The value of LBYM

[BuysToys]

This comment just reminded me a friend recommended a group page which I figured out was a Dave Ramsey follower page and they were posting how you can't put ANY money in your 401k because you are only on baby step #2 and Saving for retirement is Baby step #4... ie you can't save any money in retirement until you are 100% debt free and a 6 month Emergency fund.

Needless to say I got kicked out of the group within an hour for posting advise that was contrary to Daves teachings. I don't listen to him, I didn't know what the baby steps were but I just couldn't believe anyone would be telling people to not save at least the company match to get out of debt that could take a decade and whos interest may or may not be high.. a decade of lost compounding interest and free money.. much less saving for a home which in many cases could be way more cost effective than renting, etc.

<snip>

I wonder if we were on the same group page? I knew what the baby steps were, I just disagreed with the whole retirement piece. He sells it with the concept that you load up your retirement once you're out of debt, so missing all the compounding and free money isn't important.

 

[The Cosmic Avenger]

I have to say, the audience here on E-R is not representative of the larger population. Michelle Singletary convinced me that going for the optimal return isn't always for everyone. She touts the snowball method of debt payment (which I believe Dave Ramsey popularized), which means paying the minimum payment to all buy the smallest debt, and putting everything possible towards that. Once that is paid off, you refocus on the next smallest.

Of course, you're all probably saying "NO! You pay off the one with the highest interest rate first!" And that's what I said, too, but a lot of people who have trouble with debt and spending need more motivation, and seeing the number of debts drop more quickly can be a better motivator.

That doesn't excuse people who do not acknowledge that one set of advice isn't universal for everyone, but I do understand better now why some people are wedded to methods that are more about motivation and maintaining discipline than optimizing return.

 

[athena53]

That doesn't excuse people who do not acknowledge that one set of advice isn't universal for everyone, but I do understand better now why some people are wedded to methods that are more about motivation and maintaining discipline than optimizing return.

That's what Behavioral Economics is all about. Sometimes things that don't make sense from a cold "numbers" point of view work well for other reasons.

 

[Lewis Clark]

I'm not a fan of Dave Ramsey's investment advice, but I do think he has a knack for motivating some folks to tackle their debt successfully.

To be fair, I have heard him say that his snowball method is intended to be as much a motivation tool as a debt reduction process. He does acknowledge that paying off the highest interest rate debt first is best mathematically. But for many of the people in his target audience, his snowball method can provide the necessary motivation to keep people working hard to pay off the debt.

 

[karen1972]

I'm not a fan of Dave Ramsey's investment advice, but I do think he has a knack for motivating some folks to tackle their debt successfully.

To be fair, I have heard him say that his snowball method is intended to be as much a motivation tool as a debt reduction process. He does acknowledge that paying off the highest interest rate debt first is best mathematically. But for many of the people in his target audience, his snowball method can provide the necessary motivation to keep people working hard to pay off the debt.

Not just motivational but for a lot of his listeners they are sitting with a ton of those store credit cards all with small balances on them.. which means it is so easy to miss a payment or have it arrive late and then the late fee is at times 3 times the minimum payment...and that is an ugly snowball having looked at several peoples finances that got in that situation. Sometimes $200 can eliminate 5 cards and then all of sudden there is all this freed up money by eliminating those minimum payments and missing a day of work no longer is a financial catastrophe.

 

[Klubbie]

Does the term Schadentreude mean anything to you ?

My intent in posting was not to imply that I take pleasure in their misfortune. It frustrates me to see people make poor financial decisions and end up in bad situations. In most of those cases I do not feel bad for those who have made poor decisions because they have built their own financial grave. In this case, it is somewhat uncharted territory for me as I feel bad for them because they are our friends, but at the same time I can look at the situation, see and hear about (from them) the choices they've made leading up to their current situation and realize they've made the mess themselves.

This forum is probably the only place I know of to talk openly about money related issues such as this, which is why I posted this.

As an update, my wife told me today that they are going to get approved for their mortgage and be able to move into the house they are having built. So from that standpoint I guess that is good news. I don't know what that will mean for them financially going forward, but my guess is they will be house poor. That is something I know very well, as I made a foolish choice in my late 20's to buy a house I couldn't afford and even though I only lived in the home for a little over two years, I believe that choice probably set me back about 5 years financially.

 

[audreyh1]

Does the term Schadentreude mean anything to you ?

No, was that misspelled?

 

[brett]

I believe that there is a fairly large percentage of people who do not 'learn' from these experiences.

I know of a number of folks who have lived this way for most/all of their working lives. Always have consumer debt, new cars, one payment away from disaster.

Income level does not seem to matter. I have worked with a number of very high income people, with working spouses, who always appeared to be in the same boat. On the other hand, they always seemed to have the best of everything...cars, houses, furniture, vacations, high end clothing. Not certain if it is a case of willful ignorance or entitlement. I was in a high income position and bailed at 58. One former boss was shocked when he offered me a job and I told him no. His comment was that he could not retire because of debt, mortgage, and home equity loans.

 

[Dtail]

I believe that there is a fairly large percentage of people who do not 'learn' from these experiences.

I know of a number of folks who have lived this way for most/all of their working lives. Always have consumer debt, new cars, one payment away from disaster.

Income level does not seem to matter. I have worked with a number of very high income people, with working spouses, who always appeared to be in the same boat. On the other hand, they always seemed to have the best of everything...cars, houses, furniture, vacations, high end clothing. Not certain if it is a case of willful ignorance or entitlement. I was in a high income position and bailed at 58. One former boss was shocked when he offered me a job and I told him no. His comment was that he could not retire because of debt, mortgage, and home equity loans.

I lived high on the hog for approximately 3 years of 34 working years. Realized cuts had to be made for an eventual retirement and was then "retired" effectively by megacorp, but had cut down expenses by 40% by then on my way to an eventual 60% expense cut.

 

[daylatedollarshort]

Many other managers at places we worked had financial troubles despite relatively high income households. Most were not able to plan big projects out successfully that required 30 person years of work so I know they weren't planning for their own 30 year retirements in their 20s, 30s and 40s. It was a lot of job security for people like me who really liked planning and spreadsheets and could bring big projects in on time and under budget.

 

[Sunset]

My intent in posting was not to imply that I take pleasure in their misfortune. It frustrates me to see people make poor financial decisions and end up in bad situations. In most of those cases I do not feel bad for those who have made poor decisions because they have built their own financial grave. In this case, it is somewhat uncharted territory for me as I feel bad for them because they are our friends, but at the same time I can look at the situation, see and hear about (from them) the choices they've made leading up to their current situation and realize they've made the mess themselves.

This forum is probably the only place I know of to talk openly about money related issues such as this, which is why I posted this.

As an update, my wife told me today that they are going to get approved for their mortgage and be able to move into the house they are having built. So from that standpoint I guess that is good news. I don't know what that will mean for them financially going forward, but my guess is they will be house poor. That is something I know very well, as I made a foolish choice in my late 20's to buy a house I couldn't afford and even though I only lived in the home for a little over two years, I believe that choice probably set me back about 5 years financially.

Great that you see how they keep digging their own grave, and I'm glad you posted this interesting story.

Strange that they got approved for the mortgage, I bet if they tell you it is because they did some other financial move that will cost them a lot. Ideas range from more 401K withdrawal to extending the amortization of the mortgage to lower payments by extending it out another decade.

My personal experience of a relative doing this, was she felt so entitled and deserving of the various expenditures, that nothing could stop her.

 

[DatumPoint5]

Answer to Audreyh1.....

Yes, it is misspelled. It should have an 'F' where the 'T' is........

E.g. scha·den·freu·de

See Wiki here

 

[FreeBear]

As an update, my wife told me today that they are going to get approved for their mortgage and be able to move into the house they are having built. So from that standpoint I guess that is good news. I don't know what that will mean for them financially going forward, but my guess is they will be house poor. That is something I know very well, as I made a foolish choice in my late 20's to buy a house I couldn't afford and even though I only lived in the home for a little over two years, I believe that choice probably set me back about 5 years financially.

Sounds like just kicking the can down the road, waiting for the next crisis...

We've had two friends who obviously live like this, always complaining about money and how hard they w*rk, yet keep on spending. No self control or desire (ability) to think beyond today. They will borrow and spend until external circumstances (max out credit, refused for cash out refinance, handout runs out, etc) stop them. If the "bad" external circumstances ease up, they start borrowing and spending again. Just a different way of doing life.

I know of a number of folks who have lived this way for most/all of their working lives. Always have consumer debt, new cars, one payment away from disaster.

Income level does not seem to matter. I have worked with a number of very high income people, with working spouses, who always appeared to be in the same boat. On the other hand, they always seemed to have the best of everything...cars, houses, furniture, vacations, high end clothing. Not certain if it is a case of willful ignorance or entitlement. I was in a high income position and bailed at 58. One former boss was shocked when he offered me a job and I told him no. His comment was that he could not retire because of debt, mortgage, and home equity loans.

Yep, a different way of seeing the world. I've learned to enjoy my friendships with the few I know who live like this, but keep firm boundaries about growing emotionally involved in their money drama. Most importantly, I avoid enabling by giving money or free labor. Don't ask how I've learned this

Live and let live.

 

[NW-Bound]

Just saw some statistics that show further bifurcation between the LBYM'ers and the spendthrifts. It's about people who apply for loans to buy a used car vs. a new one.

.... people with the best credit scores are increasingly buying a used model instead of new. Experian says 61.8% of those with a prime credit rating and 44.7% of those with a super prime credit rating took out loans to buy a used vehicle in the first quarter. Those are the highest percentages Experian has ever recorded for prime and super prime used vehicle borrowing...

For more details, see: https://www.msn.com/en-us/money/mar...edit-to-the-used-market/ar-AACtZ1L?li=BBnbfcL.

 

[Amethyst]

Ants and grasshoppers, age-old story.

 

[Walt34]

Just saw some statistics that show further bifurcation between the LBYM'ers and the spendthrifts. It's about people who apply for loans to buy a used car vs. a new one.

That's not surprising. A BIL (the smarter one) ~15 years ago bought a two-year-old GMC diesel pickup that he's still driving. (Of course, he still has his '72 Ford pickup too, but that's a long story....)

When I retired my "retirement present" was a special-ordered brand new 2003 GMC 4WD pickup that I still have, with just over 101k miles on it. If I ever do get another pickup I'll almost certainly buy a used one since at age 69 now, I probably wouldn't get my nickel's worth out of another new one.

 

[NW-Bound]

...If I ever do get another pickup I'll almost certainly buy a used one since at age 69 now, I probably wouldn't get my nickel's worth out of another new one.

But, but, but you cannot take your money with you.

Well-heeled ERs often buy new vehicles to treat themselves, and they can afford to pay cash. And if the manufacturer offers loans with a below-market interest rate, I can see people getting it.

I just looked, and saw that the average car loan interest rate is 4.21%, but some manufacturers still offer zero-interest loans.

 

[RobbieB]

I ordered mine with all I wanted. There is no haggle, no deals. The dealer gave me a grand off as a favor.

But that was my first new car and I deserve it -

Yup, just wrote a check.

 

[NW-Bound]

Surely you do.

Even as frugal as I am, I bought a few new cars in my life. Nothing super fancy though.

 

[38Chevy454]

I think there is a big difference between a FIRE'd person that can pay cash for a new vehicle, and another non-LBYM person that has to finance the new vehicle at payments that stretch their safety margin of money. Just because non-LBYM can afford the monthly payment now, does not mean they can if something like a job loss or income reduction occurs.

I have no problem with a person that can afford to buy a new vehicle doing so. You worked hard and reached a level of financial security that you can treat yourself to a new vehicle. Enjoy the rewards of your efforts over the years to become FI.


One big difference is that many FIRE'd persons buy a vehicle they like and desire, not the non-LBYM that buys a vehicle to try and impress others. Keeping up with the Jones's can be tough on your financial life.

 

[FIREd]

To me, the real value of LBYM is peace of mind. I know a few people who are always stretching their resources and get so stressed out when the tiniest emergency occurs. I would hate living constantly on the edge like that.

 

[aja8888]

That's not surprising. If I ever do get another pickup I'll almost certainly buy a used one since at age 69 now, I probably wouldn't get my nickel's worth out of another new one.

But you will get the use of the new one while you have it. If you pass before it's completely depreciated, whoever ends up with it will get the remaining use. Or you can gift it to a family member if you can't drive it anymore.

 

[Mdlerth]

What Henry Clay really said was "I'd rather be Rob than be president"

I ordered mine with all I wanted. There is no haggle, no deals. The dealer gave me a grand off as a favor.

But that was my first new car and I deserve it -

Yup, just wrote a check.

When I grow up, I want to be Robbie.

 

[NW-Bound]

... One big difference is that many FIRE'd persons buy a vehicle they like and desire, not the non-LBYM that buys a vehicle to try and impress others. Keeping up with the Jones's can be tough on your financial life.

+1

... although I do not desire any particular car at this moment. It's just transportation to me.

 

[Murph]

Smells like a bankruptcy....