The Ramsey Show - App - What's Wrong with Using Credit Cards for the Rewards? (Hour 2)

Episode Date: November 7, 2018

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🎵 Live from the headquarters of Ramsey Solutions, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. You jump in, we'll talk about your life and your money. It's a free call at 888-825-5225. That's 888-825-5225. Ram is with us in Salt Lake City. Hey, Ram, how are you? Hey, Dave, I'm not too bad, thanks.

Good. Just a quick question, basically. I'm 25. I'm almost finishing up my baby step number three. And I want to move to baby step number four and invest 15% of my income. But the thing is, I'm not from the U.S., so I'm probably going to leave the country in the next three to five years after I finish my master's. After I finish my...

Anyway, I'll leave the country in the next three to five years. And then, so I just wanted to know if investing in the stock market right now is a good idea or not, because I've been reading a little bit and there's like a crash is about to come, that kind of a thing, and that the market has been like a long overdue crash and stuff like that. So I just wanted to get your thoughts on that. Well, if someone actually can accurately predict the stock market with certainty, they would be a multi-bazillionaire.

And so just because you read someone that said it was going to crash doesn't mean it's going to crash. You could read another article one page over that says it's getting ready to boom. And so there's always a glass half full, always a glass half empty article out there on any kind of investing. And so, you know, so I would not I would not avoid stock market investing based on that ridiculous article that you read but you may not want to invest in the stock market because the history is that if you don't leave the money alone at least five years you stand a probability of it of actually coming out with less than you put in yeah and so because of the cycle nature of the market the market cycles up and the market cycles

down which is not really a big problem if you're going to leave it alone 20 years. But if you're going to leave it alone three years versus five years, the historical data says you've got a reasonably, you know, a one in four chance of actually losing money if you do that. So I, you know, if you're gone in three to five years, I probably would not invest because your investment window is not long enough to use that vehicle. So what I would do instead is figure out, okay, when you do leave the country and you have your career in your home country, how are you going to invest there and can you start investing there now while you're here? And so whatever investment vehicle you're going to use in whatever part of the world

you're in, that's the investment vehicle that you're going to use in whatever part of the world you're in, that's the investment vehicle that you're going to be in long term, and that's the one you probably should just go ahead and start with now if you're at that point. So, hey, thanks for the call. Carrie is with us in Dallas, Texas. Hi, Carrie. Welcome to the Dave Ramsey Show. Hi, Dave.

Thank you for taking my call. Sure. What's up? My husband and I, first of all, we're very blessed to have found your program, and you've changed our lives. So thank you for all that you do. We recently got out of debt, paid off over $100,000 in debt, and have just now finished Baby Step 3B. Woo-hoo! Way to go!

Yay! I know. We're so excited. you're killing it so we are getting ready to close on our house later this month and buy a new house and then we're going to be straight into four five and six my question is um i have a daughter who will be going to college in five years so we're right at the five-year mark and so we don't know whether it's best to go ahead and start investing money for her or if we should just be stockpiling it in an account somewhere. No, I'd go ahead and start.

You're not going to save a ton on taxes because you're not going to get a lot of growth in five years. But you can go ahead and load up a 529 and some good mutual funds because here's what's going to happen. You're not going to save enough during that five years to pay for her college completely unless you just do an unusual amount of saving. Okay? Right. And it's possible you could do that because you've already done some unusual, wonderful things like paying off all that debt.

So it's possible. But more than likely what's going to occur is you're going to use this savings and you're going to add some cash to it out of your cash flow. And that's going to be the way you're going to fund her college. So translation, you probably will take the money out of your pocket, out of your cash flow to do year one, maybe year two. And so maybe what we're investing for is years three and four right now. And as an example, which is obviously seven and eight years away, not five years away. Oh, that makes a lot of sense.

That's wonderful. Thank you very much. Hey, thanks for the call. Good question. Open phones at 888-825-5225. If you're a tax professional, we need your help. If you didn't know, we've got an entire program dedicated to helping people find the best tax pros in their area. It's called Endorsed Local Providers.

We're looking to add CPAs to this elite network who love walking with people in their journey and helping them win with money in either their professional life or in their business life. These CPAs oftentimes do bookkeeping for small businesses. They also, of course, prepare taxes. And getting ready for tax time, we want to make sure we have the right amount of tax preparation ELPs in our program and take care of it. That's simple. So if you're passionate about helping people get their taxes done the right way

and you'd like to be one of our tax ELPs, you just go to DaveRamsey.com slash tax program, and we need your help. Again, if you're a tax pro, go to DaveRamsey.com slash tax program. Courtney's with us in Columbus, Ohio. Hi, Courtney. How are you? I'm doing great, Mr. Ramsey. May peace be with you. I'm just very excited to talk to you.. Hi, Courtney. How are you? I'm doing great, Mr.

Ramsey. May peace be with you. I'm just very excited to talk to you. You too, sir. How can I help? Yes, sir. So I'm totally against debt, including mortgage debt. So I have a couple of questions for you regarding mortgages. First, I'm a bit confused why you are accepting of mortgage debt and why that's okay. And I also wanted to know, do you see any issue with me renting long-term while saving for a house to buy outright? Number one, usually when I answer the question, depending on how much time I have when I'm talking about it, I explain to folks that I'm not okay with mortgages. I tolerate them. It's the one kind of debt that I just don't yell at you for.

The rest of it is just so stupid you can't breathe. That one is you can get away with it, and you can get it paid off and have a long-term plan to get it redone. I personally don't borrow money. I often say that on the show, and so I don't have a mortgage. We're building a $50 million office building right now that we are building at the speed

of cash. And we've told the contractor, we've told the newspaper when they wanted to do a report on it that we're not building this thing unless we have the cash or as we have the cash. That's a lot of money for a boy from Antioch, Tennessee, by the way, I'll just tell you. you blows my mind and so um it's kind of like saving up to pay cash for a house except plus a little and uh so you know yeah i would i would i rent if i were in

your shoes yeah because i don't borrow money but now here's the thing you rent the cheapest possible thing you can because every dollar you spend on rent's not a dollar you're saving for the house you work an extra job you go crazy and i not a dollar you're saving for the house. You work an extra job. You go crazy. And I want you to pay cash for your first little old house and get a house, even if it's not much. Get you a house quick. I mean, like three, five years. I'm not talking about 10, 15, 20 years saving up.

Do it in three to five years. You can do it. A guy like you who's got convictions like this, you can do it. And you call me back and I'll brag on you. This is the Dave Ramsey Show. There's nothing smart about smartphones if your wireless plan is blowing your budget each month. Pure Talk USA offers smarter wireless with unlimited plans

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We're so confident you'll love Pure Talk USA that we invite you to try our service risk-free. Just visit puretalkusa.com, enter promo code SAVEDAVE, no spaces, and receive 50% off your first month. That's puretalkusa.com, promo code SAVEDAVE. Nathan is with us in Moab, Utah. Hey, Nathan, how are you? Doing fine, thank you. Good. How can I help? Pleasure to speak with you.

I have a car loan that we're about $3,000 upside down on. My wife is apprehensive about selling the car because then we won't have a car to show for it and have a $3,000 loan. I told her we could buy a beater temporarily, but because of our location, we do want slash need something reliable because it helps in our location. We live very far from a lot of places, and traveling is sort of a necessity. Yeah, you have one vehicle? We do have one vehicle, yes. Okay, and what do you owe on your car? $12,000. Okay, and what's your household income?

Household income is about $75,000. Yeah. Do you have any debt other than your house and this car? Credit card debt at about $16,000. Okay. All right. No, I don't think you need to sell your car. Okay.

I don't think it's the problem. Cutting up your credit cards tonight would be a good idea. I did that two weeks ago. Yay! We're on track. Yeah, I think the two of you get on a budget and say we have $18,000 in debt, and you said you make $75,000? $75,000, yeah. Yeah, you make $75,000. We have $18,000.

If I look at $18,000 out of $75,000, I think that sounds like a one-year deal to me. All right. Beans and rice, rice and beans, no life. And all that traveling you've been doing probably isn't going to happen. Well, the traveling is a necessity for food. I know, just to eat. You're in a very, very remote situation, I understand. I'm joking with you.

But my point is, you know, we're going to spend as little as we can possibly spend so that 18 out of 75 becomes very doable. By the way, that's $1,500 a month. You can do that. Perfect. Like one year, you're 100% debt-free. You keep the car. You don't keep the credit cards. Perfect.

Good. Good job, man. You got this. Open phones at 888-825- 5225. Sarah is in Los Angeles. Hi, man. You got this. Open phones at 888-825-5225. Sarah is in Los Angeles. Hi, Sarah. How are you? Hi, Dave. Thanks for taking my call.

Sure. What's up? I'm a 36-year-old professional touring and recording musician, meaning that I don't make a lot of money. But I fortunately found myself a teaching position as an adjunct professor at a major private university. Nice. So my position isn't, it's not tenured, and it's not guaranteed year to year. I've been teaching there long enough to qualify for retirement benefits with a 10% match rate. Cool.

What do you make? What's your income? There, it's not a lot. I think it's about $30,000 a year. Okay. and in addition to that you do what are you doing performance or are you behind the scenes performing and touring and recording okay all right and you make any money yet uh i mean it looks like it but because of all my 1099s not really 1099 represents your income. Right, but I mean because I have to pay out $10.99 to all my band members.

Oh, the outgoing $10.99. Your expenses associated with the touring and the recording and so forth. Okay. Yeah, because you're running a business. Your income minus your expenses is your net profit. Correct. And that's what we're looking for here. Okay, I got you. I got the picture. How can I help net profit. Correct. And that's what we're looking for here. Okay, I got you.

I got the picture. How can I help? Okay. So currently I have zero debt, but like a lot of people, I found a man who I love dearly, and he has about $60,000 in student loans and credit card debt. And we are engaged to be married for nine days. Yay.

Yeah. And currently are enrolled in your FPU online course, which I feel like is the best premarital counseling we could have ever asked for. So thank you for that. Awesome. But my question is that we're going through the baby steps. And because my position at the university isn't guaranteed, I'm curious if I should pay into my retirement while I can or hold off and help him pay off his debt. Once you're married, we have debt and we have an income now right now you're

not married right now there's you and so for today nine days yeah oh you said nine i thought you said 90 okay yeah so nine days well when you come back from the honeymoon it's we it's now french we we so um you know and you just everything's us and we have debt we need to clean up. And no, I would not. Either one of you are starting retirement until we are debt free as a couple. And, you know, so we're going to use all of your assets and income. You're going to use all of his assets and income to accomplish our combined financial goals. The old marriage vows in the old fashioned days days and still some people use them which i love

them they're beautiful they're poetic for better for worse and sickness and unhealthy you've heard that and here's what the book of common prayer actually says unto thee all my good worldly goods i pledge and that represents the combining of our worlds. And the preacher, and then he says, and now you are one. Remember, you've heard all that probably, maybe in a movie or something. But, you know, there's a beautiful way of thinking about that from a relational aspect. And here's the interesting thing. From an empirical standpoint, from a research standpoint, the data all indicates that people who build wealth work with their spouse to do it, not against them.

And they don't have a roommate. They have a spouse, meaning that we are not running two separate lives under one roof. We're going to run this as one unit of income, one unit of assets, one unit of debt that we're going to clean up. So all of that to say one more time, no. After you're married, it's our debt. We're going to clean that up before we start retirement. You'll be fine. That's the shortest path to wealth anyway.

Thanks for the call. Open phones at 888-825-5225. Katie's in Baton Rouge. Hi, Katie. How are you? Hi, Dave. I'm so happy to talk with you. You too.

What's up? So my husband and I have about a $25,000 emergency fund, but we also have about $10,000 in debt. So we could, as you like to say, we could write a check tonight and be done with it. But I am so scared to pull the trigger. I sleep so much better at night knowing that that money is there in that emergency fund. But I am really contemplating going ahead and pulling the trigger. I just wondered if you could help push me over the edge. Yeah, it's hard, isn't it?

I get you. I love it. Well, you're a classic saver, and you get from money security, and there's nothing wrong with that. You've identified that, and you know yourself well, and it's beautiful that you know yourself, okay? So the key is once you understand who you are with money then what you want to do is is design a plan that causes your natural strengths and fears

to cause you to win so let me tell you what that looks like in this situation what's your household income about 248 and you25,000 to your name? Well, that's just our emergency cash. Do you have money other than retirement? Yes, we have about $500,000 in retirement. You have money other than retirement, and there's $25,000. Just our checking account, some savings set aside for a big expansion on our house that we're about to do. How much is that?

About $40,000. Okay. Delay the expansion on the house a little bit and pay off your debt. Keep your emergency fund in place. That's not scary at all. That's a good solution. That's not scary at all. But if we wanted to use it, and you don't need to.

I think that's what you ought to do. But if we wanted to go back to the part of our conversation where I knew less about you, I would use the $25,000 even if you had no other money. And I would use your fear like other people use their intensity to get out of debt. In your case, I'm going to use your intensity to rebuild your emergency fund. Let your fear be a motivator to shut everything in this overspending household down. You make a quarter of a million dollars. You don't have anything to your name but 65 grand plus your retirement.

I don't know how long you've been making a quarter million, but it's really, I hope not long. You see what I'm saying? No, not, yes, I do. Not very long. Good. It could happen in baby step two. Okay. Although, frankly, we haven't been as aggressive about it as we've been.

There we go. So your fear can give you the aggression you wanted if we needed to use that to motivate you to rebuild your emergency fund. But we don't need to in your situation. We're going to use your aggression to rebuild your expand the house fund, not fear. And so, yeah,

pay off your debt today write the check tonight you did it this is the dave ramsey show You've heard me talk about ID theft for years and how it's only a matter of time before you become a victim. But I ran across some numbers that even surprised me and shows the real nightmare that people go through when they become a victim. Of the 16 million victims of identity theft last year, yes, 16 million, 26% of them had to borrow money from family or friends, 22% of them lost even more money by taking time off work, and 900,000 victims took out payday loans. This stuff is a freaking nightmare. That's why the only plan I have for my family and my entire team is through Zander

Insurance. Zander takes over all the work to solve these problems and more, along with the systems to reduce your risk and protect your money if your accounts get hacked. Visit zander.com or call 800-356-4282. It's the smartest, most affordable way to protect yourself. In the lobby of Ramsey Solutions, Joey and Jessie are with us. Hey, guys. Hey. How are you? Good. How are you?

So good. So good. Where do you guys live? Lafayette, Louisiana. All the way to Nashville to do a debt-free stream. Love it. How much have you paid off? Good. $41,320. Love it. And how long did this off? Good. $41,320.

Love it. And how long did this take? 15 months and 5 days, which was 5 days ago. Very good. This is fresh. And your range of income during that 15 months? $150,000 to $155,000. Very good. And what do you guys do for a living? I work in the oil and gas industry in the Gulf of Mexico.

And that's the whole thing? That's it. I'm his cheerleader. And you're the cheerleader. I love it. She's the financial coach. That's perfect. Okay. Very good.

What kind of debt was the $41,000? Oh, yeah. Credit cards, 401k loan, stupid loan. And we had a... Car loan. Car loan. And some furniture. Everything.

Y'all were normal. Oh, yeah. How long have you been married? We just celebrated our 20th anniversary this year. How fun. Very cool. Yes. So after 20 years of marriage,

15 months ago, what happened? Last year I had a major surgery, kind of set everything in perspective. I came out the surgery and we were like, that's it. We're done. Yep.

Yep. Just wanted to stop. You know, he made such a good income, but we didn't feel like we were getting anywhere. We have two adult daughters and he just wanted them to see a positive, you know, like we just wanted to leave a better legacy. And so we were not drowning. We were not, like, you know, starving. But it was ridiculous that the sacrifices he makes

and the money that he makes that we were feeling. So you come out of surgery and you kind of reset. You relook at life, really, because it's like, whoa, I better get serious about this thing. We might not always have it, this thing called life. Yeah, it's really nice. And you go, oh, we make too much money to be this broke. Then what happened?

Yes. We got on a plan a couple of years ago. We tried it by ourselves. Failed tremendously. We tried your plan, but with some of our rules. Oh, ish. Yeah. Did the ish plan.

Yeah, our rules didn't work at all we loved the idea of it but it's hard to um you know when you're teenagers at that time you know you want to give them everything and we felt like we should do that and and um we quickly realized that um you know instant gratification is not always the way to go so you pull the old stuff off the shelf blow the dust off of it, or what? Yeah, we actually got online and called here and got FPU shipped to the house. Okay. And we started it at home. Oh, okay.

And they attended a class a few years ago in Baton Rouge. You did a conference down there. Yeah. Kind of jump-started the kids with that. Yeah, both of our daughters have taken your curriculum at Louisiana Tech. Oh, wow. Very good. So we have one graduating next week.

No student loans at all. Woo-hoo. 100% debt-free. The youngest one had two years of college. No debt. Wow. So, yeah. All little envelopes, little weathered-worn envelopes with cash tucked in them.

Our daughters. Yeah. So, hey, this is awesome. And then mom and dad come along and clean up. Yeah. And here we go. Right. Game on.

Well, congratulations, you two. Thanks, Dave. We appreciate it. Thank you. Very proud of you. It's very hard to do. Yeah, it is. It is.

It is. You don't have to be drowning to get serious about it. No. It's hard to do. No. You know, it's a three Bs, budget, budget, and budget. Sure. There's three things you do. Yeah, budget, budget, and budget. There's three things you do, budget, budget, and budget. So what did you get out of the budget?

What did the budget do? What is it that allowed? Because that's the truth. That causes you to win. But I want to hear from you why you think it causes you to win. I think for me, I let her do all the budgeting. I didn't participate. I went to work, let her handle it.

And she's great at that. She's great. I was a free spirit. She's a nerd. And I think when we sat down and actually looked at the numbers, we were like, oh, man, this needs to change. Yeah, what we were spending on what we were spending, you know, ridiculous stuff. Financing meals and financing silly things.

You know, we'd not bought furniture in 20 years, and we decided to buy furniture. We could have gone back to a restore and bought a $200 couch and paid cash for it. Sitting down, both of us, religiously, sitting down on purpose and taking the steps. Yeah, so when you decided to look at the numbers with Jesse, that's when things changed. The two of you doing the budget together was the key. That was the big change shift for you all. That was part of the class that we saw in the FPU was sit down and have that budget discussion. Because it's hard.

It is hard. It's hard. And then you realize the struggle in the end, not in the end, this is not the end, but is a gift in return because it makes you have conversations that you might not have had the courage to have before. And then you grow as a couple. And I mean, what a gift for our kids to see that. You know, I wish, you know, you can say, I wish we'd have done this when they were babies,

but you know, they're seeing it now. Yeah. Yeah. So. And they're living it now too. Right. So it's perfect. Right. And we did the whole plasectomy, cut up the corticoster. Yeah. Yeah. And they're living it now, too. Right. So it's perfect. Right.

And we did the whole plasectomy, cut up the corticosteroids. Yeah. It was painful. Yeah, it was painful because you're like, oh, man, it's easy. Mm-hmm. Mm-hmm. It's easy, but it's easy in the moment, but over the scope of your life, it's hard. And the interesting thing is doing it wisely is the opposite.

It's hard in the moment, but over the scope of your life, it's easier. Because life's easy now. You've got a budget. You've got a game plan. You've got in the moment, but over the scope of your life, it's easier. Yeah. Because life's easy now. You've got a budget. You've got a game plan. You've got a great income, and you've got no payments. We lost $41,000 of weight. I love it.

Very cool. Well, congratulations, you guys. We're proud of you. Thank you so much. Very proud of you. We've got a copy of Chris Hogan's book, Retire Inspired. Sweet. That's the next chapter in your story to close the chapter one, debt-free. Open chapter two, become wealthy.

Become everyday millionaires and outrageously generous as you go along. Well done, you guys. Thank you. Very, very well done. Joey and Jesse, Lafayette, Louisiana. $41,000 paid off in 15 months after 20 years of marriage. $150,000 to $ 150 to 155 income. Count it down.

Let's hear a debt-free scream. Three, two, one. We're debt-free! Love it! Well done. Very well done. Beautiful. Beautiful.

Open phones this hour as we talk about your life and your money. Eric is with us in New York City. Hi, Eric. How are you? Hi, Dave. How are you today? Better than I deserve. What's up? Yes, sir. I want to give you a little bit of an update of our total money makeover. I spoke with you about 10 months ago. I was the guy that my wife was hiding $75,000 in credit card debt. It was actually $80,000.

But I wanted to call and thank you and let you know what we're doing. Okay. Tell me about it. It's been 10 months. We haven't used a credit card in 10 months. We paid off $21,000 in credit card debt by making our minimums and our snowball. And I also sold the RV, which I owed $12,500 on. I found somebody that bought it over the internet, so we eliminated that debt. So we're looking at $33,500 eliminated in 10 months.

Way to go, man. Excellent. And you probably wouldn't believe what our income is. What's your income? Okay, my wife and I, I did land a job. It's not a great job, but anyway, our net income is $65,000 combined yearly. Wow. You are making amazing progress living in New York City to do that.

That's amazing. Very well done. So how did you guys overcome her hiding the debt? How's the relationship? I mean, the relationship is good. I mean, there still is time when we feel strained because we still have a lot to go. But we're open now with the finances. We do it together now.

So you don't think there's going to be any more stuff happening under the table, so to speak? No, I really don't. You know, when I open up the banking, we sit there, we do everything together. You know, we run credit checks. She probably feels a relief then. Yeah, I imagine so, yeah. Way to go, Eric. Thanks for the update, man.

I'm proud of you. You're doing it. You're doing it. You're right in the middle of it. Get after it, baby. You're doing it. You're doing it. You're right in the middle of it. Get after it, baby. You got this. This is the Dave Ramsey Show. Thank you. JT is with us in Norfolk, Virginia. Hi, JT. How are you?

Hey, Dave. How's it going? Better than I deserve. What's up? Hey, so my question was living, I guess you'd call it like a debit lifestyle on credit. And, like, really what the question was, like, my wife and I were talking about getting, like, a high-rewards credit card and using it as a debit card. And I was wondering, I know you don't like credit cards, but is that a good idea or is that bad? I'm so confused. You have a credit card or you have a debit card. You can't use a credit card like a debit card.

You mean you want to get a credit card and pay it off every month? Yeah, like use it as like a debit and then just collect the rewards on it. Yeah, you can't use a credit card like a debit card because it doesn't come directly out of your checking account. A credit card sends you a bill at the end of the month, and then you pay the bill. Yeah, yeah, so I guess paying the bill, like whatever it's due, or just paying the balance on it, whatever it would balance. Yeah, no, I would not do that. I have never met a single millionaire, and I've met thousands of them,

that said, Dave, you know, those rewards programs, that's how I made all my money. They make money on those reward programs. You understand that? I'm not sure how they make the money on it. But 22 trillion, trillion unclaimed airline miles. Wow. Unclaimed. That's enough to send you and 20,000 of your friends to Pluto and back.

Okay. And this is all people who did what you did. Now, here's the problem, okay? It sounds like it's perfectly mathematically neutral, but it's a behavior-based thing. Let me walk you through it, because it's a great discussion. I love your question. It's a valid question. Here's the thing when you feel

pain spending money you spend less all kinds of studies that do that and really common sense tells you that okay in other words if we went to an extreme and we said every time you spent money we were going to shock you you know you would just quit spending money, right? I mean, so here's the spectrum of feeling pain. It's called friction in the marketing world, especially in the digital marketing world. The harder it is, the more steps you have to go through to buy something on the website, that's called friction. The greater the friction, the less chance you're going to stay in their store and close the transaction and buy the item on a website. You know what I'm saying? Yeah, yeah.

So the easiest version of that would be what? Amazon Prime. You just push a button and it's home. Boom. You can even get a little Amazon thing to sit on your desk and just hit a button and it'll automatically order stuff, right? Right. A friend of mine had that in his toddler.

They kept getting detergent showing up at their doorstep, like massive amounts of detergent. They couldn't figure out why. And the button was down low enough that the toddler kept hitting the button and ordering the detergent. So couldn't figure out why. And the button was down low enough that the toddler kept hitting the button and ordering the detergent. So you know what I'm saying? So that's what really happens. Now, what happens is Amazon Prime is so much easier to buy, you spend more.

Does that make sense? Okay, so the spectrum is cash, real $100 bills laying in front of you, is the most friction of a spending methodology, a payment methodology, because the studies done by Carnegie Mellon with MRI shows that the pain centers of the brain are activated when a $100 bill leaves your hand and doesn't come back. Right. You have an ouchie moment, okay? All the way on the other end of the spectrum would be apple pay where you

don't even touch something that you associate with money you touch only your phone because you don't emotionally touch your you don't emotionally associate your phone with money and so you just do apple pay and you just swipe it right boom you buy stuff just wave your phone over the wand oh and you buy stuff it's magic or you hit the amazon prime button and it's it's magic or you do paypal and it's magic and it's real easy and you hit the Amazon Prime button, and it's magic. Or you do PayPal, and it's magic. And it's real easy. And you're not touching something, handling something that the brain associates with money. So that's the least friction item where you're going to spend the most money.

Does that make sense? In the middle, then, would be the debit card. One step in from cash on pain is the debit card which when you use a debit card you're touching something that has to do with money because you only use that card for a money transaction the brain knows that and the brain activates and then you also know automatically that this is coming right out of your checking account and so in your mind you're doing a little math going do i have any money in my checking account or am I about to go into overdraft by going to this restaurant with this debit card? Okay, so it's got a sense of pain, a sense of reality tied to it because it's tied to your checking account.

It's not as painful as cash, but it's one notch in. One more notch in would be the credit card you're talking about where you're very disciplined and you're very smart, you're intelligent, and you pay off your credit card every single month and you get points. But now think about the conversation we've been having. All about friction, all about trying to get you to use the card with ease, and here's what the mind does. It plays tricks on you, and this is why they do it. You say, oh, I get points back when i buy

something i'm going to buy more right well let's do the transaction analysis for a second discover card gives you one percent back that means that if you spend one hundred thousand dollars of real money discover card gives gives you $1,000. On what planet is that a path to wealth? Right. Not. That makes sense. But your brain says, oh, I'm getting points.

Let's just get a dessert. I'm getting points. Let's get the bigger, fluffier one, or whatever it is. This is what your brain does does and it causes you to spend more so all the data says you spend the least when you're spending cash you spend the next least with a debit card you will spend more with a credit card even with your commitment to pay it off in order to get the points uh because also you don't have to worry about whether there's money in your checking account i'll just pay it off at the end of the month. It's kind of a flippant thing in your brain.

And then the least amount of friction, the easiest transaction, is the waving of your magic phone, your Apple Pay or PayPal or Amazon Prime or stuff like that. None of these things are evil. But what we have to realize as wise consumers is that they affect our buying behaviors they affect how much we spend and so if you did your plan you will spend more on average over the scope of a year than you will uh then you will using a debit card and a lot more than you would using a cash transaction another extreme example of that is the smaller the item, by the way, the more the impulse is. Because you really aren't, it's not an amount of money, it doesn't matter.

So you go up to the Coca-Cola machine, you go up to the Coke machine, the vending machine in the hotel, right? And they now have the little things, you used to have coin slots in them. Now they have dollar feeders in them them like they're an ATM in reverse. And you can feed your dollar bill in there if you can get it to take it. It spits it back out three times. You smooth it out. You push it back in there.

You know the routine, right? It's screwy. Now the vending machines have a card reader. You can stick your card in there and buy a Coca-Cola or a bag of chips or a Pepsi or whatever it is you're going to buy, right? Here's what's interesting. The cash buyers at a hotel vending machine spend 178% less than the credit card or debit card buyer at the vending machine. Because once you got that card in there, yeah, I'll take chips. I'll get a candy bar. I'll get a bottle of water for mama.

I'll get a Coke. I mean, you just load it up, baby. You spend four or five times more, 178% more spending. Now, get granted, it's just a few dollars. But it illustrates the point that friction matters, whether or not you feel it. Because feeding that stupid dollar bill in there and it comes back out because it's wrinkled and spit it. Y'all know what I'm talking about, right? Thing comes in and out, come and drive you nuts, right?

That you get aggravated trying to buy something. It's making it hard to buy. And the harder something is to buy, the less you spend. Now, as long as we know that and we can control those behaviors or we can manage those behaviors or we accept the risk associated with those behaviors, we're fine. But what I'm trying to do here is to teach you guys, including you, JT, because you ask a really fine question. Thank you, sir, for calling in with that question. It's to teach you guys to say that these things are not rolling around out there on accident. All of this stuff has been researched.

There's been focus grouped. They've managed the behavior. They've watched the behavior of small groups. And they know exactly what their rate of return is on airline miles, on rewards points, on all of that. They know what they're going to make on your use of the card. And if they can get you to use the card, they'll recoup all that and a bunch more. Thus, their building is taller than your house. This is how this happened.

It's not an accidental random success story. Very intentional. Great question. This is The Dave Ramsey Show. Hey, it's Kelly, Dave's phone screener. We finished 2017 with a bang as the fourth most

downloaded podcast of the year. Thanks to all of you for listening and helping us spread the word.