I know that some people just cannot handle credit cards, so the system works really well for them. But using that stance as universal advice for everyone is obviously not appropriate.

I’d also caution you that rent versus own calculations are also not as straightforward as “rent is throwing your money away” and “you don’t get a tax break”.

At the end of the day, whether you rent or own, you’re paying for shelter — a landlord if you rent, or a bank if you purchase (unless you bought your house with cash, no loan). The question is merely which approach leaves you better off financially.

Where I live right now, there are houses available to be rented or purchased. The rent is $1200/month, or purchase for $330k+. Even under very favorable assumptions (purchased for 10% off ask price, 20% downpayment, 30 year fixed-rate mortgage @ 4.75%, 35% marginal tax rate) the numbers just don’t make sense.

Maybe someone else can justify spending $500+ more per month for the privilege of being able to paint their walls, etc. But I sure can’t. I’ll just put that extra in my savings and come out further ahead than if I bought the place.

You are right on the mark. That is why pf stands for personal finance – it is “personal” and should be applied to individual’s circumstances.

Yes they have basic rules that they have their listeners follow and most of the time it works very well for them because some basic concepts can apply fruitfully to a majority of people. What bothers me is not their advice but the philosophy they get their listeners to subscribe to. This philosophy is that there are certain concrete answers that are correct at all times, in the Ramsey example, credit cards are bad.

But this is not necessarily the case and when people follow so closely to these “gurus” they won’t listen to outside reason and have a much narrower scope of what is a very complicated part of life (personal finance, investing, etc.).

An education loan is also tax deductible, and what you get in return is invaluable. Most degrees pay back within a few years, some within a year! I just don’t see how Ramsey can make an argument against that kind of investment.

I’d argue it’s just fine to take on debt for a depreciating asset, as long as it provides more value than the cost of the debt.

Cars, houses, education, whatever. Take out the debt as long as you can handle it, and as long as whatever you’re getting in return more than pays for the (total) costs of that debt.

I have never had a home depreciate

Are you looking at real or nominal values? The Case Shiller data clearly shows that the long term value of housing moves in lock-step with inflation (wage inflation in particular).

Example: Your parents bought a house 36 years ago for $150k. They sold today at $300k. The house appreciated, right? Nope, they lost value. They averaged a 2% return per year, when the inflation average was closer to 3%. And that’s not counting all the additional money they put into the house to maintain it, remodel it, etc.

I have had a house lose nominal value on me, sold it for slightly less than I purchased it for, after owning it for a few years. Without a housing bubble forming or bursting. It can happen, and it does happen. It’s not that uncommon, because as any real estate professional will tell you, real estate is cyclical. Valuations fluctuate up and down, for various reasons.

If you’ve never lost value, even nominal value, then you’ve been very lucky. I personally don’t know anyone who hasn’t lost nominal value, let alone real value, on one or two houses in their lifetime.

Any asset neglected to disrepair will depreciate dramatically

An appreciating asset, by definition, would require no additional investment in it beyond the initial purchase. Anything that requires additional investment to maintain value or increase value is by definition a depreciating asset.

If I buy stock in Proctor & Gamble, I can let it sit in a brokerage account, or put stock certificates in a vault, and let them sit for 10 years. They don’t cost me any money to maintain. When I pull them out 10 years later, they will be worth more money than I put into them, in both real and nominal terms.

If I put money into a bank CD, I don’t have to pay a single dime to maintain the CD’s value. The CD won’t be worth 70 cents on the dollar because I didn’t spend money on maintenance. (Although I could lose real value, if inflation exceeds the yield on the CD.)

On the other hand, I have to sink money and time into maintaining my house and my car. They cost me additional money beyond my initial purchase. They degrade and wear out over time.

I’m not making these definitions up. Simply look at the IRS rules for confirmation. For example, for a rental residence, the IRS allows you to depreciate the value of the house over a period of time (currently 27.5 years), in the same manner as if you were using a machine in a manufacturing shop or a car for a business. On the other hand, the IRS will not allow me to depreciate the value of my stock over any period of time.

I don’t have any problem if someone wants to say there are good reasons for owning a house, and good reasons to take on debt to purchase one. But calling housing an appreciating asset is completely incorrect. If you don’t spend money beyond your PITI payment, your house will decline in value — definitely in real terms, but probably also in nominal terms as well.

Nice ending “your mileage may vary”. But I really like your angle on the fact that we cannot use an absolute judgment on the value of taking on debt. The example on education was excellent.

I know people who buy cars for $500, essentially eliminating depreciation. I prefer well maintained used cars with under 50,000 miles. I have never taken a loan out to buy a car. I usually pay half of what the car cost new, and I often have a warranty. The car will usually sell for about 1/4 to 1/3 of new four years later, below 100,000 miles.

I also tell people to avoid debt on just about all depreciating assets, especially cars. On the other hand, I don’t have that much problem with debt on appreciating assets like your home or your education.

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I disagree with these statements, because I believe they miss the point and use bad examples. The focus should be on the value of the result versus the debt, and not on the value of a particular asset or asset class.

Housing is not an appreciating asset. It is a depreciating asset, just like a car. Just take a look at the concept of “a teardown”. That is basically a house that has zero value today, which is to be bulldozed off the lot to make way for a new house to be built. When that house was first built, it had value and was worth purchasing. But without the additional time and money spent to maintain the house, it degraded (depreciated) to the point where it had zero value.

Education can be too expensive as well. People who take on $100,000 of student loan debt to get their degrees to be a college professor at $60,000 (gross) per year are in debt for over a decade.

On the other hand, I might take out a $20,000 loan for a car, but it enables me to reliably get to and from a $60,000 per year job. Although it would be better to have paid cash for the car, I only pay $500/month for the car, while pulling in $2,500 per month in after-tax salary.

So I would argue that whether the debt was “good” or “bad” can’t be judged absolutely, but must be judged in context. If the debt provides more value than the cost, then it is “good”. But if it equals or exceeds the value, then it is “bad”.

On the Dave Ramsey thing, my personal observation is that the people who benefit most or become staunch advocates, are people who were not disciplined enough to use credit cards without carrying a balance. They were undisciplined with their finances, and dug themselves deep into consumer debt.

And some of them still are. They do great on his system. But if they were to get another credit card or personal line of credit, they would run it back up again and get themselves into trouble.

Your mileage may vary.