The Ramsey Show - App - Are Sinking Funds Okay While Paying Off Debt? (Hour 1)

Episode Date: May 24, 2019

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Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey. This is your show. The phone number is 888-825-5225. That's 888-825-5225. That's 888-825-5225. Catherine is with us in Saginaw, Michigan. Hey, Catherine, welcome to the Dave Ramsey Show.

Hi, Dave. I'm so excited to be talking to you. My husband and I love you so much that we give your books away to everyone we know who gets married. It's really had an awesome impact on our marriage. So thank you for the work that you do. Thank you. How can I help? We question what has to do with investing.

We are debt-free. We have a fully funded emergency fund. And we feel like the house is next. And we've put some money aside for a down payment. We have about $21,000 aside. And some of that is in the mutual funds, but we have about $17,000 that has been to the bank, not earning interest. And my husband is really encouraging me to get on board with putting it into a mutual fund. But the problem is currently the housing situations are a little different.

When will you be using it to buy a house? See, and that's the thing. Currently, my husband has provided a house through his job as a teacher. So when will you be using it to buy a house? It could be in the next two years, or we could be here for 20 years. We're not totally sure how long we will stay at this position. And how much money are we talking about investing again? About $17,000.

Say it again. Your phone is breaking up. Oh, I'm so sorry. $17,000. Okay. And your household income is what? It's about, with the house and our health insurance included, it's about $40,000 a year. Okay, all right.

I would invest half of it, and I would invest it in a growth and income mutual fund that has, or an index fund, one of the two with no, I would just go to an S&P index fund with no load, because you're not going to have it in there long enough to justify the expense of a loaded fund. And, yeah, just pick you out an S&P, and I'd put about half of it into that. You might lose some of that money if you have a two- or a three-year window, but at least it'll be doing a little bit better. That's $17,000 sitting there doing nothing right now. And so you might make a little bit on it. But I wouldn't put it all in there.

I wouldn't put it all at risk. So that's kind of a compromise between you two. But it's also a bit of a way to diversify. Some of it's sitting in savings. Some of it's in the mutual fund. And a no-load index, S&P 500 index fund is what I would do. Melissa is with us in Springfield, Illinois. Hi, Melissa.

How are you? I'm doing great, Dave. Thanks for taking my call. Sure. What's up? Term life insurance. I've been a listener long enough to know that you prefer term. My husband and I are both 50.

We have a current policy in place on my husband for $500,000. And I pulled the policy out of the file, and I've been looking through it. And it's a level premium of $570 annually until we turn 53. So the term is up in three years. Well, as I'm looking at the policy, the... I mean, you can keep going, but it's going to jump way up at the end of three years. The guaranteed rate at the end of that three years is probably way up, isn't it? Yes.

Yeah, yeah, okay. Yep. Is he healthy? Yes. Okay. And how much is on you? Although he did lose his father to cancer, So we have that in the family history. Right.

There is no coverage on me. Okay. And what does he make? I'm going to say household total income is maybe just shy of $150,000 a year. What does he make? Most of that. Say $130,000. Okay.

All right. And so you make like $20. Okay. All right. And so you make like 20. All right. And you have children at home? We have two that are juniors in high school, just finishing this week their junior year in high school. All right. And how much is in your 401K plan?

Your retirement nest egg? Say another $500,000. Good. Okay. And what do you owe on your home? Just over $100,000. Okay. And you're out of debt.

You're out of debt. Accept that and have your emergency fund. Emergency fund, yes. We do have one vehicle loan. Four cars are paid for. One still has a loan. Okay. Well, that's primary.

We're going to get after that. That's a lot bigger than anything else in this discussion. So really what needs to happen is he's underinsured today. And so what I would probably do is put about a 10-year level term on him for about $500. What that does is it gets the kids almost out of college, gets you guys out of debt, and then when that other one runs its course three years from now, just let it drop off. Yeah, letting that one drop off, because that one, we kind of had that game plan already thought through. A couple factors here that we're weighing.

When we talked to an ELP insurance guy here locally, he was saying that rates will jump for us as we approach age 51. Just jump on ZanderInsurance.com. I don't have a local ELP. It goes up considerably. It goes up noticeably as we approach 51 years old. So I guess part of my question is, do we get another policy for that 10 or 15 years additional now

and have them overlap? Yeah, that's what I was saying. Go ahead and get 500,000 now. And for the next three years, then you have a million in coverage. Three years from now, the boys are up well into college. The juniors in high school are up well into college, and you're further along. You've got the debt paid off on the car.

You're starting to work on the house. You're continuing to build your 401K during that time. You're much further along, and then it drops down not all the way, but it drops back down after three years to half a million. But I'd go ahead and buy another half a million from Zander right now. We do not have local ELPs for life insurance. We endorse one company for life insurance, Zander Insurance. That's all.

So hope that helps you. Thanks for the call. Open phones at 888-825-5225. Mary is on Facebook. Do I work on filling my sinking funds or put extra money towards the smallest debt? It depends on what sinking funds you're working on. If it's a sinking fund, you're talking about something like car repair, and that's a little miniature sinking fund that's in your budget to be ready for car repair,

but you didn't have this expense this month, next month, or the next month, but you do need to build it up a little bit. Clothing, back-to-school clothes, Christmas could be small sinking funds. Those are part of your budget, and you don't overfund them, but you want to have some money in there because the car repair likely will be higher when it comes than one month's worth of budget for car repairs. And so that's why you have these little miniature savings accounts we call sinking funds that build up for those things in your EveryDollar app.

So when you're using EveryDollar, that's where you're seeing that lingo is sinking funds regarding that. Now, if you say a sinking fund is I'm saving four years to buy a car, no, you should not be doing that while you're getting out of debt. You should be pouring all that kind of money onto the debt snowball. Every dollar you can squeeze out of your budget and operate your household reasonably goes to your smallest debt and right down the line. Are high health care costs getting you down? Are you confused trying to navigate your options? Do you wish you could find an affordable, biblical solution to your health care costs?

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To learn more, visit chministries.org. That's chministries.org. Christian Healthcare Ministries is a proud sponsor of Dave Ramsey Live Events. chministries.org. Thank you for joining us. This is the Dave Ramsey Show. Open phones at 888-825-5225. Amy is with us in Dallas, Texas.

Hi, Amy. How are you? Hi, Dave. Thanks for taking my call. Sure. What's up? I inherited a lease vehicle and an unexpected divorce. So at what point does it make sense for me to finish out the lease payments and then purchase the vehicle at the end of the lease? Wow, what a mess. It is a mess. How much is left on the lease? How much length?

How many months? $26,885 to buy it out today. I have 32 months at $477 a month. And if I turn it in today, I'm upside down $98.55. You're upside down by the dealer's equation? Yes. Okay, so that's a wholesale. Because I went to CarMax and got a bid, and they'll only give me $17,000. So if I turn it in by Friday.

Okay, but the CarMax bid is obviously a wholesale bid, and so that means you're probably in the hole more like $6,000, okay? Maybe $7,000, okay? Maybe $7,000, something like that. Okay, and you inherited this. Is it in your name? It is now. It was ordered that I had to pay it off,

and I didn't have the money to pay it off when the divorce went through, so they put it into my name. Who put it into your name? The leasing agency. Oh, they changed it? It's a third? The leasing agency. It's a third-party leasing agency. It's not directly with the lease. And so they took your ex-husband off the lease and put you on it? Yes.

To release him per the divorce decree. Okay. Highly unusual, but interesting. All right. So what is your income? My income with child support is only at the moment $1,900 a month. I live with my parents, with my two girls. Good Lord. Yeah.

Okay. How do you end up with this car? You must have a really bad lawyer. Yeah. Okay, all right so bottom line is uh 1900 bucks from now which is 477 times 32 i didn't do that right no that's 15 000 bucks i'm sorry 15 000 if you keep the car. What condition is your credit in? Fantastic. I have an 800 score. Okay. And how much other debt?

What the leasing agency said to me was we could roll some of that into a new car. As soon as they said how much can you afford per month, I just said, don't do that. Yeah. Yeah. That doesn't help you. Okay. Yeah.

Let's pretend that you sold the car today, not for $17,000 to CarMax, but to an individual for $19,000. Okay. Okay. And you borrowed the difference from your local credit union. Okay. Okay. There's two options, from your local credit union. Okay. Okay. There's two options, or there's three options here.

Option number one is you pay $477 times $32, which is $15,000 to keep the car until the end of the lease and then buy the car at the end of the lease. You can't afford this car. I know. At any point in this so keeping the car doesn't make sense on a monthly basis 477 as a percentage of your income is nuts um and keeping the car long term doesn't make sense um so uh why does it not take make sense long term because you can't afford it. Right, yes, okay. It's a ridiculous amount of money given your income. And so what I would rather you have is a very, very inexpensive car, a hoopty,

$2,000 or $3,000 car, and a small loan of $6,000 or $7,000 to cover the difference on this. Okay. That's going to put you way ahead of where you are now or way ahead of where you would be if you kept the car till the end of the lease and tried to buy it out so what i would start working on is a local bank or local credit union loan unsecured loan for the difference of what the car will actually sell for, not to a dealer. We're not in desperation mode yet. You drive it and pay the payments for a little while, and let's just try to get it sold for more than CarMax will give you for it.

And it's not that CarMax is evil. They're not doing anything wrong. They're just in the business of selling cars for a profit, which means they have to buy them in wholesale and sell them for retail. I want you instead to sell it to go on kellybluebookkbb.com and look at private sale price, and I think you'll see that I'm right, that it's a couple grand more than CarMax is offering you probably. What kind of car is this? It's a Lexus ES300 hybrid.

Okay, good. It'll sell then. Okay. Okay, good. It'll sell then. Okay. Okay. So you just put it on like Craigslist or something like that and start an auto trade or that kind of thing and start selling it to an individual and let an individual buy it cheaper than they can buy it from a dealer, but a whole lot more than a dealer will give you for it. And then you have to have a loan for the difference to get out of this. But instead of

$26,885 debt, then you got a $6,000 debt. That just sounds a lot better in your situation to me. Yes. And my tax return will actually cover if it's only $6,000 or $7,000. And my tax return can cover that. And I won't have to take out a loan. Okay. Cool. So you're getting a tax return of $6,000? Yeah. I thought you said you made $1,900 a month.

I did. The tax credits. Tax credits, okay. Yeah. Wow. Wow. How many kids have you got? Two. Okay. How old are you? 45. Wow. How many kids have you got? Two. Okay.

How old are you? 45. Okay. I'm going to stay at home mom forever, and so I'm trying to get out and restart life. Yeah. Yeah, you've got to reset for sure. You have a new normal. I'm so sorry.

I think God is good. He's in the details. Oh, he is in the details. You're fighting through it. You're a warrior, kiddo. Well, you're going to be fine. You're going to be fine. Yeah, that's what I would do.

I would dump this car or sell it. I wouldn't dump it, but I would sell it, and I'd rather you have that. You know, use your tax return for that, and then let's get you a little get-around car, and then when you get yourself reinvented and your income comes on up because it's going to one year from today life looks completely different than it does today you know that yeah and so once you get this career path going and you get plugged back in um your income is going to double pretty quick probably and um as it does uh then you can move up in car for cash as you go along. Is this the only debt you inherited in this mess?

I have a house in another state, and it's got a renter in it, so it's paying for itself right now. And the extra money that comes from that rent is going. I have six months set aside in case the renter's not there. You have six months, so you've the renter's not there. You have six months. So you've got the cash there, too. Yes, I technically could. Yeah, you technically could buy a car. I did your financial peace university,

so I didn't want to touch that because I wanted to have the six months towards if a renter's not there so I don't lose that house. I completely agree with that, and then I completely agree with selling that house as soon as that lease is up. But in the interim, if you need $2,000 of that money to buy you a car or something, then rather than some of these other things we're talking about, that gets you out of this and gets you going in the other direction. Yeah, unless you're moving into that house, you need to sell it at the end of that lease. And so, good.

Well, that's some extra cash laying there, too. So you've got two ways to get out of this, money-wise. And I don't want you to drain that dry and leave yourself vulnerable permanently. But right now, you're pretty vulnerable with a $26,885 card debt. So we've got to clear that by getting it sold, covering the difference. Let's sell it for as much as we can possibly sell it for, get you a little paid-for car, and we'll reset, restart life. Hey, thanks for the call.

I'm sorry you're going through this. Wow, what a mess. This is the Dave Ramsey Show. Thank you. We'll be right back. In the lobby of Ramsey Solutions, Sean and Paige are with us. Hey, guys, how are you? Great. How are you? Better than I deserve. Welcome, welcome. Where do you two live?

We're from Owensboro, Kentucky. Awesome. Love that town. Great town. We've done events up there. It's been a few years back, but they had a great little theater there. We did some events in them many, many years ago. Good to have you all.

So all the way down to Nashville, just a couple hours, actually. Yeah, it was crazy. To do your debt-free scream. How much debt have you paid off? We paid off $87,000. All right. In 17 months. Good for you.

And range of income during that time? We started at about $105,000 and capped out at about $117,000. Way to go. What do you guys do for a living? I'm an accountant. And I'm a physical therapist. Very good. What great careers.

Well done, you two. So how long have you been married? I don't know. 17 months? No, a little bit longer than that. About 20. 20 months? No, a little bit longer than that. About 20. 20 months? Yeah.

Oh, okay. So this all started with getting married then. What kind of debt was the $87,000? Student loans and car. Ah, most of it student loans. Of course. Okay, so I'm guessing you're probably not that far out of school then. How old are you?

I'm 26. I'm 25. Yeah, there we go. All right, so out of school, got the student loans, got the car, get married, game on. Tell me the story. How did this happen? So what kind of happened was growing up, I knew your name, your household name. My parents went through your program, so I always knew that credit cards and loans were evil and I should never have them.

So when Sean and I got together and sat down and had the talk, I told him I wanted to get out of debt. And he, of course, agreed because he wants to be in debt. But I don't think he realized that I wanted to get out of debt like tomorrow. More like a five-year goal. Yeah, someday. More like a concept, not a thing we're doing tomorrow. Right, yeah. He agreed with everything I said at that point.

Yeah. So when we got home from our honeymoon, we sat down and did the budget for the first time. And I just remember feeling nauseous and sick to my stomach because I saw how much debt we had. And we were 25 years old. We were barely old enough to rent a car. So from then on, it was game on for me. Sean took a little bit more convincing. He didn't know what he'd signed up for.

No, no. He was still kind of blinded by love a little bit. Yeah, exactly. So I knew that he needed some more convincing. So we actually had our in-laws give us Financial Peace University for Christmas. So I knew he couldn't reject a gift. So he went with me that first time and afterwards he was committed. He saw how realistic this goal was and that I wasn't crazy. And so from then on, it was game on, slashing budget, picking up extra jobs, and just doing anything we could to get out of debt as fast as possible. Once you saw it, your math brain kicked in, Sean. I mean, your brain works this way, right? I mean, you're an accountant, right? So this became second nature like in about 30 seconds once you got a hold of it with your brain, right? Yeah, and especially once we started putting it down in the budget and lining everything out,

you really could see projecting 20 months is what we originally said, I think, 22 months. Yeah. But then as we kept being gazelle intensity, kept looking at it and working it, we kept knocking it down closer and closer to 17 months. But, yeah, putting it into the budget really helped my mind. Yeah. We probably need to have these financial peace babies give a better disclaimer before they get married. Because you don't know what you're getting into.

I mean, she was like, all of a sudden, all this stuff from her childhood just rose up. I love it. That is awesome. All right. So who had those student loan debt and who had the car debt? We both had student loan and Sean had a car. Okay. And he bought the car.

He actually bought it when I was out of town. He was really smart about that. So when we were dating, he bought it when I was out of town. Okay. All right. That's fun. Well, way to go, you guys. Thank you.

I mean, your mom and dad have to be proud for sure. They are. That's fun. Well, way to go, you guys. Thank you. I mean, this is, your mom and dad have to be proud, for sure. They are. In both cases. Yeah, they're looking at you going, wow, these guys are sharp. Because, I mean, you hear all these news stories about people your age who are victims of their student loans. They can't get out. They're stuck. They can't have a life.

And millennials are delaying their lives. And they're delaying having kids. And they're delaying buying houses. And they're delaying everything else. And you didn'ting buying houses, and they're delaying everything else. And you didn't. You just went and got out of debt. Yeah. Just like that.

Not hard at all. Yeah, really. It's really hard. Well, tell me, what did you do? What do you tell people the key to getting out of debt is? You go ahead. Getting on the same page is the biggest thing, and really making sure that your goals align and you agree. What was it in Financial Peace University when you went in there that made a click for you sean because

she's yapping at you telling you all this stuff and then you go into that class and you're like okay i get it what was it that did that honestly seeing how many other people were also attending the class and had the same goals that we did no It made me feel like it wasn't really that crazy. It's not a complete cult. If it is, it's a large cult. Yeah, at this point, yeah. Okay, very cool. Well, congratulations.

Did you have people cheering you on or telling you you're crazy? Mostly cheering people on. I really don't recall anyone thinking we were too crazy. And if they did, I didn't hear them. No, no. There's a lot of family I didn't hear them. No, no. It's a lot of family backing you, for sure. Oh, yeah. Yeah, they're buying you the kit.

They're buying you the class and getting you in the membership for financial peace and everything. Well done, you guys. Very well done. Thanks for coming down and sharing that. That's so encouraging. A lot of young couples out there need to hear that it can be done. And you just told them that with your life. Exactly. you've lived so very well done got a copy of chris hogan's book for you number one bestseller retire inspired and that's the next chapter in your story for you

to be millionaires and outrageously generous along the way and you will be yep you will be you are on track you're making really good money you got payments. How does it feel to have no payments? Amazing. It's such a freeing feeling. Yeah. I sleep really good at night. There was months, those 17 months, I never slept very well. And once I was gone, I slept so much more peacefully. You know, that's what financial peace is.

It's peace. It's true. $87,000. That's a lot of peace to get rid of. That's what it works. I like it. And you can do this. You know now you can do anything.

Right. You've proven it to yourselves. Well done. Sean and Paige, Owensboro, Kentucky. $87,000 paid off in 17 months, making 105 to 117 second-generation financial peace-ers. Count it down. Let's hear a debt-free scream. One, two, one.

We're debt-free! Yeah! Well done, you guys. Well done. I'll tell you what. You listen to this show, you won't allow people in your presence anymore to run millennials down because I'm running into too many of them that are rock stars like those two.

Man, oh man, oh man, they got a great life ahead of them. Hey, there's a whole bunch of Xers and Yers and baby boomers. I wish they had their act together like that at 25 years old. They just knocked it out, man. There's no victim there. They got her done. That's simple. That's beautiful stuff.

Kevin's on Twitter. He says, Dave, what's your opinion on having a credit card for online purchases only? I would pay it off immediately. Kevin, just use your debit card, son. I don't own a credit card. I'm scared to use my debit card. That. I don't own a credit card. I'm scared to use my debit card. That's the playing I disagree with Dave Ramsey.

I don't want to worry about security issues with my debit card. Well, let me help you with that. Go to Visa.com. Go to the website for Visa. The home office of Visa itself. Look at it. Read their security briefing. They have a zero-risk policy for all credit card users and for all debit card users. It's the exact same protection in the event your card is used for

fraud. In other words, if someone uses your credit card number and it's fraudulent online, the charge does not count. In other words, if someone uses your debit card and it's fraudulent online or otherwise, the charge does not count. Now, the only downside is the money could come out of your account and it may take you a little while to get the bank to put the money back, but 100% of fraudulent charges are covered on credit cards and on debit cards.

Both. I buy things all the time online with my debit card. All the time. And I buy things checking into hotels with my debit card. All the time. Got the same protection you got. I don't have a credit card. I wouldn't tell you to get a credit card under any circumstances

this is the dave ramsey show Anchorage, Alaska is with us. Christina's calling. Welcome to the Dave Ramsey Show. Hey, thanks, Dave. How can I help? Well, my husband is military, and we're looking at his retirement plan. And he was investing in the TSP for years, and it hasn't really gotten us too far. So he considered maybe taking the money out of the TSP and putting it into a Roth IRA

opposed to just opening a new IRA and putting money in that and just leaving the TSP alone. He's had it invested in the wrong things on the TSP if it's not gone very good. Yeah, well, I think so, yes. I'm asking him to put the money into the funds that you had suggested in your book. I just read your book like a month ago. You changed my life. Oh, thank you. Yeah, if you move it into the C, you'll get some response. The C plan is basically an S&P 500, and it'll give you good rates of return long term. It's fine in the TSP. So you can leave that money in there if you want. Just allocate it like we've got it allocated.

We use the C, the S, and the I, and he's got it in the G. Well, he's got some in the C, I think. I don't know. He told me what he has it in, but it's kind of all kind of spread out. And he's just not making, like, we've been investing in it for 12 years, and he has about $30K in it. Yeah. What is he putting the wrong stuff in?

That's not very much. He's putting the wrong stuff. He's either not putting much in or he's putting the wrong stuff. Well, that too. We're on baby step three, and we'll be done with that in a couple months so we're going to start putting 15 of our income into that but we were wondering should we no i would not i would not roll it out when he leaves the military if he does then i would roll it out of the tsp into an ira i always take your retirement with you when you leave an organization you take

your old 401k and roll it to an ira i always tell people to do that because you've got more control and more options and so forth. But if he wants to use, if you want to do a couple of Roth IRAs and the four types of mutual funds we talk about, that would be fine and, you know, that would be part of your 15% and put a little less in the TSP. The TSP even has a Roth option now. And I would look to do the Roth TSP, and we tell folks put 80% in the C, 10% in the S, and 10% in the I. Or sometimes folks do 60-20-20. Either one's fine. But something like that.

Heavy in the C because the C is by far the best performing of the ones. I don't do any of the L and any of the automatic type investing stuff where you pick your investments. They don't move unless you move them, and that's what you should do. Samantha is with us in Raleigh, North Carolina. Hi, Samantha. How are you? Hi, Dave. I'm great. How are you?

Better than I deserve. What's up? I have a question about a self-directed IRA. I was just pitched this, and let me just give you a little background. So I am 39, single, no kids. I have about almost $750,000 net worth. I have about $200,000 and a rollover IRA. And I was thinking if I should take that money and put it into a self-directed

because I don't really have any extra cash to buy real estate. What I want to do is buy real estate. Okay. But I've already paid off my house. I don't have any debt. Good. What do you make here? I'm saving about $170,000.

Way to go. You're killing it. Well done. So everything's paid off. You're piling up cash like crazy. You've maxed out all your retirement. You want to buy some real estate and pay cash for it. And the $750,000 net worth, does that include your home or not? crazy. You maxed out all your retirement. You wanted to buy some real estate and pay cash for it. And

the $750,000 net worth, does that include your home or not? It does. Okay. How much of that's your house? About $290,000. Okay. So you get about $450,000 of which $200,000 is in that rollover. So you could take that $200,000

and put it in a self-directed and use it to buy real estate and pay cash for the real estate. Nothing wrong with that at all. Here's the two downsides. One is it's your first real estate transaction, which is fraught with danger. You get better at things as you do them more. My first two real estate transactions I didn't make any money on. And, you know, I've done a bunch of them since then, obviously, that transactions I didn't make any money on. And, you know,

I've done a bunch of them since then, obviously, that I've made a lot of money on. So I hesitate to use half of your retirement nest egg to do your very first deal when you are a neophyte investor. You follow me? Well, so I've been a landlord for about 10 years i was a i guess i've been a default landlord i've moved around and collected houses um but i've divested all of that okay and i just have my primary now then it's not it's not your first deal then okay good network it's not your first time dealing with a tenant anyway it is your first time buying a property just for investment though right yes that's correct all right cool so here let me just go ahead, though, right? Yes, that's correct. All right, cool. So let me just go ahead and I'll pontificate on that for a second.

All your money in real estate is made at the buy. Okay. If you have to wait on it to go up in value to bail you out of a bad deal, you got a bad deal. So take your time and find a bargain. And in a white-hot market like we're in right now, that's very tough to do. It can be done, but you're going to have to look at all. You're going to turn over a lot of rocks before something runs out. I mean, you really are.

You're going to have to really take your time, wait, wait, wait, wait. You're going to get really frustrated. If you just jump in and get all excited and say, I'm a real estate investor, and you go buy something, and you pay full price for it, it's going to take you years for that to make sense financially. Okay? So that's the big thing. The money's made at the buy. You should put out 40 or 50 offers before you buy it, and you should look at 300 properties. That's what I'm talking about.

Okay. You're going to have to invest some time into this, but you're wanting to fool with it, and so that's how I would do it, and that's how I bought property, is you put some effort into it to get a bargain. Now, once you buy something inside of a self-directed IRA, anything that any money that it makes stays inside that. So you have to run a very careful set of books that is just for the self-directed IRA. All the rents go back into that.

And were you to ever sell it, the profits are trapped in that. You can't do anything else with them. They're not going to be subject to capital gains because they're inside of an IRA, which is cool. You can actually do flips if you wanted to inside of a self-directed and not pay taxes, but you don't get the profits either. They're trapped inside that self-directed IRA. Anything you pull out of there is going to be taxed and penalized. So it's a little bit cumbersome operationally because you're screwing around with a separate checkbook,

which you need to be doing anyway for your properties. But, I mean, you're having to be very, very careful that you don't buy anything for that property personally. You've got to go home and get that checkbook or have that debit card or whatever it is on that self-directed. You have to run this as a completely standalone entity, and you personally just don't get any of the money until later, you know, when you cash the IRA out. But it's very trapped in that sense. As long as you're willing to do that and you're willing to do the paperwork and you take your time and make sure you get a good buy, it's not a bad way to pay cash for real estate. I would not put more than that $1,200 rollover in it.

That's about half of your nest egg, and when you've got more than half your nest egg tied up in something like this, I get scared. But I think it's a fine way to do that. I had a friend years ago who was working for a Fortune 500, and he rolled $750,000 out. And he parlayed that into about $5 million over a series of years. But it was all trapped in his self-directed.

He couldn't touch any of it. And I'll just never forget him being frustrated. Having all this dadgum money, he couldn't get to it. I mean, you'd get to it, but you'd be penalized. And make you wish you hadn't done it, you know. So that's the thing. You feel trapped. You have to do the paperwork and make sure that you get a good buy.

I mean, it's kind of got to be a hobby of yours almost to find a bargain to put in your self-directed. And, you know, I might do that as my second transaction. The kind of money you're making, I might save up $100,000 and go buy a property that way pretty quick. I think you're in a position to do that. Completely debt-free, making $170,000. You've got to be able to put together $100,000 pretty quick and go buy your little rental that way. And then the second or third transaction, do that as you're self-directed. If I were you, I might do that.

Maybe this market will calm down a little bit during that time, too, because right now it's tough to buy deals out there right now. That puts us out of the Dave Ramsey Show in the books. Hey, it's Kelly, associate producer and phone screener for The Dave Ramsey Show. This episode is over, but if you heard about a product or service and didn't have a chance to write it down, don't worry. We list everything that is mentioned during this episode in the podcast show notes section. Thanks for listening.