Dave Ramsey what should we do with our money. We owe 10,000 on our truck and have 16,000 in our savings?

We have no other bills other than our truck. We are 21 years old with 2 kids and in the USN. We recently came to 16,000 in our savings and want to do something with it. We don't plan on buying a house soon and realize that even with the 3.9% interest on our truck we can draw interest if we put our money away. So, any advice as to how we should invest our money, or if we should?

Half or more of these posters are going against all Dave Ramsey stands for.

Step one: Put $1000 in the bank for the small emergency fund

Step two: Pay off all debt. So since you only have the truck, pay the 10,000 off (you will now have 5000 left).

Step three: 3-6 months of expenses in your fully funded emergency fund. With the $5000 left from paying of the truck and the $1000 in the baby emergency fund (total $6000) you will be about 1/2 way to a fully funded emergency fund.

Since you don't own a house, Dave calls this baby step 3b. Then you want to start putting away money for a down payment, at least 20% and only get a 15 year mortgage.

And then you do step 4 & 5 together (15% of income into retirement, start with Roth IRAs) and money in an educational ESA for your children's education.

Your emergency fund needs to be in simple money market accounts. Accessible for the emergencies (car breaks down, furnace goes out, etc). The savings for the house if you plan on buying in less than 5 years also put it in an money market account. Only put money in mutual funds when you can leave it for more than 5 years.

You may be asking, why are all the Ramsey fans say pay off the truck when we can "make" more money in investments because the 3.9% rate is small. They aren't taking into account risk. What would happen if you had put all your money in mutual funds or retirement funds with out having an emergency fund and then the truck broke down? You would have to withdraw your retirement at a huge penalty. Also what if either of you lost a job or became disabled and you still had 10k in debt hanging over your head. It is much better to be debt free and have an emergency fund. Cash is king in today's society but you need to be out of debt and not have the worries of debt.

I assume USN is United States Navy. First, thank you for your service. Second, if either of you are to be deployed and then (God forbid) disabled in our wars/conflicts, the last thing the non-wounded spouse and kids need is the worry about how to pay for the stupid truck. If they had the emergency fund the non-injured spouse could take some time off to help care for the disabled spouse and have money to live on.

Last bit of advice for the house, Dave wouldn't suggest you buy until you both stop moving around. If you are going to be stationed at one place for over 4 years, then look for a house (when you have 20% down and able to afford a 15 year fixed). But if you are going to be moved around alot, keep renting or base housing and keep stashing money away for a down payment.

Read his book: The Total Money Makeover. He also has a special FPU (financial peace university) just for military people.

Good luck and be weird- be debt free and use cash!

No debt is better than being in debt.

Pay off the car debt. You can probably save about 500 dollars a month having no car bills.

500 x 12 = 6,000 a year

Then you can invest that money and gain full interest + compounding in savings. You'll save a lot more in the long run having no debts.

That 3.9% interest you owe will go in your pocket instead of paying the bank. That's how banks make money and you're making them richer. It might look small but it adds up in the long run.

Pay yourself 3.9% instead of giving it away for free to greedy banks.

If you don't pay the debt and put the money in a 5% APY savings.
If you compute it..

5 minus 3.9 = 1.1

You make 1.1 % off the difference!!! WOW!!!

You could be making a full 5% on your money right now having no debt.

so.......which is a better choice?

1) you don't pay the debt = 16,000 x 1.1% = 176 annual return
2) you pay the debt and use your current money to make money = 6,000 x 5% = 300 annual return

Since you mentioned Dave Ramsey, you must be familiar with his ideas and philosophies. If you agree with them, then I'd say it's a no-brainer.

1. Do you have your emergency fund set up and fully-funded? If not, use the $16,000 to establish a baby emergency fund of $1000.

2. If you already have your $1000 emergency fund in savings, then pay off the truck.

If you've paid off the truck and you set up a $1000 emergency fund, then you've got the opportunity to get set up with your emergency fund that contains 3-6 months worth of expenses.

A good place to park money is Amboy Savings Bank in Amboy, NJ (link provided below). You make electronic deposits and withdrawals on their web site, and it pays 5.25% interest.

absolutely do no pay off the truck. today cash is king. if you pay off your truck and if some opportunity comes up later that requires cash, then you won't have it. keep the cash and put it in an online HSBC savings account, yielding 5 or 6%. that let's it grow risk-free, while leaving open the possibility of using the money later.

I would Pay off the truck It will save you money because the money you have coming in won't go to truck payment and you can save that extra cash that you won't be paying on truck. the remaining 6000 I would put in high intrest savings account till stock market gets stable again in a couple months. In this time I would learn all I could about the stock market because with these big drops when it corrects there is going to be serious money to be made there.

If your 16K that you have could earn you more than 3.9%, then do not pay the debt because you are actually coming ahead. However, if you have an itch to go out and spend the 16K, then I would prefer that you pay off the debt. Sit down for a few minutes and reflect on how you dealt with money in the past and you'll find your answer.

My advice would be to open 2 accounts in your kids names like at Charles Schwab for example and deposit 8k in each account and have it invested in a diversified mutual fund portfolio.

As the market takes a step back in the next few weeks, it is a good time to enter the stock market.
Hope this helps
Boudames

I'm glad I stopped in.
Keep the truck loan, it is cheap money.

Since you're in the military, you don't have some of the things to worry about that civilians do.

Make sure you have enough life insurance to put the kids thru college.

The best all around investment vehicle I have seen that would work well for you is called "equity-indexed annuities".

Principal is guaranteed by insurance company.
Guaranteed interest rate
Add'l income through market increases, yet no loss of these gains ever.
Up to 12% bonus available for initial deposit. This would turn your 16k into over 18k to start compounding.
Withdraw up to 10% yearly.
Make regular deposits PRE-TAX.
Great to start this for your retirement. You kids couldn't do better.
Open the account with at least $5k

Good Luck

The real question is what are your financial goals. Do you want money for your kids college...then someone wrote about about putting the money away for them.

You may, in time, want a house. 16k is a decent downpayment.

Someone suggested paying off the truck completely. I disagree. Virtually any investment vehicle (even a CD or money market account) earns more than 3.9%. Having said that, would you rather earn say 5% on 16k (keep truck loan) or earn 5% on 6k (pay off the truck). You cannot include the actual truck payment here as it does not come out of savings...that would imply that you put money in savings at the beginning of the month only to take it out within 30 days to pay the note...makes no sense. So cash paid to the note does NOT come from savings.

I vote put th money in a CD or money market and sit on it until you figure out what you want to do.

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