Daniel Varga

I audit real money mistakes.

Auditor | maths

[Daniel Varga @vargaaudits]

@Pixel_Neuron Of all the ratios I’ve used, this is the one people actually remember. It only needs two numbers, one from your loan statement and one from your pay slip.

[Daniel Varga @vargaaudits]

The Audit #004: Dave Ramsey's bankruptcy on Theo Von

$1 million net worth. $1.2 million due in 90 days.

In 1983 Dave Ramsey had a $1 million net worth and made $20,000 a month flipping houses on borrowed money.

"They can call my notes in 90 days. So they called a million, too, in 90 days, and it crashed me."

The loans were 90-day notes, and when his bank was sold, the new bank called them.

I ran what that call asked of him. $1.2 million in 90 days is $13,333 a day, and he earned about $658 a day. Everything he made in those three months would have covered 5% of it.

The call alone was bigger than his whole net worth.

It took three years to lose everything he owned, and he filed for bankruptcy on September 23, 1988, with two small kids at home.

Few people reading this have a 90-day note. Plenty have a loan that behaves like one: a HELOC the bank can freeze, a margin loan, a balloon payment, a short-term flip loan.

Divide the balance by your monthly take-home pay. Dave's number was 60 months, and he got 3.

For anything you plan to hold for years, borrow on terms that last as long as you hold it, and keep cash for the loans you can't change.

A 30-year fixed mortgage survives the bank being sold.

What worries me is the TikTok version of this. Dave said it on the same show: "No one flips houses with nothing down that they saw on TikTok."

The loans those flips run on are usually short-term, often a year or less, which is his 90-day note with a longer fuse.

Audit closed.

[Daniel Varga @vargaaudits]

@low_perplexity I like that you checked it yourself. One more way to read it: to cover that call from income alone, he’d have needed about 20 times what he was earning, for three months straight.

[Daniel Varga @vargaaudits]

@sterlingwallst Your friends’ story is the stock market version of my ratio. I’d add a third number for margin: how far the price can fall before the call comes. In October 1987 the Dow fell 22.6% in one day.

[Daniel Varga @vargaaudits]

@lorneseth I think it explains nearly all of it. Someone who lost everything to a loan he couldn’t control is going to tell people to avoid loans entirely, and for most of his audience that’s safe advice.

[Daniel Varga @vargaaudits]

@limalemonnn I ran mine the first time years ago and didn’t like the answer. It took me ten minutes and changed how I borrowed afterward.

[Daniel Varga @vargaaudits]

The Audit #004: Dave Ramsey's bankruptcy on Theo Von

$1 million net worth. $1.2 million due in 90 days.

In 1983 Dave Ramsey had a $1 million net worth and made $20,000 a month flipping houses on borrowed money.

"They can call my notes in 90 days. So they called a million, too, in 90 days, and it crashed me."

The loans were 90-day notes, and when his bank was sold, the new bank called them.

I ran what that call asked of him. $1.2 million in 90 days is $13,333 a day, and he earned about $658 a day. Everything he made in those three months would have covered 5% of it.

The call alone was bigger than his whole net worth.

It took three years to lose everything he owned, and he filed for bankruptcy on September 23, 1988, with two small kids at home.

Few people reading this have a 90-day note. Plenty have a loan that behaves like one: a HELOC the bank can freeze, a margin loan, a balloon payment, a short-term flip loan.

Divide the balance by your monthly take-home pay. Dave's number was 60 months, and he got 3.

For anything you plan to hold for years, borrow on terms that last as long as you hold it, and keep cash for the loans you can't change.

A 30-year fixed mortgage survives the bank being sold.

What worries me is the TikTok version of this. Dave said it on the same show: "No one flips houses with nothing down that they saw on TikTok."

The loans those flips run on are usually short-term, often a year or less, which is his 90-day note with a longer fuse.

Audit closed.

[Daniel Varga @vargaaudits]

@scientxbt I’d let them keep it. He called them wonderful friends on TV in 2015, and suing them six years later undoes that.

[Daniel Varga @vargaaudits]

@0xMavian The way I’d protect against it is to know which of your debts can be called and keep enough cash to cover at least one call without selling anything.

[Daniel Varga @vargaaudits]

@fomoliver What I respect most is the secret test. He risked a small amount of his own retirement money before he asked Marge to put in more, and he only told her once the numbers had held up.

[Daniel Varga @vargaaudits]

@Llinkoy For me the HELOC risk is mostly the rate. It’s usually variable, so the payment can climb while your income stays the same. I’d want cash set aside for that, the same way I would against a call.

[Daniel Varga @vargaaudits]

@TheMarloweFile To make it easy, take a $50,000 HELOC and $4,000 a month take-home. That’s 12.5 months. Now check how long your lender could give you.

[Daniel Varga @vargaaudits]

@SuccessDecodedX That’s why I read the call clause before the rate. A friendly banker doesn’t help much once the bank is sold.

[Daniel Varga @vargaaudits]

@Stolvar I think the decision was right for the information he had. A partner with a house and a car was on the hook for a $15,000 loan, and nobody knew yet what Apple would become.

[Daniel Varga @vargaaudits]

@s4next_ I’d count from 1946, the same way the NBA does. The 1949 merger gave it a new name, but those first three seasons are what it grew out of.

[Daniel Varga @vargaaudits]

@Stolvar I’d run it on any loan whose terms can change: a HELOC, a margin loan, a balloon payment. It takes about a minute with a calculator.

[Daniel Varga @vargaaudits]

@verumidest I’d give Dave some credit. With no debt, there’s nothing for a bank to call, and for most people that rule is easier to follow than reading the terms on every loan.

[Daniel Varga @vargaaudits]

@fomoliver I’d say the call was fast and the losing was slow. It took him three years after that to lose everything.

[Daniel Varga @vargaaudits]

@xbtnoah I’d blame the terms he signed. With notes that could be called in 90 days, whoever owned the bank decided how long he had, and a balloon payment or a short flip loan puts you in a smaller version of the same spot.

[Daniel Varga @vargaaudits]

@s4next_ I’d put it this way. Net worth assumes you can sell everything at a fair price, but houses don’t sell at a fair price when the bank wants $1.2 million in 90 days.