Thoughts on Dave Ramsey?

[Jake Andronico]

I was NOT a fan at first, but some of his principles (though not all) have resonated with me. 

Curious to hear everyone's thoughts.

[Rodney Sums]

Quote from @Jake Andronico:

I was NOT a fan at first, but some of his principles (though not all) have resonated with me. 

Curious to hear everyone's thoughts.

 In short, everyone here agrees he's right about most things he says....except financing.  

That's because all of us here use it and see what it can do when used properly.

[Marcus R.]

One great thing he preaches that is often overlooked and an excellent piece of information is that your "earnings are probably your greatest wealth building tool".  His target audience and those on this site have different opinions on how we should use that tool and that's OK.   

This needs to be repeated more these days.  Social media has folks believing you can quit your 9-5 by going from 0 to 100 units in 1 month, with no money down, and make 100% passive income. 

[Jeremiah Dunakin]

Quote from @Ned J.:

Like others have said, I agree with a lot of his basic principles, but disagree on zero debt, no CC use, everything in cash etc

What I'm starting to dislike about him is he's becoming more out of touch with the younger generation and their struggles with the current economic environment they are coming into at this stage of their lives. Some of his principles and opinions are too "just stop buying Starbucks and avocado toast and all your economic struggles will be fixed". Some of his opinions and comments are too rooted in what worked for him and the generations before. The current younger generations are not in the same economic situation many of us were in when we were 20-30 years old. Too much "just work 2 jobs, get a side hustle" without acknowledging that "starter" homes aren't 150k any more and $15/hr isnt a living wage. The economic situation the younger generation is in, is not the same as it was for us (and much of that is not under their control or their doing) and I think he fails to acknowledge that very much and sticks to older " well it worked for me" principles that just dont work as well as they used to work. 

 Gonna have to respectfully disagree. Dave’s principles are as old as time itself. The principles work. Just because the younger generation doesn’t accept that or it’s not “thier truth” doesn’t matter.If you follow his basic principles you will succeed in life. The thinking outside the box is fairy tales and a socialist fantasy. The younger generation(which I borderline am) just doesn’t want to work hard for a season. Most of them don’t want to work 40 hours a week let alone overtime. That’s why they don’t get ahead or don’t move out of parents house. It’s not minimum wage,health care or working conditions, equity,or any other neoliberal thought process. It’s a lack of putting in hard work and dedication.We as a society don’t need to pander to the illogical fantasies of “younger generation” thier truth is not correct, Dave is correct. For what it’s worth I am not a Dave Ramsey follower. However what is wrong with

Have an emergency fund cause life happens(do real estate investors set aside for furnace repairs)

Live within your means. Spending more than you take out is a bad idea. If it cost 1300/month for your rental and you are bringing in 1000 month there is gonna be a problem. 

Credit is risky for frivolous things. Charging 100$ on credit card for beers and pizza is bad idea long term. It becomes an unsustainable life style.

New cars are a huge waste of money. They just are. 

Unless you spend a lot of time researching mutual funds are the way to go. They are about as safe as you can get.I know the newer crowd crypto millionaires. 

giving a portion of your money back to church(some take it serious and that’s ok) or community is a good thing. 

Not sure all his principles but what of these are bad antiquated

[Cliff Benner]

My view on information like this is similar to my Income thoughts. 

All Experts have great information they believe in, this is their Stream of knowledge to Me. To them this is their Knowledge River they have built over their life. 

So I take their knowledge Stream and connect it to my Knowledge River to build up My Knowledge River over my life time and I take my Knowledge and Experience to give advice to others that will be a stream to their knowledge River. So some of his principles make sense; debt snowball, emergency savings, and it's logical that the more cash you have the more you can purchase. But i think debt leverage is good; so I take the bits that make sense to me and leave the rest to build my own logic. 

I use this river analogy to make sense of how it works in my brain for this and Income too. The more streams of income that flow into my total Income River, the bigger the river the stronger position I am in. Debt and bills are just Dams that regulate that river.  

[Jeremiah Dunakin]

Quote from @Cliff Benner:

My view on information like this is similar to my Income thoughts. 

All Experts have great information they believe in, this is their Stream of knowledge to Me. To them this is their Knowledge River they have built over their life. 

So I take their knowledge Stream and connect it to my Knowledge River to build up My Knowledge River over my life time and I take my Knowledge and Experience to give advice to others that will be a stream to their knowledge River. So some of his principles make sense; debt snowball, emergency savings, and it's logical that the more cash you have the more you can purchase. But i think debt leverage is good; so I take the bits that make sense to me and leave the rest to build my own logic. 

I use this river analogy to make sense of how it works in my brain for this and Income too. The more streams of income that flow into my total Income River, the bigger the river the stronger position I am in. Debt and bills are just Dams that regulate that river.  

 This is a fantastic analogy 

[Cliff Benner]

 @Jeremiah Dunakin Thanks!

[Jeremiah Dunakin]

Quote from @Cliff Benner:

 @Jeremiah Dunakin Thanks!

 Ain’t gonna lie I’m gonna use that one if u don’t mind

[Cliff Benner]

@Jeremiah Dunakin DO IT!!! 

[Tommy Nguyen]

Hi @Jake Andronico,

I am a fan of Dave Ramsey's (DR) advice for personal finance and retirement planning. I believe his advice for real estate investing is not optimal. Most people do conflate his advice into one, so I'll make the distinction below:

DR Personal Finance Advice (@Aaron Breckenridge):

- Have an emergency fund (6+ months).

- Do not carry a balance on a credit card and pay cash for all debts besides your primary mortgage.

- Invest in index funds rather than individual stocks.

DR's Real Estate Investment Advice:

- Pay all cash for your rental properties.

- Enjoy the "free cash flow" without a mortgage.

- Save up this cash flow for the next rental property (pay in full) => Rinse and repeat.

I agree with @Caleb Brown and @Mike Anderson's premise that most Americans are financially savvy. Consequently, they do not have a financial foundation to begin investing. I agree with Ramsey that you should not invest heavily until all your debts are paid off. If not, you are fighting two wars simultaneously. Once all your personal debts are paid off, you can begin investing.

However, I do not agree with DR's advice for real estate investing in regard to leverage. I believe these are factors he misses are 

(1) appreciation 

(2) opportunity cost 

(3) average American income 

(4) ROI

Let's use my example to discuss the following points.

According to C2ER, the median US home is $329,000, and the median American household earns $68,000. By some miraculous feat, the James family saves all $68,000. It will take that family nearly five years. However, by the time they saved enough for the $329,000, the value of the rental property increased 3% each year and now has a present value of $358,000. The James Family is out of luck.

Even if they bought the property at $358,000 and it rents on average for $1,700, the James family experiences an 1st year ROI of 5.5% (excluding all reserves). Would this money have been better invested using low-down payment loans, BRRRRs, US bonds, or the S&P 500? Most likely. Lastly, Dave Ramsey's advice for all cash works for people with high-paying earnings and disregards the average American trying to dip their feet into REI.

I do believe his method works once you accumulated enough properties and begin paying them off. Let me know your thoughts BP community especially @Jay Hinrichs

[Jay Hinrichs]

Quote from @Tommy Nguyen:

Hi @Jake Andronico,

I am a fan of Dave Ramsey's (DR) advice for personal finance and retirement planning. I believe his advice for real estate investing is not optimal. Most people do conflate his advice into one, so I'll make the distinction below:

DR Personal Finance Advice (@Aaron Breckenridge):

- Have an emergency fund (6+ months).

- Do not carry a balance on a credit card and pay cash for all debts besides your primary mortgage.

- Invest in index funds rather than individual stocks.

DR's Real Estate Investment Advice:

- Pay all cash for your rental properties.

- Enjoy the "free cash flow" without a mortgage.

- Save up this cash flow for the next rental property (pay in full) => Rinse and repeat.

I agree with @Caleb Brown and @Mike Anderson's premise that most Americans are financially savvy. Consequently, they do not have a financial foundation to begin investing. I agree with Ramsey that you should not invest heavily until all your debts are paid off. If not, you are fighting two wars simultaneously. Once all your personal debts are paid off, you can begin investing.

However, I do not agree with DR's advice for real estate investing in regard to leverage. I believe these are factors he misses are 

(1) appreciation 

(2) opportunity cost 

(3) average American income 

(4) ROI

Let's use my example to discuss the following points.

According to C2ER, the median US home is $329,000, and the median American household earns $68,000. By some miraculous feat, the James family saves all $68,000. It will take that family nearly five years. However, by the time they saved enough for the $329,000, the value of the rental property increased 3% each year and now has a present value of $358,000. The James Family is out of luck.

Even if they bought the property at $358,000 and it rents on average for $1,700, the James family experiences an 1st year ROI of 5.5% (excluding all reserves). Would this money have been better invested using low-down payment loans, BRRRRs, US bonds, or the S&P 500? Most likely. Lastly, Dave Ramsey's advice for all cash works for people with high-paying earnings and disregards the average American trying to dip their feet into REI.

I do believe his method works once you accumulated enough properties and begin paying them off. Let me know your thoughts BP community especially @Jay Hinrichs

my thought is there is a big difference of saving to own your own home and saving or desire to be a RE investor.. you need money to be an investor.. liquid cash.. so for most people its about getting a personal residence then invest in their 401k or slowly instead of waiting 5 years to buy one rental.. I think If you invested those funds monthly you would be better off than with one rental.

[Robert Harden]

@Jake Andronico

Very easy program. My wife and I have been debt free for 5 years using his program.It takes about 2 months to really get your budget working. The free app he offers is user friendly. I’m not a huge fan of mutual funds or let’s fleece the working class 401k plans that Dave recommends.

I strongly recommend FPU as a whole.

Cheers!

[Mohammad Parwez]

Dave Ramsey is a well-known financial expert and radio host, best known for his conservative and debt-averse approach to personal finance. His financial strategies and thought process can be summarized in several key bullet points:

1. Debt-Free Living:
   • Ramsey's core philosophy revolves around the idea of living a debt-free life. He advocates paying off all non-mortgage debts, including credit cards, car loans, and student loans, as quickly as possible.
2. Baby Steps:
   • Ramsey outlines a series of "Baby Steps" to guide individuals toward financial stability and wealth-building. These steps provide a structured roadmap for achieving financial goals.
3. Emergency Fund:
   • The first Baby Step is to save $1,000 in an emergency fund. This fund acts as a financial cushion to cover unexpected expenses, preventing individuals from going into debt when faced with emergencies.
4. Debt Snowball:
   • Ramsey promotes the "Debt Snowball" method, where you pay off your smallest debts first, regardless of interest rates. This approach provides psychological motivation as you see small wins early in the process.
5. Budgeting:
   • Ramsey emphasizes the importance of creating and sticking to a detailed monthly budget. He recommends the "zero-based budgeting" method, where every dollar is assigned a purpose, ensuring that income exceeds expenses.
6. Cash Envelopes:
   • Ramsey suggests using the envelope system for discretionary spending categories like groceries, dining out, and entertainment. You allocate a set amount of cash to each category and only spend what's in the envelope.
7. Investing for Retirement:
   • Once debts are paid off and a fully funded emergency fund is in place, Ramsey advises individuals to invest 15% of their gross income in retirement accounts like 401(k)s and IRAs.
8. Debt Snowball Continues:
   • After building retirement savings, the Debt Snowball continues with a focus on paying off the mortgage, aggressively tackling this long-term debt.
9. Insurance:
   • Ramsey advocates for adequate insurance coverage, including health, life, auto, and home insurance, to protect against unexpected financial setbacks.
10. Avoiding Whole Life Insurance:
    • Ramsey strongly discourages the use of whole life insurance policies as an investment vehicle, preferring term life insurance for its simplicity and lower cost.
11. Home Buying:
    • Ramsey advises saving a substantial down payment (at least 20%) before purchasing a home. He promotes 15-year fixed-rate mortgages to minimize interest costs.
12. Avoiding Credit Cards:
    • Ramsey is famously anti-credit card, suggesting that individuals avoid them entirely and rely on cash or debit cards for transactions. He believes credit cards can lead to overspending and debt.
13. Generosity:
    • Ramsey encourages individuals to practice generosity through charitable giving, emphasizing the importance of helping others and contributing to causes they are passionate about.
14. Wealth Building:
    • Once individuals have followed the Baby Steps and become debt-free, Ramsey advises focusing on wealth building through investments in mutual funds and real estate.
15. Live Like No One Else:
    • Ramsey often says, "Live like no one else so that later you can live and give like no one else." This means making short-term sacrifices for long-term financial security and the ability to be generous.
16. Financial Peace University:
    • Ramsey offers a program called "Financial Peace University" to provide in-depth financial education and support for individuals and families looking to improve their financial well-being.
17. Avoiding Get-Rich-Quick Schemes:
    • Ramsey cautions against speculative investments and get-rich-quick schemes, emphasizing the importance of patience and discipline in building wealth.

Dave Ramsey's financial philosophy centers on personal responsibility, budgeting, eliminating debt, and building wealth over time. While his approach may be considered conservative by some, it has helped many individuals achieve financial stability and peace of mind. However, it's essential for individuals to assess and adapt his principles to their unique financial situations and goals.

[John Morgan]

DR is for broke people or people who can’t manage their $.

Robert Kiyosaki is for wealthy people. Nothing wrong with the DR model staying away from bad debt, but you you’ll get there 10x’s faster by leveraging your way to wealth with good debt. And utilizing the tax code that favors RE investors and business owners.

[Cameron Moore]

Quote from @John Morgan:

DR is for broke people or people who can’t manage their $.

Robert Kiyosaki is for wealthy people. Nothing wrong with the DR model staying away from bad debt, but you you’ll get there 10x’s faster by leveraging your way to wealth with good debt. And utilizing the tax code that favors RE investors and business owners.

Well said. I find it best to take the best from each mindset! 

[Jake Andronico]

Quote from @Cliff Benner:

My view on information like this is similar to my Income thoughts. 

All Experts have great information they believe in, this is their Stream of knowledge to Me. To them this is their Knowledge River they have built over their life. 

So I take their knowledge Stream and connect it to my Knowledge River to build up My Knowledge River over my life time and I take my Knowledge and Experience to give advice to others that will be a stream to their knowledge River. So some of his principles make sense; debt snowball, emergency savings, and it's logical that the more cash you have the more you can purchase. But i think debt leverage is good; so I take the bits that make sense to me and leave the rest to build my own logic. 

I use this river analogy to make sense of how it works in my brain for this and Income too. The more streams of income that flow into my total Income River, the bigger the river the stronger position I am in. Debt and bills are just Dams that regulate that river.  

Love this analogy. Very clever. Thank you for sharing, Cliff. 

[Ned J.]

@Jeremiah Dunakin

Well I'm going to "respectfully disagree" back.

Yes, his principles are "as old as time itself"..... and in some ways thats my point. Not ALL principles hold their merit forever. Things change, circumstances and challenges change. Failing to acknowledge that things my generation faced are NOT the same as the current generation faces is just being the old guy on the porch shouting "those damn kids are just lazy..... no one wants to work... I worked hard and look where I am". Great.....well the challenges you faced are NOT the same as the current generation. 

EVERY generation thinks the next one is lazy, entitled and spoiled.... EVERY ONE... they thought it about mine and the current generation will think it about the one after their.

The mantra that "no one wants to work is bull****" Sure there are lazy freeloaders that dont... but guess what? there always has been and always will be. The blanket statement that none of the newer generations want to work is the same BS that was said about mine and the generations after. 

The days of having single income, single job, average profession with a decent income for a reasonable quality of life for a family of 3-4 are gone for most people. Most couples have to both work just to keep their head above water, let alone thrive.

Yes his general principles are very solid and valid. NOTHING WRONG with any of them..... but my point is that the hill that has to be climbed now is NOT the same as it was for prior generations. The challenge is NOT the same..... and he doesn't acknowledge that as much as he should. 

None of his principles are bad.... I just feel his opinion on how to achieve some of them is a bit antiquated 

[Jeremiah Dunakin]

it’s not being the old guy on the porch. It’s stating a fact. Kids today (I’m gen x) don’t want to work.I see them come in my shop all the time they do not and refuse to work overtime. I hear parents my age say kids today don’t want this or that. They want to travel. Kids today have it way easier.it’s not a next generation is lazy mentality.It’s stating the truth. Kids stay at home and be on mommy and daddy’s insurance till they 26. I had insurance for myself at 18. My generation not the next do not want to work. 

No we haven’t always been lazy and freeloaders. You used to starve if you did not work even in this great country. Now if you don’t work you can be overweight with 150$ Jordan’s on. Young adults living at home as raised by 15% in last 12-15 years. That is a substantial amount. I know a job that pays 6 figures with no education and they can’t keep the young adults. This is a problem. 
I agree the days of one working adult is about done. I raised a family of four on one income for 10 years it can be down but I worked OT to do it.

The challenge is not the same it’s way easier. As each generation has become more enlightened. Policy has changed politically in this country making it harder to get by. We might have agree to disagree on this topic. Best wishes 

[Scott Mac]

Quote from @Henry Clark:

Car value to match your worth?

 (???) This seems unclear to me (???)

How do you mean this (???)

[V.G Jason]

His advice is great, and it doesn't need any caveat. Do I subscribe to them all? No I use credit cards, I leverage, etc. But if you gave advice, and had to add a "but" after it then don't give it for things like money.

Sure lots of us could use credit cards responsibly. If you gave it as blanket advice to the masses, you'd have to add caveats. I think consumer debt is beyond stupid(financing a car, credit cards, etc.), I am heavily against student loans but not just for the debt aspect but the force it does to your career trajectory.  Irrespective of anyone's views, if you followed his principles you'd be a lot more stress free money wise and better situated in life. Most people here think all out debt life is the way to go, that's just dangerous.

[Henry Clark]

Quote from @Scott Mac:

Quote from @Henry Clark:

Car value to match your worth?

 (???) This seems unclear to me (???)

How do you mean this (???)

 The total value of all your vehicles should be less than 1/2 your annual income.  A rule he mentions.  If you only make $60,000 shouldn’t have two cars worth $80,000.

[Lisa T.]

My husband and I went thru FPU over 20 years ago and learned good basic budgeting and money management skills which have benefited us greatly over the years.

Yes, we use credit cards for nearly every thing.  However, we get 3-5% cash back, never carry a balance and pay no interest or fees.   We pay cash for cars and keep them for as long as mechanically feasible. I drive a 13 year old Honda SUV which we keep up and still looks brand new. Everytime we considered a new car we'd think about that money being used to buy another rental.

Here's where DR has most influenced our real estate investing ... 

(1) DR's no debt is good debt principle.  We have been able to save and pay cash or 1031 in all but 3 properties.   (We bought 3 sf in FL 3 years ago and locked in 3.25%/30/year/no closing cost loans.  Pretty sure DR would not approve.)  We also have a mortgage on our primary home but we pay extra principal each month to excelerate the payoff.

We were so blessed during covid not having loans to service in areas where rent moratoriums were mandated.  I can't imagine the stress on investors when they had to keep paying loans, insurance, taxes, etc.  with no rent coming in.  What a nightmare!!

(2) DR has an online preferred list of professionals (RE agents, insurance, etc.).  I've done my market research, including identifying a good local property manager, and then engaged one of his preferred realtors to help me find properties.  Between the local PM and good agent they have identified good rental properties and we've had great ROIs. Yes, we are paying retail in those cases but we're also not being "sold" properties from a limited list a turnkey or other resource has.  Excellent results with his agents in Huntsville AL and Dayton OH.