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. Life insurance question
2. Too many activities for kids?
3. Student loans and garnishment
4. Financial strain with friends
5. Parenting thoughts
6. Fulfillment in the moment
7. Handling a settlement
8. Vintage comics
9. Debt after divorce
10. Is college worth it?
I don’t like going anywhere without wearing my watch, to the point that you can see an outline of where the watch is on my wrist (thanks to the sun).
Sarah teases me about it, to tell the truth. She’s constantly nudging me to take it off.
The thing is, I feel much more at ease wearing it than not wearing it. With it on my wrist, I feel much more in control of my time and my life. It’s a psychological thing, but it’s a powerful one.
Q1: Life insurance question
I have a question for you about life insurance. My husband’s grandmother purchased a whole life insurance policy for him when he was born. Now we’re faced with choosing to pay the premiums (about $100/year) or cash it out for roughly $1900 minus whatever taxes we would pay on it. Currently we’re both young (25) and healthy with no dependents or mortgage. Our only debts are a substantial amount of student loans. Once we have kids and/or buy a house I was planning for us to purchase term life insurance, which I think makes more sense, though I don’t know a ton about life insurance. My question is, does it make sense for us to continue to pay the premiums for the whole insurance policy? Or would we be better off to cash it out and save the money for when we need to buy term life insurance (or to put towards our student loans).
The first thing I’d do before cashing it in is to evaluate your life insurance situation. Do you and your husband have enough life insurance so that if one of you were to suddenly pass, the other one would be able to financially survive? Does that include any potential children you might be thinking of having?
What you ideally want is term life insurance, which means that you just pay a small amount each year and then if the insured person were to die before the end of the term, you would be paid the face value of the insurance. For example, you might have a $100,000 term policy for 10 years with a $40 annual premium (this is an example, of course).
If you have such policies in place, then feel free to cash out the whole life policy. Generally, they’re not the best investment opportunity in the world, but they do provide some flexiblity at your age – they can continue as insurance or they can provide you a cash benefit.
I have a six year old girl that plays soccer in the spring and fall, has a weekly piano lesson, and takes gymnastic classes. There are times when I feel like we’re constantly taking her to activities and that between her practicing at home, her schooling and homework, and the lessons themselves, she doesn’t have a whole lot of time to just explore things for herself.
Is this something you’re challenged with at home, too? How did you find a good solution?
The thing I would look at is whether or not your daughter is enjoying herself. Is she having fun doing all of these things? Or is she dragging her feet a little and lamenting not having enough time for other things?
Some children thrive on organized activities and structure. Other children thrive on free time. It really depends on the child.
Take our situation. It’s pretty clear that our oldest child thrives on structured activities – the more, the better. Our daughter, on the other hand, thrives best in open-ended situations that aren’t as structured, as she loves to explore new things all the time.
Just pay attention to your child and you’ll go down the right path.
Q3: Student loans and garnishment
I have been receiving good good advise from you for a while and was wondering if you had some insight in the following question. I know its a little long but wanted to give you the background of my situation. As many my income tax return have been garnished again(this is the second time) I was able to get into a rehabilitation program and made my first payment Aug. 22, 2011 and then after that made my payments every 1st of the month and in April 1st would be my 9th payment. On May 15th a got a letter from the agency that would be taking over my loan payments (sally mae) and told me that my loan had been rehabilitated and therefore, in good standing. This is when my husband decides to file our income taxes for this year on June 15th. Prior to this he had gotten an extension yet, when we filled we received a letter stating that our return was withheld because my account was delinquent. Therefore we did not get anything back. Is there anything I can do? I want to make sure this does not happen again. This is my second time and I know they have been having some trouble with their system ( Department of Education) and when I tried to explain my situation they just told me I was delinquent and hang up on me twice. Is there anyone I can contact to complain and see what can be done? I know the IRS just apply’s the money to whose that are owed however, would the loan to which I am doing my payments pay me back the money since I am in good standing to begin with.
If you’re in a good day-to-day money situation, my suggestion would be to be patient. The wheels on these things turn slowly, and with your loan recently rehabilitated, the various organizations involved may not have informed each other of the change.
From your description, though, it sounds like your return was passed on to the Department of Education and then applied to your loan. That’s not necessarily a bad thing. It means that your loan will be paid off quicker. However, you won’t be getting that return.
It’s generally a bad idea to expect government bureaucracies to communicate well with each other or with any sort of speed.
Q4: Financial strain with friends
Since college, my wife and I have been close friends with three other couples. Over time, we’ve had varying degrees of success in life. One of the couples has been very successful and now live in a very expensive neighborhood. My wife and I started a business and sold it and now we’re working on starting a second business. Another couple has had a mix of success and failure, but are probably roughly as well off as we are. The fourth couple has really struggled, particularly after the 2008 downturn. They’re both working at blue-collar jobs.
What I’ve noticed lately is that we’re all starting to drift apart in ways I would have never expected. There are some enormous political divisions between us and they seem to become more and more pronounced as time goes on. The couple in the blue collar job have told me privately that they feel very stressed trying to keep up with what the rest of us have. The couple with the mixed success and the successful couple seem to be constantly competing to see who has the best stuff, with us not really caring and the blue collar couple feeling really out of place.
Is there any way we can sort this out? Or do I just need to accept that we’re drifting in different directions?
I think you may need to accept that your lives and interests and perspectives are drifting apart. That’s not necessarily a bad thing. It means that you’re all still growing and changing as people.
I have had many good friends in my life that I’ve drifted apart from over time. We were essential parts of each other’s lives for a period, but our paths went in different directions. While it’s sad to lose someone you’re close to, change is part of life.
My suggestion would be for each couple to re-evaluate who they want to be spending their time with. Clearly, there are some pairings here that may still work, while other pairings do not. Get together in pairs instead of as a large group for a while. Also, use this opportunity to connect deeply with new people.
Q5: Parenting thoughts
Wondered what your opinion were on the parents described in this
This actually ties really closely with the question above, from Jennifer. The article looks at parents who push their children very hard to succeed in life, at least as judged by particular standards (grades, number of extracurricular activities, and so on).
As I said above, I think there’s a balance to be achieved. Some children enjoy lots of structured activities, while other children do not. If you follow your child’s lead to a large extent, you’re going to give your child the best chance to thrive.
What’s worrisome is when parents push their kids into lots of activities that the child doesn’t want to be in. That creates a stressful situation for everyone involved and is likely to result in some major backlash.
Q6: Fulfillment in the moment
How do you figure out if something is going to be worth the money in the moment? My sister called me the other day and wanted me to go to a movie with her. I did a quick calculation in my head and figured I’d probably be spending $40 on this trip. I decided not to go, but afterwards I couldn’t make up my mind if it was worth it or not.
You have to use your gut.
For me, I build up that instinct by evaluating my spending choices later on from a more neutral perspective. I’m outside the pressures of the moment, so I can carefully think about the pros and cons of the decision that I made. I actually do this – I make a list of all of the pros and cons I can think of and then decide which side is stronger.
If you do that frequently enough, you’ll begin to build up a strong instinct for what the right choice is in accordance with your values.
Q7: Handling a settlement
I was awarded a settlement from an accident as an infant. It was approximately $300K in 1995 put in longterm CDs until I was 18 (2007). However, when I turned 18 I had no idea what to do with the money and haven’t withdrawn most of the accounts.
I used roughly 100k to pay off all of my college studies + board + living expenses. I’m now 23 with a degree in Computer Science and have roughly 500k in these CDs. I have never filed an income tax return and I’m pretty sure I’m going to have to pay some penalties for this negligence (I’m in ny state if it matters). These CDs are currently earning ~4% (2005 rates) and I can leave them alone at these rates till 2015 if I want. I’m also allowed to withdraw these without penalty because they are guardian accounts.
My question is, am I better off leaving the accounts be for the next 3 years or should I withdraw and start simple long term investments? I have no interest in purchasing a home, I may start an internet startup in the future but I don’t think I would need tons of capital. I’d also like to make a gift to my parents since I’ve been so lucky (~30k maybe a car?). In either case, how should I approach the income tax issue? I’m sure I owe back taxes. I’m tempted to hire a professional.
If I were in your shoes, I’d contact an accountant and get all of the taxes on these things straight before I make another move. Don’t start moving money around, because that might end up making your tax situation worse.
Once the taxes are resolved, you need to figure out what you want to do with what’s left. Again, you may want to talk to the accountant, as giving your parents a large gift can have tax implications.
You’re not going to lose all of your money – don’t be stressed out about that. However, you likely do have some back taxes and penalties for what you haven’t paid. Your best move is to get that all straightened out.
Q8: Vintage comics
While cleaning out my grandmother’s home, I came across a big box of comic books that I assume was owned by either my grandmother or grandfather during their childhood. The comics are a pretty mixed bag of stuff. Some of them are in weird sizes and I’ve never heard of the characters in most of them (though I’ve found quite a few through Googling). I think some of them might be worth some money. How should I go about getting such a collection appraised?
It depends on how professionally you want these comics appraised.
The simplest method would be to just stop by a local comics shop. Many of the people working there are good people and will honestly appraise your stuff, but there are always a few sharks that will try to make a lowball “appraisal” and then try to buy from you. No matter what they say or offer you, don’t sell. Just get information.
On a more professional level, you can take the comics to an auction house that specializes in such things, such as Heritage Auctions. To get a full appraisal, you’ll likely have to pay them a fee, but they will give you a pretty honest estimation of the value of what you have.
Q9: Debt after divorce
My husband and I were both previously married and had brought some divorce debt to the table at the time of our marriage. Three years later we have eliminated all of our prior debts except for a credit card that is still in my husband and ex wifes name. By divorce decree my husband is deemed responsible for this card. At the time of our marriage, this particular credit card was maxed out at $8,900. Since then, we have worked and paid this card down to $5,500. This card has an interest rate of 9.9%, Very low for a credit card!
We had been making payments above the minimums with the intent to pay the card off. However, we have become pregnant and have gone back to making minimum payments to be able to save and put back for our new arrival and my leave from work.
Unfortunately, my husbands ex wife is in a very big hurry the have this debt taken out of her name. She claims that still being tied to him financially is holding her back and has even asked if her name can be dropped off the card and my name added in her place. I am somewhat taken back by this. I have wholeheartedly married my husband and have worked just as hard to pay off these debts…However, I have much reserve with placing a debt in my name in which I didn’t rack up. We have never made a late payment on this card and have made extra payments when possible.
We have looked into other options, such as taking out a personal loan or transferring the balance to another credit card. We have found that we would take a hit on either a larger payment or a larger interest rate if we go these routes and would prefer to just pay off the card as-is.
I was wondering if you had any advice on the financial aspect of this. Thank you for your time and I will continue reading your advice!
I can understand the desire for your husband’s ex-wife to be removed from the card. The sensible thing to do, in my view, is to just have her removed from the card, leaving it just in your husband’s name.
Once that’s done, focus on paying down that debt and then close the account unless it’s your husband’s oldest line of credit, in which case I’d leave it open until he has another credit card that he’s held for more than five or so years.
I can’t see any reason why you would need to put your name on the account. However, it is still functionally your debt, as that debt is impacting the financial state of your marriage.
Q10: Is college worth it?
My family has been running a machine shop for five generations. With each generation, upon graduating high school, kids have started working in the shop, learning every job and eventually taking over the business once they understand everything that goes into it.
I have two children, both in grade school. I’m wondering whether I should send them to college first before they join the business, and leave it up to them whether they join it at all. I want them to be well-rounded people. College is an experience I missed out on, but I think it would be a good investment in them. What do you think?
I would send them to college. People who enter college with a positive mindset will get a great deal out of the experience. College is a powerful time for figuring out who you are and what you’re capable of.
If they’re passionate about the machine shop, encourage them to study something applicable to your business. I don’t know the specifics of what you do, but industrial engineering might be one example.
When they’re finished with college, they may want to return to the business, or they may choose not to. In either case, they’ll likely be better people because of that experience.
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.