How Do We Save and Pay Off Debt at the Same Time?

Summary

James, a new father-to-be and children's pastor in San Diego, calls into the Dave Ramsey Show for financial advice. With a baby due in March and an $18,000 car loan, he's seeking guidance on financial priorities. The host advises him to pause his debt repayment (Baby Step 2) and focus on building savings due to the upcoming baby. James also discusses an inheritance and his mother's financial support for a house down payment. The conversation emphasizes the importance of financial preparedness during life's significant events, offering a tailored approach to the Baby Steps financial plan.

Takeaways

• 👋 James has recently joined the Dave Ramsey Show community and is seeking financial advice.
• 🏡 James moved from New York City to California during the pandemic and started a new job as a children's pastor.
• 👶 James and his wife are expecting a baby in March, which is a significant life event affecting their financial planning.
• 💰 James is currently on 'Baby Step Two' of the Ramsey plan, having a small amount of savings but also an $18,000 car loan.
• 🚗 The car loan is for a second-hand car, not new, but still incurred a significant debt.
• 📈 The advice given is to pause 'Baby Step Two' due to the upcoming baby and focus on building savings instead of paying extra on the debt.
• 👶 The emphasis is on accumulating savings to cover potential costs associated with the baby's arrival and to provide a financial cushion.
• 💳 James is advised to avoid using credit cards and to switch to a debit card system to control spending.
• 💼 James has an annual household income of $70,000, which will be a factor in determining how much he can save.
• 💵 James has received an inheritance of $19,000 and additional funds from his mother for a down payment on a house.
• 🏠 The inheritance money should be kept separate and used according to the stipulations provided by James's mother.
• 📊 By focusing on budgeting and saving, James is projected to have between $25,000 to $30,000 saved by the time the baby is born.
• 🚫 The advice is to stay current on the car loan but not to pay extra until after the baby is born and the family is stable.
• 🔄 After the baby's arrival and ensuring the safety of mother and child, James can then apply the extra savings towards paying off the car loan.

Q & A

What is the main topic of the conversation in the script?

The main topic of the conversation is financial planning and prioritization, specifically for James, who is expecting a baby and has recently moved to California.

What advice is given to James regarding his financial situation and the upcoming baby?

James is advised to pause his debt repayment (Baby Step 2) and focus on building up savings due to the baby's arrival. He is also encouraged to stay current on all debts but not to pay extra until the baby is born and the mother is safe.

What is the current status of James' financial steps according to the script?

James is on Baby Step 2 of the financial plan, having a small amount of savings, but also has an $18,000 car loan.

Outlines

00:00

👋 Introduction and Financial Advice for New Family

James, a new member of the Dave Ramsey show audience, introduces himself as a recent convert to the show's teachings. He has recently moved to California, started a new job as a children's pastor, and is expecting a baby in March. He is currently on 'Baby Step Two' of the Ramsey financial plan but has an $18,000 car loan. The host advises James to pause his current financial step due to the upcoming baby and instead focus on building up his savings. The host also suggests that James should stay current on his debts but not pay extra until the baby is born and safe. James mentions having some credit card debt that will be paid off soon and an inheritance of $19,000, which his mother has specified for a down payment on a house.

05:01

💰 Financial Planning with Inheritance and Anticipated Savings

The host provides James with a financial strategy considering his upcoming baby and inheritance. James is advised to keep his inheritance money separate and use it to pay off his car loan after the baby is born, which would leave him with approximately $10,000 for his emergency fund ('Baby Step Three'). The host also suggests that James should continue to save towards his home ('Baby Step 3b') after establishing his emergency fund. The conversation emphasizes the importance of being financially prepared for major life events and the comfort that comes from having a substantial savings account. The host reassures James that he is in a good position and encourages him to stay current on his car loan and then use the inheritance to pay it off in full, thus reducing financial stress during this significant life transition.

Keywords

💡Dave Ramsey Show

The Dave Ramsey Show is a popular radio program focused on personal finance, hosted by Dave Ramsey. It provides advice on budgeting, saving, investing, and getting out of debt. In the script, James is calling into the show for financial guidance, indicating the show's role as a source of education and support for individuals seeking to improve their financial situation.

💡Baby Step One

In the context of the Dave Ramsey Show, 'Baby Step One' refers to the first stage of Ramsey's financial plan, which is to save $1,000 as an emergency fund. It is a foundational step towards financial stability. In the script, James mentions they are currently on 'Baby Step Two' but are advised to focus on building their savings due to the upcoming baby, highlighting the flexibility of the plan based on life events.

💡Car Loan

A car loan is a type of debt incurred to purchase a vehicle. In the script, James discusses having an $18,000 car loan for a second-hand car, which is a significant financial obligation. The discussion around the car loan shows the importance of managing debt and prioritizing payments in the context of the Ramsey financial plan.

💡Plastic Surgery

In the script, 'plastic surgery' is a metaphorical term used by the show to describe the act of physically cutting up credit cards to stop using them. It symbolizes a commitment to stop accruing debt and to live within one's means, emphasizing the importance of controlling spending habits.

💡Every Dollar

Every Dollar is a budgeting app mentioned in the script, which is part of Ramsey Plus. It is designed to help users manage their finances and track their spending. The app is recommended to James as a tool to create a budget and make his money behave monthly, illustrating the practical steps taken to implement financial advice.

💡Inheritance

Inheritance refers to the money or property received from a deceased person's estate. In the script, James received $19,000 from his late uncle's will, which is a significant financial windfall. The inheritance is discussed in terms of how it should be managed and used responsibly, reflecting on the theme of wise financial decision-making.

💡House Fund

A house fund is a savings account specifically designated for accumulating funds to purchase a home. James's mother has been contributing to his house fund, as mentioned in the script. The concept of a house fund is tied to the idea of setting financial goals and saving for major life events or purchases.

💡Emergency Fund

An emergency fund is a sum of money set aside to cover unexpected expenses or financial emergencies. In the script, it is suggested that after paying off the car loan with the inheritance, James will have approximately $10,000 left for his emergency fund, which is a crucial part of financial planning and security.

💡Debit Card

A debit card is a payment card that accesses the cardholder's bank account directly, allowing for transactions without the need for a physical check or cash. In the script, the suggestion to switch to a debit card system implies a move away from credit card spending, promoting financial discipline and avoiding debt.

💡Baby Steps

The 'Baby Steps' are a set of financial steps outlined by Dave Ramsey to help individuals achieve financial stability and prosperity. In the script, the concept of 'pausing' on the baby steps is introduced due to the upcoming baby, indicating an adjustment in the plan to accommodate significant life events.

💡Financial Stress

Financial stress refers to the anxiety and pressure caused by concerns over money. The script emphasizes the importance of removing financial stress, especially during significant life events like the birth of a baby, to allow for joy and excitement without the burden of money worries.

Highlights

James joins the Dave Ramsey Show from San Diego.

James has been watching Dave Ramsey's shows since the COVID-19 pandemic began.

James recently moved from New York City to California and started a new job as a children's pastor.

James and his wife are expecting a baby in March.

They are currently on Baby Step Two of the Ramsey financial plan, with a $1,000 in savings.

James has an $18,000 car loan for a second-hand car.

The Ramsey team suggests pausing Baby Step Two to save for the baby's arrival.

James should stay current on all debts but not pay extra until the baby is born.

James is advised to use the Every Dollar budgeting app to manage his finances.

James's household income is $70,000.

He estimates having about $1,000 excess per month after paying bills.

James received an inheritance of $19,000 from his late uncle.

James's mother has been giving him additional money for a down payment.

The inheritance money should be kept separate and used as stipulated by James's mother.

James is expected to have $25,000 to $30,000 in savings by the time the baby is born.

After the baby's birth, James should use the savings to pay off the car loan.

The remaining savings will be used to start building an emergency fund for Baby Step Three.

James is encouraged to stay current on his car loan and pay it off after the baby's birth.

The Ramsey team emphasizes the importance of removing financial stress during significant life events.

Transcripts

[Music]

james

is with us in san diego hi james welcome

to the dave ramsey show

hey guys how are you guys doing great

how can we help

hey thank you for taking the call yeah

i'm relatively new

to uh to the family i started binge

watching

all of your shows since covet happened

um so i'm trying to identify

kind of where i would stand and

everything um

we have a baby coming in in march

yeah welcome welcome to the family by

the way

thank you thank you we got married

january last year

and uh recently in the middle of covet

moved from new york city to california

started a new

job as a children's pastor here um

and pretty much i'm just trying to

identify what priorities should be

obviously i know we need to save for the

baby um we're on

baby step one currently well actually

baby step two

because we have a thousand but we do

have

um a loan a car loan we bought a second

um second-hand car when we got here um

so it wasn't new but it was definitely i

still took out an 18 000

loan for it um and i guess i'm just

trying to figure out okay what priority

should i be

focusing on between now and

i guess next year really yeah and the

baby

well a rule of thumb james is the fact

that you guys are expecting a baby

things shift a little bit here so we

usually always say you're gazelle

intense you're paying off your debt

that's where you guys would be

but because the baby is coming we're

actually gonna pause baby step two and

just pile up money

because you guys just have that thousand

dollar in savings and so just anything

you'd be paying at the

at the debt you want to stay current on

all of your debt but not paying extra on

it

and pile up some savings and then once

baby comes and mom and baby are safe

and good to go then you can apply all

that money besides the thousand dollars

onto your debt so how much debt do you

guys have you have the eighteen thousand

dollar car loan

just the eighteen yeah that's right okay

yeah we do have

a little bit on some cards from this

month but it will be paid off

um tomorrow when i get paid okay so

we're going to tell you and then um

tonight tonight we're going to teach you

to have a thing called plastic surgery

where you chop up the cards and get on a

debit card system where you quit

you quit spending money you don't have

and yeah jump onto

uh every dollar or jump into ramsey plus

and start the free trial

and get the every dollar budgeting app

and it'll help you put together your

budget where you can

make your money behave monthly that way

and so what is your household income

right now

uh we're on 70 000 okay so if you were

to just guess because you haven't done

your budget i can tell

which is fine you're just just joining

the family but uh

if you were to guess how much money a

month

can you pile up if you don't pay any

extra on debt

and your only goal was to build your

savings

um well actually i've done a brief

budget i think at currently we have

about a thousand dollars excess

a month um from every

yep paying off all the bills the

necessary bills and then they're

alone and when's the baby come james

march march okay

yeah and i had one more thing my mom so

i i

also came into an inheritance this year

um my late uncle passed and

i was in his will so he got 19 000 from

that i

obviously tied the tides off of that and

then but my mom's been giving me money

uh two times

like five thousand dollars every couple

months to go towards that down payment

but she

said specifically she wanted that for

that do i just leave that there until

we're at a place to use that or

that's fine just set it over a separate

savings account and just pretend like

it's not there

because she's you know she stipulated

how that gets to be used so we have to

honor that

um not what i normally would do don't

care for that idea but it's okay you're

there

now so so you have 19 000 and i'm gonna

tell you that when you really start

leaning in on your budget and you and

your wife are working on it really

really tight

and you get you get more intense and

more focused you're gonna do more than a

thousand

let's pretend for example purposes for

five months

between now and march you did two

thousand

well that would be ten thousand dollars

you already have nineteen

so that would put you at twenty nine

thousand dollars in savings when baby

comes

i actually have twenty six currently in

the

in the housing one no i'm talking about

the housing

the housing's separate yeah wait is the

inheritance for the house

the inheritance i put into the housing

one no

um no your inheritance is getting ready

to pay your car off after baby comes

okay so okay at the moment it's older

than the same one but i i yeah

i would have only your mom's money in

the house fund

gotcha because that's the money that she

has dictated the give

what the gift is for the inheritance

money is yours to do with as you please

yeah and so what we're gonna have is

we're gonna have your inheritance money

house money separate from mom your

inheritance money plus whatever you can

save between now and baby so you're

gonna have 25 to 30

000 in that account when the baby comes

that's gonna feel pretty good isn't it

yeah yeah a lot of comfort with a new

baby a new job in a new land called

california

and a new marriage and all this stuff so

there's a lot of money here to give you

comfort

for a short period of time anyway now

baby comes home mama comes home

we write a check and pay off the car

that's going to leave you somewhere in

the neighborhood of ten thousand dollars

yes sir for your baby step three

emergency fund and so then you can start

to save

in addition to that towards your home if

you want to we call that baby step 3b

and that's how we would execute the baby

step plans

in your situation so but rachel's

exactly right

excuse me what we've got to do is you

push pause

on your baby steps you do not do the

baby steps when the baby's on the way or

when you've got

some other thing that's on the horizon

that's a big deal like you know you're

going to lose your job in two months

they've announced it

yep you know you push pause and you pile

up cash

to get ready for that then when you get

the other side of the situation

like baby comes or you get the new job

or whatever then you clean out the

account all the way down to a thousand

in your case you're not gonna need to

clean it all the way out because you're

gonna have

more and you're probably gonna have

almost have your baby step three

completed

it's very cool you're in a really good

position yeah and i think some people

who are new to the program

because i know like he said like during

quarantine a lot of people just

binge watch youtube and stuff but even

though the money is in the account even

just from the inheritance

and he has enough money to pay off the

car today you still press pause

because of the big life event so even

though it's there still press pause

it'll be fine stay current on the car

and then again in a few months in march

they can pay it off yeah

and just just because the last thing you

want to do is have

eight thousand dollars in your account

and baby comes

and you have a nine thousand dollar

issue yeah

and then you gotta worry about money and

baby that's right that's right our

money and mommy and so we don't we just

don't need that this is supposed to be a

blessed time an exciting time a

fun time and when you take money stress

off the table it allows that to occur

that way the joy can flow

i'm not worried about anything else so

fun first babies are so fun