I was browsing the library shelves a few months ago when I saw a book from Dave Ramsey titled Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth—and How You Can Too.
I’d heard Ramsey’s name before and knew he was a personal finance “guru”1, but I’d never read any of his books nor listened to his podcast.
My curiosity was piqued and the book was short, so I checked it out and took it home.
Baby Steps Millionaires Summary
The book’s main message is that anyone can become a millionaire. All you need to do is avoid debt, save as much as you can, and invest.
Ramsey says that people get discouraged because they don’t understand the difference between a millionaire and a billionaire.
Jeff Bezos is a billionaire. He owns multiple jets, yachts, luxury cars, and houses. There’s no limit to what he can buy.
A millionaire, on the other hand, has a paid-for house and maybe a vacation house as well. She takes a nice annual vacation and can afford to splurge on eating out or on the latest tech gadgets.
Ramsey uses a climbing analogy to explain the difference.
Only 6,098 people have climbed Mt. Everest—these climbers are analogous to billionaires, a highly rare breed, the one percent of the one percent of the one percent.
Meanwhile, hundreds of thousands of people climb Clingmans Dome in Great Smoky Mountains National Park every year—these are analogous to millionaires, an uncommon but not rare distinction.2
The great majority of people climb neither Mt. Everest nor Clingmans Dome—just like the great majority of people are neither millionaires nor billionaires.
Here are the other main takeaways from the book:
Dave Ramsey’s 7 Baby Steps
Ramsey is famous for his 7 Baby Steps plan, which is what he recommends to those looking to get out of debt and get their finances in order.
The first 3 steps are meant to be followed in order while steps 4 through 6 happen simultaneously.
The only other caveat is that if your emergency fund gets wiped out at any step, you go back to step 1 or step 3 until it’s replenished.
Without further ado, these are Dave Ramsey’s 7 Baby Steps:
Baby Step 1: Save $1,000 for your starter emergency fund
Before you start paying off your debt, Ramsey suggests saving $1,000 as fast as possible to cover any unexpected life events.
This step creates a buffer that prevents you from going even deeper into debt.
For example, if your car breaks down and requires fixing, you dip into the emergency fund rather than take out another loan.
If you’re forced to dip into the emergency fund, replenish it and then go back to step 2—always keep $1,000 in this fund.
Baby Step 2: Pay off all debt (except your house mortgage) using the debt snowball method
The plan here is to go on a scorched-earth, no-room-for-fun budget. As Ramsey says, pay off debt like your life depends on it.3
Here’s how the debt snowball works:
- List all your debts except your mortgage.
- Sort them from smallest to biggest by remaining balance. Ignore the interest rate—only pay attention to the remaining balance.4
- Make the minimum payment on all debts except the smallest.
- Be as aggressive as possible in paying down this smallest debt. In Ramsey parlance, attack it with vengeance.
- Once the smallest debt is paid off, move on to the next smallest until you’re debt free.
Baby Step 3: Save 3 to 6 months of expenses in an emergency fund
This is the same emergency fund from step 1.
If your income is stable, 3 months of expenses is good. Otherwise, go for 6 months.
Note that this is 3 to 6 months of expenses, not income. In other words, this is the amount of money you spend each month on necessities, like rent, food, utilities, and transportation.
If you spend $1,000 a month, then you’d beef up your starter emergency fund from $1,000 (step 1) to $3,000-$6,000.
Baby Step 4: Invest 15% of your household income in retirement
Ramsey’s shorthand rule is Match beats Roth beats traditional.
In other words, max out your company match on your 401k or similar plans first. Then max out your Roth accounts, such as a Roth IRA. Finally, put the rest in a traditional tax-deferred plan at work, such as a 401k.
Ramsey recommends investing 100% of your money in the stock market through mutual funds. His investing methodology is:
- 25% in growth and income funds (sometimes called large-cap, blue chip, or dividend income funds.)
- 25% in growth funds (sometimes called mid-cap funds.)
- 25% in aggressive growth funds (sometimes called small-cap or emerging markets funds.)
- 25% in international funds
Ramsey also recommends to:
- Hold these funds for the long term—no short-term investments.
- Start investing and invest consistently. DO IT. Get started.
- Don’t try to time the market or jump in and out by buying and selling based on what’s being said on the news—buy consistently and hold.
Baby Step 5: Save for your children’s college fund
Skip this step if you don’t have kids.
Ramsey recommends the 529 college savings plan or ESAs (Education Savings Accounts) and is adamant that student loans should NOT be used, not even as a last resort.
According to Ramsey, kids should apply for scholarships and financial aid, get a job, and wait to attend school until they can pay cash for tuition.
Baby Step 6: Pay off your house early
At this point, you have a solid emergency fund, and you’re investing and potentially saving for your kids’ college funds.
Now you can start to put extra money towards your mortgage each month, which will save you thousands in interest over the term of the loan.5
My wife and I currently have $240,000 left on our mortgage and I can imagine that having a paid-for house is a HUGE relief.
Baby Step 7: Build wealth and give
When steps 1 through 6 are complete, you can start thinking about your legacy.
Is there a charity you admire?
Do you want to help your children with their first house or your grandchildren with college?
Do you want to follow in Secret Santa’s footsteps and give out hundred-dollar bills as a random act of kindness?
You now have the financial space and freedom to decide how to best spend your wealth.
Ramsey does not hide the fact that he is an ardent evangelical Christian.6
While reading this book, you’ll be continually pounded over the head with Christianity, Jesus, God, Proverbs, and scriptures.
One topic that really pisses off Ramsey is the belief that being rich is unchristian, which makes sense given he has a $10 million house7 and sells a Ramsey+ membership (aimed at helping you get out of debt, of course) for $19.99 a month.
It seems that both identities—self-made man who bootstrapped himself from rags to riches and righteous Christian—are supremely important to Ramsey and he devotes much of the book to explaining how these identities are in complete and total harmony.8
Here are some excerpts from the book that illustrate Ramsey’s views on Christianity and money:
Sharon and I had worked like crazy to get out of debt and pay off the bankruptcy. We fought our way out of that mess by following biblical principles, and God had blessed us.
I didn’t do anything wrong when I bought that car. In fact, I believe God smiled at me when I wrote the check.
Your pursuit of wealth and success is moral—as long as you do it with an unselfish, not greedy, biblical perspective.
God is more than okay with us building and enjoying wealth—it’s actually our heritage! (Eclessiastes 5:18-19, NKJV)9
Money is the root of all evil. Wrong! Money is not the root of all evil. The Bible does not say that, no matter how many times you’ve heard it. Here’s what 1 Timothy 6:10 actually says: “For the love of money is a root of all kinds of evil” (NKJV) Money isn’t the problem. The love of money is the problem.
Maybe you’ve already been saved. Maybe you accepted Jesus as Lord of your life years ago.
When you give your life to Christ, you get saved from going to hell, saved from living your life with something missing. Your God-shaped hole gets filled by God and God alone.
I want you to get a good Bible. Get one that works for you and begin to study. Begin to learn what God’s love letter says to us. It’ll change your life.
If religion or Christianity aren’t your cup of tea, be ready to skip or speed-read through large swathes of this book.
If we cut out the religious mumbo-jumbo and Ramsey’s extensive diatribes on why being rich is super-duper Christian, the book is a solid reference for how to become a millionaire.
Though there are specific pieces of Ramsey’s advice that people rightly criticize10, his overall advice is solid: get out of debt, live within your means, and save and invest, consistently and aggressively.11
As this book demonstrates through the personal testimony of normal people who rose from debt to wealth, it’s undeniably true that becoming a millionaire is within reach for everybody.
Both the lowly-paid janitor and the highly-paid CEO can become millionaires—it’ll just take the janitor a longer period of time.
To prove this point, Ramsey even conducted a [National Study of Millionaires][(/national-study-of-millionaires) to delve into the habits and beliefs of millionaires.
The results from this survey are included as an appendix to the book and they’re pretty interesting—I’ll be covering them in an upcoming post.
Final word: If you’re looking for a quick intro into the world of personal finance or just want a quick refresher, you can do worse than Baby Steps Millionaires.
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Ramsey is an interesting guy to say the least. He went broke in the late eighties then “found God” and became stinking rich by peddling financial advice, first to couples in his local church and then on his hugely popular radio show, The Dave Ramsey Show.
A $129.99 video-based personal finance course and a couple of New York Times bestsellers followed, cementing his place as a personal finance “guru” and taking his net worth into the stratosphere.
Ramsey’s Wikipedia page covers the controversies surrounding him fairly well. ↩
The United States alone has close to 22 million millionaires, which accounts for 8.8% of the U.S. adult population. ↩
Ramsey also refers to this as ”gazelle intensity“. ↩
Ignoring interest rate doesn’t make sense from a mathematical perspective—it makes more sense to pay down a $10,000 debt with a 10% interest rate than a $5,000 debt with a 2% interest.
However, research has shown that fully paying off a debt motivates people more than making progress on multiple debts.
As a post in the Harvard Business Review put it:
It is not the size of the repayment or how little is left on a card after a payment that has the biggest impact on people’s perception of progress; rather it’s what portion of the balance they succeed in paying off.
Thus focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress—and therefore their motivation to continue paying down their debts.
See Wikipedia for a discussion on the effectiveness of the debt snowball. ↩
You can play around with a mortgage payoff calculator to see exactly how much you can save by making extra payments each month. ↩
Ramsey’s fan base is predominantly white, Christian, and Republican. Politico called him The Financial Whisperer to Trump’s America. ↩
A psychologist might call this cognitive dissonance. ↩
In case you’re curious, Eclessiastes 5:18-19 reads:
18 Here is what I have seen: It is good and fitting for one to eat and drink, and to enjoy the good of all his labor in which he toils under the sun all the days of his life which God gives him; for it is his heritage.
19 As for every man to whom God has given riches and wealth, and given him power to eat of it, to receive his heritage and rejoice in his labor—this is the gift of God. ↩
White Coat Investor does a good job covering the things that Ramsey gets right and those he gets wrong in this post. ↩
Yes, this is common sense—Ramsey didn’t discover anything new. But our debt-choked society shows that this advice is far from being adopted. ↩