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.
- 401(k) question
- Channeling political dreams
- Elder relative scammed
- Rampant gambling
- Remembering things
- Using Roth for home purchase
- Data backup
- Career reboot
- Food buying conflicts
- Hamburger or steak?
Most of the time, I look at a to-do list as a tool that keeps me moving forward on the things I need to and want to achieve in life.
At other times, it can feel like a treadmill that I never really get off of. As soon as I achieve one thing, another thing pops up.
Whenever I feel that way, the best approach for me is to step back and look at things from a broader perspective. What are all of these little things really building towards? I can usually tie every little thing on my list to a bigger thing, turning my to-do list into a bunch of mixed-up individual pieces for several different large jigsaw puzzles. Checking off an item not only gets it off my list, it puts it in place in the appropriate jigsaw puzzle.
Somehow, that makes it all easier.
Q1: 401(k) question
Back in the spring, my wife left her former job for a new position with another company. Although she had a 401k fund (managed by Vanguard) with her old job, she did not open a new one with the new company, so contributions on her 401k stopped. Currently it is worth about $40,000. Last week I asked her to inquire about it with Vanguard as to what our options are. She was told she could (A) open a 401K with her new company and roll it over, (B) leave it as is and let it (presumably) steadily gain value, or (C) cash it out, which would, as she was told, incur a 10% penalty plus another 20% tax hit. My rough, in-my-head math says that would result in us getting a check for about $28,000. This also happens to be pretty much the total amount of non-mortgage debt we owe – $14k student loan, $10k credit card, $4k car loan.
We currently have $11,000 in cash savings, plenty for a comfortable emergency fund. I’m currently able to pay up to $800 a month on any of the 3 debts we have, in addition to the payments we’re currently making on it (two $150 payments per month to student loan, $200 month to credit card, $175 month to car). My plan is to just go all Dave Ramsey on them and start knocking them out one by one. I’d estimate that it’d take just over 2 years at this pace to clear all our debt (other than our mortgage). This would leave us with about $1400 a month to save, invest, etc.
So I guess my question is, would it be better to cash out the 401K, which could clear our debts completely, or roll it into a new 401k account and stick with my repayment plan?
(My wife will be opening a 401k at her new company in either case, so it’s more of a question of does she start from scratch or with a $40,000 head start. However, that discretionary $800 a month we have would go down, perhaps by half, depending on how much she decides to contribute to her retirement plan.)
How old are you? How much retirement savings do you have besides the amounts mentioned in your email?
If you don’t have any other retirement savings, I wouldn’t cash it out. If you are over about 35 and don’t have a lot of other retirement savings, I wouldn’t cash it out.
It is extremely hard to “catch up” on retirement savings once you’re behind. Losing $40K in retirement savings with a long time to go until retirement is very difficult for most families to come back from in terms of their retirement savings. You’re virtually guaranteeing that you’ll be working more years down the road.
Q2: Channeling political dreams
My oldest son is seventeen and fascinated by politics. He gets very good grades in school. He should go to school, of course, but I’m not sure what he should study. Is political science the right choice?
Political science is a good choice, as is any topical area he might want to focus on with his political efforts. I’d probably encourage a political science major with a minor in some other area where he might want to really influence policy.
Just as important, though, is that he gets involved with local and state politics. He should spend his spare time volunteering for various political campaigns, getting his hands dirty in the nuts and bolts of politics while also building up his resume. There is no better training in how political campaigns work and how to talk to voters than working for a campaign.
If you dig into the background of the people who have succeeded in politics, you’ll often find that they have a history of political campaign involvement dating back to their earliest years.
Q3: Elder relative scammed
I was hoping you could offer some advice for a situation my Mother is in. She’s in her 70s and was scammed by a group in Florida when she was trying to sell a time share apartment she’s had forever. She lost tens of thousands of her retirement money to them and the FBI and Florida State District Attorney’s office have both said that it’s pretty much impossible to recoup the money. She’s finally adjusted to the fact that the money is gone and she has changed her contact info so that they no longer can take advantage of her. It’s been a painful series of events and a real wakeup call that she’s getting older and more vulnerable.
My question relates to payments that the scammers got her to make with a credit card. She’s contacted the card companies, explained the situation, offered to show the FBI reports, etc, but they won’t forgive the debts. She said they told them that it was because the 90 day complaint window had expired.
One tactic I am thinking about is to reduce the total debt with them by stopping all payments on the current cards and then negotiating a settlement for pennies on the dollar. I have with experience in this area, she used to work in the industry and I can turn to her for the exact methods to accomplish this.
I know this would wreck her credit scores for a while but I am not sure if that’s a big deal considering her financial situation. She owns her house outright, and if she downsizes her house (something she’s mentioned) she should be able to pay cash from the proceeds of the sale of her current house. I am not sure what her overall retirement situation is though.
I don’t feel particularly sorry for the credit card companies in this regard, their actions have been pretty callous and uncaring towards my Mother. In my mind it’s just another blow to her and they are piling on to the misery she’s faced.
If she has minimal use for credit in the near future, this might be a good response to the situation.
Before you go “nuclear,” though, I would give the credit card companies a call and simply negotiate with them. Tell them what happened, tell them your course of action that you’re about to take, and talk about a settlement that leaves both parties with something.
If the settlement you get up front still isn’t enough, then go forward with your plan.
Q4: Rampant gambling
During the Super Bowl and the World Series and the NCAA basketball tournament, my husband gambles a lot of money. He’s usually in a dozen different pools, in individual bets with his friends, and he even makes a lot of stupid off-the-cuff bets while the game is going on.
Over the course of a lot of years, he’s probably broken even, but he has hit a lot of losing streaks along the way and a few times it has really hit our family’s finances.
What can I do to get him to stop?
It doesn’t sound like a gambling addiction here. It mostly sounds like foolishness with friends and coworkers.
My suggestion would be to allot him a certain amount for gambling during each of those events and ask him to keep the gambling within that “allowance.” If he wants to hold onto winnings and sink them into future bets, that’s his choice.
I would make that allowance fairly small, and then simply write it off in terms of your family’s budget.
If he can’t stay within an agreed amount, then he has a problem and you should seek out some additional form of counseling.
Q5: Remembering things
Do you have any way of remembering things when you don’t have access to paper or electronic record keeping? For instance, a thought of something I had to do came to me while I was otherwise occupied, and I knew it would be a challenge to remember it because it had to do with a course I had finished. Fortunately, it came to me again when I was thinking of the rooms in my house and where I kept my books for that course. Do you have any other ideas?
This is actually a really good memory technique that a lot of people use. They associate something they need to remember in the short term with something deeply embedded in their long-term memory so that it’s easy to pull up.
I actually use this technique for remembering things in the short term. I actually often think of my parents’ house, where I grew up, and I imagine the things I want to remember sitting obviously out of place in their house. I focus on that oddity for a while.
What I find is that when I need to recall it an hour later, I can usually recall almost everything I need to remember.
I still trust a pad of paper and a pen much more than this technique, but this little tactic actually works quite well.
Q6: Using Roth for home purchase
My wife and I are looking to buy a house within the next 6 months to 1 year and are trying to figure out where to get the down-payment as well as save up for an emergency fund for the house.
We currently make about $62,000 per year and have about $50,000 in student loans. We are both 23 and currently have about $13,000 saved for retirement in a 401K. We currently have a $1000 emergency fund and want to increase that to about $10,000 before purchasing a house. Our current rent payment is $1,150/month but assuming we could purchase a house we think we would be looking for a house with a mortgage of $900/month with either a 15 or 20 year fixed rate which would save us $250 per month which we could use for paying off the student loans. We are on a budget which is stretched as far as it currently can so the reduction in rent would help.
What I am thinking about doing is switching the retirement savings to a Roth IRA to save up for the down-payment and then withdraw that money to pay for the down-payment. I understand you can take up to $10,000 out for your first home payment. I currently contribute 6% and since my company has a 6% match on contributions also that would double whatever we put in. My best estimate is that we could save about $3700 in 6 months and $7400 for 1 year.
Being so young do you think this would be a good option or are there any other loopholes that I am not seeing? Or are we better off just to stop contributing to the retirement account for a while and save the money in a savings account?
With current rates, that means you’re looking at a $130,000 mortgage – that would give you payments around $900 a month on a 15 year mortgage. This would add up to a $32,500 down payment for 20% down, targeting a house around $162,500. So, you’re trying to figure out the fastest way to $32,500.
You have a few options here. One, you could simply take out multiple mortgages or get PMI. This will add to your monthly bill a bit. That will get you into a home the fastest, but it also means paying out more interest over the life of the loan. Two, you could simply save until you have that full down payment, which will likely take at least a few years given your current situation. That’s probably the best route overall.
If you’re committed to the PMI route, which it sounds like you are, focus entirely on an emergency fund and assume you’re going to be trying to buy with nothing down. There are going to be expenses when you move and you’re better off with cash in hand to cover those expenses than with a 2% down payment and credit card debt.
In either case, I wouldn’t walk away from retirement savings right now. Every dollar you put into retirement right now is going to be worth $10 to $20 in retirement and will actually mean about $4 or $5 in savings in fifteen years. There is no better time to contribute to retirement than when you’re very young.
Q7: Data backup
I want to back up some of the data on my computer. What’s the least expensive way to do it?
It really depends on what you specifically want.
Do you want automated off-site backup? Are you storing items with personal information on them (meaning sharing the data with a third party is a concern) or are you just storing a family photo archive? Do you just want a second copy in the filing cabinet in case your hard drive in your computer fails? You’re looking at several different solutions here.
Our solution is to maintain a backup of the files we want to save using an external USB hard drive. I have it set up to copy the contents of a few folders on my computer to that hard drive every night.
On an irregular basis, I take that hard drive and drop it in offsite secure storage (a bank deposit box), at which point I take one of the drives already in offsite secure storage, bring it home, and start making nightly backups to that drive.
This policy works well for me. I’m not sharing data with a third party source, but I do have backups both in my home and outside my home.
Q8: Career reboot
I’m in an industry that, although I love very much, is dying. I truly don’t know how much longer I can stay in it. I’ve looked into other jobs that would use my skills and require little to no more training, but I’m not particularly interested in any of them. I’ve thus decided I should go back to college to get a master’s degree. My biggest problem is that I have two goals that for me don’t seem to mesh: 1) Get a degree that will give me lots of opportunities for a job, plus better pay (right now I make very little, especially considering I have a bachelor’s degree) and 2) get a degree in a field I will enjoy. From my research, all the careers that are always touted for having lots of openings, like nursing and technology, sound boring. The few that do sound interesting would require me to be in school for quite a while because they are so different from what I studied in college, and I would have to go take some undergraduate classes first before I could even start on the master’s degree. I’m worried that the few degree programs I’m interested in that are offered by my state universities (I also don’t want to go horribly broke) would have limited opportunities for jobs. I feel like I could really use some career counseling to help me evaluate the programs I’m looking at and also some I might not have thought of, but I have no experience with career counselors and don’t know which ones are legitimate and whether it’s a good use of money (I don’t even know how much they cost). Any idea on what the best way to approach this would be or any other source I could use to help make this decision?
If you want to try a career counselor, my honest suggestion is to start with personal recommendations. Do you know of anyone who successfully pulled off a career switch recently or found a new job recently? Ask that person how they did it and if they point you to a counselor, try that person. The career counseling field has a lot of good people in it and a lot of fly-by-night people who are just trying to make a quick buck.
If you’re looking for a place to start, I suggest hitting the library and checking out a copy of What Color Is Your Parachute?, which is pretty close to the “career counselor” experience in book form. I highly recommend it.
I would strongly encourage you to find a path you’re truly on board with before making any major choices. Don’t hop into something you’re unsure about just to get something done or you’ll regret it down the road.
Q9: Food buying conflicts
My husband and I are at odds. I’ve started buying a lot of basic ingredients and cooking our own meals. They turn out pretty well – I like them – and they’re certainly less expensive than take-out or something like that.
Problem is he hates it. He seems to dislike everything I make. If he gets home before I do, he just orders some food to be delivered.
I’m not sure what to do.
My suggestion would be to try to replicate dishes you know that he likes.
When you order food at a restaurant or for delivery, he likely orders meals with certain themes. There are some dishes he’s attracted to and so on.
For now, don’t sweat perfectly matching the grocery flyer or anything when making meals at home. Instead, strive to make meals that you think he will actually enjoy.
It sounds like you’re doing the meal selections and it may be that you’re – consciously or not – choosing things that you like without any input from him. If you want to take over the family’s meals in this way, you’ve got to take into account everyone who’s going to have to eat what you make.
Q10: Hamburger or steak?
I had 20+ family members over today. My brothers and their families. We have all been finacially successful, but my husband is a physician and they are businessmen so have always thought my husband made a LOT more money. So wrong! They live in fancy new custom built homes and we live in a paid for tract home. My kids are very well educated (our choice to pay for private schools) and theirs aren’t and thus are not as successful in careers as my kids. They have grandkids and we don’t yet – despite having kids who are plenty old but they are pursuing careers and delaying marriage and families. At any rate, the point is these are choices – and cadillac choices at that. These have never been about choosing between hamburger and meds. It’s always been the choice between hamburger and steak. We have chosen hamburger and are happy with our choices. They went home tonight to their relatively fancier houses and I am here in my home. A house is not a home. Fancy cars don’t get you there any faster. Education is always a good investment.
It’s all about what you find to be important. You can usually figure out what is important to a person pretty quickly if you’re observant.
I will say this: investment in your kids will pay off, whether it’s an investment of time or an investment of money, whether it’s in their educational opportunities or their personal passions.
However, it’s got to be matched with some enthusiasm from the parents. If you never read, why would your children read? If you never learn new things, why would your children do so? They emulate you far more than you think.
Got any questions? The best way to ask is to email me – firstname.lastname@example.org. 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.