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I was listening to the Dave Ramsey show on the radio. He had a caller who was proclaiming he was "debt free". The caller owed around $120k in mortgage debt on a home and the caller was boasting about how he and his wife became debt free in 4 years. The caller went on to say that as a couple their income annual income was $150k.
I thought to myself, BIG DEAL! They made $600k in 4 years. How hard is it to pay off a $120k mortgage if you make $150k a year???
Then another caller stated that he & his wife made $175k a year in income and they were debating about whether or not to get a $200k mortgage on a custom home. Dave Ramsey went on to say that they should only pay CASH for the home but he gave them an "exception" because of their income but warned them about getting into debt.
Even if they took out a $200k mortgage, if they make $175k a year they can pay off that note in 3 years if they save their money.
I agree with some of his principles but some of the calls and advice he gives seems off the wall. Most people don't make $150k-$200k a year. How is one supposed to save $150k in cash to buy a modest home if they make $30k a year? It would take a modest couple making that amount 15+ years to even attempt to save up enough cash to even buy a modest $100k - $150k home all in cash. Where do they live in the mean time? They would have to rent and renting is dumping money into someone else's pocket.
On numerous occasions Dave Ramsey totes that one should never take out a loan on a new car, the car purchase should be paid in cash.
Does anyone else find his advice unrealistic at times?
On numerous occasions Dave Ramsey totes that one should never take out a loan on a new car, the car purchase should be paid in cash.
That is one I question .. If you have an investment portfolio could you EARN more in interest investing the car money then you would PAY in interest on the loan?
On the other hand, once you buy the car it is yours but the investment may be gone tomorrow
I agree with some of his principles but some of the calls and advice he gives seems off the wall. Most people don't make $150k-$200k a year. How is one supposed to save $150k in cash to buy a modest home if they make $30k a year?
In defense of Dave, I don't think he advocates that everyone pay cash for a house. I don't catch his radio show very often, but in his books he recommends 15 year mortgages for most folks. If you're making 30K a year, you can't a 150K house unless you have a really big down payment..end of story.
Quote:
Originally Posted by DellNec
On numerous occasions Dave Ramsey totes that one should never take out a loan on a new car, the car purchase should be paid in cash.
I agree with him. If you can't afford to pay cash for a new car, then buy a used one. He is not the only one who talks along these lines in regard to new cars. So does Liz Pulliam Weston, although I'll concede she is a bit more moderate in tone than Dave Ramsey:
I agree with Dave sometimes -- maybe most times. Many, if not most, of the callers I've heard over the years -- are calling for advice because they're already in trouble with debt. And he's telling them to sell the car and house to get out from under debt -- as opposed to bankruptcy.....because creditors are calling, and eviction is around the corner.
But I also am NOT going treat him like the be-all-and-end-all on financial advice. (as in don't get a credit card), not when I personally feel safer about its exposure than a debit card, for renting a car or traveling for example.
And I too had hoped to pay cash for a car -- but a hit and run driver who rear ended my paid off car -- cut short that plan when the insurance company totaled my car. COULD I have paid cash for a used car? (between the insurance money and my cashed out CD"s I had 10-thousand dollars) Yes I COULD have. But I spend half-hour in my car in traffic each way to work, and I'm not going to spend ANY amount of money on a car I don't WANT. Did I buy a car I couldn't afford? (whatever that means) NO. -- or at least I don't think so.
I loved the car I had, and bought a new version of that very same vehicle. I put the 10-thou on it and financed 13-thou for five years -- and got the best interest rate available. (and I paid it off early)
Dave doesn't give enough space to the 'happy medium' -- sometimes you need to use credit but don't go crazy-irresponsible with it. I do not believe that just because you can't pay cash for it means you can't afford it.
If you can't afford the PAYMENTS you can't afford it. (An emergency fund is a must, however). And clearly the more in debt you are the more of an emergency fund you need.
But if Dave's advice weren't extreme he wouldn't be getting all the attention he does. Whenever he says: "Live like no one else (today) so you can live like no one else (later) -- I say to myself, yada-yada-yada. I make no bones about it, I'm NOT going to deny myself but so much. But I'm also not going to buy a yacht either. The happy medium remember?
I agree with him. If you can't afford to pay cash for a new car, then buy a used one.
The problem with that is that most new cars offer a 0% APR or a very low 2.9% APR. The money lost to 2.9% interest is almost non-existent. ($15k @ 2.9% for 4 years = $900 in interest) Most new cars come with 5 year/60k mile warranties, used cars usually have no warranty or maybe a 1 year/12k mile warranty. Used cars could have been abused or poorly maintained, which in the long run will cost you more money for repairs.
In my life I bought new cars and drove them for 200,000+ miles before I sold them. Very reliable and I got my moneys worth. I also bought used cars, which ended up being problematic and I had to sell them. I lost a lot more money on the used cars and I paid cash for them. I learned my lesson with buying used cars and have since only bought new cars and with 0% APR. It proved to be the better financial decision.
I don't think it is as black and white as Dave makes it seem.
I don't catch his radio show very often, but in his books he recommends 15 year mortgages for most folks. If you're making 30K a year, you can't a 150K house unless you have a really big down payment..end of story.
20% down payment on a $150k house = $30k
a $120k mortgage @ 4.2% APR for 15 years = $900 month payment
a $120k mortgage @ 4.2% APR for 30 years = $586 month payment
Monthly rent for that same type of home would = $1,200 month
For some buying and owning the home is the better option than renting a home. It would take 15 years to save enough money to buy the home with cash. During those 15 years you are renting. In those 15 years, how much did that home price rise due to inflation? Within that 15 years of renting, that person contributed ZERO dollars to equity because they were renting. If they originally bought that home with that $120k mortgage, after 15 years, the home would already be paid off.
I just don't think it is as black and white as it seems.
Due to the recent mortgage crisis the buying home calculations may not be 100% valid. Someone can buy a home for $120,000 but when they put it on the market tomorrow it's selling for $85,000..
Then when it comes to renting there's the factor of not having to worry about some expense which are included within the rnet and then there's always the fact of paying for a home you will never own. A hearse has no luggage rack.. Then there is the possibility of a reverse mortgage for income purposes at later ages..
I say live the best you can but be debt free the day you want to retire. Why not enjoy a new car if you can afford it? Why not go on a trip if you can afford it? Do you want to wait until your in diapers again to start enjoying life?
Dave says only buy term insurance and when you side investments build up get rid of it. I say speak with someone who has been through a major health issue and ask them how fast that can drain funds.. Why put your funds at risk when you can have the insurance company take the risk for pennies on the dollar?
"I just don't think it is as black and white as it seems." A true statement..
Do you want to wait until your in diapers again to start enjoying life?
Very true words. I know of a few people personally that were saving and saving for their retirement. They forgone many of life's pleasures (vacations, new car purchases, buying electronics, etc) in the hopes of having this huge retirement fund. When they turned 55-60 years old and finally retired. They were ready to take vacations and start living life in the "golden years". Well, one ended up dying 4 months after retirement, the other guy died 1 year after retirement, and another acquaintance developed cancer and died 2 years later.
Quote:
Originally Posted by Caltovegas
Dave says only buy term insurance and when you side investments build up get rid of it. I say speak with someone who has been through a major health issue and ask them how fast that can drain funds.. Why put your funds at risk when you can have the insurance company take the risk for pennies on the dollar?
"I just don't think it is as black and white as it seems." A true statement..
Life and peoples circumstances are dynamic, therefore when Dave makes broad statements like that about paying cash for cars and other such statements as simple black & white rules, it doesn't make sense to me.
Credit cards can be a life saver if someone runs into an emergency. They are not completely evil and if properly handled, credit cars can be a beneficial tool to have.
Last edited by DellNec; 12-17-2011 at 04:17 AM..
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