The Real Reason You’re Broke May Not Be What You Think
2024-05-06 01:53:04
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Live from the headquarters of Ramsey Solutions, it's the Ramsey Show where we help people build wealth, do work that they love, and create actual, amazing relationships. Open phones. This hour, I'm Dave Ramsey, your host. Thank you for joining us. Jay Walshaw, Ramsey personality, number one bestselling author, is my co-host today.
The phone number here is 888-825-5225.
Billy is with us in St. Louis. Hi Billy, welcome to the Ramsey Show.
Morning Dave.
Hey, what's up?
Well, my situation is I own a homestead of about 70 acres. I paid $275,000 for it in 2020. Two weeks ago, I had a solar company approach me wanting to buy it. I entertained their offer and they offered me $1.3 million.
Wow, nice work.
I fell into a pile of crap and came out smelling like a rose.
There you go, man.
Wow, you're living on the property, right?
Yes, I am.
Personal residence Excellent. Okay, wow, what's your question?
Congratulations.
Well, I know about annuities and whole life term life, but I never really invested in anything like this. Because I grew up basically poor and I was never good with money until I read your book and started saving. Right now, I want to set myself up and I want to set my son up to be successful down the road.
Phenomenal wow way to go.
Well, to start with, you all have capital gains taxes on anything over a $500,000 gain. Married filing jointly, you're married filing jointly, right?
I am single.
You're single.
You all have capital gains on anything over $250,000 gain, yes, so you're going to have capital gains on about a million dollars. Okay, so that's probably going to be about $150,000. Give or take.
How much improvements have you done? Capital improvements have you done to the homestead while you've owned it?
Basically, none.
Okay, all right.
I've been trying to add an old house on the property that I live in. I've been trying to save up to build a new house. But it's been a rough couple years farming, I'll put it that way.
I'm sorry. Well, the wonderful thing is, it turned out like you said, so congratulations.
So the answer is, you feel like you hit the lottery now. What do I do with this big old pile of money that I didn't see coming? So emotionally? Experiencing it is part of the equation, right? And the way that I suggest folks do is they start giving a name to this, because here's the thing.
Do you have a mortgage on the property?
I do okay.
Between farm equipment and my farm, I owe about $300,000.
Okay, so you're going to have give or take a million dollars in your hand. And if you don't watch, your brain will spend about $3 million of that million.
It's been running.
So we need to sit down very carefully and give every one of these dollars an assignment, temporarily and long-term, both. And the first thing you would do is see a good tax advisor, go to ramsysolutions..com and click on Elp for taxes. And sit down with someone and properly calculate the amount of tax to hold aside. Because I don't want you spending that capital gains tax money and having trouble later, it's probably going to be around $150k.
Go ahead and get ready for that, and then you set that aside. You're going to pay off all the mortgages and so we're going to be walking around with somewhere around $850k after those two things.
Now we've got to decide what we're going to do with that now. What do you want to do with it?
Well, if everything goes correctly, I already found another little homestead for sale. He's probably going to be asking about $385k.
Okay, so let's take $400k. If you did that, that's a reasonable purchase. If you took $400k out of the $850k, now, we've got $450k. What are you going to do with that?
Well, I was going to put it back into retirement and maybe some annuity funds to just watch my money grow.
Okay, so some mutual fund investing, and I don't think I would do annuities, I think I would just do mutual funds.
Just do mutual yes.
And again, RamseySolutions.
Com and click on SmartVestor Pro. But the point being here that even if you wanted to buy some more real estate with it, whatever you're going to do with it. Here's a couple of rules number one decide ahead of time what you plan to do. And so if you said, I'm going to buy that other homestead. And I'm going to put $400k aside and $450k aside just in high-yield savings. While I think about it, if you want to do that, that's okay.
But you don't want to leave it there forever. That's your short-term play, then your long-term play is. I might want to buy some other real estate, or I might want to improve the homestead, or I might want to put some money in mutual funds. Or I might want to be generous with some of the money, or I might want to take my kid on a trip with some of the money. I don't care what you do with it, all I care is you do it on paper, on purpose, before you get the check.
Okay.
Because that's when your brain's still working, when you get the check. Your brain needs to go into autopilot and execute the plan that you did before your brain quit working.
Yep.
You see what I'm talking about, because you have that, I don't care who you are, you make a million dollars, it's sweet.
Yeah, my mind's been racing.
If I were you, there's a big portion of this money I'd treat as though I never saw it. I like that 450 is just going to go straight into investing. It's like you never saw it.
And then pretend like it's not there.
Yeah, like it never existed.
How old are you?
I am 32.
Okay, so if you put it in mutual funds as an example and did what Jade said and just forgot it. If it averaged 10 when you're 39, 450 will be 900, when you're 46, your 900 will be 1.8. Yeah, yeah.
When you're 54, your 1.
8 will be 3.
6. If you just don't touch it, that's what Jade's talking about, the power of compound interest. So sit down with a good smart investor pro, sit down with an elp for taxes. And just develop you a game plan of exactly what you're going to do with this money. But what you're describing is all very smart.
I didn't hear anything unwise, even in your tone.
I didn't either. I like that you're thinking ahead of time, and I think that you kind of know. This has the potential to go crazy if you don't sit down and write out what your intentions are ahead of time.
If you think you can do something today with that money that sets you up for life, you're wrong. It's not enough, but it could be invested into something that could set you up. That's right if you left it alone to Jade's earlier point.
And that's the thing. So, Billy, I'm going to be doing an advanced investing course. Dave Ramsey's investing essentials, something I've never done before. I'm going to open up to the stuff I do and that very wealthy people do with real investments, not stuff. On TikTok May 21st and 22nd, it's a virtual event.
I'm going to give you a free ticket because I want you to watch this event, those two nights. Because I'm going to teach you a lot about investing. That I didn't have time to. In this one-minute discussion or five-minute discussion, we just had congratulations Sir, thank you for calling.
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Rachel is with us. Rachel is in Phoenix. Hi, Rachel, welcome to the Ramsey show. Hi.
Thank you all so much for having me.
Sure, what's up?
All right, I'm trying to keep my fan girling at bay here, so I'm just excited to be talking to you all. Okay, here's my situation.
I am selling a recreational vehicle that I own, a private party, and the interested buyer she came out looked at it, loved it, wants to buy it. And in our conversations, she has asked if I would be willing to say, on paper, a lesser amount than I am actually going to be receiving for the vehicle. So my question is, you know, as the seller, is there a risk to agreeing to this?
Why does she want you to do that?
Is she asking?
Yeah.
For tax purposes.
How do you feel about it?
Does it bother you that someone's asking you to lie for them?
Yeah, it does, you know, it gives me pause, for sure, and I just, you know, I. If if I were to agree to this, I just. I don't know what the possible ramifications would be.
So you're more concerned about, would you get caught?
Or whether you're more listen, it sounds like you're more concerned about whether you would get caught, as opposed to whether this is wrong or right. And I think that's what's giving me pause.
Okay.
You tracking with me?
Yeah, yeah.
So morally, no, you're lying. No, I would say, no, don't do that. That's telling a lie, and who cares if you could get away with it or not? Morally speaking, that's a lie.
Yeah.
I mean, it sounds like you might do what you want to do on this, but since you asked us, it's a lie. I wouldn't do that, and it's weird to me. That is this somebody that you know, or this is just a stranger?
It is a stranger.
Yeah, I know.
Okay.
And let me tell you what I would also say, Rachel, is, I would look at the person and say, okay, and I won't lie about this. And everything I've told you about the RV is true also, because I wouldn't lie about it either. And so you should feel really comfortable buying this because I haven't misled you and I'm not willing to participate in misleading someone.
100%.
I hate, I hate taxes, I hate taxes, I hate anyone having to pay taxes, and I hate, I really hate income taxes. But I pay 100 of what I am legally bound to pay in income taxes, not a dollar more, not a dime more. But and I will figure out any way I can that I can legally avoid them.
But whatever the law requires, whatever the regulation requires, because I hate income taxes and I hate the way the federal government operates, and I really don't want to give them money. But more importantly than that, I don't want to be a person who doesn't have integrity.
So I'm going to tell the truth and I'm going to pay a hundred percent of my taxes.
And this is just a word to the wise for anyone. Hey, be aware of good deeds, cause this woman wanted to feel like, Hey, you're going to give me a tax break. If you do this. Be aware of people who want to manipulate you. To do something out of what seems like it could be a good deed. What seems like, Oh, but this is the loving thing to do.
But at the end of it is a lie. Okay, just word to the wise.
Phillips in Washington, D.C. Hi Philip, how are you?
I'm doing good, Dave.
Good, How can I help?
Hey, Dave, I recently received a inheritance and some of it was in cash, some of it was in socks. I left the stocks alone, the cash I put into a money market, and I'm able to pay off my mortgage if I wanted to.
Because I have more than double in the money market than I do on my mortgage. But my mortgage is two and a quarter percent and my money markets a little over four and a half. Would it be wise to go ahead and pay off that mortgage? Or, or let that money sit in the money market and just do a withdrawal from, uh, my bank automatically out of that account?
So what you're saying is you're decide how much you own the mortgage.
125,000.
And how much is this whole inheritance? What are we talking about?
310 in cash in the money market.
Plus stocks, yeah.
And not not a plus stock.
Okay, so I would pay off your mortgage tomorrow or maybe today, which whichever one you want, either one's okay today or tomorrow. And um, and and the reason is very simple.
As we studied 10,000 millionaires, the largest study of millionaires ever done, none of them precisely zero out of 10,000 said. I became a millionaire because I borrowed on my mortgage and reinvested the money. Not one, not a single one.
So people that do the math equation that you're doing generally don't turn out to be wealthy. And the reason is they add risk to their lives when you don't have a mortgage. It puts you in a completely different mindset, puts you in a completely different place with your relationships, with your career choices, with everything. When you don't have a single payment in the entire world, you have no other debt, right?
No other debt.
Good, how old are you?
Uh uh, 54.
And who left you this money?
Uh, my mom.
So let me guess about your mom, Okay? Could I? Could I make a guess about her? Would that be okay?
Yes, please.
My guess is the day you pay off your mortgage, she's in heaven, smiling, because she was that kind of woman.
Yeah, I would agree.
Okay.
I have a five to nine that my son never used. Um, and I'm trying to figure out also how to not get killed by withdrawing that out.
The only thing you're, you're. If you withdraw it out straight out, you're going to hit a penalty. On the growth, that's all just on the growth and taxes on the growth. And so I don't know how much it has grown. Versus what you put in it, what you put in it, there's no tax on, but the growth over what you put in it, the gain is taxable.
And you can see one of our taxi LPs and get a full picture on that. That's independent from this other decision, though. Let's pay off the mortgage.
Yeah, absolutely.
Yeah, open phones at triple eight, eight to five, five, two, two, five. Thanks for hanging out with us, America. we're really glad you're here.
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Thanks for joining us America. I'm Dave Ramsey. Jade Walsh. our Ramsey personality is my co-host. today. Brittany is with us in Saginaw, Michigan. Hi Brittany, welcome to the Ramsey show.
Hi, Dave, thanks.
Sure, what's up?
So we've been going through a hard time, me and my husband for the last two years and I've been watching your show. And I just really need some help on what we should do to kind of get our credit up and get out of this hole.
So what's going on? Tell us more.
Well, last year in December, we had a house fire.
And that was only after an eviction the previous year, so it had killed us.
The house fire was it complete? did it take everything?
It was not, it was a double Y that we had on land contract. So it ended up in just a bunch of messy paperwork and us not getting our house or any of the money we put into it.
So what's going on right now? You had the eviction, you had the house fire.
So right now, since then, we have been trying to just save money, you know, and get.
So we moved to Ohio and we got a good job down there, and that was a rental ending in disaster.
Okay, why?
Well, the landlord had hooked up the gas wrong. Some children came through and smashed out all my front windows and she wouldn't get them replaced for over a month. So we ended up leaving. That lost our security on that.
You know, so it's just been one thing after another, and I'm just trying, you know, I watch you guys and I'm trying to figure out, you know, live below your means.
So you're in Saginaw, Michigan, now? yes, so from Ohio back to Michigan, then what's in the Michigan family?
Yeah, yep, we're both were born and raised here.
Okay, all right.
What kind of work are you guys doing, what's causing this kind of bouncing around?
Well, my husband does concrete. And so in the spring, you know, in the winter, we kind of have a slowdown too every year. Sometimes he can stay on depending on how big the contractor is, you know, but most of the time it's a layoff in the winter and so that kind of slowed us down.
Okay, but he's been in concrete for a while, he's been in concrete for a while.
Yeah, about 20 years.
Okay, so then we know that when winter comes, it gets slow, right? So what have you guys determined that during those winter months is a good move for him to kind of pivot into?
Yeah, so he actually has, like, a handyman that we run, you know?
Okay, so what does he make a year? and what do you make a year?
So he makes about $750 a week, you know, depending on how slow the winter is, you know?
Yearly, it's a little bit fluctuating, but that's what we're getting right now.
I'll call it $45,000 to be conservative. What do you make?
Yeah, so what I was actually going to ask you about? I had a catering business, I was running out of our kitchen that burned along with it.
The business didn't burn, the kitchen did.
That's right, so I haven't been working.
Why?
All my stuff's in storage, so I'm paying for storage.
You have a kitchen now, don't you?
I do not. That's why I'm calling in today.
Where are you living now?
Our credit got destroyed and we have been bouncing around.
Where are you living now?
We are living in an R.V. rent-to-own.
Why would you rent-to-own an RV?
Well, we couldn't get approved for a rental apartment.
Because your credit is that the whole discussion around credit.
Our credit card's after the fire, and it's just been hard because our credit score went down so quickly.
And you didn't have renter's insurance.
No ma'am.
Okay, so what I'm hearing here? And Dave will jump in. It's just a series of very, very bad decisions and they keep catching up with you. But here's the thing. I'm not convinced that you guys are learning from these mistakes. I kind of feel like you keep doing the same thing over and over again and it's to no avail.
Right, that's why I'm kind of calling Dave. I'm like, you've got to know more than I do because something's going on.
Well, quit trying to jump in one, jump out of the hole. So you went from eviction to. I felt trapped into a bad deal on a trailer and it burned. Then you take off running to Ohio for some ungodly reason. Nobody knows why. But then the place you move into, there was a piece of crap and you get in the same exact thing.
And then you come back and your answer to all of that was to rent an RV. None of these four things work, none of them work.
After I tried to get the apartment that we kept.
Yeah, I know some apartment somewhere, I don't know what or where, or who, but somebody without trying to. You don't need to own anything, you just need to get a rental and you need to pile up cash. And you need to get on a ruttin budget and get your pans back out and start cooking again.
Or doing anything at this point?
Or working, doing anything, anything you can do to add some money to this equation. Because if we can double your income, a lot of this starts to smooth out very, very quickly. If we can just increase your income, it starts to smooth out very quickly. And then slow down and quit.
A lot of these decisions sound like you were very afraid and desperate when you made them. Mm-hmm. I would say because I can smell it, because I used to do that a lot. I have found that when I'm desperate right after I get desperate is when I get stupid.
Yeah.
And that kind of shows up in a pattern here. And it's not saying you're stupid, I'm just saying you did some stuff that's cost you and admittedly, you told us that. And so what I want you to do is go find some very solid, predictable rental situation.
And you don't have to do it by the weekend, but I do want you to do it this month and move into that. Out of an RV, get your family settled in, get your stuff out of storage.
Quit paying storage to store stuff you should be making money with.
Mm-hmm. And I'm not convinced that you guys are steadily making $3,000 to $4,000 a month. I think that that's on a good month. So I want to make sure that both of you him in the off times has something steady because I think the handyman thing is there.
It can be steady if you fill it up, yeah, but you've got to fill it up.
Well, he's had 20 years.
It can't be. I don't do anything, and I call that being a handyman. Yeah, it's handy to not do much.
You can't do that, okay, that's right, you've got to be a handyman in like, 15 hours a day. Mm-hmm. And you make really good money doing that, by the way.
Better than you're making in concrete, that's true, you could grow that business and get out of the concrete business completely.
You've got to get out of it.
Handymen A lot of them are making $100k right now. Mm-hmm. So you set that business up and fill yourself up with taking care of rich people, doing little, tiny stuff they don't want to screw with, mm-hmm.
And going there, dressed nice and bathed and clean tools and clean shoes. And take care of business and charge good money for a tiny little job. And you can really make a good living doing that if you build the business out. Mm-hmm. Now if you don't want to do that, that's fine if you want to stay in concrete.
But let's build it out enough that it's handy that you're making $2,000 when you're not doing concrete.
I want my wifey working, too, wifey needs to get in.
She needs to get those pots and pans out, baby.
Again, I don't think it's the pots and pans. I think that because there's only so much catering you're going to be able to do out of a double wide. I think that she needs to. No, no, no.
It's an RV, you're not doing any.
That's what I'm saying she needs to.
You've got to get out of there into something where there's a kitchen, that's true, and either get a job or get that kitchen fired up. One of the two or both.
Or both go make a bunch of money and slow down on your big decisions. And when your heart rate's up and there's a little bit of sweat on your upper lip and in the palms of your hands, that indicates fear. Don't make a decision because you're getting ready to do something dumb. All of you, everybody listening, including me. Fear does not lead to good decisions, and desperation does not lead to good decisions.
And scared and stuck and forced to. And these kinds of words come out of your mouth right before you do something dumb. And I've done a bunch of it. BRITtany So I'm not picking on you, honey, I know where you are. We'll put you guys into Financial Peace University right now and get you started on learning how to handle money. We've got to get the income side of the equation and the housing both stabilized for you to be able to prosper and move forward.
The instability of your housing situation and your income is what has caused you to be sitting in this crisis. Those two things combined, and you get those two things fixed, you're going to find this thing stabilized pretty quick. This is the Ramsey show.
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Jade Walsh, our Ramsey personality, is my co-host today. Thank you for joining us. Mark is in Nashville. Hey Mark, welcome to the Ramsey Show.
Yes, sir, thank you for taking my call.
Sure, how can I help?
My profile's a little bit different than your usual profile, okay? I am 69 1⁄2 years old, I am single. Unexpected divorce.
10 years ago, I went for a career change from full-time ministry to being a registered nurse.
And I want to know how to plan for my retirement.
Okay, all right. So now you're a nurse these days?
Yes, sir.
Okay, cool.
When did you make that transition?
Finished nurse school four years ago.
Wow, okay, cool, interesting, good for you. Okay, so what's your financial situation?
What kind of money you got saved?
Okay, through divorce, lost all our saved assets. I was married to someone a little bit younger and our plan was to, you know, I retire first. She keeps working and we can be generous and give and take care of our children. Build a nest egg, buy a mortgage anyway, that's all off the rails.
So I earn roughly $70,000.
I have $20,000 a year, I took an early pension from my previous career, so my income is basically $90,000. My child support of about $18,000 a year will be ending at the end of June.
You have an 18-year-old? Yes, okay.
And a 24-year-old?
Okay.
And then I have a $10,000 college loan from the U.
S government.
You have any money saved?
Yes, $5,000. Well, I had $100,000 before the divorce.
No, I know now. Do you have any money now?
No $5,000 in mutual funds and $5,000 in cash.
Okay, all right. And the divorce was final when?
Back in 2013.
So over a decade ago.
Over 10 years ago, and yet you still saved no money.
I've had child support and I had nursing, school and related expenses.
Okay, all right, but now you're ready to save money, okay?
Of course, so that's been my plan.
So the answer is to pile up as much money as fast as you can. Obviously, you already knew that you didn't need me for that. How can I help?
Well, I have a question, what's your living situation? how are you living? are you renting? do you own a home?
I am Airbnb, I'm paying basically $1,000 a month.
You live in an Airbnb and you're paying $1,000 a month, okay?
Correct.
Okay.
Well, for you, it's the baby steps, like anybody else. I mean, the first step is you've got to pay off this $10,000 loan that you have. You've got $10,000, and let's knock that out instantly. You're making $90,000 a year.
You're single, you have a very low, I'm going to call it rent, compared to everybody else out there who would be looking for rent today. That's my choice. How quickly could you pay off the $10,000 loan in two months?
I haven't done all the math on that, but I'm only paying like $140 a month on that loan.
Well, let me start you off, right? $5,000 a month for two months.
Well, you've already got $5,000 cash, so you could put $4,000 on it now and then have the rest paid off within the next two months. So that puts you down to a $1,000 emergency fund. You've now paid off your debt in two months now. The key after that is we've got to save up some emergency funds and as quickly as you can, save up three to six months.
In your case, I might start with three to four months and then move on and start baby step four and get to retiring.
Yeah, I want to start saving money by Christmas. Yeah, I want you to have $10,000 in the bank and be rid of the $10,000 before Christmas. And then start investing like crazy. Sit down with a smart investor pro and dump as much money as you can towards retirement and build up.
And then once you get that going, I'm going to start thinking about you, sound like you're in very good health. I must start thinking about buying something to live in because you can stabilize. Because at some point out in the future, 10 years from now, let's say that rent's going to double, triple, whatever it does. And when you can buy something, you lock in the most expensive line item in your personal budget, which is your home budget, your cost of housing, whether it's rental or mortgage, or whatever it is. And let's get in that as fast as we can.
Something very inexpensive, and it sounds like you're living in something modest now. So a modest one-bedroom condo that you pay cash for, or that you almost pay cash for and pay off very quickly. That kind of a thing is out there, depending on where you're doing your nursing work and what the proximity around town is and all those kinds of things. But yeah, I'm sorry, Mark.
You've obviously been through a lot of pain and heartache and heartbreak with that divorce. I'm very sorry for you. It does sound like you've painted yourself into a new future and I like that painting, it looks good.
Let's lean towards that, and it's easy to look back and talk about what once was and it hurts. But it's very important that you lean into the future right now and clean up this debt. Put an emergency fund in place and then start stacking cash in an investment, and then start thinking about buying a home at some point in the process. So good questions.
Hey, thanks a bunch, very cool.
Yeah, that's crazy.
Stephen is in Knoxville. Hi Stephen, how are you?
I'm doing wonderful. How's it going, Dave and Jade?
Better than we deserve. What's up?
Hey, so my wife and I, we are ministers, and right now we're bringing in about, I don't know, $47,000 or so a year. The question I have is, and we have no debt, and we have a fully funded emergency fund of about $10,000. The question I have is. She has an old 401K and it's about $65,000, and I was wondering, this is from her previous job. Is it a good idea to roll that over into a roth IRA, pay the taxes on it now and then continue to fund that roth?
If you're 100 debt-free and you have extra money, that's house and everything, then I would consider doing that, otherwise I wouldn't.
You wouldn't roll that into a roth.
No, I would not.
Okay, now, the other thing is—.
Do you have a house mortgage?
No, no, we rent, we travel a lot as ministers.
Okay, do you have the extra money to pay the taxes? That that would create $15,000, $20,000 if you did that?
Would the taxes just come out of what's been built?
No, I don't want you to do that, I want you to roll the whole thing or don't do it.
Yeah, so we do have $25,000 in a taxable brokerage account as well.
In addition to your emergency fund, exactly, and you're 100 debt-free, 100. Okay, then, if you want to roll that to a roth and you want to use that brokerage fund to pay the taxes, you're going to come out ahead.
It has the mathematical effect of having invested an extra $20,000 into your roth, that's what the math effect of it. But if you take the $60,000 and you drain it down to $40,000 just to pay the taxes. That $20,000 you took out to pay taxes would have grown to enough to pay the taxes. So all you do is break even.
How important is it that they do it now versus waiting several years?
It's 100 growth, tax-free.
But if you want to use the $20,000 out of your brokerage to do that, it's an extra way to invest into retirement. How old are you guys, Stephen?
I'm 29 and my wife is 35.
Okay, it's going to hugely benefit you. But you've got to have the rest of your life figured out. Not the whole rest of your life, but I mean, the other parts of your life today figured out. Like cars and whatever else. That brokerage money was, you were sniffing around that brokerage account to do something else, because now I just spent it.
Yeah, I think that's the thing because we have a 20-year-old car and we do want to have kids.
Yeah, pay cash for whatever, no debt, no future debt because of this move. But if you can pay the taxes. With outside money rolling to a roth with zero debt house and everything, of course you don't have a house, that's easy. But then, yeah, the roth makes mathematical sense to do that. And as you become very wealthy later, having all of it in roth is really handy. From a retirement standpoint and from an inheritance standpoint in particular. So really good move to get it to a Roth, but does no good at all. To use the roth or to use the money out of the IRA to pay the taxes?
It just nets out the same, so hope that helps you, man. Thank you for your call. This is the Ramsey show.
Live from the headquarters of Ramsey Solutions, it's the Ramsey Show where we help people build wealth, do work that they love, and create actual, amazing relationships. Jade Washaw, Ramsey Personality bestselling author, is my co-host today. Open phones at 888-825-5225. Thank you for joining Us America.
Jade, Did you know that it's producer James Childs birthday?
I was not informed.
Should we sing happy Birthday? Probably not.
Maybe not you, oh.
Says the singer, who's heard me apparently sing in church?
I've never heard it.
Heard me singing a joyful noise in church, I'm just saying, only time I'll be caught dead singing Happy birthday, James.
Happy Birthday James.
Thanks guys, I appreciate it.
Sammy is in Philadelphia. Hey Sammy, how are you?
Hey Dave, thanks for taking my call.
Sure, what's up?
My question is in regards to funding inventory for my small business.
Currently, this is going to be my third year in business. We're expecting to hit $2 million this year. Great, I don't have any employees, it's just me and my wife helping me on the side.
So about 70 of all my business expenses is just in cost of goods.
So you netted $2 million, or you grossed $2 million.
That was my revenue, so we should be netting about $400 this year.
Your gross profit on that would be about $600, yeah, $400.
And then you'd have some other miscellaneous expenses. what other expenses do you have other than cost of goods?
It's just basically rent, among some other things that we do. It's consumer electronics, so each of them have to be inspected and tested and cleaned.
So what does it cost you?
What are your expenses, Ron? You said you had a 30 gross margin, right?
It's about 25%.
Okay, so 25 gross margin, so on $2 million, that'd be $5 million gross profit. After cost of goods sold before operating expenses, what would your operating expenses be?
It would be about $50,000.
Okay, so you netted taxable income about $450,000.
Correct, that's what we're expecting this year.
Phenomenal cool, good for you, well done. How can I help?
So my question is, until now, I've been funding my purchase orders. You're not going to like this. But with a credit card, I've been paying them off within a 30-day mark. The card I use doesn't actually allow me to carry a balance, but I've basically been spending about $80,000 on the card every month on average.
I make sure not to spend above.
Why are you doing that? You have the cash.
So I don't have the cash because every single dollar is reinvested back into new SKU.
I'm trying to since we just started a couple years ago. I'm trying to expand my SKU every single month, I'm trying to get new lines and new electronics.
You spent $450,000 on personal living expenses this year.
All that profit was put back. I don't pay myself a dime, all that profit was put back into the business.
And it was all on expanding skus.
Then why would you need to use a credit card because you have put $450,000 back into inventory?
Because, well, that's the numbers we're expecting this year. Last year, the number we made in profit was about $300,000..
Okay, so you put $300,000 back in, why would you need to use a credit card? You should make that cash machine run off of $300,000 organically.
Correct currently, right now, at the moment, I have over $400,000 in inventory that's paid for. However, if I want to expand into new SKU.. ..
Ah, so it's not actually to cash flow, the operation of the business, it's to expand the growth.
Correct.
Or to fund the growth is with a credit card.
Correct.
If you want to stay open, you're going to quit doing that.
Why do you say that?
Because most people that do that crap go broke. I coach over 10,000 businesses in Entre Leadership. People that run small businesses off a credit card inventory control system go broke. They don't make it. Instead of actually running your business on cash, which you have the ability to do, you're smart enough to do it. You just didn't have the appetite to slow down enough to do it.
You're going to slow your growth rate temporarily. Until you get weaned off this credit card and get 100 cash on your inventory reinvestment business. But it's going to cause you to buy different inventory, too.
What are you currently spending on the credit card to fund your new inventory, your new skus?
It's not exactly just on new Sku.
I make an order every week and that ranges currently, for example, on my card. I have $15,000, but I just got another order today, which was $55,000. But I have about $40,000 coming in a week, so that's easily going to get paid off.
If it's easily paid off, it's easily fundable with cash.
One of these is not true either. It's not easily paid off, or it is easily paid off, and if it is easily paid off, it is easily run with cash. You just got to have a one or two week hiccup here and get weaned off these credit cards. You can do what you want to do.
You call me and ask me what I think you ought to do.
Ultimately, it won't take him much time to adapt that cash system. He's just going to have to basically get ahead a couple of months so that he can have that reserve to do it.
What I would tell you to do is to sit down with one of our CPAS or our tax people. Go to Ramsey Solutions, click Elp and have one of them help you set up a bookkeeping system. You need to learn. Accrual accounting Accrual accounting is when you buy an item, you book it as sold instead of right now, you're booking it as cash.
And every time you sell an item, you set aside a percentage of that item, like 70 or 75, to buy the next one. That's accrual accounting with cash, you're just throwing cash up in the air and hope it all lands, and you're not managing cash well.
You're selling the crap out of stuff and you've grown a good, strong business in terms of revenue growth. But you're not managing it well, you're not managing the accounting and the numbers well, and it's going to bite you in the butt. So what a proper business function would be with accrual accounting is. Every time you sell an item, you set aside 75 for a replacement item. If you want to grow, you set aside 85. 10 for new SKUs and 75 for replacing the old SKU.
And then you can stay ahead of the cash, you'll always have the cash. If you set that back, set that back for the next purchase, and then you don't purchase or make sales beyond your cash position. You can run this business forever this way.
The way it is right now. If the music stops and you don't have a chair, you're screwed because you're playing musical chairs. That's what you're doing, you're playing hide the pea under the shell. This is the Ramsey show.
Jade Walshall Ramsey Personality is my co-host today. Thank you for joining us. I'm Dave Ramsey. The phone number is 888-825-5225. CJ is with us in Hickory, North Carolina.
Hi CJ, How are you?
Good afternoon Dave and Jade. How are you?
Better than we deserve. What's up?
So I'm going to jump right in. Me and my wife have about $57,000 in outstanding debt, about $27,000 of that is a student loan. Then we have two cars, one is $12,000 and the other is $16,000..
And then there's a small amount of credit card debt in there as well.
So I've been listening to you for about three weeks. And we decided to sit down, make a budget and figure out and decide, you know, get debt-free. Cool, we're living comfortably because we're making the payments.
What's your household income?
Household take-home is $7,300 a month.
And how much of that is you versus her?
I don't know off the top of my head.
Okay.
I just know we did everything as a whole.
That's good.
Okay.
So your question is, what?
So my question is this? So we were starting to pay everything down. We have $16,000 in the bank, We were going to dump that into paying things, right? However, we were also trying for a baby and we're pregnant.
Yay.
Nice.
Great news. But I'm wondering what I should do with that $16,000? Should I save it for the baby? should I use it to pay down debts? what should I do with it for now?
If the situation were different and you weren't yet pregnant, I would say, yeah. Like, I'd skim that down to $1,000 and I'd take the other $15,000 and I would throw it. I'd knock out the one car and I'd start on the $16,000 car. But because you have the baby. I would say for us to pause all this for right now and let's see how much cash we can stack up. I had a feeling you were going in that direction. That was also why I wanted to know how the income broke down. Because, you know, there might be a portion of time where she's not working and I'm not sure what the maternity leave is.
So for that reason, it's good to have as much money saved up as possible. Until the baby comes, the baby's healthy. And then you can crank this thing back up and you'll have a big pile of cash sitting there. Hopefully by then, I mean, she just got pregnant. So hopefully, by the time this is all said and done, you might have enough to knock out both vehicles.
Hey, CJ, Okay, if you weren't doing this and you really tightened the budget down, how much a month were you planning to throw at the debt?
So our total after we tightened everything down was about between $1,200 and $1,500 a month.
Okay, all right. So let's call that in nine months, $12,000. Okay, okay.
So I want you to save the $1,500 a month, I want you to get to. $12,000 added to the $16,000 is $28,000 in a big old pile of money. Doing nothing but sitting there, making sure you have a peaceful pregnancy and delivery, mommy and baby, come home and everything's okay. Now we push play on the total money makeover baby steps. And that means you're going to take of the $28,000, $27,000, and you're going to pay off both cars.
Okay, the day that she comes home and the baby's okay. Now you're debt-free, except your student loan, and then you get in. Now you get into beans and rice, rice and beans mode, and as fast as you possibly can. And you don't spend this $28,000 to build a $20,000 nursery for a newborn that weighs eight pounds.
Listen, if I were you, I'd be calling up the hospital where she's going to deliver, and I'd ask, outright. You know how much is it going to cost to have this baby the natural way? If she has to do another way? Find out what it's going to cost, find out. If you're going to hit your deductible, then you'll kind of already be able to kind of put some guardrails around this money.
You'll kind of be able to look at it and go, Okay, this much is the deductible. Then we'll have this coming out and you'll be able to see all the things that you can do and accomplish. To Dave's point.
If you have reasonable insurance, you should be able to bring the baby home and have almost no effect to your cash flow. And have the whole $28,000 clear to throw at the debt. Excellent, but if there's a hiccup.
We got $28,000 worth apiece to help us with a hiccup.
Okay, awesome, sounds great.
Yeah, so you're not going to miss a step, you're not going to miss any progress to amount to anything here. As long as you don't sidetrack some of that money with something silly as you go along, and that can happen, so be careful, you have to guard against silly.
Silly is how we got here, by the way, so we want to get out not using silly. Jonathan's in Murray, Kentucky Hi Jonathan, welcome to the Ramsey show.
Hey, thanks for having me.
Sure, what's up?
Our student loans are currently on pause. Right now, we're on the save plan so we don't have a payment, we're not getting any interest.
Wait a minute, I've thrown a flag on that play. There's not a student loan pause. Now you could be on the one-year ramp.
No, I'm on the save plan, so our payments are on pause right now. we have zero payment right now.
Because you have no income, or because you're back in school.
Our income is low and we have two kids.
So they're just letting the interest pile up.
No, it had no interest on the Save plan. The interest doesn't pile up.
Keep going.
So I'm on that right now. We want to save for a house. We had a house and we got in some debt issue. It was a really hard decision, but we had sold our house. So we're currently saving money, but we do have the student loan debt.
So I'm just trying to, and we have money going elsewhere. We're just trying to make sure we're in a good train of thought with our budget and everything to make sure that we're setting ourselves up.
How much student loan debt do you have, honey?
We have 62.
Until you clear that you're not going to prosper. Trying to monkey around and find some way to twist and turn and do a double backflip and act like that's not there. And some kind of mathematical denial is not going to work. The sooner you clear that, the sooner you're going to prosper. It's hanging over your head, it's always in the background.
It's always in the closet, the monster, ready to come out at midnight. Clean up your freaking debt, quit screwing around with intellectual exercises while, meanwhile, you're hovering with this thing over your head. It's not going anywhere until you take it out, pay it off now.
What's your income? Whoops? That's all right. Well, here's what I want to say, the screen said. Should we save for a house if we have student loans?
But I'm like, you just told me –.
The answer is no.
You just told me your income is low enough that they gave you a $0 payment.
So there's your answer.
You shouldn't be. If you can't pay a payment on a student loan, you don't have any money to save to start with. And if you did, what are you going to buy?
Exactly.
I mean, a one-bedroom house, I mean, what are you going to do here? So no, no. Right now, you need to clean up your student loans as fast as you possibly can. And quit trying to use some governmental stupidity as an excuse to not do it.
Knock it out as fast as you can, get it out of your life. Then build an emergency fund you're 100 debt-free, then save for a down payment on a house.
It's the slower version of getting back into a house, but it is the proper way to do it. And by the way, hopefully your income won't be so stinking low as you go along this process. And you can actually make some better progress than trying to sidestep this stuff. Open phones at 888-825-5225. Guys, the things that we teach you here on the air are never pleasant in the present.
They're always the best thing long-term, though, and most things that are good with money long-term are a bit painful in the present. But the ability to delay pleasure, the emotional maturity that allows you to delay pleasure, is a real indicator of building wealth. No discipline seems pleasant at the time, but it yields a harvest of righteousness.
So we're always going to tell you hard stuff and stuff that makes you frustrated and give you some reason to do. A whole Instagram post about how stupid Dave Ramsey is and all that, and let me help you with this, Dave Ramsey doesn't care. I'm not taking a poll.
I'm not asking you, what truth is you are asking me? And there's a reason. It's because for 30 years I've been showing people the real way to build wealth, and it's called common sense.
Get yourself out of debt, get on a written plan, build an emergency fund, then start your saving for a house, and start your investing. This is common, freaking sense.
It's what old rich people did, it's how they got to be old rich people that you make fun of. This is the Ramsey show.
Jade Walsh, our Ramsey personality, is my co-host. She's the best-selling author of the book Money's Not a Math Problem, It is a Ramsey quick read. And what that means is it's about 74 pages long. Give or take a page, and that means you can read it in one setting.
Money's not a math problem. The real reason you're broke and what to do about it, check it out at ramseysolutions.com. Today's question is from Donna in New Mexico.
Yeah, Donna says. I sold my home two years ago because my son was co-borrower and wanted to purchase his own home with his new wife. Good, after the sale, I purchased a new home with my daughter.
Oh, you didn't learn.
I used over $140,000 from the house sale for the down payment and other expenses for the home. Now, my daughter and I are having relationship issues and she has told the rest of our family that I need to be in assisted living. All the money I had went on the new home and I have no savings. I want to move out, but I'm retired and on a fixed income. What are my options?
Oh my gosh, well, the first thing is, you need to learn to just buy a home on your own. If you want to buy a home, you buy it on your own. I'm not sure how old she is, but I would say, if you're on this together, the only way to get somebody off is to refinance, to get out of it.
If she needs to buy you out, or we need to sell the house, and I would tell her she has 30 days to decide. Your daughter, tell your daughter because you're trying to get me put away in a nursing home, we are selling this house. I don't want to live here anymore and I'm not going to leave my $140,000 in here. And so if you want to buy me out with my $140,000. By going and getting a mortgage, you can do that. Otherwise, we're putting the home on the market and we're going to sell it. So that I can get my $140,000 out. And I'm going to go get me a place of my own.
Now, which one do you want to do? You've got 10 days to decide because at the end of the month I'm putting a sign in the yard.
And see if you can stop me, if she tries to stop you, then you're down to a court action. And the circuit court will have to issue an order to sell the assets of the partnership to settle the partnership. Now this is going to get nasty and it's going to cost you about $10,000 to get out of this ridiculous stupidity you signed up for. So folks, don't do this stuff. If your daughter wants to live with you, that's up to you.
If you want to do something else, that's fine, but when you do these deals together, then you're, you know, you had a pleasant one where you got out of it. My son was co-borrower, wanted to purchase his own home with his new wife, which is perfectly natural and healthy. Thank you, and the way we fixed that is, we sold the house good.
So now my daughter's being a butt. And the way we fixed that is, we sell the house. Ta-da just like that. So you don't want me to live here, that's a problem.
You're going to have to buy me out, or we're going to sell it up to you, your choice. And then I'll decide where I want to live, assisted or otherwise, because that's what I do.
I'm like a grown person and stuff, so there we go, you're not getting rid of me that easy.
It's not good, wow.
Open phones at 888-825-5225.
Zach is in Cleveland, Ohio. Hi Zach, how are you?
Hey there, I'm great. How are you? Thanks for taking my call.
Sure, what's up?
So I just had a question around house buying strategy and how much kind of house we can afford. I've always kind of hated debt, hated interest just as a personal belief, but that said. 29, No kids getting married soon? I take home $160,000 a year between two full-time jobs and then another $20,000 with a side hustle. My fiancé has a $50,000 salary and we have some investments as well, so basically, we're just looking into this.
Starting out, we were shocked by interest, so we were looking at around $350,000 home and then looking at interest over 30 years.
You're not going to be there 30 years. How much do you have saved?
So currently, we kind of rolled a lot of stuff over into an investment account now. So we have like half of it in a money market account. That gets about 5 back. And then the rest of it is in, like, S&p 500..
How much is it, how much? how much is the cash on hand?
$125,000.
Okay, when are you getting married?
This September.
Okay, don't do anything before September.
Yeah, we're not in any rush, we're just trying to lay the framework.
You don't buy a house before then, before you're married, don't buy a house with somebody you're not married to ever, people, ever. And then we've got, you know, what I would do is take the whole $120,000 minus an emergency fund. Do you have any other money saved other than that?
I do have a 401k through work that I'm looking to roll over into a roth soon for tax benefits, but then that's about 70k.
Okay, do you have any other money in miscellaneous savings other than this? 120??
That's about it.
Okay, all right. You need to set aside somewhere around 20 25 of that as your emergency fund don't touch it. So you're going to have somewhere around $100,000 down payment, plus whatever you can save with your fabulous income.
You ought to be able to save like crazy. Y'all are making quarter of a million between the two of you way to go.
I heard you say that you were concerned about the interest rates, but I also heard you say, on a 30-year, have you looked into the 15-year fixed rate?
So I understand just by reading kind of your guys Reddit page actually that in your general information that seems to be whoa, whoa, whoa.
I don't have a Reddit page.
Fair enough, fair enough, just generally-.
There are some morons on Reddit that have an opinion about me, but I don't have a Reddit page.
Fair enough.
I can't stand the format, just to be clear. So let me tell you what we really believe, regardless of what Reddit told you, all right, what we really believe is. The number one and two. Reason that people become millionaires, and we have data to prove it, with 10,000 millionaires studied, is they're investing into their retirement and they're paid off home. These are the two elements of the first one to five million of net worth.
So to that end, we're going to move you towards a paid-for home as quickly as we possibly can. Great news is, you make a quarter of a million dollars and you're smart people, so you're going to be able to do this fairly quickly. We would tell you to put the hundred down, hold 25 back, put as much as you can down at least a hundred in your case. And then put the balance on a 15-year fixed rate, where the payment's no more than a fourth of your take-home pay. And the data tells us that the typical millionaire pays off their home in 11.2 years.
Because they hate interest. I think I heard a guy say that once.
Yep.
You?
Yeah.
So, yeah, and so we're going to take out a 15-year fixed, it's a lower interest rate than the 30-year is. And it's going to be a more conservative home than they will qualify you for, but you can get in and get it paid off.
And then, with the kind of money you're going to be making, you can move into anything you want to move into later. But you get in there and get started and get you a fun little house, starter house. And get going with a plan that in five years we're probably going to move. And we may have it paid off in five years. Because I got a feeling in five years your income will be a lot more than 250, don't you?
Ideally, sure.
Yeah, it would be normal if it was. Most people's household income goes up, goes up.
Yeah, you're only 29, great.
You're doing really good.
Yeah, I think we're doing okay.
You're doing excellent, you're asking all the right questions, you're sourcing them, sourcing the answers in the wrong place with Reddit. But other than that. But yeah, I'm kidding, not much.
But the success pool? But anyway, thanks for hanging out with us today. You're a sharp young man. you're going to do really good. I think you're amazing.
And you know, with the kind of money you're making, you're going to be in a great situation. So I'd take out a conservative 15-year fixed and pay it off as fast as you possibly can. That's what I would do. Good question. Thanks for joining us.
Open phones at 888-825-5225.
But, Jade, I can't buy the house with the racquetball court, the jacuzzi and the skylight if I do that.
Well, you better get your expectations settled, get them straight.
Oh, expectations.
Sorry.
You know, the secret to happiness, the secret to happiness, that's right.
You're not going to move into your parents house at 29 and 28.
Yeah, because it took them 35 years to get there, boys and girls. And they had two baskets of strawberries, that's what they paid to buy that house for two baskets. This is the Ramsey Show.
Jade Walsh, our Ramsey personality, is my co-host. Today. Vera is with us in New York City. Hi Vera, how are you?
I'm good, how are you? I'm actually okay.
Good, how can we help?
So I am working. I started listening to you about two weeks ago, I would say, as I was trying to work out how to pay off my debt. And I have been working at that. And today my car broke and I have a really old car, 2002 Dodge Stratos. And it's been heavy repairs every couple of months, like $600 to $1,200 every couple of months, which has been putting a string on trying to pay off my debt.
And I need to buy a car now, but I don't know what to do with what I'm working with, so I kind of need advice.
What do you make?
I make $52,000.
And where do you live in New York City?
I live more in Bergen County, New Jersey.
Okay, all right.
And so this car, if you were to get rid of it, it'd bring nothing, right?
Yes, I looked on trying to junk it and the most I'll get is probably $400. It looks like it's the head gasket today, okay?
Next.
Okay, do you have any money at all?
Yes, I have $7,500 saved in my savings account, and then I have about $900 in crypto-slash-stocks that I invested a long time ago. But it's not going anywhere.
Okay, that's the good news.
Cash those two out today, okay, and now we've got $8,400, and I want you to buy a $5,000 car, okay, for cash.
What car do you recommend?
Not a dodge.
Yeah, let me ask you this, Have you got family in the area?
My mom, yes.
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