The Ramsey Show - App - I'm 15...How Do I Create Passive Income? (Hour 3)

Episode Date: December 3, 2020

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Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. Thank you for joining us, America. It is a free call at triple eight eight two five five two two five that's triple eight eight two five five two two five my co-host today here on the air ramsey personality anthony o'neill number one best-selling author of the book debt-free degree devin is going to start this hour off in gilbert arizona hi devin how are you

i'm doing well dave how are you? I'm doing well, Dave. How are you today? Great, man. What's up? So, I'm kind of perplexed as to what to do. I had a rollover IRA that I've built up to about $25,000 just messing around with different stocks, and I'm wondering if I should cash it out and pay off some debt. How are you trading stocks in an IRA? A little over IRA. You did a self-directed? Yeah. Okay. All right, so you have $25,000 in there now,

and you're trying to figure out what to do with it. Yeah. Yep. I got about $10,000 for a truck and about $11,000 for a car. I didn't know if it would be under a year to pay each off. I don't know if I should just. No, you should not use this for that. You should roll it to a regular IRA and put it into some good mutual funds,

and you ought to pay your stuff off in a year. What's your income right now, Deb? Between my wife and I, it's about 175 what how much 175 yeah there's this no yeah you make more than enough money to attack this off yeah you don't want to use you don't want to give the government half your money and you're going to yeah when you cash it if you were to cash this out so um you've you've done well it's not what how i would have done it and it's not how I would do it going forward by doing some trading there. It's a very dangerous move, but you pulled it off, and you got out with your skin intact,

and so I would roll that to some mutual funds and an IRA, get in touch with one of the SmartVestor pros. It's time to get conservative, and then use your fabulous income to clear your debts, and that's what we would do. Claire is with us in Milwaukee. Hi, Claire. Welcome to the Dave Ramsey Show. Hi, Dave and Ayo.

Oh, my gosh, I'm so excited to be talking to you all. You too. What's up? I'm just looking for some quick advice. My husband and I are seriously ready to get out of our tiny one-bedroom apartment and buy a house, but we're kind of having some trouble determining if we're ready to pull the trigger or not. We're afraid of depleting our savings with the down payment and taking on a payment that's higher than our rent

right now, which is pretty good, but I just don't want to lock us into another year of renting when our lease is up if we can start building equity in a house now. Are you debt-free? Yes. Do you have your emergency fund in place in addition to your down payment? Yes. Would your payment? Well, I also don't know if we have enough down payment either because we don't have enough for 20% of the size of house that we're looking for, and we're also kind of skittish of PMI.

You're going to have PMI then. Yeah. And we don't yell at you. You know, obviously, you know that you could avoid it if you were to save up 20%. What's your income? $110,000. How much is in your house down payment fund? $55,000 right now. How much of a house are you trying to buy? 300 to 350. Yeah. So you could rent for one more year and easily get your down payment, right? Correct. Yeah. And I guess our lease isn't up until May. So can you make it, can you make a 20% down payment by May? You probably can. Yeah.

Yeah. I guess we're just afraid of kind of depleting it down to only our six months. We've always kind of. How much is in your six months? Beard towards. How much is your six months? How much is your six months? A little bit less than 20,000. We're very frugal. Oh, yeah. I think that you all are in a good position. Agreed. Yeah. I think that you all are in a good position I think that you are in a very and I want to say this too I understand it

trust me you know I've purchased two homes and I've put down six figures and to see that leave I was like oh my goodness but at the same time it felt good to walk into my house and to honestly start building towards wealth because here's one of the

key things that one of our friends found out chris hogan is that with you being debt free not having any debt having a fully funded emergency fund investing into your future on baby step four and having a paid for mortgage down the road is one of the key ingredients of building wealth and so i want to encourage you to get over the anxious get over the fear a little bit and look towards what this could possibly do for your future. And Claire, you're in a good place to do it and do it right. How long have you guys been married? Two weeks.

Okay. I can see why. We've been together for about five years. So three years ago, what would have been your combined income where you married then? We were both full-time students. Okay. So your first job was when? Your first jobs were when?

We had been out of school for about two years. Okay. So when you came out, did you come out making $110,000 as a couple? We came out making just a little bit under $100,000. Okay, so you've already gone up a little bit in two years. I guess my point is this. I'm one year into an MBA program, so we're expecting a pretty steep hike in another year. That was kind of my point, was I was projecting your income to go up.

So what tightness you feel right now with this payment on the 300 on a 15-year fixed will be loosening up as the income goes up. That's true. Now, Claire, you threw a curveball in there. I was going to ask this question. Are you cash flowing your MBA right now? It's actually being paid for by my company. Okay. This is even better.

You guys, you guys, listen, you've been married two weeks. It's normal to be worried about everything. So it's just going to take you a little while. But I think what you're outlining, the logic flow, the critical thinking skills of what you're outlining all make sense. Your payment on a 15-year fixed is going to be less than a fourth of your take-home pay. I think you're going to scratch together because you two are tightwads. I think you're going to scratch that 20% down by May. Or you might even ask your landlord, can you extend for two months, month to month or something like that, till you get to that 20%? Because I think you're going to

be dangerously close by then. And then when you get into this, it may be a little tight for a little bit. And passing that MBA, boom, the income goes up. It loosens up. By the way, it's not tight by everybody else's standards. It's just tight by Claire's standards and Dave's standards because everybody else takes on too much stuff. So, and Anthony's standards.

Oh, bad. standards because everybody else takes on too much stuff. Yeah. So, and Anthony's standards. But yeah. So. Oh, bad. Yeah. I mean, it's, in other words, it doesn't feel tight to other people. They would just do this and go, oh yeah. But you're just being uber conservative. And I love that.

That's also a good indicator that you're going to do very, very well in the long haul. And Claire, I want to say this too. You're so close to your 20%. I'm going to say, do not purchase the home until you get the 20%. Don't do it. Okay. Yeah. Because it's like, you're so close to your 20%, I'm going to say do not purchase the home until you get the 20%. Don't do it. Okay. Yeah, because it's like you're so close.

Well, and they got till May. Yeah. Yeah. Five months at 110. That's 55 coming in. Yeah. And they've already got 50. They need 60.

Yeah. I think 65. So, yeah, I mean, you're going to save $10,000 to $20,000 by May out of that $55,000 because that's who you are. And that's why I think you're going to be okay. Yes, sir. Good job. Good job, Claire. Yeah, it's just a little bit of the newness of everything that you're facing here.

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at DaveRamsey.com today. Or call the Ramsey Concierge Team at 888-22-PEACE. It's been a hard year for everyone, but I'm betting you know someone who had a really hard year. Maybe they got slammed with medical bills or the paycheck that they relied on disappeared in the pandemic. Well, they shouldn't have to struggle like that ever again pandemic well they shouldn't have to struggle like that ever again and they don't have to this christmas you can give them some peace of mind help them find some real hope by changing their whole future with ramsey plus it's our step-by-step money plan that helps people get out of debt gets their life back and do it fast because once they're not sending their money to debt payments they breathe easier when the next emergency hits and they've got their emergency fund

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Mike is in Scottsdale, Arizona. Hey, Mike, how are you? Good. Thanks so much for taking my call, guys. How are you? Better than I deserve, man. What's up? All right.

Awesome. So basically what I'm looking at doing here, I have about the same amount in an after-tax brokerage fund that's invested mostly in pro-stock mutual funds as I have left to pay down on my home. We refinanced last year to a 15-year 3% mortgage. And I guess my question is, should I continue to let that money grow in that brokerage fund, or should I dump it out and knock the house out? You have any other debt? No.

Okay. What's your income? Me and my wife, about $225,000. Good for you. And how much is in your retirement plans? So between us, we have a little over $2, 401ks and a little over 100 in Roth IRAs. $200,000 or $2 million? $200,000, sorry.

That's okay. I just didn't know which two we were talking about. Okay, cool. Yeah, a little over $200,000 in the 401 and a little over $100,000 in the Roth. Okay. Anthony? little over a hundred thousand in the Roth. Okay. Anthony. Yeah, man. You know, I'm not a huge fan of a single stocks on this one. Uh, and so for me, um, I'm going to, uh, I think you said it was a mutual funds, didn't you? Are these in mutual funds? Yeah. Yeah. About 90, about 90%

of that is in mutual funds. Okay, okay. I apologize about that. You know, then honestly, I like the fact that you pay it off your house. Yeah, I do. So here's the way I look at it, Mike. Yeah. Sometimes if you reverse engineer this, it gives you the answer. If your home was paid for and you didn't have a brokerage account, would you go take out a $180,000 mortgage in order to have a brokerage account?

Yeah, certainly. Same difference, right? Yeah. And I mean, you may have a little bit of capital gains hit, but you've probably been churning this thing enough that you don't. You've probably been paying your taxes as ordinary income every time you flipped it, right? Yeah, exactly. Yeah. So there's probably no tax implications and I'm probably just cashing it out and doing that. Now, here's the thing. What do you do for a living? I'm a physical therapist. My wife works for a digital marketing firm.

Perfect. Okay. What is weird is, and it doesn't happen instantaneously, and it's almost so subtle you may miss it, but after having done this for 30 years and given that piece of advice thousands of times that i just told you to do what i hear back later and what i personally have experienced is there's something weird that happens when you don't have any debt yeah and you've got this fabulous income and you've got you know several hundreds of thousands of dollars in investments in retirement you you're in really, really good shape, you're doing wonderful.

But something happens that you just make subtle, different decisions. Like, you know, you feel free enough that, you know, when it comes up for a salary negotiation, you're just a little tougher. You know, or when you're making a career choice, if you've made a change to a different employer, you feel free to do that. And intellectually, mathematically, we can grasp that you could do this at any time. You could pay that off at any time, and so you should feel free. But the weird thing is you don't feel as free as once you pay it off. And so there's a thing that math can't measure here in the peace category, in the peace bucket.

You have this sense of peace, this sense of strength, this sense of things being solid. And so you make slightly nuanced different decisions that are all for the good. All for the good. Because you're freed up in the borrower, slave of the lender, and you're just not a slave anymore. And I think that the greatest part about this one is, especially when you have a paid-for mortgage, now you're really asking yourself, like, hey, okay, what's next? How do I build more? How do I start building a legacy?

How do I start giving more? How do I have, you know, how do i use this freedom you know there is kind of a seesaw thing it's kind of like tips yes because it's the last thing that was on the where i was on the defense yes sir and now i'm just on the offense yeah it's like that one that seesaw just that one last thing and now it's all offense from here yes sir and i i do have to have the insurances and the wills and those kinds of things for defense i have to do tax planning for defense right but i'm saying i'm not i don't feel defensive yeah because that's a very small portion of defense yeah and just i don't have any i i you know in other words i'm gonna bun there's people are scarcity some people are abundance i

was already an abundance guy but when i didn't have any debt at all it kind of turned me loose to go i'm'm an abundance guy. You know what I'm saying? That's what I'm talking about that's nuanced, and it's hard to quantify it. It's hard to put a math figure to what that does, but the result is over a decade, you make more money. Yes, you do. Because you have a different mindset that's changed a little bit, And that's a subtle thing, and sometimes people miss it. But I've watched it long enough that I know it's there.

Yes. And my contention is that you're no longer a slave because the borrower is a slave lender. Anyway, all that to say, you wouldn't borrow on your house to open a brokerage account. Let's close the brokerage account off your house, and you'll experience all of that. Thank you for being a listener, sir. You've done very well. Very proud of you. Absolutely. Dylan is with us. Dylan is in App you for being a listener, sir. You've done very well. Very proud of you. Absolutely.

Dylan is with us. Dylan is in Appleton, Wisconsin. Hi, Dylan. How are you? Hey, good afternoon, Dave and Anthony. It's great to talk to you guys. Thanks for taking my call. Sure.

What's up? Hey, guys. My wife and I are in Baby Steps 4, 5, and 6. And my wife carries our health insurance through our employer. She's got an HSA account. She's currently contributing the maximum amount into that HSA annually. And we have some medical expenses that we're expecting during the next year. And we're looking for some advice on if we should cash flow those medical expenses and allow our HSA dollars to continue to grow in the investments we have them in, or if we should use the HSA money for

the medical bills and help pay down the mortgage with the cash flow. Yeah, I would do that. Yeah. Because I want to get the mortgage cleared. Were the mortgage cleared, then we could have a discussion because that's where I am. I use my HSA as an additional investment account. And unless I had a major, like a hundred thousand dollar event medically out of my pocket, I would not, I would not, I would not in my situation use the HSA. We've cash flowed everything. I've never touched the HSA. I've just used it as an additional IRA in a sense. And I've got, we've got a company called Health Equity that has mutual fund options that we offer to our team, including me. And so I've got all my HSA and mutual funds. It's just another investment program for me.

But in your case, the house is not paid off. and so the HSA allows you to pay for your medical bills with pre-tax dollars. And so, you know, whatever you're paying out there, the, you know, if you're, you know, say a 30% tax bracket, every $10,000 of medical bills you run through the HSA, the government, in a sense, paid for 3,000 of them. You paid seven. Because if you brought 10 home, it would have turned into seven. Absolutely. Absolutely. You said exactly what I was going to say, Dave, before the break.

You know, there we go. Great advice, like always. I'm proud of you today, Dave. I should let you talk more. This is the Dave Ramsey Show. Well, you're the co-host. I mean, you're right. I'll talk tomorrow.

You're gone. Well, there's that. Okay. Now the truth comes out. This is The Dave Ramsey personality is my co-host today. Open phones at 888-825-5225. Rolando is on Instagram. I'm only 15, Anthony, and I don't have any debt.

But I'd like to create passive income now instead of later. Do you have any ideas on how I could do this? Well, first, I'm really excited you don't have any debt because if you were 15 with debt, that would be scary. Two, for a 15 year old, I'm not really focusing on passive income. I'm working on securing and developing a solid foundation for my future. And I think oftentimes this younger generation of high schoolers coming up, they keep hearing this word passive income, have multiple streams of income, but no one's teaching them how to start off correctly. And so the key thing I want to tell you, man, focus on identify if you're going to school.

If you're going to school, make sure you come up with a game plan to go to school 100% debt-free and graduate the way you walked into it, debt-free. And then after that, just start following the baby steps that we teach. Now, I don't mind you having different streams of income and generating some stuff down the road, but what's the point of creating a lot of income if you also accumulate a lot of debt? So avoid

that. Yeah. Um, it's a pretty sophisticated question for a 15-year-old. Here's the thing for everyone out there. This phrase has grown in popularity in the last few years, passive income. Now, that would be as opposed to what? Active income. So we need to think about the definition of terms and what is implied emotionally when you say passive income. So we need to think about the definition of terms and what is implied emotionally when you say passive income. What a lot of people hear because of the words that are used there, and it would be accurate for them to hear that because the words are, my point is the words are wrong, but it is that this is income that's going to be easy,

and I don't have to worry about it. Right. It's just going to flow. Right. I don't have to bother. I can be passive, and I'll still have income. Right. Let me help you with this.

No freaking such thing. You will either manage money actively, or it will leave your butt and go to someone who is. If you own a piece of real estate and it throws off rent, you are involved in making sure that that real estate is managed properly in some manner or fashion. If you have investments in mutual funds and it throws off, you are involved because you have your eyeballs on those statements and you are watching that investment that you worked so hard to create. If you sit back passive. It's almost another word for lazy.

I was just about to say that I really was going to hear the word passive. I hear lazy. And when we hear lazy, that means that, OK, it's whatever. Let that do whatever it wants to do. and that's how you wake up broke that's how you wake up wondering what happened because you were not actively involved in making sure that it grows if you ever get in the saddle of a really good horse you have to hold the reins yes if you get behind the wheel of a very powerful car you have to hold into the corners yes you can't just go i'm gonna let this thing drive itself right i'm gonna let this horse run where it wants to and that's what we're talking about money is a powerful beautiful

horse money is a powerful beautiful car you've got to hold it between the lines so that it goes and does that now if it's passive income and what someone means by that is it's investment income rather than my career income exchanging then then that's fine yeah so i would rather some of you start using the phrase investment income, which implies that you actually created an investment and you managed it. But passive is disturbing. Yeah, it is. It is. Now, Dave, would you agree that there are certain kinds of income, like you're saying, that won't require as much attention?

Yeah, there's levels of active management. Yes. And how much you have to have your hands on it real estate's a lot more hassle than mutual funds you got to deal with a lot more i mean mutual funds don't have a heat and air system go out that's true you know mutual funds don't have a tenant that doesn't pay right they're just either up down depending on the guys in new york how they're managing it right yeah and so i don't really have a lot to say about that. I pretty much just have to look at the account, open my statement, look at it, open my computer screen, look at it.

But I don't have a lot of say in it. Whereas a piece of real estate, you've got to get pretty involved to make sure that it's properly handled, the rent is collected, and the house isn't torn up, and the property isn't torn up, and the maintenance is done, and those kinds of things. So there are things that are more, investments that are investments that have a higher hassle factor to them than others. But no investment, do you just let it run on autopilot and walk away. You will lose it. Yeah.

Yeah. And I think this generation, too, is thinking, well, if I get rental properties, I can have someone manage it and I'm not managing it, so that's passive income. Well, and what I don't want anyone to do is think passive income means it's going to be easy. Yes. Because there is no – I've never met a person that's wealthy that stayed wealthy. I've met a few that got there, but they didn't stay there, that said, oh, that was easy. That was easy.

Yeah. I was just lucky. Yeah. I have – I mean, I have no idea how I got here. I'm dumber than a rock, and I just got rich. You know, I didn't work hard, and I just got rich. I wasn't disappointed, and I just got rich. I never meet those people.

I mean, now I'm talking about that remain wealthy. Now, occasionally I meet some bozo, hits the lotto ticket, and now he's suddenly rich, and then, you know, two weeks later he's not. But I'm talking about somebody that stays wealthy yeah and holds it in and you know holds it together and turns it into more wealth and parlays it to the next thing so the the point of this is do not look for a shortcut do not look for an easy road it's okay that it's hard it's supposed to be hard do it anyway agreed and that that's what i don't like about the word passive. Agreed.

Passive to me is I'm going to sit back and just let everything happen and watch everything happen, and I have no control of my own destiny. That word has got a real negative connotation for me. And so that's what I want you to do is I want you to be the opposite of passive. I want you to be active in every area of your money, and that will involve what Anthony is telling this young man to do, and that's putting a foundation in place, avoiding debt, having an emergency fund, and so forth. Lexi is with us in Honolulu.

Hi, Lexi. Welcome to the Dave Ramsey Show. Hi there. Thanks for taking my call. I have a quick question. I have two separate investments, one with Spidelity, which is my 401K, and then the other one is with Amerifrice. So I have a question.

If I should combine them together to make it a one account, or should I just keep them separate? Doesn't matter. If they're both doing well and you're getting good communication out of both groups, it's fine to leave them there. I keep all of my mutual fund or almost all my mutual fund investments with one of our SmartVestor pros, and they look over it and I look over it, and we discuss them periodically.

So I don't have two different people speaking into my life in that regard. I've got one, and I'm real comfortable, that one brokerage house. So I have chosen to roll them together, but there's nothing inherently wrong with having two. What you are looking for is someone in your corner that has the heart of a teacher. Okay. Do you feel that way about either one of these i do one yes yes then i'd probably borrow the other one to that one okay i may do that yeah

because you're getting better advice there because if they're just telling you what to do and you're supposed to do it because they're arrogant that's always a bad sign that means they're sales people they're not and teachers because it's not their money it's your money their job is really to teach you so you make good decisions great yeah and that's how we vet these smart investor pros we want them to have that heart of a teacher so yeah i'd probably go with the heart of the teacher one if that if you got one of those and you feel good about them you can roll it over there i mean there's no tax implications for moving it over if it's in an ira uh if their investment if their after-tax investment accounts are pre-tax investment accounts either or after tax then you know you may have some tax implications moving them around but you can look into that and

decide but overall keeping life simple and working with someone that's got suggestions that are teaching me how their suggestions work the way I like it. This is the Dave Ramsey Show. Thank you. our scripture of the day galatians 6 4 and 5 but let each one test his own work and then his reason to boast will be in himself alone and not in his neighbor, for each will have to bear his own load. I wonder, Roosevelt said, one's philosophy is not best expressed in words, it is expressed in the choices we make, and the choices we make are ultimately our responsibility. Anthony O'Neill, Ramsey Personality No. 1, best-selling author of the book Debt-Free Degree, is my co-host today here on the air. Up next is going to be Tabitha in Los Angeles.

Hi, Tabitha. Welcome to the Dave Ramsey Show. Oh, my God. Thank you for taking my call. I'm so excited to finally ask you a question. You too. How can we help? Okay, so my name is Tabitha.

I currently live in Corona, California. My husband and I want to move to Dallas, Texas, in order for us to get a house because it's so expensive out here in California. So I just wanted to get your opinion. We have our three to six months saved, and we're currently saving for our down payment for our house right now. And we just started our Roth IRA account through School school first union because I work for the school district. So, yeah, that's my question. Okay. Your question is what?

Should you move or should you buy a house? What's the question? I want to buy a house here in California, but it's so expensive. I mean, you're going to move to Dallas, you said. Correct. Okay. So when you move to Dallas, your question is what? My question would be, like, is it okay to move? Because I currently live with my in-laws,

but I want to move out, but it's so expensive out here. So I guess that's my question that is it okay to move to a different state and having your three to six month phase and using that? Or should I get a job first? Or yeah, I guess that's my question. Yeah. But how old are you and your husband? So I am 26 and my husband is 32. Okay. All right. So right now it sounds like you don't really know if you're moving to Dallas. You're asking us what is the best thing for you all to do.

Yeah. What is the best thing for me to do? Because currently we're saving money for down payment. You don't necessarily have to buy a house if you move to Dallas. You could rent in Dallas. Yeah. Correct. I could rent and I could buy a house over there

with the income I make now, obviously. I just want to make the right choice, if you know what I mean. So here's what I'm going to tell you to do, Tabitha, because I think you're making this a little bit more complicated than what it is. Get a job in Dallas. And once you figure out that, once you

get that job, the job that you have right now, use that income because you're staying at home. You don't have any bills. Use that income to move instead of for using your three to six months for emergencies to move. So cash flow, you move to Dallas, rent like Dave said. Then when you get there, save your 10 to 20 percent to put down and then go through the process exactly but you guys need then move yeah you need jobs on the other end you don't just move over there and pray right uh you need to know what you're getting and getting and so start a job hunt in

dallas and when you're able to land a position uh make the move i will tell you you're not the only one who's had this idea there has been a tremendous exodus from California to Texas and Tennessee and Kentucky and other low tax states that are high freedom states and are open, where apparently you're not even allowed to ride a bicycle in Los Angeles right now. It's frustrating. So, you know, and we're over here walking around like regular people or something. So all of that. And so, you know, my point being you really do not need to go over there unless you've landed a position because there's a lot of other people from your neighborhood trying to get a position in Dallas too. Yes, a lot.

Or in Nashville or in Austin or in whatever. But these areas that have been clamped down, people are moving out of them in droves and it's going to shift the real estate market. It's going to shift the economies in those states. It's already shifted the economies because they're shut down, but it's going to permanently change them because a lot of their producers, people who refuse to be shut into their homes, are leaving. And so it's going to change the shape and the demographics of this country. It's going to be very interesting. So make sure you have a job because a lot of other people are trying to do what you're doing.

But if you got one, there's nothing wrong with making the move. And go rent just exactly what Anthony prescribed. See, that time I just agreed with you. Hey, that's good, Dave. That's better. Thank you. That's better. We're getting better here.

I know. All right. Thurston's in North Carolina. Hi, Thurston. How are you? Hey, Dave. Good to talk to you. You too.

What's up? I've got a little bit involved question for you and first of all i want to thank god because i'm in a a good position financially but i just want to get you guys advice so um i've got a 401k um loan that i took out for home improvement and the balance on it it's about a year old it's about $32,000 good lord and I've got about $7,700 and for a credit card debt same thing you know home improvement so i was thinking about this and wondering if if i took out a fifty five thousand dollar withdrawal from my 401k loan and the credit card debt. Let me tell you what you just said.

Let me tell you what you just said. Dave, I want to borrow money at 34% interest. Yep. To pay off my debts. Well, I was thinking that it was 25. I'm not thinking about it the wrong way. It's your tax rate. I don't know what your income is, but it's your tax rate plus 10%.

Well, I'm 63, so I wouldn't have to pay that extra. Oh, okay, just be your tax rate. So what's your income? What's your household income? About $90,000. Yeah, and so it would be 33%. It's like 25%. No, it is your tax rate.

You're not in a 25% tax bracket. I don't think, are you? No, generally I haven't paid that much, but I was just looking online just to see what the tax rate is for taking a withdrawal. No, there's tax withholding of 20%, but the tax rate on the withdrawal is your income tax rate. And so it should be 30% in your case. I don't have the tables memorized, but that's about where you are. Now, we don't suggest you do that.

You make $90,000. I would clean up your $32,000 in debt and your $77,100 in debt. And next time you get ready to do a home improvement, pay for it. Yeah, cash. Why do we want to borrow our house to fix up the house to do other things? I mean, no, just pay cash. You're taking away the equity. You're taking away opportunities.

Just pay cash. Yeah, well, you got a $7,700 credit card bill to fix up the house. You make taking away the equity. You're taking away opportunities. Just pay cash. Yeah. Well, you got a $7,700 credit card bill to fix up the house. You make 90 grand. Yeah. So that means you should have saved up and paid for that repair. Yeah. And so we're going to have to have a little different system there.

Otherwise, you're going to end up draining this whole 401k down. Now, if you got a million dollars in there and you want to use some of it, you're 66, that's fine. Yeah. Use some of it. Pay it off. But, dude, you need to stop this you guys you know you need to start paying for things as you go and i suspect you don't have a million dollars in there based on these other two numbers absolutely that would be my guess so i think

that's what you're facing so a good rule of thumb folks you can go ahead and mark it down as one of the answers you're always going to get here we do not tell you to cash out 401ks or IRAs to pay off debt unless... Unless death in the family or to avoid bankruptcy. Bankruptcy or foreclosure, yeah. If you're going to lose your home or you're going into bankruptcy because you didn't use your 401k money, then yeah, we would use that. But you're going to get hit for your tax rate. If you cash it out early, the mandatory withholding is 20%,

but the taxes are your tax rate plus a 10% penalty unless you're over 59.5%, which Thurston is. So he would not have the extra 10% penalty in that case. But, again, Thurston, if you've got millions of dollars in your 401K or a million dollars or something and you want to pull $55,000 out, whatever. It's okay. But I would cut up that stupid credit card and all future home improvements

or any other purchases, for that matter, I would do with cash. Anthony O'Neill, good job today. Hey, Dave, thank you so much. America, thank you. And you can come on tomorrow and you'll be able to talk. I know. Because I won't be here to talk to you so much. It's all good.

Thanks to James Childs, our producer, Kelly Daniel, our associate producer and phone screener. I am Dave Ramsey, your host. We'll be back with you. Before you know it, in the meantime, remember, there's ultimately only one way to financial peace, and that's to walk daily with the Prince of Peace, Christ Jesus. This is James Childs, producer of The Dave Ramsey Show. Once again, you made The Dave Ramsey Show one of the top four most popular podcasts last year. To get your daily dose of motivation and inspiration from the Ramsey Network,

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