The Ramsey Show - App - You Have What It Takes to Become Debt-Free (Hour 3)

Episode Date: August 21, 2018

The show about you

🎵 Live from the headquarters of Ramsey Solutions, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. This is your show. Thanks for joining us. Open phones at 888-825-5225. Nick starts off this hour in Santa Barbara, California.

Hi, Nick. Welcome to the Dave Ramsey Show. Hey, Dave. Thank you so much for taking this call. I really appreciate your influence on mine and my wife's life. Sure. Absolutely. My honor.

How can I help? I've got a business question. I'm a chiropractor. Started into this to help people, and I'm not a business person, but I'm trying to learn how to do this along the way. My wife and I started a business seven years ago. Put everything in a car, drove across the country to start next to my brother's gym. We've grown 30% every year for the first five years. Wow. And then I started in, yeah, I was really, you know, I was, I was proud of that. And so about that time I started investing in the next,

like trying to grow. And I hired an associate about a year and a half ago, another doctor hired some more team with the anticipation of continued growth. And then we hit a little economic downturn in Santa Barbara with the fires and the floods at the end of last year. And then I had a second child and took my eye off of that growth for a little bit. And we've had a hard time recovering. We've been putting energy towards it.

And so I find myself, and this is one of my first questions, is the emergency fund for a business versus a personal. I've kind of just chosen the number of $10,000 to $15,000, which I feel like sometimes is enough and we should pay off more debt, and other times I feel like it's way not enough. So ultimately my challenge is that over the last couple months, it's been really tight for payroll and month to month on this with the business, and I've been going through that emergency savings,

and then I'll try to pack it up. And so it's like the stress of having everything be so tight consistently is leaving me in a position where I'm like, do I continue to try to grow this thing when we've had this slow period of time? I've got this asset of a doctor who I'm not able to use because we haven't grown over the last year, which I would expect, so I'm just paying more off. And we're trying to still pay off all of our debt. How much debt do you have?

We have 202 in non-mortgage and 609 in mortgage. The 202 is chiropractic student loans? Yeah, it's 170 student loans and about 20 on a business loan. Okay. And 10 on what? student loans, and about $20,000 on a business loan. Okay. And $10,000, yeah. And $10,000 on what? And $10,000 on a credit card. Okay.

All right. Well, side issue, but the first thing I do is cut up the credit card. Okay. Then, obviously, we're going to get on a budget. What is the typical, what do you project in the coming 12 months reasonably? What do you reasonably reject? Not sandbagging because I think things are bad, but also not hyping it. What do you think the business is going to gross?

What is your gross revenues, total intake of revenues in the next 12 months, the coming 12 months? If it's been like the last or what I expect. What do you think it's going to be reasonably? Reasonably $550,000 to $600,000. Okay. So you're running about $45,000, $50,000 a month. Yeah, about $40,000.

Okay. $15,000 is pretty slim. I would up that. Okay. A long-term goal, once you've cleared up this massive debt that you have, but your long-term goal would be to hold six months of retained earnings. Six months of your expenses, not necessarily your gross revs, but six months of your expenses.

That would be your long-term goal. But 15, you don't even have one month. I mean, you've got a third of a month. And so that is tight. Yeah, you need to get it up to a month. Okay. And that will take some of it off and then get back to paying off the debt. And then the second thing is what you've got to do on the business side of the equation is

you did something right marketing wise to grow your customer base and you stopped doing it what was it um i would say i started putting more energy into my family. No. I stopped going into, I mean, I didn't do as many external events. Ah, there we go. Yeah. There we go. Okay.

And I've relied more on my associate to do that. Ding, ding. And he is not the owner. You are. Right. And you're running, what, a four-person operation? Five. Five, yeah, okay.

Yeah, you're at a stage where you still are, you're still the dog, man. You're still responsible. You're the CEO, the chief everything officer. And in a situation like you're in, you are, I'm guessing, but the chiropractors that I know and the experiences I've had personally around this kind of thing, that a lot of your business is very personal. It's very relational. And so when they don't see you, when they see your guy at the event, they're not going to come to your business. They got to see you. You're not at the level yet that you can step back and watch this thing run. You still are running it.

And when you do that, your revenues are going to come back up. And it doesn't mean you have to completely abandon your family, but you're going to have to think about, what is it I spend my time on that creates money? Right. Yeah. hours you let somebody else do that you delegate other things do the things that only you can do and let other people do the things that you don't have to do but this is one of the things you have to do because this is relational business and the people that send you business or the people that are your business they want to see your shining face don't they yes and then after a little while if it's a minor thing you can let the associate do the work of the actual chiropractic work. They don't mind about that.

But you're the one that's dragging them in. You're the one that's shaking the bushes. And that's what I would do if I were in your shoes. And again, that doesn't mean you have to just completely abandon your family. That may have been what you did in the early days because sometimes that's what we do when we're getting a business off the ground. I worked 16, 17 hours a day for a while. I mean, I had financial peace, but I didn't have any other peace. I was gone, man.

It was not good. It was bad. But I didn't do that forever. I did it for a year and a half, two years, you know. And you've done it once at that level. But now you've just got to go, okay, instead of doing X or Y on the business, I'm going to do marketing. I'm going to shake the bushes.

And I think you'll get this turned around. I think you can turn things pretty quickly here. I think you know how to do this, and now you're going to go do it because you've recognized the problem. You're going to be fine. Hold on. I'm going to send you a copy of the book Entree Leadership. It'll be a good read for you. This is the Dave Ramsey Show. Can you believe this real estate market?

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Very good stuff. Amanda's with us in Phoenix, Arizona. Hi, Amanda. Welcome to the Dave Ramsey Show. Hi. Thank you for having me. I'm trying to get myself on the way to being an everyday millionaire, but I don't know if I'm going about it the right way with the refinance.

Okay. Are you refinancing your home? I'm raising it. Yeah if I'm going about it the right way with the refinance. Okay. Are you refinancing your home? I'm raising it. Yeah, I'm supposed to close tomorrow. Okay, good. The interest rate is going up. I'm getting rid of MIP, which is $149 a month. And so we're refinancing to a 20-year fixed conventional.

So I just don't know if that's worth it to have our interest rate go up, and just to get rid of MIP. Okay. Well, your MIP that's going away is $149, you said, right? Right. Okay. That's $1,800 a year, right? Mm-hmm.

150 times 12. Okay. So what is your loan balance? $207,900. Okay. So what is your loan balance? $207,900. Okay. And how much is the interest rate going up? It was 3.875. It's going up to 4.5. 3.875 to 4.5.

So you're going up half a point or so, a little over half a point. Right. Okay, so here's the thing. Let's just do some simple math. I'm going to do it real simple so it doesn't get complicated. Okay. Instead of.625, we're just going to say.5, all right? Half a percent of $100,000 is $500.

Half a percent of $200,000 is $1,000, right? Right. Okay. So your interest is going up a little over $1,000 a year. Does that make sense? It does, uh-huh. And your PMI is going down $1,800 a year. Right.

So you're coming out ahead. Okay, so that sounds good. The new loan balance would be $209,700 with the closing costs in the loan. Does that make sense? Yeah, yeah, that sounds about right. It doesn't change the answer, though. I mean, I'm just giving you rough numbers, but the bottom line is that you are going to be paying out less net. You're going to pay out more interest and less PMI, but the net of the two is you're probably going to save, looks like, about $600 a year.

So it's not a huge difference. I don't know if it's worth doing. Maybe it is. And you're shortening the term, which I like that part as well. Your payment is going to go up because you're shortening your term, it sounds like. But your net savings, about $600 a year, about $50 a month is your net savings, it sounds to me like, roughly.

It's not going to be far off. It won't be $10 off, something like that. Jonathan's with us in Orlando. Hi, Jonathan. Welcome to the Dave Ramsey Show. How are you doing today, Dave Ramsey? Better than I deserve, sir. How can I help?

It's an honor speaking to you. You too. Um, so, um, my situation is I, um, I am, um, about $34,000 in, in credit card debt. Um, and about 35,000, um, 3,500 in hospital debt, right? Um, my, my income is about 70 grand i recently about six months ago i got um laid off and i got the bright idea to buy a semi truck instead of finding another job so it has not gone to plan so i have a fluctuating um budget now and an income and i don't know how to get started because um i can't find no wiggle room for the the the baby step one we're not making any money i'm sorry you have an income crisis right and so what we've got to do is we got to either

get the truck sold or we got to get the truck working it sell the truck sell the truck and get a job or let's get the truck working you've got an income side of the equation that's got to change right and that's and that's my thing because who i'm subcontracting with now, I have a fluctuating. One week I'll make $800. The other week I'll make $2,600. So I'm pretty much playing catch up some other weeks. Because you're not making enough. You have an income crisis.

It doesn't matter if your income fluctuates as long as you make enough. And then you've got to manage the fluctuation too. income crisis. It doesn't matter if your income fluctuates as long as you make enough. And then you've got to manage the fluctuation, too. But it sounds like you've had more $800 weeks than $2,600 weeks. You've got to get your income up or you've got to get rid of this truck. That's what's need to do to improve their family's money situation. Two of the most overlooked things are term life insurance and disability insurance. Both plans make sure that you have income to pay bills and take care of yourself and your family if something were to happen. For term life, you need to carry 10 to 12 times your income, and I recommend 15 or 20-year plans for most families. Stay away from cash value or return of premium plans.

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In the lobby of Ramsey Solutions, Ethan and Annie are with us. Hey, guys, how are you? Better than we deserve. I love it. Welcome. So I met you guys on the way in this morning. You were coming in early, checking us out as I was walking in the door. And so welcome.

Where do you guys live? Near Cleveland, Ohio, Painesville. It's East Cleveland. Gotcha. Cool. And all the way down to Nashville to do a debt-free scream. Heck yeah. Love it. How much you paid off? All right. We paid off $48,836 in 18 months. We also cash flowed our wedding in that time. It was $10,600. And then we

also had to buy two newer cars for us, but used cars, and that was $7,500. Wow. Okay, cool. And how long did all this take? 18 months. All right. And your range of income during that time? We started out around $62,000, and then we finished up around $92,000.

Cool. All right. Fun. And what kind of debt was the $49,000? All student loans. Yes. Oh, wow. Student loans. So. And what kind of debt was the $49,000? All student loans. Yes. Student loans. So when did you get married? Last year, September 9th.

Okay. Coming up on your one-year anniversary. Yep. Yep. All right. Very cool. So you cash flowed that in the 18 months. So six months of this you worked individually, and then a year of it you've worked together. Exactly. Very cool. Good. Very good. Good for you guys. And you paid cash for the wedding.

Did you have a good wedding for $10,000? Yes, we did. And you can do it for that cheap. We really want to be a good example for that. We had 180 people, huge venue, two venues, one for the wedding, one for the reception. Same place, but it was affordable and everybody had a good time. Outdoors. Just to make it easier and more fun very good

good for you guys that's fun so what started you on this process when you got engaged you looked up and said we got to clean the mess up or how's this all work yeah so um when we got engaged my brother my oldest brother jake he um gave us a financial piece uh or not a financial piece book he gave us the the total money makeover and she read it on the way back from Raleigh, North Carolina, where he lives home. And, and I was already listening to your podcast and knew a little bit of your program and that really got her on board. And then about six months before we got married, we're like, let's go through financial peace. I asked Jake and he said, yeah, it's probably a good idea.

He hasn't been through the program, but he said, it's probably a good idea. He hasn't been through the program, but he said it's probably a good idea to do it. So we did it and we've been gazelle intense ever since that point. And we knew we kept our budgets separate for that six months, but we were looking over each other's shoulders, making sure we kind of agreed so that when we got married, we could work together. And when you join accounts and you come in together as one, you really see where the money is going.

And to me, I was like, I don't want to spend. I don't need that. I don't want Ethan to think that I went out and bought a top. I don't need it. Let's pay this debt off. Let's get it done. Wow. We did the, it was fun because on the snowball,

had it posted in our room, I'm ready to cross off, you know, the next thing. And it was fun to keep just crossing off and changing those numbers to keep it going. Love it. So who had the most student loan debt? It's funny. We make almost the exact same salary, and we had almost the exact same student loan debt coming in. Oh, so it's all even straight up. It was pretty even.

Even-steven. Yeah, it was easy. Love it. Very cool. But, I mean, you did $60,000-plus, almost $70,000 worth of stuff here, debt reduction and wedding and other stuff here in 18 months. Yep. Picked up a lot of side costs.

You hardly made that amount during that period of time. Yeah. Yeah. We live with two roommates. Shout out to Vanessa and Shay for living with us. Our rent was super low because of that. I worked at Advanced Auto Parts for eight months. I worked construction on the side.

I did everything I could. I cook. We don't go out to eat a whole lot. My boss at Cleveland Whiskey actually gave me a raise because I told him what I was doing. He said, well, I'm going to help you pay off your student loan debt. He was actually my professor in college, so he understood where kids are at. So it was a really good thing for him to do, and that helped us grow a little bit. That's where some of the income increase came from.

Yeah. Very good. Very cool. Yeah, you get a big jump in income during that time. So very well done. So how does it feel? Amazing. Oh, yeah.

It's pretty awesome. Yeah. We teach FPU at our church. Oh, thank you. Hope Ridge United Methodist Church in Concord. It's been a really cool. We actually got involved because we went and took FPU at the church, then met really cool people, ended up getting married by the preacher there.

Wow. And the preacher's husband, John, he helped us in the class. We've got to give a shout-out to Bob Rader for running the class there. And we've taught like three times with them in various locations, and the FBU program really brought us into the church, and now I'm drumming on the praise band and we're really involved in the church and it's been a really cool journey.

Very cool. I love that story. That's wonderful. Even the pastor that does the marriage, I mean the minister that does the marriage for you, you run into them through Financial Peace. That's very cool. Very cool.

Hey folks, if you didn't know, Financial Peace is an all-encompassing program. Yes, it is. Yes, it is. Yes, it is. It's a whole life thing. Oh, that's great, you guys. What do you tell people when you're leading these classes? Now, you did it.

You're poster children, right? You did the thing. You have $49,000. You paid cash for your wedding. Nobody can gripe when they look at your story. They've got to do the deal, right? What do you tell them the key to getting out of debt is? It's very possible. You can do it. You guys are fighting fear constantly, and Ken Coleman alludes to that a lot in his shows. It's really true. If you just

get people to see that the fear is pushing them away from the finance. Finance is easy. It's math. It's simple. But once you open yourself up to get into that finance and really become accountable to yourself and whoever else is involved, in my case, Annie, that really gives you a huge stride. Live below your means and stay gazelle intense. Yep. Yeah. Just complete focus.

Hustle and grind. Yep. Gazelle intense, live below your means. Real simple. Yeah. Yeah. That's good. Hustle and grind. Yeah. Gazelle and tense. Live below your means. Real simple. Yeah. Yeah. That's good.

Yeah. You got the real practical. He's got the philosophical. Yeah. You're fighting fear. And you are. That's a really good word. I like that word.

That's well done. Because it is. It's a belief thing. This hope thing. It is. It's almost like in this case, fear is the opposite of hope. Yeah. And you start to believe it can happen that's when the fear is pushed back and then you start to actually do the stuff you live unless you make you get more intense yep it's like yeah i can do this you

know i mean it's like that's how it works out so very cool you guys very cool it sounds like you had a great support team around you like more cheerleaders than detractors, I guess. Yes, yes. My family is really into it. My family, a lot of my family does the class now, and they do the program, and we're all trying to get them out of debt. And it's been a good ride for me, and we haven't had too many detractors. I've had some people not quite believe me, like we're out of debt. Yeah, they look over their glasses like, are you serious? You're going to be out of debt. Yeah, they look over their glasses like, are you serious? You're going to be out of debt? But we

just tell them our example. And then they kind of say, well, okay, maybe it is possible. It helps them. Yeah, there's power in that story, isn't there? It really is. Well done. Well, we got a copy of Chris Hogan's book for you, Retire Inspired, signed by the man himself. We want you to be

millionaires as your next step to live like no one else so later you can live and give like no one else. That's on the way, isn't it? Yes, it is. How old are you two? How old are you two? 28 and 29.

And you can do this. You can do anything. Yeah. Hey, you guys out there, there's some powerful millennials. I'm looking at them right here. Well done, you guys. You got this thing going.

I'm proud of you. Very, very well done. Good job. All right. It's proud of you. Very, very well done. Good job. All right. It's Ethan and Annie from Cleveland, Ohio. $49,000 plus a wedding and two cars all done in 18 months, making 62 to 92. Count it down. Let's hear a debt-free scream.

Ready? Three, two, one. We're debt-free! I love it! Wow. Well done, you guys. Very, very well done. You know, what Ethan said there is really, really, really important.

You hear what he said? You can do it. You. You can do it. Is it easy? Well, no. Winning is never easy, darling. Winning was never supposed to be easy.

Otherwise, we wouldn't call it winning. Wealth building is not easy. It's unusual. Most people don't have what it winning. Wealth building is not easy. It's unusual. Most people don't have what it takes, but you do. You can do this. You can do this. I'm waiting on your call. When are you going to do your debt-free screen? I'm waiting on you. Yeah? This is the Dave Ramsey Show. All it takes is one emergency trip to the dentist to blow your budget quickly.

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Start saving today at OneDental.com. That's OneDental.com. Our scripture of the day, Matthew 19, 26. But Jesus looked at them and said, With man this is impossible, but with God all things are possible. Abraham Lincoln said, Nearly all men can stand adversity, but if you want to test a man's character, give him power. Mmm, there you go. Our question of the day comes from Blinds.com.

They have a 100% satisfaction guarantee. It means even if you mismeasure or you pick the wrong color, if you mess up, they will remake your window blinds for free. You get free samples, free shipping, and with the new promos they run every month, you'll save even more. Use the promo code Ramsey to get the best possible deal. Kaylee is in Texas, and they were quite understood if my husband and I should each be contributing

15% of our own incomes to our separate retirement plans, or if we should both contribute a total of 15%. He puts 7% of his income in. I put 8% of mine in. Kaylee, when you put in 7% of your income and he puts in 8%, nobody's putting in 15%. It's math. Sorry. No, here's the thing. Okay, now I want you to combine your incomes.

I want you to quit looking at it as his and hers. And I don't care whose retirement plan you use. So if your household income together is X, take 15% of that. Look at that in a dollar amount. Let's say your household income was $50,000. Average household income in America is about $57,000 right now. So we'll use $50,000. That would be $7,500 a year.

It's 15% of $50,000. Okay? The two of you together make $50,000. 15% of that is $50,000. Okay? The two of you together make $50,000. 15% of that is $7,500. That means that's how much we need to get into some kind of retirement plan somewhere. It doesn't matter if it's at his work or your work or whether it's individual Roth IRAs or whose name it's in. Because in the event of a divorce, you will have access to his. He'll have access to yours.

And it'll all wash out one way or the other. You don't have to protect yourself. You're married. And so if you're not married, you've got to do different stuff. But if you're married, that's one of the benefits, many benefits of being married. So anyway, now 15%, 15 so 7,500 so if you wanted to both do a Roth IRA at $3,750 you can put up to 5,500 but we're only trying to get to 15 in baby step four so you could both do 3,750 or one of you could do 5,500 another one could do 2,000 into Roth IRAs. It would be that simple. Or if you've got a match over with your 401K and you put some in the 401K to get that match at one of your works, that would be preferable.

You want to get that match. That's a good thing. Then, you know, if you have $2,000 you're putting in over there, then we've got to find $5,500 somewhere else. Well, you might do a Roth and do the 401K. But you're trying to get to a total of 15% of the household income at baby step four. While you are then doing your kids' college savings, while you are any other money you can get your hands on paying off your house early. Those three, baby steps four, five, and six, run simultaneously together.

Amber is with us in Virginia. Hi, Amber. Welcome to the Dave Ramsey Show. Hi. Thank you so much for taking my call. Sure. What's up? I have kind of a what would you do if you were in my situation question.

I am 28 years old. I'm a divorced mom of two kids. They both actually have autism. And I'm trying to decide if I should go back and finish school or if I should move to a better area where they can get, like, the therapies that they need, better schools, I can have more job opportunities. My income is so low right now that I'm not sure if it makes more sense to go back to school to try to finish my degree or to move to a better area where it's better for everybody.

Okay. Why could you not do both, move to a better area that's better for everybody and go back to school? The thing that I'm concerned about is in the new area that I was looking at, I have family near Richmond, Virginia. The cost of living is much higher, and so is the cost for child care for children with special needs. Where here, I live in a really small community here. It would be cheaper here for now, but not better in the long run.

And you have family in Richmond? Yes. Okay. What if you lived outside of Richmond a little ways where your costs all went down? I mean, Richmond is not that big a town. Right. If you were to live 30 minutes outside of Richmond, you're not even in Richmond. Right.

And all of a sudden your property values would go down, and maybe your care would go down, but yet you might have access to some of these other things. Now, you may be talking about a school system. What level of autism? Are they severe or light or what? They're both moderately affected. They're verbal but very difficult to understand. Okay.

So they're not high-functioning, but they're functioning. Yes. Well, academically, they're high-functioning. It's just socially. Okay. All right. And so that does require a special environment, certainly. Okay.

Right. And, well, is the Richmond school system itself, the actual school system itself, very equipped for that? That's one of the things that's appealing? The therapies that they could get around the school system is what's most appealing. Okay. By around, do you have to live in that district to get those therapies, or could you live 30 minutes out like I'm talking about?

I could probably live a little ways out. It's in Midlothian is where the therapies are. I got you. Okay. So it's access to the quality of care in the healthcare community, not in the school system itself. Right. Okay. I got you. Okay. Yeah, I think what you've got to do,

most cities, if you think about it this way, if you drop a pebble in a pond and it has the rings go out, if you drop a pebble in the middle of a city, as the rings go out, there's exceptions, mountains and water and other stuff that affect that. But as you go out through those rings, it gets cheaper with most cities. And Richmond, I mean, Richmond's pretty much laid out that way. It's not contiguous to another major metro area where it blends in together. Right.

You know, it's not a Baltimore, Washington, D.C. So those things, you don't know when you left one and drove into the other one if you didn't have a sign, you know. But in Richmond, you would. So I think you've got some semi-rural communities around Richmond that you could get close enough proximity to get the care and yet not drive your costs way up and maybe hit two or three of these goals at the same time that way. And give you some more career opportunity as well to get your income advanced. Right? Right.

I think that's a move you need to look at. Plus, your family's there. Right. advanced right right i think that's a move you need to look at plus your family's there right just don't use the drama that is your life right now because you got plenty of drama kiddo god knows god knows you got plenty of drama oh my goodness don't use the drama that is your life to rationalize buying stuff you can't afford like housing housing. Right. Don't make yourself broke by, you know, but I had to do it for the children! You know, that's the drama thing, right? Right. And instead do the other thing, which is be responsible for the children.

And you're being very wise in the way you're asking this question, because you are really facing some pretty tremendous emotional strain with a low income and with the two babies facing this stuff. I mean, you've got a lot of stuff going on here, kiddo. And I think it would be great to be near family and in a good church and get some good social support around you as well while you're doing this that you probably don't have now. This is a move you need to make.

Okay. Does that make sense? Okay. Yes, thank you so much. Hey, thanks for the call. God bless you. You got your plate full, kiddo. God bless you. Wow. Open phones this hour. This is the Dave Ramsey Show where we talk about real life. You ever been really scared? I have.

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