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There are a lot of Dave Ramsey die-hards in the personal finance community. If you’re a huge Ramsey fan, as I once was, I encourage you to read this post with an open mind and consider my key points on their merit. It’s entirely possible that I’m going to ruffle some feathers with this one.
For those of you who are not familiar with Dave Ramsey, he’s the outspoken host of a daily radio show that is syndicated all over the USA, and the author of several books including ‘Financial Peace’ and ‘The Total Money Makeover.’ Dave teaches his 7 step program to financial peace. For reference, the steps are:
1. Save $1000 in an emergency fund
2. Pay off all debts using the snowball method
3. Save 3 to 6 months of expenses in your emergency fund
4. Invest 15% of your household income into Roth IRAs and pre-tax retirement funds
5. Save for kid’s college
6. Pay off your home early
7. Invest and give
I think that this plan, though simplistic, is a good one for some people, including my wife and I when we first started learning about personal finance and budgeting. Most of us can get behind the idea of not carrying debt, saving money, and investing.
However, after having listened to Ramsey’s radio show daily for several months and read a couple of his books, I definitely have some misgivings about his methods. I’m going to share them with you below. Again, these are my own opinions – I’m happy to hear your thoughts in the comments!
He’s rude to his listeners
This is my main point of criticism, he’s just not very nice. I wouldn’t call into the Dave Ramsey show. Why? Because I just can’t stand the way he speaks to people. At times, he speaks to his listeners with shocking disrespect, telling them that their financial decisions are ‘dumb’ or ‘stupid,’ sometimes adding a touch of something that resembles empathy by saying things like ‘I’ve done stupid myself.’
There are certain things that seem to set him off. Car loans, lending money to family and a few others, and I just can’t stand to listen to the way he speaks to his listeners.
Frankly, I find the tone of his entire show to be condescending and rude, and I’m not the only one. Some compassion shows through with certain callers, but the tone of the show for the most part is acerbic and to me, he often sounds angry. His reputation for helping folks get out of debt and put their financial lives on track is undermined by the way in which he speaks to callers on his show.
Add to that regular long-winded political tirades where he disparages former president Obama (I haven’t listened since Donald Trump took office), congress, and anything democrat. Political conversations are of course, important, but I fail to see how this ongoing theme adds anything to a show where listeners are calling in for help with major personal finance issues.
But of course, that’s just me 🙂
His plan is one-size-fits-all
There’s no doubt that Dave Ramsey’s baby steps have helped people get out of debt and start saving money. The plan is simple to follow, and literally anybody can do it.
The thing is, with finance, as with clothing, one size doesn’t ever fit all. For folks with older kids, it might make more sense to save more for kid’s college now and put off paying down some debt until after that’s dealt with. That will depend on how old your kids are, how much debt you’re carrying and at what interest rate and of course, your income.
There’s no allowance in Ramsey’s plan for any scenario other than the 7 baby steps. I think that for those who have no idea how to manage their money and need a complete step-by-step plan, it’s definitely a great one to follow.
That said, the one-size fits all approach just doesn’t work for many people and it’s important to consider your own financial situation and needs before you commit to the 7 baby steps.
Further to my last point, the debt snowball is one completely legitimate way of approaching debt repayment. But it’s not the only way, and frankly, it’s not the most mathematically advantageous way to pay down your debt.
The snowball method is pretty simple, pay down smaller debts first and as you pay them off, take those payments and apply them to the larger balances. The point is to get some quick wins to help you stay motivated and keep at it. It’s effective, but can be expensive if your larger debts are at a higher interest rate.
The snowball method may not be best in situations where your higher balances are also high interest debt. Mathematically, it makes more sense to pay off your higher interest debts first. Being a highly logical person, I tend to want to approach money problems in the way that makes the most sense mathematically.
Credit cards aren’t the problem
Alcohol is dangerous for some people, and credit cards are dangerous for some people. If you have a spending problem, or lack the discipline to pay your card off daily, weekly or monthly, you should definitely not use one.
Credit cards are a tool. They’re an incredibly useful one, but they’re also dangerous. Like a chainsaw, scissors or a motorcycle, credit cards can cause a lot of damage when not used appropriately. Also, studies have shown that people tend to spend more money when they spend on credit – so you definitely need to understand how to use the game if you’re using plastic.
That said, I use credit cards. We have a card that gets us free flights, and another that gives us cash value towards travel purchases. If I am going to buy a $2000 refrigerator, I don’t see the point in using cash or debit when I can put it on my card, and get some points towards something else that I will buy anyways. It just doesn’t make sense to me.
Excessive spending is not an issue that I struggle with personally however, so your mileage may vary.
Dave is astronomically wealthy
I don’t think that Dave Ramsey is really in touch with the problems that average people are having right now. According to this site, Dave Ramsey’s net worth is around 55 million dollars, placing him miles and miles outside the financial realm of us regular folks.
Though he went through a financial catastrophe years and years ago, Mr. Ramsey has since amassed enough wealth that he could stop working tomorrow and still provide for his family for generations to come.
He has been incredibly successful in his business, and that’s great for him. That said, Dave hasn’t needed anything for a very long time and I would argue that he’s out of touch with the issues that average people face day to day. I believe this comes through in how he speaks to his callers.
It’s easy for him to speak in black and white terms when it comes to financing vehicles, borrowing for college or savings rates. These things haven’t been issues for him for decades. His callers though, are not multi-millionaires. They’re regular, everyday folks who often agonize over decisions such as a car purchase.
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Don’t borrow money for college
I understand his reasoning on this point, but again, I don’t think it’s a black and white issue. If you’re borrowing tens of thousands of dollars to get a 4-year degree in 17th century German art criticism, than yah, maybe don’t do that.
However, if you’ve done your research and are going into a field where there’s good demand and high pay such as nursing, engineering or the like, I don’t see why he advises people not to borrow money as a means to achieve their goals. You can do a lot to minimize the amount of money that you need to borrow. I just don’t see how it’s a black and white issue.
For many, post-secondary education is the best investment they will ever make. I certainly wouldn’t recommend that anybody not go to college simply because they’re afraid to borrow. It doesn’t need to be an all-or-nothing issue. Why not aim to pay for 50 or 60% of your schooling up front, work part time and minimize the amount you have to borrow?
Buying a house
If you’re not familiar with Ramsey’s advice with regards to purchasing a home, his first recommendation is to pay cash up front. So since there’s basically none of us who can do that, let’s move on to his next preferred method – put 10-20% as a down payment and a 15-year, fixed-rate mortgage.
This may have been well and good in the 80s, but homes in many areas are just too expensive for a 15 year mortgage. Should a millennial really hold off on purchasing a home for years because they can not put 20% down or make do with a 15 year mortgage? I don’t think so. With the market here in Western Canada rising as rapidly as it has over the last decade, it would be impossible to out-save the increase in real-estate values.
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Please understand that while there’s some criticism here, I’m not trying to hate on Dave Ramsey. I’ve heard many callers in to his show attribute their financial successes to his 7 baby step plan – I’m sure there are thousands upon thousands of people out there who would say the same.
In fact, while I’m being honest, his book ‘Total Money Makeover’ is what first got my wife and I interested in personal finance, pushed us to get on a budget and get our financial life in order. Ramsey’s principles are sound, and are a great starting point for you if you’re drowning in debt and don’t know what to do.
I feel however, that Mr. Ramsey’s behavior on his show including consistent disrespect to his callers and on-size-fits-all advice should leave you looking at other sources of financial inspiration.
What do you think? What are your thoughts on Dave Ramsey’s teachings?