Dave Ramsey, a popular author and radio show host, promotes seven "baby steps" to pay off debt and build wealth–but I walked away after step three. Why? For starters, too risky.
The baby steps are:
Baby Step 1 – $1,000 to start an Emergency Fund
Baby Step 2 – Pay off all debt using the Debt Snowball
Baby Step 3 – 3 to 6 months of expenses in savings
Baby Step 4 – Invest 15% of household income into retirement
Baby Step 5 – College funding for children
Baby Step 6 – Pay off home early
Baby Step 7 – Build wealth and give!
Steps one through three are sound financial advice, especially for the 80% of Americans living paycheck to paycheck. However, steps four through six involve relinquishing control of our cash flow, which effectively stops its ability to work for us.
We've discussed the many drawbacks of qualified retirement plans before in our article "Three Things Dave Ramsey Won't Tell You". We also devoted an entire podcast episode to some Retirement Myths that Could Cost You. Generally speaking, some tax benefits we expect may not be available in retirement. In addition, taxes are likely to increase in the future. Deferred taxes are likely to be larger than those of after-tax contribution amounts, and the investments are subject to risk of loss! Finally, do you really want to be in a lower tax bracket during retirement? I don't know about you, but I want my income to grow every year!
Relinquishing control of our available cash flow into risky investments, even to pay off a home mortgage, reduces our lifestyle today with no promises for the future. Even if the home is paid off, the home's equity is out of our control.
Instead of continuing to take baby steps, I walked away and started building generational wealth through a process called infinite banking. Now I can use my wealth building assets–my dividend-paying whole life insurance plans from participating companies–to take care of steps four, five, six, and seven in a safe, stable, and tax-friendly environment.
If being stuck in the middle of the baby steps doesn't appeal to you either, give us a call. We'll show you how you can build wealth today and in the future! Instead of hoping the market allows you to build a large nest egg, we build guaranteed cash flow through some of the oldest and strongest companies in the world.
Learn more at www.livingwealth.com.
The information presented here is solely for informational and educational purposes. Dan Watkins is not a registered financial adviser. He can be reached at: danwatkins@livingwealth.com.