Break The Borrowing Cycle

SPEAKER_1 (0:03)

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Jade Warshaw (0:12)

Normal is broke and common sense is weird, so we're here to help you transform your life and your money. From the Ramsey Network in the Fairwinds Credit Union Studio, this is The Ramsey Show, I'm Jade Warshaw. Next to me, Rachel Cruze, we'll be taking your calls about life and money for the next hour or so. So if you want to get in, where you fit in, the number is 888-825-5225.

Rachel, you're ready to get into it?

Rachel Cruze (0:36)

Oh yeah, let's do it, Jade.

Jade Warshaw (0:37)

All right, let's go to the line where we've got Ethan on line four. What's going on, Ethan, from St. George, Utah?

SPEAKER_4 (0:45)

Hi, how are you guys doing?

Jade Warshaw (0:46)

Doing all right. How can we help?

SPEAKER_5 (0:49)

Okay, so I've got a question.

SPEAKER_4 (0:51)

Me and my wife, we just got married at the beginning of May, and we moved past baby step one, and we're on baby step two, and we recently found out that she's expecting in late April, early May.

Rachel Cruze (1:05)

Oh, congratulations.

SPEAKER_6 (1:06)

I was just, thank you.

SPEAKER_4 (1:08)

I was just curious.

SPEAKER_5 (1:10)

I've got about $20,000 liquid cash, but I'm in about $62,000 in debt.

SPEAKER_4 (1:18)

I've got about $8,000 on a truck loan, and then I've got about $54,000 on a piece of property that we just signed on. I was just curious, is it all right for me to keep a $20,000 to $25,000 emergency fund temporarily until the baby comes?

Jade Warshaw (1:38)

Absolutely. That's exactly what we would teach. We call that stork mode over here, which is the idea there's a baby coming, the stork's coming, you get it.

There's some uncertainty during that time, and so financially to pause what you're doing on baby steps and stack up money to prepare for that is really the wisest choice. Because the truth is, there are a lot of unknowns. I mean, gosh, God willing, we hope that you go in, have the baby, there's no problems, no NICU stays, no extra expenses, but you never know what's around the bend and just have the money for that. I always like Ethan for people to have a good bead on what they're out of pocket maxes, what their deductible is, and I really feel like that's a fair amount to have the goal of stacking up, getting ready for a baby, and then after the baby comes and everything's all good, yeah, you can push play on the baby steps.

Rachel Cruze (2:32)

Yeah, Ethan, how much money could you put away each month between now and then?

SPEAKER_4 (2:38)

Between me and my wife, we make about $90,000 to $100,000 a year take home, and right now, we don't have to pay rent or anything, and we will start having to pay rent in either October or November. So realistically, we could put away $4,000 or $5,000 a month.

Rachel Cruze (2:57)

Is that with rent?

SPEAKER_7 (3:00)

That is with rent, yes.

Rachel Cruze (3:02)

I don't know, okay, Jade, tell me this, because we do talk about Stork Mode, but you already have $20,000, Ethan, in the bank. You got an $8,000 truck, and then you have this piece of property.

There's a part of me that I would keep the 20 grand if you want to bump it up next month to 25, and then I may work on selling the truck just because it's eight grand, and you guys have, I don't know, $4,000 coming in for the next eight months.

So there's a part of me that I'm like, you're going to have, gosh, 70,000 sitting in. You'll have a lot in there, so part of me just says, get the eight grand, take care of that once you have your fully, your emergency fund funded where you want it to be before the baby. Because normally people don't have this amount sitting there in Baby Step 2, Ethan. When we talk about the baby steps, baby step one is $1,000. Yeah, for sure. Then you throw everything else at the debt. Usually if people get pregnant in Baby Step 2, they only have $1,000, so we're like, pause everything. Save up an emergency fund between now and then. But because you guys have that 20 grand sitting there, I don't know, there's a part of me that say cash flow, paying off the car by the end of the year.

Jade Warshaw (4:07)

I think you should. Like I said, as long as you are covering what really could just be your out of pocket max, I think that you're good for the year.