Transcript of If You Want Wealth, Stop Being Dumb With Money New

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Daniel's with us in Indianapolis. Hey Daniel, what's up?

Hey, how are you?

Better than I deserve, man. How can we help?

Uh, so I'm trying to figure out if I should file for bankruptcy.

Oh, that sounds scary.

Okay, what's going on?

Um, so right now I'm married and we bring home $7,700 a month together, but, um, she's talking about separating, and so on my own I only make $3,850 a month, so I'm upside down quite a bit at the end of the month.

What's going on with your marriage, hon?

Not really sure.

Basically, there's just a lot of resentment for how I was the last year and a half.

Sorry.

It's okay. How you were?

What were you?

I'm not very present.

Do you guys have kids?

Yeah, I have a 6-year-old daughter. We have a 6-year-old daughter.

Well, typically when there's an overwhelming amount of stress having to do with money, it's the number one cause of marriage fighting and divorce. And so if you're, if you're thinking about bankruptcy, that means you're in a mess, and that's probably at a minimum contributed to your marriage issues, if not being the major cause of your marriage issues. And then we blame it on, or we point at something like saying you're not present. Yeah, I'm not present because I'm totally in my own head trying to figure out how I'm gonna get out of this dadgum mess. So, um, that, that could be very possible.

So how much debt have you got, hun?

Um, not counting the house, um, I mean, the car's $14,000, and then, um Got about $13,000 on an HVAC loan, and then, uh, $19,000 on one credit card, $1,300 on another credit card, and $4,000 on another credit card.

Okay, were you guys using—

and that's all your debt, you and your wife, other than your home?

Um, and then, yeah, and then a fourth credit card at $4,000.

Sorry.

Okay.

All right.

Well, it's about $70,000. I mean, you're close to $75,000 in consumer debt. Was the credit card spending, I'm just curious, because there's multiple with relatively high numbers on it, was that to keep things afloat when you guys were paying bills or was that just discretionary spending that you weren't even aware that you were doing?

That was stupid choices on my part and trying to fund Christmas. Without talking.

Have you been running the money by yourself?

Yeah.

Okay. All right.

Has she had— did she have any awareness of where you guys were at, at this level of debt?

Not, not this level, no.

So that's part of what she's pissed off about too?

Um, kind of. Yeah.

Yeah, kind of.

Yeah.

Well, this has come out after the fact.

We're almost bankrupt.

Yeah, I'm pretty mad at you.

Yeah. Okay, that could happen.

Um, but it came out after the fact, so So everything kind of hit the wall with the marriage.

Yeah.

And then other things started coming out in conversations and this being one of them.

Yeah. How long have you been married?

13 years in August.

Okay. Are you guys plugged into a church at all?

No.

Okay. All right. Well, here's the thing. The math says you're not bankrupt. If you stay married, you could clean this up fairly quickly. Working together. But that involves staying together and working together and a whole mindset change on everything having to do with your relationship, you and your wife. But mathematically, if you got $7,700 coming in, you could plow right through a debt snowball on this and get on beans and rice— rice and beans together, take extra jobs and attack. And everybody having full transparency, knowing what's going on, watching these debts fall away, cutting up the credit cards, never going back again, living on an EveryDollar budget where both both of you see every expenditure and know what's going on. She's carrying the stress of the family with you while you're carrying the stress of the family together. That's called being a couple, and we work our way through this.

That is doable. The only question is, are both of you willing to sign up for that?

Yeah, this time she's not.

Okay, well, I was going to say, more importantly, are you guys— are you guys willing to sign up for the marriage too, right? Like, there's— there, to a point, I have John Delony in my head when he talks about, can you go to marriage counseling, that you're at a point that, I mean, the way you're making it sound, Daniel, the only way to really save the marriage at this point is it's a complete excavation of what was, and you guys write an entire new story, which is gonna take a lot of work, working through a lot with a professional, having a therapist or a counselor involved. And as you do all of that, right, you are looking at the things impacting your marriage, money being one of those. And so, as you're going through and rebuilding marriage, you're doing the debt snowball, right? And so, that feels like—

I feel like I'm missing something. Here? Has she moved out already? You broke up. Say it again. Has she moved out already?

No, she's planning to move out in 2 weeks.

Okay, to where?

Uh, an apartment.

Has she signed the papers?

Yes.

Did you do— was there something major, Daniel, just versus you not being present?

Um, no.

Hmm.

All right. So what I would love to have happen in your old story is for the both of you to sit down and say, before we do that, let's go see a marriage counselor and see if we can begin to put this thing back together. And as Rachel said, write a new story. Now, that's the best outcome of this conversation. And so if I were you, when I hang up, I would find a marriage counselor, call BetterHelp, call somebody and get on the phone and start asking them how to talk to your wife about coming as one last-ditch effort to sit down with a marriage counselor. Okay? Because I think this is salvageable. I'm not hearing any reason here to end a marriage. But anyway, I think you guys get in that. If you can't or won't— you can't control what other people do.

So she just says, "No, forget it.

I'm done. I'm out." And that's after you talk to a counselor who tells you how to talk to your wife, be present about talking about possibly saving your marriage.

Not you just saying, "She's not gonna do it, Dave." That's not an acceptable answer.

You've got to put some effort into this, okay?

Now, if after all of that and the whole thing still goes up in flames, then you've got this debt. You're still not bankrupt. You're still screwed, but you're not bankrupt, okay? Because basically, you're probably gonna end up with half of the debt.

She's probably gonna end up with half of the debt in most states.

And you're gonna end up with child support.

And you bet, you know, you've got a $4,000 a month income, she's got a $4,000 a month income to work with towards the debt. And the house is gonna be sold. And that's gonna pay off a lot of the debt, including the HVAC. And the car may be sold, but probably you're just gonna pay it off, and then you're gonna plow through some credit card debt together. And you're gonna figure out who's doing what.

You're gonna end up doing it together whether you want to or not, because both of them got both your names on them. Even if the judge says, "That one's yours, that one's yours," until it's paid off, it's not done.

And so, but this can work.

It's a lot harder doing it as two separate entities though. Everything in life is a lot harder. Raising this kid is a lot harder.

Everything is harder as two separate entities.

So save your marriage.

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Michaela is in San Diego.

Hi, Michaela, how are you?

Hi, Dave and Rachel, thank you for taking my call.

Sure, what's up?

I'm, I'm calling in with kind of a two-part question about business cash flow concerns. My husband had worked at this business for over 20 years and we recently bought it. We took out two personal, um, $50,000 loans to pay the previous owner and to start the business. But now after two months, we're feeling a lot of stress in our new marriage. Feel like we're only paying debts, not making any progress and can't breathe anymore. We need guidance on how to manage the cash flow so we can try and get ahead. The monthly business expenses are between $50,000 and $60,000 a month, but the income varies between $40,000 and $70,000 depending on the month. My second question is that—

So, you paid $100,000 for a business that breaks even?

That's— he told us it didn't. He said that it had a significant cash flow, but we are finding that we're only breaking even.

He said it's a slow time period right now.

Did you look at previous books of the business, like the last 12 months before you bought it, to see seasonality, if that is true?

He didn't really offer that, and we kind of went on good faith because my husband had worked for him for so long. But I'm realizing now that maybe we should have.

No, not maybe. Absolutely.

Yeah.

Yeah.

You stepped up into a bear trap.

Yeah, what kind of business?

Um, it's an appliance repair, um, business.

What is the $50,000 to $60,000 in overhead on appliance repair?

Mostly it's payroll. There's, um, 6 technicians, but we're also paying for health insurance, um, rent, um, software insurance, um, let's see what else, the auto insurance, um, website leases on the vehicles, which I don't agree with, but—

So the 6, um, uh, uh, technicians are not working all the time?

Well, there's 3 office staff and 3 technicians. We did used to have 4 technicians and one quit during this time frame, so we're trying to hire a new one.

Um, why would you want more expense?

We're hoping that he can also bring in more income.

And why would you have that hope if you're not already overwhelmed with business?

Yeah, um, you guys turning down a lot of business?

No, right, right now they're, they're pretty busy. I think my husband's schedule, he's booked out to next week, so not turning down a lot of business, but, um, we're at least a day or two busy all the time.

Yeah, okay. So here's the thing. You have to ask what must be true for this to work. And so revenues have to go up and expenses have to go down for this to work. That's a basic business premise, right? We all know that. And so that's what you've got to start asking yourself. What can I do to get revenues up and get expenses down? And none of these things are going to be easy. They're all going to be painful. Like, your husband's gonna be working, like, all the time. Welcome to being self-employed. And the technicians, you're gonna get them to where they're so busy they can't breathe, and then you're gonna bump your rates and start charging more, and then you're gonna lay off one of the three office staff or two, and you're gonna be down there doing the books. And then you're gonna look at getting rid of these leased trucks and get some old trucks that show up, 'cause nobody gives a crap what you're driving if you fix their dishwasher.

Yeah.

The hard part is that I'm active duty military, so I can't move there yet.

Okay. All right.

And I'm debating if I should pause my TSP savings, um, put that money towards the debt.

Okay.

Yeah.

Yeah.

You guys got to clear this debt and you gotta, you gotta stop everything and get where you can breathe. But the point is the more you move into increased revenue and decreased expenses and more margin in your personal budgets, the the more there's a light at the end of the tunnel that's not a train. And then you can, you know, the problem with where you are is if you feel like you're stuck there forever, that's an untenable place that creates unbelievable anxiety. But when you're in a hard time, but you can see your way out doing some hard things, well, the brain will help you do that.

That's a miracle. Kalem, where is your husband right now living? If you're in San Diego, where is he?

He lives up in the Fresno area.

Okay, and you guys are newly married? How long have you been married?

One year.

Okay, were you deployed or something?

No, we just met, um, living in two different locations.

When are you guys planning on being in one location together?

Next, next year. I'm— I retire next year.

Okay, I'm just wondering, does he have this level of stress as well? Because you're the one calling us and you're not even in the same city in this with the business.

His stress is easily 2 to 3 times what mine is.

And so you're just hearing it, you guys are talking through and you're like, I'm just going to call and see what they say.

Yes, exactly.

Okay.

And you don't owe this former owner any money?

We owe him almost $400,000.

Holy moly. You paid $500,000 for a business that doesn't make a profit.

That's why.

Fixing dishwashers. Oh my gosh, kiddo. Yeah, yeah, you got screwed. Wow. Unbelievable.

Okay, so what is she doing?

So listen, hey, here, I can help you with this real quick. Call the former owner and tell him to come get it. So come pick up the keys, buddy. I'm done. You just walk away and walk away with $100,000 and just pay it off. Pay the $100,000 off and call that stupid tax.

Mm.

Call him and tell him to come get the thing.

Mm.

Screw this.

You got hammered. Yeah.

Yeah.

For a business to be worth $200,000 and $500,000, you need to be making a profit of $150,000 to $200,000 a year. And you ain't going to see that in your lifetime out of this thing.

And I think that's what he told us that it was worth.

Yeah, well, he's a liar.

Okay.

And I'll be mean. Can I be mean for a minute?

Sure.

Y'all were dumb on how you did this.

Yeah.

I mean, you believe this guy just because your husband used to work there and he got a paycheck. Instead of actually checking out the freaking numbers. You signed up for a half a million dollar trip around the sun and didn't look at a stinking number. Just trust some good old boy. Yeah, that's like walking in front of somebody's squeak.

Oh my gosh. Bless your heart.

Yeah, you got a mess.

This is not going to end well.

I'm calling that owner and saying, I can't do this.

You sold me a pig in a poke. I'm done with you. And there's no possible way this thing is worth anywhere close to what you sold it to me for. You screwed me, and here, I'm leaving.

You can come pick up the pieces.

And tell your husband to move to San Diego.

Move to San Diego with his new beautiful wife and get a job.

And then y'all scratch through your stupid $100,000 worth of debt. And when you look back on that, you'll say, that was the dumbest thing we ever did. Cost me 100 grand. By the way, I've done dumber things that cost me more than 100 grand. But I— but, but, but, man, I can look at myself in the mirror and go, you were stupid, Dave, when you did that. So yeah, you—

this is not recoverable.

I'm turning this over to this guy.

I'm serious.

You're not gonna work your way through $500,000 in debt.

And the seasonality part is insane. Seasonality's butt. I mean, people—

Dishwashers don't break in the summer more than the winter.

Or less than, is what he's telling them.

I know, that's just absolute bogus. If it was heating and air, maybe, we'll talk about it.

There is some come and go on heating and air.

But you said appliance repair. Appliances aren't on a schedule for repair. Refrigerators don't go, "Oh, I'm gonna wait until after Christmas to break." They don't do that. So this guy's full of it, and he sold it to you, and he's sitting over there grinning, going, "Look at these fools, sending me checks." No more checks for Bubba. Nope, I'm done.

Okay, so how does that, really quickly—

You're probably gonna get yourself sued.

I was gonna say, legally, how do you do that?

But the other thing I would do is, when he sues me, then I would countersue him for fraud and say, you lied.

This is verbally— this is what was said.

When you lie to do a business transaction, that's called fraud.

Yeah, yeah.

And this guy was fraudulent. He lied about how much money this business makes. I promise you, he lied way seriously, lied. And the dumb part was you believed him.

So you get to— you get to—

you're probably going to get sued. You're probably going to have a countersuit, and you definitely got to pay the $100 grand that you borrowed from real people.

Oh geez.

Sorry, Michaela.

Yeah, this is awful. I'm so sorry.

I'm aghast on your behalf.

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Okay, now that I can breathe again, let's give a little bit of recap to talk about how to value and how to buy, how to purchase a small business. A small business is a lot of work. I've run one most of my life, and Ramsey today is a $300 million business. It's not that small anymore, but it's at its heart a small business. And I coach about— our EntreLeadership team and I coach about 10,000 small businesses. We'll be with 3,000 people next week at Disney at the EntreLeadership Summit event, teaching leadership and business acumen to small business people. So this is something that we do. It's not just a random guy who gets people out of debt that this poor lady, Michaela, called and had gotten herself into a mess. So it's good for us to Part of what we want to get out of this is to help the individual caller that calls in, but we also want you guys to get a lesson and learn and inspiration from and so forth anytime we take a call on here. And so that's how we decide who we're gonna talk to on the air on this show.

So backing up then, number one, small business is all-encompassing. It is the hardest when you own your own business, it's the hardest boss you'll ever work for. Your boss will work you to death when you're your own boss. It's hard. It is not to be taken on by someone who got married 20 minutes ago.

Bad idea.

Okay? It's a strain on you physically, mentally, emotionally, spiritually, and it's a strain on your family.

The stress of it all.

Yeah. When I started this business, I worked 16 hours a day, 5, 6, 7 days a week. You talk to my wife Sharon when Rachel was a little bitty kid and this business was growing up, that she felt like a single mom a lot of times. And she, for all practical purposes, was. That's what a small business is. You don't do that on a weak marriage. You don't do that on a new marriage. And you don't do that when both spouses are not fully engaged. You don't do that when you live in separate cities. So rule number 1, violated 2 rules right there, okay, before we get started. Because it's hard, y'all.

It's really, really, really hard.

It's a season of grind when you sign up for it.

When you buy a business or you start a business, it's hustle and grind. Hardcore. And that's okay, but know what you're signing up for, and it's not gonna make everything better. It's gonna make everything worse for a while. And, uh, but the idea is we're gonna make more money and have control of our destiny, and that makes things better over time.

But that's not where it starts.

Then the second thing is, if you're going to buy a business, you investigate and expose every single number in the business, all the accounting, and particularly the tax returns.

Because they may lie on their accounting and they may lie to you, but most of the time, the tax returns are gonna be some semblance of accurate. And if they say to you, and you're looking at a business, "Oh, don't pay attention to the tax returns. We actually make more money than that," what they're saying is, is we are lying to the federal government on our tax returns, committing fraud, but we're trustworthy. That's what they're saying to you.

So run away when someone says something like that.

Okay, the tax returns are the number. I'd look at least, at least 2 years, but probably 5 years. Yeah, I want to see the trend line of the profits over the last 5 years and what are the profits they actually paid taxes on.

Now, if you take $100,000 and put it into a good mutual fund, you can make 10 or 12% pretty much any year. So if you were going to take $100,000 and buy a high-risk small business where I'm going to have to pour myself out and hustle and grind, you You need to make a minimum of a 20% rate of return on your business. Okay?

And you need to make probably a 25% rate of return.

So here's how that translates in valuing a small business.

You look at the net profit after everyone is paid, including the guy that works there that hasn't paid himself. If you weren't working there and you had to hire a manager You take the manager's salary out and you have the net profit of the real business if you're an absentee investor to determine what kind of actual revenue this business is creating. Because if he's just paying himself and that's all, you're not buying a business, you're just buying a job. You don't need to buy a job. Just go get a job. But don't buy a job. So if it pays $100,000 and that's all it pays and you can make $100,000 doing something else, well then don't pay to buy buy a business that only pays you what you would have made putting up nothing to work for somebody else. So don't buy a job. Instead, after everybody is paid, if I'm living over here in Tennessee and I'm buying this, and the thing will operate over there completely, what is the net profit then?

And if you want a 25% rate of return, you multiply that number times 4, and that's the value of the business. If you want a 20% rate of return, then you multiply it by 5, and that's the number.

So if it made, after everyone was paid, $100,000, it's worth $400,000 or $500,000. If it made $10,000, it's worth $30,000 or $40,000, which means don't buy it.

And it's worth $10,000. That's right, what they should have paid for that business.

Exactly, instead of $500,000. If you'd actually looked at this goober's tax returns, you would have seen that after he got paid, the thing had no net profit, which is what they have discovered now that they're running it.

Instead of just working there.

The skill of being a technician inside of an organization is different than the skill of owning and operating a business. You can be a very smart graphic artist, a very smart software engineer, a very smart accountant, you can be a very smart anything and not know how to run a business. They're different skill sets.

And you have to consider that.

So if you're a heat and air guy and you've been working there 20 years and the heat and air guy wants to sell you the heat and air company, you're not qualified to run it yet. You've got some skills, you got some metaphorically tools you need to put in your belt to get ready to run that.

Because, because you can fix an air conditioner doesn't mean you can run a heat and air company.

Because you could sell real estate doesn't mean you can run a real estate company. It means you can sell it. That's different. So you've got to consider those things when you're valuing out and deciding, is this an appropriate purchase for me? And then lastly, if you have to borrow money to start all of this, you've increased your risk 100 times.

Don't do it. 80% of the small businesses fail in the first 5 years according to the Small Business Administration, which is really not trustworthy organization, but It's the only number we've got. 8 out of 10 don't make it. If you're in the restaurant business, it's 95 out of 100 don't make it.

So just 'cause you can cook doesn't mean anybody's gonna buy your barbecue. It just means your neighbors liked it when you gave it away. That's all that means. You're not qualified yet to operate a barbecue joint and go $250,000 on an SBA loan, and now we've got Dave's Barbecue. Not so famous Dave's, right?

I was gonna say, I think there is a Dave's. There was a Dave's Barbecue.

Yeah, that just occurred to me as I said that. But the, you know, see what I'm saying? So that's the thing. You've got to dig into this. If those, and you know why 80% of those companies fail? Those little businesses fail?

Cash flow problems.

Cash flow problems are created by two things in small business.

Not paying your taxes because you're taking all your money home because you didn't have enough money coming in to eat and now you're starving to death and so you don't pay your taxes, you don't pay your quarterlies, or worse than that, you hold, you don't turn in the withholding And if you don't pay your 142s, they're gonna come get you forever. That's not bankruptable. You're gonna get it. That's the withholding numbers, okay, on your employees. You have to turn that money in. You can't keep that money.

Wow.

And guess what the other thing causes cash flow problems is? The debt.

When you went and borrowed money to start and run this business. And so one of my friends is sitting out here and he paid off half a million dollars on his business, and that means he's the exception to the rule.

He made it out alive. Most people don't make it out alive when they do that.

They don't make it. Don't sign up for that trip. It's not worth taking.

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Buying or selling your home is a big deal, and right now things are crazy out there. Interest rates are down, house prices are starting to change again, things are moving. If you, if you're thinking about buying a home or selling a home in the market like this, you really need somebody knows what they're doing in your corner, not somebody that got their license 3 weeks ago and you go to church with them. Sorry, Charlie at the church, but that's, unless you've been doing a bunch of real estate deals, we don't want you to be, we don't want people to list their house with you.

We want people to list the largest asset they have with somebody that really has a proven track record.

So that's how you become Ramsey Trusted. You have to have an incredible track record of performance in the real estate market. To find a local Ramsey Trusted real estate agent pro for free, go to ramseysolutions.com/agent or click the link in the description. Naya is with us in Boston. Hi, Naya, how are you? Or Naya? Naya?

Yes, it's Naya.

It is Naya. I got it right the first time. Okay. How can I help today?

Yes. So I am currently in Baby Step 2. I have $112,000 of debt total. And I am just trying, struggling with being in a long-distance relationship and essentially staying intense while also still investing and prioritizing that as well.

How far is the relationship? How far, how far apart are you guys?

Um, 4 hours.

Okay. How long have y'all been together?

So it's a year and a half.

So it's more—

how many times have you physically seen each other?

Um, once or twice a month.

Oh, okay, good, good.

Because I asked that question one time and the lady said never.

Yeah. And I wanted to make sure what I was dealing with. So, okay, all right.

That's what I'm struggling Because I recently just picked up another part-time job.

I do.

So what do you—

what is your career and what do you make?

So I'm a property manager and I currently make $65,000 a year.

What about him?

That's a great question.

What does he make?

Um, that's kind of a struggle in the relationship, but, um, yeah, it's a struggle because he doesn't—

he, he's not working or he won't tell you?

Both.

He won't tell you because he's not working and he's ashamed of it.

Yeah.

Yeah.

Has he not worked for a while?

Yes.

Okay.

So why?

Why is he not coming to see you then?

Yeah, he ain't got nothing to do.

He does. There's a trade-off. I mean, it's just like, that's the struggle. I know ideally it would be to live in the same state, but I don't know.

No, no, no, no, no, no.

Stop. You did not answer the question.

You completely deflected.

This guy's got nothing to do. Why are you driving to him?

Um, because he says it's more comfortable for me to go there.

Yeah, I bet it is. He does a lot of things that are comfortable for him. It's more comfortable not to work too.

Oh no. Yeah, is it bad? Do you see it's bad?

Do you not hear yourself?

Yeah.

Oh man, but you love him, you know.

Well, shoot. Uh-oh. How old are you?

How old are you?

I'm 25.

Okay. You've been together a year and a half, and you're just way more, way more mature than he is. And he's going to be a husband that's gonna— everything about him right now will be magnified in marriage.

So yeah, all the good and all the bad.

Mostly the bad.

And not that people can't change and grow, but for the most part, he doesn't sound very proactive right now to come to you or to get a job. Oh no.

Okay, so not talking about the debt snowball, which is actually how you framed the question, then we got all up in your personal business.

I'm sorry.

But personal business is there because it's personal finance. So you're gonna be my 25-year-old little niece for a minute, and I'm gonna be old uncle, ugly Uncle Dave, okay? And I'm gonna love you. I'm gonna love you like you're in my family. All right, so If you had a daughter, you need to think about what she would tell you, or what you would tell her about this guy. The same stuff Rachel's telling you. Now, having said that, if you want to pursue this guy, that's fine. But he needs to show some initiative in two areas to be worthy of you, my princess. In order for him to be worthy of you, he needs to be a working man. Period.

Okay.

And he needs to pursue you, not you have to pursue him. He needs to get his little butt in the car and drive over and see my princess Denise. Because you're worth that. You're not— he's not worth you chasing him. You're worth him chasing you. And if he can't do that, he's disqualifying himself. Does that sound like good old Uncle advice?

It does, yeah. It's just I am like annoyingly obsessed with you guys. It's all I listen to, and I'm just so sick and tired of being sick and tired.

Well, you're gonna get out of debt because you're not gonna be driving over there as much, because he's gonna be driving to you, and you solved your problem. So now you can keep working your debt snowball. But as long as you're distracted with this character, and you're the only one putting out all the effort and the money while he sits on his comfort self. So if someone's wanting to date one of my daughters, comfort does not need to be a word that comes out of his mouth. Discomfort while he serves and takes care of the princess that I raised sitting next to me, the good kind of princess, not a bad princess.

And so when Winston—

Not an evil queen.

When Winston Cruz came into my—

house to talk to me about dating my daughter, he— there are requirements. And being a productive young man is one of them.

Well, and can I be super— probably a little prideful? I don't even think you had to say that to Winston because he was doing—

I never had to. He did all that. That makes it okay for him to be there.

In college, you don't even mean like—

But I guarantee you, I'm gaging that.

Yes.

Yeah.

And if you don't qualify, you don't get invited back. And that's the mean old daddy.

"Dad, the boys in the youth group are scared of you." "Good." Keeps away wusses and jerks, two things I don't want dating my daughter, right? Yeah, so, and productive is a good thing for a young man, a young woman to be.

Yes, for anyone's soul in society. But again, not to be like overgeneralization with gender, but there is something about a guy of going and doing something productive with his life.

Highly unattractive to not do that.

That.

So it's to the father of the daughter.

Well, that— and then on top of that, I mean, seriously, but it'd be one thing if he's like struggling in the job market, you know what I mean? Like, we hear lots of stories and situations.

Yeah.

But the final— but the straw of like, he doesn't want to drive to you because it's uncomfortable.

He doesn't want to do that. I've been in a lot of job markets. I've never struggled. Yeah, run down Home Depot, buy you a leaf blower. Rich people are afraid of leaves. You can always find something to There's something to do. There's always something you can do for money. I mean, that's just—

I know, I'm just trying to give a little grace to my situation.

Yeah, he's trying to find himself. Yeah, that's good. But my princess niece, what I want you to do is I want you to stay in your town and invite him to come see you, and if he does, he might be worthy of pursuing. If he refuses to come see you on his dime and he refuses to become gainfully employed please move on. However, while we're doing all of that, of course, we've solved the other problem. You now can work and work on your debt snowball. And you're a productive person. You're a property manager, a professional young woman that makes $60,000 a year and more. And you're awesome.

Yeah.

Act like it.

Yeah. And if you can work extra, you know, $2,000, $3,000 a month on top of anything you can squeeze out and anything that you can sell.

You got a $50,000 car and that 112.

Sell the 112.

Oh, that's what we were driving for "4 hours away." "Oh, good.

Okay, got rid of that too. Can't come see you? Got rid of the car." There we go.

Oh, there's an excuse. Like, "Sorry, I sold my car. Can't do it." And my $7,000 car probably isn't 4-hour worthy of a road trip, so I'm not gonna be able to do that.

I'm thinking that hooptie's not gonna make the trip.

So, yeah, you gotta be careful when you call this show, boys and girls, because we love you, and we're gonna treat you just like you were a member of our family or some of our best friend's kids or something like that.

And we're gonna put our arm around you and tell you the truth. Sometimes it's a little disconcerting to hear all of that. But we love you, Naya, and we're glad you called in. And I think you've got an incredible future, but I want you to put more value on yourself. This is The Ramsey Show.

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Welcome back to the Ramsey Show in the Fairwinds Credit Union studio. I'm Dave Ramsey, your host. Thanks for joining us, America. Rochelle is with us in Columbus, Ohio.

Hi, Rochelle.

How are you?

I'm doing okay, Dave.

How are you?

Better than I deserve. What's up?

Um, I'm trying to get some advice on whether we should sell our house in order to pay off our debt. My husband wants to sell the house and move back to his hometown to clear all our debts and start over, and I'm just concerned that that's, um, not the right move. And I'm also just emotionally overwhelmed, so I figured I'd call for some advice.

That's nice. Nice. Thank you.

Do you feel like the right—

you're concerned about moving back to the hometown more or selling the house or both?

Oh, um, I'm so sorry, I was just putting in my car.

You okay?

Um, yes, my husband pushed a button on my car that made it beep.

Oh, it's okay, you're fine, you're fine. No, you're good, no worries.

I'm walking down, down the neighborhood now. Um, so my concerns, I'm just a little emotionally overwhelmed because I do like our house and I like our neighborhood.

Um, and you don't want to move to his town.

Um, well, there's pros and cons to both. I'm just in a fragile state emotionally and I, yeah, I feel like, um, I feel like if we just move without changing the behaviors that got us here in the first place, we're just going to have the same problems.

100%. That's true. But if you change your behaviors with a fresh start, if you change your behaviors with a fresh start, it could be a good move. So what does he do for a living?

Um, so he is a security contractor. He's a professional bodyguard for a celebrity country music star right now. Um, and his salary, $7,100 a month, whether he's on tour or whether he's at home.

He will keep doing that regardless of where you live, whether you live in his old town or the current town.

Yes. Um, because he travels a lot from anywhere. Yeah.

Okay.

But on his off time that he is home, he was an HVAC, um, person with a union job, which provided us benefits and an additional $4K per month. He got laid off because of his unpredictable bodyguard job. So now we're only living on the bodyguard salary and he's doing extra side gigs and picking up other security contracting and just kind of making it work. But we're just paycheck to paycheck.

So how much debt do you guys have, not counting your home?

Um, so we have, um, $10,000 on his truck and $16,000 on our van, um, and about $14,000 in credit cards and about $3,000 in medical bills. Um, and we owe $8,000 to the IRS because, uh, we didn't take out taxes properly last year for self-employment with security contracting. And so we've got to get a payment plan set up with the IRS for that.

Okay, have you been doing your quarterly estimates this year?

No, um, we have not because his security work this year is, um, he gets the taxes taken out from the salary.

Oh, they changed it, they made him a W-2. Okay.

Yeah, he got this salary job, so now, now when he does—

But any of the side hustle stuff he does, you've got to set money aside and do your quarterly.

Yes, exactly. Yeah.

Okay, all right. How long you guys been married?

Um, I think like 19 years.

And how old are your kids?

Um, we have 15-year-old twins, and, um, I have a 5-year-old, a 4-year-old, and a 22-month-old baby, and a 19-year-old.

Yeah, that's overwhelming. Yeah, in general, it's a lot.

That would put me in a fragile state.

Yeah, that's a lot.

That's a lot.

Yeah.

Okay, so I'm, I'm gonna tell you this. Unless both of you hate the house, I would not sell the house.

I would sell his truck.

Okay.

He never drives it.

Well, he just recently bought it so that he had something to get himself down to Kentucky, because he— his country music star lives in Kentucky. He has to drive down there regularly, leaving me at home with kids.

Oh, I I see.

So he bought it. Yeah, so he does need a vehicle.

And he could use the truck for side hustles as well. Okay.

Yeah.

All right, then that won't work.

But basically, you've got—

what you're telling me is, is the debt you've got, you can clean up if you guys lean into this and live on beans and rice, rice and beans for a period of time. But he's—

I'm not sure if we can. I don't know.

That's why I don't know why you can't. Why can't Can't you?

Because he said he's working his life away and he's so miserable and he just— he's, he's so tired. He's so fired up.

That's not changing. That's not changing when you move.

Well, he said that it'll be a lower cost of living and our debts would be wiped out.

Yeah, but that doesn't change.

He's still on the road all the time.

I'm working so hard. He's talking about his side hustles are killing him?

Um, yeah. Oh, wow, he's here with me now.

I think he's right there.

He said that—

I don't care, he said whatever money he does make could go towards something instead of just scraping by. So I—

yeah, well, something could be like owning a home that your wife wants to live in, in the neighborhood she wants to live in, cuz she's got a freaking house full of kids while you're off on the road with a country music Yeah, I think that's part of the—

I think that's part of the gig you signed up for, son.

So yeah, I'm not saying I don't ever want to move. I'm just saying I would rather try to dig our heels in and get our behaviors fixed first before we make a rash decision.

No, you did say that.

You're changing your story.

You said, I love this house.

I love my neighborhood. I don't want to move. That's what you said.

I do, but okay, I mean, I know I could be happy anywhere, you know, that's, that's different.

You did say, "I don't want to move.

I like my house." Maybe not right this second, yeah.

And it's not because you want to change your habits. You do need to change your habits. Both of you need to do that for sure, and you need to get on a written budget. So what I would tell you guys to do is get on an EveryDollar budget. Don't go out to eat. Don't go on vacation. Pour every dollar on these debts.

Cut up every credit card. You take any side income you can do to create from home. He takes any side gigs he can take in addition to his bodyguard gig.

Big gig, and you guys tear into this debt full throttle for 6 months, 12 months. Next March, revisit this, and if everybody's still miserable and we're all dying and the only way to fix this is sell the house, well then sell the house.

But I don't think that's the problem.

'Cause what's wild is if you got $2,000 extra a month just to put at this—

You'll be done.

In 2 years. Do you know what I mean? Which is long, but also not really.

Not only $2,000 extra, you already make $7,700. $1,200 plus side gigs.

Plus the side gig.

Yeah, so I mean, you get some extra, he gets some extra, you guys cut, but you're spending— you guys gotta quit spending money like you're in Congress too. How much, how much is your mortgage payment?

It's $2,400.

Okay, that's not killing you.

So you guys, listen, do whatever you want to do, but that's what I would do.

Yeah, and I would look at the van and the truck, and, and we've got gotten more calls than not that actually their vehicles, they actually have— they're, they're upside down, or they're not upside down on it. And so if you guys can, can do anything to even move those, because to me, I'm like, that's $26,000 of this. So, but you're not— any wiggle room there, dude.

You're not dying from working extra to take care of your family and clean up the mess you made for 1 or 2 years. It's not going to kill you.

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There's a thing in psychology called cognitive dissonance, which means that you are stressed and there's a frustration level building up because things are inconsistent in your emotions and in your brain. Frustration, anger, um, all these types of high-energy emotions start to appear.

Fear.

Fear.

Stress.

And when you have that around money, and you see a quick way out, like selling your house to pay off all your debt, it tells you, "I can make all of this psychological pain, cognitive dissonance, go away if I just sold the house." So, we're always looking for— human nature is to look for the quickest way away from the pain. It is not always the best methodology for your long-term health. The quickest way away from the pain after surgery is not doing physical therapy because physical therapy is painful. But if you don't do physical therapy after a knee or an elbow or a shoulder, it won't work. It, you know, frees up. You have a problem. So you have to lean into the pain to get the best long-term result, and that's usually usually true with money. So what's painful in the— you pick the short-term pain and the long-term gain in any money equation, it's almost always the right one, versus the short-term gain and the long-term pain. There's always a trade-off. So if you sell your most expensive asset, your home, it's very, it's very mathematically expensive to move it's emotionally expensive to move, it's relationally expensive to move, it's the biggest disruption you can cause to happen automatically in your life short of some kind of a tragedy.

And so it's the last thing we tell you to do. Now, if you've got a house payment that's 60% of your take-home pay, we're gonna tell you to sell it regardless of the pain because it's not sustainable. But just looking for a quick way out of your debt debt and cashing in your retirement and having a huge penalty and tax bill is a short-term release for a long-term stupid move. Selling your home, often, is a short-term release, becomes long-term stupid. Because now you don't own a piece of real estate anymore. Real estate starts going up and you've boxed yourself out of the market, because you're renting in your old hometown, in that guy's case. So, So, when we say, "Suck it up, buttercup. Play through. It's for your good," because 10 years from today, it's going to be the best decision to not go through a home move. Now, again, if you have to, it's different.

Or if you want to, right? If they were talking about it—

Or if you just don't like the house.

Yes, yes.

"I hate this area. I don't want to live in this state anymore." "Yep." "That's okay." "Yep." "That's a good point." But don't do it as the quick fix, as the— basically the sole motivation, because I'm tired and I don't want to work extra. No, work extra, be tired, it's worth it. 10 years from today, you'll be glad you did. The 10-year-from-now version of you will like the current version of you better.

"You will pay a price to win." Yeah, and I think what he said, or what she said, he said, said, you know, to a degree is very relatable that he's working his butt off and it's just going to payments. Like, you know, it's different if you work hard and you make all this extra money, you get to do fun stuff with it. But when you're in that season of sacrifice, allowing that to be a driver too of like, I am pissed. That's why even like selling the cars, it's like, okay, when you do the math, you know, okay, what if I got a $5,000 car and $5,000, how much extra was I having to work for that $5,000 that was sitting in a truck equity?

That could be to this, right? Like, you gotta be thinking about it. And that starts to like really mess with you.

And you actually see the hours I'm working, what, you know, if I could sell an asset to save on a day of working, I'll do that all day. Like, we'll just keep moving stuff.

I mean, could she drive a $4,000 minivan instead of a $16,000 minivan? And 'cause she's got more kids than, geez, man, there's kids everywhere.

And you know, that kind of thing.

So, what we want for you, is to hurt in the short term, not the long term, so that you win in the long term. If you're gonna choose pain, choose pain today that gives you the long-term results. The Bible says, "No discipline seems pleasant at the time, but it yields a harvest of righteousness." And so, the way I'm gonna say that is, "Wah!" Or, "Suck it up, buttercup!" Or it's the same thing.

Live like no one else, so later you can live and give like no one else.

Yeah, the short term, right? If they sold the house, "and that's the gain is short-term." But long-term, you think about it, the dynamic of even moving to his hometown that she wasn't crazy about could be long-term pain in a bitter—

you know what I mean?

Bitterness in her of like, "Oh my gosh, we got stuck in the small town that I didn't wanna be at in the first place. We made that move 4 years ago," right? You're doing it all out of desperation, not out of clear-headedness and desire for both. And that's a red flag for me.

What feels good in the moment is seldom the right financial decision.

Decision. It feels good to impulse a brand new car and put nothing down and lease it and drive it off the lot. Long term, it's one of the dumbest things you can do. It feels good in the moment to buy something you can't afford, to eat something you don't need to eat.

It feels good in the moment, but the long-term consequences to your health and your financial wealth are real.

And so that's the trade-off we human beings make. The ability to delay pleasure for a greater good is the primary sign psychologists tell us of emotional and spiritual maturity. Can I look at a great future and pay a painful price to get to the great future? That's maturity, learning to delay pleasure. I was looking at a— watching a piece of research the other day on one of the podcasts that I follow, I can't even think which one it was, one of the psychologists that's out there, and they were talking about this study they did of 7-year-old kids, and they put them in a room, and they put 3 marshmallows in the middle of the plate, and they said, "Do not eat the marshmallow," and they walked out of the room with 2-sided mirrors and cameras and everything, and watched them sit there.

100% of the 8-year-olds ate the marshmallows. However, some of them went, you know, 10 seconds, some of them went 10 minutes before they ate it. The ones that went 10 minutes, they studied them 15 and 20 years later, and they were inordinately more successful because they delayed— they had the— even at 7 or 8 years old, they had the personality, they had the discipline to avoid avoid something that is harmful, you know.

Is that nature or nurture? Did they learn that in a household, or you think that's part of your personality?

I have no idea.

I do know this: regardless of how you got there, once you're there, it's a choice. Whether DNA got you there, or your mom and daddy got you there, once you're sitting in front of the marshmallow, it's still your choice.

You still have the ability. It's so true.

You still have a choice.

I mean, you know, so it's, you know, we do know now, for instance, that some people Some people have a genetic predisposition to being alcoholics more than others, right? But once you know that, then you still gotta take a drink or not take a drink. You gotta decide, "Am I gonna do this or not?" And so, you know, who falls off the wagon, who doesn't fall off the wagon, all these things are— this is all tied to this emotional maturity thing of delaying pleasure for a greater good. And it really is maturity. Maturity. Sometimes we see it in a young person. We have a 19-year-old call in here with the numbers are just astronomically, amazingly positive, right? We're like, "How did you do that at 19?" And we're all aghast at how wonderful this 19-year-old is. And we get that call on this show fairly often because we get those kinds of 19-year-olds around here. But the reason we're all kind of so impressed is that he or she matured to that degree at that young age.

Age.

And it's not a chronological maturity, it's an emotional and a spiritual maturity. And so I think the way that I got propelled forward in that category was when I was the opposite and was impulsive as crap, did everything, get rich quick, get rich quick, get rich quick. I went broke as a result, lost everything, including my dignity, and I'm humiliated, not just humble and sitting there with driving a $100 car. You were born that year, and, and I've got babies I can't feed. And so I, I didn't have a choice. I snapped and went to the other side of the equation. And so I don't want that for you guys as your method of learning. I'd rather just teach you.

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All right, today's question comes from Matthew in Oklahoma. Dave, it's addressed to you. Ready? Okay. Dave, back in the early days of establishing the 7 Baby Steps, did you ever have to use your emergency fund? If so, what type of emergency happened that you felt warranted using the savings account for?

Huh.

Well, when I was climbing out of this, there weren't any Baby Steps, because I hadn't started teaching Financial Peace University yet.

So, there was no starter emergency fund of $1,000 and later a fully funded emergency fund of 3 to 6 months of expenses. I just had the goal of the 3 to 6 months of expenses. So I did use that emergency fund, the big one.

The only time that is specific—

I think it's the only time, but if it's not, it's almost the only time— was that— did I kind I'm trying to— I'm suddenly thinking I might have cash flowed it.

I might have cash flowed it, but I think out of the budget, but I think—

Almost 40 years ago.

I think I used the emergency fund. No, it's not that long. It's 30-plus years ago.

Okay.

So, we had just bought the house on Victory Trail.

Oh, okay.

And—

I was 8.

Yeah, yeah, you were 8 years old.

So, 30 years ago.

So, 30 years ago. So, So that heat and air went out, and it was $7,000 at that time, which today would be $17,000, right?

But yeah, the heat and air went out, and I called a guy, and he fixed the heat and air, and I wrote a check.

The reason I remember it, it was the first time we had a drama, a catastrophe happen that we had the money. And it was just like an incon— that's when I came up with the phrase that when you have an emergency fund and you have an emergency, it's an inconvenience rather than a crisis. You've heard us say that 100 times. But that was— every time before that, that the heat and air blinked, it was a crisis because I didn't have the stinking money. And I— the only reason I'm thinking I might have cash flowed it is I paid cash for the house. So, and from a book deal that we had done on Financial Peace.

And— but it's possible that I was low enough on cash that I used the emergency fund fund for that.

But I have a distinct memory around it, so I must have.

Other times, I know I cash flowed everything else after that, whatever broke or blew up or whatever. Because we've always kept a larger amount of cash than most people because it gives my wife, after what we've been through with bankruptcy and everything, it gives her an extra level of security. We always laughed and said our emergency fund had an emergency fund. And so, and that's which has been largely true in the last 35 years. So, but in more recent years, I don't think anything about it. It's all cash flowed. I wouldn't— it'd be very unusual for me to have an emergency today that I actually tapped into a store of cash to fix it. That would be very strange. We did not have to do that during COVID even in our business, because the business never became unprofitable. So we never had to touch the even though we lost huge sums of revenue, we never went into the red. And so we never had to touch our retained earnings. So it didn't happen then, and that would have been another time that it could have happened.

But yeah, that's an interesting question. It makes me go back and think. I remember more clearly all the times I didn't have emergency funds, and there was drama and gnashing of teeth and crisis and everything else. Wyatt is in Pennsylvania. Hey Wyatt, how are How are you?

I'm good.

How are y'all doing?

Better than I deserve. What's up?

Well, I had a question here. I'm not exactly at a, I guess, financial trouble crossroads, more at a what do I do now crossroads. I have $65,000 in total debt over my head, and I'm trying to figure out if it might be a good idea to sell my truck for around $41,000 and take like $20,000, $25,000 in the hole. To get myself out of debt faster.

So you owe $65,000 on the truck?

I owe $61,000, $62,000 roughly, and then I owe about $4,000 on credit cards.

And what's your household income?

My income is $78,000 a year.

And are you married?

No.

Okay.

Yes, I would sell the truck even if it was paid for. All right, because here's a good rule of thumb: things that have motors and wheels go down in value. You cannot build wealth while you own too many things that have what? Motors and wheels. Too many things is defined in our world as more than half of your annual income. Your truck is more than half your annual income in value, and so it's eating your lunch. Every day it goes down in value and you're trying to pedal uphill and it's killing you. So, um, are you sure it's only worth $41,000 or $45,000?

I, I got bored one night while I was at work and I checked the Kelley Blue Book value, which in my experience is a little bit heavy-handed with its, uh, estimates, but it estimated at around $41,000 because private sale or trade-in I believe I put down trade-in. I don't remember exactly.

I go back and do a little research because it— what kind of truck is it?

It's a 2025 2500 HD. It did have an accident, uh, like about a year after I bought it. Well, less than a year after I bought it, and it has like some minor paint damage, but other than that, it's mechanically sound.

Yeah, well, this is old. This is a hardcore work truck, and so there's probably a pretty good market for it, right? Um, you know, versus if you just had some kind of weird truck or something, it might be harder to sell.

So this, you might be able to sell it and get out.

Did you roll negative equity into it?

No, I don't believe so. I, I, they quoted $76,000. I put $10,000 down.

Oh, okay.

As the down payment.

Yeah.

So you bought a truck at the time that was associated—

you bought a truck at the time that you paid for it what your annual income was about. And so, yes, yeah. And so ever since that day, this truck's been hammering you. And so that's what brings you to this question. So yeah, I rest my case. You know, I think I would sell it if I woke up in your shoes. And I like a nice truck. I've got trucks. I love trucks. Yes, you just have to take a small loan from a credit union or something for the difference and enough to get you a $5,000 truck and then become a rich rich guy, because most the guys that drive trucks like this aren't the rich guys. Most the guys that drive trucks that are $5,000 or $10,000 are the rich guys, and especially on a construction site. Yeah.

All right, Bridget is in Chicago.

Hi Bridget, what's up?

Hello there, thank you so much for taking my call.

Sure, how can we help?

Uh, what I was calling for was that—

so I'm—

I was a teacher, now I'm an administrator, and I'm fully funding my pension pension, and my contribution is 9% mandatory. And so my question, my question is that, that is a mandatory contribution.

It is.

Okay. All right.

And so my question is, should that 9% be included as a part of the 15% that should be towards retirement?

Excellent question. Okay. There's two problems with your pension. One is you don't have any control over what it's invested in.

Okay.

Two, so the outcome of what you end up with at the end is totally up to someone else. Okay? The second problem is because pensions are heavily regulated, what they invest in is more conservative, and so your average rate of return that you're going to see is about 7%. So because of those two things, I would take your 9%, I would count about half of it. So if we want to just use round numbers, let's count 5% of it towards your 15. I'd still put in another 10 in money that you control, but that's giving it some credit, but we're not giving it 100% credit, so to speak.

It'll still be there.

I'm not predicting the end of it, but I think you'll do a lot better better with a 10% contribution than you do with this 9% contribution.

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Hi, David, how are you?

Better than I deserve.

How can we help?

Uh, so I'm calling because I'm kind of in a spot where we're not really sure what to do anymore. My wife and I, um, she lost her job almost 2 years now. Um, and we're kind of, uh, we've been just kind of racking in credit cards every month, uh, to kind of pay for bills and pay for everything going on.

Why hasn't she gotten a job in 2 years?

So she got laid off, uh, during her maternity leave. Uh, she did get like a long severance for that. And, um, just now she's about to have a second baby. So she's been in there, uh, during this time. And then she will— she has been working kind of like an administrative role with her, um, with her cousin, not getting nearly as much about like, you know, she went from probably $5K a month to about $2,000 a month now.

And what do you make?

With my— I make about $4,500 a month.

And what do you do?

Um, accounting.

Okay. And so if she got laid off during maternity, she had the baby, baby, and you guys knew you weren't making it, why did you keep doing exactly the same thing for 2 years?

Well, I think we have just kind of our principles of, you know, we didn't want to pay for daycare, especially since it's so expensive up here. And, you know, having— being at home, I work from home, and then she is also at home, so she's kind of just watching watching our daughter.

And then also, you're still not answering my question.

That doesn't—

none of that changes the fact that you were going in the hole every month, and you kept doing that for 2 years. Why? Why didn't you change something?

Yeah, I mean, I think that's a very good question. I've, you know, I think we were just kind of a little naive, and now we're at the point where, I mean, we, we were going to look into regardless because we were trying to get out of Massachusetts, but we're hoping to sell our home.

So you have a second child on the way, right?

Yes.

Okay, all right. And you make $4,500, and what is your, how much debt do you guys have not counting your home?

So not counting the home, it's about $30K, and that's pretty, well, should I include student loans as well?

Mm-hmm, yeah.

So with student loans, probably about $50K.

So about $20,000 in student loans. What's the— $20,000 in student loans. So what's the $30,000?

It's pretty much all credit cards now.

Okay, no car debt?

$30,000 in credit cards. We do have a— oh, sorry, actually, yes, we do have a car as well. There's about $20,000 on the car left to pay.

Mm-hmm.

And what is it? What kind of—

what the car is?

Yeah, what kind of car?

Uh, just, uh, just a Tesla Model Y.

Okay. All right. Um, that car will bring more than $20,000, won't it?

Possibly. It's, um, it'll probably just pay off the loan.

Good.

More likely.

I could sell it this week. You can't afford the payment.

Uh, it is our only car though. That's the other thing.

That's okay. Okay, I don't care. Sell it this week and get you a $5,000 car. You can't afford to drive a Tesla. You're broke and going in debt every month.

These are the kinds of the ways you need to start talking to yourself. I can't afford to do this. We can't afford to go out to eat. Which you've been continuing to do. You're broke. You can't afford to go on vacation. We can't afford to buy 3 airline tickets and take the babies to see her mother. We're broke. But you haven't been telling yourself that. So you got $30,000 in credit card debt paying Tesla payments. That's what I'm talking about.

Does that feel accurate, Matthew? Do you get that?

Yeah, yeah. I mean, I've been making cuts where I can. We've definitely made the cuts, but just clearly—

How much in the hole per month are you guys that you're having to use credit cards for?

So pretty much we're probably putting— I, you know, started this dumb thing when we did have both of us working where I said, let's rack up points, so let's put everything on the credit cards and pay everything every— at the end of the month, which we were doing fine with until she lost her job, and then and we're like, well, let's just keep putting it on the credit card so that we can manage— continue to pay everything that we need to pay.

So how much, if we were to do a really tight budget, which you have not done and now you've got to do starting today, how much do you really have to have to stay afloat beyond the $6,500? $4,500 from you, $2,000 from her.

So is that just to survive and pay credit cards or not?

Just to survive and pay credit cards. Credit cards. No eating out, no new shoes, no new purses, no new hobbies, nothing. What does it take to feed your freaking family only?

Uh, I put everything down. It's probably gonna be— I, I just like on my own simple budget, I, uh, I have about -$300 left to put everything at the end of the month.

And that's not how y'all are living right now, right? Y'all are a little bit more widespread.

So, $300.

So then how much is the Tesla?

When I get rid of the Tesla payment.

How much is that per month?

Now you're balanced.

How much is the Tesla payment a month?

Right now it's $700 per month.

Perfect.

Good.

Now we got $400 in margin.

You're driving a $5,000 car, not a $20,000 car. $400 car. Do you have any money anywhere saved?

We do. I do have, you know, just some money in like Robinhood and simple investments and stuff like that.

How much?

About like $5K in there.

Perfect. Go buy a car with that and sell the Tesla, and now you're $400 upside, $400 right side.

And cut up the credit cards. Say it together. Do you have one with you right now, Matthew?

A card?

Uh, a credit card.

Yeah, yeah, right now.

Cut it. Just cut one. Just do it.

I want to hear it. I want to hear it in the phone.

Will he do it? He's gonna be like, oh, I left it in my other wallet. Do it, Matthew. You got it. This is, this is the start of change, Matthew. This is the start of change. You got to do some extreme stuff. You guys have to stop. You got to stop the whole thing.

By the way, we're completely aligned with your wife being at home with the babies. That's great, but we're gonna put your butt to work.

Yeah, I mean, I've been trying to do, uh, to make more money. I started just like a woodworking side business.

Well, I think you make more money doing bookkeeping on the side.

You got one?

You got a card?

Yep.

Let's hear it.

Yep.

You did it?

What kind of card was it?

Yeah, there's a— just a Discover card.

Yeah, you just discovered freedom, Matthew!

Matthew, we're so proud of you! Way to do it. Seriously, you got to be start making some actually actions, some action steps, and that's one. That's a proclamation of like, we're done.

Cut the cord on the Tesla.

It's hard to go into credit card debt when there are no credit cards, you know what I mean? Like when you don't have an option. Literally, when you physically don't have an option, you have to start getting creative.

And you're like, "Okay, what do we have to sell?" And then you gotta start whittling away at these cards. Cut 'em all up, whittling away at them. They'll start to go away. You don't have the $700 ridiculous car payment. You've got to make adjustments to be able to live the life that you are choosing to live with your wife being with the babies. And again, we're aligned to help you do that, but we're not gonna act like it didn't cost something. It does cost something. She has a $3,000 less income now than she had. And so—

And let me go back to what you said, Matthew. You said, "Now she's working for my sister-in-law or a family member making less," you know, because it sounds like a favor kind of thing. If she can find a side hustle with the hours she's doing and get paid twice as much, because it's not some weird connection of family and you're like being nice all day.

All day.

All day. So, like—

Let the family be nice somewhere else.

Yes. Yes. You guys are in a, in a mode. You guys, you have to, man, get on this. But yeah, it's the $50 grand, those student loans and credit cards. You start chipping away and in 2 years, math, you guys could be out. If you got, if you got, if you guys can get an extra $2 grand a month by working extra, selling stuff, it's amazing the progress you can make.

So, so we got you to cut one card. If we really get you to sell the Tesla, you can really do this.

Welcome back to the Ramsey Show. In the fair Winns Credit Union studio. I'm Dave Ramsey, your host.

Thank you for joining us, America.

Rachel Cruz, Ramsey personality, is my co-host today, and my daughter Julie is with us in Boca Raton.

Hi, Julie, how are you?

Hi, Dave, I'm good. How are you?

Better than I deserve.

What's up?

Uh, kind of a pickle situation. I'm wondering if I should sell my to pay off a total debt of $575,162.

Um, $575 on what?

$575,162.

I know $575 is the debt on what?

So part of that includes a HELOC of $51,000, credit card debt of $74,175. Student loans of $53,000, um, a custody battle that I'm currently going through of $7,176, a new roof I had to pay because my insurance claim was denied of $27,700, and an IRS, uh, debt for my business of around $18,000.

Wow.

It's been a tough 5 years, hasn't it?

Oh yeah.

It's just horrible.

Yeah. So the $162,000 in addition to the $575,000 is what?

Um, well, I mean, all of it is just, it's credit cards.

It's, um, you broke the 2 numbers apart. Did you not give me 2 different numbers? Right.

Uh, no, I gave you, uh, the total is $575,162. So, so we can round it to $575,000.

Not $162,000, $575,162.

I got you.

Okay, I misunderstood. Okay, okay. So, and, and how much is your first mortgage on the home?

So my first mortgage, I have $338,000 Is that in the $575,000? Yes.

Okay. So you've got about $225,000 in non-mortgage debt, unless we count the HELOC, right?

Unless you count the HELOC and the roof. I did a PACE program and they included the roof in my escrow.

And so, and what is your income today?

Um, I own a business. Uh, I'm a physical therapist and I have a group practice and it's a little foggy to understand the numbers. Um, I have a business coach who's helping me right now, but, um, basically I grossed around, uh, $385,000. Uh, but my take-home, my personal salary was about $65,000.

Okay.

And that's what you paid taxes on was $65,000?

Uh, the taxes actually are, uh, backdated.

I've—

No, no, no. And when you file your income tax, what will be your income showing on your income tax return?

Oh, the $65,000.

Okay. So that's really what you're making?

My personal.

Okay.

Yeah, my personal. But I mean, I, and I'm trying to fix this with my business coach because there's a lot of expenses I'm trying to get rid of.

My lease.

Yeah, I agree.

And payroll's high.

And then, yep.

And then everybody's making money but you in this business. I got you. Basically, I think, I think that's what you're coaching.

Yeah, yeah, basically I'm the one working to pay the bills.

If I stop seeing clients, then how much could you sell the house for, Julie?

So my realtor wants me to— we've listed the house at $575,000. It's been in the market for a month. Um, at first I thought I had an assumable mortgage, but I found out with the bank that it's only assumable to family members. So the highest offer I've received was for $545,000, which is what my neighbor sold his house for.

Yeah.

I don't know if it matters, but my interest rate, I bought it in 2021. I had amazing credit. It, well, I have an interest rate of 3.375%.

$575,000. Okay, so when you give me the list of things that equal the $575,000, what I hear are a lot of— that's why I said it's been a tough 5 years. The numbers all are associated with painful things. Child support, or child custody, IRS debt, a roof that went bad, $74,000 in credit card debt, overspending that's out of control. Um, there's a lot of stuff in here that, uh, represent— that I, I think is mostly in your rearview mirror and is not representative of your future. Am I wrong?

No, that's correct. And, um, one problem I, um— sorry, just that it's been very hard.

Yeah, it has. I can tell.

Um, one thing I realized was that I'm, you know, in therapy, is that I've been trying to save everybody but myself.

Yep.

You know, I bought a 3-bedroom house on my own. Um, you know, my, my husband didn't help me.

It was just me.

That's a whole nother subject.

How old are you?

I'm 41.

Okay.

Are you still married, Julia? You guys are— you're, you're divorced and that's what the custody was for the child? Or is this—

we were never, we were never married. This is just a custody battle, which, um, okay. My lawyers are telling me that because I declare more money, they're thinking that he does some kind of tax evasion. I mean, they're thinking that I may have— I may end up having to pay him child support.

Now, this isn't your husband that you just mentioned though, right? This is a different guy?

No, no, this is my daughter's father.

Okay, okay.

We were never married. He's just—

okay, same guy.

When you bought the house, that's what you were referring—

that's what you were meaning, him, when you said that?

Yeah, I bought the house just myself, my efforts, you know. He, he contributed when he lived with but it's just all me. I was going to mention that, you know, I bought the house. I realize now it's, you know, I bought a 3-bedroom. I wanted to help my parents. They moved in with me. In my culture, you know, we're Brazilian, you know, you help your parents and you take care of them, but I just can't do it anymore. And I had a conversation with them. I mean, I, it's not their fault, but I just, they're looking for a place now. They're considering returning to Brazil and I'm just trying to figure out what to do for myself and my daughter. I think you sell the house for $545,000.

$18,000, take the offer.

Okay.

And give yourself a fresh start with all of the mistakes then in your rearview mirror. Now the trick from the mistakes that I always want to do— I've done a lot of stupid stuff in my life. I often say I have a PhD in DUMB. And so I want to make sure I never repeat that mistake that caused that. Okay, so I don't want to repeat the mistake that causes me to be $18,000 in the hole to the IRS. So I got to get my business coach and my business running right. I've I don't want to repeat the mistake that trying to save everybody. I don't want to repeat the mistake of this or that or this or that. And just go down the list of these items that you're paying off and you're not even going to be able to pay them all off. You're still going to have $30,000 in debt, right?

That's it.

That's it.

Yeah. But you can clear—

people have even said that, you know, they've suggested that I do a Chapter 13.

You're not bankrupt.

One of my bedrooms.

You're not bankrupt. You won't— out.

You—

they won't let you in a Chapter 13. They'll throw you out because you have this huge asset. So no, you need to sell the house. You need to put all this mess in your rearview mirror and start fresh, cleaning up $30,000 worth of debt, start making more than $65,000 out of this business so that— because you cut your expenses there, never get behind on the IRS again, um, never You're getting a situation where you're living with somebody you're not married to again. It sets up these kinds of problems. And on and on and on and on. Just make the list down through here. What did I do? I was trying to save everybody. You know, I think you got a good head on your shoulders. I think you can do it. But you need to put the pain in the past.

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One of our favorite things is when people share their stories about about how they're winning. I just got this from awesome review from our EveryDollar budgeting app. Quote, "EveryDollar is excellent. It helped me get my personal finances in order." Well, there you go. "Now that I'm married, my wife and I use it together out of our joint checking account. It really helps us maintain a common vision and set of goals." Man, that's perfect. That's exactly what we want to hear. Hey, you can work the Ramsey Plan the Ramsey way, what you hear here on the air. We will coach you right along the only on EveryDollar. And you can start EveryDollar for free in the App Store or at Google Play today. Doug is in Fort Worth. Hi Doug, how are you?

I'm doing great, and I'm so excited to hear you, Dave.

But how are you?

Better than I deserve, sir.

What's up?

I'm calling today, my wife owns a small business. Well, actually, we both own the small business. Business, but she runs it. And, um, my question is, she's— she stopped paying herself because, um, she's trying to get, um, out of the negative. And every time we discuss it, it ends up in a— in an argument. Um, but we got some supplemental— I work full-time, and, and we got some supplemental payment, uh, through part-time stuff at the beginning of the year, and she didn't tell me she was going to stop paying herself. And I found out in January, and we got in a big fight about it. And then, um, she'll pay herself a little bit here and there, but still not up to her salary she was doing last, uh, late last year. And every time we talk about it, it just ends up in an argument. And I just wanted to get your advice on how I should approach it, or if I should just trust her that, you know, whatever is happening in the business is, is going to work out, or I'm just stuck at what I should do.

What kind of business?

It's a spa.

How long ago did she start it?

She's had it about 3 years now.

How much money have you all invested in it?

Uh, she, she bought it from her, her, the previous owner. And it was like a, um, owner. She, she took, they did a loan between each other. So, um, she kind of still pays her salary, um, until the loan's paid off.

Pays whose salary?

The former owner?

The former owner.

Okay.

So she has debt to the former owner and that's the only debt she she has?

As far as I know, yes.

And do you know how much that debt is?

Um, it was, it was only maybe a couple hundred thousand.

Yeah, okay. So the bit, the first mistake you all have made that has caused a lot of this angst between the two of you is you don't handle your money together.

She's got her world and you've got your world. And so when you start speaking into her world, you don't have a foothold to do that because you're just a roommate.

Mm-hmm.

And the roommate doesn't like it when you tell her what to do. Instead, you guys need to have in-depth combined finances, full transparency, so you know exactly what she's making because you're having to put it in the monthly budget together every month that you're house, and you would never enter into a business transaction that's a couple hundred thousand dollars without your spouse knowing every stinking detail and being in agreement and aligned to it.

And you don't even know what's going on down there. Oh, I think it's a couple hundred thousand. Yeah, that's a fairly good rounding error. Yeah, you know, so that tells me how disengaged you are until you decide you want to get engaged when she doesn't pay her herself, but you don't know what's going on down there. So that's why she's— that's why she's insulted.

How much are— how much you guys bringing in household income if she doesn't pay herself and you guys are living off yours, your salary?

What are you making?

Uh, I make about $55,000. Um, we started at the beginning of the year, we're helping a church, um, do music, and, um, they've been paying us, uh, $500 a week. So I think she's looking at that as supplemental to where she does— she doesn't really need to pay herself because it's not like we're struggling. We were in Baby Step 3, we were building our emergency fund because we got out of debt, but now that's stopped.

Um, so you want $200,000 in debt?

Yeah, yeah.

So, but we were— I mean, we did our personal finances together, but, you know, like, you're—

no, you're right.

No, you don't.

Involved in her—

no, no, no, no, no, no, you don't. That's True, Doug, because she quit paying herself a salary which would have gone into your personal finances, and you discovered it later. You are not doing your personal finances together.

No, she paid herself all last year. She stopped in January, and that's when I found out that— because she didn't pay herself, and I asked her why she hadn't paid herself, and that's when she just told me that she was losing money down on me.

Losing money. Yeah, yeah. So her business is failing, and anytime you question her about it, it shames her, puts salt in the wound. It puts salt in the wound. And, and so, honey, the business is not doing well. I want to help.

But, but just know, where's your paycheck? That's not a help.

And so You guys need to get together and look at the business together in a supportive way. How can I help? What's going on? What's happening here? And we're on the same team. And we're making decisions together here, not you haven't put your part in.

And that's still the language you're using tells us all of this.

I don't know.

I mean, you speak into Winston's business, right?

Sure. I mean, yeah, some of it. I'm like, I mean, there's a level at which we see money come in and out. And we're talking about him. We were just talking about a deal, actually. He's gonna go do a showing today. And I'm like, oh, great, this, this, and this. Now, I'm probably not the most detailed person in the world, just like how probably, you know what I mean? It's all to a degree. Free. But high level, when we look at our numbers every single month, yeah, I mean, we know what's going on.

Yeah. But if something was going on that he was losing money on, you would know it.

Oh, gosh, yeah.

Oh, yeah.

Well, he tells me. Like, if there's a deal that, yeah, that they, yeah, they bought something and it was like, "God, we're selling it for less than what—" and it's a loss and that sucks. It's like, "Okay, yeah." But it's being talked about. Yeah. 100%.

And that's, you know, that's the process. Yes. And so—

Yeah, and I think it's an attitude at which, which I don't, which Doug, I understand, I understand why you would be frustrated. I get that. But also the way you approach it and the way you guys have this conversation, it's either that the business is between you all and you're, you know, and it almost splits you apart emotionally, or together you lock arms and say, hey, we're taking on this world and this business and everything together. And the problem's out there. That's the problem. It's not us. It's out there. And so pointing it at the right direction and at the right thing thing, I think is what's important because it's almost like a third party where it actually starts to become her identity instead.

Now, he's not been involved until he questions her about it.

Right, right.

And so she's insulted and ashamed.

She figured out, yeah, yeah, yeah.

And so that's very easy to get involved.

And she'll get defensive, which makes sense why she would be defensive because she's not in the numbers, you're not in the numbers throughout the month, and you guys aren't talking about it. Yeah. But—

Let's sit down and look at how this business is operating. What are the parts of it? What are the details? And what can we do to together to get this going. Hey, I'll come down there and help. I mean, what do you need? I'll cut the janitorial out, I'll come clean the toilets. But what have we got to do? But we got to work this through, and otherwise that couple of hundred thousand that you owe somebody's gonna come down around your head at some point. And so we need to get this thing back profitable again where it's making money instead of losing money, and right now it's losing money. So, and, and yeah, I'm suggesting you become supportive and ask, how I can help? And I made a mistake by not being more involved and being more helpful. I am sorry for that. And, uh, how— I'm going to start today though being very involved and very helpful. And so where's— how should I do that? And what's the place to start? Because we need to get this thing moving because it's scaring me, and I know it's probably scaring you.

Yeah, and there's probably a story you've made up in your head, Doug, a story she's made up in her head of what he thinks about her and her business acumen, you know what I mean? That may not all be true. Exactly. So it's saying those things out loud, I think, is really, really important. And you guys start getting on that trajectory where, yeah, where you're seen as helpful and not being an accuser of what she is or isn't doing.

Yep.

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The right insurance acts as a shield around your loved ones and your wallet when bad things happen. Our free insurance coverage checkup helps you figure out if you have the right coverage by giving you a personalized action plan with clear next steps. Go to ramseysolutions.com/checkup to take the coverage checkup and find out if you have the protection you need. It's free. Brad is in Des Moines, Iowa. Hi Brad, welcome to the Ramsey Show.

Hey Dave, quick question. How much stake should a 32-year-old guy put in his pension fund being still around and still viable when he retires at 65?

Um, I would actually study the, uh, history and the articles that are written about the particular pension But overall, as a category, I think pension funds are safe.

Does that take any responsibility away from me doing additional—

No. —retirement savings?

No, it does not. Pension funds will underperform standard investments because of the regulation. They typically are going to yield about a 7% rate of return. And so if you put the same amount into a good growth stock mutual fund or funds in a Roth IRA, you would make well more than twice as much. Meaning you'd make 11 or 12%, 10 or 11, 12%, somewhere in there as an average rate of return, but that's a lot more than double the result of dollars then. And so very, very important that you do your own investing and not rely exclusively on a pension fund regardless of if the pension fund's going to be there or not. I thought you were saying, is it going to collapse and I'm going to lose everything and have nothing. I doubt that's going to happen, but you definitely want to have money that you have control of where it's invested, and that you get to decide the disposition of it as you reach the retirement years.

What percentage of your income is going into the pension?

Well, it's all employer paid.

Oh, then you need to be putting 15% away.

And they pay into an annuity fund as well. That's, that's growing also.

Yeah, both are lame.

Both are lame, including the annuity. Yes, even the annuity last year had a 20% return.

Well, the market had a 25% return.

Okay, so both are lame. Continue to—

so to build my own retirement account? Absolutely.

You need to be doing Baby Step 4 when you get there, when you're out of debt and have your emergency fund in place, following the Baby Steps. You need to be putting 15% of your income aside for retirement. And then all of the employer-funded things are just going to be gravy on a really nice large biscuit that you build. Gotcha.

And I think both are going to be there.

They're just underperforming products compared to good mutual funds and a Roth.

Yeah, but for some people, like we had a caller, 9% mandatory was going in mandatory, and so you cut it in half. So 4.5%, 5% went to the 15%. Exactly. rule. Exactly. But in his case, he's not putting anything, so he don't need to.

It's a full 15%. Yep. A quote-unquote benefit, which is very weird because in the old days, when I first started the show 30-something years ago, almost 40 years ago, the pensions were everywhere. 70% of the companies had a pension.

Now I think it's like 4% of the companies have a pension. It's very unusual to find an actual pension anymore unless it's government.

I was gonna say more so government.

Yeah, you see teacher pensions and union pensions and that kind of stuff. Yeah, but actual corporate America has just about done away with them because they're difficult to manage. They're highly regulated. They—

it's very hard to make them work in terms of managing them for the benefit of your employees. But many do, and they seldom completely collapse.

I mean, you've got some pensions—

some of the state pensions are are in trouble. They're being run very poorly.

Illinois, your pension sucks because your government sucks. They're horrible at managing money. And as an example, I'd be scared to death if I was dependent on that one. Yeah. But now there's other—

but if you—

and all you gotta do is just Google, you'll see what I'm talking about. I mean, there's a lot of states that are so poorly run, the actual state is creating a horrible pension product. But, or municipalities, the same thing.

Your local city government for your police pension or whatever.

You got to look at that kind of stuff and make sure it's solid. But even if it is or isn't solid, I'm still going to go build my own biscuit, and then whatever this stuff is, is just the gravy on it.

And that's gonna put you in a good position where you're never, never really worried about that.

And then you don't say, well, the mine closed and the pension collapsed and Grandpa ain't got no money. You don't want to be We're not going to be that guy.

That's the guy we're not going to be.

Benjamin is in Los Angeles.

Hi Benjamin, how are you?

Doing pretty good, how about you? Better than I deserve.

How can I help?

I had a question because I am on Baby Step 2 and one of my debts is in collection and I called the collection agency today and offered them a settlement offer to pay it and be done with it. And they declined my settlement offer.

Okay, so tell them to call me when—

tell them to call you back when they feel better.

That's what I did. I told them when they're ready to accept my settlement offer to call me back.

Yeah, yeah. And next time they call you, just say, hey, there's a settlement offer on the table. We don't even have to have a conversation. If you take that, I'll send you money. How much do you owe them and what did you offer them and who is it?

I owe them $300. Um, the company is $300.

Yes, and I offered them over $300.

In total, I have about $2,300 in debt, and I was just trying to settle the collections and get done with it, and I offered them $100 and didn't want to take it.

So I was just curious if I should just— that would not be unusual on $300.

I thought we were talking about you were— had $5,000 you owed and you hadn't paid them in 2 years, and you offered them $1,500. But on $300, they're not gonna screw with it. No wonder they laughed at you.

Hopefully you'll be out of debt in a month or two, right?

I would just pay them is what I would do. It's $300.

Get a letter confirming the amount by email and then send them the amount. No, I would not settle a $300 debt.

Yeah, and for a lot of people out there that are settling, yeah, we do find obviously talking, you know, giving a lowball offer, and depending on how long you've been in the collections process is probably how easily that can happen. But we also have friends at Guardian Litigation. So if you go to guardianlit.com—

But don't do that with $300.

No, no, no, no. But for everyone else out there, if you are in Baby Step 2 and you have gotten to this point where collections, it's, you know, you have—

You got $10,000 or $20,000 in collections. 100%, yeah.

Or $50,000 or something, they can help you. Guardian Lit can work that through. And they're lawyers is what what they are. And so yeah, you're right, Rachel.

But that's a question we get a lot, not always for $300. It's usually more. But the collections process is real. And so yeah, and it can work to your benefit, right, if you are in Baby Step 2?

If you're gonna settle, get it in writing before you give them any money. Matter of fact, if you're gonna pay in full, get it in writing because they'll double the amount and say they added late charges and try to get more out of you later. So Even with you, Benjamin, on $300, have them send you an email exactly what is the balance. Wait a week since you just got off the phone with them, but have them send you an email of the exact amount and then cut them a check for that that day. But don't give them electronic access to your checking account. They'll take more out than they're supposed to because they lie. It's a filthy business.

And so that's why Guardian Litigation is a good idea to have the lawyers on your side. Yeah, for sure.

But don't do that with $300 either. So yeah, it's just, it's—

I'm glad your debt amount though is so low, Benjamin, honestly. That's good. Yeah, you'll be out of debt quick and then start building up that emergency fund, maybe Step 3 of 3 to 6 months of expenses.

Precisely, that's how it works. Yeah, so typically what happens with credit card debt is as it gets older, the credit card company, the older the debt is, meaning the longer it's been since it's been paid, it ages out. The credit card company will quote unquote write it write it off. Now, that does not mean that you no longer owe the debt. It means they no longer think they can collect it, and so they take it off of their books and take a tax write-off for bad debt on you. Then they sell that bad debt to a debt buyer at pennies on the dollar, and that debt buyer will try to collect from you. And, uh, they will work with you because they only paid 2.5 5.5 cents on the dollar for the, for the debt, but not on $300.

Hey guys, Dave Ramsey here. Every day on this show, we help people work through real money problems and figure out what to do next. Now you can get that same kind of help anytime with Ask Ramsey. Ask your money question and get answers built on Ramsey principles. Principles we use on the show. Whether you're making a decision or just want something explained, Ask Ramsey is here to help. It's fast, simple, and free to use. Go to RamseySolutions.com and try Ask Ramsey today. That's RamseySolutions.com. Romans 5:4-5, "Patience produces character, and character hope, and hope does not disappoint." Thomas Sowell said, "Some people who are very dissatisfied with their lives nevertheless have no intention of changing them." intention of changing their own behavior. They want to keep on doing what they've always done, but just have it turn out differently.

Oh, it's like the definition of insanity.

Exactly. Keep doing the same thing over and over again and expecting a different result.

There you go. All right, Jasmine is next.

Jasmine's in St. Louis. Hi Jasmine, how are you?

I'm doing well, how are you all?

Better than we deserve. How can we help?

Um, I have a question about about, um, paying off an auto loan that I took out in my name for my mom. The balance of the loan is a little over $6,000, and I want to just understand if it would be wise to take out a loan against my 401 or take out the money from my 401 to pay off the high-interest loan.

Neither would wise.

And I will walk you through why. Do you not have $6,000 otherwise?

I have $6,000. It's in a separate Roth IRA and also my son's college fund and savings, but I don't touch savings account.

Oh, savings.

What's in savings? So I have a little over $5,000 in savings.

Mm-hmm. And what is your income?

What's your income? I make $105,000 annually before a bonus. Okay. All right.

I would scrape together from some non-retirement something and pull the $6,000 together and pay it off. It's a high-interest loan. I wouldn't have bought the car in the first place if I didn't pay cash for it as a gift to someone, even your mom. Now, here's why we're not going to cash out your 401. Or kids' college. Or your kids' college. Yeah, or any— or your Roth or anything. So if you take money out of a retirement account, they charge you a 10% penalty plus your tax rate, which in your case is 30%. So you're gonna get a 30% hit plus a 10% hit for a total of a 40% hit. That's gonna make your high interest rate look like a deal. So we don't want to do that. We don't borrow money at 40% interest in order to do that. Now, if you borrow on the 401, you are unplugging plugging a good mutual fund investing, assuming you've got it invested in good mutual funds, and you will pay yourself back at the rate of 6%. When you leave the job, and you will leave when you die, get fired, or get a better job, one of the three, when you leave the job, that loan is considered due in full and you're facing the same thing with the penalties and interest if you don't repay it at precisely the wrong time for you to want to come up with money is just when you're doing a job.

Change. So no, we don't want to borrow against a 401 anytime, and we certainly don't want to cash out a retirement account or something that has a penalty on it in order to pay off the thing. So I'm gonna take some of the $5,000 and scrape together some money out of my budget, and I'm gonna try to get it paid off that way.

Yeah, and making what you're making too, you're making enough money to knock this out. Yeah, it'll be amazing. That's So good. Yeah, the car thing. It's real. The issue with the car debt, people, I mean, like this whole show so far. Yeah, today, I think it has been.

Yeah, I think we talked car debt all day long. All right, open phones at 888-825-5225.

Jennifer is in Pittsburgh.

Hi, Jennifer, what's up?

Hi, Dave. Oh my goodness. I'm sorry.

I love you. How can we help?

I can't finish. Yeah, so Um, a little bit of a situation here. Like, uh, 2 years ago, so, um, I was married, now separated. Um, our house got hit by a car. Um, we have probably around $170,000 settlement, and my husband moved out when his mom got sick to take care of her, and now he doesn't want to talk about where the money went. Um, he doesn't want to talk about what— he doesn't want to talk about how the money— where is the money from the settlement of the accident? Yeah, yeah, yeah. Because basically it's— are you—

you said you're, you're separated, so you're getting a divorce?

I'm thinking of it if he's not going to come clean, because right now—

no, I'm sorry, are you separated?

Separated? Your marriage is not good? Separated? Or what's going on?

Well, he moved out and he moved out to his mother's house. Why? Right now, at first, to take care of her, to take care of her because he had— she had cancer. But after that, the conversation of buying the house, another house, is no longer in you know, and the story, like, he wants us to just get, like, rent, and basically doesn't wanna— does he want to help me pay? Like, he's now saying he's in debt, um, but honestly, we've been married for so long, but his mom is one of the reasons we fight a lot. And now I feel like I'm like, this is too much. It's like, you're not telling me anything about the money, and now you want us to rent.

And well, there's not an us. He lives over there, you live over here.

Pretty much.

Yeah. So now I feel like I really need to talk to, to, you know, a lawyer. And like, yeah, yeah, that's what—

that's your next step. I mean, you need to get some legal advice and then you need to get some marriage counseling advice and decide, you know, if we're going to keep this marriage together, what are going to be the guidelines for the relationship going forward? Because the ones that you have right now don't work.

Yeah. And, you know, there could be a good chance that that money is gone. The $170,000 that happened 2 years ago from the settlement, that's what she's saying she's trying to get. And he— and she doesn't know where it is. So there's—

yeah, you waited precisely 2 years too long to deal with it. That's right.

That's right.

If you're wondering about where it's going to go, you should deal with it the instant it comes up. Yep, that's right. You can't wait 2 years later and go, "Oh, I wonder what he did. I wonder what happened there. I wonder what happened there." That's not going to play out very well.

All right, I know how much you love social media.

All right, I love social media.

So we got a, uh, we got a question from Instagram for you. Uh, I'm 26 years old. I just sold my house and will be netting $72,000 from the sale. I have no other debt than the mortgage of my new primary residence. What's the smartest way to use or invest that money? So netting $72,000, but, but the other home, I guess, is you already bought. So yeah, I mean, if I were you, I'd probably just roll it right into the mortgage, to the mortgage, unless you have consumer debts.

Make sure your consumer debt is cleared. Work your Baby Steps. Make sure your consumer debt's cleared, you have an emergency fund in place, you're putting 15% of your income away in retirement, putting money aside for kids' college, and you're putting— and then you start paying down your mortgage. That's right. So if you suddenly get a $75,000 bonus, you apply it to whichever one of those Baby Steps you're in. Yeah, you are.

And so, if you're all the way up to Baby Step 6, you would put it on the mortgage.

Annalise from Facebook asks, "It feels weird to be in stork mode and not paying off debt. We're expecting a baby and the hospital bill should only be around $2,000 to $3,000. Can we just set that money aside and keep working to pay off our debt?" I wouldn't.

I would pile up cash. It's just for a short period of time. Yeah. Having $10,000, $20,000, $30,000 laying around when a baby comes is comforting in case something did happen that was outside the range of your insurance policies.

Yeah, that is one event that, who— I don't know, there's just a level of peace of like, who knows?

And it's just for a short period of time. That's right. I mean, so really, let's say you stack up $20,000 instead of paying down the debt for $20,000. And the day that you and the baby come home from the hospital healthy and there's nothing nothing wrong and everything's okay, you're sitting there with an extra $20,000. You pay it on the debt. What did you lose by doing that? You lost the interest rate on $20,000 of debt for that 3-month period of time, which is nothing.

Won't buy you a biscuit. So, I would just make sure you, you know, you pile up cash ready for a baby to come.

Now, if you are out of debt and you have a fully funded emergency emergency fund, and you're at Baby Steps 4, 5, and 6, we don't do stork mode. What we call stork mode is while you're in debt, you temporarily stop paying down your debt snowball with a baby on the way, to become— to be sure about a baby.

Have some cushion there, so it's not just your $1,000 emergency fund.

And not to spend it. We're not spending it on the nursery. Okay? We're building up this cash as extra an extra pad that is gonna go on the debt the instant that we know everybody's okay.

Who would do that?

I don't know anybody.

That would put this hour of the Ramsey Show in the books.

We'll be back with you before you know it.

In the meantime, remember, there's ultimately only one way to financial peace, and that's to walk daily with the Prince of Peace, Christ Jesus.