Dear Dave,

My wife and I have started teaching our five-year-old son about money. Do you feel we should step in and fix things when he makes mistakes, or let him experience the consequences of his actions? It’s so hard on my wife, especially, to see him disappointed when he makes a mistake, and his plans don’t work out.

Lane

Dear Lane,

I know this might sound mean to some folks, but sometimes a good financial disappointment when you’re young is the best thing that can happen to you. They’re hard to watch happen, or to experience, but often they’ll teach life-long lessons. No decent parent wants to see their child sad or hurt, but reality is a pretty good teacher when it comes to learning how the world really works.

One of the jobs of a parent is to look for teachable moments with their kids. Of course, when it comes to teaching there’s always a chance the student won’t learn the lesson well enough the first time around. I’m not sure how you’re doing things, but if I were in your shoes, I’d follow these steps. First, give him a chance to earn some money. In my book, that means work. No allowances! There’s a lot of self-esteem and value to be found in accomplishing a given task successfully.

Then, once you pay him for the work he does, you have another perfect chance for teachable moments, because you can help him learn about saving, spending and giving, and how to do all three wisely.

It’s always hard on parents when they see their kids unhappy. I know we went through it with ours. As a parent and protector, you want to jump in and make everything okay. But the hard truth is that fixing or doing everything for them is the easy way out. And in the process of doing that, a child will begin to develop a sort of learned helplessness.

Sometimes, Lane, you need to love kids enough to not do things for them. Let them make some mistakes, experience the consequences and fix things themselves. And it’s better for them to do all this while they’re still under your guidance and protection.

—Dave

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Dear Dave,

My husband and I bought a franchise recently, and we are opening our business in a couple of months. We’ve got $40,000 saved up, but my husband wants us to take a two-week vacation before we open for business. He feels that the business will completely consume us for the next two or three years, and he wants to go into things relaxed and refreshed. How do you feel about this idea?

Jill

Dear Jill,

I understand where your husband’s coming from. A business is very time consuming, and to make it a success you’ll both have to eat, sleep and breathe it for a very long time.

But here’s the reality of your situation. Right now, you’re basically unemployed. On top of that, you have just $40,000 with which to start a business. It’s time to rev up your engines and get to work, not spend a bunch of money vacationing. Trust me, there’ll be plenty of time to celebrate after you’ve won, maybe in even bigger and better ways, if you’ll just delay gratification and put in the dedication and hard work now.

When it comes to opening a new business, a good rule of thumb is this: Everything’s going to take twice as long to accomplish as you thought it would, and everything’s going to be twice as expensive as you thought it’d be. I’m sure you’re both smart people, but my guess is you’re not exceptions to this rule when it comes to opening and running a small business.

Think about it, every single dollar connected with your business could mean the difference between survival and going under. Like I said, I kind of get your husband’s thought process, but it would be a very unwise idea right now. You’ve got to look at the big picture. You’re going to be heartbroken, and maybe in a real financial bind, if you have to close up shop in a few months because you ran out of money.

On the other hand, if you work hard now, stay smart and make this thing a success, you can take a vacation—and really celebrate—when the time is right!

—Dave

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Dear Dave,

My best friend is having financial problems, and I’m worried about him. He’s “between jobs” now and making less than $600 a month through a part-time job. He says he’s holding out for his dream job, which is about ten hours away, but even when he’s working full time, he always asks to borrow money or says he’s running low.

He interviewed for his dream job several months ago, and I haven’t got the heart to tell him he was probably passed over for the position. Is there anything I can do to help him?

Garrett

Dear Garett,

I assume that since you’re good friends, he’s willing to listen to what you have to say. There’s absolutely nothing wrong with having a dream job. You just have to be practical and realistic at the same time.

This next part is more observation than insult, so I hope you’ll understand. Your friend sounds to me like he might be a little impulsive and unrealistic. When it comes right down to it, maybe a touch immature, too. So, I think what we’re talking about here is how to give your friend a gentle, well-intentioned nudge in a more realistic direction. He needs to open his eyes to some positive financial realities of life—like living on a written, monthly budget—and not making a habit of chasing rainbows and making excuses.

If he came to me for advice, the first thing I’d tell him is that the most employable people are ones who aren’t broke. When you go into a job interview and you’re broke, it’s easy to come off as desperate and tense. That doesn’t make for a very good interview.

The answer to that, when you’re essentially unemployed, is to work any legitimate full-time job. At the very least, two, three or even four part-time jobs. Deliver pizzas, wait tables and mow yards. It’s doesn’t matter what you’re doing, as long as you’re generating a livable income for yourself. Smile and be professional at whatever you’re doing, too. You never know when you might come face-to-face with your next real employer. But none of this will happen if you’re working three or four hours a day, and spending most of your time at home in front of the television.

I hope this helps. I hope your friend will listen to you and understand you have his best interests at heart. But if he doesn’t, all you can do is hope for the best and pray for him.

Best of luck, Garrett. You’re a good friend.

—Dave

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Dave,

I’d like to slowly start a business online while working my regular job. But even though I’m in pretty good financial shape, I don’t have much money left at the end of the month. I have no debt except for my house, and I also have nine months of expenses in my emergency fund. How can I start my business without borrowing the money?

Kirsten

Kirsten,

I like where your head is. Start and run your business with cash. Period. Even if it takes a little while to get things off the ground. That should be a guideline for every entrepreneur.

But guess what? You may have more money on hand than you think. You’re a little heavy on your emergency fund right now. I recommend people have three to six months of expenses set aside for emergencies. You could back your emergency fund down to six months of expenses, and move the extra over to an account designated for your business. After that, grow it slowly each month until you have enough to open your doors. You’d be surprised how much cash will pile up, even if you save just a little bit at a time.

The big thing, Kirsten, is don’t be afraid to start small. Don’t despise humble beginnings. Some of the best and most successful companies in America started as micro-businesses or cottage industries. I literally started my company on a card table in my living room. It’s easier and safer in a lot of ways. So, I love the wisdom you’re showing by wanting to keep your full-time job while starting the business online.

So, yeah. Take three or four months of expenses out of your emergency fund, and move it to a designated business account. Watch your budget carefully, and keep spending to a minimum. Above all, don’t take your business into debt. Grow it at the speed of cash. The best, most successful businesses don’t outrun their money and other resources!

—Dave

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Dear Dave,

I think my mother-in-law has a serious credit card problem. She can’t afford stuff, but she shops anyway, chalks up more and more debt, acquires more credit cards, and thinks she’ll pay for it all later somehow. Her ex-husband has bailed her out a few times, but he’s unwilling to help anymore. My wife and I, and my wife’s sister, want to address this issue, but we’re all worried about her reaction, and we don’t know where to start. Do you have any advice?

Randall

Dear Randall,

First, everyone involved should understand they’re likely to receive an angry response from this lady if she’s confronted over her actions. Sometimes people get ticked off when they hear the truth, especially when it’s connected to their own misbehavior. It may even be a good idea for your wife and her sister to get some advice from a family counselor beforehand. Really, what we’re talking about here is an intervention.

Also, you need to stay out of the discussion. This is something for her daughters to handle. Support your wife and her sister through it all, but if you’re in there asking questions and probing around, you’re liable to come off as the evil son-in-law. And you folks don’t need to add any more problems to the mix.

They need to sit down with her in a quiet setting, one where there are no interruptions, no television and no one else. Start with the fact that they love her and care about her deeply. That’s very important in a situation like this. But they also have to walk through what’s really going on, and let her know they’re tired of watching her destroy herself, and her finances, with her irresponsible behavior.

If she had a drinking problem, you’d want to try to make her see how alcohol was hurting her and the relationships she has with her family. In this case, she basically has a credit card addiction. And it’s wreaking havoc on her financial well-being and people who care about her.

So, show as much love and understanding as possible. But someone needs to say something soon.

—Dave

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Dear Dave,

We’re following your Baby Steps plan, and we’ve paid off all our credit cards. But when I talked to my husband the other day about cutting up the cards and closing the accounts, he said he would rather keep the accounts open, and the cards locked away in a drawer for use as an emergency fund. He says this will help us have an emergency fund in place quicker than saving for one. I think there’s more behind his reasoning, though. He grew up in a very poor family, and I wonder if he’s not afraid of somehow ending up in that kind of situation again. What can I do to convince him to follow your advice?

Ramona

Dear Ramona,

I think you’re a very perceptive lady. You said your husband grew up in poverty, right? So, what I’m hearing is the cards represent almost a security blanket for him—a financial security blanket. I get that, but here’s the thing. If you had a fully funded emergency fund of three to six months of expenses sitting in the bank, I’m talking about hard cold cash, you’d have the security of knowing that the expense of a new air conditioning unit or transmission for the car would only be a minor inconvenience. And, you’d be able to cover it easily without going back into debt.

Instead of actively trying to convince him of something, a better route might be to sit down together and talk through the whole thing. Explain to him you think you know why he feels the way he does, and that it’s understandable. Then, ask him if there’s a reasonable amount you two could have in the bank that would help him stop worrying. Discuss it, agree on an amount and then agree to cut the cards up and close the accounts when you reach that figure. Remind him, too, you’d still have your debit cards in hand in the event of an emergency.

Above all, Ramona, make sure you work together. Be patient and understanding. If he has recognized the wisdom of getting rid of debt and taking control of your finances, he’s moving in the right direction!

— Dave

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Dear Dave,

My wife and I are debt-free except for our mortgage and two Parent PLUS loans for our daughters’ college educations. One of the loans totals $18,078, and the other is for $41,500. Both girls want to pay them off using the new extended plan being offered, but I’m 59 1/2, and I’ve got about $500,000 in a 401(k) from a previous job along with $125,000 from a job I started five years ago. We’ve been thinking about just paying the loans off for the girls, but we wanted to know your thoughts.

Mike

Dear Mike,

If I were in your shoes, I’d just go ahead and pay them off. Technically, you’re liable for the loans. They are not.

The extended plan you’re talking about is garbage. In reality, it means the loans are never paid back. The extended plan is 30 years of not even making the principal payment. No interest is paid, and they don’t touch the principal. The whole thing works backward for 30 years, and it’s the very definition of a stupid government program.

I really don’t think you want your daughters to be part of something like this. But that means you’re going to be stuck with paying off these loans. You might as well just own it and pay them off now.

I want you to understand this, Mike. I don’t advise people to dip into their savings every time a problem comes up prior to retirement. But you’re 59 1/2, and at that point there’s no penalty. Plus, you’ve got $625,000 sitting there. You’re going to pull less than $60,000 out, plus a little in taxes, to make the problem go away. It’s not as bad as it could be, but I’m afraid you’re going to have to pay a little stupid tax on this one. I’m sure your girls didn’t know all this, but it’s a perfect example of what can happen when you put your faith in a stupid plan coming out of Washington, D.C.

I hate it for you guys—and everyone else in America who took out a bunch of student loans—because you’re getting messed over by your own government. The first way they messed you over was to put a student loan program out there and then tell you the way to success was to borrow tens and hundreds of thousands of dollars for a degree in left-handed puppetry. And now, guess what? You’re a barista! Then, they start shouting they’re going to forgive it all. After that it’s, “No, we’re not. Yes, we are. No, we’re not. Yes, we are.”

The fact is, they don’t intend to forgive it. It’s the biggest scam in history—mathematically speaking—perpetrated on the American public by our government.

— Dave

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Dear Dave,

Our daughter’s college education is pretty much paid for already through grants and scholarships, and my wife and I make good money. We just started your plan, so when we get to Baby Step 5, saving for college, can we substitute that with saving for a wedding?

Benton

Dear Benton,

I’m glad you’re thinking ahead, buddy. And I don’t have a problem with your idea. It’s always a good plan to save for a wedding, if you have the financial resources to do so.

Did you know the average wedding in America this year, according to Zola.com, ran around $29,000? Of course, you don’t have to pay anything close to that amount to make a wedding a beautiful and memorable occasion. Your household income, debt, savings and other factors will all play a part in how much you can legitimately afford.

Sit down with your wife, crunch some numbers and see what makes sense in your situation. Just remember to pay cash for the wedding. If you have to go into debt to make it happen, you’re spending way too much!

—Dave

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Dear Dave,

My husband and I want to do a live-in and flip real estate purchase. The idea is to buy a fixer-upper and rent out the basement to help with the mortgage payments. How do you feel about ideas like this?

Erin

Dear Erin,

In a situation like this you need to do a basic business analysis. You’ve got to have a plan in place, and you’ve got to figure out the worst-case scenario. Part of this is determining whether you can survive if things fall apart. In this case, the worst case is that you can’t get a renter, and the house doesn’t sell. It puts your family in jeopardy, so to me it’s not an option.

Want my honest opinion? I think you’ve both got a case of house fever right now. The possibility I just mentioned isn’t a rare occurrence. Lots of people have had the same idea, with the best of intentions, and still wound up in a big mess. I love real estate. I mean I really love real estate. And I’ve flipped more than a few houses in my day. But the particulars of this deal make me a little nervous. If you and your husband are willing to accept the possibility of things not working out like you planned—and the fact you might have to take additional jobs for an unknown length of time just to make ends meet—then it might be a play. But for me? Nope. I don’t like putting myself into these kinds of situations.

When I was much younger, I was willing to do all kinds of dangerous stuff and ignore the risk. But going broke decades ago knocked that kind of thinking out of me in a hurry. Any deal that runs the risk of leaving you bankrupt, or the victim of a foreclosure, just isn’t worth it, Erin.

-Dave

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Dear Dave,

My fiancée and I plan to get married in May, and we are preparing to buy a house. We both work in sales, and combined we bring home about $7,400 a month before commissions. Our average commissions usually boost that to $12,000 a month. I’m worried that the house we’re looking at doesn’t fit our budget, though. The home costs $350,000, and we’re looking at monthly payments of $2,840 with taxes and insurance figured in. Do you think this scenario will work for us?

J.T.

Dear J.T.,

Are you doing this on a 15-year fixed-rate mortgage? If you’re not, you need to change that right away. That’s the only kind of mortgage loan I recommend. With the numbers you’ve given me, you two can afford that on the shorter terms I mentioned.

Now, let’s move on to the next thing. You’re speaking about buying a home as if you’re already married, and you’re not. I will not advise you to buy a house with someone to whom you’re not married. You’re talking to a guy who’s been doing this for 35 years, and I’ve heard all the horror stories that go along with, “We bought the house together, but we didn’t make it to the altar together.” Talk about an ugly breakup!

You two have a bad case of house fever right now. Believe it or not, you aren’t required by law to run out and buy a home just because you’re planning to get married. Please, wait until after the wedding to buy a home. And even then, wait another year or so. Buying a home is the biggest—and most expensive—life decision most people ever make. Take some time to just enjoy being married and getting to know each other even better for a while.

Listen, if you’ve already jumped the gun, if you already have this house under contract or anything like that, I would not close the deal. I’d talk to the sellers and tell them they can keep my earnest money, but I’m walking away. And get ready, because if you do this, your fiancée is liable to look at you like you’ve got snakes coming out of your ears. Make sure to communicate with her about where you’re coming from and why you’re doing it. It’s the best, and smartest, thing you can do in the long run, J.T.

I’m not predicting you two are going to break up or anything. I hope with all my heart nothing like that happens. But I’m begging you, buddy. Don’t buy a home with someone you’re not legally married to. The potential downside is just too great.

— Dave

The post My fiancée and I plan to buy a house but I’m worried the house we’re looking at doesn’t fit our budget appeared first on East Idaho News.