Keeping Business Simple

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

My husband is a landscaper who works for the state. He has his technical license and wants to start a business doing private work as well. What advice would you give to someone just starting out in this field?

Amy

Dear Amy,

First, I’d check to see if there are any additional licenses required for doing that kind of work in your state and the cities in which you’ll be operating. You want to make sure you’re starting off on the right foot with any authorities or governing boards.

The next thing I’d advise is to keep it simple. There’s no reason to run out and incorporate or anything like that. It’s a service business, so print up some cards and start thinking about a basic one- or two-page website. Then, once you land some jobs, post tons of pictures of his work. Before and after shots are great sales tools in his industry, so you’ll need to really show off his talents.

Of course, no one will know you’re out there or online unless you really talk up the business with people. And I’m not just talking about homeowners and businesses. You guys need to approach anyone who may be a potential lead—real estate agents, builders, bankers, architects and anyone else who touches a piece of real estate.

When we built our house, the architect recommended the landscaper. So, try to figure out all the connectivity points you can. Then, stay in touch, and buy them lots of coffee and doughnuts!

—Dave

Dear Dave,

We had just started your plan and saved $1,000 for our baby emergency fund when our laptop computer died. We do all of our finances online, including budgeting and banking. Should we dip into the emergency fund to replace the computer?

Erin

Dear Erin,

Yes, I think you should. Computers used to be considered a luxury, but today many people find themselves in your exact situation. They use computers not as toys or just to surf the web, but to help run their households and organize their lives and finances on a daily basis.

Now, upgrading at this point to the biggest, baddest, coolest thing on the planet is a no-no. That kind of thing is what we call a “want.” There’s a difference between a “want” and a “need.” So, you need stay calm and go find a good basic computer that will take care of your online needs.

Trust me, you can get a good new laptop for about $300. That way, you can take care of your computing while only putting a small, temporary dent in your emergency fund!

—Dave

Dear Dave,

I’m 36, and I’ve been placed on permanent disability due to primary progressive multiple sclerosis. Is there a possibility I could petition to have my student loans forgiven? Do you believe this is an issue of conscience?

Janelle

Dear Janelle,

No, I don’t think it’s an issue of conscience. If you’ve been officially and medically diagnosed with this disease, and you’ve also been declared permanently disabled, then federally insured student loans can, and should, be forgiven.

I’ll tell you ahead of time that it’s going to take a lot of work—regardless of the reason—to get a request like this through the system. You’ll be swimming in red tape for a while, but having the loans forgiven is only fair considering your condition and situation.

God bless you, Janelle.

—Dave

Which one first?

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

I was wondering if I should save up three to six months of expenses, Baby Step Three, before I pay off my debt with the debt snowball – Baby Step Two. I’m self-employed and work on a contract basis. My current contract will be up in a few months, and I’ll have to find another contract.

Pat

Dear Pat,

In a sense, you’re going to be laid off in a few months. I think it would be wise to prepare for that in advance.

Just paying the minimum payments on your debt for now, and saving up three to six months of expenses, would be one way to plan for that event. However, the day you get your next contract, I want you to take that emergency fund back down to $1,000, because you’ll have gotten your stability back at that point. The good news is that you have a little while to be looking for another contract. That’s a luxury not many people have when they lose a job.

After you bring your emergency fund back down, I want you in attack mode on the debt snowball. Every extra dime you can find needs to go to paying off debt. Sell some things if you have to, but get out from under that debt as soon as you can!

—Dave

 Dear Dave,

I requested a copy of my credit report, and noticed there have been several instances where companies have asked for a copy of my report. I was under the impression that this could only be done if you were applying for credit.

Lynn

Dear Lynn,

Under the Federal Fair Credit Reporting Act anyone with a valid business reason can check your report with, or without, your permission. Some employment applications even state they will be pulling a copy of your report as part of their screening process.

It sounds to me like you’ve gotten a bunch of marketing inquiries. That why your mailbox – like most – is full of unsolicited credit card and home equity loan offers.

But here’s the good news. You can put a block on your bureau for unsolicited marketing inquiries. This prevents companies from searching your bureau for the sole purpose of offering credit you didn’t request!

—Dave

 Dear Dave,

My fiancé and I are looking to buy a house a couple of months after we’re married. We’ve saved about $50,000 toward the down payment, and the payments on the house we like would only be $202 a month on a 15-year mortgage. Does this sound like a good idea?

Robbie

Dear Robbie,

You guys have done a great job saving up all that money. But I think newly-married couples should wait at least a year before buying a house. In that first year of marriage you’ll get to know each other even better than you do now. It will also give you time to figure out just how far away from your in-laws you want to live!

Spend the first year loving on each other, and mapping out a plan for your lives together. You can save even more money in the meantime, and if you’re lucky, you might be able to pay cash for that first home when time rolls around.

Don’t fall into the trap of thinking you have to run straight to the real estate office right after you slip the rings on each other’s fingers. That’s a mistake lots of young couples make, and end up regretting it later!  

—Dave

Counseling before marriage a good idea?

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

I just got engaged, and already people are telling us that pre-marital counseling is a good idea. What is your opinion?

Bradley

Dear Bradley,

It doesn’t necessarily mean that someone thinks you aren’t right for each other when they suggest you think about pre-marital counseling. In fact, I think it’s a great thing, a smart thing, and something every couple should do prior to marriage.

There are four areas in which you and your fiancé should be in agreement before you walk down the aisle. These are religion, children, parents, and money. Studies show that couples who agree on these issues prior to marriage have a much better chance of experiencing a successful marriage and spending long, happy lives together.

Unity creates romance, whether you’re talking about holding hands or handling money. And it’s not just about coming to an agreement, either. It’s about sharing your innermost thoughts, goals, and dreams, and mapping out a life together that will make you both happy!

— Dave

Dear Dave,

How will it affect my auto insurance if I’m debt-free, and have a zero, or low, FICO score?

Anonymous

Dear Anonymous,

There’s good news and bad news. The bad news is that it will probably go up. The good news is that it won’t go up nearly as much as the interest you’d have to pay to some bank to maintain your credit score!

My personal insurance is higher, because I don’t have a credit score. That’s because I don’t borrow money anymore, and haven’t borrowed for several years. But the FICO score has way too much control over our lives these days. It’s just not an accurate measure of how well you handle your money. You can easily have a really high FICO score and still be losing financially.

Think about this. If I handed you a million dollars you’re FICO score wouldn’t change one point. The only thing a FICO score really does is measure your interaction with debt. That’s why I call it the “I love debt score.” It’s really a pretty bad idea for other reasons, too. It doesn’t take into account the fact that you may have been smart with your money and accumulated some wealth along the way!

— Dave

Bailing at the wrong time

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

My wife and I are both 58, and she has $250,000 in a 401(k) that has lost 20 percent in the last couple of months. This represents the vast majority of our savings. We probably won’t need the money for at least another five years. Should we move it to something else?

John

Dear John,

It’s normal to be a little bit scared when the markets are as crazy as they’ve been lately. The fact that the news media has been going bananas with all this doesn’t help matters, either.

Here’s the deal. Ninety-seven percent of the five-year periods in the stock market’s history have made money. So far, 100 percent of the 15-year periods have made money. That’s a pretty solid history. You’ve got time for the markets to recover.

Chances are, you won’t be using this money for another 10 years or so. Even if you retire early, you’ll probably just pull an income off of it instead of cashing it all out and hiding it in your basement, right?

Think about this, too. Since 1978, the market has dipped 10 percent or more about a dozen times. It has recovered within two years 90 percent of the time. If you got out now, John, you’d be leaving at exactly the wrong time!

 —Dave

Dear Dave,

I’m a pastor, and I’d like to know your opinion on opting out of Social Security.

Art

Dear Art,

Under the law, pastors are allowed to be “conscientious objectors” where their pastoral income is concerned, and opt out of our country’s Social Security program. So, yes, you can decide to opt out. Now, the big question is whether or not I think you should do that.

If I were a pastor, I could easily look at the horrible mathematics involved in Social Security—what an absolute rip-off and terrible program it is—and decide as a Christian that sending money to those clowns in Washington, D.C. is a terrible use of God’s money. To use the Christian term, I would view it as bad stewardship. I could conscientiously object on a spiritual basis in a heartbeat!

Now, once you’ve done this, you need to understand that you’re giving up three things Social Security tries to accomplish. You’re giving up a Social Security check when you retire. It’s not much, it’s enough to eat dog food on, but it’s a check. So, you have to make sure you fund your own retirement.

Second, you need to get long-term disability insurance. Social Security would provide a little something had you been paying in, but if you haven’t, it’s all up to you. You don’t get money from the government for long-term disability if you opt out. And the third thing you need is life insurance. Social Security would pay your family a little bit if you died, but only if you’d been paying into the program. If you opt out and don’t have life insurance in place, that means the money is gone when you’re gone.

But guess what? You should be doing these three things whether you opt out or not. It’s called wise financial planning!

—Dave

Lifestyle changes

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

I just married a wonderful lady with two children. We’ve talked over our financial situation, and we’re determined to get out of debt within two years. This will mean some big changes in our teenager’s lifestyles. How can we break this to them gently?

Dan

Dear Dan,

Having your wife – who is also their mother – on board with the plan makes a big difference. I think all of you need to sit down and have a frank but loving discussion about the changes that are going to come with this marriage for everyone. The kids have to adjust to a stepdad being on the scene, just like you have to adjust to a marriage situation where teenagers are part of the package.

Let them know you don’t want to be the bad guy, but that you and mom have been looking at the money situation and things just don’t add up. It also wouldn’t be a bad idea if mom did a lot of the talking. Let her tell the kids that you’ve both decided it’s time to make the money behave, and this will mean some lifestyle changes.

Listen to reasonable input from them, and let them know their thoughts and feelings matter. But they also need to understand things are going to be different, and this part needs to come from mom. Otherwise, they’re likely to see you as the wicked stepdad!

— Dave

Dear Dave,

My husband is into estate investment properties. He’ll buy a run-down house for very little money, fix it up and then rent it out. The debt we’re racking up makes me nervous. Each house has a loan, but he says it’s okay because we can sell them. Can you give me any advice?

Carol

Dear Carol,

I went broke years ago doing exactly what your husband is doing right now. I’ve known several others who went broke doing it, too. Lots of folks in real estate tend to believe that debt is okay so long as the property is worth more than the debt, but there are several down sides to that kind of thinking. At the end of the day, the borrower is always slave to the lender. And I’m afraid your husband may be on that path.

At best, this kind of thinking will make for lots of uncertainty. The worst case scenario has you guys ending up bankrupt, just like we did. My experience way back when is proof that things like this can quickly escalate out of control when you make debt one of your building blocks.

There’s nothing wrong with investing in real estate, but I recommend that he do it much more slowly – and with cash!

— Dave

Planning for college

I was talking with a friend this morning about the best way to pay for a child’s college.  There are so many implications that could affect your strategy.  How do my decisions influence the FAFSA?  What tax consequences should I be aware of?  Do I set up accounts in my name or my child’s name?  Since I have college on my mind, I thought I would provide you with five tips and suggestions to ponder. 

1.  Start saving now.  Time is a key factor in determining how much money you will have available. Time gives your money the ability to grow with regular contributions and compounding earnings.  Depending on your circumstances, you may be best off investing in a Coverdell Educational Savings account (ESA).   529 plans are the most common vehicle for college savings although there can be several drawbacks with these plans.  The important thing is to save money now for this future expense.

 

2. Prioritize your retirement planning over college planning.   This is the most important advice I can give you.  Think about the years ahead when you are ready to retire.  What income streams will be available to you?  I can almost guarantee that Social Security will not be available to you in its current form.  So, you cannot really rely on that.  Pensions (outside of public service jobs) are almost extinct.  As a result, the only income that you can truly rely upon is related to the money you save and invest during your working years.  That’s it!  Since you do not want to become a burden on your kids as you age, you need to prioritize retirement savings now.  Your child will have other avenues available to pay more college, but the same is not the case for your retirement.  Also, the amount that you invest in non-Roth workplace retirement accounts reduces your taxable income, a factor in aid eligibility. 

 

3. Keep assets out of your child’s name.  The formula for determining financial aid weighs the student’s income and assets most heavily in the aid calculation.  For this reason, you may want to consider keeping monetary assets in the parent’s name instead.  The best option would be to have a grandparent, aunt/uncle, etc. set up an ESA or 529 in their name for the benefit of your child.  In this case, these monies are excluded from the calculation altogether. 

 

4. Consult a professional.  There are many great resources available to assist you in the planning process.  Some specialize in college funding solutions while others are general financial planners.   Do some research on your own.  The internet offers several reputable sites that specialize in this area.  One of the best known is Saving for College.  The most important thing is to have a plan.

 

5. Pay off consumer debt.  Debt from credit cards and auto loans are not factored into your financial aid calculations.  So the fact that you have this debt does not increase your financial aid eligibility.  It may be wise to pay these debts off which will free up additional cash flow and help you pay for college.   

 

I hope that you find these tips helpful.  This is just the tip of the iceberg as the whole college planning process can be quite complicated.  What tips can you add to this list?  I look forward to your suggestions.

Not time for a reunion

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

My husband says we can’t travel to Illinois for a family reunion next summer if we’re not out of debt by then. He thinks your rule is no vacations while you’re getting out of debt. I think if we plan and save, it would be worth it to go. Who’s right?

Ann

Dear Ann,

It must be your family reunion we’re talking about! Seriously, he’s right in this case. No vacations while you’re getting out of debt. You guys need to roll up your sleeves and get the job done.

Still, I’m not going to be an ogre or anything about this kind of trip. I mean, we’re talking about family. So, I’m okay with it if you guys work together and spend next to nothing to make it happen. But if traveling to Illinois involves $1,000 worth of plane tickets, then you’re staying home, girl! If I were in your place, I’d be staying home. That’s how you get out of debt. You have to get angry at it. You can’t just roll along living life as usual.

Live like no one else, so that later you can live like no one else. I know, you’re thinking life’s too short to not have some fun. Well, you’re right. Life is too short. It’s way too short to live your whole life being broke!

—Dave

 Dear Dave,

Would you agree that pride is our biggest problem when it comes to debt?

Brian

Dear Brian,

That’s a really interesting question. I think pride is definitely toward the top of the list, but I’d say the biggest cause of debt is immaturity.

One really good definition of maturity is learning to delay pleasure. When you can’t wait to buy the video game, or the car, or the iPhone, then that’s a sign of immaturity. It’s like a four-year-old fussing and whining, “I want it right now!” Give me a break! That kind of stuff makes me sick.

But you know, pride may be the biggest reason people keep debt. People who walk around worrying about what everyone else would think if they got rid of the big house or the fancy car—worrying that everybody else would think they’re broke—now that’s pride. But it definitely enters into the equation.

—Dave

The car rule

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

What’s your rule of thumb about how much your car should be worth in comparison with your income?

Madea

Dear Madea,

Great question! My rule of thumb is that all of your vehicles—I’m talking about cars, trucks, boats and their Sea-Doo sisters, motorcycles, and anything else like this—should not total more than half your annual income. 

Why? It’s because all of these kinds of things go down in value. You never want half of your income going into things whose value is dropping like a rock. You don’t need a $20,000 car if you’re making $30,000 a year. That’s just stupid. Think about it this way. If you’re making that kind of money, and I walk up and tell you I’ve got an investment opportunity that will turn $20,000 of your hard-earned income into $12,000 in just three or four years, are you going to take me up on the offer? If you’ve got a brain in your head, the answer’s no!

Now, I’m okay with it if you make $300,000 a year and buy a $20,000 car if you pay cash. That’s like most people running out and buying a Happy Meal. It’s just not a big deal!

—Dave

 Dear Dave,

Do you ever reach a point in your plan where you stop budgeting or using the envelope system?

Craig

Dear Craig,

I’ve been fortunate enough to build a net worth of several million dollars, and my wife and I never stopped doing either one. We still sit down together every month and plan out a written budget. Every dollar is spent on paper before the next month begins, and we follow it exactly. And I can promise that were you to look in my wife’s purse, you’d find one of our deluxe envelope systems, just like we sell in our office bookstore. She carries it with her everywhere!

We do these things because we’re responsible spiritually for handling that money well. Those of us who are Christians call that “stewardship.” We feel like we’re called to be good stewards—good managers—of God’s money. It’s not a freaky thing. It’s just a matter of following God’s good advice and common sense.

I want that money to behave, and these things are some of the best ways I’ve found to make it do what it’s supposed to do!

—Dave

Elizabeth Warren and the Consumer Financial Protection Bureau

As many of you know, Harvard professor Elizabeth Warren has been selected by President Obama to serve as a Special Advisor, charged with the task of setting up the new Consumer Financial Protection Bureau.  This was a key provision in the financial reform law passed earlier this summer.  Ms. Warren has been a long-time advocate for consumer rights and is a leading expert in consumer bankruptcy and advocacy. 

Ms. Warren has posted her thoughts on her role with this new bureau and I am including it below for your information.  I admire the commitment and passion that Ms. Warren has exhibited over the years and look forward to her leadership with this reform.  Do you agree that this will benefit consumers?  Do you believe that Ms. Warren is the right person for the job?  Let me know your thoughts.

Fighting to Protect Consumers

Posted by Elizabeth Warren, September 17, 2010 at 6:00am EDT

Over the past several weeks, the President and I have had extensive conversations about the vital importance of consumer financial protection.

The President asked me, and I enthusiastically agreed, to serve as an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau.  He has also asked me to take on the job to get the new CFPB started—right now.  The President and I are committed to the same vision on CFPB, and I am confident that I will have the tools I need to get the job done.

President Obama understands the importance of leveling the playing field again for families and creating protections that work not just for the wealthy or connected, but for every American. The new consumer bureau is based on a pretty simple idea:  people ought to be able to read their credit card and mortgage contracts and know the deal.  They shouldn’t learn about an unfair rule or practice only when it bites them—way too late for them to do anything about it.  The new law creates a chance to put a tough cop on the beat and provide real accountability and oversight of the consumer credit market.  The time for hiding tricks and traps in the fine print is over.  This new bureau is based on the simple idea that if the playing field is level and families can see what’s going on, they will have better tools to make better choices.

If the CFPB can succeed at leveling the playing field,  we can go a long way toward repairing a gaping hole in the budgets of millions of families.  But nobody has ever thought or argued that the consumer bureau can fix everything.  Lost jobs, stagnant incomes, rising costs for college, dwindling retirement savings—there’s a lot of work to be done.

When she was 16, my grandmother, Hannie Reed, drove a wagon in the Oklahoma land rush.  Her mother had died, so she was up front with her little brothers and sisters bouncing around in the back.  When I was growing up, she talked about life on the prairie, about marrying my grandfather and making a living building one-room schoolhouses, about getting wiped out in the Great Depression.  She was hit with hard challenges throughout her life, but the moral of her stories was always the same:  she would solve her problems one at a time by pulling up her socks and getting to work.

It’s time for all of us to pull up our socks and get to work.

Working isn’t child abuse

As a Dave Ramsey Certified Counselor, we are pleased to publish this weekly syndicated Dave Says column to our blog readers. We hope you find this advice helpful and enjoyable.
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Dear Dave,

I’ll be starting college next fall. Is it okay to take out student loans if you have no other income to live on while you’re in school?

Mandy

Dear Mandy,

Wait a second! What do you mean you don’t have any other source of income to live on while you’re in school? Didn’t anyone ever teach you about a little thing called work? I worked 40 to 60 hours a week all through college, and I still graduated in four years. Nowadays, many people would call that child abuse. It’s absurd!

Don’t try to box me into a corner with the ridiculous notion that you have to take out student loans to go to college. You do not! Did you know that only 57 percent of people who start college actually graduate? That means 43 percent don’t. And guess what they have? Student loan debt and no degree!

Here’s what I want you to do. First, apply for every college scholarship you can find. Next, get a job! You may even have to take a couple of part-time jobs, but so what? Once you’re there, live in the dorm and eat dorm food, too. It won’t kill you. And a state college, where you can get in-state tuition, is always a good idea. If there’s one close by you can save even more money by living at home.

Is a college education important? Sure, it is. It’s a great thing, and I recommend going to college. But is student loan debt a necessary part of getting a degree and achieving success in life? Absolutely not!

— Dave

Dear Dave,

My fiancé is from a wealthy family. The other day, her father suggested a pre-nuptial agreement. I’m not sure what to think about this. What’s your opinion on pre-nups?

Jeremy

Dear Jeremy,

It sounds like her family values its money more than it values their relationship with you. That could be a problem. If your bride-to-be feels the same way, then you shouldn’t marry her. In most cases there’s just a really bad spirit that goes along with pre-nups. It’s basically planning your divorce in advance. And in most cases, what you set your eyes on is what you’ll end up getting. One of my daughters just got married, and I never even thought of suggesting a pre-nuptial agreement.

There may be one exception to this rule. If you’re fiancé was already wealthy on her own, I might change my answer. Extreme wealth has a tendency to attract a whole lot of weirdness and dishonesty. I’ve even gone so far as to tell my wife to get a pre-nup if I die and she marries again. This is different than just the potential to be wealthy, like your case.

You can still have a wonderful marriage, even if you don’t see eye-to-eye with her family on this. But both of you need to be on the same page and of one mind. That’s why I think it would be a really good idea for you guys to address this before the wedding with a heart-to-heart talk and some pre-marital counseling!

— Dave