No, Dave Ramsey’s Financial Advice ISN’T Right for Everyone—
Dave Ramsey is a big name in personal finance, particularly in frugal circles. However, your finances are a big part of your future and it’s important to be careful about the advice you choose to follow. While many of Dave Ramsey’s principles are solid, following some of his advice actually helped get us out of $80,000 in debt we accumulated when we both lost our jobs while in the middle of a house remodel.
But there are some bits of advice that may not fit in your life. And it is my opinion there are many techniques staying debt free and frugal. We found it best to look at Dave Ramsey’s Advice and other financial advisers and pull out the nuggets which would get and keep us on the right track.
Consider these ideas as you plan your financial future. Even the best advice is rarely one size fits all!
Credit Cards Aren’t Evil
Dave Ramsey’s books take a fairly extreme position on credit cards: do not ever use them and do not even keep them around. He advises only to use Debit Cards, if necessary. For some people, this can be good advice— mostly people who know that they cannot avoid the temptation of available credit and will spend money they don’t have. However, if you have enough self-control to use credit cards properly and stick to your budget, they can actually be a great financial tool.
Personally, I like they rewards we receive by using our rewards credit card. And since we pay off our bill monthly this is like free money.
You Need More Than a $1000 Emergency Fund
A big part of the Dave Ramsey financial plan is saving an emergency fund of $1000 as quickly as possible and then using every bit of money available to pay down debt. However, you may find that this advice simply is impractical for you, especially if you have a family. If you have a family to take care of, an emergency fund of $1000 may not get you far at all if emergency strikes.
Instead, think about how much of an emergency fund would be practical for your family’s needs and then set up a plan to put money aside for it every week. You can then use leftover money to pay down debts.
Focus More on Retirement Funds
Another bit of questionable advice from Dave Ramsey focuses on paying off debt instead of contributing to your retirement fund. Of course paying off debt is important—no one’s arguing that! But it may not be wise to pay off debt at the expense of your retirement account.
Many employers match contributions to your retirement plan up to a specific percentage. If you do not take advantage of this and instead use all of your money to pay off debt, you are essentially throwing away free money from your employer. A more moderate view of debt and retirement savings may be a better way to go.
His Math Can Be Dodgy
Some of the concepts presented by Dave Ramsey seem like common sense, but they may seem that way because they are based on inaccurate statistics. In terms of retirement planning, Ramsey refers to a 12% return on stocks. This type of return is considered unrealistic by most financial advisors, and basing your savings on this plan may cause you to save less than you actually need. Similarly, Ramsey recommends planning on using 8% of your retirement fund per year in retirement. Financial analysts note that this rate of spending may lead to a depletion of your retirement fund.
Getting your finances in order should be a main priority for you. But don’t feel like you have to stick to the advice of one financial expert or adviser. Do your research, consult multiple sources, and protect the money that you work hard for.
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