Personal Finance

Dave Ramsey says these are the two questions that separate rich people from poor people

John Seetoo

Published: February 11, 2025 10:28 am

Financial advice radio program host Dave Ramsey usually gets callers with specific questions on their personal situations. However, among general topics, one that has come up is the different mindset that separates the rich from the poor.

Ramsey noted that the major question that a rich person asks when posed with a proposition is: “How much?” Conversely, Ramsey says that a poor person will ask: “How much down payment?”

The implication is that rich people don’t spend beyond their means, while poor people habitually overspend themselves into debt scenarios. They purchase based on whether or not they can afford the down payment, without consideration about how high interest rates, sudden emergencies, a loss of employment or a pay cut can impact the ability to maintain payments, not to mention the higher total net cost when the interest is added on.

The Heavy Yoke of Debt

According to Business Insider, the average American is $104,215 in debt, inclusive of mortgage, credit cards, auto loans, and student loans. The yoke of debt around American taxpayers’ necks grows continually larger; the national debt is presently increasing by $1 trillion every fiscal quarter.

There is absolutely no question that the debt and credit business is huge. Visa Inc. (NYSE: V) stock, at the time of this writing, is currently 4 points shy of its 52-week high of $296.34, and Barclays has just announced its 12-month target for Visa is $347.00. Rival MasterCard (MYSE: MA) is trading at $506 and has an analyst consensus 12-month target price of $544.36.

Credit card balances exceeded the $1 trillion milestone in Q4 2023. A Debt.com report cited the following statistics among American respondents:

• 45% have had to use credit cards to pay for staples, due to inflation-fueled higher prices.
• 9% have had a financial emergency requiring use of a credit card.
• 35% have maxed out their credit cards.
• 85% of those with maxed out credit cards blamed inflation and higher prices as the overwhelming factor in prompting card use.
• 22% were carrying credit card debt between $10,000 and $20,000.
• 5% were carrying credit card debt in excess of $30,000.

Solutions

Ramsey’s fundamental advice is essentially, “Don’t buy it if you can’t afford it.” Sadly, the omnipresence of 24/7 marketing in our social media, emails, television viewing, and even in reading newspapers and magazines, makes this advice even more difficult now than in bygone days.

Given that inflation is still a threat that is lurking around the corner to jump higher yet again, cutting credit cards that may be needed in emergencies is not a practical option in the current economic climate.  However, there are some steps that those trying to handle debt can take to get out from under:

• Make a weekly budget and start saving. Even a small amount of savings every week, after all current expenses are met, will become a financial benefit, and is a good habit to develop. The weekly budget will help to separate spending on “needs” versus “wants”, and offer a good financial picture as to how much cash is being burned so that lifestyle adjustments can be decided upon.
• Eliminate the habitual use of credit cards. By sticking to cash and debit cards, regular account monitoring will immediately let one know how well a budget is being adhered to. The cost of a $10 McDonald’s meal bought on credit with a high-interest rate credit card can wind up costing more than double in the long run, depending on how much the overall debt can be paid down over what period of time.
• Look for debt consolidation options. As interest rates may temporarily fall somewhat thanks to the recent Fed Funds rate cuts, locking in a lower interest rate and using it to consolidate high-interest cards can be invaluable in refinancing outstanding debt into a more manageable monthly amount and will help to accelerate retiring the entire principal overhang amount.