Dear Dave,
I just started listening to yourradioshowafewmonths ago, and I love your advice. I do have a question about the order of two of the Baby Steps, though. The list puts saving for retirement ahead of putting money aside for college if you have kids. Why do you suggest this?
Jon Dear Jon,
Setting aside a college fund for your kids is a really nice thing to do, if you can actually afford that kind of thing. But kids can also further their education by getting good grades, applying for scholarships, choosing a school they can afford and working their tails off while attending classes. Trust me, I believe in education. The point is there are lots of ways to get acollegedegree—orcomplete career training at a technical ortradeschool—withoutyour parentssavingupandfooting the bill.
Taking steps to begin saving for retirement comes before setting aside a college fund for kids, because everyone is going to retire someday. Unless, of course, they happen to die before reaching retirement age. So, in my mind funding retirement is basically a necessity. College, on the other hand, is a luxury. In fact, it’s often not the best route for someone to take when pursuing a career. Tons of folks succeed in life without going to a four-year school, and on top of that, thousands have worked their way through college.
That’swhyitfollowssaving for retirement in the Baby Steps. Should you try to save up for your kid’s education? Sure, if you can. If you have the financial resources to do it, without putting your entire family’s future in jeopardy. But there are many parents out there who, for one reason or another, can’t pay a dime toward someone’s education. And that doesn’t make them bad parents.
The last time I checked, there aren’t any good ways to retire that don’t require getting your finances ready for retirement well ahead of time. And that requires putting aside as much money as possible to live on during your Golden Years. I mean, you can always live off Social Insecurity alone, but I don’t consider that to be a good plan—or a smart one.
Good question, Jon!
— Dave Dear Dave ,
Our daughter is a student, and she has $10,000 in student loan debt. She works part-time, and has a couple of scholarships, but she has borrowed a little along the way to bridge gaps. Her uncle recently sold his business, and he told us he would like to give her a gift of $10,000. We’ve talked to her about this, and we’d like to guide her in the smartest possible direction. Should she begin planning for the future, and use this gift to start investing, or should she use it to pay off her student loans?
Gilbert Dear Gilbert,
I really appreciate you two trying to help your daughter do the very best thing with her finances and her future.
Herunclesoundslikeapretty generous guy. So, let’s take a minute and give this situation a good look.
We’ll start by pretending she doesn’t have any student loan debt. In a case like that, would it be wise for her to borrow money on a student loan in order to invest? Of course not. It’s a dumb question, but I want to get you thinking. If you don’t pay off the loans, and invest it instead, it’s just like you borrowed money to invest. See what I mean?Thatwouldbeapretty bad plan.
In my opinion, your daughter needs to get her student loan mess cleaned up as soon as possible. And this gift from her uncle represents the perfect opportunity to do just that. Listen to me, Gilbert. The last thing in the world your daughter needs is big pile of debt waiting on her when she gets out of school. I want her to start investing at some point down the road, but she’s just not in a good position to be an investor right now. She needs to pay off all those student loans. I’m talking about wiping out all that debt the minute she gets this wonderful gift in her hands.
And the second after she pays off those student loans, she should get to work on saving a pile of money, so she can complete her studies without racking up any more debt!
— Dave Dear Dave,
How do you feel about moving credit card balances to other companies to get lower rates when you’re trying to get out of debt? I just paid off my first credit card, and a friend suggested this idea for paying off the others faster.
Von Dear Von,
Lots of people think they’ve really done something big to solve their debt problems when they do this.
Dave Ramsey is a seventime #1 national best-selling author, personal finance expert, and host of The Dave 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, buildwealthandenhancetheir lives. He also serves as CEO for Ramsey Solutions.
And I’m sure your friend is trying to help with this suggestion, but you’ve got to remember that getting out of debt, and gaining control of your finances, is all about changing the habits of the person you see in the mirror every day. You’ve got to make a commitment to a lifestyle change that includes getting out of debt, staying out of debt, and sticking to a written, monthly budget. Thatincludeskeepingtrack of every, single dollar, giving it a job to do and living on less than you make.
Now, your friend’s idea might help speed up the process a tiny bit. But the habits that got you into debt in the first place won’t change just because you’ve switched credit card companies. What you’re talking about is an easy way to lower the interest rates—temporarily,inmost cases—butitdoesn’tchange your everyday behavior with money.
When people have problems with debt, it’s often the result of dumb financial choices and living above their means. I’ve run into so many folks who got into trouble with money just because they wanted to impress other people. But guess what? When you change, interest rates don’t matternearlyasmuch.And whenyoushiftyourmindset about money, it will make a huge difference in a way that changing credit card companies and chasing lower interest rates can’t.
I hope this helps, Von. And take a look at my Baby Steps plan while you’re at it. I promise, if you follow those steps, it will help you move forward, get ahead and put you on the road to a debtfree life and financial peace!
— Dave