Dave Ramsey

[Trailrider]

I wholeheartedly agree with Dave's methods to get out of debt when you're living up to your eyeballs in debt. I do think he could advise people better on responsible credit use.

An example would be to save up for a down payment and finance a house @ 3%. Take the cash you would have saved to buy the house completely cash and put it in to an IRA or something, and let that money grow. Once you're out of debt as far as credit cards, student loans, or cars, that should be your focus. At the end of your mortgage not only will you have a paid off house, but you'll have a huge retirement fund. You will have a much larger nest egg in the end. Some folks want to make money while they work, but smart folks make money while they sleep too.

A good rule of thumb when it comes to borrowing money is, if the interest on the loan is lower than the return you could make on that cash money in an investment account, you should take out the loan.

 

[SD]

this thread is hilarious. I'm a Ramsey guy...but I don't care what other people do. I care about what my wife and I do. His principles have done nothing but help us...and we were never bad with money. It's just a principle based off your largest wealth building tool is your income while minimizing the risk you leave yourself vulnerable to...so if you have all your income going elsewhere (debt payments = risk)....you can't build sustainable wealth. That's it. That's his principles in a nut shell. If you disagree - that's fine. There are other methods and means to build wealth, but the fact is very few people do it....and even fewer people will do it with low risk means.

 

[shootsacanon]

I wholeheartedly agree with Dave's methods to get out of debt when you're living up to your eyeballs in debt. I do think he could advise people better on responsible credit use.

An example would be to save up for a down payment and finance a house @ 3%. Take the cash you would have saved to buy the house completely cash and put it in to an IRA or something, and let that money grow. Once you're out of debt as far as credit cards, student loans, or cars, that should be your focus. At the end of your mortgage not only will you have a paid off house, but you'll have a huge retirement fund. You will have a much larger nest egg in the end. Some folks want to make money while they work, but smart folks make money while they sleep too.

A good rule of thumb when it comes to borrowing money is, if the interest on the loan is lower than the return you could make on that cash money in an investment account, you should take out the loan.

FYI, Dave is ok with a 15 year, fixed rate mortgage that is no more than 25% of your take home pay. He prefers people pay cash for their homes, but a mortgage meeting the specs above is the one type of debt that he is ok with.

Also, I won’t go down the whole rent vs buy rabbit hole, but renting does make sense for some people at some points in their lives. As a homeowner, we’ve had multiple occasions of needing to come out of pocket 5k, 7k, 10k for repairs or maintenance. That can be a tough proposition for someone up to their eyeballs in debt. Renting is not a good long term plan, but it makes sense until someone gets their financial house in order.

 

[Trailrider]

FYI, Dave is ok with a 15 year, fixed rate mortgage that is no more than 25% of your take home pay. He prefers people pay cash for their homes, but a mortgage meeting the specs above is the one type of debt that he is ok with.

Also, I won’t go down the whole rent vs buy rabbit hole, but renting does make sense for some people at some points in their lives. As a homeowner, we’ve had multiple occasions of needing to come out of pocket 5k, 7k, 10k for repairs or maintenance. That can be a tough proposition for someone up to their eyeballs in debt. Renting is not a good long term plan, but it makes sense until someone gets their financial house in order.

Agreed. I'm just playing devil's advocate towards the folks that think you should never even get a mortgage on here. It's all about smart, sensible purchases. Whether you're buying cash, or financing, you should always budget within your means. The biggest reasons people who finance get in to trouble is they over extend themselves. I like the 25% of your take home pay rule.

Here's another good article on when it makes sense to take out a loan vs paying cash on a large purchase: https://www.moneyunder30.com/finance-a-purchase-or-pay-cash

They key point they make is this: The logic is simple: When you can borrow money at a lower interest rate than you can earn on money you invest, it’s cheaper to take a loan than to pay cash.

Granted not all people agree with that, but it's worked out well for me and my family.

 

[webicknell]

Agreed. I'm just playing devil's advocate towards the folks that think you should never even get a mortgage on here. It's all about smart, sensible purchases. Whether you're buying cash, or financing, you should always budget within your means. The biggest reasons people who finance get in to trouble is they over extend themselves. I like the 25% of your take home pay rule.

Here's another good article on when it makes sense to take out a loan vs paying cash on a large purchase: https://www.moneyunder30.com/finance-a-purchase-or-pay-cash

They key point they make is this: The logic is simple: When you can borrow money at a lower interest rate than you can earn on money you invest, it’s cheaper to take a loan than to pay cash.

Granted not all people agree with that, but it's worked out well for me and my family.

"The logic is simple: When you can borrow money at a lower interest rate than you can earn on money you invest, it’s cheaper to take a loan than to pay cash."
Be careful calling this simple logic.... Yes I can borrow money all day at 3-3.5% and I have several investments that pay double that amount or more.. But in today's volatile markets, those investments can drop dramatically in price... And if poorly managed, you can end up with investments worth much less than the money you borrowed to acquire them.

 

[Bagman]

Some basic principles:

The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received.

Time value of money is also a critical consideration in financial and investment decisions. For example, compound interest calculations are needed to determine future sums of money resulting from an investment. Discounting is used to evaluate the future cash flow associated with capital budgeting projects.

Opportunity Cost - A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost.

Just another way of looking at taking out a loan verses paying cash.


Spent my professional carrer in finance and banking. Retired at 53. When I retired, owned two homes outright, no debt and a very comfortable retirement investment portfolio. Never read Dave Ramsey but did grow uptaking the advice of grandparents and parents who went through the depression and did well financially in life. Their simple advice: live within your means, start saving as much as you can as soon as you can, don't waste money on "stuff", and don't go into debt. Worked for me and my family.

 

[Flatblack79]

Anyone else smiling after making a 7x min payment on the lowest debt in the snowball today? I am

 

[Trailrider]

"The logic is simple: When you can borrow money at a lower interest rate than you can earn on money you invest, it’s cheaper to take a loan than to pay cash."
Be careful calling this simple logic.... Yes I can borrow money all day at 3-3.5% and I have several investments that pay double that amount or more.. But in today's volatile markets, those investments can drop dramatically in price... And if poorly managed, you can end up with investments worth much less than the money you borrowed to acquire them.

Agreed, you have to set your risk tolerance before any decision like this is made. But aside from maybe 2008, I don't think my accounts have ever done worst than 5-6%. A good IRA should always earn you at least 6% if it's invested in the right funds.

 

[shootsacanon]

Never read Dave Ramsey but did grow uptaking the advice of grandparents and parents who went through the depression and did well financially in life. Their simple advice: live within your means, start saving as much as you can as soon as you can, don't waste money on "stuff", and don't go into debt. Worked for me and my family.

Dave says he “gives you the same financial advice your grandparents would, only he keeps his teeth in.” Ha!

 

[THREEJAYS]

Definitely some good info, at the end of the day you cannot spend more than you take in. It is that simple