Dave Ramsey: Renting Is Not a Waste of Money -- But These 5 Expenditures Are
People often think renting means throwing away money on a property you’ll never own. But, according to personal finance expert, Dave Ramsey, renting is anything but a waste of money. It can actually be an intentional part of a good financial plan.
On an episode of The Ramsey Show, Ramsey explained renting is wise if you aren’t financially ready to purchase a home—especially for those still carrying debt. After all, having multiple debts to pay down just means they all take longer and accrue further interest. And defaulting on any one of them hurts your credit.
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So don’t dig yourself a bigger hole than necessary. Ramsey is a proponent of becoming debt-free prior to buying a house so that you can free up cash flow, invest any extra money in the stock market and put yourself in a better financial position. Then, at a later date, you can make a strong down payment.
In essence, renting is not a waste of money because it can help further your financial well-being. However, the same cannot always be said for other expenditures. Here are five that are a complete waste of money, according to Ramsey.
1. Student Loans
An article posted to Ramsey Solutions explained student loans are a waste of money because there are other ways to get an education (community college, trade school, work study, etc.) that don’t leave you under a mountain of debt for years after graduation.
However, Ashley Morgan, attorney and owner at Ashley F. Morgan Law, insists this conversation requires more nuance. She feels student loans aren’t always a waste—especially if there is a reasonable return on investment given your area of study (i.e. a med school degree as opposed to an English degree).
2. Credit Cards
Ramsey feels cash is king and advocates everyone cut up their credit cards. In fact, he considers credit card companies to be a predatory industry that just charge exorbitant interest and encourage overspending. He calls them a trap — not a wealth-building tool.
3. Lottery Tickets
In a video posted to Facebook, Ramsey claimed the lottery is nothing more than “a tax on people who can’t do math.” The odds of winning are terrible and those buying lotto tickets are just looking for an easy out instead of putting in the work to build real wealth. He argued your money is better off invested in the stock market.
Morgan agreed individuals should not regularly be treating the lottery like a financial plan, but stated spending money on a lottery ticket could be okay if it comes out of your overall “fun” budget every now and then.
4. Timeshares
Per Ramsey Solutions, timeshares are a waste of money because they become liabilities rather than investments. They involve costly maintenance fees, depreciate nearly 90% upon purchase and are difficult to offload at a later date. He argues it makes more sense to save up and pay for an Airbnb when you go on vacation.
5. Car Leases
Ramsey feels car leases are a complete rip-off because you wind up paying more in monthly payments over the long-term than if you just bought a car. A car lease is essentially a long-term rental—yet, unlike a rental, a lease is a form of debt. And debt comes with interest (even though it’s re-named, “APR”). You also don’t own the vehicle after you’ve paid off the debt.
Jonathan Maula, owner and CIO at Castle Hill Capital, generally agreed with Ramsey. However, he points out that car leases can be wise in specific circumstances if you do your research and time them right.
“Last year, EV leases were stupid cheap,” Maula said. “You could least a car for two years for $5,000 total.” This was due to tax loopholes and oversupply.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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