1. Debit Card Drawbacks

    I’ve mentioned it numerous times on IYM: Debit cards are a great tool, but they have serious drawbacks, too. And there are some things for which they’re totally unacceptable.

    Cue the piece from USA Today:

    USA Today: Debit Card Holds Can Derail Travel Plans

    Dave Ramsey loves to talk up debit cards, but as the article tells us, there are times (vacations, for one) when you really ought to keep that particular slab of account-zapping plastic tucked in your pocket.

    What makes debit cards even worse? Well, as my daily dealings with Joe Q. Public have taught me, there are still a great many folks who have no idea how debit-card daily limits and hold policies actually work. (Though, to be fair, most people also have no idea how their credit-card policies work, either, so why would it be any different for debit cards?)



  2. Dave Ramsey and 12 Percent

    This, friends, is easily the one thing about Dave Ramsey that pisses me off the most. This particular table comes from Dave’s Total Money Makeover Workbook, page 229:

    Twelve Percent ... HOW?

    The point of that data is pretty simple: If you’re not making payments to anyone other than yourself, AND if you’re willing to work hard, you can accumulate a lot of money in a pretty short amount of time.

    Now, I agree with that premise wholeheartedly. Heck — I’m seeing it play out in my own life. Our only debt payments go to the mortgage company, and further, those same mortgage payments (15-year, fixed-rate loan) take up less than 15 percent of our monthly take-home income. (For those who care, Dave’s recommended upper boundary for mortgage payments is 25 percent of take-home pay.)

    So, because there aren’t any car payments or student loans or credit-card debts sucking cash out of our accounts, we have a lot of leeway in directing our money where we want it to go.

    No, my problem is with the “12 percent returns” Dave loves to talk about SO VERY OFTEN. And, as noted by the chart above, use as a reference point in his books.

    Here’s the text that accompanies the chart:

    Exercise #69

    Consult the chart below.

    • Determine how many years you have to retirement … or to the place you’d like to set as your Pinnacle Point.
    • Determine how much you have to invest each month to get there.

    At your current rate of investing, how long will it be before you reach the Pinnacle Point? Are you willing to invest more each month?


    “Invest your money in good growth-stock mutual funds,” Dave always tells radio listeners, “and in twenty years, earning twelve percent a year, you’ll be a fobzillionaire!” Or something along those lines.

    Well, yeah. At annual earnings of 12 percent, the math works.

    But it’s getting that “average 12 percent per year” return that might cause some consternation.

    Like It’s a Given

    Dave throws this figure out there constantly. Like it’s inevitable. Like it’s a given.

    That, at least, is how I hear it.

    And it never fails to make me cringe. (As I’ve mentioned before.)

    It seems to me that when you’ve had a few decades of economic “growth” built upon declining and/or stagant wages for the lower and middle classes, coupled with repeated injections of massive debt at every level of society — how else to make up the difference and still keep asset prices high? — then it’s at least worth considering that maybe investment returns going forward will come with a level of risk that’s not conducive to double-digit expectations.

    Am I alone in this thinking?

    Because some days — like when I come across the chart above — it sure feels like it.



  3. Why I Promote ‘Baby Steps’

    When you have a website about personal finance that’s been up and running for years, you’re going to get plenty “Where do I start?” emails from readers.

    It’s pretty much inevitable.

    Same goes for your day-to-day life. As a financial blogger, if you develop any sort of “rep” at all, you’ll get similar questions from people you meet first-hand. The ones you don’t scare away, at least. You’re an Excel-wielding freak, after all.

    Over the years, in these situations, I’ve become quite comfortable in my promotion of Dave Ramsey’s Baby Steps plan. The reason it became my first choice?

    Simplicity, with a capital S.

    Well, actually, that’s just the main reason I point folks toward the Baby Steps. The plan can, with minimal description necessary, fit on one page. Everyone grasps it, and grasps it quickly. In a world where smart personal finance is frequently nuked by eye-glazing jargon, fine print, and fast-talking brokers of every sort, “simple” is a big plus.

    However, in my opinion, Ramsey’s Baby Steps plan is also the best-packaged (yes, this matters) and most accessible money plan out there.

    Dave Ramsey himself often says (correctly) that there’s nothing new in what he preaches. Instead, he just “packages” it better than everyone else.

    (He also has a mighty powerful, semi-captive “in” with the church-going crowd. But that’s a tangled post for another time.)

    Don’t You Care About the Math?

    Of course I care about the math. When I was working through my own “debt snowball,” I rerouted as many debt dollars into low-interest promo offers as I could, and then threw all extra cash at the highest-rate debts first. It worked great for us … but it also lengthened the time between instances where we could “cross debts off the list.”

    In lieu of that, I had to find other ways to keep myself motivated and on track. Most of these had to do with creating It’s Your Money and Money Musings and writing as much as I could. And oh yeah — I read every financial book I could get my hands on.

    Look: Paying debts off by smallest- to largest-balance, rather than by largest- to smallest-interest-rate, is practically guaranteed to cost more in interest. (Though how much more it’ll cost is very much a factor of how skyscraper-ish the rates are that you’re paying.)

    What it does give you, though, is something that 98 percent of debtors I’ve encountered desperately need. And that something is near-term, rapid bursts of motivation. A sense of immediate progress. A way to look down and see that they are, in fact, moving forward. They’re marking creditors off the list.

    It’s all about “quick wins,” as Ramsey phrases it.

    I’ve given the pay-by-balance versus pay-by-rate battle a lot of thought. Once I account for human nature, I have to come down on the side of pay-by-balance. So on this facet, Dave and I agree … but lots of other money bloggers disagree.

    Getting to Debt Freedom:
    How Much Does The “How” Matter?

    While it makes for interesting reader comments on higher-traffic blogs than this one, the “pay-by-balance” versus “pay-by-rate” debate seems, to me, to mostly miss the target:

    If the plan you follow works — if it gets you out of debt, decreases your stress, and improves your life — then it was the right plan.

    One More Reason I Recommend Dave…

    It’s because he’s everywhere.

    It comes down to that motivation thing again. If you’re feeling like you’re losing your grip on your finances, like your emergency fund saving and your debt paydown plans aren’t going anywhere, like your Baby Steps have become Baby Stumbles, then a few “visits with Dave” via his ubiquitous radio show and/or his nightly Fox Business call-in show can get your head straight in a hurry. And if you’re a Sunday-go-to-meetin’ soul, odds are pretty darn high that you’ll have a Financial Peace University setup going on there which you can easily access.

    No other money guru is as accessible, as available in as many channels, as Dave Ramsey is right now. AM radio … TV … live events … books and DVDs … you name it. He’s there, and ready to smack you upside the head should the need arise. (Which it will.)

    So there you go: In my mind, it’s the simplicity and accessibility of Dave Ramsey that puts him at the high-water mark of today’s financial personas.

    Is he a salesman at heart? Absolutely he is.

    Does he need to move DR-branded product? You bet he does.

    But until someone else’s name starts popping up in the “My husband and I finally have our finances under control, and it’s all thanks to Dave Ramsey” statements I hear so often, his Baby Steps plan will be the one I suggest.



  4. Dave Ramsey Training: Cheaper Now (Sort Of)

    Well, I suppose you could call it deflation.

    Folks interested in becoming “Dave Ramsey certified counselors” in Dave’s counselor-training program will now find their wallets lightened by roughly $2,950 for the priviledge. (Spouses can tag along for just $1,500 more.)

    Stout price tag? Yes. But readers with healthy memories might recall that the last time I checked, this counselor-training course of Dave’s was running in the $3,950 range. However, if you were participating on behalf of a non-profit, church-related entity, you could get all “Dave’d up” for the low low price of $2,350.

    So the course is cheaper now for Your Average Joe, but more expensive for the church-based crowd. Better pass that collection plate around a couple more times.

    $3k Keeps Out the Riff-Raff

    I’ve kicked around the idea of taking the counseling course. Obviously this topic (debt-busting, financial independence, and so on) is one that I eat up, and I agree far more often with Ramsey than I disagree with him.

    However, while I’d likely have a blast at the event, I just don’t know how much I’d learn there — nor do I know how I could make it financially worthwhile for myself. Tax-deductible or not, three grand is a chunk o’ change.

    And aside from the cost basis required by providing for a Tuesday-Saturday hotel stay, food, and “high quality training materials and manuals” (all included in the price), I’m quite sure Dave’s group sets the price where it is so that they can, in some measure, weed out all non-hackers who don’t pack the financial gear to serve in his beloved corps.

    In the end, Dave has become too salesman-ish these days for me to feel good about handing him $3k to relearn what I likely already know. I’ve bought and given away numerous copies of his books, so my conscience isn’t nagging me about “giving back” to those from whom I’ve derived value. (That “value” hasn’t been restricted to just a personal level: A fair amount of search traffic at IYM gets here via Google and Yahoo searches for Dave-Ramsey-related terms.)



  5. Liquid Savings Goal Reached

    Astute readers will notice that, as of the end of last month, Lisa and I reached our Liquid Savings Goal of $15,000. For the first time, that little green “Liquid Savings” bar chart on the right sidebar shows progress of one hundred percent.

    Though we’ve not strictly followed Dave Ramsey’s Baby Steps plan, we’re now up-and-over Baby Step 3:

    Create a full-fledged Emergency Fund containing 3 to 6 months’ worth of expenses.

    The $15k gives us about four months’ worth of living expenses. With no debt other than our mortgage, and four-plus months’ worth of cash in the bank, I would like to take this opportunity to channel the incomparable James Brown and state that, yes, truly, I feel good.

    What’s Next?

    You’ll forgive me, I hope, for not yet knowing exactly what goal I wish to target next. If I turn to Dave Ramsey again, I see that Baby Step 4 suggests:

    Direct 15% of your annual pre-tax income into your retirement plans. Utilize tax-advantaged accounts such as 401ks and Roth IRAs, if eligible.

    While notching up my 401(k) contributions to 15 percent of income would be easy to pull off, effort-wise, I have over the last 5-10 years grown quite skeptical of the 401(k) setup overall. The high fees of my company’s particular plan are bad enough. But beyond that — call me crazy, if you like — I’m also way reluctant to start pouring more cash than I already do (enough to get the full employer match) into a tax-deferred investment vehicle which my spend-itself-silly government so obviously eyes as a future income source.

    I’d favor the Roth IRA route, for sure. But even then, one has to wonder just how exactly the idea of allowing us “rich” Roth investors to withdraw investment gains tax free is going to play out in the future. (My opinion? Not well.)

    So … as I said, I’m undecided where to focus efforts next. In fact, when it comes to savings, there are a multitude of items we’ll need to consider:

    • My personal vehicle is now 15 years old. My 1995 Nissan truck will have to be replaced at some point. I don’t want to borrow for my next truck, if I can help it. It’s likely time to start making monthly Freedom Account payments to myself for this future expense.
    • Our house will need a new roof soon. Ah yes, the old house-maintenance big-ticket expenses. In this realm, new siding and windows would be beneficial, as well. And you should see our carpet. (Actually, no, you shouldn’t. Bleh.)
    • Vacations. Good ones. When I was a kid, my family never took “big” vacations. Sure, we’d make yearly trips to Iowa to visit relatives, but that was about it. There were things I wanted to see as a kid, but never did, and there are even more things I want to see now with my family: national parks, Disneyland, Gettysburg, the Smithsonian, various historic sites in the northeast … you name it. My list is long. But when you live in Oklahoma, as we do, which is close to precisely nothing, such trips don’t come cheap. Gotta save, save, save for them.

    So yes, I have savings-goal ideas — don’t we all? — but haven’t yet given a whole lot of thought to “What next?”

    For now, I’m just happy to finally see that fifteen grand tally up at the top of my Quicken sidebar … and to know that my household is in better shape financially than it has ever been.



  6. Try Paying $2,950 for Dave Ramsey

    There’s a nice little snippet from JLP at All Financial Matters that’s been quite the comment-magnet:

    AFM: “Dave Ramsey Gets on My Nerves”

    I wholeheartedly agree with JLP on this. I appreciate most of what Dave Ramsey espouses, but Dave and chunks of his website do have the occasional infomercial feel to them, and I could do just fine without that. But he’s doing what he’s doing because it makes him money — and folks could find lots of worse things to spend their cash on, I imagine.

    I’ve purchased three of Dave’s books (Total Money Makeover in audiobook and hardback, and Financial Peace), and I’ve attended a Dave Ramsey Live Event. So I’ve given my share of change to Dave. But Dave’s writing, ideas, and energy helped me get to where I am today, financially, which is to say that he played a significant role in making my life better. What money I’ve spent has, in my opinion, been well spent.

    Three-Dime Dave

    Now, for those who might not be so well versed in Dave Ramsey Financial Paraphernalia, it’s worth pointing out that Dave also sells “Counselor Certification.” The price tag? A mere $3,750 $3,950 $2,950 as of this writing [Source]. (You can add your spouse to the class for another $1,500.)

    Why do I know these figures? Because I’ve strongly considered plunking down the cash (and the time) for the training.

    You’re kidding, right?

    Look: I love personal finance, and I’m all about most of what Dave has to say. I love helping people, and seeing people grow and improve their lives. Financial counseling of this sort is right up my alley. What I’ve done of it so far, I’ve enjoyed tremendously.

    However, while I’ve gotten a ton of value from Dave’s stuff, I just can’t see $2,950 worth of substance in re-learning what I (mostly) already know. And I don’t know that a link from daveramsey.com, or referrals from his group, is worth that kind of coin.

    For comparison’s sake, I could take the six CFP-prep courses at Florida State University (I’ve done the Intro to Financial Planning one already) and be out less than $2,950 with books and all. And I’d practically guarantee that I’d learn tons more useful-to-me stuff from FSU than from Dave Ramsey U.

    So you won’t do Dave Training, right?

    I dunno. Maybe.


    I just love this stuff that much.

    Admittedly, attaching a 3.9-dime price tag to his counselor-training gig is a fine way for Dave to screen out the riff-raff. And the multi-day session can’t be a blow-off thing, as it can earn CPA attendees just over 34 CPE credits. Not bad … I think. (Although, for all I know, you might be able to earn 2 or 3 CPE credits just for punching yourself through a self-serve checkout at Wal-Mart. )

    In the end, Dave’s in this to make money, and that much is obvious. He’s constantly finding new angles by which to sell his schtick, at price tags that range from $5 all the way to $2,950. This is a businessman in action, folks. And a successful one, at that. I don’t know that it’s good … or bad.

    It just is.



  7. Dave Ramsey Live Event

    Well, today was the day. I attended a Dave Ramsey Total Money Makeover Live! event this afternoon.

    Actually, I attended only half of it.

    Thanks to a searing headache that became unbearable around the halfway-point of the show, I most certainly did NOT get my money’s worth ($20 per seat) out of the deal. But that wasn’t Dave’s fault. Stupid me forgot to have painkillers handy for just such an emergency. That’s what I get for not planning ahead, right?

    I will say this: Dave Ramsey (talk-radio host, creator of “The Baby Steps”, and author of Total Money Makeover, among others) is an energetic guy, a great communicator, and a salesman of notable ability.

    “The world we live in today is pretty strange,” he told the audience early on. “It is one where common sense has become a marketable commodity. I’ve simply packaged it better than anyone else in my generation.”

    He may be right. The auditorium was wall-to-wall full, with extra fold-out seats crowding all aisles. Lines at his book- and media-product-sales tables outside the auditorium were heavily populated, too. Most of the people around me seemed excited to be in attendance. I got the distinct feeling that most folks were there due to ties with churches and other religious groups. No big surprise, as Dave leans heavily upon these groups for readership and networking of sales. And readers of Ramsey’s books know he does not shy away from outright religious overtones and missives in his financial advice. (“God’s and Grandma’s system of managing money,” as he describes it.)

    If you’re willing to look a bit beyond all that, you get to hear a pretty good and entertaining fiscal sermon delivered by a guy who’s obviously had lots of practice. Much of his live message duplicated the content of Total Money Makeover, but there was enough fresh material thrown in to make the hours of sitting in not-so-comfortable pews a little more bearable. Would it have been worth the $20 if I’d have been able to stay for the duration? Yes, probably so.

    One anecdote of Dave’s that I found rather interesting:

    Ramsey offered the following what-if to the audience: Suppose your young child at home has been diagnosed with a terminally ill condition. She will die in exactly one year unless a $5,000 vaccine can be purchased and administered. Your insurance does not cover this vaccine in any portion. You must pay for it yourself, but you cannot under any circumstances use any funds which you already have. You may not borrow the money for it; you may not pay for it with credit in any way. You may use only what cash you can raise over the next year.

    “How many of you,” Dave then asked the audience, “would find a way — somehow, some way — to raise that five thousand dollars?”

    As you might imagine, the number of arms raised was … extremely high.

    The point behind this macabre scenario? According to Ramsey, one reason for why debt has become such an out-of-control problem in this country is that people have become almost entirely ambivalent to the ramifications of it. Debt, he said, obviously causes consumers varying degrees of financial discomfort for years and years. Yet until things get so painful that drastic change is the only way out, people simply do not care about paying off their debts, because it doesn’t matter enough to them on a personal level.

    “If the end result matters enough to you,” Ramsey said, “then you will do whatever it takes to get it accomplished. Failure will not be an option. You would take any action necessary to save your daughter’s life. Yet people will not do the same to save their financial lives.”

    There is significant truth in that, I think. If it matters enough to you, you will do it.

    Unless, of course, your headache is just too bad. 🙂



  8. OKC Total Money Makeover

    I feel a bit guilty.

    This afternoon I put in my order for two tickets to see Dave Ramsey at his OKC “Total Money Makeover” live event in February 2005.

    Dollar cost for The Wife and I to attend: $38.

    Cost per event hour per person: $3.80.

    Driving time to get there: 30 minutes, tops.

    Amount of credit-card debt I’ll have by then: $0.

    Amount of student-loan debt I’ll have by then: $2,100.

    So why guilty? Dunno. But that’s how I feel. Folks who’ve been reading my stuff for awhile know that of all the broad-base financial gurus out there, I respect Ramsey and his plan far more than anything anybody else has put forth. (I’m talking media-centric types here, like Suze Orman, Jean Chatzky, and David Bach. Those people, IMO, have a penchant for serving up mediocre advice, sound-byte aphorisms, and a hearty helping of fluff.)

    Now, I can get hardnosed with Dave, too, as I did in my review of his latest book. But he tends to dispense sharp, to-the-point advice, with little room for whiners or “woe is me” types. That’s what I like about him, mostly, and that’s why bits of Dave are all over this site. And I guess that’s why I’m looking forward to hearing him in person. Hearing him, that is, probably regurgitate everything I’ve ever heard from his radio show and everything I’ve heard from my 25+ readings of his Total Money Makeover audiobook. (Look, the guy is a great motivator. He keeps me on point. And local radio sucks.)