QUESTION: Gina in Texas is trying to help a friend who is experiencing financial problems. Her friend is between jobs at the moment and only bringing in about $600 a month. Even when her friend is working regularly, Gina says she doesn’t budget and manage her money wisely. She’s always looking for more money, too. On top of all this, the friend is holding out hope for a dream job in another state – one she interviewed with several months ago and hasn’t heard a response from since. Gina asks Dave what he thinks she should do to help her friend.
ANSWER: The way you describe her makes her sound kind of impulsive and flighty. I’m thinking that maybe she’s a little bit immature, too. I don’t mean this as a put-down so much as an assessment. I’m just trying to get a handle on what we’re dealing with here.
So really what we’re talking about is how to get your friend to grow up a little and quit chasing rainbows. There’s nothing wrong with going after a dream, but you have to be realistic and practical at the same time. Right now, I want her chasing about six smaller rainbows at once so she’ll actually have a chance of catching something. When you chase just one, you end up with nothing in most cases.
The first thing I’d tell her is that the most employable people are the ones who aren’t broke. When you go into an interview and you’re broke, you’re tense and you don’t make for a very good candidate. The answer to that, when you’re basically unemployed, is to work any job – and six any jobs. Wait tables, walk people’s dogs, deliver pizzas, cut grass … I don’t care what. Just generate some income. Work all the time — and smile! You never know when you might be talking to your next employer. You could be walking someone’s dog one day and end up in their marketing department later. But none of this will happen if you’re not out there trying to make stuff happen. Sitting at home watching Oprah reruns, and trying to feel better about yourself that way, isn’t the answer.
In all this, I’m assuming that she’s willing to listen to you a little bit because you’re friends. But if she won’t, all you can really do is pray for her. It’s like the old saying goes, “Those convinced against their will are of the same opinion still.”
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.