Is There Such a Thing as Good Debt?
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- Опубликовано: 15 сен 2024
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This is a wonderful explanation, one that I was struggling with personally. Thank you.
I want to argue and talk about how much more you could make...but like Dave don’t want to be up at night. Peace of mind is literally priceless.
100%
U only have peace of mind when u are dead
@@ElaineLoyd I’ve been really tempted by BRRR too. Just don’t want all the other things that come along with it. Hope you crush it in 2021 Elaine
@@johndone8045 If you believed on the blood of Christ that’s true if not then you have no peace for eternity
@@robertlulek1634 I have all the peace and don’t believe in any Organized religion. It’s pretty awesome.
I've been listening to Dave since I was 15 years old now I'm 22. A Few months ago I got my first high paying job out of college. My current financial situation is no debt, paid off truck(worth $2,000), $8,000 in bank, bachelors in Computer Science, and $1,000 in index funds. I'm completely independent from my parents except for my cell phone bill which I will soon get in my name. I became this successful while taking very little risk. I'm now saving over 1,700 a month at 22.
I'm only saying this because of all the people in the comment sections arguing with Dave Ramsey about how high risk, and high reward is better then low risk and low reward. Or these people are saying that a 8% rate of return any given year is a virtual guarantee which is ridiculous. People keep saying how dave only went bankrupt because he took 90 day loans which was WAY risker then what ever investment that they are thinking of But all investments are risky. 90 day loans were much more common back then because there was a virtual guarantee of being able to refinance. I'm not saying that mutual funds cant be somewhat safe but the biggest risk in having mutal funds and in debt isn't that the fund will do bad long term its that you'll need money in the short term especially since you have debt, and guess what recession are liking to hurt your person finances, your ways to generate money, and your investments all at the same time which only amplifies the risk.
I graduated in 1980, at 22 years old, and took my first job, $100K/yr + $30K bonus.
A Chevy Silverado cost $8500, a new house in the suburbs cost $50K
Government bonds were 16.75%. I bought silver at $3.86/oz
I sold the the Silver for $13.56/oz and took a two year vacation
to knock out bucket list items(My Dad said, the best time to not work is in your late 20's
or early 30's).
I was about to go back to work, when the Government bought back their bonds.
Two more years vacation.
When I retired SS says I have 9 years of $0 in my best 35 years.
My wife and I are retired on a large survivorable pension.
My youngest is not yet in school.
The best training in Life is many years of NO income.
Manage money.
Everything you said (except you didn't indicate what job you have) is great news. If you do in fact have a good career (stress on the word 'career') in your field of study then you've got it made. Computer Science is a great field with so many possible career choices. Clearly you've learned at an early age to say no to yourself when tempted to buy things you want but don't need. You are living within your means, and socking a lot of money away. My suggestion would be to get your take home pay to make money for you - max out your ROTH IRA every year, max out 401k's, etc. A house is basically forced savings with a so-so return. You make your money going in - don't overpay for a house. Rates are incredible so save up for a 20% down payment, get a 15 year mortgage. Fast forward 20 years you should be a millionaire.
@Ethan Clark
One more thing.
Look into cyber security.
There is a 1 million+ person shortage of cyber security specialists in that industry! Once you are good, you will ALWAYS be in demand and command a massive salary.
Or you can do like one friend of mine who specialized in computer networking did: find a good paying job that's part-time hours but pays full-time income and have a 4-hour a day job and get to *live your LIFE* !!!!
Ethan Clark risk must be compared to risk tolerance and risk capacity.. without risk, no one could retire. In your 20s, your best interest would be to max out investments and celebrate down turns.. that’s high risk capacity. Risk by itself means nothing.. risk in terms of terms of time, tolerance, and capacity is what is the primary factor in success and failure.
You are not wrong in the way you are handling things and I wish you success. The issue we have is that Dave takes his extreme situation and applies it to everyone. Everything in life has risks and we need to be responsible with those risks. Dave eliminates the reposabilty part and assumes everyone is an alcoholic. Ill conitue to leverage real estate responsibly where my rental income is twice my mortgage. Netting 30k a year in income and appreciation. All while having 12 months liquid cash for emergencies. That's how you handle things. Notice how Dave has never mentioned he was doing 90 day loans... thats for a reason
A relative of mine had a successful business back in the 70's in the oilfield industry. There was unlimited work and his business was bringing 20% to the bottom line. He and his partners paid off all loans and expanded only with cash, while friends in the industry were telling them to borrow at 9% and make 20. They didn't, and when the bottom fell out of the industry, they were able to weather the storm. Their friends were not so lucky.
Wow. Just goes to show that whatever you think will go to plan, won't.
🧢
Yeah no.
I'm glad Robert called in. This is the most calm I've ever seen Dave be on this subject. Great video.
Haha
No debt is peace of mind, or, being at peace. For many that is not a “normal” way to live because they don’t know anybody that has that.
Like Dave says........”be weird”.
In my country, being "in peace" means you're dead.
you can have debt and have peace of mind if your assets heavily outweigh your income generating debt
@@kefkapalazzo1 True.Howeer,the people who need this most have a negative net worth.
@@tompain2751 that's like not telling a 3rd grader algebra exists
U only have a peace of mind when u are dead
Probably one of the best videos out there about debt. Being at peace is the real goal. I never realized that.
Debt is a psychological issue first and foremost. I love how Dave highlights that. Mathematics is important, but it cannot explain the behaviours and mindset that led to debt in the first place.
Excellent call. I’ve often wondered that and in the past it really mattered to me but these days I am unemployed and broke and my only debt is medical debt that I plan on eventually paying off but for now, in the words of George Strait, “I ain’t got a dime but what I’ve got is mine...”.
Lol 😂 Exactly!
Hope your situation has improved, Brad.
There’s something to be said about having no debt. You can focus on taking on more lines of business in peace. Peace is the keyword, Financial Peace.
Ayawrxsti you didn’t listen to a word Dave said. Go back and listen closely to what he is saying.
Debt is a powerful tool you can use to build wealth buying cash producing properties that's going to take you higher financially than a traditional job, stocks & 401k ever will. If you want the big reward you have to take the risk.Success isn't found in avoiding anything that could go wrong.
If i never used debt I would have never been able to buy my 1st 4-Plex for $211,311 (it's now worth $385,000) or my 2nd 4plex or the 6-unit apartment building and 1acre of vacant land zoned for Multi-family I'm under contract on now. And I'm gonna use construction financing to build additional apartment units. There's definitely risk involved but you can mitigate that risk.
Imagine the financial power that comes from owning a large portfolio of cash producing rental property that appreciates in value while the tenants pay your loan down for you. Imagine using someone else's money to fund this portfolio aka the banks money with 30yr long term fixed low interest rate debt, then taking the wealth you created and spending those same dollars over and over to buy new properties. With each new property starts a new wealth-building cycle. Soon you end up with a powerful wave, carrying you to Financial Freedom.
I get what you're saying about the peace of mind though but if you compare the traditional no debt path vs using good 30yr long-term, low interest rate fixed debt that you outsource to your tenants. The person using debt prudently will come out way ahead. Either way both paths will work and are better than not saving and investing at all
Johnny McKeon not to mention that a lot of people who owned businesses have already lost them.
Exactly bro
Dave is leaving out the fact that he used 90 day loans. That are super super risky. Not 30 year fixed rate mortgages that are not that risky because if the real estate value goes down the bank can’t just call the loans due.
I’m sorry but, I disagree with Dave here BUT, it depends on the Person and the conservativeness of the person!
1. Consumer Debt is never good!
2. Same for Cars, Student Loans, Bla, bla, bla!
3. Put 15% Down and I only Hold Investment Debt!
4. Have your investment by Cash Producing not a stupid thing like Land! It should produce Monthly CASH! Rental Houses and Commercial Property are good examples!
5. If you buy in Cash only! Either you have a lot of cash in the bank as you save up for that next investment or you are looking for an investment property at the wrong market time! Of, you aren’t buying an expensive enough asset or (I think I could go on forever!)
My 15 year mortgage is my enemy. The stock market is our friend. I attack my enemy while I give to our friend. Keep your life balanced.
FRIEND??? Come on they will sell you out if the hedgies are losing money. Aka Robinhood. The house is a better investment than the stock markey tbh
I agree. But some folks have a hard time with balance.
@@kagoatleonard4019 lol no. 😂😂😂
@@kagoatleonard4019 where do you live where you can make 10% average annual appreciation on a primary home after expenses?
I love this! No debt is truly a piece of mind. I’ve been watching other RUclips channels talking about good debt, but they aren’t mentioning the risks of having debt. Thank you.
Exactly, no such thing as good debt.
@@NiceOCGuy1981of coz for losers like you. If my rental property generates more rental income then the interest or even my rental income, is it a good investment?
Btw I consider my cc debts good debts. Something you can never comprehend
I learned no dept has no consequences . My risk is how much I can make saving. Knowing you can pay cash for something you need eliminated the underlying anxiety of purchasing something you want. At 60 years old I get up to go to work because I want to , give because it makes others better, and end each day with fulfillment.
A simple statement to a common thought process. Poor people don't save. They spend. .if people learned to save in a investment knowing they will never spend a dime and only live off the growth they would realize the true meaning of saving.
No debt does have consequences depending on the situation.
No debt absolutely does have consequences. Mortgages are easily the best example. It's not a coincidence that the largest debt in the US is easily mortgages - these smart, rich folks figured it out long before us.
Debt sometimes becomes a necessary evil, but the thing about necessary evils is that even though they are necessary, they're still evil.
Great analogy. Wow I'm going to use that. Perfect way of phrasing it
I can't see where its necessary except a house
seuny college, assuming you’re getting a profitable degree such as engineering, MD, architecture.
@@seuny Then you see where it's necessary lol
@@julianvelazquez914 my degree was a complete waste and not what am doing now.
I like Howard Marks's definition of risk: “Risk means more things can happen than will happen.” So taking possibilities off the table reduces risk, in this case, the possibility of loan getting called. You don't need much math or modern portfolio theory to understand the concept. This also means with investments that making a good decision will still lead now and then to a bad outcome - and vice versa good outcome may sometimes be the result of a bad decision.
I’m pretty sure a Loan CANNOT be just called at Random on ANY loan!
@@duneme Other things can happen at random and cause default.
For most people paying off debt is a great idea but it is not for everyone. If you leverage debt properly, it can be highly beneficial.
Dave has used "reverse the process" explanation before and it's spot on. say you already had a paid for home. would you take out a mortgage, which means your home is no longer paid off, is now at risk, and you have a large monthly debt payment, and use that money to invest? of course not. pay off the mortgage!
Bingo
Kiyosakis point is debt should only be used for business expansion and not personal use.
For that reason this is a bad example.
@@darth3911 if you sign for a business loan how is it not personal debt?
@@eatpigsnot Personal debt defined by Kiyosaki is all debts used for liabilities such as cars houses hot tubs and so on.
Business debt defined by Kiyosaki is all debt used to purchase assets which in the long run will give you money to pay the debt off with,
that’s the difference.
@@darth3911 Kiyosakis approach only works if everything works, and there is a reason life is a four letter word. many reasons actually. if someone takes out a business loan and the business goes under the bank does not say "good try! we forgive the debt." it is very easy (as in not complicated, it still requires effort) to start and grow a business sans debt. Dave has some clips on RUclips about that topic and his book EntreLeadership goes into great detail
As a numbers nerd like myself, we tend to not focus on risk analysis appropriately. It’s refreshing to hear Dave’s common sense explanation on it.
If you never owe anybody for anything you can live and save simple . Wish I was 20 and believed this .
Dave Ramsey doesn’t give advice on becoming wealthy, he gives advice on being independent.
Which from tried and true life experiences...most often is a direct resulting correlation to becoming wealthy.
The less risk you have in life...the faster and more consistent your growing success will be to becoming wealthy..
@@motoryzen
You're missing the point they're making.
Dave isn't about making you wealthy. He's about making you safely able to retire wealthy.
And risk is definitely something that can ruin any plan.
But any risk provides an opportunity to make more if you can completely survive it.
If you survive a housing crisis with properties under your name, when the housing market starts doing well you're 10 steps ahead.
Dave Ramsey is the best advice for the average person (from what I have seen).
But there are better alternatives for those able to adapt better to financial changes.
@@phasepanther4423 " Dave isn't about making you wealthy. He's about making you safely able to retire wealthy. "
(facepalms)
no kid..YOU missed the core point.
When you DON'T owe anyone ..a da mn thing...ALL of your income is FREE to go where YOU want it to go aside from daily, weekly or monthly bills.
You lost the argument before it began.
ANY ..time..you introduce certain risks.... there is ALWAYS the chance the debt-loan vendor can .." CALL ' the da mn loan., dumb @$$
How the f#$k do you think Dave LOST all his millions he made in his mid to late 20's? DUH.
History and experience will always trump you id iot kids' " well I can do it faster this riskier way because I'm young and I think I know better ..and my feelings..so waaa..there "... nonsense
It's not rocket science. If your ego wants to let your fingers talk, that's your problem...not mine. Move on.
The title should have been, should I use my stock investments to pay off mortgage debt?
Answer is no
@@Corpsecreate I agree.
@@erikrohr4396 yeah I agree with ramsay on money things. But this ain't one of them. I think it's clear his past was real bad. But it wasn't cuz he just had risk. He was also massively over leveraged and took on too much risk. There is a way to balance risk.
@@BboyDaquack You Sir, are a reasonable man.
@@erikrohr4396 E(Market) > E(Debt) and Pr(E(Market) > 0 | t >= 10) > 0.99 so it is a pretty easy decision
Most of these people don't take into account leverage. Sure you can invest 100k into an 8% index fund and hope for the best. But if you can take that same 100k, purchase a 500k home in a State with good average rate of return % on properties, you then have a 500k asset that could go up 5-6% per year (or potentially even more). This is multitudes better mathematically.
Once again wrong answer for the current situation. Dave doesn't like to change his answers regardless of situations. He would have to change the literature that he has been pumping out for decades. Easier to just find reasons to defend the same idea.
What Dave leaves out, is that when HE was playing with margins of debt vs investment returns he was not getting HISTORICAL low rates on his LONG TERM debt. That "risk" he refers to is substantially lowered because of how low a 2.5% debt rate is and the long term performance of the markets. Thus, at 2.5%, the risk is essentially eliminated. Dave himself has plenty of videos where he talks about the market being a stable investment long term. Also, notice his 12% return rate on the market (which he always uses unless it's not to his argument) was lowered to 10% NOW to minimize the benefit of what the caller wants to do and SHOULD do.
At 2.5%, the debt is actually getting cheaper as time goes. Inflation averages will likely outpace his long-term rate, thus not only is he paying future dollars that are deflated in value (essentially costing him less), but the money he invested grows. In fact, if inflation outpaces 2.5% in the future, the caller will payback less money than he actually borrowed because those future principal payments will be worth less than what he borrowed today or yesterday.
Additionally, what Dave leaves out in this phone call, the TYPE of loans he took in his day. He had debt that was called, not traditional mortgage as this guy has. Dave was essentially "leveraging" his investments and got bitten when the markets shift and he did not have the money to pay off the properties. This in addition to the fact that he didn't have historical low rates.
So sorry Dave, wrong answer! This is long-term debt vs long-term returns, and investing will crush a 2.5% mortgage rate and the longer it goes the more stable the risk becomes and will nearly be eliminated. YES, the rates charged and earned do affect the "risk".
You give me a 2.5% mortgage rate, ESPECIALLY if a younger person, I am in no hurry to pay that off. If I invest that money I would have thrown at the debt, I'll have money to pay off that loan should my circumstances change. The compounding effect of the additional monies and returns where the investments exceed 2.5% long-term will be SUBSTANTIAL!
I sincerely hope this caller goes with his own idea an what he knows is right and ignores Dave's advice. He will be much better off long-term!
Always have looked at Dave as a budgeting and common-sense guy. Anything more sophisticated than a 300 level finance course is better left to someone else.
@@freekbassa - Yes, I am beginning to see him as nothing more than the "getting out of debt" guy. Except he wants to insist on a one size fits all approach there as well and use the much less efficient SLOWball-snowball method that simply cost people a lot more time and money before they are debt free. He cites psychological ASSumptions onto everyone simply because that was how his brain worked.
At this point he is simply more interested in defending a product already written (30+ years ago) than actual give sound financial advice. The money coming in may be affecting his decisions, not want is good for the individual.
I don’t think people get. Yes all of you saying I can do this I can do that and it works but what happens when it doesn’t. Life is not a sprint is a marathon let’s take it slow have low risk and make it at the end. If 100 people try risky situations and 100 the safer routes how many risky will make it and how many won’t compared to the safer route. Small example my wife and I got a house. We could have done up to 500k no problem but I told her we should go for a 200k house because if she lost her job or anything happened to me or her the other person could pay the house payments no problem. In the case that nothing happens we will be done paying our house in about 5 years. Then we can upgrade with very little risk.
Your next step to wealth would be to realize the 200k house is just fine, you don't need an upgrade even after you pay it off. Now take all that cashflow and roll it right into investments and you'll be financially independent MUCH sooner.
Johnny Vegas this is where I’m at right now. House almost paid but this house has long stairs with no bedroom and bathroom on main floor, don’t think it’ll be good when we’re old. But if I move property taxes and expenses will cost me more of my retirement money later. Don’t know what I’m going to do yet.
@Joel Reyes
@Johnny Vegas Did the same, think that's the smartest route, especially with the current economic situation. Plus with the interest front loaded it can save you a good deal the faster you pay it off. Personally think the interest saved would still out perform most indices over the short term. Then you could use the cash saved to DCA into positions, which would probably mean by that time you'd be buying after the dip. Plus peace of mind and owning an asset like a house outright allows for more then enough opportunities down the road.
Maria Puccio you can always sell when market is good or just rent it and use that money plus what you make to pay another house faster.
Johnny Vegas true. It all depends how our life looks in the future. My side job that I enjoy and want to do when I retire is dancing my wife wants to teach piano once she retires. So a bigger house might be what we need it all depends how we improve economically.
Yes, there is good debt. The trick is not to overleverage yourself. It is important to have a cushion to soften the blow when there is a downturn. College debt is great if it in keeping with employment prospects. If you are really good in pre-med school, then taking out $200,000 in debt is solid. Now, if you struggled in pre-med, them taking out tons of debt is stupid. Taking out $200,000 to become a school teacher is also stupid. Your debt should not be over $40,000.
Taking on debt to buy a $200,000 home with a salary of $50,000 is stupid. A $150,000 is fine.
You get the point. Don't over-leverage yourself ad all will be well.
Dave is not going to deviate from “No Debt” no matter how nicely it’s asked. It’s all about risk mitigation for him. Debt = Risk and he’s got PTSD from it. I think his critics don’t get that, not this newbie caller but in general. So Dave is consistent if nothing else.
I think is more for his demographic aka people who can't control themselves with money.
Also, that's his signature so to speak. If he deviates from it he'd be harming his brand.
@@carolea7158 Good point.
Good point.
Dave ain't broke either! And 100 percent of foreclosed properties had what? Say it! A loan!!!! which allows people with cash on hand to walk in and pick up for pennies on the dollar!
Interesting video as always. Thank you for sharing 🙌👍
ABSOLUTELY GREAT QUESTION! I REALLY wish Dave wouldn't have talked over the caller so much because he sounded educated and had good questiosns that he wanted to ask.
Emergency funds are important. I think an important point missed by your answer is that he said he could only pay down "a big chunk" of the debt, not all, which means he is not eliminating the risk by doing this. In fact, he could find himself in an even worse situation since paying a chunk of a mortgage does not eliminate his obligation to make a monthly payment. If he already has an emergency fund to cover his debts for a 6 month stretch, he should absolutely tackle the mortgage over investing, but if he skips the emergency fund step and just dumps it all into the mortgage he could find himself needing to take a 2nd mortgage in an emergency.
For some clarity: Dave got in trouble in the 80s for taking out 90 day loans with no call provisions when legislation changed in real estate investments.. so the bank called THOSE loans.. not mortgages.. which have call provisions.
Most loans have a call option. No bank will expose themselves to risk. I had a drug house in my neighborhood foreclosed on by contacting the mortgage company. They took immediate action to protect their interest! The house was auctioned off and is being remodeled. Don't forget Proverbs 22-7
You left out the insane credit card use.
Azzo you mean they used legal provisions via civil forfeiture to stop a criminal organization from using the property to commit crimes.. yeah they can do that.. doesn’t change the fact that a bank can’t just call your mortgage.
BlackWorldTraveler I was keeping it relevant to the topic but yes there is that too.
Angry Arkie the bank can call the loan anytime they want to, just like a landlord can give you 30 days notice and say get out. They don’t do it often with primary residence homes unless you do something stupid. Investment properties are another ball game
Oh i loved this explanation from Dave. Couldnt have said it better.
My 30 year fixed 3.25% mortgages on a few rentals that cash flow cash flow $700/month after PITI is good debt.
Dave’s constant example of his loans getting called is because he didn’t have 30 year fixed loans. He had risky debt.
Yea he had 90 day notes.
@@connorgurgone345 what are 90 day notes? And caused the banks to take it back
This Dave guy is like a recovering alcoholic when offered a drink: he’s scared of it.
Good debt is usually when you buy an asset that appreciates in value over time (like a house). As you said, you need good terms on this loan and you need to pay the monthly fee easily.
@@Joel-bh5xd But you will not own that asset until you have repaid the debt, so you are in a position of subservience to the banks. Your house can grow in value without debt.
How much would those rentals cash flow without debt?
I need Robert Kiyosaki and Dave Ramsey to debate.
If you want to be rich and miserable, listen to Robert Kiyosaki. If you want to be rich and happy, listen to Dave Ramsey
Graham Stephan has left the chat.
Graham hasn’t been investing long enough to determine his staying power. He has 10 yrs underneath him and those 10 years were on a rebound from 08. So everything he touches is profitable. He has single, no kids and has himself to take care of. Graham has a lot of debt in real estate and if something happens he will feel what risk/debt feels like. He is going a great job but when adversity hits and it will only then will we see how he handles his finances.
@@brettkrcelich9010 Yes Graham has a lot of real estate debt, but he makes most of his money online and buys a lot of stocks too. Even if all his tenants stopped paying rent he would be fine. Debt and leverage are fine as long as you fully understand the risks involved and what you are doing. If you know that, they can be used to increase your returns. The problem is that most people either don't understand the risks, don't understand what they are doing, or get too greedy. This is why Dave is right for 99%+ of people. There is the occasional exception who can make it work, but it is usually not worth it.
Andrew Baker so we agree....
@@brettkrcelich9010 Graham makes a great point in that Dave’s method only really works for the everyday millionaire who wants to retire with a million or so by the age of 70 and retire. Dave’s methods are age 20 were very risky too his loans were different than what Graham suggests.
The one thing ppl sometimes forget is that the income can go away but the debt doesn’t. I know what you’re saying tho
Yes. Most people cannot rent a place to stay while saving to pay a house with 100% cash, so get a mortgage. That's the low hanging fruit, there are other good debts... like leveraging for assets (can be bad too, of course). Credit card debt if you pay off every month to increase credit score IF you have the discipline to not overspend.
Leveraging = more risk. Risks constantly change. You don't have certainty by leveraging money long term
Much needed reminder. Thank you!
Tbh im with Stephen Graham on this one. I think debt and leverage is fine if you know what you’re are doing and are on top of everything.
Once u pay off debt and save for investment, the real estate properties would have appreciated 4x times and no way you can save the amount to invest even though you paid off debt.
Glad to have the one-one-ones with Dave and the callers again.
That's like saying always walk to where you want to go. Sure, walking is safer, but sometimes it's okay to take a light jog down the street. If I'm going next door, perhaps a bit of a stride won't wear me out. If I'm going somewhere far away, I'd definitely choose to walk. If I need to get somewhere close, fast, I'm definitely sprinting. It all depends on what you are trying to accomplish. But definitely don't start a 5k on a sprint.
I respect Dave and agree with him on most of principles..risk reward is so very important Dave got greedy when he was in his 20s.
I'm 41 and I started in investing single family homes when I was 25...today I own 1.2 Million clear paid off equity in real estate of my portfolio valued at 1.6M...my renters paid it all for me
Had I waited to buy real estate in cash I would have bought it when I would have turned 60
My GF hit 5000.00 on a slot machine in Vegas on a five dollar wager. Sometimes people get lucky.
@@justinacase2623 yeah u r right..I got my equity built up in 16 years not in a one night stand at a casino
@@bhupesh0111
You got lucky
I'm looking at a 6bd, 3bth 4000 sqft on 5 acres, former Airbnb.
The owner bought for $400K in 2019, currently bleeding ~$2500/mo
State rules prevent him from making money (14 day quarantine).
Judicial foreclosure State, with 9 month redemption rights
This person was Not lucky
You can lose your house even if it’s payed off. Try not paying your taxes and see who takes your house.
Dave Ramsey’s advice is for poor and middle income people.
Agree. Not for sophisticated investors who no how to manage risk with diversification and liquid EFTs you can sell in 5min if you see a 5% correction and want to bank profits.
Great Explanation !!
Used wisely and responsibly, debt can be a great tool, particularly to buy assets that offer a return on investment. Unfortunately, it's used irresponsibly more often than not.
While Dave would rather you pay for a house 100%, he knows that's not doable for the majority of his listeners.
So he won't yell at you about a mortgage, as long as it's a 15 year mortgage, with the payments no more than a quarter of your take home. And he also advises 20% down to avoid PMI
@Online Complainer Cash flowing college is Anthony O Neil's department.
In a way debt is like alchohol.
It can be fun to giggle around your friends in a party, but if you go too far, you may end up with a drinking problem.
Dave doesn't know this fact. Its his way or be broke. He is so wrong.
@@jeanlenor1858 Worked for me. I'm following the Baby Steps, and in a better place now than when I started 3 years ago.
That discussion was Golden. Thank you Dave.
One thing I’d like to talk to Dave about is his opinion on taking on debt in the form of a commercial mortgage versus signing a five or seven year commercial lease for a building.
One is debt the way most people think about it except you have an asset tied to it.
The other is a form of debt, but no asset tied to it. It’s like renting. You signed a rental contract. And if you pull out of that you owe money. It’s the same as debt.
Its so confusing to know who is right, as i just got done reading the book “rich dad poor dad” and its interesting how he advises investing different. Everyone has a way and I dont know what one is right!!!
Dave is certainly the safer route which is the way most people should go, Robert even says that himself. But if you're willing to get educated mostly on the risk of leverage, you begin to see which is more appropriate for your appetite.
Both are right. difference is Ramseys is the safe strategy that the general population should use.
Kiyosakis strategy is the risky one. It can pay off and make you vary rich but it also has the chance of ruining your life.
It’s risk and big reward vs no risk and small reward.
Great advice! Exactly what I think.
I love how Dave say thanks for the discussion, but there was really him talking. I would have loved the caller to talk a bit more to here an actual conversation on this topic.
Actally The paperwork for that is already being processed
Although i've had my loans for twenty years, almost i've only been paying for 12
I had to do what the few things. Illness an employment finding a new jobIllness unemployment finding a new job.
I start working in August
I don't dislike this video, but I do feel that a conversation about what risk is would be a valuable appendage.
Dave makes a great point about staying out of debt regardless of rate. If interest rates are so low then the theory would be to finance everything, correct? 3% mgt rates, 0% new car loans, 0% insert product here. So if you finance everything due to low or no interest rate then you will be in debt without the ability to save. I agree that paying cash and staying out of debt so I can capture the full rate of return on my investment. I prefer to not owe anyone anything.
You conveniently leave out the fact that by fiancing things you free up cash to put towards higher-yielding investments. There's such thing as a discount for lack of marketability and having your wealth tied up in illiquid assets can immediately make that portion of your portfolio worth 10-30% less than its market value.
I like that Dave explains that even if it makes "sense" the value of "financial Peace" is worth more that the risk off that extra income from a "gamble"
CashFlow 101 unless your Dave Ramsey and already have your "reward"
YES.
Basically he is saying most people are stupid and don’t know what there doing and will waste there money which he is correct. But if you know how to leverage your money into cash flowing assets you can be extremely wealthy in a short amount of time. What Dave is saying is don’t do that because most people aren’t smart enough to understand how the world works. He is correct.
@@fredsystra7584see justifying his stupidity again
*Caller:* “I believe there is good debt.”
*Dave:* “Let me tell you about the bad debt that I once had.” 🤦♂️
Dave's debt would have been considered 'good debt' though, as it was used to attain an income producing asset.
Alex Campili
You could not be more wrong. Do your research. He was playing around with high interest, high risk, short-term revolving debt to flip properties. He was dumb enough to play with rattlesnakes and then was surprised when he got bit. I use low-interest 30 year loans to buy cash-flowing real estate, and I get sick and tired of Dave comparing my investments to his.
Top Comment how are you cash flowing a property when you used a loan to buy it?
Shut Up And Eat!! ASMR
I have 42 rental properties that collect just over $34,000 per month. The principal, interest, tax and insurance for all properties is $15,350 per month. So you tell me. How am I cash flowing?
@@topcomment3816 Majority of people that listen to Dave Ramsey's principle have a very little understanding of wealth building. If you can cash flow and at the worst break even on your real estate investment, there is no reason to not take out the mortgage.
Okay, but if for example you had 500k, and you could get 5% on that 500k.
Thats 25k a year, that could cover a mortgage payment, and supply a low level income/Living lifestyle.
If you spent the 500k immediately it would be gone.
Absolutely! Dave’s point is if both your business and stocks suffer at the same time for the same reason (recession, etc) your up a creek. And even if everything does pan out it adds a ton of stress to your life. He sticks to his guns on this topic mostly because people truly are idiots and WAY over leverage themselves. Obviously a few people do it quite well. And others over leverage and are successful because the risk event just happens to not show up when they are most exposed.
JamesJamersonIsAGod
Right, I’d like to ask Dave’s opinion on if someone had 500k and could get 5%, should they get a mortgage if that was their retirement was all they had, like say they just rented all this time, so no house.
@@JamesJamersonIsAGod
There are ways of hedging a stock portfolio, to mitigate risk.
Dave Ramsey did not get rich following his own advice. His advice is for people who are not highly financial educated.
I have disagreed with Dave on this point in the past but he explains his position very well here. I still disagree with his position on paying extra on a mortgage instead of investing more but great explanation here.
Yup, Yup, Yup, Yup 😂😂😂
I'd say the only debt that can be good is a mortgage for the house you live in so long as its a small enough percentage of your income. It depends on your situation, if your job might relocate you to a different city buying a house might be a bad idea.
Funny you never even consider the cost of your house
There are quite a few grey tones between 0% risk and the massive amount of risk Dave took in his 20s.
I would keep the mortgage, even refinance it if you want to (interest rates are awesome right now). Don’t waste your money by paying tax on cashing in those stocks.
Can we just have more Dave Ramsey rants and teachings?
Make a show on how can I avoid paying federal taxes!? Thanks
$98K - $24K standard deduction - $4K (15% SS exemption) = $70K
4 children child tax credit= $8K, $0 taxes
Retired, 4 minor children, ~$100K , No taxes
Not to mention the $24K the children get for being children of a SS retiree.
Peace > Money!
I can see his point but I have a 0% credit card with a couple hundred on, but then I have a secure savings account which makes 3% (in today’s market, not bad) with a few thousand in, as there’s no risk for the gains I may as well carry on gaining the 3% which will be guaranteed and then when the 0%period ends in 2021 pay it off. I think that makes more sense than what Dave is saying
Well said Dave!!!
What he never says is that he financed all that early real estate with short-term callable debt. What did they teach at UT about matching maturities when he was a finance student? One of the main things I learned, which was one point my committee grilled me on in my thesis defense, was that one. If your assets are illiquid like real estate you can't have callable loans. Other than that omission, though, I like having no debt just as he says.
I can count the number of times I've had conversations with ignorant or bozos who think leveraging debt is a wise idea because it works for some people.
It's really quite sad the number of people who really think borrowing money as a model is sustainable or necessary to make you rich.
@@Convexhull210 Do you think that they believe this because they look at millionaires and billionaires who have used this technique?
@@Musicienne-DAB1995 perhaps but most millionaires and billionaires I guarantee you didn't get rich by doing this. Look at Ramsey's study. 78% of millionaires are self-made. They started from scratch which means they saved and invested long-term.
I think it totally depends on the amount of debt, interest on said debt and expected returns from the investment. Obviously more leverage = more risk. That doesn't mean some leverage can't ever be necessary depending on the project. It's all about the risk:reward ratio. Dave seems to lean more on the side of almost zero risk. Some people will go to the other extreme with 20x leverage. Isn't there a happy medium to be had?
But you can quantify risk. It doesn’t always mean the risk dilutes the spread.
This video sums up Dave's philosophy on debt. He knows you can theoretically make more if you invest instead of paying off a lower interest loan, but he's dead on when he says people are ignoring the risk aspect of that equation. For the same reason, people buy US Treasuries that yield 1% instead of high yield junk bonds that yield 7%, the difference is risk.
theres no such thing as good debt for someone who doesnt having spending under control
So exactly how long does it take the average person to be able to purchase real estate in cash from simply saving their money?
This is why Dave's one-size-fits-all approach is wrong.
Personal debt is bad. Pay off the mortgage early, yes. But if one wants to invest in real estate, unless they are already rich, it is practically impossible to do so without incurring debt.
Find an investment property that will cash flow, put a down payment, and make sure you get a good deal on the front end, paying less than what it is worth. That way if you do get in to trouble for unforeseen reasons then you can simply walk away without it hurting you.
Can most people be disciplined enough to do this? No. And that's who Dave is talking to. But there are lots of people who can be responsible with debt on assets that cashflow and appreciate. Those people who can behave responsibly should not take all of Dave's advice.
The first house is always the hardest to pay cash for but the 2nd and 3rd become much easier faster than using debt, as with debt you will eventually hit a servicing wall if you are not buying significantly high cashflow. Paying with cash, means your cashflow is so much higher from the start
*So exactly how long does it take the average person to be able to purchase real estate in cash from simply saving their money?*
If you can't save up to buy a house that's not your own primary residence, you probably shouldn't be investing in extra houses.
@@LoyalSol some may argue in the sense that atleast you are getting the extra rental income that may cover the mortgage, which wouldn't exist if you purchased your own home, not that I don't agree with what your saying though
I love this guy Dave Ramsey is the Man!!!
Dave, we don't borrow money to put in stocks that people we don't know control. We borrow money to buy cash flowing properties. Our tenants pay the mortgage and we pocket what's left each and every month.
I love good debts.
Jean, stocks are based on financial ratios of businesses, for the most part.
Have your tenants been continuing to pay their rent this year throughout the whole virus ruckus? One of the lucky few.
@@MrTmenzo Yes
the doge
Hedge off the risk by shorting some REITS so the money you make there is enough to offset the money lost
The keyword is PEACE
It gives you peace
Right, I get that foreclosure is a risk; what about the risk of depreciation on cash? What do you do with the small amount of money you DO have without leverage to increase wealth?
The most common answer I get is to invest in Assets. Items that appreciate instead of depreciate. But valuable property requires loans, as does education. Very few true Assets seems available to the average American right now. Especially in high cost of living areas where our families live.
I am 600mi away from family and the lack of support is litterlly killing me from stress.
I'm 25 and have no kids, so I choose to go the relatively riskier route of investing in individual stocks vs. paying off debt. The difference between my situation and Dave's is that I don't have an insurmountable amount of money leveraged, and my debts (student loans and a
You're dreaming if you think congress will forgive all student loans if Biden were to win.
the doge
They will be forgiven by inflation
Dave's experience is totally different. The caller is not flipping homes like dave was.
Attempting to build wealth with debt is building a house of cards 🤷♂️
Not if it is done correctly and you don't overleverage.
gerard lead
Don’t over leveraging and hedge your investments
Matt Collins don’t attempt to defend the building of a house of cards. House of cards definition - an insubstantial or insecure situation or scheme.
Question for dave, why did you take out loans that could be called? Why didn't you take out regular mortgages in your 20s rather than 90 day loans? 90 days loans is an extremely risky way of leveraging debt....my conventional loans on my houses cannot be called because I don't deal with loan sharks.
Just because there is risk doesn't mean it is bad. Lower risk usually means lower rewards and higher risk usually means potentially higher rewards. Factors like time I think are more important. If you had $100k in cash back in 2008 when everything crashed it would make a lot more sense to put all that money into the stock market when it was record lows instead of paying off your house. However, that same scenario in 2007 before the crash is when you have to think more about risk. If the stock market has been doing record numbers year after year it has a higher chance of crashing than it does doing well in the near future.
I wonder how Dave went from declaring bankruptcy in 1988 to publishing his book about Financial Peace in 1992.
Like, did he get rich again in less than 4 years to have the authority to write the book on getting wealthy without risk?
I dont think the banks can call your loans like that anymore
@@justinmusic1296 they used to be able to but there are newer laws and regulations that make it a lot harder
So are you saying that there is such thing as good debt since banks can't call your loans like that anymore?
@@inertiaforce7846 yes there is good debt especially if that debt is putting money back in your pocket
@@sbranham314 What do you consider good debt? Is a mortgage good debt?
@@inertiaforce7846 a mortgage can be good debt. Let's say your mortgage payment is 1500 and you are renting out the place for. 2000. You may have 250000 in debt but you have a 500 a month cashflow putting money back in your pocket. Not to mention principal paydown as well as any appreciation that may happen while you own said property. I recommend doing research and check out Robert Kiosaki and other RUclipsrs. There is so much excellent information out there for free to get educated about finance.
Thank you Dave Ramsey sir...
Love and Respect from India. 🙏🏼
I don’t understand how a bank can call your loans when you’ve signed papers with the terms, and the terms are that you will pay it off over 30 years?
They can’t.. Dave got in trouble in the 1980s after real estate investment legislation changed and he did 90 day loans to flip houses.. the bank called those loans. Mortgages have call provisions that legally prevent that from happening.. he usually neglects to include that in most of his stories.
@@angryarkie1642 Thx for the info. I thought something was missing
Holly B you’re welcome! Always scrutinize folks that offer “the answer” to problems.
Read the fine print! They can and will to protect their interest! Don't listen to these broke chumps on here being Dave haters! No bank will allow themselves to not protect their depositors or shareholders. My late wife worked in the mortgage industry for 20 years, they will absolutely call your loan. It's not their first option. If you don't think Proverbs 22-7 is not true, rude awakening coming your way.
Never thought of it that way. Thanks Dave!
The short answer: *There is NO good debt.* There can be “acceptable debt” ie a mortgage - a debt where as you pay down the loan you build equity on the property. But it’s best to payoff all debt and stay far away from it going forward.
Exactly, here people always that their tenants pay their mortgage for them, but wouldn't it be better if their tenants paid them?
@@alexc5369 a freaking men. My business is debt free, thus i get to keep much more $ than the other guy that has payments on his truck, tractor, skid steer, excavator. That means I can sleep better when times are slow.
Kara Ayers exactly, and I don’t understand how people rave over a low interest rate when they are 100’s of thousand in debt. Isn’t it better to have no interest rate and collecting interest on your money.
Yes there is good debt. Revolving debt is one example of good debt.
@@karaayers2867 Means your business is far from its optimal capital structure and by introducing debt you could probably grow and increase value at a much quicker rate...
Well, it can still be right. I pay 0.5% in my remaining mortgage and can get 2.5% on a completely risk-free fixed deposit (risk-free in the sense that I would only lose the money if both the bank and the state of Germany would go broke). I don’t see any flaw in the logic of rather binding up the value in the fixed deposit than paying back more of the debt.
People always neglect to include closing costs and commission fees. That blows your "spread" out of the water.
No debt it better than anything !
Maybe I missed his point but why is a mortgage bad again? I wonder if he owns all of his properties free and clear. I rich get wealthy by leveraging debt, so what is the difference if an individual does this.
Dave owns everything free and clear. he never borrows money, he always pays cash. Dave is teaching financial peace and there is no peace with debt. Given certain conditions a mortgage does not have to be stupid awful debt, but it is always more secure to have a paid for home than have a mortgage. the rich get rich and stay rich not by leveraging debt but by being debt free
Why does Dave keep saying he was a millionaire when the houses he bought were all bought with loans?! Isn't someone's net worth= assets-debts? If you have a 1 million dollar home, but you have only 100k in equity and 900k still to pay and no other assets, then you are not a millionaire.
watch his video "Live Like No One Else" he explains better than i can type it here
@@sumobowler3790 ok. Will do that.
Hes a fraud that's why
@@dabd8175 how is he a fraud? he learned from his mistakes, built a net worth of hundreds of millions of dollars, he does everything he advises others to do, etc...
I think the caveat here is that this guy has the cash to weather a storm. The risk is when you don't have the cash on hand to handle when things go south. This guy could go on as he is doing, and IF things got bad, then he could use his stored up investments to get by. But, I also understand the peace of mind that comes from knowing that you don't have to write anyone a check at the beginning of each month.
Dave did 90 day loans. You can’t get any riskier than that and thats why he doesn’t believe in good debt. Because he couldn’t use it responsibly.
whats the point in doing these 90 days? lower interests?
@@lionheart93 I assume. He was flipping houses.
THANK YOU FOR POINTING IT OUT!!!
Good debt? Are you listening to yourself? No debt is superior to any debt.
@@royal1investments thats an opinion.
A 60% loan at 5% against a rental with a solid lease and tenant at an 8% CAP is is good debt.
Is it possible to get rich without good debt? Or debt financing
Wait is that Rob K lol
Dave will always take the most risk averse path. Most people do just fine assuming calculated risk and many benefit greatly from it. MOST people benefit from their rental properties, MOST people benefit from their 401ks, MOST people benefit from buying over renting. SOME people will get wiped out by banks calling notes, 2008, or 2020. But this is largely a result of outsized risk on their part.
Exactly, Dave doesn't seem to understand that you can hedge that risk out.
@@RomilCPatel He does. And he compares that to the value of not having the risk in the first place.
Dave is not against getting a mortgage, as long as you choose the shortest term with the lowest cut from your pay packet. Nor is he against renting. However, there is no obligation to *remain* in debt, just because you have it. You can live without it-- and it's better in the long run.
I feel like the time when its okay to go into debt and expand your real estste portfolio is when you already have all your eggs in different baskets. Having a paid off safe haven where no landlord can kick you out (IT'S YOURS). Having a business that will always have demand, already earning passive income on real estate. Then you can go into good debt (never use your company and your own safe haven to go into debt)