When it comes to getting your finances in order, there are a lot of different opinions out there. Some people swear by the Baby Steps created by Dave Ramsey, while others prefer The Money Guy’s Financial Order of Operations. So which is better? Let’s take a look at both approaches and see which one comes out on top!

Both Dave Ramsey’s Baby Steps and The Money Guy’s financial order of operations are what I’ve referred to as checklist-style financial plans. Dave Ramsey’s Baby Steps focus on getting someone out of debt quickly. The Money Guy’s Financial Order of Operations, on the other hand, focuses more on maximizing retirement savings before paying off low-interest debt like mortgages.

Ultimately, one path could be better than the other depending on your unique circumstances.

Dave Ramsey’s Baby Steps

Dave Ramsey’s Baby Steps are as follows:

1. Save a $1,000 starter emergency fund
2. Pay off all debt except a mortgage
3. Save up a 3- to 6-month emergency fund
4. Save 15% for retirement
5. Save for children’s education
6. Pay off the mortgage early
7. Build wealth and give

What is nice about Dave Ramsey’s Baby Steps is that they provide a step-by-step guide for progressing toward financial independence. Each step is very easy to understand and doesn’t take a lot of effort to know where to focus next.

To get started, someone simply starts at the top of the list and works their way down to see where they are at. For instance, suppose John has $5,000 in his savings account, no retirement savings, and $10,000 of student loan debt.

In this case, John meets Baby Step 1 (he has at least $1,000 in savings), but he doesn’t meet Baby Step 2. John does have student loan debt which would need to be paid off before progressing to Baby Step 3. If John were to follow the Baby Steps, he would take the extra $4,000 in savings he has above and beyond the $1,000 starter emergency fund, and he would immediately put that toward paying off $4,000 of his $10,000 student loan debt.

Once John was completely out of debt, then he would proceed to saving up a fully-funded emergency fund (3-6 months’ worth of expenses), then start saving 15% for his retirement, then start saving for his children’s education (if applicable), and then use any remaining dollars to pay off his mortgage early (if applicable).

Once John is mortgage-free he has reached Baby Step 7 where the focus is on increasing how much someone can save and being more generous with one’s wealth.

The Money Guy’s Financial Order of Operations

The Money Guy’s Financial Order of Operations are as follows:

1. Cover deductibles with cash savings
2. Maximize 401(k) plan matching from your employer
3. Pay off high-interest debt (e.g., 8% or higher)
4. Save up a 3- to 6-month emergency fund
5. Maximize Roth IRA and HSA contributions
6. Maximize supplemental retirement options
7. Reach “hypersaving” (i.e., 25% or more of gross income)
8. Prepay future expenses (college savings, new car, etc.)
9. Pay off low-interest debt (e.g., mortgage)

Overall, the Financial Order of Operations is similar in style to Dave Ramsey’s Baby Steps. Again, we have a step-by-step process that someone can follow to understand what they should be focused on next.

Notably, the Financial Order of Operations is a bit more complex than Dave Ramsey’s Baby Steps. For instance, in step one of the Financial Order of Operations, you would have to calculate what your insurance deductibles would be and use that amount as a starter emergency fund rather than just starting with a simple $1,000.

In my opinion, this step can be needlessly complex and a barrier to getting started, and it’s one reason why I favor the Baby Steps. That said, so long as you can navigate the more complex steps, the process works similarly to the Baby Steps in terms of progressing from one step to the next.

One major benefit of checklist-style financial plans is that they do help you understand what to do next even when you might run into some tough times. For instance, suppose Sarah had reached “hypersaving” (Step 7) of the Financial Order of Operations but loses her current job and has to take 3 months looking for new work and ultimately takes a 30% pay cut.

Since this would mean Sarah had to stop saving and possibly spend down some of her emergency fund in the process, she would now back up to Step 4 and start rebuilding her emergency fund first before continuing to progress toward subsequent steps.

This is a real strength of checklist-style financial plans because it gets clarity and a plan for action that someone can actually follow when understanding what to do next.

Baby Steps vs. Financial Order of Operations

In addition the the Financial Order of Operations being a bit more complex than the Baby Steps, a major difference between the two is that the Baby Steps place far more emphasis on getting out of debt.

For instance, whereas the Baby Steps prioritize paying off auto loans and student loans before saving 15% for retirement, these loans would generally be considered “low-interest debt” under the Financial Order of Operations and be put off until Step 9 (the final step) in that process.

This is a pretty major difference. Under the Baby Steps, someone would be completely debt-free (except for a mortgage) before saving for retirement. Under the Financial Order of Operations, someone could be carrying a considerable amount of debt while working toward saving 25% toward retirement.

Which Is Better – Baby Steps or Financial Order of Operations?

Ultimately, there is no one-size-fits all approach and both have their strengths and weaknesses.

However, generally speaking, I personally prefer the simplicity of the Baby Steps and the greater financial freedom that they provide — particularly for anyone who aspires to start a business, make major career changes, or even just wants career flexibility and the freedom to take non-traditional career paths.

The reason why I prefer the Baby Steps in these cases is that this method eliminates the burdens of debt that can keep us on a path that we otherwise may not choose faster.

Have a sudden idea that leads you to want to start a business? Your ability to pursue that opportunity will be hampered if you are tied down with payments for student loans, auto loans, a mortgage, etc. Furthermore, this inability to pursue opportunities could actually hurt your finances long-term.

While self-employment is certainly not for everyone and it is perfectly fine to love the stability of a more traditional job, it is generally true that earning potential is much greater for those who go a more entrepreneurial route.

And even if you don’t want to go the entrepreneurial route, the ability to take some more risks in terms of traditional employment opportunities that may pay better (in the long-term) or may better fit your passions and interests is a major benefit of having greater financial freedom.

In short, it really is the financial freedom of the Baby Steps that I prefer over the Financial Order of Operations.

When the Financial Order of Operations Can Be a Good Fit

That said, there are cases where mathematically you might come out ahead following the Financial Order of Operations. If you are someone who is very confident you’ll stay in your existing position and you have no desire to change careers or start a business, then you might be on a path where the Financial Order of Operations could work well.

I think a tenured professor who loves their job and can never imagine changing careers is a pretty good example of the type of person who might find value in the Financial Order of Operations. Tenured professors have a lot of job security, their income doesn’t change much from year to year (other than some modest increases), and many are highly involved in their local communities and don’t want to go elsewhere.

Under the circumstances above, carrying debt is less risky. So long as the monthly payments fit within one’s budget, there’s little risk of a sudden change that could throw someone off course and there’s less benefit to the financial freedom that comes with being debt-free. In these cases, saving and investing more can lead to greater long-term wealth while carrying low-interest debt.

Of course, this is not to say that it is only tenured professors who fit the profile above. Other common examples might be government employees or any individual who simply loves their job and has no desire to change.

However, I do tend to find that the number of people who fit this profile is fairly small. Even people who love their jobs often have some desire to potentially relocate, shift industries, or even just jump on an opportunity if the door opens up. And, ultimately, that is why I personally feel that the Baby Steps are the better method to follow for most people.

But whichever process you choose, both methods are far superior to just winging it and they are my two favorite examples of checklist-style financial planning. I’m confident that adopting either can be a great first step in getting someone started on their journey toward financial freedom.