Keep flood insurance?

Dear Dave,
I’m debt-free except for my home, and I’ll have that paid off in about 12 months. I currently make $60,000 a year and live in an area of Florida that is designated a flood plain, because a river that empties into Tampa Bay runs behind my home. Currently, I’m paying $1,070 a month for flood insurance. My house is worth $325,000, and water has only come up into the yard twice in over 20 years. Since I’m doing pretty well financially, do you think I need to keep my flood insurance policy?
Trudy

Dear Trudy,
From what you’ve told me about the history of your property, it sounds like your biggest concern might be if a hurricane caused a backwash in your area. Insurance is already pretty tough in Florida when it comes to those kinds of things, but you don’t want to run the risk of your house getting mowed down and losing everything.
If I were in your shoes, I think I’d like the protection of flood insurance. What you’re paying for the policy is such a small percentage of your world, compared to the value of your home and your income. Keep the coverage, Trudy!
—Dave

Do the right thing, but don’t let them bully you

Dear Dave,
I have a student loan in default that is now being handled by a collections agency. They want me to pay the entire $20,000 now, or consolidate it with $16,000 in collection fees added. Are these my only options?
Rebecca

Dear Rebecca,
There’s no way I’d consolidate and pay $16,000 in collection fees. Right now, they’re trying to bully you. They may eventually garnish your paychecks, but I think you can still work out something with these guys.
You’ll have to repay the loan, and probably the interest and some of the late charges, but $16,000 is a bunch of crap. Don’t run out and get another loan to pay it, but don’t let yourself be blackmailed, either. You’ve made a mess by ignoring this for so long, so now you’ll have to save every penny you can and start sending them substantial amounts of money each month.
Trust me, they’ll take your payments and cash the checks. Hopefully, you can settle on a reasonable repayment structure and have this thing killed off in a couple of years.
—Dave

Where’s the safety factor?

Dear Dave,
I’m retired, and currently I have about five percent of my retirement savings in gold and silver I’ve been acquiring over the last few years. I’ve seen gold prices decline significantly, and I’m wondering if I should hang on to it as a safety factor in the event the economy goes bad in a hurry. I want to make sure I’ll still have a safety factor, and something of value, if that happens.
Steve

Dear Steve,
What’s the safety factor here? And if everything goes downhill, why does it have value? Gold has this weird allure and mythology around it that says, “I’ve still got something that people will take when the economy crashes.” But the truth is there hasn’t been an instance when people used gold as a medium of exchange in a crashed or failed economy since the Roman Empire.
People still use gold because they believe in it. We also believe in green paper with presidents’ faces on it. So, gold really has no more intrinsic value than that green paper. The only reason we place value on it is because we, the society, place value on it. A failed society might not place value on it anymore.
In a completely failed economy, the first step is usually a takeover by a Fascist government. After that, you get a new color of money – of paper – with a new leader’s face on it. Then, the old stuff isn’t worth anything. It’s very seldom you ever see gold come to the rescue.
I don’t believe in investing in gold for that reason. Plus, the track record on gold, as far as a rate of return, is horrible over the long haul. There was a time a few years ago when everyone went crazy on it, but other than that? Ugh!
—Dave

On the road again?

Dear Dave,

We’ve got our emergency fund in place, and we’re debt-free except for our home. We’d like to have a child soon, but my job requires frequent travel. I don’t want to be away most of the time when there’s a baby in the house, so I’m thinking about opening my own business. That way, I can set my own hours. What do you think of this idea?
Ray

Dear Ray,
Ask yourself this question: If time and money weren’t considerations, which one would you rather do? You’d be on straight commission as an entrepreneur, so there would be no regular checks to count on as income. You’d have to wake up every single morning, go out and kill something and drag it home. If you don’t, your family won’t eat.
An entrepreneur is the only person I know who can go from sheer terror to sheer exhilaration and back every single day. You’ve got to have a strong mind and heart to make things happen, and it will be a rough ride if you don’t have both. Plus, it won’t last long if you don’t absolutely love what you’re doing.
Everybody wants to be successful in their job and make lots of money, but personal happiness is just as important. If you wake up jazzed about what you’re going to do every day, chances are you’ll be successful and happy. But if you wake up dreading the day and your job, then I can almost guarantee you won’t be successful financially or happy.
Do lots of research and planning before you make any big changes, Ray. There are great small business ideas still waiting to be had, but to make something good happen you’ve got to find the one that’s right for you!
— Dave