I'm curious how people approach their financial planning/finances. As i see it, there are two main camps: the Dave Ramsey conservative approach and the "make your money work for you" approach. With the former, you have large emergency funds, pay for houses with cash, etc. With the more aggressive approach, you have small emergency funds, with larger sums of money in IRAs and investments that you can pull from in case of an emergency, you use ARMs and small downpayments to purchase larger houses to increase your net-worth over the long run. There is more risk with the latter approach, but there is also a greater chance of having greater net-worth.
So what's your approach?
A friend tells me I'm aggressive, but really I'm a conservative with a hubby that's aggressive! I also think there is something to making your money work for you, 9 months worth of cash just sitting in a savings account isn't even keeping up with inflation.
In any case, what's your approach?
I think as a society we need to openly discuss money more. Financial planning is something no one ever discussed with me, and I think it's important to educated yourself on all the different approaches out there. I also think it's a fundamental parenting topic, right up there with parenting philosophies. This is the very stuff of life, work and money is what modern day living seems to be about.
This is far from a 1% asking the 99% something. We are a far cry from the 1%, I'm just a middle class gal trying to figure out how best to increase our networth so I don't end up eating nothing but ramen and beans in old age -I did that in my 20s and early 30s. I've spent more time in adulthood being poor than with money, and now that life has blessed us with a decent life- and I've educated us in terms of money-I want to make sure we continue making good choices. I love reading about peoples' experiences and approaches to financial issues, as it helps me figure out what I believe and think. I always learn interest stuff! I love this place! Thanks for sharing!!!!
Btw, Ramsey wasn't talking about investment properties. If you look at his site, he literally tells you to pay cash. And then, if you can't do that-who the hell can!- do 25% of net, 20 down, 15 years. Again, how many people can even do that? Properly is so damn expensive, there is no way most people could do that and have anything bigger than a one room condo, if even that. I was reading someone who argues for the other approach, and he showed how the guy who takes out the bigger mortgage actually ends up with higher networth. And there are tons of people who argue for ARMs and 10% down, citing data showing how this is actually the better approach to increasing wealth. I find it interesting, and I think it's like two different ways of approaching money based in if you even have it! It's like the 1% is told to have nothing but debt, while the poor are told to pay everything in cash. Yet, sometimes the best choices is the zero interest 2 year financing. Why pay cash when someone is willing to loan you money for free? There's only a problem with this approach if you don't pay it off, but it isn't hard to do this if you pay a little every month.
WILD women! you obviously do not understand ARMs. There isnt a ballon payment, your rate adjusts. In fact, ours is 2% less than when we took it out 9 years ago. It has saved us thousands upon thousands of dollars. Our current rate is 2.65. And there is no sign of it going up for a bunch of years. Meanwhile, we are paying it off faster than if we had taken out a fixed rate.
An interest only mortgage is another can of worms, but ARMs make great financial sense in many situations. We've been able to put tons of extra payments towards our principle every year without there being any increase in funds going towards mortgage, It literally has saved us buckets of money. And, btw, I do believe in savings, in 401ks, in college accounts, in IRAs, in a regular old savings account? Yes, we have some money, but we'd never let 9 months worth of money just sit in an account that cannot keep up with inflation. We made up for our lost years by being smart financially, and I honestly think Ramsey is selling a bad can of worms if you think ARMs are always bad. They can be a great tool if used appropriately. This is where the aggressive planners come into play. Even the mortgage professor says ARMs can be a good thing, and he has a very balanced approach to things.
I finally get it: Davy Ramsey cannot teach any nuance to his approach to finances because his audience just wouldn't get it. Yes, the wealthy have a bigger cushion to fall back on, but it's more than that. To become wealthy you have to take risk. End of story.
And I really don't get why a SAHM needs 20x a salary to make it. I would be wealthy if hubby died. He is very well insured.
My approach is not to discuss my finances on a board of strangers ad nauseam. It seems to be working out for us! ;-)
Dave Ramsey, but with a simple life. I have some small investments, but I see it as just a little bit of money tucked away. If we can't afford something, I just start asking where my husband is going to get the money because we don't have it. He eventually backs off. He doesn't really know how much money is tucked away. If something happens to me, my older daughter will have to help him locate it. It is sad, but he just doesn't want to deal with it and it stresses him out. He knows he is not good with money.
ETA: The 20x salary life insurance is to INVEST this providing the sme annual salary the working spouse provides. No interruption in income. You should look into it. Research it.
ETA2: "free money"? Do you think companies are in business to LOSE money? What does that tell you about the % of people that pay back that "free money" early or on time? That's Basic Logic 101!
ETA: per you SWH--we did. And our house is now paid off. We save aggressively for retirement & invest as well.
IMO, (and Daves) ARMs are too risky. For example, a SAHM who's husband gets ill or dies. Chances are, if wife doesnt have 20x his salary in life insurance to invest, her life will tailspin. Then rice & beans will be reality.
And Ramsay advises cash for rental properties, not primary dwelling.
So--yeah, 15 year, 20% down, 25% net income mortgage amount. Pay off as quickly as possible AFTER all debt is eliminated.
And BTW, this IS he way millionaires live. They don't carry debt like you're describing. And they don't buy new cars or borrow money for investment properties. Oh and buy the way, we're a solidly middle class hard working family. We're not worried about what anyone else has or wants. We're not "keeping up with" the Jonses OR the Smiths. I'm not obsessed with tub/shower trends, or fads, or zipcodes or appearances.
It's nice to sleep at night in a paid for house knowing we're not carrying a load if debt. So when we want or need something, we can usually swing it. Like a pool or a vacation or blessing someone else with something that's positionally life changing for them. Feels good.
Original:
I don't think you understand Dave Ramsay at all.
It's live on less than you make
pay off debt
Don't go into debt
and save.
Crazy, huh?
I'm in the "I live paycheck to paycheck" camp, which I guess is good because then I don't have to make these kinds of decisions. LOL
Buy what you can afford without going into too much debt and save as much as you can.
And who can afford to buy houses with cash?!
Maybe you live in a very inexpensive area. Homes here in the bay area average 300,000 to well over a million. Our town is full of doctors, lawyers and financial and business executives and yet I know of no one who has the kind of cash to buy a home outright (unless they inherited it, which does happen sometimes.)
Our family is very, very blessed (and my husband DOES work very hard at a high pressure job) but really I think most people just struggle to live paycheck to paycheck, never mind having 9 months of cash sitting in a savings account.
For some reason this question seems really inappropriate here. It feels very "1 percent" asking the "99 percent" for an opinion they are clearly in no position to give :-(
We live moderately, thoughtfully, rather conservatively and with intention when it comes to how we use our money. I don't think extreme philosophies are necessarily helpful on either end of the spectrum. We just use our common sense, are careful, don't spend beyond our means; other than mortgage we don't carry any ongoing debts. We pay off our bills reasonably. We don't use our credit card to *its* limit, but to what we can afford. This isn't anything more than obvious, be smart on what you choose to spend and how you choose to spend (we buy a lot of refurbished items at a fraction of the cost of new and they work great; we do thrift stores for non-intimate clothing a lot of the time. We limit how many activities Kiddo is signed up for each season and we really are thoughtful about what is a luxury and what is a need; moderate spending is wise, in my opinion. Being too frugal about some things can be wasteful in the long run (too-cheap items made of too-cheap materials) and being too extravagant can as well. Both my husband and I have seen people really squander money and resources, and then deal with the after-affects of having all this stuff and being broke, completely in a hole. It's been pretty devastating for some of them and quite a burden for others.
ETA: You know, J., I take a chance and reply nicely to something you put up and once again, you are at it with the insults: " Davy Ramsey cannot teach any nuance to his approach to finances because his audience just wouldn't get it." Why do you bother to post anything to us if we are supposedly so stupid? Shame on me, I suppose, but I am seriously done answering anything you post. So I will just add this... your last statement? " I would be wealthy if hubby died. He is very well insured." It may be your truth, but it is by far one of the most crass things I have read in some time.
I am financially conservative. My goal is to live comfortably and have security. I am not interested in taking risks and getting rich.
For a socialist you talk about money a lot - more then all the capitalists I know. And your posts always turn into some financial brag fest which is so ridiculous bc so many people have so much more money than you. But I have to answer to set one thing straight. I am sorry to also brag but we are quite wealthy and have taken very little risk. So your statement is just wrong. Why do you think you're qualified to make statements like that??? Sometimes people get wealthy by taking a lot of risk but not all the time - end of story. Why did you even ask this question when you have such set views?...
You can keep your 9 months (ok... 8 months) in a Roth so that you can pull it out without penalty if it becomes required in a job loss/emergency type situation.. and the other "month" on hand in a cash withdrawal bank account.
There is really no need to let all that money just sit in a simple plain bank account. BUT, having access to it quickly (without penalty) is the key.
Buying houses with cash? I believe Ramsey is referring to "investment properties", ie., rental homes, not your personal home. Although, if you can afford to pay off your home, it's safer to do that before taking on another property and its expenses.
His biggest point is to live on less than you make, so that you can pay off any and all debt and then have money to decide what to do with.
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The part you seem to be missing is the risk part. There is a reason that the 1% can take on debt to make money, and the poor need to pay cash. Because the 1% is self-insured against the risk of one of those investments not paying off. IF they mess up or the market turns or whatever, they won't be homeless b/c that investment went south. They can afford to absorb the loss. The poor cannot. They would be on the street.
I don't think you understand investment properties. They are not speaking of the home you are living in! A highly leveraged personal home is a money pit! Between taxes, interest, upkeep, you are in a negative cash flow situation. Sure the equity of the home goes up but what you are paying into it, money that could be otherwise allocated elsewhere, is greater.
Investment properties can be highly leveraged because the occupants are paying rent which covers the interest and other costs. Of course even that works when the area can command a rental price that covers all costs.
I don't like investment properties so our investments are in stocks, bonds, managed by our broker. I may know how to invest but I do not have time to stay on top of market conditions.
Oh, our only debt is our mortgage. There is no point in having savings if you have high interest debt.
Per your what happened, hun, you have no idea what you are talking about. I have no idea what Ramsey says, my father taught me, my uncles taught me, it is quite simple, you do not live beyond your means. Just because some crook that wants you to buy their book, go to their seminar, so they tell you a happy story that you can borrow like crazy and make money that way, doesn't actually make it true.
In Chicago your husband's income is simply not enough to grow any real wealth. If you are lucky you will have your home paid off so he can actually retire before he dies. Stop wanting to gamble with it.
I know you want it all but you need to accept you have to choose what your priorities are.
I listen to Dave Ramsey if I'm in the car when he's on. I would suggest you listen to him a few times and just hear what he has to say. Most of he callers are trying to get out of debt. Very few are asking about what to do with all this extra money they have laying around, though they do exist.
He does encourage people to buy with cash, ie only buy what you can pay for. He does not encourage loans. But he does not say this for homes. He has a formula for that - large down payment (20%, I think), 15 year mortgage, payments less that 25% of your income. Basically a formula to pay off the house Ina reasonable amount of time without making you "house poor."
I don't live in the same world as Dave Ramsey, but I am still trying to do as many of the wiser things he mentioned. We're working on it. I certainly don't live in the same world as the "make your money work for you" approach. That's a pipe dream to us. But we're happy, and we have the luxury of not worrying about the future, so I'll take it.
J.,
I'm sorry. I don't think you have really listened to Dave Ramsey and HEARD his approach.
An ARM is a BAD, BAD, BAD choice. You must pay attention to the balloon payments that come due, the lenders count on people NOT to be able to make those balloon payments so they will refinance their home and start all over again.
If you have been poor more in your adulthood than comfortable, you know that you need a back-up plan. We had a back up plan - my husband was laid off from his job of 10 years along with 40 other people - it took him 10 months to find a job. We went through our back-up plan. We're building it back up. it's a slow process.
In the mean time? We have other investments, ROTH IRAs, stocks (some aggressive, some not) and savings bonds (I personally don't like them - but my husband does).
Finances is a HUGE parenting issue. HUGE...you MUST teach your child how to deal with and handle money and credit. Our children get their allowance, it's broken up to 1/3's - 1/3 in savings, 1/3 to charity and 1/3 to spend. They are having fun watching their savings accounts grow. They watch us discuss savings, balancing the checkbook and how we spend money...
In regards to an "investment property"? It's not your primary residence. It's a HOUSE that you buy and either flip or rent out for income. That is an investment property.
If you really have been poor for most of your adult life - then sadly - you haven't learned much if you don't think having money in savings is important...some investments can't be liquidated that easily.
Good luck!
You do know that you can't take your money with you when you die, right?
I'm perfectly happy to just get my rent paid. :)
Have enough to cover at least 6 months living expenses in case of emergency, job loss, etc.
Use credit cards which have cash back points
PAY OFF credit card EVERY month
Finance only with NO Interest or minimal interest. (new car 0.9%)
NO LATE charges
NO bounced checks
BALANCE checkbook regularly
Do not use debit card
Buy only what you have money to cover. Can't afford, don't buy.
Shop with sales, avoid retail prices when possible.
What is this "large sums of money" of which you speak? ;) lol
Honestly, we live pretty much paycheck to paycheck, with some overlap now. We save for what we can't afford, instead of using credit. I am conservative in that I do not take risks with my money, I have no interest in "increasing my net worth". It makes my brain hurt to think like that. I can live off of practically nothing if I have to, and that's a pretty good skill to have in this economy. Honestly? I'd like to live MORE simply when the kids move on with their lives. A simple hut in Vietnam or Thailand would suit me just fine, I have no interest in building equity or gaining capital to make more money.
When hubby lost his high income job we ended up losing everything.
We sold off everything that were collections like guns, antiques, coin collections, and comic books. We sold life insurance to make ends meet. But in the end he couldn't find another job so we gave up our house and let the vehicles be repossessed. All our credit cards started going into collections, all accounts were gone.
He ended up taking a job making about 1/3 of his previous income. Life was okay. We got good used vehicles, got a small brick house, and started trying to rebuild our lives. He got laid off right at Christmas time a year later. They were a company that would come up with an idea, take it and build it into a business, then sell it off to make profits. He was an IT guy and they sold of the internet provider business so they didn't need him anymore. Lost our house again but the cars were paid for.
His mom bought us a mobile home to live in and we just sold it last year after moving to family land.
He went without work for over 2 years only taking part time jobs teaching A+ classes at the local vo-tech and a call center. He eventually had a heart attack and is on SSDI now.
Since we went through everything while between jobs we don't have much now. No retirement, no life insurance, no savings, nothing.
You can plan all you want but when it comes right down to it having a job and working is the best you can do. Living within your means is also something that many people just do NOT do.
For instance, when hubby had that super great job housing was good. We could qualify for a home loan for hundreds of thousands. We could have lived in most any house in this town. Did we go buy an expensive home with thousands of square feet just because "we could afford it"? no, we got a house that we thought we could make the payments on. Once he lost his job we thought our resources would be enough to cover a year but it wasn't, it was enough to cover about 10 months because costs go up.
If minimum wage goes up every bill we have will likely double. We won't be ahead, we'll be struggling to give our higher wages to utilities and banks and grocery stores. Everything will go up drastically.
That's what everyone is losing sight of. IF IF IF IF wages go up so does everything else. You won't be making more money, you'll just be spending more money on the same things. You'll be paying higher taxes, higher gasoline prices and that will raise the price of everything that uses it like trucks that bring the food.
I don't care if wages go up but that's just an instance of something out of your control that could happen and make the amount of money you have put aside less...not worth as much as it was.
If you save $1000 put aside for a semester of gasoline for a student that sounds like a lot of they live on campus and ride their bikes everywhere.
If gasoline is $1 per gallon it's a small fortune.
If gasoline is $5 per gallon it's okay but they won't be able to come home every month.
If gasoline went up to $10 per gallon then it's just a couple of fill ups.
So how much stuff costs influences how much our money will buy. Working as long as you can, paying off housing and vehicles and getting rid of credit cards/bills is the best way to go.
Then when everything is paid off you look at what is going on financially with your family. College for kids? If they've graduated that bill is gone. If they still have to go then you have to save for that or tell them to work for scholarships. You do have to do some planning but work on getting those large bills taken care of first. Housing, vehicles, educations, etc....then start with other stuff.
We live paycheck to paycheck. I guess we kind of do Dave Ramsey, because we don't buy anything on credit- if we can't buy it flat out, we save up until we can.
I DID just complete several business and personal finance classes, so I am fairly confident in what I WANT to do with my money if I ever get enough to invest. I think it's great to have emergency funds, but hey, if you aren't using it, you aight as well let it make you more. If you invest right, it's still accessible; so not too risky at all. (Depending in the investment type.)
Well, huge amounts in savings. Sitting there. It's safe. College will get paid for.
I hate to risk losing it. I just feel like it's way more than what most could hope to make so if we've saved it, be happy and keep it safe for when we need it. I am not aggressive with feeling a need to invest.
My goal each day is to maybe get a shower. :)
We will never move. We bought a house to keep for the rest of our lives.
I'm in the live-check-to-check camp. There just isn't enough money to invest or save. I'm a single mom. Now, the reason that's important is because my sister just graduated with a Master's. I'm still working on mine, but, you know, money. Anyway, she and her husband have been living off of just his income for the last couple years. Since they'd been able to make it work, they decided that when she gets a job again (hopefully in a field that will let her use her Master's), her income will be used to pay on the student loans they have. Both of their loans can be paid off within about 3 years. When it comes to finances, that's really the only time I wish I was at least living with someone. Otherwise, I love being single. My sister and brother-in-law are in the conservative camp. They save, have IRA Roths, etc. That would be the camp I'd be in, ideally.
We live in an area where an 800-square foot, falling-down shack is half a million dollars or more. Paying cash upfront for a house will never happen for us, as much as we would like to dream of the day when it could. We have actually chosen to invest our nest egg in our business. That's about as risky as it gets - but like you said, the bigger the risk, the bigger the potential reward. So far, our risk is paying off and providing a comfortable living for us.
I approach my finances with great care and very quietly. If you pounce on them and miss, they will run away, leaving you to chase after them, rarely catching them. So, sneak up and just when they aren't looking, grab them, hold them down and give them a fair amount of money, being sure to save some back in case they grow larger and attack! :D
Sorry, couldn't resist. It's late and I'm rummy-dummy.
L.
For the next two years, I will be living pay check to pay check. I'm okay with that as I have a professional goal to gain a new position that will put me in a better place the 4 last years of my working life before retirement at age 62.
This year, I made good money, but emergencies took it and even my savings.
However, I am more into living in the here and now than in the future. I had many health scares this year. I'm living life as if I could die tomorrow.
Nevertheless, I know why folk are angry at you for asking this question. It makes us feel scared that we are not financially ready. They really are taking their fear out on you. Overlook it. You have a right to ask this or any other question.
I don't find Dave Ramsey's principles to be applicable to our situation. We utilize leverage when it makes sense to. Debt can be good--if my husband and I hadn't taken on debt to finance our education our lives would be very different, and not in a good way.
