Christie and I agree with and put into practice most of what Dave Ramsey teaches. So much so that we volunteer to lead his Financial Peace University class a few times each year.
Whether because of jealousy or a dislike of (admittedly) sometimes oversimplification, some bright minds from the financial planning world got into a Twitter brawl with Dave in June of 2013. It’s detailed in this Forbes article.
What I really like is the author, Tim Maurer, culled some basic financial tenets that hopefully we can ALL agree on. I’ll list them here, along with my comments about how they align with what we believe and teach.
Regardless of how much income flows into a household, its financial success will hinge on the effectiveness of a purposeful cash flow system befitting the personal strengths and weaknesses of all parties involved.
Do a unique written budget every month. Have a plan for your money.
Debt wisely utilized can help build wealth, but fueling bad decisions with leverage is the quickest path to ruin, and most will be well-served to pursue an eventual debt-free path.
This is interesting because he starts with a pro-debt statement followed by two anti-debt statements. By my calculation that equals anti debt, with the possible exception of a mortgage.
Avoid debt. No millionaire ever got rich from credit card points or airline miles. Your mortgage should be a reasonable amount of your household take-home pay so that you are not “house-poor”. A 15-year mortgage assures that you will have that “eventual debt-free path”.
Change, surprises and failure are guaranteed, and the best counter-agent is financial margin in the form of liquid emergency reserves.
Have an emergency fund of 3-6 months of household expenses in a savings account or simple money-market account. Nothing fancy.
Many of life’s risks can be adequately managed personally through risk avoidance, risk reduction or self-insuring through risk assumption; but catastrophic risks a household could not survive financially should be transferred through insurance.
Create a proper financial plan that includes enough of the right types of insurance, along with a healthy emergency fund. Use insurance on “the big things” and self-insure through the little things. For example, with health or auto insurance it is not wise to have a small deductible, because that means you will have high premiums.
Investing is an art and a science. Investors have found success utilizing strategies on a continuum ranging from inertly passive to surprisingly active, but more managers (individually and institutionally) fail than succeed, and very few succeed without adopting and deliberately following a disciplined strategy.
Learn enough about mutual funds to be able to explain them to a 16-year old. Find a professional with the heart of a teacher – by definition they will be a fiduciary – and who will teach you enough to understand what you are investing in.
Taxes are one of the most important elements of a majority of financial decisions, but almost never the most important.
Don’t choose or keep a debt (like a mortgage) or investment “because of the tax deduction”. It’s almost never a good idea. Understand the difference between a tax deduction and a tax credit.
Not planning for major future expenses, like education and retirement, is folly; but tomorrow is promised for none and deferring all gratification for the future strips the joy from life today.
Invest for your retirement and for kids college (in that order) and be sure to allow for some fun in your budget. Sacrifice in the short term to get out of debt, then enjoy your money as well as saving and giving. As Dave Ramsey says, “If you live like no one else, later you can LIVE, and GIVE, like no one else!”
Most individuals and every family with minor children should have well-conceived and precisely articulated estate planning documents; namely a will, durable financial power of attorney and advance directives (including a health care power of attorney and living will).
If you are over 18, get a will.
Leaving a legacy is as or more important than leaving an estate.
An estate is only about money and things. A Legacy is about a life well-lived. Live your life, and teach your children, WELL. Remove yourself from the YOLO, thank-God-it’s-Friday-oh-God-it’s-Monday culture of working like a rat in a wheel living for the weekend.
What do YOU think? Which of these do you agree or disagree with? Let us know in the comments.