For the past decade, nationally syndicated talk-show host and best-selling author Dave Ramsey has helped hundreds of thousands of Americans get out of debt and start living with financial freedom. His genuineness and financial insight have made him something of a national phenomenon. Each week, in this space, he will answer questions from readers about personal finance.

Should household items be included in food envelope?

Dear Dave,

We are following your plan and we love it. We have a plan with our finances for the first time in our lives, and it really feels good. Now, however, my husband and I are in a disagreement concerning the envelope system and specifically the “food” envelope.

I want to put food items and household items such as laundry detergent, toilet paper and shampoo together in the same envelope because I buy them at the same store. My husband says because we can’t eat these items, they should not be in the food envelope.

I’ve tried it with two separate envelopes, but I have to separate the items at the store, and then pay two separate amounts and it becomes a huge hassle, especially with two young kids. Can you help settle this for us?


Jackson, Tenn.

Dear Christie,

Just to clarify, the envelope system is a cash-management plan to keep you from using a debit card or writing a check out of convenience. For instance, if you use $600 for groceries each month, just write yourself a check for $600 on payday. Then cash the check and put it in an envelope marked “food” or “grocery.” As you need to buy food, you take money from that envelope and nowhere else. This provides you with instantaneous cash management in that you will almost never spend more than allotted.

As for your question: Sharon and I use our envelope just the way you are talking about. Our food envelope is just one envelope. We get all of our grocery-store items from this one envelope. Food, cleaning supplies and hairspray come from this one envelope. (Hairspray is not a big expense for me, of course). Grocery store “stuff” is all in the same envelope.

You should make it as easy as possible. You are doing a budget and doing the envelopes. With two kids, the last thing you need to do make the grocery store an even bigger hassle. Make the system work for you as best you can. You are the one doing the work, so try and make it as easy on yourself as possible.


Qualities of good home insurance

Dear Dave,

My wife and I are purchasing a home and we are closing on it in about three weeks. I heard you speak a few weeks ago about homeowner’s insurance, and what to look for and what to avoid. I just wanted to ask you about replacement-cost policies vs. others, and basically what to be looking for. What can you tell me?


Jacksonville, Fla.

Dear Darren,

I was really disappointed when some of the big-name homeowner’s writers in the country such as State Farm, Allstate, etc. decided to do away with replacement-cost insurance.

Replacement-cost insurance, by definition, replaces your home – no matter what. If you had a $200,000 policy on your $200,000 home, and the value of the home goes up to $500,000, and if you never changed the policy but your home burns down, you get a $500,000 house.

What they have gone to now is a policy that covers up to 25 percent above the policy face. So, in our example, if the value of the home goes up to $500,000 but you still have the $200,000 policy, the most you could hope to get is a $250,000 home.

As long as you update the policy fairly often it is not a big deal. But I have a paid for home and I want to know that is going to be covered without having to argue with some insurance agent. I think it is just a way to set it up so they don’t have to cover it all. It is a sad thing because the agents are great people but their companies have done them a disservice by changing these policies.

I would call an independent insurance agent in your area and let them shop several different companies for you. I use a company where I pay the same price for a better product than I could get with some of the big names right now, because of these changes they have made.

Also, when you find a good company to go with, you can move your cars and other property and casualty to that company and probably get a discount on your homeowner’s policy. It’s almost always better to do it that way.



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