Dave Ramsey Doesn't Work

[Shewillbemine]

Dave Ramsey should be used by people in financial trouble, not those who want to grow extra money.

People in debt trouble should only blame the face in the mirror, not the guy on the radio.

Also, many people are on this forum because they seek financial advice and/or need to improve their financial situations. I'm pretty sure Dave is better off than 99% of the members on this forum.

[KiwiJo09]

Perhaps, Dave Ramsey's advice doesn't work for everyone. But it works for a lot of people. You had an emergency fund in place when your wife needed emergency surgery, but maybe you didn't have enough set in place? Also, you need to take a look at your budget. Because it would seem that you're priorities are out of place. Don't confuse luxuries with necessities. And financial freedom is a process. Good luck.

[puck36]

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.

If you can't follow Dave's Plan then there is no hope for you. I was making $25,000 - $30,000 with $16,000 in debt. Then I got laid off and thats when I started Dave's plan. For the next two years I paid off $16,000 in debt, making $18,000 - $20,000. I was able to still go on vacations and pay for them. I still had to pay rent, all the utilities, food. Dave's plan works if you follow it.

[LivingAlmostLarge]

Definitely Dave ramsey teaches you to live on a budget. Something a lot of people cannot DO! but other than that? Nah his advice is not really good enough to follow.

[mmecham]

I have studied Dave Ramsey, but also never agreed 100% with his principles. No matter what people say in his defense (and I am not saying he is a bad person at all, rather I disagree with him intellectually on money matters, and practically, as well) he became a multi-millionaire off of his program. It was FOR PROFIT, not just trying to help everyone else become rich like him, out of the goodness of his heart. He charges hundreds of dollars to already struggling people for his courses and workshops, to learn to implement his principles. Does he have the right to do this? Yes, we are a capitalist society, and everyone wants to make a buck. However, I don't feel it is right, what he charges for his courses.

I think that the local churches charge outrageous fees, as high as $200-$300 per couple, where they don't tell you any new information that is not in the books (I attended several with a family member). I felt like the sessions were a waste of time. However, they are required to charge those fees by DR organization, at least in part if not in whole.

I agree with him on some things, like the issue of debt. We do need to pay down debt. He just is not as realistic on paying it down, and what it means to the average person who is laid off, or has a stagnant salary that is going nowhere. His "solutions" really end up making people feel depressed, when not all of them are realistic for all of us.

Do we need to budget? Yes. Do we need to save and pay down debt? Certainly. However, there are common-sense ways you can figure out how to do this on your own, minus the commercialism and high prices to attend the Dave Ramsey workshops.

Sure I will ruffle some feathers with this one...but I am not going to pretend I didn't research this topic and try to make it work for myself by reading his book.

I'm an elementary school teacher. Every once in a while, there will be a "Books Are Fun" display set up in the faculty room, where you can buy pretty interesting stuff. I saw The Total Money Makeover on sale for $14.00, and bought it. I didn't know who Dave Ramsey was, but thought it sounded interesting. I read it in one night, and two years later, my wife and I had dug our way out of $75,000.00 worth of debt on a combined take-home income of $65,000.00.

My total investment for Ramsey's products? A whopping $14.00. You don't need all of the stuff he offers to make his plan work (Financial Peace University, etc.). You just need discipline, some good advice, and you have to be extremely pissed-off about being in debt.

[disneysteve]

I'm an elementary school teacher. Every once in a while, there will be a "Books Are Fun" display set up in the faculty room, where you can buy pretty interesting stuff. I saw The Total Money Makeover on sale for $14.00, and bought it. I didn't know who Dave Ramsey was, but thought it sounded interesting. I read it in one night, and two years later, my wife and I had dug our way out of $75,000.00 worth of debt on a combined take-home income of $65,000.00.

My total investment for Ramsey's products? A whopping $14.00. You don't need all of the stuff he offers to make his plan work (Financial Peace University, etc.). You just need discipline, some good advice, and you have to be extremely pissed-off about being in debt.

Great story. Congrats on taking action and getting out of debt. I agree that you don't need to do everything to make progress. You do need to commit to a plan, though. It is very similar to losing weight. You don't have to spend 2 hours a day in the gym and eat nothing but lettuce but you do need to be fed up with your weight and ready and willing to change your behavior.

[elessar78]

I've read a lot of personal finance books and Dave Ramsey, like the rest, just espouse the fundamentals. Learn and understand the concepts and apply them to your life.

Spend less than you make, save as much as you can, live frugally, invest for the future, and be prepared for emergencies.

So to the OP, it seems like you've been met with emergencies. Adjust your plan and overcompensate for emergencies. If Dave says to save $1,000. You tried that, it wasn't enough. Aim to save $3,000 or $5,000.

In the past 4 years, my wife too needed back surgery and major car problems. Without Dave Ramsey or Dave Ramsey-like principles we would've been caught with our pants down. Yes, it depleted a good bit of our savings but we weathered it better than without it. Debt doesn't go away fast.

Don't give up hope, man. Better days can come sooner that you think. Just keep plugging and keep your eyes open for opportunities.

[elessar78]

Clint, I will be happy to share what I find objectionable about Dave Ramsey's investment advice.

Dave Ramsey's advice to keep 100% of one's nest egg in stocks during retirement while withdrawing 8% per year (because you can count on 12% each year, leaving 4% to cover inflation) is absolutely terrible advice. Run some monte carlo simulations for yourself and see what the statistically likely outcome of 100% stocks, 8% withdrawal per year would be. I can tell you, it is highly likely that doing so will leave a person penniless in 10 to 15 years. Check and see if it isn't true.

The vast majority of financial experts say that it is safe to withdraw 4% minus investment expenses, so if one is wisely using low cost investment vehicles, that is a withdrawal rate of 3.5 - 3.75%. If one is not paying attention to investment expenses and paying the industry average of 1.3% for stock mutual funds, that leaves only 2.7% which can safely be withdrawn. Note that 8% is more than three times the amount which can actually be safely withdrawn for a person paying the average expenses!

A handful of experts do say a person can go as high as 5% (before expenses). And sometimes there is no mention of "before expenses" at all. (I have noticed this advice is more prevalent during down markets, then tends to be not mentioned during up markets.)

Don't take my word for what the experts say. Check out MorningStar.com, Kiplinger.com, CNNMoney.com, Vanguard.com. For that matter, just Google "safe withdrawal rate" and see what pops up. Many articles and studies are published on just this topic.

Also, while the long term return of small cap stocks is approximately 12%, the standard deviation is more than 20%. This means it is extremely volatile. There are few years with returns close to 12%, there are many years with much higher returns and many years with much, much lower returns. Don't take my word for that either, look up historical returns for small cap stocks for yourself. There have been many, many years with double digit losses. Withdrawing a whopping 8% during loss years nearly guarantees the portfolio will never recover.

Dave Ramsey does not specifically say one should be 100% in small cap stocks, but small caps are the only asset class which have a long-term average of 12%. Large caps have a long-term average of a bit less than 11%. While that may not sound like a big difference, it is.

And the elephant in the room of course, is that long-term averages are calculated from 1926 to present, a period of 85 years. However, none of us will have a retirement lasting 85 years. Our retirements will be more in the neighborhood of 20 years. There are many rolling 20 year periods which fall short of the long-term average, balanced by rolling 20 year periods which exceed the long-term average. If a person happens to retire during years of below average market performance, they will still need to eat every month, pay the electric bill every month, pay for their prescriptions every month, etc. In short, they will need to make withdrawals every month irrespective of what the markets are doing. They cannot simply say, well, I will stop eating, stop using electricity, and stop taking my prescriptions for 5 or 10 years while the markets outperform to get back to their long-term averages, then I can begin making withdrawals again.

The key to making a portfolio last during the person's lifetime is minimizing volatility while still seeking some growth. This is accomplished by diversifying amongst stocks, bonds, and cash at a minimum, possibly including other assets such as TIPS, real estate, and commodities as well. Recommendations vary, but typical advice for a newly retired person is to keep no more than 50% - 60% of retirement monies in stocks and other growth assets, 40% - 50% in bonds and cash. Such a portfolio would be far less volatile and far more likely to last the person's lifetime. (Note, it is not guaranteed, it is only likely.) A decade or so later, that person would be down to 30% - 40% in stocks, 60% - 70% in bonds and cash.

Not one reputable source of financial infomation recommends a portfolio of 100% stocks for a retiree. Few recommend it for people 20 years away from retirement, though there are some.

Clearly, Dave Ramsey has done no research whatsoever on this very important topic, but gives advice anyway.

I'm not a Dave Ramsey disciple so don't flame me for what I'm about to say.

As others have mentioned, Dave is about behavior over math. Most people that seek him out are bad with money, if you throw concepts at them like a rebalancing approach to stock ownership and 80/20 split of equities to bonds, with equities comprise of low asset fees in broad US, Int'l and emerging markets funds, etc. etc. It's overwhelming for a novice.

His whole approach is simplicity. A person with several million in the wrong mutual fund is better off than someone with $50,000 saved in retirment in the most saavy funds.

[chrisburke21]

Agreed

I am inclined to agree with everyone who said you had a string of bad financial luck. Income > Expenses = Savings. Try to keep that formula moving always increasing your savings rate and it will pay off. Obviously this is an over simplified view. Also, do not only seek one opinion. There are a lot of great financial minds out there....READ!

[UnknownXV]

Life decisions.

This is blunt, but truthful.

You choose to have kids without a strong financial base.(Or had unprotected sex).

You didn't have health insurance to cover your wife's back surgery.

Your jobs are not ideal (although this isn't necessarily your fault due to the economy). Is your debt mostly student loans? Again, a choice to burden yourself with it, whatever the debt is.

I don't say this to attack you, I say it because you need to wake up to the fact that while life is unfair, your choices are the main defining forces of how hard it will be. Sometimes though, the consequences of these choices take a while to appear, and when you make a lot of bad choices and the consequences all seem to catch up to you at the same time, it can just seem unfair and downright brutal. Which it is. There aren't any reset buttons in life. You need to go from where you are now. Keep fighting, and keep living with the Dave Ramsey plan because it's very simple and works. Decrease debt, increase income if possible; and reduce spending.

Over the long term, regardless of your luck, it WILL pay off.

[Wino]

I am not a huge fan of DR. I like to listen to the success stories; however, the OP (who has been curiously absent since his original biotch) seems to be missing the core concepts. DR's plan is basically simple:

1. Spend less than you earn.
2. Don't borrow money.
3. Pay off whatever debt you already owe.
4. Save the difference.

I'd say DR's plan works for about 100% of the people who actually do it.

I think I'll post a blog article telling my past, but the OP saying "I worked 7 days a week and quit because I'm tired and never see my kids" just got my goat.... What an effing moron. My dad was military, as was his dad and as was I. How about trying working 7 days a week, never seeing your wife or kids AND being shot at by someone who wants to kill you?

You're a whiner. That's your problem. Grow up, and maybe you can live like an adult. I hope your kids mature beyond you, so they have a better life than you.

Just keep repeating your mantra, "It's someone else's fault I'm in the position I'm in."

And here's your sign.

[jpg7n16]

the OP (who has been curiously absent...

FYI - the OP is the general inbox for SavingAdvice for "questions" submitted by non-users (hence the name). See OP's signature.

I'd say DR's plan works for about 100% of the people who actually do it.

For DR's plan to get out of debt, I completely agree. And as posted above, whoever submitted the question just went through a series of extraordinarily bad financial luck.

Sometimes you can be doing everything right, and like DS said, "life happens." But that doesn't mean there was a fault in what you were doing.

I believe that DR's plan (although not perfect) is probably at least 20 times better than the average American's plan.

[Petunia 100]

I'm not a Dave Ramsey disciple so don't flame me for what I'm about to say.

As others have mentioned, Dave is about behavior over math. Most people that seek him out are bad with money, if you throw concepts at them like a rebalancing approach to stock ownership and 80/20 split of equities to bonds, with equities comprise of low asset fees in broad US, Int'l and emerging markets funds, etc. etc. It's overwhelming for a novice.

His whole approach is simplicity. A person with several million in the wrong mutual fund is better off than someone with $50,000 saved in retirment in the most saavy funds.

I think his "baby steps" are about simplicity. However, I disagree that his investing advice is about simplicity.

DR tells people to invest in 4 different types of mutual funds: "growth", "aggressive growth", "growth and income", and "international". Then he goes on to describe what he means by those terms. Then he leaves it up to the person to try and determine which funds fit his category names. The problem of course is that how he defines those terms is very different from how the mutual fund industry defines them.

For example, DR defines "aggressive growth" as small cap stocks. The mutual fund industry defines "aggressive growth" as stocks with very high P/E ratios. Those stocks may or may not be small cap. Here is a MorningStar snapshot for a load fund with "aggressive growth" in the title. Note that it is a large growth fund. SAGAX RidgeWorth Aggressive Growth Stock A Fund SAGAX Quote Price News

Well, that's not what we're looking for. Instead of looking for funds with "aggressive growth" in the name, let's search the "aggressive growth" category. Let's go to the MorningStar fund screening tool http://screen.morningstar.com/FundSelector.html and in the "MorningStar category" drop down menu we will choose "aggressive growth". Oh, problem, there isn't one. That's right "aggressive growth" is not even a distinct category. So, we'll pick "aggressive allocation" instead. It has "aggressive" in the title, so maybe it is close. Let's pick this one near the top. ADABX Alpine Foundation A Fund ADABX Quote Price News. Wait a minute, this is a large value fund and also holds bonds and foreign stocks. This isn't what DR told us to buy at all.

How is the novice investor supposed to navigate this? This is not simple, this is very confusing.

If DR wanted to keep his investing advice simple, he would tell people to buy a total US market fund and a total international fund, put 3/4 in US and 1/4 in international. The allocation would be the same as what he recommends, but the portfolio would be simpler and cost less. And unlike "aggressive growth" funds holding small caps, "total market" funds are easy to identify.

I agree with your statement that a person with several million in the wrong mutual fund is better off than someone with 50k in the the most savvy funds. I'm not sure what point this makes.

If I have several million, I want to invest that money the best way I can. If I have 50k, I want to invest that money the best way I can.

If you're trying to imply that following DR's investing advice will lead to those several millions, I strongly disagree. You do not achieve maximum growth by paying high commissions and high fees.

DR's typical listener is in their 30s or 40s and has too much debt. Unless they are a very high earner, it is too late for them to amass several million. They must first pay off their debt. Then they will have perhaps 20 years to grow their nest egg? The aren't going to get to several million, the math simply does not work. (Unless the person is a high earner. If a person is able to invest 50k per year for 20 years, then sure, that could end up being several million. Not certain, but possible.)

[laurend1985]

The DR program works but you've had some bad luck and no plan could have saved you except the lottery. It's hard I know because I'm going through the same thing. BTW, I hope your wife gets better soon.

[laurend1985]

@Wino

That's was kind of hard, give the guy a break, at least he wants to be with his kids sometimes and I hope life doesn't hit you as hard or harder.