Why We Don't Follow Dave Ramsey's Baby Steps - YouTube

hey guys have you heard of Dave Ramsey I bet a lot of you have because you

mentioned him in your comments to us if you haven't he's a financial guru that

uses seven baby steps to get you to financial peace a lot of people love his

plan and wonder why we aren't following it so in this video we're doing a

comparison of the baby steps in our plan to see which one will leave up in the

best financial position alright let's get started if you're new to the channel hi and welcome

to one big happy I'm Tasha and this is Joseph and our goal is to encourage and

empower you on the path to financial independence while also enjoying your

life along the way we think it's possible to do both and so please thumbs

up and subscribe for more videos like this about family money and life in our

last video we talked about the importance of having long-term financial

goals and a strategy to get there we spent a lot of time crunching the

numbers to figure out what our ideal retirement was going to be what age we

want to retire and how much that was going to cost we can use that

information to set a financial plan now that will help us get there in the

future this video is going to compare our plan that we came up with with Dave

Ramsey's 7 baby steps to see which one's going to work the best like joseph said

we crunched all kinds of numbers to figure out which plan was best and so

here's a sneak peak graphic showing you both of our plans but we won't tell you

which one is which at this point let's start with the assumptions that we use

to do our calculations first off we assumed that we would earn 12% on

investments return on investments that's way too high we don't actually agree

with this but number that Dave Ramsey uses so we

decided to use it to be consistent we also assumed a three percent

appreciation rate on our real estate so our house the long-term average is five

percent so this is on the conservative side and then lastly we projected out

twenty years to get a really good idea of where the baby steps in our plan

would take us over a long period of our lives so alright let's get into the

one big happy financial plan couple of principles behind the one big happy

financial plan number one we believe in saving and paying down debt at the same

time we definitely want to eliminate any high interest rate debt we always

contribute the maximum to our retirement account we pay a minimum amount towards

all of our low-interest debts including our mortgage we want to pay for both of

our children to go to in-state colleges maintain a ten percent budget surplus

for emergencies and fun like vacations or a tree falling on the house so some of the

big points for our plan compared to the baby steps we don't plan on paying our

mortgage off early and we will be staying in our current house we're going

to pay our current debts on their regular payments schedule because

they're all low interest rates and we're going to continue at our current savings

rate we're not going to change that so the important thing to realize with this

slide is that we go net worth positive by year two even on our current plan without

changing anything so we get a lot of comments that say Oh we'll never get out

of debt will always be upside down but the truth is that that is not true

because all we have is low interest debt just by paying as agreed our debts

automatically retire themselves and we end up going net worth positive without having to

do anything any drastic debt repayment measures in year four my loans will be

forgiven and then you can see year seven Alexis will graduate from college

debt-free and Tasha's loans will be forgiven

year eight will be debt free except for our mortgage so now looking at the

bigger picture you can see that our network continues to grow exponentially

because we've been saving this whole time we have not altered our savings rate

this is currently exactly the amount that we save every single year so by

year 20 we'll have 7.4 million we also included just for anyone

that was curious what our remaining mortgage balance would be at any at

these points so when our net worth is 7.4 million our mortgage

balance will be two hundred thousand let's talk about the plan results

7.4 million net worth would keep our current house we get to travel yearly

and go on vacations we replaced vehicles if necessary we paid for both

of our kids to go to college at least a public university we could retire as

early as 40 with a million dollars but that would mean we would have to go live

in a lower cost of living area and we have a ten percent budget surplus for

emergencies and some fun so basically we keep living our lives exactly the way we

are now and that trajectory would lead up to a 7.4 million dollar

net worth in twenty years and that's a lot of money just in case you are

wondering yes all right so now let's look at Dave Ramsey's baby steps we're

not gonna go through the steps one by one but you can pause here and kind of

read the descriptions that we've included on the slide if you're not that

familiar with it Dave Ramsey plan to highlights the goal is to get through the

baby steps as fast as possible that includes us selling your house and

moving to an apartment until we're debt-free because according to Dave

Ramsey's technically our mortgage payment is unaffordable because for him

he prefers for you to have a mortgage at a 15-year note that's 25 percent of your

net pay and our's is just 25 percent of our net pay but on a 30-year note so we

definitely have to sell our house we also stopped saving for retirement

but we don't withdraw any of the money because that's only recommended for

avoiding foreclosures or avoiding bankruptcy and neither of those apply

here yeah and we stop saving for retirement because that doesn't happen

till a baby step 4 so lastly we assume that we do everything we can throw all

available money into completing the baby steps as quickly as possible so

this first slide here you can see we complete baby step 1 which is the

thousand dollar emergency fund in year one we also sell our house move into an

apartment and stop saving for retirement we go net worth positive in year three and so we

complete baby step two by year five so will take us 5 years to become debt-free

and move on to baby step 3 In year six we have our three month emergency fund

saved which is baby step three and then the hundred and fifty saved for

the house which is being step 3b at which point we then purchase a house

that allows us to have 25 percent devote no more than 25 percent on a 15-year

note which would be a three hundred and fifty thousand dollar house with

$150,000 down payment now a lot of people would say that that seems high

but I mean we live in a high cost of living area as is that's also in the

future so it's either going to be a smaller house or definitely a lesser

School District yeah and to put it in perspective our current house by year 8

would be worth seven and a seven hundred and fifty thousand dollars so to buy a

five hundred thousand dollar house eight years from now you can imagine kind of

that there is going to be a bit of a difference

so then we move on to baby steps four or five and six which is saving for

retirement saving for college for kids and also paying down mortgage and we do

all of those at the same time in year seventeen we are completely debt-free

paid off that mortgage and five and six yes

and so we would also have saved enough for Reeves to go to college but

unfortunately we started we reached the college baby step after Alexis was out

already out of college so we weren't able to help pay for her to go to

college she would just be on her yeah so then by year eighteen we can finally

move on to baby step seven which is to grow wealth and so we start throwing all

of that money that used to go into our mortgage that was going towards paying

for Reeves to go to college all of that towards savings and so you can see by

year twenty we end up with four point seven eight million dollars so the Dave

Ramsey plan pros we have a four point seven million net worth at year twenty

that's good current debts are paid off by year seven and our mortgage is paid

off by year eighteen and that'll be our new mortgage that we got at what here

eight so mortgage paid off in ten years so that's fast the cons to the Dave

Ramsey plan we lose seven years of employer 401k matching we are not able

to help we are not able to help Alexis through college she has to figure

that on him on her own we have a smaller house and a less desirable area no

replacement vehicles over the entire twenty years and we take no vacations

now to be clear the baby steps don't require you to not get a new car or not

go on vacations but what we wanted to show with the best possible case

scenario for the Dave Ramsey plan and the baby steps where we could

end up financially if we really threw all of our money into whole hog into the

baby step this is max gazelle performing enhancing drugs gazelle everything yeah

for 20 years of gazelle intensity that's how much money we would have so let's

see how the two plans stack up to each other so as you can see the darker green

is the one big happy plan the lighter green is the Dave Ramsey plan and so

under the one big happy plan we end up with millions more dollars than the Dave

Ramsey plan this slide the next slide right here shows the exact dollar for

dollar measurement and so we created this handy-dandy little chart that kind

of that compares the one big happy plan to the Dave plan using several different

metrics quick answer is more circles are better so our net worth year 20 our plan

wins 7.38 million is far larger than 4.38 million

by three million dollars that's almost double yeah positive net worth we'll hit

positive net worth year two on our plan that will take year three on the Dave

Ramsey plan and that's in part because of the the loss of the house the house

is an asset that is worth something so when we sell it we incur costs that

translate to a lower net worth our emergency fund size would be an entire

year twelve months with our plan and only three months with the Dave Ramsey

plan just to backtrack a bit because I want to given it a quick explanation for

the difference one of the causes of the difference in net worth delaying saving

for five years and missing out on the employer match for five years has a

drastic impact that is basically impossible to overcome if you go just go

back and look at the other slide you'll see that even when we start putting all

of the money that was going to our mortgage in the Dave Ramsey

plan all of it all of our money is now going into savings the one big happy

plan is still growing faster than the Dave Ramsey plan because at that point

we just have so much more money that the money is working so hard that we can't

catch up by just saving on the Dave Ramsey plan so ok so continue on our

emergency fund one big happy plan we'll have 12 months versus Dave Ramsey we

stopped at 3 now technically Dave Ramsey did say go up to 6 but we wanted to he

said 3 to 6 but we stopped at 3 so we could keep going on the baby steps

our debt-free date is much longer 28 years with our plan and so this goes to

Dave Ramsey 17 years our financial independence date so when we would have

enough money to completely quit working and keep our house and not change

anything you're 10 for us you're 14 on the Dave Ramsey plan the

number of vacations that we were able to take 40 40 vacation so that's 2 a year

with our plan and 0 not a single one to keep up on the Dave Ramsey plan and the

number of cars purchased over those 20 years four under our plan 0 under the

Dave Ramsey plan so the cars you know might be you might think you could keep

a car for 20 years but more likely than not you're gonna need to get a car or at

the very least we could buy one for Alexis we can buy one for Reeves right and

that's two cars right there and that's 2 for us so four cars over 20 years but

for 4 people so we're gonna be doing more videos in this series going

doing a deeper dive in explaining why what exactly is leading to these

discrepancies but we just wanted to show that number one all those comments that

say like there's no way we're ever getting out of this and we're like

totally like screwed sorry sorry excuse my french obviously we're not right

because the trajectory that we're on would have us you know multimillionaires

in 20 years and we wouldn't even be in our 60s yet with

early to mid 50s in our in 20 years I think it's also important to point out

that a lot of the growth from the Dave Ramsey plan a lot of that 4.38 million is

because we have already saved so much yeah so if we were following his plan from

let's say two years ago or something like that well we wouldn't even have

that much money It'd be completely different yeah and we

also did calculations where we purged our retirement accounts to pay off debt

and it ended up even worse like far far worse so Dave really shouldn't get

credit for our two hundred thousand dollars that we already had saved but we

put it in there anyway but okay so more details to come we know you guys are

gonna have tons of questions so be sure to drop us the questions down below and

we'll answer them in the comments but also that way we'll know to add that

content as we're discussing this deeper in future videos all right bye guys bye