Joanna and I will forever owe our budgeting beginnings to the man, the myth, the legend, Mr. Dave Ramsey. A friend lent us The Total Money Makeover one fateful day, and our financial lives were changed forever.
We adopted “gazelle intensity” as a normal phrase in our household. We listened in awe to countless once-indebted couples who shared their stories and let out Debt Free Screams on his radio show. We were drinking the Ramsey Kool-aid and we wanted everyone to know about it. Maybe some of you have a similar story. Maybe it wasn’t Dave Ramsey, but rather a different financial guru who helped get you on the path to financial independence.
But after we started to finally get the hang of this whole budgeting thing, we started to realize something. While certain basic financial rules are absolutely essential to success, others aren’t. Some rules, if not followed, can and will make or break your finances. Spend less than you make. Give every dollar a name. Learn to control your money or your money will control you. These are just some of the financial commandments.
When reading Dave Ramsey, he made everything he preached sound as essential as his last piece of advice, like there was only one path to financial success. And that path was his and his alone. Heck, we weren’t going to argue with the guy that was helping us pay off our debt. But the truth is, there’s a reason it’s called personal finance. If there was only one right way of doing things, it’d just be called “finance.”
With time, we learned that the “personal” aspect of personal finance was really really important. Everyone’s set of financial rules is going to and should be different. The longer we budget, the more we believe this. So while we once were lost and Dave Ramsey helped us see (this is getting entirely too religious and idol-worshippy), here are a few of his rules that we’ve since officially graduated from, never to look back.
Using the Envelope System and Cash Only
Dave is a big proponent of using cash for everything. And it’s not just because he hates credit cards. His belief is that, psychologically, people spend less money when they use cash. One thing’s for sure — it certainly makes it much more difficult to spend cash in today’s day and age (unless you live in cash-only NYC), but I don’t think this was his point.
We tried this method for a couple of months. And while it was a good way to buckle down and get serious about budgeting those first few months, it was extremely inconvenient long term. As far as the psychological aspect of using cash, we’d much rather learn to rely on our itemized budget than always leaning on a crutch. If we stick to our budget, it shouldn’t matter whether it’s with cash or any other form of payment.
Also, cash is really dirty — like 90%-of-all-bills-are-covered-in-cocaine dirty. No, thanks.
Paying Cash for College
Okay, so we were never on board with this rule. Dave Ramsey doesn’t think it’s worth it to go into debt for higher education. He argues that there are always cheaper schools, jobs available to concurrently pay for tuition, and bounteous scholarship options. For a number of reasons, we’re just not on board with this one. We don’t agree with most debt, but appropriate student loans in modest amounts is permissible debt in our eyes.
Sure, we wouldn’t have ever been $20k in the hole with the Student Loan Debt Monster if we’d followed his advice. But we also would have had a much different college experience, one that might not have included our majors and accompanying post-grad careers and salaries. Or we’d have gotten into them years and years later. The income opportunity that we gained by attending college (instead of waiting until we could pay for it in full) was worth every cent of debt we incurred. On the flip side, Johnny and I made sure to not increase our debt by holding jobs, graduating in four years, applying and qualifying for scholarships and grants, and choosing a school with well below average tuition costs. So while we disagree that college needs to be paid for upfront, we strongly advocate against approaching college finances recklessly.
One other point, and this might be slightly controversial — I think our student loan debt was a good thing. Had it not been for our early encounters with the Debt Monster, I don’t know if or when we would have started budgeting. We could have very well lived in naïveté and thought that so long we weren’t overdrafting our checking account every month, life was good. For us, I genuinely believe that facing debt right out of college was a blessing in disguise.
Cutting Up Credit Cards
Dave Ramsey hates credit cards and thinks they’re the devil. I distinctly remember reading his chapter on credit cards, calling up and proudly canceling the one or two credit cards in my name, and chopping them up with scissors. I was so pumped up to stick it to the “man” aka credit card companies. I wasn’t going to fall for their seductive tricks! Now I want to punch old-me in the face for ruining my credit score on cards that I barely ever used and always used responsibly.
We think that as long as credit cards are used responsibly (i.e., paid off in full each month), they can be a good tool and there’s no reason to demonize them. They’ve helped bolster our credit scores, and we’ve never once paid for a flight throughout our entire marriage thanks to miles rewards. If you’re a Dave-diehard, I know what you’re going to say: no millionaire became rich by gaming credit cards. This is true. But in our case, we also would have never flown home to see family or taken the occasional vacation had it not been for credit card rewards. It’s not about getting rich off of credit card rewards — it’s about maximizing money that you’re going to spend anyway.
As long as they’re used within the bounds of our budget and paid off in full each month, credit cards are our preferred form of payment. If, however, we had ever struggled with controlling our credit card spending, we would avoid them like the plague. If you fall into this camp, continue to heed Dave’s counsel. But, if you, like us, have never had an issue with spending money you don’t have, join the “dark side” and milk those credit card companies for all they’re worth.
Using the Debt Snowball
Just as Dave Ramsey recommends, we paid off our debt using the debt snowball method, starting with our smallest loans first instead of our highest interest loans. We would still recommend this method to most people trying to get out of debt for the very first time. It helped provide us the psychological boost and motivation to keep chugging along when the going got tough.
While that was the right method for us for our specific loans and at our stage in life, we don’t think this should be the only method you ever consider. In fact, if someone has credit card or payday loan debt with much higher interest rates than, say, student loan debt, the higher-interest debt should probably be paid off first. Depending on the person, the amount of debt, the type of debt, and a number of other circumstances, the debt snowball and debt avalanche methods have their respective strengths and weaknesses. We don’t think the decision is as cut and dry as Dave Ramsey makes it out to be. And at the end of the day, the important thing is that you’re paying off your debt.
Not Investing While Paying Down Debt
Another rule Dave Ramsey is adamant about is following all the Baby Steps in order without any deviation from the plan. That includes stopping all retirement contributions while paying down debt. While it’s important to really focus and capture that “gazelle intensity” while getting out of debt, we also can’t deny the importance of contributing to retirement at a young age. In most cases, compounding interest is going to be exponentially more valuable than a few extra months or years of additional debt interest.
Moreover, if your company offers a 401k match, it’s just short of stupid to pass up free money. Again, there might be certain circumstances where it makes sense to stay the course and just focus all extra money on debt payoff. But free money is free money, and odds are the math will usually be in favor of taking that over the extra money thrown at your debt. Sorry, Dave.
Keeping a $1,000 Emergency Fund
Before starting the debt payoff process, Dave recommends having a $1,000 emergency fund in place. From the beginning of our debt payoff process, $1,000 just didn’t feel like enough to protect us from a rainy day. Having only $1,000 for an unexpected financial emergency made us feel really uncomfortable and vulnerable, so we kept our emergency fund closer to $5,000 while we were slaying our Debt Monster. The last thing we wanted was an emergency or job loss that forced us to go into ever more debt because our emergency fund wasn’t padded enough.
For many people, it takes every last penny to save up enough for a $1,000 emergency fund — and that’s perfectly fine and admirable. Anything is better than nothing. But if you’re in a less dire situation and already throwing a few hundred extra bucks at your debt each month, take a gut check and figure out what amount will help you sleep a little better at night.
So Dave, while you’ll always have a special place in our budgeting life, bookshelf, and pendant hearts with your photo inside (please know that we’re not that creepy), there are a few areas where we’ll just have to agree to disagree. We don’t claim to be smarter or wiser than you, but we do feel it’s time we and others grow our own financial wings and graduate from some of your Baby Steps. And at the end of the day, what’s most important is that we’re sticking to a budget and hitting our financial goals. How we do it is up to us.
For the Dave Ramsey-ites out there, are we speaking utterly blasphemy? Have you graduated from some of his rules? Tell us what you think before we get struck by lightning by the budgeting gods.