I’m guessing most of the readers of this blog have heard of Dave Ramsey. And perhaps many of you have been through Financial Peace University or hosted it at your church.
If you’ve never heard of him, he’s a radio host of a call-in show where people call to ask for financial advice. He’s written many books on personal finance & he also developed a personal finance course that many churches use to help their congregations manage their money well.
If you have heard of him, chances are you know people that really love him & well, people that really don’t. Haha!
He’s often known as the “no debt guy” and the “cut up your credit cards guy.”
So, should you listen to him for financial advice?
My answer: It depends on what he’s talking about!
Let me share a few things I agree with Dave about & a few things where we don’t see eye to eye.
But before I do, I want to give you full disclosure.
Dave Ramsey’s teachings have been life-changing for me & my wife. And I mean life-changing in a good way. I started following Dave Ramsey early in the life of our church and I got hooked. My wife and I were in debt (student loans), we had a big mortgage ($100k+), and we didn’t live on a budget. I read his book, The Total Money Makeover, and it really challenged me. We started to aggressively pay off the student loans, accumulate a 3 month emergency fund, save more for retirement, save for college for our kids, and pay off our house. Without his motivation, I’m pretty sure we wouldn’t be where we’re at right now.
Having said all of that, while I’m a big fan, there are some things he says that I disagree with.
Let’s start with what I agree with him about.
3 things I agree with Dave about:
- “Debt is dumb!”
Haha. I probably wouldn’t say it quite like that, but that’s how Dave says it. I agree that most debt is unwise. In fact, the tag line for his radio show is, “Welcome to the Dave Ramsey show where debt is dumb, cash is king, and the paid off home mortgage has replaced the BMW as the status symbol of choice.” Haha - clever!
It probably won’t surprise you to learn that I mostly agree with him about debt. I think being debt-free is a very wise way to live, especially if you’re in ministry. I’ve written more about this, but I became convinced that much debt is tied to greed. We want things so badly that we can’t wait patiently for them, so we borrow the money in order to have them right away. I think this is unwise in most cases. You can read more here: Get Out of Debt & Stay Out.
- “Every dollar has name.”
Dave says that part of the key to managing your money wisely is having a budget. Each dollar gets a name & is decided on before you spend it. This helps you to live beneath your means & make sure there is plenty of money for giving & investing.
My wife and I have budgeted diligently over the years, and while it’s certainly hard at times, it’s always been worth it. Tracking your spending & meeting monthly with your spouse to talk about it is a great pattern to establish if you want to achieve financial freedom.
He encourages budgeting to save up a 3-6 month emergency fund and I totally agree. I think 12 months is even better.
- “Pay off your home early.”
If you follow this blog, you know I’m a fan of paying off your home early. I’ve written several articles about this. I can’t even begin to describe the feeling you get when you are no longer a “slave to a lender” (Prov 22:7). I hope all of you get to experience this very soon. One great exercise here is to pull up a mortgage calculator & look at the amount of interest you pay over the life of your 15 or 30 year mortgage. I think it will blow your mind. If you’re looking to supplement or replace your income, don’t give all of that money away in interest!
3 things I disagree with Dave about:
- “Cut up your credit cards.”
If you’ve followed this blog long, you know I talk a lot about using credit cards to earn travel rewards to take your family on free vacations. I disagree with Dave that everyone should cut up their cards. I do agree with Dave that many should probably cut up their cards because they abuse them. They accumulate balances, don’t pay them off each month, and have a history of racking up large credit card debt. They should definitely cut up their cards.
But what about those of us who have no history of credit card abuse? What if we’ve never carried a balance and always pay them off each month? I think Dave should make an exception here. I understand why he doesn’t because he is talking to the masses & needs to be consistent in his messaging. But I do know that I’ve taken my family on many vacations that would’ve cost us thousands of dollars for basically free. It seems unwise to me that I wouldn’t take advantage of these travel benefits.
- “Invest in good growth stock mutual funds.”
By mutual funds, Dave’s talking about the actively managed kind. I probably disagree with Dave most strongly here. For the average person, I think low-cost, not actively managed index funds are your best bet for long term stock investments. The expenses & underperformance over time of actively managed mutual funds make them an inferior investment, in my opinion. I’ve written more about this here: Why You Should Invest In Index Funds.
- “Invest 15% of your household income in retirement.”
I also disagree with this 15% figure. If you want to actively work for money until you’re 65, then maybe 15% is ok. But a lot of you are following this blog because you want financial independence early. You don’t want to have to “work” for money, you’d rather your money “work” for you so you can follow the Lord wherever he leads. In this case, you need to be investing a lot more than 15%. I know it may sound crazy, but if you’re serious about financial independence early, most people in the F.I.R.E. community would encourage you to invest at least 50% of your income. You can read more about this here: Introduction to the F.I.R.E. Community.
Here’s some great irony to conclude this post.
I took my family to Nashville for Spring Break this week using credit card rewards (we flew & stayed free) & I had the chance to visit Dave Ramsey's studio and meet him in person to celebrate the impact he has made on our lives. But I didn’t mention we got there free using travel rewards! LOL
Oh, and if you haven’t watched some of the Debt Free Screams on his radio show, you should go to YouTube and watch some. Inspiring!
