The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: RookieStache on May 22, 2018, 08:45:36 AM
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After diving into personal finance 2 years ago (always been interested but not like I am now) I have read multiple books, listened to different podcasts, joined forums etc. to gain a broad perspective of how each entity operates.
I appreciate what DR does but his plan is built to help those that are terrible with money and that's it. His following is such a cult that they ignore reason and logic.
I almost got kicked out of the group because I told them that you shouldn't stop funding your retirement to pay off $12,000 car loan with 0% interest for 3 more years.
Then, someone stated that have 8 loans with 5 being under $380. The following conversation ensued between me and the other members:
ME: What are the interest rates on all of your debts? Especially interested in the interest rates of the 5 that are under $380.
Michael: Interest rates don’t matter....
ME: I'm not allowed to ask the question?
Michael: You can, but the answer doesn’t change what she needs to do.
ME: If one of her debts is at $280 with a 0% interest rate and the next is at $330 with a 17% interest rate, I would personally pay off the $330 debt first.
John: Remember this is the Official Dave Group....this is not what Dave advocates. Pay off the lowest first, regardless of interest rate.
I'm at a loss for words. I'm not sure why I let it get to me but this forum has helped me a great deal and I'd like to help others but they just won't listen to anything that doesn't come from DR's mouth...
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Yep, I still listen sometimes for entertainment.
A few months ago I was listening and a guy called in. Basic facts:
Single and early 30s.
Income about 60K.
Owns home that is worth 120K. Loves the home and sees himself being there for many years. Mortgage balance about 80K.
Investments of about 40K (not in retirement accounts).
No other other investments (no 401k).
Man recently came into a windfall of about 40K and asks DV if he should pay off the mortgage (use investments and windfall).
DV told him to do it! Didn't ask the guy about workplace retirement accounts. No mention of doing an IRA now. Nothing about minimizing tax bill now by utilizing those options if he had them. I was stunned, even considering DV's extreme view about killing debt. At the very least he should have told the caller to max out an IRA immediately. Messed up.
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Every group has its dogmas. Stay around here long enough and you'll find it here too. Face punches and "that's not mustachian" happen all the time. Situations differ and what works for some doesn't always fit the formula.
As an example I live in a very HCOL area and invest largely in individual stocks. But I gain value from the ideas here. I don't follow everything that others do and that's OK.
It's been shown over time that people do better paying things off lower balance first so they get the quick feeling of progress that spurs them on.
It may not be optimal from a financial perspective but it may be optimal in a behavioral perspective.
Remember that personal finance is more than hard numbers. It's people and emotions even more. Are you familiar with work on behavioral finance?
I think DR does good work. But at some point you outgrow his advice. Seems like that's happened to you.
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ME: If one of her debts is at $280 with a 0% interest rate and the next is at $330 with a 17% interest rate, I would personally pay off the $330 debt first.
Obviously, paying 0% interest is better than paying 17% interest. But consider that she will only have this hypothetical $330 loan for 5 more months, at the most. The $14 in interest she will pay over that time just really doesn't matter.
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There was an MMM group on facebook that I pissed off royally because I told them that was tempted to report each of the 10+ people who were asking if they could do something that was outright tax fraud to the IRS. I left the group not long after. I won't be a party to fraud. And there were a ton of idiots.
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ME: If one of her debts is at $280 with a 0% interest rate and the next is at $330 with a 17% interest rate, I would personally pay off the $330 debt first.
Obviously, paying 0% interest is better than paying 17% interest. But consider that she will only have this hypothetical $330 loan for 5 more months, at the most. The $14 in interest she will pay over that time just really doesn't matter.
But if you expand this hypothetical to $38,000 with 17% interest and $28,000 with 0%, the plan still states to knock down the lowest first. I would assume this is not something you agree with.
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I certainly think DR has his place for a large swath of the populace that is otherwise clueless and in massive debt. It's certainly better than nothing, and can be a good start. Hell, I can think of a dozen people at least (my mother included) who would greatly benefit from following the DR approach to finances, because it is such a vast improvement over their current (non) approach. But, yes, the math doesn't always make sense. I have a friend who is very pro DR and I keep trying to nudge her to think about the math just a little bit more, because I think she could understand it if she was willing. I'm thankful to have moved beyond it at this point!
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ME: If one of her debts is at $280 with a 0% interest rate and the next is at $330 with a 17% interest rate, I would personally pay off the $330 debt first.
Obviously, paying 0% interest is better than paying 17% interest. But consider that she will only have this hypothetical $330 loan for 5 more months, at the most. The $14 in interest she will pay over that time just really doesn't matter.
But if you expand this hypothetical to $38,000 with 17% interest and $28,000 with 0%, the plan still states to knock down the lowest first. I would assume this is not something you agree with.
The original condition was 5 loans under $380. Under this condition I wouldn't feel the need to jump into a facebook discussion to correct them on the optimal strategy.
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ME: If one of her debts is at $280 with a 0% interest rate and the next is at $330 with a 17% interest rate, I would personally pay off the $330 debt first.
Obviously, paying 0% interest is better than paying 17% interest. But consider that she will only have this hypothetical $330 loan for 5 more months, at the most. The $14 in interest she will pay over that time just really doesn't matter.
But if you expand this hypothetical to $38,000 with 17% interest and $28,000 with 0%, the plan still states to knock down the lowest first. I would assume this is not something you agree with.
The original condition was 5 loans under $380. Under this condition I wouldn't feel the need to jump into a facebook discussion to correct them on the optimal strategy.
The concept remains the same no matter what the numbers are.
I believe in what Dave is doing, he helps a great deal of people better understand finances and helps guide them out of trouble. It just baffles me that his followers won't even listen to the other side of the coin on certain aspects of his plan.
I used to think that a paying extra on a 15 year mortgage was a "smart" financial move. After being here and Boggleheads for over a year, I have learned that this is not the case. Instead of rejecting others viewpoints explaining why a 30 year fixed and investing the difference was the way to go, I embraced their viewpoint and eventually decided I should change my process.
I'm not stating that it's a bad thing to make an emotional decision by paying off your mortgage quickly or by cutting up all credit cards... I'm simply saying that I don't understand why people aren't willing to hear someone else's viewpoint on why they do things because it might end up saving them hundreds of thousand of dollars.
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Compare DR to a kid learning to ride a bike. He's the training wheels. MMM is what happens when the training wheels come off. Whee! Look, ma, no hands!
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Unless he has changed in the last 5 years (don't listen anymore) Dave would actually be okay with moving those debts out of order. Many times I've heard him give his blessing to moving things around if the debt amount was close. Folks might do this for mathematical (interest rate, getting right side up and selling a car) or emotional reason (owning their car means more than paying off a hospital bill).
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Most people need simple rules to follow and aren't critical thinkers (
this explains the success of religion). They also need psychological encouragement even if it's not optimal -- the snowball method gives them that. That's why the Dave Ramsey method is so successful. It's hard to argue with success.
For the minority who are more analytical and disciplined, obviously there is a better way.
MOD NOTE: Please don't broadly generalize and insult large groups of people because you disagree with them.
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Most people need simple rules to follow and aren't critical thinkers (this explains the success of religion). They also need psychological encouragement even if it's not optimal -- the snowball method gives them that. That's why the Dave Ramsey method is so successful. It's hard to argue with success.
For the minority who are more analytical and disciplined, obviously there is a better way.
I have offered to pay for DR courses for two of my brothers, but neither accepts. Trust me, his way is better than no way. I don't even try to explain the MMM way to my brothers anymore. They just have their heads in the sand about their finances and think nothing can help them.
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Over the weekend my SIL asked me two questions: "What do you really need a good credit score for?" and "What happens if you stop paying your credit card bills?" (Spoiler alert, she already stopped paying her credit card bills.)
There's a place for 101-level resources like DR.
I might actually talk to her mom about giving her Financial Peace University for Christmas...
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Yup. Dave's plan is often not mathematically optimal, it is optimized for success... that tends to hurt mustachian brains. Regarding the "which debt to pay first" thing, as another poster mentioned, when debts are "close in value" Dave tells callers to pay the higher interest first. The close in value thing is a bit up for interpretation.
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I don't think it's beneficial to try and beat up on or outsmart others who are working to improve themselves. You wouldn't walk up to an overweight person at the gym and mock their treadmill speed, and you shouldn't try and belittle someone's simplistic approach to fixing what is a likely a financial mess.
My wife and I took Financial Peace a few years ago before we got married and it helped us both. She was very unsure of where to start building a financial life. Meanwhile, I was dyed in the wool with MMM and couldn't understand why she was having trouble. Dave's course helped us both get on the same page and figure out an easy way of organizing and communicating about money. We are much wealthier now than we thought we'd ever be in a just a few years' time.
I think it's also important to understand that daily listeners and those who have found success with his programs develop a fanaticism (much like I have with MMM). It's like walking into a bar full of Phillies fans and trying to convince them that their team is mediocre based on league statistics over the lifetime of the team. You may be right, but you're not changing any minds.
If the group is such a bother, then leave. No use standing around shouting about how right you are.
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@Kott308 if it's not too much of a thread derail, I'd actually be interested in learning more about your experience doing Financial Peace as a couple, especially where one of you is a lot more dialed into finances than the other. Unlike the SIL, my SO is okay with money (no consumer debt, hand-me-down car, saves some for retirement, moderate student loans which he pays more than the minimum on), and has grown to appreciate some of my MMM tendencies (e.g., he was bragging about how much money we save by almost never eating out) but I feel like we have very different approaches and levels of engagement with personal finance. "Unsure of where to start building a financial life" is a good way to put it, and I feel like we lack a shared language to talk about money.
And his family are all dyed-in-the-wool Phillies fanatics so your post feels particularly apropos, haha.
Feel free to PM me if you don't want to take over the thread.
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Most people need simple rules to follow and aren't critical thinkers (this explains the success of religion).
Yes, exactly. Like Pythagoras, what an imbecile. Galileo, too. Thomas Aquinas: MORON. Einstein -- IDIOT. Holy hell people, learn to think critically!
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That kind of one-size-fits all ethos seems ill-fitted to a Facebook group. What is there even to discuss? If "This is the way." trumps "This might be a better way." what the hell is the point?
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Every group has its dogmas. Stay around here long enough and you'll find it here too.
Isn't that the truth!?
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I don't think it's beneficial to try and beat up on or outsmart others who are working to improve themselves. You wouldn't walk up to an overweight person at the gym and mock their treadmill speed, and you shouldn't try and belittle someone's simplistic approach to fixing what is a likely a financial mess.
My wife and I took Financial Peace a few years ago before we got married and it helped us both. She was very unsure of where to start building a financial life. Meanwhile, I was dyed in the wool with MMM and couldn't understand why she was having trouble. Dave's course helped us both get on the same page and figure out an easy way of organizing and communicating about money. We are much wealthier now than we thought we'd ever be in a just a few years' time.
I think it's also important to understand that daily listeners and those who have found success with his programs develop a fanaticism (much like I have with MMM). It's like walking into a bar full of Phillies fans and trying to convince them that their team is mediocre based on league statistics over the lifetime of the team. You may be right, but you're not changing any minds.
If the group is such a bother, then leave. No use standing around shouting about how right you are.
Kott,
As I stated before, I like what Dave Ramsey does and think he is great for the majority of the population. My point is that 99% of his followers will flat out tell you that you are doing it wrong because it's not Dave's way. They tell people that if they have credit cards, and put money in retirement accounts when they have debt, then they shouldn't be in the group.
I don't pretend to have all the answers or push my financial beliefs on people, and I am open to advice and change, as I have done many times after being in this forum... I believe there is more than one path to financial wealth, DR followers will refute this - 7 Baby Steps = Ten commandments in their eyes.
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Every group has its dogmas. Stay around here long enough and you'll find it here too. Face punches and "that's not mustachian" happen all the time. Situations differ and what works for some doesn't always fit the formula.
Also, realities like getting a disability/serious illness, special needs kids, parents needing full time caregiving, etc. are pretty much ignored in this group. Some financial results have nothing to do with poor life choices and your FIRE isn't delayed b/c of buying a clown car. But that would mean acknowledging it *isn't* all about personal responsibility.
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Every group has its dogmas. Stay around here long enough and you'll find it here too. Face punches and "that's not mustachian" happen all the time. Situations differ and what works for some doesn't always fit the formula.
Also, realities like getting a disability/serious illness, special needs kids, parents needing full time caregiving, etc. are pretty much ignored in this group. Some financial results have nothing to do with poor life choices and your FIRE isn't delayed b/c of buying a clown car. But that would mean acknowledging it *isn't* all about personal responsibility.
Very true. I discovered FI many years ago (around 1996!) and planned on retiring in 10 years. Reality is that I got married and had a stepdaughter who needed college and a wedding and a sick wife who had her cancer return which she (sadly) eventually passed away. Delayed my plans.
Now, I have achieved FI but I'm still working not because I need to but because I'm having a blast. I don't plan on leaving my HCOL area after I RE either, at least not right now.
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Most people need simple rules to follow and aren't critical thinkers (this explains the success of religion).
Yes, exactly. Like Pythagoras, what an imbecile...
When refuting the lack of religious laities' critical thinking skills, you probably shouldn't lead with the Pythagorean Cult, a religion so frightened of Isosceles Triangles that they would murder geometry professors to keep them a secret.
Also, realities like getting a disability/serious illness, special needs kids, parents needing full time caregiving, etc. are pretty much ignored in this group... But that would mean acknowledging it *isn't* all about personal responsibility.
You do of course have the option to abandon your loved ones to die once they are of no use to you.
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His following is such a cult that they ignore reason and logic.
His following has always ignored reason and logic (or at least they ranked low on the list) which is why they are in the shape they are in and need him. He shifting the internal emotional proud/pumped up/excited feelings gotten with buying a new truck to get the same emotional response to getting out of debt and succeeding financially. I think it works. Credit cards is one of the easiest ways for someone without much to spend more than they should. If you have significant savings you can obviously do more damage with a check than a credit card...but if you are to the point you have significant savings you generally don't need the crutches DR is handing out.
I don't mean to be insulting with this...I fully admit I have my areas of weakness and in those area's I have learned to find and follow oversimplistic and patterned behavior that is intended to indoctrinate myself into something that will help me progress in those areas.
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Most people don't know their interest rates and if you ask them to take the extra step to look up interest rates, it would shut down their debt-repayment process, because you're asking them to seek out more information before taking action.
Strick is correct. The method isn't about logic and math. It's about emotions and action.
Dave Ramsay works for a lot of people. Those who want to think a little harder and logically will modify the method or look for a different philosophy.
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No, DR doesn't always make the most mathematical sense. But in some cases, it can make more sense to pay off the smaller debt even with lower interest rates. If I have a $500 debt at 3% interest with a $100 minimum payment, and a $10,000 debt with a 10% interest rate with a $100 minimum payment - I pay $200 this month, obviously would make a better mathematical decision to put it towards the 10% interest rate. But if I lose my job 6 months from now, putting it towards the smaller debt means that debt is gone and my minimum payment now is only $100. If I put it towards the larger debt, the smaller debt is still there and my minimum payment is still $200. Obviously these are made up numbers. But there is definitely something to be said for getting rid of the smaller debts first. And of course, for many people they need the motivation that comes from paying off more debts. If I have many small debts to pay, and one great big debt, I could spend years plugging away at that one big debt, and not feel like I am getting anywhere.
There are a whole lot of people in this world that would never in a million years visit the MMM website. DR has a large following, and his followers are very vocal about him. Sure, following the MMM plan might be better than the DR plan. But the DR plan is a heck of a lot better than the lack of any plan that most Americans have.
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No, DR doesn't always make the most mathematical sense. But in some cases, it can make more sense to pay off the smaller debt even with lower interest rates. If I have a $500 debt at 3% interest with a $100 minimum payment, and a $10,000 debt with a 10% interest rate with a $100 minimum payment - I pay $200 this month, obviously would make a better mathematical decision to put it towards the 10% interest rate. But if I lose my job 6 months from now, putting it towards the smaller debt means that debt is gone and my minimum payment now is only $100. If I put it towards the larger debt, the smaller debt is still there and my minimum payment is still $200. Obviously these are made up numbers. But there is definitely something to be said for getting rid of the smaller debts first. And of course, for many people they need the motivation that comes from paying off more debts. If I have many small debts to pay, and one great big debt, I could spend years plugging away at that one big debt, and not feel like I am getting anywhere.
There are a whole lot of people in this world that would never in a million years visit the MMM website. DR has a large following, and his followers are very vocal about him. Sure, following the MMM plan might be better than the DR plan. But the DR plan is a heck of a lot better than the lack of any plan that most Americans have.
Yep, this is a good perspective. If you want financial security, often removing monthly debt payments/load, regardless of anything else, is the actual best strategy even though it may cost you more in the long run. This is probably why Ramsay pushes smallest amount first. It was a major factor for me when I was younger and less financially secure. To this day I still think about the "could I afford this if I lost my job and had to take a minimum wage job" even though we have close to 7 figures in net worth.
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Thanks for the responses. I do want to reiterate that I am pro Dave Ramsey in that he helps a great deal of people clean up their finances and he does it with a simple plan to follow.
My main quarrel is with the majority of his followers. It's ok to follow his steps to a T but for majority of his followers to say his way is the only way to become wealthy and no other way works makes "my brain hurt".
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If Dave's examples are typical of people who come to his clinics, and I would guess they are, then most indebted Americans have a laundry list of debts - store cards, car loans, furniture store loan, mortgage, student loans, HELOC, maybe a couple personal loans from friends and family. It could be 10 to 15 different accounts. If they have this many different debts, it is probably fair to say they are not good at long term thinking.
These folks may have made a few false starts, and they have failed. They need a simple plan, and they need some quick wins to stay in the game. Knocking out the little ones frees up monthly cash in months, not a year or 2. It helps them believe the system.
I also think Dave's network spreads through churches, so there is a bias for followers to just believe the personality at the front of the room telling them what to do.
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I also think Dave's network spreads through churches, so there is a bias for followers to just believe the personality at the front of the room telling them what to do.
Yeah, this makes a lot of sense.
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I have a friend that is going through the financial peace university right now.
It has always been my opinion Dave knows the psychology of getting people motivated and giving them little wins along the way to keep them motivated but seeing it in action with my friend and his wife it has taken them from being really bad with money to kicking ass in a matter of a month.
He is addicted to paying off stuff and tells me each time they pay something off and is so excited. I tell him congrats, give them high fives and never would rain on their joy by saying that they could save a little by reordering things they are on a high and why stop that?
Complete transformation from someone that leased a new car for him and his wife every 2 years, new cell phone every time a new one came out, multiple fancy vacations each year, timeshare, $250 a month cable bill and on and on.
It works, it might not be the most mathematically correct but it is getting them motivated, on a budget and on the way to being debt free and that is a win in my opinion.
Sent from my Pixel 2 XL using Tapatalk
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Some people need things laid out in the most simple of ways. I bet not all of us on here would manage our finances the same way given a certain situation. But I would think people would want to see the numbers ran for each scenario and understand what is happening. I would think having an understanding is important no matter what.
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I also think Dave's network spreads through churches, so there is a bias for followers to just believe the personality at the front of the room telling them what to do.
Yeah, this makes a lot of sense.
Great point.
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I also think Dave's network spreads through churches, so there is a bias for followers to just believe the personality at the front of the room telling them what to do.
Yeah, this makes a lot of sense.
Great point.
How does this make sense or is a great point? As a person who personally teaches Financial Peace University, I will say this is far from the truth. Every person in over 100 I have presented the material to has a brain and thinks for themselves. Many of them reject portions of the "plan" and challenge parts of what Dave has to say. That would be like me making my first post on this site saying that followers of MMM to just believe the personality at the top of the web page telling them what to do. No. People think critically and challenge ideas here too, even though the forum is dedicated to the "principles" of an imaginary person named "Mr. Money Mustache".
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Ninety percent of Dave's callers are in a mess because they didn't (or still don't) grasp the idea that you shouldn't finance/lease cars (or pay cash for clown cars) and that you shouldn't take out student loans but rather limit your options to in-state public schools or community colleges that you can afford -- and major in something with value in the marketplace.
He's the first to say it's simple math. I feel lucky that my parents instilled those lessons in me and I never would have thought to not go to an in-state public school or to finance/lease a car or pay cash for a clown car.
Let's be glad Dave is there to help those who didn't have that upbringing.
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This drives my point home friends...
Kevin: why would you want to switch from one money pit to the other? why not just drop it entirely.
IF you look at it this way.
the average cable bill in the USA is 150 a month.
the amount of money required to fund a IRA to be worth about 1.7 mil in 40 years is 100 a month..
Me: Curious what calculations you used here... Funding $100 a month to an IRA (starting from 0) at a very aggressive 10% return (I use 7% in my calculations to be safe) would only net you $643,000. I think you might have been looking at last years returns, that's unsustainable. As you can see from the start of this year, where returns are at 2% thus far. With the run we have had, we will have a year rather soon with negative returns.
Kevin: Chris Wood you would have to ask Dave. he did the calculations. but looking at one years returns to calculate is a poor choice. you need to look at the long term averages.
Me: Exactly, that's why I go by historical averages and not last year's amazing stock market performance. 8% is the standard and I assume that is what he used for his calculations. If you go back and look, I would assume he stated $100 a week into an IRA will get you 1.7 mi. I did the calculations, and it will indeed net you 1.6 million if you fund $100 a week to a Roth IRA at 8% interest.
Kevin: Chris Wood feel free to tell dave he is wrong.. I want to watch though
Me: Kevin Schertz Can you post the link where he stated these numbers, or which podcast it was. I honestly think that you just misread what he said. I understand you believing what Dave says, but it's not really up for debate how much money it would come out to... It's simple Math, and based off 100 years of historical returns, it's simply impossible to net 1.7 mil off saving $1,200 a year for 40 years. And yes, if Dave stated this, (I highly doubt he did), than he is wrong.
He literally didn't listen to a word I said, he just said Dave is never wrong... Who would have known you can net 1.7 mil in 40 years from just putting away $100 a month...
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I also think Dave's network spreads through churches, so there is a bias for followers to just believe the personality at the front of the room telling them what to do.
Yeah, this makes a lot of sense.
What the hell are you guys going on about? Do you even go to church or know anyone who does? I know very few churchgoers who "just believe the personality at the front of the room telling them what to do" - almost always there's discussion/critique of what was said. You're making such sweeping generalizations. What's next, are you going to claim all Muslims are terrorists?
Oh, and MMM itself is quite cultish...even says "Join the Cult"on the homepage :) Which is fine, every community has things that go largely unquestioned. Just saying it's easier to point out other people's shit while failing to recognize your own.
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How does this make sense or is a great point? As a person who personally teaches Financial Peace University, I will say this is far from the truth. Every person in over 100 I have presented the material to has a brain and thinks for themselves. Many of them reject portions of the "plan" and challenge parts of what Dave has to say. That would be like me making my first post on this site saying that followers of MMM to just believe the personality at the top of the web page telling them what to do. No. People think critically and challenge ideas here too, even though the forum is dedicated to the "principles" of an imaginary person named "Mr. Money Mustache".
It's been studied exhaustively and been shown that evangelical christians are heavily authoritarian types, meaning yes, they are much more likely than others to blindly follow authority figures. Sorry if that offends anyone, but that's the truth.
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I also think Dave's network spreads through churches, so there is a bias for followers to just believe the personality at the front of the room telling them what to do.
Yeah, this makes a lot of sense.
Great point.
How does this make sense or is a great point? As a person who personally teaches Financial Peace University, I will say this is far from the truth. Every person in over 100 I have presented the material to has a brain and thinks for themselves. Many of them reject portions of the "plan" and challenge parts of what Dave has to say. That would be like me making my first post on this site saying that followers of MMM to just believe the personality at the top of the web page telling them what to do. No. People think critically and challenge ideas here too, even though the forum is dedicated to the "principles" of an imaginary person named "Mr. Money Mustache".
Please read my latest post...
It's rather simple to research on google to figure out an estimate on how much $100 a month for 40 years will net you in a Roth IRA. This man's response to my logical statement was, you are wrong and Dave is right. When clearly, we all know that $1,200 a year for 40 years won't net you 1.7 mi...
This is "blindly following the guy in the front of the room" to a T.
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It's been studied exhaustively and been shown that evangelical christians are heavily authoritarian types, meaning yes, they are much more likely than others to blindly follow authority figures. Sorry if that offends anyone, but that's the truth.
Exactly this ^^^^^
And the community here I think is rational enough to recognize the cultish potential there is even in this community. That's why you see people questioning and constantly debating various strategies and principles on the boards. Most here (from what I can tell) don't blindly follow something because of appeal to authority.
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It's been studied exhaustively and been shown that evangelical christians are heavily authoritarian types, meaning yes, they are much more likely than others to blindly follow authority figures. Sorry if that offends anyone, but that's the truth.
Exactly this ^^^^^
And the community here I think is rational enough to recognize the cultish potential there is even in this community. That's why you see people questioning and constantly debating various strategies and principles on the boards. Most here (from what I can tell) don't blindly follow something because of appeal to authority.
Not all churches are evangelical.
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I listen to Dave Ramsey occasionally on the radio. I think he has a workable program for people in debt due to not knowing about LBYM and dealing with college loan debt.
Last week he told a guy to put the back alimony he owed his ex-wife in the "debt snowball" - pay off smallest debt first and largest last. Pay her when her turn comes up.
I was shocked! Pay off bank debt before paying alimony? I hope he doesn't give the same advice for back child support owed!
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I like Dave but he's not going to impress your average Mustacian. He certainly helps those completely clueless get started at least. Southerners will understand the biblical narrative he used. It's programmed into tthem at birth. Most Mustacian followers will put up resistance at the first drawled sentence.
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I listen to Dave Ramsey occasionally on the radio. I think he has a workable program for people in debt due to not knowing about LBYM and dealing with college loan debt.
Last week he told a guy to put the back alimony he owed his ex-wife in the "debt snowball" - pay off smallest debt first and largest last. Pay her when her turn comes up.
I was shocked! Pay off bank debt before paying alimony? I hope he doesn't give the same advice for back child support owed!
Gah, that's just so wrong. I borrowed $2k about five years ago from my sister-in-law for a car while in a cash crunch, and I moved heaven and earth to pay her back within literally days (four, I think). Even though it was her idea, I felt physically ill from owing her that money, even briefly. I'd be much much more comfortable with owing that same $2k at 25% interest on a credit card.
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https://academic.oup.com/jcr/article-abstract/43/3/460/2200459?redirectedFrom=fulltext (https://academic.oup.com/jcr/article-abstract/43/3/460/2200459?redirectedFrom=fulltext)
Yeah, Dave can be obnoxious, but the snowball works.
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Life is not a math problem. Dave is THE most successful financial guru for exactly what he teaches. Simple financial instructions. If you follow them you will be successful. If you follow another you may or may not be successful based on your ability to stay focused and intense to save save save, live below your means, and don't make stupid financial decisions.
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Like many things in finance, there is the optimal route, and the route people can actually follow.
Your bonds should equal your age. Optimal, no. However, it's a great rule of thumb since it keeps a 20 year old from being 100% bonds or an 80 year old from being 100% stocks.
Get the match on your 401k. Optimally, you should save much more. However, many people don't even get the match so it's great advice for them.
Pay down the smallest debt first. Optimal, no. However, your credit card normally has the highest rate and your mortgage normally has the lowest rate so for most people it's not terrible advice. More importantly, it gets them moving in a better direction and it's something they can stick to. Plus, when you pay off that first small loan you no longer have a payment. Your cash flow improved and if someone is living paycheck to paycheck they will pay more attention to that monthly cash flow than the impact of interest on one debt VS another. Once they take that extra money and use it to start paying off the next smallest debt they can visualize the 'snowballing' effect.
Best advice, hell no, but it's better than people being left to their own devices.
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Ramsey has helped mostly a middle/lower income demographic. The common type that follows his advice are those that need very simple rules that will also encourage them to stay the course. I admit at one time this would have been good advice for myself, before I knew much about personal finance.
But Dave's plan and talk show came many years after he declared bankruptcy in the 1980s. BK came when his lenders reviewed their portfolios and then called over $1 million of his short term loans for his real estate investments. -- this caused his very shaky $4 million real estate "empire" to collapse. You might wonder if it were really worth the $4 million+ , why couldn't he sell it off to pay off 1/4 of it to pay his debts? The likely reason is it wasn't worth as much as he claimed.
His investing advice is absolutely horrible, and my biggest problem with him in general (claims that you'll earn 12% on average, and can withdraw 8%, etc).
Dave didn't make his wealth from investments or good personal finance. He made it from books, talk shows, tapes and CDs, seminars, sales of endorsements, etc. To build his audience, he tells people what they want to hear -- that they are victims -- of evil banks, evil credit card companies, and lenders who forced them to borrow more money than they could pay back, to buy stuff they could not afford; and it is NO fault of their own. This is a smart way to gain a big audience. In short, Dave is a master marketer not much different than a Tony Robbins. These are people that know how to gain a large audience and monetize it.
According to to Dave, it's impossible for rental properties to be profitable if leveraging of debt is used. Because it didn't work for him.
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But Dave's plan and talk show came many years after he declared bankruptcy in the 1980s. BK came when his lenders reviewed their portfolios and then called over $1 million of his short term loans for his real estate investments. -- this caused his very shaky $4 million real estate "empire" to collapse. You might wonder if it were really worth the $4 million+ , why couldn't he sell it off to pay off 1/4 of it to pay his debts? The likely reason is it wasn't worth as much as he claimed.
I think you are confusing the value of the properties with the equity Dave had himself. The properties were likely worth the $4 million, but he probably had nearly no equity from doing zero down loans. I'm sure Dave just uses the $4 million valuation because that sounds much more impressive, even though it is intellectually dishonest and designed to trick his (mostly unsophisticated listeners) into thinking that was his net worth.
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Pay down the smallest debt first. Optimal, no.
The general advice given here of paying the highest interest debt first is not necessarily mathematically optimal either.
if you have a:
* 200k/30 year mortgage at 4%
* 15k/5 year car loan at 6%
* a 15k windfall
The "pay the highest interest debt first" mantra is not optimal. Sure, you're paying more interest per year on that car loan, but only for 5 years. The lower interest on the mortgage is paid for 30 years.
The 15k over the life of that car loan results in $2400 in interest.
If you pay off that car loan early, you can save up to $2400 in interest.
But, if you apply that windfall to the mortgage instead, you save 30 years of 4% interest on that $15k which is nearly $8,400.
And a windfall isn't required, it's just the simplest exemplar.
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Pay down the smallest debt first. Optimal, no.
The general advice given here of paying the highest interest debt first is not necessarily mathematically optimal either.
if you have a:
* 200k/30 year mortgage at 4%
* 15k/5 year car loan at 6%
* a 15k windfall
The "pay the highest interest debt first" mantra is not optimal. Sure, you're paying more interest per year on that car loan, but only for 5 years. The lower interest on the mortgage is paid for 30 years.
The 15k over the life of that car loan results in $2400 in interest.
If you pay off that car loan early, you can save up to $2400 in interest.
But, if you apply that windfall to the mortgage instead, you save 30 years of 4% interest on that $15k which is nearly $8,400.
And a windfall isn't required, it's just the simplest exemplar.
This is completely wrong.
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I'm sure Dave just uses the $4 million valuation because that sounds much more impressive, even though it is intellectually dishonest and designed to trick his (mostly unsophisticated listeners) into thinking that was his net worth.
Precisely my point.
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Pay down the smallest debt first. Optimal, no.
The general advice given here of paying the highest interest debt first is not necessarily mathematically optimal either.
if you have a:
* 200k/30 year mortgage at 4%
* 15k/5 year car loan at 6%
* a 15k windfall
The "pay the highest interest debt first" mantra is not optimal. Sure, you're paying more interest per year on that car loan, but only for 5 years. The lower interest on the mortgage is paid for 30 years.
The 15k over the life of that car loan results in $2400 in interest.
If you pay off that car loan early, you can save up to $2400 in interest.
But, if you apply that windfall to the mortgage instead, you save 30 years of 4% interest on that $15k which is nearly $8,400.
And a windfall isn't required, it's just the simplest exemplar.
This is completely wrong.
That it is. The only time I could think of that would make sense to pay off lower interest debt first would be a high minimum payment ($1000@15% debt with $100/mo min payment I'd maybe prioritize over a $10,000@20% debt with $50/mo payment). But even then it would be for cashflow and flexibility reasons, not for paying less interest overall. Which could be worth it depending on context.
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I agree milesteg is off here, but does someone mind breaking out mathematically why his reasoning is mathematically flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
One note. if the $2400 saved from paying off the car is invested with an average return of 9% over 25 years (car loan length subtracted by 30 yr mortgage), it will be $20,695, much larger than the amount saved by paying down the mortgage.
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I agree milesteg is off here, but does someone mind breaking out mathematically why it's flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
The main flaw in the reasoning is looking at absolute numbers of total interest saved. A total amount of interest over a certain number of years is a big scary number but ultimately disingenuous out of context when talking about debt. We use %APR numbers instead for a reason.
If I could borrow $1M at 1% interest for 40 years (non-callable, spherical loan in a vacuum blah blah), I'd do it in a heartbeat, as making more than 1% return anywhere is fairly trivial. "But OMG it would cost me $213,709 in interest!" is hardly a reasonable reaction.
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I agree milesteg is off here, but does someone mind breaking out mathematically why it's flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
The main flaw in the reasoning is looking at absolute numbers of total interest saved. A total amount of interest over a certain number of years is a big scary number but ultimately disingenuous out of context when talking about debt. We use %APR numbers instead for a reason.
Well, the reason for APR is that it includes all fees, not just the loan interest (for example points and charges). So I'm not sure how that's really relevant here or what you mean.
Does someone mind breaking out the example miles gave and really showing the flaw?
I know one flaw is the example I gave above, that is if the $2400 saved from paying off the car is invested with an average return of 9% over 25 years (car loan length subtracted by 30 yr mortgage), it will be $20,695, much larger than the amount saved by paying down the mortgage.
However, let's assume the money is not invested at all, and look at why it's incorrect.
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I agree milesteg is off here, but does someone mind breaking out mathematically why his reasoning is mathematically flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
One note. if the $2400 saved from paying off the car is invested with an average return of 9% over 25 years (car loan length subtracted by 30 yr mortgage), it will be $20,695, much larger than the amount saved by paying down the mortgage.
He's ignoring the fact that over that time period, the money can be used for something else.
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I agree milesteg is off here, but does someone mind breaking out mathematically why it's flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
The main flaw in the reasoning is looking at absolute numbers of total interest saved. A total amount of interest over a certain number of years is a big scary number but ultimately disingenuous out of context when talking about debt. We use %APR numbers instead for a reason.
Well, the reason for APR is that it includes all fees, not just the loan interest (for example points and charges). So I'm not sure how that's really relevant here or what you mean.
Does someone mind breaking out the example miles gave and really showing the flaw?
I know one flaw is the example I gave above, that is if the $2400 saved from paying off the car is invested with an average return of 9% over 25 years (car loan length subtracted by 30 yr mortgage), it will be $20,695, much larger than the amount saved by paying down the mortgage.
However, let's assume the money is not invested at all, and look at why it's incorrect.
I didn't mean to throw a wrench into things by saying APR. I just mean there's a reason we look at interest (+fees) as an annualized percentage, not simply as a big cumulative number.
If you assume the money saved isn't invested or spent at all and sits under a mattress forever, the picture changes. But does anyone do or advocate that?
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I agree milesteg is off here, but does someone mind breaking out mathematically why his reasoning is mathematically flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
One note. if the $2400 saved from paying off the car is invested with an average return of 9% over 25 years (car loan length subtracted by 30 yr mortgage), it will be $20,695, much larger than the amount saved by paying down the mortgage.
He's ignoring the fact that over that time period, the money can be used for something else.
No, I'm not. I'm simply pointing out that mathematically, if you're going to pay off debt, there is no one rule that fits every situation.
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I agree milesteg is off here, but does someone mind breaking out mathematically why his reasoning is mathematically flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
One note. if the $2400 saved from paying off the car is invested with an average return of 9% over 25 years (car loan length subtracted by 30 yr mortgage), it will be $20,695, much larger than the amount saved by paying down the mortgage.
He's ignoring the fact that over that time period, the money can be used for something else.
I CAN be, but doesn't necessarily mean it WILL be, or that doing so will have a higher ROI. A major purpose of paying off debt faster rather than "doing something else with the money" is to get a guaranteed ROI.
I'm not saying my scenario is optimal in all circumstances, I'm saying my scenario is illustrative of a better use of money if you are dumping money into debt.
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I agree milesteg is off here, but does someone mind breaking out mathematically why his reasoning is mathematically flawed?
I suspect the big reason is inflation, but I'd like to see it broken out by someone not as lazy as me :).
One note. if the $2400 saved from paying off the car is invested with an average return of 9% over 25 years (car loan length subtracted by 30 yr mortgage), it will be $20,695, much larger than the amount saved by paying down the mortgage.
He's ignoring the fact that over that time period, the money can be used for something else.
I CAN be, but doesn't necessarily mean it WILL be, or that doing so will have a higher ROI. A major purpose of paying off debt faster rather than "doing something else with the money" is to get a guaranteed ROI.
I'm not saying my scenario is optimal in all circumstances, I'm saying my scenario is illustrative of a better use of money if you are dumping money into debt.
That's not at all how you described the scenario. Paying off the higher interest debt first, and then redirecting any future money to the lower interest debt is objectively the mathematically correct play. Your post attempted to refute that fact, and was incorrect.
If the argument had to do with behavior I could get behind that, but you were trying to refute math.
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Okay, let's math it out.
Pay off car loan.
$15,000 car loan. 6% interest. Assuming 5 year payoff. Solve for payment=$289.99.
60 payments at $289.99 = $17,399.62. Total interest = $2,399.62.
Interest saved by paying off the car loan= $2,399.62.
Pay down mortgage.
$200,000 mortgage at 4% for 30 years. Solve for payment=$954.83.
360 payments at $954.83 = $343,738.80.
If you put the $15,000 towards the mortgage:
$185,000 mortgage, 4%, 954.83 payment, payoff in 311.92 months. 311.92 X 954.83 = $297,830.58.
Interest saved over the entire loan by paying an extra $15,000 at the beginning= $30,908.22.
Based on that math it would appear MilesTeg is correct. However, what this math ignores is that if you pay the car off early you have an extra $289.99 per month you could put towards the mortgage. That extra $289.99 per month should have a greater impact on the mortgage than the $15,000 single payment.
Let's test it out over the 30 years.
Pay $15,000 towards mortgage.
Car loan: $15,000 car loan. 6% interest. Assuming 5 year payoff. Solve for payment=$289.99.
60 payments at $289.99 = $17,399.62.
Mortgage years 1-5: $185,000, 4%, $954.83 payment, 60 payments. Remaining balance after 5 years: $162,580.12.
Mortgage years 6-payoff: PV=162,580, 1244.82 payment. Payoff in 171.75 payments. 1244.82 X 171.75 + 954.84 X 60 = 271,088.24.
Total payments: 271,088.24 + 15,000 + 17399.62 = $303,487.86
Pay off the car loan, and then direct extra funds towards mortgage debt.
Car loan: $0
Mortgage: $200,000, 4%, $1,244.82 payment. Payoff in 230.45 payments. 1244.82 X 230.45 = $286,868.769.
Total payments: 286,868.77 + 15,000 = $301,868.77.
Conclusion: Paying off the highest interest rate debt first is the fastest way to pay down debt, even if the higher interest debt is a smaller dollar amount.
EDIT: at the request of readers I ran my scenarios over the full 30 years instead of the first 5.
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Thanks, that's what I was looking for.
And of course, you will very likely out much much better if you take that car payment and stick it in index funds.
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John: Remember this is the Official Dave Group....this is not what Dave advocates. Pay off the lowest first, regardless of interest rate.
I'm at a loss for words.
It's psychological. Many people are stuck in debt because they feel overwhelmed by it all. It's not the absolute dollar amount or even the interest, it's just the number of different things the person is faced with. In this respect, 10 debts of $500 each are less likely to be paid off than 1 debt of $5,000. And it's obviously easier to knock over a small debt than a large one. So the person knocks over the smallest debt, feels a sense of triumph and self-empowerment, and is more likely to get themselves together enough to knock over the next biggest debt.
Whereas if you insist on their tackling the objectively-best debt first, it may take them longer to deal with, then in the meantime the other debts grow or they get nagged about them, they feel overwhelmed and give up. It is better for them to actually do something not ideal, than not do something ideal.
It's the same principle as for example going to the gym. Zumba or whatever isn't ideal, but the best workout is the one you actually do; it is better to do the less ideal one than not do the ideal one. Now, I run a gym, and it's a barbell gym, and I offer that because I believe it's the most effective form of training for previously sedentary people. But it's a small part of the market - most people simply won't start with this sort of training, it'd scare them too much. Not only the training itself, but also being coached. You can just walk into a globogym, sit down on the shoulder press machine and start pressing, but if you want to do a snatch then you need some instruction; but being instructed intimidates people. Most previously sedentary people need something which is less effective but more accessible. It is better for them to go to a globogym and fuck around on machines and keep going there, than for them to come to my gym once and use barbells and never come again. Over time they might become more confident and then come and do something else that's better. In the meantime they do something less effective but more accessible.
Likewise in financial advice. "Pay the smallest debt first" is less effective, but it's more accessible.
If you stand above us mere mortals who sometimes feel overwhelmed by their situation and don't deal with things completely rationally, then well done, keep doing what you're doing. But most people need to just get started and get themselves moving towards their goals.
We have these conversations all the time in the fitness world. Seriously, there are screaming arguments online about high-ar vs low-bar back squat, about wearing weightlifting shoes vs flats during a deadlift, and people just like you storm out angrily and swear never to speak to those inferior morons again. SRS BZNZ. And it's usually people who are just a year or so into things, if that. With some years of experience most people start becoming more open-ended and understanding that context is key, and whatever works for you is good.
First, get their bodies moving, then worry exactly how they're moving. First, get them paying off their debts and saving up, then worry exactly how they're paying off debts and saving up.
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Thanks for the responses. I do want to reiterate that I am pro Dave Ramsey in that he helps a great deal of people clean up their finances and he does it with a simple plan to follow.
My main quarrel is with the majority of his followers. It's ok to follow his steps to a T but for majority of his followers to say his way is the only way to become wealthy and no other way works makes "my brain hurt".
There's the rub - DR's methods will get you out of debt (if followed religiously --> Hee!). What they do not do is make you wealthy in any time frame that could be considered early. MMM is all about taking charge of your finances in order to take charge of your life and live it the way you want to. DR is all about how to un-fuck the mess you've made of your financial life. Apples vs. oranges. Unfortunately, until financial literacy is part of every student's curriculum, DR is never going to run out of [paying] customers.
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John: Remember this is the Official Dave Group....this is not what Dave advocates. Pay off the lowest first, regardless of interest rate.
I'm at a loss for words.
It's psychological. Many people are stuck in debt because they feel overwhelmed by it all. It's not the absolute dollar amount or even the interest, it's just the number of different things the person is faced with. In this respect, 10 debts of $500 each are less likely to be paid off than 1 debt of $5,000. And it's obviously easier to knock over a small debt than a large one. So the person knocks over the smallest debt, feels a sense of triumph and self-empowerment, and is more likely to get themselves together enough to knock over the next biggest debt.
Whereas if you insist on their tackling the objectively-best debt first, it may take them longer to deal with, then in the meantime the other debts grow or they get nagged about them, they feel overwhelmed and give up. It is better for them to actually do something not ideal, than not do something ideal.
It's the same principle as for example going to the gym. Zumba or whatever isn't ideal, but the best workout is the one you actually do; it is better to do the less ideal one than not do the ideal one. Now, I run a gym, and it's a barbell gym, and I offer that because I believe it's the most effective form of training for previously sedentary people. But it's a small part of the market - most people simply won't start with this sort of training, it'd scare them too much. Not only the training itself, but also being coached. You can just walk into a globogym, sit down on the shoulder press machine and start pressing, but if you want to do a snatch then you need some instruction; but being instructed intimidates people. Most previously sedentary people need something which is less effective but more accessible. It is better for them to go to a globogym and fuck around on machines and keep going there, than for them to come to my gym once and use barbells and never come again. Over time they might become more confident and then come and do something else that's better. In the meantime they do something less effective but more accessible.
Likewise in financial advice. "Pay the smallest debt first" is less effective, but it's more accessible.
If you stand above us mere mortals who sometimes feel overwhelmed by their situation and don't deal with things completely rationally, then well done, keep doing what you're doing. But most people need to just get started and get themselves moving towards their goals.
We have these conversations all the time in the fitness world. Seriously, there are screaming arguments online about high-ar vs low-bar back squat, about wearing weightlifting shoes vs flats during a deadlift, and people just like you storm out angrily and swear never to speak to those inferior morons again. SRS BZNZ. And it's usually people who are just a year or so into things, if that. With some years of experience most people start becoming more open-ended and understanding that context is key, and whatever works for you is good.
First, get their bodies moving, then worry exactly how they're moving. First, get them paying off their debts and saving up, then worry exactly how they're paying off debts and saving up.
Lotsa wisdom here, and an apt analogy. Taking someone who's sedentary and throwing them into something like crossfit or HIIT (or whatever you think the ideal workout is) isn't a good strategy. Lack of core strength/flexibility greatly increases the chances of injury, the workout experience is miserable, and they are so sore for a week afterward that all momentum is lost. Much better to ease in with something less intense (and fun!) and built up over time.
Similarly, people with hair-on-fire debt need to start small and see quick results - paying off the smallest debt first and then "snowballing" that payment into the next debt is a great reward feedback loop, making it more effective for most people than the mathematically more efficient pay-the-highest-interest-rate-first approach.
With all the complaints here about the religiosity of DR and his followers it's ironic that there's almost an equal amount of religiously around being the most mathematically efficient vs. what actually works for average people. Don't let the perfect be the enemy of the good.
It's very common on these forums to here from people that "graduated" from DR to MMM... so do whatever gets you going in the right direction, then build on that over time.
The most important first step is getting people to move from a net negative to net positive direction. The snowball method seems to work well in this regard for many people, and for all but the most extreme cases the efficiency differences are relatively minor. My biggest quibble with DR is his investing advice because this results in a very large difference in outcomes over the long-term.
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Dave Ramsey changes peoples behavior first and foremost. Is it the optimal mathematical way? Nope. MMM is a graduate program and DR is the community college where you take people doing nothing and get them on a path. Most people can't just jump into MMM level of thinking. There has to already be a little engrained frugalness to you for this to be so attractive. So don't look at it as all or nothing, right or wrong. DR is for beginners, the MMM will be more doable.
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Interestingly, DR'S baby steps work less well for people who don't have serious debt. We have a mortgage and had a small (used!) car loan. We already had an emergency fund. Okay, we paid off the car. Now we're supposed to put 15% of income into retirement- where does that come from? My car loan certainly wasn't 15% of my income! The "gazelle intensity" he talks about isn't meant to be sustained for the rest of your working life, but the 15% (and college fund and mortgage payoff etc) are. What I like about MMM is that it ties together frugality and a good life according to your values, a "how" and "why" manual for the savings "what".
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I was listening the other day to his show. A caller asked why it was necessary to pay off his 0% car loan. Dave asked him if someone offered to loan him 3 million dollars at 0%, would he do it? The caller paused a second and said no.
Man, I would like someone to offer me a 3 million dollar loan at 0%. I'd be fat fat fat FIRE tomorrow.
Disclaimer: Ramsey has helped a lot of people over the years, and his advice is mostly solid for people trying to get out of debt.
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Nice responses...
I just need to accept the fact that DR is meant for people with completely different mindsets and situations from those that follow MMM. And to give my viewpoint on personal finance is a complete waste of time to his followers.
Not saying it won't be difficult as I wish I could pass on everything I've learned here... That's just not the place for it I guess....
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I was listening the other day to his show. A caller asked why it was necessary to pay off his 0% car loan. Dave asked him if someone offered to loan him 3 million dollars at 0%, would he do it? The caller paused a second and said no.
Man, I would like someone to offer me a 3 million dollar loan at 0%. I'd be fat fat fat FIRE tomorrow.
Disclaimer: Ramsey has helped a lot of people over the years, and his advice is mostly solid for people trying to get out of debt.
Personally my answer to someone about that topic would be that I don't recommend taking out loans to buy cars. Odds are you bought more car than you could afford.
Buy something cheap, put the car payments away in a savings account and upgrade as you have the cash.
The problem isn't the interest rate, it's that you are going to buy more car than you can afford because it's easy money and "easy" payments.
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Nice responses...
I just need to accept the fact that DR is meant for people with completely different mindsets and situations from those that follow MMM. And to give my viewpoint on personal finance is a complete waste of time to his followers.
Not saying it won't be difficult as I wish I could pass on everything I've learned here... That's just not the place for it I guess....
Teaching involves meeting people where they are at, not just imparting what you want.
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Nice responses...
I just need to accept the fact that DR is meant for people with completely different mindsets and situations from those that follow MMM. And to give my viewpoint on personal finance is a complete waste of time to his followers.
Not saying it won't be difficult as I wish I could pass on everything I've learned here... That's just not the place for it I guess....
Teaching involves meeting people where they are at, not just imparting what you want.
Couldn't agree more. If you read my OP, you would see that this all started by me simply asking what interest rates were and being shutdown by a fellow member. I then explained an example and stated I would personally do the following by giving a specific example and explaining why I would do this.
Meeting people where they are at doesn't work with DR followers, and I have come to realize this. Where they are at is where they will stay, there is no teaching beyond his teaching in their eyes.
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Meeting people where they are at doesn't work with DR followers, and I have come to realize this. Where they are at is where they will stay, there is no teaching beyond his teaching in their eyes.
I gave the gym example for a reason: that's my paid work. And as a parent I'm doing a lot of teaching, too. So I can say with confidence: bollocks! You're patronising and even worse, wrong.
Everyone has to start somewhere. You are not a superior being.
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Meeting people where they are at doesn't work with DR followers, and I have come to realize this. Where they are at is where they will stay, there is no teaching beyond his teaching in their eyes.
I gave the gym example for a reason: that's my paid work. And as a parent I'm doing a lot of teaching, too. So I can say with confidence: bollocks! You're patronising and even worse, wrong.
Everyone has to start somewhere. You are not a superior being.
I think you missed my point, or I didn't explain it properly.
My response was to an above poster who stated I need to "meet them where they are" and not just impose my view as the correct one. As I have stated many times before, I love what Dave is doing and follow his different forums/podcasts.
My point is, I never imposed my view on them. Someone asked what they should do with their 10 different loans and how they should start. I asked what the interest rates are as MY advice, in a vacuum) would be to pay down highest interest loan first. I was then told by a member that this is not teachings and I am wrong and that I'm not a millionaire and Dave is.
When I said they are stuck where they are, I meant in their viewpoints at this current time, not where they will say. My point is that they won't listen to anything that doesn't come out of Dave's mouth at this current time. As you stated, I am no "super being" but I do listen to multiple view points and am open to change...
I thought I have made it very clear, but I guess I haven't... I'm not against what Dave does. I simply feel that it is important to listen to multiple different pathways to obtaining a better life, not just one singular focus...
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I undestand why they stick to their guns it is about a system that works for the people that need it. The majority of people that are seeking the advice are in seriouse debt and looking for help and have already proven that they have issues with managing financial matters.
This is a regimented system that works to build confidence and conditions the participants to get that next rush from paying off the next debt.
It is not about optimization it is about the psychology of getting them out of debt and keeping them out of debt.
I look at the DR system more like alcoholics anonymous, they are there for help and he has a regimented system to get them where they need to go and change their behavior along the way.
Some people can quit cold turkey and others need a support system and steps, you are walking into an AA meeting and telling them that it is ok not to follow the steps that have been proven to work.
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Some people can quit cold turkey and others need a support system and steps, you are walking into an AA meeting and telling them that it is ok not to follow the steps that have been proven to work.
Great analogy, it is like walking into AA and saying, "Guys, if you only drink 1-2 drinks per day you will actually live longer! That is supported by statistics! Just don't drink more than that and you will be fine." Then thinking, "this is so obvious, why can't everyone be like me?" I am in favor of any system that works, even if it is a little sub-optimal.
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Meeting people where they are at doesn't work with DR followers, and I have come to realize this. Where they are at is where they will stay, there is no teaching beyond his teaching in their eyes.
I gave the gym example for a reason: that's my paid work. And as a parent I'm doing a lot of teaching, too. So I can say with confidence: bollocks! You're patronising and even worse, wrong.
Everyone has to start somewhere. You are not a superior being.
I think you missed my point, or I didn't explain it properly.
My response was to an above poster who stated I need to "meet them where they are" and not just impose my view as the correct one. As I have stated many times before, I love what Dave is doing and follow his different forums/podcasts.
My point is, I never imposed my view on them. Someone asked what they should do with their 10 different loans and how they should start. I asked what the interest rates are as MY advice, in a vacuum) would be to pay down highest interest loan first. I was then told by a member that this is not teachings and I am wrong and that I'm not a millionaire and Dave is.
When I said they are stuck where they are, I meant in their viewpoints at this current time, not where they will say. My point is that they won't listen to anything that doesn't come out of Dave's mouth at this current time. As you stated, I am no "super being" but I do listen to multiple view points and am open to change...
I thought I have made it very clear, but I guess I haven't... I'm not against what Dave does. I simply feel that it is important to listen to multiple different pathways to obtaining a better life, not just one singular focus...
It's ok man, I think you've understood the psychology aspect from the very beginning, you made it fairly clear if not 100%. Your complaint is about stubbornness and being told you're wrong when you're not, that's always frustrating. If the snowball method works better for them they could still benefit from the knowledge of understanding why. If they accepted it was physiological and were fine with that then great. If they want to put their fingers and their ears and say "lalalala" to drown out the math talk that's their choice too. Criticizing someone for considering something outside of the teachings on the other hand, that's pretty rude and closed minded.
Great analogy, it is like walking into AA and saying, "Guys, if you only drink 1-2 drinks per day you will actually live longer! That is supported by statistics! Just don't drink more than that and you will be fine." Then thinking, "this is so obvious, why can't everyone be like me?" I am in favor of any system that works, even if it is a little sub-optimal.
No it's not :) https://www.jsad.com/doi/10.15288/jsad.2016.77.185
Also, I don't think the analogy works because paying on one loan vs the other isn't the same as moderating an addiction. That would be more like telling someone who has a shopping addiction that it's ok to keep spending, just spend within your means.
A better analogy would be like saying, "I have another method with slightly more complicated steps than the AA program but it will help control your addiction 10% faster". Still not a great analogy because the 10% faster claim can't be worked out in a spreadsheet.
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Meeting people where they are at doesn't work with DR followers, and I have come to realize this. Where they are at is where they will stay, there is no teaching beyond his teaching in their eyes.
I gave the gym example for a reason: that's my paid work. And as a parent I'm doing a lot of teaching, too. So I can say with confidence: bollocks! You're patronising and even worse, wrong.
Everyone has to start somewhere. You are not a superior being.
I think you missed my point, or I didn't explain it properly.
My response was to an above poster who stated I need to "meet them where they are" and not just impose my view as the correct one. As I have stated many times before, I love what Dave is doing and follow his different forums/podcasts.
My point is, I never imposed my view on them. Someone asked what they should do with their 10 different loans and how they should start. I asked what the interest rates are as MY advice, in a vacuum) would be to pay down highest interest loan first. I was then told by a member that this is not teachings and I am wrong and that I'm not a millionaire and Dave is.
When I said they are stuck where they are, I meant in their viewpoints at this current time, not where they will say. My point is that they won't listen to anything that doesn't come out of Dave's mouth at this current time. As you stated, I am no "super being" but I do listen to multiple view points and am open to change...
I thought I have made it very clear, but I guess I haven't... I'm not against what Dave does. I simply feel that it is important to listen to multiple different pathways to obtaining a better life, not just one singular focus...
It's ok man, I think you've understood the psychology aspect from the very beginning, you made it fairly clear if not 100%. Your complaint is about stubbornness and being told you're wrong when you're not, that's always frustrating. If the snowball method works better for them they could still benefit from the knowledge of understanding why. If they accepted it was physiological and were fine with that then great. If they want to put their fingers and their ears and say "lalalala" to drown out the math talk that's their choice too. Criticizing someone for considering something outside of the teachings on the other hand, that's pretty rude and closed minded.
Thanks Dab, this is exactly what I was trying to get across on the forum, but my words got skewed quite a bit.
Appreciate the responses guys, I think this thread has run it's course.
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Comparing a return of 5 years to one over 30 as if they were equivalent, is fundamentally wrong. You have to compare the same time periods.
Now for the thread topic--I've been kicked out of a DR facebook group before! I actually didn't challenge any dogma too much. They are just that protective of the purity of their dogma.
As for the snowball vs. avalanche, I think they call it. The problem with the avalanche is that it ignores default risk, and simply risk of additional fees if a payment is lost or late, even if it is beyond your control. The debt snowball ignores very real effects of a high difference in interest rates, as well as opportunity cost where investing opportunities are concerned. I wouldn't have too much problem with the basics being presented for everyone, if there were more applicable variations allowed for people who consulted one of these oracles of Dave. (And never forego the 50-100% 401k match if there is a likelihood of vesting in it.) Again, allowing nuanced advice for people asking for specific circumstances, because there are some people led widely astray by his advice for the sake of simplicity and purity. When you buy one size fits all clothes, they often fit poorly.
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I just heard Ramsey advertise Boll and Branch bed sheets.
The minimum price I see on their website is $250 for sheets and pilliow cases.
It just seems Ramsey and $250 sheets don't go together.
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I just heard Ramsey advertise Boll and Branch bed sheets.
The minimum price I see on their website is $250 for sheets and pilliow cases.
It just seems Ramsey and $250 sheets don't go together.
Mustachians often criticize Ramsey because of his scorched earth approach to credit card usage and most forms of debt. What we should actually criticize Ramsey for is his acceptance of consumerism as the ultimate reward that is gained through an initial period of financial discipline. Dave promotes "enjoyment" of money when it is properly managed (and he proudly lists cars he owns when they're even slightly relevant). But we Mustachians need to take a stand against many of the consumer items that are part of this "reward" lifestyle.
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I just heard Ramsey advertise Boll and Branch bed sheets.
The minimum price I see on their website is $250 for sheets and pilliow cases.
It just seems Ramsey and $250 sheets don't go together.
Then you don't know Dave Ramsey. He is not afraid to admit that he spends a lot of money debt free. He has a massive house, is a big car guy, has a Ford Raptor, etc. He is more of the midset of, "who do you want to be your personal trainer... a fat person or someone who looks like a greek god?" Or, "if it's your 7th marriage, I hope this one sticks, but I'm not going to take marriage advice from you".
Edit: I'm not saying I agree with this mindset, I'm just pointing out that if you think Dave is a frugal mustachian, you have to listen a bit more.
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Then you don't know Dave Ramsey. He is not afraid to admit that he spends a lot of money debt free. He has a massive house, is a big car guy, has a Ford Raptor, etc. He is more of the midset of, "who do you want to be your personal trainer... a fat person or someone who looks like a greek god?" Or, "if it's your 7th marriage, I hope this one sticks, but I'm not going to take marriage advice from you".
Bit ironic considering he went bankrupt and later dug himself out of financial misery through selling books, talk shows, tapes/CDs, seminars, and sales of endorsements.
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I just heard Ramsey advertise Boll and Branch bed sheets.
The minimum price I see on their website is $250 for sheets and pilliow cases.
It just seems Ramsey and $250 sheets don't go together.
Mustachians often criticize Ramsey because of his scorched earth approach to credit card usage and most forms of debt. What we should actually criticize Ramsey for is his acceptance of consumerism as the ultimate reward that is gained through an initial period of financial discipline. Dave promotes "enjoyment" of money when it is properly managed (and he proudly lists cars he owns when they're even slightly relevant). But we Mustachians need to take a stand against many of the consumer items that are part of this "reward" lifestyle.
His whole mantra is "Live like no one else now so you can live like no one else later." Eat beans and rice for a little while, and then you can buy whatever you want. He definitely is not against spending money for stuff.
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I just heard Ramsey advertise Boll and Branch bed sheets.
The minimum price I see on their website is $250 for sheets and pilliow cases.
It just seems Ramsey and $250 sheets don't go together.
Mustachians often criticize Ramsey because of his scorched earth approach to credit card usage and most forms of debt. What we should actually criticize Ramsey for is his acceptance of consumerism as the ultimate reward that is gained through an initial period of financial discipline. Dave promotes "enjoyment" of money when it is properly managed (and he proudly lists cars he owns when they're even slightly relevant). But we Mustachians need to take a stand against many of the consumer items that are part of this "reward" lifestyle.
His whole mantra is "Live like no one else now so you can live like no one else later." Eat beans and rice for a little while, and then you can buy whatever you want. He definitely is not against spending money for stuff.
To be fair, it's "Live and GIVE like no one else later"
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His whole mantra is "Live like no one else now so you can live like no one else later." Eat beans and rice for a little while, and then you can buy whatever you want. He definitely is not against spending money for stuff.
To be fair, it's "Live and GIVE like no one else later"
No it's not. I mean I'm sure he's said that variation a few times, but the normal quote is definitely "live".
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He changed it to "live and give" sometime in the recent past, probably to pander even more to his Christian followers.
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He changed it to "live and give" sometime in the recent past, probably to pander even more to his Christian followers.
I mean...it's not exactly bad advice though. Better than the former version for sure.
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His whole mantra is "Live like no one else now so you can live like no one else later." Eat beans and rice for a little while, and then you can buy whatever you want. He definitely is not against spending money for stuff.
To be fair, it's "Live and GIVE like no one else later"
No it's not. I mean I'm sure he's said that variation a few times, but the normal quote is definitely "live".
Live and Give like no one else is the quote and the message in his class Financial Peace University. Can't speak for how long it's been that way.
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I've read his books, and it was always "live" in the ones that I read.
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I guess I don't understand why you'd feel compelled to join a group, then directly contradict the plan that group is dedicated to following. I get your point - I'm a math person too, and there is nofreakingway I'm giving up an employer match (for example) until out of debt but in a "Dave Says" group, one has to expect a fair amount of "Dave Says." Sometimes that's just not a battle worth picking. Like talking about how awesome eggs are for your muscles in a vegan bodybuilding group.
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I didn't realize he changed it. I... huh.
I agree the sentiment is better, but that's an awful catchphrase. Doesn't flow at all and destroys the parallelism. It also implies that you shouldn't give *now* (while in debt), which may be reasonable but is not actually what DR teaches. It's just bad.
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I've read his books, and it was always "live" in the ones that I read.
Ok, well I am definitely not making this stuff up either:
https://www.youtube.com/watch?v=Tom_PeRvgiI
Says "live & give" 3 times... first time in the first 20 seconds. He even goes as far as saying he's been saying it for 20 years.
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Says "live & give" 3 times... first time in the first 20 seconds. He even goes as far as saying he's been saying it for 20 years.
He has always extolled the virtue of giving so he probably just meant "this has been our message for 20 years".
Edit: I found an article with him saying "live and give" from 2014, so he's been using it at least occasionally for at least a few years.
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Says "live & give" 3 times... first time in the first 20 seconds. He even goes as far as saying he's been saying it for 20 years.
He has always extolled the virtue of giving so he probably just meant "this has been our message for 20 years".
Edit: I found an article with him saying "live and give" from 2014, so he's been using it at least occasionally for at least a few years.
He says "live" often, but I do think he's reasonably consistent in intending the giving part as well. Consider reading The Legacy Journey if you like.
Yes, his personal motivation for giving comes from his practice of Christianity. But I do often hear a wealthy caller whom he reminds to give. And he brought up tipping generously once as well.
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My professional work is barbells. I follow the Starting Strength method, which uses low-bar back squats. I often see, "That's squatting... but it's high-bar squat! He's squatting... but not in the right way!" And long arguments ensue.
My hobby is roleplaying games, especially D&D. I often see, "That's D&D... but it's not the right edition! It's D&D...but not in the right way!" And long arguments ensue.
And now here with finances: "People are getting rid of debt and saving up money... but not in the right way!" And long arguments ensue.
Relax, boys... I was going to say, "and girls", but it's rarely women who engage in this silliness.
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My professional work is barbells. I follow the Starting Strength method, which uses low-bar back squats. I often see, "That's squatting... but it's high-bar squat! He's squatting... but not in the right way!" And long arguments ensue.
My hobby is roleplaying games, especially D&D. I often see, "That's D&D... but it's not the right edition! It's D&D...but not in the right way!" And long arguments ensue.
And now here with finances: "People are getting rid of debt and saving up money... but not in the right way!" And long arguments ensue.
Relax, boys... I was going to say, "and girls", but it's rarely women who engage in this silliness.
Sometimes, if you don't do things "the right way", you can really injure yourself. Or perhaps you have some special circumstances where one "right way", is very ill advised for you.
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My professional work is barbells. I follow the Starting Strength method, which uses low-bar back squats. I often see, "That's squatting... but it's high-bar squat! He's squatting... but not in the right way!" And long arguments ensue.
My hobby is roleplaying games, especially D&D. I often see, "That's D&D... but it's not the right edition! It's D&D...but not in the right way!" And long arguments ensue.
And now here with finances: "People are getting rid of debt and saving up money... but not in the right way!" And long arguments ensue.
Relax, boys... I was going to say, "and girls", but it's rarely women who engage in this silliness.
Sometimes, if you don't do things "the right way", you can really injure yourself. Or perhaps you have some special circumstances where one "right way", is very ill advised for you.
So true, but we are not the "right and wrong" police. Let people make their own mistakes. Remove the log from your own eye before removing the speck from your brother's as it were.
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My professional work is barbells. I follow the Starting Strength method, which uses low-bar back squats. I often see, "That's squatting... but it's high-bar squat! He's squatting... but not in the right way!" And long arguments ensue.
My hobby is roleplaying games, especially D&D. I often see, "That's D&D... but it's not the right edition! It's D&D...but not in the right way!" And long arguments ensue.
And now here with finances: "People are getting rid of debt and saving up money... but not in the right way!" And long arguments ensue.
Relax, boys... I was going to say, "and girls", but it's rarely women who engage in this silliness.
Sometimes, if you don't do things "the right way", you can really injure yourself. Or perhaps you have some special circumstances where one "right way", is very ill advised for you.
So true, but we are not the "right and wrong" police. Let people make their own mistakes. Remove the log from your own eye before removing the speck from your brother's as it were.
I'm not foregoing getting a 100% 401k match so that I can pay off debt at 2%, so I'm good, TYVM. Im not caahing out of an exceptionally good guaranteed return, just because it falls under the label "whole life". Excuse me for trying to help out my brother.
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My professional work is barbells. I follow the Starting Strength method, which uses low-bar back squats. I often see, "That's squatting... but it's high-bar squat! He's squatting... but not in the right way!" And long arguments ensue.
My hobby is roleplaying games, especially D&D. I often see, "That's D&D... but it's not the right edition! It's D&D...but not in the right way!" And long arguments ensue.
And now here with finances: "People are getting rid of debt and saving up money... but not in the right way!" And long arguments ensue.
Relax, boys... I was going to say, "and girls", but it's rarely women who engage in this silliness.
Sometimes, if you don't do things "the right way", you can really injure yourself. Or perhaps you have some special circumstances where one "right way", is very ill advised for you.
So true, but we are not the "right and wrong" police. Let people make their own mistakes. Remove the log from your own eye before removing the speck from your brother's as it were.
I'm not foregoing getting a 100% 401k match so that I can pay off debt at 2%, so I'm good, TYVM. Im not caahing out of an exceptionally good guaranteed return, just because it falls under the label "whole life". Excuse me for trying to help out my brother.
Note: when this 2% interest rate applies to mortgage debt, Dave Ramsey advocates making 401(K) contributions along-side paying down the mortgage. Unless your employer matches contributions in excess of the first 15%, which--if they do--I have a resume I'd like to send you.
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My professional work is barbells. I follow the Starting Strength method, which uses low-bar back squats. I often see, "That's squatting... but it's high-bar squat! He's squatting... but not in the right way!" And long arguments ensue.
My hobby is roleplaying games, especially D&D. I often see, "That's D&D... but it's not the right edition! It's D&D...but not in the right way!" And long arguments ensue.
And now here with finances: "People are getting rid of debt and saving up money... but not in the right way!" And long arguments ensue.
Relax, boys... I was going to say, "and girls", but it's rarely women who engage in this silliness.
Sometimes, if you don't do things "the right way", you can really injure yourself. Or perhaps you have some special circumstances where one "right way", is very ill advised for you.
So true, but we are not the "right and wrong" police. Let people make their own mistakes. Remove the log from your own eye before removing the speck from your brother's as it were.
I'm not foregoing getting a 100% 401k match so that I can pay off debt at 2%, so I'm good, TYVM. Im not caahing out of an exceptionally good guaranteed return, just because it falls under the label "whole life". Excuse me for trying to help out my brother.
Note: when this 2% interest rate applies to mortgage debt, Dave Ramsey advocates making 401(K) contributions along-side paying down the mortgage. Unless your employer matches contributions in excess of the first 15%, which--if they do--I have a resume I'd like to send you.
This example was for a student loan. A 100% match on your first 4 or 6% (cant remember this case exactly) of your pay that you contribute is like an instant 100% return on that money.
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The "lowest balance first" routine works for them. There is a comment in one of the audio books, "if you were so good at math, why are you in debt?" Great question actually.
I would submit that the psychological payoff of the "lowest balance first" system is probably worth the math compromise EXCEPT for really significant outliers such as a zero percent loan which can easily wait until the end or some ridiculous confiscatory rate at the other extreme, like a 29% penalty rate which should jump to the front of the line. Otherwise, it feels good to knock out a small debt and snowball that payment up to the next debt. There is nothing wrong with feeling good about paying off your debts!
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My professional work is barbells. I follow the Starting Strength method, which uses low-bar back squats. I often see, "That's squatting... but it's high-bar squat! He's squatting... but not in the right way!" And long arguments ensue.
My hobby is roleplaying games, especially D&D. I often see, "That's D&D... but it's not the right edition! It's D&D...but not in the right way!" And long arguments ensue.
And now here with finances: "People are getting rid of debt and saving up money... but not in the right way!" And long arguments ensue.
Relax, boys... I was going to say, "and girls", but it's rarely women who engage in this silliness.
I love the book and Ripp's methods.
And I agree with you on all points.
I used Ramsey's snowball method to kill off about 10K in debt at one point in my life. Was it the best method? Who knows and who cares. It worked for me, at the time. Do I still listen to him? No, but for someone else, he might say something that clicks, and that might be the one thing that puts another person on the road to financial freedom. That is a win in my book.
The thing I hate most about Facebook and forums like these is all the stupid chatter about what other people are doing or saying. I see this all the time in my keto groups. WTH LOK WTF someone on that other group sez 90% fat they are sooooo wrong blah blah blah.
Who cares? It's all gossip, and ultimately unproductive.