QUESTION: Mike in Indianapolis and his wife have a 20-year-old friend they met through the Big Brothers Big Sisters program. She has a one-year-old child, and she recently asked for money from Mike and his wife. They don’t approve of how she’s choosing to spend money, but she does need help. What do they do?
ANSWER: My rule is very simple. If someone is bold enough to ask me for my money, I’m bold enough to attach requirements with the money that are for their own good. Then one of two things will happen.
They will either welcome the help, or they’ll get mad that you are interfering with their business. In this situation, my help would sound like this. I don’t want to loan her money; I do want to give her some money. This is a girl who didn’t have a strong upbringing and has already made a whole series of bad choices the way you’re describing it to me.
We’ve got to get her on a path where she has better thinking and therefore better choices. This is a whole lot more than just deciding to give someone $35 for diapers. The answer to that is easy; it’s yes. But I’m going to do it in the form of a grocery store gift card, and most of those do not allow alcohol and cigarette purchases. Or I’ll go buy the diapers and take them to her.
What you’re pointing out more than anything is that you have realized that you’re giving a drunk a drink, which means she’ll always have money problems until she corrects her bad thinking that is leading to bad choices.
I would help her lay out her budget. Pay for her to go through Financial Peace University and then walk with her. As you help her with her budget and see what she is spending money on, and as long as she sticks to what you are telling her to do for her own good, then you’ll try to help her out occasionally with a gift. That’s assuming you can financially do that.
But $50 or $100 is a big deal in this kid’s life. But giving it to her without any kind of requirement that she think better or live better is enabling; it’s not helping.
If she lives two hours away, set her up with the class and ask her who her coordinator is. Then the coordinator can coach her and stay in contact with you to help verify the good decisions and hold her accountable.
Helping people is a lot more work than just throwing money at them, which actually doesn’t help them. You have to get down in their mess with them and walk with them out of the mess. Set it up where your money is influencing her life to be better, not just throwing money at her. Her problem is that if she’s putting pictures of vodka and cigarettes on Facebook, the problem is not lack of money for diapers. Her problem is mismanagement.
If you choose vodka and cigarettes over your kid’s diapers, it means you need to be smacked. If you don’t want to do that, you can just cut her loose. Tell her you won’t throw money at this situation if she is not going to do this stuff. If she has some debt, you can say that every time she pays off some debt, then you’ll contribute some.
You can also match toward saving or set up and contribute to an account for her kid to go to college where you are the custodian. You can do all kinds of stuff that doesn’t take a lot of money, but it’s a lot of money in her world and allows you to have influence with her to force her to change her thought patterns and her habits and behaviors. But that’s a lot of work. That’s loving someone well, and it’s a lot of work to love somebody well.
QUESTION: Angie on Facebook asks what happens to the money she gives each month to a 30-year term life insurance policy. Is she throwing her money away?
ANSWER: You didn’t ask that about your homeowner’s policy or your car insurance policy. What happens if you pay homeowner’s for 30 years and your house never burns? Did you throw your money away? No, you did not. You were purchasing the transfer of risk in the event something bad happened. Term life insurance is the same way. You’re purchasing the transfer of risk. If something bad happens, your family will have money to use to replace your income.
You never buy whole life, cash value, universal life insurance ever. You always go to zanderinsurance.com and get an inexpensive term quote and do your investing anywhere except inside a rip-off life insurance policy.
QUESTION: Bethany in Detroit isn’t sure if she should contribute to her 401(k) or a Roth IRA instead. It is a discretionary 401(k), and Bethany isn’t sure she’ll receive a match at the end of the year. What would Dave do?
ANSWER: If they match, then I would jump into it. If you feel like they won’t match, then don’t do it.
If you look up in January of next year and they’ve closed the biggest deal they’ve ever closed in their lives, then you might say that this year you’ll probably get the discretionary match. That’s when you get into it.
I would rather see you in a Roth IRA than a non-matching 401(k). Tax-free growth is better than tax-delayed growth or tax-deferred growth. That’s really what the traditional IRA and the traditional 401(k) with no match are.
QUESTION: Joel in Colorado Springs says his wife really wants to be a mom and would like to start planning for that. Joel wants to wait a little longer and build up their emergency fund before taking that step. Who’s right?
ANSWER: Within reason on number of children, the old saying is true. If you wait until you think you can afford them, you’ll never have them. Whenever you guys think you want babies, get babies. You’re fine. You’re out of debt. You’re already working on your emergency fund. Before the baby got here, you’d have the emergency fund complete. If she announced this morning that she was pregnant, you’d have nine months to finish it.
You’re a responsible guy. You’re going to be a good dad. You’re going to be a good provider. You don’t have to wait another day.
That opinion is probably worth what you paid for it, but that’s my belief on it. I don’t teach people that you have to be out of debt or have every little detail worked perfectly on their money before they have babies. Babies are not that expensive. They don’t break your back like everybody talks about. They generally eat from your table, assuming you teach them to. You can let them break your back if you want to spoil them and be crazy parents, but the first years, you’ve got diapers and baby stuff. But seriously, it’s not the end of the world. You can work your way through it, and very few times are people having kids their problem. Now if you go to an extreme and have 16 kids, then yeah—that many baby birds to feed can become a financial problem without a doubt. But the normal sized family in America—usually, children are not your financial issue.