Dear Dave,
If someone is following your plan, is it a good idea to get mortgage disability insurance during Baby Step 2?
Craig
Dear Craig,
No, it is not. Mortgage disability insurance is a gimmick, and I would never recommend it to anyone.
I think I know where you’re going with this. During Baby Step 1, I encourage people to save up and set aside a beginner emergency fund of $1,000. Baby Step 2 is where you start paying off all your debts, except for your home, using the debt snowball system. A thousand dollars may not seem like a lot in savings during that time, but in the beginning it’s an attainable amount to save. Plus, it’s more than a lot of people have when they make the decision to get out of debt and gain control of their finances. Then, after finishing Baby Step 2 you move directly in Baby Step 3 — fully-funding your emergency fund with three to six months of expenses.
What I would recommend is having long-term disability insurance in place. It’s fairly inexpensive, especially if you get it through your employer.
—Dave
(Fix it, or buy another?)
Word count: 214
Dear Dave,
I’m driving a 12-year-old car with 210,000 miles on it. The car needs close to $2,000 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 in the $15,000 price range?
Brett
Dear Brett,
Let’s see, 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 probably sell the old one for around $3,000 if it needs repairs, combine that with your money and get a $13,000 car. Then, you could write a check and pay off the student loan debt.
With no car payment, no student loan payment, and a good car, you can really lean into your budget and saving money. You’d have no debt except your home, and you could rebuild your savings in a hurry. You’d be in really good financial shape in about six months. Plus, you’d have $15,000 in the bank in the meantime!
—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
================
Dear Dave,
My mom and dad always told me to live below my means, but they never showed me how to make it happen. I’ve gotten out of debt and fallen back in several times. I want to get control of my money and stop busting my budget. How do I keep from falling back again?
Sandi
Dear Sandi,
It sounds like you’ve taken a serious look at your situation, and you’re smart enough to know it’s not working and you want to do things differently. Well, this is a great time of the year for changes!
Years ago when I crashed and burned financially there were a few strong emotions that spurred me towards change. One of those was disgust. I realized that what I was doing was stupid, and that I was tired of living that way. I made a conscious, proactive decision that things were going to be different.
The second emotion was fear. I was scared to death that I’d be broke for the rest of my life. I don’t think you should ever live your life in fear, but a reasonable, healthy level of fear can be a terrific motivator.
The third thing was contentment. Marketers try to sell us on the idea that we’ll be happier if we just go out and buy things. When we have this stuff crammed down our throats all day long, rapid-fire, it can affect our level and perception of contentment.
One of the practical things I did was to stop going places where I was tempted to spend money. When you have to go out, make a list of only the things you need and take just enough cash with you to make the purchase. Spending money on a bunch of stuff you don’t need, and probably don’t really want, isn’t going to bring you contentment.
—Dave
(Who’s the boss?)
Word count: 201
Dear Dave,
I’m trying to get out of debt, but it seems like something unexpected always happens to knock me back down. I’m single, make $45,000 a year, and I have $12,000 in debt, in addition to a mortgage payment of $1,124 a month. I’ve been trying to live on a budget, but I still don’t know where all the money goes.
Anonymous
Dear Anonymous,
For starters, your house payment is kind of heavy. I always recommend that your monthly mortgage payment be no more than 25 percent of your take-home pay. Still, the biggest thing is that you’ve got to get control of your money instead of letting it control you.
I want you to sit down every month, before the next month begins, and write it all down on paper, on purpose. Give every single dollar a name, and tell your money what to do. Once you’ve done this, the idea of “trying to live on a budget” stops being some vague idea floating around out there and becomes a real game plan for your money!
—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
==============
Dear Dave,
I follow you on Twitter, and I was wondering if you recommend buying an umbrella policy. If so, how much?
Dean
Dear Dean,
If you’ve started to win with money and build some wealth, an umbrella policy is some of the cheapest insurance you can buy. It’s just about the biggest bang for your buck.
Here’s an example. In most states, you can get an extra $1 million in liability coverage added to your car insurance and homeowners insurance as an umbrella policy for as little as $200 a year.
There’s no problem if you don’t have any money. But if you’ve got some cash, and you bump into somebody, it’s a really good thing to have that extra umbrella insurance policy in liability situations!
—Dave
(Drop the arrogance!)
Word count: 301
Dear Dave,
My son is in his thirties and has been married for seven years to a girl from a wealthy family. Her parents provided them with a lot of financial support over the years, but now they’re getting divorced and he has come to us for the money to make this happen. On top of all this, when we ask him why he doesn’t have the money he tells us it’s none of our business. We don’t like his attitude, but we’re not sure what to do.
Dee
Dear Dee,
This is a grown man we’re talking about, and if he’s going to take on the lifestyle and actions of a grown-up he needs to act like one and take care of his responsibilities. I understand he’s your son, and he’s hurting right now. Still, it takes a ton of arrogance to beg money from someone and tell them the reason they don’t have it is not their business.
If he seriously wants to get into some financial counseling and start becoming accountable for his money — to himself and to you — then you might consider helping him out financially. But at this point, you’re giving a drunk a drink if you just hand him money because he wants it.
Anyone can make a mistake, Dee. But it’s not your job to fund his irresponsible behavior or his arrogance!
—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
=====================
Dear Dave,
My husband and I are debt-free except for our home, and we have about $100,000 in savings. Recently, one of our daughters was diagnosed with Crohn’s disease. We’re worried about this, and the fact that she and her sister are both teenage drivers. Do you think we should drop full coverage, and have just liability, since we’ll probably have lots of medical bills over the next few years?
Kim
Dear Kim,
I’m really sorry to hear about your daughter’s medical situation. But speaking from a financial perspective, you guys are in pretty good shape to handle things. You have a pile of cash in savings, I assume you have some kind of medical insurance and you’re debt-free.
Under the circumstances, I get where you’re coming from and the idea of having even more money available to put toward medical issues. In your case, however, there’s no way I’m going to have only liability coverage when there are two teenage drivers in the house. There’s a reason insurance rates are so high for teens. It’s called statistical analysis of their driving ability. They’re not good drivers!
I haven’t had a wreck in over 20 years, but I’ve had some kids who did. No, I wouldn’t drop the coverage. Hopefully, your daughter will be okay. But I wouldn’t take a chance on having to write a check for another car on top of medical expenses.
—Dave
(Kids and family)
Word count: 263
Dear Dave,
I receive child support payments for my two kids from my ex-husband. My new husband and I are using your plan to improve out finances, but we can’t agree on how to handle these payments. I’ve been keeping it in a separate account. He thinks we should combine it with the rest of our house money and budget. What do you think is best?
Leslie
Dear Leslie,
I don’t blame you for being protective of the child support money. I’m sure the feelings you have stem from a desire to protect your kids. But if your new husband is a good guy, one who’s kind, loving and willing to treat these kids like they’re his very own, then my opinion is the money should go into the pile where it helps take care of the kids and family.
Your job as a parent is to be a blessing to your kids. That means feeding them, clothing them, educating them and giving them a good home. 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. Put it right at the top of your monthly budget, along with all your other household income.
Money is important, and I’d expect you to make sure your kids and your cash are treated properly. But I’m talking about two responsible people being involved in a happy marriage, too. A healthy, loving relationship is one of the best gifts any couple can give to their kids.
—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.
