Live on a strict budget and get out of debt as soon as possible. That’s the standard advice offered by personal finance expert Dave Ramsey.
However, real estate mogul, Grant Cardone, warns that this austere advice doesn’t apply to most North Americans. Cardone goes one step further by stating that this advice is only beneficial for "idiots" prone to overusing credit.
“People use credit cards too much," proclaims Cardone. "They borrow money for Gucci belts and try to pretend to be somebody they’re not," explained Cardone during an interview with DJ Vlad. “If you’re an idiot, go listen to Dave [Ramsey].”
Cardone clarified that he uses credit cards himself, but he makes sure he repays what he borrows so he never owes interest on the short-term loan.
But what about all the people that claim Dave Ramsey’s austere advice helped? Here’s why Cardone is convinced people should stop living on a strict budget and, instead, suggests three strategies to manage your money and grow your net worth.
Grant Cardone says: We save too much
According to the entrepreneur, most North Americans suffer from saving too much, being too conservative and not taking enough risk. This isn’t a dig at people who set aside and invest their savings, but at mattress-stuffers — people that stash cash with no real plan for how that money can earn and grow.
“For those that want to get wealthy, at some point you’re going to leave Dave [Ramsey’s] advice and you’re going to start watching what wealthy people do,” explained Cardone.
Is Cardone correct? Do we save too much?
Higher interest rates and inflationary pressures are affecting Canadians, with 63% indicating the current economic climate is negatively impacting their ability to save for retirement, according to a BMO survey. Turns out 37% of Canadians are putting less money towards retirement savings with 38% of Gen Z admitting that they’ve put off saving for retirement completely and 44% of baby boomers reporting a retirement delay as they work longer than they’d planned in order to meet their retirement savings goals.
In another report, released by CPA Canada, approximately 50% of Canadians admitted they’d be unable to cover an unexpected cost of $2,500, more than a third (38%) were unable to cover an unexpected expense of $1,000, while 1 in 4 (26%) of Canadians couldn’t over an unexpected cost of $500 without resorting to borrowing money or selling something.
Quite often, the first method of covering an unexpected expense is to charge it to a credit card.
Does North America have a credit card debt problem?
While Cardone doesn’t think that overspending using credit cards is a widespread problem in North America, he does believe our reliance on debt can be problematic.
Perhaps that’s why Dave Ramsey’s advice still resonates for many — as the finfluencer steadfastly rejects the use of expensive forms of debt, such as credit cards.
In Canada, total consumer debt rose 3.2% in 2023 to hit $2.45 trillion by the end of the year, according to the Equifax Market Pulse report. Non-mortgage debt surged to $116.2 billion by the end of 2023 — up 4.1%. This increase in non-mortgage debt was fuelled by unpaid credit card balance debt of $15.9 billion.
Equifax Canada Vice-President of Advanced Analytics, Rebecca Oakes, confirmed that even after Canadians cut back on discretionary spending in 2023, the balance on credit cards rose because of reduced payments to these higher-interest, revolving credit loan products.
According to Equifax Canada, the percentage of Canadians that pay off their credit card balance dropped from 66.1% by the end of 2022, to 65.4% by the end of 2023.
Cardone admits Ramsey’s advice works for credit card borrowers
Cardone recognizes that Ramsey advice about avoiding the use of credit cards when balancing a budget is tough does help.
“I think Dave’s great for most people that just want to figure out how to get out of debt," explains Cardone. "He’s done a great job."
Want to get rich? Here are 3 tips
Cardone knows a thing or two about real estate. His private equity firm, Cardone Capital, boasts a multifamily portfolio with more than USD$4 billion of assets under management (AUM). When building his real estate empire, Cardone relied on debt and he clearly believes that certain types of debt can be useful. There are other strategies that can help a person go from working to earn a living, to getting their money to work for them to becoming wealthy. Here are three tips.
#1. Use the power of compound interest
Compound interest is earnings calculated on both the initial money saved, as well as all the interest this initial sum previously accumulated. It’s known as compound interest as your earn interest on the interest your money has already earned. The power is that the money you earn then earns money, and this earned money then earns you more money. The most common product used is a high-interest savings account (HISA), although a variety of other products can offer compound interest on invested deposits.
If you’re looking to make the most of your savings you’ll want to use a high-interest savings account (HISA). This type of bank account lets you stow away hard-earned cash at favourable interest rates.
Read More: Find a HISA and get rewarded by tapping current bank account promotions.
#2. Use the power of leverage
Cardone believes using leverage is necessary if you want to move from earning and living paycheque to paycheque to saving and building wealth.
He uses his own journey of wealth creation to illustrate. "If you want to build a US$4 billion real estate portfolio you’re going to have to use debt."
“While it’s true that too much debt can be a bad thing, it can be one of the most powerful tools in a real estate investor’s arsenal,” Cardone wrote in a blog post.
He explained that there is good debt and bad debt. Bad debt includes things that do not put money in your pocket, such as credit cards and car payments. Good debt, on the other hand, are investments that eventually help you build wealth.
“Real estate is the best example of good debt because it has the potential to generate both capital appreciation and cash flow,” Cardone noted.
These days, there are multiple ways to tap into real estate.
You can take on debt to purchase rental properties directly or buy shares of publicly traded real estate investment trusts (REITs). You can also explore crowdfunding platforms that allow you to own a stake in private REITs or a percentage of physical real estate properties, like apartments, commercial buildings and even plots of land.
#3. Make your money work for you
While not everyone can afford to build a real estate empire like Cardone, developing a financial plan with an investment strategy can help you build a strong tool to get your money working and earning for your future. To implement an investment strategy, you will need a direct brokerage account. Good options include:
- Wealthsimple: This trading platform offers commission-free trading on stocks, ETFs and even crytpo. There are no account minimums, no annual fees or inactivity fees. Start investing with Wealthsimple and get $25 in free trades. Terms and conditions apply..
- Questrade: Pay $0 on trading fees plus get access to fractional shares on select equities. Open a Questrade account today and get $50 in free trades
Use robo-advisors and automatic savings apps
For those not yet comfortable with investing concepts, a good option is to use the services of a robo-advisor — a professionaly managed portfolio of equities (and sometimes fixed income products) that help you to earn interest, capital gains and dividends on your investments. Good options include:
Wealthsimple: As a trusted fintech firm in Canada Wealthsimple offers an easy-to-use dashboard and a set-and-forget auto-investing plan. The Wealthsimple experts will build you a smart investment portfolio to help achieve your goals. You’ll get a $25 bonus when you open your first Wealthsimple account and fund at least $1 within 30 days. T&Cs apply.
- Management fees: 0.5% first $100,000, 0.4% up to $500,000 (and 0.2% to 0.4% above this threshold)
- Minimum account size: $1
Moka: For the consumer looking for long-term investments without active management, Moka is a great option. It’s designed for hassle-free investing, automating contributions to the S&P 500, known for its solid average annual return of 10% over 65 years. With a flat fee of just $15 monthly (plus 0.09% fees for the ETFs), it’s much more cost effective than traditional managed funds, translating to significant savings over time.
- Management fees: Not applicable. Pay a flat monthly fee of $15, instead
- Minimum account size: n/a
Questwealth: When starting to invest with Questwealth, after filling out a questionnaire on your risk level, you are placed into either aggressive, growth, balanced, income or conservative portfolio category. Then you choose the type of account you want to invest in, such as a TFSA or RRSP. While it’s not entirely automated, the fees remain the most competitive.
- Management fees: 0.25% first $100,000, 0.20% after that, plus administrative fees based on which account chosen for investment.
- Minimum account size: $1,000
Justwealth: Similar to Questwealth, Justwealth is not entirely automated. The company prefers to see itself as more personal, with a hybrid approach that combines humans to talk to along with automated investing options. The platform has 70 different portfolios, with the main categories including global growth, Canadian growth, income, socially responsible, educational target dates and USD. With those are even more portfolios for those who like options.
- Management fees: $4.99/month, $2.50/month for RESP, plus 0.5% annual fee and average 0.25% ETF fee
- Minimum account size: $5,000, no minimum for RESP
Bottom line
Cardone doesn’t believe in an austere financial plan, while Ramsey is convinced that quick, extreme action is critical for success. While their methods may differ, both Cardone and Ramsey agree: Not all debt is equal. Rather than focus on no debt or ignoring debt, the key is to be strategic about how you spend and what debt products you use to spend. Follow the tips about not using expensive debt and maximizing time and leverage and your habit of saving could blossom into a wealth creation tool.
— with files from Romana King and Amy Tokic
Sources
1. BMO: BMO Annual Retirement Survey: Millennials Believe They Need About $2.1M To Retire Compared to the National Average of About $1.7M
1. CPA Canada: Are we thriving or merely surviving? New CPA Canada study examines the state of Canadians’ finances in today’s turbulent times
1. Equifax Canada: Increased financial strains as credit deliquencies continue to rise
1. Grant Cardone: How to leverage debt as a real estate investor
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
