The Ramsey Show - App - The "Why" Behind Dave's Home-Buying Guidelines (Hour 1)

Episode Date: March 13, 2020

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Live from the headquarters of Ramsey Solutions Broadcasting from the Dollar Car Rental Studios, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. Thanks for joining us, America. We're glad you're here. Open phones at 888-825-5225. That's 888-825-5225. Brandon is with us in Canada. Hi, Brandon. Welcome to The Dave Ramsey Show. Hi, thank you, Dave. How can I help? So right now I've got a vehicle that I know you'll probably tell me I can't afford,

and really I'm looking for some advice as to what to do with it. Okay. Well, if you don't need me, you already know you can't afford it. Why haven't you sold it? Well, I'm upside down on it right now, so I'm trying to decide if it would be best for myself to sell it or if I should put away some extra money every month and accelerate my payments on it. How much do you make a year?

I make about $100,000. Good for you. How old are you? Before it packs. I'm 25. Wow. You're killing it. What do you do for a living?

I work in the oil field. Oh, okay. You're working your butt off. Okay. Cool. I'm trying. Yeah. You're killing it. What do you do for a living? I work in the oil field. Oh, okay. You're working your butt off. Okay, cool. I'm trying. Yeah. So what is the car, and how much do you owe on it? It is a Range Rover Evoque, and I currently owe $60,000 on it.

Yeah, okay. Yeah, you just went crazy. Yeah. So what will it sell for? I've looked it up online, and the high end that I could get for it would be $45,000, which would put me $15,000 upside down. Yeah, okay. Did you roll negative equity into this, or does it just suck that bad?

Yeah, I had a Jeep in 2012 that I traded for a truck in 2014, which I traded for the Range Rover in 2017. Yeah, so you just doubled up on stupid. Most people do that. Most people do that. Most people do that. It's okay. I mean, you're just learning your lesson. The good news is you can learn the lesson at 25, and you never have to learn it again.

Right. Yeah, I'd say I've probably learned that lesson by now. Yeah, it's pretty thorough. I mean, you know, when you get in a hole this big, it teaches you where you don't forget. It leaves a mark, you know? So, yeah, definitely you've got to get rid of it, and you've got to get the $15,000. Who do you owe the $62,000 to? It would be to the bank.

Your local bank? Yeah. Okay. I would troll over there and sit down with the branch manager and say, you have a $45,000 car loan and a $15,000 unsecured loan because the collateral does not cover the other $15,000 of this loan. You follow me?

Right. And so I'd like to convert it to that formally by selling the car, and you release the title for what the car will bring, $45,000, and I'll sign a note with you for the $15,000, and I think I can pay that off in about a year. Right. Okay. And then you get a beater. Yeah. Until you get that loan paid off.

Do you have any other debt? No. I did have about $3,000 in credit card debt last week that I paid off in the last couple days. Good for you. And then we had some furniture loans that we're paying off here. Who's we? In the next couple days. My fiance.

Okay. Who has the furniture loan, you or her? I have the furniture loan under my name. Okay. Now, you've got to get that paid off, too, then. And when are you getting married? We definitely haven't decided on a date to be getting married. Well, definitely don't be buying crap together until you're married.

And definitely don't be going into debt anymore, okay, together until you're married. Because it puts a strain on your relationship. Yeah, for sure. So, yeah, she's going to be marrying a guy without a Range Rover. I'm sure he'll be okay with that. Okay, so what does she make a year? Well, he works in the restaurant industry, so I would say he's making in and around, I'd say $40,000 a year on the low end,

but he is part-time right now. He's going to school. He did have some um college funds put away by his parents so we're likely avoiding the student loans for now okay well we aren't doing anything because we aren't married you know there's not a we until we're married so you need to keep your financials separate until you're married until you're married and then you combine things when you're married so uh i think you treat this like a single guy because you are that uh that has a mess which means you're gonna have no life the bad news is

you're gonna know life the good news is you make really good money and if you'll take your lifestyle down to scorched earth to nothing uh you can clean this 15 000 up this furniture loan up and you know you'll be cleaned up in no time, easily a year, and be able to move up in car and get you about a $10,000 car and pay cash for it and have your emergency fund in place and that kind of stuff. And that's how we're going to do it. David is with us in Jacksonville, Florida. Hi, David.

Welcome to the Dave Ramsey Show. Good afternoon, sir. Nice to speak with you. You too. How can I help? So I just found your program a couple weeks ago, and I was looking for it specifically just because I had a lot of really small debts that were just chipping away at my paycheck. And I was looking at my paycheck at the end of the month,

and I was not having enough money. It didn't make sense. So I looked at my debt, and it was just staggering. Anyway, I was fortunate enough to sign a re-enlistment bonus with the military and I was looking at spending all that money towards paying off all my smallest debts. Good. And it's honestly great because I was able to get rid of all, all but three of my largest debts. Great. Um, have about $5,000 to $6,000 left at the end of that. And mathematically, I've always been told, you know,

pay off your largest interest first, and that makes sense to me, and I understand why you say pay off your smallest debts first. I was wondering what you would think of spending that $5,000 towards my credit card, which is my highest debt, that would actually lock it down to my lowest debt, so I would pay it off even faster. So you have how much owed on your credit card? So the credit card that I have left is $11,500. What about the other two debts?

What are they? So those are both vehicles. Okay. And tell me what you owe on them so one vehicle um it honestly would be really hard to sell but it's worth about 20 and i owe eight on it okay all right and the other car i have a truck and it's worth about 17 and i owe 27 okay and um are you married engaged okay and are is one of these cars hers no they're they're both mine like i said i'm in the military and what you said before it's just i got in and the stupid stuff on both sides of the road. Yeah, okay.

And so the car that's worth $20 that you owe $8 on and you said is difficult to sell, tell me about that. So it's a sports car. I bought it when I was freshly 21, and I've modified it so much. I've put a lot of money into it. I actually re-enlisted once before and almost all the money from that went into modifying it. So what is it? What kind of car is it? It's a Subaru BRZ. Okay.

Well, I mean, you can do what you want to do. I woke up in your shoes, and thank you for your service, by the way. If I woke up in your shoes, I would sell both cars and get me a car that was paid for. How do they get rid of the two of them? Because you can clear the one you're upside down in by getting rid of the stupid sports car. And you're just growing up now, man. I mean, you've got a toy you can't afford for what it amounts to. And I know it's probably got a limited market because you've souped it up so high,

but let's see if we can get them sold. And I'm going to work my debt snowball in order, smallest to largest. Hey, thanks for the call and thanks for your service. Are high healthcare costs getting you down? Are you confused trying to navigate your options? Do you wish you could find an affordable biblical solution to your healthcare costs? Based on New Testament principles, Christian Healthcare Ministries, or CHM, helps Christian families, churches, and ministries join together as the body of Christ to share their major healthcare costs. Christian Healthcare Ministries is the original health cost-sharing ministry. A Better Business Bureau-accredited organization, CHM members share to pay each other's medical bills. It's not insurance. It's Christians financially and spiritually

supporting each other. It's what Christian Healthcare Ministries has done for over 35 years, and our members have shared over $2.5 billion in medical bills. To learn more, visit chministries.org. That's chministries.org. Christian Healthcare Ministries is a proud sponsor of Dave Ramsey Live Events. chministries.org. Thanks for joining us, America. Gina is with us in Phoenix. Hi, Gina. How are you?

I'm good, Dave. How are you? Better than I deserve. What's up? I have a question. I'm a single mom to a teenage son. My husband passed away about two years ago. And I'm getting ready to put the house up for sale in a couple months, and I'm wondering what to do with the proceeds, if I should put it all towards a down payment of downsizing.

Should I pay off my car? Should I put the money towards his college education? What do I do? Hmm. Okay. And so what is your income? Around $50,000. Good for you.

Okay. What do you do? I'm a hygienist. Okay, good. And you're moving why? House is too big. I can't afford the payment anymore. Son is getting Social Security until he graduates from high school,

which is kind of like an extra paycheck a month for me. And that's going to go away. Yeah, that's going away, right. Going away, yeah. And obviously then there was no big life insurance policy. There was, and there is some left. What was big and how much is left? Around $500,000, and there was about a little over $100,000 left. We went through a probate situation. He left quite a bit of debt business and otherwise.

Oh, I see. Okay. And so $500,000 worth of debt. No, that was the life insurance. I thought you said the life insurance was $600,000 and there was $100,000 left. No, there was $500,000 and there was about $100,000 left. Okay, so you went through $400,000 to clean up his old business debt and miscellaneous. Okay.

Yes. All right. And what will be your net proceeds from the sale of the home? It will be, right now we're guesstimating about $140,000. Okay. And what price range home are you thinking of buying? I'm not sure. I'm not pre-qualified yet.

Around $200,000-ish. Okay. All right. I would be debt-free out of that, paying off off your car and I would set your emergency fund aside and I would put down a really, really, really healthy down payment on the house. Like most of the rest of that money, leaving you roughly 100 to try to figure out how to get him through school, because he's going to have to do some other stuff to get through school anyway in this situation okay right and let's walk through how you go through school debt free if you're broke we'll pretend like he's broke completely he's not completely broke but let's pretend like he is for a second the first and most important thing is to where is to choose a less expensive school, in-state tuition or community college to get started.

Get your costs down. We're going community. Good. We're going community. Get your costs down is the most important part of the education equation, because if something is $10,000 and another one is $ is forty thousand dollars people don't even look at that if they're borrowing money and creating messes okay then the second thing we want him to do is we want to plan on working a lot he needs to work his way through college a lot by the way

most of us did and that's okay not going to hurt him a bit it's good for the young man okay third thing is his new job right now is applying for scholarships. Like, I want him to apply for close to 1,000 scholarships in the next 18 months. He'll get turned down for almost all of them. But if he gets 30 out of 1,000 and they're $2,000 apiece, he just went to school. You follow me? Okay. And it's a great part-time job you get that the turn off the turn down the rejection

ratio is huge but it averages out you can make 200 bucks an hour i mean you know because you go get that money that way it's the number of hours it takes to fill these things out that is his new job and you got to ride him on this you got to crack the whip like you're his boss and his job is, and he's getting paid for the job, and he goes in every day and he sits down at his desk and he fills out scholarship applications, and that's his job. Because he'll get some scholarships if he does that, but if you apply for three, he'll get none.

Okay. It's a law of large numbers, okay? So what I'm trying to do there is if we've got a plan to get him through school doing those kinds of things that enables you to take the vast majority of this money other than paying off the car and setting aside an emergency fund and using it to uh clear or using it as a down payment on the house and getting a very very small mortgage that way which was your reason for selling in the first place correct was to downsize and get something you could manage and so we really want to play through on that how much do you owe on the car around 10 okay and you make 50 so if we put 10

on that and 10 aside for an emergency fund that means you got like 120 to put down and you're debt-free and you put whatever you buy on a 15 year fixed rate and the payments, no more than a fourth of your take home pay. Now we've got you set up for future success and now we've got to use the hundred that's in the bank and the other strategies that we talked about to help get him through school. Meanwhile, you're also thinking about your retirement planning and starting to invest.

But right now that school's bearing down on you pretty hard, and you've got to look at that. So, hey, thanks for calling in. If you need more help, you call me anytime. I appreciate you being with us. Open phones this hour at 888-825-5225. Let me see here. Oh, she's gone.

Okay. Meant to ask her because she was young. I just ran into a lady in the lobby at the commercial break whose husband was killed in a motorcycle accident. They were Financial Peace University coordinators, and he was in his 40s. And she was saying, you know, a horrible, horrible situation, obviously, a couple years back, just like that lady's situation. But he had, you know, they'd gone through Financial Education University, and they'd gotten Mazander Insurance, and they had a really nice, large-term insurance policy, which you guys ought to have your term insurance

in place, 15-, 20-year-level term, 10 to 12 times your income. Now, let's pretend that you make $100,000 a year. That means you need a million to a million two on you, not $500,000. If you make $50,000, then $500,000 to $600,000 is 10 to 12 times your income, right? But if you have $400,000 in debt and a wife and a teenage child, you're underinsured at $500,000. You see, that last call I took, how much would that call be changed by another $300,000? Another $300,000 would change the whole complexion of that discussion.

She'd be paying cash for her house and would have had the money to send the boy to college. Another 300 grand. Instead of 500, 800. Now, I don't know what the gentleman's income was that passed. And I'm not picking on him. I'm not saying he did something wrong. But, I mean, you're looking at the, he had a lot of business debt, she said. $400,000 worth of debt she had to clear up. And that only left her $100,000 after she paid off all of the debts,

except her car and her house. So her operating, I mean, she cleaned up his business debts is what it was, and that had to be done. There wasn't any way around it in the probate. She did the right thing, and at least she had that, because if she hadn't had that, she'd probably been bankrupt. So that's what you're looking at, folks. And if you're 40 years old and, you know, you don't think you're going to die, you're going to die.

I just don't know when you're going to die. I'm 57, and I'm trying to figure out when estate plan, my will, my assets, and my insurance is in place, and a plan is in place to take care of the people that I'm leaving behind that I love that depend on my income. How do we do that? And so the typical way for most of you that have a couple kids and are married, you put 10 to 12 times your income on you in term life insurance. Zanderinsurance.com is where I buy mine. And that's where Leo was talking to a minute ago. His husband got his because it's very inexpensive if you shop around and get the best possible deal.

And that's what they do. They shop among a bazillion different companies. It's an insurance broker. That's how you want to buy insurance always. But go there and shop. And you'll see what I'm talking about. If you're 35 or 40 years old, the difference in $500,000 and $800,000, it's the cost of a pizza. And it changes everything.

So I don't know, again, but what the income is in those exact situations here. But I've just had that in the past 45 minutes I've met two young widows. It means I was supposed to talk about this for a minute. Thank you. Christopher is in Miami. Hey, Christopher, welcome to the Dave Ramsey Show. Hey, how are you? Better than I deserve. How can I help? Okay, so my wife and I, and we live in Miami, and houses here are really expensive.

A home in Miami, and houses here are really expensive. A humble home in our area is around $700,000. Okay. Your phone is going nuts all over the place. Can you get to a place where you can stabilize it? Oh, is it better? Yes, sir. Thank you. Okay. Sorry about that.

So here in Miami, houses are super expensive. A humble house in our area is around $700,000. And we follow your advice. We're only going to get a 15-year mortgage, and we want our monthly payment to be $700,000. And, you know, we follow your advice. We're only going to get a 15-year mortgage, and we want our monthly payment to be less than a quarter of our take-home pay. In order for that to work out, though, the down payment would have to be around 70%. It would be about $490,000. And my question to you is, is it better, that's a big chunk of money, is it better to put that towards the house or towards retirement? All we have so far is our

six-month emergency plan. Okay. So you don't have $490,000 in question? No, not now. But we will in about a year and a half, two years probably. So what's your household income? Our household income right now is about $210,000 gross pay. Phenomenal. Way to go. What do you do? Well, actually, my wife is a physician. I'm a full-time student. I'm going to get my master's degree and finance it about a year and a half,

and then I'm going to start bringing in more bucks. Okay. So your income will probably go up over $300,000 then. Mm-hmm. Okay. Good. Very good. That puts you in a great position

um well certainly the goal here is to not only uh get a home but also to get the home paid off all of the data points as we have studied millionaires in depth say the typical person who becomes a millionaire pays off their home in 10 to 11 years. Okay? Now, how do they do that? Well, they buy a house on a 15-year fixed where the payment's no more than a fourth of their take-home pay. So that's the reasoning behind the guidelines that we gave you

because we want you to be successful financially to own a home, not to have the home own you. And just because you live in L.A. or New York or Miami where real estate is expensive does not mean you get a pass on math. Math doesn't say, oh, you're in Miami. I don't count there. Math counts everywhere. And you can be house poor in any town by buying too much house.

Now, the average home price, as you probably know, in North America is somewhere around $200,000. In Miami, sir, it is not $700,000. The average home price. No, listen, listen. I have been to Miami. I was there two weeks ago, okay? The average home price in Miami is not $700,000. It's more like $400,000.

It's about double the nation. Average home price in San Diego is $440,000 right now, okay? Just to kind of give you an idea. So I understand Miami Beach, and I understand the difference in that, and Fort Lauderdale, which is a 25-minute drive. Okay? So if you want to buy a home, you need to save up and put down a down payment to where your house payment is no more than a fourth of your take-home pay. If you want to buy a home now, it would be based on a different income than if you buy it later after you graduate. It might mean that your first home is not in the perfect location that you're looking right now.

But you have set up a set of circumstances that are a false premise that it requires $700,000 to purchase a home in the Miami-Dade area. And that is just not true i mean there's lots of homes in fort lauderdale as an example um that i mean i've driven those roads i was there speaking at a church just a few weeks back i mean not two weeks ago but a month and a half ago and so it's you know yeah and we were actually in miami beach over new year's and it's a beautiful, wonderful area. I love Miami. It's a great town. But you cannot set up a false premise as your absolutes,

like a false set of house prices, and use that to justify doing something stupid because you're going to get yourself in a bind, dude. Don't do that. You make a lot of money. If you want to buy now, go buy in a place that's not really what you want and do it for a couple years while you finish up school, and then you get your income on up and you really build up that down payment,

and then you sell that property, and you move into a much better property with a huge down payment. Maybe you move into a $700,000 or a million-dollar property with a good, strong down payment. Maybe you move into a $700,000 or a million-dollar property with a good, strong down payment, which you can do as a second move or if you wait until your income. But if your income is sitting there at $350,000, you can afford to do that. You can afford that property. But don't start with this idea that this is the only, you know, a shanty is 700 grand.

Start with the idea that, okay, the house I want and the areas I want, the area I want to live in is an expensive area. I'll go with that. I don't have any problem with that at all. And so now, given that, what have I got to do? The big thing is you don't get a pass on math just because you're in an expensive area. Still set yourself up to match the data points of the millionaire behaviors so you become one. Otherwise, you'll be one of those people making

300 grand who's broke. And I know a bunch of them. And in Texas, they call that big hat, no cattle. It's all about how things look and not what it really is. And don't be that guy. And I don't think you're going to be. You're obviously a smart dude. But that's how it sets you up to win. All right, Nathan is with us in Dallas. Hi, Nathan, how are you? I'm pretty darn good, Dave. How are you doing?

Better than I deserve. How can I help? So real quick, I've got a 15-year-old son who I've turned on to you about six months ago, and you've got him going. He's working and saving about 90% of everything he makes. And what I don't know is what advice I can give him for investing at his age. What's he saving it for? Well, he wants to be in real estate.

He would like to. Is he going to buy a car? No, actually, he will have a car. He'll have my car. It's already paid off. Okay. All right. So he doesn't need to buy a car.

No, sir. So he's saving for he's 15. He starts saving for doing something when he's 25? Right now, he wants to do whatever he can now to make more money. Yeah. I got that, but I'm not putting a 15-year-old in a rental property. Yeah, so the rental is where he wants to go. I don't have that advice to give him.

I just, you know, I grew up old school. Yeah. Family said, go to school, get a good job. I did that, but then I became credit rich, and I'm working on digging myself out of that debt as we speak. Is he going to college? Yes, he'll be going to college. And how is that going to be paid for?

A portion of that's already, he's already got quite a bit of scholarships. Okay, what about the rest of it? Yeah, the rest of it's not quite there yet. Now, of course, that is one of the things on his mind is saving up for college yep but is there anything he can invest in to increase that money and he's waiting no i mean he can and it's okay to do it but here's the thing the money that a 15 year old is going to put in unless he's doing some kind of bizarre thing where you know he's in a tv commercial or something and making a million dollars the money that a 15-year-old is going to put in, unless he's doing some kind of bizarre thing where, you know, he's in a TV commercial or something and making a million dollars,

the money that a 15-year-old is going to put in to something is not going to be substantial. And so let's say he's got $10,000, okay? Yep. Let's say he made 20% on his money in a mutual fund, which he would have done last year. Last year, the stock market went up 19.4% the S&P did, okay? If he made 20 on ten thousand dollars what do you make two thousand bucks right doesn't change his life understood it's a really good rate of return but it doesn't change his life so what changes his life is him

going to school and paying cash for it what changes his life is him learning about investments, and I'm more concerned that he learns some lessons about investing. And so if you want to open a mutual fund and put some of his money in there and let him understand how the mutual fund works and go sit down with a SmartVestor Pro and let him start learning that stuff, I was the kind of kid at 15 that would have turned me on to no end. And he learns about compound interest and all that. That'll be a valuable lesson for him.

But this actual money is not what's going to change his life. It's the habits and the knowledge that he starts now that are going to change his life. And it's going to school and paying cash for it in a degree field that's actually usable in the marketplace that's going to change his life. Those are the three things I'm going to aim him at. Real estate should be a byproduct later in his late 20s, after he's done a bunch of other things. This is the Dave Ramsey Solutions, Alex and Stephanie drop by. Hey, guys, how are you? Hey. Thank you.

Welcome, welcome. How can we help today? Sorry. That's okay. We are currently debt-free except for our mortgage. Good. And we are looking for, we want to know how to prepare for Stephanie to lower her work and income so that we can, that she can stay for... The second baby.

The second baby. Okay. She got a baby and you want to go home and be a full-time mom? Part-time mom, basically. I'm a nurse, so I work three 12-hour shifts. I want to take it down to two once we have a second baby. Okay, cool. So, well, it's a fairly simple thing.

What would your income drop by and start living on that now? Okay, so calculate what your income will become if you do that and start living on that. And you'll know you're living on that if you put the rest of it in the bank or towards your debt or something right so you know whatever the whatever the numbers let's say it drops by eight thousand dollars a year whatever it is ten thousand dollars a year twenty thousand dollars a year whatever it drops by okay then you need to live on what your new income would be if you did that there and you know you're doing that if you're banking the difference so you need to live on you at two days a week instead of you at three days a week and one day

needs to go in the bank does that make sense yes yes sir that proves to yourself that you're really doing it because otherwise you're kind of like well i think we can do it maybe and we'd like to do it and then you don't and then you going, you know, putting that extra day a week on a credit card and running yourself back up into debt or something. And so just because you didn't plan it out, you have to learn to live on the new income. So go ahead and practice that now. And you know you're doing it by banking the difference. Is that logical?

Yes. Very cool. Well, congratulations. Is baby two on the way? No, not yet. Okay, so you're just kind of thinking through how to do this. Just planning. Yeah, well, that'd be a great way to do it.

What baby step are you on? Are you out of debt? Yes, we're in four, five, and six. Okay, so that's easy then. You're just going to pile up some extra money for the fun of it right now. Not to get ready. The extra money is not to feed the money that you're short. Now, we're not going to subsidize that because that money will burn up.

But it's in order to practice living on a lower income than you have been. Is that logical? Yes. Absolutely. You got this. Congratulations. Thanks for stopping by, guys. Thanks.

Thank you. This is the Dave Ramsey Show. Adam is with us in Portland, Oregon. Hi, Adam. How are you? I'm doing well. And yourself? Better than I deserve.

What's up? Well, I started listening to you at the beginning of the year, and I have gone through the necessary steps to start figuring out my budget and figuring out where my finances are so I can start getting to where I wanted to be when I first bought my house about 13 years ago. The situation is my house is worth about $130,000 more than what my mortgage is. And so what I'm looking at doing is trying to pay off all of my debts, which I have about $11,000 in credit cards and a second mortgage and a first mortgage. All that would be wiped out with selling the house, taking the equity to pay that. How much is your second mortgage? The second mortgage is about $17,500. Okay. And much is your second mortgage? The second mortgage is about 17 and a half.

Okay. And what's your income? It's about 50. Okay. All right. Cool. Do you like your house? I like the house, but the mortgage is just too much for what I make. It put me at about 50 some odd percent on my amount. So it's just too much. Yeah, I hear you. Yeah, it's got to go. Unless your income is going to shoot up, it's got to go. Well, I'm trying to figure that out too. But based on where I am today, I want to make assumptions that are safe on what I earn currently.

Yeah, but I mean, if you have a job today that you're, you know, you're shooting up through the ranks and your income is going to double in the next two years, then that changes the answer of versus I got a job where I get 3% cost of living raises or something, right? Yeah, that's pretty much where I'm at right now. Yeah, so your trajectory right now is not going to save this deal. This deal is bad, 50%, because you're house poor. You can't do nothing because it's a stupid house. Yeah, and it was originally bought with someone else, which was a huge mistake.

But, you know, when they were paying half the mortgage, the rent as it was, you know, my half of the mortgage was a reasonable amount. It would be less than what I would have paid on rent. So your girlfriend that you weren't married to you bought it with, right? Yeah. Yeah. Well, not a smart move. Yeah.

Okay. Good. I'm not picking on you, but I just get this question a lot, so I wanted to say that out loud for all of our listeners. Don't do that crap, because Adam will tell you it was a bad idea. My 20s were full of things to never do again, and that was number one on the list. Most of us, brother. Most of us.

I got that. So the idea I have is to basically take the equity of the house, which is about $130,000, if I saw it based on what I'm giving rough estimates of for, taking it to pay off the 11, about 11 and a half in credit cards, all the mortgages that would leave me after the realtor fees with about $90,000 once I got a baby step three taken care of, the emergency fund. Good.

And then taking that and buying a house that's about $100,000 less is what I'm thinking about doing. I think that's perfect. And a 15-year fixed rate mortgage where the payments no more than a fourth of your take-home pay. And that's exactly what I'm looking at. Yeah, that's right where you are. And cut up the credit cards and never use them again. One of them got paid off at the beginning of this month. Yeah, but, I mean, when you pay them all off,

they'll grow back if you don't cut them up. Yep, and that's the plan. They're like dadgum weeds. You can't get rid of them unless you dig them out by the root and get on a budget and that kind of stuff. I think you've got a good plan, Adam. I really do. And you just put some of the stupid stuff in your rearview mirror,

and we've all got stupid stuff in our rearview mirror. Our hope is that there's not much stupid stuff out the windshield. That's what we're hoping for, all of us. Daniel is with us in Washington, D.C. Hi, Daniel. How are you? I'm good, Dave. How are you?

Better than I deserve. What's up? I had a question about investing for retirement. I know you recommend 15% to put into retirement when you're investing. Yes, sir. I was wondering how you would split that up if you were going to do two different systems. See, I work for the government, and our primary mechanism is the fifth savings plan. Right. My company will match up to 5%. Right. But it's also a tax-deferred system. So I would rather get something like a Roth IRA that goes tax-free,

but how would you divvy up that 15% between the two? The TSP has a Roth option now. Okay. And so you can do that as well. And we're heavy on the C there, like 80% C and 10% S and 10% I in the TSP if you go that way. So here's your order of attack. And you just keep chipping down this list until you get to 15%. Okay.

The best is the match in a Roth. So if you've got a TSP with a match or an employer with a match in a Roth, 401K, that kind of a thing, the best is a match with a Roth. So if you've got a TSP with a match or an employer with a match in a Roth, 401k, that kind of a thing, the best is a match with a Roth. The second best, mathematically, is a match without a Roth. Because here's the deal. Up to the match. Here's the thing. If you put in 5% and they double your money, even after you pay taxes,

you're going to come out ahead of tax-free because you doubled your money the instant you put money in with the match. So up to the match, the traditional is better than a non-matching Roth. The next thing down the list is a non-matching Roth, whether that be a non-matching Roth, the TSP. Actually, I'd probably pick a non-matching Roth IRA before I did TSP because you got better selections in the open market than those three TSP selections that you've got. As far as rates of return, you get better mutual funds than the TSP has offered in it.

You can beat that because the C plan is basically an S&P 500 fund, and you can beat the S&P if you get a good advisor to help you pick mutual funds. Now, if you're not a good advisor, you probably can't find one that beats the S&P, but there's plenty of them that do. So, anyway, so matching Roth, non-Roth with the match, up to the match. So you max out that match. You get the 5% there, the 5% there, whatever. We're at 8%, 3%, whatever it is your match is.

Then once you get past any matching, then I would do a traditional, I mean, I would do a regular individual Roth, and then I would maybe look at the Roth TSP to get me there. So as you keep chipping down there, you may end up going back to your TSP and raising up, putting some non-matching section in there, or back to a 401K and raising up and putting some non-matching in along with your match to have gotten you all the way to the 15% of your household income. But your target is take your household income times.15, and that's the dollar amount I'm trying to get to as I weave my way down through this labyrinth of choices that you've got.

So, hey, good question. That puts this hour of The Dave Ramsey Show in the books. Hey, it's Kelly, associate producer and phone screener for The Dave Ramsey Show. This episode is over, but if you heard about a product or service and didn't have a chance to write it down, don't worry. We list everything that is mentioned during this episode in the podcast show notes section. Thanks for listening.