Dave Ramsey Advice

[frayne]

OK, so we know what people think of Suze's advice. What do ya'll think of Dave's. From what I have seen I think it is pretty decent.

What say you ?

 

[MasterBlaster]

What's not to like.

debt bad.
get out of debt. pay high interest off first. Snowball the debt reduction.
Then save like crazy.

1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. Three to six months of expenses in savings
4. Invest 15 percent of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give!

It seems like pretty good advice to most people. Perhaps it's geared more towards the average consumer whos is in debt up to their ears.

I might add, avoiding debt and saving like crazy are a prerequisite for ER.

saving only 15% is for wimps. Many on this forum save three or four times that amount.

here is the Ramsey advice modified for the FIRE Forum:

1) Don't ever, for any reason, for any length of time, ever take on debt. Debt is for losers.
2) Skip buying all that stuff. It won't really make you happy. Nobody will be impressed by you having expensive stuff. And look at what you have to give up for it... your life. Do you wanna keep workin' for the man like forever - or what ?
3) Save and invest like crazy.
4) When your investments allow, take all of that money you saved and invested all those years and buy your life back. You are free now to do whatever it is you always wanted to do.

 

[Onward]

I do like Dave and what he stands for, but I've seen him give some very, very dangerous advice to prospective retirees: namely, that you can invest in stocks and safely withdraw 7% of your portfolio in retirement. He's using the mean, long-term stock-market return as the safe withdrawal rate, which is a lethal error. Don't know whether he has revised his views/advice since I watched him say this on his show.

 

[Keim]

Like his debt-free and saving advice, don't like his investment advice.

 

[skyvue]

Like his debt-free and saving advice, don't like his investment advice.

Agree!

 

[crispus]

I listen to Dave and agree with much of what he has to say. He knows a lot about real estate. I also do not follow his investment advice or his advice to never use credit cards. We use them for most of our purchases and pay off the balance each month. I just got a rebate check for $350 from our Visa. Dave argument against using CC is that you spend more then you would with cash, but we would spend the same at the grocery store with a debt card as we do with our credit card.

 

[Major Tom]

I'm pretty sure one of his pieces of advice isn't "While getting out of debt, make sure you don't rack up more debt by paying celebrity financial gurus money to learn things you could find out yourself for free with a bit of creative googling."

 

[Katsmeow]

I've read some of Dave's writing and listened to a lot of his shows and read a lot of the stuff on his website.

Much of his advice is good. I agree with a lot of his advice. However, he is rigid in the extreme and sometimes gives advice that is overly simplistic.

1. I disagree with a lot of his investment advice.

2. I have seen him give statements about the law that are not correct. I don't think this was intentional, but it wasn't correct in all respects.

3. He is against any debt other than a 15 year mortgage no matter what. He will sometimes sign on to moving debt around but that is it. I've heard people call him with horrendously dire situations and he is a bit Pollyanna that all things can be resolved without any debt. He often gives good suggestions but sometimes those don't work. Then what?

4. He is against student loans in any and all circumstances. Now, I am not a fan of student loans. I think the person who takes out 6 figures in student loans to enter a low paid profession is very unwise. On the other hand I've seen him be opposed to even modest debt to enter into a highly paid profession. I've heard shows where someone has a window of opportunity to enter a particular program, the student loan needed is relatively small, the profession is well paying...and he still says no loan, work for years to save up and try to get in the program later.

5. He is against using anything other than cash, check or debit card. I do not like debit cards. I don't feel they have the protections of credit cards. I also think it is perfectly fine to use a credit card and pay it in full each month. I have even seen him tell people to refuse to have a company credit card (in the employee's name) even if the card is a requirement of the job. I can understand suggesting options to a credit card but I don't think it is right to expect people to quit their job over the issue (and I don't think he really expects them to but believes he can't deviate from his mantra no matter what).

6. He believes that businesses should not incur debt either. I think that is a nice idea but not realistic for many.

 

[Leonidas]

We've discussed Dave before (and Suze also). They're good for the all the people who never learned the basics of personal finance - like "don't spend more than you make". When I picked my kids up from school I always had the radio tuned to either Dave Ramsey or Clark Howard. We always talked about how the callers had screwed up, and by the time the kids were driving themselves to school they both had a good understanding of all the things to avoid.

Dave and Suze are also good for people who can't make their own decisions and have to get someone to tell them what to do in order to validate what they already know. Seriously, what kind of adult needs to call a radio/tv show to be told, "stop spending yourself in a hole, you idiot!"

Anybody who understands LBYM will find nothing worth listening to at either Dave Ramsey or Suze Orman. Unless you're looking for entertainment at the expense of the not-so-bright, the financially uneducated who find themselves in a bad spot due to someone else's negligence; or, if want to educate/innoculate someone who needs this kind of basic info, it's just a waste of time.

Clark Howard is a different matter. For people looking for new ideas on how to LBYM creatively he comes up with some cool stuff every now and again. More advice to extend the life of disposable razors on clarkhoward.com

 

[myself]

OK, so we know what people think of Suze's advice. What do ya'll think of Dave's. From what I have seen I think it is pretty decent.

What say you ?

Well, I'd have to say that it's good advice overall.
As a matter of fact, I naturally came into his advice for the most part regarding snowballing the debt to get rid of it.

We do have a 15 year mortgage, but only because we didn't want to have a mortgage when I was 60 or older.
I've actually performed the NPV calculation to see if extending the loan to 30 years (and 15 years) at the low rates they offer now, but that would provide me with about $136,000+ extra in retirement. But taking 4%/yr of the interest on that would pay a little less than 1/2 of the mortgage itself. about 3 years after I would turn 60.

I love the fact that from the first payment my mortgage had more money paid toward the principle than it did towards interest (like any 15 year mortgage @ 4.625% or less would).

I however plan to use a combination of earned income and interest kicked of from investments to help pay for the kids college. Maybe not the wisest choice, but a possibility nonetheless.

 

[clifp]

Dave and Suze are also good for people who can't make their own decisions and have to get someone to tell them what to do in order to validate what they already know. Seriously, what kind of adult needs to call a radio/tv show to be told, "stop spending yourself in a hole, you idiot!"

Anybody who understands LBYM will find nothing worth listening to at either Dave Ramsey or Suze Orman. Unless you're looking for entertainment at the expense of the not-so-bright, the financially uneducated who find themselves in a bad spot due to someone else's negligence; or, if want to educate/innoculate someone who needs this kind of basic info, it's just a waste of time.

Clark Howard is a different matter. For people looking for new ideas on how to LBYM creatively he comes up with some cool stuff every now and again. More advice to extend the life of disposable razors on clarkhoward.com

I agree, to me debt is like pot, alcohol, or gambling. For most people they can engage in moderation and it will add to their enjoyment in life. For many others it starts them down a dangerous and life changing addiction. For a select few, who are highly educated about financial products they can take advantage of debt to make more money. (Although as it turns out the elite few, can use debt to dig themselves into a monstrously big hole that sucks them and the whole country along with it.)

Unfortunately for Americans there has been virtually no Public Service Announcement equivalent to this is your brain (egg), this is your brain on dope (fried egg) for debt.

I think Dave and to a lesser extent Suze are performing a valuable service in helping to educate the public, and the fact that many of your kids listen to them is terrific. For this audience their advice is simplistic and not at all helpful, but then we are a minority.

Frankly, I can NOT stand listening to Suze, but Dave I respect and it is is gratified to hear the success stories of the people who have dug themselves out of financial wholes. I think they deserve to be celebrated and shouting "I am debt free" on national TV is kinda of cool.

 

[Leonidas]

For this audience their advice is simplistic and not at all helpful, but then we are a minority.

We are not normal. Been a while since I listened to Ramsey, but I remember one of his lead-ins said something about "...where paid off credit cards and mortgages take over from the BMW as the status symbol of choice."

Frankly, I can stand listening to Suze, but Dave I respect and it is is gratified to hear the success stories of the people who have dug themselves out of financial wholes. I think they deserve to be celebrated and shouting "I am debt free" on national TV is kinda of cool.

I liked that as well. Especially the young couples just starting out, who were burying themselves in credit card debt, digging themselves out in within a couple of years or so just by controlling spending and finding ways to make a few extra bucks here and there.

It's that out-of-control spending that gets so many of them in trouble. I hope that I have inoculated my kids well enough that they understand that while the using of "stuff" can be good and even make you happy at times, the mere owning of "stuff" (and the constant chasing after new stuff) will never make you happy.

 

[clifp]

It's that out-of-control spending that gets so many of them in trouble. I hope that I have inoculated my kids well enough that they understand that while the using of "stuff" can be good and even make you happy at times, the mere owning of "stuff" (and the constant chasing after new stuff) will never make you happy.

I wanted to clarify something I said about debt in moderation making you happier.

What I mean is that it makes sense to borrow money, in many cases for those just starting out. Especially for those things of lasting value or high utility. I believe we as a society would much worse of it we forced everybody to pay for everything for cash.

Taken to its logical extreme (although common in developing countries).
After you graduate from high school, you would need to ride a bus or take a bike to get to a job, that would allow you to save enough money to buy a car. Then with a car you would be able to get a better job. This would enable you save money to attend college. Sometime around 30 you could start college. Then at 35 you would start a new career with higher paying job. Finally after 30 years of working you could buy that new house at age 65 just in time to retire.

As screwed-up and out of control as the credit has become in the US. It is worth remembering that is beneficial for society as whole to allow young people to have early access to cars, and college, and enable 20 something couples to raise a family in their own home. So why Dave and Suze scream about how bad debt, it they ignore the benefits of good debt. That said there is never a good reason to buy a vacation or some gadget on 5 year installment plan at 18%+ interest. The momentary happiness it will bring is not worth the stress of of drowned in debt.

 

[SecondCor521]

I do like Dave and what he stands for, but I've seen him give some very, very dangerous advice to prospective retirees: namely, that you can invest in stocks and safely withdraw 7% of your portfolio in retirement. He's using the mean, long-term stock-market return as the safe withdrawal rate, which is a lethal error. Don't know whether he has revised his views/advice since I watched him say this on his show.

I *think* I heard him mention the 4% rule recently on his radio show, but I can't be certain.

I enjoy listening to Dave on the way home from work when the schedule works out that way.

I've adopted a lot of his principles but I do not follow them completely. One idea I have found very helpful is a principle behind the baby steps: focus on one thing at a time. I've extended it in my case to 19 baby steps, but it helps me to focus on the next baby step in my list (in my case baby step 14: pay for my daughter's college).

I can't quite bring myself at this point to pay off all my debt in lieu of investing. I understand why he says it, but right now I am willing to make the risk/reward trade off that I think is there, for several reasons:

• I am very conservative in my debt: I have a 15 year mortgage fixed at 4.625% and the payment is less than 18% of my gross salary. I have $13K left on a student loan at 3.5% fixed stretched out on a payment plan such that the payment is $80 per month. I have no debt of any other kind.
• I have at least a 6 month emergency fund in place.
• Knock on wood, but I am healthy, educated, experienced, capable, trustworthy person with a decent work ethic working for a solid company in a growing business in an economy that I think is coming out of a recession.
• I have years of savings in my retirement funds that I could tap in a dire emergency.
• I am quite capable of living on very little.
• I have family who would help me out if I got desperate.

2Cor521

 

[Bimmerbill]

I used to listen to his shows, but its very repetitive now.

I kind of followed his advice to pay off my debts (except the house) and it works. I do use credit cards and have a 30 yr mortgage.

Last I knew he still was saying stocks return 12% a year, so his investment advice is a bit out of whack for some.

 

[ronocnikral]

i enjoy dave. i download his podcast daily and listen to it while i am cooking (after i've exhausted my hour of "this american life"). i find it entertaining. i find it interesting to hear all the situations people get themselves into. and i've learned a little about credit and collections, although that is nothing i have to worry about.

as far as investing advice, all i have heard him say is to find a reputable growth stock mutual fund. that's as far as he goes. that, and when buying a house, figure out how much you can afford per month, then calculate the mortgage based on a 15 year fixed...seems like pretty solid advice to me.

if nothing else, DW and i listen to him together while i am cooking...that usually leads us into a conversation (usually started by her) once a week about how we don't want to live.

 

[ronocnikral]

I also do not follow his investment advice or his advice to never use credit cards. We use them for most of our purchases and pay off the balance each month. I just got a rebate check for $350 from our Visa. Dave argument against using CC is that you spend more then you would with cash, but we would spend the same at the grocery store with a debt card as we do with our credit card.

I used to think this was true. Unfortunately, I'm starting to rethink it.

For small purchases, we are able to keep in line and fend off wanting. That's no big deal to us. The other day, however, DW wanted to buy a bed spur of the moment. Without moving money around in my accounts, the only way I could pay for the bed was with a credit card. That would have given me the chance to say we need to think about it and take a couple of days to transfer the money (over $4k). We most likely would never have bought the bed.

yeah, we get a $500 rebate check every year, but i would more than likely be $4k richer if we didn't use credit cards...

although, DW says she is sleeping better....

 

[lets-retire]

I have listened a few times. He seems to be great for beginners, but once you have the basics he kind of falls apart. Keeping with the basics won't hurt you, but using some of the more anti-Dave tools can get you further along. Things like taking "short term loans" on credit cards, so your money can sit in an interest bearing account is free money. Basically using a credit card for purchases then paying it off every month. Or as some have done on here, take a no interest advance from a credit card to invest in something safe and pay it back before the interest is due.

 

[kombat]

I enjoy listening to his podcast, if only for the schadenfreude value. I like his debt advice, but as others have stated, his investment advice is terrible, even downright disasterous for anyone who follows it.

Yes, he is still trumpeting the "wisdom" that the stock market has returned 12% per year for as long as there have been stocks, so it's perfectly safe to take out 10% per year and leave 2% in there to keep up with inflation. I guess in Dave's world, there are no such thing as fees, loads, or MER's on mutual funds. I'd really like to know where he's investing to get that kind of return, consistently. Also, this suggests that retirees, who are totally dependent on their investment income, should remain 100% in stocks, with no fixed-income component to their portfolio at all. Utterly reckless advice.

I've heard him give this advice to widows, calling to ask if they can survive off their husband's life insurance payout. It sends a chill up my spine, thinking about the poor, trusting, 60-year old widow who thinks $400,000 is going to last her forever, taking out $40,000/year and expecting to leave a half-million dollar estate to her heirs. This was an actual phone call Dave took on the radio, and that was the advice he gave her!

Also, his sole investment advice is to only invest in "good, growth stock mutual funds, with at least a 10 year track record," which reinforces the myth that past performance has any bearing at all on future returns.

Finally, as others have pointed out, he never concedes that any debt is acceptable, except for a mortgage (as long as it's a 15-year fixed, where the payments are no more than a third of your take-home income). As others have pointed out, in cases where it would make sense, like student loans or to buy a profitable business, Dave still refuses to condone any debt. He instead advises the caller to "cashflow" their education, or to build up the business slowly, without debt.

I can kind of understand why Dave sticks to such a rigid stance. If he were to waver from his staunch anti-debt stance, even just a little, it would open the floodgates to having to acknowledge that it's not always black-and-white, and that each situation actually should be evaluated on its own subjective merits. Then, he'd just be another finance guy on the radio. Dave is famous for being the Anti-Debt Guy(TM). He has to stand his ground - it's his schtick. I'm sure if you cornered him, and he was confident he wasn't being recorded, he's rational enough to admit that in some cases, a little debt is justifiable. But he'll never admit that on the radio. His reputation (and fame) depends on it.

 

[Walt34]

Finally, as others have pointed out, he never concedes that any debt is acceptable, except for a mortgage (as long as it's a 15-year fixed, where the payments are no more than a third of your take-home income). As others have pointed out, in cases where it would make sense, like student loans or to buy a profitable business, Dave still refuses to condone any debt.

That's basically the issue that I have with him and Suzie.

One size does not fit all. Individual circumstances and prospects vary. I do agree on the cc debt - that's just stupid in all but the most dire circumstances.

But I think it's fine for a young person to take out a loan for a reliable car that can be paid off in three years, provided the car will last longer than the loan. I believe that more often than not that's the only way many people can get and keep a job. Even assuming public transportation is available, time spent waiting at bus and subway stations has a value too.

And I took out a 30-year loan for a house, but did so knowing that I was scheduled for pay increases in the future and my job security was about as guaranteed as anyone could hope for. As it turned out the house was paid off in 14 years, slightly ahead of schedule. Did I come out ahead financially by buying instead of renting a hovel? Probably not, but the improved quality of life has a value that everyone has to put their own price on.

The key issue is understanding that in taking on a loan for anything one's future options and opportunities will be restricted by the amount of that loan and the interest on it. Apparently too many people don't think about that part.

 

[Andre1969]

I'm sure Dave Ramsey would have a fit about my current situation. I don't have a regular mortgage, but rather an HELOC. Outstanding balance is about $160,000. Interest rate is only 3.5% for the time being, but I know it'll go up...eventually. I only have to pay off the interest each month, but had been rounding up, to an even $500. Of course, that way, it'll never get paid off.

Well, I recently upped my payment to $600 per month, but when I ran the spreadsheet, the results were pretty scary. At $600/mo, it'll get paid off in about 55 years, and that's presuming the interest rate stays at 3.5%!

So, yeah, I think it's time to start ramping that up a bit. To pay it down in 30 years I have to bump up to around $715 per month, and 15 years would be $1143. Again, presuming it stays at 3.5%, which it can't, forever.

I could afford to pay it off, but I figure why? My investments are doing better than that, so why mess with it?

I also try to put as much as I can on the credit cards, but then pay it off in full every month. I used to just use one card that gave me 1% cash back on everything, but now I'm splitting it between a card that gets me 4% back on gasoline purchases, and another card that gets me 2% on everything, but it has to be used to fund a Fidelity account.

 

[calmloki]

Long ago, about the time we entered the computer age with a 386 processor, we came upon a free program called Zilch. Debt has always been anathema to me and paying down the highest interest debt first just makes sense, but Zilch's graphic depiction of paying either the highest interest or lowest balance debt off and rolling that freed up monthly payment into the next debt was an eye opener for my gal. She became an even more enthusiastic participant and we ended up with a number of free and clear properties. Not so good when looking at return on investment, better as house of cards property investor's empires crumbled around us.

Zilch Standard - Debt Reduction Review and Download,Loan & Mortgage,Business & Finance Software

Clark Howard is fun to watch - and, as Leo mentions, he gave the long-lived razor advice - I incorrectly attributed that to Dave Ramsey in a different thread.

 

[FUEGO]

Man, this thread is making me want to stop paying extra and start investing those extra mortgage payments in the market... You guys think I should pay off the mortgage or pay the minimum and invest the rest in the market?

 

[ziggy29]

Chiming late here. In terms of avoiding debt, building an emergency fund and living below your means (including a refreshingly conservative definition of what it means to be able to "afford" something), he is terrific in that regard. I personally don't agree with the idea that one should *always* avoid debt (except for a mortgage) is necessarily always optimal or that debit cards are better than credit cards for those who have the ability to pay it off at the end of the month, but it's a minor nit.

Where Dave falls on his face is on the investment side. Not only does he seem to advocate *all* of one's investments above and beyond the emergency fund to be all in stock mutual funds (nice for someone a couple years from retiring in 2007), but he also touts 12% as a reasonable expectation for stock funds. When he talks about building wealth beyond the emergency fund you never hear him talk about "asset allocation" or "bond funds" or "time horizon" or "risk tolerance" -- all critical factors in determining where to put your investment capital.

So he's one of the best at coaching people to improve their cash flow to start building wealth. But once you build the cash flow to start investing, look somewhere else for advice.

 

[Leonidas]

I personally don't agree with the idea that one should *always* avoid debt (except for a mortgage) is necessarily always optimal or that debit cards are better than credit cards for those who have the ability to pay it off at the end of the month, but it's a minor nit.

Yeah, but for the average person that needs Dave Ramsey's advice - staying away from credit in any form is a darn good idea. Most of them are in way over their heads on cc debt, student loans and mortgages on too much house. Too many of them have not learned their lesson, and if you paid their debt off they would be back in over their heads before you knew it. Telling these people it's okay to take on some debt is like telling the fat ballerina it's okay to have just one cupcake.