Deconstructing Dave Ramsey

Every once in a while, 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.

Why do I say this? I can only assume that, based on the way Americans live their lives, Dave Ramsey’s message mostly falls on deaf ears.

But, is his message worth listening to? Or are his readers the ones missing out?

Some Background on Dave Ramsey

Before we dig into the meat of his message, let’s start with some background on the guru himself. In the 1980’s, 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.

Somewhere along the way, 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.

Now Ramsey is the author of several popular books including “The Total Money Makeover,” “The Complete Guide to Money,” and “The Money Answer Book.” Ramsey also created the popular money course known as “Financial Peace University,” which is taught in churches and community centers all over the country.

The Dave Ramsey 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 buy it, Ramsey says.

Dave Ramsey’s Seven Baby Steps

In order to provide a framework for getting started down this path, Dave offers a series of seven baby steps to follow:

Step 1: Start a “beginner” emergency fund of $1,000.

Step 2: Start and complete a “debt snowball,” paying off all debts except for a home mortgage.

Step 3: Create a fully funded emergency fund equal to six months of expenses.

Step 4: Invest 15% of your gross income in 401(k)s (up to the match), Roth IRAs, and then in mutual funds.

Step 5: Fund some portion of your child’s college education.

Step 6: Pay off the home mortgage.

Step 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, and offers tools like this investment calculator to help his audience make and track progress.

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.

Other Dave Ramsey advice that tends to irk people is his anti-debt stance. According to Ramsey, no one should ever use credit cards or finance a vehicle of any kind. While this advice is definitely smart, it’s not really feasible for many Americans. As a result, many blow him off as a fanatic or extremist.

My Take on Dave Ramsey

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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