there are also 'mandatory expenses and fees' that individual colleges require but the irs does NOT recognize them-these include insurance/health fees and transportation. when my oldest went these were all mandatory for attendance and added several hundreds per quarter in fees.
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there are also 'mandatory expenses and fees' that individual colleges require but the irs does NOT recognize them-these include insurance/health fees and transportation. when my oldest went these were all mandatory for attendance and added several hundreds per quarter in fees.
Starport Seven-Five
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The 300k becomes 600k due the length of time. It looks scary on paper but you have to consider that a good portion of those dollars will be eroded by inflation during the repayment of that loan ($1 in 1993 is equal to $2.11 in 2023).
Considering interest rates for the last decade I would strongly suggest that people consider all options before paying down a mortgage. Mortgage rates were low for over a decade and now CD's are paying 5%... so it's not hard to find examples where paying down the mortgage is a suboptimal. If someone still wants to pay off the mortgage for peace of mind that is their choice... I just don't like the rigid ideology in this area.
Personally, we're sitting on a 30 year at 2.5%. I'm perfectly content with paying that mortgage in today's interest environment.
excellent points.
i recall a time when my late mother considered paying off her mortgage but she realized that cd's were paying more at the time than she was paying in interest so she choose to 'pay' herself instead.
on the subject of 15 year mortgages-while i like the idea of a shorter term payoff, when dh and i bought our current home we purposely opted for a 30 vs. a 15 b/c the (then) interest rate differences were negligible. we figured if we had a financial downturn we would prefer a lower vs. higher monthly payment obligation. we ended up paying the mortgage at or above the amount the payment would have been as a 15, throwing the extra at the principle each month and paying off well before the 15 year point but it was nice to have the peace of mind that, need be, we were only obligated to a much lower monthly amount.
ThereYouSeeHer
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Remember, by Baby Step 6, you have a full emergency fund in savings and are contributing 15% of your gross income towards retirement. In addition, you are saving for college. Plus, because you are debt free everywhere except the house, you should also be saving toward other sinking funds (like car repairs, roof replacement, etc).
Therefore, it's not like an individual is missing out on higher interest rates for savings accounts or CDs. There are many ways and reasons someone is saving while in Baby Step 6! However, it is not recommended to throw every extra cent into savings while a mortgage exists. There should be some-amount-greater-than-zero that can be used to get that mortgage to pay itself off faster!
Financial decisions definitely have an individual component, but the Baby Steps are such a clear path to debt freedom and wealth building!
amylevan
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But every dollar you have should work the hardest for you. Period. So if you’re mortgage rate is 3.125% (mine currently) and you earn 3.75% in savings, 5% in a CD and an assumed amount in the stock market, why would I throw any extra at the mortgage? It all works harder in the other locations.
Also why we still have a 0% loan on our tractor and a 1.5% car loan. We could pay them off today if needed, but why would I do that?
The answer to both of your "why" questions is financial peace.
This is a Ramsey Baby Steps thread. If you don't agree with the seven baby steps in this plan, that's fine - that's why personal finance is called "personal" finance. But please don't come into this group & badger us not to follow the steps that this thread is centered around.
We follow the steps because our goal is financial peace - my personal goal is less monthly obligations which means no debt of any kind. The free-er my income & I are, the more at peace I feel. That is my "why".
ThereYouSeeHer
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Good questions! These all get to the heart of this thread, which is about following the 7 Baby Steps to first eliminate debt and then build wealth.
The Baby Steps are mostly about behavior modification. Of course, arguments are often made for keeping a debt at 3% while you earn 5% elsewhere. However, assuming it's not a tax-free investment, you will eventually pay taxes on the 2% that you effectively net. Does that increase someone's wealth so much that it's worth being indebted to someone else for more time than necessary?
In the same way that compound interest works to help increase savings, putting something on debt now helps accelerate the payoff date for later. The sooner you start, the sooner the debt ends, and the sooner you are free. Then, you can use all those payments you gave to others to pay yourself!
Just because a lender accepts a 6 month or 30-year payment term doesn't mean it's in your best interest to keep the debt around that long, regardless of the interest rate. Being able to afford ongoing debt payments assumes current levels of income will continue uninterrupted. If you pay off the debt now, it gives breathing room for life's later unexpected valleys.
This thread is about catching the vision of learning to save before buying, paying off previous obligations quickly, and owing no one anything going forward. Debt robs future income to pay for your past. The Baby Steps are a way out!
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are you speaking the $1K or the 'padded' multi thousand dave is now promoting b/c so many have pointed out that $1K is grossly insufficient in even a small scale 'emergency'? even dave listens to other's opinions and has adjusted his mindset/philosophy on this issue b/c as many have pointed out-$1K is less than many a prudent and cost effective auto or homeowner's insurance policy's deductible. daily when i listen to his show the mantra has changed to 'x number of months expenses in an emergency fund by step y'.
i don't think that person is 'badgering' anyone-just offering their opinion in a thread open for discussion to anyone. 'financial peace' means different things to different people, ramsey himself espouses that. yes, the goal of his program and many private individual's is being debt free but there are those of us who have followed his program with tweaks of our own to the same if not BETTER result (as in a much fuller emergency fund than the $1K and paying off debt by interest rate vs. smallest to highest resulting in tremendous net savings which we've utilized to structure our own expenses and savings to achieve our best personal form of 'financial peace').
ThereYouSeeHer
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I'm not aware of Dave's Baby Steps being adjusted over the years, although some of his practical guidelines (like how much to save for a downpayment or how best to utilize a Roth) may have evolved.
Baby Step 1 has always been $1000 in a starter emergency fund, and Baby Step 3 is finishing the emergency fund by saving up to 6 months of expenses.
As Dave has said, $1000 isn't enough in 2023, and $1000 wasn't enough 20 years ago. It's supposed to be a temporary step until you can free up more cash to put away in savings.
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ThereYouSeeHer
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Yes, in case someone isn't familiar with these methods...
Some people advocate for the Avalanche method, which is paying off debts starting with the highest interest rate.
Dave teaches the Snowball method, which is paying off debts starting with the smallest balance. Once the smallest debt is paid off, that payment is added to the next debt payment. Once the second debt is paid off, you take the payments you were making to the first two debts, and add them onto the third. This continues down the line, thus increasing or 'snowballing' the payment you can apply to later debts. Again, this is for behavioral reasons, so that an individual has many 'quick wins' in the beginning to sustain their motivation through the larger debts to come.
For example, let's say someone had debts of $500 at 0%, $1500 at 10%, and $20,000 at 20%.
Avalanche: pay $20,000 off first, then $1500, and then $500.
Snowball: pay $500 off first, then $1500, and then $20,000. Generally speaking, getting rid of 2 creditors quickly will help an individual remain focused on that largest debt. Tackling $20,000 first could be overwhelming to someone who has not yet freed up enough cash to make effective progress on debt repayment.
The only time Dave advocates for the Avalanche method is if there are debts with similar payoff amounts. In that case, yes, someone should be tackling the debt with the highest interest rate.
ThereYouSeeHer
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Just for fun, here's a video from a recent live event, which asked about the $1000 starter emergency fund being enough. He answers the question in the first two minutes, but the remaining clip is also worth watching!
amylevan
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I didn’t realize asking a question was badgering. Nor did I realize that you couldn’t discuss the whys of the topic on a general discussion board. Maybe if you don’t want to have a critical analysis discussion you should move to a Ramsey board?
as i mentioned above-i don't find your comments badgering at all. i have always found that thoughtful, informed and polite two way conversation is far more edifying and beneficial to people participating on a thread. it seems if people just wanted to be 'ted talked' to about ramsey or any other subject for that matter-they could go to the wealth of pre-recorded or written materials available from the source.
ThereYouSeeHer
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It can be difficult to determine tone on a message board, and since the original question came off strong, it made the intent unclear. However, you can certainly ask questions about the topic at hand, and the previous poster was gracious enough to still give a personal answer.
Our answer is actually the same as theirs--we paid down debt instead of other uses for the money, so that we could reduce our monthly obligations. I wanted to stop working and be a full-time stay-at-home mom, but we had to lower our expenses to do so. If I used the money for investing, or waited until the payoff date, our children would have been grown and gone by then.
Also, as far as I remember, Dave closed their community forums many years ago. So, if someone is looking for help in walking through the Baby Steps, they've found the right place on these boards!
ThereYouSeeHer
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Yes, but even when others go to the source, they may still not grasp the reasoning behind debt freedom, or the difference between different emergency funds.
When Genie+ was released, I read all the articles and watched all the videos Disney put out directly. However, it wasn't until actual park-goers started reporting from the trenches that I understood any of it--the loopholes, the nuances, the real-world applications.
I've never seen a TED talk, so I can't speak to that, but I do try to have explanatory posts that help others get through the process. I've been walking this out for over a decade and am trying to explain everything as best as I understand it. I'm still learning myself, and if someone is already past the information shared in this thread, that's ok, too!
ThereYouSeeHer
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Ok, I wanted to pass along some food for thought on colleges! For Baby Step 5, the Ramsey team recommends community college as a way to get through debt-free. This was our original intention, but here are some reasons why that changed:
1. Courses. Some community colleges have amazing classes that are hard to find at other universities. However, some may have limited options that are less appealing, especially depending on a student's desired career path.
2. Transfer credit. Every four-year institution has a different general education requirement, which is where most transfer credits will get applied. If your university's GenEd is pretty generic, community coursework has a better chance of transferring. However, some schools have unique or school-specific GenEd classes that don't have an equivalent at a community college. In these situations, courses taken at a community college may then transfer as 'electives' instead of GenEd or major classes. This brings us to the next issue...
3. Majors. Some majors are extremely rigorous and do not have wiggle room in the area of electives. If your student's chosen major does not allow for many electives, then community coursework may have no where to transfer, and the effort can be effectively lost.
4. Scholarships. Most institutional aid is designed to grab students fresh out of high school and keep them on-campus for four-years. Schools generally throw way more money at freshman than transfer students. It may be more cost-effective to attend four years with scholarships than two years without them.
5. Freshman-centric activities. There is no denying that schools are setup to hype-up the direct entrance of high school seniors into freshman status at a four-year college--from freshman orientations to Welcome Week to specific classes that guide their success. There is an energy that comes from starting school with a large class of peers that are your age and in the same stage of life. Yes, community colleges will also have similar programs for freshman, but when a student inevitably transfers to a four-year college, the transfer experience can be more subdued or potentially more fractured among age groups. Some schools are better than others at supporting transfer students, but know there can be a disparity in how the two groups are handled.
6. Continuity. We felt there was something to be said for starting at one school and continuing at that school--from getting to know the campus to understanding school requirements or grading mechanisms. Also, let's say a student may not be able to afford all four years. Starting at the desired school from Year 1 might enable them to make connections that will fuel their ability to stay. For example, they may be able to find on-campus employment or internships that pay for future housing or tuition.
None of the points above were deal-breakers individually. Community college is still one of the best values out there and should not be dismissed. However, it does take careful planning to avoid some of the difficulties mentioned. There is no right or wrong answer here, only what works for your individual student and budget!
1. Courses. Some community colleges have amazing classes that are hard to find at other universities. However, some may have limited options that are less appealing, especially depending on a student's desired career path.
2. Transfer credit. Every four-year institution has a different general education requirement, which is where most transfer credits will get applied. If your university's GenEd is pretty generic, community coursework has a better chance of transferring. However, some schools have unique or school-specific GenEd classes that don't have an equivalent at a community college. In these situations, courses taken at a community college may then transfer as 'electives' instead of GenEd or major classes. This brings us to the next issue...
3. Majors. Some majors are extremely rigorous and do not have wiggle room in the area of electives. If your student's chosen major does not allow for many electives, then community coursework may have no where to transfer, and the effort can be effectively lost.
4. Scholarships. Most institutional aid is designed to grab students fresh out of high school and keep them on-campus for four-years. Schools generally throw way more money at freshman than transfer students. It may be more cost-effective to attend four years with scholarships than two years without them.
5. Freshman-centric activities. There is no denying that schools are setup to hype-up the direct entrance of high school seniors into freshman status at a four-year college--from freshman orientations to Welcome Week to specific classes that guide their success. There is an energy that comes from starting school with a large class of peers that are your age and in the same stage of life. Yes, community colleges will also have similar programs for freshman, but when a student inevitably transfers to a four-year college, the transfer experience can be more subdued or potentially more fractured among age groups. Some schools are better than others at supporting transfer students, but know there can be a disparity in how the two groups are handled.
6. Continuity. We felt there was something to be said for starting at one school and continuing at that school--from getting to know the campus to understanding school requirements or grading mechanisms. Also, let's say a student may not be able to afford all four years. Starting at the desired school from Year 1 might enable them to make connections that will fuel their ability to stay. For example, they may be able to find on-campus employment or internships that pay for future housing or tuition.
None of the points above were deal-breakers individually. Community college is still one of the best values out there and should not be dismissed. However, it does take careful planning to avoid some of the difficulties mentioned. There is no right or wrong answer here, only what works for your individual student and budget!
I'm sorry you took offense at my use of the word "badgering". I don't find your past posts to be badgering; it was merely a request for future posts as that is why I left Facebook (too many people would come into a group based on a particular topic and then try to argue against it - much like going onto a Disney group & arguing that Universal is a better park). I'm probably just getting old & cranky.
You are asking very thoughtful questions about the reasons behind the steps which I answered for my personal journey. I hope you are also able to find your "why".
Anthony1971
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- Mar 11, 2005
Please remember a Mortgage rate is APR and a CD rate is APY.
APR is the annual percentage rate however most mortgages are compounded daily meaning you are paying interest on interest daily.
APY is including compounding which monthly on a CD so your actual APR is around .25% lower in a 12 month compound.
There are calculators that will show you APR VS APY but what fun would that be.
The formula is A=P (1+R/N)NT - to the power of NT no option for me to show that.
A is the amount you will owe P is the principle (you can look online and find the actual amount you owe today) R is the interest rate in a decimal form 5% would be .05 (5/100) N is the amount of times interest is added in a year 365 in the case of a mortgage (but you can check to see if yours is different) 12 in the case of a CD. T is the number of years.
And lastly credit cards do the same they give you an APR and compound daily plus don't forget each new charge adds interest as well from the day you make the purchase........
PLEASE pay attention to APR and APY most do not look nor understand the difference.... look at any credit card statement you have near you you will see APR with notes 1,2 etc with 1 maybe saying kind words like daily method used (APY will be disclosed in the fine print somewhere on the back) go on any bank website look at the savings rate and you will see APY after the rate with a *
ThereYouSeeHer
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- Apr 5, 2010
Just popping in for an end of June wrap-up.
No changes in the Baby Steps. Still trying to stockpile cash to get through the first year of college. Dealing with other things like HVAC issues and changes at work, including the elimination of retirement matching. Ugh. We're not in 'storm cloud mode' yet, but keeping an eye on everything for sure.
Since we've added more savings and retirement accounts this year, I'm now tracking all balances on the first of every month in our budget spreadsheet. This will help us stay on top of our assets more regularly.
I finally have a better handle on bills that occur non-monthly. I added them all up, divided the total by 12 months, and included it as a separate line item in our monthly budget. Before, it was getting swept into a general category with other things, but I needed to break it out for better awareness and control.
I purchased both the financial and career Ramsey Homeschool classes for school next year. I've been going through the career one, and it's really good! As an adult who still doesn't know what she wants to be when she grows up (ha!), it lays out everything really well. It prompted me to join Ken Coleman's zoom FPU class this past month, and tonight is the final class.
Other than that, just trying to keep swimming!
No changes in the Baby Steps. Still trying to stockpile cash to get through the first year of college. Dealing with other things like HVAC issues and changes at work, including the elimination of retirement matching. Ugh. We're not in 'storm cloud mode' yet, but keeping an eye on everything for sure.
Since we've added more savings and retirement accounts this year, I'm now tracking all balances on the first of every month in our budget spreadsheet. This will help us stay on top of our assets more regularly.
I finally have a better handle on bills that occur non-monthly. I added them all up, divided the total by 12 months, and included it as a separate line item in our monthly budget. Before, it was getting swept into a general category with other things, but I needed to break it out for better awareness and control.
I purchased both the financial and career Ramsey Homeschool classes for school next year. I've been going through the career one, and it's really good! As an adult who still doesn't know what she wants to be when she grows up (ha!), it lays out everything really well. It prompted me to join Ken Coleman's zoom FPU class this past month, and tonight is the final class.
Other than that, just trying to keep swimming!
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ruadisneyfan2
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- Joined
- May 20, 2006
Ours was originally wired for home phone since it was built in 2000, but not internet. However, Verizon is allegedly going to run everything to our house, including down our quarter-mile driveway, for free. Comcast came through several years ago and wanted $7000 to run the cable line down our driveway
We've had Fios since 2008. Prior to that we had Comcast but Verizon still ran their own cables anyway. After all, FIOS stand for Fiber Optics, which somehow is slightly different than regular cable, so they always want their own cables installed. They set everything up on the day of installation. At the time, we requested boxes for 3 bedrooms, living room and kitchen. It took 2 guys all day to install. We are down to 3 set top boxes now. Their high speed internet was a huge improvement over Comcast.
My coworkers who live in Philly still don't have access to Fios and they complain how often their Comcast is down. We have only had it go down once.
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