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his advice seems insane to post boomer people but 50 years ago it was every day across the coffee table talk.
as to paying off debt i scrubbed toilets at night plus a high stress day job to pay off my 95k divorce in 3.5 years. dont say its impossible. quadruple payments and lots of tortilla and bean meals.
as to rich people being unable to pay off their debt i understand that, crazy rich people spending lots more than they make, that was the basis of my divorce.
I don't think anyone here is saying Dave's advice is "insane." His basic debt reduction and financial control message is sound.
Are you accounting for the economic changes over the past fifty years with your "coffee table talk?" The "average family" has gone from mostly one income to two incomes to subsist. Going from one wage earner to two requires a second vehicle (insurance, gas, principal, wear and tear, etc), possible additional child care expenses from both parents working, etc. Purchasing power net of inflation and salary fluctuations seems to be decreasing. Here in my economically depressed area, even absolute salaries don't seem to have risen much in fifteen or twenty years. That's not even considering inflation, more instability in the labor market, a larger percentage of the population that is nearly unemployable due to a criminal record, chilling effects economically from political incompetence, etc. Our economy has far, far more challenges and complexities today than fifty years ago.
Dave really shines if you have a good income and simply need help controlling expenses to get back on track or are way off kilter in spending period.
Sure, my lifestyle expenses are going to go up if my income went from $60k (2x30k) to $180k (2x90k), but do they go up linearly? Probably not. This is the central thesis that Dave's proponents either decide to omit, or worse, are not conscious of: As income grows, more financial resources, in absolute dollars and proportionally, can be devoted toward debt repayment and investment rather than to subsistence.
Like I mentioned in my earlier post in this thread, have you ever noticed that Dave's callers, for the most part, are middle class people that just need to get a handle on their spending? You very rarely hear from a caller in the working to lower classes because more of their income goes to simple subsistence, and this crowds out Dave's approach.
Again, depending on where you live, if you have kids, and your primary job schedule, getting a second job may prove challenging, not worth it, or impossible. If you moonlight another fifteen hours a week for eight dollars an hour at Wal-Mart, you're grossing $90/week more. It's something, but it's not going to turn the tide for most people. If you have to pay child care expenses, you may actually run a loss by taking the second job.
The answer to most people's problems is more income and incomes have taken a substantial hit during the recession, but Dave's advice isn't really helpful to nor targeted toward low income people or increasing your income.
key word "investement",,, you have money to invest- Dave is your man - the rest of us just gotta keep on working to somehow make it come into the black.
Misunderstanding here, sorry. I thought you meant you took out loans to buy commercial real estate, which is different from investing in a fund which has leveraged real estate as its main holding.
Still, why could you not have downsized in home and lifestyle 10 years ago and be debt free now without sacrificing investment potential?
If you have a mortgage on your primary residence, you have in effect borrowed against your home to travel and buy depreciating assets like cars, even if you paid cash for them. You could have taken the bus to work (or moved close enough to work you could walk) and put the money you would have spent on purchasing and operating a car towards the mortgage. If you have a mortgage and don't take tenants in your spare bedroom(s) you are also, in effect, 'borrowing money to pay rent' (even if you are renting from yourself) that could be avoided, and it is *this* type of decision which DR is arguing against, and which I totally agree with. This 'indirect consumer debt' is different from the tradeoff between investing and paying off your primary home or an investment property. We are talking about borrowing money to pay for avoidable consumption expenditures.
My word, you're presumptuous.
Our house is actually quite modest for our income. When we bought our current home, the mortgage lender literally asked, "Why such a small house? With your income, you could have borrowed three times this amount." That's because we originally bought a house with potential in a gentrifying neighborhood, put 14 years of sweat into it, and sold it for 3.5x the original purchase price. Then plowed the huge amount of equity into another bargain house in a neighborhood with incredible schools. The return on my money that would have otherwise gone towards paying the house is averaging 2x - 2.5x what I would have saved by using that same money to retire debt.
In short, we bought low, borrowed cheaply, never racked up consumer debt, and have amassed into the seven figures in terms of personal net worth. Had we followed the Dave Ramsey prescriptive, we actually would have had a lot less money to invest at key opportunities, which means we wouldn't have the wealth we have today. Our household wealth would have been basically the value of our home and whatever we could have stuck into mutual funds after paying it off. Yeah, we would be doing okay, but not nearly as well as we have.
And that's my point. I totally get DR's advice. Don't borrow money to go on vacations. Don't borrow money for the big screen TV and a host of other things. Only an idiot would do those kinds of things.
But debt, very prudently used, is a good financial tool that can maximize long-term wealth, not inhibit it. The problem is with DR's advice is that people follow it so fanatically that they actually miss the point. Namely that you're doing this to create wealth for you and your family. But with interest rates barely above the inflation, there comes a time when a cagey money manager understands that there are far better returns to be made elsewhere.
Our house is actually quite modest for our income. When we bought our current home, the mortgage lender literally asked, "Why such a small house? With your income, you could have borrowed three times this amount." That's because we originally bought a house with potential in a gentrifying neighborhood, put 14 years of sweat into it, and sold it for 3.5x the original purchase price. Then plowed the huge amount of equity into another bargain house in a neighborhood with incredible schools. The return on my money that would have otherwise gone towards paying the house is averaging 2x - 2.5x what I would have saved by using that same money to retire debt.
In short, we bought low, borrowed cheaply, never racked up consumer debt, and have amassed into the seven figures in terms of personal net worth. Had we followed the Dave Ramsey prescriptive, we actually would have had a lot less money to invest at key opportunities, which means we wouldn't have the wealth we have today. Our household wealth would have been basically the value of our home and whatever we could have stuck into mutual funds after paying it off. Yeah, we would be doing okay, but not nearly as well as we have.
And that's my point. I totally get DR's advice. Don't borrow money to go on vacations. Don't borrow money for the big screen TV and a host of other things. Only an idiot would do those kinds of things.
But debt, very prudently used, is a good financial tool that can maximize long-term wealth, not inhibit it. The problem is with DR's advice is that people follow it so fanatically that they actually miss the point. Namely that you're doing this to create wealth for you and your family. But with interest rates barely above the inflation, there comes a time when a cagey money manager understands that there are far better returns to be made elsewhere.
So how does a money manager get sufficiently cagey to know without the benefit of hindsight that the investments will return more than the interest rate on loans that could otherwise have been paid off?
I can appreciate the pro-leverage argument nowadays with such low long term rates, but how about in the past (and quite likely the future as well) ?
So how does a money manager get sufficiently cagey to know without the benefit of hindsight that the investments will return more than the interest rate on loans that could otherwise have been paid off?
I can appreciate the pro-leverage argument nowadays with such low long term rates, but how about in the past (and quite likely the future as well) ?
Because the real estate was already full up with long-term leases from defense suppliers, most ten years in length, before the first shovelful of earth was turned. Hope that helps. Now do you see why I chose not to pay off my mortgage?
Because the real estate was already full up with long-term leases from defense suppliers, most ten years in length, before the first shovelful of earth was turned. Hope that helps. Now do you see why I chose not to pay off my mortgage?
By the way, I was not trying to be snide here. What I was pointing out that there is such a thing as following any philosophy too rigidly. If you follow Dave Ramsey's advice to the letter, you would indeed have a degree of security. And it is a good philosophy if you are a nine-to-five working stiff who plans on working for someone else and wants to retire with a decent nest egg.
But if you are really wanting to build true wealth, then it requires a little prudent risk taking. And that requires be willing to take on some debt, or forgo paying debt in order to direct the money to enterprises that are more likely to yield bigger dividends. Starting a business, for example, or making an opportune, once-in-a-lifetime investment are just a couple of examples.
So I take it that if you lived in an area with low rent and high house prices, and your bank would allow it, you would borrow $160,000 (at 3-4% apr for 15-30 years) from your local bank to buy a stock portfolio worth $200,000, as long as you could afford the payments?
In this hypothetical scenario, they would not make you sell any as long as you kept making the payments, even if you owed more than the investments were worth at some later date.
I fully realize that you cannot *actually* get such a loan, but I am asking you to consider what you would do *if* (HYPOTHETICAL) you could.
If you would not take such a loan in that situation, you have a double standard which I think is irrational.
Because the real estate was already full up with long-term leases from defense suppliers, most ten years in length, before the first shovelful of earth was turned. Hope that helps. Now do you see why I chose not to pay off my mortgage?
I agree with some of the stuff DR says. I have a buddy who lives and breathes Dave. I got in debt a long time ago back in 91-92. I swore myself off debt back then. My buddy was 120k in debt. It took him 8 years but he became literally debt free last month. He was a single income of 75k with a housewife and had three kids. So it can be done.
As for me I just never lived beyond our means after I got straightened out. I never borrowed against my house, I don't have a 90k BMW in the drive. Most people have financial issues because they live beyond their means.
I agree with some of the stuff DR says. I have a buddy who lives and breathes Dave. I got in debt a long time ago back in 91-92. I swore myself off debt back then. My buddy was 120k in debt. It took him 8 years but he became literally debt free last month. He was a single income of 75k with a housewife and had three kids. So it can be done.
Wow ...... 8 years is a long time to be in rice and beans mode. Did this include his mortgage?
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