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His advice - don't take out more than a 15 year mortgage, put 20% down AND all your home related payments including property taxes, HOAs and maintenance should be no more than 25% of your take home pay.
While I agree with Dave on this, here in California this would be outright laughable because most are barely putting down 5-10% and stretching to almost 50% of their take home - based on anecdotal evidence of course.
A lot of people here are viewing their home as their savings vehicle for retirement, a lot of people who stretch to buy a home here have no more money left over to save and invest in other things such as the stock market. A lot don't even contribute to their 401ks at work - example my co-worker, why? because he has to service is $700,000 mortgage along with all the expenses that come with it.
Chris Hogan also wrote something about this, buying too much home is the #1 mistake to prevent you from building wealth. However, the myth persists that the way to build wealth is to buy a home at all costs and at ANY price! A big problem is also banks who give extremely dubious affordability calculations to prospective buyers and if you tell someone they can afford it and they want it bad enough they will just choose to believe it.
The trend very much mimics what is happening in the student loan universe, college tuition is just increasing and loans are getting bigger and bigger, then students just shrug and take them because "it is what it is". This is absurd, if you cannot afford something then you should NOT take the loan regardless of whether it is needed or not, you have to find an alternative that fits within your budget. I find this common sense rather lacking.
Dave Ramsey appeals to a particular group trying to get their act together financially. He also believes credit cards are evil even if you pay them in full every month because they encourage overspending. For his audience maybe that's good advice.
As a newly-divorced single mother in a HCOL area (Bergen County, NJ), I did put down a 35% down payment on my house but it was a 30-year mortgage and PITI took up 1/3 of my take-home pay. I was able to make it work because I made good money, had only DS to support, and could be frugal in other areas. I made a killing when I sold it 7 years later but it was partly luck (interest rates had substantially decreased) and partly buying in the right area.
I remember when the prevailing wisdom was to buy the maximum you could afford, but that can be a disaster in a slow market or when interest rates go up and you want to sell. It also means higher utilities, more rooms to furnish, etc. When I remarried, DH and I moved to a LCOL area and certainly did not buy the biggest house we could afford. It left us more room to save for retirement and, since we barely got out what we put into it when we sold 12 years later, it would not have been a good use of our money to go bigger.
I'm a Ramsey listener. My habits aligns with his teachings, for the most part. I do use credit cards and I do pay the balance in full every week but I agree that it could encourage more spending.
I left CA because half of my income was going towards my house. I sold it for a decent gain and I moved elsewhere. As of right now, my current NECESSARY total living expenses in AZ are less than my old mortgage and property tax expense back in CA.
The only two things I disagree with Ramsey is: 1. do not buy a new car unless you're a millionaire. 2. Buy a home at a 15 year mortgage. Selecting a 30 year mortgage gives you way more flexibility with your cash flow, and if you want to pay more money towards your principal, you can. Once you get that 15 yr mortgage, you're stuck with that higher payment.
I thought Dave Ramsey geared his advice toward people trying to get out of debt (which would be a good reason why he cautions the use of credit cards even if one pays the balance monthly). I think the thought there is ‘old habits die hard’ - easy for people to return to overspending (if it got them in trouble in the first place). Wise advice - but the ‘do not buy a new car’ is a bit extreme for most consumers.
I'm a Ramsey listener. My habits aligns with his teachings, for the most part. I do use credit cards and I do pay the balance in full every week but I agree that it could encourage more spending.
I left CA because half of my income was going towards my house. I sold it for a decent gain and I moved elsewhere. As of right now, my current NECESSARY total living expenses in AZ are less than my old mortgage and property tax expense back in CA.
The only two things I disagree with Ramsey is: 1. do not buy a new car unless you're a millionaire. 2. Buy a home at a 15 year mortgage. Selecting a 30 year mortgage gives you way more flexibility with your cash flow, and if you want to pay more money towards your principal, you can. Once you get that 15 yr mortgage, you're stuck with that higher payment.
Have to agree on the 30 year mortgage actually being most beneficial. Minimizing your monthly payments especially when the difference between a 15 and 30 year interest rate is not that much (and is certainly much lower than the average stock market return) guarantees a better level of financial security. If you lose your job your savings are going to go a lot longer with reduced monthly payments. You also have freed up cash to make life choices most beneficial too you in both the short and long term. Taking a nice luxury vacation with your kids at 35-40 is going to be a lot different (and probably more memorable) than when you are 60-65, maybe have limitations and have grown kids with their own families and not able to form special memories like they would with you when they are 10.
I strongly disagree with Ramsey about credit cards. As someone noted upstream, I completely understand why it's smart, conservative advice to tell someone who's had a history of bad financial decisions to keep away from the plastic, that isn't good advice for everyone or even necessarily for most people. My wife and I have had joint credit cards for 15 years and have never paid a penny in interest, and nor do we overspend. However, we use the cards for convenience, and earn cash back which amounts to around $1,000 per year in (tax free) credits on our statements. Had we adopted a no credit cards policy, we'd be losing out on $1,000 per year, every year.
I strongly disagree with Ramsey about credit cards. As someone noted upstream, I completely understand why it's smart, conservative advice to tell someone who's had a history of bad financial decisions to keep away from the plastic, that isn't good advice for everyone or even necessarily for most people. My wife and I have had joint credit cards for 15 years and have never paid a penny in interest, and nor do we overspend. However, we use the cards for convenience, and earn cash back which amounts to around $1,000 per year in (tax free) credits on our statements. Had we adopted a no credit cards policy, we'd be losing out on $1,000 per year, every year.
Yep - completely agree for the same reasons. In addition, it builds a good credit history - often allowing a better interest rate for a mortgage (or a car).
I strongly disagree with Ramsey about credit cards. As someone noted upstream, I completely understand why it's smart, conservative advice to tell someone who's had a history of bad financial decisions to keep away from the plastic, that isn't good advice for everyone or even necessarily for most people. My wife and I have had joint credit cards for 15 years and have never paid a penny in interest, and nor do we overspend. However, we use the cards for convenience, and earn cash back which amounts to around $1,000 per year in (tax free) credits on our statements. Had we adopted a no credit cards policy, we'd be losing out on $1,000 per year, every year.
$1,000? Good lord, my friend. But then again, you have your wife on your account and i am the sole person on my account.
$1,000? Good lord, my friend. But then again, you have your wife on your account and i am the sole person on my account.
A thousand doesn’t seem like that much - especially when you factor in the annual fee to a card. That said, it doesn’t matter how much or how little - it is still ‘free’ money. And a good reason to use one credit card (despite Ramsey’s advice against it). I think if people use more than one card, that’s when they may have a tendency to get into trouble.
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