Debt Free or Bust

What’s wrong with following a financial cult?

Gurus and Cults

What do you think of when someone uses the word “guru”? I think of it in terms of the people I’ve heard of or follow, like Yaro Starak (blogging guru), Mike Filsaime (controversial internet marketing guru), Ed Dale and Dan Raine (free internet marketing gurus), Dave Ramsey (get out of debt guru), Dan Miller (career guru), Suze Orman (personal financial guru), Depak Chopra (spiritual guru), Richard Simmons (lose weight guru) and Rush Limbaugh (conservatism guru).

What do you think when someone uses the word “cult”? The names that come immediately to mind are Jim Jones whose followers killed their children and committed suicide en mass, David Koresh and the mass murders and suicides of his Branch Davidian cult in Waco, TX, Charles Manson and his cult who committed extremely violent murders, and Hitler and Nazi Germany whose atrocities are recorded in countless history, sociology and psychology books.

There are also benign forms of cults, like the followers of the movie “The Rocky Horror Picture Show” back in the late 1970′s and early 1980′s.

Most gurus don’t have official cults associated with them or go around murdering people or committing suicide (thank goodness), yet we as “normal humans” artificially elevate them to guru status because we find what they teach or sell very useful to us and we are grateful they are there.

Cult-Like Leaders

A few gurus get enough listeners and subscribers through the media to be considered cult-like leaders. They attract a cult-like following, and this cultism is encouraged by the guru. Two of the above list who seem to have cult-like followings are Dave Ramsey and Rush Limbaugh.

Rush Limbaugh is so obviously pompous and arrogant when he tells people that they should only listen to him and not the rest of the world or any other media, it’s laughable. There are people out there that believe him! If you don’t believe him and call his show he at best will hang up on you or will twist your words as he says the rest of the media does while putting you down and calling you stupid. I find it fascinating that people actually follow Rush. I occasionally listen to his show in the car if I have nothing else to listen to and wonder how in blazes anyone can take him seriously. He has a point once in a while, but most people do. He reminds me why I’m a moderate.

Dave Ramsey isn’t pompous or arrogant. He’s well grounded and down right humble at times. He does get on his soap box, but he doesn’t say anything he can’t back up with facts. His main medium is his radio show on which people call in and ask him personal finance questions. He has also written best-selling books on personal finance. He listens to each caller and guides them to ask questions. He may ask the caller questions and listen to the answers. Then he answers the caller’s situation from his specific point of view. which differs considerably from that of the general personal finance world. That’s all well and good. Anyone on the radio or any talk show can pretty much talk about anything they want any way they want.

Before all the followers leave me flaming comments, I listen to Dave’s show and I agree with many things he says. He is right a good amount of the time. But…

Financial Cult

Dave developed a cult following out of putting the fear of debt into his followers. If you’re a member of the MyTotalMoneyMakeover.com website, you’re given different ranking names in the forums as you post more messages. Some of those names are a bit disturbing, like “drank Koolaid” and “shaved head”. The Koolaid reference refers to the way Jim Jones poisoned his followers. Charles Manson and his followers shaved their heads while they were on trial for murder. Other cults shave their heads and don’t commit murder. But I don’t find those references very funny. I remember when those events happened, I watched them on the news and they were nothing short of horrifying.

My current ranking name is “don’t give me advice, you’re broke!”. Some of the rank names are funny and witty, but those two are in very poor taste and I believe should be changed. There are other names that could easily replace them, like “so broke I can’t pay attention”. I’m sure there are others that are just as witty without the very negative cult connotations. Another rank name that’s less offensive and tongue-in-cheek, but I think other sayings could replace is “sold the kids”. Of course we’re not selling the kids!

I’ve also found that the MYTMMO.com subscribers are the very hardcore cult members. I joined because of the budgeting tools and being able to get all three hours of the podcast, all for $81/year. That’s very inexpensive for the quality of the tools and the podcast. But the forums are a different animal, and if you post on them, you’ve got to have thick skin and keep in mind that many of these people have gone off the deep end. You’ll get beat up at some point for posting something someone doesn’t like. The moderators are supposed to keep things above board, but I find the actual moderation to be lacking in enforcing the rules. Only those who blatantly violate the serious rules get their posts removed or edited. I don’t know if anyone has been thrown off the forums.

The problem with following the Dave Ramsey cult mentality is it seems to give the cult-like believers license to beat you up verbally in the forums and post nasty comments on your blog if you do something they disagree with, like file for bankruptcy.

Dave also has a network of counselors and endorsed local providers for other services like real estate, investing, and accounting. The ELPs are independent and do their business in the spirit Dave preaches.

His certified counselors are a different story. I’ve met with one and talked to another on the phone, and I listen to Dave’s podcast regularly. I’ve been told I’m not bankrupt by one counselor who didn’t look at my numbers before he said it and another who said they recommend settling all debts at once which contradicts what I’ve heard Dave say on the show many times. Dave recommends saving up and settling with one collector then lather, rinse and repeat until all old, sleeping debts are paid. He definitely doesn’t recommend waking sleeping giants until you’re ready to deal with them.

I’ve also heard Dave seemingly contradict himself, but since I listen to several podcasts in a row in a short period of time, he’s really not contradicting himself. He’s giving advice based on the caller’s individual needs. I haven’t found his counselors (the two I’ve spoken with anyway) to listen as well or say too much that isn’t scripted, however.

Financial Peace University is another bone I have to pick about the cult-like nature of Dave Ramsey. FPU is a fantastic program and when the class is taken in a group setting members do get a lot of support. But in some groups people can also be pressured unmercifully to do things that are not in their personal best interest. One example is for a single parent to get a second job. The church or group is supposed to pitch in and help her/him out with free baby sitting and whatever, but I find the whole FPU and Total Money Makeover (TMMO) concepts to favor married couples with children over single parents. Dave is perfectly okay with a mom or dad staying home with the kids while the other parent takes on two or three jobs. The kids are being cared for by one of their parents and Dave preaches parenting is a higher calling. But when a single parent is pushed into multiple jobs and spends even less time with the children than he/she did already, that isn’t in the best interest of the children. There are more important things in this world than money and getting out of debt in 2-3 years.

The whole push behind TMMO is that it’s supposed to be done in 36 months. Realistically, you can’t put your retirement savings on hold for 5 or more years while you pay off debt. You lose too much compounding. I’ve run some numbers and I don’t believe you can put your retirement savings on hold at all if you’re over 35. Yes, you get out of debt, have no payments, and build wealth, and that’s good. But sacrificing your retirement for “Gazelle Intensity” is stupid tax in my opinion. You could be leaving 3 years worth of company match money on your 401k on the table. You’re also paying more taxes when you don’t put money into a tax-deferred retirement account. That can be a lot of money.

Time is something you never get back and compounding during that time can never be recovered unless you have so much money you can cover the loss with principal. But, unlike Dave, many people will just make it to $1 million in assets by retirement and some won’t make it. They’ll be in the $500k to $999k range. In twenty years, I don’t think that $1 million will go that far. Those with less may have to keep working.

Not saving up at least a couple of months of expenses in an emergency fund is also not the best advice. The last time I had to have transmission work on a car several years ago, it cost over $1000. I’m sure the price of the same work has gone up considerably. In reality, $1000 emergency fund to keep you from using credit in an emergency just doesn’t work. Too many things that can happen to your family, your house and your car cost far more than $1000. What happens then? You borrow money for the emergency. I like the advice about the emergency fund in Financial Peace a lot better. Dave recommends at least 3 months of expenses in the emergency fund before you tackle the debt snowball intensely. Then you really can pay cash for emergencies.

Dave talks a lot about how risky being in debt is. I agree. It carries a lot of risk people don’t look at. But some of the strategies Dave recommends to get out of debt carry risk, too. You also have to remember that Dave didn’t get out of debt using the TMMO. He had to file for bankruptcy and learned over time what to do about paying the bills and getting out of debt. It took him a few years to go completely broke and become bankrupt. It took more years to work his way out of that. In his case, he was bankrupt and the advice in Financial Peace is what he learned and began to live by.

I don’t understand how his cult followers, especially those on the MyTMMO.com forums can say they live by TMMO but ignore parts of it that may not apply to them but do apply to others. A key example of this is the quote in TMMO where Dave says if you can’t make the minimum payments or get current on your debts, you’re in more risk than TMMO was designed for and you need to read Financial Peace and get individual help with your finances. Dave wrote it and it stayed in the revised edition of TMMO. I think he means what he wrote. I don’t understand how people can tell me that if I asked Dave he wouldn’t say what he wrote in the book. And if he wouldn’t say what he wrote in the book, why buy the book? Why listen to him if he can’t make up his mind about what you should do?

I find Dave to be consistent with what he writes and advises on his radio show most of the time. When he deviates it’s usually because of a caller’s unusual circumstances. His organization isn’t as well-versed in his ways, however.

What Should We Regular Folks Do?

Most of us keep our own counsel and wits about us in learning from and following the teachings of a guru. We take what we need and ignore what we don’t. This is healthy. We should always think for ourselves. When we give up thinking for ourselves we are getting ourselves into serious trouble. Why? Because no one knows us or our family’s situation as well as we do.

We can listen to and learn from a guru, but we must always make our own decisions based on our knowledge of ourselves. When we don’t quite fit a guru’s teachings we should consult others who are knowledgeable about the matter in question, who may have a different point of view than the guru, and who are willing to sit down with us and listen to our full story and look at our documents in detail. A self-help book or radio show host is no substitute for the counsel of an accountant or psychologist or doctor or lawyer or an independent personal financial counselor.

Dave filed for bankruptcy protection when he went broke, so I consider an organization that is extremely against bankruptcy run by someone who used it is at least a little hypocritical.

I do agree with Dave that Americans need to get out of debt and too many people use bankruptcy when it won’t actually help their financial problems. People with IRS debt, student loans and back alimony and child support will not benefit from filing for bankruptcy. None of those debts are bankruptable. People who could pay their debts off in 24-36 months with some budget tightening and amputating toys and the payments associated with them won’t benefit from bankruptcy either. I know Dave is speaking to many people in that situation when he tells them they’re not bankrupt, because they really aren’t. They just spend too much and need to learn how to cut back and live below their means.

However, someone with twice their annual income or more in unsecured debt would benefit from bankruptcy protection. Bankruptcy is a method of debt reduction and elimination. It should be the last resort, but it shouldn’t be off the table entirely. With Dave Ramsey’s team, bankruptcy is off the table entirely in my personal experience. When I’ve spoken with Dave Ramsey counselors, the first thing I’ve been told is I’m not bankrupt before the counselor even looks at my financial situation, which none has looked at thoroughly enough to make any sort of judgment one way or the other. Those I have spoken with also know how to push your guilt buttons when you do come down to reality and consider filing for bankruptcy or actually file, as in my case. That’s wrong in my book.

When you’re in debt so badly that you have collectors harassing you, suing you, and filing writs against you once they have a judgment, you can’t pay enough each month on the debts to make the balance decrease and your balances are increasing, you’re in a far greater risk pool than the TMMO crowd.

I don’t agree with Dave when your debt is huge and bankruptable. Keeping debt and not making progress on paying down the balance quickly is ridiculous, especially when it comes to getting on with your life and putting off retirement savings for more than 24-36 months. If you put off retirement and only have $1000 baby emergency fund for more than 3 years you’re putting yourself at far greater risk of financial disaster. Something will happen that will cost more than $1000, and you won’t have the money or the credit to cover it. Then what do you do? Good question.

Putting off saving for retirement is especially risky. If you’re over thirty you lose a lot of compounding by not putting money away for retirement. If you’re over 40 you really can’t afford to put off retirement savings just to get out of debt faster. In my opinion, if you can get out of debt in 5 years and still keep an emergency fund of 3 months of expenses and continue to contribute 10% to 15% to your retirement fund you should do it that way. It’s a lot less risky. You can find ways to cut your spending and acquire extra cash without cutting out retirement savings. If you have a 6 month emergency fund, take it down to 3 months of expenses instead of $1000. If you’re putting more than 15% toward retirement you could reduce your contribution to 10% – 15%, especially if your company matches your contribution. If you’re not taking advantage of the company match, you’re leaving free money on the table, and to me, that’s stupid tax.

Make Your Own Decisions

In dealing with the whole Dave Ramsey cult thing I’ve relearned a lesson I’ve been taught before:

• think for yourself
• get advice from more than one source
• make your own decisions

If the outside pressure you’re experiencing is not in your best interest, you should consider amputating it. If you’re easily guilted into doing something against your best interest, stay away from those who are pouring on the guilt and pushing your buttons.

It’s your life and you have to live with what you choose. No one else has to do that. So seek broad advice, make your decision, and stand your ground. Nobody guaranteed you or your decisions would be popular. Don’t seek popularity and external approval. Do what is right for you.

What’s Wrong with Following a Financial Cult?

Like all cults, members are discouraged and pressured into giving in to the collective ideas of the cult. Members are strongly pressured to do what they’re told rather than think for themselves and do what is best for them. The cult and its beliefs are more important than the individuals who belong to it.

When someone starts using phrases like “drank the Koolaid” and “shaved my head”, be very cautious.

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Technorati Tags: cults, Dave Ramsey, financial cult, gurus, MyTMMO.com

July 11th, 2008 Posted by joubess | Debt Reduction, Legal Issues, Saving | 19 comments