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If I can invest at a higher interest rate, why pay off the debt?

1 Nov , 2019  

Ryan starts off this hour in San Antonio, hey, Ryan. How are you I’m a new favorite thing better than I deserve? How are you bitch? That’s the same, sir. How can I help good deal? I have a question here for you. I just found your show about two weeks ago and to give you a little background, I was in about $60,000 in debt after college I graduated may 2017 and I was making some choices. I was still making child choices. I was doing what was feeling good, and so I decided to take a job out of state and move to Texas, where I could be away from distractions, and I just wanted to knock out all the debt.
So I also own a small IT business and that business is cashflow positive. I bring in about an extra five grand a month with it now and I work a full-time salary job. Now, my all of my credit card debt has been completely paid off and I was previously saving up for house until I found your show and I had about 25 grand saved up there and I’ve been investing and playing in the stock market with about 10 grand. I took the 25 grand and I split it between my student loans in my car now so and but I still have the ten grand and I’m having a hard time taking that out and taking away my contributions to my 401k, because my returns are better than My interest rates: do you think that it’s still the wrong move to be making with that ten grand? I usually well, it’s been growing progressively it’s at ten grand now that I, but the risk is a lot higher, but I’m averaging about ten to fourteen percent a month on that and my 401k is averaging about nine percent a month. Right now and my student loans have a four percent interest rate. I think you mean a year. I don’t think your 401k is making nine a month. I’m sorry to you, yeah, I’m sorry about that. It’s okay! I thought I knew what you meant. Okay, so what is your income total? What are you, what are you making the coming year? No, your household income, where you don’t pay taxes on the coming year. You got five grand from the tech business and you get your in. You get your salary about a hundred and thirty thousand before tax. How old are you I’m 25, all right? How much dad do you have? I owe 10 thousand more on my car and 15 thousand on zero and zero credit card. Okay. So here’s the question that I think you’re asking and let’s see if I am as if I’m correct, when you’re 35, which way will cause you to have the most money, investing in your 401 K now and and getting out of debt slower and continuing your stock Market game that you’re playing or stopping all of that temporarily and knocking the debt out, freeing up the cash, because you have no payments at all using that money to invest, which one of those two ways will cause you to be the wealthiest at 35.
The answer to the question is stopping the investing. Is that logical to you? I mean it is logically. So the thing is here’s what happening here. Let me stop you. Okay. I just got I just tricked you, okay, let me tell you what I did. I made you think long term when I bailed you, 35 years old, when you were when you’re presenting your case to me, you’re thinking short term, when you think long term, your brain allows you to factor in risk when you’re, comparing a 10 or 12 percent rate Of return to a 5 or 10 percent interest rate on a loan you’re, not taking into consideration risk and and the slowing down of your life and everything else, here’s what happens with your life, any part of our life, mine too. What you concentrate on is what you win at no one wakes up one morning and goes you know: I’ve never run a mile in my life, I’m gonna run marathon tomorrow. Now they get up and they train in, they train in they train and they work a system and they work a process and they do the nutrition and they do the miles and they wear out shoes and they run and they run they run and then they’re, Not surprised when they are able to complete a marathon and check that off a bucket list when you’re dating someone that you end up getting married to you’re unbelievably focused on that person to the exclusion of everything else to the point. Your friends are sick of you. You know because you’re focused on that one person and that’s called courting in the old days and it causes people to get married. If you do not focus on her to the exclusion of everything else, she likely will not marry you very few people. Just you know, love hanging out with people that don’t focus on them. So you know what you focus on on your career. You win that when you focus on electrician, your body is in better condition when you focus on nutrition and exercise your body’s in a lot better condition and so on – and this is true here so when you focus on getting out of debt to the exclusion of Other things on a temporary basis, you will hit that goal faster, more likely and will then be positioned to build wealth So all of that’s a big long, drawn-out answer to say: stop your 401k shut down your stupid investment plan with your stock you’re gonna lose your butt on that and pay off your car today and then, let’s don’t take money out of the 401k, but stop Adding to it, and by this time next year, you’re gonna have an emergency fund in place of three to six months of expenses.
You’Ll be a hundred percent debt-free you’ll be saving towards your house, and you can restart your 401k Probably won’t even take that long You’Re, twenty five you make a hundred twenty-five thousand dollars a year, stop doing a bunch of crap and pay off the debt You only got twenty five thousand dollars in debt You got ten thousand of it in that one stock account so we’re down to 15 I mean you ought to be debt-free in twenty minutes here It feels like really focus on it Don’t try to do six things at once and do none of them well and that’s why we’ve had so much success, Ryan, helping people build wealth because we first get them out of debt and your most powerful wealth building tool is your income? It’s not the spread of your investments over your debt interest rate as I’ve interviewed millionaires, I never interview millionaires and they say Dave You know the way my money was I borrowed as much as I could at 5% and I invested it at 12 I never hear any millionaire say that I mean never Never They say I got out of debt, I’m gonna no any debt payments, I’m maxed out my 401k, oh and that tournament paid off my house too In ten point two years, that’s the average time of millionaire pays off their house ten point two years and with no payments at all ding ding We start ringing the bell and we become debt free and we start building wealth, good question man thanks for joining us and oh by the way to some of you, people who are on Twitter never have We talked to a millionaire, an interviewed one That said, they made all their money because they saved on the expense ratios on their mutual fund The reason they get millionaires is not because they concentrate on the expense ratios They looked at returns and consistent, long-term investing they invested and invested and invested invested invested They didn’t forgot reasons not to invest How do you people have a lot of theories and do nothing with a lot of opinions about money you’re pretty sickening This is the Dave Ramsey show

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