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. Overseas travel with kids
3. Life or disability insurance?
4. Prepaying funeral expenses
5. Reaching a financially clueless student
6. Self-publishing a book
7. Emergency fund alternatives
8. Taxes on found money
9. Buying bond funds
10. Secure wallet?
One of the highlights of my day is that first hour or so after my children come home from school. They get off the bus at about 3:30 and come into the house, usually eager to tell me about their day.
For the next hour and a half, I usually stop all work or other things and just spend time with them. We play games. We work on projects. We read books.
It’s a highlight of my day. It’s something that I know will slowly end as they grow older and have other activities and other things going on in their lives.
However, the ability to be there for them every single day at this point in their lives is something I wouldn’t trade for anything.
I have a savings account that I dump a couple hundred dollars into each month. Every single month, like clockwork. That money is explicitly set aside for international travel when our children are old enough. It’s a savings goal that both my wife and I value very much.
We’re going to wait for a while for international travel, at least until our children are old enough to appreciate the travel and display at least a bit of self-reliance. Our first trip will likely happen when our youngest is nine or so, and it will be to an English-speaking foreign nation, such as Great Britain or Australia.
After that, it’s really going to depend on family interests and other such constraints.
For those unaware, Bitcoin is essentially a digital currency that uses cryptographic methods to ensure that each “coin” is unique and that it’s securely transferred when someone wants to use it.
It’s a very clever idea in how it works, but it’s going to be tricky to draw it into wide mainstream use without very large banking entities and other groups getting involved.
I think the idea behind Bitcoin will eventually be used in a real-world hybrid currency in the future – I suppose it might be Bitcoin itself that is used, but I’m not sure. The ideas behind it make a lot of sense.
Q3: Life or disability insurance?
I am a single 28 year old female who is healthy and who has no debt. I rent and make a salary of $45,000 a year as a public school employee. I have been managing my finances well, maxing out my Roth IRA, and continuing to save more for personal savings and possibly a down payment on a home.
I have no dependents, but I want to protect my family(mom, dad, sister, and brother-in-law) in case I would have an accident or health issue that prevents me from working or requires a long-term care facility. I am eligible for social security benefits of $700 per month for long term disability, and I have 45 days of paid salary for short-term disabilities.
Would term or whole life insurance cover medical or long term care expenses for my parents and sister if I required them, or do I need to look specifically at long term care insurance? I want to be educated before I talk with an insurance agent so I am not taken advantage of, and so I know my options.
For what you want, you’re going to want long-term care insurance. A term policy only provides money in the case of death, and a whole life policy just tacks an investment onto that term policy.
Your best bet is to shop around widely. Don’t just go for the first policy that comes your way. You’re going to want to study the various offers that different companies have, read the reviews of those policies, and pick one that matches what you really need.
It is very thoughtful of you to consider this type of insurance, as it does protect your loved ones from extra expenses. It will also likely boost the type of care you’d receive in that situation.
Q4: Prepaying funeral expenses
I’m 78 years old. The funeral home my family has always done business with allows people to prepay for their funerals. You can pay for them at their current cost now and then when you die it’s already paid for. I’m considering doing this but is it a wise move with my money?
It’s a completely sensible move. I see nothing wrong with it.
For one, it’s reasonable to expect that the price of a funeral will go up at some rate over time, so in that sense, your pre-purchase is an investment. There is the risk that the funeral home will go out of business in the interim, but that’s usually a minor risk for a stable business that’s been around for a long time and has working relationships with many families.
For another, it will increase the amount of life insurance money that your descendants will receive when you pass away, as there will be no funeral costs for them.
Q5: Reaching a financially clueless student
We got all of our kids thru undergrad debt-free and we live well below our means. I think they’ve gotten a pretty good “education” at home re: how to deal with finances – at least I did, until recently. Now our youngest is a recent college grad and has announced he wants to go to law school. He’s got the brains to do it, but we are now at a point in our lives where we really need to focus on our needs, i.e. pay off the mortgage and fully fund our retirement. Accordingly, we are not in a position to fund his law school.
Because he has never had to pay for school, rent, food or a car, etc he is absolutely clueless re: how much law school is going to cost and how difficult it is to pay off student loans (something both my spouse and I are quite familiar with). We’ve told him about our struggles but I’m not sure it really sinks in, seeing as he’s had no first hand experience with it.
He is living at home for the next 8 months and saving every dime he makes for law school (although that will hardly be a drop in the bucket). I have offered repeatedly to teach him how to make a written budget, plan his meals, learn to cook and grocery shop etc but he doesn’t seem very receptive to that. He’s 22 years old.
Do you have any suggestions on how we might better reach him? I’m afraid if we don’t (and the window of opportunity gets smaller every day) he’s going to get himself seriously jacked on student loans.
With the small window you have and the relative lack of receptiveness to the idea, I don’t think there’s much you can do at this point to get through to him.
All you can do is make it clear to him that there are things he can do to make this entire process easier on him over the long haul. If he’s not interested, he’s not interested.
You can lead a horse to water, but you cannot make him drink.
Q6: Self-publishing a book
I wrote a novel a while ago that I think has mass appeal. I’ve tried to get a literary agent for it but I never get any responses back. Do you think it’s worthwhile to self-publish it? Is that a route you would take?
I think self-publishing can certainly work, but you’ll need to do promotional work to make it really start rolling.
The first step I’d take is to get it edited. Get some friends you really trust to read it and tell you what’s wrong with it, grammatically and otherwise. Fix those problems, then do it again. You may even want to spring for a real freelance editor, but that’s your call.
While you’re going through that process, I’d start talking about the book online. Join forums related to the type of book that you’re writing and just get involved in the discussions. Don’t promote your book at all – just get involved in the community. Start sharing about it when it’s getting close to being published.
That’s really the best thing you can do.
Q7: Emergency fund alternatives
I wanted to get your opinion on my current saving strategy. I’ve realized that I have a terrible time keeping money in savings that is easily-accessible (i.e. I had built $2000 between SmartyPig and ING, but used it all up for non-emergencies last summer because I had check cards for both accounts). I want to have quick access to money in an emergency, and waiting 3-4 business days to get it out of a savings account without card access is scary. Since savings accounts don’t seem to work, what I’ve been working on is building up a cash emergency fund (which has happened fairly quickly once I started concerting my efforts). I realized that if I don’t have a way to spend this money online (where I do most of our household shopping and tend to make unplanned purchases), it stays safely in my emergency fund (unfortunately, if I enter a card’s number a few times, I remember it, so hiding the cards doesn’t work). The cash stays in a hidden, fire-proof safe. I really hate handing over cash, so I think this plan will work, but I would like to get any advice you have regarding pitfalls or drawbacks to this approach (retirement savings is automatically withdrawn, so that is not a problem or temptation).
What you’re really seeking is some kind of “barrier” that will keep you from spending that money you’re trying to save up. Is the safe enough of a “barrier” to keep you from spending it? A check card kept somewhere in your home isn’t enough of a barrier, it seems.
Another option is to have it put in a savings account at a different local bank, but not have a check card issued for the account. That way, you actually have to go there during business hours to retrieve it. At most, you’d have to wait two days or so to get your money – most of the time, the wait would be less than 24 hours. You could also use a safe deposit box.
My real concern with the safe is home robbery. If a robber finds a safe, they’re going to take it.
Found money is taxable as regular income when found. Under the spirit of the law, you should report it as regular income, and the same goes for the penny you found on the street.
Of course, it’s next to impossible for any tax authority to verify such a small amount. They’re not going to even know to audit you or to check for it. It’s one of those legal grey areas that’s impossible to do anything about.
Q9: Buying bond funds
As I get older, I keep hearing that I should have money in bond funds. However, with interest rates being as low as they are, they are bound to go up eventually. That seems like it would be bad for bond funds, which will drive the net asset value down. I was wondering: Do bond funds work the same as stock funds as far as when they are down you are buying them “on sale”? Or is it different and you are just throwing good money after bad?
Bond prices and thus bond fund prices generally move in the opposite way to interest rates. If interest rates go down, their face value goes up.
Generally, bond fund values remain pretty stable over time if the interest rate stays the same, assuming you’re buying a stable bond fund like Vanguard Total Bond. Over the ten year history of that fund, the face value of it has fluctuated roughly a point – or about 10%.
What bond funds do, though, is that they steadily pay out a return on the investment. Right now, you’ll get a yield of about 2.75%.
If yields start to go up, the end effect will be is that a share of the bond fund will go down to compensate for it. Thus, if you bought a bond fund share right now, eventually, the value of that share would go down a bit but the annual yield would go up a bit (this is what would happen if interest rates go up – I don’t think they’re going down from here).
If you’re just buying a bond fund to hold it for a long period and enjoy the income it provides, you should be fine whenever you buy it. If you ever need to sell it, a very steady bond fund like Vanguard Total Bond probably will not have gained or lost significant value unless interest rates go completely crazy.
If I’m traveling to an insecure place, I’ll usually take along a money belt.
A money belt is basically a strap that you wear under your shirt that has a small pouch on it that you put your wallet into. Since you wear it under your shirt, it’s about as inaccessible as you can get for a pickpocket.
I then keep a small amount of cash in my pocket. I’ll also usually keep another amount of cash in my bag or somewhere else that’s secure so that if one of them gets stolen, I have the other one.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot 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.