Ramsey debt viewpoint explained

[Pucky Freak]

Nope - follow real experts and math instead of YouTube pablum

Ok, real question. Who are some of these real experts that have a superior comprehensive personal finance philosophy and roadmap? Is that a fair question? I’ve read many, and they all basically parrot conventional wisdom…a lot of garbage.

 

[Treeshark]

We all saw what happened to a large segment of this group during Covid when they suddenly became “investors.”

They got on Reddit, dumped their Covid money into dumb stocks like GameStop, and lost their asses like rubes. Dave Ramsey is a better option for these people.

 

[Deleted member 52937]

Ok, real question. Who are some of these real experts that have a superior comprehensive personal finance philosophy and roadmap? Is that a fair question? I’ve read many, and they all basically parrot conventional wisdom…a lot of garbage.

https://www.amazon.com/Investing-At-Level3-Level-3/dp/1883328292

This one’s great for starters.

Edit: not comprehensive with respect to personal finance. More of comprehensive take on investing.

 

[Nick87]

I would venture to say an awful lot of people wishd they had taken a Ramsey approach when 08 hit. "Everybody has a plan until they get punched in the face". I'd say more people would have benefitted than not. Edit- I refer to 08 a lot, but that time period scarred me for life, after seeing what happened to a lot of people.

 

[Nick87]

We all saw what happened to a large segment of this group during Covid when they suddenly became “investors.”

They got on Reddit, dumped their Covid money into dumb stocks like GameStop, and lost their asses like rubes. Dave Ramsey is a better option for these people.

I never invested in any sort of stock in my life prior to covid. I dumped a large sum of my life savings into a mutaul fund. So far so good. That's the point I'm making someone else would say you'd of been better off dumping all of it, you'd be further ahead.

 

[Treeshark]

I dumped a large sum of my life savings into a mutaul fund.

Not to be pedantic, genuinely wondering: why not just an S&P tracking index fund (I’m not sure your age, guessing fairly close to the same age as I am)?

 

[SAJ-99]

Ok, real question. Who are some of these real experts that have a superior comprehensive personal finance philosophy and roadmap? Is that a fair question? I’ve read many, and they all basically parrot conventional wisdom…a lot of garbage.

I think there is a roadmap, but which turns to take vary for everyone. The hardest thing for a Fin Advisor to do is determine a person's risk tolerance, and most of any financial decision is what level of risk is acceptable. This is why you see a lot of them do analysis on historical market changes. The majority of clients want to take risks after markets go up and when they decline the first question is always "what happened?"

Look at list below @AvidIndoorsman posted. Each one of these has positive and negatives, depending on circumstances. The funny part is the industry makes each part seem complex but it boils down to what risk you want to it take. For example, I would NEVER buy a fixed annuity, but for some people that steady stream of fixed income is comforting to them. They are taking a risk on inflation. I choose to risk fluctuations in my principal. The real advice is to make sure you understand the risks you are taking.

Side note: I'm not sure Ramsey's view on applying for out of state hunting tags that typically cost $200ish per application/points.

Life insurance, who needs it. Term v. Whole - when to buy each when not to
Mortgage 15/30 v. ARM, buying points. How to conduct a transaction, basics of title/property taxes/ deeds
Types of deeds; Quit Claim, Warranty Deed, Bargain and Sale, etc.
Checking v. sayings
Retirement Roth v. Traditional
401ks, IRAs, 403Bs,

 

[Deleted member 52937]

I would venture to say an awful lot of people wishd they had taken a Ramsey approach when 08 hit. "Everybody has a plan until they get punched in the face". I'd say more people would have benefitted than not. Edit- I refer to 08 a lot, but that time period scarred me for life, after seeing what happened to a lot of people.

I think I lean towards a 1 to 3 asset to debt tolerance in the context of a real-estate llc. I’ve seen very successful people that were or are closer to a 1 to 10. That’s scary to me and you’re in trouble with that ratio if we have another 08 scenario. It seems to come down to the risk/reward tolerance curve.

 

[Nick87]

Not to be pedantic, genuinely wondering: why not just an S&P tracking index fund (I’m not sure your age, guessing fairly close to the same age as I am)?

Because I don't know shit about that, went to a fa recommended by a wealthy friend of the family and that's where it went. Since then I have done a lot of learning and that looks like something I'm interested in. I'm 37 on Tuesday.

 

[Treeshark]

Got it, that makes way more sense- I thought you managed to select a mutual fund on your own, which would be unusual. Good move on your part

Happy early birthday!

 

[squirrel]

Dave makes me laugh...

Dave makes me smarter... (sometimes)

Same reason I'm on here, doesn't mean I cant ignore stupidity when I hear or read it in both cases.

Edit to add: the laughter/smarter ratio is inverse in these two examples of media consumption.

 

[Nick87]

Got it, that makes way more sense- I thought you managed to select a mutual fund on your own, which would be unusual. Good move on your part

Happy early birthday!

I hate birthdays. Lol

 

[geetar]

The app is free, but to get the most out of it there is a monthly fee. Usually the people hosting the calls will give the apps and program out for free, usually a year.

My wife and I tried it a couple years back. We eventually decided to just sit down once a week. Usually the night before our paychecks are deposited and decide where and how our money will be spent the following week.

 

[Nick87]

Side note: I'm not sure Ramsey's view on applying for out of state hunting tags that typically cost $200ish per application/points.

What Dave don't know won't hurt him.

 

[VikingsGuy]

Ok, real question. Who are some of these real experts that have a superior comprehensive personal finance philosophy and roadmap? Is that a fair question? I’ve read many, and they all basically parrot conventional wisdom…a lot of garbage.

I don't really read finance self-help books so don't have a book recommendation to answer all the questions. That is kind of the point -- oversimplifications lead to bad advice. But if we want oversimplification that is at least a little more nuanced than Ramsey, if you save before you spend, avoid credit for toys/vacations, and pay off debt that costs more than the economic alternative, you are on a good path. Provided decent rates and not overbuying, get into a house as soon as you can - it is the only government-subsidized leveraged real estate investment the average person will ever get. Big down payments that require delay and longer rent (paying someone else's mortgage) help the banks and landlords, not the borrowers. SL payoff choices should minimize total paidback, not be mixed with political philosophy. If you worry about risk, prefer cash in hand over "debt-free" - as debt-free doesn't put food in the belly during a bad month. If you get chances at "free money" and are disciplined enough not to carry over the debt 1% cash back credit cards and 0% financing can be useful tools. But in the end, each person is different. But to say debt is always bad and always should be paid off first is bad advice for many circumstances.

 

[Pucky Freak]

I don't really read finance self-help books so don't have a book recommendation to answer all the questions. That is kind of the point -- oversimplifications lead to bad advice. But if we want oversimplification that is at least a little more nuanced than Ramsey, if you save before you spend, avoid credit for toys/vacations, and pay off debt that costs more than the economic alternative, you are on a good path. Provided decent rates and not overbuying, get into a house as soon as you can - it is the only government-subsidized leveraged real estate investment the average person will ever get. Big down payments that require delay and longer rent (paying someone else's mortgage) help the banks and landlords, not the borrowers. SL payoff choices should minimize total paidback, not be mixed with political philosophy. If you worry about risk, prefer cash in hand over "debt-free" - as debt-free doesn't put food in the belly during a bad month. If you get chances at "free money" and are disciplined enough not to carry over the debt 1% cash back credit cards and 0% financing can be useful tools. But in the end, each person is different. But to say debt is always bad and always should be paid off first is bad advice for many circumstances.

You answered your own question - it’s you. You‘re the “real expert” whose sage advice everyone should take while all the Ramsey adherents should all remain quiet. If there is one glaring oversimplification in your position it’s that some of Ramsey’s positions are “bad”, as if such a thing could be judged through a binary metric.

Millions of people have followed said bad advice and have done quite well for themselves. Millions have also followed something very similar to what you laid out above and have done quite well for themselves. I am not convinced that the failure rate of Ramsey’s program is any worse than the failure rate of your described alternative. I do know that credit card companies have been wildly successful feeding off people’s overestimation of their ability to work cash back schemes to their personal advantage.

Perhaps the simplicity of the Ramsey program is maddening to you because it works, not because his view on debt is so damaging to so many people. I have to believe that far more people in our country are ruined by poor debt management than ruined by taking the long road to education and investment by not leveraging debt.

What I’m gathering from your paragraph above is that there is no one-stop shop alternative to Ramsey, and even the idea of a one-stop shop is dangerous. You suggest following financial advice of real experts, but which ones? How is the average Joe American supposed to identify a complete suite of real experts on various financial subjects while avoiding the remaining 90% of bobble heads out there who dispense mediocre or poor advice? The vast majority of people don’t have the time, smarts, or dedication to accomplish such a feat. For those that do, fantastic - you are certainly among their ranks. For everyone else though, a simple, workable, proven personal finance system gets the job done. Not polished, not fancy, and definitely not the most efficient, but something that’s still better than a good 80% of what everyone is currently doing.

 

[mevertsen]

Don't really care about him, but do care that average folks get bad advice parroted by folks who either know enough to know better or don't know enough and therefore should remain quiet.

Where's your book?

You started the thread.

 

[longbow51]

The key is Net Present Value, the value of all future cash flows, negative and positive, discounted to the present. Lots of ways to calculate, easiest instrument is Excel. You do have to do some guessing on interest rates, but easy to calculate with different interest rate scenarios.

For the "paying your mortgage off is terrible if < current interest rate", it depends.

Calculate the NPV of the investment income without mortgage payoff, and then the additional $$ to invest with mortgage payoff until retirement and see which is greatest. I had a CFO who refinanced his house for 2 months to save an extra $1K; I wouldn't have bothered, but to paraphrase Samuel L. Jackson in Jackie Brown, this guy live to f with the banks. Even wanted to be buried face down so BofA could kiss his a**.

For folks who borrowed a few years ago (3%), the NPV may well favor keeping the mortgage and investing. But, plug it in and see.

Do it with different returns on market index funds; include 1970-1980, 1980-1990, 1990-2000, 2000-2010, 2010-2021 (Covid), 2021-date.

Make sure you use inflation adjusted returns, not gross returns. The charts that the financial advisors show you rarely take inflation into account.

Anyway, from the first day of Finance: If you remember nothing else, remember this:

1.Cash is King (you can invest cash)
2.More cash is better than less cash (ditto)
3.Cash now is better than cash later (guessed it, same)



As for the Cash:Equity balance as you near retirement, that's a crapshoot. Retire in 2007 or 2019 with a heavy balance in equity? Better have cash on hand.

Young folks, heavy on Equities is good, and please, low-load index funds, (you can wait out a bear market); as you age, more emphasis on cash.

As for Dave Ramsey, rarely heard him, and he is likely OK for those with no self-control. Not many of those here; we have fancy scopes, duds, and shootin' irons. Doubt many of us have depleted retirement accounts.

I previously promoted a HS finance class as a requirement, including a discussion of student loans, and ROI for different majors at different institutions, but with some states waiving requirements to read or write, I'm not hopeful.

 

[Exhausted]

I would venture to say an awful lot of people wishd they had taken a Ramsey approach when 08 hit. "Everybody has a plan until they get punched in the face". I'd say more people would have benefitted than not. Edit- I refer to 08 a lot, but that time period scarred me for life, after seeing what happened to a lot of people.

Meanwhile, one of the best things I ever did was ignore Ramsey style advice after 2008.

My wife and I took out 100% financing on our first home in 2009. And I had to borrow $850 of the $1,000 I put down. But I knew it might be a once in a generation opportunity to buy after such a drop in the market and the gamble paid off.

I had people tell me it wasn't a great idea. One of those people waited several more years to buy thinking another big crash was a coming and wanting to save up a big down payment. It was a mistake and wasted opportunity.

I paid $157K in 2009 and sold for $511K in 2023. But by Ramsey advice I should never have bought that house.

And my final point I like to make to people about 2008 is that most would have been fine if they would have just kept making their mortgage payments. They would have been about to sell for a profit within 10 years easily. I understand that may have been difficult and job situations changed, but that says a lot more about buying within reasonable DTI constraints than leverage.

 

[VikingsGuy]

You answered your own question - it’s you. You‘re the “real expert” whose sage advice everyone should take while all the Ramsey adherents should all remain quiet. If there is one glaring oversimplification in your position it’s that some of Ramsey’s positions are “bad”, as if such a thing could be judged through a binary metric.

Millions of people have followed said bad advice and have done quite well for themselves. Millions have also followed something very similar to what you laid out above and have done quite well for themselves. I am not convinced that the failure rate of Ramsey’s program is any worse than the failure rate of your described alternative. I do know that credit card companies have been wildly successful feeding off people’s overestimation of their ability to work cash back schemes to their personal advantage.

Perhaps the simplicity of the Ramsey program is maddening to you because it works, not because his view on debt is so damaging to so many people. I have to believe that far more people in our country are ruined by poor debt management than ruined by taking the long road to education and investment by not leveraging debt.

What I’m gathering from your paragraph above is that there is no one-stop shop alternative to Ramsey, and even the idea of a one-stop shop is dangerous. You suggest following financial advice of real experts, but which ones? How is the average Joe American supposed to identify a complete suite of real experts on various financial subjects while avoiding the remaining 90% of bobble heads out there who dispense mediocre or poor advice? The vast majority of people don’t have the time, smarts, or dedication to accomplish such a feat. For those that do, fantastic - you are certainly among their ranks. For everyone else though, a simple, workable, proven personal finance system gets the job done. Not polished, not fancy, and definitely not the most efficient, but something that’s still better than a good 80% of what everyone is currently doing.

I am not saying I am the only one that has all the answers, thousands and thousands of folks get how this works. And demanding I provide such a book is not that useful and certainly isn't some kind of "gotcha" defense to Ramsey's shortcomings. The book you are looking for is on the shelf right next to the book that answers definitively every elk hunting question - habitat, firearms, ballistics, tag strategy, CDW, field dressing, shoulder seasons, etc etc etc. It is right below the book that answers every question on how to find a mate and make a marriage and familiy work for 50 years. These topics are complex, but some basic tips/hints can generally applied, but that doesn't excuse botching something important like mortgages or SLs. If somebody had useful elk hunting tips but then pedantically said you could only use 300 RUM to hunt elk it would be fair for folks to point out a 270 Win would work just as well in most situations and even better for some users.

And I agree sometimes a simplified version helps some folks, but then why not make some tweaks to the simplified version so it is more accurate? In the interview I referenced he admitted his advice goes against math and finance and his only defense was that his reading of the bible was his reason. The bible is a guidepost for many things in my life but understanding the time value of money or rate of return on an investment is not an area it offers much.

But enough is enough - I am tapping out. Folks who care to take the tiniest amount of effort to understand Ramsey's shortcomings can readily do so, those who prefer to blindly follow may do so to. Apparently, it's like arguing Ford vs Chevy - it is loyalty rather than facts that drive it. To each their own.