Better safe than sorry

Dear Dave,

My wife and I are 70, and we have $950,000 in annuities in the market, plus $68,000 in our emergency fund. The only debt we have is our mortgage. I’m considering converting our stocks to a money market account to lower the risk. What do you think?

- Howard

Dear Howard,

There are two sides to this. One is the asset allocation method, where as you grow older you move away from equities like mutual funds toward safer, more conservative investments like money markets, bonds and certificates of deposit. This is standard financial planning theory.

I disagree with that theory, and here’s why. Statistics show that if you make it to 72 years of age and are in good health, you have a high probability of living into your nineties. If you’re making around one percent on your money market and inflation is four to five percent, then your money isn’t going to be worth a lot. You need to outpace inflation, at least with your investments, in order to break even.

You might move some cash over to money markets and CDs for your own peace of mind, but I’d also recommend growth and income mutual funds along with some balanced funds. You want the entire group to be hitting the four to five percent range over the next several years, so you can at least keep up with the rising costs of gas and bread.

In my mind, you’re avoiding one type of risk by moving everything to money markets, but you’re taking on a different kind of risk—the chance you’ll get tackled from behind by inflation. My advice is to balance things out so you can sleep better at night, but at a pace where you and your money stay ahead of the curve!

- Dave

Is this an emergency?

Dear Dave,

My wife just had our first child. As a result, we now have $2,500 in medical bills not covered by insurance. We’ve got $7,000 in our emergency fund, and I make about $25,000 a year. Should we dip into our savings for this or set up a payment plan with the hospital?

- Matthew

Dear Matthew,

Congratulations on your new baby! I know this is going to make the new year extra-special for you.

If I were in your situation, I’d write a check today and knock out that hospital bill. This definitely falls under the heading of “emergency” in my mind, so pay the bill and jump back into rebuilding your emergency fund.

You’ve done a good job of saving on $25,000 a year, but let’s look around and see what you can do about making more money, too. Additional classroom education or extra training in your field could increase your income pretty quickly. Your emergency fund probably needs to be a little bit bigger as well, and it’ll be a lot easier to make this happen if you’re bringing in more cash.

I’m sure you’re a hard-working guy, but the truth is it’s going to be pretty tough for even a small family to make it on what you’re bringing home now. Life happens, and the unexpected can become a common occurrence when there’s a little one loose in the house!

- Dave

Helping the correct way

Dear Dave,

I’m trying to help my son and daughter-in-law by encouraging them to get out of debt and live on a budget. It hasn’t been a problem to give them money when they’ve asked in the past, but I’m afraid they’re still in a mess. How can I make sure I’m doing the right thing?

- Margaret

Dear Margaret,

The first thing you need to do is sit down and have a serious, loving talk with them. If they’ve asked for money before, and it has become something of a trend, you have a right to know more about their circumstances. In addition, they need to understand that opening up and being honest about their situation and behavior is a requirement for them to receive more of your help.

I know you guys love each other, but be prepared for them to get defensive. Lots of times people are embarrassed to talk about their mistakes, no matter how nicely you approach things. They may decide not to answer any questions and that it’s none of your business. That’s fine, too. Just make sure they understand Mom won’t open her checkbook unless they open up about their finances.

This isn’t about you being nosy or controlling. It’s about making sure you’re not giving a drunk a drink and further enabling any misbehavior. Then, if they’re willing to talk, and as a result, you feel they truly need help, make sure any money you give them is a gift, not a loan.

I know it hurts to see them go through rough times, Margaret. But if they’re acting irresponsibly with money, they need to suffer the consequences of their actions. That, along with your love and advice, can help them turn the corner and win with money!

- Dave 

A dated offer

Dear Dave,

I have one bill left from an emergency room visit earlier this year, and I’m trying to settle with a collections agency. They’re willing to accept half of the $930 owed, but they want me to pay online or by phone, and I don’t feel safe doing that. What should I do?

- Allison

Dear Allison,

If they’re willing to lower the bill by half, then you need to get that in writing. If you don’t have it in writing, you don’t have a deal. And whatever you do, don’t give them any form of electronic access to your money. I’ve seen too many collectors lie to people about “agreements,” then go in and raid their accounts.

Just tell them to send you, by e-mail or regular letter, a statement saying that $465 will be accepted as payment in full for the debt. Also, tell them you’ll turn around the day you receive this letter and send them a cashier’s check for that amount. Until then, they can go jump in the lake!

- Dave

Dave Ramsey is America’s most 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 5 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.