HONEYMOON ON A BUDGET

WRITER: DAVE RAMSEY

Dear Dave,

I just got married, and my husband and I want to book a combination honeymoon and New Year’s trip to celebrate. We don’t have all the money for it right now, but we will have it in a few weeks. We were thinking about booking the trip on a zero-interest credit card and paying it off when we have all the money. I know you hate debt, but would this be okay since it would be a very short-term debt?

—Laura

Dear Laura,

I know you guys are excited and happy about being married. And I wish you all the happiness in the world. But I don’t recommend credit cards of any kind, for any reason, whatsoever.

I don’t want to burst your bubble, but if you can’t pay for this trip up front you can’t afford it.

Believe it or not, lots of people postpone wedding trips until they’ve had a chance to save up a little bit of money. Some folks have never even gone on a honeymoon trip, and they have great, loving marriages.

My advice to you and your new husband is to work and save up a little bit more. Maybe one or both of you could pick up extra jobs for a little while, and make it happen sooner. Then, when you can pay cash for the trip, go have a blast on a honeymoon you can afford.

—Dave

Dear Dave,

Let’s say you have $1 million in the bank. Why would you take out $300,000 to buy a house, instead of just making a 20 percent down payment and keeping the rest of the money in mutual funds to make more money? If need be, I could still pay off the house.

—Alex

Dear Alex,

Interesting question. Okay, I’m game. The spread you would make between even a high-interest rate mortgage — let’s say 6 percent — and mutual funds at 11 percent or so, is about 5 percent. And that’s assuming nothing goes wrong, and you can get your mutual fund out if needed.

What you’re talking about is theory, and what I’m talking about is actual life. In your theory you’ve left out two major issues: paying taxes on the mutual fund, which would make your yield less, and risk. You’ve compared a zero-risk investment with a risk investment, and you shouldn’t do that. You must factor in risk so you can accurately compare one investment to another.

Every time you pay off a mortgage, the bank no longer charges you interest. That’s zero risk compared to a mutual fund, which does have risk. Remember, if your house was paid for you wouldn’t borrow $300,000 against it to invest in mutual funds!

—Dave

Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.