The Dave Ramsey Dichotomy...

[jinjuku]

A lot of what he says is good common sense. Live within your means, keep looking for better paying jobs, if you have to finance a bunch of stuff then you can't actually afford it. His debt snowball makes sense from a psychological view point (but not mathematically). $500 a month for 40 years invested in the market at the index rate is $5 million. So a car payment (one of his best pieces of advice).

What he gets wrong, and it's bad advice, is 15 vs 30 year mortgage. You should take a 30 year and invest the difference. Don't pay your mortgage off early. You are robbing yourself of investment opportunity.

Credit Score. Yes you need one. It's a tough row to hoe if you don't and no you don't have go into debt to have a great one. Just a history of timely payments. I put someone on as a named user on my cards and in 60 days they were able to shop their car insurance and go from $179 a month to $85. They'd been driving for 20 years w/o incident, ticket, points. They just sucked at money matters and had a personal bankruptcy.

Credit Cards. If you're bad with money you'll be even worse with a CC. But I have three and put my Cell/Internet on one, Netflix on another, Grocery and Gas on a third and setup to auto-pay the statement balance every month. These are all expenses that I incur regardless. I just use them to my advantage.

I watched a few of his videos and understand I'm not his target audience but some people he's not helping out as much as he could.

 

[snakeeyes]

Hmm. Definitely his advice is conservative and many of his targeted audience are already in financial trouble so adopting a plan to dig out of debt is a positive step forward. If people pay off their homes prior to retirement then that’s positive too. The best thing he tells people is to have an emergency fund and to budget their expenses. Those are key to staying out of credit cards.

However, yes keep a couple credit cards and pay them off each month. I don’t know why you would cancel all credit cards and lose a credit rating unless credit cards are an addiction to that individual. Maybe that’s what he is getting at.

 

[NINaudio]

After many years of being terrible with credit cards I've come to hate carrying a balance and have started using them to my advantage. Like Jinjuku I use them for things I normally would anyway and pay them off each month. I make sure that I'm using cash back cards. I've got one that I use for Amazon (5% back on purchases), another for gas (3% there), and a third for most other things (3% there as well). Then I get to use my cashback for fun stuff!

 

[jinjuku]

After many years of being terrible with credit cards

I agree with Dave that if you are habitually bad with CC's then you shouldn't use them. The CC's that I use as listed I actually cut up. I can't use them. I don't even know the CC# or CCV code!

Also his advice on saving a 6 month emergency fund is just common sense but there seems there is a lack of that.

Unfortunately you need a FICO score. I did some reading on car insurance and some States have banned scoring based rates. They have to simply use your driving history. I would say that is just as easy to lookup as FICO scoring.

 

[Irvrobinson]

What he gets wrong, and it's bad advice, is 15 vs 30 year mortgage. You should take a 30 year and invest the difference. Don't pay your mortgage off early. You are robbing yourself of investment opportunity.

I agree, not that I've followed it myself. I was just discussing this strategy with my son, and I've had this discussion for years with my wife. With 30 year fixed rate mortgages at roughly 2.5% at this writing for those with well-endowed credit ratings, now it's really a decision of dubious merit to sit on hundreds of thousands of dollars in idle home equity. Investing in a NASDAQ100 fund probably pays off the mortgage in 7 or so years, and the capital gains distributions can offset a good part of the payments. So why haven't I done this? Because to some folks, I guess we're two of them, being debt free is simply priceless. There aren't that many things in life that make you unconsciously smile when you sit back and think about them for a moment.

 

[highfigh]

What he gets wrong, and it's bad advice, is 15 vs 30 year mortgage. You should take a 30 year and invest the difference. Don't pay your mortgage off early. You are robbing yourself of investment opportunity.

How is someone robbing themselves of investment opportunity? It has been said that if someone makes one extra payment on the principal every year, it cuts the loan in half and most people never have any degree of financial freedom until their mortgage has been paid off- you're referring to those who have extra income to save or invest every month but that doesn't apply to many people, if the stats are correct. Also, it's entirely possible that the home's value might stagnate/drop- even if it increases and they diligently make their payments for 30 years, they will have paid well over double the purchase price. THAT took money from potential investments, not lightly higher interest over 15 years. Think about the average age for buying a first home- the age has risen over the last 40 years, but it's still people in their 30's. If they have a 15 year mortgage, their prime earning years are going to be free from that particular debt, which leaves them with a nice chunk every month unless they rack up a lot of other debt as they go, by using home equity loans for vacations, boats, etc.

His target audience is people like the happy couple in a debt consolidation commercial- it starts with a closeup of the husband's face as he smiles & says "We paid off our credit cards and bought a boat!".

DOH! If they had a lot of credit card debt, they sure as hell don't need a boat unless they can perform the repairs and maintenance for themselves and get huge discounts on the parts & materials.

 

[jinjuku]

It has been said that if someone makes one extra payment on the principal every year, it cuts the loan in half

No it cuts the loan to 22 years. If you can invest the difference in something that averages better than 7% then that's what I do.

 

[lovinthehd]

Why would I seek advice from Dave Ramsey? He someone like Suze Orman?

 

[Irvrobinson]

Why would I seek advice from Dave Ramsey? He someone like Suze Orman?

I can't stand Suze Orman, but like Dave Ramsey, not everything she says is stupid.

 

[lovinthehd]

I can't stand Suze Orman, but like Dave Ramsey, not everything she says is stupid.

Suze Orman is slime afaic, just never heard of Dave Ramsey (nor had I heard of Suze Orman before becoming a tv personality). So Dave is similar and says a lot of stupid stuff?

 

[Irvrobinson]

Suze Orman is slime afaic, just never heard of Dave Ramsey (nor had I heard of Suze Orman before becoming a tv personality). So Dave is similar and says a lot of stupid stuff?

Ramsey is on Fox, which is probably why you've never seen him. I wouldn't call Orman slime at all; I just find her obnoxious and, much like Ramsey, tends towards the one-size-fits-all approach.

 

[lovinthehd]

Ramsey is on Fox, which is probably why you've never seen him. I wouldn't call Orman slime at all; I just find her obnoxious and, much like Ramsey, tends towards the one-size-fits-all approach.

I had just watched a video detailing some Orman slime so it was fresh in my mind. Yeah if on Faux I'm unlikely to find him (let alone find him palatable) unless he says something particularly stupid like so many on Faux tend to do. The financial industry has plenty of bad advice available, tho.

 

[Irvrobinson]

I had just watched a video detailing some Orman slime so it was fresh in my mind. Yeah if on Faux I'm unlikely to find him (let alone find him palatable) unless he says something particularly stupid like so many on Faux tend to do. The financial industry has plenty of bad advice available, tho.

Yeah, but look at it this way, *a lot* of people are so inept financially that if they follow Ramsey's or Orman's advice, however less than perfect, they're probably going to be a lot better off than they are on their own. Especially young people. Ramsey's claim to fame is that he's supposedly worth about half a billion dollars, and he's an evangelical Christian and likes to talk about it, so Fox is his natural platform. In case you're wondering, I read Fox because I want to read the stuff that's on the minds of people who don't think like me. It's sometimes scary, but not knowing is worse.

 

[Trell]

Bogleheads® investment philosophy - Bogleheads

www.bogleheads.org

Bogleheads® investment philosophy
This article contains details specific to United States (US) investors. It may not apply to non-US investors. Non-
US investors can find related information at Bogleheads® investment philosophy for non-US investors.
The Bogleheads® follow a small number of simple investment principles that have been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor. Many of these ideas are distilled from Nobel prize-winning financial economics research on topics like Modern Portfolio Theory and the Capital Asset Pricing Model. But they are very easy to understand and to implement, and they work. In fact, the basis of all of these principles is the idea that successful investing is not a complicated process, and can be accomplished by anyone with a small amount of effort.
These ideas come from the investing philosophy of Vanguard-founder John Bogle. They have been further distilled and explained in thousands of posts on the Bogleheads forums, starting with original contributors Taylor Larimore and Mel Lindauer. More advanced concepts were first widely introduced to the Bogleheads community by investing author Larry Swedroe, a tradition that has been carried on by Rick Ferri among many others.
This wiki article provides many details about how to apply these principles, given constraints, such as the specific tax-advantaged accounts an investor has available. For a video presentation of Bogleheads principles, refer to Video:Bogleheads® investment philosophy.

Contents

• 1 Develop a workable plan
• 2 Invest early and often
• 3 Never bear too much or too little risk
• 4 Diversify
• 5 Never try to time the market
• 6 Use index funds when possible
• 7 Keep costs low
• 8 Minimize taxes
• 9 Invest with simplicity
• 10 Stay the course
• 11 Conclusion
• 12 See also
• 13 Notes
• 14 References
• 15 External links

 

[lovinthehd]

Yeah, but look at it this way, *a lot* of people are so inept financially that if they follow Ramsey's or Orman's advice, however less than perfect, they're probably going to be a lot better off than they are on their own. Especially young people. Ramsey's claim to fame is that he's supposedly worth about half a billion dollars, and he's an evangelical Christian and likes to talk about it, so Fox is his natural platform. In case you're wondering, I read Fox because I want to read the stuff that's on the minds of people who don't think like me. It's sometimes scary, but not knowing is worse.

Agreed. Personally I'm for more education on basic financial issues in junior high range, maybe high school range. Sure, it's more the parents' responsibility but these days....

 

[jinjuku]

Ramsey is on Fox, which is probably why you've never seen him. I wouldn't call Orman slime at all; I just find her obnoxious and, much like Ramsey, tends towards the one-size-fits-all approach.

Ramsey seems like a pretty transparent individual. He gets that his approach is only good for a subset of people, but it's a frighteningly large subset.

Even when someone calls and says they are are going to do xzy instead of his xyz he wonders why they are calling him and wishes them luck.

 

[GO-NAD!]

I agree, not that I've followed it myself. I was just discussing this strategy with my son, and I've had this discussion for years with my wife. With 30 year fixed rate mortgages at roughly 2.5% at this writing for those with well-endowed credit ratings, now it's really a decision of dubious merit to sit on hundreds of thousands of dollars in idle home equity. Investing in a NASDAQ100 fund probably pays off the mortgage in 7 or so years, and the capital gains distributions can offset a good part of the payments. So why haven't I done this? Because to some folks, I guess we're two of them, being debt free is simply priceless. There aren't that many things in life that make you unconsciously smile when you sit back and think about them for a moment.

There is much to be said for the peace of mind that comes from being debt-free. We paid off our mortgage in 10 years, about 14 years ago. We were also investigating a fair chunk of our income for our retirement, so it wasn't a case of neglecting one for the other. We were just a bit conservative and didn't want to pile our eggs into one basket. We were paying about 5.5% mortgage interest, which is not tax deductible in Canada. So, the possibility of coming out ahead by making smaller mortgage payments and investing the difference wasn't all that enticing. We still accumulated a fair-sized nest egg for retirement, paid cash for our last 2 vehicles (purchased new) and saved at least enough to see our daughter through her bachelor's degree (anything beyond that will be on her dime).

While borrowing against home equity or paying off a mortgage over a longer period in order to invest with hopes of coming out ahead over the longer term may make a lot of sense, there is no one-size-fits-all personal finance advice.

Ther

 

[jinjuku]

2 vehicles (purchased new)

Don't let DR hear you say that ;-) I agree with him on cars in letting someone else take the depreciation hit. But if it's no impact to your budget and you drive them for a while that's fine. I purchased one new car and drove it for 14 years and 200K miles.

*and yes I paid for it in cash at the ripe old age of 26.

 

[GO-NAD!]

Don't let DR hear you say that ;-) I agree with him on cars in letting someone else take the depreciation hit. But if it's no impact to your budget and you drive them for a while that's fine. I purchased one new car and drove it for 14 years and 200K miles.

*and yes I paid for it in cash at the ripe old age of 26.

Oh, we hang onto our vehicles for a long time. My pickup is 10 years old and I have no intention of replacing for a few years yet. The car is relatively new at 4 years old. I get the logic of buying used, but I'm also leery about buying someone else's problems.

 

[John Parks]

A car payment has always been a line item in my budget since I got out of school and became “an adult” (still trying to figure out what that entails). It may not be the smartest avenue and I am sure I could have invested X amount of ¥ but I love automobiles and having the “next thing”. I try to be smart about it and my payment has held steady (increasing as inflation does) over the past 25 years or so. I’m already on the hunt for my next automotive affair...