A salesperson from Vancouver, Canada, recently dialled "The Dave Ramsey" show for urgent financial advice on uncontrollable debts despite his household's total annual gross income of $300,000. Although his monthly take-home pay is $8,500, alongside an additional $2,000 rental income from a two-bedroom apartment, the family's monthly expenses amount to almost $12,000, led by $7,200 in mortgage payments and $420 in property taxes.
As an on-road salesperson, the caller owns multiple cars and uses them for business purposes. One of them cost him $75,000 last year. His monthly auto loan payments were nearly $1,000, while utility bills and insurance for cars and homes cost him $350 and $530, respectively. The remaining expenditures are split between $2,000 in groceries, $150 on gym memberships, and $50 on leasing musical instruments. His wife's $4,000 take-home pay also dropped to $1,600 when she took a maternity leave for their 10-month-old baby. She wants to stay with the child at home for almost another year and is currently drawing the reduced pay from employment insurance.
Too Much House and Cars, Says Experts
Dave Ramsey's team of experts told the caller that they "simply have too much house even with an amazing income." They highlighted the mortgage and the car loans as "glaring problems" for the caller, especially if his wife doesn't return to work for another year. The salesman bought the $1.4-million house two years ago on a variable-rate mortgage with monthly payments of $5,400. The amount has significantly increased to over $7,000, attributable to record-high mortgage rates since the US Federal Reserve's 2022 historic monetary tightening campaign. The rate hikes have tremendously increased the cost of all forms of borrowing, making the salesperson's auto loans a major challenge as well.
Ramsey's experts explored the opportunity to sell assets since mortgage payments comprise over 60% of the household's take-home pay. According to them, the monthly mortgage repayments should be at most 25% of one's take-home pay. Even if the caller moved to a fixed-rate mortgage, he could lower payments marginally, but that wouldn't be sustainable either. They hypothesised that renting a two-bedroom apartment would cost between $4,000 and $4,500 monthly, which is reasonable, given his monthly budget. It is essential to understand that renting wouldn't be throwing away money but giving your budget some breathing space to build a stronger foundation.
Going Into Debt For Tax Savings
Upon asking more questions about the caller's financial situation, the experts were surprised to learn that he plans to create wealth primarily through tax breaks and government rebates. As an on-road salesperson, he uses his car for business purposes and has a home office. This allows him to maximise business tax deductions by itemising home office expenses and car costs when solely used for business and then deducting them accordingly from his annual business income to lower the tax burden. There was a government rebate, and he decided to buy the $75,000 car last year, allowing him to write off $63,000 and secure a tax return of $30,000. He had already spent $10,000 from the returns. The caller also wanted her wife to open a small business when she is ready, which he intends to establish as a corporate company to write off more expenses.
The show experts quickly reverted, saying that "no one built wealth through tax savings," and it doesn't make sense to have $1,000 monthly plus interest payments on these cars while "you are drowning" in debt. They explained that at different stages of life, we might come across a strategy or a loophole that might be like the ultimate "life hack," like finding a tax break or renting out a room. However, life happens, like welcoming a new family member, which makes these new-found strategies inapplicable, or worse, puts you in a more difficult spot.
The experts added that write-offs aren't the solution to the caller's debt problems, which include a million-dollar house and a $75,000 car he cannot afford. They also urged him not to rely on his rental income too much because tenants can leave or stop paying anytime, and finding a new tenant might not be easy. Hence, Ramsey's experts urged the caller to increase his core income, downsize, or rent until he clears his debt and strongly advised against looking for write-offs and tax breaks at the cost of drowning further in debt.
Netizens Can't Believe People Drowning In Debt With $300K Income
Although distressed, the salesman came across as adamant to netizens who described him as "confused" and some who would proceed with his plans anyway despite receiving solid advice from financial experts. The caller sounded fixated on tax breaks and didn't reveal any willingness to downsize or reduce dependence on his side rental income.
A viewer commented that it is a people problem since many earning a six-figure salary refuse to downsize, thinking they are above cutting back on expenses. This view resonates with the common issue of lifestyle creep, where higher incomes lead to higher spending without extra savings. Some even commented on the $2,000 monthly grocery spends, with one viewer stating that he might be "feeding the whole neighbourhood."
Many were also surprised at how people earn $300,000, buy too many houses and expensive cars, and then call in for a magic bullet solution without making any sacrifices. One viewer lost hope and wrote that some people just can't be helped.
