Should You Still Be Listening To Dave Ramsey? – EP 195

We’re looking at what others are saying, and our own experiences, to find the radical middle on what has been (and continues to be) a bit of a touchy subject. Rest assured, personal choice and freedom to find your own path on your financial journey is and always will be the way of the Frugal Friends.

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  • The Frugal Friends Shop! To help you achieve your financial goals faster this year we’re giving our listeners $30, no minimum spend, to use in the Frugal Friends Shop. We have several challenge workbooks to help you on everything from budgeting and impulse spending to minimalism and habits. Head to frugalfriends.shop to check them out and use the code NEWYEAR30 for $30 off at checkout. 
  • The radical middle. It’s that place that’s between two extremes and contrary to some belief is neither neutral or complacent. The radical middle is a firm stance on taking what works and leaving what doesn’t. Those who take a stance in the radical middle will often endure side effects including headache, nausea, loss of Facebook friends, criticism of held beliefs, and more. The radical middle, If you’re looking for a perfect side, you won’t find it here.

For more on this topic check out:

Headlines

This article from Choose FI was pivotal for Jen in the early stages of her financial journey and debt payoff as it outlines some of the key ways that financial advice given from Ramsey Solutions is outdated and may not serve you well.

What Jen and Jill have to say:

  • Baby step #1: Starter emergency fund- should be more because incomes have risen and cost of goods has risen since 1992. According to an inflation calculator to get the buying power of $1K in 1992 you’d need over $1,900 today so his recommendation should probably be $2K.
  • Baby Step #2: Pay off all debt except your mortgage using the debt snowball.Debt snowball vs debt avalanche: snowball focuses on behavioral psychology because it offers more validation up front. Avalanche saves you more money, but the difference isn’t significant. Consistency always saves you more than a right answer you can’t stick to.
    • Not investing: It’s ok to invest while paying off debt but it’s also ok not to. We are big proponents of focusing on one big goal at a time. Neither of us invested while paying off debt. Get your employer match. Consider maxing out a Roth IRA if you’re close to debt freedom before it’s too late. 100% of debt free people I talk to would go back and add a few months to their debt payoff journey to get an extra $6,000 in their Roth IRA.
  • Baby Step #3: Full emergency fund of 3-6 months of expenses- This is still standard advice. Choose 3 or 6 based on your job’s volatility, whether you have 2 incomes in the house, and your comfort level. But save no less than 3 and no more than 6 because it is important to invest as much as possible as early as possible.
  • Baby Step #4: Invest 15% of your income in Roth IRAs and tax-advantaged accounts. Baby step 2 is only important because it makes BS 4 easier. 15% is fine for those starting early but 20% is ideal for everyone. Unless you’re making well into 6 figures there’s no need to save 50%+ of your income. A number that big can cause a lot of unnecessary stress and pressure.
    • Dave’s investing advice is the only advice he gives that I would say is bad. Because it’s not in the best interest of his listeners, it’s manipulative and self-serving. He insists people use financial advisors that sell actively managed funds. Time and time again we see that actively managed funds do not outperform low cost index funds and due to their high fees investors earn less over the long run because they are investing less. Dave Ramsey will never recommend low-cost index funds because his ELP program, his financial advisor advertising platform, is the most profitable arm of the entire company. The money these advisors, etc pay him every month to advertise their business is more than he makes on Financial Peace, radio ads on his show, book sales, everything else. Those are marketing tools to get you to sign up with an ELP. Which from everyone who I’ve spoken to about their experience with ELPs, those people don’t have to follow Dave to advertise. They just have to sign an agreement in accordance with them. 
  • Baby Step #5: Fund kid’s college education- It’s up to you how extensively you do this. We recommend a 529, Jen uses Backer and you can get a $15 by signing up at frugalfriendspodcast.com/backer
  • Baby Step #6: Pay off your house- This is personal preference too. We don’t plan to pay off our home early. We refinanced last year to a 15-year fixed mortgage, it’s saving us over $100,000 on the cost to own our home. Calculations show that I’d save about $20K by putting an extra $500 per month at the mortgage but if I put that in an IRA or real estate I’ll make way more than that over the long run. 
  • Baby Step #7: build wealth and give – nothing to argue with here!

More Headlines:

This article from Campfire Homesteading is one of the only articles in defense of Dave Ramsey on the internet that is not published by Ramsey Solutions; we wanted to see what ‘both sides’ have to say on the topic of Ramsey’s financial advice in this current climate.

More from Jen + Jill:

  • TOP Critiques – ‘old, white man’ – outdated – doesn’t take into account various financial situations – approach/methods for motivation are harsh
  • The article argues for the following in light of the top critiques:
    • Not forsake message because of view of messenger
    • Consider ‘how bad do you want it?’ and uses other militaristic words like: ’buckle down’, ’tough love’, and other general references to the military and their tactics
  • The Frugal Friends believe that it is kindness that leads to change – shame is never a beneficial motivator

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Lightning Round 

Some of the most helpful advice we’ve received in ‘thinking for ourselves’ on our financial journey

  • Jill-  permission for freedom (opposite of shame)
  • Jen- discovering podcasts – choose FI, stacking benjamins, etc. was helpful at the beginning

Wrap-Up:

Thanks so much for listening! Keep leaving us reviews on iTunes or Stitcher, and sending the screenshot to frugalfriendspodcast@gmail.com AND share our most recent episode on social for a chance to win a copy of the Frugal Friends Workbook!

Thanks for listening! See you next week!

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