Tuesday, February 17, 2009

Dave Ramsey Is A Big Fat Liar

Eh, I’m just joking, but not really. Based upon my own personal experience, Dave Ramsey's book, The Total Money Makeover, is premised upon a flawed concept that is common to all self-help books. Specifically, it bases its advice upon a generalized assumption of human behavior, when in fact, most individuals are complex and often irrational.

As you all know, Dave advocates the debt snowball which requires you to pay off your debts in the order of smallest balance to highest, regardless of interest rates. The debt snowball is based upon the notion that paying off the little debts quickly gives you a “psychological boost” to tackle the next debt.

Well, I just recently paid off my first debt (car loan) and I have to admit, I’m happy, but not AS happy, as I thought I would be. I’ve waited and dreamed over 3 years about the day I would pay off my car loan. I imagined handing my check to the credit union teller and jumping for joy and squealing when she hands me the zero balance receipt.

Truth be told, I was excited that morning, but the whole event itself was disappointingly anti-climactic. Perhaps I was building the whole final payment event up in my mind to the point that I was setting myself up for disappointment.

Worse yet, I expected to feel the way Dave Ramsey said I should, but haven’t. Dave virtually promises in his book that I would feel so great after paying off my first debt that I would be extra motivated to tackle my next debt!!

Uhhhhh…. In reality, I am just relieved to have the $788/month obligation lifted from my shoulders. As a result, I’m now feeling a strong desire to give myself some “breathing” room in my monthly budget. And as I’ve previously mentioned, I’m battling spending demons as I write this.

I’m getting tired of constantly monitoring my spending, deciding what’s a need vs. want, and choosing to forego relatively minor purchases like a $40 cordless phone. (Wah, wah, wah, whine, whine, whine, I know!)

Perhaps I never had the “gazelle intesity” necessary to successfully follow-through with the debt snowball. Or, hopefully, as Abigail from I Pick Up Pennies suggests, maybe I’m just suffering from “frugal burnout” that waxes and wanes. Or, perhaps I’m feeling blue and I’m seeking retail therapy.

I don’t know. But I feel like a recovering addict who is tempted to revert to old habits.

So let this be a warning to all: the purported pyschological boost of the debt snowball is overrated. Instead, you will find yourself at a fork in the road after overcoming your first hurdle.

Next month, I have the choice of either: 1.) saving the $788 car payment with the purpose of paying off my credit card debt in October as per my revised snowball plan, or, 2.) spending some or all of the car payment money on other stuff.

I know which is the right road to take. I just don’t know if I have the emotional strength to do the right thing.


Sharon Rose said...

Hi there-I know exactly where you're coming from. I woke up this morning and thought 'do I want my 2nd loan paid off in August or have money available for the kids summer school holidays?' I get the same feelings and it is hard to stay on the 'right path'. I'm not sure if I'll delay the 2nd loan by a couple of months, but it is food for thought. Obviously getting out of debt is priority, but its not the 'be all and end all', especially if you are trying your best, I think breathing space is needed sometimes. Good luck with your decision and thanks for your lovely comment too!!

jpkittie said...

You are so not alone! I was revising my budget for when my cars are paid off (at the end of this month) and I was thinking, this is going to be amazing having $700 back into my budget... but you know what, I am just like you. I am thinking - maybe I will just add in $100 of that previous car payment to debt payoff & then just keep the extra in the budget so that I am not so 'paycheck to paycheck' anymore... decision decisions! you totally have to do what you feel is right for your exact situation

Jennifer said...

I totally get what you're saying... I paid off my car loan in January, and other than the initial WOOHOO, it was kind of a let down. I had attributed it to the fact that it didn't free up any money in my budget (long story, but my car wasn't actually a budget category), but maybe it just isn't as big of a boost as it's "supposed" to be.

Christopher J. said...

Heh, I don't get at all what you're saying. I paid off a $12k credit card and we had a fantastic night out to celebrate, it was a complete relief of the burden that's been following me around for over 15 years. Now that I'm throwing $2100/mo at my next debt payment, I can't wait for that one to get knocked out...and then $2600/mo at the next payment, that one should be gone REALLY fast.

Seriously, you can always go back to the way you were living your life if you really don't get anything out of getting rid of payments. I personally don't like having em around, but if you miss them and are sorry to see them go when you get rid of em...go get you some credit cards and have fun.

444 said...

heh heh... You must be in your finest form today. I have not even read the whole post yet, but I know that you are in for it. Once those Ramsey-maniacs catch wind of your post, jaws will start a-flappin'!

You are braver than me!


444 said...

Oh, I see by the post above mine that it has already started in.

You know, you have to live a little. Isn't that what life is about? How about a little balance here so we're not all just misers stacking coins in our old age someday?

My dirty little secret is that I don't consider debt inherently evil and worse yet, I have no plans or illusions about ever being completely out of debt. Sure, I'd like to get back to positive net worth (I was way positive and am way negative now and that's a story I'll tell someday when I'm ready) but I've seen firsthand the potent power of debt, used wisely, to leverage the other side of the equation, and it's not my goal to be completely free of debt. (Oh, the heresy!) Rather, my goal is to greatly diminish my current debt burden and restructure the terms of what fraction remains.

Miss M said...

Kat, I didn't jump for joy when I paid off my debt either. Mainly because I still felt behind the game. It's hard to remain focused for years on end. One you should give yourself some breathing room in your budget, two you should save that former payment for a month and use it for that retail therapy. Also, I didn't devote myself solely to debt. I saved as much as I paid off debt, it may have added years to the journey but it kept me going along the way. Maybe use most of the former payment for debt, use some for extra spending money and put the rest in savings. Just a tought.

Anonymous said...

Quick set up an automatic transfer to your savings!!!!!!!!!!!!!!!!!! You're outta control!!! Just kidding.

Christine W said...

You are burnt out. You should celebrate and take a breather and either:

1. go to Hawaii
2. buy a laptop

Then you will feel refreshed and full of motivation to conquer your next debt.

When you pay off your school loans you will feel that sense of relief and excitement.

paranoidasteroid said...

I can definitely understand - I paid off my car loan and it wasn't this momentous thing for me. One less bill to pay, more money to savings. I still didn't let myself spend it, so it wasn't a super-enjoyable thing.

And I left a really long-winded comment on your post about your wants, but it seems that it didn't get posted. I don't think you should deprive yourself.

Buy yourself a new cordless phone ($40 is worth it!), and instead of a full-blown laptop, maybe look into getting one of those netbooks that are tiny and usually under $400 but have OK specs (Acer has one that I've been drooling over). Take a day off work as a treat (instead of a Hawaii vacation). Those things should motivate you to keep going so you don't feel like you'll never be done depriving yourself.

With the extra $788/month, you should be able to pay off your credit card in no time! You can do it! And maybe plan your Hawaii trip for when the credit card is paid off!

Escape Brooklyn said...

I know what you mean -- I think it's just that all this money stuff is never ending. After you pay off the car loan, there's the credit card, or the student loan, or the home equity loan, or the mortgage. And the same is true for saving, since we can always be saving more for retirement or an emergency fund.

It gets exhausting! 30 more years of this???

K-money said...

Everyone's experience will be different just as we are all different from one another.

You've been running all these laps, how about slowing down and walking a lap? By that I mean taking part or all of the $788 and keeping it for yourself for a couple of months. You don't even have to decide what to do with the money, just hold on to it. Then pick up the pace again.

You have to figure out what works best for you. Some advocate the "snowball" and that worked great for me but that doesn't mean it is for everybody.

Be careful about "retail therapy". Isn't that the same habit that got so many of us in trouble in the first place?

Sounds like you are outgrowing Dave Ramsey. Maybe you should end the relationship?

Whatever you decide, good luck. Congratulations of paying off your loan!!

Ssmith28 said...

You should celebrate and allow yourself a break for a month and use that time to re-evaluate your financial goals. So splurge with the $$ this month and I am sure you will be ready again to start moving forward with a new plan.

Anonymous said...

I agree with you about the tediousness of Dave Ramsey and his advice (and his religious cheerleading), BUT you couldn't have been too frugal if you had a $788/month car payment.

That must be some car! Even if you were paying it down early, I think it has to be AT LEAST a $50K car.

Money Funk said...

The title caught my attention. LOL! I am feeling the same as you. I just paid my $299 month loan off and I did feel elated, but not with the gazelle intensity I thought I would enjoy.

I too, am feeling burnout from tracking, spending frugally, etc...

So, what have i done about it? I have allowed me to spend unfrugally for the next few weeks (been 2 weeks now). I plan on getting back on track this weekend. It doesnt help that I have been rather busy, too.

But, I think that my family has enjoyed the little extra income. We will tighten our belts once again.

I think this is a good time to refocus my budget. will update soon.

all in all... i still like Ramsey for the simplicity. will keep on with the general guidelines.

Ah... go buy yourself that phone. It is well deserved. ;)

(okay, totally winded from my long response)

Money Beagle said...

You know what, you're right, but in a way that's a good thing. You'll actually get a good feeling about it over and over again over the coming months. That added up satisfaction will be good.

J. Money said...

you sure know how to grab our attention!!! love it ;)

frugalCPA said...

Thanks for the warning - I'll make sure not to get too excited.

Really good post. I'm with Miss M - even when I achieve important milestones, I sometimes feel behind and it kind of ruins it for me. It's also hard not to be a little discouraged when it's just a milestone rather than the destination.

That said, I feel elated for you. That was a big monthly payment and will be nice to start funneling into other things (entertainment? travel? other debts?).

DogAteMyFinances said...

It took me a few debts to really get excited about the pay-off. I was thrilled about my student loans, but the credit cards and the car seemed like no big deal. But when the end was near and I could see the finish line, I really got pumped.

Ms. MoneyChat said...

aaah shtinky, i understand where you're are. i'm not sure what to say because i was definitely very excited when i paid off my first debt. trust me when i say that the results are worth the sacrifice. if you need to take a month off, go ahead and have fun;-).

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