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Dave Says – If you can’t afford a 15-year mortgage…

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.

 

If you can’t afford a 15-year mortgage…

 

Dear Dave,

Is there ever a time when a 30-year mortgage is better than a 15-year mortgage?

Julie

 

Dear Julie,

Let’s see, how should I put this? No! If you can’t afford a home on a 15-year mortgage, it means you can’t afford the house. Period.

If you currently own a house, and the only way to keep from being foreclosed on or going bankrupt is to refinance into a 30-year mortgage, you’d probably do that – but it doesn’t make it better than a 15-year mortgage. You’ll never hear me recommend a 30-year mortgage. I might tolerate one in an extreme situation, but I wouldn’t tell you to go get one.

Besides, why would you want to stay in debt for 30 years? Do you have a fear of winning with money? Are you feeling so generous toward the bank that you want to just hand them piles of cash every month for three decades?

The average millionaire in this country pays off their mortgage in 10.2 years. Do what smart people do, Julie. Do what people who win with money do. A 15-year, fixed rate mortgage is the only kind of home loan I recommend!

—Dave

 

Net worth and umbrella insurance

 

Dear Dave,

At what point, where your net worth is concerned, should you consider additional umbrella insurance?

Kyle

 

Dear Kyle,

You can buy an additional $1 million in liability insurance for your home and car for around $250 a year. Why would you want that? If you were a target. Why would you be a target? If you have a net worth of $500,000 to $1,000,000 or more. You might also be a target if you just have a really good income and make a lot of money.

In either case, you’d want to pick up a liability umbrella policy. Good question!

—Dave

 

Budget billing for utilities?

 

Dear Dave,

I’m just starting my debt-free journey and trying to lay out a budget. What are your thoughts on budget billing for utilities?

Ryan

 

Dear Ryan,

I think it’s wonderful! There’s absolutely nothing wrong with it at all. For a lot of folks, especially those in your situation, it helps smooth out utility payments and make them a little more manageable.

In most budget billing scenarios, they add up your utility bill for the last 12 months and divide that total by twelve to determine a fixed billing amount for the next twelve months. It can make things so much easier when you’re first starting to live on a budget, and you don’t have a lot of wiggle room where your finances are concerned.

I’m glad you’re taking steps to get control of your money, Ryan. You can do this!

—Dave

 

Emergency fund for business?

 

Dear Dave,

I have my own small business. My annual sales are just over $100,000, and I have a couple of months in administrative and general expenses set aside. Should I have an emergency fund for my company, too? If so, how much?

Taylor

 

Dear Taylor,

This is a great question! I like the idea of a small business having six months of expenses set aside in an emergency fund. A financial cushion like that provides peace of mind and options. Also, it eliminates the need for borrowing money. With that kind of cash sitting around, you basically become your own line of credit.

When it comes to personal finance, I usually recommend setting aside an emergency fund of three to six months of expenses—depending on a person’s overall financial condition. But the basic idea is the same, regardless of whether you’re talking about personal finance or the financial health of your small business.

An entrepreneur has enough to worry about on a day-to-day basis. Having a fully-funded emergency fund for your business can turn a disaster into nothing more than a minor inconvenience!

—Dave

 

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