The Ramsey Show - App - Are You Managing Debt Or Managing Your Money? (Hour 3)

Episode Date: July 10, 2023

George Kamel & Jade Warshaw answer your questions and discuss:  "Can we have sinking funds while paying off debt?"  from the blog: What Is a Sinking Fund and How Do You Create One? How much money American's think they need feel financially secure, If you should invest while saving for a house, from the website: Ramsey Mortgage Calculator "How much we can budget for vacation?" from the blog: A Guide to Vacationing on the Baby Steps "Should we skip investing if we receive retirement pay from the military?" When to know if you can move up in house,  from the blog: How to Upsize Your Home in 3 Steps How to start investing with minimal income, from the blog: How to Start Investing: A Beginner's Guide Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET Here's an EveryDollar deal just for our listeners: get a 14-day free trial PLUS $15 off your first year of premium. Click the link below and start budgeting today! www.everydollar.com/jade Want a plan for your money? Find out where to start: https://bit.ly/3cEP4n6 Listen to all The Ramsey Network podcasts: https://bit.ly/3GxiXm6 Interested in advertising on The Ramsey Show? https://ter.li/s64ye3 Ramsey Solutions Privacy Policy

Девочка-пай Live from the headquarters of Ramsey Solutions, broadcasting from the Pogs Moving and Storage Studio, it's The Ramsey Show, where we help people build wealth, do work that they love, and create amazing relationships. I'm George Campbell, joined this hour by the incredible Jay Warshaw, and we are taking your calls at 888-825-5225. If you've got a question, you've been a longtime listener, you want to be a first-time caller, today is your day. Call us up. We would love to help you take the right next step with your life and your money. Kua is kicking us off in Greenville, South Carolina. Kua, welcome to the show. Hi, George. How are you? Hi, Jade. Hi. We are doing so great. How can we help you?

So I wanted to get your thoughts on sinking funds outside of our four walls. If we're still paying off debt, do you guys believe in having sinking funds or is it everything you have paid toward debt? This is a great question. It's a juicy conversation. Nobody wants to have these kinds of conversations, Kua. When I'm at dinner parties, nobody's like, let's talk sinking funds. I love this question. I know you two are great for it. Well, here's our thing with sinking funds. When you're in debt, you do the sinking funds for the things that you absolutely need to have sinking funds for. So the vacation sinking fund is gone. The insurance sinking fund, we need to keep that. So what kind of sinking funds are you talking about?

So I was thinking more like the vehicle maintenance, I guess like what you're saying, insurance. I kind of thought you would say that about vacations, but I wanted to make sure. Did you have the vacation sinking fund? You're're like I hope he lets me keep that one no you don't get to keep that one but there's nothing in it okay good I feel like the car one is the one that's kind of on the fence because obviously your car has normal you know wear and tear and so you've got to have the maintenance on it um it's not something but here's my thing it's if you can cash flow it or not so when it comes to vehicle maintenance if you're able to cash flow you know getting the new tire or you know getting the oil changed then i probably wouldn't do a sinking fund because you know that particular month you're

taking away twelve dollars or fifteen you know whatever it is you're taking away $12 or $15, you know, whatever it is, you're taking that away from your debt snowball, as opposed to, hey, I just know in August, I'm getting an oil change. And I'm going to put aside the I don't know how even how much an oil change costs these days. But depends if it's synthetic or regular or blend. I don't even know what you're saying. I'm a car guy. My husband likes the synthetic. So do you see what I'm saying? Like, yeah, it can be tempting to make a zillion sinking funds but at the end of the day it's like hey look i'm trying to pay off debt i need as much of my income as i can every single month to put towards that debt um and if you can cash flow it cash flow it and you have a thousand bucks right the starter emergency fund yes yes so think about

it this way could i cover what that sinking fund was aiming towards with the starter emergency fund flat tire we can cover with a starter emergency fund and the oil change we can figure that out and cash flow it in the budget when we know it's coming up that following month so i would try to plan ahead and just put things in the budget and only leave sinking funds for things you absolutely need yeah now if you had a car this is just you know for fun if you had a car, this is just, you know, for fun. If somebody had a car, George, and they're like, my car's on its last leg, I feel like it's about to go out. Should I do a sinking fund to start putting aside for an upgraded vehicle? What would you say? I probably wouldn't do it. I think I would cross that bridge when I get there. Because a lot of people are like, the car's on its last leg. And I'm like, it could go seven more months.

You never know. Right. You never know. Right. You never know. So when it comes time to do a repair, we're going to figure out how to cash flow that. Well, you pause the baby steps temporarily, stack up cash, sell stuff, side jobs, whatever we got to do to get back on the road. Good. Does that answer your question, Kua?

I don't know that we were super helpful. Am I able to answer a follow-up? Sure. Or ask a follow-up? I wanted to know what your thoughts were for saving up for the marriage and money getaway. Oh. Ooh, on baby step two? Yes.

Uh-oh. I don't know, girl. I don't know, girl. Ah. I consider that a luxury entertainment item. And I wish I could be like, Kua, we're going to send you for free. I don't know that I have the power to do that. I don't think we have the power, George. But hang on the line. I'll get you in touch with our team, and I going to send you for free. I don't know that I have the power to do that. I don't think we have the power, George.

But hang on the line. I'll get you in touch with our team, and I'll see what they can do. I make no promises. I've got the power. But because you called and you were brave enough to ask, I mean, you guys are in Greenville, so you would drive. We are, yes, exactly. So that's some gas money already right there.

And it doesn't have to be the VIP ticket. And then there's hotels, so there's a lot of expenses involved with traveling for an event. I don't know if I would do it. I think I say in my car girl no when you do when you go to this event you want it to be the luxury that it should be you want to be able to enjoy it and we even tell people like hey this is for baby step four and beyond that's right we're not trying to like take money from people who are struggling and in debt we want to see you become debt-free we want to celebrate with you at those types of events. But hang on the line, and we'll get you in touch with our live events team.

I'll have Christian connect you with those folks, and we'll see what we can do for you because I'd love to meet you. You just sound awesome. I'm crossing my fingers for you. That means the world. Well, thank you so much for the call, and I appreciate the question about sinking funds. And, Jay, this is a question that sinking funds are this kind of squishy thing. And people are like, I don't understand. Let's talk about it.

And why are they called sinking funds? And truthfully, I've looked up the etymology of a sinking fund. And it's still kind of like, meh. It kind of sounds negative instead of positive. We should give it a new name. Saving fund. That's even less exciting somehow. We'll workshop it off air.

Well, let's explain to people what it is. because I think, like you said, it is one of those topics that are like, what's the difference between a sinking fund and my emergency fund? So let's break that down for the newbies. Yes. So a sinking fund is for a future expense that you know is coming, like a quarterly or annual bill, for example. Insurance, a lot of the times times mine is billed annually.

Right. And so we have a sinking fund for our auto and home. Yes. So that our home is covered through escrow, but the auto insurance, you want to make sure that you got 50 bucks a month going into a sinking fund, which then sits either in that checking or savings account. You might move it to a different account to keep it protected. So that 50 bucks a month over 12 months adds up to $600 to cover your auto insurance.

That's right. Instead of it being a big surprise in January, like, oh my gosh, where are we going to come up with 600 bucks to cover the auto insurance? That's right. Plan for it. I love that. And I think to kind of to the point of what Kua was saying on the last call, sometimes I feel though, George, people do a zillion sinking funds and I'm like, you might be able

to just cash flow that junk. Yeah. I don't know that you know it can be tempting to put five dollars aside for this and ten dollars aside for that and it's like wait a second can you just like we said pay for the oil change probably so now if you're saving up for a big vacation coming down the pipe you're at a baby step two sinking funds a great idea because a vacation for a family of four, that's expensive. That gets expensive. You're trying to save up $5,000.

Yeah, sinking fund, great. You're not gonna magically have that money in a random month. That's right. So we've gotta make a plan to get there slowly. Christmas is a great example for a sinking fund. That's right. I'm looking at my own every dollar budget going,

what do I have in my sinking fund? Oh yeah, let's hear it. You know, membership. So like Instacart membership, something that's a yearly expense, gets charged once a year. And I always try to get the discount because I'm frugal. Come on, George. So if I can get an annual membership discount by paying once a year instead of monthly, I'm all about that.

And so that becomes an expense. Amazon Prime, Spotify, if you pay yearly. Where do you keep your sinking funds? I keep mine in checking and I have the amount that i know i gotta match it up to go hey do we make sure we have this money in checking so that when it comes out some people they like to move it over to savings but you got to be diligent about moving it back before that expense hits i like on and this is not anything for ally um ally bank has those buckets yes and i like those for sinking funds so i think buckets is maybe a better term. I think Ally did a good job with that one. I'll give them credit there. Fund buckets. Fund buckets. Fund buckets. I think we still need time to workshop that one. But hey, if you want to check out that app I was talking about, it's called EveryDollar. You can download it in the app store. You can go to everydollar.com

slash George. We've got a killer deal over there. If you want to check it out, get a free trial, check out all the premium features. It will help you make a plan for your money and give you so much confidence. I promise you that. This is The Ramsey Show. I'm George Campbell, joined by Jade Warshaw. The number to call is 888-825-5225. So, Jade, this article, some people have been sending it to me. It's been making waves, and it's just borderline hilarious. But here's the headline from notthebee.com.

The average American needs to earn how much to feel financially secure? And it goes on to say, Americans feel they would need to earn approximately $233,000 a year on average to be secure or comfortable with their finances from a new survey. That's around $19,000 a month. Per person. I don't know if it's household. It doesn't really say, but single people took the survey too.

So, you know, I imagine that's in there. Here's the crazier part. To consider themselves rich or possessing financial freedom, the average American would need to pull $483,000 according to the survey. They said that's how much I would need i'm confused i'm shook really that is wild considering uh the average earnings full-time year-round workers in 2021 was 75 according to the census bureau so they need uh triple that well i'm just thinking like stat wise like the percentage of people who earn 250 plus a year well i think when you're is not financially insecure you over index on how

much i need to feel very secure you know when you're frightened out of your mind like i need a million dollars to feel like i'm safe and that's what this goes on to talk about. It says Americans are more than two times more likely to feel financially insecure than secure. Only one in four said they're completely financially secure. It's probably the folks that follow the Ramsey baby. I was going to say it's the people who have good financial habits. That's right. And the rest said, not me. And a lot of people say it's economic factors that are keeping them from feeling financially secure. Of course course they're blaming the rising interest rates and inflation and the cost of living and the housing market and lifestyle and it's just it never ends but i some people were honest jade some said one in four blamed high or evolving debt as the problem which at least they're self-aware to go debt is my

problem because i think truthfully for most people it's debt and it's lifestyle that's right yeah yeah yes inflation yes groceries but this idea that the cause everyone's shaking their fist at the cost of eggs yeah yes that's not the solution to your problems is eggs being three dollars more than they were yeah no if it's your 700 car payment yeah if egg price is going up is ruining your world you've got bigger issues going on. Exactly. So this says, highlighting wealth gaps and varying costs of living.

Many Americans feel they need even more to pay, more pay than the national average. And here's what's interesting. Women on average say they need to earn roughly $237K annually or about $500,000 a year to feel rich. So more than men. I wonder if that's because women have the security gland is stronger, where they want that security even more.

I have so many questions. Yeah, George, this is evoking many questions within me. I don't have the answers. I'm simply a message bearer. Well, I'm thinking, here's what I'm thinking. I'm going, okay, the more money you have, the more margin that you should have if you're handling it correctly and a lot of folks that I know that have high incomes like this

they're not spending all of the money like it's not part of their they have a lot of extra that they're like okay I can give this and I can invest this. But it's not like, oh, great. Now I can go see more movies and now I can buy more steaks and now I can, does that make sense? Like at the end of the day, you're going to come to a point where it's like, this is my lifestyle and I've just got to be able to manage my lifestyle. Anything on top of that is gravy and it's cool. But it sounds like these people just want, if you can just learn to manage your lifestyle without a bunch of creep, without a bunch of inflated habits, you would be happy probably with the $75,000, which is the average income. And we've seen the stats of, hey, people who make six figures, they're living paycheck to paycheck too.

And you go, I wish I made that kind of money. I wouldn't be like that. You don't know that. Yeah. A third of people making $250,000 a year living paycheck to paycheck. That's right. And so if you think that income is going to just solve all of your problems, it's only part of the equation. And truthfully, the more you make, the more you're going to spend unless you're on a proven plan where you're living on less than you make and

you're investing for the future and you're staying out of debt. So I want to encourage you guys that you don't need to make $233,000 to be financially secure. Because I meet people that visit us that do their debt-free scream and they're teachers and they're engineers and they're making 40, 60, 70, $80,000 and their life is great. Oh yeah. And they can pay off their homes. They can invest for the future. And the big factor that allows them to do that is not their income. That's right. It's their ability to manage money instead of manage debt.

And too many of y'all are in the debt management game instead of the money management game. And you think you're crushing it because you're paying off your card every month, but you don't feel like you're making track. Yeah, you're not making traction because you're playing the credit card company's game. That's right.

You're not building your net worth. You're just helping a credit card company sponsor their next stadium. So start playing your own game. Start running your own race. Get out of debt regardless of your income. Yes, get your own game. Start running your own race. Get out of debt regardless of your income. Yes, get your income up. And some people are trapped

because they're making 30 grand a year and they need to go make more money and get some education and step into a different career. But that's not the solution to your problems. Yeah, absolutely. I know plenty of people who make like mid-range six figures

and it ain't all it's cracked up to be for them because they have not learned the principles that we teach on the show every day and so you know unfortunately the more your lifestyle goes up a lot of people it that lifestyle creep is so real we need to do a segment on how to know when to you know when there's a tease yeah how can you know when to lifestyle like upgrade your lifestyle your lifestyle without it being the negative lifestyle creep that keeps people from yes because we get a bad rap for being like they don't want us to spend money no we want you to spend money yeah that you have and budgeted for without sacrificing your future that's it well

there's a segment right there george you just explained it all right let's go to the phones walker is in austin gosh i want to make so many jokes about Walker, Texas Ranger. And I will not, Walker, because you get that so much, don't you? I do get that. Yeah. I'm going to avoid it. I just teased it, but I'm not doing it. How can we help today? I appreciate it. I had a question for you. Me and my fiance are about 35 days away from getting married and we're super excited. Thank you. Yeah. But we are going to combine finances once we're after the honeymoon, once we get

back from after the honeymoon. Smart. I think me, personally, I want to push for not going to Baby Step 4 and just going 3B and investing. But my work offers such a good match. It's a 6% Roth 401k. And I don't know if I'm missing out if I just go 3B for a year and a half or two years to try to get a good down payment

for the house. And I'm trying to figure out how to budget that because I only have an excess of about $700 a month. Okay. So you have 700 bucks a month after expenses and the wedding's going to be paid for. You're out of debt. You already have an emergency fund. Yes, sir. And luckily we're both financial peace babies. Her parents coordinate classes and my parents lived out of you. And so we're in really good financial stat. We have a, we're all, we're ready to be at baby step four once we're combined. You guys are so weird. So, so good. Okay. I know it's exciting. I love it. So 3B, for those listening, is saving up for a house down payment.

So you get out of debt, you get the emergency fund in place, then we're going to save up for the house down payment. And that's kind of this in-between investing. And honestly, it's a squishy baby step because it's a choose your own adventure. Some people choose to invest all 15% while saving up the down payment.

Some people do zero. Some people just do the match. Some people do something else. So there's no right or wrong way to do this. It's based on your goals, your age, your urgency to get a house, your urgency to build wealth. And for your situation, you know, could you get that match and then do the six percent investing and the rest go to the down payment? How much slower would that cause your down payment process? I don't know exactly. If I just took the match, I was using the free mortgage calculator you all have on ramseysolutions.com. Love it. And I was using that, and it looked like I would need a

pretty substantial down payment in order to meet that 25% of your take-home pay going towards your mortgage rate. Yeah, Austin is a hot market. Yeah, it's rough out here. And we're both young, and she's going to be in her internship, so she's not going to be making money for a while. She'll be living off of my income. But to answer your question, I think it would extend by about a year, so about three years in if I just did the 6% to kind of flex that muscle of investing. Okay.

If I'm in your shoes, I mean, marriage is a lot to begin with. I'm going to just rent for a while. And if it extends it by a year and we got to wait another year, I'm okay with that. Because I think that's going to pay dividends on the other side when you're 60 and you're going,

wow, yeah, do the math on the investment calculator and go, what does that 6% turn into with your age 30 years from now? That might make you gain some patience on that side, but either way, you're going to be okay. You're going to be multi-millionaires at this point, even if you invest 0% right now. So I'm not that concerned, but man, it's hard to pass up that match when you guys have done this the right way so well. Thanks for the call, man. This is The Ramsey Show. I'm George Camel, joined by Jade Warshaw this hour.

This is a show about you, America, about your life and your money helping you win. Are you seeing a theme here? You. You are the secret sauce. You're the main event. You're the main character. We want to give you that main character energy. If you feel like life has just been happening to you, we want it to happen for you. And you are a huge part of that

process. And we want to see you win. So give us a call at 888-825-5225. Tiffany is up next in Denver. Tiffany, welcome to the show. Yeah. Hi, George and Jade. Thank you for taking my call. So we are on baby step seven. No wonder you sound so chipper. Thank you. We are essentially wondering how much we can spend on vacations or how we can determine how much we can. This is such a fun question. What a terrible, great problem to have. Okay, you do what you want to do. Okay, so tell us a little bit more. What kind of vacation are you wanting? Well, we have five weeks of vacation a year. We're dual income, no kids, early 40s.

And we save a lot and invest a lot, try to be generous givers also. But the more we go on, the more we just like to vacation. We really like to cruise, wouldn't mind honestly doing several a year. But we also want to save a lot for retirement. I mean, we'd rather sacrifice now to have more later. And that's where we're really struggling with how much can we spend now? I think as long as you're doing the things that you need to do, right? Like, let's just say you've already set aside a certain amount that you're wanting to give, whether it's a percentage or a certain ratio, and maybe you've set aside a certain ratio

for other things, like you said, continuing on with retirement. As long as you're not touching those things, it's kind of like that same principle as before. As long as you're not touching those things. It's kind of like that same principle as before. As long as you're doing the things that you need to do, you have the margin to do the things that you want to do. And I mean, my guess is that, how much do you guys earn? I think about combined 264. And what would be like an outrageous vacation? Would it would blow your mind if you spent that much on a vacation?

We did last year. We spent 13 on one. But I mean, we have five weeks. And so we want to go on more than 13 a year. So even if you did a few of those a year, that's still not touching your world and your investing and your investing and your bills and your giving. And so I feel like it's more, it's, there's no specific ratio where I'm like, don't ever spend more than 3% of your total. We don't have a ratio like that, especially in

Baby Step 7, where you really do have so much more options. And I think as long as you guys are in agreement and nothing is out of control and you're never going into debt, there's no amount that I would say, hey, yeah, if you're going to spend $100,000, I would be like, okay, I'm going to barf just thinking about that. But spending $13,000 when you make $260,000 and you're totally debt-free with no house payment, I mean, your next goal, you want to be able to enjoy it when you're in your 40s. Not just when you're in – one day when we're in our 60s, we'll do a 13,000. You want to do this stuff now while you've got the energy. What do you have in retirement so far? I think between the two of us, investments and our 401k and TSP, maybe about $ two million total.

Girl, look, I'm going back on what George said. If y'all saved up for a really long time and had $100,000 on a vacation, I'm not even mad. It really would not be that big a big part of your world. You know, like Dave Ramsey would be like, that's like, you know, me buying a biscuit. That's a biscuit. Yeah. He loves the biscuits. And so I think you dream it up, budget for it and do it. Pay cash, baby. That's so cool.

This is why you guys did this stuff, right? It's so that you had options and margin and you can do this kind of stuff. You can do this outrageous stuff, including giving, including spending, including investing. I mean, I don't know many people that are in their forties with $2 million and no debt. And that doesn't even include your house. I mean, by the time you guys actually retire, it's going to be popping off. You guys are doing so, so well. I'm so proud. Tiffany should be behind this desk teaching us all how to get there. I know, right? You are incredible. So, so proud of you guys. Send me some photos from vacation because we're behind this desk. We're not out there.

Yeah, I want to go. Take us with you. $100,000 vacation, take me. I can't even imagine what I would spend $100,000. George. I mean, that's like multiple overwater bungalows like for my entire family. Yeah, well, you gotta,

if you're taking a leave of absence, so you gotta, part of that is probably like to account for income, you know, like pay loss. So you've got to think about that. They have five weeks. They got plenty of time to take off. Yeah, that's true. They're doing the PTO.

But I'm just saying, I don't know if you can spend that in five weeks. I feel like you need an extended leave. It'd be a challenge for me to do that. Let me, let me plan it. I bet Dave Ramsey could do it. He's on a vacation right now. And I'm like. Dave once encouraged me to buy a $500 bottle of wine and I it blew my mind so I know Dave could do it

I'm too frugal for that I'm like I can't I'm not a sommelier I can't tell the difference he was like if you let's let me see what you think he was like if you make 200 and I think the person made $250,000 he was like buy a buy a $500 bottle of wine and i just i had to clutch my pearls i'm scared i'm too middle eastern for that i'm like my parents are immigrants we can't be out here he's right but i was like oh okay i will accept dave's generosity if he wants to do that for me yes thank you dave well he wasn't the one buying it he was telling other folks yeah so if someone else buys it i'm like good for you you deserve for you. Treat yourself. I don't know if I could do it. No, I'm not there yet. I'm not there. All right. Ashley's up next in Cleveland. Ashley,

welcome to the show. Hi, thank you for taking the call. Sure. What's going on? So we've been working the program and we are at the point where we're ready to invest our 15%. Well, we're still working on our emergency fund, but shortly we'll be investing our 15%. But our situation is a little unique, so I'm wondering if you might advise me to pay down our mortgage first. Okay. And the uniqueness is that my husband is disabled from the military,

so they gave him a retirement package at the age of 35. And we will receive non-tax income from him for the rest of his life, including insurance benefits and things. So we also have an insurance plan that if something was to happen to him, I continue to receive those benefits for the rest of my life. I'm also working on a teacher. So because we are set up for retirement already, I'm wondering if it is a benefit to just pay down our mortgage quicker and then invest the 15% or maybe even more at that point. So what does this retirement package look like? His income is $4,100 a month, non-taxable, and we are on TRICARE. So TRICARE is a pretty all-inclusive program. Our medical bills are very low, if any. And that income is not taxable? Correct. Okay. So basically $4,000 take-home pay forever, and that's your retirement

plan right now? Yeah, and that increases with cost of living. So every year there's a small raise. It's usually not a huge raise, but it does increase. The way I'm thinking about this is, George, is similar to the way we might treat like a pension or something like that, right? Whereas we say to invest 15%, but if you have something like a pension, you're not counting that as the whole amount, right? You're saying, oh, if my pension gives me 7%, okay, yeah, but we can't control it. So let's count it as three and a half percent, that sort of thing. So I'm kind of wondering if you might look at this and say, okay, instead of investing 15%, have this account for whatever that percentage is, let's say it accounts for

3% of that, you know, that sort of thing, and run it back like that. I'm just wondering, I haven't met anyone that's like, man, we put 15% away and we just ended up having too much money in retirement, out blue. And so I'm kind of in the boat of like, what would it look like if you still invested 15% and then aggressively paid off the house using some of this income? How much longer do you guys have on this mortgage if you did that? It's a new mortgage, so we still have 14 and a couple months, 14 years and a couple months. Okay. And what do you say, what kind of mortgage? I said it's a new mortgage. Oh, a new mortgage. Oh, so you just started. Got it. Well, I would see how much we can allocate.

Do some math and go, hey, if I invested 15% of our household income and then the rest went towards the mortgage, how quickly could we pay it off? And my guess is you're going to look up and say, oh, we could do this in like seven years. Yeah. And it's no big deal. And you guys have time. So I just, you know, I don't want to rely on, I don't know what life's going to look like in retirement. And so I don't know that four grand a month is going to be enough. What if you guys want to do something outrageous and give more and spend more and go on a $13,000 vacation?

And that's why I say I would invest to be on the safe side and be on that side of history. But either way, you guys are doing great. Thanks so much for the call. This is The Ramsey Show. Welcome back to The Ramsey Show. Welcome back to the Ramsey Show. Our scripture of the day comes from Proverbs 6 verses 6 through 8. Go to the ant, you sluggard, consider its ways and be wise. It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest. That'll preach. Thomas Edison once said,

Opportunity is missed by most people because it is dressed in overalls and looks like work. Come on. Ain't that the truth? So the question you need to ask is, are you smarter than an ant? I would like to think so, but, I mean, America's broke, and these ants are at least, they're like, hey, we've got to eat this winter. Like, they're storing up, you know what I mean? So it's a good question to ask tonight at dinner. Yeah. That's a fun dinner conversation. Just don't get in a fight with your spouse. All right. Let's go to the phones. Matt joins us up next in Detroit. Matt, welcome to the show.

Hi, my name is Matt from Detroit. I was curious if paying off our current home right now is the best solution for us or being in the market and looking to purchase and upgrade a new home. Okay. So tell us more. Are you already planning to upgrade? Where is the house move coming from? Yes. So our house is getting smaller.

My wife just gave birth to twins about a year ago, so it's starting to move around. How big is it? It's 1,300 square feet. There's no open concept. There's just like one living room that was good for just us when the babies weren't really moving. Now they're moving around, and we're just realizing we need a bigger space. But we're not at the point to where it's a must yet. However, we are dabbling in the market.

Are you guys debt-free other than the mortgage? Yeah, we have a mortgage that runs us about $1,100 a month and I have a $500 a month car payment. Other than that, we're debt-free and the note is left at like 17 grand. How quickly could you get that car paid off? I could do it tomorrow if I wanted to. Whoa, you got the money.

Yes, we have a decent amount of money saved. How much? And about between the both of us, we have around $260,000, $270,000. Goodness gracious. That's great. Where did that come from? Just steadily over time? Yeah, just a lot of savings.

And I paid off a lot of student loans in the very beginning. And my wife and I are both working. She's working only three days a week. So after she gave birth, she was working four days a week. But after she gave birth, she went to three days to, you know, so she could spend more time with the kids. Okay. What do you both do for a living? She's a dentist and I'm in IT. Wow. So great income, I'm guessing. What's your income? Together combined, I'd say it varies depending on a bonus, but I'd say it's safe at around $250,000, $260,000 a year. Good job. And what's left on the mortgage? $120,000, I think $120,000.

And what's the house worth? Right now it's looking around like $2,000. I would say I could probably get $220,000 for it easily. Okay. So after fees, let's call it a little under $100,000, you might walk away with if you sold it today? Yeah, that's what I was thinking. Maybe I would put it for sale by owner to get rid of the real estate cost, but that might just...

Nah, I definitely use a pro. You would? Yes, 100%. They're going to market it and it's going to be so dialed in that you will make more and it will cover the fees. That's how I've seen it. That's like somebody walking up to your job and being like, I could probably do it myself.

You'd be like, no, you can't. But either way, Matt, here's the thing. I'm looking at the numbers and either if you pay down the mortgage, you just have that equity built in when you go to sell and you roll it into the new house. So I don't see it as an either or. I like actually putting it onto the mortgage because it's a four savings plan and it stops me from doing other things with it. Yeah. Like, I'm going to upgrade the car. I'm going to get a renovation. So I like you paying down this mortgage in the meantime. And honestly, you got 260. Why not pay off the car and the house tomorrow? I agree. Man, wouldn't that be a feeling? Yeah, I was watching

some of your things and that's what made some of your videos on YouTube. And that's what made me call in because we're looking at a home. We're looking to upgrade it. Honestly, we're looking to build. Yeah. So I'm thinking that that's going at a home. We're looking to upgrade it. Honestly, we're looking to build. Yeah. So I'm thinking that that's going to cost us, we're in the market for around, I don't know, 600,000 range for us. But I didn't know if this is too premature. I was thinking we pay everything off, wait a couple years, build back, come into the market with, I guess, more liquid cash.

You definitely could do that. I mean, like George said before with, I guess, more liquid cash. You definitely could do that. I mean, like George said before, this is really more about your timeline. I like the idea of getting free from the debt, including the mortgage. Then it kind of opens up your priorities to see you might get into that debt-free lifestyle and feel like, you know what, this feels so good. Like, I know we've got the twins in the house, but we've got so many options now. And you might decide to wait it out and save up more. Or, you know, again, just because you have the paid off mortgage, you're still building equity. So it's not like you're, there's nothing lost. There's only something gained, you know?

So if I'm in your shoes, Matt, I'm paying all this off tomorrow. 17K car loan, gone. 120,000 mortgage, gone. That still would leave you, based on the savings you talked about, still leave you with 120, right? Liquid cash. Yeah, absolutely it would. And that's just getting rid of that much money is kind of... Oh, it hurts. It would feel great. Because you worked hard to do it and you love seeing that balance, but it's kind of a false illusion because you owe 120 grand on the other side and 17 grand in car payment with interest. And so I would be, I'd want to get completely debt-free, stop paying lenders interest because you are too smart for that and you make too much money to be doing that. And then you have 120. Now we can

start making a plan. All right. How much down payment do we want to put down? What kind of house would that get us? What if we could do it with cash? Now you have some options. Yeah, that's kind of what I was thinking as well, and it just feels good to hear that from someone else. And, yeah, that's the boat we're in. I was also thinking, well, we could sell the house right now. I would take maybe 80K equity and build a pool or whatever when we slow down a 20% down payment.

But I'm looking at the mortgage, and we're talking that's going to be maybe $5,000 with utilities all in a month. Well, you guys make $260,000. And so I would be looking at these numbers going, all right, we're going to do a 15-year fix no matter what. We want the payment to be a quarter of our take-home pay. That will start to dictate what kind of budget for the home you get. I want you obviously to put down 20% or more with your income and your situation, and you'll be able to do that. But don't get too crazy on the other side and go get a million dollar home and go, well, we'll figure it out. Make a plan, do the math, pay off all your debt,

and it's going to feel so good when you get there, man. Thanks for the call. Such a great point, George. I feel like in his situation, it's a great situation, but it can also be precarious because there's a lot of money lying around here. There's a great income here. It can be very easy to not be as detailed as you need to be, end up with too much house because it's like, oh, we got money, we got income. We can kind of out-earn some of this. No, it's the same. That same equation works no matter if you're making $60,000 or $260,000 when it comes to this next home purchase and making sure that it falls within those guidelines. Yeah, a lot of diligence there.

All right, let's try to take a real quick one. John in Knoxville. Get right to the question, John. We're up against the clock. Hey, guys. So I'll be quick. I'm a medical student, and my wife, she works a pretty normal job. We want to set up ourselves well for investing.

We're 24 and 23. Wanted some advice from you guys how we can maybe invest to pay off some med school debt and also just set ourselves up well for life. Cool. So you're both in school? Yeah, I'm a med student. She's about to start her master's. Okay.

So what's the current income? Current income, household altogether, will probably be about $60, Okay. So what's the current income? Current income, household altogether will probably be about $60,000. And that's today? No, that starts in about a month. Okay. So one month from now, we're making $60,000. How much debt do you guys have? Right now, we've got a current about $20,000 in education, and we've got $15,000 on our car. How are you guys paying for education? Well, when it comes back, we actually don't have to pay on it yet, but we have started paying on it in like a month or two.

And so when that starts, we're just going to pay. So you're taking loans for, actively taking loans for education? That's right, yeah, for my medical education. So you still have more loans to take out at this point? That's right. Yeah. For my medical education. So you still have more loans to take out at this point? That's right. Oof. Well, you're not going to like our answer, but you're not going to invest your way out of debt. I wouldn't invest until you guys clean up this mess and I would try to cash flow the rest of it and avoid more bleeding, aka more debt. Yeah, because at the rate that you're borrowing, what do you project will be the final amount of debt when you graduate? When I graduate, I think we'll be at 360.

Oh, no, sir. Don't do it. John. Don't do it, bud. Dude, this is going to only hold you guys back. And I would not invest a dime right now because you got to act like you're broke because you guys are broke. And I would try to cash flow as much of this as possible. I would not take on any more debt. If you need to pause these career dreams for a while, but dude, walking away with 360 in debt is going to be a nightmare. Find a program that'll pay you to go to school. I know they're out there.

Get creative, but I would not continue down this path, my friend. That puts this hour of the Ramsey Show in the books. Until next time, spend wisely, save intentionally, and give generously. and click on the Get Started button. We'll help you figure out the best next step for you based on your specific situation. That's ramsaysolutions.com, and click Get Started.