{"id":95555,"date":"2020-08-11T15:30:58","date_gmt":"2020-08-11T21:30:58","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=95555"},"modified":"2024-02-24T12:58:48","modified_gmt":"2024-02-24T19:58:48","slug":"dave-ramsey-overrated","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/dave-ramsey-overrated","title":{"rendered":"Are Dave Ramsey’s 7 Baby Steps Overrated? (Yup.)"},"content":{"rendered":"

Sometimes, it seems Dave Ramsey is the end-all, be-all of financial advice. And since I haven’t read a basic financial book in a while, I wanted to see what all the hoopla is about\u2014pull together a proper Dave Ramsey review for my fellow investors. I picked up The Money Answer Book<\/a>\"\"<\/em> and delved into it, hoping to be enlightened by some Ramsey logic.<\/p>\n

But Dave Ramsey doesn’t say anything Suze Orman hasn\u2019t been preaching for 15 years<\/a>. In fact, most conservative financial advisors regurgitate this same basic information. No, advice doesn’t need be \u201cnew\u201d and \u201cedgy\u201d to be worth entertaining\u2014but I prefer my gurus to be unique in their guidance.<\/p>\n

It seems odd for someone to be so boisterous about their opinions when it is the same thing a handful of other people are spouting. (Still, to be clear\u2014I think The Richest Man in Babylon<\/a>\"\"<\/em> is one of the best financial books ever written.) Basics are<\/em> basics, so I tried to keep an open mind.<\/p>\n

Related: <\/strong>13 Books to Take Beginners From Zero to Real Estate Investing Hero<\/a><\/em><\/p>\n

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Dave Ramsey 101<\/h2>\n

Dave Ramsey went broke in real estate. That gave him a lot of good experience but has also made him extremely cautious\u2014sort of like the market over-correcting. His main philosophy is that all debt is bad; you must stop borrowing ASAP and use only all cash going forward. This makes sense for \u201cbad debt\u201d such as credit cards, student loans, and car loans. His systems can certainly help those who struggle with these issues.<\/p>\n

However, this approach isn\u2019t effective for real estate investors. (Also worth noting: Dave Ramsey actually does<\/em> say it is okay to use mortgage loans to buy real estate. He even does ads for a mortgage company.) Still, this particular piece of advice is geared toward buying the property as a home versus as an investment.<\/p>\n

This is because what makes real estate so powerful is the use of leverage\u2014or \u201cgood debt.\u201d Done right, this can actually fast-track you to debt freedom and<\/em> building wealth and passive income.<\/p>\n

Would you rather earn appreciation and income on a single $1 million property\u2014or $4 million worth of property in a portfolio? All-cash deals are highly risky due to exposure. That\u2019s why sophisticated homeowners and investors typically take out mortgages, even when they don\u2019t need them.<\/p>\n

Who Needs Dave Ramsey?<\/h2>\n

People with little financial knowledge or discipline absolutely need to read and follow Dave Ramsey\u2019s advice. I was a bankruptcy paralegal for many years, where I learned what debt\u2014when used improperly\u2014can do. Ramsey provides solid advice for increasing income, building an emergency fund, and using the snowball method to pay down debt. If you’re unfamiliar with these activities, by all means, read Dave Ramsey\u2014or almost any other conservative financial advisor.<\/p>\n

Consumerism controls our society. Don’t believe me? Consider Christmas. It sickens me to see people pile on debt to buy mostly useless items\u2014or even worse, the families destroyed with guilt because they can not provide \u201cadequately\u201d for Christmas. If you find yourself drowning in credit card debt, Dave Ramsey is a good place to start to dig yourself out.<\/p>\n

Nevertheless, there are several areas in which his advice is lacking.<\/p>\n

Related: <\/strong>Dave Ramsey\u2019s \u201c7 Baby Steps\u201d Are Flawed: Get Rid of Debt Quicker Like THIS<\/a><\/em><\/p>\n

Dave Ramsey Beliefs You\u00a0Don’t<\/em> Need to Follow<\/h2>\n

1. Everyone else is an idiot (or moron)<\/h3>\n

Dave Ramsey may be the smartest person in the world. However, whenever someone gives subjective guidance, I dislike when they refer to anyone<\/em> who disagrees with them as an “idiot” or “moron.” He offers opinions<\/em> about the best course of action\u2014just because he wrote a few books and is generally considered an authority, doesn’t make contradicting opinions invalid.<\/p>\n

2. There is no such thing as good debt<\/h3>\n

When referencing \u201cgood debt\u201d and \u201c\u2026people believe that you receive great benefits by going into debt,\u201d Ramsey writes, \u201cGive me a break! These guys are idiots. What\u2019s more, they are probably broke idiots.\u201d<\/p>\n

Those of us in the Rich Dad<\/em><\/a> camp strongly believe in leveraging assets to buy more assets. I understand that some people want to carry no debt whatsoever. You’re welcome to take that road, especially as you near retirement. However, if you have $100,000, you could buy one house for cash and carry no debt… or you could leverage that money and buy five houses with 20% down, exponentially increasing your income.<\/p>\n

There are investors from both sides of this argument, and it is really a matter of personal preference. However, I would not assume the guy that leverages assets is a \u201cbroke idiot.\u201d<\/p>\n

Some people might argue how leveraging burned a lot of people in the 2008 crash, which is true. Over-leveraging is a dangerous game, but an income-producing property is still an income-producing property, even in a crash (assuming you still have tenants)\u2014assuming you set it up right in the beginning. Abusing HELOCs and adjustable rates might burn you when the market slides. It all comes down to structuring the deal.<\/p>\n

Related: <\/strong>Dave Ramsey is Wrong: You DON\u2019T Need to Be Debt-Free to Hit Financial Freedom<\/a><\/em><\/p>\n

\"young<\/p>\n

3. Credit cards are the devil<\/h3>\n

When used improperly, credit cards can wreak havoc on a person financially. I also believe the introduction of credit cards into the marketplace has been a downfall and large contributor to inflation and the current financial mess our country is in. On the other hand, credit cards are a part of our society\u2014and more importantly, they are a huge factor in how our credit scores are calculated. You can absolutely use them responsibly and receive great benefits from doing so.<\/p>\n

Mortgage lenders care about your credit score and your use of credit properly. I have yet to see one scoff at someone for utilizing credit cards at all\u2014especially when it fattens a borrower\u2019s credit file and score. More importantly, it is almost impossible to qualify for a mortgage if you have made no effort to re-establish your credit.<\/p>\n

\u201cLive below your means, save as much money as you can, maximize your 401(k), and carry no debt but your mortgage\u201d is good advice for a lot of people. You should absolutely save money and have a financial cushion\u2014but make your money work for you to achieve more than just a frugal life.<\/p>\n

But this is just basic advice that can be customized to achieve bigger and better things. You must learn how to play the credit game, unless you plan on only surviving on cash for the rest of your life. Living on cash isn\u2019t a bad thing, but it limits your options, especially regarding real estate investing.<\/p>\n

Anyone can write a book. That doesn’t necessarily make them an expert on everyone\u2019s circumstances. Gather tidbits of knowledge from multiple sources and see what works best for you and your situation.<\/p>\n

\"\"<\/a><\/p>\n

Do you agree with this assessment, or are you a fan of Dave Ramsey’s mantras?<\/em><\/p>\n

Comment!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Is Dave Ramsey’s “seven baby steps” method the best choice for real estate investors? Maybe not. We outline why\u2014and what financial strategies you should try instead. <\/p>\n","protected":false},"author":332993,"featured_media":119925,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433],"tags":[7042],"class_list":["post-95555","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","tag-seo-optimization"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/95555","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/332993"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=95555"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/95555\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/119925"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=95555"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=95555"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=95555"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}