Dave Says: Emergency Fund for Teens? & What Comes First?

Dear Dave,
Our son is in high school, and he has a car and a part-time job nights and weekends. We’ve worked with him on saving, spending and giving, but should a teenager have an emergency fund, too? If so, how much do you recommended them setting aside?
Dominic

Dear Dominic,
This is a great question! I’m glad to know you’re working with your son and teaching him wise financial habits.

I always recommend an emergency fund of three to six months of expenses for adults, and I think that’s a fair expectation for teens, as well. He won’t need as big an emergency fund as a married couple with kids if his expenses consist only of those connected to his car and social life. So, I’d suggest him saving up three months’ worth of what it takes to operate the car—gas, insurance and maintenance.

I think those are fair financial responsibilities for a responsible teen in his situation.
— Dave

What Comes First?

Dear Dave,
I’m a non-traditional student in my last semester of college. In May, I’ll graduate with a degree in elementary education and have a job waiting for me. It will bring our household income up to a little over $100,000. We’re already living on a budget, but the problem is we’ll have $15,000 in student loan debt to repay, plus $5,000 in credit card debt. What should we address first?
Marta

Dear Marta,
It sounds like all your hard work is about to pay off in a big way. And I’ve got some more good news for you. If you two keep living the way you have been, and put the rest toward debt, you can have that student loan and credit card debt knocked out in just a year or so.

But I want you to pay close attention to what I’m about to say next. Just because you’re making more money doesn’t mean you should start buying a bunch of toys or pick up a car payment. Sit down together now—don’t wait—and practice making a written monthly budget based on your new income. Give every dollar a name before you spend it, and don’t forget to work the debt snowball, too. List your debts from smallest to largest, make minimum payments on the largest, and then attack that credit card debt with a vengeance.

Chances are you can get the credit card debt taken care of in two or three months. Then, roll the money from that payment over, and apply it and any other cash you can scrape up toward the student loan debt.

With just a little more work, you folks are going to find yourselves in a really great place soon!
— Dave

Dave Ramsey

Dave Ramsey is an eight-time national bestselling author, personal finance expert, and host of “The Ramsey Show.” He has appeared on “Good Morning America,” “CBS This Morning,” “Today,” Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth, and enhance their lives. He also serves as CEO of Ramsey Solutions and is the author of numerous books including Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth–and How You Can Too.