break dave ramsey's rules

Dave Ramsey is a well-known author and money-management expert who defined the 7 Baby Steps to reach Financial Independence. Some people swear by his 7 baby steps as the only way to get out of debt. Some others disagree with his approach.

Today My friend Sasha will share her story about breaking Dave Ramsey’s rules on her path to financial independence.

How to break Dave Ramsey’s rules and still work towards Financial Independence

Hi! My name is Sasha and I blog over at Your Frugal Friend Blog about frugality and budgeting to financial freedom! You can find the financial and goal tracking products I created years ago to help me be financially successful here.

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Budgeting was something I did for years without major successes. I was able to keep myself somewhat on track, but I didn’t have a debt repayment or savings strategy in place. I needed some guidance before I could create a strategy that worked for me.

One day, I went to the public library to find a book that could give me another perspective on personal finance strategies.

Dave Ramsey’s “The Total Money Makeover”

I noticed a book by Suze Orman and another by Dave Ramsey.

Having read Orman’s book years before, I decided to read Dave Ramsey as nothing Orman had written resonated with me.

I devoured “The Total Money Makeover” by Ramsey in one day. It had such easy and actionable steps to apply to my personal situation.

The 7 Baby Steps according to Dave Ramsey

The book outlines 7 Baby Steps: 

  • Baby Step 1 – $1,000 to start an Emergency Fund
  • Baby Step 2 – Pay off all debt using the Debt Snowball
  • Baby Step 3 – 3 to 6 months of expenses in savings
  • Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
  • Baby Step 5 – College funding for children
  • Baby Step 6 – Pay off home early
  • Baby Step 7 – Build wealth and give!

The Baby Steps appealed to me.

I already had a small emergency fund in place, have been using a zero-based budget for years, and had a list of my debts to pay off and had been paying them off.

Related: How to build an emergency fund with no money

How I implemented Dave Ramsey’s Baby Steps

The book was able to help me get to the next level I wanted to go, by telling me to compare my forecasted budget to my actual, giving me a hard number for my emergency fund, and by leading me down a path to debt repayment by giving the process a structure that works.

After I read the book, I started to ask myself tough questions about my spending habits. I grew up poor and felt like I deserved to spend my money on trips I couldn’t really afford, or a lifestyle that creeped up everytime I reached another financial milestone on my career path. This took me from loosely adhering to my budget, to becoming laser focused on how every penny was spent so that I could pay down my debt. 

The debt snowball method is what Ramsey touts as the best way to pay down debt. This method pays down your debts in the order of smallest to largest.

It promotes easy wins, and that is why it is so wildly successful.

I used this method to pay down $65,000 of commercial debt over 3 years on one income. This included a personal loan my husband had before we met, two car loans, and random credit card debt.

How to break Dave Ramsey’s Rules

Baby Step One

Dave Ramsey states that you have to first save a $1,000 emergency fund before you do anything else on your financial path.

A $1,000 emergency fund isn’t enough for me. Medical expenses in the USA are insanely expensive. The average copay for a trip to the emergency room is $600. One trip to the ER can easily wipe out an entire emergency fund if you need an ambulance ride to the ER and medicine after your hospital visit. This is exactly what happened to me to make me realize that $1,000 is a meager sum depending on your situation.

What I did instead

Under baby step one, I currently have $2,000 saved. This is an amount that makes me comfortable since we are a family of four. A lot of emergencies can arise with small children and I like to be prepared.

Baby Step Two and Three

Baby Steps two and three require you to first pay down all of your debts (except for your mortgage) and then save a 3 to 6 month savings fund. The debt snowball method is how you accomplish Baby Step two.

The debt snowball method gave me the framework to pay down our commercial debt.

What I did instead

Pay debt by interest rate

I decided to break Dave Ramsey’s rule to pay down debts from smallest to largest, regardless of the interest rate.

Instead, I paid down some cards based on their interest rate. I would do this if the debts were close in size. 

To me, it was more beneficial to pay down the $6,000 credit card with an interest rate of 25% over the other one with 0% APR for 18 months with a balance of $4,000. This saved us money and worked. 

break dave ramsey's rules - debt snowball tracker
Build up emergency fund before paying off debt

Another way I broke the rules for Baby Step two, was to not pay down all of my debt before saving a 3 to 6 month emergency fund, or Baby Step three.

Student loan debt in the USA can cripple you financially for a lifetime. I ended school with $96,000 of student loan debt since I needed a master’s degree in my field, accounting, to land the kind of job I wanted.

This is a ton of debt.

I worked full time the entire time I went through my schooling, 40 hours a week, and I still graduated with this much debt.

When I had to stop working for a period due to complications with my second pregnancy, this debt ballooned up to $115,000 because I could only make the bare minimum payment legally required of me.

This debt is a huge mental and emotional burden on me because the interest rate on the federal loans I hold is 6.5%. That interest is working against my debt repayment dreams every day.

When my husband finished his electrical engineering degree he had $46,000 of student loan debt. With a combined student loan debt repayment of $161,000 I knew it was not a good plan to continue paying down that debt for another 5 to 10 years without having a robust savings fund. With two kids in tow you have to think about the bigger picture.

Our strategy to increase the emergency fund

I decided to pause our debt repayment plan to save a 3 to 6 month emergency fund. I had a strategic plan for making this goal easily accomplished. 

Over the years I had positioned us to live off of half of our total take home income. Living frugal is something that has helped tremendously when paying down debt and saving money. With 50% of our income available to save, plus knowing that my husband had end of year bonuses coming his way, I was able to save $25,000 of our total expenses in a high interest yield savings account in only a few months. I timed the saving of this cash so that I could save it quickly to keep myself motivated.

With student loan debt the size of a mortgage, it made the most sense for us to save a robust amount of cash to weather any storms that came our way. This was a great plan, because two months after saving this amount the global pandemic hit and people were losing their jobs in droves. Having that money saved gave me the peace of mind I craved. 

Baby Step Four

Dave Ramsey has a hard rule on investing while in debt: don’t do it. He states to pause any investing while you are in debt repayment mode.

With $226,000 in total debt, there was no way I was going to pause investing for potentially a decade before putting money towards retirement. The Total Money Makeover was written before the student loan debt crisis existed. The rules are antiquated when it comes to this particular debt.

What I do instead

We invest 15% of our income into a 401k annually, we max out a Roth account through Vanguard, and we contribute the maximum amount to our HSA (Health Savings Account). This saves us over $1,000 a year in taxes. Our goal is to reach financial independence and retire early. You can’t do this if you aren’t investing and saving cash. You can read more about our path to F.I.R.E in this article.

Break this rule if you have a debt repayment strategy that works for you and if you have non-negotiable values on your retirement goals. 

Baby Step Five

Investing in your children’s college fund is something that Dave Ramsey says not to do until you have completed Baby Steps one through four. I broke this rule because of my personal experience with student loan debt. 

What I do instead

I started my children’s college savings funds through a 529 plan. The people who contribute to these plans are family members that want to buy my children gifts that will become obsolete in a year or so.

I encourage my family to only purchase one present for each birthday and holiday and to give the gift of compound interest by investing in their college funds!

This approach has worked amazingly! My children receive more in the total cash value of the donation plus the gifts than they ever did when receiving just gifts alone. 

People want to give to the future education of children.

I encourage everyone to set up some kind of savings fund for their children. This way, others can donate to it in lieu of gifts they may play with for only a small period of time. My children already have thousands in their funds because I decided to set up these plans for them!

break dave ramsey's rules

Baby Step Six

Dave Ramsey recommends paying off your mortgage as fast as possible after Baby Steps one through five are in motion. I don’t own a home, but we are actively saving for one.

Related: know what to expect when purchasing a property with this home buyer guide

What I do instead

Currently, we “house hack” by living in a home my mother inherited. We give her money for the property taxes and do any required home repairs. This may sound like a dream, but there is always a trade-off when something is a good deal.

Our daily commute in the city is 3 hours each day roundtrip at a minimum. I felt like I never stopped working. I left the house at 7 am and returned at 6 pm, which means I only spent an hour a day with my children. Also, my house was built in the early 1970s. Something is always breaking. We have spent a lot of money maintaining this home and doing updates. 

Regardless of these issues, living here has allowed us to start a family we could not have afforded otherwise. We are currently saving for the down payment on a house in a low cost of living area with a reduced commute.

I will miss my low housing costs, but I will be able to buy time back with my family.

Baby Step Seven

Once you have completed the previous 6 Baby Steps, the last one focuses on building wealth and giving.

What I do instead

I broke this rule by building wealth now. Also, I focus on giving to those in need. Last year my sister in law passed away unexpectedly. Because we have always had a savings fund of some kind, we were able to help pay for a majority of her funeral expenses. In the USA funeral costs on average in excess of $20,000, and her funeral was no exception.

Nothing can prepare you for the loss of a family member before their time, but with savings in place you can have one less thing to worry about. 

Having cash can help others that you love during their crisis, and being able to give to them at this time gives the gift of one less thing to worry about.

Breaking Dave Ramsey’s Rules

Using Dave Ramsey’s Baby Steps framework helped me to put more rigid rules around my budgeting and debt repayment goals.

Breaking these rules has allowed me to reach specific goals faster.

Reading the personal finance perspective of others over the years has given me little nuggets of wisdom that have helped me on my financial journey.

You don’t have to adhere to the rules of others to be successful. Use the advice that resonates with you. Sticking to a budget and reaching your own goals is what is most important! 

Do you have any personal finance rules that you have broken to reach your personal finance goals? Let us know in the comments!