If you flip the equation, it will force you to think with your head, not with your heart.

Any loyal Dave Ramsey listener has heard this phrase hundreds of times. And I agree: Your head judges on facts and truths. Your heart perverts reality and reshapes the truth to be parallel to your emotions.

So let’s flip the equation and look at Ramsey’s advice with our heads and not our hearts.

Imagine a couple named Bob and Mary. They’re close friends of yours with a good household income.

Recently, you watched them go from a $300,000 house to a one-bedroom apartment, and from newer, reasonably priced cars to a matching set of rusted out vans without any windows. You’re worried about Bob and Mary. So when Bob asks if you’d help them evaluate an idea, you’re eager to help.

Before you get started, you ask them to write down their monthly expenses. This is what they write:

          • Rent: $1,000
          • Gas: $250
          • Utilities: $150
          • Cell: $100
          • Food: $250

“How much does that leave you,” you ask.

Mary, looking embarrassed, responds: “$577.”

That amount, you say, is a decent starting place for setting up a financial plan. Then Bob interrupts you.

“We have $577 left per year, not per month.”

Stunned, you ask: “Where does the rest go?”

Before Bob answers, you do some LQM (lightning quick math), and figure out they’re living on $21,577 per year. You know that can’t be right. “What’s your annual income?” you ask both of them.

“About $140,000 gross,” Mary replies.

“Why are you living on $21,577 per year then?”

Mary shares with you that after taxes, they’re left with about $100,000. Then they live on about $20,000 and use the rest, $80,000 per year for the next five years, to fund a permanent cash value life insurance policy, which protects them against market downside.

Let’s pause here. Game offffffff.

Related: How to battle irrational financial behavior

Even when clients carry a high debt load, trained financial planners can find ways for them to mostly maintain their lifestyle without having to live on peanuts. (Photo: iStock)Even when clients carry a high debt load, trained financial planners can find ways for them to mostly maintain their lifestyle without having to live on peanuts. (Photo: iStock)

Extreme austerity

If you’re a Ramsey loyalist, then you’re screaming with emotion (heart), “What are you DOING? Permanent life insurance is a scam, and it’s a terrible investment!” If we use reason (head), we’re still dumbfounded over this decision. This is too aggressive, because $577 leftover for the year leaves no room for error.

See also: 10 things to know about whole life insurance

Okay, let’s go back to Bob and Mary.

“Guys, what are you going to do if you have an emergency?”

“Relax,” Mary says. “We’ve got $1,000 in the bank for emergencies, and if we need to, we can stop paying into the policy for a while and cash flow the expense. Or, worst case scenario, we could pull money out of the policy.”

Even with the ability to defer payments or pull money out, is this a smart plan?

Most of you reading this are probably thinking, heck no! Ignore your preconceived notions against permanent cash value life insurance based solely on suppositious evidence. Both logically and emotionally, this plan is unreasonable regardless of the product.

Time to flip the equation. Here’s what really happened. On Dec. 12, 2016, Tiffany from Atlanta called into the “Dave Ramsey Show.” She gave the following details:

          • Household Gross Income: $140,000
          • Student Loans: $300,000
          • Mortgage: $300,000
          • Car Loans: $15,000 and $11,000
          • Medical and Misc.: $34,000

Dave Ramsey, triumphantly waiving the “get out of debt as fast as you can” flag, tells Tiffany that they’re broke. He says, you’ve bought way too much car and way too much house, and you need to get out of debt as quickly as possible.

Don’t just take my word for it. Here’s are Dave’s own words: “If we put $80,000 on it, it’s done in 4 and a half. And you should be able to do that. You’re just living on nothing. But, I mean. Again, if I were in your shoes, I am going to move way down on house. I am going to sell the $15,000 car, and maybe the $11,000. Get a couple of junkers.”

Related: 15 of the most debt-ridden states

In other words, Ramsey tells Tiffany to sell everything so she can be debt-free in 54 months, or 4 and a half years. However, at 5 percent interest, it’s actually 60 months.

Ramsey tells Tiffany she can put $80,000 per year toward this. But I don’t think he did the math. I Googled to find a Georgia state income tax calculator, clicked on the first link (smartasset.com), and moved the scroll bar to $140,000. The calculator subtracted Federal, State, FICA, etc. and calculated that the couple has $101,577 after tax income. This took less than two minutes.

The $101,577 of after-tax income, minus the $80,000 paid per year toward debt, leaves $21,577. Sound familiar?

Dave Ramsey basically told Tiffany and her husband to live on $21,577, which we just agreed is unreasonable. Use your head not your heart. The details are changing slightly, but don’t let your heart corrupt your mind.

Dave’s plan for Tiffany is actually more aggressive than Bob and Mary’s plan. In Dave’s Plan, should Tiffany or her husband lose their job or have a non-cash-flowable emergency, then they’re really broke. Tiffany wouldn’t be able to withdraw any of the $80,000 per year she’s thrown at the couple’s debt, whereas Bob and Mary has that safety net. In fact, despite the extra payments made, the monthly payments aren’t reduced.

Professional financial planners do the math that Dave Ramsey so often forgets. (Photo: iStock)Professional financial planners do the math that Dave Ramsey so often forgets. (Photo: iStock)

Financial services training makes a difference

This is the kind of short-sided, not thought-out advice you expect from Ramsey, an entertainer who who is unlicensed and untrained in financial services. From this call alone, it’s clear Dave only works with people for minutes, not years.

Here’s what a trained financial planner would do:

Let’s assume Tiffany and her husband, over the course of a year, can save $24,000 in addition to their normal monthly payments. They can keep it in savings or, if they’re afraid they’ll spend it, they can buy a one year CD. With a CD, in case of an emergency, the worst case scenario is they’ll lose the earned interest, which, in case you’ve been living under a rock, is just north of squat.

Ramsey says, if they sell their cars and go rent something, they can put $80,000 per year toward debt. (I disagree, but it allows for an accurate comparison). I’ve estimated their mortgage payment to be $24,000 per year, and since we assumed rent to be $12,000 per year, the couple can throw $68,000 per year toward debt, if they keep their home. At a 5 percent interest rate, they’ll be debt free (not including their mortgage) in 75 months. If it takes a year, or 12 months, to build a cushion, then this takes a total of 87 months.

If they sell the house but keep the cars, then this is reduced to only 70 months. It’s more conservative to drive reasonably priced cars, save for emergencies, and only carry the debt for 10 additional months.

Let’s make this simple:

Dave asks the couple to give up everything and sell everything. He tells them to have no emergency plan. If they do experience a job loss, then they have no way of paying for living expenses or their remaining debts. Sure, in 60 months they’ll be debt free. But they will have no money, be able to see through the floor of their rusted-out hoop-dees, and live in a one-bedroom apartment. But they’ll be debt free, so they can go and buy a house with a 15-year mortgage.

Or, they could keep the house and cars, build an emergency fund, plan for the unexpected and be debt free (minus the house) in 87 months. Likewise, they could sell the house, keep the cars, build an emergency fund in case of the unexpected, and be entirely debt free in 70 months.

If we flip the equation, you will answer with your head and not your heart. When we told Bob and Mary to live on nothing just so they could buy a very unpopular product, it was easy to see that it was bad advice. Likewise, Ramsey’s advice would subject Tiffany to unnecessary hardship and financial risk.

So the next time you’re listening to the “Dave Ramsey Show,” go ahead and flip the equation. Use your head and not your heart. You’ll see just how flawed Ramsey’s advice really is.

Read more “Seriously Dave?!” columns by Michael Markey:

8 more Dave Ramsey myths debunked

Let’s play a new game: Dave Ramsey Jenga®

The DOL may regulate entertainer Dave Ramsey, but should it?

Debunked: Dave Ramsey’s cash value life insurance advice

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