‘Your Income Doesn’t Determine Wealth’: Dave Ramsey Shares His Definition of Being ‘Broke’ in America — and It’s a Common Scenario. Would You Be Failing Financially in His Eyes?

George Kamel/YouTube

While we adhere to strict editorial guidelines, partners on this page may provide us earnings.

Vishesh Raisinghani

Updated Dec 13, 2024

Vishesh Raisinghani

Updated Dec 13, 2024

Financial guru Dave Ramsey frequently uses the term “broke people” on his show. But in an interview earlier this year, co-host George Kamel pushed him to clearly define what he meant by it.

Ramsey explained that his definition was simple: negative net worth. “The bottom line is your income doesn’t determine wealth,” he said. “Because if you make $200,000 a year and you owe $300,000 on your cars, and your student loans and your other stuff and you can barely pay your bills, you’re broke. You just make a lot of money and you’re a broke person.”

Ramsey went on to talk about the benefits of not being broke. “When you’re not broke, you have that income coming in and there’s more and more and more of that income available to you to do future investing, to do generosity, to think longer term than just ‘Oh god, I gotta pay a bill.’” Ramsey told Kamel. “‘Oh god, I gotta pay a bill’ happens at $500,000 a year, $200,000 a year, $100,000 a year, $40,000 a year. And ‘I live on less than I make’ happens at all those same numbers too.”

Nearly 28% of Americans earning between $100,000 and $200,000 said they had too much debt and 14.6% of those making over $200,000 said the same, according to PYMNTS Intelligence.

“These people walking around look like they’re rich, most of them aren’t,” said Ramsey.

Overleveraged households

At the end of the third quarter of 2024, total U.S. household debt was a record $17.94 trillion, according to the New York Federal Reserve.

A 2022 report from the Aspen Institute says the share of U.S. households with negative net worth held steady between 7% and 8% from 1989 - 2007 but this share began rising after the Great Recession (2007-2009) and peaked in 2013 at 11.6%. By 2019, 10.4% of households (about 13 million) had negative net worth.

The report added that while mortgage debt jump-started the rise of negative net worth, student loan debt sustained it and appears to be the primary driver of negative net worth for households today. Americans owe about $1.6 trillion in student loans as of June 2024 – 42% more than what they owed a decade earlier, according to the Pew Research Center.

Invest in real estate without the headache of being a landlord

Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.

The best part? You don’t have to be a millionaire and can start investing in minutes.

Learn More

Escaping the debt trap

The key to escaping the “broke” trap, according to Ramsey, is to create a wide margin between your net income and your expenses. In other words, maximize earnings but also minimize debt and expenses every month.

For instance, moving to a cheaper part of the country could help you lower your cost of housing, while avoiding unnecessary consumption could keep a lid on credit card bills. A conscious decision to create a tight budget, minimize debt, and avoid frivolous expenses can put you in a powerful financial position for the long term. Consider whether the avalanche or snowball method of paying down debt would be a better fit for you.

The richest 1% use an advisor. Do you?

Wealthy people know that having money is not the same as being good with money. Advisor.com can help you shape your financial future and connect with expert guidance . A trusted advisor helps you make smart choices about investments, retirement savings, and tax planning.

Try it now

Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

Explore the latest articles

Payday loan alternatives

Don't pay the triple-digit interest. You have options.

Doug Whiteman Former Editor-in-Chief

5 money moves for 2025

Em Norton

O'Leary warns new US lifestyle will be 'smaller'

Moneywise

10 things to never buy at the grocery store

Serah Louis

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter. Advertisers are not responsible for the content of this site, including any editorials or reviews that may appear on this site. For complete and current information on any advertiser product, please visit their website.

†Terms and Conditions apply.

This is an exclusive story from our newsletter — subscribe for more

‘Your income doesn’t determine wealth’: Dave Ramsey shares his definition of being ‘broke’ in America — and it’s a common scenario. Would you be failing financially in his eyes?