The Daily Journal ran out of space to run Dave Ramsey’s column in print. So, here it is, in its entirety, online. Sorry for the inconvenience!
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SKIPPING PAYMENT WON’T SOLVE PROBLEM
Q. My husband and I have our emergency fund in place, and we’re about to start the debt snowball. We’re also doing a budget, but we still have trouble finding money to put toward our lowest debt. Plus, Christmas is getting closer. The company we financed our car with allows us to skip a payment once a year. What do you think about using that to help out?
A. What do I think? I think you guys need to create some income.
The issue here is that you’re trying to treat the symptom instead of the problem. The symptom is that you guys are tight on money. The problem is that you have too much debt versus income. In this kind of situation you’ve got to either create extra income or get rid of some stuff. Just skipping a payment won’t do that for you. All that does is postpone the inevitable. But getting rid of a big car payment – now THAT helps solve the problem!
It may take a little while to get these things going – and you guys may have to go easy on Christmas this year – but once you do these things you’ll find some wiggle room where your money is concerned!
Moving up
Q. My wife and I bought a house last year when we were making $50,000 a year. Now, we make $120,000 a year, and we’d like to move up in house. The problem is that we still have $23,000 in other debts. What’s your rule for determining when you’re ready to move up?
A. Congratulations on raising the income! You guys have really been kicking it.
If it were me, I’d wait until I had the first three Baby Steps in place – start out with a $1,000 emergency fund, pay off all debt except the house and then fully fund your emergency fund with enough money to cover three to six months of expenses. After that, save up to make a 20 percent down payment on the house you want.
If you move into a home with an emergency fund in place and no payments, that home will really be a blessing to you. But until then you’re just begging Murphy to move into your spare bedroom!
You’re not quite in driver’s seat yet, but you can be soon. And it will feel really good!
Explaining inflation
Q. What exactly is inflation, what causes it and what can we do to stop it?
A. Basically, inflation is the increase in the cost of something. For example, if the inflation rate of gasoline is 10 percent, that means the cost of gas went up by 10 percent.
There are a lot of variables involved when the price of a product increases. One of these is simple supply and demand economics. This means that if there’s a shortage of a product, it’s perceived to be more valuable. The result of this is almost a bidding war of sorts, and it will cause prices to go up.
The opposite is true if there’s an over abundance of a product or item. If you’ve got 10 people wanting 100 items, then you’ve got a soft market, and the prices will go down. That’s called “deflation.”
That’s a pretty simple factor, but the variables can get complicated and interconnected. If you’re buying food from another country, that particular country’s economic situation affects our economy because it’s a component of our economy.
Or let’s say you’re building a house, and shingles for the roof are more expensive than they used to be. Well, there’s oil in singles, and the price of a box of shingles may have gone up because the price of oil went up. So then, you’re looking at a scenario where oil caused housing prices to rise.
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How would someone think skipping a payment, would help resolve their finances ? You still owe the money, just 30 days later.
Plus interest.
You guys are right. That company is going to make that payment up through out the rest of the year or on the back end of the loan.
It’s why check cashing places make money hand over fist. They get people who feel hopeless to cash the first check for little or no fees, then hook them with the lure of “easy cash” when they run into a tight, but in the end the cash will be anything but easy. The folks who utilize these services are paying an unrighteous amount of interest — I’m sorry, “fees” — to buy what they perceive as time. What they’re buying, though, is an additional few weeks or months of throwing their money away and avoiding working to get on a budget to break the black hole cycle that check cashing places represent.
People kill me with their concepts on finances. With the news talking EVERYDAY about banks losing money; why do people still believe these institutions do nice things to save you money ???
They’re trying to get rid of THEIR debt people !!!