Dave Ramsey’s at it again, misleading you to believe you are going to get this great rate of return, makes tons of money by saving and live happily ever after.
I just read his recent blog post “Kick Your Retirement Savings into High Gear in 2014” and I am annoyed at the double talk and misleading of numbers. So here I am exposing it all because I just cannot stand when people are misled and then fall.
1. In this blog, he says: “…your goal this year is to invest a full 15% of your income for retirement. No holding back. No excuses.”
15%! What is this guy smoking to think people can save that kind of money when they are barely getting by now or jobless in most cases?
If you make $100,000 a year, you would be saving $15,000/year or $1,250/month. Now, I am not sure of where you live but where I live that is a house payment or a nice apartment. Who can find that kind of extra cash? There is no way in heck I could do it and I am pretty frugal.
So maybe you are already saving because you have been following Dave and don’t need to find 15%. What if you are already saving 10%, you still have to find another 5%. Let’s say you are that person making $100,000 a year, 5% more is another $416.67/month! Where do you find that? No fear he tells us, keep reading….
In the meantime, be sure to save enough to buy his products too, a better budget that in.
2. Tax Refunds and Misleading ROR’s
I do agree with Dave 100% on the subject of tax refunds, he says you should not be getting a refund. Do not let the government have your money for the year. Change that W-2 and get that money back every month for you to save, pay bills or do whatever you need to do with it. If you need forced savings, have your employer take it out of your paycheck every week and deposit it into a separate account.
Where I do not agree with him is when he tells you to invest your refund. He states a $2,500 refund, invested in a Roth IRA, over 30 years will make you $48,000-80,000 sound. Notice how he uses the word sound as if there is no way for you to make less. Unless you live in a world with sunshine, rainbows, and unicorns you know the market is not something you can trust to be good all the time.
Dave’s example would be a constant 9.94%-11.82% rate of return. Never ever a loss? What is this guy smoking? If we look at market history over the last 20 years there has NOT been a rate of return this high. The average rate of return over the last 20 years has been 9.8% and that is with dividends. If you look at the actual rate of return it is 8.13%. There is a difference between average and actual, a huge difference.
Most people are not getting dividends on their investments which means they are actually seeing numbers more like 6.03% or 7.11%.
Better yet, Dave has left out fees on this account. So you may be well start subtracting at least another 2%. You are now down to a 4-5% rate of return. Now I am being nice with 2% since a Forbes article shows most fees are 3-4%.
Ohh, but wait, he said sound so that would mean to me there is no risk of losing it in a down market. I sure hope there is never have a bad market drop if you’re going to talk like that Dave.
Chase Chandler, owner of Chandler Advisors, LLC pointed this out in “The Qualified Plan Conundrum” blog he wrote for me. This blog goes over in detail the real rate of return vs the average that Ramsey is talking about. Chase is very detailed with his information and this is a good read.
Dave’s way of investing will be sure to leave you with enough money to buy his products!
3. Where to get this money? How to save without struggling Dave’s way.
In the first couple paragraphs, he says things like “…really work that budget” and “only so much sacrifice a family can handle”
And follows it up with:
“…ways you can save money and invest smarter without cutting your entertainment budget”
“You’re just looking for small ways to save…”
“little changes like these add up quickly.”
Well what is it Dave? Really working that budget and sacrificing or small easy changes without cutting entertainment?
Then the truth comes out and you see the list of things you should look to cut such as selling kids clothes through consignment, dropping manicures and pedicures, canceling lawn service, and the best one of all, carpooling.
*insert me screaming internally* This is where I get really irritated. All these gurus have you believing you have to sacrifice to get ahead. That is a total outright lie you are all buying into, the same lie I bought into for many years as well.
Little changes! These are NOT little changes and who can make little changes to save 15% a year!?
Carpooling is NOT a little change, that is sometimes more of a hassle then it’s worth. You have to put a price on your time. I have tried this in the past and it lasted a week. The person was late to pick me up then I had to wait for them to be ready to leave at the same time and run their errands with them because they were my ride.
Selling kids clothes that you could give to someone in need? I understand if you are starving but if you are debt free (who he is directing this message to) and trying to just add to your retirement I say donating is a much better option. Since he is a Godly man he should know better.
Manicure and pedicures are things people do to pamper themselves. Since when are we not allowed to pamper ourselves and have some fun in life?
What did I say earlier, even 5% of savings is $416/month. Let’s look at his suggestions
Carpooling – $120/month
Manicure – $35.00/month
Pedicure – $60/month
Lawn – $40/month
Clothes – $20/month
Total Savings of $275/month – KEEP CUTTING!
This will give you enough savings to buy more of his products. Oh, did I say this already?
The whole issue I have with Dave Ramsey, Suzie Orman and others like them is the fact that they want you to scrape by and live as if you should have no life at all OUTSIDE that envelope, except when it comes to their products! Unless you are ready for bankruptcy and living outside your means this is not necessary. If you are financially irresponsible Dave has a great program to get you back on track.
If people would put as much energy in looking for better ways to use their money as they do cutting their budget they would see there is a better way. Money is already a big issue in most homes we don’t need to make it an even bigger issue by stressing out over how much is left in the envelope.
This whole approach just makes me angry; it’s a line of bull you are being fed because it’s easy for them to make money off of you by selling you products.
What if you could have the no guilty no budget cutting approach? Living within your means but just USING your money is a more efficient manner. The Infinite Banking Concept teaches just that. Debt or no debt it works the same and you must learn how to correctly use your money so you have more for today and tomorrow.
If you have any questions please read through the blogs, comment below or give me a call. Now, I do realize there are a lot of Dave Ramsey fans out there I may upset and I welcome your comments. A good debate is always fun. I do not, however, welcome nasty comments. If you can’t be courteous don’t bother as I will delete you.