Celebrating 10 years! 2007-2017

Dave Ramsey Money Management — Pros and Cons

SUMMARY OF THE DAVE RAMSEY MONEY MANAGEMENT SYSTEM Put $1 passportfan312/20/18
none of my clients have ever seen my car. johnsmith12/21/18
True. Plus once you are married you are counting that your w cocolawyer12/31/18
Not. For. You! Ha. Hah. HAH! wutwutwut01/01/19
Damme; doubled again. wutwutwut01/01/19
Some focus on cutting expenses. Others focus on growing r bangbus12/20/18
Why does a lawyer need to drive a nice car? I really don't c goobernow12/21/18
I've had several clients point out the car the other client fettywap12/21/18
Dave Ramsey and Trump are welfare queens cocolawyer12/31/18
Municipal employment in “essential services” in a blue s wearyattorney12/21/18
pretty much wearyattorney. ramsey has the right approach. bu whiteguyinchina12/21/18
The debt part is fine, but his advice on investment and inco wearyattorney12/21/18
Kiyosaki is credited. A house is a liability, not an asset. flyer1412/21/18
Renting a house is a pure liability with no upside. Buying a e36m312/22/18
The upside of renting a house is that you have a place to li passportfan312/22/18
Good point. Along those lines, A hotel room offers a place t e36m312/22/18
Mobility premium bigwags12/31/18
Studies have indeed shown that over the long term, house val onehell12/31/18
What happens to the renter who is 65 and owns no property? H gladigotaphdinstead01/01/19
Actually, yes. Saw plenty of 'em in my legal aid days. If al onehell01/02/19
1) keep enough in the emergency fund to fund an actual emerg dingbat12/21/18
Dave has addressed both of these objections in depth. The passportfan312/21/18
The general outlines are basic common sense: spend less to dingbat12/21/18
Anyone who isn’t paying off the highest interest debt firs gladigotaphdinstead12/22/18
As passportfan said though, he's trying to appeal to people' onehell12/26/18
A lawyer with $200k in student loans can’t just pay off th brokelawyer12/21/18
My wife and I graduated with $420k in debt. Paid it off in 7 tcpaul12/22/18
I think you've mentioned paying down your debt before, so I' wutwutwut12/22/18
Thanks! Although I need to stop mentioning it. When I reread tcpaul12/22/18
What exactly are you going to do with FIRE? I read all th tuliotanaka12/22/18
I'd have no trouble filling my time but also enjoy doing not tcpaul12/22/18
Most of these people are much better served just filing bank persius12/22/18
I'm amazed at how people with nothing to lose save for the d superttthero12/22/18
Anybody with below median income and a lot of debt, should c midlaw12/22/18
I haven't listened to him in years. He used to be just loca doublefriedchicken12/22/18
My Scumbagette sister is bragging about starting his class a tuliotanaka12/22/18
I'll confess to having listened to the Dave Ramsey show whil tcpaul12/22/18
Ramsey is good for people who have zero willpower, zero fina walkingparadox12/26/18
His model is for the proles which probably constitutes half david6198312/26/18
I don't disagree that his advice is aimed at that audience. walkingparadox12/26/18
I don't know. Does he honestly tell people not to contribut david6198312/26/18
http://fulwilerlaw.com/dave-ramsey- hates-bankruptcy-but-dont defensivelawyer12/27/18
Dave Ramsey is doing the equivalent of getting the fat masse superttthero12/27/18
I agree with you. I do think that his absolute rules are walkingparadox12/27/18
Med school friend who complains about debt (400k a year rad superttthero12/30/18
Paying 8K on 80K debt is a potential scam. clocker101/01/19
Agree, but either she's dumb enough to fall for the scam or superttthero01/01/19
My money is in scam. If this is private and she never pai bigsal01/01/19
Ramsey is talking to lowest common denominator people. Most demwave01/01/19
Rich Dad Poor Dad explicitly mentioned going into steeply le thecharmingmresq01/02/19
My workplace sent an email today that we can take his course fettywap01/02/19
Ramsey is more like a cult. The cult of God NO DEBT. Nothin demwave01/02/19



passportfan3 (Dec 20, 2018 - 10:38 pm)

SUMMARY OF THE DAVE RAMSEY MONEY MANAGEMENT SYSTEM

Put $1,000 into an emergency fund. Pare living expenses to the bone by driving a beater car, eating beans and rice (metaphorically), and ceasing all personal expenses except housing, low-cost groceries and utilities. While paying the monthly minimum on each outstanding debt, throw every extra cent at one debt, starting with the smallest, until all debts are paid off.

PROS AND CONS

1. Dave Ramsey’s system is excellent for people with secure incomes, specifically, people with traditional full-time salaried jobs in a private office. When your paycheck is secure, you can throw every dollar at debt.

2. Ramsey’s method does NOT work for people with highly variable incomes. When you don’t know when your next paycheck is arriving, you can’t take the risk of paying off the Visa today. You may need that money next month for rent and food.

3. Ramsey’s method does NOT work for people who have to maintain appearances. A lawyer or financial planner cannot drive a beat-up old car. (I drove a “hooptie” for a time when I was a solo. I became expert at parking two blocks away from any meeting.)

4. Ramsey ignores the fact that young men need to spend money to get laid. The pretty young things, especially in the big cities, will expect you to dress well and pick up the check. If you want to spread their legs, it sure helps to have a decent car and your own apartment.

Hot twentysomething women do NOT want to hear “I am living below my means and taking dates on walks in the park because, 15 years from now, I will be so ahead of the game.” Hot women want you to have money NOW.

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johnsmith (Dec 21, 2018 - 9:32 am)

none of my clients have ever seen my car.

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cocolawyer (Dec 31, 2018 - 4:41 pm)

True. Plus once you are married you are counting that your wife will want to go bare bones as well...which is not realistic.

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wutwutwut (Jan 1, 2019 - 1:26 am)

Not. For. You!

Ha.

Hah.

HAH!

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wutwutwut (Jan 1, 2019 - 1:26 am)

Damme; doubled again.

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bangbus (Dec 20, 2018 - 11:24 pm)

Some focus on cutting expenses.

Others focus on growing revenues

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goobernow (Dec 21, 2018 - 1:21 am)

Why does a lawyer need to drive a nice car? I really don't care what a lawyer wears or drives, only that he can get the results I want.

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fettywap (Dec 21, 2018 - 1:18 pm)

I've had several clients point out the car the other client was driving.
Dave Ramsey got out of debt bu filing bankruptcy on over $1 million. I'm not listening to him.

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cocolawyer (Dec 31, 2018 - 4:42 pm)

Dave Ramsey and Trump are welfare queens

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wearyattorney (Dec 21, 2018 - 1:43 am)

Municipal employment in “essential services” in a blue state. Retirement in a red state.

It’s called globalization. Understand it and deal with it accordingly or it will deal with you accordingly.

Ramsey’s advice, especially when it comes to his projection that professional incomes will grow over time, is based on the post war economy that his generation (boomers) were given. That economy doesn’t exist anymore.

Your income will likely peak at 45, no matter what you do and then you will be laid off for foreign, younger, and/or cheaper. It’s that simple. If you don’t agree with that, you are a racist/communist.

There’s no security anymore. Medical doctors are going to be the next profession on the chopping block, they only just got started in that domain...

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whiteguyinchina (Dec 21, 2018 - 1:54 am)

pretty much wearyattorney. ramsey has the right approach. but the better approach is not to take on any debt except for a house.

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wearyattorney (Dec 21, 2018 - 3:45 am)

The debt part is fine, but his advice on investment and income projection is off.

You will be hurt if you stay in the private sector, unless you own a business (and there are caveats with that too).

Public sector in a rich blue state for essential services.

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flyer14 (Dec 21, 2018 - 8:56 am)

Kiyosaki is credited. A house is a liability, not an asset. You’ll spend an easy $5-10k per year on taxes, maintenance, etc. Only take on debt for a property if you can rent it out for more than the mortgage payment.

Buy a duplex and have your neighbor pay for your mortgage.

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e36m3 (Dec 22, 2018 - 10:52 am)

Renting a house is a pure liability with no upside. Buying a house is part liability/part asset with potential for appreciation. I agree that people shouldn’t view their primary home as an investment or a pure asset, but defining it as a pure liability makes no sense.

Buying property is one of the only ways a working stiff can create passive income over time.

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passportfan3 (Dec 22, 2018 - 6:46 pm)

The upside of renting a house is that you have a place to live.

It's incredible how everyone ignores that.

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e36m3 (Dec 22, 2018 - 10:04 pm)

Good point. Along those lines, A hotel room offers a place to live with less commitment than a year lease. Hourly motels even more so.

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bigwags (Dec 31, 2018 - 2:17 pm)

Mobility premium

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onehell (Dec 31, 2018 - 12:43 pm)

Studies have indeed shown that over the long term, house values merely keep pace with inflation, especially once you take those ongoing expenses into account.

The occasional boom or bust will cause some people to get screwed and others to make out like bandits, but that's just luck. As the financial people say, you can't time the market. The most probable result over the long term is that you will just keep pace with inflation meaning that as you said, your primary residence is not an investment and shouldn't be viewed as such. And today's 30 year mortgage does not comport with traditional notions of ownership in the first place. What we call ownership is really just a situation where part of your rent goes into what amounts to a fairly illiquid savings account that pays an interest rate that is on average merely equal to overall inflation. There is also a short-term benefit from the tax-deductibility of mortgage interest and SALT, but that's more in the short term because more interest is paid in the early years and it you can only take advantage of it if you itemize, so I leave that aside as it's not in an of itself a reason to buy nor does it offset the maintenance stuff.

That said, there are three huge long-term benefits to ownership IMHO. One of them is the fact that inflation benefits fixed-rate debtors. Stay in the same place long enough and eventually, your mortgage payment will be significantly less than comparable rents. Second, if you can resist the temptation to trade up every time you get significant equity, the house will eventually be paid off which is a huge protection against poverty. I've seen and posted many times about how people can and do live on a social security check alone, IF they have a paid-off house in a jurisdiction where property taxes are reasonable and can be frozen for the elderly. Finally, you aren't living under someone's arbitrary whim. A landlord will rarely rent to you more than 12 months at a time, giving them an annual opportunity to toss you out on your rear-end for any reason or no reason at all. A bank can't just call the note whenever they feel like it.

It's stupid to buy a house with the expectation that it will appreciate wildly and you'll sell it for a huge gain in 5 years. It's equally stupid to say renting is "throwing your money away" because you are getting a place to live. But if you're going to stay put for a LONG time, and you are not stretching and getting a mortgage you only barely qualify for, then owning still beats renting IMHO. The trouble tends to arise in that today's career path is not the same as a generation ago, people rarely get a job out of school and stay there for 40 years anymore. So you have to be really sure that you are firmly planted in the geographical area where the house is. You'd probably have to stay at least 10 years just to recoup closing costs, which are themselves rather excessive. There are an absurd number of middlemen involved in residential real estate: Realtors, inspectors, appraisers, underwriters, mortgage brokers, escrow companies, title insurers, and even attorneys (in some states, though in my state attorneys don't do closing anymore) all taking their cut.

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gladigotaphdinstead (Jan 1, 2019 - 8:28 am)

What happens to the renter who is 65 and owns no property? Homelessness?

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onehell (Jan 2, 2019 - 5:17 pm)

Actually, yes. Saw plenty of 'em in my legal aid days. If all they have to live off is a social security check it will be somewhere between $700 and $1k/mo. That's not enough to get an apartment in my neck of the woods so they are pretty screwed unless they have adult children they can move in with. Pretty much best they can hope for is to somehow manage to buy an old run-down RV and get a "work kamper" arrangement with the KOA.

Failing that, the section 8 waitlist is closed so it ain't pretty. I've definitely seen homeless elderly who basically live in the woods until their health deteriorates to the point where Medicaid will pay for a nursing home.

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dingbat (Dec 21, 2018 - 4:33 pm)

1) keep enough in the emergency fund to fund an actual emergency. $1000 is not enough

2) pay off the highest interest rate debt first

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passportfan3 (Dec 21, 2018 - 4:58 pm)

Dave has addressed both of these objections in depth.

The point of the initial $1,000 emergency fund is not to fund a true emergency; it's too small for that. It's to prevent a small expense like a flat tire from creating a cascade where you become late on other monthly bills. Later in the program, Dave recommends a fully funded emergency fund of 3 to 6 months of living expenses.

Dave understands that paying off the highest-rate debt makes the most mathematical sense, but, at least for a lot of his listeners, it does not work. He suggests paying off smallest to largest because (1) you feel a sense of accomplishment that something has been done, and (2) you reduce the number of open accounts that you might accidentally pay late or forget to pay.

Dave's big point is focus. Focus on one small, achievable step at a time. If you try to do too many things at once, or you prioritize math over practicality, you never actually finish any particular step.

I paid off $110,000 in three years and am now debt free by using the Ramsey method. I don't swallow him whole, but the general outlines of his method work.

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dingbat (Dec 21, 2018 - 5:02 pm)

The general outlines are basic common sense: spend less to save more is so simple a caveman can do it

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gladigotaphdinstead (Dec 22, 2018 - 7:11 am)

Anyone who isn’t paying off the highest interest debt first and using his method is insane

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onehell (Dec 26, 2018 - 5:38 pm)

As passportfan said though, he's trying to appeal to people's emotions which aren't always rational, and people are more likely to stick with it if they see accounts dropping off.

Remember, his intended audience is incapable of arbitrage. This is not intended for people who are comparing their APRs to their ROIs. They're not investing or saving; they live hand-to-mouth and anything they don't use to pay down debt will get frittered away.

He's not a finance expert in the mathematical sense. He's a motivational speaker. And while he doesn't make this point explicitly, it also happens to be a convenient fact that smaller debts often DO carry higher interest rates than bigger ones. A crappy subprime credit card is what, over 20%? That's a higher interest rate than a car/mortgage/student loan, which is the sort of thing that the higher debts are likely to be.

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brokelawyer (Dec 21, 2018 - 9:08 pm)

A lawyer with $200k in student loans can’t just pay off that pesky loan in a couple years and then focus on finally getting a house. It’s a 20-year commitment that needs to be lived with.

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tcpaul (Dec 22, 2018 - 10:13 am)

My wife and I graduated with $420k in debt. Paid it off in 7 years. Friends of ours with less debt and equally good jobs took the position of brokelawyer that the debt couldn't be paid off earlier and they'd jusy have to live with it for 20+ years. And they're right.

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wutwutwut (Dec 22, 2018 - 11:44 am)

I think you've mentioned paying down your debt before, so I've probably replied similarly before, but just in case not:

Mondo Kudos to you and your wife.

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tcpaul (Dec 22, 2018 - 2:16 pm)

Thanks! Although I need to stop mentioning it. When I reread my post it just sounds like bragging. I'm just a huge proponent of paying off debt and FIRE (financial independence, early retirement).

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tuliotanaka (Dec 22, 2018 - 2:29 pm)

What exactly are you going to do with FIRE?

I read all the posts on reddit, and it seems like:

"I spent all my life doing this and getting to this point....now I'm gonna.....travel I guess?"

Thing is, and I've traveled a lot so I might sound jaded, Travel kind of sucks after a while. Places are beautiful? Yeah, but theres only so many lakes,mountains, and old castles you can see before it becomes monotonous. I mean, eventually you get tired of having to double check water bottles to make sure some scumbag didnt fill it with their local tap water to make a quick buck.

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tcpaul (Dec 22, 2018 - 2:45 pm)

I'd have no trouble filling my time but also enjoy doing nothing.

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persius (Dec 22, 2018 - 7:45 am)

Most of these people are much better served just filing bankruptcy depending on their situation (like he apperently did according to fetty). In this respect he gives terrible advice and really keeps people from getting back on their feet.

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superttthero (Dec 22, 2018 - 8:49 am)

I'm amazed at how people with nothing to lose save for the debt think they have too much to lose with bankruptcy. The creditor industry has performed a great miseducation campaign.

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midlaw (Dec 22, 2018 - 10:58 am)

Anybody with below median income and a lot of debt, should chapter 7. I’m surprised there aren’t tens of millions of filings per year tbh.

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doublefriedchicken (Dec 22, 2018 - 11:31 am)

I haven't listened to him in years. He used to be just local to Nashville. Sounds like a great method but there's no way I could get my wife on board.

His advice on bankruptcy is ridiculous. I heard him tell someone with a low income and 100K in medical debt not to file bankruptcy.

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tuliotanaka (Dec 22, 2018 - 1:12 pm)

My Scumbagette sister is bragging about starting his class at her church in the new year.

Exactly the type of person who needs him to tell her how to save and pay off debt....by paying for his simplistic advice.

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tcpaul (Dec 22, 2018 - 2:25 pm)

I'll confess to having listened to the Dave Ramsey show while working to pay down our debt. I didn't follow his system and found him to be sanctimonious. But I also found his show very motivating.

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walkingparadox (Dec 26, 2018 - 5:57 pm)

Ramsey is good for people who have zero willpower, zero financial acumen, and have zero interest in actually figuring out how things work.

His debt snowball is a morale technique, but you should be attacking the one with the highest interest rate.

Like other people have mentioned, he doesn't talk about bankruptcy or if he doesn't I haven't heard him do it. Other than of course, "I went broke, don't be like me", which he says every show.

He hates credit cards. This is stupid. Credit cards are safer than debit, and earn you a small amount back which cash does not.

With a good credit score you can save money. I got a year old model car and a 0% car loan due to my credit score. I had enough in the bank to purchase it outright. Why would I put a dent in my bank account when I can float it over a three year period? I've seen people with double digit loans on cars and I cringe.

The Ramsey method is fine for a foundation, and most of the people calling in are in bad shape to begin with, but there is zero room for growth.

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david61983 (Dec 26, 2018 - 6:01 pm)

His model is for the proles which probably constitutes half of the country. These are the people you see at 7/11 every Friday buying $50 worth of scratch offs with each pay check. He hates credit cards because if you gave those people a card with a 10k limit most of them would have it maxed out in a month. It's sad but true.

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walkingparadox (Dec 26, 2018 - 6:08 pm)

I don't disagree that his advice is aimed at that audience. However, a lot of the people who call in seem to have solid jobs and income who have made poor choices. Once he gets them out of debt, with their "$110K combined household income", they should be taught some skills to build on the basics. Nothing wrong with spending less than you make, eating rice and beans, yadadadada, but once you are out of debt what are you supposed to do with his advice? Keep it all in the bank? Put airline flights, hotel reservations, concert tickets on a debit card?

Most of the people who go and buy scratch offs aren't looking for financial advice, wouldn't listen anyway, and really don't care.

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david61983 (Dec 26, 2018 - 6:29 pm)

I don't know. Does he honestly tell people not to contribute to their 401k? That's probably the first thing to do once out of debt and you have that 6 month emergency fund. Then live within your means. It's not rocket science.

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defensivelawyer (Dec 27, 2018 - 12:24 pm)

http://fulwilerlaw.com/dave-ramsey-hates-bankruptcy-but-dont-listen-to-him/

hypocrisy

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superttthero (Dec 27, 2018 - 12:53 pm)

Dave Ramsey is doing the equivalent of getting the fat masses to use stairs instead of taking the elevator and to have a glass of water before a meal. Nothing more.

Imo, this is a good thing.

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walkingparadox (Dec 27, 2018 - 1:01 pm)

I agree with you.

I do think that his absolute rules are problematic long term, especially his disdain for CC and credit scores.

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superttthero (Dec 30, 2018 - 2:29 pm)

Med school friend who complains about debt (400k a year rad onc) sent me this:

Even people with high incomes are idiots.

https://youtu.be/OJ9xyw3iHnk

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clocker1 (Jan 1, 2019 - 12:06 pm)

Paying 8K on 80K debt is a potential scam.

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superttthero (Jan 1, 2019 - 12:09 pm)

Agree, but either she's dumb enough to fall for the scam or not smart enough to take a 10 to 1 deal with that income.

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bigsal (Jan 1, 2019 - 1:43 pm)

My money is in scam.

If this is private and she never paid on it I wouldn't start now. Any payment now may reset the statute of limitations.

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demwave (Jan 1, 2019 - 9:19 pm)

Ramsey is talking to lowest common denominator people. Most people dont know how to use debt. Debt in the hands of a savvy operator can make you wealthy but in the wrong hands can be deadly. Robert Kiwosaki says to differentiate between good debt and bad debt. Ramsey makes no such distinction. If your a hammer everything looks like a nail!

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thecharmingmresq (Jan 2, 2019 - 9:18 pm)

Rich Dad Poor Dad explicitly mentioned going into steeply leveraged real estate in 2005-6. That he escaped alive is a miracle

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fettywap (Jan 2, 2019 - 2:59 pm)

My workplace sent an email today that we can take his course. If we complete it, the $109 fer is refunded. Um, no. Doesn't seem appropriate to me for it to be offered, but whatever.

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demwave (Jan 2, 2019 - 5:31 pm)

Ramsey is more like a cult. The cult of God NO DEBT. Nothing else matters. Your wealth, lifestyle, happiness, getting laid etc. If you have no debt your God is happy!

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