7/11/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"Debt is normal! Why be normal?"

Dear Dave,

My husband believes that debt is normal. I’ve been trying to talk him out of using debt to pay for stuff, but he thinks it’s alright to have debt if we can afford the extra monthly payments. Right now, we can afford the payments, but I disagree that this is OK. Why should we make a payment to a creditor when we could invest that money instead?

Annette in Grand Rapids, MI



Dear Annette,

Your husband was correct when he said debt is normal. He was not correct when he said you can afford the extra payments. You can’t. Let’s take a look at what “normal” is in this country today.

Out of 100 people that you know, how many are wealthy? By wealthy, I mean they have a $1 million net worth and make at least $200,000 a year. The national average is about three people out of 100. So it would be fair to say that those three are not “normal”. You might even say they’re weird. Being “normal” means to be broke. Do you remember when your mom used to say, “If everyone else jumped off a building, would you jump off too?” You don’t necessarily want to do what everyone else is doing if what they’re doing isn’t smart. 

The Wall Street Journal states that 70% of Americans are living paycheck-to-paycheck. A Maris Institute poll shows that 55% of Americans are sometimes or always worried about money. Normal is the average 52-year-old American who cannot come up with $2,000 cash without borrowing it. It scares me to think that 34% of the people who retire this year will do so with less than $10,000 a year in income for retirement. I don’t want to be normal. 

Here’s a little fact to show your husband why you can’t “afford” to make payments for stuff, even if you can afford to make the payments. The average car payment in America is $378 a month over 55 months. If I make enough money, I can “afford” to make that payment. That’s why people say that. However, if you do as you suggested to your husband and invest that money instead, where would you be? Take a look at a person who works from age 25 to age 65 – 40 years – and they invest that $378 a month into a decent growth stock mutual fund, because they drove cars they paid cash for instead. At age 65, they’ll have about $4.4 million dollars. I hope you like the car! 

Retiring wealthy and with dignity is weird. I want to be weird! Don’t you?

-Dave

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