DAVE RAMSEY BABY STEPS - Are they still relevant for everyone?

so recently i actually caught a talk by dave ramsey now dave ramsey is of course a very famous financial guru he has a very famous program and structure which is called the baby steps program now his whole background is about how he paid out of a huge amount of debt i believe there are one or two million dollars worth of debt through real estate then coming into alive with money no longer being an issue for them now dave appeared on my timeline quite randomly in recent weeks and he's always a person that i get asked about his particular method and structure and if i like it have i been doing it how definitely useful for people he actually gave a talk during elevation church one sunday which is a church that i watch online and i enjoy and so when he popped up i thought this was a great time to review his baby steps give you my updated take on it and answer the question honestly is it time that these baby steps need updated and really is it suitable for the whole world not just for people in the usa so if you have read a lot of financial books you will know that a couple of their famous ones keep being repeated in the world as maybe first stops and improving your financial journey most of the recommendations i see are really for three books it's for dave ramsey's total money makeover which mentions the baby steps that we'll cover it's usually then recommending maybe rich dad poor dad which is another famous book which uses the investing market and actual property to build your wealth and financial freedom so complete opposite if you like then the third one is usually i will teach you to be rich by rama sepi which is kind of a combination shall we say of a little bit of both so we're going to look at dave ramsey's very famous baby steps now if you're brand new to what he does he actually started this concept i think it was in the early 90s 1992 i think he decided to put this book out and the structure out for how he and his wife got out of debt now recapping and you can go and watch the elevation church ceremony that he actually gave it talks about his life what led him onto this journey some of the reasons why he teaches what he does he said that you know his wife and him got in today through basically having real estate so they kept buying properties and then there's a downturn in the market and it meant rather than just owning you know a couple of houses and getting money that way they then had defaults on properties and i think it was roughly a couple of million in day that the bank man wanted back that everything was bouncing on and that day was really a turning point for him he'd tried mlms in the past made a little bit money that had funded the property business but then he decided this is not the way that i want to do things i don't want to be in debt anymore and so he developed this system it's got six steps traditionally there's even sometimes seven quoted of a very particular and if i may see a very strict process for people who are really feeling that they're completely in debt they're overwhelmed and they simply need someone to tell them what to do and what we do in that those circumstances is we look to people who've got our day and are actually teaching us right this is the way to do it now i read all three of these books really early on in my journey as well we had 24 000 pounds worth of consumer debt but more than that it wasn't just the debt we also were living a life that we weren't happy with if i'm being honest you know i was working full time as soon as my husband two small babies to look after and i just felt we had no choice no freedom but to work full time until it's somebody else raise our children and for me it was just that moment where i'm like there has to be a better way so i decided to find it and create it for me and my family moving forward in a very similar position i was desperate for some kind of proven system that i could use and you know reading a lot of books like the baby steps the latch upon principles that i do teach but we're going to cover perhaps why the baby steps in particular it might be a time for a little bit of an update so let's very quickly run over the baby steps if you never caught them before the first baby step is you should have one thousand dollars to start what he calls an emergency fund the second step so you must complete baby step one before number two then is pay off all your debt using the debt snowball method a very particular method step number three you then work on three to six months of living expenses you have in a savings account to cover for whatever you want to do but you've got that buffer now step number four is invest 15 of your household income in basically pensions or retirement funds step number five is then think about college or university funding for your children your legacy there step number six pay off your home early so pay off your mortgage and step number seven is then choose to be generous and give now i will say they do say that the first couple of steps baby step one to three is usually done in a very strict matter if you spoke to dave or you listen to his channel which is hugely popular on here he will say you do not progress further than the first three steps and they must be done in order you can't go into boost it four to seven until you finish those the latter part of the steps four to seven are really allowed to be done whenever you feel like so there is a structure there but he describes as they can be done together the first three they absolutely must be done in order and they must be completed before going on to the next steps so let's kind of break down this system now when i was starting out this was really useful to see how somebody else got in quite a dramatic situation with money and turned it around now obviously dave ramsey has then gone on to build a legacy for the past 30 years since starting in 1992. they they're now worth over 250 million dollars all their programs and counselling seminars so they must be helping people you don't get to that size without helping people usually and when we look at those seven steps i want you to think of it as like a training program and so what i do and why i didn't strictly follow the baby steps program but more took the values behind it and used it for my own is because i really encourage you to also look at what are the habits and the feelings and the health that you're going to come out of it at the end so for example is what's being taught to you something that's going to improve how you feel about money overall the habits you're going to come out with i kind of equate this to when you want to lose weight right a lot of systems the whole point with weight loss is one simple equation are you eating less calories than you're putting out and using every day if that deficit happens you will lose weight so that's why there's lots of different programs there's keto the slimming world and weight watchers you name it they are all designed to get you into calorie deficit that's the only equation but when we're looking at a diet you know as well as i do that if you are encouraged to eat only 500 calories so you're definitely in deficit and exercise every single day you might lose weight or you will lose weight over time absolutely because the calorie deficit is there but you're going to come out of it after maybe 10 or 12 weeks completely broken your body is going to really be suffering and you might need recovery time and to develop better habits with your eating and your mindset it's not just one way to do things and so i'm going to flip the script and say that about any money structure my encouragement for you to be would take everyone's recommendations and sound out actually what is the heart health that this is going to develop so let's look at baby step one now that thousand dollars when you look at it and dave is obviously in the us it's an amount that he's been using for nearly 30 plus years now in 1992 a thousand dollars that was probably equivalent now of about two thousand dollars worth of inflation so to have the recommendation it's a strict one thousand dollars which i know they're a little bit flexible on i think just doesn't work now with this step the feeling or the habit behind it we can all describe it is basically getting you to stop using credit cards and move to a cash dependent system there is no way you can get out of debt which is his target audience mainly people who want to get out of a lot of debt and have money to do what they want in life they want to have cash surplus so effectively like putting on we want more calories in than we're actually using out so we can do other things with them so what really we're saying with that first step is it needs to be a cash amount that you can save up based on what you earn but also it's going to create a buffer that you don't need to turn to the credit cards so absolutely i do agree that that's a great first step and should certainly be the switch that happens within our mind we're going to decide to move to a cash rich way of managing our money rather than credit rich now why i think this step in particular is out of date i said it doesn't reflect inflation that's been for the 30 years since he's been using this method if anything the value being there is kind of irrelevant it should be aligned with actually your current situation what you need perhaps some of the bills that you currently have after all it's that deficit of how much money you've brought in and what you're doing with it that's created the problem essentially as well so i would rather say a thousand dollars that's one random amount i would more equate it to what does your household need perhaps it needs updated along the lines of it's like a week or two weeks worth of expenses having as a cash buffer now why i say that is if you think about it you're wanting to do cash moving forward you're wanting to be someone who uses that method instead of credit all the time you will need some kind of immediate access to something if you need to go over the amount of money you're bringing in until you figure things out and so for people a thousand pounds might be all their income they ever need which is a huge amount or it might only be like 10 you know such a wide scale so i would really say seven thousand pounds as the first starter for that immediate pot to go cash rich make it align with what you earn i usually say make about a week or two weeks of what you actually need to pay all your bills so basically take your monthly income if you like and make it half and as we start the baby steps you're going to find this the structure is very rigid and it isn't personalized in any way it's very much geared towards the predominantly us market if you like so even that thousand dollars is not the same values it would be in the uk or richer parts of the world compared to even maybe poorer parts of the world that could be an astonishing amount of money it's just not practical so keep it in line with what you actually need currently in your monthly spending and as we go through the rest of the steps you're going to get a feel for i think actually the baby steps is missing that personal element just a little bit i do actually believe you know even though we can be in really hard situations when we start looking for a solution desperate to change giving us back the power and authority to kind of figure out what we need as long as we're given the basic habits and outlines that's the beauty of using money as a resource we are probably more responsible and aware of what we actually need to do to solve the habits and mindsets that we have and so giving us back some other authority means that we can be responsible for what we're doing as well now as we go through the rest of the seven steps you'll see a couple of them call out exact values they talk about how much to invest as an exact percentage and then there's a couple other areas like living expenses of three to six months with its exact values given about what you must follow there's also the requirement that you only do step one to three in exact order now what i'm going to say is before we go any further money habits are really the effect of something deeper anytime we're using any resource our money our time maybe our health as well any problems we experience with these external things it's usually coming from something internal so it tends to be that you know if you are overspending perhaps you're doing something because you want to numb feelings that you're having in other areas of your life or perhaps it's a way that you've equated actually to get that enjoyment you'll link that happiness factor spending to make you feel better at low times nothing is ever as simple as just putting a band-aid on our money or putting a band-aid over our health it's all about changing the inside and how we feel and how we use things overall and i think that's what we're kind of missing now with the baby steps the principles and intentions are absolutely there but we're kind of not telling people what the values or principles are so they can actually make the best choices for themselves so step number two is also do a debt repayment and this is where i do agree there's a couple of fundamental things we need to maybe hone in and improve on before we can get a great start moving forward and debt repayment is one of them you know that if you've got debt sitting on your budget every month it's taking money away from what you're earning that you could be using in other places that matter more a lot of the time and we're not talking about high level debt perhaps your home or something things like credit cards loans perhaps even your car payment they tend to be large chunks of money if you don't manage them properly and the thing about debt is you're paying a premium now obviously it's a way of buying things when we don't have the money available but they are charging you even sometimes 29 30 year on year growth for that privilege is kind of not in your favor you're the customer okay you're paying the bank so we want to get out of that situation so more money you can use and then do life differently if you want now dave asked that we follow this snowball method now there's a couple of other methods there's a snowflake and there's the avalanche the snowball method lists your smallest date to largest date in order and basically you put payments towards the smallest debt so you get rid of that the quickest then you move on and move on doesn't take into account of what size of payment you're paying and also the interest rate avalanche method which another very famous method pays the highest costing debt first down to the least that means the date that actually has the highest amount of interest being added consistently so where is most of your money they're paying on debt where is that kind of generating and if you don't attack that first it's going to keep growing and i actually think that's a more intelligent way of paying off debt the reason people are the snowball is because you get that hit factor of paying off debt absolutely it's a great thing it makes you know that you're progressing but with the avalanche you're actually saving money and i think when you're in situations where money is tighter you kind of want to do it as the most efficient time weight as possible so what is the amount i want to place towards day and what is the quickest way i can make that drop overall not seeing the individual dates but actually looking at the most intelligent way overall so let me show you exactly what i mean i'm on my spreadsheet system the autopilot system it's always down below you can find it on my etsy store this is what we use with our family and i've actually got a specific tab in this spreadsheet where we do the calculations if you like for snowball versus avalanche and this is a difference it can make and i want you to grasp this this is your typical dates i've just put in random amounts these are not my household debts i put in random amounts of actually how much you can pay off and i'm going to change today this to be a date that we can look at so that makes a current date so you can see what i'm talking about here this is all about how much total can i throw at debt and actually if i'm comparing different methods snowball versus avalanche can you see well first of all you're going to pay off the debt quicker if you use the avalanche with a set amount the other thing that happens is can you see that you're paying more interest with this noble method now in this exam this typical example of ten thousand pounds of various day that's 500 pounds nearly that's nearly an extra payment you're making because you've stuck with the snowball method over the avalanche and yes i do agree that the snowball is great for your mindset but what i'm suggesting is i don't think it should be gospel that's the only way i actually think for example the avalanche or even the snowflake method which another method to pay off there's other methods out there and again by giving people the knowledge that allows you to pick you can decide well actually you know the snowball method let's see if you have smaller amounts in some way there's only a little difference actually the snowball feels good it's going to cost me a premium it's going to take the same amount of time anyway but i'm okay with that but use your own decision process to decide what's best the next step i want to call out is the saving 15 for retirement now again no disputing that saving towards retirement is of course a fantastic thing to encourage people we have pensions investment access lots of different things over the uk to help you do that there's tons of videos on my channel that teach you through why you should do that even gain financial freedom but this generic 15 again being said as gospel i think needs to be personalized for you it could well be that 10 is all you need based on what you want to do with your life perhaps you want to work for 40 years same job or same types of jobs and so that's steady income that way you can put it away what even if you want to retire by age 45 or 40 well maybe it needs to be more like 20 perhaps you're going to put into investment eyes or rather than a pension and this is a real difference here okay let's say we're starting at zero interest rate of growth in the stock market perhaps seven percent if you are putting that away for 40 years and you were just doing 10 and let's say you're maybe putting 120 pounds away okay if you were doing that the amount that you're left with is certainly probably not going to be enough for what you actually need to live life that's probably going to give a pension of a couple of hundred pounds perhaps or so it might be actually said ten percent of your income it's more like twenty percent for actually what you want to do and that can mean the difference that now we've got nearly double or more than double the amount and that means instead of just a couple hundred pounds you've now got 600 pounds a month or even as it needs to be that we're putting 25 so maybe even closer to 350 pounds away okay now we're really starting to jump up that's a big difference and so this step when we're talking about retirement income i don't think it's as clear-cut as saying save 15 i think it is a case of the individual saying okay what is my strategy for when i want to retire or potentially not work what is something i can really hold on to and allow them also to get advice either from financial advisors or financial planners but allow them that option and here with the steps in particular to do with the investing obviously dave recommends his own investors mutual fund managers and again we have to be aware this might not be in the best interest of everyone it's one way but it's sometimes it's a premium way so again we're recommending something that not a lot of people maybe are getting the best deal for so that last chunk of steps as we said from four to seven there's also a lot of habits called out which absolutely are strong values and within the whole of the baby steps we do see very strong principles and principles based on wisdom but we're not actually calling out that wisdom for them people to use in their life and know why they're doing it if i was to kind of give dave some advice and i'm very sure that he's not watching my channel but you know you never know i would say add in some personal touches to the bible steps take the principles lay out the principles for people and then allow them to have flexibility rather than one set pattern now here's what i think dave really wants you to do with your money i think he wants you to get out of debt i think he wants you to have a budget a spending plan absolutely i think he also wants you to build great habits such as investing and saving and even giving and i think with the steps laid out as the way they are and i think the habits that are most important with your money that do change your heart mind and life with money moving forward are hidden in it but they're really kind of stopping you from getting to the meat of it when you just start the journey i think from the word go you should really have all the habits we're talking about you should have this heart that you do want to give because you're going to see a change of heart you're going to see a change of how you feel about money you should also probably invest even little amounts because the sooner you start the better that'll be for you in the long run doesn't matter the amount you're building up the habit and the muscle i do think obviously we should save and we shouldn't just wait for one day we should also think about how we're budgeting so i would say i really appreciate that dave has this very strict pattern for people is one way to do it but do i think it needs updating for right now i think some of the steps are outdated slightly and i think it's okay to update them as we go along if they are that strict for people i would also say if you are looking at the baby steps and you know they will work because they're encouraging habits but maybe be like me in a way take them as principles and then change them have the authority within yourself to say okay i get the fundamental habits i'm going to embrace them and this is what i'm going to do moving forward certainly in my life we paid off the debt within three years it's meant to take five years we didn't within three we started investing just little amounts of time as well as pay off debt we started giving as well we did all the habits together and we went very quickly out of debt we built businesses that then were able to do what we want and also we have financial freedom now and we're building businesses that then hopefully have a ripple effect your life can turn about exceptionally quickly once you have these principles but i would say don't stop yourself from having the habits that you know you will want in your life long term don't wait for one day for them to happen start now certainly use the baby steps as an overview for the principles but certainly think about adapting them for your personal goals and strategies so here's what i would do really to summarize at the end for you do like dave says get a budget written down if you are a turning point in your life like i was get a spending plan or budget also think about having a buffer of cash we want to move from credit rich to cash rich so make cash your focus create that deficit the surplus of cash in your life so that you do that through paying off debt perhaps you do that through saving cutting back costs perhaps even think about earning more i'd also say put your goals in your money where you can so if you want to pay off your debt make that the focus right now if you want to maybe pay off the house do that as well once you've paid off your debt if you want to start a business think about ways that you can do a business on the side as well also think about investing in yourself through the information or your health or any of these things make your budget realistic for you but also investing and not just money investing in your lifestyle and really the last thing i would say is what are the habits of your spending so with that budget have you got the habits that you know are going to make an impact in your life generosity saving investing if you haven't got them you're missing starting opportunity for things that are really going to change your life and have such a big ripple effect so i'm really thankful that dave has obviously built his whole life educating people and i think we've needed that particularly in this time in society there's lots of different methods i've talked about his is just one and i think for some people that black and white approach very similar to when there's other journeys around weight loss or you want to change your life in some way some people just need that black and white approach i'm going to say open up yourself to being able to just go with the flow and know what's right for you as well so i hope this video has been useful to you if you found my video by chance please do watch this video if you fancy it's on a similar topic i talk about money investing personal finance and also prosperity on this channel you can also hit subscribe where you can follow my videos long term as well so thank you so much for watching i'm going to link the video down below to elevation church the ceremony that dave ramsey actually gave on his steps and there's courses lots of information about his program and his books hope it's been really useful for you and i'd love to know in the comments what your thoughts are as well does dave ramsey's baby steps need updating after all thank you so much for watching i'll speak to you very soon

Channel: Jennifer Thomson

Views: 10,598

Keywords: mamafurfur, jennifer kempson, how to invest, dave ramsey, baby steps, how to get out of debt, god vs money, how to get rich, money management, how to avoid debt, how to get out of living pay cheque to pay cheqye, financial peace university, how to manage your money, money hacks, money tips, debt hacks, money online, ramsey solutions, how to budget, budgeting tips

Id: uueuGWTNxuk

Length: 22min 56sec (1376 seconds)

Published: Mon Apr 11 2022