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American Morning
Financial Planner Dave Ramsey: What Taxpayers Should Do With Bush Rebate
Aired July 25, 2001 - 11:31 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: David Ramsey, an old friend of us here at CNN LIVE THIS MORNING is joining us to help us figure out what to do with this tax rebate check. David is the author of the best- selling "Financial Peace Planner," bringing his peace to our place.
Dave, good to see you.
DAVE RAMSEY, DAVERAMSEY.COM: Good morning.
KAGAN: How is life in Nashville today?
RAMSEY: Better than I deserve.
KAGAN: When are you getting your check?
RAMSEY: It looks like, according to this, somewhere in August. I'm ready to party. Here it comes. I'm planning -- $600, $500 bucks, $300 -- it's a lot of money. It will be a lot of fun.
KAGAN: But here's the difference, Dave. When most people say "ready to party, ready to have fun," that means they're going to go spend it on the boat, the house shopping. For you, a really good time is dumping it in a mutual fund.
RAMSEY: No, I'm not one of those financial guys that who thinks you ought to live in a cave and collect lint. I think you ought to enjoy your money. And half of the people, the statistics are telling us, are going to spend the money on bills, which means they woke up with all these layoffs we've got going on, with the stock market down, with Greenspan with his lip stuck out. Everybody is going, I better kind of get my act together here, and this $300 or $600 will help me knock off that credit card debt. I can cut that thing up. There is some a spending, but a lot of folks are saying they're going to be "responsible" and pay bills.
KAGAN: That is talking to your heart. You are big on what you call plastic surgery?
RAMSEY: Absolutely. I want them to get out of debt as quickly as they can. Even though $300 is a lot of money to you and to me.
KAGAN: Absolutely. I'll toss in there with "it's a lot of money." RAMSEY: There you go. In reference to what we make throughout our life, in reference to what we make this month and this year, it's really not much money, and if we're going to spend this much time and attention on this $300, maybe we ought to give that much time and attention to the rest of it. Just a thought.
KAGAN: The number one thing people should do to help their financial plans?
RAMSEY: We use a process we call the baby steps. If you remember the old movie "What About Bob?" baby stepping on the elevator and all that stuff -- it was kind of a funny movie. That's how you've got to do it, just one step at a time.
Baby step one is $1,000 in the bank as fast as you can. That's your beginner, little-bitty emergency fund. Once you've got that, then you move on and start getting out of debt. You list your debts smallest to largest, pay minimum payments on everything but the little won, and attack the little one with a vengeance. When the little one is gone, you take the payment from that one and move on down the line.
Once you are out of debt -- everything but the house, and that's where your money really ought to go. Maybe set some of it aside to blow or go out to eat, have a date night or something, but then really we need to focus and use this money to win with. That's what we want it do with money, is win with it.
KAGAN: Hold off on that win thought. We want to get some of our e-mails in here.
Here's the first one. It is from Linda, in Iowa: "Is the tax rebate a rebate from taxes that you already paid, or is it figured on this year's tax, in which case some people may have to pay it back and get a smaller refund? Also, do we have to pay additional taxes on this rebate?
Linda sounding cynical, yet practical, in Iowa. I know what she speaks of?
RAMSEY: Very practical. Overall, federally speaking, the marginal rates have gone down. Your withholding, if you are a wage earner on your paycheck, is probably wrong, and they probably withheld too much. So what you are getting is an advance on what probably would have been a refund last year, in a very real sense.
KAGAN: But it's last year. You're talking about 2000; it's not 2001.
RAMSEY: 2001, if I've got this right.
KAGAN: Some states might tax you on that money, isn't that right?
RAMSEY: States will. They are counting it as tax refund. If you have an income tax in your state where you write off your federal tax as a deduction, then your federal tax is lower because of this rebate, so this "money" becomes taxable on the state level for those of you who have income taxes in your states.
Some states are passing quick resolutions to waive this and go on. Several of them are doing that because it's really, really unpopular.
KAGAN: Our own Kim Anderson (ph) who's responsible for writing those nice words at the bottom of the screen -- we call that a font operator at CNN -- her question for you is: Most of us received a letter saying this is how much you are going to get, and this is when it should arrive. Should people be concerned if they never got that letter?
RAMSEY: Not really; 500,000 of the letters that went out were wrong.
And editorializing just a second, why didn't they just sent the checks?
KAGAN: Just send the money.
RAMSEY: They sent the letter with the amount. Just send a check. It would have been the same money. From a thought from a business guy.
KAGAN: Just had to get that in there.
Let's get another e-mail asking another question. This one's from Scott: He wants to know "what your experts think are the best and safest type of investments to make with $5,000 that he would invest for one to five years."
RAMSEY: One to five years is not investing; that is saving. Five years and longer is investing. You've got to be willing to leave it alone for a little while to be able to win with it, and that's when I would recommend good growth stock mutual funds. Where you're under five years, I'm parking money, maybe for taxes or other things -- I'm saving for Christmas or a vacation, or something -- I'm parking money on the short-term, saving up for furniture or something. I use a money market account with a mutual fund company. It pays about what a CD does.
KAGAN: Which is about how much?
RAMSEY: About 5.5 percent to 6 percent. It pays about what a CD, a certificate of depression, does, but you can get your money out without any big penalties. You just write a check. As long as it is over $250, you are out of there.
KAGAN: So not a ton of money interest payments, yet a little gravy.
RAMSEY: But you've got to know it's there. The market is moving up and down. That is scary stuff if you are trying to get somewhere in the short term.
KAGAN: Dave Ramsey, we are out of time, but you're never out of great ideas. Thanks for joining us today. Hope to see you again.
RAMSEY: Thanks for having us, Daryn.
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