The Ramsey Show - App - Insight on Home Buying and Mortgages (Hour 3)

Episode Date: November 23, 2018

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🎵 🎵 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, your money. It is a free call at 888-825-5225. Paul is with us in San Antonio.

Hey, Paul, welcome to the Dave Ramsey Show. Hey, Dave, thank you for taking my call, and Merry Christmas. Merry Christmas to you, sir. How can I help? Well, I've got this kind of dilemma going on, and it's kind of a liability issue. So I want to pay my mortgage off, which I owe about $308 on, but the foundation has problems. The neighbors have problems, and I have problems. So I didn't know if the liability is greater for me paying it off,

or is it better to have a company that holds a mortgage on it. I don't understand how holding a mortgage helps a foundation. No, you know, so, yeah, that's what I didn't understand either because I asked my attorney whether I should pay it off. The only reason he said not to pay it off was, well, what if there's another crisis and cash is king and all that sort of stuff. That answer kind of didn't make sense to me either. Well, your attorney's now giving you financial planning advice, which makes him an idiot.

That has nothing to do with the foundation. Right. Okay, so I would fix my foundation first, and then I would pay off my mortgage second. Yeah, the builder's going to hold liability on that. We're going to have to file a suit or a claim and all that. So that's what we're doing now. Well, I would find out what it costs to fix the foundation. I would hold that much back until you see how this claim on the claim with the builder's insurance goes and all that.

And let's go back through. But let's have enough money to clear that up and pay it off. But, yeah, we want to pay it off mortgage regardless of what your attorney says. Nicholas is in Spokane, Washington. Hi, Nicholas. How are you? Good, Dave. How are you?

Better than I deserve. What's up? Yeah, so I'm kind of just asking for an outside perspective here. So kind of a quick, brief backstory. I called you a couple months back, but my wife and I moved to Spokane about last summer, just kind of in search of better employment opportunities. She had just graduated from the university from where we're from, and we were a little impulsive and just kind of in search of better employment opportunities. She had just graduated from the university from where we're from, and we were a little impulsive and just kind of jumped ship, didn't know kind of what to expect. We love it over here. Fast forward to now, after a very long summer and just kind of we've been barely making

it financially, we've realized there's a lot less opportunity for job, income, and quality of life than what we thought was available here. So now we're kind of faced with this dilemma. We love the country feeling outdoors, but we're on the fence of whether or not to move back to Seattle, and that's kind of where we're from. And we've looked into, we've done our research over there, and job potential and income is five to ten times what we're experiencing here.

I'm 27. My wife is 25. We are on baby step three, and we don't know kind of what that step needs to look like and what we should do. What do you do for a living? So we moved over here. What do you do for a living? What do you do for a living? Real estate. You're going to sell real estate in Seattle?

Yeah, I'm just getting my feet wet with that. Okay. Well, I know both markets pretty well. I'm there often. And Seattle is certainly a bigger market than Spokane. To say that it's five times larger potential is BS. I'm saying more my wife and my household income would be five times. No, it wouldn't.

My wife works in marketing. So? So the potential over there is a lot larger than what it is here not five times okay it's not the markets i mean it's a good market seattle is a great market and there's people a lot of people doing marketing and there's more people doing marketing there than in spokane because it's a larger metro market than spokane is in terms of the size of the economy, the size of jobs and the number of jobs and so forth.

So but you're exaggerating, which leads you to impulsing. And so if you want to move back to Seattle, that's fine. Only do it after you have a job that proves your theory. You have a hypothesis. Your hypothesis is for your theory that you can move to Seattle and you will make more money and have a better life. You need to be able to prove that. Now, in your case, you're not going to be able to prove that because you're going to be in real estate business and you can't prove it until you move.

But in her case, she needs to actually land a job. Then you move. That's what we're in the process of looking at doing. The thing, though, is with us being in baby step three, we're not sure if we need to, you know, even if we do get a job, do we save up, you know, make sure baby step three is done, and then we, you know, save moving expenses? You've got enough to move. I mean, you've got an emergency fund.

You can move with your emergency fund and replenish it, and you're not making anything in real estate anyway, so if you go over to Seattle and not make anything for a little while, it's not going to be the end of the world. That's kind of what we're looking at. I just didn't know if that was a good use of our emergency fund. I wouldn't use the whole thing, but, I mean, move on the cheap. You haul, baby. You haul, right?

And, you know, load it up and load up the truck and head to Beverly, you know, that up and load up the truck and head to beverly you know that kind of thing so um but but she needs to actually have a job not just think the market's five times better which is crap that's just not true okay seattle's a bigger market than spokane are you going to make five times as much money in seattle uh job the job space to space no not unless you're in a a field or a space that just doesn't exist in Spokane, which marketing, believe me, exists in every city. Open phones at 888-825-5225. Luis is with us in Atlanta.

Hi, Luis. How are you? Hi there, Mr. Dave. How are you doing? Better than I deserve merry christmas to you thank you very much i appreciate it how can i help i have a i have a little situation i recently got laid off my job and they're plumbing um so me and my wife had to go back to work and i landed a job i guess manager at a restaurant.

But right now, they're just training me, so I'm not getting much money coming into the house. So I'm back on my credit card bills, and I have $40,000 in debt. So I'm just trying to see what is the best way to... How long will your training period go? Three months. Three months to train you to run a restaurant?

Well, I misheard that. I'm just going to be, first of all, a cook manager. So I'm going to be in charge of the cooks. And then, you know, another three months of training. What will you make at the end of this training? Yearly, around $35,000. Myself. Okay, what about your wife?

What's she making? My wife right now, she's just making around $15,000 to $20,000 a year. All right. I'll tell you what. Hold on a minute. When we come back from this break, I'll walk you through this, and we'll try to figure out what to do. Thank you for calling in.

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We're talking with Luis in Atlanta. Lost his job. Now he's in training for three months to be a restaurant manager. He'll be making about $35,000 when he finishes the training. His wife's making under $20,000. Are you with me, Luis? Luis? I'm with you with me, Luis? Luis? I'm with you.

Okay, cool. And she's making a little under $20, going back to work, and they're getting behind on their credit card bills. Is that a fair summary of what you told me so far? That sounds good. Okay. Is there anything you can do to add income while you're in training? Are you working nights?

No, I am not working nights. But, you know, I work plumbing, so I can get some service calls here and there to, you know, get some money coming in. Service calls? Service calls, yes. For who? I guess I do plumbing. Oh, plumbing oh plumbing you said i didn't okay

okay yeah if you can get some of that and add another thousand dollars a month while you're in training and work your tail end off you know but to make up for the shortfall while you're in training at least until you get your income up a little bit and you got forty thousand dollars in credit card debt exactly and how much do you owe on your car on our car we owe a little bit of five thousand dollars okay all right cool and how much is your rent or your house payment you know our rent is eight hundred dollars okay good yeah your biggest issue is on the short term, you've just got a shortage of cash. Long term, you're going to get back up and be moving again, it sounds like. But if you can take some service calls and get some extra cash coming in,

$1,000 a month changes your situation dramatically, doesn't it? Exactly, exactly. So basically, right now, we only have left to pay credit cards it's 700 but that's that's not enough for all you know the credit cards that we have which credit card should we start paying off or me and my wife's plan had okay with those 700 that we have left we pay off one credit card, say one credit card is $500. Can we do that? You can do anything.

The more of them that you don't pay monthly like you're supposed to, the more damage you're going to do to your credit in the process. So your first goal is to, you're not very far behind with them. Your first goal is to get current and stay current. And so $700 is all you've got now, but if you add $1,000 to it, you're not very far behind with them. Your first goal is to get current and stay current. And so $700 is all you've got now, but if you add $1,000 to it, you're current. Yeah. $1,000 worth of service calls doing plumbing is what I'm talking about.

Exactly. And so, you know, all of a sudden now you're current. So this is an income side of the equation as much as it is anything for now. Now, when you get your income up, you know, after you finish your training and all, I think you should be able to balance your budget. But you're right. The first thing you buy is food. The second thing you buy is lights and water. The third thing you do is you pay the landlord.

The fourth thing you do is keep transportation rolling and, you know, car gas, car payment, that kind of thing. And then and only then do we address credit cards. And what I would do there is address the smallest one to the largest payment until you get all the payments paid and current. Then I would begin to pay off the debts, working them smallest balance to largest balance. But right now, you know, all your little ones, you can pay the monthly payment on all the little ones.

Okay. And then you add the plumbing costs to it, you can pay the monthly payment on all the little ones. Okay. And then you add the plumbing costs to it. You can pay the monthly payment on everything. And then we'll just keep everything current because I want to do as little damage to your credit as possible because you're paying your bills on time. You do, too. You want to pay what you say you owe. You know, that's the proper way to do it. Now, if you can't, then you can't.

And you just get behind on the big ones is what you do let the big ones run if something has to get behind but i think if you add some income to this equation and start doing a detailed written budget and you prioritize the money very carefully on paper on purpose then you can move forward i would tell you to go to every dollar dot com and download the every dollar budgeting app it's free to use, free for your iPhone or your Android or your desktop, and you can lay out your budget with your wife, and the two of you go over where every dollar is going to go before the month begins. That's why we call the thing EveryDollar,

because every dollar needs a mission, every dollar needs an assignment, every dollar needs a game plan. Ready, fire, aim, not ready, aim, fire. No, ready, aim, fire. I'm kidding with you. So, most people do ready, fire, aim, right? And no, that's not what you want to do. You want to do ready, aim, fire. You want to have it laid out very, very carefully, very intentionally. And hold on, I'm going to send you a copy of the Total Money Makeover book, too, to help you with the process.

Jacobs in Cedar Falls, Iowa. Hi, Jacob. How are you? Good. Happy holidays to you and your staff. Merry Christmas. How can I help? Hey, so this Friday I'm going to be able to pay off the last of my credit card debts.

Yay! Yeah, I'm very excited. My mom is retired, wasn't in a position to retire the way that she should, so she still works a couple days a week just to get her house paid off. I'm wondering if it's okay for me to help her hammer out the remaining of her mortgage,

which is about $24,000, before I take care of my own debt. Are you married? No. Okay. What's your mom's income? I think her Social Security is probably $800 a month, and then she works enough to make about another $400 a month, which is pretty much what her house payment is, and then she has her other expenses on top of

that comes out of the $800. I see. Okay. All right. And what is your income? Well, my base salary is about... Now, what's your income? My income, about $62,000 a year.

Okay, and what do you own on your property? I own $100,000, but my house is currently on the market. I hope to have that gone before spring. And you're going to live where? I actually just relocated for work, so I have an apartment out of town, which I pay $450 a month at. Okay. And will you get any equity out of your home when it sells?

I'm going to have about $12,000 equity if it sells the way that I hope. Okay. Are you planning on buying again in the other market eventually? I'm going to wait until I can afford at least, I really want to wait until I can pay cash or something. Wow. My plans are to just keep renting. Okay. All right. So here's our plan then. You finish up your stuff on Friday, you build your emergency fund of three to six months of expenses, and then you pay off your mom's mortgage. Okay. In that order.

And the $12,000 comes to you is going to make one of those happen even faster. If you've already got your emergency fund and you're paying extra on your mom's mortgage, the $12,000 could finish it off. But if your house sells tomorrow, it's going to be part of your emergency fund probably, right? Correct. So your emergency fund's first, and then mom's mortgage, and then you can start saving towards your paying cash for a house and start your baby step four retirement savings. But the good news is the only caveat I've got for this is I think we can safely say your mom's not very good with money because she saved none in her working lifetime and so if you need to

make sure that she doesn't get herself back into a hole again that you're not enabling by paying this off you're not giving a drunk a drink then maybe she needs to go like to financial peace university and manage that little bit of money that she has very very carefully so she doesn't create a bigger mess later. In other words, I want this mortgage to stay paid off. I don't want you to just pay it off and then her slip back into her old ways, so to speak, and have a problem again. You don't want to do that. But to the extent that you're comfortable that she's not going to remortgage or get into a mess again or get into a bigger mess or something like that,

then yes, I would pay it off almost immediately. So, hey, thanks for the call. We appreciate you joining us. Open phones at 888-825-5225. Christine is on Twitter. Should someone stop all charitable contributions if they're on Baby Step 2? Well, I'm an evangelical Christian, so I tithe. I give a tenth of my income off the top before I do anything to my local church. And that's what we teach folks

to do. Now, you may or may not have a faith reason for doing that, but 10% is a good rule of thumb either way. So anything above 10% I probably wouldn't do right now until you get your baby step two working. But up to 10%, that's what I do, and that's what I teach folks to do. Thanks for tweeting in, Pete. This is the Dave Ramsey Show. Talk to you soon. Did you know that if you combine the data breaches that have occurred in the past 12 months, almost every American has had their personal info compromised or hacked?

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In the lobby of Ramsey Solutions, a couple of folks dropped by with a question. James and Esther are with us from Pensacola, Florida. Hey, guys, how are you? Doing great. How about yourself? Better than I deserve. How can I help you today? We're getting ready to finish up Baby Step 2, and we've been talking to a neighbor whose dad just passed away,

and he's looking to sell his house. I was wondering if there's any advice you could give us as far as what we need to look out for if we're not going to use a realtor. Okay. Well, there's several steps in closing on the property. You certainly don't need a realtor to do the transaction itself, but you may want to holler at a friend that's in the business and have them give you kind of a checklist. I'll give you a few off the top of my head, okay?

How are you establishing the price? I really haven't taken any of those steps yet. He's supposed to have the house emptied and going to try to put it up on the market next year, but he has some things that he wants to do to it, and I just asked him for a cheaper price based on me doing the work instead of him having to take care of it. So basically, you just get an appraiser in there. Okay. So you're going to have it appraised.

Yes, sir. And then you're going to pay appraisal. Yes, sir. Okay. So it's not a deal. I think it will be. The house hasn't been remodeled for a long time, and they're not looking to make a lot of money off of it from what he told me.

That doesn't matter. If you're going to pay what it appraises for, that's by definition not a deal. Appraisal is market value. You're paying full price. Yeah, he said that he'd discount it because he's not going to do some of the work to the house. Well, the appraiser will appraise it as is. Okay. In its current condition, not as if it were fixed.

And so you're buying it there, and you want to buy it cheaper than that, is what I'm saying. Okay? So that's thing one. That's why I was asking about this. Because you're going to do all this work. You don't want to do it all for free. Right.

I mean, you don't want to just, you know, your labor is worth something, right? In addition to whatever you spend in cash to buy the paint or cash to buy the carpet, right? But your time and your effort is worth something. And so what do you think the house is worth roughly? Let me kind of give you an example. Right now, I've just kind of been looking on Zillow and the prices around the area, probably $50,000 or a little bit lower than $50,000.

Okay, and how much do you think in work needs to be done to it? Just give me a guess. From what he told me, $6,000 to $7,000. Okay, so let's say it's worth $50,000. Okay. And how much do you think in work needs to be done to it? Just give me a guess. From what he told me, $6,000 to $7,000. Okay. So let's say it's worth $50,000 and there's $6,000 worth of repairs. That means the market value is somewhere south of $44,000. Agreed? Yes, sir.

Okay. If the actual market value fixed is $50,000 and then the $6,000 worth of repairs. So you need to buy that below $40 if that's the case. And that way you're getting a little something. Otherwise, you could just buy a house for $50 that was already repaired and wouldn't have to go to all this trouble, you know? So that's what I'm talking about. That's thing one.

Make sure your pricing is right. Then thing two, you can call a local title company that closes loans. Are you getting a mortgage or have you saved up cash? We're going to get a mortgage. Okay. So the mortgage company is going to require you to use a title company to close the loan, and they're going to require you to get title insurance. That title company can give you a sales contract form.

Or you can use a realtor friend that might give you a copy of their sales contract form. Or you can use a realtor friend that might give you a copy of their sales contract form to do the written contract between you and the seller. It's not a handshake. Your mortgage company will not accept a handshake. They need a written contract between you and the seller. So it's a $40,000 price for the house of such and such

and it's going to be closed. It's contingent upon subject to you getting a loan and then you go get the loan with Churchill Mortgage or your local credit union or whoever you get it with, and probably your local credit union, a small loan, as it says, is probably not a traditional mortgage. And make sure it's a fixed rate, 15-year, and then that title company will close it, and you buy title insurance that the lender will make you buy for them.

And for $35 more, $50 more, you can get a simultaneous issue for you to have title insurance. Get that. Always buy title insurance. It's worth it. Okay. Is there property involved, or is it just a subdivision lot? It's just a lot. Okay.

So you don't need necessarily a survey because it's a pretty well-defined boundary. Yes, sir. Okay. But if it's a piece of ground, you might want to have it surveyed so you knew't need necessarily a survey because it's a pretty well-defined boundary. Yes, sir. Okay, but if it's a piece of ground, you might want to have it surveyed so you knew exactly where the corners were, not where I thought the corners were, that kind of thing. But this subdivision lot is pretty safe. You don't necessarily have to do that. There will be a basic loan survey done as a part of your closing costs, but it's a drive-by survey.

It's not a detailed one. Okay. Just to make sure the house is actually on the lot is what they do before the bank lends money on it. That's what it comes down to. So they'll dig into that. You're going to have to get your homeowner's insurance in place and figure that out before the closing, and then you'll have to – the mortgage company can lead you

through most of the stuff you need to do, but you'll need a contract form filled out with them, and you need to do. But you'll need a contract form filled out with them and you need to establish a value that is accurate. And it needs to be less than the value fixed minus repairs. Fixed value minus

repairs minus some more is where you need to be on what you pay for it. Otherwise, just go buy a $50,000 house that you don't have to fix up. Because you're going to have the same in it. If you paid $44,000, just go buy a $50,000 house that you don't have to fix up because you're going to have the same in it. If you paid $44,000 in it, you put $6,000 into it, you got $50,000. You should have just bought one and not done all the work. Do you see what I'm saying?

So you want to buy it cheaper than probably about $40,000 if the numbers that you and I are using actually pan out here. Yeah, I'm just going to go for $35,000. That'd be great. That'd be great. Somewhere down in there, that'd be a good buy on it, and then you'd have a little equity when you got finished working on it and everything. That'd be great. That'd be great. Somewhere down in there, that'd be a good buy on it. And then you'd have a little equity when you got finished working on it and everything. That'd be great.

So, hey, Merry Christmas, y'all. Thanks for dropping by. Appreciate you coming by. Open phones at 888-825-5225. Amanda is in Columbia, Missouri. Hi, Amanda. How are you? Good.

How are you? Better than I deserve. What's up? I'm looking at buying a home, and I don't know if I need to try to start with a starter-type home and then upgrade to what I really want, or if I need to try to hold out and find that piece of property that I really want. The only issue is it's kind of scarce in the area I'm in, so a piece that I really want might pop up in a week or it might be five years before it pops up. And I'm renting right now,

so I don't know if I need to just bide my time and keep renting or if I need to try to get into an actual home. Gotcha. Are you debt-free? I am. Good. Good for you. You got your emergency fund in place?

Yep. Good, and then a down payment, so you're ready to go. Okay. And what's your payment. So you're ready to go. Okay. And what's your household income? About 65. And how old are you? 30. Okay.

I don't see any reason not to go ahead and buy something. And here's the thing. Even if you buy your dream property, here's what's going to occur. In a few years, your dreams will change. So people always say, it's not my forever house. None of them are because things change. There is no such thing as a forever house. I mean, very seldom do people buy something, and their dreams don't change for 30 years,

and their household demographics and number of humans living there don't change for 30 years, and their household demographics and number of humans living there don't change for 30 years, and they don't rethink that these appliances are getting old and this roof is leaking for 30 years. It just never happens. People move. So it's okay. Go ahead and get your house, and then move up later,

and you'll be in good shape. You know, move to that killer piece of ground later. That'd be awesome. You'd be fine. Good question. All right. Up next is going to be in good shape. Move to that killer piece of ground later. That'd be awesome. You'll be fine. Good question. All right, up next is going to be Cliff in Omaha. Hi, Cliff. How are you?

I'm good, Dave. How are you doing? Better than I deserve. What's up? I got a quick question for you. I'm a fairly new listener, and I had a cousin last year asked to borrow a pretty significant amount of money. And with the understanding he was going to pay it back quickly, he borrowed it.

He paid it back quickly. He asked me again. I loaned him money again. He paid it back quickly. And then a third time, I loaned him even a little bit higher significant amount of money. And he was unable to pay me back the full amount. How much? He won, he borrowed $5,800 and paid back $3,000. And then he asked if I would stretch him out and do payments. I agreed to do that at, I believe, $200 a month to kind of help him out. And I agreed to

do that. He made one payment last January. And then this Thanksgiving, the day before Thanksgiving, he asked me if I could help him out again and loan him some more money. And I said absolutely not because he's still in the hole. But what I want to do instead of loaning him money, I'd like to turn him on to you and help him get his life together. He's gone through a divorce, and he's kind of lost right now. Here's what I would do in this situation, okay?

I will give you Financial Peace University, the nine-week class, for you to put him through. You forgive the loan balance because you're going to lose your cousin if you don't. Just forgive it. You were stupid to loan it to him. You shouldn't have. And then the third thing is tell him he has to go to class in order for the forgiveness to occur. And you force him to go learn how to handle money and never loan him money again, ever, under any circumstances. Thank you. Our scripture of the day, Romans 15, 13. May the God of hope fill you with all joy and peace in believing,

so that by the power of the Holy Spirit you may abound in hope. Emily Dickinson said, Hope is the thing with the feathers that perches in the soul and sings the tunes without the words and never stops at all. Wow. Go Emily Dickinson. That's why she's Emily Dickinson right there. That kind of stuff right there.

Melanie is with us in Dallas, Texas. Merry Christmas, Melanie. Merry Christmas, Dave. How are you? Better than I deserve. What's up? Good. Well, I am a senior mom and I am a full-time student.

I was recently laid off from my job, and I just moved in with my mom here in Dallas, and I took a job here that's paying much less than I was making previously. Why? I'm sorry? Why did you take a job that's paying less than you made previously? I think I was in panic mode because of the layoff, and I was just trying to make sure that I got a job so I could continue to make my bills. Yeah, what did you make before?

I was making $37,000, not much more. What do you make now? $21,000. Okay. Yeah, you certainly panicked. What did you do when you were making $37,000? I was a children's assistant at a church, children's ministry assistant. Okay.

All right. How can I help today? I am looking at starting the baby steps and everything, and I know that my car is a problem, so I wanted to touch base with you. I owe $18,900 on my car, and I still haven't paid off until four more years. Yeah, you need to sell it. Okay. It's insanity.

It was insanity when you were making $37,000. It's really insanity when you're making $21,000 to drive a $19,000 car. Yes, that is true. Really, my question is, someone has suggested that I get a student loan and pay it off with that, or no? You really got some ignoramuses hanging around you, don't you? Apparently. Oh, my God.

You're going to take out a student loan to pay off a car that you can't afford, only it's not paid off. Now it's a student loan. You didn't pay it off. You moved it, and you misused a student loan. Student loans are not for cars. They're for going to school, and you shouldn't even use them for that. No, honey, you've got to sell your car.

I'm sorry. It's a car you can't afford. And I want you to look for a better job. You did panic. You're worth more than you're being paid. Thank you. I'm looking. Yeah, good, good.

You need to get your income back up, get you a car you can afford. And you said you're in school. What are you studying? I'm working on my bachelor's in computer science. Good. What are you planning to do? I'm thinking I'm going to go maybe like the programming or the computer engineer programming okay cool um an idea might be that you find a computer programming company

that would hire you as uh an administrative assistant or a receptionist or whatever, if you're going to make $30,000, $35,000, I'd love for you to be in the environment where you want to end up eventually. Okay. Oh, and by the way, they might even pay for your school then. Oh, that would be great. Yeah, if you were in a company that needed programmers and you were studying programming. See, a company like ours, we pay for tuition if it's something that you can use working here.

Okay, so we'll pay for your school when you work for somebody like us. And we need programmers. So, you know, if you in nashville as an example and you came in in an administrative role or in a marketing role or some kind of a support role because you're not yet a programmer but you know we would send you to programming school if you want to go because we need programmers now i'm not sending you to nursing school because i don't need nurses okay but you say so i'm not doing that i used to pay for all kinds of education then i figured out i was paying for them to leave, and that wasn't smart.

But I don't mind training you for something that we need here. And there's lots and lots and lots of companies that do that. And we're not a computer company, but we obviously have a lot of digital properties and a huge number of programmers on our team and so forth. We're a very digital company, but most people think of Ramsey Solutions, they don't think, oh, computer company, right? But there's all kinds of stuff like that in Dallas. Yes.

So let's start thinking about something a little bit where you might end up, see if they'll pick up your tuition. That would help a lot. Yes. Okay. I can definitely do that. And then it would be worth maybe taking a little bit less on the money, and you get rid of this ridiculous car payment.

You'll be in good shape. Just get you a beater till you get through this because if you can if you can learn a program and get out and and you know you can do ruby on rails or you can do java you you can make a really nice living uh double triple what you're making now or double triple what you were making at the other place quadruple five times what you're making now and then you can go get you a car that you pay cash for. But no, we don't take out student loans to pay off cars that we already can't afford. No, no, no, no, no, no.

We just admit we can't afford it. We get rid of it and take a step back, get yourself on solid ground, scratch your way through this. You can do it. You're worth more than you're being paid right now. Let's get a better plan. Thanks for calling in. Open phones at 888-825-5225. You jump in. We'll talk about your life and your money. And we appreciate

you joining us. Eric is on Twitter. Dave, what's the difference between annualized returns and cumulative returns? Well, I think what you're difference between annualized returns and cumulative returns? Well, I think what you're talking about is average annual returns. If you take the return on mutual fund for 10 years and it was 100% or 120% for 10 years and you just divide 120 by 10, that's the average annual return. Okay? It's a very simplistic, primitive way of looking at returns.

And it's a fine way to do it. There's nothing wrong with it. I use it all the time. And I like it. The cumulative is what rate would create 120% return over 10 years. And it would not be a 12%

rate that would create that probably be more like 10 would create 120 percent maybe 10 and a half something like that depending on how many years it was but something you know in other words the formula is different because it's it's like when you have a thousand dollars and you have a 10 percent rate of return you get you get 100 bucks so the next year there's eleven hundred dollars if you leave it in there that's called compound interest and then if you get ten percent on that the next year you get you'd not get a hundred dollars but you get a hundred and ten dollars if you put that in there the next year you're ten percent on that would be a hundred

and twenty one dollars because twelve hundred ten dollars there by then. So that's the compounding effect of the money going up in value, but the cumulative interest rate would be lower than the average annual interest rate in terms of what the compounding effect, because of the compounding effect. And you'd put that in the calculator. You can run it either way. But it's really not so different that it says oh don't save money or do save money it doesn't say any of that all we're trying to do around here is get people to invest and if people follow the stuff that we teach they

become millionaires now my mutual funds my mutual fund portfolio has had an average annual return of well in excess of 12%. Most years it's had a compound, a cumulative above 12% over time, depending on the fund and which ones I've got. My portfolio has done very, very well. But what matters is this. Was it 12? Was it 11? Or was it 10.5? I'm a multimillionaire.

It worked. That's what matters. When I do these millionaire theme hours, it worked. The millionaires. The millionaires never go, Dave, you know, when I ask them, when I ask somebody who's got a $2 million net worth, and most of it's in mutual funds in their 401K, you know, 50%, 60%, 70% of it is of their net worth that made them a millionaire

or a two-millionaire or three-millionaire is in a 401k in mutual funds. They never – I ask them, have you got advice for a 25-year-old? They never go, oh, be very concerned about the cumulative versus the average annual. They never one time as a millionaire said that. They said, be very concerned that you start investing and you keep investing. That's what they said over and over and over again. Getting people started investing, keeping them investing is a lot more important than cumulative versus annual. So don't get paralysis of the analysis, sir. That's what you can get. Real careful being

super nerd and you can talk yourself out of being rich. That puts this hour of the Dave Ramsey show in the books. 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. Hey, it's Kelly, Dave's phone screener. We finished 2017 with a bang as the fourth most downloaded podcast of the year. Thanks to all of you for listening and helping us spread the word.