Dear Dave,

Should I cash in my 401(k) to pay off my car? I have just enough in the account to pay off the car and free up money in my budget.

Marina

Dear Marina,

If I were in your shoes, and I could pay off the car in 18 months or less, I’d live on rice and beans—plus a very strict monthly budget—and just push through until that car payment was out of my life. If that wasn’t realistic, then I’d take out ads online and in the local paper, and sell the car as fast as possible.

Cashing out your retirement plan to make this happen isn’t a good idea. I love that you want to get rid of your car payment, but if you use your 401(k) they’ll charge you a 10% penalty, plus your tax rate. That means you’ll lose anywhere from 30 to 50 percent of it to the government.

I don’t know about you, Marina, but I think those guys get way too much of our money already!

— Dave

* Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for the company Ramsey Solutions.

Dear Dave,

I bought a house about a year ago. Currently, I have $45,000 sitting in an account with a money manager. I’ve had this account for a little over three years, and the investment hasn’t grown much, if at all. Under the circumstances, and being single, too, would it be better to pull the money out of that investment and put it toward my mortgage?

Johnny

Dear Johnny,

I recommend putting 100% of any non-retirement savings, above your emergency fund, toward paying off your mortgage until the mortgage is paid off. I’d still tell you to pay down the house, even if you were making 20% on your money. Just make sure you’re following the Baby Steps, and you’re already putting 15% of your income into good retirement investments before attacking the house. Paying down your mortgage is not an expenditure that’s just lost money. The cash is sitting there, you’re just banking it in your home and land. And on a side note, with all the craziness in the market over the last three years, you might come to realize breaking even over that time wasn’t so bad after all.

Johnny, the shortest distance between where you are and your first $1 million to $5 million in net worth is getting your house paid off. After that, load 15% to 20% of your income into a serious retirement plan. And by that, I don’t mean playing financial footsie with some little brokerage account. Investing in good, growth stock mutual funds with a proven track record of at least 10 years is a proven way to build wealth the right way.

I’m sure you can find someone on TikTok telling you to do the exact opposite of what I’m suggesting. But you won’t find that kind of advice coming from real millionaires.

— Dave

 * Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of “The Ramsey Show.” He has appeared on “Good Morning America,” “CBS This Morning,” “Today,” Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for the company Ramsey Solutions.

Dear Dave,

I’ve been struggling for about a year, ever since I made a stupid new-college-graduate decision to finance a car. It’s a 2018 Jeep Compass, and I owe $21,000 on it. The trade-in value is about $11,000, so I really got stung on the sticker price and everything else. I also have $85,000 in student loan debt and around $7,500 on credit cards. The good news is, I make $63,000 at my job, and that should increase to $75,000 by January of next year. My girlfriend and I are renting an apartment and engaged to be married in 2025. How do I clean all this up before then?

Austin

Dear Austin,

Well, the good news is, you have the rest of your life to never make this kind of mistake again. I’m really sorry you’re going through all this, son. What a horrible thing to experience right after college.

So, you’re $10,000 upside down on a vehicle you owe $21,000 on, right? The truth is, you’re kind of stuck. If you’re serious about getting out of this mess and not repeating the same mistakes twice, you’re going to be working like a dog for the next year or two. Right now, you need a serious side job nights and weekends—maybe two. And I’m talking bare-bones living. No vacations, and no eating out for a while. You don’t need to see the inside of a restaurant unless you’re working there. Get what I’m saying? No unnecessary spending. Period. On top of all this, you’ve got to start living on a strict, written monthly budget.

Now, about your fiancée. I get the desire to fix things before you get married. But married people work together on this kind of stuff all the time. Believe it or not, there’s no perfect time to get married. I mean, it sounds like you two have already decided to go there and figured out neither one of you are perfect. That’s just called being human. So, there’s really no reason to wait on tying the knot at this point. And the truth is, the two of you can whip your finances into shape faster and much more efficiently working on it together—as a married couple.

Austin, I want you tear into this debt like your life depends on it. Because guess what, dude? It does!

— Dave

* Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of “The Ramsey Show.” He has appeared on “Good Morning America,” “CBS This Morning,” “Today,” Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for the company Ramsey Solutions.

Dear Dave,

My employer offers an employee stock purchase plan at a 15% discount. I’m usually the kind of guy who buys stocks and holds on to them forever. But when it comes to an opportunity like this, should I buy it and wait for a year to sell it, or should I buy it and sell right away?

John

Dear John,

Generally, I don’t recommend buying single stocks at all. Single stocks are way too risky, and a 15% discount is nothing special in this kind of scenario. Virtually every single company out there that has an employee stock option plan offers a 15% discount.

In most situations like this, if you pull up a 52-week chart on the stock’s performance, you’ll find a variance of as much as 15% in those 52 weeks. In other words, you could lose any or all of that discount in one move of the stock. Plus, it’s not like 15% is a big discount to begin with. Fifteen percent off a single stock, considering how volatile they are, is no big deal. But hey, if you love your company that much, they have a great track record, and the stock has a good history, go ahead. Just don’t allow single stocks as a category to make up more than 10% of your net worth.

The core issue here is a lack of diversification. When you put all your eggs in one basket, there’s always some clown twirling the basket. The first time I ran into that was a long time ago with a lady who was 70 years old. She had worked for a large company for 40 years. On top of that, she invested all her 401(k), all her wealth—$800,000 total—in that one company. Well, this company experienced a crisis. It lost nearly half of its value, and her $800,000 was suddenly worth about $400,000. She left herself vulnerable with a high-risk play, John.

I’ll say it again. Don’t bet the farm on one horse, and don’t have more than 10% of your net worth wrapped up in single stocks. Hundreds of research projects have been done that show individuals who buy individual stocks and think they know what they’re doing actually lose money much more often than they make money. 

— Dave

* Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning America, CBS This Morning, Today, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for the company Ramsey Solutions.