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!
He usually says that a degree from an elite school is expensive and is not necessarily betternfinancially in the long run. I hate to say it but for one time I must agreem with Ramsey . 5-10-15 years from now no one cares where you went to med school or dental school or MBA. You are on your own. So in the long run he is probably right. I hate to admit that I agree with DR on anything.
I was just exaggerating for effect. My point is that I doubt that you are going to be earning more in any significant manner over your entire career just because you attended Harvard, Yale, Princeton, or ny other “Top School”. Many top students decide not to go to TOP SCHOOLS and attend MEDIOCRE SCHOOLS. Also due to various preferences at TOP SCHOOLS your degreeb does not mean as much as previously. As I said before, you might get your foot in the door, but after 10 years you better make it on your own. I seriously doubt that you get paid more or that anyone cares after that, Total career earnings matter and I doubt that there is 10 cents worth of difference. Does anyone really ask or care where their surgeon went to school? Would you keep going to surgeons until you found one who went to an ivy league school? Would you search for a lawyer until you found one from an ivy league school? I must say that the nominations to the US Supreme Court are ridiculous since the main requirement is attendance at either Yale or Harvard. Evidently all other lawyers and all other schools graduate inferior lawyers. ABSURD!!!!!
Okay, to finish this debate once and for all, let’s compare your “I seriously doubt” position (an opinion) with the hard facts. The following cites a Businessweek article:
“As reported by Businessweek, while the MBA salaries of the alumni from the top 10 business schools averaged out at over US$3m each during the 20 year period, alumni from the remaining 47 schools in the US publication’s ranking reported average salaries of under US$2.3m.”
There you have it. While there will certainly be individual differences, the AVERAGE difference is a whopping $700,000+ over the first 20 years out of business school between the top schools and the bottom 47 in Businessweek’s rankings. While that survey doesn’t cover the bottom of the bottom (schools such as Ramsey’s University of Tennessee), there’s zero reason to believe that those grads jump over the “higher bottom” $2.3 million and make the $3 million of the top schools. True, no one may be asking any longer where they went to school that long out of school, but the initial “tail wind” they got with higher salaries—from the more prestigious companies recruiting them right out of school—means that the top schools’ graduates maintain their huge salary advantage.
you have confirmed most of what I said previously. I always thought that DR was really nasty when someone disagreed with him. You just like to degrade other INFERIOR INSTITUTIONS OF HIGHER LEARNING. That is not exactly professional. In any case let’s look at this a different way. First, I am not sure why you are stuck on MBA’s. This is a site for medical professionals. Second, I would say that a large percentage of medical professionals mange their own businesses. This certainly wouldn’t be included in Business Week stats about MBA”S. If you agree that this is the case, then please explain why graduates of brand name schools have an advantage over any other med or dental school (or MBA entrepreneurs, for that matter). BTW, I certainly wouldn’t take some business magazine as gospel, particularly after the way they all canonized Elizabeth Holmes and claimed she was the second coming of Thomas Edison.
1. While this website was created by a medical professional, I thought we non-medical folks were welcome to read and contribute too. Based on the comment string, it looks to me like most readers are not in the medical field.
2. I am not stuck on MBAs. I kicked off this segment of the comment string because Dave Ramsey commented on MBAs. I have not commented at all on the Medical/Dental degree and salary, confining my observations solely and exclusively to the MBA.
3. I have not termed some MBA programs “inferior institutions.” I only said that they were lower ranked, which they are. That not degrading, it’s simply stating a fact.
4. Businessweek was not opining on what they thought of the nation’s MBA programs. They were reporting on the research they conducted, which is completely consistent with other studies I’ve seen (showing that MBAs from the top schools outearn those from lower-ranked schools).
BTW I’m glad that I didn’t see this study 20 years ago. I never would have been able to attain multimillionaire status since I didn’t attend one of your elite schools. Surely the hopelessness of my situation would have caused me to flip burgers for a living.
Perhaps it would be helpful to our discourse if you read and responded to my comments more carefully. Nowhere did I say that you couldn’t achieve multimillionaire status without going to a highly rated school. I simply said that—and this is key—on average, the graduates from those schools outearn the graduates from the other schools. Bravo to you for being an exception, but your excellent earnings do not, in and of themselves, refute my position. Would mean the world to mean if we could keep these discussions factual, calm and civil. Thanks Tom!
I’m always civil. In any case, if it is true that MBA grads of “brand name” schools indeed earn more in their careers than “generic brand” schools, it begs the question of why this is so. Is it because they get a better education there? Is it because these brand name schools merely attempt to take the cream off the top and they would have gotten the same education at a generic if they applied themselves in a similar manner. Do these companies ignore graduates of generic schools because these graduates are inferior or are these companies merely biased in favor of the brand? After all, many of the great visionaries in history never went to college at all. Bill Gates probably couldn’t get a job at Microsoft with his educational background. If a graduate becomes an entrepreneur it levels the playing field. Everyone is the same no matter where they went to school. This is the true test, not working for someone else. This shows whether there is any difference in the quality of the individual. It is the ultimate equalizer. If an individual has the guts and determination to be an entrepreneur, then he will succeed and will outearn 99% of the harvard grads. This is what really counts, not what some companies who are biased in favor of brand name schools.
You two are really going at it here, but to an outside observer, you’re just talking past each other. The likely truth is that school matters much more in some fields than in others. I would argue that having a top 10 law or MBA degree makes a significant difference in earnings. I would also argue that having a top 10 dental or pharmacy degree makes almost zero difference.
“If a graduate becomes an entrepreneur it levels the playing field. Everyone is the same no matter where they went to school.”
Oh for goodness sake, this simply isn’t true. If you want to create a startup, you’ll have a far easier time getting access to early round capital as a Stanford MBA than as a Harvard or Wharton grad. University of Tennessee MBAs will have a harder time still.
The top MBA programs tend to be self-perpetuating both because of how selective they are with admissions and how strong their alumni networks are. No one is trying to insult your alma mater, but there’s a wide range in quality and reputation among schools that charge $100K+ for an MBA.
For law, there’s a bimodal distribution of starting salaries. Those who are graduates of the Top 14 schools and those who are in the top 10-20% percent of the top 50 schools tend to get the big money starting associate jobs. Those who were below the top 50 schools tend to get starting salaries worse than what a dental hygienist makes (especially when you look at it as an hourly wage).
For someone who graduated from a U.S. MD program, the biggest differences are specialty match and intra-specialty differences in salary. Going to an Ivy or going to State U matters for less for medicine than it does for law or b-school. The numbers bear this out. This is a financial argument, not an emotional one Tom.
First, I agree totally with White Coast Investor and Hank’s comments that follow yours.
Second, it’s worth noting that you’ve retreated from dismissing the numbers to: a) questioning why the disparity exists and b) going on a tangent about entrepreneurs. For the record, I’m not trying to analyze why the salary gap exists, I’m just refuting DR’s contention that it doesn’t. Second, you whole entrepreneur riff is without merit, per Hank’s analysis. And remember, the entrepreneurs who went to the lower-ranked schools are included in the salary analysis.
Again, I’m not cherry picking how this or that field, or corporate versus entrepreneur, compares across schools; I’m simply noting that the data clearly show that the average MBA from a top-rated school does better financially than the average MBA from the other schools. Cased closed. I hope.
that may be true to some extent, Hank. I’m not talking about “startups”. I’m talking about starting your own small business. I do realize that the great Elizabeth Holmes had no trouble raising money for her startup and the world is littered with Silicon Valley “startups” It appears that the VC field is full of land mines. I have plenty of money but I wouldn’t touch one of these “startups” with s 100 foot pole. Holmes and others have somehow conviced some very rich and influential people to part with millions to fund their “startup”. Unfortunately, the end is just around the corner. The few sucxceses do not justify the extreme risk. I would say that Holmes is the most egregious example of a startup gone awry, but it is certainly not the only one. I was referring to small businesses that you yourself fund and grow(I did this).
since you have continually degraded and demonized the University of Tennessee I decided to look up the number of Fulbright scholars at this redneck lowlife school. In the 2018 to 2019 school year it appears that UT has the same number of Fulbright scholars as Harvard. That would appear to be the snobbiest university of all and that redneck low life UT had the same number of Fulbright scholars. Isn’t it ironic?
Tom, no one but you has refered to rednecks, lowlifes, or snobs. If your hang up truly is about the University of Tennessee, perhaps it would be useful to look at its US New ranking. The Vols are tied for 54th place with William & Mary and U of Utah. For in state tuition, Tennessee is only $11,244. Utah and W&M are $30K+ for in-state and more for out of state. At this tier, Tennessee would be the better pick. However, at this price point, University of Florida’s b-school costs about the same in state and out of state at Tennessee, yet it’s ranked 25th in the nation. Any of these choices is better than an “MBA” from University of Phoenix.
That said, it isn’t just about the direct cost of tuition. This also costs a couple years of your life and established credentials and networking for a working lifetime. If you can get into Wharton, Stanford, Harvard, Sloan, Booth, Kellogg, etc., you probably should go to one of those schools instead of going to William & Mary (or Utah, or Tennessee).
It’s interesting to pull the number of Fullbright scholars for a single school year (without regard to number of undergrads and number of grad students at U of T vs. Harvard). It might be more relevant to compare the number of c-suite executives at Fortune 500 companies who have MBAs from Harvard vs. Tennessee. You also could compare billionaires, philanthropists, high government officials, etc. Ultimately, you have to look at whether a given b-school or law school is worth both the time and cost. No one is saying you can’t root for the Vols during football season. However, it would be the height of foolishness to suggest that there’s no difference in law school or MBA rankings and lifetime income.
Amen to everything you said, Hank—an even-handed, lucid and compelling analysis.
As for you, Tom, and as Hank also noted, I never said anything bad about the University of Tennessee—just that it was DR’s undergraduate school and not in the top 57 b-schools in the country.
that’s all very interesting and informative, Hank, but I did notice that you didn’t comment on my point about the startups that you claimed the brand name university graduates had access. I said that it is interesting that you would say this since most of these “startups” are not exactly the greatest opportunities for investors and many of them are outright scams and ponzi schemes. If you think that ivy league grads have a greater access to these funds, all the more power to them. If they can convince some billionaire to “invest” their money with them (ie Elizabeth Holmes and others) be my guest. Since such a high % of these cause the investors to lose all their investment dollars, I’m not sure I would be using this as a focal point of your argument. I may be a redneck but I’m not stupid enough to give these startups any of my money.
Just one last note to CSI. You claimed you never said anything bad about UT. I looked back in your comments where you referred to UT as the”Bottom of the Bottom”. Maybe it’s just me but that does not seem complimentary to me. I think that’s probably where my references to “redneck,” etc came from. As Jeff Foxworthy might say, ” you might be a redneck if you attended UT”. UT is #1 in the country in football coaches and AD buyouts.
The study talked about the top 10 schools and the bottom 47 schools in the research. What I meant was that UT—and any other school not in the 47—would be below the bottom 47. No disrespect intended. Thank you for allowing me to clarify. This will be my last note on the subject as well.
Honestly, I wish I’d read something like this years ago. Dave Ramsey was pushed on me early, during college by my job, church, and parents. So much so I got talked out of finishing college because I couldn’t pay for it upfront (even though I already was in 5k loans for an associate’s degree and only had two more years-three more years left for a bachelors-I moved with family, another stupid decision). Family does not come first, you come first no matter what your parents tell you.
If you don’t finish college, unless you are extremely lucky or some grand entrepreneur that is okay with swindling people out of money, you will be stuck in the cycle of of 10K-20K a year on a single income. With some luck, you might be able to obtain a 30-40K job in your thirties. Even for one of the lowest paid degree jobs (teaching), you’d be making 40-50K out the gate (plus a nice schedule and the option to work summers), with room to advance, be promoted (to principal, assistant principal, or get involved in curriculum writing, etc). Not to mention a union and heath benefits. If you go to your local school, don’t move, and stay on the path, you should be able to graduate with less than 20K debt or right at that. Easily paid off in less than ten years, teaching (or using the loan forgiveness options). If you ever want to move to another country, your opportunity increases exponentially if you have a four year degree.
Dave Ramsey instead suggests not to complete school if it’s not paid for (most parents do not save a dime for their kids’ school, mine sure didn’t and were offended when I needed their tax info for FAFSA app) and to be infinitely afraid of loans.
If you go for a computer science degree, again, maybe 20K in debt for a job that will pay around 70-100K/year depending on where you apply and that’s also with room for improvement. People like Dave Ramsey that ultimately encourage poor people to remain in poverty need to be called out so I thank you for doing so!!
I agree at a certain amount a student loan can be a good investment.
I disagree that most successful entrepreneurs are successful because they swindle people out of money.
I also disagree that there are no well-paying jobs available for non-college grads.
I also disagree that one should drag student loans around for 10 years. If you can’t pay them off in 2-5 you probably borrowed too much for the degree. In your example of a $20K loan and an $80K job, why can’t that debt be paid off in 6 months?
Here’s the latest things that Dave Ramsey gets wrong: In his 10/21/19 broadcast podcast, he talks about estate taxes. He butchers the facts as follows:
1. He’s says that with an A/B Marital Trust, your marital assets that will be estate-tax free will go from $22.8 million to double that. Absolutely wrong. The current estate tax floor is $11.4 million/person or $22.8 million for a couple, indexed to inflation. The A/B Marital Trust CANNOT increase that.
2. He’s says the estate tax is 55%. Wrong again. It’s 40%.
Once again, I stand behind a post I made here awhile back: At best, listen to Dave Ramsey for advice on getting out of debt. But when it comes to investing (and now estate planning) ignore him and listen to a professional.
The latest in Ramsey miscues: He’s on the air, mindlessly parroting the quote from Trump, which the president mindlessly picked up from the Fox guy, that “the cure is worse than the problem.” Ramsey is all for putting America back to work in the next couple of weeks. What misjudgment. Perhaps he should start listening to the experts in the medical community, instead of people with opinions. I hope to God that Ramsey is right, but that would require the virus to just magically “wash away,” as the president foolishly said a month ago. But again, I believe in science and the medical experts. This crisis isn’t going to end any time soon, and those who are sounding the back-to-work call are being irresponsible and jeopardizing the lives of people everywhere.
It’s irritating to see this health crisis being politicized by anyone isn’t it?
[Inflammatory political comment deleted.] Trump is extending his Coronavirus guidelines through April. (A $5 bet that it will eventually go far longer.) Perhaps now Ramsey will stop with his “cure is worse than the problem” rants and ratios of unemployed to CURRENT Corona cases to justify a quick return to the workplace, and start listening to science. Americans need as much encouragement as possible to stay home, be safe and dampen the spread of the virus. We all want people to return to work as soon as possible, but not now, when it means life and death.
I’ve listened to the WCI and Dave’s podcast almost religiously the last 2 years. In the last several months Americans short on cash and strapped with payments have been reminded that debt IS dumb and cash IS king. Interesting universe we live in.
I’ve listened to the WCI and Dave’s podcast almost religiously the last 2 years. In the last several months Americans short on cash and strapped with payments have been reminded that debt IS dumb and cash IS king. Interesting universe we live in.
I wonder if my wife would listen to you. She apparently doesn’t believe me when I tell her: “Dave Ramsey is for people who can’t do math.”
He’s not bad, he’s just for another type of person. Spot on article.
I don’t know why your wife would listen to me since my wife doesn’t. 🙂
As far as Ramsey, take what you find useful and leave the rest.
Did you mention anything about how hard Dave Ramsey pushed people to buy a house? As a life long renter myself, I think that is terrible advice. Especially so for some of his callers who have pitifully small amount in their retirement accounts.
I have often thought this bias of Dave was the result of having made all (almost all ) of his money through real estate. He loves the stuff.
I dunno, I hear him say only buy on a 15 year with a 20% down payment. That’s not exactly “everyone run out and buy a house.”
So you think it is wise to tell a 60-year woman with $75,000 in savings to save up for a house? That’s what I meant.
He does it all the time.
Of course, I am on board with only buying what you can afford & the the 15 year mortgage.
I think houses are over-rated as an investment but that’s a topic for another time.
I guess if she wants one, sure, save up and buy it. But I’m not some sort of universal home ownership apostle. You can certainly have a nice financial life while renting. But if I had to guess, I’d say almost everyone I know who has built significant wealth owns their home. Correlation is obviously not causation. So you’ve both likely got part of the truth.
There are some good points in the article, but they are not necessarily “Ramsey’s” program. They are rather sound financial principles most experts agree upon and promote. Ramsey has just packaged them nicely.
Nothing profound about a cutesy marketing slogan. This is one of my pet peeves because many seem solid, but are actually logical fallacies or absolutes that don’t account for personal situations. They appeal to the masses. People use them as gospel.
Ramsey discounts education. Knowledge, critical thinking, and sound judgment are the pillars of just about anything in life, including personal finance. Ramsey is the microwave meal of the financial world, which is fine if that’s what you want to consume.
All of the “right” options have issues that financially educated people will disagree with. Again, education will negate many of Ramsey’s “necessary” actions and principles.
We used an ‘Endorsed Local Provider’ for financial advisor with Dave shortly after fellowship and having our 2 children.
Got sold American Funds for starting out 529 plans. Feels SO GOOD losing 5% of our kids’ college funds right off the bat. Also they never seem to come close to VTSAX or Fidelity equivalent. Great Article WCI!
I disagree: “You Can’t Pay for Medical School Without Debt.”
Most can’t, but some can escape law school or med school without debt, at least without significant debt. Merit-based scholarships exist for both programs for highly qualified candidates.
I graduated with almost no debt because I had a scholarship and worked in law school. I did have a ten-year career before law school and some level of financial security. I was able to have some financial security, mostly because I worked my way through an undergrad night school program.
My son had most of his attending a top 14 law school on an academic scholarship. He worked for a year between undergrad and grad school while living at home. He can use those savings and his summer associate positions to offset his living expenses. He is finishing his 2L year with less than $10K in debt, mostly because he wants to preserve his emergency fund. I provide health insurance and the use of a family car; otherwise, he is on his own. He could probably swing it entirely debt-free without my help. His girlfriend is an MD/Ph.D. candidate on a full ride with a stipend, so that’s also a possibility.
Before I went to law school, I was told that you should only go if it is a burning desire and you are willing to work hard for 10 years afterward to pay for it or if you think you would enjoy the work and can get it paid for. I fell somewhere in the middle. I worked hard for the first 3 years and paid it off. Now that I have built up my F-you fund, I only take roles I like because I know I can quit and not lose everything.
Don’t go to college to figure it out, and don’t go to grad school because you haven’t figured it out. Have a goal in mind with some idea of the outcomes. You can change your mind, but every pivot requires an understanding of what went wrong and an application of those lessons to the new plan.
Borrowing money because you were unwilling to do the work to avoid the need to borrow is an interesting choice when you will have to work harder after you acquire the debt.
Far harder to get merit scholarships in med school than undergrad. I assume law school is the same way.
The data shows that 27% of med school grads are graduating without debt, but I suspect a decent chunk of those have a contract like the HPSP one I had.
Similar with dental school. A minority of grads finish debt free, but are indentured to the military.
I meet dentists on a regular basis who just assume to carry their loans for 20 years. Or until death.
There was a orthodontist with a million dollars in student loan in that Dave Ramsey student loan documentary. Totally true.
I graduated from dental school in 2010 with 350k in students loans. I distinctly remember my last semester in dental cost 25k in tuition. I let it ballon to 550k before I finally saw the light and paid it off in 2018.
The orthodontist lives near me. I sent him a copy of the WCI book and an invitation to lunch. Never heard back.