On a video posted on The Ramsey Show – Highlights YouTube channel in 2020, Dave Ramsey offered guidance to Denise about the best way she can become debt free by the time she retires. Denise has £94,000 in a pension vehicle, and a seven-month emergency fund.
She has no credit card debt, but her mortgage is £127,000.
Denise and her husband have two cars, with payments left totalling £21,000.
Their annual income is £70,000.
She said: “I’m just panic stricken and I don’t know what to do.
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“We changed some behaviours the past year, but we don’t know where to go from where we’re at.”
The finance personality explained to her that in 21 years, her pension savings should have increased up to $300-400,000 if nothing was added to it and if they are invested in “good growth stock mutual funds that are averaging what the market is averaging”, he explained.
He said: “Our goal needs to be debt free first and get your emergency fund and that’s getting your cars paid off or sold.
“Once your emergency fund is in place, you can start putting 15 percent of your income away which is going to be so you can start putting 15 percent of your income away.”
If Denise can start putting 15 percent of her income away, this would be around £12,000 a year. So, £1,000 a month, for the next 15 – 20 years, towards retirement so she “will be fine”.
He continued: “Your goals need to be that11 years from now at 65, you’re debt free with your emergency fund in place.
“I want your house done by the time you’re 65.”
Once Denise pays off her car, the only debt she will have is her mortgage payment.
Then he advised her to start putting 15 percent of her income away for retirement in pension vehicles that can make her money work.
He stressed to her that it is her car payments that are “sucking her dry”.
He said: “You need to clear these car payments immediately, like super-fast.
“When you don’t have any car payments, now you have money to build up your emergency fund.”
Denise explained that she has an emergency fund in place worth £25,000, but she was reluctant to use this to pay off her car payments as it would be she will not have this fund anymore.
Mr Ramsey responded: “Just build your emergency fund back up with what used to be car payments.
“You will have 4,000 to start with and your debt free by the time we’re off this call.
“Now I’m not panicked I’m feeling a whole lot better.”
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