Jessica Wong
5 min read
Nancy, a senior from Las Vegas, says she recently won $200,000 after an appearance on a game show. Unsure what to do with the life-changing jackpot, she called into The Ramsey Show seeking advice.
“I’m 70 years old, that’s more money than I’ve ever had,” she said in a clip posted May 11.
But with great winnings come taxes. Nancy says she had about $145,000 left in prize money after paying roughly $55,000 in taxes. Now, the big question loomed: What should she do with this windfall?
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Here’s what finance personality Dave Ramsey had to say.
Nancy told Ramsey she and her husband are semi-retired, living on about $4,500 a month in Social Security, plus some part-time work where she earns up to $600 per month, and her husband brings in a couple of thousand dollars more. They recently downsized their home and owe $85,000 on the mortgage, which runs them $756 per month.
Their total savings? Just over $200,000, including the game show winnings, which they’ve parked in a high-yield money market account earning 5.5% interest. Outside of home equity, that’s their entire financial cushion.
So, the big question was should Nancy pay off the house or keep the cash? Ramsey was quick to weigh in.
“If you had $600,000, I would tell you instantaneously write a check and pay off your house,” he said. “If you had $100,000, I would say don’t touch it, you would be starved.”
In Nancy’s case, Ramsey recommended she pay off the house, but only if she and her husband commit to the following strategy:
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Get on a tight, detailed budget.
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Start investing $1,000 to $1,500 per month in a mutual fund.
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Keep $30,000 in emergency savings
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Invest the leftover funds into a mutual fund as well.
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Here’s Ramsey’s logic: Paying off the house would free up $756 per month. If the couple can get on a budget and squeeze about $750 more out of their monthly income, investing $1,500 per month, with an average annual return of 10%, would generate around $85,000 in four years, covering the amount used to pay off the mortgage.
