3 ms·

He tells you if you have any car loan to not contribute to your retirement account until your car loan is paid off, even if your company matches 100%. Insane.

by cma 5y ago

He tells you if you have any car loan to not contribute to your retirement account until your car loan is paid off, even if your company matches 100%. Insane. You could contribute, get the match, and then take the penalty the next year (or whenever is optimal based on match limit etc., withdrawal requirements, etc.) and dump it into the car loan at that point and still come out far ahead. (edit: replaced mortgage with car loan, as he excludes mortgages from the advice as pointed out below)

xupybd 5y ago
Ah no he doesn't, here are the steps from his website. Baby Step 1: Save $1,000 for your starter emergency fund. Baby Step 2: Pay off all debt (except the house) using the debt snowball. Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund. When you’re working through the first three steps, you simply do them in order. However, people often have questions about Baby Steps 4 through 6. Here’s a quick definition of them: Baby Step 4: Invest 15% of your household income in retirement. Baby Step 5: Save for your children’s college fund. Baby Step 6: Pay off your home early.
DavidPeiffer 5y ago
>He tells you if you have any mortgage to not contribute to your retirement account until your mortgage is paid off, even if your company matches 100%. That is entirely incorrect. [1] Baby step #4 is to invest 15% of your household income for retirement. Baby step #6 is to pay off your home early. He does tell you to temporarily stop investing so you can pay more towards you debt. This is sub-optimal. His goal is to get you entirely focused on one thing at a time and go after it with everything you have. [1] https://www.ramseysolutions.com/dave-ramsey-7-baby-steps https://www.ramseysolutions.com/dave-ramsey-7-baby-steps
- cma 5y ago
  Ok, I forgot he excludes mortgage and chose that as an example as the longest term, lowest interest debt with least depreciation. It's still worth going into almost any other debt to get a large match, often even expensive credit card debt (you may have to skip matching some years when you take a net withdrawal to keep it optimal). Paying off an existing car loan before taking a 100% matching contribution is almost always crazy.
  - xupybd 5y ago
    It is if you have no emotions involved. The people he is trying to help are the kind that struggle to avoid debt due to lack of self control. His method is about creating emotional feedback that keeps people going.
  - DavidPeiffer 5y ago
    I agree the method he presents isn't mathematically optimal. We're also on a forum with many engineers and highly analytical people, which isn't his target audience. To use one of his quotes, "if you cared about being mathematically optimal, you wouldn't be in this mess to begin with!" His target audience is people who are living paycheck to paycheck, routinely taking loans to support a lifestyle they can't afford, and don't see how their spending habits are death by a thousand papercuts to their aspiration of being financially stable. To be clear, I'm not a Dave Ramsey worshiper. I strongly disagree with some of his workplace policies and hope he gets taken to the cleaners with some of the lawsuits currently going through the system. I have listened to his show many times, but don't follow all his advice. I'm not paying my superbly low interest rate mortgage down faster than required. I can't think of anyone responsible for getting more consumer debt eliminated than Dave Ramsey, and that should be commended. The vast majority of people would be far better off following his plan than continuing on their current trajectory. He recently declared war on the time share industry, and I hope he makes waves by throwing his resources behind it. https://youtu.be/o6VNi5hJpiU https://youtu.be/o6VNi5hJpiU
  - mgkimsal 5y ago
    That whole "get the match from an employer at all costs!" is, imo, silly in its own right for many many many folks. I did that at one point for a bit, then... realized later that if you're fired or quit... that money isn't really there anyway. Most of the time (ime), there's a multi-year vesting schedule, and you don't have control over how long you'll be at a company. IF you're already getting the full value, perhaps, but I've never worked anywhere long enough to get that. I got $x 'matching', but only 25% of that was vested in the first 20 months (after 2 years, it would have been 50% IIRC) but... only that 25% was available to 'rollover' when I left the company.
ryathal 5y ago
He tells you to do this in the extreme short term. The goal is 18-24 months to pay off debt, not 50-10 years. Ultimately this isn't a huge some of money even if you run it out 30 years. The point is getting out of debt and not going back, on average people don't have the discipline to make the most mathematically optimal moves. The individual isn't winning 9 times out of 10 when they try to leverage debt, most don't have access to things that can actually get a return on the risk of debt.
- cma 5y ago
  You won't pay off massive low interest student loan debt that quickly, and it is usually a big mistake to give up a free matching contribution just to pay off a little bit more of your student loan.

by cma 5y ago

xupybd 5y ago

Ah no he doesn't, here are the steps from his website. Baby Step 1: Save $1,000 for your starter emergency fund. Baby Step 2: Pay off all debt (except the house) using the debt snowball. Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund. When you’re working through the first three steps, you simply do them in order. However, people often have questions about Baby Steps 4 through 6. Here’s a quick definition of them: Baby Step 4: Invest 15% of your household income in retirement. Baby Step 5: Save for your children’s college fund. Baby Step 6: Pay off your home early.

DavidPeiffer 5y ago

>He tells you if you have any mortgage to not contribute to your retirement account until your mortgage is paid off, even if your company matches 100%. That is entirely incorrect. [1] Baby step #4 is to invest 15% of your household income for retirement. Baby step #6 is to pay off your home early. He does tell you to temporarily stop investing so you can pay more towards you debt. This is sub-optimal. His goal is to get you entirely focused on one thing at a time and go after it with everything you have. [1] https://www.ramseysolutions.com/dave-ramsey-7-baby-steps https://www.ramseysolutions.com/dave-ramsey-7-baby-steps

cma 5y ago
Ok, I forgot he excludes mortgage and chose that as an example as the longest term, lowest interest debt with least depreciation. It's still worth going into almost any other debt to get a large match, often even expensive credit card debt (you may have to skip matching some years when you take a net withdrawal to keep it optimal). Paying off an existing car loan before taking a 100% matching contribution is almost always crazy.
- xupybd 5y ago
  It is if you have no emotions involved. The people he is trying to help are the kind that struggle to avoid debt due to lack of self control. His method is about creating emotional feedback that keeps people going.
- DavidPeiffer 5y ago
  I agree the method he presents isn't mathematically optimal. We're also on a forum with many engineers and highly analytical people, which isn't his target audience. To use one of his quotes, "if you cared about being mathematically optimal, you wouldn't be in this mess to begin with!" His target audience is people who are living paycheck to paycheck, routinely taking loans to support a lifestyle they can't afford, and don't see how their spending habits are death by a thousand papercuts to their aspiration of being financially stable. To be clear, I'm not a Dave Ramsey worshiper. I strongly disagree with some of his workplace policies and hope he gets taken to the cleaners with some of the lawsuits currently going through the system. I have listened to his show many times, but don't follow all his advice. I'm not paying my superbly low interest rate mortgage down faster than required. I can't think of anyone responsible for getting more consumer debt eliminated than Dave Ramsey, and that should be commended. The vast majority of people would be far better off following his plan than continuing on their current trajectory. He recently declared war on the time share industry, and I hope he makes waves by throwing his resources behind it. https://youtu.be/o6VNi5hJpiU https://youtu.be/o6VNi5hJpiU
- mgkimsal 5y ago
  That whole "get the match from an employer at all costs!" is, imo, silly in its own right for many many many folks. I did that at one point for a bit, then... realized later that if you're fired or quit... that money isn't really there anyway. Most of the time (ime), there's a multi-year vesting schedule, and you don't have control over how long you'll be at a company. IF you're already getting the full value, perhaps, but I've never worked anywhere long enough to get that. I got $x 'matching', but only 25% of that was vested in the first 20 months (after 2 years, it would have been 50% IIRC) but... only that 25% was available to 'rollover' when I left the company.

ryathal 5y ago

He tells you to do this in the extreme short term. The goal is 18-24 months to pay off debt, not 50-10 years. Ultimately this isn't a huge some of money even if you run it out 30 years. The point is getting out of debt and not going back, on average people don't have the discipline to make the most mathematically optimal moves. The individual isn't winning 9 times out of 10 when they try to leverage debt, most don't have access to things that can actually get a return on the risk of debt.

cma 5y ago
You won't pay off massive low interest student loan debt that quickly, and it is usually a big mistake to give up a free matching contribution just to pay off a little bit more of your student loan.