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.
QUESTION: Amy in Rockford, IL, has a 14-year-old son. He has a full-time job this summer and is about to receive his first paycheck. They have taught him about spending, saving and giving, and his first goal is to buy an iPad Mini. Amy asks Dave and Rachel if the money should be allocated from his savings or his spending, since his dad is going to put $2,000 toward a fixer-upper car.
ANSWER: (Rachel) The way mom and dad raised us — and correct me if I’m wrong, dad — the savings category for a 14-year-old is more of a long-term spending category. At that age, they’re not going to be saving for retirement or something in the distant future. Now, if college or a car is in the picture, then maybe he needs to make that a higher priority than an iPad Mini. But as far as I’m concerned, a 14-year-old’s savings category is a long-term spending category.
(Dave) Sure, which means an iPad Mini is okay. The big question we would’ve had around our place would be the car. We required our kids to buy their cars, and we agreed to match whatever they saved. At our house it would have sounded like this: “You can use your savings for an iPad Mini, that’s fine. But you have to understand this $400 thing is actually costing you $800 if we’re matching you.” We’re going to talk that part through, and it would be one and done. If it were out of savings at our place, given that the car is in the picture, we’re probably going to do that one. But from then on, your savings is going toward your car and the other stuff is coming out of spending. You’ve got to be realistic about saving up toward a car.
The other thing is this … In the kids’ minds we were perfect at all this. Of course we weren’t perfect — there were a lot of things we messed up in this deal — but we convinced them we were, I guess. More than anything else, we were always asking ourselves this: What’s the lesson? What’s the takeaway here? The takeaway is not an iPad Mini. The takeaway is not picking up a car. The takeaway is teaching the kid to save for a goal. But the danger of the mathematics is part of the lesson, too. If he goes and buys an iPad Mini, then something else and something else, he’s going to have about $3 in savings. He’ll be riding a bike, because his car’s not going to be running.
QUESTION: Tucker in Topeka, Kan., has been renting a 5,000-square-foot space for his small business for just over a year. His landlord asked if he’d like to buy the location, which includes two adjacent tenants, for between $150,000 and $200,000. He’s paying $1,300 a month for rent, and that would almost cover the monthly mortgage payment on the building. What does Dave think?
ANSWER: Yeah, but that’s the great misnomer about these situations. You can get out of a tenant situation and move on. You can’t just get out of a mortgage situation and move on without selling the property.
Here’s the thing: If your business had been around a little longer, and you had the cash to buy it, I might suggest doing this. But here’s the problem with buying real estate associated with the operation of your business. I’ve got this problem right now. I’ve got a 64,000-square-foot building that our business operates in. I’ve also leased another 40,000 feet out back from another company that owns it, and I bought another building next door, because we’ve outgrown the first building. Now I’m having to fight all the time to make sure I don’t conform my business to my building, and instead make the building conform to the business.
It’s really tempting, in other words, to not grow and have to move out of this place we love. But we’re going to have to move out of it. We’re not going to be here in three or four years; we’re going to be somewhere else. And I’m going to have a really nice, empty office building at that point — that’s paid for, that I’ll rent. Otherwise, this business is going to be stuck.
But the problem can be that if the business is growing, is shrinking or hasn’t been open long enough to stabilize, a piece of real estate can start being the tail that wags the dog, instead of the dog wagging the tail. I love real estate, but I’d remain a tenant in your situation. A, you don’t have the money; and B, you haven’t been doing this long enough to know what your real estate and physical plant needs are going to be.