Repair Now or Buy Later?

Written by Dave Ramsey on . Posted in Finance

Dear Dave,

davernewI’m driving a 10-year-old car with 195,000 miles on it. The car needs $1,500 in repairs, and it’s worth $5,000. I have $40,000 in cash saved, $40,000 in investments and I make $80,000 a year. I also have $15,000 in student loan debt, but the only other thing I owe on is my house. Should I pay to repair the car or buy something else for $15,000?

Dave

Dear Dave,

Nice name! If you wrote a $15,000 check for a newer car and wrote a $15,000 check for the student loans, it would leave you with $10,000. I wouldn’t buy a $15,000 car in your situation. I’d buy a $10,000 car. You could sell your current car for around $3,500 if it needs repairs, combine that with your money and get a $13,500 car. Then, you could write a check and pay off the student loan.

With no car payment, no student loan payment and a good car, you can really lean into your budget. Think about it. You’d have no debt except for your home, and you could rebuild your savings in a hurry and be in really great shape in about six months. Plus, you’d have $15,000 sitting there in the meantime!

Dave

No pets allowed

Dear Dave,

I have several rental properties, and lately I’ve been spending a ton of money remodeling them because I allow pets. Do you think I should begin refusing tenants with pets?

Jim

Dear Jim,

This is a tough one for me, because I have three dogs of my own. I’ve got a pug that’s older than dirt, a shih tzu with an attitude and the best golden retriever on the planet. I love animals, and like you, I’ve got a lot of rental properties. But I don’t allow animals in my properties.

Some people have accused me of hating all animals except my own. I can tell you that’s not true. But the fact is a lot of people don’t take good care of their animals and keep an eye on them. It’s hard enough to find trustworthy, responsible renters these days, and if you add a dog or cat on top of that you’re just asking for trouble. I’ve had situations in the past where I had to spend $10,000 to clean up a house after a tenant had a dog or cat in there. They’ll chew things up, stain and stink things up, and tear things up. Sometimes you even have to replace the floorboards!

I had a lady offer me $10,000 deposit the other day on one of my properties, just so she could move in with her dog. I said no. It’s in all my leases now — no animals. I don’t allow them in at the beginning, and if one of my tenants gets one after they move in they either have to find a new home for the animal or move out themselves. At that point they’re in violation of the lease.

The problem is I really do have a heart for animals. I love them. But as a landlord who’s running a business, it just doesn’t make sense.

—Dave

* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

Rehabbing to Sell

Written by Dave Ramsey on . Posted in Finance

Dear Dave,

davernewMy husband and I recently inherited my parents’ home. It’s in a small, rural town with little industry, and we’ve been told that the place would be worth $85,000 if it’s cleaned up, compared to $75,000 as-is. Should we spend about $10,000 to really clean it up, replace a few things and make it presentable to sell it faster?

Terri

Dear Terri,

It’s really up to you guys, because both options — whether you’re sitting on the house or rehabbing it — are going to take time and emotional energy. From a real estate person’s perspective, houses always sell better when they’re shined up and looking nice. When a prospective buyer walks in and sees and smells new carpet and fresh paint, they don’t have strain their imaginations looking past everything. When you force potential buyers to look past things, it usually ends up costing you money.

In most cases, if you spend $10,000 you gain more than what you put into the house. Honestly, I think one of the numbers you’ve given me is wrong — either the $85,000, the $75,000 or the $10,000 you think it will take to fix up the place. In other words, if you spend $10,000 on a project like this, you’ll usually gain $20,000 when you’re talking about stuff like a thorough cleaning, new carpet and flooring, fresh paint and basics like that. My guess is if the place is worth $85,000 fixed up it’ll probably bring about $65,000 as-is.

If it’s me, I’m going to clean the place and fix it up. I’ve done hundreds, if not thousands, of these kinds of deals, and I can’t stand to try and sell something that’s dumpy, grungy and out of shape.

Dave

Where does this money go?



Dear Dave,

If you have a mortgage that will be paid off in the next two or three years, should you pay extra toward the house or invest that money over and above the 15 percent you recommend putting toward retirement?

Walt

Dear Walt,

I would pay extra on the house. You know, a magical thing happens when you pay down a house and sell it somewhere down the road. The money comes back. You didn’t lose it.

Honestly, you’re not doing a bad thing by putting it into retirement either. But you don’t know exactly what will happen over the next several years of your life or the life of your investments. You might think you know. You might even have a plan. But the truth is even the best plans don’t always work out the way we want.

And if that happens, it sure would be neat to own your home outright!

—Dave

* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

Tithing and Giving While Getting Out of Debt

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

Do you recommend that people continue tithing and giving while getting out of debt?

Sarah

Dear Sarah,

If you’re tithing, that would refer to you being a Christian or of the Jewish faith. To the best of my knowledge, those are the only two religions where tithing is taught as a part of the faith. The word literally means “a tenth,” as in a tenth of your income.

If you are an evangelical Christian, what does Scripture say? It says to take the tithe off the top before you do anything else. You keep doing it always, not from a legalistic perspective, but because it’s part of God’s instructions on the best way to live. It gives you a baseline for giving and generosity.

Then, get yourself and your household cleaned up and in good financial shape before engaging in other acts of giving, which are called offerings. This is the normal process that Scripture outlines. But remember, God is crazy about you and loves you very much. When you give, it’s the act of being unselfish and putting others first.

—Dave

Two free spirits


Dear Dave,

What’s your advice to a couple when they’re both Free Spirits with money?

Steve

Dear Steve,

Being a Free Spirit just means you don’t major in details. You’re not the number cruncher, and you don’t wear a pocket protector. But being a Free Spirit doesn’t mean you can’t be a grown up. Maturity isn’t what I’m talking about here, and neither is initiative. I’m just talking about your personality style, and how you address life in general.

In my house, I’m the Nerd and my wife is the Free Spirit. I’m a naturally detail-oriented person who likes a solid, well-reasoned plan. My wife enjoys a plan, and she doesn’t mind sticking to one, but that’s not her default button. It doesn’t mean you’re not a grown up just because your default button doesn’t go straight to spreadsheets. And just because you’re like that doesn’t mean you can’t lay out a game plan and say, “Hey, we make too much money to waste it all. We have too much coming in every month to be deep in debt and broke!”

Being a Free Spirit just means you have to concentrate a little harder on the details, because those kinds of things just aren’t your nature. I mean, you have to pay attention to enough of the basic details if you want to win with money, but that’s true with almost any endeavor.

Want to know something else I’ve noticed about Free Spirits? In most cases, they’re extremely generous people. When they care about something or someone, they really care. And the fact that you’re thinking about these things leads me to believe you’re going to be all right. Just be intentional, Steve. Do it with a goal and a plan in mind, and do it on purpose!

—Dave

* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

You Can’t Afford The Master’s Degree!

Written by Editor in Chief on . Posted in Finance

Dear Dave,

davernewMy husband makes about $35,000 a year before taxes, and we have one child. We've also got a mortgage and $60,000 in student loan debt. About a year ago, my husband started work on a master's degree, because he thinks he wants to teach when he retires. He quit school after the baby was born, because he didn't think we could afford it any longer. I think he should finish the degree. Otherwise, he's just throwing away the $10,000 we've already got invested in the program. What do you think?

Amanda

Dear Amanda,

You guys need to clean up the mess you've made before he goes after his master's degree. You might be able to justify it if the degree immediately raised his income, but you two can't afford to make investments in vague educational goals right now.

If you want to call it throwing the money away, then yeah, throw it away. But I'm not sure the money has been wasted. The classes he has already taken are complete and on record, so why can't he finish the degree somewhere down the road? You guys have done a poor job of planning, and now you need to climb out of a big hole before you do anything else.

The point is not the $10,000, Amanda. The point is that you're barely making ends meet. You've already got a house payment and $60,000 in student loan debt hanging over your heads, not to mention the added expense of a baby in the house. The last thing you need is to go even deeper into debt for something he won't even use until retirement. That's just silly.

I'm all for education, but you've got to plan things and get a better payback on your educational spending. That's when it becomes an investment. But he doesn't need to even think about a master's degree until you guys have first straightened out your finances!

Dave

Asset Allocation


Dear Dave,

Can you explain the "asset allocation" theory when it comes to investing?

Matthew

Dear Matthew,

The asset allocation theory is one touted by lots of people in the financial community. It's also a theory with which I disagree.

In short, the asset allocation theory means that you invest aggressively while you're young. Then as you get older, you move toward less aggressive funds. If you follow this theory to the letter, you're left pretty much with money markets and bonds by the time you're 65.
The reason I don't believe in this theory is simple. It doesn't work. If you live to age 65 and are in good health, there's a high statistical likelihood that you'll make it to 95. The average age of death for males in this country is now 76, but that includes infant mortality and teenage deaths. So, a healthy 65-year-old man in America can look at having another quarter century on earth. If you move your money to bonds and money markets at age 65, inflation is going to kick your tail. Your money will grow slower than it will devalue, and you'll have little purchasing power. That's the problem with the asset allocation methodology.
I advise investing in good, growth stock mutual funds that have strong track records of at least five to ten years. Spread your money across four types of funds: growth, growth and income, aggressive growth and international. These groups provide diversification across risk, as well as a little splash overseas.

Great question, Matthew!

Dave

* Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

Offered a Timeshare

Written by Dave Ramsey on . Posted in Finance

Dear Dave,

davernewSome friends recently offered me a timeshare. It’s an older place on the beach, and they’ve had it for about 20 years. I’d have to pay a transfer fee of $100, plus a yearly association fee of $500. I know you’re not a big fan of timeshares, but does this deal sound okay?

Jill

Dear Jill,

In essence, you’re looking at $500 a week. I know the $500 is technically an annual association fee, but you’re basically paying $500 for your week at the timeshare. And in the future, say five years from now, the association fee could increase. You might be paying $1,000 a year at that point — again, for your week.

In actuality, the numbers you’re talking about right now aren’t completely terrible. Still, it’s not a huge blessing. In my mind it’s kind of like, “How would you like a kick in the knee that’s not too hard?”

If it were me, I’d much rather spend my $500 a year on travel and be able to go and stay wherever I wanted. Not only does this free you up it that area, but you’d only spend the money when and if you did it. With a timeshare, you get charged whether you show up or not.

This one’s not as bad as if you’d have to pay $8,000 for the opportunity. But if these were my friends making the offer, I’d have to say no thanks.

Dave

Using the mortgage to consolidate


Dear Dave,

I’m 38, single and I have three kids. I make $65,000 a year and have $34,000 in debt. I’m about to get remarried, and my new husband will make about $100,000 a year. Should I take the $34,000 and put it on my mortgage to consolidate it?

Leslie

Dear Leslie,

Please don’t consolidate this debt. If you guys are about to get married you need to learn, as a couple, to make debt a thing of the past and live on a written, monthly budget. Think about it. Once you’re married, your family will have a great income. You could really push and attack that debt, and have it paid off in no time.

As a new couple, you need to learn to set goals and work on things as a team. Budgeting is a great exercise for any marriage, but it’s an especially good thing for newly married couples to learn to do. A budget isn’t just controlling your money. It’s two people sitting down together and sharing their hopes and dreams for the future. Not just that, it’s the process of making an actual, workable, written plan that will help make these dreams become reality.

Don’t do a debt consolidation, Leslie. Debt consolidation is nothing more than a "con," because you think you've done something about the debt problem. But the truth is the debt is still there, as are the habits that caused it. All you did was move it around.

You can't borrow your way out of debt, just like you can't get out of a hole by digging out the bottom!

Dave

* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

We Need Help With Our Budget!

Written by Dave Ramsey on . Posted in Finance

Dear Dave,

davernewMy husband and I have been living on a budget for a few months, and for some reason there seems to be leaks in our budget. It’s just a few dollars here and there, but added together it makes a huge dent. Can you give us some advice?

Joy

Dear Joy,

This kind of thing happens a lot in household budgeting, especially to folks who are new to the game. Here are some ideas to help stretch your dollars and plug those leaks.

Use the cash-only method, especially when shopping for groceries. Take only the amount you have budgeted, and don’t use your debit card or a check. Also, use coupons only for items you would buy anyway. In addition, you can stock up on items you use often when there is a big sale. These little things will add up.

Try eating out only on special occasions, drink water as your beverage and don’t be afraid to use coupons in restaurants, either. When it comes to buying clothes, make a habit of checking out the sale rack first. You can shop at thrift and consignment stores, and sell the clothes you don’t wear anymore.

With entertainment, use dollar-off and buy-one-get-one-free coupons whenever you can. See a matinee or a second-run movie, and if you’re going somewhere with a bunch of people, call ahead and ask for a group discount. You’ll be amazed at how much money these tactics will save!

Dave

Avoid interest on loan?
 

Dear Dave,

In an attempt to improve my bad credit I recently bought a new car which I financed at 17.9 percent for 72 months. If I make the minimum payment of $468 a month, I’ll end up paying about $13,000 in interest alone. Is there a formula I can use to avoid paying all this interest?

Marcus

Dear Marcus,

There sure is. Sell the stinking car!

Your credit rating and interest rate are lousy because you haven’t paid your bills. And you haven’t paid your bills because you’ve been buying a bunch of crap you couldn’t afford — like this new car at $468 a month.

Listen, you could have more than $5,500 in just 12 months if you just saved up all those car payments. That would get you a good little used vehicle that wouldn’t be an anchor around your neck for the next six years.

Stop believing the lie, Marcus. Going into debt doesn’t improve your life.

—Dave

* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

Cash Wedding On a Budget

Written by Dave Ramsey on . Posted in Finance

Dear Dave,

davernewI'm getting married soon, and my fiancée and I together have saved about $9,000 for our wedding. Right now, we're doing really well on our budgets and almost always have money left over each month. Should we use the extra money to continue paying down our debt, or is it okay to use it for a few wedding incidentals?

Nathan

Dear Nathan,

I love the idea of having a nice, reasonable wedding paid for with cash. Some people look at weddings as an excuse to go nuts, but you guys sound like you have a good plan in mind.
The average cost of a wedding in America right now is around $30,000. Even if the extras you mentioned run $5,000 to $6,000, you're still talking about half that amount. So, let's look at it this way. Basically, you're asking me if it's okay to put your debt snowball on hold temporarily in order to modestly enhance your already reasonable wedding plans. My answer is yes!

Now, if you'd told me you wanted to drop $50,000 on the wedding instead of getting out of debt, I'd think you were crazy. It doesn't sound like you two are going to abuse the situation, though. I think you're both being very wise.

God bless, and I hope you have long and happy lives together!

Dave

Taking care of final expenses

Dear Dave,

I'm 30-years-old, single, I rent an apartment and I have no dependents. Do I need life insurance?

Shawna

Dear Shawna,

You may have very little need for life insurance in your situation. If you have enough money saved up to pay for your burial, and you don't have any debt, there's really no reason to carry a policy. No one is going to be harmed financially by your death, and no one would be deprived of the income that would be lost if something unexpected happened to you.

But if you don't have money saved, and you've got a bunch of debt, you might want to consider a small, term life insurance policy. At your age, if you're fairly healthy, you can get $100,000 worth of coverage for almost nothing.

Remember, you shouldn't buy life insurance to leave an inheritance. You should buy life insurance is to make sure there's enough money to take care of your family and final expenses. You wouldn't want your parents or someone else having to foot the bill once you're gone!

—Dave

* Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

Will the Government Take It?

Written by Dave Ramsey on . Posted in Finance

dave-smaller-ramseyDear Dave,

I have a 5-year-old daughter, and I want to start a 529 for her. However, I’m concerned that the government might seize the 529 assets in order to pay off debt and give people treasury bonds instead. Do you think this might happen?

Barry

Dear Barry,

Asking For A Raise

Written by Dave Ramsey on . Posted in Finance

dave-smaller-ramseyDear Dave,

What’s your advice on asking for a raise at work when you have more responsibility than a co-worker but the same title on paper? After being with my company four years, I feel like I should make more money and I have the right to complain about this.

Vanessa

Dear Vanessa,

Keeping Motivation Up

Written by Dave Ramsey on . Posted in Finance

dave-smaller-ramseyDear Dave,

I make $30,000 a year. I’ve just started Baby Step 2 of your plan, and I’m paying off my debts from smallest to largest. I have $55,000 in debt, including $15,000 on a car loan. I recently picked up a part-time job to help pay down the debt, but sometimes I’m working 70 hours a week. Do you have any recommendation for staying motivated during this process?

Brandon

Dear Brandon,

Not a Good Idea

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

I’m 23, transitioning jobs, and I make $32,000 a year. I have $11,000 in a 401(k), and about $15,000 in debt. Should I cash out the 401(k) to pay down my debt?

Cody

Dear Cody,

I don’t think so. When you take money out of a 401(k) they charge you a 10 percent penalty, plus your tax rate.

100% Mortality Rate

Written by Dave Ramsey on . Posted in Finance

davernewDear Dave,

Do you think it’s unreasonable to ask my 76-year-old husband to have a will drawn up?  He had one made when we lived in Florida, but we moved to Georgia. He won’t do it,  because he says wills aren’t recognized in Georgia.

Cam

Dear Cam,

Wills aren’t recognized in Georgia? Where did he get his legal advice, in a bar or pool hall?

Okay, let’s straighten this out. The will he had drawn up in Florida wouldn’t be

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