Many times I’ve referenced the teachings of Dave Ramsey (DR) and what I learned from his Financial Peace University course. You might have gotten the impression that I follow the teachings 100 percent. I hope it doesn’t burst your bubble but there are three ways major ways I differ with Dave Ramsey.
Credit Card Use
DR teaches students to cut up credit cards and cancel the accounts. He believes that it is fine to get by with cash and debit cards. Personally, I don’t think this is realistic in today’s world. I want the protection that comes with the credit versus the debit purchase whether it be a product warranty or potential fraud.
His philosphy about using credit cards for everyday expenses is understandable. For me (the spender) using cash helps rein me in with discrentionary spending. Others can use cards reguarly, pay them off monthly and enjoy the card perks or rewards. For big purchases, I’m using the card.
Rate of Return
What rate of return do you expect to get from your savings and investments? I bet it’s lower than 12% which is what DR suggests it is common to achieve. Many bloggers and financial experts disagree with good reason. As Pinyo @ Moolanomy Personal Finance notes experts believe 7-8% is more realistic.
During FPU, many students would shake their heads when Dave referenced 12 percent rate of return throughout the course. Granted the shows appeared to be made before the recession, but I felt like we should have been drinking kool-aid.
Baby Step Two Spending
Dave espouses getting gazelle intensity and cutting all frills in the budget while paying down debt during Baby Step 2. Beans and rice, beans and rice. I’m not going to do beans and rice and I’m not going to live without cable TV. What I am going to do is pay off debt by cutting back (not out).
I am going to take vacations, but will cut down on the budget and number. I am going to have lattes at Starbucks, just once a week instead of daily. Lastly, I am not going to take a second job, but will work on making online income to use as debt snowflakes.
Even though I am not a Dave Ramsey dittohead, I am a Dave Ramsey fan. He’s helped me and a lot of other people get focus and improve their financial standing. Take what works for you and work it!
Photo by Lotus Head
Content © Bucksomeboomer 2009.
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Regarding Dave Ramsey. I guess when you have really run up the cards you may have to give them a chop. However, emergencies happen. There was a case 15 years ago when I needed to put some items on credit. One card was for that. The other was for small purchases that were paid in 30 days. In the end I had a running balance for a couple of two threee months, my interest was super low, end result the credit card was to my advantage.
I have been debt free really since 1993, when I made a final car payment. This two to three month credit card balance in ’95 was pennies in the end. I am always finding ways to reduce and cutback on many things. For me, seeing a wasteful or pricey purchase on my debit or credit card is a nice, printed reminder of what not to do again. However, since I have been debt free for so long and have a sizeable savings, I can weather things like these. In the end it is all money management and your life is working with a budget and one big cost average.
Congratulations on being debt-free! You haven’t had a credit card balance since 1995? I hope to be able to make a similar statement in 15 years.
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