The Ramsey Show - App - How Should I Start Investing? (Hour 2)

Episode Date: March 21, 2024

🎵 Live from the headquarters of Ramsey Solutions, it's The Ramsey Show, where we help people build wealth, do work that they love, and create amazing relationships. I am Rachel Cruz, hosting this hour with my good friend and best-selling author Jade Warshaw. And we are here to answer your questions. So give us a call at 888-825-5225. We will talk about your life, your money, relationships, career, anything and everything. So give us a call. Up first, we have Lisa in Clarksville, Tennessee.

Hey, Lisa. Welcome to the show. Thank you for having me. Absolutely. How can we help? Hi, I'm 54 years old. I have no debt. I paid off all my student loans, credit cards, and my house. Good for you.

Wow. Yes. I have $72,600 in the money market, and I want to know how to start investing. All right. That's good. So are you currently investing any of your paycheck every month when you get paid? No, ma'am. I am not.

We don't have that option at my job. Okay. So they're not offering like an employee-sponsored 401k. That's okay. You can still start investing 15% of your income today by just investing in a Roth IRA, right? So is it just you or your husband? No, ma'am.

I'm single. You're single. Okay. So yeah, you're technically, I mean, you've gone beyond, you know, baby step four, five and six because you've paid off your house. But let's go back to baby step four right quick and jump that one in place, which is 15% every single month. In your case, yeah, just start with a Roth IRA. You could start there and max it out. I think you can do 7,000 this year. And if you

have money to go beyond, above and beyond that, we can look into what that means for you. But that's the first place to start. So that's thing number one. And then since you've got this big chunk of money sitting in this money market account, I would differentiate what's going to be your three to six months of expenses. And I would put that in a high yield savings account. So what do you think three to six months, in your case, I'd probably do six months, to be honest with you. What six months of expenses for you? Well, I only make about $32,000 a year. Okay. And I pretty much use all of that to live on and pay the bills I do have, the living expenses.

I do have a little bit left over from each paycheck, but I have not been putting that in savings for about, I got divorced in September, so I haven't been putting anything in savings since I got divorced. I see. Well, the good news is like you said, you've got the 72,000. So you don't necessarily need to set any more aside into savings per se, but the retirement piece,

I do want you doing that because you've got to keep actively adding to this nest egg. So I take any of the 72,000 and put that in a Roth IRA, or can I do that? You can, but you can only do it up to a certain point, and then you're going to have to go into a brokerage account, or you're going to have to work with an investment professional to see what's the best option for you to open up. But I do want you to...

Go ahead. I'm sorry. No, you go. I got on SmartVestor, and I have an appointment with, I guess he's called a financial professional. Yes. I guess I'll speak with him. Yes. And then.

So when you work with that SmartVestor Pro, they're just going to give you the options and the best options for you and your situation. But at the end of the day, the thing I want you to hear me say is, I think you've done a great job with the $72,000. But what you've got to do is you've got to take some of that as your three to six months, because I don't want you investing all of your money. You've got to keep some of it liquid. And so whatever six months of expenses is for you, take that and just set it aside, put it in a high yield savings account. So if something goes wrong, Lisa, you can have that money. If something happens with your roof or something happens with the car, you've got money that you can have access

to without you pulling from invested money. Does that make sense? Yes. What is a high yield savings account? It's a savings account. Most of them, the good ones are online accounts. You could check out ally.com. We don't endorse them, but it's just the one i i use i know george uses marcus by goldman sacks yeah we use an ally yeah it's similar to a money market account lisa so it's one it's an account that it usually i think now is actually getting a higher rate of return than money market accounts but a high yield savings account so where what it is it's basically a savings account where you're making more money but you can't't withdraw money up to a certain point in so many transactions per month. So there's some limits on it, but that's okay. Because again, that money is going to just sit there unless you really need

it. And if you really need it, it's probably going to be one check that you write out of it if it's an emergency. And then everything else. So a Roth IRA is a great retirement vehicle. Your money will grow tax-free, which is amazing. So as it's growing and as it's investing, as it's invested, you're gonna be actually making so much money on your money. It's kind of one of those accounts that you put in. And because the market averages 10% or so,

you'll be making money while you sleep, if you will, Lisa, which is a great thing for retirement. Lisa, you said you went through a divorce in September. And so you're back in the workforce. Were you working before that? Or did you go back to work because of where you're at? I went back to work. You went back to work. Okay. So I'm guessing this is one of the first times you're handling everything on your own, huh? Yes.

Okay. Well, you're doing great. You're doing a really good job, Lisa. What are you doing for work? I work in a finance office. So I do the accounting work. Okay. That's awesome. So my only other thought because of your age and because you don't have much in retirement, what it would look like to up your income. And I don't know what opportunities are out there for you in your area and with your experience and all of that. But that is something. I mean, $32,000, that's on the lower end. So I would encourage you to see what else is out there. And I think there's a level of confidence, Lisa, I could only imagine, that you now are starting

to have. And even when sitting down with this SmartVestor Pro, you know, even listening to him and have him teach you, Lisa, okay, do not go in and just nod your head and just say whatever you say. I want you to learn. This is going to be some of the biggest changes of your life and things that you're going to deal, you're dealing with now that you never probably had to. And so you're going to be a sponge. And I don't want you to put your money in something that you don't understand. And so you're going to be a sponge. And I don't want you to put your money in something that you don't understand. And so I want you to really, really learn. And I think over time, there's going to be a level of confidence that is built. And I think that that

can translate into more income. I think that you're going to feel like, okay, I can actually step out and apply for something and make more. But I think upping your income is another great goal to look at in the next, you know, three, six, 12 months. Absolutely. Because if you can make even 50,000, right, 20,000 more, that's going to make a significant difference to what you can put away for retirement. But you're in a really good spot to have everything paid off. You have no bills. I mean, it's only up from here, Lisa. So I'm really proud of you. Thank you so much. I really appreciate your time. Yes, absolutely.

Absolutely. Really good. Yeah. And that's, again, learning about this stuff and understanding, okay, what is a Roth IRA? And I even love, like, what is a high yield savings account? Yeah, great questions. Yes, getting to these basics and really having this knowledge. Knowledge gives you power. And when you have knowledge, you usually have options. Yeah. And you're able to see you're not pinned into one thing. And because, oh my gosh, this is

the only thing I got to do. And I don't even get it, but I got to do it. And it's this like fear cycle, all of it, right? That's right. When you have peace and you have knowledge and you're learning and you're experiencing, it does give you some confidence. So Lisa, I'm really proud of you. I think you're doing a really brave thing. And I'm excited for you to sit down with somebody and actually look at your specific numbers, have them teach you and show you, and they're going to run numbers for you to look out and say,

okay, in 10 years, here's where it's going to be in 15 years. I think it's going to be really motivating and empowering, Lisa, for you. So I'm sorry you went through what you went through in September, but we believe in you. Thanks for the call. Welcome back to The Ramsey Show. I am Rachel Cruz hosting this hour with Jade Warshaw. So it is tax season, Jade. It's approaching. It's here. It is approaching. And taxes are confusing. We get it. but we want to unpack one question from one of our listeners and it says what's the difference between a tax deduction and

a tax credits so tax credits cut your bill dollar for dollar so if you owe a thousand dollars in taxes you have a five hundred dollar tax credit you only pay five hundred dollars love that a tax deduction lowers your tax bill by lowering your taxable income. So again, you simply subtract the deduction from your income. Less taxable income means less taxes owed. So it's more on your income, not on the actual taxes there. So listen, again, there's a lot of ways you can go about this. And again, there's like, okay, I could self-file. Should I sit down with someone? I mean, there's just a lot of questions around taxes. So if you are confident, though, on filing on your own, make sure to head to Ramsey Smart Tax, and that's ramsaysolutions.com slash tax.

And there you will find Ramsey Smart Tax, which is our no-nonsense tax software with low upfront pricing, no hidden fees, and we will connect you with a tax pro if you need that. So if you've had a big life change or maybe you're re-looking at something, if you own a small business, you've had a child, adopted a child, if something as big has happened in your life, you may want to sit down with a tax pro. And again, you can find that on our website at ramseysolutions.com slash tax, and you can get connected to a tax professional who is Ramsey trusted. So again, you can file on your own using Ramsey Smart Tax or sit down with a tax pro who is Ramsey trusted at ramseysolutions.com slash tax. Love it. Up next, we have Morgan in Tucson. Hey, Morgan, welcome to the show. Hi, thank you all for taking my call. Absolutely. How can we help?

So my wife and I are buying a house. It's down to, we got it down to $635,000, but it needs a little bit of work. We do have to put a new roof on it, which we estimate to be about $30,000. However, that's our lowest estimate, so it could be as much as $40,000. We also have another $3,000 to $7,000 for radon, so we're looking total at $33,000 to $50,000 that we have to put into the house before we move into it. Originally, we were going to put down $335,000 on it by doing $235,000 down and then recasting $100,000 afterwards because it got us a half percent savings on the mortgage rate. Now we're trying to figure out, do we go ahead with that original plan? We have the cash to do the roof and radon, but if anything goes wrong, then we're going to be short on cash. We'll have the cash, but we're going to be short on it. Or do we hold off a couple months for the recast and make

sure that we have everything squared away, moved to New Mexico from Arizona and all of that. So you're going to put 235 down. And when were you saying that you're going to do this recast? How long are you waiting? We originally were going to do it the next day, which we were allowed to do. I don't understand why. Help me understand that. The only reason that we wanted to do it was because they gave us another half percent discount on the mortgage rate. That's all.

So the next day put another $ thousand down correct and there's no i mean obviously with the recast you're not closing again there's just you're just putting a hundred a hundred thousand dollar payment correct i don't know i don't i i want to know if there's a loophole there. I want to know something more about that. It just feels weird that you would hold on to your down payment. From what we can tell, they market you hard. They try to get you to spend that money on something else and not recast it. It just gives them one more chance to get the money from you. And this is all to save a half a percent? Half a percent and, yeah,

half a percent on the mortgage, 15-year. Yeah, because, I mean, if worse comes to worse, Morgan, what would happen if you guys, you put $235,000 down, the next day they're like, oh, this isn't going to work, the recast. Oh, gosh, oh, gosh. Could you just throw the $100,000 on the house? Yeah. So, I mean, either way, I this isn't going to work the recast oh gosh oh gosh could you just throw the hundred thousand on the house yeah yeah so i mean either way i think you're you're going

to be okay but you're asking with all these repairs do you do you take fifty thousand of that hundred thousand and save it and put it to the side or what was your original question right so that that's what my original question was is is we have, I mean, to be on the safe side, $50,000 worth of repairs. We'd like to put down as much as for you can you afford the house if you don't get the extra percent off that's the first quote the extra half a percent that's the first question and then can you afford the house if you instead of putting the 235 down you put 285 down and then you keep 50 000 will you still be able to will it still fall under that parameter of it's no more than 25% of your take home on a 15 year fixed rate conventional mortgage? Yeah. Yeah, it will.

So then if I were in your shoes, based on what you said, I would probably be like, okay, we need this money because like you said, right on the roof's got to get fixed. Was it right on? Is that what you said? Yeah, right on the roof. The roof's got to get fixed. That's $50? Is that what you said? Yeah, radon and roof. The roof's got to get fixed. That's $50,000. I mean, you need to get that done.

So I would just keep that money out, have those repairs done. You put $285,000 down on a $635,000 house. Which is great because you were putting almost 50% down. That's awesome. So yeah, I mean, you guys are in a great position. But yeah, so I would rather have the cash fix what need, and then aggressively pay down the house. Because do you guys have any other debt? No, we don't have any other debt.

We have very good income. What do you guys make a year? Before taxes and everything, $480,000. Okay, great. After taxes, $401,000, $22,000 a month. And then the good news is, I mean, you said it's $50,000 on the high side. It sounds like you're estimating this aggressively, which is good. And if you get on the other side and you're like, hey, we still have $10,000 or $15,000 left, throw it towards a mortgage.

Yeah. Right. Yeah. Okay. So you guys would suggest then recasting less and then recasting or paying down quicker after everything is settled with what's remaining? Well, are they going to let you recast it even though it's now going to be less than a hundred thousand yeah they don't care they that was part of the deal we signed with them okay okay yeah yeah i'm okay with that and you guys make insane money morgan too so i'm like if you have you'll

have um roughly 330 000 left on the mortgage and you guys making 480, which again is before taxes and everything. But I'm like, y'all could have your house paid off in three years if you really did it. So yeah, I think you're in a great position. I think you're in a great position, but I would have the cash on hand to do the repairs that are necessary.

And I'm thankful that you know that they're coming because for some people it sneaks up on them and they don't have the cash to fix it. True that. You know, usually when I hear recasting, I kind of, my radar goes up because a lot of times people are doing that really just to get a lower payment. And it's in their mind, they're thinking, this is great. I don't have to close again. I'm not paying those closing costs. I can just have them recalculate it now that I've made this giant payment and get a lower payment.

But at the end of the day, the whole point is to pay off your mortgage and get it out of your life, not lower the payment. And so that's kind of, I was wanting to ask those questions, but it seems like they understand. And for them, the motivation was to get the lower interest rate, not to get necessarily get a lower payment. That's right. That's right. Yep. No, that's good though.

Because I think, again, with the housing market, where it's at, it is, it's so expensive. I mean, everywhere, I just feel like it's insane. And rates still are high. And so the whole mortgage conversation is one that has continued to be had. And it's still a hard, you know, it's a hard situation for a lot of people. But don't for a lot, you know, for them in this situation, like you said, it is more about getting a lower interest rate because they're going to pay it off quickly.

And it's not just trying to finagle the system to just get in a house where we barely can get in, but we're barely doing it because that when you're stretched that to that point, the only way we can do this is if we do a recast, right? Like if that's your only option, there's some desperation there. And if anything goes wrong, it's going to be so stressed and you're going to hate this house. And you're going to think, why did we do this when we did it? Why didn't we wait six, eight, 12 months and save more? So give yourself some breathing room, you guys, in this. And I know people are like, get in the market, get in the market, get in the market.

There's a lot of incentives out there, incentives out there right now, too, that can lure people away from better judgment. Yes, exactly. So be careful with some of this, you guys, as you're out house hunting and all of it. We love houses. We love real estate. We want it to be part of your life, but we want it to be a blessing, not a curse. This is The Ramsey Show. Welcome back to The Ramsey Show. So I feel like one of the things we're known for, Jade As the anti-credit card people Where so many people try to play the game

Yes Try to get the points and the cash back and all of it And we're just like, you know what? Live your own life, people Live your own life Don't have the bank involved But credit card late fees This has been in the news a lot

They've been capped now at $8 $8, part of the Biden administration crackdown on junk fees, where a lot of people were paying a ton of these fees, especially with late fees and everything. Yeah. They're cracking down on the credit card companies. It's crazy. It says this is from CNN dot com. It says federal regulators finalized a rule on Tuesday to cap most credit card late fees at $8 as part of a broader push by the Biden administration to eliminate junk fees. The Consumer Financial Protection Bureau estimates

the new regulation, which was first proposed in February, will save families more than $10 billion a year by cutting fees from an average of $32. It comes americans continue to pile on credit card debt guys we know americans are in 1.1 trillion with a t of credit card debt which is crazy more than 45 million people are charged late fees on credit cards each year which by the way that means for all the people who say i have a credit card jade but i I pay it off every month. Someone's lying. Someone's lying because somebody is being charged these fees is all I'm saying. It says these individuals will now save an average of $220 per year. I think that's a lie.

The new rule aims to close 2010 loophole. So basically, you know, Rachel, when I hear things like this, there's part of me that thinks there's goodwill here. Like there's good intent. Oh yeah. I do think that the administration is going, how can we like families are hurting. People are hurting economically. We don't want credit card companies take advantage of them being in a tight situation.

Yeah. So how can we kind of, you know, close in the gap on that? And so eliminating junk fees, I think in one way, it's great because some people might look at $32 a month or $18 a month ago. That's nothing. But we do know that a lot of folks who are using credit cards, not everybody's using them to live a lavish life. Some people are just trying to keep the lights on, trying to keep groceries in the house. And so there's part of this that I know a large population might be going, oh, great, like I could use an extra $32. But I really do think that at the end of the day,

we have to realize that this is not something that we should cling to for hope. Like this is something for us to go, listen, I gotta get out of this cycle. If $32 is what's meaning the world to me, I gotta get out of this. And honestly, what I think is the way the credit card companies on,

they're going to find another way to charge you, right? Like they're not going to. Do you think that they're really going to let go of $10 billion a year? They're not going to let that slide. They're going to find another way, whether it's increasing

their interest rates, whether it's charging other fees, they'll figure out a way to do it. They're not going to just lay down and say, yeah, sure. Yeah, $10 billion. I know. So and what's crazy too, and it's interesting other fees, they'll figure out a way to do it. They're not going to just lay down and say, yeah, sure, whatever. Yeah, 10 billion. I know.

So, and what's crazy too, and it's interesting to think about, and I hate to say this because like you said, I'm like, there are people hurting and that this is the thing that is somewhat keeping them afloat, if you will, but still in this cycle, is that these fees hurt less.

So does it keep you in a cycle because it doesn't hurt as much? Yeah, you're not being charged that heavy late fee. So it's okay if you're late. It's okay. But then your credit score keeps getting dinged. I mean, like all of it. So it's just being aware that this still, like you said, Jade, can't be the thing that

motivates you. It has to be out of this willpower of a higher will, if you will, to say, oh my gosh, I don't want this to be my life. And I don't want this cycle in general, regardless of what, to say, oh my gosh, I don't want this to be my life. And I don't want this cycle in general, regardless of what, you know, what legislation is passed or not. For myself, I want to take control of something greater than this. I just wish, you know, some part of me goes, if you really want to help people, show them the way out. Don't show them the way to stay in it and stay comfortable. Like, honestly, I mean, Ramsey here at Ramsey, we're always showing people how to get out of debt, how to get out of a cycle.

And I'm just like, stop giving people money and show them the way out. Yes. But anyway, governments, you know, are not known for that. Y'all. So we got to. Yeah. You got to take the matters into your own hands. That's right.

And just get out of it if you can, if at all you can. And we're going to show you how to do that here on the show. So yeah, absolutely. All right. Up next, we have Joshua in Mobile. Hey, Joshua, welcome to the show. Hey, how are y'all doing today? We're doing great. How can we help? Yes, ma'am. Me and my wife, we purchased FPU about three days ago and we've been following through, and we had about $6,000 in savings. So I couldn't talk her into just having $1,000 in emergencies. So we got $2,000 in emergencies since we just had a $1,000. So I said, I'll take what I can get.

Listen, you've got to sleep at night. I hear you. Exactly. So I took that $4,000, and I paid off my credit cards. Good for you. How'd that feel? I paid off. It felt amazing. It's just a never-ending cycle, it seems like. So I thank God that I found a way out of that. That's awesome. But I also paid off a washing dryer that I had to purchase due to an emergency that popped up in our home. And the thing is, is instead of just having, you know,

like $8,200 of debt left over, I bought my wife this car that I've seen to hear about all day long and y'all keep getting asked about. And this car was $41,000. Uh-oh. Yep. And I still owe $37,000, but instead of paying off my debt in six months, now I'm looking at, you know, a couple years.

And I'm just looking at what y'all recommend. I spoke with a dealership trying to see if I could come in and maybe trade it in for something a little less. Have you Kelley Blue Booked it, Joshua? No, ma'am, I haven't. Okay, because I'm curious. How long ago did you get it? We've only had the car for like four months, and then I ran across'all and i was like man that was perfect time okay yeah uh four months too late a little bit i know wish we were there earlier um was it brand new yes ma'am yeah it's still okay so it's taking a hit and i'm curious

though you owe 37 on it i'm hoping there could be a wash there you know if you could sell it i would kelly blue book it and see what you can it's a four-month-old car five-year loan at 2.9 interest so it's not a bad loan considering you know other loans no how much do you guys make a year we make we made 120 last year okay uh annually is this your is this your only car when i look at the total i'm like uh yes her only car and then my truck's paid off so and then what other debt do you guys have i have a seven thousand dollar personal loan uh and then uh eighteen hundred dollars on a stupid computer that i bought okay so you'll get that paid off this month. I'm hoping. Yeah. Oh God,

Joshua, I'm selling the car. Yeah. I couldn't stomach having a $41,000 asset that is going to continue just to drop, drop, drop, drop, drop. As even we're talking on this call right now, it's just continuing to drop. And for you guys just to be out, it's not worth it. It's not worth it. A car, it's not worth it. And so I would, I would sit down with your wife and be like, Hey, what does it look like? Um, if we save up some money and we sell this, I'm hoping you can get more than what you owe just to get, you know, a few thousand bucks out of it. Um, and then pair it together, go and look on auto trader. Just look around at a private sale of another car. You can get a great car and a car is a car right it needs to get you from point a to point b and so much of what she had a 2008 nissan center and and like i said we got a one month old daughter and i was like you know that

thing ain't safe and she's like well let's get this the thing is you go from one extreme to another don't do that i hate when people do this and I get it's out of the love of the baby. But a Camry is safe. Yeah. An eight-year-old Camry is safe. It's going to be fine. It's going to be fine. And so be, and Joshua, run the numbers just for yourselves. And just say, let's put this car payment.

Let's just say we just did the norm, which I know you're not doing because you're wanting to aggressively pay off debt. So I hear that. But just put a car payment, put your car payment in an investment calculator and see what it's costing you and that's what people you really need to understand is instead of your money working for you and when you sleep at night it's making you money and it's making you wealthier all of that is going to a dealership and going to the bank and you're paying interest on something that's going down in value so it's not. So it's not worth it.

The car is not worth it to me. What is your car payment? I'm just curious on this $41,000 vehicle. Yeah, it's like $750 a month. Oh, Lord. That's messed up. Like I said, I got the short loan. That's still horrible.

I don't care. Joshua, sell it. Lock arms, sell it, and then go get an awesome other car in 18 months once you're debt-free. But get this $41,000 of debt in a stupid car out of here. You guys can do this. I feel the motivation, Joshua. You guys are on track. I mean, you're four days in.

So I'm going to give you some grace. But you're making traction. And just go all in. And if you hate the plan, if you hate it, Joshua, you can always go back and get a $41,000 car payment, car loan, if you want to later. If that's what you want to do, you can go back, but try our way first. Welcome back to The Ramsey Show. We were just talking at the break as we were right coming on hot on the air. Yes. Of just, you know know especially you young families that have kids and you're in this season of just golly it's just it's a lot of work and the kids are just there's goldfish cracker crumbs and peanut butter and jelly and crustables squeezed everywhere it's just

you know you want to you want to be able to enjoy life and I think for some people it can be like we want the nicest thing we want a brand new x we want this this this this some people, it can be like, we want the nicest thing. We want a brand new X. We want this, this, this, this, and this. Can it even be taken care of, though, the way it's supposed to be is the question. And there's a level of like, you know, and I can be like this, where I'm like, I just don't want to spend money on something that I can't enjoy in life because I'm so scared it's going to get destroyed. And maybe one day, once they're teenagers, or I don't know, parents and teenagers can correct me. Yeah. There's a point that i'm like okay great that's not going to get spilled on or for the most part like you you can handle x y and z all i know rachel is i watched my son take a

piece of pizza and take every piece of topping off of the pizza into his lap in the car and then when i leaned over to see what he was doing I watched my daughter spill her piece of pizza on the carpet oh yeah and I'm like I can't drive a Lexus truck it's done I never can it is uh it's a real thing so we want to enjoy life to people so some people go get the brand new thing because of the new baby and I'm like I don't know just get you they're gonna spit up on it yeah 100 the car seat is gonna put those deep indentations into that nice leather. Even if you put down the little mat, it's still going to put that deep, you know, you put the little kick pads. By the time you baby proof it, you put the kick pads on the back of the seat.

Then it's not even, it's not even what it was intended to be anymore. I'm like, listen, I'm going to just, I'll just wait. We'll wait. We're going to have delayed gratification trades. And these kids are not going to ruin that truck when the time comes. That's right. That's right. All right. Up next, we have Erica in Gainesville. Hey, Erica, welcome to the show. Hi, thank you for taking my call. Absolutely. How can we help? So my husband and I sold our first house two years ago because we wanted to buy some land and we had $150,000 in equity in our house and decided on our path to be debt free, we were going to buy a property outright. We didn't want to have a mortgage at all.

So we did. We found a five acre property with a double wide mobile home and we were planning on fixing up the double wide. Um, but now we've decided we hate it and we want to build a house. Um, so we have 20,000 in debt right now and that's student loans, consumer, and medical. And I guess, so we want to pay all that off first before trying to get a loan to build a house, but we're worried that it's going to drop our credit and not be able to get a loan to build a house. Go ahead, Rachel, I heard you. Yeah, no, well, I was going to I was gonna say, yeah, your credit will lower as you pay off debt, but it will get to a place, Erica, where it's undetermined, basically.

And so it'll take about six to 12 months once you pay off that last debt for it to get there. And then from there, you would do a process called manual underwriting. Now that's usually for already a home. And so you would have to take out a construction loan and then roll it over to a mortgage once the construction's done. So you would have to work with somebody to make sure with the manual underwriting process, which people

still do that. So that is still an option for you. But yes, you will have your credit score lowered as you pay off debt because mathematically the way your credit score is calculated has to do with debt. And so when you're getting out and you're not accumulating new debt and you're you know but you're aggressively paying it off you will see over time as you pay off these debts it's going to go down uh so yeah you guys will just have to be patient in that sense um well the good news is the time is built in because the time that it's going to take you to save up for the down payment is the time it'll take for your score to roll to zero. Yep. That's right.

So there's part of that. So my husband's a veteran, so we were planning on doing a VA loan. And I guess we may have to look into that more if they will do an underwriting, manual underwriting process for VA loans. I'm not totally sure about that. Well, typically we would suggest a conventional loan. There are some instances where a VA will work, but a lot of times they have a lot of extra fees that end up making it more expensive. So really do your research on that before you

settle in on a VA loan, simply because usually I think the biggest benefit is the, you don't have to put money down, correct? Correct, yes. And we want you to put money down because we want you to have almost like instant equity when you're going forward. Yeah, so at least 5% for your first home is what we say, 5% to 20% is ideal. But you guys too, Erica, I'll just say it because I have you on the call.

When you go into this build process, again, it'll be in a few years, but this is a situation that you'll go to the bank and they're going to be able to say, oh my gosh, you qualify for this. And you're going to think, oh, we don't need that. And then you're going to start the home build process and be like, oh, we can upgrade here. We could add a little square footage there. And you start ticking your way up. And it's so easy during builds. It's usually more expensive than you think, your standard can start to really waver. So I always say this to people that are building homes, have a budget, be firm on it, and say, we're not going over this. And that's what Winston and I did when we built ours. And

it was hard. There was stuff that we said no to that we're like, man, we wanted it, but we just, at this moment in time, we can't pay for it. So we're not going to do it. But it's easy to creep that budget up when it happens. Absolutely. And if you can get your loan, a construction to permanent loan the first time, that way they know, hey, I'm getting this loan for this. It's going to automatically convert and you're not having to go through that closing process twice or get to the point where you've taken out this construction loan. To Rachel's point, if you've gone over budget and then you're going over here to try to get that to convert to a mortgage and you're not approving that.

You get in trouble there. You get in trouble there. So make sure you're doing it all in one from the beginning. And there's plenty of mortgage companies who will do that for you. That's right. Up next, we have Nicole in Kansas City. Hey, Nicole, welcome to the show. Hi. Hello. Hello. How can we help? Okay, so I am calling. My husband and I live very frugally. I mean, we're kind of the joke of everybody because we drive the old cars, but we have secretly been able to put money away, and I'm just putting it away in CDs and in cash, and I've just been following Dave Ramsey for like the last year on Facebook

and listening to you guys. And I'm going, okay, we need to do something more because it's great that we have this money in CDs, but that's making us what, $1,000 a year? Yes. Yes. You need to be investing. And I hear them talk a lot about Roth IRAs. And I'm like, is that what I start doing?

And we probably make, both of us together, maybe $90,,000 a year and we probably have $90,000 savings. Well do your employers offer any sort of investing opportunity? 401k, 403b? Yeah we do both have that and we have like employer match five percent so we both do the max of five percent both. So you are doing that currently? Yes, we are doing that currently as well. And so my thing is, like I said, I'm putting away about $1,500 a month, sometimes $2,000 a month. And I'm going, I need to be doing something more with this money because I'm going to be 37 this year. And I'm like, you know, retirement's really not that far out. Totally. Do you guys have any debt, Nicole? That's right.

No debt. Okay. So what I would do, Nicole, is remember this formula. Match beats Roth beats traditional. So the first thing you're going to do is your match. And you guys are doing that up to 5%. And we want you investing 15% of your income into retirement. So 5% of that 15% is done, which is great. So you have 10% left. So then I want you guys, yes to open up a roth ira it grows tax-free the max i think

is 7 000 this year that you each can put in you each can open one so i want you to open one nicole and i want your husband to open up one so you guys will be investing money into that and then after that's done run the calculations and see okay is out of that 10%, after we max it out, how much is left? If there is any left, go back to your 401k and put that money in. And you just do that formula of 15%. And then anything extra that you guys have in your budget that you're able to throw at your house, pay it off early, and you just keep doing that. And that, Nicole, your 401k and a Roth IRA, you guys doing that from 37 to 67, you're going to be fine. It's going to be fabulous. If you want to go to ramseysolutions.com

and hit our investing calculator and put some of these numbers in and just say, hey, and this 90,000 that you have, keep some of that cash and put it in a high yield savings account. I would do six months of expenses. And then the rest of it, you can use to fund your Roth if you need to. You can put it in a brokerage account, some type of Vanguard account even. So there's some other options there, Nicole. And you still have time. You can fund 2023, let's see, 2023's Roth and 2024's Roth for each of you. You have until April tax day to do that.

So big opportunity. Absolutely. Thanks, Nicole, for the call. Thank you, America, for listening. Thanks to everyone in the booth. Jade, always a pleasure. This is The Ramsey Show. We'll see you next time.