It seems I write a post about Dave Ramsey every couple of years. They're popular posts, both for regular readers and for people later finding the site on the internet. Dave and his teachings can be a bit of a lightning rod, where people either become unabashed disciples or spew venom upon hearing the mere mention of his name. Despite Dave blocking me on Twitter (for criticizing his PSLF related advice I think), I like his show and for the most part his advice. I even make my kids listen to it. Plus, he is a very talented radio host I can't help but admire for his entrepreneurial success. The dude can market like a boss.
At any rate, let's take a quick look at what he gets both right and wrong.
14 Things Dave Ramsey Gets Right
# 1 Personal Finance is Mostly About Behavior
One of Dave's biggest contributions to the personal finance space is his relentless focus on behavior. He is absolutely right that getting into debt is caused by bad behavior and so getting out of debt cannot be accomplished until the behavior changes. Behavior also makes a significant contribution to investing. It turns out the investor matters a lot more than the investment. The math matters too, but only once you get the behavior right.
# 2 When Debt Is the Problem, Paying Off Debt Is the Solution
Dave's 7 Baby Steps put a heavy focus on paying off all of your debt except a reasonable mortgage. In fact, the only thing he wants you to do before beginning the debt pay-off is to save up a $1,000 “baby emergency fund”. He doesn't even care if you don't get a match and miss out on all the tax deductions available in retirement accounts. For someone with a serious debt problem, like many of his callers, readers, and show attendees, that is exactly the right approach. Their financial problem is debt, and when debt is the problem, paying it off is the solution.
# 3 Focus Matters
Dave not only focuses on debt, but he focuses on one debt (the smallest debt) at a time. The power of focus is very real. If you try to spread yourself out over multiple financial goals, especially in the beginning of your financial journey when your personal finance “muscles” are weak, you are likely to not accomplish any of them.
# 4 Momentum Matters
Likewise, momentum matters. Dave recommends a “snowball” approach to paying off debt. So instead of paying off the highest interest rate debt first, you pay off the smallest debt. This allows you to feel early success and that you have momentum and have accomplished something. Mathematically, that's not the correct thing to do. But math didn't get you into debt and it is unlikely to get you out. If math ruled your world, you wouldn't be in debt in the first place. The snowball works because behavior matters more than math in personal finance.
# 5 Most People Would Benefit from Financial Advice
Lots of do-it-yourselfers just can't figure out why anyone would need financial advice. After you interact with many of your peers, you will understand. There is a huge percentage of the population, even otherwise intelligent and hardworking people, who should not, can not, and will not function as their own financial planner or asset manager. The best thing that can be done for them is to get them to someone who offers good advice at a fair price. So I don't object to Dave sending people who need help investing to a recommended and vetted financial advisor. I have a serious issue with his vetting process, which I'll get to later, but not with the fact that he is sending people to financial advisors.
# 6 Enabling Others Is Not Helping
Some of Dave's best calls are those where there is an interaction between family members. He is quite talented at helping them to see the root problem behind the financial issue. He is excellent at pointing out and discouraging enabling behavior. An important lesson to learn is that while enabling someone feels like you are helping them, you really aren't. This is an important lesson for doctors, who spent their life trying to help people to learn. I'm not talking about paying your 93-year-old grandma's rent. I'm talking about funding your brother-in-law's fourth doomed start-up. I'm talking about the economic outpatient care for your children. I'm talking about letting your non-disabled sister live in your house while you go to work to buy her food for years on end.
# 7 You Can Probably Spend More Than 4%
Dave isn't afraid to recommend absurdly high withdrawal rates from your investments. But his overall message—that you can probably spend more than the 2-4% that hyper-conservative people recommend as a safe withdrawal rate, especially with a very aggressive portfolio like Dave recommends—is correct. In the past, on average after 30 years if you follow a “standard” 4% withdrawal rate with increases each year with inflation, you will have 2.9 times what you retired with. What that means is that if you don't hit some terrible market conditions in your first years of retirement, you can spend MORE than 4% without running out of money. Even Dave's 8% rate when combined with a 100% stock portfolio and a 30-year period works 44% of the time.
# 8 People Need to Take Significant Risk with Their Investments
Dave's recommended portfolio looks like this:
- 25% Growth and Income Funds (Large Cap Stock Funds)
- 25% Growth Funds (Mid Cap Stock Funds)
- 25% Aggressive Growth Funds (Small Cap Stock Funds)
- 25% International Funds
- +/- Some paid off income properties
With no bonds, cash, CDs, or whole life insurance, that's a pretty aggressive portfolio with a sizeable small tilt. Obviously, it can always be more aggressive, but what Dave gets right is that people need to take some significant risk in their portfolios. Without a ridiculously high savings rate and a long career, we simply cannot save our way to a comfy retirement.
# 9 Celebrate the Milestones
Since personal finance is 90% personal (i.e. behavior) and 10% finance (i.e. math), it is important you do all you can to reinforce the behavioral aspects. As Jonathan Clements has said, “If financial education was all that was needed to improve behavior, we’d be a nation of avid savers, hardcore indexers and early retirees.” Celebrating the milestones, especially if the celebration is planned ahead, paid for ahead, and anticipated, will make it easier to reach your larger goals. This is something I wish we had done more as we progressed toward financial independence. The first $10K, the first $100K, and the first million are the hardest. Celebrate your first $10K in your portfolio. Celebrate each $100K in student loans you pay off. Celebrate getting back to a net worth of zero. Celebrate every net worth milestone. Celebrate your financial independence. Thanks to the success WCI, LLC has seen financially, we blew past a bunch of milestones without even noticing or recognizing them. It made me wish we'd celebrated the earlier ones (that we really had to work hard and sacrifice for) better.
# 10 People Spend More When Using Credit Cards
The studies are very clear that when you use a credit card to spend you spend more. Cash hurts the most, then debit cards and checks, and finally credit cards, especially if they are not paid off each month. If you don't have a 20%+ savings rate, or if you've ever carried a balance on a credit card, credit cards aren't for you.
# 11 Anyone Can Pay for College Without Debt
Dave is also a big fan of working your way through undergraduate. Having worked my way through undergraduate, I agree. There are four pillars of paying for your child's undergraduate education, and none of the pillars has “Debt” written on it.
- School Selection
- Child's Contribution (Scholarships, summer work, in-school work)
- Savings (529 etc.)
- Cash Flow
If the child's contribution, previously saved money, and the parent's cash flow is not enough to pay for the school, choose a less expensive school. They are out there. Value and your financial status simply have to be considered when choosing a school. In fact, there are schools so inexpensive that they can be cash flowed by the student herself. Better to have more than one pillar under your house, but it can be done.
# 12 No Sense in Carrying Debt and a Big Emergency Fund
Dave's Baby Steps, as noted above, instruct you to only carry a $1,000 emergency fund while you are paying off all of your debts but your mortgage. I'm amazed how many people owe $100K or more in student loans charging 7% interest while leaving $30K sitting in a savings account earning 0.1%. That's not a winning formula. One purpose of an emergency fund is to keep you out of debt. If you're already in debt, YOU ALREADY HAD THE EMERGENCY. Take that cash and pay down the debt. Does that make you feel uncomfortable? Good. You should be uncomfortable. But not because you no longer have $30K in the bank. Because you owe $70K at 7%!
# 13 Fixed His PSLF Advice
At one point, Dave didn't seem to understand the Public Service Loan Forgiveness (PSLF) program. Several times I heard him recommend to someone to leave the PSLF program even though the person could not possibly pay off the debt prior to the time they would receive forgiveness. I even sent him an unanswered letter about it. I don't know if he read it, but he eventually started giving the correct advice, which is to enroll in PSLF and comply with it, but save up the “regular payments” in an investment account on the side in case the program or your career plans change.
# 14 Debt Doesn't Make Rich People Rich
Dave is very adamant that wealthy people didn't get that way by borrowing their way to wealth. He correctly points out that the way to get out of debt is to pay off debt, not play with it by refinancing or moving it from one card to another. He even has millionaire theme hours where he trots out “Millionaire Next Door” types and asks them how much of an effect borrowing had on their wealth accumulation. They almost always say there was no or little effect. It isn't that Dave or these rich folks don't understand that borrowing at 1% and earning at 8% is a mathematically winning strategy. It's that they got the behavior right.
Those who are likely to save enough to build wealth are also likely to pay off their debt to build wealth. The problem is that most of us simply don't invest the difference. We spend it. On stuff like wakeboats and heli-skiing. Sure, paying off my mortgage only gives me a return about the same as inflation. But that's still a better financial return than I got on all that helicopter gas and better than what my Ally Bank savings account is paying me. Medical and dental students in particular are almost all entirely too comfortable with debt. Borrowing all that monopoly money in school makes us numb to it, and the numbness lasts a lot longer than bupivacaine. If you're not careful, it can last your entire career and keep you from ever building wealth.
8 Things Dave Ramsey Gets Wrong
#1 You Won't Get 12% Returns
# 2 You Can't Spend 8% a Year
I'm a big fan of adjusting as you go as far as your retirement withdrawal rate. But Ramsey's 8% number is probably way too far on the high side, especially if it is the figure you start with and especially if you are not very aggressive with your portfolio in retirement. Historically, 8% only lasts 15 years 71% of the time with a 50/50 portfolio. It only lasts 30 years 9% of the time. I'm fairly comfortable with many types of risk, but I wouldn't be with that one.
# 3 Picking Actively Managed Mutual Funds Is a Losing Strategy
Dave is a big advocate of actively managed mutual funds. He is so adamant about this it is embarrassing. The data in favor of an index approach is overwhelming. The best actively managed funds are the ones that are most index-like (low costs, low turnover, stable strategy). Why not just buy the real thing?
# 4 Past Performance Does Not Predict Future Performance
The worst part about Dave's advocacy for actively managed mutual funds is that he doesn't tell you how to pick a good actively managed fund. He just tells you to look for the one with the best past performance. There is a reason that the prospectus is required by law to tell you that “Past Performance Does Not Predict Future Performance”. That's because it is true.
# 5 A Commissioned Salesman Is Not a Real Financial Advisor
A cynic would argue that points 3, 4, and 5 are all connected. Dave recommends you invest with a “Smartvestor Pro”. These are reportedly vetted financial advisors with “the heart of a teacher”. The problem is that even someone with “the heart of a teacher” cannot overcome the poor incentive structure they all face. They only get paid (and can thus feed their own children) if you buy an investment with a commission. The worst investments pay the highest commissions. Therefore their incentive is to sell you the worst investments and have you trade them as often as possible. That's not the incentive structure you want for your financial advisor.
If you're going to use an advisor, you want a fee-only advisor. Now don't get me wrong. There are some conflicts of interest there too. For example, an advisor paid an Asset Under Management (AUM) fee is incentivized to recommend against paying off your student loans, paying off your mortgage, or buying the rental house down the street. An hourly rate financial advisor is incentivized to work slowly and bring you back often. A flat-fee (annual retainer) advisor is incentivized to do as little for you as possible and put you into a “cookie-cutter” portfolio. But those mal incentives pale in comparison to that which a commissioned salesman masquerading as an advisor faces. To make matters worse, in my experience someone paid on a commission basis has a far greater ratio of sales knowledge to financial knowledge than a fee-only advisor. Less real experience. Less real education. It's just a bad idea to hire a “financial advisor” paid on commission.
Why does Dave send people there? A few reasons probably.
Second, his typical listener is investing a four or five-figure amount (or less). That person can't afford a flat annual retainer. Nobody charging a straight AUM fee is going to take him as a client for decades. There aren't enough hourly advisors out there to service all those who need advice, and even those guys charge $100-500 an hour, which is dramatically more than you might pay in loads even on a $10K investment. The reason roboadvisors have done so well is simply that financial advice is expensive stuff and lots of people simply choose not to pay for it, for better or for worse. Maybe a lot of those people will be better off with a commissioned salesman with the heart of a teacher than nobody. At least they'll be investing. But I wish he'd at least point out the issues.
# 6 You Can't Pay for Medical School Without Debt
Dave's advice for undergrads is reasonable. However, he never seems to distinguish between an undergraduate education and a professional education. Nobody is going to work their way through medical or dental school or law school. It's not going to happen. If you're lucky, your parents can help out. If you're not, then it's loans for you. For most physicians, some dentists, and attorneys who can get a good job afterward, it's still a good investment even when paid for with borrowed money at 6-8%, as long as you get that debt paid off within just a few years afterward. I'd like to see some more subtlety in Dave's discussions with these folks.
# 7 You Don't Need a Big Emergency Fund Before Investing
Dave's Baby Step 3 is way too rigid. He advocates you save up an entire 3 months of expenses before investing anything. The problem with that is it requires you to leave some money on the table. That might be the match from your employer. It might be the tax-deduction from contributing to your 401(k). It might be tax-free space in a Roth IRA that you can never get back. I think it is probably okay to make some compromises in this department. I think having a 3-month emergency fund is a good idea. But there's no reason it can't sit in a conservative investment in a Roth IRA, from which it can be withdrawn tax and penalty-free at any time. If a $1,000 emergency fund was good enough to pay off a 3% debt, it surely ought to be good enough to get your match. I understand the benefits of keeping the baby steps simple, but I think they're a little too rigid. Maybe it's just a behavior vs math thing and I'll change my mind in a few years, but I think it's at least worth pointing out the issues.
# 8 All Debt Does Not Have to Be Eliminated Before Investing
While we're on the subject of rigid baby steps, I disagree that you have to get rid of all non-mortgage debt before investing. As Dr. Cory S. Fawcett has said regarding paying debt versus investing:
It depends on how the debt compares to the present and the future. If you are drowning in debt and struggling each month to get by, then the first step must be to restore a reasonable balance…If, on the other hand, debt is not overwhelming your finances, then you can take a more balanced approach. You may be able to pay down debt ahead of schedule and at the same time make this year's maximum retirement plan contribution. Most doctors are in a position to do both, if their lifestyle spending (present) is also in balance.
I agree.
There you go. Dave Ramsey's show is great, and he gets most stuff right. If you follow his advice, you'll do well. Tweak it just a little, however, and you'll do even better.
What do you think? What parts of Dave Ramsey's philosophy and advice do you agree or disagree with? Comment below!
Very nice article, but the click bait headline seems inappropriate for the integrity WCI usually demonstrates. Disappointing.
All my headlines are supposed to be clickbait. Let me know if you see one that isn’t and I’ll try to change it to something more clickbaity.
I lol’d a little bit at this response.
It doesn’t matter how good your writing is if no one ever clicks on it. Growing the number of eyeballs on the site helps all three of our missions.
People in [insert your town here] are SHOCKED by What this Emergency Doctor is Saying About Dave Ramsey!!!
That’s a good one. Would work well on Twitter.
…you wont believe #3!
This is about as ugly of a click bait as you can get. When I see a title like this I know to just move along.
Thank goodness WCI doesn’t use slides for these kind of posts. I would surely send my eyeballs somewhere else if it required clicking on “next slide” 15 times to get through this article.
This was a great list. I meet Ramsey followers all the time and feel like I must elaborate a little bit about his investing strategy and that there is a better way such as Vanguards 30 basis points financial advisor or simply putting it in a Vanguard target date fund.
my above comment is for the proposed title:
“People in [insert your town here] are SHOCKED by What this Emergency Doctor is Saying About Dave Ramsey!!!”
The actual title of this article is appropriately descriptive of what I would find inside.
I hate slides, popups and multiple pages used to generate more click throughs.
Great article!
The title was fine for me, but the ads on this one were bigger than ever. Did you switch it up again as there was one that went all across the page, in addition to the 3 smaller side ones and the 4 across the bottom of the article. The side ones don’t bug and the 4 on the bottom are fine on a desktop (they are a pain on mobile where you have to scroll past them as they line up vertical), but the huge one I couldn’t initially tell if the post was cut short or what was going on.
I agree….The new giant ads in the middle of the post are obtrusive over the past 1-2 weeks. I don’t like them either. Not sure if this is a change you made on purpose or if this is more to this change.
Thanks for the feedback.
Not my switch. This one was from the ad-serving software, who just got themselves booted off the site for that little stunt.
Thanks for the feedback.
Is it even possible to find a financial blog with no ads, no banners, no pop-ups, no email sign-up forms and no conflicts of interest?
Sure, but it takes a special person to do it long enough to build a real audience without making any money doing it. I’m not a good enough person, that’s for sure.
I can’t imagine there are very few successful blogs that have no ads. Even Mr. Money Mustache has ads. And why would you stop? WCI made $650K on ads/affiliate agreements alone last year, and $200K on speaking/writing fees and book royalties. What do you consider the threshold for becoming a “special person”?
Anyone willing to put in as much time as I have put into this in the last 7 years and NOT trying to make a buck doing it qualifies as special in my book.
So are you biased with your views and what you recommend iethe advisors on your site? They are paying you a fee to advertise and as such one would guess if the above numbers are correct $650K plus $200K is more than you make as a physician?
Absolutely I’m biased and absolutely $850K is more than I make as a physician. Any other questions?
My bias is to recommend advisors who buy advertising from me. But bear in mind I wouldn’t sell advertising to anyone on Dave’s recommended list because they’re all commissioned salesmen masquerading as real financial advisors. You can also read the application/vetting process for each advisor listed on the site. Or you can do what I do and just do it yourself. The site teaches you how to do that as well.
Just do what yourself? The site teaches you how to do what? Sorry for the confusion.
No one is asking for an ad free site. I just don’t want to have to scroll through a huge add in the middle to see the content. (Or if we had to click on 22 different pages to see the 22 things.) When the content becomes secondary to the ads it would be an issue, but WCI is far from that.
Credit life is always bad according to Dave. It can be a tool when purchasing a house or car when an individual can not quality for other insurance.
It’s lousy insurance, but when it’s all you can have to cover a legitimate need…
I was hesitant to drink the proverbial Ramsey koolaid, but having walked the walk the last 4 years and paid off 730k in student loans, and another 400k in other debt I can say debt is definitely a tool…for the lender.
Congrats on your success! You should consider coming on the Milestones to Millionaire podcast and sharing your story:
https://www.whitecoatinvestor.com/milestones
I agree, Ramsey is cancer, I can’t believe WCI is legitimizing him.
Cancer? Really? Dramatic much? Give me a break. Take what you find useful, leave the rest.
Re #10 – credit cards – I’d modify that to say “if you don’t have a 20% savings rate during your accumulation phase, credit cards aren’t for you”.
I’m currently semi-retired (age 69, still working half time at a job that I enjoy). Earlier in my career, I did save 40-50% of earnings while using credit cards heavily. I’ve now been FI for several years, and feel my credit card use is responsible (and reaping significant rewards) even though I’m no longer saving 20% of earnings.
Similarly, in full retirement, I would say credit cards are OK so long as your total expenses don’t exceed 4% of assets (or whatever number you’ve decided is appropriate for you).
Agree with you UAPhil. I am 60 and a 3 day/weeker now. If you had problems with credit cards you would not be working part time. I like to use credit cards to expense track and to not carry cash. Before you start doing this you have to have some self discipline.
My negative net worth and lack of 20% of gross income retirement savings does not deter me from the use of credit cards. Most provide some sort of incentive (cashback or percentage off of certain purchases) that really help out. Our credit cards (we only have two) have no annual fees and usually provide between 1-5% of cashback based on what you are purchasing. We try paying everything will credit cards in order to cash in on the incentives.
That being said, at our house if we don’t have the cash in the bank to purchase the items that we want to charge to our credit card, then those items are not purchased. We have never had a credit card balance. Ever. If you have the discipline and appropriate financial behaviors, credit cards are a good ally.
What he’s saying is that you subconsciously spend more when using credit cards, even if you have cash in the bank and always pay them off. So if you’re not saving “enough”, one way to boost your savings rate is to not use credit cards.
Pretending you don’t spend more using a card is like saying drug reps/advertisements don’t affect your prescribing habits. While everyone thinks they’re not affected, the data shows the drug companies are getting their money’s worth out of those reps.
While that may be true for a large group of individuals on balance, you are misinterpreting the data if you think it applies to every individual equally. It is perfectly possible for someone to spend the same with a credit card as they would with cash even if most people on average don’t.
Or if you talk to a drug rep, I’m sure they will all tell you stories of one doctor that they’ve got on their list that doesn’t change their prescribing habits no matter what the rep does.
I do agree that many people delude themselves into believing that they are the “special ones” that don’t spend differently. However, just because the delusion is prevalent, doesn’t mean those people don’t exist at all.
You’re right. I probably wouldn’t have purchased TWO boxes of cereal if I had to pay actual cash.
But then I’d have to buy more soap to combat the germs.
Great write-up!
My biggest beef with his advice is the actively managed point. Suggesting that everyone buy funds that tend to have fees averaging north of 1.5%/year is just crazy. There are way too many great ETF options out there. I can’t help but think he makes this recommendation because his “endorsed local provider” network of brokers contribute to a lot of his income in advertising fees. Maybe that isn’t the case, but it’s so off-track that I can’t help but wonder.
He doesn’t just get advertising fees from his endorsed local providers, he gets a kick back from them when people use them. My wife is a realtor and looked into becoming an endorsed local provider and Ramsey wanted a big referral fee for anyone sent her way. I think it was around 35%! I believe there is a similar process with his financial adviser people as well.
Referral kickbacks heavily influence the advice of those that receive them. 20+ years in the investment business has taught me that. A big reason behind his investment advise is the fat checks that come in from referrals. Anyone that doesn’t agree with that is a fool. Go ahead and pay outrageous fees for investment management. More often than not, you are just pulling money out of your pocket and handing it over to a financial institution and their sales force for no value added or worse negative value via lower after-cost returns.
This might be a stupid question, but referring to point #8 (under things DR gets right) does anyone know what the large/mid/small-cap allocation is in a “total stock market ETF?”
It’s considered a large blend. http://portfolios.morningstar.com/fund/summary?t=VTSMX®ion=usa&culture=en-US
Yes, it’s approximately 73/18/9, large/mid/small.
You can double check it but I think the break down is:
72% Large Cap, 18% Mid Cap, 9% Small Cap
CJ
I am puzzled as to why WCI would analyze Dave Ramsey’s show at all, other than to say his core advice is fundamentally flawed for the WCI target audience. It is, right? See “8 things Dave gets wrong.” The trouble with pointing out, correctly or not, that Dave makes some valid arguments is that it forces the reader to then put effort into figuring out where to draw the line if weighing Ramsey’s advice. Time is too precious. The message here should really be: there are many financial blogs that lead an investor down poor paths and Dave Ramsey has one; stay away from him and focus on ones that get the fundamentals right such as WCI or Bogleheads.
If there is anyone, including me, that you 100% agree with on every point, I’d be surprised.
I say, take the good and leave the bad, where ever it might be found.
I actually think Dave gets some pretty fundamental stuff right…
E.g., one thing that I’d say Dave promotes and which I don’t see above is “protect your marriage.”
Also, very much agree here with WCI that the behavior stuff really matters. The fundamental issue for high income earners often is that their savings rate is way too low.
Divorce in my opinion is one of the largest destroyers of wealth I can think of.
1) You only live once mentality (YOLO)
2) Taxes
3) High investing fees
4) Divorce
#4 can be anywhere on the list depending on how much wealth you accumulate. It can also be easily mitigated with a prenup/post-nup, but that is a very controversial discussion that always leads to nowhere on every finance forum or blog I have seen it discussed.
Despite the celebrity divorce headlines, most people separate without money changing hands. It’s just filing a consensual agreement with the court. I’m leaving out the legitimate issue of child support since it’s not a wealth destroyer.
Completely agree. Being married to a person with similar financial goals is critical for growing your net worth. Different financial goals leads to a lot of problems both financially and personally with your spouse. Divorce is obviously a crushing blow to your net worth, and unlike a market crash, you won’t generally get a recovery of that lost wealth.
If that’s your opinion (i.e, with respect to divorce), then I think the proper attitude is to never get married in the first place. The weird thing is that I hear this all the time: Don’t get divorced. There seems to always be this implicit assumption that one has to get married. But why? If you don’t get married, you can’t get divorced.
All you have to do is not get married and then you largely (but perhaps not completely) shield yourself from one of the most devastating things you can do to your finances.
Although I give this advice often, I think most people laugh it off. But I’m mostly serious about it. I think it’s perfectly possible to have a great relationship without actually getting married. I normally hear about all the supposed non-financial benefits of marriage and then we end up having a conversation that has nothing to do with personal finance.
Of course, it doesn’t help that I’m married myself. I guess if I had someone like current me advising past me, there is a good chance I wouldn’t have. But I had pretty much the opposite of that. Just had our 15th anniversary and things are going great. So, in my case, at least so far, it doesn’t look like it mattered. Doesn’t mean it isn’t good general advice.
Marriage generally increases net worth as compared to staying single. But single beats divorced.
Perhaps, but I suppose it depends on exactly what you are comparing married to and if you follow them long enough (i.e., so the effects of divorces will be realized).
But in any case, the detriment of divorce likely outweighs the benefit to net worth of marriage. So if the risk of divorce is sufficiently high (as it is in the US), then the financial benefits of marriage won’t outweigh it.
Of course, there are reasons why one’s specific risk of divorce may be lower than average, but I don’t think that anyone can come up with a number low enough to justify it (on financial grounds alone). Even if there are some financial benefits to marriage, for most on here I think the priority is to eliminate major downside risk. Whether you have an extra million at retirement is not as important as avoiding the financial devastation of divorce.
Not sure there’s enough high-quality data for anyone to win an argument on this point.
Especially on something that shouldn’t be done primarily for financial reasons in the first place.
Actually if we were arguing for financial reasons alone, I’m pretty sure the data is there. Obviously we’re talking from the higher income earner’s perspective. From the lower income earner’s perspective, the whole calculation is reversed.
From the higher income earner’s perspective, it makes no financial sense.
So the only reasons to do it can be non-financial. As to whether those reasons should trump the financial ones is a different argument. That’s the one that I’ve found difficult to win no matter how good the argument is.
It’s pretty easy for two people to live and act as they were if they are married without the papers saying they are legally married (or even meeting the requirements for common law marriage). In such a case, there are probably some benefits to marriage, but they are minimal and highly unlikely to outweigh the downside of divorce. However, I realize that this is largely unpersuasive to many.
I agree from a cold hard facts the risks, even as low as they are for professionals relatively, are way too high and would strongly say no.
Yes it is, its a great move for the lower paid person if they exist.
The only issue with a long term relationship without marriage is that I am guessing you would still end up paying and find yourself common law married or the other party favorably viewed as such in court.
I don’t think you’re right about the last part. As long as you are deliberately entering a long-term, not-married relationship for this specific reason, then it’s not too hard to make sure you don’t end up accidentally common law married. Not too many states even allow for that possibility.
I’m getting most of my info secondhand and I’m not a lawyer, so it’s possible I could be mistaken though.
The marriage rate is plummeting all around the globe. It’s actually much higher in the USA than the rest of the developed world, but dropping steadily.
I would argue that education and empowerment of women is a primary factor.
Are you saying educated and empowered women are more likely to undercut their lifetime wealth building potential by not getting married?
It is incorrect to suggest Dave has changed his mind regarding the PSLF – just yesterday I received a response from his team that stated “Dave does not believe in Student Loan Forgiveness,” but he would be happy to help me find a way to pay off my debt. They also sent me links to Dave’s radio show response where he told people not to babies about their student loans and not to force “the people” to pay for your loans, as well as calling it a socialist program. People should know that it is not just physicians that incur a significant amount of debt via graduate school. I also had not debt for my undergraduate, however, did gain a significant amount of debt to complete a Masters degree and become an Licensed Clinical Social Worker, to be paid approx 65000 a year after 13 years of work at a nonprofit. He is downright snarky and misguided regarding this program.
All I can tell you is what I heard him on a particular show. I assure you I paid very close attention to it. I think that was before the news that only 1% of PSLF applicants received forgiveness, so maybe that influenced him.
But either way, the right advice is you go for PSLF is to save up a side fund. Then if something happens, you’re covered either way.
https://www.whitecoatinvestor.com/pslf-side-fund/
As a fan of both WCI and Dave Ramsey, I really enjoyed this article. Thanks for sharing.
I really did love Dave Ramsey’s Snowball Method and the envelope system. But other than that, I do disagree with most of his advice. My issue is that he recommends a lot of services that actually are there to take your moolah instead of helping you.
#10. People spend more when using CC ….AND AMAZON PRIME………
There is no filter to impede the impulse for immediate gratification and Amazon Prime.
Ha, so true. I do have to catch myself sometimes no trying to get the “free same day” delivery by adding $35 of stuff to my small order.
100% agree. Amazon Prime is a killer. I just cut off my wife’s amazon account. We were spending every single month more than 1000 dollars on silly stuff.
I bet that was an interesting conversation. I can tell you what my wife would do if I tried to “cut off” anything of my wife’s.
As always, an informative read. However, I disagree about emergency funds. Granted, we are probably on a more unique situation than some, however I believe in the fund, particularly while in practice.
Yes, DI will take care of expenses and help while out of work, but it doesn’t kick in until after the 3 months. You have great reviews of student loan companies. We were using DRB and now SoFi. We had under 3% variable until we got too nervous with rates increasing. Now we have a fixed. We pay more than minimum to get paid off as quickly as possible. The clinic has no retirement match for partners and the buying is another mortgage. We pay over $4200/month post tax dollars on just the student loan and clinic buyin. Then we have regular expenses which we keep very low. We don’t keep up with the Jones, we use coupons, our family of four spends under $400 a month on groceries, etc.
If we took our emergency fund and paid off the medical loans, we’d still be 70k in debt and be in trouble for 90 days before DI kicked in. Our fixed rate is 3.2% so not too bad, and our savings is 1.1%. yes it’s a loss but not too much and it’s peace of mind. Other than that, I’m with you ????
Sorry, I entered a smiley emoji on my phone and it came out as the question marks.
he’s not saying not to have an EF, he’s saying not to miss out on things like 401k match while you accumulate it.
Love it. I listen to DR constantly and have learned a lot from his higher level questions about trusts, real estate, etc. He’s definitely made me even less sympathetic to the “I’ll manage my debt” way of thinking about the world.
If I had a friend with $50k in debt making $70k i would absolutely turn them on to Dave.
My guess is the IRL he’s absolutely insufferable IRL though. I cringe when he says that his kid’s inheritance is dependent on their “walk with Christ.” That’s just brutality. People change, grow, and have different relationships w/ religions. To have 3 kids and be willing to cut one out of a $10M+ estate because they decided they didn’t want to be a southern evangelical sounds ghastly.
One thing that always gets me is when he says you shouldn’t have things w/ motors that equal more than 50% of your salary. That seems like a rule of thumb that would phase out rapidly as your income went up.
The 10-12% thing makes me practically scream into my headphones. As WCI said in another post on DR, if we could be sure of 12% returns we could all be done with just our 401k.
You are right, he is nuts when it comes to professional school. I love his suggestion to dentists and pharmacists that they find a drug company that’s just looking to pay full tuition for some random 26 year old to get a doctoral degree.
I’ve never heard the drug company suggestion. That’s a little bizarre.
The motors/50% rule isn’t bad though. Why do you think it should start phasing out at doctor level incomes? I mean, a doc making $300K gets two $40K cars and a $70K boat. A doc making $600K gets a $100K car, a $50K car, and a $150K boat. Still seems just as reasonable as someone making $50K driving a $15K car and a $10K car to me. I should have included that one. I mean, sure, it isn’t going to make sense at an income of $10M, but it’ll work for most doctors.
yeah he had this lady on the phone who wanted to go to a PharmD program, would have gone like 100k in debt, he basically told her not to go and suggested she call drug companies and see if one would pay her way.
to me it’s a terrible ROT at any income. when i made $55k i never would have dreamed of driving a $25k car. hell our one car now is about $30k and we make a heck of a lot more than $60k.
as you have written, the “reliability” and safety curve of cars starts looking incredibly favorable around what, $5k?
your reply makes me glad i’m not into boats!!
Oh, well maybe you can get a drug company to pay for a PharmD (I don’t know) but I’ve never heard of one paying for an MD.
That 50% figure is a maximum. Nothing wrong with being under it. I’ve been under it my whole life.
My experience is that there aren’t many (any?) full rides to pharmacy school, no matter the source (and especially not from a drug company – I’m pretty sure you’d get laughed at if you asked).
You may be able to get cash awards for $500 or $1,000 here or there, but the low potential for getting the “scholarship” and low payout isn’t worth the application effort.
Accumulating $100,000 in loans for a job that’s pays about that much is reasonable.
>…”The 10-12% thing makes me practically scream into my headphones. …”
This is my big problem with Dave or at least his writings from a few years ago, too.
However, and not to be a Dave defender, I’m not sure how much worse the above statement is than the implicit assumption that we can all count on earning the long-run historical average of 6%. I mean, sure, Dave displays a lack of financial sophistication touting 10% or 12%… (which I think is probably a long-run small cap nominal return)… But it seems sort of similarly simplistic to bank on earning the long run real return average of 6% too.
that’s an interesting perspective. i usually 5 for my quick and dirty calcs. i mean if the market does 1% or -6% for my investing life i’m just not going to be a very wealthy old man but at the same time being overly pessimistic seems depressing and counterproductive.
I would argue (in a polite way) that it makes sense to use a range. And you don’t need to get super negative or gloomy… you (and I) just need to build in a little more flexibility into our retirement plans.
BTW, based on last 150 years or so and a 75% stocks and 25% bonds asset allocation, the 20th percentile annual real return someone saving for retirement earns is about 4.38%. The 80th percentile annual real return is about 7.24%,
As suggested above, the median return for same asset allocation is maybe 6% (or really 5.99% by my calculations.
So….which do you think is more likely, 12% or 6%? Seems dramatically easier to defend one than the other. Reasonable people can disagree on whether they’ll see 3% real or 5% real in the next decade. But nobody reasonable claims 12%.
12% is so unreal that it is not worth the time of fighting against that statement. Anybody who has read Bernstein would know better.
Is it really that far off? Or just comparing apples and oranges?
Dave’s online retirement calculator says “This is the return your investment will generate over time. Historically, the 30-year return of the S&P 500 has been roughly 11%.”. It’s been 10% for the entire 75 year period per Wikipedia, so that seems perfectly fine. My guess without much research is 10.5% is pretty darn close for the past thirty years.
What you really don’t like about his number is it excludes inflation, fees, etc. which reduce the effective yield to 5-7% range. You could go even further and say those returns will be subject to taxes and possibly reduced even further. Neither is reality for how much money is actually available to spent and it’s tough to accurately project real-world spendable cash in the end for any given person.
Dave’s 12% claim used to greatly irritate me, but plugging in 11% is perfectly fine for estimating how much money will theoretically accrue in a long-term retirement account over a certain number of years. Just don’t plan on being able to spend it all since a large chunk will go to other places.
If anything, we should give him some points for helping people understand why there’s a big gap between 12% annual investment earnings and 5-7% real-world retirement cash for spending. His claims are no different than every mutual fund with a prospectus showing yields for the past 1, 5 and 10 years. The fund does make those numbers (I like to hope), but no individual investor ever sees that much in their account.
Regarding your point about the inheritance, the only ghastly thing is a child assuming he is owed a pro rata piece of parents’ net worth when his parents die. Give me a break. It’s Dave’s money, and he can decide how to divide it upon his death. If the child is grown and able to take care of himself, the parent is under no moral obligation to give the child anything upon the parent’s death in my view. This notion of entitlement causes issues up and down the socioeconomic spectrum.
i don’t disagree with you about people’s right to do what they want with their money.
HOWEVER
dave constantly talks about “changing family trees” and how important his family is to him. i don’t think children should feel entitled to their parents money but i also think if you are worth tens of millions of dollars and leave your kids nothing when you die that you are sending a pretty clear message and it’s not a kind or loving one. if your dad is a high profile financial coach with an extremely high net worth and you work for him (as dave’s kids do) it’s not entitled to think that you are getting something.
to make that inheritance of what has to be at least $10M/kid depend on a specific set of fundamentalist religious principles is just terrible.
Yeah, well that’s just like your opinion man. You have a different world view and life philosophy from Dave. That’s fine, but it should be left at that. Dave isn’t a bad person, as you suggest, for believing religion is fundamentally important. I don’t listen to Dave because I have a functioning brain, but if he truly believes religion is important, then it would be much worse for him not force his kids to focus on it.
you’re out of your element Donnie.
i didn’t say he was a bad person, but i think it’s bad to dangle that much money in front of your kids and peg it to a specific, very fundamentalist religious world view.
it’s one of those things that sounds worse in reverse: i’m an atheist-leaning agnostic, don’t you think it would be fairly horrible of me to tell my kids they were out of the will if they found peace or relationship stability in a church?
I think I fall into the camp that you shouldn’t ever expect an inheritance so if your parents don’t leave you any money for whatever reason they want, you have no right to complain.
I also worry about the effects on a kid’s motivation of knowing a big inheritance is coming. I’m trying to get my kids to expect a small inheritance in their 20s (Roth IRA, 529s, UGMA) rather than a big one at my death. Although I’ll probably leave them something, I suspect most of what’s left will go to charity. I like Buffett’s philosophy on this- “Enough to do anything they want but not enough to do nothing.”
For me the only way to evaluate something is to start with some principal. In this case, my principal is that the person who makes the money can decide what he wants to do with it when he dies, including if it is a large amount of money.
I *believe* your principal is that parents’ money should be divided equally among children upon their death. I think that is an entitled viewpoint and is wrong on several levels, but we likely come from different backgrounds/cultures with different expectations.
Moving on to your hypothetical, you would be entitled to put whatever stipulations you want on money that you earned. Your children would be entitled to tell you no, I am not doing xyz for the sake of money. Or they may decide that whatever you are asking isn’t such a big deal and they would prefer to have the money.
That said, if a person truly believes in a religion, he clearly would place a lot of importance on his children’s spiritual life. If a person is agnostic / atheist, he should not care what his kids do spiritually since it is either of no consequence or importance.
So I would tend to agree with you that your stipulation seems worse than Dave’s since Dave’s comes from an apparent place of caring about his children. Yours would apparently come from a more sadistic place since you are forcing them to make a choice over something that you either don’t care about or think is of no consequence.
I’m glad I’m not the only one who misuses principle and principal!
Haha, sometime I’m going too fast!
“I *believe* your principal is that parents’ money should be divided equally among children upon their death. I think that is an entitled viewpoint and is wrong on several levels, but we likely come from different backgrounds/cultures with different expectations.”
That is actually far from my principle. I agree with yours that people can do whatever they want with their money. It would be funny if we knew each other IRL b/c I’ve defended this several times recently e.g. people deciding to leave money to 2 kids and cut 1 out.
You are misunderstanding the way atheists interact with religion. But this is not something I’m going to fill up comment section with. If you want to start thread in forums about stipulations on inheritance with this as a jumping off point I’d be happy to continue discussion.
I agree there are huge issues that come up when kids don’t get equal inheritances no matter what their life choices. I’m not sure trying to rule from the grave is a good idea. That said, if you want to do that, I think it is your right to do so. It’s your money.
Fair enough. I admit I haven’t thought much about the broader pros and cons of a belief test on a kid’s inheritance!
Forum it!
Interesting ideas, I also dont think the kids ‘deserve’ anything period. However, once you give it, its theirs and outside of a directed trust they can do what they want, if you dont like it you shouldnt have given it in cash.
Good forum topic.
As a former Financial Peace University coordinator, i would agree with most of what you say. I believe the reason he is so rigid is that most people need very clear steps to proceed through, so he made his baby steps with the masses in mind. I always told people in the class that you won’t agree with everything, so just use what will work for you. Most people got a lot out of it. Keep up the good work doc.
“I always told people in the class that you won’t agree with everything, so just use what will work for you”
don’t let DR hear you saying that! that’s what makes him hang up on callers
I agree people want rigidity. I can’t believe how many people ask me for rules of thumb on stuff there are no rules of thumb for. I could give them one and they’d be happy, but it wouldn’t be the right thing to do.
WCI – you remind me of the Simpsons episode with the bear-repelling rock! Sometimes, people just would be happier if you sold them the rock . . . even if you know that it makes no sense or in flat wrong! (now I’ll see if I can embed that YouTube clip here . . .)
https://www.youtube.com/watch?v=fm2W0sq9ddU
Nice post and I am sure you will get a lot of comments. People love or hate the guy. To me he has always seemed a bit sure of himself, much like Robert Kyosaki or Tony Robbins. But why should they not be self assured, they are all doing very well.
As for debt pay down, I am a huge fan of his snow ball effect. Behavior is so important in getting your financial act together. Honestly it is probably the most important thing. This goes for FIRE types to.
I can handle him giving a little bit of bad advice if the majority is good. He has likely changed many peoples lives for the better.
that’s such a weird defense of Dave and one he uses quite a bit, “who cares if you think this advice is bad, i help millions of people.”
that makes it all the worse, especially since there is simply no way that as financial guy who is nearly 60 years old and has lived through some bears that he believes you can make 12% “it’s not that hard.” that makes him dishonest.
Well MPMD I guess weight watchers is probably dishonest in your book too given that “all” their weight loss advice isn’t ideal. I believe that just like the obesity epidemic our country faces, debt is also destroying our citizens. I would love to hear your prescription for the entire country for financial health that equally applies to all the behaviors, situations and scenarios possible. Maybe you could write a diet book while your at it.
it’s not just me dude, this is a point that many – including Jim – have made about Dave. you don’t get a pass on horrible advice b/c you give good advice as well.
he gives tons of solid advice and then tells people that “it isn’t that hard” to get 10% returns. if he thinks that’s true then he’s an idiot who is extrapolating far too much from a lucky personal experience. if he knows it’s false then he’s deliberately misleading an extremely captive audience. and keep in mind that he is telling people they can make 10% after using one of the commissioned salesmen he gets kickbacks from.
jim has made this point much more eloquently, if you believe that you are going to get 10% returns going forward you arrive at the wrong number to save. at 10% returns just my 401k w/ no match would be $5.5M when i retire.
I don’t see this as such a mortal sin. Historically you’ll get about 7%. Dave says 3 higher, Bogleheads say 3% which is 4 lower. If he were saying to base your retirement savings off that, it would be dangerous but he doesn’t. He says save 15% plus any match and pay your house off. That will work for pretty much anyone. That’s why he says “if I’m half wrong about your returns, you’re still a millionaire”. Seems like solid advice to me. I don’t use 10% when I’m speculating investment returns, but neither do I use market return speculation to determine our retirement savings. We save about 20% including match and pay down debt with another 40% of gross.
By the logic of 5% returns and needing 30 years of current expenses, my savings rate would be much smaller than Dave’s recommended 15%.
10% vs 3% return is a massively big deal. If there were a fund out there with a guaranteed 10% return it would rule the world.
He says the half wrong about one time for every hundred he spouts 10-12%. And he uses 10% all the time in crazy calculations like if a widow of a guy making $50k gets a $500k life insurance settlement she’s set b/c it will easily kick off $50k/year for her to live on.
It’s just a bizarre thing that he does, coupled with the fact that he gives very generic investing advice and deflects more detailed questions by saying he “isn’t a mutual fund guy.”
It’s clear that some of us think this is a big deal and some don’t, that’s fair. I just don’t like hearing the line repeated that since he gives so much good advice it’s ok for him to spout nonsense on other stuff.
The “half wrong” thing also ignores the math. For example, if you expect 12% and you’re half wrong and only get 6%, you don’t end up with half the money. It’s far, far less than that. Consider 30 years of saving $20K a year and earning 12% vs 6% on it. $5.4M vs $1.7M. So if he’s half wrong, you end up with only 31% as much. But wait, it’s even worse. Let’s add a 3% inflation figure in there. So really it’s 9% vs 3%. That’s only $1M, or less than 20% of what you thought you were going to get. And we haven’t even considered taxes and fees…..
The real problem with those 10-12% figures is that it causes people to undersave.
I agree that behavior trumps math for most people who don’t read/write financial blogs all day.
Good post and I think a very balanced analysis of a complex phenomenon.
I do think the popularity of his show is telling us something about the times we are living in. It came to my attention right after the crash when there was a large audience of folks that were “beaten up” by the markets at the time. I think there are people who are still scarred.
Today we see a lot of folks talking about very heavy equity-centric portfolios. (See Dave’s above). A natural phenomenon after an eight year bull market, but also an example of the “recency effect”.
There will come a day when we will be talking about our fixed Income exposures. Do not know when, but willing to bet it will come into fashion at some point.
KJF
I know that in my own life Dave Ramsey was the catalyst for taking an active interest in my personal finances. I’ve got to believe he’s been that catalyst for many others as well. He is what he is, and I think you’ve done a fine job of breaking down the goods and bads of Dave’s advice.
My only qualm with your article would be that you seem to take both sides when it comes to the emergency fund. On one hand, you say there’s no reason to have a big emergency fund when you have big debt, although you don’t clearly state what a “big” emergency fund would be (you seem to insinuate that $30k passes this threshold, though).
Further down, you advocate a 3 month emergency fund. I guess that could be considered a compromise between Dave’s $1,000 mini-emergency fund and whatever a “big” emergency fund is.
We are comfortable with 3-6 months expenses sitting in our Ally Savings account earning 1.15%. We know that there’s some opportunity cost associated with tying the money up there.
Good article.
If you think I take both sides here, you should read this post:
https://www.whitecoatinvestor.com/are-emergency-funds-for-the-weak-minded/
The truth is I have a very nuanced view on emergency funds and see no reason to get dogmatic about it.
One of the things that turns people off to the idea of investing/money management is the perception that it is complicated. Many get overwhelmed with the idea of debt elimination and/or investing and simply don’t bother to try. Dave Ramsey keeps it simple and replicable with his clearly defined steps. This inspires people to dive in head-first. What I really appreciate is that his message and advice is consistent; he never waivers. This offers his listeners a clear path to their financial goals. If his advice did vary based on circumstances, the message would be muddled and his listeners would go right back to believing investing/money management is too complicated to handle on their own.
he has very outdated thoughts about car leasing. yes, a car is not an investment and yes, if you have cash you should pay for one. but leasing a car can be financially better for people. it does have to be a good fit in terms of miles, etc and you do need some cash up front, but gone are days of dealerships giving salespersons a bonus for suckering into someone to lease a car.
I don’t follow your logic:
“If you have cash, you should pay for [a car]” — does that imply that if someone don’t have the cash, he or she should fleece it; I mean lease it?
How does leasing a car become “financially better for people”?
Leasing a car is the same as buying a car with a put option. You are financing the purchase of the car for the term of the lease and have the right to sell it back to the dealership at the end of your lease term. That’s all. Run the numbers to see if it makes sense…likely it doesn’t.
An example scenario where leasing could potentially make sense:
You are in a 3 year residency and must get to work. You have no money at all and not very good at understanding how to buy a decent used car. Your goal is to have the lowest minimum payments as you save in a Roth, pay down some of your school debt and have living expenses.
Leasing for 3.5 years this person to have the lowest payment on a new car. For example you can get Honda fit for about $150/month. Financing the car over 5 years would cost more per month than leasing. Buying a 3 year used car is not that much less expensive if you are looking for certified pre-owned and a warranty. Once out of residency with about 6 months of attending salary under their belt they can decide on purchasing their car or getting a new one.
You should probably ride the bus if you don’t know how to buy a car and you have no money.
Or a bike. That’s what I rode to work as a resident and young attending.
What? That’s bizarre. Run the numbers. If you compare buying a used Honda and leasing a new one with similar payments, the difference is that at the end of 3 years you own one and not the other. You’ll come out ahead buying.
And if you “are not very good at understanding how to buy a decent used car” you’re certainly not going to be very good at getting good terms on a lease.
If it made sense for the typical consumer, dealerships would quit doing it.
Leasing a car is only (possibly) favorable if you’re comparing it to churning new cars every 3 years. Even then I doubt it comes out ahead most of the time. Maybe if there is some way to lease it in a tax-favored way that you couldn’t use for buying it.
DR recommends 100% equities even for those in retirement. For those of us not heavily into real estate investing like him this seems like bad advice. His real estate tends to smooth out the ups and downs of his stocks (similar to bonds that he does not recommend).
As mentioned in the final paragraph, Dave’s advice is great but can be tweaked to make it better.
One bit of advice I give to my CRNA colleagues who are trying to get a handle on their finances is is to read two books: The Total Money Makeover and The Millionaire Teacher. Simplicity it key.
I tell them if all you do is follow Dave’s Baby Steps and scratch baby step 4 (his investing advice) and insert The Millionaire Teacher (passive index investing) that they’ll win with money.
Do I agree with his rigidity? Not at all. But as guidelines for helping get a hold of personal finance…you bet.
Great article. I love the topic.
“I tell them if all you do is follow Dave’s Baby Steps and scratch baby step 4 (his investing advice) and insert The Millionaire Teacher (passive index investing) that they’ll win with money.”
That’s pretty solid, I might steal that.
Dave Ramsey is an alarm clock. He takes those who have been sleeping through their financial lives and gives them the motivation to try a different way. That is the value of DR. This wake up call is helpful if you are barely scraping by or have made a doctor salary.
Excellent list! For some odd reason I’ve encountered more than a few medical students who get a bit starry-eyed about Ramsey. It is encouraging to see young debt-riddled people interested in personal finance but I don’t hesitate to make them question his investment advice and ethically suspect referrals.
And WCI, the “RECOMMENDED” ads at the bottom are not befitting of your blog.
Thanks for the feedback. I think we’re about done with them. This week for some reason they’re serving huge ads too.
I agree with Debt Snowball. I got rid of a few smaller loans the past 2 years and it felt great! If I waited until all my debt was gone to start investing, that would def be a mistake for me – for someone who graduated residency at age 38. 2 years later I have a sizeable amount retirement accounts (took advantage of generous matching from employer) and will be NW zero within a month!
congrats
Congratulations on getting back to broke!
WCI,
Thanks for the quote from my book in this article. I have always thought Dave Ramsey does a good job of pointing the average wage earner in the right direction to get on better financial ground. I found the high earning people don’t relate as well to his message. When he makes a big deal of paying off $50,000, which is great if your income is $40,000 a year, the high earner doesn’t think it is relevant since he has $550,000 of debt. That is what drove me to write “The Doctors Guide to Eliminating Debt.” I wanted to put bigger numbers in so the high income/high debt people would relate more to the message and stop trying to manage their debt and start eliminating it. I wrote the book as one of them so they won’t be able to say it doesn’t pertain to them. After reading my story of paying off more than $500,000 of debt, they can finally see the light at the end of the tunnel and get started on their own journey to becoming debt free.
Thanks for the nice article.
Dave focuses on the lowest common denominator in order to reach the widest audience possible. Of course there are things that aren’t optimized for people making high incomes or people with relatively high financial IQ’s. Dave’s show is a good place to start for an intro to basic personal finance, and his messages are good for people who never advance beyond that point. Overall he is apparently able to deliver fairly sound financial advice in a way that is engaging to mass audiences (most of whom will never have the same issues as the readership on this site), so I think Dave is doing a lot more good than harm with the various nitpicks mentioned in the post.
despite our debate in earlier comments, i completely agree that he is doing much more good than harm.
Haha, no worries. That’s what the internet is for right? Random debates with random people!
Well said Donnie. He provides a good service for most people.
His investing advice makes me sad for those who take his word as the Gospel. I used to be one of them until I was introduced to the WCI.
A simple change to step 4 can make such a difference to other people’s lives but I’m afraid it would effect his kickbacks from the ELPs.
Great article.
Minor point. In the Things Dave Gets Wrong #5, you state “For example, an advisor paid an Asset Under Management fee is incentivized to recommend paying off your student loans, paying off your mortgage, or buying the rental house down the street.” I believe you mean to say the advisor would recommend *against* doing those things, correct?
Yes, thanks for the correction.
I’m a little honored to see DR blocked you on Twitter – I and a few financial advisors also got flamed by DR in 2013 when we questioned his investing advice on Twitter. This was the origin of his “I help more people in a week than you do in your entire lives” episode, and it actually made the trade news. I originally thought DR was a force for good, but I just can’t say that anymore, because 1) His investment and retirement withdrawal advice is so incredibly, deceptively bad, and 2) he absolutely is smart enough to know how bad it is, which means 3) he is intentionally misleading people for personal profit despite 4) claiming a Christian moral high ground. It’s the financial planning equivalent of a doctor with a radio show advising everyone to exercise, watch your weight, and take cyanide capsules. Just because the advice is 2/3rds good, you’d still actively dissuade anyone from listening to that radio doctor!