The weak can't help the weak

Dear Dave,
My husband and I have been married less than a year, and already we’re having huge disagreements over money. He’s got a big heart, but often he’ll just give money to friends and family. Sometimes, this leaves us short when it comes to monthly bills, paying off debt, and saving anything. I guess he thinks we’ll get by somehow, but it scares me. What can I do?
Summer

Dear Summer,
It sounds like he does have a big heart, and I’m sure that’s one of the reasons you love him. But this kind of behavior is completely irresponsible. What’s worse, it’s driving you crazy. At this point, you have every right to be scared and frustrated, because the message he’s sending you is he wants to take care of everyone else before he takes care of you and your family. That’s not a good idea.

Broke people can’t help broke people, meaning only the strong can help the weak. At this point, you guys should be working together to get your own financial house in order. I’m talking about becoming debt-free, with a fully loaded emergency fund of three to six months’ worth of expenses in place, and something set aside for your golden years. Then, once all that has been taken care of, if you have a friend or family member in financial need, you can gift them $300 or whatever you guys agree is an appropriate amount.

I’m a big giver, both at my business and in my personal life. But I’ve learned that my first gifts should go to my wife and family. After I’ve taken care of my own, then comes giving outside of the household. You guys need to take care of yourselves right now. Kill off the debt and build up some wealth so that your husband’s heart can function in that gift!
—Dave

Planning for a future

Dear Dave,
My husband and I are both spenders. We want to get on a plan and handle our money better, but is there anything that will help us learn to give up stuff now so that we’ll have more in the future?
Beth

Dear Beth,
I know what you’re talking about. Old habits are really hard to break, especially when they’re fun old habits. Even when you wake up and feel the pain and realize you shouldn’t have done something, it’s easy to slip right back into the same old stuff, isn’t it?

The only way I’ve ever been able to achieve anything like that is to find something specific I want bad enough out there in the future to give up something in the present. You may have heard me say, “Live like no one else, so that later you can live like no one else.” Well, this is more a case of you have to want to live like no one else later, so that today you’ll live like no one else.

I saw a bumper sticker once that read “Nothing tastes as good as thin feels.” I’ve got to agree with the idea behind that. No discipline is pleasant, but it’s the pain of changing something in your life that eventually leads to a positive result.

Think about it this way. A great definition of maturity is learning to delay pleasure. Ouch!
—Dave

* For more financial help, please visit daveramsey.com. 

No option but education

Dear Dave,
I hear you talk about using an ESA when it comes to funding college for your kids. What can you do with an ESA, though, if your child decides he or she doesn’t want to go to college?
Anonymous

Dear Anonymous,
You may just have to shoot the kid. I’m kidding, of course, but if something like that happens, you’re going to get killed on the investment. An Education Savings Account (ESA) can only be used for education. If you use it for anything else, you’ll get hit with a 15 percent penalty plus your tax rate. The government’s going to take about half of your money and maybe more.

Now, college is a great idea, but should everyone go to college? Of course not. Some people just aren’t cut out for college, and some kids don’t need four years at a university to find the training they need to do what they want to do in life. In our house, we just talked about college as if it were going to happen from the very beginning. We said things all the time like, “This money is going into your college fund.” An ESA makes perfect sense in this kind of situation, but if the entire family isn’t committed to the importance of getting an education, then you shouldn’t be loading up an ESA.

But hey, if a kid doesn’t want to go the traditional college route, there’s always specialized training in several fields and plenty of vo-tech schools around. An ESA can be used for lots of these kinds of things, too, as long as the school participates in the federal student aid program.

I don’t have a problem with any of that, as long as there’s a plan. But letting a kid get the idea that they’re just going to party and lie around while mom and dad hand half of that ESA over to Uncle Sam? Really?

I don’t think so!
—Dave

What's a good retirement goal?

Dear Dave,
Do you recommend that people have a certain goal percentage or dollar amount saved for retirement?
Faith

Dear Faith,
Well, life doesn’t generally happen in linear fashion. In my opinion, your overall goal—closely and constantly adjusted and monitored—should go something like this: Build a nest egg that you can live off about eight percent of. If you have $500,000 stashed away, then that would mean about $40,000 a year. If you’d rather live on $80,000 a year at retirement, you’d need $1 million. Otherwise, you’re liable to start counting on the government. And we all know how well they handle money…

Want to know where I got this figure? Throughout the history of the stock market, the Standard & Poor 500 has averaged between 11 and 12 percent. Some folks don’t think it will average that in the future, but they didn’t think it would when it was booming, either.

But, if inflation runs about three or four percent, and you’re making 11 to 12 percent, you can pull out eight percent, and you’re still leaving enough in there to give yourself an inflation raise every year and not touch your nest egg.
—Dave

* For more financial help, please visit daveramsey.com.

Child support in the budget?

Dear Dave,
My husband and I can’t agree on how we should handle the child support payments I receive. He thinks it should be put in the pool with our household budget money, but right now I keep it in a separate account. Who’s right?
Leslie

Dear Leslie,
I’m sorry, but in my opinion you’re wrong on this one. My guess is you got burned in the past somehow when it comes to relationships and finances. If this is the case, I don’t blame you for having your momma bear claws out, because these feelings probably come from a desire to protect your kids. But if your husband is a good guy and is willing to raise and treat these kids like they are his own, then the money should go into the pile where it helps take care of the kids and the family.

I’d advise having it right at the top of the budget, along with the rest of your household income. Your job as parents is to be a blessing to your kids, and that means feeding them, clothing them, educating them, and providing shelter for them. As long as these things are happening, and we’re talking about a functional, loving marriage, then all the money should be combined and be part of the family. If this isn’t happening, then you’ve got issues other than just money issues.

If you’ve been through what I think you have, then it’s okay, too, for you to keep an eye on things and make sure your kids—and the money—are treated and cared for appropriately. Money is important, but I’m more concerned about your marriage. A healthy, loving relationship is one of the best gifts a couple can give to their kids.
—Dave

Why only a 15-year mortgage?

Dear Dave,
Why do you only recommend 15-year mortgages?
Nikki

Dear Nikki,
I recommend 15-year mortgages, and never more than that, because the normalization of the 30-year mortgage has helped created a constant state of financial bondage for the middle class. It’s caused average, everyday people to lose hope of ever paying off their homes and being totally debt-free.

I understand that it costs a little more per month when you have a 15-year house note instead of a 20- or 30-year mortgage. But really, it’s just a few dollars more—like 20 percent more than you’d pay on a traditional 30-year mortgage. Plus, it gets you out of debt at least 15 years earlier!

Think about this, too. Did you know that people who take out 15-year home loans have a higher probability of paying them off early? It’s true. It’s because they know from the start that they’re not going to have a house payment hanging over their heads for the rest of their lives. They can see light at the end of the tunnel right from the start.

Broke people ask questions like how much down and how much per month. Rich people, or people with a plan who are going to be rich one day, ask how much or what’s the total price!
—Dave

* For more financial help, please visit daveramsey.com.

Getting back on track

Dear Dave,
I grew up in a house where my parents always lived below their means. They taught me to live that way, but they never showed me how to make it happen. Now, at 45, I’ve gotten out of debt and fallen back in several times. I’m sick of this, and I want to get control of my money. How do I break this bad cycle?
Sandy

Dear Sandy,
It’s frustrating, isn’t it? The fact is, you’re pretty normal. But who wants to be normal when normal is broke?

It sounds to me like you’ve had a “Dr. Phil” moment. You’ve taken a look at your situation and asked yourself how your behavior is working for you. You’re also smart enough to know that it’s not working and that you want to make a change. That’s a great place to start!

When it happened to me, there were three pieces to the puzzle that helped me break the cycle. One was disgust. I realized that what I was doing was stupid, I was tired of living that way, and I made a conscious decision that things were going to be different. The second thing was fear. I was scared to death that I’d retire broke. Now, don’t get me wrong. I don’t think you should ever live your life in fear, but a reasonable level of fear can be a great motivator.

The third piece, and I think it’s the most important part because it’s connected to our spiritual walk, was contentment. We live in a culture that is marketed to more than any other at any time in history. When we have this stuff crammed down out throats all day long, rapid-fire, it can affect our level of contentment.

One of the things I did was to stop going places where I was tempted to spend money. If you go wandering through a store or the mall without a specific plan, you’ll lose every time. You wouldn’t give a drunk a drink, right? So, don’t put yourself in a bad situation when it comes to your behavior with money.

When you have to go to the store, make a list of only the things you need, and take enough cash with you to make the purchase. If you can do that—walk in and walk out again without buying a bunch of stuff that wasn’t on your list—it’s a victory.

Spending money on a bunch of stuff you don’t need, and probably don’t really want, isn’t going to bring you contentment. I think that’s the word you need to keep in mind and the thing you should be praying for while you fight this battle. Believe me, it will help!
—Dave

Saving before the mortgage?

Dear Dave,
Why do you recommend saving before paying off your mortgage? I’ve always thought of a house as a liability that should be paid off as quickly as possible.
Mark

Dear Mark,
You’re off base on this one. The truth is that a house is an asset, and the mortgage is a liability. That’s straight from the pages of Accounting 101. There are folks out there who will try to tell you a house is a liability, because it costs you money. In fact, that house will make you more money than it cost when you sell it, so it’s an asset!

I’ve met 70-year-olds with houses that are paid for and no money in the bank. It’s a really sad situation. That’s why I want people to work on having an emergency fund and 15 percent of their income going into retirement first. Then, take everything above that and put it toward paying off the house as fast as possible.

But don’t believe all this stuff about a home being a liability. It’s just not true!
—Dave

* For more financial help please visit daveramsey.com.

Is it too late?

Dear Dave,
I’m 42, and I haven’t started saving for retirement. I’m self-employed and not making a lot of money right now, plus I have about $8,000 in debt. It feels like I’m living paycheck to paycheck, and I just can’t seem to save or get anything paid off. Can you help?
Avis

Dear Avis,
It’s never too late to start saving for retirement. If you’re breathing, there’s still time!

My guess is that it feels like you’re living paycheck to paycheck because you are living paycheck to paycheck. Let’s back up a little and take a look at this. You already know that you’ve got some stuff to clean up before you’ll be in a position of strength. Paying off the debt is a great idea, but how do you make that happen?

If you’re not making much money, you may have to take on a part-time job while you grow your business. It might mean a career change or something as simple as putting in more hours and kicking that business in the tail to really get it running.

A lot of your money is going out the door every month to pay those debts. But if your debt was paid off, you’d have money to invest for retirement. It’s a combination of an income problem and an outgo problem that’s standing in your way, Avis. Get the income up and stabilized, knock out the debt, and then you’ll create cash flow to save and fund retirement!
—Dave

Stay where you are for now

Dear Dave,
I’m in college, and I live in a rental house. There’s no formal lease, and my landlord never asked for a deposit of any kind. Last January, I started receiving notices from Chase Mortgage saying that my landlord is $7,500 behind in his mortgage. I’m worried about what will happen if they foreclose on him. Should I move out, stop paying rent, or what? He’s told me not to worry, because he’s just behind on the payments and not in default.
Chris

Dear Chris,
Well, the last part is not quite true. When you’re behind on payments you are, by definition, in default.

Still, I think you should stay right where you are for now, and keep paying your rent on time like normal. Keep the lines of communication open with your landlord, too. I’d also contact Chase, and tell them about your situation in this house. Ask them to keep you informed about what’s happening with the property, so that you’ll have time to formulate a plan and find a new place to live if the house goes into foreclosure.

Chances are they’ll give you at least 30 days to move out if a foreclosure occurs. You probably won’t have to pay anything to the bank afterward, so you may get to sit there rent-free even longer while they sort out everything. Considering the fact that you don’t have money wrapped up in a deposit or a lease hanging over your head, there’s really not a lot of risk for you here. Your landlord is still providing the home, and the truth is that foreclosures, if it comes to that, generally take a while to complete.

You might keep an eye out for other properties in the weeks ahead, but other than that, as a renter, you’re still in pretty good shape.
—Dave

* For more financial help please visit daveramsey.com.

Why not grow the IRAs?

Dear Dave,
My wife and I have been following the Baby Steps, and we’ve paid off all of our credit card debt. We still have $51,000 in student loans left, and our combined income is about $140,000. We’re thinking about funding our IRAs while we finish off the college loans. How do you feel about this?
Patrick

Dear Patrick,
I wouldn’t do it that way. If you’re still on Baby Step 2, you need to stop all saving and investing and attack that last piece of debt with a vengeance. I know what you’re going through. The problem with student loans is that, like yours, they’re usually pretty big, and sometimes it’s difficult to see the light at the end of the tunnel. Even with all the work you’ve done so far, a debt that large can make you feel hopeless.

But there’s only one way to take down a giant. You start gnawing at his ankles and work your way up. That’s what you need to do, Patrick. I’m afraid you’ll lose focus and intensity when it comes to getting out of debt if you worry about saving more and investing too soon. I’ve seen that happen to lots of people, and when it does it can take a decade or more to finally get student loans off your back!

You guys have made great progress, and you’re making good money. Don’t give up now! If you stay focused and gazelle-intense about getting out of debt, those student loans will be history in about 18 months. Now is the time to roll up your sleeves, get ticked off at this thing, and really go into attack mode.

I understand the temptation you guys are facing, but I want you to stick to the plan. There’s power in behavior modification on a short-term basis that supersedes the power of mathematics!
—Dave

Your husband is wrong

Dear Dave,
My husband says there’s more risk associated with using a debit card than a credit card. Is this true?
Brittany

Dear Brittany,
As long as you’re using a Visa or MasterCard debit card and processing it as a credit card, you will have the same exact protection against fraud and theft as a credit card—period. If your number is misused or your money stolen, both Visa and MasterCard require the member bank to replace the money you lost. In the case of a credit card, they would have to wipe it off your bill.

Remember, your debit card has two functions. If you use your debit card as an ATM card—which means you enter your personal identification number—then your protection extends only as far as your bank or ATM system allows. These protections can vary depending on your particular bank. And most of the time, the protection you receive from the bank alone isn’t nearly as good!
—Dave

* For more financial help, please visit daveramsey.com.

Great theory, but it doesn't work

Dear Dave,
I live in Alaska, and I’m considering using a credit card for the airline miles. This would make it easier and cheaper for me to visit my family in the Lower 48. Is this a good idea?
Adam

Dear Adam,
What you’re talking about sounds great in theory. The problem is that it doesn’t work out so well in the real world. Did you know that 78 percent of all airline miles are never redeemed? And, if you’re one of the 22 percent who attempt to cash in on them, you’ll find that the airlines make it virtually impossible for you to travel when you want, how you want, or even where you want.

Now, let’s look at the credit card side of things. Did you know that studies have shown that you spend more when you use plastic than when you pay with cash? Cash has an emotional element to it. When it leaves your hand, the pain centers in your brain activate. A study at MIT actually proved this to be true. They also found that those pain centers are not activated when you pay with plastic.

Here’s the bottom line: With a few very rare exceptions, you’re much better off not chasing airline miles by using a credit card. The vast majority of people who play this game find themselves with nothing but debt at the end of the day. If you’re really interested in airline miles, I’d suggest looking into a debit card program that offers this perk. With a debit card, you’re not borrowing money. You’re spending your own money straight from your own bank account.

If this credit card airline miles thing worked so well for the consumer, the card companies would be going out of business. More than anything, it’s a bait and switch. And the bait is attached to a hook that takes money out of your pocket and puts it in theirs!
—Dave

Debt management companies aren't magic

Dear Dave,
How do you feel about debt management companies? Can they actually help you reduce and get out of debt?
Jake

Dear Jake,
My advice is to stay away from debt management companies. If you go to the Federal Trade Commission’s website, you’ll find that debt management companies receive more complaints than just about any other type of business. In other words, tons of them are operated poorly to the point of incompetence, or they’re just plain scams.

Debt management companies don’t wave a magic wand and make your problems disappear. The only way a creditor will take less than they’re owed is if you’re way behind on payments, and they’re afraid they won’t get paid. And, if it comes to a settlement situation, you have to watch your back. Always make sure you get any settlement offers and agreements on your own and in writing—no exceptions. And never allow a creditor to have electronic access to your bank accounts.

But the big problem is that you need to fix your behavior when it comes to handling money. You can do that a lot cheaper than any company. But if you don’t get control of your money, start living on a budget, and living on less than you make, your debt problem is going to hang around your neck for the rest of your life!
—Dave

* For more financial help, please visit daveramsey.com. 

Make him earn it

Dear Dave,
I recently received a beneficiary IRA when my mother passed away. I also received a small part of her estate. I’d like to share some of this with my 24-year-old son. He’s a good boy, but he’s pretty impulsive and not good with money. Do you have any suggestions?
Kimberly

Dear Kimberly,
I’m sorry to hear about your loss. It’s tough enough losing your mom without having to worry about a grown son with money issues.

I’m sure he’s a good kid, but I don’t like the idea of just giving him money when you already know he’s impulsive. Over the years, I’ve learned that handing money to someone who’s financially irresponsible is not a good plan. Lots of people think they’d be fine if they just had more money, and that’s generally not the case. You have to ask yourself if you’d really be helping this young man by giving him a bunch of money. More than likely, the answer is no.

You’ve got several options. But, at his age, it might be a good idea to attach a few strings to him getting any of the money. Set up some guidelines designed to improve his behaviors in a few areas, and you could give him the money if he meets the requirements. Don’t make him jump through a bunch of hoops for no reason. I’m talking about things that will train and educate him to live a more productive and responsible life in the future—both financially and as a mature, responsible adult in general.

I think this is fair to you both, and it’s also a way you can help him help himself. And hey, if he refuses to cooperate or cops an attitude, you can always just keep the money until he finally grows up a little!
-Dave

Budget overflow ...

Dear Dave,
What should I do with any money I have left from various categories in my monthly budget?
Chris

Dear Chris,
Some things you’ll carry over from month to month. A good example might be clothing. A lot of people, especially men, don’t buy new clothes every month. We’re usually not as style-conscious as the ladies, so we generally don’t get around to buying new clothes until something is just completely worn out.

If you’re consistently over-budgeting in a category like food, you need to simply cut back on the amount you’re designating for groceries. When it comes to miscellaneous items, and if it’s just a few dollars here and there, you’ve got a few options. You might carry it over like with the food money, or you could combine the amounts into an overflow fund. You could even put it toward paying off debt, if you have any, or stash it in your blow money category and have a little bit more to spend on fun stuff.

Good question, Chris!
—Dave

* For more financial help, please visit daveramsey.com.

Don't go back into debt!

Dear Dave,
We paid off our cars a few months ago, and that freed up almost $800 month. We have two small children, and we’d like to take a camping trip in a few months, but we would need a roomier vehicle. We found a used van, and we think we could have it paid off in 12 months. We’d still have more money left than before, so would this be okay?
Melissa

Dear Melissa,
I’m confused. Are you telling me that you just got out from under $800 worth of car payments each month, and now you want to go right back and pick up another one? I think you’ve missed the point of my plan. The point is to get out of debt, because living debt-free is less stressful. Live like no one else, so that later you can live like no one else!

What you’re saying is you’re thinking about putting your family’s financial future in jeopardy because you want to go on a little camping trip in a roomier car. This is a really bad plan. You’re talking about a luxury item. I went without a vacation for four years trying to get my life back together after I went broke. Now, I’m not suggesting that you live with this attitude for the rest of your life, but I’m pretty sure there are other ways to make this trip happen.

You don’t need a different vehicle to go camping. Buy a couple of tents, throw them in the back of the car, and head for the woods. If your cars are really just too small to handle everything, then rent a bigger car for the weekend. I’d rather you spend a couple hundred bucks on that instead of picking up another car payment.

I think you need to do some soul searching on this one, Melissa. Your mindset worries me, because it’s just not logical. If you want to get out of debt so you can have a better life, then why in the world would you go out and saddle yourself with more debt all over again?!
—Dave

He said he would help, now he's gone ...

Dear Dave,
I think I made a big mistake when I bought my car. I’m having a hard time affording the $500 a month payments, because I only make minimum wage at my job and work 35 hours a week. My boyfriend, who was supposed to help me pay for it, has moved out and left me. I owe $20,000 on the car, but I know it’s still worth about $19,000. What can I do?
Rachel

Dear Rachel,
Sell the car! You went car crazy and bought a vehicle that was way out of your league.

Right now, your entire financial world is wrapped up in paying for this thing and depending on a boyfriend to help make the payments was a mistake, too. When he left, so did the financial support.

At this point all you need is enough credit to cover the hole that you dug. Go to your local bank or credit union and try to get a very small loan from them – about $3,000. If the car will sell for $19,000 then get it sold and use $1,000 to cover the difference.

Then, take the remaining $2,000, and buy yourself a little beater. We’re not talking about anything cool, just basic, ugly transportation. After that, pick up a part-time job on the side and work like crazy for a few months to get that loan paid back as quickly as possible!
—Dave

* For more financial help please visit daveramsey.com.

Are unemployment benefits immoral?

Dear Dave,
I recently lost my job due to layoffs. I’m luckier than most, because I’m debt-free except for my house, and I have three months of expenses saved. I’ll also receive a severance package from my former employer, and my wife still has her job. I’m struggling with whether or not to file for unemployment compensation. Do you think it’s morally okay to do this?
Brent

Dear Brent,
I don’t have a problem, morally or otherwise, with accepting something I’ve already paid for. The Social Security system in this country is a complete and abysmal mathematical failure. It’s proof that socialism doesn’t work. But that doesn’t mean I’m not going to take my money out. The government took it from me in the first place!

Now, if accepting unemployment benefits causes you to get the idea you can sit on your butt at home and not do anything, then I’d question your character. I’m not hearing that kind of mentality from you, though. You sound like a hardworking guy, and you two have obviously been pretty smart and responsible with your finances.

Make sure you look at your severance package as “survival money.” You’ll know exactly how much you’ll get, so make a budget and make it stick. Cut all excess spending, and that means no more eating out, vacations, and all that stuff until you’re working again and everything’s back on solid ground. Then, you can ease back into saving and resuming a normal lifestyle.

Right now really is the time for you guys to live like no one else!
—Dave

How about pet insurance?

Dear Dave,
What’s your take on having pet insurance while building wealth in order to avoid being sidetracked by pet-related emergencies?
Anonymous

Dear Anonymous,
We have three dogs in the Ramsey household, and my wife and I love those guys a lot. They’re almost like little hairy children to us both. However, we do not have pet insurance on any of them. You might be thinking that we’ve got plenty of money and don’t have to worry about that kind of thing. But even if we weren’t financially blessed it’s just not something we would do. Instead, we’d figure a reasonable amount for pet care into our budget.

Now, don’t misunderstand what I’m saying. Reasonable expenditures to fix a sick or injured pet are absolutely fine. It’s the kind of thing anyone with a heart should want to do for a pet. But ridiculous amounts of money spent on an animal—many times spent selfishly on the part of the human because they’re so emotionally attached to the animal—can be cruel, inhumane, and financially disastrous.

I’m not going to be mad at you if you have $2 million sitting in the bank and you decide to spend $10,000 to keep your dog alive. But pet insurance? Really? I don’t think so.
—Dave

* For more financial help, please visit daveramsey.com.