The Ramsey Show - App - Investing Basics: Where to Put Your Money (Hour 1)

Episode Date: March 15, 2019

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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 am Dave Ramsey, your host. You jump in, we'll talk about your life and your money. It is a free call at 888-825-5225. That's 888-825-5225. Joe starts off this hour in Dallas, Texas.

Joe, welcome to the Dave Ramsey Show. Hey, I appreciate you taking my call. I have a question that kind of dovetails into your entree leadership section you had a couple days ago. Okay. If you don't mind. Sure. So I have an aviation company that's kind of been a one-man show for many years, but in the last few years it's been growing, and I've been hiring employees.

I'm up to four now, so it's pretty small. But here's the question. How do I pay for it? I'm a believer in pay for performance. Some of the areas of my company don't really have a performance that's hinged to a number as far as production or things of this nature. How do I go about paying employees that could be hinged to performance without having to open up my books to them

in order to pay off a profit. And if so, is there ever a time where you want to open up your books to your more trusted employees? Well, we do it several different ways here. Obviously, I would put the receptionist on straight commission if I could figure out a way. I like everybody having skin in the game. You know?

I love that. I've been on straight commission running my own business my whole life. I don't even know how to think otherwise. But there's a lot of people who don't think that way. So, a couple things. Obviously, you can do commissions where there's something that's commissionable. That's not really what you're asking about. The second thing you can do

as you get a little bit bigger you're not going to do it at this size now but i have um several team members here that are trusted and are seeing the entire set of books but there are our top echelon of leaders there's um 15 or 20 of them out of 800, to give you an idea. Right. Okay? And they're paid off the bottom line. They're paid as if they were partners. Some of them are paid off the bottom line of the business unit that they run.

For instance, we might have an SVP of financial peace, and whatever the net profits of financial peace are, that SVP might get paid off of that. Our operating board members here are paid like partners. They're paid completely off the bottom line, and there's 15 of them, okay? Well, there's not 15 off the bottom line, but there's 15 operating board members. So they're different types. The Ramsey family doesn't get paid the same way in that regard.

So you're retaining 100% ownership at the end of the year when there's money left over no every month every month we pay it out but uh but i have a hundred i have a hundred percent ownership but we just close the books and your bonus is based on the profit of the company that's simple and uh we close the books each month you know by the 15th and we'll close them by the 7th and pay out on the 15th of the month following the uh that's a pretty complicated method and i really wouldn't suggest that with four people. That'll drive you nuts. Okay? Kind of the more traditional thing that we do is we have profit sharing.

Now, one of the core values we have on the back wall of our conference center where we all meet twice a week and we talk about this out loud at least once a month one of the core values of this organization is we share the profits i believe in dancing with the girl that brought you you know and so if you if you're in here and you're killing it for 10 years you ought to be sharing in the profits more than somebody's been here 10 days but if you're in here and you're killing it we ought to share with with you. It's that simple. I don't have a desire to make a bazillion dollars and nobody in this place be paid reasonable wages plus sharing in the profits. So they're sharing in the profits. Now, what I do there is before all those other people get their split and before I get my split, those people off the bottom line, a line item of expense in their P&l in our pnl is profit sharing and we just get to the

bottom line of profits and we call it net profit one and before we get to net profit o which is the bottom line um you know we take out uh an emergency fund percentage, funding retained earnings. We take out a percentage for funding HR activities. We take out a percentage for profit sharing. So, in other words, every single month, we take a percentage of our profits and set them aside to share with our team. And there's guidelines on how we're sharing with the team. We do not tell them what that percentage is. In other words, they don't know what percentage of my bottom line I share with my team.

They don't know that. But what we do tell them each month, every single month from the stage in staff meeting is profits last month that you're going to get a part of went up 7% over the month before and 14% over this time last year, okay? Which means profits are better, so that's probably going to mean good news. Oh, by the way, we have 14 new people in the profit-sharing plan because you have to be here a year before you're in it, okay? And so they've come through their year, and now they're in the profit-sharing plan.

And so while profits have gone up, there's more people eating at the table. And so the average profit-sharing check this month will go up by 2.4%. And we tell them that. And so if you know what you made last month, you know you're going to get a little bit more this month. Or profits are down this month because we didn't collect this item. Or we had this big expense come through on a server. Or we're moving to another building and we're having to pay for all that crap.

And it comes out of profits. And so this month profits are down an average of this. And we give them some indicators relative to where they were before, but they do not know the percentage, because I may adjust the percentage up or down of our profits that we allocate. And there's no need in them trying to back into what the profitability of the company is. It's a privately held company. That's not a known fact.

Right. And if they've been with the company a long time, or if they have a particularly valuable position, or they're paid commensurate with the value to the company, in other words, the secretary's paid less than a board member or something of this nature. Well, board members aren't in profit sharing. They're eating off the bottom line. Anybody that's got commissions, in our case, above $100,000,

or if they're in leadership and they make above $200,000, they're not in profit sharing. They're making plenty of money shut up. You know? This is for somebody who's down here grunting it out, and I want to be able to share with the receptionist. I want to be able to share with the live event producer that's making $60K. I'd love for them to have another $10K or $15K out of our profits that year

and get them up way above market in terms of their total earnings, but they don't have a way to do that because they're not on commission. Right. I understand. But they do want to pick up a piece of paper out of the parking lot because if there's 800 of us dropping a piece of paper, that means we have to hire another maintenance person and profits just went down. So treat the freaking place like you own it. You're self-employed and you will keep the profits going up and therefore your personal

wallet will be lined. Plus, you have the pride of ownership of being part of a team that has a sense of being self-employed. So everybody's self-employed. We share the profits. These are two of our core values. They're both reflected in that whole system. And that's how we do it. And we've changed that over the years, but that's, you know, the whole purpose here is A, be generous with the people that are excellent. B, get rid of the people that aren't excellent. This is the Dave Ramsey Show.

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I am so excited to talk to you. I'm so nervous, but thank you so much for taking my call. You'll be fine. I'm glad you got through. How can I help? Yes, me and my husband are going to be done with babysit in about five days so we're super excited um but we are going through all of our insurance making sure everything is in line and we're struggling with whether you okay i'm struggling to hear your phone it's breaking up can you get where you can get a clear signal

oh i'm sorry can you hear me yes ma'am better that's much better thank you thank you thank you um we are finishing up with baby step two in about five days um so thank you for everything and we are going through our insurance policies to make sure everything is in line and we are just wondering your opinion on if we would need umbrella insurance um because our our income is kind of high, but we do still have a mortgage as a debt. A mortgage doesn't do it, but what is your income? About $200,000 a year.

Yeah, I'd pick one up. Okay. There's two reasons people would target you for an excessive lawsuit of liability. For instance, in a car wreck or they fell off your front porch or your house or something like that. What's a liability lawsuit look like and an umbrella policy covers you for liability on your personal home and on your cars and boats and that kind of stuff right so they would target you if you had a large income or a large net worth so you have a large income and they would target you you'd have an you'd have an abnormally large target on your butt. And so because for like $240 in most areas, something like that,

you can pick up a million dollars extra liability coverage, and it attaches to the top of the liability coverage as you already have. It's an additional million dollars. Okay. And so, yeah, that gets them off your back if something happens if you had a an accident that you're even though it was an accident you're liable for the person being hurt or whatever the situation is so yeah definitely pick up an umbrella policy once you've got an income up around you100,500, $200,000, or you're approaching half-million, million-dollar-type net worth, that's where somebody that might view you as quote-unquote rich, oh, goody, you know, kind of a thing.

And the extra-million-dollar policy doesn't cost much. It's one of the best buys. Now, I wouldn't buy it if you make $30,000 a year and you have no wealth built yet. Okay? So as your income goes up, though, and or your wealth goes up, that's when you get an umbrella policy. Good. Good question. Josiah is with us in Reno, Nevada.

Hi, Josiah. How are you? Howdy, howdy. I'm doing good. How are you? Better than I deserve. What's up? Good.

So I got a quick question. I've never invested before. I have no debt, and I'm looking to invest. Great. I don't know what to invest in. Okay. How old are you? I'm 22.

Cool. What's your household income? $1,800 a month. I have no rent, utilities. I got lucky. Why do you have no rent or utilities? Because of the job I'm doing. They're letting me live at their extra house.

Okay, very good. I have car, gas, and food bills. Okay. Car payment? Nope. Nope, no debt. Okay, just making sure. And you have an emergency fund yet built, a rainy day fund of three to six months of

expenses. In your case, that would be $8,000 to $10,000. Working on that. Okay, let's do that before we do any investing. Then we suggest you start putting 15% of your income aside for retirement. Now, what are you doing for a living uh caregiving great so they are not offering a retirement plan i suspect no i'm uh doing filing taxes and putting into social security and whatnot yeah you're doing a 1099 right um i'm self-employed yeah that's what i

mean and all that yeah that's what i thought Okay. So you should click, once you get your emergency fund in place, click SmartVestor, because you're getting ready to be a smart investor at 22 years old, SmartVestor at DaveRamsey.com. Then it'll drop down a list of the SmartVestor pros, the mutual fund investing people that we recommend. They don't work for me but it's who i recommend in your area you can choose among them on the list and then you sit down and you decide what to do now here's how you invest number one never put money in something that you don't understand because the person you're talking to sounds good. Of course. Never.

Well, of course, but a lot of people do it, of course. Okay? Right. A guy's got a slick suit. I feel a little bit intimidated. His suit costs more than I make, and I think I'm just going to go with old Bernie Madoff here. I think he's going to be great. Okay?

So you don't put money in something you don't understand. The second thing is it's time to understand. So you're looking for a mutual fund broker. Anytime you're dealing with people in the money space, you're looking for someone with the heart of a teacher, not the heart of a salesman. So if it feels slick in there, get out. You don't want slick.

You want teacher. Almost boring. Okay? They're a little bit nerdy in this case and so they're you're going to leave there knowing a lot more after one meeting every time you meet with them you're going to know more than you used to know because you've met with a teacher right and so it's your job to learn and understand what you're going to invest in. I invest in good growth stock type mutual funds.

I also recommend that. I invest in four types evenly spread across those. Growth, growth and income, aggressive growth, and international. I also recommend that for a 22-year-old or anybody else listening to me that's getting started doing their investing. It's what I personally do in my retirement plan. And what you've got available to you is you can do those mutual funds inside of a Roth IRA, which I would recommend is a great place for you to start. If you want to do more than that because you're self-employed and don't have any employees,

a SEP might be a good plan. A Roth? A SEP. A SEP, S-E-P-P SEP might be a good plan. A Roth? A SEP? A SEP, S-E-P-P, Self-Employed Pension Plan. But you would first do a Roth. Okay. Yeah, your SEP.

The first thing you do, the first $6,000 a year you do is, and that's probably going to do enough for you for right now, okay? That's $500 a month. That's pretty strong. You only want to put 15% of your income away, and that's more than 15% right now. So let's just get started with a Roth. Get started understanding Roth, understanding mutual funds, understanding the process. And what you'll do is fill out some paperwork, and it's an automatic draft out of your checking account.

And if you're going to do $6,000, that'd be $500 a month. If you're going to do $4,800, that'd be $400 a month. And you can do that automatically drafted from your checking account. And if you don't do anything else the rest of your life and you start that at 22, by the time you're 62, you're going to be rich. If that's all you do. And that assumes you're never going to get a raise, and you're never going to get any more knowledge than you have today, which are absurd assumptions.

So obviously, you're going to do that. So that's what I would do. Sit down with a smart investor pro, begin the process of learning. Patrick is with us in Longview, Texas. Hi, Patrick. Welcome to the Dave Ramsey Show. Hey, Dave. How are you?

Better than I deserve. What's up? Not much. Hey, my wife and I, we're in baby steps four, five, and six. I started a new job in February where I'm driving my own personal vehicle, and they're reimbursing me the IRS rate. Well, I've kind of noticed that it seems like i'm you know making a little bit of money on that so it's just sitting in a money market account and i'm kind of wondering what we need to do with it uh you would use it just as income because you're not really making any money on it i mean it covers your gas and oil

but it's not covering the depreciation on the car. The lost value on the car is more than the IRS rate, depending on what you're driving. But it usually is more than the IRS rate. I'm sorry. I know what you're getting by. Well, I'm getting by with a Toyota Camry, so it seems to be doing pretty good. But, Ryan, I understand what you're talking about with the depreciation. So if we should just put it in a fund to maybe fund the next car I need down the road. Just treat it like it's income.

Okay. And then out of your income, you're going to fund the next car down the road. But you don't have to allocate this just to the car. It's just income. It's just income, and you have increased expenses and increased income. And, you know, you just treat it as income. You've got to plan for a car in the future when you're on the road like this, and you've got to plan to keep gas in the car and so forth.

And you've got increased expenses and increased income. But they don't have to necessarily match up by category. This is the Dave Ramsey Show. We'll be right back. In the lobby of Ramsey Solutions, Joel and Naomi are with us. Hey, guys, how are you? Hey, guys, how are you? Hey, Dave. How are you? Better than I deserve. Welcome. Good to have you. And you're all the way, where do you guys live? Wellington, Florida.

Oh, cool. And all the way to Nashville to do a debt-free scream. Yep. Yes, sir. Look at you. Way to go. How much have you paid off? Just about $41,000. Good for you. And how long did that take? Took us about 14 months. Good for you. Excellent. Excellent. And your range of income during that time? About $100,000. Very cool. What

do y'all do for a living? I'm a registered nurse. And I'm a patient transport supervisor at a hospital. Great. Okay. And what kind of debt was your $41,000? We had a little bit of everything. Credit cards, student loans, car loan, all mine, but not yours. He inherited it. Gotcha. How long have y'all been married? Almost two years. Next month, two years. Okay, so you got married, and he doesn't have any debt. You got some debt. You guys look up and go, we got to knock this out. Yep. Tell me the story. What lit the fuse? So basically, before we got married, we had pre pre-marriage counseling and we took a survey and we scored lowest in finance because we really didn't talk about it and we really didn't have a plan. Right. I'm glad you took the survey. Yes, me too. We kind of looked at it and was like, we're making too much money

to be living paycheck to paycheck, you know? And I had known about you through my church. I'd actually signed up for FBU before I met him a few years ago and did like one or two sessions online, and it just didn't click. And when we had discovered or did our assessment, I knew that FPU was the way to go. So we had bought it, and we paid it for our wedding in cash, did our honeymoon in cash, and as soon as we got back, we started right away on our budget.

And since then, we've been following it. And that was our main goal, you know, to start our married life off without debt. Okay. So you flunked out the first time. Yes. That was me. It just didn't click. But then Joel comes along and he's like, we're doing this.

Okay. Yep. I needed him. But you also, i'm kind of thinking uh i'm gonna give you a little more credit than that i'm just picking on you but i'm kind of thinking you're going okay i want this marriage to work and i have to address this yes yeah i have to grow up in this area right i know that you know financial stress is a huge stress on marriages and we didn't want to start our life together like that and we didn't want to let it

take you know get out of control. Well, that speaks highly of you. Well, thank you. Yeah, well done. Good for you guys. So that made it easy, Joel, for you to look at her stuff and go, if as long as we're going to work on it, I'm in. Absolutely. Yeah.

Because if she comes along and goes, I kind of like being in debt, that would not have worked well for you. I didn't like it. I thought there was no way out. It was just something I would have to live with forever. And I just didn't, I didn't have the plan yet. It was intimidating. Yes. Yeah, it really was.

And this gave you the courage to get past the intimidation. Yep. Yeah. Good for you. I'm proud of you. Well done, you guys. Thank you. And it helped to have a partner who he never made me feel like it was my fault or anything.

It was always, when we said I i do he was in and it was our debt and you know our thing to solve together and he never made me feel bad about that or any shame so good job joel good job i got a good one here yeah there's no point in shaming me he signed up for the trip you know so this is the trip we're gonna take let's do it game on yeah that's that's the way he should be and i'm glad glad he was. Good job, Joel. Yeah, because sometimes people spend half their life shaming each other. They keep a little scorecard somewhere in the nightstand, you know. And that'll get you in trouble for sure. You guys did this right.

Well done. Thank you. How's it feel? It feels amazing. Amazing. Like, you know, just it took a little while to actually get used to, like, I didn't have to, you know, pay those bills anymore. But now it's just like a deep breath, sleep all at night. You know, it's just so much peace.

No one's accruing interest on us. I love that. No one is interested in you. We're okay with that. That's great. That's the way I want it. Yeah, I like it. Very cool.

Very cool. Okay, so how old are you guys? I'm 36 with that. That's great. That's the way I want it. Yeah, I like it. Very cool. Very cool. Okay, so how old are you guys? I'm 36. 38. So how long has it been at 36 years old since you've been debt-free? Since I was probably, I would say, in college. So more than 10, 15 years. Your whole adult life, basically.

Pretty much, yep. Yep. Okay. And so what was the one that that's been hanging around all that time that when you paid that one off you're like this is gonna work you're going down i hate you you're out of here what was the one my big credit card it was like a balance of over ten thousand dollars and it was just one of those you know every payment went to all the interest and i thought i was gonna just live with it for the rest of my life. Who was it with?

Oh, gosh. I think it was with my bank. I don't know if I should say the name. Who's your bank? Well, it was Wells Fargo. Not anymore. But yeah, it was the bank card that you think you're so lucky to get when you're 19 or 20. That's what I'm...

And later on, you're like, I'm trying to break up with you. This is a toxic relationship. Would you go away? You wouldn't leave me alone. but I got rid of him finally. There's a feeling when that one's gone. Yes, when I hit submit on that last payment, it was just like, oh, yeah, relief. That's a good one. That's worth the fight.

That's worth the struggle. Yes, it was. So what do you tell people the key to getting out of debt is? Well, definitely it was a budget. When we sat down and saw where our money was going, it actually gave, instead of confining us, it gave us freedom, you know. And then, you know, the tithing, you know, really, that helped us out a lot. Putting our finances, our first 10% into the Lord's hands, you know, that kind of, I mean, it guided us through the entire process.

I agree. We do our budget meeting every two weeks without fail. We sit down and even though we're younger, we like the written. We tried the app, but we literally have our papers from FPU and we write everything out in pencil. And then I go back and highlight. And yeah, we like it on paper. We have our little binder, our budget binder and keep everything in there. And, you know, like you said, I had never really followed a written budget. The first time I did that, I was like, whoa, this is where my money is.

This is what I have left over. It's not like paying and like, oop, is it going to go through? You know where everything is at the end of the pay period, and it's freeing. And then the same thing, the tithing. We made a commitment early on, no matter what, to give our first fruit to the Lord. And we have seen so much blessing in finances and just every other area.

There was a lot of roadblocks the first year. Yeah. And just putting our trust in it, you know, it just came back to us. And it was kind of like, wow, this is amazing. Because when you commit to that, you will be tested. But God is faithful. Absolutely. Well done, you guys. Thank you. Very well done. We're proud commit to that, you will be tested, but God is faithful. Absolutely. Well done, you guys. Very well done. We're proud of you. Thank you. Good job. Who are your biggest cheerleaders? Our family and definitely us. We know each other. Our family, we had a few

co-workers who are now, you know, they're interested. Yeah. We're getting people on the Dave team and getting them in and, you know, trying to give them the budget tools and get them involved in FPU. That's fun. And then eventually we want to be, you know, leaders in FPU and teach the class at our church. You should be. What's your church?

We go to Christ Fellowship. Oh, yeah. Great church. Yep. Wonderful folks. They've been friends of ours a long time. It's an amazing church. A good place.

Good place. Well, well done, you guys. Very, very well done. Love it. Love it. We've got a copy of Chris Hogan's Everyday Millionaires book for you. And, of course, you're going to be one. You are on your way. That's the next chapter in your story.

For sure. You've got this thing on the run. You're making $100,000. You've got no debt. 14 months. You knock it out. Well done, you guys. You're a great example. You're inspiring. Thank you. Thank you so much. Glad to have you. All right, Joel and Naomi, West Palm Beach, Florida.

$41,000 paid off in 14 months, making $100K. Count it down. Let's hear a debt-free scream. Three, two, one. We're debt-free! Woo-hoo! Love it! three two one we're done free i love it absolutely fabulous you guys well that's how you do it dave should i get i don't i'm not gonna get married until we're out of debt. Why? You should do what they did. You should agree that we're going to get married and we're going to attack this. 14 months later, they paid off $41,000, making $100,000.

You do the math. That's beans and rice, rice and beans. They were on it, man. They were game on. You should not avoid getting married because of debt. You should avoid getting married because of an inconsistent view of finances and debt. That's what you should learn. Something to think about.

This is the Dave Ramsey Show. Thank you. Leslie is with us in California. Leslie, welcome to the Dave Ramsey Show. Hi, Dave. I'm so excited to talk to you. How are you? Better than I deserve. How are you? I'm doing really well. So my husband and I are currently on baby step six, and I'm calling to ask your opinion about maybe selling a rental home that we own. My husband is a captain in the fire service, and I'm in the Air Force part-time. Before we got married, he bought a house for about $300,000, but it's now worth $600,000.

And we owe $250,000 on that house, and we're renting it out. A few years ago, we got the opportunity to buy the house that he grew up in, and we're going to be here for the rest of our lives. But we owe $780,000 on this home, and it's worth $1.4 million. So I'm curious what you think we should do. Where is the house located that you do not live in? It's about 20 minutes from our house. Okay, so it's in your neighborhood, and it's got a bunch of equity, and the one you're in has a bunch of equity.

And what's your household income? We make about $200,000 right now. That will probably go up to about $260,000 next year when our kids are in kindergarten. Okay, wonderful. Now, making $260,000 a year, how quickly can you pay both of these

off if you want to keep the rental? It's a million dollars. It's a million dollars. It's a million dollars. Nine dollars, about eight years, eight to ten years. That's what I was thinking. And plus, your income's going to go up during that time, probably.

Yes. Yeah, you guys are killing it. You're making a great income. Congratulations. So the only question is, you know, and then you run the calculation. If I sold this property, I would get about $350,000 and throw it at the $700,000, which means I would have, or $750,000, which means I'd have about $400,000 to pay off. How quickly could I be debt-free doing that? Somewhere around four years.

Right. Okay. So you're either going to be in debt four years and not keep the rental, or eight years and keep the rental. Roughly. Roughly. Roughly. Yeah. And when you look at it that way, you can just make your decision then.

Okay. Yeah. For me, it's more just I think I'm from Alabama. I'm from the south. I'm used to just low prices of things and to see like, wow, we have almost a million dollars in debt of our house. It just really overwhelms me. Yeah. But you didn't

grow up you didn't grow up making 260 000 either absolutely not okay so that's the reason if you call me up tell me you're making 60 grand i would have already sold this thing absolutely but you're making 260 and you can plow through it and so i don't care in this case because you can be debt you can be debt free and keep the rental in a reasonable period of time, house and everything. And it's because of your ratio of your income to your debt. Okay. If that ever changes and drops down dramatically, meaning your income dropped dramatically, instantaneously you dump this rental. Okay. But for right now, if you guys really both like the rental and you'd like to keep it

and you're willing to fight through it an extra four years before you're debt-free, give or take, that's the numbers you and I just ran. We just made them up here on the air, but they're not far off. Okay. So it's just about time, what we decide to do. Exactly. It's about when. It's not about if you're going to be debt-free.

It's about when it's not about if you're going to be debt-free it's about when and um you know if it was 24 years versus four years well we're not doing that we're doing the four years right but it's four and eight these are close enough together that i can kind of think this through and make a decision on you know you make your own decision and neither one of them are going to be in the dumb column but you're staying out of all other kinds of debt. You have your emergency fund in place. You're investing 15% of your income, and this is your baby step six scenario. That's all it is.

Baby step six is pay off your real estate, your home, your rentals. Greg is in Savannah, Georgia. Hi, Greg. Welcome to the Dave Ramsey Show. Hey. Hey, what's up? Hey, Dave. Thanks so much for taking my call.

Just wanted to say it's an honor to speak with you. You've been an incredible blessing at our house and hopefully an incredible blessing across our church here in the fall. My question is regarding Baby Step 3B. My wife and I started your plan back in April of 2018. We should be done with Baby Step 3 at the end of this month. We don't really have a 3B to save up for. We don't need to purchase a house. We don't need to purchase any cars. kind of go until the original projected date to be done with baby step three,

which was November of 19, and just use that time to do some work around the house that we want to get done and just really want to know if that's a smart thing to do, maybe we should set a time limit or a budget limit to that. Yeah, you always want to put a target on something and then judge back, is that a reasonable period of time to do that, okay? So first thing we do is, without a doubt, you're debt-free except your house, and you finish your emergency fund of three to six months of expenses

before we even have a discussion. At that point, you are entering the zone of baby steps 4, 5, 6, and 3B, and that kind of stuff. That's where you let your foot off the gas a little bit on the gazelle intensity. That's where you go on a vacation, you buy a couch, you upgrade the dishwasher in the kitchen, you upgrade the car all with cash. And sometimes people delay for a year to do, in your case, renovate a house. They delay a year starting their baby step four investing but i don't want to delay it six years and go buy a bunch of crap

okay so we want to get the baby step four investing going that's that's an essential thing but uh but but it's not like it's on fire or something. So it's not unusual at all. Technically, I mean, you can call it whatever you want to call it. We just made this up, you know, but baby step 3B is always what we called saving for a down payment on a house. Other things is we're just not starting our baby step 4 for a little while because, you know, we're driving a $1,000 car, and we're going to save up a few thousand bucks and get a $6,000 car. And so we're going to tap the brakes in between three and four and do that.

It's a type of 3B, if you want to call it that, or 3C. I don't care. Just make up your own name for it. But the whole thing is you're just managing your cash flow intentionally. No, I do not want to do so many renovations to the house that I delay starting my retirement investing for 10 years. And that's why you do put a time limit on it or a budget limit on it. And you go, this is what we're going to do, and then we're going to start our investing very, very soon.

You don't want to push that out there. You don't want to kick that retirement investing number down the can, down the road, because too far, it'll get you messed up. Tim is with us in Louisville, Kentucky. Hi, Tim. Welcome to the Dave Ramsey Show. Hi, Dave. Thanks for taking my call. Sure. What's up?

So my question is about investing for minors. My son's two years old. We already have a 529 plan set up for him, but I was wanting to set something up so that he has a little bit of a nest egg once he gets out of college, whether it's getting married or buying a house or something along those lines. We've looked at the custodial funds, but I was wondering if that's our only option or if we could just do like a regular mutual fund but just have mine in his name on it. Well, a minor cannot do business, cannot do business of any kind, and they certainly can't do business with a mutual fund. And so the custodial account

is simply the account is in the child's name but it has to have a custodian that's not a minor that's all it is if you open a savings account down at the bank it's a custodial account okay it's the same thing if you open a checking account for a 14 year old the 14 year old's name is on the account but they technically cannot contract with that bank and so technically a 14 year old cannot open a checking account by themselves without their parents name on it as a custodian or somebody's name on it that's a major major that's not a minor as a custodian and so that's what you're dealing with in every case and any custododial account remains in control of the custodian until 21. Right. And at that point, 100% of control goes over regardless of what you want it to do.

Okay. That does make me a little bit nervous. Because, you know, what if in 20 years, you know, God willing, he's a good kid, but in 20 years, he's falling off the rails or something like that. Well, we always just laughed and said, let the beatings begin. Yeah. Well, the other thing is, if there's a million dollars in there and you're doing heroin, I'll just steal it from you to keep you from killing yourself.

I'm the custodian. I'll hide that money until you grow up and just assume me, broke heroin addict, you know. Good luck with that. But legally, technically, you got no control. This is the Dave Ramsey Show. Hey, it's Blake Thompson,

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