Why Pay Off Debt If I Can Invest at a Higher Interest Rate?
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- čas přidán 11. 07. 2018
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Hi everyone, I am the man behind the phone call. I was cut off and didn't have a chance to thank Dave for his advice, time and setting me straight! It was very much appreciated. I sold all of my positions today and will be paying my car off this week! Only 15k in student loans debt left to pay off!!!! I am so excited to own my life again! I would like to state that working 80+ hours a week is far from ideal. I am investing in my future self with the hopes that it pays dividends. I love each and every one of you and wish every one peace, positivity and happiness :)
BTW Dave is contradicting to his own baby steps rules.
Baby Step 4: Invest 15% of Your Household Income Into Roth IRAs and Pre-Tax Retirement Funds
Baby Step 5: Save for Your Children’s College Fund
Baby Step 6: Pay off Your Home Early
What he said right now is "skip #4 and #5 and pay off your homer early"
Thats awesome! Take care of yourself, 80hrs is hard! Be careful you don't burn out before you reach your destination :)
Good for you man. If you dont mind me asking what do you do on the side in the IT world?
Vladimir Georgiev Dave always states that mortgage debt is another category, if you feel a need to have one. Buying a house for cash is best. Secondly buy with 30% down.
IMHO if you can't save for a significant down payment for a house you cannot afford the maintenance costs of owning a house, ie. roof, furnace, hot water heater, painting house, appliance replacement, general maintenance, repairs, plumbing failures.
Real estate agents are not your friend, or financial advisor.
Good for you man! :)
“What you concentrate on is what you win at...” I think this will stick with me for the rest of my life
Yes, that was really good.
I agree! That definitely clicked with me.
Tyfys 👍
That's 'the strangest secret' coined by Earl Nightengale
This true. Can't be a Jack of all trades and a master of none. It's like trying to build 10 houses at once vs one at a time.
In light of the current volatility of the stock market, I believe investors should concentrate on undervalued companies. Currently, 35% of my $270k portfolio is made up of declining but formerly regarded corporations, and I'm not sure what to do with them.
This guy isn’t gonna do what was recommended, I’d bet my money on it.
(Slams $233.64 on the table)
Frs the stock market will most definitely make him richer
Definitely. Dave is being logical but in a traditional way.
@@brandonknox9173 p
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@Williams093 However, if you do not have access to a professional like JUDITH ANN PEACE, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments
@@Lourd-Bab Oh please I’d love that. Thanks!
@@Williams093 Judith Ann peace is her name
Lookup with her name on the webpage.
When Dave asks them how they’re doing and they steal his line... lol
I say to other people, better than I deserve, but i feel I could not say that directly to Dave, it's his line and I gotta let him say it first, outta respect
That was funny lol
Never disrespect the master. I use his line all the time. I love it when the reply is, hey Dave Ramsey! I am waiting on a waitperson to say it so I can throw down that C note. I tell people I am in a cult, I am asked can I get out of it, sure quick, get a credit card, max it out at 29%, pay minimum. Boom done.
It's a really good line, and maybe even a self fulfilling prophecy in a way, allowing you to be better than you think you deserve.
@@raiden031 outta respect fo sho
5:42 "stop your 401k..."
That's where I disagree. Always contribute *at the very least,* the minimum that your company matches.
Then you hit a down year and you're down 10% but you're still paying the same interest on your debts.
Give up 401k match for a year, get out of debt completely, then go full throttle. You're going to have years that return less than the interest on that debt, and you still owe.
@@frankvonfrauner if you put in the exact amount that the company matches you'll always be making 100% return on that.
If it goes down by 10% for this year then you've gone up by 80% for that year on the money you've invested that year.
That's free money. Always take free money.
@@monunyabidness5949 Not to mention you are shielding that % of your income from taxes, so it is an even higher return. It's situational too, how much you make and how much debt you are in. My company matches up to 3% at 100%. I make 41k, so 3% of my income is a whole 102.5 per month. Contributing to the 401k with taxes not being taken out, lowers my paycheck by like $80. This would at best pay off my debt a month, or maybe half a month, faster. A months worth of interest for me right now is about $150. Not contributing to the 401k would cost me Probably about $120 per month including taxes. Over the approximately 11-12 months it will take me to pay off all of my debt, using my extra $80 per month on debt, vs contributing to the 401k, will save me roughly 150 vs cost me 1516 on my 401k, about $80 of which is interest. It doesn't take a math wiz to see which one is the smarter option for me. If all your debt is as 27% and you owe 3x as much as me on the same income, sure, every penny you can pinch towards it i guess.
I have 3 debts besides my mortgage, like i said should take me about 11-12 months to get out from under them, and their interest rates are 4.5%, 8.5% and 10.5%. It just doesn't make sense for me in my situation, other situations it might make more sense, if not even from a math perspective, at least from a practical perspective.
@Joe Kennow Dear god man, you really shouldn't offer advice about things you clearly know nothing about. The guy who said free money, he is talking about company match on 401k. Most companies offer to match part or all of what you contribute up to a cap, mine does 100% on 3%, so if i put 3% of my income in 401k they will contribute the same amount, which is equivalent to an instant 100% ROI, there isn't an investment vehicle in existence that can even come close to that on it's own, you would have to invest in a startup that gets big immediately, or get a pick on an individual stock that skyrockets or something, and you can't do those things as reliably.
You seem completely unaware of the other advantage, that standard 401k's are pre-tax, so you shelter all the money you withold from taxation, which for people in higher tax brackets, can be quite substantial. Combining this with the company match, mathematically this puts you ahead of the performance of putting your money in a roth IRA by a LOT. If you make 50k a year with no raises, contribute 3%, and company matches 3%, after 10 years, you have about 43k in 401k and have saved yourself probably about 3k in taxes. If you put the same amount of money into a roth ira, even at 9% vs 7%, you'd still only have 23.7k and have saved nothing on taxes. You can have both a 401k and a roth ira, that is what many people do they contribute at least to their company match, possibly far enough that none of their income falls into a higher tax bracket, then they put the rest of their income they wish to invest, into roth ira, or a mix of roth ira and some other investments.
You also seem completely unaware that 401Ks are invested into mutual funds and that when you set it up you get to pick what sort of investment profile you go with, how much risk you are willing to take vs how much return you are trying to make, and some are set up to be really aggressive early on, then slowly transition this to more stable and safe investments with lower returns the older you get.
Plus there are actually roth 401Ks with many of the same benefits of a roth ira, yet a higher cap on contributions and qualify for company match. Your advice is just uninformed and bad all the way around.
Including recessions and bear markets, the S&P 500 averages between 9 and 10 percent annually. Letting market risk scare you out of investing in an index is thinking short term.
as long as you dont get scared and sell you will do well in the stock market long term
Depends on what type of investor you are. Buffet recommends an index for the average investor.
index funds are like the safest form of stock market investment.
That's misleading, there are periods of ten year returns that are negative and 20 year returns of 3 to 4% per year on average.
@@jeremyed9507 No, there are not, at least when referring to major US indices.
25yo making 130k/year? Wish I had those problems.
You could. All starts with setting your goals. And finding the path to get there
HingleMcCringleBerry goals are nice but they don’t turn back time.
Those problems also sound like they result in a heavy work schedule if you listen to the fact that he runs a business as well as works a normal job. His above comment also mentions that he works 80+ hours a week. Do you want his income problem enough to work as much as him or do you just want to gripe? I could make a lot more in financial sales vs analysis where I currently work but for me a four day workweek with consistent pay and benefits and a work life balance is what I prefer vs making as much as possible. There's always a trade-off.
Get to work.
@@BboyDaquack And a small loan of a million dollars.
He doesnt need to sto0 401k
He can pay that 30k or so in few months. No need to do any life changes.
He has a strong income
That's what I was thinking, that 3 to 8% that goes into the 401K won't be missed. I'm in the market beats timing the market
bingo - reduce spending and plow that into debt payment, instead of curtailing investing. I don't think Dave gives the best advice, honestly.
I think most people in the comments section have missed the point Ramesy was a making. When you have zero debt, you have more flexibility to deal with emergency situations. This increases your chances of actually succeeding in increasing your net worth. Yes - on paper it looks like more sense to invest, but thats assuming that over the next 20 -30 years there will be no changes in your life situation. So if you think that in the next 20-30 years your car will not break down, you wont get married or divorced, you wont experience unexpected medical bills, or anything that changes your expenses or income negatively then yeh go ahead and make investing a priority.
Well put.
That is in no way what he said.
This argument works if you make barely enough to cover needs and build an emergency fund, but making 130k per year this isn't an issue, not investing for a return rate 2x the interest on your debt is just wasting money via oppertunity cost
"that little stock market game you're playing" LOL
turrible
Warren Buffett: Dafuq???
But his tendies!!
Sandra Balan over 90% of traders loose money, he’s Dave Ramsey, he’s going to give you the safe route every time, if you want someone who gives you the “go all in on your dreams” call your broker
@@willinton06 Day traders*
me: watches hours of dave ramsey
also me: ignores debt and buys up crypto
hahahah i feel this
Good choice!
Same. I try to do both
😂😂😂😂
lol just get rid of the debt
Not paying off my 3% mortgage and investing the money in the S&P has been an excellent decision. Over the length of the mortgage I’m coming out so far ahead. I still can’t believe the bank was dumb enough to loan me the money for basically the price of inflation. No way I’m giving them the money back early.
What would appen if S&P crashes 50% or more, and you lost your job? You still have a morgage to pay at 3%, even if it's cheap, it's still taking money out of your pocket.
@James Marquis Time value of money. If I owe you $20, would you rather have it now, or in 20 years? It's worth far more now than it will be in 20 years. In his example with his 3% interest rate, which is basically in line with inflation, his principal now is going to be roughly the same value as what he'll end up paying over the 30 year mortgage. So rather than pay it off early, he can take that extra money and invest it and be a lot further ahead in 30 years.
@djorkaef don’t invest in mutual funds the fees will eat your profits. Also that’s a lot of what if’s are aliens coming down to earth too in this scenario?
@@artemisworshiper2010 "What would appen[sic] if S&P crashes 50% or more, and you lost your job?"
That's what Emergency Funds are for.
What would happen? He would buy more stocks at a discounted price. What does it matter if it crashes when you’re talking about time horizons of decades?
The funny thing is that DR is always telling people to invest in stock mutual funds, and pretty much every successful company stock held inside those mutual funds... borrows money in order to grow the business. So he tells us not to borrow to invest, but to invest in companies that borrow to invest.
There are plenty of billion dollar debt free companies
Blah blah blah. Go ahead and borrow yourself till your heart is content.
You can invest and pay off debt at the same time..been doing that and I'm doing completely fine
You can get a house with a 3% interest rate + an inflationary environment... house value will rise and the debt will be worth less. It's great to limit debt, but the type of it matters too.
It seems Dave doesn't really understand the power of compounding interest and the time value of money. They guy will absolutely be better off at 35 in terms of wealth with investing than paying off low interest loans, since his returns are higher than his interest on the loans. The earlier you invest, the more time is on your side to let compound growth do its thing.
having no debt is a wonderful feeling and it opens many opportunities to invest and build wealth.
While true, it's absolutist. We climbed out of $30K CC debt by making the minimum 401k contribs for matching, and we're much better for it. (All those bi-weekly S&P500 purchases when the S&P500 was 1/3 it's current value are nothing to sneeze at, even though they weren't much in absolute terms.)
If you will get a higher return on your investments than you’re paying in interest on your debt, you absolutely make minimum payments on your debt and invest the rest. This is very easy. Now there is uncertainty regarding whether you will be able to make a higher return, of course. So paying down your debt is definitely the safest way to go. But the safest way to go is almost never the most profitable way to go, and that’s certainly bound to be the case for the vast majority of scenarios like the one explored here.
Dave is wrong here. Not only is the interest better on the investment than on the debt, but also the timing of starting the investing as early as possible is so important. The gains with more time add more to your wealth in the long run than paying off that debt first does. The only good argument against this is peace of mind.
That’s exactly what I think as well. The caller is thinking long term. Dave is wrong sometimes (like all of us) but he doesn’t seem to be able to be swayed.
@@jervisCjacobs I guess he's not only focused on the financial/mathematical part of the problem, he's aware that if you're not emotionally controlled, it's easier to follow his safer plan than the caller's.
Regarding the math yes. However your theory isn't guaranteed. Paying off your house is. I mean who really wants a mortgage for 30 years? Have you ever heard anyone complain they've paid their house off? There are so many positives to having no mortgage or any debt for that matter. Who knows what life will throw at you?
Was skeptical to view the comments but glad the one right at the top is the one I agree with
It’s a good recipe for being house rich and cash poor. You can’t eat your house.
25 years old making 130k a year? God bless him! Good for him! What a great example and inspiration!
Why can’t these callers tell their salaries right away? They always sigh and sound confused
Cause most of them are making it up.
People are this disorganized that they cant track their money. It's a real thing.
Because they know Dave is about to assume all that money comes home and won’t listen about taxes
Because not everyones income is clear cut and it fluctulates. My income this year is going to be about 115k, but it's from 3 different sources and I wouldn't of known that amount until late Nov. Beginning of the year I'd of guessed like 80-100k.
If his 401k has a company match, he needs to contribute up to the match. He can choose a low risk investment to match the risk of the student loan and get the free money from the match.
Risk isn't an issue. His time horizon on his 401k is 35 years minimum at this point. Should all be in stock index funds if he has that option. The money he invests now is going to compound a lot longer time than his debts.
But he only has 15k in debt.. stop the contributions, throw everything at the debt, then start it back up at 15% and really get the retirement account growing. He won’t miss the 4-6 months it takes to pay that off
@@MattyJTri Yes he will. You're completely wrong. $15k plus employer match is $30k, over a 30 year time horizon at a 10% rate of return that is $523,482. Giving up the employer match is total insanity. Congratulations, you just gave up half a million dollars so you could get Dave's nod of approval.
The risk is extremely low of this guy is making over 100K a year. Math still says he’ll be wealthier at 35.
I agree, especially at his age. He's only 25, the risk is probably more worth it at that age
Love the way you gave Dave his own-- "slightly" overused line "better than I deserve!!"
instaBlaster...
I'm so happy that I decided to invest and use debt as a tool 10 years ago instead of listening to his advice here. I wouldn't be where I am today without taking risks. Diversify your investments to reduce risk. If you're in your 20s and if the investment returns are higher than the interest, I would always suggest you take the investment.
Dave's advice is still good for anyone at risk of never having a retirement.
Making 130k with 15k in debt he would be able to pay it off so quickly then throw everything at investing. He’s losing maybe 4-6 months of investing.
Thank you! Dave is a COMPLETE idiot here!
@@MattyJTri false. The simple common sense math proves you & Dave so wrong lol
@@BlakeAlexander12 It’s incredible how off-base people are in this comment section. Ramsey didn’t even pretend to give an actual argument for his position. And as you point out, his position is insane.
Wow!!!!!!! think about the timing of this video watching it now. Incredible stuff Steve.
It's about two words. Choice and sacrifice.
Take the EXTRA $5000.00 a month you say you make and pay of your debt. Why would you need to call Dave?
Basically what i was thinking. Unless he lives in Silicon Valley or NYC he has plenty to live on. Let the side gig pay off the last debts and you can still invest some with your other income.
Maybe his monthly expenses with student payment, car note, rent, utilities, groceries, life insurance policy, car insurance, phone bill, internet...are also needing to be accounted for out of his monthly income and once he pays himself into his savings he has a small amount left over for debt...not enough to pay it completely off..Hence why he called in to get advice on wiping out the amount with his $10K fund
Because some people need to be set straight,as his comment on this video says. I use Dave principles yet still watch his videos, knowing what he's going to say. Why? Sometimes a kick in the pants keeps you centered.
You ever use reddit? Half of the people asking for financial advice are just doing it so they can low key brag about the money they make. The vast majority of posts say something like "I inherited a million dollars what do I do" or "I got a job paying 100k what do I do". Very rarely will it be someone making an average amount of money who needs advice. There's countless posts from Scientists and Engineers basically indirectly claiming they don't understand simple interest rate percentages. I just realized this post sounds like the opening narration for a sequel to Fight Club.
@@Omegeddon He might live in a high living expenses area, like you're saying.
Dear Dave ,
Thank you very much for your valuable tips
1) Your job income and investment returns are not guaranteed
2) Interest saved is a dollar for dollar increase to your net income (especially with the new standard deduction being so high), but interest earned is often only a $0.70 per dollar increase to net income due to taxes and investment fees.
Missing out on the 401k match is a huge consideration.
Agree
Yes it is. Knowing that you are missing out on that match helps provide additional motivation to pay off debt fast.
Really depends on the investment, I stopped contributing to my 401k because I get such a huge return on my investments that even with the company match, its much worse.
@@MrGeary08 Isn't a company match an automatic 100 percent return?
@traceyl9959 you beat me to it. 😂
The perfect answer: avoid debt if you can, and pay it off ASAP.
My best investment ever was paying off my MBA debt with my first (and so far only) severence payment.
Good advice, became a subscriber with this video.
Hypothetical: If you have a loan, at 2% interest (Car loan for example), and a CD at 2% interest guaranteed.
Pop the first into a loan calculator, and a compound interest calculator for the second one, you will make more doing that than paying off your debt, then investing the cash flow.
This math breaks down when risk is involved (stock market vs CD). Since you'd have to calculate risk adjusted returns, which, if you're not extremely good at finance (and if you're calling in for advice I'd say you're not), it is a wiser decision to do as Dave says and just pay it all off and open up your options. It makes it so you have the freedom to make mistakes, and weather a bear market.
A lot of people forget the "Risk adjusted" part and just see the return for this year, and do ONLY that math. Thus behaviorally, Dave is correct.
Devin Forbes good call. Wise is not sexy. Sexy is the hot girl in her 20s, wise is Papa Smurf. And which one do people prefer to brag about to their friends. I made a million in stocks in 2 years by leveraging everything I had 10 times over or it took me 10 years to payoff all my debt including my house and I have 20k saved.
But loans are compounding also...
Not really. Investing during a bear market is the BEST possible time to invest as it will create you the highest returns. Imagine buying stock in 2009, you would have tripled your investment vs buying 2 years later you missed out on about 33% gains. Imagine investing a million instead of paying off a million dollar house monthly, you end up with $333,000 dollars extra at the end if you invest, on the other you break even.
@Devin Forbes Make sure to include marginal income tax on the interest from that CD in your calculations as well
You're neglecting taxes on the CD interest. Paying off your loan would be better, mathematically speaking.
Dave is the guy who will go the safe and stress free route... seems like the caller already knows he wants more activity with investing at the moment. Both are good routes to me!
Needed this. Thanks Dave and team! 🙏🙏🙏
I love you Dave happy that I found you and your podcast may god bless you and your family ❤️
It's just a different lifestyle. Some like to leverage debt to get ahead quicker, but they are good at managing and being on top of it. A lot of people aren't and end up with more debt and can't get out of the hole. The real difference is taking a risk or being risk adverse. Stopping investments today to pay off debt is guaranteed stopping the leak. Leveraging debt to get ahead is just constantly using a bucket to scoop out water out of a boat with a leak but gambling on the fact that your bucket will be able to rid u of the water coming in.
Most reasonable comment yet
That’s a great analogy. Personally I hate the leak so much that I’ll focus on dealing with it first just to be sure the boat never sinks. Others trust the bucket more. Man, I’m gonna steal this analogy. It’s fantastic
I like the bucket analogy. Personally I prefer the bucket and am not paying my low interest student loans any faster than I have to. I am investing in tax-advantaged accounts in stock index funds. I prefer the leverage. I'm not trying to be a millionaire with the interest rate/return spread, but if I'm truly thinking long-term then investing beats debt paying hands down. Couple things: To do this you must have an emergency fund in place first - don't get caught without cash. Also you must not "play" the stock market - I hate that phrase. The stock market is a way to acquire wealth. Prices fluctuate, but that doesn't make it a game or gamble unless you treat it like one and panic sell at the worst time, or try to "beat" it. Also, I saved for and bought a house (mortgaged) before investing so I could lock in a price and good interest rate on my home - slowly building equity in the house, not rushing to pay it down. Leverage can be a great thing - using OPM can allow you to maximize the potential of your income. When it's all said and done in 30 years, the one who leverages and makes sound investment decisions will come out ahead. Low interest debt payers will likely have much less. But I understand personal finance comes down to the individual's tolerance for risk and personal goals/lifestyle like you said.
People also like to use the terms: good debt and bad debt. People tend to favour bad debt like credit cards and car loans on expensive vehicles. People also need to be realistic with their careers and job prospects. Can’t be spending like there’s no tomorrow when you’re in a career that isn’t all that stable.
It’s interesting Dave mentions risk. If you throw everything at debt you can have a big problem if your income goes way down. Whereas if you have investments you can always draw from for savings. $1k emergency budget won’t cut being unemployed
This is exactly what I say. Like if you’re paying off debt and then lose your job, your in trouble. $1k is not enough to have you need more
For someone who talks a lot about "doing the math" I was hoping Dave would go into the math about this decision a little more. It was almost silly that he gave a purely surface description of the "logic" without giving any details about how the math works on that at all, and then asked the man if it was logical.
Noah McDaniel he doesnt have to go into full details, it will eat up half his time if he does it every phone call. Watch his show everyday and you get what logic he’s talking about.
Bill Latibay The problem is basic math is contrary to what he said, that’s why I was looking for an overarching logic to this. Realistically it’s not the math he needed to show, it’s why the math isn’t pragmatic or realistic for people and they’re better off just paying off debt. And if this is a video dedicated to the very subject of should one pay off debt instead of invest, seems like a reasonable think to spend a minute or two explaining rather than going over it superficially.
The math is logical, but he argues for the emotional benefit and drive that comes with paying off debt first. And then using ones full income to invest. It's an emotional vs. logic argument, so doing the math doesn't always motivate people.
Same with dave denying the use of credit card even if you zero all the credit dues every month. He assumes everyones emotional tendencies. Just follow his advice with some reservation.
Dave Ramsey got declared bankrupt because of debt and had made a Fortune advocating playing it safe
I hear you Dave, but compound interest beats your “long term” obsession. The time value of money is king! Start early investing. Mortgage dollars is moving to the left of the number line in terms of value.
there are no compound since long time ago
I agree with you. I agree with a lot of Dave’s principles but some of it is very simplistic. I for one am completely debt free except for my mortgage. All the extra money is invested, not used to pay down my 2.875% mortgage.
EDIT - now a 2.375% rate after refinancing again for the second time in six months.
@@sparcx86channel42 you don't know what compound means
@@sparcx86channel42 How's them drugs?
@@RolexCowboy it’s simplistic to you because you’re looking for a know it all guru and are learning from a guy who’s teaching people who have NO IDEA how to manage their money. You may be good at investing long term, but you sure have no common sense whatsoever lol
I’ve wondered the same thing, makes sense.
Crystal Rodriguez so have I. I'm glad this caller asked this question specifically.
Refusing the 401(k) match is a pay cut. That makes zero sense.
as it was said in star wars episode #1 SAID BY LEIM NEESON'S CHARACTER, "YOUR FOCUS DETERMINES YOUR REALITY"
Great advice!
This answered my question. Thanks for calling in there little buddy.
Oscar Gonzalez How do you know he’s little?
It's mid March 2020. Markets are down about 30% over the past 30 days. Turns out Dave Ramsey is 100% correct. Pay off debt first.
@Johan w I think you underestimate how much damage has been done to the economy. Small businesses are being crushed. There hasn't been as much talk about the negative economic impact of extremely low oil prices. Housing is the next domino to fall. It will take years to recover from this mess. The Fed has traded our economic future for the present. Pouring trillions of dollars in liquidity into the capital markets has given all the big Dow/SPY/NASDAQ companies access to cheap capital to ride this out, hence the very high current stock prices. The stock markets are going up on "hope" that the economy will reopen soon, without factoring in the rest of the economy.
I started buying stocks in 1985, so I lived through the 1987 crash, the early 90s, the tech bubble crash in the early 2000s, and 2008 - 2009. I know a stock bubble when I see it. I stand by my statement that it is far wiser to pay off debt before investing. Only invest what you can afford to lose.
@Abitamim Bharmal True. The Saudis recently bought 7.7 billion dollars in large cap stocks for their Sovereign Wealth Fund. The feds are buying REIT ETFs and corporate bond ETFs. The Fed is providing money at essentially zero percent interest to the investment banks. As long as there is this kind of support, stocks will remain artificially high. My wife has some stock in her IRA, and I would like to move it to cash. Her primary holding is Microsoft, which is just shy of its all-time high. The market and the economy are no longer connected.
I was in a very similar situation. Had 60k debt after college but instead of paying it off I put all my money in Tesla :) worth
👍🏽👍🏽
Clear advice from a clear mind. We win at what we focus on.
Outstanding explaination i have also done exactly those things and everything in my life is much better off then it was before i watched this video
Dave's great advice for people who are bad with money... if I was this caller I'd invest in stocks and slowly pay off debt. Math shows that winning long-term.
I'd agree. Dave's advice is for people who are bad with money or looking long term to see if their idea is sustainable. Personally I don't think this guy can win long term. I didn't contribute to a 401k until much later because I don't trust them and where I live they were saying if you don't have one, you will have to contribute more to a government retirement plan (Canada).
Within 6 years, I have enough money to:
1. Buy a house cash
2. Buy a house with a small (15-20%) amount down and use the income from the investments to pay the mortgage, taxes, operating costs and bills and know I could pay it off anytime
3. Buy a house with a small amount down and use my income and my investment income to double down, even triple down on the mortgage and know I could pay it off anytime
4. Buy a house with a small amount down and continue to reinvest my returns to compound by leveraging the low cost of the mortgage interest vs my returns and know I have the money to pay it off anytime.
The big difference is owning cash flowing income producing assets that increase in value over time vs stocks. Capital gains are tax advantaged. I know nothing about stocks and believe that (for me) it would take up a lot of my time to stay on top and analyze everything. I am a passive income investor and since 6 years ago have beaten the guy in the video with my annual rate of returns. Worst I have done was 9.75% on a single deal, but I had 5 different ones going at a time and that was one of the very secure deals that you must mix in with your portfolio to give security.
For me, I'd carry the debt and leverage that to be able to compound my returns.
@@Todd.Tjust to clarify by investments you mean rent payments on the houses you bought?
@@vevasika No. I mean private equity, private mortgages, and trust units and paying your own mortgage using the returns. I don't want to own a rental because all it takes is one bad tenant and you'll wish you never bothered. COVID basically showed how bad it can get and people took the opportunity to not pay and you still have to satisfy your mortgage requirements meaning you are going to work to pay for the renters to live for free. People buy a house and rent it out hoping for capital gain which is dependent on the markets. Those with leveraged rentals are not cash flowing due to the increase in interest rates. When you loan money, if the rates go up you can charge more. I have a few private equity and mortgages (for small business ventures ) that pay 14.5-15%. Mortgage rates for a house isn't that high. I can afford to pay the mortgage rates because the investment return increases with interest rate increases.
If I do own rentals, they would be multiple units spread across multiple complexes in a joint venture with other investors. This way when someone decides to not pay, you still have other income. Also you get the advantages of the economies of scale. The plumber shows up and charges once to fix multiple issues. With an individual house, you have to pay through the nose for individual visits and have lower tenant density.
Here is the thing, I hate, HATE my job. I am a cop I "net" 47k. Ya, ya I have health insurance which is a high-deductible. I get "paid-time off" which I can rarely use due to man power other than that there isn't any benefit to working the job. I am currently in investigations which isn't too bad, however when my time is up there I will have to rotate back to patrol and I hate patrol. I've got myself in a good situation, paid off all of my cars, no other debt and my checks are going towards our modest house and basic living expenses. The rest has been going towards my wife's schooling. My wife will soon graduate as a registered nurse which she says is what she wants to do for work. When she is done I am going to take the risk and make a career change. I'd rather do that than be miserable working a job I cant stand and making a horrible wage. Some times you have to take a risk over playing it safe.
What career path are you considering? Have you looked into how automation-proof it is or isn't?
sounds like you should be able to make a lot of savings and investing. before you make your move try to save up a good rainy day fund. don't just jump out plan your jump ahead of time quitting without a plan is more not being smart then anything. good thing is nurses make alot of money so you'll be able to save and invest and make the career change easy and with no debt you'll be set with the extra income.. just think your living debt free at 47k if she makes another 60k. and you stay living around 50k for awhile you'll be loaded in no time.
Go to night school and begin your goal now. Are there no advancement opportunities? Really research the career part because many starting salaries listed online are fabricated.
Not to mention that it's a high risk job being a c-op. Good luck in your carreer change!
I'm personally using *4NetJobs. Com* and it makes me around $400 per day. You can actually Sign Up for there. Thank me later. All you need in this life is ignorance and confidence; then success is sure.
This is awesome 👏🏽
Caller is a young guy, this call saved him from the mistakes that I've made. Only the house wins in gambling. In a young man's head everything is perfect, he only considered the money he makes when he WINS. They always think about the best case scenario. But when you LOSE your money AND still have debt, that is when it all comes down on you. If you are debt free, at least you go back to $0 when you lose, not negative. NEVER gamble with borrowed money.
130K at 25? fk me
Jack is not in the box choose wisely. Career is just a choice
I read elsewhere he's working 80 hours a week, too, though. So, basically two $65k a year jobs. When I put it that way, not so great for how badly he's killing himself, is it? I'm all for making money and saving up, but there's not much on this Earth that's worth the stress and toll 80 hours of hard work a week is.
DerekSiems It’s better to make 6 figures while working overtime than to make base salary and not build up yourself financially. Later in life you can taper off your work load because you’ve earned that right!
@@ShadaeMastersAstrology The key is to work smarter, not harder. Make 6-figures by being efficient and going into a lucrative career path or at least strike a balance and cap it to 50 hrs. a week. 80 is just going to make you miss out on years of your life and probably put you in the hospital due to stress. Ask any 60 year old millionaire and they all say they wish they would've enjoyed their youth more instead of trying to chase money they can't bring with them. By all means don't be stupid and drive yourself into debt on nonsense, but still leave time to live your life before you're too old to enjoy it.
@Geoff Graham Did you not read the first half of my comment? We're talking about people working 80 hours a week. You can't have a good quality of life working that much, period. Also, I personally count myself as one of the few that strikes a good balance of good income without working my life away.
I’d agree entirely with Dave. I was sooooo that guy 10 years ago (I’m 35)...math makes sense, he should be correct. But ahh how wisdom helps. Like seriously man, if you read this...if feel stupid and carry to take the money and get rid of the debt until the second you do it and then your pay check rolls I. And it’s yours...then you realize how little you are truly losing out by missing a few years of investing, honestly. It’ll be built back soooo fast! PLUS the risk thing. Kids, negative. Hangers in income, sickness, injury whatever...a lot ca; and usually does at some point come up and with debt, you’ll be squeezed, without debt you wont be. I speak as a once 25 year old with a lot of debt and very unforeseen life circumstances that led to years of difficulty paying back all I owed with a lower income. You are miles ahead already just having anything saved and owning a successful business. You’ll be in a whole other place in 5 years.
Tammy Sellar appreciate this comment ! from a 23yr old
I’m shocked anyone could read that with all the awful typos, I’m the worst.
like he said the main thing is to focus cuz if you want to keep living your life spending like normal and pay debt slowly of course that's not going to get you the best returns but if you put one priority in mind things are simpler and you can make sure you get it done and save more at the end
Thank you
The sentence that stood out to me in this conversation is when Dave said “don’t try to do 6 things at once poorly”.
Makes sense the 7 step program tackling one obstacle at a time.
Napoleon said it best when attacking enemies “divide and conquer” focus on one enemy at a time
This is pretty ridiculous. Don’t look at/worry about expense ratios? This is clearly just plugging his own system of advisers who sell their own mutual funds. Also, investing excess capital instead of paying down low interest debt is mathematically correct. I understand the need for a cookie cutter system for some people, but if you’re going to talk for hours on the radio for years, at least bring a bit of nuance into it.
iL1keTurtlesPoker Stop making $hit up! You’re broke, get over the fact that his system works if you just stop being a d!ckhead and put what he’s saying into action.
Completely agree.
That's a tough one. I think Dave HAS to stick to the suggesting plan that he has seen help the most people - including the lowest common denominator of financially competent folks.
You're exagerating his exageration. Expense ratios count, but what he is saying is that people who obsess over their expense ratios vs. finding high return mutual funds and being consistent are silly. I use an advisor I found through his ELP program. You are not forced to buy load funds or anything, though I've measured the money I've invested vs my balance in the account and have made enough in a return that it doesn't bother me. Dave's overwhelming point, in context, is don't get paralysis of analysis about something like an expense ratios and have it affect you consistently investing. Thats it.
It works for his audience, but not necessarily for everybody. Few people can get higher return on investment than loan rate, because it requires having an excellent credit score and discretionary income. Does that sound like the average caller on his show? No.
Dave is the guy you need if you're in the hole financially, but if you have been responsible and smart, there are better advisors out there.
Glad I found this old video
Compound interest!!! He’s doing it right
I have heard many millionaires state that they made their first million by borrowing. Most recent case was someone at 19 who borrowed $5,000 to use as a down payment on a mortgage (there is a loophole where if you live in the house for 12 months you can make a ~1.9% down payment), he proceeded to work on the house himself over that 12 months, rent for 12, then sell with a 12% cap rate (6% is considered decent). From there he got big into real estate and made his millions.
Sure you have
@@dpeagles You have never heard the business trope of using other people's money to build your fortune? It is not a new concept.
I think what’s happening in the world today shows why paying off debt is more important than investing while in debt.
Mathematically this doesn't even make sense. Calculate how much money your interest rate steals from your gains long term, and suddenly you'll understand the opportunity cost of holding onto debt.
Excellent
Robert from rich dad poor dad is a billionaire. He loves debt, curious what is your take on that.
Debt is only good when it is being used as leverage to make a positive ROI. They actually teach you in finance that companies should include debt in their capital structure as it reduces their weighted average cost of capital through tax shields. Similarly, for people, if you take say a 50k credit line to invest in a house and you receive rent which covers cost of debt and then some, plus the appreciation in property, that 50k debt was a brilliant idea.
Ya the majority of his listeners use debt for stupid things; his message needs to be universally applicable
This might make sense considering the rate of return for the average investor over the average holding period. A great investor should follow a better strategy, but I guess most of this show's audience members are not in that category. Neither am I for that matter, but it seems to me one way to solve the issue would be to become a good investor after years of effort and study. Not saying it's easy, but it's doable and surely more profitable in the long term. Just putting it out there...
Once I saw the headset pad offset on top of his head, I was not able to unsee it.
People listen to this man I know it’s hard but he changed my life for the good I have no debt and I get to keep the money I make thank you Dave
Debt is GOOD if used properly.
Just started listening to Dave, and while I agree on most of his views, telling the caller to quit investing wasn't the best advice, considering compounding dividends earlier than later is one of the key elements in building wealth.
If he pays off his debt , he now has more money to invest , hes young and will catch up fast . Specially since he has a decent income.
Alphahydro and yet you’re broke...making sense yet or do you want to argue the point still?
@@user-cv3gd2wr5q but you're not?
Thank you daddy Dave
I guess i'm a one off.. but i bought 15,000 shares in AMD back in 2014 for about $1.87and sold them all a few months ago for $83 a share.
Also answered mine. Thanks Dave, I was almost thing of doing the same. Glad this came up on my feed.
This guy is on the right track and has been making smart decisions. He should continue to invest in the 401K while simultaneously paying the debt off because the return is better and he's not likely to incur any more bad debt. Dave's logic is for people who CANNOT get out of debt, it's not the right answer for everyone.
100% agree with you
Dang. What a breath of fresh air.
Go NIO, TRCH, GSAT, and GEVO!
See this is what I was looking for. I'm in a similar situation, in Cyber Security my wife and I bring home a little more than 200k at 25. We've got a house, we've both got pretty nice cars, and I throw a LOT of money into investments. I don't pay off any debt at all because our credit scores are so high, we get some fairly low rates on everything. People in the comments act like this guy's bragging but hes not bragging, he's just like other young people making good money who don't know what to do with it. If I pay off my home, I only have a home now worth the value of that home. But if I made a large investment into a potentially successful stock, I've got much more. Dave Ramsey's advice is based off risk, and its good advice. You COULD make a ton of money off investments, but you will FOR SURE have a paid off house. So what's worth more to you?
He provides good advice for a majority of people, but if you want to have optimal wealth accumulation in your life, his methods are not correct. The problem is that most people can't and don't think in terms of 30-40 years into the future, which is why he doesn't like debt nor treat it as an instrument that when used correctly can have immense benefits. It's like saying computers are bad for you because you sit down while at them, instead of looking at the positives that come from them.
The thing is, he is not talking to people like us. He is talking to people who are really stupid with their money and don't really understand investing, interest rates, and all the other finance words. Plus, they don't really make enough money to pay their bills and then go on to invest. For people who know their way around money and make a lot more than what they pay in monthly bills, it is always better to invest than to pay off debts with low interest rates like mortgage and car loans. Investing in simple low cost index fund will guarantee a higher return than mortgage and car loan interest over a 20-30 year period. The only thing to look out for is to live below your means and using credit card responsibly to build up credit and get reward points.
Dave also doesn't seem to understand the concept of compound interest and time value of money.
@@rabiulchowdhury2170 I agree. For those who don't know finance his suggestions are better than most other alternatives, but not the best route to success.
Brandon Stevens Rabiul Chowdhury the problem is your assumption that you will have that job and income. Many people had that same assumption and the gfc wiped out a lot of people and many people lost their homes. Dave’s advice is really about being safe and cautious and eliminating risk where you can control it. Now the good thing at a young age is you have time to rebuild wealth especially if you don’t have kids.
@@rabiulchowdhury2170 What about now? Stock market is in free fall. My house is payed off though so I'm good. When it bottoms out I'll dump another 12% on top of the 21% I am doing now and max it out.
I am in my 20s and I have been reading and researching about this topic. I have to say I disagree and I think using all your resources to pay off student debt does not seem logical to me. If someone has $60,000 in student debt and live a life that allows them to save/pay 10-20% of their salary it would take them 5-10 years not counting interest gained. So let's call it 8 years. If you graduate at 22 that means you will have payed off your loans at 30 with absolutely no savings for retirement... leaving you only 38 years to work. Currently if you were to retire at 68 and live 20 years you would need on average about 40k a year so in total you would need 800k for retirement. Prices roughly double every 20 years due to inflation. So when millenials like me retire in 40 years we will need roughy 3.2 million to retire. If someone starts saving as late as 30 they would need to make monthly contributions of $1500 with an average 7% return to hit the retirement goal, which for most people is unrealistic. If someone doesn't start investing until 30 they also miss out 8 years of investing experience. Lastly the money someone invests in their 20s will work for them earning money for 40+ years. $1000 in 40 years is worth roughly $15,000. I am not saying dont pay off student debt but from what I have read is that these years are so incredibly valuable for really building wealth later in life. Pay off the student debt more in your 30s when you can make significant payments (hopefully fully into your career) and your investments are not as valuable since time is not on your side seems like the logical thing to do. What do you guys think?
Your reasoning is sound. I'm in my 40s and I wish I saved & invested more aggressively in my 20s. Time is on your side. If you spend any time fooling around w/an investment calculator, you will quickly learn most of the gains if you invest for a long time when you reach retirement are from interest not contributions. The later you start, it turns out to be the reverse.
Yep. I'm 30 and around 25 I opened a Roth; before I was just using a 3% match from my employer into a 401K to fund my retirement. For about 1.5 years after opening I was only contributing about $100/month because I wanted to use all my extra money for student loans. Then I broke out the excel sheets and realized that what I save in interest from paying off my student loans early was NOTHING compared to what that money would become by age 60 in a retirement account with just average returns. I immediately stopped paying extra on my loans and focused on maxing out the Roth. It sucks emotionally, because I *really* just wanted to be done with the student loans, but the math was irrefutable and I've very disciplined. The less money you have the more you have to optimize your strategy to make sure it's doing the most it possibly can for you. Stopping retirement contributions in your 20s will cost you tens (if not 100s) of thousands in retirement.
Another reason that Dave never mentions is that paying off debt is better because debt limits your options, keeping you from taking advantage of opportunities as they come along.
People need to understand the concept of leverage.
Sometimes the worst thing you can do is listen to Dave Ramsey lol you can tell dave gets uncomfortable when a guy like this comes along with a better plan and shows dave how he is wrong.
Dave has a a lot of good points, but i disagree on dave calling his investment “stupid.” Especially considering how much the guy is making and how he was able to pay off debts with investments.
You realize he’s investing in stocks right not some magic 401k where his contributions are matched. He is risking losing this investment, he needs this money and the debt paid off he doesn’t need to invest
Dave’s plan takes you to prosperity it’s just a slower more boring way but it works
@@jarrettpierce5626 mathematically paying the 401k seems like the highest return. Daves plan here seems like it is focused on getting debt free sooner and not in actually having the highest yield.
@@OutdoorBlues You realize a 401K invests in stocks too right?
From what I can gather (although I agree Dave seems like he is oversimplifying here a bit) his guiding principle is that debt is a liability. Even if you are "making money" off of your debt by having a better interest rate. When things go wrong, debt is unstable. Only when things are going perfectly can you pull off the balancing act of keeping your debt from hurting you the way it's intended to. Plus, if there is anything the average american knows about personal finance, it's that something always goes wrong. That's my take
Yup! Something unexpected can and always will come up and you have to be balanced and able to withstand the blow. It’s easy to say paying off a low interest debt in a booming market makes no sense until the market crashes, your investments tank during the short term and the crash is enough for you to lose your job... Dave’s advice always has a bit of psychology to it that people rarely touch on. It FEELS better to have low or zero debt, and it motivates you to both save more and invest more instead of spending it on frivolous items. The motivation post-debt exponential accelerates your financial success and makes up for any “loses”. I love the old adage “$5,000 is a lot of money to owe, but not a lot of money to have.”
The issue is, your emergency fund is what is supposed to mitigate any short-term risks incase you lose a job.
The only situation where I see growth not occurring is if a major war or armageddon breaks out. That could easily destroy everything though and finances are the least of the worry.
Debt *IS* risk, but so is life. The goal _should_ be to minimize risk while maximizing gain, but all DR says is to minimize risk.
If you have a good income, you should have a good amount of cash, and invest the rest. Don’t pay off the mortgage early.
Even if things “go wrong”, if you are skilled in what you do are good in your field, then you should be able to find another job within the month…
Dave’s worst advice is paying off the mortgage early. If you make no money, then it makes sense. If you do well, you are potentially losing hundreds of thousands of dollars. You may even get a free house out of it…
I get that Dave wants to talk to the lowest common denominator. But he should be more nuanced on this topic. He literally advocates for EVERYONE to lose out on significant sums of money.
I couldn't disagree more, if your loan is 4%, invest as much as you can in your 401k and pay off the loan as slowly as possible. Its better to average 7% on your money, which will continue to compound after your loans been payed off. The nice thing about paying off debt is its a forced investment of 4%.
I don't agree with Dave on everything but I do on this. People NEVER factor in risk when suggesting these things. Yeah in theory you can make more on your debt than investing but what if you lose your income? What if the market underperforms? There are no guarantees in life. What is guaranteed is that you will owe what ever percentage of interest you have to pay on your loans. This is guaranteed. So invest in a guaranteed return so to speak by paying it off. You 100% will reduce the negative interest that is costing you by paying it off. There is always more than one approach but this is the most conservative approach to financial freedom.
Why does he have to stop investing to get that debt paid off. He makes great money and can do both.
Anton Zuykov Thr point is he makes enough to pay this debt quickly and still invest. He doesn’t need to stop investing.
I would say he should at least contribute to the 401k to take advantage of employer matching contributions.
Yes not doing that would be leaving money on the table.
listen to the clip. all of you. and read Tammy Sellar comment below
Anton Zuykov More risk doesn't necessarily (not even usually) mean more reward. That's a common fallacy that people use to justify poor judgements and bad behavior.
Example: playing a game of poker and going into the last round of betting with only a pair of 2's is a huge risk. Taking the risk raising the bet by 10% offers no more of a reward than if you went into that same round with a straight and raised the bet 10%.
In the end, the reward is the same for both hands, but the levels of risk are vastly different. It's totally unjustified to say larger risks being more reward... it's simply not true.
I think id rather have a home payed off then invest. What happeneds to your house if you cant pay due to some circumstance
Take it in context. A paid off home still has property tax and insurance due on it, so you will always have some form of home expense to pay. Also consider Dave recommends investing 15% to take advantage of the time value of money and compound interest while you pay off your home. If you invested $500 a month at 15 years making 6% compounding annually, which is a very low projection, the interest will be an extra $50K in your account while you have a paid off home if you did a 15 year note. Then you can invest even more.
You have an emergency fund that is used to mitigate any short term risk. Problem solved, you get the increased growth in money from the market, with no real risk because your expenses are covered for the next 6-12 months
Use the investments...
You can always use your investment money, which is why it is better to invest than pay off the house early
Economics is a science that involves not just math and money but also psychology and incentives. So making the numbers work is just part of it (a large part admittedly), but understanding what you want and how much risk you're willing to tolerate is entirely personal. Uncertainty about what your investment returns will be over 3-7 years (even if you project them to be higher than interest on your loans) may not be as important to you as knowing that you don't owe anyone money, and that you minimize opportunity costs so that you can do what you want with your income.
No dept means if you break a ankle or what ever and cannot work for months there’s no one knocking on the door ,
No dept means more cash to invest ,
Borrowing money to invest at a higher interest rate has a name, it's called the banking industry. Sure it involves risk, and isn't for everyone, but the math is simple, and at interest rates below 4% the long term value is clear, leveraged debt and compounding are massively superior to debt free investing, that said it comes at a price, in the form of risk, and the average person is bad at risk management, so this strategy is not advisable for those who have had bad money habits in their life.
On the final point of expense ratios, maybe dave is interviewing the wrong millionaires, because once you hit the first million, the expense ratio has a lot to do with how fast you hit the second one. .2% on a million is 2k/year, you really gonna tell me all things being equal 2k/year is immaterial?
This is NOT a stupid question. Using Dave’s numbers, if you can make 12% investing cash or 3% paying off your loan, why wouldn’t you invest it instead of paying off the house? In fact, Dave’s answer isn’t really concrete at all. I’m 100% a Dave Ramsey fan, but sometimes he seems to provide unsubstantiated answers that completely ignore the calculator, which is ironic, because all financial problems apparently exist “because you didn’t use 6th grade math.” Also, 2017 study showed that the average millionaire in America has 9 open credit accounts. But I guess that’s fake news? Just be honest, Dave.
You are 100% correct. Dave's problem is he has a one-size fits all regimen for everyone, regardless of financial position and knowledge. At the very least the caller needs to be maxing out his tax advantaged accounts. The difference in tax-free compounding over years can be astronomical.
I completely disagree with Dave on this. He asked the 35 year old question and then asked is that logical? But didnt back up that question with any real logic. Why not break down the math.
I will do that math for you, take 100k, you make 10 percent on stock market, 100k loans at 4 percent, so tax .25 taxes.
so 10 percent -.25 that 6.5 - 4, so that is a extra 2.5 percent, and that works if stock go up 10 percent but what it goes does. that think you have to remember. and that is the risk .
Obviously if you make more on investing than the cost of debt you are better off investing... but Dave is factoring in that this guy is a reckless spender and needs some control. Also, he could lose money on his investing going forward whereas his debt expense is fixed until it's eliminated.
because it's more stable financially to invest after paying off the house. you pay off the house first because finances are just like a house. you need a good foundation, then you put up strong walls, then you put on a solid roof. any other way it collapses. Dave thinks long term, most others think short term
Dave’s point is that you need to have all of the other ducks in a row before you really start investing because you are taking a huge risk not having this debt paid off. Not even just that the stock market goes down and you lose your job with no assets, but also personal risk without having finished an emergency fund. It’s better to be debt free first especially with seizable assets. Afterwards you can confidently invest with no worries and a backup plan Incase something goes south.
Dave Ramsey made his money years ago. Interest rates over the years have gone down and property have values have gone up. Using your capital to pay down principal instead of buying more property is probably not as effective these days. Is it still worthwhile to pay down principal at such low rates? I would love to discuss the topic with him.
I don't always agree with everything this guy says, and when he initially made his statement I didn't agree again. If you look at this as a math problem you have to assume some variables are constant to make the math work. But this is life and when you make assumptions they can often bite you in the rear. in a mathematical sense Dave is wrong, but in a real life situations he is correct. I'll explain, one of the assumptions you make for this math problem to work out is that this guy will be making 130k constantly every year. Half of his income is from a small business which can be very volatile, and the other half is an entry level tech job if I recall correctly. So which would you rather be in the very possible scenario I'm about to purpose. Debt free with a smaller 401k when you think your business is doing well enough to quit your day job, and then your business goes under, or a very healthy retirement fund at 25 years old with debt and monthly bills now with no income, and desperate for a new job. Being debt free is not without value in itself. It gives a certain amount of freedom that has very real value. Often what holds people back is that they feel they don't have options. When you are debt free you have a much bigger playground to make choices that won't put your life, and your family's life in chaos.
Kudos on this one. Good question, and my initial reaction was wrong. There is some real wisdom in this.
You are completely right. Being debt free gives you more freedom to make mistakes or switch careers.
Financially free > debt free. You can be debt free and still need a job. Even if I pay off my house I still have property taxes, insurance, home maintenance, still need to eat, etc. If you are financially free with passive income exceeding your expenses, you don’t. Focus on the latter is my advice...
I say this as one who used to be firmly in the debt free camp. I totally understand the draw there. I now see leverage as a key wealth building tool to get me to financial freedom.
Paying off a low interest rate debt instead of investing in a higher ROI % doesnt make sense.
And then the market krash. You lost 30/40% on your investement but your debt is still the same.
Yeah, that's one thing I disagree with Dave on. There is such a thing as good debt. That's debt you can use to leverage more returns. However, most people aren't financially educated enough and overextend themselves (Like Dave did early in his life) or start borrowing WAY more than their income can support.
His advice is generally good I think though.
John if you have experience investing and invest in solid quality companies this will never happen. For someone marking 130k he shouldn’t have a prob paying off debt. He should be making minimum payments to his loan and writing off interest during taxes.
Loose your job or get into a life changing accident and you can’t continue the rat race by only making minimum debt payments
John Does hold and it will go back up just like 2008 he is 25 invest now cash out at 40
Paying debt might seem like a bit less money saved than ideal returns but as Ramsey says the risk is minimal. In addition to that savings are TAX FREE :). In my case we pay about 30 % in taxes, so savings is worth a lot more than earnings. 70 c in savings = 1 dollar in earnings. I can also invest more and more since the risk to my personal finances are minimal with an emergency fund and minimal - zero debt. It's also not just debt. If you have older appliances it's very possible that the savings from replacing them is a better investment and at no risk. Upgrading your home in general, when thought through, can be a great place to invest. The returns may look smaller, but you get a near guaranteed perpetual economic advantage that you don't need to pay taxes on.
I’d like to do a show with you. I have a bachelors degree in nursing and now I am working sales. This month I should be at around 80,000 plus a small 1-5k in additional income. I have been in debt since I got out of school and I’m tired of it man. I’m a good lookin guy with a good work ethic and I like to think I am smart but, unfortunately, debt stupid! I think I would make a great show when I succeed and help out your channel, which I love. I’ve read your audio books and I try to follow some of the advice but I would definitely benefit from a little added attention. Let me know man!
Delaying 401k contributions to focus on an irrelevant debt. We can't make time.
You can always make more money, but you can't make time.
I agree that he should pay down his debt. I disagree that he should completely stop his 401k; he should *at the very least* contribute the company match.
Mo Gumede sometimes you just have to do the math. How much interest does the debt cost and how much will the company match. If the company match exceeds the interest, do the contribution. If not, pay off the debt and then the following year with the debt paid off you can contribute.