The Ramsey Show - App - The Proper Way to Build a Financial Plan (Hour 1)

Episode Date: January 22, 2019

The show about you

Live from the headquarters of Ramsey Solutions, it's the Dave Ramsey Show, where dad 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. We're glad you're here. Open phones at 888-825-5225. Jimmy starts off this hour in Toledo. Hi, Jimmy. How are you? I'm doing well, Dave. How are you? Better than I deserve. What's up? So I am 24. I'm single. I'm a registered nurse.

And the only debt I have is my vehicle, which is just under $12,000 I owe. I'm meeting with a wealth consultant tomorrow in regards to starting a Roth IRA. My question to you is, should I look into starting mutual funds and other forms of investment, or should I focus solely on the Roth and paying off my car first? Good for you. Good question. Well, you're right on track, man. You're doing well.

No student loans. Nope. I was fortunate enough to get a scholarship. My parents worked hard. Very good. Very nice. Good for you. Okay.

Well, what we have found, Jimmy, is this, that the most powerful wealth-building tool that you have is your income. All the data points point to, when we're dealing with millionaires, that they did a couple of things. One was they got out of debt and stayed out of debt and then two was they do investing like you're talking about with your roth ira or your 401k at work or both or whatever okay in that process we've also laid out um what we call the baby steps which is the proper way to build a financial plan. Baby step one is to save $1,000 before you do anything. A little miniature starter emergency fund.

Do you have $1,000? I actually have saved up just close to $8,000. Good. Okay. Baby step two, then, is to become debt-free except your home. You don't have a home yet, so debt-free except home means we got to pay your car off before we do anything else. So you don't need to meet with a financial advisor. You're not ready.

You got to get the car paid off. When the car is... Go ahead. I'm sorry. Not even Roth? IRA? No. No. No investing. No saving. No nothing. Get the car paid off. Fast as you possibly can. What that means is I'm going to take seven of your eight and I'm going to throw it at the car tomorrow, today.

Right. And that means you've got five left. We're going to knock that out. You're going to be done in like a heartbeat here, okay? Yeah. Then as soon as you finish the car, the next baby step is an emergency fund of three to six months of expenses in a simple money market account.

Those are being debt-free and having your rainy day fund are foundational before you start building your house. Your investing is building your house. Right. Laying the foundation blocks and pouring the basement is debt-free and have the emergency fund. Then you start putting 15% of your income into retirement. So you're probably going to do that later this year. Yeah, I would like to as soon as possible. Yeah, but you're not quite there yet.

And if a financial advisor tells you to go ahead and do it now, they are trying to sell you something that they make a commission on instead of telling you to do the right thing. You need to lay these other foundation blocks in place first because if you've got no payments, dude, you've got an emergency fund, you'll always be able to invest. But if you start investing and you have payments and no emergency funds and something happens and you stub your toe at work, you'll cash out your investments because you didn't have an emergency fund.

And you'll pay penalties and taxes and everything else. So that's why you do these things in the proper order. And then after you get all that started, if you want to start saving towards a house down payment or something, that would be the time to do that. So if you want to meet with the advisor, that's fine. You can learn from them. But you're just, it's a pre-meeting kind of. It's a pre-game meeting.

It's not the halftime meeting. Right. I mean, I know that you push knowing what you're investing before you do it because you don't want to waste your money on something you don't understand. Exactly. Good mutual funds there is what we recommend. But you can start learning from the advisor and start developing a relationship of trust with them and that kind of a thing. And you can kind of test them here and say, you know, if they don't tell you to go back home, pay off that car,

and put your emergency fund in place first, you got the wrong guy. And jump online and get one of our SmartVestor pros, and they'll help you because they'll send you back home not ready to do your Roth yet. That's where you are today. But you're going to be well on your way. You got a great start, no student loan debt, a little bit of car. You got a great career field you're in.

You're obviously articulate and bright, and you're being intentional and thinking about it. I predict millionaire status in less than 15 years for you. If you just keep your head on straight and don't go nuts, you know, you just keep doing this stuff the way you're thinking here, you're going to be fine. Make your money behave, invest, invest, and stay out of debt. It's really not rocket science. That's the good news.

Hey, thanks for the call. Crystal is with us. Crystal's in Tyler, Texas. Hi, Crystal. How are you? I'm good. How are you doing today? Better than with us. Crystal's in Tyler, Texas. Hi, Crystal. How are you? I'm good. How are you doing today? Better than I deserve.

What's up? Okay, here's my question. My mom, she's 75 years old. She's on a fixed income. She does not have burial or life insurance. Does she have any money? No, she has no savings, no nothing. Okay.

It's her fixed income every month, and she does, she had a stroke about two and a half months ago. Oh, I'm sorry. And now she is pretty much bed bound. I mean, anything that has to be done, I have to do it for. How much money do you have? Zero. We just now started listening to your plan, and we're in the process of um baby step zero so okay um well you're gonna have to get in gear aren't you because you're gonna need you're gonna

need you're gonna have to cover this burial expense and you're gonna need five five seven thousand bucks somewhere in there and so you know that's your first budget item you're gonna just be going crazy because she's not doing well, and you're going to have to get prepared as soon as possible. Mm-hmm. Okay. So would you recommend going to the local funeral home that she had planned to go to anyway and setting all that up now?

It wouldn't hurt. And just go ahead and start paying? You know, the thing you've got to do there is just, you know, obviously what you're doing is you're putting together your budget. Right. And so we're doing this on the cheap because we got, you know, actually, you could kind of ask the funeral director for two budgets. One is an emergency super on the cheap. Right. What's the least we can get out of here if this happens sooner than I have any money, right?

And then the second one would be if you get a few more months grace in this and you can save up a little bit more and it's not like the super, super cheap, right? Right, a little bit better. Yeah, you know, and it might be that one of them is $4,000 or $5,000 and one of them $7,000. I don't know. That's probably not far off. But, I mean, you can spend easily $30,000 if you want to over there, but that's not generally recommended unless you own the funeral home.

Exactly, yeah. So, but, yeah, just, you know, the good – it's kind of like we've got a potential expense coming up and it's better to not be blindsided and plan it out. And that's what you're suggesting, and I agree with your idea there. That's a bright way of looking at it. I'm so sorry you all are facing this. But the good news is that the issue is going to make you guys face your stuff and start getting control of your life and your money so that you're never here again.

I know a lot of people, when they have these experiences with parents in their latter years being broke, they say, gosh, I'm not going to be that. They change their life looking at their parents and go, I'm not going to be that. What do we got to do? I'm not going to live like that. What do we got to do? I'm not going to be that guy. What do we got to do?

What do we got to do? Boom, boom, boom. And you just punch it and get it done. And it changes your perception forever. But I'm sorry she's going through that. And I'm sorry y'all are facing that with her. This is the Dave Ramsey Show. I'm going to go on a little rant here for a minute. I took a call from a father who wanted to know how to plan for the care of his special needs daughter after he dies. Why is it that parents of special needs children are so deliberate in their planning while other parents have a tendency to be sloppy? Do the needs of your family matter less if something happens to you? Oh, I'm sorry, did I just guilt trip you into getting some term life insurance?

Well, then good. Your family needs you to step up. Having the right amount of term life insurance is a matter of personal responsibility. If you want to use the new year as a reason for doing the right thing, then do it. Term life insurance is something every family needs, which is why I talk about it every day. It's not complicated, it's not expensive, and you need to do this now. Zander Insurance is the only place I recommend. Visit Zander.com or call them at 800-356-4282. Please learn from other people's

mistakes and get this taken care of. That's 800-356-4282 or Zander.com. Thank you for joining us, America. We're glad you're here. Open phones at 888-825-5225. Diana follows me at facebook.com slash Dave Ramsey. How can someone improve their credit score when there's no debt? You can't. And that's a good thing. We need to understand what a FICO score is.

A FICO score has, according to FICO's website, four elements to it. How much debt you have, the kind of debt you have, how you pay your debt. It's all about debt. So your FICO score, I ran into a guy this weekend. He said, no, Dave, I don't really need your information. I have an 850 FICO score. I'm doing fine. And it wasn't a situation where I, it was a social situation where I couldn't really laugh at him in his face.

So I just nodded and said, okay, and walked away because there was no, I didn't have time, nor did I have the footing in this conversation to completely expose the ridiculous thinking that that represents. Let me help you with that. An 850 FICO score does not mean you have money. It does not mean you have an income. It does not mean you have wealth. All it means is you have paid hundreds of thousands of dollars in interest to the bank. It's the only possible way to get an 850 FICO score.

You have to have a lot of debt, have had it a long time, and have paid it perfectly. And stayed in debt religiously. As a matter of fact, you've borrowed money just to keep your FICO score up, to be at that level. Now, does that make sense? Well, let's think about it. The number one key to building wealth is having your income to invest instead of having committed it to other people.

That means gotten into debt. When you don't have any payments, you have money to invest in, to be generous with, and all the data points tell us that that is the fastest way to build wealth. All the research gives us that, plus common sense tells you that. So once we understand that the fastest way to become wealthy is to be out of debt, and we understand secondarily that the FICO score is 100% built off of your relationship with debt. If you have a high FICO score, it means you've been playing kissy face with the bank a lot. Once you understand that, the FICO score is not an I'm good with money score.

It's not an I'm wealthy score. It's an I love debt score. And I'm really good at borrowing and paying back a lot of debt over a long period of time score. Which is a stupid way to score whether you're winning with money. So when the guy goes, well, I'm doing okay. I've got an 850 credit score. What he really meant was, I'm pretty stupid. I'm giving the bank a lot of money, and I don't have any likely.

Because the shortest distance between two points is a straight line, that straight line is debt-free. I have my income. I can put it into investments. So, my point being, my credit score, very proudly, is indeterminable, which is the FICO score people way of saying, I have a zero score. Why do I have a zero score? I have had no debt, no accounts open of any kind for a very long time. If you only will do business with me or loan me money based on my FICO score,

we can't do business. I don't have a FICO score. Because I don't borrow money. Because not being in debt is the fastest way to become wealthy. So your goal should not be, how can I keep my credit score up? How can I build my credit? Because building your credit is,

I'm going to borrow money. Why? So later I have the opportunity to borrow money. Why? So that I can borrow more money. Why? So I can stay in debt and make those towers in the skyline be owned by somebody else because I gave them my working life's income. You're being ruled over by banks. They're telling you what to do.

They're managing your life. They've built it into the culture to the point that people actually walk around bragging about their I love debt score. What a great job the banking industry has done teaching you to be in debt and stay in debt, which is where they make all their money. The credit card is the most marketed product in the history of the world. More money has been spent selling you credit cards, marketing you credit cards than any other product in the history of the world.

And it worked. You all have one or two or 22. It worked. Don't you feel stupid? Don't you feel manipulated? Don't you feel used? You should. You're a slave. The borrower is slave to the lender. So don't improve your credit score. Have a goal of having everything paid off and every account closed. And then somewhere around six months later, your credit score will be fabulously indeterminable. Zero. How would I get a house? How would I get a house? Well, two possibilities there.

You'd have to get a mortgage with someone that doesn't use a credit score to issue a mortgage, which is a mortgage company who actually knows how to write mortgages the old-fashioned way. It's called manual underwriting like Churchill Mortgage does does or you'd have to save up and pay cash how can you do that no one can pay cash for a house you just tell people not to buy houses you're just unrealistic dave ramsey is unrealistic yeah yeah i am and i live that way i live in an unrealistic world where I've become unrealistically wealthy managing money God's ways. It works every time. So you have to be like that young couple I ran into.

He was an engineer, and she's a teacher. Just talked to them the other day. They're young. They're making a lot of money for a young couple, so they're unusual, granted. But they're making a lot of money for a young couple so they're unusual granted but they're making right around 100 and they're you know 24 years old when they started they had no dad and they decided they were not going to borrow money for a house so they lived in an apartment a garage apartment out back of a rich old lady's house. He cut the rich old lady's grass and kept her gutters cleaned out, and the rent was almost free because of that. Their friends made fun of them.

Their parents thought they needed counseling. But they made $100, and their rent was $250 a month in a nice city in a nice neighborhood. But it's a garage apartment over the top of a garage out back of a lady's house. It was not fabulous. And you know what they did they saved almost well i mean i think they saved right at fifty thousand dollars a year for four years and they paid cash for a two hundred thousand dollar house when they were 28 but But everybody made fun of them. Now, if you're making, by then, $125,000 a year, and you're 28 or 30 years old, and you never have a house payment the rest of your life, do you know how rich you're going

to be? See why you don't need a FICO score? Hello, are you starting to catch on to these numbers? This is real. So don't improve your FICO score. Set out to destroy it as quickly as possible by being 100% debt-free with all accounts closed as soon as you possibly can.

So, kind of counter-cultural, isn't it? Well, the Bible says that. It says, be not conformed to this world. Don't be like everybody else, but be transformed. How are you transformed? The renewing of your mind. You need ideas that are different than everybody else's ideas. Normal is broke.

78% of Americans live paycheck to paycheck. The foreclosure rate is at an all-time high. The bankruptcy rate is at an all-time high. And the number one cause of divorce in America today is money fights and money problems. Do you want to be normal? Normal sucks. Why would you want to be normal? Whatever everybody else is doing, you want to do exactly the opposite, don't you? Otherwise, you're going to be just like them. If you do what they do, you're going to be just like them. So go run up your FICO score if you want to be broke your whole life. Go worry about your I Love Debt score if you want to be broke your whole life.

You'll be broke. Mathematically. It's a proven freaking fact. Or you can be different than everyone else. Be weird. Don't be normal. That's what winning is. Your goal this year is to get rid of your debt.

But here's the deal. In order to keep your momentum going past January, you have to make small changes that get quick results. That's why you need to attack your debts smallest to largest. I also recommend you look for ways to find extra money to pay off your debt sooner. It's there, I promise you. Take a look at your mortgage. If you call my friends at Churchill Mortgage and request a five-minute checkup, they can help you find extra money. Churchill Mortgage Checkup has helped thousands of my listeners save big.

In just a few minutes, the Churchill team can tell you how much cash they can potentially save you or they can restructure your mortgage to pay it off early. Become debt-free in 2019. Call Churchill today at 888-LOAN-200 or visit ChurchillMortgage.com for your Churchill checkup. This is a paid advertisement. NMLS ID 1591. NMLS ConsumerAccess.org. Equal housing lender. 761 Old Hickory Boulevard Brentwood, Tennessee 37027.

Thanks for joining us, America. We're glad you're here. Joe and Amy are with us in Omaha, Nebraska. Hey, guys, how are you? Hey, Dave, we're doing good. Good, welcome. Welcome, welcome. Good to have you.

So how much debt have you two paid off? We have paid off $126,600, and we did that in 41 months. Way to go. And your range of income during that time? We range from anywhere from about $70,000, Dave, to $80,000 during that time frame. Good for you. What kind of debt was the 127 uh most of it was my debt um i had about 60 000 in student loans with a about a 25 000 car and a 5 000 motorcycle and then amy had some leftover student loans from her so amy married a mess amy did marry a mess. Say, Amy, so did Sharon, so it's okay. Oh, my gosh, wow. So what happened 41 months ago?

Whose idea was this? Let me guess, Amy's. No, actually, I mean, Amy has always been terrific with money. And so about, I would say, about 45 months ago, I asked Amy on a date and we had been friends for about 10 years. And so I wanted to take that friendship to the next level. And then we started dating and I was like, what am I going to do? I'm living paycheck to paycheck. You know, obviously I had marriage in the plans and providing for a family, and all of a sudden I said, I'm going to do it. So that January I went for it and told myself that I was going to go on the Dave Ramsey plan

because I got introduced to you about 10 years ago from a friend named Carl, and he gave me all the parameters, the baby steps. And at that point in time when I graduated college, I bought a $30,000 vehicle. I had $60,000 of student loans, and I made $27,000, Dave. And it was eye-opening. And a couple years down the line, I met Amy, and that has made all the difference. So we started off with that. You're like a good woman to inspire you, huh?

She has inspired me greatly, and she stood by my side throughout the entire time and has been a motivator for me. Good stuff. So did you guys sell stuff while you were getting out of debt? So the only thing that I sold was my motorcycle. I think I bought it for around $6,000, and I sold it for $4,500. And then that spring, we had a hailstorm here in Nebraska, and my brand-new car got about $8,000 worth of hail damage,

and I talked to the loan insurance, and they gave me two options, to fix the hail damage for $8,000 the loan insurance, and they gave me two options, to fix the hail damage for $8,000 or take it and put it towards debt. And since I was on the Dave Ramsey plan, I just decided to throw it towards debt. I said I didn't care about what the car looked like, and from then on, we cash flowed everything else. So we cash flowed our wedding, and we cash flowed a honeymoon, and we've had some hiccups along the way.

So you're driving a car that looks like a drunk got loose on it with a hammer. Yes, it does. Oh, my gosh. Oh, wow. To this day, huh? Okay. So now we can either get the car fixed or get rid of it now that you're out of debt, right? Correct.

Okay. Oh, my gosh. Yes. And, Dave, we went through some trials. I mean, we've lost jobs. Amy had some really bad shoulder surgery after we had our son, Clayton, and she was out of work for about seven or eight months rehabbing. And then, you know, me and my work decided to go separate ways.

And, you know, at the end of the tunnel, there was always a better vision on what we were going to do. So we kept our heads high. We lived on a budget. We lived well below our means. And we continued to make strides month to month. It's a long process. 41 months is no hiccup.

And I've made several errors in the process. We probably could have done it quicker, but it was a long battle. Wow. Well, congratulations, you guys. What do you tell people the key to getting out of debt is? I would tell them that, like you always say on your show, Dave, what's the goal of doing something? What's your long-term goal? You have to have a plan.

You have to have a reason on why you're doing something. If you just say, hey, I'm going to lose 100 pounds, but then you don't put specific goals to how you're going to lose that 100 pounds, you're not going to – it's not a realistic goal of yours. So we had a plan in place, obviously. Your baby steps are good. We took Financial P University prior to marriage, which really put us on the same ball. And then, you know, we just made a plan month by month.

And it's really tough when you start putting your numbers into a calculator and they're averaging out, you know, 60 months, 70 months to do it. Once you start getting gazelle and tenths in it, just the numbers start dropping off with zeros. And it's eye-opening, Dave. It really is it really is wow well congratulations dude i'm very proud of you guys very well done very well thank you very much we're going to send you a copy of chris hogan's book retire inspired number one bestseller on how to retire wealthy because we want you to be able to do that and that's the next call you make you call us when you're doing the millionaire theme hour unless you got a question in the meantime and um we'll help you we want to hear your story of how

you became a millionaire because that's what you're on your way to doing and you guys have learned to handle money the right way amy's way and uh and you're on the way man life is good congratulations all right it's joe and Amy, Omaha, Nebraska. $127,000 paid off in 41 months, making $70,000 to $80,000 a year. Count it down. Let's hear a debt-free scream. Three, two, one. We're debt-free!

Man, oh, man man, oh man. That's how it's done. I love it, I love it, I love it. Welcome, welcome, welcome. Good job. Our question of the day comes from Blinds.com. Their 100% satisfaction guarantee means that even if you mismeasure or pick the wrong color, they'll remake your blinds for free.

With Blinds.com, you get free samples, free shipping, and with the new promos they run every month, you'll save even more. Use the magic word, the promo code RAMSEY, and you get the best possible deal. Blinds.com. Today's question comes from Anna in Pennsylvania. She says, where do I put back property taxes in Baby Step 2? Do I simply list them in the other debts from smallest to largest,

or do they take precedent over the other debts? Back property taxes, you know, I guess you're going to have to figure out how far back you are and how long before you leave the house, lose the house. So it's like, you know, where do I put back payments on my house before I get foreclosed on? Well, you put them up there near the top for sure. And so you're probably going to have to move them up in the debt snowball realistically to get them paid before you lose the property.

But I don't know what back taxes means in your case or how far back you are or how much money it is compared to the rest of your debt snowballing compared to your income but uh we'll make the assumption that you're going to lose the house if you don't move them forward in the debt snowball so well obviously you would move them forward in the debt snowball if that's the case we're not going to lose the house over this and then you've got to make sure going forward that your property taxes are budgeted monthly because you've done a bad job of paying your property taxes so one twelfth of your property taxes needs to be set in a savings account out of your budget every single month

so that you are never in this position again do not let this sneak up on you again. This is not a surprise. It's not an oops. It's not an emergency. Christmas is always in December, and property taxes are due every year. There are some things that are predictable, and predictable things, by definition, are not emergencies. They can become crises if we don't deal with them. But it's predictable the tires are going to wear out on your car.

So it's predictable you need to have some money set aside for car repairs. It's predictable your car's not going to start one morning. Went to start sharing this the other morning. The battery's dead on the stupid thing. Aggravating. So, I mean, it's predictable. Stuff's going to happen. Those things are predictable.

When they're going to happen, we don't know. But they shouldn't be crises because they're predictable. So get caught up on them and then stay caught up on them. This is The Dave Ramsey Show. Thank you for joining us, America. Alyssa is with us in St. Louis. Welcome to the Dave Ramsey Show, Alyssa. How are you? I'm good, Mr. Ramsey. How are you doing today?

Better than I deserve. How can I help? Good, good. It is an honor to talk to you. I just love listening to you all the time. Thank you. A quick question for you today. My husband and I are finishing up Baby Steps 2 this month,

and I finally got my husband on board, and we just went crazy. We paid off, we will at the end of this month, over $10,000. Way to go. Yes, so very excited. Here's our dilemma, and we know the next step would then be to fully fund our emergency fund, which we will actually be able to do next month. My husband gets a large commission check the beginning of each year. But we only have $37,000 left on our mortgage, and I feel like this momentum and our excitement and our craziness and just being so intense,

I just want to kind of knock it out and finish it up. I know you guys say to do that in another step. But I just wanted your input to see if that would be an okay thing for us to do since we're so excited. We make a little over, this year will probably be a little over $100,000. Good for you. Well done. Thank you. Well, the good news is the excitement, the enthusiasm probably be a little over $100,000. Good for you. Well done. Thank you. Well, the good news is the excitement, the enthusiasm, the momentum that you've got will not really stall out.

You're going to knock right through this. Let's kind of walk through it. The proper baby steps are you finish baby step two, then you put your emergency fund of three to six months of expenses in place. You keep your intensity up until you do that. Once you hit that, then that takes you to baby step four, five, and intensity up until you do that once you hit that then that takes you to baby step four five and six which you do simultaneously maybe step four is 15 of your income going into retirement five is kids college you have kids college involved we have three kids that's my other my other thing i feel like once we were to do the 15% and then we do have 5, 7, and 9.

Okay, good. All right. We do have some saved for them, but, I mean, not close. And we definitely want to fund that. But I feel like at the end of the month with all of that, there won't be much to throw at the mortgage. Okay. But you've got to get past Baby Step 3 before we even have this discussion. You've got to have your emergency fund.

That's not an option. Okay? Okay. Now, if you want to tap the brakes and say, all right, we're going to take one more year off of retirement and kids college and knock this house out or 18 months and knock this house out fine okay okay and then start then then once you've done that then you're basically at baby step seven which is build wealth and give which means we're going to put you know we're going to max out retirement at that point and we're going to do sit down with your you know your smart

investor pro and lay out your kids' college savings and figure out how much, based on their age, you need to be saving for each one. It'll be different amounts so that you ring the bell when they're 18 and pay for college. But you can do that because your mortgage is so low and because you've got this momentum. If you wanted to, it'd be fine. After you get baby step three in place just keep rolling on through the house but you've got to do it in about 18 months if it's going to take you more than that then no let's go ahead and let's go ahead and start baby steps four five and six at

the same time you'll get the house paid off uh it's going to take you doing that it's probably going to take you four years instead of two you know right but you'll get there our plan has been knocked through it quick yeah you'll get there but Yeah, our plan is to knock through it quick. Yeah, you'll get there. But if you want to take 18 months off and jam it, that'd be fine. But you've got to have the emergency fund in place because you're inviting trouble if you don't have that. Not having an emergency fund is a Murphy beacon. It attracts trouble, right? Right.

And you don't want to do that. So let's get those foundational things laid first and then reach over and knock it out sure sure use that increased cash flow to you know jam on the kids college and make sure you got your 15 at least going into retirement at that point probably more uh yeah yeah i would do that good question thank you Good question. Thank you for joining us. Open phones at 888-825-5225. Angie is with us in Dayton, Ohio. Hi, Angie. How are you?

Great. How are you doing? Better than I deserve. What's up? I am 38 years old, a former teacher, and I have a state teacher's retirement system account benefit of $40,000. Are you vested? Am I what?

Vested. Can you move it? That's what I'm asking. If I leave it until I can begin drawing, I'll only receive $2,000 a year as a pension. Are you allowed to roll it, to take it? Yes. Take it and roll it to an IRA, and it's a direct transfer rollover to an ira what that means is you don't receive the money it goes from the pension directly into the ira mutual fund if they send you the money they're required to withhold 20 and then you're going to get taxes

on that don't do that okay have it do a direct transfer rollover into good mutual funds. Here's why. The good mutual funds will outperform the pension in terms of the rate of return and cause it to grow more. Plus, of course, when you die, the pension dies with you unless you've got a survivor benefit, and then it dies with your husband. Okay? Okay. benefit and then it dies with your husband okay okay but uh when you put forty thousand dollars into a mutual fund and 20 years from now it's four hundred thousand and you die that money's still there it doesn't disappear it goes into your family right regardless of who you want to leave it to so um you know it's bad you make more during life and you make a lot more at death

okay yes so yeah we're going to roll it if you don't have a mutual fund advisor click smart vestor at daveramsey.com and because you're a smart investor and you fill in like your email it'll drop down a list of the smart vestor pros in your area that we recommend you can select one of those that you choose and sit down with that person. They'll have the heart of a teacher show you exactly how to do all of this. And you can do a direct transfer rollover to keep from having taxes on it now. And then it will grow at a better rate than the pensions growing if you pick good mutual funds. And it will also be left to your heirsirs which obviously a pension dies when you do so it's

always good to roll a pension lump sum when you have the opportunity kaylee is with us in midland texas hi kaylee how are you good how are you better than i deserve what's up um i was wondering i'm kind of new to listening and working the baby steps and i know whenever you say to put a like aside a large sum of money how do you recommend doing that and then in a different savings account or taking it out cash or how what's the best way to do that when i do what with a large sum of money like because i've heard you know when you tell people you know yeah stop those debt snowball to put away money for a down payment on a house or you know when you tell people you know yeah stop those debt snowball to put away money for a down payment on a house or you know if you have to save some money for

something like that like a move or anything like that okay how do you recommend saving the money oh like i didn't say stop the debt snowball to put a down payment on a house ever in my life okay but i have said stop i'm sorry i have said stop the debt snowball, like if you're pregnant and you're piling up some cash for that. Or, you know, like you said, you've got to stop it because you've got a move coming up and you've got to anticipate that. Otherwise, the move is going to be more debt. So where do you do that? Just a simple savings account. Okay, like one that you already have $1,000 in?

Yeah, yeah. Okay. The point is you're not going to make much money on this, but it's not a long-term investment anyway. It's a put-and-take account. I'm putting it in there so I can take it out and buy a couch. I'm putting it in there so I can take it out and pay for Christmas. I'm putting it in there so I can take it out when we have the baby.

I'm putting it in there so I can take it out when we make the move. That's all it is. It's not going to be parked in there very long. like not like 10 years or something you know no no no i was just making sure i didn't know if you recommended taking it out as cash and like putting an envelope or no no i wouldn't do that that's you know i'd leave it in a bank account for two reasons one is it makes it a little hard for you to get a hold of if it's in an envelope in your underwear drawer the pizza man might get it you might have an impulse to buy something right so you got it you know you just gotta you gotta keep your hands off

of it too and by being in a bank account i would not have overdraft protection hooked to it and never have overdraft protection up to your emergency fund with your checking account no need to do that most people have online banking and jump online move checking account. No need to do that. Most people have online banking. You can jump online and move the money if you need to, but you get real impulsive when that money's too accessible. So keep your hands off of it. That's a big deal. So good question.

Thank you for listening. This is The Dave Ramsey Show. hey it's blake chief production officer for the show and here's a little tip for 2018 go download our revamped dave ramsey show app from the app store we're always listening to your feedback and adding new features to make it even better check it out