SlumTodd_Millionaire
Most Hated Member
Of course it can be done. The question is how long it takes, and how much money that time costs you in the long run.
For anyone thinking of taking out a loan
- Thread starter JJ8Flyer
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Of course it can be done. The question is how long it takes, and how much money that time costs you in the long run.
exneophyte
Well-Known Member
Yet another path of how it can work. I wish I could waive a magic wand and impart the opportunity cost and time value of money concepts to everyone I know. In fact I get yelled at when I suggest financial literacy courses replace the wasted time in middle schools and high schools like watching movies.
Given the particulars of my situation, I was lucky to benefit from both the emotional side and financial side of Dave Ramsey's concepts at the time because they both aligned.
lr31apilot
Well-Known Member
I guess I would say do it while you go to college so there is no "time" lost. I spend about $21,000 on all my training over 4 years + state school around $3,000 a year. My degree is in Geological Sciences. I'm not sure that qualifies as a back up plan but it was interesting.
SlumTodd_Millionaire
Most Hated Member
In order to do that, you must have already had money set aside, which most 18 year olds don't. Four years of college, plus living expenses, plus flight training is a lot more money than can typically be made by working part time while you're in school. So, the average person would be looking at extending his time by quite a few years when compared to taking out the loan.
exneophyte
Well-Known Member
Even with your backup degree you may not believe it, but your "Geological Sciences" degree is not useless. Anywhere oil is attainable, you have an opportunity. You may not get to live where you want, but you will have opportunity.
Finally, if your kid is the one in your avatar, he's freaking adorable. Never forget it.
Pilot Fighter
Well-Known Member
In some ways, Ramsey seeks to punish those that have made financial mistakes. The punishment for acquiring bad debt is to pay off that debt as soon as possible, at all costs. He will not offer any constructive financial advice until bad debts are repaid in full.
Twelve years ago I had $25K in car loan and credit card debt. I also had about $25K in the bank. I was considering buying a property at public auction at a very attractive price. If I had called Ramsey, he would have told me to pay off my consumer debt and save six months income before I did anything. It would have been ba advice.
I bought the property for $25K and it appraised at $45K. I borrowed $10K against the house at a low interest rate and made improvements that raised the value to $70K. It has rented for $600-$700 a month for eleven years with only three months of vacancy during this period. The property is paid off and generating nice cash flow, currently appraised for $75K+.
How much would Ramsey's advice have cost me? For as much as Ramsey likes cash, he ignores the value of cash in-hand. My girlfriend, a hard-working single mom, lost the tranny in her VW last year. She was ready to clean out her bank account to pay for it. Ramsey would have supported that decision. I don't think that single moms should be without any cash. She paid half in cash and used a credit card to finance the balance over a few months.
Twelve years ago I had $25K in car loan and credit card debt. I also had about $25K in the bank. I was considering buying a property at public auction at a very attractive price. If I had called Ramsey, he would have told me to pay off my consumer debt and save six months income before I did anything. It would have been ba advice.
I bought the property for $25K and it appraised at $45K. I borrowed $10K against the house at a low interest rate and made improvements that raised the value to $70K. It has rented for $600-$700 a month for eleven years with only three months of vacancy during this period. The property is paid off and generating nice cash flow, currently appraised for $75K+.
How much would Ramsey's advice have cost me? For as much as Ramsey likes cash, he ignores the value of cash in-hand. My girlfriend, a hard-working single mom, lost the tranny in her VW last year. She was ready to clean out her bank account to pay for it. Ramsey would have supported that decision. I don't think that single moms should be without any cash. She paid half in cash and used a credit card to finance the balance over a few months.
SlumTodd_Millionaire
Most Hated Member
For the Ramsey disciples, I would encourage you to read the above over and over again. This is how people create wealth. People who follow Ramsey's advice never become wealthy. They just get by.
Maurus
The Great Gazoo
I think Ramsey is good for a certain type of people. People that got themselves into a big hole with bad decisions could definitely use his advice. To be honest $25K isn't a lot of debt, especially when you already have the debt matched in cash.
SlumTodd_Millionaire
Most Hated Member
I just hate this idea that you have to fix a series of bad decisions with yet more bad decisions. Turn the corner! Start doing what is financially correct. It's just as easy to do it the right way as it is to do it the Ramsey way.
Maurus
The Great Gazoo
The problem is that investing money does not come naturally to all people. I personally couldn't stand any of the financial classes I took in high school and college. As a result I do not remember much of anything that has to do with finance. For me it would be learning an entirely new subject matter all over again.
That said, I get 1 paycheck a month (the other as you know is bigger but still sucks) that comes to a total of $613 so I don't exactly have much money to risk.
Pilot Fighter
Well-Known Member
Exactly. It's like an evangelical campaign to punish bad decision-making and/or debt. He completely ignores the ability of people to stop making bad decisions (sunk cost) and proceed with good decisions.
Building wealth is about leveraging cash and credit. The great thing is you can be as aggressive or conservative as you wish. It isn't just about building wealth, it's about quality of life. If you manage debt well and can keep some cash on hand you can take advantage of situations as they arise. A bad economy is a yard sale for those with a bit of cash and good credit. I have a bunch of toys (motorcycle, bass boat, sailboat, camper, atv, guitars, etc) that I probably paid $20k for that would have cost me $200K if I would have been debt AND cash-free and would have needed to finance to purchase.
SlumTodd_Millionaire
Most Hated Member
None of that matters. It's very easy to learn the correct concepts of money management, even if you don't have the interest in investing.
Pilot Fighter
Well-Known Member
The focus doesn't have to be investing or maximizing income. An understanding of finance allows us to dial in the balance we are comfortable with, a balance that includes luxuries.
Going back to my rental property example. It had positive reliable cash flow so I made a choice not to rush to pay back the debt. I bought toys that have brought me great joy. If I would have sacrificed to pay off the note ASAP, I would have bought fewer toys and my life would have been less wonderful.
If I followed Ramsey, the motorcycle that I paid $2K for would really have cost me $12k in a sense, because he would have pushed me to pay off the $10k note first.
An understanding of finance gives you a range of choices, not just tools to maximize income.
Cessnaflyer
Wooooooooooooooooooooooooooooooo
A Ramsey follower would not be smart enough to do the same. It's like beating a dead horse.
SlumTodd_Millionaire
Most Hated Member
Amen, brother. As we speak, money sitting in savings accounts is losing 1.5% of its value per year. Most years it's closer to 3%. My 401k money is accessible within 24 hours in the form of a loan if I need emergency money, and I've got tens of thousands of dollars available on credit cards if I need money instantly. I'll never understand how someone can leave so much money sitting in an account that is guaranteed to lose value, all for an emergency situation that is incredibly unlikely to happen.
Everyone's situation is obviously different, single, spouse, kids but what do you keep on hand in a savings account? I keep $500 because through our credit union that accrues 6%! but drops off above $500.
I'll hang up and listen to your answer...
SlumTodd_Millionaire
Most Hated Member
Usually I keep one month's expenses. That way if I have a problem with identity theft and can't access my credit cards, I've still got money on hand until it gets sorted out.
NickH
Uber Driver
I do about the same thing, but keep it on hand in cash. My assumption is that if all of my credit cards are compromised, then my bank account will be too. Fortunately my expenses are very low.
With the cash back or points offers on credit cards, everyone should be using them for the bulk of their spending. 1-5% cash back really adds up over the space of a year.
Getting my first credit card when I was in junior high was the best thing that ever happened to me. It allowed me to have a credit rating of 780 by the time I was 20 so that I could purchase my first house. That purchase has increased my net worth by many thousands of dollars over the years.
Listening to Ramsey, I never would have had that card, and I wouldn't have had a credit rating at all. I'd still be a junior first officer making $45k/yr at a regional and paying rent to someone. But hey, I'd be debt free! Yay!
Speaking of debt free and wealth, let's just say that I know someone who scrimped and saved in order to put his only child through college. Went "without", clipped coupons and massed a respectable amount of money in order to put their kid through college debt-free.
Kid goes to college for a couple years, blows through the money with catlike quickness without graduating, moves back in the house and is pretty much sweeping concrete at the park.
All the bills are paid, so stress-free and has no edge to "do better".
Just thought I'd throw that out there. Sometimes a little bit of debt is impetus for your kid to get off their ass and achieve in a worthy profession in order to get out of it and a lesson to strive to stay out of it.