Man with a Plan: Dave Ramsey

The recession does have a silver lining.
January 2, 2010

(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 income in the recession. He really, really wanted to get out of debt. He worked twice as much, and he worked twice as hard 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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