Questions About Loan Forgiveness, ETFs, Entrepreneurship, and More!

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. Viability of loan forgiveness program
2. Philosophy of personal finance
3. Another reason for emergency fund
4. Questions about ETFs
5. Brown bags cost effective?
6. Maximizing value of Fuel Saver
7. Starting a landscaping company
8. Entrepreneurship clause and overtime pay
9. Businesses and revenue
10. Parable of the talents
11. Credit union troubles
12. Candidate endorsement
13. Saving beans in the refrigerator
14. Student loan payoff strategy
15. World Series

I love spring. During the winter, I don’t get outside too much, but as soon as the weather gets nice, I want to spend as much time as possible outside.

The problem? Allergies. They particularly get to my eyes. I usually go through a few weeks in the spring where my eyes are constantly itchy, and I’m right in the middle of that period right now. Allergy medications always just make me sleepy and don’t help much, either.

Spring is wonderful, don’t get me wrong, but I could do without these itchy eyes.

Q1: Viability of loan forgiveness program

I’m a young professional working in the public sector, and I have a large amount of student loan debt. My plan is to make 120 payments toward the loans and have the balance forgiven as described in the Public Service Loan Forgiveness program (https://studentaid.ed.gov/repay-loans/forgiveness-cancellation/public-service). I have already submitted the paperwork to have my employment verified as eligible, and I heard back that indeed it does count. I’m about 20 payments in.

Now, there is a lot riding on this for me. I make less than many peers due to being in the public sector, forgoing a higher salary. At the same time, I’m on income based repayment and not even putting a dent in the loan balances.

My concern is what if the rug is pulled out on this program before anyone even has a chance to benefit, and I’m left with the full loan balances and years of not having made any progress on them? The earliest anyone will reap any benefits is 2017, since the program began in 2007, so the government has yet to have to pay the price of the program. My financial house is in order apart from this issue, and it’s one that keeps me up at night.
– David

My experience with government programs like this is that, when they are cut, previous entrants are “grandfathered” in and are eligible for the benefit.

In other words, for you personally, I would strongly expect this program to continue. Rarely, if ever, does the government change a program that causes people’s previous decisions to work against them, especially at the working class level.

For people not yet in the program, it would simply mean that the program would no longer be available. They would be able to make initial career decisions without ever including such programs in the decision.

Q2: Philosophy of personal finance

Do you have any recommendations for books on the philosophy behind personal finance? Your blog touches on those philosophical issues a lot but I would like to go deeper into some of the “whys.”
– Aaron

That’s a tricky question. There really aren’t any philosophers that focus on personal finance, but there are a lot of philosophers and thinkers that talk about broader life issues of which personal finance is a part. Many of the great 19th century thinkers, like Ralph Waldo Emerson and Henry David Thoreau, have threads of financial independence and self-reliance threaded throughout their work.

In terms of modern personal finance books that try to dig into the “why” of personal finance, two of them really stand out in my mind. The most philosophical of the two is Early Retirement Extreme by Jacob Lund Fisker, which I discussed in an earlier “Books with Impact” article. The other one, which has a bit more direct practicality, is Your Money or Your Life by Joe Dominguez and Vicki Robin, which I discussed a long time ago in a “book club” format.

Both of these books delve very deeply into the philosophy of modern spending choices and how they relate to modern life direction. Both books focus more on trying to hammer out philosophical ideas on those things than on handing out specific practical tips, though both do offer some degree of practicality. Both books gave me a ton to think about, and I encourage you to read them both.

Q3: Another reason for emergency fund

I just wanted to share with you my story about why an emergency fund can make a world of difference. I had no financial direction about six months ago and then I found your site. I read a “getting started” guide and it suggested starting by having a $1,000 emergency fund in savings. I wasn’t sure about it but I decide to trust the “expert.”

I saved $100 a paycheck in there and so about two months ago I had the $1,000 and I started paying off my credit cards. About a week ago I fell off a ladder while trimming trees behind our house. I cut my arm open badly and also cut my head. I was bleeding horribly and so my wife took me to the ER. Guess what? Our insurance deductible turned out to be $1,000.

Back in the “bad old days” this would have been a reason for panic. We usually don’t have enough credit left on our cards to pay for this and definitely don’t have enough cash so we would have had to try to work out payments or something else. With that emergency fund, we just put it back into checking and wrote a check. It was so easy and no worries!

Now we’re rebuilding that emergency fund again and we see the purpose behind the plan. Thank you so much! We feel like we have control over our lives again!
– Billy

This is almost a poster story for the reasons for having a small emergency fund as a first step in your financial turnaround.

An emergency fund is absolutely the first step toward financial independence. It creates a situation where an emergency like this one doesn’t turn your life into crisis mode where you’re negotiating and dodging bill collectors. Instead, it gives you the power and the freedom and the sense of personal pride to know that you can calmly just handle it because you were smart with your money. This setback doesn’t send you into crisis mode.

That’s a great feeling. It’s also a financially smart position. Because of that emergency fund, Billy’s credit isn’t going to jump because of this unfortunate situation. He’s going to simply stop in a holding pattern for a bit, refill his emergency fund, and then continue paying off his debt. It’s all going smoothly, according to plan.

Congratulations, Billy, and good luck in the future.

Q4: Questions about ETFs

I’m a 18 years old Italian and in the past months I started doing some contract work that is paying quite well so right now I have several thousands dollars in my bank, plan to get more in the time ahead and more or less don’t have any expense.

So some time ago I started thinking about investing it and now I have 2 mutual funds where I’m putting 100€/mo each (I’ve saved 900€ in them so far with another 25€ in earnings).

I also started to study a bit on finance and I’m a bit worried about a few things:

– Saving 200€/mo means that I’ll finish my current money in more than 2 years and in the meantime I plan to earn more so for a long time they’ll just lay in the bank account without any return. I don’t need them I plan to keep at max 1-2k avalaible, the rest can be saved.
– Both the bank (1,5% on each payment) and the funds (~2% for management) have fees that I find quite high

I discovered ETFs and I would like to get your opinion on two things:

– Since most money is in my bank account doing nothing should I invest most of it immediately without waiting for the 200€ each month. I read that the market is going to have a dip some time in a recent future so maybe it’s not the best moment?

– The funds are actually gaining something so I could withdraw the money without any loss (no exit fees) and move the money to another type of investment like ETFs or just stop the next payments?
– Jeffrey

There is no “best moment” for putting your emergency fund into a volatile investment. You should never do it. Why? If you ever have an “emergency” while the stock market is down, you compound your losses instantly. You are far better off having your emergency fund in a savings account where it’s very secure and returns only a small positive amount than having it in something really volatile like stocks.

How much should you have for emergencies? Given that you’re eighteen and single, I would probably shoot for about a month’s worth of living expenses. I also wouldn’t invest any money that you intend to actually use in the next year or two – say, to buy a car or something like that. Keep those two pools of money separate and keep them out of stock investments.

Beyond that, invest all of it if you so choose.

Q5: Brown bags cost effective?

Is it really cost effective to “brown bag” my lunch? Or should I buy some kind of lunch box so that I don’t buy brown bags any more?
– Kelly

When I’m in a situation where I ‘brown bag’ my lunch, I prefer to use a small hard-sided cooler for that purpose. There are three reasons for that.

One, a small hard-sided cooler can last for a very long time, as they’re practically indestructible in terms of what you might do with your lunch.

Two, a small hard-sided cooler can handle an ice pack very easily without any condensation causing your paper bag to go to shreds.

Three, a small hard-sided cooler holds a consistent shape so that your sandwiches or other soft items aren’t crushed.

If I didn’t use a small hard-sided cooler for this, I’d use a plastic grocery bag, as they’re essentially free from the grocery store.

As for a hard-sided cooler, I’d just go to your local store and examine the sizes in the cooler/lunchbox area and pick one that seems right for you. Different people have different needs when it comes to size.

Q6: Maximizing value of Fuel Saver

You have talked about shopping at Hy-Vee before. Do you have any tips for maximizing their Fuel Saver program?
– Jennie

The Fuel Saver program is a cooperative one between ubiquitous Iowa grocery store chain Hy-Vee and ubiquitous Iowa gas station chain Casey’s. If you buy certain items at Hy-Vee, Hy-Vee will apply a certain discount to your Fuel Saver card, something like $0.05. Then, when you go to Casey’s, when you scan your Fuel Saver card, you receive that much discount per gallon.

What I always try to do is translate the Fuel Saver discount into actual cash. So, for example, on a typical fill-up, I’ll use 15 gallons of gas. So, every cent of Fuel Saver discount saves me $0.15 and I try to translate that at the grocery store as best I can.

So, for example, an item costing $3.30 with a $0.02 Fuel Saver bonus effectively costs me $3. Is it worth it? It depends on the item itself. I just look at Fuel Saver as another coupon, in other words.

Q7: Starting a landscaping company

I’m considering starting a landscaping company; it will be owner-operator at first. What are any financial pitfalls I should avoid in the research, planning or implementation phases? For the most part I figure that I should know my market, pay myself accordingly and not use the business as an ATM, network and find a niche, and not buy a lot of gear or supplies right off the bat until I can justify those purchases. Am I on the right track and line of thinking?
– Robert

You’re absolutely on the right track here with at least some of the risks that apply to almost every business. However, you should do some additional research into the specific risks of landscaping. This is a pretty good starter list.

Another suggestion I have for almost every kind of business is to write a thorough business plan. Go to the library, check out a few books on writing a business plan, and go through that process. A well-written business plan makes you think about all kinds of issues related to your business in a very deep way, plus it gives you a document to share with your friends and family members for review.

I would also suggest trying to connect with someone who runs the kind of landscaping business you’d like to run but in a market in which you’d never compete with each other – someone in a city on the other side of the country, for example. Share your business plan with that person and ask what you’re missing.

Robert has another somewhat related question.

Q8: Entrepreneurship clause and overtime pay

I’m currently working at a landscaping company. We work basically 9-12 hour days, accumulating typically 50 hours per week. Every week we are thrust into mandatory overtime, but when I bring up that I’m pretty sure the owner needs to pay us time and a half for that according to the Department of Labor, he dismisses it under the entrepreneurship clause. Do I have a leg to stand on here? Mandatory overtime with straight pay is not worth the time, especially when I was initially led to believe otherwise by the owner. Currently I print out all of my paychecks and document everything.
– Robert

The requirements for the Fair Labor Standards Act, which is the law that’s relevant here, states that businesses whose annual gross volume of sales made or business done is less than $500,000 are exempted from the law. In other words, if this is a landscape business with just a couple of employees, the business is probably too small to comply with the law.

It is probably more cost-effective for him to stay under that cap and then exploit employees in this way (since they really don’t have much legal ground to stand on) than to go over that cap.

If you estimate his business income and it’s got to be significantly over $500,000, you can talk to a lawyer. Otherwise, you don’t have much recourse here. He just seems like a dodgy employer, because what’s happening is that every dollar he doesn’t pay you in overtime is dollars in his personal pocket.

Q9: Businesses and revenue

Why do businesses always talk about revenue as proof that their business is successful? To me revenue seems like a useless metric because it doesn’t tell you a thing about whether the business is profitable. $50 million in revenue on $10 million in expenses is far more impressive to me than $100 million in revenue on $200 million in expenses.
– Carl

The reason is that revenue gives you a clear indication of the size of the customer base. Expenses really don’t. Expenses can often be cut without changing the revenue (or even while increasing it), and expenses can often include big one-time up-front costs, too.

Given all of those factors, revenue seems like a reasonable thing to quote.

I agree with you that revenue is not enough to give a full picture of a business, but no number is. I generally feel like profit margin is probably a better single number, but even that number is really incomplete.

Q10: Parable of the talents

A few weeks ago I heard a speaker talking about the “parable of the talents” from the bible and said it was proof that God wanted us to be investors and to be wealthy. I read the story and don’t get that message at all. Thoughts?
– Giles

I agree with you – that’s not the message I get at all. For those unfamiliar with the story, it is found at Matthew 25:14-30.

The message I take home from the story is that God favors those who work hard and aren’t foolish with their money – and that does include entrepreneurs – but he does not favor the lazy. I don’t think it has much at all to do with investing and becoming rich.

I think the person you heard speaking was a proponent of the “prosperity gospel,” which is a line of religious thought that involves finding evidence in the Bible that God wants people to become rich and using that as justification for personal greed.

Q11: Credit union troubles

I took my 16 yo son to our credit union to sign up for a checking account. In addition to the checking account, he was offered a low limit credit card or a line of credit attached to his checking account. He’s unemployed but is working on getting a job and I had already mentioned this to the CU employee, but the credit card was still offered. I discussed it with my son after we left and he thought it was “really dumb” of them to offer it. So I come to the question, when is it necessary to start building credit and does have a checking account with a check card factor into your credit score?
– Andrea

Normal checking account use doesn’t do anything for one’s credit report or credit score. The bank is not issuing you credit, so they’re basically unrelated.

As for credit in general, it’s never necessary to build credit, but it can be very useful. The earlier you start, the better, because credit history lasts for seven years. His credit choices now will still be impacting his credit situation when he’s 23.

I don’t think it’s dumb for a credit union to issue a low limit credit card to people signing up for accounts there. Part of the mission of many credit unions is for people to work together to establish positive credit. Issuing that card seems in line with that mission.

Q12: Candidate endorsement

Will you be endorsing a 2016 candidate for president?
– David

No. I have never endorsed a political candidate on The Simple Dollar and I never will.

I wish all presidents great success in their job, whether Republican or Democrat or independent or Green or Libertarian or whatever. The same goes for people in Congress, governors, state legislators, and all judges. Those are never easy jobs, and I wish them well.

From a strictly financial point of view, there are different benefits and drawbacks to each candidate out there. Quite often, one’s view of the financial policies of each candidate has a lot to do with their personal economic philosophies. Do you believe in Friedman-esque trickle down economics? Maybe you believe in bottom-up economics? That simple question alone is going to radically change who you support.

I am not an economist. I don’t have such answers. Even if I did, I wouldn’t share them on a personal finance site that’s open to all.

Q13: Saving beans in the refrigerator

How do you store beans in the refrigerator without them just turning into a big pile of mush? I have tried cooking beans in advance and putting them in the fridge but they always get mushy.
– Viola

My guess is that your beans are overcooked when you put them in the fridge. My beans are mushy when they’re overcooked.

If you’re using a slow cooker to cook your beans, it can be really hard to get them right. My suggestion is to try to undercook them until you get a strong sense of exactly how long to cook your usual batch of beans (this can vary depending on your slow cooker model). Use the timer feature on your slow cooker (if it has one) or use an outlet timer to reduce the cooking time.

Mushy beans aren’t entirely useless. I find somewhat mushy beans to work really well in burritos, for example, or in enchiladas.

Q14: Student loan payoff strategy

I have a question about paying off student loans. My husband will be graduating with his PhD this month. At this time, we want to make a lump sum payment on his student loans before we start making the monthly payments. We are trying to decide how much to pay as a lump sum.

Here’s our situation:

We have about $12,000 in our checking account, $12,000 in our savings account, $55,000 in a Vanguard account (mostly saving for “a rainy day” or a house though not in the immediate future), and $66,000 in retirement savings. My husband and I are both in our late 20s. I have 1 year left in my PhD program and work part-time as a research assistant so I only make $25,000-30,000 a year. My husband has a very stable government job making about $70,000 per year. We rent and are planning to move when I finish graduate school and get a job in some other city. Other than my husband’s student loans, we don’t have any other debt, and we have employer-provided health insurance.

My husband has $54,000 in loans, with interest rates from 3.2% to 7%. We plan to pay off the highest interest loans first and to hopefully consolidate the others through our bank (currently he has about 8 different loans). We are thinking of paying around $20,000 toward the loans when he graduates, but we’re not sure how to decide exactly how much to pay. We’d appreciate any advice.
– Diana

Where is the $20,000 lump sum coming from? Vanguard?

I don’t think there’s anything wrong with paying off your student loans early. However, I am concerned about your funding source. If it’s coming from Vanguard, that probably means you’re selling stocks in order to pay off the student loans.

The catch is that stocks are a long-term investment and you’re using it as a short-term investment. This will work well in the short term, but if the stock market ever swoons, you’ll learn very, very quickly that the money you were relying on for the relative short term for things like student loans isn’t going to be there for you.

Basically, if you have goals that are coming up within the next ten years, your money shouldn’t be in a Vanguard stock fund. They should be in something much less volatile.

Q15: World Series

Who’s going to win the World Series this year?
– Andy

Each year for the past several years, Andy has asked me this question at some point in April or early May. I’ve been a lifelong baseball fan, so questions like this are really fun for me.

My pick right now is still the St. Louis Cardinals, but I am worried about how Adam Wainwright’s injury is going to affect them over the long term. Of the handful of teams that I consider the best in baseball, the Cardinals have by far the most postseason experience.

The two teams I expect to be good in the next several years – the Cubs and the Astros – are both really young. I think they’ll both make the playoffs this year, gain some solid postseason experience, and become frightfully good in the next few years. Cubs vs. Astros is my preliminary World Series pick for basically every year from 2017 to 2020.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. 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.

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