Grant Cardone says to ignore Dave Ramsey if you want to get rich

We save too much, says Grant Cardone

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.

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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 — he rejects the use of expensive forms of debt, such as credit cards — still resonates for many.

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 though Canadians cut back on discretionary spending 2023, credit card balances 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.

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.

Savings accounts that can help your money grow

Are you looking to make the most of your savings? A high-interest savings account (HISA) gives folks the opportunity to stow away their hard-earned cash and have favourable interest rates increase that sum over time.

KOHO Essential is a free downloadable app that allows Canadians to manage their money and earn interest easily. The app connects with a pre-paid Visa card so that you can budget, spend, and save at the same time. Once direct deposit is set up, you will earn 0.5% interest on your balance. The bonus comes when you use your KOHO account to purchase groceries or pay bills. Then you’ll earn 1% cash back. Open a KOHO Essential account and get 3% interest earned on deposits and between 1% to 5% cash back .

Laurentian High Interest Savings Account offers a reasonably strong 2.85% regular interest rate for its high-interest savings account. Keep in mind that this is the regular rate, not a promotional rate, and there is no minimum account balance required. Open a Laurentian HISA and pay no monthly fees and get unlimted deposits.

Neo High-Interest Savings Account offers a 3% interest rate, unlimited free transactions, and no minimum deposit requirements. Open a NEO HISA.

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 USD$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.

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:

• Qtrade: Customers get free trades on hundreds of ETFs, while stock trade fees can be as low as $6.95 for elite account holders. The best part is that opening a new account will get you unlimited free trades until Dec 31, 2024 and a $100 sign-up bonus. Open a Qtrade account today.
• Questrade: Trading fees range from $4.95 to $9.95 (depending on the account). With a Questrade account you won't have to pay a trading fee when you buy an ETF, a good option for investors not quite comfortable with short-term stock holds. Open a Questrade account today and get $50 in free trades
• 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 when you add $150 or more to your new account.

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:

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