Should we take his advice seriously

Question

I am at a crossroads about David Ramsey. Am I the only one or do I see him as arrogant, and does his method of cash of king seem like and awful method. I look at his youtube videos and I just dont want to doubt him and crucify him based on my opinion. So I want to ask does anybody else think his views are a little outlandish

Dalyn Hazell · Answer

A lot of people fall into the trap of thinking all or nothing when there's some sort of financial "guru". It's like there's a war between Dave Ramsey and Robert Kiyosaki, who both have very different opinions about money, taxes, and debt. I believe that you should pick and choose what works best for you between the two. For example, maybe you enjoy the guidance of setting a budget, which Dave Ramsey teaches, but you dislike his take on credit cards, because those help you secure mortgages and build credit. On the other hand, maybe you like Robert Kiyosaki's teachings against mutual funds, but you dislike his controversial take on buying personal residences, because you have a spouse and kids to shelter.

Dave Ramsey does hold some extreme stances, like only buying real estate with cash and never using debt. Following this teaching exclusively would keep REI far out of reach for most (and with less returns). I certainly believe there is good and bad debt. Unfortunately, though, many of his followers seem to think all debt is bad and pumping a 401(k) for decades is the most plausible path to wealth.

At the end of the day, it's all up to you and what works best for your family. I know it's cliche. But don't believe you have to follow someone exclusively like Robert or Dave to be successful.

Ian Walsh · Answer

Don't worry about him.  Worry about what you are going to do with the information received.  Every guru has information.  Some of it will apply to your goals and some of it won't.

Aaron K. · Answer

He calls the baby steps the baby steps for a reason, it is the most basic financial advice for people who have always lived paycheck to paycheck.  He advises against credit cards, not because he thinks they are a bad idea, but because he thinks he and his audience have no self control to pay it off every month.  He has essentially no investing advice besides save, and then invest in mutual funds, which are statistically terrible compared to ETFs, but you can't get paid to refer ETFs so he sticks with mutual funds.

He just isn't really applicable once you know how to save and have a basic idea on how to invest.  It'd be like assigning The Very Hungry Caterpillar to a high school senior AP English class.  Should they know how to read it and get the general message? Sure.  Are they capable of something more? Absolutely

Phil Olinger · Answer

Dave Ramsey is something that actually takes people a minute to warm up to. Crucify him all you want, but he has had a bit of success in building a real estate and self-help/financial empire. You may not like his ideas, but his actual genius is in the method. He does the simple things first, gets people to march forward in a stepwise fashion, and ultimately after living intentionally for a period of time, ardent followers completely retire all of their debts. I have done the program and roughly after 10 years, I am by no means a perfect example at all, but I have moved the needle majorly toward serious wealth. I don't own a bunch of doors, but I do have substantial investments, my kids will have college funds, and my house payment will be gone in a few short years. Actually I have an investment account that is growing and will surpass my total mortgage in a short while. If you completely eliminate all of your "Payments" how much extra money do you have left at the end of the month? Paying towards credit cards, moving money around works for some, and is a way to build wealth quickly. However, paying cash and especially now, the cash owner can lower rents dramatically to the whim of the market. Saying that you have built a net worth of millions in a few short years is cool. Also being a family where only one person has to work because you have no debt is also a reality too. It is just about what you want to accomplish in life. We are talking about a lake house because that is what we want.

If you can't tell I believe in his method, but as a side note here is just a screwed up example of how unclear people truly are about wealth. I know people personally who own a home outright and have enough side cash to make about a 50% down payment on an acreage. This would be done with the home sale funds and their added cash, and they can't get a loan. Why you may ask? It is because they paid off their home, own it outright, and have no debt. Their credit score is 0, and now most people go "Dave's system is so broken that these people can't get a loan." I would ask you, if someone came into a bank and said, I want a mortgage with 50% down immediately, here are my paychecks for my job from the last 5 years. The bank can't even do the loan without them getting a "credit score." Doesn't that seem a bit backward to you, if these people were to default, immediately, the loan to home value would actually be a huge moneymaker. It is truly a low-risk mortgage for the bank and this couple (they are real) should qualify for the lowest rate possible. That is not how our "credit" score system works. See to get a credit score, you don't have to have a large net worth, or be building wealth. You just have to interact with credit on a monthly basis. Don't you see any issue with the fact that these people will ultimately end up being worth millions (they are in their late 30s)? Our system treats these people worse than people who have had multiple credit failures. Every loan you take out means that you will have to continue dealing with that poor tenant or working at a rough job, at all times. Loans equal risk, and if you take the risk down to zero ultimately you end up with more options. That couple just did a major addition to their house and decided not to sell. Now they own a home that is completely paid for and has additional equity. Bankers had one shot to sell them a product, and this couple passed. When you own things outright, those things don't ever own you. Ultimately you don't have to like his method, and frankly, sometimes I find it maddening. However, I also do recognize when someone is right, and those big buildings that he has in Tennessee aren't the result of a pyramid scheme.

Carl Fredrickson · Answer

Close, but not entirely correct.

Buffett’s choice was an index fund (VFIAX), not an ETF.

Index funds are a type of mutual fund where the stocks are selected to emulate an established index like the S&P500. Since the fund managers don’t have to exert a lot of effort in deciding what to buy, they’re usually able to offer lower fees. Like mutual funds, they only transact after the end of the trading day.

ETFs are basically mutual funds that can be bought and sold throughout the trading day like stocks. There are both actively managed ETFs that focus on particular sectors or strategies and index ETFs, and the internal fees can vary accordingly. I don’t know what mechanism is used to keep the price of the ETF close to the value of the underlying investments, which are being traded at the same time.

Mark S. · Answer

@Aaron K., please elaborate on how “mutual funds are statistically terrible compared to ETFs.”

Nick Rutkowski · Answer

@Lawrence Pearson

I’m more of a Peter Schiff fan. Him and Dave are like electric and water, polar opposites. I like Peter’s stance on gold but I don’t agree we are in an inflation period yet. Deflation, then inflation. I bought physical precious metals over the years. I think BTC will take a back seat to the USA once the US comes out with its own form of electronic currency and gold will shoot the moon. I think Peter would agree with that.

Jonathan W. · Answer

@Lawrence Pearson Dave Ramsey doesn’t give you the best way to capitalize on your own money. But he does keep you out of harms way. He makes you avoid all the marketing traps that makes you spend more and yes he is very much cash king and hates debt. But it gives his particular audience a route where they don’t have to get creative or risky, they just have to get disciplined. There’s not one right answer but Dave’s approach is fine. Not my cup of tee but it works.

Mark S. · Answer

So much bad information....

Lawrence Pearson · Answer

@Ian Walsh your right, it's just when I see when sometimes people call into his show and ask hey I want to start a career in marketing he says no stay away from it. But to me my personal thought is why tell them no there could be a lesson for them there. They could either be really bad and find something new or really good and make a lot of money. The way I feel about it is its money everywhere it's just how you do it to obtain it.

Should we take his advice seriously

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