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. Generous severance, no job
2. Should I sell my bike?
3. Road tripping with kids
4. Health insurance in retirement
5. Moving from saving to investing
6. Disability insurance and credit cards
7. Young person starting to invest
9. Frugal veganism
10. Single woman wants child
Much like half of America, I spent yesterday half-watching the Super Bowl with a bunch of friends. The highlight was watching my son jump around like crazy whenever there was a big tackle. He actually liked the big tackles more than anything else in the game.
Q1: Generous severance, no job
My wife and I both work, she at a job she’s had for over 30 years. Until recently I had both a full-time day job and a part-time teaching job. I was recently fired from the full-time job and given a year’s salary as severance. While looking for a new job I can also collect unemployment.
My question is: what do we do with that money? It’s a sizable chunk — roughly 28% of our combined household income. I could use it to pay off my credit card and other debt, leaving me with a little more than two thirds of the buyout check. We could use the rest to pay off most of a home equity loan, but its APR is only 3.25% so that is a less attractive option.
Or I could put the severance check in the bank and pay myself my usual salary (deducting for taxes and FICA) while hunting for a new job. Considering my age (60) and the current job market, it could easily take a year before I find anything.
Right now I have some breathing room but the future is a little scary. What would you advise?
I would pay off your high interest debts, then bank the remainder of it and issue yourself payments from that account to “replace” part of your paycheck.
However, I would not just issue yourself your “usual salary.” When you return to work, most likely it will not be for a salary equal to what you were making. You’re going to be adjusting to some lifestyle changes.
I would instead sit down and make out a budget so that you’re clear on what your actual expenses are, then issue yourself a paycheck from that account that, along with your other income streams, adds up to what you need to cover that budget.
This will not only push you to live leaner, but it will also help the amount you have in savings to last a lot longer than it would have otherwise.
Q2: Should I sell my bike?
I have a pretty nice and only slightly used Specialize street/road bike that I paid around $350 for about five years ago. At the time, I was living in a small town with relatively flat terrain and wide enough streets, and I used it to get to work and run errands downtown when the weather was nice. Three years ago I moved to a large city with hilly terrain, narrow streets, and almost no bike lanes. I’ve looked at all the possible routes, and right now I’m neither in shape nor daring enough to try to bike to work, much less anywhere else. The bike has languished in storage all this time. Is it worth it to sell the bike now and bank the money away for replacing it at some point in the next few years when I’m in better shape (working towards that now), or should I hang onto it until I’m ready to start riding outside again?
Well, you seem to have an intent to use it again, plus you seem to also have an active plan to get to that point. This suggests to me that it’s an item worth keeping unless you have serious financial needs.
Of course, if either of those attributes changes (your plan for riding it again or your intent to actually ride again) goes away, then I would probably sell off the bike because, at that point, it’s sitting around gathering dust with no serious intent for future use.
Be honest with yourself about this and you’ll make the right move.
Q3: Road tripping with kids
My husband and I just moved about five hours away from my parents. We plan on visiting them every few months because in the past we lived down the block from them and we have a close relationship and want them to know our kids as they grow up (they’re two and three). I know you take similar road trips to visit family. How do you make that long of a car trip work with little ones without going crazy?
We often do our road trip in the evenings, starting off with dinner and any bedtime prep we need to do. The kids will get their bath, they’ll use the toilet, they’ll put on pajamas, and then we’ll put them in the car. If that’s not feasible, then we try to bank on the period right after lunch for departure, as it’ll encourage the young ones to nap for at least some of the trip.
Always go prepped with activities in mind, as well as supplies for the most common kid problems (wet pants, hunger, thirst). We often sing songs for parts of the trip, for example, or play some sort of “I spy” game where the parent who is the passenger gets the kids to look for things outside the windows.
We used these tactics in 2009 to take a three year old and a one year old from north of Des Moines, Iowa to Dallas, Texas in a single day.
Q4: Health insurance in retirement
My spouse is likely to retire this year and our income will be cut in half. He is over 65 and developed a chronic condition last year that costs us about $1000-2000/year beyond what insurance covers, and has potential for developments that are more expensive. Usually I would ask around for other couples in the same situation as we, but he doesn’t want his age publicized.
First half of our figuring…
Better to put him on my plan which isn’t in-network for his specialist? Cobra his plan at $600/ month? Find a Medicare part B plan. We hear of doctors no longer accepting Medicare plans.
Second part to figure is insurance for our just-out-of-college son …
He is on Dad’s plan at $400/month and we cobra-ed the dental plan.
I have a not quite as good plan. To put both on my plan will be $1000. $500/month for spouse alone.
Our son has applied for many jobs, including part time, and is still looking after 6 months. It seems likelier he will find part-time before full time. So long as he is actively looking and doing volunteer work, we want to keep him insured. We live in an expensive area for health care and insurance.
My take home pay is just over $2000/month (affected by high flex withholdings – last year over $5000 in dental and medical bills). Hope to live on my salary as much as possible and put most of SS into savings. Our only debt is $900/month mortgage. In a year we’ll begin taking money out of IRAs (about $1700/year minus taxes).
If I were you, I’d sit down with his doctors and get some realistic pictures of his needs over the next few years. Is he going to need the specialist for continued care over the next few years (with the understanding that you would return to that specialist if necessary)? What self-care options does he have? What are the chances of a severe downturn in his condition?
To make a decision like this, you need facts. You need the clearest picture possible of his condition, what the minimal care requirements are, and what the odds are (in their best estimates) of further care.
Right now, you’re spending $X a year on care. Is that truly the minimum, or is that spending based on what the doctor throws out there without considering cost issues (in other words, a doctor assuming that insurance is paying for everything)? Obviously, if you can minimize costs, you should be on the least expensive insurance that really only kicks in in the case of a serious downturn.
Q5: Moving from saving to investing
my husband and I went through very hard financial times a couple of years ago (we owned a house in California that the value dropped two-thirds, and we couldn’t find work due to living in a county with a 20% unemployment rate) and we have since relocated to Oregon after filing for bankruptcy and including our home in it. So far, we have been successful in re-establishing credit with a used car loan with a reasonable payment and we each have a secured credit card. Our credit scores are back up to the 700s. Now, we each have steady jobs and have been able to sock away some savings each month. We are both contributing 5% to our 401ks (our employers contribute another 5% as well) so we have 10% going into each 401k monthly. We have emergency savings with ING as well as sub accounts set up for various items (a small vacation fund, and a fund for large purchases, for instance, our washer and dryer are on the fritz and we don’t want to have to finance that purchase when they finally give out). My question is what else we should be investing in. As our emergency savings grows to a point where we could pay for our living expenses for several months in the event of a layoff, we would like to invest in a vehicle to make our money grow, in the event that we ever decide to purchase a home again (which we are not sure we want to after the heartbreak of losing our first home). We are in our late 20′s.
When you reach that point – and I wouldn’t jump into investing until you do – your best bet would be to open a normal investment account at an investing house that you trust (I use Vanguard) and invest in a very small handful of investments that are well-diversified and that you understand.
Since you’re not quite at that point yet, I would suggest picking up a book or two on general investing. My personal pick is The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf. It’s my single favorite book ever on investing.
Take it slow. If you’re unsure, leave it in savings – it’s not losing value there and it is gaining a small return. There are far worse things to be doing with your money than simply leaving it there.
Q6: Disability insurance and credit cards
I am currently a 53 y/o female battling cancer. I have been following your site for about 2 years. Last year in an effort to get my financial house in order I started saving for an emergency fund and really looking at the future. I was working full time at a job with no benefits…..my choice, as the money was better. Health insurance is through my husband. I bought a disbility insurance policy in March 2010 with the plan to get a job with benefits eventually. In June of 2010 I was diagnosed with cancer. Since I’m older the premium was a little high and I opted for a 3 month elimination period before I could receive benefits. The wonderful folks I work with knew my dilemma and between them all they collected over $2000. How awesome is that? That money paid for all the medical bills I was responsible for. I have set aside enough money to cover my share of medical bills for 2011. I have applied for social security disability and was denied. Folks have told me I need a lawyer to facilitate that process of appealing. Do you have any knowledge of that? Also, if I should die will my husband be responsible for my CC debt? I owe about $7000 and a car note for about $3500. I realize how incredibly lucky I am that I listened to that little voice telling me to get disability insurance. I would encourage all who do not have that benefit to look at getting it.
I am not familiar with the Social Security appeals process, but I would assume an appropriate lawyer would help you with that process.
As for whether your husband would be responsible for your credit card debt, it depends on how the assets in your life are arranged. If the cards are in your name, then assets that are in your name will have to pay for those debts before he can claim them. You also can’t simply switch everything to his name immediately and avoid it, because laws also check property that was in your name within the last several years.
Some of the stickier areas – such as checking accounts you both use – likely come down to the aggressiveness of the credit card company in getting what they can from your estate.
Q7: Young person starting to invest
‘m a young student (around 20) and I’m starting to invest my hard earned income. I’m lucky to live in my parents’ house, so I don’t have rent or grocery to pay. Therefore, I think the timming is right to start. What book would you recommend me to read to get a better knowledge of investment (read here placement, investment fund, bond, etc.)?
Above, I mentioned The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf, which is certainly a great one-stop-shop for investment information.
However, you’re in a different situation than many of the readers of that book, so I’m not sure it would be the perfect choice for you. My first question would be whether or not you’re using student loans to cover your education. If you are, I would be focused more on minimizing the impact they will have on your future than on investing that money, because the weight of a large pile of student loans will heavily restrict your post-college choices.
Beyond that, I would probably suggest reading Michael Masterson’s Automatic Wealth for Grads (probably the best all-around “college graduation” type of book out there) and focus on putting yourself in the best place to execute the ideas in that book.
What do you think about sweeping (going online and entering in a ton of contests in the hopes of winning money, prizes, trips, etc)? I’ve heard of people making some significant money and/or selling the items that they won. The only drawbacks I can come up with is the spam (use a different email address) and the time involved in visiting thousands of websites every day or week to enter into these contests. I was just curious if you had heard of this being done before and what your thoughts were?
If you’re looking at it as a hobby, I think it’s a reasonably good one. There are no costs involved other than the time you spend (and the resources you already have, such as the computer and the ‘net access) and if it’s something you get a great deal of personal joy from doing, then go for it.
If you’re looking at it as a revenue stream, then I’d say that it’s far too risky to actually bank on in any realistic way. You have no certainty of getting any type of return for your efforts when sweeping.
It comes down to you and what you enjoy. For me, entering contests isn’t an enjoyable thing, so you wouldn’t find me doing it much, if at all.
Q9: Frugal veganism
I’ve had an interest in veganism for a while now, but I can’t justify the additional costs associated with it. How do you find cheap tofu and quinoa? How do you avoid noodles that are made from eggs? That last part is particularly important to me, since I run marathons, and the noodles are essential acquiring energy. Even brown rice doesn’t seem to do the trick for me.
For one, tofu and quinoa aren’t the backbone of my diet. A great deal of my protein comes from beans and from raw vegetables, which, if eaten with any realistic abundance, will provide all the protein you need. Beans and raw vegetables are pretty inexpensive if you take the time to shop around.
Of course, you’re throwing another kink into the equation – you’re wanting a cheap vegan diet for a marathon runner? If you want to be vegan and also want to engage in very high-impact athletic events like that, I would consult dieticians and your doctor before making a move. Your body’s metabolism is going to have exceptional demands and I would want to be certain that those demands are met.
As for eggless noodles, you can easily make noodles from just water, flour, and a bit of corn starch and salt. I’d try three cups of flour, one and a half cups of water, and maybe a teaspoon each of corn starch and salt.
If you’re looking to buy them in a store, I’d look at the selection of a wide variety of stores. Some stores with health food sections sell such noodles.
Q10: Single woman wants child
I am a single woman, 32, never married nor do I want to. I am considering adopting a child. I have a fiexible career in which I earn $35K, plus I have $25K put aside to pay for the adoption and another $10K saved as an emergency fund. Is this a financially realistic thing to do?
I think it’s financially realistic if that’s your current situation. My concern would be for the child – and for you – in terms of emotional and intellectual needs.
Being a parent is very demanding. Your child will need a lot from you in ways that you can’t even anticipate yet. It’s not easy at all. There are times where you’re going to need emotional support and there are other times when your child is simply going to need the perspective of someone else in their life.
If you’re going to do this, I would not do it completely in a vacuum. Do you have a sibling that can help in certain situations with regards to giving parental advice and encouragement when needed? A close friend?
Make sure you’re ready to do this and that you’re going to have all the resources needed to give this child everything he or she needs.
Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.