The Ramsey Show
How to Escape Living Paycheck to Paycheck
Wed, 11 Dec
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📈 Are you on track with the Baby Steps? Get a Free Personalized Plan 📱 Listen to the full episode for free in the Ramsey Network app. Watch United States of Anxiety exclusively on the free Ramsey Network app! Dave Ramsey & George Kamel answer your questions and discuss: "Should I fix my car or buy another one?" "Living paycheck-to-paycheck on $600K a year," "How do I get my wife on board with the plan?" "How does compound interest work on multiple accounts?" "Should I get my fiancé to sign a prenup?" "How much house can I afford?" "My parents are kicking me out for failing college?" Support Our Sponsors: 🌱 Get 10% off your first month of BetterHelp ◎ Get 10% off Byrna product bundles and more! 🏥 Learn more about Christian Healthcare Ministries 🏡 Get started today with Churchill Mortgage 🔒 Get 20% off when you join DeleteMe 🏦 Go to FAIRWINDS Credit Union for an exclusive account bundle! 🥗 Save 15% on your first Field of Greens order with code RAMSEY 💤 Visit Helix Sleep for special offers! 💻 Visit NetSuite today to learn more 🗂️ Use promo code RAMSEY for 18% off at The Nokbox 💵 Learn more about Timothy Plan 🏛 Get started with YRefy or call 844-2-RAMSEY 🔐 Visit Zander Insurance for your free instant quote today! Next Steps 📞 Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET or click here! 💵 Start your free budget today. Download the EveryDollar app! 🎟️ Get Tickets to the Money & Relationships Tour 🎄Hurry—Your chance to win $5k is almost over! Enter the Ramsey Cash Giveaway today! 🎁 Our 50 days of Christmas deals are ending soon! Get 30% off meaningful gifts. Listen to more from Ramsey Network 🎙️ The Ramsey Show 🧠 The Dr. John Delony Show 🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💸 The Ramsey Show Highlights 💰 George Kamel 💼 The Ken Coleman Show 📈 EntreLeadership Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: How can I manage a special needs trust effectively?
And I wanted to call and ask your opinion on how I should best feel about this. Yeah, I would not do any bonds for sure. Your mom is in a special needs trust? What's her issue? She has multiple sclerosis, has had it for 30 years, and is in a nursing home. Oh, wow. Okay. And the 170 is all the money she has in the world? Plus about $10,000 in checking account, but yes. Okay. That's it. All right.
And how much are you using? Is there a burn rate on it? Are you using it for her care? I have not touched a cent of it in the few years it's been active since I established it. How is she being cared for? Medicare, Medicaid. Okay.
Chapter 2: Should I fix my car or buy a new one?
Okay. All right. Cool. All right. So to the extent we can leave it alone, we can invest it in something that has a longer time horizon to be safe. So just like a good growth stock mutual fund, if you leave that alone five years, you're pretty safe. OK, so I certainly wouldn't put all of it there. I'd be looking for a mix between high yield savings for a big chunk of this.
And then the other chunk, I might do something as simple as an S&P 500 or sit down with a smart investor pro and just pick out some very, very calm growth and income type funds. But all of those funds would be, you know, in the last year they would have paid 20 percent. But the last year the market was up 30 percent.
um which is crazy that's not normal but in a in an average they would probably pay out 10 where the market's paying out 12 where a high yield savings is paying out four so correct you know i'm going to invest some of it not all i'm going to invest some of it not all of it to the extent i'm comfortable i can leave my hands off of it okay what does the next one to two years look like as far as short-term costs
I really don't know how to answer that question. I don't foresee any major costs. But, you know, like, for example, she just had a bunch of dental work done that wasn't covered. But we were able to pay that without having to dip into this special needs trust. So things like that, maybe. But otherwise, I'm not sure.
Okay. Yeah, I mean, if it was me, I'm probably putting like $100 in some mutual funds with a SmartVestor Pro that have a very low volatility, very calm funds, okay? And then I'm going to put the other like $70 into just high-yield savings. But that will at least change your income. Instead of making $4,000 on that $100, you might make $12,000 on that $100, that kind of thing.
I understand. Okay. Outstanding. But you want to be able to access it when she needs it because that's the primary thing it's for. So, yeah, at Ramsey Solutions, just click on SmartVestor Pro and find one near you that you like and sit down with them, and they can teach you some things you can do. Bryce is in Dallas. Hey, Bryce, what's up? Hey, Gary. Thank you so much for answering my call.
Sure. How can we help? Well, I ran into a recent situation. Let me just get into it. But basically, I've driven a 2018 Ford F-150 for about seven years. We ran into an engine issue to where the second cylinder within the engine busted. After taking it to two mechanics, I got the same verdict that it's going to cost about $15,000. It's going to require a whole brand new engine replacement.
And so just considering my options, these two top things have been entering my mind. Either one, I... pay the $15,000 to go ahead and get the engine replaced. This is an F-150 that has about 127,000 miles on it, or I can go toward getting a new vehicle. And the one that I'm currently, let me, maybe I have a lot of numbers that I've just been working through, but let me just give some details.
But it's the exact same vehicle, exact same model. The only difference is it's a brand new year. Considering the down payment that I would make and the vehicle trade-in value that I got from a dealership, Comes out to about $25,000 going in. The vehicle price quoted at is about $40,000. And the current APR rate is 1.9% over 60 months. So ballpark, that's $15,000.
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Chapter 3: What to do if I'm living paycheck to paycheck on a high income?
I own a business, and my wife works with a company. She makes about $100,000 and the rest is my income, and I own a service-based business.
Okay. All right. The way you're discussing this, the language you're using is very general. It's not precise about the numbers, which tells me you're kind of just throwing this over there and just shocked that it disappeared. So if I woke up in your shoes, you've got a level of disgust.
says this is not okay, is what you're saying, we make this kind of money, we shouldn't have no money, we shouldn't have a car payment when we make 600 grand, we should have just bought the car, then what I would do is simply do a detailed budget with your spouse. and come into agreement of what we want to give, what we want to save, and what we want to spend and what we want to spend it on.
And every month before the month begins, every dollar has an assignment exactly. But it kind of feels like, Bill, I went through a period of time in my life where I thought I could out-earn my stupidity, my lack of organization, my lack of detail, and you can't.
If you had a person working in your business that was managing a section of your business as poorly as you are managing your finances, you would fire them for incompetence. And so you've got to kind of treat it that way from an emotional standpoint and do a detailed budget.
And it's funny, Dave, as people make more, especially people who are good at making money, like Bill's good at making money, you're good at making money, you think you can just solve the problem by, well, I'll just make more money as long as we don't overdraft. We're doing okay. But when you do that budget, you realize if this was a business, you go, we are wasting a lot of money in this business.
We could be doing a lot better if we cut the spending, get out of this debt. We might need to sell this investment property. It's not a blessing right now. Might need to downshift some of our giving a little bit until we get back on track. So that's the kinds of things you, the levers you'd be pulling. If this was a business, you need to treat your household the same way.
Yeah. Every... You need to detail it out and then stick to it, and both of you, you and your wife, have an agreement. You're both looking at it. You're not bringing it in, slapping it down on the table and declaring, I have done a budget. You people will live on it. That won't work. Now you get your wife involved in the disgust. It's not okay that we make this much money and we have no money.
It's not okay that we make this much money and we don't invest. So generosity is awesome. Investing is amazing. Enjoying money, yes, you should. All three things. But very, very, very, very, very, very intentional. And right now you're not intentional. You're kind of throwing a bale of dollars over the fence and then coming back to see what's left later and after the family devours it.
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Chapter 4: How do I involve my partner in financial planning?
Well, in a sense, you have a high interest rate now because you have a hurricane tax. That's true.
In a sense. Um, uh, because of the location of the property, um, you know, uh, uh, it's causing you pain. I can use causing, which is cause you asked the question. Well, I mean, the only thing wrong with moving is that you're going to not going to get the same rate next time. Well, whoopie doopie. When rates come down, you can refinance. We, but we marry the house. We date the rate.
So rates are temporary. Yes, sir. And if you're going to pay this thing off in the next few years, if it's at 140 and you go, we're going to aggressively get this thing down to zero in the next five years, the interest rate's not going to matter that much.
Right. Yeah, we planned on paying the house off that we're in now within the next five to ten years.
Yeah, and if you bought one at a similar price range, you could do the same thing, but you didn't have all the insurance costs. Right. So I wouldn't go just upgrade a house and get a way more expensive house and get a way bigger mortgage just to get out of this tax and insurance situation.
It's not necessary. Yeah, buy a similar price range. If your payment goes up a little, so what? But I'd buy a similar price range and make the move. The best way to handle this sometimes is look out 10 years, 20 years, and say, where do I want to be? Okay, if you have this house paid for 20 years from now, what is that insurance cost going to do? It's going to go up every year.
Yes, sir.
Or it's even going to be worse. It's going to be like Florida. It's going to be hard to get at all. Right. And the house is going to go on up in value. There's no question about that. But you live in this constant, you're in a storm zone is what it amounts to.
So 10 years from now, if you move inland and you pay it off, you're going to have more normal taxes, more normal insurance, and you're going to see appreciation just as well. So where do you want to live 10 years from today with a paid-for house? That'll answer your question. This is The Ramsey Show. George Campbell Ramsey, personality, is my co-host. Abby is in Des Moines, Iowa. Hi, Abby.
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Chapter 5: What are my options for buying a house?
Good. Good for you. Okay. Thank you. And so you're going to get your own place. You're currently living with your cousin, but you're going to – is that right? I'm kind of couch surfing. Yeah. But I mean, if you're making five grand a month, you're not anymore, right? Well, the thing is, is my credit just went from like 750 to the 500. So I don't even think I can get a place.
Oh, I think you can. Like a rental. You think so? Sure. You're making five grand a month. And you need to. You don't need to be homeless and divorcing and broke. We need to get a stabilized situation where you're safe and you have a
home of some sort a little one-bedroom studio apartment it doesn't have to be anything fancy but get some stability and then you've got five grand minus rent minus electricity minus food to work with towards your debt and now we've got a now we've got a thing we can project into the future does that make sense couch surfing doesn't project into the future no that's what i'm saying so how much credit card debt do you have
Let me look at my spreadsheet. And is your name on all the cards along with him? $42,000. And what's the plan for you guys to pay this off since you're separated right now? Have you talked about that? Is it equal split payments or what?
Yeah, we're talking about it, and the talks have been like 50-50, but the other... major debt is owing subcontractors, and so that's where we've struggled. Like, who do we pay first, or how do we even, like, make a plan? So when he closed his construction company, he was not profitable? Well... If he didn't pay his subcontractors, honey, he wasn't making a profit. Okay.
Unless he has a pile of cash somewhere. No.
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Chapter 6: How can I get out of debt after separation?
No. Okay. If he has no money and he still has bills outstanding, that means he lost money on the deal, right? Right. Yeah. Did he just blow the money and never paid the crew? How much does he owe subs? He owes subs $30,000. All right. So here's what you need to do. Do you have a car payment also?
I do, but my car just... I owe five. It's worth five. The repair is seven. And where I'm considering moving, I can get everywhere around on a bike because it's warm enough all year. So I'm like, I might sell it. Wait a minute. Where would you move this warm if you have a $5,000 a month job starting next month? So that's where I would be moving to, the job.
Why would you consider? You are doing it. You don't have to consider moving. You're going. Oh, thank you. No, I mean, you take the $5,000 job. Where is it? North Carolina. Okay. Coastal. Why would you not do this? I am. This weekend I visited. I just got the offer. Talking more details this week. I've just been. Yeah. Okay. Yeah.
Not really considering. I mean, you're couch surfing, working three part-time jobs. You have another option to move to North Carolina and have a $5,000 a month job. Yeah, you're going. You're broke. So you got to get your life back. You got to get control. You have control of no variables right now. So this has got to be the anxiety. The stress must be horrendous for you, honey.
Yeah.
Okay, so here's what we're going to do. We're not going to worry about the subs, and we're not going to worry about the credit cards right now. You need to get moved, and you need to get into an apartment, a little one-bedroom studio of some kind, something basic, and you need to figure out your transportation.
When you've got food, shelter, clothing, transportation, and utilities covered, then we can talk about how to settle these credit cards, but you don't need to start making payments on them. You're broke and homeless and divorcing. We've got to fix some of those things before we worry about a stupid credit card, okay? So just put those on the back shelf right now. They're not going anywhere.
They'll definitely take money when you call them back six months from now or four months from now. Then you and your husband start talking and decide what's going to happen with the marriage. If there is a divorce... you'll have to split these bills up some way or another. I don't know what.
And the divorce decree, the divorce judge will approve your all's plan or tell you what the real plan is if he doesn't like yours. And then you can go in and start working your way through this debt, and you can probably settle it for pennies on the dollar. At that point, you're going to be six months behind.
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Chapter 7: Does compound interest work the same across multiple accounts?
George Campbell, Ramsey personality, number one best-selling author of Breaking Free from Broke, host of the George Campbell Show on YouTube, the Ramsey Networks, and, of course, Ramsey Personality. He's my co-host today. Christopher is in Richmond, Virginia. Hi, Christopher. How are you? Hello, Mr. Ramsey. Thanks for taking my call.
Sure. What's up? I've heard you yell at quite a few people about whole life policies. I have a universal life policy, and when I started hearing how terrible the whole life is, where I looked into it, And I don't think it has all the same bad things to what their whole life does, like the cash value doesn't go away when I die. Yes, it does. It would pay out with the policy. Yes, it does.
I called the company and asked them. They said, no, it does not. Yes, it does. Well, they sometimes will claim they can set it up in such a way in very few policies. Do you have a universal B or A?
I think so. What? I don't know if it's A or B. Okay. A B, a universal B works like this. You pay, let's say you bought a $100,000 policy and you build up a $20,000 cash value. Okay. Universal B charges you for $120,000. the face value plus the cash value worth of insurance. So you're purchasing extra insurance that makes it look like you get the cash value upon death, but you don't.
You're just buying more insurance in B. That's all that you're doing, the equivalent of the cash value amount. The cash value amount in 100% of universal policies disappears at death 100% of the time. Okay. Always. It's how they're structured. It's how they're structured.
What? The other thing you said was that whole is 20 times as expensive, and I just did some comp shopping, and my universal policy is about the same as that amount it would cost me to get termed right now. I've had it for a while, but...
Well, there's one of two possibilities there. One is you did your comp shopping with the same stupid company that sold you the universal, and they generally have very expensive term. If you go to Zander Insurance and comp shop, you'll probably find it to be a lot less because they're shopping among a bunch of different companies that specialize in term, and it's much, much cheaper.
The other possibility is universal life works like this. the portion of your premium that you're paying monthly that buys your life insurance goes up every year. Your premium stays the same. But let's say that, let's just make up a number. Let's say your premium is $100, and the first year you bought it, you were 26, and of the $100, $10 went to insurance cost and $90 went to the investment.
later on as you get older the amount going towards insurance goes up okay because every year you're older you're more likely to die and so what can happen with a universal policy that can't that's worse than a whole life even is the lines can cross and actually the insurance cost becomes more than the premium and they'll start using part of your cash value to cover the insurance cost
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Chapter 8: How can I create a budget that helps me save?
Sure. Let's talk about it. Let's say, hey, if something ever happened, I'm going to claim that I brought this money into the marriage if you divorce me, and I'm going to try to keep it. I'm going to make sure you don't get it. But you don't need a prenup to do that in most states. In most states, it was assets you owned when you came in. But I think there's something to be said here.
It makes you think about, okay, are there parts of the way he handles money that you don't respect? Well, see, that's a red flag. That's something to be handled in a pre-marriage. Hmm? I see your point. Not at all. Just we have different finances, so I don't know how to combine or not combine things. I want to be smart.
Well, when you say different, you don't mean he's irresponsible and you're responsible. No. He has quite a bit of student loans left. He just entered the workforce after being in the military and getting his doctorate degree, so he hasn't been working. Cool. A doctorate in what? He's a chiropractor.
Okay. So he's getting ready to start making some money and he's got $200,000 in stinking student loans.
Yes.
Yeah. Yeah. Well, I would not want to use the 400 to pay those in the next 30 seconds, but four or five years from now, I might use some of it to knock the rest of that out if you haven't knocked it out. But I think you guys need to roll up your sleeves and knock it out and then leave the 400 alone. That'd be a plan. That's a good plan.
Yeah, but hopefully you can do that. But if he's saying, oh, I'm going to be in debt for the next 30 years just because that's the way it is if you're a chiropractor, that's a different discussion. That's not a prenup discussion. That's a I don't get married discussion. Yeah, if your financial responsibility gets him to be lazy or entitled, that's a whole different discussion.
He doesn't sound like lazy or entitled, though. He goes for it. He went and got his dadgum doctorate. He's been working his tail off. So I'd go into this with arms wide open right now unless you have reason not to be. Yep. Yep. Eyes wide open and arms wide open. Just like Creed said.
All in. All in. All in. All in. Leave it all on the field. All right. Danielle's in Columbus, Ohio. Hi, Danielle. How are you?
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