Thoughts on dave ramsey saying dont use equity? Pay off all debt

What are your thoughts on paying off all debt and not using equity?
Financial guru dave ramsey recommends it
Is this a stupid way to invest ? As you will not be able to get very far ?
Thoughts??

 

Whos Dave Ramsey? LOL

 

best to ignore the American stuff. Totally different way of thinking over there as well as different laws and systems

 

How are we going to get anywhere without borrowing?

The whole capitalist society is based on debt so that we are then enslaved to the lenders and are forced to work for the rest of our lives.

 

Dave Ramsey gets people out of debt, in the most conservative way possible. A lot of what he says is very basic. But its simplicity to the extreme. Because his main target audience are people with very little to no financial sense whatsoever, who are badly in debt (usually consumer debt, and student loans) and sending themselves bankrupt.
What he says works. But you can get where you are going a hell of a lot quicker and easier if you have any kind of financial sense or mind for investment at all.
His followers need guidance, and doing anything is a step forward from where they were.

You also have to remember that the US property market and the Australian property market are two very different kettles of fish. Do take any US advice with a grain of salt, especially for investments.

For people on this forum. I wouldn't think any of us would need that kind of basic level advice.

But as with anything, it's always good to listen and learn and take what you can, discard the rest, and see how it all fits into your situation.

Pretty sure Scot (barefoot investor) has based a lot of his principles around the Ramsey teachings. As has The Money Guy Show. Although I'm more in line with The Money Guy Financial Order of Operations, then I am Ramsey's Baby Steps. Because at least they allow for some investment before you go paying off all your debt.

Ive been looking into them all a fair bit recently, because Ive been putting together a simplistic approach to teach my kids / teens, to help guide them before they become independent and wrack up consumer debt like too many people do. (Myself included back when I was young).

 

First thing that comes to my mind is why risk your own money when you can use the banks money especially in today's low interest environment. Also, we have a lot of incentives in OZ to use debt/equity(negative gearing, offset accounts...)

 

American markets are much more volatile then here ?

 

Nice answer , is the American market very volatile? Or is everything different?

 

High (looking back at previous years) inflation and historically low interest rates, and he's saying pay down debt? If anything I'd want as much debt as I can have right now.

 

This!

But, the banks make it so you've got to eventually pay down debt anyway these days, as you can't keep your loans IO. If you're still investing though, load up on the equity. Most people need to use this to grow the portfolio.

 

When you have bad debt up to your throat, the mainstream stuff is ok. A lot of it is very conservative, but thats because most people are terrible with money and need to walk back years of bad financial choices first.

The beginner strategies are to get people (back) to the starting line.

for more advanced players there are fewer direct ‘resources’ so they tend to make up their own.

 

Not really, but you can borrow more and have a self funding loan with I&P repayments. Just talked to bank last week, can pull out 450k with IO repayments @ 2.9%, for the same monthly repayments I can pull out 630k, 40% more with 2.4% I&P repayments. The weird thing is I have to spend it in all in 28 days they only want the loan paid down in tiny increments, 250k can be parked in share trading account saving 4.6% interest. BORROWED MORE AND REDUCED PAYMENTS. Thats pretty cool. With out earnings the extra money will cover 8 years payment with 10% earnings just the extra funds can reduce the loan to bugger all in 20 years.

 

Not really. Lifeblood of capitalism is savings - ie capital. Capitalism is based on under-consumption and savings. It is only the introduction of central banks in the 20th C (and then the abandonment of the gold standard that kept central banks in a straight jacket) that tilt that towards inexorable debt accumulation. But central banking and debt is antithetical to capitalism. The dominance of central banks and debt is a relatively recent thing.

This is why people say you can have capitalism or central banking, but you can't have both.

The West is running on the fumes of the free market system, but i fear we are at the end of the road.

 

I agree we need to borrow at first to get ahead but eventually the end game is to get out of debt (at least how I see it). Less debt = less risk.
In the US you have 30 year fixed rate loans so right now it makes sense to borrow at historically cheap rates and pay back that money with tomorrow's $$$$ (that have less purchasing power). We don't have that luxury in Australia of being able to fix our rates for a long period of time so we are much more vulnerable to rises in interest rates. It doesn't seem they will be sky rocketing anytime soon but I am old enough to remember locking in fixed term rates in AUS at 8.5%

Dave Ramsay is great for beginners that need to get on top of their finances and pay down bad debt etc. He doesn't teach you how to win big though. I love listening to warren buffet podcasts, I never get tired of listening to his wisdom. Arguably one of the greatest investors of all time. He says his biggest mistakes were that of omission that is not seizing opportunities within his circle of competence. Big opportunities in life have to be seized so when you get presented with great deals and you have the skill set to manage and assess them go all in. Although buffet is not a real estate investor the lessons he teaches can be applied to any asset class. There are many youtube videos available on Warren Buffett for those that are interested. Incredible wisdom and lessons to be learnt from this incredible man.

 

Thanks.

I think I better shut up lol.

 

Ha! Not at all. Most people think that capitalism is just about "making money". But all systems are about making money, some systems just do it better. What makes capitalism different, is that it is simply a voluntarism system based on the non-aggression principal.

Voluntary trade means that society can work out prices, and with prices you can work out scarcity, and not be wasteful.

In this context, a free market would price credit via interest rates. But because we don't have free markets, we have central banks. And mis-pricing interest rates leads to all of the distortions that we find in our society - housing booms and busts, stock market booms and busts.

If we had more capitalism, we would have more accurate prices, and no central bank. Capitalism would eliminate the irrational booms that we see because we would have real interest rates.

A tangent for this thread, I know. But essential to be understood lest we throw it all away which seems to be the path we are on.

 

Who controls central banks?

 

Not sure about the RBA, but in the US, who owns the Fed is considered top secret. No audits allowed. Most likely it is the large banks that run the fed, which seems like marking one's own homework.

 

@John_BridgeToBricks , do you have any book recommendations about Capitalism in the context of your above posts please?

I find your Capitalism comments to be superb and you seem to be very well informed on the subject. Not to take away from the rest of your comments which I also find to be of great value.

Cheers