There are no two bigger financial gurus in America than Dave Ramsey and Suze Orman. Both have become extremely wealthy giving financial advice to folks with high amounts of consumer debt. Is one better than the other? Who should you listen to? Let’s take a closer look and do a head-to-head comparison between Suze Orman vs Dave Ramsey.
My History With Dave Ramsey
I can still picture exactly where I was the first time I tuned into the Dave Ramsey Show. I was flipping through the radio stations looking for some good driving tunes when I came across his show.
At that point in my life I rarely listened to anything but music. But this particular talk show intrigued me so I decided to give it a shot.
What struck me was the amount of people calling in to talk to this “Dave” guy. At the time, I was completing a dental surgery residency and hadn’t heard of him before. My how things have changed!
Anyway, most of the callers were asking questions that revolved around how to get out of debt. It seemed that most of these people only needed a little financial common sense to answer their questions.
Should I Buy A House?
I vaguely remember one of the callers during that first show. He wanted to know if he should continue renting or bite the bullet and buy a house.
Instead of wasting money on rent, he asked, “should I use it to fund a new mortgage?” He also had over $30,000 in credit card debt and was upside down on a car. Now, common sense would tell you to clean up the mess before buying a house right?
Caller after caller were in a financial bind because of debt. This got me thinking about the amount of student loan debt that was piling up in my corner. Maybe this Dave guy was on to something?
That day was the start of me becoming a Dave Ramsey fan.
Dave’s Seven Baby Steps
Both Ramsey and Suze Orman are known for their financial insight they bring to their listeners. In order to teach their followers, both have developed a step-by-step method to accomplish goals.
Well Kept Wallet has a nice visual of Dave’s Steps:
In his book, “The Total Money Makeover”, Dave outlines his financial plan called, The Seven Baby Steps.
1. Open a $1,000 emergency fund.
Let’s face it, emergencies happen. Especially if you have kids! The purpose of starting an emergency fund is to keep you from relying on debt with any financial emergencies that occur.
2. Pay off all debts using the Debt Snowball.
If you’re a regular listener to the Dave Ramsey show, then likely you’re familiar with the debt snowball. Every caller that asks his advice regarding debt reduction is given this prescription to Debt-itis.
The Snowball involves listing all debts from smallest to largest. Next, pay the minimum payment on all smaller ones while putting as much money possible towards the smallest on the list. This helps to quickly get the “snow” ball rolling.
3. Place 3 to 6 months worth of living expenses in your emergency fund.
Once you’re debt free except for the house, finish funding the emergency fund to cover 3 to 6 months of living expenses in case of job loss or illness.
4. Invest 15% of income into retirement accounts.
Dave recommends saving at least 15% towards retirement in a company sponsored 401k, Roth IRA or other pre-tax retirement plan.
5. Begin funding for children’s college education.
Dave recommends saving for college using Education Savings Accounts (ESA’s) and 529 plans.
6. Pay off the house early.
Once your consumer debt-free, saving for retirement and kid’s college, it’s now time to throw any of your extra income towards paying off your home loan as soon as possible.
7. Build wealth and give to charitable organizations.
Proverbs 13:22 states, “A good person leaves an inheritance for their children’s children.” Once you get to step #7, you’re now well on your way to becoming extremely wealthy.
Dave teaches finance from a Biblical perspective which is why he wants us to be a generous giver. Leaving a legacy to your children and others is possible once you reach this point in your life.
Cornerstone
The above seven steps are the cornerstone to Ramsey’s teaching philosophy. After you listen to his show a time or two you’ll quickly realize that he never deviates from these steps.
Let’s move on and see how Suze teaches….
Suze Orman
Suze Orman hosts a financial program on CNBC and like Ramsey, is an author of several finance books.
I’ve watched her show a handful of times and it seems to me that most people call in asking the same question, “Can I afford it?”
Can I Afford It?
Here’s a caller example from Oprah.com:
Joanna is a single woman in her 30’s who doesn’t want to wait to get married to buy her first house.
“It’s always been my dream to have a family,” Joanna says. “I’m looking to buy a home so that I can adopt a child or two.”
As a second grade teacher, Joanna:
- takes home $2,908 a month
- has $1,845 of monthly expenses
- $8,500 in her emergency fund
- has a monthly excess of $1,063
The home Joanna wants to buy is $150,000, and she needs $5,000 for a down payment. She plans on taking the $5,000 out of her emergency fund, and the bank has already approved her for the mortgage.
Can Joanna afford to buy her first home?
Now that Suze has all of the facts, she then can give her her two cents.
In this case, she tells Joanna that she can’t afford a home at this time.
“You can’t use your emergency fund as a down payment on a home,” Suze says.
Emergency Fund Dilemma
Many people that are fortunate enough to have a little cash in an emergency fund sometimes think a want is a need. They reach a point in life when they realize they need to make a large purchase such as a vehicle or in this case a house.
Buying a car or house is NOT, I repeat, is NOT an emergency!
All money you allocate for your emergency fund is for….emergencies.
Many folks see all of that cash sitting around and think, “I’ll use it to buy a car then I promise, cross my heart, to refill it as quickly as possible.”
If Joanna uses $5K from her emergency fund for a down payment, she sets herself up for a potential financial distaster.
Why? Because if anything goes wrong such as her air conditioning unit goes out or she needs a new refrigerator, she’d have no money to get by with which could lead to more debt.
Here’s the steps Suze teaches her listeners:
Suze’s 9 Small Financial Steps
1. Save a little bit at a time.
Suze recommends building your emergency fund by saving money a little at a time.
2. Use a little self discipline
She recommends that you cut out all non-necessity spending. Sorry Starbucks! Go through bank and credit card statements and ID any items to eliminate.
Most financial institutions such as banks, Vanguard, Fidelity, etc. make saving simple. Set up and automate transfers on a regular basis to fund your emergency fund, retirement plan, and savings account.
4. Max out your employer’s match.
Contribute enough to your 401(k) to receive the maximum amount of matching funds from your company. Failing to do this results in turning down free money.
5. Invest in a Roth IRA.
Invest in a Roth IRA for tax-free income growth.
6. Subtract your age from 100 and put that much in stocks.
If you want to know how aggressive your portfolio should be, then Suze recommends adjusting your portfolio to this:
Take your age and subtract it from 100. This is the percentage you should be invested in stocks and the remainder in bonds.
Example: 30 yr old = 30% bonds and 70% stocks
7. Invest $50 a month for peace of mind.
Consider investing as little as $50 a month for term life insurance. This policy should give you and your family peace of mind.
8. Put together the four most important documents you’ll ever need.
Every person should have: a revocable living trust, will, power of attorney for finances, and power of attorney for healthcare.
9. Add a 13th mortgage payment.
Making one extra mortgage payment a year will take five years off of the length of your mortgage.
Suze Orman vs Dave Ramsey
Suze’s advice teaches debt management where Dave’s is about debt elimination. I personally prefer Dave’s way of teaching because it focuses on getting out of debt the fastest.
Regarding credit card debt, Suze suggests:
- listing all credit cards from the highest to lowest interest rates
- contact each company to negotiate a lower rate
- pay the minimum on each
- put any extra money on the highest interest rate card
Once the highest rate interest card is paid off, then you start the debt snowball Dave teaches until they’re all paid off.
Dave, on the other hand, recommends starting with the smallest balance as this gets people motivated the quickest to pay off their bills. I also feel that he has a solid “no nonsense” approach to getting out of debt.
His Seven Baby Steps are straight forward and cover how to approach your finances best in order of importance. So many people have no clue where to start and his steps make it easy to follow.
My Thoughts
Suze mainly deals with psychological and emotional roadblocks that keep people from becoming wealthy. Unlike Dave, she resonates more with individuals seeking to reduce debt and build a nest egg simultaneously. This is what I like about her.
For my situation, putting off saving for retirement while becoming debt-free was not an option. I felt I could accomplish both with my personality.
My other issue involves both of them. The more I read and listen to their advice, the more it seems to be too simplistic and generalized.
I don’t feel that a one-size-fits-all approach works for financial advice. Everyone’s situation is different and the same financial plan won’t work for everyone.
With that being said, I understand they’re both mainly dealing with the general public and their advice is a good starting point for someone just learning about personal finance.
Who do you prefer?
Dave or Suze?