Four Spooky Things Dave Ramsey Tells You to Do with Your Money
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I believe there are more roads to Rome than one and that you don't have to run your money exactly how I would to optimize and grow it. However, when I find advice that is just wrong, I have to say something, especially if that advice is covered in shame.
When it comes to money advice, few names ring as loud as Dave Ramsey's. His advice has made its way into millions of households, and you may follow some of it, even if you've never consumed his content.
This week on the blog and podcast, I'm going through some of Dave Ramsey's most popular ideas and why they're not just different opinions but following them can be bad for your money. (and your mental health!)
1. Debt Is Morally Neutral
Debt is Dave Ramsey's archnemesis and often shames his listeners for having debt. If you've ever listened to him, you've probably heard phrases like "bad with money" or "irresponsible" thrown around when discussing debt. The problem with this approach? It's a bit too simplistic.
Debt isn't black and white. Some people use it as a tool to leverage and grow their money. In other situations, medical emergencies, job loss, or increasing inflation can lead to debt. Blaming people for their debt without considering these nuances isn't fair, and in fact, can be harmful.
2. Retirement on Hold?
Dave Ramsey suggests pausing your retirement contributions to focus on paying off debt. While that might make sense for high-interest debts, it's not the best idea. Let's talk about why.
You don't want to miss out on the magic of compounding interest when saving for retirement. Starting early means your money has more time to grow. Delaying retirement savings, even for a little while, can cost you a small fortune in the long run. The price of not contributing to retirement accounts is pretty steep.
For a deep dive into the numbers, make sure you listen to this blog posts’ episode!
3. Snowball vs. Avalanche: Interest Matters
Dave Ramsey's "snowball method" for paying off debt tells you to start with your smallest debts, regardless of interest rates. If you want to get a small debt off the books to feel better, that’s fine. But knowing that’s not the cheapest way to do it is important.
The "avalanche method" is a smarter strategy. It prioritizes high-interest debts first, saving you more money in the long run. While the snowball method might feel like a victory dance, it's not always the savviest choice financially.
4. Credit Cards: Not the Enemy
Dave Ramsey's not a fan of credit cards, often putting them in the same basket as all other debt. But that's a bit of a missed opportunity.
Credit cards offer more than you might think. They come with added security, rewards, and perks like lounge access. Plus, responsible use of credit cards helps build your credit score, a critical factor in securing favorable loan interest rates, especially for big-ticket items like mortgages.
Many tell me that Dave is good for people who are “bad” with money, but I disagree. Being shamed often perpetuates shame, making it harder to change financial habits. Personal finance is a wild, varied world with multiple paths to financial success. Your circumstances, goals, and comfort with risk should be your compass as you run your money.
Listen to the podcast version of this episode here:
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