Financial Advice Needed

Let's say you're making $40,126 to $85,525 a year. That's the 22% tax bracket. That means you'll pay about $8,000 to $16,000 in taxes across that earnings.
If you invest in a 401K and you put in an easy number like 10% that comes off the top of those earnings. So if you were earning $80K and put in 10% that comes out PRE-TAX. So you're investing $8,000 and THEN your taxable income is 22% so you're paying less taxes, $17,600-$15,840, or $1,760 less in taxes on that $8000. That's an instant return of 22% BEFORE you've invested. Now that money starts earning for you in your 401K (or IRA or whatever) and you get a conservative 6%...You're now at an effective 28% return Tax Free on that $8000.
OR
you can pay a loan that's charging you 2.49%...
Because of inflation, and your VERY low interest rate, you're truck is almost interest free. If your income is solid and you're able to make your payments regularly, save for retirement first. The kind of debt Dave Ramsey is talking about is high interest credit card debt that is usually...22%-26% which would be inversely as damaging to your finances as the retirement fund is rewarding.
His approach to cars is to buy a beater...save the cash and pay cash. The only reason you do this is to avoid the interest payment on the car loan, but again 2.49% is nothing. On a 5 year loan for $30K you're paying a less than $2000 on interest over 60 payments. $33.33 a month.

 

IMO if you are dependent on the stimulus check to pay off your truck, and can't pay it off without literally emptying your savings and stopping your retirement investments, you should not have bought a 2020 in the first place. My financial advice is to sell the truck and pick up a 2012.

 

Going for the throat. I appreciate it.

 

It depends on the interest rate on the truck. I'm in a position where I could have paid cash for the last several vehicles I own, but chose to finance them when offered interest rates from 0% to 2%. The money I have invested is earning a LOT more than that and I felt it foolish to pull money out and use it to pay for a vehicle. I've chosen to pay just enough down to make sure I'm never upside down on value and get the loan for a long period of time to get payments low. Most months I pay considerably more than the minimum payment, but during months where I have additional expenses will pay the minimum. I usually pay them off 1-2 years early and the amount of interest actually paid isn't all that much.

Dave Ramsey has good advice for people who have F'ed up and need to get out of debt. But his advice isn't necessarily good for people who want to get ahead.

 

Couldn't agree more with this. Thanks for the advice. I am not in a position like the callers on his program. Those people don't know which direction to go in the slightest.

 

This is the best advice I've heard so far. It all makes sense. I guess there is just this nagging thought in the back of my head of getting out of debt early. It's probably a pride thing: to be able to say that my truck is paid off. But what would be even better is to say how much I've been saving for retirement. Seems there is a pretty good consensus around here. Thanks guys!

 

OP you've gotten great advice so far.

Another thing you need to do is define your emergency fund. Earlier you mentioned using your wealth redistribution stimulus check for the e fund. Is that sufficient to carry you for a few months of living expenses in case you lost your job? Some decent reading here: https://www.bogleheads.org/wiki/Emergency_fund . I don't necessarily follow that philosophy, but it has some good points.

Also, you may want to temper your DR approach and use other approaches to put that in perspective. https://www.bogleheads.org/ Has a decent forum and wiki. https://www.early-retirement.org/forums/ is worth the browse. Same with https://forum.mrmoneymustache.com/

 

As someone who is almost 50 (April !) and have been debt free for... since 2001 (ok, our house is only 60% paid for), I would advise the following:
1) begin your 401K up to the match from your employer; and
2) pay off your highest interest rate debt ASAP; then
3) do mods to the Taco - I am telling you, mods feel so much better when you know you can afford them. Paying interest on a vehicle loan is not "affording" mods and play stuff.

Being debt free will literally set your mind free and as someone in the healthcare field, stress is very debilitating and causes a plethora of "unseen" trauma and disease.

This is ALL just my own opinion. Good luck to you and the fact that you asked for some advice shows maturity (however old you are) and intelligence.

 

THIS.
I took a 5 year at 1.99 because I could invest the savings.

 

That’s a decision you have to make yourself. All I know is that I’m debt free, house, cars, zero cc debt and don’t believe in debt. When debt free the feeling of complete financial freedom and safety frees you up to a invest at will knowing as the markets move up and down you’ll be fine because everything you have is yours. Ie. If I had lost my job during this Covid bullshit, no worries of losing the house, cars or anything. That feeling for me far out ways not investing for 3-6 months. But that’s me. Debt doesn’t bother some and those folks may have debt and payments till that die and may have to work their entire lives making payments. I prefer to be debt free and do what I want when I want. Just a different mind set that’s all. And believe me it’s not for everyone.

 

As a Dave Ramsey devotee you should not have purchased a new vehicle until you have a million dollars. You are picking and choosing and taking financial guidance out of context.

 

It all depends on how you mentally deal with debt/owing people money. I tried a 1.49% loan once through USAA (I thought, wow, free money!!). So I financed the whole car and pocketed the $60k to invest and "make money".

After 6 months, I could not handle it and paid off the car. Owing people money just stresses me out.

 

I am not gonna say your wrong, but even Dave ramsey knows about compounding interest

 

You can do both, just get a side gig until the truck's paid off.

 

No disrespect, honestly. I've never owned a new truck for this very reason! I'd rather save for the future (and also be able to have fun, do mods, break stuff, etc) and not worry about my financial security. To each his own though - and definitely no disrespect intended.

 

I’m also a huge DR follower! I’d say stick to his plan and get all your debt paid off! The whole point of his plan is to pay the debt off extremely fast! That way you can move on to the wealth building. So you really won’t lose much ground if you can pay everything off that quick.

A few things ppl haven’t brought up is the risk associated with debt! A lot of ppl lost their “stable” jobs due to Covid and would be in a dif situation if they were debt free and had a full 6 month emergency fund!

another problem with debt is the opportunity cost of having those payments. Without debt payments, you can use that extra cash flow for other uses/goals (investing, saving for future big purchases, paying the house off etc)

I’ve been doing the DR plan for over 10 years now and can tell you it works if you just stick to it! I’m 34 now and will have the house paid off in just a couple years! And the amount of investing and giving we can do right now is amazing to me! 10 years ago I never thought we’d be where we are!

 

Why pay down debt on something with such low interest, when you could invest the money and earn at a higher rate? Might make sense in the short term to eliminate debt, but not all debt is bad debt. Seems like an overly simple way of looking at finances - and one that does not net you the most return in the long (or even medium) term.

 

I would agree. What kind of return are you normally getting on your retirement fund? If you're averaging 8% returns, and paying under 3% on your loan, you're losing money in an effort to save money. Especially right now when the stock market is going crazy.

 

Dave Ramsey is a lot like Alcoholics Anonymous (AA). Will one drink hurt? It depend on who you are. A lot of the people who “need” DR have a hard time budgeting money and making critical financial decisions. So his 7 steps are a KISS (Keep It Simple Stupid), list.

Financial decisions all depend on the individuals situation. For example: yes, there are people who make big money buying on margin. For the majority, its not a recommended strategy.

 

You made what is probably the most important point when it comes to personal finances. Everybody's different. Their situations and priorities are all different. I don't have kids. I could blow all my money and have to eat plain oatmeal for a month. Other people have more to worry about.