I was reluctant to post about what I like about Dave Ramsey because it seems redundant to lavish kind words on Dave Ramsey, the host of the Dave Ramsey Radio Show. Thousands have completed or are completing the seven baby steps. There are many who have talked about the benefits of Financial Peace University. Millions have purchased (and I bet some have even read) The Total Money Makeover. As a result, I considered just skipping the good things related to Dave Ramsey because it seems so overdone. However, I felt that wouldn’t be fair to you, my readers, or to Ramsey himself (because I am sure he takes the time every day to read my blog :)). So let me say from the start that I am a big fan of Dave Ramsey. How big? Let\s just say during a recent 16 hour road trip I listened to ten hours of Dave Ramsey Show episodes. Why not more? I listened to my entire collection on hand. You can read about Dave Ramsey: An Introduction for New Comers. While my next two articles will focus on a couple of issues I have with Ramsey, today I want to share three things I really like about Dave Ramsey and his teachings.
Don’t do anything until you understand it
As I have started to write about issues related to faith and finances my friends have started to ask me for my opinion or my suggestions regarding financial issues or topics. Here is a common dialogue:
Friend: Craig, what do you think about whole life insurance? I have a whole life insurance policy because that is what my aunt suggested and she is really well off.
Me: So what do you think are the advantages of whole life insurance?
Friend: Honestly, I don’t know the difference between whole and – what is the other kind of insurance?
I could change the topic of the question and who the financial genius is who is offering the advice and that would summarize dozens of similar conversations I have had.
Now, for what I love about Dave Ramsey. Dave often says, “You should never invest in something that you yourself do not completely understand”. That advice is rock solid! In fact, many people could dramatically improve their financial situation by only following that one teaching. Never. Should I repeat that? Never, do anything with your money that you do not completely understand. If you can’t explain to someone else why your action is such a good idea, you are not ready to do it. Yes, that is true even if your rich aunt suggests it or if your advisor (who drives a BMW) suggests an idea.
Tip: Before making an important financial decision, try writing down both the advantages and disadvantages. If you can’t think of any disadvantages, you probably aren’t thinking critically enough.
Intensity (attitude) trumps math
This, I have come to believe, is what separates Dave Ramsey from a lot of other financial folks. He doesn’t always agree with his calculator. This also has been a liberating financial lesson for me to learn. A classic example would be the debt snowball. With the debt snowball Dave Ramsey teaches that you should list your debt smallest to largest (by paying off balances). He completely ignores the interest rate. In the process he separates himself from the vast majority of financial advisors. And this is what I like about him. He adds things like worry, stress, energy, passion, and emotion into his financial equations. As a result, his advice might not make mathematical sense, but they often make financial sense. The best path might not be decided by a calculator, but by a good night of rest. The math might fail, but the results are achieved.
Tip: When making a financial decision go ahead and run the numbers and then ask what will motivate me? How will I feel when this is done? Which choice helps me get a better night sleep? Don’t forget about emotions.
A step by step ready to implement plan
What Dave Ramsey offers is a game plan. Someone might be good with money – a frugal and a smart investor, but if she does not have a financial plan to give shape and priority to her money, then little progress is made. Once again, there is a classic example, the seven baby steps. The beauty of the baby steps is regardless of how overwhelmed you feel about your finances, there is a simple next goal for you. Once that goal is completed Dave puts another goal in front of you – at least until you are ultra-financially-fit.
If you are a financial nomad, the baby steps will point you in the right direction. But, remember, don’t turn off your thinking cap. The particulars of your life and financial situation may require your plan to be different. Still, it is nice to have a ready made generic plan that you can then tailor to your specific situation.
Tip: Look over the seven baby steps and see if that plan makes sense to you. If it does, decide which step you need to take first.