The One Thing Dave Ramsey Gets Wrong On The Path To Financial Freedom

Don’t get me wrong—I’m a huge Dave Ramsey fan. The whole rice and beans thing? Been there. The relentless pursuit of financial freedom? Currently doing it.

I was able to pay off $20k of my student loan debt the year before I got married, largely by following Dave Ramsey’s advice. Since then, in our first three years of marriage, my husband and I have managed to pay off an additional $22k in debt. But there’s one piece of advice—which actually tends to be Dave Ramsey’s bedrock—that I threw out the window, and if I didn’t, we would still be burdened with suffocating debt.

Dave Ramsey’s Steps To Financial Freedom

Dave Ramsey has garnered fame and attention largely because his approach to financial freedom is simple and straightforward. He breaks it down into what he calls The 7 Baby Steps. I won’t get into all of them, but you can read about them here. The first step is to save $1,000 for emergencies. Okay, super simple!

But step two is where I draw the issue: “Pay off all debt (except the house) using the debt snowball method.” Until then, Ramsey says, we should not advance to any further steps which include increasing our savings or retirement, buying a house, etc. Ramsey encourages people to pay off debt with ruthless vengeance before doing anything else.

The average debt for a millennial in this country is around $125,000. Is it really worth waiting to live until your debt is fully paid off?

Pay Yourself First

So Dave Ramsey says pay your debtors first. Another theory out there—and the one I subscribe to—is to pay yourself first.

You work hard for your money, and my bet is you spend at least forty hours a week making it. In turn, how much time do you spend making your money work for you? Think about it: if we spent just one hour a week studying up on what investments make the most sense for our financial goals, that money can go a long way.

The concept of paying yourself first is totally contradictory to what Dave Ramsey says, but my belief is that it’s necessary to understand that you are worth more than what you owe. 

Citizens Bank describes the Pay Yourself First budgeting method as "'reverse budgeting' because your savings goals are prioritized instead of your expenses. The simplest explanation is that paying yourself first means depositing a portion of each paycheck directly into your savings. The remainder is then spent on your expenses.” What your savings goals are are up to you.

I didn’t want to take Ramsey’s advice and wait to pay off my loans before saving for retirement. That thought terrified me. I needed the peace of mind to know that I was taking care of my future self now and not putting it off to satisfy some stupid student loan that my past self took out. 

Further, after paying off $20k in student loans by attacking them with ruthless vengeance, my goals shifted tremendously—I was going to be married soon, and I wanted to stop renting. So I built up my savings for a down payment on our first home.

If I didn’t prioritize savings over paying off debt, odds are we would still be renting. Instead, we were able to buy our first home one month before getting married… and then we sold it just 1.5 years later, profited $50k off of it, and we were able to buy our dream home with 20% down.

If we had focused on just paying off our debt, we wouldn’t now have $100k invested in our new home. Rather, we would be stuck—physically and financially. 

There’s Good Debt and There’s Bad Debt

Student loans? Good debt. Mortgage? Good debt. But to Ramsey, all debt is evil. 

While I agree that we should strive to avoid debt at any and just about all costs, it’s simply a way of life in today’s economy. Who can dish out $300k in cash for a home these days or afford $28k a year for school? 

Answer: hardly anyone.

But who can opt for a cheaper, non-glamorous Corolla over the latest BMW? Who can say no to racking up credit card debt over a boutique Bed & Breakfast versus a simple Airbnb. 

Answer: everyone.

When it comes to juggling debt and savings, figure out which debt is most detrimental to your goals. For example, credit card debt is often viewed as the worst type of debt to acquire for two reasons: one, it often comes with hefty interest rates, and two, the debt is often created by needless purchases. 

In Ramsey’s words, “We buy things we don't need with money we don't have to impress people we don't like.”

Our debt was primarily student loans with a car loan thrown in there as well. Car loans are a liability—I’ll never forget when mine died on me unexpectedly in my early 20s, and I was faced with having to withdraw a new loan for a new car while still paying off my previous one. We decided to pay off our car loan first for this reason, followed by hitting our student loans one by one after that. 

It’s Not About How Much You Make

It’s worth noting that my husband is an animator for a small production company (i.e., he’s an artist), and I work for the Church (i.e., small salary). Together, our full time jobs bring in less than $100k, so it’s not like we’ve got a hefty joint salary situation that sets us up for financial success. We’re certainly not paupers, but we’re by no means princes either.

So how can we build our savings while tackling what remains of our debt? The answer is fairly simple: we live below our means. We cut costs where we can and apply those savings to either debt or investments.

In other words, we are constantly reevaluating our financial goals.

We’ve switched back to paying off our remaining student loans now that we've bought our dream house and as we prepare for the adoption journey. We want to eliminate as much debt as possible before possibly taking on a new loan for adoption. Would it make more sense to save for adoption? Maybe, but that’s not the goal we’ve set in place right now. 

Debt is a burden. Ramsey goes so far as to say, “If you owe someone money, they'll control your life until you pay it back.” That’s not necessarily true, because you do have the power to choose what to do with your debt and your money. You just have to decide. 

In Closing

So sure, if we stuck to Dave Ramsey’s advice, we would probably be debt free right now...but at what cost? Because if we accomplished Step Two, we wouldn’t have our dream home, and we also wouldn’t be flying to England next month for a much needed vacation since our savings would be nonexistent. We also wouldn’t be able to pay for Peter’s Masters out of pocket or have six months of emergency savings at the ready. The list goes on. 

Dave Ramsey has a plethora of good financial advice, but at the end of the day, I find that we still need to ask ourselves: am I worth investing in? Do I deserve to enjoy my life on my journey to financial freedom? And I hope you find that the answer is an indisputably resolute yes.