- All right guys, we are on Baby Step 6 now,
which is: Pay off your house early.
Now, this is an exciting step.
This is so fun!
But what's hard is that, you watching,
you're probably still paying off
your student loans, your credit cards,
you're in Baby Step 2.
So Baby Step 6 may seem a little far out,
and it can be a little daunting,
but I promise it is a great step,
and it's motivation because this is where you're going.
This is the future.
So, when we look at Baby Step 6 . . .
Chris Hogan, Dave Ramsey, thanks y'all for being here.
- Thank you.
- You're just the experts in the whole area,
so welcome. Glad you're here.
So glad you're here (claps).
So, a few things that I hear with people
when they talk about paying off their house early
is that they say, okay, I don't wanna pay it off early
because it's just not that big of a deal.
But, Hogan, you see that is huge for,
specifically with millionaires,
people that are everyday millionaires,
this is a big step for them.
- It really is, and Rachel, as you know,
we did the largest study
that's ever been done on millionaires.
We talked to over 10,000 of them,
and what we found is that these millionaires
are very, very focused and very intentional
and they're paying off their home in just under 11 years.
- [Rachel] That's awesome.
- So if you think about that,
that's a massive move and a big step
in their overall net worth.
So paying off the home is a huge step
on your everyday millionaire journey.
- Which is huge. So, with your net worth,
obviously, it makes a huge dent,
but also with your monthly budget.
If you think about it, if you're 50 years old
and you have a paid for house,
the next 30 of your life, you don't have a mortgage payment.
- What would it be like to have no payments?
I mean, no mortgage.
- Nothing, now--
- Wow.
- Another myth I hear is that people say, well, I wanna keep
my mortgage because of the tax deduction.
And this is something that we combat all the time.
And so, what would you say?
How would you answer that, Dave?
What would you say to them? - Well, it's just silly.
I mean, the math is ridiculous.
Because if you take a $200,000 mortgage
at 5% interest, well, that's $10,000 a year
that you're sending in interest.
Now, you can deduct that only if you itemize,
and, statistically, less than 10% of Americans itemize.
So this is a mythological discussion among broke people,
is what it amounts to.
So it doesn't apply.
In your standard deduction, you don't take the deduction
for your charitable giving.
You don't take the deduction with a standard deduction
for your home interest rate.
But if you did. All right, you had $10,000 in interest
going out to the mortgage company.
You're in a 22% bracket, which means
you're making like $80,000 household income.
That saves you, not $10,000 on your taxes—
it's $10,000 less income that you pay taxes on.
At 22%, that means it saves you $2,200 in taxes.
So, what you're effectively doing is, you're sending
the mortgage company $10,000
to keep from sending the government $2,200.
(scoffing)
And that's only if you itemize
and that just shows how ridiculously stupid the idea is.
You're trading a dollar for a quarter
and you're not gonna get ahead doing that.
- Right. Would you rather pay out $10,000 or $2,200?
If you'd like to pay out $10,000,
you can call me. (laughing)
We'll put my cell phone number at the bottom of the screen
and you can give me that. (laughing)
But yeah, it is, it's just the math.
- I bet you would pay $5,000 of their taxes.
- (laughing) Yeah, that's right. I would do half.
I would do half. (laughing)
That's right.
Okay, so Baby Step 6.
It's a long process. Average was 11 years.
So people are, at this point, they're completely debt-free,
consumer debt, they have an emergency fund,
they're funding kid's college, retirement,
and then they're throwing anything extra
they have at the house. And it can seem long
and a little daunting as well, so--
- But it kinda sneaks up on you.
- But what's your motivation?
Yeah, what do you say to that?
- I think what's happening is you're chip,
chip, chip, chip, chip, and then suddenly,
the wall falls. And you went, whoa, that just happened.
It kinda sneaks up on you
because it is a little more gradual.
And you have all these celebration moments,
like, paid off the credit cards!
We paid off Sallie Mae! We paid off the car!
When you're doing your debt snowballing . . .
And then we got the debt . . . The first three Baby Steps
are very emotional and very visceral,
and this is more like the marathon.
But when you're running a marathon,
you look up and you go, well, you know, I'm halfway through,
and oh, look over there!
There's the yellow tape.
We're gonna make it and not die.
And these things occur, but it kinda emotionally
sneaks up on you because it's incremental.
- What do you see, Hogan, with millionaires
specifically, because I love that because it's people
that have won, right?
What they do?
- Well, bottom line is, these millionaires
are very intentional, they take personal responsibility,
and they have a plan for their money.
And so, paying off the home is not an accident.
It's a part of the plan.
Our culture is so used to buying homes.
What we're trying to do is get people
to think differently about owning it,
and that means it's yours.
You've removed the risk out of your life
of having a payment, and now you have an opportunity
to do more with that money, like giving,
or doing more things for yourself
and your own financial future.
- Yeah, so good. (upbeat music)