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.
1. Radical change in career path
2. Organizing ideas for a book
3. Biweekly mortgage payments
4. ACS student loan and bankruptcy
5. Self-employment income and taxes
6. Target credit monitoring
7. Avoiding the money trap
8. Frightened about pension
9. Too much risk?
10. Great gift for college students
One of my favorite parts of the winter is that the weather is really conducive to making lots of different soups. During the summer, the weather is too warm for such a warm and hearty meal to have a whole lot of appeal, but in the winter… it’s soup season.
Soups are easy to make in a slow cooker. You can just pop in some ingredients in the morning, set it on low, come back in the evening, drop in some more, wait half an hour or so, and you have yourself a great dinner. I like to pop a few rolls in the oven to have with the soup, but that’s pretty easy, too.
A few days ago, we had a wonderful slow cooker potato soup – here’s the recipe. It took about twenty minutes of prep time early in the day… and that was pretty much it.
Winter might be cold and long… but a delicious soup helps it fly right past.
Q1: Radical change in career path
I graduated in May of 2013 with a B.S in psychology. My initial plan was to go for my PhD in Clinical Psychology, however due to several reasons my aspirations have changed. I currently have goals to become a Financial advisor. With that being said I am coming to you for advice. What suggestions do you have for someone with limited finance background going into the financial planning industry? What first steps do you suggest to put me on the right path?
The best advice I’ve seen for someone who wants to get into the financial planning industry comes from this article from Forbes. Make sure you check out the “pictures” section in that article, too.
The article’s recommendation is to get involved with a training program offered by a large financial institution, which will eventually lead to the certifications you’d need to hang out your own shingle.
Thankfully, you can begin this path no matter what your educational background is. The article even points out that the majority of people who become financial advisors enter that pathway from a different career.
Every time I have ever completed a book-length work, I started off by essentially creating a wiki of some kind. Think of a wiki as being like a small version of Wikipedia, except private and focused entirely on the characters and ideas and plot of your book.
I usually use Wikispaces for this, though I’ve also used Microsoft One Note locally to do this. I tried using note-taking software for it, but I found that they lacked the interlinking that I wanted between ideas, characters, and so forth.
What I usually do is set down as many of the ideas as I can before I start actually writing. For me, ideas almost always start with visualizing specific scenes, so I start with describing that scene as a single wiki page, then I try to add in details. Who are the characters in this scene? Why are they there? What will happen next? All of these things start branching off into separate pages and before I know it, a plot is growing, both backward and forward from that scene. When it feels right – usually, when there’s a sensible beginning and a sensible end to all of this – I start writing.
Doing all of this is free, so it’s actually a fun way to get started if you’ve ever thought about writing and had an idea but didn’t know how or where to start.
Q3: Biweekly mortgage payments
My brother says that he’s shaved years off of his mortgage by simply paying half of the monthly mortgage bill every two weeks when he gets paid. He tried to explain how this works but I think his math is wrong.
Your brother is actually right. You can literally shave years off of your mortgage by making your payments in just this fashion.
Let’s say, for example, that your monthly payment is $1,000 on your mortgage. Instead of paying $1,000 every month, you choose to pay $500 every two weeks.
First of all, there are 52 weeks in the year, so you’re actually making 26 payments over the course of the year. That adds up to $13,000 in mortgage payments rather than the $12,000 ($1,000 per month, and there are twelve months) that you’d otherwise make.
That extra $1,000 applies directly to the principal of the mortgage. This not only means that you owe $1,000 less in total, but it also means that in the future, when the amount of interest you owe each month is calculated, you’ll owe less interest than you would if you hadn’t paid that extra $1,000. Every future payment will have more going toward the principal and less toward the interest, which means the amount you owe will go down faster and faster and faster.
Over the course of a thirty year mortgage, this will add up to about seven years of payments. You’ll have the whole thing paid off in 23 years instead of 30.
This is a great plan for federal employees to follow – or anyone else who is paid every other week.
Q4: ACS student loan and bankruptcy
I have an ACS (Access) student loan. It is a private loan. In a worst case scenario, if I were to ever seek bankruptcy protection, is an ACS loan dischargeable? Or does it survive bankruptcy like a federal student loan?
Generally, the answer is no, but there are exceptions to that rule.
Can you demonstrate undue hardship, such as a serious medical condition? The courts are pretty tough on this, but if you can show that you’re genuinely unable to produce that money, private loans can be discharged.
If you can prove that the money was used for expenses other than tuition, you can sometimes get a partial discharge. The same is true if you used the money at an ineligible educational institution. Unfortunately, most of these things only happen if the lender made a mistake.
Q5: Self-employment income and taxes
Early last year, I did some freelance work that paid me $5,000. I was issued a check for this amount and I used it to pay some bills. How will this impact my taxes this year? What will I have to do differently?
Sometime in the next few weeks, you should receive a 1099 form from the people that employed you. The information on that form can easily be entered onto your tax forms. If you use a program like TurboTax, it’s just as easy as entering your W2s. In fact, I’d recommend using a tax preparation program as it makes everything quite easy.
Anyway, this $5,000 will simply be added to the total amount you earned for the year. Your main job likely took out enough taxes to cover your federal tax bill and give you a small refund, so it’s likely that this extra money will eat all of that and require you to pay in a small amount. It’s hard to tell exactly what that amount will be, but to be safe, I would expect to have to pay in about $1,500 in federal taxes total (and perhaps more at the state level).
If you don’t receive a 1099, don’t panic. You can still enter that data on your tax forms as additional income quite easily. If you do this, you should save all documentation you have of that income just in case the IRS reviews your tax filings.
Q6: Target credit monitoring
I heard on the news that Target is offering free credit monitoring to those affected by the credit card theft that occurred there. What do I need to do to get this?
It’s pretty easy. You just sign up at https://creditmonitoring.target.com/ to get started.
For more information, you should check out https://corporate.target.com/about/payment-card-issue.
The whole situation is a mess. We were lucky that we apparently did not shop at Target at all with a credit card during that timeframe according to our statements.
Q7: Avoiding the money trap
My husband accrued massive debt prior to our marriage. As a team, we have paid off well over 70,000 of debt over the years by mainly living off my income and using my husband’s salary for his debt. As of April 2014, we will be debt free except for our mortgage. I have no desire to pay down our mortgage as we are planning to move to a different state in five years to be close to family. My main question is how to avoid the trap of “have more, spend more?” We just welcomed a baby boy in October so I really want to start our new family life with a good financial plan. We save for retirement with 10 precent of our salaries going to our employers’ plans and an additional, separate Roth IRA. We have set u p a 529 plan for our son’s college. We also have a healthy emergency fund. Any ideas outside of an automatic transfer into savings each month? (Which we do already from my salary). I feel that the temptation will be still be there if the money is sitting in our savings account and easily accessible. We are looking at approximately 1000 to 1500 extra per month after taxes and subtracting our son’s daycare expenses from my husband’s salary.
At this point, I would sit down with your husband and talk about what your other goals in life are. What do you want to be doing in five years or ten years or twenty years?
Start assessing right now what you want those future points to look like. Do you want your child to have private education? Do you want to travel internationally as a family? Do you or your husband want to launch a business?
Different people have different goals. You just need to sit down and discuss them so that you can start putting plans in place to reach them.
Of course, if you don’t have an obvious plan in place, extra payments on the mortgage won’t hurt.
Q8: Frightened about pension
My husband and I are both 78 years old. For the last thirteen years my husband’s pension and our Social Security has supported us very nicely but lately we have been worried that [the company my husband worked for] may be struggling financially and might get rid of the pension program or cut it. I do not know legal details of how this would work and they haven’t officially done anything. I want to know what we can do to keep us safe if this were to happen.
It really depends on the rest of your financial state. Are you spending less than you bring in each month and each year right now? If you are, what are you doing with that extra money? Are you saving it?
If you’re already spending less than you earn and building up some savings, sit down and look at what would happen in your life without that pension money. If you just had Social Security and your savings, how long would you be able to live? What could you cut from your life and still have a comfortable lifestyle?
If you’re not spending less than you earn and this pension issue is a serious worry, start making changes to your spending right now. Look for things you can cut from your spending and start socking away money. This way, if your pension does vanish, you’ll still have that savings.
You should also be in touch with any unions or other employee organizations related to this company, even if your husband was not a member. They’ll be up to date on what’s happening with the pensions and will likely have suggestions for you.
Q9: Too much risk?
I am 58 and my wife is 56. Recently, we had a financial advisor look at our retirement accounts. I have all of my money in a Target Retirement fund which he said was fine, but he had a fit because my wife has all of her money in a Total Market Index Fund. He told us that there was too much risk. I don’t see why we would ever take our money out of that fund.
Here’s why. Imagine that you’re retired. You think you have plenty of money to last all the way through your retirement. Suddenly, we have another stock market year like 2008 and suddenly 25% of your retirement savings vanishes in a blink. The economy stays really weak and the stocks rebound slowly. Your spending is eating through that money quite rapidly, but if you move it into something more secure, you just lock in all of those losses. What do you do?
The preferred method for retirement savings is to do basically what your target retirement fund is doing. The closer you get to retirement, the more your money slides from things like stocks (high risk, high reward) into things like bonds (medium risk, medium reward) and cash (low risk, low reward). That way, when you’re trying to assess when to retire, you don’t have to worry about a big collapse in the value of your retirement fund.
It’s sometimes hard to see that argument when your stocks are riding an elevator up, up, and away as they’ve been doing over the last few years, but there is risk and there will eventually be a bear market and the value of those stocks will drop.
Q10: Great gift for college students
Great gift for college student or for anyone who doesn’t have a car and must use a laundromat:
a box of laundry detergent
a box of dryer sheets
zipper lock sandwich baggies
Measure out enough detergent for one load, zip it into a baggie. Use the tape to secure one dryer sheet to the outside of the baggie. Voila! Instant laundry to go. Give this along with a laundry bag or basket if that’s appropriate.
I made these for my kids when they lived in the dorm. They were the envy of all the kids who had to cough up the $1 for each little box of detergent from the automated machine at the laundromat or lug a huge container of detergent to the laundromat. Now that my mother lives in a senior apartment facility, I make them for her too.
This is a great idea!
A few years ago, I saw some college-age students at a laundromat. They had things similar to what you describe. They had a bunch of baggies that each had eight quarters, a dryer sheet, and one of those little Tide laundry packets in it. It had everything they needed to do a load of laundry and dry it. I had assumed they made the packets themselves, but it makes a lot of sense that the packets were a gift.
I will say that one of the worst memories of college was having to lug a giant jug of detergent all the way down to the laundry room that was literally in another dormitory connected to my own. This really is a sweet gift idea for college students.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll 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.