The Ramsey Show - App - How Do I Know if I’ll Have Enough To Retire On? (Hour 1)

Episode Date: August 31, 2023

Live from the headquarters of Ramsey Solutions, broadcasting from the pods moving in storage studios, it's the Ramsey Show, where we help people build wealth, do work that they love, and create actual amazing relationships. Open phones at 888-825-5225. That's 888-825-5225. We're going to talk about you right in front of you. Jade Warshall, Ramsey Personality, is my co-host today.

And Jade and I have both spent the morning working on what a whole bunch of you are working on because we're working on it to try to help you. A bunch of you are up against it. That's right. You were on the phone talking with Newsweek this morning about student loans. Yeah, the interest has started. Is Newsweek saying anything intelligent? You know, I think they start to see that the the idr these payment plans are not all that they seem to be and so they wanted to know is this really the best path forward and of course you know i told them the truth yeah real plainly so that even they could understand it oh yeah they understood it that's good and then we spent spent working with our content team working out the talk that Jade and Rachel and I will be doing on September the 12th, the student loan live stream, how we got here and what to do about it. It's a completely free live stream that I mentioned. It's free. Shut up. It's free. Sign up for it. Go to Ramsey solutions dot com slash student loans. But we're talking about what are some of the solutions since we're Ramsey solutions and we know that here's what we do know we know that a whole bunch of folks are scared

and angry yeah and rightfully so they were lied to shocking your government didn't tell you the truth who knew and they're confused and confused yeah because we found you know we're talking about this yesterday i guess it was or you and i maybe earlier in the week the um one quarter of the 40 million that's 16 million people uh that have a student loan their process are changed their service are changed during the three-year period time so they don't even know where to pay their payments so you're getting ready to be behind and don't even know why and uh i was just meeting with our friends at y refi we were having lunch together and they were teaching me something about the private student loan side yes and the

private student loans i did not realize this are almost all variable interest rates yes so guess what you got a problem too your interest rate's been soaring it's been going up interest rate going jack jack jack jack jack well if you got federal student loans they're getting ready to go smack smack smack smack in the face so you know you got to deal with this stuff now why reef i can help you do that of course with a refinance and reset the whole thing and that's a whole different story but that's one of the solutions yes that's right that's why we put you know we're real careful about who we put on as an advertiser with like our voice on it and stuff because man you guys trust us and we don't want to screw that trust

thing up. That's right. So anyway, check those guys out. But be sure and sign up for this live stream, whether you got private, whether you got public student loans. We're going to talk about it. I get it. But let me just tell you, spoiler alert, no easy way out.

Nope. You made a big freaking mess. You're going to get you a shovel and you're going to have some calluses when you're done with your shovel and here's the thing even if you don't have student loans you know somebody that has student loans and they need this live stream and you need to share it with them they're scared yeah they're mad yeah you can you can really step in and help them i mean the sad ones are the ones that are still wait gonna wait around on the government to fix it well let me tell you about what i heard recently dave what they're telling

you you're gonna make me mad you're i'm about to make you real mad so the latest thing is you're gonna make me mad the latest thing is they're calling it a 12 month on ramp where you don't have to make payments for 12 months starting today and the interest will accrue of course but we won't tell the credit companies that you're defaulted oh they're going to show them as current in other words we're going to lie yeah so your fico score is getting lied to to help you with your little fico score meanwhile you are getting sucker punched Because your debt's going up again. Here's again. Let me just tell you. Let me help you with this. Banks are not your friend.

No. You don't need me to figure this out. And these student loan servicers have one goal. Keep you in debt as long as they can because they are blood sucking freaking parasites. Look. They're a tick on your butt. They want your payment. You've got to do something with it.

They want your payment. They don't want your peace. Period. Ooh. That's almost like a jade line there let's keep it let's just go with that but you know your payment they don't want your peace people forget we want your peace we don't want your payment that's right we're the opposite we're the opposite y'all got to remember student loans this is big business okay what these payment plans their products intended to make money off of you don Don't forget it. Yeah, if you watch Borrowed Future, the documentary that was award-winning that we did, one of the things on there is a Navient employee.

Yeah. Of course, all blacked out because they didn't want to send a hit squad after her. But she relays how they were taught to mess up the phone call to aggravate the borrower so that the borrower would just hang up and never make payments continue to accrue late charges continue to accrue interest yeah it was an intentional incompetence yes and if i don't piss you off bad enough to get your act together and pay these people off i'm telling you that you know one of the things has to happen to get out of debt you gotta get mad you gotta get so mad dave you had got to get mad. You've got to get so mad, Dave. You had $265,000.

Yes. And you and Sam got mad. $280,000, and I got pissed. I'm sorry. I got pissed off because I'm like – You were getting hammered. You're getting hammered. And it's the disillusionment, right?

You come out of college. You're like, I did everything right. I got my degree. And then you got these loans and it's like oh wait you didn't understand compound interest you didn't understand what happens when you put the loan in forbearance you didn't understand you know the loan had to be paid back yeah yeah it's not a loan not a grant i told somebody the other day i said we had five big old loans a lot of them were private loans with the variable interest rate and the payments combined were two thousand dollars a month i don't know how a month that's

just that takes my breath away yeah well you know we got folk out there right now in that exact same situation and we can show them some help that's right student loan live stream student loan debt in america how we got here and how to get out yeah and that's ramsey solutions.com slash student loans to sign up for free doesn't cost a thing rachel cruz and jade will be there i'll be there just to i'm kind of there just to piss you off and then they're going to teach you so but it's kind of well it's my it's my spiritual that's right that's right you gotta you gotta function in your gifts so uh yeah student loan live stream ramsey solutions.com whether you got private whether you got public we're going to give you some ideas and some things to do um you know because we're learning more and more and more

about the how dark the private side is like you were just talking about the with from the guys at why refi why refi that's one of our advertisers on here and again they're really what they are in this case this type of advertiser is a partner that's great these are people that we say hey you need some help these guys can help he was telling me about a guy at lunch fifteen thousand dollars in debt hadn't paid on it for a bazillion years irresponsible of course runs up to 145 000 i know about that uh-huh you did i know about that all right what was yours ours started at let's see we had one that started at, let me go, because we have five of them. So one started at $7,000. By the time I started paying it, it was $9,000.

We had one that was $91,000 to $128,000. Okay, yeah. And you didn't let it go that long. This guy let it go a long time. Anyway, they were able to do a refinance with that guy and get his payment from his payment from like two thousand down to six hundred this is what we need you know that's that's nuts yeah yeah see actual solutions not vague fake promises from vague fake people in washington dc you know who you are this is the ramsey show Ramsey Show. Jade Walsh, our Ramsey personality, is my co-host today.

Alyssa is with us in Los Angeles. Hi, Alyssa. Welcome to the Ramsey Show. Hi, Dave. How are you? Better than I deserve. What's up? I was calling.

I wanted to ask to see if you have any advice or a plan of attack to avoid student loans as I go into law school. You've been accepted? No. Right now, I am pursuing my bachelor's in political science, but I do want to be able to save as much as possible before I do pursue law school. I did get accepted into a university for political science. Good. Okay. All right. What year are you

in school uh it's going to be around my first or second year i do have some community college credits that i do plan to transfer so hopefully okay so you're just coming out of high school heading that way good good for you uh a little bit post high school yeah okay good yeah all right well um here's what's interesting. I have hired more lawyers than I want to count over the 30 years of doing business, and I've yet to ask one where they graduated from. Got it. So there are a few times being a Harvard attorney of law who has studied Harvard law or Yale will matter, but only about

one or two percent of the transactions in the world care. So most attorneys make their living on people that don't care where you graduated from. Very few care about the famous schools, right? That's so true. So and and you know, the reason I bring that up is price. So where you get your law degree, how you get it for that matter, doesn't matter as much as that you actually learn the law. Right, exactly. That's so good. And so the currency here is knowledge. The currency is not the famous school. so i'm going to go at law school like that to start with because law school is not unlike undergraduate work and the number one reason for student loan debt is college choice meaning you chose one you couldn't afford and so i you know uh i don't know

what that is in your situation in California. I don't know how you study law there, where the, quote, cheap law school is, unquote. But I just, what I, first thing I want to do is encourage you to not be afraid of that, that it will stint your career or something, because it just really won't. That's true. My brother's a lawyer, and he went here locally in Nashville. I think it's called Nashville School of Law. Yep.

He's a lawyer. He went on to be a common judge. That's a night school. Yeah. He went to night school. I did not know that. That's a famous law school, by the way.

There's a lot of big time people went to that night school, got their law degree, went on into politics, went into like that thing. It's weird. And it's very inexpensive. It's very inexpensive.

And it did not stunt his career at all. A matter of fact, he has gone on to do what, like I said, he's a judge in Williamson County now. So it's great. I didn't know I had a judge in Williamson County that I could call. All right. Now you got one, Dave.

If I need a judge, now I know where I got one. Okay. That's right. Not that he would necessarily do anything. But yeah, that's what I would tell you to do. I would tell you to do something like that, number one. Number two, I want you to start studying and thinking about it. Number three, you could consider things like a military service option

and serving the JAG Corps for a while when you come out, and free law degree. They pay for it. You could, you know, the National Guard guard has a 10 a 20 000 stipend that they will pay if you join the national guard for any any degree field you know that's a really good um gauge to see how interested you are because those military programs both for law and medical are great on ramps to see like okay how can i do this for the most cost effective way and if it's like i don't i want to do it but i don't want to do it like that

i don't want to be trapped for four years well try try borrowing 250 000 you're going to be trapped for two years in a different kind of way you know there's a different kind of trap so uh i mean i you know the uh you guys are wanting to study to be pilots the army air national guard or the air national guard rather uh oh my gosh yeah uh this is how you get you don't spend 200 150 thousand dollars to become a pilot and make 35 000 a year your first year flying puddle jumpers that's right which is what happens no you go join the stinking service and they pay for it that's the deal. So something along those lines, Alyssa,

because the first thing you've got to do with the debt equation where everyone's doing debt is you have to take it off the table and say, not an option, now what do I do? Not going is an option, but borrowing is not an option. Now what do I do? How do I figure this out? How do I finagle? How do I find scholarships? Scholarships are unusual for law school, but they can be found. How do I figure this out? How do I finagle? How do I find scholarships? Scholarships are unusual for law school, but they can be found.

How do I find fellowships? They're unusual, but they can be found. And, of course, if you don't know what a fellowship is, in this case, a PhD program, med program, law school program, you end up being a proctor. You end up working as a grad student. You work for the university. They pay you $15,000, $20,000 a year, but your tuition is free. That's right. And you work your tail end off well i don't know if i want yeah well you're going to work your tail end off at some point either paying back the 250 000 debt or doing

something like this so just decide when it is you're going to work your tail end off yep you gotta choose your hard pay yeah choose your heart pay you're gonna pay a price to win baby that's the plan so that's what i would tell you to do. Just keep scratching around the areas like that where you go to school. Consider something like Nashville Law. That's a night school approach, that kind of a thing. Fellowships, if you can find them. Scholarships, if you can find them. Military service, if you can find them.

None of these sound overly pleasant. But neither does $250,000 in student loan debt. Because you're going to wake up one day like all these folks are waking up right now with October 1 barreling down on them. And they're going to be going, oh, crap. You're going to have that oh, crap moment. The older version of me is really pissed at the younger version of me. And you want to go out and be a lawyer and just practice law. You don't want to have to do it because of X, Y, Z.

Wouldn't it be nice to just work? You choose a different place to work yes because you don't have to work over with those twerps that's right that pay more that's right yeah work because you want to work you work at the place you want to work at chris is in ohio hi chris what's up hey dave how are you better than i deserve how can i help hey i had a good question uh I've heard you talk a lot about retirement and different retirement accounts, but I've never heard you address pensions. So I'm a fireman and we are in a pension system that I essentially at 25 years

and the age of 52, you can retire with a 60% of your top five years. Great. And it's not optional. It's mandatory. You get one and a half percent. That's why I don't address it. You don't have a choice. If you're going to be a fireman, you're going to do that.

So what's your question? My question is, I contribute also to a 457. Sure. And that's a Roth option. Should I be doing something other than that? Yeah, I mean, look, the pension is going to take care of you. Maybe, sort of. 60% of you, right?

Assuming they don't screw up the pension and mess it up, which most of the time they don't, but there's some of them get really sideways. So I'm not going to count on someone else to take care of me. I want a big old pile of money over here to take care of me, and I want to take care of mine. A godly man leaves an inheritance to his children's children. I want to change my family tree. And so your 457, your 401K, your Roth with your matches,

the compound interest and good mutual funds there, that's all about piling up cash to help others, maybe not just to make sure you eat. I think you're going to eat because of your service to the community, and I think that's great. Okay. Well, thank you. I appreciate that. Yeah, retire with $5 million instead of nothing. Well, it used to be in some cases

your pension could die with you it does what is it do you think that that's oh it does there for sure definitely well that's enough that right there is enough reason to make sure his pension is for him yeah but you've got you know spouse you've got kids you got grandkids you got the community i want to impact and turns out starving kids in the community hungry babies in the community they get fed by people that have money yeah not broke people that's and so go get you some money so you can be of good in this world and that that's what being generous and that's so this is all about how to build wealth in addition to taking care of me pension take care of you pretty good i. I mean, 60% is okay.

It's not like you're going to be living high on the hog or something. No, I'd want more money. You would? Yeah, I'll take more, Alex. Definitely. More for Jade, Alex. More for Jade. Oh, me.

Me, me, me, me, me, me, me. This is The Ramsey Show. Jay Walsh, our Ramsey personality, is my co-host today. Our question of the day is brought to you by Neighborly, your hub for home services. Neighborly has local service providers to repair, maintain, and improve your home. Their network of experts offers top quality work and customer service by trained, reliable service providers. These are good people. Find the help you need at neighborly.com today. All right. Today's question comes from Thomas in Colorado. He says, I'm struggling to know how much we actually need to retire. I'm 54 and currently have 1.4 million

in a 401k, which sounds like a lot to me, but I don't actually know how fast we'll burn through that. What's the best way to know how much I'll actually need? So I'm thinking about your, the goal, you don't want to burn through your nest egg, right? You want to have it invested in such a way that you're able to live off of the interest and not really touch the nest egg is what I would say. So that would be my first thought is I would use a calculator and kind of run this back and go, okay, what's the income that I think I'm going to need and get that number? And then, okay, what does the draw off of my interest need to be? What does my nest egg need to be so that my draw can equal that? So I'm kind of reverse engineering it in that way. And then there's also the part of

this, you know, you're 54. I'm thinking, okay, you've got 1.4 million now. There's a good chance that in seven years it could double. And that ain't bad. Yeah. If you've got it invested at 10% or better, it doubles every seven years yeah 10 or better yeah so at 61 if you're invested in good mutual funds you're going to have uh 2.8 and at 68 you know you're going to have five and a half million dollars now there is inflation to play into that no i'm just talking about i'm not talking about inflation just actual dollars i'm just saying that if you're if 10%, it doubles every seven years. A lump sum does.

That's if you're adding nothing to it. Okay. So at 68, that's what you would have if you don't touch this. Now, if you got to retirement and all you had was 1.4 million, then how would you calculate if that's enough? Just like Jade said, there's a couple of factors. There's inflation that you want to stay away from, and you need to look at your rate of return. So if you're invested in good growth stock mutual funds

that are averaging what the stock market has averaged, the stock market has averaged 11.8% since it began, the standard and poor. Okay? So let's just pretend you're making 11%. We'll round down for the people that go bananas when I start talking about this stuff. All right? So we're going to round down. You're making 11%. We'll round down for the people that go bananas when I start talking about this stuff. All right. So we're going to round down. You're making 11%.

All right. If you left three in there so that it would grow a little bit to cover some inflation and pulled off eight, that means you'd be living on $90,000 a year. 8% of 1.4. With no debt? Yeah. And so can you do that? That's the question. And if you can do that in today's dollars, you can do that in tomorrow's dollars if you leave this alone because it will have grown that much more. That's right.

And so if you did that, the account is growing by 3% a year if it averages an 11% rate of return. Also a good point. So you're still getting more money. So it never burns up. It runs in perpetuation. It's a perpetual motion machine. And this is another good time to bring in why we think it's, and teach that it's so important to be debt-free with a paid-for home at retirement because when you don't

have any bills, you don't need as much money to live on. Yeah. And then that keeps you from doing this. But let's say you start stepping on it, okay? And you step on the principal $100,000 a year. You'll still be all right. You've got a 14-year burn rate. So when are we going to start that?

At 70, that takes you to 84. So you're not going to run out of money if you look at your burn rate on your principal as well. So you're going to be fine. You've done a great job. Now, the trick is what I would suggest is we keep earning a living and leave this money alone. And let's let it double a couple more times before we start. Then you can pull off, you know, $200,000 a year. That's right.

You're sitting on $5 million instead of $1 million. It's a whole different equation, dude. And again, good growth stock mutual funds. We suggest I split my personal 401k. Jade does too among four types, growth, growth and income, aggressive growth and international. And over the last 30 years, my little portfolio of that has averaged over 12, most years over 13%.

Wow, Dave, that's great. But I mean, it's not really hard to beat the S&P. The S&P is the average of the market. So what do you want to be? I always kind of want to be above average. Hello. You know, I mean, that's, you you know try to beat it a little bit but you know you stay in that north of 10 and you draw in that seven or eight range you're going to bump up and cover inflation as you go along now uh you know some of the wonky uh certified financial pharisees types you, they go bananas on that calculation.

But here's the thing that I try to get people to remember is when we've done studies of people that win with retirement, none of them won with retirement because of some nuanced understanding of 12B1 fees or some discussion about 11.8 versus 12.3 or 10.2 that none of that caused them to retire well what caused them to retire well is they actually put money in the freaking 401k there's a high correlation between people that have money and people that save money why is this hard that's so good it's not a bunch of freaking theory you've got to do it and oh my god you nerds drive me bananas but so yeah just it's good to be thoughtful about things but at some time sometimes you just got to do something you know just run up and knock the crap out of something well what if you're a person that's like dave i just i just invest in my you know

my index funds that's fine i i don't want to get into all this stuff i just just invest in my index funds. That's fine. I don't want to get into all this stuff. I just want to do my index funds. That's fine. You're just average. You're just average. Average returns. You're a C student.

Not a C student. Well, that's what average is, isn't it? You're not failing, but nobody's looking at your shining eyes. You're leaving a lot of money on the table. Yeah, you left some money out there. That's okay. I just want to beat it just because it's a game. You know, I don't care.

And by the way, none of that is what's making me wealthy. What's making me wealthy is the fact I'm actually investing. You actually put money in. Over time, over the long haul. It's a habit. You know, we study these millionaires. We go, okay, did, you know, was it the rate of return that made you a millionaire?

No. What made you a millionaire? No. What made you a millionaire? Every month I put money in for 27 years, and now I got $2.8 million. So boring. They're just a tortoise. It's just like one step. Ugly tortoise, ugly tortoise, ugly tortoise. We need to print up tortoise T-shirts.

You can wear that one dave i'm on the air with my wife slamming my fashion choices here you don't like my tortoise t-shirts i'll let you wear it and then we'll point to we'll just point to it on you just point to the tortoise the little pudgy tortoise that could now you said that part, not me. Oh, gosh. Open phones at 888-825-5225. Jennifer's in Philadelphia. Hi, Jennifer. What's up? Hi, Dave. Hi, Jane.

How are you? Better than we deserve. How can we help? So my question is, should I pay my daughter's car off that I'm a coup signer on? Oh, crap. I know this is bad, okay? How old is she? She's 25. Okay, is she paying the bill?

Okay, no, she's paying it, but it's late every month. So you're getting dinged every month? Every month. Now, the good thing is my husband and I are consumer debt-free as of August 1st. What's the balance on this disaster? Under $3,000. Pay it off. Instantly.

Write a check today and pay it off. It's causing you more heartache than it is $3,000. And I can tell you've got a little money, don't you, Jennifer? Yeah, we've got an emergency fund. We've got a savings account. We're investing. Yeah, good. Pay it off fund. We've got a savings account. We're investing. Yeah, good. Pay it off.

And just set her free, okay? Here's what you tell her. Don't tell her she owes us the money. No, no, no, no, no, no, no. Thanksgiving dinner tastes different when you eat with your master. Don't do that. No, I just let her go. It's just $3,000.

What I would tell her is, listen, you made a huge mistake borrowing on a car, and I made a huge mistake helping on a car and i made a huge mistake helping you both of us were stupid please don't be stupid again because i promise you i won't be that's such a good point this is a teaching this is a teaching moment and it's good for her to see that you learned a lesson too that you'll never do again and now she can learn a lesson too that she'll never do you need to have a real clear message don't become knocking on the door for one of these again it didn't happen again no it will well but so here's the other thing is she owes me 11 000 so this is an ongoing pattern between you two so it was but i have recently broke it i've she's had her own car insurance. What does she make?

Like $17 an hour. Let her go. Let her go. For God's sakes. Don't loan family members money. And don't loan people money that you love. Unless you want them to hate you, don't loan them money. This is The Ramsey Show. Jade Walsh, our Ramsey personality, is my co-host.

Kyle's in Tampa, Florida. Hey, Kyle, what's up? Hey, Dave. Hey, Jade. Thanks so much for taking my call. Sure. How can we help? Hey, so I recently went through a divorce and trying to decide whether it's time to

sell my house as I face this next chapter in my life. I'm sorry. Yeah, thanks. How long were you married? 10 years. Okay. And you got the house and the divorce? Yeah, so I make $61,000 a year. I'm on baby step two with a debt of $34,000, and that's all a result of the separation. So it's IRS debt from a mistake a couple years back, credit card, personal loan. And yeah, so as part of the settlement, I got to keep the house, but I have to pay my ex out $47,000 flat within 18 months. So basically, I kind of got like a two year, I guess you call it a moratorium, just kind of a freeze on it. And I got reimbursed for the time that she wasn't in the home. So today the house is worth about 290. We owe about 135. So I've been running some scenarios,

just some different budgets. And I think if I were to sell it today, you know, rather than in two years and 18 months, if I were to sell it, I could pay off all the consumer debt, the $34,000. I could pay her the $47,000 and have a fully funded emergency fund of six months and still have $20,000 to $30,000 to start on a future down payment. It would just mean that I'm renting for a season. And so, you know, it feels like like one step backwards to take three steps forward, and I'm just kind of asking, I'm on the right track thinking that way. I just don't know that I can afford it anymore. I can afford the mortgage payment, but I'm not going to be able to afford it by the time I have to pay her out.

And I think just slow dripping the debt, I'm on a tight budget as it is, and while being able to afford air travel because we have two kids and it's a long distance agreement that involves flights and so it's uh i'm just wondering the reset button's the way to go you know well you've got to give her the 47,000 no matter what in two years so it's not like you have the option not to. You can refinance. And just get hers out. Yeah, to refinance would be tough. I mean, my rate at 3.8 to refinance would basically double that. I'm not suggesting that.

I'm just saying that's the only other option other than sell, because you can't cash flow the 47 to Jade's point. Right, and we were normal and broke, and we got into a 30-year loan anyway i'm not even in a 15 year so i'm like can i actually afford it anyway i'm wondering should you know but by renting it certainly it feels like there's a lot of reasons to sell the house is there any reason to keep it not really to be honest i i dream about the peace and maybe the emotional break from it. You know, like what would that look like?

You know, it's just that you got voices in your life, your real estate agent and everyone in between. You know, you can't sell a house. You can't, you know, and it's going. Yeah, but I know the numbers, guys. What about kids? Are there? They're out of town. He's having to travel. So there's no but I guess I'm saying that they don't have an attachment to the house that you're feeling like, oh, I got to keep this stable for them. Not really. I did in the short term because, you know, basically, you know, it's holidays and summer, you know.

I've got them about 35% of the year, and it's, you know, the flying back and forth. And so they're not really emotionally attached to it necessarily but well whatever they were left when their other took them to another state i'm of the mind that it seems it seems like there's more reasons to sell it and then maybe you're renting for a while as you're stacking up money and just having a fresh start fresh slate you're clear of the debt uh which by the the way, how much IRS debt was it? Because I want to get that out of there as quickly as possible. Yeah, it's $8,000 of that $34,000 is IRS.

I'm putting the house on the market this week, brother. Wow, okay. I do it immediately. Don't get any closer to Thanksgiving and Christmas. Let's get it on the market and get it sold this fall. I predict relief. Yeah. Is it the mass of it?

You spent the entire call selling us on selling the house. You really do want to sell it, and I really don't blame you. I don't hear any reason to keep it. Long-term, you want to be a real estate owner. Long-term, you want to own your home short term uh you need to clean up your dadgum mess and put all this hurt and pain and the associated mathematics with the hurt and pain all in the rearview mirror and be driving off into the sunset into a new wonderful life and um that gives you the ability to do that yeah let's let's rebuild from a strong a point of strength not from a point of weakness and that you know building your the next chapter

of your life it is a new chapter it makes a difference thanks for the call uh jennifer's in sacramento hi jennifer how are you? Good. How are you? Better than I deserve. What's up? So our AC conked out recently in the midst of 100-degree weather, and we're wondering how do we budget for this while we're trying to pay off all our debt. Okay. Conked out is not a technical term. What happened to it?

So we found out there was a leak, and it's just a really old system. So we need to be completely just torn out and put in a new system. So says the guy trying to sell you a new system. Where's the guy that'll patch the leak because you're broke? Uh-huh. Hey, let me put this in words that you can understand. My parents have a 23-year-old AC. Now, I would never suggest that, but I'm just telling you,

repairs can be made is all i'm saying okay yeah so cheaper what because you don't have the money is why you're calling right well i mean we have 23 000 in saving oh so you can ride check and buy heat and air well well and you can probably pay off some other debt with that money too, because you didn't need that much in savings to begin with if you're in baby step two. Yeah. I mean, we have like two student loans, a car payment and a solar payment. So that was another thing.

We were thinking we should go snowball with the lowest payment which would be the student loan or just tackle the the higher monthly payment which is the car payment here's what i would do if i were you you've got you said how much was it 23 000 in savings savings yes okay if i'm you i'm walking through the baby steps simply i'm keeping a thousand dollars aside that's your starter emergency fund okay that's baby step one baby step two we're doing the debt snowball method with this method list them smallest to largest by balance okay not interest and then you're paying the smallest one first you can use some of this 23,000 to get your ac fixed and then whatever is left throw it at the smallest debt what's your smallest debt uh 16, thousand is still alone all right let's knock them out you can pay that off today and then figure out how much you're going to have

to spend on the ac do we have to replace it you need to get some other opinions or can it be repaired and last two more years because you need two more years to clean up the rest of this mess or one more year or whatever it is and so i'd rather repair it until you're out of debt if that's possible i couldn't understand if her sigh was a sigh of relief or a sigh of frustration or a sigh of irritation yeah well you're in a house that's 100 degrees with no air yeah it's irritation but it's not at us. Yeah. So I would repair. I did repair when I was in your situation, a heating and air unit, and really pitifully repaired it. But it made it through until winter, and then we made it into the next summer.

And by then, we cleaned up a bunch of the mess, and we were able to pay cash to put a new heat and air unit in. And so the problem is you cannot allow yourself to live from crisis to crisis. You have to live from plan to plan. And so let's set aside a little bit of money and fix the heat and air or replace it, and let's use the rest of the $23,000 except for $1,000, pay off your student loan today, and then start paying on the other things very aggressively. Get on a budget on EveryDollar, the app. It's the world's best budgeting tool. It's called EveryDollar. You can get it for free. Get on that. And she's probably going to find what 9% is what the average person finds in their income extra. Yeah. When you start doing a budget, you get a 9% raise, which oddly enough is very similar to the inflation rate under Biden.

Hey, okay. There we go. It's almost like there's no excuses now. I love that. So you get on a budget and you make every dollar behave. You quit eating out. You quit going on vacation. And you get your dadgum mess cleaned up so that next time a little $3,000 thing happens,

it's not the end of the world for you. That's right. And let's get this mess cleaned up. Get this car paid off. Use my promo code when you do it go to every dollar dot com slash jade and get fifteen dollars off oh there you go see i don't i still don't have a slash dave you got to know how to pull the strings dave slash jade every dollar slash jade that's right this is The Ramsey Show. Dave here. You can find all of our shows with the Ramsey Network app on your smartphone.

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