So, in response to a facebook post from a friend, I commented how I am not a fan od Dave Ramsey, AT. ALL. This appeared to have shocked some people, so I said I’d explain.
My problems with Ramsey are two-fold, one: I hate people that peddle their own brand of what’s essentially populist propaganda on masses that do not have the time to invest in fully understanding what he’s talking about. If enough people hear the message, it doesn’t matter how wrong he is. If you tell a lie often enough people will believe it. Two: I hate his extraordinary simplification of complex ideas, sometimes amazingly wrong and bad advise, and stretches of math that simply do not support reality. (Seriously… 12% annual growth over 40 years? )
First let me explain his personal issues, then expound on the whole of talk radio sales people.
Dave Ramsey says things that sound absolutely true and good on the surface.
Here’s his “baby steps”:
Baby Step 1 – $1,000 to start an Emergency Fund
Baby Step 2 – Pay off all debt using the Debt Snowball
Baby Step 3 – 3 to 6 months of expenses in savings
Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
Baby Step 5 – College funding for children
Baby Step 6 – Pay off home early
Baby Step 7 – Build wealth and give!
They all sound super smart! Who could argue with any of them? Me, and thousands upon thousands of economists, scientists, mathematicians, statisticians, bankers, politicians, and legal experts.
First off, all except #2 are actually good ideas, but with major caveats. Emergency fund? Yes. Are you making enough at your part time job to save $1,000? Then it’s not a good idea. If you were a medical student and your mission was to cure AIDS by the end of the year, that sounds like a good mission, but it’s a stupid goal because you don’t know how to even begin.
If you are making an average household 2-income cashflow, these rules are out of your reach, not because of debt, but because of the cost of living.
Let’s say you are above average, and are in the wealth range that DR is catering to: 2 and 4 are not good blanket advise, and he knows it.
Bottom line issues with #2: Debt is NOT a bad thing.
Bottom line issue with #4: There is no one-size-fits all investment strategy. There are better options depending on your own scenario.
Important fact: Debt is NOT a bad thing. In fact, it is the driver of literally most of the financial growth in the world. Literally.
If I have a job, but not a large savings and I need to buy a car, I can save up over time, and buy a car, or I can get a loan. If I save up, the car manufacturer has to wait on me to sell their car, which means they don’t have the money to spend until I do. If they are trrying to buy a house, but can’t buy a house till I buy a car, and I build houses, but can’t build a house because nobody has the money to buy one, we’re both screwed. Debt solves the problem. Sure, you’ll pay more for the car in the long run, but that’s not unsustainable. If you factor in inflation, paying for something later and paying less upfront is often worth the convenience- both for you and the seller. (Buying *too much* car is often a problem, though. Don’t do that.)
Dave Ramsey says all educational debt it bad. BS. Some educational debt is bad- diploma mills and online-only education scam artists that don’t earn anything extra are bad, but a 4 year degree in a professional field? Are you kidding? I can make $20,000 a year in retail, or $75,000 as an engineer. If I take out 80K in loans, and end up making $55k more than I would have, it only takes a year and a half into my career to be ahead. There are very few careers where you aren’t making more than you would have been. Some fields of study do take longer to recoup your investment, though. Some, I’ll admit, never make enough to recoup. You need to be aware of that and accept it before embarking on that path. Hopefully you did that first.
If you have Ed. debt, paying it all off first and renting, while saving up to buy a home is often ridiculously stupid. (Something he nearly always advises.) Renting costs almost as much as a mortgage in most markets, but with a mortgage, you actually build equity in your home. At the end of a year’s rent, all you get is a rent increase notice and the feeling of “well, at least I had a roof over my head”. If you are single, or non-parents, maybe renting is worth it, but not usually. Student loans are typically very low interest, and some of which is usually subsidized. Worse: he often says pay off your debts, and dump that money into investments. He argues this as investments can grow 12% over 40 years! (Which is utter, utter, bullshit. Oh yeah, dd I mention he happens to sell mutual funds?) Buying a house is a lower rate if investment, but at least you end up with a useful physical asset. When your mutual fund goes belly up, or the next crash leaves it at 10% of what it was, you lose big.
Those are just a few examples out of hundreds I can think of… but the real issue with DR is why he says what he says.
News flash: it has nothing to do with wanting to get you out of debt or make you wealthy. It’s making HIM wealthy.
DR sells books, and has radio broadcasts, and tv appearances. He makes money because *you* pay attention to him, not because he’s right. His mission is to say whatever gets you to buy more books, and listen to more radio ads. His advice is not the product, YOU are. Also, he’s a real estate mogul. He advises people to rent often…which he makes money on!
That’s my big beef with all broadcast salesmen. They aren’t peddling information, they’re extracting money from YOU. His advice is a massive conflict of interest that benefits him and him alone, much like the InfoWars people and their “Survival Seeds”, and Glenn Beck and his “buy precious metas and Survival Seeds”, and Breitbart and their “Survival Nazi Seeds”. It all makes me angry that people buy into their shit instead of thinking things through.