Posted on 03/03/2011 5:52:49 AM PST by TheSentry
“If he thinks the Millionaires Next Door aren’t sitting around bragging about the free stuff they get from their credit card points, he’s just not paying attention.”
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What’s interesting about Dr. Thomas Stanley’s Millionaire Next Door is that most of them are millionaires because of the equity in their homes before the housing bubble burst. They lived frugally and rode the housing boom.
It’s when Stanley talks about deca-millionaires that you start to get the real picture on how to acquire wealth in a way that doesn’t involve inflated assets.
It’s a good idea, and perhaps silly of us not to, but our 401Ks, IRAs & ROTHs are fairly diversified. We kind of work off the assumption that by the time we’re ready to retire our 401Ks will be gone; either by government take over, market crash, whatever. So we save cash as well. It would kind of defeat the purpose to take our cash and put it in stocks I guess.
I would never pay somebody 200 a month to fix my roof. Nor would I buy a 30k car if I couldn't afford it. Those are abuses of credit. And people like that need a Dave Ramsey in their lives.
I remember the roofing supplies on credit particularly well. Several of my kids were teens and had jobs at that point and they could've given us the money. The roof was damaged during the same time frame several large unforeseen expenses had come up. My wife wanted us to get the money from our kids. I didn't feel it was their job as minors in my household to put a roof over their own heads - although I had no qualms about making them get up there and help me fix it. ;)
There are a lot of things that can be purchased used very cheaply - like clothes, appliances, and furniture. There's no excuse for putting most things on credit. But when you have kids things come up that you need cash for. And an emergency savings can disappear over night in broken arms, athletic supplies, car repairs and school fees.
I know a Ramsey true believer would say the kids can't compete in sports or school activities if you need your savings to fix a busted hot water heater, but this is where we would need to agree to disagree. I see all of them as essential.
Yep.
IMHO, if there were some way to "flip" circumstances - ie, give all of the money from the top, say 10% of earners to the bottom 10% - I remain convinced that things would be back to status quo, roughly, within a few years.
Rich people do things, consistently, that make them rich. Ditto the poor. Luck - beyond accidents, poor health, witting the lotto, etc - has very little to do with it. In my opinion.
Exactly right.
You missed the point. As a general rule, if you can find the money to make the debt payments, theoretically you could have been paying that money into a savings account in the past. That would give you the money to pay for the roof.
For instance, we need some house repairs. We have been putting $x into a savings account over the last few years in order to pay for things that pop up. Instead of paying $x a month towards a debt account, we have been paying into a savings account. It’s the same payment, just a different destination. Instead of paying someone 6% for that money, they are paying me 2% for that money.
A lot of people do say “I can adjust my financial life to pay to service debt but not to pay into savings”. It’s not logical. Same money, different destination.
interesting discussion.
I like Dave, but don’t need or take his advice myself; I have never been addicted to debt, and have no trouble managing my own money (now, LOSING my money is a problem I have, but that’s another issue).
I refinanced my home back to it’s original mortgage, at 3.75% like you did, so I’d have money to pay my kid’s college, because I want to, and because it was a lot cheaper loan than a loan she would get, even a student loan.
Technically, I didn’t need it, I had enough money to send her to college by tapping other savings, but I did decide that at 3.75%, the interest was low enough that I was unlikely to “lose” much, and since I expect inflation to kick up some eventually, having borrowed money at a low fixed rate will be better for me as I’ll pay it back with cheaper money, while the cash I have I will be able to invest in ways to earn higher money.
Better still, I was able to take that money, and put it in accounts for college that, with various tax deductions, I come out slightly ahead over the next 3 years compared to not having the money — essentially paying for itself.
But this was part of a refinance that dropped my interest rate enough to save a few thousand on the outstanding balance. I’ll also use some of the money I took out on some home improvement investments that are likely to be capital-neutral (they’ll add their value to the house).
Still, I don’t think this was particularly “sound”; I just assumed there’d be inflation, that mortgage rates would go up, so if I needed money later, it would cost me more, and I paid some money now for “insurance” against inflation. If there isn’t inflation, I’ll lose out some, but I have some peace of mind.
I couldn’t translate that though into borrowing money at 8% to fix up my house expecting to get money to pay it back when I sold the old house. I’d rather spend savings I have, and then if something goes wrong and I need money, use the 8% credit card to cover expenses once my cash was gone. The only reason to use the 8% card first would be if the rate was going up later BUT purchases now are locked in at the 8% rate, in which case again it might be insurance against being able to get money when you need it.
I use credit cards because they pay me back and make my life easy, but I don’t carry balances on any of my credit cards, except when we screw up and lose the bill, which happens occasionally and really pisses me off when it does.
http://online.wsj.com/article/SB123180989113175857.html
Rewards plans being scaled back. And they can revoke the points at any time.
No, no, I understood your point. In fact, that's the way we live now. But there was a point in time where we were simultaneously feeding six teenage sons, paying no less than 4 Catholic school tuitions, and dealing with many surgeries for my son with a heart defect. It felt like there wasn't 50 cents to put into a savings fund each month, let alone 200 dollars. Somehow we made it through, but I do remember we had the help of Visa a few times. The roof supplies example sticks in my head because my wife and I disagreed about it. But every time we pulled out the credit card, it was emergencies only.
Now, we pull out the credit card all the time. In fact all monthly recurring bills go onto it. Last year, we used our points for Christmas presents for the grandchildren. All credit card bills are paid in full each month, in fact most bills are paid online the same day the charge is incurred. Again, I know Dave Ramsey and I would just have to agree to disagree.
The best argument I've heard for not using credit card points is that the credit card companies are scum. As I see more lives ruined by the blood sucking companies, I am beginning to fall into that camp.
It all makes sense “kinda”.
A friend of mine used a HELOC to pay for some stuff. The bank decided his house was no longer worth what he paid for it and called in the HELOC, He had to borrow at a much higher rate to pay off the HELOC.
Granted, if you had the cash to pay off the HELOC, you are golden especially if you are making more in interest than you are paying.
my advice: don’t spend more than one makes... has served me well for 45+ years.
Any chance we can have him talk to the Baraqqis?
It’s a good plan as long as the points keep coming. I don’t hear great things about points plans.
When I worked in a retail company(basically underwear), we had to justify the % we pay to American Express. We found that credit card users in general paid more per transaction than cash payers. American Express users paid the least more. Oddly, in restaurants we learned that American Express users paid much more.
We enjoy Dave Ramsey and began the baby steps about 7 years ago. So far we have done baby step one about 8 times. My husband works extra jobs and puts in about 80 - 90 hours per week.
The one thing I have never heard Dave address is how to manage if you have a child with a chronic (expensive) medical condition. If we had the thousands of dollars that we have spent on prescriptions and doctors, we would be debt free and have our three to six months of expenses saved up. As it is, we have no cash on hand, live paycheck to paycheck and still have some credit card debt. Beans and rice is our norm...we have little to no extravagances in our lives.
Still, we aren’t building debt on the card and we were able to pay cash (through God’s provision) for a used minivan last year and it is wonderful to not have car payments. I do wish DR could address those of us who struggle financially due to never ending medical expenses rather than careless spending.
“Maybe we or the O.P. need more coffee.”
Had a pot and I’ll be happy to buy the OP one if the OP will re-write the thread so I can get it out of my head.
That's interesting. If the points go away, we'll be going back to cash. I've heard that retailers may be soon be able to discount based on a cash price. If that becomes the case, I'll also have to weigh my options.
Until very recently, we'd only used Amex for points accumulation - I think we started using it at the grocery store in the late nineties and gradually began adding monthly bills - cell phone, cable, etc. Two years ago, we started using Discover as well, but only on their 5 percent cash back stuff.
That's very interesting about restaurants. I wonder if it has to do with business people favoring Amex? We're not much for eating out, though I do enjoy a meal at the Outback Steakhouse once in a while. I've been ordering the same meal there for 10 years, and I can't believe I'd change if I started using cash over my Amex to pay the bill.
What a bunch of gobbly gook. Is this supposed to make any sort of sense?
See, I don't think you need to be beating yourselves up. Our kids are grown now, but we had a lot of them, including one with special needs. Visa did get us through a few rough patches.
Do you own your own home? If you live frugally, at some point inflation will increase your wages and you won't be handing your raise over in housing. Continue to live frugally. Shop the thrift stores and the yard sales. Do ALL your own repairs - look online for advice - there's lots of help out there and it's usually not rocket science. One day you'll be surprised to find a few grand in your checking account. Just don't blow it on something foolish. Save it and continue to live the same way for a while longer. You'll soon have plenty of breathing room in the budget.
God bless.
OK, finally a good link. So this is the big complaint?
“His advice on higher level personal finance topics such as investing and taxes is weak and often misinformed because his knowledge in those areas is limited”
Which is precisely why he always recommends that investors consult a broker “with the heart of a teacher” (an ELP) and for tax advice to speak to a tax lawyer.
I find that most of the complaints about Dave comes from those that are simply trying to justify their own debt.
“I get a little annoyed when someone like DR rails against buying gold then does an ad for a gold buy-back company.”
Are you seriously equating investing in gold with selling jewelry?
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