The Ramsey Show - App - How to Cash Flow New Home Construction (Hour 1)

Episode Date: December 6, 2018

The show about you

Live from the headquarters of Ramsey Solutions, 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. You jump in, We'll talk about your life and your money. It's a free call at 888-825-5225. And some people say the advice is worth what you pay for it. It's free. 888-825-5225. Roger starts off this hour in Orlando, Florida. Hey, Roger, how are you?

I'm great, Dave. Thank you so much for taking my call. Sure. What's up? I'm looking at purchasing a piece of property, my wife and I, and it is $350,000. And I have in liquid cash, my wife and I have around $450,000. But my theory is to maybe buy the property with cash and then use that for collateral to build our home on, which is probably going to be around $250,000, or do I cash out some of our retirement and just pay cash for the

whole thing and then just build the retirement back up? How old are you? 40. Okay. And how much is in retirement? We have around $350,000 total. Good job. So where did the $450,000 cash come from?

We had a home at the beach that we had about six years, and we just kept paying at it, and we just recently sold it. Oh, very cool. And the home you're living in, would you be selling it if you did this transaction? No. I'd like to just keep it and have it as a rental. Got it. What's it worth? About $250,000.

Okay. And so the ground is $350,000, and then you want to build another $250,000 on top of that. And so we'd be at, what, $600,000, $700,000? Yes, sir. Yes, sir. Okay. All right. I guess we'd be at $600,000, yeah.

Get my addition working here. I've got to get that part of my brain working or I'm going to be on the air. It's embarrassing. All right, so $600,000. And what's your household income? Around $220,000. Wow, that's awesome. Okay, and I take it you have no other debt?

We don't. And I've been really just pounding the pavement and making sure we do things right. I just don't want to go backwards. And the house you're living in is paid for? Yes, sir. Okay. All right. Well, there's two answers to your question.

One is you take the cash and you buy the land, and then you take out a construction loan and build the house and pay off the resulting mortgage as fast as you possibly can. Okay? Right. And in your case, you can probably do that in just a couple of years, I mean, two or three years. Right. Because if you put $450,000 towards this,

you're only going to have a $150,000 mortgage. I'm assuming you have an emergency fund other than this money, right? Yes, sir. Okay. So if you put $450,000 towards a $600,000 project, ultimately that leaves you a $150,000 mortgage. Making $220,000, you pay that off in two years, right? Right.

And that's definitely conservative, a wonderful thing to do. You've got two paid-for properties, $850,000 in real estate, both paid for at that point. No problem there at all, okay? Right. That's answer number one, and I think that's a very reasonable thing to do. Answer number two is, what would Dave and Sharon Ramsey do? We don't borrow money. And so we would be forced to either save for a little while longer

after we bought the property. I'd go ahead and buy the property, and then I would just save up and pay cash to build the house. Or if we wanted to get in more of a hurry, we would just sell the rental and buy more rentals later okay okay i just we've been out of debt for about two years now and it just i don't want to go back like you said going back into debt it's like man even though it's 150,000 we could pay it off i just yeah i i just i just don't like it and i think you could have 100 i

think you could buy the property and just and sit on it while you save up to pay cash and build the house and keep the one you're in. And that's a very – it's not a – it's not very exciting because you want to build the house, you know. Right. But, honestly, have you got your plans drawn, your builder selected and all that? We have an idea, but like you said, it might take a year. That takes a year. And it'd probably take a year just to, you know, get all that? We have an idea, but like you said, that takes a year. It'd probably take a year just

to get all that finalized, interior and pick out colors and stuff like that. It's going to take a little while. I'm going to buy the property in your case. And in my case, this is how I would do it too. I would buy the property. I would want to keep the rental. I'm with you because I like rentals, as you know, and that's paid for especially, right? So yeah, I'm going to buy the property and I'm going to begin drawing my house and saving the rest of the money to build it. Okay, and leave my investments alone. Just leave the IRA.

Yeah, you don't want to cash out retirement. You'll get hammered. You're going to get the 10% penalty plus your tax rates. No, you don't get it. Yeah, I called him today and asked him, and that's what he said. So I can leave that alone. We never cash out retirement except to avoid bankruptcy or foreclosure so that's off the table okay but the uh the rest of it um yeah i think by the it's got it's gonna go fast here's the other thing that we add into this

equation come to think of it it takes a year to build it yes sir a year to plan it and a year to build it so um you've got the money to start it, and you can cash flow into it. You don't have to have the entire sum in the bank if you can see it coming. Oh, I see what you're saying. Just start. You could have. Okay, let's say you buy the property today. You've got $100,000 left in the bank after you buy the property.

You need $250,000. At the end of one year, about the time you're breaking ground when you got it drawn, got the builder selected and all that garbage, right? At the end of one year, we have $175 of the $250. Right. Start. Okay. You'll have the other $75 by the time you need it at the end of that year. Okay.

I got you. I got you. So you're really not delaying the project hardly at all when you look at it that way. Actually, the current home I'm living in, I kind of did that. I had 80% of the cash, and I cash flowed into the other 20% while I was building it at the time. Well, I guess I should say ready cash is a better way of saying it. In your case, it's all your cash. But, yeah.

Hey, thanks for calling, man. That's an interesting discussion. You're doing very well, by the way. Congratulations. Very, very well done amy is in st louis hi amy how are you good how are you dave better than i deserve what's up okay so um we are on steps four five and six and um for the past year we've been putting an extra $2,000 on our principal in hopes to have the house paid off in four more years. Good. And we have a freshman and senior in high school. And our senior, right now we have about three, we have three years of her college already funded between a 529 and mutual fund.

Great. So, yeah, so kind of starting to see the light, but a little nervous because of the current roller coaster of the stocks and the timing of when we're going to start using the money. So the question that I have is we've been kind of toying with starting in this next year, 2019, we're currently putting between the two girls like $15,000 a year in their college savings. Knowing I have one more year for the oldest one, if we increase our principal by $1,000 a month, we'll have that house paid off in three years,

and we know that's just going straight to the house, and we're not worrying about the stock market. Do that instead of stop putting in the oldest daughter's account. What's your household income? What's your household income? The last couple of years it's been about $240,000. Yeah, you're killing it. I thought so.

Okay. And what is the oldest daughter's annual budget for college is what dollar amount? $30. You can cash flow it if you had to. I like your plan of putting extra principal on the house. And, of course, that will ensure that you can cash flow because you no longer have a house payment. But you've got enough income. You can pull this together.

It just might get uncomfortable if you don't make it. But I think you're going to make it. Yeah, I would do the extra principal on the house. I agree with you. Can you believe this real estate market? Home shopping has become so competitive. There's a ton of new buyers in the market, and bidding wars are the new normal. Folks are under a lot of pressure to offer more money to get into that house. Don't do that. Get certified instead. The Churchill Mortgage Certified Home Buyer Program is a game changer. You can quickly position yourself as a more reliable buyer, and you get an upper hand

during the negotiations. You can close two to three weeks faster than your competition. So call Churchill Mortgage today and get certified. They've helped thousands of listeners and team members here at my office win the bidding war without having to bust their budget. Call 888-LOAN-200 or visit churchillmortgage.com. This is a paid advertisement. NMLS ID 1591. NMLSconsumeraccess.org.

Equal housing lender. 761 Old Hickory Boulevard, Brinkwood, Tennessee 37027. Thank you for joining us, America. We're glad you're here. Open phones at 888-825-5225. Michael is with us in Fort Collins, Colorado. Hey, Michael, welcome to the Dave Ramsey Show. Thank you, Dave. It's an honor to talk to you.

You too. How can I help? My wife and I are on Baby Steps 3 and 5, and my company offers an employee stock purchase plan. And I was wondering if that's a good tool to use for an investment for short term. You have to keep it for one year after purchase. No. No, okay.

It's a 15% discount, and your stock is likely volatile in a 52-week swing within 15%. So you could actually lose money on the transaction because you've got to hold it a year. Look at the 52-week high and the 52-week low on your stock chart, and you'll probably see more than a 15% move. And I don't play single stocks because of the volatility, and that includes your company stocks. How are you on baby step three and five at the same time? I'm confused. I'm sorry, four and six.

That's my fault. Oh, it's okay. Okay, four, five, six. You're skipping five because it doesn't apply right now. Correct. Okay, I'm back with you. Four, five, six. And you're skipping five because it doesn't apply right now. Correct. Okay. I'm back with you. Good.

Thanks. I just went, I kind of got a head tilt. I went, huh? Okay. You're working on your emergency fund and your kid's college. Okay. All right. Good.

Good. That's okay. It's okay. It's a whole different thing here. That was a new one. No, good. Perfect. Perfect. Perfect.

Okay. No, I just, I don't fool with single stocks. If you do want to buy your company stock at the 15% discount to hold long term because you're just all jonesed up about your company and you think it's the best thing since sliced bread and all that as far as the stock goes, that's fine. I would not allow it to become more than 10% of your net worth. And that way, if they go bananas on you and it goes down real fast, you don't have a problem.

I had a lady, for instance, several years ago that had $700,000 in her 401k all-in-company stock, and it dropped to $100,000. And that's what's kept me from doing that. You know, that's what years ago, that was probably 20 years ago, I had that woman sitting in my office crying. She had just retired. And that company went in the tank, and it was a big, well-known company. And so I think it came back later, actually.

But I just don't want to play that kind of volatility so you want better diversification than that if you're going to play it just because you're all jonesed up about it that's cool that's cool i don't but if you're going to don't let it get to become more than 10 of your net worth so if you're a millionaire don't have more than a hundred thousand dollars in company stock in other words you got your house paid for you got you know four hundred thousand dollars in 401k and no more than a hundred thousand in your company stock if you want to. You got your house paid for, you got $400,000 in 401k, and no more than $100,000 in your company stock, if you want to play it because you just really, really believe in it.

But the 15% discount does not make it a play. The only thing that will make it a play is you really believe in the future of the stock price. The price. This company, you know, it's freaking Apple. It's just gone up and up and up and up and up and up and up and up, and they have more money than Egypt. You know, they literally have more money than Egypt.

But, I mean, you know, that kind of stuff. And it's crazy. And so, you know, if you've got some kind of a company like that that you're working for and you just love that company stock and you're buying it at a discount, that's fine. Don't buy it because of the discount, though, because, again, all of you, if you'll look at your company's 52-week high, 52-week low, most of you will see a 15% swing. Jordan is with us in Lexington.

Hi, Jordan. Welcome to the Dave Ramsey Show. Hey, Dave. How are you doing? Better than I deserve, man. What's up? I love it. Well, I just wanted to call in and kind of a twofold

purpose for this call. First of all, I want to say thank you. I'm a recent law school graduate, and thanks to your principles and your encouragement, I was able to get through not only college undergrad, but also law school completely debt-free. Wow. How did you do law school debt-free? Well, it was a myriad of things. And I know you get this question a whole lot. Just yesterday, a girl called about med school. Yeah. And so that was the reason I'm calling is for me, and I think it's going to look different for everybody who does it.

For me, it involved some scholarships. I got about half of everything paid with scholarships. A law school? For law school, yes. What kind of place issues scholarships for law school? So mine were all through the school itself. I went to the University of Louisville. And you'll find a lot of the law schools and even the med schools have a lot of institutional scholarships available through the schools. And that's one thing a lot of people aren't aware of.

How are they awarded? Grades-based or what? Generally, yes. Mine were – the two biggest factors in those are grades and then your LSAT score, which I had a decent LSAT score. And University of Louisville, I would guess University of Louisville Law School not to be super, super expensive. No, it was about

when i went through um i graduated actually in 2015 and uh it was about 20 000 a year for tuition you know expensive but manageable three-year deal yes sir okay so 60 grand gets you through law school at the university exactly wow exactly that's amazing yeah that's that's reachable i can see that and that's a lot different than 260 grand yeah sure exactly the other thing is um you know this may vary from program to program our school had a limit you were allowed to work up to 20 hours per week during the semester which i did uh but the other thing is you can work you know i worked my tail off on the weekends and on the summer breaks and then the semester breaks. That's how I made up the difference, actually.

I started cutting grass in high school and had a little mowing business that I did in college and then kept it going through law school, and that's what paid the rest of it, all my rent and all my food and the rest of my remainder of my tuition. That is so impressive. UPS used to have a thing there in Louisville because that's their home where if you worked for them 20 hours a week, they would pay tuition on the undergrad. I don't know if they still do or not, but they used to. Yeah, I think they do. That's very cool, man. Very cool. Yep. Good for you. Well done. I'm proud of you. So you're what, 27, 28 years old? I'm 28, and I got hooked up with you guys when I was 14, so 14 years ago.

And actually, I've been a huge fan. I've led FPU since I was 18, 20 times, twice a year. Oh, my gosh. So I give you a lot of the credit. Well, I'm impressed, man. You're a rock star. Thank you for leading the class. And that's a great call because it encourages people.

Yeah, you can do law school. And you can do med school. And, you know, we always tell people where you go to school matters. And, you know, $60,000 for a law degree is not bad. That's a value right there. That really is. Very cool. And cut grass to get through law school.

There you go, man. I'm loving this guy get through law school. There you go, man. I'm loving this guy. That's awesome. Way to go, Jordan. Congratulations, brother. Merry Christmas to you. Thank you for calling with that great story. Our question of the day comes from blinds.com.

They have a 100% satisfaction guarantee. It means even if you mismeasure or you pick the wrong color, they will remake your blinds for free. Site-wide savings are happening right now. Plus, take an additional 5% off at blinds.com slash Ramsey. Today's question comes from Esther in Missouri. Dave, I'm on baby step two and I'm paying off cards. So far, we've settled for no more than 25% on the balance and paid those debts. We're on our next debt and they're insisting they cannot settle for less than 70%.

Should I continue to push them or settle? If you have the money, I would bet to get it done. If you can only do it at 25%, that's fine. Or if you've got others in line that'll do 25%, then skip over the 70% and let them sit a little bit. Sometimes if they sit and sweat, they sweat down a little bit. It just depends on what the situation is. Obviously, you've been in a real financial pickle. You've gotten behind on all of these cards, and obviously you've got problems there.

And so you've got a stack of collections that you're trying to weed through. This is not a thing. But if it's your last card and you can get the 70% together and you want to just put a bow on this and be done with it, there's no shame in that at all. You paid a larger portion of that bill. That's okay. But if you've got a whole list of them, then just go the next one and go. If you'll do 25, you're going to get this money instead of this other guy.

Because you might pay off the next two for 25 for the same money that this one at 70 would have been. So you might clear up two for that. So you can skip around a little bit where you're working a collections thing like this. It's a little different process. As you know, when you're working and settling, always get it in writing. Never give them electronic access to your personal checking account. They will clean you out.

So, hey, thanks for following us. Glad you're winning, Esther. This is the Dave Ramsey Show. One question I get asked all the time is, do I need life insurance? Listen, the whole point of life insurance is to replace your income for someone who counts on you. So if you have a spouse or you have kids, yes, you need term life insurance. It's the only way to protect them until you're out of debt and have built up your wealth. You're only digging a deeper hole if you waste money on cash value plans since it robs you of the ability to make real progress.

And that's why I send you to Zander Insurance, and I have for 20 years. That's where I get all my insurance, and they only offer the plans I recommend. It is not expensive. It's not complicated. And Zander will be there as your guide every step of the way. Visit Zander.com or call 800-356-4282. You need to get this taken care of. I can give you the advice and I can tell you where to go, but it's really up to you to take that important step to get your family protected. That's Zander.com or 800-356-4282. In the lobby of Ramsey Solutions, Dimitri and Mandy are with us. Hey, guys, how are you?

Hi, we're doing well. How are you? Doing well. Dave, how about you? How are you doing? Better than I deserve. Welcome. Where do you all live? We actually just moved to Dallas from Chicago. Oh, cool. Chicago. Yes. Welcome to Nashville.

Thank you. And all the way down here to do your debt-free screen. Yes. That's right. That's right. Cool. And how much debt have you guys paid off? We paid off $44,258.85.

Very cool. And how long did this take? 20 months. 20 months. And you long did this take? 20 months. 20 months. And you're making what kind of range of money during that time? So we started out with just my income, which was $75, and then we got married, and we were at $188. Wow.

Very good. What do you guys do for a living? I am an experienced hire recruiter for BKD, which is a CPA firm. And I'm a chemical engineer. Very good. Cool. So you just got married? We, which is a CPA firm. And I'm a chemical engineer. Very good. Cool. So you just got married? We got married actually a year ago.

A year ago, 12 months. So you started this separately and then finished it together. We did. He married into a mess. It was all my debt. So we actually did. Oh, and you had debt. Yes.

Okay. Cool. Very cool. What kind of debt was the $44,000? 73% of it was credit card debt. 73%. Yeah. To be exact, from the accounting firm. Yes.

Okay. All right. And what did you buy with all those credit cards? A lot of stuff that I didn't need. Just clothes, everything. Just stuff. Just stuff. It's hard to even remember, isn't it? It is. That's sad.

Yeah. So how long have you had credit card debt? Since I was 16, my parents got me a card. Wow. Yeah. So your parents were your pusher. They hooked you up. They did.

Oh, that's awful. And they paid for it originally. Not bad. Yeah, and then I started paying for it myself, and I just got way too deep. So how old are you now? 33. Wow, okay. So this is a 15, 20-year program here.

It's huge. Yeah, that you're breaking. So it's a big deal. It's almost a spiritual event for you to be done with them, isn't it? Oh, definitely. Yeah, very cool. So tell me this story. How did this unfold? Because Dimitri, obviously, he's it? Oh, definitely. Yeah. Very cool. So tell me this story.

How did this unfold? Because Dimitri, obviously, he's Mr. Conservative, right? And he's marrying this girl who's got a little bit of a credit card issue going here. How did this story unfold? So we met actually at a personal development weekend. And after we started dating, we both made a conscious decision to go through Financial Peace University together. Oh, cool. Yeah.

So even during the time we were dating, we laid all our finances out. That was embarrassing. Yeah. I mean, I know it took a lot to admit that you have debt. You don't seem like the kind of guy that would go like, what did you do? You're not that guy. He was more like, oh, well, OK, let's deal with it. That's why I married him.

That's good. Very cool. Very cool. So what did you guys pick up in Financial Peace University that caused you to be able to do this? What's the key to getting out of debt? I think for me, it was definitely the accountability partner. So we also one of my neighbors did it with us, Kim McShay, shout out. And she just, she was with us too. And having that accountability of, you know, going step by step through it.

For me, it's just the knocking out the small goals. So with the debt snowball, really focusing on the smallest payment first to make sure that you're hitting mile markers along the way. So even though if it's a longer process, you still have these accomplishments along the way that motivate you and keep you going. Gotcha. Okay. Very cool. Good for you guys. Very well done.

Thank you. Very well done. And I'm guessing that group and Kim was your biggest cheerleaders. Anybody else? Oh, yes. I would say Kim was definitely our biggest cheerleader because we just went through it together so mom and dad got you hooked on credit cards what were they saying about all this i feel so bad that's okay you throw them under the bus i got bus tracks right now um she's my mom's very proud of us my dad actually passed away last year which was

also since we were already on this journey it was it was great having to go through that but you know i can't imagine going through that and then having all the debt, too. So life comes with a lot of stress anyway. So if you can, that was one area I really took charge. Yeah. So get your mom on the program now, too, then. Yes, definitely. Very cool.

For sure. Very cool. Well, well done, you guys. We're proud of you. Thank you. Very, very well done. I appreciate that. Good stuff. We've got a copy you guys. We're proud of you. Thank you. Thank you so much. I appreciate that. Good stuff.

We've got a copy of Chris Hogan's book for you, Retire Inspired. That's the number one bestseller. And then we're going to, at the first of the year, we'll send you his new one, Everyday Millionaires. Awesome. Because you're soon to be Everyday Millionaires. That's right. That's the goal. That's the goal.

That's the goal. Next chapter, baby. Wealth and generosity. Bring it on. That's right. Bring it on. Good stuff. All right. Demetria and Mandy, great story from Dallas, but now we're talking Chicago.

$44,000 paid off in 20 months, making $75,000 to $183,000. Plastic surgery, baby. It's done. Count it down. Let's hear a debt-free scream. Three, two, one. We're debt-free scream. Three, two, one. We're debt-free! Yeah, baby!

This is how it's done. Love it! Oh, man. Boom. That's as good as it gets right there. That's fun. What a great young couple. Sharp.

Got a great income. No debt. Just been Got a great income. No debt. Just been married a little while. Some of you old dogs like me, you're out there going, man, I wish I had started when I was that age. I'd have so much money. They're going to have so much money. They really are. They're going to be so in control.

I mean, she's learned her lesson for the rest of her life. She sees a credit card. Her ears just start to tingle. You know, no, no, no, no, no! I mean, it just changes everything. Kaylee is with us in Ocala, Florida. Hi, Kaylee, how are you? I'm good, how are you?

Better than I deserve. What's up? Good. So I was calling to see if you could help me on figuring out what I do with an inherited IRA. Who passed away? My father. I'm sorry. How long ago?

Thank you. September of 2017. Okay. And how much is in the inherited IRA? Around $90,000, $92,000. Gotcha. And what's your household income? My husband and I together about probably around um

90 000 to 100 okay and are you working our system are you trying to get out of debt and everything or what's your plan um well we we're out of debt we don't have any debt good we own our house so we have two different homes we own both they're all paid for. You have zero debt anywhere. Yes. Yes. Way to go. Great job. Yeah. Okay, cool. Thank you. Well, you're on what we call Baby Step 7 then, and so you should be investing aggressively.

And there's no reason to cash this out. If you cash it out, there's no penalty on it, but you'll be taxed. That's your tax rate. And so you have a mandatory withdrawal, a minimum distribution on it. But other than that, I would leave it in there, and I would put it in. You can roll it into other mutual funds if you want to, all within the inherited IRA. So pick out the good mutual funds. I use four types, growth, growth and income, aggressive growth and international.

If it was mine and I was in your situation, 100% debt-free, I'd leave it in there in good mutual funds and let it grow. Take the minimum distributions that you're required to by law, but let most of it go without having to pay the taxes until you have to. And hold out as long as you can on paying the taxes. And let the thing, you're basically using tax money to grow money with. If you cash it all out right now, it's about $25,000 in taxes. And, you know, that $25,000 will grow money.

It'll grow more money in your bank account than it will if you send it on to the government now. And so I would, I'd let it sit there is what I would do. Again, though, by sitting there, I mean invested in good mutual funds. You always pick mutual funds, folks, with a good, long, long track record. Right now in our online store at DaveRamsey.com, you can save up to 63% on top gifts for kids and teens. There's great gifts that teach. Teach your kids about money.

And for the little kids, there's Financial Peace Junior, up to 12 years old. That's a box of teaching aids, $18.99. It's on sale for. It teaches your little kids about chores and saving and giving and spending wisely. The Adventure Pack, which is the storytime book set. You've got teenagers. We've got the new Teen Entrepreneur Toolbox. It's selling like crazy.

Teaching teenagers how to be entrepreneurs. I can't think of anything more important than that. And go to DaveRamsey.com and check out all these deals. Up to 63% off on a lot of stuff right now. Serious bargains for Christmas. Check out that or just call Customer Care. They'll walk you through it. 888-22-PIECE.

888-227-3223. Sandy's with us in Kansas City. Hi, Sandy. Welcome to the Dave Ramsey Show. Hi, Dave. Boy, it's great to talk to you. You too. I have a retirement question for you. Okay.

I have been a county public official for the last 15 years. I've been elected to position. And this year I lost the election. So that means at the end of the year I'm going to be without a job. Well, I found another job, so I'm going to start in January. Great. But my income will be cut in half, but I discovered that I could go ahead and retire from my county employment. One of my pensions offers me a lump sum, which would reduce my monthly income from them about $200. But that lump sum will pay off my house and my car. And so just trying to decide whether to go ahead and take the lump sum and then do the reduced every month. Just wanting to know your advice on which way to go. Gotcha. Okay. Are you

married? Yes, I am. Okay. And so with your new job, what will your household income be? It's going to drop it to probably between $75,000 and $80,000. Okay. And how old are you guys? He is 64, and I am 58. Okay. Can you take this lump sum without a penalty? Yes.

Without the 10% penalty? Yes. Okay. Some of the nuances of the municipality things are different. That's why I'm asking, and I want you to be very sure you're not getting hit with that. Obviously, they're discounting it. And what is the amount of the lump sum? $33,000.

Okay. All right. Well, if $33,000 created $2,400, that means you're making about 7% on your money. Okay. 10% would be $3,300 a year. Okay. And you're only getting $2,400. You see what we're looking at?

Uh-huh. So you're making about 7% on your money. And with the pension, when you die, unless you've got a survivor on it, it dies with you, and certainly it dies with him. Right, and we are going to do the survivor benefit. But either way, when both of you are gone, this money's gone. Right, right. Unless you take the lump sum.

Okay. If you take the lump sum, obviously it's now your money, and if you pay it on your house, the house is now yours, and so the money's not gone at death. Right. And your home mortgage interest rate is what? It's like maybe 3%. All right.

So you're making 3% by paying that off instead of 7%, and you're debt-free, and it makes things a lot better around there, and you pay off the car, and it's probably a higher percentage. So how much other nest egg do the two of you have other than this money um um a little over a hundred thousand dollars okay all right you got some catching up to do there because we're using a bunch of it here but this pays off your home and your car and does that make you 100 percent debt free yes it does wow okay so we're going to take those two payments that you don't have anymore and we're going to jack up your retirement savings, okay?

Okay. So that we end up with a lot more as a result than this $33,000. Okay. So not only do we have the benefit of the house being paid off, the car being paid off, but now you're going to end up wealthier at retirement because you're going to use that money that you used to pay in payments to build that nest egg faster. Okay. You see what I'm doing?

Yes, I do. Only if you do all of that is this smart. Okay. But if you do those two steps, one is you're debt-free, and then two, you use your debt freedom to take that money and grow more wealth for retirement, then you're in good shape. And yes, that is exactly what I would do. I would do that. Be very careful that you're in good shape. And, yes, that is exactly what I would do. I would do that. Be very careful that you're not getting penalized. If you need to wait just a little bit of time and not get penalized to 59 or something,

you might want to do that. But it sounds like possibly you're under one of those municipality pensions, which the rules are varied, and so you can possibly pull that out. I think you might be right, but just double-check that. Catherine's with us in Montgomery, Alabama. Hi, Catherine, how are you? I'm good. How are you, Mr. Ramsey? Better than I deserve. What's up?

Okay, I'm calling because, unfortunately, I think my husband and I have made a bad move as far as trying to lease a car. Uh-oh. And I've looked up on KBB, and it looks like I may have a negative equity of approximately $10,000. And I'm trying to receive your advice to see if I should just roll it over onto a new used car. Uh-huh. Since I've been listening that you suggest used vehicles. Uh-huh.

And or just go ahead and take out a personal loan instead and pay the difference. Okay, and so what is the early buyout on the fleece? Have you gotten that number? Approximately $28,000. And where did you get the number? KBB. No, that's the value of the car. I got it from my um my usa online payoff quote

oh okay all right and so the usa holds the fleece then correct okay got it okay um so it's 28 000 and kbb says the car is worth 18 it was000. Yes, that's correct. Okay. All right. Wow. Yeah, you got burned, didn't you? Yes, I did. Okay. And what's your household income?

Combined, $86,000, my husband and I. Okay. And what's your other vehicle worth? Maybe $2,500. It's an 08 Toyota corolla that my husband drives and he's thinking of taking out a new vehicle i'm sorry and he's thinking about taking out a new vehicle taking out a new vehicle what's that mean he's talking about buying a new car? He's thinking of probably buying a new vehicle. Oh, and going into debt to buy a brand new car? Yes. Well, it would be kind of stupid for you to go to all this trouble and try to get out of a lease

if you're going to turn around and go back into debt to buy a new car, kiddo. Correct. Now that we recently started listening to your audio Total Money Makeover. Okay. And so is he still thinking about after listening to the total money makeover, or is this just you doing this? We've actually discussed what our best option would be. Yeah, it would not be a new vehicle.

He hasn't gone through with actually doing it. Yeah, it would not be a new vehicle, right? Looking at price differences, he's considering possibly getting a new vehicle. Okay. Apparently, he didn't listen to the total money makeover. No, not yet.

I've been explaining to him what I have been listening to. You've been trying to teach him what you learned from me. Alright, that's what I'm... Here's what we need to do. We need to stop worrying about these cars right now until the two of you get on the same page. If the two of you can come into agreement and get him to listen to the audio book, you know, that you've got, and you can get him to listen to some of these podcasts, you can come into agreement about, hey, new cars are the largest thing we buy that goes down in value. And so unless you have a net worth of over a million dollars, buying a brand new car is stupid. You cannot afford it.

And so, no, he does not need to do that. And so the two of you need to get on the same page as to where we're going. Right now, you're heading in one direction away from a new car, a bad lease deal, and he's heading right back into another bad deal. And so we've got to solve that before we start saying sell your car. Once we've solved all of that, then we can talk about, yeah, we might take out a $10,000 loan and just get rid of your lease and get you a little $5,000 car of some kind and get it paid off as quickly as possible. Or you can decide to keep this lease that you just did through the end of it. I don't know how long it is, Or you can decide to keep this lease through that you just did through the end of it.

I don't know how long it is, but you can decide that. But you guys need to decide where you're going, because right now you're going in different directions. You call me up saying I want to get out of this bad decision, and he's getting ready to make another bad decision. So you can't get out of a hole while somebody else is digging out the bottom. That doesn't work. So let's take the time for the two of you to get on the same page first and foremost.

That's going to be the number one data point for you all winning. Car decisions are the secondary thing that will be the result of you all being on the same page. So, hey, thank you for the call. We appreciate you listening. Open phones at 888-825- 5225. You jump in and talk about life and money. It's a free call.

888-825- 5225. Thanks to James Childs, our producer. Kelly Daniels, our associate producer. I am Dave Ramsey, your host, and we'll be back. Hey, guys, this is James Childs, producer of The Dave Ramsey Show. I'm excited to announce that we're now carried on 600 radio stations across the country.

To find one near you, head to DaveRamsey.com slash show.