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See, that's the problem: the vast majority of people who lease cars don't have the money to pay for it in cash, and so the money they aren't paying upfront is not going into CDs and money markets. If you need a car and have $30,000 in saved up in cash, then why not just buy a car for $30,000, and then, since you don't have to save up for a car any more, you can take the money would be saving and start putting it into an investment of your choice. Better yet, pay cash for a $4,000 used car, put the $26,000 into an investment of your choice and continue to put money into it with the extra money you'll have now that you don't have to save up for a car anymore.
Huh? A home mortgage costs a lot more than a car, so I can't envision a scenario in which that would make sense. The only scenario in which it would make sense would be if you're close to paying off your house, but are for some reason in danger of being foreclosed and you have enough cash to pay off the house but are in urgent need of a new car.
This is why DR is a terrible place to START. The above shows the damage has already started. This way of thinking will only become a bad habit.
It's better to spend your formative years with a better source.
Dave's philosophies work best for high earning individuals/families who have been irresponsible with their finances. They are not very practical for a single parent living barely above the poverty level. While there is nothing wrong with his basic premise - which is to live well within your means (a philosophy he didn't invent by the way) - his methodology is a bit too "one size fits all."
I have to admit that I was initially enamoured with his philosophy too, and used it to get back on track. Now, I find it woefully inadequate, and see all sorts of holes in his logic. Of course he is simply to arrogant to admit that there are other approaches that work just as well, or better than his.
What is particularly funny (and irritating at the same time) are people who have listened to half a dozen of his podcasts (that's all you have to listen to because he basically just repeats the same lines to every caller), then feel qualified to stand in judgement of EVERYONE else's personal finance choices that don't line up to his seven baby steps.
Agreed. However, it's not a bad way to buy a home.
It's practically the only way to buy a home, because of the way the government biases the laws in favor of mortgage holders and against renters. If rent wasn't shooting up through the roof, it would make sense to rent and save up cash for a house. Homes are the 1 exception to Dave's "Debt is dumb" rule, and he has additional rules that apply to them.
DR is niche. I think his 'credit is evil' mantra appeals to the type of people who have terrible, messed up lives, and find Jesus and become born-again Christians.
I hope no one finds this offensive. Just that it's kind of extreme, but some people are looking for that.
03-01-2015, 12:19 PM
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Dave Ramsey appears to only offer "good" advice to people who are walking financial disasters and who don't comprehend basic math, like why you should use your money to pay day higher interest debt instead of using your money to pay low or zero interest debt.
Debt is great when used responsibly. Even if you have the cash on hand, with extremely low interest rates you'd have to be mathematically challenged to think it's a good idea to avoid financing.
Most people here have said DR fills a niche, and is good for getting people thinking about how they want to use money, how they think about financies in general...budgeting, debt, saving, investing...there are way more things to consider financially than debt.
For the most part, DR's callers seem to be those who have gotten into trouble by NOT managing finances, debt, credit, and budgeting well...That's what gets you in the pickle NOT thinking -- and and because of that -- making unwise decisions. Some people are waaay stupid....others were just a little stupid, and a bad life event happened...and if that life event hits you when your vulnerable.....a situation that WOULD have been ok without it...that you would have skated by on.....turns into potential disaster.
So you may want to drive a 4-thousand dollar used car and invest 26K out of 30K -- and someone else buys a 20K car and invests 10-thousand neither one of you is in debt, but one IS driving a 'better" car. And if the one who is only investing 10K makes 100K a year and has more investable, disposable income than the one who invested 26K...the one with the better car who invested less....would still come out ahead in the long run.
It's not what you spend. it's what you MAKE/EARN and how much you have LEFT after your spending that is important. Some people don't need Ramsey's live on mayonnaise sandwiches, drive a beater, never get a credit card advice ....others DO. It's simple, but not so simple.
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See, that's the problem: the vast majority of people who lease cars don't have the money to pay for it in cash, and so the money they aren't paying upfront is not going into CDs and money markets. If you need a car and have $30,000 in saved up in cash, then why not just buy a car for $30,000, and then, since you don't have to save up for a car any more, you can take the money would be saving and start putting it into an investment of your choice. Better yet, pay cash for a $4,000 used car, put the $26,000 into an investment of your choice and continue to put money into it with the extra money you'll have now that you don't have to save up for a car anymore.
He's not the only person who's gotten rich off of SELLING people common sense...
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Apparently more people like him than hate him cause he has sold quite a few books and is on 500 radio stations.
It's practically the only way to buy a home, because of the way the government biases the laws in favor of mortgage holders and against renters. If rent wasn't shooting up through the roof, it would make sense to rent and save up cash for a house. Homes are the 1 exception to Dave's "Debt is dumb" rule, and he has additional rules that apply to them.
Actually in many areas you will own your home outright sooner if you rent and invest the difference until you have the full amount saved, instead of buying with a mortgage.
It's practically the only way to buy a home, because of the way the government biases the laws in favor of mortgage holders and against renters. If rent wasn't shooting up through the roof, it would make sense to rent and save up cash for a house. Homes are the 1 exception to Dave's "Debt is dumb" rule, and he has additional rules that apply to them.
Oh, I see. It's the government's fault. If not for the mortgage interest deduction, real estate would be dirt cheap. Yes, that makes a great deal of sense.
Now, here's the truth: Long-term low-interest fixed rate debt is an incredible tool for building wealth. The mortgage interest deduction, if it even benefits you at all, is just the icing. The cake is inflation eroding the value of your debt every year.
And please, do not listen to any of DR's investing advice. It is unbelievably horrible.
His baby steps are a reasonably good plan for those needing to get their finances back on track.
The point is that you can earn more than it costs to borrow the money if you take the loan.
According to NerdWallet, you can get 1.25% on a 1-year CD, 1.31% on a 2-year, 1.55% on a 3-year, 1.85% on a 4-year, and 2.25% on a 5-year.
So what you do is this: you take a 72-month car loan at 0.9%. Then you take the cash you would have paid for the car, and you put one year of payments in an online savings account at 0.75%-1%, another year of payments in a 1-year CD, another in a 2-year CD, etc. and put the proceeds of each CD as it matures into the savings. In this way, you always are covering the car payments with the money you would have used to buy it in cash. Since your weighted average interest is in the neighborhood of 1.5%, you are technically "gaming" the system and earning an arbitrage profit for doing nothing except some clever banking.
Now this is not for everyone, of course, but with advanced planning and cash, it can absolutely be done.
Alternatively, you bear some more risk because you're in your 20s with a long work history and a long time to stay in the market. You invest the $20,000 an economical new car would cost in equities. A broadbased ETF or mutual fund, for example.
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This is a consumption decision, not an investment decision. To this I ask, what is the purpose of having more money? Ultimately money is like a screwdriver. When you buy a screwdriver, you (in a philosophical sense) don't actually want a screwdriver - rather, you want to screw and unscrew, and the screwdriver is simply a means to that end, it is not an end goal in itself.
The same is so for money. Each dollar can be used in a multitude of ways, but the goal is not to live in a tent and die with $30 million in your brokerage account. Each dollar should be put to its most valuable usage. For some dollars this is an emergency fund, for others a retirement fund, for others food, for others insurance, etc.
This.
I don't have enough cash to buy a car because my screwdrivers are invested in longterm goals rather than sitting around doing nothing or next to nothing for me. I keep enough for a healthy emergency fund which I do not touch for large purchases. Large purchases that I can finance, I tend to finance. For example, when I made the consumption decision to replace my car I used 0% finance rather than transfer the money out of stocks. Since buying the car, the market is up around 6%. I've effectively earned $1,200 by borrowing money. Part of that is timing, but assuming in the long haul a fairly conservative 6% rate of return you see the advantage of that approach. The cost to me was a one-time fee of $1,000 as it was $1,000 back or 0% for 60 months. Ramsey's book of falsehoods would have be scared of debt. Instead I would have had to put maybe $1,000/mo into a savings account or short-term CD that paid diddly for two years.
The Ramsey book of lies has some good very general advise about not keeping up with the Joneses. There's better sources of that. Millionaire Next Door, for example. It'll teach you all the general advise the Ramsey book of lies will without the lies and will also go into talking about how to use money as a tool.
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