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Dave Ramsey is one of the biggest household names when it comes to personal finance experts. His story and teachings have helped millions of people get out of debt and build a well-balanced financial position, and his books, radio show, columns, courses, and videos are among the most popular personal finance materials available. Even so, a vocal contingent of critics question whether Dave Ramsey is right on many key issues.
Ramsey is not bashful about his strongly-held beliefs. He strongly opposes debt (other than 15 year mortgages in which the monthly payment is no more than 25 percent of a family’s take home pay), leads the charge against credit card use, and encourages people who are ridden with debt to pay off their obligations in order beginning with their smallest debtsrather than base repayment on interest rates.
Millions of people have followed Ramsey’s Seven Baby Steps to achieve financial success, yet his advice is more widely-criticized than many other financial experts (who also take their share of criticism, too!).
If you’re looking for a financial guru to follow, Dave Ramsey is certainly a popular choice. His advice is not always easy to follow, but it is difficult to argue with his results.
Read on to consider 7 ways Dave Ramsey is right about money – even in the face of criticism.
7 Ways Dave Ramsey is Right About Money – and Others Are Wrong
Dave Ramsey is the first to admit that his life story and beliefs may be strange to some people. Through a rapid-rise in the real estate career, Ramsey became a millionaire by age 26 and promptly lost everything in bankruptcy soon after.
Writes Ramsey,
I was making $250,000 a year. That’s more than $20,000 a month net taxable income. I was really having fun. But 98% truth is a lie. That 2% can cause big problems, especially with $4 million in real estate. I had a lot of debt—a lot of short-term debt—andI’m the idiot who signed up for the trip.
When the dust finally settled, the resilient Ramsey was determined to recover and learn from his mistakes and help others win with money.
1) His Advice is Rooted in Experience and Research
Among the ways Dave Ramsey is right, it is most important to note that his teachings and philosophies are based upon both personal experience and expert research. Critics and competitors love to paint Ramsey as a fraud, but the truth is that he lived through the trials and struggles that his followers face and came out on top.
When Ramsey lost everything, he started a mission to learn everything he could about personal finance. He read every relevant book he could get his hands on, interviewed countless people who had experienced financial success, and acted upon everything he learned.
From the rubble, Ramsey created a framework that has helped millions of people, himself include, pay off debt and build wealth.
2) Dave is An Expert Motivator
While many financial experts take a strictly academic approach to personal finance, Dave Ramsey understands that motivation to get started is a foundational piece of each person’s financial journey.He is an expert when it comes to empowering people who want to change – as he puts it, those who are “sick and tired of being sick and tired” – and motivating them to take action.
The short video below is a great example of his ability to motivate people to take action.
3) Saving is the Best Way to Get Started
In Financial Peace University, Ramsey teaches students to build a $1,000 starter emergency fund before doing anything else with money. He calls this action Baby Step One.
Dave Ramsey is right when advising people to start with saving because it is an effective way to initiate change and protect against financial emergencies which could cause people to go further into debt.
Much in the same way that a running coach would not expect a new runner to step out and run a marathon on day one, Ramsey helps people start improving their financial situation with slow and manageable change by encouraging saving.
Related Reading:
- Investing is a Marathon
- How to Build a Starter Emergency Fund and Save $1,000 Fast
4) Quick Wins Are Contagious
On a related note, Ramsey understands that personal finance is not just mathematical, but also emotional, behavioral, and psychological. People are able to start his program and stick with it thanks to the power of quick wins.
Once peoplemove on to paying off non-mortgage debt in Baby Step Two, Ramsey advises people pay off their debts from smallest to largest balance. Thanks to momentum and positive excitement, Ramsey Solutions reports that students pay off all of their debt in 18-24 months, on average.
5) Money and Multi-tasking Don’t Mix
Over the past decade, consistent research has emerged demonstrating that multi-tasking doesn’t work. According to Psychology Today,
- Multi-tasking wastes time
- It decreases accuracy
- The human brain is not equipped to multi-task
Ramsey deserves credit for realizing this back in the 1990s and incorporating this understanding into the development of the Baby Steps.
Simply put, Dave Ramsey is right – multi-tasking with money is slow, ineffective, and expensive. It is far wiser to focus on one financial goal at a time, especially when looking to pay off debt.
6) A Budget is Incredibly Important
One of the most memorable aspects of Ramsey’s teaching lies in his tendency to repeat teachings in the form of catchy sound bytes. For example, regular listeners have heard Dave say the following many times:
Your biggest wealth-building tool is your income, and the best way to harness the power of your income is the monthly budget because everything else flows from the budget.
Though some experts argue otherwise, I believe Dave Ramsey is right – a budget is a fundamental component of a winning financial plan.
The truth is that people who don’t budget are much more likely to become financial reactionaries who wonder where their money goes each month.
The word “budget” has taken on all kinds of unjust negative connotations. Many people believe that a budget is too restricting, a thing of the past, or something that only frugal or cheap people follow.
As Ramsey points out, other people are afraid to start a budget out of fear of what they might discover. However, the numbers don’t lie – people who create a budget pay off more debt and save more money.
Related Reading:
- Budgeting For People Who Suck With Money
- The Biggest Reason Budgets Fail
- Budgeting Made Easy: 15 Money Saving Hacks
- How to Live on One Income and Still Live the Good Life
7) Leveraging Debt is Risky
Among the ways Dave Ramsey is right, his teaching on the dangerous risk of leveraging debt may be his most famous.
Even in a time of historically-low interest rates, Ramsey continues to preach the virtues of debt freedom. Why? Ultimately, a life void of debt is a life of minimal financial risk.
On his radio show, Ramsey frequently reminds audiences that 0% of homes without a mortgage are foreclosed on every year. He also is quick to quote the world’s second-richest man, Warren Buffet (“You can tell who was skinny dipping when the tide goes out”), when discussing investment risk.
While some experts continue to falsely teach that debt is a tool to be manipulated for gain, Dave Ramsey is right – very few wealthy people gained their wealth by leveraging debt, and those who did got very lucky.
The Big Picture
Dave Ramsey’s financial advice is not equally effective for people in all financial stages of life, but there is a reason his framework has helped millions of people get their finances in order. As Ramsey says, his plan teaches people a systematic, common sense approach to managing their finances “God’s and grandma’s way.”
Undoubtedly, Ramsey will continue to draw the ire of critics, but results don’t lie.
Recommendations for Dave Ramsey Followers
If you’re a Dave Ramsey fan looking for an additional edge to your financial game, check out the following resources we use and love:
Digit: Digit is a personal savings assistant designed to help make saving money easier and automatic. Their mobile app and simple platform helped me and my wife save over $1,500, and we used the money for a vacation. Check it out!
CIT High Yield Savings: Looking for a great place to park your emergency fund and earn more than a paltry .05% interest return? CIT Bank offers 1.55% on their High Yield Savings Accountsand only requires a $100 minimum opening balance!
CIT High-Yield Money Market: If you’re looking for an even better place to sock away your emergency fund or sinking funds, check out CIT’s High-Yield Money Market Account. Their 1.75% rate will put your fund to work in a hurry, and with a $100 minimum account opening balance, anyone can get started!
Ibotta: Ibotta is my favorite app for saving money and earning cash back on my regular grocery purchases. They recently upgraded their interface, making it even easier to save money. You can sign-up, earn a $10 welcome bonus, and earn money for referring your friends, too!
Acorns: I have been using Acorns as an experiment in micro-investing for several months and watched my account balance steadily grow. If you feel like you don’t have enough money to invest, Acorns is for you!
You can start with very small deposits and work your way up over time, if you choose. And if you sign-up using my link, you'll start off with $5.00 in your account automatically!
