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08-01-2011, 11:26 AM
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#1
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Dryer sheet aficionado
Join Date: Jul 2011
Posts: 33
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Dave Ramsey - 12%?!?!?!!
I was reading some threads suggesting that Dave Ramsey speaks about 12% return on investment over time. Now, there have been years when my returns have been far better than 12%, even over 100%. But, those were not without significant levels of risk. I am hesitant to track my financial model through Early and Full retirement at anything more than 4% over inflation. Too conservative
I like DR's idea of living within your means.... but unlike Dave I don't believe all debt is a no-no.
I have actually signed up for one of his classes, Financial Peace. My interest in this class is further thoughts on budgeting for Early Retirement... and to help my spousal equivalent who is not where she needs to be with her money matters.
Any other Dave Ramsey thoughts out there?
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08-01-2011, 11:28 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Yes, that's a constant source of teeth-gnashing here. Even the folks who follow Dave when it comes to dealing with debt and most other financial matters usually think the 12% claim is reckless.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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08-01-2011, 11:32 AM
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#3
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Dryer sheet aficionado
Join Date: Jul 2011
Posts: 33
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Seems like Dave was a topic of an earlier thread that is now so old that I cannot reply to it. I will start going to my "Financial Peace" class on Tuesday nights, August 9. Part of my interest is to get exposure to the types of people taking these classes. Frankly, I have it so much better than most. It will be a good experience to see how people are working to get through financial woes that are far more significant than anything I might experience even if it all crashed down tomorrow.
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08-01-2011, 11:34 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Oct 2003
Posts: 1,324
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Flipping thru the AM radio channels looking for a traffic report the other day, heard Super Dave musing on just this topic. Says he's aware of all the critics, stands by the 12% number and all who disagree are morons or idiots, forget exactly which term he used, but was basically abusively dismissive.
__________________
We are, as I have said, one equation short. – Keynes
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08-01-2011, 11:38 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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Quote:
Originally Posted by njonge01
Part of my interest is to get exposure to the types of people taking these classes. Frankly, I have it so much better than most. It will be a good experience to see how people are working to get through financial woes that are far more significant than anything I might experience even if it all crashed down tomorrow.
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Just curious as to what motivates you to do this. Is your spouse SE one of these 'types of people'?
__________________
Numbers is hard
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08-01-2011, 11:39 AM
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#6
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Recycles dryer sheets
Join Date: Jul 2008
Posts: 141
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As with most anybody out there (even some of my favorite gurus), you can't believe everything they say.
I don't like to make it a practice to attack folks and say they are idiots just because there are one or two things they say that I don't completely buy in to. With D.Ramsey, it is his investment advice.
Some folks make a living knit-picking every last thing a person says and using it to discredit them. I prefer to critically listen and see if there isn't some value in some of the things they say (Peter Lynch used to say you could make 7% withdrawals).
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08-01-2011, 11:46 AM
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#7
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Dryer sheet aficionado
Join Date: Jul 2011
Posts: 33
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My spousal equivalent makes GREAT money. When we began our co-habitation 4 years ago, her household expenses dropped dramatically, and then about 1 year later, her income actually increased. Despite this opportunity (and many promises), she is still in the same financial boat she was in when we first moved in together (back then, it was all consumer debt and home equity debt... now its consumer debt and back taxes).
She doesn't realize how good she has got it and she's not in tune with how quickly things could go badly. I want to be able to speak to the experiences of other people I've met to help her see the light.
A little more history (since I'm on a roll now...), we continue to keep our financial matters separate with the exception being a $3500 / month household expense, social expense, and financal reserves expense which we contribute to evenly each month. I manage that account like a hawk.
Quote:
Originally Posted by REWahoo
Just curious as to what motivates you to do this. Is your spouse SE one of these 'types of people'?
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08-01-2011, 11:48 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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Got it - thanks.
__________________
Numbers is hard
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08-01-2011, 11:51 AM
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#9
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Dryer sheet aficionado
Join Date: Jul 2011
Posts: 33
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Quote:
Originally Posted by njonge01
A little more history (since I'm on a roll now...), we continue to keep our financial matters separate with the exception being a $3500 / month household expense, social expense, and financal reserves expense which we contribute to evenly each month. I manage that account like a hawk.
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Also, the house is in my name only but it goes to her in the event of my death, and so does adequate money to pay off the mortgage. I've considered directing it to my sister, with instructions to pay off the mortgage and allowing Tara to continue to live there, and it only goes to Tara when she gets her act together.
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08-01-2011, 11:58 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,391
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There is some basis for the 12% number.
If you track stock returns over some periods of time you'll come up with the 12% rate of return. The rate is not indexed for inflation but does include dividends.
Note the probability from the chart below for returns over 30-year cycles.
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08-01-2011, 12:02 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by njonge01
Also, the house is in my name only but it goes to her in the event of my death, and so does adequate money to pay off the mortgage. I've considered directing it to my sister, with instructions to pay off the mortgage and allowing Tara to continue to live there, and it only goes to Tara when she gets her act together.
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Lovely trick to put on your sister- will assure that neither SE or sister will be lighting any votive candles for you after you've gone.
Perhaps think this one through carefully?
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"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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08-01-2011, 12:34 PM
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#12
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Dryer sheet aficionado
Join Date: Jul 2011
Posts: 33
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Quote:
Originally Posted by haha
Lovely trick to put on your sister- will assure that neither SE or sister will be lighting any votive candles for you after you've gone.
Perhaps think this one through carefully?
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Hahahaha!! Good Point!! Best to continue with current plan and let It play out as it will!!!
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08-01-2011, 01:19 PM
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#13
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Full time employment: Posting here.
Join Date: Jan 2007
Posts: 582
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My mother-in-law went throught the Financial Peace program after my FIL died, and it was a good way for her to feel more comfortable about money stuff. FIL had always handled everything, and I think going through this course was a confidence-booster because she could see that basic money management isn't complicated. It also made her feel good that she was relatively ok compared to some others in the group who had large debts. I think she might have even gone through the class again about a year later just for a refresher and to see if there was any more she could get out of it.
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08-01-2011, 01:27 PM
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#14
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Dryer sheet aficionado
Join Date: Jul 2011
Posts: 33
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Quote:
Originally Posted by WM
My mother-in-law went throught the Financial Peace program after my FIL died, and it was a good way for her to feel more comfortable about money stuff. FIL had always handled everything, and I think going through this course was a confidence-booster because she could see that basic money management isn't complicated. It also made her feel good that she was relatively ok compared to some others in the group who had large debts. I think she might have even gone through the class again about a year later just for a refresher and to see if there was any more she could get out of it.
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Thank you! Yes, I think I will be in a different boat than others in the group. I don't have any horrible debt to get rid of. I want to gain insight for living within my means, budgeting and planning how I spend my money.
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08-01-2011, 01:41 PM
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#15
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Moderator Emeritus
Join Date: Dec 2005
Posts: 10,125
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My two concerns about Dave Ramsey is:
1) He does not discuss horizon, risk and prices fluctuation when discussing the 12% number. This leads to people panicing and selling at the bottom of the market. I haven't listened to anything recently so maybe he has amended this.
2) He suggests you pay off your lowest balance debts first, rather than your highest interest rate debts. While I understand why he does this, I would think that people, with an explanation of the savings, would understand (or go along blindly) why interest rates matter.
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Angels danced on the day that you were born.
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08-01-2011, 02:15 PM
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#16
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,124
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Before joining this site I'd never heard of Dave Ramsey (or Suze Ormond) so I subscribed to his radio show podcast and listened to many of his shows over a number of weeks driving to/from work.
I think he does a great job with his target audience and I understand why he recommends paying off the smallest balances first, regardless of interest rates. It is a psychological thing which, in his experience, works best for most folks in debt. However, I would think it would work in reverse for those same folks expecting 12% returns on their investments. The volatility required to get those returns requires a strong will, and I would expect most to quit after some bad years.
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Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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08-01-2011, 04:15 PM
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#17
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,500
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"I'M DEBT FREE!!!!!"
In that regard, I like Dave Ramsey's advice. I love listening to him because the happiness his callers show is just so contagious (at least for me). Like them, I am debt free and very happy to be in that category.
Still, I think that expecting a 12% return on investments is just wacky. He should stick to personal finance and leave investment advice to others, IMO
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Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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08-01-2011, 06:54 PM
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#18
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Full time employment: Posting here.
Join Date: Sep 2008
Location: Southeast USA
Posts: 548
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I agree with most of Dave's teachings about debt and morals. I do part company with him in three areas.
1. He makes no allowance for the time value of money. To paraphrase Willie Nelson when asked about selling one of his songs that later became famous for $50. Willie said he needed that $50 real bad.
2. Contrary to Dave's teachings, when savings rates went to zilch, I began running most of my expenditures through credit cards and earn a quick 1 to 5%.
3. I'm certainly not basing my retirement planning on my retirement portfolio averaging 12% earnings per year.
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08-01-2011, 07:01 PM
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#19
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Recycles dryer sheets
Join Date: Jul 2008
Posts: 141
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I'm waiting for the day that somebody calls in and says they took all his advice and got out of debt, only to be broke 20 years later because they took his investment advice for retirement income. Something tells me that caller will never make it on air.
Stick with the debt advice, Dave. Actually, he's pretty decent with more than just debt advice. It's the investment advice (mainly retirement income advice) that I'd stay clear of.
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08-01-2011, 08:28 PM
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#20
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Full time employment: Posting here.
Join Date: Jul 2007
Posts: 500
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The one that gets me from his audience is the I'm debt free and then they casually mention except for the house. Thats like saying I'm not fat except for the spare tire around my middle! His over all message on get out of debt, LBYM, and save are all good however.
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