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Chapter 1: How does paying extra on your house serve as a forced savings plan?
Live from the headquarters of Ramsey Solutions, broadcasting from the pods, moving, and storage studios, it's the Ramsey Show, where we help people build wealth, do work, that they love, and create actual amazing relationships. Thank you for joining us, America. Jade Warshaw, Ramsey Personality, is my co-host today as we answer your questions about your life and your money.
Open phones at 888-825-5225. That's 888-825-5225. Starting this hour is going to be Anthony. Anthony's with us in Jackson, Tennessee. Hi, Anthony. Welcome to the Ramsey Show.
Hey, Dave, how are you?
Better than I deserve. What's up?
All right. My question today involves, have to do with paying off a mortgage or saving up a down payment for a new house.
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Chapter 2: What should I consider when deciding if I'm making enough money?
My wife and I are, we just became consumer debt free and we will have our emergency fund built up within the next two months. And I just wasn't sure if it's better to build the equity in our existing mortgage. I think we could get it paid off within that two to three year period or just save up a pile of cash.
Well, congratulations. Way to go, man. Thank you. Feels good to get control, doesn't it?
It does. $55,000 in 18 months. There's student loans and a car loan. Way to go.
That's exciting.
Yes, ma'am. Thank you.
So the question is, you're thinking ahead to paying off your mortgage.
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Chapter 3: What are the best strategies for paying off student loans?
Am I understanding that correctly?
Yes, either that or getting a sizable down payment for cash. I don't know which one would be more beneficial.
Well, once you've got your emergency funds saved, walking down the baby steps, then you're going to start putting that 15% away for retirement, right? Do you have anything with kids college coming up? Do you have kids?
We do have a one-year-old little girl. We haven't really started anything on her yet because we're getting out of debt.
That's right. And when the time comes, you'll want to make sure that you're doing baby step five. So opening something, an ESA or 529 for her, making sure you're putting some money aside from that. And then when it's time to start paying down the mortgage, I would not do a lump sum and throw it out. I would make the payments, extra payments whenever you have the money, put it on to the mortgage.
And here's why this is this is the Jade way of saying this. Because whenever you have a stack of money just sitting there, it gets real tempting to use it.
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Chapter 4: How can I automate my financial habits for better control?
Oh, you know what? I think we might need a new vehicle. Or, oh, you know what? We do need a vacation to Hawaii, right? It's easy to think that that money can be earmarked for something else. And so I like the idea of just piling it onto the mortgage when the time comes. That way it's out of your hands and it's building equity and it's that forced savings account.
Forced. Forced savings. That's what a guy I used to work for called it, Anthony. He said, when you pay extra on the mortgage, it's a forced savings account because it's real hard. I mean, you can do it, but it's a lot of trouble to get the equity out of your house to go buy a bass boat. It's not hard to do it out of your savings account.
And so it's just, you know, you're going to stay on task for the move up in-house. And the good news, the weird thing is about paying down your mortgage, it feels like the money's gone, but it's not.
Chapter 5: What is the importance of having an emergency fund?
It's just saved in the equity because you get the money when you sell the house. It's not like you're consuming the money, like you spent it or something. It's not gone. And so it's just, you know, what is a better place? I like the forest aspect of it. And the other thing is when you do get the house paid off, plans might have changed.
That's right. That's absolutely true.
And so even if they don't, that's fine. I'm not saying they have to change, but if they don't change and you're going to sell the house and sell it, they'll give you a big old check at the closing because you ain't got any mortgage. And off we go. So yeah, forced savings plan. It's a good idea to trick yourself into as many smart things as you can.
Absolutely.
Chapter 6: How can I structure my budget effectively?
Yeah. I say automate smart. And so when you automate those extra payments or when you just automatically put those towards debt, it's a smart habit that's automated. Now, the only time, Dave, that I would stack up a pile of money to pay off a debt is if there was some sort of deal that I was getting.
Like if you had a private student loan and they said, hey, if you pay a lump sum, we'll give you some off. That's the only time I might stack up
Well, a 401k loan, you can't pay extra on it. You can only pay the minimum or a lump sum, one of the two. So you have to stack up and knock out a 401k loan. Something along those lines, then you have to. Yeah. But other than that, I agree. Yeah. And, you know, hey, guys, it's a good idea. I got a bunch of auto draft for good things.
Chapter 7: What are the steps to take after paying off debt?
like going into mutual funds, auto draft going into savings, auto draft automatically paying everything so I never miss a discount on all utilities. Everything's full auto. It has been since before it was cool.
Yeah.
Before digital. Yeah. You know, I've been on auto everything. And, you know, what I just said is I'm going to automate smart and make stupid hard.
That's good. Let me call out something, though, because I've been there. When you went from struggle slices –
to a non-struggle situation back when it was struggle slices I hated automating things because I never knew what my money was looking like and somebody could pull that money out of my account overdraw my account and so when we finally got to the situation where okay like money's good life is good that was a hard transition to make it was like the old brain going no no no no
And then the new brain has to go, yes, yes, we we manage our money now. Like, this is good.
So it's not it's not.
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Chapter 8: How can I build wealth after achieving financial stability?
Yeah, I'm not living crisis to crisis. I don't have to control the crisis. I can let the thing flow. And so, yeah, I haven't paid a utility bill in years.
That's great.
Except direct, you know, except direct auto auto auto.
uh deduct or whatever the flip you call it and you know so it's just yeah and i don't know decades like forever simplify it and so yeah uh david bach talks about that in an old book that came out back when my first bestseller came out financial peace he came out a couple years later with a book called automatic millionaire he talks you know just auto drafting into your mutual fund auto that's the beauty of the 401k comes out your paycheck you don't even miss it that's right and uh it's the only reason that the income tax system in america works
Please talk about that, Dave.
I mean, if you had a guy named Matthew that was at your office, and when you got your check, you got cash, you didn't get a check, and you had to walk out and hand Matthew the tax collector...
Like what you did there.
Yeah. You see how I did that? Yeah. Yeah. If you had to walk out and hand Matthew, the tax collector, actual cash out of your check that he was going to then supposedly take to the federal government, there would be a revolution in this country with pitchforks and torches. But the sheep have been lulled to sleep by auto draft out of your check.
And they sure wouldn't be giving him extra to get back later as a refund.
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