3/20/2023 0 Comments Dave ramsey success storyThat is to say absorb investment books and read finance blogs, then conduct your own research about investments, finally go and talk to an investment councilor. When you’re on Baby Step 4 and setting up your investments, make sure you do due diligence. The caveat to this comes after Baby Step 3. If you are looking to get debt free, Dave is the way to go. No one can motivate you better, no one has the powerful support structure, and no one has as many success stories as Dave Ramsey. He designed a plan that helps you get your mind in order first. Money is 75% mental, and Dave knows that better than anyone else. Yes after wasting all your time above, I’m now telling you how great he is. I actually believe that no one out there can help you get your finances in order better than Dave Ramsey. But I’m not here to tell you Dave’s plan is a failure. Wow, I’m probably the first person to do that, ever. Okay, so I’ve established that there are some mathematical flaws in the Dave Ramsey plan. Dave Ramsey Can Still Help You Get Out Of Debt A much more realistic expectation is 8-10% in true returns. Managed money funds range from 0.5% to 2% or more in fees! So even if you find that wonderful 12% returning mutual fund, take a look at how much of your 12% is eaten by fees. But Ramsey’s recommendations aren’t index funds, they are managed money funds. Vanguard, the prince of cheap funds, has expense ratios of about 0.15% for it’s index funds. A common error made by Dave Ramsey and anyone else out there that talks about investments is the fees in mutual funds. As someone who understands the risks of investing better than most, I would laugh at someone who thought they were diversified with a any portfolio balance of just the 4 categories above.Īnd what about that 10-12% return I spoke about earlier? If there is a mutual fund out there that has averaged 12% for 30 years please point me to it because I haven’t found it. Their fixed income will reduce your potential return, but increase your chances of preserving what you’ve made. As you get nearer to retirement, you will want to move closer into bonds. A proper balance should include bonds, value stocks, and index funds. This makes for a larger potential payoff, but you need only to look at sub-prime loans to see how the risk/reward relationship works. Dave suggests you diversify your investments into four categories:Įvery one of these categories is more risky than the S&P 500. If you’re 30 and making $50,233 a year and invest 15% of your income, you will not have enough to retire on in 35 years.Īnother problem with Dave’s investment advice is risk tolerance. Less than 16% of families make more than $100,000 a year so your chances are slim. Why? Because the median family income in this country is $50,233. If you’re clearing your debt at age 40, you’d be lucky to get decent retirement before you hit the ¾ century mark. But as a 30-something, if you’re just starting to invest for retirement, 15% will not be enough. As a 20-something just starting out in my career, this may be appropriate. Dave tells you to invest 15% of your income, and that you can expect a 10-12% return. Interest rates are fine and all, but Dave isn’t just about abolishing debt, he wants you to invest too. As a bonus, sell the car and get a “beater,” using the proceeds to pay down debt. Use the HELOC to pay off the car, and now you have $12,000 in tax deductible debt and the advantage of smaller payments in case money gets tight. HELOC interest is tax deductible, plus the minimum payments are often very small. Well by your rules and mine it makes sense to pay down the HELOC. You’ve heard that one before I’m sure Pete even covered it.īut now say you’ve got a $2,000 balance on a HELOC at 6%, and a $10,000 car loan at 5.5%. If you wanted to save a little on interest payments, start with the $1,500 credit card charging you 15%, otherwise Dave is just telling you to throw money away. Since Dave wants you to start with the smallest debt, he is asking you to pay off the credit card paying at a lower interest rate! You’ve got $1,000 credit card balance at 12% and a $1,500 credit card with a 15% rate. Say you’re in step 2, making that debt snowball.
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