Falling Off the Dave Ramsey Diet

If you’re interested in personal finance, you probably know who Dave Ramsey is. If you don’t know, he’s a television and radio personality (and author) who preaches a “common sense” approach to getting out of debt and creating wealth. His plan is built around seven “Baby Steps” that are designed to lead you to financial freedom. He calls it the “Total Money Makeover.” Dave is a master motivator who is very good at getting people fired up to do something about their finances, and his advice is generally simple enough that most people can understand what he’s saying. Now that the economy is slowing, I see more and more people turning to Dave for help.

However, there is one problem that I’ve noticed with Dave and his system. I’ve known many, many people who have tried his system and failed because they become frustrated, angry and generally unhappy. Why? Because if you really want to follow Dave’s plan the way he teaches it, there is no leeway, no room for individual circumstances to factor in. The Total Money Makeover is a lot like a very restrictive diet that severely limits your choices and leads to rebellion. Yes, some people are successful, but many others fall off the money diet that is the Total Money Makeover.

If you read Dave’s books and listen to his programs, he is adamant that you follow his seven Baby Steps in exactly the order that they are written, and you may not move on to the next step until the first is completed. While this makes for an orderly approach and is good for those who crave organization, it can cause some problems. Just to review, the Baby Steps are:

1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. 3 to 6 months of expenses in savings
4. Invest 15% of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give. Invest in mutual funds and real estate

According to Dave, until you have all your debt paid off, you shouldn’t be saving for retirement. But this ignores the value that compounding interest brings over time. Even if you’re funneling most of your money to debt payments, any little bit that you can put towards retirement will grow much larger in the future. His idea for a $1,000 emergency fund isn’t bad, but in this day and age $1,000 isn’t going to cover many emergencies. You need a bigger fund than that, but you can’t start building it until all debt is paid off. Until then, if you have a big emergency it’s going to have to go on a credit card, putting you further in the hole.

Why can’t there be a compromise between directing large sums of money to debt, but also putting some in savings and toward retirement? Just like a crash diet is a shortsighted approach to losing weight, Dave’s plan is a shortsighted approach to getting control of your finances. His plan focuses too much on getting the debt down as fast as possible without looking at the larger life that you must also prepare for. Paying down debt is a fine goal, but there are other contingencies you need to prepare for, as well.

Dave’s steps also leave no room for fun or unnecessary purchases. He calls it getting “gazelle intense,” but it’s like telling someone on a diet that they can never have chocolate. Of course, deprivation only makes you want it more and can lead to bingeing when the restrictions become too much. Telling someone that they can’t go on vacation or out to eat once in a while is bound to lead to rebellion eventually. Either that or it may lead to depression, which is just as counterproductive to successful financial management. That’s not to say that you need to go on a swanky resort vacation or to a five star restaurant, but his advice ignores the fact that there are less expensive alternatives that can give you a break from the tedium of debt reduction while not breaking the bank. Just like a diet requires you to give up all “bad” foods, Dave’s plan requires you to put off “living” until you reach step seven, which could take years. It’s important to pay down debt and build for the future, but it’s also important to get some value out of today.

His advice also ignores the fact that people have to learn moderation. Just like those who overeat, over spenders have to learn to live in the real world. They have to learn how to spend and save in moderation. Dave’s steps don’t teach people how to live in moderation. You are told from the beginning to simply stop spending, but what happens when you reach step seven and you have built some wealth? Without knowing how to spend moderately, how long do you think it will be before that wealth is gone? His plan does nothing to teach behavior modification. Without that, long term success is iffy at best. As with a dieter, long term success can only be achieved when the causes and triggers of spending are identified and dealt with.

Some people end up feeling like failures on Dave’s plan and give up. Again, look at the dieting analogy. Dieters may be going along great, and then one day they break down and eat a cheeseburger and fries. Then they figure they’ve already screwed up the plan, so why bother to keep trying. This happens to many people who try Dave’s plan. They’re going along great and then they break down and buy a designer handbag (see the rebellion mentioned above). Then they figure that they’ve blown it, so why not get the shoes to match. They resolve to do better tomorrow, but it spirals out of control until they are back where they started. Then they are left feeling like a failure because they couldn’t adhere to this rigid plan and are more reluctant to try again. After all, who wants to feel like a failure? Dave doesn’t teach you how to stop the spiral, deal with the guilt of screwing up, and then get back on track. A more flexible, real-world plan takes into account the fact that we all screw up and shows us how to get back on track.

In what is the great irony of Dave’s model, he frequently advocates that you buy his books, pay to attend his seminars, or pay to join his website. While I understand that the man is a business, he is taking advantage of people’s desperation to get out of debt. Just like diets that promise you that if you buy their food or books or drugs you’ll lose weight, Dave advocates (in a subtle, master marketer’s way) that if you buy his stuff, you’ll lose the debt faster. The simple fact is, with diets or money advice, the more you shell out, the likelier you are to quit when it becomes too expensive. Some people say, “The heck with this. It’s costing too much and I’m not getting anything out of it, so I quit.” Then, not only are they still in a financial or dietary mess, it’s worse because of the extra money spent.

Dave teaches some good things, but his plan is too restrictive to be successful for all people. Yes, some people do very well under rigid restrictions and if this is you, I say, “Great!” However, the people that I have known who have succeeded on his plan have taken the basic steps and then modified them to suit their own needs and life situations.

I would encourage you, if you’re interested in trying his plan, that you modify it to suit your own needs and goals. Learn his baby steps, but also know what will enable you to be successful. Tweak the plan until you find a way to work it that works for you. You don’t have to follow him word for word. The Dave police aren’t going to cart you away if you go your own way. You can move up and down the steps as you need to, going back to an earlier one if you fall off the wagon, or jumping ahead if something is more important to you.

And don’t spend money for materials. You can find his books for free at the library, his show airs on the Fox Business channel, and there are several free websites that are dedicated to his methods. Some churches offer his classes for free.

Without modification of Dave’s plan, you might end up like a frustrated dieter who gives up on the plan because it ends up costing too much and doesn’t take into account the way you really live. Susan Powter, the fitness expert, used to scream, “Modify, Modify, Modify,” during every workout. It’s good advice, both for diets and financial planning.

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159 Responses to Falling Off the Dave Ramsey Diet

  1. TheChuck says:

    “Telling someone that they can’t go on vacation or out to eat once in a while is bound to lead to rebellion eventually. Either that or it may lead to depression.” Are you serious? Have we gotten to such a sad place that if as humans if we don’t get the toy we want, get to go out to eat, or go on a vacation we might slip into depression. That’s pretty pathetic. If you have a dream, like to loose weight, finish college, or build wealth, it will take serious discipline. The leeway you say you need is simply a lack of discipline. You can become financially secure with out Dave Ramsey. But you will never become, or stay, financially secure without discipline.

  2. Brian Leichty says:

    While Dave Ramsey does have good ideas about getting out of debt, etc., he doesn’t know the first thing about Investing. He used be an Insurance Agent before he became this self-help guru that everyone says is the greatest ever. I don’t buy into all of the Hype.

    A member of my Church congregation is planning to hold a Financial Seminar as part of Dave Ramsey’s Financial Peace University, and I am going to be watching very carefully to see that he doesn’t give the group attending misinformation about Investing and Insurance.

    I am a Licensed Life and Health Insurance Agent, but at the moment I am not representing any companies. Dave Ramsey is biased against Cash Value Insurance Policies, suggesting to his followers that they are better off purchasing Term Life Insurance Policies and using the difference to buy whatever they want. That is not only stupid, it is also dangerous because people who purchase Insurance have a need for something that they can’t find protection for any other way.

  3. Annette says:

    The first emergency fund is there for people who are paycheck to paycheck and have hardly ever saved that amount. You can make some quick sacrifices or work a handful of extra hours, or sell some things and get it there quickly. It is as much for piece of mind as for emergencies. Cuts your stress level.

    The debt snowball is second because the debt you owe is sucking your income; you are essentially “bleeding” financially. You have to stop the bleeding before your income can build any sort of savings/wealth, etc. It is designed to use all your earning power to knock out debt as fast as possible so that you can start that saving. He isn’t saying absolutely NEVER put anything into retirement at this point, but don’t focus on it until you are free and clear.

    If your goals are too general and spread too thin, it doesn’t allow an individual to fully focus and target them. Dave’s plan is designed so that to get the most out of it, you have to focus and “get intense.” You HAVE to make sacrifices or you DONT DESERVE what comes later. It;s not designed to be fun, and it will hurt, like ripping off a bandaid. Most people got into debt because they weren’t intense or focused enough, or didn’t budget, or maybe life circumstances. Sure life happens, derails the plan, but you get back up again.

  4. Abi says:

    Hmmm, interesting comments all round. All I know is that following DR’s plan, I now have $1,500 in my emergency fund, 4 months living expenses and all CC debt is gone in less than 2 years. I didn’t follow his plan word for word though. I modified it for my life but I followed the general principles and it has helped me be more disciplined about money.

    If I need something, I find out how much it costs, look at my budget and target how much I need to put aside and for how long. Instant gratification no longer exists in my life. And even then, if I can continue to breathe and remain healthy without it, then I probably don’t need it! I set aside blow money every month for myself and most times, I don’t spend all of it and just put the rest into my BS3.

    I have comprehensive health insurance, car insurance and home insurance and the only emergency I’ll ever have which I will need to pay for myself is probably minor repairs on my car. I’m single in my 30s if that makes any difference. I still have some way to go to my financial goals – about 20 months but DR’s plan set me on the way to it.

    In the end, take what you can from his recommendations and do what works for you as long as you are pulling yourself out of debt and building wealth!

  5. Workinman says:

    His plan works. What Jennifer fails to appreciate is the emphasis on a budget, making every dollar behave. There is money for fun but it has to be budgeted. Frankly, there are some people that have so much debt that this amount needs to be limited. I’m on step 6 and nearly there. As far as investments, good companies such as Vanguard and Charles Schwab have been very helpful in helping me to choose good, low cost funds, many of which have averaged over 10% over a 30 year time span. When you are disciplined and invest regularly over a long period of time in diversified funds, compound interest will reward your patience. I can tell you that I, for one, will go with what Mr. Ramsey says over what Ms Jennifer says and will be happy for it.

  6. The Brutal Truth says:

    Dave Ramsey is the king of the talk radio blowhards. He consistently calls people names. He steers people to his “providers” who became “providers” by paying him a fee.

  7. Steve Andrews says:

    The author of this website can’t have taken Dave’s class. If they did, they’d realize their arguing against things that Dave doesn’t even teach! Don’t have any fun, no vacations, etc. Dave doesn’t teach that. Even when you’re paying off your debt, have a line item in your budget that is for entertainment. He also includes line items called “blow money” (for whatever you want), and to save towards a vacation. The key is to budget! Have a plan for what you are going to do with your money, not what your money is going to do to you!

    As towards the order of the baby steps, there’s a reason. Compound interest on your retirement is fantastic, but compound interest also works against you when it comes to debt. If you have credit card debt, it’s likely anywhere from 16-25% interest, compounding on you, compared to stashing away for retirement compounding at 8-12%. That’s not a winning formula.

    “His plan does nothing to teach behavior modification.” What do you call budgeting? What do you call paying off debt and taking on no more debt? What do you call learning how to give and bless others? Dave does teach that stuff from the start. And he does talk about what to do with wealth, a lot in fact. In the Legacy Journey, he even goes as far as to say that you should have a second budget if you’re in baby step seven. Take whatever income you think you can live on, and establish your regular budget. Then, set up a second income that is percentage based. It has three lines: give, invest, and spend. Take some of your excess income, and give it away to bless others. Invest more so your income continues to grow. And then live it up a little, enjoy the fruits of your labor, above and beyond what you’ve already got in your first budget for enjoyment.

    I’m sorry if I come across harsh, but I saw no negative comments here. This article is poorly done, with ZERO research. Don’t trash someone unless you actually know what you’re talking about. The arguments in this article are baseless. Dave’s class talks about all of the things you claim he doesn’t.

    I just finished teaching the class last night. Nine weeks, eighteen people. We came in together with $101000 in debt. We finished with just $32,000. Plus, combined we had saved and invested an additional $33,000. Many of the group can now scream “WE’RE DEBT FREE!” and not one of them had anything negative to say. Not even the single mom in my class, with debt up to her eyeballs. She was working the plan. Even at a below-poverty level income, she paid off $1000 of debt in six weeks. She nearly cried when the class applauded her. I’ve seen this class bless many people, and I’ll stand by that. Is it perfect, no. Are you? I’m not, Dave admits he’s not. We’re sinners, but God’s got a plan for redemption. For all of us.

  8. Thorlak says:

    “We’re sinners, but God’s got a plan for redemption. For all of us.”

    god has nothing to do with financial freedom; but then again, instead of giving some good hints, you are here spamming with religious bullshit.

    I will tear these a new a-hole:
    1. $1,000 to start an Emergency Fund
    Last time I checked, $1k isn’t a lot a money; this won’t even cover a small emergency, let alone a major one. Realistically, you will need at least $5,000 for a “small” emergency; $10,000 if you are thinking realistically.

    2. Pay off all debt using the Debt Snowball
    The debt snowball only works if you are irresponsible enough to have several loans or debts. If you have several credit cards, consolidate them into one; my wife and I did this with 3 of her credit cards. We got 18 months with 0% interest, zero transfer fees, and no annual fee. If you cannot pay off your debts in time or you acquire too much debt, it is time to talk to a debt consolidation expert — not the idiot on tv.

    3. 3 to 6 months of expenses in savings
    The average amount of time that people spend between jobs is about 15 months. It took my wife about that much to find a job in her field out of college, so we had to live on far less than we do now. If she lost her job today, we would need to have saved about $57,000 to cover 15 months — in case she didn’t find a job right away.

    4. Invest 15% of household income into Roth IRAs and pre-tax retirement
    It is funny how much people hate taxes, but then demand for the government to pay for everything. Taxes are a part of life, deal with it. Since you are a “religious person” (or at least you just give lip service to god) even Jesus told you to pay your taxes. “Render unto Ceasar, what belongs to Ceasar”.

    5. College funding for children
    If you do decide to have children, keep it in a savings account, not a education account; if you don’t have children, save the money for yourself.

    6. Pay off home early
    Buying a home in this shitty market is a terrible idea. My wife and I already decided long ago, that buying a house was a terrible “investment”.

    7. Build wealth and give. Invest in mutual funds and real estate
    Donate to humanitarian charities; not churches. Where do you think your pastor gets the money for his car and house? You are paying it, and the money he doesn’t pocket goes into buying more religious propaganda. Again, buying houses is a waste of money.

    I also don’t see you giving any actual advice on how to save money or how to get rid of debt.

    Here is some real advice; and I won’t charge you a fee for it:
    1. Create a budget and figure out your expenses versus your income. From there, you can plan accordingly. If you need help, go to your local bank; many of them are giving free classes on how to make and manage a budget. No need to go see the windbag known as Dave Ramsey.

    2. Open up a free checking account at a credit union and save up at least $10,000 for emergencies only. A shiny new phone is not an emergency; a family member is in an accident is an emergency.

    3. Have some petty cash at home, for those unexpected expenses. Some places will have their card readers broken, so it is nice to have some cash on hand. Have at least for 1 tank of gas plus $20.

    4. If you have several credit card debts, transfer the balances over to a promotional 0% interest card. If your debt is not payed off in the promotional time; transfer them to a different card with the same deal or one similar.

    5. Save for at least 15 months worth of expenses in case of unemployment. Figure out your monthly expenses plan for 15 months with no income.

    6. If you have some money left over, even if it’s just a few dollars, put it away in savings. You can worry about pensions and 401k’s when you have a bit more elbow room in your budget to “play” with it.

    7. Invest in life insurance. If you are married, you should each get a life insurance policy, in case something happens to you or your spouse.

    8. Get your end of life legal paper work and other important documents filled out. What will happen to your belongings when you are gone? If you are in a coma, how long do you want to be on life support? If you cannot make any medical decisions, do you want your spouse or a legal adviser to make tough decisions for you? In the event of a unexpected event, this will be one less thing you will have to worry about.

    9. If you decide to have children, plan for them at least a year in before you “try” to have them. It takes a lot of work and planning to have children, a lot more than people with children will tell you.

    10. Exercise. Get up and go for a walk. If you don’t like to exercise, then enjoy a slow and drawn out end of life struggle.

    11. Ask for help. If you need someone to talk to, find a friend or family member who you trust and tell them about your problems. Even if they can’t help, telling them will help you sort out the problem and it feels good to let some steam out.

    Tell Dave to take his advice and shove it.

  9. Romeo says:

    Dave Ramsey is over rated. You can learn a lot more by branching out to other authors and doing your own research. Too many cult like followers of him in my opinion.

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