The Ramsey Show - App - Why Paying Off the Highest Interest Rate Doesn't Work (Hour 3)

Episode Date: January 14, 2019

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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. September 22nd of last fall was the 30-year anniversary of me filing bankruptcy because I was stupid. 30 years ago, I went broke because I was stupid. You ever done something stupid? If you didn't raise your hand, you're stupid. Because you've all done something stupid, and I've done something stupid. The trick is to not do the same stupid thing twice, because it hurts when you do stupid.

It leaves a mark. I went broke because I borrowed too much money, and on top of that, I did it poorly. I had a lot of 90-day notes. I was doing Flip This House before there was cable TV to tell you how. And our bank got sold to another bank, and they called our notes, and we over a two-and-a-half period, two-and-a-half-year period, lost everything we owned.

When we hit bottom, we had a brand-new baby, a toddler, a marriage hanging on by a thread, and I was 28 years old. And I started studying what the scriptures say about money because I was a new Christian and there's a lot of scriptures that talk about money like 2,500 of them in the Bible and I started studying old rich people I did not want young rich people's opinion I had been him I was a millionaire making $250,000 a year at 25 years old in 1985

dollars. I didn't want his opinion. He thought he was hot stuff. And he wasn't. He was just a hot mess. I didn't need his opinion. So I talked to old people that had money. And I looked at the Bible, and they said the same thing, slow and steady, live on less than you make, live on a plan, and avoid debt. By the way, when we just finished this study of 10,000 millionaires,

you know what they did? Slow and steady, lived on less than they make, invested steady, invested steady, and avoided debt. Your most powerful wealth-building tool is your income. And when you don't have any payments, you can build wealth. But when you give it all to car payments and student loans, Sally Mae payments, Sally Mae's got her own bedroom at your house, and you continue to use Discover Card because you're so stupid,

you think points are going to make you rich. Citibank, what's in your wallet? Money. I quit borrowing money. The borrower is slave to the lender. 100% of the biblical references to debt are negative. It's not a salvation issue, and it's not a sin. It's just biblically and commonsensically stupid.

Because when you don't have any payments, it's fairly easy to build wealth. So how do you get out of debt? Well, I'm a math nerd. I have all these letters and licenses after my name that says I'm supposed to know something about money. I dropped all the licenses because they tried to tell me what I could say on the radio, and I don't sell any of that crap anyway. So we're out of the license business, but I've got all the letters after my name, all that stuff.

It says you're supposed to know something about money. So as an official math nerd, I knew the proper way to pay off debt was highest interest rate first because that's mathematically correct, and everyone knows this is a math problem until I started doing coaching with people 25 years ago and started showing people how to get out of debt and showing people how not to lose their home when they're in foreclosure and how not to lose their car when they're in a reposition and how to get the credit card off their back when they're four months behind and get caught up and get paid off.

I started figuring out this thing about debt reduction was more about my behavior than it was about math. The problem with your money is the guy in your mirror, the gal in your mirror. The problem with my money is the guy I shave with. He's got problems. If I can get him to behave, he can live on less than he makes and get out of debt and build wealth. But it's a behavior problem.

And guess what? You don't solve a behavior problem with a math solution. You solve a behavior problem with a math solution. You solve a behavior problem with a behavior solution. And that's when we came up with and started using the debt snowball, which has been roundly and widely criticized by math nerds everywhere as not being mathematically correct, as if we didn't freaking already know that. You doofuses. Seriously.

The debt snowball, the only problem with the debt snowball is, it works. The paying off the highest interest rate doesn't work, because people don't stick with it. When you pay off your smallest debt, you get excited and you stay with it. When you pay off your next smallest debt, you get excited and you stay with it. When you pay off your next smallest debt, you get excited and you stay with it. When you pay off your next debt, you get more excited

and you cut deeper and you sacrifice more and you work harder. The more progress you make, the more excited you get, the harder you push. People losing weight, they lose one pound, they get excited. They lose 10 pounds, they start to get real excited. When they've lost 30 pounds, they are on fire. You can't tell them nothing. They lose 10 pounds, they start to get real excited. When they've lost 30 pounds, they are on fire. You can't tell them nothing. They know everything. And you know why? Because they're having an experience.

And a man with an experience is not at the mercy of a man with an opinion. You can write a blog about Dave Ramsey and all the things that are wrong with him and post it as clickbait from your mother's basement if you want. But at the end of the day, I've gotten more people out of debt than anybody else on this planet. Because I've gotten more people out of debt than anybody else on this planet because I've shown more people how to do it, and I've taught them how to do it. And this freaking works.

It's that simple. So Northwestern University in Chicago decided they were going to study the proper ways to get out of debt. The conclusion of their study was the debt snowball works because it's behavior-based, better than any other method. People actually have a higher probability of completing the plan and of continuing on

the plan and of getting more intense and actually getting out of debt faster than when they did it mathematically correct. Then Time Magazine picks up that story and says, turns out Dave Ramsey was right. After I'd already gotten 5 million people out of debt, they figured that out. Thank you for your research. It's kind of funny, actually, if you think about it. Who was it that taught me to go into debt? That would be my finance professor in college that taught me the power of using OPM, other people's money, the power of leverage.

Oh, Dave, I'm going to borrow money on my OPM, other people's money, the power of leverage. Oh, Dave, I'm going to borrow money on my zero-turn lawnmower at 0% interest so that I don't have to pull my money out of my bank account at 2%. People do stupid analysis like that when they don't look at debt properly. And that's a stupid analysis. It really is. Because you're going to end up with a debt on a zero-turn freaking lawnmower. Give me a break. Seriously, you might be a redneck.

Oh, my gosh. Hey, I've done so many dumb things, I can see dumb a mile away, y'all. I got a PhD in DUMB. So I'm not picking on you. I'm just picking on you. Because I know what works. And it's not arrogance. It's experience.

Decades with millions of people experience. So you list your debts, smallest to largest. You pay minimum payments on everything but the little one. And you attack the little one with a vengeance. When the smallest debt is gone, you take the payments you used to pay there and you attack the next one down. If you want some help doing this, I'm going to set you up with a three-day

free email series on getting out of debt. Just go to DaveRamsey.com slash snowball and you can get the brand new free three-day email series on getting out of debt. DaveRamsey.com slash snowball. This is your time. This is your year.

You've got to wait for it. It's time to get started. You hear all these other people doing it. When are you going to do it? DaveRamsey.com slash snowball. A free, three-day email series to help you get going. Are high health care costs getting you down? Are you confused trying to navigate your options?

Do you wish you could find an affordable, biblical solution to your health care costs? Based on New Testament principles, Christian Health Care Ministries, or CHM, helps Christian families, churches, and ministries join together as the body of Christ to share their major health care costs. Christian Health Care Ministries is the original health cost-sharing ministry. A Better Business Bureau-accredited organization, CHM members share to pay each other's medical bills. It's not insurance. It's Christians financially and spiritually supporting each other. It's what Christian Healthcare Ministries has done for

over 35 years, and our members have shared over $2.5 billion in medical bills. To learn more, visit chministries.org. That's chministries.org. Christian Healthcare Ministries is a proud sponsor of Dave Ramsey Live Events. chministries.org. Thank you for joining us, America. We're glad you are here. Jack is with us in Colorado Springs. Hi, Jack. Welcome to the Dave Ramsey Show. Hi, Dave. Thanks for taking my call. I'm looking forward to the Smart Money event this Thursday.

Awesome. It's going to be great. Hogan and Anthony are on fire right now. You're going to have a great time. Oh, yeah. I'm sure it's going to be awesome. So I just have a retirement question for you. I'm 29 and I'm finally baby step four where I can put in 15% of my income into retirement. My company is a little unique because what they do instead of a consistent year match, it all depends on how they do at the end of the year. So this past year, whatever I put in, they put, they matched 20% of that this past year. And in previous years, sometimes if it's been a bad year, it's 10%. Other times it's 50%.

So it really fluctuates a lot. So I was just wondering what your opinion is. Should I stick with the investment options that they give us? We only have about 30 to choose from within the accounts that they make available to us. Or do you think that I should kind of explore other options? Is it a Roth? Is there a Roth option to your 401k? So I've actually been maxing out my Roth over the past few years. No, I'm talking about your 401K plan.

Yeah, we actually just, as of New Year's, have an option to do a Roth 401K now. And the match that's optional, the amount that's variable, is in the 401K plan, correct? Yes. Okay, good. Yeah, I would do your Roth at your office and get that match um my roth 401k yes roth 401k match, which is the average of what you told me. You said 10, 20, and 50. So let's say a 30% match.

That would be 3% on 10,000. So you'd make 33% on your money before you started. You'd make 10% on your money before you started, or you'd make 50% on your money before you started. You make 10% on your money before you started, or you make 50% on your money before you started. That's what the match does. See, before the mutual fund does anything, the match has already given you a rate of return. You follow me? So I think I probably would just put it all in the Office 401K. If they're going to match the whole thing, then put your 15% in there.

If you need to do more than you're allowed to put into that, then obviously a traditional Roth IRA, a regular Roth IRA individual account would be fine. But I would do a Roth there and I would get all of it. Unless the investment options are just horrendous. If they're good, though, you make 10% on your money before the rate of return does anything. You're going to make more with that match than you are with your mutual funds, probably, even if they're decent ones. Because, I mean, they've got to only average better than 12% on what they give you every year. And you said there was one year was 10, one year was 20, and one year was 50 already. So if the company is pretty stable and you think those kinds of matches are going to continue at that level,

10% or greater of what you put in, I'm going to put it all in the company, at least the first 15%. And then if there's more that you can do or should do in order to get your Baby Step 4 fully funded, then you would go on and do regular Roth IRAs. Emily is with us in Madison, Wisconsin. Hi, Emily. How are you? Oh, my gosh. Super excited.

Well, I'm honored. How can I help? Okay, so long story short, I'm very low income. I'm working a plan going back to school to try and pay my own way. But anyways, I heard about a plan called Habitat for Humanity. I went to the input session and found out how you get an affordable mortgage through them. They actually make you take out two mortgages. One is called a silent mortgage, and as long as you live there, you don't have to pay it back.

But to me, that felt kind of like I'd be getting it. I'm like a few years away from that point, but like I'd be getting into twice as much house debt as would be wise. Well, if you're not, the Habitat, the vast majority of what you owe, you owe nothing on it as long as you live there, as you said. So that doesn't bother me. Yeah. That part of the house doesn't bother me.

The only part that bothers me is the amount you have to pay. And it sounds like right now you're not in a position to do that, right? Not yet. I was thinking for a few years out. Yeah. Well, so what are you studying in school? Medical coding. Okay. Well, so what are you studying in school? Medical coding. Okay.

And how old are you? 27. Okay. And what have you been doing for a living? Let's see. I've spent some time as a student. I was working for the state for a while. I became a single mom three and a half years ago,

and so work has been kind of difficult since then. And my daughter has special needs, so she has 40 hours a week of in-home therapy that I now have to be present for. So my thought is going back to school. I'll graduate in a little less than two years, at which time I should be able to get a job right away. But how are you going to get a job if you've got to be at home 40 hours a week? Well, at that point, she'll be in kindergarten. And so then she'll be getting all her therapies for the school.

And so while she's in school, I could go to work. But in the interim, I have to be home. and i don't want to be at home doing nothing i want to be moving my life forward so medical okay you do not need to think about a habitat house you don't need to think about a house you need to rent as cheaply as you can or stay somewhere with family free until you get through this storm that you're in, which is finishing school and being available for her. And the only thing that is available to you is while you're doing school and while you're doing the therapies at home.

As you said, you have to be there, but maybe there's a side hustle you can develop to do something from home. Can you do the coding at home? Yes, that's an option. So why will it take you two years to finish that? Well, I have to get through all the schoolwork first. I have to graduate, I have to get the credentials, and then I can start the medical coding.

The schoolwork, your GED? No. It doesn't require a four-year degree it doesn't require a four-year degree to be medically to do medical coding i know it's less than two years of college so like i they require two years of college to do medical coding coding um it it can be condensed into 10 months but i was planning on doing it on a part-time task because my learning disabilities so that i can like get through it oh you you have a learning disability i do as well yeah school work usually takes me at least twice as long as the average person okay that makes more sense than two and a half years to do medical coding,

which usually does take less than a year. Okay. That's fine. Yeah. All right. Then you've got a game plan, but let's just take the house off the table and not worry about that. Let's worry about your child and your career track for now.

And then once you get the career going and you get her into kindergarten, then we can start talking about next steps towards being debt-free, building an emergency fund, towards buying a home at that point. And maybe then Habitat comes into play. Maybe it doesn't. Maybe you just save up your money and buy a house. That may be what you're able to do if you can get where you can do something from home while you're doing this schooling and not delay your degree, not delay your certification, then I would. If you find anything that you can do from home to earn some extra money, a side hustle,

and that kind of a thing will help you. So, hey, good luck with it. If I can help you further, you call me anytime. Sounds like you've got your plate full, kiddo. Open phones at 888-825-5225. Dave, can you explain the gift tax to me? My husband received a gift worth about $20,000. We're concerned about having to pay tax on it.

It's not cash. It is a car. If a car was given to you worth $20,000 by an individual, you don't have tax on it. They have a gift tax on it, potentially. And anything over $15,000 is taxable now. And it's by the giver, not the receiver in this case. If it was given to him like he won it on a game show, well, then it's considered income. It's income tax.

It's not gift tax. That kind of a thing. This is the Dave Ramsey Show. I had a conversation with a friend recently, and he told me about a young man in his late 20s who died suddenly with no life insurance. Now, I don't want to sound unsympathetic, but this drives me crazy. What are people thinking? I don't understand how taking care of your family isn't a top priority. Most of you probably just spent a bundle on Christmas on things you didn't really need,

and now you're making New Year's resolutions that are focused on yourself. But if you've taken the time to do something really important like protect your family, if you want to use the New Year as a reason for doing something right, then do it. Term life insurance is something every family needs, and that's why I talk about it every day. It's not complicated, it's not expensive, and you need to do this right now. Zander Insurance is the only place I recommend. Visit zander.com or call them at 800-356-4282. Please learn from other people's mistakes and get this taken care of. Zander.com. Thank you for joining us, America. We're glad you are here.

Kevin and Lena are in Canada. Hey, guys, how are you? We're great, Dave. How are you? We're really excited to talk to you today. Well, you too. Welcome. I see are you? We're great, Dave. How are you? We're really excited to talk to you today. Well, you too. Welcome. I see on my screen you're debt-free. How much have you paid off? We paid off $30,000 in 10 months. Very good. That's okay. Cool. $30,000 in 10 months. Making what range of income during that 10 months? It was approximately $108,000 to $118,000 Canadian.

Great. And what do you guys do for a living? So I'm a coach technician for a local transit company. And I'm a consultant, a patient experience consultant for our local community hospital. Cool. Way to go. And you paid off $30,000 owed on what? What kind of debt? Well, Dave, we did stupid on steroids the first 10 years of our marriage, but this last little bit, this last $30,000 was on. We had to have the roof done in the house.

We had a window in the front of the house that was leaking. One of our cars let out, so we ended up having to buy what would later be known as our Dave car. And just lots of odds and ends. At one point, we decided that we deserved a trip to Disney, so all of this went on the line of credit. And we just decided it was time to pay it off. Wow.

So what happened 10 months ago that flipped the switch? Well, actually, it's funny. So we were on that trip to Disney after spending all this money on the home equity line of credit, and we were traveling to and from, and Lena and I had got into listening to Josh and Ryan, The Minimalists. I've seen them a couple of times. And so they mentioned this guy, Dave Ramsey. I'd never heard of this Dave Ramsey guy before, because it's not well known in Canada. But so when I came home, as soon as we got home, I started listening religiously. I listened to all three episodes of the podcast every day, to and from work. And I came home and mentioned it to Lena. And we tried to get Financial Peace

University, but unfortunately, we can't get it in Canada. Right. So we ended up having to just go, we went and grabbed Total Money Makeover, and Lena and I sat down every night, and we had some tea, and we read it aloud to one another, and within about a week we were done the book, and we started our budget, and it took about three months to dial in the budget, and we were well on our way. Wow, just like that. Good for you. Well done, guys. So what do you tell people the key to getting out of debt is? So definitely sticking to the budget.

So it took us actually about three months to figure out the budget and get it to the sweet spot for us, what worked for us, where we weren't dipping into extra or running short one month or something. So we were able to balance our budget. That took us about three months. But once we got to it, it was really about sticking to it and communicating with one another on every purchase. Even if we had to look at our budget daily, we would sit down and say,

okay, this is what needs to be bought. You know, what envelope is it coming out of? How much is this going to cost? And ultimately it came down to saying no. Sometimes we just absolutely had to say no. But we both took on extra jobs during that time, and it turned out that every little bit does count. So even if it was $20 or $30 putting towards the debt,

if there was $30 left over here or a little bit left over from grocery money, it all went towards the debt. Wow. And that really helped paying it off. And I guess the bottom line is it comes down to being really intentional about where your money is going. The other thing I wanted to mention was it was important to us that we got the kids on board.

Our kids are 10 and 8, and explaining to them what debt is and why we're doing what we're doing and why Mommy and Daddy are working so many hours, and explaining to them why their friends are able to go on these fancy, expensive vacations, but we're just working our butts off over here trying to get ourselves out of debt. That was a big thing for them, and we actually read Smart Money with Smart Kids as well, and we put them on commission uh you and rachel mentioned it in in your book and uh they've been really receptive to

it very cool well way to go man congratulations you guys who was your biggest uh cheerleader uh i guess definitely uh my parents were big supporters of ours. They really, you know, helped us out with daycare, you know, free grandma and grandpa babysitting, which was a huge thing for us, especially during the summertime. Summer camps can be extremely expensive, and Kevin and I were, you know, needed to work. So they were so great. They loaned us some of their chairs when our furniture broke, and we weren't ready to to buy anything new at the

time uh you know we're just so gazelle um so they've been a huge a huge supporter but i think overall we you know explained it to a few friends and some other family members and we got a few odd looks and a few people asked us well why would you even do that or why not just use your home line of credit and like well that's what got us here in the first place why not just stay in debt forever yeah yeah exactly people ask some dumb questions don't they oh yeah i know i know for sure well congratulations you guys we're very very proud of you one thing we one thing we can't mention one other thing sorry my little guy dylan listens to your podcast with me all the time he can recite your monologue that you open up with. And we really wanted to come down and see you guys,

but unfortunately we're still trying to fill up our emergency fund. So we will be down, and I promised him one day he would get to meet you. So we hope to be down there in the next year or so, and hopefully me in the lobby. Absolutely. I will look forward to that. That will be fun. You just remind me we talked about it, especially when you come down. So cool. Very cool. That would be great. Look forward to that. That will be fun. You just remind me we talked about it, especially when you come down.

So, cool. Very cool. That would be great. Look forward to meeting you. It sounds like you guys have had a complete transformation in 10 months. Oh, Dave, it's incredible. It was funny. When we first paid it off, Lena said to me, I don't really feel any different. But when you start to notice as you start to build your emergency fund and it keeps building and building and building

and you're not paying money out to people it was just a complete life transformation changes everything wow absolutely change your family tree right amen well done guys very very well done all right kevin and lena in canada thirty thousand dollars paid off in 10 months we got a copy of chris hogan's everyday millionaires we'll send you because that's your next story in next chapter in your story so count it down let's hear a debt-free scream you ready guys yeah three two one oh i love it man that's how it happens man. That's how it happens right there. That's how it happens.

So when I'm talking about the debt snowball, and I'm talking with people getting out of debt, and they're doing their budgets, and they're living on a plan, and they're in control, and they're being grown-ups, a large percentage of them have gone through Financial Peace University. Now, Financial Peace University is a nine-week class. It's taught locally in your area. You can sit in on the class. And right now, when you buy Financial Peace University, we give you a one-year membership to Financial Peace.

Now, the one-year membership to Financial Peace is all of the online stuff. It's every dollar plus which connects to your bank. That's about a $120 item. It's the Legacy Journey class and all of Financial Peace University online. You can watch it, listen to it, however you want to do it. It's all available to you online. And that's about a $300, $350 item. The Smart Money Smart Kids that they reference,

Kevin and Lena said they read the book and started teaching their kids. Well, there's a course that goes with that book, the Smart Money Smart Kids course, teaching your kids how to handle money so that your family tree is changed, taught by Rachel Cruz and a little bit by me. That's all in the membership online. The community is huge, and the accountability encouragement is fabulous online. We're going to be putting a bunch of the streaming of the live events in there online. The debt snowball tool is in there online.

All part of your Financial Peace membership that is free for the first year when you go through the class Financial Peace University, the nine-week class. If you want to get signed up for one in your area and get all of that online stuff going on, just check DaveRamsey.com, click on Financial Peace University, look at your schedule, see when you can start. And, you know, if you've got a military family or one of you travels, you just want to go to the class, the other one, follow along online. You watch all of it.

All the videos are there. You can use that as your homeschool idea if you want for your home study, rather. Not homeschool. It's not for kids. But, you know, there you go. It changes everything. Financial Peace University and Financial Peace, the membership, free for a year at DaveRamsey.com. Our scripture today, Psalm 46, 1 and 2. God is our refuge and strength and ever-present help in trouble.

Therefore, we will not fear, though the earth give way and the mountains fall into the heart of the sea. My friend Craig Groeschel says, The pathway to your greatest potential is often straight through your greatest fear. Patty is in Raleigh, North Carolina. Hi, Patty. Welcome to the Dave Ramsey Show. Thank you, Dave. Wow.

Yeah, my question, I was looking at my rollover IRA, and I'm looking at the asset allocation breakdown. And one of the sections says I have a, it's broken down. I got a bank loan in there. You have a bank loan? Yes. You owe money on your IRA? No, no.

When I'm looking at the breakdown, like the global balance in the large U.S., one section is bank loan. You can't borrow on an IRA. How do you have a bank loan? I didn't borrow on it, but one of the breakdown sections, 8.43%, says bank loan. I don't know what that means. I mean, I guess you need to talk with your investment advisor that generated this report. Are you doing your investing through a bank? No.

No, I have a financial planner. He is one of the financial guys at my church i i took this and i showed it to my fpu coordinator and he says he thinks it's a cash equivalent or something but i have a section there that's cash equivalent which is 4.86 why haven't you why haven't you called your financial planner? I stopped by his office this morning. He was not available. Oh, okay. His secretary took a message. Good.

I sent him an email. If you can't get a response, you need a new financial planner. But if they're not responsible, I'm responsive when you've got a question about something. But, yeah, I have no idea what it is um unless you took out a bank loan but i don't know i i don't know i don't know what's going on here i guess you need to find out what it is i'm sorry you shouldn't have a bank loan and because you're not a bank and you're not making loans and so we know you didn't do a bank loan meaning you weren't the lender. So it makes it sound like that there is a banking institution that you're working with and you have a loan out with them.

That's what it sounds like. But it also sounds like you don't think you have that. So I don't know, kiddo. Just going to have to get at the bottom of it with this financial planner. And it is not a synonym for cash equivalence. A bank loan is just what it says it is. It's a loan from a bank. That's what it is.

Mark is in Boise, Idaho. Hey, Mark, how are you? I'm doing great, Dave. How about you? Better than I deserve. What's up? I had a question about a medical settlement my four children are receiving due to a automobile accident and uh just kind of wondering what my options were um the three of the children will

be receiving seventeen thousand dollars and one of my children will receive sixty seven thousand dollars okay um well it depends on if the court puts any restrictions on you or not but uh from a moral standpoint uh the proper thing to do would simply be to open investments in the children's name with you as the custodian hopefully you're allowed to put that in a good mutual fund or two or three so that it will grow uh sometimes courts are so short-sighted and stupid that they require you to put it into a cd and you make no money on it um but um you know they overreach what i think is their rights but they do it all the time so uh they're trying they're doing it in essence trying to protect the child from the parent putting it in some stupid thing

like bitcoin or something but mutual funds are a far piece from Bitcoin. So you put it in a conservative investment on the behalf of the child, opening the account in the child's name. When you open an account in a minor's name with yourself or someone or an adult as the custodian, it's called an UTMA, U-T-M-A, Uniform Transfer to Minors Act. But that's the same thing as if you open a bank account at your local bank for your kid to have a savings account. It's the same thing. A minor cannot technically do contracts in any state.

So they cannot open a bank account. They cannot open a mutual fund account. So you open one on their behalf in their name with an adult as the custodian, and that sets everything up. And hopefully you can do that in some good mutual funds. If the court will allow that, sit down with your broker. If you don't have one, click SmartVestor at DaveRamsey.com and fill in the information there.

It will drop down the list of the SmartVestor pros in your area. You can interview them all or talk to them all or whatever you want to do and decide among them which one you want to use to do your area, you can interview them all or talk to them all or whatever you want to do and decide among them which one you want to use to do your investing. And that would include, in this case, your children's investing. And it sounds like you guys went through a horrendous car wreck. I'm so sorry. I hope everyone's okay. Ashlyn is in Dallas, Texas.

Welcome to the Dave Ramsey Show, Ashlyn. Hi. Thank you so much for taking my call. Sure. What's up? So my husband and I are 26 and 27. We have a two-year-old who will be three this week. And we are currently really on baby step three.

Like I just kind of, my dad showed me, you guys helped him get him and my stepmom get out of debt a while ago, and now they can afford everything. It's awesome. So I'm trying to kind of follow in those footsteps. So I'm really new, but we really, like we both have two kind of beater cars already. We just haven't traded them in or anything, and we really don't have any debt. So we're really on baby step three already, and we just really started. Good.

Great. So, yeah. So we have just a tad bit of money saved up, but we are looking to possibly get a house. It'll be our first house. Good. So I'm not sure how you feel about this. I tried to kind of go back through the history and see, but we're looking at either doing, you know, like a first-time homebuyer where there's like zero down or like a USDA loan because we live really in East Texas. And instead of, you know, buying a house and then, you know, having the, you know, 20% down,

we just thought maybe we would get a cheaper house um with the zero percent down so it's like we put down the 20 almost if that makes sense um so oh no it doesn't make sense um okay so like instead of getting i understand what you're saying it's just okay it just doesn't work okay so you're getting started well way to go good stuff what's your household income? So my husband works. He just started in his field about a year and a half ago. So he's about 46 a year. Yeah.

Are you working outside the home? I am not. I stay home with my two-year-old. Okay, cool. So here's the thing. Here's what we teach folks to do. You've already got your hands on most of it, and that to be debt free first and you're there and then build your emergency fund of three to six months of expenses that's called baby step three the next thing we teach people to do is to save up your down payment

on your house and or that's the point you might move up in car a little bit if you're going to move up in car you're going to do that with cash because we're not borrowing money anymore. If you want to move up in car before you start saving for your down payment on your house, that's fine. I would not do a nothing down deal on a house. The first time home buyer programs, many of them are fine. But you need to put something down on the house. Doesn't have to be a lot, but you need to put something down. And house, okay? It doesn't have to be a lot, but you need to put something down. And I would not do a USDA loan.

That is a subsidized loan, and they recoup 100% of what they give you in the event you try to refinance or sell the house. And I've had that come back and bite our listener many, many times. You can get really, really stuck in one of those loans because of the recoup on the subsidy, meaning a payment is X or Y, and a portion of that payment, they are paying for you, and that's the subsidy portion. That builds up in an account against you for when you refinance or when you sell, and it can really trip you up later, so I would avoid that.

But it sounds like you've got a good plan overall. You're thinking. You're moving in the right direction. Hold on. I'm going to send you a copy of the book, The Total Money Makeover. It will show you exactly how to execute this, and that will be my gift to you. And congratulations on the two-year-old. Life is good.

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

show notes section. Thanks for listening.