Dave Ramsey Says February 15 2018

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Your retirement, your money

Dear Dave,

I’ve been following your plan, and I’m ready to start investing. Do employer contributions count toward the 15 percent you recommend putting into retirement?

Brenda

Dear Brenda,

Investing 15 percent of your income in retirement accounts is Baby Step 4 of my plan. That means you’ve already paid off all your debt, except for your home, and you’ve increased your $1,000 beginner’s emergency fund to a fully-funded emergency fund of three to six months of expenses. Way to go!

I want you to control your destiny, so employer contributions do not count toward the 15 percent I recommend setting aside for retirement. The first thing you should put money into is a matching retirement account. If you’ve got access to a 401(k) — and your employer offers a match — you should do that up to the match before anything else.

It’s nice if your company will match up to a certain point, but chances are that will still mean you’ve got some work to do. To make up the remainder, you could look at a Roth IRA. Then if the Roth, plus what you invested previously to get the match doesn’t equal 15 percent, you could see about a 403(b) or go back to your 401(k) to complete the 15 percent.

You’re doing great, Brenda. Keep up the good work!

—Dave

Precisely detailed

Dear Dave,

My mother wants everything, except for her home, left to my brother and I when she dies. She would like her long-time boyfriend to have her house. We don’t have a problem with this, but it has not been written into her will. Her mind is still sound, so does she need to officially update the will?

Dawn

Dear Dawn,

Yes, the will needs to be changed to reflect her wishes where the house is concerned. Since she’s still able to make decisions independently, the will should be legally updated to reflectexactly what she wants to have happen with every piece of her estate.

It’s fine if she wants to give her boyfriend the house. It’s your mom’s will, and her estate, so she can do pretty much whatever she wants. She could also leave what’s called a life estate that says her boyfriend gets use of the home while he’s alive. Technically, in this kind of situation the house would be left to you, but he would legally have use of it during his life. Upon his death, the home could then revert to you or your brother.

—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 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says April 17 2018

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Laptop dilemma

Dear Dave,

My husband and I are just starting Baby Step 1 of your plan. Prior to this, we told my two nephews we would buy them laptop computers for college. They don’t get a lot of encouragement or support from their immediate family, so we try to help them when we can. Should we go ahead and honor this commitment, postpone getting our starter emergency fund in place, and possibly take on a little more debt, or bow out of the agreement?

Lisa

Dear Lisa,

Well, it’s difficult to be generous when you’re broke. You don’t even have $1,000 to your names, and you’re going to buy two laptops? I don’t know how much debt you have, or what your household income is, but I do know neither of you have managed your money very well in the past.

If you make $50,000 a year, and you have $70,000 in debt, you should sincerely and apologetically bow out. Explain that you made a big mistake, and just be honest about why you can’t provide the laptops. If you make $200,000 a year, but you’ve just been incredibly silly and lazy with your money, you should buy the laptops and then get serious about growing up and getting control of your finances.

Don’t make promises, financial or otherwise, you can’t keep. I know this is a tough, embarrassing situation, but it’s what I would do if I were in your shoes.

—Dave

Tiny home depreciation?

Dear Dave,

Do you think the value of a “tiny home” would depreciate like a trailer?

Romeo

Dear Romeo,

That’s a tough one. I’m not certain they would depreciate like a trailer, but I don’t think they would go up in value much, either.

Anytime there’s a very limited demand for something, the price or value doesn’t generally increase. And there are very few people looking to buy tiny homes. The tiny home movement is kind of a niche thing. It’s a very narrow market, and something that doesn’t have a lot of demand isn’t going to appreciate.

I would avoid the tiny house movement if I were you, Romeo. Don’t invest in things that don’t have proven track records and don’t go up in value. I love real estate, but not tiny real estate!

—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 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says March 22 2018

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Two extremes

Dear Dave,

I’m about to graduate from college, and while I’ve been in school my mom has been handling most of my finances. Recently, I discovered she’s been taking my student loan money and spending it on herself. So far, it looks like she’s taken around $12,000, and I have a total of $25,000 in student loan debt. Since I realized this was happening, I’ve been reading your books and learning how to manage my own money. I don’t know how to deal with this situation with her, though. She admits she did wrong, but says she can’t pay it back. Can you help?

Alan

Dear Alan,

I hate hearing this. There’s no easy way to deal with these kinds of situations.

The first thing you need to do is take over complete and total control of all your finances. Shut down any accounts that have her name on them, and anything else financially-related that she can access. I know this sounds harsh, but she has proven she’s just not trustworthy. It’s a hard thing to hear about a parent, but at this point you’ve got to take steps to protect yourself. What she has been doing is theft, and financial child abuse.

One extreme is to press criminal charges. The other extreme is to just forget it, and pay it. In between is a promise from her to repay everything she has taken, but she’s already out of control. That’s a promise that wouldn’t be kept. The problem with prosecuting someone criminally for this type of action — other than the emotional toll, because she’s your mom — is the money’s already gone. It’s doesn’t make them magically have the money to repay you. On top of all this, you’d have a really hard time legally getting the student loans removed from your name due to theft.

Honestly, under the circumstances I think you’re probably going to end up eating this. But sit down, and try to have a calm, clear discussion about what has happened, and why it happened. Let her know first, without a doubt, that you will criminally prosecute her if she ever uses your name to put money into her own pocket again. Second, tell her you’re prepared to forgive her and forget about it — and she pays you back at some point, if she can — if she agrees to get some financial and emotional counseling.

Try to get her some help, and get her under control, Alan. If you don’t, I’m afraid things are only going downhill from here.

—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 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says June 14 2018

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No obligation here

Dear Dave,

My father died recently. He walked out of my life 25 years ago when I was a teenager, and he never wanted anything to do with me after that. His brothers, who have already paid for some of his final expenses, asked if I wanted to pay to have his body cremated. They didn’t ask for money, they just offered it as a chance to be part of things. I’m in good shape financially, and I could easily afford the cost. Morally, I wonder if I have a responsibility to help with things. Do you feel I’m obligated in any way?

Julie

Dear Julie,

I’m sorry for your loss. I’m sorry, too, about what happened with your father. I can’t imagine the mixed emotions you must have in your heart.

When someone asks me a question like this, I try to put myself in their shoes. Under the circumstances, I don’t think you have any obligation whatsoever — morally or legally — to help pay for anything. If you want to help, and you can afford to do so, then follow your heart. At the same time, I don’t think you should lose one wink of sleep over this if you decide not to contribute.

Twenty-five years is long, long time. I don’t know your dad, and I have no clue about his situation or state of mind back then and in the time since. I can’t imagine doing that to a child of any age, though.

Do what you feel in your heart is best. But in my opinion, there’s no obligation here. God bless you, Julie.

—Dave

Step by step

Dear Dave,

When is the right time to buy a house when someone is following your Baby Steps plan?

Samuel

Dear Samuel,

That’s a good question. Let’s start by going over the first few Baby Steps.

Baby Step 1 is saving $1,000 for a beginner emergency fund. Baby Step 2 is paying off all consumer debt, from smallest to largest, using the debt snowball. Baby Step 3 is where you increase your emergency fund to the point where you have three to six months of expenses set aside.

Once you’ve done all that you can begin saving for a home. I’ll call it Baby Step 3b. For folks looking to buy a house, I advise saving enough money for a down payment of at least 20 percent. I don’t beat people up over mortgage debt, but I do advise them to get a 15-year, fixed rate loan, where the payments are no more than 25 percent of their monthly take-home pay.

Doing it this way may take a little more time, and delay your dream of becoming a homeowner a bit, but buying a house when you’re broke is the quickest way I know to turn something that should be a blessing into a burden!

—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 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says June 7 2018

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Take care of the basics

Dear Dave,

I just graduated from college, and I’ll be starting my first real job soon. What can young adults, who are just getting started, do to avoid money problems now and in the future?

Ben

Dear Ben,

Congratulations! I’m glad you realize the importance of being responsible with your money and planning for things down the road.

There are three or four important things a recent college graduate — or anyone, really — can do to make the most of their money and protect themselves financially. The first is to always live on budget. When you write down a budget on paper, and give every dollar a name before the month begins, it helps you know what your money is doing instead of leaving you in a situation where you’re wondering where it went.

Two more important practices are saving money and staying out of debt. Your income is your biggest wealth-building tool. When you’re saddled with debt, your money goes to creditors instead of into your pocket. Saving money prepares you for all the things life will throw at you — both good and bad.

One more thing I’d include is investing. I know you’re young, but you still need to think about life after retirement. If you start investing just a little bit each month now in good mutual funds, you could easily retire a millionaire.

These are all very simple, basic things, Ben. But they’ll make a huge difference in your financial situation now and in the years to come!

—Dave

Creativity is the key

Dear Dave,

How do you have a wedding without debt?

Brooklyn

Dear Brooklyn,

It’s pretty simple. To have a wedding without debt you must be creative and think within your budget. In other words, you pay for a wedding with the money you have.

There’s absolutely nothing wrong with a small, inexpensive wedding. Once you realize and understand that fact, and start thinking about things with a budget in mind, you’ll realize you can scrimp and save and still have a great small wedding. Lots of people have beautiful ceremonies, and even small receptions, for well under $1,000.

Sure, you can go into debt by renting the fanciest venue, and buying a $9,000 wedding dress to wear for just a few hours on one day. Or, you can realize it’s not the place and the clothes that make a wedding special. What about an outdoor wedding at a friend or family member’s house? When it comes to a dress you can opt for something simple and inexpensive, or even one that has been worn once, for just a few hundred dollars. If you think that’s awful, let me tell you something that’s worse — going tens of thousands of dollars into debt for an event that lasts just a few hours!

Most people don’t have lavish, expensive weddings, and guess what? Years down the road they’re still happily married, very much in love, and they look back on their wedding as the best day of their lives.

—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 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Says May 2, 2018

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First, lay a solid foundation

Dear Dave,

When is it okay to have a little fun, and buy things you want, when you’re following the Baby Steps plan?

Kaitlin

Dear Kaitlin,

The time for a little fun is after you’ve completed the first three Baby Steps. Baby Step 1 is saving $1,000 for a beginner emergency fund. Baby Step 2 is paying off all debt, except for your home. And Baby Step 3 means you go back and add to your emergency fund until you have three to six months of expenses set aside.

Once you’re debt-free except for your home — and you have your emergency fund completed — you’ve laid a solid, financial foundation for your life. That’s when you can have a little fun and spend some money on a vacation, new furniture, or something like that.

Children think about their immediate wants and do what feels good. Adults, on the other hand, devise smart, logical plans, and stick to them. I want you to have a great life, but you have to put in some hard work and say “no” to yourself sometimes in order to attain that great life!

—Dave

It’s Baby Step 1 for a reason

Dear Dave,

I’ll be receiving my income tax refund soon. It will be enough to completely pay off my two smallest debts, or get my starter emergency fund of $1,000 for Baby Step 1 in place. What should I do?

Brandy

Dear Brandy,

I love that you’re excited about using your refund to start the Baby Steps, and begin gaining control of your finances. But we call the beginner’s emergency fund Baby Step 1 for a reason.

Bad things can happen while you’re working to get out of debt. That’s why I want people to get a little money set aside before they start Baby Step 2, which is the debt snowball. What if the alternator on your car goes out, or your refrigerator dies? Life happens, and things go wrong. When this kind of stuff pops up, and you don’t have any money set aside, you’re likely to quit the plan and wind up going even deeper into debt.

I know you want to get out of debt. I want you to get out of debt, too. But I want you to stick with the plan, and actually get out of debt, instead of falling off the wagon the first time you hit a bump in the road!

Dave Says March 29 2018

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Access to my checking account?

Dear Dave,

Will paying my taxes online give the government electronic access to my checking account?

Ashley

Dear Ashley,

If you use your checking account, of course they will have the ability to withdraw that money from your account. I believe I know where you’re going with this question, and I think you may be a little confused about my stance on this sort of thing.

There’s nothing wrong with certain entities having access to your checking account. I use electronic bill pay for utilities, mutual fund contributions, and things like that all the time. The only time I warn people against giving electronic access to their bank accounts is when they’re dealing with collectors over a bad debt. The government — even the IRS — isn’t known for coming in and randomly taking money out of people’s accounts. Collectors, on the other hand, do it all the time.

You’re in a fight when you’re dealing with a debt collector. It’s an adversarial relationship. As a rule, no one in that industry should ever be given electronic access to any of your accounts. There may be a few decent debt collection companies out there, but many of them will lie, cheat, and steal to get your money.

I hope that clears things up, Ashley.

—Dave

Many already know

Dear Dave,

How can I convince my fellow millennials that government isn’t the solution to their problems?

Josh

Dear Josh,

I think you’re proceeding from a false assumption. Many millennials already understand it’s not the government’s job to take care of everyone and provide everything. The problem, I think, is there’s a group of people in every generation that wants someone else to take care of them.

The only thing I can suggest is that you try to be kind to everyone. It does no good to have a political discussion with a political neophyte. If you have friends like this, perhaps you could suggest they work to control and improve the variables in their lives they can actually control and make better — namely themselves.

You can’t control the variable of government, Josh. It’s not going to come to your rescue. It never has.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven bestselling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dave Ramsey Says March 8 2018

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Layoff insurance?

Some of the people I work with have been buying into a new kind of supplemental insurance that protects against layoffs. It costs about $30 a month per person, and the full payout if you’re laid off is $9,000. It seems to me you would have to be paying in for a long time to see that kind of return, so I wanted to see how you feel about this kind of thing.

Steve

Dear Steve,

Anytime insurance is there for something you could cover yourself, it’s a good idea to stop and remember that every insurance company is still a business. They must cover all the costs of operation, plus make a profit. Believe me, that takes a lot of money.

Statistically speaking, if lots of people cashed in on a policy like this an insurance company would go out of business. We’re talking about only $30 a month to cover $9,000. That alone tells you not many people cash in. It’s gimmick insurance.

On average, you’re losing money when you buy insurance of any kind. Again, on average, over the scope of your lifetime you’d be better off simply saving money and self-insuring against things like this. The only things I recommend buying insurance for are things you can’t afford to cover personally. But you can afford to cover a layoff by saving an emergency fund of three to six months of expenses.

If I’m in your shoes, Steve, I’m not buying that stuff.

—Dave

Dear Dave,

Keep it in your own pocket!

I just filed taxes, and it looks like I’ll get a pretty big refund this year. A friend of mine told me I should adjust my withholding, so I don’t get a refund. This seems pretty dumb to me. Why would I change my withholdings when I’m getting money back?

James

Dear James,

The only reason you’re getting a refund is because you had too much taken out of your paychecks in 2017.

Let’s say your refund is $3,500. Basically, you loaned the government $3,500 of your own money, interest-free. A refund isn’t a gift or reward, James. It’s your own cash that you get back because you paid in too much during the previous year. In your case, that adds up to almost $300 a month!

Instead of loaning the government money that you worked hard to earn, wouldn’t it be a better idea to keep it in your own pocket?

—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 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

 

Dave Ramsey Says Column: “Is Rent to Own OK?”

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Is Rent to Own OK?

Dear Dave,

Is it okay to buy something using a rent-to-own plan?

Josh

Dear Josh,

I advise against rent-to-own deals. Rent-to-own places get people in the door with promises of low monthly or weekly payments. But when it comes to rent-to-own furniture, washer and dryer sets, and that kind of thing, you’ll end up paying much, much more than if you saved up and bought item outright. The amount you’ll pay out of pocket is even more ridiculous if you compare it to buying the same item, slightly used, somewhere else.

I don’t recommend rent-to-own scenarios when it comes to buying a home, either. Most of those offerings are listed at full retail price and then some. Plus, the contracts are tilted toward the seller’s side of the equation. And very few people who sign a rent-to-own home deal follow through and become homeowners.

When it comes to real estate deals, the only thing I would consider — other than an outright cash purchase — is leasing with an option to buy. That’s different than rent-to-own, because in a rent-to-own situation you’ve committed to purchase. On a lease with an option to buy deal, you have the right to purchase, but not the obligation.

Josh, most of the people who use rent-to-own deals are not in good financial shape. They’re deeply in debt, and they have no money. Rent-to-own ensures they’ll stay there.

—Dave

Disability insurance elimination period?

Dear Dave,

I’m looking at long-term disability insurance policies. What does the term “elimination period” mean?

Glen

Dear Glen,

The elimination period is, by definition, the time from the point you’re declared disabled by a doctor until you begin receiving payments from the insurance company. If you have a 90-day elimination period, it will be about that long from the time you’re officially declared disabled until you see your first check.

I recommend 90- to 180-day elimination periods, depending on what kind of financial shape you’re in, and how much money you have stashed away in savings, investments, and your emergency fund. If you have a fully-loaded emergency fund of three to six months of expenses — and you have little or no debt, plus other money stashed away — you should be able to carry a policy with a longer elimination period.

And remember, the longer the elimination period, the lower your premiums will be. Hope this helps, Glen!

—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 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

5 Financial Priorities for Your College Student

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By Anthony ONeal

If you’re the parent of a child already attending or about to enter college, you probably have a lot on your mind. That’s understandable. College is an exciting time of life, full of big choices and exciting opportunities. But let’s face it, it’s also a stage of life that can bring temptations — money troubles in particular.

If you have a few concerns about how your child will handle their money in college, you’re not alone. I’ll never forget my own early financial experiences as a young college student—or the day I opened my first credit card bill and saw what I owed.

“Man, that was an expensive pizza!”

The folks who signed me up told me my credit card came with a free T-shirt and a pizza. I got both of those, but they were far from free. They came with consequences no one had warned me about. It started with a few thoughtless purchases—a dinner out, a shopping spree for gifts—but it added up quick.

Somehow, I hadn’t realized the stuff I was buying and enjoying on credit was going to come due as a bill. Throw in the student loans I had taken on, and I was getting into some serious financial trouble. Before I knew what was happening, I was 19 years old, $25,000 in debt, and — for a short time — even sleeping in my car.

But here’s some encouragement. I made it all the way back, got out of debt, and learned the right way to handle money. And your child can win with money, despite a world of pressure to do otherwise. It’s true! As a youth pastor and speaker, I’ve met, worked with, and walked beside many young people who graduated college as strong budgeters, with a clear plan for the future and no debt. So can the college student in your life!

The Big Five

While your child is in college, they can lay a solid financial foundation by focusing on just five priorities for managing their money. With this foundation in place, at least two great things will happen for them: They will be in a strong position to build wealth throughout their life, and they will gain an awesome amount of self-discipline to help them in their career.

  1. Save a $500 Emergency Fund. It might not sound like a lot. But $500 is usually enough to see a college student through most of the financial emergencies that come up, like a broken phone or computer. I know you’re going to want to help them out as you’re able, but it’s also a great idea to let a young person feel what it’s like to solve a money problem with their own money, instead of using yours or a credit card.
  2. Get Out of Debt. You probably remember from your own time on campus that college students are a major target for credit card companies. Help your child understand that going into debt is no way to start adulthood. If they already have credit cards, encourage them to cut those up and pay them off. The sooner they’re debt-free, the sooner they can begin using their money to go after their dreams.
  3. Pay Cash for a Car. Most college students will need a car either right away or soon after graduating. But the need for wheels is no excuse to take on a big monthly payment. Paying cash will save your child a lot of money, and they will get a lot more enjoyment from something they actually own.
  4. Pay Cash for College. You’ve probably noticed student loans are getting out of hand in America. In 2016, The Wall Street Journal reported that the average college student is graduating with more than $37,000 in student loan debt to pay back. That’s insane! Let your child know that paying for tuition and books is no different than paying for food and gas. By paying for college with cash they’ll immediately be able to use their pay for things they want, instead of paying off debt for years.
  5. Build Wealth and Give. This one is my favorite, because there’s no better feeling than the one you get while using your money to help those you care about. As Jesus himself said, “It is more blessed to give than to receive.” And who has the most freedom to do a lot of good with their money? Those who have been fortunate enough to stay out of debt and build wealth.

One more tip: It’s easy to assume you can only build this foundation if you begin early enough in life. Believe me, that’s not true. It’s never too early to start, but it’s also never too late. Whether your child is just beginning to think about college, or is already enrolled, they can apply these principles to take full control of their money — in school and beyond!

About Anthony ONeal

Since 2003, Anthony ONeal has helped thousands of students make good decisions with their money, relationships and education to live a well-balanced life. He’s the National Best-Selling Author of Graduate Survival Guide: 5 Mistakes You Can’t Afford to Make in College, and travels the country spreading his encouraging message to help teens and young adults transition into the real world. His latest book and video kit, Teen Entrepreneur Toolbox, released in April 2018.

You can follow Anthony on Twitter and Instagram @AnthonyONeal and online at anthonyoneal.com or facebook.com/aoneal.

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