There’s no denying that Dave Ramsey has helped a lot of people. He has directly aided millions of people in paying off debt and achieving financial stability. However, not all of his insights are worth listening to. In fact, in some cases, it may not even help you, or may even be harmful. These are 11 financial tips you may need to disregard from Dave Ramsey.
Table of Contents
Paying Off Your Mortgage Early
Who likes to have a mortgage payment? Not many people do, but Ramsey argues you should pay it off quickly. If you can, that’s great.
However, if you have a good interest rate, you could arguably earn more by investing your spare cash.
His Thoughts On Safe Withdrawal Rate
It’s commonly held that it’s safe to withdraw four percent of your portfolio every year in retirement. Ramsey argues for an eight percent rate.
While seemingly not a problem, taking out that much could cause retirees to run out of cash much sooner.
Zero-Sum Budgeting
Ramsey supports using the zero-sum budget. While it’s a fantastic way to budget your money, it’s awfully time-consuming.
Novices are typically better served by using a budgeting app that allows them to budget in line with their particular situation.
Avoiding Credit Cards
Dave Ramsey directs people to only use cash or debit cards. If you’re working to pay off debt or struggle with spending, it makes sense.
However, if that doesn’t describe you, it’s likely you’re missing out on the benefits of using a credit card. Rewards credit cards are great to use for points. You also receive purchase protection and credit-building benefits with a card.
When used wisely, they can be an invaluable tool to use.
Avoiding Guilty Pleasures
Ramsey likes to preach against giving into a guilty pleasure. Life is meant to be enjoyed, so this approach is too rigid.
If you’re overspending, rein in your guilty pleasures. However, if that’s not you, it’s okay to indulge in one from time to time.
Using the Debt Snowball
The debt snowball approach is a fantastic way to pay off debt. I used it myself.
However, it’s not the only way to attack debt. Like many other things, it’s best to find a strategy that works for you, even if that means not following the cookie-cutter approach.
Prioritizing Your Emergency Fund
An emergency fund is essential to financial stability. Ramsey supports the idea that you have at least three months of living expenses before you start investing.
That’s far too rigid and can delay wealth creation. Instead, focus on saving at least $1,000 in an online savings account like CIT Bank, then start investing.
Choosing Only a 15-Year Mortgage
Ramsey hates debt, so he supports only taking out a 15-year mortgage. Unfortunately, many people aren’t in a position to get a shorter mortgage.
Do what you can, and don’t feel guilty if you need a 30-year loan.
Paying High Fees For Investments
Ramsey often likes to shill for products that give him a kickback. Such is the case with his recommendation to purchase high-fee mutual funds through advisors he works with.
Not only does this make investing needlessly expensive, but it could also result in less-than-stellar results.
Ignoring Your Credit Score
The credit scoring system isn’t perfect. It absolutely has its downfalls, but it’s what we have. If you don’t have a good credit score, it can cost you thousands more when looking at things like auto or home loans.
Ramsey goes so far as to saying that he is against credit scores and doesn’t care if you have a good one or not. Despite his great reasons to avoid debt, he misses the forest for the trees on this one.
One Size Doesn’t Fit All
Ramsey has helped a lot of people. But he gives the same advice to every person.
Every situation is unique, and personal finance is personal for a reason. Take what works for you from Ramsey and ditch the rest.
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I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.
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