Adjust your withholding to stop tax overpayment

Dear Dave: My wife and I recently followed your plan and became debt-free, and we're committed to never going back there again. I currently work for the state, but I've been feeling God's calling to the ministry. We'll get an income tax refund of about $4,500 this year, and we've both agreed to put that money toward my first semester of seminary training. Does this, along with saving money as we go, sound like a good way to pay for this?

- Bradley

Dear Bradley: I love the move to get out of debt and the fact that you and your wife are determined never to go back there. If you truly feel that you're being called by God to be a pastor or to do some other form of ministerial work - and you're both in agreement on how to make it happen - I think that's great, too. Just remember your promise to stay away from debt in making it happen.

But I did hear one problem you need to fix. You should stop having so much income tax withheld from your paychecks. That $4,500 you mentioned is the result of one or both of you overpaying your taxes. For the future, make sure to adjust your withholding by $375 a month. It's always better to have the cash you earn in your pocket rather than parking it with the IRS interest-free every year.

Best of luck in your new career, Bradley!

- Dave

Dear Dave: What kinds of insurance should I avoid?

- Rhonda

Dear Rhonda: Well, in the life insurance world, you should buy only term life insurance. Avoid any kind of insurance that has a savings program built into it - things like whole life, universal life and variable life. Another thing to avoid is return of premium. This is where an insurance company charges you extra but gives all your premium money back if you don't use the policy. It sounds good, but if you'd just invest the extra you pay for that stuff, you'd get all your premiums back and more regardless of whether you used the insurance.

I also don't recommend gimmick insurances, such as double indemnity for accidental death. Think about it. You're not double- dead if you die by accident; you're just dead. Your family needs the same amount of money whether you die by accident or heart attack. If you have a family, I suggest 10 to 12 times your annual income in a good, level term policy. Also, stay away from cancer insurance policies. Your regular health insurance policy should include cancer coverage. If it doesn't, you've got a crummy policy and you need to get a better one right away.

So, for the coverage you do need, we're looking at level term life insurance, good health insurance, long-term disability and homeowners and/or renters insurance. Throw in auto coverage and, once you hit age 60, long-term care insurance and you're pretty much set.

- Dave

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