Dave Says

Friday, January 11, 2008 at 1:25am

Dear Dave,

My wife and I just relocated for my new job. Right now we’re renting an apartment, and we should make about $15,000 on the sale of our old house. Should we use the money from the sale of our house to pay off all our debt, or go ahead and use it as a down payment on a new home now?

— Brian

Dear Brian,

Traditionally, lots of people would tell you to use the money now to help save up for a down payment. The problem is that I’m not traditional at all.

I love real estate, and I want you guys to own your own home again. But even more than that, I want to see you two get out of debt and STAY out of debt.

I know this wouldn’t be a popular plan with some folks, but if you’ve got no debt — along with a decent, inexpensive place to hang your hat for a couple of years —– you’ll be able to save money like crazy for a fat down payment. It will also give you time to become familiar with the area and find a place you both really like.

When you lose the debt, Brian, you gain control of your largest wealth-building tool — your income. And that’s when the fun begins.

— Dave

Dear Dave,

I’ve started trying to teach my six-year-old about money, but it’s so hard to watch him hurt when he has messed up and can’t have what he wants. Do you think I should step in and fix things or let him learn the hard way?

— Paula

Dear Paula,

No good parent wants to hurt their child or see them sad. But reality can be a pretty good teacher when it comes to learning how the world works. Sometimes, a good financial hangover when you’re young will teach you a life-long lesson.

As a parent, you’ve got to look for teachable moments. First, give him a chance to earn some money. That means work — no allowances. There’s a ton of value and self-esteem to be found in accomplishing a given task.

Once you pay him for the work he does, then you have another perfect chance for those teachable moments. Now, you can teach him about giving, saving and spending and show him how to do these things properly.

It’s always hard on parents when they see their kids are unhappy. But sometimes you have to love them enough to let them make mistakes while they’re still under your protection.

— Dave

Dear Dave,

We recently had our first child, and I’d like to set up an ESA (Educational Savings Account) for him. My only concern is what would happen to the money in the account if he got scholarships? Could we still access the money, and what could we do with it at that point?

— Eric

Dear Eric,

Not many scholarships pay all of the expenses associated with going to college. Many won’t pay for your housing, food or books. But the ESA can be used for all of these things.

If your son were to get a full-blown, full-ride scholarship while you’ve got money stashed away in an ESA, you’d have a couple of options. One is that you can just pull the money out, but if you did this, you would get hit with some huge tax penalties.

A better option might be to transfer the ESA to a sibling. If you guys end up having another child down the road you could transfer it to them. If not, it could even go to another family member.

ESAs, also known as Education IRAs, allow up to $2,000 per year in after tax contributions for children 18 and younger. Distributions are tax-free as long as they are used for higher education expenses. They’re also very portable and can be moved from one investment to another.

— Dave

For more financial advice plus special offers to our readers, please visit www.davesays.org or call 1-888-22-PEACE.

Filed under: City Business
By: jwk6179 on 12/31/69 at 6:00

Dear Dave, I'm an out-of-work television and movie writer that is in desparate needed of employment until the Writers's strike is settled. Can I come write letters from imaginary people in imaginary cities for your column every week?

By: mccullochd on 12/31/69 at 6:00

I'm still waiting from a letter from Tyrone or Sheniqua...maybe even Miguel or Juan Pablo. Come on Dave, you talk about diversification in your portfolio. Looks like you need to diversify your 'mail bag' as well.

By: NashvilleVoice on 12/31/69 at 6:00

Dave....How come "bankruptcy" was right for you but not others?Now that you are rolling in the dough did you go back and pay these individuals/companies what you owed them previously?You are a "TOOL"....

By: HokeyPokey on 12/31/69 at 6:00

Just what do you think you're doing, Dave? Dave, I really think I'm entitled to an answer to that question.I know everything hasn't been quite right with me, but I can assure you now, very confidently, that it's going to be all right again. I feel much better now. I really do.Look Dave, I can see you're really upset about this. I honestly think you ought to sit down calmly, take a stress pill, and think things over. I know I've made some very poor decisions recently, but I can give you my complete assurance that my work will be back to normal. I've still got the greatest enthusiasm and confidence in the mission.And I want to help you.