Dear Dave,

Last year I got a divorce. I’m 32, a teacher and a single mom. I’m on Baby Step 2 right now, and I was wondering about life insurance. My son is only two, and if something happened to me, he would go to his father. His dad is in good shape financially and responsible with money, so how much life insurance should I have?

Christian

Dear Christian,

Well, you probably don’t need the full 10 to 12 times your income like I recommend for most people. The only dependent you have is also dependent upon his dad. And from what you said, his father seems perfectly able to take care of him.

I’d get a good term life policy equal to the amount that you’d like to supplement your son’s care. The good news is you can get a couple hundred thousand in life insurance at your age for practically nothing.

If you get life insurance, make sure his dad—your ex—is not the beneficiary. The beneficiary should be a family trust, formed upon your death, and the money would go into that trust for the benefit of your child. You set the terms of the trust. It should not be controlled by your ex. In a divorce situation, I would never name someone I’m not willing to be married to the trustee of my money on behalf of my child. 

I’m so glad you’re thinking about these things, Christian. It shows you’re an intentional lady, a fine mom, and a good planner. Those traits will serve you and your son well! 

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dear Dave,

We’d like to start preparing for the future, but our debt is preventing us from investing for retirement. Would it be okay to use a home equity line of credit to start investing? We were thinking the eventual returns might justify doing this.

Nick

Dear Nick,

No! Never put something as important and meaningful as your home on the line just for the sake of investing. Do not borrow against your home!

I’m guessing you’re new to my way of doing things, so let’s start from the beginning. First, follow the Baby Steps. Getting $1,000 in the bank as a starter emergency fund is Baby Step 1. Next, pay off all your debts from smallest to largest—except for your home—using the debt snowball method. That’s Baby Step 2. It’s time then to revisit your emergency fund, and bulk it up to a full three to six months of expenses in Baby Step 3.

Now, it’s time to really start thinking about your future and retirement. In Baby Step 4, take 15 percent of your gross household income and start investing it for retirement. Start with your company’s 401(k) plan, up to the full employer match. Then, invest the rest into Roth IRAs. One for you, and one for your spouse, if you’re married.

Here’s the thing, Nick. Investing becomes easy at this point, because you’ve freed up your income. And that’s the most important wealth-building tool you have!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dear Dave,

What percentage of our income should we save for our kids’ education? We know you recommend setting aside 15 percent for retirement, but do you have a similar rule that applies to paying for college?

Andrew

Dear Andrew,

I don’t really have a rule, or percentage, for how much you should save toward a college fund. If you’re following the Baby Steps, I recommend getting 15 percent of your income going toward retirement before saving for college. After you’ve got your retirement savings rolling, put what you can, based on your own unique situation, toward college funding.

If you’ve got teenagers in the house, you need to get serious about college funding soon—like right now. There’s no rush if they’re toddlers, but you might want to start looking at things like a 529 or an ESA (Education Savings Account).

The thing is, there are just too many variables, the main one being the ages of the kids, to set a strict percentage. You’ve also got to consider things like where you’re thinking about them going to school, how much you want to save, and other factors.

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Dear Dave,

Is it okay to combine finances with someone and start working on a budget before you marry them? I just got engaged, and we’ve been talking about the idea of getting a head start on our finances together.

Autumn

Dear Autumn,

First, congratulations! I hope you two will have long and happy lives together. Now comes the hard part. But you asked for my opinion, so here goes.

No, it’s not a good idea to combine finances with anyone you’re not married to. Don’t get me wrong, I’m glad you two are thinking about your finances and your future—and I’d never wish anything bad for you—but all kinds of things can happen before you become husband and wife. What if you spend time paying off his debt, or vice versa, then the relationship doesn’t work out?

However, this doesn’t mean you can’t begin working together on budgets for the future, and planning and dreaming about the goals you have together. The thing to keep in mind is you’ll both need to be operating in full transparency mode to make it happen. He should know all about your income and debts, and you should know all about his. Along the way, you two need to have serious, regular discussions about saving, spending, and debt to ensure you’re completely on the same page with your finances before the big day.

There you go. My advice is both of you should pay only your own bills until after you’re married. And remember, once that happens there’s no yours and his anymore—it all becomes ours.

—Dave