QUESTION: Ethan in Nashville is 21 and about to start his senior year of college. He won’t have any debt when he graduates, but now he’s considering law school. He won’t have enough money to cover that, so what recommendation would Dave have for pursuing that while avoiding student loans?

ANSWER: I had a couple in here the other day, and both of them graduated from law school with no college debt—no student loan debt at all from law school. One of them went through the military. That’s how he did it. His wife—I asked how they did it, and he said, “We just worked our tails off, and we lived on nothing.” Now I don’t know where she got her law degree. Law schools are much like colleges in that there’s a huge difference in price from one to another. Depending on what kind of law you’re going to practice, where you graduate from may matter a lot or may not matter a lot.

I’ve hired a bunch of different lawyers over the years for different things. I don’t recall ever asking one where he went to school. Maybe I should. Maybe there are some law schools that are inept, but the last time I checked, you all take the same bar. There are people that graduate from every law school who flunk the bar, so I know it’s tough.

I think the trick is to learn the law to be able to A) practice and be competent and B) to be able to pass the bar. I think you consider what you’re paying to go to a particular school and talk with them and see what kind of deals they’ve got, what kind of scholarships they’ve got, what kind of programs they’ve got and try to work your way through that process.

Twenty thousand dollars is a pretty good start. That’s better than starting from zero. Law school is usually three years. I think not only just trying to get accepted to law school somewhere, but I would also—as I’m doing that—I would look at their prices and say, “I’m trying to get through here, and I have no desire to come out with $200,000 in debt and be a lawyer making … A junior guy working 80 hours a week making $45,000 or $50,000 a year trying to make partner someday maybe sorta kinda.”

That’s what it sounds like for the first year or two coming out. If you make it through that gauntlet in the first year or two, you oftentimes—in a big firm—will get up into the hundreds pretty quick—six figures—and can go in and repay. But as you know, everyone doesn’t graduate from law school, and everyone that graduates doesn’t pass the bar. And 100% of them that take out student loans have student loans. It’s really bad to get stuck with student loans and not end up with the six-figure lawyer income, in other words.

I’m going to fight around the edges of this thing and see if I can’t figure out a way to do it without the loans because I think it can be done. I don’t have a magic answer for you, though, that’s solid that’s the absolute thing that’s this, this, and this. But I would use my $20,000. I would pick my school carefully. That’s two big things, and then the third thing is I would work every one of those for scholarships. You could look at and consider what the military is doing right now. That has issues with it, obviously, but it’s a possibility. It just depends on what you’re doing and what your overall goals are.

QUESTION: Kristen in Oklahoma City and her husband are trying to decide if she can afford to stay home with their son. He makes $40,000 a year, and Kristen makes $40,000 a year right now. Dave is concerned about such a significant income drop and adjusting lifestyle.

ANSWER: You’ve almost tripled your income, but you don’t have much to show for it was my point. You saved $10,000 and you bought some baby stuff, but you tripled your income. I’m just concerned that you make it. I don’t want you to be under an illusion that this is going to be easy.

What you guys have got to do is you’ve got to sit down and say, “All right, here’s what our spending looks like for the last six months, and here’s what our budget will look like on $45,000.” And you have to write it out and say, “This is going to be our take-home pay on $45,000, and we’ve got to be able to live on that.”

You’re going to be tight. You’re going to be real tight. That’s a big house payment on a $45,000 income. That’s going to be like a third of your take-home pay. That’s pretty tough.

I want you to come home. If that’s what you want to do and you want to be a full-time mom, I’m with you. I want you to do that. I don’t want you to do that and then call me back in three years and go, “Well, we just couldn’t make it, and I just kept putting it on a credit card. Now I’ve got $30,000 in credit card debt. What am I going to do?” You have got to freaking live on this.

Now sometimes a police officer can pick up extra work that is very lucrative.

You cannot out-earn doing a budget. You have to do a detailed written budget, and you’ve got to be very, very careful. I think you should try it. I think you should come home. It’s what you want to do. It’s your goal, and you’re convinced you can make it. I’m not positive you can make it, but I think you can. It’s going to depend on you cutting your lifestyle, and a lot of the stuff you’ve been doing in the last year and a half you just can’t do anymore. You’ve just got to take those habit patterns and throw them in the trash because you’re going to go broke if you do that. You’re going to force yourself back into the marketplace by overspending, and you won’t be able to stay home with your child if you do that because you’ll have bills to pay, and you won’t be able to do that any other way or you’re going to force him to quit his chosen career field of being a policeman. Be careful and diligent on the budget.

QUESTION: Brian on Twitter asks if employer contributions count toward the 15% Dave recommends putting toward retirement.

ANSWER: Employee contributions would. Employer contributions don’t. I want you putting 15% of your money into retirement. That’s your rule.

Baby Step 4 is 15% of your income going into retirement. The first thing you should put money into is a matching retirement account. If you’ve got a 401(k) or a Roth 401(k) or a 403(b) and they offer a match, up to the match, you do that before you do anything. Once you’ve gotten up to the match, let’s say they match 3%—we said 15%, so you’ve got to do some more—so you’re going to take the first 3% over in that 401(k), get the match, then you’re going to do Roth IRAs. And if the Roth plus whatever match you have does not equal 15%, then you’re going to go back to your 401(k), 403(b), whatever it is, and fund the rest of it up to 15% of your income.

I want you putting 15% of your income in. What your company matches, what your pension is, what your military retirement is does not enter into that equation. I want you having money in your name that you put in there because guess what? If your company goes broke, you have a pension, you get nothing. Nothing. Ask these people whose companies have gone broke. They got nothing. If you have a 401(k) and your company goes broke, it’s your money. You don’t lose it. It’s in your name. It’s your money. You put it in there. You own it, including the company match that was put in there. It’s in your name. You don’t lose it. I want you in control of your destiny.

QUESTION: Angela in Omaha asks Dave when she can start living like no one else. They’re debt-free including the house, their kids are finished with college, and her husband makes $47,000 a year. They have $750,000 in retirement accounts. Dave thinks it’s time for them to start living like no one else.

ANSWER: If you’re paying a price to win, what does winning look like and what does the math tell you that the calendar date is going to be that you’ve won? Because it’s a math thing. If you’re there, why haven’t we lightened up?

You’ve done ridiculously good. You’re unbelievably successful. It’s ridiculous. You need to go buy cars. It’s ridiculous. You go spend $20,000 on a stinking car. You’re millionaires!

You’re not quite a millionaire, but you’re getting real stinking close. That’s $900,000. So if you’ve got another $100,000 in something else, you are millionaires. You can afford a $20,000 car.

Don’t touch your emergency fund. You leave your emergency fund alone, but you need to go buy a nice car. You’re millionaires.

What’s happened is your husband got—and you got—in cheap mode and real intense and focused to get to where you are, and I’m telling you, you need to lighten up. The other thing you need to do is you’re probably not doing enough giving.

Here’s what I want you to do more than that: I want you to go to lunch with the kids that get the scholarships you’d like to give away. And I want your husband to go too. You need to feel your giving. It doesn't need to be distant and institutional. You need to touch it because giving and enjoying your money—a reasonable level of spending, in other words—are tied to each other because somehow, it’s hard to enjoy when you feel like you’re being . . .

There are three things you do with money. You invest it and save it so you have a quality future. You give it, and you enjoy it. You guys have only done one of the three so far. You need to gear up the other two in order to have a well-rounded, fun life. You are rock stars. You have done a fabulous job. Yes, you have lived like no one else, and yes, it is now time for you to live and give like no one else. I’m not saying get crazy and go spend $200,000 on something, but I am saying let’s loosen up the purse strings a little bit here. Let’s put a little oil in the machine and enjoy the ride a little bit more.

You completely win this argument. Now if we can get old tightwad to loosen up, you and I will have won.

QUESTION: Alex in Los Angeles and his wife are trying to determine how much mad money they should each have per week. Does Dave have a suggestion?

ANSWER: The more detailed your budget is, the less mad money is needed because things are budgeted. For instance, if your mad money is going to your lunches while you’re at work, if you had a “His Lunches” category, then you would need less mad money. You see what I’m saying? The fewer things that are in the miscellaneous category, the smaller amount you would need for that category. I think that’s the big issue.

I don’t want people running around with $500 a week in their mad money. That just means you didn’t do a good job finishing up your budget.

I would save up for a gun as part of your budget. I would break your lunches out as part of your budget. Then I would have mad money. That's exactly what I was describing before I asked the questions because what that does is it keeps you real pure on your mad money because mad money should be unexpected things that you don’t see coming—just odds-and-ends things—and a little bit here, a little bit there. It’s okay for it to be $50 a week, but I would break your lunches out for now, especially at the start of doing your budget. Break your lunches out and do an envelope for lunches with cash in it. Then say, “All right, I want to save $X for a gun.” And she says, “Okay, I want to save $X for a purse,” or whatever. And those are just budget items that you all are looking at and agreeing to.

If you’re doing all of that while you’re trying to get out of debt, then we’re confused. We’re not buying purses and guns while we’re getting out of debt. We’re in the process of getting out of debt, and you pour everything on the debt.

If you want to keep it all in the mad money and kick it on up, it’s okay. But another way to do it is to break it out, and then that makes the mad money actually more flexible because the other things have a line item in the budget. Certainly, that’s the way we do it.

QUESTION: Shauna asks if it’s ever okay to stop paying health insurance to pay down debt. Dave says no way.

ANSWER: No. The number-one cause of bankruptcy in America today is medical bills. It’s not medical bills necessarily from the uninsured. It’s medical bills also from copays and deductibles and no one had any savings.

The number-two cause of bankruptcy is credit card debt.

Let me just tell you, you blink your eyes and you have $200,000 worth of medical bills. One little thing, and you’re just devastated. It’s a bankruptcy event.

No, you do not walk around without health insurance. And I’m not talking about Obamacare and I’m not talking about mandates and I’m not talking about penalties and I’m not talking about any of that crap that the government is mandating. I’m talking about you having common sense, which says you ought to have health insurance. That simple. Then you can get into the philosophy of who pays for it—like I’m supposed to pay for yours or something. Or you’re supposed to pay for mine, but at the end of the day, you’ve got to have health insurance, so you need to go get it and you need to pay for it and you need to do it right now.

That wasn’t unclear, was it?

QUESTION: Alicia asks how to tactfully tell someone she can’t attend their out-of-town wedding.

ANSWER: That’s his problem. It’s not your problem. There isn’t a tactful way to deal with somebody who has temper fits and throws a little fit about everything that’s about them. He doesn’t get to decide how you run your family. “I’m sorry. I can’t come. I don’t have the money, and we don’t borrow money. You’ve got to have a little more communication about things than that. Sorry.”

Furious is furious, and such it is. I can’t control other people’s temper fits. I can’t fix that for them. They have to deal with their own self on that. You can’t do it otherwise. It’s that simple.

QUESTION: Justin on Twitter asks what the best financial decision he can make is before he starts his first year of college.

ANSWER: Raise your right hand and swear, “I’m never going to borrow money.” There you go! That’s it.

How do you follow that up? You have a plan, and the plan is you look into the future, which is not hard to do, and you say, “I need this much money for tuition this semester. I need this much money for housing and food and books this semester. And next semester, I’ll need something that looks a lot like that. My annual college budget is $X divided by 12 is $Y.” That’s how much money you need to come up with per month.

How are you going to do that? It’s probably going to involve living frugally. It’s probably going to involve a written budget and game plan. It’s probably going to involve work—working for money. That’s usually where money comes from. It’s an amazing place to go—work. The more you go there, the more they pay you. You may come up with some great small business ideas while you’re in school. There are a lot of things there that just make a lot of sense.

The biggest mistake I think people make with college—and the parents are included in this stupidity, by the way—is they just assume that in order to be a student, you have to have a student loan—that automatically I’m going to go into debt because that’s how I’m going to be able to go to school. Otherwise, I’m not going to be able to go to school. That’s such a dumb assumption. It’s like saying I can never have a nice car unless I have debt. Oh, really? Why don’t you just save up and pay for it? The average car payment in America is $485 over 86 months. What if you save $485 for 10 months? Would that be $4,850? It’s almost $5,000. Can you buy a pretty decent car for $5,000? You can buy a pretty decent car for $5,000. Do you want to drive that car for the rest of your life? No. It’s a hoopty. You don’t want to drive that the rest of your life. It’s a little above a hoopty, actually. But if you did that for another 10 months while driving that $5,000 car and saved another $485 a month, you’d have another $5,000 to go with your $5,000 car. Would that be a $10,000 car 20 months in—not even two years in?

You save up and pay for things. You’ll always have nice things doing that, and your nice things won’t have you. Oh, there’s a weird idea.

QUESTION: Justin in Spartanburg has a year left in college, and he has no idea what he’s going to do with his life. He takes out $5,000 in student loans each semester, and he’s trying to craft a financial plan for his life. He can finish school without taking more loans if he cuts his lifestyle. He needs to know if Dave thinks that’s a good idea.

ANSWER: Don’t take money out in the first place. You say you can get a job and cut down your cost of living so you can get through the rest of school without borrowing, so that’s what I’d do. I’d cut down my lifestyle.

The goal here is education, not borrowing money to invest. Assuming your degree is usable and you use it, education is one of the best investments. If you get a degree that you don’t ever apply, then you need to work on that part of it. You need to start aiming at something from the career side. It will motivate you to finish and it will motivate you to do other things. You cannot borrow your way into prosperity. I wish we could send that message to Washington.

QUESTION: Jason asks how debt to family should be prioritized in the debt snowball. Dave explains.

ANSWER: No. If there’s no big pressure, no breakdown in the family—you didn’t borrow money from your grandmother, so now she’s having to eat dog food because she gave you her last dime, nothing like that—then you just treat it like any other debt in the debt snowball. The debt snowball’s not about interest rate. The debt snowball’s not about risk, and it’s not about default. It’s about what is the lowest balance? Pay that off next. The only time I make an exception for that is when we’re dealing with something like the IRS, and you put them at the top, and you knock them out as fast as you can.

You need to go ahead and just put family in line. Again, if somebody’s got a problem, there’s some kind of other pressure and your dad’s going to lose his home because you don’t pay the loan back where you borrowed money from your dad, then you’ve got to reprioritize it. But otherwise, if there’s not, then you don’t. “Well, I don’t ever have to pay it back.” If you don’t ever have to pay it back, then you need to not have a debt. It’s not a debt if you don’t ever have to pay it back, but if you’ve got to pay it back, it needs to be in the debt snowball with the exception of extreme situations.

QUESTION: Allen on Twitter asks what Dave’s opinion is on return-of-premium life insurance policies.

ANSWER: I would never buy a return-of-premium insurance policy of any kind.

Let me tell you what return-of-premium means. It means if you don’t use the policy by the end of the policy, they give you all the premiums that you have paid back. That sounds very nice. It is very nice except that feature is an add-on, and they charge you extra for that return-of-premium feature. That extra charge that they’re charging you gives them the money to return your premium. In other words, whatever you’re paying for that return-of-premium feature extra, if you had invested that much, you could have returned your own premium because you would have had the money. This is what’s known as a gimmick. It’s a way to get you to save money with insurance companies—maybe save money.

Sometimes people even do this with long-term care insurance. They’ve got a return-of-premium feature. All kinds of different policies now are offering a return-of-premium feature. If you don’t use the policy by the end of the policy, they return all the premiums you have paid in to that point, but with what you have paid extra to have that feature, you could’ve returned your own premiums. So don’t fall for stuff like that. Something that sounds too good to be true is.

QUESTION: Barbara on Twitter wants to know how to use the debt snowball if her budget can’t support all of her minimum payments.

ANSWER: You don’t. Your first goal is to get and be and stay current. Something’s got to give. You’ve got to sell something that’s got debt on it to get rid of the debt like that car payment. You may have to amputate the Tahoe. Something’s got to go away, right? Or you’re going to have to take an extra job or you’re going to have to sell something or you’re going to have to take an extra job or you’re going to have to sell something. Something’s got to move here. You’re not in Congress.

You can’t continue to be obligated to pay more than you have coming in. You have a problem. So don’t go there. I would clean that mess up immediately. You have to get current before you can start your debt snowball. Once you’re current, your first Baby Step is $1,000 in the bank, and your second Baby Step is to begin the debt snowball listing your debts smallest to largest.

QUESTION: Steve in Georgia says his dad opened a credit card a few years ago and made Steve an authorized user to help him pay for expenses while he was in college. His dad is now delinquent on the card, and he’s receiving collections notices about it, and it’s on his credit report. Does he owe this money?

ANSWER: No. An authorized user is not liable. The account is in your dad’s name, not yours. You are just allowed to use the credit card. You never signed anything.

Now, Chase has no ethics and they are not above trying to collect from someone who doesn’t owe the money. They know you don’t owe the money, but they are not above trying to get you to pay them. They’d probably try to get me to pay it if they could.

Get them to remove you as an authorized user. Send them a letter, certified mail, return receipt requested, so you have proof of it. Tell them that if they do not remove you as an authorized user immediately, you are going to sue them.

Technically, you should not be reported to the credit bureau. But you can report anything, even inaccurate information to the credit bureau. You as the consumer have rights on removing things on the credit bureau that aren’t associated with you. Someone else’s account that you are not liable for should not be reported. Even though they routinely do it, they shouldn’t because you are not legally liable for the debt when you are just an authorized user.

I would challenge that as an error on your credit bureau. The problem is that the stupid people at Chase will keep downloading this information onto your bureau as long as they can because they will try to bother you and bully you into paying a bill that you really don’t owe by any stretch of the imagination.

QUESTION: Matt in Oklahoma City and his wife have about $63,000 in the bank, and they owe $47,000 on their house. Matt is considering paying off the house early, but he’s concerned about Murphy moving in once he does. They make $100,000 a year, and the home is worth about $250,000. Dave advises Matt to pay off the house today.

ANSWER: We’re only talking about nine months—maybe 12 months—but somewhere in there is the only discussion you and I are having. You can either continue like you are, and somewhere around a year from now, you’ll be debt-free. Or you can write a check today and be debt-free today, and you would have $20,000 or so in the bank. The next month, you would have that plus $3,000–5,000, and the next month plus $6,000–10,000, and the next month plus $12,000–15,000. So three months from now, your savings would no longer be $20,000 but would be $30,000-something.

I think if you sit down and actually look at it that way, it doesn’t do your security gland as much damage to pay the house off today, because we’re not really saying we’re going to limit your emergency fund to that low point. It’s a very, very temporary low point.

Dave and Sharon Ramsey would write a check and pay the house off today. Then we would continue paying what we were planning to pay on the house back into the emergency fund to build it up to three to six months of expenses back up to that comfort level. In your case, you like six months, probably, just because you do. Then you have no payments at all, and you’ve got that six months of cash and now you’re in a position to really do just about anything you want to do from this point.

QUESTION: Matt on Twitter wants to know at what net worth he should consider umbrella insurance. Dave explains.

ANSWER: Probably $500,000 net worth or greater. Let me help you understand what net worth means because even the politicians don’t know what it means, apparently. Your net worth is what you own minus what you owe. If you have a $600,000 house that you owe $625,000 on, that is a negative $25,000 toward your net worth. It’s not your asset base; it’s your net worth and net of debt is what it amounts to.

A millionaire is not someone who makes $1 million a year. That is not the definition of a millionaire—not by anybody’s definition except politicians who are twisting things and throwing phrases out there. A millionaire is someone whose assets minus their liabilities—what you own minus what you owe—are $1 million. If you own a $1 million paid-for home and have no other money, you’re a millionaire by definition. That is the definition of a millionaire. A billionaire would be the same thing. What you own minus what you owe—that determines your net worth. It is not your income. There are a lot of millionaires who do not make an income of $1 million a year.

I would get umbrella insurance, which is extra liability insurance, when you reach about a $500,000 net worth. Prior to that, I would carry a $500,000 of liability, which you’ll be carrying for the rest of your life anyway, on your homeowner’s and on your car insurance and any other policies that you buy that have liability attached to them. But once you get above that, you can pick up another $1 million in liability insurance called an umbrella policy that attaches to the top of that and covers everything for an additional $1 million for about $200 a year in most states. It’s a great buy.

QUESTION: Ben in Nashville and his wife want to know the best way to learn how to efficiently budget other than by trial and error. Dave tells him trial and error really is the best way.

ANSWER: You know, truthfully, trial and error is the best way, and that’s why we say in The Total Money Makeover it takes about 90 days to get it right. The more years and months that you budget, the more accurate you’re going to be—the more able you are to anticipate things. So just cut yourself some slack. It’s not something you can microwave. It’s more of a Crock-Pot thing. Just give yourself some grace.

I don’t mean just bail on budgeting or to give yourself grace to go on a spending spree, but I am saying that if you just make an error straight up on the budget—you just underestimate something or overestimate something—just correct it the next month. Keep at it.

The thing that you’ve got to think about is the first month you did a budget: 70—80% of it was accurate, but the other 20% will drive you nuts. Then the second month you do it, you’re going to knock off about half of that stuff. You won’t do it again. You’ll get it right. The third month you do it, you’re only going to have three or four things that pop up every so often that you just miss—you didn’t think about that. “Dad-blame it! We were doing so good, and then we forgot about that,” you know? It’s that kind of an experience, and you’ll adjust. But you’ll get most of the kinks out of it—90-something percent of the kinks out—within 90 days. Three budget cycles—three months—and you’ll find most of your trial-and-error things.

That is the most efficient way that I’ve ever come up with because there’s just no way to say . . . there’s no template that’s big enough or detailed enough for your life because your life is different than the people next door to you.

We have general guidelines and ideas and concepts and a few forms—as you found—in the back of The Total Money Makeover book. But still, at the end of the day, there’s just a lot of stuff that’s hard to figure out, and it just shows up and smacks you in the face.

Just say, “It’s okay if we’re not perfect the first two months. The third month, we ought to be getting pretty close to perfect. From then on, we’re not going to be perfect, but we’re going to have a discussion about those little areas.” Your miscellaneous category, so to speak—your mad-money category for each of you—is going to get smaller and smaller as you more carefully refine the budget and more thoroughly refine it, but I think you’re probably doing better than you’re giving yourself credit for.

QUESTION: Ryan in Los Angeles wants to know why he should invest in mutual funds given all the fees they incur. Dave warns Ryan to take that advice with a lot of caution and goes on to explain why using a professional will statistically cause him to do better investing.

ANSWER: Obviously, this particular guy has done well, and I know people who have bought stocks and done well with stocks. I know a lot more people who have done poorly with them.

The studies that have been done of individuals buying and selling single stocks on behalf of their own account using whatever strategy—from a book or a money magazine formula or whatever formula like this guy—he’s got it figured out supposedly, ha ha—they average about a 7% rate of return where the S&P 500 has averaged about 11.69% through the years. If you just bought an index S&P 500 fund, you’re going to beat 90% of the people who play single stocks. You’re not going to have the tremendous upside, but you’re not going to have the tremendous downside.

You’re not going to have that story to tell your golfing buddies about how you made $X on this or that, but I’ve got to tell you . . . for every one of those stories that those guys have, they should tell you the other story of the one that got away—the time that they lost their butt on something because they were playing a game and they missed a trade by three hours, the market shifted on them, and they’re basically day trading. There are very few people who really make money doing that. It’s stuff out of the movies, mainly.

I know a lot about it, and I could develop a stock trading formula. I’ve been licensed in all of that. I’ve been trained in all of that. If I didn’t do anything else all day long and I just sat and did that, I could develop a little stock trading formula and then print a book and say, “Dave Ramsey’s stock trading formula” and all that. It would be a lie because my personal investments do not include any single stocks because I don’t like the risk.

Here’s the thing. Take Fidelity or American Funds or Vanguard. You’ve got a team of people leading one of those mutual funds that has literally billions and billions of dollars in it. If the people running that fund—if there was a formula out there for buying stocks that was proven, they would all be using that formula. So anytime someone says, “I can sell you a book or a piece of software. I’ve got a system,” and they’re not running a billion-dollar mutual fund, it doesn’t play out. That’s kind of like your guy saying “day job.” But this guy’s day job is to run a billion-dollar fund or a half billion-dollar fund, and if there were a formula, they’d be using it because those funds want to buy stocks to create returns for the mutual funds.

I think it’s a bunch of crap. I really do. I don’t doubt that particular guy has done well. I don’t do it, so I wouldn’t tell you to do it. It would be inconsistent.

QUESTION: Michelle in Washington, D.C., and her husband owe $300,000 in student loans. Their debt-free date is 10 years away, and she’s worried about retirement since she’s 37 years old. Should she start saving for retirement while paying off the debt?

ANSWER: No. I hope you’ve got an income to match $300,000 in student loan debt. If you spend that kind of money on your education, I hope you learned something that’s valuable in the marketplace. I think you have an income problem in ratio to your debt anyway.

If you wait 10 years and start saving at 47, will you be okay? Yes, you’ll be okay. You would not be as okay as if you started saving five years sooner because you increased your income and cleaned up this mess even faster. I think that’s the thing you’ve got to face and have to look toward there before you do anything else. That’s a big part of this.

QUESTION: David in Montana is a college and career counselor. He’s working with a senior in high school who just found out her dad is not planning to file taxes and hasn’t done so for five or six years. She won’t receive $5,000–6,000 in grant money if these taxes aren’t filed. Dave warns David that his approach has to be careful.

ANSWER: The problem is, you’re—on behalf of his daughter—walking into a man’s house with muddy boots on, trying to tell him how to live his life even though what he’s doing is stupid. I agree with that. It’s stupid on two fronts. One is not filing your taxes is what’s known as a criminal act. Not filing them for five years will get you put in jail. It’s a problem. Yes, it’s stupid—not to mention that his daughter is going to miss out on $5,000 or $6,000 worth of money here, and he doesn’t seem to care, which is kind of weird except that he’s scared about it.

He has come a long way for a guy who doesn’t fill out taxes, because a FAFSA is harder to fill out than taxes.

He’s just afraid. He doesn’t know what to do, and he’s stuck.

Here’s what you might try to do, and you’re going to have to be very careful with this because you’re going to create an explosion if you’re not. I can just tell you A) he’s an entrepreneur and B) he’s resistant to this, and C) he’s not asking your opinion. You’re really walking in here with muddy boots into his living room. If you can get a cup of coffee with him somehow and offer to help … I would just say, “So-and-so told me that you haven’t filed in five years, and so that makes it very difficult for you to file now, which presents a problem for her because she doesn’t get the $6,000 worth of money. Truthfully, sir, it’s a problem for you. I wouldn’t want to see you get into trouble. If I could help you, I’d love to help you. What I could do is I’ll get with one of Dave Ramsey’s Endorsed Local Providers—the CPAs—that know how to catch up back taxes like this and know how to help you get filed. You might not even owe any taxes. But not filing is a criminal offense, and I wouldn’t want you to get in trouble.” Don’t let him accidentally think you’re threatening him with that, because you’re not. You’re just saying you don’t want this for him, and you’re trying to help him. In the process of doing that, of course, the kid’s going to get the grants. He could get this mess cleaned up and she could get the grants, and you can help him hook up with a CPA that works with people who haven’t filed for several years. If you were in his shoes, you’d be kind of scared. Just try to get over on his side of the problem and offer to lift. If you get much resistance, you’re probably done.

You could also bring up that he has other kids coming up, so this is $6,000 per year per kid. This is probably worth $50,000 or $100,000 to his family in money that’s available for them to get an education, and he doesn’t have to worry then about not having filed his taxes or worry about the IRS come calling with a criminal thing.

Even if he saw it as a big help to his family, he might not be able to see his own way through getting this problem solved. That’s why I’m saying if you can direct him, go to our website daveramsey.com, click on CPA under ELP (Endorsed Local Provider) for taxes, and they’re used to working with people “coming in out of the cold.” If you don’t do that—and I don’t want you to say this to him because he may take it as a threat, and I don’t want to push that button with a guy like this—you could tell him that a financial coach told you if you come to the IRS, they don’t press criminal charges hardly ever, but if they find you, that’s when they do it. It’s much safer for him if he comes in out of the cold on his own. That’s the truth.

I think he’s stuck in not knowing what to do about him while still trying to love his kid well. If we can help him get unstuck without him perceiving that as a threat or that you’re minding his business for him—if you push either one of those buttons, you’re going to have trouble.

QUESTION: A Twitter listener asks if a budget should change every month. Dave says yes.

ANSWER: Yes, because every month, your life changes. Now some things don’t change. We spend about the same thing on food every month at our house. If you had a house payment, it would be the same every month. If you had rent, it’d be the same every month. That doesn’t change. So you have some fixed items in there that are just auto-entry, so to speak.

We heat, at our house, with natural gas. Our gas bill is much higher in the winter than it is in the summer because we don’t use much gas in the summer. Vice versa on electricity. We cool in the summer. In Tennessee, we burn electricity to keep that air conditioning running, so my electric bill is higher in the summer. Christmas is always in December, so that’s a different month, and you buy turkey usually at Thanksgiving to have the turkeys over that are your family. You have to do all of that, and all of that is different every month. You look at that month and say this month the kids have soccer pictures. This month the kid’s going on a field trip. This month we’ve got to buy back-to-school clothes. This month… You itemize out those things so that your budget is an accurate reflection. You can’t have that perfect month from Heaven. It doesn’t exist.

QUESTION: Montgomery in New Orleans moved to New Orleans four years ago to work for a professional sports team. He was let go and got another job quickly but is now ready for a change of pace. He’s thinking about moving cold turkey to another city. How much savings should he have in place for that?

ANSWER: What is wrong with taking every waking hour that you’re not on the job and finding a job in the other location before you go? The good news is Austin, Texas, isn’t that far from New Orleans. I would just assume before you left the dock with your feet that the boat had pulled up. I’m kind of thinking you find a job over there. Why don’t you take two weeks and go to Austin and find a job before you quit?

You just want me to tell you to be impulsive, and I think you’re going to end up freaking homeless. I’m not going to tell you to be impulsive. You have a job. You’ve got money to eat with. You have a thing to do.

I think you ought to leave and go to Austin, Texas. I agree with your plan. I’m just adding one step to it called wisdom, and let’s have a place to freaking land when you get over there. That’s all I’m doing, dude. I’m telling you exactly what I would tell my own son if he called me with this.

I think you ought to go. I think you’re done with New Orleans. Austin’s a great city. It’s booming. I was just down there the other day. They’re wonderful people. I’m not against New Orleans either, by the way, but I think you’re done with it and you’re done with this government job. You want to get out there in the private sector and make something move around. I’m with you on all that. I want you to do all that, but just move over there and hope this works out? Add one step to it, and you don’t have to have all this stress.

If you want to go over there and burn through your savings, you can. I’d spend two weeks at least trying to land something to where I can feed myself when I get over there even if it’s an interim-type thing. Even if you found two really good part-time jobs, at least you knew that you weren’t going to burn up your cash when you made the move. That’s how I would do it. When I was 20-something years old, I might not have done it that way because I didn’t always do things that were wise. But that’s how I would do it today, and that’s how I would recommend you do it.

If you want to go over there and just burn through your money while you hope you find a job, you could do that. I think that’s a waste when you have this perfectly good two weeks of vacation laying here. Use it to go look for a job. You’ve done nothing morally wrong with your current employer. Set up some interviews before you go. Work for a few weeks to do that. Then take your two weeks and plan it in the middle of summer.

Again, I think Austin’s a great town. I think the economy’s moving. I think you’ll be able to find something. But go over there and land on something. That’s how I would do it.

QUESTION: Joshua in Tennessee and his wife are working the Baby Steps and have their budget in place. Sometimes their budget gets busted because of the home improvements and various things they are doing. He wants to take that excess money from the emergency fund, but she wants to take their restaurant and fun money to make up the difference. Who does Dave side with?

ANSWER: Overspending should not be an emergency. On this, I’m going to side with her, but the big thing is to find out why you’re overspending. If you budget a set amount, you must have something to cut you off and keep you from running over on those home improvements. You have to calm down when you are in Home Depot.

You can use the emergency money and call this an emergency. If it’s happening repeatedly, it’s really not an emergency anymore. It starts to be a predictable event, so you need to set aside more for home repairs or maybe not run your home repair budget quite so close. You have some slush money there for contingencies if you have a problem.

Overall, month to month, if you bump into something such as having $200 budgeted for car repair and the repair turns out to be $250, I would prefer that you take it from somewhere other than the emergency fund. If you say that you’re just going to cut back on restaurants this month because you have to fix the car. That’s how we did it, and we didn’t touch the emergency fund except for big stuff or real scary emergencies.

For little ticky-tacky stuff like flu shots, we didn’t hit the emergency fund for that. We simply adjusted some of the other categories more like your wife is suggesting.

There are three or four answers here. Both of you could be right. Overall, I don’t want this happening repeatedly. What that tells you is that you need to adjust the way you are doing your home repair budget to give yourself more room.

You can do it either way, depending on how big it is. We try to take the small stuff out of other categories like your wife would. If that happens repeatedly, we try to adjust how you’re building the budget so that we don’t get hit every single time with it.

QUESTION: Dale in Pittsburgh is about to buy a $9,000 motorcycle. He has the cash, but the dealer is offering a 0% financing deal. Does it make more sense to finance the motorcycle and pay the cash on the mortgage, which has a 3.875% interest rate? Dave doesn’t like that idea at all.

ANSWER: If you take 3% of $9,000, that’s $270. We are having this discussion over $270. You are going to play footsie with snakes over $270. Not a chance.

QUESTION: Brian in Indiana has $14,000 in savings. What are essentials for the 3–6 months of expenses?

ANSWER: What would it take you to operate your household per month? There are all kinds of things you can put under essentials. What does it take to operate your household reasonably for a month? Then multiply that by three or six and you’ll have the right amount of money that you need set aside to be in good shape.

Everybody gets real technical about, “Do I need three? Do I need six?” And you can get technical for a while because you want to start Baby Step 4—investing in retirement—and move on to Baby Step 5 and start saving for kids’ college and that kind of stuff, but you’re going to reach a point in your wealth building that you’re going to enjoy having a good-sized emergency fund. There is a peace that goes with having no debt and a good-sized emergency fund. You reach a point that you’re not concerned about it being too big. You don’t want to be crazy about it being too big, but I’m not concerned if I have six months instead of three months. I’m not concerned if I figured out that essentials or expenses were a bigger number, thereby use a bigger multiple thereby I ended up with more in my emergency fund.

An emergency fund and having no debt just creates a ton of financial peace—two words that don’t go together, kinda like airline service.

QUESTION: Matthew on Twitter asks Dave to define necessities on a budget in today’s world. Dave says necessities haven’t changed.

ANSWER: Today’s world hasn’t changed any of it. Necessity are food, shelter, clothing, transportation and utilities. Food (and that’s not eating out), shelter (and that’s nothing fancy), and clothing (you probably have enough in your closet. Shut up!). These are your necessities. They’re needs versus wants. Transportation—you got a bike? Or get you a hoopty if you can save up $500 or $1,000 to get started, keeping the brakes and the license and the insurance on it and gas in it. That’s transportation. Food, shelter, clothing, transportation and utilities. —That’s paying your light bill. That’s not a $600 cable package because I have to have the NBA, NFL, super-double-triple twist sports package. You can get those things if you want them, but those are not needs. They’re wants.

Go back to ninth-grade civics class. In ninth grade, they teach you civics, and these are food, shelter, clothing, transportation and utilities. Those are necessities. Everything else is a want. There are some very important wants. I want you to have life insurance on your family. I want you to have a will. I want you to have health insurance. I want you to have some other things, and you want to have some other things—a nicer car, a nicer house, some nicer clothes, the luxury of being able to eat out sometimes. But those are wants. They are not needs.

Very few Americans—a small percentage—struggle with needs. There are a lot of things we want that we can’t do, but there are very few of you that struggle with your basic needs. Yes, there are a few hungry people, but they’re such a low percentage in this culture that most of you have nothing to whine about. Now it’s just about wants. There’s nothing wrong with acquiring some wants, but you need to define them correctly.

QUESTION: Jeff on Twitter asks if going to an Ivy League school is worth the extra debt. Dave has a simple answer for Jeff.

ANSWER: There is no piece of research that indicates that. None. As a matter of fact, there is research that indicates the opposite. The Wall Street Journal did a thorough piece of research on “prestige universities.” They found that the vast majority of Fortune 500 companies’ CFOs, COOs and CEOs were trained at a public university or their state university.

It’s mythology that you “get ahead” as a result of that. Someone might say that you get the connections. With who, other people that are in student loan debt?

QUESTION: Constance on Facebook is single, and her brother has agreed to be her accountability partner. What are some rules people have with their accountability partners? Dave gives Constance his guidelines.

ANSWER: Most accountability partners with someone in any area of life have a relationship with that person in addition to being the accountability partner. Very few people pick out a stranger that they have no other relationship with. I like to tell people to just change their hat.

If I’m going to be the accountability partner for my 20-year-old son in college on an issue, then I have to remind him right now I’m going to take off my dad hat, and I’m going to put on my good-friend-who-you-trust-and-checks-on-you-for-accountability hat. So I’m putting on my accountability-partner hat—not my dad hat. That’s the way this conversation’s going to go.

In your case, it might sound like this. Your brother needs to stop a second and not be your brother, meaning he forgets about you tickled him until he peed his pants or whatever. He has to take off that hat, and then he has to put on the other hat that says, “Hey, I’ve been coordinating this class. I’ve watched a lot of people do their budgets. We’ve been successfully living with our budget. I’m your quasi-financial counselor accountability.” He has to put that hat on, which would involve a whole lot less emotion and a lot less baggage to talk to you about this. And you have to take off your “I’m the sister, and I remember the time he ripped the head off my Barbie doll” hat. Take that hat off, and you’ve got to put on the hat of “I’m the student, and I’ve submitted myself to someone who is more of an expert on this budgeting stuff than I am, so I’m looking for this person’s help.” You just change the hats.

What happens in family businesses or in situations like this is people forget to change hats. It’s not that you ever forget that he’s your brother, but you’re looking at this advice through a lens that doesn’t involve the baggage—good or bad. If I were giving you advice on your budget and I said something that sounded weird, you would raise your hand and go, “Foul! Throw a flag out. That sounds weird. Explain to me why you’re saying that.” But you would do that, and I wouldn’t get my feelings hurt because you didn’t trust me because in the third grade I tore up your homework. None of that comes up. You need to change the structure of the relationship for this purpose only, and then later on you can put on the brother hat and the sister hat and throw Frisbees in the backyard or cook Thanksgiving dinner together or whatever. You just change that back and forth.

That’s how, for instance, I work so smoothly with my son-in-law, who runs our real estate, or one of my daughters, who runs our family foundation, or Rachel Cruze, our other daughter who is Dave Ramsey to the youth of America, taking out our youth message all across America—high school and college students. When I’m talking to Rachel here at the office about something she did on stage or needs to do on stage, it’s as her boss—as a seasoned, nationally known speaker who’s been on stage in front of 10,000 people multiple times. I’m not 24 years old and brand-freaking-new at this. I’m talking to her from that book of experience. I don’t have on my daddy hat. She needs to react in the same way she would react to anyone she works for. You wouldn’t roll your eyes and sigh loudly if your boss told you to do something, but you might if your dad told you to do something. You just change hats there a little bit.

When we’re at work, my kids don’t even call me Dad. They call me Dave. When you’re in a meeting with a bunch of other executives and one of the people says, “Dad,” you just threw a trump card in the middle of the table. You changed the dynamic of the meeting. We’re real cognizant about that, and that’ll help you with relationship rules and boundary rules.

He shouldn’t go anywhere across a boundary that a financial counselor wouldn’t go, and you shouldn’t let him—unless he changes his hat and says, “As your brother, I’ve got to tell you I think you’re freaking nuts.”

QUESTION: Mike in New York lost his job about three years ago and fell eight months behind on his mortgage payment. He got another job and is trying to catch everything up. He sends full payments along with partial ones to make up for the amount that he’s behind, but the bank has been returning those. Now they are starting the foreclosure process. What should he do?

ANSWER: I would call them back and have this conversation: You have been trying to work this out and do not want to go through the modification process. You simply want to catch it up. You don’t have the $12,000 you need today.

You talked with your financial counselor, which is me, and he suggested a forbearance, which is a workout plan. Your proposal is to give them $6,000 today and then make double payments until the other $6,000 is caught up. I will bet that you can get them to do that.

What you could do while you’re messing with them and negotiating with them, you might be able to save up the other $6,000. Start the negotiation with forbearance, and then tell them your financial counselor said they should do this because you’re making $130,000 and you can show them that.

Tell them there’s a valid reason why this won’t reoccur. It was due to a drop in income from your layoff. The income has now returned and you were a good customer before and you’ll be a good one again. You are basically making a sale here.

You are convincing them that if they grant this one act of mercy, that it’s going to be good business for them. But if you talk to them about it for two months and mess with them, save up the money while you talk to them. Up until the foreclosure, you can completely catch them up. If they stop taking your regular payment, pile that up in that account as well because you’ll need to catch that part up as well.

Don’t let this slip away from you by any stretch of the imagination.

QUESTION: Ron in Pennsylvania is accepting a new position out of state. He and his wife will be in the new area for a minimum of two years. He's not sure if they should rent or buy a house. Dave says if they buy, they will probably lose money.

Dave's ANSWER: Very seldom does it make sense to live in a place for two years and then sell it unless you get a great buy on it when you purchase it and are able to sell it for retail very quickly without any trouble. Most properties in the current marketplace don't go up enough in value in two years to offset your cost of sale. It's cheaper for you to rent.

If you bought something at 70% of its value, you could turn around and sell it for 100% two years from now and, even if the real estate market didn't move, you'd be fine. But if you bought something for 95% or 100% of the value, you are going to lose money when you turn around and resell it in two years. You are better off to rent.

That's why we tell a lot of military families to rent, because a lot of times they are stationed somewhere for just a couple of years. They buy something and can't get it sold, so they own rental property all over the United States. Every time they move, they wind up with another rental house. That certainly wasn't their plan. They just thought owning a house was a good idea.

Most of the time, owning a house is a good idea. But there are times that it's not. When you're not going to be in a place any longer than you are, I'm renting in that situation.

QUESTION: Ethan in New York wants to know what Dave thinks about credit card churning. Dave's opinion about this is pretty much the same as with anything else involving credit cards.

Dave's ANSWER: The concept is to run up the credit card balance as high as you can and flip it from card to card to get the points off the cards, whether it's airline miles or whatever.

I've met thousands of millionaires, and I've never met one who said he or she made their money credit card churning or that airline miles put them over the top. You are barking up the wrong tree here; there's no money in this. It's a bunch of crap where people are just spinning their wheels. You might make a little bit on it if everything goes just right, but there are a lot of ways that it could go really wrong.

Here's an idea: With all the energy that you spend on that and the risk you're taking, you could have actually gone and made some money. You want to find out what people who have money do, and do what they're doing. They live on less than they make, they work hard and get better and better at their chosen fields so they make more money. They live on a detailed plan, they save and invest. They stay out of debt and they don't look for some kind of a gimmick or get-rich-quick scheme. These are the common traits of people who have money.

Now, study poor people. What do they do? They do title pawn, lottery tickets, spend everything on Friday night and are broke by Monday morning. Figure out what poor people are doing and do that if you want to be poor, and figure out what rich people are doing and do that if you want to be rich. If you want to be skinny, study skinny people. If you want to have a great marriage, study people who have been married for 30 or 40 years.

My point is for you to mimic success. I look at the credit card churning thing like extreme couponing. If you want to go through all that trouble for that small an amount of money, you could. But it seems like a dumb, dumb idea. I would tell you to stay completely away from it.

Dave's ANSWER: You don't need to have a car that's worth as much as your income. There is no way to possibly get ahead with that. This car has to be sold, and that will get rid of half the debt. Then get her a $1,000 or $2,000 car that she can pay cash for until she can save up and buy a little better car.

Your rule of thumb is this: Never buy an automobile that is more than half your annual income. Every car that you buy goes down in value like a rock. Don't buy a car that is that high a percentage of your income, and you never buy a car that has debt on it.

The other thing is that she has an income issue. We've got to do something on the short term called a part-time job to get her income up. And in addition to that, do something long-term in terms of her career to where, in five years, she can make $40,000 or $60,000 or $80,000. What track does she need to be on for that, or what classes does she need to take? That will hopefully help her move it forward.

QUESTION: Angie in Nashville and her husband just paid off their home. Now they’re looking at what their next steps should be. They have kids who are 7 and 9, and they have no college savings for them. They do have $300,000 in savings and earn $3 million a year. Dave helps Angie formulate a plan.

ANSWER: Above that, what I would do with an endorsed local provider or whoever does your mutual fund investing is have them do some calculations and figure out, first, where to put the kids in school so you have a target to save for, then start doing monthly savings to hit that.

If I were in your shoes, any extra money I can squeeze out of the budget, I would accelerate the college fund because Sharon and I really enjoyed when college saving was done. When we had it over and the kids were not yet ready to go to college but we could check it off, we liked that.

After college and paying off the house are done, then you max out every retirement option available to you. With your income, I guess we’ll lump-sum the college savings then. Also with your income, when I am working with high-income earners such as athletes or artists, we ask them to set their household budget up on a generous budget but not a ridiculous one.

For the fun of it here, I’ll say $300,000 as a baseline. You buy your travel and your clothing and eating out and all that on that money in our example. Then I suggest you take any money you make above that, and this is what Sharon and I do, we set aside a tenth for our tithe, and we set aside a percentage to every dollar above our baseline.

So, for example, every dollar above our baseline means we give 10% of it to our local church. Then you set aside 40% for taxes. That’s half the money. Then you divide the remaining half among three things: additional giving, investing and some additional lifestyle. You can set those percentages at whatever you want; it’s your money.

An example of that would be when I was meeting with an athlete a while back. We were looking at this and he said, in addition to his tithe, I’m going to give an additional 10% to charity of everything I make over my baseline. So that was 10% of that 50%.

Then I’m going to raise my lifestyle a little bit because as I do better, I want to enjoy it. I’m going to put 5% down for lifestyle. And I’m going to invest 35%. With that investing, don’t try to get über-sophisticated and über-complicated. You’ll get yourself into a mess. Keep it simple and with stuff you understand.

You already own one income-generating property. I might throw some of that into an account until it was big enough to buy another property and pay cash for it, then another property and another. That’s what Sharon and I do. We buy a lot of real estate, and we throw a lot of money in mutual funds. I look for low-turnover mutual funds in this case because I don’t want to pay taxes on the gains, and if they don’t sell the stocks inside the mutual funds, then I don’t have any taxes until I sell out of the mutual funds.

QUESTION: Jake on Twitter asks Dave for some tips on bargaining. Dave tells Jake what he does.

ANSWER: The first thing you need to know is places like Best Buy, H.H. Gregg—those kinds of places—do not have huge margins. Lowe’s, Home Depot… You’re going in there to get a washer and dryer. You’re going in there to get a microwave. You’re going in there to get a refrigerator, a television. The margins are not 50%. It’s not like you’re looking at a $1,000 item, and they paid $500 for it. They don’t have anywhere near that kind of room in those things.

The biggest place they make their money is when they can sell you those rip-off extended warranties and get you to finance something. Even if they can get you on the 0%, nothing down, no payments until tax time, 90-days-same-as-cash—that kind of crap—90% of that does not pay off during the 90 days, and you convert that to high interest rate payments at 24% or 36% interest. That’s where you get messed over, so stay away from the finance plans. Stay away from the extended warranties. If you can’t afford to fix the stupid thing and exist with the manufacturer’s warranty, don’t buy it. That’s where their margin is. That’s the big area. Best Buy will wear you out with that crap when you go in there. It’s like they’re extended warranty Nazis or something. It’s crazy. You’ve got to stay away from those things.

How do you get a bargain? Usually the best way to get a bargain on stuff is last year’s model or scratch-and-dent. There is margin in that stuff because at that point, that stuff’s almost throwaway. I bought a 60” plasma several years ago. At the time, that was a $4,000 television. It was a floor model, and they kept it on all the time because it was on the floor, and the screen got burnt. If you don’t know what that is, if you leave the same image on a plasma for days on end, it will leave that image burned into the screen. They had kept this on ESPN, so the ESPN logo was kind of burnt in the bottom right-hand corner. The only time you would see it if you were on another channel would be if something moved behind it that was the right color, and you really had to be looking to see that it was burnt, but it was a burned screen—no question about that. It was a floor model and all that stuff. It was a $4,000 TV, so we stood there and talked about it a little while at one of the electronics stores, and I was able to buy that for about $700 or $800. It’s a perfect plasma. I’ve still got it. Nothing wrong with it at all.

That’s how you get bargains. You don’t just buy top-shelf, first-drawer everything. But if you go in there and want to buy the brand-new thing that just got shipped in there and there’s nothing wrong with it and it’s in the box and perfect, they don’t have a lot of room. I would flash cash. I would go in there with $100 bills. I want a bargain. I would study the market. Don’t just buy from one store all the time. Find out what that washer and dryer or television is being sold for at several different places. Compare, compare, compare. Look for sales. If you have a store you prefer to deal with, just tell them there’s a sale over at So-and-So, and if they’ll match that sale, we’ll do something on that.

If you take a match-the-sale and last year’s model and a scratch-and-dent, you can really get your appliances for $.30 or $.50 on the dollar of brand new, top shelf, out of the box. If you want brand-new, cutting-edge-everything technology, there’s just not a lot of margin in that. You’re not going to get big bargains on that because they don’t mark it up versus, say, furniture. Furniture and jewelry are the highest retail mark-up items—at least double—in the typical case. You go in the normal furniture store, the normal mall jewelry store, the retail jewelry outlet, you’re talking double what they paid for it.

You’ve just kind of got to know a few of these things. Be willing to hunt and shop, compare. Coupons. Flyers. Sales. Then step back and be patient. Look for that scratch-and-dent item, that last year’s model. Maybe a color that wasn’t exactly what you wanted depending on the use you’re going to have for the thing. Then when you get really, really, really rich because you do this kind of thing for a long, long time, you’ll see this kind of thing as a game from that point forward. It’s like a game. It’s like going hunting or fishing. You’re trying to catch something. You’ll do it sometimes for the game, and then there are other times when you’ve got the money because you’ve lived like no one else and you see something you want that’s brand-new and cutting edge, and you just buy it because you can now.

That’s how most people stay broke though. They just go in and whatever the store says, they just buy it and put it on payments, buy the extended warranty, and then end up paying 24% interest because they didn’t pay it off in 90 days, and it’s back charged through the 90-day contract. They just buy it, and then they’ve got payments coming out their ears on their rototiller. They’ve got payments on their John Deere tractor—an $8,000 freaking lawn mower!—and you make $38,000 a year. What’s wrong with your brain? That’s what you’ve got to avoid. I’m not against a John Deere lawn mower. If you want one, get you one. The point is don’t let one get you.

You’re buying things while you’re building your wealth that allow you to continue to build wealth. If you’ll buy things like no one else, later you have the opportunity to buy things like no one else. I can tell you my wife Sharon Ramsey to this day—every shopping expedition is a bargain hunt. It’s like a game to her. She wants to come home and tell me how much money she saved, which means she spent money, but she does. You can’t stop once you start. It becomes a way of life.

It’s such a good question, Jake. That’s the kind of question rich people ask. Rich people buy not only bargains but they buy bargains on high-quality items that last. If you buy something that is cheap quality in order to save money, you’ll have to turn around and replace it soon anyway. Instead of buying a brand-new Dodge Neon, they’ll take that same amount of money and buy a high-quality used luxury car of some kind—maybe a Lexus or a BMW, maybe a Ford or a Chevy. I don’t know. Instead of buying the little gerbil in the wheel that’s going to get tired, they go ahead and buy that Thoroughbred that’s got a little gray around the muzzle. It’s value. High value. It’s a high-quality item, and they’re okay with it being used. They’re not buying it for what you think. They’re buying it for its utilitarian value. Even something like buying a watch. You won’t see them pick up $9 watches, because those are throwaway watches. They may not spend $30,000 on a watch, but they’re going to pick up a quality watch that they’ll wear for years.

I have three watches. One of them I have had for 10 years. I wear it almost every day. It works. I learned that kind of stuff from rich people. If you will figure out what rich people are doing and do rich people stuff, guess what? You get to be rich people. If you do poor people stuff with money, you’re always going to be poor people. If you’re rich people and you do poor people stuff with money, you’ll become poor people. If you’re poor people and you do rich people stuff with money long enough, you will become rich people. It’s habits, and it’s a way of thinking. It’s a mindset about your life and about money. Are you a consumer, or are you an investor? It changes everything.

QUESTION: Sherry in Pasadena and her husband are considering not paying their mortgage. In the long run, is it better to suffer now than to struggle and be in the same spot in five years? They owe $612,000 on their house, and it’s worth between $450,000 and $500,000. Dave doesn’t agree that they should default on their mortgage after hearing the numbers.

ANSWER: How do you we know where we’re going to be in five years? You don’t.

I still don’t hear that these bills can’t be paid. With an $11,000 tax refund, you need to change your W-4 by enough to bring home another $1,000 a month. You don’t need to be giving the IRS $1,000 a month in order to get a refund with no interest. You’re loaning them money.

I don’t think the $4,000 is worth getting foreclosed on when you make $150,000. Do you need to roll up your sleeves and clean up some of these other messes—get this truck paid off and begin to work through this rehab loan? Yes. Are you guys needing to go on beans and rice, rice and beans for a while and straighten up some of your debts? Absolutely. But is this house in a situation where you need to throw up your hands and get foreclosed on? No, not with a $4,000 payment making $150,000 a year. Absolutely not.

I do think your husband needs to sit down with you and the two of you together need to work on this budget. You need to work out a different budget every single month and look at exactly where you are. You need to quit eating out. You’re not going to be able to go on vacation and those kinds of things until you get some of this mess cleaned up. You guys are just ditty-bopping along being normal Americans and buying everything in sight. That’s what you were doing. That’s how you got in this situation. Now you’ve had to pull the thing back and change direction a little bit. I think you can make it. I really do.

QUESTION: John in Tucson and his wife were set to do a remodel on their home after becoming completely debt-free, and his wife fell in love with another home before they could start it. They bought the house with a mortgage. Now he has some buyer’s remorse. He has a chance to get back into their previous situation. Should he do it?

ANSWER: Here’s what happened. Here’s where the buyer’s remorse comes from. It comes from two things. One is you hit your goal, and you have a new set of values. You made a decision that’s contrary to your values, and your values are now, “I want to be debt-free.” The second mistake you made was that you impulsed a decision. You make enough money to impulse things and get away with it, but this one got you.

Most guys are happy living under a bridge, so you’ll be happy living wherever you live. It doesn’t matter. You’ve now put this out there. If you take this back, I think you’re going to have a relationship issue, aren’t you? If you want to go back, I don’t have a problem with that. I think you can work your way through your mess you created, but here’s the trick: Learn your lesson. The lesson is there’s not anything I want badly enough to go into debt, and I’m not going to impulse these decisions anymore that put me there just because I’ve got the income to work my way out of stupidity. That’s where the buyer’s remorse came from. You didn’t think this through. Your decision was not made in wisdom; it was made in impulse. That’s where buyer’s remorse always comes from—when you impulse something. Anytime you impulse into something, then you wish you hadn’t. That means you did not think through and use wise decision-making processes to make a solid decision that you’re comfortable with.

I think you’re probably going to go forward with it. It’s not going to kill you. You get the mess cleaned up, but you just learn. One is there’s not anything I want badly enough to go into debt again. Two is I’m going to make my decisions more deliberately because mistakes mess people’s finances up more than all the positive things you do put together. I’m okay with it either way, whichever way you decide to go, but just make sure you walk out of this with lessons learned.

QUESTION: Patrick in Missouri wants to know why Dave doesn’t like it when people properly manage their credit cards and pay them off each month. They pay no interest and he even got a free trip to Europe from using it. He and Dave have a discussion about it.

ANSWER: I doubt I can, but I will answer the question. Number one, the credit card company did not give you a free trip to Europe. The credit card company is not going to lose money on transaction after transaction after transaction year after year after year. The fallacy is that you feel like you have somehow outsmarted a multibillion dollar company that studies human behavior at unbelievable levels. This particular calendar year, you may have beat them.

Over the scope of your life, you spend more when using credit. When you use a credit card over and over and over with the idea that you’re getting a free trip to Europe because you’re building up your miles, you spend more. Study after study after study has shown that human behavior shifts. An example would be at McDonald’s, when they started taking credit cards many years ago, they found that the person using plastic at the counter rather than using cash spends 47% more because when you actually use cash in day-to-day expenditures, you spend less. I understand you’re using it primarily for business, which is what you were saying. That exact example would not necessarily apply to you.

In a good way, you are very unusual. It’s not going to bankrupt you. You’re not playing over in the stupid zone, but it’s more of a hypothetical or philosophical discussion. I have found—and the credit card companies have found—that on average, you would be less than one half of 1% of their customers. Can 0.5% people handle snakes and not get bitten? Yes. It doesn’t mean I’m going to start recommending snakes.

QUESTION: Jason in Salt Lake City left the country seven years ago for two years. He gave power of attorney to his parents over his finances, and while he was gone, his parents ran into some difficult times. He came back to $20,000 in debt and gave them another $20,000 of his personal income. He’s getting married and wonders if he should declare bankruptcy.

ANSWER: They stole $40,000 from you and still have a power of attorney in place. Holy crap, dude! I understand that your parents are thieves. This isn’t a time for understanding. I think these people have extreme misbehavior.

No, you’re not bankrupt, but you have to go get that power of attorney now. It means you have a big pile of debt since they aren’t going to pay it. How the debt shows up makes you want to go file bankruptcy, but it doesn’t make you bankrupt. The debt is legal. You’ll be held to it because you gave a power of attorney. They exercised it.

Your parents obviously have boundaries issues, and you obviously have a problem with dealing with your parents for some reason. You’re intimidated or something. You’re getting married, and you owe your wife more than that going forward. The number-one thing on your list is you have to sit down with your parents. You’re going to have to be very blunt. You’re going to have to have a backbone. You don’t have to be mean, but you do have to be blunt for the good of your wife. It’s not fair to your wife for your parents to be hanging out there with a machete over the top of your head at all times.

You have to get all of the information on these loans, and you start working them. You start with the fraud victim division and explain to them that if these accounts are not signed with a power of attorney—if they’re signed with your name—that you will not be paying them. If they are signed by your parents as power of attorney on your behalf, you are liable, and you will have to begin to work out deals with them. If they signed your name, they can’t do that as a power of attorney. They have to sign their name as power of attorney for Jason. One is identity theft; the other you’re bound to. If your name’s on there and that’s all, that’s straight-up identity theft. You file a police report and furnish a copy of the police report to the fraud victim division of those banks, and you don’t pay that bill. On the ones that they signed as your power of attorney, you’re paying those. That falls under you being 19 years old, stupid, and having parents who don’t have any character. And I’m sorry for that. That breaks your heart, but that’s where you stand. I’m sure they were great in other ways, but on this, they’re really scummy.

You’re going to get one of two reactions from your parents. You’re either going to get contrition and an apology, or they’re going to be so arrogant that they become defensive and angry. In that situation, you’re going to have to become much more direct for the sake of your wife. Do not allow your parents to abuse your wife. You’ve got to put a boundary in place.

QUESTION: Brent works full-time and was presented with a business opportunity. From the outside, it looks like a pyramid scheme, but the deeper he looks into it, he doesn’t think it is. He doesn’t know much about multi-level marketing firms. Should he bother getting involved with this? Dave breaks down how these things really work.

ANSWER: Multi-level marketing has good and bad associated with it, and both of those are earned. You will be paid for recruiting and motivating and replacing lots of numbers of people who will sell the product. You’ll make a little bit selling yourself, but 98% of your money will come from you building a sales force.

There is no ceiling on your income, and if you have the skill set to hire and train people over a long period of time, and they have a good business plan, you could make some great money.

The bad part is that these things too often take on a level of enthusiasm that makes them start to feel like a cult. You start to look at everyone you interact with as a recruit and you have no relationships in your life anymore that aren’t transactional. They break down their manners and decorum to the point that no one wants to be around them.

The other way that it’s bad is that, in their enthusiasm, they get so excited that they end up lying about what you can make. You aren’t going to work three hours a week and make $100,000 a year doing anything; that’s a lie. This is going to take a long time and it will be very hard, and you can’t lie to people.

QUESTION: Travis and his wife are paying off their debt and renting right now. They were given a $20,000 Roth IRA from her parents and he was thinking of using that for their house down payment. Bad idea, says Dave.

ANSWER: I wouldn’t cash out a Roth IRA to buy a house, ever. You have to look at the opportunity cost here. What you are in is a tax-free situation. Just have a little patience and you’ll get your house, and you don’t have to destroy your investment plan in order to get the house. We always think of these things as trade-offs, and they are not. It’s just a matter of delay.