How many of you are debt free? (Dave Ramsey stuff)

[vvvvvvv]

I think the elections should be held on April 15th so you can turn in your tax return as you vote at your polling station.

And... eliminate employer withholding. Require taxes to be paid on April 15th, period. No withholding, no quarterlies.

 

[FullAuto]

I'm not coming up with the same numbers on C. What's the initial investment to get to the $751k?

In scenario B & C, he's making a $2976.80 monthly payment to the house/portfolio. Can he afford that? If so...

I'd put $150k down and finance $150k. The payment would be $1063.14. I'll put the additional $1913.66 in for the full $2976.80 monthly payment I can comfortably afford. It will be paid off in 54 payments for a total of $311,982.16.

Then I'll refinance 80% ($240k) for 10 years. The payment will be $2359.23. I'll put the $240k I just cashed out as the initial investment and add the leftover $617.57 per month to the portfolio. After 10 years the house will be paid off (again) for $283,107.97 on the $240k loan. That's $43,107.97 in interest the second time for a total of $55,090.13 in interest between the two loans.

I'll have $752,418.89 in my portfolio still 6 months short of the 15 year deadline. I'll raise my contribution to the full $2976.80 for the remaining 6 months. Since I can't find a calculator to run 6 months, with the additional $17860.80 and interest, it would end up just over $800k portfolio and ~$750k "ahead".

For the first 54 months, I'll have the smallest version of payment, $1063.14. For the remaining 10.5 years, I'll have the ability to pay it off anytime I need.

 

[vvvvvvv]

i'm not coming up with the same numbers on c. What's the initial investment to get to the $751k?

$60k.

And your example shows how refinancing can be used as a tool to build wealth.

Debt is a tool that can be used... but if it's used it must be used wisely.

 

[CHenry]

When the outgoing interest is significantly less than the incoming interest or returns, and especially when the outgoing interest is less than inflation.

Let's take a current mortgage rate for someone with excellent credit of 3.375%. Perhaps this person wants to buy a $300K home, and he has $150K he can put down toward it on a 15 year note. To get that rate of 3.375%, the bank wants at least 30% down.

A) If he puts down $90K, finances $210K, and invest the remaining $60K in a reasonable mutual fund returning 10% on average YOY. His monthly payment will be $1488.40, and at then end of 15 years he will have paid $357,911 for his house. If he invested the $60K and left it there, he'd earn $143,985 over those 15 years for a total portfolio valuation of $203,985. He'd be ahead $86,074 at the end of those 15 years.

B) Under the same scenario, let's say he doubles his monthly payment to pay off early. in 7 years, he'd have paid $324,406 for his house. Assuming he just left his investment sitting, he'd have $106,209 having earned $46,209 in returns. He'd be $21,803 ahead at that point.

C) Instead of doubling his monthly payment, he puts the double (1488.40 per month) into his investment account. After 15 years, his portfolio would be worth $751,103, meaning he comes out $693,192 ahead at the end of 15 years. In year 8, his portfolio will exceed the value of his house. By year 4, his portfolio will exceed the amount left on his mortgage.

D) If he doubles his monthly payment to pay off early and pays off in 7 years, and then takes the total double mortgage payment and adds it to his investment account for the remaining 8 years, his portfolio will be worth $535,014, meaning he comes out ahead $510,608 at the end of 15 years. In year 12, his portfolio would finally exceed the value of his house.

Effectively, while he did have the $60K to make an additional down payment, he opted to invest borrow the $60K at 3.375% interest and invest instead.

Now, what if he makes a $150K down payment on his house, thus not borrowing $60K at 3.375% interest to invest?

E) He puts down $150K, finances $150K, and invests nothing. His monthly payment is $1063.14. At the end of 15 years, he will have paid $341,365 for his house.

F) He knew he could afford the payment at $90K down, but opted to use the additional $60K in the downpayment and invest the difference in the payment. His portfolio would be worth $156,223 at the end of 15 years, meaning he comes out $114,858 ahead. It takes until Year 9 for the portfolio to exceed the remainder on the mortgage.

G) He doubles the $1063.14 monthly payment to pay off early. In 7 years, he will have paid $317,433 for his house. If he takes that double payment and invests it for the remaining 8 years, his portfolio will be worth $299,798, meaning after the 15 years he comes out $282,365 ahead.

H) Instead of doubling his monthly payment, he invests the double. After 15 years, his portfolio will be worth $390,742, meaning he comes out $349,377 ahead. It will take until Year 6 for his portfolio to be worth more than the amount left on his mortgage.

Which scenario makes the most financial sense?

What about I)
Choose any of these scenarios and then add: after the first few years of getting the mortgage and investing whatever, said guy is hit buy a drunk driver and has permanent disabilities that no longer allow him to do his job earning 6 figures. He misses 3 mortgage payments because he has spent his investments paying his part of the medical bills after his obama care paid its part. His house is foreclosed on because the bank owns it, not him an he's broke and crippled. Now he's homeless and still trying to wade through the paperwork to get on disability. Had he paid his house off early this risk of being homeless overnight would never exist.

Sent from outer space or somewhere from my mobile device

 

[Rod Snell]

Debt is a tool that can be used... but if it's used it must be used wisely.

Amen. And with great discipline, planning, and foresight.
Unfortunately, that seems to be the exception to the bulk of the consumer debt: most is just overspending with no thought as to how/when it will be paid.
I am advising heirs who thought parent was rich, but had blown through 3 million and did not even have equity in home, with $100K annual retirement income.
Also met a couple 20yrs ago whose net worth was the negative of mine, due to HUGE loans on a deal I considered WAY too risky to join: now totally bankrupt and living off their kids at age 60.

An interesting book is "The Millionaire Next Door."

 

[farmerbyron]

What about I)
Choose any of these scenarios and then add: after the first few years of getting the mortgage and investing whatever, said guy is hit buy a drunk driver and has permanent disabilities that no longer allow him to do his job earning 6 figures. He misses 3 mortgage payments because he has spent his investments paying his part of the medical bills after his obama care paid its part. His house is foreclosed on because the bank owns it, not him an he's broke and crippled. Now he's homeless and still trying to wade through the paperwork to get on disability. Had he paid his house off early this risk of being homeless overnight would never exist.

Sent from outer space or somewhere from my mobile device

Damn Clay, you are one pessimistic SOB. In the given scenario he might have his house paid off but less $$ to deal with the medical issues forcing a refinance of his home anyways.

Sometimes **** happens, bad ****. All you can do is mitigate your risk while leaving your opportunities open. There is no sense in cutting yourself out of significant wealth building opportunities because of what "might" happen. Now I may die today but I have made damn sure my family is taken care of financially through life insurance. Or I may get hurt where I can no longer work physically but I've got enough net worth at this point that I could retool my skills to switch up my path.

 

[CHenry]

Damn Clay, you are one pessimistic SOB. In the given scenario he might have his house paid off but less $$ to deal with the medical issues forcing a refinance of his home anyways.

Sometimes **** happens, bad ****. All you can do is mitigate your risk while leaving your opportunities open. There is no sense in cutting yourself out of significant wealth building opportunities because of what "might" happen. Now I may die today but I have made damn sure my family is taken care of financially through life insurance. Or I may get hurt where I can no longer work physically but I've got enough net worth at this point that I could retool my skills to switch up my path.

I'm no pessimist...I Dont think. I was being quite animated with that scenario but bad **** happens like this all the time. The vast number of ways it can happen to anyone is simply a reality. Net worth is calculated with debt as a negative. So to get rid of debt is directly building wealth without any risk of investment failure.
If I owe a million, I'm probably not worth a thing with my other assets but when I pay off that million, I am worth over a million.

Sent from outer space or somewhere from my mobile device

 

[turkeyrun]

Yep, totally free. Listened to Dave 8 -10 yrs ago, not much need now, he's still saying the same thing over and over, but it works; not that I needed his plan back then, just enjoyed listening.

Got oldest son to listen and he followed the plan. They had a 'happening' with the washer and just cleaned up themes and went and bought another. He told me, "it sure was nice knowing he had the incident covered and under control instead of worrying how the laundry would get done or how he was going to make the payment." And yes, that would be a worry with 7 kids, the washer never stops running.

Daughter is working the plan, only a mortgage with a 5 yr plan to pay it off.

2nd son, in debt to his eyeballs, D-I-L thinks gotta have it now and it's ONLY $xxx a month.

 

[Jestik]

Geeze people get offended....perhaps that is why my Mom always told me never to talk about money/sex/politics in public conversation.

It is ok to like Dave Ramsey, it is ok NOT to like Dave Ramsey. It is ok to be debt-free, it is ok to be in debt.

All that said, I would like to find a way to pay my student loans off sooner. I am not even really sure how much I owe all together to pay it off right now...probably around $13,500 if I had to guess.

 

[CHenry]

Who got offended? This is good stuff and I Dont worship dave, in fact I only learned who he was about 2 years ago after I was well on my way to gaining wealth by removing debt.

Sent from outer space or somewhere from my mobile device