It’s simple: Imitate successful behavior

Dear Dave,

My wife and I have paid off all our consumer debt, and we’re in Baby Step 3 building up our emergency fund to six months of expenses. When do you recommend buying a new car in the process? Do we have to wait until we’ve finished all the Baby Steps?

Aaron

Dear Aaron,

Congratulations! You two are taking really positive steps forward in gaining control of your finances. I’m proud of you!

OK, I’m not sure if you’re talking about buying a newer car – like a great 2- or 3-year-old model – or an actual new car. I don’t advise buying a brand new car, unless you have a net worth of at least $1 million. Why? Because at that point, you’ve got enough assets that you won’t get rocked by the crazy depreciation that comes with buying a brand new vehicle.

Don’t get all down after hearing this. I’m not saying you should drive a junker until you pay off your house. I recommend that people drive the minimum they can in terms of a car until they complete the first three Baby Steps. As you already know, Baby Step 1 is a beginner emergency fund of $1,000. Baby Step 2 is paying off all debt except for your home, and Baby Step 3 is fully funding your emergency fund with three to six months of expenses.

After you’ve accomplished the first three steps, then you can move up to a nicer car. Notice I didn’t say move up to a new car. I want you to save up cash, and get a really nice, slightly used car – one that someone else has taken the big hit in depreciation on. That’s what the typical millionaire does.

And I want you to model your financial behavior after people who are in the position you want to be in one day!

Dave

Fraud and the ex-wife

Dear Dave,

Recently, my husband and I discovered that his ex-wife used his Social Security number to open three or four credit card accounts. We’ve called the credit card companies, and we’ve disputed the charges and explained the situation. Is there anything else we can do?

Kendra

Dear Kendra,

File a police report immediately, and if possible, have this woman arrested. That may sound harsh, but the fact is she has committed criminal fraud. That’s not something you, or anyone else, should take lightly. If you haven’t already, make sure you both also put fraud victim alerts on your credit reports immediately.

I’m very serious about this, Kendra. Don’t stop with just alerting the credit card companies. You should be speaking with, and communicating via email – plus snail mail – directly with the fraud victim division at every credit card company involved. And here’s the really important part. Make sure they understand that this is a denial of responsibility on your part – not simply a dispute.

Try to be nice, and let them know you’re sorry this happened. But clearly explain that all these charges are the result of a criminal act perpetrated against you. You may have to stand your ground with some of the credit card companies, because they might try to lay a guilt trip on you – or outright lie – to get you to pay the bills. Don’t do it. These charges are not your responsibility.

I’m really sorry this happened to you folks.

Dave