Dave Ramsey is a household name for managing personal finances—his advice centers around living debt-free and building wealth sensibly. He offers his advice unapologetically, designed to help people stuck in a cycle of debt out as quickly as possible.
As much as we admire his financial wisdom, there are areas where his advice may not fit everyone’s economic situation (like any financial guru).
Dave Ramsey’s school, Financial Peace University, has helped millions of people get out of debt and take control of their money and spending habits. But that doesn’t mean everything he says or recommends is the only way.
Let’s look at 15 teachings from Dave Ramsey that differ from modern money smarts. It’s up to each consumer to decide what’s best for them.
1. All Debt is Destructive
Ramsey is vocal about despising debt, spreading the idea that ‘debt is bad, cash is king. ‘ We all agree that excessive debt can put you in a hole that you can never come out of, and he is right that we need to avoid debt where possible.
However, let’s not forget that some debts can be beneficial. For instance, mortgages can be quite useful when managed wisely, with increasing tax perks and property value.
2. One-Size-Fits-All Budgeting
Ramsey preaches zero-based budgeting. It’s a method where your income minus expenses equals zero, which means every dollar should be assigned a purpose and never go wasted. But it might not suit everyone’s needs. Some people need more flexibility in their budget for different income timings or specific goals. For example, those with irregular incomes could benefit from personalized financial setups that are more adaptable.
3. The Debt Snowball Method
The ‘debt snowball’ method involves paying off debts from smallest to largest, regardless of interest rates. This method provides psychological wins that motivate you to continue paying down your debts, enhancing the likelihood of clearing all debts. However, if you do the math, the ‘Avalanche’ method (paying off debts from highest to lowest interest rate) can save you more money on interest payments over time.
4. Say No to Credit Cards
For many people, credit cards come with debt and financial irresponsibility. Therefore, Ramsey’s advice to cut them up and avoid them is grounded in good intentions.
On the other hand, the benefits of cashback, rewards, and building a positive credit score cannot be ignored for those who can use credit cards responsibly. Moreover, because of Federal Fraud protection and 0% liability, credit cards are safer to carry than cash and debit cards.
5. 15-year Mortgages Are Always the Best
Ramsey supports the 15-year mortgage as the ideal middle ground between building equity and interest savings. It allows homeowners to pay off their debt faster and reach financial goals quickly. Conversely, a 30-year mortgage offers lower monthly payments, giving homeowners more flexibility in their budget.
A May 2018 report revealed that 69% of homebuyers preferred 30-year mortgage rates because of affordability and peace of mind. For many, a 15-year mortgage just isn’t possible given the monthly cost.
6. Fixating on 1000 Dollars in an Emergency Fund
Ramsey insists on a fixed emergency fund of $1000. While a small emergency fund can provide a safety net against minor financial hiccups, with rising inflation, this amount is insufficient for unexpected emergencies. Moreover, the amount of emergency funds needed varies from person to person, depending on the individual’s financial situation.
7. Misleading Investment Returns
Ramsey is known for his ‘12% rule, which advises people to expect a 12% annual investment return. In a perfect world, it can be true, but in business, it is not a guaranteed or realistic expectation for future returns.
The difference is that Dave’s approach leans more toward the stock market’s average return than the compound annual growth rate, which is more reliable and precise.
8. Never Buy a New Car Unless You Are a Millionaire
A new car depreciates as soon as you drive it off the lot. In fact, according to CarFax, a new car can lose over 10% of its value within the first month after purchase and more than 20% within the first year. So, when Dave Ramsey says buying a new car is stupid, we know where he is coming from.
But we can’t overlook the advantages of buying a new car, such as warranty coverage and peace of mind. Additionally, when you purchase a used car, maintenance costs, and repairs can eat into any potential savings. With responsible budgeting, buying a new car can sometimes be a smart financial move, and you don’t always need to be a millionaire for it.
9. Putting Your Retirement Funds on Hold Until You Are Debt-Free
Ramsey believes that you should pause all retirement savings until you’re debt-free. While clearing debts is important, delaying retirement savings can hurt in the long run. The earlier you start to save for retirement, the more time your money has to grow. Instead of halting all investments, some experts suggest balancing debt payoff and retirement savings.
10. Mutual Funds Are Better Than ETFs
According to Dave Ramsey, mutual funds could be better than exchange-traded funds (ETFs). Sure, mutual funds give you diversification and simplicity. However, ETFs cost less and trade like stocks throughout the day, allowing investors to respond dynamically to market changes. With lower expense ratios and tax efficiency, ETFs are a compelling choice for investors aiming to optimize long-term returns.
11. Moving in With Your Parents is a Bad Idea
Dave Ramsey often tells his clients to avoid moving back in with their parents, primarily to maintain their dignity and independence.
While living independently and financially independent is ideal, that may not always be feasible for everyone. In today’s economy, living costs are high, and people often struggle to make ends meet. If one can contribute to expenses, moving back in with parents or family members can provide much-needed financial relief, and there is nothing wrong with that.
12. Selling Assets to Pay Off Debt
Selling off assets is a quick solution for paying off debt, but it’s important to think long-term, too. Take your home, car, or retirement savings, for example – letting go of them can have big tax consequences. So, before you decide to sell anything, think it through. Consider the pros and cons of selling different assets to make a smart financial choice.
13. Extreme Frugality
Ramsey is a big advocate of frugal living. While living below your means is a fundamental aspect of financial stability and building wealth, extreme frugality can have its downsides. Cutting back on essential expenses can ultimately harm your long-term financial well-being. However, you can still enjoy life while being mindful of your expenses.
14. Retirement Withdrawal Rate Should Be 8 Percent
Ramsey recommends a retirement withdrawal rate of 8%, significantly higher than the generally accepted rate of 4%. While this could provide more money in the short term, it also increases the risk of running out of funds in the long run and leaving retirees in financial ruin.
15. Missed Opportunity Cost
Ramsey’s teachings focus on getting rid of debt, ignoring the opportunities you could have by investing that money instead of paying off low-interest debts. For instance, though it might be tempting to pay off all mortgage debts before investing your money, this could result in missing out on years of potential compound interest and growth in savings.
So, while this advice may be helpful in some areas, you must think critically and consider all factors before making financial decisions.
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Aqsa is a passionate writer who loves spending her free time jotting down her thoughts. But that’s not all. She is a devoted mom to two boys and a skilled pharmacist specializing in hematology. When she’s not running after her energetic kids, you can find her lost in a good book or writing beautiful words. A nature lover at heart, she enjoys exploring the outdoors, staying active, and always seeking ways to learn new things.
