Insurance for young couple
Dear Dave,
My wife and I are both in our early 20s, we’re debt-free, and we’re just a couple of months away from having a fully loaded emergency fund of six months of expenses. We both also have 401(k) plans at work, and we’re looking forward to starting additional investments later this year. Right now, we’re trying to decide on which life insurance policies to buy.
I know you always recommend term insurance, but how long should the coverage last? Would you suggest 15-, 20- or 30-year policies?
Anonymous
Dear Anonymous,
Wow, it sounds like you two are starting your lives together on the right foot. Congratulations on being super-smart with your money! I recommend 15- or 20-year level term policies, unless you have children. I’m assuming kids are not in the picture, since you didn’t mention any. Then, if you decide to grow your family at some point down the road, I’d advise converting those to 30-year term policies.
The idea behind this is you want the insurance to be there to protect everyone in the family until the kids are out on their own and established. In the meantime and in the years after, your continued saving and wealth building will lead you to a place where you and your wife are self-insured.
Way to go, guys. I’m proud of you!
Dave
How much house?
Dear Dave,
Based on your annual income, how do you determine how much house you can afford?
Ryan
Dear Ryan,
I always tell folks never get a home loan where the monthly payment is more than a fourth of your take-home pay. I’m talking about basing this on a 15-year, fixed-rate mortgage. Twenty-five percent of your monthly take home pay is the absolute most you should have going out the door toward a mortgage payment. I realize that’s a pretty conservative number in most people’s minds. You can actually, technically qualify for almost twice that figure. But I think having that much of your paycheck going toward house payments is pretty dumb.
Your shortest, quickest path to wealth is being debt-free. And when most of your money isn’t flying out the door to make payments on stuff, it’s easy to build wealth and increase your level of generosity!
Dave
Invest in Chandler
Dear Dave,
I’m 19 years old, and I’m putting myself through college debt-free. I usually work part-time during the semesters, but right now I’m working full-time. I have about $2,000 in mutual funds, and I was wondering if I should add my full-time work income to that or save it all to help pay for school.
Chandler
Dear Chandler,
Wow! Great job, man! I appreciate that you’re looking toward the future with your investment, but right now I want you to invest in you. I want you to make sure, first and foremost, that you graduate college debt-free. So, if I’m in your shoes, I’m piling up the cash to pay for school.
You’re in a season of your life where things are more hectic than you probably ever dreamed they could be. My advice is to keep that money liquid. Keep it available and on hand, and don’t tie it up in mutual funds at the moment. You’ll have plenty of time to continue investing once you graduate. It’s best for you to concentrate on finishing school, then landing a job and finding a place to live after college. Even if you end up living in the same place for a while, starting life in the real world takes money, so let’s make sure you can make that happen.
In other words, Chandler, as long as you do something with your education and that education is in an area that’s useable, you are a better investment than mutual funds right now!
Dave
A free ride?
Dear Dave,
My son is going off to college soon, but he’s never had a job. His uncle has offered him a really nice, low-mileage used car for $3,000. My husband doesn’t want us to give him money for the car, but I think this deal is just too good to pass up. What do you think?
Tonya
Dear Tonya,
Unless there’s some sort of disability that’s prevented your son from working part-time over the last few years, I’ve got to agree with your husband on this. Your son needs a car, but he also needs to get off his butt and work for it. If you get this car for him, you’re just teaching him that mommy and uncle will take care of everything. That’s not a good lesson for any child to learn, and it’s an especially bad thing for a teenager.
When you and your husband first started out in life, I’m guessing you didn’t start out rich. Am I right? It’s not really the car deal that’s the problem here; it’s the lesson that will be learned. At his age, it’s silly for him not to want to work for a car, and you and your husband need to be up in his face about that. Then, if he chooses not to work for a car, he can walk. He shouldn’t be rewarded for showing no desire to go earn things and make stuff happen.
When my son was around that age and wanting a car, he was working his tail off around my office packing boxes and painting stairwells. That’s how you learn about the benefits of hard work. If you don’t teach your son how to work now, he’ll be living with you when he’s 30 years old and doing exactly what he’s doing now–which is nothing.
This automobile deal is a bad deal, because it doesn’t teach your son to work for it.
Dave
*Dave Ramsey is America’s trusted voice on money and business, and CEO of Ramsey Solutions. He has authored seven best-selling books. The Dave Ramsey Show is heard by more than 11 million listeners each week on more than 550 radio stations and digital outlets. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
