6 Things Dave Ramsey Is Wrong About

6 Things Dave Ramsey Is Wrong About

Christine Luken vs Dave Ramsey

[Happy Friday! Got a juicy guest post for you today by fellow blogger and money coach, Christine Luken. I know many of you have opinions on Dave Ramsey, so make sure to stop by the comments after and share them with us 😉 I couldn’t help but interject my own thoughts throughout as well – so hopefully you come away with some better insights after reading this! Enjoy!]


Sixteen years ago, I facilitated my first Financial Peace University (FPU) class.

If you’ve never heard of it, Financial Peace University is money guru, Dave Ramsey’s, cornerstone financial literacy course. Having been to financial rock bottom myself, I appreciated his no-nonsense, tough love approach to money management. In fact, I facilitated FPU for ten years, sometimes teaching the class multiple times a year at my church as an unpaid volunteer.

I was a such hardcore Dave Ramsey devotee, that I paid $2,500 to take the training that would qualify me to become one of his Certified Financial Counselors in 2008. I honestly didn’t plan on turning it into my full-time business, but here I am, almost seven years into my entrepreneurial adventure as the Financial Lifeguard.

I started out taking everything Dave Ramsey said as gospel truth, but after a decade of coaching hundreds of people on their finances, I realize he’s wrong about a few things.

The late success expert, Jim Rohn, said something very profound regarding mentors:

“Don’t be follower; be a student. Make sure your actions are the product of your own conclusions.”

Based on my own experience and that of my coaching clients, I believe Dave Ramsey is wrong about the following six things:

#1. Using Cash Envelopes

It’s true that spending cash hurts (you literally experience it as pain in your brain), which makes it an effective budgeting tool. However, I don’t suggest that my coaching clients use cash for everything.

First of all, it’s inconvenient to do so when you want to make purchases online or you have to drag all three of your little kids into the gas station to pre-pay at the pump. And, depending on the neighborhood you live in, carrying around large amounts of cash might be asking for trouble!

Here’s what I recommend instead: only use cash for your spending categories that are out of control. For many of my clients, this includes eating out, groceries, and entertainment. Sometimes just having those on cash for a few months is enough to rope them back into the land of reasonable spending.

For my clients who are nervous about carrying around large amounts of cash, I propose a non-cash alternative. Open a separate checking accounting with a debit card for your discretionary spending money. This is the route I use myself. I have a certain debit card that’s used strictly for my splurge purchases.

#2. Cutting Up Your Credit Cards

Yes, there are some of you who shouldn’t be allowed within 500 feet of plastic. But most people can learn how to use a credit card responsibly even if they’ve misbehaved in the past. When I’m coaching clients with credit card debt, I suggest they temporarily “put them on ice,” and stop charging on plastic. We’ll move most spending to debit or automatic bill pay, and move their few out-of-control categories to cash.

Once my clients have reclaimed their financial dignity, I suggest they keep one credit card with a low limit. They can charge a few items they’re not tempted to overspend on, like gas for their car or their cell phone bill, to keep their credit score in a healthy range. (Your credit score affects your insurance premiums and is frequently checked by potential employers, so it affects more than just your mortgage interest rate.)

Then, there are people like my husband, the engineers and CPAs of the world, who are rarely tempted to spend more than they planned, no matter what payment method they’re using. Like Dave, I am firmly against carrying credit card debt, but I’m not opposed to using credit cards as a payment method.

#3. Paying Off Your Smallest Debt First

In many cases, this is a great idea. Having a quick victory gives you a shot of success and spurs you on to attack the rest of your debt.

However, when you have a debt with a massively high interest rate, you might be better off attacking it first, even if it’s number three or four on your list. Your smallest debt might be a medical bill with zero percent interest, but your third or fourth smallest debt might be a store credit card with 22% interest.

Another example of when it pays to deviate from the “pay off the smallest one first” philosophy is when you have a particular debt with “bad mojo.” When I broke off the wedding to my ex-fiancé 18 years ago, I hated making the payment on my Dillard’s account. Why? Because my ex racked up the majority of the charges (including my Valentine’s Day present) when he was an authorized user on the account. I paid that bill in full first and it felt so damn good to have it gone!

[EDITOR’S NOTE: My personal opinion here is to do the route that actually excites you the most – whether that’s the smallest balance or largest interest rate or any other variables, such as the ex-fiancé one. The last thing you want to do is *burn out* on paying off your debts, so if going one route motives you to the finish line faster even if it’s not the “financially smartest” option – who cares! Do it anyways!! It doesn’t matter how you get there, just so long as you do!]

#4. Never Buying a New Car Unless You’re a Millionaire

Far too many people are overpaying for their transportation needs, so I totally understand where Dave Ramsey is coming from regarding car loans and leases. But, I don’t think you need to reach millionaire status to buy a new car, especially if you pay cash for it and intend to drive it for a good long while.

Case in point – four years ago I purchased my second brand new Hyundai Sonata for cash. The first one I bought back in 2004 for $15,000 when the next year’s model came out, and I kept it for ten years. With 90,000 miles on it, I sold my first Sonata to a couple I knew from church for $5,000. When I walked into the dealership to purchase my next Sonata in 2014, I had $20,000 saved plus the $5,000 from the sale of my previous car. I paid $20,800 with taxes for my dream car, which left $4,200 in my new car fund.

If I keep my current car for 10 years, the average cost of my car ownership over 20 years will be $1,540 per year or $129 per month. You don’t need to be a millionaire to afford that!

[EDITOR’S NOTE: I’ll admit I’m a used car snob myself, but there is something to knowing the full history of cars and having some decent warranties come along with it. I’ve never bought a new car before, but I’ve also never paid cash money for one either – so if you can rock that and it’s a high priority for you, then more power to you! :)]

#5. Putting Your 401(k) Contributions on Hold While You’re Paying Off Debt

I have really strong objections to this piece of advice! Unless you are in a dire situation, most people can and should continue to sock money away for retirement, even while they’re paying off debt and building up an emergency fund.

For most of my coaching clients, income isn’t the problem; mindless spending is the culprit. Most Americans are way behind on saving for retirement, so I encourage my clients to take full advantage of their employers’ retirement plan, especially if there’s a match.

If cash flow is super-tight, I might suggest they decrease their 401(k) contribution temporarily, but keep it at or above the level necessary to qualify for the match. That’s free money, so it’s foolish to give that up, even for a little while.

[EDITOR’S NOTE: Yes!!! Even if you were to get the 100% FREE MONEY and then cash it out and take all the penalties that come with it, you’d *still* come out ahead by contributing to your 401(k)! Not that I’m suggesting you do that, but that’s how crazy leaving free money on the table is… I didn’t know Ramsey was pushing this one, talk about a one-track mind! Haha…]

#6. Pursuing Your Financial Goals With Maximum Intensity

You can’t sprint indefinitely, but you can keep up a marathoner’s pace for the long haul.

About two or three years after I started teaching Financial Peace University, former students would come to me for financial coaching. They’d say, “We did great for a year (eighteen months, or two years), but then we just fell off the wagon.” Sometimes they’d be in even worse shape than before they’d taken the class. What the heck was going on?

Runners know that trying to sprint for long periods of time is reckless and unwise. I prefer to take a more moderate approach with my financial coaching clients. There is room for portion-controlled fun in your spending plan!

I firmly believe that people can move towards their preferred financial future at a brisk pace while still enjoying life on the journey. Unless your income is very low, you probably don’t have to eat beans and rice or only wear clothes from the local thrift store, unless that’s your thing, of course!

[EDITOR’S NOTE: What helps me is thinking about these sprints in terms of “seasons”, as my friend Cait Flanders would say. The “season for debt killing”, the “season of hustling”, or even the “season for living more and relaxing.” I’m grateful for my seasons of hustling before the kids came, and now I’m grateful for being able to scale back more and watch them grow up. Intensity is great for short periods of time, but I agree with Christine that you can’t last forever turned up all the way.]

In Summary…

I agree with most of Dave Ramsey’s money management philosophy. I consider him a mentor and he’s definitely taught me a great deal about personal finance.

However, like Jim Rohn suggested, I’m a student of many money gurus (including J. Money!) but I form my own conclusions. And I suggest you do the same!

As for me, I love it when my fans and followers disagree with me. My response is, “Good, you see things differently! Let’s discuss this so I understand your point of view.”

Who’s with me on these? Who wants to debate? 🙂

Christine Luken, the Financial Lifeguard, is a money coach, speaker, and the author of “Manage Money Like a Boss: A Financial Guide for Creative Entrepreneurs” and “Money is Emotional: Prevent Your Heart from Hijacking Your Wallet.” You can find her at www.ChristineLuken.com, or on the previous guest post she did here: Financial Confessional: “I Was a Check-Bouncing, Collector-Dodging Accountant!”

EDITOR’S NOTE: I have to add here that Dave Ramsey’s daughter – Rachel Cruze – is also a personal finance expert in her own right. I never gave her too much credit before, but WOW did she blow it away during her keynote at this year’s FinCon conference… That girl’s a beast! And not afraid to poke fun at her “old balding” dad as well, haha… So if you hate Dave, it may be worth checking out his more modern (and millennial reaching) daughter instead –> RachelCruze.com


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