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Jag_Warrior
Virginia Fan
Virginia
Member since May 2015
1317 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

It’s good advice for debtaholics, not someone with a high financial acumen.


Problem is, in good financial times, everyone thinks that he’s a genius. But as Warren Buffett said, it’s only when the tide goes out that you find out who’s skinny-dipping.

You’d be amazed at how many high earners wouldn’t know a budget if it slapped them twenty times in the face. They’ve just been fortunate enough that their earnings could outpace their stupidity. Exhibit A: my girlfriend’s daughter and son-in-law, as well as most of their friends that I’ve met. But if you talk to them, they’ll try to convince you that their income level = financial acumen.


stewie
Central Florida Fan
Member since Jan 2006
3498 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

Problem is, in good financial times, everyone thinks that he’s a genius.


That’s a very good point and raises hand. We are all guilty of that to some extent.
This message board serves as a great example of that. However, it’s still interesting to read/learn about others perspectives on a given financial scenario.


Jag_Warrior
Virginia Fan
Virginia
Member since May 2015
1317 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
Very true. It’s always good to read about what others are doing. It’s even more interesting to see what their reasoning is. And what’s appropriate risk for one may not be for another.

But whether a person or a company, you want to avoid being “priced for perfection”. That’s usually when Murphy moves in your spare bedroom and starts breaking stuff.


RedHawk
Army Fan
Baton Rouge
Member since Aug 2007
6942 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
I don't know about others, but it has worked for me. I'm on step #6 and plan on having my house paid off in about five years.

Five years ago I was in CC debt hell, owed on a car, had no savings and wasn't putting enough away for retirement.

Now my only debt is my House and I have over five figures in savings all the while contributing about 20% towards my retirement. His plan works for people like me that were idiots with their money.


TigerTatorTots
LSU Fan
The Safeshore
Member since Jul 2009
75298 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

His plan works for people like me that were idiots with their money.
this is 100% true. Those of us who disagree with his teachings don’t disagree with that statement.
This post was edited on 1/3 at 12:43 pm


tiger81
LSU Fan
Brentwood, TN.
Member since Jan 2008
11149 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
Dave's advice works. He bought his office property here in Cool Springs bout 10 years ago. Paid 6 MM cash.


TigerTatorTots
LSU Fan
The Safeshore
Member since Jul 2009
75298 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
What would that $6MM be worth today if he financed his office and threw the $6MM into the market?

About $17MM

ETA - I was just assuming a flat 10% annual gain. Looks like I was way off considering market value 10 years ago vs now = 17% annual gains

In short - Dave Ramsey missed out on a shite load of money
This post was edited on 1/4 at 4:04 pm


sacrathetic
USA Fan
Member since May 2019
426 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

What would that $6MM be worth today if he financed his office and threw the $6MM into the market?

About $17MM

ETA - I was just assuming a flat 10% annual gain. Looks like I was way off considering market value 10 years ago vs now = 17% annual gains

In short - Dave Ramsey missed out on a shite load of money





This is how simplistic some of you people are.

You seriously made an assumption that he did not invest any of the money he saved on servicing the debt.

Congrats on posting some completely inaccurate numbers.


TigerTatorTots
LSU Fan
The Safeshore
Member since Jul 2009
75298 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
You said he paid $6 million in cash for an office.

I stated what that cash would be worth

Investing the money he saved on servicing the debt would be minuscule over a 10 year period compared to the full amount being invested on day 1.

quote:

Congrats on posting some completely inaccurate numbers.

Using Dow numbers - 10500 10 years ago. 28800 today. You do the math and factor in compounding and dividends.

This post was edited on 1/4 at 4:18 pm


sacrathetic
USA Fan
Member since May 2019
426 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

You said he paid $6 million in cash for an office.

I stated what that cash would be worth

Investing the money he saved on servicing the debt would be minuscule over a 10 year period compared to the full amount being invested on day 1.



And what's the value of the property from the time that he purchased it until now?


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TigerTatorTots
LSU Fan
The Safeshore
Member since Jul 2009
75298 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

And what's the value of the property from the time that he purchased it until now?

That is a net even as the property is the same value if he financed vs owned it outright. You still own the property and have the right to sell it at whatever the value is.


sacrathetic
USA Fan
Member since May 2019
426 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

That is a net even as the property is the same value if he financed vs owned it outright. You still own the property and have the right to sell it at whatever the value is.




Wow.



TigerTatorTots
LSU Fan
The Safeshore
Member since Jul 2009
75298 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
I'm confused - explain where I'm wrong:

You buy a house for $100k cash - house is worth $200k 10 years later.

Your neighbor buys a similar house for $100k, financing at 4% mortgage. $100k invested in the market. House is worth $200k 10 years later.

In both cases the homes can be sold by both owners for $200k. First owner receives $200k cash. 2nd owner receives $200k cash minus what he still owes on his loan PLUS the value of the $100k he originally invested 10 years prior.

Owner B wins by a significant margin.

Substitute house for "office" to keep on topic.
This post was edited on 1/4 at 4:44 pm


sacrathetic
USA Fan
Member since May 2019
426 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

I'm confused - explain where I'm wrong:

You buy a house for $100k cash - house is worth $200k 10 years later.

Your neighbor buys a similar house for $100k, financing at 4% mortgage - house is worth $200k 10 years later.

In both cases the homes can be sold by both owners for $200k. First owner receives $200k cash. 2nd owner receives $200k cash minus what he still owes on his loan.

Substitute house for "office" to keep on topic.


Right, so by my quick research, Dave Ramsey actually bought his property in 2015. He bought 47 acres for around $10,900,000.

He paid cash.

Since 2015, what was the appreciation rate of Nashville real estate? I don't really know, but from what I hear it's a hot market.

In addition, do we know if he's renting out any of that 47 acres? Maybe he only needs 20 acres for his business and can rent out the other 27 acres and earn income from it.

So, when you consider real estate appreciation, investing the money that he would have spent servicing the debt, and potentially renting out land, your simplistic comparison to a one time investment in the stock market is just silly.



TigerTatorTots
LSU Fan
The Safeshore
Member since Jul 2009
75298 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
I think we are on different wavelengths here as I'm not sure why you are even bringing up a couple points since they don't matter in this case...

Appreciation on the property has nothing to do with whether you own it outright or have a mortgage on it so we can take that point off the table as a net wash. It will appreciate the same.

Why does whether he is renting out part of the property have anything to do with this discussion? You can do that if you own it outright or hold a mortgage on it. So that point is off the table as a net wash.

The only difference in this example is whether he invested the money he would have spent servicing the debt vs investing the entire chunk on day 1. Financing the property and investing the chunk on day 1 comes out substantially ahead at nearly every point in the past 2 decades.
This post was edited on 1/4 at 4:56 pm


sacrathetic
USA Fan
Member since May 2019
426 posts
 Online 

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

Appreciation on the property has nothing to do with whether you own it outright or have a mortgage on it so we can take that point off the table as a net wash. It will appreciate the same.


But the ROI will be different. So, no, it's not a net wash.

quote:

Why does whether he is renting out part of the property have anything to do with this discussion? You can do that if you own it outright or hold a mortgage on it. So that point is off the table as a net wash.


Again, the ROI will be different.


quote:

The only difference in this example is whether he invested the money he would have spent servicing the debt vs investing the entire chunk on day 1. Financing the property and investing the chunk on day 1 comes out substantially ahead at nearly every point in the past 2 decades.


I'm just trying to illustrate to you that the calculus on this scenario is not so simple.

It may work out that investing the money in the market was still the better decision mathematically, but I'd be willing to bet that it isn't as significant as you claim.

In addition, investing in the market also carries significantly more risk compared to real estate over the long term.

There's just so much more to consider than simply saying someone should invest in the market instead of paying cash for their property.

I think that's the whole thrust of this thread, as well as every other Dave Ramsey thread.





BestBanker
LSU Fan
Around here.
Member since Nov 2011
12277 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
Facts versus emotions.

If the members of the Ramsey club used his "12% rate of return" on investments...

You cannot reason with some people.



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SlowFlowPro
Stanford Fan
Simple Solutions to Complex Probs
Member since Jan 2004
369643 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
quote:

But the ROI will be different.

the ROI on...what, exactly?

quote:

It may work out that investing the money in the market was still the better decision mathematically, but I'd be willing to bet that it isn't as significant as you claim.

the math is the math

quote:

investing in the market also carries significantly more risk compared to real estate over the long term.

2008 would like to have a word with you

i think the historical return of stocks is greater than RE plus you don't have to deal with the illiquidity problems of RE

where RE gets you ahead is the tax treatment after 2 years of ownership. even LTCG rates can't compete with 0
This post was edited on 1/4 at 6:43 pm


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Jim Rockford
LSU Fan
Member since May 2011
75659 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
His principles are simplistic and not right for every scenario, but most people lack the self discipline and sophistication to use other methods. Ramsey's philosophy wont make you a killing but it will keep you from losing your shirt.


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NYNolaguy1
LSU Fan
Member since May 2011
17190 posts

re: Dave Ramsey's advice to pay off a car loan, rather than invest
The whole idea of paying in cash vs getting a loan is predicated on people having that money up front when buying a car, which very few people do.


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