Like settlers in the pioneer days, many Personal Finance bloggers set up camp near the Dave Ramsey waterway – and wisely so. Ramsey’s message is logical and inspiring – who would not want to regain control over their finances – and it has allowed him to attract a tremendous audience to his radio, TV, publishing, and live event outlets. With such a large, passionate, and hungry audience why not troll in his wake by way of writing the obligatory critique/review/praise column, for surely this will help increase foot traffic and what better way to carve out a reputation that to challenge the category’s lynch pin to a calculator dual on the tired topic of lowest balance vs. highest interest rate approach for setting up a Debt Snowball?
Generally speaking, this is not an accusation as 1) I am a child of this thinking as my passion to get-out-of-debt led me to internet searches which introduced me to many of these personal finance blogs, and 2) a quick glance at my blog title suggests that I may have set up my camp too close to the water’s edge…
Now allow me a context-pause in the unlikely event that someone has stumbled into this site and read this far but still does not know who this Dave Ramsey character is…
Dave is a leading authority on personal finance matters with frequent appearances on Good Morning America, Larry King, and Fox News. But more notably, Dave has a nationally syndicated daily radio show, a daily show on the Fox Business Network, and multiple New York Times best selling books – Total Money Makeover, More Than Enough, and Financial Peace are the titles I have read and recommend, probably in that order. His message is pretty simple – me paraphrasing here – get out of debt and use your income to build wealth. To achieve this straightforward yet sometimes daunting task he prescribes a one-size fits all set of 7 Baby Steps to walk you through the process… and speaking from experience , this stuff works.
As additional context for the rest of this article, allow me to list these 7 steps here:
Step 1: $1000 Emergency Fund
Step 2: Pay off debt smallest balance to largest using the Debt Snowball
Step 3: Boost the Emergency Fund to 3-6 months of your expenses
Step 4: 15% earnings saved for Retirement
Step 5: Start saving for College Funds (as applicable)
Step 6: Pay off the House
Step 7: Save, Invest, and Get Rich
If you’re still not sure, that’s ok… visit his website to read more or to find local times for his radio and TV shows, click here or here for his books, and of course you can continue to surf this site for one man’s Dave Ramsey inspired journey through the perils of personal finance.
Ok, now that we’re on the same page, it’s time to revisit the original question – Do you Dave Ramsey? Surely I’ve goaded, hopefully only slightly, some of you who personalize these steps to your taste. I have read where some folks want to build up the Emergency Fund first and others are adamant that debt should be paid off highest interest rate to lowest interest rate without regard to balance. Some want to attack a second mortgage in step 2 while others want to hit it in step 6 and still others do not want to suspend retirement savings while executing against steps 1-3.
I personally believe 2 things as it applies to this discussion:
1) Rational people can disagree on a topic without either party being completely wrong. Personal Finance being, well, personal or emotional often means an issue is not bound solely by the laws of math yet sometimes an interest rate is flat usurious. Sometimes it is motivating to karate kick debt after only setting a single k in the emergency fund and other times layoffs loom and the wife is entering the second trimester.
2) I am a firm believer in the 80/20 rule. I do not need to have every detail perfectly pressed to be on board. I haven’t mastered the Bible but I consider myself a child of God. I figure if I am directionally aligned with these principles – meaning that they are guideposts on my journey to financial freedom then I am Dave Ramsey-ing.
This idea leaves room for you and me or even Ramsey and me to disagree on finer points but for me to still be a Ramsey fan and devotee. While that is true, I’m also smart enough to apply The Weighted Average Principle when rationalizing Ramsey’s advice against my situation. Simply put, I represent a sample size of one, with that one being me. I have very personal feelings about me and I like to think that I’m a good steward of myself in nearly every setting. Said another way, I’m pretty biased towards me and my existing comfort level has a vested interest in me being right. Ramsey on the other hand has not only his personal experience but he also has experience working with thousands of others through his personal counseling and radio and TV programs. Conservatively speaking, if I represent a sample size of 1 then he easily represents a sample size of well over 10,000.
Insert mental image of a fitness model asking the fat man how that cheese burger is working out for them.
While, financially speaking, I may not be a fat man, I’m not a fiscally fit super model either. Therefore, when I find a rub in Ramsey’s steps rather than ignore or re-write and move on, I give pause and reflect my shape against the shape I hope to become.
This approach over a period of time led me to make 3 unique Ramsey-inspired decisions that were once counter to my plan for attacking my finances but have proved many times over to be the best possible decision for my pocketbook.
1 – When my wife and I moved into a larger home after getting married, I thought it was a good idea to keep our existing home as a rental. This worked well for a while, or about as well as humping four mortgages could ever work. But in a very ego centric part of my brain I envisioned myself as quite the land baron, a regular real estate mogul was I. That is until I started listening to Ramsey and realized that subsidizing the mortgages on the rental was not the path to riches. It was plain stupid. I learned that risk and potential ruin was as thinly veiled as the existing tenant simply deciding not to renew a lease… the potential cost of repainting, new carpets, repairs, and even only 2-3 months of not collecting rent was simply too great for me at that time. Suddenly the mogul could not divest fast enough. Fortunately, we were able to sell the house in October of 2007, pocket roughly $3500 cash and free up over $500 in monthly cash flow. It was like daddy suddenly getting a signing bonus and raise and that’s to say nothing of where the real estate market went shortly thereafter. Adding only a pinch of drama for effect, this decision, this heeding the advice of another may have single handedly saved us from a financial crisis. If it did not literally save us from a bankruptcy, it certainly removed its potential from the equation.
2 – As a newly seasoned listener to Dave Ramsey – before reading his books – I had it figured out. When a caller asked their question, I had the answer at the ready. Then one day someone called to ask about snowballing before or after 401k withholdings. Hey, this is too easy. You never stop the 401k especially if there’s a match. Wrong was I – according to Dave. I was initially stunned, and continued to disagree until I did the math and saw how many months earlier we would achieve our financial freedom. I was sold within about 30 minutes and this says nothing of the actual returns I’ve enjoyed in reducing debt vs. the additional losses I would have experienced in the market.
3 – Finally, I originally decided to ignore step one and move to step 2. That’s not to say that I didn’t set aside $1000, but rather I did not liquidate a small account with about $8500 in it. I figure an emergency fund of $1000 was like a cheap celebrity-endorsed cologne, if a little is good a lot must be better. That was until I became absorbed in my spreadsheets and snowballs. I’d study for hours to understand how a small tweak to the monthly budget would impact my debt-free date. Then I realized how much more an impact $7500 would have than a blood squeezed $18/month and I was sold… and again, this says nothing of the losses I would have incurred had I left the money in the market.
In each instance I weighed someone else’s validated experience against my opinion and made a decision counter to my initial thoughts and my household has been better for it.
So for grins I ask again… (How)Do you Dave Ramsey??
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