The Ramsey Show - App - Break the Cycle of Debt and Build a Lasting Legacy (Hour 3)

Episode Date: November 13, 2018

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Music Music Live from the headquarters of Ramsey Solutions, 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, your host. Thanks for joining us. Open phones at 888-825-5225. Rhonda's in Philadelphia. Hi, Rhonda. Welcome to the Dave Ramsey Show. Hi, Dave.

Thanks for taking my call. Sure. What's up? So my husband and I just found you a few months ago, and we started working our baby steps. We have a car that's leased and a car that's in finance and we just were planning to pay them off. And then I heard a segment about you helping a caller get out of the lease and how much you're overpaying it. So now we think we just don't want to do that and we want to get out of the lease. So I'm not sure how we do that now that we've got our emergency fund down to a thousand

and we don't have the money to just go out and buy one right now. Right. Your work and your debt snowball. So how much debt do you have, not counting your home? We're down to $98,000. Whoa. What, student loans? Yeah, student loans and two cars and lines of credit.

Okay. And the balance on the lease, the payoff on the lease, the early buyout is what? $32,000. Okay. And the balance on the lease, the payoff on the lease, the early buyout is what? $32,000. Okay. All right. And what is the car worth? $29,000. Okay. And what did you say again your income is, your household income? Before taxes, it's about $175,000 a year. Oh, that's good news. You're killing it.

Very good. Okay, cool. Well, that's a lot of room. Okay, so how much is left on the lease? How many months? We just made it one year, so we have 24 more months on the lease. Okay, Okay. And the payment is how much? $463 a month. Okay. So you're either going to pay $3,000 now, which is the difference between the early buyout and the cost of the value of the car, or you're going to pay $12,000 to continue to lease the car. Right. the car or you're going to pay $12,000 to continue to lease the car. Right. Yeah. I think you're probably better off with $3,000 than $12,000, don't you?

Yeah. But then to get another car, is it okay to just get something less expensive and have a payment for a few months until I pay it off? Or do I need to save up all that money cash over a few months and pause the baby step and then buy the car outright? Well, we could put at the front of your debt snowball $6,000. $3,000 to buy a car and $3,000 to get out of this one. Okay. And so the first thing you do is build up $6,000 to get out of this car

because that gets rid of $32,000 of your debt. Right. Which is kind of nice. Right, right. You get kind of a junker car. And then as quickly as you get out of debt, of course, with your fabulous income, you guys are going to save and move up into decent cars. Right. With cash.

Yeah, so this is not a long-term thing. I mean, you should be debt-free in less than 18 months, and so two years from now you're buying a nice car. Right. With cash. Yeah, I just hope I don't find something that'll last me two years. That's $2,000. Well, two years.

Really, two years. That's all you're talking about. Because you'll be out of debt in 18 months. Yeah, I'm calculating like 12 months because I took up another job and my husband's doing some consulting so as soon as you're out of debt you build your emergency fund then you start saving move up in car so it's you know 12 to 18 months you're buying another car okay so we just won't go get another note we'll just try to get it yeah just get you a beater

just something to get around uh and get rid of this thing because that accelerates the 12 months even, right? It does. It does. Yeah, I think I'm doing that. It takes four months to knock it out. What do you guys do for a living? I'm a project manager, and my husband works in IT at a college. You're both doing very well.

Congratulations. Thank you so much. Well done. Good to talk to you. Thanks for calling. Jason's with us in Spokane, Washington. Hi, Jason. How are you?

I'm doing well, Dave. How are you? Better than I deserve. How can I help? I've got myself in a mess. I'm an attorney, but I have my own shop. Basically, I've got about $400,000 in debt. I'm working for a new firm now, so I have a steady income.

A lot of that debt is taxes to loans. I'm looking at a chapter 13, which will be starting shortly. So my question is, one, should I do that? And number two, if I do that, how can I save money so that when I come out of it, I'm in a better spot? What's your income?

About $100,000. Okay. And break the $400,000 in debt down for me. What's it owed against? $115,000 student loans, about $40,000 back taxes to the IRS, employment taxes from the head of my own stuff. $55,000 in business line of credit. $20,000 credit cards.

$70,000 in vehicles that were being stupid. One's already, I've surrendered one already. Some other random guy. You single? I am. Recently, last year. So a divorce? Yes.

Man, you've had a hard couple years here, brother. Yes, sir. Okay. Okay. Okay. A Chapter 13 is a payment plan, as you know. Yes. Okay. So I don't know what it really benefits you. I mean, you could put the IRS on a payment plan

and move them to the front of your debt snowball. You could ignore the credit cards for a while. They're going to crash your credit, but not as much as a Chapter 13 does. You can sell off the vehicles, the ones already gone, and you're dealing with a repo collection there, which you pay nothing on for right now. And so, you know, if you just say, I'm going to list these off by importance and begin to attack them in that order, put the student loan on hardship deferral, put the taxes at the top of your list and pay them off very, very, very quickly. Like, I don't know, eight months, you'd be done with the IRS.

Easy, making the money you're making. Just put yourself on beans and rice, rice and beans, right? And then go through and the vehicles are gone. Clean up your credit cards, and then you can go settle with the vehicle. If you've been repoed, one of them got repoed or what? Yes. Okay.

And the other one you're driving, right? I am. And what's that one? How much do you owe on it? I owe $32,000. Okay. Sell it. Get you a beater.

That gets rid of that debt the repoed one um the balance is all they're coming after you on the deficit balance the difference between what was owed and what they sold it for and you can settle that for a quarter on the dollar in cash later so um i don't know that a chapter 13 necessarily benefits you i think you'll be out of debt faster and without as much damage to your credit just working a prioritized plan through this and i would my plan would be um uh taxes first uh line of credit or credit cards second the other one third um you know clear up the vehicle debt with uh with a settlement and then start the student loans and begin to work through those. Because that's all you're going to do with Chapter 13 anyway,

is just wander through this stuff. Chapter 13 is 60 months. It's five months you're going to be in that. And I think you can do it if you've got enough emotional energy left in your tank after all the hell you've been through to fight through this. I think you can do it more efficiently without the 13 personally. This is the Dave Ramsey Show. There's nothing smart about smartphones if your wireless plan is blowing your budget

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Plus, you can keep your same phone and number and add multiple lines to save more. We're so confident you'll love Pure Talk USA that we invite you to try our service risk-free. Just visit puretalkusa.com, enter promo code SAVEDAVE, no spaces, and receive 50% off your first month. That's puretalkusa.com, promo code SAVEDAVE. Thank you for joining us, America. Glad you're here. Open phones at 888-825-5225. Bradley's in Richland, Washington. Hi, Bradley.

How are you? Well, that's beyond measure, Dave. Same here. How can I help? I'm a short-time listener, first-time caller. I've never read your book, never took any of the classes, but I have lots of friends that I hang out with, and my parents were really always talking about days this, days that.

And I said, well, just tell me about it. And so they told me the snowball effect, and then so I did it. Paid off all the credit cards. They told me about it. I should pay off the house. Did it. Paid off the house. And so now here I sit almost debt-free at the end of this marathon.

I'm sorry, almost? I thought you paid off the house. I did pay off the house. I have an RV left. Oh, an RV. Okay. You paid off your house before your RV. Okay. That's correct. And how much do you owe on the RV? $29,000. Okay. And your household income's what? About $140,000 to $160,000, depending on how much time I take off. Good for you. Okay. So what's your question? So here I am, and now I'm dumping a bunch of my money into my 401. And what I noticed is I started watching your podcast here, and I realized I know nothing. And so now I'm thinking, man, do I need to go back to the baby steps and read your book, take the class, and act like I'm just a noob?

Because I actually am pretty new. Well, what you got is a bunch of bunch of pieces of information discombobulated and in the wrong order and so forth. But the good news is you actually cared about the subject. You did something about the subject. The subject called money. You weren't passive and, you know, sitting in a victim's chair or something. And you make really good money and you're obviously a smart guy. So, you know, this is there's a lot of good news here. So really all the baby steps would do, or our proper order,

what we would call the proper order, would do for you would just be to fine-tune your plan, and I think you would feel a better sense of traction if you had that, okay? And so, you know, what I would do is you are in baby step two because you have non-mortgage debt left called the RV. Right. I would stop everything and get that RV paid off. Once that's done, then I would do my emergency fund. Do you have money to save for your emergency fund already?

Yeah, I have about ten in the bank, which is not much for my income no not much well baby step one's a thousand dollars anything above that that's not in retirement accounts that are penalized we slam onto the consumer debt which you have 29 000 of okay and so a purist if you're working our plan, okay, you can do what you want to do, obviously, but you call me, so I'm telling you. A purist would take you down to $1,000. That's baby step one. Everything above that goes on this thing, on this RV. We're stopping the 401K. We're stopping anything.

We're on beans and rice, rice and beans, very tight budget, and very, very quickly clear that RV, and then very, very quickly move on to baby step three, which is a fully funded emergency fund of three to six months of expenses. In your house, that's $25,000 or $30,000. And just sitting there just for a rainy day fund. When you finish that, then you would restart your 401K. And that's not going to take you very long what are we we got we're sixty thousand dollars from there you make 145 and you have 10 to throw at it so you really fifty thousand dollars from being where i'm talking

about right okay that's that's a six month plan you know yeah something like that and you'll be Right. And then what you're doing is you're maxing out retirement and you're doing other investing. And if you've got kids' college, you start pounding on the kids' college in there. But that's how it would unfold were you to do this in the, quote, proper order. And all that's doing is prioritizing things properly because you kind of went around on the other side. You got your investing started. You went around on the other side, got the house paid off kind of backwards so to speak because you're vulnerable now you've still got this consumer debt and you got almost no emergency fund right you know you're sitting here vulnerable because just because you did out of the right in the wrong order but it's not that big a deal it's very very fixable if you just decide you want to submit yourself to this plan, or you can do your plan.

You know, everybody can do their own thing. It's whatever you want to do. This one just works. We don't know about yours. We know about mine. Mine works. And so you can do whatever you want to do. Again, I'm fine with it, but we've kind of got a proven track record here.

I mean, this is like best practices, dude. So hold on. I'll send you a copy of the book, The Total Money Makeover. Read through it for yourself. You'll do it in one night you're that guy and you know you're going to go oh okay i'll see what dave's talking about and you'll see exactly how to unfold what we uh you know what we talked about here and you'll be able to pull this call up on the podcast listen to it again you if you forget exactly what i told you it'll be right there and if i can help you further you call me anytime but let's just fine tuning to all the already good things you've already done. You've done a lot of really good things.

Open phones at 888-825-5225. Gamer is next in Los Angeles. Hi, Gamer. How are you? Hey, Dave. How are you? It's a pleasure speaking with you. You too.

What's up? I'm calling on behalf of my parents. I've been listening to the show for a long time, and I noticed my parents are living a little bit differently, and I just want to know how I can help them. So they really believe in having a credit score, so they spend everything every month on a credit card, and they always pay it off.

So for 20 years, they've never had any overcharges. They've never had any late payments or any interest payments, but they really believe having a credit score is valuable in this country. How do I get them off of that idea? How old are you? I am 21. You're not? Yes, I am. No, you're not going to get them off the idea oh okay they've

been doing this since before you were born they don't want your opinion well i mean we call it we call it the powdered butt syndrome once someone has powdered your butt they don't want your opinion about money or sex. And so the chances of mom and dad listening to a 21-year-old preach to them about how to handle their money is almost zero unless they ask. And now what you can do is a couple of things. I mean, you're not going to be able to sit down and have a one-on-one debate with your dad and him suddenly stop doing what he's been doing since before you were born. You follow me?

You just don't have credibility to do that. But you can tell them about your story. They're going to disagree. They're not going to like your story. You're living without a credit score. You're living on a cash basis. You're not going into debt so that you can go into debt so that you can go into debt so that you can go into debt, which is the credit score dog chasing its tail that the whole culture lives with. I'm going into debt.

Why? So that I can go into debt. Why? So that I can go into debt. Why? So that I can go into debt. And that's what your dad has done his whole life. And he thinks that FICO is his provider, and FICO is not his provider.

Wealth is his provider. And the good job he's probably done a good job with money. It sounds like they're very disciplined and that they've used the, as you said, moving to this country, they've used that as an opportunity, and I suspect they've built some wealth. Yeah. My second question is that my dad's looking to buy a second home to give out as a rental property as an income because my dad doesn't have any kind of investment or 401K. He works on his own.

My mom has a small 401K from her work, but it's only $25,000 in there. But my dad has nothing except like his nest egg, which he wants to buy a property with debt to rent out for income. Should I try to encourage him to also put some of that into investing and then use the rest of it for debt? I would avoid a rental property with debt. I don't tell people to do that. And I would tell him to first build his Roth IRA and your mom's Roth IRA in some good growth stock mutual funds. So bottom line is they haven't built wealth.

I was wrong. I thought they had. But they're basically broke because they've been worshiping at the altar of the great FICO. So number one, tell them your story. Number two, you can give them a copy of our book. Introduce them to the idea. Let someone else talk to them about it. I doubt they're going to take your advice. It would be unusual for them to do so. Let me tell you a story about two families that are very much alike in a lot of ways.

Both families have two working parents and a couple of young kids. Each has debt and a struggle to make ends meet. But they're starting to make headway with their budgets and smarter decisions with money. They have dreams and plans, and the only real difference is that one family has the right amount of term life insurance, and the other doesn't. Big difference. If one of the parents die, and that does happen, their well-being would be destroyed. Paying for the mortgage, utilities, food, and other bills would be impossible, let alone saving for education or retirement. That's why every day I talk relentlessly about getting term life insurance.

Just go to ZanderInsurance.com or call 800-356-4282 and see how inexpensive it really is. Be the family that takes those deliberate steps to be different and responsible. It really does make you the hero of your story, and it puts you on course for better things ahead. Evan and Kara are in the lobby of Ramsey Solutions. Hey, guys, how are you? Hey, Dave.

How are you, Dave? Welcome, welcome. Where do you live? We live in Katy, Texas. Houston area. Yes. All right? Welcome, welcome. Where do you live? We live in Katy, Texas. Houston area. Yes. All right. Well, welcome to Nashville.

And here to do a debt-free scream. That's right. Yes. Love it. How much have you guys paid off? We paid off $174,000 in three and a half years. Wow. And your range of income during that time?

Started at about $115,000 and went up to $230,000. Wow. Doubled it. Cool. What do you all do for a living? I'm a fire protection engineer. I'm in supply chain management. Okay.

So what caused your income to double during three years? We worked hard, took promotions when they were available. We moved from Seattle to Houston for a promotion and lower cost of living. Okay. So you just slammed all opportunities around both great careers yeah and also dave i um something one of our biggest bumps was when i decided just to go into my boss and ask for a race i just went in and i laid it out said i feel like I've made my mark here, basically. I've worked hard. In your field, it's easy to show your worth.

That's true. It is. That's true. When you save your... Yeah, we've got some supply chain people around here, and they show me all the time how they're worth a lot more than their pay. That's right. So when I asked, they gave it to me.

Good. Good for him, and good for you. Yeah. Very good. So serious money. What kind of debt was the $174,000? We had a lot of student loan debt and then two cars, some medical bills, a personal loan, some credit cards. Y'all were normal.

Yeah, real normal. Normal plus a little because you had a lot of debt. Wow. A little bit of everything. Live in the American nightmare. Yep. And three and a half years ago, some kind of a switch flipped what happened well it goes further back than that um which is pretty normal for people you talk to but um i wanted you to know how much of a change you're making in our legacy my parents were really bad with money.

As a matter of fact, they declared bankruptcy twice before I left the house. And at the age of 24, I declared bankruptcy because that's what I knew. And so really when I hit rock bottom, there was a switch and I started studying budgeting and things like that. I hadn't heard of you yet. A couple years later, we got married and a few years later, we had some friends sell a truck. It was fairly brand new. And so it was shocking to us. And we asked them why. And that's when we heard about you. Around the same time, we also found out that it was going to be very difficult for us to have kids. And so we learned that we were probably going to have to do in vitro and we also learned that we

had all the stuff that we wanted to pay off and so we had to balance cash flowing several rounds of in vitro along with paying off this debt oh so in addition to 174 you've done some of that yeah i've been in the hospital a lot and lots of doctors. Wow. Wow. What a process. Unbelievable. So three and a half years ago, exactly there what happened that kicked you into this high gear? Because that's when it took off, right? Right.

Go ahead. I think when we had kids, we didn't know how long she'd still be working. We wanted to make sure we were in a place where we'd be comfortable on just my income and so that was a lot of it for me at least okay and then you just decided you started listening to the show or what happened yeah we went through financial peace university we bought the dvds yeah and uh listened to your podcast a lot and got fired up about it well you did you paid off a ton of debt i mean you were fired up the up. The numbers show it. Yeah. We just decided it was time. Thank you. Very proud of you. Well done.

You got to feel great, do you? Yeah. It's awesome. It's a neat place to be. I mean, like a relief, huh? Yeah. It's a weight off our shoulders. It's very emotional.

Yeah. I feel like I stopped a chain that was going in a really bad way for my kids. You did. You broke a family curse. Yeah, I did. You really did. And that can be done. Yes, it can.

We have the right to choose, and we can choose. Yep. Well, we're not doing that anymore. Right. Just like that. And here we go. Good for you. Well done.

So what do you tell people the key to getting out of debt is? $174,000 paid off in three and a half years. You're an expert. Yeah, just sticking with it. I think continually reminding yourself of your goals. We re-listened to the CDs several times throughout the process. We kept listening to your podcast

to keep that goal in mind. That was a big part for us. I think also paying your tithing for us that when you're showing the Lord that you're willing to sacrifice, he will open up avenues for you that you don't even have any idea can open. Well, I mean, you take $115,000 income to $230,000. I think this tithing idea is a good idea.

Right. Right. Yeah, He does bless you. He does bless you once you can show that you can handle the blessings. Absolutely. So very well done. Yeah, when you're faithful in the little things, you'll be given more to manage. Right.

Good for you guys. Who were your biggest cheerleaders? Our kids. Yeah. I think our kids were very involved. Yeah. We had a couple people tell us that they couldn't do it, but good for us. But mostly we had people around us who his parents were really supportive his

brothers everyone was pretty supportive of us cool so how many kids we have four four wow yeah so it worked yeah some of the time yeah yeah we had a couple that didn't but yeah yeah wow well they're beautiful they're just showing a picture of them up on the YouTube feed. They're fantastic. Very fun. So what are their ages? We have nine-year-old twins, boy and a girl. Carter and Vienna, and then Ivy's five, just started kindergarten, and Camden is two. He thinks his name is Bubba, but his name is Camden. I love it.

Very good. Well, congratulations, you guys. Thank you. Very proud of you. We got a copy of Chris Hogan's book for you, Retire Inspired. And that is the next chapter in your story. That chapter is closed permanently on this family. You broke it.

And now we're going to open another chapter and say millionaire status. You'll be there in no time with his income and no debt and be outrageously generous along the way. I suspect you might end up paying in vitro for somebody someday. That would be fantastic. That could happen. Good idea. That could happen. You'll have some extra money laying around and you go, I'm just going to do that.

Yeah. That's pretty cool. You guys are special. I'm proud of you. Congratulations. Thank you. Thank you. Evan and Kara, Houston, Texas, $174,000 paid off, three and a half years, $215,000 to $230,000 in income.

Count it down. Let's hear a debt-free scream. All right. Three, two, one. We're debt-free! Boom! I love it! Ha, ha, ha, ha, ha!

Well done, Well done. Well done. Man, that's awesome. Our question of the day comes from Blinds.com. They're the number one online retailer of custom window coverings. You get free samples, free shipping, new promos every month. Use the promo code Ramsey to get the best deal. Freddy's in South Carolina. Dave, I've been offered a payment plan to get one of my loans cut in half,

but I don't have Baby Step 1 done yet. Should I continue doing Baby Step 1 or pay this loan over the next year and work on one when I have extra money? Baby Step 1, Freddy's, $1,000. It should not take you that long. You need to have a garage sale. You need to put some not take you that long. You need to have a garage sale. You need to put some stuff on Craigslist. You need to work an extra job.

Baby Step 1 is a one-month affair, dude. And so you can take this deal and start paying payments on your regular payments. You're supposed to pay payments on everything anyway and then start your baby steps. So pay minimum payments on everything, start your baby steps. And then you put this loan with the payment deal in your debt snowball and you knock it out as quickly as you possibly can you work your way right through that and that's how you do it so hey good question if you're thinking about selling a home one of the biggest challenges is finding a real estate agent that's an expert. A lot of people with real estate licenses that sell a house a year, two houses a year.

You do not need to list your most expensive asset with somebody who does not have any more experience than that, who is not getting it done. So that's how you do this, folks. This is why we started our Endorsed Local Provider Program, our ELPs. We endorse people locally that provide help, in this case, with real estate. These are the top 10% of agents in your area. They are awesome. They're high-octane, high-protein.

They know what they're doing. They're going to get your house sold and get it sold for the most money. They're going to help you find a house in this crazy market and get the best possible deal representing you. Check out DaveRamsey.com. Click ELP for real estate. This is the Dave Ramsey Show. We'll be right back. Our scripture of the day, Colossians 4.6, Let your conversation be always full of grace, seasoned with salt, so that you may know how to answer everyone. Simon Sinek said, Two ways to influence human behavior.

You can manipulate it or you can inspire it. Woo! That's good, Simon. He's got some good ones. Love that guy. Michael's with us in Cleveland, Ohio. Hey, Michael, welcome to the Dave Ramsey Show. Hey, Dave.

Hey, what's up? I think I have an easy question for you. Is it wise to save for Christmas and supplement an HSA while in Baby Step 2? Or should I cut everything? You should not do an HSA savings while you're in Baby Step 2. You should not do an HSA savings until you finish baby step three. Okay. Because you're going to cover that with an emergency fund to start with,

and later on you'll use the power of the HSA savings and so on. Christmas, however, is right on your doorstep, and you're going to have to put that in your budget. Okay. Yeah, you're going to have to budget for that right now because it's right here in front of you front of you and you know how else are you going to do it if you don't save for it right i was going to just scrape together a little bit kind of what i do every year and then next year my work has a credit union so next year i was going to put weekly money in there to not do that again next year that's fine yeah but i mean know, you need to pile up some money right now

because you're scraping it together. That's what you're going to be doing anyway for this Christmas. It's right in front of you. It's here. Right. And so, you know, you've just got to pile up money as fast as you can and then go ahead and start a weekly thing. That's a fine thing.

You know, the old-fashioned Christmas club at the credit union, you know, and just weekly and then Christmas is taken care of. It's in your budget. You're already setting it up, and that's fine. And then just didn't attack your debt snowball from there is how I would do it. So, hey, good question. Thanks for joining us. Mary's with us in Tacoma, Washington, also talking about HSAs.

Hi, Mary. How are you? I'm well, thank you. How are you doing? Better than I deserve. What's up? I also have an HSA question. I'm not sure if I should max it out because we're just considering open enrollment right now in one,

or if I should be putting that extra money on my house. Okay. You're debt- money on my house. Okay. You're debt-free except your house? Yes. You have your emergency fund? Well, we have $6,000. Okay. You need to have your emergency fund in place.

And then, yes, I would max out an HSA after that or put something in there. What is your family's health like? How much are you dipping into your deductible? You know, that's the other thing I would really have to go look at, but we're trying to get more healthy. But two years ago, I had a heart attack. Whoa. Yeah, you know, there's concerns there.

Right now, I'm on a PPO, and I want to change the HSA. Maybe that's not smart. What do you think? No, I think it's okay, unless you have a pending health thing that you know you've got to do, because you're going to jam the deductible, whatever that deductible is on that HSA. You know, the HSA is a cheap, high deductible, cheaper health insurance policy. And the high deductible gives you the right to, but not the mandatory saving. You're saving into a savings account called a health savings account.

But you don't have to put anything in the health savings account. You can just take the insurance. But then, obviously, if you have an event and your deductible is $5,000, you're going to have to cover that. Right, right. And that's the issue. So if I have a concern that there is a medical problem. I'd probably stay with PPO for one more year. For one more year. Yeah, because you don't have your emergency. You do not have enough money to cover the deductible right now.

Okay. Right? All right. PPO one more year, put the money on the house. No, don't put it on the house. Put it in savings. Your emergency fund is too short. Okay.

You need to get your emergency fund up to three to six months of expenses and um then you move on and start your retirement savings and your kids college that's baby steps four and five no the kids the kids are all gone i can move right into uh and right into the house okay once you're putting 15 of your income into retirement but you don't start that until you have your emergency fund in place and it's shy right now at only six grand agreed uh yeah yeah so let's get that thing built up to where it should be three to six months of expenses then we start the 401k and then is when next year you could flip over to the hsa and um you know because you'll have a nice emergency fund to cover the deductible you can start funding can start funding the actual health savings account and take advantage of the cheaper health insurance premiums as well.

And that's what you're doing. It's kind of like, you know, you can raise the deductibles on your car and your homeowners and save a ton of money on your insurance in most cases. But you can't do that until you've got a proper emergency fund to cover those higher deductibles. So a lot of people run around $250 deductibles on these things, and, you know, you run them up to $1,000. I carry $5,000 on my cars as a deductible, and that keeps my car insurance premiums way, way down.

And that's how you take care of this. So, hey, good good question thank you for joining us open phones at 888-825-5225 steven is in the ramsey baby steps community on facebook and that's our private facebook group you can join it though we'll let you in the ramsey baby steps community i understand that you pay taxes on the Roth IRA up front so it grows tax-free, and that a traditional 401k, you wait to pay taxes until you retire,

and you pull it out. My question is, is there that much of a difference, really? Maybe I don't fully understand it. Yeah, because 90-something, depending on how old you are, 80% to 90% of what is in your retirement account is not money you put in. It's the growth on money you put in. And so if you put $100 a month in for 30 years or 40 years and you've got $1 million in there, you've only put in, you know, almost none of that. Like $100,000 of it is what you put in.

And then the rest of that is growth at $900,000. You're going to pay taxes on $900,000 in a traditional. You're not going to pay taxes on $900,000 in Roth IRA. So in that one example, for every million dollars, it's a $300,000 swing in taxes. And so, yeah, there's a lot of difference. The Roth IRA is a slam dunk. The Roth 401k is a slam dunk. There's no question that that's the route you go.

Good question. Michael's in Lubbock, Texas. Hey, Michael, how are you? Greetings from Red Raider country. How are you, sir? Better than I deserve. How can I help? Well, we will finish Baby Step 4 Friday.

Excuse me, Baby Step 3. I'm sorry, I don't know. Baby Step 3 Friday. Great. And so I have a question. I have a really smart wife, like ridiculously smart. And she's really hot, but really smart. How do I save for Christmas for her, for a gift for her, when she's in charge of the budget and sees everything that I spend

and use cash for? Sounds like there's a budget line item for gifts. But I don't want her to know how much the gift is and where I'm getting it from. Well, I didn't tell you how to get it from, but she's going to know how much it is because you're agreeing on your budget. You're not helping me. I'm sorry. I'm trying to figure out how to save for Christmas without her knowing what I'm getting

and only, well, we don't have to use cash because we don't have credit cards. So does that make sense? Yeah, but we're all grownups here. This is not a child you're dealing with. It's your wife. Yeah, I know. If she doesn't have to know what you're buying or even where you're going to shop, she can just allocate, you know, when you two do your budget together,

both of you know what we are spending on gifts. And if she's going to do all the Christmas shopping except the portion that you do, we're going to agree that this is how much we're spending, and she's going to give you that. And if you want it in cash, that's fine. And that way you can just go spend it. But, yeah, we're just all going to be grownups, and we're going to know what's going on here.

I mean, you don't get to go spend, like, just rob the money out of the budget just to go buy your wife something. I mean, sorry, that would be sweet, but it's just not good medicine. It's not going to work for you, especially since she's kind of the budget queen. She's not going to like that. That puts this hour of the Dave Ramsey Show in the books. We'll 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.

Hey, guys, this is Blake Thompson, Chief Production Officer for The Dave Ramsey Show. This hour's up, but you'll find more on our YouTube channel, where we have over 6 million YouTube views each month. You can find debt-free screams, millionaire hour clips, Dave rants, and so much more. Go check it out.