This Is One of Dave Ramsey's Most Dangerous Pieces of Financial Advice

Don't listen to this advice from Dave Ramsey if you're hoping to build wealth.

Dave Ramsey is a finance expert and he's given some great advice about various financial issues. But he's also given some suggestions that many people should think carefully before following. For example, he suggests swearing off credit cards, but doing so would mean giving up the chance to build credit and earn rewards. He also suggests opting for a 15-year mortgage when many people would be better off with a 30-year loan.

But while there's room for disagreement on these suggestions, there's one piece of advice Ramsey has given that could actually be really dangerous to follow. Here's what it is. 

Don't follow this Ramsey advice if you want to build wealth 

Dave Ramsey's most dangerous advice relates to how you prioritize what to do with your money. Specifically, Ramsey said that, “If you're paying off debt, you should pause any contributions to your retirement.”

Ramsey believes you should prioritize debt repayment over retirement investing so you can make more progress on your debt more quickly. "Pushing pause is the best way to get rid of that chain so you can invest even more in your future," he said. 

He suggests that if you devote all your spare cash to debt payoff, you can free up more money to invest for retirement later. "Once you get rid of that debt, you can resume investing at warp speed! You'll be truly focused and intense, and nothing will be able to hold you back from where you need to go!"

Why is this advice so dangerous? 

Ramsey's advice to pause retirement investing is not advice most people should follow -- especially since he believes you should repay almost all that you owe before switching back to retirement savings (with the possible exception of mortgage debt). 

There are a number of huge problems with this advice though. 

First and foremost, if your employer provides matching contributions, pausing retirement investing would mean giving up the chance to get free money. When your employer matches your contribution, you can instantly get a 100% return with no risk. This is a much higher return than you would get by paying off almost all debt. If you pay off a credit card early, your ROI is just the interest saved, which is much less than 100%. 

You do not ever get a chance to reclaim any employer matching funds that you have forgone, while you can always work on repaying your debt. And you also pass up tax deductions and potentially tax credits (like the Saver's Credit) if you do not invest. If you don't contribute to retirement accounts, you won't get back the chance to claim these deductions you could have been eligible for.  

As if this wasn't enough, you also miss out on the chance to make compound growth start working for you. When you invest, your money begins making money that can be reinvested so your wealth grows exponentially. But this takes time. If you put off beginning to invest for years until your debt is paid, it's going to be really hard to make up the difference and end up with as much wealth as you'd have had if you started earlier -- even if you get intense about saving as Ramsey suggested.

Say, for example, you want to end up with a $1 million nest egg. If you start saving with 30 years left until retirement and earn average returns of 10%, you'd need to save about $506 per month. But if you started saving with just 20 years left until retirement, you would have to save $1,454.96. You would nearly triple the amount you have to invest due to the delay.

So, rather than making life harder for yourself, you should avoid following Ramsey's advice. You should instead pay the minimum due on all your debt, then invest enough to earn the employer match, and then decide how to allocate the rest of your funds based on whether you can earn a higher ROI by putting your money in the market with your brokerage firm or paying extra on your debt.

This approach is the smartest way to end up wealthy, while Ramsey's dangerous advice could leave you short of your long-term goals.