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Dave Ramsey has advice for all stages of life, but he made his hay by creating a system that gets people out of debt. In general, I agree with Ramsey’s approach. He emphasizes reducing risk, extreme focus, and having a plan.

When you dive into the details, I don’t think that any of Ramsey’s maxims are indefensible, but you’re often leaving money on the table in order to increase focus, reduce risk, or otherwise follow the plan. Here is a (non-exhaustive) list of Dave’s guidance for getting out of debt that we modified or rejected.

There is a whole spectrum of “Dave-ish” ways people run their finances. At one end of the spectrum are people who are basically doing Dave’s plan with one or two exceptions. At the other end are people who want to hold themselves out as Dave followers, but don’t really want to do his plan. We were and are more towards the former than the latter. We deviate from Dave’s plan only where we explain the “why” for the change.

1. You need to be Gazelle Intense (run from debt like a gazelle running from a lion) when paying off debt

This one speaks to my personality. I’m an all-or-nothing person to the extreme, and when it comes to finances, I’m even more that way. Money is my ticket to doing things in life that I actually enjoy rather than being a desk jockey. My wife is not the same way. She is driven, but doesn’t have the all-or-nothing mentality that I do. Especially in finances, something she doesn’t enjoy thinking about, she thinks in terms of compromise.

The result was us having to split the difference. I’d have rather been dead to the world for 2 years and clean all the debt up. She’d have rather chipped away at it slowly over the term of the loans. We settled on aggressive, but sustainable. A far cry from gazelle intense. To go any faster would’ve come with significant risk of us falling off the bandwagon.

2. “Beans and rice, rice and beans”

Tied in with the gazelle intensity was the complete deprivation of luxuries during the debt repayment. Debt is a life or death issue to Dave, and that may be accurate for many people, but it wasn’t that way for us. We were cut tight, but we went out to a restaurant on occasion, and we did fun things at times, and even paid for it.

3. Cut up your credit cards and throw them away

We half implemented this. For the initial period of debt payoff, we got rid of the credit cards, but didn’t close the accounts. We still (to this day) charged utilities and other baseline expenses to the credit card. When new cards were sent to us, I carried mine, and we destroyed my wife’s. She works better with cash. I work better with a card. Dave harps on the twinge of pain you feel when you pay with cash. My wife knows that feeling well. I don’t get it. I have a twinge of pain every time I swipe the card, trying to do the math to figure out how much is left in the budget. At this point, our emergency fund could pay the credit limit of the card twice over, so the fear of spiraling out of control is mostly gone. It’s more likely that we overdraw the checking account by accident than carry a balance.

4. Kill all investing (including matched 401k) to pay more on your debt

I couldn’t wrap my head around the idea of passing on a guaranteed 100% return on your money to pay down a 10% or 29% loan, let alone a 4% student loan. I did the math, and investing the match made tens of thousands of dollars of difference. I don’t think that investing without the match makes as much sense when you’re trying to kill debt, but it’s a no brainer to invest the match unless you can’t make ends meet.

5. Invest in 4 types of mutual funds: Growth, Growth and Income, Aggressive Growth, and International

I don’t think it’s terrible investment advice, but I’m more of a Boglehead when it comes to investing. One of the fundamentals from the Bogleheads is that returns aren’t guaranteed, but fees are. Also, over long periods of time, fund managers tend to be outperformed by the market. Therefore, while I diversify a bit outside of just buying a total market index fund, I’m almost 100% in zero/nearly-zero fee index funds. Since I’m not interested in monitoring the markets on a daily basis or regularly trading, this is the easiest way to get to our retirement number.

6. The $1000 baby emergency fund

I’m of two minds on the $1000 emergency fund. Part of me thinks that it should be tied to expenses and not a flat number. 1 month of expenses, or something like that. The other part of me recognizes how a $1000 emergency fund sparks motivation to drive hard on the debt goal. We did a year of $1000 emergency fund, and then started adding $150/month to the fund. We had to use small amounts of the fund here or there, but our “snowball” (the extra money dedicated to paying extra on the debt) acted as a first layer emergency fund. We also had the credit card (which we had paid off after a few months) in case something went really bad. Under those conditions, $1000 was uncomfortable but workable.

7. 3-6 month emergency fund in cash (sitting in a savings account, not invested)

Once you pay off your debt, the next step in Dave’s plan is saving a 3-6 month emergency fund in cash. Personally, I think 3 months is way low unless you’re a single person. We have a little over 6 months of an emergency fund in our savings account. We also treat the Roth IRA as a supplemental emergency fund for dire circumstances and the credit card as another supplemental emergency fund in the worst case. I think that 6-12 months of expenses is a more appropriate size for an emergency fund, with at least half in cash. I wouldn’t keep more than 6 months of expenses in cash, even if I had a bigger ( multi-year) emergency fund.

Why no less than half in cash? See 2020. Seriously, in March the market dropped substantially and a bunch of people were laid off. Eventually the market recovered, but if you were out of work in March, your 6-month emergency fund in your IRA was more like a 4-month emergency fund. If the market had stayed down like it really should have, you could have been dealing with a protracted job loss and a downturn that ate up half of your emergency fund.

8. Snowball (smallest balance first) payoff instead of highest interest first

This is the easiest one for me to defend, despite not being mathematically ideal. You’re trading dollars for a decreased risk of falling off the bandwagon.

9. Pay off the low interest loans, too

I’m in the middle on this one. It depends on the loan. I’ll never finance a car again, so leveraging myself with a 1% car loan to invest isn’t interesting to me. Slow hoofing the 3.5% mortgage and tossing the excess into the market? Sure. I think a lot of the high leverage, arbitrage happy folks are trying to rationalize their inability to save for their purchases. Oh, but my 1% loan is great! Yeah sure… my total car payments are $0, and all that money is working on the market.

10. 15% into retirement funds

Once you pay your debt and bolster your emergency fund, one of the steady state baby steps (#4) is to consistently contribute 15% to retirement. Dave treats that like an exact number. 15%, no more, no less. I’m more sympathetic to the FI/RE movement’s view on retirement contributions. 15% is a bare minimum, and 30% is better. 50% is even better. Obviously, at some point you feel the pinch. Keep going until you can’t stand it. Given the lifestyle I have (wife works less than 10 hours per week, stays at home with our daughter, daughter #2 weeks away), there’s no way that I’m getting to 50%, but 20, 25, maybe even 30% may be doable now and in the future. I don’t want to be forced to continue working a high stress, high paying job into my 60s to make ends meet. I want my retirement (the day I don’t need a paycheck ever again) to happen in my early 50s. That doesn’t happen at 15% contribution rate.

10A. Match first, then Roth, then traditional IRA/401k

The common wisdom (also espoused by Dave) is that you should get any 401k match with your first investment dollars because that’s free money, and then put the next set of investment dollars into a Roth account. Quick reminder… Roth IRA/401k means you pay taxes on the money when you put it into the account, but you don’t pay taxes when you withdraw that money (and its compound interest). Traditional IRA/401k means that the money you contribute isn’t taxed, but you are taxed when you withdraw the money.

The principle behind investing in Roth first is “the gains aren’t taxed”, and thus you come out ahead. In reality, this is sometimes true and sometimes not. The great equalizer is what kind of tax you’re paying. For the Roth, you’re paying your current marginal tax rate. For the Traditional, you’re paying your future net tax rate. Let’s say you have $10,000 pre-tax dollars to invest. If you invest in a Roth, you pay your marginal tax rate on that money (let’s say 22%), and invest the rest ($7800). In the Traditional, you invest all $10,000. They both grow at the same rate for the same amount of time. Obviously, the Roth account never catches up to the Traditional, but the break even is when it is X% less than the Traditional. X% being the net tax rate when you withdraw the money.

There’s a lot more nuance to the issue than I can flesh out in a paragraph, but don’t just assume that Roth is better, no matter what.

I could go on and on, but the quibbles get less consequential and less interesting. I think it’s important to know the reason for the deviations from the plan. Dave’s plan is primarily for debtaholics, but it works for all. It may not be optimal in all situations, but it’s the lowest risk way to get from point A to point B. When going Dave-ish, you’re almost always trading risk for a higher payoff. That’s fine to do, but you need to calibrate your risk profile to your financial situation and you need to go in eyes wide open. For as many people as I hear who think they’re smarter than Dave Ramsey, you’d think that there wouldn’t be any broke people in the world any more.

Next time, I’ll get back to how our actual debt payoff went and how we ended up paying it off early.