The Ramsey Show - App - Dave Talks Changes in Retirement Laws (Hour 3)

Episode Date: March 3, 2020

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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, your host. Open phones this hour at 888-825-5225. That's 888-825-5225. A couple of details hit the market, so let's just talk about a new law that has hit.

It's affecting some of your retirement opportunities and some of the things that are out there. It's called the SECURE Act, and it's a piece of legislation that happened last year, and it's taking effect here at the beginning of 2020. Stands for Setting Every Community Up for Retirement, SECURE. Change in the federal law about your retirement, and there are basically five or six, seven changes that you need to think about and know about in the tax law. And we'll talk about them from time to time as a caller calls in. These will be new answers to old questions because the law has changed. One of the things that

changed a few years ago is you can name a beneficiary to your IRA, and so if your parents pass away, they could leave you $100,000 in an IRA. It's called an inherited IRA, and the way it used to be was there's no penalties for taking the money out, but you do pay the taxes at your tax rate when you take the money out of the inherited IRA. If you choose not to take any money out, there was a required minimum distribution, an RMD. You had to take a tiny bit out every year. That law has changed. They are now forcing you to take all of the inherited IRA within 10 years. And so if you get $100,000, you're going to pull $10,000 a year minimum. They want their tax money on it. So they're forcing you to take the inherited IRA quicker than you might have wanted to. Now, you might have wanted to take it out anyway

and pay off the debt. I don't tell you to take out other retirement early and pay off debt, but this has no penalty on it, only taxes. And so I typically tell you to cash in an inherited IRA if you're trying to hit some of your other financial goals anyway. But if you were not wanting to do that, well, toughies. Now you've got to pull it out in 10 years, over the 10-year period of time. Good news is a traditional IRA, if you had money in that, you were forced to begin distributions at 70. half, whether you wanted to or not. Again, the RMD, the required minimum distributions. You had to start taking that.

The law has changed in your favor. Now it is 72, not 70 and a half. So you get another year and a half to leave your money alone if you want to, those of you approaching retirement that have a traditional IRA. And another thing that changed about it was you were not allowed to put money into a traditional IRA after 70 and a half, and now you are. As long as you're making an earned income, you can take out a traditional IRA. But again, when you're over 72, there's a required minimum distribution over 72. It used to be 70.5.

And you might see a new annuity option in your 401K. Don't do it. But you're going to see a lot more annuities popping up through the SECURE Act. And you can turn a lump sum of money into a guaranteed income for life. It's not a good idea. Don't do it, but you're going to start seeing the annuities popping up inside of the 401ks because of this act. The SECURE Act also gives you more access to your 401k for part-time or small business workers. It's easy for small businesses to work together to offer 401k plan to their collective employees, helping out with the cost. I wouldn't fool with that either. There were pretty

easy ways to do it that were inexpensive anyway. The simple IRA is basically a 401k for small businesses. You can do that. There's not that much cost to that anyway. You can do SEPs if you have almost no employees. There's no cost to that anyway, hardly, other than the commissions when you're buying the mutual funds. That's it. Parents can withdraw $5,000 from retirement penalty-free upon the birth or adoption of a child. That's stupid. Don't do that. Pay for the adoption or birth of your children. Don't cash in your retirement for doing that, even if you can legally. You can take your money out of your Roth IRA to buy a house too, but don't do it. Okay. And the last thing they changed in the law was parents may withdraw up to $10,000 from 529 plans to repay student loans for their child.

Now, that's awesome. But it begs the question, if you have $10,000 in your 529, why the flip is there a student loan? Why didn't you just pay for the tuition? But if you've got 529s, you know, and somehow by hook or crook, you ended up with one kid that had loans and one that didn't. One's got money in a 529 and one doesn't. You can always do stuff for siblings anyway already with 529s, but if somehow by some weird circumstance you end up with a student loan debt

while you have a 529 balance with your kid, you can use that money to pay the kid's student loans. So you can withdraw up to $10,000 from 529 plans to repay student loans if you have money left over. Now, you could be in a 529 plan in your name, but you're allowed to use that for tuition anyway. You can use a 529 plan for any relative. It used to be siblings

only, and that law's already changed. So if you had a 529 plan, mama, and you didn't use it all, you can use it to send your baby to college. And if you didn't, and you took out a student loan anyway, well, that's stupid. So go ahead and take the 529 out and pay off the student loan it's now perfectly legal to do that and not cause any problems you couldn't you know you couldn't ever use it to pay student loans before that's new but i don't know why you would you wouldn't have a student loan if you had a 529 you'd use the money to go to school so it's just silly but anyway a couple of these laws changes are awesome and are going to work in your favor. You can, especially this thing where you can leave your 401k alone now until 72 instead of 70 and a half.

And you can, no matter how old you are, you can open a traditional IRA as long as you have an earned income. And that allows you to do that at any age. But you will have to begin, if you're over 70, you'll have to, 72, you'll immediately have to begin required minimum distributions. The rest of these changes really are not, you know, they give you some flexibility, but most of them are dumb ideas. Annuities in your 401k, dumb idea. You know, sharing a 401k plan with other small businesses in a collective, generally a dumb idea.

Taking $5,000 out because you had a baby out of your retirement, dumb idea. Taking money out of a 529 to pay off a student loan when you should have just used the 529 loan, 529 money to pay the tuition in the first place. I guess that's a smart idea now, but I don't understand why it's there. So it doesn't make any sense. And of course, the inherited IRAs are taking your money, making you pay the taxes on the money sooner and pulling it out of there. Bad for you. So really only one of these seven provisions is actually great for you. The rest of them allow you to do stupid things. So be careful. This is your government here to help. This is the Dave Ramsey Show. You know, I get lots of questions about ID theft since it's a huge problem. Most people just worry about financial fraud, which is a big mistake.

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Go to Zander.com or call 800-356-4282. It's just the smartest, most affordable way to go. Alexandria is with us in Georgia. Hi, Alexandria. Welcome to the Dave Ramsey Show. Hi, Dave. How are you doing today? Better than I deserve. What's up?

I'm calling because I'm a 29-year-old nurse practitioner living here in Atlanta. I'm on baby step two right now. Just started your plan, and I think it's tremendous. But basically, I'm currently $269,000 in debt. I have no consumer debt, but my debt mostly consists of $110,000 in student loans and then $159,000 in my home loan. However, I currently have about $50,000 of equity in my house. So I'm basically calling to determine if it would be a good idea for me to sell my house

and use the money from the sale to pay off half of the student loans and then pay the rest off over the year, or basically at gazelle intensity, or should I keep my home and pay my student loans off over the next four years and then focus on eliminating the home loan? What do you make a year? I have a pretty big shovel, so I bring in currently $105 a year. Why would it take you four years to pay off $100,000? That's just kind of with the budgeting that I have going on right now. That's kind of wimpy. Yeah. So I've been kind of eliminating going through my, I use the EveryDollar app and

I've been going through kind of eliminating debts that I don't really need. Like I just literally sold one of my dogs and I'm probably about to get rid of the other one um i i was in a car accident about a month ago so my car total and i end up just buying a car cash so i'm just you know basically you're clearing it up so but you got a hundred thousand dollars in debt you make a hundred thousand dollars a year right not counting your house correct and so if you pay off $33 a year, that's three years. If you pay off $25 a year, that's four years. And obviously, so are you working $40? I do.

I'm on salary, so I work a little bit more than 40 hours a week, but it's salary, so I'm kind of capped. But I am looking for part-time work right now. You pick up some ER weekends and kick your income up $ 30 grand can't you yeah i can unpleasant unpleasant but so selling your house oh but i've already kind of sucked it up and said hey this is what i need to do because i want to be a millionaire before i'm 40 so i need to go ahead and i'm with you i'm just trying to brainstorm with you so because it's the math is is unbelievably simple it's the doing it part that's a pain in the butt the math is more income less outgo right yeah that's true so just go very intense and pay 30 000 33 000 i might even i

might even pick up some weekends er add an extra 35 to my income and i might be debt free in like two years okay not counting your house and keep the house now do you hate your house i don't but it's my starter home it's just me i'm a thing i'm single and i don't have any kids and it's just me so i have a four bedroom house and it's just me in the house so that's why i was considering this element taking the equity not half of the loans off and then not the rest off over the next six to seven months. Here's what I would do. It's a good question. I appreciate getting to have the discussion with you.

The great news is you chose an absolutely incredible career because you can just walk down the street and make money. I mean, you really have money at your fingertips. You just got to work more to get it, right? And you've already cut stuff. You're game on on you're very focused you're thinking this through you're using good critical thinking skills to build this out you're really what you're doing all the right stuff and so if i woke up in your shoes i would work enough weekend er or evening er whatever it took to make an extra thirty five thousand dollars a year and in the first 12 months of doing that i would bust it really hard and see if i can't knock 50k

off i think you can okay and if you knock 50 or 60k off and nothing changes in your life that causes you to want to sell the house for one reason or another, then go ahead and do it again and pay it off and keep the house, and you did it in two years. Or maybe something changes in your life and you want to move after a year. Well, then you just sell the house and pay off the rest of it, right? Yeah, because my mortgage payment is only 20% of my monthly income. Your house is very reasonable in this story.

If everything you gave me, it's the most reasonable part of the story. And you're starting to, in a wonderful way, get unreasonable because you're about to address this crap. So I'm loving it. I personally would try to keep this house for a year, bust it, and then see how that feels. Okay. And after a year, then reass reassess you can always sell the

house in the second year and complete the thing right true in other words you don't have to make that decision today so if i keep the house anyway i'm just going to go knock it out and run through seven mom baby steps seven and eight and just go ahead and get it knocked out because i want to be completely debt free that'd be cool i've read it on my credit cards and everything and i'm just trying to get this knocked out. Well, that's not going to make me anybody anything but happy. You're going to be an everyday millionaire quick doing that. But that's all about income versus outgo,

giving you the margin, the spread, the extra dollars to throw at all of this. Okay. That's what's doing it all for you. Hold on. I'll send you a copy of Chris Hogan's book, Everyday Millionaires. I predict you're going to be one, and you need to read about what they look like. I love it. Kaylee is with us in Tennessee.

Hi, Kaylee. Welcome to the Dave Ramsey Show. Hi. Hey, what's up? So I'm on Baby Step 3B. My fiance and I are getting married in June, and we're looking to purchase a home to live in for about four or five years so that we can save cash for our forever home. We currently have $50,000 saved up.

And since we're saving for our future, our forever home, how much of a down payment would you recommend? As much as you can. As much as you can get your hands on. Okay, so you think 20%? As much as you can get your hands on okay so you think 20 as much as you can get your hands on okay and then 5 percent equity from 5 percent 95 as much as you can get your hands on okay even though we're wanting to save to pay for cash for our forever home when you sell your home that you're living home that you're living in that you're talking about they're going to give you a check at closing okay when you paid extra down on the house the money's not gone it's just stuck in the house okay and let me help you

with this too i'm old there's no such thing as a forever home no one stays in a home in America forever. It's just this phase of life. And you would also recommend a 15-year? Always. Never more than a 15-year fixed where the payment's no more than a fourth of your take-home pay. But here's the thing. If you put a huge chunk on this first purchase and you live there five years, you make some money on it, when you sell that house, that huge chunk comes right back out into your hands to make this more dreamy purchase that you're thinking about with the second purchase right right you're not losing the money yeah i got you and if you put it in there it doesn't accidentally

buy a bass boat later okay that could happen it could happen i don't know anybody that would do something like that but that could happen me oh my goodness how many times have you had some money laying around and you thought you had it all figured out and it just you just bought something then and just like oh i just messed up the whole thing man i have done that and so have most of you so you have to kind of trick yourself into not doing that kind of stuff and when you put it all into the house it's hard to buy a bass boat nothing wrong with buying a bass boat but that wasn't her dream, okay? So, oh my goodness. Hey, whether you're putting in a kitchen sink or you're fixing a gas leak, DYI is not something most of us do.

I opened my car hood. I used to turn a wrench on cars when I was a kid, but now I open my car hood. It's got a big plastic thing on there before I can even get under it to see the engine. And then I don't even know what I'm looking at. It looks like a dadgum computer. So I don't even DYI my own cars anymore. I certainly don't DYI my own taxes. So go to DaveRamsey.com slash tax quiz and take a quick assessment to determine if your taxes are simple enough to do yourself or if you will benefit from a professional. It's a great little quick tax quiz. Takes less than five minutes. DaveRamsey.com slash tax quiz. This is the Dave Ramsey Show. I love talking about companies that know how to do business right.

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that gives the strength and support of a belt without even knowing you're wearing one. I'm really proud of these guys. Check out this month's special offers from my listeners at grip6.com. In the lobby of Ramsey Solutions, right on the debt-free stage. One of our own team members, Zach Bennett and his wife, Audrey. Welcome, guys. Hey, Dave. Hey. You made it.

Well, I only had to come upstairs, but we're here. But you made it all the way to debt-free. We did. Like, completely debt-free. That's a house and everything. A house and everything. You're officially weird people. We are officially weird people.

This is actually our second debt-free scream. We did our first one nine and a half years ago when we paid off all our consumer debt. Okay. And I joked forever I was the only person ever to leave your office to do a debt-free scream because we did one at the bank when we paid off my truck. Yeah. And so now I'm redeeming myself by actually doing one here at the office. Because you worked here when you did that, right?

I did, yeah. You've been here about ten years, right? Ten years today. 10 years 10 years today oh really 10 years today touched it wow how cool it's a way to celebrate your ramseyversary exactly i love it so you you when you first started here you paid off everything and 10 years later your house was paid off yes sir and we we didn't even have a house back then we were renting renting. And so over the course of that 10 years, I was telling her we were reminiscing about when I got the job here, we had to do our first budget. We had never budgeted before. And it was the biggest fight we've ever had in our marriage was when we had to do that first budget. And it was terrifying because we didn't think we were going to have enough money to make it by moving to Nashville and all that.

And we didn't know how to handle our money back then. Yeah. So once I got the job here and we started, we went through Financial Peace University, we started doing a regular monthly budget about 10 years ago this summer. Yeah. And since then, we got out of all our consumer debt. We saved up. We bought the house without getting PMI.

And then we paid the thing off. Wow. So we feel like we've gone from baby step one to baby step seven in the 10 years. You have. That's why you feel that way. You do. That's true. That's very cool.

So how much was the house? How much was the debt paid off in 10 years? Well, the house itself was about $130,000. And you bought that when? We bought it at the beginning of 2013, so right about seven years ago. So it took you seven years to pay off your house, $135,000. Yep. And we paid off the last $56, 000 of it in six months okay inquire inquiring minds want to know well because i know your income yeah you do well we had some money that was just sitting in

the bank kind of aimless we had been saving up for vacations or a new car or whatever and it was just sitting there it was just a pile of cash. And we went, why don't we actually just throw that toward the mortgage? And so that was a big chunk of it. Then that gets you excited because you can see it. Yes, exactly. And then I started driving for Lyft and DoorDash on the side and made a lot of extra income driving people around Nashville

and then taking their food to them after they got back to their hotel room. Fun. Fun. I love it. Yeah. So, Audrey, what do you do for a living? Tell everybody. I actually work in accounting at a local medical clinic.

Okay. Very cool. And your husband being hanging out with these crazy people for 10 years has had an impact. I'm sure at times it was not always pleasant being a Ramsey spouse. That's not bad. But I'm a very easygoing person anyway. Okay, all right. Well, for those of you that can't tell by Zach's lack of fear on a microphone,

he is a radio guy. He is on our radio team and does a lot of editing for us, and when I'm out of town and you hear a best of, that was Zach's handiwork. He makes sure that we don't put best ofs out there that say something that tells you that it was four years ago that we taped that. We tape every show, and then he goes through them and picks out the segments that are usable and makes up the best ofs, among other things that he does, but that takes up a large portion of your time.

That's a big part of it. I'm also producing the YouTube channel every day, so when you watch the Dave Ramsey Show on YouTube and you see all the stuff we do in the lobby during the breaks or any of the video packages we play, I'm putting all that together on a daily basis as well. Yeah. Okay. Very good. There you go.

All right. That's what you can tell what's going on. So well done, you guys. Thank you. Thank you. You did it. How's it feel? How old are you two?

I'm 38. 37. Yeah. And you have a paid-for house. Yes, sir. Did you ever think when we bought the house you know you always say oh you most people pay off their house in seven years we did yeah we paid it off in just short of seven years about six and a half um and we went to the bank

that morning and uh we wrote the last check we sent it off to wells fargo and never in my life have i been more happy to see that go away. I bet. And we came home, and we just kind of walked through the yard and went, we really did that. It was kind of anticlimactic. It felt like it should be a bigger celebration. But for us, we went out to eat that morning, and then I just came on into work so we could help some other people learn how to do the same thing. I love it. Very cool.

And we just got back. We've already kind of celebrated. We just got back last week, or we spent all of last week while you were in australia we were at disneyland in california so uh we had uh we had these buttons and they're showing it on youtube right now it says i'm celebrating paying off my house if you go to disneyland you can get those buttons and write whatever you want on it and so we had a bunch of people not only their cast members at disney but also a bunch of just regular people that were standing with us in line would look at our buttons and just kind of double take and go, I don't think I've ever seen that one before. That looks weird.

And we said, yes, we are very weird and happy to be weird. I love it. I love it. So I know you know the answer to this, but what's the secret to getting out of debt? It's just paying attention. It's budgeting. It's living on less than you make. I know you know the answer to this, but what's the secret to getting out of debt? It's just paying attention. It's budgeting. It's living on less than you make.

It's earning extra income when you need to and just being diligent, just paying attention from start to finish. And, you know, I'm stealing from a master when I say this, but if you don't have a plan for your money, you're not going to get anywhere. So it's just learning from you and not just that, but I was thinking about this today too, about being happy with what you have and not necessarily wanting all the best stuff when you can't afford it. I was thinking about working in our old building for nine and a half years of my 10. I worked in that old building and we outgrew it many, many years ago. But we were living with what we had until we could afford this one.

And that was a good metaphor for us because we always have been like, well, we didn't really need that. We're happy with what we have. So we've been practicing contentment for a long time, and we got to splurge last week when we went to California. I love it. It felt weird to be able to just spend money and go, should we get this? Yeah, we can. Why not?

It's in the budget, right? Godliness with contentment is a great game. Audrey, when people ask how you did that, how did you get out of debt, what do you tell them the secret is? Honestly, it really is the budget is the biggest thing for us because we've been doing that for, like we said, 10 years.'s just I mean that's how we live now every month we do a budget and um and it's just you don't feel guilty like when we have things that we need we have the money there to do it and so if we need clothes we have clothing clothing money in the budget and

you know and then I hear other people who are stressed because something came up and they can't afford it. But we generally are not in that situation because we have made a plan for that, and so we're prepared. That's everything. I mean, other than possibly, you know, some of the folks on the YouTube team or, you know, James, our producer, Kelly, our associate producer, I don't know anyone that has to listen to this show more than you do. That's true. I mean, if you didn't get this stuff over 10 years, no one's going to get it. My head is very hard, but it's not that hard, Dad.

Everybody, I mean, you have more hours of this in your brain than anybody other than the guy who did it. And we've led several financial peace classes and i've had people tell me that all the time they're like you answer that exactly like dave would and i was like well i have a reason for that i've heard him answer it a million years of having to listen to his show every day it's my job oh i love it well i can think of many worse jobs to have thank you you're very nice we're very very proud of you guys you're a wonderful team member you're wonderful people and you did it you're 37 years old your house and everything

you're officially weird people did it in seven years proud of it all right zach and audrey count it down let's hear a debt-free scream three one. We're debt free! Woo! Yeah! Woo-hoo-hoo-hoo! Yeah, baby! I love it! Well, some of you listen to the show for free.

Zach gets paid to listen to the show it's not a bad gig i guess there's worse things to have to do way to go zach very very proud of you guys man you guys are special people you're great friends you're great team members we're so so proud of you guys house and everything at 37 years old man the whole team has gathered around to hear him do this, and they're screaming with him. Everybody's high-fiving. This is real, you guys. Very, very real. I love it.

This is the Dave Ramsey Show. Thank you. our scripture of the day philippians 2 3 do nothing from rivalry or conceit, but in humility count others more significant than yourselves. My friend Simon Sinek says, a boss has the title, a leader has the people. Ooh, good one, Simon. Like that. Margaret's with us in New Jersey. Hey, Margaret, welcome to the Dave Ramsey Show. Thank you, sir. Thank you for taking my call. Sure. So I recently found out about your program. I'm currently on babysit

number two. I am in $173,000 worth of debt. My annual salary is $147,000. But I'm going to start the snowball so I know to do that but I am going through a divorce and I'm about to move so I have two questions for you. My first question is do I stop and stack up my cash? Yes. Or do I okay. Until you get through this transition because transitions require cash. Right. And so the house is going to be sold Until you get through this transition, because transitions require cash. Right, right. And so the house is going to be sold, and how much debt is that going to leave you with? I can't really sell the house because it's not just mine, but nothing.

I'm not going to be able to sell the house because I have a house. I own a house with a business partner, not with my about-to-be-ex-husband, so that's kind of off the table. What I need to do is get another job, and I can do that easily. I applied for three jobs just last night, so hopefully one of those will come through. So that's my plan to get another job. So do you live in the house? I do not.

I'm renting currently. So who lives in the house? So the house is with a business partner of mine, not my ex-husband. He's actually lived in another country. And so the house is like totally not even involved in the divorce. That's a rental. Yeah. Okay.

Yeah. So, and it's not just mine. It's like a bit it's like an upstart home so a starter home so it was like a business deal that we did back in 2010 and um that's not on the table to be sold so my only option i think is to get another job and how much debt do you have then not counting that house 173 000 on what um most of it is debt uh i mean consumer debt meaning like credit cards and personal loans i mean my school loan is only what 39k so what do you owe on your car my car what do you owe on your car 11 000 and i plan to pay that off by October because I have a balloon loan on that. And what again is your income today?

$147,000. $147,000. Okay. You have children at home? I have a five-year-old, yeah. And she's in private school, but I'm taking her out this year. Okay. And so you're just going on beans and rice and going to plow through the $173,000?

Right, after I can get through the move and the divorce. Okay. Well, I disagree with you that the house with the business partner is not on the table. Everything's on the table. You're choosing to not put it on the table. And I might choose to put it on the table. The reason you bought it in 2010 was to make money on it. And I suspect it's got some equity in it that would help you right now.

And so I'm going to challenge this assumption that it can't be sold. You bought it. You didn't buy it to keep the rest of your life you bought it to sell it sell it i'm sorry and it's not paid for my partner doesn't want to sell it yeah so he can buy you out i don't think she's in a position to do that right now what's the terms of the partnership agreement? In perpetuation? I would have to look at the agreement. I mean, that was so long ago. But it brings me in a little bit of additional income. I get about $900 a month from it.

Yeah, okay. Well, I mean, so you think you're going to be out of the $173 in what period of time? I'm thinking three to four years. Okay. Yeah, you're getting after it. Well, do it. Yeah. I mean, there's not any question this is what you need to do, but you're right.

For today, I would not pile up. I would not attack the debt. I would just pile up some cash and get ready for the transition. Make sure your housing is settled, your income is settled, and then, you know, once the smoke clears, the dust settles from going through this divorce and you know exactly what you're facing and you know exactly what you've got coming in, then you just look at your plan and you step on the gas and go. But for today, I would just pile up cash, and whatever pile of cash you've got, you can throw at the debt.

So it's not like you're going to lose it. We're not suggesting you spend that pile of cash. We're saying pile it up. If you don't use it in the transition or going through the whole process that you're going through, then throw it at the debt and take off and go. Marsha is with us. Marsha is in Ohio. Hi, Marsha.

How are you? Oh, hi. I hope you're doing well. Thank you for asking. Sure. How can I help? I heard the health savings account promoted as a vehicle for which you can make contributions in 2020 that could reduce your tax liability for the tax year 2019. And my question is, does that hold true only if you have already established the health savings account by December 31st of 2019, similarly to other kinds of things? No, I mean, you can establish an IRA in this calendar year as long as it's prior to filing taxes,

and that's deductible, and you can establish the HSA in this calendar year as long as it's prior to filing. Have you filed your income taxes for 19? No, I have not. Good. So you can do that then. I mean, talk to your tax professional, but it's my understanding you can do it. It's not required that you set it up the year before, and neither is a traditional IRA required you set it up the year before.

You can open a traditional IRA today and fund it and take it off of 19's taxes as long as you do it before April 15th or before you file, whichever comes first. So that's the thing. And we've just got to, you know. But, yeah, that's a very good possibility. All right. Eric is with us in Canada. Hi, Eric. How are you? Hi, Dave. Thanks for taking my call. Honored to speak with you. You too, sir. What's up?

I'm currently saving for my first home, my first apartment. And I'm wondering, based on my salary, looking at what the down payment should be, and then should I get a bigger place that I could rent out a room for a roommate? Well, the first thing is I'd want you to be debt-free, are you? Yes, I will, like, $400 on credit card. Okay, and you have your emergency fund of three to six months of expenses? No, probably two, but I was going to use that for the place once I had 5%. Yeah, you don't use your emergency fund as your down payment, and you don't buy while you're in debt. So we clear up the credit card, cut it up, build a rainy day fund,

and above the rainy day fund of three to six months of expenses, then save your down payment. And that's probably going to end up answering your question because it's probably going to end up limiting what you're able to buy, right? Well, I could pay off like the credit card today and then I'm looking within like the next 10 months to buy. And I'm wondering basically, so I could get a one bedroom for about $100 $100,000 or a two-bedroom for $150,000 to $200,000. What do you make?

My salary is $55,000, and then I make another $10,000 to $15,000 on top of that through side jobs. Well, you don't want a payment on a 15-year fixed rate that is more than a fourth of your take-home pay. And as long as you don't do that, I don't mind you going into the two-bedroom. The two-bedroom, when you get ready to resell, is also probably more marketable than a one-bedroom. And so whether or not you put a roommate in it, for the long-term investment aspect of it, I'd rather you be in the two-bedroom, but only if you don't take on a payment that is more on a 15-year fixed rate that is more than a fourth of your take-home pay. Because that sets you up to give you room to do all the other stuff you need to do,

all the other things you want to do, and start to build some wealth outside of this discussion, and you don't end up house poor, meaning your house payment is so big, a big percentage of your world, that it sucks you dry. You don't end up house poor, meaning your house payment is so big, a big percentage of your world that it sucks you dry. You don't want to do that. That puts this hour of the Dave Ramsey Show in the books. Our thanks to James Childs, our producer, Kelly Daniel, our associate producer and phone screener.

I am Dave Ramsey, your host. 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, it's Kelly, associate producer and phone screener for The Dave Ramsey Show. If you would like to do your debt-free scream live on the show, make sure you visit DaveRamsey.com slash show and register. We would love for you to come to Nashville and tell Dave your story.