Dave Ramsey Said This Is 'One Heck of a Poor Money Management System.' Is He Right?

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  • Dave Ramsey said using credit cards to cash flow your spending is a poor money management system.
  • This is the term he uses to describe charging things on your credit card and paying off the balance at the end of the month.
  • The reality is, this is a pretty decent way to manage your money in many cases, as you can still track your spending -- plus earn rewards on it.

This money management system could work better than Ramsey gives it credit for. 

Finding a system to manage your money can be helpful in accomplishing financial goals. 

There are lots of different approaches you could take to do that. But, there's one common technique many people use which finance expert Dave Ramsey thinks is a bad way to manage your cash. 

The big question, though, is whether Ramsey's right to discount this approach or whether it has some merit. 

Ramsey doesn't like this money management system

The money management system Ramsey spoke out against is using credit cards to "cash flow your spending." Ramey describes this process as "when you charge normal monthly expenses and then pay off the balance at the end of the month."

Ramsey acknowledged that you don't pay interest if you use your credit cards this way to manage your money. But, despite the fact you aren't incurring any added costs for charging your purchases and then paying off your bill, Ramsey still believes this technique is "one heck of a poor money management system."

His problem with cash flowing spending using credit cards is that he says you aren't tracking how you are actually spending your money if you do this. He believes it's too hard to spot excess expenses by just making a lump sum payment at the end of the month. 

"When you pay a lump sum at the end of the month, it's easy to ignore that daily triple bean burrito habit you've developed," he warned. "When you track everything, your expenses can't hide from you."

Ramsey isn't necessarily right about this

Ramsey's warning against cash flowing your spending using credit cards is not necessarily worth listening to.

First of all, just because you are charging things on your credit cards doesn't mean you have no idea where your money is going. In fact, using a card could actually make it easier for you to keep track of your spending because you get a handy list of every single transaction you make. This comes in the form of your card statement, and your online credit card account.

You can easily look at your transactions over the course of the month or at the end of the month, and add up your spending to see where you might be overdoing it. In fact, many apps actually allow you to automatically import this information and categorize your spending for you, so it can be easier and faster to see if you're sticking to your budget rather than if you're spending cash. 

You also have the option to manually track spending while also using your cards. And, you'll be earning credit card rewards if you take this money management approach -- which can help improve your financial situation if you use those rewards to help pay down your balance or to fund trips or other purchases. 

Aside from all that, the reality is you don't necessarily need to track every dollar. As long as you're paying off your card balance while still accomplishing other goals (like saving a sufficient amount for retirement and emergencies and big purchases), does it really matter if you're spending $X amount on dining out versus clothing versus entertainment? 

If you are doing what you need with your money, earning credit card rewards, and paying off your card balance in full every month, you're doing great and you can stick with your money management system without worrying about this particular piece of Ramsey advice.

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