Interrupter CheckmarkInterrupter IconFacebookGoogle PlusInstagramGroupRamsey SolutionsTwitterYouTubeExpand MenuStoreCloseSearchExpand MenuBackStoreSign in

Ask Dave

Don't Have Vague Worries

Shelley and her husband have less than $100,000 in their accounts. Shelley is concerned about that, and her husband wants to pay their house off and rebuild it. How should they prioritize these goals?

QUESTION: Shelley in San Antonio and her husband are in disagreement about their final Baby Step. They’re starting retirement savings at 42 and 51 years old with less than $100,000 in their accounts. Shelley is concerned about that, and her husband wants to pay their house off and rebuild it. They still owe $200,000 on the mortgage. How should they prioritize these goals?

ANSWER: I would put 15% of your household income into retirement. I would pay for college. Above that, I would pay the rest on the mortgage. Those are the Baby Steps that are outlined in The Total Money Makeover. Fifteen percent is more than adequate of $200,000 for a 40-year-old. If you never do anything else, you’ll retire with dignity. Fifteen percent of $200,000 would be $30,000. That’s $2,500 a month. If you started with nothing and you did that for 25 years, let’s say you averaged 12%, that would be $5 million.

I think you should do more than 15% because I think you need to get this house situation behind you. This is not a permanent deal. Number one, we get the kids off the payroll in May—like 100% off the payroll. We start putting 15%, which is a little bit more than $30,000 a year, then you just start jacking on this house and knock it out. Then start jacking and save up and pay cash for it. We need $500,000 to spend on housing before we’re able to do more than 15%. But once you’ve done that, then you’re able to do a lot more than 15%. You make $200,000 a year, for goodness’ sakes.My point is this is not a permanent thing. We’re talking about $100,000 a year would be five years. This is not a forever plan. Even if it is a forever plan, the numbers we just ran say you’re going to be okay. But it’s not a forever plan. This thing will evolve. You’re going to have to have set goals more than spending $100,000 on a cruise to go around the world. You can’t have conflicting goals and hit these things. We’ve got to make choices. You do have this fabulous income. Let’s not have vague worries. Let’s lay out exact mathematics and say based on that, you have to worry. Or based on that, you don’t have to worry. I think that’ll solve a lot of your disagreement.

When you pay off this mortgage, turning around and spending another $300,000 to build a house may not fit with his plan for retirement. You may have to have a different housing plan if he wants to retire. Or he can work five more years so you can hit this goal. You’ve got to fit this out and lay out your goals. The point is you cannot—no one can do everything. You’re going to decide what we are going to do, what we’re not going to do, when we’re going to do things so that deal works. You ought to be able to sit down with a calculator and figure this out moving forward. He’s probably working a little while longer to be able to do a good solid amount in pre-tax and be able to hit this house goal. That’s a pretty expensive, extensive house goal, but you’ve got a great income so you can pull it off if you’re willing to work. That’s the balance in this process.