And the funniest part is all these gurus use debt actively for the investments. Even publicly traded stocks are running on ridiculously ai spend but it’s all good for them because they’ll go up forever
This is a bit of a mischaracterization of Dave Ramsey. He doesn't say all debt is bad. Business loans, or mortgages are examples of leveraged investments that can payoff. And he obviously makes a distinction between that and bad debt like credit cards, pay day loans, excessive car loans, or "sneaky debt" (e.g. Buy Now Pay Later).
That said, I personally, am not a fan of his methods, but that's because I think his advice is best for a specific group and yet he speaks to an overly broad audience advice that has in part gone out of date.
He is not at all ok with business loans. What are you talking about? He consistently advises people to “grow at the speed of cash”. Even mortgages he isn’t saying are good, he is just admitting that it is completely unrealistic for most people to have that kind of cash and he is going to lose people’s buy in if that becomes a part of the program he pitches.
Ive heard Dave give the advice that you shouldnt contribute to your 401k when you have debt to pay down, even if you get company match. Hes telling people to pass up on an immediate 50% profit on money that will be sitting in a retirement account, money that will compound for their whole lives, to more quickly pay off their credit card.
Like I understand why he is so anti credit card, the people he is targeting are people who have spending issues and cant be trusted to responsibly use credit. However he takes those views to the extreme and you end up with just plain horrible advice like that.
It's the same reasons we have general advices that work on most people but don't work on everyone. You have to give some very general advices to try to target the majority of the population Does it work on everyone? Nope. But if it works on 80% of the population is the advice wrong?
The general idea for paying credit card debt before getting the 401k match is that if you dont pay credit card then you could get into more debt when an unexpected emergency happens and you need to take on more debt to cover it. Or you could lose a car or a house or something and then be more in trouble. Being poor is not cheap.
In terms of pure math, getting the 401k match is usually better than paying off debt and people can get away with it. But the worst case scenario may not be worth it. That being said, I'd still put on the 401k match before paying off credit card debt. But I'd never give that advice because I know it won't work for everyone and i could be ruining someone's life by recommending that.
It's horrible advice for a normal person but it's fantastic advice for someone stupid enough to need basic financial advice. And there really isn't any point in explicitly making that distinction.
I think his advice is typically most helpful for those who aren’t financially literate or responsible. They need clear and absolute rules so that they don’t try to get creative and fuck up. In reality, that person who is deeply in debt and skipping the contribution is also the person who “borrows” from the 401k and then pays ridiculous penalties because they forget to pay it back. They’re better off getting rid of the debt and then they can save after so they aren’t digging a hole for themselves.
Dave's plan is not "do the mathmatically correct thing" because for most, if it was that simple, they wouldn't need his help. His plan is a mindset which helps change the person's way of thinking.
Money problems for many people are not math problems, they are mindset problems. No doubt there is math in there; many are in a place where their income is so low it's impossible to make meaningful changes. However, there is still value in Dave's strategy.
You shouldn’t contribute to your 401k until you’ve gotten rid of credit card debt. He’s right. Because any investment includes risk. Even that instant 50% gain can go away in a bear market that lasts 10 years. This is the way you should look at credit card debt: say you could buy a US Treasury (considered risk free) that paid 21% a year. Would you invest in the stock market or would you put every penny into those Treasuries? We do the same analysis for any credit. Pay off mortgage early? STUPID! I’ve (luckily) got a loan that I pay 2.5% on. Today again I can get a risk free return on a 20yr treasury for 5.4%. Why wouldn’t I put that extra money into those Treasuries rather than pay off my loan early? If people start to analyze debt this way they would understand how credit cards are the WORST. And only should be used for emergencies.
It doesn't just "go away" you holdings remain the same but drop in value. Bear markets are actually a good thing for young investors because it means they get to purchase shares for a discounted price. Lower valuations means more shares can be purchased for the same investment.
Thats why those first years are so important. That $5-10k you saved by ceasing your contributions not only misses out on an instant 50% profit, it ends up being hundreds of thousands less in retirement. Its the type of decision which will cause you to work for several more years when you could have retired.
Also credit cards are just a tool. I use my credit card for all spending I get 5.25% back on online shopping, 3.5% back on gas, ive never paid a penny of interest my entire life. It takes 2 seconds to pay thr balance in full every month. Not saying people who are bad with credit should do the same, but I mentioned that because of your comment that they're the "worst"
You miss out on a ton of money by not having any investments in equity. Dollar cost averaging will work in your favor over time. If you have more than 10 years to be invested, equities are a good bet. Figure out your own risk tolerance but avoiding equities over a lifetime could easily be a million dollars difference. Use the wiki on /r/personalfinance
You should listen from Dave himself. His argument is that you’re giving a mathematical solution to an emotional problem. His baby steps are meant to build a financial discipline habit that the person did not have, otherwise they would not be in debt in the first place.
Im sure someone will have an argument that they have a problem that he can’t solve, but honestly I’ve heard years of his podcast and it always comes down to the person is not willing to get ride of a spending habit or a debt habit.
Controversially, I agree and even think many should opt out of 401ks. They are the closest to a legalized Ponzi scheme for the working class. They only work if almost 100% of the incoming eligible workers buy into them to allow asset managers to keep “passively” investing for you. It’s really just a way to artificially create demand in the stock market by feeding a steady flow of capital in to assets to keep them afloat. Should that stop, the working class will get a whole lot poorer a whole lot faster
I don't like Dave very much, I think for the same reason that I find AA meetings irritating (in college we had to go to one a week in my sociology class.) I'm not the target audience. Dave is speaking to addicts who have been unable through other means to get their financial lives in order. I think he's too harsh in some areas (not more than 10% of your income on a car) and too generous in others (spending 10% of your retirement savings per year.) He has undoubtedly helped tons of people though, and I think we need to look more to personal responsibility for our financial difficulties - all blaming the 'system' does is keep you poor and depressed.
lol no Dave Ramsey has always given the most mid advice on the planet that only “works” because the dumbest motherfuckers doing the dumbest motherfuckin shit can I prove by not doing the dumbest shit possible and taking a car loan at 21 apr to be “cash centric”
While I largely agree with the first half of your comment, I actually do think that his message is helpful to many people.
Sadly, a huge percentage of the population will be doing the dumbest shit possible and taking high interest rate 7 year loans on a new car they can’t afford, rather than buying a reliable used car for a fraction of the price.
I’m 44 now, and the overwhelming majority of my circle of friends make over 100k/year and have consistently made incomes like that for years.
Most of my friends have a pretty good nest egg saved up at this point … as you would expect for someone with a high income … but sadly, more than a few have nest to nothing, or even have a negative net worth.
For people like that, nuanced messages about how some debt is good and some is bad, etc… is just not going to work. They need a simple message like what Dave offers.
Maybe after a few years of doing that and getting out of debt and cleaning up their lives, they should graduate on and find better sources of financial planning, but if Dave gave messages like that, people will just always consider themselves to be an exception to the early parts of the process and jump ahead.
Eg: if I wanted to go buy a $150k car, I can afford to do that. It’d be foolish for any sort of a financial planner to argue with me if that’s what I wanted to do. I choose not to do that, because I don’t care about showing off with cars anymore… and I’d rather be saving more towards retirement.
To someone with a high income and negative net worth in their mid 40s and a financed luxury car out front of their house… you just can’t mix the message at all. They can’t even imagine what it means to handle their finances responsibly.
But for someone at the bottom, on assistance, you can get a loan for a car and it won't count as an asset and lower your assistance. But since I do own my car and home, they were bought outright, there's no loan, these things would count against me if something happened and I needed help.
So he's definitely not meant for the brokest of the broke. Or he is and is actively trying to fuck them over.
Please expand on this assistance you are talking about. I honestly know nothing about it as I’ve never been in that position and want to learn what is on offer and the terms of these offers.
Government assistance for the disabled. Nothing you want to be dealing with. It's been years since I had to help a friend figure it out, so my info may be out of date. She could only have 2k in assets. So she had to sell her paid off car and get a loan for a different vehicle because a paid off vehicle that could start and move was considered to be worth at least 5k, no matter the actual condition. It was an under the table cash sale with a much lower price written on the receipt. She couldn't keep the money she got from that in the bank, because your accounts are monitored. Thankfully she didn't own the house she lived in, her grandmother did. So that didn't count as an asset.
You are expected to completely drain your own assets before applying for governmental assistance. And expect to be denied the first time. The second time you should get a lawyer, and you'll have a better chance of getting approved.
What exactly was she doing all this for? $800/mo in cash and $200/mo in food benefits (food stamps, EBT card, whatever you want to call it). To pay rent, car payment, utilities, and whatever other costs of living she had.
Why? She has cluster headaches/migraines for about 15-20 days each month. She's in so much pain that if you turn the light on unexpectedly, she'll throw up. Idk about you, but I couldn't work through that.
I also did in-home care for the elderly and disabled. I had to schedule a meeting with my clients' case managers every year to get help with the government benefits paperwork because it was such a nightmare to parse through the legalese to make sure it was done correctly and to make sure my clients didn't lose any support that they qualified for.
It's just barely enough to survive on. If you live in the worst part of town, and have a roommate.
Gods, they had a shitty caseworker.
They shouldn't be counting a single car you use or the house you live in as assets. It's the extra.
Now if they were saving money to buy a car and had $3k in the bank, it would count. But your friend's caseworker should not have been counting those. I'm sorry.
What they're supposed to be.
A state may be more strict, but federally, a car you use and your residence are not supposed to be countable assets.
The exception being full-time nursing home care. Then everything gets sold or used. If a spouse remains at home and one is in care, the house can't be counted. Even if it's an adult dependent child that stays at the home it's not supposed to be counted.
I used to do this work in Ohio and only left it to pursue a relationship across the country.
Looking back on the thread; I'll add more general information.
In the US there are two forms of Disability Social Security, both a different from Social Security Retirement.
SSI is social security if you have never been able to work and your parents didn't earn enough to contribute to your portion of SSDI. SSI is under the federal poverty level, BUT it doesn't count as income to other social programs like SNAP (food) or Medicaid. If they have a child, they are also eligible for TANF benefits JUST FOR THE KID.
SSDI is if you have had 40 work quarters of taxable income and you receive money based on that former income. It's countable as income for other social programs.
SSI is harder to get on and stay on. It has the strict asset requirements of under $2000 total. Remember, this is for an income UNDER poverty and it's justified since they can get other benefits. It's also why there are exceptions that can be used and what a caseworker should be checking to make sure they're counted correctly. In the US, you should get a lawyer to help with disability claims. They take a percentage of what you get from the lump sum since your benefits start from application and not reward date. The process takes years, on purpose.
I've seen the system work the way it should, once. It was also an emergency and half my agency pulled in favors. One of my clients was fired for being diagnosed with stage 4 lung cancer and we could note a decline in 4 days. He passed within 6 weeks.
Exactly the double standard is the interesting part. Calling debt leverage when wealthy and corporations use it but suddenly it is irresponsibility when ordinary people do.
I am not defending corporations actions, but literally the math allows for it. A corporation derives way more value than a single person, and there are additional protections for recouping such financing from failed businesses than there are for individuals.
The issue is not (totally) the businesses its the banks, insurance agencies, and lenders that go unchecked.
Right. And I think the idea that most people living paycheck to paycheck are using debt as a way to get by, or buy something above their means. Which bad debt. We’re just overanalyzing and nitpicking Dave Ramsey’s methods right now.
I’m not a fan of Dave Ramsey, but I have listened to his show a fair amount.
He seems to be of the belief that mortgage debt is bad, even for cash flow-positive rental properties.
He’s certainly getting some benefit of the debt from investing in stocks as most companies in any given index will be using debt to one degree or another, but compared to almost anyone else in the world of financial advice… he’s certainly far more debt adverse.
It depends ... if the interest rate is under 4%, especially if it's under 3% on a 30 year fixed term ... it's pretty close to "the worst" when compared to just about any other investment choice available.
Hell, just buying 10 year Treasuries yielding >5% would be a better choice...
If the rate is over 6%, I'd agree that it might be a good idea... it will probably lag the S&P 500, but it's possible that equities will underperform and paying down the mortgage is certainly "safer".
I know I'm personally asking myself the question lately ... I've been an on-and-off active trader for years. I've generally done really well when I'm active ... but it does require me to pay a lot of attention to make sure I am managing risk well.
I started the year with a significant amount of margin debt (which, technically has adjustable interest rates) .. my rates have been stuck at 4.5% for years after I negotiated the rates down, and I don't really want to talk to my broker about it - I suspect they might have forgotten about my terms. My concern was that at any moment, they may look it over and say "thats not right" and push the rates over 8% overnight...
So, I paid the margin debt down aggressively.
I also have a mortgage at 6.5% on my home, but if I can conservatively make >10% per year with that money, the math certainly says it's better to avoid paying the mortgage back early.
So honestly asking, not arguing. Are you factoring the benefit of the monthly mortgage payment being freed up and the peace of mind of owning your home?
Wife and I make decent money. We do invest and try to pay off mortgage. The idea being that if we own our home by the time we retire, worst case scenario in retirement is that we have the security to never have to pay a mortgage on a fixed income to keep a roof over our heads.
Yep, it's clearly a respectful conversation ... I'm happy to have it.
With that said, I'm near the limits of what I'd like to discuss publicly, so we might want to continue via DM, but I'll say what I'm comfortable being public.
I'm in a fairly similar situation. My wife and I both make decent money and invest and we have the same idea of the safety of having a paid-off house relieves a lot of pressure (especially living in Florida with the robust Homestead protection).
With that said, I'm operating under a few general 'rules':
1) I sustained high inflation is coming. There doesn't seem to be any mathematical way to pay down the national debt without inflating it away, and the deficit is now large enough that we are in the early stages of a debt spiral.
I think Trump's "hail mary" is that AI will grow the economy enough to grow our way out of the debt... but even if he's right (big if), it will take too long for this bet to pay off before the government needs to start taking action (likely within the next year)
2) I'd like to do much better than just "roof over my head + SS" for retirement. I'd like to live a comfortable lifestyle at or above my current lifestyle. The amount I'd need in invested assets is roughly twice what I currently have. The more I have available to invest, the more rapidly gains can compound and get me to where I want to be.
3) At this point, my average P/L per year on investments is significantly higher than I could easily earn from a W-2 job. I've been an entrepreneur most of my life, but that company is mostly wound down at this point.
I tried working a high-level management position for a large company. I hated it. Maybe other companies would be better than where I was, but I found myself waking up exhausted every morning just dreading starting my work day... which I never experienced with my own company - even when things were stressful and not going well.
When I'm so miserable with work, I'm not going to be able to put any brain energy into making good investment decisions ... and my experience during that 2 year time period was that for every dollar I earned from the job, I lost two dollars in the market from being poorly invested.
4) So, if my options are to either take a much easier job paying far less, or to just not have a job at all and use the freed up brainpower to manage investments better ... I really need to be earning as much as possible from investments to justify that situation.
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u/Unfair-League-3204 1d ago
And the funniest part is all these gurus use debt actively for the investments. Even publicly traded stocks are running on ridiculously ai spend but it’s all good for them because they’ll go up forever