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Safe on paper

Cole and his wife have borrowed money in a few ways, but none of their debts are extreme.

The hospital payment plan is a $222 monthly payment. Their outstanding credit card balances total $14,000. They owe $10,700 in auto loans on two cars, one of which was due to be sold. Cole’s wife has $30,000 in student loan debt, while their house has a mortgage of $102,000.

None of these amounts is above average. As of the third quarter of 2023, the average loan amount for a new vehicle is $40,184, while a used car has an average loan of $27,167, according to Experian.

The average mortgage balance per household was $241,815 in the second quarter, while the average federal student loan balance is $37,718, according to the most recent figures from the Education Data Initiative.

Meanwhile, Cole and his wife earn a solid income, with Ramsey pointing out “$112,000 is no slouch in Wichita, Kansas, dude.”

On paper, the couple’s debt should be easily manageable. However, Cole claimed they’re falling behind on payments at a rate that going into overdraft seemed “inevitable at this point.”

“You guys must be some of the most disorganized, completely chaotic people that I've run into in a while,” Ramsey said. Fortunately, he saw an easy path out of this mess.

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Four strong walls

Ramsey encouraged Cole to prioritize spending on essential items first. The couple need to spend on food, utilities, housing, cars and fuel before they consider anything else. It’s a budgeting strategy Ramsey calls the “four walls.”

“You take care of the four walls of your house,” he said. “The necessities of life: food, shelter, clothing, transportation, utilities, gas in the car, and everything else can wait.”

Based on these priorities, creating a robust budget shouldn’t take longer than an hour and a half, Ramsey estimated.

“You’re going to turn around so fast!” he said.

The simple takeaway from Cole’s predicament is that budgeting is a powerful tool that’s too often overlooked. A survey by Credit.com found that 27% of Americans don’t think a budget is necessary, while 24% believe they won’t stick to a budget even if they had one.

Fundamentally, a budget requires people to actually be aware of what they make, what they spend, and have a plan to reconcile the two. For something as important as a family’s finances, playing fast and loose can land you in trouble for no good reason.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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