The Ramsey Show - App - Without a Profit, Your Side Hustle Is Just a Hobby (Hour 3)

Episode Date: February 7, 2019

The show about you

🎵 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. Paul is with us in Indianapolis. Hey, Paul, welcome to the Dave Ramsey Show.

Hey, Dave, how you doing? Better than I deserve. What's up? Well, I am a federal employee. I work at the Department of Veterans Affairs, and the retirement options that they give us are either a traditional TSP or a Roth TSP, and they offer a 5% match. So I'm on baby step four, and I have 5% matched up to my Roth TSP, but I'm looking to now get my income up to 15%. So I was looking to start a Roth IRA, and I talked to a couple different investor pros, smart investor pros, and a few of them had told me that it might be beneficial for me

to just invest the rest into my Roth TSP up to 15% until my retirement savings reaches $50,000. That way, the commission that they would get would be worth my while. And I'm just kind of wondering what to do with my funds to get up to 15% investing right now. Until the commission that they would get. That's what a few have told me, that it may not be worth the fee to pay. You're talking about your break point. You've got break points when you have $50,000 invested with a mutual fund, but the TSP won't

affect that. That's when you have, like if you have a certain brand of funds, say American funds, and you've got $50,000 invested with that brand or Fidelity or whoever, you'll usually hit a break point and have less commissions that you are paying when you get to $50,000. But when you've got $50,000 in your TSP, it doesn't affect that. Well, and I think that's just where I got confused, because I'm still confused at the investing. And I listen to your podcast, and I'm learning as I go. But as of right now, if I knew that my employer's contributions weren't going to have to have taxes paid once I take it out,

I would say, okay, well, that's kind of a win-win for me. But I'd really like to get as much bang for my buck as I can. Sure. The order is that you do match first, Roth second, and non-Roth third. Okay? So the matching portion is free money, even though you have to pay taxes on the matching portion when you take it out. But it's free money. And so that 5% match, that's a no-brainer.

Being in Roth TSP is a no-brainer. So let's put 5% of your income. Are you single? No, I'm married. Okay. And does your wife work outside the home? She's in between jobs. She's a teacher, and we have a nine-month-old at home.

Okay, so let's run the calculation then on your income. So what do you make? I make $52,000. You make $52,000. Correct. All right. And so 15% then is going to be $7,800, right? Right.

Okay. And how old are you? 32. Okay. And how old are you? 32. Okay. So if you put 5% in, then 10% of 52 would be $5,200, right? Correct. That's what you have left. And the question is, where do we put the $5,200?

Do we put it in a Roth IRA for you, or do we put that much more in the TSP? Those are our two possible options, Roth TSP or Roth IRA in mutual funds. So then the only question between those two things is, which can you get the best mutual funds with? Now, your TSP has the C plan, the S plan, the I plan, and we recommend 80% in the C, 10% in the I, 10% in the S. You've heard me say that, right? Right, and I actually have those same numbers in right now with those. Perfect.

So the question is, if you put $5,200 more in there in those three plans, could you have found some mutual funds that beat those three plans as a mix like we had? And the answer is yes. So go back to a SmartVestor Pro and tell them you want to put $5,200 into a Roth IRA in mutual funds that have a track record of outperforming your CS and I plans mixed at 80-10-10. And you can pull up the projections on the history of the C, the S, and the I and mix it in at 80-10-10 and compare it to,

because basically you're going to be having to beat the S&P 500 is what you've got to do. Because S&P 500 is the C plan, and that's about how it performs, and you've just got to find a series of growth stock mutual funds that outperform the S&P. Okay. And you can do that. Now, here's the thing. It's not going to be a lot different. That group of funds in the TSP, let's say one year they did 11%.

The funds I'm talking about might do 13%. One year your funds in the TSP do 9%. The ones I'm talking about might do 10%. Okay? So it's not going to be this. This discussion is not life-changing, but it's all about teaching you how to look at this and how to think about it. Because that's what you're looking for is the knowledge.

So you can make the critical thinking skills decision on your own. And that's what you're reaching for. Now, what happens is your 5,200 is going to get a commission paid on it. It doesn't get a commission paid on it in the TSP. And so you're not going to get quite as much in there. So that's what they're talking about, that until that gets up to, until your IRA that we're talking about gets up to $50,000, it's probably going to about break even with the TSP.

So that's why it's kind of a wash between now and $50,000 saved. But it's not that when you get $50,000 in your TSP, you're going to save commissions over here on the other side does that make sense but you're not you don't have enough going in quick enough at this stage of the game to get to that 50 000 break point very quickly it's probably going to be six seven years before you get there if things stay exactly like they are now now if your wife's working and your income goes way up, then you might get there in four years. You know, that could happen because you're going to be putting more in.

So the point of all this discussion is that's the knowledge. And after all of that gobbledygook, the math is I kind of agree it's not going to be much different for the next five years. So you can do either one. And I think the big issue is that you're smart enough to have gotten out of debt, you've built your emergency fund, and now you're putting $7,800 away. If you don't do anything but take that match and put $7,800 away for the rest of your working life, you're going to retire a multimillionaire in the TSP alone. Okay, great. You can never do anything else life, you're going to retire a multimillionaire in the TSP alone. Okay, great.

If you never do anything else. So you're going to be fine because you're smart and you've been doing this and you're saving. You're investing a substantial portion of your income. I mean, it's radical how much money you're going to have from 32 to 62. Put 30 years in there at those rates of return that those three areas have had a history of bringing yeah baby it's gonna be so sweet love it well done sir everyday millionaire on the way just a matter of time but get off baby this is the dave ramsey show Do you know who is a prime target for identity theft? Your children.

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Better than I deserve. What's up? So my fiance and i we started financial peace january 15th we're just finishing up baby step one and we're selling everything we don't need cool so on the side i make wood pipes and my question is is would that be considered a good side hustle and if so how would you recommend as far as getting things sold to help bring income in so we can start working on our debt no the only way it's a good side hustle is to the extent it makes you money. Correct.

So you're making money? Not much. It's a little here and there. But something is better than nothing. Not really. Not doing it and doing something that makes you more money might be better. So you either need to get your side hustle into gear and get it to making money, or otherwise it's a quasi-hobby.

When you run around doing stuff you don't make any money at, that's called a hobby. So if you want to gear this up and really get selling and build you a website, get things moving, get your production up on your side hustle, and let's start making some serious bank with it to where you get the idea that maybe even it's your full-time career someday. I mean, let's get to going. And if you can get that going, I mean, you didn't make $15,000, $20,000 a year on your side hustle. And when you get that going, then you know you've got a side hustle.

But when you're making $500 every six months, that's not a side hustle. That's a hobby. Kathleen is with us in Norfolk, Virginia. Hi, Kathleen. How are you? I'm doing well, Dave. Thank you for taking my call. How are you?

Better than I deserve. What's up? So the good news is my husband has recently taken a job that he's making quite a bit of money. Good. husband has recently taken a job that he's making quite a bit of money. And, and however, we're at odds as to how to treat the two debts that we have. One is our mortgage, and the other is another mortgage. And that's the reason I'm calling the mortgages on a small apartment building. And I've been treating that as baby step three but wondering if we should actually be moving into baby step four so i don't know what to do you mean baby step two i'm sorry baby step

um paying off yeah two is getting out of debt three is your emergency fund right four is 15 percent of your income going into retirement, five is kids' college, and six is pay off your mortgage. I put rental property in six unless it's a tiny, tiny mortgage. What is the balance on the mortgage? The balance on it is $84,000. We have been aggressively paying this off. And what is your household income?

Well, it's quite large. We have a combined Navy retirement of over $100,000, plus the new job that he just took is an additional $150,000. That said, we still have, we have four kids that we had later in our careers. We're cash flowing two through college at $24,000 a year, and the other two who are still at home or private schools at 20k a year do you have an emergency fund built already of three to six months we do we have um about 20 well we have um 23 000 in it right now okay are you putting um but we we don't have iras and that's what really worries me um all right stop just a a second. Here's the thing, okay?

Sure. First thing you need to do before you do anything else is you need to get the emergency fund up. It's not at three to six months of expenses. Okay. And I would treat this apartment as a baby step six thing. What's the balance on your home mortgage? 213. Okay, yeah. 213. Okay. Yeah, I'd go ahead and knock out the apartment as baby step six first

and then knock out your home mortgage as baby step six. What that means is you have your emergency fund fully funded and you're putting 15% of your household income into retirement, which scratches the itch of your wanting to putting money into IRAs and so forth. Okay? So he'll do that with his 401k at his new place, and you'll put 15%, you'll load up a couple of Roth IRAs, 7,000 each if you're over 50,000, and that's another 14,000, and you can get up to 15% of your household income at baby step four.

Everything you can find above that and above these tuitions you're paying left and right, we start throwing at that little apartment. When that little apartment's gone, then we start throwing everything, which when you don't have that mortgage, it's going to increase your income yet again, everything at your home mortgage, and you're going to knock it out. So really what we're saying is while you're saving 15% and while you're making several hundred thousand dollars a year, you've got to knock out $200,000, $300,000 in mortgage debt.

And you're going to probably do that in about four years, maybe five years. You'll be debt-free house and everything. That's my guess. Because some of these tuitions are going to start to fall away, too. You're going to get a raise every time one of these kids graduates. And that's going to help you accelerate even more. And you hit the point that you're not in the tuition business anymore, and you've got all these mortgages paid off, and you've got this income.

Oh, baby. It's going to go into high gear then on the savings and on the investing. You're going to be very, very wealthy. John is with us in New London, Connecticut. Hi, John. How are you? Good, Dave. Good.

How can I help? So I recently graduated college about a year ago, and I'm getting married in 10 months. So the next thing I'm thinking about doing is saving up for a sizable down payment for a house and or paying in cash for one. Cool. And my question is, my plan was to just stash up a bunch of cash in a savings account or checking account for that, but I was wondering if that's too conservative. No, unless you've got five years or longer, are you going to save for five years or more?

Probably not. Probably right around four to five years or more? Probably not. Probably right around four to five, four to six. Yeah. I mean, and how much are you talking about saving? I don't know. I think trying to hit around 80 to 100. Okay. Generally, what I tell folks is it's not worth the risk of the market, the stock market turning

down on you, and you lose some of your money when you're trying to do something like this. And so you're not going to make anything when you save money in a bank, but you're not going to lose anything. And so, I mean, if you had $80,000 in the stock market and it went down 10%, you'd lose $8,000, right? That would feel ouch. Yeah, very much. Yeah, so I don't use mutual funds for investing in situations like you're in

unless you're going to leave the money alone at least five years because it would mean too much to you negatively if something turned down on you there. And so the upside's not worth the downside risk in your situation. That's what it comes down to. And so I hate it that you're not going to make any money on your money, but I would hate it more if you lost some money. So if I woke up in your exact shoes, I would save just in a savings account, which you're going to make in like 1%, maybe, something like that, 1, 1.5%.

Poke around with your local bank, your credit union, try to get a good rate of return, but you're just not really going to make any money on that. You're just not going to lose any money, though. That's the good part. Folks, never too late to take control of your money, and one of the easiest places to start is by knowing where your money's going instead of wondering where it went.

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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. Our question of the day comes from Blinds.com. They have a 100% satisfaction guarantee. It means even if you mismeasure, you pick the wrong color, you screw up, they will remake your window blinds for free.

You get free samples, free shipping, and with the new promos every month, you'll save even more. Use the promo code RAMSY to get the best deal. Question comes from Kayla in Kentucky. Dave, I told my car last week I owed $10,000 with a 0% interest on the vehicle until January 2020. I'm receiving $12,000 for my loss. I have to buy a vehicle to commute back and forth to work. I have six student loans with interest ranging from $3,000 to $20,000. How should I use the $12,000?

Well, you don't have a choice. $10,000 is going to be used to pay off your vehicle, which leaves you $2,000 to buy a car. And I would just buy a $2,000 car. Unless I misunderstood you and you mean you're actually getting $22,000 and you only owe $10,000. If that's what you're saying, then you you have twelve thousand dollars in cash after your car is paid off then i would buy a five or six thousand dollar car and then throw the rest of it at some of your debts and continue on down your debt snowball i think it's an opportunity to move you into a cheaper car in this case maybe a much cheaper car depending on where you are

but if we're talking about you have two thousand000 cash in your hand after your car is paid off, I'd buy a $2,000 car. If we're talking about you have $12,000 cash in your hand after your car is paid off, I'd buy a $6,000 car, put the other $6,000 on your debt snowball. Alex is in Kalamazoo. Hi, Alex. Welcome to the Dave Ramsey Show. Hi, Dave.

Thanks for having me. Sure. What's up? So my wife and I are currently on baby step number two. I've taken a new position that requires me to travel a lot throughout the area, and my company offers a vehicle reimbursement program to buy a new vehicle. So I went out and bought a brand-new vehicle and am currently receiving a monthly stipend from the company

to basically pay for the vehicle payment. So the note's in my name, but the company pays me monthly. I'm wondering if I should just continue to take this payment monthly and put it towards the vehicle, or if we should buckle down and pay this vehicle off as fast as possible and just have the company continue to pay me that stipend. Okay. How much do you owe on the vehicle? About $38,000. Good Lord.

And what's your household income? Around $95,000. Okay. And you said you're married? Yep. And what is the value of your wife's vehicle? Uh, hers is probably about $15,000. Okay.

All right. And, um, and you have $38,000 in debt on this car, and what other debts do you have, not counting your home? Less than $1,000 on a credit card that we're just about to pay off, her student loans, which are, I think, right around $16,000 or $17,000, and that's it. Okay. All right. A couple of things that broke down here. One is you get a vehicle stipend whether you have a car payment or not. That's how I understood it, is that I go out and buy the vehicle. No, no, no, no, no.

You misunderstand. They are asking you to use your car for work, and so they are giving you a vehicle stipend. They did not require you to have a payment in order to get the vehicle stipend. So if the car were paid off in cash, you would still be getting the stipend. Mm-hmm. Okay. And so you connected those two things, though, and used that as an excuse to ridiculously overbuy on car.

So are you driving a lot of miles i am i am part of the the stipulation for the company to be eligible for the program is the car has to be within four model years of being new yeah to be eligible for that vehicle reimbursement and you don't think you could do that cheaper than 38 000 huh probably do that for about $15,000. If I did that, I'd be buying a new vehicle every year or two to stay current. So? Within that reimbursement. True.

Yeah. So here's the thing. You're about to turn $38,000 into $8,000 so fast you're going to blink. Because with the miles you're putting on a car, you are destroying the value of the car. And you're not only destroying the value of a car, you're destroying, in your case, the value of an expensive car. Whatever you drive, you're going to destroy its value because of the miles you put on it. You're a road warrior. And so, you know, this is a business transaction.

This is not impressing a girl to stoplight. This is a business transaction. This is not impressing a girl to stoplight. This is a business transaction. And so you want to lose as little money on vehicles that you are destroying their value as possible and still get the job done. Now, we've got three things that are required for you to get the job done. One is it has to be reliable. Two is you spend a lot of time in the car. It's got to be reasonably comfortable.

We're not putting your butt in a smart car. That'd be dumb. Okay, you'd be in the chiropractor's office as much time as you spend in the car. So it's got to be reasonably comfortable. It's got to be reliable. And the company has said it has to be within four model years. And so if I'm in your shoes financially, I'm going to buy a nice little Ford Taurus, Honda Acura, something that gets good gas mileage that is three model years old, and I'm going to roll that puppy once a year. And because you're destroying its value, and I'm going to put all this company money in my pocket as I'm doing that.

Because if you buy a $15,000 car a year later, it's worth $10,000. If you buy a $40,000 car a year later, it's going to be worth $20,000. Because the miles you're putting on it. Go do a little bit of research on your car three years from now with the miles you're putting on it value. Pick up your car that you're driving today. What is it? What kind of car? Hello?

Hello? Well, I guess that didn't work. Okay. Sometimes I'm just talking to myself. Open phones at 888-825-5225. So, road boyers, there's your principle. Okay. 855-5225. So road boyers, there's their principle. You are not required to go into debt to take your company's car stipend. And you don't want to do that.

That's not a plan. You want to drive the least car possible. And you can't drive a hoopty in this situation. And the goal is save up and pay cash for it the other thing that alex is violating is that he has more than half his annual income tied up in things with wheels and motors things with wheels and motors are the most expensive things we buy as consumers that go down in value. And they all go down in value. Boats, cars, lawn tractors, sea-doos, four-wheelers,

motorcycles, trucks, all go down in value. You don't get rich tying up a large substantial amount of your money in things that are going the wrong way. So when you make $95,000 a year, you don't need more than $47,000 tied up in things that are going down in value. And he has $10,000 more than that. $15,000 on his wife's car, $38,000 on his car.

And so he's $8,000 over that, which tells me so. So basically what happened is he saw this extra income. Oh, by the way, when your company fires you or you quit because they don't have integrity, that car stipend stops and your car payment doesn't. So they are not paying for your car. They didn't sign the car note. You did. You took all this risk.

You're the one taking the butt kicking on this car going down in value while you do your job for them, and they're not giving you enough money to offset that. So, hope that helps you. Stay away from car debt. Stay away from cars, things with motors and wheels that equal more than half your annual income. You get a company stipend because you're a road warrior by the least possible car that

will get the job done. Reliable and reasonably comfortable and used. Our scripture of the day, Hebrews 6.10 God is not unjust. He will not forget your work and the love you have shown him as you've helped his people and continue to help them. Henry Ford said, to do more for the world than the world does for you, that is success. Amen.

Good stuff. Ben is with us in Cincinnati. Hi, Ben. Welcome to the Dave Ramsey Show. Hi, Dave. How are you? Better than I deserve. What's up?

Hi. So I am about to graduate pharmacy school here in a couple months. I'm in my last year, but I have a question about I'm going to be starting the baby steps right after I start. I already have a job lined up, but I have a couple of student loans that I have a cosigner on. I was just wondering, do I have an obligation to try to get those paid off first? There are actually a couple of my higher up in the loan list,

but I know that you advise against cosigners, and I didn't know if I should try to tackle those first. Are they cosigned for you? My grandma. Okay. Is it bringing harm to her for those loans to be there? If something would happen to me, then yes. If something happened to you, yes.

But as long as you are paying the monthly payment, it doesn't cause her any hardship, correct? Correct, yes. Okay, good. And so how much student loan debt will you have, Ben? It'll be about $245,000. Goodness gracious. What are you going to be making? What are you going to be making, $110,000?

It'll be like 120 to 150 depending on how much over time i can get yeah you're gonna get all you can get if not you're gonna run over to the local er and get some right right right yeah but i didn't know if um and then i had another question okay let's stop let's just let's land that plane first all right yeah so right here's the thing as long as you're paying the minimum payments while you're doing the other stuff, grandma is not being harmed, then there is no reason. Now, I would pick up a life insurance policy immediately upon graduation that covers those loans. That was my question.

Are they federally insured loans? That was... Two or three of them are through Discover, and then the rest of it's Sally Mae. Okay. But the ones that are co-signed are through the Discover ones, and those are the ones that I'm worried about. Yeah, you need to get life insurance to cover those if you die, so it's not left on her.

Right, and that was my other question. I didn't know. Do I just need to get enough to just... Because I don't... it's not left on her. Right, and that was my other question. I didn't know. Do I just need to get enough to just, because I don't, I'm just by myself, so that was my next question. You can get enough. It won't cost anything because you're young, and if you're reasonably healthy, you know, it won't cost hardly anything to get you like a $400,000 policy while you're at it.

I wouldn't normally buy insurance, but because it's a single person, you don't have anything thing any any dependents that are dependent upon your income but in this case you do grandma's dependent upon your income so uh yeah just go ahead and get enough to clean up you know maybe get 300 000 enough to clean up your student loan debt and have a little uh to do some other odds and ends with if something happened to you it's not that expensive so make sure you take care of that, and then make sure you work your debt snowball. And making $150,000 when you used to make nothing, you should clear this up in between two and three years. That's $75,000 to $100,000 a year.

And that clears you in two to three years. And you should easily do that, making $150,000, because you used to live on nothing. And just keep living on nothing and clean up this mess and so it's it's a temporary thing uh when you start looking at it that way it's not gonna it's not gonna be a problem for you for very long diana is in houston texas hi diana welcome to the dave ramsey show hi dave how are you? Better than I deserve. What's up? My husband and I are currently in a custody battle with his ex-wife, and we're trying to save up money to cash flow the lawyer. What we're trying to do is sell two vehicles,

but what they're trying to give us for the vehicles is less than what we owe on them. And I'm not exactly sure what we need to do. Mainly we're trying to sell the vehicles. One is $28,000, and they're giving us $18,000. You owe $28,000? Yes. And they've quoted you $18,000. You owe $28? Yes. And they've quoted you $18 as a trade-in? Yes.

Okay. Well, that's a wholesale price. If you were to retail it, private sale on Kelley Blue Book, it's probably going to be $23 or $24, probably still leaving you $5,000 or so in the hole, right? Correct. And obviously you don't have any money. How is your credit?

It looks like 670s. Okay. Talk to your local credit union, your local bank, and see if you can borrow that extra 5K and then private sale it. The car dealer, by definition, has to offer you less because they're going to turn around and sell it at what you could sell it for on craigslist right retail so i'd put the car on craigslist at 22 23 or whatever kelly blue book says it's worth and then but have the other five thousand dollars arranged

now that doesn't give you money for the lawyer that just gets you out of the car payment which helps you get money for the lawyer. Correct. And the same thing with the other car. What do you owe on the other car? $24,000. Goodness gracious. And what is it coming up? What are they offering you on that one?

About the same, $18,000 to $20,000. Okay. So by the time you sell that one private sale, you're probably not going to be in the hole much at all. What's your household income? $140,000. Oh, that's good sale. You're probably not going to be in the hole much at all. What's your household income? $140,000. Oh, that's good news. Okay.

Well, I think you can dump these two cars, get into some hoopties, clean up this mess, and save up the money for your lawyer pretty quick. But you're going to have to pull that money together. And you guys need to get on a really tight written budget because I think you'd probably scrape together the $5,000 or whatever you need pretty quick making $ but this is not going out to eat this is not going on vacation this is not doing anything and everything in sight can be sold i mean this is about babies or there's a custody battle here and so this is about you know being serious with this

and so i'm selling everything in sight and i'm gonna be on a tight scorched earth budget beans and rice rice and beans written on every dollar so you know where every dollar is going jessica's with us in Grand Forks, North Dakota. Hi, Jessica. Welcome to the Dave Ramsey Show. Hello. How are you? Better than I deserve.

What's up? So we are just now starting to pay back my husband's student loans. He has about $48,000 in his student loans. And they originally quoted us a payment amount of about $675,000, which is insanely out of our budget because we don't make a whole lot of money. So we called them, my husband called them, and just kind of discussed some of our options. And they gave us an income-based six- 10-year loan option that would drastically lower our payback amount to about $20,000, but it would be a fixed amount every month for 10 years.

And I know that kind of goes against your paid off as quick as possible mindset, so I'm just kind of curious as to what you would do. I would never set up a plan that I'm going to spend the next 10 years of my life paying minimum payments, having a horrible income, so that I can avoid paying $20,000 worth of student loan debt.

So you have $42,000 worth of student loan debt, right? $48,000, yes. And so what is your household income? It's approximately $48,000. 48, I'm sorry. And so what is your household income? It's approximately 48 right now, but we do expect it to go up because I did just get a job last week. Oh, good. I've been home this whole time with our daughter. So your husband makes 48, and what will you be making annually?

Probably about, after daycare costs, about... No, no, annually annually you're gross uh about 15 to 20 000 i'm expecting 15 to 20 000 yes you're not working full time are you i gross was before child care. Right. What is your income going to be? About $15,000 to $20,000. It's a very well-paying job. By the time you pay child care out of $15,000 or $20,000, you've got nothing left.

That's useless. So, no. Okay. No, I'm going to lay out a plan where I increase my income, I excel in my careers, and I become debt-free. 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. Did you know you can now listen to the Dave Ramsey Show on Pandora and Spotify?

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