The Ramsey Show - App - How You Save Now Dictates Your Future (Hour 2)

Episode Date: October 10, 2023

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 actual amazing relationships. Jade Walsh, our Ramsey personality, is my co-host today. Open phones at 888-825-5225. That's 888-825-5225. Allison is with us in Salt Lake City. Hi, Allison. Welcome to the Ramsey Show. Thank you. It's a pleasure to speak with you guys. You too. What's up? My question is about sinking funds and logistically, where do you keep that money that you are setting aside for big ticket items? Do you keep it all in your checking account or do you have like 10 different middle savings accounts? I would not

do 10 different savings accounts or keep it with my normal checking account balance. You could do it one of two ways. You could either pull it out and put it in cash envelopes and just kind of have those, put them in your safe or put them, you know, wherever you keep safe money in the house. Or I'll be honest, I like to do my savings accounts in online banks. And a lot of them, the one I use, you can kind of have one account, but you can drop it into different buckets. And so let's say you've saved up $10,000 and you've got 2,000 of it is a new lawnmower and 3,000 of it. You can name it off in buckets so you can see. And whenever you automate money over there, you can let it go into whatever bucket for your sinking fund that it needs to go into.

So that's how I do it. Yeah, we keep two accounts for purposes of this. One is for your sinking fund that it needs to go into. So that's how I do it. Yeah, we keep two accounts for purposes of this. One is for your emergency fund. It should be completely separate and disconnected from everything. No auto overdraft protection on your emergency fund. No ATM access on your emergency fund. You don't have real life emergencies that are instant. You do have real life impulses that are instant.

So you keep your emergency fund where it's hard to get to. Then I kept a separate checking account. And then like Jade said, I just keep buckets on it. There's actually a form. And if you wanted to use old fashioned paper forms, there's a form in the back of the total money makeover book called the breakdown of savings form. And all that is just like okay there's ten thousand dollars in this miscellaneous sinking fund savings account that's not emergencies okay and of that five thousand dollars is the car two thousand dollars is furniture replacement and a thousand dollars is christmas and it adds up to ten thousand dollars you see what I'm doing so it's just like she said

it's bucketed out uh and it's a separate account if you say you said large ticket items I would use a bank I wouldn't use envelopes on large ticket items if you got something that's a couple hundred bucks here or there yeah envelopes are great for that okay so you're just saying maybe when I'm doing my budget if I say all right all right, we've got a total of $700 that we're putting into various thinking funds. Let me send that $700 to a totally separate online bank. Because I know my little local bank that I use, it's like really high maintenance to go in and set up different accounts. Yeah, I mean, if you find one that's not high maintenance, find one that's got the bucket feature to it like she's talking about. It just makes it easier.

But if you want to just get it, it's a scratch pad. It's 10 items. I mean, how many different sinking funds are going to be combined there? Well, I don't know. It depends on how detailed it is. Well, I mean, you're not going to do $50 ones. $50 ones are going in an envelope. I'm not going to screw with it for that. What you could do, this is what you could do.

Do you have every dollar? I'll be honest i've been binge listening lately and i've been motivated to budget which is what is getting me started on this i'm currently like dating the reason i say that is because let's say you have 700 that that's your extra that's going towards various seeking funds in essence it's going to one account but on dollar, you can create a separate fund for each of them. And that'll keep track of how much you have going to a car repair, how much you have going towards a new sink, how much you have. It'll keep track of it monthly. That way, you don't have to fool with the bank to do that. You don't have to have it on paper. It's there within your budget. Well, but where would the money physically be sitting going it'll physically go to whatever savings account you set

up whether that's you would have to set up a savings yeah whether that's either way savings account for my emergency fund yeah but if you want to be able if you want to be able to see at a glance if you want to be able to see at a glance how much do i have for the washer how much do i have for the new car you'll be able to see that on every dollar because it'll keep that running total in your fund yeah it'll help you it'll give you sinking fund totals it gives you the breakdown of savings yeah and so but if you need that you it's preferable and the easiest to have a savings account that you can attach to your checking account move the money from your checking account that's $700 into there, and then bucket it,

$50 to that, $100 to that, $150 to that, and every dollar will help you keep that breakdown. And yeah, I would jump in and use that. That's one of the, every dollar is just so robust, it'll help you get this done. All right, Stacy's with us in Los Angeles. Hi, Stacy, how are you? Hi, Dave. Hi, Jay. Thank you so much for taking my call.

Sure, what's up? So my husband and I were in baby steps four, five, and six, and we would like to know if it would be unwise to sell our house to move or sell our house and downsize into a condo to be in a better area. What would be unwise about that? Well, I don't know. I've always lived in this area where we're at. And so jumping from this city to the next, it just seems, I don't know, we've just never done it. So is it the city aspect or that you're going to a smaller home? No, it's the city aspect. Okay. So right now where we live, we love our house, we love our school, but once you leave our house, um, you know, we're driving down a road and we're, you know, to get to my daughter's gymnastics, we drive by a strip club

and the homeless situation is getting kind of out of control. And we just kind of want to be in an area eventually where, you know, it's new and safe. You want to live in a better neighborhood. I don't think there's anything wrong with that. What's wrong with that? I just wasn't sure if I'm just, you know, not being grateful or content. I also want to know if I'm just have one of these crazy ideas again, or should we just stay put? Well, are you downsizing? Are you spending less money and getting less home? So it would be downsizing.

Mortgage wise, we would like to stay in the 25 percent of our take-home pay um so we would have to downsize into a condo and that's what the part is that dumb is that dumb to do when you're living in a home with a good school but everything else around you is kind of let me help you if everything else around there's gone then pretty soon the school's going to go too that's right I know well I mean that's reality isn't it yeah yeah no that's probably what's gonna happen it kind of seems like you have in your mind this picture of what life is supposed to look like and you're going in another direction you're going no this is this is what happiness looks like for us happiness for us is being in this area it doesn't matter what the size house is.

It doesn't matter. These are the things that make us happy. And it sounds like you're kind of butting that up against what culture has told you. And I think that if you've decided, hey, you're fine living in a smaller residence, that's your prerogative. I grew up in a 1,000 square foot home. I'm not mad at my parents. I wasn't abused or mistreated. But I'm not required to live in a 1,000 square foot home in order to not mad at my parents. I wasn't abused or mistreated. But I'm not required to live in a

1,000 square foot home in order to not be a snob. I cannot be a snob and live in a big butt house. The size of your house doesn't determine whether you're a snob. You're not being ungrateful. This is The Ramsey Show. Jade Walsh, all Ramsey personality, is my co-host today open phones at 888-825-5225 graham is in boston hi graham welcome to the ramsey show thanks so much dave and jade we

it's really an honor to speak with both you have been listening and uh you know on your program for the last 20 years. We paid off $201,000 in 18 months as a result. And just thank you so much. My question has to do with my wife and I are considering going onto the missions field. And we're very curious your guidance and counsel on how we should prepare financially for that. Okay. How prepared are you financially for that? Well, we're, we're in baby steps four, five, and six. Um, we currently have about a, an annual salary of about 250 to $300,000. Um, and we're not sure the timing of when we would go. So we're

just curious about what we should be looking to try and do before we we end up going on the field okay is the timing sooner or later you're talking about 10 years from now uh when the kids are grown and gone you're talking about uh you've established a net worth and you'll live out of that instead of raising funds or are you talking about 10 months from now no we're probably looking more towards five to ten years from now okay all right That helps set the table. So you make really good money in what field? My wife works for the government, and I work as a management consulting for just a big firm. Okay.

So based on your projections, where will you be? You should have the house paid off and have a pretty substantial net worth in five to ten years, shouldn't you? That's the plan. Yep, we currently have about a $500,000 net worth, but yeah, we would be looking to try and do that. Yeah, I mean, you're four, five, and six, so you'd pay off the house. And hypothetically, if you're going to stay on the mission field, you're not going to need the house. So that would add to the pile of money that you would live out of. So, I mean, the way I view it, and there's a vast array of views on missionary work and how it's funded

around Christianity, for sure. The way I look at this whole thing is pretty simplistically, I don't own anything. I am a Christian. God owns it. I manage it for him. If he's asking me to go on the mission field and use his money to do that, boom, I'm doing it. Okay. And so whatever pile of money I have or assets I have are for his use. And if you determine his use in your call life as a call to the mission field for a number of years, then if you're going to be there three or four years, you're going to sell your house. Well, I wanted to ask that question. How long do you foresee doing this?

Well, I mean, we'll go until the Lord calls us to not. But, I mean, we're also not entirely sure if we go support raising. You know, we try to start a business, you know, and try to prepare, and so that may add in what sort of capital we want to raise prior to going. Yeah. Let's pretend you got a million and a half dollars with a paid-off, including a paid-off house, just for the fun of it, which is possible making $250,000, okay, in five to ten years.

If you had that just in a pile, in a mutual fund, and it makes 10%, it makes $150,000 a year. You're self-funded in perpetuation. You follow me? Yeah, I do. Yeah. I guess part of my, our question is my wife's parents, you know, served on the field for 20, 22, 25 years, you know, as we prepare to potentially have to support them with their limited retirement options, should we add that calculation in? Like, should we be trying to set aside to help them? Or, I mean, I know that's part of the overall picture, but I mean, that's sort of a, how do we think about there's going to be a need to potentially have that additional expense

that we have to take care of as well? Well, you're supporting two missionaries, one that didn't have support and you. Yeah. And so now we're supporting two families out of this $150,000. And I guess that depends on how you want to live on the field and which country you're in, what the lifestyle entails. And what they need living back here. And what they need.

But, I mean, if you can live on $75,000 and they can live on $75,000 and your nest egg's creating $150,000, you're still in perpetuation agreed yeah oh yeah so i mean that's the way you just work it out and go okay what does mom and dad need i'll guarantee you they're not used to living very high on the hog agreed right yes they they were they probably don't have hugely opulent expectations. These are probably wonderfully modest, humble people. That's correct. They are. Yeah. And depending on which area of the world you're in, your cost of living may be

zippo, you know? Yeah. It may not be much. I don't know what you're talking about. I don't know what country you're talking about, a developing country or whatever, but you can live in some areas of the world for little or nothing because there's not much there. And so 75,000 would be living like 200,000 in the States in a lot of areas. Agreed? Yeah, it does make sense.

I guess the question is if we wanted to raise capital to start a business, right? Start a business on the mission field? On the mission field, yes, to be very clear, yeah. Now, in addition to you supporting, you ask about raising your family. Then you ask about not only taking care of your family, but in addition to that, taking care of your in-laws. And now we're going to start a business. So we're, you know, the more of this we need, we need more money. If you're going to go over there and say, I'm going to create some self-sustaining works uh by helping the people i'm working with not only meet christ

but also build a an economic model that they can support themselves going forward instead of living off of uh donations from the states the rest of generationally right i want to love the idea of sustainable works then you've got to figure out how we're going to fund that that's a third bucket do we do we raise money on outside or do we have five million dollars saved and we're going to put a million dollars into that and we're going to use the other you know i don't know how much you can save between now and the time you go but um at the point that your nest egg no longer will take care of you and your in-laws because you put it into that then i start to question the wisdom of it. Because I do know that God said,

take care of your own household first, or you're worse than an unbeliever. That's in his word. And so for your kids, your family's needs not to be met reasonably while you go do something else is not scriptural. So we're going to do it now. Again, you don't have to live in a, you know, the biggest house in town or anything like that.

That's not the point, but needs being met. I'm going to take care of my own household. The kids are going to be fed. My wife's going to, you know, have reasonable care and so on with the numbers that we're talking about. And then we're going to take care of the in-laws. And then if there's money left, you can start creating some sustainable works. And I like every bit of that. I think all of those things are not only honorable, moral, but I think they're excellent from a spiritual perspective. The key word here is money and prioritizing it in order of importance. And then once you've gone down the list, you can determine what it sounds like the sustainable works is at the bottom.

It should be. And that's going to determine what that looks like. You might not be able to do, you know, a million dollar project, but whatever your budget decides. Yeah. And, you know, from a a generosity perspective a good sustainable work is the easiest to raise money for because people that have money like putting it into something that it doesn't just go down a black hole that's right and you never see it again yeah we want to create a sustainable environment yeah uh where the folks are you know if i can buy someone a cow

and it feeds their family forever i'd rather do that than buy them a case of milk that's right you know yeah and so that that kind of a thing as a generosity move when you're raising money from people of means right which is where you're going to raise money from broke people don't have any money to give so you know then they're going to like the sustainability idea yeah and um you know the Ramsey Family Foundation has invested in that several times. I mean, we've bought rice fields. Yeah.

Teach people to fish. So that they create, feeds families for generations then in the name of Christ. You know, we bought, we have bought cows and in those situations.

And so, but all through someone like a Graham who's on the ground guiding that and drilling wells creates sustainability. That's right.

That's another sustainable move, you know, that kind of a thing. Again, versus just sending buckets of water, so to speak. So people love to give to those kinds of things. So it's easy to raise money to get partners to come alongside, easier to come alongside you to do that than to do the other things. And all of that can be a part of, obviously, the evangelistic move as well. And they've got 10 years to set this all up, it sounds like. That's a lot of time.

Yeah. I think you just got to keep your priorities straight. If it gets all jumbled in your head which comes first and you don't force rank it, you'll mess it up. This is The Ramsey personality is my co-host today. Open phones at 888-825-5225. Just nine days before the money and marriage getaway here in Nashville. Rachel Cruz, Dr. John Deloney will be doing three days with you in every detail of marriage, including money. Money and marriage, every detail of money, including marriage.

There you go. It's all going to be there. And with those two, it'll be fun. They're funny, and they're entertaining, and they're very bright, and it's going to be a great weekend. It's $799. It's the entire weekend spent here on our campus. We're going to walk you through a whole bunch of different exercises. You're going to leave with your marriage strengthened in ways you never even dreamed.

October 19th through the 21st. More at ramseysolutions.com slash events. Travis and Brianna are with us on the debt-free stage right here in the lobby of Ramsey Solutions. Hey, guys, how are you? Good. Hey, Dave, we're doing great. Welcome. Where do you live?

We live in Dawson Springs, Kentucky. It's just a little north of Hopkinsville. Okay. All right. Very cool. Well, welcome to Nashville. Good to have you. And all the way down here, what's it, probably an hour and a half drive or so?

Roughly, yeah. Give or take, yeah. And to do a debt-free scream, how much have you paid off? We have paid off $77,500. Wahoo! Way to go! Thanks. How long did that take? Took off $77,500. Way to go. How long did that take? Took two years.

Two years. Good for you. And your range of income during that time? It was $72,000 up to about $128,000. Nice jump in two years. So what do you guys do for a living? I'm a teacher. I'm an electrical engineer.

All right. Very cool. So what cost your income to almost double in two years? So we actually just picked up a lot of side hustles so with me. A lot. Yeah we picked up those so I started tutoring peer tutoring at my college. I'm working on my bachelor's degree so that was an opportunity for me and then picked up some substitute teaching and then Travis had a lot. Yeah, I did some side engineering outside my day job. And then I also did some residential house wiring.

I did mowing yards. I did piano lessons. Wow. Flipped stuff on eBay, Facebook Marketplace. Just several things. Not much time to sleep in all that. You guys are crazy those side hustles sound like a full-time job I mean that's literally the equivalent yeah so what

you make as a peer uh uh tutor um it was just about 13 dollars an hour they only let you work so many hours a week because there's so many peer tutors so yeah it was about 13 dollars an hour just okay so out of all those different side hustles that both of you did i bet the engineering probably made the most right per hour right yeah and then what was the next best one uh mowing yards is great yeah it is it's real good yeah good money good very cool what kind of debt was the 78 000 it was just our house you paid off your house look at it weird people look at this house i just popped it up on youtube nice how many acres have you got it's about two acres nice a lot to

mow speaking of yard gutting right look at you this just got even better yeah what a beautiful place how long have you two been married about five years wait a guy what's that house worth around 200 000 look at you man that fun. How old are you two? I'm 23. I'm 29. And their house is paid for. Did you see that house? I saw it. I saw it. I'm shook. Yeah, these people are weird.

I love it. I love weird people. Way to go, you guys. Thank you. Man, normal's broke in America, and y'all ain't. I like it. Very cool. So you've been married five years, but you've been on this journey to knock off the house for two years. Tell us the story. How'd you get connected to Ramsey?

What caused all this to happen? So Travis actually worked at a previous plant, and one of his coworkers actually told him to start watching the Ramsey YouTube videos. And around then, we also had our daughter, Eliana. So she is almost three years old in January and I was pregnant and then his plant actually shut down. So with it being the shutdown and then COVID and all of the things, we were just a little bit more stressed than usual. So watching those YouTube videos, it just kind of got us wanting to do more than just being Ramsey-ish for the first couple years of our marriage. And we started actually like picking up the pace and getting on a budget and all those things that we needed to do. Wow.

Yeah. I mean, COVID, plant shutdown, pregnancy, all these things will wake you up. All three of them together. If you don't wake up, you're dead asleep. Yeah. That's pretty good. That's amazing. My question is, you know know you're doing all these side

hustles i mean you just listed a ton of them travis that you guys were doing were the people around you thinking wow these folks have lost their minds absolutely absolutely yeah but but not the folks that you have with you today right no um so uh in that process uh we were wanting some more cheerleaders so uh we actually started coordinating FPU at our local church during that process. So all of these people have actually been through that class. It's our parents and my aunt. And then even our smart investor pro, he wanted to join along in this. So he come through too.

But we have a team now. We have several people in the church who are with us. I love that. Wow. Start a class, and that will create your own peer pressure group. Make your own cheerleaders. If everybody's going to gripe about it, we're going to put some people around that aren't. Good for you guys.

Thank you for doing that. Thanks for coordinating the class. And when you're doing the class, you can't really not do the stuff. It kind of sets you up to be a hypocrite or be a performer, right? You've got to get her done. Wow. And your house is paid for, and you're 23 and 29. That's so crazy.

I know. My mind is blown. Awesome. And you're making 100, you know, have the ability. You're probably not going to keep all those side jobs now, but make over $100,000 a year, and you're in your 20s, and you got nothing to do but stack cash. What's the first big thing other than coming down here that you're going to do to celebrate? Well, we're actually been

in Nashville for this weekend. It's our fifth anniversary. So we stayed through for a few days, but we're probably going to upgrade the family vehicle. There you go. Do a few upgrades to the home. Okay. What's the side hustle that you couldn't wait to quit? Like the first on the list, got to go. I mean, I worked pretty hard doing all of them, but I did electrical wiring. I would work my day engineering job, regular, you know, nine to five kind of thing. And then in the evening, I would wire houses a lot. So I would work till 9, 10 p.m. And I'm at home wondering what my little girl is doing.

And she's home asleep by the time I get home. And so that, you know, pushing through that. That's the first one to go oh yeah that was hard on you wasn't hard on her she won't remember it no but but she will know her whole family tree got changed because her daddy wasn't hard wasn't afraid of hard work i know that's right proud of you man well done you guys you guys are heroes you've set yourselves up to win forever i'm so this is awesome you're inspiring very cool stuff hey we've got the

live and give bundle for you uh the baby steps millionaires book total money makeover book financial peace university membership you'll be able to give to those to some of the people you're leading and maybe enjoy the baby steps millionaires book when you're leading those classes people ask how do you get out of debt what do you tell them the key is so for me ours are a little bit different so um i'm the spender and he is the saver so for me it was sticking to the budget making sure you communicate and just really try to stay on track with it the every dollar app was really helpful in tracking our expenses and get to our bank account so that was the key for me personally and then the two of you using the EveryDollar app to work together.

That's a big deal. Yeah. Okay. Yeah. She calls me the nerd. I embrace it. It's okay. I like math.

It's all right. I'm the nerd at my house, brother, so it's okay. So for me, you know, about a year ago last Christmas, Zach, our advisor, he recommended that we could be debt-free, including our house, come this Christmas. And we had a meeting with him that year last year and we were talking about it we thought it sounded crazy we thought it sounded impossible and kind of blew it off and then going through Christmas we're thinking about it I'm running some math and you know I'm putting the the debt total there I'm trying to work it

back saying what would it take what if we sold this what if what if we made it just a little bit more what if I picked up some engineering stuff to increase my my side income so so we realized well with a few things it actually is possible so i said hey i'm going to start doing engineering work two saturdays a month so i did that we had to start doing that from january so from january to August, we actually beat the timeline because you'll find out as you start doing this, you get more excited. That's right. And so July, probably June and July, I worked every Saturday. And we paid it off in August because we were so excited. Wow. And now you can do whatever you want. You work like no one else. Later,

you can work like no one else. Absolutely. Way to go, you guys. You're amazing. All right, Travis and Brianna, do you want to bring Eliana into the shot? Sure. Okay, bring her up here for the debt-free scream. They're from the Hopkinsville, Kentucky area. $78,000 paid off in two years, 24 months, making $72,000 to $128,000 the most side hustles I think I've ever heard. And Eliana's had her whole family tree changed and doesn't even know it.

I love it. Count it down. Let's hear a debt-free scream. Three, two, one. We're debt-free! Yeah! Woo-hoo-hoo! Well done!

Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. Man. man jade walsh all ramsey personality is my co-host today adam is in springfield illinois hi adam welcome to the ramsey show thank you sir thank you so much for taking my call. Sure, what's up? Quick question for you. How do we deplete our savings slash emergency fund to send it to pay off our mortgage or do you work on saving up while keeping

that emergency fund there to build up enough to make a final payment to your mortgage? The second choice. Just go on and build up, keep your emergency fund intact and go ahead and build up whatever that difference was what is it 30,000 more that you need to pay off the mortgage yeah our mortgage is 39,000 right now at two and a half percent okay to start with we shouldn't have an emergency slash savings fund we should have an emergency fund and a savings fund as a separate amount. How much is in your emergency fund, not the savings? Okay, well, we've got $20,000 in savings that have been saved in our emergency, our four to six months. Okay, your three to six months is represented by $20,000. Is there other money in that account, other money in addition to that $20,000?

Yeah, yes. We've got a $2,000 emergency fund, and I've got a pension with about $28,000 in it, an IMRF pension, and my wife's SIRS pension is about $250,000. So we don't want to use any retirement funds, and I think you meant to say $20,000 in the emergency instead of $2,000, right? Yes. Sorry. We have $20,000 in savings.

Not counting retirement. Is $20,000 all you got? Yes. Okay. Nope. $22,000. Because we've got $2,000 as our emergency fund. The $1,000 emergency fund.

No, the $1,000 goes away. $1,000 goes away. When you're at Baby Step 3, which is where you are, you're debt-free but you're home, right? Correct. Okay, so we don't have a $1,000 emergency fund anymore. Baby Step 1 is just until you're out of debt. And you're out of debt, except your house.

So now we have one emergency fund only that should be three to six months of expenses. What's your household income? We're sitting at about $140,000. Okay. Then $20,000 is probably your emergency fund. So you really don't have any extra to put on your mortgage out of that? Correct. Yes. Yes. Then no, you don't have anything extra to put on your mortgage? No, no, no. You are correct. You are correct. Yeah. Okay. So we, you don't have anything extra to put on your mortgage. No, no, no. You are correct. You are correct.

Yeah. Okay. So we're not going to do anything extra on the mortgage because you don't use your emergency fund towards paying off your mortgage because it's not an emergency. Right. It's wise, but it's not an emergency. People get tempted. People do get tempted to do that because they go, oh, I only have this much left, but it's

a bad choice. Yeah. If you call me up and you said, okay, in savings. Right. Separate from the emergency we have eighty thousand dollars of that twenty thousand savings and i got sixty thousand extra yeah above my emergency fund then i would say yes throw that towards the mortgage and keep the 20 in the emergency fund that's right but um it's a good idea to not let's just talk about this the reason I was being so specific with him is I learned a long time ago that people that have savings accounts don't save money. Because a savings account, if you don't have a system with it, becomes what's called a

put and take account. You put it in and take it out. It's just, yeah. Put it in and take it out. That's right. Until you put it in, it's a very large impulse account. Yeah. And so we put a bunch of money in there and we large impulse account yeah and so we put a bunch of

money in there and we buy a bass boat and we put a bunch of money in there we have an emergency we put a bunch of money in there we buy a couch we put a bunch of money in there and go on a cruise now if you've got your debt paid off and you've got an emergency fund then you could have a savings you can have a savings account but it don't have a vague savings account ever yeah it has to every dollar needs a name in your budget and every dollar in your savings needs a name yeah i'm saving this amount for the couch this amount for the cruise this amount is for emergencies i don't have any miscellaneous impulse accounts because they will do that they'll just that's why that's why i don't you know i have emergency savings account no you just have an emergency savings account.

No, you just have an emergency fund. Yeah, I think that's something that Ramsey specific, we do differently. We say you've got this money set aside. It's only for emergencies, and that's it. It's not a catch-all is what you're saying. Yeah, because catch-alls end up with nothing. That's right. People end up spending them all.

Jacob is in Detroit. Hi, Jacob. Welcome to the Ramsey Show. Hi, Dave. It's good to be on the show. Thank you for having me. Sure. People end up spending them all. Jacob is in Detroit. Hi, Jacob. Welcome to the Ramsey Show. Hi, Dave. It's good to be on the show. Thank you for having me. Sure. What's up?

I was just wondering why you recommend using mutual funds instead of index funds. Well, to start with, index funds are mutual funds. They're a type of mutual funds. And why I don't recommend using those exclusively is pretty simple. There are about 40% of the mutual funds out there outperform the S&P. And the typical, when someone says index funds, are typically talking about an S&P 500 index fund. Are you? Yes. Among others, there's the Dow Jones, there's the NASDAQ, and others like that.

There's Russell. There's a bunch of index funds. But 90% of the time when somebody calls me talking about index funds, they've been reading about Bogle and, you know, Bogle heads and passive investing. And Warren Buffett's advice is just buy index funds, which is not bad advice. An index fund will perform at the stock market rate exactly. I own index funds. I'm not against them, but I do also own a whole bunch of mutual funds that outperform the S&P and have over 30 years. So that would be why I would do it. Does that make sense?

Yes. Just the fear that I'm having, as you mentioned, the percentage of the mutual funds perform better than specifically index. And I want to be the guy that wins and not the guy that gets lied to. Well, what you lose, you're looking at a track. The best shot you got is looking at a track record. The only reason you depend on the index fund is looking at the track record. Right.

If we're looking at past performance to indicate future. It's the only thing you have to indicate future. I mean, if you have two funds. You know, when the commercials say that, Jacob, it's absolute bull crap. Because think about it. How can you forecast the future of an investment other than by analyzing its past and any changes that have happened since that past performance and the only way i can perform you know if i'm looking at a budgeted area inside my company

i use the last three years to establish the budget for the next year, plus or minus any changes that have happened since then. Right? That's called forecasting. And to not use past performance as a primary indicator, if there are no changes, the only indicator of future performance is asinine. It's the only way you could forecast. How else would you forecast the future on it, Jacob? Well, we can look at the index funds and they always exactly track the market average exactly you can use that as a

hundred but you're still looking at you're looking at past performance you're that's what you're looking at when you're looking at that and it'll always be true for index funds just not other types of mutual funds but you can look at no no no No, no, no, no, no, no, no, no, no. That's not true, Jacob. Because indexes are composed of five, like for instance, the S&P 500, okay? The components of the S&P 500 have changed over the years. It's not the same companies. You know that, right? Right, but it's still the average.

It's still the average of the top 500 companies. But it's not the same 500 companies as it was in 1940, 50, 60, 70, 80, 90, or 2000 or 2010. It's not the same 500 companies. And so to use the index fund and project that into the future as if there were no changes is ridiculous. It's the only thing you've got, though, and say, okay, it is going to track the market. It is representative of the market so the only question is do i have a reason to believe that a mutual fund i'll give you an example one of them that is the second largest mutual fund of all time right now in terms of number of assets it has had an 85 year track record of outperforming the s&p well crap that's kind of a no-brainer man yeah you know i mean if it's got an eight month track record of outperforming the S&P. Well, crap, that's kind of a no-brainer, man.

Yeah. You know? I mean, if it's got an eight-month track record of outperforming the S&P, fine. And Jacob, if you buy S&P and you put 15% of your income in it, you're going to be rich. That's great. So I'm not going to be mad at you. But to say don't recommend mutual funds because 40 60 of them don't outperform the s&p and they don't bogle was right about that buffett is right about that but i mean i can find in the other four out of ten mutual funds out there that have a 85 or a 25 or a 50 year track record that outperform the s&p and i'm gonna end up making more money than you're gonna make

because the mutual funds make more money than you make. But it's okay. We're both going to be rich. I'm just going to be richer. That's all. This is The Ramsey Show. Dave here. You can find all of our shows with the Ramsey Network app on your smartphone. It's the only place to listen to the entire back catalog of episodes.

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