Dave Ramsey’s personal finance tips are not right for everyone. Read more for four reasons you shouldn’t follow his budgeting and debt payoff tips.
Are you struggling with debt? Having trouble keeping your budget on track?
You’ve probably heard of personal finance guru Dave Ramsey. But just because he’s considered an expert, doesn’t mean his financial advice is for you.
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Not sure if you should follow Dave Ramsey’s Total Money Makeover? Here’s four reasons you shouldn’t follow his advice!
1. Advice: Build An Emergency Fund of $1000
Before working on paying off debt, Dave Ramsey recommends building an emergency fund of $500 (if single) or $1,000 (for couples).
Okay, this piece of Dave’s advice I wholeheartedly agree with. While an emergency fund of $1,000 isn’t enough to cover a big emergency like a job loss, it is enough to weather minor bumps in the road. Having an emergency fund in place when you have an unexpected car repair or vet bill, allows you to keep your budget on track.
Better advice for your emergency fund
Consider your personal situation. For some people, $1,000 isn’t enough to cover emergencies. Or you may feel that a smaller amount is sufficient for your household. Consider your personal circumstances when choosing the amount to fund your emergency savings with.
2. Advice: Pay Cash For Everything
He recommends using cash for as many expenses as possible, from household bills to groceries to gas.
In this day and age of debit cards and direct deposit, I feel this advice is outdated.
Who wants to carry all kinds of cash around for everything? Or deal with the hassle of running around to pay your bills with cash?
Yes, it can be easier to see exactly where your money is going because you have the physical cash, but hardly convenient!
Better advice for your budget
The cash method is best for areas of your budget that you have the most trouble with. Do you find that your grocery budget is hard to keep in check? Set your grocery budget, keep it in cash, and pay for all groceries with cash.
Or maybe you like to go out to restaurants or grab fast food? Determine your fixed budget for that category. When the cash is gone, it’s gone!
3. Advice: Use The Debt Snowball Method To Pay Off Debt
This debt payoff method means you will pay off your debts from smallest to largest, with the hope that you’ll stay motivated due to your progress.
For more on the debt snowball method and how it works: How to Use the Debt Snowball Method to Pay Off Debt
The debt snowball method is a great premise. By focusing on the smallest debt first, you will see quick wins on getting out of debt. This keeps you motivated and wanting to keep going.
But there is a big caveat to this method.
It completely ignores the interest rates on your debts. When you focus on only the balance owing, you will pay more in interest.
Better advice for getting out of debt
Choose your debt payoff method based on what motivates you. If you are motivated by accomplishment, stick with the debt snowball method. If you want to pay off your debt the fastest, focus on the debts with the highest interest rate first.
4. Advice: Pay off all debts
The entire point of Dave Ramsey’s teachings is to live a debt-free life. He recommends paying off everything: credit cards, student loans, and your mortgage.
Being debt-free will bring you greater freedom than what you currently enjoy. But there has to be balance!
Do you want to scrimp and save to put every penny toward debt? And have to put enjoying life on hold for the someday when everything is paid off? What if someday never comes?
Better advice for a debt-free life
You shouldn’t put all your dreams on hold for financial freedom. Yes, I recommend paying off debt, but you have to find the right balance for you.
Perhaps you feel financially secure when your credit card debt is paid off. Maybe you’ll feel best when your car and student loans are paid in full. And maybe you do want to pay off everything including your mortgage!
There’s no right or wrong answer; it all boils down to what works best for you!