The Ramsey Show - App - Intentionality Is One of the Keys to Debt-Freedom (Hour 2)

Episode Date: September 23, 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. Thanks for being with us. Open phones at 888-825-5225. That's 888-825-5225. James starts us off this hour in Greenville, South Carolina. Hi, James.

How are you? I'm great, Dave. How are you? Better than I deserve, sir. What's up in your world? So this might be a dumb or simple question. I just have no idea and I wanted to get your advice. I'm young and I'm fairly new in my career and actually just changed careers.

So I have a 403B with about $15,000 or $16,000 in it from from my previous job and now i work for a new company and they started me with a new 401k good and so i guess i just don't like i almost forgot about the 403b yeah just because it's outside out of mind um but what would you suggest i do with that is there a way i can roll it over my 401k should? Should I just leave it alone? Yeah, that's not a dumb question at all. It's a really great question, actually. Thanks for asking it. So here's the thing. You can leave it there. And the problem is it's out of sight, out of mind. And getting any kind of service on it with a former employer starts to be difficult because you don't have day-to-day contact. And you have the investments that it's in, it's just in. You can roll it to a 401k over at your new place if you want to.

That's perfectly legal. But you're limited to the investments that your 401k offers. So how many mutual funds does your 401k offer? I am honestly not sure. I took the job like less than a month ago. Did you open a 401k yet? Yes. They started me off with just 3% base going into it.

But you don't know what it's going into? Correct. Okay. Well, that's your first job when you get off the phone. Okay. Never put money in something blindly that you don't even know what the flip's going on. It's your money. You work too hard for it. So you don't even know what the flip's going on. It's your money. You work too hard for it.

So you don't have to be some kind of financial expert. You just got to learn 10, 20 minutes worth of stuff of what you're putting that money into. Okay? Okay. Now, back to your other question, though. We always suggest, typically a 401K, like the new place where you are, will have 10 to 20 mutual funds that you can choose from. Okay? Okay. where you are will have 10 to 20 mutual funds that you can choose from. Okay?

Okay. There's 8,000 mutual funds that you can choose from in the universe. Okay? For an IRA, if you just roll it to an IRA. So we always suggest when you leave a company 100% of the time that you roll your old retirement into an IRA and pick mutual funds. Good growth stock mutual funds. We suggest you spread it across, and I'm going to suggest this with your new 401k too, that you spread it across four types of mutual funds.

If you've got a pencil, write them down. If not, go back and listen to the podcast later growth growth and income aggressive growth and international now international mutual funds means that mutual fund buys stocks and companies that are international duh aggressive means these companies are wild okay these are new companies tech companies something right they're a little more wild growth is medium growth and income is boring as crud okay so you got some wild some medium some boring and crud, and the exchange student in your mix. You see how I did that? Yep. So you've got a pretty good pot of gumbo going here.

There's a lot of different flavors. It doesn't just taste like soap. So you're going to win. That's how my personal 401K is allocated, one-fourth in each of those categories. Okay? Okay. So what I would tell you to do is take is go to dave ramsey.com click on smart vester it'll drop down a little thing you put your name in there

it'll drop down a list of the smart vester pros in your area there in greenville south carolina you pick which one of those people you want to sit down with or you can interview a couple of them over the phone if you want i don't care and then they will sit with you, and what you're going to do is you're going to pick out the four mutual funds I'm talking about to go in your new IRA that you're going to roll your old 403b into. Okay. They're going to have you fill out the paperwork. You're not going to have your old place send the money to you. You're going to have them send it directly into the new IRA. That's called a direct transfer. Okay.

Because if they send you the check, they have to hold 20% out of it. And so instead, we want it to go right into the IRA so 100% of it's rolled over. So a couple of key things. The reason we're doing all of this is if it's an IRA, it's in your name, it's rolled over so a couple of key things the reason we're doing all this is if it's an ira it's in your name it's with your investment professional helping you watch it you're going to you're going to know what the flip's going on yeah no out of sight out of mind you're going to go through the learning experience of learning about a little bit about mutual funds and how to invest this is going to make you a millionaire someday if you learn it and you're in control of the money it's not sitting over at some former

place and you got 8 000 mutual funds to choose from instead of 10 or 20 which means you ought to get better ones okay so that these are the reasons i always tell people to roll their 401k to an ira direct transfer rollover, when they leave. It gives you a little wake-up call, and you go, ooh, that's $15,000 freaking dollars. That's real money. That is real money, by the way. And so really, really good question, James, and really, really good way to get at this. Open phones at 888-825-5225.

Thank you for joining us. Folks, if you don't know some of these things, James' question is what this show's all about. It's where people ask financial questions that nobody knows the answer to, but everybody's ashamed to ask

because they feel dumb. And most financial people suck at teaching they just intimidate and so even smart people go into there and nod their head and act like they know what's going on and they don't have a clue this stuff is really not rocket science they just put ten dollar words on three dollar subjects so they can charge you a commission. It's really not. You need a well diversified portfolio. What? Means you

need to spread it around. Money's like manure. Spread out, it grows stuff, left in one pile stinks. That's a diversified portfolio. Spread it around. Don't put all your eggs in one basket. Some dube in New York's holding the basket.

That's what a diversified portfolio means. You don't have much liquidity. Yeah, I got several cases of water. What are you talking about? Liquidity just simply means you've got the cash at your fingertips. You can get a hold of it. But see what I'm talking about? They take a subject that is really not that complicated.

Investing is not that complicated. But if you put these $28 words on the $3 concept, you can charge a commission for it. And you can drop your glasses down on the end of your nose and act superior. Well, don't let people do that to you in the financial world. If they do that, let me help you with two words for them. You're fired. Financial people's job is to teach you, not bully you. To teach you, not intimidate you.

And if you don't have one of those, if you don't have someone with the heart of a teacher, say it with me, everybody. You're fired. This is the Dave Ramsey Show. Families all over the country are discovering a faith-based and budget-friendly way of meeting health care costs, whether they're anticipated or completely unexpected. For example, take the Olcheski family from LaGrange, Texas. Jeff and Carice had just celebrated the birth of a new baby boy. Shortly after, they had another expensive medical issue come up. They could have faced a huge

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It's okay. Open phones at 888-825-5225. Maxine is with us in Newark, New Jersey. Hi, Maxine. How are you? Hi, Dave. Thank you so much for your work. Thank you.

It's wonderful. Thank you. How can I help today? I'm 72 years old. I'm unhealthy. It's wonderful. Thank you. How can I help today? I'm 72 years old. I'm healthy. I'm retired. And between Social Security and my New Jersey state retirement, I get about $3,800 a month. Wow, good.

I have, I'm sorry? I said great. Yeah, it's really, I'm really grateful. So I have $219,000 in deferred comp, and I have a little over $40,000 in my emergency fund, and I have no debts. My car is paid for. I have no debts. You're incredible. I've been following you for a while. You're incredible. I've been following you for a while.

You're incredible. You've done a great job. Thank you. I paid off $100,000 on my mortgage in the last 10 years. I know it's not as much as other people, but it was at least $100,000. That's impressive, girl. That's impressive. I'm proud of you.

Thank you. That means a lot. I have $68,000 left on my mortgage, but I also have a Roth IRA that has $68,000 in it. So I'm toying with the idea, and I know you're going to say I'm stupid, but should I dissolve my Roth IRA and pay off my house? Listen, listen, you've done too much in this call for me to ever call you stupid, okay? You're not stupid. There's no question about that. Thank you. So here's the thing.

The Roth will continue to grow tax-free for the rest of your life. Right. The other $200,000 is invested in what? What was it in? It's called deferred compensation. Deferred comp, and that is taxable upon removal. That's correct. So it grows.

As it grows, the taxes are deferred. But when you take it out, it's taxed. Right, and I arrange to take out the minimum every year. So I would rather you use $68,000 out of that and let the Roth grow tax-free. I see. Does that make sense? It does. Yeah, the tax-free. I see. Does that make sense? It does. Yeah, the tax-free growth.

The reason it popped up the other way in your mind was it happened to be about the same amount. That's right. Yeah, but the point is, would we rather cash out taxable growing accounts or tax-free accounts? Well, we would cash out taxable accounts because that growth is all going to be taxed as it goes as it gets bigger and this roth doesn't have anywhere near the restrictions on it and of course it has been debt free i mean of course it's it's tax-free so you have done so good thank you oh thank you for saying that. It was a challenge, but I just kept listening to you. Well, you're very, very detailed.

You honed in on the program and thought exactly what to do and when to do it, and you did a good job of your process and analysis. Now, if by pulling out $68,000 out of your 219 deferred comp, which you're pulling income off of, if your income goes down a little, you can offset that by pulling a little bit of income off the Roth occasionally. Okay. I don't want your $3,800 to be $3,100 because we did this, and then you don't get to live the good life because you've earned it.

Thank you. Well, it should, I will have eliminated the mortgage payment. Exactly. Exactly. But I just want to give you permission to touch the Roth a little if you need to, to offset the fact that we lowered your balance on the deferred comp. Okay, thank you. That is very reassuring.

Yeah, if you have to. If you don't have to, since you've got a lower mortgage, that's cool, too. So since you don't have a mortgage anymore at all. Maxine is 72. She's debt free she has three hundred thousand dollars a pension and social security way to go maxine absolutely well done wow that's how you do it you don't want to work your whole life and say i sure hope the government which is well known for its ability to handle money,

will take care of me. I do not want to be working in McDonald's at retirement, unless it's the one I own in St. Thomas. You have to plan. You have to think to be Maxine. All of you want to be Maxineine plus or minus a zero on the left of the decimal but you all want to be maxine well done maxine i love that ali is with us in washington dc hey ali welcome to the day for mc show hey dave how you doing? Better than I deserve. How can I help? Awesome. So, my wife and I are getting ready to close on our first house at the end of October.

And so the purchase price of our house is $519,000. At this point, we're looking to put down 15%, so about $78,000, but that's going to tack on a PMI monthly of $85 a month. Yeah. And so we're looking into, so we also have our cushion, our three to six month of cushion and savings. So we have about $28,000 in savings. And then that would push us over the edge to get to that $104,000 down payment. That would bring us up to 20% and get rid of that PMI.

How much would you have in savings after you did that? After we did that, we would um like two thousand dollars yeah i don't like i don't like that but i'd be pretty tempted to do it to not have the pmi uh i don't like that at all but you've already done this plan before you got to me um if your income is big and you can replenish that really really fast and don't you talk to me about buying freaking furniture for this house while you've got no emergency fund. I'll kick your butt. Okay? But if you'll replenish it in 30 seconds,

you might want to look at doing that. But it scares me, man. I don't like having no emergency fund on a new house. Good way to be broke. Hey, guys. At the Dave Ramsey Show, we really value your input. It helps us to know what's important to you so we can deliver relevant content to help you crush your money goals. We just launched a brand-new survey, and we'd love your feedback. It only takes a few minutes, and you'll be entered to win a $100 Amazon gift card.

No purchase necessary. Take the survey at DaveRamsey.com slash survey or text survey to 33789. on the dead free stage live in the ramsey solutions lobby caroline is with us from gilbert arizona Nice trip over from Phoenix. Good to have you. Thank you. Welcome, welcome. So here to do a debt-free scream. Here to do a debt-free scream. I'm one of your Ramsey Preferred Coaches.

Oh, wow. So you're in the enrichment training this week. I was in enrichment training. Very cool. Good, good. Well, thanks for tolerating my talk yesterday. I barely got through it. It was good. It was the best talk ever. Ever. There you go. I love it. You remembered something anyway. So how much have you paid off? I paid off $185,652.10. Good gracious. How long did this take? Four years and 11 months. Wow. And your range of income during that time? I started at $45,000 and I ended at $72,000.

Goodness. Okay. There's a lot of shoveling going on in these numbers. There is some selling and some shoveling. Shoveling and selling. Shoveling and selling. Yes, sir. So tell me the story. What happened?

Well, I had found myself outside of a divorce and got into a bad relationship. I did everything you say don't do. I did stupid on steroids. I got into a business partnership that I shouldn't have. And I went ahead. And from that point on, I just tried to tread water and tread water and tread water to the depth of about $185,000. So what kind of debt was it? All business debt? Oh, no, sir. Because I use personal to fund the business.

Oh, of course. You know, so I started with the semi truck, which I can't drive because it was a business that we moved cars in. That's $39,532. I had to take a loan against my retirement because I couldn't survive. So that was $50,000. I had a car a loan against my retirement because I couldn't survive so that was $50,000 I had a car because my air conditioning went out and we live in Arizona and it's 200 degrees so that's $25,000

it's dry but it's going to kill you personal loan of $1,000 just to get through one week Home Depot because someone threw a child threw a rock through a window. So $28,000. I was in school.

So $3,200. Credit card debt of $46,000. And I was behind on the phone, cell phone and trash. So you were deep in the kimchi. I was so deep and it was so draining and it was hard on me so much that I couldn't feel it anymore. What happened? We went to a pool to go swimming one night and I had near drowning. Didn't take care of myself then.

Next day, I had a TIA. I lost the sense of taste, touch, smell, and temperature. Wow. Yeah. Wake up. Yeah, someone put everything out, so that way I had to be silent and listen. So what, after you go through that unbelievable wake-up call, the money stuff starts to not matter, but it matters.

Yeah. And you said, I mean, how did you start the journey on getting out of debt with all that? So the way it started was, of course, the business partnership dissolved and I sold the business. That was the first step. Okay. I couldn't think of anything but take care of myself at that point. I was out of work. Thank God I had vacation and sick time available to cover me.

I went ahead and sold the business, but unfortunately, I signed on the truck. And because of that, when the business partner didn't pay on the truck, the truck company came to me, and that was my turning point. And I remember the day that I took that call. I remember where I was standing in my house and I remember them saying, you signed on this and you have assets. And I said, that's it. And I talked to a friend who was going through FPU and told me about you. And I took FPU and my son, who was nine at the time, took FPU with me. And we went ahead and we took it together and he understood that it wasn't no

it just wasn't in the budget this month we'll go next month we'll go next month so the truck got sold that was a big jump yeah that's big how much was that 39 you said 39 5 the big one was the retirement fund because of course they don't tell you when you take the loan that you can't pay ahead if you lose your job or something happens. And of course I was sick. So there was an issue of that. Um, there was going to be problems. So every single paycheck, there was a line that said loan and it just pushed me harder every single paycheck to work more and to do more and that's what i did and so selling the truck what else did you sell i sold only the truck i sold the business in the truck business bring any money the business the business did bring money but the business partner spent it

all so basically selling the business the business partner didn't pay me on it. And therefore there was just collect on nothing basically. So, so you have a whole list of things you will never do again. Yes, yes, sir. Actually. Yes. Yes. Never again. Never again. Never again. Never again. Never again. Never again. Never again. Me too. That's how I got my list. Same way. I love you. You're awesome. Thank you. Well done. Nothing like learning a lesson. Yeah. Wow.

And you're scratching your claw in four years and 11 months, five years later. Yes. You're done. Yes. I worked overtime because, of course, I'm a single mom. So my parents were gone. I didn't have family. I had little friends that would be able to help me with

taking care of my son to get a second job. I worked overtime every day. My son was not with me or anytime I could get it. So if he was in school, I was in work and I was doing overtime and overtime and overtime and overtime just to get out. So when you say you're free, you're free. I am free. I am. I am totally free. I mean, getting in the car and driving to work feels a lot different nowadays. Yeah. Well, when you sit down with someone as a Ramsey preferred coach, they really don't have a choice but to listen to you. You're like me.

You'll bonk them on the head. Yes. The first thing they say to me is, don't judge me, please. And I say, let's talk for a little bit, and then i'll tell you why i'm not going to judge you ever i'm not going to judge you but i will judge stupid and we'll call it because i don't want that for you i've had it yeah we'll move it we'll move it along we'll move it along let's move it along yeah let's put it in the rearview mirror let's go yeah we're not we're not going there we're not you know it's not in the budget we keep moving let's go yeah there's better things for everyone next thing next thing wow incredible yeah And now I'm doing FPU too.

Wow. Yeah. So tell people through this whole process with becoming a coach, paying off $185,652 and going through FPU, what is the secret to getting out of that? Intentionality. Intentionality. Intentionality. Intentionality. I listen to you on podcasts every day. My job allows me to have a headset and I listen to you and Chris Hogan and I listened to Deloney. I listened to everybody. And when I was down, I just listened.

I put it on. I hit a podcast and I put it on and I surrounded myself with where I wanted to go, not where I was. Wow. Thank you. Oh, thank you. You're incredible. Thank you. So proud of you. Thank you very much. Who were your biggest cheerleaders? My son was my biggest cheerleader. My son was my biggest cheerleader. He couldn't be here today because of school, but, um, but he was my biggest cheerleader. And the other day I talked to him, last night I talked to my phone, mom, I'm proud of you. I'm so proud of you. And, uh, I know it hit and it stunk because he said, I had him tell the class what to do as an adult. When I become an adult, what is the first thing I do to make my adult life better?

And he said, I don't take student loans. Wow. So it's, it's sticking. It's sticking a little at a time. Ding, ding, ding. Yes. Well, the problem with this much pain is there's this much pain. Yeah. The only good news about it is it's a thorough freaking teacher. Yeah. You don't have to relearn this lesson. I don't have to relearn this lesson i don't have to ask you will you ever go back i already know the answer no actually my boyfriend's one of my favorite supporters but he met me halfway through all right we got a copy of chris's book for you everyday millionaires so proud of you very very well done all right it, it's Caroline, Gilbert, Arizona. $185,682 paid off in four years, 11 months, making $45,000 to $72,000. Well done.

Count it down. Let's hear a debt-free scream, rock star. Three, two, one. I'm debt-free! Yes, you are! Woo! Wow! Wow! Unbelievable!

Woo! Yes! Woo! Man. In case you were wondering if you could do it, you can go back and listen to that one again. This is the Dave Ramsey Show. Thank you for joining us, America. Wow, that was a debt-free scream now.

Kelly was telling me at the break, our associate producer and phone screener, that we typically run in a calendar year our debt-free screams on the air, whether live in person or whether over the phone. We do one an hour, three hours a day. We typically run $40 to $50 million a year in debt paid off. We keep a running total of what everybody's paid off, right? And with COVID, we ended up losing about 60 days of debt-free screams because we were spending that entire 60 days just ministering to you guys. We put the debt-free screams on hold. Obviously, our lobby was closed.

Our folks were not working in the building for five weeks and so on. And so that disrupted our debt-free screams. But here we are, end of September, and we're still over $20 million as of that scream right there for the year. So you project that out. You know, we're going to be over $30 million, but we're not going to be our normal $40 to $50 million by the end of the year so you project that out you know we're gonna be over 30 million but we're not going to be about our normal 40 to 50 million by the end of the year unless somebody comes in and pays off two million dollars or something uh you could look for one of those kelly that'd be okay you could you could fix this but uh either way it's good it's good life is good open phones at 888-825-5225

ann is in raleigh north North Carolina. Hi, Ann. Welcome to the Dave Ramsey Show. Hi, Dave. Thank you so much for taking the time to talk to me. Sure. What's up? I'm hoping that you can give me the simple solution. Okay.

About a year ago, I had paid off most of my consumer debt. I still have a little. But I have been contributing 15% to my IRA. I know you can fuss at me. I should pay everything off, but I'm almost there. It's like $1,000 and it'll be gone soon. So the big question is the Roth IRA calculation. Mm-hmm. How is your employer supposed to calculate that amount? Your employer doesn't calculate it.

The investment company that manages it's a Roth 401K. It's your employer? Yes, it's through my employer. So it's a roth 401k correct okay all right so the money there's an investment professional somewhere an investment company that is managing administrating this 401k program they're the ones that run the calculation. And so is it not adding up to you? No. Okay.

How much have you put in? I'm deducting 15%. I make about $123,000. So I'm doing well there. Okay. Each paycheck, they're taking out about $464. And you get paid four times a month? I get paid weekly. I'm sorry? I get paid twice a month. Well, that's not 15%. I know.

So I've spent half an hour on the phone with them today asking how that calculation is determined. They couldn't tell me. They sent me to my employer. My employer had me on the phone for half an hour, and they haven't figured it out yet. So I was hoping that you could tell me. My thought was that it would be. Well, I mean, no money has been stolen.

No money has been stolen. They just didn't take enough out of your check. That's, I guess. Well, I mean, do you have a check stub that shows that more than $464 came out of your check? No. Then it didn't. Not for the Roth. They're just not deducting they're not deducting the right amount so so when when you have it deducted for your employees is it done after

federal and state tax it can it can be you know you just set an amount you just set an amount or a percentage before or after taxes or whatever you want to do you can set a percentage depending on how your administrator is doing it who's the administrator of this 401k that you're on the phone with first fidelity okay fidelity should be able to do this they're not they're not stupid um they're they're the largest of the mutual fund families and so uh they're a bit of a bureaucracy but they're they're not they're not crooked and they're not you know they're not and they shouldn't be dumb okay i'd be surprised to find them to be dumb so anyway i think what's happened is is that somebody somewhere in a clerking situation just

entered the wrong amount so all you need to do is just take your if you give them a dollar amount that you want deducted okay and then make sure that that is deducted in the future because apparently they don't understand percentages they make you do it through their website okay we'll jump in can you enter a dollar amount that you want deducted on their website i'll double check but they had me they had to do it by percentage. Okay. And then I guess you need to ask what percentage, does the website dictate the percentage of what

before or after taxes are taken out? Is it gross pay? It should be on gross pay. Well, this is post-tax dollars. Okay. Well, you can do it that way, but what we teach is 15%. Of course, you're not following what we teach anyway, but 15% of your gross revenue, your gross taxes, if you make $100,000, it would be $15,000. Okay. That's what I was telling them, but they were telling me that it would be after the taxes were taken out,

but that's still not 15% after deducting for Social Security, state and federal taxes. So I can't figure out how they calculate that number. Well, they don't then. They don't calculate it on the gross. They calculate it on the take-home is what you're saying. That's what he was telling me. Yeah, so you just got to back into it and go, okay, what is, I mean, your number was, your gross income was what, 123 you said? Correct.

Okay. So take 123 times.15 and then back into what percentage of take home pay that is. It's going to be 21% probably. Maybe 23. Somewhere in there, I'm guessing, but I'm not going to be 21% probably, maybe 23, somewhere in there, I'm guessing, but I'm not going to be far off. Right. And you just play with the number until it creates the deduction that is equal to 15% of 123.

So, yeah, I mean, if you're wanting to follow right down the line on this. But somehow we got way off of that because you've only got 800 bucks 900 bucks coming out uh monthly uh which is more like yeah that's like six percent or seven percent yeah it's more like yeah and that's what kind of threw me off is that there's been a lot going on in the last year so i had made the change in november um well i'm not concerned about it except that it's a it's inefficient and it's a pain in the butt but i'm not concerned that you've actually someone's stolen the difference i think they just took the wrong amount out of your check and it wasn't enough to suit you well yeah goodbye and you know would like to retire someday

yeah yeah yeah so this is why you have to manage your money not fidelity not your employer and you can't just say i had a lot going on so i don't watch my money you have to watch your money just like you have to watch the road you can't be texting while while you're driving. I mean, we all do. I'm not fussing at you. I'm just saying this is what happens. So you're looking for somebody to be pissed off about this, and there's not anybody, unless you want it to be you. Because you're the one who let it go and didn't watch. But I'm not even going to fuss at you for that, because that's just a normal human thing.

It's not a big deal. You're okay. You've got plenty of time to retire with dignity. Get your debt paid off. Get your emergency fund in place. Jack up your retirement to 15% of your gross revs, your gross before tax. And if you have to calculate it with an after tax and back into it, that's not hard to do.

You can do it in about 20 minutes max, 8 minutes, 4 minutes with a calculator. Really, you can do this. And then every month, open your freaking statement and look at it. Just like you every month, look at your checking account and make sure stuff didn't come out of your checking account that is not yours. That's the thing. Hey, thanks for the call. Guys, you would not believe in the typical year of doing one-on-one financial coaching around here, how many times we find people who have had months and months and months and months and months and months of expenses coming out of their checking account that weren't even theirs. They never discovered identity theft because they didn't even look at their own checking account monthly.

If you want money and you want money to grow, you have to pay attention to the money. Wow. This is the Dave Ramsey Show. Dave here. We just launched a brand new survey, and we'd love your feedback. You'll be entered to win a $100 Amazon gift card. No purchase necessary. Take the survey at DaveRamsey.com slash survey or text survey to 33789.