Ramsey debt viewpoint explained

[Treeshark]

That is probably the fundamental flaw in the Ramsey teaching.

Historically (100+ years of data) investing in reasonable investments is going to yield a higher return than historical mortgage rates.

His plan is useful for people who have no idea what half of those words even need. It’s like a remedial personal econ course, and I don’t mean in a bad way.

 

[VikingsGuy]

That is probably the fundamental flaw in the Ramsey teaching.

Historically (100+ years of data) investing in reasonable investments is going to yield a higher return than historical mortgage rates.

It all comes down to numbers. Pretty basic stuff. You look at the expected rate of return on your investments vs. your cost of capital. If you have credit card debt which has now skyrocketed up into the 20% range, you need to get that paid off ASAP at all costs. Ramsey's program is good for that.

If you have a locked in long term mortgage at sub 4%, don't be paying extra on that right now, you can invest in about anything to earn a higher return than that.

Every financial decision is simply a decision between risk and return.

Borrowing to purchase consumable goods (RV's, ATV's, etc.) should never been done on credit in my opinion. You can wait and pay cash for that stuff.

I agree. The better advice for even his core audience would be to simply buy half the house the bank tells you can afford and do so only after having 60 days gross salary in savings.

I have been poor, and I have been well off, but in either case I have never bought a home worth more the 50% of what the banker and realtor told me I should spend. So my friends had bigger/nicer places than me along the way. Who cares - I had a plan and my sanity intact.

And +1 for no toys on credit (unless you have multiples of that amount in savings and are just trying to avoid realized gains being taxed or are taking advantage of 0% stuff).

 

[VikingsGuy]

This is admittedly a ham-handed analogy, but I kind of think of Dave Ramsey’s program like AA.

For most of us, it’s not something we need- we can have a few here and there and stay out of trouble. But for some, rigid guard-rails are the only thing that is going to work for them.

A great analogy, one big difference to me - I have never had an AA person claim alcohol is bad for everyone.

 

[Treeshark]

Fair point for sure.

These analogies are just flooding into my brain right now…

Dave Ramsey’s financial plan is like a Whisker Bisquit rest- it is not going to maximize your results vs a drop-away. But it is a good choice if you just want have a reasonable chance to hit the target and very low chance of malfunction.

 

[VikingsGuy]

His plan is useful for people who have no idea what half of those words even need. It’s like an LD personal econ course.

I agree but all the more reason he should avoid the hyperbole - the very people that need his message are the very people that are unlikely to be able to see the errors in it. And that is on him. If he provided more moderate and rational opinions on a few topics, we would be just another financial advisor, but by going full monty 11 on everything he has become a wealthy YouTube influencer. Fine for him, not always fine for his watchers.

 

[Treeshark]

Agree with that last post for sure.

If I’m coming off as a Dave apologist, I’m giving the wrong impression- I’m not. I just do recognize that there is a fairly sizable group of people that would be better off if they listen to every word he says than if they didn’t hear him in the first place.

You’re right, though- like most of these celebrity marketers like him, they have to keep pumping out new content and it’s almost never helpful.

 

[TN2shot07]

That is probably the fundamental flaw in the Ramsey teaching.

Historically (100+ years of data) investing in reasonable investments is going to yield a higher return than historical mortgage rates.

It all comes down to numbers. Pretty basic stuff. You look at the expected rate of return on your investments vs. your cost of capital. If you have credit card debt which has now skyrocketed up into the 20% range, you need to get that paid off ASAP at all costs. Ramsey's program is good for that.

If you have a locked in long term mortgage at sub 4%, don't be paying extra on that right now, you can invest in about anything to earn a higher return than that.

Every financial decision is simply a decision between risk and return.

Borrowing to purchase consumable goods (RV's, ATV's, etc.) should never been done on credit in my opinion. You can wait and pay cash for that stuff.

You are absolutely correct on this post mathematically.

The issue is that the majority of people aren’t taking advantage of that 4% mortgage they locked in. That money is being used prop up lifestyle and make payments on the consumable goods you mentioned.

 

[VikingsGuy]

Fair point for sure.

These analogies are just flooding into my brain right now…

Dave Ramsey’s financial plan is like a Whisker Bisquit rest- it is not going to maximize your results vs a drop-away. But it is a good choice if you just want have a reasonable chance to hit the target and very low chance of malfunction.

My favorite analogy for him is the fat diet. Of course most Americans should reduce portions, exercise more and cut out the sweets - but the grapefruit diet, the no carb diet, the cleansing diet etc etc etc etc get ridiculously focused on one or two points, take them to an extreme, and along the way have an atrocious dropout rate over time. I would guess Dave followers have a fairly short half-life due to some of his unnecessary extremes.

 

[npaden]

Agree with that last post for sure.

If I’m coming off as a Dave apologist, I’m giving the wrong impression- I’m not. I just do recognize that there is a fairly sizable group of people that would be better off if they listen to every word he says than if they didn’t hear him in the first place.

You’re right, though- like most of these celebrity marketers like him, they have to keep pumping out new content and it’s almost never helpful.

I would agree with this. I think it is a legitimate argument that there are a lot of people who have been helped by his program. For many of them it is like an AA program, credit cards are kryptonite for them and the mantra of no debt period, always pay with cash probably keeps them out of trouble.

I would also agree that he has made a LOT of money selling his program to people. But as has been mentioned, many people need to pay someone to tell them what they know they need to do. Maybe I should hire a fitness coach.

 

[noharleyyet]

Realistic consumer mindset:

https://static1.srcdn.com/wordpress/wp-content/uploads/2019/08/get-in-loser.jpg

 

[TheGrayRider]

I would like to hear Dave Ramsey’s opinion of buying and investing in Wyoming Nonresident Bighorn Sheep points and Wyoming Nonresident Moose points.

 

[Bowmannate2000]

I agree. The better advice for even his core audience would be to simply buy half the house the bank tells you can afford and do so only after having 60 days gross salary in savings.

I have been poor, and I have been well off, but in either case I have never bought a home worth more the 50% of what the banker and realtor told me I should spend. So my friends had bigger/nicer places than me along the way. Who cares - I had a plan and my sanity intact.

And +1 for no toys on credit (unless you have multiples of that amount in savings and are just trying to avoid realized gains being taxed or are taking advantage of 0% stuff).

When I bought my first and only home, I was shocked what the bank approved me for. I probably would have been in trouble if I bought in that range they wanted me to spend.

 

[Nick87]

When I bought my first and only home, I was shocked what the bank approved me for. I probably would have been in trouble if I bought in that range they wanted me to spend.

My first closing I was 19 years old I looked right at the lady from the bank and told her "I can't beleive you guys gave me that money".

 

[geetar]

Reasons Dave Ramsey and Hunt Talk don't mix.

By his own principles that he teaches


1. You should be eating beans and rice and working 3 jobs. You don't have time to hunt or money to buy tags to kill meat till you are out of debt.

2. If you can't pay for the hunt now you can't afford it so forget about putting that deposit on your dream hunt and paying it down over the next 3 years till it's time to go on the hunt. You won't have to worry about inflation making hunt costs rise once you are debt free. Why? Because you've got money! ( read that last part in Dave's voice. )

3. Forget a long term draw strategy. Just pay off your debt and buy hunts. Stop giving the government your freaking money! They just have nicer furniture than you in their private land hunting lodges. ( Again read that last part in Dave's voice. )

All joking aside I am somewhere in the middle between Dave's belief that debt is of the devil and Randy's belief that you should hunt while you can because you will run out of health before you run out of money and I'm only spending the time I am on this thread because it won't stop raining outside.

 

[Nick87]

Reasons Dave Ramsey and Hunt Talk don't mix.

By his own principles that he teaches


1. You should be eating beans and rice and working 3 jobs. You don't have time to hunt or money to buy tags to kill meat till you are out of debt.

2. If you can't pay for the hunt now you can't afford it so forget about putting that deposit on your dream hunt and paying it down over the next 3 years till it's time to go on the hunt. You won't have to worry about inflation making hunt costs rise once you are debt free. Why? Because you've got money! ( read that last part in Dave's voice. )

3. Forget a long term draw strategy. Just pay off your debt and buy hunts. Stop giving the government your freaking money! They just have nicer furniture than you in their private land hunting lodges. ( Again read that last part in Dave's voice. )

All joking aside I am somewhere in the middle between Dave's belief that debt is of the devil and Randy's belief that you should hunt while you can because you will run out of health before you run out of money and I'm only spending the time I am on this thread because it won't stop raining outside.

Everything in moderation @geetar, I'm with ya.

 

[SAJ-99]

Maybe I should hire a fitness coach.

My wife: I'm going to hire a fitness coach for $100/session. 8wk program, 2x per week.
Me: you know you can just work out on your own?
My wife: are you saying I need to lose weight?
Me: The trainer idea is great!

I'm convinced it is a genetic difference in people. Maybe those that are experts in one field most feel they need an expert in another -and if the person charges they are obviously an expert (kidding). The wife also hired an interior designer and we debated shades of white for a week. I just don't know that Dave Ramey is an expert as much as he is a celebrity. I would bet those people who would benefit most from Dave Ramsey won't use him and most of those that use him probably don't need him.

 

[geetar]

Everything in moderation @geetar, I'm with ya.

Exactly

 

[David658]

I would agree with this. I think it is a legitimate argument that there are a lot of people who have been helped by his program. For many of them it is like an AA program, credit cards are kryptonite for them and the mantra of no debt period, always pay with cash probably keeps them out of trouble.

I would also agree that he has made a LOT of money selling his program to people. But as has been mentioned, many people need to pay someone to tell them what they know they need to do. Maybe I should hire a fitness coach.

For many folks, the amount that they value something is directly related to what they paid for it. Let's say there was a big fund in the sky, that would give Ramsey a dividend every time folks picked up his program, whether it was free or cost money. His business would crater - folks would not put energy into the free program.

David
NM

 

[Deleted member 28227]

My favorite analogy for him is the fat diet. Of course most Americans should reduce portions, exercise more and cut out the sweets - but the grapefruit diet, the no carb diet, the cleansing diet etc etc etc etc get ridiculously focused on one or two points, take them to an extreme, and along the way have an atrocious dropout rate over time. I would guess Dave followers have a fairly short half-life due to some of his unnecessary extremes.

Does Dave still tell people to have thousands of dollars in envelopes around their house lol I always cracked up at that strategy.

 

[geetar]

Does Dave still tell people to have thousands of dollars in envelopes around their house lol I always cracked up at that strategy.

I think more recently he tells them to use a free app that they budget with. The envelope system was a thing before itemizing apps were created.