Monday, August 22, 2016

Long Term Care insurance is needed once you turn 60

Dear Dave: I'm trying to help my elderly mom with her finances. She has no debt and more than $1 million in assets. There also was another $500,000 trust left for her by my dad. With access to all this, does she still need long-term health insurance? — Anonymous

Dear Anonymous: Absolutely! She also needs an estate planner immediately. Your parents were far too wise with their money to have your mom end up in a bad situation toward the end of her life. You need to do everything you can to prevent this from happening.

In the event she's unable to take care of herself, long-term care health coverage to take care of nursing home or in-home care is an absolute necessity. The cost of nursing home care can run from $75,000 to $100,000 per year. Your mom is in great shape financially. But just imagine what a prolonged nursing home stay could do to her nest egg. It's not a pretty thought.

When you hit 60, you need long-term care insurance, period. Whether you have $1 million-plus in the bank or not, I strongly recommend it as a wise part of any asset management plan.

Monday, August 15, 2016

People make more money as they gain experience

Q. My wife and I are 31 years old, and we have no debt except for our home. We also have an emergency fund and college savings in place for the kids. Over the last several months we’ve saved $22,000 for a newer car, but we’re also worried about retirement. We’ve been putting 15 percent of our income toward retirement, and we’re concerned that maybe we shouldn’t spend the whole $22,000 on a car. We make around $100,000 annually and have $50,000 in our nest egg. What do you think?

A. In your situation, a $22,000 car is not unreasonable at all. You guys are both 31, and you’re going to be in great shape for retirement if you just keep doing what you’ve been doing. On top of all that, you’ve got your emergency fund in place, in addition to a nest egg and car savings. If I’m in your shoes, I’d go out and find the best car $22,000 can buy.

You’re doing all the right stuff. Your kids can go to school debt-free, and you’re going to have the house paid off in no time. In short, you’re going to retire multi-millionaires at the rate you’re going – as long as you keep on keeping on!

Think about this, too. As a general trend, most people’s incomes go up throughout their lifetimes. That being the case, chances are you’re going to make and invest even more money in the years ahead. You and your wife could easily retire with $5 million to $10 million sitting there.

You’ve done a great job together. Keep up the good work, and enjoy that car!

Monday, August 8, 2016

An investment professional can help make your money work for you

Q: I'm a recently retired widow, and my husband always took care of most of our finances. We never had any debt, but after starting to learn a little bit about how money works, I'm worried that there may be too much of it invested in CDs (certificates of deposit). The total nest egg is a little over $1.5 million, with $300,000 of that in CDs. There's also a $317,000 annuity, a 403(b) and around $900,000 in IRA mutual funds. I also have two homes and a new car that are paid for. How do you think I should handle things going forward?

A: I'm really sorry to hear about your husband, but you two did a fantastic job with your finances. You're worth at least $1.5 million, and you have no debt. You're set for life, but you're wise to want to be careful.

The CDs give you some stability, but obviously they're not earning much of anything. I think of them as money kicked up in a hammock — it's not working for you. You both worked hard for that money, so personally I'd like to see it working hard for you now. If you've had good luck with a variable annuity, that's fine. You've also had very good luck with your mutual fund investing. So, with all this money in different areas, you're definitely diversified. It's just a matter of wrapping your arms around it all and developing a deeper understanding of things going forward.

At this point, I would urge you to find an investment professional in your area with the heart of a teacher — someone who's not trying to sell you stuff. You want to learn, Joan, and I'm really impressed by that. It's a smart and necessary thing. Every time you see an investment person, whoever it may be, your goal should be to leave the room smarter and with more understanding than you had before.

Thursday, August 4, 2016

Dont sell your house just to do Baby Step 3 says Dave Ramsey

Dear Dave: My wife and I are on Baby Step 3 of your plan, and we're about halfway to building our fully funded emergency fund. We don't like our current home very much, and we'd like to sell and move as soon as possible. We have a little over $30,000 equity in the place, so would selling the house be a viable option for funding Baby Step 3 ? 
— Justin

Dear Justin: I wouldn't sell the house just to do Baby Step 3. That's usually a pretty easy Baby Step after you've gotten everything paid off except the house. As you know, a fully funded emergency fund means saving three to six months of expenses, so you shouldn't have to sell your home in order to accomplish that.

However, if you don't like the house anyway, and you're already planning on selling it, then yes, set some of the equity aside. I wouldn't put all of the equity into the next deal. I'd hold back my three to six months of expenses, so when you move into another house you're debt-free with a fully funded emergency fund sitting there.

Regardless, when you move I want you to have an emergency fund and be debt-free in addition to your down payment. That's what we're after.

Monday, August 1, 2016

Even a $1000 emergency savings can give you peace of mind and feeling of security

Dear Dave: I make $25,000 a year, and I'm single. I expect my salary to increase to $35,000 next year, so can I get by with a $500 starter emergency fund instead of $1,000? I have about $38,000 in debt right now, including student loans, and I don't know how to keep up with bills and everything if I try saving a bigger emergency fund. — Jane

Dear Jane: You really need a starter emergency fund of $1,000 if you're at a point in life where student loans are in the picture. It might seem like an impossible task right now, but that should be your first big goal. A written, monthly budget will go a long way toward helping you achieve that goal.

Making a budget for your money isn't rocket science. It's a simple, written planning process where you give a name and destination to every dollar you make before the month begins. Food, shelter, clothing, transportation and utilities are necessities, so they come first. After you've taken care of those, make sure you're current on your debts. Once all that is out of the way, put every spare dollar you can into your emergency fund.

If you do this with a sense of urgency, and limit spending to necessities, it won't take very long. You'll be surprised by how quickly it can happen, and you'll love the newfound sense of security you'll have in knowing $1,000 is sitting there ready to cover life's little emergencies.