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Dave's advice on how to get out of debt is pretty sound. My wife and I used his method to get out of some credit card debt we accrued in college. He isn't saying to live your whole life paying cash for everything. What he says is that you should really buckle down during the process of eliminating debt. You have to cut every cost possible and if your situation is dire enough you might have to take it to the extreme.
Once you're out of debt, the advice no longer works. The goal is to get out of debt. Not to live frugally for the rest of your life. Once out of debt, the consumer still has to make wise decisions based off lessons learned from the bad ones. A car is a depreciating asset. Spending money that you don't have on something that will not gain value over time isn't wise in any circumstance, but especially not when you are in dire straits.
Mitt and Dave share no resemblance. Dave went bankrupt (and according to his story) pulled himself out of it. The fact that he managed to turn his finances around and become wealthy means that he may know a thing or two about how to better your circumstances. I don't fault the guy for that. I don't really listen to him any longer, but he has definitely helped us clear up a few college mistakes.
I think he gets paid millions of dollars to dole out kosher sounding advice that's not grounded in reality.
I mean how many of his listeners could afford to pay cash for a house?
I listened to him on a daily basis for years and never once heard him suggest that someone save up and pay cash for a house.
Anytime you take a loan to buy a depreciating asset it is a bad idea. However, some times a cheap brand new GM car when they had zero interest 5 year loans may make sense. But even those loans and expensive car at zero interest is a bad idea as depreciation is a killer.
I hear that over and over again.
But it's exactly why you should finance.
Why pay cash for a tool that has a 10 year life span?
That's like saying lets only pay cash for schools, or bridges, or roads.
It also leads people into thinking only about the cost of gas when using those cars. They see the cost of the car as a sunk cost.
It's much more practical to determine the total cost to own over 100,000 miles (or whatever your must sell at mileage is, I don't do more than 100k as car safety is always improving and that's critical to me as a parent).
Anytime you take a loan to buy a depreciating asset it is a bad idea. However, some times a cheap brand new GM car when they had zero interest 5 year loans may make sense. But even those loans and expensive car at zero interest is a bad idea as depreciation is a killer.
Depreciation is based on model, as you stated, so you'll feel that even if you pay cash. That's just buying a bad car.
Last edited by Northeaster; 12-15-2015 at 12:35 PM..
He shills insurance companies, he should understand risk.
Putting around in a family of five in a 1982 Honda Civic in a day of constant distractions on the road in the name of saving a few bucks isn't sound advice.
My kids are carted around in a very non-sexy 2015 Sienna. Why? Because it is one of the safest cars on the road (lots of safety features, low center of gravity, lots of mass.
The $300 or so a month it costs me (I got it for a song after factoring in the sales price of my 7 year old car) is one less vacation I can go I each year, but it affects little else and keeps my family safe.
For most folks, Ramsey is pretty much on. That's because most folks are complete idiots when it comes to money and debt. There's 2 things you make payments on, a house and a car. If you're making payments on anything else, you're an idiot. If your car payment is over 400 a month on a 4 year note, yer an ID ten T. If your house payment is more than 1/4 of your household income, yer an ID ten T. If you can't pay off ALL of your credit cards at the end of the month, yer an idiot. He's right though, cash is king.
Agreed. Ramsey's advice is not for the small minority of Americans with a paid-for house and a well funded retirement account. It is aimed at the people who squander thousands of dollars a year in interest payments while receiving nothing in return. It is aimed at the people who court financial disaster every time they get laid off or have an unexpected expense.
My mortgage has been paid off for years. That's because I bought a place I could afford on a 15 year note. I don't own a vehicle that's less than 10 years old or that has less than 100,000 miles on it. I offered to buy my wife a new car (for cash) and she declined for now. She wants to drive her 2003 for another 5 years or so. Once in a while we have to put $1500 into repairs, but with no car payment that is a trivial expense.
It's amazing how affluent you can be with no debt and only a modest income.
What about 0% financing offered by manufacturers? So while making those interest free payments, you can invest your cash. Or how about paying off your cc balance each month so you can get freebie rewards? Does he ever talk about these? I honestly don't know cause I don't listen to his show.
His perspective seems to be that from a multi-millionaire who can pay cash for everything. I bet if he were just another radio jockey making $30k his views would be quite different.
I bet you love three card monte. 0% interest is just sucker bait. You pay the interest up front in the purchase price, and of course if you ever miss a payment it reverts to a high interest rate.
I really like the Dave Ramsey approach on a lot of things
But like you said he overlooks (whether purposefully or not) the facts about vehicle maintenance, upkeep, state-specific fees and registration; he overlooks tips on how to buy/sell vehicles properly so as to not get ripped off on technicalities in paperwork
It's almost as if he's saying,
"Aw heck, get a $1000 car and drive it to work -- who cares if you get pulled over for having it not registered, at least you tried to drive it to work! Work work work. Focus on work. Need a car to drive to work? Buy it and go to work! Don't stress the small stuff, the technicalities involved. Live in your car! Live in your job's parking lot! Beans and rice, baby."
And I don't do investing because if I don't understand how something works, I just don't do it because I'm distrustful of letting other people manage stuff I feel I should know about
Dave Ramsey promises over and over, "12% if you do mutual fund IRA through my ELPs!"
Right off the bat there's numbers, percentage signs, and acronyms that escape my understanding; and meanwhile in practice people are saying in reality, "8%, mutual fund IRA, when you're so damn old and senile and dried up that you don't even know how much money you've accumulated or fees you paid"
Before I do anything, I will do my research (however long that takes before things "start to make sense")
But I still enjoy his program so much because it gets my mind thinking in those directions,
Which is better than no direction
He shills insurance companies, he should understand risk.
Putting around in a family of five in a 1982 Honda Civic in a day of constant distractions on the road in the name of saving a few bucks isn't sound advice.
My kids are carted around in a very non-sexy 2015 Sienna. Why? Because it is one of the safest cars on the road (lots of safety features, low center of gravity, lots of mass.
The $300 or so a month it costs me (I got it for a song after factoring in the sales price of my 7 year old car) is one less vacation I can go I each year, but it affects little else and keeps my family safe.
Then his advice doesn't apply to your situation. Dave's advice is for the group of people who are sinking in debt and can see bankruptcy on the horizon. This advice is meant to be taken as a last ditch effort to steer clear of that. Not for those who are managing decently, or managing very well.
I think he understands the risk of losing everything to bankruptcy against driving around in an older vehicle. You can find decent $2k-$3k vehicles that are safe and reliable if you really look. I've owned plenty that I paid far less than that for. He doesn't mean for this to be your mode of transportation forever, but just while you are trying to get out of debt.
Imagine that you are on the verge of financial ruin...... you have a $300k house with a $1,500/mo mortgage. You have a car that you owe $40k on with a $800/mo payment. If you sell that car and pay cash for a $3,000 car you just freed up $300/month to go towards another bill. He's not telling you to worry about what you will pay in the long run, but instead freeing up cash for the short term to pay off debt.
Downsize to a rental house at ~$800 a month and you have now saved yourself $1,000 per month to help pay down other bills. As for repairs, he also mentions an emergency fund set aside in advance to cover things like repairs.
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