Dear Dave,
I’m 19, and I’m about to finish up my first year of community college. I have enough money through scholarships and help from my family to get a bachelor’s degree. After that, I plan on going to law school and cash flowing that part of my education. I’ve already started a Roth IRA with money I’ve made working, but I’m wondering if I should continue contributing to retirement when I will have to pay for law school out-of-pocket.
Jonathan
Dear Jonathan,
No, I wouldn’t recommend that. You should stop saving for retirement for now and put all that money aside to pay for your education.
An education that’s usable in the marketplace to increase your income is more valuable to you right now than a mutual fund. A degree in left-handed puppetry or underwater bubble blowing definitely is not. Believe it or not, people spend years, and tens of thousands of dollars—sometimes hundreds of thousands of dollars—getting degrees in silly things that have no real value whatsoever. But, if you’re going to get a law degree, and use that degree to create value to society and an incredible income for yourself, that is going to give you a better mathematical return on your investment at this point in your life.
You have plenty of time ahead to invest for retirement. I don’t want you to put it off forever, but a debt-free education is the right investment for you right now. Just keep piling up cash, and let’s pay for this law degree out of pocket. And hey, if you end up with a bunch of money left over when you’ve graduated and are ready to become a lawyer, that’s not the worst thing in the world, is it?
Good luck, Jonathan. Keep up the hard work!
—Dave
Dear Dave,
I’m on Baby Step 2, and I’m working hard to get out of debt. My last two debts are $6,000 on a credit card, and $10,000 on a car loan. I’ll be receiving a $6,000 bonus at work in a couple of weeks, and I was wondering what to do with the money. I’m single, and I make about $45,000 a year, so should I sell the car and get rid of some debt that way, or use the extra money to completely pay off the credit card debt?
Aaron
Dear Aaron,
Just remember the debt snowball—pay off your smallest to largest. In your case, that means knocking out the credit card debt completely, and then attack the car loan with a vengeance. It will be a lot easier once you’re rid of that credit card debt. A $10,000 car with a $45,000 income isn’t unreasonable, but don’t mess around and let that note hang around longer than absolutely necessary.
My rule of thumb when it comes to things with motors, wheels—I’m talking about big toys, here—is when they’re all added together, they shouldn’t equal more than half your annual income. You don’t want that much money wrapped up in things that are going down in value. You’re in no danger of that here, but at this point you’re so close to being debt-free you can practically taste it.
Follow the plan, Aaron. And stay focused and intense about becoming debt-free. You’re almost there!
—Dave
Dear Dave,
Recently, I made a claim on my homeowner’s insurance for hail damage. It was my first claim ever. Since I’m retired and completely debt-free—including my home—and have over $1 million in the bank, is homeowner’s insurance still a good idea? The house is insured for $250,000, with a $5,000 deductible, and the insurance is about $1,200 a year.
Mary
Dear Mary,
You’re obviously in good financial shape, but I’d still recommend you have an up-to-date homeowner’s insurance policy. If something happened to my home or one of my rental properties, I could write a check and replace any of them. But I still have homeowner’s insurance on every single one.
It’s just good risk management to transfer the chances of a fire, tornado, or other catastrophic events to homeowner’s insurance. If something disastrous happened, you could write a check to cover the deductible with no problem. But writing a check for $250,000? You’d feel that one. Keep the policy, Mary!
—Dave
Dear Dave ,
, When it comes to your career and profession, how can you tell if you’ve truly found your calling in life?
Tony
Dear Tony,
I don’t think it’s common for most folks to feel like they’ve experienced some kind of grand revelation, and suddenly they know what they’re supposed to do with their lives. Personally, I believe this kind of thing usually starts out as an activity or idea connected to something they enjoy and want others to experience. Often, that can grow into a job, and then maybe into a career—or even a business.
I think it takes a lot of time, reflection, insight, and selfevaluation before anything can be termed a calling. I know this is true in some cases, because that’s how it happened with me. I can’t honestly tell you that when I first started on radio, or began formally teaching and writing I knew it was God’s plan for my life. I knew early on I was drawn to it, and felt there was a need for it, but it took a while for me to understand and accept that it was what I was really meant to do.
I hope this helps a little bit, Tony. Just be honest with yourself, think about it, and pray about it a lot, too. God wants what’s best for you, so make sure you include Him in everything. It worked for me. I’ve been doing what I do for nearly three decades now, and I still love it. I’m convinced that it is God’s calling on my life.
—Dave
Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.