Highlights from the Dave Ramsey Show

Question: Tammy on Facebook asks Dave at what Baby Step should a parent consider staying at home with the kids? Dave says it isn't at a particular Baby Step but rather when you can afford it.

Answer: It's not at a Baby Step. It's when you can afford to do it. Let me help you with that. Obviously if you're out of debt, it's easier to afford to do it. After Baby Step 2 or Baby Step 3 even, with your emergency fund in place, it's a lot easier. But the big question is this: How much is it really going to cost you to be at home in terms of lost income?

You have to make over about $25,000 a year to even break even in the workplace if you're paying daycare. By the time you pay daycare, extra wear and tear on the car, gasoline in the car to drive to work, different kinds of clothing—more professional clothing in most cases that are more expensive—more cleaning, more fatigue food because you're not at home to cook, you're not cooking from scratch so your grocery bill is higher—usually because it takes longer to cook from scratch normally—and on and on and on. The costs associated with you being in the workplace all added up is about $25,000 a year, give or take. That's what you've got to look at. If you make $50,000, you're netting $25,000 and that's nice. If you make $100,000, you're netting $75,000, give or take. That's what you're facing.

There are other issues like is your health insurance for your family through the wife's company or through the husband's company? You've got to deal with that one, right? The benefits that will be lost when she comes home. You just have to do some math. A good rule of thumb—a good way to try something if you want to stay home is to basically say we're going to use her check to pay the daycare bill and her car gasoline. We're going to put the rest of it in a side account and not touch it. We're going to use his check to live on. Pay the lights, the mortgage, get out of debt, whatever our goals are. If you can bank her entire check not counting the daycare bill and her car gasoline, then you can live on his income. That's a good way to test it, and you'll be ready to do that.

Here's the other thing you can look at. I can't tell you how many times this has happened. I mean literally hundreds—maybe even thousands—of times in 20 years of financial counseling. We sit down and look at everything and go, "You know, we're really close. We could do it. We're only about $400 off." We look down the page, and right there on the page is a $375 car payment on her car. So she's working when she wanted to be home as a full-time mom. Her goal was to be home as a full-time mom, and she's basically working to pay for a car. Sell the car. Don't trade your kids for a car. Go home. Sell the car. Get you a beater. Then save and move into a better car over time, but dump the van. It's a car. You can live without the car. It's possible.

That's the kind of stuff you've got to look at to decide if you can "afford to be at home." Not every lady wants to be at home full time with the kids. I get that. That's fine. I've got no issue with that. We decided that that's what Sharon wanted to do, and so we fought for all these years until we didn't have to fight anymore against the budget to make it work so she could do that. In our case, in our lives, it was a great investment. It was a great decision. It certainly had an influence in our kids' lives. It certainly impacted all of those things.

I don't know if there is a higher calling on the planet than motherhood. That may be the highest calling on the planet. Don't let anyone act like you're somehow substandard, because there a lot of ladies with Ph.D.s who decide to be full-time moms. Hopefully, you don't have student loan debt associated with that Ph.D. when you do that, but there's no higher calling. But there's nothing wrong with wanting to be in the workplace either. Or if you make enough money and you just choose to work, that doesn't make you a bad mom or a bad dad either.

The point is if that is your goal, sit down and do the math to hit your goal just like if your goal was to go snow skiing this winter. You better start saving some money and have a game plan to get there. That's all we're saying.

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Question: Dianna in Louisville and her husband are debt-free except for their mortgage. She thought she'd be experiencing freedom at this point, but she isn't. Dianna wants to stay home with their children, but he's too nervous to allow her to do so. Dave suggests asking her husband under what circumstances he would be comfortable.

Answer: There isn't any reason mathematically with an $1,100 house payment making $57,000 that you guys can't make it. It's not going to be a cake walk. It's not going to be like you're rich or something. Given that daycare is not coming out of your income, it's a big number, so probably what we could do is try to put together a budget that the two of you look at together and agree on that includes saving your entire paycheck, which proves that you don't need your paycheck. If you can do that for five or six months and you look up and say, "Well, look. We've been able to live without my paycheck," that would finish Baby Step 3 pretty easily doing that. That might give him a little more comfort as well.

I think you're very close to being able to make that decision. You two need to agree on at what point he's going to be comfortable enough. Under what circumstances would he be comfortable? Make him face that.

Planning is not an indication of a lack of faith. Planning is wise, but you cannot plan for everything. You have to have insurance in place for some things, and you have your emergency fund in place for some things. There are other things that can happen that are just going to be too big even then that could knock you out. Those things are always there. You can't plan away all of life's variables. It's impossible. In that sense, you are walking in optimism. You're walking in faith. But just saying, "Well, it'll all work out," even though the math doesn't work—that's not faith. That's just stupid. I don't think that's what you're saying, but I want to make sure we don't let someone who's listening to you and I right now hear that.

I think you guys just have some more communication and some work to do, and I don't think you're involved enough in the budget. You talk in generalities. You do not look at the detailed numbers with him. You need to get involved. It's going to give you some logic to be able to meet this concern of his. He knows you don't know the numbers, and so when you start saying, "Well, I think we can do it," he says, "Yeah, based on what? You don't know the numbers." When you stick your nose in there and really start to learn what it takes to make it, then you can say, "Look, we can do it. Here, this, this, and this. Look, we've saved my entire paycheck and we're going to budget for that for the next five months, and then I'm going to quit." That's how we're going to do this. We're going to have the emergency fund in place. We're going to be debt-free. We've proven that we can live on his income. That's logic. That's planning. That makes sense. That removes the variables. If you can't do that, then quitting could be a problem. I certainly want you to quit and come home if there's any possible way. That's what you want to do.

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Question: Kellee from My Total Money Makeover is a month behind on her mortgage. Should she stuff money away to get caught up or move forward with Baby Step 1? Dave suggests getting the mortgage caught up first.

Dave Ramsey's advice: Baby Step 1 is an emergency fund. If you're behind on your mortgage, kiddo, you are in the middle of a freaking emergency. You don't need to be working the Baby Steps until you're current on your bills. Don't even worry about the $1,000 savings in Baby Step 1—a beginner, starter emergency fund. You don't even need to do that until you get current on your bills. Get current on your bills.

Here's your order of events. You need to take care of what we call the four walls. The four walls of your home have to be protected first. This comes from, "Take care of your own household first." What do we do? Food—buy your family food. That's the very first thing you do. The next thing you do is keep the lights and water on—utilities. The next thing you do is take care of shelter. Then you take care of transportation, and then you take care of basic needs clothing. We pay the house payment and the car payment, we eat, and we keep the lights on before we do anything else.

Do not be behind on your home and current on your MasterCard and your student loan. If you're going to be behind on something, if you have to choose to be behind on something—and I'm not recommending being behind—choose to be behind on things that don't matter as much. They're called unsecured creditors—creditors that don't have any security. They don't have a lien on anything. They're not going to take away basic necessities of your life.

I learned a long time ago counseling people in their finances—and a lot of them are in struggle situations—that if I can get people who are struggling to eat, keep their lights on, keep their home current, keep the car payment paid or gas and insurance on the car if the car is already paid for, maybe sell the car because the car is too expensive, but keep it paid, keep the transportation in the driveway, and buy basic necessity clothing—not label, not brand name, not big deal stuff, not shopping all the time—basic things you have to have—food, shelter, clothing, transportation, and utilities. Do you remember going to fourth-grade civics class? They called those necessities. Everything else is not a necessity. You take care of necessities first. If your belly is full, your lights and heat are on, your phone works ... I'm not talking about a $148 cable bill. Turn that stuff off. We're on a beans-and-rice, rice-and-beans budget. You take care of the basic necessities, and you know you're not going to get evicted, or you know you're not going to get foreclosed on. The children have been fed. We're not going out for lobster dinners here. We're not eating out at all, by the way. We're cooking a lot from scratch because it's less expensive and better for you. You can't afford restaurants. Restaurants are a luxury when you're behind on your bills. We're eating at home. We're taking leftovers for lunch the next day.

Does this sound like the Great Depression to some of you? To some of you, it doesn't. We're only doing this if you're broke and can't pay your bills. The weird thing is you kind of get used to it, and you'll probably keep doing it the rest of your life. I ate leftovers for lunch today. Why'd I do that? It's not really because I'm cheap, honestly. I don't mind spending money on a really nice meal. We were in Chicago a couple of weeks ago. Sharon and I went to an unbelievable restaurant. It was cha-ching expensive, but it was maybe one of the best meals of my life. It was incredible. I don't mind doing that. But today, I had leftover pot roast, carrots, potatoes. Sharon made that one evening. She's a great cook. I eat leftovers because it's better for me. Yeah, it's cheaper, but that's not really the reason I do it today, honestly. It's faster. I don't have to fool with some stupid restaurant in the middle of the day. I've never taken a lunch hour in my life.

If you've done all of those kinds of things and you're living that way and thinking that way, food is on the table, lights and water are on, you're not eating out—you get your house current. Now worry starts to leave. If you have a place to live, it's warm and the lights are on, your stomach is full of food and you have clothing to wear and a way to get to work, you live to fight another day. The worry starts to slip away. When your lights are getting ready to be cut off but MasterCard is current, that trips you up. That sends you into a tailspin. You will not win in that situation. Put the four walls of your home up first when you're in a crisis situation. Then work your way through the other stuff.

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