Who Gives the Best Personal Finance Advice? Dave Ramsey vs. Suze Orman

Dave Ramsey, left. Suze Orman, right.

Ask just about anyone in the United States to name someone who would be considered a personal finance “expert” and there’s a good chance you’ll hear one of these two: Dave Ramsey or Suze Orman. Both have spent decades entrenched in the personal finance industry, and they both express very strong opinions in the financial advice they give. Let’s examine who they are and what they have to offer.

Who Is Dave Ramsey?

Dave Ramsey grew up with an entrepreneurial spirit. He tells stories of starting up his own small businesses as a child and learning how to make money early in life.

Ramsey reached a net worth of over $1 million by age 26, but having used a lot of debt to get there, he soon found himself bankrupt. After fighting his way back from being broke, he changed his financial philosophy to what he calls “God’s and Grandma’s ways of handling money.”

His company, Ramsey Solutions, began from a card table in his home and has grown to employ over 900 people through its various outlets. He and his team have published multiple books on personal finance.

Ramsey has hosted his radio program/podcast “The Dave Ramsey Show” since 1992. Airing every weekday from 2–5 p.m. EST, he takes callers from people looking to get out of debt and navigate other financial situations.

A major facet of the Ramsey empire is Financial Peace University, his 9-week course based on his book The Total Money Makeover. This class takes place with cohorts all over the country, made up of individuals and couples learning to get out of debt, follow a budget, save for retirement, and other key financial principles.

What Does Dave Ramsey Teach and Why?

The cornerstone of Dave Ramsey’s teachings is his 7 Baby Steps. These are his blueprint for financial peace, and the same ones he teaches in his Financial Peace University. If you listen to even one episode of his radio show, or listen to one of our podcasts where we talk about him, you’ll likely hear much of the plan of the 7 Baby Steps laid out.

Here’s a quick rundown of the 7 Baby Steps and what they mean:

1. Save up a starter emergency fund of $1,000. This is meant to be just enough to protect you when small emergencies happen.
2. Pay off all of your debt, except your mortgage. He advocates the “debt snowball” method, which advises paying off the smallest amount of debt first, followed by the next smallest, and so on until all your debt is gone.
3. Save a complete emergency fund of 3–6 months’ worth of your expenses.
4. Invest 15% of your total household income in retirement and continue to do so.
5. Save for children’s college expenses in a 529 plan or ESA (Education Savings Account).
6. Pay off your house as early as possible.
7. Live debt-free, build wealth and give generously.

In keeping with his extreme focus on debt freedom (Baby Step #2), Ramsey is very adamant about avoiding debt at all costs. He urges callers to find another way of financing their dreams, rather than resort to credit card usage or other loans. In fact, for Ramsey, credit cards are absolutely forbidden.

During the Baby Steps, participants are encouraged to pay entirely in cash for their purchases using his envelope system of dividing up each month’s funds. (He is fine with debit cards, but in many cases he does mean literal cash.) One of his common refrains is that people spend more when they use a credit card than when they use cash. He wants to get listeners to “feel the pain” of parting with their money, which isn’t as noticeable with a credit card.

Budgeting is another priority for Ramsey. His company created a budgeting app, EveryDollar, which helps users figure out where every dollar of their money will go each month. He’s big on common sense — spending less than you earn, and saving the rest.

What Are Common Critiques of Dave Ramsey?

Great With Debt, But Not Much Else

Lots of people find Ramsey an excellent motivator for helping people get out of debt. Evidence of this shows up in every single radio show, where he hosts a “Debt-Free Scream”. Callers share their stories of how they got into debt and how they got out of it, then scream “I’m debt free!”

Some criticize him for stopping there, and not giving the greatest of advice regarding retirement planning or investing. He loves mutual funds, which can come with hefty management fees if you’re not careful. He also claims that investors can expect a 12% return on their investments, while many point out an average historical stock market average of 10% (and an average is no guarantee of individual returns).

No Credit Cards

Ramsey takes a lot of flak for avoiding credit cards like the plague. He hates credit card companies, urging listeners to cut up their credit cards and never use them again. This is because he’s so passionate about staying out of debt, and credit cards cause temptation to spend money you don’t have. He says that there’s research to back this up and he’s right. Some MIT researchers found that credit card users are willing to spend up to two times more than cash users.

Critics jump on Ramsey for this viewpoint because credit cards are so convenient and often provide attractive rewards for using them. They say if you can earn back 5% of your spending, why not take advantage of a benefit like that? These critics insist that it is possible to be a responsible credit card user who pays back their balance in full each month.

Ramsey also insists that a credit score is not a necessity in today’s world. His teaching here falls a bit short. He claims that many lessors and mortgage writers will work with you if you do not have a credit score. Beware of this advice because mileage may vary. Most banks will not manually underwrite for your mortgage, or manually check your personal finances, as Dave claims they will. This could leave you stuck with few to no housing options.

Flexibility and Religion

Many who dislike Ramsey or disagree with him feel this way because of his tough attitude. He conveys the belief that his way is the right way, and there are no other viable options.

Lots of personal finance experts today will tell you “personal finance is personal.” This means that while there are a few hard and fast rules for getting ahead in life, finances can be complex. What works best for one person may not be best for everyone else. Ramsey tends to stick with his opinions and doesn’t like to entertain other possibilities, especially if they do not align with his religious beliefs.

All Debt Is Evil

In keeping with his hardline stance against credit cards, Ramsey believes that debt itself is a wrong choice. While he’s mostly correct and many people likely benefit from his harsh criticism of debt because it helps them to avoid unnecessary debt, there are some situations where debt may work in your favor.

Plenty of financial experts say that taking out some loans to finance college or career training can be positive uses of debt. It is important to be cautious and not take out exorbitant loans you’ll never be able to pay back, but maybe you don’t need to beat yourself up if you take out loans to cover part of a valuable education. Just don’t get a degree in something that does not have tangible job prospects after school, and don’t pay extra just to go to a school that’s more “fun” or out of state. Community college is in.

Skip Retirement Savings While Paying Off Debt

A huge criticism of Ramsey’s philosophy is that you should not wait until you’re debt-free to start saving for retirement. He has heard this critique over and over, and sticks to his guns.

Ramsey argues that it’s best to have a laser-focus on debt payoff until that’s done, then focus on all the other Baby Steps.

This criticism is important to consider for two reasons:

● The earlier you start investing for retirement, the longer your money will have to grow. Compound interest is your friend, and you don’t want to delay putting money away for the future.

● Many employers offer a matching incentive for their retirement plans. If that’s your situation, then you might be throwing free money away by not investing enough to get the maximum matching contribution.

Although these criticisms are valid, Dave is usually right. The interest accrued on your loans is likely to outweigh any early gains in your tax-deferred or tax-free growth retirement account. There are some rare exceptions, like exorbitantly large company 401k matches. Even then, the difference over the long term is tangential to the more important goal, getting out of debt. Debt is dangerous. Get rid of it.

Who Is Suze Orman?

Now let’s talk about who Suze Orman is and why she’s so widely renowned in the personal finance world. She struggled as a student all the way through high school, feeling that she wasn’t smart for years, yet still managed to secure admission to the University of Illinois at Urbana-Champaign.

Orman dabbled with travel and working a few jobs in her twenties. For about 7 years, Orman says she worked as a waitress, and eventually decided she wanted to become a restaurant owner. Discouraged by her lack of funds to pursue that dream, she shared this wish with a frequent customer. Surprisingly, he ended up giving her a large monetary gift and rounding up donations from fellow diners to enable her to pursue that entrepreneurial dream.

Due to her lack of financial savvy at this point, Orman ended up losing all of the money she’d been given. She was determined to learn all she could about money and the stock market, reading the Wall Street Journal and other financial publications in her free time. She snagged a position as a stockbroker and continued to soak up all the financial knowledge she could in the intervening years.

Today, Orman has a pile of accolades related to her understanding of the financial world. She’s an author, magazine and online columnist, and speaker, with plenty of awards and accomplishments to her name.

You can read more about Orman’s life and philosophy in books including The 9 Steps to Financial Freedom, The Road to Wealth, Women and Money, and The Ultimate Retirement Guide for 50+. She hosted her own show on CNBC for 13 years, titled, appropriately, The Suze Orman Show. Her podcast, Women and Money, She’s also garnered a grand total of eight Gracie Awards, which are given in praise of the best media programming for, by, and about women.

What Does Suze Orman Teach and Why?

Let’s dive into the nuts and bolts of what Suze Orman has been teaching all these years. Orman teaches a lot of the basics that most financial experts tend to agree on. There are plenty of common-sense guidelines.

Spending Within Your Means

Orman teaches that you should not spend beyond your means, and not spend more than necessary on certain items. She famously said that buying takeout coffee was like wasting $1 million over your lifetime, with the loss of that money plus compounding power. Often, Orman will remind her audience to distinguish between their wants and needs, and focus spending on necessities rather than luxuries.

For example, when it comes to car purchases, she recommends sticking to a fairly conservative loan period of no more than 3–4 years. The logic here is that you should not spend more than you need to because each car payment takes money away from your other financial goals like paying down a mortgage or saving for college or retirement.

Debt

Orman is not a big fan of debt, particularly credit card debt. She acknowledges that sometimes people who are trying their best may go into credit card debt for medical bills or other emergencies, but generally urges everyone to avoid credit card debt. When paying it off, pay more than the minimums to reach debt freedom as quickly as possible.

Another facet of Orman’s debt philosophy is that debts are an obligation to pay. She doesn’t want people to look for schemes to get them out of paying their debts, but to take responsibility for the promises they’ve made, even when it’s difficult.

Psychological Aspects of Money Management

Suze Orman teaches quite a bit about the psychological reasons behind the ways we deal with money. In her book The 9 Steps to Financial Freedom, some of the advice she gives includes analyzing your money memories, facing financial fears, and being honest with yourself. These can be useful thought exercises that help you change your behavior with money.

Retirement Planning

Her general rule of thumb listed in that test is to contribute a minimum of 10% of your gross income to retirement. She seems to encourage delayed gratification, or deferring some wants in the present in order to finance a comfortable retirement. When it comes to retirement planning, she’s a fan of contributing to your company 401(k) at least up to the matching percentage, as well as utilizing Roth IRAs.

Financial Planning To Care For Loved Ones

Orman also emphasizes the importance of taking responsibility for your dependents by having life insurance, a will, and designated beneficiaries. She has shared the enormous expenses she took on when caring for her elderly mother, urging listeners to think about sacrifices they might need to make to support their own aging family members.

What Are Common Critiques of Suze Orman?

Spending More in Retirement Than Before Retirement

Orman often states that most people spend a lot more money during their retirement years than they did during their working years. This, she claims, is due to the rising costs of healthcare and the increase in medical issues as people grow older.

Critics like to point out that while healthcare costs can be high, plenty of other spending categories should logically decrease during retirement. For instance, you hope to have your house entirely paid off by then, erasing a large percentage of your housing costs. There are also ways to hedge against high healthcare costs, like investing in a health savings account when you are young.

Unrealistic Retirement Goals for Most People

For many, Orman’s ideal retirement fund number is unrealistic and will fail even the most prudent of savers. In the past, she has said that you should have $5 million saved in order to safely retire. While this amount of savings would be nice to achieve, it’s not realistic.

Why does she claim you need to save this much? Orman tends to take a cautious approach overall with retirement planning, figuring that it’s better to save too much than too little. The problem with this approach is that there is no upper bound. Who can save too much money?

This untenable goal also relates to her claims that you’ll spend more in retirement than before.

In general terms, it doesn’t technically “hurt” you to save more than you’ll actually use in retirement. The problem is that there are major pitfalls and burnout risks associated with fixating on a massive figure like $5 million.

The Economic Policy Institute reports that the average retirement savings of someone between the ages of 56 and 61 is $163,577. But the median retirement savings, which may more accurately reflect the circumstances of more citizens, is only $17,000 at that age. Either way, these numbers are nowhere near the ballpark of $5 million. That’s not to say that you should only aim for $163,000 in retirement savings either. At minimum, you should save 10x your annual pre-tax income or 15x your annual net expenses for retirement.

Thinking that you need $5 million to retire can be defeating. It makes you just want to give up and not bother saving for retirement at all. That’s the real danger of focusing on such high numbers. Orman sometimes fails to take into account that people have different spending levels and risk tolerances, and that retirement doesn’t have to look the same for everyone.

Retiring at 70 Is Arbitrary

Orman has been quoted as saying that 70 is the new retirement age, because people live longer and thus need to work longer to offset the costs of those later years. She also says this because delaying Social Security payments as long as possible results in larger payouts.

As is common with personal finance critics, touting a one-size-fits-all approach to anything is probably an overreach. This is no exception. After all, retirement planning should be based on your annual net expenses or annual pre-tax income, in addition to your life expectancy. Its borderline irresponsible of her to base it on an arbitrary age.

Compare and Contrast

Both Orman and Ramsey are intelligent people with a lot of solid financial guidance to offer. They also both made big money mistakes in their youth and have spent years teaching to help prevent others from making the same mistakes. Here are some of the major differences you’ll find between their philosophies.

Credit Cards

Both Suze Orman and Dave Ramsey emphasize the importance of spending responsibly, which is great. The big difference here is that while Orman permits credit-card use, Ramsey is utterly against all credit cards. Orman’s focus when it comes to credit cards is that you should pay your balances in full each month and never carry debt on your cards unless it’s an extreme emergency. Ramsey makes no such exception, simply because of the research showing that you spend more with a credit card and are more likely to go into debt if you have one. His solution to the problem of credit card debt is to avoid credit cards entirely.

Emergency Funds

Both recommend an emergency fund for repairs, medical issues, and other surprises. However, under Ramsey’s plan, you should start with a $1,000 emergency fund until you’re out of debt, then ratchet up the total to equal 3–6 months worth of expenses. Orman’s advice is to build up to an eight-month emergency fund to put yourself in a more secure place.

Home Buying

Suze Orman is fairly traditional in her home-purchasing guidelines, urging people to amass a robust (8-month) emergency fund and 20% down payment before buying. Dave Ramsey is even stricter on homebuyers, however, encouraging people to take out a 15-year fixed-rate mortgage (not a 30-year mortgage). He also says you should choose a home where your monthly payment, including taxes and insurance, equals no more than 25% of your take-home pay. Even more drastically, he really prefers that no one ever borrow money. In Dave’s ideal world, everybody would buy their home in cash. The only reason Dave allows this kind of debt is because there is overwhelming evidence that home ownership is just not possible for many people unless they take out a mortgage and, more importantly, renting also comes with a monthly price tag.

Conclusion: Who Is Better?

When you take a close look at both Suze Orman and Dave Ramsey, you’ll find plenty of great advice. You’ll also find a fair amount of advice that falls short, is too cookie-cutter, or just doesn’t make sense. They are opinionated people with big personalities, so they share those opinions unabashedly.

I personally prefer Ramsey’s advice over Orman’s. His Baby Steps are very succinct and easy to follow. You will establish a strong financial footing and retire fairly wealthy if you follow his strict steps. We talk a lot about Dave’s advice on our weekly personal finance podcast, Gen Z Green. Orman’s advice isn’t bad and you will likely be okay by following it. Just be aware of the shortcomings of her plan and remember… credit cards are dangerous!

With that said, both Dave Ramsey and Suze Orman bring valid points to the table about personal finance issues. You won’t go wrong by following a large percentage of their recommendations. You should also realize that neither one of them has all the right answers, even though many people call them finance “gurus”. Nobody’s perfect, and in personal finance, there really isn’t a “perfect” way of doing things.

So if someone tries to tell you that either Orman or Ramsey is the ultimate source of financial wisdom, be sure to fire back at them. Do your research for your financial situation. You can pull some of the best pieces of advice from both of them, plus gather ideas from other great personal finance sources. You can craft your own personal finance plan and philosophy.