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Dave Ramsey Says

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Dave Ramsey Says

By
Dave Ramsey
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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.

Dave Says

By
Dave Ramsey
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Choosing an executor is a vital part of the estate planning process

Dear Dave,

What exactly is an executor, and what part do they play in someone’s will?

Gabe

Dear Gabe,

Simply put, an executor manages the last will and testament of someone who dies. Acting as an executor is an honor anda huge responsibility. As the designated representative of the deceased, executors are responsible for making sure the deceased’s assets are distributed according to the will. Executors deal with probate court, tell everyone who needs to know about the death, pay outstanding debt, distribute assets, and generally represent the deceased person whenever needed.

Think of someone you know who is trustworthy, conscientious and good at talking to people. This person also needs to be mature, capable of handling life events with a level head and have an honest heart. You need to think about where your potential executor lives, too, because they could end up spending a lot of time working with the courts in your area. If you already have someone in mind who has all the right personal qualities, but lives out of state, research your state’s requirements for an executor’s location. Virtual meetings could be a possibility. 

The amount of time needed for an executor to handle your affairs when you’re gone could be enormous. Depending on the complexity of your estate, it could take months—or even years. Once you settle on someone as executor, be honest with them about all the responsibilities that come with the job. And if you’re unable to find someone appropriate, you can always hire a professional executor.

Great question!

— Dave

Don’t sell yourself short

Dear Dave,

What is the best way to invest a one-time lump sum of $2,500? My plan is to leave the money alone and let it grow for a long time.

Karole

Dear Karole,

Some people play single stocks on one-time investments like this, but I don’t like that idea. Single stock investments don’t consistently generate the kind of returns over long periods of time that a good mutual fund will. Why sell yourself short?

When it comes to investing, I consider 10 years or more to be a long time. That being the case, I’d suggest a growth stock or growth and income mutual fund with a solid track record of 10 to 20 years.

I hope this helps!

— Dave

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

By
Dave Ramsey
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0

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.

Dave Says November 1 2018

By
Dave Ramsey
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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 Says

By
Dave Ramsey
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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.

Dave Ramsey Says February 22 2018

By
Dave Ramsey
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0

Debt and income crisis

Dear Dave,

I received a call the other day from a company saying it could negotiate the balance on my credit cards to a lesser amount. The caller also said they could get me a zero-percent interest rate until the debts were paid off, and then the accounts would be closed. I’m kind of starting over again financially, because I sold a company I had run for almost 15 years, then got into real estate and lost almost everything. I’m making just enough to squeeze by, and my credit card debt totals $40,000. Would this be a good idea?

Bill

Dear Bill,

No, this is not a good idea. You’re looking at two major problems with a company such as this one. One, they will absolutely destroy whatever credit you may have. Their plan is to take your cash, and spend some time beating down the credit card companies until they agree to accept a lesser amount. Then, they use your cash to settle loans you will have — by that time —defaulted on. This will put you in a situation very similar to if you had filed Chapter 13 bankruptcy. Stay away from these people.

You have an income crisis, in addition to a debt crisis, at this point. For starters, I want you to start living on a tight, written, monthly budget. I’m talking rice and beans, no vacations, and no eating out until you pay off this debt. Where your income is concerned, maybe you should consider getting back into the kind of business you ran previously for a while. Look for a managerial or supervisory position in that area, at least until you’re able to get back on your feet and save some cash.

Finally, cut up the credit cards, close the accounts, and put as much money as you can spare toward paying off that debt using the debt snowball system. Never go back into debt again!

—Dave

Pay off house first?

Dear Dave,

My husband and I are in our forties. We have no children, and we bring home $95,000 a year combined. We’re also debt-free except for our home. We owe just $10,000 on the house, and can take care of that in a few months. Would it be okay to rearrange the Baby Steps a bit, and pay off our home before getting serious about saving for retirement?

Nan

Dear Nan,

I don’t usually give folks any wiggle room when it comes to sticking with the proper order of the Baby Steps. But if you’re that close to being completely debt-free, I don’t see anything wrong with paying off the house first.

Most people I talk to still have anywhere from $100,000 to $300,000 left on their mortgages. This is a little bit different story, however, and you two are obviously managing your money well.

Knock out that mortgage, and start pouring at least 15 percent of your income intoretirement. You’re going to love the feeling — and the freedom — that comes with being completely debt-free!

—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 March 29 2018

By
Dave Ramsey
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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 Says

By
Dave Ramsey
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0

Use non-retirement account to pay off debt?

Dear Dave,

I have $11,000 in a mutual fund account that is not a retirement account. My wife has a retirement account through her job as a teacher, but I do not have one at all. We’re in Baby Step 2, so should we cash out the $11,000 in the investment account to help pay off debt?

Chris

Dear Chris,

If this money is designated as non-retirement funds, I’d say go ahead and cash it out. Use the money to pay down debt, and continue to stay focused working the Baby Steps. Get that debt paid off, build an emergency fund of three to six months of expenses, then it’s your turn to start investing.

The quickest way to build wealth is to get control of your largest wealth-building tool—your income. When all your money is going out the door to other people, you don’t have that tool at your disposal when it comes to important things like saving and investing. There’s some math in there, but it’s also about behavior and being intentional. Getting out of debt dramatically shortens the distance between you and wealth.

A lot of people are having some major “never again” moments right now in the wake of COVID-19 and all the other stuff 2020 has thrown at us. They’re saying things like, “Never again will I be broke, never again will I have debt, and never again will I live with no savings to help take care of me and my family.”

You can do this, Chris. Get after it! 

—Dave

Zero-based budgeting explained

Dear Dave,

What exactly is a zero-based budget?

Dean

Dear Dean,

Simply put, a zero-based budget is income minus outgo equals zero. If you earn $4,000 a month, and you’re doing a zero-based budget, every item you spend, save, give and invest should add up to $4,000. It’s a method of knowing where every single one of your dollars is going. Most people don’t live on a budget. They just cash checks, write checks, then they look up and wonder where all their money went. Not having a plan, especially for your money, is a bad plan.

List all your income from all sources for the month. Next, list every single expense you have each month. Rent, food, cable, phones, and anything else you pay for gets added to the list. Your expenses vary from one month to the next, which is why you make a new spending plan each month.

Now, here’s where it gets real. Subtract your income from your expenses. Ideally, this number will be zero. It might take some practice, so don’t be discouraged if everything doesn’t balance out perfectly the first few times. All that means is you need to find a way to bring one of the numbers up, the other one down—or both. But whatever you do, don’t spend a dime that’s not accounted for.

If you have a problem with spending more than you make, make some cuts in order to equalize your income and your outgo. Using coupons, cutting back on groceries, or carpooling to work are great ideas to reduce spending. If you want to generate more money, get a second job on weekends or sell some stuff.

You’re the boss of the budget—in the beginning. Once it’s committed to paper, in a spreadsheet, or on an app like EveryDollar, the budget is the boss!

—Dave

* Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 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.

Dave Says May 14 2018

By
Dave Ramsey
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0

Save up, or get a mortgage?

Dear Dave,

I’m 28, single, and I just became debt-free. In addition, I make $70,000 a year and have the equivalent of six months of expenses set aside for emergencies. Should I save up to pay cash for a house, or is mortgage debt okay? I’d like to keep the price of a new home between $200,000 and $225,000. Since I currently live in a nice apartment, I think I can save about $20,000 a year. What do you think?

Kathryn

Dear Kathryn,

It sounds like you’re in great financial shape. Congratulations on becoming debt-free!

Let’s take a look at both scenarios. If you can save $20,000 a year, that means you’re about 10 years away from a nice, paid-for home, and you’re still debt-free. That’s one option. At the same time, I don’t yell at people for taking out a 15-year, fixed-rate mortgage, where the payments are no more than 25 percent of their monthly take home pay. In this situation, you could save like crazy for a couple of years and make a big down payment on a home in the price range you’re talking about. Then, you could pay off that house in just 15 years.

I honestly don’t have a problem with either solution, Kathryn, but think about this. Wouldn’t it be great to have your own home, and still be completely debt-free, at 40? It’s something to think about!

—Dave

Stand up to them!

Dear Dave,

A debt collection agency started calling my office a few weeks ago. I gave them an initial payment, and made an agreement to pay off the debt in monthly installments. This morning, they started calling me at my office again wanting payment. Can I legally demand they not call me at my place of employment?

James

Dear James,

Absolutely! You have a legal and moral obligation to pay your debts, and I’m glad this is something you recognize. But collectorshave rules they must follow. They’re governed by law just like everyone else.

Be certain to keep your end of the agreement. Make your payments on time, or early, whenever possible. Then, if they call you at work again, remind them of your initial payment and the terms of the agreement already in place. Be polite, but firm, and demand that they never call you at your office again.

In addition, send them a certified letter, return receipt requested, so you’ll have proof you sent the letter and they received it. In the letter, let them know that — according to guidelines set forth in the Federal Fair Debt Collection Practices Act — you are demanding they not call you at your office again.

If they call you there after receiving this formal demand to stop, they’ll be in violation of federal law. If that happens, let them know you’ll talk to a lawyer and sue them.

—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

By
Dave Ramsey
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0

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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