Dave Says: Should you have renter’s insurance?

Need some financial advice? Debt and income crisis? Pay off the house mortgage first? Check cashing? Taxes? Credit Cards? Check out what folks are asking Dave Ramsey.

 

Dear Dave,

We just helped move our son into a cheap, off-campus apartment a few blocks from where he is attending college. We signed the agreement, and are paying the rent, because he makes very good grades. Do you think renter’s insurance is a smart buy? It’s less than $12 a month, but the minimum coverage I can get is $15,000, and he probably has less than $1,000 worth of belongings there.

Kevin

 

Dear Kevin,

I’d get renter’s insurance. My guess is it also comes with five or six figures in personal liability coverage, as well. That’s in case he’s out on the patio with his buddies, someone slips and falls, and they decide to sue because daddy’s on the lease.

In a case like this, because there’s so little to start with, it’s not theft or fire taking the contents of the apartment that you’re worried about. It’s the liability portion of the coverage that makes it worth every penny of what you’d be paying. That alone makes it worth $10 to $12 a month just to make sure a slip-and-fall doesn’t mess with your life!

—Dave

 

How much emergency fund?

 

Dear Dave,

I know you talk about having an emergency fund of three to six months of expenses set aside. My husband and I are having a difficult time agreeing on exactly how much we should set aside for emergencies. How do you determine the exact amount?

Erin

 

Dear Erin,

The exact you amount you have in your emergency fund—whether it’s three, four, five, or six months of expenses—is really more about peace of mind than anything else. Still, there are a few practical things to consider.

If you both have very stable jobs, you’d probably be okay saving three or four months of expenses. But if one of you is self-employed, makes most of their money through commissions, or only one of you works outside the home, it would make more sense to have five or six months of expenses set aside.

 

Of course, you can always compromise while leaving room for growth. There’s nothing wrong starting out with three months of expenses saved, then adding more as time goes by. The main thing is that you’re both in agreement, and you both feel safe with the amount of money in your emergency fund!

—Dave

 

Live like your income hasn’t changed

 

Dear Dave,

I’ll be graduating from college in December, and I’ll have a job waiting for me that pays $50,000 a year. This will bring our household income up to about $95,000. The problem is we’ve got $18,000 in student loan debt, $2,500 in credit card debt, and $4,000 to pay in medical bills. We’re living in an apartment right now, so how should we handle this income increase regarding our debt situation?

Mikayla

 

Dear Mikayla,

Congratulations on your decision to get control of your finances and your degree! If you two just keep living the way you have been, minus the debt, and put the rest toward the debt you’ve incurred, you could be debt-free in a year or so.

Remember, just because you’ve got a lot more money coming in doesn’t mean you should double your entertainment budget, take an expensive vacation, or run out and buy a new car. The first thing I’d recommend is sitting down together, and working out a written, monthly budget. Give every dollar a name and a job to do before the coming month begins.

Don’t forget the debt snowball, either! List all your debts from smallest to largest, and attack the smallest — that credit card debt — first with a vengeance, while making minimum payments on the medical bills and student loan debt. Once you’ve paid off the credit card debt, roll the money from that payment over and apply it, plus any other cash you can scrape together, toward the medical bills. Once the medical bills are out of the way, repeat the process and roll the payments over again targeting the student loan debt. At this point, you should have a bunch of cash to throw at those student loans each month until all that debt is off your backs once and for all.

I’m really proud of you two, Mikayla. If you’ll follow my plan from here on out, you’ll gain control of your money and be set to start saving and building real wealth!

—Dave

 

The 401(k) / IRA IQ Quiz: How safe is your retirement?