When Jay and I decided to launch a podcast … we dragged our heels for six months. Then we turned to Steve Stewart for help.
Steve is our podcast producer. He’s been side-hustling as a mobile DJ for longer than I’ve been alive. On today’s episode, Steve shares a fascinating story:
He DJ’ed his way out of debt.
Steve and his wife wiped out their debts in 2007. Today they’re 100% debt-free, including mortgage-free. But reaching this point … well, let’s just say the road is messy.
We’ll let Steve tell the story. Enjoy!
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Articles mentioned on this episode:
Anette
Had to stop listening half way through. Thought this was about Steve not Jay….
Team M.O.N.E.Y.
Oh no! And I thought I we talked about Dave Ramsey too much!
Did you at least get to the 25min mark where I share my coaching trick? If I gave you $250,000 and you could buy a house that fits your needs free-and-clear (no debt, no mortgage), what would you do with the money? I love that question.
Steve Stewart, that guy who does stuff for Jay and Paula 🙂
Wil
I’ve been asking myself this question for some time and I would side with Paula. I would buy a rental outright to pay for my current rental. After that mortgage has been satisfied then proceeds from both would pay for my primary residence. It was nice meeting you Steve; Great story! Keep up the good work everyone!
Team M.O.N.E.Y.
Thanks Wil. Hey, did you ever figure out where you misplaced the second “l” from your name? 🙂
Wil
Haaa…it’s intentional. I’m the only one I know sporting one L and I feel awesome.
Christine Odle
I also love that question. I ask a similar question to my clients all the time. If I gave you $25,000 would you go buy THAT car? Typically the answer is NO. It’s like Steve said, it’s not how much, it’s how much per month. We don’t really think it through when buying large ticket item things because we are more likely to convince ourselves we can “afford” the monthly payment.
J. Money
Yup!
And let me know anytime you’re gonna give away $25,000 please 🙂
Roy Lagro @ Band of Savers
If given the hypothetical $250k I would definitely side with Steve on this one and buy the house outright. We bought our home 2.5 years ago for $174k and I’m hoping to have it paid off within the next 5 years maximum. I’ll have to liquidate my taxable Vanguard accounts once it becomes greater than the remaining principle but then I will free up an additional $1,000 minimum each month to rebuild those accounts. After running the scenarios for this I have found that this should allow me to reach my Early Retirement number just over 3 years sooner than keeping the mortgage and the Vanguard funds where they are.
J. Money
Love it!! So sexy running the numbers and trying to optimize everything, haha… Always enjoy seeing how others manage/think about this stuff 🙂
Austin
Good show!
You guys run through so many different situations and scenario and analyze it from so many different aspects. (Rent vs buy) (debt free vs debt leverage) (Dave Ramsey vs traditional advice). My favorite VS so far though is (Jay vs Paula)haha. LOVE IT.
P.S. I’m setting my calendar right now for 1 year.
J. Money
haha rock on!
glad you’re enjoying the show and my debates w/ Paula P 🙂
we want an email when 1 year hits for an update please!
Team M.O.N.E.Y.
From Steve, that guy who does stuff for Paula and J$:
I know, right? Sometimes even Paula and J$ needs a coach to get them to work through some of the important money scenarios that could make them money or cost them money.
Make sure you Tweet your comment to @SteveStewartMe in 12 months!
Pete
Here’s a Dave Ramsey lesson:
I agree that he’s the very best at getting people out of debt. Here is the controversy that you and your Ramsey representative missed.
1. Dave recommends going to go see a financial planner that sells mutual funds, pays a commission. Commissions aren’t necessarily wrong, until you realize, Dave is compensated by those advisors he recommends and he never discloses the potential conflict of interest.
2. Dave recommends term insurance and using a specific agency, which he is partial owner. Again, the problem with this is non-disclosure.
3. The investment controversy can be best found here. http://www.pragcap.com/be-careful-where-you-get-your-financial-advice-from/
That’s it.
J. Money
thanks for chiming in!
I couldn’t recall details of the investing stuff myself, but knew they were out there.
I’m still all-in with Dave for his debt-killing ideas, but no plans to promote his investing side of things. Though it was fun to discuss on the show 🙂
Team M.O.N.E.Y.
Hi Pete, it’s Steve “that guy who does stuff” for J$ and Paula.
I have to respectfully disagree, but only on the basis that I’ve listened to hundreds of hours of his radio show and have worked with his company for a number of years.
1. Yes, he recommends commission investment advisors and does get a fee from them. He does disclose it on occasion during his show. I don’t see the harm in this – BNI groups recommend people on the basis that there’s “a guy” in their group and nothing else. At least the ELPs are vetted before he puts them in his pool.
2. You are correct, he does recommend a specific agency, Zander Insurance, when talking about term insurance. They are a sponsor, but that does not influence his decision for recommending Term (not sure if that was your point, I’m just adding that to this discussion). I was not aware he was part owner. It sounds like you and J$ know more about that than I do.
3. I’ll check out the article. I won’t claim to know everything Dave does or says, but I have worked along with his team from time-to-time for many years and know more than the average listener.
Thanks for the article! Steve
Raj
Have issues when I try to download this episode, it is failing half way. please look into that.
J. Money
sorry to hear!
what are you listening to it in?
it’s working for us here 🙁 but we can try and duplicate the error and look into!
Roy Largo @ Band of Savers
I was listening to it in my phone’s browser and was also having a hard time making it past the beginning of the Dave Ramsey conversation so I actually listened to the first half 5 times before making it all the way through (for some reason on my phone I can’t select where to make it start from so I had to start at the beginning each time). I had just assumed that it was an error with my phone’s browser or connection though.
J. Money
ack!
will have Steve look into it and see what we can find out… what are the odds that on HIS show it gets wonky – hah!
Team M.O.N.E.Y.
FROM STEVE: Yes, go figure. I’m going to begin embedding a different player at the bottom of the page. Let’s cross our fingers!
Roy, do you have an app you could use on your phone instead? The top podcatchers are Podcasts App (on IOS), Stitcher (both IOS and Android), and TuneIn Radio (IOS, Android and Windows Phone)
Team M.O.N.E.Y.
Hi Raj, it’s Steve (that guy who does stuff for J$ and Paula).
I haven’t been able to replicate the problem. Maybe it was a glitch in the interwebs?
How are you downloading it? Through a podcatcher (app) or on a PC or Mac?
max jones
I love your podcasts the chemistry between j and Paula is great, Paula giggles a little bit too much on air but I like it, about Dave Ramsey I have bin listening to his show for many years I’ve read two of his books the total money makeover and entreleadership, I think he is awesome, what Dave always says when people attack him for his advice is that he tells people what worked for him to get ahead in his financial life and business, he personally has done all these thing he talks about and it worked for him and for most of the people that followed his advice, witch numbers in the millions after being on the radio for 20+ years, every single thing he owns is paid for, all of his houses cars business investments personal belongings, he even paid cash for the building where the headquarters of his business and radio show is located he talks about it the entreleadership book he always says that he owns a ton of real-estate free and clear houses apartments offices that’s the way to go in my opinion, but it takes a lot discipline and hard work to be on his plan, for those that have trouble sticking to daves plan I recommend David bachs advice from the the automatic millionaire where you can outsmart the budget and you’re savings. anyway keep up the great work you’re doing I love the show I’ve learned a ton….
J. Money
Rock on! Always wondered about his homes/businesses and if he took out debt on them or not… Always assumed he didn’t or else it would cause some trouble, haha… Big fan of David Bach myself too. Great book – Automatic Millionaire. One of my top 3-4 books. Here’s my full list if interested:
http://rockstarfinance.com/best-money-books/
Thx for listening to the show!
Team M.O.N.E.Y.
FROM STEVE (that guy who does stuff for Paula and J. Money):
It sounds like you know more about Dave Ramsey and his baby steps than Paula and J$ 🙂
Here’s a neat nugget: Dave is also paying cash to move his offices down to a facility he is building off the interstate in Franklin, TN. http://www.bizjournals.com/nashville/blog/real-estate/2015/09/exclusive-dave-ramsey-relocating-company-to.html
Keep paying attention – not interest!
Daniel
I have to honestly say that this is now my favorite financial podcast. It’s really accessible and I love the interplay between J. Money and Paula. I love the different points of view, humility and humor. I also love how real and down to earth you both are and not preachy. Thank you for the concrete tips on money and real estate.
J. Money
hey!!! thanks so much! way to make a dude blush, haha… you’re welcome around these parts anytime, sir 🙂
Daniel
Dude you rock! So glad I found out about you on Brandon’s podcast.
J. Money
Oh nice! That was a really fun show to be on – Brandon’s a freakin’ beast with this stuff.
Pete
I’ve never heard Dave once disclose his financial interest in his ELPs or Zander. Nothing wrong with making a profit, but always full disclosure of potential conflicts of interest is a good rule. Makes me leary of Dave’s vetting process if not even he abides by full disclosure.
Neverthless, the job Dave does to help get people out of debt out weighs his negatives imo.
jlcollinsnh
Great show, guys!
Love the interplay and energy. Not to mention the kind references to jlcollinsnh.com
J$….
In fairness, you did a bit more than just ask me what to do and then run out and do it. 🙂 I agree with Steve, no matter where the advice comes from you should understand it and why you feel it is right for you.
As I recall, you asked me a lot of good questions about the whys as well as the whats. As it should be!
Here’s to your continued success: In investing and with the podcast!
J. Money
Indeed! I’m crazy, but not THAT crazy 🙂 And you def. hooked a brotha up.
Fonedoc
I liked the episode.. good job Steve. I am on the same path with 2yrs left on my mortgage. I had a few misses along the way but feel like I am ahead of most people my age (under 50). No rentals and mostly mutual funds but have been playing the dividend game. I listen to a lot of podcast and you guys are top notch.. I like the question episodes as well.
So Steve where you going on that exotic vacation??
J. Money
Glad you’re liking the show!!
Team M.O.N.E.Y.
Hi Fonedoc, it’s Steve.
We are going back to the place pictured above: 7D Ranch. No cell phone, no internet, and only a landline phone in an old stagecoach. The photo was taken on June 14, 2014 – and that is snow falling in the background.
We spend WAY too much money for this trip. However, watch this video you will understand why we can’t resist going back https://youtu.be/ebkUbjkIZwk
Charles
Hi Paula, Jay, and Steve,
I’ve listened to all the shows and like this one very much. Regarding the Dave Ramsey controversy, what many people find objectionable is that his ELP’s (Endorsed Local Providers, his recommended financial advisors) put investors into front loaded, actively managed mutual funds that charge an upfront fee of 5.75% along with ongoing higher expense ratios than a typical Vanguard (or other brokerage) index fund. Dave recommends a 100% stock allocation for retirement accounts, according to the “quarters” that Steve mentioned, which may not be suitable for all investors. He also recommends only investing in Growth funds, instead of a mix of Growth, Blend, and Value funds, which is odd advice. You guys mentioned the other two complaints about his 12% stock return claim, and his advice on drawing 8% per year from your portfolio during retirement, which is quite dangerous. I think he’s great on advice for getting out of debt, not so much on investing, but not horrible either.
Thanks for the great shows!
J. Money
Glad you’re enjoying them! (And GO VANGUARD!!)
Team M.O.N.E.Y.
Thanks Charles, (this is Steve).
There is a lot of emphasis on the technicalities of Dave Ramsey recommending advisors. So I wonder: What are the alternatives?
1) If DR didn’t make recommendations then the very people he helps get out of debt and starting to save for retirement would be left to their own devices to find an advisor – or would try to do it themselves without first learning what they need to become wise investors.
2) If Dave Ramsey did recommend only one thing, like and index fund, then he wouldn’t be teaching what he believes which is to be diversified (plus, he can’t recommend a single fund).
3) THE MOST IMPORTANT REASON my wife and I pay the 5.375% load and more expensive fees to have a financial advisor working with us is… well, I’m going to tease you to listen to my podcast where I answer a listener’s question: “Should I self-direct my retirement to save on fees or work with a financial advisor?” Begin listening at the 53:33 mark of this episode http://stevestewart.me/top-5-reasons-you-should-never-default-on-student-loans-with-jay-fleischman/
Jonathan
I love your podcast and I really love the interactions between your team. I’m also living in the DC area, so I can really relate to J Money’s comments about housing prices and cost of living here.
Regarding Dave Ramsey’s investment advice, the best place to see it is at Dave Ramsey’s website. Read it and see if you have any problems with it. Maybe I’m misinterpreting it (I don’t think so, it’s written in accessible, simple English.)
https://www.daveramsey.com/media/pdf/daves_investment_philosophy.pdf
Statements that he makes that strikes me as bad investing advice:
1. Don’t do it yourself. Use a pro.
2. When you use a pro, pick commissioned advisors over fee only. (He’s recently also come out against having any of these advisors being fiduciaries — he prefers them being able to place their own interests before the customers.)
3. Reject asset allocation. What you said on the podcast made sense (small cap, mid cap, large cap.) He rejects that. He actually says Growth, Growth and Income, Aggressive Growth, and International.
4. Reject Bonds and CDs. (Even beginners should be 100% stocks?).
5. Reject ETFs.
6. Reject No-load mutual funds. If you’re buying no-load, you’re doing it yourself. You have to buy commissioned products, from an advisor.
7. Pick actively managed mutual funds. Only pick funds that beat the market. You do this buy picking funds based on their track record of the last 5 years, preferably more than 10 years.
8. On the show, he notes that he uses index funds, but for only part of his money. You should invest in funds that beat the market. (That’s what you’re paying them to do.)
He points you to who to use as a professional advisor. He does not disclose at any point on his printed material that he is getting a referral fee for using them.
Dave Ramsey is great for getting out of debt. His investing advice does damage to the people who trust him and follow it. He gets people out of debt and saving, but he enriches himself on the investing side. Even if you stay away from the ELPs, his investing advice is poor.
J. Money
Yo! Thanks for stopping in and doing some recon. Just more proof that we all need to make sure we’re paying attention to who we’re taking advice from! Some are great in some areas vs others, but we all have our weak spots. I love Dave for all his debt stuff, but yeah – the rest I’m still not sold on. Thx for sharing 🙂
Team M.O.N.E.Y.
Hey Jonathan, (it’s Steve).
Thanks for pointing that out. Being an audio-only consumer (my reading time is usually soaked up with the books of those I’m about to interview on my own podcast) I haven’t dug through that resource on Dave’s site.
As you heard on the show, I also don’t blindly follow what Dave says – even though I’m a sold-out fanboy. What you pointed out certainly makes me think twice about anything I am doing – which is good!
These conversations are important as they make everyone ask questions and learn in a way that works for their personality style.
Some people want to be told what to do, some people don’t. The way I look at it: Following Dave’s advice blindly WILL CAUSE THEM to save money and invest. If it costs them more in fees or they don’t get the best of returns then they are still better off than following the advice of the media (FEAR! THE MARKET IS CRASHING!) or advertisements from late night tv (GOLD GOLD GOLD GOLD).
I know for a fact my wife and I are paying higher fees to work with our financial advisor than if we were doing it ourselves. But if you look at what I was doing before working with him then you’d understand why. 🙂
Thanks for the link. I’m going to go check it out!
Jonathan
Steve,
Thank you for responding. I was particularly interested in hearing from you because of your long immersion in the Dave Ramsey system. I used that link because it summarizes much of his investing advice in one place — however, it is exactly that same as what he says on his radio show, in his books, and in his Financial Peace curriculum. He is consistent.
Actually, following Dave’s advice blindly will cause the average person to GET OUT OF DEBT and to have POSITIVE CASH FLOW so they have money to save and to invest. That is a good thing, and his message is so compelling and effective that any discussion has to give him credit for this.
However, his investing advice is the same as the worst of the Wall Street Media — Markets are scary, you have to pay someone to help you; Our experts can beat the market; Expenses, fees, and sales commissions don’t matter; Don’t force advisors to become fiduciaries.
Dave teaches a lesson about compound interest. http://www.daveramsey.com/blog/how-teens-can-become-millionaires/
Take the exact same concept and apply it to the higher fees you’re willing to pay. Dave cites a 5% sales load as reasonable (http://www.daveramsey.com/blog/why-dave-prefers-up-front-fees/) and pushes actively traded mutual funds (previously cited, but active funds have an industry average annual expense ratio of 1.5%).
How much does it cost to follow his advice? Let’s use his investing calculator (https://www.daveramsey.com/blog/investing-calculator/#/entry_form) to find out.
Assume someone starts with $0, expects a 7% average return, contributes $1,000 a month for 30 years, and stops at 30 years. The calculator states that the compounded return is $1,212,876.47. Not bad.
Now let’s allow for the fees and sales charges. The 7% return must be reduced to 5.5% to reflect a 1.5% expense ratio. The $1,000/mo contribution is reduced to $950/mo to reflect the 5% load off the top. Running the calculator starting with $0, a 5.5% expected return, contributions of $950/month, over 30 years, results in $871,181.43.
The high expense ratios are doing negative compounding and working against you. If you stop adding savings at 30 years and let the calculator run up to year 50, Dave’s advice will push your balance to $2,541,896, which isn’t bad. Not following his advice would yield you almost twice as much, or $4,693,449.
Getting a financial advisor makes sense if you need it, but make sure yours is a registered fiduciary, who is required by law to put your interests ahead of theirs. Someone who is not a fiduciary is simply a salesman (which would be revealed by their pushing products for which they get a sales commission.)
Rich C
Paul, Jay, Steve: Amazing podcast. It’s the third one I’ve listened to, and I love it. Not sure while I’m out of order like this. Loved the discussion on credit scores. My understanding of credit scores is, when you are in Steve’s position with no debt, decent income, and primary residence paid off, your credit score doesn’t matter anymore. Ironically, if you can prove to a bank you don’t need a loan, they are happy to give you one! I think it’s a large misconception that it is important to have some type of revolving credit line, even if you don’t want one, just to boost your credit score. I can’t wait to keep listening!
J. Money
Glad you’re enjoying, brotha!
Def. better to have a higher score just in case life throws you a curve ball, but hopefully you never have to use it if you can help it 🙂
Steve Stewart
Hi Rich! Thanks for being a listener. You aren’t really out of order as each episode can stand on its own. If they refer to another episode then I’ll pop in to mention which one it is or put a link here in the show notes. However, if you really do want to start with the first one (where Jay’s mic wasn’t working – actually the first 5 episodes are like that) then just look at the beginning of the title. The episode number is right there.
I agree with you on the irony of a bank qualifying those for loans who don’t need them. I think that’s how it all started and how the whole “debt is a tool” thing began: Rich people wanting to grow businesses with borrowed capital to create big things in our country’s young age. I get it. I just don’t like what it has turned into: Banks trying to get EVERYONE into a loan of some kind for a vacation via HELOC or a trip to Fazoli’s on a stupid credit card. It makes me mad!
I appreciate you. Keep listening!
Lord Metroid
You better try to improve your microphone technique a little, the popping P’s are mighty annoying!
J. Money
sorry to hear – whose side is it coming in on? Mine or Paula’s?
LA
I love the podcast, But J talks way too much, he always interrupts. like on this episode, I almost stopped listening because he would not let Steve keep talking.
J. Money
Didn’t realize I was doing that – will have to work on 🙁
Cory
If I had the choice of $250,000 to buy a house or invest I would buy 10 rental houses. Each rental would cash flow from $250-$500 per month after all expenses including the mortgage. Tenants would pay down my mortgage and the value of the rentals would increase with inflation.
Assuming each home averaged $150,000 in value, I would control a cash flowing beast worth $1,500,000. Almost all the income would be tax free due to tax deductible interest, maintenance, management fees and depreciation. Worse case, I would cash flow at $2500 per month tax free. That’s like earning $3,333/mo in a day job.
I’m a landlord and love real estate-ka-boom!
If you are an experienced investor, you are better off buying an apartment building. Same principle with higher returns and easier mangement. That’s been my focus over the last few years after buying my first 10 homes.
Dave Ramsey is great at getting you out of debt. The problem is he doesn’t show you how to invest or increase your income. His claim of 12% returns is dangerous and lulls people into thinking they can save less to retire on more. 8% withdrawal in retirement is nuts and will force you to spend down retirement assets in no time flat. Anyone who retired with a Dave Ramsey portfolio in the year 2000 at 8% withdrawals would be down to social security and living off their kids.
Good show. Like the banter!
J. Money
I admire y’all real estate lovers – makes my stomach hurt just thinking about it all!
Glad you’re enjoying the show, man 🙂
Steve Stewart
Hey Cory,
I would expect that kind of answer from a landlord! I’m being serious. I don’t expect everybody to be their own car mechanics or doctors but if you have worked on cars for 10 years then you can make a better decision when buying a car than someone who has never changed their own oil.
Someday I may get into real estate investing, but for now I have retirement and my daughter’s future to save for.
As for your note about Dave Ramsey’s advice “lulls people into thinking they can save less to retire on more”: If someone only saved $100 a month for 40 years then they would be following Dave Ramsey soundbites – not what he teaches. He advises 15% into retirement after being consumer debt free with an emergency fund. Then, when the house is paid off, save/invest even more money – not just $100.
It’s great to have you along. Be sure to check out Episode 18 when Paula answers more real estate investing questions!