The 7 Baby Steps vs. The Financial Order of Operations
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- เผยแพร่เมื่อ 5 ธ.ค. 2022
- The 7 Baby Steps vs. The Financial Order of Operations
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Dave is good advice for people who are bad with money.
Money guys is good advice for people who are good with money
So two thirds of America need dave and the other third needs these guys
Yup. Dave's advice isn't optimal - no argument there. But it's simple to follow, doesn't require a lot of number crunching, and quite importantly it gives people some early wins. If you don't have any discipline those early wins can be the difference between staying with a plan or giving up. Hopefully as they get their ducks in a row they'll transition to being better with their money and can transition to a more optimal approach. The one big thing I don't like about Dave's advice is not taking advantage of that employer match. Those are free dollars you can't get later. I'll prioritize getting an employer match over getting rid of debt.
Dave is good for people with lots of debt.
Money guy is good for people with lots of money.
FTFY
I think we need to understand that Dave Ramsey target is people with long term debt problems. Yes, its not finanacially optimal but his approach is to get people mad at their debt enough to change their behavior. His main push is for people to stop adding to debt. He is talking to people that have carried credit card debt paying 20+% interest for 10+ years then keeping your message simple and getting people to focus makes a lot of sense. For others, with less credit card debt but maybe mainly student loan debt after graduating I would say FOO makes far better since. Both programs are better than doing nothing and continuing living in debt.
Amen. In a hyperbolic example, Dave is like a Jiffylube (okay for some people, better than no oil changes), and FOO is more like a speciality engine builder (focused on optimizing performance efficiently). A lot of people benefit from both styles. Dave’s complete aversion to credit cards, or his “find a $1000 clapped out car for a single mom with 3 kids” as if it is safe or won’t require thousands to keep reliable, is silly advice for responsible adults - especially those of us with 2.x% car/home loans.
That's debatable. Dave is very respectful when he's in front of Brian and Bo but he gets insanely mad when someone calls his show and it's not following his baby steps to the T. Hence, I like The money guy show better cause they are respectful, use math, facts, analyze different aspects, and allow deviation.
This is what I think as well. I kind of draw the line at do you take advantage of credit cards, or do credit cards take advantage of you?
I'm more in the dave camp. I'm in step 3b right now, but I might start at least investing that match. You guys make a good point. I can't walk away from that anymore.
Combining the Baby Steps and Foo keeps me on track to reach my financial destination. I get a government match in my disability account if I followed Dave Ramsey I would lose that match, while if I add in the step from FOO I would get my match and pay off debt.
Love this show. Very encouraging and gives great simple advice that all can utilize.
My husband and I were Dave-ish. We had $100,000 worth of debt coming out of college (cars/student loans), but we never stopped retirement investments.
We worked non-stop for three years and fully funded retirement, paid off all of our debt, and now are saving for a 20% down payment for a home. It can be done, but we really disagreed with Dave on the order of his steps.
Super important to look at multiple resources when dealing with money.
Yeah we were full-Dave and hit some roadblocks (switching jobs) due to Covid, which really slowed down getting out of baby step 2. I wish we had just kept at least investing in our employer match. We will never get that time back.
I did Dave-ish too. 1 month of emergency savings to start and did not stop retirement contributions.
My mortgage and car loan are 2.5% fixed, and now savings rates are 4.5%....at the same bank. There is literally zero reasons to pay off the low interest loans early.
I would say for the car note the only reason to pay off early would be to unlock that monthly cash flow, that being said while the market is down, it's great opportunity to invest more than pay down low interest debt.
However, your car is declining in value as reality is starting to return to the used car market. The main benefit of paying off those loans is to remove the burden of debt. Right now it's personal preference on which way to go. For me, I'm paying off my house as quickly as I can while still investing with a small pct in bonds and cash.
Which bank?
@@myutoob2011 That’s really only applicable if you intend on selling said car or house
It’s about the behavior if you know best you wouldn’t have debt period - it’s not about the interest rate but about momentum
I think the Financial Order of Operations just makes so much more sense. It optimizes paying down debt AND maximizing investment at the same time. The thing that bugs me about Dave's plan and his methodology in general is that it doesn't leverage good debt and builds wealth in a relatively slow way.
No offense, but it seems like the Dave Ramsey plan is for people with very little self control in all aspect of finances i.e folks that can't take advantage of debt and can't pay off credit cards on time every month to take advantage of the rewards.
This channel makes me want to be a financial advisor. I have an uncle who always said I should be an accountant (due to my personality), maybe he was right. I like watching content like this even though I've passed these steps a long time ago.
I should ask you for advice
@@ryebread447 i think not lol
I think the video cut out early?
I’m 45 and completely debt free. I’ve been home with my family and not working for the last two months living off my savings. Thank you Dave Ramsey. Now when I return to work I will be able to invest even more aggressively.
This is My point - So my daughter got hit today and totaled her car - (their fault) the vehicle is paid off but if it wasn’t and owed money on it at say 3% interest with payments of say $400 - not only would she be upside on it (typically) she would need to buy a more expensive car in Todays market and if she didn’t have the cash to buy outright then any chance of making any money in the investment market has become impossible since now she would have a higher payment at a higher interest rate with little down payment other than her claim money over a longer term!
So yes become debt free as soon as possible and stop trying to play the system and think you can outsmart it
Luckily she is fine and has enough money to just go buy another car and when she gets her claim money she can do whatever she wants - this is called peaceful living
I highly recommend Dave’s plan, was out of debt in one year doing the snowball method, working extra hours, cutting expenses including investing and was able to stay highly motivated by getting rid of different lenders, every time it was one less lender I had to pay till $80k later they are all gone!
It all depends on the person’s income. Adjust accordingly or pick spots. My household income is middle class status I guess. I invest 15% (Ramsey) while total housing cost is less than 25% of gross (FOO). It works for me. I get to live comfortably and enjoy my present while taking care of my future. 👍😊
Balanced life, live below means, build for future but enjoy some life now? Nice!
I’m assuming there’s a part 2 somewhere???
I'm teaching a series on finances for our church youth group starting next week.
Admittedly after King Solomon the primary contributor to the material is Dave Ramsey.
But I turn into the FOO for one critical step. Teaching a group of teenagers that from ages 18-22 it will be wise to invest $100 per month EVEN IF THEY ARE GATHERING STUDENT LOANS.
Because at the end of those 4 years you can attack the debt with a vengeance while in the background that army of 4800 dollar bills will be working for you.
I think the main difference is math and behavior. The reason why dave ramsey plan didn’t focus on the match because dave wants you to stay focus first before getting distracted by investing.
Have followed the baby steps but I’ve always felt that not getting the match feels like a net loss. Hard to pass up that free money!
Should I pay off my payday loan at 300% interest or do employee match first?
I'm retiring quite soon. Between cash and other very liquid assets I have an emergency/living fund that's a little over 2 years of expenses. Getting a bond ladder set up as well, and still keeping a fair chunk in things such as index funds. It's strange to have so much money "just sitting around" but it looks a lot different when you're a couple months away from retirement vs. a few years.
I think it depends on how much debt someone has. Each time you pay something off you essentially give yourself a pay raise. It’s more about a mindset. If it will take you 5 plus years to pay off everything but the house? I’d say investment in the match. If it’s gonna be less than two years? Personally I think the peace of mind will be worth it. Your plan is assuming you have a job you actually like. So many people are stuck doing things they hate just to pay off debt.
what about baby steps 4-7 and FOO #5-9??
They’re nearly the same
Haven't watched the video through yet, but i think even the names of your two methods speak volumes as to how you view yourselves and your viewers.
Baby steps is somewhat condescending and treats us like children who need a hand through every choice me make.
Your method is an instruction manual that we can learn and apply to our unique situations. It assumes we are capable of understanding concepts and making good choices or at least learning from bad choices
Does a car loan fall under step 3?
I follow the Baby steps. 5 year left in baby step 7 and on track to becoming a millionaire before 37. No debt = less stress = less math. Stop mathing, and get rich. Money guy only do math. :P
My employer doesn’t do company match! Only pension and an optional 457b. I been putting about 16-18% into 457b. Too bad they don’t match!
Why is this video color corrected to look like a dystopian sci-fi horror movie?
I started late but thankfully my employer matches 6% and whether you contribute or not they give me 4% extra. So I’m getting 10% to my 6%
Hi. I'm a 26 year old floater pharmacist starting off my career. I've been saving up a bunch of money in a high yield savings account during the Biden loan freeze to gain guaranteed interest instead of lose interest and pay it on principle at the end of the freeze, as a slightly modified/optimized version of Dave Ramsey's suggestion of continuing to make payments on student debt during the freeze. I've waited for the 401k match to start, which is 100% match up to 6% of gross, but only after the first year of employment. I just hit that 1 year mark, didn't put much into the 401k this year because I've been so focused on getting out from under the mountain of student debt. I'm still in my parents' basement for now just to save on cost of living, but I'm feeling like I need my independence soon, maybe in the spring or summer. By the summer, I might be able to cash offer a starter home (~120-150k, they actually exist in my area). What are your thoughts on doing this instead of putting all of that money into paying off most of my grad school student debt (mostly around 6% interest)? That would allow me to skip the awful mortgage interest rates and make my student debt basically a slightly better mortgage, and leave me a little more free to invest, max out my 401k and HSA next year, start a roth IRA, and not be too worried about the cost of living, since I would own a home outright at 27 and have a six figure income. Is that weird option financially viable to start me on a more comfortable living situation AND prioritize some key steps of the order of operations? Or is it better for me to pay off the debt, rent for a bit, and do a more traditional 10-20% down payment on a house (maybe a better house) when the housing and mortgage market cools down a bit (assuming it does)? Any thoughts?
How long does it take you to save 100k? If you can do it in a year, why not wait a year in the basement then do both?
I would pay it off and save the 20% plus extra for emergencies- get a better home; stay in the parents home as long as they can keep you - don’t be in a rush to have a paid off home but with your income and decisions you make you could pay it off 5-7 yrs - a paid off house at 27 v 35 is still a paid off home- get debt out of your life because the feeling I get from you is that it puts stress on you so be peaceful
I think your plan is a bit aggressive and not considering other risks involved. Don't underestimate the cost of ownership of a home, and if you move out of your parents place your cost of living also increases. It's better to pay off your student loan first, save enough for both emergency fund and house down payment, make sure there's enough money for maxing out 401k and Roth IRA before purchasing a home. A mortgage is different than a student loan: the mortgage is secured on the property, and there's always the option of selling the property to pay back the mortgage when times are rough. A student loan however is linked to the borrower and doesn't go away until it's fully paid off, and therefore carries a higher inherent risk. Growing wealth is not a sprint: it's a marathon. It's not about owning a house as early as possible, but rather following a financial strategy for consistent growth with measured risk.
@@MachaLatte123 yeah, I ended up deciding to pay off the high interest grad school debt first, leave a bit in low interest undergrad debt for now, and then switch to investing, hopefully maxing out retirement, or at least 401k match, HSA, plus maxed out back door Roth IRA, then working towards a down payment. Actually I'm likely to move out soon here for a promotion and rent for a while, because it comes with a signing bonus and raise that almost offset the cost of living increases, while maintaining a decent emergency fund of about 10g.
I’d definitely focus on getting debt free first. You’re off to a good start, but don’t try to do too much at once. Build your foundation first.
I'm currently at hourly pay at my job, i work as a cook, my job doesn't offer 401k unless i become salary, im 26 y.o, what can i do about getting on a 401k plan to get what compound interest i can earn?
Go into Roth IRA since it’s the next thing after 401k I have both and it lines up to 25% a month and I’m 20
Yes open a Roth IRA. The people at Charles Schwab are really nice. If you don’t know how to invest or get started you can just buy the Target retirement index funds that the money guys are always talking about. The key is just get started, start those automated transactions.
I think Dave's baby step was really formulated and thoughtfully put together for the same reason people have this same idea "Yeah, FOO works better". But it's not that easy when you have behavioral issues. We've been on Dave's baby step for 5 years and it really helps us both my husband and I mentally. We are now at steps 4,5,6, and you won't believe it gets a lot simpler and easier when you really pay attention and get on that same head space. Mind you we have a special needs kid where I have to stay home to care for him and my husband had to be the sole income provider.
This formula works, sure (it's what math indicated) but it isn't that easy. It is 10 % head knowledge, 90% behavior. I know baby step isn't for everyone but it works for us and we are happy as well as hundreds maybe thousands of people that has already proven the baby step works for them.
Stop comparing your step with the baby step, just continue encouraging people and help them grow and get financially successful there is nothing wrong with that because I can see how this can also help people.
Patterns are behavioral and not all are robot like with their math execution. So i agree with you
Too complicated. Baby steps FTW.
Do today's high mortgage rates count as high interest debt? Why wouldn't the 7% in your 20s, 6% in your 30s, and 5% in your 40s rule apply to mortgages the same as other debt?
I think the assumption I can hear echoes of 2007 would be that you can refinance at a lower rate. The other side of it being that when interest rates are higher home prices are actually lower so it kind of balances out.
S Tier: FOO
A Tier: Baby Steps
Money guy > Dave > no plan/lots of debt
FOO is complicated for average people compare to baby step
It can have better results but you actually have to think.
My deductible is $5000. Sooooooo more than $1000
: )
This ain't even all 7 steps. CLICK BAIT
#2 🤣🤣 You are not accounting for risk- period!!! Stop investing for the “short term” because let’s be honest the stat you give at the beginning about 56% of Americans can not save $1000 - BECAUSE they’re in DEBT!!! Compound interest vs debt interest is a dumb argument- please do the math if you gain 8-10-12% in investments vs combined 3 CCs, a car loan, student loans and a mortgage - you are underperforming
Come on guys you are not be honest here
The employer Match is free money so it's doubling your money. You math is wrong. You missing out on a 100% increase on what your contributing if your only doing the match. Plus the market gain. It also starts you on the snow ball of accumulating wealth which just like debt will compound and increase exponentially over time. Just grabbing the match should not impact you much in the short-term while you pay-off High interest Debt.
@@jordanbramlett347 I hear you but it is not 100% free money when you are in debt - all the money you put into it will be negated by that high interest debt. The most important part of this is the behavior behind managing the debt and is short term. I followed the program and I am mortgage free- zero debt- zero! I am 50- I had 5 rentals that were leveraged & I sold them and got all my cash flow upfront for the next 20yrs….the risk was too great! I am retired now and live peacefully without owing anyone anything - MINDSET-- And now I can invest like crazy!!! Without barriers in my way
They nailed it, I’ve got no debt and a everyday millionaire. Their steps are good.
Your method is stretch yourself thin, focus all over the place, don’t take care of the debt as fast as possible, and don’t create the momentum of getting out of debt. No thanks!
In today's climate we need all the money we can get. You're never going to get anywhere with the snowball method *but it'll make you feel all warm and fuzzy* so that's what matters.
Thats not remotely true
It’s literally not what they said
You guys might be better, but you talk too much and make things too long winded.