3 Ways Dave Ramsey May Be Rubbing You The Wrong Way

As I read more about personal finance, I find a lot of people carry a certain amount of contempt for his teachings. I see this trend in a few members of the FIRE community too. Since FIRE community is basically made up of people who have chosen to take the road less traveled, it makes perfect sense for them to not “accept” everything some Financial Guru says on radio and drink the “kool-aid” that millions of others are drinking daily. I found particularly 3 things that are core to Dave Ramsey’s teachings that seems to rub people the wrong way. This really makes them distance themselves from Dave and his teachings.

This is one of the pet peeves of people who don’t subscribe to Dave’s methodology, especially those who believe OPM (other people’s money) is the only way to build wealth and don’t view it as a risk. The fact the scriptures don’t talk highly of the borrower only adds to their agony.

Dave Ramsey also has a rule of thumb where he recommends that the total value of all the items with wheels and motors on them should not be more than 50% of your annual income. This often pisses people off when they hear Dave Ramsey on the show telling people that they need to sell their stupid car or motorcycle. The callers of the show literally get called out on their stupid purchases often makes people wonder why Dave is against it. The callers sometimes find it hard to part with what they think is their prized possession.

So is it really bad to borrow money to purchase a car? I for one feel borrowing money to purchase a depreciating asset is dumb. The real issue with purchasing a car is not that you were able to afford the car or you are not paying any interest (which might not be true since the dealership has already factored that money into the deal) but it’s the fact that you have now taken on a monthly payment and are stuck with it for the foreseeable future. It’s literally eating into your cash flow and like Dave says, “You’re paying the stupid tax!” It could have been deployed to earn you more money.

Many people who criticize Dave on this, miss the above point and find ways to justify their decision. When you try to reason with such folks, you’ve just gotten into a bitter argument which often doesn’t end well.

If you are on your path to FI or FIRE, you fall into a minority of the Americans who are financially literate enough that you understand enough about money. You are able to understand the rationale behind a concept like FIRE and has spent the time to read up the specifics of what it takes to get there. You’ve done your math and worked out the numbers already. You not only know how to get there but also know when you’ll get there.

While I myself am a DIY investor, I do feel the investment advisers have their own place. The entire FIRE community is a very small percentage of the overall American population. What Dave Ramsey is talking make sense when you look at the average American who is having a hard time managing the basics of personal finance like budgeting or staying away from debt, let alone go through investment options and manage their own portfolios.

I definitely feel people need to spend time educating themselves on how to choose a financial advisor and what are some of the gotchas and how to avoid them. They need to stop painting every financial advisor with the same broad brush and look at them as mere agents who work for a commission. I feel the financial community needs to revamp their image and look for adding value and not just find new clients and up their commission.

This is one advice from Dave that I have literally taken to the heart. When I first heard it from Dave, I wasn’t sure how switching from a credit card to a debit card or even cash can help me. I have never carried balance on my credit cards and have always paid off my credit cards in full. So when I heard this advice, I wasn’t fully convinced if this might be worth following.

But as I understood Dave’s Baby Steps further I realized that credit cards didn’t really provide me the safety net they often claim to provide. They, in fact, made me spend more than normal. It is this argument that Dave had been putting forth, while I was busy arguing in my head, “But I pay off my credit cards in full. So they can’t be bad.” This is exactly the same argument that most “responsible” credit card users often put forth to defend themselves. I feel Dave is right when you view it from the perspective — “You wouldn’t have spent this money in the first place. Forget about paying it off.”

When they hear Dave say this, I often find people throw in the Travel Rewards and Cashback Rewards argument and claim it makes them some extra money. If I can make some extra money by using a credit for a purchase that I would have done it anyway, why not? I know a lot of people who have earned enough travel rewards to basically get an entire trip paid for using just the rewards points. But what they miss is that it tricks their brain to believe this script — “Spending using this card is really good. I get to earn some credit card rewards. Over a period of time, you rationalize your purchases with the cashback rewards or travel rewards.”

My personal experience has been that once I chopped 7/8 credit cards, my spending really went down. I began to look at my purchases with a fresh perspective since I had to part with my money immediately. There is something about that “immediate” exchange of money that makes you rethink every purchase. I feel many people miss that point and it rubs them the wrong way, when Dave says, “Cut up all your credit cards and stay away from them.”

Is there anything about Dave Ramsey that rubbed you the wrong way? Please share your thoughts in the comments. I would love to hear from you.

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