Understanding Dave Ramsey Chapter 5 Review Answers
Chapter 5 of Dave Ramsey's Financial Peace University curriculum focuses on Baby Step 5: Build Wealth and Give. The review answers for this chapter cover topics like retirement accounts, investing basics, and the importance of giving while you're building wealth. If you're going through the course and want to check your work, you're probably looking for the specific answers to the chapter review questions. I'll walk through what each question is really asking and what the correct response should be. The first question usually asks about the order of Baby Steps. The answer is straightforward: Baby Step 5 comes after you've paid off all your debt through Baby Steps 1-4 and before Baby Step 6, which is about giving generously. If your review asks you to list the steps in order, make sure you have all six steps correctly sequenced. Students sometimes skip or misplace Baby Step 5 because it involves the most technical content in the entire course. The second question typically deals with retirement accounts. Ramsey's position is clear: use a 401(k) if your employer offers a match, then move to a Roth IRA. The exact wording matters here. He says "give every penny you can to retirement" and emphasizes the employer match as free money. On the review, if they ask about the two accounts he recommends, the answer is 401(k) and Roth IRA. Don't overcomplicate it by mentioning SEP IRAs or other account types unless the question specifically asks.
One thing I noticed when helping people through this chapter: the question about index funds trips up a lot of students. Ramsey recommends mutual funds over stocks, specifically index funds. The answer he's looking for isn't just "index funds" but the idea that actively managed funds underperform the market over time. His specific benchmark is that less than 25% of active fund managers beat their benchmark over any 10-year period. If your review asks about mutual fund performance, that's the statistic to reference. The giving question is often the most misunderstood. Baby Step 5 isn't just about saving money. Ramsey builds the habit of giving from Baby Step 1. By Baby Step 5, you're expected to be tithing or giving consistently and also investing for retirement. The review answer should reflect that giving and saving happen simultaneously in this step, not that you give first and then save. Several students mix this up and put the steps in the wrong order. Here's the edge case that caught me off guard when I first went through the material: the question about 529 plans and college savings. Ramsey's stance is that you should prioritize retirement over college savings. The exact ranking he gives is: retirement first, then emergency fund (which should be Baby Step 3), and 529 plans come well down the list. If your review asks whether you should max out a 529 before maxing your retirement, the answer is no. His rationale is that you can always take a student loan, but you can't take a retirement loan. This feels counterintuitive to a lot of parents, but it's a consistent theme in his teaching.
The question about home equity is another common sticking point. Ramsey advises against cashing out home equity for investments or debt payoff once you're on Baby Step 5. You should only buy a house with a 15-year fixed-rate mortgage at no more than 25% of your monthly income. If the review asks about HELOCs or cash-out refinances, his answer is firmly against using them as financial tools during the wealth-building phase. When I was working with a client who had been mixing up the order of giving and investing in Baby Step 5, I found that the clearest way to lock it in was to write out a simple timeline. Put your income at the top. Arrow to tithing. Arrow to maxing the 401(k). Arrow to maxing the Roth IRA. Arrow to the emergency fund if you're somehow behind on Baby Step 3. Arrow to 529 plans only after retirement is funded. That visual sequence makes the priority order impossible to miss on a test question. There's one nuance the review rarely tests but matters in practice: the difference between Roth and traditional 401(k). Ramsey strongly favors Roth because you pay taxes now at what he assumes is your lowest tax bracket. The review might ask which you should choose if given the option, and the answer is Roth. This is a practical point because many employers offer both, and people pick traditional because it lowers their current taxable income, which is the opposite of what Ramsey recommends.
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Another area where students lose points is on the question about annuities. Ramsey's position is clear and has been for decades: avoid them entirely. If the review asks whether annuities are a good investment vehicle, the answer is no. He considers them high-fee, low-transparency products that benefit the seller more than the buyer. Some newer editions of the curriculum soften the language slightly, but the core answer remains negative. The final set of review questions usually covers the overall philosophy of Baby Step 5. The key takeaway is that this step is about wealth accumulation through consistent, long-term investing. You're not trying to get rich quick. You're using automated contributions into low-cost index funds, you're giving a portion of your income, and you're avoiding anything that looks like a get-rich-quick scheme. If a question asks what Baby Step 5 is NOT about, things like flipping houses, day trading, cryptocurrency speculation, and single-stock picking are all correct answers for what to avoid. If you're struggling with a specific review question that I haven't covered here, the best approach is to go back to the chapter section on retirement and investing and re-read the numbered points. Ramsey structures each Baby Step with a short list of action items, and the review questions directly reference those numbered items. Cross-referencing the question number with the corresponding section in the chapter will usually point you to the exact answer.
