At age twenty-six I ended eight years of college life and got a real job, flat broke. I used my credit card to get myself some clothes and to furnish an apartment. In less than three years, I bought a new truck, lake property and a townhouse. All was financed. I only sort of qualified for the house loan.
No emergency fund. Some credit card debt. A contract for deed on the lake property. A vehicle loan. And a painful 12% mortgage. Money was one day at a time!
Three years later I refinanced my mortgage at a lower rate. I got a surprise pay increase. I was already saving in a 401(k).
I eventually got married. My wife and I had a shared goal to pay off all debt except our mortgage before our kids were born. Then we focused on paying off our mortgage, which we did by our 10th anniversary. We've been debt-free in our personal lives ever since.
Recently, I checked Dave Ramsey's book out of the library and read it. I smiled, surprised at nothing. I could have written that book.
Ramsey focuses heavily on a very conservative approach to money. He recognizes that debt is borrowing from your future to enjoy something today, paying someone else for the privilege while sacrificing your future income. In the long run, this privilege to have some instant gratification is much more expensive than people recognize.
One of his core principles is to eliminate debt. Essentially, by eliminating debt, you get ahead of the debt cycle, and instead of paying interest, you’re collecting it.
I acknowledge Ramsey’s advice but with my own twist. Let me explain. We have a family history of living within our means that goes back generations. My great-grandfather, grandfather, and father—all blue-collar workers—understood something about money that Ramsey has made a career teaching.
My great-grandfather bought a home in the late 19th century when my grandfather was young. My grandfather lived the rest of his life in that home, the home my dad grew up in. For the seventy years our family owned that home, as best I can tell, it never had a loan.
Further, my wife's dad was a CPA and likewise eschewed debt. And although our kids all have mortgages, they don't like them and work hard to pay them down. Our two families’ long history of caution about debt has served us well.
Ramsey rants against debt: only buy cars you can pay cash for; never buy on installment or other consumer debt; never own a credit card—a debit card works just fine; pay the rest in cash.
Only get the higher education you can afford without debt. Private schools are rarely worth the risk that comes with education loans. And you can get a great education at a low cost using community schools and public colleges and universities.
Ramsey gives many tips and tricks for living on less money, emphasizing the overriding rule: Spend less than you earn. And if you stick with it long enough, you'll have more money than you'll know what to do with.
Debt isn't necessarily the problem, though. The problem is making commitments against future income without understanding the consequences or having the financial resources to manage them.
In general, there's little about Ramsey's advice I disagree with. You won’t go wrong with his approach. But rarely does one size fit all. As I've shared, I did run up some serious debt transitioning from college to career. Yes, I could have rented a room instead of an apartment. I didn't need a townhouse. Why borrow money for lake property?
But I took reasonable risks. I've enjoyed the homes I’ve lived in since college. My lake property became a good investment when I sold it years later. It was the beginning of a long investing career. Later, outside of our personal residence, I purchased several rental properties, all 100% financed. They turned out to be good investments, although I recognize that borrowing to invest carries risk Ramsey would rather avoid.
A few years ago, I walked into work, and after a short meeting with the owner, I left with my plants and without a job. Although there were clear warning signs, I still struggled with accepting my new reality. But I wasn't starting a brand-new financial experiment—I was just cashing in on a habit my great-grandfather started more than a century ago.
You don't have to follow every rule in Dave Ramsey's book to the letter, and you might even take a calculated risk or two along the way. But if you spend less than you earn and refuse to mortgage your future, you eventually buy the one thing money is actually good for: peace of mind.