Learn the difference between the Practically Independent plan and the Dave Ramsey Baby Steps. Then you can decide which works better for you.

Dave Ramsey’s 7 Baby Steps

First, let me say I have incredible respect for Dave Ramsey. His Baby Steps have helped millions of people eliminate debt and build wealth. His plan works. And, if it works for you, then there is absolutely no reason to change it.

From the Dave Ramsey website, here are his baby steps:

  1. Save $1,000 for your starter emergency fund.
  2. Pay off all debt (except the house) using the debt snowball.
  3. Save 3-6 months of expenses in a fully funded emergency fund.
  4. Invest 15% of your household income in retirement.
  5. Save for your children’s college fund.
  6. Pay off your home early.
  7. Build wealth and give.

Dave always says that Personal Finance is 80% behavior and only 20% head-knowledge. That’s why his Baby Steps are structured with the intention of building momentum. By making small steps, you can see progress right away, which triggers your brain to want more.

There is nothing wrong with that! If it works for you, great!

The Practically Independent 12-Step Plan

My nerd brain struggles a bit with some of the nuances of the Dave Ramsey Baby Steps plan. So, I built my own plan.

Phase 1: Build a Foundation
1. Create an Undetailed Budget.
2. Separate income & expenses.
3. Save 1-month emergency fund.
4. Eliminate high-interest debt.

Phase 2: Build a Routine
5. Review insurance and wills.
6. Get employer match for retirement.
7. Save 6-month emergency fund.
8. Eliminate all non-mortgage debt.

Phase 3: Build a Legacy
9. Invest 15% of gross income to retirement.
10. Save for college.
11. Use HSA to self-insure for long-term care.
12. Pay off mortgage early.

Both systems will eliminate your debt. They will also help you build wealth. The plan that will work better for you is the plan that you will stick with. So, it is completely up to your personal preference.

Now, let’s look at the nuance of each plan and highlight the differences.



10 Differences between Practically Independent & Dave Ramsey

1) $1,000 is not enough anymore

Dave Ramsey has been doing this for 30 years. In that time, inflation has eaten away at the value of a dollar, so $1,000 just doesn’t go as far as it used to. In fact, it would take nearly $2,000 in 2020 to cover what $1,000 would have in 1990, according to the US Inflation Calculator.

Instead of building a $1,000 starter emergency fund, I prefer to start with a 1-month starter emergency fund. People with larger expenses should have a larger emergency fund. So, set aside enough to get by for 1 month before moving on to the next step.


2) The Debt Snowball has a Downside

Unfortunately, the paying your debts from smallest to largest is not the cheapest way to get out of debt. But, the dopamine rush of seeing a fully-paid-off balance cannot be ignored.

So, I separate high-interest debts from low-interest debts first, and then apply the debt snowball.

For example, let’s say you have a few credit cards with 15%-20% interest rates and you have some car loans and personal loans around the 5% range. I would make the minimum payments on the car loans and personal loans while tackling those high-interest debts first.

If you want to pay the credit cards from smallest balance to largest, go ahead! There isn’t that much difference in cost, overall, and that dopamine rush is a real motivator. But, I would never recommend paying anything extra on a 5% debt while still carrying a 20% debt.

If you listen to the Dave Ramsey radio show, you will sometimes hear them recommending breaking from the Baby Steps and following my plan. If a caller has a loan with a payday lender that has an astronomical interest rate, Dave will almost always recommend that they attack that debt first. Which, makes sense because those loans can have rates in the 100% to 300% range!


3) A 3-Month Emergency Fund is Not Enough

I’m old enough to remember the year 2020. Sometimes the world goes crazy and you need a safety net.

The Dave Ramsey Baby Steps allow you to decide how much to set aside for emergencies. The guideline is at least enough to cover 3 months of expenses, but not more than 6 months.

I prefer to be more precise. After you have paid off your high-interest debt, put enough into savings that you could survive for 6 months without income. Set it aside. Don’t invest it. Don’t use it for vacations. Just have 6-months of expenses in a savings or money market account.

4) Employer Match

Dave Ramsey gets quite a bit of push-back on his recommendation that you wait to participate in your employer-sponsored retirement plan until all of your consumer debt is paid off and you have a fully-funded 3-6 month emergency fund.

I actually agree with Dave on part of this. You should not put any money into retirement if you do not have at least a 1-month emergency fund or if you still have high-interest debt… even if your employer will match some of your contributions.

The reason is that if you don’t have a strong financial foundation, then there is a chance you will need that money before you retire. The only benefit that is unique to retirement plans is the way they are taxed, and if you break the rules, you lose that benefit!

So, get your financial house in order first. Then, save for retirement.

However, we don’t want to wait too long to start investing toward retirement. So, I suggest that after you have saved a 1-month starter emergency fund and you have paid off your high-interest debt, then it is okay to put the minimum required into your retirement plan to get your employer match. Don’t worry, we’ll boost your contributions later, but if you have completed Phase 1, then it is time to get your employer’s match.



5) A 15-Year Mortgage is Unnecessary

I agree with Dave Ramsey 100%: you should pay off your mortgage as quickly as possible. Something changes in the way you live your life when you own your home outright. The impact cannot be overstated. I promise, when you pay off your mortgage, you will spend differently, you will save differently, you will walk differently.

And, as Dave always says, try it. If you don’t like it, go get a new mortgage.

However, the Dave Ramsey rule is that you should only take out a 15-year mortgage with a payment that is less than 25% of your take home pay. That way you are not “house poor” with a huge payment, and you will have your home paid off in no more than 15 years.

Well, my rule of thumb on a mortgage is 15% of Gross Pay, which is pretty close to 25% of Take Home, so we agree there. But, the big difference is that I’m fine with a 30-year mortgage.

The reason: no matter what the term is of the original mortgage, you can pay it off early. But, a 15-year mortgage has a higher minimum monthly payment, which means that you will have to put more into your 6-month emergency fund.

On both of our plans, you will only be making the minimum payments on your mortgage for a short time. Then, when you have your finances in order, all extra money is used as extra principal payments until your mortgage is gone. In both cases, you should be able to pay off your house in 7 to 10 years. The only difference is that if you have a financial emergency, your minimum monthly payment will be lower if you have a 30-year mortgage.

Mortgage Example

Let’s look at the numbers: the minimum payment on a 15-year mortgage will be between 50% and 60% higher than the minimum payment on a 30-year mortgage with the same balance.

That means, if your 30-year mortgage payment is $1,000, then you need to keep $6,000 in your emergency fund just for your mortgage. But, the same balance would require at least $1,500 per month on a 15-year mortgage, which would mean your emergency fund would need $9,000 to cover 6-months of payments.

In this example, a fully-funded emergency fund is $3,000 smaller with a 30-year mortgage. If you are using my 12-step plan, you can use that $3,000 to get out of debt faster and move on to step 9, (invest 15% of your income into retirement) faster.


6) Health Savings Accounts Deserve Top Billing

I’m pretty sure that if Dave Ramsey was creating his Baby Step plan today, he would include this one. Health Savings Accounts were created in 2003, well after the ink dried on Dave’s plan.

Pretty much everyone will need some kind of Long-Term Care in their lifetime. If you plan early enough, it may make sense to use an HSA to self insure against that need.

You can find my entire article on that topic here: How to Use an HSA to Self Insure for Long-Term Care.


7) Limited Use of Student Loans is Okay

Dave Ramsey hates student loans. And, while I agree with him that Student Loans are significantly more dangerous than almost all other types of debt, they can sometimes serve a purpose.

An education can be a springboard that leads to a higher income. But, sometimes it is impossible to buy that education before you have the higher income. In that specific case, it is okay to borrow a small amount to acquire that education. But, only if you can pay it back within two years of graduation using only the increased income you’re earning because of the degree.

Oh, and, if you can’t pay cash for college, you better start at a Community College and then transfer to your local State School to finish your degree! School choice is the number 1 factor in how much college costs.


8) Limited Car Loans are Okay

Dave Ramsey’s advice is that you should never have a car loan. I agree: don’t get a car loan!

But, the reality is that nearly everyone has a car loan. And, because of Dave’s strong stance on this topic, he has never issued any guidance on how to avoid too much car debt.

Instead, I prefer to provide a path to eliminate car payments. Your plan should be to spend most of your adult life without a car payment. Here is how to do it:

  1. Avoid car loans if at all possible
  2. If you must get a car loan use the 20 / 4 / 10 rule: 20% down, 4-year term or less, and payment no-more than 10% of gross monthly pay
  3. Keep your car after the loan is paid off and make payments to yourself so you can pay cash next time

9) Retirement Estimated Returns

If you’ve listened to the Dave Ramsey radio show, you have heard him talk about how he is invested. I like that he doesn’t try to do anything too fancy, he just has four types of mutual funds and keeps his portfolio at 25% in each type.

Sure, I prefer low-cost ETFs and my allocation is different, but that is minor.

The bigger difference is that he is often quoting a 12% rate of return on his investments. And, while he suggests (correctly) that retirees should only take the growth out of their nest egg each year, he often estimates that growth to be 10%.

While that may end up being true for some, it is incredibly unlikely for most. I prefer to plan with very conservative numbers, that way I am confident I will meet or exceed my plan. So, for pre-retirement investments I usually estimate about an 8% ROI. And, after retirement, I should be able to produce income equal to 4% or 5% of my nest egg without ever touching the principal.

If I’m wrong and he’s right, then great! You’ll have way more money than you thought! But, if he’s wrong and I’m right, then the last days of your life could be the poorest days of your life… and that’s not a great plan.


10) Tithe

The final difference between the Practically Independent 12-step plan and the Dave Ramsey 7-baby-step plan is actually not explicitly mentioned in either plan. But, if you listen to the Dave Ramsey show or read any of his books, you know that he recommends tithing 10% of your income to your local church.

Personally, I don’t tithe. However, charitable giving of both time and money is a super important part life. Being an active and giving member of your community pays dividends to your wellbeing and that of your community and neighbors.

If charity is an important part of your life (and it should be), the form that charity takes may be different depending on your circumstances. If you are buried in debt, living paycheck-to-paycheck, and barely getting by, then I think it is a great idea to focus your charity on giving your time. Then, when you have built your house on a strong financial foundation, you can decide if you want to add financial charity to your repertoire.

Personally, I would never recommend tithing 10% of your income if you have a payday loan with 300% interest. But, if it is that important to your belief system, I certainly won’t discourage it.


Final Thoughts

Dave Ramsey is the undisputed king of personal finance in the US. His approach to eliminating debt and building wealth has helped millions of Americans, and it could help you too.

But, just like any program, it is not for everyone. The best plan for you is one that you will finish.

The healthiest diet and exercise program in the world won’t help you be healthy if you don’t follow it. The fact that you are on a plan is much more important than the tiny details of that plan.

I guess, I’m saying that if the Dave Ramsey Baby Steps work for you, great! But, they didn’t work for me. So, I made my own plan, and I like it quite a bit. Maybe you will like it too.

What to Read Next

For more information, check out these articles that offer more detail about these topics. Enjoy!


I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.

4 thoughts on “The 10 Differences Between Money Coaching With Me and Dave Ramsey

  1. I like yours better but I also understand why Dave’s is set up the way it is. He’s dealing with money problems that verge on addictive behavior and so it is set up to have a lot of easy wins and low hurdles. And like you said, it is obviously effective. I agree with your version as being pretty much perfectly tweaked. My wife and I were fortunate to have never had any debt except a mortgage, never had a credit card balance and never had trouble saving 20-50% of our income while still giving over 10% of our gross income to nonprofits. But that was just the way our parents lived and taught us so it seemed like the natural way to do things.

    1. Thanks for saying that! I actually had quite a bit of hesitation about this post. I know that Dave Ramsey has a very passionate tribe, and I don’t want to disrespect them. Having (and sticking to) a plan is more important than the minutiae. His works for them, mine works for me. Yours works for you! 🙂

  2. Thanks Jay! Great post. Thought provoking and informative. Dave Ramsey may be a thought leader of personal finance, I however, like the plan you’ve laid out!

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