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Dave Ramsey is a personal money management expert, US national radio personality and author of the New York Times bestseller The Total Money Makeover. For more financial advice and a special offer to our readers, please visit or call 1-888-22-PEACE.

Limit to saving versus...

Dear Dave,

My husband and I are trying to work on a budget and we're coming at it from different perspectives. He wants to put the least amount possible into the budget categories and the rest into savings. I want us to save, invest and do some other things, but now we're not doing anything but saving. We have no debt, $100,000 in savings and we make about $200,000 a year. I'd just like to use some of the money to buy a new couch.

- Mary

Dear Mary,

Well, it's obvious he's highly motivated by the word "savings." This isn't necessarily a bad thing, but there's got to be a balance and a strategy involved.

Savings is a very important part of any healthy financial plan. But, honestly, I think it's unwise to have savings just for the sake of having savings. You need very specific goals in mind - a mission statement - like a fully-funded emergency fund. Three to six months of expenses is a very tangible goal. You can work toward it and know when you have it in place. That way, when life happens - and you know it will - it doesn't turn into new debt and added stress.

You can do this with other things, too. Christmas and birthday presents are great examples, along with particular debts or items you'd just like to have once in a while - like that new couch.

Tell him that and let him know your financial counselor agrees with you, because I do! I think you need to be saving money, but you need to be saving it with a specific goal in mind, and you both need to be in agreement on where the money's going.

Otherwise, you'll turn into Howard Hughes; sitting there unhappy with big piles of money and no mental health!

- Dave 

Handle $14,000 in debt while funding 401(k)?

Dear Dave,

I'm a single parent with two children. I bring home about $3,500 a month, but I have $14,000 in credit card debt. Our rent is $750 a month, and I've been funding my 401(k) at $700 per month. Should I file bankruptcy, stop funding my retirement or what?


Dear Eric,

First of all, you're not bankrupt. Even if you were out of work right now I wouldn't tell you to file bankruptcy over $14,000.

But I've got to ask one question. Even with two kids, if you bring home $3,500 a month, you've got a very workable income. What on earth are you doing with your money?

Here's the plan. Start living on a budget, and give every dollar a name on paper before the month begins. Also, stop putting money in your 401(k) for a while, and concentrate on paying off your debt!

Basically, you're asking me if you should declare bankruptcy to keep funding your retirement. That doesn't make sense.

It sounds to me like you're trying to do too many things at once. If you pause your 401(k) contributions for just a year, you can pay off the entire debt!


Roll car loan into home loan?

Dear Dave,

We're almost debt-free. The only things hanging over our heads right now are our house payment and a car loan. Would it be a good idea for us to roll the car note into our home loan so that we could deduct it on our income tax? We owe $6,100 on the car, and our household income is about $55,000 per year.


Dear Sylvia,

I'd rather you just pay off your debts. You guys have all your others cleaned up, so just stay focused and knock out these last two big ones.

Remember, getting out of debt takes getting mad. You've got to get a little righteous anger going on and make it a passionate, all-out priority. If you do that with $55,000 worth of income you can make a $6,100 car note disappear in a flash!

Besides, in this situation any tax deduction is going be pretty small. The idea of some golden tax deduction is really just a mind game lenders play to get you to use their debt versus someone else's. They say you'll be sophisticated because it's a tax deduction, but when you do the math it's barely enough to buy you a night on the town!


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Celia Sankar

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