Money Principles #2

The second discussion in our series on Biblical stewardship involved looking at creating a big picture plan. We compared two similar outlines, Dave Ramsey's Total Money Makeover baby steps and Crown Financial Ministries Money Map steps. They are very close, but have a few differences. Here is an outline of each followed by some of my thoughts...

Dave Ramsey Baby Steps
Baby Step #1
$1,000 Emergency Fund

Baby Step #2
Debt Snowball (all debts except home)

Baby Step #3
Finish the Emergency Fund (3-6 months living expenses)

Baby Step #4
Invest 15% Income for Retirement

Baby Step #5
Save for College

Baby Step #6
Pay off Your Home Mortgage

Baby Step #7
Build Wealth

Crown Financial Ministries Money Map
Destination #1
A. Spending Plan (Budget)
B. $1,000 Emergency Fund

Destination #2
A. Pay Off All Credit Cards
B. Increase Emergency Fund to 1 Month's Expenses

Destination #3
A. Pay Off All Consumer Debt
B. Increase Emergency Fund to 3 Month's Expenses

Destination #4
A. Begin Saving for Major Expenses
B. Begin Saving for Retirement
C. Begin Saving for College Education

Destination #5
A. Buy Affordable Home
B. Begin Prepaying Mortgage
C. Begin Investing Wisely

Destination #6
A. Mortgage Paid Off
B. Children's College Funded
C. Confirm Estate Plan is in Order

Destination #7
A. Retirement Funded
B. Free to be More Generous with Time, Talents and Money

Again, the two are very similar, but the biggest difference is that Dave Ramsey is more intense and focused on a single goal at a time, whereas Crown has you working toward multiple goals at the same time. For example, once you have your $1,000 set aside for an emergency fund, Dave recommends you do focus only on paying off your debt. Period. No increasing the savings, no 401k contributions. Nothing. "Gazelle-intensity" is what he calls it. Crown, however, recommends you use some of your money for paying off debt and some of it for increasing your emergency fund.

On this point I agree with Dave. From my own personal experience and from advising over a hundred clients (in my previous financial career), I know that personal finance is about 80% behavioral and 20% math. Most people are stupid, they are just undisciplined when it comes to making good decisions and following through with them - especially when they are difficult decisions. Therefore, the more results and success a couple can see when they are trying to follow a plan, the more positive reinforcement they will get and the more likely it is they will continue to do it. So, if you can focus on only one thing and put all of your energy and resources toward it, there is a better chance you will reach your goal and reach it sooner.

I think it is also important to point out their similarities. Notice that both start with having a $1,000 emergency fund. This is critical. Emergencies are going to happen. They are a fact of life. You simply don't know when, where and what they are going to be. Working your butt off for six months to pay down your credit card, only to have something pop-up out of the blue requiring you to charge it back up again can be an incredibly discouraging thing. That's why the $1,000 is so important. It provides not only some peace of mind, but it acts as an insulation from the inevitable discouragement that everyone will face when trying to get their finances in order.

They also then both attack debt before moving on to any kind of savings for retirement or college. This is another key point. It is both a behavioral issue and a spiritual issue. Going back to our first lesson, one of the Biblical principles that we found was the importance of avoiding debt.