Dave says: Follow the financial plan that works and gets you to your long-term goal

Dear Dave,

I just started Baby Step 3 of your plan. It took me about 12 months to pay off $8,000 in debt during Baby Step 2. I’m 50 and work in the printing industry to earn about $38,000 a year in a tax-free town. local or national income. I haven’t done much about retirement yet, and it worries me now that I’m learning to manage money smarter. How can I stay on track with small steps while doing something for retirement?

Blake

Dear Blake,

I typically look at a six month to one year timeframe to save a fully funded emergency fund. So if it took you about a year to pay off $10,000 in debt, you’re probably looking at about the same time — or less, since the debt is gone — to save an emergency fund. Keep in mind that an emergency fund is three to six months expensesno income.

But here’s the thing. If you’re starting to build your retirement now and you have an emergency, do you know what you’ll be using? Yes, you will use your retirement. That’s why an emergency fund comes before retirement in Baby Steps.

The median household income in America is around $68,000, and that’s often two incomes. You’re probably working pretty hard for that $38,000, so I challenge you to think and work on something you could do in the near future to earn that much money or more.

I want you to open your mind and your imagination, and start thinking again. Don’t do something stupid like quit your job today, but if you’re going to make $38,000 in five or 10 years, it’s time to aim for something else.

I’m trying to talk about your retirement fears and caution you against going into retirement without having an emergency fund in place. Save a solid emergency fund over the next year, while thinking hard and setting goals.

Maybe you would like to do something completely different, or even own a printing press at that time. Who knows? The cool thing is, you can do it, and the choice is yours!

— Dave

AMD insurance? No thanks

Dear Dave,

My wife and I both work and have looked at term life insurance policies. A friend says it would be a good idea for us to also have accidental death and dismemberment insurance. Do you agree?

Aid

Dear Aiden,

You both need good term life insurance policies. Stick with 15-20 year term life insurance and make sure the coverage is separate from anything provided by your employer.

Each of you needs 10 to 12 times your annual policy-covered income. If you earn $50,000 a year, that means you need a policy with coverage of $500,000 to $600,000. The idea of ​​life insurance is to take the place of income. If you or your wife died, the other could invest the insurance money and replace that lost income.

You don’t – I repeat, do not—need accidental death and dismemberment (ADD) insurance. These policies are cheap, but they are pretty much worthless due to the long list of conditions they habit to pay for. Most only pay a small portion for dismemberment, and many won’t pay a death benefit if you die from a medical procedure, medical condition, or drug overdose. The devil is in the details, and AD&D policies are full of them.

If you have long-term disability insurance, which I recommend, you may be covered for a substantial portion of lost income due to injury or disability. A study indicates that 25% of today’s 20-year-olds will become disabled by age 67. In my mind these odds are way too high for you to skimp on long-term disability insurance, especially when it’s very affordable in most cases. If you’re in your prime earning years, a permanent disability could derail your dreams of owning a home, paying for your child’s college education, or having a dignified retirement.

Hope this helps, Aiden!

— Dave

David Ramsey is a seven-time national bestselling author, personal finance expert and host of The Ramsey Show, listened to by more than 18 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business and many more. Since 1992, Dave has been helping people regain control of their money, build wealth and improve their lives. He is also CEO of Ramsey Solutions.

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