Ten Things Dave Ramsey Got Wrong

The other week I finished up a five part series of posts on Dave Ramsey’s Seven Baby Steps.  It seems to have been well received and still gets a steady stream of clicks.  But honestly, I was expecting a larger and more Snowball attr Kamyar Adl crop hostile reaction than I got, at least as measured by comments and emails.  Ramsey has a very large and devoted following, particularly, it seems, in the blogosphere.

At least I thought so.  Maybe I was wrong about that.  Perhaps Ramsey is well liked but not, ultimately, taken all that seriously.

Or maybe I was just a little too subtle in what I wrote.  Perhaps when I said that “His advice on higher level personal finance topics such as investing and taxes is weak and often misinformed because his knowledge in those areas is limited” my readers thought I was exaggerating for effect.  And perhaps when I criticized him for giving advice “on topics such as investing, about which he should probably just keep quiet” those readers didn’t really think I meant that his listeners would be better off if he didn’t cover those topics at all.

Well, I really meant it.  And for what it’s worth, let me share some of what I found on Ramsey’s website that led me to believe he has no business giving advice on several sub-areas of personal finance. All are from the “Ask Dave” section, wherein questions and answers from his radio show are summarized with an audio link.  It’s a large database, but must still be only a tiny fraction of all the questions he has answered on his show.  We can only assume that they are not a random sample and that Ramsey or his staff thoughtfully selected them as being some of his better work.

I will cite ten examples that suggest that Ramsey has a poor command of his material.  Several I have already discussed in previous posts.  It did not take me long to find these.  I stopped at ten because it was getting tedious.

1. On Roth vs. Traditional: (This from my post on Step 4. Italics are his)

Let’s say you’re 30 years old bringing home $40,000 a year.  If you put 15% of that into retirement, that’s $6,000 a year – $500 a month.  If you put $500 a month into good growth stock mutual funds that average 12% from 30-70 years old, then you would have almost $6 million.  Over 40 years, you’ve put in $240,000 and your return is $6 million.

 

If you do that in a 401K, that money is taxable.  The money went in before taxes, but the money is taxable as it comes out.  Your $240,000 that went in pre-tax is almost irrelevant in light of the $6 million that is going to be taxed.

But if you put money in a Roth IRA, it grows tax-free.  That means if you put the same amount into the Roth, you’ve got $6 million, none of which goes to Uncle Sam.  The Roth IRA is always superior to the 401K because of this.

That last italicized bit is unequivocally wrong.  The tax savings you get from the up-front deductibility of traditional IRA (or 401k) contributions is exactly the same as the tax savings you get from the distributions of Roths not being taxed, assuming tax rates are constant.  If the tax rate is higher now than in retirement, a traditional will save more money.

2.  Discussing FICO scores:

The FICO score measures how much debt you currently have and how well you are paying it off.  So if someone has no debt, there FICO score is “0″.  A person could have millions in the bank and no debt at all, but have a FICO score of “0″.

There’s no such thing as a FICO score of 0.  The lowest possible score, reflecting the worst possible credit, is 300.  If you pay off all your debt, you still get a score, probably a good one.  If you are completely unknown to the credit reporting agencies, meaning that you have no credit lines, have not had any for many years, and do not have, for example, an AT&T cell phone account, you will have no score at all.

3. Explaining mutual fund expense ratios:

If it has a very low expense ratio, then it is a mutual fund that doesn’t sell very often.

For example, you saw one expense ratio of 1.1 and that was probably an aggressive growth mutual fund.  Those are sold all the time, so the expenses are higher.  A growth and income mutual fund would have very low expenses because they are rarely sold. 

I’m not really sure what Ramsey is talking about here.  Best I can figure, he thinks that the commissions paid by the fund to buy and sell stocks are included in the expense ratio.  They aren’t. (And wouldn’t make much of a difference if they were.)

Expense ratios are ultimately pretty arbitrary, based on what the fund company thinks the market will bear.  If there is any general  trend, it is that higher risk funds, which hopefully also have a higher potential return, also have higher fees.

4. Doing Tax and Mortgage Math:

[The caller’s aunt’s] CPA thinks that she’s better off borrowing money at 5% and investing it at 12%, but because the account is taxable, 12% ends up looking like 9.6%.  The CPA will still say that she’s making 9.6%, which is still better than 5%, but he’s not thinking about the risk involved with investment.

Except that because the 5% is tax deductible, it ends up looking like 4%.  Ramsey messes these calculations up repeatedly (for example, here and see my post on Step 6) and to a remarkable extent for a guy who once made his living as a real estate developer.  His conclusion, that you should pay off the mortgage rather than invest in stocks, may be sound for some people, but he never seems to be able to set up the comparison properly on an apples-to-apples basis.

5. Apparently discussing an investment in an S&P 500 index fund:

I recommend mutual funds because they always beat the SNP.  You can own several funds that beat the SNP whether in an up-market or a down-market.  It’s alright to own some SNP, but none of your retirement savings should be in that.  If you do a little bit of looking you can find tax-protected Roth IRAs and 401-Ks that give much better returns than the SNP.

For example, take a mutual fund with a 25-year track record.  Over the course of those 25 years if you can see that the mutual fund almost always beats the SNP, then that mutual fund contains stocks that are winning more than the overall market is winning.

Assuming that “SNP” is S&P 500, mutual funds don’t always beat it, in fact on average pretty regularly lag it.  IRAs and 401ks are not investment alternatives to the S&P but accounts which can hold such things as mutual funds.

6. On the income tax effects of getting married:

The Marriage Penalty Tax was a fluke in the tax tables and has been corrected.  There should be very little difference in the taxes you pay once you get married.

A clever observer will note the existence of the “Married Filing Separately” tax schedule, as distinct from the “Single” one.  Two people making $75,000 each who get married will find that they have moved from the 25% to 28% bracket.  They will also find that there are many nooks and crannies in the tax code that may increase their burden now that they are married, including, for example, a smaller addition to the standard deduction if they are over 65 and the phaseout of personal exemptions at a lower income level.

For the record, I don’t think the tax code is anti-marriage, but I wish it were simpler.  And the marriage penalty was/is not a fluke, but a fully intentional tax policy.

7. When asked to explain what a hedge fund is:

QUESTION: Tyson wants to know what a hedge fund is, and what it is for, and how it plays into the current economic situation, in this call from September 24, 2008.

ANSWER: The term hedge fund comes from hedging your bets or hedging risk. You do that by doing the opposite of what the market is doing, or some extra risk. An example is extremely high risk mutual funds. You can’t participate unless you are very rich, because you could lose. It’s so high risk that the government wouldn’t allow an old lady to put her life savings into it.

They were the first people who were bundling together the subprime loans together and selling them as a bond. They can then sell it as a bond rather than individual mortgages. When you take many of these and put them together, that’s when it starts affecting the economy. They are the Petri dish from which this whole mess came from.

That’s the entire text of the Q&A as transcribed on Ramsey’s site.  I conclude from this that Ramsey does not, in fact, know what a hedge fund is.  (I am also left wondering why this particular question was put on his website.)  The first sentence of his answer implies hedging reduces risk and in the second that it increases it. Hedge funds were not the first people to bundle sub-prime mortgages into bonds.  A firm that creates and sells bonds is called an investment bank.

Hedge funds are like mutual funds in that they are pools of jointly owned assets, but are unregulated and typically have much higher fees, presumably to compensate for superior investment performance.  One the requirements to escape regulation is that they can only take a limited number of investors and those investors must be either wealthy individuals or corporations.  Although the word hedge does suggest reducing risk by going short, and some hedge funds do this, many do not.

8.  Speaking to a retired widow whose broker has suggested certificates of deposit:

Certificate of deposits are not a secure investment. They average about 4% and that’s also the inflation rate. By the time you pay taxes, you’ll lose money. Get away from your broker if they are giving you information like this. Invest in good growth stock mutual funds that average about 12 percent.

CDs are generally FDIC insured and therefore as guaranteed as any investment could be.  So secure that they are often said to be appropriate for widows and orphans.

9. When asked where a new retiree can get the best yield:

QUESTION: Nigel says his father just received his retirement in a lump sum of $90,000.  Where should he invest that to get the highest yield?

ANSWER: The best place to invest is in good growth stock mutual funds – growth, growth and income, aggressive growth, and international – if you’re going to leave your money alone for at least the next five years.  He’s not going to make a ton of money off of that investment in one year though.

Yield refers to income (e.g. dividends) rather than total return.  Growth stocks do not typically have much in the way of yield.  “Growth and income” and “international” are not examples of growth stock fund types.  Investing the entire sum in equities, never mind only growth equities, would be very risky for a retiree.  Even with a five year horizon equities it would present too much risk for somebody expecting to live off the money in the near term.

10. On an employee stock purchase plan:

QUESTION: Jake works for a good company that has stock options. He has done a budget and is trying to get out of debt. He can take a little bit away and have $200 a month to put into the stock options. The company buys the stock once a quarter and buys it at 85% of its market value. Should he do that?

ANSWER: All companies purchase at 85% of the value. It’s a bonus assuming the stock price is steady. In a year’s time, it has more than a 15% move up or down. I wouldn’t do it. Honestly, how much would you make off of it?

This last one is poorly transcribed, so you really have to listen to the recording to understand what poor Jake is asking about.  It is not, as he and Ramsey call it, a stock option plan but an employee stock purchase plan.  The terms are such that Jake can set aside money over the course of a quarter to be used to buy his company’s stock at a 15% discount.  He can then immediately sell that stock for its full market value.

Ramsey is dismissive of this, saying that a) it is too risky and b) it is too little money to bother with.  Both objections tell me that Ramsey wasn’t really listening to what the caller was saying and that he imagined for himself what the terms of the plan might be.  ESPPs are strange and relatively rare beasts.  I happen to have once worked for a company that had one very similar to Jake’s, so I know that the right advice is that he should max out the scheme and sell the stock immediately every quarter.

I don’t expect the host of a radio call-in show to know that off the top of his head.  I can even excuse not taking up air time to tease out of a nervous caller the necessary details. But authoritatively giving advice on a topic that is of monetary importance to your listeners as if you understood the details, when you don’t, is intolerable.

And in this way this last item epitomizes the entire set.  In no case does Ramsey give even the slightest hint that he is not intimately familiar with the subject at hand.  And yet, in at least some of these cases, he must have known he was on thin ice.  Why not say something like “I’m not really familiar with the details, but in general…” or “You know, that’s just the sort of question you should ask a qualified lawyer/accountant/broker/insurance agent.”  Would that have been that damaging to his image?  It sure would have improved the overall quality of his advice.

[Photo credit Kamyar Adl]

392 Comments

  • By Rob Bennett, May 13, 2009 @ 3:22 pm

    Why not say something like “I’m not really familiar with the details

    It’s a circular problem.

    The middle-class people who listen to the advice are impressed by “expertise.” Those who are able to give quick and authoritative-sounding responses to a multitude of questions are perceived as evidencing “expertise” by doing so. Acting like a know-it-all sounds good. It’s marketing. It sells. It works.

    The “expert” is often conflicted. Does he give advice that helps his listeners or advice that sells? If he doesn’t sell, no one listens and he does no good for anyone. If he sells too much, people suffer big financial pain.

    The only way out is for people to come to a different understanding of what constitutes “expertise.” Sometimes the best “expert” of all is the one with enough confidence in his material to be able to say “I don’t know.” I don’t see too many of that type around nowadays. It’s mostly Wizards of Oz pulling on levers and turning about cranks.

    Rob

  • By Frank Curmudgeon, May 13, 2009 @ 3:38 pm

    The difference between being good at giving advice and giving good advice?

  • By ObliviousInvestor, May 13, 2009 @ 3:41 pm

    #5 makes me physically ill to read. (Not exaggerating.) What the hell is he talking about “mutual funds always beat the S&P.”

    What a blatant falsehood.

  • By bRobert, May 13, 2009 @ 4:03 pm

    I followed Dave Ramsey’s plan to get out of debt ($40k), and I’m currently following it to build up my emergency fund, etc. I read all of your articles about him, and frankly, I’m not bothered by them. He seems more than capable of defending himself.

    I think the most important thing I have gotten from Dave Ramsey is awareness. I really didn’t know I was a financial idiot before, and he is straight forward enough to tell me that I am directly in terms I can understand. I believe the core of his message is well founded and above criticism. It just works, and he is helping millions of people. How many people are helped by his critics? How many people are confused by his critics?

    I don’t think it really matters much, I haven’t met anyone yet who strictly follows his advice after the first couple of Baby Steps. I wouldn’t be reading the dozen or more PF blogs I do if I weren’t hungry for something more than he offers.

    I enjoy and appreciate your blog. I have a lot of learning to do, and consider what you do very valuable to me. I would never have known to question Dave Ramsey’s suggestions without it. :)

  • By Chris, May 13, 2009 @ 4:31 pm

    It’s also important to note in #1, that if you are 30, you can only put $5,000 per year into a Roth IRA. If you believe the rest of the math, that alone cuts more than $1 million off of your return.

  • By Four Pillars, May 13, 2009 @ 4:37 pm

    Dave Ramsey is a complete and utter idiot. Why anybody would take financial advice from him is beyond me. That said, he is a pretty effective debt reduction motivator so maybe he should stick to that topic.

    As for lack of response – welcome to wonderful world of blogging.

  • By SJ, May 13, 2009 @ 4:56 pm

    Hilarious…

    I mean, it’s not his area of expertise but we can treat him as elementary school or an intro class to personal finance; step 1 get out of debt.
    Step two upgrade your class and build wealth

    But still SNP. Yay.

  • By My Journey, May 13, 2009 @ 5:05 pm

    There is a simple reason why you didn’t get hate mail/comments.

    Your audience (at least those that comment) seems to be made up of people who are not searching for the magic cure to pay off debt, and thus are not in love with a talking head such as an Orman (who I hate) or Ramsey (who I have never heard of until I started blogging myself).

    Your audience is made up of intelligent readers who can actually understand your counter arguments to “facts.”

  • By kurt, May 13, 2009 @ 5:20 pm

    #3 and #5 are startlingly dumb responses. It’s unfortunate that Ramsey can’t limit his advice to the specific topic of paying down debt. I just wish he would have mentioned which specific mutual funds ALWAYS beat the “SNP”, now that would be helpful advice.

  • By SaveBuyLive, May 13, 2009 @ 5:49 pm

    I think of Dave Ramsey as entry level personal finance. Some people are going to grasp what he has to say in a few months. If they execute his advice they aren’t going to be that bad off. Let’s be honest. Paying off debt, starting an emergency fund and saving for retirement are really all that most people need. Even if you hate thinking about finance you can pull off Ramsey’s advice relatively easily. And consider the fact that some people are going to struggle with this stuff for their whole lives.

    But listening to Ramsey for more advanced personal finance advice is like listening to a very intelligent college sophomore explaining biology. I’ve got a couple of advanced degrees in this area and I can tell you that the college sophomore (like Ramsey) will get the basics right but fall flat on his face when discussing the details. Unfortunately, there isn’t a huge popular market for basic biology knowledge so college sophomore has little probability of landing his own radio show and book deal.

    Other people are going to want to move on to more advanced personal finance. I’m slowly moving towards this category. But getting there is hard. I’m not a finance major and most blogs (even my own) are geared more towards the basics.

    I’ve been reading your blog for a little while and you seem to know what you are talking about. It would be awesome if you would post a reading list of books/articles/textbooks/blogs for people for people who want to get beyond starting an emergency fund and paying down debt.

  • By Carl Richards, May 13, 2009 @ 5:54 pm

    Unreal.

    Really, I am shocked.

    One more reason you should never mix entertainment and investing.

  • By Dangerman, May 13, 2009 @ 6:28 pm

    “Except that because the 5% is tax deductible, it ends up looking like 4%.”

    Inaccurate.

    Only roughly one half of all mortgage holders benefit from the mortgage interest deduction. (see, for example, Spend Till The End, Burns and Kotlikoff, pages 133-134). Dave Ramsey’s listeners are certainly on the lower end, and so the majority very likely do not benefit at all. Thus, Dave’s advice is generally correct.

    Fault Dave for generalities all you want, Mr. Frank Curmudgeon, but you do it too.

  • By Frank Curmudgeon, May 13, 2009 @ 6:38 pm

    Point well taken. I had no idea it was as high as half, although I certainly knew it was significant, which I should have mentioned at least in passing.

  • By Dangerman, May 13, 2009 @ 7:21 pm

    I appreciate your “point well taken.” However…

    “Two people making $75,000 each who get married will find that they have moved from the 25% to 28% bracket.”

    Somewhat misleading.

    Each person earning $75k will pay $12,256 in federal taxes in 2008 assuming standard deduction and one exemption, and no other issues. (See any online tax calculator.) But two people each earning $75k and filing as married-filing-jointly will pay $24,532 (standard MFJ deduction and two exemptions). The so-called “marriage penalty” is therefore exactly (24,532 – 2*12,256) $20.

    The scenario you chose is almost exactly where the “marriage penalty” just _barely_ begins to kick in.

    Of course, only about 25% of wage earners in the U.S. earn >$75k. So, assuming straight independent probabilities, the likelihood of two people earning >$75k is 0.25^2 = 6.25%.

    Sounds like Dave’s advice that “There should be very little difference in the taxes you pay once you get married” is basically correct for 93.75% of American households.

    So again, Dave may generalize, but that doesn’t mean he’s wrong. In my book, 93% gets an A.

  • By Kevin, May 13, 2009 @ 8:01 pm

    “SNP?” Has the guy ever picked up a Wall Street Journal? What a clown.

  • By Frank Curmudgeon, May 13, 2009 @ 8:11 pm

    Dangerman: Okay, but Ramsey said the marriage penalty was a “fluke” that “was corrected.” He didn’t say “it’s real, but pretty unlikely to be a problem that costs you serious money, so don’t worry about it.”

    The marriage penalty was always more of a symbolic issue than a substantive one. You have to be pretty well off, with both spouses working and individually in the higher brackets for it to be noticable money.

    Kevin: To be fair (and why not be fair?) Ramsey probably didn’t transcribe this himself, he only hired somebody who doesn’t read the Wall Street Journal to do his typing. And apparently didn’t hire an editor who knew the term either.

  • By Scott, May 13, 2009 @ 8:37 pm

    For #1, it seems to me that most people conflate marginal tax rate and average tax rate. My current marginal tax rate is 28%, so contributing to a traditional IRA saves me 28%. In retirement (given 2008′s tax brackets) my standard deduction is $10,900 (for married filing jointly), so if I understand this correctly my first $10,900 in withdrawals from a traditional IRA will not be taxed at all just as with a Roth. It seems that the Roth IRA has a clear disadvantage here. The next $16k is only taxed at 10%, etc. So assuming that 100% of my retirement income comes from an IRA, then isn’t it more appropriate to compare my expected average tax rate in retirement to my current marginal tax rate. It would seem that there is a clear advantage to having at least some money in traditional rather than Roth accounts unless you expect tax rates to go through the roof.

    If I’m making a mistake in the logic above, feel free to point it out. Obviously other considerations like social security and its taxability will have an impact but frankly I am not up on the tax rules surrounding social security income.

  • By Dove, May 13, 2009 @ 10:32 pm

    You don’t get hate mail because your audience expects criticism. It’s right in the title of the blog. And, frankly, you do it well.

    Dave may be wrong on advanced topics, but he is useful because a lot of people are utterly financially illiterate. They don’t weigh rates of return. Even odds, they don’t even know what a rate of return is, and certainly not what constitutes a good one. They have never tracked expenses, never considered investing, and never looked beyond the next paycheck. They do not understand that their debt makes them poor. They cannot connect a lifestyle of frivolous purchase to the difficulty they have in making ends meet. They have no context from which to consider large purchases, having simply never lived another way.

    Dave exists for these people. For folks who respond to advice like “spend less than what you make” with “I never thought of it that way.” Many of us who have since become wiser received that revelation from him. He’s good at advising a person to get his act together and save $50 this month instead of going further into debt. So I find it somehow forgivable that he’s not so good at telling folks what to do when they’ve been saving for 35 years and have amassed enough wealth that tenths of percentage points really matter.

    But it’s disturbing that he tries. I’d rather he simply said “not my field.” True, if it weren’t for him, some folks wouldn’t have retirement accounts at all–so even if he helps them go on to mismanage them, on balance, he’s done them good. Then again, he advised another retiree to make inappropriately aggressive investments, so perhaps he can do a lot of harm, too. And the criticism here makes him start to look dishonest, or at least unwilling to do his own homework and honestly find the bounds of his own knowledge. That’s too bad.

  • By bex, May 14, 2009 @ 12:43 am

    nothing to add… other than “ramsey is a tool.”

  • By Dangerman, May 14, 2009 @ 6:23 am

    “Okay, but Ramsey said the marriage penalty was a “fluke” that “was corrected.””

    Well, that’s discussing legislative intent, not really personal finance. Dave’s advice is generally correct for about 93% of the American population. Besides, the “marriage penalty” -was- “fixed” for many households by the 2001 Bush tax cuts. I don’t have my old tables, but I believe that it used to get couples earning as little as $50k each.

    “To be fair (and why not be fair?)…”

    I’d say you’re right about numbers 2, 3, 5 and 7. For the others:

    1- Dave is technically correct based on the scenario he has created. Dave said “If you do -that- in a 401K…” where “that” is “$500 a month.” Then, $500/month in a Roth IRA clearly -is- better than $500/month in a 401K. Dave didn’t account for the fact that $500/month take home is $600 (or whatever) pre-tax, but based on the exact wording he stated, he’s not wrong.

    4. Discussed above. Dave’s answer may not run some Monte Carlo simulations to account for the standard deviations of returns in the investments, but as a generality he’s right.

    6. Discussed above.

    8. “By the time you pay taxes, you’ll lose money.” – this statement is absolutely correct. Your criticism is a different in opinion about the proper asset allocation. If the “retired widow” is 55, then Dave is 100% correct – although if she’s 85 then you are more correct. Without knowing her age, there is no right answer.

    9. Dave uses the terms “growth, growth and income, aggressive growth, and international” differently than modern investors use the “growth” vs “value” terminology. These labels were more commonly used 15 to 20 years ago. Dave may be behind the times in the -terms-, but the underlying asset allocation isn’t that bad. You are correct about “yield”, but in all fairness the caller very likely meant “most total amount of money” since that’s what people ultimately care about.

    10. “In a year’s time, it has more than a 15% move up or down.” This statement is approximately correct, the typical standard deviation of a single stock is about 20-25% (See, for example, Ferri, All About Asset Allocation).

    “Jake… is trying to get out of debt.” Dave’s advice in this situation comes back to point #4 – investing while still in debt. The risk involves in single stocks, while paying interest on that money, makes the plan a poor choice for almost everyone. Since Dave typically discusses mortgage debt differently, it appears that this caller has consumer debt (cars or credit cards), which is likely at a high interest rate. If so, the 15% yield on the plan would very likely be wiped out by the 10%+ interest rate this caller is paying on his debt.

    For example, assuming that the caller’s debt is only 10%, the plan achieves a return of 5% -if- the stock price is perfectly smooth (which of course never happens). A 5% return on a single stock is far, far away from the efficient frontier, and therefore is a bad investment.

    “so I know that the right advice is that he should max out the scheme and sell the stock immediately every quarter.” Why? Were you in debt at the time? Did you know the long term variability of your company’s stock?

    Well, that was really long.

    The thing is, Dave generalizes (and, granted, sometimes is plain old wrong or uninformed), but Dave speaks to his audience – and he’s generally correct even if he doesn’t explain why.

    Ok, just my two cents.

  • By ObliviousInvestor, May 14, 2009 @ 8:00 am

    Here’s my question for Dangerman:

    If, as you say, Dave is “generally correct,” is that good enough?

    Or, given the degree of trouble caused by being wrong (#5 from above stands out to me), do you think his listeners/readers would be better off if he simply refrained from addressing investment-related topics?

  • By Dangerman, May 14, 2009 @ 8:30 am

    “If, as you say, Dave is “generally correct,” is that good enough?”

    Yes, absolutely. Financial illiteracy is a huge problem in this country, and Dave educates “the masses.” Us internet posters can sit back and criticize, but Dave speaks to some 6 million people every day. If you think he should say “this is generally the answer, but it may depend on various aspects of your specific situation” before he answers any question, well sure – but what’s the point of that?

    “Or, given the degree of trouble caused by being wrong (#5 from above stands out to me)…”

    #5 also stands out for me, because I’ve personally heard Dave recommend a S&P500 index fund on several shows. I heard him do so in one podcast last week, actually. Therefore, I suspect that this quote is from an older show, although I haven’t retraced Frank Curmudgeon’s steps.

    Dave is not really an “efficient markets” guy, although many people would like him to be. But, one key point that this criticism overlooks is that many people -do- need help with their investments, and therefore paying loads to a fund broker can be worthwhile if that broker is actually helpful.

    You can say, “everyone should be able to create an asset allocation using low cost Vanguard funds by looking stuff up on the internet.” But that’s not the reality for many Americans. Therefore, Dave’s advice is a “safe” (fund brokers generally won’t screw you over and take your money) avenue, even if other options might be better.

    So, is Dave perfect? No. Does he do far, far more good than bad? Yes, absolutely. No need to let the perfect become the enemy of the good.

  • By ObliviousInvestor, May 14, 2009 @ 9:15 am

    To me, the alternative isn’t saying, as you put it “this is generally the answer, but it may depend on various aspects of your specific situation.”

    To me, the alternative is simply to admit a lack of expertise when faced with a specific topic about which he isn’t terribly knowledgeable.

    Or, perhaps, to take the time to learn a little more. After all, Dave speaks to some 6 million people every day.

  • By IndependentOperator, May 14, 2009 @ 10:54 am

    @Dangerman:

    You and Frank arguing about Dave’s level of correctness is pretty silly. The implication in your defense is that Dave didn’t stumble upon what you believe is the right answer by pure accident. If you analyze the words that surround the facts in his responses, he is most clearly an idiot who has no business telling people what to do with the whole of the wealth they have accumulated throughout their entire lives.

    Are you being serious? This is not an argument of technicalities. This is an argument of people giving horrible advice about VERY SERIOUS THINGS that ultimately result in all of society being worse off when we have to find ways to take care of people who have blown their retirement savings.

    It is BECAUSE financial illiteracy is so rampant that people like Dave need to avoid giving advice where they are not expert. There is little hope that someone will read his advice and realize it is not correct, because the reader knows next to nothing about finances. It is irresponsible for Dave to take an expert role if he is not an expert. That means he either has a huge ego and thinks he is way smarter than he is, or he is being dishonest and should defer to true experts.

    Whether or not he stumbled on technically correct answers is not at all the point. He is not, as you are implying, a true expert who only seems kind of wrong because he’s trying to dumb down and generalize the output of his expertise.

  • By Mike Peterson, May 14, 2009 @ 11:00 am

    I think some of your criticism of Dave is a little off kilter. You need to keep in mind that his advice is provided in context of people following his advice, fully.

    For intance, #1 above. If you follow Dave’s advice fully (get out of debt, save 15% of your income, live within your means) there is no way someone age 30 will not wind up in the highest tax bracket at retirement. Investing in a pre-tax retirement account with even reasonable investment success would result in RMDs that, alone, would put the person in today’s 35% tax bracket. So, his statement holds true.

    Trust me. When I first started listening to Dave, I too was a skeptic. However, if you become a regular listener and hear him address some of your concerns by putting them into the context of following his 7 Baby Steps program, you’ll find that his advice, overall, is pretty sound.

    You also need to learn to view things from his point of view. For instance, his comment in #1 above references a 30-year old putting $6,000 per year into a Roth IRA. Now, we all know the contribution limit for a 30-year old is $5,000. However, you have to listen to Dave fully explain this to better understand. What he means by this is that the typical 30-year old probably pays about a 20% average tax rate on income (federal, state, and local). That being true, the person has to earn $6,000 to place $5,000 into the Roth IRA. I think it’s confusing, but he views the taxes paid as part of the $6,000 investment. When you think about it, his comparison is actually a more realistic view, since it deals with the taxes at both ends of the example.

    This is coming from someone who 8 years ago heard Dave and thought, there’s a poor fella who just doesn’t understand leverage. Now, I’m a facilitator in my church for his Financial Peace University and am working his 7 Baby Steps Program. I can testify to the positive results of his program, both for myself and for clients I’ve recommended follow his program.

    However, I’m not a Kool-Aid drinker. For instance, I still take issue with his view on permanent life insurance ALWAYS being a bad idea. I feel it has a place in estate planning and special needs planning.

    But, all in all, Dave’s advice if better than the advice provided by over half the people in the financial services industry.

  • By GPR, May 14, 2009 @ 11:48 am

    @Dangerman: “Ok, just my two cents.”

    I charge more per word than you do.

  • By Frank Curmudgeon, May 14, 2009 @ 1:29 pm

    Now this was the sort of reaction I was expecting.

    Dangerman: As I’ve said before, I think Ramsey has a role to play and that he does it well. All I am saying is that he should keep inside the bounds of his expertise.

    On #1: His exact wording may be correct in some sense, but it is so wildly misleading as to be deceptive and certainly does not support his conclusions. My point is not that he is lying, but that he doesn’t understand what he is talking about. (Which may be worse.)

    #5: Ramsey’s position, as I understand it, is that S&P 500 index funds may make sense, but only in taxable accounts.

    #8: No, you won’t lose money, you will lose value relative to inflation. His alternative is a stock fund in which you may lose both money and relative value. I believe that the caller refers to living on Social Security, so I infer she is not 55. Although she could have meant survivor’s benefits. Remarkable that Ramsey didn’t ask her for details, isn’t it?

    #9: As used by investment professionals, I believe that growth as an investment style always meant what it does today. It certainly meant what it does now 15 years ago, when I was helping to manage a growth mutual fund. (Never forget: I’m old.) I think from the context that the caller, who is asking about a new retiree, really is asking about income.

    #10: The terms of Jake’s company’s plan is that the money is taken from his paycheck and set aside over the course of each quarter. On average, his money is locked up for half the quarter, or one eighth of a year. Then he gains 15% on it, meaning his annualized return from this scheme is 206%. Yes, he does own the stock for a short period before he can sell it, but that time period is measured in hours. There’s really nothing to discuss here. Jake should max it out. Again, my complaint is not that Ramsey didn’t understand this, but that he confidently gave advice as if he did.

    Mike Peterson: You are making my case for me. If Ramsey thought that $6000 pre-tax meant a $5000 Roth contribution (because of the little-known 16.66% tax bracket?) then he’s really lost, because he then forgets about the issue of taxes on contributions altogether when he compares the relative value of the two schemes.

    Yes, a 30 year-old who diligently saves and gets a 12% return on his investments will be rich by 70. But I’m not so confident about the 12% part. You should also consider the effects of inflation. Assuming a 4% average over 40 years (an unscientific but popular assumption) the 35% bracket, which now starts at $372,950 for couples in 2009, will start at $1,790,540 in 2049, based on the very unlikely assumption that they don’t change the laws in the meantime. How sure are you that a typical 30 year-old following the Ramsey Way will end up there?

  • By Kosmo @ The Casual Observer, May 14, 2009 @ 4:57 pm

    Interesting that we never hear about the marriage bonus :)

    Taxpayer A makes $100,000
    Taxpayer B makes $10,000

    They get married … and much of taxpayer A’s income gets dragged into lower brackets, resulting in a lower total tax.

    How common is this? Think of couples with a stay-at-home spouse who has a small in-home business (day care, Tupperware, etc) – or situtations where one spouse is retired and the other is not – or one is unemployed and the other is not.

    Regarding Roth vs. traditional (or 401(k)), I dissect some scenarios here:

    http://www.observingcasually.com/roth-vs-401k/

  • By ObliviousInvestor, May 14, 2009 @ 10:35 pm

    Kosmo: Such was the case when my wife and I got married. Due to the significant difference in earnings between a tax accountant and a social worker, we ended up with a substantially lower total tax burden.

    Marriage bonus! :)

  • By Dave C., May 15, 2009 @ 9:26 am

    Frank,
    I think you must now know what you need to solicit responses from now on, eh? Stick it to ‘em.

  • By Jon, May 15, 2009 @ 1:07 pm

    Can you explain your statement from #1 that:

    The tax savings you get from the up-front deductibility of traditional IRA (or 401k) contributions is exactly the same as the tax savings you get from the distributions of Roths not being taxed, assuming tax rates are constant. If the tax rate is higher now than in retirement, a traditional will save more money.

    I understand Dave’s “logic” but I don’t understand your statement.

    Are you doing a time value of money calculation and saying that the net present value of the future tax savings of the Roth equals the net present value of the current tax savings of the traditional IRA/401(k)?

    Perhaps you could give an example.

    Thanks.

  • By Dangerman, May 15, 2009 @ 1:30 pm

    “#10…On average, his money is locked up for half the quarter, or one eighth of a year.”

    You are completely right, I missed that part and was assuming a year long lock up. My mistake.

    So I’d agree on 2, 3, 5, 7 and 10.

    “This is not an argument of technicalities. …he is most clearly an idiot…”

    Well, how can you know unless you run the numbers? There’s a lot of cultural condescension directed at Dave (and he, of course, hurls it back). Frank wasn’t doing that, but the attitude of “I know better” seems to keep large segments of American from learning from people like Dave.

    “he should keep inside the bounds of his expertise.”
    &
    “…no business telling people what to do with the whole of the wealth they have accumulated throughout their entire lives.”

    I think the question might be phrased: “is the world a better place if Dave talks about investments, as opposed to a world where he did not?” I would have to say that the world is better for having Dave to educate us – even if he isn’t exact, and isn’t correct in every situation. In my opinion, he is better than -nothing-, because people without -any- knowledge often make huge mistakes (i.e. get scammed, swindled, blow the money, etc.), whereas the types of mistakes Frank is criticizing are (relatively) small mistakes.

    Overall I think its fair to say that, for a guy who fills 4 hours of airtime every day, Dave is incredibly accurate the vast majority of the time -for the vast majority of his listeners-.

    Ok, this was fun. A pleasure to chat with y’all!

  • By Kosmo @ The Casual Observer, May 15, 2009 @ 4:38 pm

    Jon,
    Very simple example:

    - You will double your money between now and retirement
    - tax rate is 30% (now and in the future)
    - This is a very simple example, but I’m ignoring the other factors because they are the same in both examples and cancel each other out.

    Roth:
    Start with $1000
    Pay taxes of 30% before contributing ($300)
    Money left to invest = $700
    Money doubles to $1400
    Pay no taxes on distributions

    Traditional
    Start with $1000
    Pay no taxes before contributing
    Left with $1000 to invest
    Money doubles to $2000
    Pay taxes of 30% on distributions ($600)
    You’re left with $1400

  • By Kosmo @ The Casual Observer, May 15, 2009 @ 4:45 pm

    Oblivious investor: Back before the Bush changes went in, I was discussing this with another friend who also works in IT. Both of us have degrees in accounting, and he has a CPA.

    He’s ranting about the marriage penalty … and I eventually get him to take a closer look. His wife had recently begun staying at home with the kids. Yep, he was getting a marriage bonus. He was taken aback at the realization. The phrase “marriage penalty” has become ingrained in our language, though, whereas “marriage bonus” has not.

    Single people just have bad lobbyists ;)

  • By ObliviousInvestor, May 15, 2009 @ 6:45 pm

    Jon: The issue of Roth vs. Traditional being the same if your tax bracket doesn’t change is simply the result of the commutative property of multiplication.

    Take a 25% (or whatever) cut of the money now, or take a 25% cut later. It shouldn’t matter.

    Kosmo: Agreed precisely. The marriage penalty is indeed real. And so is the marriage bonus. Interesting that only one gets talked about.

  • By Frank Curmudgeon, May 16, 2009 @ 9:15 am

    What also never gets talked about is the partisan split between married and single people. Married people lean heavily Republican, single people Democrat. Last I saw numbers (a while ago) this was by far the biggest demographic split around. At some point the Repubicans decided to play to their base in a typically crass way and express outrage about the “anti-marriage” tax code. That’s bad enough, but the Democrats then sheepishly went along with it, rather than pointing out that a) on balance married people are better off with the current system and b) it’s a perfectly reasonable and justifiable tax policy.

  • By Kevin @ The Money Hawk, May 16, 2009 @ 5:13 pm

    Can I ask where you got these quotes?

  • By Frank Curmudgeon, May 16, 2009 @ 8:00 pm

    What, the Ramsey quotes? From his website. Click on the item names to go there.

  • By Mike, May 17, 2009 @ 4:13 pm

    The way I look at is – if someone motivates you to take charge of your own finances and manage your own money and investments, then it’s good advice.

    Once you become motivated, you’ll become better educated and figure out what’s in your own best interests. It’s that initial step that’s the most important.

    That’s why I like Dave Ramsey, and also why I like Suze Orman. They both have good stories in which we all can identify, and they’re both master motivators.

  • By Mary, May 18, 2009 @ 12:51 pm

    Yeah! Controversy – as Dave C says, know you know what stirs up responses, right? I’m a complete financial amateur who has been trying to get better – lurking on PF boards for about a year, seriously started fixing my screwed up financial house about 9 months ago. I am not qualified to address any of the topics in the commentary above except for the following: I listen to DR for info-tainment and I follow (in general) his basic personal finance advice. He says things that blatantly sound off-kilter and that spurs me to thought & further research to determine what the heck he’s thinking – but I bet I’m in the minority – if someone doesn’t have a filter for what doesn’t seem right, and they don’t follow through with research, they could be harmed following his advice. But god forbid you ask for others’ opinions of what he says – I made that mistake just this weekend on a PF forum and was lambasted for being an idiot even to listen to him and was informed that since I’m in debt I shouldn’t participate in a PF forum. (?!) A civil discourse (civil for the most part) such as above would help those of us who like to listen, but want the additional details of why his advice on broader issues may not be correct…

  • By Rob, May 20, 2009 @ 4:40 pm

    Regarding #1… you mention “If the tax rate is higher now than in retirement, a traditional will save more money.” When Dave (and others leaning in this general direction) have brought this point up, it’s always in the context of “…and you can pretty much bet on the tax rate going up because of the country’s current fiscal condition.”

    I just read your other post about traditional vs. Roth IRAs and understand your argument that this concern has been around for three decades, but I think that’s still a reasonable argument, particularly in light of the past couple years’ deficits.

  • By K, May 21, 2009 @ 1:55 pm

    Dave very commonly tells people to talk to an attorney or financial planner, as does the disclaimer at the end of each podcast. He has a network of professionals he endorses to provide additional financial planning services. Yes, they will provide a similar message, but as the disclaimer says, each situation is different.

    I’ll concur with the other posters who say that the biggest thing that Dave does well is get people thinking about their money and providing a clear and easy to follow framework for people to get out of debt and build wealth. The “higher problems” don’t really come along until you are well into the steps, anyway, and by that time, it’s likely that the lesson of “understand where your money is going” has been drummed into your head enough by what it requires to make an emergency fund, pay off debt, build the emergency fund larger and THEN you really start worrying about investments. Likely at this point many realize they are out of their depth, yet are in control of their finances, and go looking for professional help.

    Put another way, I can tell that my plumbing is leaking (and so could Dave Ramsey). But I likely need to call a plumber in to fix it.

    Contrast Dave’s advice with other financial advice that delves into nitty gritty details about financial markets, investment types, leveraged buying, entrepreneurship as the solution to all problems, and so on and the “average” person will get quickly overwhelmed. And it’s far and above “advice” that stock pickers and get rich quick schemers sell or preach.

  • By Jim, May 21, 2009 @ 5:49 pm

    Mike Peterson said: “For intance, #1 above. If you follow Dave’s advice fully (get out of debt, save 15% of your income, live within your means) there is no way someone age 30 will not wind up in the highest tax bracket at retirement. Investing in a pre-tax retirement account with even reasonable investment success would result in RMDs that, alone, would put the person in today’s 35% tax bracket.”

    Someone with median income who invested 15% of their pay in a pre-tax 401k from 1966 to 2006 would have accumulated $1.1M if they had achieved 10% annual returns. If they had instead put their money in the S&P500 they would have accumulated a bit under $850k. If they take 4% from age 65 onwards then that would be $34k to $44k distributions. If they waited till age 701/2 before wirthdrawing anything then their required minimum distributions (RMD) would be around $30k – $40k. In any case it would put a married couple in the 15% bracket. Nowhere near the top 35% bracket which is for income over $372k.

  • By Jim, May 21, 2009 @ 6:07 pm

    I do think there is some very bad information in those quotes from Ramsey. #5, mutual funds do NOT always beat the S&P. #8, CD’s are secure.

    For #10 whether or not its a good idea depends on the exact nature of the stock participation program. At my company I can put 10% of my pay into a fund and buy stock at a 15% discount every 6 months. So for me its a guaranteedd 15% return in 6 months. Thats a no lose situation so I should definitely participate. However I’ve also heard of stock particiption programs where they won’t let you sell the stock for at least 1 year. In that case you could easily lose a lot of money if your locked into the stock for a period of time. So it really does depend on the details of the program.

  • By Darcy, February 2, 2010 @ 12:54 pm

    Well, as a beginner, I think Dave’s an inspiration for making a lifestyle change that will lead to wealth building. However even as a beginner, I thought his investment advice was iffy. His suggestion about NOT making a company-matching contribution to a 401K was rejected by my husband and I. We just can’t see throwing away the opportunity to get free money out of his otherwise tight employer.

  • By JWS, February 17, 2010 @ 6:26 pm

    How wealthy and successful are YOU?

  • By Nate CFPwannabe, February 18, 2010 @ 2:12 pm

    Dave Ramsey is a remedial measure. Helpful to those climbing out of the pit, he is not optimal for reaching for the stars. A great help, he understands the spirit of the debtor. He is not a Wealth Management Expert. He must be understood in his place.

  • By Mark, March 2, 2010 @ 11:34 am

    I just ran across this posting, but I find it interesting that the author is just as bad as Ramsey. I’m not going to go through every entry, but will use number 1 as an example.

    You claim Dave is “unequivocally wrong” in saying a Roth is better than a 401(k) because of deductability, and you use my favorite bad argument to try to say that: “deductibility of traditional IRA (or 401k) contributions is exactly the same as the tax savings you get from the distributions of Roths not being taxed, assuming tax rates are constant.”

    Really? You omit the fact that for the deductability to equal tax savings, you are also assuming NO EARNINGS on either retirement account.

    Maybe you, sir, have “no business giving advice on several sub-areas of personal finance.” I’m no Ramsey fan, but please don’t add to the bad advice already out there.

  • By Lisa, March 15, 2010 @ 1:08 pm

    I love reading financial advice and agree that technically Dave Ramsey is not always totally correct. You forget that one variable overlooked are the traps laid by sellers puffing their product with no recourse to the little guy. I have one IRA from Sherson American Express since 1980 that is worth 1/3 of the initial investment. Staying with mutual funds with a long track record IS a good long term strategy. You are doing a dis-service to the public by getting too techncal. Technical jargon are the tools of crooks. It is too easy to lose 40 years of savings and no one accurately addresses these investing pitfalls. You are right in some of the details but I’ll stay with Mr Ramsey’s simple formulas.

  • By Frank Curmudgeon, March 16, 2010 @ 12:09 pm

    A user of technical jargon is not necessarily a crook any more than a person who simplifies things down to catchphrases is necessarily honest.

  • By brian, March 17, 2010 @ 10:15 am

    Agree with all the statements. Dave has wonderful advice on personal finance and getting out of debt. since finding his radio station nine months ago I am debt free.

    But, yes take caution to his investing advice. I mean, if you dont want to do any research or learning or pay anyone to handle your money – following is advice is a good option. Just take caution, and realize he gives the same investing advice to all his callers – which doesnt really factor in age & risk.

    Dave does a good job of telling callers to consult experts in taxes and lawyers. I wish he would do that more for investing as well.

  • By m hall, March 24, 2010 @ 11:51 pm

    This is all I have to say is:
    2007: $208,765.00 in debt (not counting mortgage)
    2008: start ramsey’s program
    2010: $0.00 in debt
    shut up his system works, I have a series 6 & 7 investment advise can vary widely from advisor to advisor, I personally give very very conservative advice & have been criticized for years, but in the last 3 years my clients have lost a total of$0.00 dollars so I guess that makes me right. It does not matter if you make 1,000,000 in 5 years if you loose 999,000 in year 6.

  • By tbaarr, March 28, 2010 @ 3:00 am

    dave ramsey system may work

    but it aint the greatest tool in the box

    it cuts out making money by paying your bills with a 1% cashback credit card cause dave says they are bad

    it directs you to pay more IRS taxes

    because when you pay your mortgage off early

    you lose your ability to itemize your taxes

    and you eat your property taxes

    BAD IDEA

  • By tbaarr, March 28, 2010 @ 3:03 am

    I said it before and I will say it again

    dave ramsey is rich because sheep buy his books

    I have been giving the same kind of advice for free since 1996.

    but since I aint a christian sheep who blindly votes repub

    regardless of how many times they put us into a bubble burst recession

    I am not heard in the christian circles

    google my screename tbaarr sometime

  • By John Thomas, March 30, 2010 @ 11:36 am

    I love how people are sooooooo quick to make judgements and critique others. You have no affiliation with him and probably for good reason. Being a follower of the Christian faith, I follow Dave Ramseys teachings not only for the “straight financial” advise given, but fort the spiritual background of the financial lessons. Someone too quick to judge would obviously not understand the underlying meanings. Get a life!

  • By Allan, April 2, 2010 @ 12:30 am

    I am also a Christian, but I get tired of people holding Dave out to be an expert in personal finance. He’s probably a good guy, but he’s wealthy because he’s very, very good at giving sub par advice (not because he did well in mutual funds). There are plenty of Christian advisors in every city in this country who advise their clients in exact opposite ways–in some cases– than Dave recommends. It doesn’t make them any less “Christian” than Dave. In fact, Dave should think about checking his arrogance. Not an appealing trait for a follower of Christ.

  • By Jeremy, April 19, 2010 @ 10:30 pm

    The other problem with Dave’s ROTH example is that you can’t put $6,000 into a ROTH each year at 30 years old – max contribution for an individual is $5,000. To say nothing about 12% assumed rate of return nonsense.

  • By bae, April 23, 2010 @ 9:23 pm

    i bought all his books on my credit card is that wrong

  • By cybergal5184, May 6, 2010 @ 7:24 pm

    Yes his advice is pretty simplistic. I listen to the show and I could pretty much answer these questions exactly like he does since none of the issues are ever really new. He should really stay away from the investing advice or just update it a little …. when was that 12% figure last true … 1999?

    Love this blog BTW.

  • By Immigrant Texan, May 16, 2010 @ 3:36 pm

    Enjoyed your blog, researching Dave Ramsey and seeing the terrible advice he gives people convinced me to start my own blog. He’s a never ending source of amusement, and though I’ve just begun, I look forward to analyzing more of this negative NPV advice he gives.

  • By Barry Whittaker, May 16, 2010 @ 7:22 pm

    One of the first things I ever read about Dave Ramsey was his advice about gold. Several years ago when gold was around $600 per ounce Dave said gold was a poor investment. Look at gold today, over $1230 per ounce. That tells me all I need to know about Dave.

  • By Special K, May 17, 2010 @ 3:04 pm

    Wow there is tons here, I am not going to try to dispute everything. As for the gold thing, he says that gold has done very well in the last 15 years or so yes, but as a long term investment it is horrible….because it is. It has average around the rate of inflation.

    I find it interesting that %99 percent of people who criticize Dave Ramsey, do so on the basis of either “I’ve never really followed him, but based on what I have heard and read, I think that blah blah blah” or “I have caught a few episodes here and there”. Usually, these judgments tend to be taken way out of context.

    Also, he is a strong believer in long term investing, yet all you “speculators” want to point out that he is wrong about this or that because “ooh look, he’s wrong cuz the market has dipped the last year or 2 years”….over 15 and 20 year periods, he tends to be correct if you look at your history of the markets…so what if gold shot up for a few years, or a mutual fund dipped for a couple years…what you guys are doing “gambling” with your investing if you are speculating for the short term.

    As for when he says things like %12, he usually uses that as a demonstration tool to say, for example, “at %12 the outcome would be 3 million dollars, but even if I am half wrong, that would still be 1.5 million” the point being, “this is what it will cost you to continually waste money instead of blowing it on cars and smoking etc. And the S&P HAS averaged 10-12 percent (before inflation) so why is everyone bitching about those numbers? Because you found some years here an there that did NOT do that? So what? It’s called an “average” for a reason…..long term!

  • By Special K, May 17, 2010 @ 3:08 pm

    ….for the record…I recognize all my grammar gaffs in the last post haha…I got lost in the rant.

  • By Immigrant Texan, May 17, 2010 @ 10:13 pm

    Special K,

    I certainly agree with you that people shouldn’t judge Dave’s program without understanding it in its entirety, but the fact of that matter is that people don’t need to be daily listeners in order to dissect his ideas. He has a website where he publishes all his fundamental beliefs or recommendations. For most it doesn’t take much more analysis than this to realize some of the substantial errors.

    Like others have pointed out, Dave’s system of debt reduction may make sense, but only when considered from a behavioral perspective which implies the difficulty of any assessing it any sort of objective manner. For instance someone who successfully rid themselves of debt under Dave may have been equally successfully under a most-expensive-debt-first reduction policy. But since we don’t know that, all we can debate is that Dave’s system is certainly less optimal financially speaking.

    On investing, this is where I have a strong dislike for what Dave pumps out. First and foremost, the S&P 500 has not returned anywhere near 10-12% historically. This requires really creative math to achieve, like ignoring certain math basics and role of inflation. Go to http://www.moneychimp.com/features/market_cagr.htm , pick any time frame you want, adjust for inflation, and look at the CAGR, that’s the annualized rate you would have earned investing in the S&P 500 over that time period. CAGR or geometric mean, is a more correct way to look at the return on an investment. As a quick example/proof, imagine that you have a 10 yr investment, in years 1-9 it returns 20% annually, but in year 10, -90%. The average annual return would be (9*20+(-90))/10 = 9%, seems pretty good. However, the $1 you invested is worth $0.51=((1.2^9)* .1) at the end of year 10. If you still believe we’re just a bunch of haters, google CAGR (compound annual growth rate) or geometric mean. You should not ignore inflation since it’s a measure of earning power which is what you really care about when making financial decisions.

    Finally, you’re on to something when you started talking about taking a long term perspective. If you follow that logic out, you’ll soon find that long term investing requires asset diversification which entails much more than Dave’s simplified portfolio. Ignoring gold b/c of the 100 yr history is not wise, especially since from 1999 to 2009 it beat every other asset class (to include any US equity class). The recent performance doesn’t mean you should be 100% invested in gold, but rather that some portion of your portfolio should contain gold or commodities in order to fully diversified. Since you have no idea what the relative performance of any asset class will be in the future or when you will need to access your investments, you should be diversified across asset classes to reduce your overall level of risk.

    Cheers, hopefully this persuades some of you to look elsewhere for investment advice. Dave’s will likely be extraordinarily costly in relation to a diversified portfolio of index funds. 20 years from now, Dave won’t have cost the $200-300 you spent on the class, it will likely be thousands and you’ll have learned through the school of hard knocks the definition of opportunity cost.

  • By Dan Been There Done That, July 6, 2010 @ 8:29 pm

    You are correct about the things Dave R. has gotten wrong. I am a firm believer in getting out of debt and following his basic steps to achieve that. I even teach it in churches and to employees of any business that wants it. Only difference between Dave and me is that I do it for FREE. He is worth millions, which he built from selling overpriced books, cds, and seminars. I don’t drink all the Dave Koolade. A house is NOT an investment, and you would think he would figure that out after going broke in realestate. Gold and metals should be part of an overall investment strategy. And his Growth, Growth and Income, Agressive Growth, and International Mutual Fund advice is the same as having all your eggs in one basket when the economy tanks, as it did in 2001, 2008 and may very well do it again in 2010 or 2011. Better advice may be 25% in Money Market- VERY conservative. 25% in a stable somewhat conservative, 25% in a Growth or aggresive fund, and 25% in commodities. I am taking his Financial Peace University 13 week class which is great, but the material is so outdated, that many of his statements went out the window with the 2008 dive of the market.

  • By Hibryd, July 7, 2010 @ 7:52 pm

    Are you getting less than 12% on your investments? Then you’re just stupid!

    https://www.mytotalmoneymakeover.com/index.cfm?event=dspAskDave&intContentItemId=116453

    I know, I know, that was a surprise to me too. I mean, wasn’t consistent 12-13% returns a big red flag that Madoff’s had to be cooking the books? But at the 4 minute mark on the above clip, Dave helpfully explains things:

    “Let’s say you outperformed the stock market because you had the good sense to actually study mutual funds and select a good one and got 12% on your money. Let’s just pretend you are smart enough to do that. I can do that in 35 seconds on Morningstar. Some of you financial people are too STUPID to find a 12% mutual fund. I don’t know WHY you’re that dad-blame dumb, by the way, but some of you are. I can find one in 32 seconds on my Morningstar, but anyway, I just found one…”

  • By John C-CFP, July 16, 2010 @ 8:48 pm

    Immigrant- perfectly said.

    The only missing point is my favorite index fund support quote “that fund didnt even beat the S&P500″ statement many Ramsey followers use. Most don’t try to! Investors should realize to be diversified more than one class/style of index fund is necessary and rebalancing is a must.

    That being said Dave gives great advice to his audience and most people give him too hard of a time. Even Jeremy Grantham and John Hussman make mistakes!

  • By Dan, July 27, 2010 @ 9:12 pm

    I have read some of these posts, but not all of them.

    I have a simple question for all the bloggers here including myself: which of us has gotten out of enormous millions of debt, went back and payed of the bankruptcies even though not required, in full. And, has successfully coached and shown others how to do so including myself, along with a 100 week best-seller book. Answer—nobody in this blog forum. The reason why people don’t follow his steps as well as they should is because of that dreaded four letter word: W-O-R-K. Very hard work at that but well worth it. I am almost debt free and will have my 100k home paid for in 4 years in cash and am LOVING every minute of it. Come to think of it, I might invite all cynics to my mortgage burning party. As Dave says, “yeah, baby!”

    Dan,

  • By Peter Rush, August 2, 2010 @ 12:36 am

    I am beyond baffled by something that no one seems to comment on. On his website, Baby Step 2, is do your budget, and refine it over a few months (absolutely correct, it will take a while to really know what your baseline expenses are), and then apply the debt snowball to start getting rid of your debts. What?? That presuposes that you 1) ARE ABLE TO SERVICE ALL OF YOUR DEBTS at the present time, and 2) THAT YOU HAVE SOMETHING ADDITIONAL TO ACCELERATE PAYOFF. Great, if that’s your situation. But what if, after cutting to the bone and getting rid of everything you can live without, you STILL are short each month, or at best just break even.

    So, in those situations, you really only have two viable courses. If you have no realistic prospects of significantly increased income, and no way to borrow lump sums from family members, than bankruptcy, hopefully chapter 7, is by far the quickest and most effective route to being unsecured-debt free. You credit score is the least of your problems, and you will get credit cards pretty quickly anyway.

    If you have any means to accumulate and/or borrow enough to pay off your credit card debts at 30-45 cents on the dollar, than a do-it-yourself debt settlement is the clear way to go, and get unsecured-debt free in 6-18 months. AVOID all but a handful of debt settlement companies, and there is plenty of competent advice out there to do it yourself. Give me a call if you are in this boat, and need a referral to a top-notch source of all the information you’ll need to do it yourself and save 55-70% of your credit card debt (703-957-6768).

    But Ramsey ignores or bad-mouths bankruptch, and does he ever, EVER even mention debt settlement? To me, these are the two biggest crimes he commits–for many people, one of these two routes will be far more financially beneficial than somehow trying to continue paying top dollar to the credit card companies to pay it off the old-fashioned way.

  • By OhioScott, August 2, 2010 @ 6:38 pm

    Everyone on this blog needs to understand one thing: Ramsey caters to people who are broke and scared out of their mind. He is really really good at getting them on task and onto a path out of debt. Dave NEVER said he was a financial planner or expert – he’s learned and knows a lot – but he implores his readers and listeners to talk to a financial planner, tax planner, etc. If you think he’s going to wave a magic wand over your issues and they will magically go away, you’re not very bright and really need to read more and blog less.

  • By Jeff Staddon, August 19, 2010 @ 11:55 am

    Most of you must not live in the source. Down here S&P is pronounced SNP. (Ya’ll just don’t talk (pronounced tall-ck) right. :-)

    The fault was probably the editor who transcribed the audio and was unfamiliar with the term. (as someone suggested)

    BTW–nice article overall

  • By Jeff Staddon, August 19, 2010 @ 12:01 pm

    please correct “source” to “south” in the comment above. :-)

  • By michelle, August 21, 2010 @ 6:19 pm

    Actually, you CAN have no FICO score (or a O)- my husband did when we were applying for a house and you know what the people talked us into doing: applying for credit! Imagine that…never mind he fact that his score says “we don’t owe anyone anything but love” they wanted a number-so here, YOU sir are mislead.
    Dave specifically tells listeners NOT to do something unless they understand it and to HIRE a professional- so, it stands to reason that after you put his plan in action (which is not his alone, there are other debt busting plans the same as his) you would be debt free and smart enough to stay that way and start investing for your future- what in that is worth arguing over…unless you like owing Visa your children’s inheritance…

  • By Steve Nissen, August 24, 2010 @ 9:33 pm

    I hit the site by accident and was surprised by the hatred. I have completed the 7 steps and can tell you–Dave Ramsey is correct.

    Complete them and see!

    God Bles

  • By Matt, August 27, 2010 @ 4:46 pm

    I think that before you pick apart Dave Ramsey and label him as financially incompetent, you should at least take into consideration that he is a multi-millionaire. Correct me if I am wrong, but not one person who has commented on this forum is worth more than 10 million dollars; Dave Ramsey is. It seems to me similar to watching LeBron James miss a jumper and then proceeding to give him advice on what he did wrong. Or like an overweight person see a fit person eat ice cream and instruct the fit person of its unhealthiness. My point is that you can find small things (like a Q&A section on a website typed by someone else) to criticize about anyone for any reason. Again I would caution that before you point the finger, you realize that his financial plan has made himself and others very wealthy. Assuming all is moral and legal, isn’t wealth the measure of a good financial plan?

  • By Josh, August 27, 2010 @ 5:56 pm

    As Dave says, personal finance is 80% about behavior and 20% about numbers. He’s not like most financial gurus who have little impact on the masses because their focus is ALL about the numbers.

    I’d rather listen to and act on the general advice of a multi-millionaire who clawed his way to financial independence from being broke because he understood that the key is BEHAVIOR, than financial gurus who spew numbers but accomplish little in terms of motivating people.

    Any of you who call Ramsey an idiot with respect to finance but who have less money than he does (and chances are you all have less than him), might as well be calling yourselves humongous idiots. That is, if REAL money matters to you, and not just academia and theory.

  • By Toby, September 3, 2010 @ 10:03 pm

    Well, Josh, I think you’re wrong. Just because Dave might have more money does not mean he gives good advice which is what is being talked about here. It just means he’s a good pitchman who is good at convincing desperate, uninformed people to paying for subpar advice.

  • By Randall, September 8, 2010 @ 9:59 am

    As a DR fan your blog really made me think. However, #2 seems silly. To me, a “0″ score is the same thing as no score at all. Were you desperate to make 10 things wrong vs. 9?

  • By jwell, September 10, 2010 @ 10:45 pm

    I love that everyone is pointing out what an idiot Dave Ramsey is for the “SNP” error. The author clearly states that these calls are transcriptions of on-air calls. I’m going to go out on a limb and say that the chances that Mr. Ramsey is transcribing his own calls is slim. Therefore the error was most likely not his. Pointing out people’s shortcomings seems to be quite the pass time for all of you, so let’s make sure that we attribute said shortcomings to the correct person.

  • By RON, September 15, 2010 @ 2:14 pm

    I DON’T CARE WHAT ANYONE SAYS ABOUT DAVE RAMSEY. I ONLY KNOW THAT I HAVE BEEN FOLLOWING HIS ADVISE FOR LESS THAN A MONTH AND I CAN ALREADY SEE A DRASTIC CHANGE IN MY FINANCES. EVERYONE HAS THEIR OWN OPINION AND I RESPECT THAT BUT, I THANK GOD EVERY DAY FOR DAVE RAMSEY.

  • By Texan, September 24, 2010 @ 12:26 am

    Well, Dave is worth a lot of money, but that’s because there is a sucker born every minute. I knew this one guy in 2006, he was loaded. Had some crazy job, I think he called it sub-prime mortgage broker, clearly he was smarter than me.

    Should you choose to fall his advice, go for it. No one will stop you, we will, however, point out that you would have been much better off had you picked up the Personal Finance for Dummies and Investing for Dummies at your local bookstore. That’s alot cheaper than Dave’s advice and it’s actually correct. On every issue Dave’s information is faulty or sub-par. There’s not area in which he can legitimately be referred to as an expert.

    By the way, he’s getting rich off his show, books, and other paraphernalia. He’s not getting rich off any of his investment advice.

  • By Franklin in Cool Springs, October 11, 2010 @ 9:52 pm

    I saw Dave Ramsey has a pretty big mansion in Nashville Tennessee.

    http://www.coolsprings.com/news/dave-ramseys-house/

  • By Hibryd, October 22, 2010 @ 6:54 pm

    I’ll agree that Dave Ramsey does one thing very right: motivate and guide people to get out of debt and get their financial lives under control. If I knew someone who was in perpetual credit card debt and running up overdraft charges, I’d probably hand them one of Dave’s books.

    BUT if you already are out of debt, if you already have savings and investments and your money under control, he’s no help. In fact, I’d say he’s doing a lot of people a disservice by pushing his Endorsed Local Providers, especially for investing. If he really cared about people, he’d say “open an account at Vanguard, throw your money at index funds, and once you have more than $2 million *maybe* call someone up for additional investment advice.” As it is, he’s pushing high-cost full-service brokers and high-fee mutual funds because he gets a kickback.

  • By Steve, October 30, 2010 @ 10:23 pm

    I understand Dave and understand you and the other comments. When taking advice I always ask ” What in this person’s life exemplifies his/her advice”. I adopted this after many college professors of heady knowledge, the experts, split hairs and critisized those trying the help the common man. Those men, as I learned later, had negative net worths. So I ask, Dave Ramsey’s a multi-millionaire, are you? Before you skoff at my question as undeducated or short sited -stop-think- are you or anyone critisizing a man who, loves Jesus, helped millions, and humbled himself that he does not have all the answers, better off-Or helped anyone?

  • By Allen, November 3, 2010 @ 1:10 am

    To Peter Rush,

    I don’t know if you have ever listened to Ramsey regarding the worst cases of unsecured debt. He does suggest a plan when you come up short. Dave sees bankruptcy as a moral issue. He does not ignore it. But, he does teach that it is a last resort. It should not be used to simply make things go away.

    I have heard him several times deal with people who have an “income problem.” He suggests prioritizing. Keep up food, housing and transportation first. From there go as far as the money can go. Pay on one and let the others wait.

    As to your question does he EVER talk about debt settlement? Yes…quite often. He has a whole section in his Financial Peace class that teaches about collectors techniques and how to settle your debts for pennies on the dollar.

    To everyone else, I get it, Dave isn’t the perfect financial planner…that’s not his job. He is a very wealthy man who is sharing what he does with his money…obviously, if he’s doing it with his own money, he thinks he’s right. Still, every radio program has a disclaimer suggesting that you discuss these things with a certified planner.

  • By Bluesole, November 4, 2010 @ 4:06 pm

    You be Frank and I’ll be Earnest.

    Your comments are nit-picking 3 minute phone calls that are taken out of context at best. Dave’s show is entertaining, but the main theme is use common sense. He stresses to go to financial advisors that are teachers and not arrogant fast talkers.

    His advice has mirrored David Bach’s writings, who I thought had a lot of good advice (the Latte Factor guy).

    For people that don’t want to do the hard work or want some magic pill for all their financial woes to go away, Dave Ramsey is a fake.

    To the rest of us willing to do the work, he is a stand up guy.

    I think you should read his book to get a clearer understanding of his normal content.

    We’ve started using his techniques and have noticed immediate effects. I have no doubt now that I will be very well off when I retire (less than 10 years from now).

    Good luck on your road to financial enlightenment

  • By A guest, November 15, 2010 @ 9:11 am

    I’ve also noticed he sometimes doesn’t really listen to his caller’s concerns in detail. He’ll often hear some key words and then jump to an answer based off of those. For that we can fault him.

    I do however think he probably knows personal finance quite well. If you sat down and had a coffee with him, I’m pretty sure you and he would be able to talk the same language and would agree on things from the FACTUAL point of view (leaving out opinions such as asset allocation, etc.) I also think you’d probably find him pretty big-headed as I tend to when reading or listening to him. This is probably what leads him into answering questions without really listening to the details all the time. He needs to work on that. His big-headedness probably also causes the problem you mention of him not saying “I don’t understand your question” or “I’m not familiar with your particular situation but in general…”

    I have to say though, we can nit-pick these issues all we want, but if an average Joe follows the advice he gives (even the erroneous advice you mention), they’re STILL going to be in really good shape financially. And, though you may overlook it, is actually a really big deal.

  • By jerry, November 15, 2010 @ 5:35 pm

    I disagree with your view on the 401K. If you have $6 million at retirement and you only made 40 k up to that point, you are going to be in a higher tax bracket when you pull that money out; therefore, the Roth is the best way to go. Pay taxes on the money when you are making 40 k not when you have 6 million. It is mathematically impossible to be in the same tax bracket at with that kind of money in you bank account.

  • By jerry, November 15, 2010 @ 5:38 pm

    If you want to be rich; do as rich people do, Dave Ramsey.

  • By kitty, November 17, 2010 @ 6:27 pm

    “If you want to be rich; do as rich people do, Dave Ramsey.”

    You mean have your own talk show, sell advice to people on how to get out of debt, or however else Dave makes money? Because this is how Dave Ramsey made money not by following his own advice. He certainly hasn’t made money investing in stocks, so why is his investing advice any better then that of any random person on a street?

    I find this “do as rich people do” line silly. There are many rich people out there, and they all behave differently. You can interpret “do as rich people do” to mean “buy same jewelry Donald Trump buys”. Then there are those who made money by scamming people, mafia bosses, or silly people who buy $22,000 cats or $19,000 skis (from a scam artist), etc. shall we do as they do?

  • By Harry, November 20, 2010 @ 1:17 pm

    @Kitty,
    You are taking that line out of context. Dave was referencing the book, “The Millionaire Next Door” and how there are a lot of rich people who live frugally. His advice is to emulate them, not the Kardashians.
    Is Dave Ramsey making money off of the talk shows and books? You bet. But that doesn’t mean his advice of becoming and staying debt free is a bad idea.
    There is no requirement to send Dave money to follow his advice, it is on his free website and available in free podcasts. This is not some set of tapes promising the secret to wealth for just four payments of 19.99.
    Dave Ramsey freely admits that this stuff is mostly common sense. His is not the only way out, but one that a lot of people have had success with. For many people, Dave Ramsey’s plan is a lot better than their current path.

  • By Jennifer, November 20, 2010 @ 3:34 pm

    Wow. I briefly skimmed the comments (who REALLY has the time to blog? REALLY?) My husband of 22 years & I finally tried DR’s ‘Total Money Makeover’ plan in October. Before finishing the first chapter, we paid off $1700. We are on target to pay off $40k in 7 or less months! We are NOT uneducated or stupid baffoons. We have 5 children (one just married) & are strong savers & investors. Unfortunately, we just ‘bought’ into a little bit of the culture of debt. Through Dave’s books, we are so embarrassed why we didn’t figure out how to become debt free systematically. We just never thought it possible while raising 5 kids. So what’s the harm here? I WILL be cautious with regards to his investment advice per these blogs but personally, we are grateful for the simplistic steps!! We also plan on paying off our house in 7-8 years. Find me a blogger here who is in the same shoes, raising 5 children & will have paid off $200k in 8 years.

  • By Matt Johnson, November 23, 2010 @ 3:59 pm

    Dave Ramsey recommends mutual funds because they bring commissions to his Endorsed Local Providers, which in turn brings back more money to Dave Ramsey Inc.

    The man has the heart of a salesman. It doesn’t mean he’s wrong on everything, but it means he won’t recommend certain products because he personally benefits from recommending others. Did you know you can freeze your credit file for FREE? Not if you listen to Dave Ramsey. He wants you to go to Zander Insurance instead.

  • By John, December 2, 2010 @ 12:39 am

    I agree Jennifer, I carried quite a bit of debt around, $130,000.00 not including my house. $60,000.00 of that debt was back taxes I owned the IRS from the mid 90′s. Thinking to my self that I would never get out of debt, especially with the back taxes, penalty’s, and interest, I started working Dave’s plan and paid off everything except the house in 2 1/2 years, I am forever grateful for what I learned in Financial Peace University. Regardless of the pessimist here, I can say the bulk of the information Dave has taught me, has changed me and my family forever for the better. Thanks Dave Ramsey.

  • By Jay Sherman, December 9, 2010 @ 1:36 pm

    I completed Dave’s plan three years ago and paid off $26,000 in less than 17 months. I followed the plan and unlike before now I have a robust IRA, ESA accounts for both my kids, a nice investment portfolio and a nice savings account.

    Most people spend more time on FaceBook and texting than managing their finances. Dave is the bomb!

  • By matt, January 3, 2011 @ 10:07 pm

    I started working daves plan 18 months ago and so far paid off $30k in consumer debt…

    regardless of what is said about daves advice, it has help me…

  • By Lori, January 5, 2011 @ 2:51 am

    Hi, I just wanted to ask if you, yourself were debt free? I feel really stupid if I were to take your advice and you were not. I know Dave is debt free so I take his advice on most topics. Just wondering.

  • By Lori, January 5, 2011 @ 3:11 am

    Just wanted to say that the Peter Rush that commented in August you are an idiot!!!! Are you serious? His whole plan is to get out of debt. He does talk about debt settlement. He also even talks about that if you do not have enough to start a debt snowball that you should write all your finances down and draw a line to which the creditors under the line do not get paid! I think that before you go and give advice that people should file bankruptcy you need to read his books yourself. How much money do you have right now???????

  • By Robert Thompson, January 6, 2011 @ 10:37 pm

    Dave Ramsey wants your money – period.
    (As the latter-day financial Jim Jones) he bleeds low-income, and financially uneducated people, and all in the name of the Lord (?).
    This man will burn in hell. Period.

    I do about 90% of my financial life diametrically opposed to what Mr. Ramsey tells you to do. I’m 63, got laid off 10 years ago. My highest gross salary was $84K. Never inherited a dime. I now have $3 million dollars in hand. And virtually all of which was garnered doing EXACTLY THE OPPOSITE of what Mr. Ramsey tells you to do.
    Our regular household income (after taxes and insurance) is a partial disability that nets us about $80 a week. Yet we live extraordinarily comfortably.
    Pay “emeal”s money to tell you what groceries to buy?! Are you crazy? Call me – I’ll you how to – in a heartbeat – reduce average grocery bills by 75$ – or more – and FREE!
    Car purchase?
    401-k considerations?
    Mutual funds?
    Cash vs. credit cards? (Get 8.3 – 15% rebate on everything you buy…) Use someone else’s money to buy your things, make interest on your money in the meantime, and get rebates.
    I could go on and on.
    If you really want a very profitable alternative to Dave Ramsey’s very ill-advised information, email me (bt17@earthlink.net) or call me (919) 833-0858. I’ll tell you everything I know, and won’t charge you a penny (unlike Mr. Ramsey)

  • By Jay Sherman, January 10, 2011 @ 12:27 pm

    If Mr Thompson has 3 million, why hasn’t he written a book about it? With 3 million bucks, he could publish his own book I would think. I got Dave’s book from the library…free…and never sent him a dime. Oh yeah, the call we made to scream “We are debt fre”…that was free too.
    Dave’s plan works and the world knows it.

  • By Jay Sherman, January 10, 2011 @ 12:28 pm

    If Mr Thompson has 3 million, why hasn’t he written a book about it? With 3 million bucks, he could publish his own book I would think. I got Dave’s book from the library…free…and never sent him a dime. Oh yeah, the call we made to scream “We are debt free”…that was free too.
    Dave’s plan works and the world knows it.

  • By Hank, January 25, 2011 @ 2:59 pm

    I love coming back to this site to look at the comments and reading those from Dave’s admirers. Look, we don’t hate you personally and we don’t think you’re dumb. We think that you make less than optimal financial decisions because you don’t know any better. The point is not that listening to Dave is going to make you lose money, its that using your God-given brain to do some simple math will save you more. That’s the plain and simple truth, listening to Dave winds up with you less wealthy than you would be if you took the optimal path to debt reduction and investing. Dave may be a lot of things, very effective salesmen and engaging speaker, but he is far from an expert in finance. I promise every single one of you who are now living debt free, that given your details I could show you how you would have been much better off without listening to his advice.

  • By Jay Sherman, January 27, 2011 @ 12:47 pm

    Hank,

    I would like to share my situation with you.

    I was making $4700 a month. I had $26,000 in debt (6K-car, 12K-van, 1K-credit card and 7K-student loan). I had $9,000 in savings.

    I paid the credit card off from savings. I then used a federal income tax refund of $3800 and the money from cashing in an annuity, $1200. I paid that on the student loan reducing it to $2,000. I then changed my withholdings so Uncle Sam didn’t take so much money from each check. After using a monthly budget and finding money that I had wasted, I put that and our monthly credit card payment (usually around $200) toward the student loan. After two months it was paid off.

    Then I started paying off the car and the van. Using the money we saved doing a written budget and the money we would normally send to the student loan and credit card payments, we paid off the car and the van. Some months I was making a $2000 car payment.

    After becoming debt free I could fully fund two ESAs for my kids, two IRAs and myself and start investing.

    Your are correct in stating that simple math is the key, but discipline is also needed-most people do not have that. That is where Dave comes in. He stresses discipline and how to maintain it. I never paid him a dime through this entire process. I never used any of his ELP’s, paid for his website programs or even bought any of his books.

    Please tell me how I went wrong.

  • By Chase, January 27, 2011 @ 5:14 pm

    On your first topic…Traditional IRAs are Traditional IRAs…401(k)s are 401(k)s. Roth is better than a 401(k) without matching funds, for sure, but if you’ve maxed out your Roth, then 401(k) is the way to go next. Once the 401(k) is maxed out before you hit 15%, then you go to a Traditional IRA.

  • By Tim Jacobs, January 28, 2011 @ 2:33 pm

    But even those of you who don’t like Ramsey must admit one thing: it’s awesome to listen to Dave yell when some 60 year old with no money, no retirement, and a huge mortgage on the house calls in and wants to finance an $80K boat.

    Tim
    article writing service

  • By Kate, February 7, 2011 @ 12:14 am

    Actually, your Roth/Traditional IRA is lacking some very important real-life elements. Your simple example assumes full withdrawal of the entire balance of either IRA immediately at retirement. This is only what happens if you really screw up, or if you have only a tiny amount in your retirement accounts. The real scenario is that you accumulate a sizeable nest-egg (using either IRA) and then draw down the balance throughout your retirement. Depending on your goals, the goal is you run out of money exactly the month before you die (leaving enough to pay funeral expenses/etc), or you leave what is left to others or to charity.

    The second thing that you did not consider is either IRA should be compounding throughout its life (if you do it right). This multiplies the effect of the draw-down period of the previous point.

    The third thing to consider is how long until you plan to retire. The further away retirement is, the bigger the advantage of the Roth.

    A fourth thing to consider is that retiring comfortably from a traditional IRA or 401K means you are NOT going to be in the lowest tax bracket. For instance, in 2011 if you make more than $708 a month, you are above the 10% tax bracket.

    Finally, another very important, but separate, factor is how much money you actually have to put into retirement each year. I’ll come back to that later.

    Compounding is extremely relevant here. Let’s have an example. Let’s consider that you have exactly 5,000 to invest in either traditional IRA or to put into a Roth IRA. First let’s look at someone who is at the beginning of their career, making the big bucks (33% tax bracket), who plans to retire in 30 years on minimal income (retirement tax bracket 15%). Assume a 4% yearly return for either IRA. Say this person (insanely) takes his entire balance the first month following that 30 years. This is the result for each IRA:

    Roth IRA
    initial IRA deposit = 3350
    current tax bracket = 33%
    taxes paid (upfront for Roth) = 1650
    retirement tax bracket = irrelevant
    value @30 years = 11,137

    Traditional IRA
    initial investment = $5000
    current tax bracket = 33%
    value @30 years = $16,567
    retirement tax bracket = 15%
    taxes due @30 years if take out all = $4322
    after tax dispersement = $12246

    So he gets a little bit more at retirement if he takes it all out, even though he pays more in taxes. Even with a significantly lower tax rate.

    BUT… now assume he planned just a wee better for retirement, and is going to be in the one-higher tax bracket. For instance, in 2011 taxable income higher than $2875/month puts you in the 25% tax bracket. And remember, traditional IRA disbursements are taxable.

    His numbers now change quite a bit, even though he is still in 2 lower tax brackets at retirement than when he was putting in the money:

    Roth IRA (SAME)
    distribution @30 years = $11,137

    Traditional IRA
    initial investment = $5000
    distribution @30 years = $16,567
    taxes due @30 years = $6627
    after tax dispersement = $9940

    OUCH. $2306 LESS even though he’s in a MUCH better tax bracket!

    But now for real life. What happens if, because he is smart, he puts the full 5K in a Roth IRA. Now you have to compare apples to apples. So on the Roth side, he could have 5K (post-tax) growing tax free and coming out gradually at retirement. On the other, he could have a traditional IRA plus the taxes that he didn’t have to pay on that 5k, which he intelligently invested at the same rate of return (4%). For simplicity, assume that he only starts cashing out those accounts and paying tax on them when he retires (just like the traditional IRA). And keep that same 25% tax bracket, because he planned well and is going to retire NOT POOR. Now here is what he gets for the same money in:

    Roth IRA
    initial IRA deposit = 5000
    distribution over 10 years = $168/month

    Traditional IRA
    initial IRA investment = $5000
    PLUS add’l investment of $1650
    Value of IRA and add’l investment @30 years = $22,035
    distribution over 10 years = $179/month
    after-tax montly income = $143

    Again, he loses big with a traditional IRA. $143/mo for 10 years for traditional IRA versus $168/mo for the Roth. Or, put it another way, he ends up getting $20,160 from his $6150 even with paying the taxes upfront for a Roth IRA versus $16,088 if he put 5K in a traditional IRA and invested the rest. Now he nets over $4K more for his $6,150 investment… IF he chose the intelligent Roth IRA option. EVEN WITH a major reduction in tax brackets.

    I know I don’t have to run how great the numbers are if you actually stay in the same tax bracket for retirement :) Also, if you do the math (Excel helps) you can see that the Roth IRA pays off better even for short-term investment. But as with any retirement planning, the sooner you put it in and the longer it has to grow, the better off you are. But if you have the money to fully fund a Roth IRA to the maximum, it is a MUCH better investment than a traditional IRA. Even if you plan to retire in a lower tax bracket.

  • By Jay Sherman, February 7, 2011 @ 12:24 pm

    Kate,

    Thanks for the wonderful example. I hope everyone reads through it to see the math.

    Thanks.

  • By Jesse, March 10, 2011 @ 1:55 pm

    Hey you guys arguing over the accurateness of Dave’s advice. If you call in a radio show and give a guy about 10 secs to analyze your situation and expect a completely sound advice on what to do for the rest of your life with your money than “You” are the idiot not “Dave Ramsey”! I mean ever hear of a 2nd opinion or doing some of your own research after you get some advice to confirm if it is correct for your situation? Dave Ramsey sets people on a path to being debt free and investing, that should be good enough for 10 sec sound bites. Ever hear the phrase “You get what you pay for?” If you want the most accurate, sound, and relevant advise for your current situation you might have to pay someone!

  • By David, March 17, 2011 @ 12:05 pm

    To those that say you’d be worse off following Dave’s plan than you would be had you never heard of him, Dave’s message is simply pay off debt to free up your income to invest in your retirement, kids college, home, etc. Who wouldn’t agree with that?

    I understand that everyone has a slightly different way getting there. For example there are different strategies for paying off debt: list the debts smallest to largest and pay on the smallest ones first and work your way up (Dave’s way), or pay off the highest interest debts first and work your way down (some of the critics’ ways). Either way, sounds to me like you’re trying to accomplish the same goal.

    Lots of financial advisors/professionals have different opinions on which investment vehicles or methods are best. Dave’s way focuses on the BEHAVIOR of the typical person, and according to him, that’s 80% of the battle.

    I understand that mathematically, callers could save a fraction more on interest if they go some of the critics ways, but that’s missing the point of what Dave is trying to do. He’s trying to change WHO YOU ARE and your paradigm on money. And he’s fabulous at motivating people to change their lives for the better. I know my life is better having come across Dave.

    Here is his disclaimer at the end of each segment, he’s not trying to convince people he’s an expert on everything financial. He’s trying to change how we think about money.

    “This program is designed to provide accurate and authoritative information with regard to the subject matter covered. This information is given with the understanding that neither the host nor the station is engaged in rendering legal, accounting or other professional advice. Since the details of your situation are fact dependant, you should additionally seek the services of a competent professional.”

    Debt is killing our country, look at the over $14 trillion in debt our federal government has. And the typical American household is not much better. I think his message of debt reduction needs to spread.

    Those that nit pick on the details are entirely missing the point. And that disclaimer shows that he’s aware that he’s not the “be all end all” on finances, but he’s simply motivating people to be on a budget, live on less than they make, and invest.

    I don’t know anyone who wouldn’t agree with those principles.

  • By Jay Sherman, March 18, 2011 @ 11:51 am

    Jesse,
    Are you debt free?

  • By Jay Sherman, March 24, 2011 @ 2:30 pm

    Poor Jesse. I completed Dave’s program and never paid anyone a cent…didn’t even buy his book…but I did pay off 26K in debt and have been debt free for two years now.

  • By jho, April 7, 2011 @ 5:07 pm

    I remember Dave’s advice back before the sell off of 2008. He said you could get a 10% return from a good mutual fund as well as C.D.’s were a bad choice. He thought that gold and silver investments were poor choices as well. I told my wife he was crazy and thank goodness that I didn’t follow his advice. My retirement which is both a SEP and a Roth IRA (40% gold and silver) are up 43% from the crash of 08. I still have those loser C.D.s with plenty of cash. I think Dave’s simplistic views on credit cards is correct….but who couldn’t get this right??? One more thing I understand Dave has taken bankruptcy in the past…. so please be careful with you hard earned money

  • By David, April 14, 2011 @ 5:01 pm

    jho,

    Dave tells people not to invest unless they plan on leaving their money alone for AT LEAST five years, and to use CDs/money market accounts if they need to access it before then. In the long run this will always perform better than gold and will ride out downturns in the market.

    If you would have been following his advise before the crash (which I have been), then you would have bought SUPER CHEAP shares in all those mutual funds during the crash which are back to where they were and then some. I too have made good returns in my roth 401k and will continue to do so, but had to ride out the downturn to do it.

    Gold is a huge bubble which is going to burst as the market recovers. I’m glad you made a killing while it was good, but gold in the long term sucks, I’d sell while you’re ahead.

    Dave went bankrupt in his twenties when he was leveraged up to his eye balls on his real estate investments. He learned from his mistakes and shares openly about his bankruptcy and what not to do so people don’t make his same mistakes. As a side note, he went back and repaid every debt he bankrupted on. I think he’s a stand up guy.

  • By شات, April 15, 2011 @ 9:27 am

    دردشة

  • By John, April 21, 2011 @ 2:36 pm

    This was a very interesting article. I was curious to see if you have ever written an article about his “buy term, invest the rest” theories? I am a big fan of WL and I am mind boggled at how fanatical his followers are about preaching to his message. I have reviewed several websites that quantify this exact theory and just base it all off of real life #’s and it gets proven wrong hands down (SEE DICK WEBER). I constantly see comments from his nation saying to just invest in MF’s that will make me 12% every year for the rest of my life? Show me a MF that guarantees me that and I’ll put every penny in my savings into it. Has he not seen the market averages over the last 10 years? Does DR know what the next 10 years holds in some mythical way? The stat I read that amazed me most was 99% of term policies ever get paid out meaning every person that buys term has a 1% chance of dying within that term, but none of his fanatics mention that?

    On his website it ACTUALLY SAYS: “when your 20-year term is up, you shouldn’t need life insurance at all—because with no kids to feed, no house payment and $700,000, your spouse will just have to suffer through if you die without insurance.”

    Are you serious? I am not even married, but if my advisor said those words to me I’d fire him on the spot!

    Why does no one ever point out that after all his articles he immediately has GO BUY YOUR TERM INSURANCE FROM ZANDER. He even has this Zander guy on his website in a video that is comical at best with his advise. Are we not to believe DR gets paid a pretty penny by Zander for ALL the biz his company gets from DR fanatics? Are they not aware DR hasn’t even been a licensed pro on this topic since 1996? Are they not aware he got a show on FOX for financial advise and months later it got canceled because they realized he had no idea what he was saying?

    Just like Suze Orman, I won’t be surprised at all when we find out DR has a $5M WL policy on himself.

    Am I crazy or do most people not want to actually prepare for ages 65-95 even if we pass at 82 (which DR does not account for at all). Don’t people want to leave some form of financial legacy behind? Am I the odd one for wanting to leave money to my wife and kids when I pass, to leave money for my grand kids education? In his teaching you magically become “self-insured” by age 65 and don’t have to worry about anything or anyone else once your term runs out since he well knows it will be way too expensive to ever renew it. Does he not factor in taxes, inflation, or how about how quickly you will eat into that $700K from ages 65-85. Do I want to live off $30K per year in retirement and leave nothing behind to anyone?

    My portfolio has about 20% of my monthly savings into WL, 20% into my Savings account, and the rest gets broken down into a 401K & ROTH IRA. Sure I am taking the gamble that I make more substantial gains in the market, but why wouldn’t I put some % of my savings into a guaranteed, risk-free account, shows me a minimum of 4% gains over the life of the policy, and have an account that I can access much sooner than 59.5, tax-free through withdrawals/loans, penalty-free, and oh by the way a death benefit that increases every year and is locked in forever to protect my family future?

    If you ask me you go to DR for advise on debt because he obviously screwed up more than most and eventually found a way out so good for him and those he teaches, but I will never take a single bit of advise from him on investments, life insurance, or anything else. His blanket statements and “one size fits all” approaches to the masses is just not right as each individual has different needs, goals, and circumstances….and yet he keeps selling those books and CD’s to his legion. I just hope they all can come to grips with what he is truly great at and what he is not…

  • By Tim, April 25, 2011 @ 1:14 pm

    I applied for a home loan with BoA and my FICO score from all 3 agencies was a 0.

  • By David, April 28, 2011 @ 5:11 pm

    I don’t care if Dave Ramsey does get a % from Zander and others he endorses (which he may or may not), his advise is still good nonetheless.

  • By John, May 4, 2011 @ 6:24 pm

    Well David, my guess is he gets a very large amount of money from referring business to Zander as that is why he has a video of the guy on his website, links to Zander’s website, and why DR is on the front page of Zander’s website.

    The term life game is an amazing business for the companies who offer it as they keep getting those annual premiums and never have to actually pay the death benefit, lol. It’s genius actually!

    I hope you take his advise to get out of debt, but not on anything else.

  • By David, May 5, 2011 @ 3:55 pm

    John,

    Check out his explanation on this link. The thing about Dave’s advice is that you have to be all in or pieces of it don’t work.

    http://www.youtube.com/watch?v=gvjir8yxPUI

    If you kinda sorta save for retirement and have a 30 yr mortgage like the average guy, you may be right. But on Dave’s plan, you’re out of debt and building wealth so quickly, you only need term.

  • By Michael, May 8, 2011 @ 1:57 pm

    I think Dave Ramsey’s advice is great. So many people waste away their money and don’t even notice it.
    His plan keeps you focused.
    Right now, I am on step 6, trying to pay off my $86,000 mortage by age 30, less than 5 years after I got it.
    And yes, I am also in the stock market.
    It’s a tough challenge, but blogging about it has helped me stay focused!

  • By Brad, May 8, 2011 @ 10:44 pm

    Just wanted to let you know that your response in item 1, while it is generally correct about the differing tax rates, the math is not as simple as a basic comparison between today’s rates and tomorrow’s. You also need to consider the rate of return that can be generated and length to maturity/withdrawal.

    In particular, the first sentence is not correct. The tax savings is different between a Roth and a Traditional. Assuming constant tax rate, t, over time, the basic net tax savings will be:
    Tax savings = V*t^2 *[(1+R)^n)-1],
    where V is the initial investment, n is the number of compounding periods, R is the return generated. (You can further stylize the equation to include varying growth rates and n-contribution streams.)

    Since all numbers in the above equation would be nonnegative, this value must be >=0, with equality if R,t,or V=0 (See Scholes, Wolfson, Erickson, Maydew and Shevlin, Taxes and Business Strategy, Ed. 3, 2005, pp.73-4).

    In sum, the ability to contribute money pre-tax and achieve compounding on those funds, allows the tax savings of a Roth to potentially exceed the tax savings of a traditional, conditional on constant tax rates.

    With the above aside, in general, I do disagree with Ramsey, and I do think he is generally “off his rocker.” Hope this helps to clarify your incorrect presupposition about tax savings.

  • By Jay, May 10, 2011 @ 12:34 pm

    Copy and paste is an awesome tool…

  • By d. m., May 16, 2011 @ 11:19 pm

    Dave’s suggested GOLD BUYER offered me $358.00 for my GOLD, and local dealer offered $785.00 and another dealer offered $850.00. Ramsey needs to have a secret shopper shop GOLD PRICES to see what a RIP his sponsor is. Have talked with others that said they experienced same response.

  • By d. m., May 21, 2011 @ 6:00 pm

    RAMSEY IS LIKE ALL TELE-PREACHERS, JUST SELLING BOOKS, TAPES, MAKING PERSONAL APPEARANCES, GETTING PERCENTAGE OF SALES OF PRODUCTS HE PUSHES. BRAGGING ABOUT HIS LAKE HOME, BIG TRUCKS, HIS FORTUNE IN STOCKS, MUTUAL FUNDS, AND REAL ESTATE. SAYING GIVE AWAY YOUR MONEY, AND THAT SOMEONE WILL GIVE YOU DOUBLE, TRIPLE MONEY BACK. HA. HA .HA. TCT TV TALKS ABOUT ALL THE MAGIC FROM HEAVEN IN THE STUDIO, THEN WHY HAVE WE HAVE NEVER SEEN ONE PERSON WITH SPINAL CORD SEVERED, “CONFINED TO A WHEEL CHAIR HEALED” ITS IMPOSSIBLE TO WALK AFTER NOT USING YOUR MUSCLES FOR YEARS. MUSCLES DISAPPEAR, AND YOU MUST HAVE THEM TO WALK. WHY DON’T THE PREACHERS ON TCT GET LADY HEALED SITTING IN WHEEL CHAIR WHILE BEGGING FOR MONEY ON TV? TV HAS PROVED OVER AND OVER THAT CURES YOU SEE ON TV ARE FAKE, AND JUST FOR YOUR ENTERTAINMENT AND WANTING YOU TO SEND MONEY, MONEY, MONEY. NOTICE MONEY IS WHAT TELE-PREACHERS TALK ABOUT MOST. $$$,$$$,$$$.00 SEND $ $ $ OR WE WILL GO BROKE. LOOK ONLINE AT THE MANSIONS GARTH, DAN WILLIS, JOYCE MEYER, RICHARD ROBERS LIVE IN AND PROVIDE FOR ALL THEIR KIDS. THEY TAKE THE CREAM OFF THE TOP OF ALL DONATIONS. IF ANY IS LEFT THEY GIVE LOTS OF IT TO EACH OTHER, AND CLAIM THEY MAKE LARGE DONATIONS. MONEY GETS PASSED AROUND OVER AND OVER AMONG ALL THOSE CLAIMING TO BE SUCH GOOD FOLKS. ITS ALL ABOUT MONEY “FOR THEM FIRST” SEND THEM YOUR MONEY AND GO BROKE. THEN IF YOU NEED SOMETHING DON’T COUNT OF THEM FOR ANY HELP. PREACHER ON TCT TOLD CALLER TO SEND HIM MONEY INSTEAD OF PAYING LIGHT BILL. HE SAID SOMEONE WILL STEP UP FROM ????? AND PAY BILL FOR HIM. IT DOESN’T WORK THAT WAY, THEY CUT YOUR POWER OFF AND YOU END UP IN THE COLD. TRY IT AND SEE. “ITS SHOWTIME FOLKS” KEEP YOUR MONEY, YOU MIGHT NEED IT, AND NONE OF THEM WILL STEP FORWARD IN YOUR TIME OF NEED. ASK ONE OF THEM FOR HELP. I KNOW FOLKS THAT HAVE BEGGED FOR HELP AND GOT NONE, AFTER LOSING THEIR JOB, LOST THEIR CAR, HOME, AND ARE NOW IN THE COUNTY HOME. “THAT’S ALL FOLKS”

  • By JBigga, May 26, 2011 @ 11:45 pm

    I have a good Dave story. I was listening to his radio show and some kid in high school had saved a few thousand, was planning on going to college, and wanted to know if pre-paying for college credits was a good idea. He told him NO, that should put it in a “good growth stock mutual fund” because his ROI would be much better. College tuition goes up 6-10% per year, virtually guaranteed. By the way, this was in 2007, so the kid probably lost 30-50% of his value by taking Dave’s advice.

  • By Funny, June 3, 2011 @ 5:09 pm

    I find it funny that a person with a blog claiming all of these “mainstream” people are giving bad money advice and then is corrected multiple times in the comments area. You are now the one giving bad (incorrect is a more appropriate term) money advice then right? Now that I think about it, you are doing exactly what Dave Ramsey does….he gets people to THINK about their finances! At least he does it in a positive manner.

  • By Jimmy John, June 5, 2011 @ 6:32 am

    Great thought By Funny!

  • By HaHa, June 7, 2011 @ 12:28 am

    Hmm… Let’s see:

    Francis X. Curmudgeon is the alter ego of a bitterly unemployed hedge fund manager in the suburbs of Boston, Massachusetts.

    Dave Ramsey is a millionare twice over.

    I wonder who I’m more inclined to listen to.

  • By Vanessa, June 7, 2011 @ 11:44 am

    It doesn’t seem like anyone has ever listened to his show. When someone does ask about insurance or investing he always gives a disclaimer that this is what HE did/does and to call a local service provider who is an expert in that area.

  • By x1134x, June 10, 2011 @ 7:11 pm

    Its really not difficult even for a neophyte to understand that dave’s advice doesn’t get you the absolute best possible outcome every time, and in fact it doesn’t even try. The idea is that it gets you a better outcome than is possible with your current habits.

    You can create a massive hole in his theories right off the bat with the debt snowball. If a person has 2 debts one 10,000 at 24% and another 9,999 at 5% his advice is to pay the 9,999 first which isn’t the best method. There you go! poof! a hypothetical that blows him out of the water.

    I find the amusing part of your article to be that you’re bummed out that your trolling for arguments got few bites.

  • By Lily, June 13, 2011 @ 1:26 am

    I am one of those complete amateurs at money. I know enough to save and not to spend more than I make. I have a credit card, but I refuse to spend more on it than I can pay off in a single month, and am considered a “deadbeat” by the industry as a result. I also have some savings and some traditional IRAs.

    Yet, I actually like Dave Ramsey as a motivator. Most of what he says about getting out of debt is common sense but listening to his show is like listening to the Rocky theme music (the original Rocky, before Stallone became insufferable). You just feel like getting into the ring and knocking out your finances. :)

    But, as you have pointed out, his investment advice is mostly limited to ” get mutual funds” and to max out the 401K/IRA. There’s not much substance or finesse beyond that. However, the fact that people rely on radio personalities like Ramsey for investment advice demonstrates a real lack in your own skills as a financial type. Most finance people simply can’t communicate with the unwashed masses. You start with the technicalities, people’s eyes glaze over, and they go back to Ramsey who doesn’t make them feel stupid.

    Instead of bitching about Ramsey and his faults, why don’t you learn how to package what you know and make it more user friendly to those of us who are amateurs at investing? Getting lost in the percentages and arguments over tax rates means you lose the very audience that Ramsey attracts.

    If Ramsey is making millions, you guys have only yourselves to blame. Take it as a challenge. You could take me on, for example. If you can explain investing to me, you can explain it to anyone.

    Cheers,

    Lil

  • By Jay, June 15, 2011 @ 9:00 am

    Dave’s plan works…ask the thousands who have done it. I like the hypothetical offered byx1134x…the best hypothetical was offered by Lil! Don’t spend more than you make!!! If hypothetically everyone (and the government) follwed this, Dave Ramsey would never have been heard of.

  • By Anna, June 16, 2011 @ 11:24 am

    Oh me oh my! I had no idea Dave was giving such horrible, pathetic, advice! Thank you! I live very close to his office & had recommended his books to people in the past just assuming they were fine & he knew what he was talking about! Financial Peace, it sounded good to me! Wow! Your truths have given me a migraine! I just had to stop reading! My husband has a JD, is a CPA, and has an LLM from Georgetown in Tax Law! I just couldn’t stand the pathetic tax advice! Is he non profit? Wouldn’t mind volunteering for a free on air ask an expert day to give these folks some real tax laws & advice!

  • By JJ3, June 24, 2011 @ 10:24 am

    I’m not an “expert” with money or the markets, investments, et al. I am working on my masters degree in another field of expertise, so I do know what it takes to truly master a subject and to know it inside and out. I like Ramsey and he has helped us out and I see no fallacy in any of his advice thus far.

    He makes it easy for money laypeople (such as myself) to understand many concepts that I usually would not attempt to study on my own. Say what you will, but I like him and what he has done for many, many people across the nation.

  • By Jim M, July 2, 2011 @ 2:50 pm

    I am not suprised that Ramsey is giving bad advice.
    I am surprised that so many people are helping him get rich because of their ignorance.

  • By Rough Rider, July 3, 2011 @ 6:53 pm

    To those of you referring to Mr. Ramsey as an idiot or a joke (real classy folks, by the way), how many of you are self-made millionaires? He is, a couple of times.

  • By Rough Rider, July 3, 2011 @ 8:43 pm

    Where does all this hate come from? Thats an easy one. Jealousy.

  • By Nashville Girl, July 4, 2011 @ 11:09 am

    I cannot understand why people listen to Dave either. He is rude, patronizing and lacks common courtesy. On top of all that, I know the man personally and he is so incredibly two-faced it makes me want to vomit. And please, for the sake of all Jesus followers everywhere, quit standing on your “christian” values. You are fake and people like you is what turns others away from the church.

  • By Rough Rider, July 4, 2011 @ 11:54 pm

    Dear nashville girl, we stand on our Christian values because that’s what its all about . As Jesus Christ said, we build our house on a rock.

  • By Craig, July 7, 2011 @ 6:33 pm

    He just seems so 2000′s, like the GM Hummer and pro-war Christians. Right down to the bald head, black t-shirt, and goatee. Oh well.

  • By Vicki, July 10, 2011 @ 11:48 pm

    Still not convinced and I side with Dave. Regarding the first point, If you bring in no income at retirement you have a lower tax rate than when you are working. Therefore, your taxes should be at a lower rate at retirement with a traditional IRA. Also, with the 12% AVERAGE return this covers inflation plus some. Traditional IRAs are a good tool for those who make too much to contribute to a Roth. You forgot to mention the income cap of a Roth. Correct me if I’m wrong but Dave also recommends retiring in a portion of your nest egg meaning you may not even have to draw out from your retirement funds, especially if you live on less than you make and are debt free by retirement.

  • By Jay, July 11, 2011 @ 12:37 pm

    Wow! Have any of you ever read his book? Free from the library…It’s very simple to read and understand.

  • By Jeff, July 12, 2011 @ 2:57 pm

    Dave is an effective motivator and pointed me to knowing that I was crazy to have all of that debt. I was CUTTING my earnings potential by soooooooo much.

    I was $17,000 in debt when I divorced on a teacher’s salary. Stupid, yes I know. I started Ramsey’s debt snowball, and now I am out with about $11,000 in savings. That is a $28,000 turn around on a teacher’s salary in about a year.

    He gave critical advice in a divorce, that let me know, just because you lose the house, you don’t lose the mortgage — what an eye opener. The contract was signed with me, so I am liable, even though, legally, I can no longer live there. This was incredibly valuable to me. The ex refinanced or I was fighting for the house, if I was going to carry the risk.

    He talks about how financially devastating 30 year mortgages are. Get a lesser house, pay a 15 year mortgage and keep paying it for 30 years to a mutual fund and it will be worth millions to you — a nice house at 30 years is financially devastating.

    Now, I am looking for that mutual fund that averages 12% since the 1930s to plunk money in.

    Dave’s message is simple– live beneath your means, save money, make a budget, and you will be rewarded greatly.

  • By sean, July 12, 2011 @ 11:46 pm

    There is a lot of hair spliting here. A few really good critiques of DM too. But at the end of the day DR’s book TTMM is will work if followed, so if you have a better way to do it then do just that.

  • By sean, July 12, 2011 @ 11:48 pm

    here is a lot of hair spliting here. A few really good critiques of DM too. But at the end of the day DR’s book TTMM will work if followed, so if you have a better way to do it then do just that.

  • By Steve C, July 20, 2011 @ 12:35 pm

    The bible preaches against usury…that would prevent people from taking a mortgage or investing (lending).

  • By Terry, July 21, 2011 @ 1:11 am

    After reading all this boring verbage im reagy to buy his cd set for sure just to hear what hes got. Im debt free and set so it cant hurt!

  • By jay, July 22, 2011 @ 12:40 pm

    Terry, go to the library…all free!

  • By Randall Dias, July 26, 2011 @ 11:53 am

    The author of this piece says that Dave Ramsey speaks with authority about things he does not know, and that sometimes he would be of better service to his audience to refer them to the advice of a professional such as a lawyer.

    I listen to the Dave Ramsey podcast almost every day. Anyone who actually listens to him knows that he rarely goes a day without telling a caller that they should consult a lawyer or an “ELP” (endorsed local provider) for whatever their particular situation involves. He also very often tells the callers that they should not rely solely on a 40 second answer from a radio talk show host, but should seek additional advice. Besides all of this, his podcasts all contain a disclosure that warns listners to seek the advice of a professional. Based on these facts, I find the criticism of Ramsey without merit.

    Secondly, I would say – Ramsey’s basic message of: 1.Live on a Budget. 2. Spend less than you make. 3. Save for the future; to be very “grandmotherly, but sound advise. It certainly won’t hurt you and just might help you… It has helped me.

  • By Ben Poole, July 29, 2011 @ 10:59 pm

    Dave Ramsey presents a mindset. I started listening to Dave Ramsey at age 18. This is a very critical time for financial decisions as many of you know. Thanks to the mindset that Dave Ramsey led me into I now have graduated college with no debt, and have put my self in the position to open and operate a successful pressure washing business. I have and will continue to buy everything “paid in full”. This concept opens up an entire different mindset. I buy deals… I pay cash… My competition buys from an over priced middle man car lot… they finance… they are in the hole another $3,000 immediately because of interest. Good luck keeping up with me in about 2 years when your customers are expected to eat your bad decisions.

    Thanks Dave Ramsey! You the man! This blogger is a joke… Case in point… Dave Ramsey is a millionaire… this guy is broke with a good credit score.

  • By John, July 30, 2011 @ 3:28 pm

    The real problem I have with Dave is that he has a platform to do real good. But instead keeps pushing people to the worst of the worst ideas in banking/investing. The best way I have learned is best described in “How Privatized Banking Really Works” by Carlos Lara and Dr. Robert Murphy. They take on economics nationally and personally and show how to make all of your income work for you using the Infinite Banking Concept developed by Nelson Nash. It is the best way to get your money working outside of the fractional reserve banking mess and away from the market and away from government control and taxation. I just wish these talking heads would pull their heads out for a minute and think even bigger picture.

  • By Darrell, August 4, 2011 @ 5:58 pm

    Seems to be lot of valid facts using the numbers. Dave Ramsey also states to measure risk and the state of mind and attitude certain actions cause. After all, it is PERSONAL finance. I have hear many speak against Dave Ramsey and what he teaches over the years. However, using his teachings; I have went from bankruptcy to a seven figure nest egg. I will stick with Dave and the common sense approach.

  • By John, August 4, 2011 @ 7:09 pm

    I loved the post above by someone who actually said they are just going to look for a MF that shows 12% gains. That’s awesome. Watch the news lately?

    If you find it then let me know because that sure would make “buy term, invest the rest” a little more feasible. No one could actually be so disciplined they would follow that for 40 years straight, but good thought. This is the problem with DR and blindly offering advise to the masses when each and all of us are very different financially. Dave is great for debt consolidation, that’s it. He is great for lower income people who can’t follow a budget and control their spending. If you can do the above or get to that point you all will outgrow DR, maybe always have a special piece of your heart for him, but you will never take his advise again on insurance and investments.

    Out of all the comments I read I really saw none that defended his thoughts on buying term or investing. Those who like him just say he is a Christina, he is nice, he helped them get out of debt, he told them to do a 15 year mortgage. So take him for what he is. After researching for months whole life and term life, there are a ridiculous more # of positives than negatives despite my horrible, horrible agent, who made a grand or two educating me for endless hours on the 2 options and allowing me to comfortably make the easy choice of traditional whole life. The guy who sold me my car, my real estate girl, and the guy I re-financed with all made more and I am a-ok with that. I am happy with my house, car, and WL policy. Now I actually have peace of mind knowing I will pass one day with a permanent tax-free death benefit, not have to become self-insured and stress every day of my life over that, actually spend my retirement savings in retirement, and not leave my family choking for air when I die and they have nothing left from my 401K and still have estate taxes, death expenses, etc. Mark my words, those on this chain that have been approved for, got a good rating, and started WL…you will be more grateful than you can possibly imagine when you are in your 60′s, 70′s, 80′s, made your last contribution to it when you were 65, all term options expired, and that CV & DB just keep on growing every year til your gone.

    So keep slangin’ that term insurance & ZANDER INSURANCE (BUY ZANDER TERM INSURANCE, SUBLIMINAL, SUBLIMINAL) and best of luck to us all!

  • By Heather, August 5, 2011 @ 2:38 am

    Very interesting feedback. Obviously not written by people who actually listen to what Dave says.
    Last CD I listed to was about Mutual Funds. Dave very specifically says “Never, ever do something because I tell you. Never, ever do something because anyone tells you. YOU gather information from financial teachers and YOU make a decision based on the information that YOU gather” Pretty clear to me. Dave’s advice: gather info and make an informed decision. Critics are quick to jump to conclusions, but the reality is that this man has become a millionaire twice in his lifetime so someting he is doing must be working. Get out of debt first, build wealth second. Simple advice, but the most logical there is. Acting too sophisiticated with your investing is trouble. Diversify, diversify, diversify. If you have listened to Dave in entirity, you would have heard such things.

    Finally, when taking a few quotes out of context and posting them to criticize tells this reader that the author is the one who is clueless…. Ramsey started his show after he wrote his first book to try to get his message out. This is very clear, go through the teachings in their entirity. Taking any statement to criticize, and being out of context is an easy target for haters and not a wise way to try to prove a point………………

  • By Walling Sullivan, August 9, 2011 @ 2:13 am

    My husband decided we should take this course at his church. I am a former Consumer Education high school teacher. Ramsey’s whole style of teaching is very poor, with a lack of more in-depth information that is needed. It is a beginners’ course, I taught most of the things he is teaching in my classes, required by Illinois law. I think it behooves people to think for themselves and double-check what is being taught in the sessions. There are many approaches to getting out of debt. As was said in an earlier post, there is no panacea for getting out of debt. Each person’s situation is different and needs a plan that reflects individual needs.

    I found it refreshing to find this blog and see that people are taking a close look at what he teaches. Some of it is good, but very basic. He gives no information on how to sit down and make a budget, at least in the DVD’s. Some people will even need a counselor to help them through the more emotional issues that may have built up over years of financial mismanagement.

    Thank you for taking the time to find and explain these examples. Don’t dare open my mouth in the class though. Will research everything very carefully as my husband and I are middle-aged and cannot handle as much investment risk as younger people can.

  • By MikeH, August 12, 2011 @ 11:23 am

    First, I like Dave Ramsay and believe he does much good. However, I’ve heard him given some questionable advice, and his position that anyone purchasing physical gold is a “moron” is flawed. Dave regularly has stated that gold has no long term track record and is just a shiny metal, etc.

    First, the gold price in 1933 was $26.33 per oz. The price of gold in 2010 was $1,224.53 per oz. That’s an average compounded ROR over 77 years of 5.11%. It isn’t 10%, but it sure isn’t zero or the “2%” historic returns Dave touts. From 1969 to 2009 ($972.35, ignoring the last two year’s tremendous spurts), it averaged 6.52% after being allowed to float freely. Clearly, as it pushed to almost $1,800 an oz., it is doing better than 7% over the last 42 years, a sensible retirement planning horizon for most.

    The fact is, contrary to what Dave R. says and lambastes callers for their stupidity on the subject, WEALTHY PEOPLE ARE BUYING GOLD. Central Banks are buying gold like crazy. If it is just a shiny metal with no inherent value, why do the banks want to own it and why are they stockpiling?? Perhaps because THEY are concerned about the economy too??

    Dave is the great debt hater, but in the US, fiscal policy is doing things that devalue the dollar with runaway debt. By definition, inflation is an increase in the money supply (Fed Reserve has been printing a lot of it…). Gold holds its own quite well in inflationary periods.

    Someone with wealth putting 10% to 15% of their assets into a non correlated hard asset classes doesn’t make them a moron. It makes them prudent, realizing that the good old American dollar isn’t what it used to be.

    Sorry Dave, you don’t have your facts right on this.

  • By Mel, August 15, 2011 @ 10:48 am

    I listen to Dave Ramsey and I follow some but not all of his advice. His plan is quite remarkable just to start off with to clean up some of your mess. Dave has admitted many times on his show he is no expert in some areas and he will tell his callers who they should contact for better advice on investing. He usually just gives examples. Now I noticed you interpreted his SNP to a S&P. I think before you go posting he is wrong maybe you should call him and ask when he really means before posting he is wrong. SNP just went from an AAA rating to a AA rating so hmmm could he be correct and you are wrong? Standard & Poor’s (S&P) is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian S&P/TSX, the Italian S&P/MIB and India’s S&P CNX Nifty. The company is one of the Big Three credit-rating agencies, which also include Moody’s Investor Service and Fitch Ratings.[2] Its headquarters are in 55 Water Street in Lower Manhattan, New York City.[3]

    No hate here, I lost my job 2 weeks ago and because I listen to and followed Dave ramsey plan I knew my family is financially secure and ok. Not a lot of people can say that or have that. I think because I have the confidence in my financial security it landed me a new job right away. I start in one week making more money than I did at my last employment! In this economy not a lot of people turn down jobs but I did and they called back and asked me why. I gave them my answer and I got what I wanted out of the job and hired from part time to full time. I really wanted the part time spot, they had to talk me into the full time slot and give me offers! How crazy is that!

  • By bw, August 15, 2011 @ 2:05 pm

    This guy obviously doesn’t know anything about bureau scores. I work for three automobile dealerships and there are zero fico scores. People that have perfectly paid car loans and no debt and no open revolving credit lines have zero fico scores. I see every month.

  • By David, August 17, 2011 @ 12:45 pm

    I’m a single man in my 50s who’s been unemployed for 11 months and flat broke, save for a paltry weekly unemployment check from the state of Missouri and a part-time job. Middle-aged and experienced means a death warrant in today’s economy. If it was not for my elderly mother’s help (in her 80s), I’d lost my modest 2 bedroom home, and my 2 beloved dogs, months ago. My only debt, besides my mortgage, is a hefty home equity loan and a smaller debt consolidation loan, both at low interest rates. So, I agreed to enroll in Ramsey’s 13 week FPU offered at my Eastern Orthodox Church parrish. Kind of an intervention (LOL) from my mother.
    Granted, paying off debt asap, and staying out of debt, makes sense. But, I was doing that on my own well in advance to being “down sized” 11 months ago, and long before I ever heard of FPU. I threw whatever extra $ I could each month at my debt, and actually paid down and cleared up several things. No help from Ramsy on this, just common sense and reasoning.
    I was very turned off by the following:
    1.Ramsey’s “preachy” evangelical christian bible thumping.
    2.Ramsey’s condescending attitude and tone.
    3.Ramsey seems to attract half-wits.
    4.Ramsey’s championing the so called plight of single mothers.
    5.Ramsey’s annoying voice and demeanor.
    6. Putting your life on hold while doing Ramsey’s 12 step type program. Ok, I’m a middle age man, and I manage my weight, health, and appearance, but I do enjoy the simple pleasures in life (example: occasional dinner at a nice restaurant, good wine, occasional good cigar, movies, and my dogs). This does not mean I go out and rack up more debt, I just want to have some simple pleasures in life at my age and not live like a 20 year old college kid!
    FPU is 13 weeks of my life I’ll never get back. I threw away his books and materials after the class was done. I will continue to pay off and stay out of debt when I get employed again, hopefully sooner than later, and hopefully, even remotely near my former salary. My sister and I are heirs to my mother’s estate, so not to be crass, but maybe a windfall inheritance at some point will get me out of debt and stay that way.

  • By greatfulheart, August 18, 2011 @ 6:28 pm

    Dave sure isn’t perfect about everything. No one is!!!! I spent the best $100 by going to his classes. Many people are smart with their money, but many are doing themselves a disservice by spending more than they make. Those that are the wealthiest are those that are at peace with God, and have found a purpose with their life being able to serve others, no matter how financially successful they are.
    We are debt free and know that everything we own is from the Lord, so we want to be good stewards of what He has given us.
    Like Dave says, “there is only one way to financial peace, and that is to walk daily with the Prince of Peace, Christ Jesus.
    He will always be with those who believe in Him and trust Him.
    Once you do have a personal relationship with the Lord, you will have the greatest reward…eternal like in heaven.

  • By moneyisnoteverything, August 22, 2011 @ 9:52 am

    Check out is podcast ratings, etc. I’m pretty sure he’s not concerned about a random internet blogger ;) Truth is his approach is simplistic and he knows that, embraces it, and shouts it from the rooftops. If you know ANYTHING about Dave Ramsey he makes no bones about that. If you don’t like him, don’t listen to him.

  • By SR, August 25, 2011 @ 9:43 am

    Ramsey is for the 90% of Americans that failed to take on their financial responsibility and are stuck in middle class or less. He has never made his money off of financial experts and he is well aware that some of his theories do not make financial sense exactly…ignoring interest rates and paying off smallest debt to largest is proof of that.
    He also always Recommends just working with your spouse towards a goal together. Even if you both alter his path a little bit.
    Debt is a major barrier to building wealth and once you are debt free I would recommend investing how you see fit not someone on a radio show. So to financially responsible people Dave seems foolish….to the people that have found his show and changed their lives because of it…Dave is far from foolish. Considering the guy has made millions preaching common sense..over all I would say he is doing a great thing for people…there are certainly more people who need his help than those that should be criticizing his advice…

  • By Mrs Ramsey, August 26, 2011 @ 3:07 pm

    Dave Rocks!

  • By Food4Thought, August 29, 2011 @ 4:12 pm

    What’s the end goal? Ramsey’s end goal is to be debt free. My end goal is to be financially secure.

  • By Angel, September 3, 2011 @ 5:53 pm

    Dave Ramsey for President !!!! Go

  • By d, September 5, 2011 @ 12:31 am

    @ “By Food4Thought, August 29, 2011 @ 4:12 pm

    What’s the end goal? Ramsey’s end goal is to be debt free. My end goal is to be financially secure.”

    The end goal is to be able to KEEP your money by getting out of debt so that you can invest more of it, enjoy more of it and help more people with it.

    Dave Ramsey has nothing to else to prove. Neither do those that have taken his advice to completion. (See his 7 Baby Steps to Financial Peace.)

    It sure beats the heck out of speculation, being in debt up to your eyeballs and waiting on the government for help.

  • By d, September 5, 2011 @ 12:35 am

    …or waiting for someone to die so that your inheritance can bail you out from a lifetime of bad choices and lame excuses [ala "David"].

  • By Dan Noecker, September 8, 2011 @ 7:32 am

    I have to admit, I have heard your point that “If the tax rate is higher now than in retirement, a traditional will save more money.”

    This has always seemed like complete nonsense to me. I will use the numbers from the example ($240,000 contribution, $6 million return). Let’s say my tax bracket NOW is 50%, and in the future, my tax rate is only 25%…

    50% of $240,000 is $120,000
    25% of $6 MILLION is $1.5 MILLION
    Can you please explain to me how paying $1.5 million in taxes is better than paying $120,000?

  • By wendy, September 10, 2011 @ 10:25 am

    While I agree that Dave Ramsey does not have all the answers,I must say his concept is ground breakingg non the less. He’s attempting to teach people financial responsibility. My Grnand Ma would be proud of what I’ve accomplishes since I’ve subscribed to his way of thinking. We need to understand the negative price of instant gratification,buying things we don’t need and on credit with the inability to pay for them later.

  • By Mrs Ramsey, September 12, 2011 @ 8:45 am

    Right on Wendy!!!!

  • By JT, September 16, 2011 @ 2:35 am

    This site just confirms that finance guys really come across as dorks. Don’t get me wrong, I appreciate knowledgeable dorks who can lend sound advice, but when they try to talk above me and get all prideful it’s a big turnoff. I’m not going to talk to some super smart advisor who tries to first prove he’s smarter than everyone else. You see Dave’s appeal is that he relates to people. You guys sound like the really obnoxious guy I work with who makes it his goal to correct everything others say with his smarter, better information – “Well actually that’s not true. . . .”. It gets old.

    Good luck with the blog. It was a good read. ;-)

  • By Stan, September 19, 2011 @ 7:35 pm

    …sorry Troops… but I don’t believe anyone who ‘uses’ his Christianity to sell books, bolster his advice, or justify his existance in the World is someone who is truely speaking in an annointed manner….

  • By soltrovadora, September 24, 2011 @ 12:33 am

    Dave, Dave, Dave. Okay – all you educated CPA’s and university attended like people – do you remember your lower level psychology, sociology, organizational behavior classes. Dave is not preaching Greenspan, Buffet or Geithner – he’s preaching Maslow and Jesus.

    He is teaching hope. The debt snowball is not about math – he says it a million times – its about feeling good that you got one of those debts closed, behind you. You have hope.

    When he is talking about with not having a mortgage, he is talking about meeting the basic fundamentals of Maslow’s hierarchy of needs.
    Which of these situations would you rather be in – loosing your job and having a mortgage of 1400 a month you can’t meet and possibly loosing your house. Or loosing your job and having no mortgage and therefore – most likely not loosing your house.
    Which gives you more hope, more inner peace.

    Lets do a different math
    I purchased a car with a payment of 223 dollars a year for 5 years. I rolled that loan over and got a car with an upside down loan and now have a payment of 296 dollars over the next 7 years. I totally screw that up, loose the car – need a car, but I have muffed up my credit so bad now I am paying 364 dollars a month for a car.
    No lets say I listened to Dave – and I would have paid off the first car, early and kept it. No matter what bad advice I am getting, it is better then what I was doing in the first place. And even his bad advice will get me further then my bad habits.

    So yes – I do believe that you can shoot holes through the advice Dave gives – but most of the people taking his bad advice will have more money then what they ever would have had not trying at all. And they have hope. And they have a home that they will more likely be able to live in and possibly use as part of their retirement plan

    By the way – I am far from Christian and I have yet to vote republican. Listening to Dave is like going to an AA meeting when you feel like you are going to take a drink.

    Now if you want some real fun, listen to Dave – then listen to Clark Howard after. To FICO or not to FICO. That is the question.

  • By Robert Kane, September 24, 2011 @ 4:41 pm

    I had a full response to all ten items. Dave is absolutely correct on almost every one. Apparently your mailbox is full though. when you clean it up let me know.

  • By MIWINGMAN, September 26, 2011 @ 5:44 pm

    There is another issue with Ramsey’s Roth v. Traditional IRA scenario — in the real world investments do not compound monthly.

    You only get from $240K to $6M (actually about $5.9M) if you earn 12% return every month and it is reinvested every month for 40 years. That would require that your investment never have a down month or months.

    If you compound every six month you end up after 40 years with $4.3M (at 12%).

    The more likely scenario where you compound annually with an 8% average return you end up with about $1.3M.

    Ramsey is selling snake oil.

  • By John Doe, September 27, 2011 @ 11:37 am

    Dave is incredible. Don’t be mad that he isnt too good to help real people like you. You are stupid if you don’t like Dave. You are just jealous that you aren’t as cool as he is. Where are your book? When is your next class so I can come here YOU teach? Oh you don’t have one? Looser!

  • By Scott, September 29, 2011 @ 9:32 am

    That was mean John Doe.

    @Miwingman – How terrible to think that people who were going to have zero at retirement might end up with 1.3M at retirement instead of 6M.

    It’s been my experience talking to DR fans that most of them didn’t do ANY planning before listening to the show. DR stirs up excitement around something that isn’t even slightly exciting. Traditional investment guys have run everyone off with their snobbishness and unwillingness to teach. I tried to get interested in investing once, several years before I heard of DR, but the guy I talked to talked circles around me and I ended up more confused than I was before. I can’t imagine where I would be in my investing now, if that guy had had DR’s enthusiasm and willingness to teach.

    Before DR I was in six figure debt, now I am worth more than a million. If you read The Millionaire Next Door – a study of real decamillionaires, you’ll see that their investment ideas line up with what DR teaches.

    As for the folks griping about DR just pitching his books/shows. I got out of debt by just listening to the radio show. Once I saw that it worked and had some money built up I bought books for family/friends and dragged them to his shows.

    Haters gonna hate I guess. lol.

  • By Brent, September 29, 2011 @ 5:27 pm

    I’ll say this as kindly as possible to all the people on Ramsey’s case. Where are the financial people that can string two words together without putting the rest of us to sleep? I’ve heard people “teach” and they can’t put it on the lower shelf where the rest of us can reach it. They’re financially smart but horrific communicators. Ramsey is somewhat entry level but speaks to people where they live and I know a boatload of family’s building wealth now but were previously fiscally confused. Just my honest assessment.

  • By Mrs Ramsey, September 30, 2011 @ 3:38 pm

    Go Brent!!!!

  • By MarkCPA, October 5, 2011 @ 4:33 pm

    I find flaws with both the aurther and Ramsey.

    Short answer is there no one fits all plan.

    There are some good practices (habits) that are in general one size fits all.

  • By Mrs Ramsey, October 6, 2011 @ 12:32 pm

    Mark, you da man!

  • By شات بنات مصر, October 12, 2011 @ 12:18 pm

    thanks
    I find flaws with both the aurther and Ramsey.

    Short answer is there no one fits all plan.

    There are some good practices (habits) that are in general one size fits all.

  • By J. Shelby, October 12, 2011 @ 9:39 pm

    I hate to inform you, but you are DEAD wrong there not being such a thing as a “O FICO” score. After decades in the mortgage industry I have seen more 0 scores as 300 scores.

  • By Jeannine, October 14, 2011 @ 12:23 pm

    I’m stunned that this guy gives out advice beyond how to save.

    If he gets people interested in financial management so they read more on their own, that’s great. But if all they do is take his advice, they’ll be screwed.

    I’m bewildered at how he’s allowed to give out such terrible advice regarding so much. He’s way off on the generalization about the Roth vs the 401k, (though MOST retirees will have lower tax rates in retirement). His statement that mutual funds “always out perform stocks”…is completely wrong. (What the hell does he think index funds are based on?) And most actively managed funds do NOT outperform the indexes…80% lag behind. Read John Bogle’s book on Mutual Funds for actual data about Mutual funds. Or Morningstar’s….I’m Very disappointed in his followers not getting good advice, and him not getting more informed. Makes me a little sick.

  • By John, October 15, 2011 @ 10:54 am

    I think you all assume that Roth IRA’s will still be here in the next 20-30 years, with the way this liberal government has been going and wanting to tax everything I would not be surprised to see ROTH go aways and you end up paying taxes at that rate then instead of paying taxes on it at todays rate. If you ever listened to Dave you would know that he saids ROTH’s can be good if you want to hedge your bet that they will still be around when you retire they way they change the taxes laws.

  • By zoe, October 26, 2011 @ 5:06 am

    In #3, I think he means the turnover rate–how often the managers of the fund buy and sell securities in the fund. The more actively managed funds have higher expenses than the more passively managed ones is probably the distinctions he’s trying to explain, but not doing a great job explaining it I must admit.

  • By zoe, October 26, 2011 @ 5:12 am

    I’m wondering why he’s compounding monthly in the first example. It’s stock, not interest. I saw it done similarly on investopedia by a CFA/CFP. I wonder if that’s the industry practice. It overstates the future value by more than a million as opposed to compunding annually. Anyway, I would compound annually for a growth stock because it’s not likely it will be paying hefty dividends monthly. Another problem with this example is that no sane investor should stay in 100% growth stock all the way to retirement age. Obviously it’s an exmple to wow the person asking the question with the power of compunding, but it seems a little irresponsible.

  • By dw, October 29, 2011 @ 11:13 am

    to kate and all the other people trying to calculate the outcome of a roth vs traditional ira. take $x invest at y return for z years and pay w% tax. then take $x, pay w% tax, invest at y return for z years. the end result is exactly the same exactly the same. The comparison boils down the difference between your personal tax rate and other regulatory factors now and at the time of withdrawal. to compare roth vs trad. ira you don’t need a cpa, financial advisor, broker or dave ramsey you need a crystal ball.

  • By Megan, November 13, 2011 @ 7:33 pm

    Talked to loan consultants and haven’t got a clear answer… If anyone can offer help I’d appreciate it. My husband currently pays $93 a month on a 45k student loan (income-based), that will be dissolved in 10 years (8 years now) since he works for Head Start (makes $12/hour). We recently married and his loan consultant told us to file seperately so keep his loan payment at $93 a month. At an income of 38k and 26k, what is the difference between filing seperately vs. jointly? Trying to determine what’s better over 8 years. Thanks.

  • By curt, November 18, 2011 @ 4:23 pm

    If I would have listen to Dave Ramsey I would not have any money left in my 401k. I would like to know how you can receive 10% on your money in a 401k when you are very limited on your types of investments . Thank goodness I went on a path of my own and was able to retire early and with a comfortable income. I know Dave Ramsey helps a lot of people get out of debt but needs to back off a little on investing .

  • By jc126, November 28, 2011 @ 8:05 pm

    I think John Doe was being facetious.
    I love the (serious) comments people make about “well none of you are worth $10M” – and therefore Dave Ramsey is right about everything. He sells books, does seminars, and other self-promotion stuff (repackaging the same info over and over). THAT”s how he made millions, not from just following his simplistic advice.

  • By Mrs Ramsey, November 30, 2011 @ 2:36 pm

    Dave is business man. There is nothing wrong with that if you do not promise something or sell a product that doesn’t work. His products work. There are many people who can prove that. He is motivator that offers a sensible approach to eliminating debt. Yes he sells books (all can be read for free at your local library) and CDs (which are often shared through community and church organizations for free) and runs his own business (just like thousands of people in this country).

    So what’s the issue?

  • By maria, December 2, 2011 @ 12:33 pm

    I’m think that u are rude. Dave is just trying to help people get out of debt. In his book he does say that u should get professional advise before u start to invest. I think taking bad about someone that is just trying to help people is wrong. He never said he was an expert on investing.

  • By Mrs Ramsey, December 2, 2011 @ 4:55 pm

    Right on Maria!

  • By Brad, December 8, 2011 @ 8:00 am

    Someone above said “If you follow Ramsey’s plan, you will not be that bad off.” I agree…I have no debt, the house is paid off. lots of money in the emergency fund, and lots in retirement. I’m not that “bad off”.

  • By Mrs Ramsey, December 8, 2011 @ 1:01 pm

    In this economy how can anyone say debt is good? With umemployment and the cost of everything going up isn’t smarter to have more of your income staying home and not going out toward debt? I just can’t understand the mindset of living with debt when all it takes is some personal discipline…regardless whether or not you follow Dave’s plan.

    I see so many people in my family and at work who are hurting financially yet even when they see first hand how not having debt benefits people (like me) they still just don’t get it.

    If someone gives you a referral to a good mechanic, do you ignore it? If someone gives you a good referral to plumber, do you ignore it? If someone gives you a good referral to doctor, do you ignore it? Especially when the person giving the referral is proof that the service works??? I just don’t get it.

    I will refer Dave Ramsey to anyone!

  • By Raymond, December 12, 2011 @ 9:22 am

    For the first time I listen to Dave Ramsey on the radio. I found the show utterly depressing. Especially when the majority of Americans are not making it in this economy. A recent radio commetary on money vs. being broke, and those who are broke are whiners had me reeling. Fact remains people can find jobs to pay their bills. Those who can pay their bills today have to liquidate something. Great financial advice…..Not

  • By Mentor Millonario/Potencial Millonario, December 12, 2011 @ 10:55 pm

    Proverb 39:1
    Whoever stubbornly refuses to accept criticism will suddenly be broken beyond repair.

  • By Mrs Ramsey, December 13, 2011 @ 4:43 pm

    Raymond, I do not understand what you mean by “the majority of Americans are not making it in this economy”. Personal finance doesn’t totally rely on bad economic times. If someone who is debt free gets hit with losing their job, they are far better off than having a pile of debt on top of no income.

    I get tired of hearing people call in and say they don’t understand where their money goes. People seem to track football statistics very closely but their own money. It’s their decision to do that but when hard times come around don’t blame those who offered the tools to help you before the hard times came.

  • By Bill, December 17, 2011 @ 12:27 pm

    One factor I struggle with is an anomaly not typically mentioned. Many people start their young adult life out with very little in the way of material goods. They likely rent, live with friends, have small places, and little in the way of wealth. A larger portion of their income goes to daily living and they have expenses like college loans to pay back that will be gone in 10 to 20 years without an early payoff. Over time, with experience, raises come along, better jobs, marriage, all of these things can improve wealth. Many, without much budgeting, find they make much more in their 40’s than in their 20’s. Retirement plans grow, equity in homes, and they have opportunities to take advantages of lump sums (inheritance, early retirement for those in 20 year professions). A larger portion of retired people pay off their homes than young earners. This is the result of accumulated wealth.

    This fact alone has a lot to do with getting out of debt. Unless you were like the early Dave (addicted to leverage like a crack addict), it’s really no wonder he went broke. Who really borrows likes that and thinks it’s a sustainable plan? I think the credit card companies really burned him and he has been trying to get them back every since.

  • By Mrs Ramsey, December 19, 2011 @ 10:09 am

    Bill, you are exactly right. The only way to gain wealth is to invest or save. If a majority of your income goes to pay off debt each month you have less to invest or save, thus a much lower gain in wealth. I had a friend in school that went to work on a construction crew for two years immediately after graduating high school. He saved his money and paid for an engineering degree in cash. He started his career debt free. That option is never discussed.

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  • By Connie R, December 25, 2011 @ 4:47 am

    I just want to say that at 44 years of age I decided 15 months ago to give Daves “plan” a chance because nothing else I tried to that point had worked. 13 months into the plan I paid off my last debt! (a total of 78,000) His seven “baby steps” are very clearly described on his website which BTW is FREE. I didn’t spend a dime for his advice and for the first time in my life I am free of debt. It worked for me. THANKS DAVE!!!

  • By jimmy, December 28, 2011 @ 11:02 am

    I here a lot of complaints while reading these comments but no one has offered any other suggestions, books, or references to better educate ourselves and help get people out of debt.

    I’m new to Dave Ramsey and was suggested by someone I met but if people believe he is so wrong why not help out rather than call him out?

  • By jimmy, December 28, 2011 @ 11:03 am

    sorry spelled *hear wrong :D

  • By Mrs Ramsey, December 28, 2011 @ 12:08 pm

    daveramsey.com brother….daveramsey.com

  • By Bill, December 29, 2011 @ 12:40 am

    Read The Millionaire Next Door

  • By George G, December 29, 2011 @ 12:38 pm

    Say what you will about Dave’s financial advice but people from all incomes can benefit from his advice. We were earning >$200K per year, but had a 2nd mortgage, car payment, and student loans for kids. We weren’t hurting by any means but we didn’t know where the money went every month. Followed Dave’s advice, 18 months later, out of debt except for 1st mortgage and it will be gone in 12 months.
    Granted he may not know the fine points of investing, but he does know investing. He has helped tens of thousands of people get out of debt and get a life. How many other financial experts can say that?

  • By Jamie, December 29, 2011 @ 2:48 pm

    As most of the world is oblivious to financial dealings and the number of Bankruptcies in America is at an all time high, I think you fail to respect the fact that his information on getting people to take responsibility for their own actions is top notch! Who cares about the investments, etc when most people can’t stop using their credit cards or living paycheck to paycheck…..he confronts people head on and tells them to live like no one else so later they can live like no one else. And, you know what? IT MAKES PERFECT SENSE!!! Maybe it’s common to you but just look at our society….it’s NOT common to them! Dave Ramsey tells people it’s nothing new but it works!!! How about giving the guy some credit. I don’t see anyone else doing a better job, personally speaking.

  • By Mrs Ramsey, December 30, 2011 @ 9:11 am

    Jamie is right! When was the last time you heard anyone say “live within your means”? NEVER! Our society demands that you have the newest product, the newest car or the newest whatever, but when someone like Dave says stop buying stuff you can’t afford everyone seems to get upset about it. In the early 1900′s a mortgage term was about 9 years. You know why? Because people felt it was wrong to be in debt. Then the banks offered a 15 year mortgage and then a 20 year mortgage and then a 30 year mortgage. Why? Because they make more money.

    It’s pretty simple really. Live within your means and the money you DO NOT send to debtors each month can be invested and saved. It doesn’t take a rocket scientist or a blogger to figure that one out. And here is another reason, if the bank calls in all of your loans on your car, mortgage, 2nd mortgage or motorcycle…can you pay it or will you have to surrender them to the bank? I own my cars and I will own my house within the next two months. The bank can’t take them away.

  • By The Average Financial Goober, January 1, 2012 @ 1:17 pm

    I didn’t read all of the comments. But I did read a lot of them. I’d say > 70%. I’ve read most of Dave’s book “The Total Money Makeover” up to the investing part because I’m not there yet. I’ve seen a few of his DVD’s. I have his Audio CD’s as a FPU enrolled member. I didn’t start yet. But I guess that makes me a cool-aid drinker. I am what Dave calls a financial Goober. When I was single, I could out-earn my stupidity. Now I’m married with children. Off went the hot rod, Harley, and boat. I now have to actually “Manage” my PF.

    What I find amazing is that the bulk of the critics are taking Dave’s words & text out of context.
    I’ll take the low hanging fruit as an example being a goober as I am. With the way a FICO score is determined, If you have no debt or revolving accounts for >10 years you will not have a FICO score, There isn’t enough data in the system to calculate it. Does that mean it will be Zero, Well I’m not sure to be honest. I’ll let you know in about 12 years. But I’m sure will not be 300 as you claim. And I know the bottom of the scale is 300. Dave uses the number Zero for the emotional effect.

    Here is some advice for free. How about you attend the FPU classes then comment. Then you’ll get the full context of his words and you can write a better article/ critique. A lot of what he said isn’t meant to be taken literal as you are. It’s said to generate an emotion. The emotion often is anger. Looks like it worked, you just weren’t astute enough to figure out the difference and take it for what it is. . In short, I’m a Network Analyst and focus on Microsoft systems. I don’t read Apple’s website and start a blog of all the things Apple got wrong about computing. I’m not qualified to write that blog.

    And the posts about Dave acting arrogant, well, yes, but again that’s by design. He wants you to get mad enough to change your way of thinking. His investing advice is simple, Keep it simple stupid. That’s why he preaches 15% of your income invested in 401K and Roth and don’t make it overly complex. If you can’t teach a group of 7th graders about an investment, you have no business putting your money there. I think that’s good advice.

    If you over-think your investments, you’re going to lose. I see my co-workers at work staring at their Ameri-trade screens all day long while working crying because they are losing money. Stop it. I’d also like to know any many of the critics are self-made Multi-millionaires debt-free.

    In addition to Dave’s advice, he preaches Immersion. But you wouldn’t know that either less you’ve done more than “looked and DR’s site and flamed on this blog”. Dave “Preaches” you to read additional material such as “The Millionaire next door” ”The Millionaire Mind”, etc. He “Preaches” you to get involved with your PF life. Turn the TV off, return it to Rent-A-Center and get a clue. I’m a little confused as to why this is bad advice.

    I’ll close with a challenge. Rather than flame on this blog, teach me, the average PF goober a better way. Anyone, anyone, Bueller

  • By Dale, January 3, 2012 @ 5:23 pm

    To @Dan from September 8, 2011. I know this response is kind of late and that I’ll come across as some boring numbers guy, but I’ll give it a shot anyway.

    You ask (roughly): “How can a traditional IRA beat a Roth IRA if your current tax rate (50%) is higher than it is in retirement (25%)?”

    The assumption is $500/month into a Roth IRA for 40 years at 12% (compounded monthly) return. While I’d like to get half of that over 40 years, we’ll stick with that.

    However, to get to $500 in a Roth with a 50% tax rate, you would need to earn $1,000 to contribute $500. Under a Traditional IRA, you will be paying taxes upon withdrawl, so you actually have $1,000 to invest (comparable to the Roth $500). Simple math is that $1,000 is 2.0 times $500 and you would end up with $12.0M dollars at the same 12% compounded rate after 40 years (again, I wish). Upon withdrawl at 25%, you now have $9.0M, which is better than $6.0M. If the tax rates are the same while you worked and during retirement, it doesn’t matter which IRA you picked.

    What Dave apparently said (again, paraphraing), is that if you put the same amount of money into a Roth IRA as a Traditional IRA, you will end up with more money under the Roth. While that may be technically true, it is misleading because it ignores the initial taxes you need to pay on the Roth. Hope that helps.

  • By Mr. Anderson, January 10, 2012 @ 3:58 pm

    I read about half the comments and figured I would throw in as well. I didn’t see anyone mention one of Dave’s most common mantras to people that inherit money. He always tells them to take all of it and pay off their mortgage. This seems like really, really bad advice because it is such a generalization. Things to consider:
    Is the home you are about to buy outright declining in value? Mine is. I don’t want to really own it.

    What state are thay in (physically)? Will the person lose their property tax deductions if they pay off the house? What will that cost?

    What state are they in financially? If they are living month-to-month without a nest egg, why sink money into a home that is really nothing more than a financial burden that’s hard to liquidate?

    How old are they? Near retirement? In their dream home or just paying a mortgage because the school district is good?

    How about they take that money, get debt free apart from the mortgage and then either get their mortgage rate down as low as possible (refinance) or use the windfall to relocate to a safer neighborhood where the home may appreciate versus depreciate.

    I would rather have cash in the bank and a mortgage I can walk away from in hard times than zero cash, maybe extended unemployment, but a paid-for house that is still a maintenance problem waiting to happen (as all houses are). In fact, were we to generalize, my general consensus would be to NEVER dump money into a home unless you are very, very sure it will appreciate in value. As we’ve seen all too recently, real estate can crash harder than the listeners’ of Dave’s retirement accounts.

  • By Mo Ment Um, January 10, 2012 @ 8:51 pm

    Seriously Frankie. I came across this site and was not surprised after reading many of your posts how negative you are about nearly everything and how appropriately you have named yourself.

    The Dictionary defines you as “a crusty, ill-tempered, and usually old man.” Hopefully you are old enough not to bother too many people any further with your negativity.

    Synonyms for curmudgeon are bear, bellyacher, complainer, crab, crank, croaker, crosspatch, grouch, fusser, griper, grouser, growler, grumbler, grump, murmurer, mutterer, sourpuss, whiner.

    Not the type of person I want to listen to or read. I won’t be back, you old curmudgeon!!

  • By Mrs Ramsey, January 12, 2012 @ 3:57 pm

    Mr Anderson,

    I do see your points about paying off a mortgage with an inheritance. Dave has said time and time again your individual situation at the time dictates what you should do.

    If you are debt free and that should happen, why wouldn’t you want to pay off your mortgage? The monthly mortgage is more of a burden than home repairs I would think. I understand the issue you have concerning if your home is under water. Unfortunately if you keep paying the mortgage the bank will keep expecting you to. My sister-in-law is in the same boat. She owes more than what her home is worth, but if she ditches it then she has credit issues down the road. The option she is persuing is trying to pay it down quickly and then sell it and hopefully break even. I know that really stinks but unless the banks start offering people to option the refi or renegoitate the loan for the actual value of the house that is the only of the only few options.

    I have been debt free for almost three years now, except my mortgage. I can assure you if I received an inheritance that would pay off my home I certainly would. I would then put that mortgage money in the bank or invest it.

  • By David, January 12, 2012 @ 4:26 pm

    I appreciate all the information provided in this blog. I have personally worked the Dave Ramsey plan and realize it isn’t perfect. It is however much better than any other plan I have tried in my 50 years. He helped me to devise a plan that actually works.

  • By Roth vs. Traditional IRA, January 14, 2012 @ 4:29 am

    You guys are running the numbers but fail to see that taxes increase in retirement when you have a drawing of 6 million or 9 million or 12 million…its more than you have now!

  • By G52, January 14, 2012 @ 10:27 pm

    On your first point, you are astonishingly wrong. The tax savings would not be the same. The 401k is the government allowing you to defer taxes and accumulate growth on those funds that you would have sent to the IRS this year. In the example, if you had 240,000 in contributions over time that grew to 6 mil by retirement in your 401k, you have required minimum distributions and you will pay taxes on the 6mil. With the Roth IRA, you pay taxes on the 240,000!!! Only the 240,000!!! This is a MASSIVE difference. The only way you could be right is if the investments had 0 dividends or capital appreciation over 40 years, which has NEVER happened. Additionally, it is foolish to presume that taxes will be lower later than they are now. You might want to look up our national debt and try to come up with anyscenario that does not include higher taxes in the future. Based on your MASSIVE errors in understanding and analysis, I did not dignify the rest of your “article” with a read, much less a response from this CPA.

  • By Mrs Ramsey, January 17, 2012 @ 9:26 am

    Right On G52!

  • By Jack, January 17, 2012 @ 10:32 pm

    “Some people, however, believe you should start with the debt that has the highest interest rate. Mathematically, that makes sense. Behaviorally, it’s a bad idea.”

    Taken directly off of DR’s website. His methods are not for advanced financial applications, nor does he advertise them as so. Dave is speaking to the masses of Americans, who are in fact in a ton of debt just as we are as a nation. If he doesn’t appeal to you, fine, but there is no reason to bash the guy. He specifically states if there is a better mathematical way of doing things, but suggest a better solution tailored specifically for his target audience. Point simple, the man is a great business mind, has sound financial advice, and if it isn’t suited to your liking…..DON’T LISTEN!!

    I don’t act or follow every thing DR says, but you have to admit that it is better than listening to most of the other crap on the radio. Take in every bit of knowledge you can, process it, then take in more and make your own damn decisions!!!!

  • By Sarah, January 19, 2012 @ 10:43 am

    I have no idea about how investing and IRA’s or any of this works but I took on look at the website and immediately felt something wasn’t right. First is that you have to pay for these classes then the materials then on top of that you ate expected to pay for all the tools on the website. My initial thought was I am trying to get out of debt but by the looks of it by following him I will be spending $100′s just to start. I’m going to save mOney by spending money. Yes everyone deserves to get paid for their work but the whole thought makes no sense to me. Then when I entered our monthly income in I realized there would be no way we could cover our utilities on what he calculated was an appropriate amount. Utilities are something we haven’t real control over. But what he assigned for utilities wouldn’t even cover our electric bill for the month. I am glad to find this website to only reinforce my thought that his website is a bad idea and to look elsewhere for financial Planning advice.

  • By Kay Miller, January 19, 2012 @ 4:58 pm

    Just do a better job than Dave Ramsey without the superiority. If you can help as many people as he has more power to you. There is room for both of you in this crazy world.

  • By Mark, January 24, 2012 @ 10:26 pm

    “…But honestly, I was expecting a larger and more hostile reaction than I got, at least as measured by comments and emails. Ramsey has a very large and devoted following, particularly, it seems, in the blogosphere.

    At least I thought so. Maybe I was wrong about that. Perhaps Ramsey is well liked but not, ultimately, taken all that seriously.
    ” A: Here is a more likely scenario: your blog’s purpose in “debunking” what you believe is bad financial advice, ultimately serves little value to the public. It does not tell them what they should be doing but rather roadblocks hundreds of other advisers. Ultimately yours is just another opinion and largely a negative one. Whereas Ramsey, orman and their ilk focus on the Do’s, you’re all about the Don’ts. And nothing but “Don’t” is not a very useful education.

  • By TheBaron, January 25, 2012 @ 3:03 pm

    Thanks to Dave I experienced a financial paradigm shift and was able by the grace of God to pay off $35,000 of debt in about 2 years. Prior to reading his books and listening to his show I wasn’t sure how I would ever get out of debt. Hearing his straight talk and people from across the U.S. scream “We’re Debt Free!” made me believe it was possible. So he his helping to change lives. The one thing I think most listeners disregard is that at the end of each hour his show says “This program is designed to provide accurate and authoritative information with regard to the subject matter that was covered, this information was given with the understanding that neither the host nor this station is engaged in rendering legal accounting or other professional advice, since the details of your situation is fact depended you should additionally seek the services of a competent professional.”

  • By Mrs Ramsey, January 28, 2012 @ 11:16 pm

    Dear Sarah,

    Go to the librabry and get his book for free. Read it and take notes. No cost there. That’s what I did.

    I will say right up front the first time I heard Dave on the radio I was wondering “What is this guy selling?” After listening to him for a few days on the way home from work I Googled him and found he had quite a large following and 90% of all the information provided about him was positive. So, being in debt, I thought “I will get his book from the library and see what he has to say.” The book was nothing but common sense! Things that I should have been taught but never really was. Live within your means? Are you crazy? Everyone has a car payment…right? Everyone has a monthly credit card bill…right? Everyone has student loan debt…right?

    I followed his plan, not the beans and rice thing, and I got out of debt. I tailored his plan to my life. I had two little kids. I sure wasn’t going to deprive them of ice cream and a movie now and then to save a few bucks. So how did I do it? I BUDGETED it in each month while eliminating wasteful spending. My family still ate out, went to the movies, bought whatever we NEEDED (not what we wanted) and in 17 months I paid off 26K in debt.

    Now ask me “You have a car payment, credit card payment and a student loan payment each month…don’t you?”

    NOPE.

  • By Z, January 31, 2012 @ 1:14 am

    MrZ Ramsey, Thanx, been living check 2 check 4 30 years of paying taxes and have been blessed with the best woman 4 over 25 with NO monthly balances and a pay.as.u.go, “no fronts” life style. As I began, these “Expert’s advice” I was reminded of the kid that eats paste – always one of them … hey, wizards of smart do your thang, get a station and build your show then don’t take out the other guy, but prove “your” way is better … hater. In the mean time, jog out of the front of the zoo screaming, “They’re all loose, run for your lives!”

  • By dave, January 31, 2012 @ 8:48 pm

    I think if we examine anything long enough a idiot can find dirt. I also believe that Dave Ramsey speaks more on family economics and how to make ends meet than he does about how to make money of of the stock market.I know many people who listen to him and none of them say that they his advice is wrong but that it saves them from bankruptcy. You know the working man, the production worker. the people who who laugh at some pencil pushing twit who could not work his way out of a wet paper sack. if you want to talk about stock market go to wall street.

  • By christine wolf, February 1, 2012 @ 9:42 am

    I am taking Dave Ramsey’s class and appreciate his “entry level to finance” approach at least for now. He’s good for beginners and does a darn good job of breaking down a complicated subject into understandable portions. Later on I can always seek out a professional financial advisor and just pray that he’s not a crook. But, for now Dave Ramsey’s class is a good place to start. Let’s give credit where credit is due.

  • By curt brock, February 6, 2012 @ 3:41 pm

    I have listen to dave ramsey for many years. he is constantly Reminding people that he is not an attorney Accountant or tax professional, so i dont think he has a problem trying to retain his image as you suggest. Also how can a traditional ira be the same as roth for tax purposes? In the given example i would have saved taxes on 240k. Lets say i’m primarily taxed at 25% throughout my life. I would save 60k in taxes with a traditional. With a roth i would save 25% of 6 million. Thats 1.5 million?

  • By JelMD, February 20, 2012 @ 3:03 pm

    COuld not agree more – Dave Ramsey a great example of marketing guru. After that LEAVE IT on the shelf. Brillant at marketing- but he is void of one thing, giving Value beyond…
    Those that follow him 100% as his EGO would say to do – if the world is PERFECT all well, but in this world an individual to follow his advise at 100% would be in a horrible MESS.

  • By Joel hartman, February 20, 2012 @ 5:26 pm

    For every person who says you have helped them, there are 10,000 who say Ramsey has helped them.

  • By Farley, February 20, 2012 @ 11:34 pm

    I think Dave Ramsey is very wrong on baby step one (put away $1,000 into a savings account). Anyone with a job now should first put away at least 6 mos of expense money into a liquid account and leave it. In this up and down economy, no job is safe and getting another within a month or three is unrealistic. So I think baby step one should be to save 6 mos of expenses. A more conservative approach would be to put away 6 mos. regular expenses (including Cobra health insurance costs for the family) plus $1,000 for any unexpected repairs or doctor visits that may occur. Dave seems to assume that anyone motivated can get a job. He’s wrong about that.

  • By Crown, February 24, 2012 @ 8:44 am

    I haven’t taken the time to pore through all of these comments but I do know this: Dave Ramsey is a Christian and many of his followers are, as well. The Bible tells us that a man is known by his fruit (Matt. 6:17, Luke 6:44) meaning he has demonstrated what he’s teaching in his own life therefore in spite of whether he has all of his investment facts correct, whatever he knows is enough to produce the results and that alone makes him worth listening to. Evil spirits love it when we trash each other as opposed to working together. Your time would be better used PARTNERING with Mr. Ramsey or HELPING him with his facts rather than trying to discredit him.

  • By John B., February 28, 2012 @ 10:58 pm

    He is a fucking idiot!!! I can’t stand this guy he is an arrogant asshole!!

  • By John B., February 28, 2012 @ 11:03 pm

    I am a financial advisor and have been for 23 years. I graduated from Harvard business school and this dusch graduated from Tennessee. He is a complete joke and none of his advise should be taken literally. If you have no money buy term and invest the difference. However if you make over 100K you need to seek out an advisor who actually knows what he’s talking about and not listening to this idiot!!

  • By Robert Christopher, February 29, 2012 @ 1:02 pm

    It’s obvious that you are a smart finance pro but it’s difficult to get past the impression that you have a chip on your shoulder. It’s unfortunate that you seem to be throwing the baby out with the bathwater. The reality is, Dave Ramsey helps a lot of people–most of which have tons of debt and struggle just to get past his first “baby step”. Most of your observations are great and seemingly sound but in others you seem to twist what he’s saying for your own ends. For instance, when he writes “Certificate of deposits are not a secure investment” and then goes on to explain that after inflation and taxes you’ll lose money it seems obvious to me that his point wasn’t about whether the money on deposit was insured by the FDIC. IMO anytime you lose money it’s tough to say your money was “secure”. Of course, if your goal is to criticize it makes sense why you’d point out money in a CD is insured and by definition is “secure”, but again, you’d be missing the point.

  • By Mrs Ramsey, March 4, 2012 @ 8:43 am

    John B…did I miss your radio program with millions of listeners? Did I miss the numerous books you have written over the years helping people with personal finance? Oh, I guess I did miss the part that everyone who graduated from Harvard is nationally known and always right and exceptionally successful. What was your name again?

  • By Dave's Neighbor, March 4, 2012 @ 11:17 pm

    John B…Did your mom teach you that language? Or did you learn it Haaaaaavard? Who is the real idiot here?

  • By smyrnagal, March 11, 2012 @ 1:08 pm

    I could not agree more with your assessment of Dave Ramsey. I watched one episode of his show, where he told a caller that with his $50,000 annual income, his take-home would be $4,000 every month and that it would be a piece of cake to knock down the caller’s debt. That did it for me. Hello?! What about taxes? And he calls himself a mathematician. Imagine that!

  • By Eliza, March 13, 2012 @ 10:17 pm

    The moment I listened to Dave Ramsey’s audiobook, I got hooked up easily. Building up emergency fund, getting out of debt, and building wealth is really a must. I am glad I found his audiobook. I can learn to discipline myself in handling money (27 yrs. old) with his help. Dave Ramsey will not make you rich because that is your job to make yourself rich! Besides there are a lot of motivational speakers around the world, you have to select what suits you the best. You are the one making your own destiny. To our financial freedom! Cheers! :)

  • By Ken, March 14, 2012 @ 12:18 am

    I agree that Dave’s investing advice or the fact that he admits to being in the 40% tax bracket leaves room to talk. However, I was one of the people who had a decent job for several years and couldn’t account for much of that money. When his radio show became available, I was already at baby step 3. My problem was that if every dollar actually had a name, I’d either have some healthy investments or a paid off mortgage long ago (the gap between living expenses and paycheck). While not perfect, I can give a pretty good account for 2011, including the new 10 year mortgage. P.s., I may never use a “debit” card as long as I live.

  • By Brian, March 21, 2012 @ 3:26 pm

    You need to actually listen to the calls, not the summaries.

    #8: A CD is not an investment, it’s a savings account. The widow has income sufficient that she doesn’t need the investments, thus she can absorb some risk, and has no need to put her money in an account that doesn’t keep up with inflation.

    I could answer the others for you too, but in reality if you don’t take the time to truly investigate, why should I do your research for you.

  • By Luisa A., March 26, 2012 @ 5:57 pm

    Get your facts straight before you publish them. Also, you should learn to write properly if you want to be taken seriously.

  • By Marie, March 29, 2012 @ 1:24 pm

    Dave Ramsey is a great motivator, but often his financial advice is just too simplistic for someone with more complicated circumstances. I for one am age 35, have a load of student loan debt ($77,000, from law school), but I have not slowed down my 401 K in order to pay it off. I ignore DR on this issue because the 3% interest rate on these federal student loans is dwarfed by the gains of investing in my 401K in this market, and the tax relief I get since I’m in a high income bracket. I also fully funded my emergency fund first, rather than paying off my car or student loans.
    I do, however, subscribe to his principles of thrift, find his show to be inspiring and avoid debt. I particularly appreciate his wisdom about spouses communicating on finances and setting a budget.

  • By KK, March 29, 2012 @ 7:08 pm

    Your first couple paragraphs were very telling that you base many of your views on assumption. There are also other factors that could contribute to Dave Ramsey’s followers not crucifying you in the comments:
    1) They don’t know who you are
    2) They have better things to do with their time
    3) They’re too happy to be debt free and financially stable that they refuse to waste any of their energy on your negativity
    4) They have tact and aren’t going to virtually assault you

  • By trilipush, April 1, 2012 @ 7:25 pm

    I quit listening to you because you advised listeners to stay away from GOLD! That was just plain stupid! I always bought gold and silver because I looked into the future. Now I have real bartering power. The government is printing paper. Are you happy with you paper?

  • By Cheese, April 5, 2012 @ 12:47 pm

    You’re a complete moron and don’t know what you are talking about.

  • By JustAThought, April 5, 2012 @ 3:41 pm

    I just think that this issue of dave is rediculous other than in the issue of getting out of debt. Which in my book is pretty easy as long as you put some effort into it. Holy Crap, I need to stop spending so much and start paying off my debt and then I can be debt free. Lol. If you didnt already know that then you shouldnt be allowed to touch your own money. After saying that, I dissagree with Dave on the issue of assumptions. You show me something I can put my money into where I can average 12% over 30 years and I will show you a liar. It is possible to make well over 12% in one year, or maybe even 2. Over the course of 20+ years, yeah right. Especially only in growth stocks. THE BEST PORTFOLIO IS A DIVERSIFIED PORTFOLIO. How many people have ever heard this?

    Example, traditional vs Roth.
    DO BOTH! if you need a deduction then put more into your traditional. Otherwise do a straight 50-50. Or if your like the rest of the world and just want to keep putting into your 401.k only to be paying higher taxes in the future (which is going to happen, we are only 14 trillion dollars in debt), then go for it. It’s just mind blowing to think that everybody has a defferent vision, situation, goal, objective, YET we all read the same info. How can that be helpful when my goals are completely different than yours. Get a financial planner who actually knows that they are talking about.

  • By Indifferent, April 13, 2012 @ 7:56 pm

    Did anyone actually READ the words in #5??

    (Copied from above):

    For example, take a mutual fund with a 25-year track record. Over the course of those 25 years if you can see that the mutual fund almost always beats the SNP, then that mutual fund contains stocks that are winning more than the overall market is winning.

    Third line: ….”IF YOU CAN SEE that the mutual fund almost always beats the SNP, THEN that mutual fund contains stocks that are WINNING MORE than the overall market is winning”

    Dave Ramsey never said that mutual funds always beat the SNP, instead he is offering wisdom on analyzing facts: If a mutual fund, over a 25-year period, has consistently beat the SNP, then it is comprised of stocks that are “winning” more often that the SNP index and is probably a good investment.

    Why don’t people have a higher level of reading comprehension???

  • By jerrod, April 16, 2012 @ 1:53 pm

    I only read your first two reasons, and I didn’t think it was worth my time to read the rest…. on #1 Dave is absolutely correct, even if the tax rate is outrageous as %20, you would be losing about 48,000 up front, and if it dropped to as little as 1%, you would lose 60,000 on your 6 million when you pulled it out of your 401k. Your logic is terrible…. On #2…. I am fairly sure that dave knows the lowest score is 300, but think about this genius…. When I went to the bank to get my first car loan, I had no credit at all, and was told it was better to have “bad” credit than “no” credit. Pretty sure in every country in the world “no” = “0″… So dave, again, is correct. If you have millions in the bank, and no debt, you have no credit score, or 0…. I’m sure in the several comments here, you have all ready been proven wrong on the points I won’t waste my time with

  • By Mr. Bojangles, April 19, 2012 @ 3:33 pm

    Haters going to hate.

  • By mrbill, April 20, 2012 @ 4:26 pm

    Worst financial advice ever given!!

    You have a credit card balance of 12,000 @ 22%
    You have a credit card balance of 10,000 @14%
    You Have a credit card balance of 8,000 @9%

    So pay off the 8,000 !!

    Usualyy you can find several gurus giving the same horrific advice but Dave is unique in this one

  • By Mrs Ramsey, April 22, 2012 @ 10:38 am

    Mr Bill…if you have that much in debt to start with, what’s the real difference in paying the 8K first? If you can’t control your spending (which is obvious by this example) then maybe you should try Dave’s plan.

    I so love it when people use this example to say Dave is wrong. If paying off the lowest balance first is so bad, then spending yourself into debt is even worse!

    Once again….Dave 10….haters 0.

  • By mrbill, April 23, 2012 @ 11:21 am

    Dear Mrs Ramsey

    If you take a calculator and do the math the Ramsey method costs thousands of dollars in unnecessary interest. As to the quantity of debt I have never listened to the show where callers did not have far more than this illustration.
    Finally I am not a hater. I like the show and am befuddled by why he tarnishes his otherwise good advice with this single bizarre insistence.

  • By Steve, April 23, 2012 @ 10:25 pm

    How sad, I stopped at one because you can’t count. If you put $240k into a Roth IRA, assume 25% taxes, you paid $80K in taxes to get $6M. A traditional IRA you paid your $240k and get $6M, but you have to pay taxes on the $6M, assuming 25%, is $1.5M. If you think $80K and $1.5M are identical, I’ll hand you 80K any day if you give me 1.5M back!

  • By Franz josef, April 23, 2012 @ 10:33 pm

    Anybody that talks a lot is going to get some stuff wrong (Unless they are Jesus). I hear lots of things that I don’t agree with when Dave speaks but I still like to listen and learn things from his show. He makes good points too. Just have to think for yourself. Also your #1 model is based on an assumption that your money will grow if invested, which we have seen over the last 10 years that that isn’t always the case. I prefer to take any tax advantage I can get while I can get it. Whose is to say that when it comes time to pull that money out of the Roth IRA that our Gov’t doesn’t change the rules again. Also the Marriage Penalty Tax sucks and I do believe it’s part of the Gov’t plan to attack the traditional family. But like Dave, I might be wrong.

  • By Franz josef, April 23, 2012 @ 10:39 pm

    I must add too that Dave is SO wrong about which credit debt to pay off first. IN MOST CASES it makes more sense to pay off the highest debt first. The only time it doesn’t is when you need more cash freed up in case of emergency, so in that case you would free up the smallest of the credit loans first. Then knock down the highest interest debt next. Learn from Dave when you can, but don’t worship his advice!

  • By jim, April 27, 2012 @ 10:42 pm

    WOW – what a bunch of arrogant as#wipes you guys are. See ya in 10 year and we’ll see then who’s winning the game and who is still sucking off the gov’t teat

  • By Mrs Ramsey, April 28, 2012 @ 10:07 pm

    Dearest Mr Bill,

    You ahve missed the entire point of why Dave recommends this. Yes the calculator will show you can save on interest but what the calculator does not do for you is create motivation.

    Dave’s method gives people the opportunity to achieve a goal faster. That in turn allows them to see debt being reduced faster. If you start by attacking the largest the debt first (of say 3) then each month you are still paying down 3 bills. If you attack the smallest first and KILL it sooner, then you have achieved a goal.

    Regardless of what the calculator says, motivation is often more important than saving some money on interest especially when it gives a person an attainable goal.

    I used the plan and it worked. After I paid my lowest debt first I got even more motivated the pay the next.

    If it were all about calculators and exact amounts…then how did the person get into debt in the first place.

    May 15th 2012 will be my third year of being debt free. Other than my mortgage I have no credit card payments, student loans or car payments.

    I would chance say after three years of not paying interest on debt has PAID OFF SIGNIFICANTLY more than had I paid off my largest debt first.

  • By Jenifer, April 30, 2012 @ 6:02 pm

    I beg to differ on your option of the Roth IRA. It is not taxed the same. You are much better off with a roth. You need to study up on it some more!

  • By Doug johnson, May 2, 2012 @ 11:05 am

    When you have a higher net worth than Dave Ramsey i will listen to your financial advice.

  • By Diego, May 6, 2012 @ 8:48 am

    He is exactly correct on what a hedge fund is. Look up hedge In the dictionary. If applied to finance, Ramsey uses the term hedge fund correctly.

  • By GINO, May 8, 2012 @ 7:02 pm

    I think Ramsey helps those at the desperate end of the financial ladder. However he seems to still pushing the 12% mutual fund for over 30 years that does not seem to exist. None of his minions have admitted his slip of the lip to date.

  • By David Henderson, May 15, 2012 @ 8:32 am

    The reason no one listened to you is because we respect Dave’s advice. I do not understand why you would criticize someone who has helped so many people. If you want to be successful do it on your own, not by criticizing others who are more successful.

  • By piggyboy, May 30, 2012 @ 11:23 pm

    Author – And you’re so smart all you can do is take other people’s hard work and tear it apart. Intelligent readers, huh? Your answers did make much sense to me. Guess I’m too dumb. Go Dave!

  • By piggyboy, May 30, 2012 @ 11:24 pm

    DIDN’t make much sense to me!

  • By Mrs Ramsey, June 2, 2012 @ 9:06 pm

    It is easy to tear apart other people’s success. We see it in the media everyday. No one wants to say Ford and Chevy are awful because they put out bad car now and then. Yes advice is relative to each person, but most of the people on this blog who slam Dave do it because they are victims of their own inability to manage their money.

  • By Diomedes, June 13, 2012 @ 2:39 pm

    in case anyone is curious about a fund that has a lifetime performance of 12% here is one… http://fundresearch.fidelity.com/mutual-funds/summary/316071109

  • By Laura, June 21, 2012 @ 8:29 pm

    I’m proud of successful people, so when I see one I’ll often ask them how they got where they are. You’d be surprised how many of them say Frank Curmudgeon…oh wait no they don’t.

    Ramsey’s advice took my family from mid-six figure debt to seven figure wealth. Removing money fights probably saved our marriage and we will seriously retire in comfort. I like the way he gets people out of debt better than the way you don’t.

    But hey, maybe you’re great at teaching people how to build wealth, if so… Let’s say I make an ok product and you make the same product, but you make it better, are you going to spend your time trying to get more customers to see how great your product is, or bashing on me for making an ok product?

    In short you sound petty and Ramsey no-doubt has many millionaires to his credit. If none of his millions of listeners ever saw any improvement in their financial situation his show would dissolve into nothing. It hasn’t.

  • By Michael, June 22, 2012 @ 7:10 am

    I read your blog because of Dave…

  • By Derik, July 1, 2012 @ 8:13 pm

    I run into Mr. Ramsey quite often. As an independent adviser, it really hurts when I hear “oh, we have Dave Ramsey’s program, he is so wonderful, we don’t need anything else.” The man generally deals in GENERALITIES and drops dead on specifics, and uses absolute terms such as always, never, every, and so on. To use my own absolute, this is bupkis. Every person and family has a unique situation that DESERVES the utmost care. I can tell you right now, if I gave the advice that Mr. Ramsey does, I would be out of a job fairly quickly. Good discussion though all around.

  • By Derik, July 1, 2012 @ 8:15 pm

    Oh and @ Diomedes: Great fund, use it a lot, but man, retiring in 2009 would have been bad news….

  • By Carol, July 1, 2012 @ 10:50 pm

    We are on bs 6 and hope to be on 7 by next summer; just in time for our oldest to go off to college with the other to follow 2 years later. We have some college savings and likely partial scholarships, but will probaby have to have each commute for first 2 years to avoid student loans. Because we changed our spending and savings habits several years ago, we are able to have a paid for home very soon that NO ONE CAN TAKE FROM US and still get the kids a college education, if they want one. Sure we could have come to this on our own, but not likely. Dave gives assurances that it is never too late to do better and it presented simplistically for a reason. If you over-whelm the average listener who has money problems, it is very unlikely they will even try to overcome them. Most would give up and continue to live above their means since that is the easiest thing to do. If the average listener only gets to step 4, they are doing better than the majority of America and Dave Ramsey offers the best advice for getting there of the “experts” I have run across. I cannot give enough praise for his guidance up to this point on our journey.

  • By Carol, July 1, 2012 @ 11:51 pm

    To Mr. Anderson’s comment from 01/10/12: I read your comments and I have a few things to point out. First, when you ask why put your money into paying the house off if it is declining in value; I would like to point out that you have already bought the house. To get out of your financial committment, you would have to allow a foreclosure, possible bankruptcy, etc. and believe it or not, all the folks who have walked away from their homes will have the messy details of the bank’s loss catch up to them eventually. Also, when you commented about the tax write off for property taxes, I got confused b/c you owe property taxes regardless of having a mortgage and unless you make A LOT of money, I don’t think you would lose the benefit of the deduction. Perhaps you meant the amount of the interest being tax deductible. If so, then yes, you “lose” that deduction b/c you never have to pay the interest in the first place. So keep the money in your bank account that would have gone to interest and only pay out your tax rate; it is cheaper. Overall, what Dave brings to the table is to help people who are competely in over their heads. Also he calls out the people who are really just mad that they made a bad purchase choice, they need to suck it up and pay what they agreed. He has certainly helped guide us when it came time to choose a house during a job transfer; we looked beyond to the “what ifs” that could affect us as we approach retirement and bought a modest, conservative house. Calm down and appreciate Dave for the people he helps: those that want to be helped.

  • By John, July 3, 2012 @ 4:50 pm

    Maybe it’s just that nobody cares what you have to say.

  • By Daryl, July 3, 2012 @ 11:21 pm

    You are full of it. I listen to Dave on a daily basis and after just reading 2 of you ten it is redicously obvious that you are taking his words a dressing them up with yours. Do you work for chase or BOA? Or maybe you work for a credit card company?

  • By Mrs Ramsey, July 8, 2012 @ 9:08 pm

    Dave rules! Once again Dave 1,000,000….pundits 0.

  • By Kevin, July 15, 2012 @ 11:37 am

    He approaches financial advice more as a ministry. We have followed his baby steps and have had tremendous success. We have not paid a dime for his advice. I have checked out all his books from the library. Like anything, I’m sure there are other or better ways, but what he does is motivate. Debt is dumb, that is key for us.

  • By Jack, July 16, 2012 @ 2:50 pm

    You can absolutely have no credit score (the same, in theory, as having a credit score of zero).

    For example, my kids have no credit score, but they have over $1,000 in the bank.

  • By Quinn, July 19, 2012 @ 11:14 pm

    I’m glad that most of the Dave critics here seem to have it all figured out. Dave did too, when he was in his early 20′s and he went BANKRUPT!! I wish you smarties the best in your financial roulette. Must have been the same arrogance that took us all into a deep recession and just lost Chase $4 Billion! They thought they knew it all too! I’ll stick to the Baby Steps and we’ll meet later to see who’s winning. Thanks to this blog for reminding me that Dave does know best! :)

  • By Jay, July 27, 2012 @ 1:05 am

    The problem is that your 10 issues with Dave and his advice is flawed. You dont listen to him and know his philosophy. Your nit picking sound bites and paragraphs and not “listening” to the entire way of behavioral thinking. Guess that is probably why Dave actually helps people in hoards with money and you don’t. It is about habits not math. Math doesnt always work even if the numbers do because behavior trumps all.

  • By Big Steve, August 8, 2012 @ 10:51 am

    Wow. Look at what Economics 101 has taught you. Watch out for the next class though. There is more to investing in Mutual Funds and S&P than you seem to understand. Go find your broker. He will give you an earful.

  • By TerryT, August 10, 2012 @ 10:04 pm

    I have been following Dave Ramsey for one year. I have read his book, TTMM, and listen to all 3 hours each day via podcast.
    We have paid off a lot of debt and are now on our way to paying off our mortgage.
    Your points are well-taken. He is not, nor does he profess to be, an investing guru. He leaves that to the talking heads on CNBC and other channels and radio stations. What he does profess to be is a person that shows you that personal finance is 90% behavior and 10% math.
    With regard to his labeling of mutual fund categories as “growth & income…” etc., it was pretty easy for me to figure out what the hell he was talking about. Large, Mid, Small, and Int’l. Wow. That was hard.
    Now, using the Lipper 2012 Best Funds, I found at least 5 in each category that meet his criteria – average at least 12% return over 10 years.
    Mr. Frank Curmudgeon, I think that you have missed most of what he is trying to help people with. He routinely states that he is not an expert on many matters (legal, accounting, etc.) and advises the callers to seek expert advice. He tells them what he thinks that he would do if he were in a similar situation.
    He professes to be an expert on helping people get out of debt. He is not an investment guru – this is likely why he speaks of investing in broad generalities rather than specifics.
    He talks frequently about CDs and has never said, in the past one year, that they are not FDIC insured. He does point out that it is a safe place to park money for less than 5 years, though you stand to make almost nothing on it with interest rates where they are now. That implies to me that he likely does believe that they are FDIC insured, by the term “safe”. But I do not remember anyone asking him that specifically.
    With regard to the marriage tax, previous people have already pointed out the mistake with that one.
    The one about the mortgage interest being a good idea…..wow. You missed this one completely. You are assuming that someone will get 12% return on their money. How about 2008 when everyone lost 20-40%?? So you think that you should have a mortgage so that you can claim $10000 (for ex) and that saves you $2800. So you just blew $7200 in interest that you cannot get back. Wow. That is a wise investment.
    I suggest a hedge fund.
    I believe that you have taken much of what he has said out of context and need to actually read his book or listen to him for more than one minute.

  • By Jacob, August 16, 2012 @ 9:26 am

    I used Dave Ramsey to get out of over $100k in debt in a couple years. He fundamentally changed the way my wife and I look at money and how to live within our means. My generation (25-35 yr olds) has terrible problems with debt and Dave gives practical advice to tackle that debt and reshape your feelings about money and debt. That being said like any “expert” you don’t have to follow him 100%. I still contributed to my 401k the maximum amount to get a match at work and I bought a house (not in cash and got a 30 yr load instead of 15) while I was paying off debt because the market was so good. Both things, Dave wouldn’t suggest. But overall the main reason financial advisors have problems with him is he says things like “never buy whole life” and that really angers them because that’s where they make their money. I have seen two financial advisors who have both tried to push me into whole life and I’m 27 years old. But anyways, I think you can take principals away from Dave and do very well and even if you follow every single thing he says you’ll still be doing ok. Maybe you’ll have a little less money at retirement because it’s on the conservative side but you’ll retire with your house paid off, no other debt and a decent nest egg. He is so adament about not carrying debt and being out of debt because people have serious problems with debt and with buying into financial vehicles they don’t understand. So he takes an all or nothing approach to keep these people on track and I think the masses overall benefit from that.

  • By Liberty Stone, August 16, 2012 @ 6:05 pm

    I think you are missing the big picture. Whether you follow Dave’s plan or your plan. It is the need for a plan, thinking and dedication/determination that is important. Most people in the US have to much debt and do not understand the importance of investing and using there wealth. You are completely wrong on FICO scores. Wealthy people do not need FICO scores nor do they need loans. That is a lifestyle issue. As to your investment scheme vs. Dave’s no one can guess what will work in the future. What is good is to think and look at all options and follow what the bible says and invest in at least 7 different things. Home, savings, stocks, bonds, commodities, mutuals, stuff, real estate. You get the idea. And as to future taxes no one knows if the feds will change there policies, that is why people should do both and my guess is most people on the ramsey plan invest both. Also, as to 401ks most people get a match which is a 100% return of the bat without growth and without taxes. All I know is the man has solidified my belief that getting out of debt quickly is a good thing. You should never let FICO or taxes wagged the dog.

  • By KeyLimePie, August 22, 2012 @ 5:04 pm

    For Steve on April 23rd, 2012, above: YES, $80K (now) and 1.5 million (later) ARE the same. You forgot about the time value of money. $80K up front is the $125 in taxes you paid before each monthly $500 Roth investment. Had you invested that $125 per month in a 401K instead at 12% for 40 years, you’d have ~ 1.5 million in addition to the 6 million Dave speaks of. You can use an online TIME VALUE OF MONEY CALCULATOR to verify this.

    The ONLY advantage to a Roth is if you’ll be in a higher tax bracket at retirement. Tax rates ARE expected to go up; on the other hand many people retire to a lower tax bracket. Those who retire in a higher tax bracket are usually quite comfortable. Thus the Roth versus 401K decision mainly rests on your future projected tax bracket. As a hedge, some people contribute to both.

  • By KeyLimePie, August 22, 2012 @ 6:12 pm

    Also, from 1 above, could somebody ask Dave Ramsey where to find ‘good growth stock mutual funds that average 12%’ for forty years??? That’s just one point below Bernie Madoff’s famously fake returns. The S&P 500 has averaged zero percent over the last 12 years.

  • By elooie, August 23, 2012 @ 3:06 pm

    While I would agree with all your points, I also have a degree in finance and completed the first 2 levels of a CFA. I (we) are not the target audiance for Dave.

    The reason I’m even on this blog site is because my mother (54- masters of socialogy) keeps talking about him and I wanted to check it all out for her to make sure his plan wasn’t something crazy. After reading his book last night, my professional advice to my mother and any one else not running their own business or a finance professional, is that his approach is correct. The moral of the story is live within your means and a guide for people to follow so it doesn’t confuse them. Not everyone was trained to manage their finances and his book safe guards against mistakes. As for your argument. I would say in the grand scope of his book, plan and target demographic your complaints are equivalent to picking the paint color of a car. Largely superficial and not really important to the performance of the larger machine. Dave is simply trying to boil it down to something a non money person can follow. If anything he should spend more time explaining how to learn or find someone to assist you once he gets to the investing portion of the plan.

  • By Craig Williams, August 23, 2012 @ 3:12 pm

    Funny how you state that You do not know what Dave is talking about but you judge him….Perhaps it is that you just do not know the business you are talking about….Your math is 100% WRONG in example 1. I run a company with a 401K. If I put 15% of my income into the 401K and the company matches 3.5% of the first 5% the money will grow the same as a ROTH BUT…..when I go to take it out I have to pay the taxes on the 401K I will not on the ROTH…you have no idea what you are talking about….Dave Ramsey is not PERFECT but his advice is about common sense….and it is not common sense to just take the free advice of a radio talk show host 100% without considering your own position…..in your case…..find something you know about before you try and pick it apart. You might get lucky but in this case you came off looking like a complete idiot to someone who can actually use a calculator….

  • By Mrs Ramsey, August 24, 2012 @ 9:44 pm

    Dave: 10
    Non-Dave Believers: 0

  • By خلفيات بلاكبيري, August 26, 2012 @ 4:26 pm

    thanks for the’s

  • By Kent Thune, August 31, 2012 @ 5:35 pm

    Great article. The comment section has some good points and counter-points.

    Dave gets some things right, such as his simple, understandable and entertaining delivery, which is helpful for those who might not ever engage in personal finance otherwise.

    However, Dave completely gets mutual funds wrong, especially with his 4-fund approach with potentially dangerous overlap.

    FYI: I am a CFP and writer on mutual funds. I wrote a detailed piece here about what Dave Ramsey gets wrong (and some things right) with his mutual fund investment philosophy:

    http://mutualfunds.about.com/od/mutualfundbasics/a/Why-Dave-Ramsey-Is-Wrong-On-Mutual-Funds.htm

    Thanks. I linked to your blog piece as well in my article. Keep up the good work…

  • By Travis, September 9, 2012 @ 6:31 pm

    How many millions of lives have you positively touched?

  • By Mrs Ramsey, September 10, 2012 @ 8:27 am

    Travis,

    You hit the nail on the head!

  • By Melony Beard, September 17, 2012 @ 12:19 am

    On the advice about the Roth IRA versus Traditional IRA…..at 30 or 40 you should have deductions…children, college, mortgage. When you are retirement age, the goal is to be rich…hopefully placing you in a higher tax bracket. So it makes sense to pay the taxes when you are young and you have tax write offs.

  • By Joshua Monen, September 22, 2012 @ 7:56 pm

    I love this quote about critics:

    “It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better.

    The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly; who errs and comes short again and again; because there is not effort without error and shortcomings; but who does actually strive to do the deed; who knows the great enthusiasm, the great devotion, who spends himself in a worthy cause, who at the best knows in the end the triumph of high achievement and who at the worst, if he fails, at least he fails while daring greatly.

    So that his place shall never be with those cold and timid souls who know neither victory nor defeat.”

    Theodore Roosevelt

  • By Todd Grossman, September 23, 2012 @ 6:44 am

    My son is 21months old he receives Social Security for glaucoma. Could u give me some tips on how to generate the best bang for his Buck. Would like him to have something when older. I’m am a disabled veteran and cannot work. But would love to help his financial

  • By Jeff Adams, September 24, 2012 @ 1:01 pm

    Dave Ramsey critcis remind me of middle age guys who sit on the couch and think they know everything about footbal becasue the played a couple of years in high school. The difference with Dave is that he got off the couch and makes an difference instead of prenteding to be an expert. You think if the so called critics were so smart, they would be more successful than Dave is…right?

  • By Dave, September 26, 2012 @ 9:14 pm

    Until you want to be millionaires help me and millions of others get debt free and achieve a million dollar plus net worth like Dave Ramsey has done I have no time for your stupid comments.

  • By Laurase. I, September 28, 2012 @ 12:55 pm

    blah blah blah. Honestly, I am in about 80k in debt, NOT counting the 180k we owe on the house. I do NOT care about investing. It will be years before I can invest. I care about getting out of this hole we dug ourselves into. Dave’s plan is motivating and simple to follow and MAKES SENSE. He admits the #’s aren’t always the best, but what he knows is WHAT WORKS for people. He repeats that fixing finances is 80% behavior… so his methods fix BEHAVIOR even if there are other methods that lower debt faster. I realize you all are into investing and squeezing every dime from your investments. I would be the same if I didn’t have boatloads of debt. Instead, I just worry about getting my head above water. DR is great for that.

  • By RC, October 3, 2012 @ 10:51 am

    On point #1 you’re also assuming that tax rates remain steady. Anyone with a brain can figure out that at the rate our government is growing and our debt is growing.. taxes aren’t heading down anytime soon. I’d rather pay my taxes now then later.

  • By Patrick, October 5, 2012 @ 8:30 pm

    Recently Dave advised everyone who is under water with their mortgage to refinance the mortgage. This is ludicrous because the new mortgage would be based on the current market value of the home. Assuming an existing mortgage of $500k and home value of $400k, you would have to apply for a new loan based on the current $400k value, and put down whatever the new lender requires – BUT – the new lender is certainly NOT going to pay the old $500k mortgage off – what sense would that make for them? Perhaps the existing lender would agree to a “short pay refinance”, which for the same reason and unless you sat at the table for the last supper you would never get approved for. We love you Dave, but please check your facts before you recommend such action. Same thing with short sales – we heard you say that after a short sale, you would not qualify for a new mortgage for at least 2 years. NOT TRUE. Truth is that, as long as you have had at least 2 years of current payments on ALL bills – no late payments – especially the mortgage) you CAN qualify for a new mortgage. Please see FHA website for this clarification, or google “obtaining an FHA mortgage after a short sale”.

  • By Monica, October 7, 2012 @ 2:49 pm

    Wow you guys are a bunch of idiots, I don’t even know who Dave is and everything he is saying seems to be pretty on point.

  • By Lisa, October 9, 2012 @ 11:26 pm

    Dave’s top financial advisor gave me the worst advice I ever got and I was treated like a hysterical female when I voiced my real concern if I took this guy’s advice I would end up worse off. I lost property now worth twice what it was then and what I feared would happen, did. If I had followed my own advice, I would now be $100K ahead instead of underwater in a mortgage and in debt. So I suspect anything he says and think some of his advice is nonsense on air.

  • By FPU graduate, October 20, 2012 @ 9:51 pm

    There is peace in being debt free. Getting paid is no big deal anymore. Not having to wonder what bills get paid and which will not get paid is so tranquil. Looking forward to retirement instead of wondering how to make the mortgage payment on Social Security. Who should you take advice from, someone who has learned from his mistakes (and who has written books and has been a financial adviser to many) or some lunkhead telling you to trust him with your money? For less than $100 you could take the Ramsey course or go out to eat. One fills you for a few hours and the other gives you a proven plan for the rest of your life.

  • By Deborah, October 21, 2012 @ 12:15 pm

    Hello sir,
    We have been listening to Dave Ramsey and inspired by much of his material. Could you tell me your qualifications and who you might recommend for learning how to invest? We are confused by all of this…

  • By Mrs Ramsey, October 23, 2012 @ 8:05 pm

    FPU Grad,

    Very well said!

  • By ohiodale, November 7, 2012 @ 3:52 pm

    Your Roth IRA example is flawed. If you put 15% into a traditional 401K in many cases you would make $1.6K in company match (100% on the first 4%) You would get say a 10% savings in taxes. If you took 15% for use in an IRA you would only get to invest $13.5K because you need $1.5K for taxes. So in an traditional 401K you would put in an additonal $3.1K per year. This would be $265K in 40 years if the money doubles every 10 years. Compared to the Roth which you would have $216K. Say you pay an effective 15% in taxes. The traditional IRA is slightly better. The $265K in today’s dollars would be equal to at most $135K (most likely much less due to inflation). Most people’s efffective tax rate is about 15% in that $135K tax bracket.

  • By Matt, November 8, 2012 @ 3:43 pm

    I do not know the person that wrote this, but I would like to know the comparison of Ramsey’s net worth to the author of this article. I venture to say whoever has the greatest net worth is who I would tend to take advice from since whatever methodology each respective person uses seems to be working.

  • By Kanoealoha, November 8, 2012 @ 8:52 pm

    All I know is that the Roth IRA is wonderful for a family like mine. One income family of five, makes for no federal taxes, except of course the current 4.2% (or whatever it is) in FICA and some state tax, so roughly 6% (maybe). Hubby;’s company gives him 15% of his salary automatically in a 401k. So for us a Roth IRA makes a lot more sense than a 401k. Like Ramsey says, every situation is different and if you need help go find someone that can help you with you financial details.

  • By Kanoealoha, November 8, 2012 @ 8:53 pm

    Oh and because I don’t work I can take advantage of the spousal Roth IRA, so another 5k.

  • By Shane, November 11, 2012 @ 8:12 am

    Traditional verses Roth. Forget the math for a moment. The final results as things stand are close. Here is the way I look at it. Traditional gives us a tax break now, the Roth gives no taxation upon retirement, as of now. AS OF NOW. We cant predict the future, but we can bet on one assumption, the government lies. What kind of odds do you wish to place that our politicans see all that money and decide to tax it? The have said that they won’t tax it, but later?

    I don’t know, and like everyone else, I can’t predict the future, but I will take the tax break now. I sure as hell don’t trust Congress to keep their word.

    Just my penny’s worth.

  • By drain, November 17, 2012 @ 12:55 pm

    Of the few articles I’ve read, you seem to take most things out of context and fail to grasp the bigger picture.

  • By CW, November 23, 2012 @ 7:58 pm

    Here’s the deal. Dave teachers fundamental principles that, if one were to live by them, would put them on a road to financial freedome and prosperity.

    You can nitpick some of his ideas, but the fact remains that if you followed his plan, you would be debt free, have a serious emergency fund, have enough to live on the rest of your life, saved for your child’s college, and live free to give of your time and resources to something larger than yourself.

    Many of these posts here bashing Dave forget that his plan isn’t to maximize every penny you can. His plan is simple…help normal people spend less than they make, live debt free, save for the future, and AVOID RISK. All you finanical gurus that bash is philosophies act as if risk doesn’t exist.

    My favorite two are 1) Dave is an idiot because paying off my mortgage would cost me my tax deduction. Seriously? Well then, please send me your $10K per year and I’d be happy to send you the $2,800 back. If you wan the same deduction, how about charitable giving? You get the same benefit. 2) Dave is an idiot because he says to pay off my mortgage when I can invest it at 12% and make a 6% margin every year. Sure, if you were guaranteed that you’d make 12% every year and nothing bad would ever happen to you or the economy, then sure, Dave is an idiot. But, talk to me when you get laid off, the market is down 50%, and you are now 5 months late on your mortgage payment and have cashed out every bit of investments you have to try to stay afloat.

    The fact is that Dave teaches fundamentals that will help the average person live the rest of their life financially free with as little RISK as possible. Period. Accept it for what it is and the impact it has had on millions of people’s lives.

  • By Mrs Ramsey, November 26, 2012 @ 10:03 am

    CW makes it clear once again. Dave Rules!

  • By Jake, December 7, 2012 @ 9:08 am

    I’ve been a student of Dave’s for quite some time and am working his system. The unfortunate thing is you are assuming he preaches this as gospel and there is no other way. On the contrary he insists on getting sound advice from everywhere in the fields. The only problem i see with your view, is the system he teaches works. I have seen many people get out of debt, and we are almost there now too, using his teachings. His main topic is to be smart with your money as well as keep it simple. Don’t follow advice of any financial person who can’t explain it well. Oh and on your last one, the majority of discounted stock offered by companies can’t be sold by the employee either all or until a time has past that by market flux that discount is negligible…as it is offered by most companies in my area that I’ve done the research on.

  • By Me~and~only~me, December 28, 2012 @ 12:43 pm

    Well, as far as Dave Ramsey goes, I find some of these comments less than useful, if you follow his program, and take his classes all is explained as to why he recommends what he does. And it makes sense. The non use of credit cards, is due to the fact that people spend more when swiping plastic than they do by handing over cash. And I have seen other misquotes on his teachings, if you don’t understand why he “advises you to do something in a certain way, or suggest that you pay your bills in a certain order to get out of debt” then you obviously haven’t read his books or taken the classes. You don’t have to take his advise or agree with what he says, but he is a millionaire, that believes in hard work and discipline. He is very honest in his beliefs and that is one reason why I respect him. Not to mention that following his advise and working his program has brought me out of the depths of financial ruin.

  • By HannaT, January 6, 2013 @ 8:12 pm

    #1 Dave Ramsey is correct (though I didn’t know who he is before I read all the comments) Starting with zero in your bank and save $500 per month at 30, compounded 12 times a year(not uncommon) at 12% interest a year. After 40 years, it mounts to more than $5.94millions. Use the calculator here http://www.moneychimp.com/calculator/compound_interest_calculator.htm

    2. I trade stocks options on the leaders in the top sectors of stocks market. Yes they definitely get much better annual returns than S&P index. The problem is knowing how to pick the right stocks/funds for investment.

    Didn’t read the rest. Seems like Dave Ramsey is the guy to go to if one aims for debt free living.

  • By BAinokc, January 11, 2013 @ 5:46 pm

    Why isn’t the writers name published? He took Dave’s recommendations out of context. The author is probably another unemployed MBA who knows it all….

    The Dave Ramsey approach has helped hundreds of thousands of people.

  • By Brenda, January 16, 2013 @ 4:32 pm

    Yes, I’m also wondering why the writers name was not published. Dave is a multimillionaire therefore I will take his advice. Taking advice from this author is like taking advice from an obese person when trying to lose weight

  • By Dave follower second generation, January 19, 2013 @ 4:23 pm

    First thing I see wrong with a lot of your stuff is that Dave never says he is an expert. Even when you watch his show there is a disclaimer that says to double check all of his advice with a lisensed financial person . Also he always says to talk with one of the licensed local providers for specific information on investing. I heard the broadcast that you were referring to on the FICO scores and you obviously do not understand examples very clearly, he was not saying that was the exact amount nor that it was a specific instance he was trying to make the point that you don’t have to go into debt to buy a house because if you can prove you are financially sound you have nothing to worry about. Like Dave says he teaches basic things that should be common sense and that he knows works. I follow Dave because my dad was a banker and currently runs two different for-profit hospitals he uses the Dave Ramsey’s program for his personal finances and endorses this program because its simple and it works.

  • By Rich Uncle EL, January 24, 2013 @ 10:22 am

    It takes a brave soul to go against a well liked financial / media consultant like Dave Ramsey. I see the value in what Ramsey is trying to sell to his followers, that debt is almost always bad for anybody. But I also see the value in arguing the financial aspects above to find the overall best outcome for the listeners and readers.

  • By John, January 25, 2013 @ 3:50 pm

    If I felt so motivated I could shoot to hell 8 of your arguments on the basis that you’re obviously reading this material through a filter that wants to make it wrong.

    The other two, I’ll be the first to say, make no sense in the context you’ve posted.

    I came here open to seeing the flaws in Ramsey but instead leaving more convinced that no matter how helpful and reasonable something may be there will always exist those looking to make it wrong.

  • By Hibryd, February 6, 2013 @ 4:24 pm

    This thread is still active? Awesome.

    Okay, followers of Dave Ramsey, here’s where you should be completely ignoring him, because in *this area* Dave would rather make money than give you the best advice.

    On January 31st’s show, Dave actually named two “12%” mutual funds. This was surprising to me because, in all the years I’ve heard him, he’s never gone into specifics on what these mysterious 12% mutual funds might be.

    They were AGTHX and AIVSX. After looking them up, notable points include:

    1) Yes, they’ve made, over their lifetime, an average of 12% a year.

    2) That DOES NOT mean and NEVER DOES mean they’ll make 12% in the future. They sure haven’t over the last 10 years. Maybe they had a banner decade and they’ve been coasting off that.

    3) For the last 10 years, one of them *slightly* beat the S&P 500, and the other actually lost to it.

    4) They had obscenely high load fees. Like, 5%.

    What this means is that if 10 years ago you had, instead of going through one of his ELPs and paying all the commissions involved, had simply got a single index fund through Vanguard on your own, you would ACTUALLY HAVE MADE MORE MONEY.

    DAVE RAMSEY IS COSTING YOU MONEY so that his broker network can make commissions and give him kickbacks, and in order to entice you to do it he gives misleading numbers and bad calculations around “12% a year”. Just Google “Dave Ramsey 12 percent” to find other articles explaining why that number is wrong.

  • By wes, February 11, 2013 @ 12:03 pm

    i would assume that timing is of some value here but i was told when i went for a home loan, that i had a zero for credit score because i had no debt for at least 7 years. now that was back in 2006 but it was thru countrywide and they showed me my scores from the big three and it was zero.

  • By Seth, February 15, 2013 @ 5:15 pm

    Last!

  • By Nate, February 19, 2013 @ 4:43 pm

    I think this dude is just trying to get some traffic by talking bad about someone who has helped millions of people. Some cheap attention – nice strategy, bro.

  • By TB Benn, February 19, 2013 @ 11:43 pm

    Ramsey’s rants are even more lame than his advice. He went on a rip a month or two back explaining that “The Mayans weren’t successful because they were all dead.” Must have been quite a shock to the thousands of Mayan descendants currently living in southern Mexico and Central America.

    DR should stick to telling listeners to make a budget and pay off credit cards then leave the thinking to others.

  • By Melinda Gonzalez, February 21, 2013 @ 4:39 pm

    I thought I was the only one who questioned Dave Ramsey’s methods. He also thinks gold is a bad investment, which is probably bad advice considering it has gone up tremendously since he said that.

  • By DC, March 4, 2013 @ 3:27 am

    Whewwwwww, why are these dudes pushing ‘Vanguard’???

    DR’s pitchman is himself, and he’s done one helleva job clawing himself out of monstrous debt. A Light House shinning a light for the masses drifting in life from a fog preached to them from the public fool system.

    Here’s exactly how I knew this ‘professional expert’ article was disingenuous.

    RE: “0″ FICO score. DR means you wouldn’t have one if you’re under the radar for years.

    We all know what the means; however, the writers of this article mis-directs and gives an out of context (meaning) of what DR’s general meaning.

    The writer(s) of this article seem to have the mentality of attorneys or politicians or dem /libs that circle the wagons when they become scared.

    RE: CD’s are not secure investments, as they pertain to keeping up with devaluating currency (eg. commonly reffered to as “Inflation”). DR has provided the % he was referencing.

    However, the writers of this article retort with:

    “CDs are generally FDIC insured and therefore as guaranteed as any investment could be. So secure that they are often said to be appropriate for widows and orphans.”

    The writer’s retort is as nonsensical as a politician who answers a question that was not asked. Which automatically reeks of a person with ’0′ credibility.

    The CD is secured for principal and crumbs of % points; however IT IS NOT SECURE as far a keeping up with ‘inflation”. Which was DR’s point.

    Thus, the writer(s) of this article seem to be afraid of losing customers if DR’s followers stop using the typical overpriced financial advisors. Especially since DR followers generally use DR’s ‘approved financial advisors’ which probably does not include the financial types who wrote this article.

    The writer(s) of this article seems to be afraid of losing customers.

    Furthermore, is / are his books overpriced? Maybe. However, it’s not what something costs you….it’s what value does the thing you purchased bring you. If a book @ 30 bucks is overpriced but it motivates a person to become debt free, with a retirement plan, emergency fund of 6-9 months of wages in $, you live debt free for life, etc., etc. than the mere overpriced book was worth it, yes?

    DR speaks in generalities that is true, and his concepts (which have been around forever and are nothing new); however, the recording on his radio shows does indicate that DR’s advice is not ‘professional advice’ and you should seek a ‘professional financial advisor’.

    I do not agree with all of DR’s detailed concepts….though he is helping millions of people become debt free. Which carrying debt is a top reason for divorce, and debt adds an abundance of stress – which is another reason for the death of many souls.

  • By J. Oey, March 5, 2013 @ 7:23 pm

    What an Idiot.

  • By J. Oey, March 5, 2013 @ 7:24 pm

    Who listens to this guy. He is simply a Huckster.

  • By Stacy, March 7, 2013 @ 1:09 pm

    I assume everyone here calling Dave’s advice bad (including the author of this blog) is a multimillionaire or have outperformed Dave’s portfolio?

    This is a man who teaches the exact principles that got him out of millions of dollars in debt and in turn made him millions. He simply practices what he preaches. I am guessing that is more than most who have commented on this post.

    You fool’s can rant and rave about his “poor” advice all you want, but I think I’ll continue to move forward. Incidentally, listening to Dave has been the best thing I ever did! I have never been in a better place financially in my life and my future finally looks solid.

    I too once had over a million in my portfolio then lost it all. But now I am regaining it all and am close to where I was. However, this time it is real and I know what I am doing. Why? Because for the first time in my life I am listening to solid advice.

    That would be Dave’s so called CRAPPY advice to most of you.

    Later CHUMPS!

  • By Chris, March 16, 2013 @ 9:05 am

    As much as I disagree with some of Ramsey’s advice, both as a person interested in finance & math and as a Christian, I have to say that I find it ironic to complain about technical errors in advice that Ramsey has given, and to then have plenty of technical errors of your own. So I agree with dangerman that Dave Ramsey does some good for being generally correct, and for giving advice that will benefit enough people.

    I would find it much more useful to complain about general advice that is given. For example, Ramsey advocates complete debt free living. Okay, that’s great once you get to the point where you can manage it. He makes a lot of money. You can save for the big purchases if that is the case.

    Yes, you always “lose money” with credit, but sometimes you lose less money than with another option. If that other option is either the one you are currently in or the only other option available, then credit effectively “saves you money.”

    My wife and I recently financed a nearly new car. I’m going to “lose” about 800-1000 dollars in interest payments. That sounds pretty bad right? Well it would be, if the alternative wasn’t to sink an immediate 700-800 into our old car for non working windshield wipers before some other frustrating and expensive problem came along in 6 months. Even paying for that fix and saving 3000$ over the next 6 months (which would actually have been beyond our ability to afford anyway) for a used car is suspect when you figure the cost of fixing for MAYBE 6 additional months is already the cost of the interest. Plus, we get a nice ride much sooner! As long as you can budget for it and it saves you more money than not doing it, debt can be good.

    And sure, it’s true that some people are better off living debt free than letting the allure of credit ruin them. But his advice for getting out of debt is useful right? Sort of.

    Ramsey advocates the debt snowball payment method. Pay off the smallest balance first. I think if you are dealing with delinquent accounts there is a chance this would be beneficial, or if you are dealing with several sources of credit that all have similar interest rates, in which case the hassle saved by getting rid of one completely will be worth it, but if you’ve got the end of a car loan payment with 2000 left at 5% interest, and a credit card with 25% interest with 4000 on it, you don’t pay the student loan off first. Not only will that cost you more money total, but you will lose the loan on your credit report quicker and therefore it does less to build your credit. The BEST advice, and just as simple in my opinion, is to pay off higher interest rates first. Unless there is a penalty for early payment or fees per payment or the interest rate is not compounded, this will get you out of the danger zone the quickest. Then, once you are out of debt, it is your choice to go completely debt free and start saving or to take on some other loan and manage your debt well. Personally, I would use the oportunity to live debt free for a while, and then look into whether or not a future loan would be beneficial after a while. That keeps your credit score from disappearing, and at some point, unless you have gotten yourself to a point where you can save very effectively, the cost to benefit ratio will once again make it worth it.

  • By shawn, March 19, 2013 @ 12:52 am

    Chris,
    Or……you could pay to fix your window, then save the money that you would have made on a car payment to either buy your next car with cash. or fix the next issue. or both.

  • By shawn, March 19, 2013 @ 12:56 am

    Also the debt snowball is not about math, its about discipline and changing the way you………you know what. Quit being lazy and go read the total money makeover. Then once you actually understand what it is he is teaching, then you can come back and try to make an argument.

  • By Missy Gage, March 20, 2013 @ 11:43 am

    Dave Ramsey has turned my husband into some type of Guru from outer space from his fanatical ranting to the general public. I could tell in an instant that I need to do my homework on this guy or lose my wonderful marriage.
    My husband is drawing analogous conclusions from Dave’s personal zero debt to my small business debt that carries some debt in some months and very little in others. If anyone out there would like to outline the personal debt and typical small business debt expectational limits that make sense, I would at least be able to put up some kind of fight. I am goal oriented, conservative in my risk taking but do take risks when needed. I have been in my field for 30+years and have a college and some post graduate work.
    My husband is in the union and hourly with little college. We are 2 different animals. good old Dave has really brain washed my husband.
    I have really had to put up a huge fight for small business and how it operates and my husband does not get it.
    I was really thrilled to find this blog as I thought I was on a lonely island. Glad to know my instincts are correct!!!
    I will listen to any advise in regard to this subject matter. Many thanks, Missy

  • By Russell Carden, March 25, 2013 @ 2:02 pm

    While you do make a few good points, for the most part this article is perhaps the finest example of hair-splitting I’ve ever seen. One simple example, Mr. Ramsey’s point on the “risk” of CDs is that one is often all but guaranteed to lose money after inflation. To the average Joe, this might be considered risk of the worst kind. Granted, it’s not the “volatility” kind of risk to which the “experts” refer, but it’s still a valid point. You would do well to make a distinction between the lingo of the average “market guru” (with his candles and crows) and that of a radio program that addresses the masses with, on average at least, much better advice.

  • By Gaffalicious, March 31, 2013 @ 9:31 pm

    “If you put $500 a month into good growth stock mutual funds that average 12% from 30-70 years old, then you would have almost $6 million.”

    Aside from all the things wrong with this statement pointed out in the article, there is an even bigger problem with this statement:

    There is no such thing as a fund that averages 12% of a 40 year period.

    Very few funds and indexes even existed for such a long time (mostly because they had shitty performance and were discontinued during that time) and the of the few that have, the best one averaged 10%.

    So, good luck picking the 1 that will get you 10% over the next 40 years… Personally money is on S&P 500. But anyone telling you to expect 12% is blowing smoke up your ass. The only way to make a 12% return is to work hard for it, start your own business or actively invest yourself. Just giving your money to someone else and watching it grow on it’s own is a myth, not a reality.

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  • By BBrooks, April 6, 2013 @ 7:29 pm

    Say what you want, but I have no debt, a payed for house, 30k in Roth IRA’s and traditional 401(k)s, and 30k in savings…and I am a 24 year old intern and my wife is a 23 year old nurse. Most of your points are just matter of definition and you could easily argue that DR was not wrong. Also, it is not fair for you to judge DR without understanding his system. His system is based on behavior (not pure math). His investment strategy is to put yourself in a position to save a lot, and invest it in good areas. His investment strategy is NOT to invest a little and try to maximize it so that you might have a chance to not outlive your nest egg. In summary, it is a blunt force strategy. It is not going to wow, but it will produce better results than trying to play a numbers game…and trust me, as a mathematician and actuary, I love numbers.

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  • By swtrader, April 17, 2013 @ 8:40 am

    Interesting. I listen to Dave for about an hour each week. In our market, his show is on in the evening when I make an ‘errands’ run so I don’t get a lot of info. Generally, however, I think he gives pretty good advice — and his advice is ‘grass roots’. What his advice offers, if followed, is peace of mind. Living debt free — which is his mantra — is peaceful unless you stay awake nights worrying about missed investment opportunities because you have $400,000 cash (or whatever) invested in your house. His is not an investing show so I agree, he should be cautious and simply advise people to seek professional, ethical investment advisors. (One thing which I think he should some mention to which I’ve never heard is financial leverage. Whether it be in real estate or in owning your own profitable company (that re-invests most of its profits or cash flow), leverage is the way the vast majority of people get rich — or even financially secure. 20% equity in a $400,000 house is a good thing if the house begins to appreciate it every year. Having 100% equity is not a good thing if housing values are going up by 5% a year. He needs to at least explain the concept. Living debt free is nice, I suppose…but it is not THE answser (just as is nothing else)

  • By frank spizzirri, April 18, 2013 @ 5:15 pm

    I listen to Dave Ramsey almost everyday he is very knowledgeable and interesting but your right some of his facts are questionable like the 12% return on mutual funds and one that disturbs me very much is the way he describes the credit card companies I am sure most of his products are sold through these very same companies and when he advises his listeners to make them wait for their payments how would he like to have to wait to get the money he is owed I also contend that he makes most of his money from the products he sells and not through real estate investments he tried that once before and went broke

  • By Renee, April 20, 2013 @ 12:00 am

    There are always going to be haters. How about you try what Dave says and see if it works (for those of you skeptics)? If it doesn’t work you can always go back to what you were doing before which isn’t working or you wouldn’t be looking for a fix. Believe the lies if you want or win with your money. The choice is yours. Have a life or keep on hating!!

  • By Renee, April 20, 2013 @ 12:00 am

    There are always going to be haters. How about you try what Dave says and see if it works (for those of you skeptics)? If it doesn’t work you can always go back to what you were doing before which isn’t working or you wouldn’t be looking for a fix. Believe the lies if you want or win with your money. The choice is yours. Have a life or keep on hating!!

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  • By Jaxon, May 5, 2013 @ 4:10 pm

    You’re an idiot. Dave rocks. I once had an “investing specialist” tell me that you would never be able to bet a mutual fund that averaged a return over 12%.

    I had another guy from Edward Jones tell me what a great buy it would be to purchase a ton of single stock in an oil company he had picked out “just for” me.

    I hear you idiots all the time talking about getting into debt, etc.

    Ramsey has done more to get people out of debt and build wealth than any of you jealous little girls have. I mean, all of you jealous, broke little girls.

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  • By alex, May 8, 2013 @ 11:40 pm

    This article comes across like my fat aunt who always trying to share her dieting advice. Dave Ramsey’s plan works. He has helped more people get out of debt and build wealth then the author of this article can even hope to dream of. The “facts” are, his plan works, and works well.

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  • By cynthia Velez, July 10, 2013 @ 12:37 am

    no offense but he’s a billionaire so obviously he must know what he’s talking about!

  • By Victor Swindell, July 10, 2013 @ 1:10 pm

    If the tax rate is higher now than in retirement, a traditional will save more money.

    The great thing about the internet is the vast amount of data. While no one know he future but God, you can look at the track record of income tax rates in any 40 year peroid..and see ..it depends on politicsn and world issues.
    But chances are prettty good…it will remain the same.

    And for all of those who bulk about paying for Davess’s stuff. 1) He has to make a living. 2)Do you complain when you buy stuff from other business?
    3) He gives lots of stuff away free, his raido show and podcast are free (I know others that charge for their podcast). You can troll the internet and get almost the same info.
    4) Crown financial teaches similar stuff…but I guess cause Dave is bigger..he’s a better target.
    5)It’s the Dave Ramsey Show…it’ his opinions, just like the Rush Limbauh show, or Racheal Maddow, or Laura Ingram, or…. if you don’t like it…don’t listen to it.

  • By chris, July 14, 2013 @ 12:48 am

    Dave is great for motivating people to get out of debt. But on investing is advice has a lot to be desired. Stopping your 401k to pay off debt is a horrible idea. Your leaving the company match on the table and walking away.

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  • By HockeyDad43, August 1, 2013 @ 8:34 am

    I listen to Dave Ramsey every day. There are things he promotes that are spot on; there are things that he’s off base on. The general message of getting out of debt shouldn’t be debated, but there are times I wonder if he’s just trying to sell more books and classes. His JOB is to sell stuff so there’s always that undertone of wanting to sell something to his listeners. I take what he says with a grain of salt, and want to research some of the things further before I consider it for my financial success… I think everyone should do the same thing.

  • By Tom, August 8, 2013 @ 9:20 am

    You can’t compare putting $6000 in a Roth and putting $6000 in a traditional. If you invest $6000 in a Roth today, the cost of that investment is $6000 plus the taxes to get that. Basically $7200 if you pay about 20% taxes. That would compare apples to apples. $6000 in traditional or $7200 in a Roth, where only $6000 is deposited and $1200 is a “load” or something.

  • By Tom, August 8, 2013 @ 9:56 am

    Ok, I had to do this to compare apples to apples. This may help someone.

    Assumes deposit of 6000 in traditional IRA or 5000 in Roth IRA (6000 gross – 1000 taxes to deposit 5000 in a Roth)

    Also assumes a 9% return…I’m conservative.

    after 10 years
    76K tax free – Roth
    91K minus taxes – Trad

    after 20 years
    256K tax free – Roth
    307K minus taxes Trad

    30 years
    682K tax free – Roth
    818K minus taxes – Trad

  • By Tom, August 8, 2013 @ 10:24 am

    One more time guys…I hope this helps. Someone try to work the numbers where Roth is better. I keep coming up Traditional is better (to my surprise, believe me).

    assumes deposit of 6000 in traditional IRA or 5000 in Roth IRA (6000 gross – 1000 taxes to deposit 5000 in a Roth)

    assume 11% return and 15% tax rate at time of withdrawal
    after 10 years
    84K tax free – Roth
    100K minus taxes = 85K Trad

    after 20 years
    321K tax free – Roth
    385K minus taxes = 327K Trad

    30 years
    995K tax free – Roth
    1.2m minus taxes = 1.02m Trad

    40 years
    2.9m tax free – Roth
    3.5m minus taxes = 2.975 Trad

    Looks almost like 6 of one, half dozen of the other. The damn government has this figured out.

    If your tax rate at withdrawal time is 10%, traditional looks a lot better.

  • By callingonblueskies, August 9, 2013 @ 1:28 pm

    Are you a millionaire? No?
    He is? Yes?
    Alright.
    SOMEONE obviously knows what they’re talking about :P

  • By jim, August 23, 2013 @ 5:18 pm

    I am astonished at the level of arrogance and downright ignorance of some here.
    I would like to see the personal financial statements of the people here trying to tear Dave down. I think it would be eye opening to say the least.
    i went from 109,000 in debt to debt free in 3 years. I now have an emergency fund, i only own debit cards, i make no new debt, my car is paid for and i’m living on half my yearly income. I have 7000 in savings and i just began to invest. Yes…using Dave Ramsey’s formulas. And yes…i’ve found several mutual funds of various types that have 10 year performance averages above 12% through MorningStar.
    Get his program, shut your pie hole, open your mind, and get rich…I’m working on it :)

  • By jim, August 23, 2013 @ 5:35 pm

    TOM,
    If it was only about numbers, you’d be a bazzilionaire…..The tax rate is NOT going to be lower when you retire….you’re dealing with the Federal Government. I know, i used to work for them.
    PLUS, you’ll be in the extremely high tax bracket…if all goes well, at retirement so the government is going to rape you when you go to take that money out to live off of. Just be SMART….give the dummies in DC the money now and tell them to kiss your butt when you’re an old fart. :)
    The program WORKS!! Get it, use it. Don’t try to rationalize institutionalized stupidity.
    After going through the program, you will be amazed at how much stupid is fed to us through the media. Buying Gold, leasing cars, reverse mortgages, the list goes on. Do you hear ANYTHING about TERM life insurance? long term care insurance? Growth Stock Mutual Funds, Mid Cap, Small Cap, International Stock Mutual Funds? Emerging Market Mutual Funds? Emergency Funds? NOT using Credit Cards? But you see the vikings from Capital One every Five freaking minutes!!!
    Notice how you can’t BUY a car anymore….but you can LEASE one for 200 a month with nothing down…WOW! Rent to own is awesome isn’t it…just happens to be the most expensive way to operate a vehicle and the way the dealers make the most money :) WOW…sign ME up.

  • By jim, August 23, 2013 @ 6:01 pm

    Missy Gage,

    I think your husband should pay more attention to what Dave is saying all the time on radio and in his FPU program. You need to approach your finances as a COUPLE. Fighting about money all the time will destroy your marriage (I know). You BOTH need to actually attend a Financial Peace University at a local Church. Get with other couples DON’T try to do this stuff in isolation. Working in a group is a lot more productive.
    I used to own a business. I know the stress involved with that. If you’re incorporated make sure you’re doing everything legally. keep personal and business finances completely separate. Pay yourself a decent salary and live off of that. You should try to do business with as little overhead as possible. Do improvements or renovations when you have CASH avoid loans.
    If you’re both in business together you need to start holding strategy meetings and learn to compromise. Owning my business with my ex almost put her in the hospital for stress. It was literally killing her.
    Communication is VITAL to your success in the business AND your personal life. Say what you mean, mean what you say. Stay on budget, pinky swear and spit shake on it. Go to bed NOT angry. You don’t have to like him, just not mad.
    Just something to think about.

  • By Windasman, August 28, 2013 @ 6:27 pm

    Yes, Dave is not a genius in investments & taxes. He’s said so many times, and has recommendations for people in your area that CAN help you with that. I’m not a disciple of his by any means, but his class teaches enough common sense you’ll be much better off than trying to be an economic whiz kid on your own.

    I’m 8 years out from taking the class & am in amazing financial shape just from taking the core principles & applying my situation to them.

  • By Steve m, August 28, 2013 @ 9:27 pm

    #1. He is way wrong. First using future dollars. In that amount of time it would be a 1.5 million or 2 million in today’s dollars. 60-80k withdraw. A single man will pay a10-15k a year in taxes a year. The person will have 500,000 in a taxable account with a traditional whic will provide 15k of after tax income. I guess people need to learn the difference between effective and marginal rates.

  • By Mrs Ramsey, September 2, 2013 @ 9:26 am

    I’ve been reading this blog for months now and it seems Dave’s plan is supported by far more people than the folks who try to tear it down. When people say “You have got to watch America’s Got Talent” everyone watches. But when someone says “Here is a great way to manage your finances and I have done it and it works” people still want to say “You must be nuts!” Wake up America!

    Dave Rocks!

  • By Tim, September 13, 2013 @ 9:04 am

    Another Idoit trying to ride Dave’s fame, the only way he can get people to his web site is to ride on someone elses coat tails….dumb…

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