The Ramsey Show - App - Grow the Generous Bone (Hour 1)

Episode Date: August 21, 2019

Retirement, Home Selling   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. Thank you for being here. Open phones at 888-825-5225. Michael is with us in St. Louis. Hey, Michael, how are you? I'm good. Thank you for taking my call. Sure. What's up?

I have a question. I'm nearing 50 years of age. I taught school for 25 years. Recently, in the last year, I have taken a job in the business field. So I could draw my retirement from my teaching pension at the age of 55 for $24,000 a year, or I could wait until I'm 60 for $36,000 roughly per year. I was kind of wondering, you know, I've kind of went back and forth. If I start at $55,000, by the time I'm 60, I'll, you know, have drawn roughly $120,000 or waiting until I'm 60 and, you know, it would really take probably 10 years to gather that money.

I would have had to. Okay. The difference in $24,000 and $ 24 and 36 is $12,000. After 10 years, you'd have $120,000 plus whatever return on investment you'd made if you invested 100% of that. So if you took the investment, you took the retirement at age 55 and put 100% of it into mutual funds, and it grew, the $120,000 would likely be more like $250,000. Okay?

Okay. And how much would $250,000 beginning at age 65 produce? Well, if it made 10%, that'd be $25,000 a year, and that'd be, say, $2,000 a month, okay? Okay. Which is more than $12,000. You gave up $12,000. You're not going to get $36,000. You're going to get $12,000. You gave up $12,000. You're not going to get $36,000. You're going to get $24,000, correct?

Yes. In our plan, we're going to start at age 55. We're going to invest 100% of it until age 65. You follow me? Yes. In order to do the comparison mathematically, that's what we're going to do. Now, if we invest it for that period of time, whatever amount of money is in there, will it produce enough interest to offset our investment income to offset the fact that you've got $12,000 a year or less

for the rest of your life from 65 on because we started early? Is this logical? Yeah, I see what you're saying, yes. Okay, and the answer is yes it easily would okay if you don't spend the freaking money right if you're going to spend the money then it's not smart yeah the pension isn't capped you know i could continue to work in other fields at that age yeah and at all ages right and. And the other question is, is there any lump sum option available? There is.

Not now, but at age 55. Well, that's what I mean. My actual contribution is around $100,000 over the 25 years. That's all you'd get? As a lump sum. Are you sure? I'm not exactly sure, no. Okay, that wouldn't be normal.

Most pensions have a calculation, and their calculation says, it's a financial calculation, and it's called the present value of what they're going to have to give you. If they have to give you, from age 55 until death, $2,000 a month, $24,000 a year. If they have to give you that, that's not worth the total of those dollars because some of those dollars aren't coming until age 70, age 80, right? You know, however long you live. So you put that into a financial calculator, and it gives you the present value of those dollars.

And the only way you can do that, though, is you have to assume an interest rate. The interest rate that a pension will assume is usually around 5% to 7%. And you can make more than that if you invested in good growth stock mutual funds over a long period of time and so you're the translation to all that gobbledygook is you can take your lump sum and invest it in good mutual funds and you'll have a lot more money than just taking the payments and so i would roll the lump sum get with a financial planner a financial counselor a financial one of our smart investor pros and they can when you turn 55 you don't have to do it now, but find out exactly what the offer is, and you can put that in a formula and determine, will that not produce,

were we to invest that in mutual funds, will that not produce more money than the monthly payments would have produced from the pension? And my answer is 90% of the time it will. Okay. Here's the other thing when you die your pension dies when you die with 300 000 in a mutual fund it goes to your heirs so if you take a rollover that's not 100 but it's 200 or 250 which it probably is honestly here let's see we're 24 000 i mean i can tell you what it'll be. Hold on just a second.

Yeah, it's probably 260,000 bucks is probably what the lump sum is. Okay? Okay. We'll see. We'll see when you get there. You don't have to do it today. I'm just guessing, but I'm probably not wrong. It might be, you know, 20,000 bucks one way or the other, but it'm probably not wrong it might be you know twenty thousand bucks

one way or the other but it's probably right around that amount now if that's the case um then you die you got two hundred sixty thousand dollars in your account but if you die with a pension you got zero so take the lump sum you got more when you die take the lump sum it's going to produce more income while you're alive so take the lump sum in almost every case It's going to produce more income while you're alive, so take the lump sum. In almost every case, that's going to be the equation. So get with one of our SmartVestor pros. You can find them online at DaveRamsey.com. Click SmartVestor. Put in your information.

It drops down a list of the pros in your area. They don't work for me, but they're who we recommend. I'm not in that business, but we recommend them because they have the heart of a teacher, and they'll walk you through all that gobbledygook I just did and help you calculate what's going on and how to do that. David is with us in Seattle. Hi, David. How are you? I'm hungry, Dave.

How are you? Better than I deserve. What's up? Yeah, listen, your last caller is a good segue to my question. My question to you is I'm trying to figure out my net worth. My wife and I have four annuities. I'm 66, we're both 66, and I've been retired for 14 years. And I'm drawing a pension from the Teamsters Union, which is an annuity.

Then, of course, we have our two Social Securities, which are also annuity. They have great value to me. I'm getting the check every month. It's great. But how do I find a value to that when I'm trying to figure net worth? We also have a fourth annuity. It's a private annuity. That's our own funds.

So anyways, if I'm figuring my net worth, you take your assets minus your debt. It's what could you get your hands on. Social Security doesn't add to your net worth. I'm glad it's a value to you, but it doesn't add to your net worth. It adds to your income. As far as the Teamsters, they should be able to give you a lump sum value of that pension, much like you said. That's a segue from the last caller. What's the value?

Even if they don't allow you to roll with it or cash it out, what's the value of that annuity? And it might be like we were just discussing, $260,000. And just for purposes of calculating your net worth, if they won't give it to you, what do you make a month on that one? Well, actually, Dave, since 2004, I've already received over a quarter of a million. Now, how much do you make a month on that one? On that one, it is, I get $4,000. Okay, $48,000 a year. Take that and divide it by 7%, divide it by.07,

and you're going to be very close to what your lump sum is. Not going to be far off at all. Are high health care costs getting you down? Are you confused trying to navigate your options? Do you wish you could find an affordable biblical solution to your healthcare costs? Based on New Testament principles, Christian Healthcare Ministries, or CHM, helps Christian families, churches, and ministries join together as the body of Christ to share their major healthcare costs. Christian Healthcare Ministries is the original health cost-sharing ministry. A Better Business Bureau-accredited organization, CHM members share to pay

each other's medical bills. It's not insurance. It's Christians financially and spiritually supporting each other. It's what Christian Healthcare Ministries has done for over 35 years, and our members have shared over $2.5 billion in medical bills. To learn more, Thank you. Charles is with us in Los Angeles. Hey, Charles, welcome to the Dave Ramsey Show. Hi. Hey, what's up? How can I help? I was trying to see if I could get some advice. I only have around $7,000 saved up, and it kind of took me a while to save that up.

And I have a $9,000 car lease, and I was wondering what I should do, if I should pay that off with what I have now, or should I move ahead? $9,000 is the buyout on the lease, and you get the title to the car? Yes. Okay. So you're almost... And it's at a 20% interest rate. Okay.

You're sure? Because that sounds like an awfully cheap deal to buy a car out completely. Well, I've been paying on it for around two years. I've paid on it already. What kind of car is this? It's a 2009. What? BMW. BMW. Okay. And $9,000, you write them a check for $9,000, they give you the title?

Yeah. And you have $7,000? Yes. Okay. Well, what we teach folks to do is baby step one, you set aside $1,000 as your beginner emergency fund, which means now you have $6,000. And then you take all the rest of the money and you throw it at your dad until you're dead free if this is your only debt then you've got six to apply to the nine uh how's your credit um well i think that's why i got high

interest rate on it when i first got it and i think it's gotten better because i've gotten a lot of credit cards sent to me but i don't but I don't use credit cards. Good. Okay. Can you go to your bank and borrow $3,000? I could check and see, but I'm not sure. If you did, what's your income? It's around $28,000. Yeah.

Okay. If you can borrow $3,000 and put it with the six and pay the car off, I'd rather you have the $3,000 loan at the bank than have the car loan at 20%. Okay. That gets you down. Then you turn around and start working on that $3,000 debt as your only debt and get it paid off as quickly as you can. Meantime, you've got a $1,000 Baby Step 1 Starter Emergency Fund.

JJ is with us in Hattiesburg, Mississippi. Hi, JJ. How are you? Doing good. How are you? Better than I deserve. What's up? Yes, sir.

I've got a mobile home that I'm wondering if I should sell. We're wanting to move closer to work and our church, which is about an hour and 15-minute drive, and I'm just not sure what to do with the mobile home that I own now. Okay. Well, it's a pretty simple equation for me. Where will that mobile home be value-wise 10 years from now, increased or decreased? It's going to be decreased, but it's on family property.

Okay. Is it your property no no sir okay so you just have the trailer only you don't have any dirt yes sir and one thing that's important is when we remodeled it we we remodeled the trailer which now i know it wasn't very smart but we put we butted the sheetrock up so there's no flex joints in between the sheetrock so it can't really be moved. So I'm not sure if I should room it out or whatever. But you don't own the dirt under it? No, sir.

Okay. So what's it worth if you sold it today? Somebody would have to haul it off, right? Yes, sir. It would be worth about $4,000 or $5,000. Yeah. And, you know, if you want to rent it out and get $4,000 or $5,000 out of it and fool with the renter over a period of years, you can do that.

But basically, this thing's not got an end game. At the end of the story, you don't own anything. Right. Because you don't own the dirt, and the trailer's going to be worth less. At the end of the story, you don't own anything. Right. Because you don't own the dirt, and the trailer's going to be worth less and less and less all the time. And you've got to mess with it. So, you know, any chance that one of your family – whose dirt is it on, Daddy's?

Yes, sir, it's my father's. Why didn't he buy it from you and rent it out himself? Yes, sir. That might be a better plan. You could do that, or you could just sell it and have somebody haul it off, get what you can get for it. I think you're going to turn for it. It's not a lot of money.

It's not the end of the world. If you turn $4,000 into zero, that probably doesn't bankrupt you, probably doesn't keep you from winning with money, but it's just going the wrong way, you so i'd rather turn four thousand dollars into four thousand dollars well i appreciate it yeah thanks for the call man open phones at 888-825-5225 bob's in raleigh hey bob how are you i'm doing well dave good how can i help? My wife and I are millionaires. Good. I'm barefoot right now. And we have an insurance policy, an umbrella policy of a million dollars,

but our net worth is greater than a million. Do I bump it up to two? What's your net worth? One-four, one-three. You can price it. I probably wouldn't worry about it i mean basically if it's not too expensive and it makes you feel better the first million is usually what are you paying 300 bucks a year for that probably yeah yeah um i mean when my net worth got up in the tens of millions i went ahead and picked up a 10 million dollar umbrella policy because just in

case i get sued or something you know you know but but basically a $10 million umbrella policy just in case I get sued or something. But basically, that's what the umbrella policy is. It's an inexpensive coverage for liability issues. And so, yeah, you could crank that up to two if it's not going to cost you an arm and a leg. But if it's 600 instead of 300, I'd probably do it. I don't know the rates on a two versus a one. I don't either. I know most ones you can pick up in the $300 range,

and I'm paying more of a multiple to get all the way up to $10, more than 10 times that. In other words, I think mine's more than $3,000 a year, in other words. You're a bigger target than I am. Yeah, but, I mean, it's a $10 million policy. So that's what I'm saying. And I think it might get more expensive if the sweet spot might be around a million so you may may want to fool with it may not

bottom line is you're just buying a lawyer that's what it comes down to these insurance companies going to jump in and fight who whatever's going on you hit somebody you have a car wreck or something they jump out holding their back or they jump out saying they're okay and then they find out you're a millionaire so they grab their their back. I mean, that's what you're trying to do is just deal with that and be prepared for that with a good liability policy. So I probably wouldn't spend the money at this stage, but if you get on up there at $5 million and you want to bump it to $2 million, that might not be a bad idea.

So did you inherit your money? No, sir. I'm a bad idea. So did you inherit your money? No, sir. I'm a salesman. Apparently not. How old are you? 61. Good for you. Well done.

So $1.4 million. And what's that invested in? About $2.15 in a house. $8.50 in investments. Rest is cash. And I'm adding to it every day so how did you do that? tell people how they can do it

we got disciplined I'm a former U.S. Army infantry officer I know how to work so we started spending less than we made we saved the rest and I got rich slowly So we started spending less than we made. We saved the rest, and I got rich slowly. Yeah, so you've been investing in 401Ks, Roth IRAs?

Not Roth, but traditional has been that long. But that's where the bulk of this is then? Yes. And then I sell software and software services, so I got in with a company on the ground level and made some money with that when it went public. And I now help people deliver software better. Good deal. Good deal.

Yeah. So how much of that's there because of the IPO? Maybe $200. Okay. So you did it without that then, too. All right. Well, I tell you what, when you get that kind of money at one time, it's a really charged system. Every system.

Yeah, that's right. Good question, Mayor. Good point, man. That's fun. Open phones at 888-825-5225. I remember I was on a book tour many years ago in Seattle, and I was sitting in a cafe having lunch, and the guy with me said within an 18-mile radius of right here,

there's 25,000 millionaires because of Microsoft stock. Former employees are employees that had stock options, and they've gotten rich on Microsoft stock. That's why I was asking about his IPO. Very interesting stuff. But most millionaires are just like that guy right there. This is the Dave Ramsey Show. We'll be right back. Magnolia is calling from Albuquerque, New Mexico. Welcome, Magnolia.

Hi. I see on my screen you're debt-free. Congrats. Thank you. Well done, well done. So, how much have you paid off? All right, so I did the math, and it was like something like $64,500 in like 20 and a half months. Good.

Way to go. And your range of income during that time? I was married at the time, so we made like $65,000 to $110,000. Okay. Married at the time. So, you've divorced during this time? Yes. Okay. How long ago was that?

We filed at the end of March. It was finalized on the 5th, and then I think like on the 12th, we made our final payment. Wow. Okay. So it was all part of that then. I'm sorry. Yeah, that's okay. Thank you.

Thank you. What kind of debt was the $64,000? Like $34,000 was student loans. $14,000 was his car 14 was his car five was mine and then 10 or so or more was like credit cards okay all right so what started the process 20 months ago to get you out of debt can i just say i'm like super excited to talk to you i'm like a huge huge fan and like during this time you're like all that i listened to when i was at the gym, when I was in the car, like, anytime that I wasn't at work or at home, basically. So I'm just, like, super, super excited and grateful and blessed to be able to, like, speak to you.

Well, we're honored to have you. We're proud of you. Very well done. What started the process 20 months ago for you? Thank you. Basically, well, I had a friend, my best friend, Yavi, in 2007. She told me about you. But I was, like, straight out of high school, and I was like, no, I can't be debt-free.

Come on, like, everybody has debt, right? And I didn't have a vehicle, you know, to, like, become debt-free. In 2016, May of 2016, I got my master's in social work. And so I finally had hope. And then in August, my ex-husband Shannon, one of his friends from work, let him borrow, I guess, Financial Peace University, the DVDs.

And so he brought them home and we listened to, we watched them and all and then like, yeah, I guess we like slowly, you know, reluctantly, little by little kind of like started working the plan and then just kind of gained more momentum over time. Okay, cool. Well, good.

Well, I'm glad you got there. So what do you tell people the key to getting out of debt is? I think a lot of things for me are like the key to getting out of debt. I mean, figure out, like you said, like figure out your why, figure out your vision, and kind of keep that, you know, like, at the forefront because if you don't know why you're doing something, you can't really keep the momentum, I think. I would say get serious early. We didn't.

Like, we started off making, like, maybe, like, $1,000 payments, and by the end we were, like, making $6,000 payments. Right? Wow. Okay, cool. So you were knocking it out so what happened to your marriage um it was an unhealthy relationship there is um you know like emotional abuse okay yeah i had to leave yeah wow and still were able to pull off the getting out of debt together

that's wild yes and co-parenting successfully yeah wow very cool well congratulations i'm proud of you well done thank you i would also say surrounding myself by like like others i didn't actually know anybody in person who was like on the same page but i mean listening to the show kind of provided that you know i'm like okay these strangers all over the country are doing it i can do it you know and listening to like, okay, these strangers all over the country are doing it. I can do it. You know, I'm listening to their stories. I can do it. There you go. Very cool.

Well, I'm glad you plugged in. I'm glad YouTube and all that stuff caused that to work for you. Very cool. We got a copy of Chris Hogan's book for you, Retire Inspired. We want that to be the next chapter in your story that you not only are debt-free, but now you move into millionaire world. Yay. And outrageously generous as you go along.

So very, very well done, Magnolia. All right, Magnolia, Albuquerque, New Mexico, $64,500 paid off in 20 months, making $65,000 to $110,000. Count it down. Let's hear a debt-free scream. One, two, three. I'm debt-free! This is how it's done.

Look at that. I love it, I love it, I love it. Very, very cool. Michelle is with us in Alexandria, Virginia. Hi, Michelle. How are you? Hi, Dave. How are you?

Better than I deserve. What's up? So we are Alaska residents. My husband's military. And in the beginning of October, we get the oil dividends, the PSB money from Alaska. We have some debt. We've made some stupid decisions. I've tried to get my husband on board with buying the day break and going with it,

but we're just really starting baby step number two. So I'm trying to figure out, kind of doing it on my own, when I list everything, lowest amount to highest amount. If I take the money we get from Alaska and pay off debts, I can pay off three of our debts, but I'll only free up $212, where I could take the same amount of money and have a little bit left over and free up $486. We're not trying to free up money.

We're trying to get out of debt. Get out of debt. Okay. So we're listing the debts, smallest to largest, and attacking them with any money we can find from any source in that order. So let me tell you this. Okay. You and your husband being on the same page,

you and your husband both being excited about this, which is not where you are right now, is 20 times more important than this single check you got. Right. It's a you got. Right. It's a big deal. Yeah. The probability of your success financially is much more dependent upon the two of you learning to work together, having shared goals and shared excitement, and really pulling together.

It's much more important it's a bigger data point on whether or not you're going to be successful with your money than whether or not you get increased income from any source so yeah list your debts smallest to largest do the plan work them in that order but the plan is the two of you working together. That's the plan. Jessica is in Pittsburgh. Hi, Jessica. How are you? I'm great.

How are you, Dave? Better than I deserve. What's up? So my husband and I are on baby steps four, five, and six. Good. And I've got the itch to be a stay-at-home mom while my kiddos are still little. They're three and one right now, but we feel like money would be a little too tight and it'd be a little bit of a too much

of an adjustment if we didn't have my income. So we'd like to pay off the mortgage first. We'd go about $85,000 on it and we feel like we can pay it off in 18 to 20 months if we just put all of my income towards there basically plus daycare costs okay can we temporarily skip step five for this this time to just get yeah get the mortgage taken care of yeah for 18 months when you got babies okay yeah because you know the point is are they going to not go to college because of this? And the answer is no. Of course they're going to go to college. You know, you've got plenty of time to do college.

So the point of baby step, now I do not want you to stop your 15%. Okay. Baby step four, 15% of your income going into retirement. And then let's attack, because baby step four, that's set. We do that 15% of our income. While we're doing that, we simultaneously do, we look at kids' college, we look at the house, and we say, okay, most of the time people are saying, I'm going to start doing something on the college.

I'm going to set up a monthly plan or something, and everything above that I'm going to throw at the house, and the typical person pays off their house in about seven years. What you're saying is yours is within reach, so I'm going to intentionally put zeros on baby step five for a very short period of time. And then baby step six is going to zero. Oh, wait a minute. When baby step six zeros, that means we're on baby step seven.

And now we just address college and retirement out of our wealth, right? Because this forces you to, once your house is paid off, that's baby step seven. Perfect. So you're 18 months from baby step seven, and then you're going to be putting at least 15% into retirement, and you're going to be luxuriously addressing this college issue to where any lost ground you had in 18 months is caught right up. If that's your plan, I'm with you.

Does that make sense? That makes sense. Just wanted to double check. Get after them. And you get to live your dream, being home with the babies, I'm with you. Does that make sense? That makes sense. Just wanted to double check. Get after them. And you get to live your dream, being home with the babies, which was your dream. Very good. I love it. Love it.

Love it. What are you doing? I'm living a dream. This is the Dave Ramsey Show. Thank you. We'll be right back. Our question of the day comes from Blinds.com. You can find out for yourself why Blinds.com is the number one online retailer of custom window coverings. You get free samples, free shipping. With the new promos they run every month, you'll save even more. Use the promo code RAMSY to get the best possible deal.

Rules and restrictions apply. Today's question comes from Chris in Georgia. He's at DaveRamsey.com. Dave, does it make sense to continue giving money to my local church while I'm in debt? Isn't that the same as your analogy used on there when you say, would you borrow money to invest in the stock market? If I owe on debt, everything I'm doing is on borrowed money, including giving. Correct.

Well, when you're talking about church, then that means you're a Christian. And what Dave Ramsey's opinion is doesn't matter if you're a christian you would ask god what you're supposed to do and the only instruction we have from him unless you're one of those people who hears from him audibly every day which if you are you scare me but um is his word the word of God, the Bible? And so let's study that and see what that says. Okay. As I've gone through scripture, the only references I can find to the tithe, which is a tenth of your income, all indicate that it's off the top before you do anything else. So regardless of what Dave Ramsey says, and it's not a rule,

it's not like God's looking to beat you up or he's mad at you or something like that, but your loving Heavenly Father, your dad, who's crazy about you, says, Son, the best way to live your life is give a tenth of your income before you do anything else. And it'll work out for you. So it doesn't matter what Dave Ramsey says. That's what I do, by the way. Offerings above a tenth of an income, there's no indication in Scripture. There's one Scripture that's, I believe, misquoted on that.

The widow's mite is often misquoted, and I can go into that in another teaching in another day. But the only time I see offerings above the tithe where you give additional monies to ministries or churches above the tithe is from surplus money. And that would mean that you'd gotten out of debt and you had your emergency fund and you had your house in order. Take care of your own household first or you're worse than an unbeliever. So you take care of your house. Your kid's college fund is funded. And then we do some giving. Now the exception to that would be if you're really sure the Holy Spirit told you to do something, you do it. You don't do what Dave Ramsey says. If you're sure God told you to do something, I'm not going to argue with you. You played the God card. You've got to go do it.

But I can tell you the times in my life, I'm 58, and I've been walking with God for 40-something years. The times in my life that I have been 100% sure that God said to me to do something other than from Scripture in my prayer time is almost zero. I mean, I've had some times where I was like, I'm almost positive that's him. And sometimes it is, and sometimes it's last night's pizza. You know, I mean, you know, so it's difficult to know for sure, even for the most spiritual among us. And some of you are very spiritual, I can tell by the way you correct me on everything.

But the overall thing is, it's not an issue where god's mad at you he's going to punish you if you don't do something you're breaking some kind of bible rule or something like that it's just the best way to live your life is start by giving and then doing other stuff and because it activates the giving muscle inside your character, and as you activate the giving muscle inside your character, you become a generous person. Generous people are absolutely the most attractive people on the planet. Selfish people are some of the ugliest people on the planet. So you want to be a generous person. You want to grow that bone in your character bones.

You want to grow the generous bone. And that's all God's saying with that. It's not a, again, we're not looking for a list of rules, a list of do's and don'ts, but I firmly believe from studying Scripture for decades now, and the vast majority of evangelical Christians agree with me, that the first thing you do before you do anything else it's called first fruits and if you read in proverbs you'll see

first fruits give your tithe from first fruits which what that means is that was a written proverbs written in an agrarian culture an agricultural based culture and so the fruits you know you're going through the orchard and you're picking the fruits from the orchard. And the first 10% you take, you take to the storehouse, you take to the local church. And that cares for the poor and for the pastors, the priests that minister to you. And that's what you need to be doing. So that's what I would do. And so when you go to EveryDollar, the first line on the EveryDollar budgeting app is charity.

The first thing you fill out. The very first line on all of our budgeting apps for that reason. Because I find it to work best. But you're right. In a sense, you are borrowing the money. There's a sense on that. Your critical thinking skills are intact. But you inserted church into the discussion. So now we have to use different critical thinking skills, and those but you inserted church into the discussion.

So now we have to use different critical thinking skills, and those have to be aligned with Scripture, not simple Dave Ramsey math stuff. Marsha's with us in Dayton, Ohio. Hey, Marsha, how are you? Hello. Very good to talk to you. You too. What's up? I have a question.

I was wondering if I should pay off my second mortgage or refi it into my first it is a heloc it's at six percent fifty thousand what's your household income what's your household income two hundred and twelve thousand a year um we have nine children. From that $212,000, we are self-employed, so we pay our taxes from that quarterly, and we pay our health care. So does everybody else that makes $212,000. So before we pay anything, we make $212,000. Yeah, I know. I got it.

That's your gross. That's your gross. That's your gross. And then you have taxes. And then you have health care. And that's what I've got, too. Everybody's got that. Okay. Like self-employed, I guess I wanted to say.

Yeah, you did say. Okay. But does that mean your income is highly irregular or anything? No. Okay. It's just, I guess, you know, my my friend has her husband makes about the same but before that's what he takes home you know he he well he doesn't make about the same then he makes about 300 and a quarter that's right that's right in order to take home 200 he makes about a third

about a third more than you guys make which is wonderful both of you're making great money but um now marsha our rule of thumb is your second mortgage or your heloc would go into your about a third more than you guys make, which is wonderful. Both of you are making great money. But, now, Marcia, our rule of thumb is your second mortgage or your HELOC would go into your baby step two, your debt snowball, which is to pay off immediately before you do anything else. In other words, if it is less than half your annual income, and it is. It's a fourth of your annual income. So I would put it in there, and I would knock it out like it was a credit card. Pretend you had $50,000 in credit card debt.

What would you do? You'd attack it. You've got a bunch of kids, and you've got a health care cost that's expensive. I got that. But we're still going to attack it with a vengeance, and we're going to knock it out as fast as we possibly can. Kate is with us in Kansas City. Hi, Kate.

How are you? I'm great, Dave. How are you i'm great dave how are you better than i deserve what's up well i wanted to give you a call and get your advice we have done pretty well on grandma's plan and we are starting to do even better on yours and we're about to be coming up to the dock on saving for kids college we're going to finish that at the end of this year. Great. So we're working on paying extra on our mortgage. But through listening to Financial Peace University, I sat down one day and did our net worth calculation and realized we just tipped over a million dollar net worth.

Congratulations. Thank you. So what's making me nervous about that is realizing for the first time how much that could actually be worth down the road. And we've done most of that investing pre-tax. And we're now switching into Roth and doing it post-tax so that we don't end up in a world of tax problems down the road. So I'm conflicted now. I'm a believer in have a plan, work the plan, and that's what my husband and I have done all along. And now we're struggling between which things should be the priority because we're about to be able to shift focus. I'm sorry, you're going to shift focus

when the house is paid off? Well, so we're almost done funding college for the kids, and our plan had been just pay off the house. Yeah. We've been doing the 15% toward retirement. Well, that's our plan. I mean, we tell you pay off the house. Baby step four, five, six, you do simultaneous, 15% of your income going into retirement. Fund kids' college and pay off the house at baby step six.

And no, I would not increase your investing and slow down on paying off your house. It's the same thing as borrowing on your house to invest. I wouldn't do it. Pay off the house as soon as I could. All the data from millionaire studies that we've done shows that that's what they do. This is The Dave Ramsey Show. This is James Childs, producer of The Dave Ramsey Show. Did you know you can now listen to The Dave Ramsey Show on Pandora and Spotify? For all the ways to watch and listen, check out our show page at DaveRamsey.com slash show.