Dave Ramsey ELP

[moonlightandmargaritas]

A larger bank account gives you flexibility. A paid off house does not.

Cash is king. Liquidity is important. Ask anybody who can't refinance their house cuz it's underwater...

 

[SalemInsuranceGuy]

Playing devil's advocate...if you or your spouse lost your job, would you be better off with having a paid for house or a larger bank account? With the paid for house, your monthly expenses are lower so your smaller bank account would last longer. If you have a larger bank account and a house payment, your larger bank account would last a shorter period of time due to making house payments.

Personally, I would rather have the paid off debt.

Let's compare apples to apples.

Assumptions: House worth 300k. Dave's emergency fund 10k in the bank. You and your spouse both lost their jobs.

Situation #1: Dave's way. House paid off and worth 300k but can't tap equity. No debts. Only expenses are food, utilities, and taxes. 10k in the bank. You'll probably do fine. They can't repo anything because you own it. 10k with little expenses would last a while to find a job. If not you start delivering pizzas and can still survive.

Situation #2: The other way. House fully mortgaged for 300k. Property taxes, insurance, mortgage payment etc. 2k a month in payments. All other debts paid off. Only expenses same as above, food, utilities and taxes. 10k in the bank for an emergency fund. Another 300k in the bank that you saved instead of paying off the house. 2k a month in payments with 300k principle gives you 150 months or 12.5 years worth of mortgage payments before you need to find a job. Should be able to find a job within that time frame or use part of the 300k to start a business.

I think in both situations you would be fine. It's more of a personal choice. Again this is assuming all other debts are paid off in both scenarios.

 

[somarco]

Scotttrade sets me up a cot in the back

The night cleaning crew doesn't object?

The only way to get money out of your home is to sell it or refinance. Selling is possible if the price is right and you have plenty of time to wait it out. Refinancing isn't always a possibility, especially if you are out of work and no way to pay it back to the lender.

I can sell stocks and still have a place to live. I can't refinance them.

Not saying debt free is wrong, but for most folks it is a pipe dream.

Debt free and $0 in the bank is not good. Nor is debt free and even $10k in the bank . . . unless you only take home $1500 a month. Even then you will need to something before the account runs dry.

Given Allen's scenario above, I would rather have the $300k in the bank than in my house.

Just my preference.

 

[xrac]

The night cleaning crew doesn't object?

The only way to get money out of your home is to sell it or refinance. Selling is possible if the price is right and you have plenty of time to wait it out. Refinancing isn't always a possibility, especially if you are out of work and no way to pay it back to the lender.

I can sell stocks and still have a place to live. I can't refinance them.

Not saying debt free is wrong, but for most folks it is a pipe dream.

Debt free and $0 in the bank is not good. Nor is debt free and even $10k in the bank . . . unless you only take home $1500 a month. Even then you will need to something before the account runs dry.

Given Allen's scenario above, I would rather have the $300k in the bank than in my house.

Just my preference.

Me too!

 

[Freddie]

When Dave Ramsey is talking about mutual fund returns averaging 10% or 12% I wish someone could broadcast this headline:

"The news that the Standard & Poor's 500 stock index returned just 0.06% a year for the 10 years ended June 30 has spurred talk about a "lost decade" for large-cap stocks and has sent financial advisers scrambling to find alternative investment strategies."

Large-cap doldrums drive alternative investment quest - InvestmentNews

Ramsey on the whole is good. He and others on the radio like Rick Edelman and the guy on Saturday nationwide who always talks about the Fed (bore). They all drink the Money and Samrt Money koolaide about pushing mutual funds. The biggest advertisers in those publications are mutual funds.

Suze ORman is a another one but she likes annuities because she is probably getting money from some company.

 

[briko3]

I agree that I would rather have $300,000 in the bank, but if you think that one of your clients is going to take out an interest free loan and put what they would have paid in to savings, you're pretty naive. That's like actually believing that people will buy term and save the difference...hahahahaha!!!

 

[SalemInsuranceGuy]

Now I also realize a lot of people want to keep the mortgage for the tax write off on the loan interest.

Dave did say something that made me think about this one though. He said let's assume you pay $10,000 in loan interest to the mortgage company and you're in a 30% tax bracket. So you're paying the bank $10,000 so you can get $3,000 back from the government. That's bad math.

I know it's a simplistic look at it but he does have a point. The answer of course is to not just have the money sitting there and not working. If you can put the money to work making a higher rate of return than your loan interest, plus get the $3,000 tax write off on top of that, then the math works out great.

The other thing he did say though was something you can't calculate financially is once you become debt free you start to look at things differently. You start to see the world in a different light and are able to take business risks you would have never thought about if you still were in debt. Even if you had enough cash to pay all the debt off. I think he does have a point there too.

Again I don't think there is a right or wrong way. I think it's personal preference. Some people prefer to keep debt in order to leverage their money and are comfortable with that. As long as you realize debt and leverage is a double edge sword that can compound gains and losses I think it's ok.

Others feel more comfortable knowing they actually own everything, with no bank or loan company ever being able to take that away from them. To them peace of mind is more important than putting an idle asset to work for them.
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I would rather have the $300k in the bank than in my house.

Just my preference.

Given today's banking economic climate we better say I'd rather have that in 3 separate banks for the $100,000 of FDIC protection. Although it was raised to $250,000 at least until the end of this year wasn't it? So at least 2 banks, and preferably 3.

 

[somarco]

Given today's banking economic climate we better say I'd rather have that in 3 separate banks for the $100,000 of FDIC protection. Although it was raised to $250,000 at least until the end of this year wasn't it? So at least 2 banks, and preferably 3.

Or maybe 3 different mattresses . . .

 

[jbage007]

Caveat Emptor:
Someone would be nuts even to consider taking financial advice from a guy who's gone bankrupt.

End of story.

Ramsey = shameless, self-promoting, formerly bankrupt, know-nothing guy with a horrible accent that makes him sound like a damn hillbilly from Tennessee

 

[briko3]

Hey...don't lump all of us southerners together We can't help our accents. (most of the other stuff is pretty spot on though )