QUESTION: Kim and her husband in Wisconsin make about $85,000 a year and are debt-free, including their home. They also have $100,000 in savings. They’re concerned about bills in the future, because one of their teenagers was recently diagnosed with Crohn’s disease. In addition, both her and their other daughter are old enough to drive. Their car insurance is due for renewal, and Kim wonders if Dave has a formula for when someone should drop full auto coverage and only have liability. Saving money is a priority for them at the moment.
ANSWER: I understand worrying about the medical diagnosis, but financially speaking you guys are in pretty good shape. You’ve got a nice income, you have a big chunk in savings and you’re debt-free.
No, I’m not going with liability coverage only when there are teenage drivers in the house. There’s a reason auto insurance rates for teenagers is so high. It’s called statistical analysis of their driving ability. That’s a nice way of saying they’re not good drivers!
I haven’t had a wreck in 20 years, but I’ve had some kids who did. No, I wouldn’t drop the coverage. Right now, you’re looking at the very real possibility of recurring medical bills for the foreseeable future. I wouldn’t take a chance on having to write a check for another car on top of all that.
QUESTION: Jill in Jacksonville, FL, has been offered a timeshare by friends. It’s an older timeshare on the beach, and the current owners have had it for 20 years. She would have to pay a state transfer fee of $100, plus a yearly association fee of $500. Dave tells her what he thinks.
ANSWER: So, basically it’s $500 a week. I know it’s a yearly fee, but you’re basically paying $500 for your week. And then five years from now the association fee could be $1,000 a year — for your week.
The numbers you’re talking about right now probably aren’t too good to be true, but it’s not a huge blessing. It’s kind of like, “How would you like a kick in the knee that’s not too hard?” Personally, I would rather spend my $500 a year on travel, go wherever I wanted to go and stay wherever I wanted to stay. Not only does that free you up in those areas, but you only spend the money when you do it. With a timeshare you get charged whether you show up or not.
This one’s not as bad as if you had paid $8,000 for the opportunity, but I can’t stand timeshares — even the free ones.
QUESTION: Kaylie and her husband are both 25, and they’re on Baby Step 6. They bought their first house earlier this year. On their current budget making $115,000 a year, they’ll be able to pay off the house in about three years. Kaylie’s wondering if they should stop saving for retirement in order to pay off the house even sooner.
ANSWER: I wouldn’t call your idea crazy or stupid, but I wouldn’t do it. You’re looking at three years to pay off your house, and you’re both in your twenties. You guys are doing good work!
Let’s go ahead and continue saving for retirement, because the dollars that you’re putting in at such a young age are going to become millions. I don’t want you to miss out on the growth of that money for the house. I do advise putting a temporary stop to retirement savings when it comes to paying off other types of debt, but you guys are well past that point.
QUESTION: Cammie and her husband are trying to get his 19-year-old cousin on the right track. He temporarily moved in with them about a year ago, and they tried to help him out and teach him financial responsibility. His dad is not in the picture, and his mother lives with her father. He got a job in a convenience store in February, moved out and did well for a while, but now he’s back. He’s broke, and his car is in need of repairs. Cammie wants to know what they can do to help without enabling him.
ANSWER: This sounds a little bit like a pattern, doesn’t it? The young man’s got a lot of things going on in his life. Obviously he wasn’t making much money when he left, so he’s got to work on his career path and his idea about what life looks like. So, you’ve got to start helping him think further into the future — on all levels.
If you guys want to give him a second shot, and put another deadline on the time he’ll spend with you and things that are expected of him, that’s okay. But I think you’re going to have to push on the career side a lot harder. He needs a career path and a little bit of a kick in the butt, too. It sounds like this kid hasn’t had the most stable life or the best adult influences up until now. I can sympathize with that, but what you’re also describing is someone who’s not running at full speed.
He definitely needs some help and some love, but I’d want this kid cutting grass, walking dogs and delivering pizzas immediately. He needs to understand that if he’s going to stay with you guys for a while longer, he’s going to have to work like a maniac and save up $6,000 or $7,000 so he’s got some cash in the bank when he moves out.
I’m going to send you three books this kid needs to read. You need to make it part of the agreement of him staying with you again. One is called The Go Getter. He’s not one, and he needs to be one. It’s a good little book about perseverance and self-starting. I’m also going to send you one called QBQ by John Miller. It’s about personal responsibility. The last one is called Rhinoceros Success, and it’s all about being passionate and making things happen.
This kid needs a few more life tools, but he also needs some love in addition to a shot in the arm. We’ve got to help him get things rolling and prepare him a little better than last time. If you don’t, he’s just going to try and boomerang on you again.