Mobile homes are bad investments

Dear Dave,
I’ve heard you tell people not to buy mobile homes. We bought one when we moved out of our apartment, and it’s been much cheaper for us. Why do you feel this way?
Debbie

Dear Debbie,
It’s simple. Mobile homes go down in value. When you buy a house, it goes up in value in the long run. From a financial standpoint, mathematically, when you buy a mobile home, you’re buying a very large car in which to live.

Now, I’m not necessarily against manufactured homes. But the phrase “manufactured home” can mean different things to different people. My test goes something like this: If it’s a type of housing that doesn’t look like it had the wheels yanked off, then it will probably go up in value over the years.

There’s nothing wrong with renting an apartment for a while. When you pay out rent, that’s all you’re losing in the deal. But when you buy a mobile home, you’re losing out with the payments and you’re losing money every day as the thing goes down in value. FULL POST

Selling a house at auction?

Dear Dave,
I have a couple of rental houses, and I was thinking about unloading them at auction instead of renting them out again. What are your thoughts on selling homes at auction?
Shannon

Dear Shannon,
First, let’s take a look at the two types of real estate auctions, absolute auctions and auctions with reserve. With an absolute auction, whatever the house sells for, that’s it. When the hammer drops, you’ve sold the house. An auction with reserve is where the seller, or his agent, reserves the right to accept or decline any and all bids. A minimum price may or may not be disclosed, and the seller reserves the right to accept or decline any bid within a specified timeframe.

As a general rule, auctions are not going to bring retail price. People who go to them are looking for a deal, so you’ve got to be willing to accept less than what the property’s actually worth. Essentially, what you’re doing is drawing out the vultures and hoping one of them will get excited and pay a price close to retail.

Take a good look at your properties, the neighborhoods they’re in, and decide what you’re willing to accept. Then, talk it over with a quality auctioneer in your area. I’ve done pretty well selling properties at auction, and I’ve also found some great deals buying properties at auction. Of course, that meant someone else didn’t do so well!
—Dave

Fifteen percent

Dear Dave,
Would you explain your 15 percent requirement on retirement contributions as listed in the Baby Steps?
Melanie

Dear Melanie,
When I talk about Baby Step 4, which is saving 15 percent of your income for retirement, I’m talking about 15 percent of your gross annual pay. Now, you don’t have to get too nerdy about it. It’s not like you’re going to die a pauper if you only save 14 percent, or be ridiculously extra-wealthy if you save 16 percent. The bottom line is you should be able to save $7,500 a year if you make $50,000 annually. That’s only about $600 a month.

But, the only way you can do this is if you lose stupid things like car payments and credit cards. Get out of the land of MasterCard bondage and American Distress! When you get out of debt, it’s easy to set aside an emergency fund of three to six months of expenses and breeze right along pumping 15 percent into retirement.

By the way, did you know you can retire with about $7 million if you save 15 percent of a $50,000 a year income and invest it in good growth stock mutual funds starting at age 30?

Sounds like it’s worth doing to me!
—Dave

* For more financial help please visit daveramsey.com.

Crummy family's lack of boundaries

Dear Dave,
My grandfather passed away a couple of months ago. I’m 32 and the only relative still living in town, so I helped take care of him and his place so he wouldn’t have to go into an assisted living facility. In his will, he left his entire estate—the house and property plus about $270,000—to me. I’m debt-free except for my house, and now my family is acting weird and telling me I’m making excuses for them being left out of the will. Do you have any advice?
Jason

Dear Jason,
Let me ask you something. Did you love your grandfather? It sure sounds to me like you did by taking care of him and his stuff. It sounds like he loved you a lot, too. So my advice is to do what he wanted and accept this generous inheritance. And your family needs to just shut up!

When you die, you can leave your belongings to whoever you choose. I mean, it was your grandfather’s stuff, so it was his decision. Period. He could have left it directly to his children, grandchildren, a friend or even his dog if he’d wanted.

Let these family members with the problems contest the will. And you can spend the money grandfather left fighting them. The man left what he left, and there’s no more. It was his money, his house and his property. They’re not entitled to it just because they’re breathing!

In the meantime, you need to learn how to be a wise investor and become debt-free, including the house! Start educating yourself on mutual funds and Roth IRAs. And don’t beat yourself up over this, Jason. You haven’t done anything wrong.
—Dave

Get current first!

Dear Dave,
I love your plan, but I have one question before getting started. Should I catch up on any past due bills before saving up $1,000 for Baby Step 1?
Solita

Dear Solita,
Absolutely! First, get current or make payment arrangements with anyone who’s willing to work with you. Make sure your necessities come first. I’m talking about food, clothing, shelter, transportation and utilities. After that, get current with any credit cards and other types of debt you may have. Once you have these things taken care of, it’s time to launch your Total Money Makeover!

You’ve already mentioned getting $1,000 in the bank for a starter emergency fund. That’s Baby Step 1. After that, begin your debt snowball, which is Baby Step 2, and pay off your debts from smallest largest. In Baby Step 3 you’ll save up and increase your emergency fund from $1,000 to three to six months of expenses.

Once you reach this point, you really start looking to the future. In Baby Step 4 you start investing 15 percent of your income into Roth IRAs and other pre-tax retirement plans. College funding for any little ones is next in Baby Step 5, and Baby Step 6 is a biggie—pay off your house early!

But Baby Step 7 is the real deal. When you’re able to build wealth and give, you’ve reached the pinnacle of smart money management. Not only are you securing your family’s future for years, but you can help others and your community in a big way!
—Dave

* For more financial advice please visit daveramsey.com.

Everything down

Dear Dave,
I’m 21 and make $45,000 a year. I’ve heard about your 100 percent down plan to buy a house. I’d like to know more about this, and where I should put the money I’d be saving.
JP

Dear JP,
I like the way you think! But there’s really no big “plan” to what I’m talking about. It’s not rocket science. It’s just a matter of saving like crazy and living on rice and beans for a few years, so you can save up the cash to buy your home outright.

If you’re looking at buying a place in less than five years I’d put it in a money market account. In this case, you’re not going to be saving long enough for interest to be a huge factor. Your best buddy is going to be a low-key lifestyle.

If your timeframe is more like 15 or 20 years, then you should look into mutual funds. Most people don’t stretch the idea out over that period of time, but if you do you’ll get some great help from a friend named compound interest.

I don’t beat people up for taking out a 15-year, fixed rate mortgage. But I’m always for people living like no one else so that later they can live like no one else!
—Dave

Life insurance for mom

Dear Dave,
I’ve heard you recommend having seven to 10 times your income in life insurance. How much would you suggest having on a policy for a stay-at-home mom when there’s no direct income involved?
Dale

Dear Dale,
I’d say somewhere in the $300,000 to $400,000 range, because financially-speaking it’s going to take $35,000 to $40,000 a year to replace all the things she does.

Your wife may not bring home an actual paycheck right now, but there’s a ton of personal and economic value attached to everything she does every day. That lady works hard. What she does is very important and would be very difficult to replace!
—Dave

Is it worth it?

Dear Dave,
I’m interested in your opinion regarding buying a maintenance agreement on a new treadmill. It covers repairs, and an annual visit to check and lubricate all moving parts. Is a maintenance agreement ever worth the money, especially if you’re not the handyman type?
Anonymous

Dear Anonymous,
You know why they sell those agreements? Because they’re huge moneymakers!

No, I wouldn’t do that. We have exercise equipment in our home, and we don’t have any maintenance agreements. Lots of folks decide at some point to start working out and get in shape, but very few see it through to the end. A high percentage of expensive workout equipment turns into very expensive coat hangers in a short amount of time.

I don’t recommend maintenance agreements or extended warranties. I self-insure by having money saved up!
—Dave

* For more financial help please visit daveramsey.com.

New family, lifestyle changes

Dear Dave,
I just got married to a wonderful lady with two children. We’ve talked over our financial situation, and we’re determined to get out of debt within two years. This will mean some big changes in our teenager’s lifestyles. How can we break this to them gently?
Dan

Dear Dan,
Having your wife, who is also their mother, on board with the plan makes a big difference. I think all of you need to sit down and have a frank, but loving, discussion about the changes that are going to come with this marriage for everyone. The kids have to adjust to a stepdad being on the scene, just like you have to adjust to a new marriage where teenagers are part of the package.

Let them know that you don’t want to be the bad guy, but that you and mom have been looking at the money situation, and things just don’t add up. Then, it wouldn’t be a bad idea for mom to speak up at this point. Let her tell the kids that you’ve both decided it’s time you made the money behave, and this will mean some lifestyle changes for everyone.

Listen to reasonable input from them, and let them know their thoughts and feelings matter. But they also need to know things are going to be different, and this part needs to come from mom. Otherwise, they’re likely to see you as the wicked stepdad!
—Dave

Too much going on

Dear Dave,
I’ve got some rental houses, and I run a mail route six days a week. Plus, I grew up on a farm, I still farm, and I’m the minister of a small church. I’m trying to sort these things out, and decide how to free up more time to work in the ministry. I’m not sure what to do.
Damon

Dear Damon,
I would spend some serious time thinking about your situation and praying. Ask God directly what he’s calling you to do for this season of your life. Once you’re called into the ministry, then you’re in the ministry. But one of the questions we’re looking at here is this: should this be the season in which you continue to do this kind of church work? Lots of ministry work is done outside the church, or at least it should be.

Plus, you’ve got to be having fun. You’ll be having fun when you’re doing what you were designed to do. Let me ask you a question. If you had a clean slate, no obligations and unlimited money, what would you do? Now, I’m not talking about sitting on the beach and forgetting the family. That’s not an option once you have the responsibility in place. I’m talking about a kind of work that you’re going to fall in love with and completely pour yourself into. If it’s being involved in rental properties and real estate, fine. If it’s dumping the rental properties, mail route, and farming so you can concentrate on the ministry, that’s great, too.

Think it over from that perspective, but I’d say one or two of these things needs to disappear within the next few months. If not, it’s going to start eating you up inside.
—Dave

* For more financial help please visit daveramsey.com.

Not a good idea ...

Dear Dave,
I live in New York, and even though I follow your advice and live on a budget, it’s really hard to save up for a down payment on a house. My family in South Carolina advised me to buy cheaper property down there, fix it up and flip it to get the money I need. Does this sound like a good plan to you?
Adrian

Dear Adrian,
I wouldn’t do it. Fixing and flipping properties is a very hands-on business, and trying to do it from another state could be a nightmare – especially with the weirdness in today’s economy.

When you take on this kind of work you need to oversee what’s happening every step of the way. You’re also working out the details, and keeping an eye on the crew to make sure they’re doing things right. Besides, you can’t just walk up to a house, buy it, and expect to get a great deal.

Professionals who flip houses for a living often look at 100 or more properties to buy just one. It’s not an easy way to make money, and it’s definitely not something to consider doing from a distance.

Just keep on working the budget and save as much as you can. You might even consider getting a part-time job for a while to bring in some extra cash. But waiting and saving up is a lot smarter plan than fixing and flipping houses 900 miles away!
—Dave

It's your wedding!

Dear Dave,
My girlfriend and I recently got engaged, and our parents are contributing financially to the wedding. We’ve noticed that both sets of parents are pressing their ideas of what they’d like the wedding to be like, who to invite and who to include in the wedding party. I know in the end it’s our call, but traditionally do parents have some kind of say if they contribute money to help pay for the wedding?
Chris

Dear Chris,
No. Traditionally, they take a say. And traditionally they’re a pain in the behind! But they only interfere because they’re so excited and love you so much. They want to be part of the happiness and for everything to be perfect.

As soon as they deliver a little girl, lots of mothers start planning their daughters’ wedding. They’ve had several years to dream and form an opinion on this, and your fiancé’s mom has probably been doing it, too.

Since this is such an emotional event, I think you two need to have some reasonable boundaries. But you also should keep in mind that your parents are just as excited – if not more – than you guys are. When you come to a disagreement tell them firmly, but gently, that you love them, but you’re going to do things your way. If they’re footing part of the bill they’d have the right to decide not to pay for something, but unless there’s some moral issue involved they probably won’t act badly.

I think if you just step back and take a breath you’ll realize what a big deal this is to everyone involved. Chances are you’ll also be able to come up with some creative ways to allow them to participate without your wedding losing its identity.

My biggest suggestion to you is to make sure that you’re the buffer between your fiancé and the parents. Don’t let anyone push her around, and do everything you can to make sure your wedding is what you both want it to be!
—Dave

* For more financial help please visit daveramsey.com.

Time to break out the lunchbox!

Dear Dave,
I love your plan, but I think my husband is attached to eating out. Budgeting is very hard for him, and the cost of his fast food lunches is making it difficult for us. He’s also taken a salary cut recently, and I’m working a part-time job to help us get by. Can you give him some tough love from a male perspective?
Valerie

Dear Valerie,
It sounds to me like you’ve been way too nice. You’re acting like a mother dealing with little kid, and that’s not a good way to relate to a husband. Plus, if you guys are having money problems, the only time either of you should see the inside of a restaurant is if you’re working there!

A man has several jobs in life, and one of those is to take care of his wife and children. You’re wife shouldn’t have to work so you can stuff your face with fast food. When you married him, you didn’t want a little boy. You wanted a man. He needs to grow up and start acting like one!

That being said, my perspective probably won’t help. There’s a saying that goes, “Those convinced against their will are of the same opinion still.” He needs a serious change of heart. You said you love my plan, right? Then sit down with this guy, and show him the numbers. Show him where all the money is going, and tell him it’s just plain wrong for him to eat out all the time while you have to work just to make ends meet.

People can do all kinds of things when they’re stressed out because of money problems. I’m sure taking a cut in salary was a blow to his self-esteem. However, it’s time for a strong wake-up call when these behaviors start to have a negative impact on family and finances!
—Dave

Let's wait a while ...

Dear Dave,
I’m a sophomore in college, and I earn about $1,500 a month at my job. My rent is $500 a month. I don’t really have a credit history, but I’ve saved $20,000, and I’m thinking about using it as a down payment on a $140,000 home. Would this be a good idea?
Gil

Dear Gil,
I wouldn’t do it. I love the fact that you’re working while you’re in school. Saving that much money is fabulous, especially for someone who’s not even 20 years old!

I almost did the same kind of thing when I was in college. I was into real estate, and I really wanted to test my wings and buy something. Looking back on it, though, I’m glad I didn’t. It would have been a huge mistake.

College can be a bumpy enough ride, even for the most responsible student. If you lost your job you’d be in a real mess, and with your stated income you wouldn’t have a lot of breathing room. Plus, the two years following graduation have the potential to be the most permanently life-changing period you’ll ever experience. You could move across the country for a new job, get married, or decide to attend graduate school. In any of these situations, a house would turn into an anchor around your neck.

Being a renter is a great thing while you’re still in school. In the meantime, keep piling up cash until you’re ready to settle down!
- Dave

* For more financial help please visit daveramsey.com.

Is online trading okay?

Dear Dave,
How do you feel about online trading for building a stock portfolio? Assuming that someone has done their homework on which stocks to buy, is there anything else to know about do-it-yourself trading?
Kevin

Dear Kevin,
There’s one very important thing to know – don’t do it! This kind of thing is one rung below day trading on the ladder of stupidity.

Here’s the problem. When most people talk about “doing their homework” on single stocks they’re just barely skimming the surface. And most of the time this involves just talking to their broke friends. There’s no way you and your golfing buddy are going to dig up and decipher the kind of solid, reliable information you’ll need to be successful at this kind of thing.

I’d much rather go with a mutual fund that’s spent millions of dollars analyzing companies and doing real research. What you’re talking about is a million times riskier than using good growth stock mutual funds – selected by professionals – with 90 to 100 different stocks.
—Dave

Investments using home equity?

Dear Dave,
Right now our debt is keeping us from investing. Do you recommend making investments with a home equity line of credit?
Paul

Dear Paul,
Let me answer this very, very carefully. No!

You don’t borrow on your home, Paul. You never want to put something as precious and important as your home in jeopardy just for the sake of investing.

Follow the Baby Steps. First, get $1,000 in the bank to start your emergency fund. Second, pay off all debts from smallest to largest – except for your house – using the debt snowball. This will lead you to Baby Step Three, which is fully funding your emergency fund with three to six months of expenses. Once you’ve done all this you’re ready for Baby Step Four, which is investing in Roth IRAs and other pre-tax retirement.

When you’re debt-free except for your house, you’ll find investing is easy because you’ve freed up your most important wealth building tool – your income!
—Dave

Leasing from your company?

Dear Dave,
I know how you feel about leasing a car. But what about the car leasing programs that auto manufacturers offer their employees?
Stephanie

Dear Stephanie,
A few automakers do this kind of thing, but I’d advise investigating the deal very carefully. And it wouldn’t hurt to take a cold shower first – just to make sure you wash off any car fever you may have.

Some of the automaker offers are just another way for the company to fleece drivers. But some manufacturers offer their employees programs that aren’t a traditional lease. A few of them offer the use of a high-quality car for very little money per month and no hidden catches. In these cases it can work out pretty well. In some instances you’d lose more in value every month – even if you bought a car with cash – than you would pay out under a good employee program. Some companies even offer gas and more in the deal.

Just make sure you check the details thoroughly. Use your head and a calculator – not your heart – when making the decision!
—Dave

* For more financial help please visit daveramsey.com.

Sister needs an attitude adjustment

Dear Dave,
My older sister hasn’t worked in two years. She hasn’t even looked for a job, she’s 36, and she’s been living with our parents the whole time. They want to set her up in an apartment and pay the rent, but I think this is a bad idea. I love her, but what can you do for someone like this?
Dee

Dear Dee,
First of all, your parents aren’t helping matters. She needs a job and a future, and she’s not going to find either one as long as mom and dad are enabling her irresponsible behavior. It’s sad for parents when they see their children harming themselves through their own stupidity and laziness. She’s being both stupid and lazy, and unfortunately, these things aren’t illegal.

There may not be a great ending to this story, because it all rests on your sister. She has the entire family tied up in knots, and in a sense, she’s controlling everyone right now. But if you want my advice, here it is. Give her the address of the nearest homeless shelter, and send her on her way.

Right now, she’s not just lazy and irresponsible, she’s arrogant. And arrogance can only be erased after someone has been broken. When she’s been broken, then she’ll be coachable. In situations like this, you have to love someone enough to let them be broken. Otherwise, they’ll continue in the same destructive behavior pattern.

This is sad, and I wish none of you were involved in such a mess. But she’s had the opportunity to stop this inappropriate behavior at any point during the last two years. Chances are, if she’ll change her attitude and become more humble and trainable, she can build from there.
—Dave

The car or the snowball?

Dear Dave,
We’re working on our debt snowball and are scheduled to become debt-free except for our home a year from now. The problem is I’ve got a very old car that’s on its last legs. Would it be okay for us to put the debt snowball on hold for a month or two, and save up money for a newer, inexpensive used car that’s in better shape?
Jonathan

Dear Jonathan,
I’d hold on to it if your car can make it a while longer. But if it’s really on its last legs, and you’re about to fall through a rusted floorboard, you might consider your plan. You need to ask yourself if you’re just whining, or if it’s an actual situation.

It sounds like you guys are doing a fabulous job so far of paying down your debt. Even if you take a month or two off to save up for a better car, you’ll still have everything paid off except the house in about the same period of time. I’m not going to fuss about a couple of months’ difference in this kind of situation.

Doesn’t it feel great when you actually sit down and take a moment to think and formulate a plan instead of just wandering around lost? You guys have thought this thing out, and now you’re ready to move ahead with a sensible idea!
—Dave

* For more financial help please visit daveramsey.com.

Don't do it!

Dear Dave,
My husband and I have been married for three months, and we’re debt-free. Right now, we’re trying to save up a 20 percent down payment for a house. I work for a real estate company, and they’re really pushing us to take advantage of a first-time homebuyer deal. The program offers 100 percent financing, no money down and no private mortgage insurance. They say it’s a great deal. What do you think?
Stacy

Dear Stacy,
You guys are off to a great start! Don’t blow it now. Those people are wrong. I grew up in the real estate world, and this is a bad idea.

Slow down. It’s great that you guys are young and debt-free, but you need to do things that are smart for you. And for you, smart includes a couple of things. First, make sure you have an emergency fund of three to six months of expenses in place. Then, keep saving up for a big down payment.

You know, when I hear the advice you were given I just want to smack somebody. Haven’t the mortgage lenders learned anything from the last few years? Nothing down, interest-only and sub-prime loans are a big part of the reason for the financial debacle in this country. A house is not a blessing when you’re broke, and a bargain is only a bargain when you’re ready to buy!

I always recommend waiting at least a year after you’re married to buy a house. It takes that long to decide how close you want to live to your in-laws! Plus, you want to spend some time getting used to each other, and knowing each other even better, before making what will be your largest asset purchase.
—Dave

What do the numbers mean?

Dear Dave,
We hear all kinds of numbers relating to the economy every night on the news. To be honest, I have no idea what most of them mean. Can you tell me more about the Dow Jones Industrial Average?
Ken

Dear Ken,
The Dow is an index of the stocks of 30 selected companies. We’re talking about outfits like Wal-Mart, Coca-Cola and Nike – some of the big boys. The percentage that the stock prices of these companies rise or fall as a group, on any given day, is the Dow Jones Industrial Average for that day.

Technically, this index is not a good representative of what the stock market is doing because it only takes into account 30 companies. The S&P is a much better measure of what the market is doing, because it represents the stock-price activity of 500 companies.

Let’s say you’re watching the news, and a reporter tells you the market just went down 300 points and it was at 10,000. That represents only a three percent change, and that’s not big news – regardless of what some of the “experts” say.

Great question, Ken!
—Dave

* For more financial help please visit daveramsey.com.