Things Dave Ramsey Says That We Disagree With

I’ve seen a few trees start to change colors, which can only mean one thing… It's college football season.

Now, I know we throw around the occasional Dave Ramsey slander every now and then.

But I want to be clear upfront. I’m not a Dave hater.

Dave Ramsey has positively impacted thousands of people’s finances by helping people work out of debt, establish financial stability, and achieve their financial goals.

However, just because I respect his accomplishments doesn’t mean I agree with everything he says.

There are a lot of things he teaches about money that I disagree with. In fact, my opinion couldn’t be more different than Dave Ramsey’s on certain aspects of personal finance.

Does this mean that we’re right and he’s wrong? Obviously (jk).

Let’s dive into our disagreements, and hopefully I don’t get banished from church by the end of this letter.

Dave’s Take: Invest in actively managed mutual funds with a financial advisor

Our Take: Invest in passive index funds and/or ETFs

Dave likes to tout his consistent 12% returns and his team of partnered financial advisors (he calls them “SmartVestor Pros”), encouraging others to use them.

I’m sure the kickback he gets for each person he suckers… I mean… encourages to use one of his financial advisors has nothing to do with it.

We’ve beaten this horse dead on numerous occasions so I won’t rehash the same stuff, but to sum up my opinion: actively managed funds cost more and perform worse than index funds.

Read here and here for more on our stance on passive investing and financial advisors. 

Dave’s Take: Invest 15% of your income for retirement

Our Take: How much you invest should depend on your retirement goals

Dave says you should invest 15% of your gross income for retirement.

Regardless of your retirement goals, Dave's website notes that if you invest 15% into tax-advantaged retirement accounts, “you’ll most likely have more than enough money saved for retirement.”

I say “meh. That’s an overly simplistic answer.”

How much you invest should be driven by a) when you want to retire, and b) how much money you need to live off of.

This newsletter has better advice on how much you should invest toward retirement.

Dave’s Take: A 4% withdrawal rate (4% Rule) is stupid, you can safely withdraw 8% of your investment portfolio each year in retirement

Our Take: The 4% Rule is not perfect but it’s also not stupid, an 8% withdrawal rate is stupid

Dave’s math: 12% stock market returns – 4% inflation = 8% leftover to spend each year

Real math: If you try to live off 8% of your investments each year in retirement for any length of retirement over 15 years, there’s a good chance you’ll run out of money due to sequence of returns risk.

Looking back at past market performance, an 8% withdrawal rate with a 100% stock portfolio has historically had a roughly 57% success rate over a 20-year retirement. Meaning there’s a 43% chance you’d run out of money. This success rate plummets even further over longer retirements.

I recommend steering clear of Dave Ramsey’s advice on withdrawal rates, your future self will thank you for it.

Dave’s Take: Pay off all your debt (excluding your home mortgage) before investing

Our Take: Start investing after you build your initial emergency fund

Dave dislikes all debt and advocates eliminating all of it (except your mortgage) before starting to invest.

I think a better order is to build a starter emergency fund first, then invest up to your employer’s retirement match (a free 100% return), and then work on paying off high interest debt. An automatic 100% investment return beats paying off a 6% car loan, in my opinion.

However, if your budget truly doesn’t support both investing in an employee matching fund and aggressively paying off debt, pay off your high interest debt first.

Dave’s Take: The debt snowball is the best way to work out of debt

Our Take: The debt avalanche is better

Like we discussed before, the debt avalanche is superior to the debt snowball.

The debt avalanche is where you pay off your debts in order from the highest interest rate to the lowest. The debt snowball is where you pay them off in order from the smallest debt balance to the largest.

Dave Ramsey says debt paydown is about psychology and motivation, which is why getting quick wins by eliminating small debts is important. I understand the logic.

But I would prefer to pay less in interest and pay my debt off faster with the debt avalanche. Keeping more of my money motivates me.

Dave’s Take: Never use credit cards under any circumstances

Our Take: Credit cards aren’t inherently bad, if you have the discipline to use them wisely

Dave Ramsey is known for his aggressive position against credit cards.

I agree that you shouldn’t use credit cards if you’re swimming in debt or if you lack self-control over your spending. I also agree that you’re more likely to spend more with a credit card than you are with a debit card or cash.

But if you maintain a budget and you aren’t buried in debt, credit cards can provide you additional security and benefits for buying stuff that you’d buy anyway without a credit card.

Plus, using credit cards can help you build credit. On a related note…

Dave’s Take: Your credit score is unimportant

Our Take: Unless you enjoy higher interest rates on homes and cars, your credit score matters

Good credit = lower interest rates when borrowing money = things cost less

Bad (or no) credit = higher interest rates when borrowing money = things cost more

Maybe I’m weird, but I like paying less for things.

Dave Ramsey teaches that you don’t need a credit history to borrow money for a home, but having one sure as heck helps and you don’t have to deal with the nightmare of finding a lender that sees “trust me bro, I follow Dave Ramsey, I’m reliable” as sufficient justification to loan you money.

Dave Ramsey also argues you don’t need a credit score if you just pay for your next car in cash. Which, if possible, might be the right choice for you. However, for people with a strong credit score, it would be cheaper to buy a used Camry at a 5% interest rate and let the $20,000 cash continue growing in an index fund/ETF at 10%. Dave Ramsey doesn’t like calculating opportunity cost when arguing to use cash for everything.

Dave’s Take: The University of Tennessee is good at football

Our Take: Tennessee is trash

No need to elaborate, this is a given.

If you’re fully subscribed to the Dave Train and don’t deviate from his guidance, you’re probably in better financial shape than 95% of people, so don’t be discouraged.

I think Dave Ramsey’s teachings are a good starting point for people to get their footing and get pointed in the right direction toward their financial goals.

But don’t let your pursuit of financial knowledge end there. I have a newsletter recommendation for you if you want to broaden your financial horizons, it’s written by a couple of Army nerds but maybe give it a shot…

On the other hand, here we are regularly talking about Dave Ramsey (linking his articles) to an audience much, much smaller than his. I searched his website; he hasn’t mentioned Dollar Debrief once. So in terms of building an audience and making a living by giving financial advice, Wilson and I do have a thing or two to learn from him.

Call to Action

To my Dave Disciples out there, what am I misinterpreting or missing the point on when it comes to Dave’s teachings? Reply to this email with your feedback, we welcome differing opinions!

What We’re Reading/Listening To:

I recently started school again, and my school loves business case studies. I just read one on Domino’s innovation in the 2000s and 2010s, and I am forever grateful to whoever made the Pizza Tracker.

Debrief on Deck

Next week, Wilson will tackle the monthly market debrief for August. I told him he cannot write another hit piece about Boeing even after their Starliner spaceship mission has officially been taken over by SpaceX…

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (X (formerly Twitter) and Instagram).

Until then, stay the course.

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