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Dave Says

Everyone Needs an Emergency Fund

Dear Dave,

 

I will back on active duty soon in the armed forces. I’m debt-free except for my home, have been following your plan, and I’m about to start Baby Step 3. We are provided certain relief funds based on where you are stationed and other factors. Knowing this, how should I approach the next Baby Step?

 

Kevin

 

 

Dear Kevin,

 

First of all, thank you for your service to our country. You’re on the right track. Baby Step 3 means having three to six months of expenses set aside for emergencies. Considering the stability of your employment situation, I think you’d be okay leaning toward the three-month side of expenses. It’s not like you’re a straight commission sales rep whose income can fluctuate wildly from month to month, right?

 

You’ll still have emergencies, though, and it’ll be your responsibility to cover them. Some of those may need to be addressed immediately. See what I’m saying, Kevin?  Everyone needs an emergency fund. Just make saving for it part of your budget for a while, until you have three or four months of expenses sitting in a good money market fund with check writing privileges. You’ll be glad you did!

 

—Dave

 

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.


Be Professional and Respectful

Dear Dave,

 

I’ve always made good money at my job, but recently I was offered a promotion to a salaried manager’s position. The hours and pay would be much better, and I already know the approximate pay range. Do you have any tips for negotiating salary in a situation like this?

 

Natalie

 

 

Dear Natalie,

 

Congratulations on your move up! I’m sure you worked hard and deserve the promotion and recognition.

 

There are a couple of measuring sticks you can use when determining something like this. One is a quick and simple approach associated with the revenue you bring in. It’s a nice, quantifiable reference point that appeals to a lot of supervisors and business owners. The second thing you could do is research a few reputable career websites, and develop a short but detailed compensation study based on comparable positions in your area and those similar to your location. Honestly though, if I had a valued and respected member of my team moving up from hourly to salaried, we’d have more of a give-and-take discussion and examination of the situation rather than a negotiation. 

 

Yeah, in your position I’d create a few well-researched compensation studies. Give them to your bosses, and talk with them. I know I would be impressed by that, and depending on the size of the company, they may not have done a lot of work figuring it out.

 

In a way, it’s kind of like deciding what to ask for when you sell a car. You try to appraise it for what it’s worth in the marketplace to other people. That leads to a discussion. You’re not telling them what to do or presenting an ultimatum, you’re providing information and conducting a dialogue in a professional and respectful way.

 

Good luck, Natalie!


—Dave

 

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

 


No Free Passes

Dear Dave,

 

I own a small business, and recently a relative asked for a job with the company. I hate to say this, but I’ve got reservations about hiring her. She’s basically a good kid, but not the most reliable person in the world. Do you have any advice on how to handle a situation like this?

 

Bill

 

Dear Bill,

 

As an entrepreneur, you have the right and responsibility to do what’s best for your company. That means you shouldn’t hire anyone who isn’t a good fit—even a relative.

 

If a relative is qualified, and the kind of person who understands they’ll have to bring it every single day, performing at a level equal to or above your other team members, that can be a special and rewarding thing. But if that relative is the kind of person who expects special treatment or is a problem child, that kind of situation can be a nightmare for you, your company, and the whole family.

 

Would you hire this person because they’d make a good team member? Would you hire this person if they weren’t part of the family? If the answer to either of these questions is no, don’t hire them. It’s as simple as that.

 

The bottom line is you have to do what’s best for your business, your immediate family, and your team.

 

—Dave

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.


Responsibilities Come First

Dear Dave,

 

My husband runs a small business that has never done very well. We have three kids, and I make $55,000 annually in my job. Part of what I make has been going into the business for over a year to help keep it afloat, and we don’t have a lot of money in savings. What do you think we should do?

 

Stephanie

 

Dear Stephanie,

 

If you’re putting other money into a business account, that’s a pretty good sign you’re not making money in the business. You and your husband need to sit down together, and do a household budget and a profit and loss statement on the business. You’ve got to get on the same page financially.

 

Put all his business expenses on the profit and loss statement in detail, and write out what it would take for him to break even each month.  But honestly, with everything that’s been going on with your finances, if he’s not at least breaking even at this point, then it’s time for him to do something else for a living full-time.

 

I’m an entrepreneur and business owner. Trust me, I totally understand the allure and excitement that goes with running your own business. But your own household and its immediate financial responsibilities come first. The only money that should go into the business account is income the business creates.

 

—Dave

9E3F013


Bridging The Gap

Dear Dave,

 

In light of recent events in our country, do you have suggestions for things people should think about and plan for if they get laid off from their jobs?

 

Sam

 

Dear Sam,

 

It’s no secret that things are shutting down all across the world. If your workplace has closed its doors and isn’t offering pay, then it’s time to regroup and get some things in order. The thought of being without a paycheck can be overwhelming, but a little thought and planning can help you get though times like these.

 

Start living on a budget, if you aren’t doing so already. Making a monthly budget will show you exactly where your money is going. Without it, you can’t use every dollar to its fullest potential, because you don’t even know how much money you have to work with. Plus, your budget will show places where you can cut back and save money.

 

If you don’t have any income right now, make a budget based on the amount of money on hand. If you have $600 left to your name, budget out exactly where each of those dollars will go. It’s time to squeeze every last penny out of what you’ve got. If you still have cash coming in from a spouse’s job or some other source, then adjust your budget to reflect that. Maybe the two of you usually bring in a combined $5,000 a month. Adjust your budget to live off that one income for the time being.

 

When the going gets tough, you need to focus on the things you really need to survive—food, utilities, shelter, and transportation. I call these the Four Walls. If there’s any money left over after you take care of the Four Walls, make a list of what else you need to pay, and tackle those in order of importance. Reach out to anyone you can’t pay, and explain the situation. They might be able to work something out, but they can’t help if they don’t know. Be up front with them, and pray for the best.

 

When you’re just trying to make it to another day, you don’t need to pay extra on debt. Instead, focus on piling up cash. Once life gets back to normal and everything is okay, you can pick up where you left off with your debt snowball. If it’s within your budget to keep making minimum payments on your debt, go for it. But the Four Walls come first. This is also the time to sell anything and everything you don’t need to make some extra cash. 

 

With so much being shut down right now, there might not be as many traditional ways to make extra money. So, look into driving for Amazon, delivering takeout food, or dropping off grocery orders. Even if one of those doesn’t work out, you can still take up odd jobs around your neighborhood. Be on the lookout for opportunities that will add a few extra bucks to your pocket. Don’t forget to cut back on unnecessary expenses, either. Stop or pause your subscriptions. Call your cable, internet, and cellular providers to see if there’s anything they’ll do to work with you.

 

Finally, in times of real need, don’t be too proud to ask for a helping hand. Many churches and community groups in your area exist for situations just like this.

 

God bless you all!

—Dave

 

*Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.


There's a Better Idea

Dear Dave,

 

My husband and I had our first child in December. We bought a house not long before the baby was born, and since then we’ve been getting mail and phone calls about buying mortgage protection insurance. We’re both 27, we have good jobs, and our mortgage is $105,000. Would it be a good idea to get this insurance?

 

Rachel

 

Dear Rachel,

 

Mortgage insurance is really nothing more than a life insurance policy with the word “mortgage” stuck on the front. They make it sound like a specialized product, and they jack the price up. The truth is it’s just a big rip-off in most cases.

 

If you two are healthy, you both could easily get $250,000 on 20-year level term life insurance policies, for around $12 a month. Then, if something happened to one of you, the other could pay off the house with the insurance money and still have a nice chunk left over.

 

However, I recommend going a little further. My advice is for each of you to get good, level term life insurance—not just to cover your mortgage—but for 10 to 12 times your annual incomes. Both of you should have sensible plans in place to take care of your family now, and in the future, should something unfortunate happen.

 

And Congratulations! God bless you two and your new baby!

—Dave

 

 

Dear Dave,

 

I was thinking about putting my emergency fund savings into a balanced mutual fund. Would this be a good idea?

 

Trey

 

Dear Trey,

You should never put your emergency fund into anything that can go down in value, or anything that charges penalties for early withdrawals. I recommend putting it into a good money market account with check-writing privileges.

 

Remember, your emergency fund is insurance. It is not an investment. That three to six months of expenses you’ve saved has one purpose and one purpose only—to protect you, your family, and your stuff against the unexpected. You know how Murphy’s Law says anything that can go wrong will go wrong? Think of your emergency fund as Murphy repellant.  

 

That’s one of the reasons an emergency fund is so important. If you don’t have one, and something unexpected happens, you’re likely to end up borrowing money from the bank, or cashing out retirement savings to fix things. So, don’t worry about investing this money. Just park it, and think of it as an insurance policy for when Murphy comes knocking at the door!

 

—Dave

 

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.


Leaning to Say No

Dear Dave,

 

We’re debt-free except for our home, and we’ll have our fully-funded emergency fund of three to six months of expenses, we’ve agreed on six months’ worth, saved up by the end of February. We’re also setting aside a little each month to buy a newer car with cash later. We’re about $5,000 from our car fund goal, but my husband is getting impatient. He wants us to go ahead a finance the remainder, since it’s a relatively small amount. He has tried to justify this by mentioning that you don’t seem to have a problem with people borrowing money to buy a house. Could you explain the difference?

 

Lana

 

Dear Lana,

 

Okay, first things first. I don’t like debt of any kind. I don’t really like borrowing for a house, but I’m not unreasonable. I tolerate mortgage loans, as long as people use a 15-year, fixed rate mortgage, with payments that are no more than a fourth of their monthly take-home pay. A house is often the largest purchase in a person’s life, and one most people can’t achieve based solely on saving. I still recommend, however, setting aside as much as possible for a down payment before taking out a mortgage.

 

Here’s the thing. Cars go down in value, while traditional homes generally increase in value substantially over the years. Plus, you can get an absolutely great, pre-owned car for $10,000 to $15,000 dollars. This is an amount which, in my mind, is doable over the course of several months through determined saving and living on a budget. Depending on where you live, a good home can cost 10 to 20 times that much.

 

The best way to build wealth and have a secure financial life is to stay away from debt. This means getting out of mortgage debt as quickly as possible, too. You’re never going to win with money if you can’t learn to delay pleasure.

 

Everyone has that little kid inside them, and that little kid wants everything he or she wants right now. Your husband is asking a normal question, but he’s dangerously close to letting that immature little kid out. It happens to all of us once in a while, but we have to grow to a point as adults where we tell that little kid no!

—Dave

 

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

 


Keep Your Dignity, and Work Your Way Out

Keep Your Dignity, and Work Your Way Out

 

Dear Dave,

 

My wife and I will both turn 30 next month. We have two young children, and we make a little over $85,000 combined. The problem is we have about $70,000 in debt. Some of it is credit card debt, but nearly $50,000 is in two car loans. Her mom and dad have offered to let us move in with them, so we can save up money and start getting a better handle on our finances, but we’re not sure how we feel about this. What’s your advice?

 

Justin

 

 

Dear Justin,

 

You’ve got a ridiculous amount of money wrapped up in those cars. I’d sell the stupid things, get into a couple of little beaters, and start living on a budget and paying down debt.

 

In your situation, the only scenario where I’d even consider taking the in-laws up on their offer is one where the stay is for a very short, agreed-upon period of time. They’d have to be absolutely wonderful people, too, and everyone involved would need to know their boundaries.

 

But you guys can get out of debt pretty fast if you’ll just lose the cars. You could even save a little money on the side while you were paying down debt, and buy a better car as soon as the debt was gone.

 

You might love your cars so much that you’re unwilling to make the sacrifice. Not me. I’d rather keep my dignity intact, and work my way out of the mess I created!

 

—Dave

 

 

Playing The Lottery Robs You of your Future

 

 

Dear Dave,

 

I’ve been struggling financially for the past few months, so I’ve been playing the lottery once a week. To me, the chance to win millions is worth a few dollars a month, even if things are tight.

 

Paula

 

Dear Paula,

 

You’ve told me you’re having money troubles, and at the same time you’re throwing money out the window every week? Honestly, the small amount you’re talking about doesn’t make a difference. Even if it’s just two or three bucks a week, that action represents a lot of financially irresponsible behavior in your life.

 

I’m going to be very blunt with you. The lottery is a tax on the poor and people who can’t do math. Your chances of winning are bleak at best. Did you know the odds of winning the Powerball jackpot are about 1 in 292,000,000? There are plenty of other very unusual things that are much more likely to happen to you than winning the lottery. Your chances of making a hole-in-one on the golf course are about 1 in 12,500. Even your odds of having quadruplets are around 1 in 11 million.

 

When times are tough and you’re strapped for cash, the last thing you need to do is spend what little you have on gimmicks. My advice is to focus on working hard, living on a tight budget that cuts out all unnecessary expenses, and saving every penny you can. Unlike the lottery, this is a plan that works every time. When you start living on a budget and get out of debt, it provides a little bit of breathing room in your life. You might even feel like you got a raise!

 

Don’t let your finances—and your dreams—be hijacked by the lottery.

 

  —Dave

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

 

 

 


How To Make Goals and Resolutions Become Reality

Dear Dave,

 

My wife and I have our budget ready for next month, and we’ll be following your plan in 2020 to pay off debt and get our finances in order. Do you have any tips for setting and sticking to goals in general?

 

Rick

 

Dear Rick,

 

That’s a fantastic goal. Living on a monthly budget, and telling your money where to go instead of wondering where it went, is an important step toward gaining control of your finances. Combine that with getting out of debt, and you’ll be in charge of your most powerful wealth-building tool—your income.

 

If you’re following my plan, you already have goals in front of you where your money is concerned. For most Americans, though, a new year means nothing more than new resolutions without real plans. Don’t get me wrong. It’s good to make resolutions and set goals, but you can’t stop there. You have to formulate a plan that turns your dreams into bite-sized pieces of progress that will gradually create a big event in your life. If you want to achieve your goals, then keep these next things in mind.

 

When setting goals, be very specific in what you want to achieve. Include steps that will help you get there, too. Being vague will only cause you to feel directionless and overwhelmed. Most people give up when these feelings arise.

 

Make your goals measurable. If you want to lose weight, don't simply write down "lose weight" as a goal. Exactly how much weight do you want to lose? What will it take in terms of exercise and dietary changes to make it happen?

 

Are your goals your goals? Only you can realistically set your own goals. If your spouse, co-worker, or friend sets a goal for you, chances are you’re not going to achieve it. Taking ownership will give you more opportunity to meet your goal.

 

Also, set time limits for your goals. Putting a time frame in place will help you set realistic goals. If you want to save a certain amount of money for a particular event, break it down and determine how much cash you need to put into your savings account each month leading up to that event.

And finally, put your goals and resolutions in writing. Putting them in writing will make you more likely to achieve them. Write down your goals, and review them often. This will give you motivation to make them reality.

 

I believe this is the process for success, Rick. Successful people reassess their lives regularly, and start living intentionally, in writing, and on purpose. Happy New Year!


—Dave

 

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.


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