Ask Davehttp://www.daveramsey.com/etc/askdave/index.cfm2016-09-25T03:03:02ZDave Ramseytag:daveramsey.com,2016-09-21:131533Accounting 1012016-09-21T10:28:30ZBrittany has just started her own business, and she wants to know how to determine profits. Dave has the answer, plus a little good advice, for the budding entrepreneur.<p><b>QUESTION:</b> Brittany follows Dave on Twitter, and she has a small business question. She asks how to determine her profits as the owner and only employee of a small business. Dave gives her the simple answer, along with a little extra advice. </p><p><b>ANSWER:</b> Your income minus your outgo is profit. What you take in minus your expenses equals profit. Period. This is regardless of how many employees you have or how big your business is. It’s that simple. What you take in minus your expenses — your revenues minus expenses — is profit. That’s a basic, Accounting 101 definition of profit.</p><p>You also need a separate checking account for your business. That’s the way to tell what’s going on. When you co-mingle it with grocery money and things like that, you can’t keep up with what’s happening with your business.</p><p> </p>
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tag:daveramsey.com,2016-09-07:131509Insurance info2016-09-07T10:05:22ZCynthia has questions about an index universal life policy with death benefits. She knows Dave prefers term life insurance, so she asks if she should keep her current policy. Dave says no, explains why, and, in the process, gives Cynthia an in-depth look into why some insurance policies are bad products.
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tag:daveramsey.com,2016-09-06:131507Cash flow grad school?2016-09-06T11:55:43ZDan is in grad school. He and his wife have a good income and little debt. He asks Dave if cash flowing school from here on out is a good plan. Dave loves the idea, and he gives Dan a few pointers for making things work.<p><b>QUESTION:</b> Dan in Tampa, FL, has a lot going on. He and his wife are on Baby Step 2, and he’s in graduate school while working full-time. They’re trying to cash flow his education from this point forward after previously taking out student loans. Their household income is $90,000 a year, and they have a car payment, so Dan asks Dave if they’re taking the correct approach.</p><p><b>ANSWER:</b> Lay your finances out, and run the idea of what tuition and school are going to cost between now and when you graduate. Your first goal is to do no more harm, meaning that you graduate and finish this degree without taking on any more debt. </p><p>I think beyond that, and I don’t know what you’re paying for the school, you should have some money beyond that to work your debt snowball. Don’t beef up the payments on your debt so heavily that you use up the money that you need for tuition. Getting though school will slow down your debt snowball somewhat. So don’t get so excited and gazelle intense about paying off your debts that you pay down so heavily on the car that you turn around and have to borrow for tuition.</p><p>First goal is to finish school without any additional debt. The second goal is to throw whatever else you can scrape up at the debt. Yeah, I’d definitely do that. It’ll work for you. Congratulations! That’s really neat. Very good idea.</p><p> </p>
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tag:daveramsey.com,2016-09-01:131501Travel medical insurance?2016-09-01T09:32:21ZTim and his bride-to-be are planning a honeymoon cruise. He asks Dave if it would be a good idea to purchase travel medical insurance. Dave advises them to first check into the details of their current coverage.<p><b>QUESTION:</b> Tim and his fiancée are planning on a honeymoon cruise. He wants to know if it would be a good idea to purchase travel medical insurance. Dave approaches this one cautiously, but gives Tim and his bride-to-be sound advice.</p><p><b>ANSWER:</b> I don’t know why your regular health insurance wouldn’t cover you, except that you might be out of the country for part of the trip. Find out what your normal medical health insurance covers, as far as out of network and those kinds of things. </p><p>Most of the time, for instance if you’re doing a Caribbean cruise, most of the out-of-network stuff will work there — but double-check on that. I have never bought travel medical insurance, and we’ve gone on two cruises this year. </p><p>Normally, I would say travel medical insurance falls into the gimmick category. But if you’re concerned about it, the best thing to do is check with your current coverage, see what you’ve got, and compare that to what you think might be your risk.</p><p> </p>
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tag:daveramsey.com,2016-08-17:131485Sold Dave three timeshares?2016-08-17T10:23:46ZJeremy calls in to tell a story of how he recently sat through a timeshare pitch given by Dave's personal financial advisor. On top of that, the "advisor" said he sold Dave three timeshares in the past. Dave gets a good laugh out of this one, sets the record straight, and in the process makes his feelings about timeshares perfectly clear.
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tag:daveramsey.com,2016-08-16:131483Don't touch the 401(k)2016-08-16T13:20:07ZStephen asks if it would be a good idea to take out a loan against a 401(k) to pay off credit card debt. Dave advises against this, and during the conversation he learns that credit card debt isn't the real problem.<p><b>QUESTION:</b> Stephen and his wife have about $12,000 in credit card debt, and they owe another $80,000 in student loans. Their kids’ education also runs about $1,000 a month, all on a combined yearly income of $100,000. He calls in to ask Dave if it’s acceptable to take a loan against your 401(k) to clean up the credit card mess. Dave doesn’t like the idea, and he explains why it’s a bad plan.</p><p><b>ANSWER:</b> I don’t recommend that you do that, and here’s why. Your 401(k) should be invested in good mutual funds. When you take the money out in a loan, they pull it out of the mutual funds and you’re paying yourself a five percent interest rate instead of receiving what the mutual funds are paying, which should be 10, 12, 15 percent — whatever the market is doing. So you’re missing out on good rates of return.</p><p>But that’s not the biggest reason. The biggest reason is when you leave your company, and you will leave — whether it’s when you get a better job, get fired, or you die — that loan is considered an early withdrawal. If you don’t repay it within 60 days, you get hammered with a 10 percent penalty plus your tax rate. It can end up being half of the account.</p><p>No, I wouldn’t do that. The good news is that it’s only $12,000. I would tighten up the budget, and do something to increase your income — have a big garage sale, and sell so much stuff the kids think they’re next. The $80,000 in student loans is what’s killing you, not the credit card debt. You need to work a serious plan to get out of debt, and that always includes living on a tight budget.</p><p> </p>
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tag:daveramsey.com,2016-08-10:131459Paying cash doesn't make it smart2016-08-10T09:57:30ZWes wants to know if paying cash for a "tiny house" is a good idea. Dave doesn't think so, and he explains his feelings here.<p><b>QUESTION:</b> Wes asks Dave’s opinion on paying cash for a “tiny house.” While the answer may not be cool, it does make sense from a long-term and short-term point of view.</p><p><b>ANSWER:</b> This is a very un-hip thing to say, but I would not buy a tiny house. The problem with the tiny house idea is that there’s no track record on it, and it could be a fad. Another problem is that you’d have a very tiny market when it comes time to sell your tiny house. Translation? They probably won’t go up in value. They may actually go down in value. </p><p>There’s a thing in economics called the supply-demand curve. The higher the supply is versus the demand, the lower the price. The higher the demand is versus the supply, the higher the price. The tiny house has a tiny demand, and it doesn’t have a broad market appeal. It only has an appeal for early adopters, and people who think they’ll never be able to afford a house, or people who think it’s cool — which is an even lower appeal. It’s not got a broad appeal when you get ready to sell it, and thus you have a problem.</p><p>I have a friend who built a $4 million lake house in an area full of $600,000 houses. The market for $4 million houses on that lake is tiny. He likely will never sell it, and if he does he will sell it cheaper than he would if it were a $4 million house parked among other $4 million houses. So, he gets to live with this house a while. He did not build it wisely in terms of resale. Where there’s a low demand for something, it drives the price down. That’s the problem with the tiny house movement.</p><p>If you think I’m wrong, and enough people buy tiny houses and they become a real part of our culture, then maybe they’ll do okay. But it’s an unproven product line. It’s an unproven concept that appears to be a fad. So, I wouldn’t buy a tiny house. If you could sell me a tiny house at half of its current value, I still wouldn’t buy it because I’m afraid it would drop to a fourth of its current value. There’s no proven record of these things going up in value.</p><p>Paying cash for something that goes down in value versus buying something that goes up in value, that’s a bad deal. At that point, paying cash for it doesn’t make it smart.</p><p> </p>
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tag:daveramsey.com,2016-08-05:131453Rice but no beans2016-08-05T09:20:18ZPaul calls in from Orlando, FL, where he and his wife are in a mess. They're both in their 70s with serious health issues. In addition, they have almost $30,000 in debt to finance companies and are considering bankruptcy. Dave walks Paul through the details of their financial situation in a loving manner and, in the process, offers encouragement and understanding. Listen to Dave at his best.
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tag:daveramsey.com,2016-07-29:131446Just start doing something2016-07-29T09:34:35ZJill has a furniture restoration business on the side. She's thinking about expanding it to her full-time job, but has no idea where to start. Dave and his guest, Certified Business Coach Christy Wright, give her advice.<p><b>QUESTION:</b> Jill has a good full-time job where she makes around $55,000 a year. She restores furniture on the side, and she has had great success over the last couple of years with the restoration business. Now, she’s thinking about taking her part-time job to the next level. She asks Dave and his guest, Certified Business Coach Christy Wright, for advice on taking the leap.</p><p><b>ANSWER:<br /></b><b>Christy:</b> That’s where a lot of people get stuck. I’ve talked with Dave a lot about this, but really the key is to just start doing something. Do a little bit of research, and set your pricing. Calculate your costs, because you’ll want to know how much is going into a particular piece of furniture and how much time you’re spending on a project. See what else is out there in your area too.</p><p>On my website, BusinessBoutique.com, we have a business plan that’s a quick-start guide. It’s not a full plan, but it will give you the basics to get started. You know, it’s amazing how when you just start to put yourself out there you’ll gain momentum with every successful step. With every step that you check off your list — you set your pricing, you research the competition, come up with a name — it’s going to give you confidence and momentum to take the next step. It’s overwhelming having so much to do, but if you’ll just start with those initial baby steps, it will fuel the next steps. </p><p><b>Dave:</b> And here’s the thing, Jill. In order to quit the full-time job and do this full-time, you would want to prove that you have profits somewhere close to what you’re making at your current full-time job. You wouldn’t want to quit and make $15,000 the next year doing furniture. You’d want to be making $25,000 to $30,000, or even $40,000, doing this part-time. Part-time is starting to sound like a lot of work right there, but then you’ve got the boat close enough to the dock to make the leap. </p><p>But you don’t want to just jump in and hope you don’t drown. You want to get the boat close enough that you land in the boat, income-wise. So you need to create a proving ground on the income side of the equation to do that as well.</p><p> </p>
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tag:daveramsey.com,2016-07-20:131405Emergency funding through sale?2016-07-20T14:23:15ZJustin and his wife are wondering if it would be a good plan to complete their fully-funded emergency fund through the sale of their home. Dave walks them through a couple of scenarios to make sure they're on the right track.<p><b>QUESTION:</b> Justin and his wife have completed the first two Baby Steps, and now they’re building a fully funded emergency fund in Baby Step 3. They would like to move out of their current home, so Justin asks Dave if selling the house is a viable option for funding the third Baby Step. They currently have about $32,000 equity in their present home. </p><p><b>ANSWER:</b> Well, I wouldn’t sell the house just to do Baby Step 3. My goodness, that’s usually a fairly easy Baby Step after you’ve gotten out of debt. A fully funded emergency fund means saving three to six months of expenses, and you shouldn’t have to sell a house to pull that off. </p><p>But if you don’t like the house anyway, and you’re planning on selling it, then yes, set some of the equity aside. I would not put all of the equity into the next deal. I’d hold back my three to six months, so that when you move into another house you’re debt-free with a fully funded emergency fund sitting there.</p><p>There’s nothing to keep you from selling it today. So if that’s what you decide to do, just set back enough so that you still have an emergency fund in place and use the remainder for your down payment. If that equation works for you, then sell the house. If not, you may need to completely save up your emergency fund before you sell the house in order to make it work. </p><p>When you move, I want you to have an emergency fund and be debt-free in addition to your down payment. That’s what we’re after.</p><p> </p>
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