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If I recall, Ramsey's approach is to work really hard, stay out of debt, and build your various savings vehicles so that debt won't sink you and so you'll have a nice retirement. The $1K emergency fund is just for starters, that's not the whole of it. Another step after that is to build 6+ months of full expenses in a larger emergency fund. You don't stop at $1K, but $1K is something small enough that it allows someone who doesn't know how to save or struggles with temptation to experience a 'win.'
The whole point of it, whether you follow Ramsey or not or like his advice or not, is that you need to accumulate $$$ and have more than you spend. That's the only math that works in the end. It does take sacrifice, it means that $2K shopping spree at upscale mall might need to be a $400 spree instead. It means for some people working more than 1 job, or having a sideline business. There isn't just one way to get there, but unless you have a trust fund, a lottery win, or married someone wealthy, chances are you're going to slog away over at least a couple decades if not more. It doesn't mean you live in a tin shack and eat out of garbage bins. You just always put some $$ away out of every paycheck and watch your spending and pay off debts as fast as possible (except for a mortgage which will take years if you don't have the cash).
I ignore all of Ramsey's religious stuff as that's not of interest to me. The foundational principles are good ones. Everyone can benefit by having an emergency fund. Everyone can benefit by utilizing 401Ks and IRAs. No one will ever complain that they "saved too much money." You can still plan for big purchases like nice vacations or a big toy. You just save for it so you don't get into debt to have it. That's taking control of your money.
His major point is that personal finances are 20% numbers and 80% behavior. I think it's more 5% numbers and 95% behavior. If we worked on logic alone and without emotions, we would all be rich and skinny!
"Beans and rice, rice and beans" works for few people for a short time. You've got to have some type of reward that works for you to keep you on your plan. We paid off our debts and our mortgage by being firm on our budget but not unrealistic. We saved for a cruise for our 25th wedding anniversary while we paid off our debts. And we saved for a trip to Hawaii as we paid off our mortgage.
I look at Ramsey like this - you aren't going to get in trouble following his advice.
Agreed
Quote:
Originally Posted by Aredhel
Very true, as long as you exclude his investment advice (which is terrible).
Agreed
In addition to some of the details of his methods/advice, I think his personality and his zealot followers contribute to the negativity some people feel towards him. Anyone who thinks they have all the answers, AND weaves that into religion, is gonna get some push back. (Even if their advice works for the majority of folks)
I look at it this way. Dave sets a decent foundation for people to get out of financial trouble, but he's not likely going to make anyone wealthy with his advice. Daves advice is great for financially illiterate people who have no idea how to manage their money. I'll be honest that was me for a few years, but as I learn more and mature in my financial understanding, there are a few financial areas where I disagree with Dave. I'm not religious either, but I enjoy listening to his show occasionally. Dave does seem to have a bit of a cult following, especially with evangelical Christians. I know a few people who do exactly what Dave says and will get extremely defensive about anything Dave Ramsey.
I look at Ramsey like this - you aren't going to get in trouble following his advice.
I disagree. Not too long ago I heard him tell a caller who wanted to go back to school for a year to finish their degree to cash out their 403b to pay for it rather than borrow.
I disagree. Not too long ago I heard him tell a caller who wanted to go back to school for a year to finish their degree to cash out their 403b to pay for it rather than borrow.
Dave is too strict on the no debt policy. I can understand it as a general rule, debt can be dumb, but not always, no interest debt can be fine and student loans can be good as well. Plus, those are both good ways to build credit to get approved for a home mortgage later on.
I get the distaste towards Dave Ramsey in a few areas (noted below), but in terms of getting people out of debt I don't see why some people hate him so much.
In the marathon world there's a guy named Jeff Galloway who preaches what he calls the "run-walk" method. It's simply a system that gets people to believe they can finish a marathon (or any other distance race) by starting small, running for a minute, walking for a few minutes to start and gradually working up towards more running and less walking. Is someone doing that ever going to win a race? Unlikely, but it HAS encouraged countless people who thought they were too overweight or too out of shape to get up off the couch and eventually complete a race. I think that's great and should be commended. Dave Ramsey is just the Jeff Galloway of finance. He's more coach/cheerleader/salesman than good financial guru but his 'pitch' gets people to believe they can get out of debt and save for retirement. Following his plan isn't optimal, but it's a lot better than what the average person out there is doing.
*That said, his investment advice where he sends listeners to his ELPs who then put people into high fee / loaded funds is borderline criminal and his advice to military families to go ahead and buy in markets that have been hot even if they're likely to be moving in 2-3 years is terrible.
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.
Sorry, I was wrong. It takes about 12 years.
You'll need 25X your spending level to be financially independent. This is confirmed by the 4% rule. So that number would be 1,250,000
70,000 per year invested at 8% after 12 years is $1,412,317.
For some it might take fewer years if they were able to pay off their homes with the 50K per year they were spending. Alternatively, even with a mortgage in retirement, expenses would drop after it was paid off.
I used the 25 year rule, and you're just simple insanely overestimating how much would be needed. 70K invested after 25 years and a conservative 4% after inflation rate of return would equal over $3M.
Most very early retirees tend to live on 25K to 40K per year if they have paid off mortgages.
Or, like Jeremy at Gocurrycracker, who still rents, they rent nice places in cheaper low cost countries.
Expenses have a way of coming down and possibilities opening up when you're not stuck in the 8-5 commute rut.
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