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Thoughts on Dave Ramsey and Financial Matters

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Posted by Ndolger on 09/08/2015 at 11:56 PM

One day in 2013, I happened to stumble upon The Dave Ramsey show and listened to it while on my way home from work. … I was not amused. This “no-name” punk Dave Ramsey just took the slot that was being occupied by The Jason Lewis show; one of my absolute favorite talk radio hosts.

Small aside: I seriously loved that show. Really compelling, deep discussion on multiple topics. He made very rational, fact-based arguments that were hard to argue with; no matter your political leaning. Ironically, in 2014 Jason Lewis quit on air and is now just doing intermittent podcasts / blog posts on his terribly depressing Geocities-esque website. Sad…I’m not sure I’ll ever find a show so brilliant again, but I digress…

But after my initial confusion / hatred of what just went down (hardly surprising, this particular station went from classic rock to alternative to country to talk radio; it has no idea what the hell it’s doing) with the switching of shows, after I started listening to The Dave Ramsey show for about 10-20 minutes, I could not believe what I was hearing. I was literally shocked.

Wait a minute!! Wait a minute…you’re telling me there’s someone else in the world that thinks like…me?!? And…they’re the 7th most listened talk show in the U.S. No F’ing way.

What’s this all about?

Dave Ramsey’s core theme of his show, literally, this is essentially it, stop spending money you don’t have. Boom. That’s. It. He takes calls from people doing stupid shit financially, and then tells them how to stop doing stupid shit. It’s unbelievable. Basically all the things I wrote about here, he covers in a daily radio program (except one major deviation with credit use, which I’ll discuss later).

He has written several books (Total Money Makeover is his bread and butter), has an aforementioned top ten syndicated talk show, runs several roadshow / tours a year, and has an extensive network of affiliates. The guy makes a shit ton of money, and again, has become popular by basically telling you how dumb you are with your actions. Some people don’t like his abrasive attitude, or his right-leaning, evangelical slant, but I don’t care about any of that. I care about his core message. His radio show is a financial talk show. I don’t know if there’s anything else like it, I certainly had never heard nor have heard anything comparable since, and I absolutely eat it up. I’ve been listening for about two years now. It does not get old to me.

So what exactly does he talk about?

His “platform” is his 7 Baby Steps (which he admits was completely stolen from What About Bob?; good movie – watch it). Without going into too much detail (you can read it on his website), it’s basically, in order:

  • Make sure you’ve got an emergency fund
  • Pay off all debt
  • Bolster your emergency fund further to brace against severe hardship (3-6 months)
  • Max out retirement contributions
  • College funding for children (I’m not completely sold on this, I’ll discuss later)
  • Pay off home mortgage as fast as you can
  • Build wealth and donate

Pretty simple, right? Well, I thought so. I’ve basically been living all of these for several years now. Again, it was shocking to consider that, *gasp*, somebody else gets it. So, after listening to his show off and on for the past two years, I can basically boil down many of his specifics:

  • Stop buying cars. Stop it. Stop buying new $30k cars. STOP IT! Cars are the worst possible “investment” you can make. They’re money sucking time bombs. Maintenance, taxes, gas, insurance, depreciation. Disgusting. Don’t finance a car, don’t lease a car. Avoid a car if you can. This is absolutely the easiest thing a regular person can do to turn the tables. His advice is frequently, “sell your car”. Now if I can only convince my wife
  • Treat your finances like a business. You need a budget that outlines revenue streams and costs. You know…like any business. It’s a shame that we don’t actually teach this in school. Why? Because the whole damned system is a well-oiled machine to get you to spend, spend, spend.
  • Debtors are slaves. You are never truly free if you are beholden to another. You will. Never. Be. Free. Until. You. Pay. Off. Your. Debts. You must erase your debts, and erase them as fast as possible. It is the ONLY way to accumulate wealth and sustain it long-term. The more that you treat debt as a disease that must be cured, the faster you will wake up from your nightmare.
  • There is no magic cure. It’s math. If you’re in the hole, you must endure significant short-term pain to ease long-term suffering. He does not shy away from this, and actually encourages it. Eat beans and rice for two years, no eating out, no vacations, no gifts, no random purchases, nothing that is not accounted for in monthly budget. Your revenue streams must exceed your costs. It’s that damn simple. It has always been that simple, but people crave short-term pleasures, and will stew in agony for multiple decades because they refuse to turn off the spigot temporarily. This is the absolute core of his message, you must wake up!
  • Pay cash. Everywhere. All the time. I agree with everything elseI do not agree with this.
  • Stop spending. Stop buying the next gadget. STOP IT! You don’t need that huge data plan. You don’t need that cable bill. You don’t need it. If you don’t need it, get rid of it. When you are finally debt-free, and have a savings stash, revisit these decisions.
  • The other side of the coin is…make more money. Never stop learning. Pursue a career in an economical way. Go to community college. Learn a trade. Start a business. It’s not impossible. It takes time and commitment, but it’s not impossible. You just have to try…

Disagreements with his message

What I don’t agree with? Ramsey is completely and totally averse to credit in any form (except a house). He suggests never using a credit card, ever. Never, ever. Cash only. For everything. A debit card in the worst case. …

This is foolish.

Credit cards give so much extra flexibility and security and money-making mechanisms that you are an absolute fool if you do not use them to their full potential. You can escrow short-term debt, for free, and make 1-5% cashback on purchases you’d make anyway, and allow those funds to accrue short-term interest in other ways, and have theft protection, and better insight and tools to track your purchases? Again, you’re a damned fool if you don’t use a credit card the right way! Just treat it as cash and pay off your balance in full. Every month. No exceptions. Once you’ve reached Baby Step 3, this should never be an issue again.

He basically treats everyone like they’re complete morons and assumes that you cannot handle the double-edged sword. Double-edge swords are effective when you don’t hit yourself with them. It’s the same with credit cards. I go into this in more detail in this post, near the end. Utilize powerful tools, don’t avoid them because they’re powerful. Ramsey’s ultra-conservative attitude toward credit in all forms is akin to shunning a chainsaw to cut down a tree and using a handsaw instead because the chainsaw might hurt you.

But, I get it. It’s a lot easier to harp on a simple message, especially when your target audience is broke people. It’s a psychological trick that may help, just know that it’s inefficient.

College fund savings notes

The only other thing I somewhat disagree with is his call to save for children’s college. I don’t really…think this is explicitly necessary. Once you’ve reached Baby Step 3…what’s the point? You should be accruing money. I’d rather just use that to focus on the other areas. College costs are so dynamic, what’s the point of targeting something many years out? Maybe your child[ren] won’t go to college? And you’d better be damned sure my kid isn’t going to get a free ride with no skin in the game. I refuse to completely, 100%, pay for all expenses. There will significant caveats to any assistance, I will treat this like any normal investment:

  • What’s the ROI? Am I going to pour tens of thousands of dollars into you getting a degree in some useless liberal arts degree? No chance in hell. You’d better have a game plan on how you’re going to pay for college and what your career path will be. You don’t have to have a job in mind, per se, but you’d better know what skills you’re going to obtain.
  • Are you going to go to an in-state school? I’ve been paying thousands of dollars in taxes to give you an opportunity to leverage in-state rates. You go out of state? You’re paying for that out of your pocket.
  • The more money available to someone entering college, the more opportunity to blow it on stupid, useless, non-critical stuff. I’m not paying for extras. I will help with tuition, that’s it.

Ramsey agrees with most of those sentiments, so it’s confusing why saving for college is so early on his priority list.

Summary

If you are struggling with debt, I highly recommend listening to Ramsey’s radio program. It’s free, and it’s very informative. His website also outlines his core principles, the 7 Baby Steps. All of them are simple, and they’re all free as well. His paid services are really just motivational in nature, they’re useful if you’re still on the fence about living a debt-free life. I bought one of his audio books, he has some good points that he goes more in-depth on, some interesting facts and case studies, but it all boils down to one thing: stop spending more than what you make. Live below your means.

My background and why this means so much to me

I’m on Baby Step 6 and have been for several years now. Dave Ramsey sparked a fire in me. He got me to think that, “paying off your house early is a good thing”. Previously, I’d been chasing yield. That’s OK, I guess, but…this means more to me. I need to be debt free. I need to slay my demons.

I have come from nothing. I have had enormous emotional support from my mother growing up, but no one has given me a dime. I grew up poor. I barely had a father. I know what it’s like to not know if you’re going to be able to eat that week. I will never experience that again. I am damned sure of it. I am damned sure…

I have made the right decisions. Every. Time. I have worked hard for everything I have accomplished. I focused on my school first. I had fantastic grades. I went to an in-state college and received scholarships/Pell Grant aid. I do not view this as a hand-out. I am incredibly appreciative of the Pell Grant program, but I worked my ass off scholastically. I never had a tutor. I studied myself. I graduated debt-free while working as a part-time intern for the company where I am currently employed. I lived at home while attending college. I paid my mother a modest rent that was economical for both of us. I do not lavishly spend. I am one of the most frugal people imaginable. I have my vices, but keep them in check, and always look to offset them through secondary revenue streams. I am a hard worker, I am constantly learning. I bought a car that gets me to work, that’s it. I live below my means. I live below my means. This is the only guaranteed way to win the financial game of life.

I am within reach of achieving my ultimate dream…to be able to say to the world that, I am completely debt free. The house is the only thing left. Thankfully, I got a good deal on it to begin with; that makes it so much easier. Thinking about the moment when the house is completely paid off makes me tear up. It means that much to me. To have worked so hard, sacrificed so much, for so long, you’d better believe I am going to do one hell of a debt free scream. I’m almost there. To envision a day where I have no payments in the world. It’s incredible.

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