in the military, and my wife and I have $13,000 in the
bank along with $35,000 in a Roth IRA. We also have no
debt, and we put $3,500 into our savings account each
month. Our new baby is due to arrive in January, so do
you think this would be a good time to buy our first
Based on the market alone, itís a great time to buy a
house. Interest rates are fantastic, and prices are
recovering but still buyer-friendly. However,
considering your wifeís delivery date and the fact that
it takes a while to find and complete the process of
buying a home, I think Iíd wait on this. Moving is
stressful enough under normal circumstances, but
combining that with a pregnancy could shoot your wifeís
stress levels into the stratosphere. I really donít
think you want to do that to her. And speaking as an old
married guy, itís something you donít want to
Another thing to consider is if thereís a good chance
youíll be reassigned in the next four or five years. We
work with the military a lot, and that means we see
people who buy, and get stuck with, homes all over the
country. These places usually become rental homes
because they donít sell quickly. And this is a situation
you want to avoid because being a long-distance landlord
is a real pain.
everything falls into place, you could easily have
enough set aside for a big down payment a few months
after the baby arrives. At that point, things will feel
a little more settled. I know the temptation is great
right now to move into a place you can call your own,
but you want buying a home to be a blessing, not a
curse. Take a little more time, and see how things feel
career- and family-wise in a few months. Thatís my
the emergency fund where?
it better to keep your emergency fund in a certificate
of deposit or a money market account?
Right now, a short-term certificate of deposit (CD) pays
about the same as a money market account. The problem is
youíre only going to make about 1 percent with either
one. The good thing about a money market, though, is
that there are no early withdrawal fees attached.
my mind, an emergency fund isnít there for the purpose
of making money. It needs to just sit safe and sound
until itís needed. It should also be in a program where
itís easily accessible and there are no stupid fees or
penalties for simply using your own money.
yeah, savings interest rates right now are aggravating.
But you donít have 3- or 4-percent-home-mortgage world
without a 1-percent CD world. They kind of go together.
Just remember that interest rates arenít the end game
when it comes to your emergency fund. You want three to
six months of expenses just sitting there, waiting for
life to happen. Trust me, it will!
down on mortgage acceleration
pay a nominal fee to be enrolled in a mortgage
you should not. Mortgage accelerator programs are
similar to the biweekly mortgage deals floating around
out there. Paying on your mortgage biweekly is fine.
Paying for the privilege is not.
biweekly mortgage program, you make a half-payment every
two weeks. By doing this you will pay off the typical
30-year note in about 22 years. It works because there
are 26 two-week periods in a year, and 26 half-payments
equals 13 whole payments. It pays off your mortgage
early because youíre making an extra payment every year.
Thatís whatís doing it. Thereís nothing magical about
every two weeks; itís the fact that youíre paying extra
Instead of paying your mortgage company an unnecessary
ďnominal fee,Ē just make an extra payment each year. Or,
pay one-twelfth of a payment as a principal reduction
with a separate check, in a separate envelope, every
month. By doing that, youíll pay off the loan just as
quickly as with a biweekly arrangement.
youíre just now taking out a mortgage and your lender
can do a biweekly setup at no cost, then thatís great.
Take them up on the offer. But weíre not going to pay
them an additional fee so you can make extra payments on
the principal. Thatís just stupid!
Giving beyond tithing
husband and I tithe, but right now weíre on Baby Step 2
of your plan and weíre expecting a child in a few
months. Since weíre trying to pay off all our debt
except for our home, what should we do about giving
beyond our tithe in this situation?
Evangelical Christians recognize two types of giving in
the Bible - tithes and offerings. The tithe is off the
top, before you do anything else. Thatís why I recommend
people put it on the top line of their budget forms.
that, offerings are almost impossible to find in
Scripture until youíve first taken care of your family.
The normative method found is that offerings are to be
taken out of your surplus. In my mind, while your family
is in debt and youíre busy taking care of your
household, there is no surplus. Just because something
tugs at your heartstrings or someone spews out a toxic
sermon on giving doesnít mean that you need to give
offerings above your tithe.
hereís the good news. Once youíve paid off your debt and
have a fully loaded emergency fund in place, youíll have
the rest of your lives to open up and give like never
before. Getting out of debt means you will gain control
of your most powerful wealth-building tool - your
income. And when that happens, you can give with
extraordinary levels of generosity.
are three things you can do with money - spend, save and
give. And when you reach a point where you can give
well, itís the most fun youíll ever have with money!
Tips for surviving Christmas financially
Itís not an emergency. Christmas is not an emergency, it
happens every year. Donít use this as an excuse to
overspend and buy things you canít afford.
Make a holiday budget. Make a list of everyone you are
buying a gift for, and put a dollar amount by every
name. Total it at the bottom. This is your Christmas
budget. You can also check out
www.mychristmasbudget.com, a free online budgeting
tool to help you easily keep the holidays from wrecking
cash. Put the total from your budget in an envelope, and
when the cash is gone stop spending. This will help keep
you on budget because if you overspend on Aunt Sue,
Uncle Harry wonít get a gift!
Avoid debt. If youíre running a little short on cash,
talk to your family about spending expectations. Draw
names, set price limits or get creative. Whatever you
do, donít go into debt. Itís not worth it!
employer contributions count toward the 15 percent you
recommend putting into retirement?
Employer contributions do not count toward the 15
percent I recommend setting aside for retirement. Itís
nice if you work for a company that offers perks like
that, but I want you putting 15 percent of your money
Step 4 of my plan says to put 15 percent of your income
into retirement accounts. The first thing you should put
money into is a matching retirement account. If youíve
got a 401(k), a Roth 401(k) or a 403(b) and your
employer offers a match, you should do that up to the
match before anything else.
Letís say your employer will match three percent. Since
the goal is 15 percent, youíve still got some work to
do. Youíve got three percent of your own money already
tied up for retirement, so then you could look at a Roth
IRA. If the Roth plus what you invested previously to
get the match doesnít equal 15 percent, you could then
look at a 403(b) or go back to your 401(k) to hit the 15
Whatever your company matches, whatever its pension may
be or even military retirement does not enter into the
equation. I want your money in your name. If your
company goes broke and you have a company pension, you
get nothing. But if you have a 401(k) and your company
dies, itís in your name and you donít lose it. You put
it there, you own it. And that includes the match.
Are you getting the picture, Brian? I want you to
control your destiny!
Teaching teenagers about giving
are some good ways to teach a 13-year-old kid about
giving versus getting during the holiday season?
One of the best things you can do is simply talk about
it - a lot. Kids are bombarded with messages about how
important they are, and how they should always have what
they want. Itís okay to have some stuff, but advertising
and other marketing messages in todayís culture can make
them think itís all about them. It can lead kids to
believe the axis of the world runs through the tops of
their little heads.
Think about this. In 1971, the average person saw 564
advertising impressions a day. Now, that number is about
4,000. The purpose of advertising is to disturb and
influence you to the point that youíll buy something.
Advertisers want you to believe that youíre not complete
without their product, or that youíll be a happier,
cooler, better person with their product. And in most
cases, advertising and marketing people are more
aggressive in their teaching than parents are in theirs.
suggestion is to find some giving exercises in which you
can all participate. You could adopt a single mom at
your church. Make it a family outing, and go buy
groceries, gifts for her kids or even a Christmas tree.
Make sure your kids are involved physically, mentally
and emotionally in the entire giving process. Let them
experience the grateful, and sometimes ungrateful,
responses that go along with giving. And make sure you
do some things that donít involve money. You could take
the entire family to help cook and serve dinner at a
of the best things we ever did as parents with our
teenagers was to send them on mission trips. It truly
changed their lives. When you see real poverty close up,
when you live and walk and sleep in it day after day -
Iím talking about death-and-disease poverty, not the
American version - it changes your heart. And when
youíre 13, it will change your life forever.
and staying on track
Do you have any tips for how a single person can stay on
track with their finances?
Itís really pretty simple. The first thing is the same
advice I give to married couples, and that is to live on
a monthly budget. Sit down at the end of each month and
write down - on paper- all your expenses and income for
the following month.
you think about it, budgeting really isnít that
difficult. Some of your expenses, like your rent or
mortgage payment, will be the same. If you have a car
payment (which I really hope you donít), it will remain
constant, as well. Things like groceries and utilities
may fluctuate based on the time of year, but you can
make a pretty accurate estimate by looking at past
second thing Iíd recommend is that you find someone to
be your accountability partner. It should be someone who
is wise and good with money and a person who loves you
enough to call your bluff or hurt your feelings a little
when necessary. They can be a close friend, parent or
even your pastor. Just sit down together over a cup of
coffee once a month and talk about your finances. You
could even go over your budget together line by line.
Ideally an accountability partner is someone whoís ahead
of you on a particular journey and can help direct you
along the path to wisdom. Itís their job to hold you
accountable for what youíre doing and the decisions
youíre making, for your own good!
daughter used to live an irresponsible lifestyle and was
bad with money, too. While she was in college she also
took on $20,000 in student loan debt. Since that time
she experienced a serious illness. Sheís recovering now,
and it has really changed her behavior and her outlook
on life, spiritual matters and money for the better. I
could pay off the loans for her, but Iím wondering if
thereís a better way to help.
If I were in your shoes, and I had the means to pay off
her student loan debt without putting myself at risk
financially, thatís exactly what Iíd do.
Sometimes the best gift you can give a person is to let
them wallow around for a while in the mess they made.
Being forced to work your way out of bad decisions and
irresponsible behaviors is a great remedy in lots of
cases. But in this situation, with what youíve told me
about her previous health issue, and the fact that sheís
now being responsible with money, behaving and making
better life choices, Iíd want her to be as free as
possible as she takes up this new walk.
advice is to try and be a huge blessing to your
daughter. Right now, sheís a lot like the prodigal son.
Sheís come around in her thinking and realizes whatís
right and what really matters. Give her the biggest hug
sheís ever had, Eddie. Then, throw a party and write a
check to knock out that student loan debt!
do I need umbrella insurance?
At what level of net worth should someone
consider umbrella insurance?
I think itís something you should
consider if you have a net worth of $500,000 or greater.
But first you should be clear on what net worth really
Net worth is what you own minus what you
owe. So the fact that you make a million dollars a year
is not the determining factor in whether or not youíre a
millionaire. The only people who use that definition are
the financially uninformed and politicians who twist
things around and throw out catch phrases designed to
further their own agendas.
That being said, I would get umbrella
insurance, which is extra liability insurance, when you
reach the half-million mark in net worth. Prior to that
Iíd suggest carrying $500,000 worth of liability on your
homeownerís, car insurance and any other policies that
have liability attached to them. Once you reach and
cross that $500,000 threshold in net worth, however, Iíd
advise picking up another $1 million in liability
insurance, called an umbrella policy, that attaches to
the top of that and covers everything for an additional
Itís a great buy, Matt. You can get it
for about $200 a year in most states.
snowball and rental property
Should rental property debt be included
in the debt snowball?
No, it should not. The debt snowball is
Baby Step 2 in my plan, where you stop saving and pay
off all debt except for your home - and I would include
rental properties in there - from smallest to largest.
Prior to this, you should start with Baby Step 1, which
is saving up a starter emergency fund of $1,000.
As a reminder, Baby Step 3 is going back
and fully funding your emergency fund with three to six
months of expenses. Notice that I said expenses, not
income. After that, Baby Step 4 is investing 15 percent
of your household income in Roth IRAs and other pre-tax
retirement plans, and Baby Step 5 means setting aside
college money for the kids.
Baby Step 6 is where you pay off your
home, and Baby Step 7 is when you relax, build wealth,
and give. Again, Baby Step 6 would include any rental
properties that werenít bought and paid for with cash.
My advice would be to pay off your home before taking
care of the rental properties, and thatís simply a risk
management perspective. Now, if you owe just $30,000 on
your rental properties but still have a $3 million
mortgage hanging over your head, you might go ahead and
knock out the rental properties first.
Think about it this way, Matthew. Which
would you rather lose in a worst-case scenario: your
home or your rental properties? If theyíre in the same
general range of debt, Iím going to pay off the home
first and the rental properties last.
Section 8 housing dilemma
some rental properties, and the government would like to
turn a couple into low-income housing. Is this a good
idea, or should I find my own tenant?
these types of situations youíre generally talking about
Section 8 housing. This means government-subsidized
rent, and the person living there is in a lower income
bracket. I put of few of my properties on Section 8
years ago, when I first started out in the real estate
business. I can tell you from personal experience, itís
a good news/bad news scenario.
own a property in a lower-income neighborhood, and you
put it into the Section 8 subsidized housing program,
the good news is that youíll always get paid. This is
because the federal government sends you your money.
Unfortunately, the good news pretty well ends right
bad news is that some Section 8 folks have a real
entitlement mentality, and can be unreasonable to deal
with on some issues. Itís also really hard to get them
out of the property once theyíve taken up residence. Of
course, not all people who participate in this program
are like this. But youíll run across your share of rough
folks, irrespective of their race or the area of the
country. More than anything, itís the impact of the
economic situations surrounding their lives.
Another piece of bad news is that the government puts
lots of stringent conditions on the property. That
wasnít so difficult for me, because I always kept my
places in really good shape. But if you go this route, I
promise youíll come across all kinds of guidelines and
regulations, some of which are silly and not very
tired of the Section 8 experience pretty quickly, and I
donít own any property in that program today. If it were
me, Iíd just go find my own tenants. I know some things
have probably changed since my time in the program. But
if itís like most things that are government managed,
the change hasnít been for the better!
Brotherís bad deal
husband and I hired my brother as our real estate agent.
Heís just starting out in the business and working two
jobs, but itís been five or six months and he hasnít
helped us find a house. On top of this, we signed an
exclusive buyerís agreement with him. Weíre worried
about the agreement, how heíll react and our familyís
reaction if we fire him. Do you have any advice?
think youíve given him a fair chance. Under the
circumstances, he should be willing to release you from
the exclusive buyerís contract. I know heís your
brother, and that makes things kind of emotional. You
might get some flak from the rest of your family, too.
But guess what? Itís none of their business. What are
you supposed to do, stay in a bad deal just because
youíre related? I donít think so!
you and your husband need to sit down with your brother
and let him know in a gentle way that things arenít
working. Ask to be released from the exclusive buyerís
agreement, and wish him the best with his new career.
Make sure to let him know you love and respect him, but
that the situation with his multiple jobs, and the fact
that youíve made no progress in all this time, means you
need to go in another direction.
Hopefully, heíll understand. Maybe your family will be
reasonable, too. But those are things you canít really
control. Whether they want to behave like mature adults,
or little kids pitching a fit, is up to them!
How much term do I need?
Oct. 9, 2013
Should term life insurance be purchased based on your
current earnings or future, projected earnings?
usually recommend people have 10 to 12 times their
current annual income in a good, level term life
insurance policy. However, if you have a solid reason to
project your income jumping significantly in the near
future, thereís nothing wrong with basing your amount of
life insurance coverage on that figure - as long as you
can afford it.
when I say a solid reason, Iím not talking about having
an attitude of, ďIím smart. So, Iím going to make tons
more money soon.Ē Thatís ego, not reason. But if youíre
in a residency finishing your medical degree, you can
realistically look at making $40,000 to $50,000 for
another year or two then making the jump to $200,000.
Thatís the kind of logical thinking and planning Iím
talking about. In that scenario, a huge jump in income
is almost assured. Thereís nothing wrong with going
ahead and getting more coverage.
purpose of life insurance is to take care of your family
if something unexpected should happen to you. You donít
want to go nuts and buy too much unnecessarily, but you
should have enough to ensure that theyíre well taken
care of when youíre not around.
husband and I are debt-free except for our house. Iíve
been having a discussion with a coworker over how much
money to allow for fun in your budget. I think $100 for
a bottle of wine is okay, but she says something like
that is unreasonable. What do you think?
It depends entirely on your financial situation. Paying
$100 for a bottle of wine is pretty dumb if you make
only $20,000 a year. But what if you make $200,000 a
year? Quit worrying and buy the wine! When you have a
great income-to-asset ratio - and youíre living
debt-free, have control of your money, and are saving
and investing for the future - thatís the time to relax
and enjoy a few things.
Youíve got to take the whole picture into account.
Otherwise, youíll get caught up in the whole envy and
jealousy thing. I know a guy who makes $15 million a
year, and recently he bought a $400,000 car. Now, I grew
up in a small town in Tennessee. I canít wrap my head
around the idea of a $400,000 automobile. But as a
ratio, thatís a very small part of his income. It would
be like someone who makes $150,000 a year buying a $400
Thatís a good rule of thumb for determining if something
constitutes an outrageous purchase. If itís a big enough
percentage of your income to rock your world and mess
with your finances, then youíre spending too much. But
to say that a certain item is too expensive or an
irresponsible purchase based on price alone, thatís kind
is your college fund
Oct. 1, 2013
daughter is 11 years old, and we save $50 a month for
her. Right now, weíve accumulated $4,200 for college, a
car or just savings in general. Should we be investing
this money, instead of putting it in a savings account?
If Iím in your shoes, Iíd choose college as the focal
point over the other things youíve mentioned. My advice
would be to move that money into a 529 Plan with mutual
funds inside. That way, it will grow tax-free from this
point forward. Then, if you continue to set $50 a month
aside for her for seven more years - and the stock
market averages 11 to 12 percent - youíd have about
$16,000 sitting there when she turned 18. That wouldnít
fully pay for college, but itíd be a great start. Plus,
she can apply for scholarships and grants and work and
save to help make it happen.
far as a car is concerned, Iíd set up a separate savings
account and agree to match whatever she saves. That way,
if she can put aside $3,000 to $4,000, with the match
sheíll have a pretty nice car. But in my mind, college
is the most important thing here. If you guys can afford
these contributions, and she wants to go to college and
will hold up her end of the deal, you can work together
as a family and make the idea of a college education a
Should we stop
Should families who are struggling to pay off debt still
give their kids commissions for doing chores?
Yes, but it doesnít have to be a lot of money. Kids
seldom get paid an amount that is equal to what the
chore is worth. To be perfectly honest, the chores most
kids do - especially the little ones - arenít worth that
much. I wouldnít pay a kid five dollars a day, or even
per week, to feed the dog. I mean, it takes less than 30
seconds to scoop the food into the bowl!
it comes to paying kids commissions for chores, the
biggest thing weíre trying to do is find teachable
moments. We want the kids to learn that money is tied to
work. Then, when they have some money, we want to teach
them about the three uses for money - spending, saving
Teaching them wise ways to do those three things while
youíre teaching them to work is the key. And you can do
that for a small amount of money.
long should it take someone to fully fund their
On average, building an emergency fund takes six months
to a year. It takes about 18 to 24 months for most
people to pay off all of their debt, except for the
house. Thatís if theyíre gazelle intense, and have no
life other than getting control of their finances.
Step 1 is saving $1,000, and not paying extra on your
debts until you have that money in the bank. Once youíve
got a $1,000 starter emergency fund, then your list all
of your debts except the house from smallest to largest
and attack them with a vengeance. All you do is work and
pay off debt until you clean up the mess. Once thatís
done, you move on to the next Baby Step, which is adding
to your emergency fund until you have three to six
months of expenses set aside. Most people can accomplish
that in six months to a year.
There are always various factors involved because
everyoneís situation is different. But in most cases, if
you approach my plan with the kind of intensity I talk
about, you can become debt-free except for your house
and have a fully-loaded emergency fund is place in just
two or three years!