Pay cash for your deals instead of borrowing

We’re completely debt-free with a fully funded emergency fund, and we have $350,000 sitting in the bank from a land sale a couple of months ago. My wife and I would like to buy a chicken farm with two houses and upgrade it to contract standards. This — plus the stock — would cost around $290,000. I would keep my regular job, and my wife would run the farm. An investor friend of mine said I should finance the entire business purchase. What do you think about this scenario?
— Darryl

Dear Darryl,
Either do the deal with cash or don’t do it at all. Your investor friend is full of crap, and there’s a good chance he doesn’t have nearly as much money as you do. He’s probably got more bad opinions than dollars.
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Now, the pro formas on the kind of thing you’re talking about are incredible. They can make a ton of money, but they’re a lot of work — I mean real, hard work. Some are more high-tech than others and that can mean a little less work, but someone’s got to be out there every day with their hands on this thing or you’re going to be in trouble. I don’t know the ideas you have for divvying up the work, but I’m afraid it would just be too much for one and a half people.

I don’t mind you doing the deal, as long as you pay cash for it. But if you’re looking to invest, there’s always real estate — it seems like you’ve done pretty good there — or maybe another small business idea. Whatever you do, you need to stop listening to your friend about borrowing money. You’re liable to turn what was a blessing into a curse if the two of you borrow money on a chicken farm.

— Dave

Dave Ramsey thoughts on Micro Investing apps

Honestly, I’m not a big fan of micro investing apps. As you probably know, the word “micro” means small. So why would you want to mess with something like that? Are you going to have a micro retirement? Do you want to be micro wealthy? I don’t. I want to be really wealthy with a big retirement and a big life full of outrageous giving.

It’s fine if you want to give micro investing apps a try. I’m not going to be mad at you or anything like that. But these things function kind of like deals where the marketers say you get 1 percent back. It’s like credit cards where silly people spend $100,000 in order to get $1,000 in brownie points.

You’ve got to do more than micro because micro means what it says — small. I guess you could argue that at least you’re doing something but if that’s your only plan, you should prepare to be pretty hungry during retirement.

When it comes to investing, why not go big? Go big, or go home!

Paying with Store credit card vs Cash

Q. My wife and I are building a home, and we found a great entertainment center we both love. It costs $6,000, and the dealer said he would give us 10 percent off if we take out a store credit card. We have the cash to buy the piece, but we were wondering if it would be a good idea to get the card and use it for the entertainment center and Christmas gifts, then pay it off immediately.

A. I hate to burst your bubble, but I’m pretty skeptical about this idea. I know it sounds good on the surface, but the problem is the vast majority of people don’t have the discipline to follow through on a plan like this. Another issue is a lot of places like this hit you with a fee when you pay off the card, the thing runs over, then you get another fee and so on.

I’d just call the manager out of his office and let him know that unless he discounts the entertainment center $600 I’m going to his competitor. No, there’s no way I’d take out a stupid credit card at this place whether I had the cash on hand or not.

You need to learn right now it’s a bad idea to play with snakes. Stop screwing around with debt products, OK? Everyone thinks they’re the exception to the rule or they’re somehow winning or getting rich by doing stuff like this, but it doesn’t work. They’re trying to hook you.

Educational Savings Accounts for kids future

Q. We have three preschool grandchildren, and they get tons of stuff for Christmas every year. We’re in really good shape financially and would like to do something for their future this year instead of giving a toy that might get thrown in the corner. Do you have any suggestions?

A. I’d do both. You don’t want to be those grandparents who only hand envelopes at Christmas to 4-year-olds. No, they need things to play with. They’re kids and they should be allowed to act like kids and be happy at Christmas. The good news is you can do both without spending an arm and a leg.

In addition to a few special toys, perhaps you could work with their parents to launch Educational Savings Accounts (ESAs) for them. This would get their college funds started, and it’s what we do. We use mutual funds in their ESAs, where each child is allowed to have up to $2,000 contributed in their name per year.

The beauty of the ESA with the mutual fund inside is that it’s growing completely tax-free. You have to name a custodian of the account until the child turns 18, and that could be you guys or their parents. Just make sure that together you don’t over fund the ESAs and cause yourselves tax problems.

Should we take a vacation trip while in debt

I work for a small company that just won a cruise trip for all the employees. The prize covers just the cruise tickets, and we have to pay for everything else. The problem is that my wife and I currently have more than $50,000 in debt, not counting our home, and about $10,000 of that is in collections. We’re trying to fix our finances and start saving money, but we just don’t feel like we should take a trip right now. How do I tell my boss?
— Ricky

Dear Ricky,
First, let me say how proud I am of you and your wife. Most people would be really irresponsible in a position like this and simply borrow more money to take the trip. The fact that you’re behaving like mature adults tells me you’re on your way to getting out of debt and solving your financial problems.

I’ve got to wonder, is there a lot of pressure from your company to go on this trip? I understand the benefits of team building and socializing with colleagues, but when you have no savings and are that deep in debt — and a chunk of that includes some in collections — it’s no lie to say you can’t afford to go. A decent company will understand.

Just sit down with your boss or owner, and explain why you can’t make it happen right now. You don’t have to unload all the details, but let them know that you can’t do something like this in good conscience when you’re trying to get your finances under control and already owe a lot of money.

That’s one heck of a temptation you’re standing up to, Ricky. I love that you and your wife are on the same page and have made the decision to take control of your finances together.

—Dave 

Young man laid off and steps from financial ruin

Dear Dave: I'm 23, and I lost a good job a few days ago due to layoffs. My wife has been a stay-at-home mom with our 10-month-old daughter, and we have very little in the way of savings. What can we do to keep our heads above water? — Seth

Dear Seth: I'm really sorry you're going through this. I've been there, so I know this is a scary time for you. There are some short- and long-term goals to think about in a situation such as this, but let's look at the immediate future.

Go crazy about finding some kind of income. I don't care if it's delivering pizza during the week and working at the mall on weekends. Even if it doesn't completely replace your previous income, it will give you some cash to pay bills and stay afloat. On your off days, and before and after work, you can line up and do interviews for a more stable, full-time job. You may even have to trade off baby-sitting duties with your wife so she can earn some money, too.

While all this is going on, have a garage sale and sell anything you don't need or want anymore. Just about anything that can be turned into income should be turned into income. In the process, prioritize your bills and other financial responsibilities. Take care of food first, then utilities, the mortgage or rent, then transportation. You guys don't need to see the inside of a restaurant for a while unless you're working there, and if things don't get better by Christmas, any gifts you give should be handmade crafts.

This is doable if you two work hard, pull together and focus. God bless you guys.

Small business tip: Keep a separate bank account for your business

Dear Dave: I've just started my own small business. As the owner and only employee, how do I determine my profits? — Brittany

Dear Brittany: Here's a basic Accounting 101 definition for you, regardless of how many employees you have or how big your business may be. What you take in, minus expenses — in other words, your revenues minus your expenses — equal profit. Believe it or not, it really is that simple.

Since you're just starting out, I'd strongly advise you to set up a separate checking account for your business. That's the only way to accurately tell exactly what's going on within the business. When you co-mingle business money with grocery money and things like that in your personal account, you'll never have an accurate picture of what's really happening with your business.

Good luck, Brittany!

Average wedding costs in America now $32,641

The cost of the average wedding in America rose to $32,641 last year. But when it comes to what you can reasonably afford, I think it becomes relative to exactly how much debt you have and what kind of income we’re talking about.

If you have $5,000 in debt but you make $150,000 a year, stop worrying, pay off your debt, and save up for a great wedding. If you make $28,000 a year but you have $30,000 in debt, then you need to have a really minimal wedding. Anywhere from $3,000 to $5,000 would be reasonable in that kind of situation — and even then it’s going to be tight.

The more debt you have in relation to your income, the smaller your wedding expenses should be. A $32,000 wedding would be ridiculous for someone with a $28,000 income. But $28,000 is a below-average income, so you shouldn’t reasonably expect an average wedding in terms of cost. It really all boils down to ratios.

Just remember, the amount of money spent on the ceremony, reception and all that stuff isn’t what’s important. It’s the love that two people have for each other that makes the ceremony special and the marriage one that will last a lifetime!

Caring for your parents financial investment

Dear Dave: My mom is 95 years old, and she’s in amazing health. Financially speaking, she has about $150,000 in Certificates of Deposit, money market accounts, and savings bonds. Is there a better place she can invest her money? — Anonymous

Dear Anonymous: Certainly there are other investment vehicles that will make much more money than CD's, money markets and savings bonds. However, at your mom’s age people aren’t generally investing for the long haul, unless they’re investing it for their heirs.

If she’s comfortable with her finances, I’d suggest just leaving things alone. Don’t try to force her into something new. At her age she may still have bad memories of the Great Depression and a negative perception of the stock market. In a case like that, mutual funds might make her fearful. I wouldn’t take the chance of robbing a 95-year-old lady of her peace to try and do the “proper” thing with money.

However, if she’s agreeable to the idea of doing a little better with her money, you could start by moving a little into growth stock or balanced stock mutual funds. But do something like this only if the change won’t upset her and leave her fretting over her money. What we want for your mom is financial peace. — Dave

Your home is an Asset

Your house is definitely an asset; it's the mortgage that's a liability. Some folks may try to position a house as a liability simply because it costs you money. But the truth is your home will make you more money than it will cost you over time. Therefore, it is an asset.

Some of the saddest situations I've seen in all my years of teaching are seniors who have paid-for homes and nothing saved or invested. 

Money isn't the most important thing on earth, but it is a fact of life. That's why I encourage people to build an emergency fund of three to six months of expenses and begin saving for retirement before they tackle paying off their homes.

Should a Husband help pay Wife's debt ?

Dear Dave: I make $2,100 a month after taxes, and I have accumulated $46,000 in credit card debt. My husband makes more than I do, but he won't help me. He says I got myself into this mess, so it's my job to stop being irresponsible and fix it on my own. Do you have any advice? — Peggy

Dear Peggy: You've got a load of debt hanging over your head right now, but I think you've got bigger problems than that. You told me you're married, yet it sounds to me like you two are living entirely different and separate lives. This seems more like a roommate situation than a healthy, loving marriage.

I don't like your husband's attitude, but he does have a valid point in one respect. You were irresponsible with money, and now you've got a pile of debt on your hands. My big question is this: Where was he while all this was going on? Were you hiding it from him? And where was the communication and decision making, financial and otherwise, couples should engage in? Married people can't live this way and win in their relationship or with money.

The two of you desperately need to seek marriage counseling together. This relationship is on the rocks. You and your husband obviously have no trust or respect for each other, and there's a definite lack of communication, unity and shared goals. I don't know what happened to bring things to this point, but the preacher didn't pronounce you guys a joint venture when you got married; he said you were now one.

A little maturity, extra work and living on a simple budget will go a long way toward fixing most personal finance issues. But your marriage is in big trouble, Peggy. Please seek help!

Wife's dad is paying half of our car payment monthly

DEAR DAVE: My wife and I are debt-free except for a car and our house. The car is financed through her mom, and her dad agreed to send us half of the payment each month. We owe $7,700 on the car, and we have enough cash right now to pay off the car in full with plenty left over. Should we do this, even though her dad is making $100 of the payment each month?

— Dustin

DEAR DUSTIN: If her father had agreed to send you guys $100 each month, ask him to continue doing that for the duration of the agreement. Then, you guys pay off the car now with your cash. There's nothing dishonest about this, as long as you explain the plan to her parents and they're agreeable.

The reason for this approach is twofold: It gets the debt paid off, and then you can get the car put in your name. Plus, a situation like this represents drama just looking for a place to happen, if it hasn't already. Family relationships take on a weird vibe when money has been loaned and borrowed.

If they're not agreeable to the idea, that's OK. All you can do is ask. But one way or another, I'd be out of this situation before the sun goes down.

Best way to build wealth is to become debt free

DEAR DAVE: My husband and I own three commercial buildings in Boise, Idaho, that are leased out long-term. We owe about $500,000 on one and $400,000 on each of the others, and they earn $190,000. The only other debt we have is a small amount left on our mortgage. I know you don't like debt, but is it OK to owe on commercial properties that are making good money?

— Dawn

DEAR DAWN: I own several commercial buildings and I don't owe a dime on any of them. So, I can't tell you that I think it's okay to have debt on commercial buildings. I believe the best plan for building wealth is to become debt-free.

Now, from the situation you've described, that doesn't necessarily mean you guys should be in panic mode and start selling everything in sight. But I do think that you should systematically work your way out from under these debts over the next few years.

If I were in your shoes, I'd go ahead and get the house paid off first. Then, I'd take a look at these commercial properties and begin working the debt snowball on them. Start throwing as much money as you can at the smallest debt, while making minimum payments on the other two. When you get it paid off, roll that amount over — along with every dime you can dig up — and attack the second largest one. Follow these steps until you pay off all of your commercial properties.

It might take up to 10 years in your case, because we're talking about at least $1.3 million in debt. If you have a bunch of equity in one you don't particularly like, you might consider selling it and throwing the cash at the remaining two. But whatever the timeline, I'd develop a game plan to get rid of this debt.

Wouldn't it be cool to have all that paid for? Talk about cash flow!

Dont marry someone who is financially dumb [VIDEO]

What is Deferred compensation

Deferred compensation simply means you are electing to defer and receive a portion of your compensation at a later time or date. People who use these types of plans have a portion of their compensation withheld and directed into an investment of some kind instead, and you aren’t taxed on it immediately. It’s sort of like a pre-tax investment, but it’s not transferrable to an IRA or 401(k).

I would only do deferred compensation after I’ve done everything else in terms of saving 15 percent of my income for retirement, including a Roth IRA. These are funded by after-tax dollars, but they grow tax-free. But I wouldn’t do any of this until after I had paid off all my debt, except for my home, and had an emergency fund of three to six months of expenses in place.

My kids went to public schools instead of private schools

Dear Dave, 
Our three kids are enrolled in a private Christian school. It’s a great place, and we truly believe our kids are getting a wonderful, faith-based education, but the tuition is pretty expensive. We’ve already had to start digging into our savings to make this happen, and the kids are only in elementary school. Should we keep them enrolled, or should we transfer them to public school? 
-Maureen

Dear Maureen, 

I understand wanting your kids to get the best education possible. Private schools can provide some advantages academically, while a good Christian school might offer spiritual advantages. But the bottom line is this: If you can’t cash flow it, you shouldn’t do it.

All of my kids went to public schools, and they are good, moral people and strong Christians. In the process, they learned how to interact with people of all faiths, no faith, and how to display their faith and beliefs adequately in their personal lives and in the marketplace.

The truth is, you’ll find great things and bad things in any school, private or public, Christian or not. And no matter where your kids go to school, as parents, you still have to teach them about the world — the good and the bad, the right and the wrong. Life can’t be lived inside a protective bubble.

All about Money Market accounts

Money markets are short-term financial instruments. Money market accounts pay about the same, maybe a little bit more, than traditional savings accounts. If you get a money market account with a bank, you've basically got a savings account that mirrors — or pays about the same — as the actual money markets.

Now, if you get a money market account with a mutual fund company, you're actually buying into the money markets. The big difference is that the mutual fund companies are a lot more flexible, and they don't have FDIC (Federal Deposit Insurance Corporation) insurance.

I have my emergency fund parked in a mutual fund company money market account, and the great thing is that it's fully liquid — meaning there are no penalties to take cash out at any time. It's a perfect place to keep an emergency fund.

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.

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!

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.

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.

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.

Business Owners should raise prices when demand increases

Dear Dave,
My husband has his own one-man painting business, and I help him with the books. We were wondering how you know when it’s time to implement a price increase. Also, what should the increase be?
— Lauren

Dear Lauren,

I grew up in the real estate business, so I’ll use the apartment-complex model as my example. If your building is completely full, then it’s time to raise prices a little bit until you have a vacancy. In this type of scenario, you want a healthy level of vacancy, meaning you’re always going to be losing some customers as you go up in prices.

In your husband’s case, if he’s booked through the end of the month, he’s way underpriced. Just keep on turning in your bids, and don’t make a big deal about things. It isn’t like a tenant, in your case, where you’re going back time and time again except in rare cases. You might start with a 10 percent increase, and see what happens for a while. If that goes well, wait a bit and raise them another 10 percent.

There are only so many hours in a day this guy can work, so the only other option is to take on staff. But before I start staffing, I’m going to raise prices and cut the number of customers that way. In most cases with the construction business, if you show up when you say you will, complete the job when you say you will, and you do high quality work, there’s almost no ceiling on what you can make!

If you want to retire on $40,000 annual you need a $500,000 nest egg

Dear Dave,

I make $80,000 a year, and I was wondering if there’s an easy way to determine how much money a person would need to live comfortably after retirement.

– John

Dear John,

A commonsense rule of thumb if you’ve got your money invested in good growth stock mutual funds, is to pull from those funds at a rate that is lower than which they are growing. Otherwise, you’ll destroy them, right?

I tell folks if they want to pull off 6 to 8 percent – I’m comfortable doing 8 percent – then you’ve got to decide exactly how much you want to live on and what that means for your nest egg.

If you want to live on $80,000 a year, it means you have to have a $1 million nest egg. If you want to live on $40,000 a year, then you need a half-million dollar nest egg for what we’re talking about here.

– Dave

Larger families usually means you need a budget

Dear Dave,

My husband and I have seven kids. What parts of your program work best for large families?

– Karen


Dear Karen,

My entire plan works for a large family. Larger families just have more expenses. What does change – and you already knew this – is that it can be a larger financial burden. This isn’t criticism; it’s just a mathematical fact.

When you kick things into overdrive like you folks have done, two things have happened. One, you’ve extended the time that you’re going to be supporting the kids financially. Two, you’ve got a lot of baby birds to feed and clothe. Unless you have an astronomical income, it slows down the process of hitting financial goals, such as getting out of debt, because you’ve got a drain on the math side of things. It’s a wonderful drain; it’s a glorious drain; but mathematically speaking where the money is concerned, it’s still a drain.

You really don’t have any choice but to do a budget. Having seven kids doesn’t give you an excuse to live out of control or mean that living out of control without a plan is the definition of success. You’ve got to set more emergency categories aside in your budget. You’ve got to budget heavier for food, medical, transportation and things like that, because you’ve got more things pulling at you – and your money.

– Dave

Set professional goals and you can do anything you set your mind to

Dear Dave: I make $38,000 per year working in the trade show industry, and I'm about to start Baby Step 3. It took 14 months to pay off $8,000 in debt for Baby Step 2, so I'm wondering how long it should take to save up my three to six months of expenses. I've also not done a lot toward retirement. I'm 52, and I'm worried about that. How can I stay motivated in the Baby Steps and handle retirement worries? — Donna


Dear Donna: The general time frame I look at for saving up a fully funded emergency fund is six months to a year. Your take-home pay should be about $3,000 a month, so three to six months of expenses will probably be in the neighborhood of $8,000 to $10,000. If it took you about a year to pay off that much in debt, then it should take about a year to accomplish this.

But if you start building retirement right now and have an emergency, you know what you'll use? You'll use your retirement. That's why the emergency fund comes before retirement in the Baby Steps. The average household income in America, which often is two incomes, is about $52,000. I would challenge you to think about and work toward what you could be doing at age 60 that will make you that much or even more.

You're probably working really hard for that $38,000. In your 50s, if you're starting over — or if you start making a lot more — we call that an "encore career." So I want you to start thinking fresh again. Don't quit today, but you're going to be making $38,000 eight years from now unless you start aiming at something else.

All this is as much an answer to your retirement fears as trying to leapfrog and start doing retirement without an emergency fund. Put your emergency fund in place during the next 12 months, and start doing some goal setting and thinking. Maybe you'd like to own a trade show or events company by that time.

Ask yourself, "What would I do if I could do anything?" Because you know what? You can do anything!

Keep life insurance policy or use it to pay mortgage off

Dear Dave: My husband and I are retired, we both receive nice pensions and we owe $46,000 on our home. This is our only #debt.

I’m 65, he is 82, and we have more than $800,000 in variable annuities, along with substantial cash in savings. We also have $200,000 combined in life insurance coverage. If we cancel these two policies we can pay down an extra $10,000 a year on the house. Should we cancel the life insurance policies?  - Anna


Dear Anna,

At 82 and 65, you probably won’t be able to get any more insurance at a decent price. If you get rid of it, you’re going to be without it. The good news is that you have enough money through your pensions, investments and savings to be what is known as “self-insured.” You guys have done a great job with your money.

If I’m in your situation, I’d drop the life insurance policies and pay off the house as quickly as possible. Make sure you keep a good health insurance policy in place because a hospital stay can eat your savings alive. I hope you have long-term care insurance, too.


-Dave

Teach your teenage kids to work hard for rewards

Q. My son is going off to college soon, but he’s never had a job. His uncle has offered him a really nice, low mileage used car for $3,000. My husband doesn’t want us to give him money for the car, but I think this deal is just too good to pass up. What do you think?

A. Unless there’s some sort of disability that’s prevented your son from working part-time over the last few years, I’ve got to agree with your husband on this. Your son needs a car, but he also needs to get off his butt and work for it. If you get this car for him, you’re just teaching him that mommy and uncle will take care of everything. That’s not a good lesson for any child to learn, and it’s an especially bad thing for a teenager.

When you and your husband first started out in life, I’m guessing you didn’t start out rich. Am I right? It’s not really the car deal that’s the problem here; it’s the lesson that will be learned. At his age, it’s silly for him not to want to work for a car, and you and your husband need to be up in his face about that. Then, if he chooses not to work for a car, he can walk. He shouldn’t be rewarded for showing no desire to go earn things and make stuff happen.

When my son was around that age and wanting a car, he was working his tail off around my office packing boxes and painting stairwells. That’s how you learn about the benefits of hard work. If you don’t teach your son how to work now, he’ll be living with you when he’s 30 years old and doing exactly what he’s doing now – which is nothing.

This automobile deal is a bad deal, because it doesn’t teach your son to work for it.

College education vs Mutual Funds

Q. I’m 19 years old and I’m putting myself through college debt-free. I usually work part-time during the semesters, but right now I’m working full-time. I have about $2,000 in mutual funds, and I was wondering if I should add my full-time work income to that or save it all to help pay for school.

A. Wow – great job! I appreciate that you’re looking toward the future with your investment, but right now I want you to invest in you. I want you to make sure, first and foremost, that you graduate college debt-free. So, if I’m in your shoes, I’m piling up the cash to pay for school.

You’re in a season of your life where things are more hectic than you probably ever dreamed they could be. My advice is to keep that money liquid. Keep it available and on hand, and don’t tie it up in mutual funds at the moment. You’ll have plenty of time to continue investing once you graduate.

It’s best for you to concentrate on finishing school, then landing a job and finding a place to live after college. Even if you end up living in the same place for a while, starting life in the real world takes money, so let’s make sure you can make that happen. In other words, as long as you do something with your education and that education is in an area that’s useable, you are a better investment than mutual funds right now.

When you should pause the debt snowball

Dear Dave: I'm going through a divorce that's about to become final in two weeks. I moved in with my parents temporarily while I save up money to get my own place and start over. I make $30,000 a year, and it looks like I'll have around $43,000 in debt when the divorce is finalized. Should I pause my debt snowball in order to financially get back on my feet again? — Adam


Dear Adam: Yeah, that's what I would do. There are reasons to pause the debt snowball, and one of those can be going through a divorce. Not only are there expenses, but you may end up with payments you don't even expect.

I think the motivation and the heart behind the debt snowball is that you gain momentum and traction, and you do it quickly when you're in a positive emotional position. You may not have that right now, so I think pressing pause and building up for expenses that may come — plus getting your own place — is a good idea.

Just rent the cheapest spot you can as soon as possible. Then, once you get in there and get your life in operational mode again, you'll be ready to rock on!

How to help a heroin recovery addict

Dear Dave: My husband is a recovering heroin addict. He's been clean for two years, but I still feel we shouldn't keep cash in the house or give him unsupervised access to a bank account. He agrees with these precautions, even though he does need a little pocket money from time to time. We've also started your plan to try and get control of our finances, so how would you suggest handling a situation like this? — Meghan


Dear Meghan: First of all, congratulations on his being clean for two years. That's awesome! The longer he stays clean, the more he'll begin to normalize his mechanical activities with things like money.

I agree with not putting him in charge of large sums of money just yet. However, we work with addicts all the time at my company, and I don't agree that you can't have any money in the house when he has been clean for two years. You might not want a big pile of cash lying around, but there's no reason you can't run the envelope system out of your purse. I mean, at this point if you can't trust him to stay out of your purse, then you've got other major issues in your marriage.

I think you need to be on a debit card and the envelope system. I also think you need to be controlling about 98 percent of the money for now. For what he's doing, I'd work daily cash allowances and expand that to weekly when you're comfortable with it. Also, ask for some accountability from him as to where the pocket money goes. Ask him to keep receipts, and turn them in as if he were working for a company and taking a petty cash withdrawal. That holds him accountable for spending it on what he said he was spending it on, and it's healthy for someone who's a recovering addict.

When someone's fresh recovering from being an addict, and especially because heroin is so addicting, I probably wouldn't let him legally have access to the household account for a while longer. He can look at it, and you two can make financial decisions together, but you are in control of it. I wouldn't want it where he can just reach over and clean out the account if he has a relapse.

Obviously, this guy has gotten some healing and I'm very proud of you both. Heroin is a big deal and a hard habit to kick. The fact that he has done it this long is awesome!

Your medical bills are personal to you but just another account to a debt collector

Dear Dave,
I’ve had a judgment filed against me for an old, unpaid medical bill. The original amount was $2,500, but now it has increased to $3,200. Can I negotiate this with the lawyer? I’ve asked him for a detailed statement of the account several times, but all I’ve gotten is a payment booklet.  — Bill


Dear Bill,

When it comes to paying off bills or debt, you should always pay what’s owed if you have the money. There’s a moral, as well as legal, responsibility involved. That being said, if you don’t have $3,200, offer him whatever you’ve got — $2,000 or the original $2,500 as a settlement. Make sure he understands that you’re not offering to pay the amount you have on the debt, but that it’s being offered as settlement in full if the debt is cleared.

The reason you haven’t gotten what you’ve asked for so far is you may have been talking to some low-level staffer or paralegal. If you have been talking directly to the lawyer, then he’s probably running a small debt collections or debt lawsuit machine. That means you’re just one of dozens of widgets coming down the line.

To you, this is very personal. But to him, you’re just another account. You might have to do something to get his attention and wake him up.

If this is the case, he probably gets a piece of whatever he collects. So, if he gets a third of $2,000 or $2,500 it might make his house payment this month. You could also talk to the hospital administrator, too, and let them know you’ll bring a couple thousand down there today if they’ll accept it as payment in full. At this point, you’ve just got to do something to get off the conveyor belt.

— Dave

Family member as executor of your Will

Q. I’ve always heard that you shouldn’t ask a family member to be the executor of your will. What are your feelings about this?

A. I don’t necessarily agree with this line of thinking. In my mind, a family member who is competent and has integrity can definitely be the executor. “Executor” just means they execute, thus the name. They’re going to execute the wishes of the will. If the family member has the business acumen and trustworthiness to execute the wishes and directives in a will, then that’s perfectly fine.

Just remember to use some common sense, too, when choosing an executor. If you have an extremely complicated estate, say 80 pieces of real estate with investments and everything, you probably don’t want your 22-year-old niece, nephew or grandchild who just graduated college in charge of things. I would advise choosing someone with a little more life experience, and maybe some success in the real world.

The people who say family shouldn’t do this are the same ones who say you shouldn’t have family in your business. You can have family in both. You just have to have good boundaries, clear roles, and honest, mature people. Make sure you give clear instructions and explanations for your decisions, too. Sit down with your family, explain who the executor’s going to be, and why, along with what the will says. It’s also not a bad idea to have an initial reading of the will while you’re still alive. This communicates your wishes personally and takes some of the pressure off of the executor.

An average House increases in value more than a Condo

Dear Dave: I know when it comes to investing you like mutual funds and paid-for real estate. What do you think about using condominiums as investment properties instead of single-family homes? — Jason


Dear Jason: I don’t really have a problem with condos as paid-for investments. I own a couple of them myself. When it comes to making this kind of investment for the first time, however, I would advise that you keep a few things in mind.

Based on equal price and equal neighborhood, the average single-family home will probably increase more in value over the years. Now, a nice, well-placed condo will obviously go up in value faster than a traditional house in a lesser neighborhood. So speaking in an overall sense, they’re not bad investments if you do your homework.

You have to think about what you’re getting into and also take into consideration a number of variables. What are the HOA dues or condo fees going to be? Is the condo association being managed well? That and the neighborhood are the two biggest concerns I have when buying a condo. A lot of condo associations are very poorly managed. And if they don’t provide proper maintenance or keep a certain percentage of the complex owner-occupied versus rental, the condo association or complex can lose the ability to get normal permanent financing. If they can’t get FHA, VA or conventional financing, the values are going to drop like a rock — because you’ve only got cash buyers and investment buyers at that point.

Research on these kinds of things doesn’t take an awful lot of work. Just call the management company, and the realtor who’s involved if it’s listed, and ask for the documentation. Most of the time this sort of stuff is public information, so it’s not hard to access. Some other questions you might ask are: What are the reserves for the roof? What are the reserves for paint and the parking lot? Are they collecting enough to pay their bills, and are they actually paying their bills?

Then you start looking at things from a buyer’s perspective. Would I want to live in here and have my wife and children here? Would a normal, reasonable person want to live here? If the answers are yes, then you’ve probably got a good, solid condo complex. — Dave

Pay speeding tickets or risk losing drivers license

In most states you could lose your driver's license for not paying a speeding ticket. You'd have a real emergency then, wouldn't you?

I would advise looking at the situation this way: What is the amount of the ticket in relation to your income and overall financial health? If the ticket is $100 and you make $200,000 a year, then stop worrying and pay the ticket. But if you got slapped with a $300 ticket and you only make $20,000 a year, then that could be an emergency.

If you can cash flow it out of your budget, then leave the emergency fund alone. If not, then dip in for just enough to pay the fine and replace the amount as quickly as possible. I mean, you've got to get it paid, right?

Just remember to slow down a little when you're behind the wheel.

Look at situations from the other persons perspective

Question: I took a new job less than a month ago. Just the other day, I was recruited by a huge company for the same position that pays twice what I’m making now. I didn’t apply for the job that was offered; they came directly to me. I didn’t sign a contract or promise to work a certain length of time with my current employer, but they’re good people and I want to do the right thing and handle things well. Do you have any advice?


Dave: In situations like this I always try to put on the other person’s shoes. Let’s pretend you own the company and you just hired a young guy. A few weeks later, someone comes in out of the blue and offered him double what he’s currently making. I can tell you what would happen here. I’d tell him to take it. I mean I would. And as an employer I’m certainly not going to double his income that quickly.

I think you take the job. Just walk into your leader’s or supervisor’s office and tell the truth. Lay it all out there, and let them know that while you feel awful about the situation, you had no intention or misleading them or causing problems, but you simply can’t pass up the opportunity. Be sure to show an extreme amount of gratitude, and promise to do everything possible to make the transition as easy as possible.

Truthfully, if an organization cares about its team members, and one of those has the ability to double their income and they’re not breaking a promise in the process, this type of scenario is perfectly reasonable. It may be a little uncomfortable for you – and inconvenient for them for a while – but they can’t realistically expect you to pass up the opportunity to double your salary.

You’re a good man. Congratulations!

Offering a discounted settlement of past due bill debt

Dear Dave: Will hospitals take a settlement on past due medical bills, or is this a rare occurrence? — Kristin


It's not all that rare for hospitals to accept a settlement on past due bills. Most businesses will accept a settlement on past due accounts, and many hospitals will accept a deeply discounted settlement because they've usually gotten a big chunk of their money up front from the insurance company.

Let's say you had a $1,000 bill with a hospital you honestly haven't been able to pay for several months, or even two or three years. If you go to them and offer $300 or $400 as a settlement, there's a good chance you'll have a deal. Just make sure you get the agreement in writing before you hand anyone a check.

Remember, you have a moral and legal obligation to pay your debts in full if at all possible. But if you truly can't afford to pay, an agreed upon settlement between two parties can be an honorable and acceptable compromise.

Follow a job you know and love with passion

My biggest worry is that you’re looking at your career the wrong way. Just making money shouldn’t be the measuring stick of success in your professional life. Whether you’re going to start a home business or work in an office for someone else, your work should engage you in doing something you know about and love.

You spend too many hours of your life at work to be miserable in what you do. Shuffling day after day through a job you don’t like — even one with a big paycheck attached — is also a bad idea. Sooner or later, the fact that you don’t like your work is going to catch up with you on the job and at home.

Think of something you love to do, then get creative and find a way to make money at it. It may mean turning a hobby into a part-time gig nights and weekends for starters. Who knows, with a lot of hard work and a little creativity, you could be your own boss in no time.

Most of the Work From Home ads are Scams

The vast majority of things you see in late-night infomercials and online — except of course for legitimate job hunter sites — are scams. I’m talking about the business-in-a-box kind of stuff and everything else. 

And I know you’ve seen the postings online that go something like, “My sister-in-law makes $50 an hour from home, and you can, too!” 
These scammers are the worst of the worst. Don’t waste a second of your time on that garbage.

Don't argue with your dad

Dear Dave: My dad and I have been having arguments over real estate and money. My wife and I are 33, and we have a rental property. We were trying to decide whether or not to sell the rental in order to pay down on our home. My dad has been very vocal about what he thinks we should do, and it’s starting to cause problems in our relationship. The two homes are our only debt, and we make $110,000 a year. We owe $132,000 on our residence and $80,000 on the rental. We could sell the rental for around $160,000. What do you think we should do? — Ricky ( from San Diego, CA)


Dear Ricky: I wouldn’t sell the rental today, but it’s definitely a strong consideration in the future. You wouldn’t realize enough from its sale to pay off it and your home at this point, so work aggressively toward paying down the mortgage on your home. Then, when you get far enough down that the sale of the rental would pay it off, go for it if that’s what you both want. You’re doing really well financially for a couple your age in San Diego.

Now, let’s talk about something else for a moment. I would love for you to listen to your dad for advice, but I would not be arguing with him about what you are going to do with your money. You’re a man. I don’t know if you just used the incorrect word there for how the discussion went down, but if not, I wanted to correct that as a boundary issue in your family.

Keep up the good work, Ricky!

Continue with Baby Steps or celebrate on a luxury trip for wedding anniversary

Q. My wife and I are in Baby Step 2 of your plan, and we’ve got our 20th wedding anniversary coming up in a few months. We had always planned on taking a 10-day luxury trip to celebrate, but now that we’re trying to get out of debt it seems pretty unrealistic. Should we pause the Baby Steps and celebrate like we originally planned, or would it be better to concentrate on paying off debt?


A. If it were me, I’d want to pause and celebrate in a smaller way. Then, in a year or two when you’ve reached your goal of being debt-free, you could have a big double celebration – for your anniversary and for gaining control of your finances.

Think about it. Why isn’t the 21st, 22nd or 23rd anniversary just as big as the 20th? No reason really. It’s just an arbitrary milestone we human beings decided on and created. But you can “undecide” stuff like that anytime you want.

If you two, as a couple, are in agreement on that point, then it suddenly becomes easier to delay pleasure in order to win. And trust me, when you agree on things like that, the celebrations become even sweeter.

Have some fun once in a while as long as you dont go overboard with spending

DEAR DAVE: My wife received $100 from her parents for her birthday. When I asked what she planned to do with it, she said she was going to add it to her spending money. I think she should put it toward us paying off debt, but I bit my tongue and didn’t say anything. We’re in pretty good shape financially, so should I mention it or just let it go? — Charles


DEAR CHARLES: I’m sure you’re a smart man, so you’ll understand when I tell you — for the sake of your marriage and mental health — to let this one go. Seriously, is $100 going to move the needle that much? It’s her birthday, and it was a gift designed to let her do something nice for herself. There’s absolutely nothing wrong with her spending a little bit on herself on her special day.

If she had asked me about this, I would have told her it was fine. If she had asked me about putting it toward debt, I would have said that’s fine, too. It’s not a big deal for someone to have a little fun once in a while. But it’s a bad plan for you to try to get at her gift. Just let it go, and do your part to make sure she knows that you love her and that she has a great birthday!

Dont buy life insurance for parents unless absolutely needed

Q. My boyfriend is wondering if he should buy life insurance for his mom and dad. They’re both in their 70s, and they’re no longer married to each other. His mom is disabled and remarried, and she doesn’t have any life insurance coverage. The only coverage his dad may have would be through his employer. He’s afraid he would have to pay funeral expenses if one of them died, and he’s not in good enough shape financially to do that right now. What’s your advice?


A. If the only insurance his dad may have is furnished through his employer, then yeah, when he stops working he probably won’t have life insurance anymore. It would be fine if he wanted to buy them each a small policy, but it’s going to be very expensive at their age. He would have to get them to sign off on it, and they’d also have to be healthy enough to have a policy issued.

This isn’t a good long-term plan, however. As a long-term plan, I’d tell your boyfriend that he needs to build up his own wealth. If he had $15,000 to $20,000 in savings, that’s more than enough to bury two people. I don’t mean to sound insensitive, but we’re talking about the economics involved in this kind of situation. You can have a nice funeral for as little as $5,000.

The other thing I’d do if I were him is I’d have a discussion with mom as to whether or not the stepfather has the funds to handle this sort of thing. When it comes right down to it that would be his responsibility, not the son’s. Then he should have a similar discussion with his dad. If his dad’s got insurance through work, and the stepdad is ready to pay for his mom’s burial, then I wouldn’t buy insurance on them. They’re covered for the immediate future.

So I wouldn’t do it unless they absolutely don’t have this sort of thing covered. Even then I’d prefer you just cover it with cash, because all we’re talking about is just enough to cover burial costs. Nothing needs to be elaborate.

Mutual Funds vs Corporate Bonds vs Bank CDs

DEAR DAVE: My wife and I are in our early 70's, and we’re retired. We have about $136,000 in corporate bonds and $200,000 in mutual funds. Considering our age, should we move the investments into a CD? — Kurt


DEAR KURT: There’s always a chance you’ll lose money if you leave it in mutual funds and bonds. That’s the nature of the market. But there’s another kind of risk based on what you’re proposing, and that’ risk of value due to inflation.

Assuming you two are in good health, you could expect to live another 10 to 20 years. Most current CD rates are less than 1 percent. Even if they rise to 2 or 3 percent in the future, do you really want to see that kind of return when inflation is likely to rise 4 percent annually? That’s in itself a type of risk, so I would urge you to keep that in mind.

No, I wouldn’t advise moving all of your money to CD's. If I were in your shoes, I’d live off the income generated by my mutual fund investments. As for the corporate bonds, I'’m not a big fan of those. They entail almost as much risk as mutual funds without the good returns (on average) over a long period of time.

If you’re concerned about stability, I’m okay with you taking a little money from your bonds and putting it into a CD right now. But I wouldn’t touch the mutual funds.

Why insurance on a cell phone does not make sense

The purpose of insurance is to transfer a risk that you can’t afford to take.

When it comes to things like cars or houses, I absolutely recommend that people have insurance. Most folks couldn’t just write a check for another car if the one they drive were totaled.

It’s the same with a house. If your home is destroyed, the insurance takes care of things instead of putting you in the position of having to pull tens or hundreds of thousands of dollars out of your own pocket for a new home, which is also something most people can’t do.

I don’t insure inexpensive things like smartphones. And if a smartphone is an expensive item to you, then you probably shouldn’t have that phone.

I mean, there’s nothing wrong with having a cell phone if you can afford it. But if you tear up a phone or it breaks down and you can’t afford to replace it out of your own pocket, then you’ve got too much phone!

Selling your Home vs Boat

Dear Dave: My husband was laid off a month ago from a job making $80,000 a year. We have no debt except our house payment. We owe about $82,000 on it, but it’s valued at approximately $300,000. We’ve also got an emergency fund of $30,000, and I work part-time making about $2,000 a month while he collects unemployment and looks for another job. Do you think we should sell our home? We’ve also got a boat that’s worth about $18,000 we could sell. — Sheila

Dear Sheila: The first thing I want you to do is take a step back and breathe. Yes, you guys just hit a big bump in the road. But the good news is you’re in pretty good shape financially to handle things for a while.

At this point, I’d strongly recommend selling the boat over selling the house. Boats are a lot easier to replace than nice homes, and the process isn’t nearly as traumatic on the family. You can also dip into your emergency fund a little bit, but for the next little while you need to make sure you’re living on a really tight, bare bones budget. I’d love to see you not have to touch the emergency fund, because he’s gone out and found at least a part-time position while he’s searching for something in his field. I know that’s tough to do once you’ve gotten used to making $80,000, but there are jobs out there that will help you guys get through this.

As long as he’s being diligent in seeking a new job, and you’re budgeting and watching what you spend together, I think for now you should keep the house. God bless you both!

Teach children that work earns them money

Dear Dave: 
Our son just turned 8 years old. Is it time to start giving him an allowance? 
-Dan


Dear Dan: There’s never a time for an allowance, no matter the child’s age. In my mind, that kind of thinking is the best way to plant the seeds of entitlement. You don’t want your son growing up with the idea that he’s owed money simply because he’s alive.

Instead, work out a plan to pay him commissions. Assign him weekly chores that are age-appropriate. Then, when the work gets done, he gets paid. And guess what? If the work doesn’t get done, he doesn’t get paid! Not only do we want to teach a healthy work ethic, but we also want him to learn that work creates money.

Of course, there are some things a child should be expected to do without financial reward. Everyone needs to pitch in and do certain things to help out when they’re part of a family. But once you’ve taught him about work, make sure to also teach him about the three uses for money — saving, spending and giving.

Lessons on the basic handling of money are some of the best teachable moments you can have with your child. Not only does it make them more knowledgeable about finances, it helps them learn about life!

Types of life insurance to avoid

In the life insurance world, you should buy only term life insurance. 

Avoid any kind of insurance that has a savings program built into it — things like whole life, universal life and variable life. 

Another thing to avoid is return of premium. This is where an insurance company charges you extra, but gives all your premium money back if you don’t use the policy. It sounds good, but if you’d just invest the extra you pay for that stuff, you’d get all your premiums back, and more, whether you used the insurance or not.

I also don’t recommend gimmick insurances, like double indemnity for accidental death. Think about it. You’re not double dead if you die by accident; you’re just dead.

You are the Hero.. do not let a politician tell become the hero in your story

One of the things I hate about the political cycle when it comes up a presidential year is you have people on all the news channels — people on the left and one the right, you have Republicans and you have Democrats — telling you how they’re going to fix your life. And the reason I hate that is, A. That’s a lie, that’s not true; B. It makes you think that you can sit around and wait on one of those morons to fix your life.

There’s nobody on the news channel that’s gonna fix your life. There’s no government program that’s gonna fix your life. There’s no Republican that if he gets elected is going to become Jesus. And there’s no Democrat that if they get elected is going to be Jesus of your life and give you everything you ever wanted. It’s an absolute lie and it’s been going on since man invented politics, I guess.

But you know what? I don’t care, I don’t care where it came from. What I care about is what it’s doing to this nation and what it’s doing to some of you that are watching.

You are not a victim. You’re not a victim of big corporations. You’re not a victim of Wall Street. You’re not a victim of capitalism. You’re not a victim of wealth inequality. You’re not a victim of racism. You’re not a victim.

Now, are all of those things real and do they sometimes oppress you and me? You bet. I had a big company step on my neck and kick my face in last week. Pissed me off, man. (They) just broke a contract and just got a way with it because they’ve got such power that all I can do is sue this multi-million-dollar company. And I’m not gonna waste my millions of dollars doing that. It made me mad. I was oppressed by a big company. But you know what? I’m not a victim. I’m not gonna adopt the thinking, “Well, you can’t get ahead in America because that one big company kicked Dave Ramsey’s face in.”

No, you get up off your butt. You’re the hero of this story. You’re not the victim in this story. And when people tell you you’re a victim and that they have the solution, that makes them the hero. Do not let a politician, do not let a news anchor become the “hero” in your story. You are they hero in your story. You are in charge of your destiny. You are the one who gets up off your couch and decides to live your life. You’re the one that get sick and tired of being sick and tired and decides to get out of debt; decides to change your body by going into an exercise program; decides to read some nonfiction books this year; decides to understand the Bible for the first time in your life; decides to start attending church and becoming that kind of dad that you’ve always wanted to be.

You’re not a victim. You’re not a victim of your parents and your upbringing, your dysfunctional family. Honey, we all came from dysfunctional families. Some families put the “fun” in “dysfunctional.” You’ve got to decide you’re the hero. You’re not the victim. You’re in charge of your life.

People spend more money with a credit card vs paying with cash

Question: I don’t understand why you don’t like it when people properly manage their credit cards and pay them off every month. By doing this, you pay no interest and in my case I even got a free trip to Europe from using my credit card. Please explain.


Dave says: I truly doubt that I can explain it to your satisfaction, but here goes. First, the credit card company did not give you a free trip to Europe. It’s not going to lose money on transaction after transaction, year after year. The fallacy is that you feel as though you’ve outsmarted a multi-billion-dollar company that studies human behavior at incredible levels. You maybe, possibly came out ahead against it during that particular calendar year, but even that’s debatable.

Over the course of your life, you’ll spend more when using credit cards as opposed to cash. There’s plenty of research proving this to be fact. If you use a credit card repeatedly with the idea that you’re getting a free trip to Europe because you’re building up your miles, you spend more. An example would be McDonald’s. When they started taking credit cards years ago, they found that the people using them spent 47 percent more.

In a good way, you are very unusual. You’re not playing over in the stupid zone like most people who use credit cards. But both I and the credit card companies have found that, on average, your behavior would put you in a class of less than one-half of 1 percent of their customers. Can 0.5 percent of people handling snakes manage not to get bitten? Sure. But that doesn’t mean I’m going to start recommending snakes.

Renting makes sense for young couples

Dear Dave: My fiance and I are getting married in May. He’s a youth pastor, and I’m in grad school. His mom and dad found a home they think we’ll like, and they want to gift us money for a down payment. I’m not sure how I feel about this under our present circumstances. Do you think we should go ahead and accept when I’ll still be in school and we’ll still have debt to pay off? — Emily


Dear Emily: You need to get to know each other before you buy a house together. I always recommend that young couples rent for a year and concentrate on each other, the new marriage, cleaning up any debts you have, and establishing an emergency fund. Then, after another year or so when you’ve had time to take control of your finances, the idea of looking for a home becomes much smarter.

It sounds like your future in-laws are really generous people. They’re trying to do something nice for you two, but they kind of got out ahead of things with this idea. And in the process, they violated some boundaries in your relationship with your fiance.

My advice is to have a conversation with your fiance about all this and get on the same page about what is the smart thing to do. Then the two of you need to have a loving discussion with his parents. Let him do most of the talking, and say thank you a lot, but let them know you both feel it would be best to start out by renting something for a year or so. Then after a little time has passed, tell them if they still want to help with a down payment you’d both be very grateful.

I think this approach would be good for the boundary issues and for your finances!

Can we afford a Home, Boat and Horses

Question: My husband and I are renting an apartment for $1,200 a month. Together, we bring home about $7,000 a month, and we’d really like to buy a house soon. Right now we have about $10,000 in debt on a boat along with ongoing stable bills, food and upkeep for our three horses. What price range of houses should we look at in our situation?

Dave: Homeownership is a great goal, but first you two need to clean up your debt and build an emergency fund of three to six months of expenses. After that, I want you to save up enough for a down payment of at least 10 to 20 percent. When buying a home on a mortgage, I always recommend the monthly payments be no more than 25 percent of your monthly take-home pay on a 15-year, fixed-rate loan.

Now, let’s get to the other issues. You have some things in your life that are pulling at you financially. At some point, you may have to take a long look at the situation and ask the hard question, “What is more important to me: horses and boats or homeownership?” Getting rid of that boat, or finding new homes for one, two or all of your horses, would bring in some cash to put toward your debt and cut down on at least some of the animal maintenance.

Anyway, that’s how I would look at it. My wife and I are big fans of boats and horses. But we like boats more. One reason is because they don’t eat as much! I can’t get mad at you about either one, but right now you have three things pulling at you as financial priorities — homeownership, a boat and three horses. They’re all pulling at you, and they’re pulling at each other and limiting each other.

Of course, you can always buy a lot less in a house. But what it really comes down to is what’s most important to you. That’s the big question, and it’s one that only you can answer.