Dave Says, “Don’t Just Throw Up Your Hands and Default”

Photo courtesy of Fotolia

Photo courtesy of Fotolia

Dear Dave,

My husband and I have about $60,000 in federally insured student loans. Can our wages be garnished if we’re paying less than the actual payment amount? If so, how far behind do we have to be for that to happen?

Jennifer

Dear Jennifer,

To the best of my knowledge there’s no set formula for making this determination. In counseling people, we find some folks who are two years behind making payments before anything is done, while others are flagged at just a couple of months. In reality, they can garnish you immediately if you’re paying less than the agreed-upon amount. But in most cases they won’t mess with you as long as there’s reasonable activity on the account.

The thing most people don’t realize about student loans is that a lawyer doesn’t have to be involved for them to garnish your wages. It’s a lot like the IRS in that they don’t have to sue you in order to take your wages. Congress gave them that power because it’s a federally insured loan. And in my mind, that’s way too much power.

If you’re having trouble making your payments, don’t just throw up your hands and default. Talk to them about a deferral, and keep sending them whatever you can. It’s always better to be proactive than reactive in situations like these. Let them know you want to make good on your obligation, and ask what you can do to make this happen under terms you can afford.

Good luck, Jennifer!

—Dave 

Dear Dave,

I live in Los Angeles, and my daughter makes $3,000 to $5,000 a month modeling. I don’t want her to become spoiled by this job and the income, and I need advice on what to do with the money. Should it be put aside for a car, and do you think she should have to pay for something like that herself?

Lisa

Dear Lisa,

So how do we keep a high-income, high-profile job from ruining this little girl? I think a lot of it has to do with her interaction with you, and how you gently mold her work ethic and attitude. Don’t let her become a diva. She’s not there to be fawned over or placed on a pedestal. She’s there to serve. That means working hard and doing the best she can. That’s her job whether she’s flipping burgers or making $5,000 a month modeling. The money’s nice, but what we’re really doing is making sure she learns some important life lessons. And you’re still being a parent, not a friend or peer, through every moment.

When it comes to the money, you guys should sit down and discuss some goals for the future. I think it’s important that any car purchase be reasonable, because the best thing a kid this age could do with that kind of money is save up for college. Even if she goes to school on a full scholarship, she should be driving something low-key. Just because she gets a free ride in college doesn’t mean she gets to cruise the streets in a Lamborghini. Set the rest of it aside for when life really begins—after college.

As her mom, it’s very important that you teach her these lessons now. It’s essential, too, that you don’t surrender the position of parent, teacher and leader. Chances are when this young lady is 34, no one will give a flip that she modeled for a while as a teenager. The most important things here are the lessons taught and learned, not the money.

—Dave

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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Dave Says, “Stop Investing in Your 401(k)” – Really

Photo courtesy of Tax Credits / Flickr

Photo courtesy of Tax Credits / Flickr

Dear Dave,

What would you recommend for 401(k) contributions while getting out of debt?

Chaz

Dear Chaz,

I recommend putting a temporary stop to investing while you’re getting out of debt. Lots of people are shocked by this advice, because they’re afraid of missing out on the wonders of compound interest or their employer’s match. But the key word here is “temporary.”

Millions of people have followed and been successful with the program found in The Total Money Makeover. The first step, Baby Step 1, is to save $1,000 as a starter emergency fund. Baby Step 2 is pay off all of your debts, except for your house, from smallest to largest with the debt snowball plan. During this time you’re attacking your debt with incredible intensity and putting every penny you can scrape together toward knocking out debt.

The average person working my plan can pay off all their debt, excluding their home, in 18 to 24 months. Some folks can do it faster, and for some it takes a little bit longer. But during this time I want your financial focus to be squarely on getting out of debt. Once that’s done, you’ll find that you have a lot more control over your biggest wealth-building tool: your income.

Many times in life we try to accomplish too many things at once. One problem with this is often it diminishes our ability to focus. When you spend all your time nickel-and-diming everything, the result is that nothing gets done very well. You need to really move the needle and see results because personal finance is 80 percent behavior and only 20 percent head knowledge. It’s not really a math issue because if you’d been doing the math all along, you wouldn’t have a bunch of debt.

That’s why, for a short period of time, I want you to concentrate with laser intensity on knocking out debt. Once that’s out of the way, you can pour even more money into saving, investing and achieving financial peace!

—Dave

Dear Dave,

My wife and I make about $100,000 a year. We have $63,000 in the bank, and we owe $47,000 on our home. The house is worth about $250,000, and it’s our only debt. We’d like to go ahead and pay off the house, but we’re worried about depleting our savings to that extent. What would you do?

Matt

Dear Matt,

If I were in your situation, I’d cut a check and pay off the house. Keep in mind that by doing this we’re not saying you’ll keep your savings at that lower point. Once that mortgage payment is off your backs, you’ll be able to save more and save faster than ever!

That’s my advice. Pay off the house and become completely debt-free today. You’ll still have $16,000 dollars in the bank and a six-figure income. It won’t take you long to rebuild your savings all the way back to what you had before, if that’s what you both want. You could do it in just a few months.

I’m looking at this as an opportunity to achieve the kind of financial independence everyone wants but few actually have. Go for it, Matt!

—Dave

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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Dave Says, “Don’t Pay for the Privilege of Paying Your Mortgage”

Photo courtesy of fotolia

Photo courtesy of fotolia

Dear Dave,

Should I pay a nominal fee to be enrolled in a mortgage accelerator program?

Jennifer

Dear Jennifer,

No, you should not. Mortgage accelerator programs are similar to the biweekly mortgage deals floating around out there. Paying on your mortgage biweekly is fine. Paying for the privilege is not.

In the biweekly mortgage program, you make a half-payment every two weeks. By doing this you will pay off the typical 30-year note in about 22 years. It works because there are 26 two-week periods in a year, and 26 half-payments equals 13 whole payments. It pays off your mortgage early because you’re making an extra payment every year. That’s what’s doing it. There’s nothing magical about every two weeks; it’s the fact that you’re paying extra principal.

Instead of paying your mortgage company an unnecessary “nominal fee,” just make an extra payment each year. Or, pay one-twelfth of a payment as a principal reduction with a separate check, in a separate envelope, every month. By doing that, you’ll pay off the loan just as quickly as with a biweekly arrangement.

If you’re just now taking out a mortgage and your lender can do a biweekly setup at no cost, then that’s great. Take them up on the offer. But we’re not going to pay them an additional fee so you can make extra payments on the principal. That’s just stupid!

—Dave

Dear Dave,

My husband and I tithe, but right now we’re on Baby Step 2 of your plan and we’re expecting a child in a few months. Since we’re trying to pay off all our debt except for our home, what should we do about giving beyond our tithe in this situation?

Carrie

Dear Carrie,

Evangelical Christians recognize two types of giving in the Bible—tithes and offerings. The tithe is off the top, before you do anything else. That’s why I recommend people put it on the top line of their budget forms.

After that, offerings are almost impossible to find in Scripture until you’ve first taken care of your family. The normative method found is that offerings are to be taken out of your surplus. In my mind, while your family is in debt and you’re busy taking care of your household, there is no surplus. Just because something tugs at your heartstrings or someone spews out a toxic sermon on giving doesn’t mean that you need to give offerings above your tithe.

But here’s the good news. Once you’ve paid off your debt and have a fully loaded emergency fund in place, you’ll have the rest of your lives to open up and give like never before. Getting out of debt means you will gain control of your most powerful wealth-building tool—your income. And when that happens, you can give with extraordinary levels of generosity.

There are three things you can do with money—spend, save and give. And when you reach a point where you can give well, it’s the most fun you’ll ever have with money!

—Dave 

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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Dave Says, “This Kid Is About to Have Some Problems”

Photo courtesy of iStock

Photo courtesy of iStock

Dear Dave,

We’ve been supporting our son while he’s in college. He just finished his sophomore year, but he told us the other day he has dropped out of school and isn’t going back. He’s been playing in a band on weekends, and he has this vague idea of becoming a musician. We don’t think this is a good idea, but we still want to be supportive … just not too supportive. We want him to be financially independent, as well. How should we handle this?

Karen

Dear Karen,

This kid is about to have some problems. Not only has he made a bad decision, but he should have consulted with you guys before he quit school. He owed you that much if you were supporting him this whole time.

In my opinion, you and your husband have one job right now. That job is to stand back and let life happen to this kid. If he thinks he’s a man, let him go out and prove it. Wish him the best and tell him you hope he becomes the rich and famous rock star he wants to be. But make sure he understands you’re not going to support him financially when he’s doing something you both feel is a bad idea. The First National Bank of Mom and Dad is officially closed!

Understand that I’m not suggesting you turn your backs on this guy. Let him know how much you both love him and that you’ll be praying for him. Invite him over for dinner once in a while, stay in touch, and make sure he knows that family deals like Thanksgiving and Christmas are still business as usual. However, as far as paying for his rent, utilities, gas, food and cell phone bill? That stuff’s not happening. This may sound tough, but it was his decision.

In the end, let him know you’ll be there to help just like before if he wises up and decides to finish school. But until then? Little boy, you signed up for this trip!

—Dave

Dear Dave,

Should I lower my 401(k) contributions in order to pay off my car and home?

Jack

Dear Jack,

If you’re following my plan, the first thing you should do is set aside an emergency fund of $1,000. That’s Baby Step 1. Next comes Baby Step 2, which means paying off all of your debt except for your house. This would include your car. During this time you should temporarily stop any kind of investing and retirement contributions.

Once the only debt left is your mortgage, it’s time to move on to Baby Step 3. Now you concentrate on growing your emergency fund to the point where you have three to six months of expenses set aside. Once this is done, you can attack Baby Step 4, which is investing 15 percent of your pre-tax income for retirement. For you, it would mean re-starting the contributions to your 401(k).

The rest of the plan goes like this. Baby Step 5 is putting money into your kids’ college funds, while Baby Step 6 is putting everything you can scrape together towards paying off the house early. After that comes the real fun. Baby Step 7 is the point where you simply build wealth and give.

Follow these steps, Jack, and I promise you’ll have lots of fun and lots of cash. You’ll have financial peace!

—Dave

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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Dave Says, “Take the Bull By the Horns”

Dear Dave,

My 27-year-old brother-in-law moved in with us some time ago. He doesn’t have a job or contribute anything in terms of helping around the house or with bills. I think he needs to move out, but my wife isn’t so sure. She complains about the situation to me, but if I say anything, it makes me the bad guy with her family. How can I convince her?

Chuck

Dear Chuck,

I think you need to sit down with your wife, not all the other players, and gently explain to her that you’re just enabling his bad behavior by allowing things to continue this way. Responsible adults don’t behave like bums, and I don’t give a flip what the rest of the family thinks. It’s your house, and this issue is between you and her. You two are the only ones having to deal with this, so it’s really easy for others to chime in about what should happen. But hey, if they’re so concerned with the guy having a place to stay, maybe one of them should take him in. I’ll bet that idea would shut them up in a heartbeat!

I’m not advising you to just kick the guy out, but maybe you could formulate a plan that will give him a little time to get back on his feet. Have a loving talk with him about the situation, but let him know things can’t continue on the same path. Let him know that within 30 days he has to have a job, and 30 days after that he has to move into his own place. Write it down on the calendar, if it will help, but make sure he understands why you’re doing this and the date he has to move out.

I know these kinds of things can be difficult, but sometimes you have to take the bull by the horns and make something happen. There’s no reason it has to become an ugly situation, as long as you and your wife get on the same page and you do things in a helpful and kind way.

—Dave

Dear Dave,

My husband and I just finished Baby Step 1, and we have our $1,000 in the bank for an emergency fund. Our daughter may have to have kidney surgery in the near future. Should we beef up our emergency fund, or move to Baby Step 2 and the debt snowball?

Noel

Dear Noel,

I know I’m the “get out of debt” guy. I want everyone to experience what life can be like when they’re debt-free and don’t have to send their paychecks out the door to creditors every month. But this little girl may need the kind of help only doctors and hospitals can provide. So, for now, let’s push the pause button on your Total Money Makeover.

If I were in your situation, I’d pile up as much cash as possible. Live on a budget that’s tighter than tight and scrape together every penny you can find. Hopefully, your baby won’t need surgery. But if that kind of thing is a possibility, the only smart thing to do is prepare for the accompanying financial hit your family will experience.

Don’t feel bad about this either, Noel. If the surgery is necessary, you guys can jump right back in and start your debt snowball after your little girl is healed. But right now, baby comes first. And if you’ve already got $1,000 saved, you’re off to a good start when it comes to handling things!

—Dave

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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Dave Says, “If You Don’t Contribute to the Wedding, You Get No Say”

Photo courtesy of Christian Yves Ocampo

Dear Dave,

My fiancée and I are planning our wedding. Our parents don’t want to contribute financially, so we’ve budgeted $7,000 to cover everything. The problem is both sets of parents still want to make decisions regarding the ceremony and how many people attend. How should we handle this?

Anthony

Dear Anthony,

In my mind, they don’t have a say in what happens or who attends if they don’t contribute. I understand how your parents feel though. How nice the ceremony is or who’s invited can be a painful discussion, but in this case their opinions should only count as long as they fall within the confines of your budget.

Be courteous and gentle when you explain how much you’ve budgeted and what that means in terms of who can come, how many are there, and just how fancy this event will be. Now, it would be really nice to involve your fiancée’s mother in the planning. But at the end of the day, she does not make decisions. Make sure you involve them and their opinions, but it’s you and your bride-to-be who have the power.

I know your parents love you, and they want it to be a wonderful day for everyone. But this is your wedding, not theirs. And by the way, this would be a really good time to consider premarital counseling. It amazes me how many people enter into a lifelong commitment without talking and thinking things through. And part of that should be you guys getting on the same page as to how you’re going to handle interfering in-laws. You both obviously have some!

—Dave

Dear Dave,

My niece just graduated from college with $20,000 in student loan debt. Her boyfriend graduated as well, and they’re talking about getting married. He has $115,000 in loan debt and wants to go to graduate school. They both want to be teachers, and she’s currently job hunting. The idea of all this debt hanging over their heads bothers her. Do you have any advice on how she can come to peace with the situation?

Denise

Dear Denise,

This is a really interesting question. In a way, I’m glad she’s conflicted about the situation. At the same time, I wouldn’t want it to be a deal breaker where their relationship is concerned.

Here’s my take. You don’t pass up a great, lifelong relationship just because of debt. You do, however, walk away from a relationship based on things like laziness, irresponsible behavior and immaturity. These are flaws that usually don’t go away. Any girlfriend or boyfriend who goes into a marriage thinking, “I can fix this person,” is in for a rude awakening.                                

I’m glad she’s looking for a job, but her boyfriend also needs to be working—especially if they’re planning to get married. There’s no excuse for either of them being full-time students with $135,000 in combined student loan debt hanging over their heads. Besides, lots of people hold down real jobs and further their educations on a part-time basis.

If she were my niece, I would encourage her to have an open and honest discussion with her boyfriend about their future, how he plans on paying for graduate school and her feelings on the situation. If his answer is simply to borrow more money, then she’ll have some potentially difficult decisions to make. But if he realizes how damaging picking up any more debt could be to their finances and their future, then they can start off on the same page. And things will look a lot brighter!

—Dave

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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Dave Says, “What Goes Up Must Come Down”

Dear Dave,

I’m about to graduate from college, and I’m following your plan and trying to focus on my future financial situation. Is the current down economy a cyclical thing and just part of life?

DJ

Dear DJ,

It is. There are always cycles in the economy. I know you hear all this talk about this is the worst recession since the Great Depression, but that’s a bunch of bull. It was worse in 1982, when the Jimmy Carter era came to a close. We had double-digit inflation, double-digit unemployment and home interest rates were at 17 percent.

The current situation has been kind of long and boring. Things haven’t really rebounded quickly. Instead, they’ve just kind of wallowed around and crawled along. There are a lot of theories as to why it’s happened this way, but the truth is it’s a part of life. Just like you have good and bad times in your personal life, there will always be good and bad times in your financial life. That’s why you need a solid, common-sense financial philosophy that works when things are up and when things are down. The principles I teach about not having debt and investing conservatively over the long haul work every time.

Right now, I’m tempted to invest like a wild man and put every dollar I can find into investments, because everything is on sale. It’s a great time to buy real estate and put money into mutual funds. The best time was about a year and a half ago, but the deals are still there.

Just keep investing and working your plan. The idea that you’re graduating at bad time and never going to have a good life is just plain wrong. There’s always some good and some bad out there, and the cycles will always come and go.

—Dave

Dear Dave,

My husband and I are debt-free, and we have $100,000 saved. We like to give, rather than loan, money to family members if they’re having financial problems. Can you give us some advice on how to establish giving guidelines?

Susan

Dear Susan,

First, you can’t give to a level that it starts to make you worry about your future. Your first obligation is to your own household. Once that’s done, you can help family members and your immediate community as best you can without weakening yourself.

The big thing in this scenario, I think, is to make sure you’re helping someone get back on their feet. You’re not helping when you give a drunk a drink, so you have to ask yourself if your generosity is really helping them or if you’re simply enabling irresponsible behavior.

I’m not saying this because I’m a control freak. I’m saying it because I don’t believe in investing God’s money unless I see a positive return on investment. In human terms, that means helping someone get out of a mess they’re in, while at the time seeing that they are working to make sure they never end up back there again. If they’re buying cigarettes or lottery tickets with the money, then you’re not helping them.

Taking this stance isn’t mean, and it doesn’t indicate that you don’t love your family. It means you’re loving them well and want what’s best for them.

—Dave

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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Dave Says, “If They’re Working, They’re Not Playing Beer Pong”

Photo courtesy of Laura Bittner

Dear Dave,

My son is a freshman in college. Do you think he should work during his first year in school or focus all his attention on his classes?

Ben

Dear Ben,

I don’t think there’s anything wrong with either direction during their first year of college. But as a parent, I’d urge you not to fall into the trap of thinking that a kid’s grades will go down if they work while in school. Research shows that kids who work while in college carry higher grade point averages than those who don’t.

To me, the reason for this is pretty simple. If you’re working and going to school at the same time, you have to learn how to manage your life and your time effectively. Lots of kids could pay their way through college, and not have to worry with student loans, if they just used the time they spend on social activities and watching television at a job.

I never required my kids to work during the school year. But they all have good work ethics, and they’re definitely not bums. During the summer, though, there was no such thing as sitting around. They had jobs. My youngest just finished his sophomore year, and he’s already started a job. Being a vegetable for the entire summer is useless, and we don’t do useless in our family.

But the philosophy of not wanting a kid to work so they can spend all their time studying is misguided. For the most part, kids who work while they’re in school will make better grades and develop into more mature and well-rounded individuals. And besides, if they’re working they can’t waste all their time playing beer pong!

—Dave

Dear Dave,

I plan to move to Los Angeles to chase my dream of working in the television and film industry. I’m not married, have no kids, and I have $2,500 saved to live on until I can pick up a couple of jobs. I may have to finance a car, though. I’m not sure mine will survive the trip. Under these circumstances, how much of an emergency fund should I shoot for?

Cameron

Dear Cameron,

So, you’re looking at moving to California with $2,500 in your pocket, a car payment, and no job waiting. This is a disaster waiting to happen, my friend. Don’t get me wrong. I want you to live your dream, but I don’t want it turning into a nightmare.

There’s no way I’d take a car payment to California. And you’re going to need a lot more than just $2,500, unless you have a job lined up. Even if there’s work waiting for you, $2,500 will disappear in about 20 minutes in Los Angeles.

Slow down and take your time. Plan a trip to the coast and figure out what your living arrangements and expenses are going to look like first. Then, line up a job that will pay you enough to cover your expenses. In the meantime, save up enough money to fix your car, or if it’s in really rough shape, to buy a good, used one.

Once all this is done, then you make the move—without a car payment. Moving when you’re broke with no job prospects and a car payment hanging around your neck is a recipe for disaster!

—Dave

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Chuck Briese, Oak Ridge Now

[avatar user="cbriese" size="thumbnail" align="left"] Chuck Briese has been a resident of South Montgomery County since 1988. He and his lovely and patient wife, Leslie, have six sons, with only one left to finish high school. Chuck has been a Cub Scout leader, a Little League baseball coach, a church youth leader, and a general troublemaker over the course of the past 25 years. He is obsessed with his lawn, and likes restaurants that serve food that fills up the plate. He has a tendency to tilt at windmills, which may explain why he started Oak Ridge Now.

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