Q. How important is saving money when you’re young and have a good income? If you’re just saving it, you’re not really doing anything with it, right?
A. I’m going to shoot straight with you. It worries me that you seem to think that you’re not doing anything with your money when you save it. Saving money is one of the most important things you can do with your money, because when you save you’re planning for the future and the unexpected.
Retirement may seem long way off right now, but think for a second how it would feel to have worked your entire life only to end up broke by the time you’re 65. If that thought doesn’t scare you, it should. Have you ever seen someone that age, or even older, sweeping floors in a fast food restaurant? Wrangling carts in the rain outside a shopping center? In most cases, it’s not because they love the job and meeting people. They’re doing it because they have to in order to make ends meet. Why? Because they did not plan for the future and save some money.
Let’s talk about a few other things. How will you get by if you’re laid off, or fired, from your job if you haven’t saved any money? What if your air conditioning unit goes out and needs to be replaced? Long story short, bad things happen when people are foolish enough not to save money.
How to Figure Life Insurance
Q. I’m currently in medical school doing my last year of residency. I’m looking at term life insurance like you recommend, but I have a question. Should I base the amount of coverage on what I’m currently making, or on what I think I’ll be earning once I’ve finished medical school and I’m working as a doctor?
A. In most cases, I advise basing the amount of life insurance coverage on the income you’re earning currently. After all, that’s the amount you and/or your family is used to living on. However, if you’re finishing up your medical degree, and about to become a full-fledged doctor, you’ll definitely earn more than you are as a resident—a lot more.
I recommend that people buy term life insurance coverage of 10 to 12 times their annual income. Considering your situation, I’d say you could afford to buy a little potential, if you know what I mean. Instead of basing it on your current income, you might consider doubling the amount for starters just to safe. It will still be good, cheap coverage, as long as you’re in decent health. Then, once you’re making doctor money, it’s an easy fix to adjust the amount of coverage
Author: Dave Ramsey
David Lawrence Ramsey III is an American radio show host, author, and businessman. He takes your questions here each month.
