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Doubts about financial advices about saving and investing, paying off debt - from Dave Ramsey's book

well, I read Dave Ramsey's book Total Money Makeover and constantly read threads here about how great it is to not have any debt, pay everything early, save for your retirement and so on. Well, I have one question that is kind of always in the back of my mind when I hear or read this kind of stuff:

When are you supposed to LIVE if all your life you cut back expenses and invest all your spare money into mutual funds?

I mean, sure it's great when you are 65 and have 2 million bucks in the account, but how much of a life and what quality of a life I will have left. Maybe at best 20 years of life with most of my time spend seeing doctors? Don't get me wrong, I am not for spending like crazy, but why spend every dime to try to pay off a low interest mortgage instead of using that money for traveling or buying a nice car or motorcycle, doing something you always dreamed of doing and always thought that you can't afford it.

I recently purchased a new car, this is my first truly new car. Since I was allowed to drive I wanted a BMW, but never could afford and now I am in a situation where I can finally "afford" one, so I spend long time thinking on whether I should listen to Ramsey and others( I mention his name, just b/c I read his book) or just buy one. I really couldn't make up my mind: on one side I can buy a cheap and reliable Honda Civic and save a lot of money, but no enjoyment or I can buy BMW, waste(no argument here) a lot of money, but enjoy driving every day. After a lot of thinking I went with BMW - I am young only once in my life, never again will I ever enjoy this car like I can now.

Now second case, my wife and I are thinking about going to Hawaii, again it's a lot of money - money that we can invest of even better put down on our mortgage so we can pay it off couple years earlier, but we only young once, we still don't have kids and there won't be another time like this to go on a vacation, so what do we do???

I can talk about examples like this all day long, but this is getting rather long. So to summarize: I want to say that here in America people obsess over their financial status way too much. It's all about how much equity I have, how much money in the 401k, mutual funds and so on. Again I am not saying you should spend like crazy and run up debt, all I am saying is that you should NOT jump extremely to the other side and start saving every penny so that in the end you are just an extremely rich, but dead guy. Any comments welcome

Reply to
VStennis
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I too have asked this question a lot; and I mostly agree with you. I think the general advice holds because most people are irresponsible (it doesn't have so much to do with money I think). The nuances of risk vs. reward don't work in practice with most people, so a zero-tolerance approach is used. Therefore, anecdotally speaking, I think there is some polarisation here where a lot of people either overspend or oversave.

But your specific situation may differ and only you can judge that. It depends on your potential future income (will your income rise substantially higher than inflation), whether you're well-insured (for catastrophic situations), whether you ever want to retire (you may not because you're doing something you love), whether you have a safety net (rich parents for example), how disciplined you are, etc.

As I've mentioned, I don't think much of debt. I don't think much of money either. I do value life experiences. Money sometimes is required for those, and sometimes not. If there is a life experience you really wish, and it can't be put off (some things are best done single for example), then I'd say take on debt and do it if that's what's needed. But also remember that no one can experience everything (even though I'd love to).

So pragmatically, figure out how much disposable income you need to live a month. Be generous. Make sure you're saving for whatever you need to save. Make sure you have insurance coverage. Budget for all necessary and sundry items. Subtract all these payments from your paycheck. What's left is what you can use to spend as you see fit (perhaps even making a loan payment). Since I don't like debt, a half-hearted compromise I've arrived is to only take on debt for anything in a manner that raises net worth (so in theory you could sell everything and be "debt free", and if you can make the payments as I described above, then eventually you will "own" it completely).

Your point about age is relevant, but it is just having to do with physical ability but your tendency to take risks, your understanding of your mortality, the responsibilities you have to other people who depend on you (not just family), and so on.

--Ram

VStennis wrote:

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Reply to
Ram Samudrala

Can you say "Wal-Mart Greeter?"

Reply to
Heather

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