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Thursday, September 7, 2017
Monday, September 4, 2017
Painter with 3 months downtime
Question: My husband opened his own commercial painting business in May. He knows he will have about three months in the year where he’s making little to no income. We’ve gotten $1,000 set aside for our Baby Step 1 beginner’s emergency fund, but because of that down period he would like to skip paying off all our debt except for the house, which is Baby Step 2, and move to Baby Step 3 and put an emergency fund aside. I can understand his thinking, but I wanted your thoughts on the idea.
Dave: Baby Step 3 is not a fill-in-the-gap measure for income you already know won’t be there. Baby Step 3 is an emergency fund of three to six months of expenses, and the scenario he’s talking about is not an emergency. He knows it’s coming, so it is not an emergency.
I think he needs to re-work his business model. This guy needs something to do during those three months so he doesn’t drop off to no income. Also, if you’re going to set some money aside for a down time, that would not be Baby Step 3. It would be a line in the budget where you’re setting some money aside, because you know a problem’s coming.
If something happens around the same time every year it becomes predicable, and it’s not an emergency. So it’s not really a matter of the order of the Baby Steps. You budget for this down time, or even smarter, figure out a plan for his time during these months, based on his skill set, that will earn some money.
Dave: Baby Step 3 is not a fill-in-the-gap measure for income you already know won’t be there. Baby Step 3 is an emergency fund of three to six months of expenses, and the scenario he’s talking about is not an emergency. He knows it’s coming, so it is not an emergency.
I think he needs to re-work his business model. This guy needs something to do during those three months so he doesn’t drop off to no income. Also, if you’re going to set some money aside for a down time, that would not be Baby Step 3. It would be a line in the budget where you’re setting some money aside, because you know a problem’s coming.
If something happens around the same time every year it becomes predicable, and it’s not an emergency. So it’s not really a matter of the order of the Baby Steps. You budget for this down time, or even smarter, figure out a plan for his time during these months, based on his skill set, that will earn some money.
Monday, August 28, 2017
Is taking a loan to pay off credit card debt a good or bad idea ?
Dear Dave: I make $48,000 a year, and I have $35,000 in credit card debt. I owe $25,000 on my home, and I was thinking about taking out a loan against my house to pay off the credit cards. Is this a good idea? — Mike
Dear Mike: I would never advise anything like this, unless it’s to avoid bankruptcy. Here’s the problem with that kind of plan. Most people who do that kind of thing don’t change their financial habits. In fact, they end up with a new mortgage and new credit card debt somewhere down the line.
You need to start building a track record of paying off debt. Cut up the credit cards, slash your spending, and start living on a tight, written, monthly budget. Prove to yourself that you’re not going to take out a mortgage and turn around and run up a bunch of new credit cards.
I want to see you not take on any new debt and reduce that $35,000 credit card bill dramatically over the next six months. If you can knock out half of it in a year, you can take care of the other half in another year or less. Then, you wouldn’t need a second mortgage!
Dear Mike: I would never advise anything like this, unless it’s to avoid bankruptcy. Here’s the problem with that kind of plan. Most people who do that kind of thing don’t change their financial habits. In fact, they end up with a new mortgage and new credit card debt somewhere down the line.
You need to start building a track record of paying off debt. Cut up the credit cards, slash your spending, and start living on a tight, written, monthly budget. Prove to yourself that you’re not going to take out a mortgage and turn around and run up a bunch of new credit cards.
I want to see you not take on any new debt and reduce that $35,000 credit card bill dramatically over the next six months. If you can knock out half of it in a year, you can take care of the other half in another year or less. Then, you wouldn’t need a second mortgage!
Monday, August 21, 2017
Should one invest in Solar Panels for home ?
Dear Dave: I’m debt-free except for my home, and I’m considering having solar panels installed on the roof of the house. It would cost about $27,000. I have $80,000 in savings, but the company doing the installation will finance it all for just one percent interest. It’s almost like free money. My electric bills average around $310 a month, and I thought this would be a good way to save money in the long run. What do you think? — Michael
Dear Michael: If you have to finance the project, my answer is no. My guess is the break-even analysis you’re trying to give me is the sales pitch your solar panel company gave you. That’s how they sell solar panels, but it doesn’t justify going into debt.
You told me you have around $80,000 in savings right now. Why not just write a check? Let me ask you a question. What if you could borrow $10 million at one percent interest and put it in the stock market? Would you do that? Of course, not. It would be way too risky, right? Basically, we’re talking about the same kind of thing. I made you feel the risk by scaling things up in my scenario. You’re not feeling the risk right now because we’re talking about $27,000 instead of millions.
This move wouldn’t bankrupt you, but wealthy people don’t do the kind of thing you’re talking about. Either pull the money out of your savings account and buy the panels, or don’t buy them at all!
Dear Michael: If you have to finance the project, my answer is no. My guess is the break-even analysis you’re trying to give me is the sales pitch your solar panel company gave you. That’s how they sell solar panels, but it doesn’t justify going into debt.
You told me you have around $80,000 in savings right now. Why not just write a check? Let me ask you a question. What if you could borrow $10 million at one percent interest and put it in the stock market? Would you do that? Of course, not. It would be way too risky, right? Basically, we’re talking about the same kind of thing. I made you feel the risk by scaling things up in my scenario. You’re not feeling the risk right now because we’re talking about $27,000 instead of millions.
This move wouldn’t bankrupt you, but wealthy people don’t do the kind of thing you’re talking about. Either pull the money out of your savings account and buy the panels, or don’t buy them at all!
Monday, August 14, 2017
Whole Life Insurance can be bad if you borrow against it
Dear Dave: I have a whole life insurance policy with zero cash value due to loans I took out per the advice of my agent. I finally realized this wasn’t a smart move, as I now owe premiums plus interest every year. Am I still on the hook for the policy loans if I forfeit the policy to buy term insurance? — Tanner
Dear Tanner: No, you are not. Get your term insurance in place first, then when you cancel the policy; your cash value will offset your loans.
They won’t lend you more than your cash value. It’s seldom that they will lend you 100 percent of cash value, so you might actually have a cash value that is above your loan amount. If they have lent you the full amount of your cash value, it’ll be an exact break even, and just canceling the policy means you cancel the interest and cancel the premiums.
It was bad advice to buy the policy, and even dumber advice to clean the whole thing out and sit there paying interest to borrow your own money and pay a premium to keep the loan open.
I recommend 10 to 12 times your income on a 15- or 20-year level term policy. During that 15 or 20 years, of course, you should be getting out of debt and building wealth so that you have a big pile of money and no need for life insurance. — Dave
Dear Tanner: No, you are not. Get your term insurance in place first, then when you cancel the policy; your cash value will offset your loans.
They won’t lend you more than your cash value. It’s seldom that they will lend you 100 percent of cash value, so you might actually have a cash value that is above your loan amount. If they have lent you the full amount of your cash value, it’ll be an exact break even, and just canceling the policy means you cancel the interest and cancel the premiums.
It was bad advice to buy the policy, and even dumber advice to clean the whole thing out and sit there paying interest to borrow your own money and pay a premium to keep the loan open.
I recommend 10 to 12 times your income on a 15- or 20-year level term policy. During that 15 or 20 years, of course, you should be getting out of debt and building wealth so that you have a big pile of money and no need for life insurance. — Dave
Tuesday, August 8, 2017
Pay off student debt while working towards self employment
Dear Dave: I have student loans in deferment from earning a degree in hospitality management. My career goal is to own a mobile food vending company, so I’m putting most of the money I make from eBay and ride-hailing services — around $1,000 a month — aside in savings for that. Should I forego my business idea for the time being, and knock out the student loan debt instead? — Nicholas
Dear Nicholas: You should put this business idea on hold for now, unless you can start it for less than $1,000. The first thing you need to do is go out, and get a real job. I know you have this dream of being self-employed, but right now you’re not doing so well as an entrepreneur.
With a hospitality degree, you can make $30,000 to $50,000 a year within the industry, clean up your mess, and build out the eBay thing on the side. Just think about how quickly you could save up money for a jump into the food truck or mobile food business, then.
Pay your way through it, Nicholas. Don’t sit around scraping by on the kind of money you’re making now and call that winning. You have a real economic engine at your fingertips, because you have the knowledge from the degree you earned. And it’s a valuable degree. If you go in there and bust it, you can escalate yourself upward through that industry in a hurry.
While you’re doing that, you can clean up all your student loans and save up money for your food truck. Boom — you’re self-employed and you learned a lot of stuff you can use in your new business. Go make some real money, then follow your dream, man. — Dave
Dear Nicholas: You should put this business idea on hold for now, unless you can start it for less than $1,000. The first thing you need to do is go out, and get a real job. I know you have this dream of being self-employed, but right now you’re not doing so well as an entrepreneur.
With a hospitality degree, you can make $30,000 to $50,000 a year within the industry, clean up your mess, and build out the eBay thing on the side. Just think about how quickly you could save up money for a jump into the food truck or mobile food business, then.
Pay your way through it, Nicholas. Don’t sit around scraping by on the kind of money you’re making now and call that winning. You have a real economic engine at your fingertips, because you have the knowledge from the degree you earned. And it’s a valuable degree. If you go in there and bust it, you can escalate yourself upward through that industry in a hurry.
While you’re doing that, you can clean up all your student loans and save up money for your food truck. Boom — you’re self-employed and you learned a lot of stuff you can use in your new business. Go make some real money, then follow your dream, man. — Dave
Monday, July 31, 2017
Finding investors for an apartment building
Dear Dave,
I want to build an 18-unit apartment complex, but I don’t have enough cash to do it on my own. My net worth is around $400,000, and I have $100,000 I can put toward this project. It is estimated to cost $1.2 million. Would lining up investors, who will take a percentage of the profits, be the same thing as acquiring debt?
-- Jay
Dear Jay,
It wouldn’t be the same as taking on debt because if there are no profits, the investors get nothing. It’s more like taking on partners and what you would call an equity position -- meaning they’re owners in the business. They may have only limited rights as owners, but essentially you’re taking on partners.
There’s a method that was used in the old days that’s still available today called syndicating a piece of real estate. You would set yourself up as the general partner and set the investors up as limited partners. They would be limited in their input, because the general partner runs the show. They can be given the lion’s share of the tax write-off, and the depreciation schedule. Traditionally in those models, the general partner takes less of the depreciation schedule but gets a fee for running things and has a position of ownership.
There’s a restriction under Blue Sky Laws on the number of limited partnership units allowed before it becomes a situation where you’re selling stock. Check with your state and current securities laws to be sure of the exact number to avoid any impropriety. You can do a limited partnership or syndicate a piece of real estate, but they can both be very messy and time consuming for the money you get out of it.
Honestly, I don’t think it’s a good method for you to buy an apartment complex at this stage of your investing life. It’s more like a way for you to get into the business of running a bunch of limited partners with a ton of paperwork and bookkeeping thrown in. It doesn’t sound like a lot of fun to me.
If I were in your shoes, I’d use the $100,000 in cash to buy a money-making property -- maybe a nice rental house. Then, save your money, invest and buy another one. And again, save the money, invest and buy another one, over and over again. It’s a gradual process, but I don’t teach or advise people to go into partnerships or borrow money.
via www.hutchnews.com/business/20170725/dave-ramsey-bad-method-at-this-stage
I want to build an 18-unit apartment complex, but I don’t have enough cash to do it on my own. My net worth is around $400,000, and I have $100,000 I can put toward this project. It is estimated to cost $1.2 million. Would lining up investors, who will take a percentage of the profits, be the same thing as acquiring debt?
-- Jay
Dear Jay,
It wouldn’t be the same as taking on debt because if there are no profits, the investors get nothing. It’s more like taking on partners and what you would call an equity position -- meaning they’re owners in the business. They may have only limited rights as owners, but essentially you’re taking on partners.
There’s a method that was used in the old days that’s still available today called syndicating a piece of real estate. You would set yourself up as the general partner and set the investors up as limited partners. They would be limited in their input, because the general partner runs the show. They can be given the lion’s share of the tax write-off, and the depreciation schedule. Traditionally in those models, the general partner takes less of the depreciation schedule but gets a fee for running things and has a position of ownership.
There’s a restriction under Blue Sky Laws on the number of limited partnership units allowed before it becomes a situation where you’re selling stock. Check with your state and current securities laws to be sure of the exact number to avoid any impropriety. You can do a limited partnership or syndicate a piece of real estate, but they can both be very messy and time consuming for the money you get out of it.
Honestly, I don’t think it’s a good method for you to buy an apartment complex at this stage of your investing life. It’s more like a way for you to get into the business of running a bunch of limited partners with a ton of paperwork and bookkeeping thrown in. It doesn’t sound like a lot of fun to me.
If I were in your shoes, I’d use the $100,000 in cash to buy a money-making property -- maybe a nice rental house. Then, save your money, invest and buy another one. And again, save the money, invest and buy another one, over and over again. It’s a gradual process, but I don’t teach or advise people to go into partnerships or borrow money.
via www.hutchnews.com/business/20170725/dave-ramsey-bad-method-at-this-stage
Monday, July 24, 2017
Payment plan VS Paying it off immediately
DEAR DAVE: My wife just had our first child. Now, we now have about $3,000 in medical bills not covered by insurance. We've got $8,000 in our emergency fund, and I make between $25,000 and $30,000 a year. Should we try setting up a payment plan with the hospital, or is dipping into our savings a better idea?
— Matt
DEAR MATT: I'd write a check today and knock out that hospital bill. This falls under the heading of “emergency” in my mind, so pay the bill and jump back into rebuilding your emergency fund.
You've done a really good job of saving on your income, but let's see what we can do about making better money in the future. Extra practical training in your field, or more education in the classroom, could increase your income quickly. Your emergency fund needs to be a little bigger, as well, and it'll be a lot easier to make this happen if you're making more money.
I'm sure you're a hardworking guy, but it's going to be tough for even a small family to make it on what you're bringing home now. The unexpected can become a common occurrence when there's a little one in the picture.
— Matt
DEAR MATT: I'd write a check today and knock out that hospital bill. This falls under the heading of “emergency” in my mind, so pay the bill and jump back into rebuilding your emergency fund.
You've done a really good job of saving on your income, but let's see what we can do about making better money in the future. Extra practical training in your field, or more education in the classroom, could increase your income quickly. Your emergency fund needs to be a little bigger, as well, and it'll be a lot easier to make this happen if you're making more money.
I'm sure you're a hardworking guy, but it's going to be tough for even a small family to make it on what you're bringing home now. The unexpected can become a common occurrence when there's a little one in the picture.
Monday, July 17, 2017
Should you help a family member who was in a bankruptcy ?
DEAR DAVE: My dad wants me to buy a house on a 30-year loan for him and my mom in my name, and let them make the payments. I'm 24 years old and have a good credit score and a nice apartment, but my job depends largely on how the oil industry is doing. My dad filed bankruptcy nine years ago, and he's already $150,000 in debt again, so he's never been very responsible with money. I think this would spell big trouble for me, but I'm sure he will be mad if I say no. What are your thoughts?
— Emmanuel
DEAR EMMANUEL: Yeah, I think doing something like this would spell big trouble for you. If your dad is irresponsible with money — especially to the point of having to file bankruptcy — what makes you think he'll make these house payments on time?
I know this would be an uncomfortable conversation to have with your dad, but you need to brace yourself and just do it. Be respectful and explain exactly why you won't do this. Think about it, Emmanuel. When he doesn't pay the bill on time, it's going to screw up your credit score. And when you get ready to buy a house, guess what? You're going to have trouble qualifying because you already own a house. Most people don't make enough money to qualify to buy two homes.
Basically, your dad is asking you to not buy a house so they can have one. I can't tell you how to make your dad OK with saying no to this, but I can tell you that your answer should be no. Let him and your mom know that you love them both, but this is something you just can't do.
— Emmanuel
DEAR EMMANUEL: Yeah, I think doing something like this would spell big trouble for you. If your dad is irresponsible with money — especially to the point of having to file bankruptcy — what makes you think he'll make these house payments on time?
I know this would be an uncomfortable conversation to have with your dad, but you need to brace yourself and just do it. Be respectful and explain exactly why you won't do this. Think about it, Emmanuel. When he doesn't pay the bill on time, it's going to screw up your credit score. And when you get ready to buy a house, guess what? You're going to have trouble qualifying because you already own a house. Most people don't make enough money to qualify to buy two homes.
Basically, your dad is asking you to not buy a house so they can have one. I can't tell you how to make your dad OK with saying no to this, but I can tell you that your answer should be no. Let him and your mom know that you love them both, but this is something you just can't do.
Tuesday, July 11, 2017
What to do when a debt collector contacts you
Dear Dave,
I got a call from a debt collector regarding $2,000 I owe in medical bills. I’m trying to get my finances in order and pay this off, but I’m afraid they’ll follow through on their threat to garnish my wages. Can you give me some advice?
Mike
Dear Mike,
First, I want you to take a deep breath and calm down. Debt collectors like to play on your emotions because they think you’ll give in and do something you can’t really afford to do. Most of them don’t care about you or your situation as long as they get some money.
They won’t garnish your wages because they can’t. They would have to go through the formal, legal procedure of first suing you and then winning the case. They broke federal law by saying they would garnish your wages but hadn’t sued you. If I were in your shoes, I’d be filing a complaint against these bozos with the Federal Trade Commission.
Don’t react with fear and panic in the face of debt collector threats. Talk to them and explain your situation. See if you can work out a compromise. If they get nasty or break federal law again, let them know you’ll be filing another complaint with the FTC. You’d be surprised how reasonable these people can be when faced with the possibility of government intervention.
In the meantime, do everything you can to scrape up as much cash as possible. Have a big garage sale and sell everything in your attic or basement you don’t need. Then, when you get this mess cleaned up, pay off the rest of your debts — if you have any — and start living on a written.
I got a call from a debt collector regarding $2,000 I owe in medical bills. I’m trying to get my finances in order and pay this off, but I’m afraid they’ll follow through on their threat to garnish my wages. Can you give me some advice?
Mike
Dear Mike,
First, I want you to take a deep breath and calm down. Debt collectors like to play on your emotions because they think you’ll give in and do something you can’t really afford to do. Most of them don’t care about you or your situation as long as they get some money.
They won’t garnish your wages because they can’t. They would have to go through the formal, legal procedure of first suing you and then winning the case. They broke federal law by saying they would garnish your wages but hadn’t sued you. If I were in your shoes, I’d be filing a complaint against these bozos with the Federal Trade Commission.
Don’t react with fear and panic in the face of debt collector threats. Talk to them and explain your situation. See if you can work out a compromise. If they get nasty or break federal law again, let them know you’ll be filing another complaint with the FTC. You’d be surprised how reasonable these people can be when faced with the possibility of government intervention.
In the meantime, do everything you can to scrape up as much cash as possible. Have a big garage sale and sell everything in your attic or basement you don’t need. Then, when you get this mess cleaned up, pay off the rest of your debts — if you have any — and start living on a written.
Monday, June 12, 2017
Dont borrow money for expensive Weddings
Dear Dave,
My wife and I make good money, and our daughter's college education is pretty much paid for through pre-paid tuition and scholarships. We just started your plan to get out of debt and take better control of our finances. When we get to Baby Step 5, which is saving for college, can we substitute that with saving for a wedding? — Bob
Dear Bob,
That would be fine. I'm glad you're thinking ahead. It's always a good idea to save toward a wedding if you have the financial resources to do so, because weddings are real and they're coming.
The average wedding in America today runs around $35,000. Of course, you don't have to pay anywhere near that amount to make it a beautiful occasion. Your household income, debt, savings and other factors will all play into how much you can afford.
Just remember to pay cash for the wedding, Bob. If you have to go into debt to make it happen, then you're talking about too much money. It's as simple as that. Crunch the numbers with your wife, and see what you two can handle.
And remember, there's absolutely no correlation between the cost of a wedding and the success of the relationship! — Dave
My wife and I make good money, and our daughter's college education is pretty much paid for through pre-paid tuition and scholarships. We just started your plan to get out of debt and take better control of our finances. When we get to Baby Step 5, which is saving for college, can we substitute that with saving for a wedding? — Bob
Dear Bob,
That would be fine. I'm glad you're thinking ahead. It's always a good idea to save toward a wedding if you have the financial resources to do so, because weddings are real and they're coming.
The average wedding in America today runs around $35,000. Of course, you don't have to pay anywhere near that amount to make it a beautiful occasion. Your household income, debt, savings and other factors will all play into how much you can afford.
Just remember to pay cash for the wedding, Bob. If you have to go into debt to make it happen, then you're talking about too much money. It's as simple as that. Crunch the numbers with your wife, and see what you two can handle.
And remember, there's absolutely no correlation between the cost of a wedding and the success of the relationship! — Dave
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