I’ve been an avid baby-stepper for years now. Each day I tune in to listen to the Dave Ramsey Show, where he teaches his personal finance system, called the Baby Steps. Dave is the man who re-introduced Grandma’s ways of handling money, to those of us who failed to learn it from our actual Grandparents. There are several financial moves that he considers just plain DUMB. Have you paid some “stupid tax”, or are you about to? Let’s find out.
Dave Ramsey is the get out of debt guy, and I consider myself a get out of debt girl. Both of us feel passionate about personal finance, and living free from the chains of debt. Dave is fairly consistent in his advice, and the following items are most definitely in his stupid column.
7 “Don’t Do It!” Items – According to Dave Ramsey
1. PayDay Loans
First of all, if you’re living in a lower-income neighborhood, it’s likely you’ve heard of these. If not, you may not have. PayDay lenders tend to target and set up shop in locations more likely to contain the broke and desperate.
Most importantly, if you do nothing else on this list, do this. Stay away from PayDay Lenders.
Reason being, according to Dave, is that the people who run these establishments are complete SCUM. It’s the equivalent of dealing with loan sharks. They loan you money, and then take their payment out of your paycheck, after tacking on crazy high amounts of interest. Can’t pay? You’ll be hounded to the ends of the earth, and they won’t be kind about it.
2. Credit Cards
Come on! You knew this one would be on the list. Credit card’s are simply a slightly lesser evil than payday lenders. If you’ve ever been late with your payment, or had a hard month paying all your bills, you’ll understand.
Years ago, when I was using credit cards, I had to call and argue with my credit card “customer service” department on more than one occasion, and each time I’ve hung up feeling abused and beaten. Sometimes it’s not even what they say, it’s HOW they say it.
Sure, maybe you always pay your balance in full. But, what happens if your child ends up in the Emergency Room and is admitted to the hospital, and in the frenzy you forget to make your credit card payment. Or you’re unable to pay it, because of an unexpected influx of medical bills. Things can get ugly fast, and each month you carry over a balance, is another month you can get sucked into revolving credit card debt.
The point is, unexpected things happen. Therefore, if you have the money, PAY for the things you want. Don’t use a credit card. Don’t play with snakes – you’ll likely get bitten.
3. Whole Life Insurance POLICIES
This one’s in the stupid column because according to Dave, over time, you’d make more money putting the money you’d spend in premiums in a fruit jar, than you would in one of these policies. Ouch!
Whole and Universal life Insurance policies are products that combine an investment with life insurance. You could purchase a term life insurance policy for a fraction of the cost it will be to buy whole life, and earn a higher interest rate on a good mutual fund investment account.
Plus, after you die, the whole life insurance company KEEPS the money you’ve built up in the investment portion of the policy, and only pays out the life insurance part. It’s not a good deal. In fact it’s like tossing your money in the garbage each month. Such a waste.
So keep your Life Insurance and Investments SEPARATE.
4. Car Leases
Dave Ramsey calls car leases “fleeces”. Meaning you’ll be fleeced like a lamb if you purchase a lease. He’s pretty adamant about this. In fact he says the car companies make more money off their leases, than they do they’re car sales. That has to make you wonder how good a deal it is for the consumer. Those car dealership lobbies weren’t cheap. You likely paid for it with your lease payments.
5. Co-signing a Loan
It’s hard to say no when a friend neeeeeds a car to get to work, and they’ve fallen on hard times. It’s also hard to tell your toddler, when they’re throwing a temper tantrum that all the neighborhood kids are doing it, not to dance around the fire pit.
It’s hard to say no, but we must.
When you co-sign on a loan there’s a high probability your relationship with that person will suffer, or dissolve completely. If the bank declares them a financial risk, and won’t loan them money, what makes you think they’re going to make their payments, once you help them get it? It’s not likely.
You’ll either end up with loan yourself, or end up having to nag at your friend to the point they avoid you and never want to speak with you again. It’s a lose-lose situation.
6. “Shacking Up” Before Marriage
I believe the term “shacking up” was first made famous by Dr. Laura Schlessinger. Like Dave Ramsey, she is a talk radio host – however her focus is on personal advice. She, like Dave, doesn’t support couples living together before marriage. However, we’re focused on the financial implications here.
Think about this. Certainly, when you live with your partner, or buy a house together, before you’re married there is a higher risk of losing your shirt. You are essentially “playing house”, and there’s a lot that can go wrong in that scenario.
When you’re married you have the legal system to help divide assets and debt. Without that, you open yourself up to a mountain of Attorney fees and headache, should you and your partner break up. Which, for unwed couples living together, is statistically a higher likelihood.
7. TimeShares
It’s tempting…. Those free timeshare promotional trips sound like a no brainer. At least until they lock you in a room for hours while their savvy salesmen talk you (or bully you, rather), into signing a contract you don’t fully understand. You may be on the hook for more than you think. That fine print often includes special assessments, property taxes, maintenance fees and utilities, on top of the mortgage payments.
Once you’ve bought it, it’ll be near impossible to get rid of it. There’s not much of a resell market for timeshares. In fact many people have a hard time even giving them away! It’s a terrible investment.
