Our daughter is in high school, and she has a car and a part-time job nights and weekends. We’ve worked with her on saving, spending and giving, but should a teenager have an emergency fund, too?
If so, how much do you recommended them setting aside?
A. This is a great question! I’m glad to know you’re working with your daugther and teaching him wise financial habits. I always recommend an emergency fund of three to six months of expenses for adults, and I think that’s a fair expectation for teens, as well.
He won’t need as big an emergency fund as a married couple with kids if his expenses consist only of those connected to his car and social life. So, I’d suggest her saving up three months’ worth of what it takes to operate the car—gas, insurance and maintenance. I think those are fair financial responsibilities for a responsible teen in his situation.
Your Income is the Key
I have $100,000 in student loan debt. Since the amount is so large, is there a special place in your Baby Steps plan for it?
A. I hope you have a nice, large income with which to fight that big pile of student loan debt. I’ve seen even worse situations, though. I’ve talked to people who went $200,000 into debt for a four-year degree in a field where they’ll make $45,000. Yes, that kind of thinking and behavior is out there, and it’s ridiculous.
The fact that it’s a large amount of student loan debt doesn’t change anything. Baby Step 2 is where you pay off all debt except for your home. So, don’t let this student loan debt hang around for years and years. You’ve got to get focused and intense about getting control of your money. That means living on a strict, basics-only monthly budget. After that, start throwing every nickel and dime you can scrape together, and save toward paying off those student loans as fast as possible.
Your income is your largest wealth-building tool. You can’t save, and plan for the future, when all your money is flying out the door to pay off debt.
Author: Dave Ramsey
David Lawrence Ramsey III is an American radio show host, author, and businessman. He takes your questions here each month.
