The Ramsey Show - App - What Is a Reverse Mortgage? (Hour 3)

Episode Date: July 22, 2024

This is the Ramsey Show where we help you win with your money, win at work, and win in your relationships. 888-825-5225, 888-825-5225 888-825-5225 is the phone number to jump in. We're here to help you. We've got your questions. Jade Warshaw joins me. I'm Ken Coleman and we're so excited that you are with us

today. Let's go. The phones are lighting up. Joshua starts us off this hour in Idaho Falls, Idaho. Joshua, how can we help? Hey there. How are you doing? Good. How are you today? Good. Hey, I have a two-part question. First question is, what is a reverse mortgage? And the second question is, how do I convince my mother not to do it? I haven't heard of it. I follow your guys' baby step, so I just wanted to get some more information on that.

So your mother-in-law is wanting to do a reverse mortgage. That's right. Why? Well, from what I can gather, she doesn't have a lot in savings or anything like that. She doesn't have a lot of retirement from what I can tell. Okay. So I think this is her way of maybe skipping that step or something. I'm not sure. Okay. So not a lot of, how old is she? About 60. Oh gosh. I'm going to say no on, I will always say no to reverse mortgage. So basically what she's doing is letting the bank take over and they own it. They're making a payment she's still you know on the hook for taxes and insurance and everything like that but once the money runs out that's that

and she's so young like there's a lot of time for this to play out and a lot of times if that person were to pass away that goes to the heirs and they're left with a home that's either upside down or a home that's i mean these end in foreclosure the foreclosure road on the rate on these is just astronomical so i would not suggest that i would suggest something that's going to kind of help her get a hold of her situation so i don't you know tell me more about your relationship with her are you the son that can kind of pop in and say okay let's look at your money let me help you with this would she let you help uh probably not no because it did do you say this is your mother-in-law no just this is my mother okay i'm

sorry mother okay yeah okay all right that's what i thought but i wasn't sure so so you don't feel like you can do that no yeah well listen here's the deal um with that being said i i don't know what you do other than try to explain it to her not try to talk her out of it as much as go do you realize this is essentially you're borrowing money on the equity you have in your home would you like to get to a later date mom and have no equity in your home because that's what this is and i can't believe she would go for that, would she? It's, you know, one of those deals where she's talking to her finance friend

or something like that, and they gave her this idea, and now it sounds real good. You got any siblings that have a better relationship with her? Not really. I mean, at the very least, you could play out the number.

I mean, I don't, some people respond well to math. Some people just fall asleep, right? At the very least, maybe you run the numbers. I don't know. How much equity is she? Yeah. How much equity does she have? Because you don't have access to 100% of it, only a portion of it. So if you had to guess, what do you think? I would guess maybe she has 200200,000 on a $300,000 home. Oh my gosh. Oh, this is horrible. Yeah.

Because the people, let me put it like this, because there's no real smart way to do this, but the people who think they're smart doing this think, okay, I've got a lot of equity. I'm 86 years old. Not to sound morbid, but I'll probably pass away before I run through all of this equity. That's what they're thinking. And so they're like, if I don't have anything left to leave, I'm fine with that. This is what I'm going to eat off of. Right. But in this case, I'm like fees, fees alone are going to eat up so much of that. And I can't remember off the top of my head, you'll have to check it for yourself. What percentage of that is actually going to be available to her?

I think it's only 60. I can't remember. But check to see what percentage of equity is actually available. But that's what she's got to realize. This is not even a solution. It's not even a band-aid. This is like when you just kind of wipe your knee on your shirt, right? To stop the bleeding for a

quick second she's going to end up without a home this is going to end in foreclosure so we've got the solution here i think i've painted i don't didn't have to tell you how bad of an idea this is but what we've got to get her to see is okay how do we solve this problem what social security what's she living off of what does she need and she on a budget? So those are the kind of detective work that you're going to have to do. And I think that it's you sitting down with her and saying, listen, mom, this is your life, but I'm your son.

And the truth is, if you don't let me help you now, you're going to assume I'm going to help you later when it's too late. Right. So in that way, you do have a stake. You're a stakeholder in this. And she might not see it now, but that's kind of the picture you have to paint. Like, listen, I want to help you now where when it's not so much of a burden to me,

as opposed to you cutting me out, because when you're 80, then I'm going to have no choice. And then I'm going to be a little bit pissed because I tried to help you when you were 60. How old is she? 60. Okay, you know you can't even qualify until 62. Yeah, she's thinking about it now, though. I know, but here's the other thing.

I wanted to do a little research while Jade was talking. Jade's right. The range of money you get is between 40 to 60% of the equity. So she's got $200,000 in equity. That's hardly not. The range is 40 to 60. And I do think that instead of the emotional conversation with her, because it's very hard to tell your adult mom, and there's obviously some stuff going on there, you don't feel comfortable. It's almost laughable, the idea of sitting down and talking to her is the feeling I'm getting from you by the actual laugh. So I wonder if you don't just show her the numbers and just say there's a better way, mom, and help her ideate on how she comes

up with it. What is the actual amount of money she feels she needs to get her hands on? I don't know. Yeah. You got to dig, man. This is your mom. You at least got to ask. You just heard her say it and you're like, ooh, warning sign. That's not good. I wouldn't go in there coaching her up, but I would ask some questions and not make her feel like she's on the defensive, but ask some questions and go, hey, mom, I did some research on that. That's not a really good deal for you because you're really young.

And start running numbers. See, numbers aren't emotional. So life expectancy, do your homework on what that is. She's 60. The actual amount, let's run the numbers on the 40 to 60% that Jade was talking about of the 200,000 is what she's going to be only eligible for. By the way, she's on the younger side of this. She will just have turned 62. The people that get 60% that Jade was, she was right. Those are older people. So she's not going to get 60. She's probably going to be in the 40 to 45%. So by running numbers with her, it's kind of like, hey, I'm not telling you what to do, mom. Like, show her some respect, some dignity. Not the know-it-all, hot shot son.

I ran the numbers, mom. And so of the 200,000, you know, 40% is this. So 10% is 20. So you look at it, what, 40,000? She can only get, wait a minute, 40 is more than that. So you start running those numbers and you show her, okay, you're going to have this much cash. That's what the most you can get, mom. And then let's play this out.

You have to pay it back when you sell, when you move permanently, or you die. And then you've got to start walking through what do you need the cash for? Yeah, because what if you go to sell the house and you've taken all the equity out? You're upside down. And by the way, that burden passes to you. Right. I just think the only way to get her talking about this is asking questions and not putting their own. Don't make statements because that puts somebody on the defensive.

But I think you've got to hope that she sees the numbers and goes, Oof, this is not a good idea. Thanks for the call, man. You're a good son, but I would step into the conversation. This is The Ramsey Show. Hey, you guys. Health insurance costs are only moving one way, and that way isn't down. And if higher costs aren't enough, the wait times to see your doctor are longer, and it's harder than ever to get anything approved through the bureaucracy. So if you feel like the system is working against you, try a biblically-based alternative to health insurance, Christian Healthcare Ministries. CHM is a health cost-sharing ministry that's helped hundreds of thousands of families like yours

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number. We'd love to hear from you. 888-825-5225. I'm Ken Coleman. Jade Warshaw joins me. And we go to Alan now. Oh, wait a second. I got ahead of myself. How could I forget? Pregunta. In my hands, the question of the day, and it comes from Matt in Minnesota. Yeah. He says, I'm a young attorney and an aspiring standup comedian. I'm single with no kids, no student loans, and a great job in my field. However, it has always been my dream to be a comedian. I have my feet planted in my local scene, but if I continue to gain some traction, I'd love to pursue comedy full-time, which would require me to quit practicing law in the capacity that I do now. I also would likely have to relocate to a major city such as Chicago,

New York, or Los Angeles. This change is a couple years down the road, but in the meantime, what steps would you advise me to take from a financial standpoint in order to put me in the best position to succeed as an entertainer in the future? I love this question so much. This is great. I got some ideas too. What say you? I think that, listen, I love that you're a comedian. The first question I always ask, are you good? Like, I want to know, are you good? And don't ask mom, don't ask grandma, don't ask a family member, get real feedback as to if you are good. And if this is something that you can even become good at because everybody thinks they're good.

So that's part one of, that's the first step in this journey. Like, do I have what it takes? By the way, this industry, it's pretty easy to know because if you keep getting invited to back to comedy clubs, because here's the deal, people who own comedy clubs, they will not put in a comedian who sucks. No. They just won't. So that's the good news.

Plus you're going to get feedback from the live audience too. Live audience. So it's kind of hard to be a delusional comedian. Yeah. Kind of hard. And put yourself out there, like in a lot of different environments, not just the same environment. So let's talk about this practically.

Number one, I can tell you about my husband and I, right? Because we started as entertainers. My husband is still an entertainer. And I will say you have a great situation where you're practicing law. It sounds like there might be a portion of that where you don't necessarily have to do it full time if you're kind of in your own, like doing your own thing. Maybe there's some work that you can do on the side. But my point in saying that is until you are doing comedy full time, you do have to have a day job. Like there's got to be something that you're bringing money in. And it is nice to have,

if you can now secure three to six months of expenses or a little bit more, that is going to be really great for you because it kind of frees you up. It's like, OK, I'm waiting tables in the day and I'm doing this thing at night or I'm taking a couple of cases, you know, here or there, the easier stuff in the day. And I'm doing this comedy at night. And for you, it's about chasing down the right agent to make sure this person is really helping you get booked, which by the way, is a clue to what we talked about earlier. Ken, if you're having a trouble getting an agent, you're not, you're not doing very well. Matter of fact, first time on the Ramsey show, uh, Christian's going to pick up before you leave. My husband's an agent. We own a talent agency. So I'm going to give him my husband's phone number or not phone number, email address. You can email him and he'll review it for you. And so we'll tell you or not. And we will be honest.

And if you're good, we book cruise lines. So, hey, there you go. Okay. Well, I'm going to pick up on that part of the advice. I love this. I would do a couple of things. One, I would be if I'm getting paid anything, even small stuff for local clubs or gigs that maybe that Jade's husband gets you or whatever, I'd be stacking, stacking, stacking.

I agree with it. I would do 12 months. I would not move to a city to go all in on comedy until I had 12 months expenses. Because you're a lawyer, you are not going to be desolate and homeless living under a bridge. But I would give yourself 12 months to absolutely go all in. 12 months expenses would be a minimum for me. To the extent that you could save up even more beyond that is all gravy, but I would say minimum 12 months. The other thing is I would also challenge your idea that you have to live in those cities. True. I'm going to challenge that. I'm not saying that I'm right, and I'm not saying that you don't have to, but I want you to dig into that a little bit and go, okay, I understand why you're saying New York, LA, Chicago, because legendary comedy clubs, there's more of it, a lot more places to work. However, I love the idea of an agent or a promoter behind you like Jay's husband because, listen, man, you can make really good money on cruise ships. Cruise ships and there's land circuits that if you get the right agent,

I have buddies that don't live in those major cities. I can tell you right now, there's circuits in phoenix in the arizona area in texas where it's like you live in fort lauderdale but they fly you out there and you can do three months of solid touring like there is real there's real networks out there so yes lots of options that's where i was going is okay i don't have to live in chicago but uh because i'm in a great cash position and I'm making really good money, I can zip in, zip out. It doesn't hurt to be in Atlanta, Chicago, Las Vegas. Proximity matters. It does matter.

There is no question. That's why I'm saying that loosely. I don't know, but I tell you this, I could figure it out. I can talk to comedians and I can figure it out pretty quick. And you can do the same because you know the industry. So thanks for the question. Really good stuff. Let's go to Alan now in Kansas City.

Alan, how can we help today? Hi. Thank you for taking my call. Sure. So in the next 60 days or so, I'm going to be going and purchasing a new car. I'm going to be paying cash for it. It's going to cost me around $30,000 to $32,000. I'm just trying to find out what's the

best way to negotiate to make sure I get the best price. I mean, should I just go in and tell them, hey, I don't need your stupid financing, or should I kind of string them along? Are you just a brand new car? We're here to do this. Let's talk brand new. Is this going to be brand new? Yes, it's going to be brand new. And you've got the $30,000 to $32,000 saved up cash? Yes.

All right. What's your income? About $120,000. Okay. Do you need this car? Like, is it, you need to get a car? I'm going to be, my car currently has near 200,000 miles. I'm basically going to drive it for as long as I can,

but I think it's going to be just a couple. Okay. My point is you're not desperate. Like that for me, Ken will give you the good on this, but my number one thing is I never like to go buy something in a desperate state. I like to feel like I can move on. Like I can go to another dealer. I can go to another lot. I can move on to it like that. There is so much power in being able to go. Yeah. Yeah. Here's what I would do in this situation. I would do your homework

on it and just see what what that car is going for at multiple different places. I'm assuming you've got the car and the the actual you know exactly what you want, correct? Yes, I know exactly what I want. Yeah, you know, all these car lots, by the way, they tell you no haggle, but I've just bought cars for, let's see, I got one for my wife, I got one for my two boys. So I am, boy, I'm in the middle of this. And I will tell you, here's what I've learned, Jade.

The no haggle doesn't include all these ridiculous fees they stick on it. That's true. So all these car lots now the no haggle doesn't include all these ridiculous fees they stick on it. That's true. So all these car lots now say no haggle. And I did a very popular segment on the show called We Need the Haggle. We need the more, like what happened? Bring back the haggle. Bring back the haggle.

I mean, so here's how I would do it. I'd walk in and you can go look. I know that you guys, this is your no haggle pricing, but let's say it's a $32,000 car and just go, I can't go over 28. And they're going to look at you and the guy's going to go, well, let me go talk to my manager. I hate when they say that. But here's the deal. I love it.

I just sit there and look so like I'm ready to leave, like I can't get out of there fast enough. And they know I got Ken on, I got this guy about ready to leave. I got to hook him. So here's what they start doing. You look at the, say, give me, show me the sheet. Show me how you came up with 32. What's the 32.5? They give you a sheet. By the way, you start going, what's this fee? Title transfer. What's this fee? Just go.

Paperwork. I don't know what these fees are. I'm not paying these fees. I'm only going to give you this number. And it needs to be lower than what they're doing. And I had this happen. Now I walked on all of them, Jake. Yeah. But multiple times I had car dealers drop the number. So this idea of no haggle is not true. Haggle away. And so that's how I negotiate. Go to listen. I'm a cash buyer. This is what I'm looking for. I'm not going to pay this, so I'm going to go until I get

this price. And I'm almost guaranteeing you, you'll get the price that you want. I will say though, it's tougher. It can be tougher with the cash because they're not making any money off of that. They only make the money off the finance. So in some ways, you do have to push. Push. Yeah, maybe.

But Alan, I'd also go at the end of the month, too. Always go at the end of the month when they got to hit their sales quotas. That's a good point. They got to close some deals. Last day of the month, in my opinion, is always the best day to buy a car because they got to close a deal. And it's got to be my deal. That's how I would do it.

But you can try it another way. This is The Ramsey Show. This show is sponsored by BetterHelp. All right, so I was born and raised in Texas, and I love the myth of the lone cowboy. You know, the guy who doesn't need anyone or anything. It's a fun story, and it's a lie. In our self-obsessed society, we're obsessed about our own diets, our own workout routines, our own jobs, our own social media feeds, everything. It's easy to forget that no one can do life alone. And I don't care if you're an introvert, an extrovert, or whatever you want to call yourself, we all have to have a community and

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Visit betterhelp.com slash Ramsey Radio to get 10% off your first month. That's BetterHelp, H-E-L-P dot com slash Ramsey Radio. Welcome back to the Ramsey Show. Thrilled to have you with us. I'm Ken Coleman. Jade Warshaw joins me in studio. 888-825-5225 is the phone number. The best way to make the most of your money is by creating and sticking to a monthly budget.

Every dollar is the way to do it. It makes it simple to plan spending, track expenses, and save for what matters most. And it's all in an easy-to-use app that fits into your busy lifestyle. Keep a pulse on your spending and make progress on your money goals with EveryDollar. Download EveryDollar for free in the App Store or Google Play. That's EveryDollar. Download it for free in the App Store or Google Play. Liz is up next in Spokane, Washington. Liz, how can we help? Hi, Ken. Hi, Jade. I have a question about buying my first house. Okay. All right.

So I am 26. I make $140K per year. My take-home pay after taxes is about $110 per year. I have no debt. I have $60K in retirement and $60K in cash. I'm starting to kind of think about what it's going to be like to buy my first house. However, I'm really, really debt adverse. And the thought of getting a mortgage is absolutely terrifying. So I've always wanted to save up and buy house cash. That's kind of always been my goal that I would hope to do. So currently I'm saving about 40K per year in cash savings. And so at that rate, where I live, it would take me probably six or seven years to save up for a

house, which would be okay. But I'm afraid that in six or seven years, houses are not going to be 300K, now they're going to be 400K. And so I'm afraid that if I save up and buy cash, I'll be spending 10 or 15 years saving and then paying essentially double what I'm afraid that if I save up and buy cash, I'll be spending, you know, 10 or 15 years saving and then paying essentially double what I would have paid if I had just bought now. So I'm just kind of torn between getting a mortgage or not. Yeah. There's a part to that where you're chasing, you're constantly chasing, you know, that, that rainbow, um, as far as the house price is concerned. So while I agree with you, being able to pay cash for a house is excellent. And that's really the number one way that if you can buy a house, you should

buy a house. But there does come a point where, you know, for the average person with their average salary, there is a point where it's like, okay, shouldn't I just jump in already? And I think in your case, the answer to that would be yes, but at what point? So just to recap, there's no debt. You said you have 60K in cash, 60K in a 401K. Is that what I heard? Is there any other liquid money? Because the 401K doesn't count? No, that's everything. Okay. Yeah. And it's not just 401K. It's mostly Roth. There's some in a Roth, some in a 401K. And then a little bit of that is just personal investments. I think maybe about 10 to 15k. Okay. The 10 to 15k, that's personal investments, like a brokerage account, non-retirement? Yes, ma'am. Okay. And is it, what's that earmarked for?

Retirement as well. At my current career track, I plan that I'll probably be retiring before I'm able to withdraw from my retirement account, but it's also going to withdraw from my retirement. Okay. So it's like a bridge. A little bit. Yeah. Okay. So that's earmarked for that. So that means we won't touch it. Is it in mutual funds? It's not in like single stocks and stuff like that? Correct. It's a mutual fund. Good deal. Okay. So right now, unless I'm missing something, I'm seeing a person with a great income

with three to six months of expenses, which is basically your 60K that's around six months or more. What portion of that 60K can you put towards a down payment? So my expenses right now are actually really quite low. And so I only have 10K of that as my emergency fund. And then the other 50K is currently my house fund. Okay. So 10K, how does that work? You're saying that you can exist for six months on $10,000? No, that's three months. Okay, three months. Yeah. Are you single?

I feel comfortable with three months. Okay, you're single? I am, yeah. Okay, I'm poking holes in this because since you're afraid, I want to make sure that everything is right on so you don't have to be afraid of anything. Here's where I would poke holes in your emergency fund. A, because it's the only income you have going in and it's just you one stream of income makes me

want six months of expenses because if something happens it's all it's all on you so that's the first thing that i would beef up and that's going to make you feel better second thing i'd beef up is if you buy this house your life what it takes to keep your life going also goes up slightly. So if you really want to feel great about this, you'd kind of project it out and say, okay, if I get this house for 280,000 or for 300,000, what's my mortgage going to be?

What's my life going to look like? And really, what would six months be of that lifestyle? Because that's the lifestyle you're going into. That might be what I would shoot for in your case, right? What you're going towards. Yeah, that makes sense. And then from there, it's like, okay, now let's talk about our down payment. To your point, you're saving $40,000 a year.

How much do you need to have? Like, what do you want to get to? Do you want to get to 50% down? Do you want to get to 40% down, 20% down? So I would start running those numbers out. I wouldn't go beyond like a two year, three year deal on this. That's as long as I take to save up, assuming you've already got the five to 20%. Gotcha. Okay. So yeah, I definitely want to do 20% minimum. I'm not really willing to do

any less than that. But you think instead of saying, okay, I'm going to save up to 50%, I should say, all right, I'm going to save it for three years. And as long as I have over 20% move forward at that point. Yeah. I'd either set it at a dollar amount or a time amount and that's up to you because part of this is I don't want this because you're if you're toggling between baby step 3b which is saving for the down payment and baby step 4 which is saving 15% I do want a time limit on this because I want to make sure that you're investing 15% sooner than later. But if you're not toggling, if you're like, listen, I'm doing the 15% now and I still have a lot of margin, yeah, play with the three-year span. But like I said, I mean, Ken, if it's me, I'm pulling the trigger at least after like three years. I don't

think I'm going to run this out seven years. I agree with your reasoning because you want to invest and we want you to start to get this out seven years. I agree with your reasoning because you want to invest in, and we want you to start to get the compound interest going. How old are you? I'm 26. Oh, yeah. So Jade's got you at 29, you know, and still that gives you a lot of time to invest.

The other thing I would be thinking about is, okay, let me rework this and go, all right, this number I want to get, if I wanted to get to that number, and I don't mind you shooting for 50% down, don't think you have to. And I agree with Jade, but let's say you want to do that. You're single now. So I would start to go, what would I have to do? And how much would I have to make in addition to what I'm already making and saving to get to that number in the same three-year period? I would at least run that exercise, right? So for instance, if you said to me, I'm making this up, I'd have to save another $20,000 a year. I'm just using that as a random

number in order to get to this number within three years that Jade is coaching me on. Because I think Jade's absolutely right on that. Two to three years to me is right. So I would then go, all right. So if it's 20,000 more, then that's X amount a month I've got to save. I'm going to go make that, and I'm going to make this thing happen faster. I just think that would be something I would consider. Yeah. I mean, three years, you said 40,000 a year.

Three years gets you 40, 81, 20, right? Yeah. Which is great. If you wanted to add an additional 20 per year there, you start breaking that down and that's less than $1,500 a month or right at that, right? Is my math right? No, no, it's a little bit shy of that. So it's just a little bit above $1,500 more a month, gets you an additional 20,000. So it's that kind of thing just to start looking at all your options

to go, oh, okay. But I think Jade's right in wanting to get you investing that 15% as soon as possible. Well, so I think that's part of it as well. I am already investing. Currently, my savings, it gets me to about $40K. I have about $60K of extra income per year that I don't need or spend on anything. And so currently $40,000 of that is going into savings and $20,000 is going into hitting my Roth contribution and then extra investing on top of that. So another thing that I was thinking. Are you investing more than 15%? Yes, I am. Okay. I would swap that. There's your money right there. Hit 15%. That's max right now.

Focus everything else at the down payment. And then once you buy the house, now that extra money goes to pay off the house. And then you're going to have exactly what you want really, really quickly, which is a paid off house that you don't owe anybody on. And then once the house is paid off, then you can take that margin that you have and you can throw all of it out of your investments. So number one, like Liz, you're amazing. Hey, I want to make sure that you have everything you need. You can check out ramseysolutions.com slash real estate. And it's a hub that's got everything that you could ever need. And when the time comes for you to actually get the house and start looking, you can go to

ramseysolutions.com slash agent. And that's where you can find a really great agent to help you find the perfect house for you in your price range. Yeah. Awesome. Love that. And love just how focused she is. Man, I wasn't like that at that age. Are you kidding me? She's going to be fine one way or the other. And I thought that was really good advice. Now it's nice to know she's actually already invested the 15%. So really good stuff. All right. We got to take a quick break, but we're not going anywhere. We don't want you either. She is Jade Warshaw. I'm Ken Coleman, and you're listening to The Ramsey Show. Welcome back to The Ramsey Show. Thrilled to have you with us. The phone number to jump in on the conversation is 888-825-5225. 888-825-5225.

I'm Ken Coleman. Jade Warshaw joins me. Our scripture of the day comes from Proverbs 21.5. The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty. Our quote of the day from none other than the Fresh Prince himself, Will Smith. Being realistic is the most commonly traveled road to mediocrity. That's a little bit of a mic drop, Will. I know.

Big Willie Styles. I would say he slapped us with some common sense there, but probably not the best thing to say. Very good, Ken Coleman. You like what I did there? He's never going to get it. I don't care. I'm all for restoration and rehabilitation. No, you can't, you can't. He is never going to live that

day. No, never. As great a work as he has done. I know. I still love Will Smith, but that was a wacky moment in time. Oh man. Wow. It's still shocking to me. I was watching it live. I was on a plane. I thought it was a joke. I was on a plane, you know, and you're live streaming, and I was like, looking around like, did anybody see this? Yeah, I thought it was an act. Yeah. And then I saw it in slow-mo, and I was like, nope. It ain't an act.

Not an act. Wow. Alright, let's go to Beth in Seattle, Washington. Beth, how can we help today? Hi, I'm so excited to be talking with you. Thanks for taking my call. You bet. We're excited to talk to you. What is happening?

I'm wondering if you guys could help me think through a framework for deciding how much money I should put into my kids' 529 plans. Okay. I've been using some Ramsey tools, but I'm getting stuck. And I'm so excited to talk to both of you because, Jade, I know you have young kids, which is where I'm at. And, Ken, I know you have a really good pulse on this college collegiate environment. Well, tell us about the kiddos. Yeah, so start with tell us how old the kids are and what you've got saved or what you were thinking about saving. Yeah, absolutely.

Okay, so I have a four-month-old, a one-and-a-half-year-old, and a three-and-a-half-year, absolutely. Okay. So I have a four month old, a one and a half year old and a three and a half year old. And right now we are just putting in a couple hundred dollars a month for each kid into their 529. But my husband has like quarterly stocks that vest. So in the future, we want to put something bigger. And I've heard Dave tell folks like, hey, if you have some money sitting around, you know, an initial investment of 50K can sometimes do the trick. But when I've used the Ramsey calculator online, it's telling me to put in more than that. And Ken, I've also heard you say that the landscape for college is probably going to significantly change by the time my kids age in. So I'm just a little bit stuck. I don't want to overfund, but I also want to be a good steward and plan well for the

future. Well, let me address my part really fast because mine is the fastest and then Jade can walk you through this. I do say that and I do agree that the landscape is going to look very different. Education, higher education as we know it, is going to be very, very different by the time your kiddos are there. However, the 529 has so much broad usage of it as it relates to any kind of training. I don't think training, I don't think education is disappearing. I just think it's going to look very different. So the 529 is still a very – so I just wanted to clear that up in case you were wondering what I think about that. I think the 529 is a wonderful vehicle. As far as

the amount goes, you're off to a pretty good start as young as they are. Jade, what do you think on that? I think the first place to start is what your target is because then you can kind of work backwards and so if you're you have to there has to be a set of assumptions in order to figure out that target so if the sum of the if the assumption is okay i'm assuming all of these three kids are going to go to some form of higher education what do we want to spend for them like that's that's really what it is is what are we willing to spend what What makes sense for us? Do we want each of them to have $90,000? Do we want each of them to have $120,000? And so if you and your husband can get together and say, what do we want? And then just run those numbers. Start with the best and then run those numbers back and you go, oh, maybe that's not possible. Okay, then what would

be our next ideal? Okay, run those numbers. Okay. That could be possible. So start with that in mind and use an investment calculator in order to do that. I mean, I just threw some numbers in here. I'm like, okay, if you invested $300 per kid, right. For the next 18 years, you know, you're going to have around 180,000, right? So start with that. And then what you can look at that whole equation and go, okay, now, do we want to be able to pay 100% or do we want the kids to have some skin in the game? And if so, what do we think about that? So I think these are the questions that you ask, because if you don't have a clear target, then what are you really shooting for?

And you don't know if you've won or if it was successful or if you hit the goal or not, right? Yeah, I agree with that. And here's the deal. This is a bit of a moving target. So, you know, you start looking at, okay, state schools, so where you all live, I have no idea what the state of Washington has, you know, are there breaks, you know, taxpayer-funded, you know, tuition breaks, you know, those kinds of things. You start looking at state schools, you start, you know, but just to give you an idea, just to give you a number, just to use Jade's formula here. I got a friend of mine, lives here in the Nashville area. His kid got a bunch of scholarships, great grades,

going to Auburn, SEC school, Jade, going to Auburn, not far from here, okay? It's going to be 45 a year. It's a lot. So you start adding that up for simple math. Let's just round it down to 40. And now you're looking at 160,000. So at that rate, what you're already doing for the kids, you're going to be there. So you start looking at that and you're going, but what's it going to be 18 years from now? You don't know. We just don't know. And so try to be as practical as you can. But I think just at the rate you're doing right now, I think you're going to be in really good shape, a big chunk of change for each kid.

Because you're just a bit under. Well, did you say we're doing $300 a month for each kid? That was just me throwing that out. $200. But Jade ran some numbers at 300 and it's 180 000 per kid yeah so you're not far off of that no and so you just it's a moving target but boy it goes a long way it does yeah i think it does and i do think you know can you your kids are older than mine but as they grow you start to see who they're shaping into, and you can start making those adjustments. You may have a kid that goes to a trade school,

and by the way, the 529 can be used for that. That's right. You may have a kid who goes, I want to be an entrepreneur. I want this certificate. So again, this money can be liberally used and widely used. So does that help you in the sense of what you're, I want to make sure we answered your question, because there no like specific number we would tell you. That honestly is so helpful. And it's helpful to hear you guys say like, yep, it's a bit of a gamble. Like you're just doing your best with the information that you have and you keep checking in and change your plan accordingly. And if you overfund it, if you overfund it, I mean, remember,

you get the money back from scholarships. You can pull that back out. Like if they end up getting full rides, like you can pull that back out of the 529. So it's not lost forever. You know, and if you get down to it, like we had a caller call in the other week, Ken, and they had massively funded, you know, overfunded the 529s.

It was like 80,000 left. And it was like, listen, at that point we just told him, hey, if you want to pull it out, pull it out and take the 10% hit. Like, yeah, no one's griping. No one's griping. You have an extra money. Yeah. So, so I, there really is no risk at all, Beth. No risk. Okay. Okay. Hey, thank you both so much. You're putting my mind at ease. You guys are. You guys are doing great, actually, to get ahead of it that early. Yeah. Smart.

Fantastic stuff. And again, back to the compound interest calculator. Love it. It's my friend. You start putting in that little – that was – what you ran – I want everybody to hear this. Yeah. You ran $300 a month times three kids, so it was a $900 investment from the time they're

todd – babies. Yeah. She only has one toddler. Yeah. I think, a three-year-old. Yeah. She had the four-month-old, one-and-a-half, time they're todd-babies. Yeah. She only has one toddler. Yeah. I think, a three-year-old. Yeah, she had the four-month-old, one-and-a-half, three-and-a-half. Okay, so two-and-a-half. And you're looking at $180,000 per each kid.

That's great. That goes a long way. Yeah. Towards really expensive schooling. Schools are insanely expensive. Yes. Although I do think something will have to give. And I really believe, I can't even begin to get a crystal ball out for 18 years from now on higher education. But something has to give.

The student loan to the trillions of dollars. The American people, 46% of American parents say they wish their kids would go to trade school. If colleges and universities were running for president, they wouldn't probably get elected. You know what I mean? They're suffering a little bit. And I think that only gets worse unless something happens with tuition. Something's got to happen with tuition. Yes. In the meantime, all we can do is save up and do our best and you can only afford what you can afford. And at the end of the day, that's the guiding light. Speaking of guiding light, she is Jade Warshaw,

my co-host. Happy birthday, Kate. Thanks to James Childs. Thank you, my friend. And thank you, America, for listening. This is The Ramsey Show. Thank you.