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. Handling house sale proceeds
2. Helping a declining parent
3. Chasing a dream
4. Moving forward with bad policy
5. Spending choices on children
6. Cashing out stock options
7. Who is Trent politically?
9. Handling a small windfall
10. Creepy emails
Remember my complaint about soda about a month ago? It turns out that there was a labeling error. Apparently some bottles that contained “lemon soda” were mislabeled “lemon sour.” I’ve yet to receive a written response from the company, which may contain vouchers or some similar material. I’ll keep you posted.
After following your thoughts and advice, I am proud to say that I have eliminated my personal debt. My partner has made great strides in her debt, and now has about $50,000 worth of debt (car loan, consolidation loan, and credit cards).
We bought our first house to flip last November (’09) and our mortgage balance is $77,000. We received an offer of $220,000, giving us an approximately $80,000 profit after expenses, taxes, etc. I am writing to you to ask for your thoughts on the two options we are considering:
1. Pay off all of my partner’s debt, leaving us both with no debt whatsoever, and take the $30,000 as a down payment on our next investment property.
2. Roll the $80,000 into two properties, using $40,000 as a down payments (20 and 20) and the rest for repairs, etc.
Some other background: our emergency savings level is low (i.e. less than $10,000), I am self employed, she has a reasonably secure job. We have a very substantial sum in untouchable retirement accounts. We both enjoy investing in real estate and both sets of our parents are successful real estate investors.
It’s a nice problem to have but we really are not sure where to go with this. Thanks for your reply and help.
I’m not entirely sure I agree wholly with either idea.
The big question I would have is whether or not you have a cash emergency fund sitting there so that if something bad happens, you’re able to just deal with it. If you don’t, then go for the first option.
Now, another key question: how high interest is that debt she has? It seems like it would be fairly high interest. If it’s above even a few percent, I would put paying off that debt as a higher priority than flipping properties.
I like option one much better, with the caveat of an emergency fund.
I’m my mother’s health care proxy and executor of her estate. I finally was able to nail her feet to the ground and talk about what her wishes were, but also what her estate entails. Right now she is 56 years old, with an ok paying job. I figure she makes about $40,000 a year, give or take, and has health care through her job. My dad is passed, so it is just her. She told me she has about $20,000 in cash, about $5,000 (yeah, that’s five thousand) split between three retirement accounts, and her house. She has a small home improvement loan on the house, I believe it is $10,000. The house is not in good condition. Looking at other real estate in her area, I am guessing that it would sell for $70-$90k. That is it.
What am I suppose to do about her retirement? While talking she mentioned that her monthly SS, when she reaches age to collect it, would not cover her current monthly bills. Her bills right now are probably the lowest that she will ever see them since once she retires she will have to get on medicare and buy supplemental insurance or pay out of pocket for her meds. I have this feeling in the back of my mind that we (my husband and I) are going to have to take her in, as she will not be able to afford the taxes on the house and will have to sell it, and then she will not have enough money to live on her own once she loses the house. My husband does not want her to move in with us, and while I don’t want it to happen either, I just cannot imagine what else she is going to do. We don’t own a house yet, only rent, and we have a toddler at this point – hoping for more. We are debt free, have our emergency fund, and are actively saving for a house. I am of the frame of mind that we should be looking for one that has an extra room as I see my mom moving in with us within the next few years.
Do you know of anything that I can do to help my mother not have to move in with us? Taking on an extra job or doing more is beyond her. Do you think it is wise to plan that she is going to be moving in with us? How can I convince my husband of this, if it does indeed come to pass – which I give a much higher possibility to, after talking to her.
This is the tough spot that parents put their children in if they don’t adequately save for retirement. I see people in my own life following this path – and what’s going to happen in fifteen or twenty years is that they’re going to become burdens on their children whether they want to be or not. Save for retirement, folks, so this doesn’t happen to you.
Right now, your mother needs to budget starkly regardless of what she winds up doing. She needs to shore up every dime she can for retirement coming down the road, period.
Most likely, one of two things will happen anyway. Either she’ll keep working until she starts sliding downhill with her health (in which case, you’ll probably have to jump in to care for her) or she’ll retire before that and need a place to live.
It really, really depends on your mother’s character. Is she going to continually hint that she should take care of you? Or will she have a stiff upper lip and attempt to find her own solutions (low income housing, etc.)? If it’s the former, you’re going to have to make a tough call.
I’m a 25 year old IT consultant living in Chicago. I’m a computer science graduate, and I have a job where I make great money, live frugally (as much as you can in a high-cost city), save heavily and invest smart (automated, low-cost index funds). I’ve maxed out my Roth IRA for the last 3 years since being in the work force, and have maxed out my Simple IRA contributions last year and this year. I’ve already got about $50k in retirement accounts, and about $25k in more liquid savings. So, financially, I’m doing very well, and I’d like to thank you for getting me off on the right foot.
However, I’m not very happy in my job. I work for a small company, and have given more and more responsibility since beginning a year and a half ago. I’m now in the position that I thought I always wanted, but I’ve realized that it’s draining, both physically, mentally, and emotionally. I’ve been thinking about moving to a different position in my field, at another company. Something less technical and more people-oriented, as I’ve realized since being in the workforce that my skills really lie in bridging the gap between very technical, nerdy people and the non-technical crowd.
But, before I change jobs, I really want to travel. I’m a motorcycle and outdoor enthusiast, and want to travel the world on my bike. My current plan is to slim down my possessions (which I’ve already started doing), pack the items I want to keep into a deliverable storage box, pack the motorcycle up and hit the road for 6 months to a year. I don’t want to have a specific plan or route in place, but rather places and people that i want to see instead (Canada, west coast of the US, Mexico, and down to Panama). I have enough money saved that I can live on the road for a year and a half, which wouldn’t include temporary jobs I could pick up along the way or volunteer opportunities that would pay for housing and food like WWOOF (http://www.wwoof.org).
I’ve started preparing myself for this trip by taking motorcycle mechanic courses, stripping my bike down to the frame and putting it back together, taking Spanish courses, and reading anything and everything that I can about living on the road. I’ve also been taking my motorcycle for extended weekend camping trips and getting my gear & supplies figured out before I leave for good.
My question for you and your readers is this — am I crazy for doing this? My close friends and family are concerned about my safety and the impact this could have on my career, whereas I think that it will give me enough experiences to be a much better person and employee in the future.
You are absolutely not crazy for doing this. If this is a dream you have and you have the financial ability to do this for a while without any other life responsibilities, go for it.
It sounds like you know what you need to do to prepare so I’ll trust your preparations for the trip.
As for whether you’ll regret it later, my guess is that you won’t. This is the type of thing that will cause you to grow as a person. It will lead you down a completely different path in life.
What do you think you’ll regret more in twenty years: not doing this motorcycle journey or not working at an IT job that you hate? If you have the financial means right now to choose either path, the choice is probably pretty clear.
No CC or student debt, car paid off in full, mortgage of $189K that is being rented out (almost breaking even, we only have to pay $150 each month and that includes property manager for the out of state property). Renting for $800 from my parents. I make $39K and my husband makes $40K. We’ve got $33K in savings, contribute fully to an IRA for each of us, are going to start contributing 6% into my husband’s 401K at his new job (his matches 3% if they put in 6% and my company doesn’t have 401K) and I have a term life insurance policy. A couple of years ago his parents got us into a Northwestern Mutual Adjust CompLife Policy for him that we now pay $500/month into (we’ve been doing this for almost 2 years, so have pumped almost $12K into this. If we cashed it out we’d only get $4K).
I now understand the AdjustCompLife Policy a little more than I did when we signed up, and I’m under the impression that this isn’t a good idea for people our age. My dad and his stockbroker agree that we might want to change this, especially since the guaranteed APY is only 2%. The estimated APY is like 4.5% (obviously the life insurance guy told us it’s because of historically low rates, and that the rates should go up). My dad and his stockbroker want us to get my husband a term life policy like me and to invest the rest of the money into a mutual fund instead, especially since $600 is a hefty amount to have tied up in an “investment retirement” type of account that is in addition to our IRA’s and 401K. I’m leaning toward this (I like that it forces us to save, but it isn’t liquid so if we need it we’re out of luck. We can “borrow” from our account at 5.8% interest rate or take the cash settlement out), possibly leaving what we have invested so that it can compound but stop payments and take that $500 and invest elsewhere. What do you think? And if you would invest elsewhere, where? mutual funds?
Also, what do we do with the $33K in savings? It’s in a savings account – really really small APR – but it is our emergency fund. Is there a better way to keep it liquid but in a higher investment?
I would get out of that policy. You shouldn’t be putting $500 a month into a policy that’s only returning 2%. Replace it with a term policy (because you’re going to be parents), take what you get from cashing the policy in, and invest it.
Where should you invest it? In that mortgage, if nothing else. That’s going to be earning you a lot more than 2%.
I have more to say on where you could invest it, but Kris had a second question that focused more generally on parenting issues.
As an addendum, the biggest thing we are saving for is private school tuition for our unborn child. We’re approximating $20K per year for tuition alone, not including if we have another one. We’d stop at two kids, which would be $40K per year. Private school is not an option for us – we need to figure out how to save for that. We managed to save $20K last year, which would be tuition for one, but two? Yikes.
What other advice do you have for impending parenthood?
Something else to consider: why not just keep the money from the insurance as cash in a savings account and then sock it away in your child’s 529 when he/she is born, as a great way to start the child’s college savings? That way, you’d have a heads-up on the private school expenses right away, if that’s the route you’re choosing.
I’m not sure what you mean by saying that private school is not an option for you – I’m guessing you meant that public is not an option. I would suggest that you research that very carefully before you make a $20,000 a year decision. Depending on the region of the country where you live, the gap between educational results in public and private schools isn’t very large at all (virtually nil in some areas). Public school quality varies incredibly from state to state and municipality to municipality in the United States. There are many public schools that are far better than private schools (particularly some magnet and charter schools). Of course, you may be making that choice for religious or cultural reasons, which is a different story entirely.
The best thing you can do for your child is encourage them to have a strong work ethic and give them enough of a mix of independence and guidance so that they have a sense that they can do anything for themselves. They’ll make something of themselves if they have that.
My fiance has some stock options with his company that we will likely be cashing out soon, in two installments. The first, which we’ll have in a couple of months, will be about $250k (about $150k in pocket after the cost of the stocks and taxes). The second installment is a bit of a mystery at the moment, and could range from $162k to $480k (and we won’t really know where on that spectrum it will be for probably a year, maybe longer). I have $100k in student loans, as well as a $20k car loan, and about $10k in credit card debt. He has about $6k in credit cards, $37k on his two cars, and a $170k mortgage. Altogether we’ve got about $343k in debt (YIKES!). Our household income is around $200k, and our savings is virtually nonexistent ($16k in his 401k but that’s about it). We’re youngish (late twenties, early thirties).
My question is, keeping in mind that we’re not sure what the total amount will end up being, what’s the smartest thing to do with that money? I think we should put it all towards debts, and invest whatever is left over from the second payment, if any, as part of our retirement fund/nest egg. Being debt free would put about $4500 extra in our pockets each month, most of which would go straight into savings. My fiance thinks we should pay off just the credit card debt and one or two of the cars, and then invest everything else, with the intention of paying off our debt in 10 years with the interest we accrue on the investments.
I agree with your plan. If you don’t have any burning goals in the near-term future, shoot for complete debt freedom.
The reason is simple: cash flow. With no debt, you don’t have the payments hanging around your neck. If one of you lost your job, you wouldn’t have to make bone-crushing choices. If one of you chose a different career path, it wouldn’t be devastating to your life. If you had a child and one of you decided to be a stay at home parent, you wouldn’t be gripped by debt.
Investing that money (probably in stocks) wouldn’t help your monthly cash flow and would put that balance at risk in whatever investment you chose. If you chose a very low risk one (like cash or bonds), it’d earn a much lower rate than it would if you paid off debts.
Get rid of the debt. Enjoy the freedom.
I don’t care much for national politics. Rather than solving problems, both sides are mostly focused on grabbing pork for their constituencies and blaming everyone else for everything in a nonstop rush to re-election. You can’t even try to do something different because the tide is completely against you. Raise an issue no one wants to talk about (because it might scare some voters) and you get ignored with the idea never getting out of committee. Points are scored and ratings are grabbed not by making good points, but in painting the “other guy” as some sort of demon. Until there is serious electoral reform and very strong term limits, this will never change, and good luck to the politician who stands up for term limits in Congress.
I vastly prefer local politics, where people actually sit down and discuss things. Real problems are solved. Roads are built. Schools are built. Fire and police protection is organized and provided.
I care about solving people’s problems. I care about respecting other viewpoints than my own. I care about spending serious time thinking about the best way to solve a given problem. I don’t care for having to be in lockstep with someone’s philosophy. I don’t care for insulting people you don’t agree with when they’re merely trying to solve problems in a different way than you are.
Those things only happen on a local – and sometimes a state – stage these days. That’s where my heart lies. Sometimes I like solutions that would brand me a “conservative.” Sometimes I like solutions that would brand me a “liberal.” To be honest, I could care less about either one of those labels as long as people are sitting down together and honestly trying to solve people’s problems and are willing to listen to one another.
What are your thoughts on Soda? I know that in addition to personal finance you are also a fan of eating well, and healthy. I was wondering if you own or have considered a Sodastream type device to make your own carbonated beverages? The cost justification seems like it could work out over a period of time. I am wondering if it is worth the initial investment or if I should forgo this type of device altogether. Your insight is greatly appreciated.
I enjoy an occasional soda – and sometimes use it as an ingredient in a mixed drink. I don’t drink it daily or even weekly, however.
I think if you drink a significant amount of soda, you might be able to save money with a SodaStream type of machine. The best way to do that is with a simple cost analysis – what would the annual cost of each option be based on your soda habits? Will you continue that habit in the future?
There is potential there to save money. There’s also potential in saving money by simply drinking less soda and keeping it in the “treat” area rather than the “major expense” area.
My husband and I bought our first house back in 2009 and recently received our $8,000 check, which has been sitting in savings while we debate what the wisest way is to spend it. We’re both fairly conservative with our money so our first instinct is to use it to either pay off his student loans (~$16K at 8%) or pay off my car loan ($12K at 5%). We’re leaning towards paying my car loan because it wouldn’t take as long to pay it off entirely and, despite having a lower interest rate, it’s the higher monthly payment (I believe this would be the snowball method). However the other consideration is we really only have a couple thousand in savings, which is less than the emergency 6 month supply everyone advises. Is it better to pay off debt then build up savings, or should we keep it in savings and just pay our loans as normal? Is there a wiser course of action we haven’t considered? We both work very good jobs and otherwise have a modest amount more income than needed to cover our needs, so we’re hoping to knock down our debt quickly and build savings before working towards more fun goals of improving the new house.
I usually encourage people to have about two months’ worth of living expenses in savings for every dependent in their household. I’m assuming you don’t have kids, so I would keep four months’ worth of living expenses (your family’s take home minus whatever you save each month) in a savings account.
Compared to the importance of having that, your interest rates are fairly low. I would put the priority on the emergency fund. I know that it can be tempting to put it towards debt rather than having it sit there, but it’s that very moment when you use it for something else that you find you really need it.
As for which debt to pay off first, you’re really fine going either way. There are good reasons for paying off each of them first, so go with the one that feels right to you.
Photoshopped pictures of my children and my wife take the cake.
I have also received a very sincere invitation for an affair from a woman that I believe lived pretty close to where I do. I didn’t follow up, so I don’t know specifically.
I receive all sorts of crazy on a daily basis, though. Those are the ones that stand out in my mind.
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.