# Dave Ramsey's Advice on Becoming a Millionaire Is Off

It looks like Dave Ramsey has been bitten by the pop culture finance bug.

## Dave Ramsey's Advice on Becoming a Millionaire Is Off

It looks like Dave Ramsey has been bitten by the pop culture finance bug. He is giving the simple advice that all you have to do is save \$100 a month over a period of time and you can become a millionaire.

His notion is that saving \$100 a month between age 25 and age 65 would make you a millionaire as long as you earn 12%. It is that simple, right? He says he has been getting 12% on his money for years. Of course, anyone can go online and buy a S&P 500 index fund and make this simple formula work.

Let's look at his assumptions behind his advice.

1) His math doesn't work

If you take the Vanguard S&P 500 fund over the last 40 years until 2017, the average is 11.06% and not 12%. You might say that is not a big difference. Well with his "idiot-proof" approach, that less than 1% a year over 40 years makes a huge difference.

In fact, I ran the numbers. If you took the 40 years above and invested as he said \$100 a month, then you would earn \$826,032 at the end of the 40 year period and not over a \$1,000,000.

I would invite Mr. Ramsey to prove his 12% returns using index funds and noting which time period he is using. Being vague about where you get your numbers can be misleading to his audience of faithful listeners.

By the way, the S&P 500 since 2000 has averaged a little over 5.5% a year through 2017. Mr. Ramsey, there is 17 years of below 12% growth.

It is irresponsible to suggest that you can earn 12% on your money year in and year out or even on average when that has not been the case.

2) The insinuation that you are set if you are a millionaire

Then the worst assumption that could be made by his followers. All I have to do is invest \$100 a month, earn 12%, and I am set as a millionaire at retirement. Being a millionaire 40 years from now doesn't make you rich or set you up for a nice retirement.

A million dollars 40 years from now is the equivalent of \$306,556 in today's dollars given a 3% inflation rate.

This is where radio hosts have the most responsibility and that is not to be irresponsible in what they say to people who follow their every word. In other words, be better than Pop Culture Finance in the advice you give on air. I have made that mistake before and try to be careful. Mr. Ramsey's advice is just plain out there with this magical formula to be rich.

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Hey thanks for pointing this out. My other thought is that why is the goal of any believer to be retired or to have their “barns all full”? Never understood that. Retirement is not a biblical principle that I can find. Sure we might change where we focus, but playing golf or sitting in a bass boat should not be the end game of believers. Right?

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@FaithfulinFinancing - I guess everyone has their opinions. I believe it is the ultimate season to serve. It is the one time in your life when earning an income is an option and not a have to. Thus, you have ultimate freedom in your life. Now it takes years of building an investment account to finance that freedom. You can make retirement about yourself, about others, or a balance. I think the point is to invest your time where God leads!

Agreed. From success to significance. Good stuff, bob thank you!

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@FaithfulinFinancing - thank you for leaving comments - it helps build the community!

Yessir Happy to be a part of wrestling with this mammon stuff :)

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