24-year-old lands best job of his life and wants to invest — but Dave Ramsey says, ‘You’re broke and in debt, don’t start your 401(k)’

When you’re young and finally land what seems like your dream job, the excitement of starting to invest and secure your future can be overwhelming. That’s exactly where Bobby from Columbia, South Carolina found himself.

Don’t miss:

At just 24 years old, with a new job that he considered the best he’d ever had, Bobby was excited about the opportunity to start investing and planning for his family’s future. He earns $35,000 a year with the potential to earn up to $40,000 with bonuses and was keen to make the most of it. However, Bobby was also $20,000 in debt — $17,000 in student loans and $2,000 in medical bills — and was living with his parents while his wife stayed home with their nearly 3-year-old years.

Trends: are you rich Here’s what Americans think you need to be considered rich.

Bobby’s call to the Dave Ramsey Show was a mixture of hope and confusion. He wanted to know how to get his finances in order, particularly around investing and starting a 401(k). He was ready to take the next step, but needed guidance on balancing this with his current financial situation.

Ramsey’s answer was direct, but practical. “You don’t need to start your 401(k). You’re broke and in debt,” Ramsey said. He immediately shifted his focus away from investing, stressing the importance of tackling debt and building a solid financial foundation before diving into retirement savings or home ownership.

Ramsey’s advice highlights a fundamental financial principle: Prioritize high-interest debt over investments. Given that high-interest debt often costs more than the potential return on investment, paying it off is crucial. For example, if Bobby had credit card debt with an interest rate of 20%, that would be much more burdensome compared to the 10% average annual return on stocks or even 6% on government bonds. The debt approach can provide a higher effective return on investment.

See also: IRS Finalizes 10-Year Rule on Retirement Withdrawals, Making Things ‘Crazy More Complicated’

Ramsey advised Bobby to eliminate debt and save before considering investments or home ownership. “You’re broke and living with your parents. You need to put some money in a savings account and get out of there,” Ramsey instructed. His approach involved increasing revenue, reducing costs and focusing on savings. He strongly advised against buying a home at this stage, stressing that renting is a practical choice while building financial stability.

The story continues

“You don’t go out and buy a house when you’re broke. You’re broke and in debt,” Ramsey reiterated. Instead, he recommended finding a modest apartment, building an emergency fund and prioritizing debt repayment.

Once Bobby tackles his debt and saves an emergency fund—ideally three to six months worth of expenses—he can then begin to consider longer-term goals, such as saving for a home. Ramsey emphasized that renting isn’t about wasting money, but rather “buying patience while you’re too broke to buy.”

Trends: Can you guess how many retire with a $5,000,000 nest egg? – How does it compare to the average?

At its core, Ramsey’s advice boils down to building a solid financial foundation: focus on paying off debt, saving an emergency fund, and then, when you’re more stable, start investing and saving for bigger goals.

So if you’re in a similar boat to Bobby, remember Ramsey’s principles: get out of debt, save aggressively, and avoid big financial commitments until you’re financially secure. It’s not always glamorous, but it’s practical and effective.

Read on:

“THE SECRET WEAPON OF ACTIVE INVESTORS” Up Your Stock Game With The #1 “news & Everything” Trading Tool: Benzinga Pro – Click Here To Start Your 14 Day Trial Now!

Get the latest stock analysis from Benzinga?

This 24-year-old gets the best job of his life and wants to invest — but Dave Ramsey says ‘You’re broke and in debt, don’t start your 401(k)’ The article originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.