Comments on: Dave Ramsey Unleashed: How to Apply Ramsey’s ‘Baby Steps’ to Grown Up Finances

By: Marie

Marie — Fri, 17 Dec 2010 18:14:07 +0000

Let me start by saying that I really do appreciate the message that Dave sends to the folks who really need it. I know that his advice has definitely been instrumental in getting many Americans off the spending/debt carousel, and many families will be better off for it.

However, I fully agree that the “baby steps” really are not sensible for the average professional. I’m 34 and an attorney. Like many young professionals who attended law, med or other grad school, I do have over $80,000 in student loan debt. I’ve actually knocked out about $30,000 of student loan debt from undergrad, law and grad school in the past few years, including all of my higher-interest private loans, while contributing to retirement. The $80,000 still remaining is direct federal loan debt at 3.13%.

If I followed Dave’s advice, I’d be neglecting retirement and the benefit of compounding interest UNTIL I got the rest of this student loan debt taken care of. Which makes NO sense given the difference between the low interest rate on this debt versus the interest I’d make on my 401K (also consider the tax consequences of NO 401k contributions for a high income person like myself, making over $100K).

I also shudder at his idea of only having a $1,000 emergency fund in the bank while paying off debt. That’s scary to me – I keep much more in an emergency fund. Especially for the families with multiple kids, who is often the target Dave audience. As someone is paying off debt on the first baby step, what if they encounter a setback (car repair, medical bill, property repair) that costs over $1,000. I can think of many. That person would certainly end up charging the credit card further putting them in the hole.

I do think that Dave does serve a purpose for many but his advice is certainly not one size fits all.

By: Bryan Hadlock

Bryan Hadlock — Tue, 08 Jun 2010 19:24:39 +0000

The main thing about Daves plan is to focus on one thing at a time. If you are spreading yourself over many payments, you won’t see the progress and quit. If you follow Daves plan you will have a lot more money after steps 1-3 to put towards your retirement, and you won’t miss the dollar for dollar matching. If you quit because you didn’t get through step 2 you’re screwed anyway. If you don’t follow his plan closely, don’t quit the 401k.

By: Jeff in MD

Jeff in MD — Thu, 29 Apr 2010 14:44:47 +0000

Great Post: We are on Baby Step 3 saving 3-6 months of expenses. We cashed in 80% of a 529 for our young children, due to the market we paid no penalty.

Now we have NO DEBT (non-mortgage), no credit cards, no loans, never turning back. We are keeping our 401k contributions with the match through the process. However, if we had debt I would consider stopping 401k to be more intense on paying off the debt.

By: dave in STL

dave in STL — Fri, 12 Jun 2009 14:30:10 +0000

I’m on Dave’s plan, but I didn’t stop my 401K contributions. In fact, when i got a raise last October, I started adding an additional 2% since the market has been “on sale.”

The only reason I would stop 401K (because the match is basically a 100% return) is to pay IRS debt or to pay off a payday lender. Luckily, I’ve never had to deal with either of those.

By: Michelle

Michelle — Mon, 18 May 2009 14:15:39 +0000

double Oblivious’s amen – 1) stopping 401k contributions that trigger a match is (to my mind at least) turning down part of your salary. You wouldn’t say “No, thanks” to a 3% raise? Then why would you not (at least) contribute the amount that will be matched (which in my case is that 3%)? 2) I use 401K contributions to help manage my tax bracket, and i’m sure other do so as well. Not to get into too much detail, but if I were to suspend contributions, that would LESSEN the amount from my net paycheck that is available to snowball debt and increase my liabilities at tax filing season…

By: ObliviousInvestor

ObliviousInvestor — Sun, 17 May 2009 21:14:17 +0000

“This is where Dave Ramsey drives me crazy. Stopping a 401k with a dollar for dollar match for two years in your 30s will have a huge impact in your total balance at retirement.”

Amen to that.

By: Jenny

Jenny — Tue, 12 May 2009 15:11:39 +0000

great post.

By: DR

DR — Sun, 10 May 2009 09:42:30 +0000

WAP, this is where Dave Ramsey drives me crazy. Stopping a 401k with a dollar for dollar match for two years in your 30s will have a huge impact in your total balance at retirement. In fact, if it’s not about the math, why not cash in the retirement account? Although you’d pay a 10% penalty, depending on your balance, it wouldn’t be worse than leaving a good company match on the table. That said, I do agree that’s it’s not just about the math.

By: WAP

WAP — Sun, 10 May 2009 03:09:20 +0000

Actually it does make sense to stop the 401K contribution IF you executre Dave’s plan the way he teaches it and get manical about paying down the debt. As he says this is not about math – if you could be motivated by the math then you wouldn’t be in debt in the first place. It IS about behaviour modification. Get really rserious about paying off the debt and knock it out quickly. Dave doesn’t call to incur tax penalties to cash out tax advantaged acocunts, unless that is the only way to eat. Stopping the 401K for a year or two to kill the debt won’t matter that much. Never paying off the debt and paying a lifetime of interest will negate the advantage of a match quickly.

By: DR

DR — Sat, 09 May 2009 20:20:16 +0000

Linda, you’re absolutely right about Dave’s advice. But I wanted to explore more than just repeat what he says. For example, it makes absolutely no sense to stop contributing to a 401k if you have a very good match from your employer. And for many, it may be a good choice to cash in the 529 fund. So on these points, at least under some circumstances, I’d disagree with Dave Ramsey.