Dave Ramsey’s radio show and his book “The Total Money Makeover” were my first introduction to personal finance.
His content exposed me to stories of regular people achieving incredible results; it gave me hope that one day I could be one of them too.
Dave’s famous Baby Steps was the first framework I followed to become debt free and begin to build a strong financial foundation for our family.
But as you can tell by the title of this post, we got stuck in Baby Step #3. My attempt to follow his plan helped us pay debt and save but we didn’t quite make it to Baby Step #4 when the focus shifts to investing.
As you can imagine, delaying investments as much as we did had a huge opportunity cost for us. Let me tell you about the reasons that kept us stuck as our experience may help you avoid stalling in your own journey.
Paying off my debt already felt like a huge accomplishment
Even though my debt wasn’t huge, it required I addressed my lack of boundaries and stop using credit cards irresponsibly.
During my debt payoff (Baby Step #2), I was stuck in a vicious cycle that took a long time to break. In my case, it wasn’t the actual debt amount that made it difficult, it was overcoming the psychological hurdles of adopting new financial habits.
It only took someone to ask for help or a visit from family for me to carelessly spend and undo the work I had done previously. I thought I could follow the program while skipping the “cut the cards” advise but that certainly made it much harder to stop using them as I should have.
I obviously had a problem saying no and being able to swipe the card didn’t help. I wanted to give more than I could afford and credit made it possible.
I felt a deep sense of accomplishment when I was finally able to break the cycle, pay all the debt, and stop borrowing money for good. I was proud of my financial progress as well as my personal growth when it came to setting boundaries for myself and others.
Paying my debt felt like the end of big journey while investing felt like a far away mountain that I could wait a bit to climb.
Saving cash for major expenses took priority over investing
My debt payoff happened around the time I finished graduate school and got engaged.
Aside from completing a 3-6-month emergency fund (Baby Step 3), we had to save for moving expenses, a new vehicle, as well as start putting money away for our wedding. At this point, borrowing money was no longer an option so we were going to be on savings mode for a while.
We were fine with having a long engagement and keeping things simple, but not having clarity on a target date or budget kept us saving with no real end on sight. Investing was a long-term plan we would revisit after the various saving goals were met.
On one hand, the fact that we were moving for my first real job meant our income will increase and eventually accelerate our journey. On the other hand, I made some naive mistakes when anticipating our expenses after the move. Our gap between income and expenses was not as large as initially anticipated which kept Baby Step 4 farther from our reach.
We were unclear on our house buying plans
Owning a home was something we envisioned as a married couple.
Dave’s general guideline for home buying is to save at least a 10-20% down payment and have a mortgage payment that is 25% or less of your total take-home pay with a 15 year fixed-rate mortgage.
At the time, we lived in a high cost of living area. It only took a quick glance at house prices in Zillow to realize [that despite our friends’ opinion] we weren’t even close to ready for buying a home.
Saving a house down payment (what Dave calls Baby Step 3B) became the new goal for our money. We didn’t know if we were going to stay in that region of the country or explore other options. Therefore, we just focused on putting money away for a down payment we would eventually made for a home we would eventually purchase.
Dave does advise to continue to Step 4 if saving for a down payment takes more than a few years. However, just like with the credit cards, I tried to bypass the recommendation. Instead, I was contributing to my 401k plan up to the match which felt like I was at least doing something.
We were not looking forward to hire a Financial Advisor
Dave Ramsey suggests using an endorsed local provider (ELP) for investing. Back then, I had not seriously considered index funds or the idea that successfully investing without a financial advisor was even possible.
Part of me was hoping we had a larger down payment plus additional cash saved before finding a professional. I had an underlying fear that we would be looked down upon for having almost no assets aside from our modest down payment savings.
It didn’t help that once I built up the courage to set up a meeting with an ELP, the meeting ended without us even realizing it had (that will probably be a blog post on itself). He may have been put off by the fact that we kept denying his “financial planning services” and we didn’t need his life insurance offer as we already had our own policies. I bet our tiny starting fund wasn’t that attractive either.
I surely hope this guy doesn’t represent most ELPs but after that meeting, we kept on saving. We started associating investing with the discomfort of meeting a “professional” and just kept our heads in the sand. We felt we were doing something by fattening our savings account which wasn’t a bad plan but further delaying investment wasn’t wise at all.
It wasn’t until I found the financial independence community this year that I got a much-needed wake up call.
I had lost my north while following my own version of the baby steps and my excitement to continue our journey wasn’t the same as in the beginning.
Maybe I could have avoided getting stuck on Baby Step #3 by not deviating from the plan and actually cutting the credit cards. We could have also continued on with Baby Step #4 considering we didn’t have a defined timeline to purchase a home.
However, “could have’s” are somewhat useless and all we can do is move forward and call the miss opportunities lessons. After all, I am very thankful to have come across Dave Ramsey’s teachings. His method encouraged us to take care of our money and learn that consumer debt was a trap.
I think his program is a great gateway to personal finance, especially for those facing significant debt and feeling hopeless.
Nevertheless, the financial independence principles and community showed me that there are a myriad of ways to achieve financial success. I was struggling with a one-size-fits-all approach that had me modifying the process and sabotaging my own progress.
The FI movement introduced me to many different levers that can be pulled according to our goals and preferences. This is exactly what we needed to get unstuck and begin to invest aggressively as we shift the power to our side of the equation.
Did you feel stuck at a particular step in you journey? What helped you move on? Let me know in the comments!
