Thursday, 23 August 2018 07:40

Dave Has Answers

Written by  Dave Ramsey
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Allow Them to Earn It

 

 

Q.  Our daughter just turned 10 years old. Is now the right time to start giving her an allowance, and start teaching her about money?

 

 

A.  I’m glad you’re going to teach your daughter about money. But in my mind, there’s never a time for an allowance. I believe that kind of thinking, and using words like “allowance,” are some of the best ways to instill an attitude of entitlement in a child. I don’t think you want your daughter growing up with the idea she deserves money simply because she’s alive.

 

My advice is to develop a method by which she can earn commissions. Write down a daily or weekly list of jobs around the house that are age-appropriate she will be responsible for doing. Then, at the end of the week, she gets paid for jobs she completed — and she doesn’t get paid for the ones she didn’t do. The idea is to teach her that work creates money, and teach a healthy work ethic at the same time.

 

 Of course, there are some things a child should be expected to do without financial reward. Everyone needs to pitch in, and do certain things to help when they’re part of a family. And once you’ve taught her about the importance and rewards of work, make sure to also teach her about the three uses for money — saving, spending, and giving!

 

 

Step by Step

 

 

Q.  When is the right time to buy a house when someone is following your Baby Steps plan?

 

A.  That’s a good question. Let’s start by going over the first few Baby Steps.

 

Baby Step 1 is saving $1,000 for a beginner emergency fund. Baby Step 2 is paying off all consumer debt, from smallest to largest, using the debt snowball. Baby Step 3 is where you increase your emergency fund to the point where you have three to six months of expenses set aside.

 

Once you’ve done all that you can begin saving for a home. I’ll call it Baby Step 3b. For folks looking to buy a house, I advise saving enough money for a down payment of at least 20 percent. I don’t beat people up over mortgage debt, but I do advise them to get a 15-year, fixed rate loan, where the payments are no more than 25 percent of their monthly take-home pay.

 

Doing it this way may take a little more time, and delay your dream of becoming a homeowner a bit, but buying a house when you’re broke is the quickest way I know to turn something that should be a blessing into a burden!

Last modified on Thursday, 23 August 2018 08:16
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