I've listened to Dave a lot and generally like him, and while I agree that he has done a lot more good than harm, most of his advice does rely on good incomes.
I *think* Dave recommends paying no more than 10% of your take home income over a three year term on a car payment. I'm single and make $38k a year, currently netting ~$2,450 a month, so I should pay no more than $245/month in auto payments. Assuming I'm paying 0% interest and that the entire $245/month goes to principal over the next three years, that's still a sub $9k car. When factoring in interest costs, I am going to have to go even cheaper to stay within Dave's limits. I'm not doing badly for the area, but I can't afford much of a car according to Dave. What are people who make even less money to do if they stay within Dave's guidelines?
Cars this cheap are usually older and likely (but not always) will have to have considerably more money budgeted for maintenance costs. I just got out of a car that was becoming a money pit. I bought a used 2005 Murano last year and had already spent $1,200 on it in maintenance costs, and it was needing another $1,000 - $1,500 in repairs immediately. The fuel savings alone going from the Murano to a 2013 Hyundai Elantra will save me between $50-$75/monthly in gas. Counting the repairs that needed to be done on the Murano NOW along with the gas savings makes up the difference in payments for at least a year. Given the Murano's track record, it was likely to need even more expensive maintenance in the future. I have a bumper to bumper warranty on the Elantra that should last for the duration of my loan on the Elantra. In my case, I doubt Dave would have encouraged me to get this new car, but given my Murano's record of excessive maintenance costs and gas consumption, it felt like staying with the Murano was just throwing good money after bad. I could have gone with another used, even cheaper car, but didn't want to deal with the hassle again. While my decision may not be the most financially efficient, it gives me some peace of mind not having to fight with car maintenance frequently.
Also, many people simply don't make enough money to be able to have the large emergency fund needed to safeguard against having to borrow should a large expense come up. Dave's advice is to get a second job to get your income up. While this is common sense, this becomes much more difficult for older people, if the local job market is awful, or if one has a primary job without a normal schedule. Dave's advice on how to increase income is common sense but not practical for many segments of the population.
A single person who is having to pay for everything on their own on an average salary is going to have much less left over for debt repayment after basic needs than a couple or family where there are even more earners. This is a basic economy of scale. If you pay attention, Dave's callers are rarely single people.
This is from Dave's site on home buying.
How Much House Can You Afford? - daveramsey.com
If you can't postpone the purchase until you can pay cash, buy a home with a down payment of at least 10% on a 15-year (or less) fixed-rate mortgage. Limit your monthly payment to 25% or less of your monthly take-home pay.
Let's see how Dave's advice applies to my hometown. Here is some information from city-data on Kingsport TN.
Estimated median household income in 2009: $34,019 (it was $30,524 in 2000)
Kingsport: $34,019
Tennessee: $41,725
Estimated per capita income in 2009: $23,235
Kingsport city income, earnings, and wages data
Estimated median house or condo value in 2009: $115,662 (it was $85,400 in 2000)
Kingsport: $115,662
Tennessee: $137,300
Read more:
//www.city-data.com/city/Kingsport-Tennessee.html
A typical APR on a 15 year mortgage from a large credit union in the area is 3.25%
https://www.ecu.org/node/295
Using a $105,000 loan (median home value in Kingsport with about ~10% down), a 15 year term, and a 3.25% APR, the monthly payment is $737. Using the median HHI in Kingsport of $34,019, this equates to about $2,835 in GROSS HHI. The monthly payment for the median home on a 15 year term is more than 25% of the gross monthly median HHI before we factor in anything else. Other problems:
1) We're assuming that a household making $34k can save $10k for a ~10% down payment to begin with. Their income is so low that most all of their income is likely going to basic needs. There is likely little, if any, money left over.
2) We're also assuming that this household will have the credit to qualify for a 3.25% loan. This low income increases the likelihood of credit problems.
3) This household is going to be hit with PMI. PITI + PMI is going to be put this household into a dangerously high ratio for house expenses vs. HHI. Our area has very low property taxes. The situation would get even worse in areas that are just as poor, but have higher taxes.
4) Dave advises to save 15% of your pay for retirement. This household is unlikely to be able to afford contributing much of anything to retirement.
5) Dave also advises to be debt free and have the 3-6 month EF built up (excluding the down payment) before buying a home. If you take a three month EF as $10k on top of the $10k down, that's at least $20k liquid cash for the median household making $34k, plus all debt paid off.
Remember the numbers I've been using are the
medians for my hometown before any taxes or other expenses are taken out. Half of the households in Kingsport are in a
worse situation than the numbers I used.
Dave's show is helpful for getting people out of the mindset of constantly borrowing, but his debt reduction and "baby steps" advice, arguably his strongest area, requires a good income or an irregular living arrangement to even begin to implement. I don't disagree with his general thesis - "get out of debt, increase income, live below your means, invest, prosper," but it's just impractical for those on restricted incomes.