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Dave Says Archives for 2022-01

How Much Dirt, And How Much House?

 

 

Dear Dave,

 

My wife and I own a small catering business. We have a few big corporations as clients, and our company has been very successful over the last two or three years. Now, we are planning to build a house. I was wondering what you think about how much should be spent on the land itself versus the construction of the actual house. 

 

Lee

 

Dear Lee,

When the whole thing is done, the payment you end up with shouldn’t be more than 25% of your take-home pay on a 15-year, fixed-rate loan. The ratio of land to house can vary, and that part’s up to you. If you’re buying a big piece of land, you’re probably going to have a higher ratio of land cost to home cost than if you bought a simple lot and put a really nice home there.

 

Generally, a standard subdivision lot is going to be around 20% of the total price. If you spend $100,000 on the lot, you’ll end up with a total project cost of about a half-million. Now, keep in mind that’s just a fairly standard ratio. It’s not a rule.

 

The only rule here is my rule about mortgage payments. Again, no more than 25% of your take-home pay on a fixed-rate, 15-year note. Otherwise, you can end up house poor. And when you’re house poor, it takes away your ability to save, build wealth, and give.

 

Having a big house and a lot of land is cool if you can afford it, Lee. But it’s not worth it if it’s financially stressful and prevents you from living your best life!

 

— Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 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.

Where Should He Park The Money?

 

 

Dear Dave,

 

Our son is 13, and he has been doing some part-time work for a friend of the family. He makes $40 to $60 a week, and he would like to begin investing the majority of what he earns. Do you have a suggestion for a good place he could put his money?

Lindsay

 

 

Dear Lindsay,

 

Well, here’s the thing. At this point in his life, the goal of this investment isn’t wealth. Number one, it’s not a lot of money. Number two, well, it’s not a lot of money. The goal is to create knowledge, reward his interest in the subject and teach him how to handle his finances when he’s an adult.

 

I’ve got no problem with you helping him open checking or savings accounts at a local bank or credit union. There are lots of good lessons to be learned in reconciling a bank statement, and the value of spending, saving and giving. Then, you could get with a good financial pro, one with the heart of a teacher, and let him open a mutual fund for $50 a month with you as the custodian. He could learn about compound interest, how to calculate the value of his shares and other things, and all that would be a good learning exercise, too.

 

We did these things with our kids. But keep in mind that over the course of a year—and when you’re 13, that’s an eternity—there’s not going to be a lot of action on the investing side of things. It could be kind of boring for him at times. But he’s better off to learn now that good things don’t always come with flashing lights and whistles.

 

When it comes to wealth building, things aren’t sexy. Slow and steady wins the race!

 

— Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 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.

Budgeting For Car Repair Costs

 

 

Dear Dave,

 

I am following your plan, and recently became debt-free, but I have a question. When doing a monthly budget, should I figure in a specific category for car repairs and maintenance, or just use my emergency fund?

 

Ashleigh

 

 

Dear Ashleigh,

 

Congratulations on becoming debt-free! You know, new cars, old cars and in-between cars all have one thing in common — they’ll need repairs at some point. Fixing your car is just a basic part of car ownership, and something every car owner should be prepared for.

 

When life happens, to your vehicle or anything else, an emergency fund acts like an airbag. Only instead of keeping your face from hitting the dashboard, it keeps your finances from getting smashed up. When it comes to car repair costs, I advise creating a sinking fund in your budget. A sinking fund is a special place in your budget where you save up money for specific, big ticket items — like car repairs.

 

I know, stuffing money into a sinking fund each month sounds about as enjoyable as waiting in line at the DMVBut look at it this way, if you had a car loan like most people, you’d be putting hundreds toward that debt each month. Instead, you’re one of the smart ones who doesn’t have any debt and can easily create a repair fund for your car by setting aside less than the average car payment each month. Even “reliable” cars need repairs and maintenance, and a sinking fund within your budget for this sort of thing means you’re ready to handle virtually any auto issues that pop up.

 

You know you’ll need to pay for repairs and maintenance. It’s a thing with all cars. And when you know something’s coming, that’s not an emergency fund situation. Great question, Ashleigh!

 

— Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 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.

 

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