Reader Mailbag: More Fees

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 jobs and retirement plans
2. Family corporations
3. Student loan question
4. Savings targets for singles
5. Television
6. Job switch
7. Finding speaking gigs
8. Same card, different rates
9. Switching credit cards
10. Pieces of inspiration question

I’m not surprised at all to find that other banks are following Bank of America’s lead in adding fees to bank services that previously didn’t have fees associated with them.

It’s a simple matter of profit. If they think that only a few customers will jump ship because of these fees, then the fees will be a big net gain for them. They may even go back to the well for more fees.

Eventually, “fee free” will be a huge marketing point for checking account services.

Q1: Switching jobs and retirement plans
My company recently announced it will be divesting it’s self of my division. The work load and assets are being transferred to a new company. I am being offered a job at the same pay. I have a 401K which I am fully vested. I have options of either rolling it into the new company plan -XYZ company-, at any time or leaving it where it is -ABC company- at no cost. At this time my thoughts are to leave the plan where it is at no cost. Start investing in the new plan as soon as I’m able. But from there what factors should I use to determine weather or not I should roll my old plan into the new plan? Or is it a better option to keep not only my 401k diversified but the companies holding the plans diversified? And if I don’t trust trust my knowledge would it be beneficial to seek help from a professional financial adviser to create some sort of plan.

– Andy

I would study the two companies that offer the plans, as well as the investments offered within the plans.

If your old 401(k) offers drastically worse investment options from a company with a worse reputation than the company and offerings with your new employer, then you should roll it over.

All things being completely equal, I would probably leave the old one in place just for diversity’s sake, as you mention. Although there’s little risk of losing money in the failure of a reputable firm, there is a risk.

Q2: Family corporations
Can you provide any guidance in regard to purchasing property through a family corporation? We have heard of others getting great tax breaks if they set up a family corporation and use it to purchase property. What are your thoughts?

– Lisa

It depends on the tax breaks you’re looking for.

Essentially, a family corporation is no different than any other corporation. You set it up with a chairman and a board of directors (usually consisting of family members), then you sell shares in the corporation to raise money for the property purchase. The corporation then purchases the property. The corporation is then responsible for the property taxes on the property owned by that corporation.

What about getting the money out of the corporation? Any profit earned is a capital gains. Dividends are taxed as well.

To me, if you’re simply putting together a corporation to buy and sell real estate, you better be comfortable with the relationships you have with your family members because you’re entering into a fairly high-priced business arrangement with them. The board can decide to do things like allow some members to sell back their stock but not allow others and so on, and this can result in busted relationships.

To me, this isn’t worth it unless you’re talking about a lot of money. This is an option if you have several homes or some other significant amount of real estate you’re looking to transfer to the corporation. If this isn’t the case, it’s not really worth it.

Q3: Student loan question
I currently have $17,600 remaining in low interest student loan debt. I have been aggressively paying this down (from a total of nearly $50,000). But now I am worried. I’ve been hearing a lot lately in the media about politicians lobbying for student loan forgiveness as part of a stimulus package. I worry that as soon as I pay off my last loan, the government will decide to forgive it all, and if I had put the money in savings instead I would have had a significant amount of money in the bank rather than being screwed for doing the right thing. What do you think? Should I put all of my debt payment money into savings until this student loan thing plays out, then pay it off in one lump sum? Or keep tossing $500-$600 each paycheck into my loans, as I have been doing? All of my interest rates are in the 3s at this point.

– Alice

I’m not going to comment on the specifics of the potential policy in question (I’ll save that for another mailbag, perhaps the next one, because it’s a fairly long answer on its own and I received multiple questions about these political whisperings).

However, you should never base your financial plan on a “maybe,” particularly when that “maybe” is coming out of the mouth of a politician. If you put all of your money in savings instead of paying off debts because of that “maybe,” you have a very good chance of finding yourself paying a lot of extra interest on those student loans.

Ignore vague statements and promises that come from anyone’s mouth, particularly a politician’s mouth. Yes, it might happen someday, but if we all start making all of our moves based on what politicians hint at in an effort to get votes, we’d be broke in a year. Just ignore it. Take advantage of it when it becomes a law and don’t worry about it until then. In all likelihood, it will never happen anyway.

Q4: Savings targets for singles
Do you have any guidelines for how much money a single person should be saving?

The background: I am a 26 year old female. I rent an apartment. I have no debt; I paid off my student loans ($30,000) in May 2011. Since May, I have been able to save $4K in an emergency fund. (I had to make $2K worth of car repairs in June 2011 and then I was hit with $1k worth of medical bills in July). I make $60,000/yr (gross). I contribute 5% to a retirement fund (TSP), and my employer matches my contribution by 5%. I have no other assets other than my TSP (which is worth around $15K currently, but I really don’t consider it an asset since it’s a retirement fund).

Right now, I am able to save about 50% of my take home pay, after taxes, retirement contribution, and medical insurance. This savings averages out to about $1750/month. Is this okay? My goals are to (A.) build my e-fund to $5K; (B.) save $7K for a “new” car (my car is 13 years old); (C.) open a ROTH IRA and contribute another 5% of my pay; and (D.) save for a down payment on a home.

Am I on the right track?
– Ellen

You are absolutely on the right track. You’re saving about 50% of your take-home pay, wich is very very good, and you’ve got goals established for yourself, which is also very good.

If I were you, I would settle on an order for those goals (you may have already) and just knock them down like bowling pins. I would absolutely put the emergency fund first, but I’d probably put the Roth IRA second, before the car replacement.

You are doing light years better than many people your age and are absolutely on the right path. Kudos.

Q5: Television
You’ve mentioned that you don’t watch much television, but you’ve mentioned that you do watch Fringe. What shows do you watch? How much television do you watch per month?

– Amy

The only currently-airing shows that my wife and I watch are Fringe and Community. That’s it.

We do watch some documentaries when they air, such as the most recent Ken Burns documentary on Prohibition. We also watch some programs on streaming services without commercial interruption.

I would estimate my weekly television watching to be between three and five hours, on average.

Q6: Job switch
I’m about to make a job change that will affect my lifestyle and my finances. I currently make $210,000/year and would receive about a $20,000 raise each year for the next 4 years. Annual bonus is $30,000+. Great pay, right? Well, work-life balance is difficult. I’m married and have several young children, and I feel like I’ve been missing out on their lives since I started working. My wife and I recently reevaulated our situation and decided to seek out a job with a better work/life balance. I’ve now accepted such a job, but the pay is $125,000/year with an expected bonus of 10-15%. So it’s a $100k+ salary cut for next year, plus a cut in bonus. To make this work, we are moving away from the metropolitan area we live in to a more rural part of the country. I feel good about this decision because of what it means for my family (we’ll get to see each other and enjoy each other much more). Also, we’re moving to a part of the country that we’ve always imagined moving to and, from a career standpoint, my new job will help me develop marketable skills that I wouldn’t otherwise develop. The only thing I’m struggling to find peace with is the financial side of things.

We have $225,000 in student loan and car loan debt, $125,000 in retirement savings, and $10,000 in an emergency fund. We also have a $510,000 mortgage on a house currently worth about $550,000. If I had stayed at my current job, we’d have our car loan paid off by February 2012, and we’d have the student loans paid off by August 2014 as well as have a $55,000 emergency fund. Plus, this was with maxing out our 401k and IRAs during this time. Furthermore, this would have put us in a position where, even if we then changed jobs and moved, we could have easily held on to our house indefinitely as an investment property. (This is all according to a financial plan we had created last year.) Now, instead, we’re not even going to have the car loan paid off by January 2013! I don’t even want to think about when the student loans will be fully paid off. And as for the house, I doubt we’d get approved for another mortgage until we get rid of the current one. (I’m looking ahead several years here… we’re planning on renting for at least the first few years.) In the long term, I have excellent job security and have substantial room for growth at my new job. In the short term, however, I feel that I’ve moved my family’s date of financial independence many years down the road (though, importantly, we will continue to live comfortably in the meantime). I feel like Dave Ramsey would slap me across the face right now. But I ask, what good is financial independence if you’ve sacrificed crucial years with your family? I’m interested in what you have to say.
– Ken

I know exactly how you feel with regard to missing out on the lives of your children because of your job. I felt so strongly that way that I was simply compelled to make a career change in 2008 and start writing for The Simple Dollar full time. I took a huge pay cut. I haven’t regretted it in the least, though I will say that I miss some of the challenges of my old job and many of my old co-workers.

The question you have to ask yourself is what’s more important to you: quality time with your family or a shorter period to financial independence. There is no right or wrong answer here. It’s all about what really matters to you.

I don’t think Dave Ramsey would slap you across the face at all, and neither would I. You chose the thing that really matters to you. So what if it moves your debt payoff date down the road a bit?

Q7: Finding speaking gigs
I work for an association in California as trainer. I essentially write, facilitate and deliver in-person training programs for groups of various sizes. After reading your blog (found it last year after researching financial matters for a program I wrote) I’ve decided it’s time to pull the trigger on developing a side business. I have a passion for motivating and inspiring groups of people through public speaking. In addition, I am a decent trainer….I’ve found that you can be a great speaker, but deficient trainer, the 2 don’t always go hand-in-hand.

I was curious to hear from you some thoughts on how you think I could get started in this pursuit. To be upfront, I’m motivated by 1) increasing my revenue stream 2) I miss “taking the stage” and motivating people (I use to work in the church).
– Ed

The first thing I would do is seek out speaking groups in your local community. Is there a branch of Toastmasters International in your town? Many groups that are seeking local speakers will contact groups like these to find good speakers. It’s also a great way to practice your skills.

Another thing I’d point out is that you shouldn’t turn down chances to speak for free, especially at first. It gives you practice and it builds your reputation. Any time you have a chance to speak, take it. If you’re good, you’ll build a reputation. If you’re not, at least you got practice.

Another element is having something useful to say. What are you going to talk about? Have you written a book or done anything compelling that can be a calling card for you?

Q8: Same card, different rates
I was looking at a credit card comparison site and saw the Chase Freedom Card…with two different offers. I was originally looking for a gas card for limited purchases, but took a quick look at Chase since they were garanteeing the Gas Station card. The card requriing “excellent credit” has a higher cashback reward ($200 after $500/3months) and a higher interest rate, $15.99%. The other card required “good credit” and offered $100 cashback after $500/3months and a lower interest rate, 11.99%. Seems counter-intuitive, doesn’t it? I guess I should go for the higher cashback since I plan to use it only for gas purchases and pay it off every month. Your opinion?

– Carl

If you’re planning on paying it off every month, then the higher cashback offer is probably better for you.

As for the multiple offers for the same card, this is completely normal. Credit card companies often have many different offers for the same type of card. They’ll vary in the teaser offer, the interest rate, the maximum credit line, and countless other factors.

From my perspective, it’s good business for them. The more offers they have, the more likely they are to have one that will hook a new customer.

Q9: Switching credit cards
I feel like I am the opposite of many of the people that write in to you. I have hardly any savings, have never maxed out a 401K (although I always contribute at least something), and have a ton of credit card debt. I’m working on it, and am lucky to live in an affordable rent controlled apartment in Manhattan, where I don’t need to worry about paying for a car & insurance.

Right now I have an Amex Blue, Continental Airlines Visa from Chase and a no-frills Mastercard from CapitalOne. I have balances on all three, but have been paying at least double the minimum payment to try and get the balances down. Cumulative total around $13K.

After some fraud on my bank debit card, I am thinking about changing the Amex & the CapitalOne cards into Cash Back credit cards. But I am wary about doing both at the same time and what that will do to my credit score, which is currently around 730. Amex will let me transfer balances, CapitalOne will not, so I would have to close the no-frills account after I get the cash back account.

Do you think it is worth the cash back benefits? And as someone who is not going to buy a home or a car anytime soon, should I be overly concerned about the ding to my credit score and just work on getting some cash back?
– Melanie

The actual credit score impact of this shift will be pretty small and will disappear after several months, particularly if you get new cards with comparable credit limits.

The only thing I would watch out for is if you’re considering another major loan in the next several months. The short term dip in your credit could happen at a very inopportune time.

Aside from that, I’d make this change if it’s something you want to do.

Q10: Pieces of inspiration question
How do you use your “ten pieces of inspiration” to keep you moving throughout the week? Are there any that you keep going back to?

– Donna

Readers send me a lot of links along these lines, plus I’ll randomly stumble upon them throughout the week. If one resonates with me a bit, I store it in my “Inspiration” bookmarks folder and I share it the next week.

There are a lot of them that I see over and over again. I’m quite sure that at some point I’m going to repeat them (if I haven’t already).

There are a few that I look at time and time again. One that immediately comes to mind is Steve Jobs’s 2005 Stanford commencement speech.

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.