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!
exactly why financial education must be taught in secondary schools to avoid listening to people like ramsey giving the worst possible advice
I don’t think “Ramsey is giving the worst possible advice.” I don’t think you have looked at some of the books and articles out there by other authors that are MUCH worse. If someone followed Ramsey’s advice 100% and did nothing else, they would likely be doing very well financially.
Nice review. People tend to be Pro-Dave or Anti-Dave. The truth is closer to what this post describes.
Do you think Dave Ramsey blocked you from twitter because of your difference of opinion on PLSF or because he views you as business competition and doesn’t want to be promoting you? Maybe he is just juvenile and wants to drown out all other opinions, but I would bet that he blocked you because he doesn’t want to promote the “competition”.
my guess would be the former. he is clearly very uninterested in debate.
I would assume better motives than that. First, I’m no competition whatsoever. I mean, just looking at Twitter followers we’re talking about 4000+ to 300,000+. Not even the same league. Second, I suspect he has better things to do with his time than engage every one who disagrees with him. I certainly spend less time engaging with whole life salesmen than I did 5 years ago. It doesn’t do any good but most importantly, it doesn’t further my mission.
This is interesting, as I kinda properly got started on my “learning personal finance” journey thanks to DR. I had seen him mentioned on another unrelated topic blog and was curious. That led me down a path that ended up in finding the online FIRE community, and finding some solid resources to learn how to manage money. Previously I’d stumbled through a Suze Orman book which had been badly adapted for the South African market and pretty much gone straight back to my rather useless financial “advisor” (broker).
I’m glad that college costs are not so astronomical here too – I got through med school with no debt, parents paid the bulk of the tuition, with some bursaries, and I worked and paid for everything else. It was rough, but doable. Incomes for specialists in the private sector are pretty good too, probably not as good as in the US, but better than most European countries.
Great stuff and a post on Dave somewhat leverages his popularity. After all this is a business not a hobby.
I absolutely love Dave Ramsey’s writing style in “The Total Money Makeover”. Very blunt, to the point, and no-nonsense. I’ve never listened to his radio show though.
I only first heard of him last year; my wife and I were driving to the beach, and she had purchased his book as a beach read since she knows I love personal finance. When she started reading, I got hooked and loved his overall message. Then she started reading the parts about 12% returns and active management, and I wanted to throw a 1000-count bottle of ranitidine at him.
Overall, great guy and very inspirational, but he definitely stretches his message a bit probably to get more people on-board with his philosophy. I mean who would you rather follow as a complete financial newbie? The guy promising 6% returns or 12% returns with his strategy? It’s dishonest for him to do that, but it gets him readers. I think it’s better to have an honest message.
Nice fair and balanced post. I agree that to the knowledgeable DR’s facts are not correct. However, I think for a certain group of people his message seems to resonate and I am amazed at hearing some of the successes. I think if you’re 100k in the hole on a 50k income Dave Ramsey is a good bet to get your life together. I think what causes frustration is that folks who in the 7 figures looking to get to 8 have moved passed his basic advice.
I do think some of his morality is heavy handed. Especially when intermittently someone calls in who is in a nontraditional social situation (living together, etc, etc). Also, sometimes his diatribes into politics (he went on this whole thing about Hobby Lobby some time back) are annoying.
Dave Ramsey is the king of motivating people to get out of debt. Clark Howard is the king of exposing scams. WCI is the king of unbiased, sound, sophisticated investing advice. MMM is the king of frugality and helping people toughen up by punching them in the face. Seek advice from everyone and you will have a well-rounded financial education.
We’re just now coming into a position of choosing which debts to pay off first. I was all in the student loan band wagon until I started to consider other factors.. like if I died. Why would or should I pay off a 4+/-% 400k student loan when it’s forgiveable at death but my 3% 500k Mortgage isn’t. It would seem most logical to eliminate the debts that have the potential to harm your loved ones first then tackle the others… Assuming of course interest rates aren’t too far to the extremes.
Aside from some tax deductions is there a hole in this logic?
You mean other than the very low likelihood of your death and thus the very low cost to insure against that risk?
Yes, that risk is low and I’m insured for that risk, but if I’m given a choice of which debt to pay down first, why not choose the debt that carries the most risk to my family?
The house is foreclosureable, my education isn’t, my car can be repossessed, my education can’t ect…
I’m going to be debt free in 5-7 years and pay off everything, but it seems to me we worry about paying down debts based on numerical data and not considering other, perhaps, more pertinent factors.
Thoughts?
The mortgage debt also goes away in bankruptcy, is deductible, and is at a lower rate. Those, to me, outweigh the other factors you list. If they don’t for you, then do what seems best to you.
I was happy to see this input from you when talking about fees – “…..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.”
That was an honest and refreshing look at this polarizing issue. As a dually registered advisor I see and live both sides. I understand this wouldn’t normally be of interest for the vast majority of WCI readers but I advocate for many investors that have limited funds to get started (as low as $25/mo to get their habits in order). With a goal in place to get debts in order and increase the savings amounts to eventually meet their goals. I can offer a fee only service once they have as little as a $25,000 portfolio but I don’t to turn my back on these people in the meantime. Those that need the most help of all get shut out of any sort of guidance or plan in most instances in the industry right now.
There are times that a load makes sense. We may not like it but most people will spend two weeks planning their vacation will not take a few hours plan for their financial future on their own. Good luck getting these people to seek out and use robo advisors, some will but most won’t (yet).
One last side note that gets very little attention in regards to index investing. When we eventually see a market downturn I foresee trouble for many people that have been pushed into self directed index investing in our current bull run. The indexes are great in good times but they also follow just as quickly to the downside. They better have a contingency plan in order or there will be a quick free-fall to the bottom for them. Unfortunately studies show time and time again individual investors lose out in these situations. They sell out (locking in the loss) and sit in cash on the sidelines then eventually miss out on the upside by not participating when everything is “on sale”.
You bring great value here, keep it up!
“The indexes are great in good times but they also follow just as quickly to the downside. They better have a contingency plan in order or there will be a quick free-fall to the bottom for them. Unfortunately studies show time and time again individual investors lose out in these situations. They sell out (locking in the loss) and sit in cash on the sidelines then eventually miss out on the upside by not participating when everything is “on sale”.”
1. Keep it simple
2. Keep costs low with indexing
3. Rebalance
4. Stay the course
Yes, a “contingency plan” i.e. a written investing plan of what you will do during the 6+ bear markets during your lifetime is key for both a DIY and an advised investor.
I like your point by point evaluation as well as the supporting evidence, e.g. percentage of times one outlasts their portfolio. It is hard to disagree with numbers. I also like the suggestion of choosing a cheaper school. Where one went to school has little to no affect after five years on th job.
You write that undergraduate education could be paid by the student but that graduate education would be much more difficult to finance.
I do agree with this also.
But there are exceptions to every rule. My father, an immigrant, came to the USA and financed both his undergraduate education as well as dental school by working. He was intensely grateful for this opportunity to work and was probably the most patriotic American I have ever known.
I was inspired by his example and financed my own undergraduate and graduate education. During my graduate years, I loaded bags of oats into train cars at night and then went to school during the day. Maybe that was a little too hard but when you are younger you don’t yet know what your limits are. My education took place 40 years ago when wages were higher so this may make it more difficult to do the same thing today.
Sorry, I can’t find anything to disagree with.
In my last year of medical school with no debt yet, prob will give in my last semester. How?
-Texas schools are cheap
– Texas living is cheap
– Accelerated family medicine program is 3 years, cuts a year off, and pays another year (that’s half price)
– my spouse cash flows our living
– received a big scholarship coming in by being competitive and taking the best deal, comes out to 12 grand a year for tuition (the two years I actually pay for it)
– got some other small scholarships here and there.
– my residency garentteed with the accelerated program, no money with interviewing around or away rotations.
No family help here and no committed time to serve like the military. I know I’m on the extreme but opportunities are out there to reduce dept. Been following WCI for years and it’s amazingly sad how little my peers know of these topics. Great post, we listen to Dave daily as we fall asleep.
Lots of smart money decision. Makes me wonder the logic behind deciding to pursue FP…
Am I missing something or is saving up a big chunk of change for the down payment on your house that you “can only take out a 15 year loan for” not accounted for in the baby steps? Does Dave advocate fha loans or conventional? Even on a 100k house, we are talking a lot of money if you are putting 20% down. Seems like a big thing to overlook. Also he didn’t get rich by following his baby steps. He got rich by selling books. The average schlep making 70k in the Denver area (who doesn’t already own a home) with a few kids isn’t going to get wealthy anytime soon just by following the baby steps. Braces happen. Broken bones happen. All thousands of dollars popping up out of nowhere…I guess I can keep replenishing my emergency fund!
Dave usually calls that “Step 3 1/2”.
Excellent summary.
“If math ruled your world, you wouldn’t be in debt in the first place” is a great line.
I wonder if you’ll end up reconsidering #6 (things Dave gets wrong) down the road.
School is school and you’ve clearly outlined the four pillars for a debt-free college undergraduate experience under #11. None of the those require “working your way through undergraduate school” which you call out in #6. The only significant difference in medical/dental school is scale. It feels like you’re conflating a common perspective (can’t be done) with the four pillars (of course it can be done and everyone should), not objectively evaluating the possibilities of a debt-free medical/dental degree. There’s no reason the same four pillars couldn’t apply to any type of education.
You’ve already talked about getting a debt-free medical/dental degree through military service or practicing medicine in a small community that reimburses education costs. Others could be delaying applying for medical school 3-4 years while working to save tuition money, living on partner/spouse income, renting out your residence to other people while living there. Maybe getting degreed in another country for less money and somehow transferring/refreshing the knowledge in the US is even possible. None of those options require putting in extra hours during school which (presumably) is your objection to working.
The point is the possibility of graduating debt free with a medical/dental degree shouldn’t be instantly dismissed, particularly since you recently profiled a resident who was doing it and you did a stint with the military.
First of all, signing a contract with the public health service, indian health service, or military isn’t getting through med school debt free. It’s just trading one type of debt for another. Now you owe time and freedom instead of money. Although in reality the way it works is you traded away your freedom and still ended up losing the money for many specialties. For example, the military paid me $120-130K a year while the going rate for an emergency physician was $275-300K per year. I paid for the med school by working for a lower rate for four years. But it isn’t “debt-free” by any means.
Second, delaying applying for med school to save up tuition money is generally a mistake. It would be dumb to stay in a $50K a year job and save up $20K a year for med school for 4 years or so when you’re giving up 4 years of attending salary at the other end of your career. So I can’t really recommend that.
Getting a degree in another country is a huge risk (i.e. matching back in the US) if your goal is to practice in the US.
Renting a residence requires owning a residence. I would submit a better move may just be selling the residence and using the proceeds to pay for med school. But sure, if you’re got an asset worth a few hundred thousand dollars sitting around, that would be a great way to pay for med school. But that applies to almost nobody I went to school with.
Spouse/partner income is a great benefit, but it’s not really something I would encourage people to do just for the money.
Med/dental school tuition is simply too high relative to the jobs a student can do to earn money to work your way through. That’s not the case with undergraduate where there are still plenty of good schools with tuition of $5-10K a year.
So, is it impossible? No. But it’s so unlikely that I think the majority can’t do it, unlike undergrad.
All valid points. I read Brad’s post above after posting mine.
“In my last year of medical school with no debt yet, prob will give in my last semester. How?”
His points are valid as well. 😉 I don’t think that a majority or even a minority could graduate debt free. That’s not the idea. It’s recognizing that graduating with $400 – $500K in loans isn’t mandatory. Anything that reduces that number (all the way down to zero for some people) is worth knowing about and discussing vs. pursuing an entirely different career.
Hard to argue with any of that.
So for the average Denver area house say 300k…60k down payment is only worthy of a “1/2 step” ! Even at 3.5% fha were talking over 10k…thats substantial
To most people. It seems like he kind of glosses over that.
I agree, but they’re not my baby steps.
Its from blogs like these! To try and answer your question:
The money and time side: Family medicine is great money when your in my situation. The next closest specialty (would be without the accelerated program which is just for Family Medicine) is two added years of training at least, and another year to pay off the debt I collect for that time. Its time to get out and stop dreaming and start living. Not to mention, where I plan to live, because its where I grew up, is rural and FP make 300k fairly easy.
The versatility side: I want to be able to get a job anywhere, anytime, and work any number of hours I set. Several specialties do this but FM is certainly one of them. I can always work part time and make more than I did as an engineer – thats if that job gets painful (financial freedom brings options)
The enjoyment side: I enjoy it all. Just about every rotation I figured I could do as a job. My father swept floors to make a living and he would of put up with some real pain to make $100/hr. Here I am trying to say, “I dont like that, there is too much paperwork”. He would hit me on the side of the face…. we are paid well for the trouble we deal with. Flexibility is very important to my future practice, im not concerned about not enjoying a small portion of the job.
That should of been a reply to comment 37… not sure what happened.
Allow me to offer a grab bag list of 5 other things that Dave Ramsey gets wrong:
1. He says “Standard & Poor Index.” Wrong. It’s “Standard & Poor’s Index.”
2. He says “The S&P 500 is a list of the 500 largest companies on the New York Stock Exchange.” Wrong. It’s the 500 largest companies on ANY stock exchange in America, including the NASDAQ, and includes 505 stocks (that’s right, 505, since five of the companies have two share classes). If Dave were correct–which he is isn’t–Apple, one of the world’s largest companies, wouldn’t be in the S&P, because it’s on the NASDAQ.
3. He says, “99% of ETFs are S&P 500 index funds.” Wrong. Only a small percentage of ETFs are S&P 500 funds.
4. He says, “Get you a beater car.” Wrong, unless you use the hillbilly dictionary. It’s, “Get yourself a beater car.”
5. He says, “You should get a loan that is amitorized over 15 years.” Wrong. It’s “amortized” not “amitorized.”
Yes, the guy offers very basic advice on budgeting and getting out of debt. But contrary to his self-proclaimed boasting, knows very little about the stock market (or grammar).
I guess I don’t expect much from radio hosts by way of grammar. None of that ever bothered me much compared to the larger issues.
Well, he IS a hillbilly.
Good article with fair and nuanced approach to Dave. I graduated from Law School without debt. GI Bill + work through law school. So your statement regarding professional degree debt is off. That’s the problem with using the word “always”. It’s going be eaten away with exceptions.
Yea, but the GI bill is a bit of an exception. The military certainly got their pound of flesh in exchange for the benefits they gave me. I’ll bet you feel the same. For example, I could have stayed longer and gotten the GI bill for my kids. But I chose not to because I judged the costs to be greater than the benefits.
Have you ever heard what DR thinks about tipping people like waitresses? Does WCI tip based off service or the standard 18-20%?
TIPS = To Insure Prompt Service
I’ve worked for tips. I didn’t expect one when I gave crap service. When I get crap service, I don’t give one. But that’s awfully rare. I pretty much tip 20-25% to almost every server. If you can’t afford to tip, you can’t afford to eat out.
I have no idea what Ramsey thinks about tips. Can’t recall ever hearing him discuss it.
Dave agrees if you can’t afford to tip generously you shouldn’t be doing whatever you are doing that requires a tip.
Thanks for the posts and podcasts! Love listening on my way into work! I get kind of annoyed reading arguing comments or hearing the advice people are giving you on how to deliver a podcast haha. Keep up the strong work!
The latest things Ramsey get wrong:
1. When he does his calculations to show a caller how much $X will be worth in 40 years, he not only uses 12% as the return (far higher than any sensible financial person would assume) but I checked his numbers—he absurdly uses 12% per year compounded daily rather than annually, which makes the projected returns even more crazy.
2. Anytime a caller is considering giving a gift of, say, $25,000 to an individual, Ramsey warns them about the huge gift tax they would incur. He doesn’t know what he’s talking about. He’s overlooking the fact that each of us has a $5.49 million lifetime exemption on gifts. So no problem giving the $25,000—it can be way over the $14,000 per-person annual gift allowed, and will trigger NO gift tax, as long as one’s total lifetime giving (not counting any $14,000 gifts per person per year) doesn’t exceed $5.49 million.
Sorry, I’ll stick with Dave.
Nothing wrong with that. He is great on the get out of debt, light that fire and make a change. You will be fine doing that.
Great! Like anything, take what’s helpful, leave the rest.
It’s a bit more complicated than that. When Ramsey foolishly uses a 12% return compounded daily, he grossly overstates the potential investor’s return and therefore grossly underestimates what the investor would need to save each month to achieve that total assets they’re expecting in retirement. But virtually none of Ramsey’s users knows what a compound return is, let alone the folly of compounding it daily. And so they’re not armed with the knowledge to be able to “take what’s helpful and leave the rest.”
That’s why I write blog posts like this one.
Which is great. The problem is, Ramsey gets read by a group that is orders of magnitude larger than your reader base. A real pity, since your advice is quite good. (I’ll spread the word!) 🙂
Great post! I used to listen to the DR show a few years ago when I was trying to gather as much knowledge about finances as possible. I found myself questioning the same advice you list in the things he does wrong.
It’s important to gather as many different viewpoints as possible in order to make informed decisions that apply too your individual circumstance. This is step 2 in my Engineering Cents Financial Decision Process!
Point being, free advice should be listened to but not followed blindly.
Want to thank you for your articles on whole life insurance, they were invaluable when I was working with what I thought was a financial advisor but in reality was an insurance salesman.
Mr. Widget
My pleasure to be of service.