I sold my house because I couldn’t afford it and bought a $22k car and Dave Ramsey said I’m smoking something

A man in his 20s recently called into the Dave Ramsey Show looking for some guidance, and you can see the entire exchange in this video. The man shares how he sold his house and recently bought a $22k car. Dave was visibly upset and gave the caller some “tough love” advice.

The conversation demonstrates the value of spending your money wisely and avoiding negative money cycles that cause people to go deeper into debt. Here’s what you can learn from it.

You Don’t Have to Spend Money Just Because You Have It

The couple has a pattern of being in debt. The wife came into the relationship with $5k in student loans and a $17k car loan. The husband had $30k and used the money to pay off the debt. That was a good move, but the upcoming sequence of events demonstrates a pattern of spending money for the sake of it.

The couple lived in an apartment before they could afford a house and ended up getting a significant discount from a family friend in Louisville, KY. They bought a 4,200-square-foot home for $315,000, even though they had doubts aboutkeeping up with the monthly payments.

That’s a red flag since buying more house than you can afford doesn’t give you much flexibility for other expenses. The couple ended up selling the house less than a year later for $415k, registering $100k in short-term capital gains. 

The Debt Cycle Continues

After getting $100k from selling the home, the couple had a little more than $70k left over after accounting for realtor fees and other expenses related to selling the house. 

The husband used some of that extra money to buy a $22k car for his wife. At this point, Dave became visibly upset. The couple earns a combined $130k per year and still lives paycheck to paycheck. They just had to sell their house due to it being too expensive. The moment the couple ends up with extra money, he spends a good chunk of it on a new car.

To top it all off, the wife recently became pregnant. It’s wonderful to lead a family and raise children, but they are also expensive to maintain. Buying a new car isn’t the right approach. While the pregnancy was discovered after he bought the new car, it’s reasonable to assume that the couple anticipated having a child soon.

Dave’s Advice

The couple has two paid-off cars and one truck that still has a $37.5k loan. Dave recommended keeping the paid-off carsand selling the truck. Making that move frees the couple from the car loan while allowing them to hold onto two fully paid-off cars.

The man mentioned that the couple lives on the grandparent’s estate and doesn’t have to pay any rent, but Dave said that this circumstance doesn’t excuse bad financial decisions. 

He also told the couple to speak with a tax professional about the upcoming bill on short-term capital gains. Selling the truck can potentially offset some of those capital gains and reduce the tax bill. Dave anticipates that the tax bill will come to $20k for selling the house. 

Dave then offered some tough love, telling the caller that he must make a decision to stop making the bad types offinancial decisions that got him to this point.  People shouldn’t be making big purchases when they just walked out of a financial disaster. It’s better to build an emergency fund and invest, so you have better footing, especially with a child on the way. You don’t have to spend money just because you have it.

The post I sold my house because I couldn’t afford it and bought a $22k car and Dave Ramsey said I’m smoking something appeared first on 24/7 Wall St..