Recently, I asked my Facebook Group members the following question:

If you’re starting from scratch with saving money and paying debt, how you prioritize between:

• Building an emergency fund of $3,000;
• Paying your quarterly taxes;
• Saving your first $3,000 in a retirement account; and
• Paying down $3,000 in consumer

Do you do them all at the same time, or do you do them in a particular order? What’s your reasoning?

Take a second to noodle on your answer, and I’ll share the popular takes from the group.

Most of the responses placed taxes first - because no one wants hate mail from the IRS - and retirement savings fourth. The biggest toss was on the two middle pieces and whether the emergency fund or consumer debt should be tackled second or third.

What's the deal with Dave Ramsey?

Sometimes I get the feeling that people love to hate on Dave Ramsey. People was me. I now have mixed feelings. First off, Dave is way more conservative than me. I don’t consider myself to be Christian, so the Bible quotes and lessons on tithing to the church aren’t really for me.

But that’s ok. Every book isn’t written for every person. I know this. And Dave Ramsey definitely knows this. He’s built a huge business. He understands his target audience.

Aside from the Christian themes in the book, Ramsey is also quite fiscally conservative. He’s kind of like THE GUY that preaches debt free living. And the message is appealing, but it’s not one with 100% consensus.

If we’re being honest, I’m sure some people are inherently, maybe even subconsciously, jealous of Mr. Ramsey. He’s seemingly created such a simple system, and he’s built a huge following. I’ve read and heard other finance pros criticize his teachings saying things like “A one-size fits all solution doesn’t make sense.” After all, the value of hiring a financial expert is for them to give you specific guidance based on your own financial situation and goals.

So this begs the question. Is Dave Ramsey’s book Total Money Makeover worth your time?

My answer is yes (probably).

Side note & update - Since originally writing this post, I dove a bit more down the Dave Ramsey rabbit hole. During the COVID pandemic Ramsey hosting a large company party where it was actually mandatory not to wear masks. He also has problematic "values" that are forced on all employees. Let's just say that while I think his systems are largely good, I personally would not put my money into his business due to a misalignment in values. 

An Intro to the Total Money Makeover

The following quote from Total Money Makeover really tees us up for the rationale of the baby steps.

“When you try to do everything at once, progress can be very slow.” When you try to do x, y, and z at once you ‘dilute your efforts.’”

Have you ever tried to do a massive cleaning/decluttering process in your house only to find yourself surrounded by piles of junk and utterly exhausted a few hours in? You end up just shoving shit back into a box, or shelf, or drawer and calling it day?

This is what can happen when you, for example, tackle all four of those goals I noted at the top simultaneously.

My hot take is that Dave Ramsey has so many success stories because he places a higher degree of importance on the psychology of money than he does the actual mathematics.

One path might leave someone with a few thousand more dollars in retirement. But if that path requires you to jump through fiery hoops, climb mountains, and navigate raging rivers, Dave is going to send you down the straight and narrow.

Sure, the reward might be a little less, but if your odds are much greater of completing the process, it’s likely the correct path.

The Total Money Makeover (TMM) path stays straight and narrow by providing a very clear, step-by-step plan. 

The TMM Baby Steps

Step 1: Save $1,000 fast

The TMM first step tells you to first stash away $1,000 as quickly as possible. Note that TMM doesn’t talk much about taxes. So for us entrepreneurs, I’d like to include initial steps before even beginning the baby steps. Those would include getting caught up on back tax returns if you’re behind. And then, setting up a system to save and pay current quarterly taxes, as well as creating a payment plan for back taxes.

I love that the steps break the emergency fund into two separate steps. $1,000 feels doable. It’s not overwhelming, and it should be enough to cover most unexpected expenses so that they don’t go on a credit card. That’s the goal.

Step 2: The Debt Snowball

“The math does need to work, but sometimes motivation is more important than math.” With this quote, we see the introduction of the psychology over math underpinnings of the baby steps.

There are two broad methods to pay down debt - the debt snowball and the debt avalanche. The snowball method has you pay off debts based on the dollar amount of the debt. The avalanche method prioritizes paying debts starting with the highest interest rate. The avalanche method makes more mathematical sense. By starting with the highest interest rate, you’d pay less interest over time.

If two people had the same debt and paid that debt off over the same time period, the math would show that the person who went the avalanche route would end up with the financial leg up.

But Dave Ramsey strongly argues that those who opt for the snowball route are much more likely to complete the process. Therefore, it’s the best method. I also have some anecdotal evidence to suggest the same, so I’m onboard with the snowball approach.

Here’s how it works:

1. List all debts, excluding your mortgage, from smallest to largest;
2. Pay minimums on all debts except the smallest;
3. Put all spare income towards the smallest debt;
4. Once paid, all money from that debt plus any other found money goes towards the next;
5. Continue/repeat until all debt other than your home is paid off.

Pretty simple right?

Let’s break this down with an example. Assume Barb has the following debts:

Alrighty. Notice that I didn’t include the interest rates on each of these debts. With the snowball method, we don’t care. For step one, let’s reorder these from lowest to highest.

Let’s assume that after all of Barb’s fixed expenses, she has $1,500 leftover per month to pay down her debt. Barb looks at her spending habits, and decides she can cut out her weekly cocktail and dinner parties out with friends. That gets her an extra $400. She also cuts cable, another $100. Now she has $2,000.

Yes, $2,000 is quite a bit, but for example’s sake, Barb is driving an Audi and shops at Bloomingdales. We can assume that she’s a high income earner but also a spender.

We also have to note that Barb will have to cut whatever spending was going on her credit cards as well. If her goal is to pay them off, she can’t keep adding to them.

The total of Barb’s minimum payments is $1,120. This means in month one, Barb has an extra $880 to pay towards her debt. That’d knock out the full Target balance anda portion of the American Express debt. So let’s take a look at that*

*For the sake of easy math this examples does not factor in month-to-month interest rates

Now, in month two, Barb again has $2,000 to put towards the debt. After paying the minimums on everything she is now left with $900. Her Amex is now down to $540 ($570 from month 1 - $30 minimum for month 2) so she is able to pay that off and have $460 to put toward paying down Bloomingdales.

You can see how the snowball works now. After each debt is paid, there’s a little bit more leftover to tackle the next one. In this example, the snowball grows a little slower due to the first four debts being consumer debts with low minimum payments. Based on my own super quick math, Barb could likely be debt free in two(ish) years.

Now you might be thinking, cool for Barb, but I sure as shit don’t have $2,000 extra to pay towards debt. And fair. But I have a couple things to share there.

First of all, we can’t allow ourselves to become the victim of our own circumstances. We also can’t beat ourselves up over the financial mistakes of our past. We must face them head on. 

Dave also shares that, in some cases, it may be necessary to pick up an extra job to get the snowball rolling. You may need to ruthlessly cut expenses.

I do want to take a second to acknowledge the inherent privilege in some of these statements. It’s a fine line to walk to be honest. Not everyone has the same advantages as others. I get it. At the end of day, it’s our own responsibility to take the tools taught by others and decide if, and how, they can be implemented in our own lives.

Step 3: Finish the Emergency Fund

After the debt snowball, you move to baby step number three and complete building the emergency fund. TMM recommends saving up to 3-6 months worth of expenses.

Dave suggests going on the longer end, 6 months if you’re in entrepreneurship or have an unsteady financial situation.

I actually found this interesting. While income can fluctuate more as an entrepreneur, in some ways I feel more secure. Specifically, I don’t worry that my income stream could be shut off like a lightswitch the way it could when being fired from a typical job.

Instead, I can usually see dips of income coming. And in cases where I don’t see it coming, I can usually pivot and come up with new income generating ideas within a few weeks. This may differ depending on your business. Take for example a movie theatre or restaurant during the COVID-19 pandemic. That’s tough. If you’re a business that can move online, pivoting is simpler.

You may have found that rambling helpful. Maybe not. The point is that the amount of money you need in an emergency fund will vary based on your business, income sources, expenses, and family dynamic.

My husband has a government job. His income is very secure. That allows me to take more risks in business and in finances. It’s a privilege. You may not have that privilege or you may have different ones that impact your savings.

Step 3(b): Save for a Home

This is where I start to get a little eye-rolly about these “baby” steps. Save for a down payment gets casually thrown in as a part b.

And Dave Ramsey being the King of No Debt only lets up a little here. While he advises everyone to do their best to buy a home with cash, no mortgage, he allows for some leeway and suggests a 15-year fixed mortgage.

On one hand, that seems wild. On the other, maybe not. Some other money pros, like Ramit Sethi, author of I Will Teach You To Be Rich, lecture on the values of renting over buying.

Step 4: Invest 15% of Your Gross Income Towards Retirement

TMM provides a simple framework for retirement investing similar to what I’ve noted in my blog on retirement planning for creative entrepreneurs.

You start by investing in a 401(k) match, if you have an employer and that employer has a matching program. The next step is open and max out a Roth IRA, if you qualify. Beyond that, you continue to invest in other types of investments. This is where it takes some independent research or professional guidance on the best type of account to open.

The Final Steps

I’m sharing, but also skipping, discussion on the final three steps here. These are the steps.

Step 5: Save for College

Step 6: Pay Off the Mortgage

Step 7: Build Wealth

For the full details, go grab the book if it’s piqued your interest.

A Quick Wrap Up

I’ve got some mixed feelings about TMM. But there’s a reason TMM has a legion of fans while I fully expect five total people to read this blog. Simplicity is effective. Simple is easy to read, and simple is easy to execute. Execution leads to results, and results lead to word of mouth sharing.

In this blog, I’ve likely given you enough to answer the question “Do I wish to explore Dave Ramsey’s methods further?.” If yes, go grab his book. If you’re curious to learn about some other systems and processes, make sure to check out my other blogs on similar books.