Dave Ramsey has very strong opinions around debt, mutual funds, and financial literacy. But does he follow the same advice he gives his followers? What does he do that is contradictory to the advice he offers?
Chris Miles shares what has truly worked for Dave Ramsey’s financial freedom that he WON’T teach you to do.
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Does Dave Ramsey Follow His Own Advice
Welcome to the show that’s for you, those who work so hard for your money, and you’re now ready for your money. You start working harder for you today. You’re sick and tired of working day in and day out hoping for freedom but yet never getting it. That is what we’re here to do today because you want that freedom today to live that life that you love with those that you love.
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I did a video recently. I definitely recommend checking it out on our Money Ripples YouTube channel where I talked about my friend, Sam Primm, who I had on the show before. I’ve also been on his show where he got ripped into by Dave Ramsey just for a brief moment. They’re going through viral TikTok videos and they found Sam’s video about how he’s got $25 million in mortgages and he’s got $42 million of assets. He’s cashflowing $160,000 a month from that $17 million of equity from even using that debt. I know Sam personally. He got this in two ways. He financed this with private money, meaning you borrow money from friends or other investors, or people like that and then he also got long-term bank financing.
Some people think, “He’s flipping and doing stuff.” Dave Ramsey actually did flipping. This is what got Dave Ramsey in trouble in the 1980s. Dave Ramsey was flipping properties and he was doing it very aggressively. It was very market-driven and high-risk. That’s why when the bank said, “Dave, you’re 25 or 26 years old. You’re just a kid and you’ve been doing this for a few years. We’re going to shut down your line of credit. We’re going to call it due,” that’s what put Dave into trouble and that’s what got him. Remember, the ‘80s had a high-interest rate environment, too, higher than today. When that happened to him, it put him in a world of hurt. That’s why he went bankrupt. Sam isn’t doing the same thing. He’s not turning around flipping properties and doing quick transactional things.
There are people that do that, but that is high risk. Many of those guys are flippers or had been in the 2020s, even up to this point, and then in 2022, found out they couldn’t keep doing the same business as easily and they had to start adding other parts of their business to keep their business afloat. That is what happened to Dave Ramsey. He used a very different strategy. A lot of people make comments saying, “He’s doing the same thing Dave Ramsey did. That’s risky.” Not if you’re getting long-term fixed-interest rate financing. That’s not as risky. It’s not a line of credit where the banks can say, “We’re shutting that down. We’re going to call that note due.” That’s not the case here, so it’s a very different scenario.
Let’s go back to $160,000 a month. That’s servicing the debt that he has left, but he saw pay-for-property management. He still got to pay taxes, insurance, and those things. Let’s say he’s making $100,000 a month. Guys, that’s about $1.2 million a year. Since he’s a real estate professional because that taxed us, you’re a real estate business owner. As an investor, you’re a business owner, too, if you have enough properties and time that you put into it. He now gets to keep all if not most of that $1.2 million a year. Here’s the thing. Dave Ramsey called him a liar. I invite you to see the video. It’s pretty funny, but I want to get distracted because I want to get to the comments that were down below.As an investor, you're a business owner, too, if you have enough properties and time that you put into it. Click To Tweet
If I go to the same YouTube video, you’ll see as I scroll down, there’s a comment right here by @TommyBeets. By the way, @TommyBeets got a pretty cool YouTube channel if you like some hip-hop and stuff. He has a very popular mindset that I want to address because maybe you’ve been dealing with this yourself. Maybe you struggle with this or you know somebody else who does. @TommyBeets says, “Honestly, you could sell the assets and have more money then you know what to do with it. Invest in the S&P 500 and you’re set.” He’s saying get rid of all that debt, cash it out, be debt-free, invest in the S&P 500, and you’ve got your income stream. Remember, there’s something to understand.
If you’ve been reading long enough, you know where I might be going with this. We already know the S&P 500 has mediocre returns with high risk. There’s a lot of risk there. You’re only supposed to pull out at most 3% a year, not 4%. I’m going to keep banging this drum over and over because the whole 4% financially independent thing is old hat. That was the running numbers until 1976. It doesn’t include almost all the years off the gold standard. Again, you’re living on 3% of that money. Let’s pretend that we do that, and then this is what I walk through with him here. Let’s say he did cash it out. He’s going to cash out. He’s going to pay real estate commissions.
He’s going to be left with about $15 million, but then he’s going to get taxed on that $15 million because he’s not rolling it to more properties. He doesn’t have a tax-free transfer. Let’s say he only has $10 million left after taxes. If you put that in the S&P 500 pull out 3% a year, that’s now $300,000 per year. @TommyBeets, I don’t know your situation, but $300,000 a year, even if you do have the course pay taxes on that, which I did make that point where you do have to pay taxes on $300,000 a year, that’s a good deal of money. That’s better than most Americans today by far. He’s not wrong here. Remember what we said earlier. Again, we’re putting this into a place where there’s more gambling involved. We’re putting it into a stock market that you have zero control over.
You don’t have any control over this at all. Instead, you’re taking out a real asset to put into fake assets. You’re putting it to paper assets that you have zero control over versus having a real estate where it’s a real asset and you have an element of control when you have those properties. Is it less passive than put in the stock market? Of course, it is. In Sam’s case, he’s doing more work. The problem is this. You take $300,000 a year, you put in the S&P 500, and you’re worried about running out of money. Sam is at least earning $1.2 million per year profit on his property. That already quadruple the income. Remember because of his real estate professional status, he doesn’t pay taxes on that money or very little taxes. Let’s say he does pay a little bit on taxes.
He still keeps $1 million a year versus if you have $300,000, you’re getting taxed on each and every year because he won’t be able to roll it into a Roth IRA. You won’t be able to do that stuff. If you have $300,000 that you get taxed on per year, let’s say you lose a quarter of that, That’s $75,000 a year. That means you’re left with $225,000 versus having $1 million a year. That’s more than quadruple the income. There’s more because, as a real estate investor, your rents are not going to stay the same. Rents go up every time that lease renews. You’re going to have rents increasing, meaning his cashflow increases every year. That does not happen when you’re taking out that 3% from the S&P.
They’re telling you 3% so you don’t run out of money sooner than later because inflation is going to kick your butt. Not to mention, you hope you’ll outlive that money. They do factor inflation to some degree, but they’re not factoring a lot. They’re factoring in with the government telling you inflation is not what it actually is. You’re probably pulling out more. That’s why I say 2% to 3% is more realistic, but that leaves you with nothing versus I have real estate and real assets. I could sell those off at any time. As a strategy, he could sell off some of those lesser-performing real estate properties. Does he get taxes? Yes, but he can still use that money to pay off the other mortgages on the better-performing properties and then have those free and clear.
Yes, you would still have $17 million of equity, give or take. My point is this. Dave Ramsey doesn’t even follow Dave Ramsey’s own advice. As well intention as he is saying you put your money into the S&P 500, he’s getting those ideas from guys like Dave Ramsey who’s telling you your secret to success is to be debt-free, live on a budget, and stash your money away in the S&P 500 into mutual funds. That’s what he’s been telling you to do for years. That’s what everybody else has been telling you to do. If you’ve been reading for more than a few episodes, you’ll know we’ve already proven the point that there’s not enough. Again, this is not blaming you, especially if you think like what this guy is thinking.
I’m not even blaming @TommyBeets here. I think Tommy Beets has the point that Dave Ramsey has been shoving down your throat as well as every other financial advisor and financial expert for years. This is not Tommy’s fault like it’s no more your fault than his. That’s what you’ve been brainwashed to believe. The problem with it is it’s not correct. He’s right. He could have put that money in the S&P 500, but remember, Sam, for him to get here, he leveraged debt to have this much an asset. It would be ridiculous for him to say, “I want to take a pay cut. I want to reduce my income where I only get paid 20% to 25% of what I’m used to being paid.” That sounds ridiculous. You’re debt-free, but I’m not risk-free because I still have market risk now.
I don’t have the mortgage risk. That’s correct, but I now have a market risk. As I said, Sam could pay off all those properties free and clear. His cashflow would not be as high. I pretty much promise you that unless he’s got some really bad lemons in there. He has a lot of equity he needs to sell. He could be in a better situation, but more likely than not, he’s better off staying where he’s at, keeping his money reinvesting, and building his portfolio. Building that bigger and bigger until he gets to a point where he says, “I’m done. I don’t want to be bigger.” Here’s another key point about being a steward. He wants to be a steward of a lot of these things. I understand you, and I know this is me too. I don’t want that big of a portfolio, especially with real estate properties like that.
He’s got a lot of multifamily mixed in there. It’s not just single-family homes. I don’t have that much in property as well that I’m worried about managing or managing the property manager. That’s not my desire. I’m going to do other types of real estate investments to diversify myself like other partnerships where I get into, and lending that I can do with other people. I can do a lot of different things and still get paid great cashflow. I’m going to come back to this point. Dave Ramsey has been telling you that you should put your money back in the stock market. What is Dave Ramsey doing? Buy his own admission. If you want to see full interviews, you can watch interviews like with Graham Stephan where he does an hour-long-plus interview with Graham.
He talks about it. He says, first and foremost, his number one investment has been his business. It is no secret that Financial Peace University and all of Dave Ramsey’s corporations make hundreds of millions a year. That has been his number one investment. That’s where he’s built up his cash. Not in the stock market or real estate, although I’ll get to that in a second. He first and foremost built it in his business which got him away from his bankruptcy issues. He went bankrupt. He had to start over. He didn’t have credit to do a lot of real estate investing in the beginning. He built a business. He started making more of that business. Guess where he invested? In real estate. He owns $600 million of real estate.
If what he says is true, he owns $600 million of real estate and even admits it’s free and clear. Those properties wouldn’t be free and clear if he didn’t make hundreds of millions of dollars in his Financial Peace University. He’s telling people to invest in other places like the stock market. Does he have money there? I’m sure he does. He does admit he has some there, but it’s a tiny bit. It’s a fraction. He says, “First, business. Second, real estate,” and then he’s got plenty of money in the market where he knows he doesn’t need to make any money in the market. He doesn’t need that money at all. My big issue is that he’s telling you to invest in places that he won’t even do himself. He could say, “I got money in mutual funds.”
That’s not where he did it. I can tell you from my own experience the difference between Dave Ramsey and I is that I tell you what I did. I told you that I went broke a couple of times but I went broke in the last global financial crisis. I wasn’t bankrupt. I didn’t go bankrupt like Dave Ramsey did, but it probably would have been easier if I did because I didn’t want people to be left high and dry. I decided I was going to pay back my loans even if I had to negotiate on credit cards and things like that paying back with less of the balance. I still paid off all that debt. I paid back even personal friends and family that I owed money to as well. That took me some time. At the same time, I also had a course to start rebuilding my passive income.
How did I do it? First and foremost, I had to make money. When you have no money and no credit, the best thing you can do or your number one investment is your profession, your job, or your mainstream of active income like your business, W-2 job, or whatever it might be. That is your economic engine. I focus there first. I made more money there like Dave Ramsey did. The difference is I don’t say make lots of money in your business or your job. That’s not what Dave will say necessarily. He’ll say do that, but I’m telling you, that is your number one place to focus first. Second, as you start to build up money, invest it in real assets. That’s the second point. Real assets like real estate, not in the stock market or gambling in those places.As you start to build up money, invest it in real assets. Real assets like real estate. Not in the stock market or gambling in those places. Click To Tweet
It’s up to you what you decide to do. To me, that’s a high-risk mediocre return environment to put your money into. As I said, S&P has only done 7.75% in the last 30 years. That’s a true average. That’s not a lot where I can make double-digit returns in my real estate. Is risk is still there? I bet you, but I know it’s a controlled risk because I can still make the decisions. I can’t call up Apple and say, “I’m not liking what’s happened to your stock price. Can you cut it out?” I have no hope there. I can’t do anything. If I have a property and the property manager is not doing the right job, I can call that property manager or even fire him and get a better property manager.
That’s my worst-case situation. That’s the situation I don’t want. The same thing with tenants. If you get a bad tenant that doesn’t pay, you evict them. If it’s a better state, and there are certain states that are better than others to help tenants, you do that. You don’t get paid for a few months, but then you get a better tenant. Usually, you’re charging more rent anyway by the time they get in there because rents go up. There are a lot of different things that can be done to help ensure and control my investment where I can’t do that stock market. I have more control. I have less risk as a result. I have a real asset that’s tangible that will not go to zero. You can’t say that Bear Stearns wouldn’t go to zero because it did.
We have that same with Enron and other companies too. When they go bankrupt, their stock goes to zero. We’ve seen other companies, even banks, go belly up and go to zero. If you’re in mutual funds, you’re not going to go to zero because you’re going to have it spread out with lots of different companies, but you’re not going to make a lot of money either. You’re not going to make a lot. Therefore, you won’t move the needle to make you wealth. That’s why your job, profession, or business is the number one investment first. Find ways to create more value in your job and business. Two, buy real assets and that’s what helps you get there. That’s what I did, guys. I had to do it twice, but I did it.
That’s the real secret. Not gambling away in the S&P 500. That’s not the place to be. Your 401(k) will not save you. In fact, it’s the opposite. They don’t even produce stock market returns. They get you the worst in the stock market returns. Your best bet is to do what Dave Ramsey and I have done. I’m the one telling you to do it that way versus what Dave said.
Of course, you invest whatever you want. I’m not giving investment advice. I’m just telling you what worked for me and what worked for Dave. Also, what we’re for Sam Primm, which is why he’s the focus of this video as well as Dave Ramsey. That’s the key. Stop listening to people that are telling you to do stuff that they didn’t do themselves. Listen to people who have been there, done that, and still doing it today.
I’d like to think I’m that guy. I’m not saying I’m perfect. I say live your life now, not tomorrow. There are some days that I feel like I’m not living my life now. Sometimes, I’m out of integrity there. Sometimes, I get caught up because I am working to build this mission or this cause that I have with Money Ripples. Sometimes, it overwhelms me a bit, but I always have to figure out a way to get myself back on track to make sure I’m ultimately serving you. That’s what brings me purpose. That’s why I didn’t just retire. That’s why I’m here with you guys today. It’s your choice what you do with this information.
I want you to prosper. I want you to progress. I want you to live a greater life than the status quo standard American life. I know you can do more than that. I know you have a better potential. It requires you to do different things with your money, questioning everything you’ve been taught, and doing it differently in a way that is actually been proven to work. That is what we teach. You can always find more information on MoneyRipples.com. Remember, don’t be listening to a device that doesn’t serve and has not worked for people. Use the advice that has been done. That’s the stuff you listen to. That’s the stuff you take action on. Make it a wonderful and prosperous week, everyone.