Dave Ramsey-Financial Peace University

[StevieISU23]

In finance classes in college, the profs were always talking about stock accounts, etc.
But, what poor college kid has a stock account.
So, In my last semester of College I took out an additional $2K in student loans.
I opened an ameritrade account, and bought 50 shares of Boeing (4 months after Sept 11th).
Spent $2000 (40 bucks a share).
Today, to stock is worth $300+ a share, and has a total value of $15Kish.

maybe some dumb decisions in college work out.....

 

[agcy68]

i don't understand all the anti-marriage stuff on here. two incomes, one place to live, only one person needing to pay for insurance, etc. do they really mean not get married or not have kids?

It usually isn't the being married part, it is getting unmarried part that is troublesome...

 

[Ry4Cy]

I love debt. Though I’m not the one paying it off.

 

[StevieISU23]

My 3 favorite Dave Ramsey's stories-

A. Recently divorced lady called in. She and her husband bought a $500K house before the divorce (which she kept the house and the $500K mortgage). She called dave to say that she had an additional $100K in CreditCard Debt. What should she do about that CC debt.
She tells Dave that she makes about $40K a year. (Mortage payments alone are about $30K a year).
Dave tells her that she simply can't afford that house, and that she will need to sell it, and maybe move to an appointment for a short time, to work on the CC debt.
She gets very upset with Dave, basically tells him off, and says that there is no way that I am leaving my Home, that I deserve to live in..... and hangs up on him......lol.....clueless.....

B. Guy, who sounds like a tool, maybe 35ish. He wants to do a Debt-free screem with Dave.
Guy tells Dave that he has paid off over $300K (which includes his $200K mortgage) in the past year.
Dave says: Great, tell us about how you skimped and did this...Wow.
Caller: Well, I had $100K in CC debt, that I paid off with some Cash I had in savings.
Then I bought a new $70K sports Car. (Dave's doesn't sound to approving of this)..
Then about 6 months later I paid off the $200K mortgage.
Dave: How did you pay off the mortgage so quick?
Caller: Oh, I had about $600K in Savings, so I just paid it off......
I'm sure Dave is just rolling his eyes at this....
Sarcastic DAve: Ok , here we go.....We have Caller A, who just paid his debt from his savings account, so ahead-buddy, do you debt free scream.

C. Caller calls in: I'm in trouble I have about $50K in taxes that I owe the IRS.
Dave: Ok, we are work through this together. What other debt do you have?
Caller: About another $100K in Credit Cards.
Dave- assume this is leaning toward declairing bankruptsy.
Dave- ok, how much do you make a year.
Caller: I make about $200K a year....................
Dave: How about your wife?
Caller: Oh, she has a decent Jobs....maybe about $300K a year.
Dave: Wait, what.....your income is $550K a year. Somehow you have blown through $550K, and in addition to that you have racked up another $150K in debt......what are you doing man?
How about you quit going on lavish trips and buying fancy cars for about 6-8 months.
During that time, your income would be about $350K, which you could easily pay the $150K in debt.
Can you live like a normal humanbeing for 6 months......

Wow.

 

[oldman]

I agree with invest and hold. That is why I was confused when the other guy was saying he never had a year with a loss. Over the course of 10 years, you will have a loss. Especially over the last 10-20 years of the market. Just have to be patient.

You haven't lost the money until you cash in your chips.

 

[BCClone]

You haven't lost the money until you cash in your chips.

Agreed, more meant had a year where you lost money on paper. Why I also say to not consider your house as part of your networth.

 

[NickTheGreat]

My only thing I disagree with Dave on is not investing while paying debt down and not using credit cards.

He always says "no millionaire ever got rich using credit card points."

Yes, but no millionaire ever turned down 2% cash back on literally every item they buy.

But I get his point, and with all the people in credit card debt, he's probably better off discouraging it.

 

[agrabes]

I view the Dave Ramsey stuff like I do somebody who goes on a specific diet - Atkins, Paleo, Low Fat, High Fat, whatever. It works for people who stick to it mostly because they're given a framework and they stick to it. He doesn't say anything profound and honestly his advice isn't always optimal (If you have decent credit getting a no fee 2% cash back card is trivially easy, for example, so not having and using a credit card is throwing away money even if you ignore the other benefits. Same for "always paying cash for a car", with decent credit you can get car loans that are below inflation and make better use of that money elsewhere. And so on). But most people don't care about optimization. They just care about having a framework and something to give them direction. Just like you'll lose weight if you stick to any decent diet, even if it is a little hokey, you'll see positive results from following Ramsey, even though his advice isn't always the best.

That said, Ramsey is like the Crossfit of financial planning. Anyone doing it wants to make sure they tell you about it.

I think you're right to a certain extent, but you also have to look at risk vs. reward. You could gain 2% cash back - $200 per every $10,000 spent. Maybe you get a $20K car on a 1% 5 year loan vs. paying in cash, "earning" the 1-2% annual difference between your loan interest rate and inflation, another few hundred dollars a year. That would be the optimal practice from a money perspective. On the other hand, you have the risk of owing money and the requirement of making payments. If everything happens according to plan, you keep your job and don't lose any pay, you don't have any emergencies, etc you will be fine. If you do have a problem though, the more debt you have the more risk you have.

For some people, that's fine as long as they know what they are doing. I'm not a strict Dave Ramsey guy myself, but I lean toward lower risk in terms of debt. My personal guideline is not to take out loans other than for a house or business purposes, unless I have a defined plan to pay off that loan in a short period of time (such as a bonus coming in from work in a few months, etc). I'd be more willing to take those risks as a business but for my personal finances I like the peace of mind of not leveraging myself.

Also, as you said like Crossfit the people who do it are definitely sure to tell you about it. The other side of that coin is that also like Crossfit there are a group of people who are sure to tell you why you are an idiot for doing it, even though there are plenty of good reasons to be in Crossfit or FPU.

 

[Judoka]

I think you're right to a certain extent, but you also have to look at risk vs. reward. You could gain 2% cash back - $200 per every $10,000 spent. Maybe you get a $20K car on a 1% 5 year loan vs. paying in cash, "earning" the 1-2% annual difference between your loan interest rate and inflation, another few hundred dollars a year. That would be the optimal practice from a money perspective. On the other hand, you have the risk of owing money and the requirement of making payments. If everything happens according to plan, you keep your job and don't lose any pay, you don't have any emergencies, etc you will be fine. If you do have a problem though, the more debt you have the more risk you have.

For some people, that's fine as long as they know what they are doing. I'm not a strict Dave Ramsey guy myself, but I lean toward lower risk in terms of debt. My personal guideline is not to take out loans other than for a house or business purposes, unless I have a defined plan to pay off that loan in a short period of time (such as a bonus coming in from work in a few months, etc). I'd be more willing to take those risks as a business but for my personal finances I like the peace of mind of not leveraging myself.

Also, as you said like Crossfit the people who do it are definitely sure to tell you about it. The other side of that coin is that also like Crossfit there are a group of people who are sure to tell you why you are an idiot for doing it, even though there are plenty of good reasons to be in Crossfit or FPU.

Let's ignore the car thing for now and just focus on the credit card cash back. What risk do you think exists there? With cash you deduct each transaction out of your account one by one. With a card you keep a tally and pay it all off in one transaction at the end of the month. And then you get a statement credit/check/whatever for 2% of what you spent. That's it. Not only is there no added risk, but there's even additional protections against fraud, broken items, buying something right before it goes on sale, and so on.

 

[KCCLONE712]

I can honestly say that I could have retired at 35 if I stayed single forever. Wouldn't give away my kids now though.

But would you sell them?

 

[Judoka]

But would you sell them?

 

[CascadeClone]

Thoughts on different bits of this thread:

I haven't met anyone that says to do 100% of the Ramsey method, almost everyone says it's 90-95% great but then has some bone to pick. I agree with that.

It isn't counting beans and misery to live on less than you make. It's just smart. Ask your grandparents who survived the 30s on the farm.

Counting on 12% annual returns, even over a long period, is too aggressive imho. I have been monitoring my portfolio for 20 years, and it's been more like 8-9% overall. That does include the great recession of course - before that (and since) it has been much higher. But you better plan on 8-10%, not 12% - it goes down as well as up kids.

And if you don't think "debt is dumb" well here is an example from my work. IT gal makes almost $40k, but can't make ends meet in a small apartment due to nearly $600/month in debt service. She is living rice and beans for a year to pay it back, and then will be OK. If you can delay gratification (i.e. no debt), you will almost always be better off overall.

 

[Ficklone02]

The Ramsey system is in many ways a function of Dave's experiences in his personal life. For example, when he was younger he had a bunch of real estate that he mismanaged, lost the properties, and then had some financial hardship for awhile because of it. This must be part of the reason he peddles the no debt mindset.

Now, just because he made those mistakes doesn't mean others will. But you can see it profoundly affected his mindset and his "system". I think some of the stuff he pushes makes sense but disagree with some of it, because it doesn't make sense for my life. Thats the key IMO, do whats best for your life. His stuff can be a great start in many ways but its not a cookie cutter thing to follow for everybody.

 

[agrabes]

Let's ignore the car thing for now and just focus on the credit card cash back. What risk do you think exists there? With cash you deduct each transaction out of your account one by one. With a card you keep a tally and pay it all off in one transaction at the end of the month. And then you get a statement credit/check/whatever for 2% of what you spent. That's it. Not only is there no added risk, but there's even additional protections against fraud, broken items, buying something right before it goes on sale, and so on.

Sure. There are a few risks I see with having credit cards. Just to be clear, I do have one, actually two now, so I'm not saying never have one. The first risk is that for the type of people Ramsey is aiming his program for (people with very little financial self control and/or knowledge) there is a good chance that they will carry a balance on that card. It may not be every month, but even one or two months of carrying a balance is going to eat up any gains really quickly. It is just keeping a temptation out there for them. The second risk is that as you get more and more cards trying to chase those various deals for cash back, points, etc the more likely it is that you'll lose track of a card or two and unintentionally carry a balance. This happens to my wife a few times a year. The last point (not really a risk) is that people can get so caught up in chasing credit card bonuses they waste more time than what it's worth. There is only a very minimal gain from those cash back cards when you add it all up. If you are someone who struggles with credit discipline, the few hundred dollars in possible gains outweigh the risks.

My personal stance on credit cards is to stick to one or two, don't go get every single store's card so you can make 1 or 2 % cash back or a one time savings on your first purchase.

 

[mj4cy]

Seems like it should be common sense not to spend more than you make, but I guess not everyone can handle that responsibility? Plus a credit card is a nice crutch to have if you have an emergency expense come up and don't have liquid assets to pay for it at the time.

But if you follow Dave's baby steps and his plan, technically you would have already planned for that rainy day and never need a credit card. Like I said earlier, I think a lot of people have common sense, and his main money goals are for those who have zero concept of money man

Sure. There are a few risks I see with having credit cards. Just to be clear, I do have one, actually two now, so I'm not saying never have one. The first risk is that for the type of people Ramsey is aiming his program for (people with very little financial self control and/or knowledge) there is a good chance that they will carry a balance on that card. It may not be every month, but even one or two months of carrying a balance is going to eat up any gains really quickly. It is just keeping a temptation out there for them. The second risk is that as you get more and more cards trying to chase those various deals for cash back, points, etc the more likely it is that you'll lose track of a card or two and unintentionally carry a balance. This happens to my wife a few times a year. The last point (not really a risk) is that people can get so caught up in chasing credit card bonuses they waste more time than what it's worth. There is only a very minimal gain from those cash back cards when you add it all up. If you are someone who struggles with credit discipline, the few hundred dollars in possible gains outweigh the risks.

My personal stance on credit cards is to stick to one or two, don't go get every single store's card so you can make 1 or 2 % cash back or a one time savings on your first purchase.

100% agree with this post. If you have decent common sense and are able to pay off your balance each month, no issues with having a credit card. There is a convenience factor to it and you can earn a little bit of perks from them. However, as Dave says, "no millionaire ever became a millionaire by redeeming credit card points."

 

[Judoka]

Sure. There are a few risks I see with having credit cards. Just to be clear, I do have one, actually two now, so I'm not saying never have one. The first risk is that for the type of people Ramsey is aiming his program for (people with very little financial self control and/or knowledge) there is a good chance that they will carry a balance on that card. It may not be every month, but even one or two months of carrying a balance is going to eat up any gains really quickly. It is just keeping a temptation out there for them. The second risk is that as you get more and more cards trying to chase those various deals for cash back, points, etc the more likely it is that you'll lose track of a card or two and unintentionally carry a balance. This happens to my wife a few times a year. The last point (not really a risk) is that people can get so caught up in chasing credit card bonuses they waste more time than what it's worth. There is only a very minimal gain from those cash back cards when you add it all up. If you are someone who struggles with credit discipline, the few hundred dollars in possible gains outweigh the risks.

My personal stance on credit cards is to stick to one or two, don't go get every single store's card so you can make 1 or 2 % cash back or a one time savings on your first purchase.

I didn't bring up "getting more and more cards to chase various deals" though. Just a single, simple, no fee 2% cash back card, of which there are a variety available. You're constructing a boogieman of the worst way to use cards and then saying that is bad. Of course it is bad to spend more than you can afford to pay off, or to forget to make a payment, or whatever. My issue with this line of thinking is it takes "Credit card debt is bad" or "forgetting to pay your bills is bad" and takes that to mean "Using a credit card is bad".

 

[dmclone]

I think people underestimate how much credit card debt the average American has

https://www.usatoday.com/story/mone...s-new-record-raising-warning-sign/1014921001/

The average American household that’s carrying credit card debt has a balance of $15,654. All you ever hear is "I have a credit card but I pay it off each month". This is true for a lot of people but for the majority of Americans, it's not.

 

[dualthreat]

https://www.forbes.com/sites/niallm...han-1000-in-savings-infographic/#6507998c1ae6

Almost 70% of American's don't have a thousand bucks in case of emergency. I think it's safe to say Dave Ramsey's advice will work for those people.

If that survey is accurate, it's hard to make an argument that "Dave Ramsey's advice won't work for most people" On the contrary, it looks like 70% of people need his advice in a bad way.

 

[Judoka]

The average American household that’s carrying credit card debt has a balance of $15,654.

The average American household that isn't carrying credit card debt has a balance of $0.

 

[Judoka]

If that survey is accurate, it's hard to make an argument that "Dave Ramsey's advice won't work for most people" On the contrary, it looks like 70% of people need his advice in a bad way.

Nobody has made the argument that his advice doesn't work as a whole. The posts were about whether everything he advocates is actually good advice.