Monday, 14 January 2013 10:12

Dave Says

Written by  Dave Ramsey
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Q.  We’re debt-free except for our house, and that’s on a 15-year, fixed-rate mortgage. We also have an emergency fund in place. We’d like to give back this year, and do a little extra giving than we have been able to do in the past. At what point should we start giving over and above what we tithe?

 

A.  My advice would be to wait until you finish Baby Step 3, which it sounds like you’ve done. That way, you’ve paid off all of your debt, except the house, plus you have a fully-funded emergency fund of three to six months of expenses.

I’ll cite the Scripture that says he who doesn’t take care of his family is worse than an unbeliever. I’m paraphrasing, of course, but in my mind, from a financial point of view, taking care of your family means having your emergency fund in place and being out of debt, except for your house. At that stage, you’re beginning to build wealth and you can really help others while knowing those closest to you aren’t going without.

My wife and I made the decision a long time ago to live on a certain amount of money. We apply a formula to everything above that figure for tithing and taxes. The rest we allocate for giving, saving and spending. It works great for us, but be responsible and realistic with what you have. You don’t want one of those areas to hinder the others.

 

Q.  Our son is graduating from high school next spring. We’ve saved cash to pay for his first year of college, and we have enough in mutual funds to pay for another semester. When should we pull out the money to use for his education?

 

A.  I wouldn’t touch the money until right before you write the checks. However, I don’t want you to follow my advice just because I said so. My mutual funds have made a little more than 16 percent this year. If they stay at that pace, or if they make just 10 percent during the first part of 2013, I’d want it to just sit there a while longer. Why not let the power of compound interest do its thing and make you as much money as possible?

The biggest question is what are you going to do for cash after the first three semesters? Your son needs to make sure he’s working summers, and maybe even part-time during school, in order to fuel his education. And neither of you should borrow money to make it happen. You guys have gotten him off to a great start. So if he does his part there’s no reason for either of you to go into debt for his college degree!

 

Last modified on Tuesday, 15 January 2013 13:29
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