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Dave Says

Do Some of All Three, and Enjoy the Ride

 

Dear Dave,

 

I was talking to a friend the other day, and I couldn’t remember what you said about the three good uses for money and why each is important. Would you go over them again?

 

Albert

 

 

Dear Albert,

 

I’ve been doing this for a lot of years, and after all that time studying finance and teaching people about money, I can still find only three good uses for money—spending, saving, and giving. You should be doing all three while you’re working your way out of debt and towards wealth, and after you become wealthy. 

 

The kid in us likes the spending part of this equation, because it’s so much fun. The problem with most people is they can’t really afford the fun they have. You should have some fun no matter where you are on the financial scale, but it should be inexpensive fun in the beginning. Then, the fun can get bigger, better, and more frequent once you’re out of debt and building wealth.

 

The grown-up part of us likes investing and saving, because that’s what can prepare you for retirement and make you wealthy. After a while, though, investing can feel a little bit like Monopoly. You can be up, or you can be down. Sometimes the market fluctuates, but a mature investor will ride out the waves and stay in for the long-term. If you have quality investments with long track records of success, they will come back up. Start investing 15% of your income for retirement once you’ve paid off all debt except for your home and you have three to six months of expenses saved for an emergency fund.

 

The most mature part of you will meet the kid inside when you give. Giving is the most fun you’ll ever have with money. Every financially, mentally, and spiritually healthy person I’ve ever met has been turned on by giving. I’ve met and talked with thousands of millionaires in my career, and one thing all the healthy ones have in common is a love of giving.

 

Someone who never has fun with money misses the point. Someone who never saves or invests money will never have any. And someone who never gives is holding on too tight. Do some of each, and enjoy the ride!

 

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.


First, Define Long Term

Dear Dave,

 

What is your advice when it comes to investing a one-time, lump sum of $4,000 for a long period of time? I recently received an inheritance from an uncle who passed away, and I want to make the money work for me. I’m 33 and my home is paid for, plus I have no debt and an emergency fund of six months of expenses. I am also maxing out my 401(k) at work. Thank you for your advice.

 

Pat

 

Dear Pat,

 

I’m sorry to hear about your uncle, but I’m sure he was proud of the responsible young man you’ve become. You’ve made some very mature decisions where your finances are concerned, and as a result you’re at a great spot in life.

 

When it comes to investing, I consider a “long period of time” to be 10 years or more. If this is the case with you, I’d suggest a good mutual fund with a solid track record of between 15 and 20 years.

 

I know some folks like to take chances and play single stocks on a one-time investment like this, but I don’t think that’s a good idea. Single stocks just don’t consistently generate the kinds of returns a good mutual fund will over time.

 

— Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.


There Are Other Ways

Dear Dave,

 

I really don’t have any established credit, because I’ve never taken out a loan or had a credit card. What will happen when I’m ready to get a mortgage loan and buy a home?

 

Jillian

 

Dear Jillian,

 

There are basically two ways to be in a position to get a home loan. One is to have credit at lots of places and a huge FICO score. This is kind of dumb when you really think about it, but it will get you a mortgage loan almost instantly.

 

When you have no credit, a lender has to do what’s called a manual underwriting. It’s something lots of banks did back in the day, when they actually used common sense when it came to making loans.

 

Fortunately, a few places will still work with you in this manner. They take a look at your work history to see if you have a stable job and a good income. They want proof you pay your bills on time, too. This can be as simple as showing them several utility bills, rent statements, and other receipts. They’re basically looking for a long history of proof that you honor your financial commitments.

 

Remember, buying a house with cash is always the best way to own a home. But I don’t beat people up over having a mortgage, as long as it’s on a 15-year, fixed rate note. Do your very best to save up for a down payment of at least 20 percent, too. That way, you’ll avoid the added expense of PMI (private mortgage insurance).

 

Great question, Jillian!

 

— Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

 


Don't Let Budgeting Myths Sabotage Your Finances

 

 

Dear Dave,

 

I made a resolution to start following your plan in 2021. I talked to my parents about this, and while they like some parts of your teaching, they don’t think living on a budget is necessary if you make good money. They also said budgeting is extremely difficult. Are they right?

 

Jensen

 

 

Dear Jensen,

 

For whatever reason, I’m afraid your parents are way off base on this one. A lot of people trash talk the idea of budgeting, and make up all kinds of excuses for not living on one. The truth is a written, monthly budget is essential when it comes to beating debt and winning with money—period. It’s the map you need to get where you want to go in your financial journey.

 

There are lots of myths, and just some bad information, out there where living on a budget is concerned. Making a budget isn’t rocket science. If you can do basic math, you can create a budget. Your income minus your outgo needs to equal zero. That’s it! You might spend a couple of hours tallying all your expenses when you first start, but the process soon becomes faster and easier. All it takes is a little practice.

 

If you think doing a budget is only for people who have trouble making ends meet, think again. My wife and I have lived by a written, monthly budget every single month for about 30 years. It doesn’t matter whether you’re a multi-millionaire, or if you have just $100 to your name, knowing exactly how much money you have—and where it’s going—is an essential part of managing your finances accurately and successfully.

 

Believe me, I hear dozens of other excuses, too. You’d be amazed at how many people don’t make a budget every month because they think it’s “boring.” Others claim they can do their budgets in their heads. I don’t think so! For a budget to really work, it needs to be something you can track down to the last penny. And if you’re married and saying you can do a monthly budget in your head, that means only one of you is involved in the decision making. That’s a recipe for disaster in your finances and your relationship.

 

A budget represents your financial game plan for the upcoming month and years ahead. As Benjamin Franklin said, “If you fail to plan, you are planning to fail.”

 

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.


Only You Can Make It Happen

Dear Dave,

 

I’ve got so many things I want to address and change about my life, both personally and professionally, in the coming year. Do you have any advice or practices for helping people be successful and achieve their goals?

 

Tim

 

Dear Tim,

 

Goals are dreams, but you can’t stop with just dreaming. Examining your goals inside and out, and by thoughtfully constructing small, achievable steps toward them is the key to creating change in your life. Remember, too, that it’s your responsibility—not someone else’s—to fix things in your life. If you’re waiting for someone or something else to make things better, you’re going to be disappointed.

 

When it comes to setting and achieving goals, be specific about what you want to achieve. Vague, unspecified ideas will only cause you to feel overwhelmed, and this will likely lead to you giving up. Also, make your goals measurable. If you want to lose weight, don't simply write down "lose weight" as a goal. How much weight do you want to lose? How many pounds would you have to lose per week in order to see the desired result in a specified amount of time?

 

This one may sound silly, but are the goals you have in mind your goals? If a spouse or friend sets goals for you, you're probably not going to succeed. Creating a goal, and taking ownership of it, will give you more incentive to meet your goal. Setting a time frame will help you develop more realistic goals, too. And last, always put your goals in writing. Write them down, and review them often. This will provide you with added motivation to make your goals a reality.

 

Successful people examine and reassess their lives on a regular basis. When they realize changes need to be made, they start living intentionally, in writing, on paper, and on purpose!

 

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.


Patience, Determination...and Time

Dear Dave,

 

One of my resolutions this year was to start living on a budget, and gain control of my money. I never realized how easy it would be to get discouraged early on. Can you give me some encouragement to help make my financial resolutions stick in 2021?

 

Collin

 

Dear Collin,

 

The secret to making a goal into a reality is getting started. It’s really that simple. You also have to be realistic and accept the fact that nothing—especially things you’ve never done before—works out perfectly the first time around. That leads to the next step, which is patience. Most people think about losing 20 pounds, and immediately feel it needs to happen in the next month or so. It doesn't. And mostly likely, it won’t. Like almost everything else worth doing, it’s something that requires sacrifice and focus each day over an extended period of time. Crash courses are usually painful and rarely work out well. But once you've done something a few times, it becomes an easier and easier part of your daily routine. Pretty soon, it’s not a chore or something you’re afraid of.

 

Making a budget and gaining control of your finances works the same way. When you first create a money plan, it probably won't work out exactly as you hoped. That’s okay. It will barely work the second month, but it won’t be as scary, because you’ve already done it once. By the third month, you’ll have a much better feel for it, and your stress levels will go way down because you already know the basics. It just takes determination, patience, and intensity to get through the rough patches that go along with starting anything new.

 

A new year is just around the corner, Collin. Don’t fall into the same old trap. Give yourself a little grace, but keep your eyes on the prize. Start preparing yourself now. You’ve got plenty of time to begin laying out a plan, and have a solid budget ready when January 1st arrives. It may feel like things are beginning slowly, but you can make this happen if you’ll just stick with it!

 

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

 


Don't Let Money Fights Steal Your Joy

Dear Dave,

 

My husband and I usually have a few disagreements around the holidays when it comes to Christmas spending. Do you have any advice for eliminating this kind of thing, and making the financial side of Christmas a little less stressful?

 

Kellie

 

Dear Kellie,

 

I imagine every couple has a few disagreements over Christmas spending. The trick is in how you handle them, and come to a compromise you each feel is fair, smart, and affordable.  

 

One of the keys is to start talking before you start shopping. Being on the same page—and creating a plan and sticking to it—are great ways to bring peace and togetherness into the picture. Honestly, Christmas spending can be part of your monthly cash flow plan the whole year. Get the picture? I’m talking about living on a written, monthly budget. You know Christmas is December 25th every, single, year, so why not set aside a little each month leading up to the holidays?

 

If you haven’t planned ahead, now is a great time to become a unified team. Huddle up, not only to talk about Christmas priorities, but devise a game plan moving forward so that this doesn’t happen again next year. Together, figure all your regular monthly income and expenses into a budget. If you’ve saved anything at all for Christmas, include that, as well. We’ve all got necessities, so take of those first. Then, make a general list of everything you’d like to spend money on for Christmas—I’m talking about the things we often overlook like food, cards, party expenses, and decorations. Now, make a gift list.

Write a dollar amount beside each name or expense on your lists, and if the grand total is the same as—or less than—your Christmas budget total, you’re ready to roll!

 

If you can’t agree, or the numbers don’t work, run through things again. This doesn’t mean to repeat your positions until you get what you want. It means both of you acting like mature, responsible adults, finding some middle ground, and making sacrifices. If you really want to show your commitment, you and your spouse can sign your new budget. Signing your name is a simple, psychological signal that means you’re committed to your agreement. Then, post it somewhere you’ll both see it regularly.

 

Give it a try, Kellie. It just might help reinforce your commitment to the budget—and each other—when the shopping frenzy sets in!

 

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.


Will My Mother-In-Law Be Okay?

Dear Dave,

 

My mother-in-law is 60. She works hard and has no debt, but she also has no savings or retirement accounts. However, she owns a couple of paid-for rental properties that are worth about $350,000 each, and her home is worth $700,000. What can I do to help her plan for the future? 

 

Paul

 

 

Dear Paul,

 

The best plan would be to first see if she’s already got a plan. I understand you’re worried about her not having any savings or retirement. That makes you a good son-in-law. But it sounds to me like she’s got the makings of a pretty good retirement situation lined up, even if she didn’t go the traditional route to get there. You just told me she’s sitting on nearly $1.5 million in paid-for real estate. Dude, she’s a millionaire!

 

If the time comes where she decides she doesn’t like landlording anymore or just wants to retire, she can always sell the rental properties, invest that big pile of cash in mutual funds, and live off the income. I’ve got a feeling this lady isn’t going to be starving or depending on Social Insecurity.

 

If you’re concerned about things, just sit down with her and let her know. Ask her if she needs any help with her money situation and plans for retirement. If she doesn’t want to talk about it right now, that’s fine, but making the offer shows you care. And, having a good, strong game plan means fewer worries!

 

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

 


Jump In!

Dear Dave,

 

I recently received my master’s degree in finance, and for the last four years I’ve had a job as a social worker. I love my job and have a decent income, but I know I could make more money and come closer to reaching my full potential in the finance industry. I’m on Baby Step 2, and I have lots of debt. On top of this, my dad lives with me and needs transplant surgery. I’ll have to take six weeks off work when he has this done, and my current job has always been very supportive of his healthcare needs. Should I wait until after the procedure to look for a job in the finance field? Will the fact that I won’t be a brand new graduate at that point make finding something difficult?   

 

Rachel

 

Dear Rachel,

 

Not at all. You can seek employment in anything you want anytime you want. But I think you’re putting the cart before the horse a little bit here. It sounds like you’re assuming you won’t be able to find an employer in the finance world that will understand your situation and work with you where you dad is concerned.

 

If you were interviewing at my company, and we determined you were an amazing person and a perfect fit for the job, we’d take a look at things and do what we could to work things out to where we could bring you on and help you through the situation. So, in my mind, it doesn’t reflect badly on you at all to be seeking a better job now.

 

Now, if you found yourself in an interview where the company reeked of that hardcore, corporate, no-days-off-no-matter-what crap, well, you obviously wouldn’t take the job. Always remember that in a job interview you’re interviewing them just as much as they’re interviewing you. You have to decide if they’re a good fit for you as much as they need to see if you’re the right person for them.

 

Honestly? It sounds to me a little like you’re just trying to stay in your comfort zone, kiddo. I think you need to go swimming. Jump in! The water’s fine.

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.


Try To Help Him, But Move Slowly

Dear Dave,

 

My boyfriend lives in a different state, and I’m planning to move there when we get married. I know I love him, but sometimes he is not what I consider to be responsible with money. There have been times in the past when he has taken out small loans or paid bills late in order to buy something he wanted. How can I talk to him about this?

 

Heather

 

Dear Heather,

 

If it were me, I think I’d make sure things move a little more slowly in the relationship until he gets his spending under control. Sometimes when things like this happen it’s just a situation where a person needs to learn the benefits of budgeting and handling money in a mature, responsible way. You can’t do something if you haven’t been taught how to do it, and hopefully this is the case with your boyfriend. 

 

You mentioned marriage, so that tells me you’re both taking this relationship seriously—that you’re in the process of making sure you want to spend the rest of your lives with each other. Bring it up gently, and tell him why you’re concerned. Share your hopes and dreams for the future with him. You might even offer to help him make out a monthly budget. That way, once he understands the process and value of spending money on paper before the month begins, it will be easier for him to stick to it.

 

Good luck, Heather!

 

—Dave

 

 

Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

 

 


Use Non-Retirement Account To Pay Off Debt?

Dear Dave,

 

I have $11,000 in a mutual fund account that is not a retirement account. My wife has a retirement account through her job as a teacher, but I do not have one at all. We’re in Baby Step 2, so should we cash out the $11,000 in the investment account to help pay off debt?

 

Chris

 

 

Dear Chris,

 

If this money is designated as non-retirement funds, I’d say go ahead and cash it out. Use the money to pay down debt, and continue to stay focused working the Baby Steps. Get that debt paid off, build an emergency fund of three to six months of expenses, then it’s your turn to start investing.

 

The quickest way to build wealth is to get control of your largest wealth-building tool—your income. When all your money is going out the door to other people, you don’t have that tool at your disposal when it comes to important things like saving and investing. There’s some math in there, but it’s also about behavior and being intentional. Getting out of debt dramatically shortens the distance between you and wealth.

 

A lot of people are having some major “never again” moments right now in the wake of COVID-19 and all the other stuff 2020 has thrown at us. They’re saying things like, “Never again will I be broke, never again will I have debt, and never again will I live with no savings to help take care of me and my family.”

 

You can do this, Chris. Get after it! 

 

—Dave

 

 

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.


You've Got To Change The Person In The Mirror

Dear Dave,

 

 

I’m just starting to pay off my debts. How do you feel about moving credit card balances to other companies in order to get lower rates? It seems like that would help me get out of debt faster.

 

Elizabeth

 

 

Dear Elizabeth,

 

I get what you’re saying. It might help speed up the process a tiny bit, but the habits that got you into debt in the first place won’t change just because you’ve switched credit card companies. What you’re talking about is an easy way to lower the interest rates—temporarily, in most cases—but it doesn’t keep you from taking on more debt.

 

Many people think they’ve really done something to solve their debt problems when they do this. But you’ve got to remember that getting out of debt, and gaining control of your finances, is all about changing the person you see in the mirror. You’ve got to make a commitment to getting out of debt, staying out of debt, and sticking to a written, monthly budget—that means keeping track of every, single dollar and living on less than you make.

 

In many cases, when people have problems with debt it’s the result of unwise lifestyle and financial choices. But guess what? When you change, interest rates don’t matter nearly as much. And when you shift your mindset about money, that will make a difference in a way that changing credit card companies and chasing lower interest rates can’t!

 

—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.


Show Them Your Value!

Dear Dave,

 

 

I’ve been with my company almost four years. Currently, I make the same money as a co-worker with the same title and the same amount of time on the job. But since we’ve both been there, I have taken on many more responsibilities than he has. What’s your advice on asking for a raise? I feel that I have the right to complain about the situation, and think I should make more money than he does.

 

Vincent

 

 

Dear Vincent,

 

If you honestly feel like you deserve a raise because of your effort and performance on the job, that’s fine. Sit down with your leader, and make an objective, logical, and reasonable argument for why you deserve more money. I wouldn’t mention your co-worker, because it’s just not relevant. What is relevant is the value you bring to the company. 

 

I understand how you feel right now. But no, you don’t have the “right” to complain. You agreed on your pay when you took the job, and you should perform your duties with integrity and character. What someone else does, or doesn’t do, isn’t tied to your personal compensation.

 

If you think you deserve a raise, and you’ve got the results to prove it, sit down and have a respectful conversation with you leader. Show him or her the numbers, and the value you bring to the company, and explain why you feel you should get more money.

 

Good luck, Vincent!

 

—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.

 


Evaluating Insurance Needs

Dear Dave,

 

Last year I got a divorce. I’m 32, a teacher and a single mom. I’m on Baby Step 2 right now, and I was wondering about life insurance. My son is only two, and if something happened to me, he would go to his father. His dad is in good shape financially and responsible with money, so how much life insurance should I have?

 

Christian

 

 

Dear Christian,

 

Well, you probably don’t need the full 10 to 12 times your income like I recommend for most people. The only dependent you have is also dependent upon his dad. And from what you said, his father seems perfectly able to take care of him.

 

I’d get a good term life policy equal to the amount that you’d like to supplement your son’s care. The good news is you can get a couple hundred thousand in life insurance at your age for practically nothing.

 

If you get life insurance, make sure his dad—your ex—is not the beneficiary. The beneficiary should be a family trust, formed upon your death, and the money would go into that trust for the benefit of your child. You set the terms of the trust. It should not be controlled by your ex. In a divorce situation, I would never name someone I’m not willing to be married to the trustee of my money on behalf of my child. 

 

I’m so glad you’re thinking about these things, Christian. It shows you’re an intentional lady, a fine mom, and a good planner. Those traits will serve you and your son well! 

 

—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.

 

 


Don't Put Your Home On The Line!

Dear Dave,

 

We’d like to start preparing for the future, but our debt is preventing us from investing for retirement. Would it be okay to use a home equity line of credit to start investing? We were thinking the eventual returns might justify doing this.

 

Nick

 

Dear Nick,

 

No! Never put something as important and meaningful as your home on the line just for the sake of investing. Do not borrow against your home!

I’m guessing you’re new to my way of doing things, so let’s start from the beginning. First, follow the Baby Steps. Getting $1,000 in the bank as a starter emergency fund is Baby Step 1. Next, pay off all your debts from smallest to largest—except for your home—using the debt snowball method. That’s Baby Step 2. It’s time then to revisit your emergency fund, and bulk it up to a full three to six months of expenses in Baby Step 3.

 

Now, it’s time to really start thinking about your future and retirement. In Baby Step 4, take 15 percent of your gross household income and start investing it for retirement. Start with your company’s 401(k) plan, up to the full employer match. Then, invest the rest into Roth IRAs. One for you, and one for your spouse, if you’re married.

 

Here’s the thing, Nick. Investing becomes easy at this point, because you’ve freed up your income. And that’s the most important wealth-building tool you have!

 

—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.


Saving For College

Dear Dave,

 

What percentage of our income should we save for our kids’ education? We know you recommend setting aside 15 percent for retirement, but do you have a similar rule that applies to paying for college?

 

Andrew

 

Dear Andrew,

 

I don’t really have a rule, or percentage, for how much you should save toward a college fund. If you’re following the Baby Steps, I recommend getting 15 percent of your income going toward retirement before saving for college. After you’ve got your retirement savings rolling, put what you can, based on your own unique situation, toward college funding.

 

If you’ve got teenagers in the house, you need to get serious about college funding soon—like right now. There’s no rush if they’re toddlers, but you might want to start looking at things like a 529 or an ESA (Education Savings Account).

 

The thing is, there are just too many variables, the main one being the ages of the kids, to set a strict percentage. You’ve also got to consider things like where you’re thinking about them going to school, how much you want to save, and other factors.

 

—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.


Combine finances?

Dear Dave,

 

Is it okay to combine finances with someone and start working on a budget before you marry them? I just got engaged, and we’ve been talking about the idea of getting a head start on our finances together.

 

Autumn

 

Dear Autumn,

 

First, congratulations! I hope you two will have long and happy lives together. Now comes the hard part. But you asked for my opinion, so here goes.

 

No, it’s not a good idea to combine finances with anyone you’re not married to. Don’t get me wrong, I’m glad you two are thinking about your finances and your future—and I’d never wish anything bad for you—but all kinds of things can happen before you become husband and wife. What if you spend time paying off his debt, or vice versa, then the relationship doesn’t work out?

 

However, this doesn’t mean you can’t begin working together on budgets for the future, and planning and dreaming about the goals you have together. The thing to keep in mind is you’ll both need to be operating in full transparency mode to make it happen. He should know all about your income and debts, and you should know all about his. Along the way, you two need to have serious, regular discussions about saving, spending, and debt to ensure you’re completely on the same page with your finances before the big day.

 

There you go. My advice is both of you should pay only your own bills until after you’re married. And remember, once that happens there’s no yours and his anymore—it all becomes ours.

 

—Dave


Teachable Moments Are Valuable At Any Age

Dear Dave,

 

A good friend of mine passed away recently. In his will, he left me a couple of items and some money, and I’d like to share the money with my son. He is 25, and a good kid, but he is still impulsive with his finances. Do you have any advice for handling this in a way that will do him the most good?

 

Frank

 

Dear Frank,

 

It’s tough enough losing a close friend without having to worry about a grown son with money issues. I’m sorry you’re going through all this.

 

To be honest, I don’t like the idea of just handing him money when you already know he’s impulsive. I learned a long time ago that handing money to someone who’s financially irresponsible is not a good idea. Lots of people think other folks would be fine, and all their problems would be solved, if they just had more money. That’s not generally the case. You need to ask yourself if giving this young man a bunch of cash would really, truly help him. More than likely, the answer is no.

 

You obviously love this kid, and you’ve got a generous heart. But under the circumstances, it might be a good idea to attach a few strings to any cash. Don’t make him jump through a bunch of hoops for no reason, though. I’m talking about teachable moment-type things that will help train and educate him to handle his finances in a more responsible and productive way.

 

There are lots of paths you could take. You might require that he start living on a written, monthly budget, that the two of you go over together for the first few months. Sitting down with a good financial coach—one with the heart of a teacher—is something you might consider throwing out there, as well.

In my mind, this approach is fair to everyone involved. It allows you to help him help himself, instead of just handing him something that may or may not be a blessing.

 

—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.


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.

 


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