Updated Dave Ramsey Baby Steps for the modern person

Have yourself a drink every time the Dave Ramsey Baby Steps are mentioned on an episode of The Ramsey Show and you’ll be calling up asking for help to get rid of your drinking problem. The seven steps are a foundation of the empire Dave Ramsey built. It’s what they claim is the key to getting out of debt and building wealth.

For those unfamiliar or in need of a refresher, these are the seven steps in order:

1) Build up your starter emergency fund of $1,000

2) Pay off all debt with the Debt Snowball method

3) Fully fund your emergency fund with 3-6 months of expenses

4) Maximize your retirement with a goal of investing 15%

5) College fund for kids

6) Pay off the mortgage

7) Build wealth and give

It’s mostly practical advice so we understand the method to this madness. However, both Jenny and I agree there are a couple of tweaks needed for the Dave Ramsey Baby Steps for the modern times. Inflation, the increased cost of living, and a few slightly altered approaches could be made in updating these seven steps.

Updating the Dave Ramsey Baby Steps for today’s world

Still following the principles Dave Ramsey teaches, here is what a more appropriate to the times version of the Baby Steps could look like along with an explanation to each.

1) Build up your starter emergency fund of $2,000

We’ve doubled the starter emergency fund for a big reason: things cost a lot more money than they did when the Dave Ramsey Baby Steps were first created. $1,000 wouldn’t pay for most major home or car repairs. Let’s double it. If you can save $1,000, you can get to $2,000. When our hot water heater broke in the beginning of 2022, it cost more than $1,000 to get it replaced. The same thing happens almost every time our car needs to be brought in for a repair. $1,000 is simply not enough anymore.

2) Pay off all debt with the Debt Snowball method

No changes here. I’ve been fortunate to stay away from debt excluding the home mortgage.. I’m not going to argue against what Dave Ramsey says works. Whether you want to use the Debt Snowball or Debt Avalanche is entirely up to you.

3) Fully fund your emergency fund of 6-9 months of expenses

Three months of expenses feels too low. We personally have a goal of far more than the average person/family. It’s reasonable to expect more people to go from 3-6 months to 6-9. That extra three months of funds can be a gigantic favor you thank yourself for in the future. It’s money you can also move around as needed to do things like take advantage of opportunities you didn’t know about before; like a bank with a high-yield APY. If you’re not onboard for more savings in the bank, stick with the six months. Three is not enough. It can take that long just to find a new job.

A larger emergency fund will give you greater peace of mind when the CEO of your company does something he shouldn’t have.

4) Maximize your retirement with a goal of investing 20%

Investing 15% of your income for retirement is, again, too low in our opinion. We don’t have a percentage we invest. Our focus is more on investing 25% of what we have left at the end of the month. Some months this allows us to invest more and some less. It does equal out to around 15-25% over the course of a year. We try to maximize our ROTH IRA accounts then move to our brokerage.

5) College fund OR other type of investment for kids

I’m not sold on creating a college fund for kids. How do we know a kid will even want to go to college? The tax benefits are there. However, a simple brokerage account until you know your kid a little better might be appropriate, too. Avoiding any kind of college debt would be a great gift to your kid. It could also end up as wasted funds if they choose a different path. I’d rather support a child buying their first home than getting an education they may never put to use.

College isn’t for everyone; especially those who have trouble avoiding following mortarboards.

6) Pay off the mortgage

It stays the same. The mortgage has to get paid off one day. The Dave Ramsey Baby Steps is aggressive at paying it off. We like to be a little more flexible with a mortgage and allow room for extra investing. Regardless of this difference of opinion, it doesn’t change on this program.

7) Build wealth and give

Finally, you get stinking rich and can actually give people you care about money to help them get on the same path. No changes at this final step. It’s the goal we all have.

“Take my money you fools!” – what we all hope to be able to shout at strangers one day.

I’d personally do all of this with a credit card, but that’s neither here nor there. The Dave Ramsey Baby Steps are just one example of a plan to get out of debt and become wealthy. The most major updates increase a couple of the numbers involved.

Below are affiliate links to products we use and recommend. By using those links, we may receive a small commission from your purchase. Using these links does not affect the price.

The book that convinced us to start investing and being more proactive with our money and lives: The Only Investment Guide You’ll Ever Need by Andrew Tobias

The gear we use to make our YouTube videos at the Practically Humans YouTube Channel

Sony ZVE10 Camera
Sony Retractable Zoom Lens
MOVO Shotgun Microphone
Audio Cable
Memory Card
RGB Lights
Studio Light

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