So if you’re watching this video, then you probably know exactly who Dave Ramsey is. And if you don’t, his radio and internet personality, that has an entire show talking about why debt is bad, and what’s the best road to financial freedom.
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1. The Dave Ramsey Plan
– Summary is, make sure the home is a blessing
– Make you can afford it
– And let’s try to pay it off fast
The Dave Ramsey Plan:
– Create a Budget; so list all your income and add them up to see how much you make monthly
– Then you; you right down every place your dollar goes to, basically all your expenses including the good ones like investing/saving and the bad ones like Uber eats ( but every penny should be accounted for )
– Once you’re done that; time to figure out how much you can spend a month on a home, and the rule is no more than 25% of your monthly income including all the home expenses on a 15-year mortgage
So for Example:
– Let’s say I make $6000 a month and I want to follow the Dave Ramsey plan
– I can only spend up to 25% or less, so that’s a budget of $1500 a month ( including Principle, Interest, Taxes, Insurance, and potentially an HOA fee )
– But important it’s on a 15 years mortgage ( so the amount of house I can buy is for around $213k, and with a 20% down payment I need 42,600 in saving, and with a closing cost of 5% I might need $10,650 )
But it doesn’t Stop There:
– Because any extra money after you’re done investing you should be throwing it at the mortgage
– That way you are don’t a lot faster
– And also save even more money in interest
Extra Tips: give your budget room to grow, so if you plan on having kids, you might want to buy a cheaper house and save up for the kid’s expenses for the first year.
2. Everything Wrong with this Plan
– Tell you the truth; just because you can, doesn’t mean you should. For example how much money the bank will give you
– Requires patient in savings; saving up 20% down payment is tough work, but if you want to do it the right way, then its worth it to avoid the mortgage insurance
– You want a nicer House; but that you need to increase your income, or just wait until you build more passive income
Real concerns:
– This plan is very-very conservative but if you want to have peace of mind it works
– However, you can get away with 33% of your monthly income, and then throwing an extra 15% of your income towards the mortgage to finish faster ( but that’s going to take a lot of sacrifices)
– If you want a 30-year mortgage just in case, it could work but why to run the risk to increase your expenses (it’s better to just have an emergency fund of 3-6 months to help you help get back on your feet )
3. Overall
– This plan is solid but it’s conservative
– You finish a lot faster
– Build equity faster
– Save a lot more on interest
My plan would be similar:
– Instead, I would raise it from 25% to 33%
– And instead of throwing extra month ( I would recommend 10-15% extra towards the mortgage)
– But I have to agree you shouldn’t buy a house you cant afford, just the bank told you its okay to do it.
Tip: he also recommends a minimum of 10% but a 20% is best to avoid mortgage insurance
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Disclosure & Educational Disclaimer:
Some links in this video may be affiliate links, and I may earn a commission. Content is educational and accurate as of posting; offers may change. I’m an accountant but not your accountant; always consult your own accountant/CPA or financial advisor. No income or results are guaranteed.
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