Dear Dave,
My husband started his own one-man, small business as a handyman a little less than a year ago. He has netted $17,000 in that time, but the business has about $13,000 worth of debt. We’ve always kept personal finances and business separate, but what would you think about us selling one of our paid-for cars to help with the business debt?
Robin
Dear Robin,
There’s nothing wrong with small beginnings. On top of that, you should always keep your business and personal finances separate. Aside from the debt, it sounds like he’s off to a good start.
I think you’ll be able to pay off the debt from your future income. If your husband started his business less than a year ago, he has spent that time trying to get things off the ground and working with very little name recognition. If he’s good at what he does, and he continues to work hard and market himself properly, he should be able to double what he made in the last year.
To do that, however, he’s going to have to spend some time in accountant mode. He needs to figure out the types of jobs he makes the most money on for the time he puts into them. I know a guy in our area who made more than $100,000 as a handyman in the last year. I’m talking about $100,000 in profit! His prices are higher than most in that line of work, but he’s the best. He provides superb quality work, and he’s always polite, on time, and on schedule.
If your husband does the research and crunches some numbers, I think he can dial it in and make a lot more money than he’s making now. Find that sweet spot, and he’ll continue to grow the business!
—Dave
(Forgive the debt?)
Word count: 225
Dear Dave,
Recently, I loaned some money to a good friend. He’s going to help me with a big home project over the next few weekends, so do you think I should pay him for the work or forgive the debt instead?
Marvin
Dear Marvin,
First, I don’t recommend loaning money to friends or family. Once in a while, things may work out and everyone ends up happy. But in most cases, it changes the dynamic of the relationship. The Bible says the borrower is a slave to the lender, and there’s a lot of truth in that — financially and emotionally.
The big question is whether you’ve already agreed to pay him for the work. Another consideration is how he views the situation. He may be looking at this as just helping a buddy, and he still owes the money.
Ask him what his expectations are before you guys start the job. Just talk to him, and figure out what seems fair to you both. If you’ve already agreed on a certain amount, and the value of the work is close to what you loaned him, you might discuss the idea of paying back the debt that way.
But in the future, if someone close to you really needs financial help — and you’re not enabling bad behavior in the process — just make the money a gift.
—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 wife and I are on Baby Step 3 of your plan. We’re also saving up to buy a car with cash. We’re about $3,000 away from our goal, but now my wife wants to go ahead and finance the rest. She has started wondering what the difference is in borrowing to buy a car and borrowing to buy a house.
Lex
Dear Lex,
This is a good question. It sounds like you guys have made good progress, but now one of you is running out of steam. That’s okay. Getting out of debt and staying out of debt can be a tough road.
For one thing, cars go down in value. The second thing is I don’t like debt of any kind. I don’t really like borrowing for a house even, but I tolerate it as long as you use a 15-year, fixed rate mortgage with payments that are no more than a fourth of your take-home pay. I mean, it’s a much larger purchase. You can get a great car for $15,000 to $20,000 dollars. Depending on where you live, a good home can cost you 10 times that or more.
Still, the best way to build wealth and have a high-quality financial life is to not be in debt. You’re never going to win with money in the long term if you can’t learn to delay pleasure. That’s the bottom line. Personal finance is about controlling the person you see when you look in the mirror.
Every one of us has that little four-year-old kid inside, a little kid whose name is Immaturity, and he or she wants what they want right now. What your wife is asking is a normal request, but it’s also a sign that we all have to address that little kid that’s inside us once in a while — and tell that kid no!
—Dave
(Car debt)
Word count: 259
Dear Dave,
My wife and I have just started getting on track with our money. We have $2,000 in savings, and the only debt we have is our house and two cars. I work in the oil and gas industry and make about $180,000 a year, but things are pretty volatile right now. We’re upside down on both vehicles, and we owe $39,000 on one and about $48,000 on the other. Under the circumstances, should we go ahead and build a fully funded emergency fund or work on paying off the cars?
Kendall
Dear Kendall,
Are you kidding me? Sell the cars, dude!
You need to go to Kelly Blue Book’s website right now, and find out what your cars are really worth. Then, put them on the market as a private sale. You’ll get thousands more selling them that way than you will at a dealership. You’ll have to talk to a local credit union or bank for a small loan to cover the difference, plus a little bit more so you guys can get a couple of little beaters to drive for a while.
But man, you’ve got close to $100,000 in car debt hanging over your heads. That’s a disaster! I want you to take a moment and think about how things would be without these stinking car payments. Your lives would change completely!
Hopefully, you’ll be able to keep your job. But this car debt is the scariest thing I’ve heard in a long time, even with your great income. Get rid of those things now!
—Dave
*Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Dave’s latest project, EveryDollar, provides a free online budget tool. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
Dear Dave,
My husband and I are 28 years old. We’re completely debt-free, and we each have great jobs. We don’t talk a lot about this kind of stuff, because we’ve found it causes other people to treat us differently. We realize how incredibly blessed we have been, so we always try to give God the credit, save, tithe and give regularly, and not brag about these things. How would you recommend handling a situation like ours?
Amanda
Dear Amanda,
When you start to win with money, build wealth and achieve some of your goals, you discover pretty quickly that there’s a very small group of people you can celebrate with. It sounds like you’ve discovered this already.
A lot of times there are friends, and even family members, you can’t celebrate with because it comes off as bragging — even if you’re just happy you’ve reached a milestone. So, you learn to keep lots of stuff private and not even share the good things. Still, if you have a nice car or a beautiful home, these things can indicate that you’re successful. Even if they’re a small percentage of your financial world, it will sometimes generate feelings of jealousy or envy in other people.
Jealousy is, “I want what you have.” Envy is, “I don’t think I can have what you do, so I don’t want you to have it either.” These are two really evil spirits, and they’re loose in our country today like never before. Part of the price of making smart decisions, and being wise with your money, is that some people don’t understand when you win and don’t think it’s fair.
But the truth is that you guys have every right to enjoy the fruits of your labor. You’ve earned it. You’re generous, giving people, and you take care of your family so the rest of us don’t have to pay extra taxes to take care of them for you. That’s the truth about winning with money. You guys are under no obligation to explain your income, net worth or the fact that you’re winning. And you’re not obligated to be ashamed of it either!
—Dave
(Pay it, but with caution)
Word count: 285
Dear Dave,
I got a department store credit card, using my real age at the time, when I was 17. I ran up a debt of $150, and the balance has grown to over $350. This was 10 or 12 years ago, but a debt collection agency started calling again the other day wanting the money. Hasn’t the statute of limitations run out by now? What should I do?
Elizabeth
Dear Elizabeth,
There is a statute of limitations, but there are a couple of other things to consider, too. First, the debt is not collectible because a minor alone cannot enter into a legally binding contract in any state. The second thing is they can screw up your credit report for a very long time, and it sounds like they’re in the process of doing that right now.
Here’s my advice. Call them and explain that they are past the statute of limitations, and that you are considering suing them. After that, remind them that you were a minor when someone approved you for the card, which means the store you signed up with can be sued as well.
However, since you did take stuff from the store, offer them the original $150 to settle the deal. Get it in writing that the account is settled in full by this amount, and don’t give them electronic access to your money. When you get the settlement offer in writing, keep a copy of the letter and a copy of the cashier’s check you’ll use as payment.
Pay it because you owe it, Elizabeth. It’s a moral issue. And hopefully as a result you can get these kinds of people out of your life for good!
—Dave
*Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Dave’s latest project, EveryDollar, provides a free online budget tool. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com
Dear Dave,
I bought a piece of lake property not long ago, and the developer has first right of refusal if we decide to sell it. We originally looked at the property as an investment or building site, but I really don’t understand what first right of refusal means.
Craig
Dear Craig,
A lot depends on the wording, but typically it means that you can sell property to another buyer subject to the developer not wanting to buy it back at that price.
If you decided to sell within the timeframe specified in the first right of refusal contract you’d have to notify the developer you have a written offer on the property. Then, you have to give him a chance to buy the lot first at that price.
Or, you could just ask the developer — in writing — to waive his first right of refusal if this is something you want to do. They’re in the business of selling lots, not buying them, so it may be an easy deal.
—Dave
(Different brokers, too?)
Word count:
Dear Dave,
Is it a good idea not only to diversify among various mutual funds, but also among different companies that sell mutual funds?
Brian
Dear Brian,
There’s no need to do that. Find one good broker you’re comfortable with and who has the heart of a teacher. You want to know what’s going on with your money, and finding someone who can explain it well and help you understand the details is a must.
Just make sure your broker is not directly connected to the mutual fund. You don’t want someone with a vested interest. What you’re looking for here is a person who can objectively connect you to a good mutual fund, with a solid track record of at least five to 10 years.
—Dave
(Investment or debt?)
Word count:
Dear Dave,
I’d like to send my kids to a private Christian school, and they would begin classes the same month we’ll finally be out of debt. We would have to pay this out over the course of the school year, so would you consider this to be an investment or more debt?
Ed
Dear Ed,
I don’t borrow money whether it’s an investment or not. But lots of private schools have tuition plans where you don’t have to borrow money, and you just make two or three payments during the academic year.
I don’t know if I would really call that a debt, because you can always take the child out of the school if you see you can’t make the payment. Just make sure you carefully look over any contract involved and know what you’re getting into before you sign up for the ride.
You don’t want to obligate yourself to money you don’t have, especially when you’ve worked so hard to get out of debt. Just save up, and have a place in your budget for tuition.
—Dave
* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books, including Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
Dear Dave,
Should you budget for mad money, or just carrying around cash, when you’re trying to get out of debt?
Aurora
Dear Aurora,
What really matters is the amount of mad money you allow yourself to have. Everyone needs a little pocket money. It’s probably not going to throw you off too much if you put $10 or $20 in there. But $100 or $200? That’s a bit much when you’re scrimping, saving and supposedly working hard to get out of debt.
Think of it as a safety valve, Aurora. Everyone needs a break and a little fun now and then. Whether it’s grabbing lunch out, or going to a movie once in a while, you need to relax and let off little steam.
Just make it part of your regular monthly budget, and stick to the amount. Little things like this will help keep your total money makeover moving in the right direction without wearing you out!
—Dave
(It’s a better idea to pre-plan)
Word count: 303
Dear Dave,
My wife passed away last year, and she was just 43-years old. I paid cash for the funeral and all the arrangements. Now, I’m getting solicitations from the funeral home, wanting me to prepay my own funeral. I’m 45-years-old. Is this a good idea?
Dave
Dear Dave,
God bless you and your family. I’m so sorry you have to go through this, but I’m glad to hear you were in good enough shape financially to handle the burden. That means you were both very wise with your money.
My advice is to pre-plan, but don’t prepay. As you discovered, having to make important decisions in the midst of that kind of grief is a hard thing to do. Sometimes, people are so emotional during times like these that they make bad decisions. So, pre-planning and making selections ahead of time is a great idea.
But it’s never a good idea to prepay for this kind of thing, and here’s why. If you live to an average age, for what you’d prepay today at age 45, you could invest the amount, be self-insured for that kind of thing, and in all likelihood have a ton of money sitting there when your time comes.
Events like this make you realize the need for proper planning, but don’t ever prepay them. Lots of people in the funeral industry don’t like me for this stance, but that’s just because they make lots of money on prepayment plans.
—Dave
* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books, including Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
