I’m a Self-Made Millionaire: Why I Disagree With Dave Ramsey’s Advice for Building Wealth
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Gabrielle Olya
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Gary Dudak
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Dave Ramsey has outlined his path to financial freedom and wealth through his “7 baby steps” — but not everyone agrees that following these rules actually pays off. Jeff Sekinger, the founder of Nurp, Zero Percent and Orca Capital, is a multimillionaire who earned his net worth from the ground up, and he believes that some of Ramsey’s advice is actually stopping people from becoming rich.
Sekinger spoke with GOBankingRates about why he doesn’t agree with Ramsey’s advice — and what he says you should do instead.
Taking on Debt Can Be a Good Thing
Step two of Ramsey’s baby steps is to “pay off all debt (except the house) using the debt snowball.” But Sekinger doesn’t see debt as a bad thing — especially if you want to become wealthy.
“If someone is trying to be average and sit in the middle class, then I honestly think his advice to not get in debt is pretty good,” he said. “For people that are trying to become millionaires or maybe deca- or even hectomillionaires, [they should] use debt to either purchase businesses or to finance part of their businesses, or to use it to acquire real estate.”
There are three different reasons why millionaires take on debt, Sekinger said.
“One is the speed,” he said. “You can buy more properties at a quicker rate with 80% of other people’s money than if you were trying to save up to buy 100% of that property. The second thing is for taxes. Debt is nontaxable and the interest is a write-off. The last thing is risk. People that are in the millionaire bracket understand how to set up certain types of entities and trusts to limit their own personal liability and to put the risk of that business onto that business instead of themselves.”
Putting Money Into Retirement Accounts Won’t Make You Rich
Step four of Ramsey’s baby steps is to invest 15% of your household income toward retirement in tax-advantaged accounts like 401(k) plans and IRAs.
“While retirement accounts can make sense for the middle class, there are restraints to the amount that you invest into these retirement accounts,” Sekinger said.
In addition, they may not be the best place to put your money when you consider the future taxes you will have to pay when you withdraw funds from a 401(k) or similar plan.
“If you’re betting on taxes being lower in the future, I think that’s a mistake — the tax rates have continued to go up,” Sekinger said.
Instead of investing 15% of your income into retirement accounts, you should invest this money back into yourself, he said.
“If you look at people that are multimillionaires or even in the billionaire status, they have built that wealth because they put their money first and foremost into themselves — acquiring skill sets and learning from people that are further ahead,” Sekinger said. “Continue to invest in yourself and experiences that help grow your character and skill sets, and education that makes you smarter so that you can make money from your knowledge and not from your time.”
Investing in Index Funds and Mutual Funds Won’t Make You Rich
Ramsey recommends investing in mutual funds above all other assets — but Sekinger doesn’t see mutual funds and index funds as a way to accumulate significant wealth. Instead, he said to invest in private equity.
“Pretty much all billionaires have become billionaires through building equity in private companies,” Sekinger said. “If you have really big goals for yourself, you shouldn’t be throwing money into index funds; you should be going all in on yourself, and then all in on a venture that can push you to the place that you really want to get. You need to build your wealth through private equity.”
By comparison, index funds provide much lower returns on average.
“Low-cost index funds maybe give you 8% a year. The problem with that is inflation,” Sekinger said. “Last year, inflation was over 9%, so if you only made 8%, you actually lost value.”
Investing 15% of Your Income Is Not Enough
Ramsey suggests investing 15% of your income, but Sekinger said that millionaires and billionaires invest much more. However, he said it is OK to start small.
“If someone’s never invested before, I think it’s great to start with 10% of your income, and then just continue to bring that percentage up — get that from 10% to 20% to 30% to 40% and even to 50% of your income every month,” he said. “You’re going to get to a place where you have financial independence a lot earlier in life.”
Instead of Getting a Second Job, Focus on Getting a Higher-Paying Primary Job
Ramsey recommends getting a second job if you want to get out of debt faster, save for another financial goal faster or to have extra discretionary funds. But Sekinger doesn’t think this is the best use of your time.
“The problem with his advice is the more things that you focus on, the less time you have and the more distractions you have,” he said. “I’m a much bigger fan of having fewer things to do, but having scalable things to do. So don’t try to get as busy as possible. Some of the wealthiest people in the world are not always busy. They just focus on a few small things.”
Instead of getting a second job, figure out why you are not able to make enough money at your current job, Sekinger said.
“Why are you not able to scale your income in that position? That should be the number one focus,” he said. “Put your focus on income-producing activities, and the fewer the better. Find something that has uncapped earning potential.”
Sekinger recommends looking for remote sales jobs, and growing your skill sets so that you keep increasing your income.
“If you don’t have a huge income, you need to find a place where you can get a bigger income and where you have uncapped earning potential,” he said. “Narrow your focus on that thing, and make as much money as possible. If you’re chasing too many rabbits, oftentimes you don’t catch more.”
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