ve is the man for getting you out of debt, but some of his advice may need a bit of an update.
Q: “You mentioned you don't agree with all of Dave Ramsey's steps, so I'm curious- what do you recommend doing after debts are paid off?“
I do agree with Dave Ramsey step one is the baby emergency fund, although I am concerned that he’s been recommending $1,000 for a really long time. $1,000 isn’t what it once was. I could see for some people they might need a bit more.
I agree with Dave Ramsey that step 2 is paying down the debt and that high interest credit card debt is an EMERGENCY. Dave is the man for motivating people to pay down their debt.
I also agree that after paying off debt the next step is to finish out your emergency fund (which I define as 3 months of expenses for dual income households, 6 months of expenses for single income households, with perhaps some extra padding if the economy is down, someone’s job is at risk, etc.), although I don’t think you have to have your full emergency fund to start your retirement investing at work. I think you can do both at the same time.
I would also agree that the next step should be retirement money, but I’d rather see people max it out than just do a set percent as Dave teaches (unless they have a big urgent savings goal they are also working – then you might want to wait to max out the retirement fund until after the big urgent goal. But starting as soon as possible is important because of the power of compounding).
I part ways with a lot of what Dave has said over the years about investing. He’s talked about people getting 12% returns in the market, which I don’t think is realistic. I also don’t like that he refers people out to financial advisors and planners but doesn’t (as far as I’m aware) help people find advisors and planners that put the client’s needs first. I’d love to see more education around how they get compensated, suitability vs. fiduciary standards, etc. so people can make a more educated decision when they are picking a financial planner or advisor.
I don’t have kids, so of course I personally am not putting money toward that baby step of Dave’s.
Dave recommends paying a house off early. Mathematically this does not make sense with today’s interest rates. If your mortgage is at 3.5% and you can get 7% in the market, you are better off financially investing the money.
Time in the market beats timing the market, so if someone is hyperfocused on paying off the house they will lose a lot of the growth they would get from having that money invested earlier.
The emotional relief that must come from having a paid off home is REAL, and it does really reduce your bills when you aren’t having to make mortgage payments, which would allow you to invest more once the mortgage is done. So it’s not wrong or bad if someone wants to pay off their house – I get it. But do a bit of research on what it is costing you if you aren’t putting that money into investments before you decide.
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