Reader Mailbag: Dream House

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. 401(k) profit sharing
2. Online job application tips
3. Illness and challenges
4. College freshman advice
5. Mortgage decisions
6. Annuities for retirement?
7. Refinancing questions
8. Universal life policies
9. Using self-help advice
10. Getting started with credit

Two readers this past week wrote to me asking if I would detail what I would like to have in our dream house. I’d like a five bedroom house (one for the parents, one for each child, one for guests) – we currently have four. I would like a larger kitchen than we have now, but most of the other rooms are fine. I would like to have an office/library (right now, I’m using one of the bedrooms in our house for this) but this isn’t vital. I estimate we’d add about 500-600 square feet to our current house.

The biggest change would be the land. I’d like to live in a place that had forested land nearby and was not positioned close to a major road. I’d also like a barn and the possibility of raising chickens.

That’s really my dream – and it’s very pastoral.

My husband and I have $30,000 in credit card debt. My dilemna is that I was laid off and am now making 2/3 less than I was, and my husband’s employment in the construction industry right now is spotty at best. I have $60,000 in a 401K/Profit Sharing Plan at my old company, and I’m wondering if I should take that money and pay off the credit cards, even though I know I will pay prepayment penalties on that amount. The pressure of the debt right now is killing us, and it’s a matter of the worse of two evils, leave the retirement funds alone and risk losing the house, or pay off the cards and be able to make our mortgage payments . . . what would you do?
– Laurie

The number one thing you need to do is adopt some new spending patterns. If you racked up $30,000 in credit card debt when you were making three times as much and your husband was fully employed, you’ve got to be in the hurt locker now. Burn the credit cards. Do not use them.

The next step is to call your creditors right now. Call those credit card companies and explain your employment situation and money situation. Offer to prove your situation with pay stubs if they’re interested. Ask for special help in resolving this. Don’t get enraged at what they say – after all, you borrowed their money.

When you’re talking, make sure the person you’re talking to has the power to change your rates or terms. If they do not, politely ask to speak to someone who has that ability.

Remember, it’s not beneficial for them to enter into a situation where they have to chase you for the money and eventually have to sell your debt at a loss. Take action.

I am finishing up my college education this summer, and am simultaneously applying for jobs. I need any job I can get because my parents aren’t exactly chomping at the bit to let me come home. My question is, I’ve been applying mostly online for all these jobs and I haven’t received any responses at all. Since they’re sent online, I receive confirmations that my application has been received, but I can’t help the feeling that I should be calling and checking in on the stores/companies to see if they’ve received my application. Is this rude, considering I get email confirmations? Also, my very nicely formatted resume’s and cover letters get ruined when I have to copy and paste them into online resume builders and text boxes.

any suggestions or good resources for how to apply to jobs with online application services? Is everything I learned about paper resumes moot?
– Michelle

Many online employment applications are utterly deluged with entries from people out there just spamming everything. People will see thousands of applicants for a particular job, and 90% of them aren’t even qualified for it or have submitted junk.

So how do they do this? They usually do some harsh filtering on the applications, looking for people in certain age ranges, certain locations, and so on. Most of the time, this filtering eliminates quite a few good applicants, but because of the huge numbers involved, they don’t have the time or resources to look at each one.

Your best bet is to try to apply for jobs that are close to where you’re at and ones you’re qualified for. This won’t guarantee a thing, of course, but it does improve your chances of getting some sort of response. Calling the place you applied to for follow-up certainly doesn’t hurt, either.

I. Have a disease. And I wish not to disclose what it is; but to say the least, I work at Wal*Mart and sift through financial issues and debt because I can’t afford medical insurance. My boyfriend can’t find a job because we’re 15 miles out from any real place to work. We live in the middle of nowhere. I need treatment, and I need to get my life on track. I’ve had jobs where I’ve had to walk five miles there and five miles back- and trust me, I don’t mind, because I feel like it empowers me to do something for myself.

Basically, is there any advice you could give me on how we could go about improving our lives? Also, to avoid further downfall. No one can, or will, or ever has, had the time to teach me how to drive. I’m 21, and have a permit. There’s nothing I can do about this. I have tons of artistic talent. I’m great with music, painting, whatever… Massive amounts. And I want to get into college… My fear is affording it, and transportation. But as smart as my boyfriend and I are, we’re so far behind in what we should be doing due to poor families and background history that it’s disgusting, and I’m really just trying to keep my chin up, here.

Ontop of my own issues, my parents are falling into a 50 thousand dollar medical debt trap. My mom is sick, and doesn’t work, and can’t work. And the things that come out of my father’s mouth scare me sometimes. He talks about the money I would get if he died… I don’t want to hear him say things like this. So as you guess, they often ask me for money. (As I said before, I have a part time job. At Wal*Mart. In other words, I make the absolute crap of money.) I’m in a complete hole, in the middle of nowhere, with no transportation except to work. I want to help them, but I can’t just keep giving them all of me, or else I’ll end up just like they are.

I NEVER wanted to have kids. I hated the idea of having kids. I’ve always been the tomboy. Always. Until I met my boyfriend. And I’m so afraid to have kids, due to debt, that I just don’t know what to do here. I don’t want my kids to live the way I do. I want them to grow up with positive attitudes and the ability to learn and maintain themselves- and above all, prosper.

This is basically my issue. If you can take the time, can you heed any advice?
– Sara

I think you’re in a bad location with bad influences all around you. My honest suggestion would be for you and your boyfriend to move to a different area for a while, preferably a place with lots of opportunities. I would suggest a city with a low cost of living, like Des Moines, IA or Omaha, NE.

Go there. Find some work. Use mass transit to get there. Use every service you can get for low income people in the city. If you feel the need, send some money back to your parents.

Look for opportunities in the city to share your artistic skills. Volunteer to produce art for community groups so that you’re seen in a popualted area. Share your talents so that people see what you’re capable of.

I know that you feel strong family ties and responsibilities, but the longer you stay there, the less likely it will be that you’ll ever actually do the things you dream about.

I’ve read your blog for a little while now, your posts are very helpful and make for an enjoyable read. But what further advice would you give to a college freshman? For instance, I just turned 18 and set up my own Checking and Savings accounts apart from the savings account previously held under my parents’ account. What specifically can I do right now to set myself up for financial success? Because of college bills, I won’t have much money to use but I’d like to get some kind of “head start” on my future finances. I’m trying to read a few financial blogs to at least get informed on personal finance but I’m still unfamiliar with many terms and processes. I’m going to a private school with about 1/3 paid for by scholarship, and the rest to be covered by myself and my parents — without loans. What would you advise?
– Christian

Your best move is to educate yourself. Pick up a few well-rounded books on personal finance, read them slowly, and absorb what they’re saying. Use the internet to look up terms that you’re having a hard time understanding.

I’d suggest starting with two books (and these are linked to my reviews of them): Your Money or Your Life (puts personal finance in a whole life context) and The Bogleheads’ Guide to Investing (drier, but more information-based). From there, you’ll know enough to figure out what directions you should go in next.

The best solution for your problem is education, pure and simple.

My husband and I purchased our first loan last year. Since my husband had been self-employed for roughly 8 months at the time, we only qualified for an in-house 5/5 arm loan at a local bank at 5.7 %. The adjustable rate loan is very reasonable (tied to prime, can not adjust up or down more than 2 percent, etc), but we are looking at refinancing now that rates have dropped and my husband’s work history would let us qualify for a 30-year in a few months. Our bank will do a refinance for $1200.

Unfortunately, if we refinance we have to pay PMI, which will be about 90 bucks a month. If we refinance into the 30-year at 4.75%, it will take us over 3 years to see a savings at all. We also have an option to refinance into a 7/1 ARM at 5.1% and NOT pay PMI. We would break even with the cost of refinancing after 15 months, however we still won’t be in a 30-year mortgage. AND, I am wondering if the 5/5 loan is better since it can only adjust every 5 years.

I love the security of a 30-year mortgage, but the reality is that I have four more years in my PhD program, so the longest I could see us staying in this town is 4-6 years (if I took time off for some reason). Should we just get the 7/1 arm?
– Amanda

I almost never think an ARM is a good idea. It will often look like a good idea at a certain point in time, but it looks like a good idea because it locks in well with what your plans happen to be at this given moment.

If there’s anything that’s certain right now, though, it’s change. Your plans today will likely not match what you’ll be doing in five years, and if you’re in a situation where your mortgage is about to adjust and you’re made to either refinance at a higher rate or suck up the adjustment (because rates are going to go up).

If I were you, I’d get the lowest rate with the PMI – the 30 year mortgage. Focus on getting that debt paid down to the point where you don’t owe the PMI. That way, you’re not stuck in an adjustment or refinancing choice if your plans don’t go exactly as you think they will.

I’m trying to help my fiance sort out her retirement benefits at a new job, which offers two plans. The first is a pension-type account they make the entire contribution for, but the second is a 403(b) Tax Sheltered Annuity Plan, either traditional or Roth, offered through one of three companies. I’m completely adverse to the idea of investing in annuities; everything I’ve read indicates they’re much more expensive than general mutual funds, and since we’re only 25 I think the extra growth potential in index funds makes more sense. Her company does not match her contribution to the annuity account, so I don’t see much benefit to it.

Currently I fund my 401(k) to get the entire company match and max out my Roth IRA contributions. My fiance has minimally funded her Roth IRA in the past. Given my aversion to the annuity option, the other route I see is to direct all the money she would have steered there into her Roth IRA. If there’s money left after this, we could increase my 401(k) contributions.

Should I be giving more consideration to the annuity plan?
– Jeff

It really depends on the specifics of the plans. What kind of fees are involved? Are the companies stable? Are the annuities insured?

As a very general rule of thumb, you’re probably right in saying that your current investing plan is superior to the annuities because annuities often have heavy fees with them. However, if you’ve got that much money to sock away, it helps to do some research.

I’m willing to bet that her best move is to just fully fund her Roth, because it’s probably a stronger investment. If there’s still money left, upping your 401(k) is an option, but she may balk at that because it leaves her funding your retirement, which would be a raw deal if you ever got divorced.

I owe 530,000 on my mortgage.I’m currently paying back at 5.125 %.If I refinance, which is a better choice?A 5 year fixed at 4.25% from ING or a 30 year fixed from another company at 4.875%?
– Phil

I’m going to guess that you meant a 15 year fixed.

If that’s the case, the 15 year fixed is the better deal. You’ll pay a lot less interest over the life of the loan. The drawback is that your monthly payments will be a bit higher, but you’ll also be done paying them 15 years earlier than you would be with the 30 year.

If you can afford the monthly payments easily, take the 15 year loan.

A friend sold us a universal life insurance policy for each of us. We have 3 children and the premium per month is about $1500 for the 5 of us. My husband is the only breadwinner of our family. the friend who sold us the policy showed us some complicated math about all the money we will receive if we wait so many years, how it is a great gift to give our kids when they are 21 etc. I have been paying $1500 t for 8 months now.My question is ,is this a good investment as he says it to be or is a term life insurance better? My husband is about 40 years old. Kids are around 12,7 and 5 yrs old.
– Penny

Whole life insurance is way better… for the person who sold it. They earn a lot more commission on whole life insurance than they do on a term policy and thus salesmen often become true believers in the greatness of whole life policies.

To put it simply, whole life policies don’t earn well enough to make up for the fees and expenses tied to them. Yes, over the long run, you will see some returns from it. However, it’s not as good as simply buying a term policy and then putting the money you save away in an investment account elsewhere, like a Roth IRA.

Doubt me? Dave Ramsey says the same thing.

I regularly read a lot of self-help stuff, from books and online resources. I subscribe to many blogs, including yours, that talk about how to live a better life and self-growth. And, since I´ve been doing that, I feel I know more about me, my problems and what must be done to solve them. But the thing is that I have a hard time making the transition between theory and the actual application of all I´ve learned, I can´t seem to make it work. It´s like I can´t effectively “internalize” all the information to make it useful. For example, recently I finished reading this great book, Mastery, by George Leonard. It talks about a lot of things that make so much sense to me (I had a lot of “A-ha!” moments during the reading), and is full of practical tips that are key to improve many things that I´ve been struggling with. At the time I finished it I felt really energized with all the wise words and so, and managed to apply that through the whole day. But as the days went on, I apparently forgot all that, and got back to the normal state from before the reading, feeling only an itch of the amazing sense of flow that I had experienced. I wish I could really retain all this good stuff and make it a part of myself, going beyond the knowledge by making it functional.

I know you are an avid reader, so I would like to know how do you go about this. How do you take the wisdom you come across and turn into positive changes in your life? What´s the best way to do that?
– Liana

Many self-help books have hundreds of suggestions for behavioral changes. They talk about many, many things you can do to improve your life, and they’re often inspiring.

The problem comes when you try to apply lots of changes at once to your life. The more changes you try to execute at once, the easier it is to utterly fail and wind up making no changes at all. It’s like going on a “diet” and eating nothing but lettuce for a week. That will fail, almost always.

The best solution is to take a self-help book and try to apply one specific principle at a time to your life. I can’t comment on the book you mentioned, but if you read Getting Things Done, you can get started by simply having a “collection” weekend or carrying a notebook in your pocket and jotting down everything in your mind. If you try to do the whole system all at once, it’ll be tough.

Take life changes one step at a time, especially changes that are easy to backslide on.

I have a couple of questions concerning credit and the need for it. Just for some background I am currently engaged and will be getting married next month. I have been out of college for almost 6 years and have a well paying job and have a mortgage on a duplex. I have no other debt than my mortgage and have a nice credit score. I have had a credit card for the past 10 years and I have never carried a balance. My fiancé on the other hand has never had a credit card and has always used a debt card since he didn’t trust himself when he was younger. He feels now that he can handle using a credit card wisely. He has tried to look into get a credit card but is having difficulty with the way credit card companies are being picky on who they lend to now and he doesn’t have a credit history. This wouldn’t be an issue but we are worried that in the few years after he completes a program to become a physician’s assistant that we will start having kids (and I will stay home) and want to move into a single family home and keep the duplex. At that time he will probably be the only income besides rental income. I am hearing that they are now taking the lowest credit score of the couple into account vs. they used to take the higher one. This could create an issue with my husband’s lack of a credit score if it is true. If it is true how would you recommend him getting started with a credit score? He has checked his bank but even though he has had accounts with them (a national bank) for awhile they won’t even give him one since of the lack of credit history. How does one get a credit card if they are past college age and have no credit history? Does applying for any and every credit card in hopes of getting one hurt you in the long run? We are trying to get one that will not have an annual fee so there will be no financial impact on our end. We own both of our cars and do not plan on replacing them in the near future. Thank you so much for you help.
– Alison

There are a lot of benefits to establishing credit for your husband and you outlined some of them above.

The simplest way to get started is to co-apply or co-sign for a new card for your husband. Don’t worry if it has a low credit limit or other such drawbacks – the purpose of the card is to raise your husband’s credit.

Use the card for some very routine purchases, like gas, and pay off the balance of that card in full each month. Over time, try raising the credit limit of that card – call and ask for a credit limit increase.

You may also inquire about adding him to the mortgage you have on your home. Call your bank and ask. This can do nothing but help his credit if you’re diligently making payments.

In short, use your credit to prop his up in the short term.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Loading Disqus Comments ...