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So, Dave Ramsey....on car buying....

insyder said:
Agreed. The alarmist posts/tweets are to get peoples' attention and discussion. I mean we're 500+ posts into this thread alone. :laughing

But for some people you have to put things out there like that to try and convey, "Don't be a fuck up with your money."
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People just dont like being told what to do even if its good for them: Bush your teeth, eat healthy, work out ...
 
bikewanker said:
I’m in favor of 2 years of some kind of government service, planting trees in the forest would be green economics. Hell I remember elevator operators.:afm199
Bring back the WPA, although it’s possibly on its way.
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A younger me would've said hell no. The older me agrees that I do actually think it'd help. You don't have to become Nazi Germany just because people are mandated to perform some sort of government service. As stated earlier, South Korea is a great example of that. So is Israel to some degree. I'm not 100% onboard with the military conscription thing, but I think for the most part, it's more helpful than hurtful.
 
Kornholio said:
South Korea doesn't necessarily require military service. They require federal service. You can complete this without joining the military. But you have to actually qualify for the non-military/civil service roles. Some won't.
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Sure, and the mandatory service in Israel has some variables too, don't see much point in nitpicking the details of policy in another country here. :dunno
 
Killroy1999 said:
Thanks for posting that. Some people have wasted some breath on criticizing Dave, but I wonder if they even listened to what he was saying.
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yup, his advice is mostly solid. I even agree with him about the credit cards, even though I don't follow his advice there.
 
JesasaurusRex said:
...
simple
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Yep. I wasn't impressed with the "God doesn't like debt" argument, but the point about taking on too much risk is solid.

There's a psychological aspect too. The less debt you have, the more you feel in control of your finances, and the more you are inclined to take an interest in making good financial decisions. True for me anyway.
 
Killroy1999 said:
Thanks for posting that. Some people have wasted some breath on criticizing Dave, but I wonder if they even listened to what he was saying.
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So I watched it. Just so I can say I haven’t been wasting my breath.

For the guy who called into his show, the advice is sound. Don’t go into debt to make an investment. I mean there are professional finance people who do that very thing (margin buying), but it’s super risky and quite a few of them get burned doing that. So the average Joe Six Pack really shouldn’t bet with money they don’t have. And yes, investing is just that...gambling. The scenario is no different than borrowing from a loan shark to go to your bookie (maybe they’re the same person) and bet the over on the next sports ball game. Risky AF and could have disasterous consequences.

What I was talking about was using credit/debt to your advantage. In the context of what this whole topic was about. I have a low interest loan on my car. I could have paid cash for it, but I chose to keep the money where it was. And in the seven months since I bought the car, that money that I could have used to wipe the debt away and just pay for the car in full? It’s returned more in seven months than I will lose in interest for the entire term of the auto loan. And yes as Dave says, there’s a roller coaster with investments and anything could happen, so there’s a risk. But on average, I’ll come out way ahead every year. Pretty sure I said I just bought a $10k bed awhile back in this thread. I got that for zero percent for 5 years. What absolute fool would just pay for that in full up front other than some person with a hangup about carrying a debt of any kind? No risk at all, I can just leave the money in some paltry interest savings account and make some of the $10k back for that depreciating asset. Pretty sure my own financial advisor (who obviously isn’t Dave) has told me to leave my money in my portfolio if I want to buy a car or some other big ticket item and I can get low/no interest financing.

So again. Dave can suck it. People going paycheck to paycheck probably have something to learn from him, as has been said quite a few times in this thread. But I’m pretty sure I’m not his target audience. Even if I was, after hearing about his personal beliefs and so on? Yeah I’ll get my advice from someone else.
 
rodr said:
There's a psychological aspect too. The less debt you have, the more you feel in control of your finances, and the more you are inclined to take an interest in making good financial decisions. True for me anyway.
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Couldn’t agree more. It’s sad that broke people always seem to be broke no matter what and it’s an absolute struggle to get their head above water that can take years if not decades. And it’s even sadder that there is a system out there that specifically targets this group to keep hanging weights on them (predatory lenders like payday loans or awful “buy here pay here” car dealers). But once they do get in the black, it’s such a liberating feeling. Plus there’s the whole “the rich get richer” thing going where that same system that was trying to push you back underwater is now handing you a towel. They lift the velvet rope to let you in the club of not trying to bloodsuck every dime they can out of you. Oh you have a 800 credit score? Well you don’t have to be out here with the plebs paying double digit interest rates. Come into this fancy room here where we’re going to let you have even more credit and we’ll barely charge you any interest on it. Or quite honestly my favorite part of the club? No bank fees for anything. That part feels real nice.
 
TheRobSJ said:
Couldn’t agree more. It’s sad that broke people always seem to be broke no matter what and it’s an absolute struggle to get their head above water that can take years if not decades. And it’s even sadder that there is a system out there that specifically targets this group to keep hanging weights on them (predatory lenders like payday loans or awful “buy here pay here” car dealers). But once they do get in the black, it’s such a liberating feeling. Plus there’s the whole “the rich get richer” thing going where that same system that was trying to push you back underwater is now handing you a towel. They lift the velvet rope to let you in the club of not trying to bloodsuck every dime they can out of you. Oh you have a 800 credit score? Well you don’t have to be out here with the plebs paying double digit interest rates. Come into this fancy room here where we’re going to let you have even more credit and we’ll barely charge you any interest on it. Or quite honestly my favorite part of the club? No bank fees for anything. That part feels real nice.
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Being poor is fucking expensive.
 
Killroy1999 said:
Thanks for posting that. Some people have wasted some breath on criticizing Dave, but I wonder if they even listened to what he was saying.
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Hey you are right, after listening to this, I've realized that not only have my criticisms of him been valid, but I have been too kind to him. In this video, he advocates for someone to aggressively pay down a debt that has 1% interest, instead of investing money in an investment that would reliably make 10 or 11%. His excuse for that is the idea that investments carry risk, and the 10 or 11% rate of return does not account for risk.

He then mentions Beta as a justification, without adequately defining what it means or going through the math to explain his reasoning. He has his own show, he could take the time to explain all of this. Beta is a measure of volatility compared to the market. It's useful as a measure of risk for short term investments, but the guy calling specifically mentioned the idea of investing in a Roth IRA, which is a long term investment for retirement. Beta is not very useful for determining risk of long term investment, and it's more important to look at proven performance of investment products over long periods of time. We can pretty reliably say that high growth mutual or index funds can reliably average 10 to 15% per year of growth, tracking that fund over 10 or more years of time.

Of course, even if we decide to use beta to determine risk, the idea that the beta of a mutual fund that over time yields an average of 10-11% would make it less sensible to invest in it instead of aggressively paying a loan with a 1% interest rate really is more dependent on facts that Ramsey does not even ask about. Job stability, current savings, whether the caller is likely to be able to continue to save or dip into those savings, etc. There may be some instances where it does make sense to pay down that 1% loan aggressively, but in most situations, the investment option leads to more wealth over time.

Honestly, even his anecdotes sound very strange. There is no way in hell that Ramsey has not talked to millionaires who developed wealth by using cheap debt. it's incredibly common. Basically all mortgages depend on the concept of using cheap debt to develop long term wealth, and home mortgages are the primary vehicle that the vast majority of people in the US use to grow their wealth. He is either lying, or he does not understand pretty basic economic concepts.
 
mikev said:
Being poor is fucking expensive.
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So so true.


ScarySpikes said:
There may be some instances where it does make sense to pay down that 1% loan aggressively, but in most situations, the investment option leads to more wealth over time.

Honestly, even his anecdotes sound very strange. There is no way in hell that Ramsey has not talked to millionaires who developed wealth by using cheap debt. it's incredibly common.
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I assumed the caller is coming from a little to zero net worth and little to no credit worthiness position. I know bottom line wise, it’s no different than whether he has a million in the bank or barely a paycheck saved....you’d ultimately make more money investing any disposable income than paying down that debt. But I personally would rather pay down the debt, even as cheap as it is, than invest it and get my credit worthiness (lowering his debt to income ratio) in good shape sooner than later. Because a good credit score opens the door to getting cheap debt in the future.

But yeah, like I said earlier, multi billion (even trillion) dollar companies carry billions of dollars worth of cheap debt even though they’re cash rich enough to pay it off if they wanted to. Their CFOs and financial teams who probably know a helluva lot more than Dave does about managing debt, are fine with carrying the debt. That thinking can scale down to an individual. Like me and my new mattress.


Saw this on his Wikipedia page....

By 1986, Ramsey had amassed a significant portfolio worth over $4 million. However, when the Competitive Equality Banking Act of 1987 took effect, several banks changed ownership and recalled his $1.2 million in loans and lines of credit. Ramsey was unable to pay and filed for bankruptcy in 1988.
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Sounds like he got margin called and got burned. So I can see his aversion to wanting to be in debt of any kind at all now.
 
If you are not leveraged like a piss-poor Central American country, you aren't doing it right!
 
TheRobSJ said:
So so true.




I assumed the caller is coming from a little to zero net worth and little to no credit worthiness position. I know bottom line wise, it’s no different than whether he has a million in the bank or barely a paycheck saved....you’d ultimately make more money investing any disposable income than paying down that debt. But I personally would rather pay down the debt, even as cheap as it is, than invest it and get my credit worthiness (lowering his debt to income ratio) in good shape sooner than later. Because a good credit score opens the door to getting cheap debt in the future.

But yeah, like I said earlier, multi billion (even trillion) dollar companies carry billions of dollars worth of cheap debt even though they’re cash rich enough to pay it off if they wanted to. Their CFOs and financial teams who probably know a helluva lot more than Dave does about managing debt, are fine with carrying the debt. That thinking can scale down to an individual. Like me and my new mattress.
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Sure. as I said, there are good reasons to pay down the debt first. Improving credit is one reason, though someone who follows Dave Ramsey's advice is not likely to really use credit anyway. Another reason is if their job is not completely reliable. Someone who might be out of work tomorrow pushing all the money they have into a Roth IRA is a bad idea because there is a good chance they will need to dip into that early which gets penalized massively, and that person would be very wise to pay of debts when they have the ability to do so regardless of how advantageous the rate is. The problem is that he gave really, really bad reasoning for his advice, and that reasoning could lead people in different situations to make decisions that are objectively bad. Financial advice is not one size fits all, but Dave Ramsey's understanding of finance seems to be very one dimensional and also seems more based in religion and faith, not data.
Saw this on his Wikipedia page....



Sounds like he got margin called and got burned. So I can see his aversion to wanting to be in debt of any kind at all now.
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Yup. This is why it seems so fucking strange to me that he has become a finance guru for people. It seems like his wealthy and well connected parents basically bailed him out after he crashed and burned in the real estate world.
 
JesasaurusRex said:
[youtube]r43J02-rcNI[/youtube]

simple
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Interesting,
no, not simple at all.

  • when you start an explanation with "it took me long to understand this, too"
  • OK, when you talk about: "God doesn't like"... OK maybe we can skip that
  • finally when you talk apples for a house loan to a guy calling about his car with oranges at 0.9%... OhH!
  • finally, forgot when you yap, giggle at the end..:confused sure makes for a convincing speech for (not? snake?) oil. :dunno

strangely, the video did not convince me.

YMMV:dunno once again, this seems to be "a bit of wisdom for some people, but maybe not for all"
 
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ScarySpikes said:
... Someone who might be out of work tomorrow pushing all the money they have into a Roth IRA is a bad idea because there is a good chance they will need to dip into that early which gets penalized massively, and that person would be very wise to pay of debts when they have the ability to do so regardless of how advantageous the rate is.
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Roth IRA contributions (what you put in) are after tax, so there is no penalty for early withdraw of your contributions.
 
I think the issue for me with the leverage is that I bet the majority of people that are taking that advice don't have enough liquid to weather a storm too long. Maybe a couple months on average? Loss of job and a large unexpected expense and that minority 6 month cushion person just had that 6 month cushion turn to 3. Guess you can borrow your way out of that too...

But what do I know
 
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