do you feel about gambling at a casino, as long as you
limit your spending and donít expect to win big money?
donít really have a moral problem with it, but I donít
understand the concept. Call me crazy, but I do not get
a thrill from losing money Iíve worked hard to earn.
Thatís not my idea of entertainment.
someone tells me they gamble for fun or recreation, my
first thought is theyíre delusional enough to believe
that theyíll actually win - that they think theyíre the
exception to the rule. Otherwise, there would be no
thrill. You may see a news story once in a while about
someone winning big money in a casino, but that rarely
happens. Think, too, about how much money those people
had flushed down the toilet previously while gambling.
Thereís a really good chance they didnít really ďwinĒ
anything. In most cases, they probably just recouped a
small portion of their previous, substantial losses.
advice is donít waste your time and money on that stuff.
One way or another, the house always wins. Thatís how
theyíre able to build those giant, billion dollar places
called casinos. Did you know that some of those
companies are so big and expansive that theyíre publicly
traded entities? And guess what? The profits they make
off people who are foolish enough to gamble their money
away inside their fancy halls - and call that
entertainment - drives their stock prices!
Think about it, Brian. Why do all the folks sitting at
slot machines and card tables look like they canít
afford to lose money? Most of them look like sad,
broken, lonely people. Maybe they change when they sit
down. Maybe they were winners in life and with money
before they walked through the doors, and their slumped
body language and the look of stress and hopelessness
they carry is just a coincidence or the indoor lighting.
But I donít think so.
Nobody ever saves
happens to the money in an ESA if the child gets a
scholarship and no longer needs the money?
In an Educational Savings Account (ESA), and in a 529
Plan, you are allowed to pull out money tax free in the
amount of the scholarship. But very rarely do you find
someone going to college completely free and clear.
Often tuition is covered, and even tuition and a dorm
room in some cases, but zero-cost college is almost
unheard of. There are always living expenses, books and
other miscellaneous items, and you can use the money in
an ESA for any education-related expenses.
chances of your money getting trapped and you as parents
winding up in a situation where youíve actually saved
too much and a child has leftover money just doesnít
happen. This is a bunch of drama found only in the
nightmares of nerds. Real human beings donít have this
problem, Jonathan, because nobody ever saves enough!
Check cashing for the unbanked
know you hate payday loan companies. Do you feel the
same way about check-cashing companies?
Check-cashing companies are not a good deal, but theyíre
nowhere near as bad as payday lenders. All check-cashing
businesses do is charge a fee to cash a check.
Honestly, itís kind of silly to me that places like this
can make money when all you have to do is walk into a
bank and open an account. But thereís a percentage of
our population that people in financial circles call
ďunbanked.Ē This means they avoid banks for whatever
reason, but in the process they leave themselves
susceptible to bad deals like this.
donít feel the same way about check-cashing companies as
I do about payday lenders. Itís still not a financially
smart move to pay a storefront operation a fee just to
cash a check, but these businesses arenít nearly as
abusive as payday lenders.
Letting kids make money mistakes
6-year old son has saved up $400. He said he wants to
buy a motorcycle with it someday, but he recently
changed his mind and wants to buy a computer tablet. Is
it okay for him to change his mind like this, and how
should I handle things?
Iím not really concerned whether itís a motorcycle or a
tablet, especially if heís saved his own money. I think
the big thing weíre looking for in all this is a
Certainly regret is a concern, especially with a kid so
young. But the reality is that neither the decision nor
the possible regret afterward will ruin his life. If you
talk to him and try to advise him beforehand, and he
gets upset later because he feels like he made the wrong
choice, it gives you the opportunity to step in and
gently say, ďIím sorry you think you made a bad choice,
but thatís why I wanted you to really think about it
first. You had a chance to listen to momís wisdom and
didnít. Iím sorry you feel sad now, but I want you to
remember it and learn something from this bad decision.Ē
Itís a process of controlled pain and natural
of my daughters did something similar years ago when we
went to an amusement park. All the kids had a set amount
of money for the day, and we warned them not to spend it
too soon. She turned around and blew all her money on
carnival games, then she spent the rest of the day
whining while her brother and sister rode the rides and
had lots of fun. We didnít give her any more money, but
a controlled amount of pain taught her some valuable
lessons that day. She learned to listen to her mom and
dad, she learned that carnival games are a rip-off, and
she learned to control herself a little bit and think
Allowing kids the emotional dignity of making some
decisions for themselves is vitally important. You just
have to make sure this liberty is supervised and comes
with parental warnings and protections. Just because
they saved the money doesnít mean they can do whatever
they want. It still has to be used in a way that you, as
a parent, are comfortable with and deem appropriate.
There will be some natural tension in the process, but
itís a great way to teach kids about money, decision
making, maturity and life choices!
Budgeting - Invest now or pay off debt?
I went to medical school, and now I have
$70,000 in debt. I just started a three-year residency
making about $50,000 a year, while my wife makes
$40,000. The student loans represent our only debt. Do
you think we should be paying this off or investing in a
were in your shoes, Iíd work on paying down the student
loans. That means you may never be in a Roth, but there
are other things you can invest in and grow wealth.
realize this may not seem right mathematically, but I
donít always make financial decisions based exclusively
on math. Many times I do things based on changing money
behaviors - stuff like paying off debts from smallest to
largest because it actually works. Personal finance is
80 percent behavior, and only 20 percent head knowledge.
So sometimes you have to go with what actually works
best overall, in spite of what the technical math shows.
your case, I think itís going to be very valuable to
have no student loans by the time you complete your
residency. With three years to go, and living on a
$90,000 a year income, you can do it. Then, when you
come through the other side as a full-fledged doctor,
youíll have the great income and be sitting there
debt-free. Not a bad place to be, right?
understand the Roth seems like a pretty good idea right
now, but my advice is to stick with becoming debt-free
as quickly as possible. Once thatís done, you and your
wife will be able to invest, save, and build wealth like
Investing -Donít risk the family farm
wife started working at a pharmaceutical company that
gave her a few thousand dollarsí worth of stock. In the
last year that stock has doubled in value. Weíve
considered buying more just to see how it does. What do
you think about this?
understand why you guys would be excited, but youíre
still looking at a very risky proposition. Any stock
that doubles its value in just one year is highly
volatile. Itís very unusual when things like that
happen, and the fact is, it could go down in value just
think you should be completely debt-free, except for
your house, and have an emergency fund of three to six
months of expenses in place before you start any outside
investing. You should also make sure that 15 percent of
your income is already going toward retirement.
donít mind you dabbling a little bit as long as all the
other stuff is taken care of first. But Iíd advise you
to never put more than 10 percent of your nest egg into
single stocks. If youíve got $50,000 in a 401(k) right
now, limit yourself to $5,000 in this area. That way, if
the stock tanks and you lose it all, itís only a small
blip on the radar. Youíll still be financially intact
and able to retire with dignity.
would be fantastic if this stock went through the roof
and you two made a ton of money. That would be awesome!
But make sure you limit the potential for damage by
limiting your exposure. Donít risk the family farm, as
they say, to make this play.
Getting them to stop
How can I get credit card companies to
stop sending us preapproved offers? My wife continues to
sign up for these, and now we have $40,000 in credit
Chances are youíll never get credit card companies to
stop sending stuff, but there a few things you can do
that might help slow things down. Access your credit
bureau report, and opt out of marketing offers. You can
also freeze your credit report, and send direct requests
to the credit card companies to take you off their
been telling people not to use credit cards for 20 years
and, believe it or not, even I get offers in the mail.
The more mailing lists you get on, the more your mailbox
will fill up with junk mail. If you have magazine
subscriptions and things like that, your contact
information is circulating all over the place.
next thing Iím going to say may sound cruel, but I
really donít mean it that way. You donít have a junk
mail problem, Dan. You have a relationship problem. You
two are not on the same page about money. Either she
doesnít feel like you two have enough money, and sheís
resorting to credit cards for this reason, or she does
this because sheís a spoiled brat who thinks she should
always have what she wants when she wants it. Her
behavior is destroying your financial lives and driving
a wedge between you.
advice would be to sit down and have a gentle, loving
talk with her about all this. Try to find out why she
feels the need to have all these credit cards, and
explain that youíre worried about what itís doing to
your marriage and your finances. That may mean having to
spend some time with a marriage counselor, but thatís
okay, too. Thereís no reason to be ashamed of something
like that. The truth is, most of us who have been
married more than 20 minutes could use a little help in
that area of our lives!
Balance transfers donít do much
trying to pay off my credit card and get out of debt. Do
you think I should transfer the balance to one with a
lower interest rate while I do this?
not against this idea, as long as you understand that
youíre not really accomplishing much. All youíre doing
is moving money around, and maybe saving a tiny bit on
interest. If you were planning on keeping the debt
around for 30 years it would become a big deal. But if
youíre talking about a few months, just until you get it
paid off, itís not that much money.
problem with balance transfers is that you feel like you
took a big step forward when you really didnít. Lots of
times this causes people to lose focus on other things
they can do to get out of debt, like picking up an extra
job or selling a bunch of crap they donít want or need.
That kind of stuff, along with living on rice and beans
and a strict written budget, is 98 percent of the battle
when it comes to getting out of debt!
so special about $1 million?
heard you say many times you shouldnít buy a brand-new
car unless you have a net worth of $1 million. Whatís so
special about a million dollars?
In all honesty, thereís nothing particularly special
about a million dollars. A brand-new car will lose about
60 percent of its value in the first four years. So, if
youíre going to turn a $30,000 investment into $12,000,
youíve got to have a bunch of money. Youíve got to be in
pretty great financial shape in order to absorb the
your entire net worth is $100,000, and you put $30,000
of it into a vehicle that will lose 60 percent of its
value, youíre just being financially and mathematically
stupid. Your income is your largest and most powerful
wealth-building tool. If youíre buying things that go
the wrong way in terms of value, youíre not gaining
wealth; youíre losing wealth.
Thereís really nothing special about $1 million. I could
have said $2 million or $900,000, but $1 million is easy
to remember. Plus, itís nothing to sneeze at in terms of
an individualís net worth. When you lose a lot, and itís
a small percentage of a lot, you donít have to worry so
much. But when you lose a lot and you didnít have much
to begin with, thatís a recipe for financial disaster!
Do fewer dumb things
parents co-signed on government loans so I could go to
college. Would my forbearance or non-payment affect
their credit if I donít pay?
Yes, it would. Iím not trying to lay a guilt trip on
you, kiddo, but youíll be trashing your mom and dadís
credit if you donít pay the bills on time. If they
co-signed for you, theyíll start getting phone calls,
too, if you donít do the right thing and pay back these
truth is, your mom and dad shouldnít have co-signed for
you in the first place. Thereís only one reason lenders
want a co-signer, and thatís because theyíre afraid the
person taking out the loan wonít be able to pay back
goal here isnít to beat you up, Tiffany. Itís to give
you information that you - and your parents - need in
order to make different, smarter decisions in the
future. We all do dumb things sometimes. In the past, I
did some really dumb things with very large numbers
attached. The goal is to grow, learn, and try to use
what we learn in order to do fewer dumb things in the
Where to save?
26, and I just started a new job making $50,000. Iíve
also been offered a 401(k) with no match. Should I put
money into the 401(k) or open a high-yield CD?
got another idea. Iíd open a Roth IRA with good growth
stock mutual funds inside and fund it up to $5,500 a
year. Make sure these mutual funds have been open at
least five years - preferably 10 years or more - and
have performed well. Mathematically, this investment,
growing tax-free, will be superior to a non-matching
Then, if you want to invest more than $5,500, you could
put some additional money into the 401(k) offered by
your company. Again, make sure youíre invested in good
growth stock mutual funds with long, successful track
Congratulations, Crystal. And good luck!
heard you say to never give collectors access to your
checking account. Does that include payments with a
debit card too?
Absolutely! If youíre doing something like scheduling
utility payments to come through your debit card or out
of your personal checking account, thatís perfectly
fine. But collectors are looking to get as much as they
can on a bad, late debt. Never, under any circumstances,
give them electronic access to your account.
been doing financial counseling for a long time now, and
Iíve seen numerous situations where collectors have
taken more than the agreed-upon amount from someoneís
account once they gained access. This sleazy move left
people without the money to pay their rent, the electric
bill or even groceries. In fairness, the collection
business does have a few good people in it, but it also
has a high percentage of people who are scum -
especially on the credit card side of collections. Some
of them will lie and even make threats. Itís a huge
There are other, much safer ways to handle these kinds
of situations. Send a money order overnight or wire the
cash to them. You can also send a cashierís check. Some
folks have even used a pre-paid debit card that isnít
attached to any of your accounts. This isnít my favorite
way to handle things, but itís better than giving them
the opportunity to clean you out and mess you over!
a little worried about investing in the market due to
volatility. Are there safer investments?
Youíre right; the market is volatile. Itís not as
volatile as some things, but you have to remember that
anywhere thereís money to be made - including long-term
investing - there are ups and downs.
instance, I like real estate. Itís not as volatile as
the stock market, but there are no guarantees. We
experienced that big dip over the last few years, and it
was probably one of largest dips ever in the real estate
market, except for the Great Depression.
Aside from real estate, I also like mutual funds. When
it comes to these, one way to smooth out the volatility
of the market is through diversification. That means you
spread your money around instead of investing in one or
two things. Thatís how I handle my mutual funds, and I
recommend others do the same. Spread your investments
across these four types of mutual funds: growth, growth
and income, aggressive growth and international.
canít say it enough, Matt. There are no guarantees when
it comes to long-term investing. But diversification can
help make the ride a little bit smoother!
Pay the IRS first!
husband has his own business installing windows. As a
result, we now have IRS and state tax debt. Weíre
managing the payments, but where should these debts be
placed in the debt snowball plan?
donít usually cheat on the smallest to largest
progression of the debt snowball, but Iíd recommend
moving these debts to the top of the list.
state and federal taxes come with ridiculous penalties
and interest rates, and the authorities at either level
have virtually unlimited power at their disposal to
screw with your life if something bad happens. The IRS
can actually take your money without suing you. So, you
donít want to become a blip on their radar screen by
being late with payments.
it cleaned up as quickly as possible, Olivia. You donít
want to mess around with these guys!
on the checking account
husband died eight years ago, and I never closed his
bank accounts that were opened when we lived in another
state. We lived in Florida before moving to Oregon. I
didnít probate the estate, and he did not have a will.
Iím trying to work with the banks to get this settled,
but theyíre giving me the runaround. Do you have any
The first thing you need to do is contact an attorney
who handles estate planning. If the accounts were opened
in Florida, but you both lived in Oregon at the time of
his death, technically the estate would be probated in
Oregon. That may be what has to happen. If so, a judge
would appoint you as executor. As executor, you can
close the accounts and disperse any money to the
rightful heir - which is you.
prepared, though. It may take somewhere between $250 and
$500 in attorney fees and court costs to make this
happen. If youíre lucky, you might get a simple motion
from the court that would cost you next to nothing. But
find a good estate planning attorney who knows Oregon
law inside and out. Estate laws and probate laws differ
from state to state, and Florida and Oregon both have
some weird laws in these areas.
probably seems like a lot of trouble, but you have to
remember the banks are simply trying to protect
themselves and follow the law. Anyone could walk in with
a death certificate (theyíre public record), and claim
to be an heir. So, they have to have a court document in
order to avoid any potential liability.
sorry for your loss, Melinda. I know it still hurts
after all this time, but you need to address this as
soon as possible. Iím sure itís what your husband would
Dec. 10, 2013
husband works construction, so we barely scrape by
during the winter months. Should we build an emergency
fund for the slow times?
think thatís a great idea. Although, Iíd probably call
it something other than an emergency fund. How about a
squirrel fund? Squirrels need to have nuts saved up for
winter, and in your case youíd be setting money aside
during the summer to get you through the slow winter
may think Iím playing games with the name, but really
Iím not. This sort of saving isnít for emergencies. Itís
a budget issue, because youíre planning and setting
aside cash leading up to the down time you know is
coming. Keep your emergency fund of three to six months
of expenses separate from this, and take a careful look
at what he made this winter and how much that left you
short each month.
Remember, weíre not talking about some random amount of
money here. Itís an exact amount that you can budget for
accordingly. Teachers can do the same thing if theyíre
not paid 12 months a year. Itís a simple matter of
planning ahead for the down time, and setting aside
enough during the other nine months to see you through!
Emergency fund in bonds?
do you think about the idea of putting your emergency
fund into bonds?
think thatís a really bad idea, and hereís why. Bond
values and prices go down as long-term interest rates
rise. Right now, long-term interest rates - a good
example would be mortgage rates - are ticking up.
Theyíve moved up a quarter of a percent recently. So, as
this happens, the value of bonds goes down. If these
interest rates spiked, you could lose half your
Never, ever put your emergency fund into things where
risk and volatility are factors. An emergency fund isnít
an investment. Itís there to help protect things that
are investments and your life. Keep it in something safe
and simple, like a money market account where thereís no
penalty for early withdrawal.
Weíre not looking to make money with an emergency fund,
Ryan. Itís insurance. Just let it sit there, safe and
sound, until itís needed.
their emergency fund
wife and I are working the Baby Steps, and we have our
budget in place. Sometimes the budget gets busted
because of home improvements and various other things. I
think we should take money from our emergency fund when
this happens, but she says it should come out of our
restaurant and fun money. What do you think?
hate to break this to you, but overspending is not an
emergency. So, Iím siding with your wife on this one. If
you budget a set amount in one category and you go over
that amount, youíve got to have something you reduce or
cut out completely to stay within your budget for the
Youíd be surprised at what some people call an
ďemergency.Ē But hereís the deal: If something happens
on a pretty regular basis, itís a predictable event.
That means you need to budget a larger amount for home
improvements or whatever the problem area may be.
Overall, on a month-to-month basis, if you find you have
$200 budgeted for car repairs and the repair turns out
to be $250, Iíd rather you cut back on eating out to
make up the difference. Thatís the way my wife and I did
it back in the day. We never touched the emergency fund
for anything except big, unexpected, scary stuff.
afford student loans
have a lot of student loan debt, and I canít afford the
payments right now. Should I send them what I can, even
if itís not the minimum payment, or should I not send
anything at all?
Theyíre not going to stop bothering you no matter which
option you choose. The benefit of sending them $5, even
if the minimum payment is $50, is that youíre forcing
yourself to start living on a budget and do all you can
to honor your commitment. Thatís the moral, spiritual
and legal thing to do in this situation.
of times when people say they canít afford something,
what they really mean is they donít want to give up
other stuff in order to honor their obligations. If
thatís the case, Iím not going to be on your team. You
accepted this responsibility, and if that means you
donít eat out or go on vacation until the debt is paid
off, then thatís the way it is. But if youíre already
living on a beans-and-rice, scorched-earth budget and $5
is all you can squeeze out, then give them $5 and let
them know with a clear conscience itís all you can
afford. All you can do is all you can do.
Thereís a bright spot in all this, though. If youíre
scrimping and saving and paying all the money that you
have first toward running your household, then secondly
toward your creditors, youíll start finding ways to
stretch your dollars even further. Not only will that
help you clean up your student loan mess, but it will
enable you to have a little bit better life in the
Humility, gratitude and contentment
have any advice for teaching responsibility and
generosity to adult children and grandkids when it comes
think there are three key factors when it comes to
teaching children of any age about these concepts -
humility, gratitude and contentment. In my mind,
humility is where gratitude comes from, and gratitude
leads to contentment.
generous to my adult children, but they have no sense of
due to their personal humility. They donít feel that I
owe them anything, and they already know that anyone who
cops an entitlement attitude gets cut off. Youíre no
longer qualified for my generosity when you lose your
got to spend time talking to kids about these things.
Otherwise, you run the risk of them counting on the
income. Hereís an example. We coach some family
businesses at my company, and the best family businesses
are the ones that teach non-employee family members who
receive money from the business - dividends from the
profits - never to live on those dividends. Iíve seen
lots of cases where someone will start living on the
business they donít work in, and they immediately start
feeling entitled to the money.
same principle applies in your situation. If someone
starts saying, ďWell, since mom and dad are paying for
our day care, we can use that money we would have spent
to buy a car.Ē That means theyíve started counting on
mom and dadís generosity to live, and thatís a form of
of our kids receive any kind of financial help from us
at all, unless theyíre already carrying their weight in
their own lives. Thatís not being cold. Itís teaching
responsibility and self-reliance. Now it would be
different if one of them developed a serious medical
issue or something like that. But the whole idea that
mommy and daddy have lots of money, and I can just get
some from them? That doesnít fly in our family.
have to teach them character and giving in order for
them to be valid recipients. Plus, itís all about the
kidsí attitude. But youíve got to talk about it often
and communicate the value system out loud. The gifting
and generosity are contingent upon the humility that
leads to gratitude that leads to contentment.
quite ready for a house
wife and I just bought a business with cash. We had been
living with my brother and sister-in-law while we saved
up, and things are starting to get a bit cramped. My
brother has offered to co-sign on a house for us, but
rent is pretty cheap in this area. What do you think we
need to forget about a house and plan on renting for a
while. You just bought a business, and at this point you
donít even know if itís going to be successful. Plus, if
you need a co-signer to buy a house, car or anything
else, it means youíre not financially ready for that
some time, maybe two or three years, to get your
business up and running. Go find a decent, inexpensive
place to rent then pay off any debt you have while
saving up as much money as possible. I want you to have
a nice house one day, Peter. But youíre just not ready
now. A house should be a blessing, not a burden.
Dear Dave, I live in
Los Angeles, and my daughter makes $3,000 to $5,000 a
month modeling. I donít want her to become spoiled by
this job and the income, and I need advice on what to do
with the money. Should it be put aside for a car, and do
you think she should have to pay for something like that
Lisa Dear Lisa, So how do we keep a high-income,
high-profile job from ruining this little girl? I think
a lot of it has to do with her interaction with you, and
how you gently mold her work ethic and attitude. Donít
let her become a diva. Sheís not there to be fawned over
or placed on a pedestal. Sheís there to serve. That
means working hard and doing the best she can. Thatís
her job whether sheís flipping burgers or making $5,000
a month modeling.
The moneyís nice, but what weíre really doing is making
sure she learns some important life lessons. And youíre
still being a parent, not a friend or peer, through
When it comes to the money, you guys should sit down and
discuss some goals for the future. I think itís
important that any car purchase be reasonable, because
the best thing a kid this age could do with that kind of
money is save up for college. Even if she goes to school
on a full scholarship, she should be driving something
low-key. Just because she gets a free ride in college
doesnít mean she gets to cruise the streets in a
Lamborghini. Set the rest of it aside for when life
really begins Ė after college.
As her mom, itís very important that you teach her these
lessons now. Itís essential, too, that you donít
surrender the position of parent, teacher and leader.
Chances are when this young lady is 34, no one will give
a flip that she modeled for a while as a teenager. The
most important things here are the lessons taught and
learned, not the money.