Budgeting for car repair costs

Dear Dave,

I am following your plan, and recently became debt-free, but I have a question. When doing a monthly budget, should I figure in a specific category for car repairs and maintenance, or just use my emergency fund?

Ashleigh

Dear Ashleigh,

Congratulations on becoming debt-free! You know, new cars, old cars and in-between cars all have one thing in common — they’ll need repairs at some point. Fixing your car is just a basic part of car ownership, and something every car owner should be prepared for.

When life happens, to your vehicle or anything else, an emergency fund acts like an airbag. Only instead of keeping your face from hitting the dashboard, it keeps your finances from getting smashed up. When it comes to car repair costs, I advise creating a sinking fund in your budget. A sinking fund is a special place in your budget where you save up money for specific, big ticket items — like car repairs.

I know, stuffing money into a sinking fund each month sounds about as enjoyable as waiting in line at the DMV. But look at it this way, if you had a car loan like most people, you’d be putting hundreds toward that debt each month. Instead, you’re one of the smart ones who doesn’t have any debt and can easily create a repair fund for your car by setting aside less than the averagecar payment each month. Even “reliable” cars need repairs and maintenance, and a sinking fund within your budget for this sort of thing means you’re ready to handle virtually any auto issues that pop up.

You know you’ll need to pay for repairs and maintenance. It’s a thing with all cars. And when you know something’s coming, that’s not an emergency fund situation. Great question, Ashleigh!

— Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. Hehas appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

Smallest to largest

Dear Dave,

I’m on Baby Step 2, and I’m working hard to get out of debt. My last two debts are $6,000 on a credit card, and $10,000 on a car loan. I’ll be receiving a $6,000 bonus at work in a couple of weeks, and I was wondering what to do with the money. I’m single, and I make about $45,000 a year, so should I sell the car and get rid of some debt that way, or use the extra money to completely pay off the credit card debt?

Aaron

Dear Aaron,

Just remember the debt snowball—pay off your smallest to largest. In your case, that means knocking out the credit card debt completely, and then attack the car loan with a vengeance. It will be a lot easier once you’re rid of that credit card debt. A $10,000 car with a $45,000 income isn’t unreasonable, but don’t mess around and let that note hang around longer than absolutely necessary. 

My rule of thumb when it comes to things with motors, wheels—I’m talking about big toys, here—is when they’re all added together, they shouldn’t equal more than half your annual income. You don’t want that much money wrapped up in things that are going down in value. You’re in no danger of that here, but at this point you’re so close to being debt-free you can practically taste it.

Follow the plan, Aaron. And stay focused and intense about becoming debt-free. You’re almost there!

—Dave  

Keep the homeowner’s insurance

Dear Dave,

Recently, I made a claim on my homeowner’s insurance for hail damage. It was my first claim ever. Since I’m retired and completely debt-free—including my home—and have over $1 million in the bank, is homeowner’s insurance still a good idea? The house is insured for $250,000, with a $5,000 deductible, and the insurance is about $1,200 a year.

Mary

Dear Mary,

You’re obviously in good financial shape, but I’d still recommend you have an up-to-date homeowner’s insurance policy. If something happened to my home or one of my rental properties, I could write a check and replace any of them. But I still have homeowner’s insurance on every single one.

It’s just good risk management to transfer the chances of a fire, tornado, or other catastrophic events to homeowner’s insurance. If something disastrous happened, you could write a check to cover the deductible with no problem. But writing a check for $250,000? You’d feel that one. Keep the policy, Mary!

—Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. Hehas appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

Protect against inflation?

Dear Dave,

All the talk on the news about inflation is a little scary. Is there any way to protect yourself against it on a day-to-day basis?

Garret

Dear Garret,

When people start talking about inflation, it seems like there are always some who want to start collecting gold, fill every container they own with gasoline and stick their cash under their mattresses. But listen, you can prepare for inflation and address the results without being panicked.

You are still in control of your money, inflation or not. You’ll be able to make sure your money is going toward the right things, while being able to find places where you can cut spending, if you’re living on a written, monthly budget. If you’re noticing the prices of things like food and gas rising in your area, you’ll need to adjust your budget to account for this. That way, you’ll know exactly what you’re working with, and it will help you avoid any nasty surprises.

If you’re really feeling the pinch and want to save even more, look for specific ways to lower your grocery bill or save money on gas. Maybe it’s time you switched to generic brands, or started a carpool into work. If you find great deals on canned food and things you can stock your pantry with—I’m talking about stuff you’ll actually use—go ahead and buy a little extra. Just make sure you’ve budgeted for it before heading to the grocery store. You’ll want to already know exactly what you’re going to spend, so you don’t get swept up into impulse buying.

Like it or not, inflation is a thing. If you plan on retiring one day, it’s pretty much guaranteed that the cost of a loaf of bread, a tank of gas and even a cup of coffee will have gone up by then. The best way to protect yourself against inflation that’s bound to happen is to invest your money—and the sooner the better. But remember, if you still have debt other than your mortgage, and don’t have an emergency fund of three to six months of expenses, you need to take care of those things first!

— Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. Hehas appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

Good news and bad news

Dear Dave,

My wife and I are in our late twenties, we have no debt, and our household income is about $180,000 year. We’re thinking about building a home, but we’re not sure whether to build just for us, or maybe building a multi-family place so we could live upstairs, rent the rest, and make some money. Your advice would be appreciated.

Joel

Dear Joel,

If you’re looking strictly at quality of life considerations, like privacy and having a little room to yourselves, a single family home is the way to go. But, if making extra money is important to you at this point, a multi-family structure might work. The good news is your tenants would be right there. The bad news is your tenants would be right there!

From a landlord’s perspective, living next to or above your tenants means you can keep an eye on things a little better. Your tenants might also take better care of the place with you around. But those kinds of situations aren’t always beautiful things. When you’re living a floor or wall away from someone, you’re all up in their business, and they’re all up in your business. It’s not for everyone. 

If you’re planning to have kids soon, I’d recommend going the single family route—specifically because of the quality of life. Looking at the other side, you’ll make money with a multi-family construction, but it’ll probably be a pain in the butt. You’ll be giving up some things if you go that route.

Let me put it this way, Joel. I’ve owned a ton of investment real estate in my life, and my wife didn’t want to live in any of those properties. Still, there’s nothing inherently wrong with either decision. Just make sure your mortgage is a 15-year, fixed rate loan, and the monthly payments are no more than 25 percent of your combined take home pay. Save up for a down payment of at least 20 percent to avoid PMI, too.

Take a hard look at the numbers, and make sure you and your wife have a long, long talk about everything. You two should be in complete agreement about every aspect of this situation before moving forward!

—Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. Hehas appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

A calling or a job?

Dear Dave,

When it comes to your career and profession, how can you tell if you’ve truly found your calling in life?

Tony

Dear Tony,

I don’t think it’s common for most folks to feel like they’ve experienced some kind of grand revelation, and suddenly they know what they’re supposed to do with their lives. Personally, I believe this kind of thing usually starts out as an activity or ideaconnected to something they enjoy and want others to experience. Often, that can grow into a job, and then maybe into a career—or even a business.

I think it takes a lot of time, reflection, insight, and self-evaluation before anything can be termed a calling. I know this is true insome cases, because that’s how it happened with me. I can’t honestly tell you that when I first started on radio, or began formally teaching and writing I knew it was God’s plan for my life. I knew early on I was drawn to it, and felt there was a need for it, but it took a while for me to understand and accept that it was what I was really meant to do.

I hope this helps a little bit, Tony. Just be honest with yourself, think about it, and pray about it a lot, too. God wants what’s best for you, so make sure you include Him in everything. It worked for me. I’ve been doing what I do for nearly three decades now, and I still love it. I’m convinced that it is God’s calling on my life.

—Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. Hehas appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.