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Dave Ramsey: It’s a better idea to preplan

Dave Ramsey
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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 prepay 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 preplan, not prepay. 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 preplanning, 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 prepay 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 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 14 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.