Paying Off Debt? How Dave Ramsey Got It Wrong
Paying Off Debt? How Dave Ramsey Got It Wrong
What should entrepreneurs define before starting a business?
There’s a difference between freedom from and freedom for. Many people believe they want freedom from their W-2 job because they feel trapped in a soul-sucking environment. They want freedom from their day jobs, bosses, or difficult managers, so they start a business and then they go bankrupt. Why? Because they were just running away from something, not toward anything.
The only "discipline" they had was the pain of their situation. But any toddler can pull their hand away from a hot stove—that’s not real discipline. Before starting a business, you need to ask: What are we doing this for? What is our freedom for? That’s the real question. Someone once told me, “There are no rights without responsibility.” If you're going to have freedom, such as starting a business, that’s a privilege. But it also comes with responsibility.
What is your responsibility? Is it for legacy, your employees, your children, or the charities you want to support? Once you understand what you’re doing it for, discipline follows. Slowly but surely, you stop wasting money on unnecessary things and start focusing on building something lasting that grows your business.
What financial strategies help business owners avoid traditional investment risks?
Business owners should be cautious when dealing with typical financial advisors, as they often lack transparency and control. Many financial strategies, such as stock market investments, promise high returns but often deliver much lower results, averaging just 3.6% annually over 30 years. After fees and taxes, the real returns can be even lower. Instead of relying on uncertain investments, business owners should view their own business as their greatest asset. By investing in guaranteed, liquid, and tax-advantaged options, they can maintain control and avoid the risks associated with traditional financial systems.
Why should business owners critically evaluate financial advice?
Dave Ramsey helped me focus on budgeting and introduced me to the debt snowball method. His ideas got me angry at my debt, which was good. I was so immersed in his teachings that I wasn’t just drinking the Kool-Aid—I was swimming in it. One day, my mentor, a professor from my college, sat me down during a visit to Chicago. He knew I was drowning in student loan debt and that I was a Dave Ramsey disciple. He looked me in the eye and said, "Mark, is it possible that Dave Ramsey could be wrong about something?"
That question cracked my mind open. I had always believed everything Dave said as if it were gospel. I thought his words were absolute truth, but he’s human, and I needed someone to point that out. It made me realize that I couldn’t rely on any financial guru—I needed to become my own financial guru. No one will care more about your money than you. Dave Ramsey is a radio host, not a licensed financial advisor. He’s a radio infotainer, and while his advice can be helpful, it’s my job to think critically and decide what’s useful and what isn’t.
How can business owners reduce lost opportunity costs when making purchases?
My biggest issue is lost opportunities. Every time I spend a dollar, I finance everything I buy. This realization was a wake-up call in my financial life. You either pay interest to a bank for something like a car loan, or you save up and pay cash, missing out on the interest you could have earned if you had kept that money invested. Paying cash means you're financing it from your future self, which can be devastating.
For example, let’s say your car costs $40,000. If you pay cash, sure, the sticker price is $40,000, but the lost opportunity of not having that money invested could cost you $150,000 over your lifetime. Multiply that by the number of cars you’ll buy in your life, and we’re talking about a million dollars just for cars.
This realization had me struggling with how to pay off my student loans. What was better than the debt snowball method? Eventually, we trademarked a new approach, the "debt snowbank method," which had a significant impact on my financial life and helped my wife and me move beyond the advice of the financial gurus on the radio.
How can business owners manage debt while building long-term financial growth?
My wife and I were deep in debt, with barely any savings aside from the $1,000 Dave Ramsey recommends. We did what we could, and that’s how we developed the debt snowbank method.
Step one: We stayed current on all our debts. Step two: Instead of putting all our extra cash toward student loans, we opened whole-life policies designed with the "bank on yourself" strategy. We contributed as much as we could comfortably manage—whether a few hundred or a couple thousand dollars a month. As our student loans slowly decreased, the value of our policies grew quickly.
We borrowed against our policies to pay off our debts. Even though we borrowed from them, the policies continued to grow as if we hadn’t. This left us better than debt-free. We essentially bought back our student loans and began paying ourselves back. Now, we've used that money for house down payments, business acquisitions, car purchases, and even a month-long trip to Hawaii. It all started by sitting down with someone to see if this strategy fit our financial situation.
Keep in mind that this isn’t for everyone. If you need high, short-term returns, you might find this strategy too slow. It’s a long-term, steady approach. I’ve helped couples start with as little as a few hundred dollars or wedding money to begin their policy, building compound growth over their lifetime.
*This interview has been edited and condensed for clarity.*
