Reader Mailbag: Grandparents’ Week

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. Switching to joint checking
2. Transferring a Roth IRA
3. Accounts and goals
4. Which debt goes first?
5. Using HELOC to repay debts
6. Gift card arbitrage
7. Debts or further property buying
8. Getting Things Done for kids
9. Difficulty setting big goals
10. Worries about paying property taxes

Our two oldest children are visiting their grandparents for several days. It’s amazing how much quieter the house is and how much more smoothly the evenings go. Our evenings don’t revolve around corraling children – instead, we’ve watched a movie and played some board games in the evenings.

My husband and I are recently married and we are paying down our debts, he is focusing on his credit debits and being able to pay off his balance every month. I am focusing on paying down my student loans. We also have an a (very small) emergency fund and we have a 529 for our 9 month old that we send money to every month. My husband contributes to his 401k although I don’t know the details and I will be eligiable to contribute to mine the in spring. We currently have a townhouse and we are saving money for a down payment on a bigger house (we plan to expand our family and we have out grown our townhouse). We have to options, keep the townhouse as a rental or sell and put the equity to the new house. Ok, having said all of that, my husband suffers from the “Keeping up with the Jones’ ” symdomn and maybe I do too a little bit, but I am a pretty savy and I have really turned my husbands mind on to saving and trying to prioritize spending as well as, spendng it wisely. However, I am considering a joint checking account. Right now we split the household bills and them we are responsible for our own debt. Quite a few of the successful couples we know have a joint account and they say part of what makes their marriage work well for them is the amount of communication that goes into a joint account and those communication skills slip over into the other areas of their marriage. I don’t want to police my husband on what he spends “his” money on, but I think if we both saw what comes in and what comes out it might realign our financial priorities. Also, if we do decide to do this, how does this even begin to work?
– Chandra

I’m not sure what you mean by “how does this even begin to work.” If you have a joint checking account, the money in that account pays for the bills and also provides for the “spending money” for both of you. If one of you just spends like crazy, there’s not enough money left to pay the bills.

Because of that, it often forces couples to start communicating more about their money and realizing that they really are in the same boat when it comes to their finances. It’s often a big step forward for setting goals and planning for the future.

If this feels really uncomfortable for you, you need to ask yourself why. Do you not trust yourself? Do you not trust your partner? You need to dig deep into whatever is holding you back and get it straight with yourself and your partner or else this will just cause further problems.

I am a 26 year old, newlywed, with a 1,000 house payment, no other liabilities, 90,000 total income; 15,000 emergency funds in cash. We have worked hard to save money and our spending behaviors are great. I am just unsure we are doing the right things. I have opened and funded a Roth IRA for the past 2 years (have about 10,000 in assets). As I learn more about mutual funds, I’m becoming disappointed that I chose “loaded funds” through American Funds from a financial adviser/broker. I don’t know that I feel comfortable being sold financial services; I’d rather pay for good advice. Anyway, I own AGTHX and NEWFX. I recently became a husband and am working with my wife to get some investments going. We would really like to max out our Roth IRA’s. I’ve read so much about “no-load” funds and think I want to go with Fidelity funds (“no-load”) for the both of us (either target date funds or something else). My question to you is, what do I do with the American Funds, keep investing in them, stop future contributions but keep the balance, sell them and put them in Fidelity “no-load funds”. Any advice would be great.
– Randy

If you don’t like the offerings that your current broker is giving you, you can easily move your Roth to a new custodian broker.

All you have to do is contact the investment house you want to move your money to, explain your situation, fill out the paperwork (they’ll be happy to provide it), and wait a few weeks. Your Roth money will have moved to an account at the new custodian broker and you can allocate that money as you wish. It’s typically referred to as a transfer.

I have no comment about specific investments, other than to say I have my own Roth IRA with Vanguard and I’m very happy with Vanguard in every way.

I have been reading your site now for the past few weeks and had a question about preparing for my future. I am 21 years old and going into my junior year of college, I current work full time but once school starts it will drop down to part time. I have some savings set aside and trying to find a why that would best suite by needs. What I was looking at doing was to keep my savings account I have for sort term goals and as an emergency fund, open a high yield savings account for long term goals, and a IRA account (not sure which one is the best to use) for retirement. Here is my dilemma I don’t have a lot of money so would it be worth it to go with the plan I have or is there some better alternative I could try? I make enough money to cover all of my bill and can save up to 30-40% of my income. Is it worth it to open the above accounts even though the amount of money in them would be very small?
– Geoff

I think it very much depends on your personal situation. Are you in a field of study that will lead quickly to a job after college? Is your academic and extracurricular performance building towards a good career? Do you have a significant other and post-graduation plans that involve that significant other? Can you move back in with mom and dad if you don’t find a job?

In other words, you need to be able to make some estimates of what your immediate post-graduation cash needs will be. If you have a lot of needs, keep the money in a high interest savings account and sit on it. If you don’t have a lot of needs, putting it into retirement savings is a good idea – I recommend opening a Roth IRA because your income as a student is likely really low, so the tax advantages it has work well for you.

Personal finance is personal – there’s rarely a cut-and-dried answer that’s perfect for everyone.

Starting next month I will be having an extra $300 per month to put towards one of two remaining debts…which would you recommend paying off first?

Vehicle Loan – $15,000 at 1.9% interest (we just bought it last October, 60 month loan, pay $320 per month right now).
Student Loans – $40,000 at 6.5% interest (currently paying the minimum of $200 per month due to our low income).

– Jamie

If your job is looking stable for the short term (next year or two), I’d put money towards the student loan because that will give you the best return for your dollar, but will take longer to pay off.

If you don’t have an emergency fund and aren’t confident about the stability of your situation, pay off the vehicle loan first because it’ll disappear much quicker and will improve your monthly cash flow.

In other words, if you don’t see any big icebergs on the horizon, go for the student loan first.

I am a 53-year old man with a total of 5 months of living expenses in a checking account, earning 3.01% APY, as my emergency fund.
I agreed to pay my daughter’s student loan off in full. She graduated in May, so the loan repayment plan starts in November. I have set aside the money to pay this off in full. Or I could use my home equity line of credit (currently 2.25%) and cash flow the repayment as long as rates remain unchanged. Currently without retirement contributions, positive cash flow of $2500 per month.
I suspended my contributions to my retirement accounts (401K with 3% match on first 6%) and any other IRA in order to increase my emergency fund.
1) Shall I pay off the student loan from cash or HELOC?
2) Shall I restart contributing to my 401K, and if so, regular or Roth 401K? What percentage?
3) I have a 15-year fixed rate (4.25%) first mortgage with 14.5 years remaining, balance of $150,000.
Should I start to prepay once the retirement is maxed out? What is your opinion regarding Ric Edelman and Dave Ramsey’s view on mortgage repayment?

– Allan

Unless you have a ton of money in retirement, you need to be contributing to that retirement above all of your other goals. I would put sufficient retirement savings at a higher priority than repaying that loan, especially since you’re talking about low interest rates. I would not prepay the mortgage, either, unless you’re saving plenty for retirement.

How much should you put away for retirement? I’d use a retirement calculator to figure that out. I personally like the MSN retirement calculator. Just fill out the forms to figure out roughly what you should be saving each month.

You should pay the student loan from cash. There’s no need at all to use a HELOC and put yourself in further debt, especially when you have the cash to pay the student loan. Keep the HELOC in case you actually need it for something else.

My husband is an absolute freak about gift cards. He HATES them. I recall you feel they should be sent soon after received also. Well, today I bought 12 gift cards of various denominations and tonight there’s going to be [trouble] because I don’t think my hubby will ever understand. So I thought I’d plead with you to consider my thinking and see what you think.
First, you should know I am by education an accountant and financial planner. By experience, and accountant and auditor. My brain thinks in numbers, statistics, patterns, ROI, future uses etc.
Second, we are in the long, slow process of remodeling our house DIY style – WHILE we live in it… and trying to stay married!

I purchase several gift cards from big box home improvement stores at a discount of 8% or more. My total purchase was about 60% of what our average home improvement purchases have been at those stores for the last three years. The cards don’t expire. The money I’m using is sitting in my savings account earning 1.25%. We normally use credit cards to shop and pay them in full every month. Our cards pay cash back of 1% on this type of purchase unless there is a special for the quarter. We currently have no credit card debt, only mortgage and student loan, this is pretty much a loan against the next 6 months of DIY spending. Oh, and I WILL put the money back in the account.
I will not loose them – Hubby will carry one at a time and I will carry one. The others have a special place in plain sight so they won’t get lost, misplaced or forgotten – maybe even a calendar reminder just in case?
Am I missing something here? Is there any reason this wouldn’t be a good deal?

– Maria

The only problem I see is that you’re locking your spending in at those big box stores, meaning that if you discover a better source for the items you want to buy, you don’t have the flexibility to use that other source.

I know that from personal experience, you’ll never always find the best prices at one particular store when you’re shopping for hardware. Whenever I have a project, I usually shop around at the “big three” hardware stores around here (Lowe’s, Home Depot, and Menard’s) as well as check in at a few small local ones that sometimes have astonishing prices.

In other words, the big disadvantage here is the same disadvantage that all gift cards have – they (almost always) lock you into one retailer.

My wife and I just moved and have $100,000 that came out of the closing of our old house. I wanted to try and pay cash for a forclosed home, fix it up, and resell it. We owe $40,000 on one filled rental property; $110,000 on another filled rental; $80,000 on an undeveloped land lot; and $230,000 on a 15 year mortgage for our new home. Should we use this money to pay off some of the above debt or invest it by getting a deal on a foreclosure with cash? (I have a good realtor and contractor who work for me…..I can get a house in a good neighborhood for 70% asking price.) Or should we just invest this money in mutual funds; stocks; or savings?
– Doug

You owe a lot of money. I generally think it’s a very bad idea to owe two times your annual income in overall debt, so if you’re making less than $230,000 a year in your household, I’d be very wary about my situation because of the pressure the monthly payments are putting on your cashflow. If your monthly income slips, even a little, you’ll be in a world of hurt.

Because of that, I’d encourage you to pay off some of that debt with the $100,000 you have. Consider it a cash investment that returns a percentage equal to the highest interest loan – the one you should be paying off.

Unless I had a lot of income, that much debt would scare me to death.

Have you thought about teaching your kids about “Getting Things Done”? What would be a good age to start? And how can the lessons be tweaked to become more kid-relevant?
– Cho

I’ve thought about this quite a bit. For our situation, our kids are just too young to really get anything out of it.

I think that GTD starts to come in handy when you have commitments and a to-do list that extend beyond today. Eventually, that happens with most everyone, and when it does, GTD is a good system to learn.

The big teachable skill, I think, is simply getting all of the stuff out of your head and onto paper, then routinely dealing with that stuff you’ve written down. That means learning to use a calendar and having some degree of organization with one’s personal papers.

I have no specific goals. After graduating last year, I moved back home, so I have few expenses. While I’m good at not spending, I’m not sure how to plan for the future. I don’t know if I should be making higher payments on my student loans to get rid of debt, or if I should save money for my goal of moving out. But I have no timeframe for moving out, and as much as I’d like more privacy and independence, I’d save a LOT of money living at home, especially since I live in Los Angeles. I try to save, but I don’t know what I’m saving for, where I should be putting my money, and when will be the right time to spend. Also, I don’t see myself at my job for more than two years, but I have absolutely no idea where I’d move on to. I’m not gaining many skills from the job, but it pays decently for a first job out of college.

Some background on my finances. I earn about $2,000/month after taxes working ~30 hours/week. I have about $15,000 in student loan debt, most of it at 6.8% interest. The minimum payment is about $200/month, but I pay off $400/month. I put away $500/month into an online savings account, which I just opened two months ago when I got my job. I also have about $6,000saved up.

I know I need to set specific goals, but I’m hesitant to dedicate myself to future big financial changes with so much uncertainty about what I will be doing (grad school? Stuck at my job? Still trying to find my passion?). What kinds of goals would you recommend I set when I don’t have any urgency to make big changes, and how should I be managing my money in the meantime?
– Erich

To be frank, it sounds like you’re doing a bit of post-graduation drifting. You don’t know what life really holds for you. You have a degree that interests you, but it’s not something you’re passionate about. You have a job that’s okay, but you’re not passionate about it.

If you’re in this boat, my suggestion to you would be to live as lean as possible and save as much as you can in cash for when you do find your passion. Many people who “drift” like this fall into a lifestyle where they buy stuff to match their income and eventually find themselves unable to make a big shift and jump on board their passion when they discover it.

Avoid that outcome if you can. Live lean now, save, and try lots of new things. You’ll eventually find something that fills you with excitement, and then you’ll be ready for it.

My mortgage is now at the point where I have the right to elect to discontinue the escrow for taxes and insurance. I believe I have the discipline to put aside funds for taxes and insurance in a savings account that I control, and to pay the taxes in a timely manner. And of course I’ll enjoy the flexibility I’ll have in putting aside the funds on my schedule and not the bank’s.

My only concern is that if the taxing authority goofs up and posts my payment to the wrong property, or they claim they don’t receive my payment, I’ll essentially be on my own to resolve it. In the 20 years I’ve been paying property taxes (through an escrow) to this taxing authority I’ve never had a problem, so maybe my concern is unfounded. Just though I’d get your thoughts about this.
– Laura

Your concern is that if you make a payment to the tax authority and they “goof it up,” you’ll be on your own to resolve it? I would consider that a very minor concern.

Just make your payments on time and keep a record of what check you used, what day you mailed it in, and so on. If you’re particularly nervous about the payment, contact the tax authority a week or two after submitting payment, or submit the payment in person and get a receipt for it.

If all else fails and they did goof it up, you have your records to prove that you did issue a payment to them.

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.

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