Deconstructing Dave Ramsey

This week, The Simple Dollar is deconstructing five top personal finance and investing pundits and asking the big questions about their track record and their message.

Dave Ramsey redrawnQuite often, I find myself listening to streaming audio of Dave Ramsey’s radio show on weekday afternoons (I usually listen via NewsTalk AM 1270). His message is very similar day in and day out, but it’s a message that is apparently not being followed by many Americans, based on the way many people live and throw their money about. Is his message worth listening to?

Background
In the 1980s, Ramsey was heavily involved in the foreclosure real estate market, and by the age of 26, he had a rental real estate portfolio worth more than four million dollars. However, he lost it all: the Tax Reform Act of 1986 brought about major changes in the real estate market and forced bankers to take a closer look at people they were lending money to – and Ramsey got burned. He lost everything and started over from scratch.

After that disaster, Ramsey became involved in personal finance advising, founding the Lampo Group (a financial advice group) in 1991 and starting a syndicated radio talk show in 1992. Books, media appearances, and seminars soon followed.

Message
Dave’s message is quite simple: avoid debt at all costs. His entire message revolves around escaping debt in all forms, including credit card debt, auto loans, and even home loans. If you can’t afford to buy it, you shouldn’t be buying it.

In order to provide a framework for getting started down this path, Dave offers a series of seven baby steps to follow:
1. Start a “beginner” emergency fund of $1,000
2. Start and complete a “debt snowball,” except for a house mortgage
3. Create a fully funded emergency fund equal to six months of salary
4. Invest 15% of your gross income in 401(k)s (up to the match), Roth IRAs, and then in mutual funds
5. Fund some portion of your child’s college education
6. Pay off the home mortgage
7. Build wealth by investing a significant amount of your income once you have no debt at all

Dave repeatedly preaches these seven steps in all of his various books, programs, and seminars.

One interesting aspect of Dave’s message that alienates some of his potential audience (but endears him to others) is his regular use of Christian themes and biblical quotes in his radio show, his books, and his other appearances. The references are not overwhelming, but for some they seem very anachronistic in an ever more secular society.

My Take
If you’re really lost and looking for someone to lead you to a better financial path, Dave Ramsey might be the best choice out there. However, if you’re already on the path to success, Dave can often seem trite and repetitive.

Dave has two major skills that work in his favor:
One, he has a strong evangelistic ability. His oratory skills are very strong and he has the ability to make you believe in his system. Scoff if you will, but that is a very powerful force.
Two, his plan is very simple – but fundamentally sound. Dave makes something that is very challenging for many people (if it wasn’t challenging, everyone would be in great financial shape) and breaks it down to the point where it seems much easier.

For me, Dave was a big help when I was completely lost; without him, I might not have been able to turn things around. Now that I’m headed down the path and focused on it, quite often Dave’s messages seem really simplistic. This, of course, is likely the result of my mind’s desire to overanalyze everything.

The bottom line: As long as you don’t have a deep aversion to Christianity, Dave’s ideas are fundamentally sound, though he pulls the belt pretty tight.

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  1. Rocky Hinten says:

    Good to see the evaluation of Dave. I have read and heard a lot of him and am now actually coordinating his Financial Peace University course. I have just one comment on your description of his Baby Steps. Your description of step 4 doesn’t quite make sense.

    His step 4 is investing in retirement accounts. He does prioritise what types of accounts you should use in order to get the best for your money. However, you list “mutual funds” as last in a priority list. Actually, Dave recommends that all of the step 4 investing is in mutual funds. His priorities for the types of accounts are these, which you were mostly correct with:
    1. 401(K) up to the match
    2. Roth IRAs (or Roth 401(K) if available)
    3. Back to 401(K) or traditional IRAs.

  2. S/100/30 says:

    In the 1980s, Ramsey was heavily involved in the foreclosure real estate market, and by the age of 26, he had a rental real estate portfolio worth more than four million dollars. However, he lost it all: the Tax Reform Act of 1986 brought about major changes in the real estate market and forced bankers to take a closer look at people they were lending money to – and Ramsey got burned. He lost everything and started over from scratch.

    Do you know more about this? I’m confused as to how a tax act would “burn” someone via changes in lending practices if they already had a $4M portfolio.

  3. moneymonk says:

    I don’t think that Americans are not following those 7 techniques you mentioned above.

    American have a spending problem, it’s just bad spending habits we have. Americans needs to slow down on crazy spending and then they can focus on avoid debts.

    We first have to start controlling our spending and the rest will follow. Then we can go to the first baby step.

  4. frank says:

    Wikipedia has a nice summary:
    “By enacting 26 U.S.C. § 469 (relating to limitations on deductions for passive activity losses and limitations on passive activity credits) to remove many tax shelters, especially for real estate investments, the Act significantly decreased the value of many such investments which had been held more for their tax-advantaged status than for their inherent profitability”
    http://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986

  5. Man on a Mission says:

    I am a Dave Ramsey fan, even saw him in person in Atlanta a couple years ago. I once was lost, but now I’m found (sounds like a song). Well, actually I am not found, but people are looking for me! I am on the right path following Ramsey’s baby steps, but I dug a pretty deep hole for myself. At least I finally quit digging!

  6. lorax says:

    Sigh, I couldn’t listen to Ramsey for more than a few hours. I tried to like it, I really did. I guess I’m just not the target audience.

    I don’t think of myself as thin-skinned, but I just don’t like the imagery he uses. It’s just hard to reconcile the christian rhetoric with phrases like “bloody your nose to make you wise up.”

  7. Dave Ramsey was actually the show that really got me hooked on supermanaging my finances. I had listened to Money Talks with Bob Brinker before, but Dave really makes personal finance personal. If you’ve never listened to his show, listen in on a Friday sometime, you might love it.

  8. Chris Thomas says:

    If you do it, it works. Every. Single. Time.

    One thing you left out is the second half of the 7th and final baby step; GIVE! Dave is so big about building wealth for the end goal of giving a lot of it away to help people!

    Good review.

  9. Tim says:

    I thought I’d leave a couple comments. The first may be somewhat nitpicky, but I think it is important.

    1. You said step 3 is saving “3 to 6 months of salary”. That is not quite right. Dave says save 3 to 6 months of expenses. Why is this important? If you make $80k a year and your monthly expenses are only $60k a year, that’s a big difference. It will take a lot longer to save up salary than to save up expenses. You CAN save up based on salary instead of expenses if you want. You’ll just have a lot bigger emergency fund, and more of your money will be in an account that isn’t earning much interest.

    2. You say “As long as you don’t have a deep aversion to Christianity, Dave’s ideas are fundamentally sound”. I would say that whether you have an aversion to Christianity or not, these ideas are fundamentally sound. You may not like listening to Dave because of his Christianity, but what he is saying actually works. It is very much based on statistics and math, which stay the same whether a Christian or an atheist applies them.

    Good article.

    Tim

  10. wendi says:

    I love Dave theology. We got ourselves into this mess and we have to fix it. Sometime it take being Gazzell crazy. Yes, alot is based on christianity. God is good. I worked 3 jobs all of my married life until I started giving to the Lord. Was comvicted about tithing. Started apying my tithes on sunday (THE whole 10%). After 2 years trying to settle a lwasuit, had a check by that friday. Within 6 months was down to working one job. Still in debt, I wanted to learn more about where my money was going. After 2 years of doing daves budget my credit is better and the bills get paid on time. Really got focused this year on the emergency fund, sold a car, eating lexss (and thats hard with 4 kids). i have managed to pay off 4500.00 in debt since the 1st of feb. Will have 2 cars, new bunk beds, and a student loan paid off by september, that is using his lowest amt to highest amount method. Its all about how determined you are to be debt free. With over 65,00.00 in debt, I should have house and all paid off by feb 2009, if not before then. It really works, if your willing to pray, commit and work hard.

  11. joseph james says:

    So what is wrong with a Christian message? Radio has a tuning dial for those that hate Christianity. You act as if everyone should pander to the fictitious notion (instituted by a jewish Supreme Court) of the “wall of separation of church and state”. It is his show and I suppose he can handle it the way he wishes. Were the show muslim or wiccan or (oy vey!) jew based we wouldn’t hear a peep out of you about its religious aspects.

    Ramsey is tops in my book other than his refusal to name the oy vey crowd that runs banking and finance and puts people into financial slavery.

  12. Justin says:

    To comment on a few of the comments above, and also to the blog itself:
    1. I noticed in both the blog and comments the mention of Financial Peace University (FPU), which was created by Dave Ramsey (DR) as a personal assistant through the debt management program, only 1 time. This could be the absolute most important item of DR’s entire game! FPU will teach you 500 times more information than his daily radio show ever will!
    2. To “MoneyMonk”: “Spending” is included in the 13 week FPU course. Dave says you have to give every last penny a name. In other words, you receive your paycheck, you figure up the weekly Allocated Spending Plan (included in the materials) which lists everything immaginable that we as Americans spend $ on (i.e. mortgage, doctor, clothing, food, etc.) You give the money a name, you tell it where to go using an envelope system (I know, I was skeptical at first too, but it really works.) And you leave it as is, no straying!
    3. I really liked what the blog says about this program being for ammatures. I am definitely that! No matter how much I tried and tried to understand financial– well, everything, I just couldn’t get it through my head. Thanks to DR’s FPU I understand so much more than I ever would have reading Suze Orman or David Bach! DR explains EVERYTHING. (No, this is not an infomercial and I’m not getting paid.)
    And lastly,
    4. The whole Christianity thing, get past it! Who cares if he quotes scripture throughout the course or on his radio show. The point is that he’s helping YOU, teaching YOU to manage one of the absolute most difficult areas in life to manage or even understand. Just to clarify, DR even says on the FPU DVD’s/CD’s that even if you are not a follower of Christ, this message/lesson still applies to you! Because it’s about money, in which EVERYBODY believes! And Josheph James, this is not a debate about Christianity vs. Judaism. It’s about money! So cut the bigotry Hitler! (And P.S. Just in case your Sunday school teacher didn’t tell you this, Jesus was a Jew).

    My point being, go get the FPU course today if you are struggling financially in any way whatsoever! To add to my comments to MoneyMonk, FPU is a PLAN. And a PLAN is what America needs in order to change that spending habit! You can’t change without a PLAN.

  13. Phillip says:

    Great discussion! A few remarks regards Justin’s comments:

    1. Amen on the PLAN. From age 0 to 50, I had no Plan; but faked like I knew what I was doing. Thought I was doing ok if I got by month to month. I was wrong. I started Dave’s plan 3 years ago. U should see the smile on my face. It is a Debt Free smile.
    2. Sent my daughter to FPU (13 wks). She came out a changed person. Replaced bad old habits with good new habits (debt free and an $8K Emergency Fund). Wife and I opened UGMA mutual fund accounts for all grandkids. Ramsey challenges people about making a generation change. It is amazingly easy to do when you are on Baby Step 7.
    3. Personally, I have never been to FPU. However, I read TMMO 50 times, and I listen to Dave every week. I learn something every time. TMMO quotes Zig Ziglar: “If you aim at nothing, you will hit it every time”. Ramsey woke me up to 50 years of aiming at nothing. Yes indeed, I was hitting it every time.
    4. Ramsey talks about having a Dr. Phil Moment. So, whether you believe in Ramsey’s Plan, Suzie’s Plan, your own Plan, Calculus, Gold, Pork Bellies, 100 Day Moving Averages, or whatever; every now and then you need to step back and ask: “How’s that working for you?”

  14. Katie B. says:

    Wow, I’m pretty shocked by “joseph james” and his completely ridiculous comment. First of all “jewish supreme court?,” second of all Trent was saying anything negative about Dave Ramsey’s Christianity, he was simply pointing out that some may be turned off by it. He’d probably say the same thing about a personal finance guru who peppered verses from the Koran into his advice. Give us regular readers of The Simple Dollar a break and go spread your anti-semitic ignorance elsewhere.

  15. David M. says:

    I agree, Katie. Personally, I am a Christian and I think I am conservative on money issues. But it would be ignorant for me to say that Jews (or insert your affiliation here) are inherently bad at handling money just because they believe what they believe. Do any of these religions condone frivilous spending? I doubt it very much. I have no problem with Dave mentioning God in his show, but even if I did, it is HIS show and there is still an on/off button on my radio. The fact is Dave Ramsey makes sense. Are his methods simplistic? Sometimes. But we need simplicity in our lives. As he puts it, we are in the microwave age while we need to be thinking crockpot. The basic idea is this: We have too much stuff, and we are not willing to put off obtaining stuff until we can afford it. If any of us will watch primetime TV for just one hour tonight, and watch the commericals instead of the show itself, we would be amazed at the number of car ads or others that want to sell you something. WE have to break our habit of getting what we want instead of what we need. If we would be honest with ourselves, we could live very comfortably on just what we need. Dave is trying to break our bad spending habits.

  16. Joe says:

    For Justin and Katie

    Its a given that “Jews” control the banking system and the major media and influence how most lemmings think. Jesus was not a jew but descended from the line of Juda who had 11 brothers and a sister or Iraelites. Jews are not a race but a religion based on the Cabala and the Babylonian Talmud, which is a perversion of the OT. Most of today’s Jews adopted judaism in the 7th century and are not true Israelites but of a Turkish-Mongol mix. So the next time you use words you don’t know the meanings of,such as bigot, (having a strong and unwavering belief system)or Jew (living in Judea,following judaism, or a direct descendent of Juda) or semitic,(a descendent of Shem) try enlightening your self first. BTW, since you have an aversion for Hitler, I guess you don’t like the Jew Joe Stalin who murdered millions of Christians. If you believe every thing you learned in school or read in the main stream papers, then you’re in for a rude awakening.

  17. Bryon B says:

    Hey Joe,
    Thanks for the religious babble. Who cares. I’ll stick to the main stream press. Noboby will become broke following Dave Ramsey. Simple and very wise advice, but hard to follow. Hey Joe, the guy for the fundamental Mormans just got arrested,not at all main stream, give them a call, they may need your help.

  18. Mark B says:

    Joe,

    You sound like a very, very angry man. I am sad for you. Dave Ramsey uses the title Financial PEACE. This is what eliminating debt helps to bring. It allows us to give freely. God wants us to do this.

    I think if you gave it a shot, and did not place such a high value on being able to debate and smother others in a religious historical debate, you would find peace, too.

  19. Jeff says:

    I just read Total Money Makeover and LOVED it. I’ve been feeling something is so wrong w/ our lifestyle, but never had it spelled out for me. I hate having 6 figure income and not enough money to go to a movie, let alone retire early! Now if I can get my wife on board. Any suggestions from one who’s been there and won over a “free spirit”? I will agree I am the “nerd”.

  20. Jim says:

    We should live our lives without running up thousands upon thousands of dollars on credit cards. We should also avoid any car leases. They are the absolute worse way to spend your automotive dollar. However, paying off a low interest rate mortgage one second early is just PLAIN STUPID. Ramsey acknowledges the widely held fact the stock market average growth is 12 percent. Therefore if you have extra money why use it to pay off a 6-7% mortgage when you can use that money to invest? Dumb, just plain dumb. Paying off the mortgage DOES NOT place you one cent ahead. It just transfers the money as per the concept of compensating balance. Finally, Dave Ramsey’s constant use of emphamisms such as “freaking” “give a ‘flip’” and “dag bland” are nothing more than substitutes for obscenities and the “G. D.” phrase. As such, this is obviuosly NOT a good Christian witness!

  21. Chris says:

    Dave Ramsey offers sound fundamental common sense for finances and for life. Both of which seem to be void in the world today. I am glad he uses Christian themes with regards to his advice because they are sound principles to live by and to steward your money with. He does not apologize for his beliefs and that is something that is refreshing in the Christian faith….I am a Christian and do not apologize for being so either. I am so glad for Dave offering common sense to the world of finances.

  22. Shana says:

    Boy Joe, you sure can spout hate. It is true that a lot of media and banks are owned by Jews.. however you don’t have to watch or listen to their stations and you sure don’t have to borrow money. It is not the Jews that make you go to the bank and take out a loan it is YOU and Dave teaches us that. I am new to the program and wish I would have found him a lot sooner! (where have you been all my life!???) I am excited about being debt free! oh and Joe,, my husband is a Jew.. and I am Christian.. hmmm… there is one to Ponder.

  23. Rick Rose says:

    I read through Dave Ramsey’s book The Total Money Makeover as we were planning on purchasing his video seminar for our church. As I read through the book, I found the basic principles to be very sound and helpful. At the same time, I found many inaccuracies. I have done financial counseling and seminars for over 25 years and have been a Real Estate Broker for over 30 years. I wrote to Dave and asked for a response regarding concerns and never received a reply. We used the material at our church nevertheless and I debunkned the inaccuracies so people wouldn’t be led astray.
    The inaccuracies of greatest concern to me were the 12% rate of return used to determine cash needed at retirement (which will leave people very underfunded), that one should look at total interest paid on a loan rather than the interest rate (always the interest rate), that manufactured homes depreciate,(not in the 30 years I’ve been selling houses), that after a divorce the spouse should refinance to save credit (unnecessary and costly; a spouse isn’t responsible for others debts or payment history after the divorce.), paying off debt even prior to paying into a matching funds 401k (50% return the first year), and paying cash for a home (few would ever own).
    My biggest dissapointment is that Mr. Ramsey didn’t have one of his many employees write back to me.

  24. Bill Berst says:

    I’ve read Total Money Makeover. I’ve read the preceding article and comments. I think the point that needs to get accross to people is to stop living beyond their means. I was going down the wrong path and was deluding myself about my present circumstances.
    Yes, the book is a little simple and repetitious but it’s a great springboard to get you out of the trenches and your head above water (sorry for the cliches). Unlike most motivational books, this one at least has a process to follow and actually works. Yes there are better ways to handle your cash, or lack of, I don’t think the writer would argue that point. But for the intended audience, the message is: Get out of debt! Reduce the number of bills you are paying a month a soon as possible. Therefore, pay off a small credit card balance first, even if it is a low interest rate. I understand financial savy minds having a problem with this, but what they have to realize that paying off a bill is like a reward that reinforces the behavior.
    Finally, the christian tone is just that. I didn’t find it necessary or annoying. It was there and easy to look past if you didn’t care for it.

  25. James says:

    Overall, this program is great for anyone that hasn’t a clue when managing their money.

    Rick – your comment misses one fundamental concept that the Bible teaches (and concerned Atheists too..), and that is to owe no one anything (no debt). Even tax deductible, low interest debt has chains.

    While it might not make sense financially to payoff a mortgage early, that freedom is unprecedented and totally worth a portional loss in my investment account. I’m buying my freedom from debt, from stress, and following a new paradigm. I will owe no one anything except love.

    In this same vein I saw many an ARM get sold on the idea that if you invest what you save vs. 30 yr fixed, you can payoff your house earlier with the added earnings. How many people actually have that kind of control?????

  26. NotARamseyFan says:

    As person with a Finance degree I have read Dave’s program and yes it’s good in some aspects , but it’s focus and(or) obsession with money, saving, debt reduction is neither feasible nor a fix long term. Some flaws

    1. Too heavily invested in the stock market and lack of diversification. When the market crashes and it will due to some unhealthy internals and people lose 50% of their savings what will Dave say then . The real wealthy invest in real estate, businesses, etc. The chumps blindly follow the mutual fund marketing scam. Like someone getting through carousel in Logan’s Run it’s a fantasy, there are no long term stock market only investors who become wealthy. If you are looking to live in a townhouse in Port Saint Lucie Florida and clip coupons when you retire , be one of sheeple and sock that 200 bucks a month away in your 401k and delude yourself. Life is about risk and DR is obessed with risk and avoiding it.

    2. His debt snowball is a demonstable lie and unwise. This has been pointed out to him numerous times but don’t let logic or facts get in the way Dave. Keeping your high interest cards with larger balances waiting on the sidelines will cost you hundreds if not thousands over a 3-5 year debt reduction plan. It’s just a fact and simple arithmetic.

    3. Dave theology is incorrect, Jesus was against the usuary and doing business in the temple not that people were borrowing. That’s silly, the history of man is barter system and yes credit. Debt is not the enemy, irresponsible spending is. Show me a business with no debt and I’ll show you kids lemonade stand.

    4. I got all wound up, drank the kool-aid on his “System”. Cut up all the cards, ate beans and rice, actually eliminated 70% of my debt, should have felt great right? No I felt miserable not becuase I wanted to spend but because I had become an insufferable miser and grouch about money, obsessed with it. It becomes your God, the acquisition of wealth and bottom line with Dave is he is a properity gospel apostate. Give with a grateful heart Dave not because you want somethng in return.

    Want a real program, read Dave’s program, read Rich Dad Poor Dad, cut up your credit cards. Work out a 5 year debt reduction plan with larger balances paid off first. Invest in real estate, bonds and yes mutual funds, borrow wisely, don’t drive a jalopy as Dave advises, junk cars cost of ownership cost more in the long term in repairs, lost time at work and fuel than a 3-5 year old car purchased for 50% off the original sticker. Live your life and be willing to take risks, it’s only money not what defines you. Bottom line when I worked for a millionaire he told me, well you can be obsessed with making the slices of the pie go further or you could be smart and work to make the pie bigger. Dave R is for small pie people, who like their 40 hour a week, no brain jobs, be like insects and lose all cretivity and drive, just work just hard enough to make sure you can retire as mediocre as you lived. That is Dave’s fundemental philisophical flaw, be a small thinker, tepid doer, be conservative, be cautious. I mean Mr. Tennessee redneck you got into debt buying that F-150 and the doublewide, work to payoff the double wide and buy a crappier F-150 and invest the rest in Wall Street Smartests Mutual Fund for Sheeple. Oh and look into Dave R’s life, filled with bankruptcies and faliure, I think it’s a case of finding Jesus in the Jailhouse for Dave after he made a mess of his life. Kinda along the same lines as Dr. Laura and Dr. Phil and the rest of the Pious Brigade.

  27. Elle says:

    Rich Dad Poor Dad has almost no practical advice whatsoever, although it is a nice story and motivational tool…I’ll stick with Dave. His ideas regarding the order of how to pay off debt may cost slightly more over the course of the repayment financially, but Dave wants his readers and listeners to have success, and so he chooses this method, fully aware of the financial cost. Dave’s Baby Steps are the first time I have seen a plan laid out step by step that is actually something pretty much anyone could do and succeed at. Bottom line – Dave’s plan works if you stick with it.

  28. Mark says:

    I have a math degree, so I share some of the above concerns about the Debt Snowball being “bad math”. I also believe in much of what he talks about, though. Ramsey’s plan is about more than math, it’s about psychology. Suppose you have three debts:

    A) $500 @ 14%
    B) $1500 @ 18%
    C) $1800 @ 16%

    Dave’s plan would tell you to ignore the interest and pay A first, then B, then C. According to Dave, that’s just to “get the early win” and so forth. Mathematically, you would want to tackle B, then C, then A. I would probably tell someone to tackle A, then C, then B, just because B and C were so close.

    Dave encourages people to get mad, and ignore the math. Finance people tell you to always deal with the math and ignore the emotion of it. Like most things, though, the truth is somewhere in the middle. Don’t turn off your brain and become a Dave-automaton.

    Still, Dave Ramsey has a simple approach that encourages people to build their financial muscles. I don’t know anyone who follows his advice 100%, but I know several people who use pieces of it as a tools to re-align their current approach. Listen to his “debt free Fridays” to realize how much he has changed lives for the better.

    Lastly, his radio shows are nowhere near as good as his pre-packaged classes. You only get a snapshot of his advice on the radio program, and his “tough love” approach can get annoying at times. However, there’s lots of good consumer information in the classes. We have saved hundreds of dollars in insurance fees alone, based off of the information we got at FPU.

    So, listen to what he says, but keep your head in the game, too. You’ll need it to see what works best for you.

  29. Bill says:

    NotaRamseyFan. Couple of points in response to your
    criticisms…

    1) You are right, the wealthy invest in Real Estate and Businesses. You know why? They have wealth – therefore, they can absorb the risk in both of those higher risk investments (in particular businesses which have required rates of return from 20% up – very risky). You have to get wealthy first to be able to play in that field. Dave recommends a balance of aggressive and conservative mutual funds which provide plenty of diversification and are far less likely to tank than a RE or Business investment.

    2) How is his debt snowball a lie? He has openly and honestly “admitted” it isn’t an OPTIMAL financial plan but counters that it IS an optimal BEHAVIORAL plan – the fact that you call it a lie suggest that either you don’t really understand it or you purposely ignore that point. My guess is the latter since you’ve GREATLY exaggerated the potential cost of focusing on the smaller balance first. Just look for the article in this forum to explain the actual cost difference, which is negligible at best.

    3)Again, you don’t seem to have a good sense of the amount of risk an individual can absorb. Businesses do have debt – many very successful businesses. The owners of those businesses have protections over their personal assets too that make debt FAR less risky to them as an individual. Debt in personal finance carries a far greater risk.

    4)Your fourth point is really evidence that you don’t get the system at all. #1 – if you managed to clean up 70% of your debt, you didn’t finish. As you said, spending is the enemy and apparently you didn’t have the discipline to complete the program and get 100% debt free. The “miser” in you wasn’t a miser at all but rather your impulses leading you to use debt to purchase things you couldn’t otherwise afford at that time. If you want to use debt, that’s your business but that doesn’t make Dave’s plan a bad one. And if you are going to be critical at least understand it first.

    My wife and I are on Dave’s plan, we are 100% debt free, have no Credit Cards and don’t miss them one bit. Our net worth is growing significantly and our lifestyle hasn’t changed one bit. We are as comfortable as we ever were.

  30. liko says:

    As Dave says… personal finance is 80% behavior and 20% head knowledge. Don’t know how he can actually measure that, but the point is that discpline and behavior is more important than head knowledge. I know it’s true for me. Paying off the small debts first is not always the optimal return on your money, but it sure rewards the behavior.

  31. Beau says:

    To NotARamseyFan:

    “… there are no long term stock market only investors who become wealthy.”

    Have you ever heard of Warren Buffett?

    “Show me a business with no debt and I’ll show you kids lemonade stand.”

    Microsoft has a market capitalization of $279 billion, had earnings of $14 billion on sales of $51 billion in FY07 and zero debt on the balance sheet. What did you say about a lemonade stand?

    You may want to ask your business school for a refund on that Finance degree.

  32. WarrenBuffetFan says:

    I have heard of Warren Buffett and he is not putting his money into mutual funds. Warren buffet is investing in businesses following very strict rules he has in place to determine “VALUE.” Warren Buffett started out with the shirt factory Berkshire Hathaway as his first major business venture, which turned into his current company. I can guarantee you that there are companies in Berkshire Hathaway that have debt, and lots of it.

    I agree that for the person that is comfortable living a methodical, simple, stress-reduced life, DR is a great way to go. However, some of us can and do prosper under more risky, complicated, sometimes-stressful plans and/or systems. To each his own.

    BTW, the talk about the religion stuff in these comments was amusing and entertaining. Keep it up.

  33. JD says:

    To the previous poster, of course Warrent Buffett has businesses that carry debt, because debt in itself is not bad, its debt that you can’t manage that is bad. Dave Ramsey is a moron pure and simple, his target audience is dumb uneducated trailer trash. He will sit there and call credit card companies villains simply because they are trying to collect money owed to them by stupid trailer trash that went and charged up more than they can afford. Dave Ramsey – dumb financial advice for dumb trailer trash.

  34. Canisius says:

    I agree with paying off unsecured debts, but I do not agree with paying off your mortgage early. If you took those extra payments and invested them in a diversified portfolio you would have enough money to payoff the mortgage if you had to.

    Its about being wealthy and liquid not completely debt free. What good is a paid off mortgage when you have zero money in the bank or liquidity or if you lose your job. Ramsey offers simple unsophicated advice for people who want to comfortable not wealthy. Just because he is a failed real estate investor does not make him a financial expert

  35. BigRamseyFan says:

    To Rick Rose:

    “The inaccuracies of greatest concern to me were the 12% rate of return used to determine cash needed at retirement (which will leave people very underfunded)”
    Not if they save enough money. 12% is a do-able and fairly predictable rate. You may get more but why assume that you will? In the long run you probably won’t get less. If you are suggesting that people should “assume” they will get a return of 15 – 20%, that is dangerous.

    “…that one should look at total interest paid on a loan rather than the interest rate (always the interest rate)”
    I’m not sure what this is referring to. I don’t think he nit-picks much about ANY loan interest rate or total interest, he is mostly concerned with just paying them off plain and simple. His plan is to organize debts smallest to largest and attack the smallest one with a vengeance, then move on up to the next one. That is the snowball. (and it works, by the way) If, however, this refers to whether or not the terms of a loan are good or not, of course you would look at the total interest paid, not just the rate. Would you rather pay 10% APR for 5 years or 6% APR for 10 years?? If you chose 6% “because you should only look a the rate”, as you claim, you’d be screwed.

    “…that manufactured homes depreciate,(not in the 30 years I’ve been selling houses)”
    In general I think he lumps manufact. homes in with trailers. Trailers depreciate in value.

    “…that after a divorce the spouse should refinance to save credit (unnecessary and costly; a spouse isn’t responsible for others debts or payment history after the divorce.)”
    - -they are responsible if their name is still on the mortgage. The mortgage company will come after them.

    “paying off debt even prior to paying into a matching funds 401k (50% return the first year)”
    - The idea is a power of focus. If you are going to do this stuff and be serious with it, you will stop all investment and retirement for a year or two. After that, you can pump piles of cash into saving and retiring. Getting a “50% return the first year” doesn’t mean anything if it is 50% of just a little bit of money, meanwhile your debt isn’t getting reduced as fast.

    “…paying cash for a home (few would ever own)”
    - He doesn’t ever claim that most people would do this, but if you could you would save tons of interest. That’s all. He does not mandate paying cash for a house in his plan, but he does mandate that you should get a 15 year mortgage and not a 30 year mortgage where the payment is a fourth of your monthly take home pay.

    Interesting thread.

  36. toast says:

    I think that Dave’s plan is perfect for his target audience. Folks who have a history of not managing their money need to have straight-forward and rigid steps to keep them on track (kinda like the other 12-step programs except for people who are addicted to debt).

    I enjoy listening to him occasionally, but I do have a couple of issues:

    One, as someone mentioned, the vilification of credit card companies. AFAIC, they’re just another business offering a service that many people want. It’s not like they held a gun to people’s heads and forced them to go into debt. The blame should rest solely on the people who were irresponsible with their debt (and I suspect that many of these people/”victims” have a history of not honoring their financial obligations elsewhere — you know, the friends that never pay you back).

    Two, the high rate of returns he tells listeners to expect from their mutual funds. Warren Buffet just got through blasting those corporate pension plans predicting 8%+ ROIs as being unreasonable. Berkshire-Hathaway’s pension fund is predicting only a 6.9% ROI. Dave may know how to get out of debt, but I’ll take Buffet’s word over his when it comes to investing.

    Dave also gives the impression that a mutual fund’s past returns are a good predictor of future performance. This isn’t true — and the people selling mutual funds are actually legally bound to point out that this isn’t the case.

    Anyway, those issues aside, I do enjoy his show. It’s good to hear about people getting their lives back on track.

  37. Rob says:

    Gday,

    They used to show the Dave Ramsay show on Fox here in Australia but they have stopped showing it – they replaced it with Suze Orman and an Australian version of the Dave Ramsay Show called “Your Money Your Call” – much more boring than Dave’s show……. wish they would bring it back again!!!!

  38. Payroll Guy says:

    I used to listen to DR all the time but once I got the trust of his philosophy, I found he sounded quite repetitive, which he is because there are always new people coming in. Also the message does not need to change. It can also be helpful for those who want to start a business. In a typical small business like mineit is best to be completely debt free and pay as you go.

  39. David says:

    How can you listen to a man that actually believes the earth is only 6000 yrs old. Hes just another religious freak disguised as GET OUT OF DEBT show. Sorry if I am cynical but thats how I see it. Right off the bat I scorn at those brainwashed to be involved with organized religion . Giving 10 percent to the church is a joke lmao. All they do with the money is build bigger churches. He once said a ladies son is on the wrong track because her son would rather give directly to charities like Red Cross or United Way etc. This is a horrible message. I think Mr. Ramsey is getting a commission from the church and makes lots of money with his programs from the church.

  40. David says:

    Dave Ramsey is a shrill for the right wing evangelicals. To advise people to give 10 percent of their money to the scammy churches is disgusting. Dave Ramsey once scolded someone about letting her teen son give 10 percent to regular charities like United Way etc rather than the church. To me giving is giving and this teen has a good head on his shoulders. I did not even mention the fact that Mr. Ramsey business consists mostly of church seminars … Hmmmm. Me thinks there is an agenda for Dave Ramsey and his religious rights propoganda.

  41. Dennis says:

    It’s amazing that so many are offended by Ramsey’s religious views. I guess that the Left is just about hatred.

  42. vicky says:

    Looks like some people (the extremists, Jew-hating bigoted right and Christian/religion-hating left) on this site are unable to stay on topic.

    And all the hate over Dave Ramsey tells me he’s doing something right. The folks who seem to hate him don’t seem to care that they are completely missing the point.

  43. brent says:

    RE: Justin and Katie,

    Why is it that modern conservative christians take a tone of condescension? I don’t think it is very Godlike to act in this manor – even if one is right. I think it shows an immaturity – a righteousness that is very hurtful and unproductive.

    Thanks.

  44. Ben says:

    His advice is just as valid as telling people that are overweight to eat less. Simple and effective and if you are still overweight it is your fault for not following the instruction.

    Never mind that there are physical reasons for some people being fat. That eating less will result in more fat storage and burning muscle. Disregard that there are significant health consequences for a diabetic not eating regularly.

    The financial advice is the same way. Diversify by investing all in mutual funds in 4 categories. Pay down low interest mortgages that are tax advantaged instead of investing that money in the market. Expect a 12% return in retirement even though you should be invested heavy in cash equivalents at that point.

    His advice can work for some people but it is neither the fastest way to security nor the the most assured.

  45. Sandy Underpants says:

    I don’t listen to Dave Ramsey, but his appearances on Fox News financial discussions give me the impression that he’s totally clueless about bigtime financial matters. When the hedgefunds collapsed in August 2007 and the Stock Market went in the toilet he said, ‘Does anyone actually believe that the stock they owned really is only worth half of what it was worth a couple months ago? Use common sense’. Then I saw him again recently on Fox again “reassuring” people that their homes can’t possibly be worth HALF of what they were worth a year ago. This guy is a total tool. Yeah I don’t want to believe that the house I bought a year ago is worth less than the mortgage, but since I can’t sell it for anywhere near what I paid, and all the other similar homes are selling for much less in the neighborhood, it’s really hard for me to tell the prospective buyers that they should use common sense and pay me what I paid for it. Common sense is paying off your credit cards (or not opening them in the first place). That’s easy, but you can’t wish the value of your portfolio to increase, that’s really out investors hands.

  46. Sa Co says:

    Good Article!

    I like Dave Ramsey, and he isn’t so much preaching Christ died for our sins, as much as he is the wisdom that nearly all Americans would hold to be true. Proverbs 12:1 He who loves knowledge loves discipline, he who hates correction is stupid. No matter who you are, if you are in need of correcting, regardless if that person doing the correcting is an atheist or a Christian, you are stupid if you don’t take it. Dave Ramsey corrects a lot of myths about money, and I love that he also promotes giving.

  47. Jayden says:

    Anybody know if I wanted to bookmark your post do I have to join Technorati first?

  48. bargainph says:

    @Jayden – I believe you’d bookmark it via delicious.com, not technorati.

  49. deRuiter says:

    “Ramsey is tops in my book other than his refusal to name the oy vey crowd that runs banking and finance and puts people into financial slavery.” Anti semitism is wrong, and the rest of this statement is wrong / incorrect. People who didn’t pull equity out of their houses to buy “stuff” they didn’t need, people who didn’t buy more house than they could afford, people who didn’t run up huge credit card debts, people who didn’t buy expensive new cars every year, but instead prepaid on their mortgages generally didn’t get into bad shape financially. What the news readers never mention is that a large percentage of Americans own their houses or condos free and clear and are being punished for all those who made bad decisions. NO BANK CAN FORCE YOU TO TAKE OUT LOANS OR RUN UP CREDIR CARD BALANCES YOU CAN’T AFFORD. The Federal Government’s “Community Reinvestment Act” FORCED banks to make bad loans to minorities and other poor who would never have been able to make payments and were bound to lose their houses. The Federal Government is what caused this banking crisis, and by drawing out the forclosure process with delays, the Federal Government is preventing the recovery. THE FED. GOV. CAN’T MAKE ONE PRODUCTIVE PRIVATE SECTOR job. Only the private sector can provide productive jobs. The huge run up in numbers of government workers is another thing which is stopping a recovery. Government jobs produce paperwork to hobble private sector productivity. Another stimulous will stop any chance of recovery. Tax cuts for workers , which puts more spending money in private hands, is what will end the recession. So far, except for Scott Brown, we don’t have enough politicians saying: smaller government, less taxes, less regulation, more freedome, more capitalism, recovery here we come!

  50. Yardee says:

    ” As long as you don’t have a deep aversion to Christianity, Dave’s ideas are fundamentally sound, though he pulls the belt pretty tight.”

    Really? Dave seems to be 99.8% about the Benjamins and .2% Christian. I’m not even religious but this guy’s religion is clearly money. Money Money Money oh and let’s throw in 20 seconds of something about Job or Jesus to remind folks I’m not all money money money. Yeah he is.

  51. Franklin says:

    I wonder if Fox News letting Dave Ramsey go will affect his popularity?

  52. Commenter #30 Dave is using the The Pareto principle (also known as the 80-20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.
    source Wikpedia

  53. Chuck H says:

    It’s a real shame when people allow their emotional reactions (like, to religious messages) to shut down their ears when they’re getting good input. Some people may be alienated by his religious message, but I’m not one of them. I’m a hard core atheist, and I rarely have any problems at all with Dave referring to *HIS* beliefs as he teaches people *sound financial principles*.

    I may not believe in a god, but that doesn’t mean there isn’t some pretty good advice for living in ALL of the major religions. I mean, if they gave *bad* advice, who’d believe in them anyway?

  54. Steve says:

    I hear alot of criticism of Ramsey’s attitude, faith and teachings — usually from people who are broke, lost and usually very down on life.

    You don’t have to convert to his faith, but you do have to follow a plan like his if you don’t want to be a loser the REST of your life!

    My conversion changed my life in one way, while adopting Ramsey’s financial methods changed my life on yet another.

  55. I have been following Dave Ramsey’s plan for about 2 years and I will be 100% debt free in August of 2012. House and everything! The plan works–but only if you are focused and have self-control. I will have paid off a total of $100K in the four years. I talk about my path to debt freedom in my blog.

    Dollars Not Debt

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