183: Rich Habits vs. Dave Ramsey (Debt Edition)

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1:19and I'm a multimillionaire in my early 30s with a background in finance and economics. As the show name might suggest every episode, we talk about rich habits as they relate to business, finance, and mindset. So Robert, what are we talking about in today's episode? Well, I'm obviously excited because in today's episode of the Rich Habits Podcast, we're gonna do something a little different. We're gonna go head to head with Dave Ramsey. And look, Dave Ramsey has helped millions of people. His core message, spend less than you make, build an emergency fund, stop letting credit card debt ruin your life, that's foundational and honestly, most Americans need to hear it.

1:55We're not here to dunk on the guy or pretend his advice doesn't work for a large portion of the population, but Dave's philosophy on debt is built on one hard rule. All debt is bad and you pay it off as fast as humanly possible, no matter what. And when you apply that rule with little to no nuance across every single situation, like student loans, business debt, mortgages, it starts costing people real money, sometimes hundreds of thousands of dollars, maybe even millions over a lifetime. So today we're breaking down our three biggest disagreements with Dave on debt, and that's student loans, business acquisition debt, and mortgages, and showing you the math behind why we think his one-size-fits-all approach leaves way too much money on the table for many of you.

2:45So Austin, let's start with the one that affects the most listeners right out of the gate, student loan debt. And currently over 20 million people in their 30s and 40s still carry student loan debt. So this covers a wide swath of the American public. Yeah, no, it certainly does. So Dave's advice on student loan debt is simple. Attack it like your hair is on fire. Baby Step 2 and his Baby Step Protocol framework says that you list out every debt you have, smallest to largest, including those student loans, and you throw every extra dollar at them before you save more than$1 ,000 as this like starter emergency fund, but more importantly, before you invest a single dime.

3:26No investing, no building wealth, no nothing until that student loan debt is completely gone. Now, here's why we disagree with this framework. And it's not because we think that student loan debt is good. It's because the two things you're comparing actually behave differently over time. So student loan debt has a ceiling. The worst case scenario with a$35 ,000 student loan balance is that it costs you$35 ,000 plus whatever interest accrues along the way. That's it. I cannot compound against you forever. It has a finite, I borrowed this amount of money for this period of time. These are my monthly payments.

4:06This is that interest rate. It starts and it ends. Like that's student loan debt. And once you pay it off, it's gone. It's gone forever. Congratulations. But money invested in the market, however, right? Compare and contrast here. Money invested in the market does not have a ceiling. The S &P 500 has averaged about 10 % annually going back to, what is it, Robert, the early 1920s, right? That money compounds not just for, you know, a five year, 10 year, 15 period of time, which is whatever your student loan amortization timeline might be, but it can compound for the rest of your life, for your children's lives.

4:41This is generational, right? There is no maximum as to how much money can be made in the markets. It can double and then double again and then double again. We all know the rule of 72. So that is so important to understand. And Robert talked about these nuances. That's the most important nuance to consider when it comes to student loan debt. And definitely, Austin, here's the actual math. Let's say you graduate with$35 ,000 in federal student loans at a 6 % interest rate, and you've got, let's say, a$500 a month that you could either throw at the loan or invest it. Dave's path, you take three years attacking the loan aggressively, throwing every dollar at it, and you pay it off.

5:23Congratulations, you have zero debt. But you also have zero investments because every spare dime for three straight years went to pay off the loan. So now you're 25, 26, 27, or maybe even much older with a completely clean balance sheet, but you have nothing invested. Our path here at the Rich Habits Podcast is you make the minimum payments on the loan, say that's$390 a month, and you take the same$500 and you split it, or better yet, you invest the full amount first and build that pile before aggressively paying off the loan. We always talk about having your base built. This is how you do it.

6:01So if you invest$500 a month for those same three years at a 10 % average return, you've got roughly$21 ,000 sitting in the market. And here's the part everyone misses. That$21 ,000 doesn't stop working just because year three ended. It keeps compounding. 20 years later at the same 10 % return, that pile alone without adding another dollar, remember you only put in that three years worth of money, is worth over$140 ,000. $140 ,000 or paid off student loan debt faster. That's our disagreement. So meanwhile, you'd be debt free for those same three years under Dave's plan and have only started investing in that year four, right?

6:45So your compounding clock has started three years later. But on a long enough time horizon, three years of loss compounding at that 10 % is not a rounding error. It is hundreds of thousands of dollars that you will never get back. Because again, time in the market is the one variable that you cannot buy back later or do differently here. Like time in the market, letting that compounding take place, even if it's just a couple hundred dollars a month turns into, right? A six-figure, seven-figure outcome over the course of your life. And that's our rule. Before you get aggressive by paying down student loan debt early, you want the equivalent amount or more sitting, invested, and compounding in your favor in the stock market.

7:31Not because the debt doesn't matter, but because every dollar you use to pay that debt off early is a dollar that stops compounding for you. Every dollar of debt you keep was never compounding against you beyond its own payoff amount to begin with anyway. So think about that, right? A student loan debt can only go to zero. Money invested in the markets over the course of 20 years, in this example, Robert, goes to$140 ,000. And then that$140 ,000 gets passed on generationally and compounds into millions. That's how we try to think about this. So again, that framework we think about is before you aggressively pay off the student loans, because again, we don't want you to go into retirement with student loan debt, but before you aggressively pay it off with this extra money every month, have the equivalent amount of those student loans, in this instance, $35 ,000, invested, growing, and compounding in your favor.

8:24That's the rule. And I want to be clear about something, though, because I know how this sounds to someone who hates the idea of carrying debt for even one extra month. We're not saying ignore the loans. We're saying sequence it correctly. Keep making the minimum payments so you're never late, never damaging your credit, never letting it balloon with penalties. We're just arguing against the psychological trap Dave sets up where investing feels irresponsible until you have zero debt. The trap is what actually costs people the most money because zero debt feels like a finish line, but it's not.

8:58It's just one input in a much bigger equation that includes decades of compounding you can't get back because you're so worried about carrying any debt and specifically here student loan debt. Dave says you get to earn the right to invest. We disagree and want to get you invested as soon as possible and always want to make sure that that positive arbitrage is going into your bank account and not someone else's. Great breakdown, Robert. Walk us through our second disagreement with Dave Ramsey's debt paid all off, which is this business acquisition debt. Yeah, it's basically the same thing. Dave's stance on business debt is just as absolute as his stance on student loans.

9:38He tells people flat out to not borrow money, to start or buy a business, save up, pay cash, grow organically, no loans, no financing, no exceptions. I couldn't disagree with this any more than anyone because I'm a small business owner and I have been for decades. And look, if you're launching a brand new business from scratch with no revenue and no track record, there's real risk there. And we get why he's being cautious. And I largely agree. But that advice completely falls apart when you're talking about acquiring an already profitable, already operating business, and specifically if you're considering using owner financing to do it.

10:17And in case you don't know what that means, here's how owner financing actually works. Instead of walking into a bank and asking for a business acquisition loan, which by the way, incredibly hard to get approved for as a first-time buyer, you go directly to the current owner of this profitable business and you structure a deal where you pay them out of the business's own future profits over time. So say a business does$400 ,000 a year in profit and the owner wants $1.2 million for their business. Instead of paying the$1.2 million upfront in cash because you went and got some loan from the bank at 8, 9, 10, 12%, you say, okay, I will pay you$1.2 million like you're asking, but it's going to be over the course of six years and I'll be taking$200 ,000 of the$400 ,000 a year of profit and using that money to pay you.

11:12So it's funded directly by the cashflow the business itself is generating. The business is paying for its own acquisition. You're not writing a check for capital you don't have. You're using an asset that's already proven it can generate income to pay for itself. It's a fundamentally different kind of debt than Dave is worried about, which is that speculative debt, borrowing against an idea that hasn't been proven yet. A profitable business with real customers, real revenue, real cash flow that already exists is a lot less risky than saying, I'm going to go start a food truck. So I'm going to go borrow $40 ,000 from the bank at 18 % interest to go do that, right?

11:52Like we agree. That's silly. Don't do that. But if it's to acquire a business that already exists, use owner financing. We agree. That's okay. That's a cool way to do this. Dave doesn't think so. Yeah. And I've been doing this for decades and everyone needs to understand that's watching and been considering how do I start and buy my own business? Look at it this way. With owner financing, the seller has every incentive to make sure you succeed because their payout depends on the business continuing to perform even after they leave. That alignment doesn't exist with a traditional bank loan. A bank gets paid whether your business thrives or barely survives at all.

12:30An owner finance seller is functionally your business partner for the life of that note and then you're on your own. And with the overwhelming majority of small business owners approaching retirement right now, and there are millions of them in the US right now as baby boomers age out of businesses they run for decades, they would rather sell to someone who'll keep the thing running and pay them out steadily than sell for a lower all-cast price to a stranger. And owner financing isn't some exotic loophole. It's not hard to do. It's one of the most common ways small businesses actually change hands in this country.

13:06I have been doing it for decades and you just have to really realize You don't get anything without trying and you have to ask. I go into many, many businesses and say, hey, I can't buy this for$1.2 million, but here's what I can do. You offer them a little bit of interest rate, definitely not high interest, but you offer them a small interest rate on their money and you come up with a plan. Most recently, we bought a pizza store a couple of years ago. Many of you have heard about. It's in Florida and we did that with partial money down and owner financing over four years. I think we paid a 5 % interest rate on the owner financing.

13:44It was a couple small contracts. You're up and running and it's easy to go. Because you have to remember with millions and millions of baby boomer businesses that are just sitting there and they're ready to walk away and hit the beaches, drink those Mai Tais, they don't have succession plans and they might be lovingly ready to sell it someone through owner financing to help someone else get a fresh start and keep their legacy alive because they're going to make money for years and years. So don't be afraid to check out owner financing or even mix in some friends and family money. If you need a down payment, get that at a low interest as well.

14:22And for a kind of a pro tip that I'd like to add in there for you guys to tool around with is go to crexi.com. C-R-E-X-I.com. This is not paid for. It's a site that I use. There are over 10 ,000 listings currently as we film this podcast. and you can even type into the search bar owner financing, it will pull up deals where the owner has listed it that they will do owner financing of some sort. So I think this is a great way to get people started without using high interest debt. Wow, that's a great breakdown. I did not know about this website. I appreciate you calling it out. I looked it up. I'm looking at a car wash right now for sale in North Carolina.

15:04I mean, it's cool. This stuff, it exists. It's out there. So just like if you're looking for this stuff, like it's out there, just do a little bit of a little bit of research. And now, as we think more about like, you know, the debt side of this, the risk, you know, it's not zero to be fair to Dave. But if the business underperforms after the sale, you're still on the hook for those payments. And that's a real conversation that buyers need to have before signing anything. But that's a due diligence problem. Verify those financials, understand the customer concentration, know why the owner is actually selling.

15:34That's not a reason to avoid the entire path of business ownership to begin with. Speaking of businesses, Robert, before we jump to our next point, I think that we can all agree that a high-yield savings account is very important. Earning interest on your emergency fund so it's not just withering away to inflation is their entire purpose for existing. And as we always say, make your money work for you as hard as you work to earn it. But the problem is most businesses don't have access to an interest-bearing account. which means they're earning next to nothing on their idle cash. Waldo fixes that.

16:11Waldo helps small business owners, startups, nonprofits, and enterprises do what the big companies in the world do with their idle cash by using something called a high-yield treasury account. Waldo offers access to yields up to 5 % alongside SIPC insurance coverage, up to$75 million with no minimum deposit and no need to switch bank accounts. So if you have a business and your cash is sitting in a checking account earning nothing, go open an account on Waldo and start earning yield on your idle cash right now. Opening an account takes less than five minutes. Learn more at waldo.ai or click the link in the show notes below and do what the big companies do with their cash.

16:55And be sure to use code RICHHABITS whenever you sign up and they'll send you a 1 % match on your deposit up to$1 ,000. So if you're depositing up to$100 ,000, use code rich habits there and they'll send you$1 ,000 as like a match there. So very cool. See full terms and conditions at waldo.ai. But we're so thrilled to have Waldo as a sponsor of this show, especially as we talk more, Robert, about business ownership. I know so many people own businesses and their money is sitting idle in these checking accounts earning next to nothing. So Waldo fixes that problem. Let's now wrap this up with our final disagreement with Dave Ramsey as it relates to debt.

17:32Our last disagreement today is the one that probably impacts the most net worth over a lifetime, your mortgage. Dave's rule here is specific and rigid. Invest 15 % of your gross income for retirement, and then every single dollar above that goes straight towards paying off your mortgage early, regardless of your interest rate. The last part is where we break hard from his framework. The interest rate on your mortgage should absolutely change how aggressively you pay it down. Treating a 3 % mortgage and a 7 % mortgage the same way is where the math doesn't math and just doesn't make sense to us here at the Rich Habits Podcast.

18:09So let's kind of walk through that math, Robert. The actual comparison is this. If your mortgage rate is 3.5%, like, I mean, remember, millions of Americans locked in rates between 2.5 % to 4 % during the pandemic. I have an interest rate of 3.3%. So like it's very common. Every extra dollar that you send toward that mortgage at 3.5%, for example, is going to earn you a guaranteed 3.5 % return because that's interest at 3.5 % that you're not paying. But that's the ceiling. There's no scenario where paying down a 3.5 % mortgage early earns you more than a 3.5 % return on that dollar. Meanwhile, the S &P 500 has averaged that 10 % a year going back a century.

18:54So Dave's advice when applied to a low rate mortgage is functionally telling you to take money that could be compounding at a historically 7, 8, 9, 10, 12 % and instead you lock it into a guaranteed 3.5 % or lower return depending on your mortgage interest rate. You're choosing the worst outcome on purpose every single month for the life of the loan. So let's run the numbers for everyone. An extra thousand dollars a month. So say you've got a 3.5 % mortgage with 25 years left on it. If you throw that extra$1 ,000 a month at the mortgage, you'll knock off years of the loan and save some interest.

19:32Real but modest savings because the interest you're earning by prepaying is capped at that 3.5%. So this is where it gets really interesting. If you instead invested that same thousand dollars a month into the market at a 10 % historical average for those same 25 years, you end up with somewhere around$1.3 million. So compare that to the interest savings from prepaying a 3.5 % loan. It's not even close. The gap between a guaranteed 3.5 % return and a historical 10 % return compounded monthly for 25 years is the difference between a comfortable retirement and a genuinely wealthy one. Now, to be fair to Dave Robert, if your mortgage rate is, I don't know, six and a half, 7 % or higher, like the math changes significantly, right?

20:21Like, yeah, 7 % guaranteed return on your money. Like I'm not mad if you want to like go lock that in because a guaranteed 7 % on your money is a much harder hurdle for the market to reliably beat every single year. And so, you know, we're not saying to never pay off or pay extra on a mortgage. regardless of the rate. We're not saying that, but what we are saying is that the rate has to be part of this decision, which is exactly what Dave's framework refuses to account for. But Austin, there's also a liquidity argument here that Dave's plan completely ignores. Every extra dollar you throw at your mortgage principal is a dollar that's now locked inside your house.

21:03You can't spend it, you can't invest it, and you can't access it in an emergency without selling the house or taking out a home equity loan, which defeats the purpose of paying it off in the first place. But a dollar invested in the market, by contrast, is completely liquid. You can access it when life happens. And paying down a lower mortgage aggressively isn't just a lower return decision. It's a liquidity destroying decision as well. There's also a tax angle that makes the gap even bigger for some households. For example, if you itemize and you can deduct mortgage interest, the effective cost of that 3.5 % loan is actually lower than 3.5 % after you take the deduction because of what you're saving in taxes by keeping the deduct.

21:47Yeah. So you guys get that. There's a little bit of nuances here. And this isn't a tax breakdown. But the biggest broad stroke thing to account for here is if you want to pay off your mortgage early, make sure you're taking into consideration your interest rate? Is it very low? If yes, maybe you keep it around and you invest the difference like Robert talked about for that 25 year period of time and end up with$1.3 million. Is it high single digits, six, 7 % like some people might have right now? Maybe it does make sense to pay it down. So like personal finance is personal. You have to have these conversations.

22:24But that's the point, Robert, of the Rich Habits podcast is we want to make sure everyone has the information they need to make educated decisions with their money. And they're not blindly following some protocol that someone told them is the best way to treat their money. Yeah, I think the biggest lesson for me is I always want to see people and make sure they understand that if we can have that positive arbitrage between what we're paying to borrow the money and what we can make with our own money, as long as they understand that distinction and why we preach of these things and these tactics, then we're free and clear that everyone understands we're just trying to help them build the most wealth we can while not letting everyone else make more money on their money than they do.

23:08So that's the most important factor for me. So let's talk about the framework here. Let's break that down real quick. I wanna make this really practical. If you're listening to this and trying to figure out where you land on all of these, ask yourself these questions. On student loans, do you have at least as much invested in the market as you owe on your loans? If not, that's priority number one before you get aggressive on paying it off early. Assuming your loan rate is reasonable and not some double-digit private loan. On business debt, is the business you're looking to acquire already profitable with real, provable cash flow?

23:43If that answer is yes, owner financing is not reckless debt. It's a legitimate path to ownership that most people never even consider because they assume you need cash to buy a business, and that cash can only come from a business loan. And right now the interest rates on that are in the double digits. On to the mortgage, Austin. What's your actual interest rate? Below roughly 5 % or 6%, the math almost always favors investing your extra dollars over prepaying. Above that, it's a much closer call and prepaying might make more sense. We've seen the markets have lower returns, but we've also seen the S &P 500 return 15 % and 20 % as well.

24:22So make sure you understand that distinction. None of this means that debt is free of risk. None of this means that Dave Ramsey is wrong about everything. His advice with emergency funds and credit cards and lifestyle creep, it has helped millions of people who need a hard rule because nuance gets them in trouble. But when the debt in question is a fixed known ceiling like a student loan, a fairly financed business acquisition or a low rate mortgage, treating it identical to reckless high interest consumer debt costs you one thing. You're never going to be able to get back. And that again is time in the market.

25:01And not all debt is created equal in the math in this episode proves it. A dollar that can compound forever is fundamentally different from a debt that can only ever cost you what you already owe. And once you understand that difference, you'll never look at pay everything off as fast as possible the same way again. I'm really glad we did this episode, Robert. I know that a lot of people kind of graduate from Dave Ramsey's baby steps, right? They learn about money for the first time because of how simple the framework is. But then they start questioning things like we have. You're like, wait a second, why would I pay off this mortgage?

25:37It's so low. Or wait a second, I should only invest into these things. I shouldn't do business acquisition or cryptocurrency. currency, I thought Bitcoin has done pretty well historically. Like all these little nuances that Dave isn't a fan of, you start to kind of graduate from that. And you're like, wait, I need to think more holistically about my money. And that's the point of the Rich Habits podcast. Again, we want to give you all the information so you can make the best, most educated decision with your money. So you're trending in the right direction and building wealth, not just for yourself, but for your children and your children's children.

26:10And to be fair to Dave, when he created a lot of these concepts 30 years ago. Interest rates in some instances were very high. People back then were taught that all debt is bad and not to have debt. But if you look forward now in 2026, as we film this, the wealthiest people that I know on earth, many billionaires and people worth 50, 100,$200 million, all have debt because they understand that arbitrage that we always talk about in the Rich Habits Network, that if you can borrow money for less than what you can make with it, you always use other people's money. Now, before we jump to the Q &A section of this episode, y 'all, if you're not yet using Blossom to track your portfolio and your investments, what are you waiting on?