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. Struggles living with family
2. Ear candy
3. Need a plan
4. Ethical retirement savings?
5. Upromise question
6. Fun biographies
7. Stock option question
8. Reading to older children
9. Debt free, now what?
10. Handling a windfall
Sarah has been taking some online classes in order to work toward a second degree.
Whenever I watch her listening to a lecture online, I can’t help but wonder whether or not it gives the same experience as actually attending a lecture. You can ask questions in the forums, of course, but are you getting the same educational value?
I think it really comes down to whether or not a person is self-motivated to learn or not. If someone is self-motivated, then an online course will be fine. If someone isn’t self-motivated, I think an online course would make it even easier to avoid doing the work.
Q1: Struggles living with family
My husband and I have been living with my family for almost a year now in an attempt to save up money to buy a home. We have a fairly comfortable living situation and assist my family with about $660 a month. We both work and have excellent job security here working for the City of New York. We net together about $3200 a month, give or take. Our debts are minimal. No student loans, our credit card is 0% until next year with a $2000 balance and we own a prius that is paid ahead 6 months with a 2.99% interest and balance of $18,500. We have no other debts. We have a pension, 401k roth that we contribute to, etc. What we’ve been doing for the last year since we were married is setting aside my check into a savings account and living off of my husband’s check only. We did this because we are planning to have a family soon and want to prepare ourselves for a one income situation. My husband and I both agree that it will be best for our children to have a fulltime mom. At the moment, we have 23k set aside for a downpayment on a house and we are looking to spend no more than 150k. Here is where we’ve had to face a truly harsh reality. We have been home hunting for the past 3 months and are having no luck whatsoever in finding even a fixer upper in a decent neighborhood for this amount. We have been home hopping all over Long Island and it seems that the only homes that are affordable to us are those that are in truly bad and dangerous neighborhoods. Since the school and property taxes here are so high, it would be foolish for us to buy a home in a bad neighborhood and then to have to pay for a private education on top of that. We could relocate to NYC where there are no school taxes and private schools are plenty but we are both more suburban/rural people and would really prefer to give our future children a more peaceful lifestyle.
At this point I’m at my wits end. We can continue living with my family and have no personal space… We can relocate, find a job in a more affordable place and live out our dreams but be far from both our families, or we can settle, stay close to our families but live either in the city (which I’d hate) or in a rundown neighborhood. I’m not sure which one we should compromise on but we know that something has to give.
BTW, I’m trained as a paramedic and my husband is an EMT and we could definitely find a job anywhere if we needed to but then we’d be faced with possible having less job security and being far from our families…
I can’t tell you which one to compromise on because it depends a lot on what you value.
However, if I were in your shoes, my biggest priority would be a good environment for my children, which would eliminate living in an area where I did not feel they were safe. After that, I would probably choose having personal space over having constant access to family. Sarah and I live a minimum of three hours away from any of our extended family and we still feel like we have strong family ties with them.
So, if I were you, I’d look into relocating to another area with lower property values, giving you personal space and safety for your family.
Q2: Ear candy
Sometimes, when I’m at work and the radio is playing, a song gets stuck in my head. It’s so distracting that I can’t work nearly as well because I keep thinking about that annoying song. How do you get songs like that out of your head?
My solution for this is to have a default earworm that doesn’t bother me much at all. For me, it’s “Bohemian Rhapsody” by Queen. Whenever I hear it, it gets stuck in my head.
Whenever I get a song stuck in my head that I don’t like, I just listen to “Bohemian Rhapsody” a few times and the song I don’t like is pushed out by Queen.
Perhaps you can find a song like that. For me, it’s been a life saver for helping me concentrate on my work.
Q3: Need a plan
My wife and I are in a very complicated financial mess. We are in over our heads and need some good ideas on how to get out of trouble.I think it would do us some good to meet with a financial planner. The problem is the financial planners that I have found all seem to want to sell investments of various sorts. We are not yet in need of investment advice. Rather, we need to come up with lifestyle changes and a strategic plan to get “out from under.” Hopefully, the person would be very low cost. Where can we find such a person?
I’ve been in the same boat as you before. The challenge is that the financial planners who earn their money from commissions seem to be the most aggressive in trying to get the attention of potential customers. That’s just frustrating in two different ways.
Your first move would be to seek out a fee-only financial planner. You want someone who charges you a flat fee regardless of your situation and isn’t simply earning a commission on selling you something.
Start canvassing local financial advisors and look for one that operates only on fees.
Q4: Ethical retirement savings?
There are a pretty big handful of companies out there that I don’t want a dime of my money to be invested in. The problem is that if I invest my retirement money in any of their diversified stock investments, I’m going to be invested in those companies. I don’t want to support corrupt corporations who suck down taxpayer dollars with my investment money but I don’t want to lose out on a good return for my retirement. Any suggestions?
Most retirement plans offer a fairly limited choice when it comes to restricting investments down to the individual stock offering. If you’re using a 401(k), for example, you’re limited to what your plan offers, which is usually a mutual fund that’s invested in a lot of different companies.
In that situation, you’ll probably have to move into an investment type that’s outside of stocks (like a government or municipal bond fund). They won’t return as well as stocks will over the long run, but if you’re committed to not supporting specific companies, that’s probably your best option.
It still might be worth your time to contact the company that runs your 401(k) plan and see if there’s something available for this situation.
On the other hand, if you have an IRA through a good investment house, you have a lot more freedom in choosing your investments. At many investment firms, you can spread it around a list of companies that you do approve of.
Q5: Upromise question
I was wondering if you have done any research on the saving program called Upromise connected to Sallie Mae Loans. It stated that as we spend money on our groceries and some of their partnership providers, it would match money to help pay down our school loans. Have you done any research on this? Do you think it would be a good program to sign up for? I was wondering if you could give us some good advise.
My feelings on Upromise match this article from SmartMoney.
While you do earn a little from Upromise, you don’t earn a lot unless you shop almost exclusively through Upromise partners, which pretty strongly restricts your purchasing freedom. The article above states that the average family earns $47 through Upromise, which isn’t much in the face of college expenses.
The worrying part, though, is that Upromise sells very detailed information about your purchases to marketing companies, which are then able to craft marketing messages very specifically for you. To me, that type of very targeted marketing isn’t worth the average of $47 that I’d earn from Upromise, so I haven’t signed up.
Q6: Fun biographies
I love reading biographies. I love learning about the lives of people and how they impacted the world. I’m going on a trip in a few weeks and plan on packing away two or three biographies in my bag checked out from the library. I know you’ve read a ton of bios so I’m wondering if you have any suggestions for fun summer reading biographies.
My favorite “page turner” biography of the last several years has been Open by Andre Agassi. It’s wonderfully written and incredible in the level of self-examination that Agassi gives himself while still managing to be a total page-turner. I recommend this one to almost everyone I meet.
Aside from that, I tend to find the most success with biographies when I stick to a good biographer. For example, I’ll read any biography that Walter Isaacson puts out because I thoroughly enjoyed Steve Jobs, Einstein, Benjamin Franklin, and Kissinger.
One final suggestion: John Adams by David McCullough.
Q7: Stock option question
I have recently resigned from a sales position with a government technology and communications company. On my last day I was reminded by HR that I have the option to buy 2250 vested common stock valued at $.06 / share and if I wanted to keep them I had buy them at that price with a total cost of $135.00. My question to is how valuable do you think these shares are really worth, and should I purchase them?
It’s really hard to say what they’re worth without knowing anything about the company. Are the shares publicly traded? Is this a private company?
The first step I’d take is to try to find out what these shares trade for. You can probably find something about this by simply Googling your company’s name and the words stock value or share value to see what you can find.
Another thing I’d consider is whether you think the company is in good shape or not. Do you think the company has a long future ahead of it? Or is it running into very rocky waters?
I haven’t stopped reading bedtime stories to any of my children, and I don’t plan to unless they ask me. If my children still like me to read to them when they’re graduating high school, I’ll give them a few audiobooks to take to college with them.
An audiobook is actually a very good comparison. I enjoy listening to audiobooks quite a bit, and in the end, an audiobook is simply someone reading a book to you. Having someone read to you is even better, because there’s a personal connection there. I’d be thrilled to listen to a competent reader that I have a personal connection with reading a book to me that we’re both enjoying.
I won’t stop reading to my kids unless they ask me, and I don’t think it’s happening anytime soon because all of us really love our bedtime routine.
Q9: Debt free, now what?
My wife and I are in our late twenties and recently paid off our home mortgage. We are 100% debt free! We worked very hard to reach this point, but we now feel a bit unsure of exactly how to make our money work the most for us.
We do not plan on changing our lifestyle much. We are frugal and live mainly minimalist lives. We may travel more, but we aren’t interested in a bigger house or fancy SUV, etc.
Currently we have over $65,000 in a simple money market savings account. Additionally, we have roughly $8,000 in a Roth IRA and $5000 in a 403b account. We are consistently saving 3k a month and adding to these totals.
We are semi risk-averse, so we are hesitant to put a lot of that extra money in the market. Thus lies our dilemma. My thoughts currently are to max out our Roth each year with diverse mutual funds, and then to add the extra $25,000+ to our money market account. However, this seems like a lot of money to put into a savings account currently earning 1%.
The decisions we make over the next few years could really put us in an amazing financial situation down the road. We are worried we will regret making some poor investing decisions and/or being too safe with our savings.
We know this is a great problem to have and feel blessed we are in this situation. What suggestions do you have to maximize our savings and make our money work best for us?
I think you need to decide what you’re saving for.
If you’re saving for something that’s coming up in the next few years – moving to a new home, having children, starting a business – then your plan with the Roth IRA and the money market account is a fine one for someone with some risk aversion.
However, if the goals you have are more than ten years down the road, you should invest in some things with more volatility, like a broad stock market investment (both domestic and international). Given any single year, stocks can range anywhere from +20% to -40%, but if you look at a very long term average, it settles in somewhere between 7% and 8% annual return. The longer you’re invested, the closer your average will be to that 7-8% and the less risky your investment becomes.
Remember, a very broad investment in stocks is more of an investment in human effort and ingenuity than it is in any specific company. I think specific company investments are rather risky, but really broad stock investments mitigate a lot of that risk. If you’re looking long term, I’d go down that road.
Q10: Handling a windfall
I am 25 years old and just inherited $6000 from my grandmother. I had no idea I’d be receiving any inheritance, much less one this size, and I want to honor her years of sacrifice and frugality by using this money as responsibly as I can. I’m torn about whether to use it to pay off debts or invest it. All of my debt is low interest – $6500 left on a car loan at 2.99%, about $10,000 left on student loans with interest ranging from 2.11% to 6.55%. The student loans are all federal loans, so the interest is tax-deductible. I have a healthy emergency fund and this will be my second year fully funding a Roth IRA. I’d like to buy a house in about 5 years, so I’m wondering if it’s smart to invest the inheritance to put toward a down payment, or if that’s too short a timeframe to expect better than the 6.5% annual return I’d get by paying off my highest interest student loan. If I should invest it, what sort of investment is the best choice for a 5 year timeframe?
For a five year timeframe, I’d pay off the high interest student loan. I would not strongly expect a higher annual return from any other investment over a five year period (at least, not with less than millions of dollars). In fact, you’d be hard pressed to find a guaranteed return on your money better than 3% right now.
The interest deduction on your taxes is nice, but it doesn’t save you enough money to make a strong case for not paying off the debt.
If you use that money to pay off student loans and don’t accrue any more debt to replace it, I think it would be a great way to use that money in the spirit of your frugal grandmother.
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.