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I remember when the prevailing wisdom was to buy the maximum you could afford, but that can be a disaster in a slow market ...
Indeed. This is exactly what happens in "flyover country", except for the biggest cities (like Chicago), college-towns or tourist towns.
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Originally Posted by 49erfan916
I left CA because half of my income was going towards my house. I sold it for a decent gain and I moved elsewhere. ...
While it's emotionally debilitating to be spending half of one's income on a house, please consider also the second part of your statement: "sold for a decent gain and moved elsewhere". Suppose that you had done the reverse, making your live in a LCOL area and then moving to California?
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Originally Posted by mysticaltyger
The problem with that is if too much money is tied up in your house, you're stuck. You can't liquidate your house a little at at a time. And home equity loans put you in the hole. Also, houses tend to appreciate less than the stock market does.
All true, but in a moribund area, one’s house perennially depreciates, while maintenance costs (on account of severe climate) tend to be high. We “take it coming and going”, so to speak… negative return on equity, and high maintenance costs. Meanwhile in hippy-dippy-trippy-commie California, that $700K house will probably be $2M in the year 2030, and maybe $6M in 2050, and so forth. And if the furnace dies, you’re not looking at spending 20% of your house’s value for a replacement.
I’m no fan of being a landlord, but owner-occupied residential real-estate is a fantastic instrument of portfolio diversification. Which makes more sense: having that $700K rot in a bond index fund (to at least somewhat diversify from stocks), or to deploy it in a cute little bungalow in San Pedro (“working class” coastal neighborhood south of LA)? Well, there is that small bit about taxes, so I do stand corrected… it’s not all puppies and ice-cream.
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Originally Posted by ncole1
...You can do much better by getting a shorter mortgage instead of a more expensive house. For example, get a 15-year mortgage instead of a 30-year, or even a 10-year instead of a 15-year.
True, but it's even better to buy in an area where property values rise. If you get a fantastic deal on a house in a declining area, with an advantageous mortgage, on which you save in interest-costs... is that not the proverbial polishing of piece of excrement? Whereas the person who gets the most foolish mortgage imaginable, on a house that's too ostentatious and too big... in a burgeoning area... will 30 years later have a valuable piece of property, even if the approach was all wrong, dumb and careless.
All true, but in a moribund area, one’s house perennially depreciates, while maintenance costs (on account of severe climate) tend to be high. We “take it coming and going”, so to speak… negative return on equity, and high maintenance costs. Meanwhile in hippy-dippy-trippy-commie California, that $700K house will probably be $2M in the year 2030, and maybe $6M in 2050, and so forth. And if the furnace dies, you’re not looking at spending 20% of your house’s value for a replacement.
That is all true. The thing about it is, when you have expensive repairs, if you're not planning on moving soon, the % of home value matters a lot less than the % of your income.
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Originally Posted by ohio_peasant
I’m no fan of being a landlord, but owner-occupied residential real-estate is a fantastic instrument of portfolio diversification. Which makes more sense: having that $700K rot in a bond index fund (to at least somewhat diversify from stocks), or to deploy it in a cute little bungalow in San Pedro (“working class” coastal neighborhood south of LA)? Well, there is that small bit about taxes, so I do stand corrected… it’s not all puppies and ice-cream.
One thing is certain--It's not all puppies and ice cream, no matter what you do.
Personally, I vote for the bond fund over residential real estate. I'm just not a house person. But that's also why the house you live in really isn't an investment. There's too much personal/emotional vestedness that most people don't have with a stock or bond fund. However, I certainly recognize there's more than one way to be financially prudent.
But the same thing could be said about Dave Ramsey and his followers.... " everyone is doing it".
While i agree with Dave, he sometimes acts like hes a winner and someone in trouble is a loser.
HE used to be " a loser".
It seems the best people for him are the ones who have baby steps 1, 2, 3, 4 out of the way and are working on 5,6,7.
I think he sometimes forgets that most people need to start or did start with baby steps 1. He doesnt seem to want to deal with the "cry babies " who are at the start.
Its only the ones who have "made it " using his plan that make him money by using them as examples on his show, books or TV appearances. He even says " we've talked to 10 million millionaires and none of them are doing what you are doing" when someone asks about how to get something accomplished.
Everyone has to start somewhere..
But i agree with his overall perspective on growing wealth.
I don't agree with everything DR teaches... but I don't know the DR you're listening to. It's no secret of that he was a LOSER and bankrupt himself. And from my on and off listening over the past 10 or 15 years, the bulk of his show is dealing with 'cry babies'.
You're right... everyone has to start somewhere. Which is kind of the basis for his entire program.
I don't agree with everything DR teaches... but I don't know the DR you're listening to. It's no secret of that he was a LOSER and bankrupt himself. And from my on and off listening over the past 10 or 15 years, the bulk of his show is dealing with 'cry babies'.
You're right... everyone has to start somewhere. Which is kind of the basis for his entire program.
Something it seems he forgets that.
Its the way he handles those in trouble asking for guidance on how, where, with what to get started on his program. ( yes its simple to follow, but where do hou come up with $1k if you're paycheck loan to paycheck loan)
He doesnt seem to provide enough positive reinforcement for those starting or in trouble, but who want to start.
He does a great job with debt free screams and those who have made it through 1,2,3 and are working on 4 and above.
It just seems to me he lacks something at positive influence to those beginning his steps.
Maybe its because of a high failure rate among those who dont attack things with "gazelle intensity" and go back to doing what they were doing.
I dont know.
It seems he needs to back his new listeners who are starting out more.
I'd rather have a 30 yr and pay like a 15 year. Adds a bit of safety in case something goes wrong.
Well, you can't have it both ways. If you want this "safety" then you have to give up the "forced savings", and vice versa. I was responding to a poster who wanted the "forced savings" of a high mortgage payment. This means sacrificing this "safety" regardless of whether the high payment is due to an expensive house or due to a shorter loan term.
Actually, having an expensive house is even less "safe" than having the same high payment via a shorter loan but cheaper house. In the latter case the loan is paid off sooner and if SHTF before then, you can refinance. With a more expensive house, you are stuck.
The point I was trying to make was that the more expensive house does not make sense as a "forced savings" vehicle, not questioning whether one should have "forced savings" to begin with (even at the expense of "safety").
Human nature means making the home a forced savings account is a good idea. No one would ever argue it would be better to buy an expensive home vs a cheaper one and invest the difference. For many, many humans, there would be no difference because they run out and buy a new car, or take a nice vacation, or whatever.
And who cares why they do. I really couldn't care less people are stupid with money. It means it's easier to separate myself from the chaff.
That being said there can be a solid case made for buying a decent house in a decent neighborhood as it will most likely appreciate more than the lower end place. I have seen this personally with myself compared to local friends. We went cheaper to save, had we spent a little bit more we'd most likely have had many tens of thousands more in appreciation. Our area just remained out of demand vs a place closer to job centers.
Its the way he handles those in trouble asking for guidance on how, where, with what to get started on his program. ( yes its simple to follow, but where do hou come up with $1k if you're paycheck loan to paycheck loan)
He doesnt seem to provide enough positive reinforcement for those starting or in trouble, but who want to start.
I think that's what his Financial Peace University thing is all about. You can't get into the granular details of someone's income and spending on the radio. It's really boring for listeners, and the caller usually doesn't have that specific information anyway.
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 too am a strong supporter of Dave Ramsey’s expert advice even though it is easier said than done for many families. His feedback isn’t just financial math but psychological as well.
Non-mathematical wise Dave Ramsey advice:
-People spend more on card than cash, way more a factor than the little savings if card has cash back rewards or hotel points.
-Not contributing to 401k even with employer matching to get debt down first is mathematically a poor move but Dave supports the psychological motivation incentive as so powerful it outdoes the lost employer match. It pushes a serious effort to blow the debt out of the water with anguish so you can restore your contributions to 401k.
-The debt snowball effect is not mathematically logical if the charge card with the lowest revolving balance has a 0.9% APR and the big one has an 18%APR but Ramsey feels psychologically reducing the number of cards to pay down incentivized paying off debt the quickest. Keep in mind that’s probably true because even low interest cards have min payments on principal so when the card is paid to 0 that min payment avoided is still a rewarding reduced burden to the monthly bills.
Some people are just lazy and not ready to take action, and not much we can do there. The ones I sympathize with are those who have families situated in high cost of living areas, have cost structures that leave people with not enough disposable income when raising children to tackle student loan and medical debts at the rates Dave deems possible.
There is a reason Dave resides in Tennessee. It’s a MUCH better
Bang for the buck if your career has promise in a place like that, or Dallas, or Charlotte, or Denver, way more so than New York, Boston, and San Francisco.
Dave can’t tell people to move out of high tax states because he would have a hard time outreaching many in deep debt holes, but if you told Dave you were moving to low cost living for university to reduce tuition he would in back of his head think “good move dude!”. I agree with him. It’s a big deal on mortgage, tuition, medical cost. Not to say it’s not un-do-able in New York, you just need a bigger shovel (more gross income needed).
But if your family is up north, that changes things. If you like where you live, and willing to foregoing spending on purchases to pay the higher tax, that’s a personal call. It’s no wrong answer but in a debt mess, if you can’t get income up, moving down the cola makes sense.
Last edited by Siberiaboy; 02-10-2019 at 03:55 PM..
It's human psychology. People will swear up and down they won't spend more but they do. Rarely will someone spend the same if using cash or even debit.
My cash vs. credit does not effect my spending behaviour.
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