Put yourself in control of your own finances
Dear Dave: My wife and I are looking at a $200,000 home, but we’d like to avoid PMI by paying 20 percent down. Right now we make about $85,000 a year, but we owe $14,000 on a car and $4,000 on credit cards. We have $25,000 in savings, and we’ll also make $40,000 off the sale of our present home. Is this a good idea? — John
Dear John: Paying 20 percent down on a home is always a good idea, but let’s go one better.
If it were me, I’d put 20 percent down on the house, pay off the card, cut up the credit card and promise never to borrow on a car again! Then, take what you were putting toward your car and quickly rebuild the portion of your savings you used to make all this happen.
You two are making good money, so there’s absolutely no reason to have $4,000 on a credit card or car note. That’s a symptom of living without plan.
Get on a written budget together, and give every dollar a name on paper before the month begins. This way, you’re making your money do what you want it to do and it puts you back in control of your finances. — Dave
Marriage and debt
Dear Dave: I’m planning on getting married in about a year to a man I love very much. We’ve both been through your class at our church and were talking about waiting until we’re both completely debt-free. I was wondering about your opinion. Would you wait? — Joni
Dear Joni: No, I wouldn’t. When two people really love each other they should get married when they feel in their hearts that the time is right.
At this point you shouldn’t be thinking about money as anything except an indicator of where you’re going. It doesn’t matter who got into debt or how, Joni. Everyone makes mistakes. But if you’re both passionate about getting out of debt, living on less than you make and in agreement about how the dollars are going to be handled, then as far as money is concerned you’re ready to be married.
Many relationship experts will tell you if a couple can agree on four things — kids, money, religion and in-laws — they have a great statistical chance of a happy marriage. I believe this, too.
Make sure you meet with your pastor for some good pre-marital counseling, Joni. And best wishes for a long and happy life together! — Dave
Dear Dave: My husband has a variable universal life insurance policy. I’m trying to convince him that term insurance is better, but I’m not sure how to explain it all. Can you help? — Kelly
Dear Kelly: In a variable universal life policy the extra money you pay in addition to the insurance you have yields an interest rate of about 7 percent. This doesn’t sound too bad, but then most insurance companies stick you with all kinds of fees and that 7 percent shrinks considerably.
When you buy term insurance, you’re getting just plain old insurance with no bells and whistles added. That’s also why it’s so much cheaper.
Insurance is never a good investment vehicle. In the long run, it’s best to keep your money and invest it yourself in a good, growth stock mutual funds at 12 percent instead of letting some insurance company invest it for you and then “fee” you to death. — Dave
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