Should You Pay Off Debt Before Investing? Here Is The Real Answer.
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- เผยแพร่เมื่อ 18 ก.ค. 2019
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Dave doesn’t want his followers to take out a 30 year mortgage... what will your numbers be if it was a 15 year mortgage?
Who can retire early?
Does the boring investor still have too much expenses in mortgage payments?
@@benjaminfajardo9469, right. Dave says to have a 15-year fixed-rate mortgage with the monthly payment being no more than 25% of your take-home pay.
Just buy a Chevy SS. The value will never go down. 🤪
4:00 Credit card debt
10:15 student loan debt
17:15 auto loans
23:46 mortgages
MVP comment ✊🏽
God bless your beautiful soul
Thank you
Thank you brother
Not all heroes wear capes!
"Not all dollars you save ... are the same"
Wisest words I've heard in a long time.
Thanks for watching and commenting Rico 👍
Yea I can’t disagree. Great phrase. It’s why I have my kids saving as soon as they have earned income.
From a self-professed debt crusader, you are absolutely right. It drives me nuts to have a mortgage, but the math from FOO doesn't lie. I'll continue to save 30% no matter how much I might want to pay it off faster. At 2.15% that money is better invested in the market. I'm still going to pay it off in 7-8 years instead of the 3-4 I was hoping for, but I can live with that (begrudgingly). Listen to these guys!
What does FOO mean?
@@TheooogurlFinancial Order of Operations. It is basically their version of Dave Ramsey’s 7 Baby Steps.
We use credit cards as much as possible each month, then pay it 100% at the end of the month. We haven't carried a credit card balance over a month in 20 years.
I used to do this, but realized I could control spending better by prepayng a debit account, which may not be accounted for in your rewards estimations.
While it worked for me, maybe not for all!
@@Dpaq13 why would you just use cash then? Point of running everything through credit cards is the rewards! I get 2% on everything!!!
Same.
@@Dpaq13 it's literally impossible to spend better when comparing saving 1-2% vs not saving 1-2%
@@Dpaq13 I think this is why Dave Ramsey is of the beliefs that you should NEVER own a credit card. Because he realizes 90+% of his audience doesn’t have the control to not spend spend spend.
Whereas if you have a debit card and see it come directly out of your checking account that’s all the money you have to spend.
You have a subscriber just off the warren G reference
Good advice! I'm a Dave Ramsey fan, but I agree with your advice about investing a little while paying off certain types of debt. I've been maxing out my employer matched 401k contributions even while I'm paying off my student loan debt. My wife and I are both 24, and our last debt payment will be in 12 days :)
Congratulations Mark! Thanks for watching and sharing a comment.
Yeah, I cringe at the idea of missing a 401k match just to pay down student loans a little bit quicker.
So how much extra did you make in the short time it took you to pay off your student loans
@Walter Fernand what?
Lol! I can't believe you quoted Warren G. Only The Money Guy. lol
Lol me either!
Credit card debts keeps you paying off the past. I want to create my future security. Living in the past won’t take you to a strong future.
My APR on my vehicle was only 4% and that was all the debt me and my wife had left, but we realized that mentally it was better to have no debt then using the money for investing.
@djhavok101 I'm pretty sure I'm in a very different place then you and everybody else . As I stated people do it as a mentality a choice not what is mathematically correct. Considering how close we are to a recession it was mentally better for us to buy that car and take 7 months to pay it off then go without a car and buy a POS car . I'm pretty sure I'm better off then 95% of people in there 20s.
@djhavok101 I do invest ? What is your point that you're trying to make exactly?
djhavok101 everyone has their own preferences. I think remember1776 should do what they feel most comfortable with
I have a 3% car loan with 10k debt..it doesnt bother me that much seeing how i literally just put 10k into a mutual funds acc...becauss deep down i know i can pay that loan off immediately if o needed to...im putting 17% into my roth each week
Thank you for episodes like this one! As a financial mutant I have a number of competing voices in my head: maximize investment and saving and paying off debt. It can be difficult at times to figures out what to prioritize as a 27 year old with limited resources.
Love your show! Thanks for the great discussion and information :)
I'm convinced at age 38 after making a few mistakes a long the way that the only reason to take out a loan is to get a mortgage.
Student loans can make sense also, I never had to take out student loans but just about everyone I know that I went to college with did. I went to community college first and got some core classes in so that I had time to figure out what I wanted to do.
@@Lolatyou332 even better....do good in HS so youll get a scholarship...wish i wouldve tried in HS
@@simplybeef8232 I didn't really try in highschool except for math and it ultimately didn't even matter. I graduated with a 4.0 GPA in college and that is all my potential employers would see or care about.
I've been looking for a video like this. Thank you for the debt crusader vs boring investor comparison and by giving us numbers to look at. Also thank you for talking about the order of operations due to it being dif from person to person. This in my opinion after watching hours and hours of financial videos for a year now has been one of my favorites. It's a long video but I think everyone should watch the whole thing. I also love how it was mentioned that life isn't black and white but that it gets greyer over time haha. I agree with that personally 😄.
1:11 “You can’t argue with the numbers!”
*Anakin voice:* You underestimate my power!
I usually listen while working, but your graphics caught my eye. Really helpful!
I’d appreciate an episode where you explain why I should scale back my risk in my retirement investments at 31. I’m still 24-34 years from retirement, it always seemed overly conservative to scale back so early.
FOO does work. Having money in your account helps defend your best assests: your health, your family, your home, and your car.
If all your money is in your car, you may have to sell it to pay your mortgage.
If all your money is in your home, you may have to sell it to retire.
1. Insurance covered
2. Car done
3. Student debt done
But, I recently got a tax reassessment, found out my daughter needs braces, and my taxes are due. 😢 It is very important to cover at least 3 months ( cash and liquid assets ) or 30-50% of yearly income.
You guys are truly awesome! Great humor and life changing advice. You guys belong in the top list for financial advice. I can’t wait to see this channel rocket to the top where it belongs. Amazingly genuine of you guys to hand out gold like this. Much love❤️
Thanks Cody! Comments like this are definitely rocket fuel for us.
These videos just keep becoming more professional!! love the slides of key points (I can pause on), easier to understand then a verbal list of information. Keep up the great work and I hope many new followers come :D
Michael,
We can’t talk all of the credit... we have a new producer and a MG intern that are rocking it!
Fantastic analysis and message. I will definitely be sending others to watch this video.
Great video! This has been one of the biggest questions I've had, and this made it perfectly clear. Thanks again!
Thanks Cory 👍
I believe one should balance all 3. Save, pay debt and invest at the same time. Then once debt is paid you can increase savings and investing amounts. You never want to just focus on paying debt alone, because if an emergency comes then you are back at square one using a credit card to cover the emergency. Try to balance all three.
Don’t disagree RB. We used extremes to make our point 👍
Biggest flaw with Dave Ramsey is the idea you have to do one thing at a time. The worst piece of advice he gives is not to contribute to 401k during baby step 2. He assumes everyone will be out of debt in a year or two but not if you only have a small amount of disposable income and large debt.
@@raiden031 I agree with you. My situation is I am about to be 40, have about 90k in SL debt and not have a company 401k. I do fully fund IRA. I don’t like DR plan because if I send all money to SL it would take me 10 years or more. I can’t afford to not invest for retirement at the same time.
Doing All the 3 is the correct approach
What about the interest on the house? by the time you add the interest on a 300 K house you are actually paying 600 K
To complete a fair comparison the interest saved on the mortgage should be factored in as well
Love you guys for all you do! Hopefully I’ll be doing work with y’all in 6-8 years!
Thanks Chris!
Handled all my high interest debts. Changed my habits (maxing out credit cards, spending more than I make). Increased my income (thank God!). Just turned 30. About to max out these investments and make progress!! Actually sold my car, I love how you breakdown guidelines for car loans. That ummm $80k student loan balance can be handled some other time haha, hopefully I can refinance that 5.5% interest rate. I'll keep watching to see what you say about the student loan portion but I don't want that to stop me from investing or moving forward.
Don't use a credit card without a budget! Love the information guys keep up the work! Your big break is coming!
Thanks Wilson. Big break or not we are having a blast!
I completely agree that a budget is the key to using a credit card responsibly. My wife and I went into credit card debt by accident when we didn't have a budget, but now that we have a firm monthly budget, we pay the entire balance every month 👍
I love the mortgage difference between the two guys. Thank you guys for your time for putting these shows together
Great show! Thanks guys keep it up
You guys are always addressing everything I have questions about
Such great content!! Thanks so much!!
Awesome show. Thanks Gents.
Fantastic podcast! Thank you!
Way to hit ‘em with the facts, Bo! Unload that thang! 🤣😎
Handy with the steel!
Love your show and I 100% agree! Thx!
Thanks Oscar!
Darn it. You changed my mind. I hate when that happens.
This exactly why we wanted to do a deep dive with a full numbers discussion. Thanks for watching and being honest Colin 👍
Really good breakdowns of the morgage payoff vs. installment plan. Been looking for a visual of the differences, and this was perfect!!
Intern Daniel is really good at his job 👍!
This was awesome!!!!
I’m 27 and invest 33% of my biweekly paycheck in index funds 😁
Really enjoy these guys!
I love how the numbers put this in perspective. I always wanted to pay off my mortgage early first. Now i have a different mindset. Thank you!
Pay down on it to take care of the high interest that is front end loaded. Then after more payment starts going to principle start making the minimum payment and invest the difference.
@@vasaguy7624 No. That's not what they're saying at all. They say to take advantage of the compounding right away. Let time do the heavy lifting for you.
This is a great video guys! 👍
Great video guys, just wanted to let you know you inspired me to make a video of my own so thank you!
Great video, guys.
Good show!
Great program! 👍
Great advice for the financial mutants out there! I think the baby steps maybe the better option out there for the common person who doesn't watch financial podcasts for fun though
Thanks Shea. Next week we are doing a deep dive on the 7 Baby Steps versus our Financial Order of Operations 👍
Totally! I did the baby steps all outta order, but I got there. Now I'm working on continuing to build up my credit & beginning to invest. These videos have replaced most other free time TV watching. I believe theres a ton of ways to get to where you're going as long as you aren't trying to fool yourself in the process. Thank you for all you guys do!
@@anthonydalton6054 don't pay for someone to help you increase your credit score. 99% are scammers and you can do everything yourself.
Yeah it's definitely weird. I have no idea why I enjoy watching all these videos, I guess I'm trying to retain everything I can in all possible scenarios with comparison information.
I'm sure eventually I'll exceed getting any useful information from these podcasts and go into some harder reading and investment strategies to try to gain an extra 1% ROI while maxing up my risk tolerance. That 1% extra ROI can make a huge difference if you're getting a 9-10% return after inflation.
I don't really get much useful information from Dave Ramsey at this point, other than thinking through some of the unique situations that his callers have.
Solid episode guys, really enjoyed this.
Thanks Calvin 👍
Wow, this has really helped me see the whole picture. Both schools of thought have big power.
For me there was NOTHING like watching my first investment account begin to grow to MOTIVATE me to finish paying off the rest of my debt. It wasn’t even that big! I had began paying off my debt thinking like a Ramsey guy because I needed to clean house and that really works. Watching the debt snowball work is just as gratifying and MOTIVATIONAL as watching compound interest work. We are humans not calculators. We have to account for our nature. For me the cure for mild impulsive spending was purposeful spending,saving and investing.
I can really tell you guys are energized. It’s great to feel that over the air.
Thanks Daniel 👍
I’m a financial advisor and I love your videos. You guys do a fantastic job!
Love this video
Thank you for the great Show! Greetings from Germany
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Im a subscriber just because of the endless great content! 😁
Thank you 👍
Your advice makes so much sense. Coming from Canada, Thank you for your videos on finances. Dave Ramsey’s plan stresses my husband and I out. We have just started our financial debt free journey. Thank you for your videos.
We are Canadians and did Ramsey's plan in the beginning, it is awesome for getting out of debt. We paid off credit cards,line of credit and vehicle loan until we got to our small amount of 0% Student loan debt. Also I have 8% employer match, so there was no way i was giving that up. At this point we stopped, and switched to the money guys plan as it will make us wealthy quicker.
Hey Money Guy! When are we going to see “Daniel, the intern” on camera? As always love the information you share on your shows! 👍🏼😃
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They're beating a debt horse.
Good show!! In your 20s, the corvette sounds cool.. In my 40s, I know for sure its NOT an investment. Thanks.
GREAT video
I like this a lot! The only thing I disagree on is the credit cards. But I do agree when it comes to investing early. I need to start investing very soon.
Glad I found this channel when I did. I’m 28, so following Dave’s exact advice could cost me half a million dollars lol.
We love Dave, but we want to show you additional options once debt basics are conquered 👍
I'm 27. I definitely like this podcast more than Dave's, just because it's a lot more in-depth. Almost all sources other than Dave says to get a 30 year mortgage at the 3-4% interest rate and invest the rest.
Dave says to get a 15 year and pay it off in 10 years. Dave also says you should save 15%, not less, but also not much more. This show recommends 20-25% as a baseline, which is WAY better, especially if you are younger. What many of my friends don't understand, is that they should take a hit on quality of life now so that that you can improve your quality of life as you get older. My friends just don't understand yet and won't understand until they are still broke in their 30-40s while the few that do very well have over 1 mill net worth.
Say you're 28 and take the next 10 years to pay off debt you've racked up, then yes lol you wasted time and money. But if you're gazelle intense and only take up a few years, then I'd say no worries :)
The thing about Dave Ramsey is that it's a good system he uses. It would be better if he did change it up of investing half the difference from the monthly payment of each debt you pay off and the other half into the next debt and so on and so forth then you'd be getting a balanced mix of paying off your current issues while making an effort to plan for the future.
You got an instant like for the Regulators reference
I’m saving 10 to 11% of my income. I and it hurts or hard to do! But I’m scared at 46. If I would stop add it to My 401k. 10 more years would go bye and I would still have credit card debt , car payments and mortgage. And no retirement money. I do better paying down debt and invest at the same time. The more money is see in the checking the more we spend.
Wow, ref to Warren G (Young Guns)... LOVE IT! That's my favorite line!
I wish I had some of this advice earlier on in life. I've honestly debated for years whether I should just pay off my student loans or keep investing in my 401k. I couldn't figure out what to do and am now 34 but at this point 401k is at 68k and student loans down to 18k. I guess it's working ok, just would feel so much better without the student loans.
I have changed so much its scary. I invested the difference instead of buying a new truck and I only use a cc that pays rewards instead of using my bank's debit card. My points just paid off a $300 parts order from Rock auto. And I do my own auto repairs and mods. Life is good!
Great video guys. I’m a Dave and a Money Guy fan. We follow the baby steps, but increase step 4 to 25-30% and only pay an extra payment on the mortgage. Like your calculations This route will give me more at age 60 than paying of mortgage and not investing the extra 10-15% net of interest payments I’ll still be ahead by a wide margin later. Good info.
Thanks Donny. Love and agree that you can be both a Dave and Money Guy family member.
Graduated about 80k in student loan debt, Wells Fargo had me at 12%. College kid with no job. It's unreal it really is.
Did not expect the Regulators reference, I fuck with that. Subscribed. 💯
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After that Warren G quote I had to sub!
I like these guys 👍
I have been going back and forth on this question a lot lately.
Hey Listen Money Guy Show. I will be yout client soon. Keep up the good work!
Keep the content coming!
Yes, I always thought that the DR methodology doesn't entirely make sense, but I followed the paying off debt part in my early 20s anyway.
I wish I would've invested more in retirement accounts instead, but then again, it was good experience to get hyper focused on one goal. Keep it coming!
Actively trying to play the stock market while you owe on consumer debt is like that episode of The Sopranos where Davey Scatino gets told by Richie he doesn’t want to see him at any more card games until he pays up the debt he owes him, and when he finds Davey at another poker game behind his back throwing down the money he still owes Richie it almost gets him killed.
Plus nobody who makes money investing sells off their gain to pay off their credit card or student loans….it’s best to practice good financial behaviour and not have that liability before you start investing, where there’s always risk no matter how safe you try and be.
Thank you for the clarification on student loans! The federal rate of 6.8% is far too common for student loans.
Federal rate is 4.53%
@@alexsloan4976 it does vary.
I'm subscribing just off the Warren G reference lol. The content is great as well lol
Can I just say I just found yalls channel a few days ago and I loved all of them. I very much appreciated this one given where Im at in life. Im in the latter side of 25 and with I started years prior. Love your videos and your wisdom. Looking forward to more of your videos.
Thanks for the other kind of input on debts. To be honest, i loved Dave's idea on attacking the debts asap but at the same time, i have the same thought of yours. Why would i want to waste the opportunity the wonders of compounding. Still it is up to the individual on how they view debts. Some dont mind of owning debts. I am afraid of having debts and kinda regretted at first of taking the personal loan! oh well, i am still aiming to invest eventhough i have debts! 🤣
The statement balance must be paid off each month (on the due date); not the current balance at the end of the month. Most people do not know that.
watching this today where credit card avg APRs are now ~25% instead of 17.76%
Great video! I've watched a number of your videos before... but you officially gained a subscriber with the Warren G quote lol.
I'm a huge Dave Ramsey fan... but he does tend to be very black and white. It's nice to hear a more nuanced discussion on some of these topics.
Thanks Cameron 👍
I agree
Recently discovered your podcast. We just bought a new home with a 30 year 3.75% interest rate. I budgeted a payment for December even though none was due until January. Since our mortgage hadn't been sold I made a double payment and planned to accelerate our mortgage payments a little now and more when our kids (3, 3, and 2) start school and my wife begins working again. Now, I'm going to put that extra money into investing since we're 35
Be aggressive with the low interest debt after you are saving 20-25% of your income 👍
Your 55 year old self will thank you because you will completely debt free and have a nice financial independence pot of assets 👍
Yea but to play it safe. You need to do middle of both...
Thanks guys, I love this chart.. I think "Debt Crusaders" feel more safe.. "Boring Investor" loves Risk & have Financial IQ.. "Army of dollar bills", "Polishing, cleaning guns " like your analogy..
Could you post the books you recommended that your interns read?
@31:00 💪🏾
Great side by side info
Omg the Warren G example was 😂😂😂
I was wondering why it was so hard for me to make everything fit in my budget, and then I remembered that I was saving 30% for retirement, paying 10% tithing to my church, and paying 40% of my income to my mortgage and HOA! I think my budget needs some adjustments.
I have a credit score of 770 and I was given a student loan at 9.8% by Sallie Mae to finish my senior year. I’ve since refinanced to 5.5% but my other student loans are less than 4%.
Thanks Dustin great info.
Last time in 2017 I had 10k, I had a choice. To pay off my student loan debt or buy 2 duplexes at 5k down each seller financing. I chose real estate over paying this debt which is still in collection. Now, im worth 500k in assests. 2 duplexes, 1 single family and 8 unit apartment building.
I will choose investing over paying off debt most of the time. If you're broke like I was and still am I guess because my apartment building is still not finished, then don't part with the little money that you have. Find ways for it to bring you a positive return. I'd get out of the rat race with debt than be broke and be debt free.
Thanks Jean. Good points
Yes! If you are buying a property that will make money for you I 100% agree. That's what I'm looking to do soon.
@@Stormy_Dawn Well, if you feel strongly about it don't listen to Dave Ramsey. He will steal your dream from you.
Good luck to you!
Now do the calculation with risk involved. Pay off your house people. 10, 20 or even 30 years of consistent earnings are never guaranteed in life.
What do you believe a good savings emergency fund to have is? Ramsey says 1K but that’s not enough in my mind.
People get really emotional when you mention debt.
...mostly because people get themselves deep in debt and remain in denial until it's time to pay the piper... With the possible exception of a 15-year mortgage w/20% down, debt is NEVER a good thing to carry. I learned that lesson approx. 15 years ago. We had a great income, but never had any 'money'. Now, we have ZERO debt including our house and a net worth in excess of $2 million. ALL because we paid off all our debts and could focus on saving and investing... Debt is NEVER your friend. There is no 'rational' leverage. IMHO
Good discussion. What would it look like if a guy rented and invested the difference? I think a key to debt is don't get in it in the first place. Also, many 20 year olds might expect to change cities before they settle in a town long enough for buying to make sense.
Dave says his Baby Steps 4, 5, and 6 are in whatever order or all at the same time.
I realize that the math says pay off the credit cards before investing. I have about 2k in credit card debt due to unexpected car repairs. I've been paying $200 every month to the credit card debt but investing $400 into my Roth. Im looking into the future more and figure 20 years down the road, this 2k in debt will not be that bad in the long run. And btw I am now also getting my savings up to prevent this from happening again.
Pay off the credit card debt first. Did you watch the video? They also said to pay off the cards first. At the very least switch the numbers. You should definitely be putting more to the cards than investing lol
Damn you had me at warren g
Paying extra on a car loan to get it paid off is a guaranteed 7% return since the interest rate is fixed. Investing is not guaranteed. If I pay my car off in a year and a half I don't think this will make a big difference on my investment returns.
If your car loan is 7% then yes pay it off first, that's not a big enough spread to be worth the risk of investing. But if the loan was 3% then it would be worth making minimum payments and investing the difference, because over the long run an S&P500 index fund averages about 8%. Over a 3 year loan you might come out ahead or you might not, because the market doesn't always return the average over short periods, but over longer terms (like a 15 or 30 year loan) it's extremely likely that you'll end up with more money by investing.
I didn't see the Warren G reference coming, I am dead, immediately subscribed 😂😂😂😂😂😂
We aim to please 👍
@@MoneyGuyShow You are doing an excellent job man!! I am 31 and recently I woke up to the realization than NOW I need to make my dreams a reality. This year I had a great start investing into the stock market and I have embarked on a dignified fat FIRE life plan lol and my aim is to reach FIRE in the next 10-12 years. Anyways man, I found your channel to be a hidden gem and you are doing an amazing job! I am surprised why aren't ALL Americans subscribed to this channel!! lol Keep up the awesome work and best of luck to you on your journey!!
You point out that Dave Ramsey actually says save 15% AND pay off mortgage in Baby Steps 4, 5, 6 to be done at the same time, but you don't use that in your demonstration. In the example, I think you should be using a savings rate of 15% for the debt crusader and having him/her paying less extra on mortgage. I think your results would be remarkably different.
This was a great episode! I have been working to pay my house off as fast as possible but I also invest at the same time. I follow Dave Ramsey and invest 15 percent into retirement and all the extra goes towards the house.
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I agree with the mortgage analysis, but one critique. If I paid off my house and was investing, I would be more inclined to be in riskier assets verses when I am still paying my house off.
Perhaps calculating this with different rates of return for the two investors. Keep the same numbers for the boring investor but for the debt crusader you could do more volatile 10% with swings over the years.