Dear Dave,
I don’t have any kids, and I’m not married. I’m 35 and have a good job, plus I’ve got $25,000 in an emergency fund, $50,000 in a separate savings account and almost $100,000 in a retirement account. Should I have life insurance, too?
Angus Dear Angus,
Basically, you only need life insurance to take care of the people and things you leave behind when you die. Someone in your situation, especially since you’ve been smart and saved up a nice chunk of cash, probably wouldn’tneedalifeinsurance policy at all. I mean, an inexpensive policy might be in order if you have a little debt or something like that, but there’s a pretty good chance you already have a small policy built into an existing bank account.
When it comes to life insurance, just think about anyone who might be left in a bad situation or harmed if you died. If you worked outside the home and were married and/or had kids, I’d recommend having 10 to 12 timesyourannualincomeina good,leveltermlifeinsurance policy.
Your family could never replace you if something tragic happened. But with a good life insurance policy, they at least would be able to replace the income you generated.
Good question, Angus!
— Dave
Dear Dave, My wife and I have paid off all of our credit card debt, but she doesn’t want to follow your suggestion to cut up the cards and close the accounts. She wants us to keep the cards in a safe deposit box at the bank, and use them for nothing but emergencies. I think this has something to do with the fact she grew up in a poor family. We’re doing okay, but it makes me wonder if some part of her is afraid of being poor again. We both know this isn’t what you recommend, but what can I do to convince her we should get rid of the credit cards once and for all?
Geoff Dear Geoff,
Honestly, I’m not sure I’d approach this with the idea of convincing her of something. Under the circumstances, maybe it’d be a better idea to start off by having a gentle, understanding conversation, and talking things through. I say this because one of the things you mentioned is that she grew up poor. In my mind, this could mean that the credit cards represent security for her. But, if you had $10,000 or so set aside for emergencies, you’d have the security of knowing that a transmission repair, or a new water heater wouldn’t really be an emergency— it’d be reduced to a minor inconvenience. On top of that, having an actual cash emergency fund sitting there would mean you wouldn’t have to go right back into debt again when something goes wrong.
There are lots of deep emotions involved in this situation,Geoff.Letherknow youunderstandherconcerns, and that you respect and sympathize with everything she has experienced. But also explainhowfinancialsecurity wouldn’t be disappearing by doing this. The credit cards would be replaced by your very own money. In addition, you’d also be substituting what the credit cards do with a debit card.
After this, ask her if there’s a reasonable amount you two could have in the bank that would make her feel comfortable, and take away the worry and stress. Talk it out, see if you can settle on an amount, and then agree that when you’ve saved and hit that number, the cards get cut up and you close the account.
You’ll have to be patient andunderstanding.Aboveall, you’ll have to communicate and work together as a team on this. But trust me, it’ll be worth it!
— Dave Dear Dave,
I’ve been listening to your radio show, and as a result I’ve decided I’m tired of living paycheck-to-paycheck and being broke all the time. I know Baby Step 1 is saving a beginner emergency find of $1,000. But do you recommend getting current on past due bills before starting the Baby Steps?
Edward Dear Edward,
I love it! When people decide to change their lives, and they talk about it the way you have, I know they’re serious about making something good happen. You’re sick and tired of being sick and tired, and you’re going to get control of your money and your life. Let’s get started!
First things first. Make sure you’re up to date with all the necessities. I’m talking about food, clothing, shelter, transportation and utilities. Next, either get current—or make payment arrangements—for any consumer debt you have, including credit cards. This doesn’t include your home, but we’ll get to that part in a minute.
You’re spot-on with Baby Step 1. After that comes the debt snowball and Baby Step 2. Start paying off all debts, except your home, from smallest to largest. Once you’ve paid off this debt, you’ll be able to save more and increase your beginner emergency fund to a fully-funded emergency fund of three to six months of expenses pretty quickly. This is Baby Step 3.
At this point, you can really start planning for the future. In Baby Step 4, you’ll start investing 15 percent of your income for retirement. If you have kids, setting aside something to help them with college comes next in Baby Step 5. Baby Step 6 is a milestone. This is when you start throwing tons of cash at your mortgage, and pay off your home early. I told you we’d get back to this, didn’t I? But Edward, the real deal isBabyStep7.Why?Because this is when all your hard work, discipline and wise financial decisions have put you in a place where you can build wealth like crazy. Not only that, you can give and help others by being outrageously generous. At this point, you’re securing your future and helping others in a big way.
Go make it happen, dude. Take control of your finances, your life and be a blessing to others!
— Dave