Reader Mailbag: Looking Forward

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. Keeping whole life insurance
2. Life choices and student loans
3. Adding spouse to property title
4. Should mom file for bankruptcy?
5. Student loan worries
6. Career balancing money and passions
7. Part-time or full-time schooling?
8. Emergency home repairs
9. Difficult restaurant situation
10. Moving to the United States

A few days ago, I met someone that I knew well about fifteen years ago. This person pretty much avoided talking about the present and spent almost all of our conversation talking about the state of our lives fifteen years ago.

There was perhaps a minute of mentioning what we were doing now (I don’t think I even got the chance to mention that I was married or had children) and no mention of what we were planning on for the future. Just the past.

This conversation troubled me a lot. Yes, maybe that other person’s life didn’t follow the path that (s)he hoped (yes, I’m trying to mention as little as possible about this person) and they didn’t want to mention the present or the future. I was still left with a sense that the person spent an awful lot of their time thinking about the past rather than about today or tomorrow.

It’s very hard to move forward in life if you’re not mentally looking forward. I try to always keep my mind on what I need to do today, where I’m going tomorrow, and what my plans are for the next few years. I don’t know where I would be if I spent my time thinking about my college years, but I doubt it would be a good place.

Think forward, not backward.

Q1: Keeping whole life insurance
I started reading your site a few months ago after a friend recommended it. I am now 30 years old. When I was 22 or 23 I signed up for whole life insurance through a friend at the time. It is about $1150/year for $100,000 in coverage. I am unmarried with no children. At the time the cost was prohibitive but I thought I understood that the cash would grow and could eventually pay for the yearly fees. The most recent statement I got gave a cash value of $4,676.28. I am not excited when the bill comes each year and it is hard to think that I have paid about $8,400 for a current cash value of about 60% of that. Should I get out of this now? Or stay in? If I got out would I be entitled to the full cash value? I should add that this is not a financial hardship to keep paying for this product. I am meeting all my financial goals – I have an emergency fund, I have a good mortgage rate and make extra payments on it, etc.

– Jennifer

What you’ve described is pretty much the nature of whole life insurance.

For one, you’re also getting the benefit of the $100,000 insurance policy out of your annual payment. I tend to look at whole life insurance as an investment package tied in with a term life insurance policy. Some portion of that $1,150 a year is going solely to insure you.

Now, as for the cash value of the policy, the early years of such a policy tend to be rather lean years. Most of the time, the agent gets his or her commission for selling the insurance out of the first few years of you paying into the insurance.

Generally, such policies become better the longer you’re in them. If someone is just starting out with a policy, I’d usually advise them to look at a term policy instead. However, if someone has already sunk several years into the policy, I’d probably encourage them to stick with it. This is, of course, a general rule of thumb that might change with the specifics of that particular policy.

Q2: Life choices and student loans
I will graduate with my Bachelor’s degree Spring of 2013. Throughout my undergraduate career so far, I have managed to avoid accumulating any kind of student debt. I’ve worked and will be able to pay tuition out of pocket for the rest of my undergrad career. However, I want to go to grad school out of state, which would mean paying nonresident tuition along with inevitably taking out loans. I currently still live with my parents because they don’t charge me rent, so food and shelter are free, but I am far from eager to stay here past age 22 (when I’ll graduate). Aside from the hope of finding some amazing scholarships/stipends, I’ll have to take out loans even if I do stay in state, but my question is, am I being stupid? My mom thinks I should just stay here until I’ve finished grad school, but as grateful as I am to my parents for helping me out, my distaste for taking out larger loans than necessary is outweighed by my distaste for living with my parents well into my 20s. Should I just suck it up and stay with the parentals (and in a state I do not want to live in forever,) so as to avoid the loans? I have absolutely no debt thus far in my life, so student loans would be the first, and while I do have a relatively well-paying job for a student, there’s no way it can pay for grad school and living expenses.

– Amanda

The flat-out truth is that you’re going to have to pay for your food and shelter if you move out of your parents home. If you can’t afford to do that out of pocket, that’s going to either mean bigger loans or a part-time job outside of your classwork – and probably both.

Bigger loans are something you’re going to completely regret when you’re done with schooling and ready to pay them back. I can’t say for certain that you’ll regret it worse than living with your parents, but looking back from my perspective, I can certainly say if my options were to live with my parents with free room and board while in college or to have tens of thousands of dollars in additional student loans, I’d far rather have lived with my mother and father.

Some of that may come from maturity, though. I’ve been on my own for long enough that I no longer question my independence from my parents, nor have I for years. It sounds like you’re still in that phase of life where you seek independence from them, which can be a pretty powerful motivator.

I can’t make the call for you. All I can say is that looking back from my early thirties, I would far rather have lived with my parents for a while than have extra student loans.

Q3: Adding spouse to property title
I purchased a home in June 2006 and have been living in it since then. I got married in May 2010, and my husband moved into the house with me. I had my name changed on the mortgage to reflect my new last name. I didn’t add my husband to the mortgage or deed, solely because there was a $200 processing fee for my bank to add him to the mortgage and if the fee was just for the sake of adding him it didn’t seem like something we needed to do. Is there any reason that I would need to add him? We obviously do not plan to divorce but I live in Louisiana, a community property state, so I think he would basically be considered part-owner for all intents and purposes. We have joint acocunts and therefore jointly pay the mortgage.

– Elizabeth

My understanding is that in a community property state, all property owned by either one of you would be split fairly evenly in a divorce and any mortgage would probably have to be refinanced as well to include both of you.

Given that, the biggest impact that adding him to the mortgage and particularly to the home title is that it may affect your insurance rate in a positive fashion, depending on your husband’s credit.

In other words, if your husband has better credit than you do, then I would add him to the mortgage and title. Otherwise, in a community property state, I see no significant reason to take action.

Q4: Should mom file for bankruptcy?
My mother had a serious infection in her knee joint in July 2010 (she had just turned 65 and enrolled in Social Security and Medicare Part A), and after she spent several months in a rehab facility, I realized she could no longer live on her own, so I packed up the things in her house and moved her from her home in Virginia to our home in New Mexico (I have a husband and two children in the home as well). She has serious health issues and is no longer able to work. She receives $895 per month (take home) in social security and $1,000 in long-term disability (currently on hold for medical re-authorization but expected to continue through January 2013). She is on Medicare Part B (which comes out of her social security check) a Medicare Complete Advantage plan (which is free). She is on a LOT of medication and will likely hit the prescription donut hole in August. She also has co-pays (fairly low) for numerous doctor visits as we get her health stabilized. We purchase all food, household supplies, etc., for her as part of our normal grocery shopping.

She has significant debt, and we are trying to figure out a good strategy for dealing with it. The total amount of debt is $69,500, with monthly minimum payments of just under $1,000. The majority of what she owes is a home equity loan (unsure about the interest rate) for $43,000. We are in the process of getting everything we packed up cleared out of the house, and we have been advised by realtors that our best option is to sell the house at auction (because of a problem with the septic system, it’s unlikely to pass inspection). We might get about $50,000 for it (maybe more, you never know!). She has a very old car that is currently being stored at a friend’s house in Virginia. We were thinking about giving it to another friend of hers who could use the car but can’t afford to pay for it.

We doubt the house would sell for enough to pay off all her debts. She clearly can’t afford to pay off the debts on her own. Because mom can stay with us, and she shouldn’t need to secure credit in the future, we are wondering if bankruptcy is a good option for her. We as a family could certainly pay off her debts over time, but that would have obvious negative consequences for our own finances. Is filing for bankruptcy a good idea? If we do this, do we need to handle the sale of her house or car in any particular way (e.g., do we need to “buy” the car from mom and then give it to her friend?)? Are there considerations we need to be aware of?
– Sheila

Given the details you’ve shared here, it sounds like bankruptcy is the best option for your mother. There may be other factors not mentioned, of course.

Before you go making any moves prior to bankruptcy such as selling a car or anything, I would contact a bankruptcy lawyer who can help you determine which steps are legal and which ones are not. There are some items you’re allowed to keep in bankruptcy and there are some maneuvers that can get you into trouble with bankruptcy, depending on the specific state.

This story is an example of the deep challenges that health care presents in the United States.

Q5: Student loan worries
Starting this September, I am leaving my job to return to grad school full time for 2 years to change careers and follow my passion. The program is demanding and time intensive, so we have been told we cannot hold outside jobs. I will be making very little money as a grad assistant (and most goes straight to tuition). We can live off my husband’s salary and have worked out a budget. The budget includes a small amount of savings transfers for travel to see family and other anticipated save-to-spend items, but it will leave almost no surplus after that.

We have an 18k (6 month) emergency fund in a money market. We have about $64k in retirement accounts (401k/Roth IRA), split equally between the 2 of us. We are 28 years old. We are both contributing 6% (plus small company match) to our own 401ks, but I plan to stop contributions when I return to school.

We have $50k saved for a house down payment ($40k in mutual funds, $10k in money market). We are thinking about starting a family and buying a house in 3-6 years. I think we will need a big down payment because houses in the area we live (DC) are typically around $500k.

My husband has no student loans, but I have $26k, and I will be taking on another $40k for grad school over the next 2 years. (11k at 6.8% fixed unsubsidized; 7k at 5% fixed subsidized; 8k at 1.87% variable mostly subidized. Not sure of rate on the new $40k, but I imagine 6.8% fixed unsubsidized.) Although my loans are deferred while I’m in school, I am planning to pay off the interest on the unsubsidized loans as it accrues because paying interest on interest drives me crazy.

We have no other debt. We each own a car.

Questions for you:
1. Should we use the $50k that we had designated for a house to continue saving for a down payment, or would it make more sense to pay down the student loans?

2. When I am in school and not earning a salary, we plan to keep my husband’s 401k contributions at 6% (to take advantage of a company match), but not to contribute anything to my retirement accounts. Is this a mistake? Will missing 2 years of retirement contributions in my late 20’s set me too far back? Would payment I’m planning to make on student loan interest (around $65/month) be better spent on retirement contributions?
– Shannon

If I were you, I’d use that down payment savings to get rid of the higher interest student loan debts. I wouldn’t worry about the one that’s at 1.87% too much, but the others aren’t worth keeping. I’d channel most of the rest to paying for your upcoming studies.

As for delaying retirement contributions, I don’t think that’s a concern. You’re already ahead of the curve with the amount you have saved and contributing while you’re in school just means additional financial challenges that you don’t really need.

I think your plan is solid.

Q6: Career balancing money and passions
Growing up, a lot of pressure was put on me to acquire a practical degree in a field with solid career potential. My desires to become an educator were often belittled. So, I got my BS in Manufacturing Engineering… and while I had some sucess in related jobs, it’s been mostly miserable for me and at this point I have been laid off twice. I have no heart felt desire to go back, but the money was nice. Currently, I work as a Math Educator and absolutly love it. Even with long days and late nights of bring work at home – I can honestly say I feel at home in my field of work. I feel lucky to have the opportunities I do despite my lack of education specific degree however there has been a drop in pay.

In other news, I purchased a large home while engaged to my then (soon to be) job-holding husband. The relationship since disolved, and I’ve been left with a mortgage I can’t afford on a education job. I’m applying for hardship assitance, but if it doesn’t work out… I won’t be able to make ends meet (and I will have to lose the house -ie foreclose). It should be said that I don’t take foreclosure lightly and the shame and sadness of losing my home are hard to deal with emotionally…. but I think I would still rather that then try to force myself into engineering again (despite the fact that the income would be substantial enough).

For what it’s worth I have already tried the sell the home legitimately and that is a no go in this economy. Also, if someone wants to suggest that I could be living leaner – I should probably state that my net income is actually slightly less than my mortgage, taxes and home association and that I rent out rooms to eke by.

I guess I am in an ethical quandry. Does the bank lose out or should I?
– LeAnn

Honestly, I see both sides of the equation.

On one side, it’s simply dishonest to borrow money from someone and then choose not to repay it because repaying it became inconvenient.

On the other hand, the money you borrowed was collateralized with your house and the bank assumed some degree of failure to repay.

If you feel as though your only options are to walk away or declare bankruptcy (both of which are devastating to your credit), I would probably walk away, but only after making sure that I had housing lined up when I did walk away.

Q7: Part-time or full-time schooling?
In college, I majored in financial economics and graduated in 2009. I was unable to find a position in this field and ended up taking a full-time position in a field completely unrelated to my major. I don’t mind the work but I’m very overqualified, the opportunity for advancement is very limited, the pay is low (with regard to other companies in this industry) and the work is fairly repetitive and mundane. I really enjoyed the accounting classes I took in college, so I’ve decided to go back to school and take some extra accounting classes. My ultimate goal is to sit for and pass the exam for CPA certification and begin working at a mid-sized accounting firm. My question centers around how I should take the classes. I essentially have two options:

1. Continue working at my current position and go to school part-time in the evenings.

2. Move back home with my parents (they’ve already given me their full blessing in doing so) and attend school full-time.

Under the first option, I would pay with cash as I go but it would take me between five and six semesters to get the classes I need. Under the second option, I would have to take out a small student loan (~$6,000) to add to the cash I’ve saved to cover tuition and books but I would get the classes I need in two semesters. In addition, I’d be able to go to work in a better-paying field that I believe I would genuinely enjoy.

I’ve been seeking opinions from friends and family alike and the results seem to be fairly mixed. I’d greatly appreciate any opinions and/or advice you could provide.
– Matt

If I were you, I’d work for another half year to a year, bank every dime I could so that I didn’t have to take out loans for education, and go back to school for the fall semester next year full time while living with your parents.

This enables you to get the education debt free in less time than you would doing it part time.

I think that route puts you in the best long-term situation in terms of your money and career.

Q8: Emergency home repairs
We are recently debt free except for the house. We’d been in debt since we married 27 years ago, but 5.5 years ago we got on the TMMO (Total Money Makeover) and started working the plan hard against our $136K non-house debts. We have three years left to pay on our land and six years left on the mortgage. So it is exciting to see the whole snowball effect really working.

We started on Baby Step 3 in May, building our emergency fund. Right now we have ~$8K saved.

Where we live in Central Texas we are experiencing an extreme drought and that has caused the slab of our house to crack. The repairs are estimating to be $20K. It is not covered by insurance, not covered by the builder, only to be covered by my husband and me.

I desperately don’t want to go back into debt, but when a room of your house is shifting almost daily away from the rest of your house it’s not something that you can just wait and save up for by the end of next year. I’m not concerned about cosmetic fixes like the cracks in the drywall, but very concerned about the structural integrity of our home. What would you do?
– Andrea

If your house is falling apart, you need to take care of it as soon as possible.

This is the type of situation that a large emergency fund can really help with, but if you don’t have that, you need to get a loan to take care of the problem.

Fix the problem and make sure that it’s fixed in a way so that the problem won’t recur.

Q9: Difficult restaurant situation
How do you handle situations where you’re paying at a restaurant and the person you’re with doesn’t have the right amount of change and you end up paying. They agree to pay you back. You have to keep nagging them and still you don’t get money back. It’s one thing to turn down someone when they formally ask for a loan. Then your advice makes perfect sense. But what do you do in informal, last-minute situations where it’s just more socially accepted to handle the bill yourself? I’ve even had this happen at a grocery store with a friend, who after putting $100 of groceries in her cart, realized that she forgot her ATM card. I had to nag at her for a long time before getting it back. How could you say ‘no’ in these situations??

– Laurie

By saying “no”?

Simply state that you don’t have the money to cover their bill. If you’re in a situation where covering a dinner bill for a friend is going to cause you financial hardships (which seems to be the case), then you shouldn’t be covering for them.

On the other hand, if you can easily afford it, just blow it off and wait for an opportunity to reverse the situation. Have the other couple cover dinner sometime. Have your friend pick up a grocery tab for you next month.

I don’t like situations where I’m indebted to my friends or they’re indebted to me. I try to avoid them. If there’s a situation where they’re in a pinch, I will often just pick up the tab for them and forget about it, knowing that they’ll return that kind of favor someday.

If I don’t feel confident in that, what kind of friends are these people?

Q10: Moving to the United States
I am moving to the US (San Francisco) to take a new job in a few weeks. I need easily understandable (e.g. low in jargon) advice / information on issues like: leasing an apartment, health insurance, 401Ks, Roth IRAs, finding a cellphone plan, establishing a credit score (will they take into account my great credit in Australia?). THe information on the Simple Dollar is targeted towards people who already have a basic understanding of how things work in the USA. Can you direct me towards any external, easy to understand, online sources?

A related question: What insurances should I consider carrying (excluding health insurance and life insurance). Background: I will be renting an apartment, I have no kids, will have a car, reasonably substantial household assets, reasonably active habits. In Australia I would have renter’s insurance, auto insurance (third party, fire, theft, accidental damage), income protection insurance, long term disability insurance, and that’s about it. With the move, my key concern is public liability – what am I responsible for in terms of accidents that injure third parties and how should I insure against it?
– Erin

I would suggest reading a “personal finance 101” book or website geared toward American audiences to answer many of your questions. One example of this is the Money 101 section at CNN Money.

As for insurance, you’ll have much the same set of insurance in the United States as you would in Australia, excepting income protection insurance. In the United States, this is usually handled by employers in the form of unemployment insurance that they cover, which pays you for a short period after a job loss.

As for public liability insurance, most Americans really don’t cover this outside of collision coverage on their automobiles. Such insurance is usually sold as “umbrella” insurance and is sold by many insurance companies, but usually only wealthy individuals carry such a policy.

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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