Dave Ramsey Financial Peace

[vinniedelpino]

I’d you can’t afford to purchase appreciating assets without debt, then you are doing it wrong.

Im not a Ramsey fanatic, but his point of getting rid of debt and then building wealth is pretty solid.

Paying 3% on anything is dumb if you can buy it cash. If you can’t, then get to the point you can.

That's terrible advice. Savvy financial management requires a basic understanding of the time value of money and opportunity cost.

Right now I'm building a home at 3%. I could pay cash, but that would be crazy given the current financial climate. Short term interest rates are above 5% and I think most on this forum would agree that inflation is likely to rise significantly over the long term. If the rate of inflation is higher than your mortgage rate you're coming out ahead by borrowing. Rather than paying full price in todays dollars, you're paying over the next 30 years with dollars that aren't worth as much. The situation we're dealing with right now doesn't happen in a free market. It's 100% manipulated by fed intervention.

The S&P 500 has returned about 20% annually since the wuhan flu hit. In 2019 returns were even higher. For those that are unaware, the S&P 500 is an index fund comprised of equity investments in 500 of the largest companies listed on the stock exchange. It's basically a representation of the "stock market" or even the economy as a whole. The running average annual rate of return since its inception in 1926 is 10-11%. The average annual rate of return since 1957 is 8%. Just saying.

We're in a really weird place right now with the fed manipulating short term lending rates to next to nothing. It's like an economic cocaine binge and common sense doesn't necessarily apply anymore. It's all basic math, so there's really not much to argue over. Just crunch the numbers and see what you come up with. Free calculators from bankrate.com are your friend. Pretty much no matter how you crunch the numbers, folks paying cash instead of financing at historically low rates are the ones left holding the bag when the dust settles.

 

[Bigfatcock]

That's terrible advice. Savvy financial management requires a basic understanding of the time value of money and opportunity cost.

Right now I'm building a home at 3%. I could pay cash, but that would be crazy given the current financial climate. Short term interest rates are above 5% and I think most on this forum would agree that inflation is likely to rise significantly over the long term. If the rate of inflation is higher than your mortgage rate you're coming out ahead by borrowing. Rather than paying full price in todays dollars, you're paying over the next 30 years with dollars that aren't worth as much. The situation we're dealing with right now doesn't happen in a free market. It's 100% manipulated by fed intervention.

The S&P 500 has returned about 20% annually since the wuhan flu hit. In 2019 returns were even higher. For those that are unaware, the S&P 500 is an index fund comprised of equity investments in 500 of the largest companies listed on the stock exchange. It's basically a representation of the "stock market" or even the economy as a whole. The running average annual rate of return since its inception in 1926 is 10-11%. The average annual rate of return since 1957 is 8%. Just saying.

We're in a really weird place right now with the fed manipulating short term lending rates to next to nothing. It's like an economic cocaine binge and common sense doesn't necessarily apply anymore. It's all basic math, so there's really not much to argue over. Just crunch the numbers and see what you come up with. Free calculators from bankrate.com are your friend. Pretty much no matter how you crunch the numbers, folks paying cash instead of financing at historically low rates are the ones left holding the bag when the dust settles.

They aren’t holding a bag. They own an item that’s not getting foreclosed on or repo’d.

The assumption is that jobs will be steady and pay will be steady and increase. Being leveraged is all fine and dandy until you lose a job, or the leveraged company you work for goes under.

When I bought my rental properties, cash, after the financial crisis, they were cheap. Since that time the value of the homes have increased significantly and the long term renters have paid me more in rent than double what I purchased the homes for. Now that’s what I call making my money work. I get the increased value, and the constant cash flow. If I’d have done a 30 year fixed I’d still be paying the mortgage along with the interest. Dumb.

All of my paid off land has increased in value.

all of my paid off vehicles have increased (that’s an odd one)

Every high quality Item I currently own I can sell for more than I bought it for after using it for quite awhile.

Paid no interest on any of it.

I also have invested, and continue to invest in companies that pay dividends. I get the paper gains from share price increase and my dividend payments. Never on margin.

Building wealth using debt can work, won’t argue against it, but I’ll still say it’s dumb. I like to OWN stuff.

 

[Pester]

The risk lies in the individual investment more so than the investment vehicle. For example, If you were dead set on investing your entire life's savings into tesla that's fine. It's not my department and not my concern. I'm more concerned HOW you buy that tesla stock. Is it going to be in a cash balance plan? A ROTH 401k? A regular brokerage account? If you're young and not making much, the ROTH is a home run. If you're old and crushing it that's probably a terrible idea. If you value liquidity and don't mind paying Uncle Sam to preserve that, a brokerage account is probably the way to go. This is where Ramsey falls short. Everybody gets crammed into the same box. Some times it fits, other times it doesn't. My client base is disproportionately wealthy, so maybe the 20% is high. It's a made up number anyway.

My primary goal was to point out that Ramsey's plan is disastrous for some, and it absolutely is. This is independent of the risk/reward associated with any particular investment.. at least it is if we're measuring in terms of dollars and cents, anyway.

I think overall he's done more good than harm for most people. I just wish he would run a little 10 question, multiple choice survey on his site to see if potential subscribers are a good fit.

Best of luck in your financial endeavors.


\

Thanks again for the reply and I owe you a bit of an apology……

I understand your point about where investments are made and that was the part I was glossing over. Not a huge separation in our thinking there. Having a handle on that is key to long term success and should be part of every ones education.

to be fair to this conversation the importance of your points can make huge differences in the long run and it’s a place I should have been better educated. My focus has generally been optimization of returns and risk mitigation. Again, good conversation that is appreciated here

 

[Pester]

That's terrible advice. Savvy financial management requires a basic understanding of the time value of money and opportunity cost.

Right now I'm building a home at 3%. I could pay cash, but that would be crazy given the current financial climate. Short term interest rates are above 5% and I think most on this forum would agree that inflation is likely to rise significantly over the long term. If the rate of inflation is higher than your mortgage rate you're coming out ahead by borrowing. Rather than paying full price in todays dollars, you're paying over the next 30 years with dollars that aren't worth as much. The situation we're dealing with right now doesn't happen in a free market. It's 100% manipulated by fed intervention.

The S&P 500 has returned about 20% annually since the wuhan flu hit. In 2019 returns were even higher. For those that are unaware, the S&P 500 is an index fund comprised of equity investments in 500 of the largest companies listed on the stock exchange. It's basically a representation of the "stock market" or even the economy as a whole. The running average annual rate of return since its inception in 1926 is 10-11%. The average annual rate of return since 1957 is 8%. Just saying.

We're in a really weird place right now with the fed manipulating short term lending rates to next to nothing. It's like an economic cocaine binge and common sense doesn't necessarily apply anymore. It's all basic math, so there's really not much to argue over. Just crunch the numbers and see what you come up with. Free calculators from bankrate.com are your friend. Pretty much no matter how you crunch the numbers, folks paying cash instead of financing at historically low rates are the ones left holding the bag when the dust settles.

I agree with your analysis to a point. The place where your logic comes up short is the cost of risk. My most recent painful education resulted in a 7 figure loss. The cost of risk was sitting right in front of me but I could not see it and that leveraged investment went bad “for reasons no one could have predicted “. That’s the cost of risk that I personally believe you are calculating correctly in your analysis.

I mention my mistakes in the hope that they are not repeated by any of the good folks here.

Lastly, these conversations are exactly the right ones to be having, despite some differences in approach. A strong financially secure vibrant middle class is what will fight back the current insanity and keep America great for future generations.

 

[vinniedelpino]

They aren’t holding a bag. They own an item that’s not getting foreclosed on or repo’d.

The assumption is that jobs will be steady and pay will be steady and increase. Being leveraged is all fine and dandy until you lose a job, or the leveraged company you work for goes under.

When I bought my rental properties, cash, after the financial crisis, they were cheap. Since that time the value of the homes have increased significantly and the long term renters have paid me more in rent than double what I purchased the homes for. Now that’s what I call making my money work. I get the increased value, and the constant cash flow. If I’d have done a 30 year fixed I’d still be paying the mortgage along with the interest. Dumb.

All of my paid off land has increased in value.

all of my paid off vehicles have increased (that’s an odd one)

Every high quality Item I currently own I can sell for more than I bought it for after using it for quite awhile.

Paid no interest on any of it.

I also have invested, and continue to invest in companies that pay dividends. I get the paper gains from share price increase and my dividend payments. Never on margin.

Building wealth using debt can work, won’t argue against it, but I’ll still say it’s dumb. I like to OWN stuff.

I think you’re missing the part about opportunity cost. Over the last 10 years the s&p has returned an annualized rate of 13.6%. Average mortgage rate 10 years ago was 4.69%.

If you have a million dollar portfolio you missed out on the better part of a million bucks. Maybe more.

 

[Bigfatcock]

I think you’re missing the part about opportunity cost. Over the last 10 years the s&p has returned an annualized rate of 13.6%. Average mortgage rate 10 years ago was 4.69%.

If you have a million dollar portfolio you missed out on the better part of a million bucks. Maybe more.

Portfolio is north of that.

What I’m saying is, because I can buy in cash, I pay no interest. At the same time I continually invest. I don’t miss the opportunity. My money ( emphasis on it being mine) works very well for me, and I pay no Interest.


I’ve invested the stock market for long enough, and with the appreciation on my rental properties and rent paid, more than made up for any opportunity cost. Plus I paid no interest.

Plus I own my stuff. It’s mine.

I understand what you’re saying. I truly do. However, you better hope you stay employed in the long run, because if there is a major down turn extra services are usually cut. Unemployed people can’t pay their loans.

However this thread isn’t about me, and I fear I may have made it that.

Financial security…get there as soon as you can however you can.

 

[vinniedelpino]

Portfolio is north of that.

What I’m saying is, because I can buy in cash, I pay no interest. At the same time I continually invest. I don’t miss the opportunity. My money ( emphasis on it being mine) works very well for me, and I pay no Interest.


I’ve invested the stock market for long enough, and with the appreciation on my rental properties and rent paid, more than made up for any opportunity cost. Plus I paid no interest.

Plus I own my stuff. It’s mine.

I understand what you’re saying. I truly do. However, you better hope you stay employed in the long run, because if there is a major down turn extra services are usually cut. Unemployed people can’t pay their loans.

However this thread isn’t about me, and I fear I may have made it that.

Financial security…get there as soon as you can however you can.

There’s still a disconnect here. If you’re beating the S&P you missed out on even more than a million dollars is opportunity cost.
Whatever you’re doing is working for you, so by all means, keep it up.

I don’t have anything to gain or lose either way, so I’d rather shoot the breeze about boomsticks and and glass anyway, tbh.

Im going to duck out of this thread while wishing the best to all participants.

May the odds forever be in your favor.

 

[Bigfatcock]

What I’ve said numerous times, is I’ve always bought the S&P, Apple, Microsoft, Amazon, Tesla, and many others. I never stopped.

I understand. Had I put the cash I put into the tangible assets into the same companies, I’d be much further ahead, but I’m definitely not hurting and I own everything I have.

I agree with Ramsey about being debt free, but I don’t do the retirement accounts. I manage my own portfolio. It’s easy to manage, I just accumulate.

 

[VVhoisJohnGalt]

They aren’t holding a bag. They own an item that’s not getting foreclosed on or repo’d.

The assumption is that jobs will be steady and pay will be steady and increase. Being leveraged is all fine and dandy until you lose a job, or the leveraged company you work for goes under.

When I bought my rental properties, cash, after the financial crisis, they were cheap. Since that time the value of the homes have increased significantly and the long term renters have paid me more in rent than double what I purchased the homes for. Now that’s what I call making my money work. I get the increased value, and the constant cash flow. If I’d have done a 30 year fixed I’d still be paying the mortgage along with the interest. Dumb.

All of my paid off land has increased in value.

all of my paid off vehicles have increased (that’s an odd one)

Every high quality Item I currently own I can sell for more than I bought it for after using it for quite awhile.

Paid no interest on any of it.

I also have invested, and continue to invest in companies that pay dividends. I get the paper gains from share price increase and my dividend payments. Never on margin.

Building wealth using debt can work, won’t argue against it, but I’ll still say it’s dumb. I like to OWN stuff.

I think what @vinniedelpino was talking about is there is a start line and a finish line. I’m not sure that you are really looking into what opportunity cost is and time value of money.

Super great that you paid cash for some income producing assets. But you lost out while accumulating that cash. By holding cash you are losing 2-3% of your buying power every year from inflation. Plus losing out on the ability to invest in equities that have returned at least 7% historically.

While you pile up 400k in cash to purchase a rental property you are losing out on roughly $40k a year in wealth accumulation. Plus you are not able to take advantage of good market conditions to purchase the property. Let’s say an amazing opportunity comes along but you only have half the cash…well you have to pass while someone else takes a mortgage and grabs it.

The start line for paying cash is too far down the line for most people. I’m guessing you are not 20-30yrs old if you paid cash for rental properties. And they give up many years of opportunity accumulating enough cash to purchase assets. By following Ramsey a 20-30yr old will have less wealth at 60yrs old than someone that leveraged their money and was smart about their purchasing. That’s an absolute fact backed by math.

What Vinnie and I are both saying that you can’t jam everyone into a Ramsey bucket. It works for some people but there are others that do very well leveraging their money while limiting risk.

 

[cast1]

No disrespect to Vinnie or Galt, but the approach is exactly what Dave was doing that landed him in bankruptcy and almost ruined his life. It’s gambling, nothing more.

What being advocated is leveraging debt so you can have money in the market. Lots of people do it. I was doing it until April of this year. I would be what most consider a “high net worth” individual BTW. After getting debt free, I cannot, cannot imagine why someone would argue the whole debt vs equities thing. Yeah the market goes up, but it goes down too; 2008, CoVid19, etc. Debt is concrete. Your portfolio could tank, your renters could dry up, you could lose your job or your health, but your debt stays the same.

 

[Bigfatcock]

This is what investing on leverage leads to:

 

[HogsLife]

I just wanted to say to the members here that this guy has literally changed my life. It is unquestionably the best money I ever spent. I signed my wife and I up for it at church last year and we finished just before Covid hit. Thankfully we had already started making adjustments, budgeting, meal planning, and payed off a couple debts before my income dropped 65% due to shutdowns. It’s amazing what you can do once you get your mindset right. I don’t discuss numbers in public but we are in a MUCH better situation, just based on decision making and prioritization. No difference in income, in fact we accomplished it with less.

If you can’t go 6 months with no income, aren’t debt free or on your way there, and putting away money for retirement and your kids’ college, I highly recommend doing financial peace. I’ve become like an apostle for this guy, but he’s seriously impacted my life for the better.

Dave Ramsey’s good stuff

 

[VVhoisJohnGalt]

No disrespect to Vinnie or Galt, but the approach is exactly what Dave was doing that landed him in bankruptcy and almost ruined his life. It’s gambling, nothing more.

What being advocated is leveraging debt so you can have money in the market. Lots of people do it. I was doing it until April of this year. I would be what most consider a “high net worth” individual BTW. After getting debt free, I cannot, cannot imagine why someone would argue the whole debt vs equities thing. Yeah the market goes up, but it goes down too; 2008, CoVid19, etc. Debt is concrete. Your portfolio could tank, your renters could dry up, you could lose your job or your health, but your debt stays the same.

Ok You are right. Everyone needs to follow Ramsey. Because if the market collapses, all your properties go vacant, you lose your job and have health issues at the same time you would be in a tough spot. Because properly insuring yourself against those disasters is also a terrible idea according to Ramsey.

I gave it a go and I hope anyone considering drinking the Ramsey koolaid spends some time studying basic economics and makes rational educated decisions before following all those steps exactly.

I will follow Vinnie and bow out of this thread.

 

[Bigfatcock]

My how we have forgotten 2008 already.

You don’t have to be a Ramsey fanatic to understand being debt free is good, and using loans to invest can lead to financial ruin. Yes, if all goes right with the world, it can help build wealth, but you pay interest on it and still have to pay it off. If things go to shit, then you’re still on the hook for the debt.

I don’t consider people with a ton of nice stuff bought on debt to be wealthy. I don’t consider people who have a high net worth, but leveraged to be wealthy.

Wealth is actually owning shit, having investments not financed on margin, and cash as well. Next crash I’ll be buying all the broke financial guru’s shit for pennies on the dollar like last time.

 

[Animal357]

Simple: instead of buying a $100,000 property in cash, get a 3% mortgage and invest the 100K and earn more than the 3% you are paying. I have programs paying 7% guaranteed, no risk. That's a 4% profit

 

[MarshallDodge]

I've always looked at Ramsey's philosophy as good for people who by themselvss aren't disciplined in their spending or savings habits. If you are using debt to buy depreciating "fun" toys and racking up consumer debt you can't pay off each month, then his philosophy will help you.

But, Debt is a tool. And, tools by themselves are not good or bad. It's how they are used. Used smartly debt can create wealth.

I'm not 40 yet, and my wife and I own 5 houses. One is our families primary residence, 3 are rented, and the last townhouse is current being renovated and will be rented by the end of this calendar year.

I have a couple rules of thumb. When buying a rental I only do so if we can rent out the house for 1% a month of the purchase price. And, I only buy a house that clearly will increase my net worth (value of house - total cost) on day 1 of owning it.

Do we have "alot" of debt by most standards, yes. But, all the assets are worth over 2.5X the total debts AND we get significant cash flow each month as well. We've done this by purchasing 2 foreclosures, 1 short sale, 1 that was a tax lien firesale, and another that was a conventional sale but still a good deal.

We've never had consumer debt, always pay off our credit cards every month, buy good cars and drive them 200K miles then buy slightly used cars to replace them, and buy those with cash.

We do have 401K's but are "behind" based on most metric's people use on how much one "should" have in their 401k.

Using debt to purchase appreciating assets that also generate positive cash flow has significantly improved our financial situation over the last 10 years. Using debt this way is also very much against Ramsey's philosophy.

So, if his philosophy works for you, and it's what you need to make good financial choices, then that's great. Use it.

But, if you're an evangelist to the point where it's the "only" of "best" way and everyone should do it then yeah I don't agree with that.

I'm not going to say that you are doing things the wrong way but I'm pretty sure the direction that you are headed is how DR ended up in bankruptcy.

 

[NovaHunter]

I'm not going to say that you are doing things the wrong way but I'm pretty sure the direction that you are headed is how DR ended up in bankruptcy.

If the value of our real estate portfolio was only 15 to 20% above our total loans, then I'd agree it'd be pretty risky. But, even if we have another 2008, values would have to fall by 60% for us to be underwater from a loan to value ratio. Could that happen, yes. But, most everyone else would be screwed too with that happening.... As we saw in the years after 2008 eventually prices will recover.

People will always need a place to live. The rental market exploded after 2008, and that hasn't slowed down. That won't change even when there is another downturn.

We've moved loans around too, so currently more than one rental is owned outright. And, we keep pretty significant liquidity for repairing/remodeling as needed.

Are there risks for us to live this way? Sure, but it's pretty difficult to live risk free. On the other hand, having over 5 income streams bringing positive cash flow into the family also lessens the impact of losing any one income stream.

My salary is by far our largest income stream, but when I was laid off for 6 weeks in 2020 it wasn't a huge deal for us, because we could dial back some spending and had enough cash coming in from other income streams to meet most of our bills without dipping significantly into savings.

People talk about diversifying investments all the time. But, diversifying income streams is also very valuable. We're all going to get sick, or get laid off, or something. There is a large difference between losing the one job that brings in 90%+ of your income, vs. losing your job that is only 40% to 50% of your income.

Diversity of income (not just assets) is it's own financial freedom.

 

[cast1]

Haha rich people ask, “how much?”. Poor people ask, “What’s the payment?”

 

[Snipe260]

My how we have forgotten 2008 already.

You don’t have to be a Ramsey fanatic to understand being debt free is good, and using loans to invest can lead to financial ruin. Yes, if all goes right with the world, it can help build wealth, but you pay interest on it and still have to pay it off. If things go to shit, then you’re still on the hook for the debt.

I don’t consider people with a ton of nice stuff bought on debt to be wealthy. I don’t consider people who have a high net worth, but leveraged to be wealthy.

Wealth is actually owning shit, having investments not financed on margin, and cash as well. Next crash I’ll be buying all the broke financial guru’s shit for pennies on the dollar like last time.

But will the pussy ever run out?

 

[cast1]

All financial planners don’t think the same. I had a Ramsey partner advise me to sell enough stock off to pay off my house. It was a shock, as I had my ”number” supposedly to where I really didn’t need to save much more to retire, just let it ride until it was time.

What clinched it for me though was a simple calculation. I decided I would either let the money ride and put every extra cent into the mortgage, or sell the stock, zero the mortgage and put every extra cent back in the market. Plan A would take about three years. What shocked me was the assuming a 9% return, at the end of three years, I was within $10k of the same place either way. The difference was plan b rendered me debt free NOW.

 

[NovaHunter]

All financial planners don’t think the same. I had a Ramsey partner advise me to sell enough stock off to pay off my house. It was a shock, as I had my ”number” supposedly to where I really didn’t need to save much more to retire, just let it ride until it was time.

What clinched it for me though was a simple calculation. I decided I would either let the money ride and put every extra cent into the mortgage, or sell the stock, zero the mortgage and put every extra cent back in the market. Plan A would take about three years. What shocked me was the assuming a 9% return, at the end of three years, I was within $10k of the same place either way. The difference was plan b rendered me debt free NOW.

Did you take into account not being able to itemize interest payments on your tax returns?

 

[Bigfatcock]

Be glad you didn’t get burned by the eviction moratorium.

If something like 2008 happens again, then those building wealth on leverage will get smoked again.

 

[cast1]

Did you take into account not being able to itemize interest payments on your tax returns?

I itemize but interest deductions amount to giving somebody a dollar so they’ll give you back a quarter.