My Take on Dave Ramsey

I came across the Dave Ramsey phenomenon in response to a reader’s letter. More recently, I just read an article in The Atlantic magazine about him and his philosophy.    I actually receive the print version of The Atlantic, which really allows me to thoroughly enjoy their writers in places, shall we just say, where the computer doesn’t go.

Anyways, author Megan McArdle attended Dave Ramsey’s seminar, and even gave his methodology a test.   Her results were fairly positive.     Now, I haven’t attended one of his seminars or read his books, so I will be relying on her experiences.

The Philosophy

Ramsey truly hates debt.    He preaches giving up credit cards and all other forms of debt, with the exception of a 15 year home mortgage.    One of the things that I did not know about him, was that he is very similar to an evangelist.    He quotes extensively from the bible, and McArdle compares his meetings to a prayer meeting.    His methodology is to withdraw all of the money you will spend in a month, and put them in envelopes.    In this way it is thought that you will spend less money.

My Take

It is hard not to agree with Ramsey’s goals.    We agree that almost all debt is bad.   To me, credit card debt is one step better than pay day loans, but not by much.      I also tell people to avoid debt on just about all depreciating assets, especially cars.    On the other hand, I don’t have that much problem with debt on appreciating assets like your home or your education.    Sure, we just passed through a very short, unique period where home prices underwent a correction, however over the long term, homes do appreciate in value quite reliably.

Where Ramsey and I disagree is in both our methodology of reaching the debt free goal, and our approach to promoting our philosophy.   Dave would have you cut up your credit cards, as the picture in the article clearly shows.   I personally feel that the benefits of using a credit card as a method of payment outweigh the psychological risk of overspending.   For many people, Ramsey’s advice makes sense, as they have used their credit cards as a method of financing purchases they cannot afford to pay in full at the end of the month.   There is the key difference between method of finance and method of payment. People like myself who use credit cards as a method of payment, pay their bill in full every month.   They use other means to budget their money.   If you ever find yourself tempted to use your card as a method of finance, Ramsey’s all cash solution is a reliable, if brute force method of kicking that habit.

When I say that the benefits of credit cards outweigh their risks, what am I talking about?    First, when cash is lost or stolen, it is gone forever.    When your credit card is lost or stolen, you loose nothing.   My house was burglarized recently, yet little was taken.   The police pointed out that they were almost certainly just looking for cash.   They didn’t find any as the only cash I ever have is in my wallet.    I also enjoy the charge back ability of a credit card.    Frequently, just the threat of a charge back is enough to convince a merchant that they should do the right thing.    Of course, the cash back rewards don’t hurt.    I am saving 2% or more on everything, all of the time.   That really adds up over the course of a lifetime.   Finally, credit cards simplify my finances.   I know when my payment is due, I don’t have to worry about each withdrawal and each check, as the money comes out of my bank account in one payment to cover many expenses.

The other big difference between Ramsey and I is how we get across our message.   McArdle paid $220 for front row seats to hear him speak, while you can read my blog posts for free.   Frankly, I have a hard time trusting anyone who would thinks it is a good idea to shell out that kind of money for a financial lecture.   Another huge difference is that Ramsey is giving his advice in a highly religious context.   According to McArdle, most of his attendees are evangelical Christians, and his talk concludes with a plea to get to know Jesus.

It so happens that I myself am not a Christian, but I do have the utmost respect for Christians and their faith.   That said, I just don’t see the point in mixing religion and personal finance.   I don’t pretend to have any crucial insights into spirituality, just some good advice on how to use credit cards for your economic benefit.    I like to think that my advice applies equally to people of all faiths, or of none.    I am not sure Ramsey can make the same claim.

I will, however,  conclude with a religious analogy.   It is said that different religions are just different paths to the same truth, or different ways of worshiping the same god.    Likewise, Dave Ramsey’s method of achieving financial security and independence, like his religion,  is different than mine, yet I think that in the end we both share the same goals.