helps people plan for their financial independence and retirement.

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How Do I Even Start Investing

If youre taking the time to read this, congratulations! You are already one step closer to venturing out onto your investing journey! This is the first step in the direction of financial freedom!

I do understand that its easy to simply say okay, Ill invest my money, without ever questioning how you would even do it. Thankfully, M1 Finance makes this process very simple.

M1 Finance is an online, automated investing platform that allows you to invest your money safely and with ease. You simply set up an account with them, link your bank account for the transfer of funds and choose which investments you would like to make.

One of the perks that M1 Finance offers is that there is no minimum amount required to open an account or invest This means that its free to get started, and you can begin building your portfolio right away after signing up. Give it a try!

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Dave Ramseys Financial Meltdown

Dave Ramsey has built a huge business by telling Americans how to get out of debt. He is, in fact, the nations best-selling financial author. However, in recent years he has been raked over the coals by critics who have charged that he often misses the mark when it comes to his own money management.

The controversy surrounding Ramsey started back in 2009 when he filed for Chapter 7 bankruptcy protection. At the time, he claimed that he and his wife had racked up more than $1 million in debt on a variety of things, including their home, cars, and various investments.

Critics were quick to jump on Ramseys apparent hypocrisy, noting that the same man who preaches against debt had gone deeply into it himself. They also pointed out that many of Ramseys fans are working-class people who cant afford to follow his advice exactly.

Ramsey has since tried to make amends, selling off some of his prized possessions and vowing to live a more modest lifestyle. He has also written about his experience in the hope of helping others avoid making the same mistakes.

While Ramseys bankruptcy was a personal failure, it doesnt change the fact that he has helped millions of people get their finances in order.

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Baby Step #: College Funding For Kids

At this point, you should have a fully-funded emergency fund, no debt except the mortgage debt, and invest 15% of your gross income. According to Dave Ramsey, it is a perfect time for you to save for the childrens college fund. Dave recommends using 529 plans and Coverdell Education Savings Account because it is tax-advantaged and used explicitly for educational expenses.

Even though starting savings for a childrens college fund and their financial security is a personal decision, many people decide to do it because we are witnessing the cost of college growing much faster than wages are.

There is no universal amount set for this step because it will depend on how much income you have leftover each month, how old your kids are, and how many kids you have.

Why We Stopped Following Dave Ramseys Baby Steps

Dave Ramsey – Baby Step 4 “Simple Retirement Investment”

Dave Ramsey, the man responsible for changing the trajectory of our financial livesbut not so fast. Today Im going to share with you the areas of personal finance that I think Dave misses the mark at and is costing you and others like you hundreds of thousands of dollars if not millions.

So Dave Ramsey and his infamous baby steps. Yes, those 7 baby steps that on the surface look great and so inspiring, but when you start to analyze the steps you begin to see how much of a problem they can be. And thats why I thought it would be best for me to share with you how we, my wife and I went from following Dave Ramsey and paying off almost $300,000 of consumer debt to now following our own path and being very happy we did.

If you dont know who Dave Ramsey is, well hes basically a personal finance expert and yes I call him an expert, because when you talk about money for as long as he has and helped so many people like he has I think its appropriate to call him a personal finance expert. BUT experts are not perfect and sometimes get things wrong.

And I, like so many Dave Ramsey enthusiasts learned this when I tried to share his message to friends and family, which by the way is a mistake all together. Never tell your friends or family how they should handle their money before letting them come to you and asking.

Recommended Reading: How Much Money To Retire At 62

A Closer Look At The 7 Baby Steps

Most people do them because they want to get out of debt. Theyre sick and tired of struggling with debt. Theyre DONE. So they search around for something that can help that isntdebt consolidation and find this.

Which is why its surprising that Dave Ramseys baby steps are missing something critical. Baby Step 0, if you will.

Because the very first things you have to do are make the decision to change and stop borrowing. Youve got to quit digging that hole. Baby step 1 helps with that, but youve got to make the commitment first. Youve got to only spend money you already have.

Now, lets take a closer look at each of Dave Ramseys baby steps, along with some pros and cons.

Baby Step : Save 3 To 6 Months Of Expenses For Emergencies

With your consumer debts now being slowly paid off, Ramsey says, You will have built serious momentum. But dont start throwing all your extra money into investments quite yet.

Instead, its time to build up your full emergency fund.

Ask yourself, he says, What would it take for me to live for three to six months if I lost my income?

Professor Kleiner supports this conservative approach. We never know what the future will entail, he said, so its always a good idea to be prepared for bad luck.

And we Americans are not great at saving, Kleiner adds. He says that U.S households save only 2.4% of disposable income , whereas the average family in China saves 37% of disposable income.

So, if your family makes $50,000 each year after taxes, they save only $1,200, Kleiner says. The family in China saves $18,500 in comparison.

The updated statistics on personal savings as a percentage of disposable personal income have changed dramatically. The COVID-19 pandemic not only had consumers sitting at home, they were sitting on their money as well. The personal savings rate soared to 33.1% in April 2020 and has bounced around considerably since then, dropping to 13.6% in the spring of 2021.

Other financial experts say Ramseys approach of saving more for a rainy day is silly when, for instance, you could be investing the money into a no-brainer employer match 401K.

Also Check: How To Find Retirement Accounts From Previous Employers

How To Save For Retirement

10 Min Read | Apr 14, 2022

We all know its important to save for retirement. And yet weve talked to many folks who dont have a single dollar in their nest egg. Why? A lot of them just dont know how to save for retirement or where to start.

Ramsey Solutions conducted a study on the state of retirement in the U.S. and it found that nearly half of Americans arent saving for retirement.1 And even those who do save for retirement arent saving enough.

Thats a problem!

The good news is that people are thinking about it. In fact, 49% of Americans said saving money was one of their New Years resolutions for 2020.2 Thats right up there with eating healthier and getting more exercise as the most popular resolutions.

But wishing without action is just a pipe dream. You have to do something different if you want your habitsand your futureto change! And the truth is, saving for retirement is easier than you think. Were going to cover three steps:

  • Set a Goal for Your Retirement Savings
  • Invest 15% of Your Income Into Tax-Advantaged Accounts Like a 401 and Roth IRA
  • Going Beyond 15%Max Out Your 401 and Other Investing Options
  • We’re going to show you how to save for retirement step-by-step and give you a few practical ways you can turbocharge your savings plan today.

    Lets get started!

    Invest 15% Of Your Household Income For Retirement

    An Introduction to the Dave Ramsey Baby Steps

    Once you have saved 6 months of expenses, you move to baby step 4.

    Begin preparing for your future by investing now. Not only will you be able to provide for yourself in retirement, but youll also be able to avoid having to take on debt to cover costs later on.

    Dave Ramsey recommends investing 15% of your gross household income into retirement accounts like 401ks and Roth IRAs.

    If your company has a 401k plan, make sure you sign up and invest as much as possible. Your company may even offer to match your contributions, which would be like getting free money!

    If you dont have a 401k through your job, you can open a Roth IRA account at nearly any bank or investment firm. Just make sure youre investing in a diversified portfolio.

    On the other hand, some people believe that 15% is too much to invest, especially if youre starting. Others argue that you cant afford NOT to invest 15% if you want to have a comfortable retirement.

    Most important, whatever retirement savings percentage you decide to invest in, this retirement baby step will ensure you are financially stable during your retirement years.

    You should invest in something, even if you have to open a brokerage account. You can invest in the stock market or mutual funds.

    Don’t Miss: Using Home Equity In Retirement

    Dave Ramseys Baby Step : Save For Your Childrens College Fund

    Of course, you cant get around step five of the baby steps until you have finished step four. Make sure that your retirement accounts are funded before you think about saving for college or other goals. You will be able to use any matching funds from your employer and the money in your 401k if it is not already earmarked for another purpose.

    If you dont have a 401k through work then open an IRA at one of many providers. Note that this does NOT replace funding your 401k through work make sure to save in both places if possible! The maximum amount that can go into an IRA each year is $5,500 . If you have children, it is important to save for their college education.

    529 Plans

    One way to save for your childrens college is through a 529 plan. This is a tax advantaged account that allows you to save money for college expenses, so your kids dont need to get student loan debt, a massive problem in our country right now.

    The money in the account can be withdrawn tax-free as long as it is used for qualified education expenses. There are limits to how much you can contribute each year, and there are also gross household income restrictions, so check with your financial advisor to see if this is the best option for you.

    Coverdell ESA

    One disadvantage of a Coverdell ESA is that the money in the account must be used by the time the child turns 30 years old. Another downside is that there are income restrictions, so you may not be able to contribute if your income is too high.

    Baby Step Pay Off All Debt Using The Debt Snowball

    Dave Ramsey is well-known for his preference for the debt snowball method over the avalanche method. He dislikes debt, as a rule, and wants those who are going through this step to avoid taking on any new borrowing.

    The debt snowball requires you to list all your debts in order of smallest payoff balance to largest, excluding your home mortgage, irrespective of the loans individual interest rate. All loans are put on the list even if they are loans from a family member with zero interest. The one exception to going with the smallest debt first is that if you have a larger debt to the IRS or are facing a foreclosure, pay that earlier.

    To get started, take your money from nonretirement savings and investments. Pay off your smallest debt in dollars and go on to the next smallest one, and so on. Your debt list should include your required monthly minimum amounts, be it on your credit cards or any other loans.

    The point is to get small but quick wins to further your motivation by paying off small amounts first. Dave acknowledges this method favors the behavioral impact over the math. This motivational approach works for many who see more immediate benefits in checking off their debt list. The problem for many is overwhelming credit card debt balances that grow quickly from high-interest costs if not paid off aggressively. The snowball method wont work well on that debt, and you cant just pay minimum payments.

    Also Check: How To Start A 403 B Retirement Plan

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