Why Dave Ramsey’s 7 Baby Steps Might Be Keeping You Broke

Dave Ramsey’s 7 Baby Steps have been praised by millions as a simple roadmap to financial success. His advice has helped people get out of debt and develop better money habits.

But what if I told you that following these steps blindly could be holding you back from building real wealth?

Dave Ramsey’s approach is rooted in extreme caution—designed more for avoiding financial disasters than for maximizing wealth-building opportunities. The truth is, not all debt is bad, cash-only strategies are outdated, and investing should start much earlier than Ramsey suggests.

In this article, I’ll break down why the 7 Baby Steps are flawed and what you should do instead to build wealth faster and smarter.

What Are the 7 Baby Steps?

Before diving into what’s wrong, let’s look at Dave Ramsey’s 7 Baby Steps:

1. Save $1,000 for a starter emergency fund.
2. Pay off all debt using the “Debt Snowball” method.
3. Save 3–6 months of expenses for a fully-funded emergency fund.
4. Invest 15% of household income for retirement.
5. Save for your kids’ college education.
6. Pay off your home early.
7. Build wealth and give generously.

Sounds simple, right? But the reality is this plan is outdated and doesn’t work for everyone. Here’s why.

1️⃣ Baby Step 1: Save $1,000 for an Emergency Fund (Flawed!)

Dave Ramsey suggests saving only $1,000 before tackling debt.

🚨 Why It’s Wrong:

• In today’s economy, $1,000 won’t cover most emergencies. A car repair, medical bill, or home issue can wipe that out instantly.
• If you have a family or dependents, a tiny emergency fund is a disaster waiting to happen.

✅ What to Do Instead:

• Aim for 3–6 months of expenses in savings before aggressively paying debt.
• Build an income safety net (side hustle, investments, passive income) so emergencies don’t wreck your finances.

🔹 Example: Imagine losing your job. If you only have $1,000 saved, you’re in trouble. But with 6 months’ worth of savings, you have a safety net while finding new income.

2️⃣ Baby Step 2: Pay Off All Debt Using the Snowball Method (Flawed!)

Ramsey’s Debt Snowball method tells you to pay off the smallest debts first, regardless of interest rates, to create a psychological “win.”

🚨 Why It’s Wrong:

• Not all debt is bad! Wealthy people use debt strategically to build assets.
• Paying off a low-interest mortgage or car loan before investing is a huge mistake.
• The Avalanche Method (paying off high-interest debt first) saves more money.

✅ What to Do Instead:

• Pay off high-interest debt first (credit cards, payday loans) to minimize interest costs.
• Keep low-interest debt (mortgages, student loans, business loans) if you can earn a higher return elsewhere.
• Use leverage wisely—borrow to buy income-generating assets like real estate or businesses.

🔹 Example: If you have a 3% mortgage and a credit card at 22%, Ramsey’s method says to pay off the mortgage first. But that’s financially illogical—paying off the high-interest credit card first saves you much more money.

3️⃣ Baby Step 3: Save 3-6 Months of Expenses (Good, But Should Be First!)

Ramsey places this after paying off debt, but that’s backward.

🚨 Why It’s Wrong:

• Emergencies happen anytime—you shouldn’t wait until you’re debt-free to be prepared.
• Without savings, a single financial emergency could put you right back into debt.

✅ What to Do Instead:

• Prioritize saving at least 3-6 months of expenses before aggressive debt repayment.
• Consider building multiple income streams so you’re not dependent on just one paycheck.

🔹 Example: If you aggressively pay off debt but then lose your job, you’re back in financial trouble. A solid emergency fund prevents this cycle.

4️⃣ Baby Step 4: Invest 15% of Income for Retirement (Too Late!)

Ramsey suggests waiting until you’re debt-free before investing. That’s a major mistake!

🚨 Why It’s Wrong:

• Compound interest is powerful—the earlier you start investing, the more wealth you build.
• If you wait until debt is gone, you lose years of potential gains.

✅ What to Do Instead:

• Invest WHILE paying off debt—especially if your employer offers a 401(k) match.
• Consider stocks, index funds, and rental properties for long-term wealth.

🔹 Example:

• Investing just $100/month from age 25 vs. waiting until 35 can result in a $500,000+ difference in retirement savings.

5️⃣ Baby Step 5: Save for Kids’ College (Unnecessary Priority!)

Ramsey tells you to save for your kids’ college before focusing on wealth-building.

🚨 Why It’s Wrong:

• Your financial stability should come first.
• Not all kids need expensive college degrees—trade schools, online learning, and employer-sponsored education are great alternatives.

✅ What to Do Instead:

• Prioritize your retirement and investments first.
• Look into scholarships, grants, and alternative education paths for your kids.

6️⃣ Baby Step 6: Pay Off Your Mortgage Early (Bad Move for Most People!)

Ramsey promotes paying off your mortgage as fast as possible.

🚨 Why It’s Wrong:

• Paying off a 3-4% mortgage when you could earn 8-12% in investments is a bad financial move.
• Tying up all your cash in a house reduces liquidity—you can’t use that money for emergencies or new investments.

✅ What to Do Instead:

• Invest extra cash in higher-return assets like stocks, real estate, or businesses.
• Keep a mortgage if the interest rate is low and your investments are growing faster.

🔹 Example: If you put $1,000 extra into a 4% mortgage vs. an investment earning 10%, you lose money over time.

7️⃣ Baby Step 7: Build Wealth & Give (Good, But Too Late!)

Ramsey finally talks about building wealth, but by this point, you’ve wasted years following an overly cautious plan.

✅ Better Approach:

• Start building passive income ASAP instead of waiting until you’re debt-free.
• Use leverage to buy appreciating assets instead of focusing on “debt-free” status.

Final Takeaways: A Better Wealth-Building Strategy

The Smart Financial Plan Instead of Ramsey’s Baby Steps

✔ Save 3-6 months of expenses FIRST

✔ Pay off high-interest debt, but keep low-interest debt

✔ Invest while paying off debt—start as early as possible!

✔ Use leverage to build wealth through real estate, stocks, and businesses

✔ Focus on passive income, not just paying off debt

💡 The truth is, Dave Ramsey’s plan keeps you safe—but it doesn’t make you rich.

If you want true financial freedom, you need to think beyond debt-free living and start focusing on income growth and smart investing.