E-mail a friendDave Ramsey
airdate December 7, 2004
Financial guru Dave Ramsey, host of a nationally syndicated radio program that bears his name, has plenty of personal financial insight. With a degree in finance and real estate, he founded Ramsey Investments, a brokerage firm specializing in foreclosure and bankruptcy real estate. A millionaire in the '80's, Ramsey lost almost everything he owned by age 30. He rebuilt his financial life and formed the Lampo Group to help people discover financial peace through counseling, broadcasting, publishing and seminars.
Dave Ramsey
Tavis: We continue our 'Road to Wealth' series tonight with Dave Ramsey, host of the very popular syndicated radio program 'The Dave Ramsey Show.' His latest book has made it to the "New York Times" best-seller list, just like his previous books. This book is 'The Total Money Makeover: A Proven Plan for Financial Fitness.' Dave Ramsey joins us tonight from Nashville, Tennessee. Dave Ramsey, nice to have you on this program, sir.
Dave Ramsey: Well, thank you, Tavis. It's good to be with you.
Tavis: Glad to have you on. Let me start by asking you to tell me your story of going from debt to having a life that is debt-free. Because I figure that if you write a book like this, you better know something about this.
Ramsey: Ha ha ha! Been there. Done that. Got the T-shirt.
Tavis: That's rich, yeah.
Ramsey: I was doing good. It was fun. The problem was, I borrowed too much money in the process. The bank got sold to another bank, like so often happens, and the whole--the personalities changed. And the short version of the story is we spent the next 2½ years of our life losing everything we owned. We were sued. We were foreclosed on. And finally, with a brand-new baby, a toddler, and a marriage hanging on by a thread, we hit bottom, and we were bankrupt. That was 17 years ago, and at the bottom of that mess, I decided I was going to learn how money really works, not with someone with a--well, some kind of finance degree and no money has to say about it. 'Cause I had all of that.
Tavis: Yeah. I've got to ask you to give me some of the lessons that you learned out of that. Of course, that would take you into all of these books that you've written, but the thing I'm really fascinated by, Dave, is that you are very unabashed about saying that so much of what you believe about money you've learned from the Bible.
Ramsey: Well, I have, and it doesn't have to be some kind of super hyper-spiritual thing. It's just common sense. It's grandma's common sense. I mean the Bible says, 'The borrower's slave to the lender.' I mean, how many of us have been there on Friday night after we make a paycheck, and it's gone?
Tavis: Yeah.
Ramsey: All the money comes in. All the money goes out, and only the names are changed to protect the innocent. That feels a lot like slavery to me. I can relate. And 'In the house of the wise are stores of choice food and oil.' Well, duh. Wise people save money. See, this really isn't a hard concept. Jesus said, 'Don't build a tower without first counting the cost.' Indicating that we need to have a plan, a blueprint, a budget. And so this stuff is not really some kind of huge, big hairy deal, but it's grandma's common sense and God's ways of handling money.
Tavis: Of course, Peter and James and John and Thomas and Bartholomew weren't being offered credit cards back in the day, either.
Ramsey: No, they weren't, or car fleets or buying a whole lot of stuff that they didn't need to impress people they didn't really like. It wasn't an option. You know, they just had to eat in those days. But certainly, scriptural principles are truth; and they transcend the centuries, and ancient wisdom is sometimes the only wisdom.
Tavis: Let me ask you about credit cards. I raise that because I know that you have something to say--at least I suspect you do--from having looked at your work. You have something to say about how it is and why it is and what we ought to do about the fact that we have become such a, shall we say, credit card culture.
Ramsey: Well, we have become a credit card culture, and we've done that under the guise of convenience or some other guise. But the problem is it's become just this astronomical bill in the average American family's life. And they're not winning.
You know, when I went broke, one of the things I did, Tavis, is I went and talked to old rich people, people who had no hair and gray hair and had money. Ha ha! They made some money. They kept it, and I wanted to know what they said about these things. And you know what they say? They said credit cards are absolutely ludicrous. You know, rich people don't use them. They really don't. You know, I never met a millionaire who said, 'I made all my money with my airline miles. That was my breakthrough financial moment.' You know, that's not how it works. Instead what they do is they pay for things, and they don't get into the land of debt. And credit cards are overwhelming. 5.2 billion offers out there last year.
Tavis: Wow. Let's talk about some of the things that you suggest people can do, in fact, to have a total money makeover. You suggest that we have to find a way to establish a savings fund of $1,000.
Ramsey: That's what we call Baby Step 1. What we figured out about money stuff is it's overwhelming. We try to do too many things at once; and so we've broken it down into steps, and that enables us to have some wins and know we're climbing the ladder successfully. And baby step one is that beginner grandma's rainy-day fund--$1,000 between you and Murphy, between you and what can go wrong. And there's a little comfort in that. And then we're going to attack the debts by getting out the credit cards and cutting them up. Yes, it's time to have a plasectomy!
Tavis: You--ha ha ha! Cut those credit cards up. A little plastic surgery. I hear you.
Ramsey: Absolutely.
Tavis: There are some watching right now, I suspect, who are saying, Dave, if only I could see my way to $1,000, let alone have a $1,000 savings fund.
Ramsey: Well, here's an idea. The first thing you've got to do is you have to clear out all the other things out of your mind. If you pay just minimum payments, you do the dreaded 'B' word, the written budget, where you tell every dollar what to do, we call a family meeting and say, 'That's it. The family is tired of being broke. We're going to do some unusual, some weird things, because normal's broke. We're going to sell so much stuff, one of you kids are going to be afraid you're next.'
Tavis: Ha ha ha!
Ramsey: 'We are going to move some stuff around here.' And, man, when you start attacking it like that, you can find $1,000 in most families pretty quick. Now, Tavis, if you make less than $20,000 a year, you may want to start with $500, but the idea is to get a little bit of money between you and life, because life comes in with its fists doubled up and wants to punch you one.
Tavis: You know, I'm just thinking, on the wrong day, if my parents had told me and my nine brothers and sisters that, we might have actually believed that, that they were about to do that.
Ramsey: Ha ha ha! Me, too.
Tavis: In fact, they might have on the wrong day. Talk to me about the debt snowball.
Ramsey: Well, the debt snowball is how we teach people to get out of debt. That's everything but the house is listed, smallest to largest on a list. You pay minimum payments on everything and attack the little one with a vengeance! I mean, take an extra job, sell some stuff. Let's name the fourth kid eBay. Let's get out of control here. You know, we really got to get in attack mode, knock that small one out. When the little one's gone, you take the payments you used to pay there and pay them on the next one down. When those two are gone, the snowball rolls over again, it picks up more snow and we attack the third one down. Every time we pay off more debt, we have more money to attack the next one down. And sometimes people say, 'Well, Dave, why don't we pay off the highest interest rate first? That would be mathematically correct.'
Tavis: Ha ha ha!
Ramsey: Honey, if we were doing math, we wouldn't have credit card debt, OK? This is not about math. It's about going on a diet and losing weight so I stay excited about the diet. Knock that little one out, and then you'll keep going.
Tavis: As this process--speaking of keeping going--as this process moves along, you then suggest that you have to increase your savings fund.
Ramsey: Well, once you've got your debts paid off in Baby Step 2, everything but the house, then we move on to Baby Step 3, which is finish the emergency fund. A fully funded emergency fund is 3 to 6 months of expenses, so that's like 7 or 15,000 or somewhere in there for most families. Now, this is not an I-want-a-leather-couch fund. This is an emergency fund. It's just for big-time emergencies, because, well, again, sometimes life happens.
Tavis: Yeah. Everybody who has any sense who's in the money business or the money advice business, tells you that you have to plan for and fully fund your retirement.
Ramsey: And you know, a lot of people talk about that, but it's very hard to do that until we've done those first 3 steps. That's why we make it Baby Step 4. See, when you don't have any payments but a house payment, man, you've got some money then! You now are starting to get control of your most powerful wealth-building tool, which is your income. But if someone says, 'Well, you need to put 15% of your income into retirement.' '15% of my income?! Man, I'm trying to pay the light bill here!' But that's not true once you get the debts cleaned up and you've got the emergency fund, so Baby Step 4, now that we're there--and it will take a little while to get there--is to save 15% of your income into retirement. And then we'll move on to Baby Step 5 and start saving for the kiddo's college.
Tavis: Let me ask you something that--I know you'll get this, you'll know exactly what I'm trying to get at here. I wonder whether or not, with all due respect to these principles-- that 'P' word, principles--with all due respect to these principles you articulate about money, it doesn't really work for all of us if we don't learn how to juxtapose properly our principles with our philosophy about money.
Ramsey: Oh, you're exactly right. See, the problem with personal finance is it's 80% behavior. We all know what to do. We just don't do it.
Tavis: Yeah.
Ramsey: The problem with my money is this guy I shave with. If I can get this guy in the mirror to behave, he can be skinny and rich!
Tavis: Yeah. Ha ha ha!
Ramsey: But he's a problem child.
Tavis: Ha ha ha! Talk to me about how you keep up this process through what you call a regular maintenance program, that monthly cash-flow plan you have to develop and devise.
Ramsey: You know, if you work in a job and you are responsible for a department, they make you do a budget. You know why corporate America makes you do a budget? 'Cause it works.
Tavis: Ha ha ha!
Ramsey: If you worked for You, Incorporated and you were called to manage You, Incorporated's money and you managed You, Incorporated's money the way you manage your money now, would you fire you? Probably, because you're not doing a written plan.
Hey, a budget is not a form of medieval torture. It's just people telling their money what to do on paper before the month begins. You know, the average millionaire can't tell you who got thrown off the island or who can't get a date, but they can tell you what's in their 401-K.
Tavis: Yeah. I'm amazed and impressed and appreciate the fact that, with regard to your story, you and your wife got through this, and yet, as you well know, the thing that breaks up more relationships, more marriages in this country than anything else is what, Mr. Ramsey?
Ramsey: Oh, it's absolutely money fights and money problems, sir. No question about this. Well, we held onto each other, but sometimes it was just to get a better grip.
Tavis: Ha ha ha!
Ramsey: Ha ha ha! It was tough. I'm sure glad we did, 'cause I out-punted my coverage considerably.
Tavis: Ha ha ha! What do you say to people, though, who are in a situation right now, watching this program right now, who are, to your very point, trying to hold onto the relationship, but this money thing has gotten all up in the middle of it?
Ramsey: Well, I think what you got to do is remember when you got married, most of us, I don't know about you, Tavis, but when I got married, I was broke. And if she was good enough for you--he was good enough for you when you were broke, they're good enough for you when you're broke.
Tavis: Ha ha ha!
Ramsey: So here's an idea. It's just stuff. Cars come, cars go. Houses come, houses go. Marriage shouldn't. Get a grip on each other. Grab each other really tight. Guys, give your wives an extra 3 to 6 nonsexual hugs a day. She needs that touch, that reassurance. Ladies, don't be a barking chihuahua around his ankles right now. He doesn't feel real great about himself if he's been laid off and things aren't going well. Love on each other! It's just stuff! You can get more stuff.
Tavis: Well, to respond to your statement, I'm not yet married, Dave, and maybe that's because I haven't gotten my monthly cash-flow plan together yet.
Ramsey: Ha ha ha ha!
Tavis: But once I do, maybe I won't be broke anymore and I can find somebody. Thanks for the advice. I appreciate it.
Ramsey: Sure.
Tavis: Dave Ramsey. 'The Total Money Makeover: A Proven Plan for Financial Fitness.' Nice to have him on. Up next, Oscar-nominated actor Javier Bardem. Stay with us.
Back to December 7, 2004