Dear Dave,
I follow your advice and live on a budget, but it’s really hard to save up for a down payment on a house because property is so expensive here in New York. My family in Indiana says I should buy a cheap property there, then fix it up and sell it to get the money I need. I’m not sure how I feel about this idea. What do you think?
Adam
Dear Adam,
I think you’d be smart to back away from their idea. Your family loves you and wants to help, but this is a bad plan. Fixing and flipping properties is a hands-on business. There’s no way I’d try something like that from 700 miles away. It would be a nightmare!
When you take on that kind of work you need to oversee every single step of the process. You’re also keeping an eye on the help you hire to make sure they’re doing things right. Think about this, too. You can’t just find a house and expect to get a good deal. Professionals who flip houses for a living often look at dozens of different properties to buy just one. It’s not an easy way to make money, and it’s not something I would advise doing from a distance.
I know it can take a while to save up cash for a down payment on a home. But don’t let a case of house fever push you into making a bad financial decision. Have you considered getting a part-time job for a while to bring in some extra cash?
A house should be a blessing, not a burden. Trust me, waiting a while and saving up is a lot smarter than fixing and flipping houses three states away!
—Dave
(Get a fresh start)
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Dear Dave,
I got laid off a couple of months ago, and I’m behind on the payments for a rental property. I found a full-time job recently, but it doesn’t provide enough income to cover my other bills and the mortgage on this property. The other day, I received an offer from someone who is willing to buy it for what’s owed on the property. I’m not sure that’s the best thing, because I owe $70,000 and it’s worth around $150,000. What do you think?
Travis
Dear Travis,
You’ve got one thing right. You definitely need to get rid of the rental property. I’m not sure I’d jump at the offer you just received, but if I were in your shoes I’d slash the price way below value and sell the place.
Right now you’re broke, and you’re still trying to play real estate investor. That’s not a good plan. I’d put a price tag of $100,000 on it, so you can move it fast and still see some equity in the deal. But sell it today!
By doing this, you’ll have a nice chunk of cash in your pocket, and you can get something of a financial fresh start — one that includes living on a written, monthly budget and staying out of debt!
—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.
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Dear Dave,
I’m 30 and debt-free. Do you think I should stop making contributions to
my 401(k) account for a year in order to save up an emergency fund?
Beth
Dear Beth,
Yes, I do. But it shouldn’t take you a year to set aside an emergency fund if you’re
debt-free and making decent money at your job. Just make it part of your monthly
budget plan, grit your teeth and do it!
I recommend that people put off or stop investing until they are debt-free, except
for their home, and have an emergency fund of three to six months of expenses in
place. In some cases, depending on how much debt they have, it could take three or
four years to do all this. I know it seems like a long time, but it’s really not in the
grand scheme of things.
Here’s the way I look at it. If you have no emergency fund, but you’re
contributing to your 401(k), there’s a good chance you’ll end up cashing out your
401(k) if a large, unexpected expense comes along. When you cash out a
401(k) early, you get hit with a penalty plus your tax rate. That’s not a good plan!
That’s just one of the reasons I tell people to have an emergency fund in place
before they start investing!
—Dave
(A waste of money?)
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Dear Dave,
I have a question about home warranties. Are they a waste of money if you already
have a fully-funded emergency fund, with six months of expenses or more set
aside?
Andy
Dear Andy,
In my opinion, they’re a waste of money even if you don’t have that
much set aside for emergencies. I recommend an emergency fund of three to six
months of expenses to cover the unexpected things that life will throw at you. This
amount of cash, sitting in a good money market account with check
writing privileges, will give you easy access in the event of a financial emergency.
I don’t do extended warranties of any kind, Andy. They’re not a good deal. You’re
better off to self-insure against things breaking down, and put what would have
been profit and marketing dollars for the extended warranty company in your own
pocket!
—Dave
*Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books, including More Than Enough. 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.
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Dear Dave,
I’m retired, and currently I have about five percent of my retirement savings in gold and silver I’ve been acquiring over the last few years. I’ve seen gold prices decline significantly, and I’m wondering if I should hang on to it as a safety factor in the event the economy goes bad in a hurry. I want to make sure I’ll still have a safety factor, and something of value, if that happens.
Steve
Dear Steve,
What’s the safety factor here? And if everything goes downhill, why does it have value? Gold has this weird allure and mythology around it that says, “I’ve still got something that people will take when the economy crashes.” But the truth is there hasn’t been an instance when people used gold as a medium of exchange in a crashed or failed economy since the Roman Empire.
People still use gold because they believe in it. We also believe in green paper with presidents’ faces on it. So, gold really has no more intrinsic value than that green paper. The only reason we place value on it is because we, the society, place value on it. A failed society might not place value on it anymore.
In a completely failed economy, the first step is usually a takeover by a Fascist government. After that, you get a new color of money – of paper – with a new leader’s face on it. Then, the old stuff isn’t worth anything. It’s very seldom you ever see gold come to the rescue.
I don’t believe in investing in gold for that reason. Plus, the track record on gold, as far as a rate of return, is horrible over the long haul. There was a time a few years ago when everyone went crazy on it, but other than that? Ugh!
—Dave
(On the road again?)
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Dear Dave,
We’ve got our emergency fund in place, and we’re debt-free except for our home. We’d like to have a child soon, but my job requires frequent travel. I don’t want to be away most of the time when there’s a baby in the house, so I’m thinking about opening my own business. That way, I can set my own hours. What do you think of this idea?
Ray
Dear Ray,
Ask yourself this question: If time and money weren’t considerations, which one would you rather do? You’d be on straight commission as an entrepreneur, so there would be no regular checks to count on as income. You’d have to wake up every single morning, go out and kill something and drag it home. If you don’t, your family won’t eat.
An entrepreneur is the only person I know who can go from sheer terror to sheer exhilaration and back every single day. You’ve got to have a strong mind and heart to make things happen, and it will be a rough ride if you don’t have both. Plus, it won’t last long if you don’t absolutely love what you’re doing.
Everybody wants to be successful in their job and make lots of money, but personal happiness is just as important. If you wake up jazzed about what you’re going to do every day, chances are you’ll be successful and happy. But if you wake up dreading the day and your job, then I can almost guarantee you won’t be successful financially or happy.
Do lots of research and planning before you make any big changes, Ray. There are great small business ideas still waiting to be had, but to make something good happen you’ve got to find the one that’s right for you!
— Dave
* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books, including The Total Money Makeover. 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.
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Dear Dave,
I’m debt-free except for my home, and I’ll have that paid off in about 12 months. I currently make $60,000 a year and live in an area of Florida that is designated a flood plain, because a river that empties into Tampa Bay runs behind my home. Currently, I’m paying $1,070 a month for flood insurance. My house is worth $325,000, and water has only come up into the yard twice in over 20 years. Since I’m doing pretty well financially, do you think I need to keep my flood insurance policy?
Trudy
Dear Trudy,
From what you’ve told me about the history of your property, it sounds like your biggest concern might be if a hurricane caused a backwash in your area. Insurance is already pretty tough in Florida when it comes to those kinds of things, but you don’t want to run the risk of your house getting mowed down and losing everything.
If I were in your shoes, I think I’d like the protection of flood insurance. What you’re paying for the policy is such a small percentage of your world, compared to the value of your home and your income. Keep the coverage, Trudy!
—Dave
(Do the right thing, but don’t let them bully you)
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Dear Dave,
I have a student loan in default that is now being handled by a collections agency. They want me to pay the entire $20,000 now, or consolidate it with $16,000 in collection fees added. Are these my only options?
Rebecca
Dear Rebecca,
There’s no way I’d consolidate and pay $16,000 in collection fees. Right now, they’re trying to bully you. They may eventually garnish your paychecks, but I think you can still work out something with these guys.
You’ll have to repay the loan, and probably the interest and some of the late charges, but $16,000 is a bunch of crap. Don’t run out and get another loan to pay it, but don’t let yourself be blackmailed, either. You’ve made a mess by ignoring this for so long, so now you’ll have to save every penny you can and start sending them substantial amounts of money each month.
Trust me, they’ll take your payments and cash the checks. Hopefully, you can settle on a reasonable repayment structure and have this thing killed off in a couple of years.
—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 8.5 million listeners each week on more than 550 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com
