The Ramsey Show - App - How Much of Our Savings Should We Put On a Down Payment? (Hour 2)

Episode Date: December 16, 2020

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Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. If you jump in, we'll talk about your life and your money. Chris Hogan, Ramsey personality, number one best-selling author, is my co-host today here on the air. We'll take your calls at 888-825-5225. That's 888-825-5225.

Yoon is with us in San Francisco. Hi, Yoon, how are you? Hi, Dave and Chris. I'm a little bit nervous, so I'll just read from my note. My husband and I are in our late 30s and in baby step 7. We have a household income of about $300K.

We'd like to buy a primary house with cash, but wanted to ask whether you had a formula to calculate how much we could spend as a percentage of our net worth, which is about $2 million. Good for you. Ooh. So you guys have been intentional.

Yoon, how much have you all saved for a down payment on the home? Oh, well, we, I mean. You would use some of your $2 million net worth? Right. So I would say about a million of it is in investments. So I guess technically not in retirement. Right. So I would say about a million of it is in investments. So I guess technically not in retirement. Right. Okay.

And you do not own a home today? We do. It was a pre-Ramsey house. It's currently being rented out, and it's long-distance landlording, and we're trying to get rid of it. That's a whole other. Okay. All right, cool. Yeah.

Well, what we have found, when we have talked to, we did a book with Chris that he did called Everyday Millionaires, where we studied 10,000 millionaires. A lot of them were in your range, and so what we can draw from that is what they did uh and by and large they were somewhere uh between on a two million dollar net worth they would be somewhere between 25 to 50 percent of their net worth would be in their house we did not find them with we did not find people with two million dollar net worth living in a million and a half house though that'd be three quarters that'd be 75 percent of your net worth in your house that would be unhealthy um and the other thing we found was the larger your net worth the smaller the percentage of your net worth is in a house so in other words if you got a hundred million dollar

net worth you would not have 30 in your house house. You know, that would be weird. It'd be a very small percentage then. So in your case, you make a lot of money, and you're young, and you're in freaking San Francisco. Ugh, expensive. So I'm going to be at 50% or less of your net worth in your house. And that aligns with your million dollars that you've got in investments. So I could go up to a million dollars pretty comfortably because two years from now,

it won't be 50% of your net worth anymore. Three years from now, five years from now, ten years from now, the rest of your net worth will grow. Now, your house value will grow, but it won't grow as fast as the rest of your nest egg because you've got this huge income and you're big savers. You've done a wonderful job saving and investing. Yeah, and you're going to have to stomach the idea of that dollar amount coming out of your net worth. No, not coming out of your investments. I mean, so, yeah, exactly, coming out of the investments to write the check.

So that's the thing that I'd caution you on is don't rationalize we'll get a mortgage and we'll just pay it off fast. No, no, no. Go with this with cash. And you, like you said, this long-distance landlord plan, that's a recipe for a headache. You're getting rid of that thing. I would get that bad boy on the market and get it sold. And maybe you look at adding that along with what you're doing with your home.

So if you went $750 to a million, how does that feel to you? It's a little scary, honestly, because we want to have kids at some point and, you know, some point soon, actually, in the near future. And so I guess in my mind, I'm, you know, my husband's over here talking as the spender. He's talking about wanting to buy a vacation home eventually, wanting to do all this stuff. And I just think, how much should we be saving for, you know, children's, I guess, future? Well, that's you guys sitting there. So wait a minute.

If you quit and came home to be with kids in the future, how much of the $300K income is you? About half. Okay. All right. And so in the future, you might be facing that. So that might cause you to want to dial back from that then. But, you know, again, San Francisco, I don't know where you are in that market.

They charge for air out there. I mean, enough people have left California. There's probably a lot of houses on the market. But, I mean, the values are going to drop eventually with all the people escaping. And so, I mean, there's a huge migration out of there. So the numbers are astronomical. All right, Dave, I'm going to put you on the spot. How much are you spending?

Anyway, she's saying she doesn't want to spend as much as I gave her permission to. I know it, which is rare. It's okay if you want to dial back, but, I mean, I don't know what you're buying for a half million dollars in the San Francisco market. That's true. You might be. That's very true. You might be. I mean, that's probably a median house price there.

Oh, easily. Depending on which suburb you're in. Now, the husband's going to have to dial back, and he's creating a wish list, not necessarily a to-do list. And so having a vacation home and doing all these things, bless his heart, he doesn't know what kids do when they come on the scene. They cost money. And so have that conversation with Immune and make that list and that idea and just do me the favor of this.

Whatever you do, do it with cash as you guys are saving up because like Dave said, you're amazing savers. You've done a great job. I think you guys can reach that and still live your dreams. Yeah. So somewhere between a half million and a million and pay cash for the house is the answer to your question. Sell that rental. And that rental's on the market.

She's already done with it. And whatever equity you've got there is going to come back to you, too, obviously. So that's going to be helpful. But you're doing a really, really good job, kiddo. You're really doing well. Excellent job. Open phones at 888-825-5225. 2021 is almost here.

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How are you? I'm doing well, Dave. How about yourself? Better than I deserve. What's up? Yeah, so I had a question. So a little background. I'm a first-generation or was a first generation college student and I've now found myself living somewhat of a cliche rich, flat, poor lifestyle.

Recently moved out of the Bay Area, now here in Colorado. And fortunately enough, you know, landed a pretty soughtafter job in finance. You know, and about four months ago, I recently purchased a car. And my question to you is, you know, I'm paying about $2,300 in rent at the moment. And, you know, I realize I bid off way more than I could chew considering my current income. And, you know, I've accrued about $7,000 in credit card debt. So, you know, I want to know if I'm making the right decision in downsizing and moving out of the downtown area that I currently reside in and, you know, picking up a smarter place currently and then keeping the car and currently making payments on.

And just, you know, once COVID, once COVID, I'm going to get out of the picture. I commute to work. Okay. And so what do you owe on the car? I currently own about $21,000 left on the car. And what is your income? So my base is about $65,000, and then my bonus is about $55,000 to $60,000.

Okay. And you have $7,000 in credit card debt. Correct. And how much $7,000 in credit card debt. Correct. How much student loan debt? I'm zero. I had eight internships and I had two jobs during college to pay it off. You're not afraid of work. That's good. Okay.

Yeah, $2,300 is ridiculous in your situation. You do need to move down in rent because the rent money that you're paying is forcing your hand on other stuff, and it's what's caused the credit card debt. You didn't pay the rent with a credit card, but you gave all your money away to rent, and so you didn't have any money when you went to buy something and you used a credit card because your house is poor. Exactly.

It's eating your lunch. And so I want you on the cheapest possible thing and then cut up the credit cards as soon as you get off the phone. Will do, Dave, will do. And attack those cards. And let's get moved and let's get on a tight budget. And you working 40 hours? I'm working about 120 hours currently. Wow.

But no OT, huh? Yeah, no OT. It's salary-based. It's a job in private equity. Yeah. Okay. Well, Jackson, I'll tell you this, buddy. I love the idea that you already have the mindset of downsizing.

That shows you willing to sacrifice. But here's the thing that I would be concerned about. Even if you downsize and you continue the habits you're doing, you're going to continue to have credit card debt. You're going to continue to have a car payment. So not only should you downsize, but you need a shift in your mindset and just how you're looking at money. It's got to be about cash, buddy. Your income is going to continue to go. Based on your age, you're making a heck of an income, and it's going to get bigger. What you've got to do is make sure that you say, if I don't have cash, I'm not doing it. Right? I'm not.

And so I want you to go to zero and attack that credit card debt, then the car, and you say, I'm not going backwards anymore. I mean, think about what it would feel like to have absolutely no payments right now and be living in a cheap place and saving for your first house. Yeah. That's really only about a year away for you if you completely start focusing on this debt because he's got a serious work ethic i mean that that boy's going places yeah you're gonna you're gonna be just fine sir you're doing really well yeah you're making good decisions gary is in lexington hi g Gary. How are you? I'm good, Dave. How are you doing? Better than I deserve. How can I help? All right.

I just had a question. A few years ago, I had my grandparents had passed away, and they left a piece of land, a pretty significant piece of land to me and my mother. And me and my wife had decided this year to build a house somewhere else we didn't want to live there we didn't really like the community and now we're kind of in the position to where and my mom is taking care of like all everything with it all these years like even with taxes and stuff and we are kind of wanting to get away from it. We kind of want to maybe sell our part. And I've talked with her a little bit about it, and I don't know if she – I don't think she wants to because she's living in the house.

It's our house that's on the farm as well. And I don't think she wants to sell it. And I don't know the process of morally how to do it without damaging anything. I just kind of want to know the process of what would be the process to get me started. How many acres? It's about 65 acres. It's a big piece of land. So what would be wrong with just platting it off and you guys take the portion that's not improved and sold that and left her with 30 acres in the house.

I've never thought about that. I mean, she'd have plenty of room. She'd still be on the family ground. Yep. And you'd have to just figure out how to configure it, get an engineering firm to help you draw the plot to where it's

beneficial to your mom. We want to protect her. We want to protect her. We want to protect the memories and the family as much as we can. And we want to create a property line configuration that gives her privacy, gives her a sense that something's not built over on top of her, and that kind of a thing. And you don't even have to take exactly half. You could take less. Okay. Be generous to her. half. You could take less. Okay.

Be generous to her. Okay. Yeah, I do. You could take 25 acres and she got 40. Yeah. Depending on how the configuration works. Yeah. Yeah, I'd have to look into that.

Gary, how receptive, how do you think she'll respond to that option? You know, I think I've never thought about presenting it like that. Yeah. She would be okay with it because I lived there my whole life until this year. How much road frontage is there? We are kind of off of a main road. And the way that it's laid out though is there is like there's only one entrance into the property um and i don't know what the way the trust

is laid out because there always has to be like an easeway into the property i don't know that's going to affect your configuration that i'm talking about it's going to the more road frontage you've got the more the easier this idea is and it sounds like you have no road frontage and so you're going to be split you're going to be giving an easement to the new owner near her house is what amounts to so now is this property tillable is it being farmed or is it wood is it timber what is it it is probably about i'd say about 25 acres of it is cut you know and then the rest of it amber okay and so uh and how far where is it located in kentucky yeah it's in kentucky we're we're just south of lexington about 45 minutes in like the london corbin area yeah yeah beautiful

beautiful area yeah we love it yeah well so we just moved somebody might buy that almost as a hunting camp yep yeah yeah that's probably got some deer on it yeah and gary are you are you an only sibling yes it was left to me and my mother okay okay yeah yeah well i i think that's the way to look at it um and that solves the problem and that way you're not running her off the property which is going to be very difficult yeah you can you can do it you can do it legally but it's going to be emotionally destructive yeah yeah that's that's what i did not want to do because we have a great relationship and i don't want to do anything that tarnishes that i guess the other the other possibility is does she have any money she does not okay all right so she can't buy you out yeah that that's what i was saying

but i know there's no way that she could yeah okay all right well i would tell you this gary don't let this be a fly-by conversation. I'd want you to really sit down and formally, you know, talk to your mom, acknowledge what the land means and what it's meant to you and wanting to honor her

and really help her understand this as a business transaction. Like, don't come in as Gary the son. Just kind of come in and really present it and lay it out and help her to begin to process. I wouldn't expect her to give you an answer on the spot.

Give her some time to process it and then follow up with her in a day or two. Yeah, just ask a lot of questions and give a lot of honor. Giving honor, it doesn't cost a thing, and it's appropriate in this situation. Yeah. This is The Dave Ramsey Show. We'll be right back. Chris Hogan, Ramsey Personality, is my co-host today. Open phones at 888-825-5225. If you're still looking for great Christmas deals, our team is using every reason they can to give stuff away.

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Petra is with us in Jackson, Wyoming. Hi, Petra. How are you? Good. How are you doing? Better than I deserve. How can we help? So me and my husband and our daughter, we are on baby steps four, five, and six.

And my question is basically about housing. So Jackson is super expensive to live in. And right now we are looking into buying something and we kind of have three different options that we're looking at. We could buy an affordable home in Jackson, but with that, there's a lot of rules that go with that. So you don't really have much control about housing or your unit. So we don't really like that. We were looking into

buying a home that would be an hour away from Jackson and commuting, which is what a lot of people do. But then we're looking into spending more money on gas. It would be a little bit harder for me to find a job because I am a stay-at-home mom. And the last one was we would, which is what we like the most, is we would stay in Jackson and we would continue to rent. And when we were looking into all the money that we have saved up right now, that money would be increasing. So with the difference in gas and the increase,

we would be able to save some, too, even though we're spending money on the rent. So I didn't know what would be the right decision, and I'm kind of looking for a little guidance uh you don't have to move an hour outside of jackson to get rid of restrictions um they well that we can afford they sell homes in jackson too it's just we can't afford them yeah but i mean you said the restrictions were too much is what you didn't like. So they have like a housing opportunity in town that they will sell units at affordable housing for the workforce, I guess. Yeah.

That you can afford. It's just they'll put restrictions on it. I don't disagree with you. I would do that. What's your household income? We're at about 65. Okay. And so it does not require, I would do that. What's your household income? We're at about $65,000. Okay.

And so it does require to get the price down that you get outside of Jackson. Been to Jackson Hole skiing many times, been to Jackson many times, wonderful town. But you're right. We love it. You're right. It's a resort price range, and there's a shortage of labor and all kinds of things. But you don't have to move an hour away to get the price down. is a resort price range and there's a shortage of labor and all kinds of things. So, um, but you, you don't have to move an hour away to get the price down.

Well, we could, so we could do 30 minutes, but even those housing units are going for, um, if you look at our income, it's still going for the higher, what we would like.

Yeah. I don't believe you. I don't think you've gone shopping enough. See, here's the thing. What you're presenting to me are three options, and none of them are good. And so I'm going with D, none of the above. You know, an hour commute is no fun, renting is no fun, and restrictive housing and work or restricted mess in, quote, affordable housing for workers is no good. So we've got to just keep searching to find another option.

Anytime I'm getting ready to make a decision and all my options are bad, guess what? I'm getting ready to make a bad decision. That's right. And so you've got to have more options. I don't know how we're going to skin the cat exactly, but some way we've got to get his fur off. I mean, there's got to be another way of doing this. Right. And one of the options is looking at and figuring out how to, A, get your income up,

or, A, you continue to rent while you guys continue to save, or you look at relocating. I mean, you know, in looking at this, I'm going to begin to make a decision based on the information I have. And so I want you to connect with a real estate agent and have them do some legwork for you so you can start to understand what those options really look like. Because driving an hour each way, you might be okay with that for a couple of months, but that's going to get old. Yeah. No, I'm not signing up for that.

Not in that situation. Hey, thanks for the call. I think you need more options. I do. And I looked signing up for that. Not in that situation. Hey, thanks for the call. I think you need more options. I do, and I looked it up, Dave. The median home price in Jackson, Wyoming is $1.6 million in 2020, trending up 23% year over year. That's astronomical. I've been to Jackson. I've been to Casper.

I've been to Riverton, Wyoming. This is on another level. Well, that's picking up the resort prices up around the ski slopes. Okay. And that's driving that way up. I got you. Down in town, that would not be true. Yeah.

My goodness. Yeah. I can't believe it's true. That's like eight times the national average. Yeah. It's Wyoming. Well, no, it's Jackson Well, no, it's Jackson I mean, it's a resort town

So you're going to have a higher thing But yeah, there's something skewing that number That number's off I think Anyway, all right Open phones 888-825-5225 Michael is in Washington, D.C.

Hey, Michael, how are you? Hey, how you doing, Dave? Great. How can we help? I have a question. I've been following you for like nine, maybe eight months, and I did the snowball effect. I paid off all my debt, all my bills, except one. Good. I paid off like maybe $24,000 worth of debt.

Wow, good for you. Yeah, thank you, thank you. Now I have a car. It's a 2016 Lexus RC Coupe 300. I traded in another car to get it, so I'm kind of in a hole. So it's worth $42,000. No, I owe $42,000. It's only worth $28,000.

That's my only debt. I bring home, I work two jobs, so I bring home $4,500 a month. So my question is, and my credit is pretty good now, but I have no credit cards to cut them up. So my question is, you think I should sell my car and

get a loan to pay the difference or just go through this as well i'd plow through it only then yeah you're if those numbers are right you're screwed you're so far in the hole that's selling the car you're still gonna have thirty thousand dollars in debt when you sell it and no car yeah here's the thing twenty four thousand you did in one year right yes So two more years of doing that, you're out of this thing. Correct. Okay. That's why I was calling up because I was thinking if I sell it, then I will only be 043, that's worth 2627.

So that would give me like 15,000, 17,000 to pay off with no car. Well, I think you just get that. What you might want to do is pay it down to where you're at break-even and then sell it. Okay, okay. But in the meantime, drive it and just keep chunking. Because, I mean, if you're dropping debt at $24K a year, that's $2,000 a month. Right.

Then you're going to, in eight or ten months, you're going to have this car paid down to even. Then you could sell it. Mm-hmm. And then buy something really super cheap, pay cash for it, and then save up and move up in car as you finish up your emergency fund. Yeah. Michael, take all the money you were paying out on the other debt as you were working

the snowball and now direct that money toward this car. And it's going to take you a minute, but here's what I learned when I did my stupid many years ago. PD, that was pre-Dave. I had an SUV payment, and it was $750 a month, which is just plain stupid. I know. Don't do that. I already had a flashback.

But the bottom line is once you work and you pay that off, each and every payment you make, it's more confirmation of the lesson never again. And so that frustration and irritation as you stroke that check, that's what will make sure that you're never in this position again. Yeah. I think it's going to take you about 10 months to get out of this thing. Yeah. And I think that's probably the best route.

Much, much easier than trying to sell it while it's upside down. This is the Dave Ramsey Show. We'll see you next time. Chris Hogan, Ramsey Personality, is my co-host today. Open phones at 888-825-5225. That's 888-825-5225. Daniel is in Salt Lake. Hi, Daniel. How are you? I'm doing great.

How are you guys? Better than I deserve. How can we help? Thanks so much for taking my call. I've got a couple of questions. Me and my wife, we make around $100,000 a year. We have no credit card debt, no student loan debt. Um, we have a car payment of, um, or the toll is about $14,000. Um, but my problem is I'm in January. I'm, uh, I'm leaving

my job to go to a school full time. So I'm going to be taking a huge pay cut and probably just working like two days a week. So and we also have probably about $90,000 in cash in my bank. So I'm trying to think what is the best option like right now. Should I just pay off my wife's car just for the full cash, even though we're taking probably a forty thousand dollar pay cut for this year because you're taking a forty thousand dollar pay cut yeah stroke that check today because yeah not not not even though but because you are you pay it off today okay or sell it one of the two yeah yeah it's got to go but bud. Yeah, we should. Yeah, okay. So what are you doing? What are you going back to school for? Biology.

I'm going to try to go into wildlife management or wildlife biologist or something. It's just something I've always wanted to do, and I've been working in the hotel industry for my whole life, and it's been fun. It's made me good money and made a living off of it, but it's just I'm kind of ready to go do something that I really enjoy. So what's your wife make? She makes, this year she's getting close to 60. She owns her own photography business,

and she's done really well just the past three years, and she just keeps making more, so she's doing really well. Wonderful. Okay. And so you're going to pay for school out of the 90 correct okay and and cover living expenses shortfalls if there are any but i think you need to adjust i don't think there need to be any i think you need to adjust your lifestyle to be within her income. Right. Do you all have kids, Daniel? No, sir. Okay. Because my question would be this.

I mean, I love the idea that you have this wildlife thought and you're wanting to go down that path, but why not work and go to school at night and knock out some of these prerequisites at a community college for much cheaper and then transfer that to a four-year institution. He's in the hotel business.

He isn't working right now anyway. I think I will, like, you know, maybe after the semester. It's just been, you know, I'm 30 years old, so it's been a while since I've been to college. I'm going back to college, so I'm kind of just starting off slow. I probably, maybe by the end of the year, I could bump up my work schedule. It's just kind of a scary thought, taking a pay cut. One other thing, too. So I'm going to pay off my car.

Years ago, probably, I don't know, 2014, I probably spent $1,500 on buying Bitcoin. And I probably made $120,000 off of it. So it was such a small amount. I bought it, and I just left it. I never did anything with it. I know it's very risky and everything, but I didn't really put any money into it. What do you guys think about that is are you saying you can

cash it out today for 100 grand for sure okay so by not just listen to me just a second okay there's a process in finance called sunk cost analysis all right and so if you don't cash it out today, in the morning, you have reinvested $100,000 into Bitcoin. That should scare your brains out. It's not $1,500. It's $100,000. Every day you leave it there, you are reinvesting into this again. Right. you leave it there you are reinvesting into this again right by nightfall dude cash it okay bitcoin is over 50 of your freaking net worth yeah is on the roulette table on one roll of the dice it's in code yeah if you if you really can cash it out and

you may find out that this is funny money but i hope you can i hope you can too and run away run away yeah you know um you know this is one of those things you guys where again you're hearing about this stuff out there, and it sounds too good to be true. It is, and you've got to be careful. You really do. I've talked to a lot of people that have been burned on this and, unfortunately, have gone the route of even leveraged investing schemes, which is pulling money out of their house to invest, which is an absolute no-no. And so just be smart. Do long-term investing.

Whenever you try to get rich quick, what I've found is you end up getting broke fast. And so you want to have a mindset of building wealth over time. I hope that you can cash it out when you go to do it tonight. I'm suspect when I hear $1,500 turns into $100,000. I'm really suspect that you're getting – I hope you can. I hope you can. I'll just leave it at that. I hope you don't find other things when you go try to cash it out.

But those numbers are bizarre. And if you are able to cash it out, the other danger is that you actually pulled off this crap once, and it's going to tempt you to do it again. So, but you do whatever you want to do. But I am not a fan of ultra-high-risk investments. And at a minimum, that's what we would call Bitcoin. At a minimum. We could call it a lot of other stuff, too.

A whole lot of things. But, yeah. An alternative currency. Well, even if it is an alternative currency, I don't buy currencies. Well, and the other side is, if you can't do that, the other phone call you need to make is to a tax ELP. So you can understand the realized gain on that because you are going to deal with uncle sam on the growth and again you know i think daniel you walking through the process and being very intentional with this and on the other side too with this wildlife thing that you're wanting to pursue i want you to have a burning passion

for it not just be interested in it because you're about to take a whole nother shift in life uh and i hope you're not doing that just to get away from the hotel industry. There are a lot of things that you can do without making this kind of lifestyle change. Yeah, yeah, that's true. Open phones at 888-825-5225. Nebraska's on the line. Logan is calling. Hey, Logan, what's up? Hey, good afternoon, Mr. Ramsey, Mr. Hogan.

Thanks for taking my call. Sure. How can we help? Thanks to you guys. My wife and I, we're 29-27. We're on baby step seven. Way to go. We're just having a lot of fun.

So thank you for your teaching and for God's wisdom. Thank you. My question today, and I come at it from two different angles, one as an individual and the second as a coordinator. I work with a lot of farmers, and I have farmed in the past as well. My question is, how in the world do you get started farming without so much debt? And then as a coordinator, my question is, how do I help those farmers who are in massive amounts of debt slowly start to get their way out?

Well, that's exactly how you do it. Slowly, you're going to get out a little bit at a time. The problem is that with most farmers is they have just accepted, like with a lot of small business people, they've just accepted that the only way to do it is debt. And then they get real mad. Dave Ramsey doesn't understand farming. Well, yes, I do. do it as debt yeah and then they get real mad dave ramsey doesn't understand farming well yes i do i understand business and i understand what a 500 000 free contractor looks like too and so i get it i understand i'm sitting in a 70 million dollar building that i paid cash for so the um doing this

broadcast from a studio that cost millions of dollars. So the, yeah, I understand large capital purchases in order to do business. Did I start there? No. So if I was starting out farming today and I said, okay, I'm not going to borrow money, how am I going to do it? Well, I'm going to do it with a cheap used old piece of crap tractor and I'm going to pay cash for it and I'm going to lease somebody's land because I don't have the money to buy the land. And by the way, that's how I started this business.

I started using somebody else's studio, and I rented our office space until we could save up and pay cash for it. And I didn't accept the idea that the only way you can do real estate is with debt. Don't accept the premise. Yeah. This is the Dave Ramsey Show. Hey, it's Kelly, associate producer and phone screener

for the Dave Ramsey Show. If you would like to do your debt-free screen live on the show, make sure you visit DaveRamsey.com slash show and register. We would love for you to come to Nashville and tell Dave your story.