Dave Ramsey

[Lathum]

He was brought up in Segrats thread, but considering the nature of it I didn't think it was appropriate to thread jack.

[Lathum]

Originally Posted by RomaGoth

Sure, whatcha got? I am always looking to save money and stop my wife from spending it.

lol.

He is big on setting up budgets and sticking to them.

What he recommends is sit down together at the start of the month and try to track all you expenses for the month down to the dollar.

We use a spreadsheet and fill in all of our bills first. Then what he suggests is 3 separate categories. Restaurant, Grocery, and Entertainment and establish a budget for each.

Once you have figured those 3 out go to the bank and take out cash for each one and put the cash in a separate envelope for each. Then, when you go out out to the store, use cash from the envelope. It is amazing how well it works. We find we spend way less when using cash as opposed to a debit card.

We also discovered by tracking out spending down to the dollar we are able to see where our money goes. It took a few months to get it right, but once we did we started saving a lot of money, plus it helps us stay more disciplined. If we see we have already spent a lot from restaurants, maybe we make Mac and Cheese instead of ordering pizza.

Another thing he says is if you are in debt and want to pay it down pay off the smallest debt first, then the next smallest, etc.. That way you see some results in a reasonable amount of time.

That worked well. We are lucky that we were reading it more out of prevention than necessity, but we were able to pay off all our student loans in a short time and are currently doubling up on our car payments.

He has a lot more, nut I don't want to threadjack.

[johnnyshaka]

I've seen that tactic used on a show on TLC, I think, where the lady made them use jars of cash to get by every month. I understand the principle but, maybe it's just me, when I have cash in my pockets I'm usually more apt to spend it than when I don't have any saying, "spend me, spend me!"

[molson]

I think budgeting is huge for a marriage/serious relationship. You don't always have the tension of who's spending what on themselves v. each other v. the family unit. If it's in the budget, spending is fine. If it's not, you don't do it. It's really as much about relationship peace as it is financial peace.

[flere-imsaho]

To answer Roma's question from the other thread, one effective way to save money and "keep it out of circulation" (i.e. make it less likely to be spent easily) is to set up a separate bank account and have an automatic withdrawal go from your "main" account to this "savings" account each month. And don't have a debit card or whatever for the "savings" account.

After a bit you forget about the money that "disappears" from your "main" account each month and you don't end up spending it "because it's there".

This is also why you should max your 401k. It's money that goes directly towards savings that you never even see in your "main" account (i.e. checking account).

[RomaGoth]

Originally Posted by flere-imsaho

To answer Roma's question from the other thread, one effective way to save money and "keep it out of circulation" (i.e. make it less likely to be spent easily) is to set up a separate bank account and have an automatic withdrawal go from your "main" account to this "savings" account each month. And don't have a debit card or whatever for the "savings" account.

After a bit you forget about the money that "disappears" from your "main" account each month and you don't end up spending it "because it's there".

This is also why you should max your 401k. It's money that goes directly towards savings that you never even see in your "main" account (i.e. checking account).

Me and my wife have already discussed having separate bank accounts for personal use, birthdays, Christmas and such. We are both fine with it, and then we would have our standard account that is used for paying bills, groceries, etc.. The problem is when she goes to the store to pick up a few things, it invariably turns into buying other things we didn't need at all. In reality, she is pretty good with our money, but I am so tight with money that I hate spending it on anything anymore (I DO buy cheap sports text sims after all).

Our problem will eventually be student loans, as together we have a lot of them. I do, however, contribute to a 401k at work, although my employer does not currently match or even contribute to it (they are talking about it in the future though, my fingers are crossed for that one).

[flere-imsaho]

Originally Posted by RomaGoth

The problem is when she goes to the store to pick up a few things, it invariably turns into buying other things we didn't need at all.

One option would be to have her go to the store with a finite amount of funds (i.e. cash). If you have to stay within a limit (as opposed to having a credit card), you'll tend to only buy what you went for.

[RomaGoth]

Originally Posted by Lathum

lol.

He is big on setting up budgets and sticking to them.

What he recommends is sit down together at the start of the month and try to track all you expenses for the month down to the dollar.

We use a spreadsheet and fill in all of our bills first. Then what he suggests is 3 separate categories. Restaurant, Grocery, and Entertainment and establish a budget for each.

Once you have figured those 3 out go to the bank and take out cash for each one and put the cash in a separate envelope for each. Then, when you go out out to the store, use cash from the envelope. It is amazing how well it works. We find we spend way less when using cash as opposed to a debit card.

We also discovered by tracking out spending down to the dollar we are able to see where our money goes. It took a few months to get it right, but once we did we started saving a lot of money, plus it helps us stay more disciplined. If we see we have already spent a lot from restaurants, maybe we make Mac and Cheese instead of ordering pizza.

Another thing he says is if you are in debt and want to pay it down pay off the smallest debt first, then the next smallest, etc.. That way you see some results in a reasonable amount of time.

That worked well. We are lucky that we were reading it more out of prevention than necessity, but we were able to pay off all our student loans in a short time and are currently doubling up on our car payments.

He has a lot more, nut I don't want to threadjack.

Thanks for the info, you aren't bad, even for a Giants fan.

Seriously though, one thing I abhor is car payments. We haven't had one since my Firebird was totaled several years ago (some dumb bitch rear-ended me while she was on her cell phone and since that car is a uni-body, it was a total loss, really really pissed me off too). Anyway, we don't currently have a car payment, but our van is 11 years old and the car is almost 9 years old. Car runs fine, just had replaced the brakes and struts, but the van could be on its last legs next year and this is where the problem lies. My wife/kids were planning on driving out here to PA when I move them here next summer, but the van may have other ideas.

Sometimes I hate cars.

[CU Tiger]

A few thoughts...I have read all 3 of his books (Financial Peace, The Total Money Makeover, More Than Enough) and generally like his teachings.

I out my own spin on it but dont we all in everything.


Roma, one things he teaches saved me and my wife from your exact dilemna above. The woman spent a G a month at Wal mart. During our first year or so we LIVED by the envelope method he teaches. It is extreme at first, but damn it teaches discipline. Here is what we did.
As said above spend EVERY DOLLAR EVERY MONTH ON PAPER BEFORE IT STARTS. Generally you know exactly how much you are going to make (this was tough for us owning our own business) but we budgeted everything, we had a home improvement envelope, new clothes envelope, a birthday and Christmas envelope, a gas envelope etc. And we have a safe in our home, so each check we would cash it and stick the appropriate funds in each envelope. It is important to understand that some envelopes (new clothes or home repair/improvement SHOULD NOT BE SPENT OUT OF EACH MONTH) this is part of planning, you can reasonable guess that your kids will grow and need new clothes, school starting and the kid needing new clothes is not an emergency...Now where we got a bit extreme, we took all our credit cards and debit cards and locked them in our safe along with our envelopes. When we walked in a store we had a set budget and we physically had no way to exceed that. It meant a calculator at the grocery store, and several times we had to go home to get money out of an envelope to go back and buy something we needed. I would never recommend living this way long term, but for a short term learning exercise it is invaluable, IMHO.

Now finally as to car payments.
I have to have them in my business, I just cant justify paying cash for 24 trucks (besides my CPA would shoot me) but for home finance, if you already know the van may need replaced nxt year you should be saving now for that. Make a car payment to yourself EVERY month, this saves you double because you will accrue some interest on this money (marginal) but you will also save interest that you would be paying if you borrowed, If you can get 1% and if you were to borrow at 9% you could effectively save yourself 10%, plus I will say this when I bought my wife's new 5 series last year (One of my deviations, my wife puts up with a lot of crap being married to me and she likes new cars, it is not a good financial decision but it is one I make because she likes it and I love her) I was amazed how much you can negotiate with a stack of cash and a struggling sales manager.

[Mike Lowe]

I love Dave Ramsey's teachings. Not crazy on some of the religious connections but his practices work. Period.

His plan has afforded my wife and me, 25 and 29 years old respectively, a 4 bedroom, 8 year old home in the NW 'burbs of Chicago, the ability to save almost as much as we were saving in our condo when we weren't so disciplined just about a year ago, and also being a few months away from having not a single car payment on a 2007 and 2003 car both of which are well under 60,000 miles (mine just passed 40,000 this week).

His stuff works and it's amazing to see how many people around you just don't have a clue. I'm not saying I have all the answers because I don't, but man I work with people twice my age making probably close to double what I make, who are literally living check to check which is inexcusable and irresponsible under our roof.

Oh, and I'm a teacher and my wife is a graphic designer. We both have "poor" jobs. Ramsey's stuff works. His radio show is really good too. Not too crazy about the TV show though.

[Mike Lowe]

I should clarify that the housing market obviously helped out a bit with the house ;-) but Ramsey is certainly helping us keep it for a long long time.

[M GO BLUE!!!]

Any chance Ramsey gets some time if Collins & Young continue doing nothing?

[Lathum]

Originally Posted by johnnyshaka

I've seen that tactic used on a show on TLC, I think, where the lady made them use jars of cash to get by every month. I understand the principle but, maybe it's just me, when I have cash in my pockets I'm usually more apt to spend it than when I don't have any saying, "spend me, spend me!"

Well what you do is leave the money at home except what you think you will need.

Originally Posted by molson

I think budgeting is huge for a marriage/serious relationship. You don't always have the tension of who's spending what on themselves v. each other v. the family unit. If it's in the budget, spending is fine. If it's not, you don't do it. It's really as much about relationship peace as it is financial peace.

This is so true. My wife and I have never once fought about money because we communicate about it and hold each other accountable.

[flere-imsaho]

I'd never heard of the envelope stuff before, but I have to say it makes a lot of sense if you have trouble with needlessly spending, even if it's a lot of discipline up front.

My wife & I track everything in good categories in Quicken, set a yearly budget for each category, and then review how we're standing each month (well, try to, it's harder to find the time with the boy these days). At our review we can see if we got off track in a particular area, and revise what we're doing. Since we're both relatively frugal and sensible, however, this doesn't happen too much.

It works for us, but finances are something where everyone has to find their own solution.

[RomaGoth]

Thanks for all of the suggestions, I will look further into what Dave Ramsey is all about and discuss things with my wife. One thing that makes a lot of this much more difficult is our four kids. For instance, you can't really go back home to get an extra $20, then head back to the store again, not with the kids with you anyway. (The 2 year old wants nothing to do with getting back into the car after the second or third time).

[Lathum]

Originally Posted by RomaGoth

Thanks for all of the suggestions, I will look further into what Dave Ramsey is all about and discuss things with my wife. One thing that makes a lot of this much more difficult is our four kids. For instance, you can't really go back home to get an extra $20, then head back to the store again, not with the kids with you anyway. (The 2 year old wants nothing to do with getting back into the car after the second or third time).

That's the point of doing it like that find something you don't need and put it back. It takes a few months to get it right, but in the long run it makes you aware of your spending.

Ie we go to the movies about twice a month. We realized we spend to much on concessions, so now we just throw stuff in my wifes purse and save $15 every time we go to the movies.

[RomaGoth]

Originally Posted by Lathum

That's the point of doing it like that find something you don't need and put it back. It takes a few months to get it right, but in the long run it makes you aware of your spending.

Ie we go to the movies about twice a month. We realized we spend to much on concessions, so now we just throw stuff in my wifes purse and save $15 every time we go to the movies.

Heh, we have been doing this for years. We might buy a drink and share it, but buying candy and stuff is a complete ripoff. Of course, I can count on two fingers how many times my wife and I have gone to the movies in the past several years. (four children, all under age 9 doesn't offer a lot of 'alone' time)

[lurker]

Originally Posted by Lathum

Another thing he says is if you are in debt and want to pay it down pay off the smallest debt first, then the next smallest, etc.. That way you see some results in a reasonable amount of time.

That's a terrible idea. You should definitely pay the debt with the highest interest rate first, even if it's the biggest loan. Seriously, does he really advise doing it that way?

[JonInMiddleGA]

Originally Posted by lurker

You should definitely pay the debt with the highest interest rate first, even if it's the biggest loan.

Not if the frustration of seeing too little progress made leads you to stop the effort altogether.

I'd favor a mix of the two philosophies, focused on the higher interest rates as much as you can pyschologically bear, but there's a realistic logic behind making something go away entirely.

[lurker]

I don't know if i'd use the word "logic" to this crazy philosophy.

[RomaGoth]

Originally Posted by lurker

That's a terrible idea. You should definitely pay the debt with the highest interest rate first, even if it's the biggest loan. Seriously, does he really advise doing it that way?

The highest interest rate might not be your highest debt though. These are two different things.

I have heard the same thing. Pay off the smallest debt first, and work your way to the biggest debt last. Something about paying more interest on several smaller amounts than you would on one larger interest bearing debt.

[lurker]

Originally Posted by RomaGoth

The highest interest rate might not be your highest debt though. These are two different things.

I have heard the same thing. Pay off the smallest debt first, and work your way to the biggest debt last. Something about paying more interest on several smaller amounts than you would on one larger interest bearing debt.

Yeah, that's my whole point. You should not choose the one with the highest debt and pay that one first if you're being rational and your goal is to pay the least. And what you've heard is wrong.

[RomaGoth]

Originally Posted by lurker

Yeah, that's my whole point. You should not choose the one with the highest debt and pay that one first if you're being rational and your goal is to pay the least. And what you've heard is wrong.

Do you have anything to back this up, like facts, figures, and such?

[lurker]

It's just the way interest works. For example (using very simple numbers and not at all accurate interest rates), you have 3 loans:

A: $500 at 6%
B: $80 at 4%
C: $200 at 10%

So after one year you've had to pay the following amounts of interest on all three debts (again, I'm just doing simple interest just to make a point):

A: $500 * 6% = $30
B: $80 * 4% = $3.20
C: $200 * 10% = $20

Assume you had $80 to spare:

Your philosophy would you have you pay off loan B first. You'd save $3.20 in interest.

My philosophy would have you pay down loan C first. You would save $80 * 10% = $8.

[dacman]

Originally Posted by lurker

That's a terrible idea. You should definitely pay the debt with the highest interest rate first, even if it's the biggest loan. Seriously, does he really advise doing it that way?

He does and his reasons are psychological, not mathematical – he argues getting the small debts paid off first gives you a since of accomplishment and can reinforce your resolve to continue to make the sacrifices necessary to pay off the bigger debts.


Many people have specifically asked him about it and he has agreed that if you can be disciplined about it, you should pay off the highest rate debt first. His counter is that if you were so disciplined, you wouldn't be in debt in the first place.

[kcchief19]

Originally Posted by dacman

He does and his reasons are psychological, not mathematical – he argues getting the small debts paid off first gives you a since of accomplishment and can reinforce your resolve to continue to make the sacrifices necessary to pay off the bigger debts.

That's why I don't put much stock in "pop economics" like Ramsey and his estrogen counterpart Suze Orman. Much of their advice is common sense and I don't begrudge them for simply making money selling books to people telling them things that are just commonsense.

But some of the advice is bad advice from a statistical stand point even if psychologically it works for "many" people But not everyone is the same. I could sit in a "motivational" seminar and think of nothing of what a load of crap it is. There's not a one-size-fits all approach. I think I just get annoyed when people seem baffled that I don't think Dave Ramsey is the smartest financial guru on the planet. He's just come up with pop economics that resonates with people.

[Lathum]

I don't think anyone here is saying you need to think of him a the greatest guru on the planet.

My wife and I have no financial problems, however, I was able to read his book and take away some useful strategies.

[stevew]

Originally Posted by RomaGoth

The highest interest rate might not be your highest debt though. These are two different things.

I have heard the same thing. Pay off the smallest debt first, and work your way to the biggest debt last. Something about paying more interest on several smaller amounts than you would on one larger interest bearing debt.

It's not usually entirely interest related, it's the minimum payment, i think.

So say you have 3 ski high interest cards, and 250 dollars a month to pay them with.

Card A:3000 dollars, Minimum payment is 150 dollars
Card B:800 dollars, minimum payment is 40 dollars
Card C:400 dollars, minimum payment is 20 dollars.

Regardless of the various interest rates on the cards, I believe the Orman method would have you pay

A:150
B:40
C:60

So you'd pay off C first.

A:150
B:100-paid off second
C:0-paid off.

Then A-250, B&C-0 A gets paid off last


But yeah, Lurker is right if you want to pay less money back, you have to pay the most on the highest interest card.

I think the other reasoning is less open accounts=less minimum payments. So if you are short in a month, only having one open card(vs 3) means you can outlay less.

[QuikSand]

Originally Posted by lurker

Yeah, that's my whole point. You should not choose the one with the highest debt and pay that one first if you're being rational and your goal is to pay the least. And what you've heard is wrong.

Financial advisers like this guy are really not going to be much help to someone (like you) who is approaching things directly and rationally. Their focus is on the broad stripe of people who need this sort of self-trickery to fool themselves into not being idiots. It apparently helps a lot of people to have systems and envelopes and multiple pointless accounts, but all that stuff has very little to do with rationality and ideal incremental decision-making.

[Raiders Army]

This sounds a whole lot like diet fads. They may work in the short term, but in the long term, not so well.

[revrew]

Originally Posted by Raiders Army

This sounds a whole lot like diet fads. They may work in the short term, but in the long term, not so well.

On the contrary, Ramsey's financial "fad" is a life-long strategy for purposefully building and planning for wealth. Taken in the short term, it's a small psychological boost in the arm for people making bad financial decisions. Applied over the long term, you quickly extract yourself from the ranks of those making bad financial decisions, and once cleared of debt and other money-sapping decisions, it's basically sound financial advice for long-term wealth building.

The key and biggest struggle, however, is taking the step from enjoying the short-term gain to planning for the long-term gain. Many people slip here (including myself, admittedly), which is why Ramsey's "Financial Peace University" also incorporates accountability and small groups to mutually encourage each other through the WHOLE process.

At face value, many of the comments thus far are right on. Ramsey doesn't offer any earth-shattering financial advice; it's all pretty sound, basic stuff. Where he HAS been unusually effective is helping average Joes discover their bad habits and dumb decisions AND THEN boosting their will power, if you will, to start making wise decisions.

Considering the statistics on the average debt load of Americans, it would appear Ramsey's skills are desperately needed.

[JonInMiddleGA]

Originally Posted by QuikSand

Their focus is on the broad stripe of people who need this sort of self-trickery to fool themselves into not being idiots.

And the word not to be overlooked there is "broad". This isn't a small subset of the population that can gain from this, it's a pretty damned big segment that's better off with it than without it.

It apparently helps a lot of people to have systems and envelopes and multiple pointless accounts, but all that stuff has very little to do with rationality and ideal incremental decision-making.

I'd disagree, simply because it's at least a stepping stone toward higher-end concepts, a step that the average American hasn't made & that probably close to half the population would benefit from over their current practices.

It's nothing new, that's for sure. I saw the envelope method used by a friend's mother trying to teach him some fundamental budgeting as far back as the early 80's. He's not exactly what you'd call a financial wizard by any stretch of the imagination, and as far as I know still uses the literal envelope method now into his late 40's. But y'know what? He hasn't gone into bankruptcy, he owns his house, he provides for his family, and he hasn't needed a government bailout to remain solvent nor functional. Looks a hell of a lot better with money to me than a lot of high-minded folks with a knack for outsmarting themselves.

[Lathum]

Originally Posted by QuikSand

It apparently helps a lot of people to have systems and envelopes and multiple pointless accounts, but all that stuff has very little to do with rationality and ideal incremental decision-making.

How exactly does having a system in place to control your spending and keep yourself organized seem irrational?

[flere-imsaho]

Originally Posted by QuikSand

Their focus is on the broad stripe of people who need this sort of self-trickery to fool themselves into not being idiots.

Originally Posted by JonInMiddleGA

And the word not to be overlooked there is "broad". This isn't a small subset of the population that can gain from this, it's a pretty damned big segment that's better off with it than without it.

[digamma]

Originally Posted by Lathum

How exactly does having a system in place to control your spending and keep yourself organized seem irrational?

Not answering for Quik, but I think there's a difference between being disciplined and making a rational decision based on all of the facts.

[Lathum]

Originally Posted by digamma

Not answering for Quik, but I think there's a difference between being disciplined and making a rational decision based on all of the facts.

I'm not intentionally being obtuse, but what is the difference?

It seems to me someone who is disciplined makes decisions based on all the facts.

[Galaril]

Originally Posted by M GO BLUE!!!

Any chance Ramsey gets some time if Collins & Young continue doing nothing?

I just caught this very sly unless youa re Titans fan.

[QuikSand]

Originally Posted by Lathum

How exactly does having a system in place to control your spending and keep yourself organized seem irrational?

My response was to lurker, who is evidencing herself to be a rational thinker on these matters -- in specific, supporting the perfectly rational notion of paying off the highest interest rate first, rather than just doing whatever it takes to "declare victory over something" as an immediate, psychological goal. My response -- to her -- was basically "this sort of stuff isn't for people like you." If you're inclined to be a rational and direct person on matters of finances and the like, then you're really not in the market for some guy to explain to you what to do with three debts at various interest rates. So, ideas like "have a system where you hide your money in a series of cascading bell jars" or whatever just doesn't have much appeal to someone like lurker, who probably starts off with a decent idea of what to do with her money in the first place.

[digamma]

Originally Posted by Lathum

I'm not intentionally being obtuse, but what is the difference?

It seems to me someone who is disciplined makes decisions based on all the facts.

The distinction I was getting at is that you may need to instill financial discipline to avoid spending money on hookers and blow or beanie babies or whatever your vice is. However, simply avoiding that irrational spending does not mean you are acting rationally in how you spend your money if the goal is to maximize your wealth.

For example, a rational actor may be justified in carrying some (maybe even a significant amount) of debt, if they are investing their assets that would go to reducing that debt in instruments with a higher average rate of return than the interest rates on the debt.

Ramsey's mantra that all debt is bad is excellent for instilling the financial discipline to reduce the debt load, but it may or may not be best given the person's overall situation.

[Kodos]

On the other hand, over the past few years, it's unlikely someone is getting a higher return rate on investments than the rate they are paying on their credit card. This year so far would be an exception, with a low to mid-twenties return rate on investments being pretty easily achieved YTD.

I like the multiple accounts method. We have a savings account that gets direct deposited for our house payment that never gets touched for any other purpose. Plus, it helps curtail spending in the checking account if the wife sees a lower balance there than there would be if the house payment money were lumped in. Then I have a couple other accounts for investment money and Christmas/rainy day money.

Different strokes for different folks.

[SportsDino]

Haven't read any of these books, but basically had to come up with the same concept myself to get out of my own hole.

The idea of paying off a small debt when you are in the hole is a huge psychological factor. The worst times of my life came from the fear and anger over the amount of money I'd spend on a gaming computer rig now (<5000). Hell, my credit score is still in the basement over less debt than some could get on a single credit card (the manner how you acrue the debt is worst than the amounts).

Also, just the paperwork of several debts versus fewer debts can be depressing. I didn't feel like I got anywhere until I killed off a debt for good and never had to hear from it again. If anything the time/stress of the mess itself was more damaging to my long term wealth than the interest, because once I got enough of the red out of my eyes to really see the world again I saw what I needed to do to thrive rather than just survive.

There is no reason you can't adapt a similar strategy to paying highest interest debt first. I'd also argue you can take the math further if you are of sufficient maturity/logical ability, but the key is getting stable first. Most investments people do are probably not as beneficial as if they considered their debt as a guaranteed return investment. And I'd argue dumping into a 401k without managing it yourself with a vicious eye is pretty dangerous as well (I rebalanced mine myself constantly to eek out 15% before dropping it altogether, hard to make consistent money if all of the funds are fundamentally flawed).