Dear Dave,

I went through a divorce a couple of months ago, and I’m not sure what to do next.

I received custody of our kids, ages 13 and 15, plus I have a good job and I got the house in the settlement. It’s a nice, simple home, but it’s paid for and worth about $200,000.

I receive $1,400 a month in child support, and I got $125,000, which was half our savings. I have no other debt.

Most of my friends are telling me I should begin investing, but they all have different ideas about where I should put the money. Can you give me some guidance?—Michelle

 

Dear Michelle,

I’m so sorry to hear you’re going through this. Divorce is hard enough when it’s just a couple, but it must be incredibly difficult with kids involved.

Make sure you spend lots of time hugging on them, and telling them how much you love them. God bless you guys.

OK, I know your friends are just trying to help, but I wouldn’t follow their financial advice right now.

The trauma from your divorce is still fresh, and you should never make important, long-range decisions when your emotions are messed up.

If there’s anything positive in all this, it’s that you’re in a really nice place where your finances are concerned. You’ve got a good job, you have no debt and you’ve got six figures sitting in the bank.

My advice is to park that money in a CD until you feel you’re getting over the shock of what has happened. You won’t make much money doing this, but you won’t lose any, either.

Then, after some time has passed, I want you to find a good financial advisor — one with the heart of a teacher — and look into investing $25,000 in good-growth stock mutual funds.

I’m talking about ones with at least a 10-year track record of success.

Time and knowledge can help erase fear, Michelle. Plus, you’ve got a responsibility to yourself and your kids to invest wisely.—Dave

 

IT’S A BETTER IDEA TO PRE-PLAN

Dear Dave,

My husband passed away last year at just 45 years old. We always tried to be careful with our money, and we were in good enough shape financially that I paid for his funeral with cash.

A few days ago, I started getting letters from the funeral homes in town encouraging me to pre-pay for my own funeral. I’m 42, and in very good health, so is this a good idea?—Janet

 

Dear Janet,

My advice is to pre-plan, not pre-pay. Unfortunately, you learned first-hand how hard it is to make important decisions in the middle of that kind of grief.

Many times, people are so emotional when they face these kinds of things that they make bad decisions. That’s why pre-planning, and making decisions ahead of time, is a really good move.

Now, here’s why it’s never a good idea to pre-pay for this kind of thing. If you live to an average age, for what you’d prepay today at your age, you could invest the amount and be self-insured.

You’d have a ton of money sitting there when the time comes.

Events like this make you realize the need for proper planning, but don’t ever pre-pay for them. God bless you, Janet. I’m so sorry you’re going through this.—Dave

 

NO, THEY’RE NOT A GOOD DEAL

Dear Dave,

I have an emergency fund equal to six months of expenses. Considering this, would you consider an extended home warranty to be a waste of money?—Ami

 

Dear Ami,

My advice to have an emergency fund of three to six months of expenses, sitting in a good money market account with check-writing privileges, is designed to cover the unexpected things that life will throw at you.

The cash, combined with the easy access that kind of account allows, will make it quick and easy to take care of things in the event of a financial emergency.

Extended warranties, of any kind, are not a good deal and I don’t recommend them.

You’re better off to self-insure against things breaking down, and put what would have been profit for the extended warranty company in your own pocket!—Dave

 

DAVE RAMSEY has written seven best-selling books, including The Total Money Makeover. More than 16 million radio listeners hear him each week. Follow him at daveramsey.com.

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