Drop the Excuses and Embrace the Suck!
2024-01-30 01:58:38
The Ramsey Show believes you can build wealth and take control of your life—no matter what stupid mistakes you've made with money. Join as Dave Ramsey and his team of experts answer your questions on the top problems holding you back. Listen now or ask your question live by calling 888.825.5225 weekdays from 2–5 p.m. ET. Learn more at www.ramseysolutions.com
Live from the headquarters of Ramsey Solutions, it's the Ramsey Show, where we show people how to build wealth, how to do work that they love, and how to create actual, amazing relationships, like I have here with my buddy, George Camel with the K. I'm your other host, Jade Warshaw. Hey, give us a call. The number is 888-825-5225.. We'd be happy to take your call and talk about the things that are concerning you in your life and in your money.
And, as a matter of fact, we're taking that to the next level today, George. After the Ramsey Show, after the three hours of Ramsey Show, we are going to do a live segment, George and I, live Q&A here on the YouTube channel, where we're going to answer all of your budgeting questions. And we're actually going to have the best app in the world, EveryDollar, the best budgeting app, pulled up on the screen. You'll be able to see it kind of, you'll be able to see the whole EveryDollar screen and you'll be able to see George and I. And you can actually come in with your questions.
You can put your questions in the chat. We'll also be taking.
calls. So it's kind of like a bonus Ramsey Show exclusive to YouTube. Yes. That's pretty.
cool. We've never done anything like that. Yeah. So watch on YouTube, because obviously that's where it's, that's where it is. Like.
don't be on your podcast app. Yes. And if?
you go to the Ramsey Show YouTube channel, hit the notify me button so that you don't.
miss it. That's right. And so today, today's Tuesday, January 30th. For those listening, it's right after the show. So it's 5 p.m.
Central. That's our time. 6 Eastern. That's right. And if you're in Mountain Time, you have to do that math on your own.
Figure it.
out, PT. We're not doing all the work for you. That's right. We'll do the EveryDollar.
work for you. How about that? We're going to have it all pulled up. You'll be able to ask, like detailed questions like, Jade, George, how do I go in there and make a fund? Or how do I, you know, do a long-term planning on using the financial roadmap?
So we'll be able to help you with all of those questions. And you know, if you just have kind of basic questions, this is not the time to call in and ask about investing. Yes. We want it to be focused on.
budgeting, and we'll try to show you tactically what that looks like in the EveryDollar budget, to make it even more tactical. That's right. We're all about solving problems, George.
I love it. Well, we do. All right. Let's go to the phone lines and help solve Jennifer's.
problem in New Jersey. What's going on, Jennifer? Oh, hi. Thanks for taking my call. I'm a huge fan of your show, and I really appreciate you taking the time to speak with me today.
Absolutely. Yeah. So I just basically, in a nutshell, I'm trying to determine if it makes sense for me to purchase a home or continue to rent for a couple of years. And just briefly, my background is I just sold my home. I'm currently debt-free.
I'm 55 years old. I'm kind of late in the investment game as far as like 401k and stuff like that. But since I sold my house, I recently contributing, now contributing about 13% of my growth. I've got about $200,000 in the bank. Okay.
And in order to purchase a home around here, you're looking at probably around $300,000.
. And my plan was to put $150,000 down, take out $150,000 mortgage. But then I'm kind of going, I feel like I'm going backwards because now I'm completely debt-free and I'm renting, but the rent is about $2,000 a month. So I'm not quite sure. I've never been in this position before, where I don't have any debt.
I have money in the bank and I'm secure. So you took the money from your home sale to pay off the debt? Yeah, there wasn't, I didn't have much debt. I didn't really have credit cards. It was just one student loan.
that was about 10,000.
And so everything, and I don't have any credit cards or car payments or anything like that. So it really, I didn't have much debt to begin with, but the home was sucking me dry. It was HOA fees and taxes, and it just, it wasn't financially viable for me to just continue to live there. I mean, I bought low and sold high. I'm sorry?
What did it bring when you sold that house? It bought about $430,000, but then they had to take out the realtor fees and stuff like that. What did you take home? I took home about $220,000.. Okay.
Wow. That's a lot of fees. Yeah. It was a nice... Wait a second.
You said it.
brought $430,000 and you brought home $220,000.
. How did they take half? Well, I actually, I kind.
of left out. I did have a home equity line of credit on there that I took out. Yeah. Because I had to help with some schooling for my kids. Okay.
Let that be a lesson to the folks listening.
that when you take out home equity lines of credit, you have to pay it when you go to sell your house. So it eats up your equity. She should have had $430,000 of equity in her home and went away with half of that. So that's a lesson to all of us. So you've got $220,000..
You are looking to buy a house. You're thinking of doing a $300,000 house with 150 down. My question to you would be, why wouldn't you just put the 220 down and put as much down as possible? I actually have about.
$200,000.
. Does that include your emergency fund? That's everything. That's everything. So that's why I wanted to keep $50,000 kind of in a pocket somewhere, which, again, I've never had before, but I'm just trying to determine what makes the most sense.
Do I continue to.
. I feel like every month that I write the rent check out, it's like I'm taking a step backwards, but at the same time,
there's not much inventory. If you put $150,000 down on a $300,000 house, which is what you said you wanted, are you able to afford the monthly payment? It would be on a 15 year fixed with,
I estimated taxes and homeowners and it would be roughly about $1,900 a month. Okay. Which is less than what you're paying now. Which is less than what I'm paying now. But my gross income for yearly gross income is about $67,000..
Okay. And I also have a side business that brings in about on a good month, it's roughly maybe $800 a month net. So how much a month do you see in your hand before you take out your investing?
As far as like, well, they already withdraw stuff from my.
. They just started. Literally when I sold the house in November, they just started taking that.
out. So what I'm getting to is we want your payment to be no more than 25% of your take-home pay. So that's why I'm like, what you take home after taxes, but before investing and before insurance comes out, right? Because we really just want to see what it is after taxes you're taking.
Because if your take-home pay is like, if it's going to be four grand and your payment's two grand, that's a lot of your world getting sucked into that house and you're not going to have enough money to invest and retire with dignity. So that's where Jade's getting at here. And so you may need to rent for six more months, stack up some more money and then pull the trigger. But you're really close to making this decision the right way. Yeah.
It's close. You guys are pretty.
much dead on it. Roughly like nine... It's like just about $4,000 a month. that's coming home. So that would be like 50% of my...
And that's after you're investing, though, right? That's after investing, yeah. And now, since my rent is 2,000, I try to weigh out like, okay, do I bite the bullet and try and find something? But I wanted to see a different perspective of what I could do if I decided to just hang tight and rent for a couple of years.
The big question is, do you see a path for your income to go up in the next two to five years? That's a question you've got to ask yourself. How long would it take you to save, then, the amount of money that you feel like you need to get a payment closer to what you're looking for? 25%. 25% is what we aim for.
If you're at 28 or 27,, nothing's going to happen to you. You're not going to combust into flames. But that's what we're looking for. And just make sure that when you guys are doing this math, you're looking at it just at your take-home pay. Don't look at it after your pay, after insurance, after investing, because you've already whittled it down with things that are part of your budget.
So that's the way this works. 25% of your take-home pay is what we're looking for when we're buying a house. This is The Ramsey Show.
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You're listening to The Ramsey Show. I'm Jade Warshaw, your host. Next to me is George Camel with a K. Don't get it twisted. Trust me, he gets very angry.
He gets very angry if you get it wrong. We're taking your calls all hour, so give us a call. The number is 888-825-5225, and let us know what's going on. Let's go straight to the phone lines where we've got Charlie in my state, Orlando. What's going on, Orlando, Florida?
What's going on, Charlie?
Hey, guys. Thanks for taking my call. I'm going through a divorce right now,
and we sold the house and split the proceeds 50-50.
. I was able to use some of that money to pay down my debt, pay off my car, pay off some credit card stuff, and the only thing I have left is student loans, which are quite significant. It totals about $183,000..
One of those is about a $9,000 loan, and then the rest is all one big federal loan. I guess my question is, this is kind of the balance of something that would kind of resemble a mortgage payment. in a way. I wonder, do I treat it like a mortgage and get my three to six months of emergency fund funded before I start tackling that, or how should I go about that?
Listen, I'm empathizing with you because I know how that feels. My husband and I had $280,000 of student loans. When you said, should we treat it like a mortgage, we used to call our student loan, listen, it's our mortgage. However, it didn't change the way that we attacked it because technically, it is still part of your debt snowball. It can feel daunting to think, okay, I do baby step one.
I've got $1,000 saved, and you want me to have $1,000 saved for the duration that it will take to pay off this loan. I feel that, and the answer, honestly, is yes. My next question to you would be, how much a month are you putting on this loan? This is your only debt. How much a month are you paying towards it at this point?
So far, I've still been just hitting the minimums. I'm still kind of sorting out my budget, still retesting after splitting with my ex.
I don't have a ton of margin in my budget. There are things I'm working on cutting out. What's the minimum payments? Yeah. What are the minimums?
It's total about $300,000.
. The smaller one is around $111,000, and the other one is around $222,000.. It's an income driven repayment. Oh, yikes. What's the interest rate?
The smaller one is around 11%, and the larger one is around nine, I believe.
Okay. That's gracious. So this loan is ballooning every day.
Yeah. Yeah. Because you're probably barely even meeting the interest if that. Yeah. Matter, of fact, I'm just throwing this in a calculator right now, so I can kind of see where you would be.
Yeah.
That's one of the things I hate most about the income driven repayment plans is that your balance grows, and they act like they're blessing you with this low payment while your balance keeps ballooning every single month. So what you need to do is get as much income as you can, live off as little as you can, and throw the difference at this debt to where you're putting $1,000 a month, $2,000 a month to this debt, $3,000 a month. I hope to God you make six figures.
What do you earn? No. No. I make about $4,400 per month net. What was your degree in?
I earned business degrees, and I tried pursuing those careers, but they didn't suit me, and I ended up leaving those jobs. I taught. I was a teacher for about six years, and now I'm in a position where I'm working with adults, teaching people with visual impairments to use computers. It's a relatively new job, but it's something that suits me, and I'm doing well at it. But I do agree I need to increase my income, and so my other question is, are there any side hustles that you recommend where I could-?
Well, we need to get your core income up. I don't think you're getting side hustled your way out of $200,000, making $50,000.. We got to get your core income up to $100,000, and then you do side hustles on top of that.
That's so true. Yeah, that's exactly it. Do you have kids?
Yeah, I have three kids. They're with me 50-50, one week on, one week off, so that's part of why I like this job on. that is because the schedule of it lets me spend time with them when they're.
with me. Listen, here's what I'm going to say to you. If you put the math you gave us in a calculator, you're not paying these things off until 21-24, which is not a real thing.
I'm just going to tell you what Sam and I did. Sam's, my husband. We said to ourselves, because we were in the same situation you were, when we started out, our core income was $30,000 combined. That's laughable. You do, to George's point, you have to set out on this journey and go and sit down and plot out and say, what does it look like for me to double and then triple and maybe even quadruple my core income?
What does that look like? Where do I want to be 10 years from now and change the conversation to where do I want to be 10 years from now? Because the fact of the matter is, if I don't see that plan through, this debt doesn't get paid off. Then, in the meantime, while you're carrying out that plan, you're still side hustling and you're using all of your time to start paying off this debt as much as you can. You're not going to see the traction that you're hoping to see right in that first year, but you still keep after it.
You have to play both sides of this plan out in order to ultimately see where you want to go. We can sit here and say, hey, yeah, pick up some Uber Eats, but that's not going to do what raising your core income does. That's your homework. going away from this is, okay, what does that look like for me? I'm putting down ideas on paper.
Before you get off the phone, we want to make sure you get connected with Ken Coleman's information on career assessments and building a resume. Just load him up with Ken Coleman, because that's where this conversation has to go in order for you to be bringing in the money that you need to be to pay off this debt. I don't say that to be hopeless. That's just real talk. The budget tells your money what to do, but you have to feed the budget money.
Getting on a budget is so, so key, but you're going to see that budget and go, oh, man, I've got a long ways to go. The good news is, you can take that journey. Even if it takes four or five years, you are going to see the other side of this and you're.
if you said, hey, I'm going to pay this thing off in four years. That's about 45K a year. we have to throw at this. Well, that's 3750 a month. we have to throw at this.
Now the question becomes, how do we create that margin? by spending less and making more? That's a scary math problem, but now it's actually doable. It's actual facts in front of us. Real numbers.
That's good, George. I just want to, I'm not here to beat you up or yell at you, but right now we can't just do what suits us. Right now is not the time to chase down our passions. We got to go bust our butt for the next four years to get out of this mess. Otherwise, you're going to look up, that loan's going to be 200,000 by next year, 220 by the next year, 250 by the year after that.
And then you're going to really be hopeless because you can't bankrupt on student loans. That's right. No, doubling your.
income changes this entire equation, George. George, giving you those numbers, you suddenly see it in bite-sized chunks, right? What does it have to take to get $3,750 extra a month?
That might mean, okay, I got to rent for a while. I'm going to get a roommate if I have to. Whatever. you got to do, four years, I mean, you're a young guy. How old are you?
36.
. You're 36.. So imagine this, by the time you're 40, you're done with this debt. You moved on to the new chapter of Charlie's life. You're building the fully funded emergency fund.
You're investing for the future from 40 to 62.
. This is a plan to still retire with some dignity, versus carrying these debts to the grave and leaving your family broke. I know that's right. And if I'm you,
I'm writing that number, $3,750.
. I'm writing it on my mirror with a Sharpie so that I can see it every morning when I wake up. I'm putting it on the fridge. I'm telling the kids. I'm dreaming about that number every single night, because that's what my goal is.
And that's what's going to drive all of this. And next to that number, it needs to be very clear in black and white. Why? Why do I need this? You got three kids.
You're newly divorced. You've got a whole new life in front of you. There's got to be a really clear... I'm not just paying off this debt just to pay off this debt, just to check a box off the list. You've got to have a really clear connection as to why this is necessary.
And that's what's going to drive your desire to get it done.
And we're going to hook you up with EveryDollar as well. That's our budgeting tool. We'll give you the premium version. And what this is going to do is help you actually see in the budget. if you have that $3,750 in margin every month.
And if you don't, the budget will show you where the gaps are, where the money leaks are. And so you've got to follow that to a tee and let that be your guide for the next four years, for the next 40 years, as you begin to build wealth. So I'm sorry what you went through, Charlie, man. When you get knocked down like that, it can be so hard to get up, especially when you've got a mountain to climb on the other side with student loans.
It's so true. And the fact is, we tell people all the time, the average person gets out of debt in two years or less, but everybody's not average, right? Average is in the center and there's people on the right and to the left of that. And that's okay if you fall to the right of that equation. My husband and I fell to the right of that equation.
It took us seven years, George Campbell. I would not trade that seven years for anything, because when you walk through the fire, you come out a much better version of yourself, and that's what's going to happen.
to Charlie. This is the Ramsey Show.
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You're listening to the Ramsey Show. I am Jade Warshaw. This is George Camel and we are your hosts for today. You can give us a call. The number is 888-825-5225..
And we are happy to discuss whatever it is that's on your mind, as it relates to your life, your money, your career, even your mental health. We can try to dive into that a little bit. Although, Dr. John Deloney's.
not here, so maybe save those ones, for.
. You know what doesn't help people's mental health? What's that? Taxes. I know that's right.
It's upon us, Jade. It is tax season. They get a whole season. It's like there was birthday month, but tax is like, no, tax season.
Yeah, I'm not for it. Matter of fact, when I think about taxes, there's a very memorable social media video that pops into my mind. You may have seen it. James, can we play it?
Where's all your money gone, buddy?
Taxes. Six, nine, 10, 11.. Let me fix my houses. It's okay. It's part of the game.
No, it's not. It's not fun. It's not fun to what?
It's the worst part of the game. Oh, is what? Taxes.
That's amazing. So, for context, it's like, I don't know, a nine-year-old playing Monopoly and he's in tears because he's paying taxes, giving away all of his money. Listen, I feel that. Realizing this is adulthood, buddy.
It feels even worse when it's not Monopoly money.
Dave has always said, if the taxman showed up at your door and you had to hand over $100 bills every time you got a paycheck, there would be a revolt in this country.
That taxman would be getting whooped every time.
It'd be Boston Tea Party all over again. I'd be dumping some Earl Grey in that harbor.
Well, let's try to help people not feel like the young man in that video. Let's let them know what to prepare for in 2024.. We're going to help you know what you need to know about taxes coming up. Number one, when do you even need to file your taxes? Guys, the deadline is April 15th this year, the actual tax date.
Most of us think of April 15th as being the tax day.
It got switched up, I think, last year, but we're back on track.
We're back on track. You need to be sure that you're filing everything, all your federal tax returns and payments, by that date. Just know that you can start filing. You don't have to wait until the last minute. Go ahead and start now.
Matter of fact, you can start-.
You eager beavers out there.
That's right. Listen, that's me. I try to get it done ASAP. I'm already sending the stuff over. Start filing at the end of January, so that you're not putting it off.
Get your paperwork ready. I know that we have a great checklist that you can use.
RamseySolutions.
com slash taxes. A completely free checklist of all the documents you need. I print this out every year, Jade. It's good. I actually did it this weekend.
My wife's like, what are you doing? I'm like, I'm getting all of our documents ready for taxes.
Good job, George.
Because all the stuff just started coming in. It's the end of January. So you've got all the W-2s, 1099s.
Mortgage income statements.
HSA contributions and distributions.
And charitable giving.
It's all hidden. And so I like what I do. I get it all digital. Even if I take a picture of it, scan it in, crop, it, put it in one folder. Wow, George.
On my computer. So I'm ready to go.
That's good. I'm just pulling it from everywhere. And I have a bunch of papers and they're probably like dog-eared corners.
I can't live like that. It's too stressful for me. Okay, this is good to note, though. If you request an extension, the deadline is October 15th.
That's right. But don't request an extension. Just go on and do it. All right. Income tax brackets, guys, did go up in 2023 for the 2024 tax season.
They also went up a few hundred dollars to account for inflation. So if it goes up, it's to account for inflation. The more the taxpayer earns, the more their earnings are subject to higher rates. But don't get it twisted. It's not to say that your whole income is taxed at that higher rate.
It's just the portion of your income that puts you to the next tax bracket that gets taxed at that higher rate.
Yes, thank you for saying that. I just explained this on a YouTube video. We also have an explainer on that website, ramsaysolutions.com slash taxes. Yes. Your marginal tax rate versus your effective tax rate.
Not to get too nerdy, but they're different.
That is right.
Even if you're in the 22% tax bracket, what you actually ended up paying in taxes is probably closer to 15%.
That's right. Your whole income is not taxed at that. That's good to know.
It's stair-stepped. So standard deduction increased this year. So it's $13,850 if you're a single filer, $27,700 for married couples filing jointly.
Right, that's good. The other option would be to itemize, but ain't, nobody got time for that.
I feel like most people now, it makes more sense to do the standard deduction. I think so. As they've kept upping it, you just end up better off if you're a normal everyday person.
I feel that. All right. The IRS did bump up our 401k and IRA contributions limit.
More investing, baby. I love that.
The limit did increase, and for Roth IRA contributions as well. I think it went up from $6,500 to $7,000, just on that base limit.
Didn't they increase the income limits? Because before, if you made over a certain amount, you were capped, you couldn't invest. So they increased that as well, which is all good. We like that part.
Love that. All right, 1099k update, George.
Oh, this is a juicy one. So people were freaking out about this one, Jerry, because they're like, are they going to start tracking my Venmo's and make me pay taxes? And here's the deal. If you sell goods or services online, you may have heard about these 1099k extra taxes in 2024, but those policies have been officially delayed. So you're off the hook this year.
This year.
All right, so how can people save money this tax season? Number one, look for tax deductions. Remember, tax deductions are things that help lower your amount of taxable income, right? These are things like medical, charitable, business, things like that. But tax credits are actual dollar amounts that are subtracted from your actual tax bill, which is nice.
They're deductible. Things like child tax credit, dependent care credit, education credit, earned income tax credit. I just like the word credit when it means something's going back into my account. That's the only time I like it.
The way I remember it is, deductions are on the front end and credits are sort of on the back end. Yeah, I like that. So if you make 200 grand, well, the deductions could help lower that to where the government says, nah, you really made 180.. And the credits are, hey, you owe $10,000 on your tax bill, but with these credits, you owe $2,000.. That's right.
I like it. So it's kind of like your final bill goes down with those credits.
It's like a coupon.
Yeah. I love a coupon.
Tax coupons.
This is really important. A lot of people who are like, I wanted to fund my Roth IRA for the year or that health savings account. You can actually do that up through April 15th. Yes. So if you missed it in 2023, you're like, dang it.
It's not too late, but you got to do it by April 15th.
Yeah. And to note, if you're investing in a Roth for the first time, fund the 2023 one first. Don't just go, oh, it's 2024.. I'm going to fund that one because you can't go back in time. So fund the 2023 one first, because it'll still show up there as able to do contributions.
And then, as you get to it, because hopefully you can do more than one, fund the 2024 one and you'll get double for your trouble this year.
There we go. And lastly, if you're getting a big refund every year, stop celebrating. Okay. You're giving the government an interest-free loan all year, when that money could have been in your paycheck and being added to your every dollar budget to help you accomplish your goals. And most people, Jade, they see this refund as like fun money to go blow on the vacation.
No, don't do that. Change your withholdings with your HR department or whatever you need to do to try to get a as close to a zero as possible. Yes. That's the game.
That is the game. Well, if you find this helpful or if you want more information, please go to ramsaysolutions.com slash taxes. Or if you want to read a little bit more, we've got a tax guide. We've got blog articles, all sorts of things, that tax prep lists that George and I were so delicately and eloquently talking about. But yeah, we've got everything there.
Taxes should not feel like a headache. And if they have in the past, I promise you, if you use these resources we have, it's going to feel a lot better.
Yeah. Are you doing tax pro this year? What are you and Sam going to do?
My mother-in-law is our tax pro.
That is the best.
Yeah. Well...
Or she all up in your business, literally. She's all up in your business.
Listen, she's all up in the Kool-Aid. She knows the flavor and it's...
She knows what's in the mix.
She knows what's in the mix. It is what it is. And I'm happy to have her.
That's nice. Love you, Dean. I just scheduled my tax appointment. I'm excited. I'm looking forward to it.
You know what I do? This is a real talk. My wife and I always schedule a fun date post-taxes. I like that. We go to a nice lunch after.
Okay. And so that's something that we look forward to. So that's a little... I'm sure that's in atomic habits, right? Like you got to dangle a little carrot after you eat your vegetable.
Yeah. Maybe it's not a carrot. It's a good donut. Yeah, that's true. To get excited about taxes.
You know, the thing is like, I feel like it's one of those things that we've just kind of.
. It's like a self-fulfilling prophecy. We've told ourselves, I hate tax season. Tax season's the worst. And then, therefore, we make it the worst.
Like we don't prepare. We don't do the things to make it easier. Let's let this year be different and set the course for a more enjoyable tax season. Let's go get the checklist. Yeah.
Go. use Ramsey Smart Tax if you want to do it on your own. Yeah.
Like set yourself up for success. It doesn't have to be... It's like the dentist, right? Get the shot of Novocaine so that it doesn't hurt.
Get some laughing gas. if you have to. There you go. But get those teeth cleaned. All right?
We don't want those chompers, those little mouth chiclets, all nasty.
Mouth chiclets.
Keep them.
. Keep it tight.
That's what you're here for, George. Terms like mouth chiclets.
That's what people listen to the Ramsey Show for.
They're listening to the Ramsey Show to go to ramseysolutions.
com slash taxes so they can get their taxes done right. This is the Ramsey Show.
You're listening to the Ramsey Show. I'm Jade Warshaw, your host, joined by George Campbell, your other host. Give us a call. The number is 888-255-2255 and we will take your calls. And not only will we take your calls during this hour and the two to follow, but after the show today, George and I are having a really...
It's a new thing that we're doing, George. We are doing a live Q&A, answering your questions. About budgeting. And we will have the EveryDollar app, the best budgeting app in the world, pulled up so that we can use the app to guide you through your questions. So you can kind of get an idea of how the app works for your situation.
It's not a demo. We're just answering your questions and showing you how to do it in the app.
If applicable. And so this is an exclusive live stream happening on the Ramsey Show YouTube channel. So make sure you head to the YouTube channel now, as soon as you hear this, and hit the notify me button so that you don't miss it. 5 p.m. Central Time today, Tuesday, January 30th.
You can use the chat to ask questions and you can also call into the show, as you normally can. So this is going to be cool. We've never done an After Hours exclusive Ramsey Show, essentially.
After Hours for one hour. I love it.
So we'll.
. It's a lot of hours on the show today, Jade.
It is. I like it. Listen, we're here for the people. We want to help you guys out. It means...
It's very important for us to be here for you.
I'll bring some monster energy drinks for us.
I can't do that. You'll see another side of me. But let's go to Austin in Greensboro, North Carolina. What's going on, Austin?
Hey, how's it going, though? Thank you for taking my call.
You bet.
Hey, so my question was, you know, we just.
. We're new to the Financial Peace University. We just started it. We're... I think we just finished video number three or four.
Great. And we're wanting to get $1,000 saved up and so on and so forth and get our debt free. But the biggest problem is, is that the truck payment, you know, it's my dream truck and I love it, but I'm willing to sell it. I'd rather get rid of it and us become debt free. But the problem is, is that I owe about right under $40,000..
It's $39,800 something.
OK.
And just because of the market, the way that the market's been going, is that the truck, the value of the truck, has dropped down to around $33,000.
. And so I'm wanting to sell it, and it's $880 payment.
Woo-wee!
Yeah, yeah, it hurts.
How much do you make a year?
Last year we made $65,000, I think, myself.
OK.
But I started the new year off on a raise. And that's actually how I got in. the class was, I was talking to my boss about it, like what's going on. And then he's taking the class and he bought it for me, which is awesome of him. But the biggest problem is trying to get rid of this truck.
It is drowning me. I obviously have to have a vehicle to get back and forth to work in.
Well, how's your credit?
We have three kids.
How's your credit?
My credit is not very good.
If you were to go to a credit union around town to see if you could maybe get the $7,000 to bridge that gap, do you think you could do that?
Possibly, but then I feel like the thing about that, the problem would be, if we do that, then we have to find a down payment for something else. Because whatever we get has to be, we have three children. Me and my wife do. So I can't just go get an old moped.
Yeah, what's your other car?
My wife's car is a Ford Explorer. My car is a Chevrolet Silverado.
Does she work outside the home?
She doesn't know, but she uses the car to take the children to school.
So what if she dropped you at work, took the kids to school, picked you up?
Listen, carpool with a friend.
There's so many options. My husband and I were a one-car family for 10 years. And my sister, who they both worked on opposite ends of town with two boys, were a one-car family for five years. It's a pain in the butt, and it's inconvenient. And you have to do a lot of planning and scheduling.
But you want to know what. you don't have? An $880 car payment.
Exactly, yeah.
So there's only two ways to get out of this. Either you come up with the difference, that $7,000, plus what you need to get another beater car. Or you get that personal loan from the credit union to cover the difference, plus what you need for the other car. Yeah. But there's no life hacks here.
This is one of the riskiest parts about going into debt for vehicles. And let me tell you, Austin, you're not the first one to call the show this week being underwater in a car. It's happening all over America. Because people got starry-eyed when they got that dream truck, and now it's a nightmare.
I preach.
And dude, you make $60,000, you drive a $40,000 truck. I don't drive a $40,000 car, and I'm a millionaire. Yeah. Like, what were you thinking at the time of purchase here?
At the time, the car I was driving back and forth working blew up on me. So we had to go to the dealership and get something.
Watch your words there. You had to go to the dealership?
We chose to go because we had to get a vehicle.
Thank you. That's all I asked for, is a little honesty. I'm playing with you. But you see how all of these decisions happen. because, well, we had to, and the car blew up, and it's all stressful, and we had to go $40,000 into debt.
That's the American way, right there.
And the reason that people don't have.
. Let me take it one back further, George. The reason that people's cars blow up, and they think, oh, instead of paying the bill to get it fixed for $700, I don't have $700, so I'll just go get a brand new car. Is? they've had payments forever.
And they had so many payments that they didn't have any money saved. And because they didn't have any money saved, they had to go back into payments. It's a wheel, and you've got to break that cycle and get out of the wheel. Because if you get rid of this $880 payment, and either you carpool, or you find a way to get a couple thousand dollars and get a beater, you are effectively breaking that cycle. And instead of $880 going to CarMax or Ford Financing, it's going to pay off your debt, but then it's going to go to build you a nice, cushy emergency fund.
And the next time your car blows up, because it will, everybody has car issues, you're going to just go down to Christian Brothers or wherever you get your car fixed, and you're just going to hand them the cash for $770 or for $1,250 when something happens. And you're not going to say, well, my only choice here is to get a brand new car on payments. You're going to be prepared for it. So let's break that cycle.
Absolutely, yeah, I agree with that.
We got to get the income up. And if that means the wife is going out to work, when you get home from work, so you can watch the kids, or you're getting that second job, we need to come up with this money fast. And that means selling stuff. Do you have any other debt?
Yes, we do. Including the truck, total is like $55,000..
So you got another $15,000 on what?
Some of it's credit cards, some of it's medical bills, things like that. Okay.
So let's snowball these smallest to largest. Once we get rid of this car loan, the rest are going to go smallest to largest balance, ignore the interest rates, get that income up as high as possible. No eating out, no luxuries. It's time to batten down the hatches and get rid of this debt. And you can do this.
This can all be done, probably in the next, for you, I'm thinking six months. You've got a very different financial situation.
I think there's two options. you and your wife have to choose between. It's either two options or both. It can either be, listen, we're carpooling and it's going to be a pain in the butt. Or it's she's got to pick up extra work so that you guys can pay this thing off super duper fast, or at least make the payment while saving up to bridge the gap between the seventh out.
You've got some options, but either of them is going to require deep sacrifice. And there's no getting around that part of it. There's no easy button really to hit in this equation. So I think that that's the hard part that they're going to have to choose between, George.
Well, it just makes me think, Jade. Debt always requires sacrifice. But it's a much more painful sacrifice than the other kind, which is. we're going to sacrifice and save up and pay cash for this car with delayed gratification. We're going to only buy the car that we can afford, which is going to limit what kind of car we purchase.
That's a different kind of sacrifice. But it's much more painful on the other side, when you're trying to clean up a mess and interest is hurting your ability to knock this debt down. And you got three kids and we have the mortgage and we got the student loans, and it all just starts to weigh on you.
The pain of staying the same has to become greater than the pain of changing. And that's really what it's getting to. You've got to feel so stressed and sick and tired and frustrated in your day-to-day life that suddenly that becomes so painful that the pain of change, it's like, listen, I'll take that. Like, I remember getting to the point of being like, I want a new set of problems. Like, I know what it feels like to not be able to pay bills on time and to be arguing with my spouse and to just be in this state of constant financial disarray that I was ready to take on new problems of, okay, how do we schedule our life?
Like, how do we balance only having one car? How do we figure out conversations around the budget? How do we figure out, you know, trade your old set of problems in for a new set of learnings and that are, you know, a better set of problems, which is really just you being uncomfortable while you're getting out of debt.
And that car, Jade, it's like, you put $40,000 on the loan. You ended up paying $50,000 after interest. Now it's worth $20,000 after you've done paying for it. That hurts my brain. Yeah.
It's painful. Listen, that car note, that's what's keeping the middle class. middle class. Those who get rid of their car note, get something called money and are able to build something called wealth. 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. I am your host today, Jade Warshaw, joined by your other host today, George Camel. And we are taking your calls, something that is so fun and enjoyable to do. We're happy that you trust us with that.
If you want to call in, you can call in at 888-825-5225.
. And we will do our best to help guide you to the next right step.
That's all we can do, Jade.
That's all we can do.
Try our best and next step. We can't solve the world's problems, but we can at least help you in three minutes that we have together.
I know, that's right. So let's go to the phone lines where we have Dustin in Albuquerque, New Mexico. What's going on, Dustin?
Hi, how's it going?
Good.
Well, this past year, 2023, was my first full year of owning a house. And I had always heard people who own houses don't really get a tax return back. So I went to do my taxes. And sure enough, he said I was going to get like $100 back. And their fee is like just over $300..
So he recommended I take some money out of my 401k from 2023 and put it in an IRA. And he said, if I put like $4,000, I would probably get like at least a $700 or $800 return on my taxes rather than a $100 return.
This guy's fired.
Instantly.
Keep talking. So what I understand is you're going to get a $100 refund right now.
Yeah, like $100 and something.
And their fee to work with the tax bro is $300.
. And you don't have the $200 to cover it? Is that the problem?
Well, I was going to put it on my credit card. And he said, well, if you want, you could do this. And it would cover our fee. And you would get some money back.
He suggested a 401k loan.
Is he saying to withdraw the money from the 401k? Is he saying do a transfer from an old 401k, do a direct rollover? What exactly was he saying to do?
If I understood right, he wanted me to roll over like $4,000 from my 401k.
As an old employer?
From my earnings from 2023.
. No, I'm still working with this employer.
Will you?
OK. You're not going to be able to do a rollover unless you leave that employer.
Oh, OK.
So what he's saying to do, it sounds like he's saying to withdraw money from the 401k.
He wants him to withdraw it to pay.
Which will cause you to pay like 35% penalties and taxes in order to do that.
Oh, OK. I didn't know that.
Listen.
Yeah, I don't trust this tax guy. First of all, he's missing a few brain cells. Here's the thing. Telling you to do this so that you can cover the $200, $300 fee you owe him.
George, we're expending way too many mental calories trying to understand that this tax guy is whack. Here's the thing. Here's at the core of this. You're getting $100 back. That's great.
That means you didn't overpay taxes. And comma, you have to pay them for their services. So I think right now you've just got to break your mind for a moment. Because what's happening is normal. I don't pay that much in taxes and I have to pay my tax guy.
That right there, is actually normal. Or what should happen is what I should say. What's normal is people get back $8,000 and they don't even feel that they paid their tax professional, because they're getting out back these exorbitant amounts and they're thinking that they won the lottery and that their tax guy did something wonderful for them, when really all they did was just loan the government money all year long and didn't even collect any interest on it. And so I kind of want to reframe your brain there and just go, listen, it's great. You didn't get a tax refund back.
That just means you didn't overpay the government. You had access to all of your money all year long, which is a good thing. And now you got to pay these guys for their services. No harm, no foul. That's the way it should be.
So when do you have to make this payment?
Well, we were doing my taxes this past weekend and he just put it on hold until I looked into it. He told me to look into the IRA and to see if I could take money out of my 401k. But then I heard about you guys. I've never really listened to the show, but I heard about you guys. So I thought I'd call him.
I'm so glad you did, Dustin. Truly. So here's the deal. I'm going to go, how much can I work? What can I sell in order to make $300 to pay this guy's tax fee?
But then I'm done with him.
And we're not taking out 401k loans to pay our tax guy for our income tax return.
Okay. And I don't know if I can ask, too. I've always wondered about a Roth IRA. What if, should I just stick with my 401ks or should I consider moving to a Roth IRA?
Do you have any debt?
Just the house.
Just your mortgage payment?
No credit card debt, no car payment.
Well, I have a little bit of credit card debt, like $600, but I travel for work. So I use my credit card to eat.
I travel for work. I use my debit card. Yeah. And that way I can't go into debt.
And if they're causing you to go into debt, they need to provide you a company card for that. But do not put company expenses on a credit card, because if something happens, you're on the hook. If they fire you or whatever, and they're like, you know, we don't even know what you're talking about. That's not an expense anymore. You're on the hook for that, bill, dude.
Well, to be honest, I do the credit card because I can't really afford to put anything on my debit card. Like I literally...
Then they need to provide you some petty cash or some funds in order to do those things. But you should not be going into debt on a monthly basis to fund purchases for your job. Like hard line.
But even if like, they pay me back the very next week?
Because you're in debt. You're in debt. Your name is on the line until they decide to pay you back. Because what happens if you do something and you're like, listen, I thought that was an expense.
You're paying 25% interest on this balance in the meantime. Yeah. So, Dustin, the real question is why don't you have any margin, even though you don't have much debt?
Right. If $300 is an issue.
Yeah. I'm confused. Like how much do you make?
Well, after my taxes and my insurance, I get like $1,500 every two weeks.
Okay. So three grand a month. Are you doing any investing right now into that 401k?
Well, yeah.
I mean, I don't know exactly how much it is, but it's just whatever my job put forward.
Well, it's about to be 0%, because right now you need $1,000 in a starter emergency fund. Because you're going to keep going back into credit card debt if we don't solve this. So pause investing down to zero right now. Go get some side jobs. Start selling stuff.
Pay the $300 to your tax guy. Save up $1,000 in the emergency fund. And then let's get rid of this credit card debt and then we can get back to investing.
Hey, how much is your mortgage?
So my mortgage actually went up this year because they underestimated my taxes for last year. So it went up to just under $2,000..
That's the problem.
Goodness, gracious.
There's your problem, bud. Your problem.
Two thirds of your money is going to this home.
Yeah. The rule of thumb here is we don't want your mortgage to be any more than 25% of your take-home pay after taxes. And you are well above that. And that's why you're feeling the heat. That's why you don't have any money saved.
That's why it's hard to pay this $300 tax bill. And your brain even considered the idea of getting a 401k loan for it. We've got to get this ship righted. Stay tuned. Keep following us and we'll teach you how to do that.
This is The Ramsey Show.
This show is sponsored by BetterHelp. Hey, good folks, it's Deloney. And with back-to-school madness on deck, my family's schedule is already so packed. And we haven't even made room for things like exercise and date nights and counseling and all the other things that make our life even worth living. When it comes to taking care of me, I have to remember to put on my oxygen mask first.
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Thanks for listening to the Ramsey Show. I'm Jade Warshaw. This is George Camel. We're with you for the next couple hours talking about your life and your money. And I have to say, George, you know, one of the things I love most about being here at Ramsey Solutions is our live events.
Like, I love- They're off the chains.
They're off the hook, man. I love when we all get together. It's like a rally and we have a really great one coming up this year, May 10th and 11th. It's our Total Money Makeover Weekend, which is a two-day event. Listen, it's all the personalities there.
Myself, George, Ken, John Deloney, Rachel Cruz, of course, the GOAT himself, Dave Ramsey. And we're coming at you with all new material. Like, that's the part that I'm really excited about. is it's just a completely new, fresh situation, if you will.
And no matter where you are on the baby steps, if you're new to the plan, you've been hanging out with us for 20 years, this is going to be a pep rally and crash course on everything we teach about money. And again, it's all new content. And we're also going to make it interactive with live Q&As. We've got a live Smart Money Happy Hour recording with Rachel Cruz and I. That'll be a blast.
And our events are actually fun. So you don't have to, like, drag people to these events. When they get there, they're like, oh, Ramsey goes hard in the paint.
Yeah, we'll make sure it's a good mix of information and entertainment and lightheartedness.
This is not a seminar.
That's right. Oh, yeah. Never that. Never that. But early bird ticket starts at $99, but that's only going to be for a limited time.
So if you want to get the tickets at the $99 price, you need to get online today at ramseysolutions.
com slash events. Because, let me tell you something. These tickets, they go, they gone. Like, they go fast.
It's here at the Ramsey Event Center, just up the hill from the Ramsey Studio. And so Nashville is a great destination. Make plans. Get it in the budget to be here. Bring a spouse.
It's a great, I mean, I feel like people leaving their marriages are better.
Listen, that's so true, George. And you made the point, no matter what baby step you're on, this truly is an event for you. If you're new to the baby steps or you've been in the baby steps, this is the perfect event for you. And, you know, George, it's funny, because, you know, we've been, we all teach from a series of seven baby steps. And that's kind of just the crux of everything we do and everything we talk about.
And I kind of want to take a moment and talk about that, because so many people are new to listening and they're like, I think I get it. And they call in the show and they've got some questions. And, you know, there's just some basic teaching that I feel like we can always learn, no matter where we are in the steps. And so, like, we had a call last.
Yeah, from Dustin.
From Dustin. And it's like, he was new. And the more we talked to him, the more we started uncovering more and more things about his situation. That's like, OK, he's, we got to get him lined up on the baby steps. Matter of fact, Dustin, this event might be for you.
if you can afford to get there, get that $99 ticket rate. But, George, let's take a moment, and just, for the person who's listening to the Ramsey Show for the very first time, let's kind of unpack some of those basic foundational things around the baby steps. Because obviously, the very first baby step is baby step one, get $1,000 saved. But you kind of have to understand some of the nuance around why that is and what else goes along with that, so that it makes sense in your mind. And you're not just doing what a radio personality or a podcast or a YouTuber told you to do, right?
Yeah, this is big. And so there's really kind of a prerequisite of baby step zero, which is getting current on all of your bills and actually paying attention to your money for the very first time. And a lot of people, Jade, I mean, they don't know how much debt they're in. No. They don't really know what's happening.
And so you might need to pull your credit report just to see what the heck is going on your financial world and get some hard numbers and look at your actual pay stubs and see, where's my money going? How much is coming in? Yeah. And then make sure you're current on all of your bills. If you're behind, we have to get current.
That's right. I'd call that getting organized. The first thing that you're doing, just get organized. Like George said, let's log in. Let's look at the credit report.
Let's log in and see what really do we owe, right? What's our payment? Because so many times I'm like, listen, what do you owe? And they're like, well, I'm not really sure. How can you solve the problem if you don't really know what the problem is?
One of the things I'd add to that, and you can add to your list too, is baby step zero, a big part of that is just saying, you know what? I've got a problem. Probably your problem is debt. I'm just going to stop borrowing money here for a minute. I'm going to stop contributing to the problem while I figure out how to solve it.
Stop the bleeding.
You got to stop. You can't solve a problem while simultaneously creating it. So just, if you don't do anything else today, just make a decision. I'm not going to borrow money anymore, because right now it's just caused me to get into this situation of disarray. So I'm going to cut it off.
I'm not borrowing any money. And that's kind of your baby step zero. That's me prepping, right, to get ready to do this thing. So now this is like the subterranean level, George.
So, if I'm playing devil's advocate, I'm that person going, well, Jade, I've been living off of my credit card because I don't have money. What, how am I going to do this without going further into debt?
I think the next step that brings us to our next step, which is kind of the subterranean, is the budget. Because if you can create a budget, you can see where all of your money is going. And most of our disarrayment, or most of our, you know, frustration around money centers from, we don't know where it's all going. We get this paycheck. We go to work every single day.
We get a paycheck. And somehow we still feel like we're living paycheck to paycheck. We still feel like we can't make ends meet. And it's usually because we're just spending our money haphazardly. And I always say your money is expensive.
The paycheck that you get, think about everything that it costs you, right? It's costing you time away from your family, less sleep, time away from the things that you want to be doing. possibly. Let's treat it with care, because it's very expensive and it costs us a lot. So treating your money with care means getting on a budget.
You don't just, think about if you went, George, think about if you went to the mall this week and you bought that brand new Louis Vuitton bag.
You know me.
$3,000 bag. Are you going to just go into your home and just take it and just toss it across the room and let it hit the corner of the closet and just be there next to old tennis shoes? No, you're not. You're going to dust it off and put it on a nice shelf. You know exactly where it belongs.
It's the same thing with your money. If you get a $3,000 check, you better treat that thing with care. Don't just toss it around and hope that it ends up in the right place. Organize it and put some care into it. And that's what you do with a budget.
And you don't have to be like a giant Excel nerd. Luckily, we created a budgeting app long ago that is amazing, called EveryDollar. So all you do is go to your app store, go to EveryDollar.com and just list your income digitally. Type in your income, type in a few of your expenses. We guide you through this.
You don't have to be a financial prodigy to create a budget. That's right. You just have to be willing to pay attention.
Yeah. I love EveryDollar because I know for me, I'm like, oh, I hate doing math. It just felt, it feels like math, George.
That's why you wrote a book called Money's, Not a Math Problem.
That's right. That's right. And EveryDollar does that math for you. It does. all the equations, everything like that.
It truly, you can build a budget in five minutes. You know what stresses me the most?
When Excel, when you hit a cell the wrong way and it's like, formula's messed up. I'm like, I just quit out of Excel. I can't handle it.
I don't even know about that, because I don't even log into Excel. It ruins my day.
There we go. So that's a good step, though. We got to get current on the bills, stop borrowing money, get on a plan. That's called a budget. And then what?
Well, let's start looking at some of the symptoms that you're experiencing. Because if you're like Destin and you call in, you think the problem is I owe the tax guy $300.. But that's just a symptom of a bigger problem. So I kind of wrote this little list here, George, that are symptoms that you might need a financial plan and that you might need to get on the Ramsey plan. If you're kind of circling, you know, you kind of been hanging out around the cooler, the water cooler, but you haven't dove into our plan yet.
So, number one, if you're feeling confusion about your finances, if somebody talks about your money and the first emotion you feel, it's kind of like fear or frustration, anxiety, confusion. That's a sign.
It's like when I'm in a conversation about sports, I start to get a little sweat on the brow. Like they're going to find me out in no time.
That's right. That's a symptom of a bigger problem. If small bills, $150, $200, if those are stressing you out, that's a symptom. Okay. If your mortgage payment or your rent payment is a strain, that's a symptom of a bigger problem.
Because that should be a blessing, not a burden. If you're considering extreme options to deal with what should be minor problems, like this guy, he's considering a 401k loan to pay for a $300 tax bill.
If you want to rob yourself or turn to more debt to solve the problem, you're in a drastic situation and you need to pause.
That's good, George. You're using debt to pay off debt. And then finally, and we talked about this, if you're not on a budget, these are all symptoms of much, much bigger problems. And so those are kind of, that's kind of like the subterranean level before you start the baby steps. Like recognizing those symptoms and saying, Hey, I need to be on a plan.
Okay. I'm going to do what George said. I'm going to get organized. I'm going to find out what I owe and I'm going to stop borrowing money. And then I'm going to get on a budget.
Those are the things.
That final step, you got to figure out how to spend less and make more. And that's called margin in your budget. Now we can start saving up that thousand dollar emergency fund and getting rid of our debt. So join us. If you want to crash course on money, ramsysolutions.com slash events, total money, makeover weekend, go check out every dollar.
It's a free app. And all of that's just going to help you win in 2024.. That's what we're here for. Yeah.
And when you come to that realization, it's worth doing that subterranean work, because then, when you actually start working the baby steps, you know why you're doing it and you understand why and how. it's the solution to your problem. This is the Ramsey show.
This is the Ramsey show, taking calls about your life, your money. I'm Jade Warshaw. This is George Campbell. Let's go directly to the phone lines where we've got Lindsay in Detroit, Michigan. What's going on, Lindsay?
Hi, my husband and I just had our second baby last fall. And now, this year, we're going to be looking at paying about $16,000 in daycare. Oh, yeah.
Yeah.
We were already pretty much feeling like we were paycheck to paycheck. And it just kind of seems like everything's hitting at once. now. I just, I don't know where to start in regards to, like budgeting. You know, we also have other debt that we're trying to pay off.
But at the same time, our savings account is dwindling every month. And I just, I'm not sure how to tackle everything.
Yeah. So are you guys using a budget or not yet?
We're not. We kind of just started going into, you know, printing off our baked statements and labeling everything and going from there. But I know, if we really want to save, we're going to actually have to itemize every single thing out.
It's going to help. Like being on a detailed, I always say a good budget is detailed, realistic, and flexible. And so, of course, I'm going to recommend every dollar for you to budget with, because it's easy to do all three of those things. And when you're heading into a new stage of life, where not only is day-to-day life changing, but, like the way you're spending, your money is drastically changing, that right there, can give you a big sense of control and a big sense of peace over what's going on. Even if you don't actually have the money to do all the things that you want to do, at least being able to see it on paper or see it, you know, digital paper, being able to see it there, all laid out and have a very clear number of what you need in order to make it work financially, that can give you a lot of peace.
So just hearing your situation, I think getting off of here and making sure that we connect you with every dollar is the first thing. Second thing is let's look at your income and let's see if we can determine what it is that you need here on this call. Yeah.
What do you guys bring home every month?
I make about $60,000 and my husband makes $45,000.
Okay. So $105,000 total. And then what's your take-home pay every month once it hits your bank?
I would say about $3,000 for me in the checking account, and I put $600 into the savings every month. And then his varies a little bit, but it's probably around $2,000 a month.
So about $5,000 a month, and then you're taking out some for savings and some other things. Are you guys contributing to retirement at all?
We both are. His is minimal, I think about $150 a month. I am doing 12% right now, so I'm at like $650 a month.
Okay.
Well, we just found a way to free up $800 in your budget every month. So congratulations. And you'll get back to investing, I promise. You both will be at 15% instead of struggling to get to 15% from both incomes. And so what we need to do in the meantime is focus on one thing.
Because you're telling me, I'm trying to put some in savings. I'm trying to invest. I'm trying to pay off debt. We got to cover the daycare. You're doing a lot at once, and it's going to feel like you're never going to make progress.
So we would encourage you to walk this through the baby steps, which is one thing at a time, focus intensity. Let's get $1,000 in savings. Now. we don't touch that unless there's a true emergency. Now we're going to focus on just debt payoff and not invest for a little while until we get to debt freedom.
Then we get the fully funded emergency fund. Now we're investing again. So that's going to really help you guys out. If you pause savings, how much do you have in savings right now?
Like maybe $4,000.
Okay, good. And how much debt do you have?
We pay about $700 a month in student loans. We have $10,000 on a HELOC. We have about $5,000 in credit cards. And then our mortgage payment a month is about $783..
So the student loan, can you tell me how much the big balance is?
The big balance is probably $40,000 to $45,000.
And you're paying $700?
. Yeah. Is that the minimum, or that's just what you choose to pay?
So we actually had to refinance that with a bank a few years ago because we were paying 12%, like privately. So this is just our payment a month. And I think that maybe balloons in about eight years.
So it's a private loan?
Yeah.
Okay. Okay. So to Georgia's point, doing one thing at a time. So you've already got the $1,000 saved, which is baby step one. You've got $3,000 above that saved.
So, in walking through the baby steps, and I'm just going to tell you what it is for right now. And then we can go back and hit any objections and clarify it. So, based on the baby steps, you keep the $1,000 aside. And then we take that $3,000 that's left and we throw it out our smallest debt. Now, in this case, it could be the $5,000 credit card.
Or, if you tell me that this student loan is broken up into smaller chunks, it could be the student loan. Is it just one big loan for $45,000, or is it a couple of loans squished together?
There's a big one for $45,000, and then there's maybe three or four that are around $1,000 each. Okay.
So what I'm doing is I'm going to do the three or four, or the three that are $1,000 each. And I'm going to knock those out really tomorrow. And I'm going to have $3,000 less of student loans. And it might seem minimal on paper, but I can tell you, and I think you know this, it's just nice for that list to get shorter. Like, it's just nice to say I had four student loans and now I only have one, right?
So that's going to feel great. And so now all we're doing here is we're just listing the debts smallest to largest by balance, and we're paying them off one at a time. And what you're going to find is when you pay off those three little ankle biters or, you know, four little ankle biters, it's going to give you so much like, oh yes, like it's gone. Like, oh, I can do it. And you're going to realize like, listen, I can keep going.
And so that's how that works. And then once you quickly, as quickly as possible, get this debt cleaned up, then we're going to stack up that savings to six months, three to six months of expenses, basic expenses. And then you're going to feel like nice and secure and like, okay, I've accomplished something. Then we're going to rev, back up that retirement. And now we're going to start back again, contributing to retirement.
And you're going to do 15% of your gross monthly income every single month, more than you've ever put away before. And you're going to make up the difference from the time you lost. because it's probably going to take you, oh, let's see, 45, 55, 60.. It's probably going to take you, maybe, depending on how crazy you guys get, maybe it's going to take you two, two and a half years to pay off this debt and get out of this. Two and a half years is nothing.
It's a drop in the bucket to be free at the end of it.
Yes.
So that's it in a nutshell. Now tell me your objections.
Well, the one, or I guess, my biggest fear about the savings account is, although I'm putting, you know, 600 in a month, it also seems like there's that one or two weeks during the month where it seems like everything's coming out. And I end up almost transferring all of that back into the checking account every month.
And that's because you don't have the budget. What happens, what you're describing is something so common. I have experienced it. Maybe, George, you've experienced it, is you get excited and you're like, I'm adulting. I'm going to put some money aside for savings.
But because you didn't do a detailed budget, you truly didn't have the $600 to put aside. And as the month starts to flesh out, you realize, oh crap, I actually needed that money. Then you go pull it back out of savings and it just deflates your whole feeling of trying to adult. So if you just start with the budget, then you'll actually see, listen, do I even have money to put aside for savings? In your case, it's possibly, in your case, you probably do.
But because you're not on a budget and being very clear about every dollar that you're spending, it's getting spent in another category. But in this case, you don't need to put aside another dollar for savings. Right now, all of your dollars need to be going towards paying off these debts. You got $4,000 saved. Like I said, whether or not you're going to go off this call and dwindle that down to $1,000, that's between you and God and your husband.
But at the very least, from this point on, put all of that extra cash towards debt. Don't keep putting it towards savings, because you're losing valuable time that you could be using paying off this debt.
Okay. And that daycare will become a line item in the budget. And so that's what I love about. when you start that every dollar budget, you're going to say, all right, we need $13.33 a month to cover daycare for this month, correct? Yep.
Okay. Well, we just showed you how to free up $800, because we're pausing investing right now. We showed you how to free up $600, because you just are going to pause all that saving. And so anything beyond your basic expenses, food, utility, shelter, transportation, daycare, insurance premiums, everything else needs to go toward your debt.
Yeah. Okay. And listen, let me encourage you, don't feel like you have to do it all, because that's what gets you scattered and your money goes away quickly. It's almost like if you have this big jug of water, right? And that's your income.
And you're trying to put a little bit of water in five different jugs, which is debt and savings and retirement. And you're just pouring a little bit and then you have to go fill up the jug and you pour a little bit more. What would it look like if you just took that whole jug and you poured it all in the other jug of debt? You'd fill it up so quickly and then you go fill it up again. And then, when it's time, you can pour the whole jug into savings and then you fill it up again.
You can go so much quicker if you just focus on one task at a time. And that's really how you move quickly to get this done.
Okay.
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Today's question comes from Andrew in Texas. He says, I'm a 27 year old army vet in graduate school and I received compensation due to disabilities. that happened in the service. My parents are divorced and both have provided for me and my brother in the past. My dad recently asked me to help pay $1,800 for watch repairs.
Wanting to both please my dad and out of fear of emotional backlash, I did so. But I complained to my mom about it because I needed to vent. Mom texted dad about my complaint and he guilt tripped me by saying, how many cars have I provided for you? And said, he's quote, tired of the one way street of giving. Do I owe my dad anything?
If not, how do I go about saying no to financial assistance requests?
Oh boy.
I wish Papa was on the line right now.
There's a great quote about this. I can't think of it, Jade. It's like uncommunicated expectations equals future resentment or something like that.
Listen, that's a great quote. Let's go with that.
I just feel like this dad in this giving, well, I gave you all these cars when you were younger. I wish my dad told me, hey, son, I'm going to give you these cars, but one day you're going to owe me some money. And when I asked for any money, you just have to give it to me. That's part of the deal. And I'd say, then I don't want these cars, dad.
This is a very awkward situation from dad. I don't think it's fair to the son. You don't owe anything to your dad.
No, if he chose to buy you cars over the course of your, you know, from the time you were 16 until 27.
The decision he made as a grown adult. Yeah.
And, by the way, just as a parent, the one way street of giving, when we have kids, we are called to, we're their steward. Like we get to be in their lives and steward them and teach them how to be adults and raise them up to go into the world. It's not about us getting something back at the end of it in return. If you go into it like that, listen, you're setting yourself up for some dysfunction, which is what's taking place right here.
Can I just offer a hot take? I don't think parents should ever ask their kids for money.
I don't either.
Is that like very controversial?
Listen, no, it's not, George. The only time I'm thinking, listen, I'm trying to think of every possible situation.
My parents have never asked me for money. No. I can try to think back. I don't think it's ever happened.
If I was in a situation where I'm, just, this was not my situation, but if I grew up maybe in a single, where there was a single dad or a single mom raising, if I was 16, if we were maybe in a part of the country where it's just been really tough, there's not a lot of jobs, or maybe we're trying to break a cycle, like we're in the midst of trying to break a cycle, I could see it's like, hey-.
Help support this family.
If you wanted to help support the family and help break everybody out, I'm not mad at the idea of it kind of being a family effort in certain situations, but give me $1,800 to fix my watch, or it's more like, listen, I'm 16.
. I got a job at McDonald's. I'm trying to help my single mom make rent and junior decides to give some of that money. Listen, I'm not mad at that,
but $1,800 to fix my watch.
So I'm trying to think, if I'm Andrew, I got to approach my dad. I'd probably say something like, listen, dad, I'm so grateful for everything you did, for my brother and I to raise us, to give us a great home, to provide for us in this way, and for all of the past support. But here's the deal. I'm limited. now.
I'm trying to approach my own financial goals and prioritize my financial wellbeing. And as much as I want to give, I can't do it financially. And I have to set this boundary and prioritize my needs right now.
And zero apologies given.
And you don't need to say, I'm so sorry. I'm a terrible son. Don't let him guilt trip you. The relationship isn't worth that. And truly there's not much of a relationship if it's based on this financial transaction.
If this is the make or break for him talking to you and being involved in your life, I'm sorry, but you had a dad and now he's become someone different.
Yeah. And clearly this has happened before, because he already has the, quote, fear of emotional backlash. Like this is, he already kind of knows what this is going to look like.
So you can offer him other ways of support of, hey, dad, I'd love to sit down with you and look at your budget. If he's willing to do that, and you want to sit with him and walk him through some numbers and show him how to afford things and maybe gift him a book that'll help him, that's great. But you're not going to sit here because you know what happens? He gives him 1800 bucks. He's going to be getting hit up next week.
No, yeah. Yeah. That's right. That is so, so true. Yeah.
I think that's why I never give.
to the alumni foundation, Jade. All of a sudden they're hitting you up. They marked me on the list going, this guy's got money.
That's so, so true. That's hilarious, George. Yeah. This, this situation, this just makes me mad, man. I'm going to cross it out.
Not okay, parents. Don't do this to your kids. Yeah.
Yeah. Andrew has nothing to feel bad about. All right. Let's go to the phone lines. We've got Thad.
I'm guessing short for Thaddeus in Los Angeles, California. Was I right about that, Thad?
That's correct.
Hey, love it. What's going on? Yeah.
Thanks for having me. So I'm a 28 year old, over-employed software engineer. I'm single. I'm very happy with my income, but there's two main things I'm hoping to address today. The first thing is, I'm happy with the amount of money I'm saving every month, but the amount of money I'm spending is concerning, and it gives me like a little bit of anxiety to think about it.
Even though it's sustainable, it's like, I'm worried, if, I just want to know if that's valid anxiety. or, you know, if, you know, if you make more money, it's okay to spend more money. How much do you make? Right now? I make $230,000..
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