Financial advisor Dave Ramsey recently confronted callers with high incomes but substantial debt, highlighting his stance that earning a large salary does not guarantee financial stability. He emphasized that spending habits and a lack of budgeting often prevent wealth building, regardless of income level.
One case involved a Los Angeles couple earning $300,000 annually but carrying $119,000 in consumer debt. Their debt included credit card balances, student loans, a personal loan, and a car note, alongside a significant monthly housing payment. The couple expressed impatience despite paying off some debt over the past year and considered tapping home equity, which Ramsey called merely shifting the problem.
Ramsey called their financial state "broke," stating they had a spending problem, not an income issue. He advised them to eliminate discretionary spending such as vacations and dining out.
He urged them to create a structured budget targeting $8,000 a month towards debt using a debt snowball method. Ramsey projected they could become debt-free in about 15 months without taking on new loans. He noted the situation was embarrassing given their income level.
In another instance, a caller making $200,000 a year expressed stress over $8,200 in debt, consisting of residual credit-card debt and a recent medical bill. Despite having paid off cars and receiving a large commission, the caller was hesitant to use the bonus to clear the debt, citing concerns about not having enough cash on hand and wanting funds for investments.
Ramsey directed the caller to use the commission to pay off the debt immediately. He pointed out that for someone earning $200,000, this debt amount was small but was causing undue stress, demonstrating the psychological burden debt creates regardless of income.
Ramsey consistently advises creating a written budget or spending plan. Tracking where money goes helps individuals gain control of finances, potentially feeling like a pay raise as spending tightens.
The average U.S. household with revolving credit-card debt owes about $10,500, and the average card rate approaches 24 percent, making lingering balances costly. Housing costs in areas like Los Angeles remain high, with the median Los Angeles home value near $980,000, contributing to high expenses even for high earners.
He argues that relying on loans or high income without disciplined spending leads to burnout and minimal net worth.
"Income does not mean wealth," Ramsey said. "Net worth comes from living on less than you make and killing the debt, not from another loan."
