25%
 
Dear Dave,

You recommend that no more than 25 percent of your monthly income go toward a house payment. Does this figure include taxes and insurance too?

—Ryan
 
Dear Ryan,

Yes, it does. Your housing payment should not exceed 25 percent of your monthly take-home pay on a 15-year, fixed-rate mortgage. When it comes to buying a house, the goal is not to live in the Taj Mahal or have something so expensive you end up being “house poor.” When buying a home, especially for first-time homebuyers, you should look for something nice — in a decent area — that you can get paid off as quickly as possible.

It’s really not a big deal if you cheat a couple of percentage points one way or the other. But 25 percent is a good rule of thumb to ensure you’ll still have money left over to live on, save and invest!

—Dave
 
Be very kind and very grateful
 
Dear Dave,

My mom and dad took out a whole life insurance policy for me when I was born. The cash value is $2,500, and my husband and I want to cash it out and put the money toward paying off debt. We already have larger term life insurance policies in place, but I’m worried that doing this will offend my parents. What should I do?

—Laura
 
Dear Laura,

I think the real question is how many toxic things will you do because you’re afraid you might offend them. Whole life policies are financially toxic. They’re a bad product, and keeping it for no better reason than it might hurt their feelings a little bit isn’t much of a reason — especially when the alternative is paying down debt and getting your financial life in order. I know this is mom and dad we’re talking about, so you’ll have to be nice about everything. But at the same time, your parents have to realize it’s your life and you make the decisions. Try sitting down with them and gently explaining that while you appreciate and love them for their generosity, you’re going to cash it out and use it to get out of debt. Let them know you’re not wasting their gift, and that you’re using it to make a positive impact on your lives.

You’re not doing anything disrespectful, Laura. Just be very clear about the reason and loving with your explanation. Then, if they chose to become a little emotional or resentful, that’s on them. If they get really upset and want the money back, you can do that too. But getting your financial house in order is much more important than hanging on to a bad financial product you don’t need in the first place.

—Dave
 

 
Tithing and giving while getting out of debt
 
Dear Dave,

Do you recommend that people continue tithing and giving while getting out of debt?

—Sarah
 
Dear Sarah,

If you’re tithing, that would refer to you being a Christian or of the Jewish faith. To the best of my knowledge, those are the only two religions where tithing is taught as a part of the faith. The word literally means “a tenth,” as in a tenth of your income.

If you are an evangelical Christian, what does Scripture say? It says to take the tithe off the top before you do anything else. You keep doing it always, not from a legalistic perspective, but because it’s part of God’s instructions on the best way to live. It gives you a baseline for giving and generosity. Then, get yourself and your household cleaned up and in good financial shape before engaging in other acts of giving, which are called offerings.

This is the normal process that Scripture outlines. But remember, God is crazy about you and loves you very much. When you give, it’s the act of being unselfish and putting others first.

—Dave