Meet man who’s introducing your grown kids to financial advice with a simple template
Dave Ramsey is talking to your adult children. His focus is on helping people organize and stabilize their financial condition. He’s terrific, and he deserves accolades for his work. He has helped thousands, perhaps millions, of families.
His enormous success draws from two things:
First, he created a simple template for explaining finances with step-by-step instructions that really work. If you are floundering and you listen, read or take his courses, you can succeed.
The bigger thing is this: He conquered talk radio. Ramsey accomplished something few others could do. He delivers an extremely desirable demographic — young families — to a radio format dominated by older men. In talk news, politics or sports, the typical listener isn’t a target for consumer or household goods. Dave delivers an audience for those advertisers. Lots of stations broadcast him.
Why does this matter? Dave’s story and techniques are, of necessity, general. They apply best to people struggling with debt and seeking to overcome common obstacles. As I say, his system works, and millions adhere to his framework.
Still, not all recommendations fit everyone.
These are a few of Dave’s rules that I tweak for my clients who are beyond the floundering stages of personal finance:
Emergency fund: All of us should prepare for disaster. Our lives are complex with many moving parts. Any of them could require financial attention. From appliances, to automobiles, to job security, some money-sucking crisis lurks around every corner. Quick access to cash is the remedy.
But that doesn’t necessarily mean a dedicated bank account. If you have a brokerage or other account with money market or cash balances, you’re all set. Truthfully, almost any mutual fund or brokerage firm can get you money in a day or two. The key is to have enough savings and investments to carry you through some tough periods.
Dave says three to six months of expenses is fine. Obviously, as you build wealth, ready cash just becomes part of your investment strategy.
Monthly budget: This is another nuance. When Stanley and Danko researched “The Millionaire Next Door,” one of the interesting tidbits they discovered was that few millionaires used a formal monthly budget.
It seems they had a strong handle on spending without one. They didn’t need a piece of paper to affirm the monthly utility bill because they already knew it. It’s not the budget helping them; it’s the awareness.
That’s true in my life, although I do update my net worth each month. I get a lot of satisfaction from watching it grow over time, but I don’t sweat the utility bill anymore.
Borrowing/debt: I saved this for last because it’s typically the most controversial. Dave discourages the use of debt for anything, and, if necessary, he wants you to pay it off as soon as possible. It’s a great plan for people building a financial foundation.
For the rest of us, there can be other reasons to borrow. Using a credit card and paying it off each month is easy, provides a record, and may offer valuable incentives. True, some people struggle to control purchases or pay it off monthly. For those people, the card is a problem. For the rest of us, not at all.
Beyond that, borrowing can be a luxury. I don’t mean you can borrow to buy luxe items (although you might). What I mean is that you might choose to borrow if it provides flexibility, convenience or generates profit.
Clients sometimes call asking to withdraw money from an investment or retirement account because they bought a new house; closing is already scheduled, and their existing house won’t sell in time. “I need $100,000 until my house closes,” they’ll say.
A withdrawal is one way to handle it. A better approach is to find a friendly banker and borrow enough to cover the shortfall. Most times, the interest paid will be less than withdrawal taxes or penalties.
It’s the same with your mortgage. Maybe having money in the bank offers flexibility that you wouldn’t have with a paid-off house. Maybe investments earn more than the mortgage is costing you…that’s a few thousand dollars in leverage profits lost if you pay it off.
Here’s the thing. Debt can be a matter of choice instead of necessity. It’s an option that many people don’t enjoy. It’s an option that Dave Ramsey rarely mentions. Dave’s advice is stellar for your adult children, perhaps.
But he’s not talking to you.
Dan Danford is a CERTIFIED FINANCIAL PLANNER professional and a member of Financial Planning Association of Greater Kansas City. He is Founder/CEO of Family Investment Center in Kansas City and St. Joseph, Missouri. Danford is a practicing investment advisor and author of “HAPPY TO BE DIFFERENT: Personal and Money Success Through Better Thinking.”
This story was originally published January 11, 2022 at 5:00 AM.