14 Dave Ramsey Tips That Rank As Some of the Worst Financial Advice
Mention Dave Ramsey’s name, and you’ll likely get one of two reactions: people will love or hate him. However, there’s no denying that he’s a voice in the financial world that many people listen to.
Whether or not you like (or adhere to) his advice is a matter for another day. Still, he’s offered some financial tips that other financial advisors don’t use and vehemently denies being good money management. If you’ve never caught his radio broadcast or seen him on the internet, we’ve compiled some of his all-time worst money advice for your reading pleasure.
1. ‘Don’t invest until you’ve paid off all your debts’
This one took the number one spot because every other financial advisor I’ve heard or read advice from doesn’t follow it. They’ll tell you the exact opposite. Michael Dinnich, former financial counselor and founder of Wealth of Geeks, will readily tell you, “Don’t pay a dime on your debt until you have an emergency fund in place.”
Steve Adcock, author of Millionaire Habits and creator of the Millionaire Habits Newsletter, advises that you should “always pay yourself first.” I’ve read these two pieces of advice over and over again from people who are solid, verifiable millionaires. I do not knock Dave Ramsey’s success, but this particular piece of wisdom seems more like a personal perspective than one based on scientific, quantifiable proof.
2. He Urges People to Prioritize Paying off Their Homes Early
We get the premise of this advice. If you pay your home off early, you’ll save considerably on the interest, and you won’t risk losing your home should something unforeseen happen. However, being too hasty to pay down your mortgage can work against you and damage your credit in the long term.
Instead, create a history of timely payments over the length of your mortgage and pay one or two payments a year ahead. You’ll still save some on interest at the back end, but you won’t cut your financial feet from under you while doing it.
3. ‘Stick to Growth Stock Mutual Funds’
Growth stock mutual funds are active investments that rely on consistent rebalancing and often charge a management fee with little to no reward over a more passive investment tool like an index fund.
If you get an equal or lesser reward from an actively managed fund than its passive counterpart, why pay the management fee for the active investment tool?
4. ‘Don’t Use Credit Cards’
In the financial world, not all advice is created equal, and you’re not likely to please everyone when you put it into the mainstream. However, Ramsey’s angst against using credit cards rubs some people the wrong way.
Credit cards come with all sorts of caution. They’re not a good idea if you can’t control your spending. If you habitually pay your balance late or miss the payment altogether, it’s better to forego them entirely. However, if you can use credit cards with rewards and miles (for travel) to your advantage and pay them entirely and on time, they can be a great financial asset.
5. When it Comes to Student Loans: ‘Do. The. Work’
Student loans have been a tumultuous pain in the rear for decades now. Since President Biden took office in the last few years, however, they’ve hit the mainstream, both because of their massive influx of debt and because President Biden made a campaign promise that he’s been working hard to fulfill.
Unfortunately, for most loan holders, a forgiveness letter isn’t likely to come your way, and in that case, you’ll still have to pay down the balance of those loans. That doesn’t mean that all roads lead to the same conclusion. This topic is a hot-button issue because overall wages have remained stagnant. At the same time, college tuition has doubled with little to show for the degrees young adults are earning, let alone the often crippling debt most are taking on for a piece of paper with little promise of future success.
6. He is All in on The ‘Debt Snowball Method’
The debt snowball method involves paying off the smallest debt while making monthly payments on all your other credit accounts. This method is a great way to tackle debt, especially if you’re encouraged by paying down debt and seeing it “go away.”
However, there are other ways to pay down those open credit lines. For instance, the avalanche method focuses your efforts on your most expensive account. This credit line holds the highest interest rate, and by paying it off, you will save hundreds (possibly thousands) of dollars and likely get out of debt faster. Different strokes for different folks as not everyone handles money stress the same way.
7. ‘Don’t Support Children or Grandchildren Financially.’
Dave Ramsey adheres to the advice of never helping out your children or grandchildren. However, this only makes it suitable for some. In today’s reality, most young adults can’t even afford to move out, let alone feasibly live independently for any length of time.
Also, more and more adults are moving back in with their parents and other family members because the cost of living in American towns and cities is too high for wages that have been stagnant for far too long. Cookie-cutting financial advice and expecting it to work for everyone isn’t going to work and can easily make people resentful of listening to anything you have to say. This philosophy is a viable option for some. For many households, it’s just not reality.
8. ‘All Debt is Bad’
The idea that all debt is bad debt is another blanket statement that doesn’t fit everyone’s financial reality. Business owners, solo entrepreneurs, and small business owners often carry a debt balance to ensure they can promptly meet their businesses’ needs.
Mortgages are also “good debt,” as they gain appreciation as you pay off the debt, and they increase your credit score as you make timely payments over the length of the loan. Being picky about the type of loans and credit lines you open and use is the most critical aspect of knowing good versus bad debt.
9. He Advocates for the 15-year Mortgage
Keeping with a 15-year mortgage will undoubtedly clear your debt faster and give you ownership rights in half the time. However, it will also significantly increase your monthly contribution, making starting or completing any needed or desired renovations more challenging.
This difficulty can leave you “house poor” and strap much-needed income that could go toward renovations, other investments, or an emergency. Having your house fall down around your ears because your monthly payment is so high (to save interest on the back end) is reminiscent of Tom Hanks and Shelley Long in The Money Pitt (1986). It makes for a great comedy and a miserable existence.
10. He Suggests Drawing From Retirement Savings at a Rate of 8%
Ramsey’s suggestion that you draw down your retirement savings at 8% per year does have a nice caveat. Your principal balance would remain virtually untouched for the rest of your life. If you hold to his 12% growth plan, you’d effectively be able to use $80,000 a year (if you managed to invest $1 million) and never touch the principal amount of your investments.
However, this draw-down amount takes into account one big “if.” Your investments must continue to grow at 12% yearly, and as volatile as the stock market can be, that’s a precarious place to be when dealing with the money you’ve saved for your non-working years.
11. Couples Should Combine Finances
This one is a sticky subject for many couples, married or not. The idea that couples should share their money is not a reality many are willing to accept because you share everything else. Being able to have some financial autonomy is a huge topic for many married couples, especially women.
Giving complete financial control to one partner in the relationship can spell trouble if domestic violence, verbal abuse, or other misgivings are present in the couple’s history or present circumstances. If couples can make it work and feel good about combining their finances, more power to them. However, it is going to be something only some couples subscribe to.
12. Eat at Home
Ramsey’s thinking here is, “I want people to enjoy life, and a great part of that can be going out and having a meal with your family and friends. Just don’t do it when you’re broke. If you’re having financial issues, the only time you should see the inside of a restaurant is if you’re working there.”
For the most part, he’s right. Extravagant spending on restaurants and fast food is one of the first things you can quickly eliminate if you’re having financial trouble. However, you can still eat out. Sometimes, an emergency warrants a food stop. Other times, it’s a work commute or business trip. The importance lies in knowing when you can’t avoid a bite to eat out and when you can.
13. Pay Cash for Cars and Buy Used Cars
One of the first financial cornerstones I learned in my early adult years came from my husband. He said that we should never purchase a brand-new car. Because cars depreciate immediately, buying one off the assembly line makes little financial sense.
If you have a car in mind that you’d like to buy, knock a couple of years off the assembly date and pay cash. By doing so, you’ll eliminate any interest payments that will cost you even more than the price of the vehicle.
14. Put $1,000 Into Your Emergency Fund
People likely took this advice out of context or did not expand upon it enough initially. Ramsey believes you should save $1000 as fast as possible.
“Your emergency fund will cover those unexpected life events you can’t plan for. And there are plenty of them. You don’t want to dig a deeper hole while you’re trying to work your way out of debt!”
However, he elaborates that the $1000 is just a beginner amount and that it was “never designed to be enough.” If he’d left it at just the thousand, I could understand why this would be a nasty piece of money wisdom. He states that he knows that amount would never hold up if something big happened. His point is to get something into your emergency fund and then continue to add to it as you can.
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