The Ramsey Show - App - Plan Now for a Christmas Without Credit Cards (Hour 1)

Episode Date: October 8, 2018

The show about you

🎵 Live from the headquarters of Ramsey Solutions, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I am Dave Ramsey, your host. Thank you for joining us, America. We're so glad you are here. Open phones this hour as we talk about your life

and your money it is a free call at triple eight eight two five five two two five this is a strange talk radio show it's a talk radio show where we actually talk about things that matter to real people in real cities everywhere. Now, I know you think a lot of that other stuff matters. But let me tell you what matters, whether you change your family tree. Let me tell you what matters, whether you get your financial act together so that you can give into your community. What happens at your house is a whole lot more important than what happens in the White House.

And we're here for you. It's actually what drives this entire country. You do. Not the characters on the television. And oh my God, are there some characters on the television. Wow. Man. Scary, scary stuff.

But we're glad you are here with us today. Open phones at 888-825-5225. Erica is with us in Chicago. Hi, Erica. How are you? Hi, good. How are you, Dave? Better than I deserve.

What's up? Great. So I'm in Baby Step 6, and I've been gifted about $20,000 from my grandma. And I was just curious if you think that I should put it into some upgrades with my house or if I should just put it all down on my mortgage. I kind of used some calculators online, and it's really about like a six or seven months difference um i do want to make sure that i'm uh spending a little bit of that money and um as well as gifting it as well so i just kind of wanted your opinion on that cool what's

your home worth um it is worth about Okay. What do you owe on it? $214. Okay. What do the homes on your street sell for on average? Probably $255. Okay. All right. And so you're right at the barely at the top edge of the market, right?

Yes. I bought it last year for $230. So yours is not like double the average house on the street, but it's one of the nicest ones. It wasn't. Today it's worth $270. The average house on your street is $255 is the information you gave me. Is that right? Yes. That puts you at a little bit nicer than the average house.

Is that right? Yes. Okay, that's all I'm talking about. So if you go spend some more money on it, how much more money are you going to spend on the house uh ben i wasn't sure i just wanted to know if it well we got 20 but you're going to spend the whole you weren't going to spend the whole 20 you said no okay so what are you thinking about 10 15 um yeah around there 10 okay and how long you plan on living there um For the foreseeable future. Okay. And what's your household income?

$71,000. Okay. All right. So if you spend $10,000 on this house, you're likely not going to get it out when you resell it. It's not going to increase the value of a home that's at the top of the neighborhood by another $10,000. It might increase its sum, but it likely won't increase it by the equivalent amount. It's already one of the nicest homes in the subdivision. People that look for $290,000 and $300,000 houses don't drive down your street.

Right. Okay. So when you have a house that's worth $275,000 and you spend $15,000 more on it, that's $290,000. So you're likely not going to get your money out. So whatever you're spending there is, in a sense, consumption. It's like saying, I want to go on a really nice vacation, which is okay. You have the money. And I probably would do some of that work.

I probably enjoy some of that money by spending it on the house. But the likelihood is if you told me your house was worth $230 and the average house price was $255 and you spent $10 or $15 on it, then you would be like up to average. And you would likely get your money out depending on what you spent the money on, what the repairs were or the remodels were. I probably would do some of the work just for the fun of it, you know, just to enjoy the money. But we can't do it based on the fact it's going to increase the value of your home,

because it's not likely to with the numbers you gave me. Eric is on the line in Salt Lake City, Utah. Hi, Eric. Welcome to the Dave Ramsey Show. Hey, Dave. Thanks for taking my call. Sure, man. What's up? I've got a question. Just started listening to your podcast. My dad listens to you, and he's been recommending for a while that we start listening to you and go through financial peace. So my wife and I are planning to do that. Just finally got her on board with everything. My question is, to start a budget, Dave, I'm a contractor, and so I get paid performance or peace rate. So my pay changes all the time. Sure. One month we might make $8,000 sure one month we might make eight thousand one

month we might make four thousand so how do you set a budget with that dave okay conceptually here's how you do it and then mechanically we'll walk it through in a couple of different ways okay conceptually we just say okay what's our worst month in the next coming 12 likely it sounds like yours is 5k very light it's very very likely you're not going to be below 5k in the coming 12 agreed agreed okay it might but it'd be very unusual now so we set the budget up regular on 5k we say all right we have 5k coming in we're going to give every one of those dollars a name an assignment a mission and so 5k minus my categories equals zero every dollar has an assignment, okay, on the 5K. And so there you're going to take care of most of the things in your life. Then the things that you couldn't get on that list but you still,

primarily in this case, it's going to be want to do, not need to do. It might be want to save some money. It might be want to go on a trip. It might be want to pay off some debt. But it's not necessary for your living. You can live on the five probably. It's kind of gravy bonus money, so to speak, above 5K. We make a list of those things, and we say, all right, after our regular budget, if we make a dollar,

what is the most important thing on this new list that didn't make the cut on the budget? Do you understand? Yes, sir. Okay. And I don't care what it is. You and your wife look at that and you say, that's number one. Okay. You say, all right, we made enough above $5,000 to do that one.

You put a dollar amount beside it. It's $490. Okay. So now we made $5,490. When we make the next dollar, what's the next most important thing? This month. It doesn't have to be for the rest of your life. It's just for this coming month.

And you put a two beside that. And then a three, and then a four, and then you rewrite the list in order. Now you have a prioritized spending plan for each dollar that comes in. It already is spent by prioritization above 5K. Is that logical to you? Yes, sir. Now that's your concept. The practical application is one of two things.

You can use your EveryDollarBudget app to do all of that and just change it through the month. As the money comes in, just go, okay, we're going to set it up on five. But as we get more money in, we'll change the income, and we'll drop down in, and we'll change the list. Okay? And you can apply it right through your EveryDollarBudget app. Or if you've gotten your Financial Peace University materials or you've got the Total Money Makeover book, or any of the books that have my face on the front, I'm just about, they have a budget forms in the back. In the back is an irregular income planning sheet that teaches you to do what I just taught you to do.

But you can do it with Yellow Path. I mean, what I just described, it's basically, it's your Saturday morning to-do list. Mama do honey-do list, right? Mama said get it done list. And what's the most important thing on here that's going to make her smile? That's number one. And then what's the most important thing after that? Number two.

If we get those two things, we had a pretty good Saturday, but we'd like to go on to number three and so on, right? And it's just your prioritized to-do list with your money. This is the Dave Ramsey Show. One question I get asked all the time is, do I need life insurance? Listen, the whole point of life insurance is to replace your income for someone who counts on you. So if you have a spouse or you have kids, yes, you need term life insurance. It's the only way to protect them until you're out of debt and have built up your wealth. You're only digging a deeper hole if you waste money on cash value plans since it robs you of the ability to make real progress.

And that's why I send you to Zander Insurance, and I have for 20 years. That's where I get all my insurance, and they only offer the plans I recommend. It is not expensive. It's not complicated. And Zander will be there as your guide every step of the way. Visit Zander.com or call 800-356-4282. You need to get this taken care of. I can give you the advice, and I can tell you where to go,

but it's really up to you to take that important step to get your family protected. That's zander.com or 800-356-4282. Thank you for joining us, America. Our question of the day comes from Blinds.com. They have a 100% satisfaction guarantee. That means even if you mismeasure or you pick the wrong color, they'll remake your blinds for free. You get free samples, free shipping, and with the new promos they run every month, you'll save even more. Use the promo code RAMSY to get the best deal. Hannah is in Georgia, so my husband and I are on Baby Step 3B.

Now, what that means is that they are debt-free except their home. They've saved up their emergency fund of three to six months of expenses. And 3B means beyond that, they're saving for the down payment on their house. We want to take our two young children to Disney World. You should. We're currently saving to build our new home on property we bought in cash already. We can cash flow the trip by not saving for the house

for one month, about $3,000. I feel guilty for both not taking a family vacation and for not saving the money. Where's the balance? You're guilty a lot, aren't you? I mean, you're stuck because you're just going to be guilty. You're guilty if you go to Disney, and you're going to be guilty if you don't. You know what I'd do?

I'd be happy if I did either one. Not going to be guilty either way. It's your money. It's your choice. You're smart either way. You're out of debt. You have your emergency fund, and you're saving up for expenditures. One of the expenditures is you want to build a house for cash.

That's an awesome goal. Second one is you want to spend one month of that money and go to Disney. About $3,000. Either one is wonderful. You should not feel guilty either way. But I'll tell you what I would do. I'd go to Disney. You had little kids.

It's perfect age for that. It's something you obviously do want to do, something they want to do. It's not something I want to do, but you, it's fine. I mean, Rachel Cruz loves Disney. She just took her little baby down there. They had a wonderful time. Not sure how great a time her husband had, but they had a great time. And no, but I mean, if it's what you want to do, you've saved up the money.

You're not going into debt. You're not getting out of debt and going on vacation. You're out of debt. You have your emergency fund. This is the point in the baby steps where you enjoy some of the money. And I don't suggest consuming all of it and hitting no long-term goals. But I think if you don't consume some of it and only hit long-term goals, then you're not enjoying your life.

You live like no one else so that later you can live and give like no one else. During the first three baby steps, you're extremely intense. You don't do anything except beans and rice, rice and beans, until you're out of debt and have your emergency fund in place. Then you let your foot off the accelerator some to where you can do baby steps four, five, and six, and purchases are in there all at the same time. Baby step four is 15% of your income going into retirement. Meanwhile, you start putting some for your kids' college, and five and six is when you find extra money

to pay off the house early. In that sense, that's what you're working towards. In the middle of all of that, we don't go 10 years and never go on vacation. That's when you'd go on vacation. We don't go 10 years and never upgrade the couch that has springs sticking out of it. That's when you'd upgrade the couch. You just pay cash for the stuff, and you realize that every time we consume something, it slows down our long-term wealth building.

But the purpose of long-term wealth building is to be able to consume and to be able to give. Money piled up just for having a pile of money's sake is not worth anything. It's only worth something when it does something for your family or you're able to do something for others. That's all it's good for. Jay's with us in Orlando, Florida. Hi, Jay. Welcome to the Dave Ramsey Show. Hey, Dave. Thank you for taking my call. I'm a first-time caller. Sure. About two years ago, I began

commercial helicopter training, and I finally received my commercial helicopter certificate. However, unfortunately, I need about 80 hours of more training as I discovered this industry is highly regulated by insurance,

and in order to become insurable, I need about 200 hours, and I'm trying to figure out how to pay for those 80 hours and be ready to work the upcoming season as a commercial helicopter pilot. Okay. Is there any way you can do it as a co-pilot and get the hours? No. Unfortunately, the job opportunity I have is a single pilot. Now, wait a minute. You just said the wrong thing.

You said the job opportunity. There's only one person in Florida hiring helicopter pilots. Wrong? Well, I didn't tell you another thing, too, Dave. I work as a firefighter, so that's my primary income source. This is kind of like a secondary thing that I kind of went off and did, and that's kind of why I'm kind of limited as far as the jobs that I can take.

Do helicopter pilots not make more than firefighters? No. Believe it or not helicopter pilots not make more than firefighters? No. Believe it or not, firefighters definitely make more. Okay. So you're not planning on quitting the firefighting degree or career. You're going to continue that and part-time helicopter pilot? Yes, yes. That's what I want to do.

Okay. And so it forces you to stay in that particular area, and it forces you to work in a regular schedule that you can control, and so it does limit the number of jobs available, which means that having your helicopter pilot's license has a very limited value. Yeah. It's not that valuable to you because of the way you're going to utilize it. So, I mean, you have to just cash flow this.

It's like a hobby you're getting paid for. You're going to make some money, but you're not going to make enough money to even justify the expense you've gone to. Yeah. So, I just feel I'm too far into it to just. I'm not suggesting you quit, but there's just no way in the scenario you've laid out here that it makes sense to do anything except just slow down and go i'm just going to take me a little time because i got to

cash flow this and i got to find that time to do the hours right but you say don't rush to get the job yeah the opportunity because the job's not worth that much yeah it doesn't pay that much either that's what i mean it's not worth that much compared to what you're paying you're not even going to make back your 80 hours worth of training in the first year. No, you're right. Not to mention all the money you've already put on it. What I'm going to do is look for a place. You've got connections in the fire department.

Are there life flight guys or something that you can get some hours in the co-pilot seat and get some takeoffs and landings and get some of that counts? Unfortunately, those are more complex aircraft, and I'm currently on the Robinson & Taylor aircraft. Oh, okay. Very simple type aircraft. Gotcha. Not even turbine yet, but I mean, I've even reached out to people that own their own aircraft

and, you know, offer to pay for fuel and things like that to kind of do get those opportunities. And unfortunately, a lot of those guys are very busy. So I can get an hour here, an hour there, but nothing really constant. So you're going to end up just paying for these hours. What does 80 hours cost? Well, considering some of the hours can go upwards of, you know, on the cheap, you could get some at $250, $300, $500. It all depends on the aircraft and what kind of deal you can get, you know.

Okay, so you're talking about $20,000, $30,000. Yeah, pretty much. Pretty much, yeah. And you don't have that laying around, obviously. Negative, negative. Okay, fine. pretty much yeah and you don't have that laying around obviously negative negative just take your time and cash flow it because you you now have as we've continued in the conversation you've even narrowed your opportunities down further because you're at an entry level um the simpler versions of helicopters not all of them which is limits the number of jobs you can take even more. And so this is slightly above a hobby.

Yeah, yeah, it definitely is. It's a passion. That's why I went out. There's nothing wrong with that as long as you pay cash for it. Yeah, yeah. I collect handguns and shoot them a lot. And so I burn through some ammo. But I don't make any money doing it.

I'm not trying to make money doing it. But it's just a hobby. And so that costs money. Hobbies cost money. and this one's not going to cost you money it's actually going to make you a little once you get past this but up until the point you actually get a check it's going to cost you money and you know you're just going to put another 20 000 bucks into this 30 000 bucks into this before you get paid and that may take you two years to cash flow that instead of one year you're not going to make this year unless you can find some way that the guys that are hiring for the season want to pay for it in return you promise to work there three years or something like that you know and they

want to pay for your hours or something maybe there's somebody looking for a pilot that you know with that much intensity sometimes an employer will pick up some education costs in order to get somebody on board if they're having trouble finding the help in that area. Hope that helps. Interesting discussion. Interesting discussion. This is the Dave Ramsey Show. Thank you. It's time to take another look at your budget. That means scouring every expense and making sure you're not leaving any money on the table.

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NMLS consumeraccess. NMLSconsumeraccess.org. Equal housing lender. 761 Old Hickory Boulevard, Brentwood, Tennessee 37027. In the lobby of Ramsey Solutions, Chris and Ashley are with us. Hey, guys, how are you? Hey, Dave. Welcome. Where do you all live? We live near Toronto in Canada.

All right. Love it. Welcome to Nashville. Thank you. Thank you. And all the way here from Canada to do a debt-free screen. Exactly. This is an international debt-free screen? It is. I love it. Welcome to Nashville. Thank you. And all the way here from Canada to do a debt-free screen. Exactly. This is an international debt-free screen?

It is. I love it. How much have you paid off? We paid off $113,000 in just under three years. Good for you. And your range of income during that time? Started at about $72,000 and now we're just under $100,000. Good for you.

What do you guys do for a living? I work in roads now, so I do like pavement assessments and ash. And I'm a real estate assistant. Very good. Fun, fun. How long have you two been married? Been married just over three years, like three and a half years. Okay.

And what kind of debt was the $113,000? We had a car, line of credit, credit card. Family loan to my dad for our house. So you guys were pretty normal. Pretty normal, yeah. You just owed everybody. Exactly. Yeah.

Wow. And then you get married, and something happened, and boom, we're on this three-year journey, almost from the honeymoon on, to get debt-free, right? Yeah, it was. So tell us what happened. Tell us your story. Well, like most stories, it starts at the bachelor party. No, my best friend, Brad, who I've been friends with since I was four,

we finished watching a hockey game going out for dinner, and we're standing around talking. He's a cop, so he's in his car all day. And I said, you know, I'm in my car all day for work. I was, you know, I'm getting bored of music. I'm like, is there anything else you listen to? We kind of grew up the same. Family's never talked about money, anything like that.

And he said, you know, there's this guy, Dave Ramsey. I listen to these financial talks. And I said, you know, I guess I listen to that. And that was about two months before we got married, just after we had literally just bought our car as well. So it's horrible timing, but it was great. And I listened to your podcast every day for about two months. And I wanted to buy your book.

But Brad said, you know, I'm getting that for your marriage. So you get that as a wedding gift. Oh, okay. So literally we got married, came back from the honeymoon, and started right away, and every dollar had just come out then. Very cool. So, Ashley, your fiancé starts listening to a podcast and loses his mind. What did you say about all this?

I was happy. I love plans. And I like knowing what I'm doing and where I'm going. And I just like it. Okay. So it was kind of a dream come true for him to get a clue. Yeah. Yeah.

Okay. I think her dad was happy. Like I thought I had a plan, but it wasn't a plan. Gotcha. Okay. And you said her dad was happy? I'm pretty sure. Because I remember before I ever met you, I sat down with him and showed him a pretty crazy-looking Excel sheet of how kind of our life was going to work.

We thought it was a budget. Yeah, we thought it was a budget before I knew it. And he was nice and didn't roll his eyes in front of you. Exactly. Yeah, good. Way to go, you two. Yeah, thank you. What do you tell people the key to getting out of debt is? I would say the budget and just telling your money where to go

and making it do what you want it to do instead of it saying you have to pay this, pay that, pay this. The budget was really key. How does it feel now that you don't have any payments, Ashley? I feel invincible. I like it. I like that word.

I feel like we can do anything. Touchdown! I like it word. I feel like we can do anything. Woo-hoo! Touchdown! I like it. Oh, very cool. Very cool. It's crazy. She's the latest Avenger. This is great.

This is great. So, Chris, what about you? What is your key to getting out of debt? What do you tell people? The budget and what else? Yeah, probably that being intentional with your money. I think all my life I just knew how to make money and spend it. And then all of a sudden with that budget and just your plan i was like man this is crazy like this is crazy how how much life can change

i go like it's it's just insane i remember the first time we ever did our budget thinking we make a ton of money like this is i did not think we made this much and we could do this yeah it's just it does give you hope doesn't it the first time you sit down you kind of have that moment feel like i got a raise i can do this for sure and now like we're on we just started step four last month so that was the first time where we're going man this is this is just unreal we're gonna be millionaires yeah yeah well you are you really are i mean it really does happen all the time this is pretty amazing very cool so uh did you tell a lot of people you're doing this, or you were quiet about it? Think the first month.

I was so bad with money growing up. For the first month or year, maybe I kind of kept it just with Ash. And then after that, my sister, who's also here, she kind of started asking me questions because she knew I was bad with money, going, you know, what are you doing? And I'd give her all your books because we, I think, own library so but uh then slowly told my mom dad and so who was your biggest cheerleader then i would say his sister and then um brad and leanne who told us about you got it would be our biggest cheerleaders so very very cool very cool congratulations you guys thank you we've got a copy of chris hogan's book for you a retire

inspired yeah and that is of course the next chapter in your story for you to be millionaires and we got one chapter debt free next chapter millionaires next chapter be multi-millionaires and be giving it away i love it so well done you guys very very well done congratulations i'm proud of you you're our kind of people around here, man, even if you are from Canada. We're glad you're here, man. Thanks for visiting. Chris and Ashley from Ontario, Canada, Toronto, Canada area. $113,000 paid off in three years, making $72,000 to $100,000.

Count it down. Let's hear a debt-free scream. Okay. Three, two, one. hear a debt-free scream. Okay. Three, two, one. We're debt-free! There you go, baby. Woo! I love it.

Yeah! Touchdown. Oh, there is nothing that feels like being free. There's nothing like that. Wow. Think about it. Think about it. If you had been married three years and you had no payments.

Oh, I wish, I wish, I wish, I wish. It took me a long time to figure this out. I wasn't smart enough to figure it out as early as they did. Well, Dave, I wasn't either. I'm 56. I know in three years you'll be 59, so you might as well do this stuff. You might as well be free. You might as well make the decision.

When are you going to make the decision? Your most powerful wealth-building tool is your income when you spend the average car payment which is 506 dollars over 84 months right now according to the national auto dealers association when you spend the average car payment instead of spending it on a stupid car pay cash for your cars this is what rich people do pay cash for your cars is what rich people do. Pay cash for your cars is what rich people do. I pay cash for my cars if I was rich people. No, darling, you will be rich people when you start paying cash for your cars. It may mean you drive junk for a little while, and then you drive a little better junk, and then a little better junk, and you move up.

But right now, we're going to pay cash. And instead of putting $500 towards the prosperity of Ford Motor Credit, you're going to put it towards your prosperity. And if you pick $506, $504, you put a mutual fund in your Roth IRA that's got a good track record from age 30 to age 70, you'll have between $5 and $6 million in that account. Touchdown! I hope you like the car. How many of you are driving a $5 million car?

Raise your hand if you're driving a $500 car payment. That's what you're driving. And when we look up stupid in the dictionary, we'll see your picture. Yeah, that's right. Because you're financing something that's going down in value to impress people at a stoplight you'll never meet. That just makes you stupid. I know because I was stupid. Some of the people I talk to here on the air are stupid.

And some of you just listening today are stupid. It's okay to be stupid. It's just not okay to stay there. I've been there. I just didn't want to set up camp, you know. You've got to move on. You've got to do something different. Because when you don't have any payments, when you don't have a car payment

and you turn yourself into a millionaire, then you never have a car payment, and then your kids will never have a car payment, and then your grandkids will never have a car payment, and we're going to change this freaking family tree. Now, the other branches, the Ramseys, they can do whatever they want. But this branch, this branch right here, it's going to have fruit on it. This branch right here, we're not in the business of supporting banks. We're not in the business of keeping the car companies open.

We're in the business of blessing our family and people around us. And we have the money to do that. Why? Because we got out of debt. Touchdown, baby! No payments! Think about what if you didn't even have a house payment. What if you gave Sally Mae the boot and sent her to the curb instead of giving her her own bedroom for the last 15 years?

Some of you, you think Sally Mae's your aunt. She is not your aunt. She is an ugly woman. An ugly old woman that needs to go to the curb. Evict her butt. What are you keeping her around for? She eats too much. She eats and eats and eats.

She's got her own seat at your kitchen table. You ought to be ashamed of yourself. Kick her out. It's time. This is the Dave Ramsey Show. Thank you. Well, guys, thank you to those of you over in San Francisco. We had almost 3,000 folks at a sold-out event last Tuesday with Chris Hogan and I. An absolute slam dunk. The audience was electric, which makes it so much fun as a speaker.

We were on fire fire but we're always on fire some of y'all are wet blankets though and some of you are just electric they were electric uh sanfran was incredible thank you so much had a blast uh rachel cruz and les parrot were in irvine and had a sold-out event there just over 2 000 folks at the money and marriage event thank you for that and i was just looking at the reports in Marriage event. Thank you for that. And I was just looking at the reports during the break here. I'm going to go back and double-check. It looks like we have 52 tickets left.

So basically we have a sellout for this weekend at the Smart Conference. It's all day long in Kansas City. I'll be flying up there to do that event this weekend. Looking forward to that. And that's everybody. That's all the Ramsey personalities speaking on their respective areas. Chris Hogan speaking about millionaires, of course. I'll be closing up the day.

Rachel Cruz about money. Anthony O'Neill about teens. Meg Meeker about parenting. Les Parrott about marriage. Henry Cloud about teens. Meg Meeker about parenting. Les Parrott about marriage. Henry Cloud about boundaries. And Ken Coleman, one of our emcee personalities, has a show on XM talking about careers and finding your passion and living your life in a way that, well, where you get to enjoy being at work. Because you spend a lot of your time at work, you know. And you should get something out of it other than just money.

And Ken's the guy to show you how to do that. Good stuff. Exciting times, you guys. So if you want to come to Kansas City of it other than just money. And Ken's the guy to show you how to do that. Good stuff. Exciting times, you guys. So if you want to come to Kansas City, it's all day long. The tickets are so stinking cheap, you would pay that ticket price to see any one of those speakers. And there's like, what, eight of us or something. I mean, it's all number one best-selling authors, all top flight world-class communicators. It's the best of the best.

It's like an all-star team. It's pretty cool. Laura's with us in Houston, Texas. Hey, Laura, welcome, world-class communicators. It's the best of the best. It's like an all-star team. It's pretty cool. Laura's with us in Houston, Texas. Hey, Laura, welcome to the Dave Ramsey Show. Hi, Dave. How are you? Better than I deserve. What's up?

Hey, I have a question for you. It's about a business. I'm an insurance agent. I have six years of experience in the industry, 25 years old, and I was offered to buy a business. I'm a stylist agency. I just think that they're asking for a lot. And I have come back and offered a little bit less,

but they're still asking for a lot. And this means that I will have to go into debt for it. They're asking for $650,000. And the SBA was 10% down of that amount. I can also start my own agency for $30,000, pay that cash. I can cash flow the whole thing. But I'm just wondering if it's something that is just better to buy rather than start up, because I know how hard it is to start up a business like this.

I just kind of want to get your opinion on it. Well, what I have found is the number one cause of small business failure is cash flow. And cash flow is restricted by primarily two things that cause businesses to fail. They don't take care of their tax bill, and they get behind on their taxes, and they go into debt, number two. And so you increase your probability of failure 10x if you go into debt to do this. And I have to tell you, I personally don't borrow money for anything, and I have never in 30 years of doing this show advised anyone to go into debt to buy a business, ever. And so I'm not going to do that.

Because you have to pay this bill whether all those clients leave the next month or not yeah and that could bankrupt you it could bankrupt you fairly easily actually because you basically don't have any money and so i don't know what the value of an insurance agency is they are valued you know you've got a uh you. You've got a book of business. The book of business has a value, and it has a persistence rate, meaning the number of people you lose to attrition or don't lose to attrition each year. And that persistence rate and the size of the book of business creates a certain amount of cash flow. Generally speaking, the net profit after everyone including the owner that's operating a business have been paid the net profit the taxable income of the business times four or maybe times five is a

small business equation on insurance industry it might be different than that i don't know but what what is the net profit if you were running this thing after you pay you a salary? Supposedly, for what I have gathered, it's $210,000. You would make $310,000 in the first year? Apparently, yes. Profit? I don't have access to the books. Yes, profit.

After the rent is paid, the secretary is paid, everybody's paid. After payroll, after rent, after appointments, after insurance, everything. Well, that's not a bad price on a business if you can pay it all back in two years then. Oh, yeah. That's going to be kind of tricky to pay back in two years. Well, if you're only paying $650,000 for it with $65,000 down and you make $310,000, you live on nothing. You pay it all back. No, not $310,000 paying $650,000 for it with $65,000 down and you make $310,000, you live on nothing. You pay it all back. No, not $310,000.

$210,000. Oh, okay. Well, then it takes three years. Yeah. All right. But that's about what I'm talking about then, it sounds like. It sounds like they're at about four times the net profit because that $210,000 does not include having paid you.

And so they're at about a four factor that's a fairly normal appraisal rate so they're not ripping you off on the price but i would not go in debt to do it i would start your own okay and then when you go make a bunch of money in your own if you want to add to your own by buying out another practice you could save up the money and do that because if you were making making $210,000 every three years, you could save up and buy a business that's worth $600,000, right? Right. And so, I mean, that's pretty cool. We could do that later and add to your book of business by buying out other agencies or by buying out other standalones.

But I can't recommend it. I personally wouldn't do it if I was 25 years old, if I was 45 years old, or if I was 55 years old. I personally wouldn't do that. I would start my own and gut it out. I did that with this business. We started on a card table in my living room. We've never borrowed a dime. There's just under 800 of us working here, and it's a $200 million business in seven buildings. But we started on a card table in my living room, and with all the bumps and bruises along the way, I've been really glad I didn't have any debt. Vicki is with us in Orlando, Florida. Hi, Vicki. How are you?

Hi, Dave. It's great to speak with you. You too. What's up? Okay. I am trying to assist my son-in-law with getting his credit report repaired and cleaned up. He's currently deployed in the military. He's in Kuwait.

And he had some bad debts, and the collection agency has taken those. We're dealing with one of them, and we offered a settlement amount with a settlement letter. They responded and agreed to our one-time settlement offer, and they sent me back like a form letter that just said, one-time settlement offer, we've agreed to settle with you for the above amount. We had asked for some more stipulations like, can you send me something signed that says you're not going to sell this remainder of this loan to a third party? No, it also says settled in full, and they're the owner of the debt.

You're fine. So we're good to pay it. I was just a little wary of because it sounds like these these guys are kind of a oh they are they're bottom feeders that's who you're dealing with they're probably debt buyers what kind of debt is it how old is it it was a medical debt and it's about three about three or four years old yeah they paid a nickel to three cents on the dollar for it and they're debt buyers and they are but they are bottom feeders you're dealing with you're dealing with a guy in a phone room that couldn't get a good job oh of course but and you think we'll be okay with with paying them the money and

we don't have to get something back yeah if you got it in writing and you staple a copy of the check or the cashier's check to that and you keep it the rest of your life in case these goobers mess up their paperwork which they might and sell it and then somebody calls you later you go oh no i have a document that says settled in full i don't know a dime and if you ever call me again i'm gonna sue all of you it'll shut it back down if you want to double check my i'm not an attorney but if you want to double check my advice with an attorney show them a copy of the letter that's fine but i'm you're not going to get something signed out of people like that. You are a widget on a conveyor belt.

And you're just, you know, Willy Wonka's Chaka Factory. You're just going along getting stamped. That's all it is. And you're not going to get much more than you got. They're wanting some money. You're willing to give them the amount of money. You got it in writing. It says it settles it in full.

If it says no more debt is due after this, it's settled in full. If it has that phrase on it, I'm fine with it if it were me. I would go forward, and I think you're fine. But be sure you keep up that paperwork because it may come up later. I mean, keep it the rest of your life. It might be 15 years. It'll pop back up. You never know.

This stuff's got a life like a tattoo, man. It's unbelievable. That puts this hour of the Dave Ramsey Show on the books. Our thanks to James Childs, our producer, Kelly Daniel, our associate producer and phone screener. I'm Dave Ramsey, your host, and we will be back. Hey, guys, this is James Childs, producer of the Dave Ramsey Show. I'm excited to announce that we're now carried on 600 radio stations across the country.

To find one near you, head to DaveRamsey.com slash show.