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Dave Says June 7 2018

By
Dave Ramsey
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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 Ramsey Says March 8 2018

By
Dave Ramsey
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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 February 14 2019

By
Dave Ramsey
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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 Makeover. The 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 Says

By
Dave Ramsey
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A very generous offer

Dear Dave,

My in-laws have very generously offered my wife and I $250,000 to help with a down payment on a home. I know the amount exceeds the IRS’s yearly gift allowance, but they want to structure it as a family loan and have already told us they don’t care if we pay it back. If we accept, we technically owe them a lot of money. If we say no, they may be offended. What do you think about this and how it might impact the relationship?    

James

Dear James,

Well, it makes sense your wife would be onboard with the whole thing. It’s her dad making the offer, so of course she would be a lot more comfortable with the idea than you are.

 This is a big deal, and it’s something you two should have a very serious conversation about. Get on the same page in every regard. Also, I’d recommend making sure you get everything in writing. See to it, as well, that it can be forgiven at the maximum allowable annual gift rate.

In addition, in the event of death make sure it’s included in the estate, it’s forgiven, and there will be zero call on the note. In effect, that would make it an advance on your inheritance instead of debt. Under no circumstances should they, or any other heirs, have grounds to call the note. 

That’s a good question, James. And a nice gift!

—Dave

Keeping the side hustle alive

Word count: 272

Dear Dave,

I have a full-time job, but I also have a side job providing firewood to help pay off debt. I make $600 to $1,000 a month with this project. My log splitter went down recently when a hydraulic line burst, and the machine caught on fire. I’m not sure how much it will cost to get it going again. Should I invest in a new one that will increase my productivity and help me pay off debt faster?

Chris

Dear Chris,

If I’m in your shoes, I’m going to fix the old one. Even it means duct tape and glue, I’m going to try to find a way to repair it instead of spending a bunch of money or going deeper into debt.

If you can’t do that at a reasonable price out of pocket, I’d be in the market for a decent, used log splitter. And pay cash! I get your line of thinking when it comes to increasing productivity. Splitting wood is real work. But don’t try to justify buying an expensive, new piece of equipment when it’s just not necessary.

If you’re making that much with a side hustle, you can make your money back on a used splitter in a month or two—three at the most. Be smart about it, Chris!  

—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 16 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 May 2, 2018

By
Dave Ramsey
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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 May 8 2018

By
Curtis Plant
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Help them help themselves

Dear Dave,

My parents have always been bad with money, and recently they lost their home to foreclosure. They found another place to live, and they both work, but since the foreclosure my dad has been asking me for money on a regular basis. He tries to make me feel guilty, and he calls or asks me to come over to talk about it when my mom isn’t home. He even asked for half of the bonus I received at work the other day. I know they need help, but I’m not sure what to do.

Eli

Dear Eli,

I can tell you love your parents, because you’re looking for the best way to help them. I think your brain knows what to do, but your heart is having a hard time doing it.

The first thing you’re going to have to accept is your father is being very manipulative right now. Put an end to these private meetings and phone calls once and for all. If he wants to talk, make sure he understands it will only happen with your mom in the room.

Second, understand there’s nothing wrong with helping your folks get back on their feet. However, any financial help you give them should be temporary in nature, and it should be a gift. Don’t get involved in giving them money every month just because they raised you. That’s not how this works. When you permanently subsidize someone, you take away their dignity. You also change their status, and compromise their ability to stand on their own two feet.

In return, you should let them know you expect them to work toward changing their financial behaviors with the help of a quality financial counselor — one with the heart of a teacher. It’s often difficult for parents to accept advice and suggestions from their ownchildren, but it’s for their own good. Sit down with them, and gently let them know how much you care, and how much you want better, happier lives for them.

God bless you all, Eli.

—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 June 14 2018

By
Dave Ramsey
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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

By
Dave Ramsey
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The zero-based budget

Dear Dave,

I have a good job and make pretty good money, but I’m tired of always worrying about my finances and being strapped for cash at the end of the month. I’ve heard you talk about getting out of debt and living on a zero-based budget, but what exactly is a zero-based budget?

Edward

Dear Edward,

The concept of a zero-based budget is simple: income minus outgo equals zero. If you bring home $4,000 a month, you want everything you spend, save, give and invest to equal $4,000. That way, you know where every one of your dollars is going. Not knowing where the money’s going is what kills lots of people’s financial dreams. They think they know how much they’re spending and where it’s going, but they really don’t.

Here’s how you do it. List all your income sources for the month. Your income should include paychecks, small-business income, side jobs, residual income, child support and so on. If it’s money that comes into your household’s bank account, write it down and add it up.

Next, list every single expense you have each month. Rent, food, cable, phones and everything in between. Your expenses vary from one month to the next, and this is why you make a new budget each month. Your giving budget might be high in December when Christmas rolls around. The car budget will spike during months when you pay insurance or renew your tags. Focus on one month at a time.

Now, subtract your expenses from your income. Ideally, this number will be zero. It might take a few months of practice, so don’t worry if it doesn’t balance out immediately. If it doesn’t, it just means you need to do something to bring one of the numbers up, the other one down—or both. If you’re spending more than you make, you need to make some cuts in your spending. If you need to generate more money, get apart-time job or sell a bunch of stuff.

The deal with a zero-based budget is this: every dollar must have a name. That means every dollar has a designated job to do. If you fill out every item in your budget and come out $100 ahead—meaning you have nothing for that $100 to do—you haven’t finished your budget. You have to find a job for that $100. It’s your decision what it does, but if you don’t give it a name and purpose, you’ll end up blowing it and wondering where it went.

Good luck, Edward!

* 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.

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