Saturday, December 19, 2009

How We Think About Money : Part 2

I had a comment on my last "How We Think About Money" post that I thought was worth discussing...

Anonymous Anonymous said...

Be careful with that credit score - it affects your car insurance premiums, property insurance premiums, any rentals you might want to partake of, mortgage rates, even jobs, as employers often check credit scores. Ramsey ignorantly assumes that people must go in to debt to build a credit score. This is not true. If you use a credit card, pay it off each month. You're building a credit score without going in to one penny of debt. Ramsey has no problem with people paying more for insurance, etc, possibly missing out on a job opportunity, by adhering to his little set of simpleton financial 'rules'. Think it through - Ramsey's advice is only advantageous to those who have no financial savy at all, and is useless for those who are in a stable financial situation and in a position to start building wealth. I wouldn't have been able to build the wealth I have today if I'd listened to his advice.

December 19, 2009 6:01 AM

Blogger Jonathan said...

Anonymous -

Good thoughts.... some of which i partially agree with. in other areas I think you're missing the point.

Firstly, I still have 1 credit card which I've had for quite some time, and I decided to keep it open for the very reasons you described... I just didn't want to have multiple credit cards open when I don't need or want them. I've got a long credit history with my bank, my mortgage is always current, my bills are always paid, and I've never missed a payment on anything. I'm sure my credit will be just fine... it's not that I'm looking to destroy it - I'm just choosing to live a lifestyle that isn't dependent on it.

Secondly, you say you wouldn't have accumulated the wealth that you have if you had followed dave ramsey's plan.... well good for you, you have money! That's not the primary goal of these financial plans. These plans are designed to create financial peace and security, not just wealth. These goals involve nurturing marriages and families, it's about more than wealth! There is absolutely nothing wrong with having money, in fact, these plans help you accumulate savings and set you up to have much more money in the future... but the ultimate goal is financial peace.

Thirdly, I am one of so many North Americans that got myself into a good deal of debt when I was younger. I discovered firsthand how EASY it was. It took me years to dig myself out of the hole i dug myself in my first few "adult" years. After all that, I made a choice never to put myself in that position again. These debt-avoidance plans have given me a freedom in life that I wouldn't have had if i had just stuck to the status quo, financed everything i wanted, and accepted a debt-laden lifestyle as the norm.

I'm not interested in simply doing whatever I can to accumulate wealth. That's not my aim, nor is it the aim of these types of programs. It's not about accumulating money, it's about living in such a way that you're no longer consumed by it.

I want to cultivate a debt-free lifestyle because I do not want to be a slave to money and debt. You do not need to make $250k a year to do this. Wealth is great - living a lifestyle of financial peace is even better... and many wealthy people do not live in financial peace!

You're right about one thing though - These plans are designed for people who need help with money... people who are unorganized or undisciplined with their money. However, you seem to think that this fact makes these plans irrelevant. On the contrary, I think the majority of Americans fall into this category. I know I did!

So I would ask....What's wrong with encouraging people to take charge of their financial situation, and free themselves by aggressively eliminating debt?

Thanks for your thoughts -



Anonymous said...

Amen brother, preach it!!

Anonymous said...

Jonathon, don't think for a minute that financial peace does not refer to gaining wealth, that's precisely what it means. It is indirectly related to marriage/family/relationships because it requires the cooperation of all to get there, and having wealth eliminates the friction related to financial woes. Wealth means that when a loved one needs medical help he/she can't afford, you have the financial means to be able to provide that help. Wealth means that if one partner becomes ill or disabled, a huge financial burden isn't placed on the other partner. Likewise if one partner loses his/her job. Wealth is not having to worry about how one will live in old age, how meds will be paid for, how entertainment will be afforded for that long sought after free time in the golden years.

If you don't understand that your financial moves now are an act to get to the point of financial peace (yes, wealth), then unfortunately you may never get there.

Getting back to Dave Ramsey, what do you think he means when he says "Live like no one else, so later you can... live like no one else"? He's talking about reaping the financial freedom of the years of deprivation that it may take to get to the point where you really don't need to think about money anymore, a time when you can loosen those purse strings and enjoy travel, entertainment, whatever your heart desires. It is NOT to deny yourself material goods and luxury your entire time on this earth. Ramsey himself drives a luxury car, and that's ok because he can afford it, he is wealthy.

Jonathan said...

Anonymous - Maybe you didn't read some of the things I said -

"There is absolutely nothing wrong with having money, in fact, these plans help you accumulate savings and set you up to have much more money in the future..."

I'm not a money hater, and I don't have any desire to deprive myself or my family intentionally because of some moral imperative. Quite the opposite, I'm trying to set myself up to be more secure financially in the future.

Wealth and Financial Peace are not synonymous. Like I said before, I've known some wealthy people that stressed about money 24/7. That's not appealing to me... and that's why wealth is not my goal... Financial peace is.

Again, I'm talking about paying off debt, and trying to live debt-free. I don't see how you can tell me that's a bad idea?

Would you be happier if I financed a Mercedes for myself this Christmas?


Jonathan said...

Oh and when I say "more financially secure in the future", I mean "have more money", if that's easier to understand.

Of course my decisions now affect how well-off I'll be down the road - That's exactly what I'm talking about!

Anonymous said...

"Again, I'm talking about paying off debt, and trying to live debt-free. I don't see how you can tell me that's a bad idea?"

It's interesting that you interpreted something I said as indicating I felt it was a bad idea to live debt-free. That's not the case. My original message to you was to be careful with your FICO score, it IS important, despite what Dave Ramsey says. You do not have to be or stay in debt to have a good FICO score, and it affects the price and availability of several relatively high ticket things in our lives.

I absolutely agree that if one has problems buying too much 'stuff' with a credit card, then a credit card is not a good idea. But once over the hurdle of becoming debt-free, it's important to treat the core problem, not a symptom. That means to get at the root of why the person was spending more than he/she has coming in. Is it that that person feels insecure and needs to try to keep up with what friends/family are buying? If so, what's the source of that insecurity, and what can the person do to enrich their lives so that they don't feel 'less than'? Maybe a little philanthropy? Training? New skills/experiences?

If the problem is not that the person is buying a lot of unnecessary 'stuff', then perhaps the core problem is that the person needs to work on the income portion of the equation - get in to a new career path that is more financially rewarding.

Once the core problem is addressed, then that person will be truly responsible with money, and can use credit cards to his/her advantage. Credit cards are not inherently evil, it's what the cardholder does with the card that can cause problems.

As for wealthy folks who still stress about money, perhaps they only give the appearance of wealth (and there are plenty of folks who fall in to that category). A person can live beyond their means making $50k a year or $500k a year. The person who is making $500k a year and spending $600k per year is not wealthy.

If a person has $20M in the bank and is still stressing over money, then that person is going to stress no matter what - if you look more closely you'll see that that's how they handle life in general. With the little I know of you from your writings, I don't think you fall in to that category. You seem to have a good head on your shoulders, with good solid priorities. That will take you far.

I am pointing out that if you blindly follow the advice of Dave Ramsey or others of his ilk, it might not take you where you want to go. Take the advice that makes sense from each of these folks, discard the rest. Don't lose sight of the fact that they are first and foremost entertainers, and they must have a well-packaged, distinctive shtick to stay behind the microphone and/or in front of the camera, and it must be a 'one size fits all' set of teachings to the masses. It's important to harvest the advice that fits you, and leave the rest for those it does fit.

Jonathan said...

You've got a bunch of really good points here.

"A person can live beyond their means making $50k a year or $500k a year. The person who is making $500k a year and spending $600k per year is not wealthy. "

"If a person has $20M in the bank and is still stressing over money, then that person is going to stress no matter what - if you look more closely you'll see that that's how they handle life in general."

These are both really great thoughts, and you had some other great thoughts in there as well.

I don't think our points of view are really that far removed from each other....

My perspective is from one who was (in the not too distant past) mired in debt disproportionate to my income, and who had some pretty unhealthy spending habits. When I was thinking about getting married, I recognized that some things needed to change.

After reading one of Dave's books, I felt empowered by some of his ideas, because it felt like "tough love". I realized the importance of long term planning, and the amount of satisfaction that can be derived from buckling down and improving my financial situation through short-term sacrifice and hard work.

There was also an element of "sticking it to the man" that appealed to me. Haha. Maybe that particular motivation is not ideal...

I don't think that financial institutions are evil. However, I do think that banks and credit card companies make it as easy as possible for people to get in debt, and STAY in it. Credit Card companies in particular make the most money by keeping people in debt indefinitely. It's in their best interest for their customers to fail to free themselves of debt. That makes their goals at odds with mine.... and that's why it feels so good to CANCEL a credit card.

I agree that keeping a healthy credit score is important. I guess that "stick it to the man" tendency gets the best of me sometimes.

Anyways.... Great thoughts and thanks for the back-and-forth. I appreciate your perspective, and you've given me a few things to chew on.

Have a great Christmas!


Anonymous said...

Wow. I've never read(or heard) such an intense debate about finances. It's like how I like for all color crayons, markers, and colored pencils to be in rainbow order. Live live loud everyone! You don't get a second chance at life!