Dave Says – Make sure it’s a gift

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

Make sure it’s a gift

Dear Dave,
I’m on Baby Step 4 of your plan. I’m debt-free, and I’m currently putting lots of money toward retirement. Now, I want to go back to school and get an MBA. I could pay for school with cash, but that would delay buying a home. My parents have offered to help out financially, so do you think I should accept their offer?
Isaac

Dear Isaac,
I don’t have a problem with this, if they’re doing well enough financially to afford it, and the help comes in the form of a gift. If they’re borrowing the money to make it happen, then the answer is “no.” If they want to loan you the money, the answer is “no.” A loan between family members, or even friends, isn’t help—it’s a trap for both parties.

But hey, if they’re in good enough shape to gift you some money to help with the MBA or a home, that would be an incredibly generous thing to do. I think it’s so cool when people work hard, make smart decisions, and manage their money well to the point they can do things like this for others.

It sounds like you’re in a really good place, Isaac. Pay cash for school, and if you can’t buy a home outright when the time comes, make a down payment of at least 20 percent. That way, you’ll avoid having to pay private mortgage insurance!
—Dave

Cash out stock for emergency fund?

Dear Dave,
I’m 45, married, and we have a household income of around $85,000 a year. We have no debt, except for our home, and we owe about $70,000 on it. I recently stopped contributing to my 401(k) temporarily in an effort to help us build an emergency fund, but things are moving slowly. We also have $25,000 in stock. Should we cash out the stock, and use the money for an emergency fund?
Nate

Dear Nate,
Yes, that’s what I would do. Basically, your emergency fund is in stock right now. That’s not a good place to keep an emergency fund, because you never know when life will throw unexpected expenses your way or the stock market will go down.

I would cash out that stock as soon as possible. Put the money in a simple money market account—one with check writing privileges and no penalties for early withdrawals. You always want your emergency fund to be safe and easily accessible. Then, make sure you keep pushing forward and take care of Baby Step 4, investing for retirement; Baby Step 5, save money for college if you have young children; and Baby Step 6, pay off your home early.

Baby Step 7 means building wealth and giving like crazy. These things are easy once you have the other Baby Steps out of the way. Good question, Nate!
—Dave