Ramsey or Kiyosaki?

25 Replies

I think I wrote this post a dozen times and deleted it. I'm not sure how to ask it. In 2013 I lost my step mother(mom) to cancer she left behind many assets and a bit of money for my family and I. Earlier in 2013 I attended FPU Financial Peace University by Dave Ramsey and learned a lot about not being debt. So I purchased a house with cash in 2014. Now I wonder if I made a mistake. Should I have a mortgage and used that money for properties? Who is right Dave or Robert? I've read many books on leveraging money (rich dad) but I can't seem to figure out which one is correct. What is the best way to use that equity if I should leverage?

Ramsey gives your security.

Kiyosaki gives you wealth.

The reality is, if you're in debt than Ramsey is probably good to learn from to get out of it. His methods are too conservative to ever get rich off of though (imo). You have to take risk to get ahead, FACT.

Originally posted by @Alexander Felice :

Ramsey gives your security.

Kiyosaki gives you wealth.

The reality is, if you're in debt than Ramsey is probably good to learn from to get out of it. His methods are too conservative to ever get rich off of though (imo). You have to take risk to get ahead, FACT.

 yup ^

Dave Ramsey and Suze Orman don't understand the benefit to having mortgage debt. Mortgage debt is actually the only debt that is good to have. They are spot on when it comes to consumer debt. But having mortgage debt is good because not only is the bank taking most of the risk, but you leverage your money, thus allowing you to build a bigger portfolio. Check out the Ric Edleman link below. I think he sums it up pretty good.

http://www.edelmanfinancial.com/education-center/a...

Ramsey is great for people who want to have their 8-5 job, build a savings account and a 401(k), and create growing savings.

Kiyosaki is inspiring, but there seem to be a lot of stories indicating that he mainly makes his money off seminars, not real estate.

Still, if you want to grow wealth:

  • Consumer debt is bad. This includes cars.
  • House debt is fairly neutral, but it can tip one way or another (being house-poor, or having all your cash tied up in your house when a mortgage might benefit you).
  • Money-making debt, (leverage on appreciating or cash-flowing assets) is good....up to the point where too much of it becomes bad. (Could you survive a crash that devalued your assets?)

Life is pretty complex. Finding the right answer generally requires developing judgment and wisdom. Best of luck as you work through that path.

@Nate Hawkins

I'd recommend the Richest Man in Babylon as an addition to the reading list.

The way that I like to think about questions like this is to consider all other investments in which you could currently place your money.

Have you set up semi-passive income streams for yourself?  If you don't have other investment channels in which to invest your money, there's absolutely no reason to keep a mortgage on your house since you don't have an alternative investment in which you could better use that money,  However, if you have a rental business or other business that is generating return higher than the rate of the mortgage, it is a good idea to lever up to take advantage of the spread between your return rate and rate of borrowing (up to a point, over-leveraging is also very risky).

Don't consider far off potential deals when doing this analysis, only look at what you currently have or what has a high probability of happening.  There's no reason to pull money out of your house if you don't have an investment channel to put it back into.  If you find a deal that looks promising and has a good rate of return, you can consider refinancing your property to pull out equity and keeping the spread.

Ramsey and Orman are nothing but paid speakers/celebrity faces for financial firms that follow the financial strategies which they teach.  Many of these kinds of people for example will tell you to only hold term life insurance and to NEVER buy whole life insurance when actually whole life insurance is one of the best savings vehicles available! (And the reason I was able to purchase 2 duplexes right off the bat).  This is like saying to NEVER buy a house and to only rent.  "no Sarah, don't purchase that asset that will grow in value and build equity over the long term which you can borrow from, you only need a house for right now so just rent it and throw your money away instead!"   -rant over :-)

I know guys who are multi millionaires with no debt. I also know guys who are multi millionaires and are heavily leveraged.  This difference, the guys with no debt are 60+ years old and the guys with debt are as young as late 30s. 

Different strategies, if your risk adverse no debt is a good option but don't expect to have the net worth right away, it takes time to build.

Side note: I know of the Ramsey program and have known people who have completed it and where diligent in their self control, wiping out all their debt within a couple years. I think the Ramsey program does a great job telling people what they need to do to get out of debt. Where it lacks is in educating people about debt and how to use it. Take my example above they were out of debt within a couple years, first thing that couple did after getting out of debt was buy a new car with a loan.

Ramsey and Suze are for financial train wrecks. People who are absolutely clueless and don't know what they are doing, have no idea where their money goes and don't even know what a 401k is. They are great for the absolute beginners to learn the very basics of finance. Their product is not making your wealthy, its not making you poor and teaching you how to live a comfortable, safe, secure, responsible life with no risk.

Kiyosaki obviously is an entrepreneur and real estate investor, he is into making you rich (FYI, did you know he really didn't have a rich dad??)

If you want to get rich quicker, you need debt. I disagree with consumer debt is always bad. Obviously CC debt is bad with 18% IR, but if you are buying a car with 2% interest...I would rather pay minimum with the 2% IR and then invest the money I have now into something more productive. Don't think of it as consumer debt, its really arbitrage.

People who are financial disasters can't handle that, but the responsible ones looking to get wealthy, need to use this.

I hate when people talk down about Ramsey and Orman, they are excellent at what they do, but they are for a certain type of person...not people on this site. Ramsey got me started in personal finance, I learned a lot from him, but I graduated and moved on to bigger things. Because of him I paid off about 150k of my student loans. Would I have done that again? Probably not, I would have put it all in real estate, but its not the worst thing in the world not having debt, but it is the path to wealth.

Consumer debt is bad, and I agree consumer debt in the form of a car loan is bad. 

But would you say that a 0% car loan would be acceptable consumer debt?

My vote is for Kiyosaki, you read Ramsey to clean up your financials and then transition to reading Kiyosaki (and others) to make your financials work for you. 

I actually like both and try and apply principles of both. On the personal/consumer side of life I'm debt free and very happy for it. For my real estate biz though I'm leveraged up to grow wealth. Obviously the real estate biz is tied to my personal credit so isn't actually seperate but it's a good way to think about it. As for the silly comments; 0% interest on your car... There is no such thing. Have you ever noticed they say 0% financing or $1500 cash savings. That zero percent interest just cost you $1,500. Whole life insurance - always bad; yes it has savings component but why not save money outside of your life insurance plan? A better plan, get term insurance and use the savings between term and life to pay down your mortgage. Then if you want to borrow it later just take out a Heloc. Same affect without over paying for insurance.

I agree with @Travis Christl the most, followed by @Sam Erickson (minus the getting a new car loan at the end!) Both have their place. Conserve and save or take some risk and dream.  

I know the teachings of both well.  I do not carry any consumer debt (car, student loan, cc, etc.) yet without RE leverage I would have just a house or 2 paid off.  Combining both strategies I am well qualified to call Dave's "tell me how you got to be a millionaire" show he just did. Waiting to be a millionaire by slowly saving and slaving at your w-2 for 40 years? No thanks.  I and many of us are more creative and visionary than that.

As a strategy "combiner", I may not be the best to ask, though. I would like to ask a DR-only colleague and friend @Julie Kern .  What do you think, Julie? Please share what it's like to have rentals, but no debt whatsoever.  Is the peace worth not maximizing returns?

Could we also hear from a RDPD-only person who has been doing it since pre-2007?  Not a recent follower, someone who survived the recession with lots of leverage. Perhaps @Joe Villeneuve ? Thanks!

Originally posted by @Nate Hawkins :
I think I wrote this post a dozen times and deleted it. I'm not sure how to ask it. In 2013 I lost my step mother(mom) to cancer she left behind many assets and a bit of money for my family and I. Earlier in 2013 I attended FPU Financial Peace University by Dave Ramsey and learned a lot about not being debt. So I purchased a house with cash in 2014. Now I wonder if I made a mistake. Should I have a mortgage and used that money for properties? Who is right Dave or Robert? I've read many books on leveraging money (rich dad) but I can't seem to figure out which one is correct. What is the best way to use that equity if I should leverage?

 People who are leveraging, and promote leveraging are people who have no money, love risk, and like sleepless nights.

We buy cash, we have outside income, and we throw everything into property. We have early zero risk on the entire portfolio as it stands, although we have done some owner financed stuff where we own the property in 4 years. But not much, and if those tenants don't pay, I could carry the mortgages to the conclusion without breaking sweat. Or pay them off in one.

What the leveraged guys will not tell you is that all the appreciation of the property will be soaked up by interest on the mortgage. So although in 30 years you'll have a paid off asset, the guy who bought cash will have all the payments in that period, plus the appreciation of the asset.

So you will spend the next 30 years, or however many you are in for, shuffling money around for other people.

The other problem is that it was people who were heavily leveraged in the late 2000 who went broke. It's easy to carry maybe one or two mortgages when properties are empty, but when you are starting to carry 4 or 5 or 6, then bad things start happening.

Don't be entirely seduced by leveraging, get a big outside income, and pay down property all the time.

I think Ramsey is worth $50 million and Kiyosaki is worth $80 million.   Both much more successful that probably anybody on this site.    To bash either one is ridiculous, they both have their methods and have worked.    The only people who think whole life is good are people who sell whole life.   The fees eat up your potential growth.  Why not buy term life which is about 1/3 or more cheaper than whole life and put the difference in the stock market or save up and buy a house with it.   

Originally posted by @Steve Vaughan :

I agree with @Travis Christl the most, followed by @Sam Erickson (minus the getting a new car loan at the end!) Both have their place. Conserve and save or take some risk and dream.  

I know the teachings of both well.  I do not carry any consumer debt (car, student loan, cc, etc.) yet without RE leverage I would have just a house or 2 paid off.  Combining both strategies I am well qualified to call Dave's "tell me how you got to be a millionaire" show he just did. Waiting to be a millionaire by slowly saving and slaving at your w-2 for 40 years? No thanks.  I and many of us are more creative and visionary than that.

As a strategy "combiner", I may not be the best to ask, though. I would like to ask a DR-only colleague and friend @Julie Kern .  What do you think, Julie? Please share what it's like to have rentals, but no debt whatsoever.  Is the peace worth not maximizing returns?

Could we also hear from a RDPD-only person who has been doing it since pre-2007?  Not a recent follower, someone who survived the recession with lots of leverage. Perhaps @Joe Villeneuve? Thanks!

 I don't look at leverage as risk since I put risk controls in place for this.  I look at no leverage (100% of my cash still in the property) as a lot of risk...and a lot more loss.  Leverage gives me instant cash flow.  Buying all cash gives me instant losses...until the cash flow catches up with the cash I originally put in...some many <fill in # here> years before.

The goals should be:

1 - to pay down and eliminate your personal debt...that's what the cash outs and flips are for.

2 - To have your passive income make the remaining monthly payments for you...that's what the rentals are for...which is one of the reasons you never buy a house with negative cash flow.

Dave R., and Robert K. are both right, but NEVER consider Dave R. as an investor.  He's a "saver/spender".  His program lives "below the bar", and Robert K.'s program lives "above".  What's the bar...?  Your paycheck.  Therefor Dave's program limits you, while Robert's is unlimited.  I prefer to be an investor...where the sky's the limit....but with risk controls in place.

It is important to understand where you are financially to understand this question.  If you have no idea how to create a budget, save money for emergencies, or spend within a plan then you should follow Dave Ramsey until you get to that point.  He makes great points on getting out of bad consumer debt.  Until you can master this technique obtaining debt to leverage yourself to make more money is dangerous business. 

We followed Dave Ramsey and became consumer debt free in early 2014.  Then we started a new plan.  While I haven't read Rich Dad Poor Dad, I understand that many of his principals are very good as well.  I agree that a house can be a liability, especially if you buy more than you need or can afford.  However, if you purchase a primary residence that would be equivalent to what you would have rented and overall, it costs you less than if you would have rented, then you are doing well.  (This includes, mortgage, repairs, taxes, insurance, maintenance, and opportunity cost). 

These guys both appeal to a specific market.  They are motivational speakers and their goal is to give concepts that speak to the majority of people.  Some of their audience may have no understanding of how to manage their finances, however, some may be very well educated.  You must adapt the information that makes sense to your situation. 

Once we became consumer debt free (meaning we paid off everything that wasn't tied to an asset), we began leveraging our credit to build up our real estate portfolio. 

In your situation, I think the most important question to ask is do you want the security of knowing your house is paid off or do you want to tap into some or all of that equity to start/grow your business.  This is all based on your comfort level and risk tolerance.  If you are young and have many years until you plan to retire completely then you could stand to have a higher risk tolerance and you may want to pull that money to make some passive income.  If you are looking to fully retire in the next 5 to 10 years then you probably want to keep your primary home paid off to keep your living expenses lower.  I would definitely not pull that money out unless you have a plan for it to pay for itself and give you a nice income on top of that. 

As far as the best way to use the equity, obviously you want to invest it in the possibility that gives you the highest rate of return for your money.  The great thing about real estate is that you can get a loan for 70-80% of the value of the property.  There are very few investments that you can get that amount of leverage.  However, there may be other avenues for you that match your level of risk tolerance and comfort level. 

So, in closing, figure out what your goals are, what your level of risk tolerance is, and then look for the situation that will get you there the quickest.  Unfortunately there is no black and white set of rules for building wealth and financial freedom.  While motivational speaker often have excellent points, they should only be taken as guidance.  You should put together all the information you gather into your own "motivational book". 

Ok I will take a stab at this.

The biggest problem is the government allowing crappy ideas to be in the marketplace, like the MBA allowing liar loans in 2002 - 2007, etc.  

Is 3% ok for a down payment?  Canada doesnt think so.  You gotta save that down payment, 10 - 20%.

The public school system is not getting money education executed.  Parents arent qualified.  Kids are inundated with consumerism and $150 sneakers and $800 iphones.

Mr Ramsey is trying to protect the consumer from stupid financial decisions like "Paycheck loans at 31%", etc,   assisting the poorly educated about finances, nothing wrong about that.

What is available for free

www.FTC.gov has a HUGE amount of free credit info and free identity theft info.  See 

https://www.consumer.ftc.gov/topics/money-credit

https://www.fdic.gov/consumers/education/ great basic site about credit and money.

http://www.consumerfinance.gov/blog/category/finan... 

The new cfpb above for Dodd Frank info and basic consumer financial education is just awesome.  Any new RESPA and TILA info is there, especially the new closing docs on Aug 1 2015.

Now sophisticated education and long term planning I believe the place the start is with this video - The Cash Flow Quadrant

Cash Flow Quadrant  see video

If you do not understand the basics of SMALL BUSINESS, it is really hard to have a great retirement at 65 unless you are a highly paid professional with some consumer spending discipline and savings and diversified investing.  

I think the last statistic I read was 90% of 65 year old retirees have less than $50K in retirement savings.

Re: The book Rich Kid Smart Kid

I think is a great book.  I plan on giving that book to my son and daughter.

In general, Biggerpockets is great with wholesaling flipping, but there are other subjects like business planning, entity planning (I like Amanda Han), taxation planning (Steve Hamilton is awesome), and advanced soft skills like NLP and negotiation (not sales) etc that are super important.

Not having a LLC or a Corp before marketing and making offers, seriously? Just do a deal?

I enjoy Clint Coons quite a bit.  See Will Your Asset Protection Stand Up?

Being self employed is awesome, and a good C Corp can get you some awesome tax deductions.

There's offense and defense. 

The sexy marketing info always sells.  "How do I get a deal?"  "How do make a fast buck?"

The boring back office stuff - legal, tax, etc, well what can you do, that's why not being self employed is always easier!

Bottom Line: The journey to learning small business is an awesome one. 

Profitable too hopefully.

As I've said before one teaches you how to get out of debt and one teaches you how to get into debt.  I'm not saying debt is a bad thing but it is like a power saw in the wrong hands it can be bloody.  Just ask all of those Kiyosaki followers who lost everything in 2007-2009.  I wonder how many houses lost by Kiyosaki followers were picked up by Dave Ramsey followers.   

For the average American, I would say go with Ramsey...  His principle is simple, pay off your debt, invest in a diversified mix of funds...  Ok, most average folks can't even handle the first part, and if they applied it they would be in a much better position financially.  

Kiyosaki, on the other hand advocates debt, but LIKE Ramsey he is staunchly opposed to consumer or "bad" debt.  As he says, everything is either an asset, ie it puts money in your pocket or a liability, it takes money out of your pocket.  He says buy assets, not do-dads, avoid consumer debt and debt to by assets is ok, so long as it is used responsibly ie you do your due-diligence, analysis & home work.

So, I would say that for most of us on BP, and me personally, I take a blend of the two.  If I can get free financing when I want to purchase something, I'll consider taking it ie 0% offers from a car dealership.  But I hold no credit card debt, no unsecured loans, really, nothing other than loans on real estate and all of those are assets (except for my primary residence, but as was previously mentioned that is a wash, since I need a place to live.)

Further more, with any debt one must look at the opportunity cost.  ie I can pay $20k cash for this car, or I can finance it at 1.5% with 0 down, easily afford the payment and invest the $20k at 10%.

So-short answer, both. Ramsey to get out of the consumer debt trap & Kiyosaki to build my REI business.

Just my $0.02 worth of opinion, feel free to give me some change back.

Hey, @Steve Vaughan !  Thanks for pulling me in to another DR discussion :)

I love Dave Ramsey, love listening to him, my husband says I have a crush on him. Having free and clear rentals feels great since we are very, very new to REI. It helps cushion any mistakes we may make due to our inexperience. Having a paid for house feels great too. All of our excess income (W2 and rental) is snowballed into investing. What would go toward a mortgage on our PR and rentals instead is being saved up for the next property. From a numbers standpoint, does it make the most sense? Maybe not from a pure finance perspective. But are slowly and steadily amassing a real estate portfolio that will meet our goals in a way that we are comfortable with based on our risk tolerance and stage of life.

And I think @Cheryl Packham made some great points in her post so I'll just say ditto to that :)

Enjoying the discussion!  These threads are always fun to read :)

@Brian Gibbons

Canada does have 5% down mortgages for "first time homebuyers" which are insured through CMHC (like Fanny & Freddy).  However, for a residential mortgage, one has to qualify at the 5-year fixed rate term at a 25yr amortization, regardless of the mortgage you ultimately place.