The official Dave Ramsey thread

[conraddobler]

Conrad - it sounds like you're stuck on the saving part and are ignoring the spending part.

Since we've become debt-free except our house we have been able to spend more freely than when we were saddled with credit card debt.

We follow Dave so we spend cash when we spend. Cash vacations, cash holiday shopping, cash Cardinals' season tickets, etc.

Once we pay off our house we'll have a drastic change in our income and have much more to save/spend/invest/use to help others.

The period of frugality like you've referenced - as Dave would say, total gazelle-intensity to get debt free: no extra spending, debt snowball, etc. - is different depending on each person's level of debt. I don't remember exactly but for us it was somewhere between 2.5 and 3 years. Wasn't too hard for us because we were coupon-using thrift-store-shopping people already.

So, what I'm saying is, if everyone did things Dave's way they would eventually have much more to spend than they do now. Some sooner than others. Tons of variables.

You are probably right, but it is lost on me. Guess I was always better at microeconomics than macroeconomics.

It's a pretty fun paradox.

It comes from assuming your individual actions have no effect on the economy at large and in realilty they largely don't.

Enough someone's do what you're talking about and you start to starve your own selves, the money you're not spending was someone else's snowball money, they can't snowball, ie they just got laid off.

That's how that works on a grand scale, but Matt is right, highly unlikely to ever happen, except in depressions when it happens against peoples will for the most part.

 

[Gaddabout]

Exactly.

It really would probably happen at much less than half the people, a good percentage would be enough to kickoff a reasonably bad depression and honestly, that's pretty much what some theorize is going on right now, by force.

Interestingly enough, he's right though, most depressions when allowed to burn fircely will burn out in a couple to three years max, because the debt is defaulted on and cleansed if not paid down.

What stretched Japan into an infinity situaiton is that they refuse to allow the defaults, they just sit on the bad debt, ala what we're doing right now.

I don't know what it is, but I know there's a magic ratio every health free-market economy needs spenders:savers. I think It's about 2.5:1, but I can't verify it. Last I heard, and this was when I was in college in the early 90s, is America averaged about 4.5:1 between 1950 and 1990, but it was expected to drop because GenX was supposed to be the saving generation. I suspect that never happened thanks to cheap money between 1990 and 2010. If anything, I think it increased.

So while I understand a macroeconomic concern for people becoming miserly in this current economic climate, as a general rule, we've always needed more savers in the U.S.

 

[conraddobler]

I don't know what it is, but I know there's a magic ratio every health free-market economy needs spenders:savers. I think It's about 2.5:1, but I can't verify it. Last I heard, and this was when I was in college in the early 90s, is America averaged about 4.5:1 between 1950 and 1990, but it was expected to drop because GenX was supposed to be the saving generation. I suspect that never happened thanks to cheap money between 1990 and 2010. If anything, I think it increased.

So while I understand a macroeconomic concern for people becoming miserly in this current economic climate, as a general rule, we've always needed more savers in the U.S.

We needed savers before they effectively lowered the reserve ratios to zero.

http://en.wikipedia.org/wiki/Reserve_requirement

A cash reserve ratio (or CRR) is the percentage of bank reserves to deposits and notes. The cash reserve ratio is also known as the cash asset ratio or liquidity ratio. In the United States, the Board of Governors of the Federal Reserve System requires zero percent (0%) fractional reserves from depository institutions having net transactions accounts of up to $10.7 million.[1] Depository institutions having over $10.7 million, and up to $55.2 million in net transaction accounts must have fractional reserves totaling three percent (3%) of that amount.[1] Finally, depository institutions having over $55.2 million in net transaction accounts must have fractional reserves totaling ten percent (10%) of that amount.[1] However, under current policy, these numbers do not apply to time deposits from domestic corporations, or deposits from foreign corporations or governments, called "nonpersonal time deposits" and "eurocurrency liabilities," respectively. For these account classes, the fractional reserve requirement is zero percent (0%) regardless of net account value.[1]

It's a long drawn out explanation but effectively our reserve ratio is very very low and at these levels the amount of tinkering you can do with the system is nearly infinite.

This is why IMO we can be relatively hostile to savers in terms of the rates paid on time deposits.

This is a Dave Ramsey thread and if you want to tie all this back to Dave, he IMO represents the return of common sense.

It's not like he invented the wheel here, I mean it's been pretty fundamental since cave man days that if you're consuming two goats a day and killing only one, you're in deep doo doo or will be soon.

Also if you promise to pay a guy a goat and a half tomorrow, for one today, it also follows that you're going to stick yourself even farther behind in the goat procurement area and the amount of goat you get to keep is going to decline over time if that trend does not reverse itself.

So you can either eat less goat or kill more goat or a combination of both.

What the caveman did not have to deal with is a goat cartel that controls the supply of goats.

That's a new wrinkle we've invented.

 

[Gaddabout]

That's just fiscal insanity and all the more reason to slay personal debt and horde cash/gold whatever.

 

[Brian in Mesa]

As of March 2, 2006....

FREEEEEEEEEEEEEEEEEEDOOOOOOOOOOOOOOM !!

Wife and I went out and had a celebratory meal last night. 7 years being debt free except for the mortgage. Closer to 9 or 10 years with no credit cards at all since we shredded those early on in the process.

 

[Folster]

Wife and I went out and had a celebratory meal last night. 7 years being debt free except for the mortgage. Closer to 9 or 10 years with no credit cards at all since we shredded those early on in the process.

congrats.

 

[Gaddabout]

Wife and I went out and had a celebratory meal last night. 7 years being debt free except for the mortgage. Closer to 9 or 10 years with no credit cards at all since we shredded those early on in the process.

Outstanding, my good friend.

 

[Brian in Mesa]

The New American Dream: It's Not What You Think

http://m.yahoo.com/w/legobpengine/finance/news/american-dream-not-think-173054394.html

A great number of Americans are redefining the American Dream. That was the takeaway from a recent Credit.com poll, which showed that nearly one in four people between the ages of 18 and 24 defined the American Dream as being debt-free. Shockingly, that’s more than those who dream of owning a home.

 

[BigRedRage]

Wife and I went out and had a celebratory meal last night. 7 years being debt free except for the mortgage. Closer to 9 or 10 years with no credit cards at all since we shredded those early on in the process.

The New American Dream: It's Not What You Think

http://m.yahoo.com/w/legobpengine/finance/news/american-dream-not-think-173054394.html

A great number of Americans are redefining the American Dream. That was the takeaway from a recent Credit.com poll, which showed that nearly one in four people between the ages of 18 and 24 defined the American Dream as being debt-free. Shockingly, that’s more than those who dream of owning a home.

Good job Brian, I have been doing debt relief for a living for over three years. Congrats on being able to do it on your own - most of my people are already past that point and have no other option.

I personally have a few credit cards but I never go over 20-30% of my limit and its mostly stuff like my lowes card where I can buy a fridge and apply 200 a month to it on 0% interest instead of putting a thousand down up front. Beyond that I am scared to death of the things.

We bought our house in March and I am currently focused on paying off our trucks and then refinancing th ehouse down as low as I can get it but continuing to pay what I do now so that I do not get milked over 30 or even 20 years.

It is difficult when creditors are offering you 10k credit cards left and right with 0% interest but I am going to ignore them and stay on this path. Once both trucks are paid off I will have another $500 a month in my life after just switching to ecigarettes and saving at least 300 a month thanks to that. Things keep on moving up!!!

Our biggest problem is frivelous spending - I had fast food twice last week, 1 resteraunt and 1 bar night ($70!!!)

I dont know what to do with that, you gotta have fun right? Bar night, going out to eat, riding quads, fixing trucks, every hobby I have costs a ton of dough except playing xbox and watching football and my wifve doesnt like either one of those.

 

[thirty-two]

The New American Dream: It's Not What You Think

http://m.yahoo.com/w/legobpengine/finance/news/american-dream-not-think-173054394.html

A great number of Americans are redefining the American Dream. That was the takeaway from a recent Credit.com poll, which showed that nearly one in four people between the ages of 18 and 24 defined the American Dream as being debt-free. Shockingly, that’s more than those who dream of owning a home.

It's definitely my American dream as well. I cannot wait for the day when I no longer have credit card or student loan debt.

Paid off another 15k this past year. Dave Ramsey (and my hard work, determination and sacrifice) completely changed the trajectory of my life. Having almost 70k in debt at age 24 is an incredibly daunting existence. My 29 year old self is so thankful for my decision to stop the madness.

If anyone is thinking about starting their Total Money Makeover or is interested in reading the book, I'll be happy to mail you a copy. Or borrow it via kindle. This book changed my life.

 

[Brian in Mesa]

Great job, Kate !! Keep it rolling !!

 

[Gaddabout]

My dream ...

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[dreamcastrocks]

My dream ...

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+1

 

[coyoteshockeyfan]

It's definitely my American dream as well. I cannot wait for the day when I no longer have credit card or student loan debt.

Paid off another 15k this past year. Dave Ramsey (and my hard work, determination and sacrifice) completely changed the trajectory of my life. Having almost 70k in debt at age 24 is an incredibly daunting existence. My 29 year old self is so thankful for my decision to stop the madness.

If anyone is thinking about starting their Total Money Makeover or is interested in reading the book, I'll be happy to mail you a copy. Or borrow it via kindle. This book changed my life.

Wow, that's incredible. Great job Kate!

 

[Superbone]

I'm a big Ramsey fan. I listen to his podcast every day. However, I don't do everything he says. For example, now that I'm debt free except for my house, I use credit cards for all my purchases. I'm trying to earn back all the interest I paid over the years through cash back rewards. The secret is to already have the money in the bank before purchasing anything on a credit card and to always pay the balance in full. In fact, I always pay mine as soon as the statement is ready. That way I only have one month's worth of expenses on them at a time.

The first thing you have to do is get your spending under control. You have to spend less than you make each month. To do that you have use the dreaded 'B' word, a budget. But it's really not so scary. I prefer to call it a spending plan. Back when I was in debt, I discovered a software program called YNAB which is an acronym for You Need A Budget. This software has literally saved my financial life. It is the best budgeting software money can buy in my opinion. Quicken lets you look at your spending after the fact while YNAB plans how you want to spend your money as soon as you receive it and before you spend any of it. Anyway, as you can tell, I am a YNAB fanatic. I should probably start a thread about it.

Back to Dave, I do the Ramsey baby steps too. I'm currently saving up my 3-6 month emergency fund. I also plan to never take out a car loan again. From here on out I'm saving up for a nice one or two year old car that I can pay cash for.