The Ramsey Show - App - What the Fed Raising Rates Means for Your Money (Hour 1)

Episode Date: May 8, 2023

Dave Ramsey & George Kamel answer your questions and discuss: Saving for a house during the Baby Steps, from the blog: How to Save for a House, Going on a family trip while paying off debt, How the Fed raising interest rates affects your money, "Is it fair for me to ask my wife to help pay off my debts with me?" Dealing with a convoluted estate from a deceased relative, "Should I invest in mutual funds or real estate?" Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET Join a Personality-led FPU class. Click here! Enter The Ramsey Cash Giveaway for a chance at $3,000! https://bit.ly/TRSgvwy Shop our bestsellers during the $10 Sale! https://bit.ly/TRS10Sale Want a plan for your money? Find out where to start: https://bit.ly/3cEP4n6 Listen to all The Ramsey Network podcasts: https://bit.ly/3GxiXm6 Interested in advertising on The Ramsey Show? https://ter.li/s64ye3 Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy

Live from the headquarters of Ramsey Solutions, broadcasting from the pods, moving, and storage studios, it's The Ramsey Show, where we help people build wealth, do work that they love, and create actual amazing relationships. George Campbell, Ramsey personality, host of the extremely popular new George Campbell YouTube show and also the podcast called, well, at least he's a co-host of it, called Smart Money Happy Hour.

And you can check both of them out. He and Rachel Cruz do that one together. Phone number here as we talk to you about your life and your money is 888-825-5225. Josh starts off this hour in Idaho Falls, Idaho. Hi, Josh. How are you? Great. How are you doing, Dave?

Better than I deserve. What's up? So a question for you. My wife and I have a household income of just over $100,000, and we're completely through baby steps one through three. And I'm wondering how, with the current house market, we don't have a home, are saving up for a home. How do Baby Steps 4 and 5 change for us? Why would they change?

Well, we are just saving up for a home and working towards that down payment. We're almost ready for the down payment. Okay. Have you ever heard us talk about the thing we call baby step 3b i have heard a little bit yes okay that's what you're talking about i think okay so you finish your emergency fund at three that is the point at which you would begin to save for your home and some people push pause and don't do four and don't start saving for retirement until they build their fully until they get their house down payment some people save for a house while they're putting something in retirement up to 15 for baby step four so you can do either one or both somewhere in there

so how long is this going to take to save up your down payment? Do you have a specific goal? I think in mid-next year, we're going to have a little bit larger down payment than is required, and we're doing 8% of our household income into Roths right now. Okay. And so while doing 8%, you'll still have that down payment by mid-next year? Yeah, we're putting away 8% into the Roths, and about 40% of savings just goes away into CDs until we're ready for a down payment. That's fabulous, Josh. Well done. Yeah, that's what we would call maybe step 3B.

So 3B is all of your savings goes into your house down payment fund, or down to a little bit less, a little bit less, a little bit less less than all because you're putting some or up to 15 percent into retirement so you're putting eight into retirement and you're still going to make your down payment goals doesn't change a thing it's exactly what i would do have at it okay and then would you hold off at all until interest rates come down just when we get that down payment ready no buy a house when you're ready. Okay. Because here's the thing. If interest rates come down after you buy the house, refinance. House prices aren't coming down. We've not seen substantial drops in house prices ever in the real estate market except

during the 2008 debacle. And we're not going to see them now. We've told you this for two years because we've still got a shortage of housing there's not enough inventory too many buyers chasing too few items causes price to maintain stability or go up so house prices are going to be going up and i wouldn't sit around and watch the house prices go up while i'm waiting on interest rates to go down bad plan i don't time the stock market or the real estate market exactly both involve some risk and the only time i would time the real estate market is if I can't find a deal when I'm buying investment property. And then wait. Because the market's like white hot and there is no deals.

I just don't buy unless I get a good deal. Period. I do not buy investment property unless I steal it. Period. I want to get a great buy on investment property. Your money's made at the buy on that. But as far as your personal residence goes, buy when you're ready, which is when you're debt-free. Have your emergency fund in place and have saved your down payment.

Yeah, and I get interest rates have got people freaked out because, you know, it's hundreds of dollars more in your payment. And they're going, well, I need to wait. The problem, like you're saying, Dave, is those same people are going to call us and say, Dave, I waited, and now the home price is $100,000 more than it was. Well, and there's no guarantee interest rates come down. I mean, we just saw the Fed just – I mean, what if you sat around and waited, and they went to $10,000? Yeah, they just raised the rates again. So we just don't know.

In 1978, September, I got my real estate license. I was 18. That was the year interest rates went from 9.75% to 10% for the very first time ever. And if it did it then, and then it went on up to 18 before it came back down, and it took it a decade to do that reversal to go on up and then back down, if it did it then, why can't it do it now? I mean, I don't know. These bozos continue to screw with this.

They're going to mess it up. I mean, so I wouldn't be sitting around waiting on the outside environment to get you ready. You get ready, strike while the iron's hot. Jocelyn is, and get a good real estate agent to help you make good, clear decisions. Jocelyn is with us in Miami. Hey, Jocelyn, how are you? Hey, so good.

So nice to be able to talk to you guys. You too. What's up? So I have a family quinceanera trip coming up next june a family what for uh like a think of a sweet 16 quinceanera okay okay my spanish is limited to my hillbilly so okay i got you sweet 16 yes think of a sweet 16 um it. It's on a cruise, and I'm currently on baby steps, too. I have $60,000 in debt, and we've been working on paying it down as quickly as possible. But this trip is coming up, and everyone's kind of reserving it, and I don't know how to go about it.

Who's turning 16? My niece, my first niece. Oh, and you're supposed to go on a cruise because she's turning 16? My niece, my first niece. Oh, and you're supposed to go on a cruise because she's turning 16. It's a tradition. Yeah, I guess. Every daughter. It's a great tradition. I love it.

For rich people. It is, honestly. That's stuff rich people ought to do right there. Yeah. Not broke people. It wasn't a tradition in my house growing up we didn't have that kind of money i never saw the ocean till i was 15 yeah so how much is this cruise going to cost um it's going to be around

it would be around probably 8,000. Oh, my goodness. Where are y'all going? Around the world and back? I didn't choose this cruise, okay? I'm just trying to, you know, see how to go best. What's the best way to go about it? Because I understand it's expensive, and I understand I'm trying to pay off debt. But you're not going to be out of debt by then. Exactly.

What do you make a year? $90,000. How much debt have you got, hon? $60,000. And how old are you? $30,000. Well, you're a big girl. You get to make your own decisions.

You don't have to do what Dave and George say. You can do whatever you want to do, right? I can tell you what Dave and Sharon Ramsey would have done if we were in your situation. We would have wished our niece good luck and have a great time. We're not going to be able to join you because we're broke people. That's what we would have told them. But you're not going to do that.

You're not going to do that. I can tell by talking to you already. You're going on the cruise. There's no way you can tell these people no. You don't have it within your being. You can't just smile and say no. Nope.

$8,000 for a 16-year-old. Lord Jesus, buy her a car. And when you don't have the money, it's going to compound the debt problem. You're going to have to put her on a credit card. You could have bought her a her a car. And when you don't have the money, it's going to compound the debt problem. You're going to have to put her on a credit card. Could have bought her a really nice car. I mean, and she's going to go in debt for her student loans for her vape when she goes to school when she turns 18, right?

I'm going to just, I'm going to have a small calf here. 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

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We'll talk about your life and your money. So the feds raised the rate again. Another quarter of a point. How many times have they done this now? Well, they're just not smart. You know, because the economy is just booming. So we should definitely do things to screw it up and slow it down we can't have that and of course they want to get all the pain out of the way before there's a presidential election so they're getting all this crap out because people will

forget to be mad two years from now now's the time this is the 10th time it says yep that they've raised the rates and all in a process to slow down inflation that was not caused by an overheated economy. It was caused by an underheated supply chain caused by Fauci. So attack the wrong problem, you get the wrong solution. Yeah, you just should have fired him long before he finally got around to quitting and then you'd have been better off. When you have math done by the medical community, apparently they're not good at it. So this is what we get into.

So anyway. Yeah. What does it mean? Let me try to explain what I'm rambling about and mumbling about here. So the problems with inflation were caused by supply chain disruption. Supply chain disruption is defined as a shortage of goods. The shortage of goods, anytime there's a shortage of anything, it causes the prices to go up. Remember toilet paper and so uh there's a rush on it and prices go up and people price gouge and

everything else there's a shortage on oil because you turn the pipeline off because you have an electric thing going or whatever it is you got going a green thing you got going you turn the pipeline off and you shut down the supply of gasoline gasoline prices go up so the bumper the little sticker on there that says i did that with biden yes he did uh he did not do the other parts of inflation but they were caused by simply fauci because when you shut down all the factories and they don't produce stuff you create a shortage of stuff and the shortage of stuff causes the prices to go up oh by the way when you declare an entire segment of the economy as non-essential, you're not essential. Talk about freaking insulting. How would you just like to be called non-essential?

How do you recover from that psychologically? You're non-essential. I'm essential, but you're not essential. That's the ultimate in snobbery. But anyway, we did do that, right? Yes. And so if you're not essential, then you create. And then when you want everybody to come back to work, well, they go, screw you.

I'm not essential. I'm not coming back to work. By the way, you're giving me lots of money to stay at home, so I'm not going to come back to work. Screw you. I'm not going to wait your tables. I'm not going to make your beds at the hotel, and I'm not going to stock your shelves at Target.

Oh, well, what if we paid you twenty dollars an hour instead of ten dollars an hour oh then i would come back okay then you came back at double the rate almost what you were paid pre-covid oh by the way that cost of that loaf of bread has in it the labor to put the loaf of bread on the shelf which is now double because of the shortage created by quarantine so even labor was supply chain disrupted. All of that created this artificial inflation that would have smoothed out on its own if the freaking Fed had stayed out of it. But instead, they decide they're going to slow the economy down because it's white hot,

which it's not. It was just going through a burp, rat through a snake, trying to get itself straightened out after the quarantine created by Fauci. So now we have a Federal Reserve that is trying to screw in a Phillips head screwdriver with a hammer. And they keep ratcheting this thing up. They're using the wrong tool. So they're trying to ratchet this interest rate up to calm people down. But people don't seem to be stopping their spending either.

We're at record high consumer debt across the board. Well, they slowed the real estate market down. Which didn't help a ton, it seems. No, we still have a shortage of housing compared to the supply of buyers. But anyway, so bottom line is the Fed is stupid, and they're trying to use 1970s and 1980s monetary policy to slow down a different type of inflation that was not created by the interest rate environment. And they're trying to use the interest rate environment.

So they're literally using the wrong tool on the economy. They really are using a hammer on a screw. And it doesn't work. So this is what you're dealing with. But, hey, the Island of Misfit Toys continues their parade in Washington. So you can just count on it. So we're going to see rates go up on all types of debt. The Fed rate, to be clear, is nothing to do directly to the mortgage rate.

Mortgage rate is created by the bond market. So whatever the bond market does is what the mortgage rates are going to do. The Fed rate is what banks borrow from other banks for. And so other banks, one bank is now borrowing from another bank if it needs some money at a quarter percent higher. So their cost of money is higher. So anything that bank does is going to be upcharged. They pass it down to the consumer. So they're going to jack up your auto rates, auto borrowing rates, credit card rates, personal loan rates,

student loans, home equity loan rates, anything that a bank product that's going into the market. Now, mortgages are not a bank product. Mortgages are a bond market product, so they're not directly tied. But mortgage rates, the bond market has kind of followed along with this particular set of increases, so that's why we have higher mortgage rates while we've had fed increases so not to panic but just more general disgust with the incompetency of what the economic incompetency of what these people call themselves as leaders and it doesn't matter if you're a republican or democrat stupid is just stupid there is silver lining d Dave, though. Interest

rates for savings accounts also will get a bump, which is good for those saving up for their down payments or their emergency funds. Yeah. So let me ask you this, OK? Not life changing. 1980. I'm in college. Rates are mortgage rates were 17 percent. 1980, 1981, 17%. And my grandpa, at that time in his 70s, was loving it because he had CDs and money market accounts down at the old savings and loan that were paying 11%. Wow. He had a savings account.

CD rates, 11%. He was loving it. He thought it was just fancy because he didn't have any debt, and he wasn't going to go get a mortgage, and he was just cashing in on these high-interest savings accounts. But my question, George, is, is the tradeoff worth it? I mean, do you really want 11% savings rates, and the tradeoff is you got an 18% mortgage rate.

Nope. Don't want that. Not good. Not good. Not healthy for anybody. Sorry that your savings account sucks at 1% back when we had 3% mortgage rates, but 3%, 4%, 5% mortgage rates were a good thing. Because it hurts the economy more than it helps your bank account.

It's just stupid on steroids. And the banks are cleaning up they're cleaning up when this happens either way they're making their money you can count on the banks making their money and you can count on the politicians drawing their paycheck where if we had those people paid based on their effectiveness they'd all be at the in the bread line but um but then who's going to pass that because they're not going to do that well they're not they can't even pass term limits to send themselves home when sunny is with us sunny's in st louis sunny give us some sunny news it's always sunny where i'm at i hear you brother yeah but what I'm calling about is me and my wife, when we got married, she had a bunch of savings. I had a little bit of debt, and then she had about probably like $72,000 in savings. And we bought some property from her parents that we intend to build on, and she put 20% down on it.

And now she has more in savings we still have some debt but i feel like it's unfair for me to ask her to pay on our debt with that money if a lot of the debt is mine that i brought into our marriage not that not that we're not together on it but you're married right yeah yeah so if she gets cancer is it unfair for you to take care of her what's that i'm sorry if she gets cancer is it unfair for you to take care of her? If she gets cancer, is it unfair for you to take care of her? No, of course not. Well, you didn't cause it.

Not your fault. I'm trying to use your own logic back on you. No, I got you. In sickness and in health, for richer, for poorer. And the old Book of Common Prayer continues the vow, and it says, Unto thee all my worldly goods I pledge. This is called oneness. It's called unity. So all guilt is set aside.

She got you with a package. You got her with a package. You got all the crap, and you got all the awesomeness it's all in one package yes sir would it be fair though for me to it's fair for you to combine all of your income all of your assets and all of your liabilities and then begin to work the baby steps together that's completely fair you got married dude if you're new to all this ramsey stuff uh go to ramseysolutions.com click on Started. It's a free service that we have. It'll start teaching you some of the vernacular, some of the words we use around here, like baby steps and dead snowballs and all that kind of stuff. Also, it'll kind of teach you where you are. You take

a little assessment. We'll show you right where you are and then what your natural next steps are. It's completely free. We're not trying to trap you into something. We're just trying to help you. So click Get Started at rseySolutions.com. Yolanda's with us in Atlanta. Hi, Yolanda. How are you? I'm good, Dave. How are you?

Better than I deserve. What's up? Well, I am calling because I have a life estate, or my mom has a life estate, and I am the remanderman is what it's called, I guess, when I looked it up. The remanderman, yes. Yes, the remanderman. And I got concerned because I've heard you talk many times when people call in about having property willed or whatever to them prior to the person's death and the tax ramifications that that involves. You got it.

That's what's going on. You're now the owner of the property. Well, my mom is still alive. No, no, you're the owner of the property. She has rights to stay in the property as long as she's alive. That's a life estate. Okay. But it's already dated to you.

Should I reverse it? Can I reverse it? How long has it been going on? I think it occurred in 20, I want to say 2018. I'm not sure. I think it was. Who did it? My mom did it. I know. I'm not sure. I think it was. Who did it? My mom did it.

I know. Me and my mom. With an attorney? Yes, with an attorney. Okay. I would check your tax pro and ask them and check an attorney and see. I don't know, since it's been sitting there so long, if you can reverse that or not. If you did it last month, you could just flip the paperwork back over and i wouldn't think anything about it but

it's been sitting there for three or four years now five years now and i don't know honestly uh and i would make sure i had georgia law which is what's going to apply here because i assume that's where where's the house florida oh florida. Oh, Florida's got some wicked weird real estate laws. Florida, Texas, California in the column of weird real estate laws. And so they're actually weird good most of the time, but not always. And because it's an income tax free state, there's no state income tax there. So, yeah. So check out.

Yeah, I think I'd talk to a tax pro, talk to an attorney. And if you can undo it, I think if you run the calculation on it, you're going to see that it's going to benefit you to undo it. Because basically when you sell the house after her death, you're going to be paying capital gains on everything over what she paid for it. Oh, no. Because the house was gifted to you you got her basis for tax purposes double check my tax advice because i'm not always right but on this one i'm right okay let me ask you one other question if you have time should i go back to the attorney who set it up?

Would that be best? After you've talked to a tax pro and you're armed with knowledge. Okay. Because otherwise he or she may give you the arrogant attorney answer. Like I'm never wrong because I have a law degree, which of course we all know is absolute horse crap. I agree with you here. Yeah. So go ahead.

Yeah. I agree with you here. Yeah, so... Go ahead. Yeah, in other words, you need to go back to this attorney after you talk to TaxPro and go, look, you're going to cost me with this an extra $40,000, $50,000 in taxes. What's the property worth, by the way? The property is worth $347,000, and when my mom bought the house, when my mom and dad had the house built,

the house was built for $40,000. So you got a $300,000 gain, give or take, upon her death, and that is a gain you would not have to pay taxes on if she willed it to you. Now that it's already in your name, you're probably going to have to pay. If I got my answer right here, as a remainder, I'm almost positive this is true. So $50,000 swing. You're going to pay $50,000 in taxes because they screwed this up. So, yeah, I'm going to go talk to my tax pro, verify that Dave is not crazy,

which is possible, but it's possible I'm crazy. It's also possible I'm wrong. But, you know, this is going downhill fast, George. Well, it's possible i'm crazy it's also possible i'm wrong but you know this is going downhill fast george but well it's like going a whole life salesman going i want to undo this policy they're going to try to talk you out of it most likely so that's why you go look because of this my basis is going to be this and i'm going to have to pay taxes of 46 000 bucks because you did this instead she could have just stayed in her own stinking house and left it to me in the will and i wouldn't have to pay these taxes because you get you get what's called a stepped up basis upon her death your your basis becomes what the value of the house is at market

value at the time of the house at time of death so if she dies and the house is worth 360 you sell it for 360 you have zero gain you put put 100% of those dollars in your pocket. The way it is now, you're going to pay taxes on everything over what she paid for it or about $300,000 gain. So it's just dumb butt. Yeah, but double check all of that. And if it's true, then talk to this attorney about undoing it. He or she doesn't want to undo it.

I'm talking to another attorney about undoing it. If I can pull that off five years into this deal in Georgia, I don't know if you can or not. You may be stuck. I hope I'm not. In Florida. It's not the end of the world. It's not the end of the world.

Florida, I keep saying Georgia. But yeah, you're in Georgia. She's in Florida. Yeah, I'm in Georgia. Yeah, she's in Florida. I'll get my story straight eventually. So a lot of people do life estates because they're trying to avoid probate. Is that the main reason?

Yes. So a lot of people do life estates because they're trying to avoid probate. Is that the main reason? Yes, or they just don't know the basics of this basic tax thing we're talking about here. And it's a very basic. It's not a, if it's more than basic about taxes, I don't know it because I don't know anything about taxes. There's about four or five tax things I know. This just falls into the heading and one of them i know uh and it's because i've run into it on different things lots of times over the years but yeah and it's just kind of it's like um i call it street law where someone says yeah we're just gonna give bubba the house while i'm

still alive that way sister won't get it. You know, that kind of crap. And that's just street law. And street law meaning you think you can just do whatever the flip you want and there's no tax implications to it. Yeah, you can give Bubba the house, but there's gift tax implications and or capital gains implications when you give Bubba the house. Or in this case, not Bubba, but Yolanda.

But, yeah. But, I mean, it's –, sometimes people do that to keep, it's not as much an estate planning thing, it's they somehow get in their head that the government's going to get more if they let it happen through a will. And the government gets less if you let it happen through a will. Even if it's a state where the probate tax is a little high yeah probate still cheaper than that tax implication yes less than capital gains tax but there's not i don't think there's a state that has a higher probate than capital

gains so it's more about control and lack of legal and tax knowledge uh usually than it is some kind of sophisticated argument that you're there. But you can, I mean, you can use a life estate if you want to. It's okay, especially if you're not planning on selling the property. Like if it's a family farm and you were going to 100% it's going to be generational, we're just not going to be selling it, then sure, you know, that's fine. You go ahead and do a life estate and the next generation keeps farming it and the old people get to stay in the farmhouse, you know, that's fine. You go ahead and do a life estate, and the next generation keeps farming it, and the old people get to stay in the farmhouse, you know,

and for life estate, that kind of stuff. Lots of people do that. There's nothing wrong with that at all. But, again, in Yolanda's case, it's handcuffed her big time as to what she can do with this property someday when, God forbid, her mother passes, but we're all going to pass. Was there a right way to do it? Would you say, if you want to do it, do a trust, if you want to avoid probate?

Is there a better scenario for that? I really, I would not make avoiding probate my primary goal in life, because all probate is is the court system that executes the will. And so if you leave a will, the will is probated, meaning that the probate court enforces the will. That's all it means. Now, some states have higher taxes on the size of the estate. And if you can avoid probate with a trust or with some other mechanisms,

you're moving it outside of that probate tax. But in an effort to save a 3% tax on probate, you oftentimes can step over into a neck deep into the boiling grease. You know, I mean, it's bad. So you get just completely fried here. This is The Ramsey Show. Financial Peace University will teach you not only how to get out of debt, not only how to live on a budget, not only how to agree with your spouse about money, not only how to make it as a single person with money, not only how to invest and become wealthy, but how to be

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are doing Financial Peace University classes. George, have a bunch of people signed up for yours? Oh, yeah. Mine starts June 20th, so I'm later on in the summer. Jade's and Rachel's starts tonight, so that one's already booked up and ready to go, and we've got Ken Coleman, Dr. John Deloney. So join any of them. Eddie Cullen, our host, is is gonna be leading one as well so pick your poison and a lot of people are doing it based

off of times and dates so mine's june 20th uh 12 30 eastern time 11 30 central time on tuesdays and thursdays we have some of the evenings at night rachel's is at lunch i think yes yeah so anyway you can go to the page uh fpu.com just go fpu.com just like that and or just go to ramsey solutions.com and click on fpu you'll find it but the ramp the personalities are doing classes and uh you can get signed up and they will be your coordinators now the classes are still taught by the same videos that have george and rachel the content doesn't change me the content's the same videos that have George and Rachel. The content doesn't change. The content's the same, but the coordinator of the class,

you're going to have a Ramsey personality as your coordinator. Tony is in Austin, Texas. Hi, Tony. Welcome to the Ramsey Show. Hi, Dave and George. Thank you for taking my call. Sure. What's up?

So I wanted to get your opinion. I have a little bit of a unique situation compared to most of your callers. I'm 27 years old. I've been really fortunate with the job I have now. I've been able to build up a pretty big nest egg, about $420,000 in cash. Good for you. And thank you. And I just really want to get both of your opinions on how I plan to diversify it.

Awesome. How'd you do it, by the way? I worked in medical cells. One thing I've always done really well is be able to save money, but I also have analysis paralysis, and I've been standing in my own way when it comes to investing and multiplying that money. Okay.

So it's just sitting in a savings account right now? It is. About 100 of it is in a high-yield savings account, and the other 320 is just in a conventional bank, which, of course, loses you money. And are you wanting to go one particular way? Because we generally recommend mutual funds and real estate as a general investment recommendation.

So that's part of what I was wanting to get this feedback on. What I plan to do is I want to keep 50 in a high yield savings. I'm wanting to put 200 into mutual funds and then the remaining 170 looking to both pay off my reigning student loan balance and then also put towards a real estate down payment. So you don't currently have a home, you're renting, and how much consumer debt do you have? I only have about 25 in student loans. So the student loans can get paid three weeks ago.

Right. Before nightfall, dude. Today. Pay off your student loans. You hear me? You going to do that? Yep. And truthfully, I would rather just pay cash for a home versus get fancy with investing right now. Yep.

What price range home are you thinking about buying? So, of course, I don't want to open leverage. I ideally want to stay under $400,000. Okay. You've got the money. Yeah, just pay cash for a home. That's your next step. And then start saving towards investing at that point. And no, I would not put $50,000.

Do you have an emergency fund in addition to this, or is this your total cash position? Total cash, and that's, of course, not including the $401,000 that I keep separate. Right, right, okay. So what is your income? Last year, it was just under $450,000. Good for you. Fantastic. Man, you are slaying it. Okay, here's what I would do if I woke up in your shoes at 27 years old.

You've done very well. You're a natural saver, and you have a fabulously large income. So as you said, you've been very blessed. But you've also made a lot of good choices, and you're a hard hardworking guy and you didn't exactly quite quit your way into 450 K. You've been kicking butt and taking names. Way to go. I like you a lot. Okay. So if I woke up in your shoes, I would follow the baby steps because I am positive after

doing this for 30 years that they are the shortest possible route between where you are and substantial wealth. The shortest, fastest, safest route. So first thing is debt-free. So write a check today. Now we got $395,000 left after paying off the student loan. Did I do my math correctly? You did, yep. This next step is baby step three, three to six months of household expenses as an emergency fund. We can call that what we want to call it. You decide what that number is. For our purposes, let's see, $395,000. Let's call it $45,000. That leaves us $350,000 if we put $45,000 into an emergency fund.

That is not to be touched for anything but emergencies, by the way. That's a separate savings account not to be touched for any reason unless a dire emergency happens and when you're making 450k there's not many dire emergencies you can't cash flow okay so this is really really really really the backstop so then we move on to baby step four you start saving 15 of your income into 401ks and roth iras that's going to be a bit of a challenge but you'll have to get to doing it, making your 450. Beyond that, I'm going to pay cash for my home.

I think I got, if I did my math right, 350,000 left to pay cash for a home. And I would buy a home for cash for that much or less. Now, here's where we're sitting at this point. We have a fully funded emergency fund. We have zero debt, including a paid for house. And you're freaking 27 years old now from there on 450 now you're in a heartbeat you're gonna have another 300 grand laying around right yes sir like a year i mean really how much can you spend seriously so and you're not a spender

anyway so when the next time you come to me with this question with a paid-for house and no student loans and a fully funded emergency fund, George would tell you, okay, mutual funds are fine or paid-for real estate is fine. Taking out a mortgage for real estate investing I would not do. But I would buy some cash, real estate, with this future cash after we've executed this plan and or I would do mutual funds. Tony, I personally have done both and i'm the 62 year old version of you and i now own millions of dollars of both real estate and mutual funds tens of millions of dollars of both real estate and mutual funds and so that's where you're headed

you're gonna if you continue somewhat on this track, you're going to have a net worth in excess of $100 million. I believe it. And you don't have to do real estate. That's what the math says. He's 27. Yeah. And if you follow social media, they'll tell you,

you got to get into real estate. If you're not comfortable with real estate right now, go slow. You can just do mutual funds. There's no rule that says, but I want you to have a paid for primary residence regardless. Don't buy real estate if you don't um enjoy people and drama dave enjoys both clearly i do i mean i i conflict is like fun for hillbillies so i like it you know but it's just drama and there's going to be some drama so if you don't want any drama in your life don't buy

real estate because it's's even commercial real estate. You know, you get a small business. They can't go to work because Fauci said there's a quarantine or something. You know, I mean, stuff like that happens, right? So you got all kinds of problems. It's going to be there. And with mutual funds, you just open the email and it tells you how much is in there. No drama.

Doesn't make you as much money but no drama yeah you can do either or both is what we suggest and both will appreciate over the long term exactly history has shown us that exactly you can become a multi-millionaire either way good mutual funds should be a 10 to 12 percent rate of return the stock market is averaged 11.2 since inception real estate all in with uh value, cash flow, tax write-offs, everything included. It's called an internal rate of return there. Should be north of 17% if you got a decent piece of real estate. That's if you do it right. But it's got a hassle factor that the mutual funds doesn't have. It's got the drama and the people factor. And so some of both or both is

fine. Anything in there is all right. So that's the plan. Good question, man. Good question. Congratulations. What a stud. That's impressive. Those are the right questions to be asking. Man.

27 making 450. I mean, he's going to be a millionaire at 28 or 29. Yeah. 28 or 29. Ought to be making that much. If he follows our suggestion, if he screws around and goes in debt on that house to buy a house and then messes around with all this other stuff, keeps the student loan around like it's a pet, you know, you're going to have a problem.

But dude, just follow this system, man. It's really worse. That's chump change in your world. It really works. That's why you're sitting on this student loan. What is it, a pet? Sally Mae's an ugly woman. Get her out of your house. This is The Ramsey Show. Hey, George Camel here. If you love the show and

you want a deeper dive on your money journey, we've got a weekly newsletter that gives you helpful articles and tips on following the Ramsey way. Just go to ramseysolutions.com today to sign up for the newsletter. Again, that's ramseysolutions.com to sign up for our weekly newsletter.