Mormon Life - Finances

Military Investing

Mon, 06 Sep 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: If I'm in the military and will have a good pension, should I also be saving 15 percent for retirement? Dear Dave,

My wife and I are both active duty Marines. She's planning to get out in a few months, but I'm staying in for the long haul. You recommend saving 15 percent for retirement, but how does that apply in my case when I'll be getting a good pension after 20 years?

James

Dear James,

I'd like to see you do both. Just imagine the money you guys would have for retirement with your military pension and a big pile of cash from having saved 15 percent of your income over the years!

Having options is a great thing. Think about all the things you could do down the road if you save for retirement and have your pension in place. You could pay cash for a home, or even open a business when you retire from the military. And these are things you probably wouldn't be able to do working with just your service pension.

You've got a great future if you'll just keep plugging along and saving, James. Let the military do its thing, and you guys keep pumping 15 percent of your income into Roth IRAs and other pre-tax retirement plans. It's going to be pretty cool!

- Dave

* For more financial help please visit daveramsey.com.

Financing a Small Business Is Risky

Mon, 06 Sep 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: What's the best way to finance a business I want to buy? Dear Dave,

What's the best way to finance a business I want to buy?

Anonymous

Dear Anonymous,

When you borrow money to start a business you're introducing a huge risk factor into the equation. I don't borrow money, so I really can't recommend that you go into debt. Saving up and paying cash is the best way to go.

The only other thing I would consider doing that would lower your risk would be an owner-financed deal. The current owner finances the transaction, and your pay to them is based on the profitability of the business. That way, if there's no profitability you're not bankrupt!

Some people will go out and borrow $500,000 or more to start a business. Then, if the business doesn't do well and you can't make the payments, you're bankrupt. There's really no in-between, and that's a bad deal!

It's just a dumb idea to do these "all or nothing" business deals. Even if owning a business is your wildest dream, there's no point in taking risks like that. It's just not necessary!

- Dave

* For more financial help please visit daveramsey.com.

Finish Baby Step 3 First

Mon, 06 Sep 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: When is it okay to buy things like boats and jet skis? Dear Dave,

When is it okay to buy toys for the lake - things like boats and jet skis - when following your plan?

Anonymous

Dear Anonymous,

I'm a lake guy, too. So, you've hit a soft spot with me on this question. Still, you have to be an adult about these things, and here are a few rules.

First, you should be completely debt free except for your house. Second, you need to have your fully funded emergency fund - that's three to six months of living expenses - in place. In other words, I want you to have completed the first three Baby Steps. And remember, no matter how shiny and cool it may look, buying a Sea-Doo is not an emergency! Save up and pay cash for your toys.

Remember this rule of thumb when it comes to toys. With the rare exception of collectibles, anything with an engine goes down in value. You should never have more than half of your annual income tied up in the total of all your vehicles. It would be pretty stupid to make $60,000 a year and have $40,000 tied up in cars, boats and other toys. That's way too much money tied up in things that go down in value the wrong way.

Always make sure your family is well taken care of before you go out buying toys!

- Dave

* For more financial help please visit daveramsey.com.

Getting Him Back on His Feet

Mon, 30 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Our son recently moved home after closing his business. How can we help him? Dear Dave,

My wife and I are getting close to retirement, and our 36-year old recently moved back in with us. His automotive restoration business went bankrupt, he hasn't been able to find another job, and he has nowhere else to go. What can we do to help him?

John

Dear John,

You have to define what helping your son really means. In my mind, you haven't helped him at all if he's still squatting in your basement five years from now. That's called being an enabler. But it's not going to help him, either, if you toss him on the street and say "You're 36. Be a man!" I think you should formulate a progressive plan somewhere between those two extremes - something that includes a move-out deadline, but will help him regain some dignity.

As part of living with you, I'd require him to do three or four things. One is that he abides by your household rules. If he's going to live in your home, he should act the way you want him to act. Number two, he needs to be engaged in some kind of regular physical activity. Even if you have to pay for it, you could get a membership at a gym or buy some exercise equipment. Exercise stimulates the mind, and he needs that right now. It'll also be great for his body. Getting beat up like he's been can be tough at that age. It can lead to depression if you don't engage in physical activity and goal setting.

Next, is to think about career steps. He could start with a part-time job to get some money in his pockets. Then, work on a long-term career goal. He knows how to turn a wrench, and he probably likes that kind of work. His mind works spatially, which means he can look at things and figure out how they operate. So, it might be a good idea to move in that direction. It doesn't even have to be cars. He could learn to work on boats or aircraft.

You don't want to beat the kid when he's down, but you don't want to participate in his sewage, either. Help him clean up his life, and get him out of there as fast as possible. It's what's best for everyone!

- Dave

* For more financial help please visit daveramsey.com.

Keeping College Costs in Check

Mon, 30 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Should we use our pension to pay for our kids' college, or have them take out loans? Dear Dave,

We live in Boston, and we've got three kids who are almost ready for college. My wife and I make about $114,000 a year combined, and that includes a $34,000 a year pension I receive. Should we use the pension money to pay for their tuition, or should we let them take out student loans?

Geoff

Dear Geoff,

There's no way I'm going to send anyone into student loan debt, especially when the household income is in the six-figure range!

Now, that assumes the kids choose a college you can afford, but with your income you guys could handle tuition at most state colleges. And that means all the kiddos are going to have to pick a reasonably-priced school if they expect you to foot the bill. We've got to use a little common sense here.

You guys are doing okay, but you can't afford to send these kids to $30,000 a year schools. All this will be hitting you at about the same time, so I want you to cash flow this thing, and pay as you go along. College is great, but you need to invest your money into something that fits your budget!

- Dave

* For more financial help please visit daveramsey.com.

Keeping College Costs in Check

Mon, 30 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Should we use our pension to pay for our kids' college, or have them take out loans? Dear Dave,

Geoff

Dear Geoff,

There's no way I'm going to send anyone into student loan debt, especially when the household income is in the six-figure range!

- Dave

* For more financial help please visit daveramsey.com.

Getting Him Back on His Feet

Mon, 30 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Our son recently moved home after closing his business. How can we help him? Dear Dave,

John

Dear John,

- Dave

* For more financial help please visit daveramsey.com.

More or Less?

Mon, 23 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Should an emergency fund ever be more or less than $1,000? Dear Dave,

When, if ever, should your baby emergency fund be more than $1,000? Is there ever a scenario in which it should be less?

Sue

Dear Sue,

I always recommend that people who make $20,000 a year or less start out with a baby emergency fund of $500. Almost anyone can scrimp and save up $500 in a short amount of time, and this makes it easier for folks who don't make a lot of money to have a safety net in place.

Is there a scenario where the baby emergency fund should be more than $1,000? I guess if you were stuck in a situation where you had $200,000 in debt and made $60,000 a year, you might want to ratchet that amount up to $2,000 or $3,000. The reason? It's going to take you several years to dig your way out, and that means you're taking a chance on several years worth of emergencies!

If you've got a really unstable situation - like there's a good chance you might lose your job - or an emergency already pending, you should delay starting the Baby Steps and pile up a bunch of cash. In a case like that, it just wouldn't make sense to start a financial overhaul and be sitting there with only $1,000 in the bank. If there's a nasty storm coming, you need to work, work, work to get ready, and make sure you've got the biggest umbrella you can get!

Then, after you get past the bad stuff, you can push "play" on your Total Money Makeover. That's when you'd pull your savings back down to $1,000 and go into attack mode on your debt!

-Dave

davesays.com

Can Stay-at-home Moms Be Insured?

Mon, 23 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Do stay-at-home moms need disability insurance? Dear Dave,

Do stay-at-home moms need disability insurance?

Sarah

Dear Sarah,

Yes, they do. Unfortunately, they can't get it right now. Under current law, you must have an earned income in order to receive disability insurance.

Now, it's possible to get disability insurance if you have a business at home. In that case, you'd need to show two years worth of tax returns to prove that your self-employment was actually generating an earned income.

My wife's been a full-time mom for 25 years, and I know how hard she works and how much she does every day. Believe me, if she could get disability insurance, we'd buy it in a second!

-Dave

* For more financial help, please visit daveramsey.com.

It's Not Worth It!

Mon, 16 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: I want to keep a rewards card open to pay for monthly bills. Good idea or bad idea? Dear Dave,

I want to keep one of our credit cards open and use the bill-pay option for utilities and other monthly bills. I want to do this so we can continue earning rewards points, and the way I look at it, we'd just be re-routing the money and paying it off every month. My husband doesn't like this idea and thinks we should get rid of them all. Am I just asking for trouble by wanting to keep the rewards card open?

Cheryl

Dear Cheryl,

Yes, you are. Life never works out exactly the way you think it will. You can make all the well-reasoned and best-intentioned plans you want, but sooner or later that snake is going to bite you.

The only thing I'd consider in a situation like this is a debit card that has a rewards system attached. Lots of debit card programs offer the same kinds of rewards programs offered by credit card companies, with one big exception - you don't have to go into debt!

You need to stop chasing these stupid brownie points. According to Consumer Reports, 78 percent of credit card airline miles are never redeemed. Studies also show that people spend more when using credit cards as opposed to cash. That extra money you spent is money you could have been saving. So, where's the reward? It's a myth. It's like trying to catch a unicorn.

Cut up the card and close the account, Cheryl. You don't build wealth by using credit cards!

-Dave

* For more financial help, please visit daveramsey.com.

Family Issues

Mon, 16 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: What's the best way to respond to a sibling who makes poor choices with money and often asks to borrow money? Dear Dave,

What's the best way to respond to a sibling who continually makes poor choices with money and often asks to borrow money? I don't want to be heartless, but they're out of control asking for money anytime they want. I'm currently on Baby Step 2 of your plan, and I'm six months away from being debt-free. Do you have any suggestions?

Jen

Dear Jen,

I think you should just tell them the truth. You're trying to get out of debt, so you don't have extra money sitting around. Let this sibling know that you're working hard to change the way you handle your money. Let them know, too, that part of that is you’ve decided debt is dumb, so you don't borrow or loan money anymore.

Make sure you do this with a kind spirit, Jen. You could even let them know you might consider giving them some money as a gift if you had any extra lying around and you knew they were in control financially. But you're not really helping someone who's incompetent with money when you give them cash or even loan them money.

You've got to look at the big picture in situations like this. You're not helping someone if you participate in their misbehavior with them. Sometimes you have to love somebody enough to tell them the truth, and that can mean saying no and telling them to straighten up!

-Dave

Best Gift for the Grandkids?

Mon, 09 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: What's the best financial gift for young grandchildren? Dear Dave,

What's the best financial gift for young grandchildren?

Anonymous

Dear Anonymous,

Well, it's definitely not savings bonds. You get nothing in the way of a return from those things. I get mad just looking at them! I'd suggest opening up an Educational Savings Account (ESA) in a mutual fund in the child's name. You can put up to $2,000 a year, per child, into these, and they grow tax-free.

If you started when your grandchild was born, and set aside $2,000 a year for 18 years, you'd have saved $36,000. But if you go the ESA route, and figure 12 percent average growth over that time, the kid could have about $126,000 waiting when it comes time for college. That's a pretty sweet gift!

-Dave

The Best Place to Put Savings

Mon, 09 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Where is the best place for me to put my savings? Dear Dave,

Where is the best place for me to put my savings?

Anonymous

Dear Anonymous,

Saving and investing are two things I talk about a lot. Investing is when you're going to leave the money alone for five years or more. I'm talking about things like retirement, college planning or saving up to buy a house. For these things, I recommend good, growth-stock mutual funds. Make sure you're looking at mutual funds that have stable track records of five to 10 years, and then spread your money across these four categories: growth, growth and income, aggressive growth, and international.

Now, when it comes to savings, I'm not really concerned with making money. Things like setting money aside for vacations, Christmas, or even an emergency fund fall into this category. One and one-half percent would be an incredible rate on a savings account right now, so you're not going to get rich off anything like this. The idea is to park this money in a safe place, and keep it separate from the rest of your money so it doesn't get spent on the wrong thing!

-Dave

* For more financial help, please visit daveramsey.com.

It's No Get Rich Quick Scheme

Mon, 09 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Is there any kind of frustration or letdown after you've been through the first few baby steps? Dear Dave,

I'm about to complete Baby Step 3. I've been very intense about following your plan, but I was wondering if there's ever any kind of frustration or letdown after you've come this far.

Rasheed

Dear Rasheed,

You're right. The beginning three Baby Steps are very intense. First, you get $1,000 in the bank - $500 if you make less than $20,000 a year - for a beginner emergency fund as fast as you can. Then, pay off all your debts, except the house, from smallest to largest, and after that you finish out your emergency fund with three to six months of expenses. This is a real whirlwind of activity because everything should be wrapped up in an aggressive, we've-got-to-get-this-done kind of attitude.

I guess if there's a letdown it could come from the feeling that once you're out of debt except for your house, things should kick into overdrive and you'll become instantaneously wealthy. That just isn't realistic. But it does remove a ton of stress from your life, and you'll experience a sense of freedom that you've never felt before. Just think about it. Try to imagine how it would feel to have no payments on anything except your home. There'll be no more credit card bills and no more car payments. How great is that?

As for frustrations, they'll be fewer because a huge cause of stress and frustration will disappear after you gain control of your money and get out of debt. You may feel like things aren't moving fast enough, but things never seem to move fast enough when you’re intense and really into what you're doing!

-Dave

Creating Your Own (Cash-based) Bailout Plan

Mon, 02 Aug 2010 18:00:00 -0600

by Mike Peterson
source: MormonLife.com

Mormon Life says: Want to get your finances back on track? Go back to cash. Here are five tips to help you get started. If there's an upside to today's uncertain economic climate, it's the fact that the recession has forced Americans to take a long, hard look at their spending and saving habits. We're getting savvier about the perils of debt and overspending. We're looking for innovative ways to save money and stretch our budgets. After years of impulsive living, we're trying to get back to living within our means.

On the surface, the idea of living within your means sounds pretty simple. And, on the surface, it is: Don't spend more money than you make. End of story. Simple, right?

Well . . . sort of. Credit cards have given us the ability to spend way more than we actually bring home. We've amassed piles of stuff we don't need, and we've racked up hefty balances - and ruined our credit ratings - in the process.

Dismal stuff, to be sure. But the good news is, you can get back to keeping the money you make, instead of feeding the coffers of Mr. MasterCard and Mrs. Visa. Here are five things you can do today to kick-start your very own bailout plan.

Five Steps to a Cash-Only Lifestyle Just a few generations ago, people used cash - and not much else. They bought what they could afford, and they saved up for the things that they couldn't afford. Somehow, they managed just fine. And so can you.

Step 1. Make the commitment. This sounds silly, but the first step to living on cash is to make a firm decision. It shouldn't be an impulse. Think about it; consider what sorts of sacrifices you'll have to make. And don't leave the family out of the decision: Going cash-only can mean some significant lifestyle changes - especially if you've been living a bit beyond your means. Talk to your spouse and make sure that you're both ready.

Step 2: Hide your credit cards. I'm serious. Lock them away in your filing cabinet or safe, or put them in the back of your sock drawer or in an ice block in your freezer. Put 'em anywhere you want - except your wallet. It's a lot easier to say no to a purchase that involves leaving the store, driving home, fishing your plastic out of the shoebox in the back of your closet, getting back in the car, and driving back to the store.

I guarantee that, 99 percent of the time, a splurge won't seem worth the extra work.

And one more thing: don't cancel your credit cards. Part of your credit score is based (among many other things) on the amount of credit that's available to you. In some cases, closing your account - and thereby lowering your available credit line - can hurt your credit score instead of helping it. As long as you're not using your cards to rack up more debt, they won't hurt you.

Step 3: Set a budget. If it's been a while since you've lived on a budget, here's a quick-and-easy guide to getting started:

Add up your total monthly income - your pay and your spouse's pay, plus any income from rental properties, side businesses, investments, etc.
Add up your monthly fixed expenses - rent or mortgage payments, car payments, bills, etc.
Deduct that amount from your monthly income.
Add up your variable expenses - things like groceries, gas, and entertainment. Remember to leave enough room for emergencies - flat tires, vet bills, and broken plumbing.
Deduct that amount from your monthly income.
Divide the leftover cash, 60/40.
Put the larger chunk into savings, and leave the rest of it for "fun money."

That's it! You may have to play with the numbers a little (and find ways to cut back on some of your variable expenses). But if you stick to your budget, you won't have any reason to use your credit cards.

Step 4: Start saving. I can't stress this enough. Your budget (see Step 3) should include a pre-determined amount of money that you put into your savings account every month, without fail. To make saving even easier, most banks offer some sort of automatic monthly transfer - you just tell the bank the date and the amount, and the money will move on its own. Chances are, you won't notice it's gone.

Step 5: Go without. Practice it; make a habit of considering the necessity of everything you want to get. This may be a strange concept for folks who are used to the "buy now, pay later" mindset, but learning to go without - or simply make do with what you have - will help you keep your finances in check. Sure, it would be nice to have an ultra-modern kitchen, decked out in all the latest stainless-steel appliances and genuine granite countertops. But if your white, circa-1995 refrigerator is humming away (and keeping things cold) like new, hang on to it. Ditto for your countertops, your dishwasher, and your stove.

But if you absolutely must have that combination DVD player/flat screen TV/refrigerator/gaming system, save up for it first and then pay cash.

Here's to the new (cash-only) you!

--- Mike Peterson co-founded American Credit Foundation, a non-profit credit counseling organization. Visit debtguru.com for more information and financial resources.

Buy a House While in Student Loan Debt?

Mon, 02 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: I have 50k in student loans and a salary of 20k a year. Do you think I could work out buying a home? Dear Dave,

I'm 31, single, and I have two college degrees. I have no money to speak of, having just come through a rough patch of unemployment, but I recently landed a job that will pay me $20,000 to start. There's the added possibility of an increase to $40,000 in the first year. I'm thinking about buying a house, but I've also got $50,000 in student loan debt. The good news is that I have no other debt. What are your thoughts on buying a home in this situation?

Trevor

Dear Trevor,

Man, you're broke! There's no other way to describe being $50,000 in debt with a job making $20,000. You don't need to get wrapped up in buying a place right now. At this point, a house would end up being a curse instead of a blessing.

You've been through the valley, and now I want you to come up into the sunlight. I want you to start building a future on something solid, and that solid ground means being debt-free. If I woke up in your shoes, I'd get unbelievably aggressive about paying off this debt. I'm talking about rice and beans and living in a cheap little apartment for the next two or three years while you kill it off.

Whatever you do, Trevor, please don't get complacent about this debt. Lots of times people will play around with student loans. They don't take them seriously, because they have low payments or really low interest rates. The next thing you know, it's still sitting there 10 years later staring at you like some kind of big, dumb pet!

Having a bunch of mortgage payments hanging over your head would completely destroy the foundation of your new financial life. Save up $1,000 for a small emergency fund. Go crazy about paying off the loan. Then, get your emergency fund of three to six months of expenses in the bank. If you get used to living on $20,000 a year, and your income rises like you mentioned, you'll be able to get rid of your student loan fast. After that's done, you can save enough for a 20 percent down payment on a house in no time!

-Dave

In Debt to Mom

Sun, 01 Aug 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: My mom wants to helps us go on a mission by paying our debt. What do you say? Dear Dave,

We want to go into the mission field, and we're following your plan trying to get out of debt before we do this. We've got about $16,000 in credit card debt. My mother doesn't want this to stand in our way, and she's offered to pay off our debt and let us pay her back over time at half of the interest rate we're paying now. My husband likes the idea, but what would you say?

Teresa

Dear Teresa,

I'd say no, thank you. There's no way I'd be in debt to my mother.

She's obviously a kind, sweet person, but it's a bad plan. I'm sure your husband is a great guy, too. But he's overlooking the spiritual and relationship implications of all this. Proverbs 22:7 says the borrower is slave to the lender. If you do this, you're going to change the way Thanksgiving dinner tastes, because you'll be eating with your master instead of your mom.

Money has a way of changing the family dynamic, and it's almost never for the good. All of a sudden you're getting raised eyebrows if you buy something for yourself, because even the nicest, gentlest person has opinions. You'd be giving her a say in your lives in a different way and at a completely different level than ever before. You just don't need that in your life!

Now, if she wants to make paying off your debt a gift - one that will facilitate you guys hitting the mission field earlier - I'm okay with that. I'd be honored, and I'd accept the gift. But I would never tell you to go into debt - especially to a parent. I'm sure she's coming from the perspective that she'd make a better "creditor" than the credit card company. If it were me, I'd tell her that I love her, but I just don't want to take a chance on doing anything that might come between us later.

-Dave

* For more financial help, please visit daveramsey.com.

Don't Insure on 1% Chance

Mon, 26 Jul 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: When is a good time to start shopping for long-term care insurance? Dear Dave,

I'm 54, my husband is 56, and we still have three teenagers at home. Recently, we were told that it's the perfect time for us to buy long-term care insurance. What do you think about this idea?

Terri

Dear Terri,

My guess is that you were advised to buy this by someone who sells insurance. I'd also call this a conflict of interest!

If you'll do a little bit of research, you will find that there's about a one percent chance of folks your age needing long-term care insurance. So no, it's not the perfect time for you guys to do this. I don't insure things that have such a miniscule chance of happening.

Once you turn 60, the chances of something unfortunate happening rise practically every day. That's why I advise people to start shopping for long-term care insurance on their 60th birthday, regardless of their income or assets. Think of it as a gift to yourself and your family. Nursing home care can run anywhere from $30,000 to $50,000 a year. That will crack and scramble most people's nest eggs in a hurry!

Do you want long-term care insurance? Absolutely. But my advice is to wait until you're 60 years old.

-Dave

* For more financial help, please visit daveramsey.com.

You Are the Secret Ingredient

Mon, 26 Jul 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Do you think it's wise to start a small business while keeping my full-time job? Dear Dave,

I have an idea for a small business I think is needed in my area. How do you feel about me keeping my current, high-paying job, and hiring a full-time manager to handle the day-to-day operations while I oversee things and handle accounting? If it doesn't break even or better, I'll just close it down. I look at it as being like buying or selling real estate while keeping a full-time job.

Ken

Dear Ken,

Really, this idea isn't a lot like real estate. Real estate will run itself, for the most part, once you find a tenant. Also, the number of hours you'd have to put into selling real estate on the side is nothing like the time you'd expend getting a new small business off the ground.

To be honest, I don't think there's a high likelihood of success using this model. Unless, of course, you're willing to devote 40 to 50 hours a week to this new business, in addition to the time you spend at your current job. You'd have a better chance of making it work if you bought an existing business with a manager already in place. That way, at least you wouldn't have to be so entrepreneurial and constantly involved in things like adjusting the business model, checking prices, and dealing with customers.

The secret ingredient to small business success is you. And the problem with your plan is that you're only a small part of the equation. You are the energy, the ideas and the passion. You are the enthusiasm and the smile that greets the customers. Chains and franchises try to train this kind of stuff into people, but when something's your baby, it's really your baby. You're going to worry over it, do your best to grow it properly, and treat it almost like it's your very own child.

I'm sorry, Ken. I just don't like this plan. If your idea is to swing by once in a while, eyeball things, and crunch a few numbers, then you'd probably do more good just giving the money you'd invest to charity!

-Dave

The Gold Bubble

Mon, 19 Jul 2010 18:00:00 -0600

by Dave Ramsey
source: MormonLife.com

Mormon Life says: Isn't it a good idea to take advantage of gold's current value? Dear Dave,

I agree that historically gold is an extremely volatile investment. But wouldn't it be a good idea to take advantage of this gold bubble and its popularity due to the market's current hysteria?

Kevin

Dear Kevin,

A bubble is when an investment is no longer based on numbers, but on greed or fear. So, you're right on about it being a gold bubble. That's exactly what's happening at this point. Now, should you take advantage of that? Absolutely not. You never know when a bubble will burst, but trust me - the bubble will burst on gold.

Here's what happens during a bubble, using the real estate market as an example. Several years ago, Las Vegas was the fastest growing city in North America. People were drawn by the flashing lights and the commercials. Most of them didn't know the city had a vibrant, legitimate economy without all the gambling and glitter. There was a gold rush mentality when it came to buying property, and an irrational level of excitement drove the prices. In the end, it was a lot like playing musical chairs. The music stopped, and lots of folks were left without a seat. Someone gets booted every time!

A lot of this stuff about gold comes from the foolish idea that it's the standard the world is based upon. This simply is not true. Gold is not the standard that wealth is based on, and it hasn't been since the days of the Roman Empire. Gold has no intrinsic value. As a matter of fact, silver is probably a better investment. It's being used like crazy in manufacturing for microchips and other products, and because of this has an actual mechanical, utilitarian value.

I work way too hard for my money to mess around and see it disappear in the blink of an eye. That's why I don't mess with bubbles. When it comes to investing, I want to be the tortoise - not the hare. I'm going to invest in things that are steady, slow, and have long track records of success!

-Dave