My Disagreement with Dave Ramsey

My Disagreement with Dave Ramsey

Let me state at the outset I am a fan of Dave Ramsey.  He has helped hundreds of thousands of people stay out of debt and build wealth.  For those of you who don’t know who Dave Ramsey is he is a financial counselor with a nation-wide radio talk show.  He has the third largest radio talk show in the USA.  Dave takes calls from various places around the country about people who have questions regarding debt, real estate, investing, being good Christians with money, etc.  Dave professes that he was once rich, became stupid about debt, went bankrupt and broke, and vowed never to borrow money again.  He has built his career on trying to teach people to stay out of debt, pay it off as quickly as possible, and build wealth.  I respect that quite a bit.  I think it is great because debt is such a huge burden for many families, particularly because of high credit card, student loan, and mortgage debt.  In fact Americans are in debt to the tune of about 14 trillion dollars (including all of the previous stuff on debt…mostly mortgages).

In order to pay off debt, Mr. Ramsey recommends you follow the baby steps.  In my own quest to pay off debt I have followed the first two with slight modifications. Here is where I disagree with Mr. Ramsey.   I totally agree with Mr. Ramsey about paying off your debts in order get them done as fast as possible.  Where I disagree with him is that he tells everyone to stop their contributions to their retirement plans.  In my case I am mandated to contribute about 15% of my income to a pension plan or an Optional Retirement Plan (like a 401k).  I took the 401k, but I must still contribute.  I disagree with Mr. Ramsey b/c while most of his clients pay off their debt with a couple of years, some may take longer who have more debts (such as myself).  I want to start to build my retirement now and if I wait I lose valuable attempts at compound interest.  I am not saying that my plan works better than Mr. Ramsey, but considering that my contributions are compulsory I think that I can be an exception.  Moreover, many 401ks have matching contributions.  If you stop your 401k contributions you, in essence, lose free money.  Even it is for a couple of years, a few thousand dollars can mean a lot in the future of compound interest.  Thus, that would be another reason, even if I wasn’t mandated by my job, where I would at least save my contribution up to the max and then throw money at the debt I have.

A second area I disagree with Mr. Ramsey about is his advice on mutual funds.  Dave recommends: Growth, Growth and Income, Aggressive Growth, and International Mutual funds.  I believe he tweets what specific funds he recommends on his Twitter account, although I have not seen those recommendations, nor does he mention it on his radio show.  Dave suggests that if you invest in these kinds of funds (and you MUST do your research ahead of time) that you can earn an average rate of return of 12%).  For those of you know who are familiar with investing that is an incredible rate of return and perhaps somewhat unrealistic.  To his credit, Mr. Ramsey suggests that you ONLY buy mutual funds with LONG track records (at least 10 years or more).  And there are a number of funds out there that do attest to Mr. Ramsey’s suggestion that you can get a 12% return.

My problem with Mr. Ramsey is: 1) He never discusses the differences between the kinds of funds he lays out (e.g. what is the difference between larger and mid-cap growth, etc); 2) more importantly, Mr. Ramsey seems to suggest that these funds should be the only ones that exist in your portfolio for LIFE! My question is what happens as you get older.  The advice that most give is that you become a bit more conservative as you get older, conserve the principles of your investments b/c you will need them in retirement.  The above funds are much more susceptible to market volatility and if we have a bad market (e.g. 2007-2009) your principle can be gone.  I am not suggesting we abandon those kinds of funds as we get older (I have many of them).  However, to suggest those are the only funds should have as you get closer to retirement seems a bit dangerous to me because of the volatility, because of the risk.  I guess I would think that someone should have growth, but also get into a bit more conservative investments so that they can have a balance throughout their portfolio.

People can do what they want, but I try to have a bit more diversity in my portfolio.   I have primarily good growth stock funds which are separated in different categories, but I also have balance funds and a bond fund or two.  I don’t have a problem with market volatility, but as I get older I am sure where I stick my investments will become a bit more conservative.

Ultimately, I agree with Mr. Ramsey on a number of things, but I tweak it to match my situation.  The great thing is that he has gotten tens of thousands of Americans to get out and stay out of debt and save and give along the way.  My disagreements with him are in no way a condemnation of his overall message to live within your means, save as much as you can, and give as much as you can as well. It is a great message. I wish more people, including myself, would be/will be much more true to it.

6 thoughts on “My Disagreement with Dave Ramsey

  1. My disagreements are more fundamental, Jason. I won’t nitpick the details of his plan as much as I’ll say I straight up dislike his politics a great deal. Like you, I certainly appreciate his overall message about personal financial responsibility. But too much of his talk show is a kind of subtle victim-blaming with some ugly undertones, and his positions on immigration issues are BAD, imho. It’s not over the top, but he’s a conservative Christian white guy, and in some ways, his advice is really for white people. His general refusal to acknowledge systemic economic issues that negatively impact the poor contributed to a world-view that blames the poor for their predicament. For a self-professed Christian, it’s an uncharitable approach. That said, his basic advice is as good as anything out there: it’s real, and it works. We’ve done it ourselves. Once you’re into building wealth, I like Ramit Sethi and your guy, Mr. Money Mustache a little more, but Ramsey is a great place for anyone to start, as long as they don’t follow him into his political talk…

    1. Hey Tim, I can certainly understand your disagreement with him. I certainly don’t share his politics. But I wouldn’t go so far as to say that his advice is really for white people. I mean the basic premises of living below your means, saving what you can, paying off debt are, in my opinion, fairly universal. But I get the larger point you are trying to make and I certainly am not a fan of his railings against Congress and the like. I try to do my best to separate out the personal politics and get more the message about building wealth and leaving a legacy for your family.

  2. I totally agree with you in regards to not contributing to your retirement. Even though I am focused on paying off my debt, I have never stopped saving towards my retirement. I am so happy that I have continued since most of my funds are going towards my debts vice saving, it makes me feel good knowing that I am still putting money away for a rainy day.

    1. I realize why Dave advocates what he advocates, but I just think giving up free money is somewhat short-sighted. He would tell me I am wrong and that is fine. I think you can be intentional about paying off debt and putting money away. And I am mandated to save. I don’t have a choice. That is part of my contract so i don’t feel so bad about it.

  3. To me, investing is more art than it is science. And with art comes two very important qualities: Opinion and Perception. You cannot rely on a formula that always gives the same result time after time. That would make the answer as easy as 1-2-3. Instead, the beauty of art is only in the eye of the beholder, and every’s definition of beauty is different.

    I won’t even pretend to be anywhere close to an investment expert. I enjoy throwing money into my targeted retirement accounts (which is a mixture of stocks and bonds) and simply sit back and watch the stuff grow. But the more involved you get, the better prepared you need to be to make your own decisions based on something a little more concrete than opinion.

    Dave Ramsey’s advice may be right…but it may also be wrong. Ultimately, you’re deciding on the difference in returns between paying interest on your debt or GETTING interest (in the form of capital gains) on your investments. Clearly, if one is greater than the other, then your decision ultimately becomes much easier.

    I might be able to see the wisdom behind Ramsey’s thoughts. I think it’s possible that with the people he talks to over the phone, there may be an extra dimension at play that contributes to his advice. When you pay off your debts first – even if that means cutting your retirement spending – you’re not only wiping the slate clean from an financial standpoint, you’re also *simplifying your life*.

    By that, I mean you’re no longer worrying about creditors or debt collectors. You’re no longer getting threatening letters in the mail or risk having your car or house repossessed, or even wages (or retirement savings!) garnished. For some people (or perhaps MOST people that he speaks with), getting rid of your debt might add enough “peace of mind” to their lives that it helps them not only get out of debt, but fundamentally change their lifestyle.

    Debt can stay around FOREVER. Even if you have a million saved in your retirement account, if you also have a couple hundred thousand in debts, then are you really “getting ahead”? Are you truly prepared to retire? Are you living happy and completely stress free? Probably not.

    Again, I’m not necessarily arguing for or against Ramsey’s opinion on the matter, merely supplying my thoughts that might account for why he holds that position.

    I could be completely and entirely off base.

    Cheers! 🙂

    1. Steve, thanks for stopping by. I totally agree about debt, paying it off and creating a sense of peace of mind. I plan on getting rid of my consumer debt ASAP. My “problem” with Dave’s philosophy is that it is offered as if it is gospel and a one size fits all for all situations. Now I don’t think he would say that totally, but if you ever listen to his program his baby steps are like gospel, particularly the first three. I certainly appreciate your ideas and i think they are dead on about getting out of debt. Hopefully, we will be out of ours in three years….10 and totally debt free. Let’e hope!

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