The Ramsey Show - App - How Much Should We Spend on a House? (Hour 3)

Episode Date: November 3, 2022

Dave Ramsey & Rachel Cruze discuss: How much to spend on a home, Buying out a lease, How much emergency fund you need for rental properties. Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET Want a plan for your money? Find out where to start: https://bit.ly/3nInETX Listen to all The Ramsey Network podcasts: https://bit.ly/3GxiXm6 Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy

Live from the headquarters of Ramsey Solutions, broadcasting from the Pods Moving and Storage Studios, it's the Ramsey Show, where 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. We help people build wealth, do work that they love, and create real, amazing relationships. Rachel Cruz, Ramsey personality, number one bestselling author. My daughter is my co-host today.

Open phones at 888-825-5225. Thank you for joining us america guys we are hearing from you from time to time that you're dealing with banks or credit card companies or car dealers or whoever and you're saying well i'm going to close my credit card or no i'm not going to borrow money to buy this car or whatever and they give you some kind of yeah yeah yeah and you go well i'm on the ramsey plan i'm in financial peace and then some of you are telling us that you are getting a scripted response to the fact that you brought us up or you're getting a some kind of weird something happening we want to hear some of these stories.

We're kind of curious what's really going on. So if anything like that has happened to you recently, email us and tell us the story right now. We want to hear from you. Ask at RamseySolutions.com. Use our ask email, and that will go straight to the production team, and they'll be able to tell us what's going on there. So ask at RamseySolutions.com and tell us your story if you've had some kind of, I don't know, scripted or weird response to saying,

I'm not doing that stuff because I'm doing Ramsey, whatever that stuff is. Or maybe you're getting rid of a whole life policy. I don't know. And you hear weird stuff because we hear some really wacky stuff out there from time to time time and we're just kind of wondering how true it really is and because obviously they're not going to say that to me uh unless if they actually know who i am you know so i did have that happen one time i went into an electronics store and was trying to buy something the guy said you need the extended warranty and i

said no and he goes well dave ramsey gets him and i went i thought he knew who i was i started laughing i thought he was joking with me and i'm like well no dave ramsey doesn't get him and he's like oh yeah he does he started arguing with me until i handed him my driver's license and then he said a curse word and so um but yeah so i mean stuff like that's just fun y'all you got to know that's fun. So we want to hear from you. Ask at RamseySolutions.com. William is with us. William's in Louisville, Kentucky. Hi, William.

How are you? I'm doing good, Dave. How are you doing? Better than I deserve. What's up? Thanks for taking my call and Rachel, too. My question is, we're looking for guidance on how much we should spend on our next home. We're debt-free, and we've got a paid-off house right now, and I'm saving up for a next and bigger home. And I'm just looking for recommendations on how much we should spend on that,

maybe as a percentage of our net worth or where you're at on guidance you know going into that bigger home category so you're paying cash for the upgrade we're saving cash for the upgrade but we've got a this house we're in now could probably net 350 and we're looking at homes in the you know 5 to 750 range and uh we've got probably another 100 saved up for that one but we're not you know we're not to where we can pay cash for the next one yet okay are you planning to wait until you do or you're going to take out a small mortgage and then pay it off well originally i was i wanted to wait, and then now we just had our fifth kid here two months ago, and we're more than outgrowing the house that we're in,

and I think we're all ready for something new. I could save $25,000 to $40,000 per year towards a new one, but it's going to be, you know, eight, 10 years before I think I can get into, you know, into having all the cash. To answer your question, yes, I'd probably go get a loan for- Yeah, what's your household income? What's the gap in between this?

What's your household income? We're about $150,000. Okay. Okay. Well, yeah, are you, I mean, the way I would look at it is okay what can i get for the house how much cash do i have putting all those numbers together and then saying you know if it's that mortgage payment you can go back to that 25 of your take-home pay on a 15-year fixed rate that's

kind of our formula for for a house in general but you're putting down a massive, massive payment down payment because of everything you're going to have from your from your current home and what you have saved. So, yeah, I would I would look at those numbers and then I would run out to a time frame to say, man, we want to be if we can do this and we can be debt-free again in four years or whatever it may be so that you can pay it down quickly. I would factor that timeline in as well, William, and talk to your wife. How many kids do you guys have? Five. We just had our fifth.

You just had your fifth. I'm sorry. Okay. So what do you do for a living? I work in engineering and construction. Good for you okay the um and you ask what percentage of your net worth uh when you've got a uh a net worth of under a million um you know your house is going to be the larger percentage of your net worth typically when you especially when you work towards a paid for house okay and okay? And so, you know, like we had a young couple last hour doing their debt-free scream. Their house is 60% of their, 70% of their net worth.

They just paid off their house. And so that's not going to be unusual. You wouldn't want that high. The higher your net worth, the smaller the percentage would go to your house. If you have a $100 million net worth, you wouldn't want 60 to your house you know that'd be weird you see what i'm saying so even a 10 million even a 10 million dollar net worth you wouldn't but in your first million of net worth um you know it's going to be the larger share it's going to be 50 north of 50 probably uh wouldn't be that unusual but the good news is the house isn't going to be north of 50% probably. It wouldn't be that unusual. But the good news is the house isn't going to go up,

and once you've gotten that house paid off, you're going to be chunking into retirement. And so by the time you get to $2 million, it'll be 30% or something like that. And so, you know, the natural tendency is going to be your other investments are growing faster than the house because you're adding to those after you get the house paid off. And so, yeah, as far as your net worth question goes, it sounds like everything you're doing is very safe and you're fine. Just put it on as short a term as you possibly can.

Maximum of 15 years, maximum of 25% of your take-home pay. But I think you're going to be well below the 15-year. You might want to do the full 25% and then even more beyond that, but I'd set the payment up at 25% on as short a term as that will allow, given the price you buy with the down payment you have. And if that means you do an eight-year loan, fine. If it means you do a six-year loan, fine. That's fine. Put 10-year,year loan, fine. That's fine. Put 10-year, put it on that. That's fine.

Just put it out there at 25% and then throw extra above that on it. But your actual commitment monthly, don't let that be any higher than 15% or than 25% of your take-home pay. So you're doing good, man. You're doing good. You're thinking about it. You're way ahead. You're not normal. You're already weird.

Congratulations. This is The Ramsey show សូវាប់ពីបានប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្រាប់ពីប្� well a lot of you are planning a move sometime soon. That's awesome. We're excited for you, but I've got to be real. Whether you're moving across country or across town, you could be facing some sky-high home prices, rising interest rates, the challenge of finding an experienced pro you can trust. When it comes to something as important as buying a home, you can't just use some friend's cousin who got their license last month

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So you need to go to Ramsey solutions.com slash agent get the best agent possible for your real estate transaction ramsey solutions.com slash agent marcy is in cape cod hey marcy welcome to the ramsey show hi rachel hi dave how are you better than we deserve what's up in your world um i'm calling because full disclosure before i started listening to your program i leased an 86 000 vehicle um i am now coming what kind of car i was like a range rover sport uh my dream it is sweet however i ended up perched or I ended up leasing the diesel version. So the cost of diesel has gone up exponentially in the last few years. Oh, and try being on an island and getting diesel.

Yeah. So, yeah, it's not the best. So we are now at the point where I have saved up enough to pay off my lease. It's coming up at the end of the lease. I owe $45,000. I have the cash to be able to pay off my lease. It's coming up at the end of the lease. I owe $45,000. I have the cash to be able to pay that out. But knowing that the cost of diesel is so high and eventually diesel vehicles may not be as popular as they once were, I'm concerned about maintaining it and that kind of thing. Should I, one, buy out the vehicle and then try to private sale it right now kbb is listing it around 52 to

59 um should i just turn it in and uh you know pay the fees for my over mileage or um should i i'm not sure what to do okay so let's pretend you can get 55 for it and you can buy it for 45 that's what you're telling me yeah we buy it okay even if we turn around and sell it we buy it okay it makes 10 grand on it right what what is your what would your gap be so if i buy it for 45 and i can only sell it for 48 would you still make that you know that that sale well if you're selling it to a dealer you might only get 48 but i mean i think you know do a little bit more research get comfortable that um that the cars are actually moving and then you can sell it the hot the more expensive the car the harder to sell just like anything

right easier to sell $20,000 car is a 40 there's more buyers okay so that that's going to be the thing and just start you know poke around out there see how long some of these things have been on the market talk to the Range Rover dealer and ask them how fast their inventories are moving um they may have somebody in their back pocket a buddy of mine had a jag the other day and the dealer knew he had it and just called him out of the blue I mean as a friend of his was the dealer but he said hey have you still got that car and he said yeah he goes I can sell it for you right now and he goes i'll take a thousand bucks quick because i got a guy standing here that wants it and he just made a quick thousand the dealer did and and sold the dadgum car ten thousand dollars more than he paid for it you know so it was but it was just a weird deal so i would make

a few phone calls see what you can get into because anytime you can buy something that you really if you truly believe it's worth 55 and you buy it for 45, I would. So the razor, I went to two locally just in the last two weeks and the highest they offered me was 49 for it. Um, the dealer offered you 49? The dealer, yes. Oh, I'm buying this. Okay.

That means, that means you can, that means if you sit on it for a month and a half or two months and you can't move it in the fifties, you can on it for a month and a half or two months and you can't move it in the 50s, you can take it over to the dealer and make $4,000. Okay. All right, great. Yeah, I'm buying it. And then, you know, you don't have to keep it just because you bought it.

But you also don't have to panic sell it either. Right, okay. Because you got the money. I mean, if you wait until spring to sell it, it's okay. Okay. I want to drive it this winter. I mean, if you wait until spring to sell it, it's okay. Okay. I want to drive it this winter. I don't know. Okay.

Thank you so much. You know, it's a great car. It is. Every time I get in it, I'm like, am I ready to let it go? Yeah. I know it's just a car, but I worked really hard for it, and I have it, and I probably will never be able to get another one again now oh yeah i would rather invest yeah you can but you know at this point i'm like you

know i uh you can drive it a year and still make a and still break even maybe yeah okay you know just enjoy it and it depends on what's your household income. It's myself only, and I make $145,000. Okay. And you have other debt? I don't. Nope. I would pay it off and keep it and drive it a little while. Just enjoy it a little bit.

Okay. And then let's sell it. And if you make a couple thousand, great. If it costs you a thousand when you sell it, so what? But I might enjoy it give yourself you know september or something give yourself a date and then just kind of keep poking around and if somebody walks in offers you 59 sell the stupid thing and get you something else right but i would just kind of mess with it with a open hand you follow me rather than a sense of desperation

like or a sense of regret or a um even with that kind of money even selling it for close to 50 i'm like you can buy a great car even another range rover you know used right and that was my thought like i could even buy like a newer like a new vehicle off the lot somewhere for probably 25 and still like have the warranty and have all that the safety and the security and like the maintenance free for a few years and i think either way i i do when you're right i'm in a good situation but it's more of like should i just turn it in and cut my losses and so you guys have helped me i knew i called the dream team on the right day bless your heart you're too kind i appreciate it so a couple rules on cars uh they've calmed back down now

the used cars are no longer going up in value you remember that moment you guys will be able to look back in 20 years and go i remember back you know 20 2020 21 when the cars went up in value you know you'll be telling your grandkids these stories right and um uh because it was it happened one time in history that's and you were here when it happened so uh used cars go down in value like a rock that's where chevy got that like a rock okay so found on the road is ford is found on the road depreciated f-o-r-d there you go so um hello this is this is real and you don't keep a lot of money tied up in depreciating things although i'm a car guy and i love cars and what you'd have a nice car i just don't want your nice car to have you so we always say no more

than half of your annual income tied up in things that go down in value hers doesn't violate that she's at about a third and she's paid for it no debt no debt no debt start out wrong but got there yeah so she's not violating any of the guidelines and the guidelines are there that we came up with to cause you to build wealth they're not cause you to live in a cave collect lint and only come out of triple coupe on thursday they're there to cause you to build wealth and when you have a fifty seven thousand dollar car and you make forty two thousand you are going to be broke your whole life because of stupid things going down in value and you've got money going in things that goes the wrong way rather than the right way it's a math thing it's not a dave and rachel thing's a math thing. That's what you're facing out there, folks.

This is the Ramsey Show. ДИНАМИЧНАЯ МУЗЫКА Rachel Cruz, Ramsey personality, number one best-selling author, is my co-host today in the lobby of Ramsey Solutions on the Debt Free Stage. Ben and Angela are with us. Hey guys, how are you? Hello Dave. Hi. Welcome. Where do you guys live? We're from Kennewick, Washington. Whoa, that's a bit of a trip. Yeah, that's the sane side of the state.

You know what? of washington is sane there's a few spots though that offset it yeah that's a lot of states have that disease nowadays yes welcome good to have you guys how much debt have you paid off so 436 959 dollars way to go how long did that take about About six years, one month. Love it. And your range of income during that six years and one month? We started at about $140,000 and took a quick dip for when the Lord blessed me with a job loss and then bumped it all the way up to a little over $300,000.

Good for you. What do you all do for a living? I'm a registered nurse. Of course. And I help people get mortgages that are 15-year fixed rates. Very good. I do mortgages for a living. Very good. So I'm going to guess the high amount, $437, in six years, maybe you paid off your house. We did. I love it. Weird people. Our kids have told us we're weird for years, but now we officially are. Now it's been declared on national radio.

Yes. Oh, man. A mortgage broker with a paid-for house. That's so crazy. I love it. Way to go. Congratulations, y'all. How does it feel to have no payments?

You know, it feels really good knowing that's one less stress in our life, but we still live below our means and we have goals, but we're not certain what we're going to spend money on here forward. We're just kind of like, okay, what's the next goal? But yeah, we are very thankful. Six years of focus and now we're like, wow, what do we do with all this? And so we started our Next Thing Fund. We have so many things that we want to do, we couldn't decide. So we just started piling it up in every dollar under our Next Thing Fund, and I'm sure we'll figure it out pretty quick.

I like that. That's so fun, you guys. So you have kids? We have four. Okay, what are their ages? 27 is Kylie. Jacob is 25. Hannah is 22.

And Abby is 17. Okay. So most, and they're 20s. And what do they think of mom and dad? You know, they've been our greatest supporters through all of this. And I think it was our goal all along to make sure our kids knew what that journey was like, and hopefully they became smart with their money as well. Very good.

You guys are great examples. Thank you. Good modeling. Good modeling. Rachel always says, more is caught than taught. Yeah, very good. So what starts you guys on this journey six years ago doing this Ramsey stuff? So, you know, April, tax time. We sat down and we had probably our biggest tax bill we'd ever seen.

And we were sitting chatting and we were like, we also made more than we had ever made in our working careers. And we were like, wow, how do we make so much money, owe so much money to the IRS? And we felt like we were still living paycheck to paycheck. Yeah, we were one expense away from a disaster, I think. That's how we could sum it up. Wow.

Yeah. And how long ago was that? Was that six years? That was six years, one month. Yeah. I had heard of Dave prior to that. And some of it sounded pretty cool, but I thought I was smarter, a mortgage guy.

But we'd had our I had it moment, and we also had a situation. How did you get connected with us after that? I had a coworker, actually, that had turned me on to you. I read the book and listened to the podcast quite a bit. And we chatted about it, you know, probably four or five years earlier than that. And we kind of did, I don't know if you'd call it Dave-ish, but we did Dave a little bit. But once we had that, you know, I had it moment, it was all game on. It was just, you know.

Amazing, you guys. Congratulations. He decides we're going to do this stuff. Angela, what did you say? You know, we talked about it. Initially, I was like, I don't know if we're ever going to dig out from this mess. But we started, and I think what kept us going in the driving force was paying off the small debts and seeing them go away. And so it just kept us in that momentum.

And we knew at that point that we'd get there. Wasn't easy. A lot of struggles along the way, but we made it. And so we're very thankful for that. Wow. So what was all the other debt? Part of it was the mortgage. I guess a big chunk of it.

Yeah. So we had two cars and an RV for 61, six credit cards at 39,000, a big honking $78,000 student loan. That was mine. The IRS debt that we chatted about, 401k loan. Wow. About $190,000 for the snowball. And then it took us about three and a half years for that. And then we had about a five or six year plan on the mortgage.

But the last two years have been super good for my business. And so we accelerated. Yeah. And now we're sitting, you know, with no mortgage payment and my business is extremely slow. So, and I would probably be freaking out right about now and thinking about, you know, what the future would bring for us. But with no mortgage, you know, I don't have to worry about it.

Yeah. Yeah, we talk about a lot on, Dr. John Deloney talks about it too, that even when you owe debt psychologically, like your mind knows it's not safe because someone else has control over a part of your life. And there is this deep sense of peace when no one has a say over your life. You know, you truly are being able to control that. Did you guys feel that? I know I'm sure with the consumer debt, when that 190 was

gone at the consumer debt, and then did you feel it again with the mortgage when you paid it off? I'd say so. Absolutely. I mean, we had refinanced the house and done so many home equity loans that I swear our mortgage probably contained a pizza from college or something like that. Some shoes from Sears, you know, when they were still around. So, you know, I, I've been in debt since I was 18 years old, you know, when, when I bought my first stereo for in college, you know, at a little, little mom pop store where you had to go in and pay cash for your payment once a month, you know? So so it's just so it's an ultimate feeling for you to feel like have you never experienced it i mean since you're 18 yeah yeah yeah wow you ever go back never never never that's obvious yeah not a chance no not once you've done what you guys have done no this is impressive well

done thank you so much thank you what do you guys tell people the key to getting out of debt is? We have a saying. It's the three C's, communication, commitment, and compromise. And it's really the same as keys to being married for 25 years. We celebrated our anniversary three days after we paid off our mortgage. So that was a killer celebration. But communication, the budget meetings that we had, we'd never done anything like that,

and it really just opened up a ton. Commitment, commitment to each other, commitment to the plan, just committing to it. And there's a whole lot of compromise when it comes to these different things, either wanting to spend money or not wanting to spend money, different priorities, especially after we hit baby step four, five, and six,

figuring out how fast to go after that mortgage and still live. This is the perfect time for you guys in the mortgage business because it's tough out there. It is. Absolutely. Perfect timing for you all to be free. Congratulations. Thank you. So well done. Thank you. Hey, we got a copy of total money makeover for you in the live and give bundle you can give that away

and help somebody get started the baby steps millionaires book which is the latest number one and that's the next chapter in your story for sure and of course the financial peace university one-year membership and again you can go through it give it away however you want to do with this stuff it's our gift to you to say thank you for making the trip here and to say congratulations we're proud of you thank you so much well done you guys very well done Ben and Angela from the state of Washington they did it house and everything 437,000 paid off in six years and one month, making $140,000 to $300,000. Count it down. Let's hear a debt-free scream. Three, two, one.

We're debt-free! Yeah! I love it. I love it. I love it. So fun it, I love it. So fun. Way to go, guys. This is The Ramsey Show. We'll see right back. Our Scripture of the Day, Lamentations 3, 22 and 23.

The steadfast love of the Lord never ceases. His mercies never come to an end. They are new every morning. Great is your faithfulness. Max Licato says, God meets daily needs daily, not weekly or annually. He will give you what you need when it is needed. Yeah. Chuck Swindoll says, God is never late and seldom early.

That's true. I love that. I get the opportunity to speak for my friend Max Licato over in San Antonio at Oak Hills in a couple of weeks. I guess it'll be a week from this Sunday. So if you don't have church plans and you're in the San Antonio area, we're going to go in a day early before our San Antonio events and things begin and get to speak there he's um been a friend a long time and he is quite a wonderful human being so i'm honored to get to do that rachel cruz ramsey personality is my co-host today open phones at 888-825-5225 joe's in jacksonville florida hi joe how are you Joe. How are you? Hey, guys. How are you? Better than we deserve. What's up?

Well, I really need your advice, but I told my wife I did not want to call and get the public Dave Ramsey smackdown because I know I've been stupid. But I am a step six repeat offender because I'm a real estate addict, and every time we do our quiet debt-free scream, I manage to go out and do stupid again and buy another rental real estate property. But the question I have is we have a mortgage I want to eliminate on step six again, and how much or how do we best wisely calculate our emergency fund? How deep can I go? We have the ability to pay it off. But the emergency fund for our personal income is one question.

But then I guess the real question is for the rental portfolio, how much of a capital reserve do we need? Yeah. Good for you. Well, your personal is three to six.