Dave Ramsey on dvc

[MrsBooch]

I have no inherent problem with Dave Ramsey - but I do have a problem with people who tell me about Dave Ramsey because 9 times out of 10 - 5 minutes into the conversation they are talking to me like they're my financial advisor. Unsolicited advice about personal finances is the most unwanted conversation imo.

 

[mustinjourney]

IMO, I don't think it's really close (unless there is an employer match). Yes, everyone needs retirement savings. But your not going to have much of a retirement if you have ridiculously high levels of debt. At 19.99%+ interest rates on credit cards, you will probably never be able to buy yourself out of debt in retirement.

When your starting to talk about "low interest" debt (<10%), then the discussion becomes more interesting.

IMO, it goes:

1) Emergency Savings
2) Employer sponsored 401K if there is an employer match
3) High Interest Debt
4) 401K/Roth IRA (I think that's what they are called in the US. One is based on pre-tax dollars but provides a tax deduction, and is taxed as income on withdrawal. Other is based on after-tax dollars, no deduction, but income is non-taxable)

This covid-19 shutdown has shown that even in the best of times, the vast majority of people live paycheck to paycheck (and this is at many income levels). And this goes for small businesses as well.

But overall -- I agree with your order of payments

 

[tcufrog]

My goal is to teach my kids four things WRT money: how to spend it, how to donate it, how to save it, and how to grow it. I think too many parents neglect the fourth thing. I think Dave Ramsey can be very helpful when it comes to having overwhelming debt and not knowing how to get from under it, but I'm unimpressed with his advice regarding how to grow your money. My DH and my goal is for our money to work for us instead of the other way around.

 

[CanadaDisney05]

This covid-19 shutdown has shown that even in the best of times, the vast majority of people live paycheck to paycheck (and this is at many income levels). And this goes for small businesses as well.

This is why I truly believe the emergency fund has to be #1, even above credit card debt. I don't believe that most people follow that strategy which I think is a big problem.

 

[mustinjourney]

This is why I truly believe the emergency fund has to be #1, even above credit card debt. I don't believe that most people follow that strategy which I think is a big problem.

The other thing that people tend to not have is a "**** happens"fund. We keep at least $5-10k in a separate bank account that is titled "rainy day" -- and that is separate from the 3-6 months living expenses. Good thing too, b/c no matter what -- there is always something that breaks down unexpectedly or something else that is just not in the normal monthly budget. In one year alone, we had to repair the main sewer line, fix the AC (which wasn't that old), replace DW's windshield, and then unexpected surgery (broke my hand golfing of all things). All told, it was in that $5000-$10000 range I believe, so it was nice to have. Once it was depleted, it got replenished from general savings.

I'm also a fan of having multiple savings accounts rather than just one. Psychologically speaking, I find that we spend less if it feels like we have less. If you have one savings account with all of your money, you feel like you have a lot more money than if you split that same amount into 4 or 5 different accounts. For us -- we have a property tax account, a general savings, living expenses, vacation fund, and rainy day all at one bank, plus we have another two savings accounts at two different banks.

 

[CanadaDisney05]

The other thing that people tend to not have is a "**** happens"fund. We keep at least $5-10k in a separate bank account that is titled "rainy day" -- and that is separate from the 3-6 months living expenses. Good thing too, b/c no matter what -- there is always something that breaks down unexpectedly or something else that is just not in the normal monthly budget. In one year alone, we had to repair the main sewer line, fix the AC (which wasn't that old), replace DW's windshield, and then unexpected surgery (broke my hand golfing of all things). All told, it was in that $5000-$10000 range I believe, so it was nice to have. Once it was depleted, it got replenished from general savings.

I'm also a fan of having multiple savings accounts rather than just one. Psychologically speaking, I find that we spend less if it feels like we have less. If you have one savings account with all of your money, you feel like you have a lot more money than if you split that same amount into 4 or 5 different accounts. For us -- we have a property tax account, a general savings, living expenses, vacation fund, and rainy day all at one bank, plus we have another two savings accounts at two different banks.

I agree with the method. I essentially do the same thing. I mentioned it in a previous post, but I use a software called YNAB which takes the balance of your chequing/savings accounts, and splits them up into multiple, theoretical "accounts". You then allocate your chequing/savings account dollars amongst these "accounts". So every month, I allocate a portion of my income into my home maintenance "account". Even though this money is just sitting in my chequing account, I consider this money spent. The day I have a large home maintenance expense, I just pull into this "account", which is already funded. If the expense is over and above the amount saved in this account, this is where my emergency fund would come into place. If you look at my budget, I probably have somewhere between 30 to 40 different "accounts", some larger than others.

So if you looked just at my bank accounts, you would see that I have a lot more cash on hand than my emergency fund. But in my mind, I'm living paycheque to paycheque, without the anxiety of "what if **** happens."

 

[Grumpy by Birth]

Don't even get me started on how much credit card debt he must have racked up building that Final Order fleet on Exegol!

perhaps he believes in modern monetary theory and just straight printed the cash.

Or he labeled it as an educational expense and took out student loans from the "sith college" to cover it.

 

[Disneypapa]

Using the advice of Dave Ramsey and Suze Ormond has helped me tremendously over the years. I am successfully retired now. completely out of debt and living the life like no other in retirement.

 

[CmdrThor]

This is why I truly believe the emergency fund has to be #1, even above credit card debt. I don't believe that most people follow that strategy which I think is a big problem.

If you have credit card debt though an emergency fund really isn't an emergency fund though. Keeping $5,000 in a savings account when you have $10,000 in credit card debt and continue to add to your savings instead of paying off your debt just increases the amount of your budget that goes to servicing your debt instead of being able to build on your savings. You are still $5,000 in debt, but you are paying like you are $10,000 in debt. You'd be better off paying off your credit card debt and consider your credit line your emergency fund until you can build an actual emergency fund. Worst case if you run in to an unexpected $5,000 expense you put it back on the card, but at least you stopped paying interest for some time.

 

[a1tinkfans]

Whether you like Ramsey or not... this pandemic brought to light... that many people do not have the financial means to live off their contingent “saved”money for 3 mos.( March/April/part feb?) scary indeed! .

 

[a1tinkfans]

Using the advice of Dave Ramsey and Suze Ormond has helped me tremendously over the years. I am successfully retired now. completely out of debt and living the life like no other in retirement.

Fortunately... Not like No Other! Enjoy!!!

 

[CanadaDisney05]

If you have credit card debt though an emergency fund really isn't an emergency fund though. Keeping $5,000 in a savings account when you have $10,000 in credit card debt and continue to add to your savings instead of paying off your debt just increases the amount of your budget that goes to servicing your debt instead of being able to build on your savings. You are still $5,000 in debt, but you are paying like you are $10,000 in debt. You'd be better off paying off your credit card debt and consider your credit line your emergency fund until you can build an actual emergency fund. Worst case if you run in to an unexpected $5,000 expense you put it back on the card, but at least you stopped paying interest for some time.

In an emergency situation (which is what an emergency fund is for), you can pay off your debt slowly, and still buy groceries and pay your rent/mortgage. Remember, a line of credit is not guaranteed to be available when you lose your job, and the world's economy is falling apart.

I agree, mathematically it makes more sense to pay off high interest debt, and build investments instead of keeping cash tied up in a low bearing interest account. However, in the worst case scenario, I'd rather be paying interest on a loan and eating, than starving on the streets and not accumulating interest. There is probably somewhere in between having a full 6 month emergency fund stored in cash, and not having any emergency fund at all, where it makes sense to switch over from accumulating cash into paying debt. This really is based on individual risk tolerance.

 

[Starport Seven-Five]

If you have credit card debt though an emergency fund really isn't an emergency fund though. Keeping $5,000 in a savings account when you have $10,000 in credit card debt and continue to add to your savings instead of paying off your debt just increases the amount of your budget that goes to servicing your debt instead of being able to build on your savings. You are still $5,000 in debt, but you are paying like you are $10,000 in debt. You'd be better off paying off your credit card debt and consider your credit line your emergency fund until you can build an actual emergency fund. Worst case if you run in to an unexpected $5,000 expense you put it back on the card, but at least you stopped paying interest for some time.

I generally agree although I still think you need some minimal amount of cash in savings as there are expenses that can't be put on the credit card. Ramsey splits the emergency fund into an initial $1,000 and then 3-6 month expenses after paying down debt... I think the blanket "$1,000" is stupid (it wouldn't even cover our mortgage for a month) but the idea of a smaller emergency fund before paying down debt makes sense.

Whether you like Ramsey or not... this pandemic brought to light... that many people do not have the financial means to live off their contingent “saved”money for 3 mos.( March/April/part feb?) scary indeed! .

Studies have shown that for a while:
https://www.cnbc.com/2019/01/23/most-americans-dont-have-the-savings-to-cover-a-1000-emergency.html

 

[SteveH]

... this pandemic brought to light... that many people do not have the financial means to live off their contingent “saved”money for 3 mos...

And many businesses too. Sadly I don't think even this will wake up most people or business, they will go back to their old ways.