Dave Ramsey

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guitarguy
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Dave Ramsey

Post by guitarguy » Thu Dec 15, 2011 1:16 pm

What do Bogleheads think of him?

I recently had his 'Total Money Makeover' book cross my path, so I read through it. Seems his philosophies are sort of drastic:

1. Liquidate ALL savings except for $1k saved for emergencies, and suspend ALL investments (including retirement accounts with or without a company match), and use it to pay down all debt (car loans, credit cards, student loans, etc) except for mortgages. Use the debt snowball. For most people, he states this takes 20-30 months. I didn't run my own numbers, but because of $48k left in student loans from my wife and I, I guess that would be close to our number. Other than that we have no other debt except the mortgage.

2. Once all that debt is gone, save up $10k (or whatever's practical) for an emergency fund.

3. Invest, pay off the mortgage, etc.

What I'm really interested in is steps 1-2. What happens when you have an emergency that exceeds $1k? That's not a lot of cushion for someone with a home and a family, that's for sure. How can he advocate that? And what about saving for the next car? For home improvements? The last thing I want to do is go into more debt for anything...be it a car or a necessary home repair. We have 2 cars that are 10+ years old...so a large priority for us now is saving for the next ones. NO MORE DEBT!! :twisted:

And (because our student loan rates are all <3% I question...) why does he advocate paying down debt at the sacrifice of investing? I anticipate having my loans all paid off by the time I hit 32 years old, about 5 years from now, at the latest. Hopefully sooner. If I suspended investing to pay down those loans in say 2 years, I'm losing out on investing for those 2 years, plus company match contributions. Is he thinking investments can increase afterward enough to catch up on that time lost? I more like the idea of investing, saving for anticipated expenses, keeping my E-Fund, and also paying a little extra toward debt each month as opposed to putting all my eggs in one basket. That's the path I'm currently on.

He does have some good points as well, such as buying used cars (ignoring the bubble we're currently in) that are a couple years old and not leasing, etc etc, so there are some agreeable tidbits in there too.

Anyone else have any thoughts on his philosophies?
Last edited by guitarguy on Thu Dec 15, 2011 1:21 pm, edited 1 time in total.

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White Coat Investor
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Re: Dave Ramsey

Post by White Coat Investor » Thu Dec 15, 2011 1:21 pm

guitarguy wrote:What do Bogleheads think of him?

I recently had his 'Total Money Makeover' book cross my path, so I read through it. Seems his philosophies are sort of drastic:

1. Liquidate ALL savings except for $1k saved for emergencies, and suspend ALL investments (including retirement accounts with or without a company match), and use it to pay down all debt (car loans, credit cards, student loans, etc) except for mortgages. Use the debt snowball. For most people, he states this takes 20-30 months. I didn't run my own numbers, but because of $48k left in student loans from my wife and I, I guess that would be close to our number. Other than that we have no other debt except the mortgage.

2. Once all that debt is gone, save up $10k (or whatever's practical) for an emergency fund.

3. Invest, pay off the mortgage, etc.

What I'm really interested in is steps 1-2. What happens when you have an emergency that exceeds $1k? That's not a lot of cushion for someone with a home and a family, that's for sure. How can he advocate that?

And (because our student loan rates are all <3% I question...) why does he advocate paying down debt at the sacrifice of investing? I anticipate having my loans all paid off by the time I hit 32 years old, about 5 years from now, at the latest. Hopefully sooner. If I suspended investing to pay down those loans in say 2 years, I'm losing out on investing for those 2 years, plus company match contributions. Is he thinking investments can increase afterward enough to catch up on that time lost? I more like the idea of investing and also paying a little extra toward debt each month as opposed to putting all my eggs in one basket. That's the path I'm currently on.

Anyone else have any thoughts on his philosophies?
Discussed here dozens of times, so do a search. But here's the bottom line.

Great advice on getting out of debt. Not so great advice on investing.

To answer your questions:

He can advocate a $1K baby emergency fund because it takes some people a long time to save up $1K. That will pay for a lot of emergencies, but you're right, not all emergencies. But you've got to keep in mind, his average listener has just a few assets and lots of high interest debt. You better believe if I had a huge debt at 15-30%, I'd liquidate A LOT of my assets, perhaps all but $1K, to pay it off. Emergency fund pays <1%.....debt costs >10%.....it's a no brainer.

Don't ever miss an employer's match. That's part of your salary and only a fool gives it away.

Evans, in his book The 5 Lessons A Millionaire Taught Me, advocates you put 10% of your money toward investing and 10% toward debt pay-down. Then, when the debt is gone, you put 20% toward investing. I think that's good advice. Ramsey is pretty extreme, but honestly, most of his listeners need pretty extreme advice. It doesn't sound like you do.
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Re: Dave Ramsey

Post by stoptothink » Thu Dec 15, 2011 1:21 pm

Dave Ramsey is great for people like this http://consumerist.com/2007/​04/​snl-sk ... fford.html. If you are on this board, you probably have no need for his advice.

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Re: Dave Ramsey

Post by guitarguy » Thu Dec 15, 2011 1:35 pm

EmergDoc wrote:Evans, in his book The 5 Lessons A Millionaire Taught Me, advocates you put 10% of your money toward investing and 10% toward debt pay-down. Then, when the debt is gone, you put 20% toward investing. I think that's good advice. Ramsey is pretty extreme, but honestly, most of his listeners need pretty extreme advice. It doesn't sound like you do.
Interesting idea with the 10%/10% thing.

This was my thought as well. I skipped over 90% of the little stories about people that have used his philosophies because they all started out with "I was $20k deep in credit card debt" and stuff like that. It doesn't really apply to me.

I was just curious as to what the opinion was on him from people that are financially smart on their own.

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Re: Dave Ramsey

Post by dhodson » Thu Dec 15, 2011 1:56 pm

as emergdoc stated great for people who are in debt.

his investing ideas are questionable at best.

Frankly much of his advice is more about helping to motivate people to get out of debt then actually being factually correct. For instance he talks about returns on the stock market being a lot higher than they really are and he also has people pay off the credit card with the lowest balance even if other cards have higher rates just to motivate them by seeing some progress. There are likely worse investing ideas out there then his but it really isnt where he shines. His main contribution is motivating people out of debt and helping them to avoid some of the other poor investing ideas like permanent life insurance.

If you arent plagued with debt then i wouldnt follow his lead.

WorkToLive
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Re: Dave Ramsey

Post by WorkToLive » Thu Dec 15, 2011 2:20 pm

I agree with the previous posters that his advice is targeted to people who really don't have a handle on their finances. I've seen budgets where folks are spending $200+ dollars on mobile phones, but have food stamps and can't afford their rent. Insane! For them, $1000 is enough to be a cushion but to keep them scared. It's amazing what you can be capable of doing if you are scared and he wants to capitalize on that.

As for me, I've always been responsible, but his ideas have helped me see that paying down my mortgage might not be a bad decision. I was paying 5.25% in interest and was paying it down aggressively. Now that I re-fi'd to 3.25%, I've backed off a bit, but I still do long for the day that my house is paid off. I suppose he gave me that drive!

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Re: Dave Ramsey

Post by Mudpuppy » Thu Dec 15, 2011 3:25 pm

You have to consider the Ramsey target audience (which I understand due to having so many examples in my family). They are people who likely live paycheck to paycheck and aren't really contributing towards retirement anyways (unless they have a mandatory pension contribution). They're using credit cards to "balance" the budget (frankly, they probably don't even have a budget and just grab plastic when the cash runs out). They don't realize the long-term consequences of their ever-increasing debt load.

For these people, saying to forget about emergency funds and retirement planning works, because those concepts aren't even on their radar. Ramsey focuses them on debt-elimination and living within their means first, because even those two concepts might be difficult to grasp. You've got to get them crawling, financially speaking, first. And Ramsey works out well for these people. Once they're "crawling" (debt-free and living within their means), his plan sort of falls flat, but at least it gets them to that point, which is better than the majority of Americans these days.

TRC
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Re: Dave Ramsey

Post by TRC » Thu Dec 15, 2011 3:32 pm

His investing approach is dumb. Mentions only stocks, nothing about bonds or an age / risk appropriate asset allocation.

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Re: Dave Ramsey

Post by KyleAAA » Thu Dec 15, 2011 3:35 pm

TRC wrote:His investing approach is dumb. Mentions only stocks, nothing about bonds or an age / risk appropriate asset allocation.
Actually, he does mention bonds. He advises his followers never to own bonds because they are too risky. I'm not making this up.

http://www.daveramsey.com/article/bad-b ... _investing

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JupiterJones
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Re: Dave Ramsey

Post by JupiterJones » Thu Dec 15, 2011 4:04 pm

EmergDoc wrote:
guitarguy wrote: Ramsey is pretty extreme, but honestly, most of his listeners need pretty extreme advice.
Agreed.

He's a big fan of "focused intensity". If you're going to do something (like pay down your debts), then by golly do it... with both barrels a-blazin'. Eat one thing on your plate at a time, so to speak.

And having listened to quite a bit of his show and gotten a sense of where his customers/callers tend to be coming from, I think that's actually pretty good approach. These people are in what I would consider to be drastic situations. Drastic methods make sense.

I think arguments can be made about the details (giving up the employer match, continuing to tithe, etc.), but overall the fundamentals are sound, IMHO.

However, like most other here, I disagree pretty strongly with his investment advice (and with how his network of "endorsed local providers" basically financially incentivizes him to continue to give that particular brand of advice.)

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Re: Dave Ramsey

Post by White Coat Investor » Thu Dec 15, 2011 4:23 pm

In a lot of ways I've come around to some of his advice because although it might not make sense mathematically, it does make sense behaviorally. People don't get in debt because they can't do math. They've got a behavioral problem. You've got to address that first. Thus, pay down the small loan first rather than the high interest one. Not what I'd do, but what most people who are in debt should do.
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Re: Dave Ramsey

Post by SkolVikes7 » Thu Dec 15, 2011 4:52 pm

As many others have mentioned above, his product is for a specific audience and he is attacking the behavioral aspect of what got the person in debt. Dave Ramsey was a Godsend for my wife and I. I was irresponsible with money for a time and found myself in some pretty nasty debt (although peanuts compared to some of his audience). We did his baby steps and although it was very difficult at first, it changed our lives financially and even our marriage was strengthened from accomplishing these amazing goals. Once I got to baby step 4 (investing), I found bogleheads.org and read every book on the reading list I could get my hands on. It was a perfect transition. Long story longer... His message saved us and when I no longer fit in his target audience and the behavior was changed, you all swooped in to take it to the nth level!

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Re: Dave Ramsey

Post by rustymutt » Thu Dec 15, 2011 4:57 pm

He's just a another man with a great marketing program. Self help for those that are in debt is a good thing.
I don't believe that he's a good investment adviser based on the advise I've heard him give, or read about him.
His message is a good one, but there are many giving that same message without the fan fare of radio programs.
I heard that same message in the early 1970's through my church at that time.
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Re: Dave Ramsey

Post by ThePrune » Thu Dec 15, 2011 5:30 pm

I facilitate his video class (Financial Peace University) at my church every 2-3 years. We have LOTS of people who are in debt, and Dave's high energy style of motivating folks to dump debt really helps them. His video clip of gazelles (those in debt) being chased by a hungry cheetah (their creditors) is always a class highlight.

But for the video session that covers investing for retirement (Of Mice and Mutual Funds) I provide a few verbal disclaimers and a written handout with quotes from John Bogle and Warren Buffett about the virtues of low cost Index Mutual Fund investing. Oh yes, the handout makes clear that you can NOT expect to find "good mutual funds that will earn 12% a year".

For those who are basically out of dept I offer separate 6 weeks classes on Retirement Planning and Investing for Retirement that make heavy use of Boglehead materials and concepts. At least for our church demographic I feel that the combination of all the above provides a sound adult financial education.
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Re: Dave Ramsey

Post by redlbj01 » Thu Dec 15, 2011 9:11 pm

SkolVikes7 wrote:As many others have mentioned above, his product is for a specific audience and he is attacking the behavioral aspect of what got the person in debt. Dave Ramsey was a Godsend for my wife and I. I was irresponsible with money for a time and found myself in some pretty nasty debt (although peanuts compared to some of his audience). We did his baby steps and although it was very difficult at first, it changed our lives financially and even our marriage was strengthened from accomplishing these amazing goals. Once I got to baby step 4 (investing), I found bogleheads.org and read every book on the reading list I could get my hands on. It was a perfect transition. Long story longer... His message saved us and when I no longer fit in his target audience and the behavior was changed, you all swooped in to take it to the nth level!
+1 this.

When we got out of college we had ZERO idea on what we were doing with personal money/investing (I have a business degree, how sad was that!). We followed DR's plan on budgeting and debt reduction (we luckily only had a little), and solved a number of concerns we both had. Even then I found his investing advice to be a little "off." His teachings actually lead me to this forum. Boglehead investing goes naturally with DR's budget/debt reduction advice. But as other posters have said most people that call Dave, (regardless of income levels) have MAJOR issues that need to be address. It's very sad to hear (and personally know) about very smart talented people who make RIDICULOUS amounts of money but are still broke due to bad money habits. I have a friend who is a young lawyer with over $100k+ in student loans. When I asked him how long he thinks it will take him to pay that off, his response was 15+ years....

Dave is doing a ton of good work out there, and frankly his core teachings should be taught in schools. At the very least it might get the next generation to be fully aware of the risks of debt and credit cards....

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Re: Dave Ramsey

Post by Nukeboilermaker » Thu Dec 15, 2011 10:21 pm

I'm going to beat the dead horse here... What others said is very accurate regarding his overall philosophy with debt and investing. I 100% agree with his philosophy regarding debt is really about behavior, and anyone who understands math can see the ridiculous premiums you pay to live on debt.

As a result of Dave Ramsey I have a more focused plan and budget. Since I exercise my due diligence and I could tell there were gaps in his investing portion of his plan I sought more information and education which led me to being a boglehead!
At just 25 years old I am debt free, refinanced to a 15yr 3.25% mortgage, will have a 6 month and growing emergency fund, will be fully funding a 401k and two Roths. If I had not read his book I would likely not be taking advantage of my six figure income and though I would not be drowning in debt, I would have a LOT less to show for my hard earned dollars.

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Re: Dave Ramsey

Post by heirloom » Thu Dec 15, 2011 10:47 pm

People don't get in debt because they can't do math. They've got a behavioral problem
Totally agree. My son was given this book by someone he works with and it truly has helped him and his way of thinking before he purchases something. As a matter of fact, he drives me crazy sometimes about his "plan" he talks about all the time. Everything has a "plan".

But I am impressed how he has a 529 started for both of his sons and has money put into them each month. They are only 3 yrs and 1 yr old. He ans his wife both have changed and she no longer works.

I purchased the book but haven't read it yet, but he does suggest a good "index" fund on his television show. So, he isn't entirely against stocks.

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Re: Dave Ramsey

Post by guitarguy » Fri Dec 16, 2011 7:48 am

Nukeboilermaker wrote:At just 25 years old I am debt free, refinanced to a 15yr 3.25% mortgage, will have a 6 month and growing emergency fund, will be fully funding a 401k and two Roths. If I had not read his book I would likely not be taking advantage of my six figure income and though I would not be drowning in debt, I would have a LOT less to show for my hard earned dollars.
Congrats...except the bold part! :mrgreen: :lol:

Out of curiousity, did you suspend your savings or retirement contributions to wipe out your debt? That part fascinates me. Strictly by the numbers, if you loan rates are low (mine are all <3% before tax deductions), you should be able to do better by investing. But the emotional gain of having no debt is something to speak on too.

I would not consider stopping 401k contributions because I think no matter how you look at it, giving up the employer match is stupid. I can't bring myself to not take advantage of that, even for a short time.

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Re: Dave Ramsey

Post by dhodson » Fri Dec 16, 2011 8:51 am

sounds like his interest rate was higher and then he refi. while i agree, one should very likely take the employer match before paying stuff like this down, we dont know that he gets that benefit of an employer match.

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Re: Dave Ramsey

Post by rec7 » Fri Dec 16, 2011 9:22 am

If you listen to the show he talks about putting money in index funds also but I do not find it in writing. He says he puts money into real estate and index funds.
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JupiterJones
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Re: Dave Ramsey

Post by JupiterJones » Fri Dec 16, 2011 4:45 pm

rec7 wrote:If you listen to the show he talks about putting money in index funds also but I do not find it in writing. He says he puts money into real estate and index funds.
Yup.

But, specifically, he recommends 100% equities with a large tilt toward growth stock mutual funds (no bond funds at all)... as a one-size-fits-all portfolio for everyone. And he is against no-load funds, steering his listeners and readers instead toward funds with commissions.

Not exactly a Boglehead investment philosophy, but there you have it.

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Re: Dave Ramsey

Post by pkh01l » Mon Dec 19, 2011 3:01 pm

I first started listening to Dave Ramsey around 1992 when I was living and working in Nashville when I believe he was simply just a local radio personality. At the time, I had just recently got married and had some debt myself, but inherited quite a bit from my free spending wife. I got frustrated with our living paycheck to paycheck so I adopted Dave's basic principles to get out of debt and onto a plan for financial freedom.

Well it worked (sort of) for me because soon my financial situation changed. My wife was not into depriving her self of anything she wanted, having a "budget" or saving for retirement, so she filed for divorce! LOL Temporarily I thought I was doomed because of a $700/per month child support payment but after about 18 months I realized I was better off financially because I had the credit cards paid off. The wife was costing me way more than the $700 per month in child support.

So his advice has had a big impact on my financial situation. He was the reason I began developing a detailed budget and sticking to it. He was also the motivating factor to stop buying new luxury cars and living a "lifestyle" that I thought I deserved. Today, I rarely find that I learn anything new but I do occaisionally listen to his show for the entertainment factor. I think deep down, I like hearing about how irresponsible and bad off others are financially because it makes me feel better about my own situation.

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Re: Dave Ramsey

Post by bungalow10 » Mon Dec 19, 2011 3:21 pm

DH and I are doing Dave Ramsey.

We were 31 years old and had $250k in retirement accounts, but ended up with a large amount of debt related to a remodel on our house and a second mortgage on an investment property. Life was good until the economy crashed and we were upside down (although temporarily) in our real estate and DH was without a job. I had just given birth to our second baby and we had no breathing room in our budget without DH's income and I had to work.

Next Friday (Dec 23rd), I will turn 33 and we will make the last payment on the $110,000 in debt we've paid off in 24 months.

We have continued to keep my 401(k) at the maximum match level, but we put off our Roth IRAs for two years (2010 and 2011). First thing we are doing post-debt is funding the 2011 Roth for both of us, which means we will only have lost the opportunity to put money in the 2010 Roth during our debt payback period.

If not for Dave, we would have carried this huge debt around for years. Granted, we lived a frugal life before, over half our $110,000 was loans taken out to refi our primary and investment properties during the post-bubble period. Since then our properties have regained value, so we are looking at more equity and lower payments overall.

Did I mention that during this time my DH was only employed about half the time due to the economy (he's in construction)? And we have two little ones (2 yo and 4 yo) in full-time daycare?
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Re: Dave Ramsey

Post by porcupine » Mon Dec 19, 2011 3:39 pm

guitarguy wrote:
Nukeboilermaker wrote:At just 25 years old I am debt free, refinanced to a 15yr 3.25% mortgage, will have a 6 month and growing emergency fund, will be fully funding a 401k and two Roths. If I had not read his book I would likely not be taking advantage of my six figure income and though I would not be drowning in debt, I would have a LOT less to show for my hard earned dollars.
Congrats...except the bold part! :mrgreen: :lol:

Out of curiousity, did you suspend your savings or retirement contributions to wipe out your debt? That part fascinates me. Strictly by the numbers, if you loan rates are low (mine are all <3% before tax deductions), you should be able to do better by investing. But the emotional gain of having no debt is something to speak on too.

I would not consider stopping 401k contributions because I think no matter how you look at it, giving up the employer match is stupid. I can't bring myself to not take advantage of that, even for a short time.
It appears that Nukeboilermaker still has his 15-year term mortgage (and has cleared all other debts). So, why did you highlight that statement?

- Porcupine

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Re: Dave Ramsey

Post by guitarguy » Mon Dec 19, 2011 9:30 pm

porcupine wrote:
guitarguy wrote:
Nukeboilermaker wrote:At just 25 years old I am debt free, refinanced to a 15yr 3.25% mortgage, will have a 6 month and growing emergency fund, will be fully funding a 401k and two Roths. If I had not read his book I would likely not be taking advantage of my six figure income and though I would not be drowning in debt, I would have a LOT less to show for my hard earned dollars.
Congrats...except the bold part! :mrgreen: :lol:

Out of curiosity, did you suspend your savings or retirement contributions to wipe out your debt? That part fascinates me. Strictly by the numbers, if you loan rates are low (mine are all <3% before tax deductions), you should be able to do better by investing. But the emotional gain of having no debt is something to speak on too.

I would not consider stopping 401k contributions because I think no matter how you look at it, giving up the employer match is stupid. I can't bring myself to not take advantage of that, even for a short time.
It appears that Nukeboilermaker still has his 15-year term mortgage (and has cleared all other debts). So, why did you highlight that statement?

- Porcupine
Just a tongue-in-cheek poke at being "debt free" yet still having a mortgage. :wink:

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Re: Dave Ramsey

Post by JupiterJones » Tue Dec 20, 2011 7:44 am

bungalow10 wrote: Next Friday (Dec 23rd), I will turn 33 and we will make the last payment on the $110,000 in debt we've paid off in 24 months.
That is awesome. Congrats!!!


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bberris
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Re: Dave Ramsey

Post by bberris » Tue Dec 20, 2011 8:03 am

Whats wrong with Dave?

Lets count:

1. Exaggerated stock-fund returns
2. Investment allocation all to stock.
3. Roth IRA for everyone, all the time.
4. Leasing a car is always bad. (Come on, why is renting a house ok but renting a car wrong?)
5. Losing the company match from a 401k while you pay down debt.
6. Pay smallest debt priority, instead of highest interest rate priority.

And I think I am just scratching the surface here.
I think his radio program is popular for the same reason people stop to watch car wrecks.

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Re: Dave Ramsey

Post by pkh01l » Tue Dec 20, 2011 8:17 am

bberris wrote:Whats wrong with Dave?

Lets count:

1. Exaggerated stock-fund returns
2. Investment allocation all to stock.
3. Roth IRA for everyone, all the time.
4. Leasing a car is always bad. (Come on, why is renting a house ok but renting a car wrong?)
5. Losing the company match from a 401k while you pay down debt.
6. Pay smallest debt priority, instead of highest interest rate priority.

And I think I am just scratching the surface here.
I think his radio program is popular for the same reason people stop to watch car wrecks.
To be fair, strategy #6 has been proven to be more effective (for most people) at getting out of debt than paying off the highest interest rate first. Obviously not from a math standpoint but because of human behavior. The feel good for paying off one of the cards creates momentum to attack the rest with more intensity.

#5 in your list I think is his worst advice. I can't imagine any scenario where you should turn down the company match.

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Re: Dave Ramsey

Post by porcupine » Tue Dec 20, 2011 9:04 am

guitarguy wrote:
porcupine wrote:[...]It appears that Nukeboilermaker still has his 15-year term mortgage (and has cleared all other debts). So, why did you highlight that statement?

- Porcupine
Just a tongue-in-cheek poke at being "debt free" yet still having a mortgage. :wink:
Urgghh! I have gotten so used to hearing* that 'debt free, except the mortgage' phrase that it has completely sunk into me. You've got a very valid point! :smile:

- Porcupine

* --> I listen to Dave Ramsey on my commute home ...

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Re: Dave Ramsey

Post by bungalow10 » Tue Dec 20, 2011 9:12 am

bberris wrote:Whats wrong with Dave?

Lets count:

1. Exaggerated stock-fund returns
2. Investment allocation all to stock.
3. Roth IRA for everyone, all the time.
4. Leasing a car is always bad. (Come on, why is renting a house ok but renting a car wrong?)
5. Losing the company match from a 401k while you pay down debt.
6. Pay smallest debt priority, instead of highest interest rate priority.

And I think I am just scratching the surface here.
I think his radio program is popular for the same reason people stop to watch car wrecks.
He simplifies things that most people aren't capable of or don't want to understand.

Instead of letting people claim they don't understand investing or don't know what type of IRA to open, Dave lays out a plan that is better than average that anyone can follow. Sure, there are times when leasing a car might work to your benefit, but he can't explain the math to a simpleton on the radio, so instead he says buy used until your net worth is over $1 million. It isn't perfect, but it sure as hell is better than most people do when left to their own devices.

Also, most people doing his plan do it for less than a year before becoming debt free (this is my observation both from the radio show and in online forums), so losing a company match for <12 months really isn't anything compared to the fact that for the first time ever they are debt free and plan to stay that way*. Now they have that much more to invest.

As far as to why renting a house is okay but renting a car is wrong.... car's depreciate quickly. Also, it is a form of debt, he believes in buying what you can afford to pay cash for. Dave also tells people not to buy mobile homes (which also depreciate), so at least he's consistent there.
An elephant for a dime is only a good deal if you need an elephant and have a dime.

KyleAAA
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Re: Dave Ramsey

Post by KyleAAA » Tue Dec 20, 2011 9:27 am

bungalow10 wrote:
bberris wrote:Whats wrong with Dave?

Lets count:

1. Exaggerated stock-fund returns
2. Investment allocation all to stock.
3. Roth IRA for everyone, all the time.
4. Leasing a car is always bad. (Come on, why is renting a house ok but renting a car wrong?)
5. Losing the company match from a 401k while you pay down debt.
6. Pay smallest debt priority, instead of highest interest rate priority.

And I think I am just scratching the surface here.
I think his radio program is popular for the same reason people stop to watch car wrecks.
He simplifies things that most people aren't capable of or don't want to understand.

Instead of letting people claim they don't understand investing or don't know what type of IRA to open, Dave lays out a plan that is better than average that anyone can follow. Sure, there are times when leasing a car might work to your benefit, but he can't explain the math to a simpleton on the radio, so instead he says buy used until your net worth is over $1 million. It isn't perfect, but it sure as hell is better than most people do when left to their own devices.

Also, most people doing his plan do it for less than a year before becoming debt free (this is my observation both from the radio show and in online forums), so losing a company match for <12 months really isn't anything compared to the fact that for the first time ever they are debt free and plan to stay that way*. Now they have that much more to invest.

As far as to why renting a house is okay but renting a car is wrong.... car's depreciate quickly. Also, it is a form of debt, he believes in buying what you can afford to pay cash for. Dave also tells people not to buy mobile homes (which also depreciate), so at least he's consistent there.
Exactly. He uses simple, easy-to-follow heuristics that end up being much better, on average, that what people would end up doing otherwise. It's a very rational approach. If he got up there and did the math in every single scenario, nobody anywhere, ever would get out of debt using his advice because it would be too complicated. He would be doing his listeners a disfavor if he didn't have hard-and-fast rules. Biases are not necessarily irrational because there's more the rationality than always being right.

guitarguy
Posts: 1752
Joined: Mon Dec 20, 2010 4:10 pm

Re: Dave Ramsey

Post by guitarguy » Tue Dec 20, 2011 12:17 pm

bberris wrote:Whats wrong with Dave?

Lets count:

1. Exaggerated stock-fund returns
2. Investment allocation all to stock.
3. Roth IRA for everyone, all the time.
4. Leasing a car is always bad. (Come on, why is renting a house ok but renting a car wrong?)
5. Losing the company match from a 401k while you pay down debt.
6. Pay smallest debt priority, instead of highest interest rate priority.

And I think I am just scratching the surface here.
I think his radio program is popular for the same reason people stop to watch car wrecks.
1. Agreed.
2. Agreed.
3. Haven't heard him say that...but I don't listen to the show. I just skimmed the one book. If so...then agreed.
4. For his target audience...this is probably true.
5. Definitely agreed.
6. This has some flexibility IMO...if the interest rates are similar. For example, I'm paying off a $3k student loan at 2.45% faster than a $10k loan at 3.0%. It will allow me to roll that first payment into the 2nd loan, and also will free up cash flow if necessary.

Now if the $10k loan was at 20%...then it would be stupid.

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