Reading: 4 Dave Ramsey Live 7 Baby Steps

4 Dave Ramsey Live 7 Baby Steps

Today, what I want to do is I want to show you how to get on top of your financial house. I want you to get up on top of your financial house and be standing up there. It's going to take you a few years. It's not going to be quick. If you're looking for get-rich-quick, you're in the wrong room. We don't sell microwaves here. We sell crockpots.

I want you to get up on top of your financial house and be standing up there like Rocky going, "Adrienne!" Yeah, baby. And how do you get up on top of the house? In Tennessee, if we want to get up on top of the house, we use this thing called a ladder. And ladders have steps. And they have rules about the steps. If you get up the ladder and it starts moving, if you're over 16, you've got to come back down. Oh, you did it too. And you steady the ladder and you do it again. You repeat the steps.

But you take the steps slowly and gradually. You don't skip steps. Because otherwise, you'd be hanging upside down with your leg broke and your neighbor would be laughing at you. No step skipping. Be willing to come back down to solid ground and repeat the process. These are the rules of using a ladder.

Around our place, we call these ladders, these steps, baby steps. And you don't do baby step four until you've done baby step one. There's a process here. And there's a reason, because you have to lay a solid foundation. If you're going to build a house, you don't bring the trim carpenter in and start tacking up the crown mold if you hadn't done the drywall and built the house on top of the foundation. You start with the foundation, and you build up from there.

Baby step one. We're going to start with, before we do anything else, $1,000 baby starter emergency fund. It's only $1,000. I want you to get $1,000 as fast as you possibly can to start that. So that's not your emergency fund. That's your starter emergency fund. I want you to get 10 Benjamin Franklins right quick, right now, fast. Get 10 Ben Franklins as fast as you can - a month. Have a garage sale, bust it, get in gear quickly maximum a month. I want you to get $1,000 saved right now, fast.

This is the easiest baby step, because it's only $1,000. And it's the one you'll do the fastest in most cases. This is the hardest baby step, because this is the point you decide, "Am I really going to change my life? Am I really going to buy into this stuff? Am I really going to do something that other people are doing? Am I really going to engage this process or am I going to keep doing it, slopping it up the way I've been doing it? I'm going to get serious, I'm going to get focused. This thing is going to change." Because here's the problem. We don't like change. Human beings don't like change. We tend to do the same thing over, and over, and over again. Some people work in a job that they've been with 15 years and they hate every day of it, and the only reason they don't change is because they don't like change.

Even if we're doing things and they're not working for us, we defend it. We protect and fight for our right to be stupid. Have you ever done that? I'm driving along. The speedometer reads 80 miles an hour, my wife's looking at the map and says, "We're going the wrong way."

I say, "Yeah, but we're making good time."

We get stuck in our stuff, don't we? We're like a toddler sitting in a poopy diaper. "Yeah, I know it smells bad. But it's warm, and it's mine."

We don't like change. Let me tell you, if you're going to win in this life, you have to learn to embrace change, because the only thing that never changes is we're going to change. Change is a way of life. Embrace it. And you've got to embrace it with changing and doing some new stuff with your money.

Start with $1,000 in the bank. You've got to learn to save money. What we're saying here is, "Now Satan." Now look at that. See, I like those things like that. That right there is why I get the big bucks. Isn't that deep? “You must save money.” Man, that's good, isn't it? You know what? It is! Because nobody does it. Everybody talks about it. Everybody looks at it and goes, "Uh huh." And nobody does it. We're walking around with no money. The richest country the world has ever known, and all the money leaves your house every month. You have to make this a philosophical process, a theological process, a spiritual and emotional, a relational, and a mathematical process. "I'm saving money. I'm sick of being broke."

"Well, you don't know about--"

Yeah, I do. I've done your budget. I've been doing budgets for 20 years. I do know about. I know it's tough. I know it's hard. So is being broke. Wah. Step up. There's some stuff to be done here.

So what we're starting here is the first step of saving. It's the emergency fund. Grandma said to save for a rainy day. Visual aid [holding umbrella]. This is what your emergency fund is. 78% of Americans, according to Money Magazine, are going to have a major negative financial event in any given 10-year period of time. You better be ready. It's coming. You need to be ready. You need to save money for emergencies. You're an emergency looking for a place to happen. If you haven't been kicked in the knee to the tune of $5,000 to $7,000 in the last three or four years, you’re an overdue duck. Statistically, it's coming. Get ready. You need to build your emergency fund.

"Dave, you need to be positive."

I'm positive. It's going to rain. Get you an emergency fund. It's how this stuff works. This $1,000, you don't even have to put this in the bank. You could just do like one lady did. She went down to Walmart and bought an 8” x 10” picture frame and put it in it and framed it and wrote under it, "In case of emergency, break glass." You don't want to keep it in the underwear drawer, because the pizza man will get it.

No. The pizza man's not in your underwear drawer. But I know what happens. Ding dong. "Oh, oh. It's an emergency." You've got to keep it where you can't get to it too easy, but where you can get to it if you need it.

Baby step one is $1,000. $1,000, quickly get $1,000. Get that $1,000 set aside. Get that minimum baby step, that beginner, starter emergency fund ready to go. Personal finance is 80% behavior. It's only 20% head knowledge. You've got to change what you're doing in order to get a different result. You can't keep doing the same thing over and over again and expect a different result. The 12 steppers call that the definition of insanity.

Baby step two: the debt snowball. Pay off all of your debt using the debt snowball except your home. We're going to list our debts, smallest to largest. We're going to pay minimum payments on everything but the little one, and we're going to attack the little one with a vengeance. When the payment is gone there, we're going to take that payment and any other money we can squeeze out of our budget in our life and we're going to attack number two. When number two is gone, we're going to take the payments from one and two and everything we can squeeze out of our life, we're going to attack number three. And every time that snowball rolls over, it picks up more snow to where by the time you get to your largest debt except your home, which is typically a student loan or a car payment, isn't it? Say, "Yes."

"Yes."

When you get to that student loan or car payment, the average family in America is paying between $1,500 and $2,000 a month in payments not associated with their home - non-mortgage payments. When you start $1,500 or $2,000 a month on a $10,000 car loan or a student loan, that sucker's gone in just a few months. Are you getting the idea? We pay this off smallest to largest.

"Well, Dave, would it not be mathematically proper to pay off the highest interest rate first?"

Yes, it would. And if we were doing math, we wouldn't have credit card debt. This is about behavior modification. When you go on a diet, it's a good idea to lose weight the first week. That way, you will keep doing it, because it's too much work to not eat and to exercise. It makes you grouchy. It does me anyway. Oh, you too. I see. Okay.

So the deal is this, I've got to see some results from my pain. You with me? When I can knock off that little one, and knock off that next one, and knock off that next one, I'm getting that pump-up thing going. I'm going, this is do-able. My belief kicks in, my faith is built, my hope grows, and I get more, and more, and more, and more intense as I go down the thing. That intensity, that focus causes this to happen.

And I notice that intensity and that focus and the intimacy of talk radio. As people are calling in, I got to where years of doing this, I can kind of tell if they're going to be able to do it. I can hear it in their voice, I can hear it in the cadence of their speech and the words that they're using. "Out of the abundance of the heart, the mouth speaks," the bible says. I can hear what's going on. I can discern what's happening. Not every time, but I started noticing that I can tell that one's going to make it and that one's not.

Because they'll call up and they'll go like, "Dave, I'm getting out of debt!" It's not that extreme, but sometimes it is. But you get this thing coming up out of them. You can feel it. "I've had it!"

Les Brown, the great motivator says, "People change their lives when they finally say, 'I've had a moment where I say I've had it. I'm sick of this.'" That's when you change your life. You've got to get to that point. You can wander into debt, but you can't wander out. You've got to have this moment where you say, "That's it. I'm tired of working my butt off and I don't have anything to show for it but an empty payment book."

I hit the Discovery Channel, and there were the gazelles. They were out there gazelling around. And I went, dude. I just read about you. I said, get out of debt. Deliver yourself like a gazelle from the hand of the hunter. And I sat there for just a moment, because you know that the Discovery Channel is not there if just the gazelles are there. You know somebody else is there. The hunter is there. He's there. He's got a plan. He's the fastest mammal on dry land.

And the gazelles have a cheetah detector behind their ear. They're going, "Oh, cheetah! Run!" Because they're getting ready to be lunch. Because the cheetah is faster than they are. He can go from zero to 47 miles an hour in four leaps. This is the fastest mammal on dry land. He's looking to eat you. This is how you get out of debt. You deliver yourself like the gazelle from the hand of the hunter. You run like your life depends on it! Go! Because you see what he'll do. He picks out the college student, didn't he?

"Hey. Come here. Hey. Do you want a free hat? Hey, I've got a t-shire over here. Hey, you need to build up your FICO score. Come here, kid. Come here."

No, the way you get out of debt is you've got to run. You've got to go, go, go, go. You can't let up. This guy's after you. He is going to take you down. You've got to run, run, run, run, run.

You've got to get gazelle-intense. The people that get out of debt-- you can wander in. You can't wander out. This is a deal man. It's got to happen. This is how you get out. You deliver yourself like a gazelle from the hand of the hunter. You deliver yourself like a gazelle from the hand of the hunter.

I'm not going to do it for you. You're the one that's got to run. Do you know how long we had to look for a clip where they got away?

But I'll tell you this, the fun thing about this funny little example up here that you'll never forget the rest of your life. It's one of the most powerful moments in the whole day. I don't know how long you've got to run. I don't know how fast you've got to run. But you've got to run. You cannot let up. You've got to bust it. If you want to be somebody in the area of money, you want to get this stuff off of you, you want to shed these chains, it is not a game. You've got to bust up into it in an unbelievable passionate way. You've got to have a level of focus, a level of intensity that you may have never had in your life. And when you do, you will win. You will be free.

Because I've watched hundreds of thousands of North Americans do this exact thing. Because of the Total Money Makeover, because of the Dave Ramsey show, because of Financial Peace University. No! Because we made them believe they could. And they ran. That's what happened. Deliver yourself. That's how this works. But I promise you, it works. If you keep doing it, you get to chase the cheetah.

So now, we don't have any payments but a house payment. We're at baby step two. We're 18 to 24 months in. Does that feel good? Say, "Yes."

"Yes."

Now our next goal is we're totally, with gazelle intensity, going to continue to focus. With focused intensity, we're going to build up that $1,000 account until it reaches a fully funded emergency fund, which is three to six months of expenses. Emergency funds should be easy to access or liquid. Put them in a money market type account with a mutual fund company, check-writing privileges. It's not going to earn much interest. I want you to put three to six months of expenses. For some of you, that'll be $10,000, $15,000, even $20,000 just sitting there - boring - but ready for life to happen. Everybody's bored but her. Yeah. It is boring though.

See, here's the deal. Your emergency fund, the problem we get is we get mixed up about it. It is not an investment. Say, "Not an investment."

"Not an investment."

 Your emergency fund is insurance. Say, "Insurance."

"Insurance."

Here's the difference. Investments are money that make you money. Insurance costs you money to protect your money that is making you money. You buy insurance to protect your house, to protect your health. You buy insurance to replace your life and the money you make if something happens to you - called life insurance. Insurance is an expense that protects assets. Your emergency fund is not an asset. It technically is in accounting terms, but you don't need to look at it that way.

In other words, if it earns a little interest, that's just good. But it's not there to earn interest. It's there to protect your 401k. Because if you have to dip into your 401k because you didn't have an emergency fund and the government takes half of it in penalties and taxes, that's what's known as stupid. Because you didn't have an emergency fund.

I never had an emergency fund any time in my life when I was a multi-millionaire, when I was a millionaire doing the real estate stuff. I wasn't a multi-millionaire. I was a millionaire doing real estate stuff. I didn't have any money saved. Everything went back into the deal. Everything we spent, everything we consumed - no money, no liquidity, no cash. And that's one of the reasons I went down. Because I had no wiggle room. There was no grease in the gears. And that's what this is. It puts a pad between you and Murphy.

You know who Murphy is. If it can go wrong, it will? Let me tell you what. If you don't have an emergency fund, Murphy will move in your spare bedroom and bring his three cousins - Broke, Desperate, and Stupid. And your life will look like a country song. That's what'll happen, won't it? That's how this deal happens.

So you don't put it in a cd, a certificate of depression. Because if you cash that out early, they charge you a penalty. That's not liquid, that's not easy to access. So a simple money market account with something like your mutual fund company, and you put three to six months of expenses in there. Money market accounts are easily accessible.

Men say things about the emergency fund like it's boring. It's not sophisticated enough. "Dave, you want me to take 20,000 bucks and let it sit there and make only 3% or 4%. Dave, I could do a lot better with that. I could do a bbd - a bigger, better deal. I've got this game plan. My wife says I'm scheming and scamming when I do that kind of stuff." And guys are always trying to do this. Very few women do this stuff.

See, women on the other hand say things like, "It's the most important key to our financial plan." And here's why. Let me have all the men in the room stand up please. Guys, I don't know if you know this or not, but women are different. And guys, I don't know if you know this or not, but right down in here, inside of your lady, there is a security gland. And when she's feeling insecure over the money stuff, she's not feeling good over the money stuff, that gland spasms. And it is attached to her face. Insecurity makes your wife ugly and mean, because she gets afraid in a place you don't even have. And she will attack you. And you know that's happened. It happened in my house. That woman about clawed my eyes out, and I had no idea.

Then I discovered the security gland. Guys, if you want to make one of the best investments you'll ever make in your life, she's wired by God naturally to be smarter than you on this subject. Her nature takes her to the place to be calm and secure in this area. This emergency fund causes her to relax in a place you don't even have. When you do the investment, and the work, and the budgeting to participate in the process, and this emergency fund is put in place, she'll relax and she'll look at you through a different set of eyes. This is one of two things I'm going to tell you today.

For those of you that are married or ever want to be married, that will revolutionize your marriage. Because she will feel completely different at that point. Not because she's weaker. Because on money things, a lot of times ladies are actually stronger. But because on this subject, that's how she's wired. And she'll look at you in a different way when that emergency fund's in place. It's an investment in your marriage. Am I right, ladies?

"Yes."

I rest my case. An emergency fund turns a crisis into an inconvenience. If you're transmission goes out, it's $2,700 to fix it and you have $15,000, you go, "Dadgum, transmission went out. That's a pain."

If the transmission goes out and you are broke, you go, "Oh no, the world's coming to an end." It changes your whole life. The drama starts to leave your life when you have this emergency fund stuff in place. It is absolutely powerful. That is baby step three.

Emergency funds in place. And now the baby steps take a different flavor. You only do one until you get one done. You only do two until you get two done. You only do three until you get three done. Four, five, and six, we're going to do at the same time. And so we're going to limit our investing here in four to only 15% because I want to work on the other two baby steps at the same time. Instead of going 22% or 28% in savings, only 15%.

Invested in the Roth IRAs and 401ks, this is a mathematical explosion. That's stuff we talked about where there's interest on the interest on the interest. Now you've got a different kind of snowball rolling. It's rolling down the hill and you're chasing it instead of it chasing you. Now you get to see wealth start to build. Your money starts to make you money. This is a plan right here. $100 a month invested from age 25 to age 65 at 12% in a decent growth stock mutual fund is $1,176,000. I just gave you the formula to be a millionaire. Straight up. Thirties to seventies, the same numbers - 35 to 75's the same numbers. $100 a month. That's pizza money in some of your houses. It's your cable bill, but don't turn off Fox Business.

Do you know what I'm saying? You’ll consume $100 in lattes. "Oh, now he's getting personal." And they're having a withdrawal back there, caffeine thing happening. One hundred bucks, $100. And you're a millionaire. Every single month. Roth RIAs and 401ks are secret government formulas to wealth. Now that you don't have any payments but a house payment, now you can find 500 bucks.

"Not in the real world."

Yeah, in the real world. Let's do the numbers. The average household income has $40,816. That's $3,333 a month. That's what it is. Your take-home pay's about 2,700 bucks. The average family making 40 has got a house payment of about $700. $2,700 take-home minus a house payment of $700 leaves 2,000 bucks. You've got 2,000 bucks to eat, pay lights. "Oh, I don't have any debt payments. Hmmm. Maybe I could save 500 out of the 2,000. Could I say yes?"

"Yes."

And then you might end up with some money in the process. This is real. I didn't just make this up today. We've done this for a long time. And it works. And see, here's what's interesting about those numbers. The Roth IRA grows tax free. That's a good word. Let's do it again. Tax free. Because it doesn't happen very often. This is Washington and they're a freakin' parasite, so tax free is a good idea. It's very unusual. It's a good idea.

Now, tax free. Let's think about it. $6,000 a year for 40 years. What's six times four? Twenty-four. That's $240,000 that went in. This is interesting. $240,000 went in and it grew $5.8 million. So out of $5,800,000, $5,600,000 of it, you didn't put in. Wow. It's all growth. The whole thing is growth. It's the snowball adding snow. And the fact that it's tax free is huge, because taxes on $6 million would look a lot like $1,600,000, which means this word Roth is worth in this example somewhere around $400,000 a letter.

The 401k is the secret government formula to wealth because you do that investing pre-tax. If you take $1,000 out of your income and bring it home, by the time it gets home, it looks suspiciously like $700. But if you put it in pre-tax, the whole $700 plus your $300 you would've given to Congress goes in. Why is that important? Because $240,000 turns into $5.8 million. So we want as many of these government dollars as we can gather up that would've gone to them earlier. We use them. They do a lot of heavy lifting. So every one of them are multiplied bazillions of times over. So every dollar I can keep in my hand to grow money with pre-tax investing is genius.

"Well, my mean old company doesn't match. I'm putting money in a 401k."

That a way. You get back at them by you being broke. That's smart.

But the trick is, you need to start right now. Ben and Arthur will illustrate that fact for us. Ben invests starting at age 19. He invests $2,000 a year in a good growth stock mutual fund all the way up until age 26. Ben puts in $16,000 for eight years, $2,000 a year. That's $16,000 and then he quits investing. Because at age 27, how much did Ben put in? Zero. At age 27, he quit investing. It's not a trick question. The money grows, and the money grows, and the money grows.

His brother, Arthur, wakes up and says, "Whoa! I've been dumb. I need to catch up. I’m going to start investing $2,000." He starts at age 27. He invests $2,000 a year from age 27 all the way to age 65. He puts $78,000 in, and he never catches up. The guy who put in $16,000 beats the guy who put in $78,000 by $700,000.

Some of you are going, "That's a real neat chart if I was 19."

How many of you in here are under 25? Raise your hand high so I can see you. Good. Do you understand if you gather this information, you put it in your brain and it changes your heart and causes you to handle money differently the rest of your life, this one section right here, this one chart will make you a multi-millionaire? I just made you a millionaire if you got this. Am I right, old people?

How many in here that are over 40 like me. Be proud of it. Yeah, I'm thinking deep down inside, you've probably got a message for those people under 25. You've probably got something you want to say to them. You probably want to yell something like, "Do it." Ready. One, two, three.

"Do it."

Wow. Young people, you just heard the voice of regret. Let me just tell you. Some people say, "Am I too old to save money?"

Not if you're still sucking wind. Besides that, you can't go backwards. This is your only option. Start where you are and let's go.

"I'm 52. It's too late." So shoot yourself. What are you going to do? Let's go from here. We've got to go somewhere with this. I know people that make the most money they ever made in their lives in their 50s. Lots of people never do anything until they're 60. Colonel Sanders never fried any chicken commercially until he was 67 years old. Grandma Moses never painted a painting until she was 84 years old. She did 1,500 works of art, 450 of them she did after age 100.

Everything you know Winston Churchill for, he did in his 70s. Everything you know Golda Meir for, she did in her 70s. It's not over until you quit. But with the money thing, it's easier if you start now.

Now we only put 15% of our income into retirement in baby step four because I wanted to save some money to start working on the kids' college fund. If you have kids and you want to do a kids' college fund, baby step five is where you do it. You don't do the kids' college fund while you're still in debt because you don't have any money. It's all going to payments. You don't use the emergency fund to send the kids to college. That's not an emergency. And by the way, when they go to college, they could learn to do something like w - o - r - k. It won't kill them.

How many of you worked while you were in college? I rest my case. It's not child abuse. College funding makes sure the kids are fit too. An educational savings account, the education IRA is what it's nicknamed as, it's the ESA is like the Roth IRA for college. It grows tax free. You're allowed to put $2,000 a year into this account. You put $2,000 a year into it, it will grow tax free from zero to 18, two times 18 is 36. $36,000 went in, but you'll have about $126,000 (12%) when they reach 18. And that means you have somewhere around $90,000 in growth that you pay no taxes on because this is tax free. So do this for your kids' college - the educational savings account in good growth stock mutual funds.

Take the time to research the cost of college. You need to think about that when they're little. You need to think about it that as they get older. Some of you have kids that are 13, 14 years old right now. You haven't started saving for college, and so you're not going to have enough to pay cash for college. They're going to do some things and you're not going to have enough to pay cash for some big expensive private school unless you put them deeply in debt. Instead, you could do something like send them to a school you can afford. "Oh, there's a thought."

But see we go crazy with the word education. We worship at the altar of the diploma in this culture. Let me tell you what your college degree is worth. Nothing. It's worth nothing. The knowledge that you've got on the way to getting that degree if it is applied in the marketplace is the only thing that has value. Knowledge is the currency of this millennium. Knowledge is important. Continual learning is important. It's not over when you leave college. You need to read and do some other things and continually get better like you're doing in here today.

Continual learning is the only way you're going to win. Teach your kids that. Think about what you're getting for what you're spending. Let me tell you what is the only thing that's more useless than your degree is your pedigree. Totally useless.

I'm happy for you if you graduated from a Horton, or Harvard, or Yale. I am not putting those schools down. I'm not putting down Vanderbilt. But I tell you what. If you're going to go there, you better be ready to pay for it. And if you're telling me it's worth going $100,000 in debt to there, I can economically prove to you you're an idiot. The average college student is graduating right now with $27,900 in student loan debt. This is crazy. And another $6,000 in credit card debt by the way. First rule of college, pay cash.

Now we're sailing. We've got the retirement going, we've got the emergency fund in place, we're doing the kids' college into the educational savings account. Now every other dollar above that, that we've got coming in, put it on the house. Pay off the house. Think about it. What could you do if you had no payments? If you just take a house payment, put that puppy into a mutual fund every month, that's $1 million really quick. You've been looking at these numbers all day long. You're beginning to see how this stuff works. What could you do if you had no payments? You'd have control of your most powerful wealth-building tool, which is your income. That's the muscle of your ability to build things. It's that simple.

Myth: it's wise to keep my home mortgage because I get the tax deduction. How many of you have ever heard the tax deduction myth? I don't want to pay off my house. I'll lose my only tax deduction. That's one of the biggest ones. I'm amazed that CPAs are so stupid they do this. Really.

I've got a degree in finance, and I'll tell you who taught me - this old farmer with overalls on who was paying cash for a piece of property ($90,000). And he reached right there [inside his overalls pocket] and closed the sale.

And I'm fresh out of college. When you're fresh out of college, you have all the answers. I'm like, "Excuse me sir." I'm thinking I'm going to be sophisticated and teach this old guy how money works, because he obviously doesn't know. He's in overalls, just paid cash for a $90,000 lot. But he's in overalls. Which didn't occur to my arrogant little head.

And he looked at me and he says, "Son, didn't they teach you anything at that school?"

I said, "What do you mean?"

He said, "Well apparently, you didn't learn to add."

Let me show you what he walked me through. And I've never forgotten it. It has changed my whole mind on this idea of tax deductions. Take a tax deduction if you have one. For goodness sake, don't send too much money to Washington. But staying in debt because of a tax deduction, here's how that works. Think about it for a second.

If you had a $200,000 mortgage at a 5% interest, that means the interest that you paid that year would be 5% of $200,000, which is $10,000. Does that sound right? Say, "Yes."

By the way, in this, there's no trick answers. I'm not going to trip you, so you're safe.

Now if you do that and you make $70,000 a year and you have a $10,000 tax deduction, you don't pay taxes on $70,000 of you have a $10,000 tax deduction. You pay taxes on $60,000. So if that's the case, you're in a 25% tax bracket, you've saved $2,500 in taxes. If you're Dave Ramsey crazy man came to town paid off mortgage, then you wouldn't have the $10,000 in interest payments so you would lose the deduction and you would not pay taxes on $60,000. Instead you would pay taxes on $70,000. So that extra $10,000 of income is now taxable. If that's the case, the numbers I'm using, you're in the 25% tax bracket, that means 25% of $10,000 is what I cost you. That's your extra tax bill or $2,500.

So what we're saying is a tax deduction mathematically is sending the mortgage company $10,000 to keep from sending Washington $2,500. Let me try that again. It's sending the mortgage company $10,000 to save sending the taxes of $2,500 to Washington. I may have to wait until you all get this.

Here's an idea. Pay off your mortgage. Give your church $10,000 and you get the exact same benefit.

Myth: It's wise to borrow all I can on my home because I can invest it and make more on the investment.

"If I borrow money at 6 1/2% and I put it in a good mutual fund making 12%, Dave, am I not making a 5 1/2% spread?"

The answer is, "No." Because your little formula is naive. Out here in the real world where we all live, if you make 12%, you're going to pay taxes on it and your after-tax yield is 9.4%. Out here in the real world, if you're smart, you don't compare zero-risk investments apples to apples with risky investments.

Myth: I'll take out a 30-year mortgage and I promise to pay it like a 15 [laughter].

You're lying to yourself. The truth is no one does. Something will go wrong. It's called prom dresses, transmissions, and the muffler falls off the car. It will rain every month. Best-laid plans of mice and men. "I meant to do it. I promised myself I was going to do it."

The interesting thing about a 15-year mortgage, they pay off in 15 years or less every time. Do you know how many times a 30-year mortgage pays off in 15 years or less, unless it's refinanced? 2% of them pay off systematically in 15. Nobody does this stuff. Everybody talks about it and thinks, "Well, if I have a little problem, I'll have wiggle room that," your life is a little problem. That's what happens. And 15-year mortgages pay off in 15 years.

So here's the deal with the house. Only buy a home after baby step three. You're debt free, you have the emergency fund. I recommend paying cash.

"What? You're crazy!"

It's hard. I don't borrow money. There is nothing on the planet I want bad enough to go back into debt ever. The borrower is slave to lender. I got that. I got it all the way to the souls of my feet. I don't even want to have anything to do with a bank unless I'm buying it. That simple.

But if you're going to go get house, never take out more than a 15-year mortgage. And never take out more than a 15-year mortgage where your payment on a fixed rate is more than one-fourth of your take-home pay. You're buying too much house. And if some rip-off loan shark, sub-prime, greedy banker is going to stick you with a pre-payment penalty with an adjustable rate mortgage, with an interest only mortgage, with a balloon payment, with an above-market interest rate just because, "If I get a house my life will be good," back off. You're not ready to buy yet. Back off.

Do not be conformed to this world but be transformed. How are we transformed? By the renewing of our minds. Transformed. Have a total money makeover. People don't get the best use of their money and/or have money problems for two basic reasons. Number one is ignorance. Don't get mad at me. I'm ignorant about some things. You don't want me doing brain surgery on you or fixing your car. In either case, there would be parts left over.

Ignorance is not lack of intelligence. Ignorance is lack of know-how. I don't know how to do those things. I'm an intelligent guy, but I don't know how to do those things.

You can do that. You can hire people to do brain surgery. You can hire them to work on your car. And I highly recommend it in both cases. But don't hire them to manage your money. You need to learn how to do this stuff. You can bring CPAs in to teach you, you can bring in an investment guy in the mutual funds to help you, a real estate gal over here, a good mortgage broker over here, an insurance person to teach you. But they all need to have the heart of a teacher, because all you're looking for is counsel. You're not looking for a babysitter. You're not looking for a daddy or a mommy, because it's your job to manage your life.

In the multitude of counselors, there's safety. You gather the information, but you make your decisions. Don't let someone else do that for you.

Now we've got the house paid off. The kids' college is underway. Retirement's underway. When you get all that done, baby step seven, there's nothing left to do except build lots of wealth and give it away. You're going to have the most fun you've ever had with money when you hit baby step seven.

When you launch into this area of wealth, you're going to look at things through a completely different lens that you didn't even know you had in your camera. It's a whole new way of seeing things. Your most powerful, wealth-building tool is your income. When you get control of that, it will launch you. And you don't have to be on the radio, and you don't have to have best-selling books to do it.

Regular people making $50,000/$60,000 a year do this stuff all the time. Wealth is not an escape mechanism. It is instead a tremendous responsibility. If you think your life's going to get better just because you get money, you're wrong. Because you become more of what you are. If you are a jerk and you get a bunch of money, you will become a very large jerk.

If you're generous and charitable and you get money, you will have a huge impact on people around you. You'll never sit down in church next to a single mom who's crying because her light bill isn't paid but what you just reach over and pay it to the end of the year. You don't really do it right then. You do it after you get home so she doesn't know who did it. Because it was really God that did it. It wasn't you. You don't need to be taking the credit anyway.

There's only three things you can do with money. You can have fun with it, you can invest it, and you can give it. And you can do all three. You better be having some fun. Money's fun if you've got some. You need to be investing it so you've got some. And you need to be giving it because it is the most fun you'll ever have with it. Giving is possibly the most fun you'll ever have with money. That's the deal.

Winston Churchill said, "We make a living by what we get. We make a life by what we give." Andrew Carnegie who was the Bill Gates of his day in the year 1900 - Carnegie Steel, Carnegie Hall and started most of the public libraries in America today. The wealthiest guy in the year 1900 used to say that surplus wealth is a sacred trust to be managed for the good of others.

If you'll bear with me for about two minutes and not move, this last section is very important. There's two things I want to cover with you. One is this: each of you are perfectly trained, perfectly designed four-cylinder engines. You need to run on all four cylinders to be able to win. We're physical beings. Take care of this. You get one. Don't go to McDonald's, and eat 62 Big Macs, and go, "Lord, bless this for the nourishment of our bodies."

Take care of this. You've got one. Eat less. Exercise more. It's not hard. Be cognizant of what you're putting in your mouth. People don't sneak in your bedroom in the middle of the night and stuff food down your mouth. It's you. You're the one doing it. I know because I put the sign on my desk - "It's the food, stupid." I know it's me. It's my job to take care of me.

The second thing is, we're emotional beings. If you had something bad happen to you in your life - and most of us that are breathing have - you may need to sit down with your pastor or with a good counselor and unpack your baggage. Life's too short to go through it with a Samsonite. It's heavy.

You say, "Well, Dave, I came from a dysfunctional family." We all did. They had people in them.

I'm not poking fun at you. I'm just saying I know what it means to hurt, and it's okay to get some help when you're hurting. It's kind of dumb not to.

The third thing is this. We're intellectual beings. Feed your mind. Read, read, read, read. The average person hasn't read a non-fiction book-- 70% of Americans haven't read a non-fiction books since their last day of formal education.

Charlie "Tremendous" Jones says that five years from today you will be the same person you are today, making the same money you have today, with the same problems you have today except for the books you read and the people you meet.

You can be an intellectual, you can feed your intellect and grow, you can take care of your body, and you can take care of your emotions. But if you do those three out of four, you are not running or three-quarter or 75% power. Until you plug in the fourth one, the other three don't work right. When you plug it in, it takes you to more than 100% power. It takes you to 110% power. It kicks in the joy. It kicks in the celebration of life. It kicks in the passion of life. It increases your creativity. It changes everything about the other three.

What am I talking about? I'm talking about the spiritual. The step-by-step baby steps program is steeped in common sense, biblical wisdom. It is an absolute process that is proven. Literally, to date, millions (with an s) of Americans are somewhere in those baby steps. They're right now working this exact process. Millions and tens of millions, even hundreds of millions of dollars of debt has already been paid off. Whether this stuff works is not in question. The only question that remains this evening is what you're going to do.

Don't wake up five years from now and wish you'd changed your life. Go home this week and start. Do it right now. It's as you will it. Thank you, Dallas. You're awesome.