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Tuesday, July 29, 2008
Dave Ramsey :: Townhall.com Columnist
Student Loans, Cars, and Insurance
by Dave Ramsey
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Dear Dave,

My husband finished dental school three years ago. Recently, told me that he wants to go back to school to become a dental anesthesiologist. He makes $100,000 a year right now but says this will give him the potential to double his income. We’ve paid off five credit cards in the last year and a half, but we still have a $200,000 student loan. We also just found out that I’m pregnant. So, I’m feeling unsafe with this idea. What do you think?

Shannon

Dear Shannon,

This is not a wise move. You’re $200,000 in debt, and he brings in dentist money. You guys need to clean up your debt.

This starts by living on nothing for a while. If he makes $100,000, then you guys need to live on half that. We’re talking rice and beans and living on a VERY tight budget for a couple of years. Then, if he wants to go back to school after that – and save up money to pay for it – we can sit down and talk.

You have every right to feel unsafe right now, Shannon. I’m sure your husband is a great guy, and that he loves you very much. But this is a ridiculous idea.

He needs to listen to his loving, pregnant wife. You’re right on this one, and he’s wrong. Period!

- Dave

Dear Dave,

I’m 61 and on disability. My home is paid for, and I have about a million dollars in assets. I try to spend no more than four percent of the principal each year. My current car needs repairs, but the cost would be more than the car is worth. I’m looking at getting another vehicle and was wondering, in my situation, if it would be better to lease, finance or pay cash.

Linda

Dear Linda,

I’m proud of the way you’ve handled your money. You’ve got the right attitude about wealth building, but the wrong idea about car buying.

There not a chance on the planet that I’ll tell you to go pick up a “fleece” or payments on a car. You’ve got a great thing going for you – a peaceful, calm and successful financial life. Why would you want to mess all that up with a lease or payments?

Here’s the deal. Consumer Reports AND my calculator both say that leasing a car is the most expensive way to operate a vehicle. It’s a rip off! Dealerships make more money off leases than they do from the sale of cars. Continued...
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About The Author
Dave Ramsey is a personal money management expert, popular national radio personality and the author of three New York Times bestsellers.
 
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(18 comments so Far)
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Reply # 1
Date: Jul 31, 2008 - 1:32 AM EST
Sweetie hit the jackpot!!!

In the early 1970s we decided we must plan ahead for retirement. We found a class that would give Sweetie information about buying, managing, renovating, and selling a building for a profit.

Sweetie did so much more and so much better than anyone could expect. On a street lined with apartments, she went door to door asking if anyone wanted to sell, and hit the jackpot.

We (snd I do mean WE) completely renovated the 17 units — new carpet, paint, reworked all bathrooms and kitchens. Among all the other things, Sweetie “antiqued” 17 sets of kitchen cabinets. Beautiful.

Eighteen months later we sold it for about 170% of what we paid for it. Well, actually we traded it (an IRS expression) for a 39 unit building, sold that one for a great profit (10 times our original investment) a couple of years later, and on and on, and the rest is history,

But give credit where credit is due, “The rest is HERstory!”

I then got off the computer industry payroll, and we traveled the world for the next 25 years.
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Reply # 2
Date: Jul 31, 2008 - 12:14 AM EST
What's more expensive?
A) Paying $100,000 cash for a property
B) Paying $100,000 amortized over 15 years
C) Paying $100,000 amortized over 30 years

Most people, including Mr. Ramsey, would say C. But that's because they never look at the whole picture. They only look at the total amount paid out over that 30 years.

It turns out that choice A is the most expensive. This is explained in detail in the book LEAP by Bob Castiglione, but I will attempt a short explanation.

What Mr. Ramsey and other bad economists don't seem to understand is that there are unseen variables in addition to the seen ones. Yes, if you pay over 30 years, the total amount you pay is much more than $100,000, but what about Opportunity Costs? What COULD you have done with that money? What about inflation? These things never seem to be discussed.

For the full story, read the book referenced above and also check out Killing Sacred Cows. Both are amazing books that, at the very least, will give you another viewpoint. Knowledge is power.
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