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Important Update from Dave About the Economy |
In light of the roller-coaster economy over the past year, many people have asked if Dave has changed his views on anything or rewritten any of his fundamental teaching principles. The short answer is, “NO WAY!”
Dave’s teaching principles aren’t based on month-to-month shifts in the economy. What he teaches is nothing new; it’s just God’s and Grandma’s ways of handling money. These are timeless truths that don’t change, regardless of how the market performs.
So, let’s take a look at a few specific areas that we’ve been getting a lot of questions about.
Investing
Dave has said time and again that most people who get into trouble with their investments are those who try to time the market. That is, they put their money in, take it out, move it around and mess with it! That’s a HUGE mistake! You should keep investing in both good and bad times.
A full 100% of 15-year periods in the stock market’s history have made money. That’s 100%! Like Dave says, you don’t get hurt on a roller coaster unless you jump off!
In July of 2009, the Dow Jones increased 8.6%. That’s the best July performance in a decade! And the S&P 500, a listing of the 500 largest companies in America, was up 7.4% in July 2009. That’s the best July performance for the S&P since 1997. Not only that, but it’s up 34% since March 2009! If you got out of the market, you missed the growth!
Real Estate
Yes, foreclosures have been up lately. A lot of families who bought their homes with nothing down or stupid interest-only loans got stuck in a bad market and are losing their shirts. For a while this spring, it seemed like all the news media talked about was how bad housing was in America. But here’s the truth: 60% of the foreclosures occurred in only five states—Nevada, Florida, Arizona, California and Colorado.
Dave firmly believes that real estate will be the area that leads us out of the recession. It’s happened before, and it will likely happen again. One of the reasons is pent-up demand. Even though it’s a hard time to sell a house, people are still moving. They get transferred in their jobs or take a new job in a different city or need to move home to take care of their families. Life doesn’t stop happening when the housing market takes a hit.
The housing market is flooded with inventory right now, which has kept prices low. However, the cost of new houses really hasn’t changed much, because the cost of construction materials hasn’t changed. So, as the available inventory starts to burn off, prices will start to go back up because they’ll have to compete with the higher new home prices.
Manual Underwriting
If you do the things Dave teaches, like getting out of debt and cutting up your credit cards for good, your credit score will eventually drop to zero and become what’s called “indeterminable.”
The thing is, though, most mortgage lenders use only your credit score to determine whether or not to give you the home loan. They don’t really look at you at all; they just care about your three-digit FICO score. So, if you don’t have a credit score because you’ve gotten your financial act together, these lazy lenders can’t—or won’t—help you.
In that case, you’ll need to see a lender who does manual underwriting. These mortgage lenders actually take the time to see who you are, what you do, what your current financial position is and more. Our friends at Churchill Mortgage assure us that manual underwriting is still alive and well, and they’re approving these mortgages at A+ rates every week.
So What?
If the economic downturn made you pay attention to your money for the first time in your life, then that’s a blessing—even if it came with some pain. Pain is like that, you know. It can be helpful and instructive. It shows us where we’ve gone off track and points us back in the right direction. That’s always a good thing!
So don’t be afraid of the pain. Face it. Deal with it. See what it’s showing you. Correct the problems it is highlighting in your life. Clean up the messes it is uncovering. The economy won’t be bad forever. Make this the year you turn your life around.
It’s hard to disagree with your post. I’m far from a beleiver that we’re at the end of our string with this economy. Though we all know personal finance is very personal so depending on someone’s situation it could fell like the end of the world in your personal economy!
I’ve wondered about the “indeterminable” FICO score. Are there banks across the country so anyone can get a manual underwriting? Are their rates competitive? If not, this can be a costly situation. Of late, I’ve been reading that employers may also pull a report on a potential employee. Curious how they handle a blank one.
By the way, I don’t believe the score drops to ‘zero.’ That would be pretty bad. After a certain amount of time passes with no transactions posted, I suspect a pretty decent score is just replaced by the “indeterminable.” It wouldn’t pass through the bad range of 500/400 etc.
I consider Dave’s position here to be a bit extreme. Even something as simple as buying gas now requires walking in and standing on line with the soda and beer buyers. I go to reserve a hotel room, and with no credit card, I’d imagine I’d either have to send the money in advance or have it tied up via debit card within my account. (I’ve missed his remarks on Debit cards, those ok?)
JoeTaxpayer,
Like you, I seriously doubt if a credit score literally drops to zero when someone goes for long periods of time without using credit. I guess I could find out by checking my own…we haven’t borrowed money or used credit cards in years. But it must not be too bad because when I renewed my auto insurance about a year ago , I got a great rate because I had a “very good credit score”. Hmmm.
I never have trouble with hotel reservations because I have them run my Visa debit card as a credit card. In fact, I don’t even know my PIN.
I wonder if Dave Ramsey being let go from Fox News will affect his popularity. His replacement Eric Bolling, seems to be pretty smart.