Dave Ramsey Q & A

Should You Charge Your Children Rent?

Dear Dave,

We have two teenage daughters, ages 17 and 16, who are both in high school and work in the family business. We’ve done our best to teach them how to handle their money properly, including how to spend, save, and give. Also, they’ve both been saving for college. My husband thinks it would be a good idea to start charging them rent to prepare them for life once they leave home. What do you think?

-Frances

Dear Frances,

I think you’re way ahead of most parents. Teaching them to handle money properly when they’re young is a great thing. It sounds like they’re both bright, hardworking young ladies, too.

I appreciate your husband’s heart and the fact that he’s looking for teachable moments, but teenagers paying rent while they’re living at home is a little over the top. Now, if either of them were 26 or 27 it would be a different story. I’d have no problem charging them rent of about $10,000 a month! But seriously, at their ages it’s still your job as parents to provide housing for your children. That’s just the way it is.

These girls already know how to work and have grasped the basic concepts of managing money. I meet 50-year-olds on a regular basis who still can’t do that. With this kind of start, I think these young women will be fine and stand a great chance of becoming wealthy one day. So, while I understand your husband’s idea, let’s tell the drill sergeant to back off a notch on this one.

—Dave 

 

 

 

 Ebay As A Business Model:

Dear Dave,

I’m in the process of building an eBay store. How likely is it that this will turn into a full-time business for me?

-Anonymous

Dear Anonymous,

I think the likelihood of this becoming a full-time gig has more to with you and your business model than it does with eBay. If you’ve developed something really unique and coupled that with great pricing and service, then eBay’s a great distribution and marketing system to reach people you wouldn’t otherwise reach.

Still, you have to remember that eBay’s not magic. The real magic is your brain, hard work, and whether or not your business model is a good one. If it is, then eBay becomes a cool methodology through which your idea gets to market.

Regardless of how you’re executing on the internet, you still have to be executing the business properly. You still have to use basic marketing and have good margins, prices and service. The big thing is you still have to love on your customers a lot.

Plenty of people think the internet is an easy path to fame and fortune, and they forget about the basics of building and handling an operation well on a day-to-day basis. Those are the ones who don’t last long in the business world, whether it’s online or brick-and-mortar!

—Dave

 

Questionable investment

 

 

Dear Dave,

My broker has recommended a managed futures fund. I’ve never heard of these, and I got the feeling she doesn’t know much about them, either. She’s always been very conservative and reliable before, so we’re concerned. Can you explain something about them?

Krista

Dear Krista,

It sounds a little like she jumped off the cliff and became a roulette dealer. The term “managed futures” is virtually an oxymoron. I think she needs to explain her behavior and the investment after this stunt!

With managed futures you’re basically betting on the future price of a commodity. What’s the price of gold, or oil, or wheat going to be somewhere down the road? You’re guessing as to what the future will bring, and managing a group of those guesses. What a joke!

People in the brokerage business represent dumb things every day. The sad thing is this is someone you thought you could trust.

—Dave

 

 

 

 

Life Insurance for Singles?

Dear Dave,

I know you usually recommend having eight to 10 times your income in life insurance. I’m 25, single, and I have no kids. Do I still need that much life insurance?

Anonymous

Dear Anonymous,

The need for life insurance is very low in situations like yours. All you really want is enough to cover burial expenses, and clean up any mess you may leave behind. If you own a home you may not have to worry about any remaining debt, because the sale of the house might cover it.

Many times an employer will furnish you with life insurance equal to your yearly salary, or maybe twice that amount. In lots of cases, that alone will take care of things for young singles. Check into it!

—Dave

 

Planning For the Future

 

Dear Dave,

I’m 19 and about to start college. Thanks to my part-time job and generous parents, I’ll be able to pay for college without student loans. Since I won’t be borrowing money, what’s my next financial step?

Patrick

Dear Patrick,

Stay away from the free t-shirt tables. Those things always have credit cards hiding behind them. Remember, if it seems too good to be true, it probably is. But since the money is already there for school, the only thing you really need to do is save all the cash you can for after graduation.

The first couple of years after college may be the most life-changing, and volatile period of your life. If you keep working and saving like you have already, you’ll have cash on hand for an emergency fund and to start your new life. Plus, you’ll be able to plan for the future by investing in good, growth stock mutual funds, and maybe a Roth IRA after that!

—Dave

 

Continue taking unemployment?

 

Dear Dave,

I had a wreck seven months ago. As a result, I lost my job and have been drawing unemployment for the last five months. I was making $1,200 a month in retail management before this happened, but I’m getting just as much with unemployment, even though I can work again. I have a small daughter, and my wife doesn’t work right now. Should I continue taking unemployment so I can stay home and help with our daughter?

Tim

Dear Tim,

Absolutely not! You need to get a job right now. You could make more than you did at your old job or taking unemployment by delivering pizzas full-time. I know you probably wouldn’t have benefits running pizza, but how about the benefit of working for a living and making some money?

You need to get off your tail right now and find something to do – maybe even two or three things to do – until you find a job that pays well. And I don’t think I’d go back into the kind of management you were in before, because even working that gig you guys were barely getting by.

It’s sweet that you’re there with your baby, but it’s seriously time for you to get a real job. Take classes and further your education, or get into another line of work. You’ve got some serious responsibilities, and it’s time to be a man and take care of things!

—Dave

 

 

Spending makes her feel guilty

 

Dear Dave,

My husband and I almost feel guilty about spending any of the money we’ve worked so hard to save. Is it common for older people who have saved their entire lives, have no debt, good pensions, and Social Security income, to become obsessed about not spending their money?

Connie

Dear Connie,

It’s very common, especially among folks who have developed a pattern of living frugally for 40 or 50 years. I call it the embarrassment of riches. I’ve heard some people in your situation say that they’re even too embarrassed to order dessert in a restaurant. They feel like it’s a betrayal of who they are as a person.

You guys have worked hard, saved big, and now it’s time to begin enjoying some of that money. You don’t have to do things that are outlandish or wasteful, but there’s nothing wrong with having a little fun with your money when you can afford to do so. Here’s an idea that might help you loosen up a bit. Every time you spend money on a luxury, or something fun for yourselves, give a percentage of the amount you spent to help someone else. You don’t have to match it dollar-for-dollar, because you don’t want to blow through your nest egg and have nothing left.

Give it a try. It will bring balance to your life. You’ll be able to have some fun with your money, plus you’ll get the satisfaction of knowing you’ve helped other people!

—Dave

 

Jumpstart your plan!

Dear Dave,

I’m 26, single, and I’ve been working your Total Money Makeover plan to pay off my debt. Right now, I have just $25,000 left to pay off, including my car. Recently, I was offered a chance to move to Singapore for the next six months as part of my job. I won’t have any real expenses while I’m there, but I’m worried about the effect it might have on me getting out of debt. How can I make all of this balance out?

Jared

Dear Jared,

Why does there have to be a balance here? In my mind, this whole situation is a fantastic catalyst for helping you get out of debt even faster than before.

Think about it. You’re single, and you’ve got no strings attached. This is a wonderful opportunity to travel and make more money and save more money than ever before! You’ll be able to accelerate your financial plan and have a great cultural experience, too!

Now, I’m not up for this idea if you’re going over there just to hang out and goof off. But if you’re committed to the plan and to getting out of debt, then this is something you absolutely must do. You could even go ahead and sell the car now. You’ll be rid of insurance payments, buying tags, and all that stuff. Plus, it’ll just sit there losing value while you’re gone, anyway.

I’m not hearing anything negative in this entire situation. Go for it, Jared!

—Dave

 

 

No writing, no money!

 

Dear Dave,

I called a creditor recently to settle an old debt. They offered a settlement, but said it was their policy not to put settlement offers in writing. Should I accept the deal?

Joseph

Dear Joseph,

No way! If you don’t have anything in writing, then you have no proof that they extended the offer or agreed to a specific amount. The only one who will have “proof” of anything in this scenario is the creditor, and that’s just asking for trouble.

My suggestion for handling this ridiculous situation goes something like this. Explain to them that you seem to have reached an impasse, because you have a policy of never accepting settlements and handing out money unless the settlements are in writing. No writing, no money! It’s not a hard concept to understand, and it’s fair to both parties.

—Dave

 

Planning for retirement

Dear Dave,

I’d like to move to Las Vegas when I retire in about 10 years. I’ve saved up quite a bit of money, and could pay cash for a property now. Should I go ahead and buy, and maybe rent it out for a while, or wait until I actually retire?

Bruce

Dear Bruce,

If you can pay cash now and still have plenty of savings left over, then there’s no reason not to go ahead and buy. The housing bubble has burst out there, and you’ll be able to find some real bargains in and around Vegas.

I’m not big on being a long-distance landlord, but I’d be tempted to do it in a situation like this. Keep in mind that you’ll probably have to renovate the place if you rent it out for several years. It’s just the nature of things in the rental world, so make sure you figure that into your cash plan—and your emotional plan, too!

—Dave

 

 

Becoming the good agent

 

 

Dear Dave,

I recently graduated from college, and I think I’d like to get into the real estate business as an agent. I don’t have much real world experience, so what can I do to learn and become a great real estate agent?

Ryan

Dear Ryan,

Congratulations on finishing college! It sounds like you’re ready to hit the ground running.

I think the first thing anyone in your situation should do right now is get a first-hand look at the day-to-day life of a really good real estate agent. Find out what someone who sells 100 houses a year does on a daily basis, how they got to where they are, and how long it took them to get to that level in terms of skills, referrals, knowledge, and recognition in the marketplace.

You might consider driving to a nearby city—one that’s far enough away so that competition won’t be a factor—and finding a superstar agent. Tell them your situation, and ask if you could ride around with them for a day or two and pick their brain. Basically, I’m talking about interviewing them and finding out how you can be them when you grow up. Believe me, you’ll learn tons about the technology and marketing sides of things, too.

Real estate is probably the perfect example of The Pareto Principle. It states that 80 percent of the people make 20 percent of the money, and 20 percent of the people make 80 percent of the money. Learning as much as you can as quickly as you can is a great first step to making sure that you’re in that top 20 percent!

—Dave

 

 

Finding life balance

Dear Dave,

I own a small company, and lots of times I feel like I’m devoting too much time to the business and not spending enough time with my family day to day. How do you find a balance between home and work?

Pat

Dear Pat,

You know, I get asked this question a lot. Truth be told, the idea of everything being in balance on a daily basis is a myth. No one can perfectly juggle all that life has to offer—the spiritual, emotional, financial, home, work, and physical—every single day. It’s just not possible. Still, you need to make sure you strive for balance over the scope of time.

I started running a few years ago, and I’m out of balance if I’m training for a marathon, because I spend more time training. The same is true with work. There are times when you have to work hard, and occasionally this can bleed over into other things. I think the answer lies in really being into whatever you’re doing. Listen and participate in conversations with your kids instead of watching television. Take your spouse out on dates, and turn off the cell phone. When you’re with your family you should really be with them. Then, when you have to work, chances are they won’t be mad at you.

Honestly, we waste so much time and then we complain that we’re out of balance. Ebb and flow takes place in every aspect of our lives. So, I think we should all stop wasting the time we have!

—Dave 

 

* Dave may be coming to your town soon. For more information, please visit daveramsey.com/live/home.

 

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