Dave Says Knock Out that Hospital Bill

Townhall.com ^ | January 1, 2013 | Dave Ramsey

[Kaslin]

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

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

[sr4402]

Yes, the benefits of Dave Ramsey's ministry is AWESOME!

We too are completely debt free (paying off all debts after 5 years of work!).

As another example of what it is like on Step 7. You save for what you need and then you bargain with leverage. We needed a new roof, siding and garage doors. All looked terrible and were just about completely worn out.

'Normal' would have taken a Home Equity loan and been dumb with Debt. But we started a 'RoofSidingGarage' savings account with automatic deposits and started dumping as much as we could; just as if paying off debt (except for the beans and rice). The three held up for a year and a half and we saved up $17,000 for the project and just got it done.

This is definitely "Weird"!

Here are some photos if you would like to see: https://www.dropbox.com/sh/1744ljejwloa73o/Hx3BUHR1au

[CSM]

Great job! I bet you were able to negotiate a great deal too!

[radiohead]

I’m with you about paying it off, only I’d call to negotiate it down, then get rid of it. With his small salary, I’d want as few monthly payments as possible. And if something major goes wrong that *has* to be paid, I’d rather not have the hospital bill hanging over my head.

Another option would be to negotiate it down, then pay it off over 3 months, not 12 or 24.