The Ramsey Show - App - When You Enable Someone, You Aren't Helping Them (Hour 3)

Episode Date: October 29, 2019

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Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. You jump in, we'll talk about your life, your money. It's a free call at 888-825-5225. That's 888-825-5225. Starting off this hour is Cheryl in Idaho. Hi, Cheryl.

Welcome to the Dave Ramsey Show. Hello, Dave. Hey, what's up? Hey, I've got some great questions, and I need some help. Okay. And you're the man to answer. Okay. So I have a business.

It's an S-Corp. And I have $85,000 in my business checking account that basically gets no interest. I don't have any inventory that I need to buy or anything. It's basically just a business savings account, so to speak. I get paid from my business checking account to myself. I take an employee wage as well as a shareholder draw to divide up the tax burden on there. And I want to find out about the $85,000 I have in my business checking account that just continues to grow every month and wondering about paying part of my house off, kind of wondering what to do with that. I've got $25,000 in a Roth IRA. I've got $10,000 in an emergency fund. I have $100,000 to pay off the house. And just kind of wondering what to do with all this. What's your household income?

Well, that is a very good question because I get commission from five different companies. What will you make this year? Taxable income. If we take all the money from the commissions from all the sales that we get, it would be about $80,000. Okay. That's your taxable income for the year. Your household income. By the time I pay myself an employee wage and the shareholder drop, my tax is really low. Okay.

That wasn't my question. But what is your – you said we. Are you single? Nope. I am married. My husband and I, we work together. Okay. So it's the two of you make – the two of you together make $80,000, or does he make an additional income?

No. Well, he makes $10,000 a year on a little part-time job he does in the summer. So your household income is $90,000? Yes. Okay. Good. All right. That's what I was trying to get to.

Now, how long has the $85,000 been in your S-Corp checking account? Eight years. Okay, so you've already long ago paid the taxes on it. Yes. Right. So this is after-tax dollars sitting there in a savings account. It just happens to be down at the business. You own 100% of the S-Corp. 100% of the income passes through to your personal return.

And so anything the S-Corp owns is just yours. It's a very simple thing. It's a minor detail that it's down there. It's basically, Dave, I have $85,000 in my savings account earning 1%. Should I pay that on my mortgage? You should have an emergency fund of three to six months of expenses. You should be debt-free other than your mortgage. Do you have any debts other than your mortgage? Nope.

Okay. So let's beef up your emergency fund. $10,000 is a little thin out of this $85,000, and let's throw the rest of it at the, are you putting 15 percent of your income away for retirement um every month is different because our commission is different um what i started doing is pulling out five thousand dollars from the checking account every month and putting um two thousand on the ira $2,000 on the house because I'm sitting here going, this money is doing nothing.

What I want you to do is save $15,000 a year into retirement. Okay. That's 15% of your income. You make almost $100,000. So I want you to start saving $15,000 a year into retirement. Set that up and quit. You're doing all this gyration back and forth. This business is confusing you more than blessing you.

And so it's just you're so worried about whether you're taking a shareholder draw or income. It's just income. A hundred percent of it is income. And it's an S-Corp. This is an S-Corp that I'm operating. And no matter what I do, I get to pay the taxes on it every year. It just sucks. And so unless I put it in, you know, obviously any income I put into retirement,

I get to hide from taxes unless you're doing Roths. So you need to be putting 15% of your income into retirement. And once you're doing that and you've got your emergency fund beefed up, any monies that you have left over that you do not need to keep the business operating should be put on your mortgage. And so I'm guessing and I'm going to say you're probably going to take about 15 of that 85 and use it to get this retirement stuff started for this year because you're probably behind. And then you set up ongoing putting $15,000 towards retirement every year.

And then anything you get above that, we're going to throw at the mortgage. And in this case, we're going to take $70,000 of the $85,000 and throw it at the mortgage unless you need some money in your S-Corp savings to keep it up and running and operating. And so that's the deal. Hey, thanks for the call. Scott is with us in Georgia. Hey, Scott, how are you? Hi, Dave. It's great to speak to you. Thanks for for the call. Scott is with us in Georgia. Hey, Scott, how are you? Hi, Dave.

It's great to speak to you. Thanks for taking my call. Sure. How can I help? So, I'm sorry, I can't follow Cheryl's energy. I'm having a bit of a moral dilemma with my parents who have been losing sleep over it, and I really appreciate your wisdom here. Okay.

There's a lot to unpack. with my parents have been losing sleep over it. And I really appreciate your wisdom here. Okay. Uh, there's a lot to unpack. Um, they had been borrowing money from me up until about April. Finally gave them money. I said, I don't want it back. Just,

uh, don't come to me again. How much of that? Uh, it's like $500 at a time, but we kept pushing it back and forth. And I finally said, just keep it. Um, we, uh, we sent them through FPU earlier this year, they failed. And, um, now they're

really in a situation where I don't know what to do. My wife and I are in baby step two. We still have about $200,000 to pay off it's all student loans between us and our kids and um basically my parents are in the red every month they're elderly they can't really work um and uh how much are they in the red uh on a monthly basis, about $400. Why? What are they holding on to that they don't need to hold on to? They have a few things they can sell, but they're not really that adept at selling things online.

So we're going to be visiting them in December. I'm probably going to take a whole bunch of stuff and sell it off for them, but in the meantime, they're living on a fixed income. How old are they? About 80. Okay. I'll tell you what, I want to make sure I get this right because it sounds very, very important. Hold on through this break, and we'll dig down a little bit further and make sure i give you exactly what i would do and not try to rush it into a commercial

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Numbers don't lie. That's Zander.com or 800-356-4282. We're talking with Scott in Georgia. His 80-year-old parents are on a fixed income. They're coming up $400 red every month. I sent them to Financial Peace University, and they flunked. He and his family are trying to get out $200,000 in debt, student loans and kids' student loans. And so they're on baby step two. Mom and dad have been loaning and borrowing and giving back and all this $500 back and forth.

And that's how far we got in the conversation. Okay. Is that a fair summary of what you told me so far that sounds accurate yes okay uh so what is their income their income is exactly two thousand nine hundred seventy five dollars a month okay and what is their housing arrangement? Do they own their home? Are they renting? They have a fixed reverse mortgage.

That's paying them, and that's included in the $2,900, or it's already run out? Well, it seems like they don't have any income from it. They just don't need to make a payment. I don't think they had enough equity when they entered it to get anything. It just prevented them from having to pay anything. Okay. So they don't have a house payment or rent right now because of the reverse mortgage? They don't.

Okay. Right. So where does the $2,900 go other than food and lights and water? Okay. There's one payment that they have every month that just started in August. That's $350 a month. Their AC died. They live in Florida, so they need AC. But the AC died. It had to be replaced. That was about $6,500 that they didn't have. So they entered a lease to own contract with a subprime lender, and that's now costing them $350 a month. That gets us pretty close to balanced.

That's where my dilemma comes in. I could suspend Baby Step 2 for two months, pay that off for them completely, and free up that $350,000 a month, and then we could fine-tune their budget to get them balanced. That's where I'm having trouble. I don't know if I should pay it. I feel like I should. What's your household income? Mine is about $225,000.

Yeah. It shouldn't take you two months, but close. We're also cash-flowing to kids through college right now. Oh, okay. All right. Yeah, yeah, yeah, sandwich generation, sandwich between college kids and aging parents. Okay, yeah, I would do that, but the problem is I hear between the lines in the conversation that they're going to go do this crap again.

That's my biggest fear because they failed FPU. How do they fail FPU? What do you do to fail Financial Peace University? Well, taking out a lease-to-own contract with a subprime lender seems like a bad idea. I agree with that. That's how they failed? Are they doing a budget? Are they living on a budget?

Are they in control? Or are they just... They say they are. We went through it last night with a fine-tooth comb. There are a few things that they're not willing to give up. My mother gets a manicure once a month, and she's not willing to not do that. There are a few other things in their budget that I told them they stop right now,

such as a consolidation loan on a bunch of credit cards. I said, don't bother. They'll call you a lot, but they won't come after you. They can't. There's nothing they can do. So I freed that up out of their budget. But there's not really a whole lot of wiggle room outside of my mother's manicure every month. Where does all the $2,900 go?

What's the big chunk? The electric bill, the HLA fees where they live, life insurance. Why do they have life insurance? To pay for their final costs. What's that cost? Uh, life insurance. Uh, why do they have life insurance? To pay for their, um, final costs. What's that cost? Well, I don't know. They were talking about also going out and buying a prepaid burial, but I told them if they have life insurance, why, why bother?

Yeah. But you don't know what the monthly is on the life insurance. Um, I do. My father is paying $226 a month, and my mother is paying $53 a month. Cancel that. He may have cash value in that. That may be a ripoff whole life policy. It's not.

It's a term policy for $50,000. He's got a lot of health problems he took it out probably just about five years ago yeah unless you think he's got less than a year to live i would cancel it okay they don't need life insurance i would rather you uh take care of the cost of their burial if someone has to, than them continue to be in the red. And so you've got the income to have some wiggle room here. They just have got to start making some adult-like choices here on some of these things. I don't know what the manicure cost is.

It's probably not that much. It's not that big a deal. What's their house worth? Should they sell it? Well, the question becomes where do they go because they're not going to come live with me. That's my choice, not theirs. Okay. All right.

Yeah, I think you go down there and you sell a bunch of stuff and try to – I wonder if there's enough junk around there to sell to almost get that heat and air paid off with that. I don't know yet. I'll have to evaluate it when I see it. But the question is, should I suspend my baby step to just pay it off? Yeah, if you can get them balanced and it's sustainable because they're willing to behave. If they're not going to behave, it's just going to be you're throwing good money after bad. Now you're just giving a drunk a drink, right?

And so, you know, mom and dad, if I pay this off, it comes with rules. And the rules are we're going to go over your budget every month, and you're going to stick to your budget. And you're not going to do anything else, and you're going to cancel this life insurance. And, yeah, you give up the manicure just on principle and if you're not willing to do that you're on your own figure it out because the problem is you're not you're you're you're you're really not helping them if you're just assisting them in their delusion right if they are it sounds like they're trying to meet you here they're willing to go over their budget with you they're not being obstinate but i mean when you sit down with them and you you know um where in florida are they central florida they live in a place

called the villages i mean is that like near orlando you mean about an hour away yeah okay i tell you what what are we gonna do i'm gonna put you on hold kelly's gonna pick up and we're gonna assign a coach to you guys at our cost we're gonna pay for it and that will sit down with them and with you and we'll have a third party help you thump them and let's go let's get let's get them lined up here and get them i mean for their own good we just want them to want them to win, and they don't have dignity where they are. They always call their son and ask for money, you know? And so I think a third-party coach can help you guys. Let's get that life insurance canceled.

Let's get this heat and air paid off with your help and the sale of a bunch of junk, and let's get them on a budget and get their attitude straightened out to where they're going to live on that budget, and under no circumstances are they going to make any decisions without you and the coach approving the decision from this point forward. They're going to live on the straight and narrow. If they don't want to do all of that, don't give them any money because all you're doing then is participating in giving a drunk a drink. And that sounds harsh

but it's just you know when you are enabling someone you are not helping them and and when you're when you're participating in their insanity you are not helping them and that's not real love it's just not it's just weakness on your part because you just don't deal with it and you just go i'm gonna throw some money at so i don't have to deal with it and that's just that's coward's way and so uh it's not you're not being strong enough and so i'm with you it's it's very difficult and i'm also going to send you a copy of the book boundaries which is really what you're struggling with and i don't blame you it's a hard these are hard choices the great news is you have a great income and you have a an awakening and an awareness of this

issue for your family, for your kids, even for your mom and dad. And you're going to be able to do this. You've got the stuff to fix this. You've got the intellectual brain cells to pull this off. So hold on. We're going to send you boundaries and we're going to send you a coach. This is the Dave Ramsey show. We'll be right back. Thank you for joining us, America. We're glad you're here. This is the Dave Ramsey Show. One of the smartest things you can do with your money is to protect it. There's two parts of the equation for building wealth.

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Hi, Dave, thanks for taking my call. Hi, Hannah. Welcome to the Dave Ramsey Show. Hi, Dave. Thanks for taking my call. Sure. What's up? Okay. So we are kind of in a predicament. We owe $117,000 on our home. We have about $40,000 in car loans and about $2,000 in credit card debt.

You have $40,000 in car what? Loans. Car loans. Good Lord. Okay. And how much in credit card debt? $2,000. Okay.

And how much in student loans? None. Okay. And what other debt other than your home? Just the cars. Okay. And what's your household income? About $63,000. Okay. And tell me about the cars. Break. And what's your household income? About $63,000.

Okay. And tell me about the cars. Break them down for me. Is it more than one loan? Yes, it's two loans. We have a 16 Kia Sorento that we owe right at $21,000. And then we have a 2012 Jeep Wrangler that we owe $21,000 on as well. So $21,000 on each of them?

Yes. Okay. All right. You have way too much tied up in cars. Yes. Way out of control. I would actually recommend selling both of them. Yeah, get you about two $5,000 cars.

You should not have more than half your annual income tied up in vehicles, even if they're paid for. So that would be $30,000 worth. So if you want to keep one of these, that's fine. But you guys are car poor, big time. And you've got $1,000 a month going out in car payments. Yeah, well, we financed because we couldn't afford them. We financed them for 72 months, and one car payment is $425,000 and one is $370,000.

Yeah, kind of like $1,000, yeah. Yeah. Okay. Yeah, so my question is, I know that the cars are an issue and that should be number one, but we bought a fixer-upper, meaning that we were DIY people and we are not. So I would like to sell the house because there is equity in it as it is. But my husband loves the house and wants to stay and wants to fix it. But I don't see where I can. So where's the breakdown?

I don't understand. He thinks he's a DIY person, but you don't? He wants to fix it. I know. He thinks he's a DIY. You just said we are not DIY people. And then you said. We are.

But he can't do anything. So he's going to have to pay someone. Okay. So you're not doing it yourself, but you want to pay a contractor and fix it up. Yeah, yeah. Yeah, okay. But to look at what we need done, we need a new roof, we need new windows, we need new electrical, we need... What would the house sell for as is?

As is, we could probably get about $160,000 out of it. That's cool and take like 50 000 dollars out and get debt free and go buy a new house yeah buy a house that doesn't need a bunch of fixing up and your whole family just suddenly got stabilized right that's the way i see it um but uh because we have that does not include you keeping these insane cars, even if you pay them off their insanity. You do not want to have, listen, cars could lose 60% to 70% of their value in the first four years. You have so much tied up in things going the wrong way.

These are going down in value rapidly, and you've got over half your annual income tied up in things going the wrong way these are going down in value rapidly and you've got over half your annual income tied up in vehicles that are going down in value it's it's killing you you really can't win this way i'm not against cars i'm just against cars owning you and so even if you paid them off one of them's got to go and be you know be down to about a nine thousand dollar car on the other one because you cannot have more than $30,000 in vehicles if you're making $60,000 and prosper. Does that make sense to you? Wait a minute.

Stop. Stop. Stop. Stop. Does that make sense? Yes. Okay. So if you're willing to do that and pay off the other car and sell one, get a $9,000 car, pay off the other one,

and pay off the credit cards and cut them up and get on a budget, use what's left over to buy another house, leaving out an emergency fund, I would sell this thing in a heartbeat. You cannot afford to do the renovation. Your home is disorganized as a result of the renovation needing to be done and you're not prospering in this setting with all this chaos you've got financial chaos i just hear disorganization now all through this discussion and uh you want to get everything calmed down and settled and bubba still wants to do a swing a hammer over here and it's just not going to happen i wouldn't do it um i don't mind fixing

up a house i don't know mine owning nice cars i don't mind doing this but not when it's screwing up your life and all these things are screwing up your life and you are you figured that out so yeah you win the argument you do need to sell the house but only if you're willing to do these other things because the house is just part of the equation. The cars are part of the equation. The stupid overspending and using credit cards is part of the equation. The no budget is part of the equation. The no emergency fund is part of the equation. All of that.

And when you do all that and smooth all that out, all of a sudden you're going to feel like you have a completely new life here, and it's going to be a better life. Hang on. I want to send you a copy of the book, The Total makeover both of you read every word and do it and i will show you how to be in a whole lot better place two years from today good questions thank you for calling in open phones at 888-825-5225 james is with us in florida hi james how How are you? Hey, Dave. I'm doing great. Thanks for taking my call. I appreciate it. Quick question. I had a question. Me and my wife, should I freeze my

credit? We started your program three months ago. Since then, my credit's dropped like 30 points because I've paid my cars off, have no credit cards, have our emergency fund. We're on step six. Awesome. And we don't plan on buying another home for like five years. We currently have about $40,000 in equity in this one. And we're going to basically get this one paid off. What would be the downside to freezing your

credit? Why would you not? I just never thought about it. What would be wrong? What detrimental would happen if you did freeze it? I'm just afraid of when I reopened it, was there any effects of not having credit for five years?

I guess that would be my biggest concern. You don't have to freeze it to have that problem. All you have to do is quit using credit, and you'll have that problem. Yes, and that's what we're running into. I pay my car loan off and don't use credit cards now. I know, but my point is you're going to have that problem anyway if you get out of debt. Gotcha, okay. And the problem is solvable.

If you get ready to buy a house, you use manual underwriting with Churchill Mortgage, and they can walk you straight into another house as long as you you know just if your credit becomes indeterminable because everything's closed except your house payment or whatever so yeah in freezing it it just keeps some of the id theft away and so if you're not going to be using credit I would freeze it. our scripture of the day psalm 34 18 the lord is close to the brokenhearted and saves those who are crushed in spirit marianne rodmacher said courage Courage doesn't always roar. Sometimes courage is the quiet voice at the end of the day saying,

I will try again tomorrow. That's true. Josephine in South Dakota. How are you, Josephine? Hi, I'm good. Thanks for taking my call. My pleasure. How can I help?

I just started listening to you, and my husband and I just got married, and we've both been relatively wise with our money, so we're debt-free. Good. Yeah, it's been great, and we actually just bought a house together. But our long-term plan is to be missionaries overseas, and we're hoping to leave the U.S. sometime within the next five or six years. And my question is, should we, we have a little bit in savings for emergencies and we're trying to figure out what we're going to do financially, but we're wondering if we should focus on trying to pay off our mortgage before we go overseas or if we should um just continue to pay our mortgage while we're overseas we'll have a salary while we're overseas um and we plan to retire in south

dakota um so we kind of wanted a place to come back to once we're home so how long do you plan to stay on the mission field we want to be missionaries, so we're planning to stay overseas until we retire. I would sell the house then. Right now or when you leave? No, when you leave. No, when you leave. I wouldn't keep a home for 20 years when you're in another country. It's just too hard for me.

You're thinking about renting it out yeah you don't want to you don't want to be a long a landlord while you're in whatever country that's his family lives here and i don't care you do not want to be a landlord while you're in another country i've been a landlord for 40 years you do not want to be a landlord when you're in another country okay you do not want to be a landlord when you're in another country okay you do not want to be a landlord when you're in another country someone will change their harley oil in your living room and you're in africa you know it's just not it doesn't it you know it's you're better off to have investments that don't require attention like good mutual funds and so forth. And so I would aggressively pay down the home and build savings during the next five years

so that the savings will allow you to go on the mission field plus the home, the money that is freed up when you sell the home as a result of the home going up in value and you paying it down. Those two things will allow you to, you know, have a bit of a nest egg that could be part of your support while you're a career missionary. Of course, you're going to raise support and have a salary and other things as well, right? Yeah, the salary will be paid by the organization that we go with. Okay, cool.

Well, it's a wonderful calling on your life, and it's a wonderful calling on your life and, um, it's a special calling and don't do things that, um, you don't want to do things that, that, uh, hinder or cause bumps in the road or, uh, you know, any, any kind of hindrance is really what it amounts to, to that calling. And, uh, you know, a renter in South Dakota and you're in Africa that would hinder you. That's just not a good plan i like rental real estate but i like it where i can lay my hands on it and it's close and we can watch it and all that kind of stuff even if his family's there i appreciate that hey thank you appreciate the call open phones at 888-825-5225 k Kathy is with us in Maryland.

Hi, Kathy. Welcome to the Dave Ramsey Show. Hi, Dave. Thanks for taking my call. Sure. What's up? So my question is, I recently inherited a large sum of money, and I paid off everything, all our debts and everything.

Wow. And I have... How much money did you inherit? $1.1 million not bad uh yes i paid off our house i we actually still owe 40 000 on a heloc but that is um my husband is supposed to pay that off your husband's supposed to pay that off yeah i mean he'll he'll be paying it off shortly. It's a long story.

But anyway, I mean, I could pay it off. I did pay off our house. Okay, so you're debt-free, and you have how much money left? Well, I have invested $250,000 in Allianz, and then I have $50 thousand dollars each in two weeks um i maxed out both for my husband and i are ross ira so how much do you have in investments total investments uh about 425 okay so you had 600 000 on your house uh no i well i also bought uh the reeks i we i bought another house i actually bought a vacation home oh okay that we are my we will be retiring in um so we i bought that i paid

cash for it and uh i have about seventy75,000 in savings. And so I have $75,000 that I was, I keep going back and forth about, I have seven grandchildren. I was going to do the 529. One of my adult children didn't want to do that because she felt it would keep them from getting student loans when they go to college. So then I was thinking. So is that adult child poor? No, they are not. Well, it won't keep them from getting. It won't keep them from getting.

Listen, the only stuff that is based on the fact that you have assets is for poor people. Okay. And so she's full of crap. She doesn't know what she for poor people. Okay. And so she's full of crap. She doesn't know what she's talking about. Okay. Well, I went back to doing the five. I'm just wondering. Yes, I would do.

If you wanted to do seven 529s, I would do 10,000 each, one for each kid in a 529. That's what I was doing. Yeah, you can even set yourself up as the custodian if you want to. I am. I am setting myself up as the custodian if you want to. I am. I am setting myself up as the custodian, and I'm trying to do everything evenly across the board. So that's what I thought would be best,

but I didn't know if there was anything out there that would make more money than a 529. Yeah. If a child has the money to go to college, they don't qualify for poor people's stuff. Okay. That's the way it's supposed to be. If you have a job, you don't get unemployment or welfare. Right. That's the way it's supposed to be.

Would you say that's the best investment? I think it's awesome. A 529 and good mutual funds would be great for your grandkids. And what a wonderful gift to give each one of them $10,000 and you to manage it and make sure that it's going to go to college and that it's going to be properly handled. Well done.

Yeah, that's a wonderful, that's a great start for them. Well, I started doing, I started, I was on baby step, I don't know, maybe four. Yeah. And then my dad passed away. Yeah, suddenly you're at seven. Yes. So all of a sudden now we're actually, you know, good. But I appreciate everything that you get out there,

and I've given all my kids your book. Yeah, I think what you ought to do, I'll send you a copy of Anthony's book, Debt-Free Degree. It's a number one bestseller on how to go to college debt-free. And I think you ought to give each one of them a copy of that when you give them the $10,000 so that they follow through. Because the $10,000 is not going to be... Well, they're young. My grandkids are between one and seven. Not the kid to read. The parents read.

Oh, the parents. Sorry. That's okay. The parents read. The parents read how to send their kid to school debt-free, and they can work in conjunction with their mother then that is giving them $10,000 to cause that to happen because $10,000 is not going to be enough to cover all of college. They're going to have to do some other stuff to get there, and you don't want this to cause them to go into debt

because they got $20,000 or $30,000 or $50,000 bucks or whatever, and they go another $50,000 or $100,000 in debt. So we want to put debt-free degree with this, the mentality of we're going to send these kids to school debt-free. So working with your kiddos so that your grandkiddos' life is actually changed. In other words, we don't want this 529 to be a prompt that causes them to end up in debt because it won't quite be enough.

But it's a really, really nice start with young kids. So, yes, I would do that. Hold on, I'll have Kelly pick up. We'll send you a debt-free degree book and get you going. That puts us out of the Dave Ramsey Show in the books. Our thanks to James Childs, our producer, Kelly Daniel, our associate producer, and phone screener. I'm Dave Ramsey, your host. We'll be back with you before you know it.

In the meantime, remember, there's ultimately only one way to financial peace, and that's to walk daily with the Prince of Peace, Christ Jesus. check out our show page at DaveRamsey.com slash show.