Reader Mailbag: The Tough Part

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. Investing during financial downturns
2. Great public domain novels
3. Small business startup questions
4. Job for teenagers
5. Military man buying or renting?
6. Health insurance switch
7. Insomnia
8. Job switch and health insurance
9. Charter school lottery and cheating
10. Family financial crisis

The most challenging part of preparing the reader mailbag is reading the two or three questions I get a week that break my heart. Usually, they’re loaded with such specific personal stuff that I can’t quite post them.

Almost always, they tell a story of someone in a very painful crisis situation. A family where the one employed parent comes down with cancer. A veteran who did everything right but still can’t find a job. A man who found out his wife took all of the money out of their retirement nest egg and gave it to her lover.

I write to them and offer what advice I can, of course. Still, the routine experience of reading the stories of real people who are going through such crises has deeply changed my perspective on a lot of things in life. So many of us are incredibly lucky, and we scarcely see it.

Q1: Investing during financial downturns
I’m on track to paying off my student loans and living a debt-free life. I wasn’t anywhere near this situation during the financial downturn of the past couple of years, so I wasn’t in any position to capitalize on it. However, I’m wondering if it’s a good idea to invest heavily in index funds during future financial downturns. As long as I have a healthy emergency fund and all my other expenses are covered, I can see huge short-term gains from investing in the economic recovery. What’s your opinion on this?

– Oscar

Buying index funds when the stock market is dropping with the intent to get a nice return over the next five years or so is a pretty classic “buy low, sell high” strategy. It often works, too, if you’re patient with it and you can stomach your money going through a serious rollercoaster ride.

I’ve dabbled in this a little bit in the past. For me, the best approach was to define a single “rule” that would trigger my buying and selling. I would essentially ignore the ups and downs of the stock market and just worry about that “rule.”

For me, the rule was this: “Buy an S&P 500 index when the S&P 500 is 10% lower than its 52 week high. Sell that S&P 500 index when it is 15% higher than when I bought it.”

Q2: Great public domain novels
I just received a Kindle for my birthday and I’ve found that there are tons and tons of classic novels in the public domain that are available for free. I’ve seen a lot of long lists of great classic novels, but I was wondering if you had any specific suggestions.

– Diedre

I could make a very long list of classic novels currently in the public domain (in other words, free on the Kindle) that I’ve deeply enjoyed.

About a year ago, though, my friends and I discussed this topic at length and we whittled the list down to seven novels that are great fun and that we’d all recommend to everyone. They’re all public domain and thus free for the Kindle. Here are the seven, with links to the Kindle store.

Pride and Prejudice by Jane Austen
Wuthering Heights by Emily Brontë
The Three Musketeers by Alexandre Dumas (I’d also recommend The Count of Monte Cristo, but the free translation from the original French is terrible and the good translation – which I linked there – is $5)
Roughing It by Mark Twain
Frankenstein by Mary Shelley
The Time Machine by H.G. Wells
The Mysterious Islan by Jules Verne (or pretty much anything else by him)

There’s an endless treasure trove of free classics to be read.

One other that I personally have loved since I was about eleven is The Scarlet Pimpernel by Emmuska Orczy. Imagine Robin Hood (with similar humor and action) set in the French Revolution and you’ve got an idea of what you’ll get here.

Q3: Small business startup questions
I stumbled across your blog while pondering ways to bring in extra income and I reall enjoy it. One particular article, from 2007, caught my eye. It was one detailing your experience doing computer repair work. I’ve been pondering the matter for sometime, as I already do the work.. I just don’t get paid for it. My situation is pretty much like yours, I am looking to pick up the work in my free time or on weekends. Where I am having problems is regarding the ‘business’ side of it. Did you apply for an LLC or did you just charge for the work and claim it on your regular taxes? I’ve read numerous articles about LLCs and such, but none of them have been able to answer my question. Why should I apply for an LLC versus just charging for the work and claiming it as additional income? Any information, advice or resources you could provide is greatly appreciated.

– Eric

At the time, I was somewhat unsophisticated in how I ran the business. I ran it just as a sole proprietorship with an agreement that I had each customer sign waiving me of any liability for things outside my control.

If I were doing it now, I would set it up as an S-corporation.

An S-corporation is one where the gains and losses from the corporation appear as income or loss directly on the income taxes of the people involved instead of having a corporate income tax filed. This means the taxes are pretty easy. At the same time, an S-corporation provides some liability protection for those involved, in case you’re ever sued. I highly recommend researching an S-corporation.

Q4: Job for teenagers?
Do you think it’s a good idea for a teenager in high school to have an after-school job or a weekend job? Will you have your kids do it?

– Leo

It really depends on the kid and their situation.

For example, if you have a teenager who is involved in a lot of extracurricular activities, I wouldn’t push that kid to get a job. Similarly, if that teenager is showing some entrepreneurial spirit, even if it’s not catching fire and earning money yet, I’d let that entrepreneurship have time to work.

On the other hand, if I had a child who came home each day to get in five hours of computer games, I’d be strongly encouraging an after-school job.

Q5: Military man buying or renting?
I have recently joined the military and will be be staying in the US for my first base. I will be moving there around September or so.

One of the things I’m having a hard time with is deciding if I want to buy or rent. I obviously have a steady job and should be at this base for a few years, I have a decent amount of money built up ($10,000) and that total is growing every paycheck. I do have about $6000 in student loans left to pay off, which will be completely paid off around the time I move.

In my situation, would you buy, or rent?
– Caleb

In your situation (and what little I know about it), I’d lean towards renting.

The reason for that is that renting is incredibly flexible. You’re single and in the military, which means that transfers and such are at least somewhat likely.

The other big reason that I’d lean towards renting is that you still have student loan debt and you don’t have enough saved for a 20% down payment on anything but a small home in a low-cost area.

Keep saving. Rent for now.

Q6: Health insurance switch
I will be having a baby soon. Once the baby is born, he will be added to my health insurance which will cost $375 a month, out of pocket. My employer gives me a $425 credit towards health insurance that just barely covers all of my health insurance costs. Currently, my husband’s employer does not offer health insurance and so we pay for his insurance through a private company ($150 for medical). Since my employer will give me $425 health insurance credit regardless of whether or not I take part in their group coverage or find my own health insurance privately, I am wondering if it makes more sense to find a medical insurance plan for the whole family that will be significantly cheaper than what I am paying for the group plan with my employer.

My only hesitation in switching medical insurance companies is that I have heard there is a higher risk, even when being initially approved at a company, that they could deny you for medical treatment for per-existing conditions. Do you know anything about this? Does it make more sense to stay with my employer plan since they are required to cover me?
– Ronald

This is an extremely tricky question to answer, because the answers I give to these questions rely heavily on the Affordable Care Act remaining in existence in its current form.

As of right now, you certainly can get turned down by an insurance company due to a pre-existing condition, even after you’ve had the insurance for a while. They can’t deny you treatment, but they can deny coverage of that treatment, meaning you’d be responsible for the bill.

In 2014, assuming the Affordable Care Act stays in place, you won’t be able to be denied due to a pre-existing condition.

My suggestion would be to stick with what you have now until the ACA takes effect, then see what’s available. Update: Check out your PCIP options over in The Simple Dollar’s insurance portal.

Q7: Insomnia
I’m reading The Simple Dollar at 3 in the morning. I’m unable to sleep more than a few hours a night and I’m a zombie at work. How can I keep up my job performance when I’m tired all the time?

– Jared

Your best route is to give your insomnia the serious attention it needs right now. There are a lot of techniques for solving typical insomnia.

For example, don’t watch television, eat, or sleep in bed. Don’t go to bed until you genuinely feel tired, then just go in there, lay down, and turn off the lights. Get some exercise a few hours before bed, even if it’s just a vigorous walk. When you lay down, turn your alarm clock around so you don’t see the time.

Try all of these things. If nothing works, give your doctor a call. Don’t stress out about your job for now. Instead, focus on solving the insomnia.

Q8: Job switch and health insurance
I’m 34 years old and married. I have good job security and excellent health care coverage. But, I’ve been very unhappy at work for the last 2 years and tried numerous things to try to improve the situation. Things are still miserable, and it’s not just me as turnover is getting worse. My job doesn’t challenge me but I’m good at it and I could “do it in my sleep.” I recently got a new job offer with a 30% salary increase (they reached out to me) but I’m torn on what to do. It seems like simple choice except for some recent bad news — my doctor says I have fertility problems and that if I don’t try to have a child now, it’s not likely I’d be able to in the future. Having a child is a top priority for me. My current health insurance would cover 100% of my infertility treatments. Health insurance at the new job is a more typical 80/20 split but doesn’t have any infertility coverage. If this were a complicated pregnancy, it’d be hard to pay for it at 20%, not to mention the biggest hurdle that I can’t afford to pay for the infertility treatments out of pocket (it’d be $10-15k per pregnancy attempt). One thing I considered was that the 30% salary increase would allow me to pay COBRA fees to keep my same insurance. But, there’s also the situation of starting a new job and getting pregnant within a month or so of starting. There’s something to be said for having a job I could “do in my sleep” especially if I’m up all night with a colicky baby.

– Chloe

I’m assuming that you actually mean “fertility” treatments instead of “infertility” treatments.

Given all of this, I wouldn’t change jobs. You do not want a job that’s going to be stressful and ultra-challenging during the first, say, year of your child’s life.

Even if you have a fairly typical birth, the expenses will be higher than you think, and having to pay 20% of them will eat up quite a bit of money, likely undoing most of the raise you would get from switching.

Stay put for now. Consider new challenges when you’re used to parenting.

Q9: Charter school lottery and cheating
My daughter is in a charter school lottery. I have heard rumors that some families have been able to pay a large sum of money to bypass the lottery and get into the school. Is that cheating? Would you do it?

– Tom

For those unfamiliar, charter schools are schools funded with public money that aren’t subject to some regulations of other public schools, but agree to take on certain types of additional accountability instead. Often, the ability to get into these schools is run by a lottery, particularly when the school is first started or if the school is highly successful. I highly recommend the documentary Waiting for “Superman”, which covers charter schools.

From everything I’ve ever read about charter school lotteries, it’s at the very least unethical and very likely illegal to have bribery allow people to bypass the lottery system. The lottery is supposed to be equal and open to all students, not those with paychecks.

If I had the type of resources where I could throw a lot of money into a charter school to have my child bypass the lottery, I would probably just send my child to a private school.

Q10: Family financial crisis
We are a family of 5, soon to be 6 (in a true case of an unplanned/birth control failure pregnancy, though after the initial surprise we are thrilled but scared). About 2 years ago my husband and I both lost our jobs in the same week through no fault of our own. My store was closing and my husband’s place of work eliminated everyone who held his job title. I was unemployed for 5 weeks and began working at a convenience store until I found something better, he was unemployed for 7 months and eventually got a job working only 1 day a week but with the opportunity for call ins and eventually being hired on, we just have no clue when. He also very recently got another job that is 15 hours a week and he has started training for different positions at his 1 day a week job and has been consistently working 2-3 days a week. I did eventually move to full time employment, making about $2,000 a month. Husband makes about $1,000 a month.

So, that is the backstory, the current situation is this. We got ourselves in trouble with our credit cards during that long period of unemployment, and well to be truthful, we were already in debt to begin with. Our current debt stands at $58,000.00 mortgage at 5%, roughly $30,000.00 in student loans between us, all at around 6%, and then just under $20,000.00 in credit cards, on three cards with APR ranging from 9% to 12.99%. We have $1,000.00 emergency fund that we dip into occasionally if we go into overdraft on our checking account.

Also, before Christmas last year my boss bounced 4 of my paychecks in a relatively short period of time, with me being the primary breadwinner, we had no money and almost everything went on credit cards. We actually relied on family and friends and had a wonderful Christmas even though we spend under $50 for all three children. Another issue is, since finding out about my pregnancy, my boss has made my work extremely difficult and has gone so far as to state that if pregnancy is going to make me make mistakes then he is going to have to fire me. This is completely untrue, I have not made any mistakes and in fact, have stepped up my game because I did not want him to think I would be using this as an excuse in any way (I have also spoken to two of my former employers who I was employed by during my last pregnancies and they confirmed that, if anything, I work harder during pregnancy and my boss must be off his rocker).

Now, I do know that what he is doing is illegal, however, he is a lawyer and I would not stand a chance fighting against him. I have managed to hold on to my job so far, but I fear it is just a matter of time before he finds a reason to fire me. At that point, it is iffy whether or not I would get unemployment insurance. Even so, this job is so extremely stressful that I cannot see myself staying here once the baby is born.

Also, my husband has been getting more hours at work, but all on a call in basis, some weeks he gets called in 2 or 3 days, some weeks only 1, if I could find a way to be home during the day, it would save us a great deal of daycare expenses. We pay $50 a day for daycare, and that will change once the baby is born. So, I have numerous problems all wrapped up in one email! I am a hard worker and I have always worked, I would love to stay home, but possibly work weekends or evenings, opposite my husband but not full time so I am not away from the children. I just don’t know how I can make this happen with the insane amount of debt we have.
– Ariel

If I were you, I would spend my spare time job hunting now, rather than later. Your workplace sounds poisonous and it’s a place you need to escape from. Your boss likely knows you’re in a painful financial situation and believes that you won’t change jobs for various reasons, so he feels free to act like a tyrant.

I would be sure to carefully document all of the threatening statements made by your boss. Write down what he said and when he said it in a document that you keep yourself. Keep copies of every email or other document that insinuates these things in any way. If you are fired, you might have a wrongful termination suit on your hands.

It sounds like you’re not drowning, but you’re not getting ahead, either. I don’t think you’re quite in a bankruptcy situation, but you’re not in a good situation, either. The best thing you can do is not accumulate any more debt at any cost and slowly chip away at your highest interest debt. Your future does have some indication of increased work and pay for both of you.

Good luck!

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.

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  1. Johanna says:

    What breaks my heart is that these people in very painful crisis situations are hoping to get useful advice from Trent.

  2. AJ says:

    Q7: Don’t sleep in bed? That seems like an odd way to cure insomnia.

  3. Johanna says:

    Q1: I wonder how Trent’s “rule” would compare to adding money regularly to an S&P index fund and keeping it there. (After taxes, of course, because I’m sure Trent racked up a lot of short-term capital gains.)

  4. mary w says:

    Q1. Trying to time the market is a fool’s game. Invest it and leave it alone.

  5. jim says:

    Q8: Chloe, If you haven’t yet then I would go to an expert on fertility to get more detailed diagnosis. Primary care physicians or gynecologists aren’t experts on fertility. YOu need a better understanding of your situation first. THen you can figure best course of action. SPending $10k on IVF isn’t the only answer for everyone.

  6. jim says:

    Q3 Eric : An LLC is really for liability issues and thats the primary benefit and reason for it. You don’t really need it in your situation if you’re doing simple computer repair.

  7. jim says:

    Q5 Caleb : Rent. If your only sure you’ll be there for ‘a few years’ then thats not long enough to justify buying in most markets.

  8. jim says:

    Q10 Ariel : Check into the income based repayment for your student loans. If you qualify and that could help cut one debt payment at least.

  9. beth says:

    on the free books for kindle, does that include all readers including the ipad?

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