Dave Ramsey

holstc wrote:

If you are not maxing out your 401k, simple IRA, and a few other retirement benefits as a W2 there is no way I would consider paying off my house early.

For this main reason:
What happens if a financial sunami hits your house hold?

Two People:
Person A and Person B each own a $500k house putting $100k down. Note is $400k.
……

You also need to include the equity differences between your A and B people.

B in your scenario should have significantly less of loan to pay off.

Honestly, how many actually keep a mortgage for 30 years? Zero of my friends are in that camp. Some of my friends had their houses paid off before hitting 50. I got a late start and am shooting for 55. I’m 14 years in and plan to have it paid off at 20 years. In your scenario, B shouldn’t lose his house when laid off 20 years in because it should be close to being paid off.

B should have other options at the 20 year mark, downsize, early retirement, refinance the remaining amount, say $60k at a longer term that matches your new lowered income. A bank should take those terms before foreclosure.

A is pretty much starting over in building equity while having some retirement savings remaining.

I’d take B.

I don’t think you need to max the 401k as long as it is a large contribution >10%, combined with paying down the mortgage.
I want to be maxing it before the house is paid off. Ideally I want to be north of 25% contribution as I approach retirement, using the raised caps for over 50 catch up.

Having over 25% contribution means a person will be used to living on less than 75% of their salary prior to retirement, making the transition to retirement easier. Along with low debt. Win Win.

Woodshed wrote:

I could be a contender in that competition of you were too look at “percentage funds available to waste” instead of a $ amount.

My wife and I each keep an equal amount of our paychecks for personal spending money. The rest goes towards our budgeted, shared living expenses and savings. We typically redo our budget and come up with new goals after tax season.

Trust me… I waste every penny of my spending money
Trust me…this system allows me to have no guilt wasting those pennies.

I could be a contender too. I think it depends on how many hobbies you have and how deep you are into them.

My other hobby is music collecting and reproduction at home. At full retail I have as much invested in music play back equipment as I have sunk into the boat and trailer lot in a resort up north.
Granted, most of it was purchased used at 50% off retail. I try to select items that have a chance to hold some value in the future. A couple of pieces of equipment should hold some value going forward. Fifteen years later the depreciation on my main amp has leveled off and fluctuates in value between what I paid to a few hundred above what I paid.

A recent preamp upgrade should depreciate a bit more before leveling off in value.
Speakers are a sunk cost that wear out over time. A quality speaker will depreciate to next to zero over its life.

That doesn’t count the software (music), some of which is collectable and is holding some value but most of it is worthless. As music transitions into a commodity to be leased via monthly fees it will become even more worthless, except within some circles that actually care about which version sounds better. Collectors that care about the better sounding versions will still pay for them. You won’t find the better sounding version available via streaming from a rental model, which is sad.

TheFamousGrouse wrote:
First off, the individual 401k contribution limit is $18,500 for 2018 unless you are over 50 years old, only then is it $24,000[/quote]

Evan Pheneger wrote:

We were talking 401k max plus Roth ($5500) which comes out to 24k.

X2

in the last year the wife and I have both paid off our student loans, both of our credit cards, and a home improvement loan. We also don’t have to pay for before and after school care this year. All told these choices are saving us about $850 a month in payments. Ive never heard of Dave Ramsey but I get the jist of it reading through this post. Personally I never really understood people who have a hard time managing their money. For me it just came naturally. Im not saying im a genius, far from it. I guess its akin to those who say they don’t understand depression. Anyhow im glad this guy is helping so many reach their goals. The wife and I are both putting in a little more than company match for our 401k. I should probably look at increasing that soon. We are also choosing to put an extra $200 toward our mortgage. This would pay off the house in 22 years rather than 30 and save around 56k in interest payments. I totally understand where people say if you invested that money in the market your return would be higher and I understand the argument about losing your home and being left with nothing to show for the added payments but its what Mrs Crappie wants. Her parents did it and she agrees with that method. In speaking with a financial advisor he said whether you want to pay off your home early or invest in the market a lot of financial happiness involves what makes you happy and feel good about your choices, its not all about the X’s and O’s of maximum profit.

Neither is a bad option.

You happened to pick year 20 to have have your house paid off.

What happens if the black swan sunami hits your household at year 18? They take all your equity?

Another reason I would not pay off the house is because I believe I can do better or at parity in investmenting that money vs. paying down the 4% mortgage note. It was even more of a no brainer prior to the tax laws changing. Some will argue you cannot guarantee the returns. That is 100% correct. But I will take my chances any day of the week.

holstc wrote:

Neither is a bad option.

You happened to pick year 20 to have have your house paid off.

What happens if the black swan sunami hits your household at year 18? They take all your equity?

Another reason I would not pay off the house is because I believe I can do better or at parity in investmenting that money vs. paying down the 4% mortgage note. It was even more of a no brainer prior to the tax laws changing. Some will argue you cannot guarantee the returns. That is 100% correct. But I will take my chances any day of the week.

yup I totally agree with you. You are invited to come over and argue your point with Mrs. Crappie. I have tried

And what happens if your financial advisor is a crook and him and your money disappear after 10 years?

Pay the house off.

Dutchboy wrote:

And what happens if your financial advisor is a crook and him and your money disappear after 10 years

If you are going to make that argument you could say the same thing about a banker…what if your banker is a crook….

Evan Pheneger wrote:

<div class=”d4p-bbt-quote-title”>Dutchboy wrote:</div>
And what happens if your financial advisor is a crook and him and your money disappear after 10 years

If you are going to make that argument you could say the same thing about a banker…what if your banker is a crook….

It’s just a matter of how many get caught and reported.

I’ve never listened to Dave Ramsey but I do have a foolproof financial management system that can make anyone rich. If you’re interested all you need to do is mail me a check for $99 and I’ll send you a CD that explains how to make money by asking people to send you $99 for a CD.

Seriously though, I spend 90% of my income on hunting and fishing gear, the rest gets wasted on non-essentials… like food and clothing.

Will

Ah, good ‘ol hunting/fishing forum financial advise thread…count me in!

#1 Ditch a financial advisor. No sense in “spending” money to make money. Go read a book and do it yourself, it’s not rocket science (books are cheap and reading is free).

#2 Save Money! It’s that simple. Start a second savings account and have direct deposit. Hell, just start out at $50/paycheck if needed. Pretend the account doesn’t exist.

#3 Don’t spend money on $hit you can’t back up with cash if life throws you a bone. (with the exception of house and car).

BOOM! That’ll be $59 (I just saved you $40 from Will R. so you’re already ahead in life) You’re welcome!

outdoorsmn wrote:

<div class=”d4p-bbt-quote-title”>BigWerm wrote:</div>
My Universal life was getting about a 3-4% return last I checked, which is pretty good in the current savings rate climate imo. Both Universal and Whole Life policies can (and should imo) have level premiums, so you pay the same now as you will at 85 years old. They are not investments though, so they will always pale in comparison to open market investments, especially since no open market investment illustration usually factors in a recession or estate tax (that’s one reason why it’s apples to penguins imo). My buying dollars with pennies comment was in regards to the death benefit compared to the premium to fund the policy.

For the most part yes, Universal Life premiums do remain level, however that is not ALWAYS the case (link below). Even if your premiums do remain level, your ‘cost of insurance’ (COI) continues to increase. Eventually eating away and depleting your cash value unless you voluntarily increase your premiums.

https://www.marketwatch.com/story/millions-could-get-slapped-with-steep-premium-hikes-for-universal-life-insurance-2017-05-01

You nailed it outdoorsmn. We run in-force illustrations (sort of a detailed breakdown on their existing contracts) for clients all the time, and they are often shocked to hear that everything is great until they hit 65-75 years old and their cost of insurance outpaces their premiums/interest on the contract. What really gets them is when they see the policy completely blow up at 75-80 years old, far from ‘permanent’ in most people’s minds. It’s important to look at a proposal to see what sort of interest/earnings/cost of insurance they are assuming in the illustration, and then ask to see what the guaranteed (worst case) interest/earnings/cost of insurance would look like. There are plenty of truly permanent contracts from good companies that will provide insurance until age 120, and we use them regularly for folks with particularly large estates, as you can (at least partially) avoid MN’s relatively punitive estate tax environment (currently a couple can exclude $4.8MM of asset value from estate taxes, scheduled to reach $6MM in 2020 and beyond).

Like anything you purchase, go out there and get a few quotes. Don’t immediately sign on the line because they painted you a pretty picture of “Retirement and legacy planning all rolled into one!” NW Mutual, Thrivent, and other captives bug me more than most as they can only sell their own product, vs. an independent who will quote your case with a dozen carriers to find the best value. Captives can certainly be great companies, but they don’t have the best solution for everyone.

Sorry for getting off the main topic, but I guess it’s safe to say I side with Ramsey when it comes to the ‘buy term, invest the difference’ philosophy, unless we’re talking about big picture estate planning.

Go all in on it. My wife and I did it about 8 years ago. Then got my dad on it and it’s been life changing for him too. Once you get your immediate issues handled in the next year, critical you at least maintain the process of monthly budget review. We now review the baby steps quarterly to make sure we are still on track.
Amazing how much money goes to things you don’t care about.
I never got into the religious aspect but the simplicity is what appeals to me.
Good luck on your journey!