There's no need to put your financial decisions in jeopardy by overlooking one of the most important factors that companies consider when deciding whether or not to do business with you. While there's nothing wrong with reading Ramsey's financial advice — and even putting some of it into practice - the bottom line is that you must make your own financial decisions. Ramsey is only one of many voices. Take the time to learn everything you can before deciding on the best strategy to handle your money.

Returns on the S&P 500

Dave Ramsey has stated several times that you should expect a 12 percent return on your investment. This, he argues, is based on the S&P 500's "historic average yearly return."

Here's the issue: This number of 12% is based on the S&P 500's simple average return from 1926 to 2019 rather than the compound annual growth rate (CAGR). Here's what this implies, despite the fact that it may appear complicated. Let's imagine a $10,000 investment increased by 25% one year and decreased by 25% the following. The simple average return on investment would be 0%. However, your investment would have lost about 6.25 percent in actuality.

This is why:

$10,000 plus 25% of $10,000 is $12,500.

$12,500 minus 25% of $12,500 Equals $9,375

Unfortunately, if you base your retirement estimates on Dave's premise that you'll make 12 percent every year rather than approximately 10% over time, you may end up with significantly less money than you anticipated. In instance, investing $5,000 every year for 30 years at a 12 percent annual return would net you $1.21 million, yet investing the same amount at a 10% annual return would net you only $833,470. When it comes to saving objectives, you can't afford to make excessively optimistic assumptions about how assets will perform. GO URL Learn More

Mutual funds with high fees. Whatever you think of Dave Ramsey, you can't deny that he's a clever businessman. Not only does he persuade individuals to deposit all of their money in mutual funds, but he also has an army of consultants ("approved local providers") ready to charge excessive fees for their suggestions (for which he receives a fee).

Oh, and even if the market were to return 12% annually? After paying Ramsey's suggested providers' mutual fund charges and fees, you'd earn a lot less. Ramsey has a strange aversion to low-cost ETFs.

Insurance that covers you for the rest of your life. Dave just does not comprehend how it works or why it would be a better option for long-term investments than the money market accounts or CDs he suggests. He claims to be a truth teller about his entire life, yet he has said many things that are wrong, refuses to consider long-term rates of return, and has even offered terrible advice to liquidate health insurance.

"Whole life insurance protects you for the rest of your life, which sounds fairly fantastic, doesn't it?”Wrong," Ramsey says. "The fact is that a high premium will cost you a lot more over the course of your life, and you may never realize the financial value."

Prioritizing retirement funds over debt repayment.

Ramsey is well known for his "baby steps," which include the following:

Putting money aside for an unexpected expense is a good idea.

Except for your home, you'll be able to pay off all of your debts.

In an emergency fund, set aside three to six months' worth of living costs.

Putting money aside for retirement

Putting money aside for your children's higher education

Getting rid of your mortgage

Creating riches and giving back

Taking these actions might be a wise decision. However, the notion that you should pay off all debt, save your mortgage and put up a six-month emergency fund before you start investing for retirement is incorrect. Some debt has a low interest rate, far lower than what you could earn in the stock market. Paying off those sorts of loans early might be a significant missed opportunity, since you'll get a lesser rate of return on your money if you put it into debt rather than the market.

It may potentially take years to pay off all of your debt and build up such a substantial emergency reserve. Meanwhile, you might be missing out on an employer match for retirement contributions as well as tax benefits from a 401(k) or IRA investment. GO URL Learn More

It's preferable to live without credit.

Ramsey has claimed that you're better off not borrowing at all, and that you can easily complete financial activities without a credit score, such as renting an apartment or acquiring a mortgage.

However, most mortgage lenders, vehicle loan firms, insurance companies, mobile phone companies, utility agencies, and landlords will check your credit history. While you might be able to locate some lenders or landlords who would ignore the fact that you don't have one, you'll be limiting your options and making things more difficult. Credit is a tool that may (and should) be used. It may be used to make the greatest use of your money, such as when you borrow at a low interest rate for necessary purchases while investing the balance of your money. The finest credit cards will also allow you to earn points, miles, or cash back on purchases you'd make anyway, while also providing purchase protection.

You may still use credit cards to create excellent credit even if you don't want to use them or borrow because you're scared you won't be able to manage debt responsibly. Making one purchase every month and paying it off on schedule is all it takes. Setting up a card to pay for your monthly Netflix membership and then setting up auto pay to guarantee you pay off the bill in full is a simple way to achieve this. There's no need to jeopardize your financial decisions by omitting one of the primary measures that firms use to determine whether or not they want to do business with you.

While there's nothing wrong with reading Ramsey's advice. When it comes to making financial decisions — and even implementing some of it — the ultimate line is that you must make your own decisions. Ramsey is only one voice among many. So, before deciding on the best way to manage your money, take the time to learn everything you can.