Dave Ramsey Steps 5, 6, 7. I'm there but not there

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Shmuck

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Age: 40
Annual gross income from employment or profession: 29k
Monthly take-home pay: 1900

Maintenance: 480pm (This is regular for now but is not guaranteed)

Child Benefit: 280 pm

Type of employment: Public sector

In general I am saving.

Rough estimate of value of home: 250k
No mortgage. I had good savings starting out. I have interest free borrowings of 70k to a family member. I pay them €200 a week.

No other borrowings.

Car value 13k. It's a few years old but I've no plans to change it.

Do you pay off your full credit card balance each month? Yes

Savings and investments: I keep 3k in my current a/c and I have an emergency fund of 6k (I could use this to pay off some of my loan but there's no urgency on the other person to get any more than the current arrangement). I have cash sinking funds of about 2k at the moment towards future costs – car expenses, house insurance, birthdays, Christmas, back to school.

Do you have a pension scheme? Yes. DB public sector, pre 2011, post 2004. However, because I am not working full time, my pension contributions are halved. If I continue with my reduced hours, I will have 21 years service at age 65. I may go back full time in the future but not while the children are small. I also have an AVC with Irish Life, current value 12k but that's just the value of my contributions to date, I haven't made any gains on it. In fact, it has just recovered from a loss. I currently contribute €200 pm to that. I don't know should I leave that or increase/decrease it. I have chosen a high risk plan. Maybe that's not a good idea but I'm not close to retirement.

Do you own any investment or other property? No but part of my home is pretty much a self contained unit that I could potentially use as an air bnb in time but I don't know how motivated I am to do that.

Ages of children: 6 and 5

Childcare: Both are in school and childcare around that is managed by family, fortunately.

Life insurance – no

Income protection - no

Health insurance – yes.

Should I insure my life or salary? I think there is some sort of Death Benefit were I to die in service and there is a Spouse and Child's element to my pension, although I don't have a spouse.

Where to from here? How can I best save for my children's education and futures? Should I be investing now in some way? My eldest will be finished school in 12 years followed a year after by my youngest.

For those familiar with Dave Ramsey, I am on steps 5 and 6 (Children's education and Pay off house early). I don't know how to get onto step 7! I wouldn't even know how to invest. I could go back working full time and earn more but I feel that I am in a very privileged position to not 'have to' do that right now but I might at some point when the children are older so that would increase both my take home pay and my pension and give us a better lifestyle in terms of holidays/life experiences. However, for now, I'm more present in my children's lives, can take them to sports etc and am able to do half of the school runs, which I think is fairly priceless. I know that I'm in a position that many are working towards but for some reason, I feel that I should be doing more somehow.

Any advice is very welcome.
 
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From your post, I am taking it that you are a lone parent.

So couple of things on that point, check up on the death in service benefit, hopefully it will never pay out, but it is a valuable contribution to your estate if needed. You can nominate who the benefit should be paid to.

Have you made a will? Have you appointed guardians for your children?

Consider additional term life assurance which will pay a lump sum if you pass away and your children are still minors.

You should also look at income protection. Some employers offer this as an add-on benefit, its worth checking.

Investments - I will leave to others to comment there.
 
If you are a typical PS, then the Death Benefit is 1.0 - 1.5x salary, if you die in service.
 
Love to see a fellow Dave Ramsey convert.

Think you are the first I've come across in AAM.

Take another look at your AVC. You might be in an ultra conservative fund or If you are paying more than 1% then have a think about moving it to another provider. ( Search LA brokers on AAM ). Even with the covid crash in March you shouldn't have made a loss based on returns over the last few years.

I'd also second the advice given by Thirsty above.
 
Thirsty said:
From your post, I am taking it that you are a lone parent.

Yes

So couple of things on that point, check up on the death in service benefit, hopefully it will never pay out, but it is a valuable contribution to your estate if needed. You can nominate who the benefit should be paid to.

It's 1 to 1.5 times salary. I assume that would be on my lower salary but I hope not to die in service!

Have you made a will? Have you appointed guardians for your children?

Yes to both

Consider additional term life assurance which will pay a lump sum if you pass away and your children are still minors.

You should also look at income protection. Some employers offer this as an add-on benefit, its worth checking.

I will look into life assurance and income protection.

Investments - I will leave to others to comment there.
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Thank you
 
Laughahalla said:
Love to see a fellow Dave Ramsey convert.

Think you are the first I've come across in AAM.

Take another look at your AVC. You might be in an ultra conservative fund or If you are paying more than 1% then have a think about moving it to another provider. ( Search LA brokers on AAM ). Even with the covid crash in March you shouldn't have made a loss based on returns over the last few years.

I'd also second the advice given by Thirsty above.
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Thank you.
I only signed up to the AVC 3 years ago. I had been making higher contributions than I am now. It's in a risky fund and the fees rate is 1%.
 
I just had a look at the Dave Ramsey stuff; it seems like good common sense advice.

I like the fact that he suggests paying off debts in order of size rather than interest rate; it may not be the “by the book” answer but it’s probably smart from a human/behavioural perspective.
 
vandriver said:
How do you think you're on step 5,6 or 7,when step 2 is pay off all debt?
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She has paid off all debt. The mortgage (loan) is not counted for Step 2.

I followed DR for a long time and he helped me get my own Finances in order. When you get to 5.6 & 7 that's the tricky part as I found it doesn't translate as easily to Ireland. As the Mortgage (loan) is still hanging over you I would try and clear that as soon as possible just because it's a family loan. I get that it has zero interest and you could get a better rate elsewhere but if anything ever went sour with that person they could cause difficulties for you long term. Once you have that loan paid off you will have 200 extra into your hands every week and you can decide then what to do with it. I would also try and increase your Emergency fund to 10K as if you are a single parent, with two kids, you don't have someone else to fall back on. If the car died tomorrow, for whatever reason, you would need to replace the car straight away with another reliable car.
 
Live Well said:
She has paid off all debt. The mortgage (loan) is not counted for Step 2.

I followed DR for a long time and he helped me get my own Finances in order. When you get to 5.6 & 7 that's the tricky part as I found it doesn't translate as easily to Ireland. As the Mortgage (loan) is still hanging over you I would try and clear that as soon as possible just because it's a family loan. I get that it has zero interest and you could get a better rate elsewhere but if anything ever went sour with that person they could cause difficulties for you long term. Once you have that loan paid off you will have 200 extra into your hands every week and you can decide then what to do with it. I would also try and increase your Emergency fund to 10K as if you are a single parent, with two kids, you don't have someone else to fall back on. If the car died tomorrow, for whatever reason, you would need to replace the car straight away with another reliable car.
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'...... I have interest free borrowings of 70k to a family member. I pay them €200 a week.....'
That's what I'm talking about.Its not a mortgage,it's a loan,and could be called in at any time.
 
vandriver said:
'...... I have interest free borrowings of 70k to a family member. I pay them €200 a week.....'
That's what I'm talking about.Its not a mortgage,it's a loan,and could be called in at any time.
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I know, you are absolutely correct. I was taking the loan as her mortgage as it is what she pays for her house every week, hence she would be on Step 5. As you said it is actually a loan and could be called in any time.
 
I don't envisage any issues with the family loan as she was happy to give me the money without it being repaid at all but I'm fiercely independent so I have insisted on paying. But in any case, I could always get a personal loan to cover those borrowings should the need arise. Same for if the car needed to be replaced, I could get a car loan.

Dave Ramsey recommends an emergency fund of 3-6 months of living expenses so I wouldn't be too pressed on keeping a huge emergency fund. I live a simple life and have very few bills.

As per Dave Ramsey, debt free means everything but the house and he recommends that repayments should be no more than 25% of household take home income and for a duration of no longer than 15 years.

As it stands, the house will be paid off in 6-7 years. That's not bad going. I'll be 46/47 and my children will be heading into their teens. I can't pay the house off more aggressively on my current income and I don't want to work full time right now. I have a good work/life balance. I guess the thing that's most on my mind is having money for when my children are finished school. I realise I'll have an extra €200 pw in a few years time but the children will be getting more expensive at the same time so I might not see much left out of the 200! Should I be looking at a long term investment? Maybe reducing my AVCs (I only have tax relief at 20%) and putting the money towards a fund I can access in 12/13 years when the children will be heading off into the big bad world instead of having that 200pm locked away until I retire.
 
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Don't stick too rigidly to DR's steps, they are not a one size fits all. Some of the steps are common sense but blindly following them is not the right approach either. Steps 5/6/7 get just as much criticism as they do praise in the US. And some of these steps don't translate to Ireland, step 5 is about investing in a tax advantaged college fund which I'm not aware of anything like that here. It's also worth noting that DR has spent the majority of his adult life earning a very high income so always take the advice with a pinch of salt because it doesn't apply to you earning 29k with 2 dependents

There is no magical investment that will generate money for you so forget about step 7. The best 'investment' that you can make is in your income and you have 2 good options:
1. Return to full employment or increase hours
What would a full salary look like? Is it 40/50/60k? Can you add a few hours per week without impacting family life? This is much more valuable than any investment. It is sensible that you want to spend time with your kids now and be present for them (call this the 'giving' in step 7, you are foregoing income to give your time to your kids). But as they get a little older, 9/10, they will be a bit more independent so then you need to take on more hours again and definitely be back in full employment when they are in secondary school
2. Rent out the self contained unit
This is a no-brainer. If it is self contained and would not impact your family life, then you should definitely be doing this. It doesn't have to be airbnb with a lot of turnover of renters, why not try a 6 month lease and see how it goes?

I'm neither a fan or critic of Dave Ramsey but I'm pretty sure it was his large income that gave him options, not following his own steps so bear that in mind as to whether it is the right approach for you. If you read back through lots of the older posts on AAM then you will see a lot of people in similar situations to you

You said yourself that the maintenance is not guaranteed so I would at least try increase your own income to match that amount. If you did not have the maintenance, it would be fairly tight budget on €1900+280 while paying an €800/month loan
 
2. Rent out the self contained unit
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Should absolutely do this; forget AirBNB under rent a room you can get up to €14k per annum tax free.

and before everyone gets excited, self contained units are covered under rent a room:

What type of residence qualifies?

This page explains what properties are required to benefit from rent a room relief.
www.revenue.ie www.revenue.ie

Self-contained unit
The rented room or rooms can be a self-contained unit within the house, such as a basement flat or a converted garage.
 
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