My wife and I paid off our house in 2020 after putting together a financial plan in 2017 to reduce debt. We are 100 percent debt free. We didn't make any excuses, we had to pay off student and car loans as well. We are very grateful. Praise to God. Our house is valued at $700k. We are also black :-) so it is possible for anyone to achieve.
@@bawags300_svt8 you wouldn't understand, but i will try to help you do so, in black culture, from a very young age we are taught to spend money on our shoes, clothes, cars so that we are acceptable to others and so that no ones looks down on us or thinks we are "poor". Sadly, spending so much on depreciating "assets" really just sets us for poverty in the future. This has been going on for generations, so many people of color are so worried about impressing others to our detriment
@@boneyn3661 I am sure you are mentally just fine, going around and anonymously posting jabs. I am sure you have lots of friends and family that loves you.
@@gahippie2017 That wasn't a jab, it was my opinion. I won't stoop to your level and make childish judgemental comments like you did. Have a wonderful day, woman.
Being debt free feels wonderful! Paid off house this week and no others debt! Just ordered Dave’s Baby Steps Millionaires. My husband and I feeling super motivated
Congrats!!! I cant understand how people can live in debt when the cost to just live is so high ie property taxes, maint and insurance, food, transportation, etc etc. I m with DR never want anything so much you are going to go into debt for it.,
I’ve only recently stumbled across this guy and I’m at the 6th stage where I can start paying off my mortgage. I had planned on seeing out the next 13 years paying it off but now that’s changed. I’d never thought of paying it off early.
@@frankcardano4142 Happy for you!!! I never knew any of this when I was young. Glad I know it now, plan to have mine paid off in 2031 instead of 2051:)
@@pamwilliams6630 Thank you. The crazy thing is I did know it after graduating with an economics degree 20 years ago. I spent the time and money travelling and partying instead. 😂
Eliminating all debt was the most liberating experience of my life. The peace of mind that it brings in a financially tumultuous world cannot be quantified.
Actually it can be quantified, but that would require you to understand math and realize how much opportunity you sacrificed by not leveraging debt that’s been nearly free to finance for decades.
@@yayano8415 - I find profiting on the debt of others much more satisfying and lucrative. What you say may be true theoretically, but very few can manage debt correctly in practice. Between the theory and reality lie profits. 🤑
@@yayano8415 Lmao, it’s hilarious how bad this advice is but seems to do something for these boomer masses that are bad at math. If you feel a magical weight on your shoulders from having loans, and a relief from it being lifted. I guess sure spend that money for your mental health but a therapist might be cheaper. I feel like a chump not optimizing my money. Just the tax write off is huge for me based on my high marginal tax rate. If you can afford to pay off your house you can afford to invest in highly liquid assets. Think what’s has a high chance of going to shit, your house or the best companies in the world? I feel so much more secure with money than with anything else. In case anything happens, I can take that money and flee. I can’t take a house and flee. Dollar in your pocket is worth 2 in a house.
A very wealthy friend of mine told me this. He hasn't had a house payment since about 1995. He owns several homes, but has payed cash for all. He says it freed him to make investments, and feel safer about it. He's always commented if his business ever failed, he could work at Home Depot and not lose his homes.
That’s what people don’t realize or think about. We paid off our home just over a year ago, and have no other debt. Our total annual housing expenses(electric, gas, property tax, house insurance and water/sewer) if budgeting rather generously is around $8500. Our emergency fund takes this entire number into account, so with a total loss of income, we can easily maintain our housing for at least a full year without worry. The rest of our expenses can be easily adjusted to accommodate. We’re also just entering our later 30s….so it stands to reason that our income is also going to be increasing as time goes on. The difference now is that we’re not reliant on that increase in order to maintain our current lifestyle.
Paid off my house in 2019 sent my last payment in July my company I worked for went bankrupt in August. I was so happy to have made that last payment one month before.
The way I look at it is like this: if I put more money towards my mortgage, it's literally GUARANTEED returns. You can't guarantee anything with the stock market. Yeah, my APR is only 3.125% on my mortgage, and right now for example even in Vanguard's Federal Money Market Fund, it's returning 5%. But it hasn't been like that forever. If I put more money toward my home, I'm literally guaranteeing I'm making more money. People don't view it as MAKING money, but that's what you're doing. If I was supposed to pay $100k in interest, and I only pay $50k, I literally *made* $50k.
Paid off mortgage and not looking back. Make a plan stick to it regardless of whatever happens. It feels like a huge weight lifted off. This is more encouragement to people who are looking at other ways.
I've paid off my mortgage got no debts. Being 45 life just gets better No more monthly mortgage payments. The freedom Feels amazing! I've had to listen to people say why am I working so hard? You need to learn to relax and take a break. It really did get to some people. I choose to ignore them and stay focused on my goals! Getting advice from people who are dreaming of winning the lotto and are lazy. Life is to short to gamble!
I put 500k into stonks on 2019 instead of paying off my 400k mortgage. Today, I still have that mortgage, and my stock portfolio is almost 1.6 million.
For you that was the best decision. I had to make a similar decision two years ago when I sold my last rental property. Walked away with enough to pay off my personal mortgage but decided to invest instead. But that was my situation. Some people don’t have the tolerance for what I did and I understand that.
My parents were forced to sell their home when in their 50's because of health issues. This was such a painful experience to watch, I paid off my mortgage against the advice of my financial advisor. That was such a good decision, no one knows the future.
I was about investing before mortgage. At 35, I was diagnosed with a severe debilitating disease and now I realize I won't be able to work till 65. So our lifestyle has been readjusted and our risk has been readjusted. Paying off the mortgage is now a priority over investing.
But you will still be obligated to pay taxes and insurance, maintenance, upgrades and repairs. If you had kids you will have to pay for college for them. Plus for any divorces that come up unexpectedly.
@@crand20033 and if he had a mortgage, it'd be an even BIGGER monthly expense. Depending on where he lives, he may be exempt from paying taxes. And maintenance can sometimes be done by the homeowners or handy friends or family. At least their biggest monthly expense will be gone.
You could always pull money out of your investments. You can’t, however, just go pull money out of your house or just sell it to get money to pay the bills…
One benefit paying off your mortgage gives you and it's hardly mentioned, is how you view your job. Feels great you don't really need your job that much , and you can tell your boss to do one, any time. Now, that's a great feeling!
That doesn’t make sense to me , if you pay off your house (we have) , you don’t need you job that much ? How so when you have taxes , need health insurance, pay your electric , gas , food . Not to mention it is best to put as much away as you can before retirement
@@annereynolds66 I said that much, meaning you still need to work. However if the boss is being unreasonable, you can push back more than you would have done before, and say no.
Compared to having a mortgage have no rent but some bills I can get any old job at minimum wage or less and I will be fine. With the mortgage / rent I don’t have the freedom and need a certain amount per month. For example.
Good advice Dave. I have many friends, coworkers, financial advisors etc who have preached the opposite for my entire adult life. They claim that leveraging everything possible vs paying cash when possible is the way to long-term wealth. I don't know a single person who's been disciplined enough with their finances and spending for this to work even marginally. Several have lost houses, claimed bankruptcy multiple times and will have to work until the day they die. My parents and grandparents lived through the great depression and instilled in me to live within my means, borrow money only when u have no other options and pay it off asap.
Anyone I know who is living financed to their neck in investments is almost always living beyond their means now and relying on their investments paying off later down the line. If you keep refinancing because its 'tax efficient' as soon as your assets drop in value and banks start recalling loans it isn't long before everything is being sold in a fire sale.
I have several co-workers who are flat broke. They have car loans, 30-year mortgages, student loans, 401K loans, credit card debt, on and on. These are normal, hard working, intelligent folks who I rely on every day. It's almost unbelievable but typical normal behavior in America.
@@Weakeyedominant The key is to live within your means while also applying leverage where it makes sense. Credit cards and personal loans are not cost effective leverage vehicles. A mortgage is.
We are millionaires solely because of the debt we’ve taken on. If we saved up for each rental we have in cash we’d be no where near where we are now. We have 2 million in equity from our rentals and they make us 5k a month after mortgages, hoas, and maintenance costs are figured in. Debt is the reason we are millionaires
Paid off my mortgage in 5 years 😊.. I am 34, single mother of 2 teenagers.. thanks to god and me finding Dave Ramsey.. I am debt free 🎉🎉.. but I don’t have a car 😂.. building cash to get one in 2025💪🏽
Bought a house in the uk for £140k after deposit and already paid off 20k. I earn 50k combined with my wife and we are looking to pay it off within the next 10 years. We are 23 and 25 doing good.
I’ve listened to the arguments that say don’t pay off your house and use your money for other things. I don’t care. Just knowing the mortgage is paid off with such emotional uplift for me. It felt like a huge weight off my shoulders. I will never regret it.
@@zcorpalpha2462 But what about all the ETF/stock bros who have 'crazy' portfolios? Oh but they don't own a house yet, OR they end up paying hundreds of thousands in interest over the life of the loan instead of smashing it down and stopping the banks robbing them blind!
Statistically, what he’s saying is inaccurate. Depending on your mortgage rate, the fastest route to wealth would be to not pay off your house, and instead invest. Your return would be higher than the interest you’re paying
This is the best argument in favor of the pay-off-your-mortgage plan that Dave has presented on the air, from what I've seen. In previous conversations, the "beta" concept never was mentioned.
@@orphanedhanyou lol, when you use math, you make millions more. Dave is Rich but if I had had a successful radio show like him, I would be a multi billionaire already. When I am his age, I will be quite wealthy as well, way wealthier than I would be following his plan.
When Dave says "If you can't buy two of them you can't afford it" he didn't mean it literally when it comes to your mortgage. Heck, you'd be lucky to pay double your original loan amount after 30 years of interest.
A friend of mine first paid his mortgage forward a year. As in if it’s May 2020 his next payment due date was May 2021. That was part of his emergency fund if he lost his job. Then they paid on the principle. Those extra payments certainly lowered risk to an extent. Anyways. Just a anecdote.
@@Force5_Eye_Dev With most fixed-rate mortgages in the USA, extra payments only reduce the principal without reducing or postponing the next month's payment, so paying extra on the mortgage actually *increases* risk until the mortgage is paid off (because the extra cash thrown at the mortgage is unavailable for emergencies and doesn't reduce the monthly expenses).
Hey Dave - your millionaire study shows they paid off houses because at the time, mortgages were likely 6-12% at the time. Long term investment returns are likely 5-10% depending on risk, so one could achieve those returns risk free by paying off a home. It was the smart move - at the time. But the math changes if your mortgage is locked in
He misses this so hard. My mortgage is 3.1% and I’m 28, I refuse to pay extra towards it. I’m full steam ahead on investing 20% of my income in investments
I'm not a financial person but it seems to me that if you pay off your house early you then have a lot more money each month to invest. So we are going to pay off ours, have the peace that brings and add that house payment to the 15% we will be investing while we also pay off the house.
We've had no debt for years, and paid off our house a few years ago. We are MUCH happier now, investing our house payment plus more. Sure, there's a risk in mutual funds, but I don't have to worry about losing my house. I've been laid off a few times. So what? I just got another job. No worries about losing the house.
@@DrSchor The better question might be, "How does it feel to know if you lost your job today, you could do a reverse mortgage on your house and have cash flow for 20 or 30 years?"
3.00% mortgage, a zero beta high yield savings account at 4.75%. I will keep my money in that savings account until the rates are equal, then I will pay off the house.
Dave really needs to stop oversimplifying. This was a fantastic description of the reasoning about paying off the mortgage, you don’t typically hear this part of his thinking. Let’s see more of this!
@@bellmattwebb Why do you need to worry about death? Was you worried before your were born? The time after death is exactly the same as the time before birth.
Dave your wisdom about being debt-free is absolutely amazing you are absolutely right having a mortgage on your house as opposed to not having a mortgage on your house really affects your attitude about life. A person will have better health with no debt than a person with debt
Paying off the mortgage if you can is such a great feeling. The mortgage for 90% of us is our biggest debt. Get your debt gone and erased you are setting yourself up for success.
We paid off our mortgage a couple of years ago and as millennials we feel very blessed. Now with 0 debt of any kind and maxing out retirement accounts a year and saved up 2 year worth of emergency fund. Navigating the unknown high inflationary and recessionary environment gives us peace of mind which is priceless.
I’ve always believed the objective in financial planning is to ensure you meet your needs going forward. So that when you reach retirement you have enough to meet your needs. That strategy has helped me avoid pie in the sky get rich quick schemes. Slow and steady wins the race. The problem for me focusing too heavily on high risk, is that the outcome is not focused on simply needs, but rather more than I need, and as a result runs the risk of leaving me with less than I need. I’m now retired for four years, debt free and happen to have more than I need, but that’s okay.
@@richardjohnson8114 That's why it's important to prioritize your needs. Once you have enough money invested to cover your needs, then reducing low interest debt becomes more valuable.
Wife and i paid off our mortgage back in 2006 just before both of us turned 40 years old. Best decision of our lives. The things we have been able to invest in both 401K's and condo's for rental / passive income / a place to vacation, has really helped us set ourselves up for an early retirement (which means we will still work but fun jobs not jobs that we have to work) . I like to say, We (my wife and I ) never really have to worry about money or the things we want to purchase in life ,,,,because we are always worrying about money and the things, we would like to purchase....lol ... We have always lived well within our means which affords us at times to really enjoy life and take advantage of opportunities when they present themselves.
That is actually a fair point. I don't take Dave's approach but when you put it that way I can understand why so many people need him. I know his program makes sense for some people.
@@samuelfranklin4366 my original comment was re: the comments section, and many commenters said they think borrowing at a low percent and investing at a high percent instead of paying off house is financially wise. it is painfully obvious that is financially moronic
I believe this is the best answer that Dave ever gave on this issue. Finally mathematically he could argue that paying off your house is better than not.
But he didn't actually. He arbitrarily said that a mortgage has a higher Beta than mutual funds. In reality a fixed rate mortgage has zero volatility and thus a low Beta. At the end of the day paying off your mortgage is 100% emotional. If you are a reasonably disciplined investor it doesn't make mathematical sense.
@@richardjohnson8114 With the market making "corrections" with relatively long recovery periods, what does one do at retirement age when the market is down?
@@warrencusick1140 You keep 2 to 3 years living expenses in cash or t-bills. When the market is down you live off the cash so that you don't have to sell stocks when they are down. When the market is up you refill the cash buffer. As a note the S&P 500 is up 5.1% YTD and has a 5 year CAGR of 8.75% As with all stages of life, it's important to set a budget and live within it, even when the market is up so that you have the reserves for when the market is down
@warrencusick1140 if you are taking distributions from your investments/retirement accounts or close to beginning then I would take a look at an annuity. Annuity performance is linked to interest rates and you can get lifetime withdrawals at a 6% or even better draw down guaranteed vs the 4% your stock broker would suggest. You also get benefits of market linked returns without the downside.
Thank you for that explanation. It makes so much sense plus it parallels the concept of percentages you've talked about. It's all about risk. I'm on baby step 2 with a projection of being free of all debt except my home by December 2024 or sooner. All my life I've lived in fear, and now I know it's because of my finances. It's because I never owned a home that was within 25% of my income. I used debt instead of cash for repairs and upgrades. I had cars loans because of course I couldn't afford a car, even a used one. I had savings accounts that I put money in at the beginning of the month and took most of the money out at the end of the month. Investing for retirement was minimal or non existent. I couldn't understand how to actually spend less than I made. These are simple concepts, but they eluded me until I began practicing the Ramsey solutions. Thank you for what you do. I don't know if I will make it to baby step millionaire but today, as a 71 year old, I have hope.
Place any additional proceeds you would have paid on the house into a HYSA (assuming it’s interest is greater than mortgage interest rate). The money is 100% liquid, grows faster than the interest payment and still potentially get the interest deduction- Seems like a win-win
We decided to pay off our mortgage as we were getting close to retirement, about two years down the road. At the time, I was putting 15% into my 401K, while paying extra principal every month. We pulled money out of my IRA to do the payoff, 20 years into the 30 year mortgage. Then I began 20% into the 401K. Life became easier and less stressful and we retired and enjoying life. Debt is a given in life, but getting rid of it gives you a lot of life.
I am a low risk tolerant person and I am a poor investor. Very true Dave. One good thing for me…I’m throwing a lot of money towards my mortgage principal at this point in my life to pay it off as soon as I can. I even hate to look at my 401k statement. 😮 Mutual funds? Oh dear. I’m ashamed to say that I don’t even know what those are. 😟
Do you have an internet connection? Apparently you do. Use it it to study some basic personal finance. It requires pretty basic math and isn't rocket science. Paying off your home is dumb: The S&P 500 has averaged 10.2% over the past 5 years and 9.1% over the past 150 years. If you did not pay off your home and had the cash in the market instead, even if you were stuck with today's mortgage rates, you would still be making enough to pay your interest payment AND an additional 4% profit. With the average house in the US ($434K) and a 20% down mortgage you would make more than $400K profit over the interest payment during the 30 year life of the loan vs buying the house for cash.
@@richardjohnson8114 'Paying off your home is dumb'.....this is the dumbest thing I have ever read! You can throw all the numbers around you want to try to make people think you are smart, but with just that statement, I know you aren't smart. Would you borrow the max against your house to invest it?
@@formula112967 You'll thank yourself only because you can't do the math to show how much you've lost by not investing that same money in an S&P500 index fund.
@richardjohnson8114 what's wrong w paying off the house, so you clear yourself of the payment then invest the principal into the S&P 500? Obviously, one will always have the property tax and insurance payments, but why keep the principal payment?
Being a retired Marine fighter pilot, my risk tolerance is pretty good. I still like the quiet satisfaction of owing nothing to anyone. Investing is fun and interesting but it's good not to depend on the investments for anything.
That's odd because that's precisely why most people invest. They plan to depend on it. If you never need to use your investments then you likely have another source of income that you are depending on, like a job, pension, social security, spouse, etc. It's not like paying off your house eliminates all of your expenses. That said, owning a paid off home is a great position to be in and every homeowner should strive for this. Our plan is to have ours paid off prior to retirement.
Your observation about having other sources of income is a sharp insight--we do. Remember the Great Depression? I don't either, but I can read about it. If there's another one its duration will probably exceed my remaining lifetime so I can't safely depend on most financial instruments. As for investments, I don't really trust them, although they're interesting to watch. We have good mutual funds with income reinvestment and make an adjustment every few years. As encouragement to your plans, I observe that we did OK with a normal middle-class life but didn't really clear all debt and get on the lower rung of wealth until the kids went off the payroll.@@TheFirstRealChewy
It depends on your mortgage rate is. I owe 100k on my house @ 3.1%. Instead of paying off the mortgage I put the 100k in a high yield savings @ 3.75%. Now if something comes up I still have the cash to deal with it and My mortgage is now 0% and Im making .65% on the cash.
Dave knows that if you qualified for the loan, you can assuredly cut out bad habits from your finances and pay that sucker off sooner than later. Then you can do whatever you like with the money. It's not complicated.
I'm glad I made a right decision to pay off my mortgage early and vehicle. We are debt free. I am thankful to God for giving us a reasonable heart to be wise in how he entrusted this blessings. I think we just need to be intentional to pay off our debts. My husband is retire now and have income. Plus we have huge savings I can't divulge it. I migrated from Philippines 28 years ago.
Dave will never stop being wrong on this it seems. A fixed rate traditional mortgage is one of the cases where the lender is slave to the borrower. As a borrower, you hold all the cards - fixed rates, uncallable, and the ability to refinance at will. There is essentially zero risk to holding a mortgage. Dave’s ideas on risk continue to be completely baffling.
A paid off family mortgage in 2019 wasn't the best financial decision mathematically, but even knowing that I can say I made the right choice because of the clarity of thinking it gives you during every subsequent financial decision.
It depends on what the mortgage interest rate is. If you are locked at 2.5% then it pays to save your cash and invest in a diversified growth stock fund that will yield between 7% and 12%. If however your mortgage interest rate is 7% then yeah I would pay off the house. Dave says that the fastest way to wealth is to pay off your mortgage, but if are at low mortgage rate then the math says otherwise.
Dave addresses that in another video. Mathmatically you are correct but people are not machines. When you have no house payment it changes your mindset in a significant way. Also leveraging has risks, if the stock market goes down and I'm desperate for cash then I'm screwed since I'll have to sell my stock at a loss. If the economy tanks and my house is paid off then I'm sitting in my recliner watching Netflix while all the people who just got laid off are freaking out
If I paid off my house I'd probably quit my big corporate job and work part-time and travel more, so my contributions to my 401K would go way down. I know myself, the mortgage motivates me. So I keep working, pay my reasonable mortgage and bank money. I have comfort knowing if I had to, I have enough equity I could sell my current high value South Florida house and downsize to a condo or move to NC and pay cash.
So many factors involved. I'm paying off mine this year simply because of the unknown. Losing a job, leaving a job that you hate to do something more enjoyable, coming down with bad health. I'd say the number one priority/achievement in a person's life would be having the roof over your head paid for. House paid for, car paid for....everything I make will be profit basically.
@@marcusj97 In Austin Tx. My friend in a 1500 sq foot home 3br/2bath pays 12k a year in property taxes. I live in an an apartment in the outskirts and pay 1100/month. Ok, so their property tax comes out to maybe $1200 cheaper over the year, but it is close enough! I invested the rest my money, they sink it into their house. My returns have been better.
The number one way to become wealthy is to increase your income and keep your expenses low. Period. Work on building your value to the marketplace and run with it.
People love to talk about things in terms of the math. The math isn't "wrong"... but the math isn't going to lose it's job and be at risk for being out on the street, hungry and cold. That's just the reality. If you knew your income would NEVER be at risk, then yeah we can blindly follow the math. For 99.99% of us though that's just not how it works.
Paying off your mortgage adds directly to your net worth. Then you have a massive asset and no debts. With NO PAYMENTs, now you can INVEST LIKE CRAZY = Further increasing your net worth. This is why Dave's plan works. I was doing things my way, then I did FPU with my wife, now we do it Dave's way. NET WORTH = ASSETS - DEBTS. Pay off your debts and you will have no payments which means you will have MONEY. I like Dave's plan, I like money. Get out of debt even in high inflation which means everything costs more! So why keep payments around, only to have to keep making payments constantly while also paying MORE for EVERYTHING else too? Meanwhile, wages lag the inflation meaning you have less and less money at the end of each month. Getting out of debt is the sure way to financial success.
Paying off your mortgage has zero effect on your net worth. Your house has the same market value. And you’ve now moved money from cash to cancel out your mortgage. You may FEEL better, you may sleep better at night. But there is zero change in your net worth. ZERO
Paying off your mortgage adds absolutely ZERO to your net worth. You are transferring money from a bank account to a loan. There is no increase in your net worth versus leaving the money in the bank.
It's tough to want to pay off the house early, when my mortgage is 2.7%, and the S&P 500 earns around 11%. I have more in the bank in a CD earning 5%, than I owe on my house, and I also have higher risk investments with other money, if you count the Ai boom risky. I just don't see why I should pay off my house. I paid the points down too at the beginning of the mortgage, to get a lower rate, so I don't want to just waste that money.
@@KatieBellino You are missing the entire concept of leverage. Whatever cash they used to pay off the house is no longer available for anything, unless the house is sold. The S&P 500 has averaged 10.2% over the past 5 years and 9.1% over the past 150 years. If you did not pay off your home and had the cash in the market instead, even if you were stuck with today's mortgage rates, you would still be making enough to pay your interest payment AND an additional 4% profit. With the average house in the US ($434K) and a 20% down mortgage you would make more than $400K profit over the interest payment during the 30 year life of the loan vs buying the house for cash.
Being on my 50s and playing catch up on my retirement savings, I will stick to my target of paying off the house by the time I retire while investing as much as I can now. Time is not on my side...
My plan has always been to invest in the market and have the home get paid off in time. As we get older (I am 58) the thought is how fast can we pay off the house. Our concern is that if something were to happen to my wife and I we don't want our kids to be saddled with any debt. I make more than twice what my wife makes so if I were to die I would not want to leave my wife with any debt. In the past our goal was to focus on investing, knowing that the house will eventually get paid off. While that has worked out well, we desire now to get out of debt and have no mortgage.
That is a great plan. Unfortunatly I turn 60 in 16 months and we still owe $270,000 and change on our home. Home is valued at over $800,000. We think we can do it before I turn 70 years old. @@TheFirstRealChewy
having a paid off house is a good plan never know when you are going to have a job loss or a pay cut or a heath problem. when you house is paid off at least you have a place to stay itf every thing goes to crap
I could pay off my 1st home turned rental home this year, but it makes far better math sense to keep all that money invested (last year made 25%) than to pay off the debt which only costs 3% APR.
It sure does free up a considerable amount of money by paying off your mortgage. I had my investment advisor tell me I was foolish to pay off my house. He stated it was nothing but a "dead asset" and I should not do it. I didn't listen to him and I now own my house. Great video!
We ignored traditional advice and never had a mortgage. We saved cash and bought land, then cash for house shell, then slowly finished it over a couple of years as each paycheck came in. That allowed us to then save/invest huge amounts annually decades before our friends who kept traditional mortgages and could only invest smaller amounts throughout those decades. Compound interest also started working for us much earlier. None of the financial advisors I know who followed traditional advice have more than a small fraction of our net worth. Glad we went our own path, and hopefully you will likewise soon enjoy the benefits of all that extra money to invest. Good luck !
That’s what I think I’m 32. Rate 3.5 for 96 left. I put 400 in my 401k instead of paying the home off. It’s valued double the price now. I don’t think it’s my forever home just for now till kids grow up then I’m going to warmer weather. I’m in Massachusetts.
If you can put 20% down and get a 2.5% interest rate on a thirty year with zero points, you shouldn't be paying off that mortgage with all of the tax benefits etc. Banks won't let you lever up as much as they used to.
I don't care if I "could" make more on investing. Paying off the home gives you peace of mind that investing cannot. Plus, with the money you save from making payments, you can invest it.
Ivan I'm in the same situation as you and so many people holding my breath about losing with mutual funds - want to get out but advisors insist hang on this rocky times we are in shall pass!
I was told that paying off your house early was a bad idea if you have a low interest rate. I owe 134k on my home but if I paid it off tomorrow, I’d only save 6k in interest. Plus I’d lose the mortgage tax deduction. If I invested 134k in the market, I’d make 10% in one year, it doesn’t make sense mathematically
You can't reach into the walls of your home & simply pull cash out.......pay down your mortgage as scheduled maybe adjusting to make that 13th payment a year in your monthly payment & invest your extra money. Should your house be paid off you still need a place to live & that "wealth" isn't even accounted for an an investment application......investing wins vs prepaying that home loan off sooner......
My theory about mortgage debt is rather simple. If the mortgage debt is equal or less than what it would cost you to rent, then it’s good debt and it becomes a living expense more than a debt.
'if your estate tax bill and home insurance equal or exceed the mortgage, you won’t FEEL it much' What is better? a $2000 payment or a $1000 payment? I can most certainly FEEL a thousand dollars. My mortgage payment (principal and interest= $600) just about equals my taxes and insurance ($550), but I make triple principal payments every month ($1800), so when I finally pay off my mortgage, it won't FEEL like I am saving the regular payment of $600, it will BE like I am saving $1800 because that is what I am actually paying every month. And yes, I'll still have the $550 escrow payment to taxes and insurance every month when I finish paying the mortgage off, but that is very cheap rent for my 3 bedroom ranch.
i used debt since 2008 to become multi millionaire. from thin air. i think its better to invest and dont pay off the house because interest rates are super low.
I agree with you, Dave preaches getting out of debt, and at no point will he consider an approach that combines debts in it as long as you get to financial freedom.
I don't find Ramsey's argument persuasive and their he nor this lady are giving the caller credit for how rational his question is. He asks, but I'm not still not hearing the math from them.
Then there are many like me who had a divorce and saw their mortgage increase because of an equity payout to their ex-spouse. There's not much that can be done except putting the nose back to the grindstone after the 10 to 15-year setback.
I hate to say this but its not nose to the grindstone, its nose into the gravestone. Grindstone leads to gravestone. I suggest that you seriously consider moving out of the country as soon as your child support obligations are finished. Life is easier in many other cheaper countries.
Pay off debt like a mortgage as soon as possible. If you're a real estate investor paying off property as soon as possible, frees up capital from rent to buy more real estate.
My mortgage is 3.25%. So I'm getting a loan at 3.25%. You're then assuming I can't get at least a 3.25% return elsewhere over the next 20ish years. Sorry, but I'd be a fool to spend that money paying off my mortgage instead of investing it elsewhere.
buy 2 houses , pay a little as possible on the mortgages. In 15 years, when the values double, sell one, pay off the first. Now you are debt free in half the time of a 30 year mortgage.
I generally agree with Dave on this point, but I would bump up the 15% to 25% and then any extra can go toward the mortgage. I don't think 15% is going to cut it for retirement unless you have a very high income (and don't have the lifestyle to go with it).
You are missing the point he was just trying to make - it’s only 15% while you’re paying off the mortgage. Then it goes WAY up because you can put huge amounts (your entire previous house payment) into investment. It’s not 15% forever. And also keep in mind it’s 15% of GROSS income, not net. Cheers
@@ystebadvonschlegel3295 bingo. People literally forget that when your house is paid you can probably quadruple + your monthly investments for retirement… for me it would be $1000 vs $4000 a month ( if the house was paid off)
@@TheMopar97 yes plus you have conditioned yourself through the discipline it took to get there to make better financial decisions. I completely understand why people argue against it, but they’re wrong 😑
This was really good to hear. He is looking at his mortgage that probably has a 4-5% interest rate and looking at his investments that are making 8-12% and he can't understand why to pay off the mortgage first. Dave is saying that you need to apply a significant multiplier to the mortgage debt beyond the interest rate. Thats the risk factor.
One thing not mentioned about investing as opposed to paying off debt is the taxes. There are taxes on the money you make from investing, but no tax on the interest you saved by paying off the house. Not saying either is better. But like the beta, it needs to be figured in.
Didn’t even think about that. Holy cow that is right. The potential of your investment has to beat the initial mortgage, the interest on the mortgage, and the taxes taken from the investment. While if you beat the mortgage early, you reap the benefit of saved money.
@@richardjohnson8114 you didn't read his comment correctly.....he said you don't PAY taxes on interest saved by paying off the mortgage early.....he said nothing about tax write off for interest paid.
@@formula112967 I read it 100% correctly. The statement he made "but no tax on the interest you saved by paying off the house" is a nonsense statement. There is never tax on the interest you pay on a mortgage.
@@richardjohnson8114 "but no tax on the interest you saved by paying off the house" is not nonsense...he is pointing out the fact that you never pay taxes on interest saved but you ALWAYS pay taxes on income from investments......now you get it!......( if you don't get it, his argument is pro pay off debt before investing and I agree with him)
My wife and I paid off our house in 2020 after putting together a financial plan in 2017 to reduce debt. We are 100 percent debt free. We didn't make any excuses, we had to pay off student and car loans as well. We are very grateful. Praise to God. Our house is valued at $700k. We are also black :-) so it is possible for anyone to achieve.
I am inspired, I love hearing about everyone's journeys. It is what keeps me going.
What does being black have to do with paying off debt?
@@bawags300_svt8 it has a lot cos most black people make excuses!!!
Best wishes in your brighter future :-)
@@bawags300_svt8 you wouldn't understand, but i will try to help you do so, in black culture, from a very young age we are taught to spend money on our shoes, clothes, cars so that we are acceptable to others and so that no ones looks down on us or thinks we are "poor". Sadly, spending so much on depreciating "assets" really just sets us for poverty in the future. This has been going on for generations, so many people of color are so worried about impressing others to our detriment
Mortgage paid off this Tuesday!! Best feeling of security ever! Shackles are gone.
Awesome Hippie, you are Winning at life.
Congratulations! Great job!
If you felt like you were wearing shackles because you had a mortgage, you're messed up.
@@boneyn3661 I am sure you are mentally just fine, going around and anonymously posting jabs. I am sure you have lots of friends and family that loves you.
@@gahippie2017 That wasn't a jab, it was my opinion. I won't stoop to your level and make childish judgemental comments like you did. Have a wonderful day, woman.
Being debt free feels wonderful! Paid off house this week and no others debt! Just ordered Dave’s Baby Steps Millionaires. My husband and I feeling super motivated
Speaking as a man who's ex-wife was a debt maniac, your husband is lucky to have a woman that understands the importance of owing no money to anyone.
Congratulations!
But you will go back into debt when you want a bigger house or a nicer car.
@@crand20033 Not if he saves up first with the extra cash he now has from paying off his house.
Congrats!!! I cant understand how people can live in debt when the cost to just live is so high ie property taxes, maint and insurance, food, transportation, etc etc. I m with DR never want anything so much you are going to go into debt for it.,
I am so grateful for a paid off mortgage. It really does feel great.
I’ve only recently stumbled across this guy and I’m at the 6th stage where I can start paying off my mortgage.
I had planned on seeing out the next 13 years paying it off but now that’s changed.
I’d never thought of paying it off early.
Bravo to you.🌈🌈🌈🌈🌈🌈🌈🌈🌈🌈
@@frankcardano4142 Happy for you!!! I never knew any of this when I was young. Glad I know it now, plan to have mine paid off in 2031 instead of 2051:)
@@pamwilliams6630
Thank you.
The crazy thing is I did know it after graduating with an economics degree 20 years ago.
I spent the time and money travelling and partying instead. 😂
If its fixed mortgage why pay it off earlier if inflation is your friend on your payments.
Eliminating all debt was the most liberating experience of my life. The peace of mind that it brings in a financially tumultuous world cannot be quantified.
Actually it can be quantified, but that would require you to understand math and realize how much opportunity you sacrificed by not leveraging debt that’s been nearly free to finance for decades.
@@yayano8415 - I find profiting on the debt of others much more satisfying and lucrative. What you say may be true theoretically, but very few can manage debt correctly in practice. Between the theory and reality lie profits. 🤑
Actually when you have a million dollars invested like I do you laugh at a moron paying off their stuff b 3% mortgage
@@profribasmat217 - enjoy your laughter and your good fortune!
@@yayano8415 Lmao, it’s hilarious how bad this advice is but seems to do something for these boomer masses that are bad at math.
If you feel a magical weight on your shoulders from having loans, and a relief from it being lifted. I guess sure spend that money for your mental health but a therapist might be cheaper. I feel like a chump not optimizing my money. Just the tax write off is huge for me based on my high marginal tax rate.
If you can afford to pay off your house you can afford to invest in highly liquid assets. Think what’s has a high chance of going to shit, your house or the best companies in the world? I feel so much more secure with money than with anything else. In case anything happens, I can take that money and flee. I can’t take a house and flee. Dollar in your pocket is worth 2 in a house.
A very wealthy friend of mine told me this. He hasn't had a house payment since about 1995. He owns several homes, but has payed cash for all. He says it freed him to make investments, and feel safer about it. He's always commented if his business ever failed, he could work at Home Depot and not lose his homes.
That’s what people don’t realize or think about. We paid off our home just over a year ago, and have no other debt. Our total annual housing expenses(electric, gas, property tax, house insurance and water/sewer) if budgeting rather generously is around $8500. Our emergency fund takes this entire number into account, so with a total loss of income, we can easily maintain our housing for at least a full year without worry. The rest of our expenses can be easily adjusted to accommodate. We’re also just entering our later 30s….so it stands to reason that our income is also going to be increasing as time goes on. The difference now is that we’re not reliant on that increase in order to maintain our current lifestyle.
Paid off my house in 2019 sent my last payment in July my company I worked for went bankrupt in August. I was so happy to have made that last payment one month before.
Congratulations 😊 god bless you.
Are you changing your name to Neo? 🤣🤣
👍👍
Peace of mind is priceless - no debt is the best way to be
The way I look at it is like this: if I put more money towards my mortgage, it's literally GUARANTEED returns. You can't guarantee anything with the stock market. Yeah, my APR is only 3.125% on my mortgage, and right now for example even in Vanguard's Federal Money Market Fund, it's returning 5%. But it hasn't been like that forever. If I put more money toward my home, I'm literally guaranteeing I'm making more money. People don't view it as MAKING money, but that's what you're doing. If I was supposed to pay $100k in interest, and I only pay $50k, I literally *made* $50k.
Paid off mortgage and not looking back. Make a plan stick to it regardless of whatever happens. It feels like a huge weight lifted off. This is more encouragement to people who are looking at other ways.
*weight - there, fixed it for you
@@mikezerker6925
It does say weight
@@coasteyscoasteys I think he fixed it… it said wait before… he (edited) his comment.
I've paid off my mortgage got no debts.
Being 45 life just gets better No more monthly mortgage payments. The freedom
Feels amazing! I've had to listen to people
say why am I working so hard? You need to learn to relax and take a break.
It really did get to some people. I choose to ignore them and stay focused on my goals!
Getting advice from people who are dreaming of winning the lotto and are lazy.
Life is to short to gamble!
How much was your mortgage for?
I put 500k into stonks on 2019 instead of paying off my 400k mortgage. Today, I still have that mortgage, and my stock portfolio is almost 1.6 million.
Perfect example! Kudos
Why don't you pull money out of your house and invest it?
Let's see where you are 15 years from now vs the people with no mortgage
@@weirdnomad8868 i have became a multi millionaire since 2019. would it make u feel better if i went broke in 15 years? lol
For you that was the best decision. I had to make a similar decision two years ago when I sold my last rental property. Walked away with enough to pay off my personal mortgage but decided to invest instead. But that was my situation. Some people don’t have the tolerance for what I did and I understand that.
My parents were forced to sell their home when in their 50's because of health issues. This was such a painful experience to watch, I paid off my mortgage against the advice of my financial advisor. That was such a good decision, no one knows the future.
Sorry to hear this about your parents. How are they doing now, and where did they live after selling their home?
Yes sorry to hear but you need a new financial advisor
I was about investing before mortgage. At 35, I was diagnosed with a severe debilitating disease and now I realize I won't be able to work till 65. So our lifestyle has been readjusted and our risk has been readjusted. Paying off the mortgage is now a priority over investing.
But you will still be obligated to pay taxes and insurance, maintenance, upgrades and repairs. If you had kids you will have to pay for college for them. Plus for any divorces that come up unexpectedly.
you should not think you are paying off your mortgage instead of investing. paying off your mortgage IS investing; in real estate.
@@crand20033 and if he had a mortgage, it'd be an even BIGGER monthly expense. Depending on where he lives, he may be exempt from paying taxes. And maintenance can sometimes be done by the homeowners or handy friends or family. At least their biggest monthly expense will be gone.
@@crand20033 divorces are expected.
You could always pull money out of your investments. You can’t, however, just go pull money out of your house or just sell it to get money to pay the bills…
One benefit paying off your mortgage gives you and it's hardly mentioned, is how you view your job. Feels great you don't really need your job that much , and you can tell your boss to do one, any time.
Now, that's a great feeling!
This.
That doesn’t make sense to me , if you pay off your house (we have) , you don’t need you job that much ? How so when you have taxes , need health insurance, pay your electric , gas , food . Not to mention it is best to put as much away as you can before retirement
@@annereynolds66 I said that much, meaning you still need to work. However if the boss is being unreasonable, you can push back more than you would have done before, and say no.
Compared to having a mortgage have no rent but some bills I can get any old job at minimum wage or less and I will be fine. With the mortgage / rent I don’t have the freedom and need a certain amount per month. For example.
Yes! This is the best part about it. When you dont have a mortgage or any kind of debt, you are free from other people telling you what to do.
Good advice Dave. I have many friends, coworkers, financial advisors etc who have preached the opposite for my entire adult life. They claim that leveraging everything possible vs paying cash when possible is the way to long-term wealth. I don't know a single person who's been disciplined enough with their finances and spending for this to work even marginally. Several have lost houses, claimed bankruptcy multiple times and will have to work until the day they die. My parents and grandparents lived through the great depression and instilled in me to live within my means, borrow money only when u have no other options and pay it off asap.
Anyone I know who is living financed to their neck in investments is almost always living beyond their means now and relying on their investments paying off later down the line.
If you keep refinancing because its 'tax efficient' as soon as your assets drop in value and banks start recalling loans it isn't long before everything is being sold in a fire sale.
I have several co-workers who are flat broke. They have car loans, 30-year mortgages, student loans, 401K loans, credit card debt, on and on. These are normal, hard working, intelligent folks who I rely on every day. It's almost unbelievable but typical normal behavior in America.
@@Weakeyedominant The key is to live within your means while also applying leverage where it makes sense. Credit cards and personal loans are not cost effective leverage vehicles. A mortgage is.
We are millionaires solely because of the debt we’ve taken on. If we saved up for each rental we have in cash we’d be no where near where we are now. We have 2 million in equity from our rentals and they make us 5k a month after mortgages, hoas, and maintenance costs are figured in. Debt is the reason we are millionaires
having no debt and a paid off house is an amazing feeling and I did it by age 50. Dave's tactics work, live w/in your means being the best one IMO.
Paid off my mortgage in 5 years 😊.. I am 34, single mother of 2 teenagers.. thanks to god and me finding Dave Ramsey.. I am debt free 🎉🎉.. but I don’t have a car 😂.. building cash to get one in 2025💪🏽
Congratulations 🎉 I’m currently 30, have started paying more to my principal every month hope to have mine paid off by age 34 as well.
Wow! Congrats!
Bought a house in the uk for £140k after deposit and already paid off 20k. I earn 50k combined with my wife and we are looking to pay it off within the next 10 years. We are 23 and 25 doing good.
Life is uncertain, paying off my mortgage was guaranteed to give me less risk if I were to loose my income.
I’ve listened to the arguments that say don’t pay off your house and use your money for other things. I don’t care. Just knowing the mortgage is paid off with such emotional uplift for me. It felt like a huge weight off my shoulders. I will never regret it.
Don’t listen to that other bullshit , pay off the house 🏡
@@zcorpalpha2462 But what about all the ETF/stock bros who have 'crazy' portfolios? Oh but they don't own a house yet, OR they end up paying hundreds of thousands in interest over the life of the loan instead of smashing it down and stopping the banks robbing them blind!
Statistically, what he’s saying is inaccurate.
Depending on your mortgage rate, the fastest route to wealth would be to not pay off your house, and instead invest.
Your return would be higher than the interest you’re paying
Statistics isn’t Dave’s friend. He preaches emotion not logic.
I sleep so great knowing my home is paid off!
So good z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z No mortgage -z-z-z-z-z
@@mikebingham9700😂😂😂
This is the best argument in favor of the pay-off-your-mortgage plan that Dave has presented on the air, from what I've seen. In previous conversations, the "beta" concept never was mentioned.
I think he usually doesn't go into it because the "math" is never what gets people to stick to the program. When it's "math" they just relapse.
He’s mentioned it before.
But people will still invest and hold on to that mortgage tightly lol.
He’s mentioned it a lot. But the average person doesn’t understand it. I had to Google it myself as I also have a monkey brain.
@@orphanedhanyou lol, when you use math, you make millions more. Dave is Rich but if I had had a successful radio show like him, I would be a multi billionaire already. When I am his age, I will be quite wealthy as well, way wealthier than I would be following his plan.
Common logic tells everything. Beta...... Id say is rather foreign !! Im 65.....never heard of it....and dont really care either. Basic math rules !
Paying off you mortgage entirely reduces risk. Until you pay it off, any extra payments don't reduce risk that much.
So then don't make extra payments?
When Dave says "If you can't buy two of them you can't afford it" he didn't mean it literally when it comes to your mortgage. Heck, you'd be lucky to pay double your original loan amount after 30 years of interest.
What about a recast?
A friend of mine first paid his mortgage forward a year. As in if it’s May 2020 his next payment due date was May
2021. That was part of his emergency fund if he lost his job. Then they paid on the principle.
Those extra payments certainly lowered risk to an extent. Anyways. Just a anecdote.
@@Force5_Eye_Dev With most fixed-rate mortgages in the USA, extra payments only reduce the principal without reducing or postponing the next month's payment, so paying extra on the mortgage actually *increases* risk until the mortgage is paid off (because the extra cash thrown at the mortgage is unavailable for emergencies and doesn't reduce the monthly expenses).
Hey Dave - your millionaire study shows they paid off houses because at the time, mortgages were likely 6-12% at the time. Long term investment returns are likely 5-10% depending on risk, so one could achieve those returns risk free by paying off a home. It was the smart move - at the time.
But the math changes if your mortgage is locked in
Inflation will also lessen the weight of that debt. :!
He misses this so hard. My mortgage is 3.1% and I’m 28, I refuse to pay extra towards it. I’m full steam ahead on investing 20% of my income in investments
@@reaper-sz5tm mines 2.5% fixed
@@aaront936 ditto 2.75 fixed. It’s hard to justify paying extra when it’s the only thing not inflating 😹
I'm not a financial person but it seems to me that if you pay off your house early you then have a lot more money each month to invest. So we are going to pay off ours, have the peace that brings and add that house payment to the 15% we will be investing while we also pay off the house.
We've had no debt for years, and paid off our house a few years ago. We are MUCH happier now, investing our house payment plus more. Sure, there's a risk in mutual funds, but I don't have to worry about losing my house. I've been laid off a few times. So what? I just got another job. No worries about losing the house.
How does it feel to have the huge worry of being house poor.
@@DrSchor How am I house poor? I have no house payment.
What was your interest rate?
@@DrSchor The better question might be, "How does it feel to know if you lost your job today, you could do a reverse mortgage on your house and have cash flow for 20 or 30 years?"
Paying off your home mortgage should ALWAYS take priority over investing! Change my mind.
3.00% mortgage, a zero beta high yield savings account at 4.75%. I will keep my money in that savings account until the rates are equal, then I will pay off the house.
Dave really needs to stop oversimplifying. This was a fantastic description of the reasoning about paying off the mortgage, you don’t typically hear this part of his thinking. Let’s see more of this!
Yes I have to agree ... when I became 100% debt free my life changed dramatically , yes dramatically. I literally have nothing to worry about.
Except for death and taxes. 😞
@@bellmattwebb if your a Christian you think you go to heaven.
@@bellmattwebb well you don’t have to worry about death if…
@@bellmattwebb Why do you need to worry about death? Was you worried before your were born? The time after death is exactly the same as the time before birth.
@@savvageorge that's the problem with existing
Dave doesn't know what risk tolerance means. It's not subjective. There's an objective analysis that removes emotions and "freak out mode" out of it.
Mathematically paying off your mortgage would only make sense if your interest are very high
I think it makes sense to pay off mortgage first with current int rates
Dave your wisdom about being debt-free is absolutely amazing you are absolutely right having a mortgage on your house as opposed to not having a mortgage on your house really affects your attitude about life. A person will have better health with no debt than a person with debt
Paying off the mortgage if you can is such a great feeling. The mortgage for 90% of us is our biggest debt. Get your debt gone and erased you are setting yourself up for success.
We paid off our mortgage a couple of years ago and as millennials we feel very blessed. Now with 0 debt of any kind and maxing out retirement accounts a year and saved up 2 year worth of emergency fund. Navigating the unknown high inflationary and recessionary environment gives us peace of mind which is priceless.
I’ve always believed the objective in financial planning is to ensure you meet your needs going forward. So that when you reach retirement you have enough to meet your needs. That strategy has helped me avoid pie in the sky get rich quick schemes. Slow and steady wins the race. The problem for me focusing too heavily on high risk, is that the outcome is not focused on simply needs, but rather more than I need, and as a result runs the risk of leaving me with less than I need.
I’m now retired for four years, debt free and happen to have more than I need, but that’s okay.
A paid off house doesn't mean you can retire. It just means you need less in order to retire.
@@andrewmarusic1975 It also means you have less invested to provide retirement income than you otherwise would.
@@richardjohnson8114 That's why it's important to prioritize your needs. Once you have enough money invested to cover your needs, then reducing low interest debt becomes more valuable.
Wife and i paid off our mortgage back in 2006 just before both of us turned 40 years old. Best decision of our lives. The things we have been able to invest in both 401K's and condo's for rental / passive income / a place to vacation, has really helped us set ourselves up for an early retirement (which means we will still work but fun jobs not jobs that we have to work) . I like to say, We (my wife and I ) never really have to worry about money or the things we want to purchase in life ,,,,because we are always worrying about money and the things, we would like to purchase....lol ... We have always lived well within our means which affords us at times to really enjoy life and take advantage of opportunities when they present themselves.
reading the comments it amazes me, though it really should not, how many people do not understand Dave is teaching financial peace, not math class.
That is actually a fair point. I don't take Dave's approach but when you put it that way I can understand why so many people need him. I know his program makes sense for some people.
I’m at financial peace with more money.
@@samuelfranklin4366 debt always equals less money and more risk
@@eatpigsnot nobody here is talking about just taking on debt and sitting on the cash. You seem lost.
@@samuelfranklin4366 my original comment was re: the comments section, and many commenters said they think borrowing at a low percent and investing at a high percent instead of paying off house is financially wise. it is painfully obvious that is financially moronic
I believe this is the best answer that Dave ever gave on this issue. Finally mathematically he could argue that paying off your house is better than not.
It's not. His beta argument is a fantasy.
But he didn't actually. He arbitrarily said that a mortgage has a higher Beta than mutual funds. In reality a fixed rate mortgage has zero volatility and thus a low Beta. At the end of the day paying off your mortgage is 100% emotional. If you are a reasonably disciplined investor it doesn't make mathematical sense.
@@richardjohnson8114 With the market making "corrections" with relatively long recovery periods, what does one do at retirement age when the market is down?
@@warrencusick1140 You keep 2 to 3 years living expenses in cash or t-bills. When the market is down you live off the cash so that you don't have to sell stocks when they are down. When the market is up you refill the cash buffer. As a note the S&P 500 is up 5.1% YTD and has a 5 year CAGR of 8.75%
As with all stages of life, it's important to set a budget and live within it, even when the market is up so that you have the reserves for when the market is down
@warrencusick1140 if you are taking distributions from your investments/retirement accounts or close to beginning then I would take a look at an annuity. Annuity performance is linked to interest rates and you can get lifetime withdrawals at a 6% or even better draw down guaranteed vs the 4% your stock broker would suggest. You also get benefits of market linked returns without the downside.
Thank you for that explanation. It makes so much sense plus it parallels the concept of percentages you've talked about. It's all about risk. I'm on baby step 2 with a projection of being free of all debt except my home by December 2024 or sooner. All my life I've lived in fear, and now I know it's because of my finances. It's because I never owned a home that was within 25% of my income. I used debt instead of cash for repairs and upgrades. I had cars loans because of course I couldn't afford a car, even a used one. I had savings accounts that I put money in at the beginning of the month and took most of the money out at the end of the month. Investing for retirement was minimal or non existent. I couldn't understand how to actually spend less than I made. These are simple concepts, but they eluded me until I began practicing the Ramsey solutions. Thank you for what you do. I don't know if I will make it to baby step millionaire but today, as a 71 year old, I have hope.
Place any additional proceeds you would have paid on the house into a HYSA (assuming it’s interest is greater than mortgage interest rate). The money is 100% liquid, grows faster than the interest payment and still potentially get the interest deduction- Seems like a win-win
Yes! And when interest on savings drops below the mortgage interest rate, then pay down the mortgage
We decided to pay off our mortgage as we were getting close to retirement, about two years down the road. At the time, I was putting 15% into my 401K, while paying extra principal every month. We pulled money out of my IRA to do the payoff, 20 years into the 30 year mortgage. Then I began 20% into the 401K. Life became easier and less stressful and we retired and enjoying life. Debt is a given in life, but getting rid of it gives you a lot of life.
Why did you take money out of your IRA?
You should calculate the hundreds of thousands of dollars you missed out.
I am a low risk tolerant person and I am a poor investor. Very true Dave. One good thing for me…I’m throwing a lot of money towards my mortgage principal at this point in my life to pay it off as soon as I can. I even hate to look at my 401k statement. 😮 Mutual funds? Oh dear. I’m ashamed to say that I don’t even know what those are. 😟
Do you have an internet connection? Apparently you do. Use it it to study some basic personal finance. It requires pretty basic math and isn't rocket science.
Paying off your home is dumb:
The S&P 500 has averaged 10.2% over the past 5 years and 9.1% over the past 150 years. If you did not pay off your home and had the cash in the market instead, even if you were stuck with today's mortgage rates, you would still be making enough to pay your interest payment AND an additional 4% profit.
With the average house in the US ($434K) and a 20% down mortgage you would make more than $400K profit over the interest payment during the 30 year life of the loan vs buying the house for cash.
@@richardjohnson8114 'Paying off your home is dumb'.....this is the dumbest thing I have ever read!
You can throw all the numbers around you want to try to make people think you are smart, but with just that statement, I know you aren't smart.
Would you borrow the max against your house to invest it?
Do not listen to Mr. Money above.....keep paying your mortgage down as fast as you can....you'll thank yourself when you are done.
@@formula112967 You'll thank yourself only because you can't do the math to show how much you've lost by not investing that same money in an S&P500 index fund.
@richardjohnson8114 what's wrong w paying off the house, so you clear yourself of the payment then invest the principal into the S&P 500? Obviously, one will always have the property tax and insurance payments, but why keep the principal payment?
It is would be foolish to pay off 2 percent mortgage if your bank can earn more than 4 percent.
Roughly 100% of homes which get repossessed have a mortgage or some sort of secured loan on it
Such a great way to explain why Dave believes what he does, when you’re factoring risk the return is much closer than we realize
Being a retired Marine fighter pilot, my risk tolerance is pretty good. I still like the quiet satisfaction of owing nothing to anyone. Investing is fun and interesting but it's good not to depend on the investments for anything.
That's odd because that's precisely why most people invest. They plan to depend on it. If you never need to use your investments then you likely have another source of income that you are depending on, like a job, pension, social security, spouse, etc.
It's not like paying off your house eliminates all of your expenses. That said, owning a paid off home is a great position to be in and every homeowner should strive for this. Our plan is to have ours paid off prior to retirement.
Your observation about having other sources of income is a sharp insight--we do. Remember the Great Depression? I don't either, but I can read about it. If there's another one its duration will probably exceed my remaining lifetime so I can't safely depend on most financial instruments. As for investments, I don't really trust them, although they're interesting to watch. We have good mutual funds with income reinvestment and make an adjustment every few years. As encouragement to your plans, I observe that we did OK with a normal middle-class life but didn't really clear all debt and get on the lower rung of wealth until the kids went off the payroll.@@TheFirstRealChewy
Good for you! 26k left here. I truly look look forward to being debt free.
It depends on your mortgage rate is. I owe 100k on my house @ 3.1%. Instead of paying off the mortgage I put the 100k in a high yield savings @ 3.75%. Now if something comes up I still have the cash to deal with it and My mortgage is now 0% and Im making .65% on the cash.
Dave knows that if you qualified for the loan, you can assuredly cut out bad habits from your finances and pay that sucker off sooner than later. Then you can do whatever you like with the money. It's not complicated.
I'm glad I made a right decision to pay off my mortgage early and vehicle. We are debt free. I am thankful to God for giving us a reasonable heart to be wise in how he entrusted this blessings. I think we just need to be intentional to pay off our debts. My husband is retire now and have income. Plus we have huge savings I can't divulge it. I migrated from Philippines 28 years ago.
Intentionality is the key! I’m working on this right now and can’t wait to be 100% completely debt free in just under two more years, Lord willing!
Dave will never stop being wrong on this it seems. A fixed rate traditional mortgage is one of the cases where the lender is slave to the borrower. As a borrower, you hold all the cards - fixed rates, uncallable, and the ability to refinance at will. There is essentially zero risk to holding a mortgage.
Dave’s ideas on risk continue to be completely baffling.
Just as baffling as his grasp of basic math.
A paid off family mortgage in 2019 wasn't the best financial decision mathematically, but even knowing that I can say I made the right choice because of the clarity of thinking it gives you during every subsequent financial decision.
"Risk tolerance" is just one medical emergency away.
It depends on what the mortgage interest rate is. If you are locked at 2.5% then it pays to save your cash and invest in a diversified growth stock fund that will yield between 7% and 12%. If however your mortgage interest rate is 7% then yeah I would pay off the house. Dave says that the fastest way to wealth is to pay off your mortgage, but if are at low mortgage rate then the math says otherwise.
Dave addresses that in another video. Mathmatically you are correct but people are not machines. When you have no house payment it changes your mindset in a significant way. Also leveraging has risks, if the stock market goes down and I'm desperate for cash then I'm screwed since I'll have to sell my stock at a loss. If the economy tanks and my house is paid off then I'm sitting in my recliner watching Netflix while all the people who just got laid off are freaking out
This is the answer on this topic I've wanted for a while now. Solid information, thank you Dave.
If I paid off my house I'd probably quit my big corporate job and work part-time and travel more, so my contributions to my 401K would go way down. I know myself, the mortgage motivates me. So I keep working, pay my reasonable mortgage and bank money. I have comfort knowing if I had to, I have enough equity I could sell my current high value South Florida house and downsize to a condo or move to NC and pay cash.
sounds like you can have a better quality of life and peace of mind but choosing not to have it, weird
So many factors involved. I'm paying off mine this year simply because of the unknown. Losing a job, leaving a job that you hate to do something more enjoyable, coming down with bad health. I'd say the number one priority/achievement in a person's life would be having the roof over your head paid for. House paid for, car paid for....everything I make will be profit basically.
Except for property taxes, maintenance and utilities. But, that is much better than also having a mortgage for sure.
@@kbanghart Well yeah I've been paying all of that since day one..lol. Now I pay them MINUS the mortgage..lol. :)
@@marcusj97 why not just rent if the rent is about equal to the property tax? It’s as if you paid off a mortgage
@@zpt4862 how tf is rent the same amount as property taxes? Where tf do you live???
@@marcusj97 In Austin Tx. My friend in a 1500 sq foot home 3br/2bath pays 12k a year in property taxes. I live in an an apartment in the outskirts and pay 1100/month. Ok, so their property tax comes out to maybe $1200 cheaper over the year, but it is close enough! I invested the rest my money, they sink it into their house. My returns have been better.
The number one way to become wealthy is to increase your income and keep your expenses low. Period. Work on building your value to the marketplace and run with it.
People love to talk about things in terms of the math. The math isn't "wrong"... but the math isn't going to lose it's job and be at risk for being out on the street, hungry and cold. That's just the reality.
If you knew your income would NEVER be at risk, then yeah we can blindly follow the math. For 99.99% of us though that's just not how it works.
I love this Beta maths theory being applied to debt
Thanks Dave this was new to me
Paying off your mortgage adds directly to your net worth. Then you have a massive asset and no debts. With NO PAYMENTs, now you can INVEST LIKE CRAZY = Further increasing your net worth. This is why Dave's plan works. I was doing things my way, then I did FPU with my wife, now we do it Dave's way. NET WORTH = ASSETS - DEBTS. Pay off your debts and you will have no payments which means you will have MONEY. I like Dave's plan, I like money.
Get out of debt even in high inflation which means everything costs more! So why keep payments around, only to have to keep making payments constantly while also paying MORE for EVERYTHING else too? Meanwhile, wages lag the inflation meaning you have less and less money at the end of each month. Getting out of debt is the sure way to financial success.
Paying off your mortgage has zero effect on your net worth. Your house has the same market value.
And you’ve now moved money from cash to cancel out your mortgage.
You may FEEL better, you may sleep better at night. But there is zero change in your net worth. ZERO
Paying off your mortgage adds absolutely ZERO to your net worth. You are transferring money from a bank account to a loan. There is no increase in your net worth versus leaving the money in the bank.
@@tinytreepublishing8383sorry I just posted the exact same thing without seeing your comment 😊. Needless to say I completely agree.
@@dondgc2298 nope. I’m 500k richer last time I checked. Oh look, yup, house is still mine free and clear!
@@dk79085 you just keep believing whatever makes you happy.
Did it! Thank you so much for your principals and guidance. It has changed my life not only financially but spiritually. 🙏🙏🙏❤
It's tough to want to pay off the house early, when my mortgage is 2.7%, and the S&P 500 earns around 11%. I have more in the bank in a CD earning 5%, than I owe on my house, and I also have higher risk investments with other money, if you count the Ai boom risky. I just don't see why I should pay off my house. I paid the points down too at the beginning of the mortgage, to get a lower rate, so I don't want to just waste that money.
My parents paid off their house when they were in their 40's. That means they lived another 40 years without a mortgage!
And with their cash tied up in their house earning nothing for them, or for their heirs.
@@richardjohnson8114 How much cash were they able to put elsewhere because they didn't have a mortgage? How much interest did they save?
@@KatieBellino You are missing the entire concept of leverage. Whatever cash they used to pay off the house is no longer available for anything, unless the house is sold.
The S&P 500 has averaged 10.2% over the past 5 years and 9.1% over the past 150 years. If you did not pay off your home and had the cash in the market instead, even if you were stuck with today's mortgage rates, you would still be making enough to pay your interest payment AND an additional 4% profit.
With the average house in the US ($434K) and a 20% down mortgage you would make more than $400K profit over the interest payment during the 30 year life of the loan vs buying the house for cash.
That house is now worth ten times what they paid for it.
Being on my 50s and playing catch up on my retirement savings, I will stick to my target of paying off the house by the time I retire while investing as much as I can now. Time is not on my side...
Finally someone that’s a boomer, speaking true sound advise. Thank you sir!
@@JamesCook76131 someone in their 50’s is not a Boomer. 🤣🤣
Maybe! How's your health?
My plan has always been to invest in the market and have the home get paid off in time. As we get older (I am 58) the thought is how fast can we pay off the house. Our concern is that if something were to happen to my wife and I we don't want our kids to be saddled with any debt. I make more than twice what my wife makes so if I were to die I would not want to leave my wife with any debt. In the past our goal was to focus on investing, knowing that the house will eventually get paid off. While that has worked out well, we desire now to get out of debt and have no mortgage.
Our plan is to invest in the market AND have the house paid off before we reach 60.
That is a great plan. Unfortunatly I turn 60 in 16 months and we still owe $270,000 and change on our home. Home is valued at over $800,000. We think we can do it before I turn 70 years old. @@TheFirstRealChewy
They call it risk adjustment. So in a nutshell, it really depends in your risk tolerance.
having a paid off house is a good plan never know when you are going to have a job loss or a pay cut or a heath problem. when you house is paid off at least you have a place to stay itf every thing goes to crap
I could pay off my 1st home turned rental home this year, but it makes far better math sense to keep all that money invested (last year made 25%) than to pay off the debt which only costs 3% APR.
It sure does free up a considerable amount of money by paying off your mortgage. I had my investment advisor tell me I was foolish to pay off my house. He stated it was nothing but a "dead asset" and I should not do it. I didn't listen to him and I now own my house. Great video!
We ignored traditional advice and never had a mortgage. We saved cash and bought land, then cash for house shell, then slowly finished it over a couple of years as each paycheck came in.
That allowed us to then save/invest huge amounts annually decades before our friends who kept traditional mortgages and could only invest smaller amounts throughout those decades. Compound interest also started working for us much earlier.
None of the financial advisors I know who followed traditional advice have more than a small fraction of our net worth. Glad we went our own path, and hopefully you will likewise soon enjoy the benefits of all that extra money to invest. Good luck !
Probably your financial advisor is broke. He probably owes huge mortgage. So expression misery loves company.
@@hildamiller-3816 Your right. Now when we talk, I refer to my house as that "dead asset". LOL.
My late husband paid off our house 3 months before he died unexpectatntly.
If you have a low interest rate you should invest over paying your house off early. It will cost you millions in retirement.
That’s what I think I’m 32. Rate 3.5 for 96 left. I put 400 in my 401k instead of paying the home off. It’s valued double the price now. I don’t think it’s my forever home just for now till kids grow up then I’m going to warmer weather. I’m in Massachusetts.
If loss job that can cost you a place to live . Best advice to pay off house and still do investing..
If you can put 20% down and get a 2.5% interest rate on a thirty year with zero points, you shouldn't be paying off that mortgage with all of the tax benefits etc. Banks won't let you lever up as much as they used to.
That’s the best video about paying off your mortgage vs investing I have seen 👍🏻
I don't care if I "could" make more on investing. Paying off the home gives you peace of mind that investing cannot. Plus, with the money you save from making payments, you can invest it.
I love finally hearing Dave defend this part of the baby steps
I’ve been losing a lot on mutual funds as well. Hopefully I don’t stop to zero and it comes back up soon
Ivan I'm in the same situation as you and so many people holding my breath about losing with mutual funds - want to get out but advisors insist hang on this rocky times we are in shall pass!
I was told that paying off your house early was a bad idea if you have a low interest rate. I owe 134k on my home but if I paid it off tomorrow, I’d only save 6k in interest. Plus I’d lose the mortgage tax deduction. If I invested 134k in the market, I’d make 10% in one year, it doesn’t make sense mathematically
You can't reach into the walls of your home & simply pull cash out.......pay down your mortgage as scheduled maybe adjusting to make that 13th payment a year in your monthly payment & invest your extra money. Should your house be paid off you still need a place to live & that "wealth" isn't even accounted for an an investment application......investing wins vs prepaying that home loan off sooner......
Do both, immediately!
Calling our bank for a payoff in one week, THANKS DAVE.
My theory about mortgage debt is rather simple. If the mortgage debt is equal or less than what it would cost you to rent, then it’s good debt and it becomes a living expense more than a debt.
Same thought. If it's close to equal, you are now making progress in a retirement investment.
We have three years from house being paid off...just can not wait.
Really appreciate your faithful and logical approach to finances, as articulated in this video.
Hearing Dave talk some maths on this episode was genuinely very interesting
Finish pay my house this month, best feeling in the world, peace of mind dont have a price and i pay for it in only 12 years,thank you for yor advice.
Paying off a mortgage is cool but if your estate tax bill and home insurance equal or exceed the mortgage, you won’t feel it much.
'if your estate tax bill and home insurance equal or exceed the mortgage, you won’t FEEL it much'
What is better? a $2000 payment or a $1000 payment? I can most certainly FEEL a thousand dollars.
My mortgage payment (principal and interest= $600) just about equals my taxes and insurance ($550), but I make triple principal payments every month ($1800), so when I finally pay off my mortgage, it won't FEEL like I am saving the regular payment of $600, it will BE like I am saving $1800 because that is what I am actually paying every month.
And yes, I'll still have the $550 escrow payment to taxes and insurance every month when I finish paying the mortgage off, but that is very cheap rent for my 3 bedroom ranch.
i used debt since 2008 to become multi millionaire. from thin air. i think its better to invest and dont pay off the house because interest rates are super low.
I agree with you, Dave preaches getting out of debt, and at no point will he consider an approach that combines debts in it as long as you get to financial freedom.
I don't find Ramsey's argument persuasive and their he nor this lady are giving the caller credit for how rational his question is. He asks, but I'm not still not hearing the math from them.
Then there are many like me who had a divorce and saw their mortgage increase because of an equity payout to their ex-spouse. There's not much that can be done except putting the nose back to the grindstone after the 10 to 15-year setback.
I hate to say this but its not nose to the grindstone, its nose into the gravestone. Grindstone leads to gravestone. I suggest that you seriously consider moving out of the country as soon as your child support obligations are finished. Life is easier in many other cheaper countries.
Pay off debt like a mortgage as soon as possible. If you're a real estate investor paying off property as soon as possible, frees up capital from rent to buy more real estate.
I would support mutual funds if I got sweet kickbacks like Dave. Index funds and ETFs only.
So does your company let you promote your competitions products or services?
I had sufficient income and followed the most common, pay off mortgage early route to being a millionaire.
That was funny 1:30 mark.I never seen Dave Ramsey laugh so hard.
Dave laughing was the best part 🤣🤣🤣
My mortgage is 3.25%. So I'm getting a loan at 3.25%. You're then assuming I can't get at least a 3.25% return elsewhere over the next 20ish years.
Sorry, but I'd be a fool to spend that money paying off my mortgage instead of investing it elsewhere.
buy 2 houses , pay a little as possible on the mortgages. In 15 years, when the values double, sell one, pay off the first. Now you are debt free in half the time of a 30 year mortgage.
I generally agree with Dave on this point, but I would bump up the 15% to 25% and then any extra can go toward the mortgage. I don't think 15% is going to cut it for retirement unless you have a very high income (and don't have the lifestyle to go with it).
You are missing the point he was just trying to make - it’s only 15% while you’re paying off the mortgage. Then it goes WAY up because you can put huge amounts (your entire previous house payment) into investment. It’s not 15% forever. And also keep in mind it’s 15% of GROSS income, not net. Cheers
@@ystebadvonschlegel3295 bingo. People literally forget that when your house is paid you can probably quadruple + your monthly investments for retirement… for me it would be $1000 vs $4000 a month ( if the house was paid off)
@@TheMopar97 yes plus you have conditioned yourself through the discipline it took to get there to make better financial decisions. I completely understand why people argue against it, but they’re wrong 😑
And by making that statement you are assuming there is a huge stable income and the individual has high discipline which is rare.
And if your home is paid off you need less monthly income pre and post retirement so 15% is closer to being 'enough'
This was really good to hear. He is looking at his mortgage that probably has a 4-5% interest rate and looking at his investments that are making 8-12% and he can't understand why to pay off the mortgage first. Dave is saying that you need to apply a significant multiplier to the mortgage debt beyond the interest rate. Thats the risk factor.
One thing not mentioned about investing as opposed to paying off debt is the taxes. There are taxes on the money you make from investing, but no tax on the interest you saved by paying off the house. Not saying either is better. But like the beta, it needs to be figured in.
Didn’t even think about that. Holy cow that is right. The potential of your investment has to beat the initial mortgage, the interest on the mortgage, and the taxes taken from the investment.
While if you beat the mortgage early, you reap the benefit of saved money.
Mortgage interest is tax deductible, so by paying off the house you have lost a tax deduction.
@@richardjohnson8114 you didn't read his comment correctly.....he said you don't PAY taxes on interest saved by paying off the mortgage early.....he said nothing about tax write off for interest paid.
@@formula112967 I read it 100% correctly. The statement he made "but no tax on the interest you saved by paying off the house" is a nonsense statement. There is never tax on the interest you pay on a mortgage.
@@richardjohnson8114 "but no tax on the interest you saved by paying off the house" is not nonsense...he is pointing out the fact that you never pay taxes on interest saved but you ALWAYS pay taxes on income from investments......now you get it!......( if you don't get it, his argument is pro pay off debt before investing and I agree with him)