Any Dave Ramsey Fans?
March 19, 2007 6:28 PM Subscribe
Anyone out in the hive have any experience with Dave Ramsey's programs?
I have been reading his Total Money Makeover book, and it seems to make sense...
Thoughts?
He gives great advice on not borrowing to consume, but he also condemns borrowing to invest. Now, I sympathize with his doing so -- many people make terribly imprudent investment decisions, particularly when powered by borrowed capital -- but that doesn't make the broad-brush advice correct.
posted by MattD at 7:12 PM on March 19, 2007
posted by MattD at 7:12 PM on March 19, 2007
To get specific in examples, he condemns borrowing for school or business, without recognizing that a well-ranked professional degree prints money (vast return on investment) or that leveraging is essential for virtually every entrepreneur.
posted by MattD at 7:18 PM on March 19, 2007
posted by MattD at 7:18 PM on March 19, 2007
Ramsey gives great advice for helping people get out of debt. His stance as far as consumer debt goes is outstanding, but I think he can get way too conservative at times. For example, he recommends that you don't spend more than 25% of your take home pay on a 15 yr mortage; in a lot of places, and for a lot of people, this isn't very reasonable. He also preaches Christianity in a lot of his work, which may or may not bother you.
I've used his advice to pay off 18k in student debt in a little over a year. I just finished paying it off and it feels phenomenal, and if you are looking to rid yourself of debt and change your spending habits I absolutely recommend his work. Once you get that far, I wouldn't necessarily follow his advice to a "t" but it's certainly an excellent framework.
posted by PFL at 7:43 PM on March 19, 2007
I've used his advice to pay off 18k in student debt in a little over a year. I just finished paying it off and it feels phenomenal, and if you are looking to rid yourself of debt and change your spending habits I absolutely recommend his work. Once you get that far, I wouldn't necessarily follow his advice to a "t" but it's certainly an excellent framework.
posted by PFL at 7:43 PM on March 19, 2007
My wife invited a friend of hers to go to a concert. Her friend begged off, saying, "My husband and I are on the Dave Ramsey plan. We don't spend money on things like that."
Now, maybe the woman just didn't want to go to the concert, but it's put a sour taste in my mouth about Dave Ramsey ever since.
posted by jayder at 8:13 PM on March 19, 2007
Now, maybe the woman just didn't want to go to the concert, but it's put a sour taste in my mouth about Dave Ramsey ever since.
posted by jayder at 8:13 PM on March 19, 2007
There are some ways that money-savvy people could quibble with Ramsey, but what he proposes is better than what 90% of people are doing on their own. We followed his plan and for rid of $35,000 in credit card debt and paid off our cars. I guess I'd say you can modify his approach and do slightly better, but you won't go wrong with him.
posted by Pater Aletheias at 10:31 PM on March 19, 2007
posted by Pater Aletheias at 10:31 PM on March 19, 2007
My wife invited a friend of hers to go to a concert. Her friend begged off, saying, "My husband and I are on the Dave Ramsey plan. We don't spend money on things like that."
And that woman may be out of debt now.
On topic, you're never going to find a financial expert that everyone agrees with, but you can do much worse than Dave Ramsey, and not much better when getting out of debt.
posted by justgary at 11:58 PM on March 19, 2007
And that woman may be out of debt now.
On topic, you're never going to find a financial expert that everyone agrees with, but you can do much worse than Dave Ramsey, and not much better when getting out of debt.
posted by justgary at 11:58 PM on March 19, 2007
I'll agree with all of the above. His religious views bug me, but his financial advice is so good I put up with it.
The thing about his advice is, _if_ you follow it, it's very hard to screw up. It's not like his plan can cause you to be worse off than you were...little risk of that, with a huge upside.
posted by griffey at 5:09 AM on March 20, 2007 [1 favorite]
The thing about his advice is, _if_ you follow it, it's very hard to screw up. It's not like his plan can cause you to be worse off than you were...little risk of that, with a huge upside.
posted by griffey at 5:09 AM on March 20, 2007 [1 favorite]
My brother was doing his plan for awhile so I had looked into it. I think what stands out as the biggest difference is that his plan looks more at the realistic aspect of human emotion towards debt rather than the logical standpoint.
Logical: You should pay higher interest loans and cards off first because you are paying more on these. Leave the low interest student loans and stuff for last because you are incurring less interest on those.
Reality: In order for you to confidently get out of debt you're going to need stepping stones. By paying off your debts starting with the smallest one first you are likely to see rewards much quicker. Compounding the payments using the snowball effect will have everything payed off almost as soon as using the logical effect, but you will see greater progress as you pay the $500 credit card and $1000 loan off first rather than attempting to pay off a $20,000 car loan as your first goal.
I agree with MattD that when it comes to actually investing he's way to conservative and many times he's against borrowing in any circumstance. His reasoning is the emotional aspect of it, but for many there's just no other way to get a college education or afford a house.
posted by genial at 5:39 AM on March 20, 2007
Logical: You should pay higher interest loans and cards off first because you are paying more on these. Leave the low interest student loans and stuff for last because you are incurring less interest on those.
Reality: In order for you to confidently get out of debt you're going to need stepping stones. By paying off your debts starting with the smallest one first you are likely to see rewards much quicker. Compounding the payments using the snowball effect will have everything payed off almost as soon as using the logical effect, but you will see greater progress as you pay the $500 credit card and $1000 loan off first rather than attempting to pay off a $20,000 car loan as your first goal.
I agree with MattD that when it comes to actually investing he's way to conservative and many times he's against borrowing in any circumstance. His reasoning is the emotional aspect of it, but for many there's just no other way to get a college education or afford a house.
posted by genial at 5:39 AM on March 20, 2007
My wife invited a friend of hers to go to a concert. Her friend begged off, saying, "My husband and I are on the Dave Ramsey plan. We don't spend money on things like that."
I have to say I would have found this comment extremely irritating. The couple obviously spent money on "things like that" in the past, or they wouldn't be on the plan in the first place, right? They shouldn't feel superior for behaving responsibly now. They were supposed to be responsible the whole time. Anyhow...
I'm generally against these kinds of plans, because they are all about taking money out of your pocket. Debt reduction plans aren't rocket science.
The Debt Snowball
Like genial said, Ramsey looks at debt from an emotional standpoint. But people spending emotionally and impulsively is what gets them into these problems in the first place.
It's a funny thing that he's against borrowing, because evidently he based his early career on debt:
Ramsey's success soon came to an end as the Tax Reform Act of 1986 began to negatively impact the real estate business. One of Ramsey's largest investors was sold to a larger bank, who began to take a harder look at Ramsey's borrowing habits. The bank demanded he pay 1.2 million dollars worth of short term notes within 90 days, forcing Ramsey into bankruptcy.[5]
He appears not to have learned his lesson, because now he says to fear debt.
Debt is a lever. A way to make $x do the work of $10x. There is no secret formula for personal finance. Money should never be approached emotionally, and his program (if it's anything like his radio show that I've heard) doesn't deal with this.
It is pointless to start paying off debt with the smallest one, because debt can always be restructured. You can get cards with low balance transfer rates, etc. And move things around. The amount you owe will be the same in total, but the rate structure doesn't have to be.
The way to deal with debt is to understand that it is a negative rate of return for you, and that by paying it off, you get a positive rate of return. If you owe X at 10%, and have the same amount of money in a mutual fund making 8%, you are losing 2%. Better to take the money and pay off the debt, and 'keep' the 10% interest payment on the debt. This is why you pay the highest debt thing first, assuming your mortgage isn't the highest thing. If it is, refinance.
The problem is the highest debt thing can also be the biggest amount, so this is where you restructure. I see a lot of cards now with 4% balance transfer rates for the life of the debt. Call them up. Chase is doing this, and so is Bank Of America.
And stop borrowing money for things that only lose value. Incurring debt to buy cars and clothes is bad because those things are never worth what you owe on them. It doesn't matter if you like it or it makes you feel good. This is the emotional part that screws people up. Instead of buying new clothes to feel good, have an ice cream sundae, or go see a movie. You'll feel better about the substitution later, when you aren't running from your bills.
But borrowing money at X% so you can invest is something that returns (X+0.5)% is smart. Don't do it for greed - of you think you can double you're money by investing in X, go with the other person for ice cream or a movie. Slow and steady wins the race, not that it's a race.
To quote JP Morgan, nobody ever went broke making a little profit.
posted by Pastabagel at 8:13 AM on March 20, 2007
Saying that people shouldn't use the Dave Ramsey plan because there are ways to borrow money to make money is like saying that people shouldn't go to AA because there are ways to enjoy drinking in moderation. It's absolutely true that the plan is more conservative than most people need. But this isn't a plan for most people; it's a plan for people in trouble.
Dave Ramsey's plan is for people who have failed at managing their money in the past. All of the tricks and tips and fancy schemes, like borrowing money to make money, may work fabulously for people who are good with money. But for people who have a proven track record of failing to manage their money well, all of those fancy methods are more likely than not to get them into more trouble than they're already in. If they were good enough with money to manage borrowing sensibly and making wise spending/investment decisions, they wouldn't be drowning in debt and unable to keep up with their payments.
The virtue of the Dave Ramsey plan, and other methods like it, is that even if you're terrible with money, you can follow the rules and succeed at reducing debt and increasing savings. It's conservative, and it fails to take advantage of financial methods that have made rich people richer, but these are people who can barely keep all of their bills paid, so those methods are unlikely to work for them.
posted by decathecting at 8:44 AM on March 20, 2007 [1 favorite]
Dave Ramsey's plan is for people who have failed at managing their money in the past. All of the tricks and tips and fancy schemes, like borrowing money to make money, may work fabulously for people who are good with money. But for people who have a proven track record of failing to manage their money well, all of those fancy methods are more likely than not to get them into more trouble than they're already in. If they were good enough with money to manage borrowing sensibly and making wise spending/investment decisions, they wouldn't be drowning in debt and unable to keep up with their payments.
The virtue of the Dave Ramsey plan, and other methods like it, is that even if you're terrible with money, you can follow the rules and succeed at reducing debt and increasing savings. It's conservative, and it fails to take advantage of financial methods that have made rich people richer, but these are people who can barely keep all of their bills paid, so those methods are unlikely to work for them.
posted by decathecting at 8:44 AM on March 20, 2007 [1 favorite]
Pastabagel,
Ramsey got himself and his family in trouble from over-leveraging his business. Now he stays away from debt and preaches other people do the same. How is that not learning his lesson?
And how can you ensure that borrowing money at X% will return (X+5)%?
Personal finance is more about behavior than it is about math. Ramsey's aim is to help the people who are irresponsible with their money because of bad behaviors and decision-making; not those who don't understand financial mathematics.
posted by PFL at 9:04 AM on March 20, 2007
Ramsey got himself and his family in trouble from over-leveraging his business. Now he stays away from debt and preaches other people do the same. How is that not learning his lesson?
And how can you ensure that borrowing money at X% will return (X+5)%?
Personal finance is more about behavior than it is about math. Ramsey's aim is to help the people who are irresponsible with their money because of bad behaviors and decision-making; not those who don't understand financial mathematics.
posted by PFL at 9:04 AM on March 20, 2007
But people spending emotionally and impulsively is what gets them into these problems in the first place.
And taking a logical approach to someone that makes emotional choices is playing football with a baseball bat. I'm not saying the Ramsey method is the most logical, but for people who need to see small results to continue the path it is a proven method for getting out of debt.
posted by genial at 9:44 AM on March 20, 2007
And taking a logical approach to someone that makes emotional choices is playing football with a baseball bat. I'm not saying the Ramsey method is the most logical, but for people who need to see small results to continue the path it is a proven method for getting out of debt.
posted by genial at 9:44 AM on March 20, 2007
I guess I didn't realize that Ramsey's plan is for particularly bad cases. It seemed like just another personal finance/get-out-of-debt program.
And how can you ensure that borrowing money at X% will return (X+5)%?
Personal finance is more about behavior than it is about math.
First, I said X+0.5, not X+5. And I just got an offer for 4% on a card, and 1yr cd's pay almost 5%.
But I don't want to belabor the point. IF the program works, and gets people out of debt, I guess I'm for it. It's better than a faster plan that people won't stick to.
posted by Pastabagel at 11:23 AM on March 20, 2007
And how can you ensure that borrowing money at X% will return (X+5)%?
Personal finance is more about behavior than it is about math.
First, I said X+0.5, not X+5. And I just got an offer for 4% on a card, and 1yr cd's pay almost 5%.
But I don't want to belabor the point. IF the program works, and gets people out of debt, I guess I'm for it. It's better than a faster plan that people won't stick to.
posted by Pastabagel at 11:23 AM on March 20, 2007
@racingjs
I am, indeed, a fan of the Debt Snowball, and of Dave Ramsey. I've never heard his show or seen him speak, but what he says makes a hell of a lot of sense, especially for people like me.
@pastabagel
Your comments confuse me.
Ramsey looks at debt from an emotional standpoint. But people spending emotionally and impulsively is what gets them into these problems in the first place.
That's exactly what he says. This is why he encourages a debt snowball, because it capitalizes on quick emotional payoffs. Taking the rational approach, which you advocate, is fine for some people, but for others who are struggling with debt, this "highest interest rate first" approach just causes more problems. There are no quick payoffs. When I read Ramsey's book and saw that somebody smart about money was saying "it's okay to start with the smallest balance", it was a breath of fresh air. I tried the approach and it worked. (For me.)
It's a funny thing that he's against borrowing, because evidently he based his early career on debt... He appears not to have learned his lesson, because now he says to fear debt.
This confuses me, too. He got into debt. He went bankrupt. He had to dig himself back out. Now he advises against debt. That sounds to me as if he's learned his lesson.
I'm not as anti-debt as Ramsey is, but I do believe that it's a bad choice for many people, especially young people. Young adults don't understand all of the implications. Some of them rush out and charge up huge amounts on their credit cards and then spend the rest years digging out from under these burdens. That's a tough way to learn. I think there's a greater danger from over-utilizing credit than there is from under-utilizing credit.
But I don't want to belabor the point. IF the program works, and gets people out of debt, I guess I'm for it. It's better than a faster plan that people won't stick to.
Now this makes sense. I always say: Do what works for you. That's important. It doesn't matter if Dave Ramsey's method helped me get out of debt. What is important is what can help you get out of debt. In Pastabagel's case, I'm betting a more rational approach would work. That's a good thing. It'd save him money. But each person is different. If one method doesn't work, then try another.
@keep it tight
Dave Ramsey has some great advice, especially his first few "baby steps", which I believe are: small emergency fund, debt snowball, big emergency fund, ???. Those first three steps are terrific. Beyond that, I'm not sure. (I'm not there yet -- I have a year left on my debt elimination.) I do know that he advocates paying off a mortgage early, which is a controversial move. Also, his basis for advice is Biblical, which is a pro to some, a con to others, and neutral to people like me.
Dave Ramsey's advice won't lead you down any wrong paths. You may find that as you become better educated about your finances that you prefer a different approach to certain things (like your mortgage), but Ramsey's advice is solid...
Good luck!
posted by jdroth at 1:22 PM on March 20, 2007
I am, indeed, a fan of the Debt Snowball, and of Dave Ramsey. I've never heard his show or seen him speak, but what he says makes a hell of a lot of sense, especially for people like me.
@pastabagel
Your comments confuse me.
Ramsey looks at debt from an emotional standpoint. But people spending emotionally and impulsively is what gets them into these problems in the first place.
That's exactly what he says. This is why he encourages a debt snowball, because it capitalizes on quick emotional payoffs. Taking the rational approach, which you advocate, is fine for some people, but for others who are struggling with debt, this "highest interest rate first" approach just causes more problems. There are no quick payoffs. When I read Ramsey's book and saw that somebody smart about money was saying "it's okay to start with the smallest balance", it was a breath of fresh air. I tried the approach and it worked. (For me.)
It's a funny thing that he's against borrowing, because evidently he based his early career on debt... He appears not to have learned his lesson, because now he says to fear debt.
This confuses me, too. He got into debt. He went bankrupt. He had to dig himself back out. Now he advises against debt. That sounds to me as if he's learned his lesson.
I'm not as anti-debt as Ramsey is, but I do believe that it's a bad choice for many people, especially young people. Young adults don't understand all of the implications. Some of them rush out and charge up huge amounts on their credit cards and then spend the rest years digging out from under these burdens. That's a tough way to learn. I think there's a greater danger from over-utilizing credit than there is from under-utilizing credit.
But I don't want to belabor the point. IF the program works, and gets people out of debt, I guess I'm for it. It's better than a faster plan that people won't stick to.
Now this makes sense. I always say: Do what works for you. That's important. It doesn't matter if Dave Ramsey's method helped me get out of debt. What is important is what can help you get out of debt. In Pastabagel's case, I'm betting a more rational approach would work. That's a good thing. It'd save him money. But each person is different. If one method doesn't work, then try another.
@keep it tight
Dave Ramsey has some great advice, especially his first few "baby steps", which I believe are: small emergency fund, debt snowball, big emergency fund, ???. Those first three steps are terrific. Beyond that, I'm not sure. (I'm not there yet -- I have a year left on my debt elimination.) I do know that he advocates paying off a mortgage early, which is a controversial move. Also, his basis for advice is Biblical, which is a pro to some, a con to others, and neutral to people like me.
Dave Ramsey's advice won't lead you down any wrong paths. You may find that as you become better educated about your finances that you prefer a different approach to certain things (like your mortgage), but Ramsey's advice is solid...
Good luck!
posted by jdroth at 1:22 PM on March 20, 2007
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posted by Medieval Maven at 7:12 PM on March 19, 2007