This is my first post on this forum. Thanks to everyone who bothers to voice his opinion on the many diverse matters.

I am by no means a person who believes in Dave Ramsey's method 100%, but I will defend it from some of the comments/points made by others herein.

On the mathematics of paying off the slowest first in the debt snowball: Mathematically, it is correct that the debt with the highest interest should be paid off first for the quickest and most financially sound way of paying off the debt. The reason for doing the smallest first is to give the debtor a few victories quickly. By the time the larger debts are reached in the snowball, the lifestyle change of not-borrowing has been ingrained in the debtor so they are no longer on the destructive path of debt for expediency's sake. If they never make the lifestyle change, then they'll always be in debt no matter what the math says.

On the topic of Dave's investments not being realistic: He doesn't give investment advice on his site; he gives get-out-of-debt advice. Once you're out of debt, you can invest your "extra money" anyway you like. As Dave started his own debt-free existence in the 1990's, his investment time frame is from the boom until now. It is quite likely he learned enough in that time (as someone actively investing and making money) that he may have avoided the dotcom bubble burst, as well as actually benefiting from the real estate collapse rather than being hurt by it. His own returns could very well be in the 12% range that he likes to quote. Again, though, he is directing people toward index funds or other providers (his ELP's) that will give supposedly good advice to people who have never had an investment, so could use even rudimentary help.

On the topic of preying on the weak: Dave gives a lot of free advice, and almost everything in his books is available with research online. I was given his course a few years ago by someone who had purchased it for himself, and I read about the first two chapters before putting it down. His generalized method is correct if you look at his seven steps. Do I agree with his seven steps? No. As his target audience is people with overwhelming debt, his method is correct until the target changes his lifestyle to avoid debt. Does anyone on this board think that someone without a budget has any chance of eliminating debt, or, for that matter, even investing wisely? That's Dave's first step, and if you want to argue that it is not the first step in any financial plan, then I'd really like to hear your reasoning.

Best regards,
Wino

Okay...I'll be your huckleberry.

I've never done a budget in my life. Don't plan to start today. I don't use debt unless it's a mortgage or if I can get it at a dirt cheap interest rate. I clip coupons. I recycle. I turn off lights that aren't being used. I don't buy things unless I really need it. I earned my username. It's a way of life for me. It's how I was raised.

In my view, every dollar has a name without putting it on a piece of paper & forcing yourself to stick to it. Or heaven forbid...use a stupid envelope system...but if that's what you need to do to have financial independence, then do it.

So, you have a budget, but you keep it in your head. You aren't disagreeing. In fact, you are reinforcing my points.

Budget, noun: An estimate of income and expenditure for a set period of time.

Technically Tightwad probably does have a budget. However, Tightwad's budget does not meet DR's standards, therefore his system can not be used to demonstrate the value of DR's plan. It instead demonstrates the value of "doing what works for you", which goes against DR's attitude of "do it this way or you're an idiot".

I don't know if I would even call that a budget. Depends on who you ask. For most people (especially DR's target customer) a budget is to be written & strictly adhered to. My point was that if you practice what we preach then a budget is mostly a waste of time. I wasn't necessarily attempting to argue against what you said specifically but more against the "budget police" that you'll find on just about any personal finance forum.

OK... Let's look at it another way:

Let's say you have $50K in consumer loans, be it car loans, student aid, or plain old "spent too much" credit card debt.

It is pretty much a given that you are spending more than you are earning. Why are you doing this? In a minority of cases, it can be argued that one has taken debt with the intention of increasing one's income concretely in the future, aiming to pay off the debt an then have enough income to overcome the loss of income in the interim to overbalance the initial losses. This is smart debt.

In the majority of cases, though, the debt was used to buy a thingamajig before you could afford it. You are now paying a penalty for not thinking ahead and planning accordingly. How do you get out of the trap of perpetuating this cycle?

Well, you really need to know where your money is going, first, before you can decide what to do differently. If you start out NOT doing the dumb thing, you can get by without a budget written down. Most people don't do this. A few might, but they are the ones you read about who have used the pilot light on their stove to heat their beans for dinner while they're at work and leave $600K stored in their mattress to their dog when they die.

The rest of us make money and spend money to enjoy our lives. We need to balance earnings against living expenses against savings against frivolous expenses. We need to write things down, or do whatever we want and hope for the best.

I'm sorry... Dave's envelope method beats the above in about 99.9% of the cases. The other 1 in a thousand luck out. Well, people win lotteries, too, but I'm not buying tickets with my savings on the hope I'll be the one who benefits.

Wino

Do you have any studies or other independent data to back up that figure?

I realize that DR's get out of debt plan works. I just don't think it's the only way. Is a budget a good thing for most people to have, especially when they have a history of not handling money well? Yes. Do I think DR's budget methodology is the only way? No. Neither do I think the rest of his steps are appropriate for everyone. I understand the psychological effect paying off a few small accounts can have, but I'm one of those number based people who prefer to pay highest interest first. I'd also go nuts if I only had $1000 in an emergency fund. Of course, I also don't see my debt as an emergency and am not prepared to live on beans and rice just to pay off my student loans (which I do not regret at all, I thought long and hard before taking them out and am glad I did). Of course, that's mostly because I don't like beans...

I think people do far better when they actually give some serious thought to their situation, how they got into it, and figure out how to get out. Using a plan like DR's and others can give them a starting point if they're feeling lost but unless that plan conforms to their values and meshes with their priorities they probably won't stick with that plan very long. However, if they're committed to their goals and are willing to work at it - both mentally and financially - they can figure out what worked, what didn't, what they think will work and create a plan for themselves that could last for their lifetime.

Exactly.

Dave's plan is no panacea to everyone in every situation. I disagree with a significant portion of it. But to his target audience, those how are in debt over their heads, the plan works as long as you follow it. Surely we can agree that eliminating stupid debt is a good thing? If not, then we'll just have to agree to disagree, and I'll continue to espouse my theories elsewhere. I feel that folks should spend less than they earn, and eliminate unnecessary and negative-equity debt everywhere they can.

I know that those who borrow and spend wisely can benefit from the debt. My argument is with those who borrow stupidly and spend even more stupidly.

Yes, we can.

I admit, I'm probably a little reactive. I absolutely hate listening to DR's show and hear him blast someone for doing something that isn't part of his plan, ie putting a little extra to the non-target debt, saving more than $1000, etc. He seems to believe that his plan is the only way to get out of debt and reach financial freedom (or financial peace, as I guess he calls it). I already cringe when people say the only, or even absolute best, way for EVERYONE to do X is Y - diets, financial plans, whatever - but listening to him insult callers because they don't mindlessly follow his plan just puts a burr under my saddle.

Spending less than you earn and borrowing wisely (if at all) are the main tenants of this forum. In fact, spending less than you earn is probably one of the few universal rules. Unless someone's retired and is withdrawing from retirement savings, but I guess that's the exception that proves the rule.

If this were true, then every diet book would say, "Consume less than what you expend" and every investing book the above, and every employment book would say, "earn more than you pay out."

It really IS that simple, but we're all in our 50's or 60's when we realize it and apply it, if we ever do. The rest of us die fat, in debt, and without enough insurance.

So, I agreed that spending less than you earn is a rule everyone should follow, and you try to argue? Is that what this is? I'm not sure. But please be careful making statements about "everyone" - I figured out spend less than you earn when I first got an allowance at the age of 8. I'm also a healthy weight and committed to keeping it that way, although I haven't gotten to my 50s yet.

I don't read employment books for financial advice, investing books are more for discussing what to do with the money you aren't spending, and as for the diets, I'll leave the calorie in = calorie out argument to the nutrition forums

Apparently you misread my intent. Yes, general truisms work when followed. The problem is that most people do not follow the truisms.

So, for most people, the Dave Ramsey advice to "eliminate all debt" is better than the alternative which is "continue to live beyond your income and give the banks a lot of interest money."

Likewise, to live within your calorie intake is better than to exceed your expenditures with your intake is a better plan.

I was agreeing with your point, not arguing it. The problem is that simplistic results - though effective and applicable - don't make the best-seller's list and don't generate revenue for those who push the latest fad.

"Spend less than what you make" is a great title. It just makes a short book for the publisher and author.

Wino

Is a budget prescriptive or descriptive? I could tell you where my money goes (descriptive), but I don't use that information to make decisions about how or if to spend money (prescriptive). I pay myself first, and if I spend all the rest of my money, so be it... but I don't check my checking account balance before I spend money, either. Sometimes I go over and take money out of savings, and then pay it back later.

I have had debt in the past (student loans) and present (mortgage). I paid off the former with even less of a "budget" than I have today. So I disagree that it's impossible to pay off debt without a budget.