[Music] Dave Ramsey here and this is the last episode of our limited series real estate the Ramsey Way today we're talking about how to get rid of the ball and chain too many homeowners are dragging around the mortgage I know paying off your mortgage early seems impossible but it is completely doable and people do it all the time but how can you do it and why would you want to put in the extra effort well stick around to find out why paying off your mortgage early will rev up your wealth building Journey Carl is next in St Louis hey Carl what's up hey how are you doing Dave so glad to talk to you uh really excited on the here with you thanks um so uh my wife and I have kind of been in debt most of our life and um boy I wish I found you 20 years ago and we paid off so much of our debt um we paid off my car a little quicker and after that we started putting that car payment towards car and we got sick and tired hair car and started putting extra from savings to it and we kept our savings at a set level and put the extra against that car and I was talking to my financial adviser about a week ago and she's like oh my gosh you just got one more month of this just pay it off you're going to feel so glad you did and so I did I paid off the car and Bo it I feel excited so the only debt we have remaining is our house and uh we owe $45,000 on the house um we have 35,000 in savings um and uh my financial advisor is like oh man you should just just put 25 of that against your house you can pay that off in four months then and just be done with it and then build your savings back up and so I was kind of like you know should I leave more in savings should I just follow that just just take a big 25,000 chunk against savings just knock the house out quick or should I just keep paying on the house more and knock it out in about nine months good for you wow well I like your financial advisor I thought you might I mentioned your name to her so much of the time yeah she uh she hates debt she hates debt bad and and that's good because your income once you get it all freed up is she she knows the truth is going to become your most uh powerful wealth building tool when you're not giving it all to someone else as a way of life and you're beginning to experience the emotions of these numbers in the last few months it sounds like and it's very exciting for you I'm I'm I'm proud of you super ex okay so we teach a process very that comes from the same principles that she's leaning on that's why she and I like each other I can tell and um so baby step one is save $1,000 you've done that okay baby step two is become debt free other than the home and you've done that baby step three is have an an emergency fund of 3 to 6 months of expenses okay okay so I don't want your savings below three months of household expenses so if your household expenses are three grand a month then we can go with her plan well without a house payment it would definitely be you have a house payment you have a house payment still yeah once that's knocked out with house payment it's probably okay with house payment monthly expenses is probably um well probably pretty close to three okay all right well no that's not true I don't think it's that much I'd say it's probably I mean the house payment is's um um I make 145 my wife makes 48 right about 48 she couple hundred a year okay and so um uh um yeah and if you take you said there's 35 in there right in your savings yes and 40 on the H or 40 or 45 on the house 45 in the house okay so if we throw 25 at it leave 10 in there like she suggests uh that means we have 20 left on a $200,000 household income and you're done by Christmas then yeah it be done by Christmas for sure yeah okay I don't want you below 10 because are you okay with 10 um borderline but but um I just want you to gauge everything around you and be be very wary because if you have a $115,000 event we got a problem dude and you make 200 Grand and that's silly the other idea I had that I kind of threw at my wife is um we were putting what up you know the first thing was um take our house payment put our two car payments against it and then put the exra we're putting from savings which takes us to a house payment of 5100 a month we're just kind of keep cranking it up and so my other idea was every month you know pay that and then pay an additional five grand from savings and kind of see how we feel as we're going with that that would be okay too um yeah I just don't want if I could establish real comfortably what three was I mean I'd be more comfortable with 15 I'd probably do it if it was 15 but people often call me and say I have enough money in my savings account to pay off my house today and it would leave me with $1,000 left in my account and I would tell them no and I I'm the get out of debt guy and I'm still telling them no because I don't want you sitting there with $1,000 at this stage of your financial plan now at the beginning of your financial plan when you're broke and got a bunch of other debts and everything else you're living on beans and rice but this is more intentional than it is intensity at your stage and so I just want to be wise and careful even though I'm as excited as you are to get you out of debt so I'm guessing that either way you're out of debt by Christmas yeah it's going to be really close if not I mean if we leave a little bit more near it's going I think we're I mean another way you could another way you could work it is you know another you know we're just keep manipulating the numbers here here but if you said okay let's just call it 3 to 6 months let's call it 20 grand throw uh the rest of it at it and then just start chunking on the house you're still going to make it and if you don't reach over and pull 10 out and take it down to 10 for one month yeah in December but just go you know December I'm done as long as I don't go below 10 in my savings but you could if the math works the math works on throwing it at the dead or it works in throwing it in the account and then pulling out of the account so either way is fine um and uh but I I would not stop are you saving for 401k I would not stop that absolutely yeah my wife puts about 11% in I'm putting about 7% in I'm putting about another 8% into a uh ra IR okay yeah you're getting you got the right numbers and I wouldn't stop that either so the the difference is only whether it's uh Christmas or whether it's March that's the only difference and at and when you're 75 5 years old that Daye won't matter I I like the advice Dave and I'd actually be a little bit more cautious with that savings because if if it's me and I really want to get this because it's just intensity he sees the Finish Line how could you make five to 10 grand extra that's what I'm looking at I I I like that savings posture I really do having that just in case a big event happens because you're talking about the difference between three months so it's great advice I certainly agree with you I would personally I started getting a little nervous to that going lower than 15 myself I was like yeah 10 or 15's got to be your floor yeah for sure but I mean you could just throw money you know leave the saving sit like it sits and throw money at the house and then when you get within Striking Distance of taking it down to 15 then do it in one lick yeah then you're sitting on savings the whole time while you're waiting to do it and um that won't mess you up either you'll still get there in exactly the same period of time exactly and so yeah it's a great place place to be though Carl I love where your head's at and I I like that you found a financial adviser who's understood that getting out of debt is the key to Building Wealth because not having any payments you know what you can do if you don't have any payments anything you want I mean it opens up the door baby it's uh Americans live in such bondage that we don't even know what it's like to be free yeah I was getting ready to say if you're new to the show and you're listening and watching Carl is a great example of where you can be you know he started off by saying I wish I had found you 20 years ago but they've they've jumped into the pr and now he's looking at the Finish Line he can't get there fast enough it's a wonderful wonderful place John is with us John's in Tampa hi John how are you good sir how you doing today better than I deserve what's up so I have my wife in the background listening she works at mortgages some prior Marine Corps veteran we recently sold our property that we owned and we stood to gain $175,000 from a property we own another house and our goal is should be debt free we follow we follow your principles both go to church and we owe about 100 uh about $120,000 the property and $18,000 car payment uh today when I finish work I'll be going to pay off that car uh our question uh collaboratively is do we do a recast and put 50,000 60,000 down on the house and pay it off in a year or do we go out and pay it off out right our savings we have about $30,000 in savings so just sort of wanted to hear your perspective so if you pay it off outright how much is left in savings there's about $35,000 so you wouldn't have to touch that um no as a as a whole there be okay so why would you not just pay off your house in your car today our biggest worries is that if we're in a if we if we find ourselves um in in a recession or a a housing market uh issue we wanted to have money to potentially go and buy a house on a cheap potentially a a not refinance what do you call them a um a foreclosure um we just want to hear your perspective so you would not pay off your house in order to maybe buy a foreclosure if the housing market tanks that that's our idea or our idea is to have you know have that amount of money set aside okay I would tell you regardless of inflation and regardless of recession that your best goal your best process is to never buy a rental property except with cash and to never do that until your personal residence is paid for and so that that set of principles that I've used in my life and for millions of others of people would lead me to pay off your house and your car today so pay off pay off the house if it wasn't a rental property it was a secondary it was a secondary I would be debt free before I wrote any checks to buy rental property and I would only pay cash for rental property then so the point being we're going to pay off this other property we're going to pay off your house you're house you're going to pay off your car you're going to be 100% debt free and have $35,000 left in the bank you've got all of your income now to start saving to buy a foreclosure when the housing market goes down someday I don't know when it's going to go down uh not soon enough to change this answer okay so what you're saying is give you a call back in a month and scream on the air that we're debt free there you go brother or next week if you want CU you or or tomorrow if you want but yeah because you're debt free pay off everything that's what I would do listen something's the uh the worry The Angst that you have around the economy you're watching the news too much number one you need to turn the channel off but number two uh the worry in the it's real but there's no sense in just bathing in the blood every night the blood of the newscast and so uh uh uh you know The Angst that I hear what what you what you don't see coming is that when you pay off all of this stuff you're going to get peace yes and you don't even realize that that's there so because 100% we've done detailed research 100% of the foreclosures occur on a home with a mortgage if you're wondering how paying off your mortgage early would work for your financial situation let us help you crunch some numbers use our free mortgage calculator to find out how increasing your monthly payment can shorten your mortgage term and help you get rid of it as soon as possible just go to the link in the show notes or ramsy solutions.com payoff calculator to check it out David is calling from Saigon Vietnam I think that's my first call from Saigon in 30 years David how are you hi I'm good thanks how are you good what are you doing in Saigon um uh living abroad I've been living uh my wife and I have been living abroad for about 16 years uh but our investments and properties are in the US cool what do you do for a living and uh International Educator okay I teach teacher yeah I was gonna say that sounded a lot like art vanderlay importer exporter from Seinfeld I've got a nice I actually have a good friend whose brother lives in Saigon that is in your business and I'm wondering if you're him anyway yeah all right go ahead brother how can we help maybe I know him um well um okay we uh we're we're big fans of the baby steps we we've done them all we've done them all except for one and I might get in trouble from you on this one and that is that we have two rental properties that um that are turning um a profit and we don't want to pay off the rest of the mortgage because we feel like we're making more having that money invested in the market so and I know you uh with your baby steps you um highly recommend paying off those mortgages or we thinking why do that if we can make more if that money is in the market can you share your wisdom oh you you want to know why I say to do that oh I see okay and how much money do how much money do you have in Investments uh a little over a million good for you well done how old are you uh 57 excellent and how much are these mortgages uh they're about 170 each so 340 knocks it out and that leaves you with 660 in your investment if we use that investment to pool to do that okay is that right uh yes okay and so really what we're discussing is how much more you would make on 340,000 over the interest on the houses okay now here's the thing um I first approached this through the lens of faith is was my first approach because I have all the letters and licenses after my name name the academic crap that says I'm supposed to know something about money but I went broke so apparently I did something wrong um and I and so I discovered uh common sense and what the Bible says about money and I can't find anywhere as a Christian this is my my journey not yours okay I can't find anywhere in the Bible ever that says anything positive about debt it's not a Salvation issue you're not going to hell cuz you have debt it's not a God loves you less if you have debt it's all negative though um the borrower is slave to the lender and it goes on and on and on and on and on all the negative references from that so as as part of my faith walk I had to say Okay God must know something or that I don't understand about debt because I was taught if you can borrow money at um you know three four 5% on your mortgage and you can invest it in a mutual fund and make 10 or 12 then you're making that spread that Arbitrage which is what you're discussing in correct yes exactly now as I've gone forward what I've discovered is that the vast majority of wealthy people that we've studied uh people of Faith or otherwise have avoided debt and gotten out of debt and uh and have stayed away from it and I kind of had to stop and go why is that and I find very few people now you're not highly leveraged but I I find very few people that are highly leveraged that actually survive the people that borrow money like crazy to buy rental properties and do Airbnb and all this crap uh they're all broke in 10 years I went broke doing that within within 10 years and so you can't find someone that's been doing that for 20 years and survived one of these economic Cycles takes their head off and so what that means is that debt equals risk more debt equals more risk and I think we can all agree to that can you uh yes you have little you have a small amount of debt so it doesn't feel like a lot of risk it's not as much risk as if you had 3.4 million agre read correct yeah yeah that's all I'm saying more debt is more risk less R less debt is less risk zero debt is approaching zero risk and the only thing the only math formula I have found that adjusts for risk does not exist in the real estate world it's only in the investment world and we adjust for risk using the math formula of a beta a beta is the height of a uh if you do Peaks and valleys of an investment it goes up and down up and down up and down the the differ in the Val the difference in the peak and the valley is called a beta your and it's your the Vol higher beta is a higher volatility a a steeper mountain and a more often cycle does that make sense yes and in the investment world we use a beta the higher the beta the higher the risk because the more volatile it is and we use an inverse relationship in the math meaning you drop it under the denominator and getting nerdy here but the that gives you the ability to calculate risk into the investment and measure a risky investment against a not so risky investment that has a lower beta and you've you've neutralized for risk therefore you can compare Them Apples to Apples we don't enter risk into the formula that you used to tell me you wanted to keep your debt if we put risk in that formula and you do have some risk not as much as if you had 3.4 million but if we put a low beta in your formula it starts to neutralize and do away with all your spread the other thing that happens is when you don't have any payments you just straight up sleep better that's true and I've done and I've done detailed research 100% of the foreclosures occur on a house with a mortgage and so I I would tell you this let's do this you could try this if you want to I would pay them both off and if you hate it go get you another mortgage later okay um okay fair enough can I ask you another question a followup question then so you should be scared to after that long answer yeah back in stats class y all that money out we're going to pay we're going to pay through the nose and taxes pulling it all out of all of our um our retirement Investments how old are you so it's like oh you're 57 no I would not take it out of retirement is it all in retirement yeah this is all this you don't have any money that's not in retirement we have yeah we have some how much we have um couple hundred well I'd use that then Tada you and you have a good income and I would just no I'm not going to cash out and pay penalties on your retirement I was not suggesting that but because that changes the formula now you may have some capital gains on it and I I would do that I have lived 100% debt free since I went broke 30 something years ago and I have had a wonderful life I've made a lot of money I have a lot of Investments and they're all paid for and when crap happens like the Island of Misfit Toys is misbehaving up in Washington DC right now and they're screwing up the whole freaking economy I'm sitting here peaceful and slept really good last night except that my four-year-old grandson son put a plastic snake under my pillow but other than that I slept great last night that really did happen good friend Cindy in Baton Rouge hi Cindy how are you hi Dave thank you for taking my call sure what's up um we have my husband and I have 460,000 in a money market type account and then we have 135,000 in cash and we're to the point of saying what do we do with this we're not making any profit on most of that money and um we took the 460 out of equities and securities because we were losing a lot of money in that and uh that money had come from a home that we sold and because we got an interest rate of 2.5 on a new home uh we went with the 2.5 and put the 460 into Securities and equities and uh didn't want to lose it beyond what we put in there so put it in a money market par what do you owe on your home 36 6K okay um from 30 years of coaching people how to become wealthy and from doing uh a study of 10,000 millionaires these are the two sources for my data that tells me the shortest distance between where you are and wealth is two things is a um consistently funded 401K Roth IRA in good growth stock mutual funds over a long period of time that becomes some money and a paid for house our last debt-free scream was a $600,000 uh paid for house and $800,000 in their 401k or reverse I forget which but it was $1.4 Million net worth and it was just a few moments ago while you were on hold you heard it yes okay so that is the typical path that we see that is the most often used by people who become millionaires now where does that take us in your situation it's it says I would pay off my house today because here's what you ended up doing it wasn't the start of your plan but the net result of your plan is you borrowed money at 2.35% and invested it at a half a percent right yes sir we were I know that wasn't where you that wasn't what you set out to do but that's where you ended up isn't it it is I pay off my house today today by close of business today write a check okay okay and now you don't have any house payment anymore how's that feel awesome because I want to retire yeah and now you got $200,000 in cash that we got to do something better than a stupid money market account with you need an emergency fund of three to six months of expenses for your short-term emergencies and um I mean you know let's call that 50 Grand at your house for the fun of it you've still got 150,000 that you need to do something with other than a stupid butt savings account now if you put it into some kind of a mix with a stock broker and you were losing money I get that if you put it into good mutual funds and the overall economy slowed down like it is right now and the value went down then you didn't have somebody good in your corner to coach you and say hey the only person gets hurt on a roller coaster is those that jump off in the middle of the ride which is exactly what you did now were you invested in single stocks no you're in mutual funds very Diversified in mutual funds some of them were in mutual funds okay well what I would do is sit down with a good investment broker and here's what you're looking for this time um and uh you're looking for someone with a heart of a teacher that teaches you the history of the mutual fund that you're putting them money into okay I'll give you an example I own one that's over 80 years old in the 80 years it's been open fewer than 15 of the those 80 years has have been a down year so if we happen to have a down year and I know that I know that not my broker knows that but I know that then I'm not freaking out it's kind of like the house that you own in Baton Rouge if it went down in value this year you wouldn't freak out because generally speaking homes in the neighborhood you live in for the past 40 years have gone up in value or agreed agreed so you wouldn't freak out on one down year and bail out that's just like that mutual fund I'm describing I'm not going to freak out in one down year and bail out but that's all knowledge on your part rather than depending on someone else to tell you what to do and then you get scared because you watch the news and you never take Financial advice from the news if the commercial breaks where you're watching TV are walk-in bathtubs gold commercials and reverse mortgages and Snuggies that tells you you don't want to take Financial advice there that's just a bad plan and so here's me looking at you fox but anyway yeah so there you go but the uh Fox Business right but I love them they're wonderful but the commercials are comical Saturday Night Live hard I can't hold it in you're not saying walking bathtubs are a bad idea just the investment advice I'm just saying if this is where you get your investment advice when the commercial breaks are walk-in bathtubs and Snuggies then you know you're not getting good this is this is a bad place oh oh that was perfect I'm sorry that just got me that was like the church giggle I couldn't hold it any longer we've all sat and watched them at the commercial I know exact I know exactly what you're talking about yeah the and and we're on there giving Financial advice so what do we know but anyway the uh uh but you know you really need to sit with a good broker who has the heart of a teacher go to ramsy solutions.com click on smartvestor sit down with them interview them and what you're looking for here is is a type of wisdom not intellect there's a difference there's a lot of very very intellectual ignoramuses out there and that's not in the world in in general that's not what you're looking for you're looking for common sense wisdom that says I bought a mutual fund that for 80 years has only had less than 15 down years so we're having a down year I don't need to panic and that you learn that you internalize that you emotionally swallow that and then it becomes part of your plan and so in that situation then you invest in good mutual funds in your 401ks and your Roth IRAs and those kinds of things and you get your house paid for and that's what I'm going to do with your 150 unless you've got other debts and then I'm going to clean that up too so I want you debt free 100% And investing in good growth stock mutual funds that is a the shortest P that have long track records that are comfortable to you and that you understand what's going on you didn't do it cuz I said do it or because some goob at a financial office said do it it's because you learned and your knowledge allows you to sleep at night you know Ken that's the difference between tossing and turning at night when the stock market's down yeah is whether you made the decision based on knowledge you had or knowledge someone else had yeah well it's true I mean you for you years I mean before I even started working with you this idea the roller coaster analogy that you've given and it's really true when you look at the data uh if you look over the last 30 years you just got to stay calm and ride this thing out I just don't freak out when I see the stock market dip you know I say hey we keep investing that's an opportunity it's going to come back and and you're right knowledge uh is what gives us tremendous confidence and confidence the peace yeah and once you really understand that folks about the stock market then when it goes down you kind of go like it's on sale yeah we're getting bargain right now it's a bargain time y this is a time to buy well we don't really do that either cuz I'm not going to tell you to time the market I'm just going to tell you steady invest steady invest that's all I have done I have been tempted at times when the market is down to time it yeah I really really wish in 2008 when the stock market was crashing and the worldse coming to an end and it went from 13,000 to 6,500 I really wish I had put an extra million dollars in yeah because I mean the Dow's sitting at what X of that that million wow today would be worth 6 million wow because it D you know 30,000 over 30,000 right so um yeah there you go I mean that's 5x 5x of that be worth $5 million now ultimately I did have money in there and it's worth 5x but if you could have timed the market and bought at the lowest possible time we've seen in decades then that would have been the time to do it but who knew when the bottom was here's the deal every dollar you add to your mortgage payment puts a bigger dent in your principal balance if you add even one extra payment every year you'll knock years off the term of your mortgage plus save thousands of dollars in interest listen I'm telling you when the bank doesn't own your house and you step into the backyard the grass feels different under your feet because it's all yours all right guys thanks for listening to our exclusive real estate series it's been a blast and I hope you enjoyed it as much as I have make sure to let us know what you thought of it and share this series with the people in your life getting ready to buy or sell a home
