Dave Ramsey Review: A One-Size-Fits-All Approach

Figures vary on the number of Americans living paycheck to paycheck with figures ranging anywhere from 58% of Americans according to information from LendingClub as reported by CNBC in June, 2022 to 64% as reported in US News and World Report. Regardless of the percentage, the numbers are staggering and many report that they are adopting this lifestyle due to the economy. This may define you. There are many “gurus” you can look to for advice such as Dave Ramsey. So, if you are one of the millions of Americans contentedly living paycheck to paycheck, you might want to stop reading this blog and just follow Dave Ramsey’s advice. But you really owe it to yourself to think about your financial situation and if Ramsey’s ideology fits your goals, needs, and circumstances. 

This is not a treatise against Dave Ramsey personally. He has helped countless people figure out their financial and life situations. He even provides some sound financial advice. Despite many reviews on the Internet about Dave Ramsey and the Ramsey machine, this is not a blog railing against him. This blog is actually my take on Ramsey’s ideology and how it aligns with mine along with key elements about which I disagree. In fact, there was a time when I even contemplated working with the Ramsey group and was interviewed for a position with them. However, after the second interview, I declined in order to pursue my own path with Budgetdog. 

Let’s get back to living paycheck to paycheck and advice, mine and Ramsey’s, that can help you. First, we will consider the Baby Steps that Ramsey so famously touts. In theory, I can’t argue against the Seven Baby Steps that he outlines. They are simplistic, and, when followed, they can provide a sound framework to set a person on a good financial path. For the masses, this approach makes sense. A key question, however, is how efficient are the Seven Baby Steps and how successful will the person following the steps actually be? 

In order to answer that question, we need to deconstruct Ramsey’s plan and consider each of the Baby Steps. An important component to the Seven Baby Steps is that you must follow the steps in order. This is not possible or even doable for many people and is one area in which I disagree with Ramsay for several reasons. One reason is that I don’t think everyone is disciplined enough to follow the steps as stipulated. Perhaps if they were, they would not be in the financial debacle that they find themselves in thus requiring them a solution to their situation. Setting payments up to be automatically withdrawn and paid may help alleviate some of the unpredictability and natural human weaknesses and tendencies, but it doesn’t work for everyone. Moreover, I do not agree that some of the steps can’t be done simultaneously or unilaterally. Let’s go step by step to get a better understanding of what Ramsey proposes. 

Baby Step One – Save $1,000.00 for a starter emergency fund: 

This is one thing I personally did when my wife and I were starting out, were newly married, and were just beginning our careers. I do believe it is necessary to have some type of emergency fund in place, but I would caution against such a small dollar amount as it may not be enough for all people and in all circumstances. Thinking about many situations, this amount may only make a dent. Of course, anything will help when that “emergency situation” comes up like a major car repair or major appliance and house repairs. Your emergency fund is likely different from mine and rightly so.  A one size fits all $1,000.00 is likely foolish for many.  

Baby Step Two – Pay off All Debt Except Mortgage Using the Debt Snowball: 

I concur with Ramsey on paying off debt and personally did this. My wife and I did this, setting up a timeline and a budget to achieve this goal in eighteen months. We were intentional and focused on paying off all our debts and actually achieved this goal in a year. I have a YouTube video on how you can also do this. Where I deviate with Ramsey, though, is that several factors need to be considered. I don’t think this can just be a blanket statement. There are things to consider such as age, goals or timeline projections for the debt pay off, current investments, available cash for investments or to pay off debts, and income. Individual goals, risk tolerance, and personal situations must also be taken into account when finances come into play. Some people may view debt as a hedge and might not make it such a priority which is not my style or mantra, but I can respect that. My recommendation, however, is to look at the debt amounts along with the amount of money wasted due to debt and make a plan to get those debts paid off in order to improve your financial situation. How you do this is a personal matter. Ramsey advocates for the debt snowball method, to pay off your smallest debt first and then move up to the largest debt. I understand the theory behind this concept because most people need to see some kind of success. Others, however, advocate for the avalanche method, paying off the debts with the highest interest rate first. You will need to assess what works best for you and go about it in a systematic and consistent manner. Furthermore, I would advise against having and using credit cards if you already have accrued credit card debt. My suggestion, like Ramsey’s, is to get rid of the credit card or cards. Simply cut them up. If they are not there, you can’t be tempted to use them, racking up even more debt. Also, think about your spending habits. Is it REALLY important to have the latest home decor at Target and are those new Nikes really going to improve your workouts or are they just more expensive? Have a real conversation with the person looking back at you in the mirror and assess two things: What are your shopping habits and reason you are in debt and how important is it for you to be debt free and financially independent? Only you can answer those questions truthfully. Do you buy things to satisfy a need? Are material things that you will eventually give away or throw away important to your overall happiness?  If you fully commit to becoming financially independent, you will be able to pay off your debt and probably even more quickly than you expect because your mindset will shift.

Baby Step Three – Save three to six months of expenses in an emergency fund:   

In and of itself, I think this one is very important. Everyone should have an emergency account, learn why here, with anywhere between three to six months worth of all of your expenses. This fund is for the “what ifs.” But where to put those funds is debatable. For almost everyone, I would suggest putting the funds in a high yield savings account. This allows that money to grow a bit but gives quick accessibility if and when it is needed. For the small percentage who want a fund that is more sophisticated, you might want to invest the money. My wife and I, at this time, invest our entire emergency fund, but that is subject to change if our situation dictates that change due to the ease and time of liquidity.  I talk more about this in my YouTube video that you can check out here.

Currently since we have a healthy monthly cash flow, a six plus figure taxable brokerage account, over $30,000.00 in a health savings account (HSA) that we use tax free since we pay medical bills out of pocket, and cash in our checking account for our normal monthly bills, we decided to invest our emergency fund in a brokerage account versus a high yield savings account (HYSA). This is another area where I deviate from Ramsey. My contention is that personal finance is personal to one’s needs and current situation and not as fixed and rigid as is noted by Ramsey’s Baby Steps.  

Baby Step Four – Invest fifteen percent of your household income in a retirement fund:

I am behind this one 100 percent and feel this is an absolute. I also support the amount that Ramsey suggests. If you invest early enough, which is as early as you possibly can, this is all you should really need. However, this also must take into account individual goals and thoughts on retiring. If you want to retire at an early age, you may need to increase the suggested fifteen percent to reach your goals. That is why I question and deviate from Ramsey’s one size fits all Baby Steps. Too often Ramsey’s method does not take into account personal goals and needs. Obviously you need to save whatever amount will get you to your end goal. Assess your goals and your investment time and adjust accordingly.  

Baby Step Five – Saving for Children’s College Fund: 

Here is another area where I totally agree with Ramsey. It is paramount to begin a college savings fund for your child or children early to ensure they will have enough money for college. Take into account rising expenses. My wife and I have a savings fund for Logan, our daughter, and will add to that if we have another child. Keep in mind that this does not necessarily have to be a savings fund for college. Instead, think about it as securing your child’s future which can include trade school and other forms of education and training beyond high school, purchasing cars, down payments on houses, or investing in a business venture. Regardless of what this looks like for your child beyond high school, investing in your child’s future is only wise. This has to be done strategically, investing early to allow the money to grow. However, your financial needs come before your children’s in the order of investing which is why this is Ramsey’s Baby Step Five. It is fundamentally imperative that you secure your finances first, so you will be able to invest for them. You do not want to rely on your children to have to take care of you financially when you are elderly. Therefore, invest for yourself and have your personal finances in order before you begin to invest for them. This sets you up for success, your children for financial independence, and eliminates you being a financial burden to them as a senior which is a loving act, not a selfish one. I have ideas and methods for investing for your children’s futures in one of my YouTube videos that you should check out here for further information.  

Baby Step Six – Pay off your Home Mortgage EARLY: 

By far, this is one of my favorite steps and one of the best pieces of advice. My wife and I bought into this concept and paid off our house as quickly as we could. There are many reasons to pay off your mortgage early. First, over and above the math, this is an incredibly freeing feeling not to owe the bank for your home. It is yours; you OWN it. There were math nerds who refuted our decision to pay off our mortgage, but our timing was impeccable. I know that most people can’t or won’t pay off their mortgages in two years and the market and interest rate won’t align like it did for us, so the math may work out to indicate that it is financially better to invest than to pay off your mortgage if you had to choose between the two. But that is the point. You do NOT have to choose; it is not an either or situation. Ramsey advocates this same notion. Think about having to pay your mortgage for your entire life AND think about what you are really paying for your home over those thirty years when you account for all of the interest paid. It is mindblowing. That is money you could have been investing. Now think about that but in reverse. How much money could you accrue over those years from the time your house was paid off and you were investing rather than paying? That is why my wife and I paid off our mortgage which we did before my wife and I were thirty years old. As long as you have followed the Baby Steps step-by-step, this is your next step, and it is a fundamental one. I can promise you this will be one of the most liberating and securing things you will do for your financial success.  

Baby Step Seven – Build Wealth and Give:

I don’t think anyone can argue the need to build wealth nor can you argue the concept of giving. It is fulfilling, and I believe it is an obligation. That is why I am in agreement with Ramsey on this step. If you are at the point of building wealth, you should be financially secure. While you always need to be diligent about your finances and aware of your investments, by this point, you should not be worried about them. You should be able to live comfortably and well. Therefore, you should also be in a position to help those who need it. That is a wonderful gift and feeling. 

Overall: 

These are the Ramsey Baby Steps and how I align or disagree with each of them. The other thing Dave discusses is investing. Here is an area where we adamantly disagree.   Before I delve into specifics where we disagree, here is a recap on areas where we are:

1. Invest 15% of your income. This is a variable amount, but in general, this is a good benchmark percentage. 
2. Invest in a tax-advantaged retirement account. This is a good starting point, but you need to expand beyond this. 
3. Diversify your investment portfolio. 
4. Don’t chase your returns. 
5. Invest for the long term. 

So, what are the areas where I disagree with Ramsey? First, Ramsey advises investing in actively managed mutual funds, claiming he has had twelve percent returns compared to the average ten percent market return. This is absolutely not true. Perhaps he is speaking in gross terms, not net fees which is a big difference. Those following me know that is highly unlikely even net of returns. Also, Ramsey claims he falls within the one percent of people who “beat the market” and all those who follow his advice can also be in that elite group. I have shared plenty of reasons and stats why and how this is not the case. 

Another area where I deviate from Ramsey is in fund allocation. A four-way split allocating 25 percent for each category that is an unchanging and unwavering system does not make good financial sense. As your goals, risks, timeline, and lifestyle changes, so should your fund allocations. Ramsey contends that investors should equally divide funds between international, aggressive, growth, and growth and income mutual funds. I believe, on the other hand, that investors need to invest in low-cost index funds and Exchange-traded funds (ETFs). In addition, I am a firm believer in education and the importance of owning your own finances and portfolio. I don’t think it is necessary to use a financial advisor. You can get more information about this subject in my YouTube video that specifically covers that topic. 

Regarding the Ramsey Group of Smart-Vestor “Pros” to whom Ramsey refers people, I personally tested them. What I discovered was that they were not fully vetted nor do they follow all of the advice as stipulated by Ramsey. In addition, as if that was not enough to cause me to be leary, they also charged a hefty rate for their advice and were less than enthusiastic or invested in me than I would have expected them to be. Keep in mind that Ramsey gets commission from this service and the Smart-Vestor Pros pay a fee to become part of his Ramsey network in order for them to grow their own businesses.  

The last idea in which I deviate from Ramsey is that he advises against investing in individual stocks, whole life insurance, Bitcoin, annuities, Exchange-traded funds (ETFs), Certificate of Deposits (CDs), bonds, or Real estate investment trusts (REITs). But he does support investing in real estate if it is paid in full. Personally, I invest in a single stock which is META and also cryptocurrency, and the remainder of my portfolio consists largely of Index funds and ETFs. This is my personal approach as I have noted in my Investing 101 ebook.  Despite what Ramsey advocates, my strategy is proven to be one of the most successful ways to invest and is also touted by investing giants such as Warren Buffet and Jack Bogle. I adamantly refute Ramsey in this regard because it does not make sound economical sense. However, with that said, I do agree that Whole Life Insurance and annuities are a racket and would not invest in them – ever. Today CDs also don’t make sense, but this can change quickly as interest rates change, so I would not say to never invest in them. Likewise, I think it is unwise to suggest that ETFs and REITs can’t be a good addition or part of a sound portfolio. Overall, investors have to be educated and make decisions that will meet his or her current and personal needs and wants.  

Overall, I think some people are able to glean good information from Ramsey and his Seven Baby Steps. This, of course, depends on where you are financially. Ramsey has a simplistic, one size fits all, approach that has helped millions and can work to get people out of debt as outlined. Therefore, I am not dismissing what Ramsey has done or his method overall. It is all personal. You have to decide what you want your future to look like. How far will you grow your finances and what that will look like for you. Follow along with my story as I show you exactly how I am building wealth and teaching others to do it, too.