Financial Advice Needed

Ramsey's advice is for people who have no self control and are in a really bad situation. Given you have retirement and savings and got a good interest rate on your truck, you aren't in that situation. Using all your savings and halting retirement contributions to pay off a low interest debt would not be advisable. The only way that may make sense is if you have credit cards at a high rate whose balances are growing faster than your savings and retirement.

For example, Ramsey says you shouldn't have credit cards and shouldn't use them for any reason. The real answer to that is credit cards are a fantastic tool as long as you pay them off in full every month so you don't end up paying interest (I end up with around $700 per year in rewards just for using them to pay for stuff I'd be buying anyway). That is too complex for overwhelmed people who just need to get unburied and lack self control, though.

 

To preface anything I say, my background is finance, and I currently work in accounting. That doesn't make my opinion anything special; I just work in it. *shrugs*.

Dave Ramsey has some good points - just don't become one of the minions in his fb comment section. Obviously, it'd be nice to pay the truck off and have no debt. If that comes at the cost of not being able to buy a refrigerator when yours goes out because you parted with all your cash, that probably isn't worth it. While you do pay interest with the truck payment, remember that you're in the minority of Dave Ramsey listeners in that you're purchasing a vehicle that holds its value very well. Lots of FPU people purchase throw-away cars that actually do depreciate quickly. Tacomas buck the norm as far as holding value. That doesn't help you unless you sell it, BUT they are reliable and should be able to get 250k miles if taken care of.

Retirement-wise: the earlier you invest, the better. The later you wait in your life to invest, the more cash YOU will have to put in to get to your target retirement number. Just play around with some different factors in a simple retirement calculator, and you'd see what I mean. Starting to save for retirement at 20 is WAY different than starting to save when you're 30, for example.

Dumping the payment is a good goal. If you have extra cash, knock it down with extra principal payments if you can. Just don't end up in a pickle without a freezer or AC unit because there's no cash since it's tied up in paying off a truck early.

Season everything Dave Ramsey says with this: his plan to financial success is one-size-fits-all. It doesn't tailor to everyone's personal situation. Sometimes that's fine, but it may not be the best.

YMMV. Just my $0.02, which may not even be worth that much.

 

I'm really enjoying reading the pro-Dave Ramsey/anti-Dave Ramsey on here. Always a great read.
I've asked this same question to people on Bogleheads, and they've all said what people on here are saying:

1. Build up your EF
2. Get match by employer for 401k
3. Make extra payments on your truck if available

That's going to be my attack plan.

 

#4 keep the truck for 10 plus years.

 

This.

The WRX I had for 5.5 years was the shortest I ever held a car. Bought for $29K sold for $20K.

 

You have your Dave Ramsey wrong, regarding the EF.

EF is the first step of the plan.

 

just a little correction on the tax side of things, if you do a traditional 401k (pre-tax) it’s not TAX FREE, it’s tax deferred. You’ll have to pay the taxes on the contributions AND the growth when you withdrawal it in retirement.

so just to use your numbers as an example of traditional vs ROTH 401k as far as taxes go. If you invested $8000/yr for 30 years and 10% average return you’d end up with around $1,500,000! Now if you you did a Traditional 401k all of that would be taxed when you withdrawal it!

But if you did a ROTH 401k, you would have to pay the taxes on the $8000 every year, but it grows TAX FREE! So when you withdrawal it during retirement, no taxes need to be paid on it!

so here is how those numbers would look with the balance at $1,500,000

Traditional 401k taxes would be $330,000 (1,500,000 x 22% = $330,000)

ROTH 401k taxes would only be $52,800
(8000 x 30yrs =$240,000) ($240,000 x 22% =$52,800)

It’s just a simple calculation, but it shows the power of the ROTH retirement options!

 

I’m a Dave Ramsey follower and have been for many years (also a Coordinator). I’m pretty allergic to debt and I share Dave’s passion for eliminating it and avoiding it. I’m also a 29 year old guy who’s doing lean FIRE. So that’s where my money mindset comes from.

Dave’s program only works if you do it Dave’s way. Dave will even tell you that “Davish” can be dangerous. If you aren’t going to commit to the program there may be a better way to handle your finances.

Dave believes that BS 1 2 and 3 need to be done as if your life depends on it. So getting out of debt is done with extreme intention and focus. You aren’t going out to eat, you aren’t going on vacation, you aren’t making daily trips to Starbucks. You are minimizing any and all unnecessary expenses in order to eliminate debt and build up that 3-6 month emergency fund. He recommends that during this time you also pull all investing to throw those funds on debt.

I believe in following Dave’s advice on that. His argument is you win at what you focus at. His principles are all about behavior and risk more than they are about the nitty gritty math.

If you are following that mindset, where you truly are digging deep and sacrificing and paying this truck off like your life depends on it, then I would say keep on keeping, follow the program to the T.

That being said, if you really aren’t fully committed to the program, then I think you should at least put up to your matching into your investments.

Because if you aren’t truly eliminating the truck payment in order to press on and go back to investing as soon as you can, then you really aren’t doing yourself any favors in terms of building wealth.

So I’d say either take the baby steps seriously and follow them to the T, or follow something more like a plan that has you do debt pay off after retired investing and after a fully funded EF.

All of that being said, if you follow Dave to the T and truly do sacrifice to pay off debt, it’s worth every ounce of effort and sacrifice.

I’ve made some pretty deep and extreme sacrifices in my life and all of them have been worth it. The process of sacrifice and struggle has also taught me what is truly important in life and that those things I desired to spend my money on during those tough times really weren’t worth it anyways. Coming to understand that has helped me make better financial decisions later on in life when I have moved on from debt and have money to either spend or invest.

My family is also Dave followers and I have seen my older siblings, parents, and in laws build incredible wealth with his program. My family tree has changed as a result of the baby steps.

Good luck with your journey!

 

i don't know the dave ramsey stuff, but at that interest rate i'd just take the free money. your retirement will be there for you in the future, this truck won't be. i started putting money in my 401k early enough, but i wish i had maxed it out sooner.

i mean i guess maybe it could be, but i doubt it haha

 

A $1,000 EF is the first step. A fully-funded EF is baby step 3.

 

So, I am just curious, where can you invest and get a guaranteed rate above 2%? The last time I had a CD was in 2018-2019 at 2.2%. In April 2019, it ended and they wanted to roll it over to 0.8%. I said, Fk that, I would rather just keep it under my mat (ok, in my gun safe). The stock market is a slot machine. I am old enough to recall losing 40% of my life savings (at the time) overnight in 2008. It took 5 years to get that back. So, 5 years wasted.

So, again, I am truly curious. Everyone seems to advocate "invest" it to get a better rate (than 2 or 2.5% which is a good car loan).... where? Is everyone around here Warren Buffet? I make a grand here, a grand there on crypto and some stocks. But, it is risky shit. We will have another "correction" of 20-25% soon. Then where is this guy that "invested" instead of paying down the loan?

Again, everyone should assess their own risk by income, age, and how risk averse their are. I just find it interesting there are so many Warren Buffest around here... or maybe people not old enough to have experienced massive losses and only gains. I also lost a lot of $ (way less in total amount, but as a % since I was young) in the 2000-2001 bubble stuff.

Good luck bro. There is a lot of good advice here. I hope you receive what you were looking for. But, remember, we are all just Taco owners, you don't know us from crap, so take it all with the proverbial gran of salt.

 

The 2008 stock market crash is a unique situation, NOT the norm. That would be like never getting a girlfriend/wife again because you got cheated on once.

Invest your money in any good ETF - VOO, QQQ, NOBL. There is plenty of historic data and analysis to help you make a good decision. If you are concerned about the ups and downs, stick to funds rather than individual stocks, as they are inherently more diverse/stable.

The OP also mentioned existing retirement accounts. IF you have access to some sort of 401K program, that's also a relatively safe place to put your money depending on what you are investing in. And if your employer is matching your money? That's free money. PLUS it is pretax which is also essential putting free money in your pocket.

The other thing to keep in mind is that investing in the market (at least from my perspective) is a LONG game, not a short game. If you keep this in mind, it takes a little bit of stress off of being down one year then up the next, etc. Over the long run, you will be up (again, if you invest diversely and smartly).

 

Oh I agree ... the market is generally a long game. I have an undergrad degree in econ, I am well versed. And, I have hundreds of thousands of dollars in ETFs and instruments you are talking about. But, I personally have little faith in the slot machine we call "the market" anymore. The gvmt printing trillions and trillions and it still goes up? The people in congress spending the country into oblivion ... and still the market goes up? There is no longer any sanity or "normal" market forces. New spending bills = market up. No wasteful spending bills (financial sanity) = market down. Who can trust such a thing for the "long run"? The fact is: they have "printed" so much money now, they have to force the interest rates down, which in turn hurts normal people and risk averse people, such as myself. With such miniscule interest to be gained, we are forced into the slot machine to make any gains, at all. Again, if people have experienced nothing but gains all their young life, the market probably seems great!!

 

I gotcha. I definitely don't see it as a perfect solution or something that is infallible/indestructible. But most all financial decisions we make are risky - finance anything, you have to pay interest. Pay all cash, you're out your liquid assets. Buy a house vs renting, the list goes on. Just making my point - I feel relatively confident investing today. Will that be the case in 10 years? Not sure. Could it all go to shit tomorrow? Possibly. But you asked where are people getting 2% returns - I have seen that (and much more, really) with the investments listed above.

It's cool that you have a background in the stuff - none of it should be news to you. Are you no longer investing? Have you liquidated what you already have in the market?

 

I am still investing. Like I said, I have made some decent money (about 4-5K last year) in ETH. I had ETH at $110 a coin, got out at $200. Now it is like $1200. SO, I definitely make mistakes lol.

I have a few grand in SOL now. I bought 10K of twitter (even though I have never used it, lol) when it was down to $45 the other day.... plus, I have a lot of gold and a lot of other market ETFs. So, I have a lot of money still in the "game", but I also have a significant amount in cash in my safe because I don't trust all this BS to be there in 10 years or especially 20 when I want to retire. If we had reasonably interest rates out there, I would put that safe money in CDs or something mostly safe. But, alas... at 0.8%, who cares?

 

Right - exactly. I'm in a similar boat to you.

I remember putting money into a CD in 2006 and I want to say the interest rate was like 4% or 5% or something. I have not put money into a CD since.

I'm still playing the game and have been *knock on wood* lucky so far. I am fairly cautious with my investments and only invest in things I really understand or see as valuable, not just what the market watchers claim will be successful. I also will be retiring in about 20 years time if all goes according to plan, and I'm sure as I get closer and closer to that date my game plan will change. For now, the market has been pretty good to me. I just black out and choose to not remember times like 2008, December of last year, or March of this year for my own mental health haha

 

Ya, can you imagine getting 5-6% in a CD now? LOL.

 

We found Ramsey 4 years ago after having our first kid. The plan works. In that time we’ve paid off all debt, including 3 cars, in less than a year each, all some other small debt. My truck was paid off in a year and my wife’s 4Runner 11 months. We continue to budget our money with every dollar and now are on step 4. Follow the plan. It works.

 

People are talking about investing the funds in stocks, not the use of certificates of depreciation or HYSAs.

You should not invest funds you need in any less than 5 years, so historically you have a 90% chance or greater of having more money in the account after 5 years. So any funds which value is important to you in the next years should probably not be invested in stocks.

You can pick an S&P 500 Index fund and you are still historically likely to get 8-11% returns over 5-10 years. It doesn't have to be invested in crypto or single stocks.

I'm old enough to recall one of the largest stock market crashes and the fastest stock recoveries in history (2020). So you can live in fear of investing, but that doesn't mean all of us are. I like how people cling to the only like 3 bad times in history we have had a bad market and don't remember all the other good times in between. I personally love me a good stock sale.

Where I argue with the logic is, if you are getting an auto loan at 2% or less, you are buying brand new. If you want to talk about one of the worst things you can ever do with your money, it's buy a brand new car. So to argue the invest vs. pay cash argument is really arguing what is the best way to minimize the negative impact of a poor financial decision. It's not a discussion of how to maximize on a wise financial decision lol. Unfortunately cars are needed and they are always a depreciating asset.

I invest my car fund but I do so ahead of time not after the fact. I pay myself the car payment, use the interest to add to that, and then buy a car cash that way.

Everyone is totally free to handle car buying the way they want to, I just like paying cash because it keeps my price in check. When I'm writing the check, I'm buying the minimum I need to buy. Also owing people money makes my blood boil.

 

I would not agree with you regarding most cars. There is not much of a difference in price between a used Taco and a new one. They hold their value too well.

I would have bought a used Taco with 20K miles and saved myself all of 3-4K. Or, I decided to buy new with a full warranty and 0 miles... again, that cost me $3-4K. Most cars are not like Tacos. SO, yes, I would almost always busy used... but not always.