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I checked out Dave Ramsey just now and read about the credit card section. According to the website, "Responsible use of a credit card does not exist. Credit card debt is a major problem in America. There is no positive side to credit card use. You will spend more if you use credit cards..."
Really? Responsible use of a credit card does not exist? DR baby steps might be good way to start and more of a common sense. However, I do not agree with his credit card theory.
If you can pay off your credit card's balance monthly, what is wrong with using credit cards? I got rewards points, cash back, some insurance/warranty, and even protection against fraud.
I checked out Dave Ramsey just now and read about the credit card section. According to the website, "Responsible use of a credit card does not exist. Credit card debt is a major problem in America. There is no positive side to credit card use. You will spend more if you use credit cards..."
Really? Responsible use of a credit card does not exist? DR baby steps might be good way to start and more of a common sense. However, I do not agree with his credit card theory.
If you can pay off your credit card's balance monthly, what is wrong with using credit cards? I got rewards points, cash back, some insurance/warranty, and even protection against fraud.
Anyway, I am not his fan either
Here is some more of his misinformation. He regularly refers to a Dun & Bradstreet study to prove his claim that you spend more with credit cards. The problem? Dun & Bradstreet says they have never published any such study. Notice he refers to it, but never actually cites it.
Personally I see DR as a relatively useful financial tool in some respect. Some of his advice is good some is horrible and I completely disagree with it. While I don't like debt and I'm a pretty good advocate of living as debt free as possible, debt is not as evil as Ramsey makes it. I carry some debt. But it's very very little compared to my total income and net worth.
The problem with debt is that it sneaks up in you. That's usually because people are too arrogant and have the attitude of "I can handle it" but really can't and get in over their heads. The need to have the perfect life family job money illusion is what ruins people. Theire too afraid, embarrassed or scared to say that they aren't doing as well as they appear to be doing.
Dave's advice isn't bad it's just too totalitarian. His saying to buy houses cash. Great. In Tennessee I can go buy houses cash. In fact I can go buy a few houses cash. And get killed in PMC and maintenance fees. Because I live nowhere near Tennessee. In California unless you got money you're not buying cash. Not without leveraging or borrowing. No how no way. And if you can pull 450-750k cash to buy a house you're not a Ramsey listener anyway
And do you think that most investors who buy cash leave the cash in the house? I guarantee you as soon as they buy it they pull that cash out in a 80% cash out refi and leave the bank to carry most of the risk. Then they keep the difference. The initial 80% of that pulled out gets reinvested in some other venture getting 5-7% return. Then they get ALL the tax benefits of having rental property.
And CC use/spending isn't bad. I use a CC. I just pay it off at the end of the month. I rent cars, pay for online shopping or car repairs. Because the longer money sits in MY account the more interest I get. So I pay them back at the end of the month. Instead of paying them 9% n recurring interest I just made 1.5% on my money. And all they get is the total amount I borrowed with no interest out of my pocket. So how exactly is my CC use wrong? This is money I would be spending no matter what. Might as well use someone else's money. But I ALWAYS have the cash to pay it in full and I dont overspend. So it's never a dangerous thing.
There are TONS of ways of making money using a little of yours and someone else's money. It's a matter of how much risk you want to take.
Last edited by Electrician4you; 03-01-2015 at 02:14 PM..
If you think Dave is great, you oughta try Mr Money Moustache.
I agree with this. Dave Ramsey is a good start. But Mr. Money Mustache is much better. I don't agree with either of them 100%, but my views are much closer to Mr. Money Mustache's.
Dave Ramsey is good for keeping people out of debt for consumer items like cars, flat screen TVs, and buying more house than you can afford. His recommendation for people to get 15 year mortgages is probably good for most people, too (although a little too one-size-fits-all IMO).
Where he is downright destructive is where he suggests that a 12% rate of return is realistic for the stock market over the long run. Since 1926, the stock market has only returned about 10%. So while there have been pretty long periods where it returned much more than 12% (such as 1982-2000), there have also been pretty long periods where it's returned much less than that (such as the last 15 years). He also says you can take out 8% of your portfolio in retirement, which pretty much any reputable financial planner will tell you is way, way, too much (probably double what you should be taking out).
He also recommends mutual funds for retirement that charge a fat sales commission. Paying a sales charge every time you invest with your limited investment dollars is a horrible idea since there are plenty of mutual funds that don't even charge a sales commission or "load" and they perform just as well or better than the "load" funds.
Mr. Money Mustache bypasses all that nonsense and goes straight for efficiency. He tells you his whole philosophy and what to do in one blog post (with supporting links). Now that's efficient:
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.
Perhaps that is part of why median homeowner net worth is about 50x median renter net worth?
Perhaps that is part of why median homeowner net worth is about 50x median renter net worth?
Not much of one. I think it has more to do with the median homeowner having a net income that is higher and being more responsible with money. Income is the primary factor. 70% of renters are in the bottom 40% for income. There's just not a lot of high income renters. Certainly when considering the median renter, they're going to be low income roughly around the 30th percentile for income. The second biggest factor would be age. For households headed up by someone under 25, 78% are renters. By 40 that's dramatically flipped to 2/3rds owning. By 55 only 20% of households are still renters. None the less, median age of renters is still 40. Income is the biggest factor in my mind.
The stock market has historically been a much better investment than housing overall. Obviously, you can cherry pick your Amazons and your Park Slopes in either case. Housing has two advantages, leverage is much cheaper due to lower interest rates and interest being deductible, and there's the big advantage in capital gains treatment.
Perhaps that is part of why median homeowner net worth is about 50x median renter net worth?
Actually it is not the reason. The median homeowner has more income than the median renter, not because of their housing, but the other way around - housing due to income. Don't confuse your causation.
Personally I see DR as a relatively useful financial tool in some respect. Some of his advice is good some is horrible and I completely disagree with it. While I don't like debt and I'm a pretty good advocate of living as debt free as possible, debt is not as evil as Ramsey makes it. I carry some debt. But it's very very little compared to my total income and net worth.
The problem with debt is that it sneaks up in you. That's usually because people are too arrogant and have the attitude of "I can handle it" but really can't and get in over their heads. The need to have the perfect life family job money illusion is what ruins people. Theire too afraid, embarrassed or scared to say that they aren't doing as well as they appear to be doing.
Dave's advice isn't bad it's just too totalitarian. His saying to buy houses cash. Great. In Tennessee I can go buy houses cash. In fact I can go buy a few houses cash. And get killed in PMC and maintenance fees. Because I live nowhere near Tennessee. In California unless you got money you're not buying cash. Not without leveraging or borrowing. No how no way. And if you can pull 450-750k cash to buy a house you're not a Ramsey listener anyway
And do you think that most investors who buy cash leave the cash in the house? I guarantee you as soon as they buy it they pull that cash out in a 80% cash out refi and leave the bank to carry most of the risk. Then they keep the difference. The initial 80% of that pulled out gets reinvested in some other venture getting 5-7% return. Then they get ALL the tax benefits of having rental property.
And CC use/spending isn't bad. I use a CC. I just pay it off at the end of the month. I rent cars, pay for online shopping or car repairs. Because the longer money sits in MY account the more interest I get. So I pay them back at the end of the month. Instead of paying them 9% n recurring interest I just made 1.5% on my money. And all they get is the total amount I borrowed with no interest out of my pocket. So how exactly is my CC use wrong? This is money I would be spending no matter what. Might as well use someone else's money. But I ALWAYS have the cash to pay it in full and I dont overspend. So it's never a dangerous thing.
There are TONS of ways of making money using a little of yours and someone else's money. It's a matter of how much risk you want to take.
Good point on the cash buyers. They aren't leaving the cash in. The cash just makes their offer more attractive since it goes through faster.
Personally I see DR as a relatively useful financial tool in some respect. Some of his advice is good some is horrible and I completely disagree with it. While I don't like debt and I'm a pretty good advocate of living as debt free as possible, debt is not as evil as Ramsey makes it. I carry some debt. But it's very very little compared to my total income and net worth.
The problem with debt is that it sneaks up in you. That's usually because people are too arrogant and have the attitude of "I can handle it" but really can't and get in over their heads. The need to have the perfect life family job money illusion is what ruins people. Theire too afraid, embarrassed or scared to say that they aren't doing as well as they appear to be doing.
Dave's advice isn't bad it's just too totalitarian. His saying to buy houses cash. Great. In Tennessee I can go buy houses cash. In fact I can go buy a few houses cash. And get killed in PMC and maintenance fees. Because I live nowhere near Tennessee. In California unless you got money you're not buying cash. Not without leveraging or borrowing. No how no way. And if you can pull 450-750k cash to buy a house you're not a Ramsey listener anyway
And do you think that most investors who buy cash leave the cash in the house? I guarantee you as soon as they buy it they pull that cash out in a 80% cash out refi and leave the bank to carry most of the risk. Then they keep the difference. The initial 80% of that pulled out gets reinvested in some other venture getting 5-7% return. Then they get ALL the tax benefits of having rental property.
And CC use/spending isn't bad. I use a CC. I just pay it off at the end of the month. I rent cars, pay for online shopping or car repairs. Because the longer money sits in MY account the more interest I get. So I pay them back at the end of the month. Instead of paying them 9% n recurring interest I just made 1.5% on my money. And all they get is the total amount I borrowed with no interest out of my pocket. So how exactly is my CC use wrong? This is money I would be spending no matter what. Might as well use someone else's money. But I ALWAYS have the cash to pay it in full and I dont overspend. So it's never a dangerous thing.
There are TONS of ways of making money using a little of yours and someone else's money. It's a matter of how much risk you want to take.
Is there really no morality at all anymore in the real estate dealing? By saying the bank is taking most of the risk, you are (implicitly) saying that if the home dropped dramatically in value you would just send the keys back to the bank and default on your obligation.
Has the situation become such that ethically conscious investors cannot profit?
If so, then in a sense you are not profiting - rather, you are stealing the bank's money. Not legally, but morally.
I'm an adult in my mid-20s and am just about fully independent and comfortably set in a career. Perfect time to learn about Dave Ramsey's show/podcasts, as I learned about a few months ago. My perspective on personal finance has changed so much, it's great!
Dave Ramsey is a blubbering fool.
Quote:
Originally Posted by DavidRudisha
Now, I absolutely give zero cares about what I drive, how nice of an apartment I have (or whether I choose to live with my parents as opposed to renting an apartment), vacations or anything like that. I get on Facebook and I laugh at how broke all my friends are. Funny thing is, they don't realize they're broke.
Um. That's not Dave Ramsey. You simply have managed to put the need for material goods behind you. I've never chased those.
Quote:
Originally Posted by DavidRudisha
I saw a newlywed couple on Facebook today post a status about how thankful they were to God for helping them get approved for a home loan.
How is that foolish? Mortgage rates are dirt cheap. You'd be a fool not to buy real estate if you had the ability/need.
Quote:
Originally Posted by DavidRudisha
Yea, that's sure something to brag about -- having to borrow money because you don't have enough of it!
Debt is a tool. You either know how to use it responsibly, or you don't. Dave Ramsey didn't.
I have a decent amount of money for my age. Don't need to borrow, yet I still do. Why? Because it enables me to make a lot more money, even with risk controlled.
Quote:
Originally Posted by Malloric
Debt is just a tool like a shovel. Dave Ramsey wasn't capable of responsibly using a shovel and hit himself over the head with it repeatedly. That doesn't mean your married friends buying their house while you live with your parents are or are not capable of responsibly using debt.
I went through college racking up credit card debt in the winter and working it off in the summer. Guess how much interest/fees I paid... $0.00.
One year out of college guess how much school related debt I had... $0.00.
Debt is a fantastic tool for people who can use it.
Quote:
Originally Posted by ncole1
I used to really be a "subscriber" to the DR philosophies, but now I have a credit card. His message still has the very important point that people tend to spend themselves into trouble without realizing it.
It's easy to preach that message when you fell in that hole. However from my observations, those people tend to take things to the extreme and over simplify them, thus costing people more than had they done it rationally instead of emotionally.
If you want really good financial advice, find someone that never fell in that hole or doesn't have millions in the bank (before preaching). Unfortunately, nobody really comes to mind.
Quote:
Originally Posted by DavidRudisha
The math doesn't add up on "using" debt to finance one's living. A car is not an investment (unless it's some classic or rare vehicle), so how would it ever make sense to "finance" a car, for example?
A car is never an investment, even a classic or rare vehicle. That is a speculation.
Because if you take a car loan at 1.99% interest instead of paying cash and invest it in the market, which I believe the S&P 500 returned 11% last year, you come out ahead of paying cash.
Quote:
Originally Posted by DavidRudisha
I may have been confused on terminology. Is home loan always synonymous with mortgage?
Yeah.
The other type is line of credit, or HELOC.
Quote:
Originally Posted by DavidRudisha
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.
It's an investment in yourself, many people wouldn't make any money without a car. Public transportation is a myth where I grew up. At the same time, not everyone wants a $4,000 car. Mine was $25,000. 10 years old (paid off long ago, but financed). It's got years left on it having taken good care of it. Even though it's a color that really shows scratches, it certainly doesn't look it's age. Those friends that bought the $4,000 cars are on their 3rd or 4th ones and put a lot more money into them than I've had to put in mine. $15,000 would be the base for me.
Again, rates are cheap. 1.99% last I looked. That's less than inflation.
Quote:
Originally Posted by DavidRudisha
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.
I'm refinancing my 15 year to a 30 year because debt isn't dumb. I put the minimum down on my house (4%) when I bought it. At 3.75% interest, I'll gladly pay it for 30 years.
Figuring in the average return of the market, the difference is a million+ for my retirement. By the time the 30 year is paid off, the payment would be equal to my electricity bill last month.
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Really? Responsible use of a credit card does not exist? DR baby steps might be good way to start and more of a common sense. However, I do not agree with his credit card theory.
