The Ramsey Show - App - Your Income Is a Key Ingredient to Building Wealth (Hour 2)

Episode Date: January 29, 2024

🎵 Live from the headquarters of Ramsey Solutions, this is The Ramsey Show. It's where we help you win in your money, in your work, and in your relationships. Alongside the fabulous, the incomparable, Jade Warshaw, I'm Ken Coleman. Welcome aboard this hour. We're here to coach you up. We're going to have some fun. We will shoot you straight along the way. The number to jump in is 888-825-5225.

888-825-5225. Kevin in Reno, Nevada starts this hour off. Kevin! Hi, thanks for taking my call. What's going on? What's going on? He didn't quite get that cue from home alone. I got it. Oh, got it.

Right over the head. That's alright, my man. How can we help you? So I just recently found you guys so we are just kind of starting our journey, I guess you'd call it. And, uh, the main concern we have is retirement. I, um, the only retirement we have as of right now is in a LERP, a life insurance to retirement plan. And I, uh, watched a video

last night from you guys that basically was talking about infinite banking and it sounded similar to what we have going and that it was a dumb idea. So I thought I would call and get some more information about it, see what you thought. Oh my goodness. Okay. So I'm just assuming all the other things are in place. I'm assuming that you don't have debt. I'm assuming that you've got three to six months saved before we've started. Whatever this path is, it's not a good path, but can I just make that assumption? Yes. Yeah, we don't have any debt and we do have six months worth of cash. Just happened to have it.

I didn't know those were baby steps, but now I do. So that's pretty sweet. But yeah. So how long have you been doing this? About six years. We signed up for it about six years ago, right when my first born was born. Okay. And so what did you, what did you put into start and how has it grown? We, I don't think we put anything. We've just been paying monthly payments. The cash value of it right now is 18K and we pay 400 a month. So right now we're putting in 4,800 a year. And you've been doing that for six years?

Yes. because I love doing this. So let's pretend, let's see, I'm pulling up an investment calculator because what I want you to see is that this is a terrible investment. Fair enough? Yeah, absolutely. Because I'm just trying to understand. Give me one second.

Ken, help. You keep the conversation going. So a preacher and a rabbi walk into a bar. No, I'm kidding. So here's the deal. She's going to pull up the numbers. You saw the video. Did you understand why we think it's a bad idea?

Yes. Okay. I think so. And again, is infinite banking and these, are these the same thing? It's very similar in the idea. Similar concepts, yeah. Philosophy is the same. At the end of the day,

insurance is insurance and retirement is retirement. You shouldn't be combining the two because they're not intended to do the same thing. Insurance is intended to remove risk that you can't handle yourself. It's not intended to make you rich or wealthy. It's intended to replace income for people who were dependent on your income if something were to happen to you. It's intended to replace income for people who were dependent on your

income if something were to happen to you. It's not there to be what builds you wealth. And I'm about to prove that here. So you said that you've been investing $400 every month for six years. That's so much. Okay. Yeah, the first few years were $300 a month, and then it stepped up. So I think the first three were $300 a month, equaling $3,600 a month, or a year, excuse a month and then it stepped up. So I think the first three were $300 a month, okay, equaling $3,600 a month or a year, excuse me, and then $4,800 for the past, you know, sure. And your cash value that you've retained from that is $18,000, which by the way, dies if you die. You do not retain cash value in these situations. So you've gotten $18,000 out of this. If you had just taken that money, that $400 a month, and invested it in good growth stock mutual funds,

heck, if you had just invested it in the S&P 500 in a just basic index fund that has a normal annualized rate of return of maybe 8%, 10% if you're doing well in mutual funds, you would have had $40,000. And it would have been all yours. And that's really the end of that that for me there's a lot of you know ins and outs to that conversation but just simplifying it that's the most staggering piece of information that you're going to receive from this is the fact that

whatever whatever growth you've accumulated is going to die with you how old are you i want to do one more thing i i'm i'm i'm teeing you up How old are you? I want to do one more thing. I'm teeing you up, Jade, because you're ready to punch the numbers in. Listen, I made my argument. That was it. So, Kevin, how old are you? No, no. This is going to be more fun. 36. You're how old? 36. 36? Okay. So, please, 36. Do 400 a month between age 36 to, let's call it-

66. 66. So, 30 years. I just want you to see, Kevin, why we really prefer this type of investing. And I'm putting this at 8%, okay? Like you can count on that. The S&P 500, you can count on 10%. So that puts you in 30 years, if you just invested $400 a month at 8%, starting with nothing, that puts you at almost $600,000. Okay dollars okay yeah and that's what the projections are are you know that's what we're supposed to be cashing out or have for retirement at retirement

but you're not on pace at all you're you're grossly off pace okay which we just proved with i mean we just forecasted exactly what you did the six years and it's you're not even close not to mention or how it worked not to mention that the benefit you don't keep you don't keep the cash value if something happened to you today that cash value is gone so what i would tell you to do is i'd say, all right, $400 a month, stop it today. If you can cash out, get out of it. I'd get out of it instantly. And then I would say, from now on, I'm taking 15% of my gross monthly income and I'm investing it

in good growth stock mutual funds. And what we teach here is a mix of four, growth, growth and income, aggressive growth and international. And you could do that is a mix of four, growth, growth and income, aggressive growth and international. And you could do that. Listen, if you just said, hey, I don't care about that. I would even be happy if you just invested 15% into index funds. Anything but this is basically what I'm telling you. Because rate of return wise, you're going to far outpace this. And if you're like, let me just try to play through a scenario that I think people care about because I know people like to borrow against this money and blah, blah, blah. I would say invest that money into retirement. But if you're like, listen, I want access to it and I

want to invest my investments or something like that, you put in a brokerage account to where you can get to it. All I'm saying is anything that you're doing, anything that I'm saying is better than what you're doing. What you're doing is probably the worst possible way to invest your money in an insurance product. And so, like I said, I would get term life insurance. The whole idea was to just recoup some of that money. But yeah, term life insurance. I would I would get out of this policy. I'd get term life in place first.

And then I'd get out of this policy, you'd get term life in place first. And then I'd get out of this policy, pick up a 20-year term. It's so cheap and you're going to be covered. And remember, the whole point of this ultimately is that we're self-insuring. And so if you're walking the baby steps as we teach, by the time you're 50 or 60, you will have accumulated so much wealth

because you're going to be investing from this point on 15% into retirement, you're not even going to need life insurance because at that point you can assume the risk. Because remember, the whole point of that was to cover the risk. Now you'll be wealthy enough to assume that risk on yourself. And so this is how this works. This is what wealthy people do. Thanks for the call, Kevin. Trust us. You don't want to invest in insurance. Just think about that sentence. Does that make any sense? If it does, this is not the show for you.

This is The Ramsey Show. Welcome back to The Ramsey Show. I'm Ken Coleman. Jade Warshaw joins me. We're here for you, America. 888-825-5225. If you're new to the program, we take your money questions, we take your work-related questions, we take your relationship questions, because they kind of all blend together.

In fact, it's rare that we take a call like that where there's not some work component, some relationship component. So we're here for you, America. 888-825-5225. The Ramsey Show question of the day is brought to you by our good friends at Neighborly, your hub for home services. There are a lot of things you need to remember when the weather gets cold. Thankfully, Neighborly has a free winter maintenance checklist

that can help save you time and hassle. And a side note, if you're a moron like me, their maintenance checklist, Jade, does save me thousands of dollars because they just do basic reminders to things that I don't even know about. So it's huge. Check it out at neighborly.com slash Ramsey. That's neighborly.com slash Ramsey. Today's question comes from Dalton in California.

He says, my current salary is based on pandemic consulting salaries. So if my contract is not renewed, I would likely be earning $10 to $30 less per hour than I make now. Is stability and benefits of a full-time job worth the potential $50,000 pay cut? Probably not. I'm going to say 99.9% of the time, not. And the reason I say that, Dalton, is because stability is the wrong word to lean on here in the first place. This is the very job where you may be taking a $10 to $30 an hour pay cut. I don't consider that stable. We're talking about a wobbly table at best. At least one of those legs is wobbling if you're potentially going to lose that kind of income. Secondly, and I've said this a million times, benefits play to our safety gland.

Obviously, everybody needs health insurance. It's obviously a tremendous value. However, when you start comparing insurance plans, I would always take the better job, meaning better pay, better environment. I enjoy the work and I've got a ladder for growth, which means financial growth. I'm going to take that better opportunity over the better health care plan and whatever else the benefits are. I mean, if it's just usually it's just not a huge difference. So I never give anybody advice to take a job on benefit packages alone,

because trust me, that's going to wear off pretty quickly. And in this case, let's say you stay at this current job that you think is stable and I think is wobbly. You take a pay cut, but you love those benefits versus let's go out and let's have a backup plan. You know, when we get on a plane, the lovely flight attendants and folks get up there and they tell us about where we go in case of an emergency landing. And I want to have that same exit pattern laid out for myself professionally.

And I'm telling you, I've always practiced that. I still practice that. And so in this case, if I knew this and I'm you, Dalton, Jade, I'm telling you, I've always practiced that. I still practice that. And so in this case, if I knew this and I'm you, Dalton, Jade, I'm immediately going, okay, where does my skill set and experience allow me to potentially land? Let me start looking for options so that I got options. And the health care and the benefits usually take care of themselves. So, no, I would not stay, take a huge hit, which could be 50 grand. That's a big hit. That's a himself so no i would not stay take a huge hit which could

be 50 grand that's a big hit that's a big hit i would not do that what's that called what's that called because like in in money let's say you have a piece you invested in a job opportunity or a business or a property and it's failing but you keep pouring money into it we call it sunk cost fallacy because it's like i've come this far i may as well keep writing it out even though every all signs point to the fact that this sucks what is it called in a career when you feel the need to cling on to something that is sinking like it's it's losing you money it's it's it's it's not good what do they call that is that a word um it's not a word but i'm gonna call it this phrase it means that we'd rather be miserable than uncomfortable and what that means is is i know what i'm dealing with i'm gonna take

a big pay cut and it's gonna suck or i'm dealing with a toxic leader or i've got gossipy co-workers and i hate going in but i'm gonna keep doing it because the the the fact that i'm miserable doesn't matter because at least I know what I'm up against and I know what I got to deal with and I got to bite a stick, hold my nose. You pick the analogy versus going, I got to face my fears and step into the unknown of what else could be out there. And I leave one place that I'm miserable in to go to a place where I might be uncomfortable for a little while, but ultimately better off. So I think the dynamic there is what you've so expertly pointed out is our comfort factor. You've seen the motivational posters and who knows who said it, but

life is on the other side of comfort and all that. And that's what's going on with people will stay in a job like this with those sunk costs because they go, at least I know it. And you can see the fear in this question. You can. This person is rationalizing. This is an otherwise very sharp individual, this dude. Yeah. And he's rationalizing, swallowing a $50,000 pay cut.

Rationalizing. Well, the benefits are good. Dalton, I'll bet you the benefits are good at other companies as well. And you don't take a $50,000 pay cut. Rationalizing. Well, the benefits are good. Dalton, I'll bet you the benefits are good at other companies as well, and you don't take a $50,000 hit. So I think at the core of it, what do you think? I think it's fear of the unknown. Yeah. I think it's that old adage that's like the enemy of best is just fine, right? It's like, oh, this is fine. My life's fine. It's good. It's- Yeah. Good's the enemy of great.

Yeah. And it's like, it keeps you from getting to that best yeah it's like at home depot where they have the good the better and the best quality yeah the paintbrush and you're like you go with the one that is you know it's not good quality but you're like well it's not going to cost me much in the moment so you go with that then you get home you start painting and you're like i should have just spit right and got the one that was best. Interesting that you make this point because when it comes to the Ramsey show and the wine taste test, you brought in a party platter we recently tested and I chose the good wine, not the better wine. Well, that's a little different, Ken.

I know, but I'm pointing out that you make a very good point here. Don't scrimp on the paint, scrimp on the wine. Is that what I'm hearing? I'm pointing out that you make a very good point here. Don't scrimp on the paint, scrimp on the wine. Is that what I'm hearing? I'm only learning from you. Yes, but does it have like a ring to it? Like I'm trying to get to where you're at, Ken. No, it doesn't have a ring. I don't know what I'm doing.

I just thought it's interesting that you said, maybe don't do that. But then you're telling me, teaching me to do the knockoff cookies and chips and the wine. Listen, quality... I'm learning all the way around. Quality over comfort. Is that good? Can we say that? We can just say the comfort place is a great place to be, but nothing grows there. Yeah. Leave it at that. Never mind. That's what my pastor used to say. The last 30 seconds

of what I said, just go ahead and scrub it from your memory apparently. I'm just learning. I'm learning this budgeting thing. Alright. Men in black style. Well, here's the deal it's over i tend to lean always towards the better always it's gonna here's here's where the analogy here's where the analogy is better car so it lasts longer all these things yeah it's gonna have you're gonna have to come out of pocket you gotta save it to get what's better yeah that's it there you go go. I like it. All right. Let's see here. Let's go. This is a quick one.

The investing question from Brandy in New Orleans. Poor Brandy. She had to sit there and listen to that last minute. Brandy, what's your question? Hi, Ken. Hi, Jay. My question is, my husband and I are both 22-year public school teachers, and we're about step four, five, and six. Okay. And we're trying to figure out, are we going to,

we have 8% taken out for our state pension plan. They take 8%. So are we taking 15% on top of the 8%? Are we doing 7% to meet the 8%? And are we putting them in a 403B? Are we putting in a Roth IRA? Okay. So let me make sure I understand.

The school takes 8% of your paycheck, each of your paychecks, and puts it into the 403B, right? No, they put it into a state pension plan for our retirement. 403B is extra for us. Okay. So and on your 403B,b like do you get to choose the investments like a 401k it's got some good investment options that you get to select we can choose the investment mix okay as far as particular the stock investment or whatever no but we can choose the mix okay so large cap value small mid good. Okay. So what I would say is

for those listening, obviously we want to get to 15% of your gross income. So because the money, they're taking 8% of your money, you don't get to choose with that pension and it doesn't have a great rate of return. So let's pretend that each of that for you guys counts instead of it counting at 8% counted about half and then do the rest whatever's made up into your 403b. Make sure you're choosing a good mix growth growth and income aggressive growth and international and you should be set. So again, instead of counting it at 8% counted at 4% and do the other 11 into that 403b. All right, great stuff. Thank you for the call and thank you both for teaching and serving in that way. This is The Ramsey Show. Welcome back to The Ramsey Show. I'm Ken Coleman. Jade Warshaw joins me. The phone number for you to jump in is 888-825-5225.

That's 888-825-5225. Let's go to Cincinnati, Ohio where 855-225-888-825-5225. Let's go to Cincinnati, Ohio, where heaven awaits. Heaven, how can we help? Yes. So, hi, how you doing? I mean, I'm talking to heaven. I don't know that it gets much better than this professionally.

What's your middle name? All right. Well, it's actually Miel. It's honey in Spanish, if you know Spanish. Okay. Well, I don't, but this is great. You learn something new every day, Heaven. This is awesome. How can we help you?

Well, I am 29, single with no kids, and I just heard about this show, and I'm hoping that you could give me some really good advice. I'm in about $65,000 in debt. I live with my mom, and I have a low-paying job. I grew up with poor financial habits, and even in moments of having money, I didn't build wealth like I really wanted to. I just got deeper into financial debt. Now I'm feeling scared and stuck.

I really don't know. I don't want to keep depending on people to loan me money for me to pay back and just stay broke. And I'm just sick of constantly being in a cycle. So if you could offer any help or anything, and I heard about the class, but I don't have $80 either. Well, let me tell you something. Let me get that out of the way. All right. We're going to take care of that. I want to ask you really quickly about your job and possibilities before Jay takes over on the debt because she can give you the plan. Okay. I'm just curious, what are you doing for a living? I work at a middle school. I'm an IA. Sure. Absolutely.A sure absolutely love love love love our IAs we've had some amazing IAs in our life uh for our kiddos and so thank you for that work so but

you've got the degree correct or am I right about that so I have my associates in psychology and I haven't finished my bachelor's okay great because of I Because I can't pay. What do you get paid? I get paid $779 a check. $779. You get two of those? I get two of those a month and that's after taxes and I have health insurance and whatnot. Okay. All right. And I don't want to get bogged down here, but this is a part of the equation. What are your opportunities, if you just think about what you have done? Do you think about what is a better paying job, a path for you to where you are making $40,000, $50,000, $60,000, $70,000 a year? Have you thought through that? Absolutely. So, okay. So what I did was sign up to be an in-care provider, a home care provider, which starts at about $25 an hour, but it also gives me flexibility and time, you know, to do other things also because I wanted to do that plus work as an IA because I love my job. It just don't pay nothing.

Got it. Okay, good. Yeah. So here's the deal. And I have a juicing business that I'm starting. Go ahead. What business? So I'm have a juicing business that I'm starting. Go ahead. What business? So I'm starting a juicing business.

Eventually I wanted to grow, but right now I'm just starting off just selling juices from stores and stands and whatnot. So that's also going to be some kind of income. So real quick, I want to hand you over to Jade, and Jade's going to walk you through how to get out of this debt. But I'm glad you've thought of some things. Let me tell you this about the juicing thing. I don't want to discourage you in any way, but that needs to be your third job right now if you have time for it. Or a second job if we go and we get a better job.

But I like the idea of what you have mapped out. And I'm going to tell you, you need to pursue that with the same abandon that you need to pursue these baby steps that Jay's going to walk you through because your ability to make more money right now while living with mom is huge. So you've got to treat that as life giving, like I have got to make more money. And if you can go get something that will allow you to keep the IA job and that's extra money, great. You hear me? But you have got to be crazy intense about making more money right now. And then Jay's going to tell you what to do with it. All right.

Sweet. Thank you so much. All right. All right. Yes, Ken, good job. Okay. My two cents here is I can walk you through the baby steps. You're not going to be able to do too, too much until you get your income up, which is what Ken suggested. And I might also offer this little piece, which is I want you to get your income up so that you can pay your debt off. I think that's really important. But I it sounds like a cycle that you're trying to break and it's very very hard to break a cycle when you're right literally living in the midst of it so it's quick you know what i'm saying because you've got to deal with everybody else's mindsets too because your mom has an opinion you know auntie comes over she has an opinion everybody's got an opinion so i really want to get you in a place financially where you're able to remove yourself from that position.

That's going to be so, so, so, so, so important. Because here's the thing. Here's what I know. You start making some money. You start making some headway and people see it. Now you're the one who's got money. And now everybody's coming to you. And that just adds another layer of all right i gotta tell these

folks no i gotta tell them you know i'm trying to do my thing so just let that marinate somewhere in the back um your position as ia is it 40 hours a week or do you have a good amount of extra time it's um it's 40 hours a week but i got it's from 7 30 to 2 30 okay and you don't have kids so until until you move into this home health care thing where you're doing 4,000 and more, I really, really want you to pick up something that's earning you any money. And I say this to anybody listening.

Sometimes we wait around because we're like, it's not making maybe the money that I think I should be making. But in this case, making any money is better than not making any, right? So you going over and picking up whatever it is, But in this case, making any money is better than not making any. Right. So you going over and picking up whatever it is, Instacart. I know folks who make, you know, can make a thousand dollars in a weekend on Instacart.

And that's not even including your your afternoons after school. So I think that you can be double your income just by you picking up anything. OK. Right. So that's that's what we're doing as we work towards this home health care idea. You're $65,000 of debt. Can you tell me what kind of debt it is right quick? My car, I owe about $20,000 on that.

Okay. And then college stuff, past banks, but it's the college and the car that's most of it that like student loans yeah how much and i haven't even started paying on those but that's about 20 000 okay so 20 000 car 20 000 student loans i'm missing 25 because you said 65 oh yeah so that's just um like um like there's a car, an old car that I have to pay out that I really haven't started. Um, and that's about, that's about 700. I owe a bank about, um,

a thousand, um, one bank about a thousand and a couple more banks about, around that much, like around 500 um what else so a couple a couple of 500 ones a couple of thousand dollar ones those are just little personal loans like micro loans yeah okay and then we've got the credit card for 700 i feel like i'm still we're still missing a good chunk yeah we're still missing so i gave that number just based off of i don't know okay just ballparking honestly but the car the car and college are the most you know right what's your car payment shameful things my car payment is 647 girl oh heaven what's the car worth oh man well she's selling it we're gonna sell it are you upside down you

got equity in it um i think it's upside down i'm sure it is fine but i definitely got um i got these crappy payments because my credit stuff how far away from work do you how far away from work are you not far about 10 minutes 10 minutes listen i want you out of this car and if you're upside down if you call them and you find out you're upside down i want you to do anything you can do to get out of this car payment so let's say it's worth 20 let's say you owe 20 but it's worth 18 you got to come up with two thousand dollars any way you can in any way that you can that is legal because i want you out of this car payment because 647 dollars would be everything to you right now yeah and and and you live close enough to work you get you a two thousand dollar car or you walk or you jog or you get one of those razor scooters but

we're getting extreme because listen, Ken, when you have to break these cycles, you have to go into the extreme because all of that gravitational pull is trying. Listen, that gravitational pull will break her ankles. So she might as well get on a razor scooter,

but she's got to get free. I condone all of it except for the razor scooter. Get you a razor scooter and get you The kids will think you're cool. Oh, boy. I don't know. This is the Ramsey Show. Welcome back, America. You are joining the conversation about your life with you here on the Ramsey Show.

It's America's show because we're talking about things that no other show talks about. Your money, your work, and your relationships all together. We want you to win. 888-825-5225 is the number. The fabulous Jade Warshaw joins me. I'm Ken Coleman. I'm not fabulous. You're all right, Ken.

But I'm here. You do all right. I'm all right. I'll take that. I'm all right. That's about as good as it gets. I'll take it. I've got three teens. I're all right, Ken. But I'm here. You do all right. I'm all right. I'll take that. I'm all right. That's about as good as it gets. I'll take it. I got three teens.

I'm never right. I'm being told all the time I'm cringe. Oh. My daughter likes to tell me, Dad, you're so cringe. Oh, man. Sorry, Ken. Yeah, I don't know what any of that means. Although every once in a while, you teach me a word here on the show that I take home

and they kind of look at me like, where did he come up with that? And I don't reveal my source. Tell your boys next time that you guys are having a, you know, it's you against them. Yeah. Be like, I'm telling you, such and such, and I'm standing on business. Tell them you stand on business. Stand on business. Stand on business with the kids. I'm standing on business. All right, I will guarantee you I'll mess that up. I can't wait to see what they say. Yeah, yeah. James, I'll mess that up for sure. It'll come out completely different than that, but I'll try. Speaking of standing on business, Kathy is joining us. I'm confusing millions of people as we speak. And the great part is I have no idea what it means. Kathy's joining us in Milwaukee. Kathy, how can I help? Hi, Ken. Hi, Jade. Hey, how are you? What's up? I have a question on Baby Step 3, getting my larger emergency fund.

Okay. So me and my husband are both on board. We paid off all of our debt and we started sinking funds. Do I include the sinking funds, like the balance of those, in my three to six months? No. Because the sinking funds are going towards future needs that you know you're going to, it's just future purchases, whereas the emergency fund is strictly for emergencies. And emergencies are things that are completely necessary, completely unavoidable, and have

a urgent timeframe is what I would kind of call those three things that you're looking for. It's something that, you know, it's, oh my goodness, you lose a job. And so you have a little bit, you know, you don't have enough money to fully make ends meet. So that would be you pulling a little bit maybe from your emergency fund or something that you're unable to cash flow, but it's necessary for it to happen right away. HVAC. HVAC, right? And so sinking funds really doesn't fall into that. Sinking funds is just a way for us to save separate money. So in essence, you kind of have two savings accounts. You've got your emergency fund, and then you've got separate money that you're saving up for things that you just want to do in life. Okay. So even if it's not like I get annual purchases that I know are going to happen that I

save up for, but for example, like if I'm saving for a new car. Right. But see, and that's why you use this framework. Unexpected, saving for a new car is not unexpected. So that would not be emergency fund. That would be separate savings. Okay. Does that kind of help you? So unexpected, completely necessary, and urgent time frame are the three boxes that must be ticked. Am I leaving anything out, Ken? I don't think that's pretty good. You got it, Kathy? I think so.

Fantastic. Thanks for calling the show. Appreciate it. Really fun. Let's go to Megan now in Salt Lake City, Utah. Megan, how can we help? Ken, Jade, I can't believe I'm talking to you. This is awesome.

We feel the same way about you. We really do. We can't believe we're talking to Megan. Yeah. What's up? So I have a question regarding how to manage and stay within the 25% of my take-home pay when my rent keeps going up every year. It was 25% when I moved in, and now it has been increased to 28%. And I'm trying to save for a house.

I'm currently in Baby Step 4, but I don't know if it would be considered 3B because I have a fully funded emergency fund, but I'm not doing 15% in retirement because I'm trying to save for a house. How much do you have saved up? Huh? How much do you have saved up for your house payment, down payment? Oh, I just got started. I'm about $3,000.

Okay. So there's a couple of things I want to address with this. So you're telling me you've gone up from 25%. And for anybody listening, our rule of thumb here is we really don't want your mortgage or your rent to be any more than 25% of your take-home pay when it starts creeping up and up, especially if you don't see a plan to be able to match it with the income and kind of smash it back down. So that's what she's talking about. So you're upwards to 28% now. It's kind of got you worried, especially with you trying to do this down payment. Do you see a course to where you're

able to up your income 3%? Yes. I'm currently working a second job and I get a raise every year that's around 5% to 7%. Great. And I won't get that raise until August, but I'm just kind of worried because I want to stay within the guidelines. And I think Davis said you could go as high as 30%, but 25 is best. And I'm just- 25 is best. Yeah. Let's look at real numbers. How much has your rent actually gone up? Don't give me percentage. When I moved in, it was 950. And then he raised it, my landlord raised it to 1100 this year. And I think I factored it was about 27 or 28%. So you go up, you go up $150. I mean, I get it like that. That sucks. You're like, man, what? But I love that you've got something that can cover it. Here's the thing. You're doing

extra work. You're trying to accomplish a goal. You want every cent of that money to go towards a goal. But one of the realities of renting is you do have to deal with rent increases. And in this case, you know, unless you say to me, Jade, and I know of a place down the street where I can rent for $850, my lease is up in May and I can go do it. Then I'm like, yes, go do it. So you're going to have to kind of decide a couple of factors. You're going to think to yourself, okay, how long realistically is it going to take me to save for this down payment? Okay. And I don't know how long you've been living in this apartment, but you can also look at

historically how often and how much have they raised the rent. If you've been living there for 10 years and they never raised the rent and this was the first time, then I'd probably be willing to wait it out a little bit but if you're seeing every single year it's going up 100 and 150 dollars and you're like listen Jade I don't know if I want to wait it out my term is about to be or my lease is about to be up then you've got options there you're not locked in but I don't to Ken's point I don't want you to over freak out over the 150 unless it really starts to become a problem because here's where I'm looking. I'm kind of looking long-term around the horizon, but on baby step four, if this is going to take you

more than two years to save for your down payment, after two years, I'm going to tell you, hey, listen, you need to start putting something aside, even if it's 5% or up to your match, because I don't want you pushing off retirement any longer than maybe a two, three year window to save for this down payment. Is that fair? Yes. And I am doing a 5% match on my 401k with my employer. Okay. And because I put retirement off for way too long when I was in Baby Step 2.

So I don't really want to stop retirement. And you don't have to. Megan? I was just wanting to. Yes, Ken? Question. Are you single? I am single.

Okay. I got to tell you, I'm kind of using the spirit animal of George Campbell, because if he were sitting here with me, he would be recommending that you have a roommate for a season. You want to get your own home anyway. And if you could get a roommate, now all of a sudden this is a game changer for you. And especially if we can go 50-50. I love it.

Come on, Ken. I'd consider it. I really would. Let's do a chant. Roommate. Roommate. That would require a move. What's that? I have a studio apartment. Oh,. Roommate. That would require a move. What's that?

I have a studio apartment. Oh, you have a studio. That would require a move. All right. Shoot. So, Megan. That's what I'm trying to avoid. Well, you're okay.

I don't want to move. I understand. But you said it, and I want to remind you. Dave has mentioned many times that these things are guidelines. This is not you being irresponsible. This is not you going out and getting too much rental property. It is what it is. If you can find a cheaper place, like Jade said, great. But right now, I think more income is your play. This has not gone up really crazy. You're going to get a maybe a five to seven percent bump on your salary. Watch your budget, the extra income between your

discipline and the extra income. You gonna be okay but don't freak out about it be watchful in your complex because of if a one bedroom or some situation comes available where you can look at the numbers and go listen with a roommate I could pack in a little bit more do you be watchful for that yeah and I know you don't want to move but if the moving proves your your your financial situation so much more, I'd say the ROI is worth it. But you're okay. You're not breaking the rules.

This is The Ramsey Show. We'll see you next time.