QUESTION: Michelle in California and her husband are newly married and currently renting. They are paying $1,200 a month. What range of houses should they look at with an income of $7,000 a month?
ANSWER: You need to clean up the debt, and you need to build an emergency fund of three to six months of expenses. Then you need to save a down payment. Then what we recommend is that you buy a home where the payment is no more than a fourth of your take-home pay on a 15-year, fixed-rate mortgage. At 3.5% on a 15-year fixed right now, that would be about $250,000 for you, because a fourth of your take-home pay is about $1,750, and I ran the numbers while we were talking. But you’ve got to get the other stuff cleaned up before that makes sense.
You need to look around and say, “What is more important to me—horses and boats or home ownership? I’d never get rid of that horse, but I’d part with that one.” That brings some money in towards the debt and it cuts down the stable bill. “I’d love to have a boat, but it’s not nearly as important as being debt-free and owning our own home someday soon.” Those kinds of things.
I don’t know, but that’s kind of how we would look at it, and I’ve got to tell you we’re fans of both—horses and boats. Bigger fans of boats. They don’t eat as much. I’m not mad about either one, but you’ve got three things there pulling at you as a priority: home ownership, horse ownership and boat ownership. And they’re pulling at each other. They’re limiting each other—your enjoyment of any of them or getting there—so you really need to say, “I’m willing to wait a little while longer so I can keep the boat.”
QUESTION: Candace in Minnesota just had twin boys five months ago and is wondering what the best option is for building up savings for them once the family’s debt snowball is finished. Dave walks her up the Baby Steps before giving some thoughts about how to accomplish her goal.
ANSWER: The first thing you do when you finish getting out of debt is you build a household emergency fund—a rainy day fund—of three to six months of expenses. Then you start saving 15% of your income in Baby Step 4 into retirement. Then you start saving for kids’ college as Baby Step 5.
You can open a mutual fund in a kid’s name with you as the custodian, and it will be taxed at their rate. Until it makes a lot of money someday—until it starts making some serious bucks—it’s not going to have any taxes. It’ll grow without any taxes because when you don’t make any money, you don’t get taxed. For a long time, depending on how much you want to put in there, you can do that in the kid’s name. That’s called UTMA (Uniform Transfer to Minors Act).
What we chose to do with our kids was we decided that—with rare exceptions where someone had just an unusual skill or an unusual aptitude—that they were going to go to college. We pretty much said that, and we just said, “All right, we’re going to start saving for college,” and then we talked to them from the time they were little as they were getting older and said, “This is your college fund. This is your college fund,” which kind of assumes you need to go to college, which really means you need to get your grades up so you can get into a college. You need to be thinking about college. We just kind of put college out there like it was just a normal process, and pretty much anybody who wants to win needs education. And we told them that. We just laid it out there.
Had one of them gotten there and been an artist or been something else and chosen not to go, then I guess we could have done something else. But we just said, “Hey, having a four-year degree under your belt is a really, really smart way to start your life, especially if it’s a four-year degree that has actually some application in the marketplace.” Does that mean that you have to go to college to win? No, but education—knowledge—is valuable in the marketplace. We brainwashed our kids. We just kind of made it like you brush your teeth, like you put on your pants when you go outside. You’ve got a college fund. It’s just normal. You’re just going to go to college.
I think it probably leaned into this idea. We didn’t really have this big philosophical discussion with a 6-year-old as to whether or not college was in their future or not. We just saved for it and said, “You’re going. Just gotta make that happen.”
You can do whatever you want to do, but that’s how we approached it with ours when they were your kids’ age.
QUESTION: Amanda in Ohio and her husband are only 28 years old and have no debt whatsoever. They don’t share this information due to being treated differently by others. How should they handle this situation?
ANSWER: One thing you start to figure out as you start to win with money and build wealth and achieve some of those goals is you have a very, very small group that you can celebrate with. A lot of friends, a lot of family—you just can’t celebrate with them because it just comes off as bragging to them. That’s not what you’re doing. You’re just trying to celebrate milestones. But it feels like to them you’re bragging or you’re being a big dog or something, and it feels like a putdown to them for some reason. You learn to keep a lot of it private. You don’t share a lot of it.
I’ll give you an example. There’s only a handful of people on the planet that know my income and just a handful of people that know the gross revenues of our company even. It’s privately held. The reason for that is that most people don’t even know the difference between gross and net. They don’t know the basic P&L structure.
If you hear a company makes $1 billion or a company has an income of $500 million or a company has an income of $10 million, people think they made $10 million. They may have had expenses of $11 million. They may have lost $1 million on that gross revenue. People immediately go, “Well, that guy owns that $10 million company. He’s making $10 million.” It’s as dumb as these politicians saying that somebody that makes $1 million a year is a millionaire. That’s not what a millionaire is. That’s stupid. It’s an indication we have idiots in Washington. Oh! We knew that. Okay. My gosh. It’s just ridiculous.
You do have this narrow group of people that you can share your successes with. You just have to enjoy the successes, and they are what they are and those kinds of things. Just enjoy that part of it. Find a few people that you can celebrate with, but some things you’re just doing that indicate that you’re successful. You have a nice car. You have a decent home—those kinds of things. Even if it's a small percentage of your world, sometimes that still generates people that are jealous or envious.
Jealousy is: “I want what you have.” Envious is not: “I want what you have.” It is: “I don’t think I can have what you have, so I don’t even want you to have it.” That’s envy. Those are two really evil spirits, and they’re really loose in the land. They indicate that the people that are carrying those are small-minded individuals. You just have to kind of go, “That’s it.” You know? Part of the price of winning is that people don’t understand when you win. They’re not okay with it, and you kind of get where you’re okay with them not being okay with it.
I’ll give you an example. In our situation, it tickles me to death that some little liberal jerk on Twitter thinks somehow that I have to engage him because I’m on Twitter. I don’t have to engage you. That’s not arrogance. I’m just not going to argue with you. I’ll tweet back and forth two or three times and have some fun with something, but pretty quickly, once I realize I’m not able to take somebody and teach them, I just dump them. There’s no point in it. I’m not going to argue with you. I’m right. Why would I argue with you? I’m not going to argue with you.
But there are people out there who feel like I’m obligated to engage. I’m not obligated to engage, and I’m not obligated to explain myself. That’s true about you winning with your wealth. You’re not obligated to explain your net worth or your income or the fact that you’re winning, and you’re not obligated to be ashamed about it either.
Just enjoy it. Enjoy the fruits of your labor—your success. You earned it. You’re generous. You’re a giver. You do a lot of wonderful things with the money. You take care of your own family so I don’t have to pay extra taxes to take care of your family. All of that. It’s a good thing. Enjoy it. If people don’t understand it, the louder they are about their misunderstanding and the more crazy they are about it, the further the boundaries are put out because I’m not going to deal with you on it. That simple.
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