3 Ways Dave Ramsey May Be Rubbing You The Wrong Way

3 Ways Dave Ramsey May Be Rubbing You The Wrong Way

I have previously written about how I was inspired by Dave Ramsey and his show to get out of debt. If there is one person who has inspired literally millions of to people get out debt in the history of America, it’s got to be Dave Ramsey.

What I Like About Dave Ramsey

He may have not literally helped these people but his Baby Steps and his motivational rants have certainly done the job. He has done a great service to the people of America by showing them a clear path of how to get out of debt and build wealth. It’s pretty much a recipe for success and there are thousands out there who can vouch for the credibility his technique.

Ever since I started reading about personal finance one of the first people I encountered was Dave Ramsey. The Dave Ramsey show is really captivating and the concept of giving people an opportunity to celebrate their debt freedom through Debt Free Scream is truly inspiring. It’s a testimony that his method works and people are finding themselves out of debt when they follow the plan. I personally have managed to get myself out of debt using his methods. Although I didn’t follow them to the T, it helped me immensely by giving me a framework to work with. It was the tactical part of his methodology that helped me get out of debt. Thank you Dave.

3 Ways Dave Ramsey May Be Rubbing You The Wrong Way

As I read more about personal finance, I find a lot of people carry a certain amount of contempt for his teachings. I see this trend in a few members of the FIRE community too.

Is Dave Ramsey Rubbing You The Wrong Way?
3 Ways Dave Ramsey May Be Rubbing You The Wrong Way

Since FIRE community is basically made up of people who have chosen to take the road less traveled, it makes perfect sense for them to not “accept” everything some Financial Guru says on radio and drink the “kool-aid” that millions of others are drinking daily. I found particularly 3 things that are core to Dave Ramsey’s teachings that seems to rub people the wrong way. This really makes them distance themselves from Dave and his teachings.

1. Borrower Is Slave To The Lender

This is one of the pet peeves of people who don’t subscribe to Dave’s methodology, especially those who believe OPM (other people’s money) is the only way to build wealth and don’t view it as a risk. The fact the scriptures don’t talk highly of the borrower only adds to their agony.

A lot of them argue about borrowing money to buy a car at 0% interest is perfectly acceptable. For the average American, financing big-ticket items like a car, is an everyday affair. There is an entire industry out there ready to lend you money to ensure you walk away from a car dealership with a car payment. It’s not just the banks, there is the dealership itself that is more than willing to close that sale and you walk away with a brand new car. They will do everything in their means to sell you that car. It’s no wonder that the average car payment today in America is $523 according to this article. All of this is heavily enabling and encourages people to take on debt.

Dave Ramsey also has a rule of thumb where he recommends that the total value of all the items with wheels and motors on them should not be more than 50% of your annual income. This often pisses people off when they hear Dave Ramsey on the show telling people that they need to sell their stupid car or motorcycle. The callers of the show literally get called out on their stupid purchases often makes people wonder why Dave is against it. The callers sometimes find it hard to part with what they think is their prized possession.

If you can get your car financed at 0% percent interest rate, what could possibly go wrong? Why has Dave Ramsey taken this extreme stance to never borrow money for anything? It's beyond their grasp. Click To Tweet

So is it really bad to borrow money to purchase a car? I for one feel borrowing money to purchase a depreciating asset is dumb. The real issue with purchasing a car is not that you were able to afford the car or you are not paying any interest (which might not be true since the dealership has already factored that money into the deal) but it’s the fact that you have now taken on a monthly payment and are stuck with it for the foreseeable future. It’s literally eating into your cash flow and like Dave says, “You’re paying the stupid tax!” It could have been deployed to earn you more money.

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Many people who criticize Dave on this, miss the above point and find ways to justify their decision. When you try to reason with such folks, you’ve just gotten into a bitter argument which often doesn’t end well.

2. You Need An Investment Advisor To Manage Your Money

If you are on your path to FI or FIRE, you fall into a minority of the Americans who are financially literate enough that you understand enough about money. You are able to understand the rationale behind a concept like FIRE and has spent the time to read up the specifics of what it takes to get there. You’ve done your math and worked out the numbers already. You not only know how to get there but also know when you’ll get there.

One of the most common trends I see with people on the FIRE path is they are all DIY investors. They love to work with a low-cost brokerage firm like Vanguard and believe in Index funds. They are familiar with the 3 fund portfolio and often view investing as a DIY activity and don’t want to pay someone to manage their investments. For people like them, an investment advisor is literally someone who is out there to make money off of them by charging heavy commissions. This also means he is going to bring down the actual return on their investments with active management and other administrative fees.

When you have investment options with literally zero expense ratio, why would you pay an investment advisor to put you in a fund that has close to a 5.75% front-end load fee? It's just beyond ridiculous. Click To Tweet

So when Dave Ramsey comes on the show and recommends his listeners to work with an investment advisor, these people dawn on their nerd hat and get ready to trash him. Dave Ramsey recommends working with investment advisors who give you advice consistent with his teachings and it’s offered through his SmartVestor program. It’s basically a network of investment advisors who have been vetted by Dave Ramsey’s team and follow Dave’s principles to help you manage your investments. Before you jump in and call it a way Dave makes money, I want you to realize that people work with an investment advisor for not just lack of knowledge but other reasons too. Some of them may be too busy to focus on investing and just want to outsource this seemingly daunting task. People who DIY their investments is a real minority in America. The vast majority of people out there still work with some investment management firm to handle their investments. To that end, Dave’s recommendation is not wrong at all.

I don't do my taxes since I find it too daunting and I feel I might make some mistakes. I work with my CPA to file my taxes. Now does it make my CPA a crook? Absolutely not. He is just being compensated for the expertise he is… Click To Tweet

While I myself am a DIY investor, I do feel the investment advisers have their own place. The entire FIRE community is a very small percentage of the overall American population. What Dave Ramsey is talking make sense when you look at the avergae American who is having a hard time managing the basics of personal finance like budgeting or staying away from debt, let alone go through investment options and manage their own portfolios.

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I definitely feel people need to spend time educating themselves on how to choose a financial advisor and what are some of the gotchas and how to avoid them. They need to stop painting every financial advisor with the same broad brush and look at them as mere agents who work for a commission. I feel the financial community needs to revamp their image and look for adding value and not just find new clients and up their commission.

3. Don’t Use Credit Cards

This is one advice from Dave that I have literally taken to the heart. When I first heard it from Dave, I wasn’t sure how switching from a credit card to a debit card or even cash can help me. I have never carried balance on my credit cards and have always paid off my credit cards in full. So when I heard this advice, I wasn’t fully convinced if this might be worth following.

At the time of beginning my debt free journey, I carried 8 different credit cards. I have written about how I eventually chose to simplify my finances for the good. I firmly believed these credit cards provided me with “options” to cover any unforeseen of my expenses. In a lot of ways, these credit cards were my emergency fund. How cute isn’t it? So the thought of parting with them didn’t seem wise to me. After all, what would I do if I ran into an emergency? How would I cover that expense?

But as I understood Dave’s Baby Steps further I realized that credit cards didn’t really provide me the safety net they often claim to provide. They, in fact, made me spend more than normal. It is this argument that Dave had been putting forth, while I was busy arguing in my head, “But I pay off my credit cards in full. So they can’t be bad.” This is exactly the same argument that most “responsible” credit card users often put forth to defend themselves. I feel Dave is right when you view it from the perspective – “You wouldn’t have spent this money in the first place. Forget about paying it off.”

I am yet to meet a millionaire who said he became a millionaire because he earned cash back on his credit cards. – Dave Ramsey Click To Tweet

When they hear Dave say this, I often find people throw in the Travel Rewards and Cashback Rewards argument and claim it makes them some extra money. If I can make some extra money by using a credit for a purchase that I would have done it anyway, why not? I know a lot of people who have earned enough travel rewards to basically get an entire trip paid for using just the rewards points. But what they miss is that it tricks their brain to believe this script – “Spending using this card is really good. I get to earn some credit card rewards. Over a period of time, you rationalize your purchases with the cashback rewards or travel rewards.”

My personal experience has been that once I chopped 7/8 credit cards, my spending really went down. I began to look at my purchases with a fresh perspective since I had to part with my money immediately. There is something about that “immediate” exchange of money that makes you rethink every purchase. I feel many people miss that point and it rubs them the wrong way, when Dave says, “Cut up all your credit cards and stay away from them.”

Is there anything about Dave Ramsey that rubbed you the wrong way? Please share your thoughts in the comments. I would love to hear from you.

8 thoughts on “3 Ways Dave Ramsey May Be Rubbing You The Wrong Way”

  1. These are really good. I love Dave’s baby step approach and followed the steps almost exactly. However, we didn’t follow all of his advice. In addition to what you mention above I’ll also add a couple more.

    1) His advice to stop investing in a company 401(k) with a match when paying debt. Unless you have no room to pay off debt I think you should always take the company match.

    2) His advice to never keep bank accounts separate. To me this is a personal decision and you can be aligned in a marriage even with separate accounts.

    Overall Dave provides great advice but that doesn’t mean we have to agree on everything.

    • I agree with you on the 401K part since I didn’t follow that advice too. Other than that I pretty much find his advice very consistent.

      Lately I have realized his advice might not sit well with everyone since they are all coming from different places and needs and find one or the other aspect of his advice to be off limits.

      But I grateful to Dave for helping millions in America find a way to get out of debt and build wealth.

  2. Well thought out points! I generally would say I probably agree with Dave 80% of the time. I think his debt payment strategy is solid. I question anyone who follows anyones advice 100% though, if they are actually thinking about what is best for their scenario. In the beginning, I was a die hard “you must follow everything Dave says” camp. But since then I’ve relaxed my perspective and realize that there are many paths in being smart with your money.

    I know we have talked a little bit about this on Twitter, but even with my history in abusing credit cards, I think I have a healthy perspective of them. I just setup automatic payments to 100% pay off each card every month, and every purchase comes out of a category in YNAB. So in theory, this should be “safe.” But we will see. I think your perspective in being cautious of credit cards is wise and thought out, and I don’t think anyone should make you feel guilty in having that opinion (if it works who cares what others think!).

    At this stage, as we finally get to a spot to start heavily investing, I’m probably going to stick to DIY investing. But once we get to a certain amount invested, I may end up paying the fee to go with the Vanguard Personal Advisor service. At only 0.30% fee, it is much lower than traditional advisor fees, but still has a personal element. I’m still new to investing though, so my plan may change this year. Internally, I keep on going back and forth on robo-advisors, since their tools and interface are amazing, but they are expensive compared to DIY.

    BTW: Your site looks awesome! I love the recent changes.

    • I see from your comments a naturally progression from a learner to someone who is getting a handle on their money habits. I am same way too. I think it works out very well as you learn anything new. We first imitate and then question and improvise.

      I have tried welathfront, betterment and fidelity managed portfolio services in the past. Now the only roboadvisor I use is Blooom for my 401K. Rest evening is DIY. I do have a financial advisor I work with but not for investments. He helps more like a coach. I see great value in that too. May be someday I will switch to Vanguard advisory services.

      I took your advice and investe in the theme your suggested 😊 I am very happy it worked out very well. Thank you for the wonderful suggestion 🙏

  3. I definitely disagree about the credit cards. I spend the same amount (which isn’t a ton) whether I’m using credit cards, debit cards or cash. It doesn’t seem to affect me in any way. Maybe I’m just weird.

    But I do agree that sometimes investment advisors are necessary. I’m happy to let the Vanguard experts do their thing with a targeted retirement fund, but if I were ever to do some regular investing, I’d definitely be looking for someone to hold my hand. I don’t have the energy or patience to do the research necessary to be a DIY investor.

  4. I can see where you are coming from Abigail. I have a colleague of mine who is also pursuing FI and he is a die hard fan of credit cards. We both discuss a lot about personal finance and for all the thins I convinced him to do from YNAB to podcasts to blogs, I couldn’t convince him to ditch credit cards. To that end I have come to realize that credit cards, as long as you don’t carry balances is not as bad as DR makes it to be. I for one have known my vices with credit cards and have decided to limit it to just 1 card.

    My personal investment accounts are currently DIYed. However my workplace retirement savings which is majority of my net worth is managed by a RoboAdvisor service called Blooom. It’s a flat fee model and I love it. I acknowledged it in the post too that many people choose an investment advisor for a variety of reasons.

  5. I kind of live in a bubble, so I keep hearing about this man (Dave Ramsey) but don’t actually know much about him or his philosophy. I have a friend at work taking one of his financial peace university classes or something. She’s not very religious, so she was telling me some about how that part was rubbing her in an odd way. Thanks for giving me more insight here! Some people can handle flexible advice, but I take it that he doesn’t trust people to trust themselves (or he thinks the people who come to him need extreme structure). I’m still forming my opinion… and enjoying my life in a pop-culture bubble:)

  6. Hi,

    I can see where you are coming from. When I first started listening to Dave, I felt the same. I was part of (still a member) of his official facebook group. But I have learnt one thing about the way I learn. There are some phases to my learning anything new.

    1. Exploratory phase – In this phase I mostly sift through content from various sources like blogs, books, youtube videos, podcasts etc. There is no zeroing down on which one I like or which ones I don’t. I am yet to form an opinion. The idea to go breadth first.
    2. Pick favorites – In this phase, I usually narrow down to few of my favorites who approach I like or I am able to connect with. I then weed out all other sources. This is like choosing your finalists.
    3. Soak Everything In phase – In this phase, i simply follow the recipes prescribed by people whom I followed earlier and shortlisted. This helps learn the techniques.
    4. Mastering and Beyond phase – In this phases, I try to learn the pros and cons of each approach and eliminate the ones I don’t think applies to me. I also try to question why something worked and is it because the author said so or for other reasons. It helps me get to the why part of it.
    5. Build you own plan phase – This phase is where i think I am currently. I have gotten a hang of things in the PF world on topics I want to focus on. I have formed opinions on several topics based on what worked and didn’t for me. I have also understood me as a person. So I am now ready to chart out my path.

    So when you said you were in a bubble I totally get it and it can be like a echo chamber. I hope the phases I listed resonates with your own learning of things. If not, do let me know how you view this.

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