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Dave Ramsey Says July 25, 2019

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Time for fun money?

Dear Dave,

I had about $12,000 in debt when my husband and I got married three years ago. Since that time, we’ve been given cash gifts from my parents from time to time, and we keep having discussions on how to use this kind of money when it is given to us. I’d like to put it toward paying off debt, but he would rather treat it as fun money. What are your thoughts on this, please?

Sara

Dear Sara,

If there’s something you need, and you agree on it together and choose to buy it as a couple, that’s cool. I’ve got no problem with that. But you guys are still just starting out, and you’ve got debts to pay. I’m sure your husband has a good heart, but I think it’s time for him to grow up a little and realize the importance of getting your financial house in order.

Did your parents have specific and reasonable thoughts on how they’d like you to use the money? If so, you should honor their intent. If not, then how it gets used is pretty much up to you guys. But in your situation, life’s not a birthday party when this kind of thing happens. You should be making mature, responsible decisions together regarding any money that comes into your household. It’s really no different than a paycheck. You take care of obligations and other important things first.

Adults waste money on play things and fun stuff just because it was handed to them by mom and dad. That’s how a 10-year-old behaves. Sit down with your husband, and explain how important it is that you guys start making better decisions with your money. If you two start working together, you could knock out this debt in a hurry!

—Dave

First, catch up!

Dear Dave,

I’ve had enough of living paycheck-to-paycheck. I’m going to start following your plan, but I have a question. Should I catch up on my past due bills before beginning Baby Step 1?

Simon

Dear Simon,

Go for it! You’re sick and tired of being sick and tired, and you’re going to get control of your money. I love it!

First, make sure you’re up to date with necessities—food, clothing, shelter, transportation, and utilities. Next, get current or make payment arrangements for any other types of debt you have, including credit cards.

You mentioned Baby Step 1, which is getting $1,000 in the bank for a beginner emergency fund. Baby Step 2, the debt snowball, comes next. Start paying off all debts, except for your home, from smallest to largest. Then, in Baby Step 3 you’ll save more and increase your emergency fund to a full three to six months of expenses.

Now, you can really start looking at the future. In Baby Step 4, you’ll start investing 15 percent of your household income for retirement. College funding for the kids, if there are any, is Baby Step 5, and Baby Step 6 is a milestone—pay off your house early!

But the real deal is Baby Step 7. This is when all your hard work, sacrifice, and smart financial decisions put you in a place where you can build wealth and give with outrageous generosity. At this point, you’re securing your family’s future and helping others in a big way!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says

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Push the pause button

Dear Dave,

I’ve been following your plan, but recently I experienced a medical emergency. I’m about halfway through Baby Step 2 and paying off my debts using the debt snowball system. Considering the circumstances, should I stop doing the debt snowball for now?

Brooke

Dear Brooke,

That’s exactly what you should do. But make sure you’re only pressing the pause button on paying off debt. I’m talking about temporarily stopping the debt snowball, and making only minimum payments on all non-mortgage debt for now.

Cash is your umbrella when it rains, and you never know just long the rain will last. Even if you have great health insurance, you might end up paying a chunk out of pocket. That’s why it’s important to save up and have plenty on hand.

Things like this are often just a bump in the road, so don’t get discouraged. They can be expensive, and they’re part of life, but taking care of these kinds of issues doesn’t have to mean giving up on getting control of your finances. Emergency issues, especially a medical emergency, come first. Then, go back when things are better and pick up where you left off knocking out debt using the debt snowball system.

You can do this, Brooke. God bless you!

—Dave

You’re just not ready

Dear Dave,

My husband and I just bought a small business with cash. My sister let us live with her while we saved up the money for it, but things are starting to get a little cramped for everyone. The other day, my sister offered to co-sign on a house for us. Do you think this is a good idea?

Cari

Dear Cari,

Ok, so you just bought a business. I love your entrepreneurial spirit and the fact you saved up and paid for it with cash. But at this point, you don’t know if the business is going to be successful or not. On top of that, you told me you’d need a co-signer for a home. If you need a co-signer for anything, it means you’re not financially ready for that purchase.

I know you don’t want to hear this, but you guys need to just forget about buying a house for a while. If I were in your shoes, I’d find a decent, inexpensive place to rent, and spend two or three years getting the business up and running. Pay off any debt you have, while saving as much money as you can in the process. 

I want you and your husband to have a nice house someday. But right now, it would be a burden instead of a blessing.

—Dave 

Dave Ramseyis a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. Hehas 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.

Dave Ramsey Says February 8, 2018

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Quit job for school?

Dear Dave,

My wife and I have $72,000 in debt from student loans and a car loan. We’re trying to pay off our debt using the debt snowball system, and we each make about $45,000 a year. She’s a teacher, and she’s planning on going back to school for her master’s degree, but she’s thinking about quitting her job to do this. She’ll be able to make more money with the additional education, and she would only be unemployed for two years. The degree program will cost us $2,000 out of pocket per semester for two years. Does this sound like a good idea?

Chris

Dear Chris,

There’s no reason for your wife to quit her job to make this happen. Lots of people — especially teachers — hold down their jobs and go back to school to further their education. I’m not sure trying to make it on one income when you’re that deep in debt is a good idea.

Whatever you do, don’t borrow more money to make this happen. Cash flow it, or don’t do it. We’re talking about $8,000 total, and you’ve got $72,000 in debt hanging over your heads already. My advice would be to wait until you’ve got the other debt knocked out, then save up and pay cash for school. You could slow down your debt snowball, and use some of that to pay for school, but I’d hate to see you lose the momentum you have when it comes to getting out of debt.

The choice is yours, but don’t tack on anymore student loan debt. I know her income will go up with a master’s degree, so from that standpoint it’s a good thing to do. But if you do a good thing a dumb way, it ends up being dumb!

—Dave

Pre-planning explained

Dear Dave,

My grandmother passed away a week ago. She was 98, and I know both she and my grandfather had pre-paid for their funerals in 2004. However, there were outstanding costs of $1,500 with the funeral services we had to pay out of pocket, because she had outlived the insurance policy attached to the pre-payment plan. I know you say it’s always better to pre-plan, not pre-pay, for a funeral. Can you refresh my understanding of this?

Rebecca

Dear Rebecca,

Let’s use a round figure, and say the cost of a funeral is $10,000. What would $10,000 grow to 25 years from now if it were invested in a good mutual fund? Now, juxtapose that number with the increase in the cost of a funeral over that time. The average inflation rate of consumer-purchased items is around four percent. So, the cost of funerals, on average, has risen about four percent a year. By comparison, you could’ve invested that money, and it would’ve grown at 10 or 12 percent in a good mutual fund.

Now understand, I’m not knocking folks who are in the funeral business. But lots of businesses that provide these services realize more margin in selling pre-paid policies than they do in caskets. In other words, they don’t make as much money selling the casket as they do selling a pre-paid policy on the casket.

Do you understand my reasoning? If we knew the exact date she pre-paid, and how much she pre-paid, that figure invested in a good mutual fund would be a whole lot more than the cost of a reasonable funeral. It’s the same principle behind the reason I advise folks to not pre-pay college, or just about anything else, that’s likely far into the future. The money you could’ve made on the investment is a lot more than the value of pre-paying. Pre-planning, on the other hand, is a great idea for many things — including funerals.

I’m truly sorry for your loss, Rebecca. God bless you all.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says

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Smallest to largest

Dear Dave,

I’m on Baby Step 2, and I’m working hard to get out of debt. My last two debts are $6,000 on a credit card, and $10,000 on a car loan. I’ll be receiving a $6,000 bonus at work in a couple of weeks, and I was wondering what to do with the money. I’m single, and I make about $45,000 a year, so should I sell the car and get rid of some debt that way, or use the extra money to completely pay off the credit card debt?

Aaron

Dear Aaron,

Just remember the debt snowball—pay off your smallest to largest. In your case, that means knocking out the credit card debt completely, and then attack the car loan with a vengeance. It will be a lot easier once you’re rid of that credit card debt. A $10,000 car with a $45,000 income isn’t unreasonable, but don’t mess around and let that note hang around longer than absolutely necessary. 

My rule of thumb when it comes to things with motors, wheels—I’m talking about big toys, here—is when they’re all added together, they shouldn’t equal more than half your annual income. You don’t want that much money wrapped up in things that are going down in value. You’re in no danger of that here, but at this point you’re so close to being debt-free you can practically taste it.

Follow the plan, Aaron. And stay focused and intense about becoming debt-free. You’re almost there!

—Dave  

Keep the homeowner’s insurance

Dear Dave,

Recently, I made a claim on my homeowner’s insurance for hail damage. It was my first claim ever. Since I’m retired and completely debt-free—including my home—and have over $1 million in the bank, is homeowner’s insurance still a good idea? The house is insured for $250,000, with a $5,000 deductible, and the insurance is about $1,200 a year.

Mary

Dear Mary,

You’re obviously in good financial shape, but I’d still recommend you have an up-to-date homeowner’s insurance policy. If something happened to my home or one of my rental properties, I could write a check and replace any of them. But I still have homeowner’s insurance on every single one.

It’s just good risk management to transfer the chances of a fire, tornado, or other catastrophic events to homeowner’s insurance. If something disastrous happened, you could write a check to cover the deductible with no problem. But writing a check for $250,000? You’d feel that one. Keep the policy, Mary!

—Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. Hehas 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.

Dave Says

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The zero-based budget

Dear Dave,

I have a good job and make pretty good money, but I’m tired of always worrying about my finances and being strapped for cash at the end of the month. I’ve heard you talk about getting out of debt and living on a zero-based budget, but what exactly is a zero-based budget?

Edward

Dear Edward,

The concept of a zero-based budget is simple: income minus outgo equals zero. If you bring home $4,000 a month, you want everything you spend, save, give and invest to equal $4,000. That way, you know where every one of your dollars is going. Not knowing where the money’s going is what kills lots of people’s financial dreams. They think they know how much they’re spending and where it’s going, but they really don’t.

Here’s how you do it. List all your income sources for the month. Your income should include paychecks, small-business income, side jobs, residual income, child support and so on. If it’s money that comes into your household’s bank account, write it down and add it up.

Next, list every single expense you have each month. Rent, food, cable, phones and everything in between. Your expenses vary from one month to the next, and this is why you make a new budget each month. Your giving budget might be high in December when Christmas rolls around. The car budget will spike during months when you pay insurance or renew your tags. Focus on one month at a time.

Now, subtract your expenses from your income. Ideally, this number will be zero. It might take a few months of practice, so don’t worry if it doesn’t balance out immediately. If it doesn’t, it just means you need to do something to bring one of the numbers up, the other one down—or both. If you’re spending more than you make, you need to make some cuts in your spending. If you need to generate more money, get apart-time job or sell a bunch of stuff.

The deal with a zero-based budget is this: every dollar must have a name. That means every dollar has a designated job to do. If you fill out every item in your budget and come out $100 ahead—meaning you have nothing for that $100 to do—you haven’t finished your budget. You have to find a job for that $100. It’s your decision what it does, but if you don’t give it a name and purpose, you’ll end up blowing it and wondering where it went.

Good luck, Edward!

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. Hehas 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.

Dave Says April 5 2018

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Getting rid of the car

Dear Dave,

How do you sell a vehicle with a lien amount that’s higher than the actual value of the car?

Michael

Dear Michael,

First, you need to find a way to cover the difference between the amount of the lien and what you can get for the car. Let’s say the car is worth $12,000, and you owe $15,000. That would leave you $3,000 short.

The bank holds the title, so unless you give them the payoff amount of $15,000 you’re not getting the title. The easiest and simplest way would be if someone buys the car for $12,000, and you had $3,000 on hand to make up the difference. If you don’t have the money to make up the difference, you could go to a local bank or credit union and borrow the remaining $3,000.

I really hate debt, but being $3,000 in the hole is a lot better than being $15,000 in the hole. Then, you could turn around and quickly pay back the $3,000 you borrowed.

You’d give the total amount owed to the bank, they would give you the title, and you would sign it over to the new owner. Hope this helps!

—Dave

Stop spending completely?

Dear Dave,

My mom and dad are following your advice, and they are working hard to get out of debt. I was wondering, is it okay to buy things while you’re paying off the debt you already have?

Leslie

Dear Leslie,

I’m glad you’re paying attention to the finances around your house. Of course, there are some things you must have. We call these “necessities.” Most things are not necessities, though. If your air conditioning breaks down, or you have car repairs, those are things you must spend money on to fix. Things like new furniture, vacations, and eating at restaurants are not necessities. They’re things you might want, but they’re not necessary — especially when you’re trying to pay off debt.

I always recommend people take a hard look at their priorities, and remember there’s a difference between wanting something and needing something to survive. It can be hard, and it may mean everyone has to go without a few things they want for a while. But if your parents are serious about getting out of debt, they’ll do it. And it really won’t take all that long.

Great question, Leslie!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says September 18 2018

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Sell personal car to help pay business debt?

Dear Dave,

My husband started his own one-man, small business as a handyman a little less than a year ago. He has netted $17,000 in that time, but the business has about $13,000 worth of debt. We’ve always kept personal finances and business separate, but what would you think about us selling one of our paid-for cars to help with the business debt?

Robin

Dear Robin,

There’s nothing wrong with small beginnings. On top of that, you should always keep your business and personal finances separate. Aside from the debt, it sounds like he’s off to a good start.

I think you’ll be able to pay off the debt from your future income. If your husband started his business less than a year ago, he has spent that time trying to get things off the ground and working with very little name recognition. If he’s good at what he does, and he continues to work hard and market himself properly, he should be able to double what he made in the last year.

To do that, however, he’s going to have to spend some time in accountant mode. He needs to figure out the types of jobs he makes the most money on for the time he puts into them. I know a guy in our area who made more than $100,000 as a handyman in the last year. I’m talking about $100,000 in profit! His prices are higher than most in that line of work, but he’s the best. He provides superb quality work, and he’s always polite, on time, and on schedule.

If your husband does the research and crunches some numbers, I think he can dial it in and make a lot more moneythan he’s making now. Find that sweet spot, and he’ll continue to grow the business!

—Dave

Forgive the debt?

Dear Dave,

Recently, I loaned some money to a good friend. He’s going to help me with a big home project over the next few weekends, so do you think I should pay him for the work or forgive the debt?

Marvin

Dear Marvin,

First, I don’t recommend loaning money to friends or family. Once in a while, things may work out and everyone ends up happy. But in most cases, it changes the dynamic of the relationship. The Bible says the borrower is a slave to the lender, and there’s a lot of truth in that — financially and emotionally.

The big question is whether you’ve already agreed to pay him for the work. Another consideration is how he views the situation. He may be looking at this as just helping a buddy, and he still owes the money.

Ask him what his expectations are before you guys start the job. Just talk to him, and figure out what seems fair to you both. If you’ve already agreed on a certain amount, and the value of the work is close to what you loaned him, you might discuss the idea of paying back the debt that way.

But in the future, if someone close to you really needs financial help — and you’re not enabling bad behavior in the process — just make the money a gift.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says October 11 2018

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Spending money in the budget?

Dear Dave,

We are debt-free except for our home, and we have six months of expenses set aside in our emergency fund. Every time we do our monthly budget, we set aside a small amount of personal spending money for us both. Do you see anything wrong with this?

DeAnna

Dear DeAnna,

There’s absolutely nothing wrong with having a little fun money calculated into your monthly budget when you’re in good financial shape. The problems start when couples don’t agree on these kinds of things — or worse — when they start hiding stuff and lying to each other about where the money’s going.

People either grow together or they grow apart when they get married. When you start hiding things from your spouse you’re essentially keeping separate lives. That’s a bad sign in any marriage, and in many cases, this kind of thing leads to divorce.

Having an agreed-upon budget isn’t just telling your money what to do. It’s also an important part of a healthy sharing and communication process between husband and wife!

—Dave

 

Close up small business?

Dear Dave,

I have a small business, and I love what I do. Unfortunately, things haven’t been going well the last several months. On top of that, I’ve committed a lot of money to advertising in the coming year. Recently, I got a great job offer from a company that would pay me twice what I’m making now. What do you think I should do?

Hugh

Dear Hugh,

If it were me, I’d want to keep my options open. Closing your business would mean giving up all your customers. I’m not sure that’s a good idea when the offer has just been made, and you know so little about the actual job.

If you think this new job is something you might like, why not accept the offer and see if you can continue your other work on the weekends? That would help cover some, if not all, of your advertising commitment. Plus, it would keep some money rolling in if the new job doesn’t work out.

If you find you like this new job, then you’ve got a great income and something you like doing on weekends that pays. If you keep your business open — even on a small scale — there’s always a chance it will begin to grow again. Who knows? It might give you the opportunity to jump back into it full-time somewhere down the road!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey October 25 2018

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Retirement or debt?

Dear Dave,

Do you think I should lower the amount I’m contributing to my 401(k) so I can pay off my house and my truck?

Jamie

Dear Jamie,

If you’re following my plan, the first thing you should do is set aside a beginner emergency fund of $1,000. That’s Baby Step 1. Next comes Baby Step 2, which means paying off all your debt except for your house. This would include your car. During this time, you should temporarily stop any kind of investing and retirement contributions.

Once your mortgage is the only debt you have left, it’s on to Baby Step 3. This means you start saving money and growing your beginner emergency fund into a fully-funded emergency fund of three to six months of expenses. When that’s done, you can attack Baby Step 4—investing 15 percent of your pre-tax income for retirement. In your case, that would mean re-starting the contributions to your 401(k).

The rest of the plan goes like this. Baby Step 5 is putting money into your kids’ college funds, if you have kids, while Baby Step 6 is putting everything you can scrape together towards paying off the house early. After that comes the real fun. Baby Step 7 is the point where you build wealth and give like crazy.

It may take a little time in some cases, but following these steps will lead you to financial peace!

—Dave

The key is serving

Dear Dave,

I just accepted my first job in sales. In your mind, what is the key to becoming an excellent salesperson?

Bobbie

Dear Bobbie,

The key to becoming a great salesperson can be summed up in one simple word—serving. I’m not talking about being subservient. I’m talking about always giving 110 percent towards ensuring customers and potential customers are served well. It’s all about being proactive.

Serving means you believe in what you represent, and you’re excited about what you have to offer. It means you’re determined to give people a great experience. If an issue happens to arise, you’ll take care of it quickly and completely. You’ll do this in a way that will make them forget it ever happened.

Really, serving is an attitude. You can pressure people if you want, but that’s going to lead to a dull and frustrating life of one-shot deals. But if you serve people well, you’ll have clients for life and they’ll send their friends and associates your way.

Make helping people your first order of business, Bobbie. If you do that, you’ll never have to worry about money!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says August 1, 2019

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Adjust our emergency fund?

Dear Dave,

My husband and I have been married five years, and we’ve decided we want to have children. We’ve both been working full time since our wedding, and we were wondering if we should adjust our emergency fund and retirement investing to accommodate all the upcoming life changes that go along with having a bigger family.

Rachel

Dear Rachel,

When it comes to an emergency fund, I’d stick with what I recommend in the Baby Steps. A good emergency fund of three to six months of expenses should be fine. If you feel safer leaning toward the six-month side, that’s fine. As far as investing is concerned, that’s Baby Step 4. This means 15 percent of your household income going toward retirement. None of that really changes.

Now, with another person in the house, your day-to-day expenses are going to increase. That’ll make it even more important to make sure you’re living on a written monthly budget. What you don’t want to do, is quit your job to come home and be a full-time mom, then find yourselves dipping into the emergency fund. Being a stay-at-home mom is fine. It’s a wonderful thing if you can afford it. But if that’s the plan you need to budget accordingly, and practice living on just your husband’s income before you quit your job.

God bless you two, Rachel!

—Dave

Micro investing apps?

Dear Dave,

What is your opinion on micro investing apps like Acorns and Betterment? Are these good vehicles for building wealth in the long term, and are there any major drawbacks to these types of services?  

Alex

Dear Alex,

I’m not saying there’s anything really wrong with Acorns or Betterment, but they do different things. Acorns is more of an invest pennies, round-up kind of program, where Betterment is kind of a robo-investing deal.

Here’s the thing. Micro investing is going to create micro wealth. And the big downside is you’re going to feel like you did something important. The way you end up with money is by investing money. The way you end up with more money is by investing more money. You can argue all you want that using things like these create extra money. Yeah, but not really. The returns are still micro. An app doesn’t make two dollars turn into twenty dollars.

It’s okay to use apps like that. I’m not mad at them, and I don’t think they’re a rip-off. What worries me about these kinds of things, in an investing sense, is they give the illusion that you’ve done something significant with your money.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

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