Why Entrepreneurs Think Leveraging Debt Is Smart
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- Опубліковано 15 кві 2024
- Why Entrepreneurs Think Leveraging Debt Is Smart
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A friend of mine worked in sales. He got hired on at a local chain furniture store as a management trainee. His first lesson, day one, was “we don’t sell furniture…we sell credit”. That’s where their money was made.
True, but I only use the 0% for a year or year and a half and if the couch is not higher than others I'm looking at, not a bad deal.
@@deb9806 Congrats, you're overpaying by 10-15% vs. using cash. Furniture stores do not loan money for free. They inflate the prices for their cost of money. If you remember this one phrase, it will serve you well throughout your life in business, job, relationships, politics, etc.
"There is NO SUCH THING as a free lunch."
@@deb98060% financing just means the interest rate was added at sticker.
@@deb9806 Most people don’t pay it off in time.
"Ford Motor Credit makes more than Ford"
This is true and absolutely not stated often enough ... there's an excellent video on YT called "How Airlines Quietly Became Banks" that lays it all bare ... i imagine this is not news to anyone here, though
I used to have a United card. That video convinced me to never go back. I never paid a dime in interest and that card probably cost me hundreds if not thousands of dollars in the 2 years that I had it.
The tractor scam. You actually buy down the intrest rate when you purchase. 0% is you buying down the rate from 8% on average. A tractor I was looking at that was 0% was 25% more.
Dave having to listen to this guy is so priceless 😂 never stop radio, Dave!
0% financing usually has a cash price. For a Bobcat skid it might be a $7,000 cash discount so the financing is actually $7k not 0%.
What a great video. I was fortunate enough to find Dave a decade before opening my own business. I’ve been in business for just over 5 years and have never held debt and laugh when the bankers try to talk me into a business credit card. I know so many business owners and friends in general that think they’re making so much money on cash back credit cards. I guess I’ll never know.
One of the best dave ramsey episodes yet..👍
Dave isn't addressing one thing that is often on the mind of the buyer. If I buy it now I can start the depreciation on this year's books. If I save up to buy it I might not have anything to deduct this year at all.
love the farmer story
THERE IS NO SUCH THING AS ZERO PERCENT FINANCING! Every lender charges money to lend; nobody borrows money for free. That price at zero percent is an inflated price. They just raise the price of the equipment and call it zero percent. You can't even pay it off early and save money!
So, the 4,000$ worth of appliances I paid, for when I bought my brand new manufactured home last year, that clearly stated "0% INTEREST if paid in full before × date" is fake? If so, I got a good lawyer that can sue for breach of contract. I wonder if my furniture store that stated the same exact thing is fraudulent as well. If so, thanks for lmk because ima be RICH
@@PhuckUA-cam-dw7suI think you didn’t comprehend the statement… your example of appliances at $4k is inflated price that already has the would’ve been interest on it.
In reality it’s more like $3k worth of appliances and and 8% interest for 3 years or so… but if pay that off early you can save on interest.
Paying off a $4k loan with priced in 0% interest. Has zero savings cause you bought the interest to begin with unlike $3k worth of appliances at 8%
@gabrielgonzalez6456 "in reality" EVERYTHING is inflated. Cars, houses, groceries, etc etc. In reality, if the price for an item is × & "goes down" next year, there is something called inventory & new products. If I was to pay off the remainder on my house and save × $ from interest, "I still bought the interest" on the house that would of been 1××,××× dollars AFTER the interest? I think people live in delusion because EVERYTHING "is inflated". No matter what it is.
@@PhuckUA-cam-dw7su yes. Your $3700 appliance price is shifted to $4000 with 0% financing to make you feel like you are getting a better deal.
@Gruuvin1 IDK why ya'll think your out smarting me by saying stuff like this 🤣 EVERYTHING WE buy IS inflated. Make sure you get everything you own for FREE because it's "inflated" 😭. Even if you "pay cash" as Ramsey preaches your still buying inflated items 🤷. Must of gotten the attention from the 55+ crowd here. Grandpa still says "you can still buy a good running truck for 500$!" ☠️
I run a business and I’ve never done anything on credit other than managing all purchases through our credit card for the 1% back. It’s all backed by cash on automatic payment. 0% loans aren’t an issue if you have the cash, but at least get short term treasury bonds or something to make money off of it.
0% interest credit helped me pay down my cards fast, no high interest eating up my hard earned money. Dave doesn't like it but my Disney card years ago was only used for transfers, 20% store cards, etc. Every payment had the principle go down and not get eaten up by interest.
I'm glad there are the few that know this, adopt this, & apply this with much success. Everything I bought for my 1st brand new mobile home was financed at 0%. Best buy & conns. I've paid them both off WELL before the terms ended. Actually saved ~1,000$ on interest alone. Also, my AMEX blue card has made me ~400$ this year alone! Plus a very low DTI & good credit. Once things go down I'm FINANCING that older porsche 911 😊
I did the same thing to quickly pay off credit card debt years back. The problem is that most won't stop using them and they end up in more debt than they were before. If disciplined, it is a great way to quickly get rid of the pain, but the bank is counting on folks using that card again. And then the payments are distributed across the debt proportionately so the 0% debt is paid down while the new purchases rack up tons of interest in the background. Promo rate cards are a bigger scam than the standard ones if we don't know how they work.
@@phillipchristensen3202 it’s not really a scam, you just have to educate yourself and know yourself. I had 0% for furniture for 18 months and paid it off earlier after shopping and knowing I couldn’t get the item cheaper. I have taken out loans on cars for a low interest because my credit rating is great and paid it off earlier and it was my choice not to pay a car in cash. That isn’t always horrible but you need to know what you can afford and what you can pay off. I pay off my cards every time I buy some thing and I get hundreds of free points, there is no one that’s going to tell me that that’s a bad thing when I’m not paying anything to the credit card yearlyor fees I understand that people have addictions, but I doubt Dave would want liquor stores closed because of alcoholics or gambling closed because some people can’t stop at a lottery ticket or fast food places closed because some people are dying from eating junk every single day . We have choices and we need to educate ourselves on what we can do to help if we have a problem. I don’t demonize something because of how someone else handles it.
The only thing Dave said that’s correct is “I am and idiot.”
Caller: "Hi Dave, my name is Joe Smith and I want you to give me permission to borrow money for X".
Dave: "No." Then proceeds to dismantle the idea.
This sums up ever single call, every single time. Everyone thinks they are the exception to the rule. No one is the exception to the rule.
I don't want to call debt a necessity, but it allows you to have a significantly larger amount of flexibility when trying to expand rapidly. It doesn't have to be a very big portion of a company's capital structure, but it is necessary to scale quickly. Obviously, you can build a company without debt, look at the Ramsey company. Maybe this doesn't apply in this situation given the fact that he's talking about "entrepreneurs," but larger companies do largely rely on at least using some amount of debt to expand, especially when needing to finance large fixed assets. And that should be ok, Dave doesn't freak out on people for having a mortgage, he shouldn't freak out on businesses either for similarly important purchases.
It is safe not to get into debt but we couldn't have grew without it. There was new machine that made it faster and cheaper to produce products for us. We couldn't pay cash. We financed it. It paid for it self in less than a year we doubled revenue and got tax benefits
Told my kids when they were young. Everything you can touch someone has paid for is for sale! And is also taxed or will be taxed.
I hate when people call for advice and continuously cut off the person that they’re asking help for. Just shut up and listen lol
Was that farmer story is good defense to his argument or question? Didn’t totally land for me..he’s getting 3k?
He explains it better when people call and say that if they pay off the house they lose the interest deduction. What he meant to say is that if you pay $9,000 of interest, it saves you from paying $3,000 in taxes. But you still paid an extra $6,000. In this example is not quite a quarter for a dollar, that typically is the case when he talks about houses. He says that paying $10,000 in interest saves you from paying $2,500 in taxes. Basically, you pay a dollar, so you don’t pay a quarter. It only makes sense if you REALLY don’t want to give 💰to the government 😂😂
@@masoquistaeo thanks makes sense. I thought he misspoke.
5:25 I see. You where "focused" on getting "the point across". Without consideration of any loss. However though, the caller has a really really controlled, ego. Good for you.
1. Whether or not leverage is good entirely depends on the details of the loan and the opportunity available.
2. Even when dave tells the story about the farmer, it doesn’t support his point. Yeah you’re paying $9,000, but you’re paying the money out either way. I’d still tell him to just pay.
What Dave leaves out is what you earn with the cash you have available when borrowing. Pop Quiz...your next pick costs 90K. Interest on the loan for 60 months is 8% and you're only earring 5% in your money market account. Pay cash or borrow?...BORROW!!! If you said pay cash you lose money over the 60 months. (Hint: You pay simple...you earn compound.)
The financial people who bash on Dave for this are just like a new CEO with a finance background who drives the company into the ground because he doesn’t understand people.
When your house is paid off that boss you hate has no leverage or power over you. You’re more likely to take smart risks and less likely to stay in a low paying job.
New equipment might make more money
"might".... And if it doesn't?
If it doesn't they'll sell it@@sidwhiting665
Save doesnt like it because he managed to build in a time without requiring it.
Times are far less simple now. Nor is it efficient.
That is not what leverage is. Leverage is making a profit (he's at 20% of revenue) on othe rpeople's money. If you don't have the money, you can still earn a profit for the costbof the interest. And with inflation, the money becomes cheaper in the future.
It’s weird how in Dave’s mind a couple thousand dollars in interest paid is a disaster but the same amount in interest earned is peanuts. $6000 sounds like a pretty good pay off just for shuffling a little money around.
4:53 when will you let him speak?
Leveraging debt IS smart… if you know what you’re doing. I made over $50 million doing this. I made it from real estate though.
You made $50 million and have time screw around making comments on Dave's YT channel?
Proof, or it never happened.
@@sidwhiting665 I have plenty of time to do this.
@@sidwhiting665 I have plenty of time to do this. The majority of my income is passive, giving a lot of time to do whatever I want. You can have people run your investment properties for you. This is common practice among property investors, especially those who own multiple properties. These property management companies handle a wide range of responsibilities, including tenant screening, rent collection, maintenance and repairs, and even legal compliance. They handle all of this for me, giving me time to do whatever I want. It's interesting that you think I cant watch UA-cam and make comments because I make this money. Anything else?
@@sidwhiting665 I have plenty of time to do this. The majority of my income is passive, giving a lot of time to do whatever I want. You can have people run your investment properties for you. This is common practice among property investors, especially those who own multiple properties. These property management companies handle a wide range of responsibilities, including tenant screening, rent collection, maintenance and repairs, and even legal compliance. They handle all of this for me, giving me time to do whatever I want. It's interesting that you think I cant watch UA-cam and make comments because I make this money. Anything else?
@@sidwhiting665do you think people just have no free time or don't take a break from work?
Ok but the farmer could have invested the 80k he saved and done better than paying cash. My gosh Dave stop keeping people poor.
He's really charismatic but I think wrong.
1. Save a percentage of taxes through write-ofs
- I rather pay 6k a year than 90k once (more optionality in the form of money for longer)
2. You get sub-par quality if you use 0%-financing
- Maybe, don't know, my point is more on debt generally
3. You buy differently (used, cheaper through negotiation, etc)
- Probably, but that's not possible unless you buy tools for yourself or are a second hand dealer (only applicable to small subset of businesses)
4. You don't get a lot of interest on money in the bank
- True, but who has their money in the bank, unless strategically? Money has to be used productively (and then it also generates yields that are worthwhile).
5. "You walk different"
- It's all in your head. Meditate or something and don't overleverage.
Second point of sub-par quality… it’s more like overpaying for a zero percent financing. The interest is built into the price. Farming equipment is actually a lot cheaper when paid in cash.
All you the other fall when the equipment is actually 20-25% cheaper once you pay cash
2:20 talking over people, getting and putting the guard up. Really really bad!!!!!