Sunday, March 29, 2009

Total Money Makeover Take 3

OK....let's look at some of the Money Myths that Dave Ramsey debunks in his book. This is good stuff! To find more myths and to get answers as to why these myths are just that, myths, get the book!

MYTH: Everything will be fine when I retire. I know I'm not saving yet, but it will be OK.
TRUTH: Ed McMahon isn't coming.
The government won't take care of's YOUR job to prepare.

MYTH: Gold is a good investment and will cover me if the economy collapses.
TRUTH: Gold has a poor track record and isn't used when an economy collapses.

MYTH: Cash Value life insurance, like whole life, will help me retire wealthy.
TRUTH: Cash Value life insurance is one of the worst financial products available.

MYTH: Everyone has a car payment. It's just something you do.
TRUTH: False
The typical american has a car payment of $464 dollars/month. If, at age 25, you would invest $464/month into a decent mutual fund instead of have a car payment, by age 65 you would have over $5 million dollars. Hope you like your new car.
A new $28,000 car will lose about $17,000 of value in the first 4 years. To get the same result, you could just toss a $100 bill out the window on your drive to work once a week. Ouch!!

MYTH: playing the Lotto and other forms of gambling will make you rich.
TRUTH: Lotto and Power Ball are a tax on the poor and people who can't do math.
Energy, thrift, and diligence is how wealth is built....not dumb luck.

The average family in America makes about $40,000 per year. Even if they never get a raise, that family will make over $2 million in a working lifetime! Your income is your greatest wealth building tool. If you're tying your income up in debts and unnecessary purchases, you'll never see that $2 million go to work for you.

More MYTHS to be busted soon!!

And Remember, don't even consider keeping up with the Joneses. They're broke and they can't do math!

1 comment:

Frank said...

I think brother Dave is quite good at what he does best: training and counseling individuals to live within their means and free of debt. Indeed, we are 10 weeks into his 13-week Financial Peace University at our church. In the past 10-12 years, we had only aligned our family finances to Dave’s approach about 65-70% of the way — but now we’re trying to seal the deal and take it all the way: no credit cards, month budgets on paper, saving like fiends, etc.

Unfortunately, Dave he falls flat when he bad-mouths precious metals as “stupid.” His mantra that “metals are never used in the barter economies that follow disasters” is a straw man argument (though somewhat understandable, given that some metal and coin dealers seem to imply that metals will be money when the feces hits the fan).

Precious metals shouldn’t be bought/held primarily for a “social meltdown” scenario, but as an historically-reliable store of value.

A couple of ignorant things I’ve heard Dave say recently about precious metals:

• “They have no more intrinsic value than a shoelace.” (IOW, precious metals only have value because man assigns it value and does so arbitrarily — we could just as easily assign similar value to dirt!) I’m utterly amazed that Dave doesn’t grasp fundamental principles of value found in precious metals such as world-wide recognizability and desirability, ease of divisibility and transportability, and high value in relation to volume and weight.

• “Precious metals haven’t been a medium of exchange since the Roman empire.” This is simple ignorance of history. What does Dave think the value of US currency was pegged to — by law — until 1971? (Not to mention the fact that US quarters, dimes, and dollar and half-dollar coins were 90% silver until 1964!)

It is a paradox that, while preaching so faithfully against personal indebtedness, Dave won’t/can’t preach against our government’s indebtedness and the central-bank-issued fiat currency that aids and abets it. Dave is a Bible-believing Christian, and the Bible vehemently condemns theft by the use of unjust weights and measures, which is precisely what fiat currency is: “faith-based” money that is backed up by absolutely nothing and which results in that most insidious and invisible of taxes: inflation.

(Oh, incidentally, Dave has defined “inflation” as the increase of prices due to variables such as supply and demand. Yes, prices do indeed fluctuate as a result of supply and demand ... but that is not inflation! Inflation is an increase in the money supply — i.e., the amount of money in circulation — at the hands of central banks and government-run printing presses and computers. When more money is pumped into the system via the printing press or electronic credits, it devalues the money already in circulation. Prices increases are merely in response to more money chasing the same amount of goods. Thus, long-term price increases are not inflation, but rather they are a symptom of inflation. The best example I can point to is the recent artificial boom in home values earlier this decade. This was the direct result of the ease with which more and more people were able to get loans. I.e., more money — in the form of credit — chasing after a fixed supply of houses. Greater demand = price increases.)

For a different — and more reliable, IMO — take on our current economic mess, I would urge you to spend some time reading the articles and watching the videos of Peter Schiff. Just Google him … you’ll find him everywhere, in "print", video and audio formats. Like Dave, Peter is also “anti-debt” — but a few years ago, he predicted the current financial mess based on the fact that Americans and their government borrow endlessly to buy things they simply cannot afford. I.e., rampant consumerism and seemingly endless lines of credit.

BTW, Barry Broome wrote an excellent piece at his blog last year: “Dave Ramsey, Peter Schiff, and decline of U.S. Economy.” Broome also likes Dave alot — he features one of Dave’s books right at the top of his home page. But by way of comparison to Peter Schiff, he levies some fair (and gracious) criticism of Dave’s economic presuppositions. The article is great in itself, but be sure not to miss the 80-some comments that follow — lots of valuable insight there, as well.

I love Dave for what he does well, but he has a ways to go to understand the government-monetary-policy basis for the dire straits in which our nation currently finds itself.


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