The Ramsey Show - App - Saving College Money for 5 Kids (Hour 2)

Episode Date: October 22, 2018

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🎵 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'm 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. Danny starts off this hour in Des Moines, Iowa. Hi, Danny.

Welcome to the Dave Ramsey Show. Hi, Dave. How are you? Better than I deserve. How are you? I am fantastic. It's such an honor to be able to speak with you today. And you and your advice and books have changed my husband and I's life.

So I'm so excited. Well, I'm honored to speak with you. How can I help? Well, I am wondering, my husband and I have five children together. He has three children from a previous marriage, and I have two children from a previous marriage. And we are currently on baby step number two, and we just have a few thousand dollars left to go before we're able to kiss our debt goodbye. And so we are planning on, you know, helping our children with college as much as we can. And with five of them, we realized that could be a significant expense.

And all five children currently have 529 plans that have been funded by cash gifts and things they've received from their grandparents over the years. Good. So his boys are significantly further in that than my girls are. My girls are quite a bit younger. But we just kind of want maybe a roundabout estimate on what we should plan for each child or how to help each child through college, because I feel like it could be such an enormous amount of money with five of them, but we also want to help them out as much as we can. Okay.

There's a couple of ways you can calculate it as far as your target amounts. And if you know your target amounts, you're wise to ask for that. Then you can back into how much you need to be doing. The ones that got a little bit of a head start, they may be a little bit older, so it might come out fairly even. I don't know. It depends on how much of a head start um they may be a little bit older uh so it might come out fairly even i don't know it depends on how much of a head start there is and it also depends on where you're thinking about going to school so if i were in your shoes it doesn't sound like what's your household income we uh a little over a hundred thousand okay are you guys millionaires we are not yet okay

but you're on your way. We are. Here's the thing. Five kids going to school. How old are they? What's the age range? Okay, the youngest. So it goes 7, 12, 14, almost 16, and 17.

Oh, got them going soon. Yeah. Okay. Any minute here, we're going to start this process. Okay. Somehow I had in my head they were younger. I'm glad I asked. Well, the older ones, you're just going to be writing checks.

You're going to be cash flowing into that direct to the school. The amount of money you're going to save in one year is not going to change this because you're in the process of getting out of debt this year still. So that does answer my question then your target is going to be in-state schools you have to your number one cost or the number one mistake people make with college is college choice they sign up for a school they freaking can't afford and they come out with a hundred thousand dollars worth of debt because they went someplace they shouldn't have gone. Just like buying a car you can't afford.

It's the same thing. Is a Mercedes better than a Chevrolet? Probably. I love Chevrolet, and I love Mercedes, but it's probably better. Is it more expensive? Yeah, three, four times more. You know, same thing. So can you get a Chevrolet education and be fine out here?

Yeah, most of us function on that we didn't go to prestige schools that were 100 grand a year your kids aren't going to either unless you're going to run them deeply in debt which i wouldn't recommend so we so you call you know your local in-state tuition schools that you think your kids might go to and you find out how much it is and we have we've gotten a pretty good start on that. We have a great program here in Iowa that our high school kids are able to take college courses for free. And a lot of the kids graduate with not only their high school diplomas, but also their two-year degree at our local community college.

So we are highly advising our children to do that, and two out of the five kids are already doing that and taking college classes. And they have a plan. You said community college is free? Well, if you're taking classes while you're in high school. High school, okay. Yes.

Cool. Well, the other thing you can do is if you don't do that and you graduate from high school, you still can go the other thing you can do is if you don't do that and you graduate from high school you still can go to community college about a third the cost of the typical in-state call four-year college and knock your first two years if you don't have your first two years of stuff studies out of the way because most of that's just core stuff anyway and you just make sure that that community college will transfer full credit into, you know, I don't know, University of Iowa or wherever it is they're going to go, right?

Or Iowa State or whatever it is. You just look at that and you lay it out and you say, this is where we're going to go. This is what it's going to cost. And then you back into your budgets on it and go, okay, 17-year-old, we're going to be cash flowing. So college choice is your biggest variable in a kid going to college debt-free. Variable number two is they make their part-time job filling out for scholarships. Yes. Jump online and they're constantly filling out scholarship money.

And, you know, we're meeting parents and kids who are, you know, they're getting $250, $1,250, $2,250 scholarships, and add them all up in a pile, and they turn out to be $30,000, and they pay for school. Not a bad part-time job when you're 17, and you work your butt off filling out like a bazillion of those things, not 10, but hundreds of scholarship applications, and you try to get it. The third thing is you take a class on how to take the ACT, not just take the ACT or SAT, depending on which applies to your particular situation,

and get your scores up, because a little bit of tutoring or a class on how to take that test will jump your scores substantially with the typical kid, and that qualifies you for yet more stuff. And then the last one is juniors are going to be working. While in school, you're going to be working. All of you that worked while you were in college, raise your hand. I see hands going up all over America, okay? All of us worked while we were in college. Why do we think that's child abuse for this generation?

It's not child abuse. It builds character. I worked 40 to 60 hours a week while I was in school, and I got through in four years, and my grades didn't suffer. If they suffered, it would have been for other reasons, like not working hard enough or something like that. But I worked my butt off, and you can too. And you've got to be smart about it.

You're not going to get through school flopping whoppers for minimum wage at Burger King. You can't be a whopper flopper. You've got to do more than that. You're not going to get through school flopping whoppers for minimum wage at Burger King. You can't be a whopper flopper. You've got to do more than that. You get somewhere you make more money. Build websites. Walk dogs. Cut grass.

Babysit kids. People pay lawyer and plumber rates to babysit kids now. It's unbelievable. Go be a nanny for a rich person. I mean, seriously. And you will get through college right there. I mean, it's amazing what you can get. And so it's some serious bucks.

So make some money. Buy the cheapest education that's available to you in state tuition, community college. Work, work, work, work, work. Get the scholarships. Work, work, work, work, work. Get your ACT scores up. Work, work, work, work, work, and you will go through debt-free. And especially when someone like Danny, like you, or your mom and dad are coming alongside you, coaching you through it, and throwing a little money in the pile while we're doing it, too. And you can do it. This is doable.

But you guys are going to have to really focus and concentrate on this. This is the Dave Ramsey Show. Let me tell you a story about two families that are very much alike in a lot of ways. Both families have two working parents and a couple of young kids. Each has debt and has struggled to make ends meet. But they're starting to make headway with their budgets and smarter decisions with money. They have dreams and plans, and the only real difference

is that one family has the right amount of term life insurance and the other doesn't. Big difference. If one of the parents die, and that does happen, their well-being would be destroyed. Paying for the mortgage, utilities, food, and that does happen, their well-being would be destroyed. Paying for the mortgage, utilities, food, and other bills would be impossible, let alone saving for education or retirement. That's why every day I talk relentlessly about getting term life insurance.

Just go to ZanderInsurance.com or call 800-356-4282 and see how inexpensive it really is. Be the family that takes those deliberate steps to be different and responsible. It really does make you the hero of your story and it puts you on course for better things ahead. Thank you for joining us, America. It's a free call at 888-825-5225. You jump in. We'll talk about your life and your money. Tony is with us in Quincy, Illinois.

Hi, Tony. How are you? Good afternoon, Dave. Thanks for taking my call. It's a pleasure to be is with us in Quincy, Illinois. Hi, Tony. How are you? Good afternoon, Dave. Thanks for taking my call. It's a pleasure to be speaking with you, sir. You too. How can I help? Yes, we currently have a 19-year-old family friend that's my son's best friend living with us. He makes about, he clears $1,800 a month.

And he has a car payment of about $222, cell phone, which is about $80. And for gas, about $100 we budget for the month. We're just trying to kind of figure out. We got him on an envelope system since he's lived with us real fast. His wallet was basically his bank account. He has no bank account yet. What I'm wanting to know is how do we kind of go along and do the envelope system with budgeting his money and putting money away

and trying to help him figure out what to do with all his excess. Okay. Well, I think you teach him how to do a budget, and that's where every dollar has a name before the month begins, right? Yeah. It sounds like it's a fairly primitive, easy budget. Yeah, there's not much debt there. A little car payment, like like thirteen hundred dollars on the car

yeah and let's get the car paid off and build up an emergency fund and let's go that route um that all makes sense but but um you know we teach him these basic things that you and i both know about apparently you've been doing the stuff that we talk about for a while and so we're gonna be on a budget we're gonna avoid debt we're gonna build up an emergency savings and begin long-term investing uh we're gonna be generous with some of the money and uh so the whole thing that you get when you've got someone that's living in a fairly primitive situation like this meaning no bank account you know he's a young guy getting started, is that it's real easy for all that money to just disappear. And the big thing you've got to get him doing is being intentional with every dollar. Okay.

Now, how many envelopes do you suggest we start out with? Well, I'd get a bank account going, like you're talking about, and a debit card for that. And then, you know, I think you just lay it out and say, okay, you know, where do you want to be in five years? And what are the steps that are going to get you there? And so, you know, how much are you going to spend on entertainment? How much are you going to spend on what's it take to keep your car running gas-wise and your insurance and your car payment? And then let's just take this income and give every dollar a name right down the page. I mean, this is a one-page budget you can do in about eight minutes, you know?

Yeah. There's not a lot to this deal. It's not like it's complicated. Okay, yeah. We got some of it set up for like an emergency fund and a car pay, like an emergency fund as far as your car stuff and savings. We do have savings going on about 10% of the ring home pay we put in for savings for him. Okay. I mean, I'd set $1,000 aside as my emergency fund, and then after that I'd get this car paid off. And then after that I'd have a fully funded emergency fund of three to six months of expenses.

In his case, he'd be rich if he had no debt and five grand there's five grand in savings wouldn't he yeah he'd be really well off so okay well then i would start his investing long term start talking about a roth ira and those kinds of things and even start talking about maybe some additional savings so he can have his own place okay thank you very much hey thank you for calling in appreciate you joining us open phones at 888-825-5225 vicki is with us in wilmington north carolina hi vicki hi dave how are you better than i deserve what's up well i have a question about an inheritance um my husband and i are small business owners and we have a significant amount of debt with the business and our personal which is a lot due to the business for some lean years during the recession and several years ago but we have

a $29,000 inheritance that we my husband had hoped that we could use for the kids college I have one daughter that's in her freshman year of college now and another one that will be starting next fall, and then two other teenagers and a baby. So this business doesn't make any money? It's struggling. It makes money now, but we still have a good bit of debt. How much money does it make? Profit?

Profit? Gosh, probably, well, I have to say, probably it doesn't make enough to support us over the past few years. How long are you going to live in this mythology? I don't know. Every time he has said, okay, I need to go find a job somewhere, it's like that door closes and the business door stays open. The business door is not open.

It's not making enough to support your family. And so we need to sit down on this business and give it a deadline, that in the next six months it's going to start supporting our family after all these years and making enough to start getting rid of some of this debt, or we're going to close it and get a job. Because I don't think you're making any money. Am I wrong? Well, I mean, we pay ourselves from the business. How much? We're bringing home about $100,000 a year.

You're taking $100,000 out of the business? Yep. Well, that would be called profit. Okay. You can't live on $100,000? Well, we can, but we have a lot of debt. How much debt have you got? Well, the business has got about $52,000, and we personally have about $96,000.

Okay. Well, the business doesn't have any debt. You signed personally for it. Okay. About $52,000, and we personally have about $96,000. Okay. Well, the business doesn't have any debt. You signed personally for it. Okay. So it all is debt. So you've got $100,000 in debt, and you have $140,000 in debt, and you make $100,000 a year. Is that all you make is $100,000, or that's what you're pulling out,

and then you make a profit too? No, that's all we make. So your taxable income when you do your taxes is 100k it has been but we're meeting with an accountant to adjust some things there so that we're taking distributions instead of all profit and that doesn't change it right but that's how much we're paying ourselves from the business a year. So you need to find out what the profit is. You don't know. Okay.

You've given me three different answers. So you need to find out. If your business is making $100,000 a year and you guys can't live on $100,000 a year, you've got other problems. Right. Okay. And you can pay off debt making $100,000 a year and work your way through it. And, no, the $29,000 does not need to go to the kids' college fund. It needs to go to clean up this dadgum mess y'all have made.

But the only way that makes sense is if you have a system and a plan where you actually know if the business is making a profit and if it is making a profit, what the profit is, and it's all coming home to pay off these debts. Or if you want to pay off the $52,000 at the business and call that business debt, I don't care. But we need to be reducing debt. Right. Quickly and aggressively. And if you're making $100,000 a year, you ought to be able to do that. But you guys aren't living on a plan.

The business is not on a plan, and your personal lives aren't on a plan. I can tell by talking to you. Yeah, I know. And we just got FPU in the mail today and we're going to start it okay that's a good start that's a good start and i'm going to send you a copy of the book entree leadership on the business side so uh because here's the thing you need to be going no i'm not going to quit making a hundred thousand dollars a year that's a great business no I'm not going to quit that. But what we are saying then is that we need to fine-tune and give. I think you're good at making money.

I don't think you're as good at managing it. And so we need to fine-tune our systems at the business, the profit and loss statements, the budgets at the business. And so we know exactly where every dollar at the business is going and exactly where it's coming from and then exactly what's coming home and what is taxable income. And then lay out a game plan to pay off $142,000 worth of debt between these two different sets of debt and work your way through it. You can do both and use the $29,000 towards that goal. If you don't do that and you throw the $29,000 at the goal and then you never pay off the debt, it was kind of wasted, wasn't it?

So I'm not asking you to blindly throw it at the debt. Just throw it at the debt. Just throw it at the debt. I'm throwing it at the debt and throwing a system at your business and a system and a detailed budget at your home. And all of that applied directly on this problem, so the problem goes away, and the $29,000 is part of the solution to that. But the biggest part of the solution is really getting detailed and organized with the money at home and at work.

Hold on, I'm going to give you a copy of the book Entree Leadership. This is The Dave Ramsey Show. Why in the world would you trust some random guy in a cube when getting your mortgage? Do you really think he cares about your long-term money goals? Well, he doesn't. Those companies care about getting you into whatever home loan program they're pushing that week. When it comes to ordering a cheeseburger, the meal deal works fine. But let's get real, people. We're talking about the largest investment you'll probably ever make, so don't be naive and trust an order taker who pressures you into a pre-packaged loan. My friends at Churchill Mortgage have been helping my listeners for over 25 years.

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Equal housing lender. 761 Old Hickory Boulevard, Redwood, Tennessee 37027. In the lobby of Ramsey Solutions, Brendan and Lindsay are with us. Hey, guys, how are you? Hey, what's happening, Dave? I'm good. Welcome, welcome. Where do you guys live? We live in Corona, California.

Oh, nice. Yeah, I was just there. In Corona? Yeah, we were doing a radio event out there with a bunch of folks. Nice. Very cool. It's a beautiful place. Yeah.

Very nice. Welcome to Nashville. Lots of traffic. And you're here to do your debt-free scream all the way from the other side of the world. Oh, absolutely. Love it. How much have you paid off? So we paid off $30,000 in 13 months.

Good for you. Yeah. And your range of income during that time? Started at $130,000 and went to $150,000. $130,000 to $150,000. Very good. What do you all do for a living? Yeah, so I'm in land acquisition for a residential home builder. And I'm in product marketing. Very good. Good for you. So what kind of debt was the dreaded $30,000? Well, it's pretty equally divided between student loans and in both of our cars.

Okay. But we wanted to mention that in that 13 months, we had to hit pause on our debt snowball twice. Three months into it on the 4th of July. Yeah, I unfortunately was celebrating a little too much. And apparently I had appendicitis and I thought it was more than something different. So I thought it was bad food. It ended up being appendicitis

and I had to get my appendix removed. So that put us on a screeching halt. Yeah. Wow. Yeah. So that was an emergency surgery that we had to cash flow. And we did put everything on, paid that off, started up again. We were back at it, filling out our thermometer.

And six months later, lucky me, I had kidney stones. So yeah. So I hit the double whammy. The only thing that didn't go was the gallbladder so lindsey this would have gone great if brendan won there i know i was stressed out i know she says that a lot though not an emergency appendectomy you almost weren't here yeah oh my goodness and it happened the kidney stone was two months of the new year so we had to start over with our deductible and out of pocket so all over again but it was good because we weren't

stressed out because we knew how much we could pay off each month. How long have you two been married? About five years. Five years on December the 1st. So what happened that put you on this journey 13 months ago? Well, we had our little guy. He's two right now, but I had just gone back to work from maternity leave,

and we always plan a big annual trip. And so having him, we thought, oh, we'll go do a Disney cruise or something. And we're planning that trip. And then I was kind of stressed out because we only had maybe $3,000 in savings. And so it just didn't sound right. And we knew about you. His parents had actually given us, I think it was a home DVD kit when we got engaged.

Okay. But it just didn't click back then. Didn't watch them? No. Well, that's what's true. We watched a couple. No, we watched them, but we stopped at the $1,000 emergency fund and then just didn no no well that's that's what we watched no we watched them but we stopped at uh the thousand emergency phone and then just didn't stick to it okay so um i knew

about you went online found that you had an app and i have about an hour and a half commute each way to work so i listened to your podcast and i heard yeah i heard you tell a couple that was on baby step two that they're broke they can't go on any vacations and that's when it's clicked like we can't do any of this stuff we need to really buckle down and pay off our debt so that's when came home to him and told him no vacations we're gonna get started to which he was really excited to hear this news so excited yeah i was thinking dang uh pay off or pay off debt or go golfing in florida keys or something i'm like oh ooh. Hard choice. I guess it's a debt. But the good news is you're out of debt now.

If you live like no one else later, you can live and give like no one else. What do you tell people the key to getting out of debt is? You paid off $30,000 in 13 months. For me, that budget. Sticking to the budget. We always built a budget, but we never stuck to it through the month. It always changed. We knew we had extra cash. We'd do that spontaneous spending.

So planning before each month happened. Love the EveryDollar app. We use it all the time. So yeah, just sticking to that budget and planning ahead and just delaying some of your things that you'd want and just waiting on them. Yeah. And for me, I would say it's just, you know,

everybody's different in the way that they approach this debt-free journey uh lindsey over here she's an excel guru and geek and loves to see it split out i'm gonna put a thermometer up there and let me color in the whole thing and get me to the top uh and a more goal driven in that way so we built that thermometer all right put that on the refrigerator we put on the refrigerator so that everybody can see that we're in debt it's kind of like you know when you're an alcoholic you you go to Alcoholic Anonymous. This was it.

It was like, hey, we're the Carols. We're in debt. And so it was our way of being honest and upfront and letting people see, kind of be a part of our journey if they enter our home. So did people look at you curiously or like you were crazy, or did you get more cheerleaders? No, it was a little bit of both. I mean, our family was very supportive, but for me, the crazy part was that it was weird. I kind of took my blinders off and realized that a lot of people are okay with being in debt and taking on debt. And I'm like, why?

You know, like when we got through this journey, I get it in the beginning, but people kept saying, oh, no, just go buy that. You know you can pay it off soon. No, no, that's not how I want to roll. Right. And, you know, obviously with our little guy here and our next one coming up, our little girl, it was like, you know, it's now or never, and the best time is now when they're cheaper. And then, you know, once again, the sports can be expensive, so get it done.

That's exactly right. Well done, you guys. Thank you. Very, very well done. That's exactly right. Well, well done, you guys. Thank you. Very, very well done. That's fun. And so a little guy came with you. How old is he? He's two years old.

And his name is? Easton Carter Carroll. Okay. So does Easton do debt-free scrims yet? Probably not. He did this morning. He's tried, but he may be a little shy. But we'll see.

He's got his backhoe actually in his mouth right now. Now, that backhoe's been driving around out there. It has. We try not to distract you. That's a good thing. That's a good thing. That's what backhoes are for. That's right. That's fun.

Digging dirt, right? That's exactly. Well, congratulations, you guys. We've got a copy of Chris Hogan's book for you, Retire Inspired. And that is the next chapter in your story for you to be millionaires. That's right. And outrageously generous along the way. Yes.

So, fun stuff. All right. All right. All right. Brendan and Lindsey and Easton from Los Angeles area. $30,000 paid off in 13 months, making $130,000 to $150,000. Count it down. Let's hear a debt-free scream. All right. Three, two, one.

We're debt-free! We love it, love it, love it. Well done. Well done. Very well done. Excellent. Open phones at 888-825-5225. You jump in.

We'll talk about your life and your money. Dale is with us in Kansas City. Hi, Dale. How are you? Fine. Thank you for taking my call, Dave. Sure. What's up?

Well, I'm wondering if I need more life insurance than I have. Okay. How much do you have? I have about $250,000. Okay. What's your household income? Sorry? What's your household income? $180,000. Okay. What's your household income? Sorry? What's your household income?

$180,000. What do you make? $150,000. Okay. And you have $250,000 in life insurance. And how much in your nest egg do you have in wealth and investments? We're debt-free other than the home and land. And that's worth about $1.8 million.

And then I have about $400,000 in 401s and Roths. Okay, good. And what do you owe on the land and home? $520,000. Okay, all right well the income produced off of 650 000 let's just use a that's the uh 250 and the 400 you got those two numbers if those two were invested and just round numbers just to make this easy if it was 10 that'd,000 a year. She doesn't get to keep the land and the house in that scenario, does she? No. She can't service a half-a-million-dollar debt with a $65,000 income and raise the kids, right? Yes, sir.

Okay. So you're underinsured if your goal is for her to stay in that property upon your death. Now, if she liquidates it and puts $700,000, the equity of that, buys a $200,000 house, has $500,000 in her hand, plus has $250,000, plus has $400,000. Now she's got over a million dollars. She's got a paid-for $200,000 house, and she can live on $100,000 a year then, coming off of a million-one. Does that make sense?

So if that's your plan, you're okay. But if you want her to stay on that property and continue to live there you don't have enough insurance do you see how i'm doing that yes sir i do okay so what's the goal which one uh would you want her to stay on the land i want her to stay on the land she wants to stay on the land but i would rather she would move closer to some family. Okay. Well, then if you want the ability to do that, we need, you know, you need about $1.5 million in insurance.

She'd use $500 of that to pay off the property. She'd have $1 million and some change that way to live off the income from. So somewhere $1.5 million in life insurance, so you're $750 light at least to be off the income from. So somewhere a million, million five in life insurance, so you're 750 light at least to be able to hit that using the simple numbers I was using there. Thanks for joining me, America. We're glad you're here. Annette is with us in Miami, Florida. Hi, Annette.

Welcome to the Dave Ramsey Show. Hi, Dave. It's an honor to speak to you. Sure. Annette is with us in Miami, Florida. Hi, Annette. Welcome to the Dave Ramsey Show. Hi, Dave. It's an honor to speak to you. Sure. What's up? Well, first I want to say thank you for all you've done. I've already, I became debt free in April, and I just saved up my six months of expenses last month, so, you know, I'm on a roll, and I want to keep going.

Way to go. I'm so honored to talk to you. Good job. How can I help? Well, I'm a law enforcement officer here in the Keys and my department is going to be introducing the HSA plan this upcoming year. And I've gone through the class and everything, and I know you've explained how the high deductible plan is better in regards to saving more monthly on the health insurance portion of it, but I don't know more about it in regards to if there's still like a copay that needs to be paid when I go see the doctor,

or if I have to pay out of pocket out of the deductible, if that makes any sense. Right. Well, there's different kinds. Most of them are you pay 100% of everything until you get to your deductible, and then they pay 100%. Some of them do have a copay after you meet your deductible. Either way, you do have a higher deductible with an hsa and a lower premium as a result but you'll have to just find out what they're offering do they have a hundred percent pay after the deductible um and if they do and you're healthy or you're sick either one it comes out

better kind of in the middle it doesn't necessarily come out better but if you're going to blow through the deductible every year and then they pick up 100%, that's a great deal if you've got like a chronic illness. Or if you're hardly ever sick, like the Ramseys knock on wood, we hardly ever end up at the dock. Then in that case, obviously we save a lot of money because we only

pay what comes out of our pocket and we never go through the deductible. So we just end up with a cheaper premium is what ends up with us. And the ability to put money into the health savings account, which creates a tax deductible account. And you can use that money, of course, to meet your deductible or any other health issues that you want to cover as you go along. So good question.

Good to talk to you, Annette. Thank you for calling in. Dennis is with us. Dennis is in Rochester, Minnesota. Hi, Dennis. How are you? I am well. And yourself, sir?

Better than I deserve. What's up? Well, my wife and I started your program back in June, and we've been working our way through. We're in baby step two. We have some whole life life insurance policies. Each of our parents took out life insurance on us when we were younger, and we still have those policies.

And then when we got married, we each took out a policy, both of them whole life. The cash value on the policies is about $11,000. And we were wondering if we should cash out the policies after getting term policy and use that money to put into our debt snowball. Absolutely. Yeah, they're a horrible product. They're just, you know, the whole life is the payday lender of the middle class i mean it just is a a ridiculously low rate of return on your money and the worst part is when you die they only pay the face value of the policy they don't pay the the cash value

also which means the extra money you paid to build up savings in there disappears at death they keep your money. And so it's just a bad, bad product. The math on it is horrendous. And you're much better off to buy inexpensive term insurance and do your investing anywhere except in a life insurance product. And so that's what I have done for, you know, 30 years. Would there be tax implications on the money that we pulled out? Very doubtful, and the reason is that your basis in a cash value policy for tax purposes,

in other words, what you paid into it, is everything you've paid into it throughout the entire time the policy's been open so if you add up all the premiums that you've ever paid you don't even get that much out and so you really end up with a loss you can't write the loss off but you end up with having put more into it than you get out so there's no gain now if um and it happens about five percent of the time with an oh with a very very old whole life policy. It is possible that the cash value is greater than was paid in, but you would only pay taxes on the difference. And so, you know, you use the figure $11,000.

So if you found out that all the premiums added up to only $10,000, then you'd pay taxes on the $1,000 difference. Whoopee. Still do it. Right. But 95% of the time, 98% of the time, they lose money because they suck. They don't make money, you know, and so you end up losing money on the transaction, and, of course, that's not a taxable event when you lose money.

No question about that. Catherine is with us in Danbury, Connecticut. Hi, Catherine. How are you? Hi, Dave. I'm doing good in Danbury, Connecticut. Hi, Catherine. How are you? Hi, Dave. I'm doing good. How are you? Better than I deserve.

What's up? My husband and I just got married this August, and we're combining our finances and everything else, and we're working on paying off all of our debt. We just paid off his car like three days ago. Hooray. Yay. Yeah, mine should be paid off by car like three days ago. Hooray. Yay. Yeah, mine should be paid off by the end of this year, which is great. And the next thing we're going to tackle is a rental property that I own.

And then after that, we're good until the mortgage for the house that we live in. So we're planning on saving up for the three to six months of emergency fund, but we're not sure how much we should save. We're a two-income family, obviously. We have no kids. But if both of my tenants leave in my rental properties, that will require, like, a really different amount than if I have tenants. So we're trying to figure out how much is safe or makes sense. Well, given that you have two properties that can have stuff break down on them, you could

set up in your rental accounts some savings just to cover the rental issues, a vacancy or a repair. I assume you keep a separate account for your rentals, do you not? I do not. I guess I should. Okay, I would. separate account for your rentals do you not i do not okay i would i would open up a separate checking account just for the rentals and put pay all the bills associated with the rentals out of that account only and then um and of course pay the payments out of there put the rents in there and then you can tell if you're making money on the rentals because what's left in the account

is your profit right right that's the taxable uh that's the portion that's going to be taxable each year because everything else is going to be deductible all the expenses associated with it and you can keep some money in that account to cover vacancies uh or to cover repairs and i might keep that do it that way and separate from my emergency fund and then because that's like a business over on the side. It's like a small business you've got. But then at home, I would have three to six months of expenses there, not counting the rentals. Because if you've got the rentals covered in the rental account, then you're okay over there. And if you've got two incomes and you're pretty stable, it sounds like you all are doing really well and you're paying attention, you might be okay with the three-month side of the three to six months of household expenses as your game plan and so forth.

So, hey, good question. Thanks for joining us. Joe's in Austin, Texas. Hey, Joe, I'm short on time. Go straight to your question. Hey, Dave. I have a new one-year-old, and I was wanting to get your advice on how to save for his future. So we have a 529 plan set up, and he's been getting money from birthdays and other holidays. And I was willing to know what we should do with that money

and how can we teach him financial responsibility as he gets older. Cool. Well, good for you. What a great dad question. Yeah, I would have the money inside the 529 invested in good growth stock mutual funds. Of course, a 529 is used for college, and so we're going to teach him that his college money is there, and I'm going to show him that money as he gets older. He didn't need to understand it at four years old. Don't worry about that. But then there's four things you teach a kid about money, and it's four things we all

need to learn about money. Number one is work, because that's where money comes from. Number two is giving. Number three is saving. And number four is wise spending. And you teach them to work age appropriately when they're three. We don't send them to the salt mines, okay? We're going to teach them to work, to give, to save, and to spend. I'm going to send you a copy of our number one best-selling book, Smart Money, Smart Kids, which will show you everything about teaching your kid how to handle money. It's by Rachel Cruz and Dave Ramsey. Hold on, I'll send you out a copy of that.

This is The Dave Ramsey Show. 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.