Depending how much you keep up on the advice given by well-known financial coaches Dave Ramsey and Suze Orman, you may, or may not, know the differences in their plans. While both plans ultimately encourage you to become financially responsible and independent, their views on debt are vastly different. Some people believe in “good” debt, such as fixed-rate home mortgages and student loans used to land a good-paying job while others, such as Dave, believe all “debt is dumb” and only accept a home mortgage made on a 15-year fixed payment schedule and is no more than about a quarter of your take-home pay. How can you tell what plan is right for you?
I want to put it out there that I listen to the Dave Ramsey show via podcast and have done so since 2009 when we were in the depths of the Great Recession. I started out on the Ramsey plan and swore off credit cards twice, but could never bring myself to cancel them and lose my fabulous credit score and the opportunities to easily refinance my home and get super cheap car insurance. While I believe you don’t need a credit card to live a great life, I do feel like having a great credit score makes things easier, only if you have the discipline to say no to impulses and make credit purchases as part of your monthly budget and pay them off in full before interest accrues. This advice falls in line with what Suze preaches and is the dead-set opposite of what Dave’s plan suggests.
So, how can I tell if Dave or Suze is better? In a nutshell: it depends on you. If you have a history of not paying off your cards in full because you tend to just swipe, and then get anxiety when you get that little email showing your new statement-ending balance and cannot pay it off before the due date, then you are a candidate for Dave’s plan. You need to go “cold turkey” and learn self-control. Cutting up the cards is likely the route for you unless you can temporarily make it without your cards and pay off all of your outstanding debts and stick to a budget.
If you have cards, use them to earn rewards or discounts, and pay them off by the due date and hit your savings targets, then you likely won’t be held back over time by credit card debt. No matter which plan you follow, both Dave and Suzy believe in having an emergency fund of three to six months of expenses. This emergency fund is like an insurance policy against life, and although it can be difficult to leave it alone when the big-ticket item is staring you in the face, think about how horribly you will sleep at night knowing that if you lost your job tomorrow you would likely be having a tough time making rent or your mortgage payment.
The gist of picking the right financial plan is that there is not a universal plan for everyone. If you have kids and an old car or house, the chances of an emergency cash situation occurring is likely and having car payments or too much debt only increases the chance of ruining your budget and financial success. If you are single and don’t plan to have kids, you needs are different. I believe that if you stick to Dave’s plan, the “baby steps”, you will ultimately win. So the next time you decide whether to spend or save, remember my piece of advice: no one ever said, “I sure wish I wouldn’t have saved that money for a rainy day”. You can always act cautiously today and put off spending, likely making a wiser decision tomorrow.
Whose financial advice do you follow? Share some of your favorite financial celeb’s advice in the comments below!