Dave Ramsey: Money In The Bank (10/02/06)
Talk Radio That Pays Dividends For Cash-Strapped Listeners
By Joe Howard, Editor-In-Chief
While still in his 20s, Dave Ramsey built a real estate empire valued at $400 million. The rent checks were coming in, and he was looking ahead optimistically with a fortune that held great promise for future growth. However, that optimistic picture quickly turned dark when the banks came knocking, calling in millions in short-term debt and forcing the young entrepreneur into bankruptcy. While the resulting liquidation of his holdings put Ramsey through the financial and emotional wringer, in the process he learned a valuable lesson about the risks of carrying heavy debt loads. He now shares those lessons with legions of fans who listen to him on the radio, watch him on television, read his books, and attend his live seminars.
Today, Ramsey preaches restraint and patience to his listeners, advising them to delay big purchases until they have the to money to pay. And he exercised that same patience in building his radio empire, singing up affiliates one at a time, holding onto ownership of his show, and resisting the temptation to turn things over to a syndicator that may not exercise his same level of care and concern in building the program.
With the knowledge of someone who speaks from experience, Ramsey guides his financial advice empire with a genuine sense of purpose. “We don't ever quit setting goals or moving up, and that has paid off for us,” he says. “We have a calling to write books, do radio shows, columns, TV, classes, live events - whatever it takes to get this information out there.”
RADIO INK: How did you wind up dispensing financial advice on the radio?
DAVE RAMSEY: Radio just popped up. Like a lot of people in radio, I stumbled into it. A local radio station was in bankruptcy, couldn't pay their people. A buddy of mine and I offered to do an hour show for free. We were horrible, just a couple of hillbillies - Daryl and his other brother Daryl on the radio - but the information and the spirit of the show connected to the consumer, and we immediately began seeing response. It was a fluke. We thought it might be fun, and figured that if it wasn't fun, we'd quit; and if we were really bad, they'd fire us. We were really bad, but they didn't have anybody else to put on.
RI: How did you build your syndication network?
DR: We are very entrepreneurial, and we find that what people focus on, happens. I've had three New York Times best-selling books, but when I work with publishers, I'm no longer under the illusion that I will have their attention for very long. They have about a six-month attention span, and then they move on. The same has been true with a lot of my friends in the radio business. They've sold their shows to companies or to syndicators, and then wished they hadn't. They put their baby out for adoption in a household that has 15 kids, and it doesn't get much attention. We do one thing here: The Dave Ramsey Show. We do it fabulously every single day, every aspect of it. We sell the ads, we do the syndication, we do the affiliate relations, we produce the show, we critique ourselves. We are unbelievably tough on each other inside this building because the only chance we've got of making it in a world full of ABCs and Premieres is an unbelievable level of excellence. We're debt free, of course, and we've made everything pay its own way. When we started, we didn't have much money, so we spent what we had to grow, and we've continued to invest heavily back into the marketing of the show. These days, we're doing a little bit better; our marketing budget is a little bigger than it used to be, and that is paying off. The beauty of it is that we've had control. A lot of people started in the business, became really big, and are no longer in the business - while I've been on the air. We're about to break 300 stations, but we've already got our eye on 600.
RI: In August, you pulled your show off of all Salem Communications stations. In a statement, you said Salem wanted you to pay for clears on their stations, which you were unwilling to do. Can you comment further?
DR: There aren't any bad feelings toward them at all. I consider President & CEO Ed Atsinger and Executive Vice President & COO Joe Davis to be friends of mine, so it's very, very bittersweet for us. It would have just been bitter if we hadn't replaced the stations with much bigger stations in a lot of the markets, but our negotiations breaking down with them pushed us out of the nest, and caused us to go get stuff we might not have gone after otherwise. It's turned out to be a good thing for us, and certainly a good thing for them. They have another program directive, another direction they want to go, but I fully intend to maintain friendships with those guys. I just didn't want to pay them money. But we will always be thankful to them. Our show getting to this next level, right at the cusp that we just went over, had a lot to do with those clears. There were a lot of major city clears that were really was helpful to us, so we're nothing but grateful to those guys. We just reached a point that our philosophies differed substantially. They don't charge Laura Ingram to be on the air, they don't charge other shows that they don't own to be on the air, but some reason, they decided they needed to charge us. We just didn't feel like that was fair, and certainly weren't going to write millions of dollars in checks to them. It didn't make any sense to us. But we've got nothing but good things to say about Salem.
RI: Are other companies you deal with asking you to pay for the clears?
DR: No. I understand that if you get into some of the major cities, sometimes that goes with it. We'll look at that if it comes up. We've always invested in marketing in some of the major markets when we arrive; when we came on the air in Atlanta the other day on WGST, we bought a bunch of billboards as part of that deal. We're excited to partner with our stations on a marketing thing, but just to write checks and buy time? It's not what we do, I'm not an infomercial.
RI: I understand you're developing a financial reality show with CBS. Tell us about that.
DR: That's part of a development deal we're doing with CBS. CBS wanted to develop a reality show, which we've done for prime time. The show has gone to focus group testing, and we'll find out soon if they're actually going to air it or not. There is no guarantee of an air, but if they air it and it gets good ratings, then we'll do a series. We're calling it a pilot. If it doesn't get good ratings, we had a special on CBS.
RI: What is the TV show about?
DR: There are two families we have walked substantially out of debt in a very short period of time. In the show, we follow them through the pain and sacrifice of actually doing the things we teach people to do - selling things, living on a budget, not going out to eat, having a garage sale, taking an extra job. We follow them through the angst that goes with change. At the end, of course, you get to see the victory. It's a very inspiring one-hour show. It's not over yet; I never know exactly how it's going to turn out. I'm really thrilled with CBS and their production team - they know how to tell a story. We're not abusing the dignity of the humans we're dealing with. I want to do something inspiring, with some straight talk, some tough love, some pain, and some tears, but we get where we want to go. Hey, it's our baby - you never have an ugly baby when it's yours.
RI: What makes your radio show different from other financial shows?
DR: I hope a lot of things. We're not as much financial people as we are just people; our show is about life. I had a guy call me on the air two weeks ago who had just left the oncologist who told him he had three months to live. He was on his way home to tell his wife he had cancer, and he called me from his cell phone. That doesn't happen on CNBC. People know they can engage me on a spiritual level or an emotional level as well as the numbers or the mechanics. We're not as concerned about the mechanics as we are at changing people's behavior to be more positive, to give them a result. We're like a Zig Ziglar for money. I've been accused of having a fairly thin message that I do over and over again, but so far it's working.
RI: How do you effectively convey what can sometimes be complex advice in short bursts?
DR: I'm a pitch man. Like any good salesman, I listen to the customer, and they tell me how to sell them. They tell me their dreams and desires and fears - those are their motivators. I take those motivators and say, “If you really do want your children to have a good life, if you really want to send your kids to college, then you have to stop doing the stuff you're doing. If you really want to get out of debt, then have to go on beans and rice, and cancel this year's vacation. You have to do some difficult stuff.” I connect to them on their emotional key points. We use a lot of humor and a lot of grandmotherly tough love. We're selling ideas, we're selling a new way of life.
I've been selling all my life. I grew up in a salesmen's household; my parents were in the real estate business.
RI: You speak from experience, as you have overcome near financial ruin. What happened?
DR: I went broke several years ago. I had a lot of rental property, but they were all cash flowing. We had about $4 million worth of property and $3 million worth of debt; $2 million of the $3 million in debt was short-term notes because I was fixing and flipping. I had several 90 day notes. My primary bank, where I had a million-two out, was sold to another bank, and they freaked out when they saw a 26-year-old owed them a million-two. They called our notes at the end of 90 days. The other lender that I had 800 out with got word I was in trouble, and they called about 30-60 days later. I had less than six months to come up with $2 million that was all tied up in real estate. They crashed me; there wasn't anything I could do. Were they stupid? Yeah, they were stupid, but I was the idiot signed up for the trip too. I signed those notes; I built a house of cards. Looking back on it, there is no reason to be shocked that it fell.
RI: You had $400 million in property, and then lost it all in a flash. How uncommon are stories like yours, of people who amass great wealth and then lose it all?
DR: In Nashville, we meet the Country or Christian music star who's run through all of his money - they had $15 million, and the next day they're bankrupt. We do a lot of work with athletes and artists to keep that kind of thing from happening. We have a special division in our company called Wealth Coach. These people are like Lotto winners. They did not build the wealth slowly over time, so they do not have the basic accounting to handle money. Sixty-five percent of Lotto winners are bankrupt within 10 years because they don't have the commonsense training to carry it. Next, the sharks come in - well-meaning or not-so-well-meaning agents or advisors or family members. Once there is blood in the water, they take their bite until the patient dies.
RI: What can people do when they see financial trouble coming?
DR: That depends on what is coming. If you have $100,000 in credit card debt and you lose your job, there's not a lot you can do until you get another job. We would emphasize getting a position to create an income to attack the problem. If you can't afford your house, don't wait to be foreclosed, sell it! The solutions are case-specific.
I wish my wife Sharon and I had gotten above the problem and started thinking strategically quicker than we did. I wish we had gotten above it philosophically. I wish it had not been the end of the world emotionally for us each time we were sued because we couldn't pay our bill, or each time one of those properties that was foreclosed. I remember the pain, the anger, the fear, but I don't remember the specifics. I remember thinking each time, “That's it, it's over now.” But it really wasn't over. I know how it feels to be afraid, hopeless, and have your marriage hanging by a thread. But I didn't die from it. My marriage didn't end from it. If you get above it, you get perspective.
RI: What are some of the most common problems people have managing their money?
DR: The biggest problem, which causes a lot of sub-problems, is they just don't bother. They don't live on purpose. Most people just wander along like Gomer Pyle on Valium, and they wander into messes.
RI: What are the most common questions people ask you?
DR: Most people are looking for a game plan, a process, a strategy, something to take control of so they can get out of debt and get their life back. So much about money trouble is a loss of hope. People are struggling, and the only light at the end of the tunnel is an oncoming train. We try to break it down into bite-size pieces, so you can eat the elephant one bite at a time.
RI: From the time we're young, our parents teach us to put our pennies in the piggy bank, but people somehow don't seem to save. Are savings rates really as low as we hear?
DR: Yes, it is bad. The savings rate is negative, which means we're spending into the savings. Parents aren't teaching piggy banks anymore. Piggy banks were a 1950s thing. Parents aren't sitting down and telling children out loud: “You have to have a process where you earn money, and you don't spend everything you earn. You live on less than you make.” People don't say it out loud. Children will do what you do. If the way Mommy deals with stress is running to the mall for a new dress, then guess what her teenage daughters will do? Regardless of what she says, they'll model what she did.
RI: How hard is it for people to unlearn those bad habits?
DR: It's hard for anybody to change behaviors, because we all like to do the same thing over and over, even if it's not working. The 12-steppers say doing the same thing over and over and expecting a different result is the definition of insanity. We become defensive about our own mess. Like a toddler sitting in a poopy diaper, we know it smells bad, but it's warm and it's mine. People are overweight, but they don't quit eating and exercise more. People are broke and deeply in credit card debt, but they don't quit spending. Hopefully, we can give them some inspiration and a positive wakeup call before life gives them a negative one. Unfortunately, a lot of folks who end up coming to us are in the middle of a wakeup call. Life knocked on their door and said “You've been stupid, so we're moving in with you.” It creates a huge problem. People come to us at a point of crisis. If you have a heart attack and a triple bypass, you'll quit eating McDonald's.
RI: Can people change? Can they resist the temptation to run out and buy a 53-inch HDTV as soon as they pay off their credit cards?
DR: Yes, we change. We don't tell people they can never have a 52-inch hi def TV. We tell people they need to drive a junker, so later they can drive anything they want to drive. But, when you have a Sea-Doo payment, a Harley payment, and two car payments, don't wonder why your kids' college fund isn't funded, because you're being stupid.
RI: People like to live for today. How do you address that mindset?
DR: One definition of maturity is learning to delay pleasure. The way we win the discussion is by giving them something better than they've got now. What's better? Leaving a legacy to their kids, changing the whole family tree, being able to travel, and buy that Harley, and write a check, and not think about it. When all your money comes in and then goes out and only the names are changed to protect the innocent, you're going to live a mediocre to poor to below-average life - until you change that process. We say hey, having a Harley or a boat or an expensive car is a nice thing, but right now, they've got you. Make them turn you loose, and you can have those things later. It's a matter of growing up. We've got 54-year-olds acting like 4-year-olds, throwing a fit in the cereal aisle because they want that particular brand of cereal. It is immaturity.
RI: Banks market credit cards and lines of credit pretty aggressively. How can consumers avoid taking the bait?
DR: Banks make money on one thing - debt. They don't make money on checking and savings. Their goal is to create debt products. They're not evil, but consumers need to wake up. If somebody tried to telemarket me as aggressively on long distance or on steam-cleaning my carpets as some of the credit cards, I'd shoot 'em. But, when a credit card guy calls to make an offer, or the bank calls to offer a home equity loan, somehow it feels as if they are paying you a compliment, that you're somehow worthy. As consumers, we have to back up and realize it's a product. Debt is the most aggressively marketed product with the most sophisticated marketing process in our entire culture. Six billion credit card offers went out last year. It's an aggressively marketed product because they make a lot of money on it.
RI: How many of the six billion were converted into new accounts?
DR: Less then 2 percent, which means they have market saturation.
RI: What's the incentive for them? Do they really recoup those costs with interest payments from existing customers?
DR: Yes. Exactly. Balance transfers and late fees are at an all-time high. Ten years ago, late fees were $13.50 on average; right now they're $35.50. This year, for the first time ever, the credit card industry will probably make more on fees than interest. They are maximizing this product line for profitability, all on the consumers' back.
RI: Can you talk in plain language about the new bankruptcy laws and how they affect the average person who's considering that option?
DR: If they do file bankruptcy, they'll go through about 16 more steps and a phonebook's worth of paperwork they didn't really need to go through. This legislation has one positive element: It requires people to take a class to learn how to handle money. We're participating with that. The U.S. Trustee has approved our classes to be one of the providers of that piece of education.
The rest of it was a bunch of crap. It's the most expensive piece of legislation in terms of lobbying dollars and donation to politicians' funds that has ever been passed. Visa, the Money Store, Bank of America, The American Bankers Association plowed hundreds of millions of dollars into this legislation. It is the legislation bought and paid for by the bankers, for the bankers. And it should not have been passed. The statistical evidence was there, but there was no one with anywhere near pockets deep enough to fight them on it, so they kept bringing it back - it came back about six times before it finally got through. I generally am a huge George Bush and Republican fan, but the Republicans totally crapped on the consumer with this piece of garbage legislation.
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