Dave Ramsey is one of the most popular financial guru’s. He has helped millions of people become debt-free, has a die-hard audience but also a lot of haters.
For me personally, Dave Ramsey is the person that a lit a fire under my butt to get my finances in order and even teach me basic money principles that I was never taught. If it wasn’t for Dave Ramsey I still would be living paycheck to paycheck and in debt. I became debt-free three years ago and since becoming debt free I have branched out from the Dave Ramsey Baby Steps and have opened my eyes to other ways of managing my money.
Today, I’m breaking down the pros and cons of the Dave Ramsey Baby Steps so that you can make the best decision for you and your family.
Here are ways Ramsey truly helps his audience:
Dave Ramsey teaches you to have a zero-based budget. This means tracking every single expense, your income minus your expenses equals zero.
A zero-based budget is one of the best tools to make you aware of every purchase you make. It is very eye-opening of areas that you can cut to hit your goals faster.
At the end of the month, any leftover money doesn’t go into a black hole of your checking account but goes directly to whatever goal you are working on, whether that’s paying off debt, saving, or investing.
Education on Insurance
Dave Ramsey is very educational on the different types of insurances that you need.
I personally was unaware of the importance of life insurance before going through Financial Peace University, I thought that I won’t need it until I have kids. But the truth is if anyone relies on you and your income; a child, a spouse, a life partner, or a parent. Then you need life insurance.
Here are the types of insurance Dave Ramsey Recommends:
• Auto Insurance
• Homeowners/Renters Insurance.
• Umbrella Policy.
• Health Insurance.
• Long-Term Disability Insurance.
• Long-Term Care Insurance.
• Identity Theft Protection.
Dave Ramsey teaches people to give
Dave Ramsey is very big on giving and tithing, he teaching that giving within your finances is a sign of financial maturity.
Dave Ramsey creates community
Followers of Dave Ramsey become all or nothing and form a tight bond. You can choose to attend Financial Peace University online or in person. Over the 9 week class, your group members share victories and struggles.
There are numerous podcasts, blogs, and YouTube channels dedicated solely to sharing their journey through the Baby Steps and paying off debt.
The Dave Ramsey plan isn’t for everyone, here are some of the main reasons people don’t agree with his plan.
Credit Scores Don’t Matter
Dave Ramsey teaches that credit scores do not matter and are only an “I love debt score”. Once you are out of debt and have financial peace your credit score no longer matters.
Ramsey neglects the fact that there are ways to build your credit without going into debt, for instance, having your mortgage reported on your credit report and by paying off your credit cards each month to not hold a balance. Click here for more info on credit repair.
Having a low credit score not only increases your interest rate when you buy a home or investment property but also can increase your car insurance rate and you may be required to pay a utility security deposit.
Resources on improving your credit score:
• Video: How To Increase Your Credit Score
There are three main ways that I don’t agree with Dave’s investing advice.
Stopping your 401(k) while paying off debt. Dave Ramsey recommends stopping all investments until you have completed Baby Step 2 (debt free besides the mortgage).
This is free money that your employer is giving you. If you are unsure how to set up your 401(k) and what you should be investing in, check out Blooom. Blooom is a free tool that will analyze your 401(k) for you, they will tell you if you are on track to hit your retirement goals, and if you are paying too many fees. Let the experts take a peek at your retirement account. Get real advice on how it’s doing and how it could be performing better.
High-fee mutual funds. The fees on mutual funds are incredibly high, you can incredible diversification and growth with low-cost index funds and ETFs. Ramsey pushes hard are his endorsed local providers that are paying him a fee to be promoted and taking their fees on top of that.
Start investing today with free brokerage apps that have some awesome perks!
• M1 Finance: Invest In Fractional Shares and Auto Reinvest!
• Webull: Get 2 Free Stocks on WeBull when you deposit $100 (Valued up to $1400)
• Robinhood: Get A Free Share of Stock
12% Returns are not realistic. On average you can expect returns of 6-9% over the long haul of your investments. Claiming you will see 12% returns gives viewers false hopes of their investments, especially after the fees paid for their managed mutual funds.
Resources on Investing:
• Video: Should You Invest or Pay Off Debt?
• Video: Dividend Investing for Beginners
• Video Playlist: Investing for Beginners
• Video: Beginner Investing Mistakes To Avoid
The Rice & Beans Diet Isn’t the Healthiest
Cutting your food budget is one of the first things you will learn in Financial Peace University. Ramsey often refers to eating rice and beans for dinner. Yes, rice and beans are very inexpensive meals but this way of eating is also a lot of processed foods that are not healthy long term.
If you would like to learn how to save money on groceries without eating processed foods, check out the course How To Save Money On Groceries.
This course will help you:
• Shop your own pantry
• Rollover ingredients
• Meal plan for success
• Eat out without breaking the budget
No Credit Cards
Dave Ramsey is 100% against credit cards and promotes using the cash envelope system. Yes, credit cards are dangerous for many people but there are also a large number of people that can use credit cards responsibly and gain cash back rewards and travel rewards with them.
Ways to save money:
Here at Freedom In A Budget, I am all about saving money! Here are some of the EASY ways that I save money:
• Fetch Rewards is a free grocery savings app that rewards you just for snapping pictures of your receipts. That’s really it. Free gift cards on groceries on thousands of products every day, no matter where you get your groceries. Just scan your receipts and get gift cards from places like Amazon, Starbucks, Target, Ulta, Applebees. Use code QHKBH to earn 2,000 points ($2)!
• Rakuten/Ebates: Rakuten is my to go way to earn Cash Back from over 2,500 stores like Macy’s, Amazon, Sephora, Walmart and much more. Join Rakuten today for free, and you’ll get a $10 Cash Bonus to get you started! Every three months, you’ll get a Big Fat Check in the mail or a PayPal payment just for shopping.
• CIT Bank offers high-yield savings accounts that provide a safe, secure way to grow your savings.
• M1 Finance is an easy to use brokerage platform that allows you to invest in Fractional Shares and auto reinvest!
• Honey: Stop wasting money- Honey finds you the Internet’s best discount codes.
• Budget Templates: Excel budget templates with pre-populated categories and formulas to keep you on track with hitting your financial goals.