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Monday, September 23, 2019

Dave Ramsey Says February 14 2019

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Zero percent interest?

Dear Dave,

I know you’re against financing purchases. However, is it okay to finance things like furniture at zero percent interest?

Detrick

Dear Detrick,

We just finished an extensive study of more than 10,000 millionaires. Not a single one of these folks said they became rich by borrowing money to buy things at zero percent interest. Since none of those millionaires gave credit for their wealth to zero percent interest financing, and since we know banks charge interest on loans, how is it you think these people are loaning money at “zero percent interest?”

Is it possible the pricing of the item has the interest rate built into it? I think the chances of that are pretty high. If not that, companies offering this kind of financing have very accurate and highly researched data that tells them the vast majority of people who take out zero-percent loans don’t pay off the loans in the specified period of time. Do you know what happens if you don’t live up to the terms of those contracts? It becomes a regular loan, and they back charge you for the interest.

So, on average you’re paying for it all. I don’t know why you’d want to play with snakes, Detrick. Snakes bite, and some of them can kill you. Avoid debt like the plague. It destroys your most powerful wealth-building tool—your income.

—Dave     

Explaining the envelopes

Dear Dave,

I’ve listened to you for a little while, but I was wondering about the envelope system you recommend. How does it work?

Danielle

Dear Danielle,

Don’t let the word “system” intimidate you. It’s just grandma’s old-fashioned, common sense way of budgeting money.

Back in the day, many people were paid in cash at their jobs. Then, they would take the money home and divide it up into different envelopes. The envelopes held cash for different categories in their budgets—food, clothes, rent, and other bills and such. When a particular envelope was empty they stopped buying that item, because the money budgeted for that category was gone. If you wanted a dress, but the clothing envelope was empty, you didn’t buy a dress that month.

It’s just a simple cash system that, combined with doing a written monthly budget, will help keep you from overspending!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money MakeoverThe Dave Ramsey Show is heard by more than 15 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says January 3 2019

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Worried about mom

Dear Dave,

My mom is 75, and I’m the executor of her estate. She has $500,000 in retirement accounts, and the only debt she has is around $70,000 on her mortgage. Most of her money is in the stock market, with only $20,000 in a money market account, and this worries me. She lives well within her means, so am I wrong to be concerned? Also, do you think she should go ahead and pay off her mortgage? 

Keith

Dear Keith,

Yes, I would recommend she go ahead a pay off the mortgage. If she can do that at age 75, and still have $430,000 left, that’s the way to go.

Now, being in the stock market at her age sounds like a shock to you. I don’t think it’s a bad thing at all. It’s not what the typical financial planner tells you to do. For the most part, they’ll tell you to get super conservative with your money as you get older. But from what you’ve said, she’s not going to use this money. She’s going to use the income from this money. So, the money’s going to be left alone. If she’s in good mutual funds, and not single stocks, I’m not worried about her.

Let’s pay off the mortgage, and then she can start taking her income off the remainder. With the house payment out of the way, she won’t need as much in terms of income, because she won’t be sending money to the bank to pay the note on the house anymore. I’m comfortable with that. I’m 58, and I’m 100 percent into stocks through mutual funds. I don’t have anything else, and I really don’t ever plan on changing that!

—Dave

Changing jobs and retirement savings

Dear Dave,

What happens to my Roth 401(k) when I change jobs and go to a company that doesn’t offer this type of investment savings account? How should you proceed in this situation?

Jamie

Dear Jamie,

Anytime you leave one company for another, you should always roll your 401(k) from your former employer into an IRA (Individual Retirement Account). If it’s a traditional IRA, you roll it to a traditional IRA. If it’s a Roth IRA, you roll it to a Roth IRA. You would choose your own mutual funds, and you would manage your own accounts, with the help of a financial advisor of your choosing.

When it comes to choosing a financial advisor, my advice is to find someone with the heart of a teacher. A good financial advisor will help you make informed decisions about your money, and they will explain all aspects of your investments until you fully understand everything. In short, a quality advisor will never encourage you to invest in something you don’t understand.

Also, look for someone with the ability to assess your overall retirement picture. You need someone who will help you map out a complete retirement plan, and your advisor should be able to explain the big picture and provide a comprehensive, easy-to-understand strategy for achieving your retirement goals.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says November 29 2018

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Do what’s best for you

Dear Dave,

I’ll be graduating from college with no debt in a couple of weeks, and I have a good job waiting for me in January. During the last few years, I’ve managed to save almost $25,000 from my part-time jobs while in school. My car is pretty beaten up and old, so I’ve been shopping at a couple of car dealerships recently. Every time I talk to a salesperson, they tell me I should finance something new instead of paying cash for a used car. What should I do?

Ethan

Dear Ethan,

I hope you’ll keep one very important thing in mind. This is your purchase, not theirs. The only reason they want you to finance something is so they’ll make a lot more money off the deal. Forget what they want. You need to do what’s best for you.

You’ve been a hard-working, smart guy over the last few years. The fact that you’ve been able to save nearly $25,000 is proof of that. I don’t think you want to throw a big chunk of your savings—or your new income—into something that’s going to go down in value like a rock. New cars lose about 60 percent of their value during the first four years of ownership. That means a $28,000 car would be worth around $11,000 after that period. That’s not a smart investment.

If I were you, I’d shop around and pay cash for a nice, slightly used $10,000 car. You can get a great automobile for that kind of money, plus you’ll still have the majority of your savings.

Congratulations, young man. You’ve done a great job!

—Dave

Retirement contributions

Dear Dave,

As part of your Baby Steps plan, you always advise people to put 15 percent of their income toward retirement. Would you explain the details of this, please?

Mallory

Dear Mallory,

For starters, Baby Step 4 of my plan involves saving 15 percent of your gross annual pay for retirement. You don’t have to be a complete nerd about this figure. I mean, you probably won’t end up in the poor house if you set aside 12 to 14 percent. The bottom line is you should be able to save $7,500 a year if you make $50,000 annually. That’s just a little over $600 a month.

However, the only way you can do this is by giving up stupid things like credit cards and car payments. When you get out of debt, it’s easy to set aside an emergency fund of three to six months of expenses—which is Baby Step 3—and start throwing 15 percent at retirement during Baby Step 4.

Did you know you can retire a millionaire if you save 15 percent of a $50,000 a year income, and invest it in good growth stock mutual funds starting at age 30? Sounds worth it to me!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says November 15, 2018

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Home warranties?

Dear Dave,

Are home warranties a waste of money if someone has been following your plan and already has six months of expenses set aside in an emergency fund, plus home insurance?

Andrea

Dear Andrea,

Home warranties are a waste of money even if you don’t have quite that

much set aside in an emergency fund. I recommend an emergency fund of three to six months of expenses to cover the unexpected things that life will throw at you. This amount of cash, sitting in a good money market account with check writing privileges, will give you easy access in the event of a financial emergency.

I don’t recommend extended warranties of any kind. They’re just not a good deal. You’re better off to self-insure against things breaking down, and putting what would have been profit and marketing dollars for the extended warranty company in your own pocket!

—Dave

Put retirement on hold temporarily

Dear Dave,

Should I stop making contributions to my 401(k) account for a year in order to save up an emergency fund? Thanks to you, I’m 33 and debt-free.

Blake
Dear Blake,

Congratulations on being debt-free at such a young age! I appreciate the credit, but the truth is I just pointed you in the right direction. You made the sacrifices and did all the hard work. I’m really proud of you!

Yes, my advice is to temporarily stop making contributions to your 401(k) until you save up an emergency fund of three to six months of expenses. It shouldn’t take a year, though, to set aside an emergency fund if you’re debt-free and making decent money at your job. Just make it part of your monthly budget plan, and get that emergency fund set up in a few months.

Here’s the way I look at it. If you don’t have an emergency fund, but you’re contributing to a 401(k), there’s a good chance you’ll end up cashing out your 401(k) if something happens that leaves you with a large, unexpected bill. When you cash out a 401(k) early, you get hit with a penalty plus your tax rate. That’s not a good plan!
And that’s just one of the reasons I tell people to have an emergency fund in place before they start investing.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says November 8 2018

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Wait on the honeymoon?

Dear Dave,

My fiancé and I are getting married in three weeks, but he lost his job as an experienced HVAC technician at a hospital a few days ago. Do you think we should still go on a honeymoon, or wait until things are more stable? I’m on Baby Step 3 of your plan, and I make $56,000 a year. I also have $7,000 in an emergency fund. He was making $64,000 a year, and he’s on Baby Step 2 with about $10,000 in car debt remaining. We have $3,000 already set aside for the trip, plus another $2,000 we were planning to put toward fixing up his place.

Corina

Dear Corina,

First, congratulations on your upcoming wedding! I hope you two will have long and happy lives together.

Usually, I’m not a big fan of spending when someone loses a job. But I think your situation is a little different than most. You’re both serious about dumping debt and getting control of your finances. Plus, you’re working together, and you’ve already got a nice chunk of cash parked in the bank. That tells me you’re both wise enough to know the importance of saving.

Your guy can find another job in a couple of weeks, considering his field and experience. Companies everywhere are hiring people right now, and the economy is booming! If he gets out there and really busts it looking for another position leading up to the wedding, I think you two will be fine. He might even be able to work it out to start right after the honeymoon.

You two have some financial padding, his job is an easy one to replace, and his income will be restored soon if he’ll just get out there and make it happen. Go on the honeymoon, and have a wonderful time. God bless you both!

—Dave

 

Dental insurance for the kids?

Dear Dave,

Should I keep buying dental insurance for my kids, or is it just a gimmick?

Brenda,

Dear Brenda,

Dental insurance is one of those things where it’s easy to see that the payout is greater than the return. We’ve had dental insurance proposed to us at my company several times as an employee benefit, but when you add up what you pay for it you’ll find you rarely spend that much on dentistry. In many cases, I advise self-insuring for dental care.

Now, there is a dental discount company I highly recommend called 1Dental.com. This kind of thing is worth it. As a member, you get discounted rates on dental work when you visit an in-network provider. I’ve gotten to know the folks behind this organization, too, and they’re great people.

Hope this helps, Brenda!

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says November 1 2018

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Strained relationship over borrowed money?

Dear Dave,

I borrowed some money from my parents in January, and it took a few months longer to pay them back than originally planned. Since then, I’ve noticed our relationship seems to be strained. They will sometimes make remarks about money when I’m around, and it’s obvious the things they say are aimed at me. I don’t want things to be like this between us during the holidays. I have taken steps to become more financially responsible, like watching my spending and living on a budget, so how can I address this issue with them?

Robbie

Dear Robbie,

I’m sorry you’re going through this, but I hope everyone has learned a valuable lesson. It’s okay to give money sometimes, as long as you’re not enabling irresponsible behavior in the process. But loaning money to or borrowing from friends and relatives will often lead to bruised feelings.

If you paid them back, especially if it took longer than expected or agreed upon, there’s not much you can do if they choose to hold a grudge. With some folks, it just takes a little while for those kinds of things to heal. And considering it’s your parents, my guess is they’ll become more and more forgiving with time.

Until then, maybe you could look for opportunities during conversations with them to mention your new approach to finances. Something as simple as referring your budget, or getting excited about how much you were able to put into savings from your last paycheck, might get their attention. A few subtle hints that you’re actively working to gain control of your finances might go a long way with your parents.

If they realize you’re starting to handle your money more wisely, I’ll bet you’d start to notice a real difference in their attitudes!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey October 25 2018

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Retirement or debt?

Dear Dave,

Do you think I should lower the amount I’m contributing to my 401(k) so I can pay off my house and my truck?

Jamie

Dear Jamie,

If you’re following my plan, the first thing you should do is set aside a beginner emergency fund of $1,000. That’s Baby Step 1. Next comes Baby Step 2, which means paying off all your debt except for your house. This would include your car. During this time, you should temporarily stop any kind of investing and retirement contributions.

Once your mortgage is the only debt you have left, it’s on to Baby Step 3. This means you start saving money and growing your beginner emergency fund into a fully-funded emergency fund of three to six months of expenses. When that’s done, you can attack Baby Step 4—investing 15 percent of your pre-tax income for retirement. In your case, that would mean re-starting the contributions to your 401(k).

The rest of the plan goes like this. Baby Step 5 is putting money into your kids’ college funds, if you have kids, while Baby Step 6 is putting everything you can scrape together towards paying off the house early. After that comes the real fun. Baby Step 7 is the point where you build wealth and give like crazy.

It may take a little time in some cases, but following these steps will lead you to financial peace!

—Dave

The key is serving

Dear Dave,

I just accepted my first job in sales. In your mind, what is the key to becoming an excellent salesperson?

Bobbie

Dear Bobbie,

The key to becoming a great salesperson can be summed up in one simple word—serving. I’m not talking about being subservient. I’m talking about always giving 110 percent towards ensuring customers and potential customers are served well. It’s all about being proactive.

Serving means you believe in what you represent, and you’re excited about what you have to offer. It means you’re determined to give people a great experience. If an issue happens to arise, you’ll take care of it quickly and completely. You’ll do this in a way that will make them forget it ever happened.

Really, serving is an attitude. You can pressure people if you want, but that’s going to lead to a dull and frustrating life of one-shot deals. But if you serve people well, you’ll have clients for life and they’ll send their friends and associates your way.

Make helping people your first order of business, Bobbie. If you do that, you’ll never have to worry about money!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says October 18 2018

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Pay it off!

Dear Dave,

I can’t decide what to do about my car. I owe $8,000 on it, and I have the cash to pay it off with plenty left over. One of my co-workers said I shouldn’t pay it off, because I have a very low interest rate on the loan. What do you think?

Derricka

Dear Derricka,

What do I think? I think your co-worker is broke. Taking financial advice from broke people is like taking dieting advice from fat people. In other words, it’s dumb.

Pay off your car, and never borrow money to buy a car again for the rest of your life. If you want to win with money, you have to get out of the land of car payments. The idea that you’re stuck with car payments — that you’re always going to have one — is the mantra of those who’ve given up hope. You are in charge of your life. You are in charge of your financial situation. Don’t be like all those folks out there who whine about stuff like stagnant wages and are unwilling to get up off their stagnant butts to make their lives better.

Derricka, pay off your car today. And please, don’t take any more financial advice from broke people!

—Dave

Emergency fund in cash?

Dear Dave,

My wife and I are completely debt-free. We would like to have part of our emergency fund in cash inside a heavy duty safe at home. How should we document this cash in the event of fire or theft? Also, would our homeowners insurance policy cover cash?

Will

Dear Will,

Typically, homeowners insurance policies have a limit as to how much cash they will cover. I’d advise re-reading your policy, and double checking with your insurance agent just to be sure. When it comes to documenting valuables, I’d suggest making a video or taking photographs. Just to be extra cautious, you could store these in a safe deposit box at your local credit union or bank.

Having some cash on hand is never a bad thing. When it comes to the portion of your emergency fund you keep at home, I’d recommend just being reasonable. If you’ve got $10,000 set aside for emergencies, I’m okay with you keeping $5,000 at home in a quality safe. I wouldn’t put all, or even most of it, in a safe, though.

Again, just make sure your homeowners policy covers anything you might put in there. A strong, fireproof safe is a must!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says October 11 2018

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Spending money in the budget?

Dear Dave,

We are debt-free except for our home, and we have six months of expenses set aside in our emergency fund. Every time we do our monthly budget, we set aside a small amount of personal spending money for us both. Do you see anything wrong with this?

DeAnna

Dear DeAnna,

There’s absolutely nothing wrong with having a little fun money calculated into your monthly budget when you’re in good financial shape. The problems start when couples don’t agree on these kinds of things — or worse — when they start hiding stuff and lying to each other about where the money’s going.

People either grow together or they grow apart when they get married. When you start hiding things from your spouse you’re essentially keeping separate lives. That’s a bad sign in any marriage, and in many cases, this kind of thing leads to divorce.

Having an agreed-upon budget isn’t just telling your money what to do. It’s also an important part of a healthy sharing and communication process between husband and wife!

—Dave

 

Close up small business?

Dear Dave,

I have a small business, and I love what I do. Unfortunately, things haven’t been going well the last several months. On top of that, I’ve committed a lot of money to advertising in the coming year. Recently, I got a great job offer from a company that would pay me twice what I’m making now. What do you think I should do?

Hugh

Dear Hugh,

If it were me, I’d want to keep my options open. Closing your business would mean giving up all your customers. I’m not sure that’s a good idea when the offer has just been made, and you know so little about the actual job.

If you think this new job is something you might like, why not accept the offer and see if you can continue your other work on the weekends? That would help cover some, if not all, of your advertising commitment. Plus, it would keep some money rolling in if the new job doesn’t work out.

If you find you like this new job, then you’ve got a great income and something you like doing on weekends that pays. If you keep your business open — even on a small scale — there’s always a chance it will begin to grow again. Who knows? It might give you the opportunity to jump back into it full-time somewhere down the road!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says September 18 2018

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Sell personal car to help pay business debt?

Dear Dave,

My husband started his own one-man, small business as a handyman a little less than a year ago. He has netted $17,000 in that time, but the business has about $13,000 worth of debt. We’ve always kept personal finances and business separate, but what would you think about us selling one of our paid-for cars to help with the business debt?

Robin

Dear Robin,

There’s nothing wrong with small beginnings. On top of that, you should always keep your business and personal finances separate. Aside from the debt, it sounds like he’s off to a good start.

I think you’ll be able to pay off the debt from your future income. If your husband started his business less than a year ago, he has spent that time trying to get things off the ground and working with very little name recognition. If he’s good at what he does, and he continues to work hard and market himself properly, he should be able to double what he made in the last year.

To do that, however, he’s going to have to spend some time in accountant mode. He needs to figure out the types of jobs he makes the most money on for the time he puts into them. I know a guy in our area who made more than $100,000 as a handyman in the last year. I’m talking about $100,000 in profit! His prices are higher than most in that line of work, but he’s the best. He provides superb quality work, and he’s always polite, on time, and on schedule.

If your husband does the research and crunches some numbers, I think he can dial it in and make a lot more moneythan he’s making now. Find that sweet spot, and he’ll continue to grow the business!

—Dave

Forgive the debt?

Dear Dave,

Recently, I loaned some money to a good friend. He’s going to help me with a big home project over the next few weekends, so do you think I should pay him for the work or forgive the debt?

Marvin

Dear Marvin,

First, I don’t recommend loaning money to friends or family. Once in a while, things may work out and everyone ends up happy. But in most cases, it changes the dynamic of the relationship. The Bible says the borrower is a slave to the lender, and there’s a lot of truth in that — financially and emotionally.

The big question is whether you’ve already agreed to pay him for the work. Another consideration is how he views the situation. He may be looking at this as just helping a buddy, and he still owes the money.

Ask him what his expectations are before you guys start the job. Just talk to him, and figure out what seems fair to you both. If you’ve already agreed on a certain amount, and the value of the work is close to what you loaned him, you might discuss the idea of paying back the debt that way.

But in the future, if someone close to you really needs financial help — and you’re not enabling bad behavior in the process — just make the money a gift.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 14 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

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