The Ramsey Show - App - Making Money Decisions While Dealing with Emotional Stress (Hour 3)

Episode Date: May 7, 2019

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Hi, Evelyn. How are you? Hello, Dave. How are you? Better than I deserve. What's up in your world? So I currently work full-time, and my husband runs a home-based business and we just started an adoption process. So when that works out, I am planning on being a stay-at-home mom. So currently we save most of my salary. So I would

like some advice on whether we should stockpile that in cash right now, knowing that our bills will increase once I quit, or if we should fund our retirement knowing that we won't contribute to our 401k anymore. Are you debt-free? Yes, sir. And you have an emergency fund in addition to this money? Yes, about $115, sir. And you have an emergency fund in addition to this money? Yes, about $115,000. In cash, including this money, or total? No, we have about $115,000 in cash that's set aside for emergency, and then $175,000 for expenses.

All in cash? Yes, sir. There's no chance you're going to need all of that. To start with, your emergency fund should only be three to six months of expenses. Somehow I don't think your expenses are $20,000 a month. No. Okay. So what does your husband make a year off of his business?

Last year he made about $80,000. And you guys can live on that? Yes. Okay. And I assume the adoption is going to cost money? Yes. So we have some expenses coming up, like the adoption. We have to put a new septic in, which is about $25,000, and some other stuff.

So that's what the $175,000 stockpiled for. Okay. Well, adoption and septic shouldn't cost anywhere near that. The adoption is about $50,000. Well, it shouldn't be. Most adoptions are well under $35,000. That's one of the most expensive adoptions I've ever heard of. But anyway, you've got so much cash.

Number one, your emergency fund is at least double what it should be. It should be three to six months of expenses. And so that means you're sitting on over $200,000 cash for what sounds like $75,000 max in expenses. So what's the other $125,000 extra cash for? We just started kind of stockpiling that for the future. I can tell. And so every year that $100,000 is not invested, you lost $10,000.

Well, that money is in Vanguard. In Vanguard what? Money market. Okay. It's not invested. It's making 1%. Yes. And if it were invested, it would be making 10% or 11%.

So every year it's not invested, you're losing $10,000. Per $100,000 not invested. So you need to establish what your reasonable expenses expected are. You need to investigate adoptions a little more. You're getting slayed. But anyway, you need to establish a budget for the adoption, establish a budget for other known expenses like septic, and set that much cash aside.

Then you would set aside three to six months of expenses. If you want to set aside six months because you guys love cash, that's fine. But no more than that of your household expenses. What does it take to operate your household if you had zero income? I mean, it will be more once I quit, though, because we'll need to pay for health insurance, you know, baby expenses once we get the baby. So it will increase.

You know, run a budget. What will it take to operate your household when you're at home with a baby buying health insurance? What would you guess? Just give me a guess. $2,500. Yeah, probably. I mean, we can say $5,000 if we want to, okay?

You guys make good money, so let's just say $5,000. Three months of that would be $15,000. Six months of that would be $30,000. So $30,000, $40,000 is your emergency fund max. The rest of it should be invested above the known expenses that are coming in yeah i would get to investing it i surely would i get your 401ks are way overdue if your husband's self-employed he can look at a sep um simplified employee pension plan if he's got employees he could look at the simple ira which is a 401k for small business there's lots of ways to get some of this money

invested and keep get the government's hands off of it and let it start actually growing. I mean, you're losing $10,000 to $20,000 a year the way you've got this set up for an excess amount of cash. I love that you've saved money. Way to go. Congratulations. But I want that money to work harder for you. You want money working for you, not sitting there at 1%.

Here's the thing. Inflation rate's about 4%. And so the cost of living is going up at 4% while you're only earning 1%. Your money is devaluing at 3% a year. That's what's going on. And so you can't use the money that you need. If you need it for the adoption, that's fine. If you need it for the septic, that's what's going on. And so you can't, you just, you know, the money that, you know, if you need it for the adoption, that's fine. If you need it for the septic, that's fine.

And if you want a good solid emergency fund, 30, 40,000 bucks, that's fine. But above that, the rest of this money should be invested. You're right. You've done a great job saving money. You've done a lousy job investing it. So time to make some corrections on that. Click smart investor at Dave Ramsey.com. If you want an investment advisor to sit down with you and teach you what is safe and careful. This is The Dave Ramsey Show. Are high health care costs getting you down?

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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 joining us, America. We're glad you're here. Open phones at 888-825-5225. Rebecca is in Indiana. Hi, Rebecca. Welcome to the Dave Ramsey Show. Hi, Dave. Thank you for taking my call.

Sure. What's up? I am a single mother of 13 and 3-year-old boys. I currently work part-time, and my job wants me to go full-time. However, my older son has chronic kidney disease and will most likely be needing to start dialysis within the next year. And if I went full-time, I would lose the health benefits that he gets through the state, and the benefits offered at my work would not even come close to covering that and i am not sure what to do about that i feel really really stuck

i also have about thirty thousand dollars of student loan debt how are you how are you eating now i mean you're working part-time raising two kids. Have you got child support coming? No. His dad left when he found out about his medical conditions. I was still pregnant, and he said he didn't want to deal with it. And the next day he was gone, so he's not in the picture. No child support.

He actually signed over his parental rights. So how are you eating on part-time income? We get food stamps. Uh-huh. Okay. And so his care that would not be covered, that is currently covered by the state, were you to take full-time employment and take health insurance with your company, how much would that increase your costs out of pocket?

It would be thousands of dollars. What is thousands? Tens of thousands? Hundreds of thousands? Yes. Five thousand? Five thousand? Thirty thousand?

What would increase your cost? It would be about $30, yes. 5,000, 5,000, 30,000? What would increase your cost? It would be about $30,000. Okay. And that's not including, like, a surgery. So unless your income went up, well, some of it would be covered, wouldn't it? Some of it would be, yes, but not all of it. I would have to come up with that much out of pocket. So you think it will increase your personal cost out of your pocket

$30,000 if you did this? Yes. Especially when he gets to the point of needing dialysis or surgery. And neither one of those would be covered? They would cover about 80%. But it would still be a big chunk okay for me not covered i understand okay i don't think you're dealing with real numbers i think you're making these up while we're talking i i haven't crunched them in quite a while so you're right about that okay good let's let i want you to crunch them because you feel trapped, and we need to figure a path out.

Okay, so here's how you do the analysis. What you've got is a highly emotional, stressful situation. A mom with a child with a chronic illness. If you weren't stressed out by that, you wouldn't be a good mom. Okay? And that affects your decision-making. And so you have to pierce through all of the normal human emotions and actually do some math to help you make good decisions.

I'm not saying you shouldn't have these emotions. You should have them. You'd be a psychopath if you didn't okay but you need to go past that and say let's actually run the numbers talk to the talk to the hr department at your new company or the company it's your current company they just want you to go full-time right yeah okay talk to the hr department and say i really want to go full-time but i've got to look at the insurance aspects of what i've got covered now versus what i would have covered then and help me run some actual math and you all sit down together and go okay i really think and you get some you know dialysis is going

to cost x surgeries are going to cost y and i'm on an 80 20 and i've got a deductible right and so you know you can actually calculate out what a good estimate of your increased out of pocket is that make sense yes right now you think it's 30 but some of that's you hadn't crunched in a while and some of it's just i feel stuck and I feel overwhelmed by the whole situation. So let's run the actual numbers out. Now, then, if it is 30, let's just pretend that that's accurate for a second. If it is 30, then obviously you would have to increase your income more than $30,000 to justify doing this.

Yes. Otherwise, you can't do it until you figure out a way to make an extra 30 000 or you figure out a different job that has phenomenal insurance that's going to cover 100 and pays you full time now there would be the home run right yes which is usually going to be a big company or the government as an employer. And then also how do I kind of navigate that with them because having the additional care of dialysis and things like that means I'd be taking time away from work.

That's a problem. That's a problem. So you've got to increase your income enough to cover your additional out-of-pocket expenses. The better the insurance program, the less you have to increase your income in order to create new extra money for your house. Net of increased costs out of your pocket. Let's just pretend that you found a very flexible employer that would allow you to work some from home and some from work and work 40 to 50 hours a week. Well, there's your way out, right? Is that easy to find? No, it's not easy to find.

No, but it's better than where you're sitting today to be looking for it. Right. And I talked to a lady in another hour, which I haven't heard of this in years. And so it's very unusual, Rebecca. Right. just unheard of that's like a unicorn right yeah but that's what you're looking for you're on a unicorn hunt you got to look for the highly unusual weird thing it's not like you can just walk up and do anything so i don't know if your current employers numbers are going to crunch out and work what do you make with them now 22 a year okay and so if you went full-time what do you think you would make i'd be be at about $31,000. Well, see, that doesn't do it, does it? No, not even close.

Yeah, not if it's truly $30,000 out of pocket. If your $30,000 is accurate, it's not even close. I got that number because his last surgery was about $100,000, including the hospital stay. So I figured 80% of that, you know, covered. That leaves 20. And then, like, he has extra visits to specialists throughout the year, tests and that kind of thing. And just looking at some of the invoices, it'd probably be pretty close, somewhere in that ballpark.

But I haven't crunched it. Well, the thing is, too, what is covered and what isn't when you get there and buy this policy. And you've just got to get into it with them. And insurance investigation is you're going to do the rest of your life to make sure it covers, to make sure it covers, to make sure it covers, to make sure it covers, to make sure it covers. And so, you know, you've got to do that. And you're right. If it is $22,000 to $31,000, if that's your only option in the world

and it increases your cost $30,000, then you're stuck. But the good news is it's not your only option. We start looking for a different position with more income and or better insurance coverage so that differential is not there, that the differential becomes positive instead of negative. In this description, it's $18,000 negative. But, you know, $12,000 increase in pay, $30,000 increase in costs, that's an $18,000 negative.

You wouldn't do that one. But if you could find something that was an $18,000 positive, that's the one you're going to do. And you flip us the other way. So tough situation here and there, kiddo. You call me back any time. I'll help you any way I can. We appreciate you being a listener.

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Check it out, DaveRamsey.com. Megan is with us in Houston, Texas. Hi, Megan. Welcome to the Dave Ramsey Show. Hey, DaveRamsey.com. Megan is with us in Houston, Texas. Hi, Megan. Welcome to the Dave Ramsey Show. Hey, Dave. How are you? Better than I deserve. What's up?

So I need some guidance on how to approach our goal for the near future. My husband and I are on Baby Step 2. Our household income is a hundred thousand. We have, um, 40,000 in debt, which are, um, two cars. I was hospitalized in January. I had a cyst and I became septic. Um, I'm fully recovered. Thank God. But, um, the recurrence is very high, but it could be two months or two years. So the future is very unknown. And I've heard you say to, you know, when you have an emergency or a situation like that to pause the baby steps and save. I'm really wanting to get out of that. And our goal is to move to a better community,

to allow our kids to go to a better school. My husband is wanting to stay in the house that we are currently at and work really hard to pay off the debt and then establish our emergency fund in three to six months. How much is your house payment? Our house payment is $1,100 right now. Can you rent in the community that you're talking about for $1,100? No, it would be roughly $1,800. You sure?

Yes. Because we did the same thing, only we broke even. Meaning that when we were coming out of the very bottom of our story, coming up off the floor from having filed bankruptcy and still paying off an IRS lien, we sold our home and moved to a different community, but we shopped around and found a ratty little rental that was the same price we were paying out of pocket, and that put our kids into that school system. We hated that rental, I'll just tell you.

It was awful. And we lived there for two freaking years. It was unbelievable. My wife still talks about how she hated that rental. But it got us over there. You know, it got the kids in that school, and it took that piece of stress off the plate, and so we could focus that much more on cleaning up the last bit of debt and start saving to buy a house, which we did.

It took two years. But I don't want to almost double your rent or add a third to it or a half to it or something. So you'd have to find a better deal than you've found so far. But I would sell and go rent if you can find something close to that $1,100, and $1,800 is not close. Okay. Yeah. And we have a unique situation where the school that we want the kids to go to

is the open campus, and so we can actually transfer them. I would just have to provide transportation oh for them and so we could how far away is eventually it's about 20 minutes that's not too bad i mean in houston that's nothing that's true it's pretty close in houston uh you know i mean maybe you make the commute until you get the debt cleaned up and get your emergency fund in place. And so I'm not a medical expert, and I don't know what the recurrence probability here is with what you suffered from both being septic. So that's the only thing that's concerning me in this. I don't know if you want to be sitting there with only $1,000 if you've got a high probability of recurrence. Is it a 10% or an 80%?

It's hard to say. I mean, they basically just print. No, they have percentages. It's not hard to say. They know. They know exactly what their recurrence rate is. And it's hard to say in your situation. I understand they can't promise you it's going to be one thing.

But they know with situations like yours that the recurrence rate is X. It's a documented thing. Now, maybe they don't want to tell you because they're, you know, worried about, you know, whatever else that happened over there. But, yeah yeah here's the thing cancer has a recurrence rate right if you had cancer the chances of getting cancer again in two years so five years is a marker you make it five years clean depending on the type of cancer but you make it five years uh cancer free you got a pretty good shot that that's done, a high percentage that you're done, okay?

Lower percentage than someone that has not had cancer, but still, you know, that five-year marker's a big deal. I'm not a medical expert. I've just been around the insurance industry my whole stinking life, so you learn these things the hard way, but I don't have any idea about what you're facing. So I want to learn that so that I don't have this vague thing in my mind. If you have a 90 or an 80 or 70% recurrence rate within the first two years and you're still in that two-year window, you probably do need to stop your debt snowball

and build up some cash and just drive those kids to school. But if you have an 8% recurrence rate of similar cases to yours, and there are similar cases to yours. It's not the only person who's ever gotten septic, right? And so, you know, you're just looking at it. I know it's your health, and I know it's all the emotions and all the junk you've been through, but I'm just talking about the cold, hard math,

not the general fears and not the junk you've been through. But I'm just talking about the cold, hard math, not the general fears and not the anxieties and not the hope and not the love and the faith that we have. Those aren't math things. We want you to have that too. But I'm saying if it's an 8%, then just rock on and get this debt paid off. I'm with you then. And let's commute these kids until the debt's paid off. And how much equity is in your

house so i spoke with a realtor the other day and she said roughly we would walk away with 40 000 profit so okay good so yeah i probably would clean the debt get your emergency fund in place and sell your house take that profit use that for your down payment move into the next place where a payment on a 15 year fixed is no more than a fourth of your take-home pay and of course you're going to be able to do that faster if you don't have to stop and save because you have a high probability of recurrence and i don't know what that is i am absolutely ignorant about that so i want you to take care of you that's the first order of business get the kids move to that other school drive them over there it's a temporary thing we're gonna do this for one year maybe two years we're gonna clean this mess up and then we're gonna move we put up with that old rental house for two years

it was junky it was horrible we hated it it's a memory it's a part of the remsey family legend when we all get together around the fire and tell the tales of old days because it was a long time ago but uh hey man it changed everything for us because we were driving we're driving about 40 minutes to get a kid in a school each way so we're hour and a half on the road morning and afternoon um so three hours a day on the road and and we got all of that back by going and renting and putting up with a junky rental house for two years so that was worth it in our case and uh so that's the kind of stuff you know i can relate of the parts of your story that i can relate the most to thank you for calling if we can help you any way you call us again this is the dave

ramsey show a call, and if we can help you in any way, you call us again. This is the Dave Ramsey Show. Thank you. Our scripture of the day, Proverbs 21.3 To do what is right and just is more acceptable to the Lord than sacrifice. Dwight L. Moody said, If I take care of my character, my reputation will take care of me. Woo! There you go. Sonia's in Santa Cruz. Hi, Sonia. Welcome to the Dave Ramsey Show. Hello, Mr. Ramsey. How are you? Better than I deserve. What's up? Good. So I had a question last year around August. My mother, my parents gifted a house to me. Wow.

Taking over, well, kind of taking over their remaining mortgage balance or principal and an equity loan that they had taken on the house because she got really sick and she had to go on disability and she could no longer make the equity payment plus the mortgage payment. She ended up passing away in December. Oh, no. Yeah. So now I have this house and I live with my dad and I believe we're going to live together forever. I have two kids, single mom. The balance on the house right now is $346,000 and the value is $598,000 and I'm wondering

are we doing sell the house or do we keep it? I don't know what to do. I mean, I've budgeted. I make about $43,000 a year. How are you paying the payment? My dad is receiving survivor's benefits. He receives about $2,000 a month. And I bring home about $ 2800 a month so you have 47 4800 a month to work with and your house payments are how much we don't have any oh the house payments and 24 33 including

insurance and taxes on the house you need to sell the house we need to sell it you cannot exist with a house payment it's 50% of your household income. Yeah. You're just barely holding on, aren't you? Yeah. Very highly stressful. Yeah, I think the only thing is that, you know, it's been our house, or my mom's house. So we have all our memories all over.

It is very sad, but you can't afford it i mean there's no future here unless your income is going to double soon i know i recently got an eight hundred dollar increase um raised in january and we usually get a five thousand dollar bonus during the year how old are you i'm 35 how's your dad's health he's very healthy how old is he 61 61 61 yes and he receives a benefit survivor what does he make a year working he doesn't work he spent the last three years taking care of my mom. Okay. And she passed away in December. Mm-hmm. I'm sorry you guys are facing this. He needs to go to work.

Yeah. Now. Okay. This is May. Y'all are starving to death. Yeah. Yeah, we don't really have a lot of fun. We just pay the bills.

You can't even pay your bills, hardly. You're starving to death. Well, I also receive $500 a month in child support. I have two kids. That's sweet, honey, but your house payment is 50% of your household income because your father has not gotten reemployed. Yeah. Okay.

He needs to get reemployed, and you'll probably need to sell the house. The house was deeded over to you? Yeah, and since it was from a parent to a child um i believe the taxes will never change on it you know the property taxes won't change but um that you've got all kinds of tax problems with the income tax because they did not do it properly. So you're very likely your dad could get hammered for about $30,000 or $40,000 worth of income tax called gift tax because they didn't do this. And you have another problem, and that is that the mortgages that you just took over do not allow you to do that.

And they have the right to call those loans at any time and start foreclosure. You can't just take over someone's mortgages without the bank's permission, and they do not give permission to take over mortgages without qualification. And you did not qualify for these mortgages. I mean, everything's under the borrower. I mean, everything's under the borrower. I mean, everything's under my name. No. The mortgages did not transfer to your name.

No. No, they didn't. Because they would have called them. If they figure out that this has happened, they have the right. They may not choose to, but they have the right to call the loan. Info. So you guys are in a world of hurt here. So here's a couple things to do.

And I want to try to get the stress off of you as best I can without you guys getting hammered. You need to go to DaveRamsey.com and do two things. One is click on ELP for real estate and talk to some real estate agents and let's get this house on the market before you get in trouble and lose it. It's got too much equity for you to lose. The second thing that needs to happen is you need to click on ELP, endorsed local provider, for taxes. And you guys need to sit down with a tax professional and go file an amended return for your parents' income taxes last year immediately with a gift tax under the – you got a pencil? Yes. Under the Unified Estate Tax Credit.

And that way your dad and mom can transfer this much equity to you without having gift tax. But it has to be done with a form if you come along and the irs audits them four years from now this has not been done it'll be taxed all of that equity would be taxed at 55 i'm talking about federal not california oh you're gonna get hammered he's gonna get hammer to get hammered. And it's one form and a little bit of work to do this properly. So I would get the house on the market. I'm afraid the mortgages are going to be called and you guys can't afford it. And I know it's sad, and I'm so sorry you're facing this, honey.

But you're going to have to make some big girl decisions because you're in a big girl mess. Yeah, okay. And so get the taxes done with a tax professional. It's called the Unified Estate Tax Credit. Get an amended return filed immediately. And then let's start talking to a real estate agent about getting this thing on the market. And then let's lay out a game plan for our future of how we're going to eat. And that is including your daddy going back to work now.

Okay. Okay? Because your family can't make it in Santa Cruz, California. The cost of living is too high with what you guys have coming in without him working. Yeah. Am I wrong? No, you're not. Okay.

I'm not trying to be harsh with you. I just want to speak real clearly to you because I don't want any more pain in your life. You've had enough pain, okay? Yes. Now, have you ever been through Financial Peace University? No. Do you want to go through as my guest and learn how to handle money and take your dad with you? Yes,

please. Okay, good. And so you hold on and I'll have Kelly pick up and we'll get you signed up for that. And then you call me if you need any help as you go along. I don't want you to get stung here, kiddo. You guys have had enough pain with the loss of your mom and all the stuff of him taking care of her and everything else.

It's just too much to bear, and we'll help you carry it, but you're going to have to make some big, girl decisions. And they're hard to do. It's hard to do, but you're not left with a lot of options here. So this will give you motivation for cleaning up your life and your finances and getting on a plan that's sustainable, meaning you can pay the bills. Because you can't make it when your house payment is 50% of your take-home pay. I mean, you can make it short-term, but you just can't prosper with that. So, hey, hold on. Kelly will pick up and we'll take care of you. So, you 16 million people listening, what do you take away

from that call? Life insurance? Yeah. Will? Yeah. Proper tax advice before transferring assets yeah working and saving and getting out of debt having a pile of money at retirement so we don't face any of those things yeah not putting her down we all been there. But you have to take away lessons from these things so that we don't repeat ourselves, you and me. It's hard. It's really hard. That puts us out of the Dave Ramsey Show and the books. We'll be back with you. Before you know it, in the meantime, remember, there is ultimately only one way to financial peace,

and that's to walk daily with the Prince of Peace, Christ Jesus. Hey guys, it's Blake Thompson, Senior Executive Producer for The Dave Ramsey Show. This hour is over, but you can find more great content on our YouTube channel. Catch the most watched Dave Rants, deathlys, and the very popular Everyday Millionaire segment. Go to the Dave Reigns and show YouTube channel and click subscribe.