So I bought Dave Ramsey’s book “The Total Money Makeover” and just recently finished it. If you haven’t read it and you have little knowledge of the financial world I highly recommend picking up a copy. For those that are more finance savvy, you have probably heard everything this book brings to attention. As I continue on my journey to financial freedom I can’t help but disagree with two pieces of advice Ramsey gives.
While I understand why he discourages the use of credit cards, it just seemed too radical for me. If you have read through my earlier posts here then you know I am a big fan of using my credit card for any and all purchases I make. Throughout the whole book, Ramsey instructs everyone to cut up their credit card. Broke like a joke or Rollin’ in the dough, Ramsey says cut up the card and pay cash for everything. I will definitely be ignoring this recommendation. My credit card is free cash for one month and airline miles in my pocket. I’m pretty sure if I went to the grocery store and wrote them a 30 day I.O.U. and requested frequent flier miles in exchange for my groceries the clerk would kindly ask me to leave the store. With my credit card I can do just that. Ramsey and I are both advocates of discipline. He advocates discipline in debt repayment, spending habits, giving, etc. I just don’t get why he doesn’t mention that, with discipline, credit cards are a valuable asset. I wish he acknowledged the fact that credit cards are not a bad thing, it’s the people that use the credit cards that cause problems.
Second beef, paying off all debt (except mortgage) as fast as humanely possible. Again, I understand where Ramsey is coming from, but I completely disagree with this stance. I currently have one, and only one debt to my name. I have a consolidated student loan for $28K at 7% interest. I decided to stretch the student loan out for 20 years to lower my obligated minimum monthly payment in case I ever find myself in a financial bind. With payments of approximately $220 a month my loan will be payed off in 2027…I know pretty crappy. With interest, over 20 years, I will be paying approximately $54k for my education, that’s $26K in interest!!! My education is not worth $54K to me so there is no way I am making minimum payments. I ran some numbers through my calculator to decide exactly how much extra I want to be paying on my loan. I decided I would pay an additional $110 monthly to shorten my loan term and take a huge chunk out of $26k in interest. Making monthly payments of $330 I am able to pay my loan off in half the time and save over $16K in interest.
I’m sure with “gazelle intensity” I could pay off my student loan much faster, but at what expense? Ramsey recommends putting retirement investing on hold until all debts are paid off. If I take this advice and I postpone my Roth IRA funding for two years, while I focused on solely on paying off my student debt, my Roth IRA at 65 would have approximately $2,044,000 in it. If I ignore Ramsey’s advice and contribute to my Roth IRA from now until 65 I would have $2,434,000 in my account. That’s a difference of $390K!!! You better believe I will sacrifice paying an extra $10K on my student loans over the next ten years if it means I will have an extra $390K in my retirement account. Now one could argue that Ramsey’s advice is warranted in that the sooner I pay off my student loan the sooner I will be able to contribute additional income to my retirement accounts and can therefore make up for lost time. Need I remind you though, that Ramsey advises only putting 15% of income in to investments. I currently contribute 18% of my income. I guess this is advice that I NEED to ignore.
Overall I enjoyed my read and thought there was plenty of valuable information, but I wish Ramsey acknowledged that, with great discipline, there are alternative ways to acheive a “Total Money Makeover.” Have you read the book? What do you think? Is there something I’m missing or not picking up on?