The Ramsey Show - App - Intellectual Gymnastics Will Keep You in Debt (Hour 1)

Episode Date: February 26, 2019

The show about you

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 am Dave Ramsey, your host. This is your show, America. It's all about you. We invite your calls toll-free and nationwide at 888-825-5225. That's 888-825-5225. Dan starts off this hour in Phoenix, Arizona. Hi, Dan. How are you? Hi, Dave. How are you? Thanks so much for taking my call. Sure. What are you? Hi, Dave. How are you? Thanks so much for taking my call. Sure. What's up?

Well, I have a quick question for you. I'm getting married in April, and my fiance and I are pretty much on the same page financially. We have very little debt except for my car loan that I'm bringing to the equation here. And my question was, I have a set amount of about $20,000 in a just a checking account that I was going to contribute to my SEP IRA. I'm a sole proprietor. And I was going to either put that into my SEP or I thought about maybe just paying off my balance of my car loan to be completely debt-free other than our mortgage. And I was seeing if you would have an opinion on that, because that would reduce my taxable income when I do my taxes,

and if that may have a good counterbalance for me. So just seeing what you would think. How much do you owe on your car? $19,000. Okay. All right. If your car was paid for, would you borrow on it from the bank in order to fund your SEP? No, I don't think I'm going to borrow anything.

I just had... Well, that's essentially what you're doing, isn't it? Well... By not paying off the car in order to fund the SEP, it is the exact same mathematical transaction as borrowing on a paid-for car in order to fund your SEP, isn't it? Yeah, I guess that's a good way to look at it, sure. Well, what do you think?

I think I'd pay that car off by the sunset, baby. I'd be debt-free. You can get to your SEP later. You've got plenty of time. And the amount you reduce on your taxes is offset by the amount of interest you're saving on the car. And being debt-free moving into your marriage. But it won't work unless you commit to being debt-free and commit to quit playing games, intellectual gymnastics to justify staying in debt or being in debt, because you'll go back in debt if you continue to do those

intellectual rationalization gymnastics to where you're trying to figure all this out. Look, here's the plan. The shortest path to wealth, all the data points tell us, is to get out of debt and stay out of debt. It's the shortest path to wealth all the data points tell us is to get out of debt and stay out of debt it's the shortest path to wealth so anything else you do is crap you're playing with in your brain it just is so it's easy just pay it off hey man congratulations on the wedding nick is with us nixon dallas hi. How are you? I'm good. Hey, Dave.

I love you, Cheryl. Thank you, sir. What's up in your world? Well, so I have a house, and I have a little equity on it, and I'm trying to figure out what to do with that equity. Either pay off my student loans, have them get $1,000 in student loans, or just sell the house and take that money and buy a foreclosed property and be dead free except for the student loans. What about C, none of the above? How about keep the house and just pay off the student loans?

Well, so I do owe a lot on the house, but I have enough equity that if I was to sell it, I can walk away with... I got that. I got that. So you could sell the house and pay off the student loans and rent, which is one possibility. Do you not like the house? I mean, five years from now, do you want to own that house? I'm not necessarily attached to the house, no.

Okay. And I'm just trying to get out of the mortgage payment, because I'm looking at the amount that I'm paying necessarily attached to the house, no. Okay. And I'm just trying to get out of the mortgage payment because I'm looking at the amount that I'm paying in interest, and it doesn't make sense since, you know, I can get a cash property for the equity that I have. A what property? Something, if I use that equity, just buy a cash property. Oh, cash property.

And pay the student loans. So how much cash do you have? How much equity do you have? Right now it's appraised for about $215,000, and I still owe about $106,000 on the property. And how much is your student loan debt? $70,000. Okay.

Hmm. And what's your household income? I bring home about 60 net. Okay. Are you single? No, divorced. Okay. Children?

I have two children, yes. Okay. All right. I think you can pay off that student loan. Well, if you want to sell the house, sell the house and pay off the student loans and put the other part as a down payment on a house that you do want to stay in, and then let's put that on a 15-year fixed and get yourself in a position where you get that paid off in a reasonable period of time.

I would not sell the house, buy a cash house, and have a student loan. No, I would just pay off the student loan. I'd rent before I did that. If you want to sell it and, you know, use the cash and pay off the student loan and use whatever cash is remaining, you're debt-free, have an emergency fund, and then use some of it as a small down payment on a smaller property, which you were going to move smaller anyway if you were going to pay cash, and put that on a 15-year fixed and pay it off as quickly as you can.

That's what I would probably do. Or I would stay there in that house and fight my way through the student loan debt over the next three years, one of those two things. But no, I would not borrow on your equity, and no, I would not sell the house and buy a cash property while you have student loan debt no i would not borrow on your equity and no i would not sell the house and buy a cash property while you have student loan debt i would not do that thanks for the call open phones at 888-825-5225 thank you for joining us america we're glad you're with us this is a show all about you bills on facebook like about 5 million of you are, literally 4.7 million following me at facebook.com slash Dave Ramsey.

When paying a debt collector, should you get a cashier's check to keep them from getting your bank information? Yes, or prepaid debit card, but do not give them electronic access to your bank account because in an adversarial situation, we have seen them, and a collections situation is adversarial, even if they're being nice, they're adversaries. And we have seen them in all of our years of coaching and counseling

misuse that data and collect more from your checking account than you agreed. Shocking. Almost like thieving. However, it's tough to talk a judge into the fact that they stole something when they paid off a debt with that money that you owe, just not at the agreed amount. And you don't have anything, you know, it's just very difficult to get your money back.

So, no, never give a collector electronic access to your checking account. Prepaid debit card is fine. A cashier's check is fine. A money order is fine. Whatever you want to your checking account. Prepaid debit card is fine. A cashier's check is fine. A money order is fine. Whatever you want to do like that, wire them the money. I don't care, but do not let them in your checking account

under any circumstances. And always get the amount you settled for. If you're settling an old debt, even if it's for the full amount, get it in writing that the amount you're sending them clears the debt. So you know it's over and done with forever and ever. Amen.

Thanks for the call. This is the Dave Ramsey Show. Are high health care costs getting you down? Are you confused trying to navigate your options? Do you wish you could find an affordable affordable biblical solution to your health care costs? Based on New Testament principles, Christian Health Care Ministries, or CHM, helps Christian families, churches, and ministries join together as the body of Christ to share their major health care costs. Christian Health Care Ministries is the original health cost-sharing ministry, a Better Business Bureau-accred organization, CHM members share to pay each other's medical bills. It's not insurance. It's Christians financially and spiritually

supporting each other. It's what Christian Healthcare Ministries has done for over 35 years, and our members have shared over $2.5 billion in medical bills. To learn more, visit chministries.org. That's chministries.org. Christian Healthcare Ministries is a proud sponsor of Dave Ramsey Live Events. chministries.org. Thanks for being with us, America. We're glad you are here. Adam is in Vancouver, Washington. Hi, Adam.

What's up? Hi, how's it going? Good. How can I help? I have a question just about investing and kind of direction that we should go. My wife has recently changed jobs, and so she had a pension through the state that isn't available anymore, so we kind of have an opportunity to kind of start something fresh and just what direction we should go. Okay. Is she vested in that? Can she roll that to an IRA?

She needs a couple more years, and so she will at some point go back to get vested in the future. But that's not at that point yet. Okay. So they don't release the pension to her in a lump sum as an option? Correct. Yeah, that's not an option. And so we're going to keep that there and try to just do something new from here on and then go back to that later.

And the new job she has, do they have a 401K? No, self-employed. Okay. Contract work. Okay, good. And, well, there's two things she can do there. One is called a SEP, a Simplified Employee Pension Plan, S-E-P-P. Okay.

And if you don't have employees, that is a wonderful way to do it. And you're allowed to put in a percentage. It ends up, the calculation ends up around 13.8% of your net profit on the business into a SEP IRA. And you put that in good growth stock mutual funds. Before I did that, I would simply fund a Roth IRA with the first $5,500. You can do $5,500 a year into a Roth, each of you, into good growth stock mutual funds, and I would do those first before I bothered with the SEP, and then I would do the SEP.

Now, if she starts getting employees, the SEP can become cumbersome. Any employees that have been with you more than three of the last five years in your business have to be included in the SEP with the same percentage of their income as you put in as a percentage of your income. So if you put in 10% of your income, you have to put in 10% of all your employees that have been with you more than three of the last five years. So I did a SEP in the early days of my business, and then I just rolled it to a traditional IRA at the time that I started having team members that had been with me more than three

of the last five years. But in the early days when it was just me and then when it was a couple of others that hadn't been there three years, I started with that, and I did traditional IRAs as well. Nowadays, you do a Roth IRAs, then do the SEP second. And it's a really good way to put some money into retirement, get a good growth stock mutual fund. If you need more information on SEP or how to do stuff as a self-employed person like that, just jump on SmartVestor.

Click SmartVestor at DaveRamsey.com. Put in your info. It'll drop down a list of the SmartVestor Pros investment professionals that we recommend in your area. One of them will sit down with you and walk you through the detail on that. I'm not in that business, but that's how you find the people I recommend. Brent is with us in Phoenix, Arizona. Hi, Brent. How are you?

Hello, Dave. I'm doing good. Thanks for taking my call. Sure. What's up? Well, my question is I'm getting about $40,000, and it's going to be inheritance. I owe $9,000 on credit card. I'm going to pay off my car.

That'll be $12,000. I have no other debt. And I'm going to spend some of the money. There's a few things that need to be done to my house. So I want to take at least $10,000 and invest somehow. I'm 58 years old, so I'll probably start a little late in life. I don't know whether I should put it in a 401k, an IRA, a Roth IRA. I'm confused.

I've studied it, and I'm confused totally about the three. Gotcha. Okay. Well, with that $10,000, I would not do that. I would become debt-free, and I would do the repairs to your home, and I would get on a good, tight, written budget that you and your wife start looking at. Jump on EveryDollar.com and get that. Start doing it. It's easy to do because if you don't make the money that you have, behave,

your $10,000 is not going to be near enough anyway. You're going to have to do a lot more than that. So we teach a thing called the baby steps which we have shown to be the shortest path to wealth debt free first emergency fund is baby step three a rainy day fund of three to six months of expenses i'm going to use the ten thousand dollars towards that okay then i'm going to have you start putting 15% of your income towards retirement, which is the questions you're asking. The Roth IRA or a Roth 401k operate exactly the same way in terms of how taxes are calculated. They grow tax-free, but there's no tax deduction on the money you put in.

But the growth will be the larger portion of your money anyway. And so you put money into the 401K or the Roth 401K, Roth IRA. If you do not have a Roth 401K at work, and it's only a regular 401K, then I would do a Roth IRA at home. That's better, unless they match. Do you have a 401k at work? Yes, I do. I'm only contributing 3%.

Now I'm thinking about bumping that to 10, and they match 50%. Okay. Bump it up to 10, that's fine. Get that match. And if they allow you to make that a Roth 401k, do that. Then, in addition to that, I want to get you to 15% of your income, so you can pick up a couple of Roth IRAs as well. At your age, you can put $6,500 a year for you

and $6,500 a year for your wife into that, into good growth stock mutual funds and get that started. And just like I just told the last caller, if you need help with that, just click smart vestor at davramsey.com to find the folks in your area that'll help you get that done that we recommend elizabeth is in raleigh north carolina hi elizabeth how are you i'm great how are you better than i deserve what's up hey um so we are new to um to Dave Ramsey, and we just started the Baby Steps. We just finished Baby Step 1 yesterday.

Yay! Yeah, and we are starting Baby Step 2 today. I was listening to some of your stuff on YouTube, and something was about active debts and dead debts. We have one charge-off, two collections, and four active debts that are all current. My question is, do you smallest to largest with the active debts first? Yes. Okay. The reason is you're actually paying money on those.

The others are just sitting there. Gotcha. So you don't gain any room in your budget by paying off the old ones. Because you're not paying on them right now anyway. So let's pay off... When you pay off an active debt, you gain

room in your budget because you don't have that payment anymore. Okay. Is that logical to you? Yes, sir. Thank you very much. So run two debt snowballs, one with the active and one with the inactive. The inactive just lays over there until you clear up the active debt, and you pay your way off the minimum payments on everything with the little debt and attack the little one.

Now, how much debt have you got in the active debt list? We have, don't laugh, we have a leased car that's $9,000. We have a care credit at $4,000, Best Buy at $1,000, and Capital One at $1,000. Okay, so $15,000, $16,000. Yes. And your household income is what? $57,000 combined. So how quick are you going to pay off $16,000?

I don't know. Okay. Well, $57,000, $16,000, we've got to eat. I'm saying less than a year. We also have three children. I'm saying less than a year. Yes. You ought to be able to pay off $16,000 making $57,000 in a year.

Would you agree to that? Yes. Okay. Makes sense to me. It's about $16,000, making $57,000 in a year. Would you agree to that? Yes. Okay. Makes sense to me. It's about $1,500 a month out of your budget, beans and rice, rice and beans. Kids aren't going anywhere. We're not going to movies. We're not going out to eat.

We're cleaning up this dadgum mess. Then when you don't have any payments but a house payment, is that going to feel good? Yes, sir. Amen. Then we'll work that other debt list. How much debt is on the inactive debt, the old debt? There is a charge-off from a repossessed car that is $5,700. And then like a gas bill, I think is what it was, is $243. And AT&T, which is...

So you'll get that all cleared up very, very quickly. When you get ready to go to that car repo one, make sure you offer them less because they'll settle for about a quarter on the dollar usually as far as if you're giving them cash on the barrel head. So you offer them $1,000, $1,500, $2,000, you'll settle that $5,700 right in there. This is the Dave Ramsey Show. Let me tell you a story about two families that are very much alike in a lot of ways.

Both families have two working parents and a couple of young kids. Each has debt and has struggled to make ends meet. But they're starting to make headway with their budgets and smarter decisions with money. They have dreams and plans, and the only real difference is that one family has the right amount of term life insurance and the other doesn't. Big difference. If one of the parents die, and that does happen, their well-being would be destroyed. Paying for the mortgage, utilities, food, and other bills would be impossible let alone saving for education or retirement that's why every day i talk relentlessly about getting term life insurance just go to zanderinsurance.com or call 800-356-4282 and see how inexpensive it really is

be the family that takes those deliberate steps to be different and responsible. It really does make you the hero of your story, and you're wondering, do I really need somebody to do my taxes, a tax professional? Well, simple one-income returns might not require a tax pro's touch. But if you bought a home, started a new job, you got a side gig, you got major life change, you had a baby, you might want to consider letting an expert file for you. Here's why.

Would you want someone who has all of their medical knowledge from the Internet doing a major surgery on you? No. I mean, they got their laptop open while you're wide open on the table. That doesn't sound appetizing to me. Nope. Nope, nope, nope. Doing your own taxes, that's about as ridiculous. So leave it to a pro.

If you're not sure, we've got a quiz you can take that'll tell you. Go to DaveRamsey.com slash tax quiz. You need to get every dollar you earned. Don't pay any more in taxes than you should. And people who use one of our tax ELPs get nearly $800 more back on taxes than on average compared to those who use software. It's that important. So regardless of what baby step you're on, you avoid mistakes, you avoid audit risk, you make more money.

Good deal. So check out Endorsed Local Providers, ELPs for Taxes at DaveRamsey.com. Matthew's in Indianapolis. Hi, Matthew. How are you? I'm doing well, Dave. How are you? Better than I deserve. What's up? Well, I just recently started getting serious about paying off my debt. I've got about $21,000.

And I think I can get it all paid off within 10 months. Good. Now, I did live very normal for quite a few years, so I bought a BMW like an idiot with debt, obviously. But I can pay that off within 10 months. Is that something where I should downgrade, get rid of it, and drive a beater, or should I just pay it off in 10 months? I'd pay it off in 10 months unless it's a large percentage of your life. What's the car worth? The car is worth about $17 17 and what's your household income um net when i pull in is uh about 5400 5300 okay well you know what i figured out is cars go down in value

quickly um all of them and uh so if you have too much tied up in things that go down in value quickly, all of them. And so if you have too much tied up in things that go down in value, it's tough to get ahead financially. And the way I've kind of the ratio I kind of figured out mathematically is this. If all of the things that have a motor in them that you own, all of your vehicles of any kind added up equal more than half your annual income. You have too much tied up in things going down in value. You do not. Yours is only 17. You make 80.

Okay? So you're fine on that. It's a reasonable car in your situation, and you can get it paid off in a reasonable period of time. I wouldn't tell you to go buy it on payments, but you're there today. I would say keep that car, especially if you like it. Oh, I love it.

Which car? Which Beamer is it? It's a BMW 320 xDrive 2014. That's a sweetie. That's fun. Yeah. That's a fun car. Yeah.

Pay it off, man. Just bust it through and keep it. Sounds like you're single, That's fun. Yeah. That's a fun car. Yeah. Pay it off, man. Just bust it through and keep it. Sounds like you're single, right? Yep. Single, just girlfriend. Yeah. But, I mean, it's just you making 80K in a car debt that you can pay off in 10 months. Yeah.

Knock it out, man. Knock it out and keep the car. Don't do it again. Don't go back in debt. Next time you get ready to buy a car, save up and pay for it. But even then, never let your vehicles be more than half your annual income because that means you got stuff tied too much tied up in things going down in value that's just the rule of thumb it's a good idea richardson is with us in fort lauderdale

florida hi richardson how are you how you Dave? Good. How can I help? Yes. First of all, I'm really happy to be talking to you. You too, sir. Thank you. I'm calling because I've been here for 12 years. I'm from Haiti, and I've accumulated about $90,000 in debt, and most of it is student loans. Pretty much all of it is student loans. I made a mess. My family's not that aware of a lot of things. I worked in the U.S., so I was trying to figure out things, and that's how I accumulated the debt. I studied nursing.

I got my bachelor in nursing, and I'm studying for my board exam good thank you when will you pass when will you pass your boards um i plan on taking it um in april okay good taking a review course for it to make sure that everything goes smooth sailing amen well y'all get that and and then go to work like a maniac. Yes, that's what I plan on doing. I also am a scholarship recipient for Memorial Hospital in Florida. What does that mean? They're going to pay off some of this? They actually gave me a $16,000 scholarship to help me pay for school, and then I'll be working for them for two years.

That's what it entails. And return for $16,000 scholarship? Yes. Basically, it's like a sign-on bonus. I'll have all the benefits, all the regular startup pay. I just got to work for them. That's it. Okay.

But they've already given you the $ 000 yes they give it to me um back then i paid school with it and that's where the mistake came and i went to a very expensive school and it's not just that school but it's like in the beginning i started with medical assistant and i'm trying to figure things out learning english and everything all right here's what i want to do though with as a nurse you have the ability to work like a crazy person and make a lot of money in a short period of time and just really like 80 hours a week, okay? And that might be that the 40 hours are at the hospital,

and it might be that a hospital across town you're working ER or a convenient care clinic or whatever. I don't care. I want you to work, work, work, work, work, work, work, work, work, and make like $120,000 next year. Okay. I don't have a problem with working because right now I actually work like 77 hours a week. Yeah.

What do you make now? Right now I make, let's see, after tax it comes down to $2,600 a month. On 70 hours? Yes, because I make only $9.68 per hour because I work as a home health aide. Gotcha. Okay, so I want you to get really good jobs that pay a lot, and I want you to work like a crazy person and make $120,000. You do that, you can clear up this debt in under two years.

Oh, man, that would be awesome. Yeah, but you've got to see, I mean, think about it, $120,000, $45,000 out of $120,000, that pays off $90,000 in two years. Man, that would be awesome. Yeah, but that's going to be you got to be real careful to take jobs that pay well and work all the time that's the good news about nursing though i mean you've got the ability to do that it's a great space because there's always a shortage there's always a need i mean you can always find a gig somewhere and uh it's just the thing to go do definitely definitely definitely hey thanks for the call.

Sarah's with us in Phoenix. Hey, Sarah, how are you? Hi, Dave. I'm doing well. Can you hear me well? I can. What's up? Okay, thank you so much for taking my call.

So I'm calling you extremely motivated. I have an ultimate goal of being a certified nurse midwife. I am in Phoenix, Arizona right now. I'm a 22-year-old college student and right now a nursing major. I do have to get my RN in order to accomplish this. So I am at the very beginning process of all of this, and I just need your confirmation on if I'm doing this the right way. So I am debt-free, and I am currently living at home to save money to pay nursing

school and cash flow it. The program overall is going to be two years and it is an accelerated program. It costs around $15,000. That's just with all the books and everything. Now, again, I plan on cash flowing that I am debt free. And right now I'm working as a, I take calls at a call center and I make, I think around like $10,000 a year. It's not a lot, but this is just temporary. So now after I graduate, I plan on obviously going for the master's in science for the nurse middle degree. The cost of that graduate school is going to be around 90 to 100k so my next thing is first of all am i doing this am i on track so far you're on track until you got to that part um i'm not sure that you're going to get an roi on midwifing that you pay 90k above your rn uh you need to

figure out where you're going to make a lot of money midwifing in order to pay 90K to take that next step. And go be a nurse and make the money to cash flow that as your next step. But you're on fire, kiddo. Play through. Play through. Just take that free as you're doing it. This is the Dave Ramsey Show. Thank you. Thanks for joining us, America. We're glad you're here.

Rebecca is with us in Austin, Texas. Hi, Rebecca. How are you? I'm fine. How are you? Better than I deserve. What's up? Well, my stepson received Social Security benefits from his mother that passed away.

And he's going to be starting college in about four years, and we have no money saved for him. Can we put some of this money aside into a college savings plan? Sure. And will this lessen how much money he receives? Receives from what? From the Social Security. For college? My husband seems to think that if we put money into a savings account, that that's going to decrease the benefit that he receives.

No. Okay. I didn't think so, but I just wanted to make sure. You can put it in a savings account in your name if you want. Okay. I didn't think so, but I just wanted to make sure. And also, I was reading that. You can put it in a savings account in your name if you want. Okay. And I was reading, though, that we can only put the savings into, like, those state-run college plans and stuff like that that you don't like.

Who said? Well, I was reading online, and that's where I'm getting all confused with all the information that's out there. Okay. You can put the money where you want. You don't have to put it in college at all. You can spend it on the electric bill. Okay.

It's completely... Okay. The money's just part of your household income. Okay. And, you know, it presumes that you're taking care of the child. If you're taking care of the child, you child, you can do whatever you want to do. Okay. There's no obligation for you to put that money in a certain place one way or another.

Do you all have other children? No. Okay. Do you have debts? Yes. And what's your household income? Growth is about $180. Mm-hmm.

Okay. How much debt do you have? Right now, it's about $85. On what? My student loans, car, truck. We remodeled the kitchen. So those are our basic ones. Because we've already paid down like about $70,000.

We've been doing the baby steps. Oh, good. So when do you expect to be debt-free? At the end of this year. Good. And when will he go to school? In about four years because he'll be starting high school next year. Okay.

For about four and a half years. Okay. Well, I suspect you're cash flowing college by and large because this the social security member number piled up this payment piled up for four years it's not going to amount to much okay not enough to send him to school okay right and what we what he was going to be doing is um the high school that he goes to they give him a college credit so it's going to be like is the high school that he goes to, they give him college credit. So it's going to be like a dual thing.

So he could graduate with an associate's degree, and then we would just put the last two years. Yeah, that's great. But just the same, you're going to use some of your $180,000 debt-free income to cash flow college. So my point is what you do with the social security money is not really relevant it's okay whatever you do with it if you throw it all at your debt and you get out of debt a little bit faster and then you use your income to build up uh to build up a college fund to send the kid to school then that's okay too there's nothing wrong with any of that um and that's usually the direction we go but uh there's no requirement that the Social Security money that is received be left in that child's name, morally, ethically, or legally.

Because you're taking care of this child and have all along a lot more so than what Social Security has paid in. Emily's with us in Chicago. Hi, Emily. How are you? Hey, Dave. You're breaking up. Try again. paid in emily's with us in chicago hi emily how are you hey dave i'm you're breaking up try again how are you facebook live loves you oh thank you how can i help hey i'm calling because um my husband and i he um i stay home and he is 100 commission so although he averages about 110 a year um we are just starting to get gazelle and knock out these baby steps but i feel like we're constantly in limbo between

two and three because we're scared to tap too much into that savings not knowing when the next commission could possibly be. So my question for you is... How long has he been straight commission? Five years. Okay. And how many months of zero has he had? Zero. Okay.

And so what is his low month? If he has a low month, what does it look like? So we keep $6,000 in our our checking that wasn't what i asked i asked if he has a low month what he has what a low month looks like um so that's a low month would be i mean four thousand okay and a high month is, what, $12,000? Yeah, a high month could be, gosh, $40,000 on a really good month. And so what does it take you to operate your household? How much income a month do you need to operate a household, minimum?

$5,500. Okay, so you need $1,500 max. How many times have you had three, four-month, $4,000 months in a row? Zero. Correct. Yeah. So use actual math and actual history, not feelings, to decide how much you need to have set aside. You need your $1,000 emergency fund as baby step one. And then you need what we call a hill and valley account, which is the money set aside for the valleys when you're up on the hill.

But $6,000 is pretty rich. You only need $1,500 times two, maybe $3,000 in there. Okay. And then if you use that money, then replenish that in another up month. But I would keep about $3 three grand in a hill and valley account about a thousand in your emergency fund because with what you're giving me historically you never have needed more than that right yeah you hit the nail on the head when you talk about feelings that that's just it yeah it's just it and and and the thing is we're getting out of debt which is even

going to make it even more stable. Right. So how much longer before you get baby step two completed? Well, we're just started, so about 21 months. Okay, cool. But in 21 months, you have no payments, see, except your house, right? Exactly. So we just stabilized everything. It changes everything when you do that.

So you've got 21 months you have to work this hill and valley idea against your emergency fund. Then you build a full-on emergency fund. But I probably, in addition to your regular emergency fund, would always keep a hill and valley account, you know, to smooth out the volatility is what it amounts to. And so good question. Good question. You're stepping on to. And so good question. Good question.

You're stepping on it. You're paying attention. And make sure if he's in sales on this straight commission that he's involved with you on all these decisions. I want him to feel the weight of all these steps, the weight of the baby steps, the weight of the death snowball. Because I'll tell you what that does as a sales guy myself is it gives me incentive. It gives me an angle, what I've got to go get. It shows me what my goal is. And salespeople have a tendency to increase their income dramatically when they have a very clear reason to do so

and a very clearly defined amount of money that we need to hit. So when you lay that 21 months out there, he may very well bring that in in 16 months if you've laid it out there really, really clearly. And that's it. Hey, thanks for the call. Open phones at 888-825-5225. You jump in. We'll talk about your life and your money. Dusty's on Facebook. About 5 million of you following us there on Facebook.com slash Dave Ramsey. Thanks. Dave, how do I cancel my credit cards? You chop them up, and you call the company and say, I want the account closed.

And then you will have to argue with them for about 15 minutes because they are very good salespeople. But if you'll open up and say, I'm doing the Dave Ramsey thing. It's the first thing out of your mouth, and I want my accounts closed. that will shut down a whole bunch of the crap that they try to shovel in your direction. Because they pretty much have figured out Dave Ramsey followers are going to close the account no matter what they say. So it short circuits the 10-minute conversation down to about two minutes. Usually. Not always, but usually. So you close the account.

Now, the account cannot be closed when there's an outstanding balance. So you've got to cut up the credit cards, get it paid off, and then close the account. But make sure you take those steps. Very, very smart to close those up and get them all cleaned up. It really sets you up for a lot of fraud when you've got 14 of these things out there. And your wallet's so thick, it causes your hip to be out of place. This is the Dave Ramsey Show. Hey guys, this is Blake Thompson, Senior Executive Producer of the Dave Ramsey Show.

Did you know over 15 million people listen to The Dave Ramsey Show every week? And a lot of those people listen to one of over 600 radio stations across the country. To find a station near you, head to DaveRamsey.com slash show.