11/16/2004

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

Do I Save money or buy a prearranged funeral?

Dear Dave,

Is it advisable to buy a pre-arranged funeral? 

Jane in San Antonio, TX



Dear Jane,

Prearranged is OK, but not prepaid. Prearrangement means we’ve just selected everything ahead of time so the relatives know I want the Chevy casket instead of the Mercedes casket. They’ll know where I want to be buried and what kind of vault I want. You’re essentially shopping for them in advance. That’s all prearranged is. 

I would never prepay a funeral. Funerals increase in cost about 4-5% per year. You can make more than that on your money by investing wisely. If you prepay your funeral instead of investing that money, you’re losing about 5-10% each year. So if you prepay a $6,000 funeral, it’s costing you about $300-600 per year of lost interest. The funeral home then gets the benefit of using your money instead of you getting that benefit. 

Now, this is supposing you invest wisely. If you have all of your money tied up in Certificates of Deposit earning 2% a year, then you would come out ahead prepaying your funeral because the yearly increase in costs outweighs your savings. However, I hope you’re investments are getting a better return than 2%. They should be. 

I’m not a fan of prepaid funerals for the reason that you’re tying your money up in a fairly low rate of return for what you could be getting with it.

Dave

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