Dave Ramsey, the man responsible for changing the trajectory of our financial lives…but not so fast. Today I’m going to share with you the areas of personal finance that I think Dave misses the mark at and is costing you and others like you hundreds of thousands of dollars if not millions.

So Dave Ramsey and his infamous baby steps. Yes, those 7 baby steps that on the surface look great and so inspiring, but when you start to analyze the steps you begin to see how much of a problem they can be. And that’s why I thought it would be best for me to share with you how we, my wife and I went from following Dave Ramsey and paying off almost $300,000 of consumer debt to now following our own path and being very happy we did.

If you don’t know who Dave Ramsey is, well he’s basically a personal finance expert and yes I call him an expert, because when you talk about money for as long as he has and helped so many people like he has I think it’s appropriate to call him a personal finance expert. BUT experts are not perfect and sometimes get things wrong.

And I, like so many Dave Ramsey enthusiasts learned this when I tried to share his message to friends and family, which by the way is a mistake all together. Never tell your friends or family how they should handle their money before letting them come to you and asking.

So back to Dave Ramsey, you know as a general how to and starting the journey to financial freedom I think he does it better than most. After Baby Step 2 of 7, paying off our consumer debt we ended up going our own way. And let’s be clear debt snowball is not the only method of paying down debt, there’s also the debt avalanche that tackles the balance by paying off the highest interest rate first which could prove to be a better way for you. And that’s the point! You have to find what’s best for you.

Investing 15% of Household Income for Retirement

Which brings me to the next issue I have with Dave Ramsey and that’s his push for investing 15% of household income for retirement. He talks about investing in mutual funds with good track records, but fails to mention a very important detail. To not invest in mutual funds with high fees. And the important take away is yes mutual funds are good, HOWEVER more specifically low cost broad based index funds are better than mutual funds with crazy high fees. And I mean you want better right? When you’re talking to a financial advisor or doing this yourself like I have successfully over the last 12 years you have to remember it’s just not enough to accept Dave Ramsey’s philosophy of investing or even mine or anyone else’s for that matter. You gotta do your homework. When I did my research and homework around investment fees it was unbelievable what I found. There’s so much more money you can earn for retirement by saving a half of a percent to 2 percent on fees. And THAT could be the difference between you having $1 million in retirement vs $600,000 in retirement. THAT’S HOW MUCH FEES MAKE A DIFFERENCE AND THAT’S FOR SOMEONE SAVING $200/MONTH FOR 40 YEARS.

Emergency Fund

Let’s talk about his $1,000 emergency fund for step 1. You know a $1,000 for some can barely cover a months of expenses and for others a $1,000 could cover maybe a couple of months of expenses. Personally, if we were starting over again, my wife and I talked about how having at least a months worth of expenses whatever that number may be as an emergency fund is appropriate. You can’t just put everyone in the same bucket of $1,000, because that amount means something different for everyone, but 1 month of expenses across the board in my opinion is a better way of handling this first step and one that I have found to be a better way of handling emergencies and not keeping folks from doing the other important financial actions like saving and investing and paying down debt.

NOW, don’t get me wrong having an emergency fund is important and for you $1,000 may be exactly the number you need. But $1,000 is not a blanket number for everyone. That’s why I go with one months expenses as you start out. And I understand there is a psychological and emotional accomplishment of saving $1,000 for some people who have never done that before, but more so I think the mindset should be do I have enough to cover 1 months of expenses parked somewhere like a high yield savings account as I begin to pay down debt and start saving for retirement. Again this comes back to finding what’s best for you and your situation. To be honest, I think the ultimate goal would be to have 2-3 years of savings stashed away, but that’s for much later down the path of financial freedom and one I will definitely talk about in the future.

Now, I’ll get into the other parts of his baby steps at another time very soon, but for this video podcast I want to share with you what we learned and where we plan to take the next part of our financial journey. I do think paying off debt as quickly as you can is important, not everyone can do this and not everyone should do this. For some this part of your financial journey could take 2 to 3 years or 9 to 10 years. I say this, because I’m a firm believer in starting your investing journey as soon as possible, because you want to take advantage of compound interest, you want to experience some bad markets and some good markets and get a little exposure to what saving and investing for retirement looks like. And if I worked for a company that’s providing a match to my retirement contributions, guess what? I’m going to take advantage of that match even I was in debt.

Put off Saving While in Debt?

I strongly disagree with putting off saving for retirement while you pay down debt. For many folks who can contribute to tax advantage savings accounts and don’t are missing out on the opportunity to build wealth for the future. Of course I still believe in being aggressive with debt, just not so much where you are sacrificing saving for retirement. Just be real with yourself and decide what’s more important for yourself. Paying down debt as quickly as possible so you don’t save for retirement or start saving for retirement with a little bit here and pay down debt quickly, it just may be a few more months but at least you will have built up a little nest egg for yourself that compound interest has started to effect.

All in all, I don’t think you can go wrong if you’re starting your financial freedom journey by checking out Dave Ramsey’s baby steps, but I would be open minded to other personal finance experts who have really challenged my wife and I to take our financial freedom journey to the next level. A level I’m not confident we would be on if we stuck with the baby steps. Expand your resources for personal finance education and I think you’ll be happy you did 10, 20, 30 years from now.