OK, maybe the title of this post is a bit harsh. But let’s be honest: life is short. We should enjoy our time on this lovely earth while we are here.

Before we go any further, let’s be clear: what I DON’T mean is that we should all live beyond our means and rack up a mountain of debt. But we should be realistic about where we are now, where we want to be, and how to get ourselves into a better financial place while still having (at least a little) fun along the way.

So, what’s wrong with Dave Ramsey's approach? Well, it isn’t always financially sound. Let’s take a look at each “baby step” and set the record straight:

Baby Step 1 – $1,000 to start an Emergency Fund

RIGHT. We wholeheartedly agree that it is imperative to have some cushion in savings before worrying about anything else. We do recommend starting with a $1,000 goal as your top priority.

Baby Step 2 – Pay off all debt using the Debt Snowball 

WRONG. There are so many other components to living a healthy financial life besides just being “debt-free”. For example, does your employer offer a company match in the retirement plan? How high are the interest rates on your debt? It is VERY possible that getting free money from your employer will pay off more in the long run as opposed to knocking out low-interest debt (like most student loan debt and mortgages). Oh, and this might be a shocker: paying off high-interest debt BEFORE low-interest debt will actually save you money over time.

Baby Step 3 – 3 to 6 months of expenses in savings

Debatable… Again, free money in the form of an employer match can be a very powerful thing. However, continually putting money into an emergency fund bucket is a vital habit, and will ideally end with you having a significant 3-6 month cushion should anything happen. However, is it possible to get your employer to match AND build up emergency savings at the same time? (Well, unless you ask Dave…)

Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement 

WRONG. To assume that 15% is some magic number that is appropriate for everyone is absurd. In fact, if you follow Dave’s method and postpone your retirement savings until you are debt-free, you will likely have to save MORE in order to make up for the lost growth you would have received from the years in the market you missed. Instead, we suggest you answer questions like: What is your current income? How much of that will you need to replace in retirement (default to 80% if unsure)? How many years until you will retire? How much can you afford to start putting aside today and can you slowly increase that amount over time if needed?

Baby Step 5 – College funding for children

Debatable... We consider college savings a goal-based step, and we do agree that it should come after your retirement savings. But what about other life goals? At this point, are we not allowed to save for an epic vacation? Or to treat yourself to a fun concert? I guess not, according to Dave.

Baby Step 6 – Pay off home early 

WRONG. Let me get this straight: if I have a mortgage at a 4% interest rate, I should pay that mortgage down rather than invest in the stock market? Dave must use very conservative return figures, right? Wrong! He estimates a 12% rate of return in his calculations. In an ideal world, your home will be paid off by the time you want to retire, but even then, it's not the end of the world. Don't feel any pressure to pay it off early unless you naturally have excess funds. 

Baby Step 7 – Build wealth and give!

Fair enough.

So there you have it. There really is more than one way to get on the path to financial success. Maybe enjoying life is important. And maybe, just maybe, interest rates do matter when it comes to paying off debt. Or maybe I have been the idiot all along... If you’d like to see our step-by-step guide to financial success, check out the hierarchy of financial needs here