Is Having ZERO Debt the Fast Path to Wealth? (Money Guy Reacts to Dave Ramsey)
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- เผยแพร่เมื่อ 22 พ.ย. 2023
- Is having no debt at all truly the quickest path to wealth? Debt can be extremely dangerous, but we believe it can actually be a wealth-building tool when used for good.
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Dave's Total Money Makeover was exactly what my wife and I needed when we were expecting our first kid. We didn't have any organization to our money habits. Now fast forward 10 years, and we are debt free minus our house, and do not follow everything Dave says to a T. We've found the flexibility and understanding of the "messy middle" by the Money Guy Show and others are better for us after Dave helped with the initial consumer debt payoff.
A healthy mix of your advice and Dave’s has been extremely beneficial for mine and my wife’s financial situation!
My father, now deceased, was a retired CFO of a Fortune 500 company. He taught me a critical lesson at an early age. You absolutely MUST understand the cost of money versus the return on money. This silliness about 15 vs 30 year mortgage is just that. Silliness. It's ALL about the cost of money versus the return. Multi-millionaires and billionaires are almost always leveraged. The exception is they are SMART about how they do it and understand the cost versus return on the almighty dollar. Think about it with respect to Ramsey's rants. If you have a mortgage at 2% and you can earn the magical 12% annually, why in the hell would you want to forego the 10% net to pay off a mortgage at 2%?!?!? The rich people answer: YOU DON'T.
99% of the American population isn't capable of being smart about anything.
Dave's advice is for the masses, and paying off the mortgage is baby step 6, which comes after baby step 4, investing 15% of your gross income to get the magical 12%.
Most people don't throw extra money into an SP500 index to later payoff the house. They go finance a boat, Silverado and Tahoe. Paying down the house at least is forced savings, and Dave does say to invest that mortgage payment when it's done.
What if you lose your job after paying off 98% of the mortgage? Baby step 3 is your 3-6 month emergency fund. If you can't find a job in 3-6 months, you've got issues.
Of course everyone should understand the "personal" part of finance. But Dave has to be dogmatic because if he tells a college grad it's okay to finance a used Civic to get to work, well soccer mom NEEDS a 2023 Tahoe to haul 2 under-5 babies for groceries, and soccer dad NEEDS a 2023 Silverado HD High Country in case he has to go to Home Depot once or twice in summer 😂
Most people don't know how to invest. They don't know the difference between the stock market of 2000 vs 2012. So payoff a house ASAP is always better for the majority of people who didn't have a legit financial wizard as a father....
In my opinion, if you want to pay off the mortgage early, save/invest the money until you have enough to pay it off in one fell swoop. And before you do that, take a look around and see how your financial risks are looking if you pay it off then, because there will be a period of vulnerability.
Listen to Brian and Bo.
Dave Ramsey is one of the reasons none of my brother's children have a four-year college degree. As they move into their late 20s you can already see the difference, not just in income but in how they handle their decision-making. People bad mouth higher education all the time right now. It is in vogue. Investing in yourself can also be the best investment you will ever make. By far.
Higher Education is important, but you have to weigh the cost/benefit. The reality is that for many years, students either chased after useless degrees or felt the need to get a degree at a prestigious university and get into ridiculous amounts of debt. Ramsey has always been clear that he believes higher education is important, but not to the extent that you go into crippling debt to achieve it. A 4 year degree at a state school can have just as much value as one at an ivy league for a fraction of the price.
Most degrees aren't worth the ridiculous cost
Average lifetime earnings for a college graduate are 1.2 million dollars more than a high school graduate.
So are you for or against it? You come off as unclear. The “difference?” You’re saying they’re poor trash or they’re rolling in money because that have no debt?
@@rnt45t1 They're saying college is worth it.
The fastest path to financial wealth is to have a high income with a significant delta between that and expenses. Does debt figure into that equation? Yes, absolutely. That's why corporations pay attention to things like debt/equity ratios. Dave Ramsey speaks out both sides of his mouth as his wealth came/comes from book sales, seminar fees, advertising fees, TH-cam income, merchandising, ad infinitum. For a person like Dave, there is no "bad publicity". When he gets called out for his off-the-wall dogma, it simply translates into more web page hits. You're playing right into his game.
People criticize the Baby steps because they don’t have the discipline to do what needs to be done to be free from debt. Dave’s steps insulate us from the ups and downs of the economy. We bought our home in cash. Our house is modest compared to what we could afford if we financed, but the freedom from worry of paying the mortgage every month is priceless.
No, some of us criticize it because it isn’t great advice according to our own personal experiences with wealth including multi-generational wealth. Sure, for people with no self control at all, maybe you have to do things some illogical way like this. He’s having people take risks that aren’t in their best interest and tying up cash so that he can have a snappy message that’s made him a lot of money off of these same people. I could pay my mortgage off tomorrow, but I never would. My money is making me more money. I think it’s patronizing to give people bad advice instead of being honest with them about how wealthy people actually make money. Smart leverage is a huge part of that picture.
Dave's advice is good for most people, most people don't have the self discipline to responsibly use debt. If you can, then Dave's not for you... But if you regular carry a credit card balance and pay I terest then you need some DR in your life...
I find it funny that Dave says it’s easy to beat the index - and at the same time the quickest way to wealth is to be debt free, even if the interest is low. It’s so absurd it’s hilarious.
This video is pure joy to watch.
What is the alternative to a mortgage for someone of modest income? They don’t buy a house so they continue to rent. What they miss out on is that buying a house freezes your housing costs. As real estate values go up over time rent has to keep up. Those who have mortgages have more extra income to invest ( or pay ahead on their mortgage ) because of that. The value of their house also increases. So it seems that they are able to generate more wealth.
Buying a house does NOT freeze your housing cost, just the loan. Property tax, insurance, maintenance and utilities all fluctuate. You also have pest control, snow removal and lawncare. You also most likely have an HOA.
In the end you want to make sure the cost of ownership is worth it.
@@TheFirstRealChewy Well you are correct as far as property tax and insurance but it is still at a lower level than rent over the years. Up until 2017 I was able to deduct the property taxes from my income taxes so I got those back in that way. I purchased my house on a thirty year mortgage and I paid $483 per month up to $550 per month. Now it’s paid off but my payment would be $650 per month at least half to one third what renting the same house would cost. The value of the house is more than four times what I paid ( including interest 2x ). I personally would not buy a house with an HOA but that’s me.
My mortgage payment has gone up by at most $20 a month due to tax increases. My rent was about to go up $200 a month when I moved out of a mouse infested apartment to the house I bought
Buying my house with 3% down was the best financial decision I've ever made. Fast forward a couple of years and its value has appreciated by $160k, PMI is gone and my housing costs are fixed for another 28 years. Saving for decades while renting just to pay cash would've been flat out stupid.
Yep!
Great nuanced discussion...giving credit where credit is due for advice and financial wisdom is not easily stated in an all or nothing magnanimous sound bite.
I'll be honest, I used to completely disagree with Ramsey on his take on debt. But here I am with 0 debt and I see all of my friends my age or older up to their necks in it and so unhappy. I'm still not convinced by the never take out debt strategy, especially for mortgages, but I am a lot more sympathetic to it now. A lot of people just can't handle debt. They use it to maintain unsustainable lifestyle choices and it kills them. I know 1 guy who kept justifying little thing after little thing and now he is almost 50k in debt and interest rates going up have destroyed him. It wasn't even really many big things. It was just using the debt to make small bridges instead of making sacrifices. It reinforced the bad decisions.
The way I see it, since we already bought a house, we'll prioritize investing until we have enough invested.
People get lost in the nuances. Dave absolutist approach sets a high standard. Debt is an albatross. Too much debt should signal red flags and ear splitting sirens. The middle and working classes are almost invariably involved in a money for time exchange. Debt cost people their health and life. Being very debt averse forces people to be creative. If you can't buy a house cash, can buy a cheaper one (tens of thousands cheaper), can you wait to buy one, or can you save a significant down payment. Once you're in the house, can you pay three extra payments per year? Don't casually take out a $100K student loan for a Bachelor's Degree. Or $500K as s a dentist? You don't have to wait until you exhaust your grace period to make payments. Don't buy a pick up truck for $80K. Can middle class people actually afford a Tesla? Repairs. There's nothing sophisticated and sexy about debt. It's dumb. On rare occasions, it might be unavoidable but that doesn't mean it should be embraced with reckless abandon.
Dave's advice, and others like him, are quick to give advice that they did not use to amass their huge wealth. He's not approaching a billion dollar net worth by eating rice and beans. Much respect for him rebuilding his money after bankruptcy, but it is much easier to pay cash for everything when you make $20M per year off of your high school curriculum alone. The shortfall of his program is that it doesn't teach wealth-building behaviors other than not having debt.
Especially when a person is young, their income may be projected to go up significantly over the first 5-10 years of their career. If they use the 30 year mortgage to buy the right house, then get aggressive in paying it down after income rises while still investing, the math can work. We paid a 30 year mortgage in 9 years and saved over 2/3rds the original projected interest while still investing aggressively as well.
Don't forget that Dave says put 15% in retirement BEFORE paying the house off. I agree, if Someone in their 30s is so worried about paying the house off and doesn't put anything in retirement, they are going to hurt themselves.
I tell all my friends who have any questions about finances to watch a money guys video about the topic
Dave’s advice only could work if you have a very large income and live well below your means. Unfortunately most people do not have access to a large income and most likely never will.
I agree with Mr Ramsey that under more or less ‘normal’ circumstances,it’s absolutely a great thing to be entirely debt free. Being debt free does bring a ton of freedom and wealth building advantages. But if you spend all your money to pay off your house and don’t have the means to continue saving,you’ve lost in some real ways.
9:56 the example of the widow, is she was disorganized and sucked at living on a plan/budget. Paying off your house is great, living proof of that @41 YO.
Works for me. I pull out the checkbook and dump 3/4 of my weekly paycheck into investments every friday.
I usually like TMG videos, but I feel like they didn’t acknowledge the question fullly - the caller asked about renting through their next move and buy later vs buy now. I'm curious how long the caller expects there to be between moves and why they plan to move (job opportunities, right sizing the property for future kids, etc). Also - DR comes right out with saying he doesn't object to a tactical mortgage, he didn’t say no debt ever in response to the caller's question.
By the time he saves to pay cash for the house, the house will cost way more, and he will be chasing the cost of the house for ever
I generally side with you over Dave, but a few points.
1) safe reliable transportation doesn’t have to cost an arm and a leg. There are good rides for 5K
2) maybe your first house is 150-200K
3) Dave seems to play more to the emotions than logic. All of us had to take some basic math where we learned the PeRt formula yet many don’t have the staying power to do the right thing and Dave’s plan begets easy wins
99% of Americans avoid logic at all costs
@@amireallythatgrumpy6508which is why Dave deals with the emotional side of finances rather than the logical side
130k mile cars are being sold for $10k+ right now.
In some areas that 150k home is basically a shack. Many people are just being priced out of home ownership because of the increase in prices.
Love that you guys don't speak in absolutes. Only a Sith does that 😂
If I waited to buy my house in all cash, I would have missed the real estate boom of the 2020’s and I would still be saving to buy a home. I got a mortgage in 2019 was $4k a month. Same home today would be $9k with an extra $180k downpayment. Blanket advice on debt is dangerous.
That video clip was pre-2020.
Easy for a hundred millionaire to lecture folks without wealth not to take on any debt whatsoever. His personal bankruptcy doesn’t excuse beating up on others.
Clearly many Americans are not capable of managing debt, so his debt advice in general is solid. He claims he lectures “in love”, but his actual words and tone frequently do not reflect “love.” Dave Ramsey would do well to learn from the on air personalities he has hired, including his own daughter… in how to counsel with love. All of his on air hires reflect sincere understanding and sympathy for callers. Dave, not so much.
He never filed bankruptcy. He just wants gullible people like you to believe he did.
By the way he's been lecturing folks on this when he wasn't a hectomillionaire.
No, zero debt is not the fastest path to rent.
Of course someone who have millions of dollars can easily pay a million in cash for a house. But 99.9999% of people can't.
"zero debt is not the fastest path to rent." Hi Joe Biden.
Why is the only example about young people? At 43, should you get a 15 or 30 year mortgage if you are buying a new home (second purchase)?
You need to weigh long-term cost (total interest) vs cash flow (monthly payment) and figure out what you can afford. A 15 year mortgage is obviously cheaper in the long run if you stay in the home, but you don't want a job loss or unexpected life event to cause a foreclosure.
No-one on the internet can answer that question for your without knowing your personal situation.
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I rented until 44 yrs old. During that time I saved up $83K. I bought a small house for that $83K amount taking out a $28K loan for refurbishing. Paid off my house in under 3 years and my used car at that same time. I've been debt free for 5 years now. I started my 401K 19 years ago, and have been saving cash the past 5 years at now $130K in 5% CD's. But Dave is going overboard. The Money Guy Show has a better plan. I do wish I had invested more into 401k early on as MGS advocates, but I calculated that I only paid $2100 in total mortgage interest. There are some people that pay over $100k in mortgage interest on a 30 yr mortgage. At age 51, my plan is to retire late 50's/early 60's with $500k 401k by then, with $300k cash bucket, which I'm on my way there at this point. Granted, I'm single no kids, and quasi-minimalist. MGS views on debt is more reasonable, but Americans do need to cut their debt totals.
I like the idea of investing first.
@@TheFirstRealChewy - Yeah, had I been more aware 20 years ago, I would've invested more early on. But I still would've saved cash while renting to avoid extra high debt and save on mortgage interest. That's just my personal preference in debt tolerance.
If you don’t like your paid off house & debt free life, you can always go rack up some debt & get yourself a mortgage to feel like your neighbor. I’m on our way to paying off our house. 30 year mortgage, will be paid off in 10 years.
Where can I get a 2% mortgage today?
Wow a money show within a money show… Just need one more layer to achieve inception.
Dave is all about mindset...his advice has very little to do with math...
Some people need that. Some don’t. I think what he does is good entry level mindset modification, but I think these guys have the better plan when it comes to building wealth.
Thank you guys for actually giving good advice. I respect Dave but his blanket advice based on his opinions is often just wrong.....or wrong for the people he is giving the advice to.
I like hearing you guys contrast Daves content but I don't think your implementation is great. If you've done a study of people who regret paying off their mortgage talk about that in more detail. It sounds like it was an offhand remark from a single individual.
Also it sounds like when you criticize their plan you treat everyone as if they're going directly to Baby Step 6 and ignoring all the others. I don't think it's far to compare Dave-ish to your plan and I don't think you need to. E.g. Ramsey solutions doesn't seem to have an answer for sub 3% mortgages and putting money into a low risk saving account making more money.
You guys really didn't address Dave's statement at all. Read through his statement carefully - "the fastest path to becoming wealthy is getting debt free". Remember - he isn't saying that you can't have debt and also become wealthy. He is just saying that the fastest path is to be debt free. You can certainly have a 30 year mortgage and then become wealthy some time later in life. But Dave is saying that the quicker you pay off your mortgage and become debt free the quicker you can become wealthy. Your example with the 15 year mortgage and the 30 year mortgage didn't really address his statement. Your example basically just said "if you want a bigger home you will have to get a 30 year mortgage". I think what Dave is saying is if you get a 15 year mortgage it will force you to buy a smaller home and pay it off quicker and you will therefore be able to build wealth faster. His basic approach is telling people the quicker you eliminate all debt the faster you can build wealth. Yes it may not be as easy for a younger couple but that's ok. That doesn't make his statement false. Whether or not it is possible for a couple in their 20's to buy a house for cash doesn't change the fact that the quickest path to wealth is being completely debt free. Nothing in your video actually proved that statement wrong.
"Borrowing money, short circuits the shortest part to wealth?" That would mean borrowing money is the best way to reach wealth. Which was not what he was trying to say.
Sounds like Dave doesn't know much about electricity. 🤣
If I get some more debt, I will become richer quicker. Got it.
Depends on the debt the math works
The money guys sound like my financial broker that I ended up firing after telling him I was going to pause investing for a couple years to knock out my 15 year mortgage at 33 years old. He told me I wouldn't be able to do that and that I'd be missing out on tax deductions. I did it in 18 months and reached BS7 after paying off 136k. 10 years later I'm a millionaire with no debt. I promise Dave's plan works if you are all in.
I love this so much. I agree, there is an element of all in with the Baby Steps that's really is the missing ingredients. I agree with you 100% and congratulations on your achievement.
Important data missing here. What year did you pay off this debt, and what did the SP500 do in those 18 months?
I would agree no debt you can build wealth quicker. Dave is correct in this case. If you have any kind of loan it’s slowing you down.
Except... that isn't true. Paying off a 3% mortgage early makes zero sense when you can get 7-10% returns in the stock market. AND it would give you more liquidity in case of emergency.
@@justthebrttrk well thats tough to figure out, especially in a down turn. In a perfect world it may appear that way but tomorrow you could be down. Your 3 percent mortgage and a 20 percent down market. Even if your in a HSA and paying taxes on those gains your behind and your still have risk. How much money value do you apply to risk?
@@kckuc310 you still can't eat your house. You can still sell shares at a loss if you have to. The argument is the same. Things like this are easily backtestable using case studies for various time periods, various mortgage payments, savings rates, etc. The person who takes the 30yr, pays the minimums, and invests the rest of their disposable income has WAY more money (net worth) at the end of their mortgage and WAY more liquidity throughout their mortgage. It's not even close. Again, these things are very easy to prove using case studies.
This old Dave guy is so stuck in 80s still. Get real grandpa! Go outside and check prices of everything now. How does this guy still remain relevant among folks? Ask him to pay cash for a house in Bay Area (he probably can now that he's a boomer). But for common people, its impossible to get ahead in anything unless you are borrowing money. The trick is to pay it off well without incurring costs.
He doesn't say to pay cash for a house. MG channel is for people in debt to feel better about the corner they have backed themselves into. Using the anti-Dave crowd to enrich himself through clicks. Pretty clever actually. Nice work MG.
That's misrepresenting Dave's position. You can get a home loan if you need one. He's just recommending if you have the cash for a house, that you pay down the house with it. I don't necessarily agree with that advice if you can get a low interest loan, but that's his position.
Also, most people don't "get ahead" by borrowing money. Maybe you look like you are ahead, but for most people debt is not used as a wealth building tool.
Ramsey clearly said mortgages are the exception.
He’s got millions of people hypnotized 😵💫 it’s crazy
@@jaywalk6628lol nah, MG is for people who actually want to be wealthy someday, not just debt free. Did you even watch this video? If you lose your job, would you rather have 200k left on your mortgage and a 400k stock portfolio, or a $0 mortgage and a $0 stock portfolio? I sure as heck wouldn't want the $0 stock portfolio. You can't eat a house. And the stock portfolio will outperform the appreciation on the house 99 times out of 100 in the long term.
You're potentially adding MORE risk to your financial situation by being so hyper focused on paying off your mortgage or other debts.
Ramsey straight up lied. While there is no get rich quick scheme, you cannot build wealth quickly by sitting on dead money. You have to use your income to purchase income producing assets. That's called "financial leverage". Owning profitable businesses, income producing real estate, stocks, bonds, etc is the path to quickly building wealth.
This is the correct answer.
Looking to "build wealth quickly" is simply asinine.
@@amireallythatgrumpy6508 It took me 24 years (from 26 to 50) to be financially secure. And another 12 years to be financially independent. I would regard that as "quickly", because at 26 years old, I had negative net worth. If someone is starting from zero, or negative net worth, and they sit on their money instead of putting it to work, they will probably never be financially independent - even if Ramsey tells them that they have "Financial Peace resulting from zero debt".
That is far from quickly.@@DaveM-FFB
@@amireallythatgrumpy6508 It depends on your definition of "quickly". Depending on the lottery or Las Vegas isn't going to work. But profitable businesses, income producing real estate, stocks, bonds, etc builds wealth over time. If you paid off a $500K house, you won't have a mortgage payment, but you also won't have an extra $500K to invest and receive compound returns.
Paying off a mortgage as fast as you can is STUPID if your interest rate is low. Ramsey is a NINCOMPOOP if he does not understand the difference between good and bad debt.
Sounds like a tool
It is difficult to spend a house.
It's also difficult to speak English apparently.
@@amireallythatgrumpy6508 I feel no need to dumb down my message.
Ask someone smart to explain it to you.
I'm a lot smarter than you, or any other American. It would be impossible to for you to dumb down your message. It couldn't be any dumber. @@michaelswami
I think its great that Dave Ramsey had you two on his show a year ago and since then you have posted how many videos trashing him? I stopped counting at a dozen that have been posted since then. Great way to tarnish the actually good advice you guys have. Sad
Disagreeing with someone else's opinion is not trashing
Dave is wealthy because of the money he leeches from his cult.
Oh please.
Oh the irony. How's life in the cult? And yes, you do belong to a cult. It's called the USA.
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