George Kamel - The Controversy Around Dave Ramsey’s Book (And My Thoughts)

Episode Date: September 27, 2023

It’s no secret that I got my financial philosophy from the one and only Dave Ramsey. And it’s the advice in Dave’s Total Money Makeover that helped me pay off debt, get my feet under me, and eventually empowered me to become a net worth millionaire. But despite that thrilling tale of victory and triumph, I still get a lot of flack from people for touting the Total Money Makeover. So today, I’m going to take a look the most common objections I get in regard to this controversial money book to see whether the flack is fact or the flack is whacked. Links: The Total Money Makeover The Best Way To Pay Off Debt Fast Learn more about your ad choices. Visit megaphone.fm/adchoices

It's no secret that I got my financial philosophy from the one and only, Dave Ramsey. And it's the advice in Dave's book, The Total Money Makeover, that helped me pay off debt, get my feet under me, and eventually empowered me to become a net worth millionaire. But despite that thrilling tale of victory and triumph, I still get a lot of flack from people for touting the total money makeover. They say the book is outdated and irrelevant, kind of like floppy disks and MP3s and climbing a rope in gym class.

Did you, why did we do, did anyone ever really need to do? What was the purpose of climbing the rope? And no, I'm not just bitter because I didn't win the Presidential Award. I got the National Award and it chose. So today, I'm going to take a look at the most common objections I get in regard to this controversial money book to see whether the flack is fact or the flack is whacked. Or for my Gen Z friends, is this book Fact or Cap?

Or is it low-key goaded? So, fam, let's real talk. We're going to find out in today's episode. But first, make Papa Dave proud by giving that like, share, and subscribe button a little close. All right, and remember, if you don't, and I will cut your credit cards in your sleep. All right, so cut them up before I do. And Elizabeth, I found your Cole's card in the parking lot, and we're done with it.

All right, hope you got enough Cole's cash to get you through Christmas. The kids don't need gifts anyways. They're spoiled, rotten little brats, and you know it. All right, objection number one. Objection! Um, a thousand dollar emergency fund is too small. Okay, listen, I get it. All right, a thousand bucks is not enough for your long-term, fully funded emergency fund.

For that, you need three to six months of living expenses save. But $1,000 is enough for a starter emergency fund that you use while you pay off debt. And yes, I'm aware. The book was released 20 years ago, the same year's 50 cents in the club album. I'm very aware. I'm too aware of that fact. Okay, both very memorable releases in that year. But $1,000 will still give you enough cash, even in these dark, inflationary times,

so that you don't go deeper into debt when an emergency strikes. The truth is it will not give you enough to get comfortable. And that's a good thing, because comfort. is not the point when you're getting out of debt. You got to be a little bit uncomfortable. Light a little fire under you to get out of debt faster to get to true safety. Later on down the road, once you're out of debt, you'll beef up that emergency savings. You're going to beef it up real good, Mr.

I smell like bee. And here's the deal. People who are getting out of debt using the debt snowball method with our plan, they're out of debt in like 18 to 24 months. Okay, you're not going to spend 10 years paying off your debt with just that dinky $1,000 emergency fund. That would be scary. Now let's play this out.

happens if you experience an emergency that's over $1,000 and you're following this plan? Well, we call that Storm and Stork mode. So when you're expecting a baby, you're going to want to pile up some more cash. So let's pause the baby steps and let's save up as much cash as we can until a mom and baby are home happy and healthy. Or if you're about to lose your income, for example, and there's some layoffs happening, then prepare by saving as much as you can once you've landed your new job or have some stability, pick right back up where you left off and continue the snowball.

Or if the HVAC goes out, we're going to pause, sell stuff, get a side job, do whatever it takes to save up that amount of money really quickly so that we can get back to the debt snowball. Next objection. A 15-year fixed rate mortgage is unaffordable because of home prices and interest rates. You should always do a 30-year loan so you can have more wiggle room. Okay, can I just say the phrase wiggle room has become a weird trigger for me? Deep breath, what did your counselor say? Eat, pray, love, and it'll be all be okay. So the basic argument here is that because housing prices and rates have gone up,

you're going to need the lower monthly payment that the 30 year gives you. And I get it. The 30 year gives you a break in the short term with a lower payment. But in the long term, it is robbing you blind, just like that sneaky squirrel that's hijacking your protein bars. Square wilt. It's a square wheel. Little guy, come on, dude.

And to show you what this looks like, let me give you an example from 2019 BC before COVID. So with a $240,000 home loan, we're going to look at 15 years versus a 30 year. So the 15-year has a 3.5% interest rate. The 30-year has a slightly higher 4% interest rate. Monthly payment on the 15-year, 1,716. Monthly payment on the 30-year, 1,146.

Right? So it is a lot cheaper. But here's where it gets interesting. The total amount of interest paid on that 15-year loan over 15 years is 69 grand. The total paid on the 30-year is 172 grand. So here's what that amounts to. The total you paid on that $240,000 home loan was $309,000. on a 15-year and 412,000 on the 30-year. That's over a $100,000 difference that you paid making lenders rich,

giving them big buildings in the skyline while you stay broke for 30 years. Okay, so don't talk to me about wiggle room. You want some wiggle room. How would an extra $100 grand sound? That would give you some wiggle room, wouldn't it? So listen, if you're worried about affording a 15-year mortgage, that's okay. Let's get your income up. Let's adjust your expectations.

Let's be patient. Let's save up a higher-down payment. and maybe choose a different home. And now let's talk about this wiggle room idea. Okay, you don't need wiggle room when you have a fully funded emergency fund. That's what we recommend. Let's get to another objection.

Objection! Paying off your house early is dumb if you have a low interest rate, plus you get a tax advantage. Okay. Let's pretend you've got a mortgage, $200,000 at 3%. Right? People would say, that's amazing. What an incredible rate you have. Well, unless you have $200,000 in savings,

making like 4%, you're not mathematically going to make a spread by keeping your mortgage around, okay? And people will also say this. Well, I'll keep my mortgage around and invest the money instead. Well, that's essentially borrowing $200,000 to go invest, which you would not do. Okay, it's Bass Hackwards and we all know it. So if you're not investing that money in a retirement account, the money you're making

is taxable income, right? If you're putting that money in a savings account, you're making the little money there, that's taxable income. If you're paying down your house, it's a forced savings plan with tax-free growth. Because if you didn't know this, the IRS allows you to keep $250,000 worth of appreciation tax-free if you're single and 500,000 if you're married filing jointly. All right. Now let's talk about that tax advantage, right? Well, under recent tax law, you can only get a deduction with that mortgage interest if you itemize,

which most people don't even do anymore because they're better off going with the standard deduction. But let's just say you itemize and you still want to argue here. Think about this. If you pay $10,000 a year in interest on that mortgage and your tax rate is 22%. That means you're going to get a $2,200 tax deduction. Now, let's make this very clear. You're giving $10,000 to the lender to avoid giving $2,200 to the IRS. You're stepping over a dollar to pick up a quarter.

You're stepping over first class on Delta for a coach ride on spirit. What are you thinking? All right, one more objection for kicks and giggles. Objection! Financial advisors are a scam. Never use them. All right, my first question here is, who hurt you? My second question is, do you fix your own AC or fly your own plane or remove your own moles?

You know what? Don't answer that last one. It's disgusting. The answer should be no. I think I'm going to be sick. You use a professional because they have more education and experience and laser beams to remove those things. But I know you hate spending money on things you think you can do yourself. And some FinTalker told you that actively manage mutual funds never outperform the market

and they're scamming you by taking a fee for their services. And you feel like you're basically an expert anyways because you listen to one episode of CNBC's fast money. I don't have, I'm visually impaired here. So why pay a financial advisor when you can just do some DIY investing? Well, listen, even experts can. get advice and consultations from other people they respect. Why? Because a pro can give you a 360-degree view of your financial situation, because they're on the outside looking in. And they can spot some weak areas that you may be blind to and give you advice on how to fix them. One of the best reasons

to use a financial advisor is because when there's crazy economic times and you want to pull all your money out of the market and you're starting to panic, they can keep a cool head, talk you off the ledge, and educate you, and show you perspective and give you educated advice to make their best money moves for you. It's like hiring a CFO. Okay, I use a financial advisor. Dave Ramsey uses a financial advisor. It's simply another tool in our tool belt to help us build wealth and give us some peace of mind. Plus, a financial advisor doesn't just invest money. Okay, they're not just sitting there choosing funds for you. While that might be one of the things they help you do, they can also help with rebalancing your investments, tax planning, estate planning, long-term care planning,

and spending strategies. Now, sure, there are some bad apples in the bunch out there, just like there's some scamy party clowns out there. But on the whole, both clowns and financial just want to make people happy. Okay? Now, regardless of what the naysayers say, the strategy and the total money makeover has been proven time and time again. This book is still helping people decades later, and it's now helped hundreds of thousands of people pay off debt and build wealth the right way. And here's the reasons the plan works. Number one, it helps you focus on one goal at a time, thanks to those seven Ramsey baby steps that Dave lays out in the book. Because it can be overwhelming to face a reality that you're not where you want to be

financially, so much to do, so little time. But this plan breaks up your goal. into manageable, achievable pieces that will set you up for success. Number two, it helps you avoid going back into debt ever again. You see, once you get out of debt and you have an emergency fund, you don't ever need to run back to those borrowing ways, and that is a beautiful part of this plan. Number three, it keeps your priorities in check. You know exactly where your money should go

because you have a goal right in front of your face that you're trying to hit in a speedy amount of time. Number four, it's designed so that you see and celebrate your progress. This is not a 25-year plan just to get out of debt. You're going to feel those wins and it's going to keep you motivated to continue on the wealth-building journey. So if you're looking for some flashy get-rich-quick plan from a buff blue checkmarked influencer, keep looking. Because this is a humble plan based on gods and grandma's ways of handling money, delivered by a self-proclaimed hillbilly with giant scissors.

But let me tell you, it freaking works every time you work the plan. So if you want to see for yourself, check out the Total Money Makeover at the Ramsey store. I'll drop a link to that below. And make sure to share this with your friend who loves to stack the flack on books like the Total Money Makeover. And if you follow the principles in this book, let me know in the comments what has worked for you. We love to see a redemption story. As always, thank you guys for watching.

We'll see you next time.