Smart Money Decisions Often Mean Sacrificing Today for Tomorrow
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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. I'm Dave Ramsey, your host. Thank you for joining us. Jade Walshaw, number one best-selling author and Ramsey personality, is my co-host today. Robert is in Washington, D.C. Hi, Robert. How are you?

Doing great, Dave. Thanks for asking. Glad to have a little bit of time on this show with you all. Well, we're honored. How can we help, sir? So I have a family business that we've been managing for about seven years now. It's going to be closing down in the next couple months, and we're going to be due to owe about $160,000 in debt. How can my wife and I attack our share of the debt while also protecting our household finances? Okay. Who owns the business?

So the business is a split between my mother-in-law, father-in-law, my sister-in-law and her husband, and my wife and I. It's not exactly one-third all the way around, but it's pretty close. Okay. So what percentage do you own? My wife and I own 30% together. Okay. And what is the nature of the $160,000 in debt? What kind of debt?

So we're going to owe about $21,500 in the next six months of rent to our lease agreement with the landlord. We owe $74,500 approximately through a PPP loan. Thanks, COVID, for making things difficult, of course. And then the last part is about $70,000 that my father-in-law, when we initially purchased the business, he fronted that through his, you know,

retirement account, taking a loan on his IRA or something like that. And even though that part's not, you know, like legally actionable debt, I think it's morally and ethically the right thing to do to pay him back as well. Right. What percentage of the business does he own? He and his wife together own 40% with my sister-in-law having the last 30%. So the 160 of debt, is that 30% of the overall debt or is that

Is there more debt besides that, is what I'm asking, that others are on the hook for? This is basically everything. Now, I understand that my father-in-law could kind of absolve that $70,000 if he wanted. That's his, I guess. That's his percentage, it turns out. Right, right. So if he just took his percentage against his retirement and called it, he's out. Right.

Right. And I suggested that to him as well as a possible course of action. Well, it's the natural thing to do mathematically. Yeah. Why would you be on the hook for 100% of the debt if you own 30% of the business? Yeah. He's on the hook for 40% of the debt and 40% of the debt is to him. So that's just a wash. Right.

I mean, it may be a little bit off. There may be a few thousand dollars. It could be like $5,000 off, but it's pretty close. Okay. Then you've got the PPP and you've got the rent. Have you all tried to negotiate with the landlord at all on the final rent? Actually, I got notice about an hour ago that he's willing to do a little bit of negotiation. So we might be able to knock that number down significantly. That does change the formula with your father-in-law then.

Yeah, yeah. And like I said, the last wrench in the gear here is that my wife has that PPP loan that's almost $75,000. She is the sole guarantor on that. Holy crap. Yeah. Yeah, so she did it in the name of the business, but she only used herself on the math. Wow. And you own 30%. Yeah, and that doesn't equal 74%. Okay, so...

Yeah, depending on, okay, the total is going to change when the rent changes. So 40% changes, and it's not going to be enough to cover father-in-law. So his is not going to be a wash as the rent goes down. You follow me on the math equation? Not exactly, but I'll go with that. What do you think the rent will go down to? Let's just say you cut the rent in half, then you've got a 150 debt that you would apply 40% to instead of a 160 debt. You follow me?

Yeah, that tracks. Okay. Then that's $60,000, not $70,000. So your father-in-law is still owed $10,000. You all still owe the rent, and you still owe the others. Right. Is there any cash anywhere? Is the lease guaranteed at all? No.

Oof, I can't recall off the top of my head. Okay, so you've got a personal guarantee on it by one of the other parties, because I'm starting to try to divvy this up. Like your father-in-law's going to get his, you guys are going to get the PPP, and somebody's going to have to put some money on the PPP for you all because you don't owe all of it. It's now half of the loan, and you only own 30%, so somebody needs to throw some cash at that for you all. Does anybody in the picture have any cash? No.

- We don't have a whole lot on hand. I mean, my wife and I got through the Financial Peace University a few years back. We could potentially throw an emergency fund at it. I know this is not emergency, quote unquote, right? - But there's zero cash in the business after you close? - No, the business is doing not well right now. We could potentially liquidate, which we're gonna have to do anyway. We're trying to do some kind of fire sales on the remaining items and wholesale things to other businesses in the area.

Yeah, it sounds like mathematically any cash you guys can drag out of that business needs to be thrown at the PPP. Because if you can get the PPP down to where it equals your share, then you guys just take it on and move it over onto your personal debt and pay it off, right? That's your portion of it. But right now it's double your share.

So if you guys could find $20,000 and or the other sister-in-law comes up with that. So you take the PPP, the father-in-law takes his, and your other sister and brother-in-law, whatever they are, owe the father-in-law a little bit of money and they owe the back rent. Right.

Yeah, it could be something like that. Should I try to seek some kind of notarized agreement as to how we break this down? Yes. I was going to say, do you foresee... I'm not worried about it being notarized. I'm really worried about everybody agreeing to it. Right. I was going to say, do you foresee any issue with them understanding how we've broken it down? Because it's based on what you guys said, how it's divvied up. Do you foresee any issue with that?

No, but I just, you know, I always try to be cautious with this sort of thing and try to get ahead of any problems that might come up. Notarized won't matter. What does matter is everybody signs it and is in agreement, and that's all six parties, okay? Yeah. Three couples, because I don't want the spouse bitching later that the deal wasn't done and they didn't speak into it. Yeah. Okay? Right. So let's run some numbers right quick, okay? Let's call it $150,000 because you get the rent taken in half, okay? Okay.

So 30% is 60K. No, it's not. It's 45K. 40% is 60K. And so we've got 30, 30, and 40, right? Okay, so you guys take on 45 of the PPP.

Your father-in-law takes 60 off of what he's owed. So now he's owed 10, and there's 10 or 11 or whatever owed to the landlord, and they owe you the PPP. So that's the way to move it around. Y'all start just assigning this, but you guys need to get some cash out of this to throw at this PPP because I don't want you to get stuck with that whole thing because that represents half of the debt, not 30% of the debt.

And that's a big, so you just got to talk it through. It's just a math, it's a math riddle if everybody's of the right spirit. It's just a math riddle. And it's, you're getting rid of the personal guarantees or you're taking on the personal guarantees where they actually belong. And this, ladies and gentlemen, is why I told you during COVID not to take out those freaking PPPs. By the way, I did say that. You can go back and look it up in 2020. I yelled about it and I got yelled at because I was an idiot.

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I love a good math riddle, so I can't stop messing with it. If you happen to listen back to the podcast, Robert, when we play it back, here's the formula, okay? Father-in-law has $70,000 owed to him that he borrowed on his 401k. So his 40%, if there's $150,000 in debt, is $60,000. That leaves $10,000 owed to him, okay? Mm-hmm.

Whatever the rent is, it should be around $10,000 with the landlord negotiation and whatever is owed to father-in-law. And everything above $45,000 on the PPP is paid by the sister-in-law. Sister-in-law is on the hook for $45,000 also. Robert's on the hook for $45,000 of the PPP. So sister-in-law owes father-in-law $10,000 and she owes the rent. And she owes whatever the difference is there. That's going to be another...

She should go borrow that money and throw it on the PPP.

the little bit of difference. Yes. And call it a day. Yes. And let them... And they're free and clear. Their name is no longer... Yeah, they've got the PPP. They've got the remaining... They've got $45,000 of the PPP left. And that's if it's only $150,000. Now, if you're able to sell some stuff and do some liquidation sales and all that, every dollar you reduce this changes that formula. It does. Yes, it does. That's where it gets hairy. Because you're taking the total down. And, you know, what I'm going to do is go ahead and clear the rent off as quick as possible. And then I'm going to work on the PPP as quick as possible. Okay.

And father-in-law is the last in line. Yeah, because the cash that they get from the sale, they have to also split that 30-40-40. Well, you throw it at the debt and it automatically reduces it. If they reduce the debt with the cash they get from the sales, then it automatically reduces by the exact same percentages. That is true, but then they have to decide what goes first. Yeah, the rent goes first and the PPP. Father-in-law's third. There's only three items on there.

And he's last in line by far. Why? Because he's the easiest to work with.

Yeah, he's in control, and he stepped up and stepped into it, much like Robert's wife did when she signed that PPP, but still a problem. But the PPP will come take you out. You do not want it. I know it. That's why I was saying I'd want that PPP done. I want that thing gone, but the rent's only going to be like $10,000. That's true. They'll knock that out fast. Yeah, so if you could get $20,000 in liquidated dollars...

changes his formula pretty dramatically. He didn't say what kind of business it was, so hopefully they have more than that. Yeah, I hope they can get some money coming in. But it's a sad situation. But the good news is it sounds like they were doing it on a fairly – the relationships are – he didn't bring up that they were all fighting. Yeah, that's true. And I think if they were fighting, he would have said so. Very interesting. Lee's with us in Spokane. Hi, Lee. How are you? Hey, great. Thanks for taking my call. Sure. What's up?

So I'm wondering if before I start my new job that won't give me a paycheck for two months, it's unpaid training, should I pay off my debt with my last retirement? And I'd love to give you context real fast, if that's okay. I wrote it out because I was so nervous. It's okay. Sure. Okay. A letter to Jade. Yeah.

Okay, so I formally worked the baby steps with my ex-husband, and I did the gazelle intensity and then unfortunately went through divorce. And post-divorce, obviously super difficult. I channeled all my grief into buying a home.

And that was back in 2018. And so I'm a homeowner. The last two years, I've had some physical and mental health setbacks. And I'm back into debt $7,500. And now my assets are, so I'm 41 single. I'm about to change jobs. I have a house. I bought it for $410,000 and I owe $200,000 on it.

I have a paid for 2015 Honda Fit. I have $12,000 in a Roth IRA and then $10,000 from when I briefly worked as a teacher for a few years. And that's in retirement?

Correct. And see, mostly my career has been restaurant work, so I don't have a lot of retirement. That's the only retirement I had from the two years of teaching. And I hate being in debt. Today you're asking, do I take the money that I have to pay off the $7,500 of debt, or do I wait in two months until I start getting paid regularly and then do it? Is that the main question? Correct. Do you have any other savings anywhere? Or this is the only money...

Like what's, what are you using to pay off this debt is what I'm asking. Well, I've been basically like the last year been just barely making enough money to pay my bills, just kind of recovering from the last few years of like physical and mental stuff. Got you. And, and, um, I will be able to rent out my house when I leave for training for my new job as a flight attendant. Yes. But you didn't, you didn't answer the question of, do you have any money saved?

Oh, no. I gave you every, I think $500 is sitting in my bank account right now. Okay. And so are they providing, while you're doing flight attendant training, they're providing food and housing? Correct. Okay. And you're going to rent your house out for how much? $1,700 a month. Okay. Why can't you just throw that at the $7,500? Okay.

Well, my total bills are about $2,500, so I still have to come up with... Oh, wait a minute. You've got to pay a house payment. Yeah. If I were you, in many ways, you're kind of in like a storm mode. You're transitioning, but the transition isn't complete yet.

And if I were in your shoes, I'd want to know, okay, I've crossed over. I made it through training. I definitely am getting a paycheck. And then I feel like I'd hit play on paying this off. But no, you don't cash out your retirement to do it. No. That's borrowing money at 30% interest. It's going to be a 10% penalty plus your tax rate.

So you're going to get a minimum of a 30% to a 40% hit in taxes and penalties. And that's like saying, hey, Jade, do I borrow money at 40% interest to pay off the $7,500? No, you don't. No, no, no. Yeah. No. What kind of debt is the $7,500? Well, my heater went out last summer, and that was about $6,000. On what? What do you owe it? Who do you owe it to? I put it on a credit card. Okay. So is this all credit card debt? Yeah. Okay. All right.

And so you're going to be training for three months or two months? No, training is six weeks, but we won't be put on the next payroll until the following month. And so I'll try to like... What will you be making? I'll try to make...

They pay $32 an hour and they guarantee you 90 hours a month. So it's not big bucks either. That's what's making me nervous. I was going to say, it takes time to build up to be able to have that schedule, like a full-time schedule. That's what I've heard flight attendants say, right? Why are you doing it if it doesn't pay anything?

Well, to answer that question, so I'm single. I don't have kids. I know I can pick up more hours and it'll provide me the retirement travel benefits, travel benefits for my parents and my siblings. And is there something you can do alongside it until it does start to pan out? Because there is a seniority play there. So is there something that you can do with it? Exactly.

Because you can't. I'm keeping my teaching credentials. So I've been subbing. That's what I've been doing the last few months is substitute teaching, which is great because it's flexible. I can pick up when I can. I can't do that in the summer, obviously, but maybe I could tutor or something. Yeah. Yeah. I think you have to. I think you have to do two jobs until this turns into a full time job. What was your plan to cover the house payment? 1700 doesn't cover it.

My house payment is $1,300. Oh, okay. So it does cover it. Yeah. Okay. Yeah, but my bills and expenses, you know. So while you're in school, can you tutor?

I doubt. They say the six weeks is pretty intensive training, so I don't think I will. I'm trying to figure out how you're getting through that. I still feel like you're going to end up with another $10,000 in credit card debt. So the food stipend they'll give me is $800. It'll be about $800. No, about $1,000. Information I didn't have. Okay. I'm starting to see it now. The other thing you could consider doing is selling the house.

Yeah, you're not going to be there hardly much once this takes off anyway. If you're going to be flying the friendly skies or whatever skies they are, you know, I don't know why we need a $400,000 house. Just get you a little apartment and go live the adventure. Sounds like that's what you're signing up for is an adventure because you're not signing up for pay. I can tell that. So, yeah, I might sell the house and that solves the whole stinking thing.

But no, I would not cash out my retirement. I'm going to weasel my way through this and not take a 40% hit. This is The Ramsey Show.

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Our EveryDollar team does multiple free trainings for you this month. Join live to learn how to break the cycle of paycheck to paycheck in just 90 days. You're going to get a step-by-step walkthrough of the EveryDollar app.

learning how to put together a budget to get out of debt, to get on the same page with your spouse. Our biggest budgeting questions are answered live in the Q&A. Over 60,000 people have already joined. Spots are limited. Sign up now for free at everydollar.com slash webinar. Jerry is with us in Dallas. Hi, Jerry. How are you? I'm doing good. How are you? Better than I deserve. What's up? Great.

Bit of a situation me and my wife are in right now. We're first-time homeowner buyers trying to purchase a home. After doing the math, the first three years of mortgage comes around to 45% of our monthly takeaway income after taxes.

The area where the house is being built is really hot right now. Everything around is being sold. Major developments going on in that area. But I guess we're just in two separate minds about do we take the plunge now or wait a year and then maybe the price goes up even further and then, you know, we're just stuck in the apartment. Why did you say it would only be that much for the first three or four years?

Depending on how the loan is working out. So we're doing the 2-1 option, so first year... So this is not only 45%, it's an adjustable rate 30-year mortgage. Right. So if you're taking the average, I guess, from the third year onwards is going to be... You don't have any idea. Maybe about...

It's called an adjustable rate mortgage. Yes. It's going to adjust. You don't even know. How old are you? 28. What's on fire, dude, that would cause you to do? Be the stupid. Yes. What Dave said. No, no. The mortgage is going to be $5,200 after the third year for the next 30 years. So what do you guys make?

We take home $11,250 after taxes a month. And do you think your income is going to double in the next year? No. Then don't do this deal. It's really, it's asinine. You are signing up, you're playing, you're signing up for financial suicide.

The truth is, and earlier in the show, we had Brian Buffini on and we were talking about this very thing. Okay. Real estate. I get it. It feels very expensive. Sometimes it feels out of touch. Sometimes it feels like it'll never happen, but that's not true. However, your time horizon for when it will happen may be different from what you expect. And your neighborhood might be different from what you expect. That's also true. You said it's a very hot neighborhood. You may not be moving into that neighborhood. You obviously can't afford it.

So what would it look like to look in a different neighborhood or what would it look like to just change your expectation a little bit? Because to put yourself in a situation where you're at 50 percent for you to be trying to convince us that that's a good idea. It's not sustainable. You know, everything that comes up because you don't leave enough room in your budget because you're what we call house poor.

You're signing up for poverty, and everything that comes up that you guys want to do or need to do that you don't have room for in the budget is going to be new debt. And so you're going to run up a pile of credit card debt, a car debt, and you're going to run up some other debts here and there because you pinched yourself with this house payment. And let me tell you, the way the indexes are set on adjustable rate mortgages, they're set – the interest that they give you going in is a bait-and-switch.

because it's not even covering the index, meaning if interest rates don't go down, they would have to interest rates would have to go down for your payment to remain the same. So there's a very high likelihood this payment's going up substantially as soon as it's ready to adjust. And so you've signed up for a rat in a wheel that's skinny. Yeah.

That's what you've signed up for. And let me tell you something else, Jerry, because we get this call all the time. You're married, probably newly married. Yes. What happens when you decide to have a baby?

And what happens when suddenly a wife or a spouse decides to stay home and say, you know what, I want to stay home with the baby. Now you are locked in. You can't. And so the best advice I can give you is to think about that future. Oh, you can't afford daycare either. Yeah. There's not room. That's what I'm saying. You're not. There's no foresight here. And we're here to help you with that. Yeah. Think about daycare. You guys are so desperate to buy a house in that particular neighborhood. You got house fever and you need to go take a cold shower. Yeah.

This is a no. It's a hard pass. No. And it's not because I don't want you to have a house. I don't want the house to have you. This transaction is going to screw up the next decade of your life minimum if you do it.

You can just go back and say the mean old nasty guy in Tennessee told me that this was going to screw up my life, and he was right. You can remember that if you go forward with this. Please, son, I love you. Please don't do this to yourself and to your new wife. You're signing up for trouble. You can't afford to live in that neighborhood today.

We know that because you had to put it on a 30 and you had to put it on adjustable and it's still too high a percentage of your take home pay. There's nothing in this formula that makes sense. Everything in here screams don't do it, including me over and over. Was I unclear? You weren't. And we don't even know, Jerry. You didn't tell us if you have no other debt. My guess is you probably already have other debt. Oh, my goodness.

Yeah. So we're not the cosmic killjoys here. We're trying to keep you from signing up for what you think is a dream. And we're real sure it's a nightmare. No, it is. That's all it is. We just want good things for you, brother. I want you to reconsider this and not do it.

And then I want you to back up, pan back, zoom out, start looking further out, look for something a little older, get your foot in the door on homeownership after you're debt-free, have an emergency fund, and you put down a good strong down payment, and you buy a fixed rate 15-year where the payment's no more than one-fourth of your take-home pay.

And so the translation is it's going to be a lot less expensive house than the one you're looking at. It's not going to be nearly as cool as the one you're looking at, but you're brand new married in Dallas, freaking Texas. And for new, listen, for new couples, that's some of the best advice that I can think of what Dave just said. And think about what your life will be once you have children. Cause most, you know, I,

I'm not saying it's for everybody, but most people get they get married and they plan on having children. And daycare is expensive. If you have two kids, you're at least spending $2,000 a month on daycare. Think about that now. Think about what it does. Somebody want to stay home? Could that possibly be in the future? Because a lot of times we say, no, I'm going right back

to work and you don't know what you're going to do. So please consider that because I hate those calls, Dave, when they call in and they just they feel like they're between a rock and a hard place because there was no foresight on really what they wanted their life to look like in the future. Well, it's all becomes about the house fever. Yeah. And it's got to buy a house, got to buy a house, got to buy a house. Everybody's got to buy a house and everything makes sense if you buy a house. It's the same stupid thing that we sign up for with education.

no matter what it costs, I got to go get a degree. No matter what it costs, I got to get a degree because you can't get ahead without a degree. And so I'm going $200,000 to get a degree in left-handed puppetry and it'll all work out. It's the same kind of, it becomes illogical because you're assigned a value to something that it doesn't have.

That's right. Homeownership is good. It's not all good when you do it wrong. It's all bad. And, you know, don't do this. That's why they call them brokers. Broker and broker and broker. That's what you're going to be. Don't do this. Don't do this. And so I'm sorry if I disappointed your realtor or your builder, but they shouldn't have told you to buy this house. A person with ethics would look at a young married couple and go, honey, you can't afford this. You don't need to do this. Yeah. And

Instead, they're just trying to get a commission. Yeah. It will be more painful to get this house and have to let it go in two years. You know what I'm saying? Well, or worse, it gets foreclosed on. Yeah. But it puts strain on your relationship. It puts strain on your career decisions going forward. It puts strain on everything. You do not have margin in this deal. And then you start to resent the house because it's got you locked down. Yeah. It's not good. It's not good. Well.

Maybe she resents him for talking her into the house. Or he resents her for saying, I want, I want, I need, I need. Remember? I need, I need, I want. Remember that from... Oh, yeah. What about Bob? That was it. That was it. That was the movie. Wow, look at your callback. Look at that. I want, I want, I want, I need, I need, I need. I knew you'd get that. Good old movie. Richard Dreyfuss, Bill Murray. That's right. This is The Ramsey Show. ♪

Hey guys, what's up? It's Jade Warshaw. And look, if there's anybody who knows about student loan debt, it's me. My husband and I had $280,000 of it, but we were able to dig ourselves out and you can too. If your student loan payment and interest rate are burying you, refinancing could be the solution. Now, if you're a student loan payer,

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We'll be right back.

Again, that's laurelroad.com slash Ramsey. Jade Walsh, our Ramsey personality, is my co-host today. Thanks for hanging out with us, America. Let's face it, our money and relationships work together to help us win or they work against us, cause us to lose.

You don't have to stay stuck in this area. I'm going out with Dr. John Deloney on a six-city tour. We're going to do the Money and Relationships Tour in this coming Monday. I'm going to be, we are going to be in Louisville, Kentucky, April the 21st. Durham, a week from today, April the 23rd on Wednesday. Atlanta, a week from today, April the 23rd on Wednesday.

Week from Friday, April the 25th. Phoenix, May 5th. Fort Worth, May 7th. And Kansas City, May 9th. Tour starts next week. Kansas City and Fort Worth are almost sold out. Do not wait. Get your tickets right now and go to RamseySolutions.com slash tour or click the link in your show notes. Either way. Spencer's with us in Dallas, Texas. Hi, Spencer. How are you?

Doing great. Hi, Dave. Hi, Jade. Thanks for having me on. Hope you're doing well. Got a question for you. So I'm currently on step two and expect to make it through step four within the next 12 to 15 months. Great. I'm looking ahead here and I've got kind of a unique mortgage situation and that's kind of what I'm wondering and kind of wanting some insight on.

So about four and a half years ago, my in-laws helped us purchase a house and essentially bought the house for us and they're our lender. And so we pay them a mortgage every month, which doesn't include any type of escrow or anything like that. But I set up the payment based on what we could afford and we're never going to pay it off. And my in-laws have had that conversation with us and they're in their late 70s now. So it's...

basically going to get folded into some sort of inheritance. Is it in my best interest to essentially avoid SEP 6 in this situation? I'm a little conflicted because it's not really in our best interest for me to do that. So what do you owe your in-laws? So we owe them $348,296 right now. And they have no intention of receiving that from you before their death?

No, not at all. And what's the size of their estate? I don't know that exactly. I've never had that conversation. Millions or tens of millions? I would venture it's probably in the millions. I mean, he retired in his late 50s. And how many siblings does your wife have? She has one sister, older sister. Okay. All right. Well, my suggestion is you all quit pretending that this is a mortgage, all of you.

And so what I would do is sit down with them and say, look, we need to restructure this. Okay. Um, we either need to go get a mortgage and pay you all off and then, um, we'll get the money. Of course, when you pass away as an inheritance or you guys can just take, advance us her, a portion of my wife's inheritance by just forgiving this loan. Of course. That's what should happen. I thought about it, but it's,

Certainly an awkward situation to have. No one ever wants to have that conversation. Yeah, I don't want to have it, but you all signed up for this awkwardness.

And it makes sense. It feels presumptuous to go in and say that I understand that, but it does make sense. And if they're logical people, I feel like they would understand that. And they can do that with what's called the Unified Estate Tax Credit File, a one piece of paper with their tax return. There'll be no gift tax on it. And then just your wife's portion of the estate is reduced by $350,000. And then you have a free and clear house, and we have jumped ahead to Baby Step 7. Mm-hmm.

Of course. Which is a wonderful gift. And then you guys say, we promise to put the equivalent of house payments into investments so that your grandchildren are multimillionaires. That is the goal. That's what you would tell the parents. Ignoring it and keep moving forward. You tell them their grandkids are going to be multimillionaires because we're going to pay a house payment and then some into investments.

almost immediately because you guys are just pretending it's a this is this is not a real mortgage it's a form of denial exactly no it is it's uh it's kind of an oddball situation and i'm not sure how often you've counseled somebody in this type of situation i've counseled plenty of times where they had a regular mortgage with the in-laws which is a mistake too but uh because it changes the flavor of thanksgiving dinner have you noticed

The borrower is slave to the lender, and it's weird, and it's awkward. And now every time I'm looking at my father-in-law, I'm looking at my master, not just my father-in-law. And it's weird. I borrowed money from Sharon's dad one time when we were broke, and he's the sweetest, nicest guy possibly to ever live. He is a sweet man. And I felt like dirt on him.

drug into the floor every time I walked in that house until I got that thing paid. He never said an unkind word. He never rolled his eyes. He never did. But I felt like poop. Same. And it's just awful. That's so true. It just, I mean, and Sharon, she didn't care as her daddy. She didn't bother her. I was the only one with my panties in a while. You know, I mean, it was just, my God, I felt awful. And so y'all, you know, and that's kind of, he's being pretty chill about it, but he's got a little bit of that going on.

So, yeah. You can't avoid it. I would say, look, I would say this is an awkward conversation, Mom and Dad.

I want to have it because the plan is for us to never pay it off. So let's just change the structure of it and reduce the thing and go ahead and release the lien and make it a gift, an advanced gift against her portion of the inheritance. And she needs to lead that conversation. No? Agreed. I agree. Agreed. But you need to be sitting there too. And mom and dad, look, it's silly because you don't ever expect to get the money. So since you're never going to get the money, we don't have a plan to get out of debt. We have to wait on you to die to be debt free.

And we don't want to do that. So we're either going to get a mortgage and pay it off ourself. Yes. Or we're going to pay you guys off or you're going to forgive it. So what do y'all want to do?

Because this thing of we're going to pay a payment that's not enough to do anything, and I'm just stuck like a rat in a wheel. No, thank you. Yeah, it's a mess. Our question today is brought to you by YRefi. YRefi refinances defaulted private student loans, which are different than federal student loans, and it means you can't even make the required payments.

If that describes you, contact Y-Refi for a low fixed rate loan customized for you. Y-Refi.com slash Ramsey. That's the letter Y-R-E-F-Y.com slash Ramsey. Might not be in all states. Okay. In honor of Financial Literacy Month, today's question comes from Ava at Agape Christian School. She says, is it necessary at some point to get a credit card?

card my mom says it is but I want to think otherwise well you are very wise Ava to want to think otherwise yeah um

So it's not necessary and it's not wise really to get a credit card. If you're getting a credit card, you're probably doing it for one of three reasons. You're doing it A, because you think you're going to build credit. B, you're doing it because you have no money and you're relying on credit cards to fill the gap. Or C, you've convinced yourself that the points are worth it. And so my guess is that you're probably thinking about building credit. And I would tell you that. Or your mom is. Yeah, your mom is.

And the truth is, people don't talk about it enough. We're some of the only ones out here saying that you don't need credit to get through life. You can get through life just with the cash that you earn from your income. And a lot of times people fall back on, well, how are you supposed to get an apartment? How do you get a car? How do you get a house? Those are the three things that people are looking at. And the truth is, you can't have an apartment without a credit score.

Not a big deal. Most of them will take you. Most of them. Yeah. If one doesn't take you, you go to the next one. Obviously, when it comes to buying a car, we would say the best way to do that is to save up and pay cash. The first car that you buy is probably going to be. The only way to do that. Yeah. What did I say? Best.

Oh, the only. Yeah, Dave got me on that. The only way. Yeah, your first car is probably going to be a junker. Maybe you pay $5,000 for it, but you save up and you trade it in and you add cash with it every time. And before you know it, you're going to be driving the car that you want to be driving. And then, of course, with the house, Ava, we suggest manual underwriting, okay? And that's just...

them looking at your actual income to decide if you can borrow this money. And they're looking at things like trade lines and they're looking at things like your income, your actual money. And so that's how that works. I say all the time, credit,

It's a product. It's something that's being sold to you and people benefit from that. What we're teaching, the only person that really benefits from it is you. It is for you. We don't get paid because we tell you to live a life with a zero credit score. So that's one good way to sniff it out. Only one reason to have a credit score, borrow money. If you don't want to borrow money, you don't need a credit score. Pretty simple. This is The Ramsey Show.

There's a time in your life and the baby steps for renting, but you don't want to do it forever because when you rent, you're still paying for a mortgage, just somebody else's. Plus rent means instability in your budget because it always goes up, never down.

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do work that they love, and create actual amazing relationships. Thank you for joining us, America. We're glad you're here. Jade Warshaw, Ramsey personality, number one best-selling author, is my co-host today. The phone number here is 888-825-5225. The call is free, and some say the advice is worth exactly what you pay for it. Sarah is with us in Canada. Hi, Sarah. How are you?

Hi, I'm well, thanks. How are you? Better than I deserve. What's up? So my husband and I make a very good living combined and savings is important to both of us for our children's future, for our own retirement. But we seem to have different philosophies, I think, about how we enjoy the fruits of our labors as well.

My husband feels like we could always be saving more, but I like the finer things. Yeah, me too. And I want to buy the nice clothes while they still fit. I hear that. So I guess what's your advice as far as finding a middle ground? Is it okay to splurge a bit on vacations and nicer things in our youth? Yeah.

You know, I got a feeling you guys are out of debt. Yes. Well, we have our mortgage, but that's it. All right. And so you're in what we would call baby steps three, four, five, and six. You've got your emergency fund. You don't have any debt except the mortgage, right? Correct. And how much is in your nest egg? We've got about $500,000 combined between our children's.

Well, I'm in sales, so it fluctuates between 300 and 350 a year. Okay. All right. Cool. So there are three things you can do with money, and you should do all three at this stage. Okay? Four, five, and six. You can have fun with it, which is lifestyle and things you're talking about, Sarah. You can invest it, which makes your husband grin, and you can be generous with it. Generosity. Okay.

You should be doing all three. And so what we teach folks to do at your stage, you're still trying to get the house paid off is another one of the things. OK, at your stage is to not necessarily be intense, but to be intentional, which would include some fun things.

And so the tradeoff is not how much we invest because you shouldn't be investing more than 15% at this stage. 15% of your household income should be invested. More than that needs to go on the house. Anything beyond that. Okay. Now, in that budget, then, we need to budget some enjoyment. We make several hundred thousand dollars a year. It sounds like you probably got a net worth north of a million dollars counting your home equity and so forth.

or close, you're in control, you're not flopping around out there spinning like you're in Congress or something. Right. Listen, I'll filter. I'll take that one step further because my husband and I were working to pay off our house, so in a similar situation, and I kind of have this checklist, Sarah, that I go through in my head when it's time to buy something or spend money on something. It's a financially responsible adult checklist, all right? And if you check green on everything, then...

It's usually a yes, and then it's just deciding what the parameters are. So A, if you're a person who's debt-free, which you are, green check. B, if you're a person who is consistently budgeting, like you are a budgeter, you live on a budget, you've practiced the habits that a budget...

puts in place for you. Green check. Are you a person who carries a proper insurances? Have you done your checklist, you know, your coverage checkup and you're making sure that you have everything in place? Yes. Green check. Are you a person who values and is saving for the future? And Dave went through that. Or do you have your three to six months emergency fund? Yes. Are you investing 15%? Yes. And are you actively paying more towards your home, which is a forced savings account? Yes.

Yeah, screen check. And then finally, are you a person who prioritizes generosity? So if you're checking green on all five of those things on that checklist, that is a really good indicator. And it kind of gives you, yeah, it gives you the piece. You're not doing anything wrong. You're doing everything right. And that's what it's reminding you of. And then you can go, okay, yeah.

So if you spend to the point, if you spend to the point, if you spend to the point you're doing no extra on the mortgage and no generosity, that's irresponsible. Yeah, it'll tell you. If he saves and pays down on the mortgage and there's no fun in a $350,000 household income, that's wrong. Right.

Right. Because you need to budget something for fun. So we need to, you know, you actually make enough to do all of it. It's just a matter of how much goes to each. But there's something has to go on generosity that you feel it. Something has to go on the house that you feel it. And something has to go to fun that you feel it. And you've got the money to do all three.

Right. Yeah, absolutely. Yeah. And that's a matter of you all budgeting together. Yeah. It's not a matter of age. It's a matter. I mean, if you're 55 and you call me up, you got $80,000 in car payments. We're not even having this discussion. Right. I don't care about your clothing desires. You have a disaster and you, you know, screw it. You have to wear what's in your closet.

All right. But that's not you. OK, that's not your situation. And, you know, and the next thing that will happen is the house will get paid off. And then the next thing that will happen is his savings bent will that that gift that you have a husband that saves will start to have fruition. And you're going to look up. You've got several million dollars in a paid for house. Now your generosity and your fun is going to go to a whole nother level while still building wealth.

And that's the baby step seven when you hit up there and you've got the house paid off. It frees up yet again. It does it again. And so but always in baby steps four, five and six be intentional and do Jade's adult financial checklist. Financially responsible adult checklist. I like that. That's what I'm doing in my mind. Financially responsible adult checklist. Yeah. A frackle. A frackle. Okay. You need a frackle.

You can keep that one. Yeah, I think that's probably bad. I just made that up here. I think we'll let that die today on the air. We can. We can. Well, they'll put that one behind us. But yeah, I like that, though. I mean, because what that's telling us is we're touching the bases. Yes. And we're being a grown up. Yes.

Yeah. Because when we look at our screen, y'all don't know this, but we have a call screener, Christian and the folks in our booth, the booth people do the call screening in there. And they put up here someone's name, where they're from in one sentence. Yeah.

about what they're calling about. So my husband and I disagree on our fun money. Is it okay to have fun? When we see that, that line, most of the time it's a different answer than she got. That's right. Because they've been irresponsible. And they want to be. Yeah. And they're having a little princess fit. That's right. Or a little prince fit. But I love telling people yes, when we can see. I work hard and I deserve it. No, you don't. You deserve it if you got the freaking money. Not because you worked hard. We all work hard.

You know, get a little cheese with that wine. Seriously. Unbelievable, right? I mean, we all work hard. That's right. That's not the issue. That's right. The issue is, are you a grown-up? Do you have a frackle? Do you have your frackle? Do you have your frackle in place? No, that's right. That's so good. That is so good. Because, I mean, the deal is...

Sarah, the answer, you know, the thing is what we might have judged you before we brought you up and asked you questions was not true about you. You're a very responsible person. You all have done a great job together in tandem. And I think the answer to your question overall is you win the argument. Your husband needs to loosen up a little. That's what it sounds like. You all enjoy this. And these days, Sharon and I look at each other when something comes up and we go, why wouldn't I? Got the money. Why wouldn't I?

You got your frackle. I got your frackle. I hope that dies with that segment. This is the Ramsey Show. As an investor and a person of faith, when your mutual funds and ETFs put your money into the dark side, you might feel a disturbance. Well, good news. Timothy Plan offers investments for people who want to be intentional about where their money goes. As a pioneering force in biblically responsible investing, Timothy Plan entered the investment space successfully.

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at ramseysolutions.com slash giveaway. That's ramseysolutions.com slash giveaway. Well, let's face it. Our money and our relationships are intertwined, and sometimes they're both out of whack. We're going to help you. Dr. John Deloney and I are coming to six cities with the Money and Relationships Tour. Raising great kids, handling money fights the right way, making real friends in the 21st century.

Is marriage a good idea still? Ooh. Is wealth evil? Ooh. Subjects we could cover. We're going to cover a lot of different stuff. It's going to be a lot of fun. Louisville, one week away, April 21st. Louisville, Kentucky. Durham, Michigan.

And April 23rd, that's a week from Wednesday in Atlanta, a week from Friday, April the 25th. Phoenix, May 5th, and Fort Worth, May 7th, and Kansas City, May 9th. Tickets are not sold out. You can still get yours. Please come. We would love to have you. We're going to laugh together. We're going to cry together. And you're going to leave with information that's life-changing.

And a lot of interaction in this. It's going to be a lot of fun. RamseySolutions.com slash tour. If you're on YouTube or podcast, click the link in the show notes, please. Josh is in San Antonio. Hi, Josh. Welcome to the Ramsey Show. Hi, Dave. How are you? Better than I deserve. What's up? Yes. So I'm calling to see if I need to sell my car or not, for your opinion. Okay. What do you all want it?

I owe, well, it's my car. I owe $7,000 on it. And my wife has one for $8,000 as well. I'd be owed $8,000. Okay. What's your car, your $7,000 car worth? About $19,000. Okay. And what's her $8,000 car worth? About the same. Okay. And what do you make? Together, our household income is, after taxes, about $83,000. Is this the only debt? No. I also have a $2,000 credit from a home security company.

And $23,000 in student loans. Okay. Yeah, I mean, I definitely would offload one of these. Did you pick yours just because it's a little bit older? It's actually newer, and it's smaller, and we have a child. Got it. We were expecting another one, but not anymore. But we have a...

we have a child and maybe more soon. Okay. I mean, yeah, I would definitely do that. Truthfully, if you wanted to, you don't have to, but if you wanted to, you could offload the other one and maybe take 10 of it and finish out the debt completely and then buy another one with the other, you know, with the other nine. I don't know if you want to get that extreme. You don't have to because you're going to have these paid off so quickly, but because of the equity in them, it's kind of nice to have access to that. How long have you been working on this stuff, Josh?

How long have y'all been married? Yeah. And when did she lose the baby? I'm so sorry. Yeah.

Okay. When you guys get on a detailed every dollar budget and you get fired up, you're going to plow through this debt pretty quick. Okay. Because, you know, $50,000 makes you free. Yeah. And, you know, you could make $25,000 next year, this year at a side hustle. I am trying that as well. Plus tightening down the budget. Okay.

And so hypothetically, you could keep the cars. But if you have a car that doesn't fit with your family plans anyway, yeah, that's an easy one to offload. I don't recommend if your wife has gone through what she's been through and you all have been through, I don't recommend selling her car right now. Just let her. Yeah, that's why I only did mine. Yeah, I think that's – I don't think we need to throw sacrifice at her today. Okay.

OK, but I think we do need to sit down, get on a written plan and make this money behave for the first time ever in your lives and get in attack mode. And so since you are probably going to need to do something different on your car anyway, yeah, sell it and buy buy something for five thousand dollars and throw the rest of it at debt. And for a little while while you get out of debt the next year and a half or so, you drive a hoopty whoopee. No big deal. You can do that.

For $5,000, you can get a very reliable Honda Camry or something like that. Not necessarily pretty. Might need to give it a name. But, you know, it's that kind of car, right? But it's my get-out-of-debt car while I'm getting the financial foundation laid for my family growth. That's called being a grown-up and being a good man. I like your question a lot. I do have one thing to add, though.

We do also have $17,000 just sitting in our bank account right now. Oh, well. Thanks for burying the lead. That's important. That changes things a lot. We're afraid. Okay, so here's what we're going to do. Today, we're going to talk about selling your car, and we're going to pay off her car and the stupid home security loan. That was dumber than a rock. And then we're going to start attacking the student loan.

And let's see, we've got 17 and 19 is a 7, 12 and 7, you've got 24 and 10 is 4. Hey, man, you only have $19,000 left on your student loan. Wow. And that's it. And you're driving a $5,000 car. We put the difference on the student loan. We pay off her loan.

her loan and the other tonight, and we're going to put you on the baby steps. Baby steps are you take all your savings down to $1,000 and you attack your debt like your life depends on it. Because if you didn't have any payments right now, you would be breathing different as your family's going through this tragedy and this sadness. But you've got this stuff hanging over your head and the grief. Agreed? Agreed.

Yeah, exactly. Yeah. So let's clean it up, man. I think that's a real gift to this emotional situation to pay off her car tonight. I agree. And the home security loan. Oh, my gosh. It's kind of a no-brainer. And then we're going to throw, you know, everything else down to $1,000 at the...

Yeah, you're going to make a lot of progress. This is so great. Instantly. Yeah, you're going to knock it down in 25, 26 tonight, and then when your car sells, you buy a $5,000 car, you're going to knock it down to 19. Oh, my gosh, you're going to be debt-free by football season. Oh, that's great because I'm a teacher that's very involved in marching. Good, good. Great. That doesn't mean you get to go to any games, but you'll be debt-free by football season.

No, you get debt free, man. When you don't have any payments but a house payment, the next thing you do is you take that $1,000 account and you raise it up to three to six months of expenses. He's going to do this. Yeah, he's going to do this. I'm glad he told us about the $17,000. You know what? Babies and the promise of babies will wake you up. 100%. It will get your butt in gear.

It's like, oh, no, this just got real. Yes. I have to feed this thing. Yep. It ain't going. It has to buy diapers. Yes. Yes. Yes. Yes. Yes. Yes. Wow. Yeah. It's a good thing. You have that moment. We had a dead free scream in a different segment that the guy said, you know, when the kids got ready to go to college, I had no crap moment. When you have that moment, you go, oh, man, this just got real.

And then you kind of start getting disgusted. We make too much money to be this broke. And then you say, I've had it. And when you finally say that, oh, your life is about to change. It's so wonderful. That was the main motivator when Sam and I were getting out of debt is I was like, how can we have a family? We have to clean this up. And I mean, that was our choice, but there was no way I could foresee us

starting a family with that amount of debt. And so it was necessity. Yeah. Yeah. In that case, an emotional necessity. That's a fair necessity. Yeah. Good stuff. Good stuff. You're a good man. Hang on, buddy. We're going to give you a

a copy or we're going to give you every dollar is what I'm trying to say. The premium version to help you get started on this budget. I'll send him a copy of Total Money Makeover too. So he and his wife have got a roadmap to follow those baby steps and do exactly what I just told him to do. This is The Ramsey Show.

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Nicole is in Jackson, Mississippi. Hey, Nicole, what's up? Hey, how are y'all doing? Good. What's up?

My question today is very simple, kind of. Whether my husband and I should move from apartments or not. Oh. What's causing you to consider this? What's going on? Um...

Basically, there's just lack of peace in our life right now, and so we're trying to strive towards peace. That was pretty vague. What is going on? What's causing the lack of peace? So just to give you a little bit of a background, right now we are at an apartment that we've been in for four years that costs about $800 a month. It is all included. It even has a storage unit downstairs that we can put a bunch of stuff for free, and

It comes with all utilities, everything. Sounds great. And it has allowed us to get debt-free. We have our emergency fund. We've even saved for school for my husband and I to both go to get our master's degree in pursuit of also more peace. Great. And...

We are now in the process of saving for a down payment. And the problem is our landlord. We have been having a little bit of a conflict with him. And he also hates conflict. So his communication skills are very, very poor. What's the nature of the conflict? Well, things like our toilet broke recently. And he told us, I'm sure y'all can figure it out.

Y'all have a blessed day. Stuff like that. Not have a blessed day. Okay. Yeah, and we also don't have a contract with him, so things can change at any moment's notice. Things like the washer and dryer, the apartment doesn't come with a hookup, and so we have to use his dryer and washer. And

Every time we need to use it, we have to ask if it's available. And did this recently change? Did this I mean, you said you've been there for four years. Was it fine? And then suddenly it just kind of got weird or has it always been like this? And now you just can't take it anymore?

I think it's gotten more... I think the boundaries between professional and personal have kind of blurred to where because there's not a contract, there's not really a line as to what he will take care of or what we are taking care of. Was there before? A line? No, was there a contract? No, no, sir, there wasn't. Okay, and so...

That didn't change. You brought up a contract three times, but it hadn't changed. Yeah, no. So what's changed is that his behavior has just gotten a little weird.

Yes, it has. And we've confronted him. I had a conversation recently with him about it, and it doesn't seem to have changed at all. Now, the scary part here is that we are looking at moving at other apartments, and we found an apartment that is connected to the school that I'm going to be with. It is about $1,300, about $1,300 to $1,400 a month. And

So that is calculating within the two years that I'm going to be in school. What do you all make? We make – it fluctuates because my husband has a contract – he's a contract rescue technician, rope rescue technician. And so it goes between 80 to 170. Okay.

But we have already chosen that we're going to go part-time here at the end of April, also for peace because he travels a lot for work and for long, extended periods of time. So what would you be bringing home every single month? We have decided that we're going to work just enough to pay for bills and put a little bit of a pause on saving for a down payment until we find another job. How much is that? We're thinking about $50,000. From $170,000?

Yes, sir. That's a lot of peace. What's causing the non-peace? Like, what about working is causing the non-peace? Help me understand that. It is travel. He travels. But you don't have to cut it by two-thirds. No, no. And we are open to him continuing to work. But the only difference would be that he has more of an option to say when he can go and when he doesn't.

Yeah. Does that make sense? Yeah, so cut it. He doesn't make $170,000, he makes $140,000. Oh, well. But not $150,000. No, not $50,000 and sit at home and twiddle his thumbs. Okay, but... And call that a master's. What's he want a master's degree for anyway? In counseling. We both are going towards mental health counseling. Okay. So let's put all the pieces together. So we're about to take a major pay cut. Okay.

We're about to increase rent because you can't live with old boy anymore. There's no contract. And since there's no contract, you can basically leave at any time. No, you have 30 day notice. You still have to give 30 days. Okay. So those are the pieces of the puzzle that I see. And you mentioned that you want to save for a down payment on a house. So it feels like you're wanting to do a lot of things that are going to cause that are going to need more money. Uh huh. These things are inconsistent with each other. You want to does not bring peace.

That's called dissonance in the counseling world. That's very good. Yes. Yeah. I guess the question is, is it worth spending more money and not putting $12,000 in the down payment, which is what we would not be saving? Or do we just put up with it for two more years? See, they're not all on the same spectrum. Right. Okay. You move because you're dealing with a twerp.

But you work a little more so you can still hit your goals. That's right. And that's called peace. Peace is not lack of working. Peace is lack of money. Lack of peace is lack of money. That doesn't bring peace. Being poor is not peaceful. No. Yeah. Okay. And so, you know, I would move. Get yourself in a different situation. You're over this guy.

And you're done with him. I don't know exactly what he did, but you're done with him. We can tell you. Yeah. Okay. So far, all you've said is he didn't fix the toilet. That's the only thing you said. And he's a little whiny about when you use the washer and dryer that you've used for four years. But that's it.

So, yeah, move. That's fine. And you're going to pick up a little expense and you're going to start on your master's. And in order to pay for your master's and the extra expense, you're not going to get to cut your work down to 50K from 170K. You're going to cut it down to maybe 100 or a little bit. Take some of his time off the road. I ain't got any problem with that. But.

He's not working himself to death. I'm sorry. And you're probably going to have to prioritize what's more important, these master's degrees or saving up for a down payment. You're probably not going to be able to do all of it at one time. So, yeah. Yeah, I'm thinking, just to remind everybody, hard work won't kill you. Right before you die, you pass out. That's not – you can go get stuff done. I mean, the stuff you and Sam did while y'all were getting out of debt –

You were solving for peace by getting out of debt. That's right. Not by cutting your hours down to nothing. You added 70,000 hours to the middle of the thing, and you went bananas. That's right. You're right. And Sharon and I did the same thing because we were solving for peace, but it required an amazing amount of hours and sacrifice. We lived like no one else so that later we could live and give like no one else. No discipline seems pleasant at the time, but it yields a harvest of righteousness, the Scripture says. Right.

So, yeah, one of the things we've learned over the years, Nicole, is that Earl Nightingale used to say this, that the things you're willing to do to get to your goals are not the problem. It's the things you're not willing to give up to get to your goals. You've got to give up some stuff to get to your goals. You've got to pay a price. And you're going to pay a price, so choose your heart, Deloney says.

Choose your hard. Which hard thing do you want? That's very accurate. Pick one of them and take it. And I don't care if the hard thing is putting up with the landlord and staying in the 800. Fine. That's the hard thing you chose. And you want to pull back on the pull back on the hours and pull back on the income. OK, you chose your hard, but you got a new hard.

It's going to be a long time before you get a house. Yeah, that's right. You got a new hard. One of you is working on your master's and the other one probably isn't right now because you probably don't have the money to do both if you do all that. So you got to choose which thing is going to be hard and you can't do it all. It's not fruitcake. That's not an option. You can't put it all in there. Yeah. I like to think of it as trades. You are trading. You're always trading one thing for another thing and then you get to decide what would I rather have? But you can't do it all.

and it all work, it doesn't, and call that solving for peace. It's not.

The Money and Relationships Tour is halfway over and the energy in every room has been unreal. Each stop has been packed with real talk, big laughs, and life-changing moments. Now it's your turn. Come hang out with me and Dr. John Deloney in a city near you for a night that could change your money, your relationships, and your future. This is your last chance to join us in Phoenix, Fort Worth, or Kansas City the week of May 5th. Grab your tickets today at ramseysolutions.com slash tour.

Our scripture of the day, the Lord will fight for you. You need only to be still. Oh, shut up.

I can't. It's so hard. Will Rogers said the road to success is dotted with many tempting parking spaces. Okay. Oh, you can park or you can drive on the road. Interesting. Okay, I got that, Will. He was classic. Crystal's with us in Portland, Oregon. Hey, Crystal, what's up? Hi, Dave and Jade. Thanks for having me. Sure. How can we help?

My husband and I will be retiring at the end of the year. Congratulations. Thanks. We followed the baby steps for multiple years, and we're debt-free, including the house, and have a fully funded emergency fund. But it's always been our understanding that the emergency fund is to tie us over if we ever had a loss of income. So once we retire and are no longer dependent on the employment paycheck, do we continue to keep the same level of cash on hand, or would we be better off investing that money?

To start with, the emergency fund is not to tide you over in the case of loss of income. It's to cover emergencies. One of those could be a loss of income. Another could be the transmission goes out. Another could be a family member's ill and you need to buy some airline tickets instantaneously to fly across the nation to see them. You could have all kinds of things that have nothing to do with loss of income. A medical emergency would not be a loss of income. It could include a loss of income, but...

But it doesn't necessarily. And so that's the first thing. Then the second thing is what ends up happening, and Sharon and I have experienced this, and I know Jade and Sam have too, is that as you move along, and you guys have done a wonderful job, Crystal. Thank you. Your likelihood of actually – what is defined as an emergency that's big enough to touch the emergency fund –

Gets bigger and bigger. When we first started, a tire going out on the car was an emergency. Now we yawn and fix the tire, you know, because we don't have any payments. There's plenty of room in the budget. It's not exactly an emergency, but when we were broke, a blown tire was an emergency. You follow me?

And now that you guys have a substantial net worth, you can do just about anything you want to do. You've done a great job of paying off everything. You don't have a house payment. And so if your heating and air goes out and it's $15,000, you probably can just cash flow that. Agreed? Agreed, yes. So you wouldn't touch the emergency. But can you imagine...

10 years ago, if the heat and air went out, it's 50. Yeah, you'd be touching the emergency fund. You weren't at this stage then. So what is an emergency that is big enough to touch the emergency fund? It's got to get pretty big the more wealthy you become. So your actual need for the cash emergency fund does go down the wealthier and more debt-free you get. Does that make sense? It does, yes. So you're holding how much cash now and calling it an emergency fund?

$25,000. And your household income is what? $205,000. And your net worth is what? $3.2 million. Okay. $25,000 is not bad. I mean, you could just keep that in a cash in the safe. It wouldn't be a big deal. That terrifies me. You know, I'm not telling you to do that. I was joking. But, you know, and I wouldn't. But, you know, see what I'm saying? It's not a...

But if you took the emergency fund to $5,000 and invested the other $20,000, it doesn't change your life. Okay. It doesn't really change anything. So if you want to, you can, because if you needed more than $5,000, then you could go

you know, just take some money out of that mutual fund that you put it in. Right. And you can, and if it happened to be when the market was down because maybe the president screwed with the market with the tariffs and all that garbage, then, you know, at that moment you had to pull some money out. Uh, well, you might lose a little bit. Oh, well, you don't, you know, instead of 3.2, you have 3.1, 9, 9, 9, 9, 9. Oh, well, you know, I mean, you're going to be okay. So it doesn't, it, again, it,

It doesn't do away with the emergency, but I still would have one because some liquid cash to lay your hands on if you need something quick. I think that's a good thing to have. It's a good thing to have. And I don't think 25 is too much in your world. If you told me you had 100 grand, I'd tell you to back it down to 25. Yeah, yeah. It's a good question. It's a good question. But I have noticed, have you noticed that too with you and Sam, that as you get further down the baby steps, what we used to call an emergency now is a yawn. Yeah, it's just, okay, I'll just cash flow it.

Yeah, you know, the kid bumped their head and we got to get staples in the emergency room, you know. Yeah, I don't want to dip into the emergency fund. Yeah, I mean, one of the grandkids bumped his head the other day. And, you know, that's part of raising a kid. They split their head open, so you got to go fix it, right? You got to put staples in it. Some of it, too, is like a, I don't know. I don't know if it's, I don't know the right word to describe it, but we hate touching the emergency. It's in a completely different bank. Yeah. Yeah.

Well, I mean, Sharon, because we went completely bankrupt, we had an emergency fund for the emergency fund. I mean, and she told me if I touched either one of them, I was going to die. I mean, she can't stand it. It's like that touches her nerve from the old days. That's Jade and Sam. It's over there. I will do anything to never touch that money. I just want to look at it. Bob's in Birmingham. Hey, Bob, what's up?

Hi, Dave and Jake. Thanks for taking my call. Sure. How can we help? My question is, I'm 61 years old. I got about six more years before I retire. I currently have a traditional 401k with the government, and I'm trying to find out. We have now paid off both our houses, and we have about $2,500 a month more to invest. Should I...

max out the 31,000 a year into my current traditional 401k or would I be better off taking that 2,500 and possibly getting a smart investor investing you know into a Roth well your gains your gains are gonna oh if you do it into a Roth that's fine but you can't get that much into a Roth um

Can you do a 401k Roth with the government? We cannot, no. So it's a traditional form. My wife has a Roth IRA with a company she works for in the government, though. Can you load that one up? We could, but she's only 50 years old. So we only have so much we can go with that. But you don't sound like you need money. Well, I'm trying to play catch up. You know, my current situation and my condition is about $180,000. What size of your nest egg?

The size of the nest egg is about 600,000, 700,000. How old are you?

You told me you're 61, yeah, and your wife's 50. Okay, so there's two options. Use the Roth. I would not use traditional because it's going to be subject to RMDs when you're 72. Required minimum distributions, okay, or 74. I think I moved it forward. But anyway, either way, it's going to screw up your taxes late in life, and I wouldn't do it. So I would either get with a smart investor and put it in a low turnover mutual fund or

to where the taxes don't come to, and if they do, it's very few of them. Or I would load up her Roth or both.

Okay. Any of those are fine, but I would not put it in your traditional because that traditional as an inherited IRA has to be distributed with your heirs in 10 years because they're going to clean it out and all the taxes are going to come due. With a Roth, there is none. And so it's all tax-free and it's tax-free in an inherited IRA. So it doesn't cost anybody anything.

We're done. So that's why I love the Roth aspect of this. So I would do two individual. I'd load up your Roth. I'd load up your Roth and her Roth for sure. I might load up some over in her fund. You've got $30,000 to work with. And you could do what's called a low turnover mutual fund so the taxes aren't activated. That's good. That's good. I'd do the same thing. Yeah. That's great.

That's a good way to do it. The low turnover means they don't sell the stocks inside the mutual fund very often, so the taxes aren't activated. Got it, got it. They're not activated until you sell the fund itself.

And when you do, it's a taxed at capital gains rate, which is 15% rather than ordinary income, which the traditional would be taxed at ordinary income. So we're going to do a low turnover mutual fund and or some mix of her Roth and individual Roths. And I would sit down and run the numbers with your SmartVestor Pro, clicking at RamseySolutions.com on SmartVestor to find out who we recommend in your area.

and run the numbers out and see how that's going to work out for you. But I don't want to be subject to the problems of traditional, which is full tax bill, RMDs,

and inheritance problems. It creates all of those. So I'm always going to move over to Roth for those reasons, especially at your old age. So good stuff. That puts us out of the Ramsey Show, and the books will be back with you before you know it. In the meantime, remember, there's ultimately only one way to financial peace, and that's to walk daily with the Prince of Peace, Christ Jesus. Go call every social media...

Hey, what are you still doing here? You know the rest of the show is happening on the Ramsey Network app, right? So you got to jump over there to continue watching. You can download it for free. Just go to your app store, type in Ramsey Network. It's completely free. And I'll drop a link in the show notes to make it easy for you. So if you're watching on the app, you're in luck. But if you're watching anywhere else, this show is over for you. So jump onto the app and let the fun continue. All right, go on now. Don't make it weird.

Okay, I got nowhere to go, so you need to go. Okay, bye-bye now. All right, this is getting weird over there, guys. What do we do?