Reader Mailbag: Handwritten Letters

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. Rent or sell first home?
2. Keep investments or pay debt?
3. Prayer and money
4. Couple facing financial crossroads
5. Falling into money
6. Audio personal finance advice
7. Preparing for possible medical emergency
8. How to find simple joys
9. Large purchase in bad economy
10. Reading long books

Recently, I’ve found out that two college-aged people I know have taken up writing handwritten letters to others in order to impart more personal value than sending a text or an email or a Facebook message.

I can’t tell you how much I applaud that. There’s no better way to really let someone know they matter than a handwritten and heartfelt note.

Q1: Rent or sell first home?
My fiancé and I are both in our 20s, I was going to say early 20s, but I’d be lying because I’m now 26 :) We will be married in September. We have owned our home for 2 1/2 yrs, 3 yrs in sept. I owe $96,000 and have a 6% interest rate. We were talking about adding on an addition in a few years, but thought for the heck of it we would just get an estimate, and turns out they want $45000 for just a family room. We were going to finish the basement with our wedding money and thought we would show the guy what we were going to do. Turns out we have to replace the basement wall, easily $9-$15000. The guy left, and here we are, our dreams crushed. We can’t afford it.

We want to stay in our school system for our son, its a great system, and we have family we are very close to. The bad part? What the heck do we do with our house? Rent or sell? Either way, I will be fixing the wall. Disclosing it is one thing, but with the way the market is, no ones going to even walk in here.

We want to rent for the obvious reasons and don’t want to rent for the obvious reasons.

As for our money situations, my fiance has a little debt to his mother, which will be paid off after the wedding (we’re paying $1000 a month to our wedding fund right now), I’m an RN and he works at the bank, and goes to school in the evening. He won’t be done with school for at least 5 years.

I do have about $16000 saved, a well funded Roth and IRA. I gross about $58,000 and right now I want to just go by my gross. Should we rent or sell our first home?
– Janine

I’ll agree with you that you don’t have much of a chance to sell the home in the current marketplace with a severely damaged basement wall. Your best approach is to get multiple estimates on it, then start saving up for the cost of repairing it, perhaps supplemented with some of your savings (don’t clean it out for this).

The real question comes after paying for that wall repair. For starters, you need to start thinking of your income and his income as household income, and your expenses and his expenses as household expenses. What does his income look like? What are his expenses like? Clearly, he has a job at a bank and he’s also going to school. Do these two cancel each other out? What’s the true take-home that you’re working with here? What portion of that is eaten up by the current mortgage? Beyond that, where do you want to be in a few years? Do you want debt freedom? Do you want this house with a family room? Do you want a larger house?

The questions you’re really bringing up here are more goal-oriented than anything. You have to sit down with your partner and start talking these things through together.

Q2: Keep investments or pay debt?
I have an investment account valued around $50,000 and student loans of $65,000 at 6.8%. I have a job lined up after graduation, paying roughly $50,000 per year. Should I preserve the investment account and pay down the debt from income, or is it better to apply the investment funds to the debt?

– David

You should pay down the debt using most of your investment and reserve the rest (around two months of living expenses) in a savings account for yourself. Then, use income to knock off the rest of that student loan as quickly as possible.

The biggest reason for this is cash flow. The more cash flow you have, the better you’re able to deal with opportunities that life hands you, like taking a chance on a startup or suddenly meeting the perfect person for you, or dealing with the blows life hands you, like an unexpected job loss.

The return on investment issue is a wash. Warren Buffett estimates that long term returns on the stock market are roughly 7% going forward, which roughly matches your interest rate on your student loans.

Q3: Prayer and money
Do you think it is useful to pray for financial success? Do you think it’s right?

– Margie

Do I think it’s useful to pray? It’s always useful to pray for whatever’s weighing down your mind. The act of praying in itself is a great way to release a burden on your shoulders.

Does that mean God will respond? No. Just because you ask for something doesn’t mean you’ll immediately receive it.

It’s often the act of prayer that provides the value because it enables you to deal with the issue from a different angle. Any response from God is on His timetable which your intervention may or may not have anything at all to do with.

Q4: Couple facing financial crossroads
My husband and I are kind of at a financial crossroads in our life. We are both around 30 with no credit card debt, no home mortgage and no car payments. We have an emergency fund of $11k, $1,200 in an old stock that’s pretty stagnant, $12k in Roth IRAs in my husband’s name (the only retirement funds he has) and $46k in a 401k with my company. I’m putting in 6% of my income into my 401k and the company matches that with 4% for a total of 10% going into that fund every year (about $8k). The only debt we have left is my husband’s student loans, which are around $20k at 7.25%, but in deferment currently. He never finished his undergrad and was working a full time job for the last several years until he was laid off due to the economy about 1.5 years ago. We used his income to pay off tons of debt we had racked up in college. Since the lay off, he’s been going to school full time at the community college to get all his pre-reqs out of the way cheaply before transferring over to the big university to finally finish his Bachelor’s. We will be paying that huge tuition payment out of our pocket (~$4,500 a semester for the next 4 semesters), which we already have a plan on how to pay that without dipping into any savings or other monies listed here.

My question is this: I make about $4k monthly and after all of the monthly bills and budgeted money, I have about $750 dollars left. I was wondering if I should (1) increase my 401k contribution to make up for the fact that my husband isn’t actively putting money into any funds, (2) invest part of it into one of my husband’s Roth IRA’s monthly and save the rest, (3) put all of it towards my husband’s student loans, (4) build up my emergency fund even more ($11k in savings + $12k in Roths if we need to liquidate them) or (5) start saving for a down payment on a house.

We had a foreclosure on our first home because of an ugly situation with the bank and know we will need 20% down for our next home. When my husband graduates and finds a job, we shouldn’t have a hard time saving this up in a few years. I also have a pension with my job that is projected to, combined with my 401k and Social Security, be able to cover all of our retirement expenses so my husband doesn’t necessarily need to put money into anything. If we pay a lot towards my husbands student loans now, the principle will go down faster since they are in deferment and don’t require a monthly payment, but I have a sinking feeling in the back of my mind that I should be putting more money towards savings. We just don’t know what to do. Thanks.
– Stephanie

Given your situation, I would focus on eliminating his loans as fast as possible. That 7.25% interest is painful, as is the fact that it’s a sizeable bill eating into your monthly cash flow. Your emergency fund savings are more than adequate given your situation.

This also gives you more flexibility if the marketplace changes and your husband ends up finding it harder than he expects to find a job. Banking financial choices on him finding a job is not a good move, as it puts a requirement on something that’s not truly certain.

I don’t think you’ll ever regret not having that debt around your neck.

Q5: Falling into money
My wife’s father has been slowing giving his children some of their inheritance over the past decade, up to the IRS tax free limit (around 13K I believe). In order to limit any inheritance tax upon his death, he decided to give a much larger sum of money this year (about 90K after taxes). My question is, what should we do with this? It will ultimately be used in our own retirement (we are in our early 30’s), but we also have plans for a vacation home when the time is right. The vacation home is not in our 5 year plan (likely not even in our 10 year plan) however. I guess I’m looking for a place to stash the money in a semi-liquid financial product, for at minimum 5 years. After that, I’m not too sure. I have IRAs and 401K, so I’m not really looking to put money in those products. I would say my risk aversion in somewhere in the middle. Any product that has an early retirement penalty is probably not an option, based on our vacation home plans.

– Roger

So, in summary, you have a long term goal for this money that’s not hinged on retirement. You’re wondering what you should do with it.

The best option for a long-term goal without retirement tied to it is in a brokerage account. There, you can invest the money in a variety of things, including stocks. If you’re looking at a long-term goal (beyond ten years) that’s not tied to retirement, stocks in a normal brokerage account are a great way to go. I use Vanguard for these types of goals.

However, I would probably diversify it across several investments. Split it up – put some in a domestic stock index fund, put some more in an international stock index fund, and put even more in a bond fund. As time goes on and you feel like your big goal is getting nearer, close out one of the stock funds and put that money in the bond fund. Eventually, just move it all into your savings account – that will keep the balance safe for you as you hit the final stretch of savings.

Q6: Audio personal finance advice
I’ve been reading your blog for a while now and enjoy it. I’m lucky to be in a great position financially, but my boyfriend is not. He is open to advice, and we discuss finance and economics often. I would love to share your blogs, stories, and reader questions with him, but there’s one problem: he’s not a big reader. He is a slow reader, doesn’t have much free time, and generally prefers glancing through magazines if he reads anything at all. He does however enjoy listening to podcasts and always has one on (or NPR) when he is driving. He and I live about an hour apart so he drives quite a bit!

So my question to you: do you have existing or plans to create audio material from your blog? If not, do you have any recommendations for other places online that I can look?
– Christina

I’m not particularly skilled when it comes to podcasting. I think my content is all right, but in order for it to shine, I need a skilled producer. Given that this isn’t a high priority, it’s not going to happen (again) any time soon.

Instead, I’d suggest he listen to some personal finance podcasts. The best one, in his case, is probably Dave Ramsey’s podcast, which you can easily find on iTunes or on daveramsey.com. It’s essentially an excerpt from his radio show, which I think is the best one out there on the subject of personal finance.

Beyond that, I also recommend NPR’s Planet Money podcast. It’s a bit deeper, but if you really want to understand the issues underlying personal finance, it’s a great one.

Q7: Preparing for possible medical emergency
I am in what may be a very specific situation. I’m 27 and recently married a man, 31, whom I have dated and lived with for five years prior. My husband has a medical condition that poses a potentially huge problem down the line for many reasons.

When he was a teen, he contracted a virus that spread to his heart. After lying in a coma for several weeks, he received a heart transplant. It has been sixteen years since his transplant, and aside from some “minor” complications (most recently being a stent to clear a blockage), he lives a happy, healthy life.

We’ve addressed the emotional complications in therapy and continue to work on them today. We want to have a family and are making plans for the future. My question for you is how we can best plan for the possible financial complications that his condition may create. Currently, he has several visits to the hospital for testing and check ups (about 1 per month) and one cardiac catheterization. The stent was the only unplanned procedure that he has had in several years. We are both employed full-time, though I earn nearly double his income (60K to 35K), and have good health benefits individually with our employers. His parents, who are quite well off, have stepped in on several occasions to help with the medical bills. We currently do not have a separate account for medical savings. Would you recommend us saving for the known procedures, plus some percentage for unforeseen costs up to a certain number of years? Are there any accounts that you would recommend we do this in? Do you think it is reasonable to involve his parents in the discussion? Is there anything I should do separately? As you can imagine, it is a fraught discussion, but one I think is worth having for our collective piece of mind.
– Jenna

Since I don’t know the specifics of his condition and what the future expectations are, I can’t comment. However, here’s what I’d do moving forward from your situation.

The first person I’d talk to is the doctors. I’d try to get a good understanding of the future prognosis and what procedures and medications he’ll likely need in the coming years. What will likely happen? What can happen?

Beyond that, I’d start saving as much as I could for such procedures. I’d essentially recommend an infintely large emergency fund – as much as you can muster. I’d certainly involve his parents in the discussion, but with the understanding that you’re primarily looking for their advice as they’re financially successful. I would not rely on any help from them, but appreciate it if it drops out of the sky when you need it.

Q8: How to find simple joys
Whenever I read about frugality or about cutting spending, I can’t help but think it sounds really un-fun. You often mention finding joy in simple things. How do you do that?

– Kelly

I mostly do simple things. My average day involves writing, making a meal or two for my family, reading a book, playing in the yard with my children, maybe going to the grocery store or to the park – not exciting stuff.

Within that, I look for the parts that make me feel good. The taste of a well-prepared meal. The laugh of one of my children. The smile of my wife. The sense of feeling good after playing hard with my kids. The flowers I found and picked in the unfinished part of the park.

These things make me smile – and what else is there, really, than a good smile and a good feeling inside of you? I could chase that feeling all day long, or I could just do the simple things and find that those feelings come to me.

Q9: Large purchase in bad economy
I am a divorced woman, over 50. I am blessed and grateful to have a terrific job in the healthcare field. For a single person, I believe I make a good wage and contribute automatically to two retirement plans through my job: one a pension; the other a supplementary 403B. My only child is grown and lives/works in another state. My financial outlook was very low after my divorce some years ago, but through education and opportunity, I have been able to improve that outlook dramatically. I have never purchased new furniture for myself, always being the (grateful) recipient of hand-me-downs from others. I saved my entire IRS refund from last year to finally purchase some large furniture items such as a sofa and some lamps. But I find myself afraid to let go of that money. I seem to be hearing nothing but negatives regarding the state of our economy and I’m afraid that everything will go south and I’ll find myself without that extra money when I most need it. Logically, I know this isn’t true, as I have a checking account and an additional small savings account that I could tap in an emergency. Yet, I’m still afraid to move forward, even though I love the idea of owning something that I selected and bought for myself (after shopping for the best bargain of course). I greatly respect your opinion and would value any advice you could give me.

– Ginny

This is a common feeling for people who have reached a very scary financial bottom and have pulled themselves up a bit. They’re afraid to spend anything lest they find themselves drowning again.

To them, I usually say that they should trust their heart. There’s a tipping point to be found in here, where you’ll find enough financial security to be able to afford both a healthy savings account and that item you want.

Be patient and do what leaves you feeling best about the present and the future. One of these two conflicting feelings is more powerful and you should stick with that one while re-evaluating every once in a while. If the regret of having not owned whatever item it is you’re wanting begins to outgrow your desire to continually increase your savings, that’s fine, as long as you don’t wipe out your emergency fund or put yourself into debt in the process.

Q10: Reading long books
How do you read such long books like A Game of Thrones or Shogun? Whenever I see such books, I just get intimidated. I’ve started a few very long books but I’ve never been able to finish them.

– Andy

I usually just leave such books on my bedside table with a bookmark in them. At bedtime, I read a few pages, then stick the bookmark back in.

Sure, it might take a long time to get through the book, but that doesn’t really matter as long as you enjoy the journey you’re taking with the plot and the characters.

The only time I give up on a book is if I genuinely don’t care about the characters or the situation involved, which is pretty rare, indeed. Otherwise, I keep plugging away, because each page tells me a little more of their story.

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.

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