4/3/2006

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

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

"How can we stay afloat and avoid stupidity?"

Dear Dave,

My husband and I have been married for nine years, and we’ve recently started our own graphic design company. We’re beginning to make a little money, but we have two car payments – a balance of $6,000 on one and $8,000 on the other – in addition to a mortgage payment. What can we do to make sure we don’t do something stupid and go under?

Sharon

Dear Sharon,

The two car payments are a little alarming. Now, if you turn around and make $200,000 profit it’s not so bad. But if you only make $20,000, then those are big problems. 

The first thing I’d do is sell the car that you owe the most money on, because if you make a bunch of money it’ll be pretty easy to go out and buy a good, used car. Right now I’m trying to keep you from sinking, but you’re trying to swim with ankle weights and no life jacket. You can get away with that for a while, but sooner or later you’re going to get tired. I want to get at least one of those weights off of you so you don’t drown.

Another thing you need to do is really prioritize the money you’re going to make from this company. Don’t spend a bunch of it right off the bat, because you need to bring as much home as possible. Set aside a fourth of what you make for taxes each quarter. Also, set up a separate checking account for the business, and make sure all of the money from the business goes into that account and all the expenses for the business comes out of that account. What’s left is called profit.

The next step is a fourth-grade civics lesson for the home. Make sure you take care of the necessities like food, shelter, utilities, house payment and that remaining car payment. You may have to put things like cable television, vacations and eating out on hold for a while if you’re serious about making this business work. This is a fun, but critical time in your lives, Sharon. You guys have to hardcore prioritize what it takes to stay alive and keep the dream alive. Good luck!

- Dave

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