Where does the extra money come from?
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  1. #1
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    Default Where does the extra money come from?

    I have been using Dave's steps for about 4 or 5 years now. I'll admit I got less gazelle intense for some of that time, and really didn't pay much attention to what I was spending. However, I did pay off all loans, credit cards, car loan, etc. We only have our house payment and usual things like utilities,etc. Right now I am going back and focusing on the big emergency fund. I will have that funded by the end of the year.

    Here is my question.

    I've thought a lot about the baby steps, and I've read the book probably 5 times (once a year).

    Once you get past the debts, get your full emergency fund, and then start your 15% investment in mutual funds... well, what if that takes all the extra money you have? then you are supposed to fund the kids' college funds (with what?) and then you are supposed to pay off your house and then you supposedly have all this money to invest and give.

    I don't see how that happens. Once you take the extra money you were using to pay off debt, and apply a lot of that towards your retirement fund, and then, let's say you even skip the college funding, you start paying your mortgage down. Ok, that might take 10 more years! So you can't even start on step 7.

    And all during this time, I'm still living on the tight tight budget I set up to be able to do all of this...

    I like controlling my money, but in reality, I don't see how I will ever really have any more money to spend than I do now, if I follow Dave's advice. Not for a long long time, and by then I'll be retired (I'm 49 now). Am I really going to be able to live on $40 a month of entertainment money and $100 a month grocery money for the next 10 years until I pay the house off?

    Does anyone else see how this is true? That you only have a certain amount per month that gets freed up by payng down debt, and when you ramp up investing (this step does not go away), ramp up saving for college (may be years and years before you finish this step), and then ramp up paying off the mortgage (again may be years and years). where does the extra money come from?

  2. #2
    Registered User Dancing Lotus's Avatar
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    I admit , I believe that much of that depends on your income increasing over time.

  3. #3
    Registered User Lindsey's Avatar
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    It's been a long time since I have read the book, but I think I remember... Live like no one else, so you can live like no one else.

    Sometimes it sucks, but think of your retirement! You won't be a Wal-Mart greeter!

    Hang in there.

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  5. #4
    Registered User PrairieGirl's Avatar
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    I dont think the point is to have your house paid off like your credit cards, in say 2 or 3 years. Its a much bigger debt. When it comes to your retirment, you're saving that money for your future which maybe 20, 30, or whatever years off, and not somtething that will happen in the next 5...

    I get the feeling your looking for instant gratification when it comes to having everything paid off and money saved up for what you think you may need....but it takes time, especially your getting your house paid off.

    Just keep on truckin' and I'm sure in a few years you'll look back on your progress and see your mortgage down significantly, and your savings up!
    Last edited by PrairieGirl; 02-18-2009 at 05:36 PM.

  6. #5
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    I guess I don't really understand by what you mean "extra money"

    Are you staying within the percentage guidelines?

    30% Housing cost
    30% Life (electric, gas, insurance, cell phones, groceries, etc)
    15% retirement
    10% offerings (if you do this)

    That's at the high point maybe 85% leaving another 15% for college savings and mortage pay down.

    Is one of these categories really too high? Might that be the issue?

    Of course contining to increase income over time is "expected" as well.

    On the other hand, yes, it take time to pay down a mortage, in most cases it's going to be able to be attacked like debt can as the number is larger and thus will take more time.

  7. #6
    Registered User fixer's Avatar
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    Quote Originally Posted by AnnK View Post
    I admit , I believe that much of that depends on your income increasing over time.
    AnnK is right. Once your smaller debts are paid and you start allocating for retirement and college, there is an expectation that your income will go up. The problem is that it must increase more than inflation to make a difference. For most people now, not getting a raise is not simply staying at the status quo. You are taking a pay cut equal to the rate of inflation. I don't think you need to give up. I think you hit upon something most people don't think about. For years, the assumption has been that you will get a raise that exceeds the increase in the cost of living (inflation). It was also assumed that your home would increase in value at a pace that would at least keep up with inflation. That is why real estate was always viewed as a hedge against inflation. I think there is ample evidence that these assumptions may not hold true for some time to come. It is easy to say get a better job or another job, but sometimes you just can't. there may be no other jobs or you may already be working two or three jobs. This is why you must live as cheaply as possible ans save all you can. Those two things you can control.

  8. #7
    Registered User Spirit Deer's Avatar
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    I know what you're talking about. You don't see any light at the end of the tunnel.

    I'm not familiar with Dave Ramsey's plan except that I know a lot of people seem to like it. However, I think all things have to be put into perspective.

    We've always been good at putting things off in favor of a future benefit, but I believe that has to be balanced with having some fun along the way. If all you have to look forward to is years of struggle and doing without, it's pretty darn hard to stick with it.

    It doesn't matter whose plan you choose to follow, whether it's your own plan or someone else's. You have to choose whatever is right for you and discard what doesn't work for you. Nothing is 'one size fits all.' Just because someone writes a book telling you one way to handle your finances, that does not mean that person's method is right FOR YOU. Take the elements that work for you and figure out other ways to have what you need and some of what you want. too.

    The way things have been going for us personally, our income is not only not rising due to frozen wages, but it's actually going down because of things like more of the cost of health insurance being shifted to the employees. In effect, that's a pay cut. Add in inflation which is, IMO, higher than what's being reported. I know our groceries have gotten more expensive, and risen more than the low percentages they talk about in the news. That all means our disposable income is radically shrinking, meaning less can be applied to things like CC debts or the mortgage.

    We're doing what we can to pay off our debts, but at the same time we will not put off certain things for the sake of those debts. I watched my parents put off and struggle and promise themselves more fun at retirement, only to see my dad die at the age of 52 before they could do ANY of the things they were looking forward to. I will be 52 in a few weeks. We are not going to wait to travel and see some of this country, even if it means our mortgage will take longer to pay off. We travel on the cheap, but we DO and WILL travel. We've already waited 35 years, and refuse to wait anymore. For us, that's the right decision. You, and each of us, have to decide what our own priorities are.

    I'm not saying those who follow Dave Ramsey's advice are wrong. If it works for you, then it's the right plan. I'm just saying it may not be right for everyone. If it's not working for someone, then the plan may need to be abandoned or modified.

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