Monday, March 27, 2017

Baby Step 6 is paying off home early

Dear Dave,
My husband and I heard about your plan, but we're not sure what to do next. We have between $400,000 and $500,000 in a 401(k) for retirement, but we don't have any other savings. We're both in our 40s, and the only debt we have is our house, so what should we do about Baby Steps 4 and 6?
— Mary

Dear Mary,
Overall, you two have done a great job with your money. Let's go over the Baby Steps you mentioned. Baby Step 4 is putting 15 percent of your income into Roth IRAs and pre-tax retirement plans. Baby Step 6 is paying off your home early.

The thing that worries me is you've completely skipped Baby Step 3, which is having 3 to 6 months of expenses in an emergency fund. This is money set aside strictly for emergencies. The problem right now is if you have a real emergency, you may have to cash out your 401(k). If you do that, you're going to be penalized 10 percent, plus your tax rate. That's a real kick in the teeth just because you didn't do things in the right order.

My advice is to temporarily stop your 401(k) contributions until you get a fully funded emergency fund in place. By temporarily, I mean 6 to 8 months at most. That way, you'll be covered when life happens without having make a big dent in your retirement savings.
—Dave

Thursday, March 23, 2017

Debts and relationships between couples

One of my relatives just graduated from college with $20,000 in student loan debt. Her boyfriend graduated, too, and he has over $100,000 in student loan debt. They want to get married, so she's looking for a job. He wants to go to graduate school, and take out more loans to remain a full-time student. The idea of even more debt hanging over their heads really bothers her. Do you have any advice?
— Denise

Dear Denise,
You don't throw away a great, potentially lifelong, relationship just because of debt. Things like laziness, dishonesty, and irresponsible behavior are deal breakers, though. Those are flaws that usually don't go away.

I'm glad she's looking for a job, but her boyfriend needs to be working, too. There's no excuse for either of them being full-time students with more than $120,000 in combined student loan debt hanging over their heads. Lots of people hold down real jobs, save money, and further their educations on a part-time basis.

If she were my niece, I would encourage her to have an open and honest discussion with her boyfriend about their future, and how he plans on paying for graduate school. She also needs to be very real about her feelings in this situation. If, after that, he still wants to just borrow more money and not work outside of school, then she might have a difficult decision ahead.

However, if he realizes how damaging additional debt could be to their relationship, and he's willing to work while continuing his education, I think their future together looks much brighter.
—Dave

Monday, March 20, 2017

Getting Long term care insurance for the elderly

Dear Dave: My mom is 73 years old, and she's dealing with depression and a few other mental issues. Is it too late for her to get long-term care insurance? — Julie

Dear Julie: It wouldn't be a big problem if she were healthy. But given her age, and the other struggles you mentioned, I'd check with a good insurance broker to see what's out there for her.

In the insurance world they call this "making a market." Will they be able to find a company that will write her in that situation? I can't give you an accurate answer off the top of my head because this is a difficult thing. It probably would depend on things such as the extent of her depression, how long it's been manifested and what it has done in her life.

That's one of the reasons I'm advising you to see an insurance broker. A broker doesn't represent just one company; they represent several companies. They can shop around in a given situation and find someone to write something you might not get written otherwise. They also can shop around for the best possible price, and you get the efficiencies of the marketplace working for you.

God bless you both, Julie.

Wednesday, March 15, 2017

Dave Ramsey on Freshbooks accounting program

Q. I’m looking for a good accounting program for small business. Do you have any suggestions?

A. The best one I’ve seen is called FreshBooks. I like it so much that we’re actually endorsing it on some of our podcasts and a few other places. It’s a cloud-based program for small business, and it’s a pretty simple accounting system.

Honestly, you don’t want anything super complicated for small-business accounting. You just need something that allows you to write out invoices and keep up with your expenses while categorizing them. It’s important you know what’s going on in your business – to be able to continually analyze what’s happening – and have the ability to look in your rearview mirror and see if anything’s coming up behind you.

Sunday, March 12, 2017

Small business is losing money

My husband and I have four kids, and I make $50,000 a year. He runs a small business that has been floundering for a while now, so we’re basically living off my income. Part of that income is going into the business. Plus, we don’t have much in savings, and we’re behind on our house payments. Do you have any advice?

A. First of all, you and your husband have to get on the same page financially. Sit down together, and do a household budget and a profit-and-oss statement on the business. A P&L statement will tell you the money that comes in minus the money that goes out.

Here’s the thing. If you’re putting other money into a business account, that’s a clue that you’re not making money on the business. Put his rent, supplies and any other business expenses on the profit and loss list, and write out – step by step – what it will take for you to break even in the business each month. If you don’t at least break even, then it’s time for him to do something else for a living.

I’m an entrepreneur and a business owner. I get the allure and excitement that goes along with running your own business. But family and your financial responsibilities come first. You don’t need to put any money into the business account, except for the income he creates. And while you two are sorting this out, use your income to get current on your house payments and attack any other debt.