Weather you agree with Dave Ramsey’s methods or not you have to admit, the guy usually makes some pretty good points. Obviously he is doing something right or he wouldn’t be where he is today.
In doing some online research recently I came across a clip on his youtube channel in which he rants about the stupid financial decisions people make. He kinda lost his sh*t in the clip which makes it highly entertaining in my opinion. But the underlying ideas he is talking about are spot on.
I can understand his frustrations boiling over. Afterall this poor guy has taken calls all day every day for years from people making the same dumb financial decisions over and over and over. Even someone with zero financial literacy you would assume would have some common sense when it comes to some of these things. At the very least you would think they are calling into a show that they have spent some time listening to in the past and would avoid saying certain things to make themselves look stupid.
In any event, I thought I would link up to the clip here and then slow down and discuss a little more rationally some of the things Dave is ranting about. Without further ado, here it is.
Dave Ramsey – Stop Giving Away Your Money Rant
Im not sure what preceded this clip but clearly Dave had had enough of the bad decisions he was hearing from his callers. So what are some of the things he is talking about? Lets take a closer look.
Your #1 wealth building tool is your income
The majority of millionaires in America are not athletes , movie stars or lottery winners. They are people working a job and earning an income. The point Dave makes here is that your income is your most important tool to build wealth. If you are spending it, how can you build wealth.
It is not so much the spending it that bothers Dave. It is what it is being spent on. Hearing people complain that they are struggling to build wealth in one sentence and in the next sentence confessing their spending sins seems to have worn on Dave’s last nerve. The point he is making is that you need to preserve your income, not waste it through poor financial decisions.
Saving and investing income builds wealth
The big complaint Dave always seems to get from is callers is “I don’t have enough money.” The point he is making is that if you spend it, of course you no longer have it.
The lack of simple common sense displayed by his callers on this has driven Dave to insulting them. And who can blame him? This seems like a no brainer.
So step 1 in building wealth would be to earn money. Step 2, preserve money by not spending it. And step 3 is to invest and grow your money to build your wealth.
It seems like a simple formula and it is. So is dieting but the dieter gets hungry and has cravings and before you know it they are trying to justify why they needed to eat 6 slices of pizza for dinner and then 4 cannolis for dessert.
The borrower is slave to the lender
If you are in debt, your bad decisions have now driven you to be subservient to your creditors until that debt is paid off in full. It is bad enough you have spent away part of your income on the things you bought with your credit card, you are now just throwing away money on the interest payments associated with that credit card debt each month.
And credit cards aren’t even your only debt. Car payments, Credit cards, mortgage, student loans, just to name a few common sources of debt most people will incur at some point in their lifetime.
Dave feels it is just stupid to run your debt up even for seemingly important things such as student loans. I must agree with him yet again. Why we are teaching these kids to take out $250,000 in student loans to go out and maybe get a job paying $90,000 a year if you are lucky is beyond me. With the interest, most of these kids will end up making payments into their 40s.. And it is debt that never goes away. You can’t claim bankruptcy, you will literally be slave to it until it is paid.
The bottom line is debt completely destroys your ability to save and will hold you in its clutches forever if you let it. Like the dieter who really wants to eat the pizza but know he shouldn’t, you need to resist the urge to spend spend spend and drive up that debt.
70% of Americans are living paycheck to paycheck
This is a scary but true statistic. The majority of Americans have no savings and have little to nothing of their paycheck leftover at the end of the month. They don’t even understand the reason they are broke, let alone why.
Let that sink in for a minute and then think about what happens when these people can no longer physically work and earn an income. How will they pay their bills? There is no savings, Social Security won’t even come close to covering them completely. How will they live?
Now stop to think about this. Are you one of them? If you are then you really need to take a good look at what you are doing and make some different decisions now to effect how you will live in your golden years.
Car payment equates to millions of dollars
One fantastic point Ramsey makes is in regards to taking out loans to buy new cars. He throws out there the fact that people are calling him with car loans of $500 a month and can’t understand why they are broke. He then goes one step further and says that by spending $500 a month on a car, you are giving up millions of dollars ver
In fact he boldly states that you will have over $5 million if you invest $500 from age 30 -70. That statement should be a huge eye opener for anyone who is making monthly payments for a car. Especially of you plan to continue to do so forever.
One of the first things I sacrificed when I decided to take my own financial future seriously was the luxury of driving new cars. And this is exactly the reason why.
Lets do the math here.
In order to reach $5 Million over 40 years, your $500 a month would need to earn 12% annually. Not impossible but a tall order indeed. A safer estimate would be 7% which would take 60 years to reach $5 million or after 40 years would be worth$1,2 Million. So while Dave’s claim is bold and ballsy, its not entirely wrong.
If you want to learn more about how the math of compound interest can make you rich, check out my article here.
The point is, you could make a nice retirement by simply driving a used car and investing the money you would have otherwise used for your monthly car payment.
Why is this important?
This rant by Dave Ramsey is important for 2 reasons.
- It shows the passion Dave has for his listeners well being. he is frustrated and he can no longer contain himself. Yes what he is saying is harsh and might hurt some feelings but it is all true. And the sentiment behind it is clearly because he wants people to wise up and stop hurting themselves financially.
- It is true. Sometimes people need to hear the harsh truth in order to effect change.
If this helped to change your viewpoint on your own spending habits and are ready to hear about just some of the ways you can change and start saving, check out my 10 insanely easy ways to cut spending.
If you need more convincing, read Why early retirement is not possible for the majority of people.
Happy Reading
Earl