Pay off mortage or buy Lexus?

[jerebear21]

To set some things straight:

 

It's a used Lexus.

Wife only wants a new car and she's earned it. She doesn't even want another car, she loves her car and gets sad thinking about the day she'll get a new car.

What Mych wrote is what I wondered since the amortization is about 50/50 principal/interest. Is it better to invest the money or pay off the loan.

It's just a couple thou in credit cards.

No male on my father's side of the family has lived past 63. I think about that.

 

if your home is worth 400k and you only owe 65k left, this is a good time to sell. Take the profit and cash out. Go travel, enjoy. Hire a manager at 1% to take care of your money. 5-6% annual return at 500k ain't too shabby.

A good time to sell? And live where?

 

According to the OP :

 

House is worth $400,000.

 

He owes : $63,000, so +$337,000 from the house.

 

Owes $12,000 on the camry, but could get a couple shekels for it. Call it even.

 

"net worth" is 1M. So. . .$663,000 in investments and cash.

 

Yet, he says, "retirement account a little weak for my age".

 

I mean, sure $663,000 isn't GREAT for a 55 year old (although I guess it's good if you're only going to live to 63) but I don't think too many people would describe it as a "little weak".

 

RENT and travel. Paying off a home doesn't mean you stop paying for the home. There's a thing we call property tax as well.

 

and I disagree. 600k is not too bad for a 55 year old. WHat's the annual estimate? Your total should double every 7 years? can ride it out to retirement and pending how you set up your portfolio you won't get bitten too hard on taxes.

[Mych]

$50 for some Lexus badges to glue onto your Camry, then keep that on it's payment schedule at 0% (don't pay off early), kill the credit cards, buy a $20k certified preowned car for the wife, and add the rest to retirement.

 

You've already paid the worst part of your mortgage interest halfway through your 30 yrs. No reason to pay that off early at this point, you won't save more than you could get in returns from investments over the same period. You're paying mostly principal the rest of the way, so pay it slow the rest of the way. At $63k you have about $25k in interest left to pay on a 30 year mortgage at 6.5% according to a normal amortization table. You could invest $60k compounded at 4% (very conservative) over the same 15 years, and would end up over $100k, so you'd get more there than the interest you have left to pay.

(https://themortgager...nt-amortization)

You should know something is wrong with your calculation when applying 4% to $60,000 comes out way better than than applying 6.5% to $60,000.

 

What you left out is that he can take the $650 he's applying to his mortgage each month and keep investing that at your 4%. Now, instead of $115,000 at the end of 15 years (minus the interest he's still paying), he's got ~$150,000 at the end of 15 years from the same $60,000 (he's just employed it a little differently). Now, if he's too undisciplined to do that -- like if he goes, "yay, an extra $650 a month. I'm going to join that private golf course" -- maybe he should lean towards a strategy that isn't going to tempt him with cash sitting around, and put it in the market.

 

But, guaranteeing 6.5% on $60,000 is something one shouldn't pass up. The US gov't is paying about 2% right now on 1-year T-Bills.

 

Also, it feels nice to own your house outright.

 

But, also, pay off CC first and don't run them up again for the rest of your life. That's dumb money.

 

Valid point... investing the monthly mortgage payments would be a complete change to the calculation. And 100% agree on the CC, that's the first thing that has to be killed.

[Chief Illiniwek]

Are you not gonna even put a dime of this money into scratchers?

[TheCityGame]

To set some things straight:

 

It's a used Lexus.

Wife only wants a new car and she's earned it. She doesn't even want another car, she loves her car and gets sad thinking about the day she'll get a new car.

What Mych wrote is what I wondered since the amortization is about 50/50 principal/interest. Is it better to invest the money or pay off the loan.

It's just a couple thou in credit cards.

No male on my father's side of the family has lived past 63. I think about that.

 

if your home is worth 400k and you only owe 65k left, this is a good time to sell. Take the profit and cash out. Go travel, enjoy. Hire a manager at 1% to take care of your money. 5-6% annual return at 500k ain't too shabby.

A good time to sell? And live where?

 

According to the OP :

 

House is worth $400,000.

 

He owes : $63,000, so +$337,000 from the house.

 

Owes $12,000 on the camry, but could get a couple shekels for it. Call it even.

 

"net worth" is 1M. So. . .$663,000 in investments and cash.

 

Yet, he says, "retirement account a little weak for my age".

 

I mean, sure $663,000 isn't GREAT for a 55 year old (although I guess it's good if you're only going to live to 63) but I don't think too many people would describe it as a "little weak".

 

RENT and travel. Paying off a home doesn't mean you stop paying for the home. There's a thing we call property tax as well.

 

and I disagree. 600k is not too bad for a 55 year old. WHat's the annual estimate? Your total should double every 7 years? can ride it out to retirement and pending how you set up your portfolio you won't get bitten too hard on taxes.

He said his retirement account was a little weak, but he also said his net worth was 1M.

 

I thought his retirement account was fine, if I imputed it correctly.

 

Doubling every 7 years is doing very well, roughly 10.5% return. Sure, you get that a lot of years, but not without risk. Conservatively, I expect to double in more than 12 years with no additional investing.

[LeoLeo99]

Are you not gonna even put a dime of this money into scratchers?

 

My wife has that covered.

 

Thanks for all the feedback. Gives me a lot think about.

[jerebear21]

or hold out for the next bubble. It's coming. Sell the home and wait for the market to crash. Use all that cash and buy all in on the big companies.

 

The point is you're sitting on a pot of gold if you only owe 65k left on a home value 400k. Me personally; i'd rather reinvest(rental properties) and leverage myself against the banks. But to each his own.

 

There's a safe way of doing it that's almost dumbproof if you're into the 4% return range.

[airjammer]

or hold out for the next bubble. It's coming. Sell the home and wait for the market to crash. Use all that cash and buy all in on the big companies.

 

The point is you're sitting on a pot of gold if you only owe 65k left on a home value 400k. Me personally; i'd rather reinvest(rental properties) and leverage myself against the banks. But to each his own.

 

There's a safe way of doing it that's almost dumbproof if you're into the 4% return range.

 

Rental properties aren’t as good as they use to be. Selling one now because people don’t take care of things like they use to. Most of your profit goes to either the lawyers if you have to sue and/or contractor to fix the property.

 

That bubble needs to hurry up and burst. My fiancé really really wants a new house but I refuse to buy in this seller market. Here in middle Tennessee your looking 400k for 2800 sq ft which may be nothing in Cali or other metropolitans but here it’s down right crazy especially since wages haven’t increased at all

[Shilgy]

To set some things straight:

 

It's a used Lexus.

Wife only wants a new car and she's earned it. She doesn't even want another car, she loves her car and gets sad thinking about the day she'll get a new car.

What Mych wrote is what I wondered since the amortization is about 50/50 principal/interest. Is it better to invest the money or pay off the loan.

It's just a couple thou in credit cards. All the more reason to not carry a high interest loan. Pay it off every month

No male on my father's side of the family has lived past 63. I think about that. Not to be morbid but my thought would lead to making the wife and children set if that occurred

Edit-In case some can't tell my wife and I are quite frugal. And completely debt free. Always pay off the cards every month and live within our means. OP in most ways it sounds like you are similar that way

[LeoLeo99]

To set some things straight:

 

It's a used Lexus.

Wife only wants a new car and she's earned it. She doesn't even want another car, she loves her car and gets sad thinking about the day she'll get a new car.

What Mych wrote is what I wondered since the amortization is about 50/50 principal/interest. Is it better to invest the money or pay off the loan.

It's just a couple thou in credit cards. All the more reason to not carry a high interest loan. Pay it off every month

No male on my father's side of the family has lived past 63. I think about that. Not to be morbid but my thought would lead to making the wife and children set if that occurred

Edit-In case some can't tell my wife and I are quite frugal. And completely debt free. Always pay off the cards every month and live within our means. OP in most ways it sounds like you are similar that way

 

I'm weaning the kids off of The Bank of Dad and have $500k in life insurance. They'll be ok.

[1puttTUT]

From what you've said, you can't afford to do either. Stick that money in your retirement account and keep working.

If you have enough money to pay off the house AND cards, do both. Otherwise, pay off the highest interest rate balance first, even if it's the smallest. Then attack the mortgage.

 

The Camry is 0%, you're not losing money on that besides depreciation and a Toyota Camry depreciates slower than most. I'd pay that off last, and by last I mean AFTER investing the free'd up money from the mortgage payment and the rest of your debts.

 

Why is the wife due for a new car? She driving something unreliable and beat down? Program yourself to not 'need' a new vehicle, let someone else lose on the depreciation. Vehicles last a long time now with relatively inexpensive routine maintenance. Operating a paid for reliable model vehicle is one of the best financial decisions one can make.

 

I tried to refi but the bank screwed it up and asked me to something unethical to fix their mistake. Left a bad taste in my mouth and I'm not doing that again.

 

I can afford to pay off the house and credit cards and have $100k left over. I was also debating if should pay off credit cards and then the mortgage or pay off credit cards and invest the rest in the stock market. I'm maxed out in my 401k but not in my IRA. Could put max money in my IRA.

 

Wife drives 120 miles a day round trip commuting to work 5 days a week. Her car has 360,000 miles on it. Other than some oil consumption, it runs fine but it can't last forever. She wants to keep it until the doors fall off.

 

There's no reason you should ever have a credit card balance!

[JackpotJohnny]

Here in middle Tennessee your looking 400k for 2800 sq ft

 

 

I can’t touch 2500 sq ft for less than 1.3m in a decent neighborhood where I want to raise my kids.

I wish I had your problems.

 

No one is ever going to get to a point they are comfortable in today’s day an age.

I say f-it, what’s the point of working your whole life If you can’t indulge yourself?

Buy your wife a Lexus, and don’t be cheap, get the f-sport.

Then buy her a Loui Bag to put on the passengers seat.

She will give to give you hummers on the way to dinners at opulent restaurants, where you order stuff you can’t even pronounce.

Forget what all these armchair quarterbacks from the peanut gallery are saying, enjoy you’re life becauae it could end tomorrow.

You can make more money, do wtf ever will make you happy.

[jerebear21]

^^^fast track to going broke.

 

Max out your yearly contribution. You can do whatever you want with whatever that’s left.

 

Toyota >>>> Lexus all day. Just get the limited platinum model and it’s basically a Lexus. Refinance the house. Set up a New portfolio. Wait for 0% interest on a new Toyota. You can have cake and eat it too. Spend the extra cash and travel the world. Or plan retirement early. Nobody wants to work forever.

[JohnnyCashForever]

From what you've said, you can't afford to do either. Stick that money in your retirement account and keep working.

If you have enough money to pay off the house AND cards, do both. Otherwise, pay off the highest interest rate balance first, even if it's the smallest. Then attack the mortgage.

 

The Camry is 0%, you're not losing money on that besides depreciation and a Toyota Camry depreciates slower than most. I'd pay that off last, and by last I mean AFTER investing the free'd up money from the mortgage payment and the rest of your debts.

 

Why is the wife due for a new car? She driving something unreliable and beat down? Program yourself to not 'need' a new vehicle, let someone else lose on the depreciation. Vehicles last a long time now with relatively inexpensive routine maintenance. Operating a paid for reliable model vehicle is one of the best financial decisions one can make.

 

 

 

Wife drives 120 miles a day round trip commuting to work 5 days a week. Her car has 360,000 miles on it. Other than some oil consumption, it runs fine but it can't last forever. She wants to keep it until the doors fall off.

 

I think your wife is pretty smart.

 

This is just me...

 

1. I would not use a Lexus, even used, as a commuter car. It's not just the depreciation. It's the maintenance. A Lexus might have higher repair costs and, if used, more frequent repairs. I would buy a new Subaru. Dependable. Good safety rating. All-wheel drive. Low maintenance costs. Depending on the model, you could go for fuel economy or size or somewhere in-between.

 

2. I would also put the money aside (in a savings account or short-term bond fund (THOPX is good)) until her current car dies or needs a major repair. Squeeze every last mile out of it. With 360K miles on it, it's probably crossed the line where it's worth more to her than it will be at trade-in. Who knows, it might last another year or two. All the while the money sits and accumulates interest and grows. Who knows, by the time you use the money for the next car, you might have enough accumulated interest to buy a new set of irons!

[Swoosh-Thud]

Invest the money. Refi and pull out cash from the house to get the wife a new car. Similar payment to previous mortgage, freed up cash flow with no car note.

 

With new tax laws interest deduction is key. Use your windfall to make your $ make $$$.

 

Remember you can always pay it off.

[LeoLeo99]

Invest the money. Refi and pull out cash from the house to get the wife a new car. Similar payment to previous mortgage, freed up cash flow with no car note.

 

With new tax laws interest deduction is key. Use your windfall to make your $ make $$$.

 

Remember you can always pay it off.

 

Man, that's complicated. I hear what you're saying but not sure I want to jump through all the hoops.

[Swoosh-Thud]

You can't go wrong no matter what you do, esp since you have the cash at hand.

 

That is what I'm in the process of doing (I'm 53).

 

For me the difference is retiring 3 years earlier by refinancing than by paying everything off.

 

But as my Banker said "there s no wrong answer."

[Hit em good]

Steps, in this order

 

Emergency fund of 3 - 6 months

Pay off all debt (not counting mortgage), from smallest to largest balance (forget interest rates)

Put 15% of gross income into retirement accounts

Put all extra toward mortgage, until it is paid off

Become completely debt free. Pay cash for cars. Don't buy luxury cars or even new cars, unless you have money to waste.

 

Yes, I'm a Dave Ramsey fan.

 

Hit em good

[MtlJeff]

To me, a car has always been something you don't indulge on unless money ain't a thing.

 

They are expensive, and after a while they become just another possession, except they cost way more than other possessions you get bored with like a watch or wallet, or 200$ bottles of scotch. Not to mention 4 years after buying a 80k car the same features are in cars that cost half as much. When I bought my 2013 corolla ( the year they changed the model) my friend who drove an infinity said my dash and interior was nicer than his. And he had a G he paid twice as much for.

 

I don't think you buy luxury cars unless money isn't even in the equation. Just not a good way to spend money. Just get a Camry and drink Macallan and buy Michael Kors shirts the rest of your life, you'll spend half as much

 

I just bought a new car this year actually as it happens. 2018 equinox. American Cars are priced nicely for the features! (And cheap to fix)

[spazo]

To set some things straight:

 

It's a used Lexus.

Wife only wants a new car and she's earned it. She doesn't even want another car, she loves her car and gets sad thinking about the day she'll get a new car.

What Mych wrote is what I wondered since the amortization is about 50/50 principal/interest. Is it better to invest the money or pay off the loan.

It's just a couple thou in credit cards.

No male on my father's side of the family has lived past 63. I think about that.

 

if your home is worth 400k and you only owe 65k left, this is a good time to sell. Take the profit and cash out. Go travel, enjoy. Hire a manager at 1% to take care of your money. 5-6% annual return at 500k ain't too shabby.

A good time to sell? And live where?

 

According to the OP :

 

House is worth $400,000.

 

He owes : $63,000, so +$337,000 from the house.

 

Owes $12,000 on the camry, but could get a couple shekels for it. Call it even.

 

"net worth" is 1M. So. . .$663,000 in investments and cash.

 

Yet, he says, "retirement account a little weak for my age".

 

I mean, sure $663,000 isn't GREAT for a 55 year old (although I guess it's good if you're only going to live to 63) but I don't think too many people would describe it as a "little weak".

that's very weak. You need about $1M by 55 in retirement accounts (NOT net worth) to be able to retire comfortably on 4% withdrawal rate

[spazo]

First, Dave Ramsey is a moron, and if I listened to his advice I'd literally have a million dollars less than I do (actually I have a poster of his terrible advice just for motivation)

 

You've gotten highly disparate advice in this thread. Some of it is gold but hard to distill.

 

First, kill the credit cards. That should be priority number 1. That's the one thing that everyone agreed on (except the one guy who said F it). There's absolutely no reason that someone worth a million dollars carries any credit card debt whatsoever. You're paying double-digit percentages on your credit cards for the privilege of having money in your savings or retirement earning less-than-double-digit percentages. Or, in example form, if your credit card debt is $100 and 19% rate, you're paying $19 per year to have your money in the market making 8%, or $8. So you pay 19 to make 8...Also known as losing $11.

 

By the same principle, you should be cash out refinancing the house at a lower rate and taking equity (although the tax treatment is different under the new tax law, but you're not paying much interest right now anyway so it's a wash). If you can get money from the bank with equity in your house at 5% and then put it in the market for 8% then you're MAKING money by operation of the same lever that caused you to lose money on the credit card debt. The difference is 3%. At $400,000, 3% is $12,000 per year, or $1,000 per month. Yes I understand it "seems complicated" and you had a traumatic experience....but how much of a pain in the a** are you not willing to go through to cost yourself $1,000 per month?

 

As for the Lexus...wtf? Get a Camry or accord if you want but why pay for the name? I'm "worth" 7 figures but I drive a car that is 18 years old. Cars are the worst wastes of money you can spend aside from timeshares and women, so minimize that expense as best you can

[FairwaysToHeaven]

First, Dave Ramsey is a moron, and if I listened to his advice I'd literally have a million dollars less than I do (actually I have a poster of his terrible advice just for motivation)

 

You've gotten highly disparate advice in this thread. Some of it is gold but hard to distill.

 

First, kill the credit cards. That should be priority number 1. That's the one thing that everyone agreed on (except the one guy who said F it). There's absolutely no reason that someone worth a million dollars carries any credit card debt whatsoever. You're paying double-digit percentages on your credit cards for the privilege of having money in your savings or retirement earning less-than-double-digit percentages. Or, in example form, if your credit card debt is $100 and 19% rate, you're paying $19 per year to have your money in the market making 8%, or $8. So you pay 19 to make 8...Also known as losing $11.

 

By the same principle, you should be cash out refinancing the house at a lower rate and taking equity (although the tax treatment is different under the new tax law, but you're not paying much interest right now anyway so it's a wash). If you can get money from the bank with equity in your house at 5% and then put it in the market for 8% then you're MAKING money by operation of the same lever that caused you to lose money on the credit card debt. The difference is 3%. At $400,000, 3% is $12,000 per year, or $1,000 per month. Yes I understand it "seems complicated" and you had a traumatic experience....but how much of a pain in the a** are you not willing to go through to cost yourself $1,000 per month?

 

As for the Lexus...wtf? Get a Camry or accord if you want but why pay for the name? I'm "worth" 7 figures but I drive a car that is 18 years old. Cars are the worst wastes of money you can spend aside from timeshares and women, so minimize that expense as best you can

 

i agree with what you say but this is a high risk plan. ramsey's advice isn't intended to maximize earnings potential, its to help people who are awful at managing money get out of debt. someone who routinely carries credit card debt shouldn't be opening another card and transferring a balance to gain additional airline points. they shouldn't cash out their home's equity to invest it...because they'll end up using a portion for an unnecessary purchase. a little off topic but i agree that if you are in a good place financially you aren't carrying a credit card balance. thats just dumb. not all debt is bad, but credit card debt is never a good thing

[Swoosh-Thud]

As a person who drives 120 mi/day I disagree. Spending a little more on luxury is well worth it- creature comforts. I hate getting entry level loaners for my daily treks. Happy wife = HAPPY LIFE

[Hit em good]

First, Dave Ramsey is a moron, and if I listened to his advice I'd literally have a million dollars less than I do (actually I have a poster of his terrible advice just for motivation)

 

You've gotten highly disparate advice in this thread. Some of it is gold but hard to distill.

 

First, kill the credit cards. That should be priority number 1. That's the one thing that everyone agreed on (except the one guy who said F it). There's absolutely no reason that someone worth a million dollars carries any credit card debt whatsoever. You're paying double-digit percentages on your credit cards for the privilege of having money in your savings or retirement earning less-than-double-digit percentages. Or, in example form, if your credit card debt is $100 and 19% rate, you're paying $19 per year to have your money in the market making 8%, or $8. So you pay 19 to make 8...Also known as losing $11.

 

By the same principle, you should be cash out refinancing the house at a lower rate and taking equity (although the tax treatment is different under the new tax law, but you're not paying much interest right now anyway so it's a wash). If you can get money from the bank with equity in your house at 5% and then put it in the market for 8% then you're MAKING money by operation of the same lever that caused you to lose money on the credit card debt. The difference is 3%. At $400,000, 3% is $12,000 per year, or $1,000 per month. Yes I understand it "seems complicated" and you had a traumatic experience....but how much of a pain in the a** are you not willing to go through to cost yourself $1,000 per month?

 

As for the Lexus...wtf? Get a Camry or accord if you want but why pay for the name? I'm "worth" 7 figures but I drive a car that is 18 years old. Cars are the worst wastes of money you can spend aside from timeshares and women, so minimize that expense as best you can

 

People with your advice call into Ramsey once in awhile, and he scorches them.

Your financial model did not factor in "risk", which should be applied to your equation, and will change the results significantly.

I have a paid off mortgage. I would never take your advice to go take out a new mortgage on my house so I can have additional cash to go invest.

[Hit em good]

First, Dave Ramsey is a moron, and if I listened to his advice I'd literally have a million dollars less than I do (actually I have a poster of his terrible advice just for motivation)

 

You've gotten highly disparate advice in this thread. Some of it is gold but hard to distill.

 

First, kill the credit cards. That should be priority number 1. That's the one thing that everyone agreed on (except the one guy who said F it). There's absolutely no reason that someone worth a million dollars carries any credit card debt whatsoever. You're paying double-digit percentages on your credit cards for the privilege of having money in your savings or retirement earning less-than-double-digit percentages. Or, in example form, if your credit card debt is $100 and 19% rate, you're paying $19 per year to have your money in the market making 8%, or $8. So you pay 19 to make 8...Also known as losing $11.

 

By the same principle, you should be cash out refinancing the house at a lower rate and taking equity (although the tax treatment is different under the new tax law, but you're not paying much interest right now anyway so it's a wash). If you can get money from the bank with equity in your house at 5% and then put it in the market for 8% then you're MAKING money by operation of the same lever that caused you to lose money on the credit card debt. The difference is 3%. At $400,000, 3% is $12,000 per year, or $1,000 per month. Yes I understand it "seems complicated" and you had a traumatic experience....but how much of a pain in the a** are you not willing to go through to cost yourself $1,000 per month?

 

As for the Lexus...wtf? Get a Camry or accord if you want but why pay for the name? I'm "worth" 7 figures but I drive a car that is 18 years old. Cars are the worst wastes of money you can spend aside from timeshares and women, so minimize that expense as best you can

 

i agree with what you say but this is a high risk plan. ramsey's advice isn't intended to maximize earnings potential, its to help people who are awful at managing money get out of debt. someone who routinely carries credit card debt shouldn't be opening another card and transferring a balance to gain additional airline points. they shouldn't cash out their home's equity to invest it...because they'll end up using a portion for an unnecessary purchase. a little off topic but i agree that if you are in a good place financially you aren't carrying a credit card balance. thats just dumb. not all debt is bad, but credit card debt is never a good thing

 

I don't mean to nit pick, but Ramsey's advice applies to everyone, and not just those who are in bad financial shape.

 

I'm 50, have zero debt, with mortgage paid for, almost $2.0m in retirement accounts, and I continue to follow his advice every day.

 

Pay off all debt

Don't take on new debt

Live on a written budget

Live beneath your means

Put money in the retirement account, without fail

Don't buy new cars

Buy a house you can afford

Give to others

 

My salary is good, but not huge. My house is in a fine area, but not in an "upscale" neighborhood. Drive a 2007 Tundra and 2014 4Runner.

I get much more satisfaction watching my retirement portfolio grow, and not worrying about money, than I would from having a depreciating Lexus in an upscale neighborhood driveway.

 

Hit em good

[LeoLeo99]

As a person who drives 120 mi/day I disagree. Spending a little more on luxury is well worth it- creature comforts. I hate getting entry level loaners for my daily treks. Happy wife = HAPPY LIFE

 

She has the shirt! And she looks real good in it!

 

My wife will get a new car when the current one goes to car heaven.

[spazo]

First, Dave Ramsey is a moron, and if I listened to his advice I'd literally have a million dollars less than I do (actually I have a poster of his terrible advice just for motivation)

 

You've gotten highly disparate advice in this thread. Some of it is gold but hard to distill.

 

First, kill the credit cards. That should be priority number 1. That's the one thing that everyone agreed on (except the one guy who said F it). There's absolutely no reason that someone worth a million dollars carries any credit card debt whatsoever. You're paying double-digit percentages on your credit cards for the privilege of having money in your savings or retirement earning less-than-double-digit percentages. Or, in example form, if your credit card debt is $100 and 19% rate, you're paying $19 per year to have your money in the market making 8%, or $8. So you pay 19 to make 8...Also known as losing $11.

 

By the same principle, you should be cash out refinancing the house at a lower rate and taking equity (although the tax treatment is different under the new tax law, but you're not paying much interest right now anyway so it's a wash). If you can get money from the bank with equity in your house at 5% and then put it in the market for 8% then you're MAKING money by operation of the same lever that caused you to lose money on the credit card debt. The difference is 3%. At $400,000, 3% is $12,000 per year, or $1,000 per month. Yes I understand it "seems complicated" and you had a traumatic experience....but how much of a pain in the a** are you not willing to go through to cost yourself $1,000 per month?

 

As for the Lexus...wtf? Get a Camry or accord if you want but why pay for the name? I'm "worth" 7 figures but I drive a car that is 18 years old. Cars are the worst wastes of money you can spend aside from timeshares and women, so minimize that expense as best you can

 

People with your advice call into Ramsey once in awhile, and he scorches them.

Your financial model did not factor in "risk", which should be applied to your equation, and will change the results significantly.

I have a paid off mortgage. I would never take your advice to go take out a new mortgage on my house so I can have additional cash to go invest.

 

OF COURSE he scorches them. it's his radio show. You think he'd post up audio of him getting owned by someone who knows what they're talking about? he also has a mute button, so he can drown out anything he doesn't like hearing. don't you think i could make you look like a fool if i were able to cut out everything you said that made any sense from the quotes above? listen to any talk radio program--it's the same, no matter the topic.

 

there are portions of ramsey's advice that are worth listening to (i'll comment on that below). but the problem is that he teaches people dumb bright line tests on a topic that has literally none. and, yes, i get that there are some people who aren't smart enough to do good learnin' and just need someone to tell them what to do. but that's a VERY small percentage of people, and most of them aren't listening to him anyway. people who turn to ramsey WANT to learn how money works. but rather than teaching them how money works, he teaches them how to avoid getting hurt by it. it's as if we went into the kitchen and, rather than teaching you how to fry an egg, i only taught you that the stove could get really hot and burn you, so never use the frying pan.

 

I don't mean to nit pick, but Ramsey's advice applies to everyone, and not just those who are in bad financial shape.

 

I'm 50, have zero debt, with mortgage paid for, almost $2.0m in retirement accounts, and I continue to follow his advice every day.

 

Pay off all debt

Don't take on new debt

Live on a written budget

Live beneath your means

Put money in the retirement account, without fail

Don't buy new cars

Buy a house you can afford

Give to others

 

My salary is good, but not huge. My house is in a fine area, but not in an "upscale" neighborhood. Drive a 2007 Tundra and 2014 4Runner.

I get much more satisfaction watching my retirement portfolio grow, and not worrying about money, than I would from having a depreciating Lexus in an upscale neighborhood driveway.

 

Hit em good

I've graded the suggestions above, either with a strikethrough for bad advice, italics for neutral, and bold for great advice.

 

live beneath your means is the hardest thing for americans, and if ramsey preached only this i would have no beef with him. also, retirement accounts are like magic, and people horribly underfund their magic.

 

living on "written" budget is not necessary, as long as you find someway to spend less than you make. new cars are sometimes warranted--like if you plan to keep it for 20 years. giving to others is only important if it brings you personal satisfaction; it's not advice for finance, really, so including it is kind of stupid.

 

pay off all debt is horrible advice. Pay off harmful debt, of course. never carry a balance on a credit card. however, i've got student loans at 0.25%. I've got a car note at 1.75%. why on earth would i pay that off when the money i'm currently holding that would be able to pay that off is earning 10-12% per year on the 9-year bull market? also the "don't take on new debt" is horrible advice too. take on new debt when it's cheap. right now, debt is VERY cheap. in the 80s, if you wanted to own a home you'd be paying interest rates above what you'd pay on some credit cards nowadays. people in the current climate have no idea how bad it could be, and all this cheap money is around to fund investments. now, don't take on new debt for the purpose of consumer spending. don't take on new debt to live lavishly. take on new debt for investments so you can lever up. that way, when things go well, they go very well, and, historically, even when things go bad you you tremendous opportunities, but only if you have cash.

 

finally, "buy a house you can afford" assumes so much. i would advise most people not to buy a house period, but, if you do, just ensure that ALL costs of homeownership are considered and that you are actually beating the cost of renting. in my area, if i were to buy, i'd have to put down six-figures worth of down payment (which isn't growing at market rates in this 9-year bull market, which is worth repeating) and then just the interest and principal would be greater than i currently pay for rent. that doesn't include other costs of ownership, such as taxes, repairs, insurance, and other things included under the rent. if you do that calculation and the cost of homeownership is lower than renting, only THEN do you "buy a house you can afford" and not one that you can't. but way too many people get caught up on this farcical american dream of homeownership being something special. it isn't...it's a noose, and in many ways an anchor on your ability to earn.

 

now, with respect to risk, of course risk needs to be "priced in." but risk is what makes the markets return. there are ways to reduce risk in the market though. spend some time on bogleheads.org and learn how low-cost exchange-traded funds keep diversification high enough that risk is minimized.

 

if you'd taken my advice instead of dave's 9 years ago, you'd be worth $3M now instead of $2M.

 

ETA: since you posted your stats, i'm 33, have 1500 student loan debt at 0.25% and 6k car note left at 1.75% (obviously), over 600k in retirement accounts, and over 400k in investments outside of retirement accounts, plus whatever additional cash is floating around. i don't have a mortgage and hope i never do.

[Shilgy]

^^so it's better in your opinion to pay less for rent FOREVER than a bit more for 15 years?

That is assuming the high return bull market continues forever I would think.

 

But to each his own.

[jerebear21]

Age and risk seems to go hand in hand. The last 8 years have been historically good. Curb the thirst.

[spazo]

^^so it's better in your opinion to pay less for rent FOREVER than a bit more for 15 years?

That is assuming the high return bull market continues forever I would think.

 

But to each his own.

look back at the history of the market and tell me what you see. Housing is a cost regardless, but most people who buy houses assume away many of the costs associated with home ownership. Let's say you have to put 100k down on a house. Over a 15 year time horizon, that 100k is likely to become 400k by compounding. By the time you're done, you'll be able to write a check for a house if you want to, but you won't want to because your money will be earning more than you pay in rent.

 

So which is a better deal? Having no housing payment, or earning more than your rent payment with the money you invested?

[spazo]

Age and risk seems to go hand in hand. The last 8 years have been historically good. Curb the thirst.

definitely...but at 50 years old he's still got a long way to go before Medicare, social security, and forced withdrawals kicks in