Many of us have trouble taking understanding what is best for us, or lack the willpower to enact it in our own lives. Productivity apps that blacklist certain sites, stripping the user of their ability to access them, address that issue. Some apps take the enforced deprivation to an extreme, continuing to block those sites even after deletion of the app and/or restarting your device.
Blacklisting apps’ approach is similar to a couple pieces of advice I’ve heard trumpeted from two highly successful personal finance pundits, Dave Ramsey and Jean Chatzky, in that their solutions are aimed at remedying people’s struggles to think and act rationally with regard to money. However, they are not only financially destructive but also ineffective in that they circumvent and condone the most glaring issue at hand—people’s poor evaluative skills and lack of self-discipline. Reliance on an external limiting influence, or carrying forth an unfounded bias while treating some minor aspect, is only a short-term solution, if that.
Here are those pieces of advice and more on why I find them problematic.
1. Using Dave Ramsey’s “snowball method” of debt repayment.
With the snowball approach to debt repayment, one of Dave Ramsey’s “seven baby steps to financial freedom,” you’d list multiple debt balances based solely on their payoff balance, and contribute all payments toward the one with the smallest balance until all balances are paid off. In his book “The Total Money Makeover,” Ramsey says “List all of your debts—even loans from Mom and Dad or medical debts that have zero interest. I don’t care if there is interest or not. I don’t care if some have 24 percent interest and others 4 percent. List the debts smallest to largest! If you were so fabulous with math, you wouldn’t have debt, so try this my way.” Ramsey provides his rationale behind the approach: “When you start the Debt Snowball and in the first few days pay off a couple of little debts, trust me, it lights your fire. I don’t care if you have a master’s degree in psychology; you need quick wins to get fired up.”
Yes, quick wins can be motivating, but that is not a sufficient reason to take an extremely inefficient approach to debt payoff. Ramsey not only assumes his readership to be feeble-willed, but advocates that they succumb to emotions and thought processes damaging to their financial wellbeing.
Ramsey has no qualms with your tackling an interest-free balance prior to one with an exorbitant interest rate. So let’s say you’re fresh out of college and have a single student loan balance of $42,000 (having consolidated your loans) with a 7% interest rate. You also owe your parents $20k for money they loaned to you for college expenses. Since Ramsey’s advice wouldn’t work in this situation given that you are required to make monthly minimum payments of $500 toward your student loan account balance, you perform a workaround, paying just the minimum on your student loans while paying your parents $500 a month until the debt to them is extinguished.
In the 40 months it would take you to repay that $20,000 to your parents, your student loan would have accrued $15,884 in interest despite making a $500 monthly minimum payment toward it during that 3.3 years. If instead you used that extra $500 to repay your student loan debt (with a total monthly payment of $1,000), you’d pay a total interest amount of just $6,319–$9,565 less than in the Ramsey-approved scenario.
If you used the snowball method and used the extra money to pay your parents first and were making $18 an hour in California (based on 2017 tax rates) throughout the repayment time, that additional $9,565 in accrued student loan interest would require an additional 600 hours of working, or 75 work days.
Therefore, I’d strongly suggest instead going with what has been called the “avalanche method” of debt repayment, in which you contribute as much money as possible to debt balances with the highest interest rate first. Pay no attention to the number of accounts you have—that has little to no impact on your credit score and there is no reason to be concerned with it.
As a final attempt to illustrate how ridiculous the snowball method is, consider these analogies.
• Let’s say you have two leaks in the ceiling and it’s been raining like crazy lately. One has a steady drip, with one pan under it. Another leak is through a larger hole in the ceiling, and there’s a waterfall coming down, with multiple pans under it. Instead of trying to patch up the bigger hole, you decide to tend to the one with the drip, simply because it will mean one less pan.
• Imagine there are two people shooting a you. One has a machine gun, and the other has a BB gun. You decide to focus on your energy on stopping the one with the BB gun, because it will mean one less gun is shooting at you.
2. Avoiding sales and only paying full price on retail products to reduce your likelihood of overspending.
In Episode No. 43 of “Afford Anything” podcast, Paula Pant interviews Jean Chatzky, host of “HerMoney” podcast, financial editor of NBC’s Today Show, and—like Ramsey—a multiple-time Oprah guest. She says that to avoid overspending on things that you don’t really want simply because they are on sale, you should only buy things like clothing at full price.
That’s like choosing to drive a semi-truck instead of your Prius to work to save gas mileage because, given how efficient said Prius’ gas mileage is, you’re incapable of resisting your urge to drive around the block 50 times on the way to work in your Prius. I hope you recognize how pathetic someone would have to be to resort to such a measure.
And yes, just about every retailer has sales all the time. But as you are probably well aware, prices do fluctuate significantly, and with a little know-how—keeping an eye out for rare deep discounts (20% off doesn’t merit any attention) from retailers and sites like eBay, combining them with cash back rebates, rewards card discounts, and taking advantage of things like H&M’s 15% off discount for donating clothing and home textiles, you can be consistently buying things for around 60%–85% off. Personally, I don’t make a purchase on something like clothing unless it’s a minimum of 50% off, then I combine that discount with the aforementioned supplementary measures.
In short, I find it concerning that even those whose identity is built around leading people’s financial wellness recommend behaviors and thinking that result in potentially heavy money losses, as well as fail to engage directly with those holes in judgment and the havoc they can wreak on their finances (as well as the rest of their lives).
Think before making a move that could impact your money: pause, decide on the wisest action to perform, and act on that decision, even when it doesn’t feel good in the moment. Our gut is often wrong.