The Ramsey Show - App - Don't DIY When It Comes to Investing! (Hour 3)

Episode Date: July 4, 2019

Take control of your money once and for all. The Dave Ramsey Show offers up straight talk on life and money. Millions listen in as callers from all walks of life learn how to get out of debt and start building for the future. Check out the fifth most downloaded podcast of 2018!   Tools to get you started: Debt Calculator: http://bit.ly/2QIoSPV Insurance Coverage Checkup: http://bit.ly/2BrqEuo Complete Guide to Budgeting: http://bit.ly/2QEyonc Interview Guide: http://bit.ly/2BuGnZE     Check out other podcasts in the Ramsey Network: http://bit.ly/2JgzaQR 

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. You jump in, we'll talk about your life and your money. It's a free call at 888-825-5225.

That's 888-825-5225. That's 888-825-5225. Donald starts off this hour in Pensacola, Florida. Hi, Donald. How are you? I'm doing well. Good. How can I help? Know that you're not, and I'm not either.

Now, I'm a fan of timeshares. You're right. But I do have a timeshare that I would like to get rid of somehow or other. Okay. And it is completely paid off. All that I owe is the maintenance fees once a year. Okay. Is there any way that I can get out of that?

They're very, very, very difficult to get out of and for many years here on the air i just told people uh to go back to the original timeshare company even offer them money to let you out even though you've already paid for it um because you know the monthly or the annual maintenance fees go up every year just about and of course there's no selling them nobody wants them and so they have no value you know you're just stuck most of the time and then about i guess three years ago we ran into a company and started checking them out and it took us about a year to get convinced that they were on the up and up called timeshare Exit Team. And these guys have actually figured out a way to get people out of the timeshares. And they work with the timeshare companies. Sometimes they work with them on a friendly basis, and sometimes it's not so friendly.

But whatever they need to do, they take the steps to walk you out of the timeshare. Obviously, you don't get anything for it. As a matter of fact, you will pay them a fee to get you out of it. But they do get you out or they give you the fee back. There's a money-back guarantee on it. And they're a straight-up company. They're very, very, very busy. We have sent them a ton of business, as you might imagine, and they do a good job. It takes a little while. It takes several months to get the process through uh and the fees are are pretty substantial but it gets you out and you're done uh otherwise you're stuck in the stupid thing paying these annual maintenance fees that go up every year just about for the rest

of time but it's called timeshare exit team and if i personally owned a timeshare today that's what i would do i would call them and uh and i'd pay the fee to be done with it i hate them um and i've just seen over and over and over again how people get stuck in them and i have no use for them at all i mean very few products have like a 97 dissatisfaction rating and timeshare is right right there about three percent of the people that own them actually like them the rest of people are just like they they're getting screwed they know it and they hate it and they're mad you know and the hilarious thing is there's several timeshare people out there floating around that when you go up to their little booth or whatever they'll tell you dave ramsey has one they lie which is absolutely hilarious i mean that's like saying dave leased a car um that's you know that's the dumbest thing somebody could say.

I had a guy working for me here that was in a local dealership, and the guy at the local dealership tried to convince the guy working for me that I had leased a car there, and I never even bought a car at that dealership. That's hilarious, but, I mean, that kind of stuff comes up. So, anyway, timeshare exit team, and that's where I would send you. And that is how we vet the people we endorse, by the way, is would I go there if I was in that situation? And the answer is yes.

Ashley is in St. Louis. Hi, Ashley. How are you? Hi, I'm great. It's really exciting to talk to you. You too. What's up? So last week, my husband and I were debt-free.

We just paid off our last debt. And so we are in the process of savings for our emergency fund, which we expect will take about three months. Good. And then the issue is that I'm still sort of feeling like gazelle intense. Like I want to just, after we save our emergency fund, I just want to keep going and pay off our house as quickly as possible. You know, after we start saving for retirement and kids college and things like that. My husband feels like, well, we should have a reward for all this hard work we've been doing, and we should start to just relax a little bit since we're now debt-free

and we will have our emergency fund saved. After the emergency fund is done, he's right. Okay? I would not try to stay gazelle intense for seven to eight years. You can if the two of you both want to, but what we found the most success is. Now, you know, letting your foot off the gas a little bit does not mean we let it off the gas and stomp on the brake and go back to what we used to do. It doesn't mean we're not intentional. The rest of your life, you're going to have to tell money what to do.

You're going to be very intentional, and you're going to have to make decisions together, and you're going to have to be very careful and wise and so forth. But you do need to, by letting your foot off the gas, you know, after you finish your emergency fund, that's when you would save up and buy a little better car if you're driving a junker. That's when you'd save up and go on a vacation if you hadn't been on one in a while. That's when you'd save up and buy a couch. You know, if the couch has got springs sticking through it because you've been gazelle intense and putting off buying a couch.

I don't know what it means in your life to let your foot off the gas some, but it doesn't mean that we're gonna you know suddenly stop budgeting it doesn't mean that we're suddenly gonna uh you know take our eye off the ball we're just not gonna run in a dead sprint like the cheetah is chasing us we're but we are going to continue to jog does that make sense yeah it makes a lot of sense yeah And so, you know, if he's suggesting, okay, we can go back to the way we were living, then he would be wrong. But after baby step three is where we say let your foot off the gas a little bit, enjoy a little bit, have a little bit here, a little bit there, but not to the point that, you know, that we spend everything we make again. Okay, we're not going back to that ever again. We're always going to be giving. We're always going to be saving. We're not going back to that ever again. We're always going to be giving.

We're always going to be saving. We're always going to be enjoying. We're always going to be giving. We're always going to be investing. We're always going to be enjoying. And saving up and paying cash for whatever you do, whenever you do it, is definitely the way to go from this point forward, the rest of your life, so you don't go into debt again, that kind of stuff.

That doesn't change. That doesn't change at all. But that's the route I'd go. Hey, thanks for the call. We appreciate you joining us. Open phones at 888-825-5225. We're glad you're here. We appreciate you hanging out with us.

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Sarah is with us in Branson, Missouri. Hi, Sarah. How are you? Hi, Dave. Thank you for taking my call. Sure. What's up? I feel like my budget is suffering because of this one piece of the puzzle that I can't figure out.

The envelope system. How do you manage doing the envelope system if you pay everything online? Like everything's auto-paying and you do a lot of online shopping and you don't carry cash on you. You don't go to a grocery store? I do, but I pay with my debit card. Okay. That's not online? No.

Okay, so the way the envelope system works is when you're physically in a store, you have an envelope that is marked for a category that has money in it that is in that category from your budget. For instance, food. At the beginning of the month or at the beginning of your pay period, one of the two, you say, in the grocery stores, we're going to spend $200 in the next two weeks on food, $400 in the next two weeks on food. And you put $400 or whatever the number is in cash in an envelope, and when you go to the grocery store you use the cash out of the envelope to do the purchase

not your debit card that's how it works same thing for clothing in the clothing store same thing for a better deal online though what's your object if you are buying something online it's difficult to use cash. Hello? You're going to use your debit card there. I'm talking about when you go to a store. But if you put $500 in your clothing budget and you spend $300 online, then you would only put $200 cash in your clothing envelope to physically go to the store with.

Okay? Okay. So you've just got to decide. The thing is, when you are out and about making purchases, then you will spend more if you are using your debit card or a credit card particularly than if you use cash. Tons of research says that. So the number one impulse location in the world is the grocery store. They are the best merchandisers of all retailers.

They do an excellent job shelf positioning, color coordinations, store design. Everything is designed to cause you to walk past more things than you have to in order to have an opportunity to impulse. People impulse their butts off in grocery stores. Okay? It's designed for that. And so you spend more there. If you don't go in with a list, if you go in hungry, and if you don't go in with a list if you go in hungry and if you don't

go in with cash those are the three things that'll cause it'll help you with your grocery spending but if you're buying something online then you just reduce that category so what you may want to do uh for instance if you're buying clothing online? You may want to have an online clothing budget and a separate in-store clothing budget. Two different categories, online and in-store. The in-store goes in cash in an envelope. The online does the other. Now, you need to realize, too, that when you're purchasing online, for instance, Amazon Prime, people impulse their butts off there, too, because they don't even think about what they're buying.

They just click here, and it's delivered to your door in a few hours, right? And that's called, in the Internet world, that's called friction. The harder it is to purchase something, if a website makes it difficult for you to purchase something, that's higher friction, and their sales go down, and your impulsing goes down. Amazon Prime is one of the lowest friction purchase points out there, so people spend their brains out on Amazon Prime. And they don't know what they don't because they don't watch what they're doing because it's very, very, very easy to purchase stuff quickly and easily and very convenient. It's a nice feature, but it causes you to spend more. You have to be very, very careful because their job is to get your money.

And they're better at their job than you are at yours. Do you suggest that at the end of the week I take out so much cash and then leave whatever I know I'm going to spend online in the bank account? I do it that way, divide it. Yeah, that's what I just said. You need a separate category in your budget for online purchases that stays in your account. And the other category is your in-store purchases comes out of your account in cash and into an envelope marked for that category, for instance, clothing or grocery store or entertainment.

Sharon only carries about three categories now in envelopes. I think we've got four categories in envelopes total. We've got she does clothing and entertainment and grocery stores these days. That's the only three we personally use. And then I have one called GEM, which is Gas Entertainment Miscellaneous, G-E-M. And that's in my front pocket. That's my envelope. It's my wallet.

And so it's taking care of odds and ends that I'm going to do. But it's got my redneck emergency fund which is three one hundred dollar bills and in addition to that my um my miscellaneous spending which 90 of my gem goes to tipping these days when i'm going somewhere because i'm i love the tip and so um valets are working hard in the sun and the rain right people waiting a table are working hard and so i that's one of my favorite things to do now. So you decide how you're going to spend it, but just keep in mind if you can set systems in place like the envelope system that cause you to handle cash, you're much more aware when you're spending.

It creates emotional friction is what it's called, and it makes you have an ouchie moment when you're spending. And if you have an ouchie moment when you're spending and um if you have an ouchie moment you spend less when you lay a hundred dollar bill on the table and uncle benjamin franklin is crying as he looks at you because he's leaving because you're putting him out for adoption with someone else you realize you spent money when you hand the plastic to to them they hand it back to you you ever thought of that that? When you hand money out, it doesn't come back. When you hand plastic out, it comes back.

So it's interesting. You hand money, you trade that piece of paper for an item. When you hand plastic, you give them the plastic, they give you the plastic back and the item. There was no trade. There's no visual trade. See what's not activating in their psychology? If you traded, you know, if you were a kid and you traded a toy with another kid,

we're going to trade you. You give them a toy, they give you a toy. There's a trade. There's a transaction going on. And that's what happens with physical paper money. There's a transaction. You're handing them money they keep it they hand you the item or the service and you get to keep that there was a trade but when you hand them plastic they give you the plastic back i understand that they're supposed to

you don't want them to keep your card i got that okay but you need to realize what's happening psychologically there was no trade there was no. It's like you left with everything. You got to keep your plastic, and you took their stuff. Wow, what a great trade. See how that works emotionally? It changes everything. And it's really, really bad online. And stuff like Apple Pay and PayPal, man, when you can just not even see a piece of plastic,

now you just pull out your phone and wave your phone around and half of Home Depot lands in your pickup truck. Good Lord, you know, that's a problem. You got tools you don't even know what they do, but you got them, baby. You know, I mean, you can impulse your butt off in there. And, you know, I'm not against Home Depot. I like Home Depot. I shop there.

But the point is you you really can create a mess in these situations so really good question sarah and that's why we still use something as primitive as the envelope system for a few categories and it's all categories that happen when you're not at home you're out in a store, you're on vacation, take your vacation envelope, and you can break your vacation up into restaurant spending. You give the kids a certain amount to spend in the theme park, right? How many pairs of ears can you buy?

You know, but not many if you don't have a lot of money. So there you go. It's a thing. So you just, again, a transaction needs to occur. You need to realize the easier it is to purchase, the less steps there are, the less you feel it emotionally, the more you're

going to spend. We all do that. Anytime someone says, oh, we're a cashless property, just use your room key. Yeah, it's because you spend more. That's why they do that on a cruise ship. And so on. Think about it.

This is the Dave Ramsey Show. We'll be right back. Joe is with us in Oklahoma City. Hey, Joe, how are you? I'm good. How are you, Dave? Better than I deserve. What's up? Well, hey, I just wanted to get your thoughts or advice on some things. I've been very blessed. Been debt-free for about six months now. Fully paid off home and everything.

Wow, good for you, dude. I'm going to be getting married next year. Yay. And so I own my house clear and free, and she will be totally debt-free by that point in time, but she will still have her mortgage on her house. So we have been thinking about getting into the rental market, and so the plan is once we get married, she would move in with me. What do you think we should do with her house? Should we go ahead and look at trying to rent that out?

That's fine. And then turn around and get paid off as quick as you can. What is owed on it? About $125,000. Okay. Is it a good rental? It would be in a good rental spot, yes. Okay. So if you didn't own it, you might buy it as a rental? Yeah. I've always thought about maybe trading out of it and trying to get into something a little bit better as a better deal. But I kind of figured since we are trying to see if we would like the rental market or not or if that's something we actually want to do, that this would be a good. No, it would be a good way to test it. If you don't like it, you might not even have it paid off by the time you learn that you don't like renting,

and then you would move those renters out and sell it, right? And that wouldn't be a problem at all. So, yeah, I think it's great to do that. But what's your household income going to be, the two of you combined? It's going to be about $250,000. Oh, so you could pay this thing off very quickly. Yeah. And that's what I would do.

Okay. And whether you keep it or not, if you pay it off, you can sell this thing off very quickly. Yeah. And that's what I would do. Okay. And whether you keep it or not, if you pay it off, you can sell it, right? Yep. So let's go ahead and get it paid off as fast as you can and have that as our joint agreement, and we're going to put a renter in there. Don't toy around with the debt and wait on it to happen or something. Just knock it out. You've done a wonderful job, you know, completely cleaning up everything

and being debt-free, and very well done, very well done. Yeah, pay it off as fast as you can. That's what I would do. And then that sets you up to buy another one and another one and another one. And if you make $250,000 a year and you have one paid-for rental at $120,000 and you don't have a house payment at all, you can buy another rental house every so often. And, you know, every time you buy another one and then you got that rental income, that

snowballs the other direction, right? And you snowball into these rental properties. And when you own five, the next one's easier than when you own one and so on. And that's what Sharon and I have done. You know, we just bought more property. And every time we bought more property, the rents from those help you buy the next one for cash even faster. And so it's a very cool effect.

It's kind of the living like no one else side of the coin. Joey is in San Bernardino. Hey, Joey, how are you? Good, good. How are you? Better than I deserve. What's up? Okay, so first off, you've been, like, in my brain next to Jesus for, like, 10 years, okay?

I've been avoiding you at all costs because I just always thought that you were like, not for having fun, but truly I was too young to understand and realize. I took your class about four times, dropped out three other times and finally finished it years ago. I still never did anything with it. Finally, I just had a realization the other day

and I am really on track and I think I'm going to be on track. And so I had to just call because I finished total money makeover. And, and I know that you said, if you're in back taxes, make sure you tackle those first. So, I mean, cause I have, I have student loans. Um, and I don't know about the other things that I'm behind on because it's been like behind on because I honestly have never made payments in like 10 years on those. How old are you? I'm 31.

Okay. And how long have you been working? How long have you been out of school? Since 2012. And what do you make? Last year I made $98,000, but I didn't pay any taxes either. So you own your own business? Yeah, I do a lot of different things.

A lot of different things. I mean, how did you make $98,000? First, I'm a respiratory therapist for home care two days a week. And then I'm a professional photographer. I shoot weddings on the weekends and also a videographer. And have a photo booth company. Okay. All right. Okay. How can I help you? Um, so, uh, I, I have like 3000 left on our, on our Prius and I can pay it all off next month. And then we have about 6,000 left on our Honda, and I want to take those out this year,

and then do I just go straight after the taxes and not worry about school loans until I get the taxes done? How much do you owe in taxes? After this year, it'll probably be around $50,000. Well, this year is only half done. Yeah. How much do you owe in taxes now? For half the year so far, I bet it's probably going to be so far like $12,000. It's just this year's taxes?

That I'm assuming, I guess. You don't have back taxes from last year? Yeah, I do. I have $20,000 from last year. That's what I'm asking. That's what I'm asking. Okay. Okay.

All right. Well, the first thing you need to do is set up an accounting system for your businesses. Okay. A separate checking account for each business, and only put money into the respiratory account from the respiratory business. Only put photography money into the photography account, period. Okay. Don't write.

Listen, listen, listen. Okay. Don't write. Listen, listen, listen. Okay. And don't write any checks out of any of those accounts except expenses associated with that. So you don't pay respiratory business expenses out of the photography account, and you don't buy groceries out of the photography account. You only write expenses associated with the photography account. So follow me on this. If only income goes into the photography account from photography and only photography expenses come out,

then your checkbook register essentially becomes a profit and loss statement. You can tell if that business is making money. Any money that's left in that account, by definition, is profit on cash basis accounting. So when you get ready to take money out of that account, I want you to set aside a fourth of it for your quarterly estimates. And I want you to start paying quarterly estimates immediately. Okay. For all your money going forward, starting today, every dime you make.

Okay? And it's going to be about a fourth of your income. And so if you set aside 25%, you pull out, you know, $10,000 and you set aside 2,500 bucks out of that account for taxes and take 7,500 and put it in your home account to pay bills with. But you set aside, you withhold taxes on yourself, about 25% of what you're doing, and then you'll have the money to pay your quarterlies going forward because you can't dig your way out of last year's taxes while digging into this year's taxes.

You've got to stop the bleeding first. Yeah, okay. Then you can heal, okay? So first thing is set up an accounting system, start doing your quarterly estimates, get in touch with one of our endorsed local providers, and lay out a game plan for doing your quarterly estimates properly so you don't get yourself in a pinch again. Then we've got the money left over after your quarterly taxes you're withholding on yourself.

Whatever's left over is now your income. And that's the take-home pay that everybody else operates on. You said you're married? Yeah. And does she have an income? No, she's a stay-at-home. Okay. And so we take the money from, you know, this take-home pay, and we begin to clear this up.

Then what I would do is I'd clear up taxes first before I pay off your cars, before I pay off your student loan. I'd go back and get that $20,000 done as soon as possible because the IRS has the highest interest rates, the highest penalties, and the most power to screw up your freaking life. Okay. You do not want these people in your life. Okay.

Then start your debt snowball once you get that $20,000 from last year cleared up. And you can do that pretty quickly. Once you get on a system and you decide if you're really as disgusted as you're trying to convince me you are, if you're really disgusted enough to finally change, the numbers tell me you can walk through this. But it's what Chris Hogan says all the time. The numbers change when people do. So your 42 false starts, is this going to be another one? Are you really going to do it this time?

I think you're really going to do it. Because I think I heard enough healthy disgust in your voice. You got tired of trying to out-earn your own stupidity. I tried to do that for a long time. Very difficult. You've got to make a lot of money to out-earn your stupidity. That's a lot of money. Most people can'tity that's a lot of money most people can't do it most people are stupid me included you just can't do that you gotta stop being stupid this is the dave ramsey show Our scripture of the day, Hebrews 13.6

So we say with confidence, the Lord is my helper. I will not be afraid. What can man do to me? Vince Lombardi said, the price of success is hard work, dedication to the job at hand, and the determination that whether we win or lose, we've applied the best of ourselves to the

task at hand. Nowadays we say, we left it all on the field. We left everything we had out there. We weren't going to play another round. That was the round. That was it. You know, it's amazing to me in the financial world that everybody wants to DIY, do it yourself.

I don't grasp this. You don't even work on your own freaking car. A lot of you don't mow your own grass you certainly wouldn't sell your own house not if you're smart you would get a quality realtor to do that oh somebody really knows what they're doing not a monkey they got a license but i'm talking about a top-notch real estate agent and you might be patting yourself on the back because you think you're saving your fees by doing your own investing. But picking funds isn't the value of having a personal financial advisor. Everyone knows the phrase buy low and sell high.

Everybody gets the idea. But what do you do when the market starts to go down? Because the market's going to go down. Mm-hmm. What are you going to do? Are you going to freak and sell? That's the exact wrong time to cash out. You haven't lost money until you sell.

An advisor that is the voice of reason can talk you off the ledge is worth a mint to you. Most people who win with money have somebody in their corner coaching them and talking them off the ledge. And finding one that talks and thinks like we do here on the air is kind of a bit of a challenge. But we've taken the challenge and we've lined up a group of what we call smart investor pros because we think you are the smart investor.

You're the SmartVestor, and then the pro is the one that can help you do that. And they can help you with the heart of a teacher. So if you're ready to do some investing, I suggest you put somebody in your corner, click SmartVestor, put in the info. It'll drop down a list of the SmartVestor Pros in your area, and you decide which one you want to work with. But they all have the heart of a teacher, and they all will give you investment advice that sounds suspiciously like what you hear here on the air. And you'll understand it.

Hello. Kevin's in Orlando. Hi, Kevin. Welcome to the Dave Ramsey Show. Thank you, sir. What's up? So I have a baby step seven, and I've got about 100,000 that I want to park somewhere for about four years until I retire. And I was looking for some advice on what to do with that.

What are you going to do with it when you retire? Looking to kind of bless ourselves a little bit for the hard work that we've done thus far. So maybe looking at getting an RV and traveling around the United States a little bit for the hard work that we've done thus far, and so maybe looking at getting an RV and traveling around the United States a little bit. Okay. How much is in your 401k now? So we both, my wife and I both have pensions, and then on top of that, I do have a Roth IRA.

I got about $50,000 in that, but I'm putting 20% to it now. Good, good. And your house is paid for? Yes. And what's it worth? About $75,000. Cool. And what's your household income?

We're about $130,000. Good for you. Okay. Well, here's the thing. If you look back over the history of the stock market and the New York Stock Exchange, you will find that 90-something percent of the five-year periods made money, if you leave money alone, five years in a decent growth stock mutual fund, okay?

One that's got a track record of somewhat of stability, that kind of a thing. You following me? Yeah. And if you look back at three-year periods, not 90%, but around 65% of them made money. So that's the chance you take at four years is in between. If you're going to leave money alone five years or longer, I'm very comfortable picking some conservative growth stock mutual funds. Okay? Okay.

You could pick a growth and income fund, which is the more conservative of the four types I personally invest in and I recommend. Growth and income, growth, growth, aggressive growth, growth and income, growth fund, and international. Those are the four I always talk about and that I personally invest in. But I own one growth and income fund that's been open since 1934. It has averaged 12.07% per year since 1934. And out of those 83, 84 years, it's had 15 down years. Fifteen times it was down and 70 times it was up. Okay?

I'm pretty comfortable putting a bunch of that $100,000 in something like that. I might not put it all in there, but I might put $75,000 in there and $25,000 in a money market. Okay, and I have some flexibility. I mean, it's not like in four years, damn, I have to draw it out. So I have some flexibility with time. So if the market was down, you could hold your breath and hold your nose for a year and let it come back up, right? Yes, sir, exactly.

If we had some kind of a weird event, which we do have those weird events every so often. That's right. It could be... We'll have to see because then we get more gain for our buck. Yeah, exactly. But you see what I'm saying? If you said, I've got to pull it out and your 100 was worth 75, you wouldn't like Dave Ramsey then, you know?

Right, exactly. That's the thing. And that's the analysis. So I probably would do some mix, but I'm very comfortable if I'm in those exact numbers that you gave me, if I were doing it, I would take the risk of putting, you know, like $75,000 of it in something like that type of a growth and income fund that I just described. Something that's got a very stable track record. It's not a guarantee. It's a stable track record. And if it makes half of what it's made for the last since 1934 it still made six

percent or if you put it in a money market it's making one one and a half yes sir you know so i mean it's got to go down it's got to be one twelfth as good as it's been to be as bad as a money market you know that that's pretty bad so that's that's how i'm comfortable with it but that you do need to kind of feel that, that you're taking some risk there. So your four years might turn into five, and your 100 might turn into 90, but more than likely your 100 would turn into 120, 140, somewhere in there during that time. More than likely.

It's just a matter of how much. So I'm willing to take a little bit of risk in there during that time. More than likely. It's just a matter of how much. So I'm willing to take a little bit of risk in something like that for a whole lot better return than a standard savings account. If you told me you had two years, I'd just tell you to put in a savings account. Just put in a money market and make one, one and a half. That's simple. That's all I would do. Just keep it that clean.

George is on Facebook. Dave, should I attack my rental property debt in Baby Step 2 or build an emergency fund and pay for it in Baby Step 6? Rental property goes in Baby Step 6. Real estate, and if you've got a large loan on your small business, I'll put an SBA loan, something like that, $100,000, $200,000 on your business or something. I'll put that out at Baby Step 6 too. But Baby Step 2 is any kind of other debt goes in Baby Step 2,

including ridiculous student loan amounts. They all go in Baby Step 2. You've got to clean those up and get rid of those. If your second mortgage is more than half your annual income, we push it out to baby step six. And that's household income. So if your household income is $100,000, you have a $60,000 second mortgage, it's in baby step six too. If you have a $25,000 second mortgage and $100,000 income, it's a baby step two item. And it drops right into the debt snowball. And you work it through like that. And the reason is you can simply mathematically knock it out.

But if it's going to slog along and you're going to be sitting there with $1,000 for five years and not be getting into your 401K and that kind of stuff because you've got a big, huge second mortgage laying there, then I'm going to push it on out to baby step six. I do not do that with student loans because the student loan issue is such an emotional thing and people get stuck in them for 25 years if i let you push them out so you've got to punch them in the face punch them hard and get it done you got to knock it out there's no way around it you have to do

that uh james is on twitter how do you recommend paying for home renovations cash or don't do them dave what about a he locker a second mortgage nope grandma's rule you don't do them, Dave. What about a HELOC or a second mortgage? Nope. Grandma's rule. If you don't have the money, you can't buy it. It's Grandma's rule. It's called common sense. If you get it, it's so rare, it's like having a superpower. Try it. That puts us out 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, it's Kelly, associate producer and phone screener for The Dave Ramsey Show. This episode is over, but if you heard about a product or service and didn't have a chance to write it down, don't worry. We list everything that is mentioned during this episode in the podcast show notes section.

Thanks for listening.