Grant Cardone Clashes With Dave Ramsey on This Money Advice

During a recent interview, real estate investor and businessman Grant Cardone said he disagreed with Dave Ramsey‘s advice on credit cards and debt. In a popular clip from the interview, Cardone said, “If you’re an idiot, go listen to Dave.”

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Of course, there is much-needed context to that quote — it’s not nearly as controversial as it seems — so watch for yourself. Then, consider what these money experts advise you to do. Which parts of their advice should you apply to your finances? Let’s dig deeper.

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Cardone’s Approach to Credit and Debt

While Ramsey is known for being staunchly anti-debt in all forms, Cardonea advocates for leveraging debt to create wealth.

He argues that using credit responsibly can be a powerful tool for investing, particularly in income-generating assets like real estate. Cardone’s strategy emphasizes rapid growth and the use of debt as leverage to amplify potential returns. He stresses that when investing in real estate, “There’s no such thing as being too aggressive.”

Cardone believes that a fear of debt holds many people back from achieving financial freedom, and that calculated risk-taking is essential to growing wealth.

Use Debt To Leverage Growth

Cardone distinguishes between “bad debt,” which is used to purchase depreciating assets, and “good debt,” which is used to buy assets that appreciate or generate income. Cardone’s approach involves selecting opportunities for which the potential return on investment from using borrowed money significantly outweighs the cost of borrowing.

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Invest in Income-Producing Real Estate

Cardone talks about the importance of finding real estate investments that generate a consistent income. He advocates for multifamily properties over single-family homes, as they can provide a more diversified source of income. The income generated from these properties can then be used to cover the loans used to purchase the properties.

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The 10x Rule

One of Cardone’s most famous principles is “The 10X Rule,” which he outlined in his book “The 10X Rule: The Only Difference Between Success and Failure.” The rule encourages individuals to set targets that are 10 times greater than what they believe they can achieve and to take actions that are 10 times greater than what they believe is necessary.

Ramsey’s Philosophy on Credit and Debt

Ramsey stands on the opposite end of the spectrum. Ramsey’s advice is built on the foundation of living a debt-free life. He vehemently opposes the use of credit cards, advocating for a cash-based system of budgeting and spending.

Ramsey argues that debt is a burden that limits financial freedom and potential. He suggests that the risks associated with debt, including high interest rates and the potential for financial overextension, outweigh any potential benefits. This, of course, stands in stark contrast to Cardone’s view.

Additionally, Ramsey’s philosophy centers on the concept that true financial peace and prosperity come from being completely debt-free. Ramsey’s advice extends to avoiding consumer debt, car loans and even mortgages, if possible, promoting a lifestyle in which everything is owned outright.

Ramsey’s “baby steps” framework guides individuals through a process of debt elimination, emergency fund creation and wealth building through investing in low-risk options like mutual funds [10].

Baby Step 1: Save $1,000 for Your Starter Emergency Fund

The first step Ramsey advocates is the establishment of a modest emergency fund of $1,000. This initial safety net is intended to cover unforeseen expenses without the need to resort to credit cards or loans, thereby preventing debt from accumulating.

Baby Step 2: Pay Off All Debts Using the Debt Snowball Method

Ramsey’s debt snowball method involves listing all debts from smallest to largest, regardless of interest rate, and focusing on paying off the smallest debt first while making minimum payments on the rest. Once the smallest debt is cleared, the amount used to pay off that debt is then applied to the next-smallest debt, creating a “snowball effect” until all debts are paid off.

Baby Step 3: Save 3-6 Months of Expenses in an Emergency Fund

After clearing all debt, Ramsey recommends building a more substantial emergency fund that can cover three to six months of living expenses. This larger safety net ensures that individuals can withstand significant financial hardship, such as a job loss or a medical emergency, without falling back into debt.

Baby Step 4: Invest 15% of Your Household Income Toward Retirement

With no debt and a solid emergency fund in place, Ramsey advises allocating 15% of the household’s income toward retirement savings. He suggests utilizing tax-advantaged retirement accounts, such as 401(k) accounts and Roth individual retirement accounts, to invest in mutual funds.

Baby Step 5: Save for Your Children’s College Fund

For those with children, Ramsey emphasizes the importance of saving for their education to prevent them from incurring student loan debt. He recommends using tax-advantaged savings accounts, like 529 plans or education savings accounts, which can grow tax-free when used for qualified educational expenses.

Baby Step 6: Pay Off Your Home Early

Ramsey advocates for the early repayment of mortgages, arguing that owning your home outright is a key component of financial freedom. He suggests applying additional payments to the principal balance of the mortgage to reduce the interest paid over time and accelerate the payoff date.

Baby Step 7: Build Wealth and Give

The final step in Ramsey’s plan is focused on wealth-building and philanthropy. With no debt, a fully funded emergency fund and retirement savings in progress, individuals are encouraged to further grow their wealth and give generously to causes they are passionate about.

Whose Personal Finance Advice Should You Follow?

Cardone advocates for using debt as leverage to invest in real estate and accelerate wealth generation. This strategy can yield high returns, but it comes with risks.

The 2008 financial crisis serves as a reminder of what can happen when real estate market conditions sour: Real estate values can plummet, leaving investors over-leveraged, facing mortgages that exceed their properties’ worth. Many experts, including members of the Federal Reserve, believe that the current housing market may have some of the characteristics of a bubble, so debt-fueled investments may be risky.

If you’re considering elements of Cardone’s approach:

• Understand the market: Deep knowledge of real estate cycles is crucial.

• Assess your risk tolerance: Determine if you can handle the potential financial strain if your investments don’t pan out as expected.

• Have a plan B: Ensure you have strategies in place for worst-case scenarios, such as a sudden market downturn.

Ramsey’s philosophy centers around avoiding debt, building an emergency fund and methodically investing for the future. His approach provides a more stable foundation, especially in uncertain economic times.

Ultimately, the best financial strategy is one that aligns with your personal goals, risk tolerance and financial situation. It’s important to remember that although leveraging debt can amplify returns, it can also magnify losses, especially in unpredictable markets.

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