Dear Dave,
We sold our rental property recently. When we boughtit,wethoughtitwould be a good source of passive income. But owning it wasn’t passive at all. It got to the point where the work and hassle became too much. We have $240,000 from the sale, and we’re debt-free except for our home. We owe $140,000 on our house, and could pay it off instantly, but part of me wants to invest the proceeds from the sale of the rental property. Is it better to become completely debt-free at this point, or should we invest it so we can have even more money for retirement?
Anthony Dear Anthony,
You mean you had to actively manage your rental property? Listen, anyone who tells you real estate is passive income is full of crap. It’s a natural extension of the garbage people spout about how it’s okay to go into debt tobuy realestate,because the renter is making your payments. No, it’s your payment. And when the renter doesn’t pay, or it sits empty, guess what? You have to pay it.
If you want passive income, buy an S&P 500 index fund. Set it and forget it. You won’t have to fix a leaky roof, replace worn out appliances or try to collect from deadbeat tenants. Real estate is a great way to invest, if you do it the right way. I love it. It’s anythingbutpassive,though.
Let me ask you this about your situation. If you had a paid-for house, would you borrow $140,000 against it to invest? Of course not. It’s pretty much the same thing, and that would be dumb. Pay off your home, brother. Just pay it off. You’ll be debt-free, and you’ll still have six figures to invest.
I love that you’re thinking about the future, Anthony. And I know the compound interest you’re visualizing down the road is really tempting. Your compound interest calculator will tell you some amazing things, but what it’s leaving out is risk. It also can’t tell you about the carefree way you’ll walk, and how it’ll feel like a huge weight has been lifted off your shoulders when you don’t have a house payment. You’ll be able to live life on your terms, and all the decisions you make will come from a completely different point of view—one that isn’t burdened by the weight of bankers hovering around, waiting for you to give them what’s theirs.
Dave Ramsey is a seventime #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.
The borrower is always a slave to the lender. Think about it. Only one implication of slavery is mathematical. All the rest are spiritual, physical, relational, emotional and mental. Being debt-free changes your life from the inside-out. Not only does it make your life better, but it allows you to give with incredibly generosity, and be an agent for positive change in the lives of others.
Pay off the house!
—Dave Dear Dave,
I’m in college full-time right now, and my parents have been generous enough to pay for some of my school expenses.Inaddition,theylet me live at home while I complete my degree. I work some nights and most weekends so I can go to school debt-free, but I’m trying to figure out how to move out on my own and continue working, while remainingafull-timestudent and attending career-related campus events. The cost of living is high in our area, so I’m having trouble figuring out how to make it all work. Do you have some advice?
Will Dear Will, You sound like a very driven and mature young man. Congratulations on everything you’ve been able to accomplish so far. I’m glad you’re working hard in school with an eye toward the future. First off, out of the three considerations you mentioned—school, work, and cost of living—I think you need to decide which is your number one priority. If I were in your shoes, school would come first.
Now, to go to school without borrowing money, you’re going to have to keep working. But finishing school on time, while attending some of the extracurricular events that will move you toward your career, might pre-empt work. You’ll have to work enough to pay for things, but if you can finish school and hit your academic and graduation goals while staying at home just a little bit longer? That sounds like a winner to me. It’s a pretty nice deal your parents are offering, but I can understand your desire to be out on your own, too.
I want you to be out on your own as soon as you can, as well. But if you do that right now, you’re going to have extra bills and be forced to work even more. That’s going to throw your entire school process out of whack. Guesswhatyournumberone priority was in that scenario? Right, moving out. If it’s the tail that’s wagging the dog, it has become the number one priority. If it’s disrupting work, and thereby disrupting your academics, then in my mind you’ve put your focus on the wrong thing.
Your number one goal should be finishing school on time, while attending as many connected events as possible. Meanwhile, keep working enough so that you’re able to continue doing all this debt-free. If that meansyou’restayingathome a little bit longer to pull it off, I’d do it!
—Dave Dave,
How do you manage a situation where you feel an employee may be taking advantage of you when it comes to time off? I have one person who seems to have endless things pop up throughout the year, and she’s always asking for extra time off. This year, she has already used up her paid time off (PTO), knowing she has fertility treatments scheduled later in the year that would require time off. I’ve always wanted my business to remain family-oriented and employee-friendly as we grew. But I’m starting to feel my heart harden, too, like she may be taking advantage of me.
Kate Kate,
The fact that you’re confl icted about this shows you have a good heart. Team members are individuals, not units of production. We all have unique hopes and dreams, and you should recognize and respect that. But it sounds like this particular employee also has a habit of making dumb mistakes where her time off is concerned.
I’ve experienced this kind of behavior from time to time as my company’s grown. And as time’s gone by, I’ve started listening to my gut to differentiate actual needs from stupidity. I try to treat other people the way I’d like to be treated, instead of just through the lens of what I want or what’s good for Ramsey Solutions.
If a team member is going to make a series of bad choices, I’m going to assume at some point they don’t really want to work here. You can be the nicest, sweetest person in the world and still do dumb things that make you unemployable. But holding someone accountable for their actions doesn’t mean you lack compassion.
We’ve had situations at my company where someone runsthroughtheirPTO,then something comes up. We evaluate the situation, and we might extend some grace and give them extra paid timeoff.Sometimeswemight give time off, but it’s unpaid. Other times, it might be out of the question to give the time off (or for the person to keep their job at that point). Every situation’s different, and we decide things like that on a case-by-case basis.
Now, there’s absolutely nothing wrong with this lady’s desire to have a family. I think that’s a great thing. But she knew these treatments were in her future whenshetooktheotherPTO. You’re showing great concern and compassion for your employee, Kate, but it’s almost like you want her to win more than she wants to win.
God forbid, but let’s pretend this lady’s husband was in a bad car wreck. She’s going to need time off to help take care of him. Of course, she gets extra PTO. No question, that deserves some grace. And if any of your other employees don’t understand that or like it, they can hit the road. But that’s not the case, is it? This lady had a planned life event, and she messed up her time off situation all by herself.
I think in this situation, youprobablyletyourcompassion go a little too far, and now you’re having a hard time with the consequences. If it were me, I’d give this lady a little extra PTO for the treatments, but I’d also have a gentle but firm talk with her about managing time off more wisely.
There’s absolutely nothing wrong with putting reasonable boundaries on compassion.
— Dave Dear Dave,
My wife and I have three young daughters. Is there a Baby Step for weddings? We didn’t see one in your plan, but I was wondering if it was included in any of the other Baby Steps.
Cedric Dear Cedric,
This is a really good question. I’m glad you’re thinking about the future and planning accordingly.
I don’t have a specific Baby Step for weddings. If I did, it would probably come after Baby Step 5, which is setting aside a college—or trade school fund—for your kids. Maybe you could look at it as Baby Step 5b. Once you have retirement, education savings and extra house payments underway, you could start putting aside a littlesomethingforweddings.
Don’t get me wrong, weddings are special. You absolutely should mark these kinds of milestones with a celebration. But a wedding is only a one-day event. And to be blunt, a good education is more important than a fancy wedding. This idea may not make me popular with some folks, but it’s the truth.
Maybe this is the dad in me coming out, but if I had to choose between paying for more education and paying for big weddings, I’m going to pay for school every time. Besides, there’s no correlation whatsoever between the size and/or cost of a wedding, and the happiness and success of the marriage.
Good luck, Cedric!
—Dave