QUESTION: Courtney calls from Miami, FL, where she’s facing a big problem. She signed a lease on an apartment a few months ago, but since then, she and her husband have separated. That leaves her with a child from a previous relationship, along with rent of $1,100 a month — plus day care expenses — on $2,280 a month take-home pay. She can’t receive child support presently, because her baby’s father is in prison. Courtney is enrolled in Financial Peace University, and Dave tries to help, but there aren’t a lot of options.
ANSWER: Yeah, you’ve got to get out of there.
What I would do is sit down with the landlord or manager of the apartment and begin to negotiate what you can do to get out of this lease. It’s going to be very difficult to make the numbers work when you’ve got 50 percent of your take-home pay budgeted for rent.
I know it wasn’t the plan you had, and obviously this part of your life is falling apart, kiddo. I’m sorry. Make sure you plug in strong with that Financial Peace University group and your church. Make sure you find some people who’ll put their arms around you and help you walk through this.
QUESTION: Lex calls in from Lubbock, Texas, and asks Dave if there’s ever a reason he would suggest doing an annuity. If not, Lex wants to know where he can begin looking for mutual funds for investing.
ANSWER: If you’ve never done investing, we would suggest for mutual funds that you go to someone who has the heart of a teacher. It’s important to be learning before you invest and as you invest. We have people that we endorse in cities around America for several things, and investing is one of them. We call them Endorsed Local Providers (ELPs), and you can go to daveramsey.com and click on ELP for investing. One of them will get in touch with you, and you can sit down and begin to learn.
I don’t recommend an annuity except in very, very rare circumstances. Usually, this would be for older folks, but only for people who have built a level of wealth and are 100 percent debt-free — house and everything.
There are two types of annuities, Lex. There’s an annuity that is a fixed annuity, which I never recommend. The fixed annuity has basically a money market-type interest rate of one, two or three percent right now. If you could get three percent it would be a great day. And it’s basically a savings account with an insurance company. They put a lot of fees on them, and they’re horrible. It’s like putting money into a CD as a long-term investment.
A variable annuity is an annuity wrapped around a mutual fund. It keeps the mutual fund from being taxed as it grows, but you pay an extra fee to the annuity company in addition to the mutual fund fees. You get double-dipped on the fees, so they’re kind of expensive but it allows the money to grow tax-free and has a few other features to it. But you don’t need that, as long as you haven’t maxed out all of your retirement and haven’t paid off your house. Those are things you should do.
If you could put money in a 401(k), it would be a much better deal. If you put money in a Roth IRA directly into mutual funds, it would be a much better deal. Those are going to grow tax-free, or tax-deferred also, and you don’t have to pay the double-dip fees to get it.
QUESTION: Lindsay started her own small bakery from home two years ago, providing wedding and specialty cakes. She just found out she’s pregnant, and while she and her husband are excited about the baby, they’re worried as to how they will handle everything after the little one arrives. They both work really long hours but don’t make a lot of money. Dave offers encouragement and advice for this family and the future.
ANSWER: Well, the good news is you can schedule things. Now, if you get into a busy season — say around wedding season — you may want to bring in a baby sitter. But I don’t think I would do daycare every week or every day. You’re probably not that busy 12 months out of the year. You probably have a busy season, and you might bring in some short-term help during that time.
I think more than anything you need some good business planning and time management, and your husband needs some relief in the future, as well. If you can see that his hours are going to back down and his income is going to go up, because he’s going to change careers or make a modification to the current career, and you can plan how you’re going to put your stuff together, then some of the stress will fall off.
A lot of people do the kind of thing you’re talking about, and it’s an awesome thing. I think you’re going to win! I’m not freaked out listening to you at all, I’m just a little freaked out because you’re freaked out. But other than that, I think everything’s going to be fine.