Goals limiting one another’s non-priority spending

Dear Dave,

My husband and I are currently renting an apartment for $1,200 a month. Together, we bring home about $7,000 a month, and we’d really like to buy a house soon. Right now we have about $10,000 in debt on a boat along with ongoing stable bills, food and upkeep for our three horses. What price range of houses should we look at in our situation?

Michelle

Dear Michelle,

Homeownership is a great goal, but first you two need to clean up your debt and build an emergency fund of three to six months of expenses. After that, I want you to save up enough for a down payment of at least 10 to 20 percent. When buying a home on a mortgage, I always recommend the monthly payments be no more than 25 percent of your monthly take-home pay on a 15-year, fixed-rate loan.

Now, let’s get to the other issues. You have some things in your life that are pulling at you financially. At some point, you may have to take a long look at the situation and ask the hard question, “What is more important to me: horses and boats or home ownership?” Getting rid of that boat, or finding new homes for one, two or all of your horses, would bring in some cash to put toward your debt and cut down on at least some of the animal maintenance.

Anyway, that’s how I would look at it. My wife and I both are big fans of boats and horses. But we like boats more. One reason is because they don’t eat as much! I can’t get mad at you about either one, but right now you’ve got three things pulling at you as financial priorities — home ownership, a boat and three horses. They’re all pulling at you, and they’re pulling at each other and limiting each other.

Of course, you can always buy a lot less in house. But what it really comes down to is what’s most important to you. That’s the big question, and it’s one that only you can answer.

-Dave

A frank discussion about credit cards

Dear Dave,

I don’t understand why you don’t like it when people properly manage their credit cards and pay them off every month. By doing this, you pay no interest and in my case I even got a free trip to Europe from using my credit card. Please explain.

Patrick

Dear Patrick,

I truly doubt that I can explain it to your satisfaction, but here goes. First, the credit card company did not give you a free trip to Europe. They’re not going to lose money on transaction after transaction, year after year. The fallacy is that you feel like you’ve outsmarted a multi-billion dollar company that studies human behavior at incredible levels. You maybe, possibly came out ahead against them during that particular calendar year, but even that’s debatable.

Over the course of your life, you’ll spend more when using credit cards as opposed to cash. There’s plenty of research proving this to be fact. If you use a credit card repeatedly with the idea that you’re getting a free trip to Europe because you’re building up your miles, you spend more. An example would be McDonald’s. When they started taking credii cards years ago, they found that the people using them spent 47 percent more.

In a good way, you are very unusual. You’re not playing over in the stupid zone

like most people who use credit cards. But both I and the credit card companies have found that, on average, your behavior would put you in a class of less than one-half of one percent of their customers. Can 0.5 percent of people handling snakes manage not to get bitten? Sure. But that doesn’t mean I’m going to start recommending snakes!

– Dave

Thankfulness and boundaries

Dear Dave,

My fiance and I are getting married in May. He’s a youth pastor, and I’m in grad school. His mom and dad found a home they think we’ll like, and they want to gift us money for a down payment. I’m not sure how I feel about this under our present circumstances. Do you think we should go ahead and accept when I’ll still be in school and we’ll still have debt to pay off.

– Emily

Dear Emily,

You need to get to know each other before you buy a house together. I always recommend that young couples rent for a year and concentrate on each other, the new marriage, cleaning up any debts you have, and establishing an emergency fund. Then, after another year or so when you’ve had time to take control of your finances, the idea of looking for a home becomes much smarter.

It sounds like your future in-laws are really generous people. They’re trying to do something nice for you two, but they kind of got out ahead of things with this idea. And in the process, they violated some boundaries in your relationship with your fiance.

My advice is to have a conversation with your fiance about all this and get on the same page about what is the smart thing to do. Then the two of you need to have a loving discussion with his parents. Let him do most of the talking, and say thank you a lot, but let them know you both feel it would be best to start out by renting something for a year or so. Then after a little time has passed, tell them if they still want to help with a down payment you’d both be very grateful.

I think this approach would be good for the boundary issues and for your finances!

– Dave

Welcome to life

Dear Dave,

Our son just turned 8 years old. Is it time to start giving him an allowance?

– Dan

Dear Dan,

There’s never a time for an allowance, no matter the child’s age. In my mind, that kind of thinking is the best way to plant the seeds of entitlement. You never want your son growing up with the idea that he’s owed money simply because he’s alive.

Instead, work out a plan to pay him commissions. Assign him weekly chores that are age-appropriate. Then, when the work gets done, he gets paid. And guess what? If the work doesn’t get done, he doesn’t get paid! Not only do we want to teach a healthy work ethic, but we also want him to learn that work creates money.

Of course, there are some things a child should be expected to do without financial reward. Everyone needs to pitch in and do certain things to help out when they’re part of a family. But once you’ve taught him about work, make sure to also teach him about the three uses for money — saving, spending, and giving.

Lessons on the basic handling of money are some of the best teachable moments you can have with your child. Not only does it make them more knowledgeable about finances, it helps them learn about life!

– Davi

EDITOR’S NOTE: Dave Ramsey is America’s trusted voice on money and business, and CEO of Ramsey Solutions. He has authored five New York Times best-selling books. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Dave’s latest project, Every Dollar, provides a free online budget tool.

Goals limiting one another’s non-priority spending