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Why Everyone Needs Dave Ramsey (and Why You Should Ignore Him) | Ep 005
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- čas přidán 14. 03. 2018
- Get The Show Notes Here: www.choosefi.c...
Dave Ramsey's baby steps and advice are great if you are mired in debt and have no financial ground game, but it's one size fit's all and lackluster once you finish babystep 3. For many of us we get to baby step 3 and wonder...hmm is that all there is ?
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My husband took a small paycut ($5000 per year) to work as a professor at the small private college my daughter wanted to attend. She has two years left, and our son will start at the school in one year. That free $30,000 tuition per year is a HUGE bonus of his employment. As long as they choose to attend this college, all three of our kids will graduate with no student loans.
Very smart,smarter then most..
Exactly, ChooseFI is for the graduates of Dave Ramsey. I am one of those, kinda. My story is that I saved 10K as a emergency fund before completely paying off my Student loan, and vehicle loan. I pretended I didn't have that emergency fund, then I attacked my loans and paid them off. I had 11K in student loans, and a 15k car note. It look me 12 months to pay it off. This was one year ago now I have 30K in savings 10K VTSAX, and 2.5K in Robinhood. I continue to learn as I'm going. My next stage is to start saving for a down payment 20%. The way I look at it, I'm creating my buckets now its time to fill them up. I am learning as much as I can.
Dave Ramsey changed my life but these guys take personal finance to the next level.
Dave Ramsey's techniques for approaching personal debt showed my wife and me that it was okay to stop investing at the moment in order to throw everything we have at debt and student loans. We printed out calendars and put them on our office wall to check off everyday until we were debt-free (accept for the mortgage). WHAT A GREAT FEELING IT IS TO BE DEBT FREE WITH AN EMERGENCY FUND. Now we're all-in on FI and prefer the FI community's approach to low cost index fund investing for the long term. The key to both paying off debt and retirement planning is demystified information, and that is what both Dave and other FI personalities offer.
you asked the question about suspending 401k contributions during debt pay down. We went through Dave's FPU class and we did not suspend our contributions to the 401k. But, we were not involved in overwhelming debt either. I think we had 16 or 18 thousand dollars in credit card debt. We had faith in Dave's system and choose to be Water Buffalo intense instead of Gazelle intense. It took us six to eight months longer to be debt free (except for the mortgage). We are now 100% debt free and I retired early two years ago and we're living comfortably. Our emergency fund is set at 9 months. three to six months seems insufficient in today's world. we are still saving to build it to a full year.
Guys, your discussion of baby steps 4 through 6 is off the mark. Dave teaches that Baby Steps 4-6 are done simultaneously. You don't stop at Baby Step 4. Thus, Dave's teaching is not "only save 15%". Rather, it is save 15% in tax advantaged accounts and save for college and then take everything else you can possibly muster to pay off your house. Once that is done, in baby step 7, you max out all tax advantaged savings opportunities, invest as much as you can outside of tax advantaged accounts, live a little, and give a lot.
And, I love the show and work you are doing!
@@christopher_potts You're absolutely correct
This.
I love what they said that the info is made for millions of people, we need to keep that in mind and tweak it to work best for your family.
that also hit me, may I ask what is Your Baby steps in Finance
Dave Ramsey's message is very powerful. Having an emergency fund is very important. If your car fails its MOT then you don't have to go into debt. It is excellent to pay off debts using his clever snowball method. I live in the UK yet I still follow Dave Ramsey's ideas. I have grown to hate credit cards.
I so agree on the 401k match. If I listened to DR I would be missing 9% match at work. Albeit I am still working on bs2, but if i followed his plan to a tee from day 1 for first day of employment, I wouldve still be in debt as I know I would've gotten discouraged plus no money in 401k. Instead I am paying down a manageable debt and am close to the recommended amount in 401k for my age group.
I just found you guys a week ago and I’m so excited! I found Dave Ramsey a year ago and I believe I’ve graduated. I’ve always thought some of his methods were wrong for me and I mostly followed him but cheated along the way. I’ve been investing the whole time while getting out of debt and now I have Roth IRAs maxed and invest 50% in vtsax and a little individual stocks. Hearing your Roth IRA hack was so encouraging so I’m on baby step 4 now! Listening to you guys and jl Collins, I don’t want a house anymore though.. You have changed my life already and I’m going to binge every video!!!! Thanks
I just found you guys a couple days ago and I haven't been streaming your podcast all day at work, absolutely love you guys.
thank you for everything that you do and teach.
Dave Ramsey promotes tithing and his budget app puts giving as the first expense to consider. He definitely doesn't say to wait until step 7. The whole point of step 7 is that you have done everything to be stable and wealthy so use that power to be outrageously generous. That's a pretty inspiring goal to me....
I would definitely max out my 401K and take longer to pay off debt. In fact, I've done just that. The compound interest benefit of investing far outweighs the short term benefit of paying off debt.
If you stop a crappy match for 18 months it will have very little effect on you. That is what gazelle intense means. But I think that after you come back an now you have the peace of being out of debt and a surplus. You take that surplus and go heavier than 15% (if you can). Now not only are you feeling less heavy from the debt but you invest the surplus for just 3 months you will see the 2 years lost in compound interest fails in comparison to the invested amount and the growth.
Great Audio. It sounds clear and crisp. Amazing Podcast!
I am on Dave’s baby step 2 right now. I am still contributing the minimum to my 402k to get my employer’s match and am paying my debts in accordance with the ones I see as being most psychologically troubling, not necessarily smallest to largest. I am also contributing to an investment account that was a pain to set up before I got into debt. I will be done with everything but my mortgage on 9/1/21 or 10/1/21 and will need to build more emergency fund and sock away extra for retirement since I will retire in 10 years and only have $500k saved so far. I will then need more advanced guidelines like yours.
Can you elaborate on what exactly your businesses are? People always talk about opening a business like they just opened up a savings account and kind of glaze over it.
LOVE THE PODCAST!
You've agree with Baby Step 1 and 3, what would your Baby Steps look like? Now i'm curious and Really Interested in how you'll do it. It hits me when you said, "that the info is made for millions of people, we need to keep that in mind and tweak it to work best for you"
posting to say that I saw on Amazon you guys have a book coming out. Going to have my public and college libraries pre-order, and everyone else should, too.
All pre-orders are clac'd as day 1 sales, which will make it a #1 best seller if we get together and do this.
posting this on other vids before listening and hope others join me.
you guys are awesome
Would it be better to invest 100% of your available saving goal in a 457 or split the goal between a 457 and a ROTH? No match on the 457.
Go on reddit if you want your question answered
T S did you find an answer to your question anywhere else yet🧐
Good perspectives on Dave Ramsey. His point on paying the mortgage early is more about the psychological boost to be completely debt free rather than a mathematical calculation
Dave Ramsey has understood, people financial issue is not a math problem but a behaviour one, I heard him said when he began teaching about personal finances he was focusing on the math aspect and it did not work for a lot of people and it started working when he treated as a behavioural one. There is a reason why his approach got millions of people out of debt. Obviously, for people who don't have that behaviour issue, it would not make sense for them to follow him.
I think there's an argument for keeping the emergency fund in accounts that are FDIC-protected, not in any way in the stock market or even uninsured money market accounts.
I follow his steps, but do index funds (he’s old school mutual funds- fuck the fees!!!). Dave appeals to desperate folks who are broke trying to get their basic shit together.
I have listened to DR for years and I have only heard him say to not take 401k match in specific cases. And I agree with him for people in dire circumstances who have little discipline.
Dave Ramsay is a living “Debt Reduction for Dummies” psychologist!
What ChooseFI does is ALSO GREAT AND COMPLETELY different. I honestly don’t even understand why you are doing a comparison.
Dave has great advice....but as pointed out once your out of debt just leaves you hanging! Anyhow I'm very open to different thoughts & not just one path....thanks CHOOSEFI for the advice ...definitely subscribing...only 10 years from retirement, and my goal is to get there in 5!! Thanks guys!!
you got this - thanks for listening :)
I was thinking about the same thing with a Roth IRA as a placeholder for emergency funds and savings for big purchases.
Can you elaborate on this?
He's alluding to withdrawing his post-tax contributions (not earnings) tax/penalty free a feature of a Roth IRA.
Adding to George’s comment, if you take out the amount that you contributed, you can’t add that amount back into Roth IRA at a later time.
37:30. Where does Dave say you can get an 18% rate of return? I have never seen him write or say that. He does say 12%, which I agree, is still unrealistic. But it's still much less than 18%.
He says it in his financial peace university curriculum. photos.app.goo.gl/sbf29tVKnACE32PF2
@@ChooseFI he also uses it occasionally, if you do the math, when he does his "if you invest $x a month for y years" speeches. Sometimes it's 12.45%, sometimes it's 18%
I think you guys have awesome info but i think you are not quite understanding the 15% investment in BS 4. You do BS 4/5/6 together. 15% of income, starting yo save for kids college and throwing extra at mortgage. When you have kids college at a good level and mortgage is paid off then you start increasing that 15% investing to macing out investing.
The 401K match is a 100% one year guaranteed return, tax free.
Dave and his 'Ramsey Personalities' all approach debt and credit from the perspective of an addict. It's something that has ruined their lives and the lives of people that call them. It's a cold turkey situation with them. In their minds they and their listeners have no self control so just don't do it. I think Dave is great, and his energy has inspired me to climb out of debt and live my life differently, but I've learned that (good and appropriately used) credit and some types of debt are important and are ok (mortgages and such).
I am not understanding why I need to save for my child's college education? I had to pay for my own, so why can't she? She can play it smart, and at least she has my guidance to do so which is something I never had. We are willing to support her with a home while she is getting her education.
I'm going to focus on building my child's skills to an unusually high level by the time they are college age. Granted I have no kids yet. But college is changing anyways with the internet. I think putting aside investments that *only* work for college is way too narrow for me, especially if my kid(s) don't go to college. It's better IMHO to put cash into general investments that can be used for anything, including but not limited to college.
I think the biggest thing to think about is the cost of education, at this current rate of inflation your children (if you do not help them pay) will be saddled with debt for the majority of their lives. Students today, do not have the financial capital or means to pay for tuition by themselves. Even working a full-time job will not yeild the pay needed to pay one semester of tution. If you blatantly refuse to help them with this, you are dooming them to servitude because you wanted to be selfish. On top of that, they also get less assistance (grants and loans), based on parental income because the government thinks parents should contribute to their childrens education if the have means. Another thing you aren't thinking about is, just because you can offer her a 'home' while she's in university doesn't really make a lot of sense. For one, the program she wants to do may not be offered by a college/university near your house. If she wants or needs research experience or paid internships, they may not be offered at the college. Some internships may be geographically limited or they might be reliant on non-paid internships, which your child can't take advantage of becuase you doomed them to a life of destitude whilst they are in college. A lot of oppurtunities in other industries will also be lost taking this approach, further limiting the ability of social (class or economic) movement she would have had, if you had decided to put a few thousand of dollars into index funds (through a college account) when she was born. If these are not compelling reason for you, that's up to you, but I will be setting my kids up for the best life possible.
@@DrTempesta Wow, there's a lot here that I hadn't thought of. I was aware of the high costs of tuition and lower assistance based on parental income. Just never really connected the dots together. Thanks for sharing the importance of saving up for education
@@DrTempesta not necessarily. I have an advanced degree from an Ivy League university that cost me less (even adjusting for inflation) than one of my children pays to go in state to a state university, studying a subject that will probably result in a relatively small income. A degree isn’t necessarily the panacea.
Standard deduction for a married couple is now $24,000 since the Trump tax cuts. That's amazing and really helps reduce my taxes each year. But it also changes the math on whether or not paying off the mortgage early should be questioned anymore. It just makes a lot more sense now in every way.
Not really cause lets say you pay $5k in interest keeping your mortgage. Without the new tax law you subtract $5k from your taxable income and save $1100 in taxes. Any time you want that "tax break" back send me your $5000 interest payment and Ill send you your $1100 tax break you were getting. It doesnt change how stupid it was to keep a mortgage for the "tax break".
@@donjohnson1416 - I'm guessing you don't understand the tax system. If you pay $5,000 in interest you would NOT save $1,100 in taxes. Because $5,000 is less than the $24,000 standard deduction for MFJ (I'd much rather deduct 24k than only 5k). You'd have to have total deductions of more than $24,000 and then every dollar AFTER that would represent an additional tax break.
But despite the technical detail we actually agree - holding a mortgage for tax purposes is silly. My point is that it's even more silly now than before.
Shots fired 😅😂🤣🔥🔥🔥
you guys dont get it.... the average credit card and consumer debt charges between 18-25%,, with the market returning on average 12% a year, no way you win.... interest working against you is the gazelle intensity Dave is talking about...
Credit cards can work well for you if your disciplined and pay off the balance each month. The rewards are really great. Dave is not always right about everything in financial advice.
What is this BTSAx you keep talking about? I'm a newbie, so please forgive me.
VTSAX
It's an index fund that includes all stocks in the stock market. I haven't yet started investing, but this is where I will put everything: retirement and my kids' college funds.
@@noemirosales-torres4777 If you're investing in kids college funds the best way to go is in Treasury bonds. You will never have to worry about losing your money.
Roth IRA instead of 529 for college. The money is yours if the kid skips college.
I believe Dave Ramsey advocates the same thing. You have to finance your own retirement before you start saving for other people - even your kids.
depending on your income, even a taxable brokerage account is fine. with a married couple having 0% capital gains until their income crosses ~104k at minimum, I don't really see the need to use a 529 for most people. If 529s were deductible, sure. But with the current tax code, I'll take my chances with a regular brokerage before I use a 529
definitely not going to use a roth IRA to save for college though
Dave Ramsey is a mutual fund salesman.
and term insurance
@@4656superman There is nothing wrong with term life insurance. He promotes life insurance and says that term life insurance is the way to go (opposed to whole life insurance). You don't have to buy through him, but at least compare the pricing...it's pretty competitive.
Hjjj
I'm worn out by Dave Ramsey. He's a great guy and his advice is good. But I can no longer listen to him.
Same. I can't listen to him now either. Good luck on your FI journey! ~Jen, ChooseFI Community Manager