Updated on 03.21.16

Questions About College Savings, Stock Trading, App Businesses, Side Gigs and More!

Trent Hamm

Reader Mailbag

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Question about college savings
2. Researching before investing
3. How frequently should you trade?
4. Life insurance beneficiary issues
5. Finding specific vacation deals
6. Blogs with multiple topics?
7. Closing a line of credit
8. Handling reduction in income
9. Prioritizing credit cards
10. Starting an app business
11. Does our payoff plan work?
12. Getting 529 tax benefits

Every person alive has a particular mix of good and bad traits. A person might be incredibly nice to people in the community but secretly launders money. Another person might quietly give lots of time and money to charities, but treats his or her spouse with complete disdain and cruelty.

You should never expect a person you know to be wholly good or wholly bad, because they’re not. You might see a few good traits at a given moment, but that doesn’t mean that they’re nothing but good. At the same time, you might see a few bad traits at a given moment, but that doesn’t mean they’re nothing but bad. Like everyone else, that person is a mix of good and bad.

That doesn’t mean you shouldn’t trust anyone. In fact, it means the opposite. It means that everyone else is human, just like you, and that person perhaps deserves a little bit of forgiveness.

It can be really hard to keep that in mind, especially during difficult times.

Q1: Question about college savings

I am doing a senior capstone on how to invest money in college to make money for the future. I have been reading your website and found out a lot of good ways to invest for me and others. There are many articles on investing for college students but there are a few questions I am wondering about.

1. With student loan debt increasing in the recent years when entering college how much money should you invest and how much money should you keep aside for paying college?
– Mitchell

Mitchell actually asked a series of three questions, each of which deserved a standalone answer, so the first three questions of today’s mailbag come from Mitchell’s email.

My advice to parents with children that may attend college in the future is to make sure that your own retirement is well covered before saving a dime for their college education.

The reason is simple. When those children leave college, they’re going to be 20 or 25 or 30 or 35 years younger than you. They’re going to have a lot of time left in their career to take care of student loan debts. Time is on their side.

On the other hand, you won’t have that time. You’re likely to be within 20 years of retirement, and “catching up” on retirement savings in that timeframe is very, very difficult.

Your best approach is to always put retirement savings first. If you’re not sure you’re saving enough for retirement, make sure that you are before saving even a little for your kids.

Here’s Mitchell’s second question.

Q2: Researching before investing

2. College students are always busy with school. What would you recommend to them if they are looking to invest and how much time should they research before trying to invest?
– Mitchell

A college student is far better off spending their time studying to get the best possible grades and making sure that their student loans are minimized rather than studying up on investing strategies.

It is extremely rare that a college student has the resources to fully pay for their college tuition, room, and board while also having enough money left over to think seriously about investments.

Your best financial move as a college student is to simply reduce the cost of college. Period. Walk out the door with as little in student loans as you possibly can.

Now, here’s Mitchell’s third question.

Q3: How frequently should you trade?

3. Many people are afraid of trading money in their account for fees and other people trade too much. How much should you be trading your investments once you make them?
– Mitchell

My investment philosophy is to buy and hold broad-based inexpensive index funds so that you effectively own a sliver of the entire market rather than just the stocks or bonds of individual companies.

There really is no trading when it comes to this philosophy. You just purchase investments and then hold them until you have a real-world reason to sell them.

Unless you’re buying and selling on a very large scale, most of the time the cost of buying and selling will undo any extra benefits you might get as an individual investor from moving your investments around. The fees for buying and selling will simply devour a healthy portion of your gains and add to your losses.

Q4: Life insurance beneficiary issues

I have a question about life insurance. My ex-husband recently passed away. I was the original beneficiary but when I called the insurance company, they said he had changed the beneficiary. They obviously won’t tell me who the beneficiary is. A few years ago he mentioned at one point he was changing it to our 11-year-old daughter.

I have moved and remarried within the last two years. If the company won’t confirm that my daughter is beneficiary “for privacy issues” how will I know?

Also, how does one name a guardian of the money for a minor? Did he just need to inform the insurance company at the time?
– Nina

If you are not the beneficiary and it’s not your policy, there’s really no reason for you to know who the beneficiary is.

The only exception to that is if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) where you may have some additional rights here. If not, you have no party in the payout of this life insurance money. Your only route to “knowing” about the policy is if the beneficiary chooses to tell you.

As for a child, most of the time the life insurance company either won’t pay out benefits until the child is 18 or 21 (depending on the state) or else will only pay out benefits to a court-appointed legal guardian of the minor’s estate, who will basically just hold the money until the child is 18 or 21.

Q5: Finding specific vacation deals

It occurred to me to bother you a little if you will let me as I try to put together a last-minute spring vacation for my family: My husband, myself and our two boys (who will be 8 and 10).

We’ve decided to take our first family spring break vacation that we’ll travel a little far away from WI. Ideally fly to some where warm and Myrtle Beach, S.C., was recommended. Flights are insanely expensive from Madison but Milwaukee is better. I am wondering from reading your post on spring break and if just from experience you can recommend to us an all-inclusive resort, hotel out there in the Myrtle Beach area. That of course has the best deal as I’ve always got tips for great savings from your write ups. I am starting to see decent deals for flights, now lodging is my next piece to see if we can keep the vacation at a reasonable cost. We don’t drink so any nice all inclusive if any would be great for us. We want our boys to have a blast!

I will certainly respectfully welcome other affordable destination ideas that will be fun for boys ours age. So that if we have to switch gears will look at for this year still or next.
– Chloe

My usual strategy for selecting lodging at a specific destination is to browse through comparative sites like TripAdvisor, so I’d probably start here if I were researching Myrtle Beach lodging. I’d identify a healthy handful of places that I might want to stay, then I’d start digging through various sites that sell lodging to find the best deals, sites such as Hotels.com and Priceline.

When I’m comparing lodging at sites like TripAdvisor, I’m mostly just looking to avoid sites with serious problems rather than settling on a “perfect” site. This can be tricky in areas with lots of resorts – I usually find that I’m okay with dozens of resorts in that area and just wind up with a big handful of ones to “avoid.” I find those by looking at the worst-reviewed places first. When I start looking for bargains, I cross-check with the reviews on other sites, too.

It’s worth noting that our strategy here is in line with how we buy most things – we’re always looking for “bang for the buck.”

Q6: Blogs with multiple topics?

I want to start a blog but have a lot of ideas that I want to express. Not a “how to” blog but sort of just sharing of ideas on and observations. My topics are Guillain Barre Syndrome (a rare autoimmune neurological disease), caring for and celebrating my elderly mom battling dementia, and my battle with and observations of the effects of sudden diagnoses of Rheumatoid Arthritis and the changes it makes to life. This will not be a poor pity party but uplifting and supportive. Should I pick one? Or can I incorporate all these into one blog? I don’t care about making money but I do want it to be a blog that I have for a long time. Thanks for all your help and your wonderful advice. I’ve shared your page with my adult children. They can benefit from your candid and encouraging approach and conventional wisdom.
– Nina

You can always write a single blog on multiple topics like this, but a better approach might be to find threads that tie all of those things together and make that common thread your central topic.

Like it or not, people who become regular readers of websites usually do so because they’re looking for a particular flavor of information or entertainment. They want stuff that relates to a particular topic, one that’s clearly identifiable. Maybe they want celebrity news or tech news or, I don’t know, maybe something crazy like simple and clear personal finance advice.

My suggestion to you would be to think about what connects those topics. How about going a bit more general and talking about the challenges of overcoming chronic illnesses? You could tie in caring for your mother while dealing with your own chronic illness challenges. You could have guest posts or interviews with people who are struggling with different illnesses, too. You could obviously use yourself as a specific example, but you can expand on that in a number of directions.

Q7: Closing a line of credit

I have a $3,000 line of credit with Dell Financial services which I’m not using. Had it for over a year and paid it off. Shall I close it so they don’t see it as a possible source of debt incurrence or leave it open unused? My goal is to raise my credit score. I have only one department store credit card with $300 limit. Your site addressed both sides but thought I’d ask anyway to be clear.
– Monica

The first question I’d ask is how old your Dell line of credit is and also whether it’s older than your other credit card.

If your department store card is older, you’ll probably be okay closing the Dell line of credit. If your department store card is newer, you’re probably still okay closing the Dell line of credit provided the card is more than a few years old. Neither case should have much of a negative impact on your credit score.

It may be a good idea to have a general use credit card, perhaps tied to whatever gas station or retailer you use most frequently (but not just one tied to a department store – a Mastercard or Visa you can use anywhere). They can come very much in handy in unexpected situations and can often save you money on purchases at your retailer of choice. Plus, it can have real benefits for your credit score going forward.

Q8: Handling reduction in income

I’m making less money on my job now. I can’t afford my basic living expenses. Rent and car take more then half of my income. I’ m thinking about letting my car go. I’m two months behind on my car. 
– Marco

If you have access to transportation to get back and forth to work without use of the car, getting rid of a car can be a money saver.

I don’t know the exact state of the car at the moment. Is it on a lease? Do you have a loan on it? Is the car worth more than the remaining value of the loan? If you still owe more than the car is currently worth, you may have to default on the loan and have your car repossessed, which can really put a crunch on your credit score, but not having that car payment will make a huge difference in your ability to make ends meet. If you owe less than your car is worth, you can sell it to pay off the loan and perhaps have a small amount left over.

But before you do that, your first move should be to immediately contact your lender and see if you can come up with an arrangement that leaves you both happy. Make it clear that your job situation has changed and that you simply can’t afford the current payments. Most of the time, they will work with you as the business costs associated with repossession is usually going to be greater than the cost to them of working with you. They’ll usually try to refinance your loan in some fashion so that the monthly payments are lower, which will help you keep the car and maybe help you make ends meet.

Q9: Prioritizing credit cards

I have transferred $7,000 of an existing credit card balance to a new card. I will owe zero interest on that amount for 15 months. After that, the APR is 14.24%.

I also owe approximately $12,000 on another credit account at an APR of 9.5%

I am trying to figure out the best way to prioritize in order to pay these down. If they were both currently accruing I would start with the debt with the highest interest rate, but the 15-month delay (though welcome) is throwing me off.
– Carly

It really depends on how fast you’re able to pay off your debts. How large is your extra payment each month?

I did some back of the envelope math and I concluded that if you’re only making small extra payments (or aren’t making extra payments at all), you’re better off paying down the $7,000 debt first. Depending on how the interest is accrued, if you’re not going to have the $7,000 debt paid off at the 26-month mark, you’re better off paying down the $7,000 debt first. On the other hand, if you’re going to be paying at a faster rate than that, you should start hitting the other debt paid off first.

In other words, if your extra payment is less than $250 a month, pay down the $7,000 debt. If it’s more than $250 a month on average, make those extra payments toward the $12,000 debt.

Of course, all of this math is out the window if you’re still adding to your debt. If you ever want to get rid of this, you cannot be adding to your credit card balance.

Q10: Starting an app business

My question is about starting an online business. I have several ideas for apps or some other type of business but I have no idea how to find qualified IT people to help me. I’ve [looked into passive income generation] but it just left me frustrated. I’m going to do a meetup in my town to see if they might be able have suggestions.
– Jerry

I have some experience with creating apps for tablets and smart phones. I’m going to give you some very difficult advice. If you do not have the ability to sit down at your computer and create at least a workable version of this app on your own, don’t do this. You will not make money. You are virtually guaranteed to lose money. It will not end well.

The only way you will make money from this is if you have a sizable marketing budget behind this to get your app out there and the app is fairly simple to create and doesn’t require dedicated technical staff to write it and continue to update and maintain it. If it requires a lot of technical work to make it happen, you better have hundreds of thousands in the bank ready to go and be willing to lose most of it along the way.

There are rare cases where some guy with an idea makes money this way, but those cases are a handful. The app stores have literally millions of apps on them and the independent success stories right now are extremely rare. It’s not a good use of your time or your money.

My genuine suggestion to you, if you still want to pursue this, is to spend some time learning how to create an app. It might sound prohibitively difficult, but if you take it step by step, it’s quite doable.

Basically, if you’re an app developer already, write it yourself. If you’re an entrepreneur who’s really good at putting together teams and has a good bankroll, give it a shot. If you’re willing to learn how to write apps, start doing that with the end goal of creating this app you have in mind. Otherwise, just run away from this because it won’t end well.

Q11: Does our payoff plan work?

We were thinking of paying off a student loan and basically placing that higher rate student loan into a lower rate home loan. Below is some info on what our plan is.

Just sold home and have $150,000 in a bank account earmarked for the new home. Student loan of $73,386 @ 4.74% 9 years remaining. Auto loan of 34,846.02 @0.9% 4.5 years remaining. The auto loan would not be paid off early. We have $34,000 in a bank account that is earning more interest than the auto loan monthly finance charge.

We were thinking of payoff the student loan and have about $76,614 remaining. We are looking to build a home between 326k and 340k with 20% down. Roughly a $275,000 to $280,000 mortgage. Both my wife and I have FICO scores of 814+.

We want to add what we currently pay for the student loan payment of $1,651.50 per month to the future mortgage payment. (Student loan is $651.51 plus we add $1,000 to principal every month. So we would continue to add that money to future mortgage payment. The $651.51 would be part of the mortgage and the $1,000 would be used towards the mortgage principal.) At the end of the auto loan, we will continue that monthly payment to help pay down the mortgage principal. We are looking to pay off the mortgage by 2027, 11 years. We would even consider adding additional money to principal payments and hope to pay off the mortgage in 10 years or sooner.

We moved to Florida from NJ and have saved on healthcare, auto, and state income taxes. Those savings will be used towards home costs.

Does our plan of paying off the student loan and having a higher mortgage make sense or should we keep the student loan and put down a much higher down payment resulting in a lower mortgage payment? The mortgage rate should be roughly a full percentage point lower than student loan.
– Nadine

I think your plan makes sense. I would add a few tweaks.

For one, I would put the $34,000 for the car loan in an online savings account set aside just for that. I would set up an automatic payment plan for the car loan from that account so that you don’t even have to touch it other than to check that the payments are being made. You should have a little left in the account when the car is completely paid off, which you can then stick in your pocket.

The one part I’m missing here is what your current housing payments are. Are you renting at the moment? If that’s true, then you should be able to add your current monthly housing payments to your mortgage payment and pay everything off even faster.

Aside from those things, this seems like a very reasonable plan.

Q12: Getting 529 tax benefits

I have a newborn son and we live in California. I’d like to open a 529 plan for him but I know California doesn’t offer tax benefits for doing so. I own a house in Chicago that I rent out and file IL taxes for the income on it. Would opening an IL 529 plan benefit me on my IL rental income? If not, what state should I open an 529 plan in?
– Lisa

From what I can tell, Illinois’ 529 program (which they call Bright Start) requires you to be an Illinois resident to gain any tax benefit from the contributions. Most states tend to follow this pattern, in that the only way to gain any tax benefit (or any significant tax benefit) is to be a resident in the state.

There are a few states (New York being one) that do allow you to deduct 529 contributions to their state plan as a nonresident, but the problem with that is that this effectively increases your state taxes in the state you currently live in because your credit for paying out-of-state income taxes is lower than it was before. So, in your case, you might get a deduction on your Illinois taxes, but your California taxes would effectively go up by the same amount because your credit on your California taxes is now lower than before.

Basically, the only real way to get a benefit from 529 contributions is to contribute in the state you’re living in and where you earn most of your income where that state offers a tax benefit for doing so. Unfortunately, that doesn’t really apply to you.

As always, no matter who is giving the advice, you should check for yourself. Try running some numbers through TurboTax and see how it turns out for you under different scenarios. Most likely, all that will happen is that you would pay less state tax in Illinois and ore in California.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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