This might come as a huge shock to you, but I love sharing financial knowledge. And this week I read the Dave Ramsey Baby Steps Millionaires, and I want to give you the full lowdown.
Why did I read it?
Firstly, being financially free does not mean I watch Netflix all day. (In fact, Rings of Power is on Prime, and the second season’s not even out yet.)
And secondly, I’m always curious about what the other voices in finance advice are saying, how it stacks up, and if there’s anything I’m missing out on.
So if you’re interested the Dave Ramsey Baby Steps Millionaires book, but not reading 224 pages or random anecdotes and analogies, here is the full summary.
Table of Contents
Before Anything – Change Your Beliefs
Before you can start the Dave Ramsey baby steps, you have to ask yourself if you believe you can do it.
One of the reasons people believe that they could never become a millionaire is because they picture the extreme lifestyles of people like Jeff Bezos or Elon Musk, and immediately tell themselves they could never attain that.
But those people are billionaires, not millionaires. And there’s a huge difference.
|Generally have at least one multi-national company||Usually have regular jobs like engineers, teachers, nurses, etc.|
|Have multiple estates and several extravagant cars||Live in average neighborhoods and own normal cars|
|Are able to go shopping with no worry about financial ramifications||Are generally cautious with spending and more likely to use coupons.|
In other words, millionaires are ordinary people. Just like the rest of us.
Dave Ramsey’s takeaway message is that if you believe that your circumstances will never let you reach millionaire status, you need to change your belief from a sense of helplessness to a sense of control. Everyone faces their own set of challenges, but only those who take control of their lives emerge as millionaires.
As claimed by the author’s own study of 10,000 millionaires, these ordinary people comprise of multiple cultural backgrounds and education levels. This only goes to show that you don’t need an Ivy League education, an executive-level job, or a 7-figure household income. No matter your current situation – it’s possible to reach millionaire status.
But you need to stop believing that the odds hold you back.
Once you’ve changed your belief to recognize that yes you can become a millionaire, Dave Ramsey outlines his seven-step method that he believes is the quickest and most surefire way to build a million-dollar net worth.
Now that we’ve covered your beliefs, let’s have a look at the Dave Ramsey baby steps.
Mr FYFE’s Take
100% I agree but I think something big is missing. Yes, if you don’t beleive you can make it you wont try very hard. Also millionaire status isn’t that hard. this whole site is based around getting there, safely, in 5 years.
BUT, you have to really want to get there. Saving money is fun for some people, but most people have different goals. You have to imagine how your goals fit into your finances and make that your motivation.
Baby Step #1 – Create a $1K Emergency Fund
Dave Ramsey’s Baby step number one is to create a $1000 emergency fund. He suggests getting this done right away to create a bit of safety and security as you go through the rest of the baby steps.
Mr FYFE’s Take
Sure. Set aside $1K to start. In the long run, once you’re rich, you should set aside 6 months of living expenses but that comes at the end.
Baby Step #2 – Climb Out of Debt
Once you have your starter emergency fund, Dave Ramsey suggests that you start to aggressively pay down all your debts except for your mortgage. This means using all of your “extra” funds towards this goal: nights out, vacations, and even investments, so that you can get through this baby step as quickly as possible.
He recommends using “the snowball technique” where you completely pay down your smallest debt first before moving on to the bigger ones.
Mr FYFE’s Take
Paying off your bad debt, like cars and credit cards, should come 1st. The interest rates are horrendous, so the thought process is very simple and it makes future “expenses vs savings” math very simple.
More importantly, its not worth the mental space to remember you have to pay XYZ every month. Mental space is worth a lot!
Baby Step # 3 – Upgrade Your Emergency Fund
Once you’ve climbed out of your debts, the next baby step is to go back to your “starter” emergency fund and upgrade it to a fully funded one. This means covering three to six months of living expenses in case you experience major life setbacks that could affect your income or your wealth.
Ramsey’s rule of thumb is that if you have a stable income – you can get away with saving about 3 months worth of income for your emergency fund, but if you’re self-employed or rely on commissions or other unpredictable income – you should save for 6-months worth.
According to Dave Ramsey, baby steps 1 – 3 take an average of three years to complete, but once you’ve done it, you’ll be free.
Mr FYFE’s Take
Saving up 6 months of spending, is a good goal. You should do this before taking on any “aggressive” investments, like real estate. But some investments should come way before this.
Baby Step #4 – Put 15% In Retirement Accounts
This Dave Ramsey baby step involves taking 15% of your gross income and putting it into retirement accounts.
Ramsey suggests maximizing any employer 401(k) contributions. After that, contribute to your Roth IRA. And past that, invest the rest of your 15% in traditional works-sponsored tax-deferred plans.
Dave Ramsey stresses seeking the guidance of an investment advisor to help learn the ropes of investing and suggests equally allocating your investment portfolio in mutual funds: international, growth, aggressive growth, and growth and income.
But most importantly, the author states that you need to get that money into your retirement and investing accounts and let time do the rest.
Mr FYFE’s Take:
15% seems too easy in my books. 50% is the ultimate target to get to an early retirement quickly.
Also skip the advisors. Just invest 70% in stock index funds, and 30% in bonds. Advisors are horrible.
Baby Step # 5 – Start Your Kids’ Education Fund
As you’re working on the previous baby step, the author suggests you should also start your kids’ college fun using either a 529 college savings plan or an education savings account (ESA.)
Dave Ramsey emphasizes that your retirement plan should always come first because entering retirement is inevitable, but education plans might change.
Mr FYFE’s Take
Max out all those special savings accounts. Hallelujah for government endorsed tax loopholes.
Baby Step #6 – Settle Remaining Debt
According to Dave Ramsey, while you’re working on the previous baby steps, you should also be settling your remaining debt. Namely – your mortgage.
So whatever’s left over after depositing 15% into your retirement and education accounts should go into your house payments right away, which will save you time and interest.
As claimed by the author’s own study, most millionaires pay off their mortgage in just 11 years, instead of the typical 30.
Mr FYFE’s Take
I get how this is A) Suuuuuper safe and simple B) great once you’re already rich.
BUT, Paying down a mortgage represents a lot of money you could have invested. The whole reason for saving up an emergency fund is so that we don’t need to play it safe. So this is safety on top of safety, which I don’t enjoy.
Ever have a co-worker who sandbags how long it will take them, then sandbags that number again. Drives me nuts and it’s no different here.
Baby Step #7 – Share Your Wealth
After working relentlessly on the first six baby steps, you should not forget the final one. Share your wealth with others – your family, your community, and whatever you wish.
It’s your money, spend it however you want.
Mr FYFE’s Take
I like this! I have written about having burning money above early retirement needs to live life up, but he made it about giving back. I like that! Koodos Ramsey, koodos.
Final Words on the Dave Ramsey Baby Steps Millionaires Summary
The Dave Ramsey baby steps seem pretty self-explanatory, with the exception that you have to change your beliefs that yes – you – can become a millionaire. Beyond that, it’s about flexing your saving muscle by creating an emergency fund, paying down your debts, and then filling your investing accounts.
It’s a bit on the safe side for my tastes and retirement speed but if you want to play it slow or hyper simple. Sure.
Let me know if there are any other books you want me to review or summarize.