Dave Says – Are utilities included?

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.

Are utilities included?

Dear Dave,
I just received a formal job offer in law enforcement. I’m debt-free, single, and I’d like to move out of a roommate situation and into my own apartment. I’ll be starting out at $34,000 a year, then moving up to $38,000 after my probationary period. You have a rule that says to make sure rent or house payments are 25% or less of your take home pay. If I can find a place where utilities are included, do they figure into that amount?
Josh

Dear Josh,
It’s really more of a guideline than a rule. The point of not letting your housing cost eat up more than 25% of your take home pay is to make sure you have money left over for other important things. It’s hard to save and invest for the future when a huge chunk of your money is eaten up by rent or a mortgage payment each month. But no, utilities are not part of the one-fourth of your take home pay guideline.

At this point, it doesn’t sound like you need anything fancy. Try to find a safe, quiet place to call home—somewhere you can relax and decompress when you’re off duty. And thanks for entering law enforcement. A lot of folks are leaving your line of work, and we need good men and women in that profession right now.
—Dave

READ: Dave Says – Many benefits to budgeting

Your 15%

Dear Dave,
I read where you recommend investing 15% of your income into Roth IRAs and other pre-tax retirement plans. Do you also advise counting a company match as part of that percentage?
Bryce

Dear Bryce,
Employment situations, and employers, can change at any time. I want you putting in 15%. That way, you don’t have to rely on someone else to complete your retirement savings plan.

Planning for retirement is your responsibility. It’s not your employer’s job to make sure you have money to live on in your old age. Stick 15% in there yourself, Bryce. If your employer matches workplace contributions, that’s great. Things will be even better!
—Dave

Might be money well spent…at the proper time

Dear Dave,
My wife and I are on Baby Step 2 of your plan. About eight months ago she gave birth to our second child, and now she would like to have a mommy makeover. I want her to be comfortable and feel good about herself, but those procedures can be really expensive. I don’t know how to fit that in with trying to pay off debt and get control of our money. What do you think?
Greg

Dear Greg,
Basically, this kind of cosmetic surgery isn’t an emergency. It’s a desire. It can, in many cases, be a valid and reasonable desire. But if you guys are serious about getting out of debt and gaining control of your finances, I’d advise waiting until after Baby Step 3 to make this happen. At that point, you’ll have paid off all your debt—except for your home—and you’ll have a fully funded emergency fund of three to six months of expenses in the bank.

Going on vacation isn’t a need, it’s a want. Buying a new couch isn’t a need, it’s a want. I know you love your wife, and you want her to be happy and feel good about herself. But right now, this is a want. If it were a medical procedure required to save her life, it would be an emergency—a need. In a case like that, you’d stop what you’re doing right now and address the issue.

This may be something you both agree is a valid expense. If it’s something you’ve talked through together, and something you both want, that’s fine. It’s a reasonable goal under the circumstances. But I would wait until after you’re out of debt and you have your emergency fund in place. Being out of debt will make it so much easier to save up and take care of any out-of-pocket expenses you might have to pay.

All in all, it’s money well spent to help your wife look and feel like herself again. Just do it at the proper time where your finances are concerned!
—Dave