Why Dave Ramsey is Wrong

Dave Ramsey has created a gigantic personal finance empire helping people reach financial stability. He helps families every year get their spending under control, get out of debt and plan for retirement. I even listed one of his books on my favorite personal finance books list. All good, eh? NOPE. We owe it to ourselves and our financial futures to question the advice we’re given. And today, I want to share with you the areas in which I think Dave Ramsey is wrong. 

It is so easy to begin to see personal finance or self help gurus as The Experts. But believing blindly in one single fallible human sets us up for a fall. 

It’s Okay to Disagree

Knowledge is an important currency. It’s what we use to inform our decisions. We rely on it to help us tackle certain challenges. Knowledge helps us avoid negative consequences. If the knowledge or advice we have is flawed in the beginning, every decision or solution we implement is also flawed. 

Today, we’re focused on why Dave Ramsey is wrong in certain areas, but I encourage you to question any other experts or role models in the same way. Search out different sources to fact-check their information. Consider their motivations. Pay attention to bias and proceed carefully. 

This is why I like to share additional resources with you – everything from personal finance books to personal finance podcasts. In the personal finance space, there are lots of experts who can either validate or invalidate information you’ve been given. 

In preparing for this post, I reread a couple of Dave’s books, listened to his radio show and perused his blog archives. And if I’m being honest, I found myself nodding along with most points he makes. But even with so much GOOD happening in the Dave Ramsey orbit, it’s okay to disagree with some of his advice. Personal finance is personal, and one size doesn’t fit all.  

What Dave Ramsey Gets Wrong

I’ve outlined a couple of areas below in which I think Dave Ramsey is wrong. Let me know in the comments below what you think!

He relies on shame.

Dave is very much a pull-yourself-up-by-your-bootstraps kind of guy. He rails against entitlement. And thinks everyone except him is lazy. 

This type of toxic perspective fails (let’s say it again, FAILS) to take into account the very real systemic wage gaps, caused not by a lack of gumption but by public policy and discrimination. We already know systemic racial discrimination and gender wage gaps are real. It’s been proven time and time again. No matter the level of education or individual accomplishment, the racial wealth gap persists.

Dave’s black-and-white perspective also doesn’t take into account societal pressures like increasing costs of living, bare minimum (ha) minimum wage, rising healthcare costs or staggering student loan debt. 

At the height of the pandemic, this country faced 15% unemployment. You cannot make me believe that if those 15% of people had just worked harder or been more committed, they would have kept their jobs. You CANNOT make me believe that. 

Beyond that, the way you manage your money has a lot to do with the money scripts you learned early in life. Money scripts based on your family’s background, culture and habits. Financial conversations can be tough, and empathy and kindness go MUCH FURTHER than shame.

Shame as a motivating factor doesn’t work. Instead, shame triggers a fight or flight response, and is more likely to discourage a person NOT to ask for help in the future. 

THIS IS THE #1 AREA in which I think Dave Ramsey is wrong. But honestly, he’s not the only one. The personal finance world is rife with experts who rely on shame to prop up their own egos. It’s the easy path. And yet another reason to choose carefully the people you allow to advise you.

He believes a $1,000 emergency fund will tide you over.

Uh, yeah, no. Even typing that made me feel weird. In Dave’s Baby Step program, the first step is to save $1000. The second step is to pay down debt. In his Baby Steps plan, once your debt (except the mortgage) is all gone, then you go back to beef up your emergency fund. 

Honestly, it’s not a bad approach in an ideal world. But what happens if you get hit with an ACTUAL emergency while paying down debt? That’s the question, isn’t it? 

As Stanford professor Scott Sagan said, “Things that have never happened before happen all the time.” Emergency car repairs, a sudden job layoff or unexpected healthcare expenses could easily gobble up that skinny emergency fund. 

I don’t know about you, but one or two emergencies in a given time would mean my $1000 emergency fund was depleted. AND, I might have to lean on a credit card to help bridge the gap.

Which brings me to the next topic: 

Dave says, “No credit cards”.

He doesn’t say, “Don’t use a credit card unless you can use it responsibly.” It’s absolute. “Do not use credit cards.”

I’ve written about this topic before. I think it’s important everyone makes the decision to get a credit card very carefully and thoughtfully. Credit cards aren’t right for everyone. You need self-control and discipline to pay off the card monthly, EVERY MONTH. But, there are a number of benefits to having a credit card that just don’t compare to debit cards or cash.  

Dave advises against credit cards in 100% of cases because he believes no human can POSSIBLY exhibit good money management skills and resist the temptation of racking up credit card debt. Paint with a broad brush much? 

I think Dave Ramsey is wrong here. He would call me naive, but I believe everyone can learn how to budget, track their expenses, spend less than they earn and pay off their credit card balances monthly.  

He has a very specific approach to paying off debt.

First up, Dave wants everyone to use the debt snowball approach. This means tackling debts with the lowest balances, and working your way up to the largest debt amount. There are a handful of different debt payoff strategies. The debt snowball is the one that will cost you the MOST money. 

Dave’s position here is that by beginning with the smallest amount, you’ll get some quick wins that motivate you to continue on the debt payoff path. Not a bad strategy because it creates momentum (thus the snowball name). But if your largest debt has the highest interest rate, you’re paying MORE money in interest, and the entire process will likely take MORE time. 

Another area in which I disagree with Dave Ramsey is in his stance around gazelle-intensity. He believes that unless you have “total, sold-out, focused intensity” (quote from The Total Money Makeover), you won’t ever get out of debt. You must be running for your life (like a gazelle). 

Dave says you can’t go to the movies or step foot inside a restaurant while you’re paying off debt. Essentially, nothing extra.

Listen, kudos to anyone who can adhere to a restricted lifestyle like that for an extended period of time. I know many of Dave’s debt-free families have done this successfully. It’s not for me. And I would never advocate for this with anyone I know. 

I STRONGLY believe the debt payoff journey must be sustainable. Sure, you’ll make sacrifices along the way, but to stay motivated and avoid burnout, you’ve got to loosen the hold every once in a while. A drive-in movie to celebrate hitting a certain debt milestone. Take-out and a picnic in a park to acknowledge your progress. We’re not shopping at Gucci here. We’re simply finding balance.

Here’s another area where I think Dave Ramsey is wrong. In Dave’s Baby Steps, he recommends delaying investing for debt payoff. This means not taking advantage of your company match, not taking advantage of time in the market and missing out on potential gains. 

If you’ve been here for long, you know about the power of compound interest. Compound interest shines brightest when it’s given TIME to work. A high savings rate + compound interest = magical unicorn turbocharged financial growth.

At the very least, you should contribute enough to get your employer match even while you’re paying down debt. It’s free money and you’ll thank yourself later.

Dave has some interesting investment advice.

Before we get into this topic, let’s be clear. Dave is rewarded by appealing to a large audience. This means the advice he’s giving is largely cookie cutter. His investment guidance is no different. That’s why it’s important to do your research, proceed carefully and only after you understand and take into account all of the important considerations before investing.

One thing Dave is ADAMANT about is that any investor should expect (dare I say, DEMAND) 12% market returns.

In the 1990s when Dave’s Baby Steps were first born, 12% average returns over an extended period of time weren’t completely out of the question. But this completely ignores a few really important points: 

• Market volatility over any extended period of time impacts those returns.
• Historic performance does not dictate future returns.
• Our timeline for investing is limited – we can’t choose to only invest in those years with high returns.
• 12% returns would likely require a high level of risk, which isn’t smart for all investors.

The experts agree that this type of return isn’t reasonable. And quite frankly, for Dave to continue pushing this unrealistic expectation is dangerous. Returning less will disrupt someone’s financial journey if they’re basing all of their plans on the expectation they’ll be getting 12%. It may cause people to invest LESS than they need to during their working years, which is an alarming idea.

One other area where I think Dave Ramsey is wrong is in his advice for investing vehicles. He advocates for all stock mutual funds only. All equities, all day long. 

Listen up, fam. Dave Ramsey doesn’t know you. He doesn’t know your specific life stage or your needs. For him to advocate for a specific investment activity is irresponsible. 

Recommending all stocks is especially dangerous. Your asset allocation is one of the most important investing decisions you can make, and not diversifying can be a big mistake, depending on where you are in your life. 

There’s far more to dive into here, but we’ll just leave it at this: take Dave’s investment advice with a grain of salt and be sure you do your own research.

Now what?

Clearly, there are some really important topics where I think Dave Ramsey is wrong, where he and I differ philosophically. But we can also acknowledge there are things he gets right. 

We are evolved human beings who can hold both things as truth at the same time. (Yes girl!)

And we don’t have to buy into Dave’s entire program holistically. We can keep what works and lose the rest. 

Let’s look at a couple of areas where Dave gets it right.

What Dave Ramsey Gets Right

This is by no means a comprehensive list, but I pulled out some of the things that resonated most with me during my first interactions with Dave’s teachings. Hopefully you’ll feel the same.

Live within your means.

Keeping up with the Joneses is dangerous, because as Dave says, “The Joneses can’t do math.” Too many people spend more than they have to look like they’re rich. How does that make sense? It doesn’t.

No one is as impressed with your possessions as you are. 

It’s important to pay off debt.

While I disagree with Dave’s recommended methods, I do agree with his stance that most debt must be paid off to pursue financial freedom. Being in debt can create anxiety that’s hard to shake. It can limit your opportunities and your choices, and can hold you back from accomplishing your goals.  

Personal finance can be simple.

As Dave says, “some of the most profound and life-changing truths you will ever discover are very simple.” 

Financial success is all about creating a gap between the money coming in and the money going out. Stability happens in that gap, because you can build an emergency fund (with more than $1,000) and pay off debt. Wealth building happens in that gap, because you now have the space to begin investing.  

Easy enough. Understanding SIMPLE concepts is all it takes to begin moving the needle.

We are our own worst enemy.

Not fun to admit, but it’s true. We buy into limiting beliefs about ourselves. Pull back when we should push forward. Abandon the ship because we encounter rough waters. 

Especially in investing, it’s easy to see a dip in the market and stop altogether. But pushing forward is the best way to find financial success in the long-term. 

Dave seems to understand this well, and that leads me the next point:

Sometimes we need a wakeup call.

Let’s be honest. Dave’s outsized ego might make him a little too eager to be the one administering the wakeup call. But the fact remains that sometimes a more assertive call to action (sans shame!) can be the thing that wakes us up to change. 

If we’re wallowing in self-doubt and excuses, sometimes a little tough love is what’s needed.

Generosity is good.

One thing I do admire about Dave Ramsey’s financial approach is the importance he places on giving. He believes the ability to be generous is the biggest reward of the entire journey. What a great motivator for building wealth — the ability to change lives and support causes that do great things. Dave says, “It’s the most fun you can possibly have with money.” 

In Conclusion

Dave Ramsey is wrong about some things. He’s also right about a few, and has been a terrific resource for a lot of people. His books helped prod me along my own personal finance journey, and I encourage you to explore Dave’s teachings. But remember that what’s good for Dave’s masses might not be best for you.