The Ramsey Show - App - Why You Shouldn't Pre-Pay for College (Hour 3)

Episode Date: February 14, 2020

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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 am Dave Ramsey, your host. Thank you for joining us. Open phones at 888-825-5225. That's 888-825-5225. That's 888-825-5225. Michelle starts off this hour in Nashville. Hi, Michelle. Welcome to the Dave Ramsey Show. Thank you for taking my call.

You are definitely my mentor. Well, I'm honored. How can I help today? I got a question. I am starting a new life. I'm debt-free. I have a home that I have listed for sale for $449,000. And I have some income property that is also paid for cash that gives me a couple thousand per month income.

And I am looking at moving from the Nashville area to Florida and want to start a catering business. And you need commercial property. They won't let you do it in a residential property. And the commercial property that I'm looking at doing this in is $150,000. I have probably $100,000 cash in the bank. So thinking about putting $50,000 down, taking out a $100,000 loan, and as soon as my house sells, paying that off. And I'm also not buying a new house.

I have a situation with a friend where for less than $600 a month, it covers all my utilities with beach out the front door, lake out the back door. So, you know, I'm going to be investing you know the other 300 000 and i'm one side of me says you know if you take that you're a slave to the lender but on the other side it's stopping me from making a really good income no it's not uh you don't have to buy real estate to go into the catering business you can just rent i but it's it's over 2,000 well the closest one i found was 2,500 per month and they require a two-year lease and i can buy this commercial property for 150,000 so not that i think my catering is

going to fail or anything but i still would own the property then having that. And my choice would have been to do it out of my residential place, but I've already checked and they won't give you the license for it. It has to be commercial property. Yeah. So that's not logical that a property that is only worth $150,000 rents for $2,500. I know. Where does that happen? I know. Nowhere does that happen.

I know. You've got some bad information. This is Panama City Beach, and it's the perfect location. No, no, no, no, no, no, no, no. You've got bad information. No, I've looked at it. What do you mean bad information? I've checked out leases, and I have looked at the commercial properties.

Properties that sell for $150,000 do not rent for $2,500. Properties that sell for $250,000 rent for $2,500. Well, I mean, if I was one block over, it would be $2 million to buy the commercial property. No, $250,000 properties rent for $2,500 a month. $150,000 properties do not rent for $2,500 a month. $150,000 properties do not rent for $2,500 a month. That's what I'm telling you. There's something wrong. So you're comparing the rentals in a different location than the property you're talking about buying? Well, it's one block off. Yeah, the property you're talking about buying is not as valuable as the property you're talking

about renting. Renting, yeah. Okay, then that's logical. That's what I'm talking about. But I can make it that way. Listen, if you want to buy it, buy it. My advice is don't. Don't, okay. All right, well, then I'll wait. You don't have the money. I would rent on the one block off for $1,000, not for $2,500 two blocks over,

and get yourself started and get your business going. Once your business is going and your house sells and you know that you want to do this catering business for the next 10 years, then buy a piece of property. But let's get this business up and running. Let's run it for a year or two and make sure that we know what we need in a building. Because what will happen in business is everything costs twice as much as you think it's going to, takes twice as long as you think it's going to, and you're not the exception. Those are the three rules.

And so the catering business is going to look different and have different space needs and equipment needs than you think it's going to going in. You got a pretty good idea. I'm not saying you haven't researched it, but every business I've ever been in, every part of a business I go into, radio, publishing, events, whatever it is, curriculum, everything has parts of it that you can't see from the outside looking in until you wade into the water, and then you can tell the temperature. So I'm saying for the purposes of making a better decision on the piece of real estate, rent as inexpensively as you can for one year or two years. Get the business up and running. You will make a much wiser purchase decision. Oh, and by the way, you'll have the cash by then, too.

But no, I would not buy right now. I think it's a bad idea because I think you're going to end up in the property that you don't need. You're moving into an area you don't know yet. I wouldn't. If I were in your shoes doing exactly what you're doing, that's how I would do it. I would rent for one to two years and learn the business, get the business running, and then I'll know what the process is or what my real estate needs are at that point. Matthew is with us in Seattle.

Hi, Matthew. How are you? Hi, Dave. Doing great. Thank you for taking my call and for changing some family trees here in the Pacific Northwest. Awesome. Thank you for listening. How can I help? Absolutely. So I've got, I'm at Baby Step 2, and I've got about 50k in consumer debt. This is not including mortgages. I have a rental property and primary residence,

and I need to get out of this debt as soon as possible. So I have some stock options from my work that I can sell that would cover the debt. I also have more stock options coming to me later this year, and I want to sell the condo that I own. We owe $263,000 on the condo, and the cond, and the unit sold for $525,000 earlier this year. And I'm wondering about the tax implications for those two things, selling the condominium and then also selling stock, because I just want to make a smart decision in how I handle this debt, even though the money's there. Gotcha. Okay. Well, on the condo, you should have an adjusted basis

where you have depreciated the condo. And you can ask your tax person what your adjusted basis is. Your sale price minus selling expenses minus the adjusted basis equals your gain. And that is at minus your adjusted basis. The mortgage has nothing to do with it. Okay. Nothing to do with the calculation at all. The calculation is what your adjusted basis is, meaning what you've depreciated the property down to.

You started depreciating it at X, but you've taken several years of depreciation on your tax returns, and that lowers it to Y. Okay. depreciation on your tax returns, and that lowers it to Y. Okay? And so sale price minus expenses minus Y minus your adjusted basis equals your gain times .15, which is capital gains rate. Okay? That one's easy. The stock, I don't know. I suspect that this is ordinary income because it was given to you as a bonus, and you've never exercised the option, right?

I did at the time of getting the shares. Oh, so you actually own the stock? Correct, yes. Okay, then it's the same calculation. I sold shares to cover my taxes. Have you owned it more than a year? As of May 15th, yes, I will. Okay, wait until May 15th then because you get capital gains rate.

Again, 15% on the gain, and the gain is what you sell it for minus what you paid for it and that tells you your gain times 0.15 same thing as the house only there's no adjusted or the condo there's no adjusted basis here so cool and see a tax person and get this calculated carefully don't just do it on some radio guy so you know that you got it exactly right. One of the questions I get all the time is, which life insurance company should I use for my term life policy? A valid question, since there are hundreds of companies out there with rates all over the place and riders and add-ons that are simply a waste of money. You need to get this done and make the right decision. That's why the only company I use and have recommended for over 20 years is Zander Insurance.

Zander is a broker who shops the top term life companies for you and finds the best rates available from the only plans I recommend. They also save you time. Whether you want to work online, over the phone, or via text, their team will cater to your needs and help you make the right decision. This is an absolute necessity, and Zander has made the process easy and convenient. Call them at 800-356-4282 or visit zander.com for instant online quotes. Open phones this hour. I'm Dave Ramsey, your host. Rachel is with us in Orange County, California.

Hi, Rachel. How are you? Hi, Dave. I'm doing great. How are you? Better than I deserve. What's up? Well, first of all, I thank you so much for all that you do.

I've been on your plan for the last year, really buckling down and getting out of my debt. So I really appreciate all you do. I have a question about moving out of my parents' house. I have the opportunity to move out with my co-worker, and she wants to get a place together. And me, personally, getting out of debt, I don't have three to six months of expenses, and I'm not paying rent at home right now. So I didn't know if that was something too risky to jump into right now or if I should just save up a certain amount of money and then move out.

What's your income? Well, I just got a raise last week, so it's a little bit closer to $40,000. And what's your age? I'll be 28 next month. And how much debt do you have? So in student loans, I have about $28,000, and then I have two repoed cars from a bad marriage, those totaling in about

$6,000 to $7,000 for both. The car that you're driving does not have debt? No, I paid that in cash. Okay, good for you. The repos can be settled for about a quarter on the dollar, by the way.

Right, yeah. They offered me like half of what the balance was. You can get it for half of that when you've got some cash drugged together that you don't have yet. So you went through a bad marriage, and Mom and Dad were the safety net, which is a good thing. I'm glad that was there. And I would have done the exact same thing in either of your shoes.

How long have you been home? Well, sorry, it's actually with my grandparents. They let me live there. But this July would be three years that I've been living there. And how is your relationship with them? It's really good. I mean, I love, you know, being with my family, and they're really happy for me to be there, and they're just really supportive of me getting out of debt right now.

Okay, so there's nothing relational pushing you out? No, it's just something that came up. Yeah, I got you. Okay. Yeah. All right. You've been there a while, but now you're on a plan to get out and get yourself straightened around what will the rent cost you

southern california as you know is really expensive i can find places about 1500 1600 so well that would be split so about about $800, maybe $900 roughly. Okay, so $10,000 a year is going to slow down your debt reduction by that much. Okay. So, you know, I think I'm probably going to stay with Grandma just a little while longer and finish your financial healing as you've finished your emotional healing from what you've been through. But I would set myself a deadline and say, you know, like one more year, I'm gone. I'm going to make a plan to be gone by this date.

I don't care what date it is, but write it down and start talking about it to them. Start talking about it to yourself. Start talking, looking for a roommate at that time to move out. And, you know, give yourself a little bit more room. There's nothing driving you out. But at the point you're there four years, that starts to feel like time to go. Yeah. Especially getting closer to age of 30.

Exactly. Exactly. There's a lot of stuff going on there. It's kind of like, yeah, even if it does slow me down at that point, I'm probably going to go ahead and step out. But I might take a little bit more of a ride on this train. It's a pretty good train. And, you know, you haven't been living there.

If you told me you've been living there since you were 20, I'd have moved you out. Do you see what I'm saying? Yeah. Right. From an emotional maturity standpoint. But this is a different situation. You've come back to a safety net after going through a hellish situation. So, yeah, I'd probably stay a year and then move.

Or you can move now. Either one's fine. But I don't hear a real huge push in any of the circumstances or numbers you're giving me one way or the other. John is with us in Los Angeles. Hey, John, how are you? I'm well, Dave. Thank you for taking my call. Sure.

What's up? I'm in Baby Step 2 with my wife, and we've paid off about $450,000. Goodness. Did you say $450,000 in Baby Step 2? Yes, and we still have more to go. I have a student loan that remains $139,000, but I'm now in a debt repayment program that reimburses me $24,000 a year, and that's the max it will do, up to another $96,000.

I can pay off the debt much faster than that, but my question is whether I still go gazelle intense and do that or wait for the reimbursement program to reimburse me, which would be another four, over four years. Yeah, pay it off into a savings account. Pay it down to 96, okay, because you're not that much, and we know what we've got to do, right? Pay the other 96 that you're going to get back into a savings account

so that if something happens that you step outside of that program that you need to for some reason, then you can turn that around. But go ahead, and in a sense, your debt snowball is finished if you had it paid down to 96 and you had 96 in a savings account. Okay. And then you've got the option to write a check at any moment. That's in addition to your Baby Step 3. That's just to offset this student loan repayment.

Something gets sideways there. There's an integrity or ethics problem or something, and you need to get out of there. You don't need golden handcuffs. You just leave and write a check. But if you can stay the four years and get the free $100,000, I'll take the free $100,000 over the four years. Are you a doc?

Exactly, yeah. Okay. So household income is $400,000? Yeah, just under $390,000. Okay. The two of you? Yes. Okay.

Because you cranked through a bunch of debt, so I knew there had to be a shovel. Yes. My wife's a professor, but we just had twins, so we've put a pause on most of our debt still right now, just making sure they were okay, and now things are fine, and we're ready to pay again. Good for you. What area do you practice in? What type of medicine?

Head and neck surgery. Good for you. And how old are you? 36. Good. I'm glad you're making good money, man. I'm proud of you. Congratulations.

Very well done. That's the payoff for all of that. I mean, you were in school your whole freaking life somebody ought to pay you some money you know i mean i'm glad and i don't want uh you know dumb doctors working on me so hey man congratulations i'm proud for you i hope you kill it just keep doing it good job good question too melanie is with us in canada hi melanie how are you good how are you doing better. How are you, Dave? Better than I deserve.

What's up? Well, kind of a complicated question, but I'm looking to buy a $25,000 new car, and I just wanted to hear your thoughts. It's more complicated than that, but... A brand new car? Brand new car. It's kind of a base model. Yeah. Okay.

Well, the general rule of thumb is this. Cars go down in value very rapidly. And so we tell folks not to buy. And then what goes down in value more rapidly than a new car? Nothing. That goes down in more value faster than anything. So we tell folks not to buy a brand new car unless they have a net worth of over a million dollars. Do you? See, it's kind of confusing. We have our health payoffs. We have a million dollars do you see it's kind of confusing we have our house payoffs we have a million dollars in assets well that's like a million dollar net worth what kind of assets um investments in house and pension but then i also have really dumb non-investments i have two rental properties that i probably owe just over a million on. But what are they worth?

Probably break even. I'd probably lose if I sold. There are negative cash flowing. But if we added up everything you own and we subtracted what you owe, your net worth is in excess of a million dollars. Yes. Okay. And how much cash do you have?

We have an emergency fund. We have probably $45,000 extra cash, like, available on an investment. And you're going to spend $25,000 of that on a car? Yeah. And you're going to pay cash for the car? That's correct, yeah. And your household income is what? It has been, in the last 10 years, $150,000 to in the last 10 years 150 to 200 but now i would buy that car nothing wrong with that sure a million dollar net worth and it's

less than half your annual income and you're paying cash yeah i buy it yep that's the one time i'm telling people to buy it i buy brand new cars but i've got plenty of money so and i didn't when i was broke and when you're broke you don't want to be broker because brand new cars, but I've got plenty of money. And I didn't when I was broke. When you're broke, you don't want to be broker because brand new cars go down in value. They need to be a small percentage of your world. That's a small percentage of your world. This is the Dave Ramsey Show. I love talking about companies that know how to do business right. You've heard of Grip6 belts, right?

Well, if you haven't, it's the only belt you can get online with no holes, no flap, and no bulk. I'm talking weightless. And the buckles come in really cool designs and are interchangeable i personally own a number of these belts and they're so comfortable you forget you're wearing it plus these guys have a great story bj minson started grip six on kickstarter from his garage in 2014 and now sells hundreds of thousands of these american-made belts to customers all over the world as a mechanical engineer and a minimalist bj took his dislike for heavy, bulky leather belts that never fit right and created the perfect belt, a high-quality, minimalist belt

that gives the strength and support of a belt without even knowing you're wearing one. I'm really proud of these guys. Check out this month's special offers for my listeners at grip6.com Randy and Sarah are with us in Wasilla, Alaska. Hey, guys, how are you? Hi, Dave, we're doing great. Good to have you. I see on my screen you're debt-free. Yes, we are.

There might be another Sarah from Wasilla. There's known to be one. We were up there last summer. It's a great place. You guys live in a beautiful area. Yes, we do. So how much debt have you paid off? We've paid off $195,000 in 48 months.

Good for you. Well done. And your range of income during that time? $150,000 on up to $200,000. Very cool. Good for you guys. That's great. What kind of debt was the $195,000? $2,000 of it was the engagement ring. $8,000 was the last of Randy's student loans.

And the rest, the $185,000, was the house. You paid off your house? Yes, we we did i'm talking to weird people awesome how old are you guys uh 31 and i'm 34 30 years old and you got a paid for house yes that's so whacked i love it it. You guys are, that's amazing. What's the house worth? Probably $250 to $270. I love this. Way to go. How does that feel to not have a house payment or anything?

It's pretty awesome. Yeah, it feels pretty good. You get a lot of weird looks, that's for sure. I bet. I bet because you're weird. Yeah, it feels pretty good. You get a lot of weird looks, that's for sure. I bet. I bet, because you're weird. I love it. That is so amazing. Well done, well done.

So the ring and 48 months, and you're 31 and 34. So this must have been you got married four years ago. Just a little over four years, yep. So you come back from the honeymoon and go pay off the ring, pay off the student loan. must have been you got married four years ago just a little over four years yep yeah so you come back from the honeymoon and go pay off the ring pay off the student loan we're gonna just keep plowing go through the house tell me the story what happened um yeah so we we started uh like i said four years ago my my brother keith actually mentioned your book and him and his wife were were doing the baby steps.

So we went to the library and picked up the total money makeover. And, you know, since then we've basically just drank the Kool-Aid. Wow. And you just leaned in and just paid and paid and paid, huh? Yep. And I have to say that $100,000 of that was actually paid off in the last 13 months, so we really just kind of hit the accelerator and hit it hard. Well, you see the light at the end of the tunnel, and you just pounded it, huh?

Yes, exactly. It's like I can see the finish line. I'm sprinting for the line. Yeah. Well done. Well done. What do you tell people the key to getting out of debt is? You paid off your house, and you're 31 and 34. Yeah, definitely, Dave.

It's definitely devising that budget and following a plan and making sure that you're accountable to yourself and, of course, us together. We've definitely done that every month. But back in the first year, though, there was a couple months back-to-back that we didn't do a budget. And, you know, after some of that time, things just started to fall apart. And we were like, all right, we've got to, you know, get back on this budget and follow through with everything that we said we'd do. And that's how we did it. We were intentional. Wow. So you did it all off the Total Money Makeover book? That and listening to the we'd do. And that's how we did it. We were intentional. Wow.

So you did it all off the Total Money Makeover book? That and listening to the podcast, yep. Okay. All right. Cool. Very cool. Very, very fun. I love it.

Well, your brother-in-law sets you up, man. Yeah, he's a great guy. Yeah, we recently just finished our first SPU class here. So we were pretty excited to teach others, and, you know, hopefully it's infectious as well. Well, if having you guys stand up in front of the class 100% debt-free doesn't infect them, nothing will. Yep. Man, that is infectious. That's amazing.

Very well done. Very well done. Very well done. So how in the world, how does it feel to be your age with a paid-for $250,000 house? It's pretty exciting, and we finally celebrated by going to Hawaii once we hit that baby step seven, but we're even more excited about looking into the future and being able to live and give like no one else. That's a pretty awesome thing to look out into the future that way. Yeah, very cool. So you did the Hawaii trip to celebrate. Yep, yep. Where did you go in Hawaii? We went to Maui. Oh, that's a nice island. Okay. Yes. What was your favorite part about that trip?

Probably just actually being just the two of us on a vacation that we hadn't done in a while and relaxing. Very cool. It's a beautiful, beautiful vacation. That's a great one. Very cool. That's fun, you guys. What do you all do for a living? I'm a mechanical engineer.

And I'm a nuclear medicine technologist. Excellent. Wow. You guys are on fire. This is so awesome. I'm so proud of you. Did you have people cheering you on or thought you were weird? Some or both, but probably more so people looked at us weird. Yeah, we definitely had some cheerleaders.

And like we were saying before, we're definitely cheerleaders for a lot of other people as well. So we definitely want to encourage people to get rid of debt. And it's kind of funny. I just had a conversation this morning with my boss, and he was bragging about his credit score. And I was like, yeah, I've got zero right now. So he definitely kind of looked at me funny like I almost had some kind of problem. Yeah, one eye in the center of your head, yeah.

You guys are great. Well done. I'm so proud of you. You're heroes, man. I love it. Very well done. Well, we've got a copy of Chris Hogan's book signed by the man himself, Retire Inspired, number one best-selling book. That's the next chapter in your story to be millionaires and you are well done well we've got a copy of chris hogan's book signed by the man himself retire inspired number one best-selling book that's the next chapter in your story to be millionaires and you are well on your way and uh and like you said to live like no one else and you've already done

hawaii's living like no one else and and giving like you said like no one else so proud of you guys very well done randy and sarah wasilla, Alaska, $195,000 paid off. That's their house and everything. 31 and 34 years old. Did it in 48 months, making $150,000 to $200,000. Count it down. Let's hear a debt-free scream. Three, two, one.

We're dead free! This is how you do it right here. Boom! I love it. Love it, I love it, I love it. Very, very well done. Man. Guys, if you don't understand, I mean, if they just save a house payment from age 31 to age 61, if you just save a house payment on a $200,000 house, two grand a month, right?

If you just pay yourself a house payment from 31 to 61, that's going to approach $10 million in and of itself. These guys are going to be so wealthy, it's going to be unbelievable. They're in such an incredible position. Wow. Love it. So can you do this? Can you? I'm talking to you.

I'll help you with that. The answer is yes yes you can do this you can be debt free is it easy well no winning is never easy there's always a price to be paid for winning. Otherwise, we wouldn't respect winning. Winning is hard. They've sacrificed for four years. They didn't go on vacation while all their little friends were going on vacation. And all their little friends got a student loan debt, still living in their spare bedroom.

Had to keep an extra bedroom just for Sally Mae. See? That's what I mean by weird. Normal's broke. Seventy percent of Americans live paycheck to paycheck. Seven out of ten houses on your street have too much month left at the end of the money. But not that couple. Nope.

Not them. They don't even have a house payment. How would that feel? Can you even breathe that into your spirit? Can you breathe that into your soul? The borrower is slave to the lender. You discover how true that is when you don't even have a mortgage. This is the Dave Ramsey Show. April 4th, shut rings out in the Memphis sky. Free the lost, they took your life.

They could not take your life. Our scripture of the day, Proverbs 10, for a slack hand causes poverty, but the hand of the diligent makes rich. Booker T. Washington says, Dignify and glorify common labor. It is the bottom of life that we must begin, not at the top. Our question of the day comes from Blinds.com. They have a 100% satisfaction guarantee. It means even if you mess up, if you mismeasure or you pick the wrong color,

they're going to remake your window blind for free. With Blinds.com, you also get free samples, free shipping, and with the new promos they run every month, you're going to save money. Check out the promo code Ramsey at Blinds.com. Our question's from Anthony in Florida. I'm trying to figure out what the best option for saving for college for our three kids. Should we open 529s for each or go with the Florida prepaid option? I never do prepaid college.

I always do 529s and always invest them in good growth stock mutual fund or an ESA, an educational savings account, either one, but I don't do prepaid. Anytime you prepay anything, you prepay your funeral, you prepay college, you prepay anything. The only thing you make on that money that you gave them is how much it goes up between the time you prepay it and the time you actually use it. So if you prepay your funeral and 20 years later you actually die, then what did you make on that $10,000 or that $4,000 or whatever it is? Well, you made whatever funeral inflation rate is. And by the way, that's about 4%.

So you're making about 4% on your money when you prepay a funeral. So you don't prepay a funeral. You invest the money, and out of the investments, pay for your funeral. Same amount of money, by the way. Same thing for college. What is college tuition? Oh, college tuition is just going up and up and up. It just goes up all the time.

Yeah, I know, but what are the real facts? Okay, let's just get away from all your feelings. The facts are that college tuition has gone up an average of 7% a year for the last 52 years. 7% a year. That's your inflation rate. So you're making 7% on your money when you do prepaid college tuition. It's not bad. It's better than putting it in a CD at 1%, right?

But you could have put it in a mutual fund and made 10 or 12. So put it in a mutual fund inside of a 529 or an ESA, make 10 or 12. While it goes up 7, you're making more than it's going up. You're actually making ground on the college experience. Hello. See what I'm doing? That's how it's going up. You're actually making ground on the college experience. Hello. See what I'm doing? That's how it works, folks. David's in Seattle.

Hey, David, welcome to the Dave Ramsey Show. Hi, Dave. Thanks for taking my call. Sure. What's up? So my wife and I were wondering what we should do with our extra money. We just finished saving up our emergency fund and enough money to purchase our next car when we have our next kid. Good.

We're getting about $500 to $1,000 a month of savings. We don't know if we should put it more in our retirement account or pay down our mortgage faster or put some more money into stocks. What do you think? Well, I don't buy single stocks, so that one's easy. What we do tell people to do once they're debt-free, other than their home, and then you have your emergency fund in place, that's Baby Step 3, we call it, then that takes you to what we call Baby Steps 4, 5, and 6, which we do simultaneously.

Baby Step 4 is 15% of your income going into retirement. Are you doing that much yet? Right now, we contribute 5% and the company matches 5%. Okay, then I would raise that. That would be my first goal. I want to get you to 15% of your household income that you are putting, not counting the match, into retirement. And 401Ks, Roth IRAs, Roth 401Ks,

whatever you've got available to you in good growth stock mutual funds. I spread my 401k, personal 401k investing, and I've always recommended across four types of mutual funds. Growth, growth and income, aggressive growth, and international. I spread it across those four. Once you're doing 15% into that, then I start working on kids' college. You got kids? I have two kids. I have two kids. You have two kids.

What are you doing for college? Nothing yet. Okay. Then we start a little college fund like we were just talking about a minute ago with that question of the day. And you can open an ESA. It's the first $2,000 a year per kid if you wanted to do that. That's $166.67 a month coming out of your checking account. It's $2.67 a month coming out of your checking account it's two thousand dollars a year

if you got young kids that's a really really good start on college like that's going to take care of most of it in other words um and you know when you have a baby you just start just add another one and you just keep doing that uh and then anything above as we address college anything above that we throw at the house so in your case right now i, our first goal is to get you up to 15% of your income going into retirement at what we call baby step four. So if you'll hold on, I'll have Kelly pick up and we will send you a copy of the book, The Total Money Makeover. It outlines these baby steps of exactly what to do, when to do it, how to do it, when not

to do something, when to do what, and it walks you through a basic, really straightforward, clear plan for your financial planning. It's going to take you right where you need to go. So hold on. Kelly will pick up, and it's the baby steps on steroids. It's called the Total Money Makeover, and it'll help you get this done. Aaron is with us in Kansas City. Hi, Aaron. How are you? Hey, Dave. I'm doing all right.

Good. How can I help? Hey, my wife and I are basically on baby step four. So we've got about $20,000 in the bank, and it turns out that we're pregnant with triplets. So that's exciting. However, we just moved into our house and we're going to have to do some remodeling. So would you recommend taking that $20,000 to do the remodeling

or is it better to do a home equity line credit? Better not to do the remodeling. Well, we're at 10 kids now. 10 kids? Wow. We will be at 10 kids now. 10 kids? Wow. We will be at 10 kids. You are blessed. Unbelievable.

We are blessed. Wow. Okay. So the $20,000 is your emergency fund, right? Uh-huh. Okay. In order to use that money, you have to declare this to be an emergency. Well, my wife and I definitely feel that it's an emergency with the kids coming

and just not having enough space for them. Okay. What is your household income? Well, right now it's about $12,000 a month, but my wife will have to be dropping out of the workforce, so it's going to go down to about $8,000 a month. And what is the extent of the renovations? What is it going to cost you?

Well, we haven't gotten the final price back, but it'll be really close to that $20,000. Okay. So you're willing to have 10 kids and no money in a renovated house? Wow. That's a big emergency. So what I'm probably doing, if I'm in your shoes, is I'm going to cash flow this renovation during this pregnancy out of this wonderful household income and leave my emergency fund alone.

Okay. Like, I don't know, $3,000, $4,000 a month. You're going to have no life, but you've got to get the renovation done. It just scared me to death to have 10 kids and zero money. Yeah. And it scared me to death to have 10 kids and a home equity loan, too. Yeah. Because you can't run to debt every time you have a problem, dude.

If you do, you're going to be broke your whole life. Yeah, because my wife's going to have to go out of the workforce for probably a year yeah um and and then when she gets back then you know we'll get our income back up but yeah but that's four thousand of the of the twelve right yeah you got eight thousand dollar income you got a lot of mouths to feed but you got a good income so uh and you got no debt, right, except the house? Right. And how much is your house payment? $2,200 a month. Okay. Well, if you guys get on a really tight written budget where every dollar has an assignment every month,

I'm going to squeeze that budget real tight because this is important to do this renovation, apparently. I don't I mean, you're the one saying it is. I'm not there. I can't even imagine triplets or 10 kids, either one. But wow. Wow. So but I got to tell you this. The idea of being a zero money, even with one hundred thousand dollar a year income, scares me to death.

And I can't tell you to go into debt. I think that's suicide. So I think you've got some bad choices here to make, and I'm going to do my best to cash flow it to avoid the bad choices. That puts this hour of the Dave Ramsey Show in 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, guys, this is James Childs, producer of The Dave Ramsey Show. I'm excited to announce that we're now carried on 600 radio stations across the country. To find one near you, head to DaveRamsey.com slash show.