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.