Category: Dave Ramsey

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.

Read more »

Ramsey Step 7: Build Wealth and Give

This is the last in my five part discussion of Dave Ramsey’s Seven Baby Steps.  (I kicked it off here, and then discussed Step 2, Step 4, and Step 6.)  In this post I will tackle Ramsey’s final step, number 7, in which you are instructed to continue to build wealth using equity mutual funds and real estate and to share your bounty with others.Mansion - William Helsen

In some ways this is the least substantive of Ramsey’s steps.  It is the “and they lived happily ever after” step, as much a carrot to inspire those working their way through the earlier parts of the program as it is a practical set of instructions.  But it does provide an excuse to revisit Ramsey’s investment philosophy.

Ramsey is consistent in his aversion to debt.  You might call him Shakespearian.  “Neither a borrower nor a lender be.”  Once you’ve got your debt paid off, invest your savings in growth stock mutual funds and possibly unlevered real estate.  Do not lend it to others and do not invest in bonds or bond funds. I think that foolishly limits your investment options, but there is something appealingly old-school about it.

Read more »

Ramsey’s Step 6: Pay Off the Mortgage

I’m not against paying off mortgages.  I’m not particularly in favor of it either, any more than I have a general opposition to, or support of, latex paint or front wheel drive.

Two-story_single-family_home Dave Ramsey is most certainly in favor of paying off your mortgage.  Granted, he does consider it a special category of debt, setting it aside to be dealt with in Step 6 rather than in Step 2 with the ordinary stuff. But it’s still debt, and Ramsey takes no prisoners in his fight against that evil scourge.

Arguing against this is a little difficult because there are certainly cases and situations where paying off a mortgage is indeed the best course of action, and it is hard not to fall into the trap of framing the discussion as always vs. never rather than always vs. sometimes.

Read more »

Ramsey’s Step 4: Invest 15% for Retirement

Just to recap, in this (more occasional than I intended) series I am discussing Dave Ramsey’s Seven Baby Steps.  I’m skipping steps 1, 3, and 5 because there’s not much to say about them.  (They are, in order, $1,000 to start an Emergency Fund, 3 to 6 months of expenses in savings, and College funding B&O_stock for children.) I’m sure that if I looked carefully into these three I could find something to disagree with, but with so many other things to get myself upset about, I just don’t have the time.

I already did step 2.  The official title of Step 4 is “Invest 15% of household income into Roth IRAs and pre-tax retirement.”  Plenty there to get my dander up. Why 15%? Why Roth?  And then there’s how Ramsey wants you to invest the money.  Oh my.  This may be a long post.

There’s nothing scientific about 15%.  As far as I can tell, it’s just a number Ramsey thinks sounds about right.  Ramsey does concede that a few percent higher or lower probably won’t kill you, but, at least in The Total Money Makeover, he doesn’t explain why 15% and not 10% or 20%.  (Total Money Makeover has a chapter on each step and so is, along with his website, my primary source for his advice for this series.)

Read more »

The Debt Snowball

Of Dave Ramsey’s Baby Steps, the one most widely discussed in the blogosphere and elsewhere is #2, The Debt Snowball.  This is the step in the program where the participant pays off his non-mortgage debt.  Even I can’t find a reason to say this is a bad idea, at least not in principle.  If you want to improve your net worth, and you owe lots of money, then paying those debts down is almost certainly the place to start.

It is the way that Ramsey advises that you pay your debts down that is controversial.  He instructs that you sort your debts and pay them down in order Snowball attr Kamyar Adl cropof size, smallest to largest.  To his great credit, he concedes that this does not exactly make sense.  It is, according to Ramsey, “more concerned with modifying behavior than correct mathematics.” (Total Money Makeover, p.111.)

Many money gurus give advice that makes sense (if it makes sense at all) only in the context of psychology, but few actually admit it. So Ramsey gets points there.  But saying the math doesn’t quite work is a euphemism.  This isn’t math, it’s money.  If you want to pay off your debt as quickly as possible, or if you want to maximize your net worth, which amounts to the same thing, you should pay off the debts with the highest interest rates first.  Period.

Read more »

WordPress Themes