Dave Ramsey Warned You’ll Only Make ‘Snail-Like’ Progress on Your Financial Goals in This Situation

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If you aren’t happy with your progress on your financial goals, could this Ramsey advice help? 

Most people have financial goals, whether those goals involve paying down credit card debt or bulking up your savings account. And there are a bunch of different ways to try to achieve the money objectives you have set for yourself.

However, there’s one approach that finance expert Dave Ramsey doesn’t believe is a very effective one.

Ramsey isn’t a fan of this approach to accomplishing financial goals

Ramsey has warned that one particular approach to budgeting is not likely to help you succeed in accomplishing your financial objectives. It’s called the 50/30/20 budget and it’s a common method of allocating money because it’s simple and less constraining than other techniques.

With the 50/30/20 budget, you devote 50% of your money to needs; 30% to wants; and 20% to savings. This seems on the surface like it would be a good allocation of your cash, but Ramsey is not a fan of it.

“The biggest problem with the 50/30/20 rule is that it leaves only 20% of your income for savings, retirement and extra debt payments,” Ramsey warned. “That kind of thinking makes for very slow progress toward your money goals. Like snail-like kind of progress.”

As Ramsey explained, when you use a 50/30/20 budget, minimum debt payments would come out of the 50% set aside for essential spending and extra debt payments would come out of the 20% that is supposed to be for savings.

He advised instead using an approach called “zero-based” budgeting that allocates every dollar. He believes this method is better because it enables you to put more cash toward becoming debt free.

“Remember, when you use the zero-based method, any money left over after you budget for all your expenses goes toward your current Baby Step,” he explained. Baby Steps are the steps in Ramsey’s path toward financial freedom and they include things like saving an emergency fund and repaying debt.

If you assign every dollar a job using the zero-based budgeting method Ramsey recommends, he believes you can be more focused and intense in your approach toward accomplishing your objectives. “You aren’t stuck at only 20%. And you aren’t throwing money at three goals at once. You’re tackling your money goals one at a time and focusing all your intensity on getting them done.”

Is Ramsey right?

Although Ramsey’s position has merit, the reality is that a 50/30/20 budget doesn’t have to work quite like he said — and it can be a great method of budgeting.

When you make a 50/30/20 budget, the hard-and-fast rule is that 50% goes to essential expenses. But you get to decide what those expenses are.

If you want to pay an extra $100 or $200 or whatever amount on your debt or you want to put $100 or $200 extra toward your emergency savings beyond the 20% allocated to saving, you can treat that as an essential expense if you want and factor it in as part of your 50%. You aren’t restricted to only saving 20%.

The big benefit of a 50/30/20 budget is its simplicity. Many people won’t spend the time creating a zero-based budget and allocating every dollar because doing so is kind of a hassle. And many people find living that way to be too constricting, so they don’t stick to their plan.

If being looser with yourself and making a 50/30/20 budget works where a zero-based budget doesn’t, you’re far better off doing that. Because the bottom line is, having a budget you can actually live with over the long term is actually the surest way to succeed with your money.

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