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Yep, he's targeting the people who find it hard to walk and chew gum at the same time. Try to get too financially sophisticated with the audience Ramsey's aiming at, and you'll lose them. They NEED simple, clear, and easy, even if it's not financially optimal advice. Hence stuff like the Debt Snowball. Sure, it makes the most financial sense to pay off the highest interest rate loan first, but if someone tries that and eventually quits in frustration because they don't see themselves making any significant progress, they're worse off than if they'd tried the Debt Snowball and paid off the smallest debt first and then stuck with the program because of the psychological boost paying off that small loan provides. The Debt Snowball approach has them paying more interest, but it achieves the ultimate goal: it gets the person out of debt, because they can stick with it.
A hell of a lot of financial success boils down to applied psychology.
Yes, IMO, this is what DR is good at--teaching/motivating people who are bad with their finances to become better with their finances.
He's absolutely geared to the "average" person. Those who don't want to learn a great deal about "personal finance", they just want to improve their personal finances.
My parents have always been terrible planners. Terrible with money. No budget. Spent it if they had it. Neglected paying bills if they didn't. Their awful finances weren't due to gambling or spending on luxury items or periods of unemployment. Nope. Just poor planning. Anyway, several years ago they were involved in a class action lawsuit, and they were smart enough to know what ever they ultimately received was likely to be the last "windfall" they would ever get, so in anticipation of this, they did Dave Ramesy's Financial Peace University. I would listen as my mom excitedly told me what they'd learned that evening (insanely basic stuff!!) But as they went through it I realized that some people just need that style and simplicity and accountability to make positive changes in their lives. And that's fine. I don't need Weight Watchers to maintain a healthy weight and I don't need Dave Ramsey for my finances, but I don't think it's a bad thing for someone to use those resources to make improves in their life. My parents still suck with money, but not nearly as bad as they used. Not by a long shot.
I remember when my mom told me about DR's "Debt Snowball", and that he points out if you were good with math you probably wouldn't need his advice. I believe there's truth to that.
I think a easy way to watch spending is to simply go cash or self pay. You will watch every penny you do spend and will be like a momma bear when it comes to anyone owing you money.
The easiest thing to spend is money you don't have. If you have 1,000 bucks in the bank, pulling out a cc and buying something for $400 is easy because you aren't paying for it right now. Your 1,000 bucks is still there. It would be a lot harder to spend that $400 if it was YOUR money
I don't agree with everything Adar preaches, especially when he gets into religion. Does he help some people? Sure. Does he make money off his " teachings" ? Sure. Why not. There are a lot of financial morons out there.
Is buying anything you can't pay cash for "living beyond your means?
Personally, I don't know anyone who has not --at one point or another -- "temporarily" lived beyond their means.
If a person needs a car repair s/he can't just right a check for, and puts in on a CC and pays it off in two months.
Then technically, I'd guess many would say -- that for those two months -- the person lived beyond their means. (But then again if they could afford the two months of payments…were they living beyond their means?
And no doubt there are those who'd argue that going back in time that same person in their opinion clearly must have been living beyond their means for a longer time -- because they didn't have an emergency fund to handle the car repair that came up.
I just think some people come off as being on a very high horse about….the living below your means topic.
Dave Ramsey recommends a 1K emergency fund and then attacking debt….well, people on his snowball program, who might run into a 1,700 car repair…..(such as happened to me when I hit a pot hole in DC and cracked an engine mount and needed my suspension adjusted)….IF they want to get that car fixed…might have to live beyond their means for a while.
Seriously? Charging, and then paying interest, for something because you can't pay cash is the exact definition of living beyond your means
If someone just started getting their finances under control using Dave Ramesy's plan and only had the $1k emergency fund, it was because they were living beyond their means in the first place!
Using credit, but never paying interest is a completely different situation. If you're paying it off every month, then you're better off using a cc than cash thanks to the rewards and the protections.
Is buying anything you can't pay cash for "living beyond your means?
Personally, I don't know anyone who has not --at one point or another -- "temporarily" lived beyond their means.
If a person needs a car repair s/he can't just right a check for, and puts in on a CC and pays it off in two months.
Then technically, I'd guess many would say -- that for those two months -- the person lived beyond their means. (But then again if they could afford the two months of payments…were they living beyond their means?
And no doubt there are those who'd argue that going back in time that same person in their opinion clearly must have been living beyond their means for a longer time -- because they didn't have an emergency fund to handle the car repair that came up.
I just think some people come off as being on a very high horse about….the living below your means topic.
Dave Ramsey recommends a 1K emergency fund and then attacking debt….well, people on his snowball program, who might run into a 1,700 car repair…..(such as happened to me when I hit a pot hole in DC and cracked an engine mount and needed my suspension adjusted)….IF they want to get that car fixed…might have to live beyond their means for a while.
Well I think you're going really overboard on living beyond your means definition. For example I usually pay off my cc when I get the bill. There are times when I may pay 1/2 the balance and wait till next month to pay the other half. I'm not living beyond my means. Granted this is a very rare thing but sometimes yeah I may carry a balance over for a month. I think we refer to living beyond your means as a general typical person who literally has a high cc balance but makes the minimum payment every month. The reason I don't like using CC is because i don't like paying the interest they charge. And I only use a cc for Internet purchases and it's cheaper than buying local.
First if all 1k IMO is really too low a number. It's like farting in a hurricane and wondering why you can't hear it. To have a true emergency car fund you need around 3-4K. Because any major unforeseen repair like a engine or transmission will run over 1k.
Dave Ramsey advice is ok for the financially struggling. I think some of his advice is solid get out of debt stuff, but common sense can do the same, and a lot of his advice is really on the optimistic side. In passing I have spoken to people who believe DR is a financial God. It's usually a religious person and they literally just repeat what RD states on his shows about finances. But when you get into the intricacies of why to invest in such way they can't really go past the initial advice they got. It's parroting what DR stated as financial truth. And anyone giving financial advice but in the same breath tells you that you must use his approved people IMO is a bit self serving. I seem to make decent money and be debt free and the advice DR preaches I've been doing back when he was in debt.
Someone with a higher salary will have living expenses proportionate to their salary so it isn't as cut and dry as you're making it sound. Of course, I would have more left each month if I lived like we only made $50k per year but what is the point of working so hard for our higher income if we're going to live like we did when we only made $50k?
The point is that once you reach a certain level, having a nicer lifestyle only adds minimal or no additional units of happiness to one's life. If one makes 120k (after taxes) but spends only 50K, then they can be financially independent in less than a decade...That means their time can soon be their own. They can walk away from paid employment if they want to, spend time raising their kids or doing (fill in the blank _______) instead of wasting time commuting to jobs they feel "meh" about.
Also = there are so many aspects to financial responsibility I find it absurd to label someone financially irresponsible because they don't adhere to all of them. The person in my example was purposely constructed to make this point, in my opinion someone living on half their income with no debt and significant savings is already way ahead of most of the herd and has clearly overcome one of the biggest challenges of living under their means. It leads to accumulation of wealth, flexibility in life choices, and a far safer position facing life/financial challenges going forward. I call them financial responsible even if they can't tell me what they spent on food last month.
Agreed. I'm not a strict budgeter myself....I'm just in the habit of not spending a lot. I get more pleasure from saving than I do from spending....so saving comes naturally.
Seriously? Charging, and then paying interest, for something because you can't pay cash is the exact definition of living beyond your means .
Of course, some people do pay interest on things even though they COULD pay cash...because they are able to get a better return on their money than the interest they're paying.
That said, that situation is miles away from the typical "Dave Ramsey" follower, who likely has credit card debt with interest rates in the teens and has been charging stuff they wanted but couldn't afford without going into debt, so they're trying to fix that.
Again, DR gives basic advice, but with tips and psychological "tricks" that work with enough people to get them to change their behaviors. As has been noted numerous times in this thread, it's not perfect or anywhere near that. Another poster put it well - if you're headed south, he won't get you headed due north, but will direct you, say, northwestish, which is a darn sight better than south.
I don't really like DR, but I'm not his audience. Nor are most (all?) of us posting on this thread.
The point is that once you reach a certain level, having a nicer lifestyle only adds minimal or no additional units of happiness to one's life. If one makes 120k (after taxes) but spends only 50K, then they can be financially independent in less than a decade...That means their time can soon be their own. They can walk away from paid employment if they want to, spend time raising their kids or doing (fill in the blank _______) instead of wasting time commuting to jobs they feel "meh" about.
That's BS. You don't achieve financial independence saving & investing $70K/year for a decade. That's my savings rate so I know the math off the top of my head. Without a big head start, a beefy Social Security check, and Medicare paying for most of my health care, there's no way I could stop working after 10 years and maintain an inflation-adjusted $50K in disposable income. If you live in a fantasy world with a 0% inflation rate and 7% stock market returns, sure. Out in the real world, you'd have to save & invest at that inflation-adjusted rate for more like 25 years to make it on passive income without a Social Security check and Medicare. Economic conditions in the United States are very different from the 50 post-war years and you can't extrapolate returns from that era in 2016.
That's BS. You don't achieve financial independence saving & investing $70K/year for a decade. That's my savings rate so I know the math off the top of my head. Without a big head start, a beefy Social Security check, and Medicare paying for most of my health care, there's no way I could stop working after 10 years and maintain an inflation-adjusted $50K in disposable income. If you live in a fantasy world with a 0% inflation rate and 7% stock market returns, sure. Out in the real world, you'd have to save & invest at that inflation-adjusted rate for more like 25 years to make it on passive income without a Social Security check and Medicare. Economic conditions in the United States are very different from the 50 post-war years and you can't extrapolate returns from that era in 2016.
People that do this are super frugal and save enough where 4% will cover their expenses. They also continue to work...just not at a J.O.B.
That's BS. You don't achieve financial independence saving & investing $70K/year for a decade. That's my savings rate so I know the math off the top of my head. Without a big head start, a beefy Social Security check, and Medicare paying for most of my health care, there's no way I could stop working after 10 years and maintain an inflation-adjusted $50K in disposable income. If you live in a fantasy world with a 0% inflation rate and 7% stock market returns, sure. Out in the real world, you'd have to save & invest at that inflation-adjusted rate for more like 25 years to make it on passive income without a Social Security check and Medicare. Economic conditions in the United States are very different from the 50 post-war years and you can't extrapolate returns from that era in 2016.
The assumptions are 7% total return 3% inflation net 4% and a 4% swr. It's certainly doable but with some risk, less if you do still work some to bring in a little income
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