TEN THINGS DAVE RAMSEY GOT WRONG

BadMoneyAdvice.com ^ | 04-15-2009 | Frank Curmudgeon

[whd23]

I agree. I have no problem with Dave, it’s common sense. But sometimes his absolutes don’t have any wiggle room.

Thank you for recognizing my point!

That's exactly what I'm trying to get across: that his absolute statements don't work or necessarily make sense for everyone.

The funny thing is, a lot of what he has to say is very good. It's not new information for me, but for some people it's good for them to hear it.

Although it can get a bit "hippy" at times, I really enjoyed reading "Your Money or Your Life" many years ago. I haven't read the newer edition I linked to, but the previous version was very good for making you think about how you trade your life for money if you haven't thought about it before.

[CottonBall]

If you do that in a 401K, that money is taxable. The money went in before taxes, but the money is taxable as it comes out. Your $240,000 that went in pre-tax is almost irrelevant in light of the $6 million that is going to be taxed.

But if you put money in a Roth IRA, it grows tax-free. That means if you put the same amount into the Roth, you’ve got $6 million, none of which goes to Uncle Sam. The Roth IRA is always superior to the 401K because of this.

That last italicized bit is unequivocally wrong. The tax savings you get from the up-front deductibility of traditional IRA (or 401k) contributions is exactly the same as the tax savings you get from the distributions of Roths not being taxed, assuming tax rates are constant. If the tax rate is higher now than in retirement, a traditional will save more money.

This last part doesn't make any sense to me. With what I assume is Dave Ramsey's advice, you would not have to pay any tax on the earnings b/c it is in a Roth. The author's deductions don't seem to take this into account.

Unless I'm missing something.

[CottonBall]

Not at all. Dave's position is black and white: nobody should ever have or use a credit card. Period. He leaves no room for responsible use of credit cards as a financial tool. All I've done is point out that they can be used by financially responsible people safely. If you feel that that doesn't include you, then by all means cut up your cards.

That's exactly why I don't bother with his steps. Well, mainly because I've never been in out-of-control debt either b/c I'm frugal and responsible by nature. He has some good common sense advice, but the lack of alternatives I don't like.

I've been using credit cards for decades now. And haven't paid one penny in fees or interest, but have gotten back hundreds in cash-back bonuses. But the main reason I use them is ease - I get to pay one bill per month vs. dealing with cash or lots of checks. For those of us that realize that using a credit card is the same as spending cash, we just pay it off later on, it's no different. I don't spend any more b/c I'm using a card. And I know how much I owe with every transaction (I'm rather OCD that way, keeps me happy)

[CottonBall]

Eventually you have to turn gold into cash.

Unless we go Weimar. ;(

[pnh102]

I didn’t believe it either until I tried it for a month.

I totally hear you on that one.

[CSM]

“How about being able to contest the charge if the vendor doesn’t deliver the good or service you paid for?”

In the past 4 years that I have not had a credit card, I have not had the need for this service. That time includes actions such as home repairs, home appliance purchases, vacations etc. If I feel that a purchase is in need of that protection, I will simply swipe my debit card as a credit card. In fact, I have been able to negotiate lower costs for some larger cost items/services because I pay with cash.

“you don’t feel you can handle the use of a credit card,”

As I stated previously, that is not true at all. Prior to doing the baby steps, I didn’t have any credit card debt and the risk of myself losing control if I used a credit card today is extremely low. However, the “normal” American does lack the spending discipline and the “normal” American carries credit card debt long term. That is Dave’s audience and his message is clear there there is no reason to even deal with the credit card snakes.

I have asked you for a benefit that outweighs the inherent risks that comes with dealing with the credit card companies vs. the zero risk that exists when using cash or savings (via debit card.) I have yet to see you articulate that benefit instead of bashing Dave and being snide tohis fans.

[CSM]

“So I bought a used car. The best interest rate I could get...”

Actually he covers your situation with the emergency fund. If you had consumer debt in baby step 2, then the you may have used the $1K of the EF plus the months snowball payment amount to purchase a cheap car to get you buy while you get out of debt.

“I also don’t like his “never buy a new car or lease”

Yes, he does say never lease a car. The simple math makes it a big financial loser. However, he does not say to NEVER buy a new car. The immediate loss that one takes on a new car purchase can be absorbed if one has enough wealth. So, his advice is to not buy a new car until your net worth is at least $1M. Until then let those with wealth absorb the costs of depreciation.

[dps.inspect]

Slaves of Dave... my point in all this discussion is, he’s selling stuff... I have no problem with the message of getting out of debt, but what he’s selling is common sense, imagine that, buying common sense from a radio host.

[CSM]

There is no requirement to spend any money on Dave’s products in order to work the plan of getting out of debt and building wealth. I don’t understand how you call me a “slave of Dave” when the reality is that I have never been more free.....

[Hoosier Catholic Momma]

Only to the people who believe it! LOL

All I know is without the common sense principles D.R. has taught, my dh and I would be up a creek without a paddle. Not having any debt but our house is liberating.

Speaking of house, we had a showing last weekend and our realtor said they loved it...there is a strong possiblity of an offer forthcoming (I’ll believe it when I see it of course, but it’s a nibble). The owners of the house we love in Ohio are willing to rent to us until we sell ours, then we would buy. They own the house free and clear, but they don’t want to see it sitting empty and neglected. Even if we don’t sell before we move at the end of May, we could swing renting it (although it would be a bit tight).

So while my used car may not have a DVD player and all that other crap in it, it’s mine. While my house may be 60+ years old, it’s the only thing we owe on. And while others are complaining they can’t afford to send their kids to private school like we do, they get in their $400/month car payment with credit cards in their wallet and drive off, leaving me shaking my head.

[CSM]

Congrats on the nibble, I’ll keep sending you my best wishes for good luck.

;-)

[dps.inspect]

and you bought his stuff only to find what... it’s common sense?

[whd23]

I have asked you for a benefit that outweighs the inherent risks that comes with dealing with the credit card companies...

I gave you a benefit. You may not have used that benefit, but it does exist. Other benefits available will vary based on the card the consumer chooses. Some cards offer warranty extensions, others offer price protection (find the same item at a lower price within X days and they'll pay you the difference).

In fact, the variety off options available with different cards is one of the benefits of using a credit card over cash.

In any case, you sound as if Dave has convinced that credit cards are not useful tools and are bad and scary. So be it; I'm not interested in whether you use a credit card or not. I'll continue to include responsible credit card use as a tool in my financial tool kit and you can pay by cash, check, and debit card and expose yourself to the inherent risks with those methods of payments.

[cherry]

you can trust him....he's not a hard seller...he has basic advice....I think he has a good Christian ethic.....

not that I agree with some stuff he says....credit cards if paid off monthly are a great device....

and I can't be the only one in America who hasn't averaged 12% on "good growth mutual funds" over the last 20 yrs...

remember that Dave as well as that other yokel who wrote "Rich Dad'...( a crock if you ask me)..got rich ONLY from their advice business....IIRC....and not from actually practicing what they preach...

[cherry]

lets face the fact that not every one can be rich, or even well off, for a variety of reasons....its not because we're lazy or spendy or bad or immoral.....some of us have got to be the workers and a tiny minority are going to be the owners.....throw in family life...like your medical expenses....and its pretty difficult especially these days....

we just do the best we can in the long run....

[cherry]

we have a HELOC and its been at that low rate for a few years now....we paid off our original mortgage which was at 7% figuring we could save a lot of interest money and pay if down on the principle...which we did...(a few times...lol).....we only use about half of what we could...we have some cash and we could put more down on it if the rates start to skyrocket....but I do want to get it paid off....

[Fledermaus]

I have no debt so putting the $11k I spent on the car on a super low interest rate card made sense. I didn’t want to pull that much out of my savings.

[Marie]

Dave forgets to tell people after 5 years of rice and beans to become debt free, you have another 5 years of rice and beans to gain any wealth. Can’t stand his silly laugh.

So what's the alternative! lol!

We've just concluded the 5 years of rice and beans to become debt free and we'll be spending 5 years gaining wealth. How is that a problem? In another 4.5 years we'll own a house clear and be setting ourselves up for retirement.

Had we continued the way we were... it would've be such a rosy picture.

[Twinkie]

But, don’t forget to live a little along the way!

My friend and her husband used to pride themselves on being “frugal”. The squeaked when they walked; and he would not eat out practically EVER. She always had to cook and, fortunately, had a rich friend (not me) who only wore new clothes once or twice then gave them to her.

Friend’s husband was in good health; her, too. The day before his 65th birthday, he was struck by lightning and killed. Friend than went absolutely loopy and spent the insurance money frivolously like a starving woman. Then started dating a younger guy who had been divorced a few times and still lived with his mother. He died after a while. Now, she’s on an even keel, thank goodness.

[thecodont]

Gerrold Mundis also wrote a book on getting out of debt, but to my knowledge, he's not a radio host. He's just a regular author of (non-financial) books. But this book of his has been well-regarded: How to Get Out of Debt, Stay Out of Debt, and Live Prosperously.