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Thursday, March 18, 2010
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38 comments:
Blogger cara said...
TN,
Congrats!
So for those of us who don't listen to DR, care to outline what the DR goals are? There's a lot of different possibilities on his site...
The big ones are:
1. *Zero* Credit Card Debt.
2. Own your cars
3. No Mortgage/mortgage paid off
4. Minimum 6 months Emergency fund to cover all living expenses, Maximum one year
5. Establish a monthly budget and stick to it. This was the hardest part. I still hate paying for groceries with cash, but am slowly getting used to it. Am almost over being embarrassed about having to put things back on shelf when the envelope runs dry.
6. Living like no one else so you can live like no one else.
Just so I don't give the wrong impression, we don't have a mortgage at the moment. We had one when we moved here but the house has been sold for a tidy profit and the money is tucked away. It was not in the USA.
I have little incentive at the moment to buy a home here. The home we are renting in NoVa suits us perfectly.
Dave is a genius.
Dave Ramsey is really great. I read "Total Money Makeover" book and have to agree with him that it's basic common sense to not live beyond one's means. The problem is that our society seems to think that debt is fine...
Thanks TN.
Congrats again on meeting your goals.
We've got 1,2,4 and 6 down... 5 we used to be stricter about than we have been lately. 3 is going to take 20-ish years.
(although he may be defining *Zero* differently, such that simply paying it off every month doesn't count as zero, even if the amounts spent are within the budget)
Cara,
He doesn't define "zero" differently. He strictly is all about not having a single credit card at all. He frequently says people need to "stop worshipping at the altar of the almighty FICO score." haha
itsgonnabewonderful,
That would then be differently than I do. I don't use a CC because of my FICO score, I use one because if someone steals my CC the money they steal isn't mine, and CC companies are much more efficient(motivated) at catching fraudulent transactions than debit card companies seem to be. There are also things for which cash is not an option, and cash is readily stealable too.
Small transactions we have a cash budget for, larger things, it's easier to enumerate them all at the end of the month and evaluate how we're doing on our budget then. Yes, it is after the fact, and I understand the both the concept and the research showing that paying in cash upfront is more painful and hence likely to keep you to smaller bounds. But since we're not living beyond our means, I don't feel the need for extraordinary measures to increase my self-control beyond its current, pretty darn high level.
some here helped me do comps on this almost 'perfect' home except for the termites damages in the basement. it sold $35K more than what i would've offered if there's no termite. so i'm probably still $50K away from market reality...
"Cara said...
I don't use a CC because of my FICO score, I use one because if someone steals my CC the money they steal isn't mine, and CC companies are much more efficient(motivated) at catching fraudulent transactions than debit card companies seem to be. There are also things for which cash is not an option, and cash is readily stealable too."
Same here, but also for the 30 day float and the 1% redemption on purchases. Instead of paying 20K cash for the car, why not charge it, pay the 20K CC bill at the end of the month, and get $200 back in return?
This is not for everyone. It works extremely well but only if you have alot of discipline to stay within budget and always pay it in full, and some people simply dont. However for me personally over the last 10 years, I have paid $0 to the CC company in interest, annual fees, and penalties, and they have paid me approx $7,000 in cash or equivalents (e.g. airfare).
CRT,
There is that too, poor Discover Card.
The drawback is apparently there is a mechanism by which rewards cards charge merchants more for their use... So, we're really only getting "our share" of the money back from being overcharged by merchants who have to pay the CC companies...
I put most everything on a credit card but pay it off every month. Another good reason to use credit cards - especially for big purchases, car repairs etc. is that if there is a problem with the purchase or repair, you can get the charges reversed. Say a mechanic takes you for $1000 on a fradulent auto repair. If you paid for it with a credit card, you can contact your credit card company documenting the situation and have the charges reversed (if you act within 6 months of the transaction). This means you don't have to fight in court to get your money back - although you would need to defend yourself if the other party decides to sue (which would be doubtful if they acted in a fradulent way).
Credit cards are definitely not the way to finance purchases though. All about living within your means.
MM,
How bad was the termite damage? We were doing some demo work on our basement and found old damage in the interior partition walls. Thankfully, they only got into the one floor joist that ran along the wall. If you count the demo work as free (as we did it ourselves), the framing/bracing, rubbish haulaway, and drywalling all came to less than $2,000. So, what might seem like a big hassle sometimes doesn't turn out to be quite that bad.
cara, CRT,
would annual fee change how you look at CC vs cash?
Fred,
how much did the inspection/treatment cost?
Sounds as if Dave Ramsey and Suze Orman have pretty similar advice.
I'm with CRT and dgg about how to manage credit cards.
Some employers also may check FICO scores so if managing them well helps boost your score, there is that benefit as well as for interest.
They are also essential if you travel a lot, esp. overseas.
People who don't use credit cards these days are just subsidizing those of us that do. That 1% reward I get from Visa every month comes from the merchant fees. The merchants get those fees by charging more for products. If you aren't using a credit card and getting the 1% back, then you are just paying higher prices to subsidize those of us who do.
MM,
I think that's an over inflated price. It is not near the Ballston metro unless you're okay with a 1.75 mile hike to the metro. I would have expected that to go for low 400's. Perhaps the lot and the garage add a little something more, but still.
I would feel more comfortable stretching another 10% on top of $490k and buying something in 22205 before I would have purchased that property.
My $0.02
And if I may weigh in on the CC discussion. I like the AMEX true blue cash card. 1.5% back on everything and 5% back on groceries, gas, and drug store purchases. Totally worth it if you're a disciplined consumer that pays your bill off every month.
As for credit itself, it is not bad, just realize it for what it is: a premium paid to have something now rather than later (worst case) or a valuable tool to leverage your buying power (best case).
My $0.02
I agree with everyone on the benefits of using credit cards -- 1% back and all that. Just pay it in full every month.
CRT -- what dealer have you been to that lets you buy a car with a credit card instead of a check? I would be suspicious they built the credit card fees into the price you negotiated.
The Anonymous said
TBW -- why so upset that I am holding someone's feet to the flame? Funny, you dont seem to object when I call Robert out on his overly bullish CS projections -- in fact you seem to encourage it.
I don't care if you want to argue with spider or me or whoever. The point is that for months you claim Arlington has hit bottom and yet have not bought. If you really believe in what you have been arguing then why are you still renting?
If you don't really believe in what you are saying then you are trolling. That's why I am curious.
As for old deleted posts -- most were school related. Some I felt were TMI about myself. I have not backed away from any of my predictions or stances.
I can understand why people are annoyed if I delete a post from the past day or two since it interrupts the flow of the comments. But who cares if I delete something from a year ago? Do we really need to read my arguments with anielarke about TC Williams forever?
TBW,
"The point is that for months you claim Arlington has hit bottom and yet have not bought. If you really believe in what you have been arguing then why are you still renting?
Not to side with The Anonymous or anything, but I, too have not bought yet, even though I believe Arlington homes in my price range have hit bottom. There're many (good) reasons for me to not have bought yet. I'd wager s/he has good reasons too.
TBW,
Maybe CRT meant taking advantage of 0% offers from credit cards to pay off the car. I have done that.
Also, I think those who have the old GM card are allowed to pay a high percentage of the price of a GM vehicle on that credit card without any extra charges. The card used to give 5% in rewards for future purchase of a GM vehicle, up to a maxmium of $6000.
Recently Toyota has introduced a similar card, with 3% rewards and more limitations, such as on the length of points accumulation. As far as I know, they allow only a certain percentage, say 20--30%, of the purchase price to be paid by that card.
There are some gas cards, e.g., Citi Shell, that give you 5% refund on gas purchases at Shell.
tedk,
I think the most I've been able to charge on a car purchase was 5K.
A few years ago I got a 1K discount to finance a car and paid it all off the first month.
We recently won 250K miles...ah, what to do?
Don't most of you think ole Suze and Dave are very simplistic? Perhaps Warren would have an idea or two....
Simple is good. Start simple, then get complicated.
When I was 16-24 I insisted--flat out Ten Commandments style--that I would never have a credit card. I saw the damage they caused when mis-used and did not think any of the benefits they provided were sufficiently potent.
Come that 24 and I need to buy a car, and I'm looking forward to future credit purchases (including the mortgage coming on my house, if this contract gets ratified) and I knew I'd need to have a solid FICO. Living 100% debt free is certainly ideal, but I don't see how any average person can do it on normal salaries.
But there's no reason not to start out the education that way. Teach 'em young that debt is bad and let them learn as they grow that there's a time and a place for many things.
VA,
For the majority of people, I don't think so. Most people either lack the discipline, personal responsibility or the education to make wise financial decisions. The housing bubble is a perfect example.
If you had 1-6 taken care of your expenses amount to bills, food, transportation, taxes. Even in this area that might cost you 2k/month max. If you make ~65k a year here you'll be taking home ~3500/month. That's 1.5k a month or 18k/year. Do that for 20 years and that's ~360k. If you're expenses are still 2k/month that's 15 years or 10 years at 3k/month. That's a heck of a lot better than what most people have going into retirement.
The real issue comes down to inflation and the FIRE economy.
Because of our unstable fiat currency the above is impossible. People's savings are wiped away after 20 years and people feel compelled to take more risk to compensate for inflation. So they "invest" (more like gamble) in the stock market or RE or whatever to hit that yield. And since they take more risk (without recognizing it b/c their fund manager guaranteed them 8%) they are more susceptible to ending up broke at 65.
We have a getting something for nothing, gambling mentality. Buy a house, hold it for 2 months doing nothing to improve it and make 50k! Completely stupid, no value was added or productivity increased, just gambling.
It's sad but in a large part we have gone away from a society that believed that true measure of wealth was to do something productive with your life to being "rich" whatever that means.
Most people will never be "rich" b/c they never were able to be super producers (building companies, producing goods, etc), they are cogs (nothing wrong with it) but believe they can be "rich" by "investing" in the stock market and end up being food for the uber-rich.
That's what this housing bubble was, it wasn't real productive increase (some need for the houses existed, but at a much lower level than what was produced), it was fueled by loose lending practices (read increased money supply aka inflation) and a gambling mentality.
Unfortunately we are back to the gambling mentality.
gte,
Who is gambling? And on what? We have a basic core of stupid, foolish people. This will never change.
New cars, TV's, vacations, clothes, etc. Let them be forced to pay high SS, medicare and forced IRA.
Va_Investor,
From some of gte811i's past comments, I believe he thinks that mortgages should be outlawed. He believes that only those who have the cash to buy a property outright should be buying. Interesting that gte is still around, I found some of his posts from Feb 2008 and he said he was going to leave DC in 2 years. Guess he changed his mind.
Hayfield,
Seems like GTE wants to return to Potterville (field?). Forced serfs. It's a Miracle Life!
gte811i said - "We have a getting something for nothing, gambling mentality. Buy a house, hold it for 2 months doing nothing to improve it and make 50k! Completely stupid, no value was added or productivity increased, just gambling."
50k pales in comparisons to 200-250k flips I have seen. This casino game that started in early 2000 has wasted so many resources and manpower that it is beyond anyone's wild imaginations.
The classic - "My RE agent says it is a great time to buy" - I still hear it all the time...
spider,
What exactly are you hoping for? Is loose lending still fueling ridiculous loans? Are we still in 2005?
Hayfield,
I'm just binding my time. I like it that instead of coming up with a logical rebuttal you have to resort to attacking the credentials of the person. Did I tick you off about slamming schools?
No, I don't think a mortgage or lending should be outlawed, and I've never said that. I have said the sooner and quicker you pay off your mortgage the better.
Loans and lending have been around for a very long time; they have also been the source of depressions and recessions for a very long time.
I do believe fractional reserve lending should be outlawed and is outright theft and fraud.
VA,
" . . . Let them be forced to pay high SS, medicare and forced IRA."
huh . . . I'm forced to pay for it too.
Return to Pottersville, Whiskey Tango Foxtrot! Pottersville epitomizes what is going on now, or did you miss that part where everyone is in debt and can't make their payments?
I want people out of debt so if they lose their job they can still live in their house.
Debt can be extremely useful, when used to increase productivity (i.e. get an education, buy new machinery for efficiency, etc.). Consumer debt is all about instant gratification. Buy now, pay later. Productivity isn't increased so future earnings isn't increased. Current consumer debt is also about buy now, pay back later in inflated dollars which perversly causes prices in the now to be higher than otherwise. Get something for nothing.
A perfect example is a cartoon from the 1800s (I think) it has 2 sides "The way to wealth" with people working hard producing stuff, "the way to be poor" has people chasing bubbles with different labels.
VA,
Lending is really messed up. In non-FHA lending it's not tight. Tight would be close to mandatory 20% with 6 months expenses. Lending is prob. back to '01-'02. FHA lending is loose but better than '05. Depending on the area, sales are ~30% cash, ~30% FHA, the rest conventional. I'd prob. say overall lending is a little loose up here.
If you want to see tight, go to Florida, GA, etc. It is hard to get a loan down there. It's even harder to get a construction loan. Last spring lending had tightened up, it's not tight up here now. I see very few pendings going to active vs. last spring. Unemployment has gotten worse and prices have increased so the only thing that could change (IMO) is lending is not as tight.
gte,
And how do you know how tight underwriting is?
gte,
I can vouch that. While I did put down 20% so can't speak to any underwriting or lack thereof on that front, we were by no means required to have any substantial reserve. We're back up to 6 months again now, because we're only living off of one of two salaries, just like we had been when saving the downpayment. But we weren't there in December when we finished our qualification process, we had 1.5 months tops. And honestly I think they would have given it to us even if the downpayment took us down to our last cent (so long as we could prove it was going to be there).
Sure, our DTI for our combined income is under 16% and the monthly payment was $200 less than our month-to-month rent that we'd been paying for 4 months. And our FICO scores are at or above 800. So, it's possible that the other aspects of traditional underwriting may have been more lax for us. But I kinda doubt it. Or rather, I think how we were treated is indicative of the general attitude.
Others on here have vouched in the recent past for getting pre-approved up to 45% DTI (from memory, it may have been 55% DTI, my memory sucks).
VA,
I read, I observe (cara has good points), and I have experience with it.
You?
Ex. A year ago, I went to bank rate, put in info for a mortgage in this area and came up with very few lenders, hardly any 5/1 ARMs or non-traditional loans. Put in the same info. today and a plethora of them come up, meaning more lending and not as tight.
With the amount of banks that will eventually fail (over 600 on the troubled list), it should be hard to get a loan, yet it's not. The government's support of MBS, and the F's, etc. make it obvious that financials are still messed up. However, with government guarantees and zombie banks, banks have no incentives to really tighten to survive. They will live far longer than they would without the gov. guarantees, so why not make as much as possible (i.e. lend more).
This was not the case last spring and banks were tightening to survive, now . . . hey it's free money what do I care.
TBW said...
"CRT -- what dealer have you been to that lets you buy a car with a credit card instead of a check? I would be suspicious they built the credit card fees into the price you negotiated."
TBW. Do you really think I hadnt thought of that? I had all the terms negotiated (including telling them I will pay in full today) and then when they asked for payment I plopped down the card.
I have done this twice and neither one objected. Once was with a dealer out in Manassas. The other was with a guy out in Woodbridge. Both just swiped the card and that was that.
Don't most of you think ole Suze and Dave are very simplistic? Perhaps Warren would have an idea or two....
Depends. Are we standing around the bar-b-q pit drinking beer and eating tasty hot dogs or in the foyer holding champagne glasses and eying the camembert vs. the emmental?
Dave is about boiling it down to the essentials. Great things start with a solid foundation.
Warren is the go-to guy after Dave. No argument there, but trying to act on Warren's advice vs. Dave's is like trying to get someone to try a hot-dog vs. merlot the first time they are exposed to food.
My .02
:-)
gte,
Hardly think cara is your average buyer. I'd guess that her underwriter verified all income, assets, debt's, etc. No mere 'mirror fog', liar loan. Do you really think things are too loose? Should reserves and ratio's be tighter than they were in the '90's?
And no, I can't get a conventional loan unless I buy a new personal residence. Business loans are all I can get and I have 30yrs work, tons of assets and over 800fico.
I agree with a lot of Dave Ramsey's advice, but I just can't get on board with a guy who says that you should really never stop "tithing" even if times get tough.
From his website:
"Many people have observed that after they stopped tithing, their finances seemed to get worse. In the Book of Malachi, God promises that if you do not rob Him of your tithing, He will rebuke your devourers and protect you."
I wonder if this is why so many banks have failed in the last couple years? God "rebuking" the "devourers" of so many underwater homeowners who are nearing foreclosure but still faithfully tithe?
;-)
I realize I'm cherry-picking here, but I'm always really wary of the hidden religious message. Chalk it up to my fundie upbringing (from which I have been in recovery for many years).
I agree with a lot of Dave Ramsey's advice, but I just can't get on board with a guy who says that you should really never stop "tithing" even if times get tough.
Agreed. Like being lost in the desert and you find someone with a compass who knows the way out. They tell you the town is East and point the way but then they start telling you about how they found the compass, how it's changed their lives, the way they care for the compass.
Me? I'm tapping my foot, looking East and thinking "Dude, I hear ya, but I gotta go...".
:)
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