My Reaction to Dave Ramsey | Phil Town

hey guys I'm Phil town from rule one investigator today I'm going to be reacting to a video that was posted by another youtuber Dave Ramsey where he discussed his thoughts on what to do with the extra money that you saved you got it put away in the bank and you want to know how do you get more return on [Music] all right you've been following my channel for a bit you probably heard me talk about some of the major money traps to avoid simple ways to save money but what should you be doing with all the money once you start building up your savings if you're just leaving it in a savings account you're missing out on a huge opportunity after all the average interest rate on savings accounts barely 1% I recently came across a video to Dave Ramsey published Dave's awesome where he gave some advice to a caller on how to invest the sixty five thousand dollars he has sitting in his bank account now dave has some really great content on his youtube channel and clearly has a lot of knowledge when it comes to earning passive income I really respect a lot of the strategy advice that he shares but that doesn't mean I necessarily agree with everything that Dave has to say and when I saw this video on his channel I wanted to share my thoughts with you so let's take a look thank you for joining us America Michael is with us in New York hey Michael welcome to the Dave Ramsey show thanks for having me Dave appreciate you taking my call sure what's up all right I have $65,000 in the bank end I don't know what to do with it is there something better I can invest it in rather than just sitting it in the bank with very little of any interest that's a really really good question you know what I have found over the years is what you're finding number one I don't get my money invested well if I don't have goals for it and it tends to get away from me yeah you know just waters away just kind of drips away so we tell folks to always have an assignment a mission for every dollar the way we figure out how to do that is a system we developed years ago called the baby steps and depending on where you are in the baby steps is how I would utilize the money so the first baby step is a thousand dollars saved obviously you've done that baby step two is to become debt-free other than your home do you have any debt other than your home I have three months of car payments that's it and I'm done with that car it's a civic so what is that what is the balance on the car the payoff about three months five hundred forty dollars a month times three months so it's a little over 1,500 hours I would write a check today and pay that off that's the first thing I would do all right let's talk about that so I gotta say there's nothing to disagree with Dave here in a big way getting rid of debts a really good idea getting rid of car payments he's saying other than your house so getting rid of car payments getting rid of credit card debt this guy's obviously in a by most people's standards almost debt-free but I would say that that that desire to get rid of all debt I would I would I guess I would just say look there is some reason to hold on to some debt if you have a way to invest money where your rate of return is substantially higher than the interest rate that you're paying so for example on low interest rate kinds of loans which would be the house loan usually the car loan if you have decent credit you're going to get relatively low interest rate car loan those kinds of things I'm okay with having that kind of debt a little car loan debt low interest rate credit card debt a little bit of that I'm not as I think Dave is is drawing some pretty hard lines here for good reason most people don't have the discipline to use the money properly that they are that they are engaging in debt on and often they'll engage in debt they'll bring on debt for things I don't need money they shouldn't have had to spend in the first place to buy things to impress people who don't care about them anyway we want to avoid all that kind of stuff but if you've got low interest rate let's say a car loan I would tend to hold on to that paying out you know $350 a month or something that's at 6% if I can invest that money and make 15 to 20 percent because I'm getting a huge leverage advantage on that money and the earlier I start investing money at that higher rate of return the more money that's going to make me down the road so that that car payment could could end up costing you a lot of money if you have a great way to invest if you don't have a great way to invest I absolutely agree with him just get rid of the debt all right let's see where he goes from here then that's baby step 2 maybe step 3 is to have an emergency fund grandma's rainy day fund of three to six months of expenses now you obviously live on less than your income because you've saved money we know that so what is your household income though 92,000 okay and so if we said your expenses were five or six thousand dollars that you could survive on that a month if you had to in bad case three months would be your minimum eighteen thousand so I would put twenty to thirty thousand aside in a separate savings account that doesn't earn much interest but is accessible as insurance against life great grandma's rainy day fund you know what I'm talking about okay I'm gonna I'm gonna have another little disagreement here with Dave this rainy day fund I think it's a great idea to have liquid assets that you can reach in and get on a moment's notice of three to six months of living expenses I totally agree with Dave on that but here's where I'm gonna suggest that we could do it a little different way rather than having the money sitting someplace making Nothing have it sitting in a brokerage account making the same basic nothing making 2% you can get that in virtually any brokerage right now have it in your brokerage account invest it use it on a on either short term really high probability trades or have it available to be put into a highly liquid company that you can you can pull the money out of if you need to I like having access to all of the dollars I've got working as hard as they can as long as I'm liquid I can go get it back from someplace now the argument against that that Dave could easily make and probably would is that if you're a long-term investor and we are you're putting money into something and if it goes down you don't want to be a seller you want to be a buyer right so you don't want to have to pull the money out for an emergency but that's kind of the point it's an emergency I mean how often is that gonna happen in your lifetime of investing where you you have a crisis and you have to get access to the money and you have to get access to it just at a time when it's really down a lot could happen that would be the downside of my idea but chances are good in my favor that you'll be using that money a lot better if you keep it investing then if you just stick it someplace at 1% all right let's see where he's going next yeah you pick that number 20 to 30 minimum though somewhere in there you can go a little larger if you want but three to six months of expenses and you see how I did that I said 6 times 3 is 18 right yeah so I just made this up on the fly but you could do you could get a little closer if you want I don't care and then the fourth baby step once we've done that and we still have approximately thirty five thousand dollars left or thirty thousand dollars left give or take 30 to 35 after so far of your 65 that I've spent or invested or given a name or an assignment that then might be step four is putting 15% of your household income away every year for retirement are you saving for retirement already investing for retirement already yeah I'm saying oh I have about 200,000 retirement how much do you put in a year every two weeks I put in 650 dollars and my employer matches partially 225 for a total of 925 every two weeks I'm not counting your match you're at about 15% oh yeah you're right at it okay so we'll check that box and say that one's being done in your 401k and your match is in addition to that so you should be putting 15% somewhere around 12 or $14,000 and in there and that's about what you're putting in twelve hundred dollars are you a month comes out about fourteen thousand a year so we're right there okay and so that one's done you have any children no I'm baby step 5 okay let's go on baby step four here now I think this is absolutely hundred percent agree with Dave if you can get 15 percent put that away absolutely I think the men would be 10% I think if you put 10% away and you did it religiously but you did I think of the 10% as 10% off the top right so you're gonna pay yourself first 10% before you pay anything else at all and I think that's pretty close to what Dave would say 10 to 15% in that range now the question is where is it gonna go it's gonna go into a retirement account but what kind of retirement account is super critical in this case he's got an employer matching a little bit each month a portion of what he's putting away what I don't like about the rest of it that he's putting away so he's putting away I think about 200 and some dollars every two weeks or about 500 bucks every month that the employer is matching so the employer is putting up about $6,000 a year and you do want to take that that's a great return on that original 6000 that you're putting away pre-tax but then in addition he's putting away something like another I may have the numbers wrong but you get the idea another $600 or so every two weeks that he's putting away in the same account now if that account is a 401 K with the restrictions on the 401 K then most of them have they won't let him invest that money in individual stocks that he's can figure out that he would want to own they're gonna make him invested in indexes and broad market mutual funds and a money market account so my problem I have with that is that those kind of investments will nearly guarantee you a mediocre level of return in the long run you can probably factor in it about it at 7% or so so 7% a year if that'll get you there to financial independence quickly enough then maybe that works for you but for most people it would be a better idea to take that money and move it to a different kind of retirement account move it to an IRA or pay taxes on it move it into a Roth IRA where you can invest it any way you want to that B might might change on Dave's idea there all right let's see what else he's got is to say for kids college that one doesn't apply check baby step six is pay off your house early you own a home yeah I own my condo I was out three three years into my mortgage how much do you owe on it total 135 thousand okay all right I would throw the other 30 or so we've got at that then after we've got the emergency fund in place and after the car is paid off and both of those things happen today the amount of fact all three checks could be written today and then what I would do is out of your budget any found money out of your budget and you're a good saver so this comes natural to you I would do a little calculation and say okay I got about a hundred left on my house how quick can I get this house paid off I mean you get that condo paid off in probably three four years the way you're going yeah I mean that'd be a really good a lot yeah hold on yeah 41 yeah man you'd be sitting 45 years old say with a paid-for condo and an emergency fund in place and already got at that point you'd have probably five hundred thousand saved in your meat in your 401k you're rockin man you're well on your way to being a millionaire thanks appreciate no I think I think Dave's got a great idea here it's Minette pain down the house mortgage is great but we got to think about it in a couple different ways the guy he's talking to right now has a good income he's able to save a lot of money and he is well on his way to becoming a millionaire without having to do anything magnificent in terms of rates of return in the stock market he can just pile in the money he's got a good job he's pouring the money into these accounts and that's all gonna work out really well following Dave's advice the problem is there's not that many people like that guy there most of us have you know really strong demands on the entire paycheck it's really hard even to say 15% a year to save 15% a year get that money all into a retirement account into something you can invest and try to become financially independent is a huge task all by itself paying off the house before you do that would be I think a huge mistake I think you're gonna have to if you have to choose between paying off the house and loading your retirement up you've got to load the retirement up right you've got to load it and and I think in that sense your have to focus on learning to invest well so that you're not losing money you don't have any permanent loss of capital in your investing that that could have alternatively gone to paying off a house you don't want to end up losing money in your investing and not have a house paid for so rule one investing is don't lose money that's our focus so you're gonna want to take this this nest egg maximize the amount of money in there without paying off your house do well with that and then come back toward retirement when you maybe can sell this house move to something smaller you know get to your get to your final home for retirement and pay that one off pay that one off maybe maybe even then if you've got a three and a half percent loan or four percent loan on a place you might want to just keep investing the money so always consider your own situation when it comes to a real big ticket item like a house or a car about what the impact of paying that off would be in terms of your overall growth of your financial capital I think for many people capital is going to grow a lot faster if you keep it over here and invest it well than it would be sitting in a house alright see that's how that's how that plan unfolds though and I just did it step by step by step all the way up to baby steps maybe step seven there's only one left and that's what the paid off property max out all retirement and investing and become outrageously generous with your giving and because the people I find that are the happiest that are wealthy are outrageously generous they don't give it all the way but they just make generosity one of the well I think that'll do it that's that's exactly right step seven for Davis is get yourself to a well a level of financial independence and while you're on your way there be generous and when you get to financial independence be very very generous with your time and with your capital and with that I'd say that I by and large and gree with with everything Dave says if you want to get a great teacher that can teach you some really wonderful techniques of getting control of your finances of getting out of debt there's nobody better than Dave Ramsey I mean GOx and when it comes to investing I think he pretty much focuses on mutual funds and indexes and we may have a little disagreement there but that's just the nature of the beast Dave's that kind of an investor I'm this kind of an investor and you're gonna choose which way you want to go basically based on what you have to do if you can get to financial independence Dave's way well that's a lot less learning that you're gonna have to do if you're not gonna get there then you're gonna have to learn what I know which is rule one investing and do it yourself all right love to hear from you guys what are you gonna do with the money you have saved in the bank great question leave a comment below with your answer I'll be sure to follow up with you and thanks for watching now go play you guys have you enjoyed this video and you feel it was valuable in teaching you more about how to invest the money you saved hit the like button and please share the video with your friends and if you want more investing content subscribe to my channel and don't forget to click the button on the screen we got a free gift for you thanks again for watching

Channel: Phil Town's Rule #1 Investing

Views: 214,333

Keywords: rule one investing, rule #1, learn to invest, investing 101, financial success, savings, save money, invest, pay off debt, pay off loans, debt, saving money, money, investing in stocks, david rhamsey, dave ramsey, compound interest, how to make money, debt free, reaction video, make money, how to invest in stocks, interest rates, personal finance tips, interest, paying off loans, stocks, how to save, passive income, stock market, 401k, Savings account

Id: A5qUW2Rnt50

Length: 16min 39sec (999 seconds)

Published: Fri May 08 2020