Brandt vs. Dave Ramsey – THE THROWDOWN

by brandt

Erika over at NewlywedsOnABudget brought up a topic yesterday that’s been festering on my mind, and instead of threadjacking her site (which I highly recommend), I wanted to have a forum where I could air my discontent with a theme she was discussing.

It all revolves around one man, Mr. Dave Ramsey.  He’s not a bad guy.   As a matter of fact, what he advocates (living life debt free) is quite admirable.  However he takes it to an extreme that I personally think is a bit excessive, and, to quote Erika,

But what’s the point of saving and living like a pauper if I’m only going to be old when I get to enjoy it?

What good will it do me to have $5 million dollars when I’m 80 if I’ll be using a walker to get around and wearing diapers?

Let me describe what Ramsey is advocating here for a bit, and why I don’t really agree with him.

He strongly advocates living debt free.  100%.  Completely.  In his “baby steps” program (the baby steps to beginning a debt-free and financial makeover lifestyle), he suggests the following steps:

  1. $1,000 emergency fund
  2. Making payments on all your debt, snowballing those payments into larger and larger debt (so you’re making the same payments, but it doesn’t seem to be as much)
  3. Having savings that cover 3-6 months of expenses (if you lost your job and had no money at all coming in for 3-6 months, with this amount of savings, you would be able to manage)
  4. Invest 15% of household income to ROTH-IRA and pre-tax retirement
  5. College funding for your children
  6. Pay off home early
  7. Living debt free

Those are all laudable.  And I know that for Ashley and I, having lived with zero debt for the last 2 years has been wonderful.  I just know that with my personality, being in debt would keep me up at night and drive me nuts knowing that I wasn’t “free,” that someone had a claim on me and my money.  But Ramsey’s plan also puts forth some good ideas that we’ve tried to implement.  An emergency fund, especially after the extremely serious car accident that I was in a few years ago, has been almost #1 priority to us.  We’re working on the 3-6 month savings.  And paying a tad bit extra on your mortgage is not just “a good idea,” but the best thing you can do to get ahead on your mortgage payments.

So why do I disagree with Ramsey?  It comes down to 3 things:

  1. Amateur financial advice
  2. Debt Isn’t Always Bad
  3. Failing to Live Life

1. Amateur financial advice 

My degree in college was in Business finance, however I specialized in Investments.  For a long time, I really wanted to be a financial planner/advisor (and I still do).  I really got into my courses, and found every financial podcast and blog and book and TV show I could get my grubby little mitts on.  I was one of those weirdos that didn’t have any music on their iPod, but the entire thing was filled up with podcasts.  You can find Ramsey’s podcast (which I believe is the first hour or so of his radio show) here.  I really liked what he was saying, because it fell in line with my own financial way of thinking, mainly, too many people live outside of their means.

As I began my coursework, I found Ramsey’s philosophies trickling into my participation in my classes.  I was all in.  Drinking the kool-aid.  Eating the cornbread. I was converted.

Until I began learning about finance and investing.

Like I said, Ramsey isn’t a bad guy.  I think he is giving tough and needed advice to many who don’t know where to start.  But sometimes his followers (and they can be rabid followers) so strictly adhere to that advice that they fail to get the advice of a professional.

I remember watching an episode of the TV show Scrubs once, where the Chief of Medicine decided to take on a patient to prove to some of the doctors that he was just like one of them.  The patient was an overweight younger woman who, after looking up symptoms on her phone, decided that she didn’t want a diet and exercise plan, but wanted gastric bypass (it’s Season 4 Episode 20, “My Boss’s Free Haircut“).  Think about it – you have something wrong with you, but instead of seeing a professional you do a little reasearch and think you know better than the person who has been educated in this specialty, trained in this specialty, and works in this specialty 40+ hours per week.  If it makes sense not to do this in medicine, what about finances?  Wouldn’t you go see a trained professional advisor (preferably someone who has a CFP certification)?  Just investing in mid-cap growth mutual funds isn’t going to do it.  That’s what you need a professional for (which he recommends, but he’s got a list based on his on qualifications).  Choosing a financial planner is much more recommended than willy-nilly investing.

2. Debt isn’t always bad. 

Ask anyone why debt is bad, and they can easily answer.  For me, it’s two-fold.  First, like I said earlier, mentally I just can’t handle debt very well.  Knowing that someone can lay claim on me and my money makes me uneasy.  Second, financially my brain can’t compute paying interest on something like a credit card or a car (a house is a different story).  I guess I come from a mindset similar to that of my parents – if you don’t have the money, you can’t get it.

And to make sure I don’t come off haughty or self-righteous, I know all this from personal experience.  I was never good with money.  I mean, when I was in high school I went through about $500-600.00 in one month.  And what did I have to show for it?  A new wardrobe?  Nope.  A new sound system in my car?  Nope.  The latest and best gadgets?  Nope.  As a matter of fact, I think I spent a lot on gas, restaurants, going to the movies, a few CD’s (back when we actually had CD stores), a few t-shirts, and that was it.  I had nothing to show for it.  And I thought it would get better when I was in college.  And then I got my first credit card (after being pretty good about budgeting and living on less), and “free” money became available, and within 5 months I had just about maxed it out.  Then I got married.  And things mattered.  And I smartened up and said “OK, what am I actually doing here?”  And it wasn’t until I graduated, dealt with unemployment and underemployment that I actually got a handle on our finances.

So all that being said, how can debt NOT be bad?  First, debt for things like college and a home isn’t bad.  It’s next to impossible to pay cash for a home, or pay cash getting through college.  But keeping those costs reasonable is one of the keys.  I knew people who would take out the maximum they could every single semester when I was in school, they had nice cars, nice TV’s, lived in the nicest places, the whole shebang.  We lived off hand-me-downs, stuff from the local thrift shop, and our wonderful Wal-Mart table (which Ashley still adores).

Second, in order to have a good credit score, you need to go into and (hopefully) immediately pay off debt.  If you’ve never had a credit card, good for you.  But if you’re wanting to do something like buy a house, and you’ve got 0 credit attached to your name, the underwriters are going to look at you as someone who has an unproven track record.  Get a credit card.  Use it for gas.  Pay it at the end of every month.  That way, you’re developing good spending habits (which underwriters from every industry will love you for), your credit looks great, and you’re not developing bad habits of “free money” from debt.

Third, in conjunction with my last point, sometimes the financing is available for a reason.  Case-in-point: We’d like to have the basic necessities when we get our first place, namely, a refrigerator, stove, range, washer, dryer, and dishwasher.  Some houses have them, some houses don’t.  Depending on where we go, and what sales are going on, and how shrewd of negotiators we can be, I might be able to get the basics of what I need, cheaply, at about $3,000.  This is after we’ve spent close to $10,000 trying to get the house.  I don’t have an extra three-grand in cash lying around.  But…places like Home Depot do realistic financing, where they offer 6-months interest free.  The catch is, if it’s not paid off in 6 months, you get nailed with ALL the interest from those previous 6 months PLUS whatever is left.  Is that going into debt?  Yes.  But is it realistic debt?  Absolutely.  The key, in my mind, isn’t advocating a “live debt free or die” mentality (which some people have).  The key is being financially conservative and living within your means.

Failing to Live Life 
Ramsey advocates “Live like no one today so you can live like no one tomorrow” (emphasis mine).  And I don’t disagree with that.  I take a look around my own apartment complex, and see people driving sports cars, major SUV’s, Cadillac’s, Escalade’s, and I even saw a Hummer yesterday.  I would love to have a car like that.  I really would.  But I’m looking at a bigger picture of a house, a family, and all those different things that go along with the future, having the best car on the block doesn’t seem that important.

The problem is, like Erika puts it, “What good will it do me to have $5 million dollars when I’m 80 if I’ll be using a walker to get around and wearing diapers?”  It’s not so much denying yourself all the great things in life so that when you’re old, you can have them.  I’d love to take a nice exotic vacation with Ashley.  She’s mentioned wanting to go overseas to Europe or go to the Caribbean.  Are we really going to want to do that when we’re 80?  Probably not.  But the thing that Ramsey forgets to include, which is something that I’ve become meticulous at, is saving.  And the only reason I’ve become meticulous is because, frankly, I’ve had to.  Being unemployed and underemployed really forced that on both of us.  When you’ve got little to no money coming in, you have to be careful about how you spend things.  And when the big check for car insurance comes due, the money has to be there.  Ramsey casually mentions saving and planning for events, but not as much as I would like to hear him do that.

For example, I am a big advocate of 2 websites.  The first is Mint.com, which is an extremely safe and secure site that allows you to see exactly where your money goes.  If you use a debit card frequently (like I do), there’s no way to hide where your money goes.  Second is IngDirect.com, a high yield savings bank site with an awesome twist.  It can automatically set up savings plans for you, which is great if you have the view like I do of “Out of Sight, Out of Mind.”  Right now, we’ve got about 7 different savings plans set up:

  • Church Donations
  • Savings
  • Vacation
  • Car Insurance
  • Ashley’s DSLR Camera
  • My new computer
  • Plane Tickets back to visit Ashley’s family

And I’ve got it set up every Friday to withdraw money to automatically dump into these accounts.  Sometimes, if we’ve been a bit too casual during the week, that weekly withdraw can be a bit tight.  Sometimes, if we’ve been really good (or, most importantly, if gas prices have been really good) there’s a bit extra for us to play with.  But the biggest key is we’re going to save to live, and live to save.  Because while I would love to go on that ritzy vacation with Ashley, I can’t put myself through paying interest for years on a 1 week vacation.

That being said, Ramsey does have some good points.  And I recommend that people browse his books to come up with their own personal financial philosophy.  It’s not all bad.  It’s just not all gospel.

Ramsey photo from Denlors Auto Blog, Advice from HTML Giant, Debt from HalanMediaCorp, Old People from URLEsque.

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2 Comments to “Brandt vs. Dave Ramsey – THE THROWDOWN”

  1. ahhhhhhh LOOOOOVEEE IT!
    you totally articulated it better than i did! I am also a stickler about saving! especially considering the rumors of being laid off–i would rather live with the debt a little longer and be able to live off our savings while i’m unemployed, you know? and i compltely agree about saving up for vacations! that’s definitely NOT worth going into debt for…so we’re completely saving up for something next summer. i do need to set up several savings accounts, as right now, we just have one. but i use ing direct! starting in january, i’m going to switch to Mint. we have an account, but i haven’t gotten into it yet. I am sooo old-fashioned, pen and paper kinda girl when it comes to my budget…

    btw, this? “I was one of those weirdos that didn’t have any music on their iPod, but the entire thing was filled up with podcasts” don’t ever reveal thisinformation to ANYONE ever again, k? k. I’ll still be your bloggy friend though : P

    • Does it make it better if I have 2 iPods? One is dedicated to 30gb of music, and one has my podcasts? Just a smidge better? I had to get another iPod because Ashley hated getting in the car and having my “boring stupid sports” podcasts to listen to.

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