It seems “you need to read Dave Ramsey” is a cornerstone of financial advice given lately. Because I have not read a basic financial book in a while, I thought I should see what all the hoopla is about. I picked up The Money Answer Book and delved into it, hoping to be enlightened by some Ramsey logic.
First, Dave Ramsey does not seem to be saying anything Suze Orman hasn’t been preaching for 15 years. In fact, this is the same basic information that most conservative financial advisers regurgitate. It isn’t my belief that advice has to be “new” and “edgy” to be worth entertaining. However, I prefer my gurus to be unique in their guidance. 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. That being said, I think The Richest Man in Babylon is one of the best financial books ever written. Basics are basics, so I tried to keep an open mind.
What is Dave Ramsey’s Advice Good for?
There are some people who absolutely need to read and follow Dave Ramsey’s advice. These are people who have very little financial knowledge or discipline. I was a bankruptcy paralegal for many years. I saw what debt, when used improperly, could do to someone. Ramsey provides solid advice for doing whatever is necessary to increase income, build an emergency fund, and use the snowball method to pay down debt. If someone is unfamiliar with these activities, by all means, read Dave Ramsey—or almost any other conservative financial adviser.
Our society is one that is wrought with consumerism. As I write this, Christmas still lingers in our memories. It sickens me to see people pile on debt to buy mostly useless items—or even worse, the families destroyed with guilt because they can not provide “adequately” for Christmas. If you find yourself drowning in credit card debt, Dave Ramsey is a good place to start to dig yourself out.
Nevertheless, there are several areas in which his advice is lacking.
Everyone is an Idiot (or Moron)
Granted, this is not about his advice, and he may be the smartest person in the world. However, with someone giving subjective guidance, I have a problem with them referring to anyone who disagrees with them as an “idiot” or “moron.” These are opinions about the best course of action. Just because you write a few books and consider yourself an authority, it does not make all other opinions invalid because they contradict yours.
There is No Such Thing as Good Debt
In referencing “good debt” and “…people believe that you receive great benefits by going into debt,” Ramsey writes, “[g]ive me a break! These guys are idiots. What’s more, they are probably broke idiots.”
Those of us in the Rich Dad camp strongly believe in leveraging assets to buy more assets. I understand that some people want to get rid of all debt, and that is a road you are welcome to take, especially as you near retirement. However, if you have $100k, 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.
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 “broke idiot.”
I also know some people are going to 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), if you set it up right in the beginning. Utilizing HELOCs and adjustable rates are what will burn you when the market slides. It all comes down to structuring the deal.
Credit Cards Are the Devil
“Responsible use of credit cards does not exist. There is NO positive side to credit card use.” —Dave Ramsey.
Again, I will point out that I have seen that credit cards, when used improperly, can wreak havoc on a person financially. Growing up, I too was preached at about the evils of credit card use. Not that it matters, but 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, and more importantly, they are a huge factor in how our credit scores are calculated. You can absolutely use them responsibly and receive great benefit from doing so.
I have recently done a great deal of research on credit scoring and am curious if anyone in the comments would mind chiming in if they have achieved an 800+ credit score with NO credit cards. A mix of credit is necessary to maximize your credit score, and I am not sure it is possible to do so with no revolving debt. I would love to be proven wrong, though.
Related: Dave Ramsey is Wrong: You DON’T Need to Be Debt-Free to Hit Financial Freedom
Of course, Dave Ramsey says, in reference to re-establishing credit after bankruptcy, that you should not re-establish credit (specifically through low limit credit card use) because you should not plan on getting back into debt. Also, mortgage lenders are more likely to lend to you if you avoid credit cards.
It has been my experience that 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, especially when it fattens a borrower’s 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.
I could go on and on, but I already feel people picking up their pitchforks. I may just have an aversion to gurus and people who act like they know everything. “Live below your means, save as much money as you can, maximize your 401(k), and carry no debt but your mortgage” is good advice for a lot of people. Certain aspects of that is good advice for everyone. You should absolutely save money and have a financial cushion, but make your money work for you to achieve more than just a frugal life. Also, 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’t a bad thing, but it limits your options, especially regarding real estate investing. I won’t even get into the evils of 401(k); that is a completely different discussion.
Most importantly, understand that anyone can write a book and it does not necessarily make them an expert on everyone’s circumstances. Gather tidbits of knowledge from multiple sources and see what works best for you and your situation.
Weigh in: Do you agree with this assessment, or are you a fan of Dave Ramsey’s mantras?