Reader Mailbag: School

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. Torn between work and kids
2. Considering career options
3. Diet plans
4. Student loans? Retirement? Other options?
5. Domestic partnerships
6. Cleaning up credit report
7. Used car buying tactics
8. Rent or sell?
9. To buy or to rent?
10. Adult wanting to attend college

My oldest child starts kindergarten this year and the start of the school year is inching near. It’s quite interesting to watch how he’s excited about some things (picking out school supplies, sitting by the friends he knows are in the same class as him) and apprehensive about others (meeting all of the new children and the new teacher, riding the school bus).

I have no doubt that he’ll be just fine. It’s been fun talking to him about it and telling him some of the things I remember from kindergarten. Coloring contests were one thing I remembered, so he’s been practicing his coloring a lot lately.

Q1:
I have a masters degree in my field, and nearly 8 years of experience. I work in state government, where we’ve been subjected to 4 years of frozen wages during my 8 years of employment, plus two years of furlough days (a 3.1% pay reduction the past two years). I am a union employee and enjoy job protection because of that. I also do some freelancing for examiner.com and Demand Studios Media, which I greatly enjoy. My husband is also employed by state government, but he is not a union member. He also gets paid less than I do- I earn 57% of our family’s income (excluding freelance earnings, which are a few thousand a year).

We have no debt: we paid off our mortgage in just 6.5 years, we have two paid for cars (one is 5 years old, the other is 12 years old and will soon need replacement with a “new to us” used car). We have paid cash for significant home repairs in the past six years, including foundation/basement work, new windows, installation of a fence, a new furnace and heat pump, new hot water heater and three new major appliances. We have a 1 year emergency savings and fully fund our Roths each year (we do not get 401(k) due to being government employees in our state). We also have started 529 accounts for our children.

I earned my masters degree because ever since I was a young teenager, I wanted to do this type of work. However, 3 years ago the job I was doing, was eliminated because of funding cuts, and thanks to my union protections, I was put in an equal paying position doing different work. I enjoyed the previous position’s work duties, but I do not like the work duties I currently have. I have applied for openings but due to funding cuts, each of those positions has been eliminated before the interview process. My degree, a masters of public health, is very specialized and few places hire people with this degree besides government. I have totally lost interest and passion in my work. I don’t care about my job performance. All I like are the paycheck and my coworkers. My husband loves his work, is challenged by it and has no complaints. He feels confident that there will not be any layoffs especially at his level, and he has very high performance ratings.

We have two children, a 4 year old and an infant. I would like to quit my full time job and stay home with my children while continuing to do some freelance work. I experienced a severe mental health issue (postpartum depression) shortly after the birth of my baby last year, which resulted in my hospitalization for several days.

However, I grew up in a poor household, and giving up 57% of our family’s income is not an easy decision. As a child, I lacked for necessary things like shoes and clothes that fit. I did not have enough food to eat. Medical care was too costly and was therefore avoided.

I feel torn. My heart is in my home, with my children. Having experienced postpartum depression, I know how precious and short life is and how quickly my children will grow up. We are in a great financial position right now. But I have all these “what-ifs” about actually quitting. What if my husband got laid off and we lost health insurance and his income? What if we have another major problem with our house? Can we afford to move to a nearby area, which we want to do in a few years, with just his income?
– Jessica

This is an intensely personal decision that you have to make. It’s one of those situations that really trumps the “ideal” of building up personal wealth. You can’t take back this moment no matter how much you save.

I essentially faced the same decision you did. My son was two and my daughter was an infant and I felt like I was not spending nearly enough time with them. When I quit my job, we lost the majority of our household’s income and we’ve only been able to supplement it through the success of The Simple Dollar and my other writings (such as my books). We’ve done okay.

If your heart tells you to make the leap, make it. You’ll have to really tighten your spending for a while and you’ll want to do whatever you can to keep your freelancing resume polished, though.

Q2: Considering career options
I’m a writer and editor in my early thirties. I met my husband in college and we both dropped out of school after moving in together. I lucked into a data entry position at a national entertainment company soon after leaving school. I’ve worked for that company for seven years, eventually being promoted to a copy editor. My job involves proofreading descriptions for movies and TV episodes. It’s an easy job, and as far as easy jobs go, I’ve got it pretty good. My base salary is $40K, plus I get a yearly bonus that amounts to 10% of my income. Health benefits are very good, the vacation policy is generous, etc. In addition, I’ve been given a restricted stock award that vests in September every year from now until 2013. The company stock is doing well, and if it stays at this level, the restricted stock payout should be around $7K each year before taxes.

However, I don’t feel challenged in my current position, and there’s practically zero room for upward mobility in the department and company. In the past three years, only one new position has opened up, and there have been no openings for positions above my current level for at least five years. In addition, our department has been “reorganized” a few times, resulting in several layoffs. I’ve been lucky enough to be spared so far, but they obviously make me nervous.

Because I don’t have a degree, it’s extremely difficult to get another writing job. I freelance in my off hours and have considered making a full-time business out of it, but the idea of having to pay for my own health insurance is a turnoff. My husband was laid off from his banking job two years ago and has only been able to find work temping and working part-time, so getting health insurance through his job isn’t an option right now. I hate feeling so dependent on my current job with no other viable options, and I’d like to improve my position in life. What I’d really like to do is pursue a career in technical writing or corporate communications. However, in order to do this, I’d need to leave my current job (and give up the restricted stock awards) and return to school full-time. The state university in my area offers an excellent professional writing program, but it’s not available via distance learning or night classes and the university is at least an hour’s drive from my office—so working and going to school part-time just isn’t possible.

It should take me about four semesters, plus an internship, to finish my degree. It’s just my husband and me; we don’t have any kids yet. Between the two of us, we already have about $30,000 in student loan debt and $3000 in credit-card debt, which we’re working to pay off. We currently rent an apartment. If I’m going to quit my job and go back to school, I want to do it soon, before we have kids and a mortgage to deal with. But it’s difficult to give up the security of my current position, especially with the monetary bonuses and benefits. And the idea of adding more student loans to our current debt load makes me nervous. What would you recommend doing?
– Angela

Look at the work you’re doing right now and ask yourself what lessons it can teach you for your side (and hopefully soon-to-be main) career. What can you take from your job that will apply to and improve those things? Are there work tasks that you can learn from? Do you have any workplace opportunities for education?

Look at every dollar you spend as a choice. You can choose to spend it on a want right now, or you can bank it so you can have the career you’ve dreamed of.

You should look at your real job as something you do to support your real dream, which is the freelance writing and/or the technical writing you want to do. Every day, look at that job as what you do so that you can eventually live your dream.

Q3: Diet plans
My fiance and I are trying to lose weight for our upcoming wedding and haven’t made much progress on our own. We both work full time and go to school full time, so when we try to cook healthy meals for ourselves it usually turns into ordering out because we can’t find the time to shop for groceries, plan a menu, and cook healthy meals. Nutrisystem offers a family plan that covers both of us for $500 a month, all meals included. When I tally up how much we’re spending on groceries and eating out just for the two of us, it easily tops out at over $600 a month in unhealthy choices. It seems like a no brainer to spend LESS money on food per month, and get healthy meals that don’t require any planning, cooking, or a trip to the grocery store. How do you feel about these dieting plans? We feel all the time saved planning and preparing meals is more time we can allocate to exercising and is worth the expense.

– Alan

The dieting plans work if you stick to them. The problem is that the vast majority of people that end up receiving the prepackaged meals find themselves at a large calorie deficit. They’re hungry and they wind up supplementing it with other foods that they buy themselves, which are often convenience foods (since they don’t really have groceries at home). This quickly escalates the cost.

Be honest with yourself. Have you been 100% successful in sticking with diets in the past? If you can truthfully answer yes, then this will be a money and somewhat of a time saver (prepackaged meals are not without prep time). If you can’t truthfully answer yes, the money savings will dissipate quickly (and probably result in even more spending).

Besides that (and I’m speaking from experience here), the foods you get in these plans aren’t exactly the peak of tastiness. Blech.

Q4: Student loans? Retirement? Other options?
I have a small student loan: the balance is $5,300, interest rate 6.8%, minimum monthly payment $104. I need to repay it by 2017. I try to pay a bit more every month, and when I have extra money I pay even more. That is the only debt I have, and I hate having it hang over my head. I’m single and make a decent salary, but live in an expensive area. Although I’m in my mid-30os, I share a rental apartment with a roommate. I am paranoid about saving for retirement. I have 11% of my paycheck deducted for my 401k, and this year am trying to put another 2% or so of my gross into a Roth IRA. My employer is very generous and puts an additional 12.5% of my salary into the 401k. However, I will not stay in this job forever! I’ve worked here for 4yrs, but previously had been underemployed or unemployed for quite a while, so I feel that I’m doing a lot of catch-up for retirement savings (current value of all retirement accts is about $73k). I recently met a financial planner (fee-only, of course) and mostly she said I was on track. But I just can’t shake the feeling that 6.8% is a lot to be paying for this stupid piddly loan and that I’m not saving enough. I do also have some emergency savings (about $8k) and own a few stocks (worth about $6,800, and they pay dividends). Do you think I should be paying more toward the student loan, or saving more for retirement, or trying to figure out some way to worry less?

– Dee

Let’s add up your retirement contributions. You’re contributing 11%, your employer is contributing 12.5%, and you’re putting another 2% into a Roth IRA. That’s a total of 25.5% of your salary that’s going into retirement savings. That’s plenty, and it will set you up extremely well in retirement. I wouldn’t save more for retirement if there are any other financial concerns in your life at all.

This leaves your options at “worrying less” or paying more on the student loan. I vote for the student loan. A 6.8% loan right now is pretty high and the interest rate eclipses what you could get elsewhere as a return on your money.

If I were you, I’d focus my energies on that student loan. I think you’re definitely on track, but I’d get rid of that student loan as soon as possible.

Q5: Domestic partnership
One thing I’ve often seen you and others write regarding the financial benefits of marriage has to do with health insurance.

“The biggest benefit in your situation for marriage is that many employers make it very difficult to share benefits with anyone other than an actual spouse. This is vital if either one of you loses your job or chooses to switch jobs.”

I’m 25, in one of those cohabitational relationships that is heading for marriage, but we’re not quite there yet. As someone with chronic health conditions and very poor health insurance provided by one of the nations largest employers, I understand the very serious value of the above statement. But it’s worth noting that marriage isn’t the only option. My boyfriend and I became legal domestic parters (involves a trip to City Hall and $35) so that I might obtain his health insurance. In our experience, we have found that several of the nations largest health insurance companies allow for this agreement. Not sure if this option is decided by the employer or provider (and I understand it’s not available in every state), but it’s worth noting in future posts!
– Anna

This is certainly an option in some states. Other states offer civil unions.

The issue, though, is that the rules and laws in this regard tend to vary from state to state, and what insurance companies choose to recognize is up to them.

The only solution that seems to work across the board is marriage. Virtually every insurance company recognizes it and every state offers it in some form.

I hope for a day where there’s a more consistent solution across the nation, but I fear it will be a long time coming.

Q6: Cleaning up credit report
I am 24, own a small condo, have a credit card limit of 3k which I pay off the balances every month (never missed a payment!), and have a small car loan. Two years ago, I was diagnosed with cervical carcinoma in situ, and required surgery. I had the best insurance in the world, Tricare, which paid for everything. However, last year(age 23) I aged out of tricare. I lost my insurance, but I still had to have frequent checkups and biopsies. I was able to pay the doctors bill out of pocket (nearly 2k) for these exams/tests back in July. Fast forward to Feb of this year. I totaled my car and needed a new one. When I applied for loans, I was turned down 3 times before I finally found out what was going on. I pulled my credit report and found two collection agencies were on my credit report. I called them up, and they were from the pathology lab for my test results. Apparently they bill separately, who knew? I never received a bill, and they had never tried to contact me. They confirmed they had the wrong address for the bill, and it took a month for me to finally get a bill. It is small ($450), so I can pay it. However, when I inquired about getting the agency off of the credit report, they said they would do it once I paid the bill…but absolutely refused to give me that in writing. I haven’t paid the debt, but Ive made it clear I want to. They haven’t called me once to try and get it paid….strange. I feel that if I pay the debt, that I will have no legal ground to get it off of my report. What should I do to get this off my credit report?

– Alice

Get the arrangement in writing. If they won’t provide it, I would contact a lawyer just to see whether this is something worth legally pursuing.

It should be easy for them to state for you in writing that they’ll remove it if that’s something they actually intend to do. Without it in writing, it comes off like an empty promise.

Even worse is that by paying it, you cause that debt to become up to date, meaning it’s actually worse for your credit score to pay it (if they don’t remove it). The specific debt’s status becomes somewhat better, but it also becomes new, which is worse.

Q7: Used car buying tactics
My wife and I are about to buy our first car together– we’ve been living a relatively urban lifestyle ever since college and have managed without a car for years. We are soon moving to a different metro where we will be closer to family and have decided that we will wish to and need to drive more frequently, thus we will be buying a (used, but reliable) car. I’m hoping to pay for as much of the car as we can in cash (although some financing will probably be necessary). Since neither of us has owned a car since we were in high school, I have three questions:

1) About financing– As I mentioned, I hope to take on as small of a car payment as we can manage without putting too big of a dent in our savings for a house down payment. A friend of ours paid for her car with some type of no-interest loan– she simply made her payments and then the car was hers and she had never paid any interest. My internet searching seems to suggest this is only done for new cars (the no-interest part). Is that correct?

2) I know there is no hard and fast rule to this, and condition is everything– but is there any suggested mileage threshold I should avoid (70k,80k, etc) when buying a used car?

3) I’m very tempted to buy a hybrid car for many reasons– vastly superior fuel economy, avoiding adding to our country’s reliance on depleting quantities of fossil fuels, helping the environment in some small way, and the fact that Consumer Reports lists the Toyota Prius as one of the most reliable car brands. Obviously, fuel economy is at a premium in the used car marketplace, and I’d have to take on a larger car payment in order to buy a Prius. Do you have any suggestions or resources for determining if the money saved on gas is worth the higher car payment? Additionally, does the federal government still offer tax incentives for the purchase of a hybrid?

We plan to keep this car for a minimum of 5-6 years an presumably will keep it until the end of its life.
– Nick

No-interest loans for used cars are very rare. I know of no examples of them.

There is no hard-and-fast rule about mileage on used cars. It has a lot to do with the specific make and model and the reputation of the car manufacturer. Some manufacturers are more reliable than others – Honda and Toyota tend to be very reliable, while other manufacturers (like Volkswagen) sometimes have reliability issues, at least according to Consumer Reports.

You have to sit down and look at your own fuel usage to determine whether there is savings for you in buying a more fuel efficient car. The more you drive the car, the more worthwhile it is to pay a little more for fuel efficiency. The federal tax incentives for buying a hybrid have expired.

Q8: Rent or sell?
Currently my wife and I own a home in the South Central PA area. We paid 169,000 for it and owe about 160,000. We’ve had it for two and a half years now. We got a 30 year fixed rate mortgage at 6.125%. Our monthly payment is right at 1,400 (including taxes etc.). We make about $90,000 a year with some overtime from my job, our monthly income is about 5580 (sometimes higher).

My wife’s job is about to become more demanding and will require her to spend more time at her work/school (she’s in a PhD program right now) and she commutes 120 miles round-trip. We’re considering a move so she will be closer to her school. That will allow her to be there more, and not waste as much time driving as she does now. Based on our current mortgage, it doesn’t look like we would be able to sell the house for what we owe.

So we’re trying to decide on whether we should try to sell it and take a bit of a loss (take a loan out to pay the difference), or rent it out and hope to either pay it down or wait for housing prices to climb back up. I’ve been doing some reading about renting a house and it seems doable for us. I’d be able to keep an eye on the property because I still work in this area. At the same time, housing prices in the area we want to move are very low. I don’t want to miss an opportunity to buy a home for a good price. Would it be worth while to consider buying another house? The rent for a few of the homes would be similar to what we’d pay on a mortgage. I don’t want to bite off more than we can chew if you know what I mean. I’m leaning more towards renting a home than buying. A big issue is that we don’t have much for cash reserves so we’d have to do 0% down and get the seller to pay closing costs.

What do you think?
– Brian

If I understand right, you’re considering moving into a rental unit while also keeping your old home and renting that old home out to someone else? Given what you’ve stated, that actually is probably the best plan, considering you’re still underwater in the first house and moving will drastically reduce a commute.

I would not buy a second home while sitting on an underwater mortgage without a 20% down payment in hand. Unless you guys are bringing in a huge income right when you apply for the mortgage, the banks won’t exactly view it as a good idea.

You may also find that being a landlord isn’t as much fun as you’d like. It depends a lot on who is renting from you. If they’re good people, it’ll go smooth. If they’re problematic, they’re likely to destroy your home.

Q9: To buy or to rent?
Here’s the scenario in a nutshell. I’m 45 years old, divorced twice. The last divorce put me in a financial mess. In order to get out of my marriage, I assumed the lion’s share of the debt. (The marriage was damaging to the health of my children.) I struggled for two years to try to stay ahead, worked two jobs, mothered two teens; however, it was too much. I ended up filing for bankruptcy last year. The date my debts were dismissed was in November, 2010 (that included house, car, and several credit cards). I also had to move out of my hometown as the availability of renting a decent house in a decent location was slim. My 19 year old son moved out on his own, but my 16 year old daughter did not want to change schools so she moved in with her godparents. I moved in with my partner/boyfriend. I still work in my hometown which is a 35 minute drive and allows me to see my daughter somewhat regularly. This worked out okay, but as a mom/parent I miss her terribly. Actually, I am needing to get back and be a family again. I can’t stand not being in her life regularly!

Here’s the question: I have an opportunity to purchase a house on contract with very little down. My former boss wants to sell a small house that he owns, in a nice neighborhood close to my work and close to school. Because he knows my financial situation, he is willing to sell me the house on contract with the contract coming due in 3 years. This would give me time to get my credit rating back up (I’ve also started re-paying my student loans). He is asking $117,000 with $2,000 down at 4% with it coming due in 3 years. The house is assessed at $124,000 as of last year. It is in a neighborhood that is popular. I make $46,000. I have student loan payments of $200 and $56 and a loan against my 401K of $98. I can afford the payment, insurance, taxes, etc. though I will still need to be frugal. I will also receive $600 a month in child support.

I am going to go talk to a banker soon to find out if indeed I will be able to get a mortgage in 3 years. (By the way, my boyfriend is really worried about this as am I.) My question to you is: what do you see as my risks? do those risks outweigh paying rent which allows for no equity to build? Now that I am starting over financially, I want to make sound financial decisions.
– Lisa

Financially, it’s not a bad idea. Since you didn’t really provide a full financial picture here, I would probably listen to what the banker suggests after he/she reviews your finances.

Your best bet is to simply follow the advice of that banker, as that person will know your full credit history, your credit scores, your full income picture, and so on.

My only concern is that this financial relationship is with your boss. You’re essentially ceding more financial power in your life over to him. If you are involved with a bad situation at work, it might not just be your job that’s under fire. If something goes wrong with the house, it could affect your perceived level of trustworthiness at work. I would not ever enter into such an arrangement with any boss I’ve ever had, no matter how much I trusted them. It just adds an element I don’t need to the equation.

Q10: Adult wanting to attend college
I always hear about adults who worked their way through college. Due to very poor planning on the part of my husband and myself, none of our three children had college funds. We realize now, too late, that we should have handled finances quite differently over the years. We are now on a much better financial path, but too late to help our kids with school. Our boys both joined the military both to get money for college and because they truly want to serve their country. Our daughter, the youngest, has no interest in military and just finished her freshman year of college. She did get some scholarships for academics and talents as well as community service, but they didn’t come close to paying for school. She has Stafford loans for her freshman year and is looking at 3 more years of student loans. I also have taken out parent PLUS loans this year and know I will have to do the same for the rest of her college years. She is working part time and hopes to increase her hours to full time for the summer while she is home, but this still won’t offset the need for loans. The school she is attending is rated as one of the least expensive in the country and state. She does not spend much money when she’s at school; rarely even going out for pizza. She buys her books used and then resells them to pay for the next semester’s books. She doesn’t shop for clothes and lives very frugally. She didn’t go on a “Spring Break” road trip and stays on campus most weekends instead of coming home. My question is, what are we missing, if anything? How do others “work their way through school” and end up with little to no student loan debt?

– Nancy

You’re not missing anything.

People who “worked their way through school” either spent years before school (or during school by taking a year or two off) working for money to pay for school (my father-in-law more or less did this and I really respect that) or they took out loans to supplement what they could earn through working.

I did the latter. I had some good academic scholarships, but they didn’t cover everything. I had a good job that covered my living expenses, but I still needed loans to pay for my tuition for my last two years in school. It can be done.

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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