Dear Dave,
My younger brother and his wife did their taxes last month and learned they owe $15,000 to the IRS. I love them both, but they are extremely irresponsible with money. I know they have a lot of credit card debt, too. I am debt-free, including my home after following your plan, and would like to help them. I was thinking about taking out a one-time loan from the bank to help cover what they owe the IRS, because my emergency fund is a little low after a recent car accident. Under the circumstances, would this be okay?
Carson
Dear Carson,
In my mind, “help” would be aiding them in changing their ways with money. I don’t say this to be sarcastic or mean, but it’s the truth about where they are in life right now. They both need to be educated, not enabled, when it comes to their behavior with money. This doesn’t mean they’re bad people, but it does mean you don’t need to be a party to, or a temporary fix for, their bad financial decisions.
Some people might say taking this attitude would mean you don’t love and care about your brother and his wife. Those people would be wrong. You’ve already told me they won’t behave with money, so at this point it would kind of be like giving a drunk a drink. You don’t give more money to people who won’t behave with it. That solves nothing, and in most cases it just reinforces the negative behavior. This might be a
This might be a good opportunity to sit down with your brother and his wife, and have a firm—but gentle—talk about their situation. Maybe you could offer to teach them the things that worked for you when it comes to finances, using the Baby Steps as your guide. And make sure they get in touch with the IRS about a payment plan.
I know you love them, but you can’t fix this for them. In some cases, the best thing you can give someone is the understanding that they need to change their behavior. Hopefully, with you as their inspiration and support, they can learn how to manage their finances wisely.
Good luck, and God bless you all, Carson!
— Dave
Dear Dave,
A relative of mine recently mentioned she had two life insurance policies. Is it okay for a person to have more than one life insurance policy? If so, why would someone do that?
Victoria
Dear Victoria,
There aren’t any rules against having more than one life insurance policy. The only real problem is it might complicate your life a little in terms of having multiple premium withdrawals, checks or possibly additional policy fees to worry about every month. It’s cheaper just to have just one policy, generally speaking, but regardless of whether you have one or more, I always recommend having 10 to 12 times your annual income wrapped up in a good, level term life insurance policy.
Different people have different personal and business financial situations, so there could be many reasons to have more than one life insurance policy. I have lots of insurance connected to our estate plan, our business and different kinds of things. Most life insurance companies will only write so much in coverage for one person, so when this has been the case, I just went to another carrier for additional coverage.
Also, some people buy more than one life insurance policy just to feel secure from a provider standpoint. If one insurance company goes out of business, they’ll still have another policy—or more—in place. That’s not usually a big problem, though, since the majority of insurance companies have insurance to back them up with the state, or are very financially stable.
I hope this helps, Victoria!
— Dave
Dear Dave,
My husband and I have paid off all our credit card debt, and we are following your Baby Steps plan. We still owe about $40,000 on two cars, and our combined income is around $150,000. Since we have a good income, we were thinking about finishing our emergency fund and contributing to our IRAs while we finish off the car payments. Under the circumstances, is this okay?
Paola
Dear Paol
I understand the temptation you guys are facing. But there’s a power in behavior modification on a short-term basis that supersedes the power of mathematics. Stick to the plan, and pay off the cars first.
When you’re still on Baby Step 2, you need to stop all saving and investing, and attack your debts with a vengeance. You’ve got a lot of money wrapped up in cars, and even with all the great work you two have done I know it’s probably still a little hard to see light at the end of the tunnel. Debts that large can be intimidating.
But I’m afraid you’ll lose focus and intensity when it comes to getting out of debt if you worry about your emergency fund and setting aside for retirement too soon. I’ve seen that happen to lots of people, and when it does it can end up taking several years to get rid of all that debt.
You guys have made great progress, and you’re making good money. If you stay gazelle-intense about getting out of debt, those car payments can be history in about a year and a half. Think about how fast you can get that emergency fund in place then, and how much money you’ll have freed up to go into retirement.
Now is the time to roll up your sleeves, get mad about all that stupid debt and knock it out once and for all. You can do this, Paola!
— Dave
Dear Dave,
My husband and I are getting a divorce, and everything will be final in less than a month. I haven’t worked outside the home in a few years, but according to the terms of the divorce I’ll receive $75,000 in cash on the day the divorce is finalized. I also have about $5,000 in debt on a credit card I am responsible for paying. Other than that, I have no debt. Can you give me some advice for moving forward in my life?
Starla
Dear Starla,
I’m truly sorry to hear you’re going through this. If you’re not already connected to a good church, I hope you’ll consider finding one. Having caring people of faith around you in times like this can help a lot.
The credit card debt is a small part of your financial picture right now. Still, my advice is to go ahead and pay it off as soon as you receive the settlement money. That way, you’ll be completely debt-free and still have $70,000 in the bank.
There’s a little bit of a catch, though. You’ll need to live for a while like that money isn’t there. Use just enough to get yourself settled somewhere else, if that’s a consideration, and then start looking for a job so you can eat and pay the utilities. There are tons of places hiring right now, and the money’s decent, so it shouldn’t be too hard to start generating a regular income soon.
If you’ll do this, that big chunk of cash will still be sitting there a year from now when the pain of the divorce has lessened a bit. At that point, you’ll be stronger and more emotionally and mentally ready to think about the future and make real plans.
And if you haven’t already, cut up that credit card and close the account. The last thing you need right now is an avenue to more debt. God bless you, Starla.
— Dave