Reader Mailbag: Working Ahead

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. Recovering from a big loss
2. A disastrous turn of events
3. Feeling scared all the time
4. Dodgy seminar?
5. Basic budgeting for young adult
6. Credit card strategies
7. SAHM transitioning to career
8. Investing with risk
9. Organizing tax-deductible expenses
10. Meetups

The month of June has seen me working like crazy to get additional posts in reserve for some periods of travel later on in the summer. My goal is to be able to enjoy these trips without worrying about writing content while also not missing a post here at The Simple Dollar.

That means, of course, that I’m working overtime right now. Today, for example, I’m assembling and working on almost a dozen reader mailbags (it’ll take me several days to do all of these).

Q1: Recovering from a big loss
In 2007/2008 I invested in some individual stocks, Citi, Fannie, Freddie etc. amongst others. Since then the portfolio is at an 90% (30K) loss. I don’t NEED this money so I’m OK with riding it out for 30-40 years, in hopes of a recovery. Even if I lose it all its fine, as fine as losing 30K can get, it still hurts but what can I do, can’t beat myself up about it.

This was my first venture in to investing for retirement. Now I’m in a place where I’d like to start investing for retirement again, with a much more conservative mindset, ETF’s, mutual funds, etc. But I am terrified of losing any more of my hard earned money. So it sits in savings accounts earning 1%. My plan actually is to wait it out until interest rates go up significantly 8% or higher and just load up on 10-20 year CD’s, to play it safe. I fear this master plan will never come to fruition and since my money won’t work for me I will have to work that much harder to retire. What do you think?
– Rachel

There have been very few times in history where savings accounts have paid 8% or more. In the mid 2000s, some accounts inched up to 5% with a few teaser rates at around 6%.

However, for such rates to exist, the economy has to churning along quite strongly, causing the Federal Reserve to raise interest rates to a point where banks can make money with such interest rates. That won’t happen soon.

The problem with your initial investment is that you bought into individual stocks. Individual stocks are a very risky investment because you’re investing in just that one company and the people running it. Do not judge all investments by your experience here.

A much better approach is to invest very broadly in stocks using an index fund. A fund like the Vanguard Total Stock Market Index essentially allows you to own a part of a share in almost every publicly traded company in the United States. This protects you from individual company failure and even individual sector failure (which seems to be what you found). Instead, it’s more like riding the stock market as a whole. You’ll have a 15% gain one year, a 10% gain another year, a 30% loss another year, but over the long run (more than, say, 15 years), it’ll trend upwards with a pretty good average annual return. You can buy index funds from many investment houses; I use Vanguard.

Q2: A disastrous turn of events
In October 2010, I had a trach installed and have weakened to where I am on a vent 24/7. I was supposed to only need the vent at night and able to continue my job full-time. Since then I have not been able to return to work on-site. I am able to connect remotely but being in IT it’s hands on so there is not much I can do from home. I am now part-time with no set hours per week.

I just received a letter that I will be terminated on June 30th. So here’s where I need help.

I haven’t driven since my surgery and the van hasn’t been started since. My thinking is (since I’m the only one who can drive it with a big hassle to seek repairs) that it’s better to let it sit and not know if there’s issues then know and not be able to do anything about it. My expenses now are roughly the same minus the gas and other vehicle related expenses. I am still paying car insurance in hoping that I will be able to drive again. My inspection is due in September.

Since October my income has been significantly less but I’ve had the money + working a few hours didn’t hurt my emergency fund. I will have no income as of July 1st. Before I started I was receiving Social Security Supplemental Income (SSI.) I plan on seeking that again. The amount I received was comparable to what I am earning now (until the end of the month.) I don’t think I will be denied as my health has gotten worse and I’m not able to leave my house. The farthest I’ve gone since October was the end of my ramp otherwise it was on a gurney to the hospital.

Should I stop paying my car insurance? I don’t know if I’ll be able to drive when it’s due in August lasting until February. I can’t really sell my van because it’s customized for me. It’s under a carport but it’s only going to get worse in condition.

I really feel stuck. I had my dream job but lost it. I’ve come to accept it when they hired another IT person since I didn’t return soon enough (or now not at all.) I plan on writing thank you emails to a few people as I don’t hold any ill feelings. They gave my months to get back an unfortunately I can’t. The work I do from home is more of a handout and would not be missed as it can be done there.

Right now my day consists of being on the internet all day either working or just looking at websites. I wanted to get off the vent but now I feel too weak to breathe on my own. I have nurses here almost 24/7, my parents are here when they’re not. I feel like I’m being babysat (I’m 32 years old) but need the help because I could get a clot and without someone to remove it will not be able to breathe after 5 minutes (therefore be dead.)

I’m really banking on the SSI to pay my expenses. If I don’t get it, I don’t know what I’ll do.
– Dan

It sounds to me like you hope to be able to drive your van in the future, but you haven’t been medically able to do so for several months. How long is it before you expect to realistically be able to drive your van?

I don’t know the answer to that. That’s something for you and your doctors to determine. However, if that time frame is more than a month or two down the road, you’re wasting money keeping insurance on that vehicle. You can always get insurance on the vehicle when you are able to drive again.

The key thing in your situation is to not give up or give in to depression. Keep your chin up. Find online communities that engage you and interest you. Get outdoors as much as you can and enjoy some fresh air. Good luck.

Q3: Feeling scared all the time
I am 26 and live with my mom (this is not a bad thing where I live). About 18 months ago my father suddenly passed away, leaving my mom devastated.

His death, aside from being a sudden and a very, very heavy blow emotionally, led to certain complications:
–mom being unstable emotionally for quite some time. She used to be such a strong person and now she rarely has the strength or desire to do anything.
–me going back home to her, leaving the friends I had from university and other people I knew
–huge money crisis since I spent two months looking for work, while having a business loan to pay
–break-up with my boyfriend of three and a half years (we lived together the whole time)
–leaving a start-up business which just started to earn tiny bits of money
–a lot of stress trying to figure out how to handle it and what to do next – go back to the big city or stay with mom, for example

By the way I LOVE my hometown and my mom, and I don’t view coming back as some sort of sacrifice (people have suggested so before but it’s really not true).

So my questions are:
1) I now realize I have this subtle feeling of being scared which doesn’t go away. I worry about mom, my future, her future. I also feel very alone because I am a single child, all my grandparents are dead. My aunt lives in the same town but we’re on bad terms. My other family is very far away. I feel like I have no one to rely on – because even though mom really does a lot, I can see she is not the same as before and I just don’t get the same sense of security as before. How do I deal with it?

2) As a result, I spent all my efforts to paying back my debt and saving. I now have growing savings which gives me some comfort and security. However, people my age tell me that I’m being too extreme with saving and trying to insure against everything. They say I should “live a little”. Do you think they are right? To be honest, so far having money in the bank really did help ease the worries to some extent, but like I said the fear of SOMETHING is still here. It is a fear that something would happen and I wouldn’t have the resources to fix it. Am I oversaving? Should I loosen up a bit and spend more on travel/entertainment? (Right now I get free-fun with books and walks etc. which I really enjoy.)
– Anne

It sounds to me that you’re afraid of losing your mother and being alone in the world.

Let me put it this way: if you’re close enough to your parents to just drop your life and move back to your hometown to help out at this point, your parents were very central in your life. You’ve also broken up with a boyfriend that you dated for three and a half years recently.

Two of the three most central people in your life have vanished recently. That’s a major thing to deal with.

My honest suggestion for you is therapy. Simply go to a therapist and talk through these problems. I don’t think you’re in a situation where pharmaceuticals are a good answer, but talking through all of this will do you a world of good.

Q4: Dodgy seminar?
My dad has just finished a seminar about Be Your Own Banker, wherein you use dividend-paying whole life insurance policies as a vehicle to give yourself “loans” to make lifestyle purchases, like a house, car, etc. I’ve gone to the web site, but it just has cursory information, and not much substance (I guess you have to pay to go to the seminars or buy the book to get the entire philosophy). What do you know about this, and in your opinion, is he being taken for a ride? I know you’re not a proponent of whole life, and neither am I – my husband and I both have term policies taken out on each other. However, if this is one way that you could build your wealth, after eliminating your debt, and also a way to finance “loans” to yourself, rather than being dependent on banks or other financial institutions, with all the tax and interest implications, it seems as if it might actually be a good way to build wealth, avoid taxes, and live your life independently. They’re not billing themselves out as a “get-rich-quick” scheme, so I have to give them credit for that, at least, but if they’re fleecing people long-term, then it’s still a scam and people should be aware of it.

– Colleen

It’s not a get rich quick scheme, but it’s not a brilliant scheme either. It’s not always as easy as they describe to borrow money from a whole life policy.

For one, there are often waiting periods to borrow money. It’s not always available just when you need it. For another, you have to pay interest on that loan at a rate specified in the contract. All that does is tie up your monthly cash flow again, no different than any other debt.

While the concept is good – have enough money in the bank so that you can borrow from it! – it doesn’t make sense to work a whole life insurance policy into the mix. Just have your own saving/investing plan and take money from that when you need it. No monthly payment, no waiting period, no interest. If you want life insurance, get yourself a term policy, as it’s a lot cheaper and provides the same peace of mind.

Q5: Basic budgeting for young adult
I just graduated from University in May and have a smallish amount of debt, $4,500 in federal student loans at about 6% interest and $450 on my credit card (interest is about $4/month and I pay 2x the minimum). I have 5 months left on my loan grace period before they start payments. In addition, because I chose to study abroad in London my last semester, I have saving of about $600. I was lucky enough to get a fulltime temp job (3-5 months) that pays about $500/wk, 75% goes straight to savings, the rest checking. I live with family so I have limited expenses aside from gas for my hour commute (Biking or busing would take 4hours total) and about $20 in coffee per week. I would like to pay off my debt, save for an apartment, and also build an emergency fund, but I don’t know how much of my income to allocate to each area. Any advice would be great because I am financially lost in this “transitional” period of my life.

– Max

If I were you, I’d prioritize those goals you have according to the specifics of your current life situation.

Since I don’t know all the details, I can only give you my impressions based on the information I have. I would probably save a small emergency fund first, perhaps $500. After that, I would knock out the debts. Once that’s done, I would start saving for an apartment.

This, of course, assumes that your living situation is tolerable both for you and for the person you live with.

Q6: Credit card strategies
I’ve got a question regarding my credit card debt. It is currently at $7,500 and has a 11.79% interest rate, but is interest free for 55 days after purchasing items. My current strategy is that every time I get paid I transfer the bulk of my salary (apart from 10% which goes into a high yield savings account, and roughly 300 dollars which I keep in case something comes up that I might need cash for) onto my credit card, and then pay for everything using my credit card. I then try and spend frugally, so that I’m spending less than what I’ve paid off, slowly chipping away at my debt. My logic is that by doing this I’m avoiding having to pay off interest for my purchases, and in fact I very rarely get charged interest, because I’m constantly paying (most) things off within 55 days.

What do you think about this strategy? Is it better to just accept that I will be charged interest and begin just paying off the minimum amount each month? Or should I keep doing what I’m doing, but work harder at trimming the fat out of my spending habits?
– Serena

The idea of using a credit card for purchases but keeping the balance at zero to avoid interest is a good one. Credit card interest rates are usually painfully high.

Your best approach for this – which might be what you’re doing, I can’t tell – is to simply have online access to your credit card account. Each time you get paid, log onto that account and then issue a payment either equal to the balance or equal to as much of the balance as you can pay. If this leaves money in your checking account, good. Ferret most of that off to your savings account.

Beyond that, I’d start looking at goals so that you can start doing something sensible with your savings. What are you hoping to achieve with that savings?

Q7: SAHM transitioning to career
I’ve been a stay at home mom (SAHM) for 5 years, and am starting to think about planning to get back to work (yes you read that right – I’m taking this slow!).

My background: before kids, I worked in IT, mostly on the support side. I did tech support (+ some business analysis, training & site implementations) for a specific system for several years. When the time came to replace this system, I was on the project team to design, develop, test, implement, and roll out the new system. I was very involved in the design and test phases, with some involvement in the other aspects.

Throughout my career, I had an interest in programming. The “puzzle solving” and “create something” aspects of programming appeal to me, plus I have some natural aptitude for it. I took some community college classes, and did some study with mentors and on my own, but didn’t get beyond a basic learning level before kiddos came and I stopped working.

As I think about returning to work in a couple years (my kids are still in pre-school), programming still has my interest, and I’m seriously considering pursuing it. I would like to start learning and preparing now, as my full-time Mom schedule allows. My issue is that I don’t know where to start. There are so many specialties in programming, and I have no idea what direction makes the most sense – what skills will be the most marketable? Two areas that interest me are web development and ipad/iphone development, but really, I’m pretty open here! The style of job I’ll be looking for is one that is flexible when it comes to schedule. I want to be home when my kids get home from school, and probably won’t want full time hours.

Do you think it’s even possible to learn programming on a “part time” schedule, rather than in college classes or on the job? Is it ridiculous to think of taking on such a technical career at this stage of my life (I’m nearly 40)? Other advice? Knowing you’ve been in a programming career before, and you totally get life-with-young-kids, I really value your input.
– Katie

My suggestion to you would be to pick out an area of programming that interests you and dive in at home with the goal being to produce a product that you can show to potential employers.

Let’s say, for example, that you’re looking at iPhone app development. Start learning that at home. Get the dev kit and start making applications on your own. Come up with a project that you think people might actually want, code it, then get it listed in the iTunes store.

If you build a small portfolio of these types of things – and you can do the same thing with websites, etc. – you can not only use that as part of your resume to demonstrate current skills, they may become revenue generators on their own.

Q8: Investing with risk
Where do you find a “high-risk” place to invest? Please do a newsletter on risk opportunies. I saw what you said about index funds. Did you mean that?

– Clay

“High risk” is a relative term. Loaning my deadbeat cousin $50 is an extremely high risk investment.

If you’re looking at investments that investors typically make that are considered high risk, you’d probably be looking at things like stocks in individual companies (which you can buy at online brokerages like E*TRADE), index funds of stocks from emerging markets (which you can also buy at such brokerages, but also from low-cost investment houses like Vanguard), or precious metals. All of these things are extremely volatile. All of these things can see 50% returns in a single year – or 90% losses in a single year.

Usually, when you buy such items, they’re balanced by lower-risk items. You might buy an index fund of a huge range of domestic stocks (which might have a 20% return possibility or a 40% loss possibility in a single year, with the upturns being more likely) or simply keep money in cash (always returns about 1%).

If you have, say, 50% of your money in cash, 20% of your money in domestic stocks, and 30% in foreign stocks, you are hedging your risk while also being on board for any periods of exceptional returns.

Q9: Organizing tax-deductible expenses
How do you track your tax-deductible expenses during the year, to make things easier in filing your taxes? I tuck relevant receipts in a folder during the year, but at tax time it takes a few days and lots of piles in the living room floor, to organize and itemize everything. Our itemized expenses include things on our charge statement, checks written, automatic bill payments through our bank, direct deductions from our checking account, etc. Also, I’m self-employed, so have office expenses, and more to track and deduct.

I’ve bought Quicken and installed it, but haven’t taken the time to figure out how to make it work for me. Do you use Quicken? Or how do you organize your expenses to make tax time easier?
– Ann

I usually use envelopes to track my tax-deductible expenses. I keep all of the receipts in a big manila envelope so I have them all in one spot when I do taxes the following spring.

If I need special notes with anything, I just write the note and attach it to the receipt with a paper clip.

I don’t use Quicken at all. I use Microsoft Excel for budgeting and use TurboTax for tax filing purposes.

Q10: Meetups
I noticed that in a recent reader mailbag you seemed to be avoiding an obvious opportunity for a reader meetup at that convention you’re going to. This seems to me to be either really egotistical or really poor self-promotion. Why wouldn’t you do this?

– Kevin

For starters, I’m not really a self-promoter. I’m not into doing this to make myself into some sort of guru who sells people on stuff or that people follow blindly and angrily defend no matter what.

So why don’t I do meetups and the like? The biggest reason is that most of the interactions I have with people are one-on-one interactions. They tell me some very private things about their lives and because of that, I’m able to help them. The mailbags are a taste of this, but they’re anonymized. You can’t replicate that kind of relationship in a face-to-face group setting with people you don’t know. I regularly meet up with people one-on-one for various reasons and I’m doing so at that convention. I just don’t think what The Simple Dollar talks about translates well to a room full of strangers.

I do sometimes meet readers one-on-one. I do this because I know that usually they’ve got something that they’re trying to work through or else they wouldn’t be trying to meet up with me, and in a one-on-one meeting at a coffee shop or something, they’re likely to spill the beans and talk through it.

I can actually help someone else that way. At a big meetup, the only person I might help is myself, and that’s arguable.

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.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.