Davis Motor Sales banner ad

dave says2 300KENTUCKY (2/23/14) – This week Dave discusses budgets and stock risk.

Dear Dave,

I went to medical school, and now I have $70,000 in debt. I just started a three-year residency making about $50,000 a year, while my wife makes $40,000. The student loans represent our only debt. Do you think we should be paying this off or investing in a Roth IRA?

David

Dear David,

If I were in your shoes, I’d work on paying down the student loans. That means you may never be in a Roth, but there are other things you can invest in and grow wealth.
I realize this may not seem right mathematically, but I don’t always make financial decisions based exclusively on math. Many times I do things based on changing money behaviors—stuff like paying off debts from smallest to largest because it actually works. Personal finance is 80 percent behavior, and only 20 percent head knowledge. So sometimes you have to go with what actually works best overall, in spite of what the technical math shows.

In your case, I think it’s going to be very valuable to have no student loans by the time you complete your residency. With three years to go, and living on a $90,000 a year income, you can do it. Then, when you come through the other side as a full-fledge doctor, you’ll have the great income and be sitting there debt-free. Not a bad place to be, right?
I understand the Roth seems like a pretty good idea right now, but my advice is to stick with becoming debt-free as quickly as possible. Once that’s done, you and your wife will be able to invest, save, and build wealth like crazy!

—Dave


Dear Dave,

My wife started working at a pharmaceutical company that gave her a few thousand dollars’ worth of stock. In the last year that stock has doubled in value. We’ve considered buying more just to see how it does. What do you think about this?

Robert

Dear Robert,

I understand why you guys would be excited, but you’re still looking at a very risky proposition. Any stock that doubles its value in just one year is highly volatile. It’s very unusual when things like that happen, and the fact is, it could go down in value just a quickly.

I think you should be completely debt-free, except for your house, and have an emergency fund of three to six months of expenses in place before you start any outside investing. You should also make sure that 15 percent of your income is already going toward retirement.

I don’t mind you dabbling a little bit as long as all the other stuff is taken care of first. But I’d advise you to never put more than 10 percent of your nest egg into single stocks. If you’ve got $50,000 in a 401(k) right now, limit yourself to $5,000 in this area. That way, if the stock tanks and you lose it all, it’s only a small blip on the radar. You’ll still be financially intact and able to retire with dignity.

It would be fantastic if this stock went through the roof and you two made a ton of money. That would be awesome! But make sure you limit the potential for damage by limiting your exposure. Don’t risk the family farm, as they say, to make this play.

—Dave

*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". His newest book, written with his daughter Rachel Cruze, is titled "Smart Money Smart Kids". It will be released April 22nd. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

Disclaimer: The content supplied by columnists and letters to the Editor on this site does not in any way, shape or form, implied or otherwise, necessarily express or suggest endorsement or support of any of such content, statement, or opinions therein. SurfKY News does not necessarily adhere to or endorse content provided by outside non-staff sources.

© Copyright 2015 SurfKY News Group, Inc. All rights reserved. This material may not be published, broadcast, or rewritten without permission. SurfKY News encourages you to share this story on social media.

springhour

In Other News...

LBL March Update for Openings and Events

KENTUCKY (3/4/15) — The predicted winter weather event due to hit our area mid-week, has prompted Land Between The… Read More

I-24 Traffic Backed Up From 46-65 MM Due to Crash, Snow Drifts

LYON COUNTY, Ky. (3/4/15) ― Due to multiple crashes and numerous slide offs, the traffic backup from a crash on I-24 in… Read More

Most Read This Week

March 02, 2015 9603

Madisonville Teen Faces Numerous Drug Charges

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Detention Center
March 03, 2015 5837

Three Arrested during Traffic Stop

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Detention Center
March 05, 2015 4473

State of Emergency Declared for Hopkins County

in Local (Hopkins) Top News by Leslie Curneal
March 05, 2015 4281

UPDATE: I-24 Open Between 50-45 MM

in Top News For All Sites Touching Hopkins by Keith Todd
March 03, 2015 3842

Sacramento Man Charged with Rape, Sodomy

in Local (Muhlenberg) Top News by Charles W. Riley II, SurfKY News
March 02, 2015 3792

HCSO, MPD Join to Bust Alleged Drug Trafficking…

in Local (Hopkins) Top News by Hopkins County Sheriff's Office

Most Read This Month

February 12, 2015

UPDATE: Name of Pennyrile Fatality Officially…

in Top News For All Sites Touching Hopkins by Doreen Dennis, SurfKY News
February 16, 2015

UPDATE: State of Emergency Declared for Kentucky

in Local (Hopkins) Top News by Rita Dukes Smith, SurfKY News Director

Stories Trending Today

March 05, 2015 4473

State of Emergency Declared for Hopkins County

in Local (Hopkins) Top News by Leslie Curneal
March 05, 2015 4281

UPDATE: I-24 Open Between 50-45 MM

in Top News For All Sites Touching Hopkins by Keith Todd
March 05, 2015 2636

Deep Snowfall Stalls Western Kentucky

in Top News For All Sites by SurfKY News
March 05, 2015 1985

Muhlenberg Issues State of Emergency Under…

in Local (Muhlenberg) Top News by Paul McRee, SurfKY News
March 05, 2015 1539

Dyno Nobel Makes $1,600 Donation to Want Not…

in Top News For All Sites Touching Hopkins by Tammy Holloway, SurfKY News
March 05, 2015 1426

Governor Declares State of Emergency

in Top News For All Sites by Office of the Governor
March 04, 2015 1168

I-24 Traffic Backed Up From 46-65 MM Due to…

in Local (Lakes) Top News by Keith Todd
March 04, 2015 1113

Gov. Beshear Warns Kentuckians to Prepare for…

in General News For All Sites by Office of the Governor
March 05, 2015 1112

KYDOT Believes as Many as 200 Vehicles Stuck on…

in General News For All Sites by Keith Todd
March 05, 2015 1098

UPDATE - Lady Mustangs Trample Lady Tigers in…

in Local (Muhlenberg) Top News by Steve LeMaster