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. Dan says:

    Your comments on Dave’s strictness and almost “narrow mindedness” are right on. I like his plan and it does work, but we had to do what worked for us. We modified it a little and wrote our own. Our biggest obstacle is that we did it and tell others how for FREE! We don’t charge people money to tell them how to save money. We wrote a book and give most of them away. “Does God Prefer Paper or Plastic”. It is not rocket science and frankly I’m suprised that he tells people who are upside down on their cars to immediately sell the car for a loss and take a loan to cover the difference AND go get a loan for a $3000 or $4000 cheap car. WHAT? Now they are upside down on a clunker that with monthly payments the same as they had most likely because the interest rate would be rediculous. I know his philosophy is “I’d rather be $10,000 in debt than $20,000” in debt. Trust me, the math does not work out. Do what you have to, but drive what you’ve got until it farts on the road some place and you get it paid for.

  2. Mike says:

    His program is as much about human psychology as it is finances. You’ll hear him reference “The 7 Habits of Highly Effective People by Stephen R Covey” all the time. When you look at Dave’s program you’ll see that it’s modeled on the 7 Habits.

    Do people fall off the wagon on Dave’s plan? Sure! But if they can’t stay on a plan as simple as this are they ever going to be in control of their money?

    Has Dave been able to profit from helping people with finances? Sure! Isn’t starting a business for profit the American way? Still is in my book.

    At the end of the day I would rather see someone spend $14 on the Total Money Makeover (or $110 on Financial Peace University) rather than loose $225 “a month” in credit card interest until Dave woke me up. Sure wish I had at least some of what I paid out in interest back now that I’m about to start “Baby Step 4”.

    However you chose to manage your finances I hope you attain Financial Peace as I have.

  3. Megan says:

    Your article is very inaccurate. Try again next time

  4. Mike says:

    Very inaccurate how?

  5. Tyler says:

    …posted by squeezed..”I worry about the many Christian followers of Dave

  6. Queda says:

    Did you go through the 13-week Financial Peace University? If not, you don’t know what you are talking about. The whole premise is to teach people to focus on getting out of debt and getting your finances in order. It all boils down to choices — we all have to make them, and — each person is in control of their own finances, he does not do that for you.

  7. Charles says:

    I make it a general rule to only follow financial advice of people who are a (verifiable) multi-millionaire.

    Now, of course, I don’t follow the advice of all multi-millionaires (Paris Hilton), but I do make that a minimum requirement before I’ll consider what you have to say regarding money.

    I would also encourage non-multi-millionaires not to dispense advice.

  8. @Charles

    “I would also encourage non-multi-millionaires not to dispense advice.”

    Follow whose advice you want, but I don’t think people’s advice is less valuable just because they’re not multi-millionaires. Some may well be multi-millionaires in the making, but many of us have no interest in becoming multi-millionaires — and that doesn’t mean that we don’t know about money, it just means we have different goals and realize that money is the tool, not the goal itself.

    I don’t know if I will be a multi-millionaire one day, but that’s not my goal. My goal is to live well on relatively little, with a large enough nest egg for emergencies, retirement, etc. And while I’m still getting out of debt, I have learned from my mistakes, have changed my ways dramatically, and am making great progress towards my goals. I don’t expect everyone to take my advice, but I put it out there because that’s my way of giving back, paying forward for the advice I got from those that helped me get on the right track — and I don’t think a one of them were multi-millionaires.

    So, should I just shut up for a few decades till I’m a multi-millionaire instead of trying to help people with advice that I know is good because I’m living it?

    Personally, I’d hate to live in a world where we only listened to multi-millionaires about anything.

  9. Dan says:

    It’s Dave’s plan (well not really, but for the sake of this article that is how it is to be viewed). People can take it and make it their plan. People can take it and modify it and make it their plan. Any of it might work. I agree Dave leaves some adjusting room in the plan but is pretty hardcore on most of it. But that is what most of his audience needs. If they knew how to come up with their own plan, they wouldn’t be going to him in the first place.

  10. Joe Morren says:

    I think you need to listen to Dave’s radio show. He is running a business yes. My wife and I did his plan without buying a membership to his FPU or on his website. We never liked a whole lot of debt but we had some. It took some intensity to accomplish becoming debt-free except the house. This was totally worth it though. We are currently working on steps 4-7. It takes some work and sacrifice but we still try to squeeze out a few indulgences once in a while. We are winning with money and thanks to Dave get out of debt plan we will succeed. I am very inspired by listening to his radio program every day.

  11. Keith says:

    First, there are a few things you missed in your critique that are quite common if you are not a regular listener to the show. The $1000 is designed to be low to create the motivation to get done in a hurry, therefore building it up sooner for comfort. Also, $1000 is a common deductible amount for homeowners and car insurance, 80% of emergencies. As long as health insurance is in place, not much else could cost more than that. This is not a mathematical set of steps.

    He even admits it on his show at least once a day, if not more. This is about changing behavior. This revolves around creating intensity in the individual.

    If this were about math, people wouldn’t be in debt in the first place, now would they???

    Let’s take an example of someone who has no debt, maybe a college graduate with their first job making $40k a year.

    You can skip step 2, so you go straight to the full emergency fund. Then 15% into retirement, which is a little over the max Roth amount of $5k per year. From age 22-62, this turns into $2.6 million, tax free. I think he will be fine.

    The other reason behind doing the debt snowball first is that it normally takes between 18 and 24 months to complete step 2. The compound interest, when compared to 20-40 years of investing is a drop in the bucket, and you gain the intensity and practice of running a tight budget over a 1 or 2 year period…again, behavior modification.

  12. Jere Hodges says:

    If you don’t have the discipline to make it work, no debt-reduction plan will work for you. The “magic” of Dave’s plan is that I didn’t have to put a penny of my money in his pocket to get out of debt using his program.

    In fact, I wrote my last debt payment the day before I bought two “Debt Is Normal, Be Wierd” bumper stickers. The man gives away well over $1000 per day in free training/seminars/etc to listeners who he thinks deserve a little help getting started.

    No one says anyone has to do it his way. But when it’s used the right way, it works.

  13. brian says:

    considering the alternatives out there today, Dave Ramsey’s plan is hands down the best way to go to gain financial peace. He has developed a plan with steps that anyone can succeed with. You have the option of buying Daves books and classes, but you also have option of listening to his Free radio show and listening to archives of his show on line for free. With any program you should look at the Benefit/Cost Ratio, i.e. what benefits you gain (how much you pay off and save), vs how much $ it cost you to learn the program. At most you will spend $130 to attend Financial Peace. If this helps guide you to pay off $25K in debt and save $15K for emergencies and continue saving, isnt the $40K turnaround worth the $130 investment? thats a 307:1 Benefit/Cost Ratio.

    and for those that criticise Dave for giving simple advice and charging people for it, Hello – read his prologue in his book. Dave says he’s not reinventing the wheel, he’s giving you grandma’s advice. So just follow it!

  14. Emilie says:

    I do agree with poster number 5 that most financial gurus leaves too much room. I like strict plans because when I put my mind to it, it must be done. And if it doesn’t get done fast enought it won’t happen at all.

  15. Gary says:

    Does anyone know, or can anyone explain how Dave earned money to rebuild his wealth. As I heard him explain in a live seminar, he worked in real estate, overspent, went bankrupt when the banks “called” his loans. Then there is a big gap in the story of his life that he skips over both in his live performances and in his books.

    As a former bank officer, I can tell you that once bankruptcy is filed, it is impossible to get financial institutions to offer you credit (i.e., for the purchase of real estate). I’m interested in “exactly” what career or business he was in during that time immediately after filing for bankruptcy that allowed him to earn enough cash to rebuild his wealth. I doubt it was a common regular paying career with a company such as the masses work for in the U.S. If he had an angel investor or inherited money to allow him to re-enter the real estate market and parlay that into his multi-millionaire status, then that might explain how he bounced back. However, if he used his sad story, charm, charisma, and the Bible Belt evangelical strategies of preying on the financially weak and uneducated, then he is a charlaton in my book. I am suspicious about the period of his rebound and how he earned enough CASH to supposedly bounce back on his own by purportedly following the financial principles he now professes, without taking advantage of people who don’t know any better. As an executive financial planner myself, I often have to respond to Dave’s step-by-step process that a client of mine heard on T.V. when I am individualizing their financial plan. He has some good financial principles, so don’t get me wrong. Some make really good sense depending on age, educational background, current earnings, future earnings, etc. But some do not make any sense at all when individual circumstances are considered.

    I just want to know if this guy really rebuilt himself after bankruptcy or whether there is something he has not disclosed that allowed him to make it big after a financial disaster. If he can provide an audit trail of exactly how he rebuilt himself from financial ruin, then my hats off to him. But until I hear that detailed play-by-play, I will continue to hold a heavy dose of skepticism in my mind about him.

    I’m a strong Christian believer, so I hope he can explain himself. However, too many purported Christian evangelical practitioners are getting very rich, living lavish lifestyles on the backs of lower and middle income Americans. I for one can’t stand it. I hope Ramsey isn’t one of these “frauds” in our society.

  16. Ethan says:

    To Gary.

    I too found it suspicious. I have thought about it a lot and always listened intently when he explained how it happened. Here is my conclusion:

    Dave owned many properties when he went bankrupt. He was house poor. He had tons of assets and no cash. All his assets were in different LLCs. When the banks called his loans, he had no actual cash to pay up on houses that were leveraged for more than they were worth so he couldn’t pay his loans, his taxes, or his credit cards causing him chaos – and when you’re 24ish, that is a scary thought which would make one jump readily into bankruptcy.

    However, the reality is, under his belt, he owned enough assets to sell (along with a very wealthy father to help him out with cash – remember, he never says anything about accepting cash gifts from relatives when times are tough, he just speaks against borrowing from relatives) where, once the housing economy recovered, he was able to sell and within a mere couple of years, be practically a millionaire again. These assets couldn’t be touched because they were separate LLCs which he said he creates for each investment property.

    To make a long story short – in my opinion, the bankruptcy did pretty much nil except create some cash and allow him a couple of years to recover until his other investment properties regained their health and he was able to sell in order to bank. It is impossible that someone with such an extensive real estate investment trail who owned “hundreds” of properties were all the sudden called on by the banks for each and every single property. It was properly more like 20% of them, which if you’re highly leveraged, could be enough to suck you dry of cash flow.

    The reason why I believe he skips over this detail is two fold (1) it seems like a bit of a sham to the listeners and (2) it is still technically in line with what he preaches. I believe he did go bankrupt and he was house poor and I believe his couple of years post-bankruptcy were tough but I also believe that his bankruptcy was a mere hump he had to get over till cash flow liquidation, rather than bankruptcy out of true poverty like most face. To make a long story short, he was a millionaire before his bankruptcy (on paper), during his bankruptcy (on paper) and after his bankruptcy, (on paper and in his wallet as well). And yes, its much easier to follow Daves’s advice if you know in a couple of years from now when a market recovers you can sell tons of property and be living a millionaire again one day. And THAT is the party he doesn’t mention on the radio.

    But if you listen closely, Dave never promises you’ll be a mega millionaire like himself if you follow his principles. Just that you’ll “build wealth”, the definition of which varies, depending on your economic status in life.

    This is just my opinion from what I’ve gleaned listening to him. I could be (and probably am) wrong.

  17. Keith says:

    For the last 2 posts, I can fill you in.

    First, Dave is 49. His loans were called due when he was 26, in 1986. At that time, the retail value of his portfolio (not in LLCs in the 80’s) was over $4M. His loans totalled almost $2M.

    When his bank was sold to another (that NEVER happens these days), they called them due, and he had 90 days to pay in full. As you can imagine, to sell all the properties within 90 days, he had to sell them CHEAP, and had $300k remainafter all was sold. He went back to selling real estate, and tried to work through the debts. At one point in 1988, the remaining creditors sued him and began wage garnishment to the tune of over $150k, and he filed chapter 7 on that amount.

    This is a matter of public record, so there is no disputing the numbers, and Dave has repeated this chain of events many times through his radio show, his live events, his FPU, and his high school curriculum.

    As far as how he rebuilt, it was not overnight. He was not even a millionaire again till the late 90’s. He continued in real estate after the bankruptcy, and started counseling people in his church on how to handle financial stress. With a finance degree, he parlayed that into a counseling business. After a few years of this, he wrote his first book, Financial Peace, in 1992. He self-published it until 1996. His radio show started in 1994 in Nashville.
    What made him a millionaire was not the book or the financial counseling, but the skyrocketing syndication his show achieved. He also did not work for another company like Hannity or Limbaugh. The show, the building, the studio, and all contract negotiations are by Dave himself.
    To this day, however, if you are in financial straits, you can call his office, and they will counsel you at no charge. If you can afford it, they will refer you to a counselor in your area with a charge (I am one).

    I hope this answers your questions and addresses your doubts about the man himself. I have never known anyone with a more steady moral rudder in my life.

  18. Jon says:

    I found that Ramsey’s teaching can be understood without his books, seminars, or training opportunties. I just listened to his radio show and read his forum (the free portions) and have paid off 22k in two years making around 20k per year. It has been difficult, but without the “survival mode” response, debt will continue to eat away your income.

    As for investing, I’ll take the guaranteed return of XX% of paying off debt to the hypothetical return on the stock market.

  19. roger says:

    Does anyone realize that compounding interest works for both savings AND debt. The reason Dave thinks you should pay off debt first is two fold. First, *typically* interest rates for debt (think credit cards) is higher than that of savings or even investments. Even when its close, high return investments aren’t guaranteed. Second, is his desire to simply avoid debt. “The borrower is slave to the lender and all”, but i don’t need to get into the second one.

    I want to touch more on the first one. Compounding interest works both ways. The reason it doesn’t look the same is because credit card companies force you to pay the interest, while banks don’t force you to spend the interest you make. Therefore, mathematically you’re better off putting money towards whatever has the highest interest rate. (Ok, well taxes and other things can change the ‘effective’ interest rate, but we’ll ignore that for now). I’m sure Dave is well aware of compounding interest, unfortunately some of the rest of us aren’t.

    Oh and another note. I love Dave Ramsey, but I don’t follow his plan to the T.

  20. krysten says:

    Obviously this blog was written by someone who does not know Dave Ramsey’s plan in-depth. Some of the things stated here are blatantly wrong (i.e. saying Dave says to invest in real estate instead of mutual funds…he has NEVER said that, he always talks about how mutual funds are fantastic investments ALONG WITH real estate that is paid for in cash)

    I can appreciate the analogy between dieting and personal finance because they both require something difficult: DISCIPLINE. The fact of the matter is that goals of any type are reached through discipline, and usually during the beginning of attempting to begin the path toward a big goal like losing weight, paying off debt, or running a marathon, a strict program must be adhered to in order for behaviors to change. Then, once these changes in behaviors become second nature to you, you can begin to relax a bit. That’s what the information that Dave teaches is really all about. Most people these days have never had discipline and self-control when it comes to finances, which is why most people in the US have very little savings, know almost nothing about investing in the future, and actually think credit cards are real money! Get a clue, people…it takes discipline and common sense to win with money or really in any area of life.

    Everyone is entitled to their own opinion and ways of handling their money. I know from experience that if you follow the plan that DR lays out, it does work. It also changes the way you handle your money for the better. But please, before you write a criticism of someone’s program/book/etc… you should be much more familiar with it.

    And one more thing…since when is it a moral crime to get paid for creating, marketing, and distributing information that helps other people? People need help managing their money. Dave sells information to help them improve that area of their lives. He doesn’t charge millions of dollars for it. Its a small investment to make for life-changing information that really works if it is applied.

  21. fat daddy says:

    I love this blog post since it says almost exactly what I’ve been feeling about the “Dave Ramsey Way” for a while now. In my opinion, his baby steps totally fall apart in the real world. I can’t believe he actually tells people to not save for retirement until all non-mortgage debt is paid off. If your employer offers a match in your 401k, that could add up to tens of thousands of lost dollars while you’re throwing every cent towards debt.

    I also never understood why there’s no baby step for saving up for non-emergency things like a car. He is so rabidly anti-debt, but if you follow his plan to the letter you’re probably going to end up having to finance a car at some point before you reach step 7 unless you totally drain your emergency fund.

    I tried living the baby steps for about two years, thought it was a good way to get started, but pretty much went my own way several years ago after getting a little more than half-way through the debt snowball. I pay a few hundred extra towards my mortgage each month, but I’m not about to go all “gazelle intense” about it. I think I’d rather have a vacation savings fund, a house repairs fund, and a car replacement fund instead so I won’t have to worry about going right back into debt after I finish paying it off.

  22. John says:

    I think that whoever wrote this needs to do more research. I am on the Dave Ramsey plan and have “budgeted” in money to “blow” and to go out and eat and to have fun. I dont feel restricted in the least. I have more money to go around, am putting money aside for vacation, am paying off debts gazelle intense, and am having fun and loving the new found financial freedom even on baby step 2. In the real world as the writer puts it Dave teaches budgeting, If that is not learning moderation, then what is.
    I do agree with the tweaking to meet your needs. Example. I still plan for retirement. Its just in the budget. I didnt sell my truck. It was in the debt snowball. Why give up a dependable ride to take on a clunker. My daughters college money was also in the budget. Not gonna wait 3 years or more to start.
    Ohh and I think Dave does have a clue Joshua. He does speak directly to compounding interest.

  23. tom says:

    to the posts just above,

    Dave’s increased income from the radio syndication allowed him to start investing in real estate again, this time with cash purchases. He mentions this on his how.

    Also, after his BK, he has stated on his show that he and Sharon went back and paid off the debts that had been cleared as part of the BK because they felt like they were led to do so by the Holy Spirit.

    To the poster who says Dave’s plan lacks things like saving for a new car, keep reading. It’s in there, it just doesn’t get its own baby step.

    I hate to say it, but Dave has had an answer for every argument that shows up here. they’ve all been asked on the show before, and they’ve all been shot down. If they bring up valid points, he changes things. In the early days, the baby steps were in a different order. They are the way they are because of years of “daily life” have formed them as such.

  24. Evan says:

    All I know is that using Dave’s Plan I have paid off over $300,000 in debt the past 18 months and I’m now debt free. (Baby Step 2) We are working on having Step 3 accomplished very shortly.

    He may not be for everyone but he can help most people out of the mess they are in.

  25. John says:

    It isn’t rocket science people.

    Step 1. Unless your home needs new wiring, a new roof, or your ’81 Datsun needs a new engine, you can handle any emergency with $1000 and a little leg work/sweat equity.

    Step 2. Compounding interest works AGAINST you as well. Lose the need for immediate gratification society demands and pay off your debt. Translation: Quit spending more than you make.

    Step 3. In the current economy this might be the most important. If I lost my job tomorrow – which none of us is immune to – I would be able to job hunt and not feel inadequate taking minimum wage in the meantime – income is income.

    Step 4. Pretty soon your disposable income is working JUST for you. Too many hands in the cookie jar empties it real quick and Uncle Sam takes far less than Uncle Credit Card Interest.

    Step 5. Student loans charge interest too, even if it is a quarter of other lending products. And I’d rather keep my money during the year instead of waiting twelve mos. for a credit

    Step 6 & 7. Here is where there is the most room for tweaking. By now the largest debt you have, your home, is the last debt to pay according to the snowball method – which, by the way, even Oprah dedicated a large segment of her show to several years back. Pay off your house early AND build wealth at the same time. Hopefully you can all multi-task. Mutual funds and real estate are the fastest and most liquid investments, respectfully. The monthly investment in a fund buys MORE in an economic down turn, and nets MORE in an up turn.
    If you pay $200k for an average home and it grows a MODEST 5% in five years, you’ve made $10k(put that income in your mutual fund). Average home value increase for the median U.S. home is 15% every 10 years between 1940 and 2000, taken right from the census web site. Assuming you can rent it for more than the monthly mortgage(ceartainly not out of the question in a decent economic forecast), AND your down payment is 20% – which it SHOULD be if you are buying any real estate – you ARE making money – even after maintenance costs(more leg work/sweat equity). When the economy turns down, sell the house – even if it’s at a minor loss – and put the net profits into the mutual fund. Scrooge McDuck said, “Work smarter, not harder,” and that’s exactly what your money will be doing. One caveat(warning), however, investing is like comedy, timing is everything.

    Dave’s motto is this, “Live like no one else, so you can LIVE like no one else.” My motto is “Keep it simple, stupid,” and Dave has simplified fincancial advice. ‘Nuff said!

    Any questions/complaints, comment

  26. Liz says:

    I didn’t read all of the comments, so I apologize if this has already been stated. I have to disagree with the whole idea that DR’s approach leaves no room for fun and is too restrictive. You CAN have fun, you just have to budget for it. “Give every dollar a name” even if that name is entertainment. He also encourages a category in the budget labled “Blow Money”. It’s just what it sounds like. An amount set aside specifically to just blow on whatever. You don’t have to justify where the blow money goes, you just have to name it as such and not overspend the category.

  27. Cam says:

    Dave does teach about compound interest. Also, the $1000 emergency fund is just a “starter” to help you w/ the bumps you may encounter while starting the plan. Dave says your final emergency fund should be 3 to 6 months of expenses.

    Anyway, here is the compound interest clip.


  28. The Truth says:

    Dear Jennifer Derrick,

    It is so painfully obvious to me that you are either, 1) Misinformed, or 2) completely clueless, about Dave Ramsey in general and specifically his program. Anyone who spends some time listening to his radio show understands what you do not. By the content of this article, one must assume you are either a slave to debt or you just plain don’t like Dave Ramsey. Either way, it makes no difference. The problem comes when you choose to write an article that is a complete misrepresentation of the truth. Please do better research next time. I encourage anyone who has read this article to do your own research of Dave Ramsey. Simply try listening to his radio show prior to spending any money on his products or services, then decide for yourself. By the way, the rich get richer and the poor get poorer is not just an old saying that we’ve heard forever. It is true. The reason is simple. The poor keep doing the stupid things that make them poor and the rich keep doing the things that make them rich. You will never see a poor person get rich without changing their financial habits. Unless one wins the lottery. Ever wonder why they end up losing it all? You will never see a rich person stay rich by handling money like one who is poor. This is just one person’s well informed opinion. Best wishes to all who are striving to get out of slavery, debt slavery that is.

    God bless!

  29. JOY says:

    I think Dave Ramsey has done some good for many people – people need to follow someone many times to get straight. Heres my problem with Mr. Ramsey. First, I believe, during his hard times he filed Bankruptcy to “rid him of his debt” – doesn’t sound like a snowball to me – ONE GIANT SNOWBALL. After this it would be easy for anyone to “start fresh”, but rice and beans and being called “an idiot” many times by Mr. Ramsey (to many who have called in) – is just “not right”! He can pay cash for anything NOW and most likely could, before getting rich, because he took the Bankrupcty route. I don’t think he is a certified financial planner and his advice stinks many times!
    I don’t think a man “OF GOD” (SO HE SAYS) SHOULD be calling
    people Twits and Idiots – JUST NOT RIGHT IN MY BOOK.

  30. Connie says:

    We took the Financial Peace class at our church. We gained some very valuable wisdom through the class and have actually (using the methods he taught) been able to make some great progress on our personal financial goals. We’ve experienced some freedom with our finances and learned to communicate in a better manner about this area in our marriage. Obviously, it may not be for everyone, but I certainly recommend it. Working for us so far.

  31. Boris says:

    His advice and the order of the “baby steps” is unrealistic in many cases, mine in particular. I’ve been laid off twice since 2007, and I’m really glad I managed to keep one credit card and keep my FICO score up so that I can obtain loans to finance my continued living indoors until the contract job I finally managed to obtain pays me what I’m owed. Dave says you don’t need ANY credit cards, nor do you need a FICO score, but he is dead wrong. When you are self-employed, you have to have access to either cash or credit in order to remain afloat while waiting for the funds you are owed from work performed to come through. That’s just REALITY. It was good advice starting out, and I paid off a good bit of debt, but considering my current circumstances it’s totally unrealistic and if I had a do-over, I’d do it way differently.

    The contract job pays decently, but it just started last week, provides no health insurance and effectively cancels my eligibility for continued, regularly scheduled unemployment benefits, which I had never filed for in my life until this most recent job loss. The layoff was totally unexpected, I thought the job was more secure than it was, and so unfortunately I found myself with $1000 in savings and my final paycheck, including two weeks of severance, to tide me over. This all happened as a result of my “gazelle intensity”. I should have been gazelle-intense putting money in the bank for a rainy day, because it’s pouring now. Dave’s advice does not help me now AT ALL. I am permitted to send an invoice once a month, terms Net 30, and then I have to wait patiently for the ultimate client to pay my contract employer for the time and expenses I incurred PERSONALLY before they can pay me. This means I can expect to get paid in September or perhaps even October for work I did in July (one hopes). In the meanwhile, the rent keeps marching on. The order of operations should be switched on the baby steps . . . 3 to six months of living expenses in the bank, because all the rest of the steps predicates on being able to find and maintain a job in this economy, a pre-condition that one is increasingly less able to count on.

  32. Matt Blowers says:

    Dave’s plan rocks!! My wife and I have paid off a ton of debt and hope to be payment free except the house by February. Thank you Dave!!

    He teaches ONE basic principle: personal responsability. No one else is gonna do anything to help you out so you’d better get your butt in gear. For all the whiners, use common sense. My wife and I call ourselves eightyfivers, meaning we follow his plan about 85%. The other 15%? Dealing with Murphy and all his issues does derail the plan at times. Had we not started 18 months ago, we would not be in control of our lives now. It has changed our lives way beyond our finances.

    IF you aren’t sick of life happening to you. IF you aren’t ready to grow up and take responsability for your own life. IF you don’t think you can be an adult and own what happens to you (that’s right, your poor luck is not Dave Ramsey’s fault either), then his program MIGHT NOT BE FOR YOU! IF, however, you do want to change. IF you want to determine where your life is headed. IF you’re sick of the same financial stress year after year. IF you just keep waiting for that break that never comes that you think will change your life. THEN GIVE THIS GUY A SHOT, IT JUST MIGHT CHANGE YOUR LIFE!!!

  33. Nathan says:

    Dave’s plan is all about making a decision to change your attitude about personal finance FOREVER. I agree with the writer on this one point. If you are weak, then you won’t be able to follow. But the ones that aren’t weak and make the decision to change their beliefs about personal finance, come out on the other side with a level of understanding that everyone else will just never get.

    Debt cost you more than interest you get on investments. It’s laughable that the writer doesn’t understand this. Because its not about how well you do math, but modifying your behavior. This point alone is what seperates the people that get dave and the ones that do not.

    Dave is very open about the money he makes with his system. He tells people constantly on air that he’s made millions selling common sense. Its not a sneaky pyramid scheme. He’s telling you, “I’m making money off of you”.

    The people that don’t understand Dave are the same ones that look at fit people and wonder why their half A$$ diets and 2-day a week gym sessions don’t get them in truly great shape. You have to take your commitment to an entirely new level and some people are just too weak to do it. The ones that don’t will continue to suffer, think that they need credit cards, and still give a [email protected] about a stupid FICO score, while the rest prosper.

    If you are critical about Dave, then take your current approach to finance and answer this question. “How’s it Workin for ya?”

  34. Julie says:

    I have to say that I support Dave Ramsey 100%. His steps are difficult to achieve, but well worth the suffering. I’ve gone to my local CPA and asked him advice on some things, like paying my house off as fast as possible, and my CPA’s advice was the same as Dave’s.

    Following Dave’s plan is not for those not willing to put forth 110%, take full responsibility for where they are at, and be accountable. I have taken on a second job and have no life beyond work right now. But, I am energized by how fast I am achieving my goals. As Dave says, live like no one else so you can live like no one else (later!).

    Our culture says credit card debt and debt in general is OK. It’s not. I urge everyone to set a higher standard for yourself…one of being debt-free. Listen to Dave’s shows and you will get used to the ideas and concepts. They will make sense.

  35. Luke says:

    I’ve practiced Dave’s plan and it definitely works. It teaches discipline, which is key to being successful at managing one’s finances. Sure, things come up that may require one to deviate slightly from the Baby Steps, but after the emergency is over, one can pickup right where they left off.

    The Baby Steps work – and $1,000 is enough to cover most any minor emergency, so dissing that amount as inadequate is completely irrelevant.

  36. Bethany says:

    I wonder how many of these negative commenters actually have any wealth? I had never heard of Dave Ramsey, but my husband and I accidentally followed “his” plan. We put aside $1,000 for emergencies and then paid off about $32k in debt in one year. ($1,000 IS enough for most emergencies. If I dipped into the fund, I brought it right back up to $1k the next month.)

    I started talking about how debt = indentured servitude and how we got sick of drinking the stupid kool-aid about what we “need” to have and buy and how debt is just a “fact of life.” Someone mentioned I sounded like a Dave Ramsey fan, so I read some of his books. I am now! I already know the first few steps of his plan work, so I am listening to the rest of his advice.

    I do not think he is too rigid in his recommendations. We are sort of in limbo now, paying off the rest of my student loans, having a child, and looking to buy a home (not his way, though, but we are getting a reasonably priced home that we can afford to pay off in a few years.)

    Oh, and I never stopped adding to our Roth IRAs, each month. I just did a small amount each month, but I did not stop. Once we get settled in our new home and pay of the student loans, we can up the retirement contributions a lot while paying down the house. That is pretty much in line with Dave Ramsey’s plan, too.

    I think Dave Ramsey gives great advice!

  37. T says:

    “Debt cost you more than interest you get on investments. It

  38. Paul says:

    Thanks to Dave we eliminated $60,000+ of debt in 18 months. We now pay cash for cars, vacations, and everything else. Three kids in college, no loans. Was it tough? You bet. As Dave says, we had “to live like no one else so that today we can live like no one else.”

  39. Troy says:

    I was given one of his books as a Christmas gift. After reading the first 60 pages, I can say, I already do most of his plan. I agree with above posts. It’s geared more toward the credit card overburdened who are well within the reaches of losing their home, their life is out of control, etc. Most of it, imho, is common sense. don’t spend more than you have. It’s simple math really. you can’t win or save if you spend more then you take in. That’s why he loathes credit cards, and in the book I read, mentions debit cards as an alternative – as well as cash. The point here is, if you don’t have the money – don’t buy it. you need a credit card to rent a car, or book a hotel, so – use a visa debit card. paying cash, is a visual tool. if there’s no cash in your wallet, you can’t buy anything. You can however – see how fast it disappears. you can’t with a card.

    My wife and I are young – mid 30’s – and here is how we live. We have a home – which we recently financed to 3.75% – and only owe 15 years left. we have 2 kids. 2 vehicles. no credit cards.
    our total gross income is less than 65k per year. how our plan works, we ‘save’ our tax return every year. this adds to our savings plan, emergency fund, vacation fund, etc. by claiming 0 on our paychecks we achieve about 2k in savings at tax time. we have no credit cards – but we do have check cards. with the advent of direct deposit payroll, we rarely have cash, and the cards are an easy alternative to running to the bank every week, plus, it gives us the ‘visa’ for booking hotels, and credit protection for onnline purchases. the cars – we both had paid off when we got married – now, we replace one every 5 years. for example when my wifes car is paid off, i replace mine – when mine is paid off we replace hers. we each get our new vehicle every 10 years. (new= off lease pre-owned = 1/2 sticker with some warranty, under 35k miles) we don’t buy new. our total expenses per month, house, taxes, insurance, all utilities, and cell phones, land phone, and sat tv are only 15-1600. our take home income is around 3k. the rest is kids, clothes, having a kid free “date” once a month – the odd and end purchase, etc.
    we aren’t diciplined enough to save for retirement yet. and we use financing, for big ticket items like cars, atv, or something like that. Dave’s plan would be cash – or don’t buy it.
    I agree with some of it – but I also agree it’s too restrictive to be successful with frugal people.

  40. RFC says:

    First, Dave is certainly full of himself. I’ve watched him enough to know. He absolutely loves himself. Although I should pick the log from my eye before pointing out the toothpick in his, his love of self is sickening. Further, people shouldn’t blindly invest in mutual funds… hello expense ratios… hello turnover… hello 12b-1 fees. Mutual funds are most likely the most expensive way to invest a dollar. Finding a good financial advisor that works on an advisory basis is the best way to go about investing. His take on life insurance is also suspect. To say that term is the best is like saying all white people are decendants of England… it’s true sometimes, but not all the time. Dave’s a cookie cutter wanna be financial advisor that has great motivation to sell you his material. That’s not to say that in the process he’s does not offer some much needed advice to the spendthrift segment of our population. The question becomes, “when you become rehabilitated from spending, do you have a clue what your doing regarding financial planning?” Dave certainly doesn’t.

  41. Jon says:

    After reading many of these posts, 15 years from now it would be interesting to see the financial situation of those who follow Dave’s plan and those who criticize it. I am a CPA and although I did most of what he talks about before I was introduced to him, it is an easy plan for my family to follow. While it’s easy to criticize Dave, he obviously is doing something right because I imagine he has more money (and gives more away) than 99% of the people who have posted here.

  42. sjwil says:

    I have been following Dave Ramsey’s plan for about 2 years and I will be 100% debt free in August of 2012. House and everything! The plan works–but only if you are focused and have self-control. I will have paid off a total of $100K in the four years.

  43. robert says:

    great read,My mom lost about 10,000 in retirement saving in mutual funds a couple years back. taking advice from someone who lost 4 million dollars thats insane. and if he dave really is blessed then take a good will offering instead of people who want to get out of debt pay for stuff , does not make sense at all . says stay away from the stock market, well if your smart enough and know how and where to invest you wont lose your shirt.and it seems it caters to those with lots of money , i’m sorry I cant feel sorry for someone that makes 200,000 a year and is in debt for that same amount or more ,glad to know i’m not the only one,

  44. Jay says:

    Dave rocks and the world knows it! Say what you want, he helps people…which is far more than most people or the government can say!

  45. Aaron says:

    This is just a bit of a too anti-Dave article for my taste. To say that Dave Ramsey is for people how have totally messed up their financial life is like saying your should only visit the doctor for a heart attack.

    Dave’s philosophy is simple, get rid of credit cards and pay off debt. If you destroy your credit cards then you cannot use them and get distracted. It is also worth noting that the compound interest of retirement planning pales in comparison to the compound interest of debt.

    Dave also does spend a lot of time telling callers of his show how to modify the plan to meet their specific needs.

    For some reason there is a school of thought in financial planning that says debt is good. this is not a true statement. Sure a 0% car loan sounds good until you lose your job and can’t pay it any more. Walking away from this deal is called living within your means and it is a skill everyone needs a reminder of whether the follow Dave’s plan or not.

  46. Matt Johnson says:

    Dave Ramsey’s cult kind of creeps me out. Yes, getting out of debt is a great idea. Yes, the debt snowball and envelope system are great tools. But seriously, the guy is wrong about a lot of stuff, and the people who follow him get completely bent out of shape about anyone who calls him out on something.

    The guy actually says on his website, “Dave prefers a commission-based advisor and funds. Over the lifetime of an investment, a commission-based fund will cost the least.”

    That’s about as wrong as saying up is down and down is up. The guy isn’t just flat out wrong, I believe he’s lying deliberately to push his network of commissioned ELPs, who in turn give him kick-backs for referrals.

    Go ahead and get out of debt, but at least try to think for yourself before drinking all the Dave Ramsey Kool-Aid. Those front-end loads and 12-1b fees aren’t worth it.

  47. Jay says:

    DAVE FOR PRESIDENT 2012!!!!!!!!!!!

  48. C.J. says:

    My wife and I took the Financial Freedom class for 3 months and did everything we could to get going on our baby steps. I took out an additional part-time job at 20 to 25 hours per week on top of my full-time 40-hour per week job while my wife was also working nearly full-time hours. We got a budget together, sold some things, got our emergency savings together, started paying down debt and did the best we could for nearly a year.

    Then the bottom fell out. My wife had emergency back surgery, our savings went out the window, our debt load increased because of the medical bills, my wife was out of work for nearly two months and we’re right back to square one all over again — in the hole without any light.

    I quit my part-time job after being there for a year because I was physically and emotionally exhausted working 7 days a week and barely ever seeing my three children or my wife. My relationships with my family deteriorated, I was edgy all the time because of working all the time, and our debt load — even with a Dave Ramsey budget in place — was still not paying down at a very fast rate. There was always something that popped up every month that the budget could account for.

    We never go on vacations, don’t have new cars (newest is 8 years old and other is 12 years old), can never afford family outings, just pay the basic bills each month, have no savings (since the surgery) and can’t put together a meaningful budget on a monthly basis because the car keeps breaking down or a child gets sick and we have to go to the doctor and get medication, and we’re still paying for another half year on my wife’s medical bills for her back surgery.

    I get very frustrated hearing all the success stories out there by people who do the Dave Ramsey plan and are out of debt within a few years. My wife and I make meager salaries and are trying our very best, but can never get over the hump because of stupid car/medical emergencies. There’s only so much you can sell and so much budgeting you can do with limited funds.

    And now, my wonderful 8th grade daughter just won a state compeition at her school and is advancing to the national competition in Washington, D.C. But our reward is that there is no school funding going toward the trip (my wife is going with her since she is only 14 years old), so we have to come up with approximately $1,500 in the next 6 weeks. Oh the joy of life when you have no money, no savings and the bills keep piling up.

    So Dave, would you be willing to help a person out with your enormous wealth?????? You’d probably just tell me to sell both my cars and ride a bike to work, continue to eat sandwiches with nothing but a little ketchup on it and continue to wear my hole-filled clothes and shoes for another few years so I don’t get into further debt.

    Ramsey has no real plan for when life hits you with constant financial hay makers. Just so tired of trying to do what is right for more than 16 years with very little to show for it and no closer to being out of debt than ever.

  49. Ammo says:

    Ok, yes Dave’s plan absolutely works but you have to actually DO IT. When the emergency find is depleted, you stop and fill it up again. If you don’t think 1K is enough, save more! You go into debt doing dumb stuff, so the least you can do is stop it until you pay it off. No more credit cards, financed cars, loans. that’s it. If you can’t live on what you make, then you need to get another job, or two. The stories of getting debt free are so inspirational and so needed in these tough times, which are compounded by people waiting for someone to bail them out. The comment from the guy asking Dave to bail him out (because Dave’s “enormous wealth”) is just so typical of the entitlement attitude of this country. I’m for Dave and all his ideas!

  50. M. Beard says:

    Several statements in this article are not factual. Dave doesn’t teach you to do without! He teaches you to plan. If you want a vacation, a nice Christmas, extra money for the kids activities, new furniture,absolutely anything…. then add it to your plan! If you don’t have a good health insurance and you know that a major health situation could set you back several thousand, then make your emergency fund fit your own life, build it bigger before you start the snowball. There is not a perfect plan that fits everyone’s personal situations, so use his ideas with the common sense you have about your own life situation and it will work. We were close to 200,000 in debt 3 years ago in 2008. Today we are 90,000 in debt with a few thousand dollars put up for emergencies. At this rate we should be completely debt free in 3 years, mortgage and all. How many Americans are debt free at the age of 45? Well we plan to be. Then we plan to enjoy the next 20,30,40 years of our life doing things we always wanted to do without incurring debt to do them….travel, buy a vacation home, make some renovations to our primary home, and have money to invest.

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