The Ramsey Show - App - Don’t Do the Baby Steps Out of Order – They Work This Way! (Hour 1)

Episode Date: May 23, 2023

Dave Ramsey & Rachel Cruze answer your questions and discuss: "How much should we save for a future home?"  "What should we do with our tax return?" from the blog: What Do I Do With My Tax Refund? "Help me decide my business model for my food business", Why you shouldn't pull from your 401(k) to pay off debt, from the blog: Should I Use My Investments to Pay Off Debt? Saving for a home down payment, What to do with your savings, Budgeting as a new college graduate. Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET Join a Personality-led FPU class. Click here! Enter The Ramsey Cash Giveaway for a chance at $3,000! https://bit.ly/TRSgvwy Shop our bestsellers during the $10 Sale! https://bit.ly/TRS10Sale Want a plan for your money? Find out where to start: https://bit.ly/3cEP4n6 Listen to all The Ramsey Network podcasts: https://bit.ly/3GxiXm6 Interested in advertising on The Ramsey Show? https://ter.li/s64ye3 Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy

Live from the headquarters of Ramsey Solutions, broadcasting from the pods, moving, and storage studios, it's The Ramsey Show, where we help people build wealth, do work that they love, and create actual amazing relationships. Thank you for being with us, America. We're so glad you're here. Rachel Cruz, Ramsey personality, number one best-selling author, and co-host of the Smart Money Happy Hour podcast on the Ramsey Networks

with our own George Camel is my co-host today. Open phones at 888-825-5225. That's 888-825-5225. That's 888-825-5225. Starting this hour is Tamara in Little Rock, Arkansas. Hey, Tamara, how are you? Hi, I'm doing well. Thanks for taking my call. Sure.

What's up? So we are a military family, and we don't plan on buying a house until my husband retires from the military in about 10 years being such a long-term goal how much should we be setting aside now each month for a house wow well thanks for your service we appreciate that welcome yeah do you guys know where in 10 years where you think you want to end up we don't at this point okay uh where are you guys at on the baby steps do you guys have consumer debt nope we're in baby sex four through six at this point okay uh where are you guys at on the baby steps do you guys have consumer debt nope we're in baby sex four through six at this point okay that's awesome i mean yeah i mean

honestly i mean it's it's it's a decade away so i'm like what the housing market's going to be like where you guys want to end up i mean there's a lot still in the air so i mean i would just you know have a goal of setting maybe a percentage of my income aside every month. So more of a percentage than a dollar amount so that you guys can still enjoy life. I mean, y'all are on baby steps four through six. So you want to be able to, you know, not stress about it too much, but obviously plan, which I think is really wise. So, yeah, I would find a percentage of your income that, you know, you could set aside and kind of start working and then as you guys get closer like in five years maybe some options kind of start to shrink of where and you can kind of look right because I mean if you're going to be buying in Silicon Valley

versus Des Moines I mean those are very you know right two very separate price points so as you guys kind of narrow down hey here's where we want to end up that probably will help navigate how much more to save the closer you get to that goal. What's your household income? We're about $70,000 a year. Okay. And are you using military housing or are you renting? Correct.

Yes, we live on base, so we use our basic allowance for housing to cover that. Okay. Okay. Well, you know, if you just kind of started laying out some goals and said hey we want two hundred thousand dollars then that'd be twenty thousand a year right correct and uh that'd be pretty cool you know or or if we want a hundred thousand dollars it'd be ten thousand dollars a year whatever it is just start saying let's start aiming at a goal. I always think what ends up happening is your life tends to, and your numbers and your budget, within reason, tend to mold themselves around whatever your goal is.

Not having a goal and just having a general idea, oh, we ought to be saving for house. I would put down a particular number, and then that gives you something to form your budget around and aim at and i don't even care what the number is i just think there needs to be a number does that make sense right so i mean 200 sounds fun um that might be a little stressful on 70 um but we did set up a brokerage account um that would be fine investing in so we have about 19 000 in at this point um that's in over and above your emergency fund correct yes we have 20 000 oh good then you only need 18 000 a year to get to 200 yeah and we also thought i know i've heard you say before that you can kind of plan to save up um like rent payment if your goal is more of a long-term

goal exactly so we're trying to get to that point you know it's taking up let's say 1500 or even 2000 but at this point it just seems too tight for us to be able to do that 1500 be 18 000 a year that that would get you plus the 19 that you've got that would get you to 200 but we're making this number up it's not a we could have said 300 or we could have said you know whatever we said but so the point being just give you if i were you guys i would i would say okay this is my target that's what i'm aiming at because if you aim at nothing you'll hit it every time and so you want to aim at something very specific um and even if you don't make it all the way at least you know you've got a game plan and you're moving in the right direction uh but when it's when it's has nothing tied to it then that

would mess you up i don't want to do that jessica's in houston hi jessica welcome to the ramsey show hi guys thank you for taking my call sure what's up um my hoping you can help us settle a disagreement. My husband and I are on baby step two. We're getting about $5,000 back from our taxes. We are both self-employed. I would like to take that money and just throw it at our debt. However, my husband would like to take that money and purchase a vehicle for his business. He's a transportation company. His reason for wanting to buy the vehicle is it would help him bring in more income to throw at our debt.

I'm just a little more hesitant. He's going to buy a $5,000 car. Get out of debt. He's going to buy a $5,000 car. So he'll spend it on the car? Did you say he's going to buy a $5,000 car? Is that what you're telling me? Well, it would be a 22-passenger van is what he's looking at buying.

For $5,000. Yes. Can you get that? For $5,000? yes can you get that for five thousand dollars um possibly no he's wanting to go into debt to buy a 22 passenger van and five thousand dollars is the down payment you're not telling me he can find a 22 passenger van for 5k i ain't riding in that. How much debt do you guys have left, Jessica? We have a credit card, a loan, and then two vehicles. One is my vehicle, and then one is his business vehicle.

How much does that all total, do you know? It's about $60,000. Okay. And your household income is what? It varies because we're both self-employed. So I would say between $60,000 to $80,000. And how on board is he with paying off the $60,000 in debt? Is he he pumped is he excited um a little bit i'm more i think i'm more uh wanting to attack the debt and get that paid off yeah he's bored for sure so the proper answer or the proper way to set the call up is i am on baby step two and i'm dragging my husband with me yeah yeah that's the that's the disagreement so the disagreement is not really over the 22 passenger van or the five thousand dollars the disagreement really is over you guys are not on the same page he's just going along with you he's not he's not engaged in yeah he's not he's not an active

participant in this goal that you you guys have of getting out of debt right if y'all were both on the same team attacking the exact same thing then this would be a really easy answer of of course it's five thousand dollars towards the debt because that's the answer but i would really work jessica and you guys you guys focus again on hey what's our goal in our marriage like what are we doing as a team that's more of the discussion you guys need to be having rachel cruz ramsey personality my daughter is my co-host today. Open phones at 888-825-5225. Ashley is with us in Charlotte, North Carolina. Hi, Ashley. How are you? Hey, Dave. Oh, my gosh. I'm so excited to talk to you guys.

You too. What's up, kiddo? So my husband and I are looking into maybe starting a new business. We are totally debt-free with a paid-for house. We have one year of emergency funds saved up. Wow. Nice. Yeah, we've been following you and doing you for seven years since we got married, and so we just got debt-free not too long ago and paid our house off about a month ago. Oh, wow. Congratulations, Ashley. Way to go. Thank you. So, I love food. I love making food. People really seem to respond well when I post things on Facebook, sharing things. And they have actually come to us wanting us to maybe start a food truck or, like, a cafe of some kind. We talked to our CPA, and he was leaning more towards a food truck.

He said that, like, the overhead was less. They were less likely to, like to not go under because of all the overhead. But my concern with the food truck we have been looking into then is, of course, it would still be considered a depreciating asset, correct? Even if we paid cash and saved up for it, it's still depreciating versus like a brick and mortar. I guess if we're owning, if we don't own it, we're still paying rent. So I just didn't know if you were winged one way or the other. I would not decide my business model based on either one of those things or based on a CPA's advice. Okay.

You need to decide your business model on what your dream is. What do you want to operate? Do you want to operate a food truck? Do you want to operate a brick and mortar? And then let's figure out how to pay for it and how to make the money, how to make it profitable, right? Gotcha. And is there another in-between step, like start catering as a start

and start to build up your customer base from catering. I know several excellent chefs that have big operations now that started as catering. Gotcha. And what's your end goal, Ashley? Do you want to be a restaurant owner? Yeah. Like, do you want to like, is there a big dream or is it more just a passion of yours and you love it and it's something to do on the side that's really fun?

I've always wanted to be more of a chef. Like the food part of it is more like my dream and passion. My husband was in the food industry for a while and he actually was the business side of it. So as far as that, I think the brick and mortar having like a small cafe, I'm thinking something kind of small scale of like the Cracker Barrel. I'd love to have like a little store inside and be able to combine healthy, like whole food, plant-based foods with more like regular foods, like a blend of the two. So people that, my husband eats burgers and fries and i think the only reason

you're considering a food truck is um it's not doesn't sound congruent with this dream gotcha the cafe sounds congruent with the dream it does yeah now that you're talked me through that it does yeah yeah it just feels like it the way you say it out loud and here's the thing um your your cpa is right about one thing. Restaurants have a higher failure rate than almost any other business category. Really? Yeah. And so you've got to really lean in on the business operations part, not just the food quality.

Okay. If you make the best and healthiest food on the planet and no one is there, this isn't going to work. Right. And so there's the marketing and the operations of this. And what I would do is I probably would start as a catering operation and build a customer base and then look for a place to lease, don't buy a piece of real estate, and build you out a little restaurant, and your leasehold improvements that you put in there will be a depreciating asset, too. But let me, I mean, but Ashley, like, I mean, and tell me if I'm wrong, I mean, but this could be hundreds of thousands of dollars.

I mean, this isn't just like a little thing, and I wonder if that's why the CPA was like, yeah, a food truck is going to be way less expensive to get something going not necessarily i mean if you if you found a location that the building was there and someone else had had something in the kitchen in there some of the commercial kitchen items are in there you go in and renovate you might spend less than a food truck to renovate it it's possible and you know to upgrade it get the fresh coat of paint and uh you know uh that'll work uh you could uh start with a food truck if you want to but i just the question is just what you want to do for the next five years of your life and i think you want to cook and i think he wants to run a restaurant and that doesn't sound like a food truck to me. Yeah. That's a different gig.

It's a different feel. And even Ashley, like, you know, we've been to a few places over the last probably two or three years, people's homes for events. And they have someone come in and cook. And, you know, and the chef guy brings his cart around. He's like, next time you guys have a party, I can do a dinner for eight of your friends or like you know whatever it is and i'm like if you get the right people in a room that taste your food that then spread the word right like there's ways to do it so the catering if that's what you're meaning but even coming in and cooking for for friends and and having them bring friends and you know i mean you can start small just to get the word out uh about what you're doing because it sounds great but also i just restaurant, it's just a big investment.

It's a hard business. When you hear brick and mortar, I mean, it's just you're going to be having staff. If there's not already a kitchen, how much those appliances cost? I mean, it's a lot. It's a lot. Not that it can't be done, Ashley, but it's a feat to take on. So it's you guys really brainstorming. You can drop $100,000 in a truck,

and you can drop $100,000 into your leasehold improvements either one real quickly make sure you've got the cash and that way then the only overhead you've got is your lease and your payroll and your food i just know there's like the i mean i just can think of probably three or four food trucks and i don't that started as food trucks that ended up becoming restaurants because their brand was so big here in Nashville that they opened up a restaurant because of that. So I'm just wondering, that's not a stair-stepping way. It can be, but then you either continue to operate both or you've got this extra truck left over.

Yeah, yeah, yeah. The question is what she wants to do. I mean, I'm with you on the idea of starting some chefing in home stuff um we were at a high-end uh charity event your mom and i the other day and um the food was incredible she collects the chef's card and um he's helping us with the family reunion that's coming up so i mean you know that's so that's how that's how you get the business out and so it's it's but you can build a clientele based on that and then if like we have friends that are chefs that have do in-home stuff and if they ever open something we'd be a customer right you know so

because we're a customer now that kind of thing same kind of thing with this guy and that's a process there that you can go through um and pick up the, The E-Myth by Gerber and read that. He talks a lot about learning to work on your business, not just in your business, because being a chef is one of the pieces you have to do to operate a successful restaurant. The other pieces are business orientation that your husband has apparently, and I would lean into all of that. I really, really would. Open phones at 888-825-5225. Thank you for listening out there, America.

We appreciate you. If you are new to The Ramsey Show and you're trying to figure out what in the world are we talking about? That's snowballs, baby steps. What is all these words, all this vernacular mean? Well, you can go to RamseySolutions.com and click on the Get Started button. The Get Started button. It is a free process to help you figure out what you're looking for in this Ramsey journey

and how we can best serve you on this Ramsey journey, where you are now and what your next steps are, all those kinds of things. So click get started at RamseySolutions.com and we'll get you moving. And, you know, you become acquainted with the baby steps and the debt snowball and all those kinds of things. If you just keep listening to the show. We'll keep talking about it, and you'll start to understand what we're dealing with, and you'll look it up, and you'll watch a YouTube video. Or some people go through, if you want to do the best thing you can do, go through Financial Peace University. And that'll line you up and get you on the fast track to doing everything and getting control of your money and changing everything. So all of that to say that we're here to help you.

So check it out at RamseySolutions.com. Reginald Cruz, Ramsey personality, is my co-host today. Thank you for joining us, America. Up next is Jeff in Indianapolis. Hi, Jeff. Welcome to the Ramsey Show. Well co-host today. Thank you for joining us, America. Up next is Jeff in Indianapolis. Hi, Jeff. Welcome to The Ramsey Show. Well, hello, Dave. Thanks for having me on.

Sure. What's up? Hey, looking to, at the risk of sounding foolish, ask a question about 401Ks. 58 years old, got like 20K in debt, credit cards. Looking to see if maybe I should make a withdrawal from my 401K and pay them off and get going forward on both buildings. Jeff, how much do you make a year? Approximately 100.

Okay. No, I wouldn't. I would continue having that money sitting in your 401K, and I would just cash flow it. I mean, you make great money, and this 20k, you could knock it out in a few months with just your income. Yeah, 100,000 minus 20 is 80.

I think you could struggle through on that for one year. Yeah. If you take the 100 minus taxes and all that it doesn't leave 80 i know but yeah i see where you're going with that yeah it's not that basically simple i mean if we didn't have taxes yeah i mean my taxes could pay for this well absolutely it could but uh so the thing is this um that 20 000 is going to be worth a lot of money in that 401k in the future if you leave it alone. Plus, I'm pretty sure until 59 1⁄2, you're going to get penalized, aren't you, if you take it out? Correct.

I just figured that would be what you could refer to as stupid tax. Yeah. Well, it would be a 10% penalty plus your tax rate, which we have established to be around 30-something percent at this point. And so that means you're going to say, hey, I'm going to borrow money at 40% interest to pay off my credit card. That's a great way to look at it. So, yeah, I wouldn't do that either. And I like that money, and they're growing, and I love the idea that just tighten up your budget, and let's reverse the trend that caused the credit card debt, which was overspending. And so we're going to try a new thing called underspending and tighten it up, man, and get that cut, chop up those cards, have plastic surgery and get a fresh start.

That's what I would do. Joshua is in Santa Fe, New Mexico. Hey, Joshua, how are you? Doing well. Thank you guys for having me. Sure. What's up? So I was calling just to see what the best way to go about Baby Step 3B is.

I have a piece of property that I'm intending to build a house on. The property does have a balance on it. So I was just curious if I should be saving in a savings account or if I should be applying or saving towards paying off the property first, kind of like a baby step two or what you guys recommend. And have it in there. Yeah. Well, I mean, saving for short-term savings right now, at least for the house. Yeah.

I think a high-yield savings account or a money market account would be, how much do you have left on the land to pay off? $55,000. Okay. how much do you have left on the land to pay off? $55,000. Okay. How much do you make a year? I make $90,000. What's it worth, the property? The property is worth $225,000.

Okay. You can build now. When you take out a construction loan, they're going to pay off the balance and enroll it into the construction loan because construction loans don't take a second mortgage position. And so if they stepped in and put a lien on the property, take out a $55,000, pay off the first, then that sets up to do the draws to do the construction. You're building on the property with a contractor i assume right yes yes yes sir okay and currently you've got already 150 plus thousand dollars in equity

right yeah so you you could go ahead and start your build whenever i you know and i if you want to throw some cash in the bank to get ready to do that that's okay but um once you've got your contractor in place, and to put the construction loan in place, if you don't know how those work, they put that in place. It's a first mortgage. They'll have an immediate balance of $55,000, and then they'll draw on it at different stages of construction to pay the contractor as you go along.

When it is completed, you will have already, before you take out the loan, been approved for your permanent mortgage. And the permanent mortgage issues what's called a takeout letter, because the takeout letter means the permanent mortgage is going to take out the construction loan. When you're done, it rolls into, becomes, is refinanced into a permanent mortgage that'll have encompassed everything we're talking about, the land, the house, everything, and when you're done. And if you're careful and you watch what you're doing with your building process and you stay on budget and on schedule and per plan,

don't do a whole bunch of change orders as you go along, you'll keep a really good margin in the build itself and you'll end up with even more equity than just the equity in the land, because the house should be worth considerably more than it costs to build. Right. Okay. Yeah. Great. Yeah.

I was just thinking to get a lower payment. I know you guys are saying 25% of your take-home, so I was going to wait another six months or so, but I was just curious if I should apply that to the land or uh just put it in a savings account like you said here's the thing have that in six months in six months you're just coming out of the ground anyway right it's going to take you a while to get plans finalized get a contractor lined up and uh so yeah pile up some cash during that time but even even then when you just start coming out of the ground, you don't have payments on the construction loan. Okay. Awesome.

So, you know, you're going to be piling up cash as you go along. And so by the time you get the construction all completed a year from the time you break ground maybe, something like that, then, you know, you've got an additional pile of cash that you've saved during that year that you'll put down and have a smaller permanent mortgage. But obviously making sure your mortgage, like you're saying, Joshua, though, by the final permanent mortgage once it's all done is no more than 25% of your take-home pay.

So obviously the amount of house you build is going to play a huge factor in this. Yeah, so as long as you can make that formula work 18 months from today with the down payment plus the construction process, then that formula, then you can start working towards everything right now. Take you about six months to put all your ducks in a row, then break ground a year to build the house. That's 18 months from now is the final balance that you end up with going to fit the 25%. And you can back into that and tell pretty quick once you put your budget together on the property we put the

budget together one of the things going to happen is you're going to go oh my god this is expensive and then you'll uh maybe say oh i do need to wait six more months before i break ground to make those numbers line up at completion what i want yeah. Yeah. You want to bring it in at completion, net of savings, and real equity positions to where you don't have a payment that's more than a fourth of your take-home pay. So good stuff. Michelle is in Tampa. Hi, Michelle.

Welcome to the Ramsey Show. Hi. How are you? Thanks for having me on. Sure. What's up? So my husband and I are in a position wanting to know what we should do with our savings. We have about $130,000 in cash. Okay.

Where are you guys in the baby steps, Michelle? do you guys have any consumer debt? We have no credit card debt. We have no car loans, no student loans. We do have two mortgages. We have one residential where we live and then we have one investment property. Okay. How much are those? How much is left on your mortgage? On your primary home? So primary, $330,000. Okay, and how about the investment property? $456,000. It's a big investment property.

What's your household income? Combined, $240,000 combined 240 okay cool very good good for you guys well done well what we teach is a process called the baby steps that rachel was referring to the first goal is a thousand dollars in the bank you've obviously done that two is you have an emergency fund of three to six months i'm sure two two is your debt-free except the house. You've done that or except for your real estate. Three is you build an emergency fund of three to six months of expenses. Do you have that in addition to the 130 or is that 130 encompassed in that? The 130 is encompassed. Okay. So let's pull 50 of that aside and call that your emergency fund. You never touched that except for emergencies, which leaves us 80. And in that case, that would take us to start investing 15% of your household income into retirement, kids' college.

So you could use this 80 towards kids' college if that's applicable to start saving aggressive 529s. And if not, then we're going to start paying down your house. And I throw the 80 at your house and that's exactly what i do because next goal is to get your house paid for that's going to be a big building block in your wealth building this is the ramsey show rachel cruz ramsey personality is my co-host today. Thank you for joining us, America. We're so glad you're here. Hey, if you've changed your life with the money principles we teach, chances are it's because someone you know lit a fire under you.

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and a total money makeover book, my best-selling book ever, and my latest number one bestseller, The Baby Steps Millionaire's Book. So right now you get all of that for a huge discount, only $89. Hey, that's happening just for a couple more days. Grab the Live and Give box right now at RamseySolutions.com. That's RamseySolutions.com. Derek's in Kansas City. Hi, Derek.

Welcome to the Ramsey Show. Hi, everyone. New listener of about one week. I just graduated with my master's in geography last week. I have approximately $25,000 in student loan debt and about $7,000 in credit card debt. I currently have about a twelve hundred dollar emergency fund, but I also just accepted my first job paying thirty five an hour with no benefits on a year long contract. I was hoping for advice on budgeting

with my new job to pay off my debt while also making investments in retirement and the stock market and hoping to save money to buy my first home. It's great, Derek. I mean, a lot of great goals, which we are, we are all, we are all for all of that. Just yeah, new home and, uh, investing and all of it. Just the order is what is really gonna matter here. So, um, you landed the new big job. Yeah, it was quiet. I had to really hold out, but I think it was worth it. What are you going to be making? Well, $35 an hour, so a little bit over $70,000 before tax. Good start. After tax. Good start. Well done. What are you going to be doing with your degree? So I do the computer side of geography, geographic information systems, so GIS.

Yeah. Working for a city municipality. Awesome. Good, geographic information systems, so GIS. Yeah. Working for city municipality. Awesome. Good for you. That's so great. Yeah, Derek. So again, I mean, everything you listed out at the beginning of the call are all great goals to have.

And again, ones that we're fans of. It's just the priority at which you do it is really important. And so we have found that one of the best ways to build wealth and to really fund a lot of those dreams of investing and getting a house is with your income. And so eliminating debt is, is really step number one, you have $1,200 saved, which is awesome for your starter emergency fund. And I would start attacking next the $7,000 in credit card debt. And are those in multiple cards or is it all in one? Well, I have two credit cards and I recently started spending more on the one that had a

lower APR. Yeah. Okay. So, you know, one thing that I feel like we're just known for is getting out of debt and staying out of debt. So, Derek, I mean, I would recommend just go ahead and cutting up the cards, get a debit card, and use your money out of your account versus the bank's and start working your way out of this and not starting a habit now of not depending on living on a credit card, because there is something so powerful about spending your own money and knowing what's going on. And if you hold on the line, Austin will pick up because I want to give you EveryDollarPlus,

which is our budgeting app because that's going to help you really see your expenses and see, okay, here's exactly where my money's going. And that's everything from rent to food to insurance to fun. I mean, everything that you have in life is going to be listed out there. And you're going to really have a handle over when that first paycheck hits that you're going to know exactly where it's going. And your first big goal is getting out of this debt. And so it's getting out of that $7,000 of credit card debt and then your student loan. And then you'll work your way down the baby steps,

which next would be a fully funded emergency fund of three to six months of expenses would be your next goal. And then that's when you start either saving up for a house and for a down payment of at least 5%, or just going right into baby step four, which is funding retirement, 15% of your income. So again,

that's going to, it's going to be a process though. This, this all isn't going to happen in the next few months. You really are going to work this. And, and starting now, Derek, I think is awesome. So I'm so glad you called in because the sooner you can start building these habits and working through the baby steps, time is on your side. And the fact that you're, you're doing this now is is huge because it's only it's only an uphill battle from here if you don't if you don't form these habits yeah and don't um the the thing that's really easy to do is get really excited uh we graduate from college got a good job way to go congratulations don't celebrate that by being stupid don't celebrate

that by going and buying a new car on payments don't celebrate that by being stupid don't celebrate that by going and buying a new car on payments don't celebrate that by going and buying a house while you still got debt coming out your ears left over from college and left over from credit cards let's get the mess cleaned up because if you move in a house and you still have sally may you have to buy an extra bedroom just for her and it's just not cool don't do that so instead let's let's go through the process yes getting a house is a good thing but buying a house at the wrong point while you still have debt and no savings oh that's dumb that's going to cause you to have all kinds of problems so um the point is doing a smart thing at the wrong time turns a smart thing into a dumb thing.

And so don't do that. Let's lay this stuff out just exactly like Rachel said with these baby steps and, you know, plow right through that whole process there. And to go along with the EveryDollar app, we'll throw in the book, The Total Money Makeover, which gives you every detail on the baby steps and why they're in the order that they're in and and really rachel where those came from is people asking questions 30 years ago and that's how long we've been teaching this stuff derrick um like him like okay i got all these different things i want to do where do i start what's the first thing to do what's the second thing to do just give me a plan give me a clear path and that's why this has been so successful and you know tens of millions of people now have followed

that process and it it really is all based in basic personal finance and basic uh planning uh you know financial planning technique a few things we nuanced and and came up with some ideas to make it real clear and easy to grasp and execute but the basic concepts the framework of all of that is nothing really new we didn't invent it we just made it very clear very applicable and now and talked a whole bunch of people into doing it yeah that's what's hard it caused them to get out of debt and build wealth yeah absolutely and with Derek where he is in life I'm like yeah you get out of school get your first job and you're like oh my gosh there's so many things which thankfully he's even thinking about it because some people just flip through life for a few years until they're

like oh gosh I need to save for retirement so he's thinking about this stuff early on in the in the process and again it's all good stuff. I mean, everything that you said, I'm like, yes, absolutely. We're for all of that. But it's that order. And that's the thing is I think people get scattered and you take your income and it's like, yeah, I'll put some here, put some there, there, there, there. And they don't see a lot of traction and progress. That's why the baby steps is so helpful is you get one at a time, check them off, and

you have focused intensity, especially through those baby steps one through three, that you know what you're doing. You have a goal. There's something out there that you're reaching for, and you're saying, okay, this is debt. My debt pay off. I'm in baby step two, and everything is focused on that. And when you see progress, it gives you hope that, okay, I can do this. And another example of that is doing stuff in the wrong order is what if you didn't have an emergency fund, and you got all excited about investing, you started putting all your money in your 401k?

Well, when you have an emergency, not if, because you're going to. When you have an emergency and you have no money, but you have money in your 401k, you know what you're going to do? Cash out your stupid 401k. And you're going to get your face smashed in with the dadgum rent, I mean, the penalties and the taxes on the thing. It's crazy what they're going to get your face smashed in with the dadgum rent, I mean the penalties and the taxes on the thing. It's crazy what they're going to hit you with. Or worse yet, you're going to borrow on your 401k to cover an emergency

because you didn't have an emergency fund in place before you start your 401k because baby step three is a fully funded emergency fund of three to six months of expenses. Baby step four is you start investing 15% of your household income into retirement. There's a reason four comes after three. Because three is first. Hello. That's how that works. And you don't need, folks, you don't need to fix this.

It's not broken. So, I need to invest. I'm going to invest. Yeah, you're going to be broke is what's going to happen. Don't do this stuff out of order, guys. It works this way. So I need to invest. I'm going to invest. Yeah, you're going to be broke is what's going to happen. Don't do this stuff out of order, guys. It works this way. This is The Ramsey Show.

Hey, it's Rachel Cruz. If you like what you heard in this episode and want to know more about getting started on the Ramsey baby steps, go to ramsesolutions.com and click the get started button. We'll help you figure out the best next step for you based on your specific situation. That's ramsesolutions.com and click get started.