Our past dictates our future.
We say Dave Ramsey's past is why he is vehemently against debt. We say his opinions on this matter are valid, since he's gone through the experience firsthand. But at what point do yesterday's events stop dictating today's behaviors? At what point are our past experiences demoted from juggernaut to faint memory?
I'm not sure of the answer, but I do believe the Dave Ramsey of the past would be disappointed with the Dave Ramsey of the present. Over the course of this man's extraordinary rise to the top, he has forgotten many of the basics of finance.
The Dave Ramsey of the past realized that bad things happen to good people: people who save; people who live within their means; people with, dare I say it, "a reasonable amount of debt." Back then, Dave was okay with maintaining some debt until a legitimate emergency fund was established. When he first started writing and speaking, Dave said that a $1,000 emergency fund wasn't enough, while today he says it is. While the Dave of today may not believe in safer products like annuities with lifetime income guarantees or permanent life insurance, I believe the Dave of the past would have praised them.
The present Dave
Let's look at some evidence that shows Dave's current line of thinking. On February 11, 2016, a Financial Peace University (FPU) instructor called into the Dave Ramsey Show and relayed the following from one of his attendees:
Instructor: Last night I had an attendee ask if she should use $15,000 from her savings to pay off debts. She's in between steps two and three. But she's worried about cashing savings out in case something happens with the bumps in the economy.
Dave: There are no in-between steps. (Note that this is an important point for all those who tell me there are "implied" steps about gifting.) She should use all but $1,000 of her savings to get rid of debt. She will be nervous, but then will work her tail off to replenish her savings.
In contrast, the old Dave understood the importance of a safety net. In his first book, Financial Peace (Lampo Press, 1992) he advised that followers should have three to six months' worth of expenses saved. Times change and so do opinions … but wait, not so fast. Don't get into the habit of making blanket statements like our friend Mr. Ramsey.
Here's another illustration of how Dave currently thinks. On December 10, 2015, Dave Ramsey spoke with a caller considering a guaranteed pension. Based on Dave's math, the pension guaranteed a 7.8 percent payout per year. Dave told the caller to take the lump sum buyout. Here's why:
Dave: My mutual funds have been making ten percent over the last twenty years and some have been at twelve percent. I haven't taken any [money] out. I leave it alone. So if your money were in my account, it'd be much further ahead.
The past Dave
Above is a beautiful example of how the Dave of old, the common sense guru who put on jeans and got his knuckles greasy, died with the resurrection of success. This earlier Dave, the recovering spendaholic, understood that certain more conservative investments were beneficial when used correctly. When he wrote his first book he wasn't down on ALL bonds, though he now says he's never been a fan of them.
So, just how many Ramseys are there? First, we have the real estate mogul; second, we have the humbled husband and servant who recovered from bankruptcy; third, we have today's Dave, the popular writer and radio show host.
Let's take a closer look at Dave the real estate mogul. Below are the remorseful words Dave No. 2 used to describe his early behavior:
"If a banker would dare to indicate I might have too much debt, I would hunt another source. I have taken a $20,000 draw on a line of credit in a cashier's check, walked out of that bank and into another [and] promised to be a customer, and in return they would give me a new $100,000 line of credit, plus every platinum card and personal line of credit they had." (Financial Peace, pg. 3)
The early Dave Ramsey was a risk-taker; that much is clear. Now, let's apply that knowledge to his present-day advice. In our first example, Dave tells the FPU instructor that there are no in-between steps: First you use all but $1,000 to pay off debts; next you save up 3–6 months' worth of expenses. This line of thinking neglects the reality that a bad economy leads to lost jobs. Why? Because Dave Ramsey's lack of recent financial failures — failures like being able to make your car payment or fill the tank with gas — has led him to forget that paying off debt doesn't always work. Paying off debt doesn't work when you lose your job. The Dave who went unexpectedly broke knew you must have 3–6 months' worth of expenses saved because things happen. He knew there was some need for safety nets. We saw this knowledge reflected in his first book.
In the second example, Dave tells the caller he should invest the money. Take the lump sum rather than the 7.8 percent payout, he says, because his own personal rate of return has done better. In his words, he hasn't had to touch the money, and some of it has even met the illustrious 12-percent growth rate he often touts.
Which Dave does this second piece of advice sound like it's coming from? The Dave who would go from bank to bank, who had a Jaguar financed to the hilt, who leveraged everything despite the risk? Or the Dave who lost everything? Easy to answer, huh?
The problem with success
Now, which Dave is this? On January 21, 2016, a caller asks what to do about a $7,000 judgement from an attorney's office. The original debt was only $2,700. The caller wants to get them to accept less. What does Dave suggest?
Dave: If you only want to pay $2,000, then wait them out. Eventually they'll come around. They can't get anything else. Say, 'We're not going to talk about this. Let me know when you're ready.' [This last part is Dave's suggested verbiage from caller to collection agency.]
