262. Why I Hate Dave Ramsey

0:00Dave Ramsey has millions of followers and the number one radio show about money in the country. But is his advice actually good? Today on the show, we are covering all things Dave Ramsey, his strengths, which there are few, his blind spots, which there are many, and how listeners can actually calibrate his framework for their lives.

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2:40so we get messages from our 5 million followers all the time who talk about being reformed Dave Ramsey followers that something about his advice made them hit a wall or caused them more financial trauma than it actually helped. And we're diving into all of that today. And to be honest, I'm making this video and recording this podcast because the amount of people who have reached out to me and asked, Tori, do you recommend Dave Ramsey? And I have to tell them no. And then they go, why? And I want one resource, one concrete thing I can send them to that is a laundry list of all of the things that I disagree with and some of the things I do agree with.

3:19So let's talk about who this Walmart Santa is. Dave Ramsey is a financial expert. He is based in Nashville, Tennessee, and pretty infamously uses Christianity and specifically evangelical Christianity to talk about money.

3:35Tori Dunlap:He has many bestselling books. He also has the number one radio show in the country around money that is syndicated on, I believe, hundreds of radio stations across the United States. And not only is he one of the experts of his company, but he also has a handful of other people that work around him that help him host the show, that have their own spinoff podcasts, that are financial experts that are like Dave Ramsey approved, including his daughter, Rachel Cruz. His most infamous advice is around paying off debt. If you've ever heard the terminology avalanche or snowball when talking about debt, he coined that.

4:16Tori Dunlap:And it's something that I use all the time, actually. I use the, are you doing avalanche or snowball to pay off your debt? And that is kind of terminology that it's in the personal finance lexicon that he created. His baby steps are probably the second most infamous approach. This is the high-level framework. Step number one of the baby steps is to save$1 ,000 for your starter emergency fund. Step number two is to pay down all debt except your house using that debt snowball. Step number three is three to six months of living expenses in a fully funded emergency fund. Step four, investing 15 % of your household income for retirement.

4:53Tori Dunlap:Step five, saving for your children's college fund. Six, paying off your home early. And finally, seven, building wealth and starting to donate. The appeal with Dave Ramsey's work. It is very simple, which we love. We love taking the jargon out of personal finance education. It's also extreme accountability, sometimes to a fault. And there's very, very clear steps. You do this, and then you do this, and then you do this. Those are the clear action steps that no matter who you are, he suggests you follow. However, this is where we get into some problematic behavior because his style is not only extremely opinionated, but it is almost never nuanced.

5:35Tori Dunlap:One of the hallmarks of my work is that I talk about systemic oppression as it relates to money. I don't think we can have a conversation about personal finance or building wealth without also talking about the isms, racism, sexism, ableism, homophobia, and all of the other things that are systemic that have every reason to do with why you might be financially struggling, like a trillion dollar student debt crisis and stagnating minimum wages and the fact that eggs are like$17 and lack of paid family leave federally and climate change. Therein lies the problem because if you don't acknowledge all of the biggest factors why somebody can't build wealth, first of all, you're selling them a lie.

6:17Tori Dunlap:And second of all, you are making them feel guilty for any outcome that isn't 100 % self-motivated success. I'm going to try to be a level nice person. Okay. So before we get into all of the rest of it, let's talk about what Dave Ramsey gets right. And yes, this will be the briefest part of the podcast. Okay. Let's talk about that emergency fund. He talks about the importance of having a buffer for emergencies before going all in on debt pay down. That buffer is$1 ,000. I think that's too little, but the fact that we have a buffer at all is great. A lot of people recommend you just start paying off debt.

6:54Tori Dunlap:And he and I both agree you need a buffer because you need some money in savings should shit hit the fan. There's also a psychological benefit to saving money, right? That helps reduce the urgency or pressure of these small mishaps. And it also gets you a wind under your belt. You're like, cool, I did something financially successful. Now I'm emotionally and psychologically motivated to keep going. His philosophy around debt awareness and discipline, for the most part, is good. I think he offers people a good wake-up call if a lot of that personal responsibility has been ignored around debt. He really encourages people to face their debt, to stop ignoring it, to do what I call un-ostriging yourself, like pulling your head out of the sand, and actually get a plan together to pay off that debt.

7:38Tori Dunlap:And this value of snowballing your debt, meaning that you're focusing on smaller balances, not necessarily the interest rate, can help you make more progress, again, psychologically, because you're getting those quick wins. You're like, cool, I can do this. One of the biggest things I agree with him about is this idea of actually prioritizing your retirement over saving for kids college. I see because we talk with women and because we teach women, so many mothers want their kids to have a better life than they did, want them to be able to afford college, which is getting increasingly more expensive every single year.

8:12Tori Dunlap:And so when I talk to women, one of the financial goals they have is contributing to their kids' education. Now, that's a great goal. However, the issue is so many people sacrifice their own retirement goals because they're so focused on their kids. They're like, oh yeah, I'm contributing maybe to my 401k, but it's not a lot, or I'm just getting the match. and instead I'm going to focus on making sure that I can pay for my kid's college or at least part of it. But here's the deal. The whole reason you're doing this is because you want your kids to have a better life financially, right? And that's a really good impulse.

8:48Tori Dunlap:However, they can take out loans to go to college. It's not ideal, right? Student loans suck, but you can't take out a loan for your own retirement. And if your goal is to make sure your kids are set off on a good financial path, you moving back in with them and becoming a financial burden 10 years after you retire because you've run out of money is not going to set them up very well. So this is one of those things that I actually really agree with him about. You got to put on your own oxygen mask first. Again, if you're trying not to be a financial burden to your children, don't make them pay for your retirement.

9:27And finally, his advice is clear and concise. This is his strength.

9:33Tori Dunlap:clear, concise rules with kind of no exceptions that many people can follow without overthinking and without stressing. This is the advantage of having like no excuses, no wiggle room approach for so many people because you can't create an excuse. You can't say, well, what about me? I'm going to do something different. It's a very formulaic plan and he's really good at that. Okay, that was really hard. Complimenting him was really hard. Let's talk about the things that are not great. Okay, I'm going to structure this argument into two different columns. First, we're going to talk about the financial advice that falls short, or that is problematic.

10:17And then we're going to talk about the way he runs his business. This is where we do like elevator music. like, it's like part two.

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12:47All right. The first thing about his advice, that$1 ,000 starter emergency fund, that's too fucking low.

12:55Tori Dunlap:It's too little money. Where are you finding rent in any American major city for$1 ,000, yet alone everything else? Now, I get the logic behind it. $1 ,000, you're going to save the bigger emergency fund later. I get it. We want a quick win. We want a little bit of a buffer. Yes, but it's 2025, Dave. It's 2025. I know you don't know how expensive things are. So let me enlighten you. Eggs are expensive. Gas is expensive. Daycare is expensive. And I know you don't know how expensive daycare is. I have the clip later. So when we're talking about this $1 ,000 emergency fund being too low, it's just, it's so hard to think about that$1 ,000 emergency fund preventing people from going back into debt.

13:43Tori Dunlap:Now, that's not to say$1 ,000 isn't a huge financial milestone. I'm not knocking the$1 ,000 on a personal level. If you've saved$1 ,000, incredible. Congratulations. Like truly, I'm so excited for you. However, this is not enough of an emergency fund to actually prevent you going into costly debt. And it's not enough to get you out of a bad situation. And this is why we recommend a three-month emergency fund as your starting point. Yes, before you even pay off your credit card debt. Because one, I don't want you going into more debt trying to pay for an emergency. Two, because mental health is important at her first 100K.

14:22Tori Dunlap:And something about your head hitting the pillow at night, knowing that you have enough money if shit hits the fan tomorrow. It's just really, really comforting. And finally, number three, if you are a woman, if you're a member of another marginalized group, I need you to have a fuck off fund. I need you to have enough money that you can say, ah, I'm getting sexually harassed at work. This no longer feels safe. I'm going to leave. Or this apartment doesn't feel safe. I'm going to leave. A thousand dollars is not enough to even cover your rent, yet alone your expenses. Problematic advice number two.

14:57Dave Ramsey wants to talk about paying off all of your debt and that being the priority and shaming you for having any sort of debt. And he says that like all debt is bad debt. No, that's not true. Not all debt is bad debt.

15:15Tori Dunlap:And first of all, calling anything bad puts morality on it immediately so that if you have that kind of debt. You feel like a bad person. It's not the debt that's bad. You feel bad. You feel like you did something wrong. What he means here, though, is bad debt would be credit card debt just because it's so high in interest and because it accumulates so quickly. But he's also lumping student loans in with that. And not all debt is created equal. And this is actually some of the most harmful advice because if you view all of your debt as the same, you're going to lose tens of thousands, if not hundreds of thousands of dollars because debt is different depending on the type.

15:58Student loans on average have a like four to seven percent interest rate and the interest typically is not compounding. Credit cards have on average like a 22 to 25 percent interest rate. And not only does the debt compound, it compounds every single day. These are not the same. This is apples and oranges. And putting them together and saying, I'm going to pay off all of my debt before I start investing means that you're losing valuable time that you need in the stock market for

16:33Tori Dunlap:your money to start accumulating for your retirement and for these bigger life goals. Because for a lot of people, student loan balances, we're talking like tens of thousands, sometimes hundreds of thousands of dollars. You're not going to pay that off quickly. It might take you till you're 40, 45, 50 to start paying off that debt. But then Dave wants you to start retirement savings then. So you're 45 and you just paid off your student loans and now you're supposed to start saving for retirement. We have lost a very valuable time that our money could be compounding in the stock market. So my rule instead is the 7 % rule.

17:13If your interest rate on your debt is more than 7%, that's going to be every credit card, right? You want to pay off that debt first because it is costing you more money than you could be making in the stock market.

17:24Tori Dunlap:The average stock market return is around 7 % conservatively. But if your debt is under 7 % interest, we actually want to prioritize investing first before more aggressively paying off our debt. And this advice single-handedly from me might end up preparing you for retirement in a way that Dave's doesn't. And it's one of the most problematic pieces of advice that makes me so fucking angry because I have so many women who come to me who are 40s, 50s, and they go, I thought I was supposed to be paying off my debt this whole time. And now I'm scrambling to try to protect my retirement with only like 10 years left.

18:02Don't be that person. third piece of advice that's problematic. If you can afford a house, and that's a big if that he doesn't acknowledge, you should not under any circumstances get a 30-year mortgage, and you should not under any circumstances put down less than 20%. That's just not realistic, Dave. Okay. It might be better to buy a house earlier that you can afford with a 30-year mortgage and invest the difference. The calculations are clear. We can put a chart next to me. You might make more money doing that. In fact, in most U.S. cities, you will. Now, there's a risk consideration here. Market fluctuations, your discipline around investing, the interest rates of mortgages, which are pretty high as of this recording.

18:53Also, like the housing market risk. Are we going into another recession? Is this asset going to decrease in value substantially? But again, this is where the rigidity is not helpful. It doesn't work. Personal finance is personal. People have different lives. People make different amounts of money. They have different systemic barriers. You have to take that into account. And I'm going to go on a quick tangent here before I go to number four. I get why Dave does this. I get why he has these very rigid rules of like, you must do one through eight. And under no circumstances should you do this thing.

19:29And under every circumstance. Should you do this thing? And he's very black and white. Why is he black and white? Because talking about systemic oppression is messy. It is hard. It is difficult. I've struggled with this in our own work. I remember writing the intro for my book, Financial Feminist, and struggling with the fact that this book had so much good information, but was not going to be actually helpful for somebody who was truly in poverty. Like somebody who is truly poor, who does not have two sticks to rub together, they don't need to know how to save money because they don't have money to save.

20:09So if you're trying to sell something, if you're trying to build a business, which he and I are both doing, it is a lot easier to sell these rigid rules, this, you absolutely must do this. and my plan works because if you do the plan and then it doesn't work for you because you have systemic barriers, you're the only one he gets to blame, right? It's because you didn't work hard enough. It's because you didn't stick to the steps. It's because you weren't disciplined enough, not because you had to move to a higher cost of living area, not because you didn't get the raise because your boss is sexist.

21:02Like, as soon as we bring nuance into it, this whole house of cards starts crumbling. That's by design. This is how he builds his business is these rigid rules, this rigid dogma. And then if it doesn't work for you, it's because you didn't work hard enough. you weren't disciplined enough. And speaking of that, let's talk about number four, because this is one that is very easy to gloss over, that feels a little more psychological or a little more touchy-feely, but is actually, I think, some of the most harmful advice. He deals in such frugality, okay? The infamous Dave Ramsey tweets, I don't remember what year it was.

21:48We'll pop it up. Quote, if you're in debt, the only time you should see the inside of a restaurant is if you're working there. Woof. I have that memorized. That's how many times I've quoted this. This is the kind of nature of Dave because again, it's rigid, it's strict, and it's also shaming. It's also, if you have debt, you're a bad person, right? If you're in a restaurant, it's because you don't have enough discipline. You don't have enough willpower, you're not sticking to the plan. My critique of so much of his advice is it's super unrealistic, it is very harsh, and it can lead to burnout.

22:2999 % of diets don't work. You know why? Because every time you tell me I can't have fried chicken, I want fried chicken more. And that's not willpower, that's literal psychology. That's how brains work. And all or nothing, this like go so hard with absolutely no breaks, no fun days, no off days leads to burnout and it leads to binging, right? So if you have somebody who's already in debt, who already might not be the most mindful spender and you tell them you can't do anything fun, you can't live any part of your life the way you want to, guess how long that's going to last for? Like two seconds, right?