Dear Dave,
Our daughter’s college educationisprettymuchpaid for already through grants and scholarships, and my wife and I make good money. We just started your plan, so when we get to Baby Step 5, saving for college, can we substitute that with saving for a wedding?
Benton Dear Benton,
I’m glad you’re thinking ahead, buddy. And I don’t have a problem with your idea. It’s always a good plan to save for a wedding, if you have the financial resources to do so.
Did you know the average weddinginAmericathisyear, according to Zola.com, ran around $29,000? Of course, you don’t have to pay anything close to that amount to make a wedding a beautiful and memorable occasion. Yourhouseholdincome,debt, savings and other factors will all play a part in how much you can legitimately afford.
Sit down with your wife, crunch some numbers and see what makes sense in your situation. Just remember to pay cash for the wedding. If you have to go into debt to makeithappen,you’respending way too much!
—Dave Dear Dave,
My husband and I have just $12,000 to pay off before we’re debt-free. We’ve paid off almost $70,000 in debt in the last two years, and we both just turned 50. We would like to buy a house soon, but we know we need an emergency fund. It would take us over a year to build up an emergency fund, so since we’re getting older, should we make adjustments to the Baby Steps?
Debbie Dear Debbie,
You’ve been making great progress, and you obviously have a good income to be able to pay off debt that quickly. But it shouldn’t take you two a year to build up an emergency fund, considering the rate at which you’ve been paying off debt.
Yes, you need a fully funded emergency fund of three to six months of expenses set aside before you start saving a down payment for a home. Maybeinyourcase,youcould lean a little more toward the three-month side with your emergency fund. Then, after you’re all moved in, you could revisit the emergency fund and beef it up to six months. Fifty isn’t old, Debbie. Just stay on course and stick with theplan.Youtwohaveplenty of time to get your finances in order and find a great home!
—Dave Dear Dave,
My husband and I want to do a live-in and flip real estate purchase. The idea is to buy a fixer-upper and rent out the basement to help with the mortgage payments. How do you feel about ideas like this?
Erin Dear Erin,
In a situation like this you need to do a basic business analysis. You’ve got to have a plan in place, and you’ve got to figure out the worstcase scenario. Part of this is determiningwhetheryoucan survive if things fall apart. In this case, the worst case is that you can’t get a renter, and the house doesn’t sell. It puts your family in jeopardy, so to me it’s not an option.
Want my honest opinion? I think you’ve both got a case of house fever right now. The possibility I just mentioned isn’t a rare occurrence. Lots of people have had the same idea, with the best of intentions, and still wound up in a big mess. I love real estate. I mean I really love real estate. And I’ve flipped more than a few houses in my day. But the particulars of this deal make me a little nervous. If you and your husband are willing to accept the possibility of things not working out like you planned—and the fact you might have to take additional jobs for an unknown length of time just to make ends meet—then it might be a play. But for me? Nope. I don’t like putting myself into these kinds of situations.
WhenIwasmuchyounger, I was willing to do all kinds of dangerous stuff and ignore the risk. But going broke decades ago knocked that kind of thinking out of me in a hurry. Any deal that runs the risk of leaving you bankrupt, or the victim of a foreclosure, just isn’t worth it, Erin.
—Dave Dear Dave,
My fiancée and I plan to get married in May, and we are preparing to buy a house. We both work in sales, and combined we bring home about $7,400 a month before commissions. Our average commissions usually boost that to $12,000 a month. I’m worried that the house we’re looking at doesn’t fit our budget, though. The home costs $350,000, and we’re looking at monthly payments of $2,840 with taxes and insurance figured in. Do you think this scenario will work for us?
J.T. Dear J.T.,
Are you doing this on a 15year fixed-rate mortgage? If you’renot,youneedtochange that right away. That’s the only kind of mortgage loan I recommend. With the numbers you’ve given me, you two can afford that on the shorter terms I mentioned.
Now, let’s move on to the next thing. You’re speaking about buying a home as if you’re already married, and you’re not. I will not advise you to buy a house with someone to whom you’re not married. You’re talking to a guy who’s been doing this for 35 years, and I’ve heard all the horror stories that go along with, “We bought the house together, but we didn’t make it to the altar together.” Talk about an ugly breakup! You two have a bad case of house fever right now. Believe it or not, you aren’t required by law to run out and buy a home just because you’re planning to get married. Please, wait until after the wedding to buy a home. And even then, wait another year or so. Buying a home is the biggest—and most expensive— life decision most people ever make. Take some time to just enjoy being married and getting to know each other even better for a while. Listen, if you’ve already jumped the gun, if you already have this house under contract or anything like that, I would not close the deal. I’d talk to the sellers and tell them they can keep my earnest money, but I’m walkingaway.Andgetready, because if you do this, your fiancée is liable to look at you like you’ve got snakes coming out of your ears. Make sure to communicate with her about where you’re coming from and why you’re doing it. It’s the best, and smartest, thing you can do in the long run, J.T.
I’m not predicting you two are going to break up or anything. I hope with all my heart nothing like that happens. But I’m begging you, buddy.Don’tbuyahomewith someone you’re not legally married to. The potential downside is just too great.
— Dave Dear Dave,
My wife and I are both 36 years old, and we have two children. Our son is six, and our daughter will be four next month. We’ve been walking through the Baby Steps, and weshouldhaveourhomepaid off sometime next summer. We realized the other day the one thing missing from our financial picture is life insurance. We both work outside the home. She makes $60,000 a year, while I make $80,000 a year. At our age, and in our current situation, do you think we should we get 20-year or 30-year level term life insurance policies?
Clay Dear Clay,
You guys are doing a great job of getting control of your finances and planning for the future. Speaking of the future, do you plan on having more kids? If you do, you mightwanttogowith30-year policies. If you’ve decided two are enough, then based on your present situation I think 20-year policies would work out fine.
I recommend folks have 10 to 12 times their annual income in life insurance coverage. That means you’d need between $800,000 and $960,000 in coverage, while your wife needs a policy in the $600,000 to $720,000 range. But let’s take a deeper dive into all this.
Your kids will be in their mid-twenties in 20 years. Ideally, they both should have finished college by that time, or at the very least, be working and living on their own. If you continue to follow my plan, you and your wife will have paid off your home in a few months and be completely debt-free. And, you’ll have been saving 15% of your income for retirement over those 20 years. On average, that alone should give you more than a half-million dollars for retirement.
Do you see where I’m going with this, Clay? Eventually, you two will become self-insured by getting out of debt, staying out of debt and piling up cash. So, if you’ve got $500,000 or more in a retirement fund, no debt and your children are grown and out of the house, even if you or your wife were to die unexpectedly at that point, the other would still be taken care of and in great shape financially.
Keep up the good work!
—Dave