I have a confession to make.  I consider myself a pretty sensible and fairly knowledgeable person when it comes to finances–we don’t carry a balance on our credit cards, we have a budget, we have savings, we’re working hard to pay off our student loans, we live in a modest home and drive modest cars, one of which is paid for and the other is close to being paid for, and so forth.  But I had never listened to or read anything by Dave Ramsey (yes, THE Dave Ramsey) until recently.

Frankly, I never really understood the big fuss.  I mean, the advice he gives to be financially secure isn’t anything earth-shattering–live within your means, pay down debt, “live like no one else so you can live like no one else,” etc. etc. To be fair, even Dave admits this, saying in the Introduction to his Complete Guide to Money, “This stuff isn’t rocket science; it’s stuff my grandmother could have taught.”

At the same time, I figured there had to be something to the advice Dave Ramsey gives since so many people consider him as the end-all, be-all when it comes to making financial decisions.

So, I checked out The Total Money Makeover as an e-book through my local library, and picked up the Complete Guide to Money at a local goodwill store, and I read them.  I have no problem admitting that I thought Dave was spot on on some things.  However, there were other things where I thought he was dead wrong. (More about these things later.)  

My final conclusion

When it comes to taking advice (even financial advice from a guru like Dave Ramsey), you’ve got to use your head and assess the advice for your situation.  You can’t take any advice as the gospel truth and follow it without thinking.

Which brings me to some of my grievances with Dave’s advice.

Grievance #1: The $1,000 Emergency Fund

Personally, I think the $1,000 emergency fund is just too low.  I understand why Dave advocates $1,000–it’s a small sum that most people can save in a short amount of time and is, in many cases, more money than they’ve had in savings ever.  But, taken in the context of the next step, which is to pay off all debt using the snowball method, that $1,000 is probably not going to cut it, especially depending on how much debt you have and how long it’s going to take to pay that off.

In our situation, for example, the steep cost of my husband’s law school tuition resulted in us accruing student loans we are still working on paying off.  Then, we started a business, and borrowed some money to get that started. We’re working on paying that off too. Our plan is to have all our loans, with the exception of our home mortgage, paid off in the next three years.

Murphy’s Law

But a lot of things will (notice I said “will,” not “can”) go wrong in the next three years.  Maybe it will be the air conditioner that goes out, perhaps the water heater will break, a transmission will need to be replaced, a child will break a bone, etc.  The possibilities are endless! In all of these instances, I can guarantee the cost will be more than $1,000. If all we have is $1,000 in cash to our name to fall back on, then what?

In his Complete Guide, Dave cites a Gallup survey that found that less than a third of Americans would be able to cover a $5,000 emergency without having to borrow money.  He then says, “It doesn’t take much to add up to $5,000, either. A car wreck, roof repair, or medical problem could hit $5,000 pretty quickly, and when that happens, seven out of ten respondents to the survey said they’d be charging up credit cards, taking out loans, or hitting up Mom and Dad for the money.”

Riiight…so, when that $5,000 emergency hits and all you have is $1,000 in your emergency fund, you’re back to borrowing money. If you’re working on paying off debt, and you end up having to borrow money and increasing your debt instead, this seems like a pretty demoralizing and demotivating event.  That’s why I plan on keeping more than $1,000 in my emergency fund.

What Amount Is Right for You?

I think how much you keep in your emergency fund is a highly personal decision.  Our business will on occasion still experience an unanticipated low month, so for us, it makes sense to keep a month’s worth of living expenses in our emergency fund.  Maybe for you, $2,000-$3,000 or even $5,000 is a sensible amount to keep in an emergency fund.

In the end, you need to have an emergency fund, but the amount you need to keep in your emergency fund will vary depending on your individual circumstances.

Grievance #2:  Waiting to Give

It appears that Dave is a Bible-reading Christian, so it came as a bit of a surprise to me that he doesn’t suggest including “giving” of your financial means until Baby Step Seven–the last step of his program.

In the Old Testament, the prophet Malachi teaches the people of Israel the commandment of tithing, and promises that great blessings will result.  He says, “Bring ye all the tithes into the storehouse, that there may be meat in mine house, and prove me now herewith, saith the Lord of hosts, if I will not open you the windows of heaven, and pour you out a blessing, that there shall not be room enough to receive it.”

I believe that this is a universal truth.  Call it blessings from God, call it karma, call it whatever you like, but the principle remains the same: when you give to others, you always end up being the greatest recipient of blessings.

The Blessings of Giving–A Personal Experience

Perhaps one of the reasons I feel so strongly about this is my family’s own experience.  When my grandpa was a young man getting started as an oil distributor in American Falls, Idaho, he borrowed $3,500 from his older sister to purchase a truck. As is common with many new businesses, my grandpa wasn’t turning a profit.  Some months later, his sister came to visit him and she asked him how business was going. When he told her that it wasn’t going very well, she asked him, “Are you paying your tithing?”

Incredulous, my grandpa questioned her.  “Didn’t you hear what I said? I can’t afford to pay my bills! How can I give 10% to the church?” His wise sister knew the principle taught in Malachi and persisted in her advice, promising him that if he would pay his tithing, he would have enough money to pay his bills and then some.  Trusting that his sister knew something he didn’t, my grandpa follow her advice and paid his tithing.

Never again did my grandpa lack the money to pay his bills, and by most standards, by the end of his life, he was quite successful.  He owned homes, cars, boats, snowmobiles, and other “toys”—all paid for with cash. And the business he started still exists today and has provided a good living for hundreds of employees and their families.

The Blessings of Giving–An Advisor’s Experience

Many financial advisors advocate using a portion of your income for charitable purposes.  For example, Mary Hunt, founder and and publisher of “Cheapskate Monthly,” promotes the 10-10-80 plan: giving 10% of your income to charity, paying yourself 10% (for savings and investing) and living on the remaining 80%.  The idea behind the 10-10-80 plan is that setting aside the first ten percent of your income for charity helps to keep your priorities in line. She maintains that thinking about and giving to others helps to change our hearts and attitudes towards money and is an antidote for selfishness, jealousy and greed.

I agree. Giving to others is essential to ensuring your financial priorities are properly aligned and to opening your life to the blessings that a loving Father in Heaven wants to pour out upon you.  

(Note: I just finished reading Dave’s Complete Guide to Money, in which Dave actually discusses a tithe, and says, “I believe that giving should be a part of your financial plan all through the Baby Steps.  The Bible tells us to give a tithe. If you’re a believer, that means you give it off the top all the way through.” So, Dave and I actually agree on this point, but he does not make that clear in The Total Money Makeover, in which he says as part of Baby Step Seven (Build wealth and give), “Giving something, even if it is just giving your time by serving soup to the homeless, should start from Baby Step One.”  A confusing inconsistency.)

Grievance #3: Get a Will

My third grievance is that Dave gives bad legal advice.  

I agree with Dave that it’s dumb to die without an estate plan.  However, I don’t agree that it’s always the smart thing to get a will.  In fact, as I’ve discussed in other articles, there are plenty of reasons for choosing a revocable living trust over a will.

As a brief review, here are two of those reasons again:

First, a will does not avoid the public, time-consuming and often costly legal process called probate.  In fact, a will guarantees that your loved ones will have to endure a probate. Because probate is a legal proceeding overseen by a court, your family will be subject to the court’s calendar and a timeline created by law.  Probate often requires publishing notice in a newspaper and all documents filed in a probate matter are of public record.

Second, a will does not have any control or power in the case of your disability.  A will only comes into effect upon your death. Dave talks at length about how you are more likely to become disabled than you are to die, and advocates the purchase of disability insurance (I agree), but if your disability leaves you unable to manage your financial affairs or make proper health care decisions, your will is not going to help your family at all.  In fact, your family will be back to looking at petitioning the court for a guardianship/conservatorship through a public, time-consuming and costly legal process.

Grievance #4: Having Kids Buy Their Own Car

As part of teaching kids about money, Dave suggests that you have your children save up and buy their own car as well as pay for their car insurance and basic repairs.  The reason for this is that his “kids drove cars differently if they were primarily responsible for them.”

Our oldest son is turning 16 at the end of this month, so this is a topic that RobRoy and I have discussed AT LENGTH.  With both of us being attorneys, we are sometimes cursed by having to examine an issue from Every. Single. Angle. We also realize that whatever we do with our oldest son sets a precedent for what we will have to repeat with our other two children.

While I understand the logic behind having a child buy their own car, and pay for insurance and repairs, my primary reason for not wanting my kids to buy their own car is that I don’t want my kids to think that the car is THEIRS!  If I pay for the car, the insurance, and the repairs, then the car is mine, and I am extending a privilege to my child by allowing him or her to drive the car. If a child misses curfew, lets grades slip, or otherwise disregards home and family rules and expectations, I can exercise the parental prerogative of suspending the car-driving privilege for a time.

On the other hand, if a child pays for the car, insurance and repairs, then the car is their car (at least  in the child’s mind, and understandably so!) and they may feel entitled to take the car at any time on their own terms. I’m not comfortable with my teenager thinking he has that kind of freedom.

Another Perspective

You can incentivize your kids to drive responsibly by setting expectations that they will pay for their own speeding tickets, any increase in insurance premiums that comes as a result of a speeding ticket, and the deductible on your insurance policy if they are in an accident.  If you have a high deductible, this could be a substantial amount for a teenager.

I think it is a matter of deciding what makes sense for your family when it comes to teaching kids about money.  For example, although we have decided that we will not require our kids to purchase their own car, we do have them contribute toward the cell phone bill every month.  We also ask them to contribute to other activities they want to be involved in that aren’t always in the budget.

And it’s important to take into consideration the amount of money that your kids have the potential of earning.  Because our kids are heavily involved in music, requiring hours of practice and lessons, as well as having demanding school courses, they don’t have the time to work an after-school job.  They do work on Saturdays when they’re able. But, after taxes, tithing, and saving about 40% of their net earnings, that doesn’t leave them with a whole lot of extra spending money.

Grievance #5: Lumping Reverse Mortgages Into the “Horrible Mortgage Options” Category

Dave has this to say about reverse mortgages: “The reverse mortgage absolutely blows my mind.  It’s a way to say to our seniors, ‘Congratulations on working your whole life to get out of debt.  Now we’d like to give you the opportunity to systematically go back into debt deeper and deeper every month until you die.’”

While I think for Dave’s purposes, which is to give advice to those of us who are still in the wealth-building stage, a reverse mortgage is absolutely a bad idea, Dave doesn’t address why this is such a horrible idea for all seniors.  He simply says, “And make sure your aging parents don’t fall for it, either! I don’t care if they see their favorite actor from the 1960s pitching this garbage on TV! It’s still garbage!”

Okaaay, Dave, so what options do you recommend for those seniors who did work their whole lives to pay off their home, but unfortunately didn’t have your advice during their wealth-building years, and now have a paid-for home, but little to no money saved for retirement?  Are these seniors doomed to living off their paltry social security? Or hoping that their adult kids, who are working to support their families, get out of debt, and save for their own retirement can also support their parents? And for what? So that when Mom and Dad die, their children can inherit the home, sell it, and fund their dream vacations and sports cars with the proceeds?  

Sorry, when you walk Dave’s advice through to its logical conclusion, which is that our strapped seniors shouldn’t use the equity in their home to make their golden years a little more golden because that will leave Junior without an inheritance, I don’t see how a reverse mortgage is such a horrible option for a senior in that situation.  I think Dave’s blanket rule has some holes in it.

So, Why is Dave Ramsey So Popular?

Don’t get me wrong, Dave gives plenty of advice that is spot on.  I love having a budget because it does free me from the guilt I often feel when spending money.  Now, I can go to lunch with my friends or buy myself that new pair of shoes knowing that it is in the budget, so there’s no need to fret or worry.  It’s incredibly freeing.

I also found his history of credit fascinating.  My grandpa (the one who paid his tithing and created a successful business) was renowned for the motto, “Stay out of debt.” So much so that it was included in his obituary.  I remember my family going on vacation to California when I was a kid. By the last day of the trip, my dad had almost run out of cash. My parents laugh that they took us to Taco Bell with the remaining cash they had, but they had to go without dinner themselves because no place took credit cards back then! It’s hard for us to even fathom the possibility now, a few decades later.

My opinion as to why Dave is so popular is that he is a great cheerleader.  He has been able to motivate thousands of people to do what was just common sense a couple of generations ago.  I appreciated the way Dave’s books made me re-examine my priorities, question what I considered were foregone conclusions about the way we handle our money, and re-commit to paying off our students loans as priority numero uno.

Would I recommend someone read Dave Ramsey’s book?  Absolutely. Will I be willing to read more of Dave Ramsey’s books?  Sure. But, I’ll be taking his advice with a grain or two of salt.

What are your thoughts on Dave Ramsey and his advice?  I’d love to hear your perspective and experiences.