Pick Your Community: | Hopkins | Muhlenberg | Daviess | Christian | Fayette | Henderson | Lakes | McCracken | Warren | Webster
Davis Motor Sales banner ad

Dave Says - Invest Now or Pay Off Debt

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 2014 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 by using one of the social media links below.

In Other News...

Fenton Campground Re-Opens to the Public

GOLDEN POND, Ky. (7/30/14) — Fenton Campground will re-open to the public today. Fenton was closed following… Read More

Homeplace Events and Activities

DOVER, Tenn. (7/29/14) — Labor Day weekend 2014, join The Homeplace in celebrating the hard labor and handmade skills… Read More

Most Read This Week (Site-Wide)

July 30, 2014 3467

Three Arrested in Muhlenberg as Part of…

in Top Stories by GPD Officer Wes Miller
July 28, 2014 3428

Madisonville Woman Arrested for Being a…

in Top Stories by Madisonville Police Department
July 30, 2014 3195

UPDATE: Waide Responds to Allegations of…

in Top Stories by Rita Dukes Smith, SurfKY News Director
July 28, 2014 3003

Madisonville Man Arrested for Endangering…

in Top Stories by Madisonville Police Department
July 28, 2014 2530

Disagreement Over Killing Snake in House…

in Top Stories by Madisonville Police Department

Most Read Stories from Hopkins County

July 28, 2014 3428

Madisonville Woman Arrested for Being a…

in Top Stories by Madisonville Police Department
July 28, 2014 3003

Madisonville Man Arrested for Endangering…

in Top Stories by Madisonville Police Department
July 28, 2014 2530

Disagreement Over Killing Snake in House…

in Top Stories by Madisonville Police Department
July 28, 2014 1726

Madisonville Man Arrested for Assault,…

in Top Stories by Madisonville Police Department
July 28, 2014 1722

Two Injured in Vehicle Collision on…

in Top Stories by William Roundtree

Most Read Stories from Owensboro

July 28, 2014 1187

Zuberer Takes Over at Quarterback for…

in News by Steve LeMaster
July 28, 2014 1045

Dont Miss Out on a Howl of a Good Time

in News by Brittni Bunn
July 28, 2014 923

Instant Admissions Day is Aug. 1, 2014

in News by Bernie Hale
July 29, 2014 750

Happenings and Meetings - Daviess County

in News by Owensboro-Daviess County Convention & Visitors Bureau
July 28, 2014 449

Prosecutors Mull Over Whether to Charge…

in Top Stories by Dennis Beard, SurfKY News

Most Read Stories from Muhlenberg County

July 30, 2014 3467

Three Arrested in Muhlenberg as Part of…

in Top Stories by GPD Officer Wes Miller
July 30, 2014 2239

UPDATE: Muhlenberg Man, Woman Arrested in…

in Top Stories by Sheriff Curtis McGehee
July 28, 2014 1437

Foot Pursuit Ends with Arrest

in Top Stories by Christopher Rogers
July 29, 2014 1357

Muhlenberg District Court Fines Handed…

in Top Stories by Charles W. Riley II, SurfKY News
July 28, 2014 1348

Boys of Broad to Launch Video at Cinema 4

in Top Stories by Paul McRee, SurfKY News

SurfKY News Group, Inc. Central Office & Printing Division
1125 Nebo Rd.  •  Madisonville, KY 42431  •  270.452.2249 (fax)
Main Number: 270.452.2727 (phone)  •  Printing Division Direct Line: 270.821.8600 (phone)

SurfKY Owensboro News Bureau
920 Frederica St. / Suite 210  •  Owensboro, KY 42301  •  270.683-8060 (phone)


Contact a member of our staff: www.surfky.com/contact
Copyright © 2014 SurfKY News Group, Inc.  •  Terms of Use  •  Site Map

social 06social 21social 22social 04social 03