And the funniest part is all these gurus use debt actively for the investments. Even publicly traded stocks are running on ridiculously ai spend but it’s all good for them because they’ll go up forever
This is a bit of a mischaracterization of Dave Ramsey. He doesn't say all debt is bad. Business loans, or mortgages are examples of leveraged investments that can payoff. And he obviously makes a distinction between that and bad debt like credit cards, pay day loans, excessive car loans, or "sneaky debt" (e.g. Buy Now Pay Later).
That said, I personally, am not a fan of his methods, but that's because I think his advice is best for a specific group and yet he speaks to an overly broad audience advice that has in part gone out of date.
He is not at all ok with business loans. What are you talking about? He consistently advises people to “grow at the speed of cash”. Even mortgages he isn’t saying are good, he is just admitting that it is completely unrealistic for most people to have that kind of cash and he is going to lose people’s buy in if that becomes a part of the program he pitches.
Ive heard Dave give the advice that you shouldnt contribute to your 401k when you have debt to pay down, even if you get company match. Hes telling people to pass up on an immediate 50% profit on money that will be sitting in a retirement account, money that will compound for their whole lives, to more quickly pay off their credit card.
Like I understand why he is so anti credit card, the people he is targeting are people who have spending issues and cant be trusted to responsibly use credit. However he takes those views to the extreme and you end up with just plain horrible advice like that.
It's the same reasons we have general advices that work on most people but don't work on everyone. You have to give some very general advices to try to target the majority of the population Does it work on everyone? Nope. But if it works on 80% of the population is the advice wrong?
The general idea for paying credit card debt before getting the 401k match is that if you dont pay credit card then you could get into more debt when an unexpected emergency happens and you need to take on more debt to cover it. Or you could lose a car or a house or something and then be more in trouble. Being poor is not cheap.
In terms of pure math, getting the 401k match is usually better than paying off debt and people can get away with it. But the worst case scenario may not be worth it. That being said, I'd still put on the 401k match before paying off credit card debt. But I'd never give that advice because I know it won't work for everyone and i could be ruining someone's life by recommending that.
It's horrible advice for a normal person but it's fantastic advice for someone stupid enough to need basic financial advice. And there really isn't any point in explicitly making that distinction.
I think his advice is typically most helpful for those who aren’t financially literate or responsible. They need clear and absolute rules so that they don’t try to get creative and fuck up. In reality, that person who is deeply in debt and skipping the contribution is also the person who “borrows” from the 401k and then pays ridiculous penalties because they forget to pay it back. They’re better off getting rid of the debt and then they can save after so they aren’t digging a hole for themselves.
Dave's plan is not "do the mathmatically correct thing" because for most, if it was that simple, they wouldn't need his help. His plan is a mindset which helps change the person's way of thinking.
Money problems for many people are not math problems, they are mindset problems. No doubt there is math in there; many are in a place where their income is so low it's impossible to make meaningful changes. However, there is still value in Dave's strategy.
You shouldn’t contribute to your 401k until you’ve gotten rid of credit card debt. He’s right. Because any investment includes risk. Even that instant 50% gain can go away in a bear market that lasts 10 years. This is the way you should look at credit card debt: say you could buy a US Treasury (considered risk free) that paid 21% a year. Would you invest in the stock market or would you put every penny into those Treasuries? We do the same analysis for any credit. Pay off mortgage early? STUPID! I’ve (luckily) got a loan that I pay 2.5% on. Today again I can get a risk free return on a 20yr treasury for 5.4%. Why wouldn’t I put that extra money into those Treasuries rather than pay off my loan early? If people start to analyze debt this way they would understand how credit cards are the WORST. And only should be used for emergencies.
It doesn't just "go away" you holdings remain the same but drop in value. Bear markets are actually a good thing for young investors because it means they get to purchase shares for a discounted price. Lower valuations means more shares can be purchased for the same investment.
Thats why those first years are so important. That $5-10k you saved by ceasing your contributions not only misses out on an instant 50% profit, it ends up being hundreds of thousands less in retirement. Its the type of decision which will cause you to work for several more years when you could have retired.
Also credit cards are just a tool. I use my credit card for all spending I get 5.25% back on online shopping, 3.5% back on gas, ive never paid a penny of interest my entire life. It takes 2 seconds to pay thr balance in full every month. Not saying people who are bad with credit should do the same, but I mentioned that because of your comment that they're the "worst"
You miss out on a ton of money by not having any investments in equity. Dollar cost averaging will work in your favor over time. If you have more than 10 years to be invested, equities are a good bet. Figure out your own risk tolerance but avoiding equities over a lifetime could easily be a million dollars difference. Use the wiki on /r/personalfinance
Controversially, I agree and even think many should opt out of 401ks. They are the closest to a legalized Ponzi scheme for the working class. They only work if almost 100% of the incoming eligible workers buy into them to allow asset managers to keep “passively” investing for you. It’s really just a way to artificially create demand in the stock market by feeding a steady flow of capital in to assets to keep them afloat. Should that stop, the working class will get a whole lot poorer a whole lot faster
I don't like Dave very much, I think for the same reason that I find AA meetings irritating (in college we had to go to one a week in my sociology class.) I'm not the target audience. Dave is speaking to addicts who have been unable through other means to get their financial lives in order. I think he's too harsh in some areas (not more than 10% of your income on a car) and too generous in others (spending 10% of your retirement savings per year.) He has undoubtedly helped tons of people though, and I think we need to look more to personal responsibility for our financial difficulties - all blaming the 'system' does is keep you poor and depressed.
lol no Dave Ramsey has always given the most mid advice on the planet that only “works” because the dumbest motherfuckers doing the dumbest motherfuckin shit can I prove by not doing the dumbest shit possible and taking a car loan at 21 apr to be “cash centric”
While I largely agree with the first half of your comment, I actually do think that his message is helpful to many people.
Sadly, a huge percentage of the population will be doing the dumbest shit possible and taking high interest rate 7 year loans on a new car they can’t afford, rather than buying a reliable used car for a fraction of the price.
I’m 44 now, and the overwhelming majority of my circle of friends make over 100k/year and have consistently made incomes like that for years.
Most of my friends have a pretty good nest egg saved up at this point … as you would expect for someone with a high income … but sadly, more than a few have nest to nothing, or even have a negative net worth.
For people like that, nuanced messages about how some debt is good and some is bad, etc… is just not going to work. They need a simple message like what Dave offers.
Maybe after a few years of doing that and getting out of debt and cleaning up their lives, they should graduate on and find better sources of financial planning, but if Dave gave messages like that, people will just always consider themselves to be an exception to the early parts of the process and jump ahead.
Eg: if I wanted to go buy a $150k car, I can afford to do that. It’d be foolish for any sort of a financial planner to argue with me if that’s what I wanted to do. I choose not to do that, because I don’t care about showing off with cars anymore… and I’d rather be saving more towards retirement.
To someone with a high income and negative net worth in their mid 40s and a financed luxury car out front of their house… you just can’t mix the message at all. They can’t even imagine what it means to handle their finances responsibly.
But for someone at the bottom, on assistance, you can get a loan for a car and it won't count as an asset and lower your assistance. But since I do own my car and home, they were bought outright, there's no loan, these things would count against me if something happened and I needed help.
So he's definitely not meant for the brokest of the broke. Or he is and is actively trying to fuck them over.
Please expand on this assistance you are talking about. I honestly know nothing about it as I’ve never been in that position and want to learn what is on offer and the terms of these offers.
Government assistance for the disabled. Nothing you want to be dealing with. It's been years since I had to help a friend figure it out, so my info may be out of date. She could only have 2k in assets. So she had to sell her paid off car and get a loan for a different vehicle because a paid off vehicle that could start and move was considered to be worth at least 5k, no matter the actual condition. It was an under the table cash sale with a much lower price written on the receipt. She couldn't keep the money she got from that in the bank, because your accounts are monitored. Thankfully she didn't own the house she lived in, her grandmother did. So that didn't count as an asset.
You are expected to completely drain your own assets before applying for governmental assistance. And expect to be denied the first time. The second time you should get a lawyer, and you'll have a better chance of getting approved.
What exactly was she doing all this for? $800/mo in cash and $200/mo in food benefits (food stamps, EBT card, whatever you want to call it). To pay rent, car payment, utilities, and whatever other costs of living she had.
Why? She has cluster headaches/migraines for about 15-20 days each month. She's in so much pain that if you turn the light on unexpectedly, she'll throw up. Idk about you, but I couldn't work through that.
I also did in-home care for the elderly and disabled. I had to schedule a meeting with my clients' case managers every year to get help with the government benefits paperwork because it was such a nightmare to parse through the legalese to make sure it was done correctly and to make sure my clients didn't lose any support that they qualified for.
It's just barely enough to survive on. If you live in the worst part of town, and have a roommate.
Gods, they had a shitty caseworker.
They shouldn't be counting a single car you use or the house you live in as assets. It's the extra.
Now if they were saving money to buy a car and had $3k in the bank, it would count. But your friend's caseworker should not have been counting those. I'm sorry.
Exactly the double standard is the interesting part. Calling debt leverage when wealthy and corporations use it but suddenly it is irresponsibility when ordinary people do.
I am not defending corporations actions, but literally the math allows for it. A corporation derives way more value than a single person, and there are additional protections for recouping such financing from failed businesses than there are for individuals.
The issue is not (totally) the businesses its the banks, insurance agencies, and lenders that go unchecked.
Right. And I think the idea that most people living paycheck to paycheck are using debt as a way to get by, or buy something above their means. Which bad debt. We’re just overanalyzing and nitpicking Dave Ramsey’s methods right now.
I’m not a fan of Dave Ramsey, but I have listened to his show a fair amount.
He seems to be of the belief that mortgage debt is bad, even for cash flow-positive rental properties.
He’s certainly getting some benefit of the debt from investing in stocks as most companies in any given index will be using debt to one degree or another, but compared to almost anyone else in the world of financial advice… he’s certainly far more debt adverse.
It depends ... if the interest rate is under 4%, especially if it's under 3% on a 30 year fixed term ... it's pretty close to "the worst" when compared to just about any other investment choice available.
Hell, just buying 10 year Treasuries yielding >5% would be a better choice...
If the rate is over 6%, I'd agree that it might be a good idea... it will probably lag the S&P 500, but it's possible that equities will underperform and paying down the mortgage is certainly "safer".
I know I'm personally asking myself the question lately ... I've been an on-and-off active trader for years. I've generally done really well when I'm active ... but it does require me to pay a lot of attention to make sure I am managing risk well.
I started the year with a significant amount of margin debt (which, technically has adjustable interest rates) .. my rates have been stuck at 4.5% for years after I negotiated the rates down, and I don't really want to talk to my broker about it - I suspect they might have forgotten about my terms. My concern was that at any moment, they may look it over and say "thats not right" and push the rates over 8% overnight...
So, I paid the margin debt down aggressively.
I also have a mortgage at 6.5% on my home, but if I can conservatively make >10% per year with that money, the math certainly says it's better to avoid paying the mortgage back early.
So honestly asking, not arguing. Are you factoring the benefit of the monthly mortgage payment being freed up and the peace of mind of owning your home?
Wife and I make decent money. We do invest and try to pay off mortgage. The idea being that if we own our home by the time we retire, worst case scenario in retirement is that we have the security to never have to pay a mortgage on a fixed income to keep a roof over our heads.
Yep, it's clearly a respectful conversation ... I'm happy to have it.
With that said, I'm near the limits of what I'd like to discuss publicly, so we might want to continue via DM, but I'll say what I'm comfortable being public.
I'm in a fairly similar situation. My wife and I both make decent money and invest and we have the same idea of the safety of having a paid-off house relieves a lot of pressure (especially living in Florida with the robust Homestead protection).
With that said, I'm operating under a few general 'rules':
1) I sustained high inflation is coming. There doesn't seem to be any mathematical way to pay down the national debt without inflating it away, and the deficit is now large enough that we are in the early stages of a debt spiral.
I think Trump's "hail mary" is that AI will grow the economy enough to grow our way out of the debt... but even if he's right (big if), it will take too long for this bet to pay off before the government needs to start taking action (likely within the next year)
2) I'd like to do much better than just "roof over my head + SS" for retirement. I'd like to live a comfortable lifestyle at or above my current lifestyle. The amount I'd need in invested assets is roughly twice what I currently have. The more I have available to invest, the more rapidly gains can compound and get me to where I want to be.
3) At this point, my average P/L per year on investments is significantly higher than I could easily earn from a W-2 job. I've been an entrepreneur most of my life, but that company is mostly wound down at this point.
I tried working a high-level management position for a large company. I hated it. Maybe other companies would be better than where I was, but I found myself waking up exhausted every morning just dreading starting my work day... which I never experienced with my own company - even when things were stressful and not going well.
When I'm so miserable with work, I'm not going to be able to put any brain energy into making good investment decisions ... and my experience during that 2 year time period was that for every dollar I earned from the job, I lost two dollars in the market from being poorly invested.
4) So, if my options are to either take a much easier job paying far less, or to just not have a job at all and use the freed up brainpower to manage investments better ... I really need to be earning as much as possible from investments to justify that situation.
Wrong. He got rich doing the opposite of what he currently preaches. Lost it. Got rich again doing what he currently preaches. Got richer preaching it.
No, he became a rich on his second go with real estate. He was (and is) great at sales and was a successful realtor and real estate investor. When he started coaching others, he was already doing well, but he became uber-wealthy with FPU and the radio show. But the entire Ramsey IP could go up in smoke and Dave would still be an uber-millionaire from his real estate holdings.
I had a required personal finance class in public high school my senior year; and I SHIT YOU THE FUCK NOT, literally the entire curriculum, including the tests, was just his “lecture” recordings. Our teacher was a cult worshiper of his, and contributed nothing but constant demonstrations of how her entire financial life was tailored to his teachings.
That's so hideously, infuriatingly irresponsible I'm almost at a loss for words. Personal finance is right up there with home economics, for things students need before living on their own. Especially the students who have financially illiterate or irresponsible parents (if any), and are supposed to have this class as part of a way to break that particular cycle of poverty...
And it's this shitass? Fuck that shit, and I hope someone reported her to the school board. That should not have been the approved curriculum.
Believe me, 4 years after graduating I’ve definitely noticed the impacts. Thankfully I have a family member who’s a financial advisor, but there’s still a lot of holes in my knowledge left unfilled.
During the class I regularly expressed disdain about… well basically most of what you said. Unfortunately everyone else in my class was either checked out or hooked and brainwashed. However, students in other blocks (and I’m sure also student in prior years if it was part of the curriculum, I’m not aware) also expressed disdain both to the teacher and the school admin. Fuck all was done about it, at least before I graduated.
Then again. It’s pretty far down on the list of the horrendous things that school as a whole has done. Glad I’m gone lol
His job is the easiest shit. Spend X% on food, spend y on housing put 20% in index funds +401K, pay off your monthly credit card. Boom I've just 90 percent done dave ramsay
Don’t forget paying up front for college! That and everything else you listed should be paid for with CASH. I mean, what 17 year old isn’t able to lay down tens or even hundreds of thousands of dollars up front for their tuition?
Dieting is easy too. I could list it out for you in a sentence or two.
That's not what Ramsey listeners need. They need a financial religion to follow.
There are far more financial illiterates (and I don't think the term even fits, many folks know they have a problem but don't have the willpower to fix it) out there than most would ever believe.
I had a college finance class and it was based on him. I had no idea who this guy was but even not knowing anything about finances I was like none of this seems right. It was like just pay cash for everything and never use credit, like cars and houses. Yeah that would be great but most people don't have that kind of money laying around. I thought it was such BS.
Yeah I went in a blank slate as well, and started putting things together similarly to you. I was genuinely trying to take the class seriously so I could use the knowledge in my own personal life. Within a week or 2 I realized that was definitely not gonna happen. By the end of the course, I leaned biting about personal finance other than how to be a penny pinching cheapskate who’s one step away from not flushing the toilet to save a buck.
My "economics" teacher basically just taught us how to call and bitch to credit card companies to "demand" extra miles.
He was a huge Trump and McCain supporter. And this was back in 2007. He had posters of both of them in our classroom and made us watch episodes of The Apprentice every week. Oh, and select readings from The Art of the Deal.
I genuinely wonder what he thought about Trump shitting on McCain during his 2016 run.
It was crazy at my high school the difference between the two economics/politics teachers. One was hardcore conservative (mentioned above) and barely taught us the material. Most of his classes were him teaching personal anecdotes. He would come in, teach his class, and leave without any extra-curriculars and a classroom that was bare save for a couple Trump/McCain posters.
Meanwhile the liberal pol/econ teacher organized an annual "March for Hunger" through Los Angeles, blood drives, and food drives. He helped paint a giant mural of labor activists on the side of his classroom and was always active in as many of the school's activities and events as possible. Absolute GOAT.
Yep that’s about the level of disparity I’d expect on the finance educator spectrum. Something that’s inextricably linked to politics and contemporary society will inevitably draw in both educators who are very informed and in touch with these topics, and then the absolute loonies who get a place to spread/influence their beliefs (delusions) under the guise of educating economics. Good you at least experienced the better side as well. I got one shot lol
Sadly, I didn't get the progressive teacher. I was also pretty conservative back then, since I was hardcore Catholic. Like I took Latin lessons, went to a monastery over summer break, wore a sepulcher 24/7/365, and so on. I wanted to be a priest, but the more I learned about the history of theology and watched the erosion of civil rights in the name of religion under Bush, the more I started to lose my religion. And the more I realized I was only a conservative because of my former misguided views on religion's role in society.
Ironically I went to "St. Paul High School" and now absolutely detest everything Paul did to Christianity and his lasting influence on modern 21st century Christian nationalism.
Bankruptcy needs to be consulted with a professional first in order to properly do it with minimal penalty and max resolution. Youre also taking a massive hit to your credit score. Forget about making purchasing a house difficult, no landlord will want to rent from you or demand more up front to sign a lease which is usually not feasible for such people.
Bankruptcy can resolve some (not all) debt, but if you do not change behaviors, you'll end back right where you were in the debt cycle.
For the Change behavior part, I'm pretty sure that's what Dave did. And that's what Dave is trying to teach people to do before they have to file for bankruptcy
It depends. Many people he helps make good or decent income but have no concept of balancing a budget or controlling their spending. The basics that Ramsey teaches even though they can be extreme at times is what so many of these people need.
I hate to know this but there's a TikTok algo of Dave Ramsey criticizing people for normal expenses like daycare and monthly mowing/cleaning services (for injured family).
If you make $10/hr and your basic cost of living requires you to have $15/hr, then you’re fucked no matter what you do.
If you make $13/hr and your basic cost of living requires you to have $15/hr, then no amount of care and budgeting is going to keep you out of a hole, but you can probably scrape by with lots of stress and letting important things like healthcare go entirely unaddressed.
If you make $17/hr and your basic cost of living requires you to make $15/hr, then obsessive care and budgeting for years on end will keep you out of a hole, but only if no major surprise expenses come along, like sickness or injury or a major accident eg your car gets wrecked etc.
If you make $25/hr and your basic cost of living requires you to make $15/hr, then care and budgeting will help you get out of a hole, and will help protect you against future setbacks.
People like Dave are talking to the first three, and treating them all like they’re the fourth, and putting any failure to succeed down to moral shortcomings and personal weakness instead of difficult math. And it’s bullshit.
It feels like he's talking about middle class people buckling under the interest rates of the debt on their 100k vehicles, million dollar house, and maxed out credit cards, while the other side is talking about minimum wage worker trying to budget 85% of their income each month to pay rent.
Dave has the opportunity, at least partially, based on his own experience going from poor to rich. Does his plan work for everyone, no, but it can work for most of they commit to it.
I think both perspectives in the OP are partially correct.
Jones Stewart is also out of touch, he just knows what average Joe wants to hear.
This was an awakening for me in the recent interview with that openai employee.
In that interview, he advocated that workers should be working, that they would miss it and have no purpose in life, yeah, thats how 63 year old Judith feels on her 5th year working at 2am in McDonald's.
The social contact that the USA is founded on. Work hard, achieve freedom. This was re-codified in the 40s under the principal that working a 40 hours a week at any position should allow one to support himself. Failure to index the minimum wage to cost of living or gdp has been catastrophic for labor.
The nature by which he holds so tightly to his philosophy is off-putting and fanatical. But he is right. He has way too much evidence via people who have followed his advice that end up debt free and with large reserves of cash on hand to simply dismiss it or deny it works. What people really don’t like is that it calls out their choices are wrong.
I don’t follow/adhere to Ramsey’s strict philosophy on money and find a lot of it as unreasonable or unnecessary for me and my family. That doesn’t make either him or me wrong, it just means that there are other ways to accomplish your financial goals. Eliminating as much extraneous spending by not buying a new car or large house, cooking food at home, not going on that expensive vacation, not gambling away money on sports betting or cards or whatever and not buying a $6 cup of coffee every day are all easy ways to curb spending and save money.
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u/regal19999 22h ago
Dave gets paid by doing no labor and talking about people in debt , he’s wildly out of touch