DAVE SAYS

Dear Dave,

Should I cash in my 401(k) to pay off my car? I have just enough in the account to pay off the car and free up money in my budget.

Marina Dear Marina,

If I were in your shoes, and I could pay off the car in 18 months or less, I’d live on rice and beans—plus a very strict monthly budget—and just push through until that car payment was out of my life. If that wasn’t realistic, then I’d take out ads online and in the local paper, and sell the car as fast as possible.

Cashing out your retirement plan to make this happen isn’t a good idea. I love that you want to get rid of your car payment, but if you use your 401(k) they’ll charge you a 10% penalty, plus your tax rate. That means you’ll lose anywhere from 30 to 50 percent of it to the government.

I don’t know about you, Marina, but I think those guys get way too much of our money already!

— Dave Dear Dave,

My husband was recently told layoffs are about to happen at his company, and that it might be a good idea for him to start looking for another job. He has found a couple of good possibilities, but the jobs are located 100 miles away. In preparation for a possible move, we spoke with a real estate agent who told us we’d have to remodel our kitchen to sell the house. We’ve got about $4,000 in savings, but the agent said remodeling would take between $2,500 and $3,000. Should we get a second mortgage to pay for the work?

Natalie Dear Natalie,

For starters, I’d suggest cutting expenses any way you can, living on a strict budget and saving as much cash as possible. But taking out a second mortgage? No! You don’t want that hanging over your heads.

You might want to get another opinion on the kitchen remodel, too. Sure, a new kitchen would be nice, but would it be a make-or-break kind of thing if you decide to sell your home? Probably not, unless it’s in really terrible shape right now. Regardless, there’s no way I’d go into debt to make this happen. I mean, your house isn’t even on the marketyet.There’snoreason to fix up a house that’s not for sale, especially when you’ve got just $4,000 to your names.

My advice is to wait and see how the whole job situation plays out before making any big decisions. Then if you end up selling the house and moving, you might take $500 or so from savings to freshen up the kitchen a little bit.

— Dave Dear Dave,

I know you recommend using cash or debit cards instead of credit cards. But can you explain why my husband and I shouldn’t take advantage of credit card points for travel expenses that are required for work but will be reimbursed by the employer?

Cathy Dear Cathy,

So, your employer is so poor they require you to advance them for your travel? You do understand if your employer decides not to pay youonemonth—forwhatever reason—that it’s your credit card and your debt, right? Even if this hasn’t happened yet, you’re exposed to the risk. All for a couple of airline miles that are virtually impossible to use? No, thanks.

I understand this is standard procedure for some companies, but then a big chunk of corporate America has conned its employee base into taking out a loan on their behalf—with a promise of repayment— and the employee taking on all the risk. On top of that, these companies act as if operating this way is no big deal. Well, it is a big deal. And it’s not a good way to run a business or treat your employees.

Cathy, I once counseled a guywhowalkedintomyoffice with $11,000 on his American Express card that was “supposed” to be reimbursed. Guesswhathappened?When hewentintoworkearlierthat day,hefoundapadlockonthe door.Thecompanyheworked forhadfiledChapter11bankruptcy, andhegotnothing.At that point, he had $11,000 on his American Express card, and the credit card company didn’t care one bit about his company going broke. They wanted their money.

When you use a credit card, you spend more than when using a debit card or cash. Tons of research has proven this to be true. Using someone else’s money just doesn’t produce the same friction in your brain as paying for something with your own money. You don’t feel the sting of it leaving your personal account. Do you wanttoknowsomethingelse? I’ve never met a single millionaire who pointed to credit cards and airline miles as the reasons for their financial success.

But I do know a lot of broke, middle-class people strutting around, bragging that they gamed the system. They’ll tell you they beat a multi-billion-dollarcompany, one that spends tens of millions of dollars every year on studying consumer behavior in depth, at their own game. No, they really didn’t. I’m telling you all this, Cathy, because I want you and your husband to protect your number-one wealth-building tool: your income.

Long story short: If you play with snakes, sooner or later you’ll get bitten.

— Dave Dear Dave,

I bought a house about a year ago. Currently, I have $45,000 sitting in an account with a money manager. I’ve had this account for a little over three years, and the investment hasn’t grown much, if at all. Under the circumstances, and being single, too, would it be better to pull the money out of that investment and put it toward my mortgage?

Johnny Dear Johnny,

I recommend putting 100% of any non-retirement savings, above your emergency fund, toward paying off your mortgage until the mortgage is paid off. I’d still tell you to pay down the house, even if you were making 20% on your money. Just make sure you’re following the Baby Steps, and you’re already putting 15% of your income into good retirement investments before attacking the house. Paying down your mortgage is not an expenditure that’s just lost money. The cash is sitting there, you’re just banking it in your home and land. And on a side note, with all the craziness in the market over the last three years, you might come to realize breaking even over that time wasn’t so bad after all.

Johnny, the shortest distance between where you are and your first $1 million to $5 million in net worth is getting your house paid off. After that, load 15% to 20% of your income into a serious retirement plan. And by that, I don’t mean playing financial footsie with some little brokerage account. Investing in good, growth stock mutual funds with a proven track record of at least 10 years is a proven way to build wealth the right way.

I’msureyoucanfindsomeone on TikTok telling you to do the exact opposite of what I’m suggesting. But you won’t find that kind of advice coming from real millionaires.