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Message
re: Dave Ramsey's advice to pay off a car loan, rather than invest
Posted on 1/1/20 at 5:16 pm to RidiculousHype
Posted on 1/1/20 at 5:16 pm to RidiculousHype
Has no one in this thread lived thru the dot com bust and mortgage/housing crisis? The guaranteed return in the stock market is not guaranteed.
3
Posted on 1/1/20 at 6:05 pm to Ric Flair
quote:
Has no one in this thread lived thru the dot com bust and mortgage/housing crisis? The guaranteed return in the stock market is not guaranteed.
Unless you were in or nearing retirement, you came out WAYYYY ahead in the great recession, market-wise.
As long as you are a few years out from retirement, and you don't lose your job (this is key lol), downturns are great in the long run.
Posted on 1/1/20 at 7:10 pm to JohnnyKilroy
is anyone retiring because of the spread they made between an investment and a car payment?
The Ramsey method works because he makes you pay cash for a car. Which makes you second guess if you need to really buy the 40-50k new truck. If laying out cash, you’re less likely to buy it.
The Ramsey method works because he makes you pay cash for a car. Which makes you second guess if you need to really buy the 40-50k new truck. If laying out cash, you’re less likely to buy it.
Posted on 1/1/20 at 7:41 pm to Ric Flair
quote:Meh, over time it pretty much is. You could have invested the day before the 2008 crash and fast forward 10 years you'd be looking at a double digit annual return.
Has no one in this thread lived thru the dot com bust and mortgage/housing crisis? The guaranteed return in the stock market is not guaranteed.
Posted on 1/1/20 at 7:43 pm to Ric Flair
quote:This difference over 30-40 years could likely mean retiring years earlier
is anyone retiring because of the spread they made between an investment and a car payment?
Posted on 1/1/20 at 8:29 pm to Ric Flair
quote:
s anyone retiring because of the spread they made between an investment and a car payment?
I made about $10k this year alone on the spread. I’m not retiring on $10k but I’ll take it.
Posted on 1/1/20 at 8:36 pm to Ric Flair
quote:
Has no one in this thread lived thru the dot com bust and mortgage/housing crisis? The guaranteed return in the stock market is not guaranteed.
I was invested in the market through all that, the 1987 crash, 9/11, etc, remain invested today, my average annual return is around 10-11% for the last 40 years using mutual funds for 95% of my money, and just dabbling in a few individual stocks that interested me.
Posted on 1/1/20 at 8:39 pm to JohnnyKilroy
quote:
downturns are great in the long run.
As long as you're always buying (dollar cost averaging). What unsophisticated folks do is sell(and stop buying) after/during a big drop, thus realizing paper losses and not buying low to sell high later.
That is why the old saying goes - the stock market is the method by which the patient extract money from the impatient.
This post was edited on 1/1/20 at 8:40 pm
Posted on 1/2/20 at 8:11 am to Ric Flair
quote:
The Ramsey method works because he makes you pay cash for a car
And yet not one opportunity cost calculation is done on giving up a pile of cash.
Posted on 1/2/20 at 8:49 am to BestBanker
quote:
And yet not one opportunity cost calculation is done on giving up a pile of cash.
As a creditor, what would you rather see? (On roughly the same income)
Client A: Buy a used $15,000 car paid with cash, with only a reasonable mortgage payment, dwindling student loan debt, and no credit card debt. They also have 6 months earnings saved in a rainy day fund and are just starting to save for retirement.
OR
Client B: Buy a $45000 truck while financing $39,000 of the transaction, reasonable mortgage payment, making minimum payments on student loan debts, and $8000 in credit card debt, But they claim to put $10,000 a year in a 401k and have about $5,000 in their checking account.
As another poster said, it’s not about mathematics in a specific transaction. Dave Ramsey is about breaking the debt-a-holic mindset. Take baby steps to break the debt reliance and slowly (or quickly) gain financial independence.
Honestly, I don’t agree and don’t practice all of his fundamentals. It’s not practical in running a small business. But most people don’t have the discipline or wherewithal to use financing as a tool or means to a defined end.
Posted on 1/2/20 at 9:16 am to stewie
quote:
As another poster said, it’s not about mathematics in a specific transaction. Dave Ramsey is about breaking the debt-a-holic mindset. Take baby steps to break the debt reliance and slowly (or quickly) gain financial independence.
Honestly, I don’t agree and don’t practice all of his fundamentals. It’s not practical in running a small business. But most people don’t have the discipline or wherewithal to use financing as a tool or means to a defined end.
Yes, principles are well understood and generally agreed by the MTB as the right advice for the vast majority of the population.
quote:
Client A: Buy a used $15,000 car paid with cash, with only a reasonable mortgage payment, dwindling student loan debt, and no credit card debt. They also have 6 months earnings saved in a rainy day fund and are just starting to save for retirement.
OR
Client B: Buy a $45000 truck while financing $39,000 of the transaction, reasonable mortgage payment, making minimum payments on student loan debts, and $8000 in credit card debt, But they claim to put $10,000 a year in a 401k and have about $5,000 in their checking account.
These are apples and oranges. I get that you are trying to make a point but they are not equivalent financial positions (as examples).
Posted on 1/2/20 at 10:33 am to RidiculousHype
Understand that DR's methods are, quite clearly, more personal than finance, and are to avoid debt at all costs (except for 15 year mortgage)
If you want to play with the numbers...
Most of his listeners / people on his program aren't getting 4% car interest rates. It's more like 8, or 10, or higher, with long terms.
Some people look at paying down debt as a guaranteed return on your money at the interest rate involved. So, an 8 or 10 percent annual return on your money, for the time period of the loan.
There aren't too many places that can guarantee a 10% return... much less if the loan rate is north of that.
It may surprise some of the astute financial gods of the MT to know that there are a lot of people out there with 84 month, 14% interest car loans.
If you want to play with the numbers...
Most of his listeners / people on his program aren't getting 4% car interest rates. It's more like 8, or 10, or higher, with long terms.
Some people look at paying down debt as a guaranteed return on your money at the interest rate involved. So, an 8 or 10 percent annual return on your money, for the time period of the loan.
There aren't too many places that can guarantee a 10% return... much less if the loan rate is north of that.
It may surprise some of the astute financial gods of the MT to know that there are a lot of people out there with 84 month, 14% interest car loans.
Posted on 1/2/20 at 12:00 pm to RidiculousHype
I got blasted by one guy on here on this same topic last year.
1. DR's philosophy is more psychological than mathematical. Always remember that when discussing his ideas.
2. Personal finance is 95% personal, which makes the psychology highly relevant.
There are some really dumb people out there when it comes to finances. My in-laws live in an expensive house in an expensive neighborhood and drive luxury SUVs with $1000 payments.
They have less than $10,000 in retirement accounts and couldn't come up with $2,000 by the end of the day.
My parents live in a modest, paid for home in rural Alabama. My dad still drives a 1996 Toyota pickup that he paid cash for. They still have dial up internet on a Windows XP computer. I don't think they have ever used a credit card.
They have $500k cash in their accounts, own massive amounts of timber land and are 100x happier. If my dad wasn't afraid of investing in the stock market, he would be a multimillionaire.
1. DR's philosophy is more psychological than mathematical. Always remember that when discussing his ideas.
2. Personal finance is 95% personal, which makes the psychology highly relevant.
There are some really dumb people out there when it comes to finances. My in-laws live in an expensive house in an expensive neighborhood and drive luxury SUVs with $1000 payments.
They have less than $10,000 in retirement accounts and couldn't come up with $2,000 by the end of the day.
My parents live in a modest, paid for home in rural Alabama. My dad still drives a 1996 Toyota pickup that he paid cash for. They still have dial up internet on a Windows XP computer. I don't think they have ever used a credit card.
They have $500k cash in their accounts, own massive amounts of timber land and are 100x happier. If my dad wasn't afraid of investing in the stock market, he would be a multimillionaire.
This post was edited on 1/2/20 at 12:21 pm
Posted on 1/2/20 at 12:08 pm to LatinTiger30
quote:
The paid off mortgage has replaced the BMW as the status symbol in America.
For me this is 100% accurate. I drive a 06 Mustang that was given to me by my parents. I drive this not because its my car of choice. I drive it because its paid off and not having a payment allows me to get rid of other debt.
I would happily keep driving that and end up having a paid off mortgage then shoot around in debt in a BMW.
Posted on 1/2/20 at 12:47 pm to sacrathetic
quote:
It's so frustrating reading financial message boards (not just this one, most of them are like this) because the hive mind in them usually dismisses the human nature aspect of financial decisions.
They seem to always want to frame everything in a pure mathematical approach while completely discounting human nature and human psychology.
are they talking about their advice for themselves or the general public?
your argument only applies to the general public, which it doesn't seem to be aimed at with your words
quote:
That statement can't be proven mathematically, but those with wisdom know in their hearts that it's true.
the numbers are numbers
Posted on 1/2/20 at 1:42 pm to stewie
quote:
As a creditor, what would you rather see? (On roughly the same income)
I'm not using a harsh tone when I type the following:
You don't understand being a creditor by the way you posed the comparative question. The creditor wants to see Client Bs all day long. It's all about the direction of positive cash flow into the bank for multiple layers of lending, so it's a flawed assumption to begin.
This isn't an accounting class on opportunity cost, but in a balanced scenario of comparison, the compounded earnings on a lump sum generates a larger dollar return (using rational interest rate on purchase as well as the earnings rate). Bigger dollars earn bigger dollars.
I do not dispute morons spending more than they should. Got it.
Posted on 1/2/20 at 2:07 pm to Ace Midnight
quote:
But for most Americans living paycheck-to-paycheck, it is brilliant, life changing advice.
i'll disagree with the first part, and wholeheartedly agree with the second. i don't live check to check and havent in a very long time. i understand that the math says keep the debt and invest, but i also know me (hi, me). i do not have the discipline to do leverage and invest, nor to i want that complication in my life.
for those of us who like to keep life simple and uncluttered, and who have the means to accept the potential downside, there is nothing, and i mean nothing, more valuable to me than being 100% debt free
Posted on 1/2/20 at 7:51 pm to BestBanker
quote:
I'm not using a harsh tone when I type the following:
You don't understand being a creditor by the way you posed the comparative question. The creditor wants to see Client Bs all day long. It's all about the direction of positive cash flow into the bank for multiple layers of lending, so it's a flawed assumption to begin.
Ok ... I replied to your comment about opportunity cost analysis because it isn’t the proper analysis for 95% of the general population. Why...lack of financial planning and discipline. Creditors know this, you know this, and Dave Ramsey knows this.
I asked the question in frame of a creditor because I assumed you were a creditor, BestBanker I would assume a creditor would prefer option B, but the point was that option B isn’t the financially prudent or healthy position to be in and only a creditor would suggest that to a client.
I thought your comment about lack of an opportunity cost analysis was arrogant and undeserved ... like most creditors.
Posted on 1/2/20 at 9:21 pm to stewie
Ok. So you asked a dumb question.
You also assume, and you know that means... Bestbanker is because I'm from the Bestbank! JP!
Bless your heart. You really aren't there yet. Don't confuse confidence, experience and wisdom with arrogance. That would be ignorance.
You also assume, and you know that means... Bestbanker is because I'm from the Bestbank! JP!
quote:
I thought your comment about lack of an opportunity cost analysis was arrogant and undeserved ... like most creditors.
Bless your heart. You really aren't there yet. Don't confuse confidence, experience and wisdom with arrogance. That would be ignorance.
Posted on 1/2/20 at 9:48 pm to BestBanker
quote:
You really aren't there yet. Don't confuse confidence, experience and wisdom with arrogance. That would be ignorance.
I think this sums up your original post quite well.
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