What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
- What’s our next step?
- Handling professional disappointment
- Listerine alternative?
- Bonding with teenage son
- Short light bulb life span
- Student loan repayment worries
- Debit card worries
- Investing in bonds still worthwhile?
- No gifts by mutual agreement
- Careless with bill payment
As I alluded to in yesterday’s post, I’ve been setting aside even more time lately for reading. To that end, I actually came up with a “reading list” for myself for 2013, incorporating a list of some pretty challenging books for myself. I often read two books at once – a book that’s meant to challenge or educate me at the same time as a book that’s meant mostly to entertain me (usually fantasy or lighter science fiction).
What’s the purpose of a reading list? I think of it as “book research up front.” Usually, I’ll dig into a topic I want to understand better – in this case, political philosophy – and I’ll find a number of key works on the topic. That list of books becomes my reading list.
Q1: What’s our next step?
Some background information:
(1) Two income no kids household who live well within our means
(2) Our education is complete
(3) Have fully funded Roth IRA retirement accounts
(4) Have a fully funded 6-month emergency fund account
(5) Both have stable jobs
(6) Have no debt outside of the mortgage
(7) Have no plans for children (for at least the next 3 years)
(8) Credit scores above 795
(9) We travel and give to charity before any “extra” money is spent
We recently refinanced our mortgage to take advantage of the low rates and to transfer the mortgage to our local credit bureau. The mortgage is a 2.75% 30-year ARM (2yr step, 1% max per step, and 6% max increase). Our current mortgage payment is ~$410 excluding escrow. We have about $45,000 in equity. Up until this point any “extra” money we had went to overpaying our mortgage. The “extra” amount is ~$1,100 a month. We currently owe ~$100,000 on the house.
We are looking at three options for the “extra” money: (1) Mortgage Overpayment (2) Investing in Index funds or Dividend bearing stocks (3) Real Estate. Ideally each route will eventually setup a secondary “make our money work for us” income source.
(1) We could overpay everything towards the house. By my calculations we could pay off the house in about 5 years. We plan on making a balloon payment, out of our emergency fund, to cover the final $10,000 of the mortgage. Doing the overpayment would ensure the house is paid off before the interest rate could climb higher than our previous rate. We would then either (2) invest or (3) pick up some rental property.
(2) We could make a minimum house payment and invest $13,200 a year in either index funds or dividend bearing stocks. Information on funds/stocks rate of returns vary depending on source. There is so much misinformation (“buy from me”, “invest only in gold”, etc.) that it’s hard to figure out the truth. The point of this would be to establish a diversified low maintenance source of income in about 25-30 years so we could retire early and live off the interest. If we invest now, instead of paying of the house first, then by my calcs the difference in account balance in 30 years would be around $750,000 (6.85% rate of return, best guess calcs, no inflation or stock market drops or rate fluctuations included).
(3) We could buy a rental property. Thus providing a secondary source of income.
What do you think is the next best step to secure our financial future? Is this something you have an opinion on, or should I consult a financial planner for on-the-record advice?
I would get rid of the mortgage. As you mention, the interest rate on that loan is going to go up in the future.
In terms of a long-term return on your money, it’s probably not the optimal move – but it’s hard to say what will happen with other investments. What’s certain about it is that it will earn you a pretty good return that’s guaranteed.
Remember that each of your extra mortgage payments isn’t just returning you 2.75%. It’s actually returning you whatever the interest rate would be at the end of your mortgage without the extra payments.
There’s also the factor that building equity in your home and minimizing your monthly payments are emergency funds in themselves. Both will help in the event of job loss or other catastrophe.
Q2: Handling professional disappointment
A project I poured my heart and soul into for five years was taken over by a “senior executive” in my workplace. Two years later, the project is getting cancelled because very little progress has been made on it. It almost kills me to see something like that killed because of carelessness and ego. Although most of my other experiences at my work have been positive, the disappointment is making me want to quit, which seems like an irrational move. How can I deal with intense workplace disappointment?
To a degree, I know what you’re talking about. My solution to some workplace frustrations in 2008 was to change career paths, which ended up being the right move for me, but it would not have been the right move if I didn’t already have another career path set up for myself.
At other points in my career path, the best technique I found for dealing with workplace frustration was to focus intensely on the task before me and block everything else out. The only thing that mattered in terms of work was executing the thing in front of me to the best of my ability – and the rest really didn’t matter.
I still use that, sometimes.
Q3: Listerine alternative?
We used to buy mouthwash in bulk from Costco, but I’ve always had bad breath. Ever since I started using peroxide my breath has been much better and the cost is much lower. I will admit that I was a little nervous when I first tried it, but it helped that we had just ran out of Listerine.
Peroxide can be a good mouthwash, but you need to be extremely careful with it. Peroxide is something that you do not want to ingest, even at the low concentration that you can buy at the store.
There’s also the factor of the smell of the peroxide, which can bother some people – although you seem to not be bothered by it.
I would never, ever let my kids try this, but I wouldn’t object to an adult trying it for a mouthwash alternative provided they knew the risks of actually ingesting significant amounts of peroxide. Talk to your dentist first, however.
Q4: Bonding with teenage son
My teenage son (15) spends most of his time at home reading. While I’m glad that he’s at least not out partying or something, it does feel like there’s a huge gulf between us. He does his chores and his homework, then goes to his room and reads. He leaves the door open so I’m not worried about drugs or anything. We just don’t communicate or do anything together. What can I do to patch up our relationship without buying him stuff?
Clearly, your son is intellectually curious. Tap into that.
One of the best experiences I had as a teenager was when I would find that an adult took an interest in whatever I was intellectually curious about at that moment. If I was into a topic and I found that an adult was also into that topic, it made me feel closer to that adult.
What I’m saying is that I can strongly identify with your son. I did that exact same thing at his age. I didn’t feel detached from my parents – I was just intellectually curious about everything in the world. The moments when our interests crossed, though, were great ones.
Find out what your son is reading and try reading the same thing or something on the same topic. It’ll give you something to communicate about – and even if it doesn’t, your son is astute enough to at least realize that you care.
Q5: Short light bulb life span
I use a great many lamps in our home, and the bulbs seem to burn out well before they should (I have not measured life span, but seems to be 6 weeks avg). The overhead bulb also blow, including the “long life”, which I have quit paying for. We have had our home 3 years, and have already replaced several of the 6 year bulbs….
I’m not as concerned with the power cost, rather the cost of the bulbs themselves. — WHAT is causing this, and should I use the generic bulbs in my lamps or the name brand? They seem about equal as far as longetivity.
It sounds like there are electrical issues in your house. Light bulbs under normal conditions should not blow out every six weeks.
My suggestion would be to contact an electrician for a consultation, because if there are wiring issues, there may be a fire hazard in your home and you’re going to want to make sure everything is in good shape.
My very rudimentary knowledge of home electricity tells me that you’re probably getting small electrical surges throughout your home, and there can be many causes for that (as well as many solutions).
Q6: Student loan repayment worries
I have over $100,000 in student loans from my doctoral program. I am a first-generation college student and was unaware of issues around consolidating student loans (namely that you can only do this once) and government versus private company debt and made the mistake of responding to targeted marketing from Sallie Mae to consolidate my government loans with them (I thought they were a government agency). So now my loans are consolidated with them, at 8.25% interest and my payments of about $900 a month take up approximately 1/3 of my take home pay. I can easily pay the principal on my loans but the interest payments are really a lot of money and I’m trying to find ways to reduce it to something more manageable but I’m running into dead ends everywhere. At this point, I’m considering going back to school part time to take out loans at the current interest rate and using that money to pay off the higher interest balance. It feels crazy to do that, but I can’t think of anything else. Do you have any ideas?
Honestly, that might be your best solution, depending on the size of the loan you can get and how that compares to the actual tuition cost. However, if you’re not getting anything out of the coursework, it might not end up saving you much over the long run.
Another approach might be to stop by a local credit union and see if they can help. They may be able to put together some sort of loan package to help you with the most egregious of your loans, depending on your credit.
Your email actually speaks to the ludicrous nature of student loans. The fact that you’re stuck right now with an 8.25% interest loan is just nonsensical.
Q7: Debit card worries
My husband and I received a debit card from our bank recently. Our bank has changed hands so they’ve changed some of the policies. Before this, we didn’t have debit cards as you had to request them. Anyway, I’m very nervous about using this card because it seems like people could just directly access our checking account while using it. Should I be worried?
You’re correct in that a debit card offers direct access to your checking account. However, most debit cards – particularly ones sporting a VISA or Mastercard logo – offer some level of consumer protection, provided you keep an eye on your checking account.
Personally, I only use my card at the ATM, and I use an actual credit card for all purchasing. That way, if my number is stolen, it only affects the credit card account and my checking account is secure.
While I’m quite sure I would catch any undesired access, it’s not something I want to risk. If you feel nervous, too, don’t use it. There’s no real reason to do so if you have a credit card that you pay off each month anyway.
Q8: Investing in bonds still worthwhile?
Your Money or Your Life has had a profound impact on my thinking, too. Could you do a post on your opinion of whether his recommendations about investing in bonds is still the way to go?
The problem with bond investing is that the rates on bonds, particularly the most secure government bonds, are just incredibly low at the moment. If you lock in those bonds over the long haul, you’re going to be earning a very small return on them.
Currently, even the longest term government bonds are offering coupon rates around 2.75%. That means, to get a $27,500 annual return off of those bonds, you need to buy $1 million of them. Compare that to the rates even a few years ago, when long term bonds saw returns around 6% – meaning $1 million of them gives you an annual income of $60,000.
These bonds are about as secure as you can get, but I would be very uncomfortable locking down that much money for that long at that low of an interest rate. I’d probably buy shorter term ones – even though the return is even lower – or invest in something else, like the stocks of a very steady blue-chip company that pays dividends (like Coca-Cola).
Q9: No gifts by mutual agreement
My wife and I made an agreement to not spend a dime on gifts for each other in 2013. If we are to get each other gifts, they must be things we made ourselves, ideally out of things we already own (though I think a bit of leeway here is okay). I spent quite a bit of time actually making her a romantic poetry book for Valentine’s Day, hand-copying some poems into a journal I already had around.
This is an awesome idea, actually, and your poetry book is a very nice one.
My wife and I know each other so well at this point that we can get each other very small but very thoughtful gifts that work great for our exchanges. I think, in a long-term relationship, thoughtfulness really trumps anything else when it comes to gifts.
That poetry book idea, though… I’m going to have to “borrow” that one.
Q10: Careless with bill payment
I am very disciplined with my finances. I budget my expenses in advance and pay all my bills 5 to 10 days before due date. However sometimes, once or twice a year, I miss payments of certain cards and utilities simply because of my carelessness.
This thing makes me angry, depressed and gives me a feeling that I have lost. I have been able to get late payment charges waived from card companies oftentimes and sometimes I had to pay the penalty, but its not the penalties, its the feeling of a loser that eats me.
You really need a different bill payment routine. I used to have this same problem, but I fixed it with a better routine.
What I do is each week – usually on Sunday afternoon – I pay every outstanding bill that we have, all of them. This includes all bills with a due date that’s within the next thirty days.
I keep all of our bill statements either in a mail box in our home (for the paper bills) or in a folder on my computer (for the electronic ones).
This has worked really well for me. Sure, I might earn a few more cents in interest by waiting until closer to the due date, but it only takes one late bill to blow all of that away and more.
Got any questions? The best way to ask is to email me – email@example.com. 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.