Rules. They’re meant to be broken, right?
Personal finance is full of rules. Pay yourself first. Don’t carry credit card debt. Do this, not that.
Some people advocate absolute rules. These are unbending rules that can’t be broken lest we face negative consequences. And we think of absolute rule-makers as hard-asses, dictators, rigid boors. Good rules include exceptions because…
Only a Sith deals in absolutes.-Obi Wan Kenobi
But…stick with me here…what if the Sith are right?!
More Free Press for Dave Ramsey
Let’s talk about Dave Ramsey.
If you aren’t familiar with Dave Ramsey, he is one of the preeminent voices in the personal finance education space. He has a radio show-turned-podcast and has written many books.
He’s also controversial. Some of that controversy involves his ethics and morality, e.g., he’s been accused of being a giant prick. But the pertinent controversy for this article involves his thoughts on personal finance’s best rules.
Dave is a man of absolutes. For example:
- Dave believes that nobody should use credit cards
- Dave says that a housing mortgage is the only acceptable debt…and even then, there are still guardrails.
Sounds a little strict! I disagree with both of these rules. Many others do, too. They find Dave’s absolutism to be antithetical to the idea that personal finance is personal. There’s no one-size-fits-all…except for Dave’s iron-fisted maxims.
But the more I’ve thought about Dave’s rigid rules, the more I’ve realized that perhaps they belie hidden wisdom.
Does Dave know something the rest of us are overlooking? Or is he a Sith master using his mind tricks against unsuspecting Padawans?
Dave’s Thoughts on Credit Cards
Let’s focus on Dave’s opinions on credit cards. Here are some quotes directly from Dave’s website:
- “There’s just no good reason to have a credit card”
- “There’s no positive side to credit card use. There’s no beating the system, because it’s all been set up to benefit the credit card companies, not you.”
- “When credit cards stay out of your wallet, money stays in!”
To paraphrase, “Nobody should have a credit card for any reason.” This is a controversial take. And it’s certainly an absolute take. There is no room for an exception in Dave’s mind.
It’s easy to poke holes in Dave’s logic. Credit card programs (miles, points, cashback) yield benefits to credit card users. As long as someone is responsible enough to avoid credit card debt and spend wisely, their credit card is a tool that they can benefit from.
The knife that cuts your food could be used to stab yourself in the face. The efficacy of the knife depends on responsible use.
The same logic applies to credit cards (and lightsabers). Dave is wrong.
No Room for Exceptions
How could Dave Ramsey—or the Sith—possibly be right in their absolute rules?
It all boils down to this fact:
When you allow for exceptions, too many people will falsely believe that the exception applies to them.
Yes, we’re all unique. That’s why it’s hard to fathom that any subjective rule could be so comprehensive as to apply to all of us. Rules need exceptions.
Always remember that you are absolutely unique. Just like everyone else.Margaret Mead
But humans are too quick to assume that their uniqueness qualifies them as an outlier. It doesn’t. Your uniqueness does not excuse you from rules you don’t like, rules you disagree with, or rules you find difficult to follow. Most rules will still apply to you.
If you falsely believe an exception applies to you, then you might break a rule against your best interest.
Thus, we’re faced with a Catch-22. If we create an absolute rule, it will likely be out of touch with reality. So we make an exception, but the exception ends up hurting more than it helps.
What do I mean? Here are a couple quick examples:
Don’t Try Heroin
Wow. Look at brave Jesse. First defending Dave Ramsey and the Sith, now condemning heroin.
Seriously. Don’t try heroin. I know this is an outlandish example, but it’ll drive the point home.
If I were to create Absolute and Exception rules about heroin use, they might read:
- Absolute: nobody should ever use heroin.
- Exception: for a very, very small minority of individuals, heroin use can be a reasonable part of their normal lives (source)
Which rule is technically more true? The exception rule.
But which rule does the most good for the most people? The absolute rule.
The absolute rule is more untrue. But it’s also more helpful. If I’m addressing an audience and want to help them, I’m going to say, “Don’t be stupid. Say no to heroin use. No exceptions. That’s the rule to live by.”
Allowing one person to successfully pursue the exception is not worth it if a dozen people attempt the exception and fail.
That’s utilitarianism. It doesn’t take a Mandalorian to know that this is the way.
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You Should Budget
Back to personal finance. Let’s look at budgeting, one of our favorite personal finance topics.
For the sake of this argument, here’s a factoid: only 30% to 40% of American households maintain a budget.
If I want to “fix” this problem, I’d start with an absolute rule about budgeting.
Absolute rule: 100% of people should maintain a budget.
But the real truth is that many people are naturally frugal and thrifty. Perhaps 20% of the population falls into that bucket. These people would waste energy by maintaining a budget.
So the exception rule is:
Exception rule: 80% of people should be maintaining a budget in their lives.
But here’s the problem.
How many people are self-reflective enough to admit that they need the structure of a budget? In other words, how many people will correctly place themselves in the 80% majority? Would we see perfect 80% compliance?
I think we all know the answer here. Tons of people are going to falsely believe that they possess the requisite thrift to forgo budgeting. They will over-estimate their own discipline. They’ll see themselves as unique outliers.
Exceptions are like self-imposed Jedi mind tricks. Our brains are deceive…our brains.
So when we create such a rule, we have a trade to make. We have to pick the lesser of two evils.
- Evil 1: We tell 20% of the population that they need a budget when in reality, they don’t.
- Evil 2: We allow an unknown percentage of the population to convince themselves they don’t need a budget when in reality, they do.
Since only 30-40% of the population uses a budget, I’d wager that the other 60-70% of the population would be inclined to believe that the non-budgeting exception applies to them.
You give someone an inch, they take a mile.-Ye Olde John Haywood
What About Free Will?
I’ve glossed over one important aspect of absolute rules. Namely, absolute rules do not permit free will or freedom of choice. That fact alone makes many people cringe.
Let’s go back to the budget example. At the end of the day, it’s your choice whether you budget or not. And it’s none of my business whether the choice you make actually serves your best interest. I want to help you. But I won’t ever force you to follow me.
Thus, we see arguments between personal finance pundits who have the same goals (i.e. to help people). They argue over small differences—whether all people should budget or most people should budget. This is a textbook example of the narcissism of small differences.
And what’s the right answer? Here’s my opinion…
Solution = Exceptions + Temet Nosce
What’s best? Absolutes or exceptions?
When focusing on personal finance, I think we need to make room for exceptions and implore people to know themselves (a.k.a. temet nosce).
Dave Ramsey is correct that credit cards can do terrible damage to your financial health. Does that mean all people should avoid them?
Or should we ask people to look hard in the mirror and ask, “Am I the kind of person who might fall prey to credit cards’ fake promise of ‘free money’?”
The better you know yourself, the more likely you will correctly choose which rules to follow and for which rules you’ll qualify as an exception. I’m frugal, but I still budget! I also know I’m disciplined enough to use my credit card wisely, ignoring Dave Ramsey’s suggestions.
Learn about your own brain. Feel the Force flow through you. And only make exceptions in exceptional cases.
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Omg, you’re such a nerd. That’s probably why I enjoy your articles so much. Haha
It’s a little early, but I want to be the first to say May the 4th be with you.
And with you, Jay 🙂
Good stuff. I think Dave Ramsey set up his rules like a twelve step program for addicted people. Its not a good idea for someone with alcoholism to take a drink. And it isn’t a good idea for a spending addict to use a credit card. But I’ve always used credit cards for convenience, never really budgeted and have had no trouble achieving financial independence. You’ve taken the concept much further and done it really well. As for his personality on air, I think Dave is crazy like a fox. Having that cocky, know it all attitude really holds an audience. Rush Limbaugh was a master at that. I think it is merely having a good business plan and I suspect he is really a very nice person as are the few celebrities and super wealthy people I’ve met.
Hey Steve, thanks for reading!
Completely agree with you statements…DR set’s his programs up like addiction programs. And it’s understandable why he would choose to do so.
For some people, that’s what works best for them. To each their own!
Dave says HIS plan is to not use credit cards. he admits some people can use CCs relatively responsibly, he’s not trying to control anyone who disagrees. he’s not leading a campaign to outlaw credit cards. he has an opinion. take it or leave it.
>It’s easy to poke holes in Dave’s logic. Credit card programs (miles, points, cashback) yield benefits to credit card users.
it’s easy to poke holes in the author’s logic.
(a) the author needs to adjust for tons of data showing people tend to overspend with plastic. 2% cash back is not so impressive when you’re overspending by 80%.
(b) there’s data from the Federal Reserve showing it’s not clear that credit card rewards are good for consumers.
it’s almost like Dave Ramsey has a point..
Hey Harrison! Thanks for reading.
I know that credit cards can be bad and lead to a ton of financial stress. I 100% agree with you and with Dave Ramsey on that.
But Dave does not say “HIS” plan is to avoid credit cards. He prescribes that rule to ALL his listeners and followers. As you read in the article, I pulled those quotes straight from DR’s website.
That’s the point of the article. When does it makes sense to create exceptions in the rules that we create?