(Watch Dave Ramsey and Neil Cavuto discuss money and SUCCESS here.)
Author-radio host Dave Ramsey dispenses advice on personal finance
with the fervor of a country preacher and the common sense of Ann Landers. He colorfully pounds home his core mandate—
eliminate debt—with a tried-and-true, step-by-step program to achieve fiscal fitness.
His message hasn’t changed,
even as the U.S. economy trembles from the most crippling recession in decades. “What the recession has done is turn
up the volume, so [that consumers] sometimes experience more hopelessness,” Ramsey tells SUCCESS. “We try
to show
that there’s a light at the end of the tunnel, not a train. Hope is a major product of ours.”
Ramsey guides people
toward financial stability through his radio show, classes, counseling and coast-to-coast how-to events. He started in 1992
with the book Financial Peace. That same year, he launched The Money Game on a small Nashville radio station—
mainly
as a way to hawk the book. That show, now syndicated and renamed The Dave Ramsey Show, has 4.5 million listeners per
week.
And Ramsey has added two more best-selling books to his résumé: More Than Enough and The Total Money Makeover.
The
three books have combined sales of about 5 million copies.
Ramsey says the recession adds one major complication to financial
rescues, however: reduced income from job losses, which impairs the ability to erase debt. “It’s easier to get
them out of the hole if they have a good-size shovel.”
Having made and lost a small fortune while just in his 20s, Ramsey
speaks from experience. With parents in the real estate business, Ramsey caught the bug early, attending sales conferences
as a teen. After graduating from the University of Tennessee with a finance and real estate degree, he and wife Sharon started
with nothing as he began buying and selling real estate. By age 26, he had built a $4 million portfolio and had a net worth
of a little over $1 million—“which, for a kid from Antioch, Tenn., is what we called rich,” Ramsey says.
Keeping Up with the Joneses
Only I borrowed too much money, of course, and this was back in the go-go ’80s, and
our bank got sold to another bank and they called our note, and we spent the next two and a half years of our life losing
everything we owned. We were sued and foreclosed on, and finally with a brand-new baby, a toddler, a marriage hanging on
by a thread, we were bankrupt.”
The pressure and stress were tremendous. “We were freaked out, awake at night
and fighting a lot,” he says. “
I had such an empty feeling,” Sharon Ramsey recalls in Financial Peace.
“I felt that the whole world was crashing in on us.”
Dave Ramsey pauses to calculate the length of their struggle.
“It took four years to get everything paid off. It wouldn’t take me as long now, because I know how to do things
now.”
While he rebuilt, Ramsey was a self-employed real estate broker and took a giant dose of the medicine he now prescribes
for others. He worked 80 hours a week and drove an embarrassingly beat-up, older-model car.
He blames many of his past money
problems—and those of most financially troubled consumers—on the keeping-up-withthe Joneses mentality. And that’s
a product of the great American marketing and advertising machine, he says. “We’re the most marketed-to culture
in the world, and we have the highest spending in the world. “
We see someone with something nice, and we think, ‘I
want one,’” regardless of its affordability. “The nature of marketing is to create discontentment, so that
we think we need to make a purchase.”
After working his way out of that financial hole, Ramsey was intent on learning
about money by talking to “old rich people,” he says. “I didn’t want to talk to young rich people;
I’ve been him, I didn’t want his opinion. And when I did that, I discovered this disturbing thing called common
sense: Live on less than you make; get out of debt; have some money set aside for a rainy day, because it’s going to
rain; invest for the future; learn to give.”
“The
trick is to get fired up and wired up, and become sacrificial to win, living like no one else, so that later you can live
like no one else.”
Money Fundamentals
Practicing these money basics is key, and Ramsey has
remained consistent in his message despite these wobbly economic times. “We’re still trying to get them to plan,
write it down, budget. It’s that much more critical to budget in today’s economy,” he says. “We’re
trying to get people to slow down, to have a long-term strategy on investing, to think long term and invest when real estate
is down, when mutual funds are down.”
Ramsey’s message is getting through. “Every Friday people call
my radio show with stories of becoming debt-free. They call and scream, ‘I am debt-free,’ after one-two-three
years. They are increasing their income [even during the recession]. They take on more jobs. And because they’re focusing
on income, they tend to get raises,” he says. “
One guy—he owns a landscape company—he doubled his
to get clients. He refused to participate in the recession.”
In analyzing the financial crisis, Ramsey concludes the
real estate market dragged down other sectors of the economy. Job losses are a symptom of the recession, not a cause, he says.
“During the 1982 recession, unemployment was higher and the interest rate on mortgages was 18 percent. The mortgage
rate has stayed around 4 percent in this recession. In ’82, energy costs were up and we had double-digit inflation.
“
All recessions have more than one element. This one is unusual because it was the first time we’ve seen real
estate values plummet. That scared people because their homes weren’t worth as much. The unemployment and stock market
losses aren’t that unusual in a recession.”
Recession’s Silver Lining
But Ramsey, 49, sees an upside to
today’s economic turbulence. “The wonderful news about this recession is it will permanently change some people’s
attitudes about spending and debt. It’s this generation’s Great Depression. People in their 30s have never experienced
anything like this. They’ve learned their lessons. They’ll limit their lifestyle to stay under their income for
their lifetimes. They’ll curb their spending and stay out of debt.”
And Ramsey isn’t just talking about
white-collar, middle-class success stories. His case studies include people with low, five-digit incomes as well as those
in the six-figure range.
Ramsey’s egalitarian plan requires that everyone who signs on must build an emergency fund,
write a budget, pay off smallest debts fi rst, and carefully invest in simple, understandable instruments such as mutual funds.
He insists that both halves of a couple must be committed for his program to work, and he gives tips for enlisting the
reluctant
spouse. After all, Ramsey says, they’re in it together, and disagreements over money are a leading cause of divorce.
A united financial front can strengthen their marriage.
The couple must function as a budget committee, Ramsey writes in
Financial Peace, with the Nerd of the couple preparing the budget and the Free Spirit giving input as a fully participating
partner.
His wife, Sharon—the Free Spirit of the couple— says the budget committee has made her husband a better
listener. “We don’t make major decisions without each other’s and God’s direction. The budget committee
has really helped us have a place to discuss things, and that meeting is one where Dave practices taking my input,”
she says in Financial Peace.
To bring around a disinclined spouse, the one who’s already on board with Dave Ramsey’s
program must tactfully point out the prudence of having a common goal and agreeing on a course for getting there.
Next he
charts a no-skipping-around game plan (see “Baby Steps to a Money Makeover” above). He takes the participants
from building a $1,000 emergency fund, which is Baby Step One, to debt-free wealth-building, which is Baby Step Seven.
Road
to Prosperity
His most important advice is to “pay attention. Most people spend more time watching reality TV than picking
their 401(k) investments. They don’t pay attention to the college fund until their kid is 18.”
And Ramsey’s
No. 2 pearl of wisdom? “Get control of your most powerful wealth-building tool, your income.”
He acknowledges
that knowing what to do and doing it are two different issues, and that’s why his message includes equal parts education
and motivation.
For instance, his “snowball ” approach to eliminating debt— paying down the smallest, lowest-interest
debt first to gain momentum for attacking the bigger debts— might seem counterintuitive. And Ramsey agrees on one level.
“People say, ‘Why don’t we pay off the highest-interest rate first?’ That’d be mathematically
correct. But, darling, if we were doing math, we wouldn’t have had credit card debt in the first place,” he says.
People need the quick wins to stay motivated and keep at it, he says, comparing the satisfaction of paying off one entire
credit card after another to seeing slow and steady weight loss while dieting. “You need something that shows you’re
getting traction. It keeps you moving. This is behavior modification. That’s why this works.”
And providing that
motivation and hope is why Ramsey’s strategies work, helping people pull themselves out of dire situations and get on
track to prosperity. Working up his best country-preacher fervor, he says, “The trick is to get fired up and wired
up, and become sacrificial to win, living like no one else, so that later you can live like no one else.”
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Dave Ramsey
Dave Ramsey
Related terms: Dave Ramsey Financial Peace University, Dave Ramsey Radio Stations, Dave Ramsey Free Advice, Dave Ramsey Budget Plan, Dave Ramsey Worksheets, Dave Ramsey Critics, Dave Ramsey Radio, Dave Ramsey Steps