Response to some of Dave Ramseys teachings and rants.

[Nika]

I find the "envelope system" ridiculous. It may work for totally clueless people who never managed to live within their means in their life. But the idea that normal adults should walk around with actual envelopes for the rest of their lives because otherwise they just won't be able to control themselves... I just can't grasp that.

My envelope system is a spreadsheet at home, and I have a good knowledge of what I can and cannot afford without carrying it around with me. When I decide what I want to buy, I think of it in terms of a #, it does not matter if I use a debit card, a credit card, or cash. The decision is based on a number, not the payment method. A credit card is just floating money for free for 3 weeks or so (my savings and checking are paying interest).

The anti-credit card rants make no sense for responsible people. Just because you had a bad experience and could not control yourself, does not mean they are "evil". And you don't need to "give your money to the bank and be in debt" to have a good credit score. It is very annoying when he keeps repeating this over and over. When you pay your balance in full each month, it gets reported as responsible credit use. You don't have to carry a balance to have a great FICO and it does not have to cost you a cent A snapshot of a random day's balance gets reported each month (CC company does not know that you are going to pay your balance in full).

And that everyone can be wealthy if they are just responsible and save, save, save... I have a thing with that as well. If someone in middle class manages to save 1-4 million by the time they retire, Dave Ramsey counts them as wealthy. I don't think that puts a person into the wealthy class. Considering that that money has to last for 30+ years, with unknown medical cost and inflation, that person still has to be careful and is still in middle class, just a more secure one. If most people really understood just how wealthy the wealthy are, I think they would feel different about many political and taxation issues.

here, I had a rant of my own.


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Middle Class New Yorker Blog

[Scanner]

Will agree and disagree.

I do wonder if the "envelope system" couldn't be replaced by internet shopping (groceries, dry goods, etc) as it would take the impulsive shopping out of the equation. You see, no matter what, even the most frugal are victim to buying something impulsive. So I would agree here.

I would disagree on the million dollars not being that much. A million is a million. I think the recent crash illustrated this. I think that's "financial planner talk" when they tell you you need 4.2 million dollars to comfortably retire, etc.

A. Most people, on 50K/year, will never reach that and therefore get discouraged about any form of saving.

B. It's just ridiculous to call 4.2 million dollars a paltry amount or 1 million for that matter.

As someone who went trhough a divorce partially for being an "oversaver" (partially, it was maybe 10% of the reason), let me tell you - you can't take it with you. Something savings advicees should heed with the "save, save, save" advice. We, as Americans, seem to have a hard time striking that middle ground.

[kork13]

I find the "envelope system" ridiculous.



A snapshot of a random day's balance gets reported each month (CC company does not know that you are going to pay your balance in full).


here, I had a rant of my own.

I personally would also find the 'envelope system' maddening to use, but it's mostly designed for exactly the people you describe... normal adults who otherwise "just won't be able to control themselves". It works for some and gives a sense of security. And as long as something works for a person to be smart financially, I'll support it and say "whatever works for you."

Technically, I think credit card companies report your statement balance to credit bureaus, not "some random day." But even still, you never have to pay interest on the statement balance as long as you pay in full by the due date. I'll never understand the overwhelming fear of credit cards, but that's because I manage them responsibly... If you don't keep your credit cards paid.... yea -- it's gonna cost you. Alot.

And congrats on your first SA rant ... haha

[kork13]

Something savings advicees should heed with the "save, save, save" advice. We, as Americans, seem to have a hard time striking that middle ground.

Guilty.

I think it's important to recognize when you're saving "enough." At that point, you need to learn to spend your excess income in order to improve your way of life, or to enjoy the life you've got. I'm still working on this personally, but have at least realized I've hit the "enough" line (sure, I've discovered that to be at 40% of my income right now, but hey...). And I think that's the goal here, or at least it has been for me... Save to the point of saving "enough," then do as you will.

[humandraydel]

Well, first of all I am definitely NOT a Ramsey fan. But a lot of people seem to need that much structure in their financial lives.

Now, that being said, I've considered trying the envelope system, not because I can't live within my means (I definitely do), but because quite frankly I don't pay enough attention to my budget. I save 25% of my income and spend the rest, but I don't always know the breakdown. A physical system (envelope + cash) would be easier for me to "track" my spending because I'm not disciplined enough to record every transaction into a spreadsheet (or financial software).

[GrimJack]

Well, first of all I am definitely NOT a Ramsey fan. But a lot of people seem to need that much structure in their financial lives.

Now, that being said, I've considered trying the envelope system, not because I can't live within my means (I definitely do), but because quite frankly I don't pay enough attention to my budget. I save 25% of my income and spend the rest, but I don't always know the breakdown. A physical system (envelope + cash) would be easier for me to "track" my spending because I'm not disciplined enough to record every transaction into a spreadsheet (or financial software).

I am with you on this. Sometimes I consider the ATM just an extension of my wallet so I use the envelope system until I am back on track. Ridiculing ANY method that keeps people on the right path is counterproductive. If it works why worry about it?

[myrdale]

My parents say they did the envelope system when they were starting off and it worked for them. I personally find the whole concept to be way to complicated. My living expenses, utilities, and food are getting paid... period regardless of what they are. I have a number I like to keep my savings account at. Any above that gets piled on the mortgage and some reasonable amount is blow money. At the end of the day it is a tool for people learning how to manage money.

I think a good credit score is important, and as such I keep one store card open. I like the store card because I can ONLY use it at that one store. I might purchase $50 a month on average on it and it is easily paid in full. Dave would say I was playing with snakes and worshiping at the alter of FICO. He'd be right.

I contribute only 5% to retirement. As stated above every spare penny is piled on the mortgage. Dave would say I should be investing about 15% before paying off the mortgage. But in 5 years I have paid down half the mortgage, and I owe less on the house than it is worth. I've just refinanced and my mortgage payment is less than most people's car payments.

All that said, I still love listening to Dave. You can get ALOT of inspiration just from listening to how other people have struggled and succeeded.

[HousingCounselor]

I hate how he's so anti-bankruptcy. Especially people who have a medical crisis and can't afford their expenses. I'm not talking about people who use it as a way to escape instead of buckling down and paying their responsibilities.

I remember seeing a clip from his radio show on Fox Business and the woman started crying because with her husband it was either file bankruptcy or he would kill himself. Now obviously this guy has more than just money problems to make him want to kill himself however that was the most silent I had ever seen him.

Let's not forget that HE filed bankruptcy as well. He needs to be a little more compassionate and learn to meet people where they are. Plus some of his advice is a little far fetched. Like that car scenario claiming to keep your car after it's paid and invest your former car payments into a mutual fund at 12%. Show me a fund making 12%, even in between the dot com crash and housing crash that wasn't realistic.

[bjl584]

I find some of his methods to be a bit extreme. No credit cards ever. No new cars unless you are a millionare. And his investment advice is awful.

But, he has helped a lot of people. A lot of the people that are on this forum don't need his advice, but there are a lot of people out there that are totally clueless about money that do. To look at the world through their eyes makes Dave Ramsey's methods seen perfectly logical.

[disneysteve]

I find some of his methods to be a bit extreme. No credit cards ever. No new cars unless you are a millionare. And his investment advice is awful.

But, he has helped a lot of people. A lot of the people that are on this forum don't need his advice, but there are a lot of people out there that are totally clueless about money that do. To look at the world through their eyes makes Dave Ramsey's methods seen perfectly logical.

I think this sums it up pretty well. As the long time folks here may recall, I used to be very anti-DR. Then I started listening to his podcast regularly. He gives, for the most part, pretty sound, basic, common sense advice. I don't agree with everything he says, but I have yet to find any personal finance guru with whom I agree 100% (Suze Orman, David Bach, etc.).

To those of us who have our acts together, Dave's advice sounds extreme and sometimes ridiculous. I can't imagine living without a credit card, for example. But for those who are drowning in debt and haven't got a clue how to handle money, Dave's advice works, and it works well. Is it the best way to do everything? Probably not, or at least I don't think it is, but it does work.

Just look at his "baby steps."

1. $1,000 EF
2. Pay off debt with debt snowball
3. 3-6 month EF
4. save 15% for retirement
5. college savings
6. pay off house
7. build wealth and give

We can argue about whether or not $1,000 is an adequate EF. We can debate paying off debt by smallest amount or highest interest rate. We can disagree on specifics of the plan. But overall, those 7 steps are a pretty solid, reasonable plan. If everyone in the country followed those steps, just imagine how different things would look.

[kork13]

Just look at his "baby steps."

1. $1,000 EF
2. Pay off debt with debt snowball
3. 3-6 month EF
4. save 15% for retirement
5. college savings
6. pay off house
7. build wealth and give

We can argue about whether or not $1,000 is an adequate EF. We can debate paying off debt by smallest amount or highest interest rate. We can disagree on specifics of the plan. But overall, those 7 steps are a pretty solid, reasonable plan. If everyone in the country followed those steps, just imagine how different things would look.

Shoot, most of us here on SA tell people essentially the same stuff when they come here asking for help. EF, debt, retirement, savings, house, .... it's all the same idea. Why is it that everyone seems to see it the same way? Because it works, and these are the basics for getting your finances in order.

I only really know of Dave Ramsey and Suze Orman myself, and while I'm not a huge fan of either, the advice they give is sound enough for most people... in almost all cases, the advice they give callers in bad situations certainly can't make anything worse.

[fe2o3ez]

1. My 6-year old DS has OCD about making sure all doors in our house stay closed, and he can name every Star Wars character created from the books, movies, cartoons and games.

2. My DW can't stand to have food touching on her plate. If she is suffering from insomnia, she asks me to talk about my work (which I am passionate about), because she knows it will instantly put her to sleep.

3. I am a numbers freak. Not just any numbers, specifically dollars and cents. I see money everywhere, from mentally calculating a bill before it arrives to forecasting the ROI for a small improvement made in the office.

Fact is, we all see things differently. DR is a savior to some and a self-serving radical to others. Is the envelope system a bit extreme? sure. But there is a good portion of the population that needs it that way. I can tell you for a fact that if I wasn't around, my DW would need something like that to act as a budget tool. She shuts down the minute I bring up the "B" word.

I have many nieces and nephews, and I have talked to a few of them about struggling with student loans or weak incomes. They ask where they can find out what to do, and I recommend some of the same authors mentioned above. I tell them "The key is not to pick one and consider it the gospel. START with one, pull from it what you feel is pertinent to your specific situation and put it to use. Then move on to another and do the same. There may be some small points of inconsistency across them, but the basic principles will be the same - it's the specific action plan that changes."

[disneysteve]

normal people spend more using credit cards than they do using cash.

This "fact" comes from one study on credit card usage but has come to be accepted as truth. I'm not so sure it is. Sure, some people go overboard but I don't believe that everyone spends 18% more with credit than with cash, which is the figure from the study.

[thekid]

There are basically 2 types of people in the world. Nerds and Free Spirits.

lol, love it.

[Scanner]

Yes. . .I forgot his anti-bankruptcy rant.

How many times has Donald Trump used bankruptcy laws to his favor?

Corporations will use protections in a heartbeat. It's not something to take lightly but it should be on the table at times, especially in the case of medical bills.

There is no use in being a slave to a hospital for 5 day stay.