The Dave Ramsey Plan

[berto]

this is the $1mil question.

I may be far off, but I think one would have to make $80k-$100k/year to be able to put any kind of serious dent in debt.

im thinking even more then that.

200k a year is 16k a month. even if your bills are 6k you have a extra 10k a month to put towards something.

i just dont see how your average person could do it on a 75k.

i did use his snow ball effect but thats it. if I want a donut im gonna get one, im not cutting cokes out of my lunch and dinner because i want to save $10 a week but thats just me.

only thing I owe on is my 4 wheeler i just bought and the car and house.

id rather have cash on hand so i chose to finance things.

[JP8]

Took a personal loan and played off all my debt. Paid the loan off in a matter of 8 months. Made it easier to pay one payment vs 7 or 8. I bought a home at age 19 so my wife and I ended up with a few credit cards and some debt. It feels good to have paid all of that debt off 15k. In a short period. The snowball affect really gets rolling.

[jdma]

We will be starting another FPU class in September at our Crosby Church in Huffman. You can see the information on Dave Ramsey FPU. Please come join us. We did one last year and it went real well.

[skyhawk]

If you follow the steps, once you are out of debt, you can easily save up and pay cash for cars, 4-wheelers, boats, bows, guns, whatever.
Dave never says you can't have nice things, just that you shouldn't if you can't afford them. If you can't pay cash, you can't afford them. A very different mindset than what the world teaches, but seeing as he uses biblical principles of how to handle what God has given you, it will definitely sound strange to most people.
Yes, you may have to sacrifice for a while, but once on track, it is amazing what you can do.

[J-Bob]

I understand risk adjusted returns. No one can guaranty future stock returns and early payment of mortgage debt is a risk free guaranteed return of 2.61%. I'm confident though that I can outperform the 2.61%, especially considering that my after tax dividend yield on my portfolio already exceeds my after tax mortgage rate. For me not to beat it, my investments would have to both cut their dividends and not appreciate at all over a 30 year period and I'm comfortable taking that risk. If someone doesn't have the stomach for market fluctuations and can't stick to an investment plan then they should avoid this.

If you want to compare "risk free" returns against early payment of mortgage debt then you can look at FDIC insured deposit yields (or treasuries). They are as low as can be right now (50 bps) but they only have one direction to go. I can remember a time not long ago when I was earning 5.5% on FDIC insured deposits and I believe that in the next five years we will be to a point where you can earn risk free returns in excess of the after tax expense of my mortgage on simple insured savings accounts. At that point it's an absolute no brainer to save instead of pay down. At that point, if you believe cash is king, which I do, then you should accumulate cash over paying down debt. It's the safer option.

Yeah, I think you are right about the treasury yields rising in the mid-term. It will be interesting to see if that crushes the equity market. I get what you are doing. I have thought about doing it myself and if personal liquidity were tighter I may be more inclined to do it. Also, if you can weather the equity swings over the long term I think you will almost surely come out ahead. Like you say though, it takes a strong stomach to stay with it.

[casilva43]

Baby step 1 is to save a $1000 for an emergency fund. Baby step 2 is to pay off all of your debt, except for your mortgage. If you have an emergency while in baby step 2, you stop your debt snowball and use your $1000 from the emergency fund to take care of it. Than you build that fund back up to $1000 before you continue the debt snowball.

In the scenario you posted about loosing a company vehicle, Dave would suggest buying a $1000 beater to drive around.

1k is hardly an emergency fund? Others suggest setting aside 6months to a years worth of cash reserves. If your saving money, your not making money.

[Charles]

1k is hardly an emergency fund? Others suggest setting aside 6months to a years worth of cash reserves. If your saving money, your not making money.

You're right a $1,000 isn't a very strong emergency fund. But for folks that are deeply in debt living pay check to pay check it's a good start.

Even if you do 50% of what he teaches won't you agree you will be better off financially?

[TxTechBowhunter]

1k is hardly an emergency fund? Others suggest setting aside 6months to a years worth of cash reserves. If your saving money, your not making money.

The $1000 is only your emergency fund while you are paying down your debt. After you debt is paid off in Baby Step 2, Dave recommends having 3 to 6 months saved up in cash reserves/savings (baby step 3)

There is no point in having say 15K to 30k sitting in a bank account when you have debt.

If you have a paid off vehicle would take out a 15K loan against it just so you could have cash in a savings account?

[BULL21]

1k is hardly an emergency fund? Others suggest setting aside 6months to a years worth of cash reserves. If your saving money, your not making money.

He does tell you to set aside 3-6 months of reserve. If you are struggling paycheck to paycheck, be realistic, you ain't MAKING money. What good would it do to have a bank full of cash just to take it out very month to pay the same bills. Pay them all off and then make money. Let's face it, if you have debt, you are losing money. It may seem like a small amount to you, but you are losing money.

[Charles]

He does tell you to set aside 3-6 months of reserve. If you are struggling paycheck to paycheck, be realistic, you ain't MAKING money. What good would it do to have a bank full of cash just to take it out very month to pay the same bills. Pay them all off and then make money. Let's face it, if you have debt, you are losing money. It may seem like a small amount to you, but you are losing money.

I disagree. I know several people that make great incomes that struggle to pay their bills every month. Look at all the pro athletes and movie stars that have filed for bankruptcy or are flat out broke. They live in big fancy houses they can't afford, drive expensive fancy new cars they can't afford, fine dinning all the time that they can't afford, the list is long.

Dave's plan gives you a simple plan to have control of your finances. The biggest thing it did for me was prepare a budget and set goals. Once you put your spending on paper you get a clear picture of where you are leaking money.

[txtrophy85]

making money is how much income you bring in. over leveraging yourself has nothing to do with how much money you make

[BULL21]

I disagree. I know several people that make great incomes that struggle to pay their bills every month. Look at all the pro athletes and movie stars that have filed for bankruptcy or are flat out broke. They live in big fancy houses they can't afford, drive expensive fancy new cars they can't afford, fine dinning all the time that they can't afford, the list is long.

Dave's plan gives you a simple plan to have control of your finances. The biggest thing it did for me was prepare a budget and set goals. Once you put your spending on paper you get a clear picture of where you are leaking money.

My response was to the quote above "if you are saving money, you aren't making money."

Maybe a poor choice of words on my part. I wasn't implying that people with large incomes don't make money. The people you refer to have spending problems not money problems. The idea that you have too spend money to make money gets a ton of people in trouble especially when incurring debt along the way!

[txtrophy85]

The $1000 is only your emergency fund while you are paying down your debt. After you debt is paid off in Baby Step 2, Dave recommends having 3 to 6 months saved up in cash reserves/savings (baby step 3)

There is no point in having say 15K to 30k sitting in a bank account when you have debt.

If you have a paid off vehicle would take out a 15K loan against it just so you could have cash in a savings account?

only if you get a weekly paycheck or salary. That $15-$30k sitting there sure feels good, even if you have a truck payment or auto loan....even more so if your self employed and there are no guarantees when your next check will come or if it does how much it is.

I had to put tires on my truck the other day. that was $800. if I only had a $1000 emergency fund, there goes my fund save for $200

[casilva43]

making money is how much income you bring in. over leveraging yourself has nothing to do with how much money you make

leveraging can be a tool to make money. Use other people's money to make money. Be the bank.

[TxTechBowhunter]

only if you get a weekly paycheck or salary. That $15-$30k sitting there sure feels good, even if you have a truck payment or auto loan....even more so if your self employed and there are no guarantees when your next check will come or if it does how much it is.

I had to put tires on my truck the other day. that was $800. if I only had a $1000 emergency fund, there goes my fund save for $200

If there are no guarantees when your next paycheck is coming in than why would you want to hang onto a truck payment?