Why Dave Ramsey is Wrong
I am sure to receive vast amounts of hate mail from die-hard Dave Ramsey followers, but the fact is that creative financing is smart business. If you have ever attended the Financial Peace University (FPU) classes at your local church or another location, you know that Dave Ramsey teaches you that you need to pay for everything in cash. He states that you should not only cut up your credit cards, but work towards not having a credit report at all!
The flaws with the FPU system are vast. While Dave Ramsey DOES provide invaluable information for eliminating debt, his finance advice for securing your future means that you will not be rich any time soon. In fact, many of his examples show that you could end up with millions of dollars once you reach 70 years of age. The problem is that if you followed his advice, you have to basically tell yourself that you do not need to enjoy life while you are young. How many senior citizens do you know who want to go on Jamaican vacations?
Dave Ramsey teaches that if you borrow money, you become slave to the lender. Well, that is very one-sided. If you used a bit of common sense, and creative financing techniques, you can actually purchase real estate investments with borrowed money, and you will never pay a cent out of pocket while you build up equity! You can literally buy a multi-unit property for little to no money down, seller financed, and have the tenants pay the mortgage for you. All the while, you are building up valuable equity.
Dave’s teachings do not conform to the reality that it does not matter whether property values go up or down. If you are not personally paying the mortgage on the real estate, then you have not lost any money whatsoever when property values go down. If you pay $150,000 for a 2-unit, and it drops in value to $120,000 then you did not lose $30,000. You never paid it in the first place. Get it? So when time comes where you sell, or leverage the property as collateral, you are more than 100% covered. You are risking nothing out of pocket if you had to drop the price.
Dave Ramsey is very one-sided, but that does not mean some of his materials aren’t worth learning. It is wise to generate an income and growth from a good 10%+ mutual fund. But that should not be one of your biggest investments. Mutual funds can take forever to grow to a worthwhile amount, unless you put a half million or more into the account to begin with.
You should also learn how to trade stocks. You can start with penny stocks to get your feet wet. A couple of good brokers that allow penny stock trades include TD Ameritrade, and TRADEKING, the latter being cheaper on trading fees.
I think the point that keeps getting missed is that Dave Ramsey is an elective..not manditory- learning process. Is he mathematically incorrect? Probably! But, as he says, “If you were good at math, you wouldn’t be in debt”. And, I agree with that statement. I agree with some of your ideas about leveraged monies, etc. But, that’s not his audience. His demographic is 30-50 year olds with about 35k in debt who make about 35k per year.
His media blitz, for us, is encouraging and motivating. And, once we get done with our snowball – we will probably move on to another season with our investment strategies.
So, I don’t think Dave Ramsey is wrong..he just might not be right for you! In any case, thanks for the thoughtful post! Good writing always spurs on good ideas!
Dave Ramsey’s advice is probably appropriate for his target audience, but when someone with any degree of financial sophistication thinks through the things he says, they realize it’s full of holes. For instance, when he goes in to ‘bully mode’ and talks about folks who use credit cards to get the ‘points’, he states that he never talked to a millionaire who got rich off credit card points. Um, ok… I’m a millionaire and use credit cards to get the points. Did the points make me a millionaire? Of course not! I built up wealth in a lot of different ways, and that’s one of the ways I built wealth. Dave’s advice is great for those in trouble, but for others, it could cost them a small fortune if they listen to and follow his advice. He oversimplifies and makes flat out false statements.
I agree completely that his class is full of holes. Leverage IS the basis for wealth unless you want to wait until you are too old to enjoy it. I am not rich, YET, but thank god I am on my way because of my financial knowledge rather than the mis-knowledge he promotes.
I have about 50k in debt. i havent paid taxes in 3 years and havent paid any debt for years. All my debts are in collections. Where, when and how do I start getting out of debt?