Our daughter is 11 years old, and we save $50 a month for her. Right now, we’ve accumulated $4,200 for college, a car or just savings in general. Should we be investing this money, instead of putting it in a savings account?
If I’m in your shoes, I’d choose college as the focal point over the other things you’ve mentioned. My advice would be to move that money into a 529 Plan with mutual funds inside. That way, it will grow tax-free from this point forward. Then, if you continue to set $50 a month aside for her for seven more years – and the stock market averages 11 to 12 percent – you’d have about $16,000 sitting there when she turned 18. That wouldn’t fully pay for college, but it’d be a great start. Plus, she can apply for scholarships and grants and work and save to help make it happen.
As far as a car is concerned, I’d set up a separate savings account and agree to match whatever she saves. That way, if she can put aside $3,000 to $4,000, with the match she’ll have a pretty nice car. But in my mind, college is the most important thing here. If you guys can afford these contributions, and she wants to go to college and will hold up her end of the deal, you can work together as a family and make the idea of a college education a reality!
Should families who are struggling to pay off debt still give their kids commissions for doing chores?
Yes, but it doesn’t have to be a lot of money. Kids seldom get paid an amount that is equal to what the chore is worth. To be perfectly honest, the chores most kids do – especially the little ones – aren’t worth that much. I wouldn’t pay a kid five dollars a day, or even per week, to feed the dog. I mean, it takes less than 30 seconds to scoop the food into the bowl.
When it comes to paying kids commissions for chores, the biggest thing we’re trying to do is find teachable moments. We want the kids to learn that money is tied to work. Then, when they have some money, we want to teach them about the three uses for money – spending, saving and giving.
Teaching them wise ways to do those three things while you’re teaching them to work is the key. And you can do that for a small amount of money.
How long should it take someone to fully fund their emergency fund?
On average, building an emergency fund takes six months to a year. It takes about 18 to 24 months for most people to pay off all of their debt, except for the house. That’s if they’re gazelle intense, and have no life other than getting control of their finances.
Baby step No. 1 is saving $1,000, and not paying extra on your debts until you have that money in the bank.
Once you’ve got a $1,000 starter emergency fund, then you list all of your debts except the house from smallest to largest and attack them with a vengeance. All you do is work and pay off debt until you clean up the mess. Once that’s done, you move on to the next baby step, which is adding to your emergency fund until you have three to six months of expenses set aside. Most people can accomplish that in six months to a year.
There are always various factors involved because everyone’s situation is different. But in most cases, if you approach my plan with the kind of intensity I talk about, you can become debt-free except for your house and have a fully-loaded emergency fund in place in just two or three years.
• Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: “Financial Peace,” “More Than Enough,” “The Total Money Makeover” and “EntreLeadership.” “The Dave Ramsey Show” is heard by more than 6 million listeners each week on more than 500 radio stations. Follow him on Twitter at @DaveRamsey and at daveramsey.com.