Where Does Extra Cash Go When You’re on the Baby Steps?

Summary

Episode Summary: "Where Does Extra Cash Go When You’re on the Baby Steps?"

Podcast: Ramsey Everyday Millionaires
Hosts: Dave Ramsey & Ken Coleman
Date: September 17, 2025
Featured Caller: Laura from Alberta, Canada

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Overview

This episode dives into a frequently asked question from listeners who are working through the Ramsey Baby Steps: when you’re making financial progress and receive extra cash—such as an inheritance or a wage increase—what’s the smartest place to put that money? Dave Ramsey and Ken Coleman unpack the Baby Steps strategy in practical detail, tailoring their advice to Laura and her husband’s solid financial situation. The discussion also covers how to balance frugality with enjoying the fruits of your labor.

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Key Discussion Points & Insights

1. Laura’s Situation: Setting the Stage (00:21 – 02:21)

• Profile: Laura and her husband, both in their mid-30s, have a household income of about $205k and no debts besides a $400k mortgage (home worth $1M).
• Anticipated Windfalls: Expecting $30k–$50k inheritance, a tax return, and wage increases.
• Question: What should they do with extra cash? Pay down the mortgage, invest more, or buy additional real estate?

2. Applying the Baby Steps (00:52 – 03:15)

• Dave Ramsey: Advises to always "filter extra cash through the Baby Steps:"

  • Knock out all debt.
  • Build a solid emergency fund.
  • Invest 15% of household income for retirement.
  • Save for kids' college if applicable.
  • Pay off the home early.
  • Attain “Baby Step 7”: financial freedom and generosity.

  "Filtering it through the baby steps. And so if you have debt, we're going to knock out all the debt." — Dave Ramsey, 00:52

• Laura: Only has her mortgage left, with significant home equity, plus employer pensions and Canadian savings vehicles (TFSAs, RRSPs).

• Dave’s Assessment:

  • "You guys are doing great. So... just a mortgage left." — 02:35

3. Where Should the Extra Money Go? (02:58 – 04:03)

• Investing More vs. Mortgage:

  • Dave urges Laura to first ensure they’re investing 15% of gross income into retirement vehicles.

  • Any money beyond that should go directly toward extra mortgage principal payments.

  • Suggests setting a goal to have the house paid off by 40 or 45.

    "I would ratchet up your investing to 15%... and then any money beyond that, I'd start chucking it at the house and get this thing paid off." — Dave Ramsey, 03:41

• On Buying Additional Real Estate:

  • Dave strictly warns against buying investment property on a mortgage.

  • Only after their house is fully paid off, and if they can pay cash for the next property, should they invest in more real estate.

    "No, I would not buy real estate until your house is fully paid for and you can pay cash for the next investment property because it is a toy and there is risk." — Dave Ramsey, 03:15

4. Balancing Frugality and Enjoyment (04:03 – 06:13)

• Laura’s Concern: Should they live with extreme frugality (no eating out, no vacations) until the mortgage is gone?

• Dave & Ken: Reassure Laura that once debt (besides mortgage) and emergency fund are handled, life shouldn't be all austerity.

  • Budget for fun and enjoyment is encouraged.

  • Dave acknowledges the struggle in “downshifting” after years of grinding, relating it personally.

  • Ken teases Dave about being frugal—even over $100 for a social event.

    "You need to make a budget with your husband and actually force yourself to spend money and enjoy it." — Dave Ramsey, 05:37

    "Have a line item for eating out. Have a line item for Laura's fun money, and she gets a mani pedi. I think you guys need to downshift a little bit while still having a goal to pay off the house." — Dave Ramsey, 05:37

• Discussion of Scarcity Mindset:

  • Dave admits; “At the core, it’s a scarcity mindset. And it’s a very miserly way. And I’m starting to loosen up.” (06:28)
  • Ken jokes about not letting future worries steal present joy.

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Notable Quotes & Memorable Moments

• Practical Roadmap:

  "If I had extra money... Are you already investing 15% of your household income? ... I would ratchet up your investing to 15%... then any money beyond that, I'd start chucking it at the house..." — Dave Ramsey, 03:41

• On Enjoying Your Success:

  "You need to make a budget with your husband and actually force yourself to spend money and enjoy it." — Dave Ramsey, 05:37

• Personal Anecdote:

  "My fun money is now going toward this impulsive fun hang with Ken and friends." — Dave Ramsey, 05:23

• On Scarcity Mindset:

  "At the core, it’s a scarcity mindset. And it’s a very miserly way. And I’m starting to loosen up." — Dave Ramsey, 06:28

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Timestamps of Key Segments

• 00:21 – 02:21: Laura details her financial position and goals.
• 02:58 – 03:15: Decision point—mortgage vs more investments or buying real estate.
• 03:41 – 04:03: Dave gives definitive advice: ramp up retirement, then pay down mortgage.
• 04:03 – 06:13: Conversation on living life, handling frugality, and overcoming scarcity mentality.

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Takeaways

• Use all windfalls and extra earnings as opportunities to accelerate your journey through the Ramsey Baby Steps.
• After hitting 15% retirement saving, prioritize aggressive mortgage principal payments before considering additional real estate.
• Enjoying life and having fun is not just allowed but encouraged once you’re financially stable—budget for it!
• Overcoming the scarcity mindset is a continuing journey, even for the experts.

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For those following the Baby Steps, this episode reinforces the roadmap for windfalls and provides helpful real-world perspective on balancing responsible discipline with actually enjoying your money.

Transcript

[Laura]

Foreign.

[Dave Ramsey]

This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor let's go to Alberta, Canada and Lara.

[Ken]

I hope I'm saying that right.

[Laura]

Hey. Yeah, that's right.

[Ken]

Oh, good.

[Laura]

So, yeah, so me and my husband, we're in our middle 30s. And so my question is like we're in a fairly good spot financially, I think, for our age. But I'm not sure if we get extra cash, you know, right now. Where, where should we put it to? Like if we get some inheritance money, a tax return, wage increases, which all of those three things we're expecting this year. What should we do with it?

[Dave Ramsey]

Well, the simplest answer and then I'll explain is filtering it through the baby steps. And so if you have debt, we're going to knock out all the debt. First you get an emergency fund. Let's save that up. Then we're investing 15% of our income. And then simultaneously beyond the 15%, we can throw some money at our kids college funds if you have them, and then paying off the house early and then you can do whatever you want in baby step seven. And so where are you guys at?

[Laura]

So right now we have an emergency savings fund. We're, we're good with that. We the only debt we have. So no credit card, no payments, no vehicles or anything. Only we have our mortgage, which right now is about four. Yeah. We're at about 400k.

[Dave Ramsey]

Okay.

[Laura]

And our property and our home is worth a million dollars. Obviously we don't want to sell. Like we're not moving. Hopefully we're here for many years.

[Dave Ramsey]

But you got about 600,000 of equ, which is great.

[Laura]

Sure. Yeah. We do have, both have pension plans. Like through our jobs we have savings. So in Canada it's like TFSAs RSPs. We don't have any other sort of investment, like nothing in the market or we don't know how to do that. So we've just kind of stayed away.

[Dave Ramsey]

Sure. That's okay. It's okay to be invested in retirement plans only. And especially in your mid-30s. You guys are doing great. So we. What is your household income?

[Laura]

So I make about one. So like before taxes or after.

[Dave Ramsey]

Sure, before taxes.

[Laura]

Oh, sure. So yearly right now my husband makes 100k and then I make about 105k.

[Dave Ramsey]

Wonderful. So great income. Just a mortgage left. And how much inheritance are we talking this year? Oh, or in the next few years?

[Laura]

I mean it's not. Depends who you're talking to. But it could be, you know, anywhere from 30 to 50,000.

[Dave Ramsey]

Okay, so not a life changing amount. It's not like, oh my gosh, we're paying off the house and retiring early. It's. It's going to put a nice dent in it.

[Laura]

Maybe. But is that like. Because my question is, should we just dump it all on the mortgage or should we, you know, look into other investments? And we want to buy more real estate. But my question is, should we do that before we pay our house off? And I think you're probably going to say no.

[Dave Ramsey]

No, I would not buy real estate until your house is fully paid for and you can pay cash for the next investment property because it is a toy and there is risk and it's gonna put you guys in jeopardy to have another mortgage lying around, especially when you already have one. So if I had extra money. Are you already investing 15% of your household income? So you guys are putting away 30,000 into these retirement plans?

[Laura]

Like 30,000 a year.

[Dave Ramsey]

30,000 a year. That's 15% of 200.

[Laura]

Yeah. No, we're not.

[Dave Ramsey]

Okay, so I would ratchet up your investing to 15% for both of you. And then any money beyond that, I'd start chucking it at the house and get this thing paid off. Maybe set a goal and say, hey, by the time we're 40 or 45, I want a paid for house and then aim at it. Put extra on the principal every month or whenever you get bonuses or whatever and have that be a goal.

[Laura]

And would you still recommend living frugally until our house is paid off? No eating out, no having fun, no vacation.

[Dave Ramsey]

Who said anything about no eating out? You guys are doing great. You're out of consumer debt. And so we just tell people, no eating out. No frivolous experiences while you're in baby step one through three.

[Ken]

I don't recall anybody asking about, should we do beans and rice on their own?

[Dave Ramsey]

You guys, you guys are fine. Have you been living on the edge like this for a long time?

[Laura]

I mean, no.

[Dave Ramsey]

Okay.

[Laura]

No. But we've worked really, really hard to get here. And like, I just. Our personality is like, honestly, it could be as easy, you know, if we got a bunch of money, like, it's really good for us to kind of like, okay, well, let's just do this and have it like, yeah, you need to.

[Dave Ramsey]

You need to downshift. Which is hard to do, truthfully. Well, let's be honest. I tell myself, yeah, I was getting.

[Laura]

Ready to say, like, if I, like, yeah, like if I You are my spirit animal.

[Ken]

I was getting ready to say that. You're talking to George like, I have to get out of the way, because George is like this. I just tried to invite George to a fun, social thing. He's coming. But when he found out what he had to spend on it, he started acting like he was broke.

[Dave Ramsey]

That's a lot of money.

[Ken]

It's not a lot of money for you.

[Dave Ramsey]

Tell her.

[Ken]

Speak to her.

[Dave Ramsey]

It's $100. Ken was like, hey, it's 100 bucks. And I went, oh, it's a little steep for me. And Ken gave me that look.

[Ken]

I did. I was like, no, you're coming, and you're gonna bring a little bit more. But here's the deal, in case, you know, here's the.

[Dave Ramsey]

Here's what helps free me. I have fun money in the camel budget. Do I ever use this fun money? No, not as much as I should. And so my fun money is now going toward this impulsive fun hang with Ken and friends.

[Ken]

So I tell you, it's gonna make us weak, by the way.

[Dave Ramsey]

It really is. So that's what I would tell you, Laura, that you need to make a budget with your husband and actually force yourself to spend money and enjoy it. So have a line item for eating out. Have a line item for Laura's fun money, and she gets a mani pedi. I think you guys need to downshift a little bit while still having a goal to pay off the house. But you don't need to live like, it's all coming down tomorrow.

[Laura]

Okay?

[Dave Ramsey]

So you see the balance there.

[Ken]

Make sure you eat what you're cooking, George.

[Dave Ramsey]

Thank you. Tonight, I'm telling myself this.

[Ken]

Tonight, if I say, hey, you need to stay around a little longer, I'm gonna bring this very moment up.

[Dave Ramsey]

It's. It's on video forever on the Internet. All right. Gosh, sometimes this job really sucks, Ken. You know, gotta remember, everything I say and do in a court of law is upheld on video because I want.

[Ken]

You to have fun.

[Dave Ramsey]

Thank you. You're right. Well, I think a lot of us.

[Ken]

Are correct for you.

[Dave Ramsey]

I know.

[Ken]

So I think this is fun. I'm picking on you.

[Dave Ramsey]

I think, truthfully, at the core, it's a scarcity mindset.

[Ken]

Yeah.

[Dave Ramsey]

And it's a very miserly way. And I'm starting to loosen up. You know, my back is tense. My wallet's tense. Everything's tense.

[Ken]

I don't mean to tense you up even more, but we could be in World War III in two weeks, and you would think about this Friday night.

[Dave Ramsey]

And then I'll be grateful that I sucked away all my nuts for the winter. Ken.

[Ken]

No you won't.

[Dave Ramsey]

You'll go.

[Ken]

I should have went with Ken and had more fun.

[Dave Ramsey]

Yeah, that's right. It's all coming down. Might as well enjoy it.

[Ken]

Yeah.

[Dave Ramsey]

Thank you. Thanks for tuning in to Ramsey Everyday millionaires Need help with your investments? Connect with a smartvestor [e-mail] smartvestor or click the link in the show notes. Ramsey Solutions is a paid non client promoter of participating pros. Learn [e-mail] SmartVestor.