Reader Mailbag: Vacation Monday

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. Help an unlucky friend?
2. Are rent-to-own homes worthwhile?
3. Maximizing value of college
4. Post-graduation options for teachers
5. Secured loan or credit card?
6. Used swimsuits
7. Student loan debt priority
8. Best use of windfall?
9. Keeping old utility statements
10. Goals for 2010

For many Americans, today is a holiday, the third day of a long weekend, where people can relax after staying up late into the night watching fireworks.

For us, the fireworks were actually watched on the third and the fourth was relaxing. Today? I’m working about a 3/4 day with some time off in the afternoon to have friends over.

Of course, working today (when no one is around) makes it easier to take several days off later this month to go to Chicago, see a Cubs game, take my children to the Field Museum, and so on.

I was wondering if you have any advice for the friends of a person who went bankrupt to save the house (medical bills, foreclosure, ongoing health concerns, and $9/hr job) who want to help but are not sure HOW to help?
– Victoria

Don’t loan money unless you expect it not to be repaid (in which case, it’s a gift). That’s something that constantly damages relationships and friendships and just simply isn’t worth it.

The best thing you can do is help this person with day to day life. Invite this person over for meals at your home. Go to his/her home and prepare some meals that they can keep in the freezer. Help them with any tasks they seem to have a hard time keeping up with.

Just as important, let that person vent at you some. It can be very cathartic to vent. Listen to his/her problems and offer any suggestions you can provide – but focus on the listening part of it.

In other words, be the best friend you can possibly be.

My wife and are moving back home and looking for a new house. We are probably going to rent first until we can get a decent down payment saved to purchase a home. My question is about rent to own or land contract type homes – are these a good option? They sound alright on paper, but I have this nagging feeling these types of things don’t work out as planned. What are the major downsides to these deals?
– Matthew

Things don’t work out as planned usually when the owner of the home passes away. The house is given to someone else as part of the estate resolution and they often have no reason at all to fulfill the terms of the arrangement, meaning you’re out the money you paid (you essentially just paid rent for the last few years, in other words).

Your best bet to protect yourself is to have every possible contingency taken care of in the contract. You should specify a date and a price when you can buy the home, how much of your monthly payment goes towards the down payment, and ideally the home itself should be in some sort of trust that will survive the life of the owner of the home without destroying your arrangement.

If the owner balks at these types of things, I would be extremely wary of signing on the dotted line.

I don’t know where you were at in your life in college or what you would do in hindsight, but that’s exactly what I would like to know: what tips, suggestions, or ideas would you have for college students in handling their finances (or lack there of), loans, ways to make money on the side, or any other things you wish you would have known back when? If I missed an article where you have already discussed this, my apologies, I haven’t gone through everything on your site, it can be quite daunting sometimes.
– Kevin

The best thing a college student can do to put themselves in a good place after college is to live as cheaply as they possibly can. Live cheap without shame. The biggest mistake many college students make – myself included – is to live high on the hog on the back of student loans that offer an excessively large living stipend. You should focus to minimize that stipend.

Live in an overcrowded apartment so the rent is dirt cheap – after all, you’ll mostly just be sleeping there. Hit every free meal you possibly can on campus. Hit every piece of free entertainment the campus provides for you (and at a large school, there’s a lot of it if you look around for it).

The next most important thing you can do is to focus your energy as best you can on setting up your post-college life. That doesn’t strictly mean grades. It means building relationships with people in your career path. It means finding experiences that will glow on a resume. It means figuring out who you are and what your true talents and passions are. In other words, don’t waste a dime of that money you’re spending.

Kevin also had a follow-up question worth addressing…

On a more personal note, I am going to be a high school teacher. I realize that it is a profession that generally doesn’t make a lot of money, but that is my passion and I believe I can follow basic finance principles such as the ones you have outlined in various articles on your site to achieve my own goals. Even so, with the limited salary I will have starting out, how would I go about managing saving money, being thrifty, and investing early at the same time? I know I am looking quite a bit into the future, but I have a girlfriend(becoming a math teacher) who I will soon be engaged to that has the same desire to start a family not long after we graduate. Understanding that I will be swamped with school loans, buying or renting a house, kids, and other firsts as a new couple, what would our financial priorities be at that point, and how would they gradually change?
– Kevin

The first thing I’d do is see whether or not there are opportunities for getting your loans repaid by working in disadvantaged schools. Many states offer loan repayments to teachers willing to teach in disadvantaged districts. See if you can get into such a program and use it hard for the first five years or so.

Your first focus should be on building a cash emergency fund so that the inevitable disasters don’t completely drown you. Get in a pattern right off the bat of having some of your income siphoned out of your checking account and into other things – your emergency fund at the start and your house savings a bit later. That way, you’re learning how to make ends meet on less than you’re bringing in, which is the best financially healthy habit a person can build.

As for investing, just focus on retirement investing for now. You’re going to have so many needs over the next five years that any additional “investing” would be pretty short sighted. Just focus on contributing plenty to retirement, spending less than you bring home, and socking away some for the bevy of expenses you’ll have a few years after graduating.

Which would be better for helping build my husband and I’s credit? My parents gave us some money ($3000) to help my husband and I get a credit history, though we also need to money for some house repairs. Which would be the better option in this case, to use it to get a secured loan or a secured credit card? Thanks!
– Sarah

A secured loan means you’re putting down some sort of collateral on the loan. I’m going to assume from this that you’re referring to your house and you’re wondering whether a home equity loan would work better for improving your credit than a secured credit card. Another option would be to buy bonds (or stock) with this money, then use that as collateral for the loan.

Both options (secured loan or secured credit card) would raise your credit. It really, really depends on your specific situation as to which will improve your credit the most. You should sit down with someone who can look at your credit report and help you figure out which avenue will help.

The first place I would start is with my local credit union. Pay them a visit and see what sort of secured loan options they have available. If they have good options (meaning you can get such a loan at a reasonable rate, like under 8%), I’d go that route.

What are your thoughts on buying used swimsuits? Swimsuits are usually pricey, and the other day in a thrift store I saw that they had a whole rack of nice looking swimsuits for about $5 to $7 each. I love the thought of saving all that money, but it just feels gross. Do you know if it’s safe to wear a used swimsuit in terms of disease/medical issues? I did a quick Google search, but only saw hits of people ranting about how gross it is. What are your thoughts?
– Hayley

I wouldn’t do it, mostly because undergarments and swimming suits are the items that wear the quickest from reuse and if you’re buying it used, it’s likely experienced some wear already and just won’t last all that long.

I understand why many people would consider such use unhygenic, but I don’t think that’s really that much of a concern if you clean the item properly. I would likely wash such an item a few times with bleach or other strong cleaners to ensure that it’s completely clean before use.

That being said, it just wouldn’t be worth it to me. I have two pairs of swim trunks I bought new at early fall sales for about $2 each. I have no reason to own anything else.

I just graduated this Spring with a Bachelors degree in Business Administration. I got a job making $42,000/year and currently have $11,500 built up in an ING savings account. I’m currently living at home, single, and have no real need for much of an emergency fund and have just about no monthly expenses. I currently have $4,500 in an unsubsidized federal loan at a fixed rate of 6.8% and $802 in interest and $6,700 in a Wells Fargo student loan at a variable 3.25% and $700 in interest . My question is what should I do now? Use almost all of the money I have now to payoff as much as I can? Build an emergency fund first? Just pay off the loan at 6.8% and invest and pay the minimum on the other? Thoughts?
– Corey

I think your ING savings is plenty adequate for an emergency fund given your situation.

There are advantages and disadvantages to the options available to you. I think it’s pretty much the best option to pay off the 6.8% loan as soon as you can. I would probably strip the ING account of all but two months’ of living expenses and get rid of that higher interest loan.

The advantage of paying off the lower interest loan is cash flow. It would leave you with fewer required bills each month, which makes other lifestyle choices – a job switch, a move across the country, etc. – that much easier. On the other hand, if you’re not planning on doing anything different for a long while, you can probably do better than 3.25% with that money over a longer time scale.

The real answer depends on what you’ve got going on in your life. Are things about to change? If so, get rid of that second loan.

Last year I was in a serious car accident which left me with a permanent injury. I am about to settle with the other driver’s insurance company for a sum in the neighborhood of $100k. I currently owe $70k on a home valued at $100k. And I have a child who will be going to college in 2 years. I plan to use a portion of the money to supplement her college savings rather than taking out student loans. But I am also wondering if it would be wise to put a good portion of it towards paying off my mortgage. Owning my house free and clear at the age of 38 sure would be nice. But I’m not sure it’s the best move, given the current housing market. What if I pay off my mortgage and then my home continues to decline in value? Would I be better off investing the money in a diversified stock/mutual fund portfolio? I could really use some advice.
– Jen

Are you planning to move anytime soon? If not, don’t waste a second thought on the housing market.

Another question: are you planning on helping pay for your child’s college education? If you are, don’t put the money you’d use for that into stocks, as they’re very unstable over the short term (less than 10-15 years).

If I were you, I would pay off the mortgage. As I mentioned above, it’ll definitely help with your monthly cash flow, as you will no longer have that mortgage bill each month. That might be very important depending on how you want to help your child with college.

You recently wrote about eliminating clutter…I hate clutter and have a follow up question.
How long do you need to keep paid utility receipts? I have boxes of receipts. For that matter what paid bill receipts should one keep on file if any in this age of digital records? Thanks for your thoughts…I would like to reduce paper clutter in my home!

– Mary

I usually keep paper utility statements for a year.

However, I’ve been moving to electronic statements for a lot of this stuff, and that stuff can essentially be stored forever. If your financial institution allows you to download statements from them, get into a routine of doing that and saving them. Then, if you still have paper statements, don’t worry about keeping them around.

I look forward to the near future when this is all done electronically, actually.

Now that we’re halfway through the year, I was wondering if you could give us a progress report on your goals for 2010.
– Maria

Resolution #1 was lose 40 pounds. I’m currently down about 14 pounds from the start of the year. I was down about 30 at one point, but I gained some back due to a stressful period at the end of my wife’s pregnancy and during the final edits of my book, taking me close to where I started. My focus is mostly on improving my diet.

Resolution #2 was to pay cash for a replacement for my truck, which I did in March by buying a 2004 Honda Pilot in cash off of Craigslist. We’re extremely happy with it.

Resolution #3 was to learn to play the piano. I started taking weekly lessons from a local teacher in January and the lessons have gone really well. I feel like I’m moving along at a steady pace and, more importantly, I think my ability to read the music and hear it in my head has come along greatly. I’m not as adept at the actual playing as I might want to be, but that will come with practice. I can play some simple two and three-chord songs – nothing too spectacular yet. My biggest challenge is finding the time to practice. We don’t own a piano, so I have to leave the house to practice (I sometimes practice on a keyboard, but I don’t like it very well), which doesn’t happen as often as I’d like. I’m thinking of buying an electronic piano at some point in the future, because this really feels like something I want to do for the rest of my life.

Resolution #4 was reducing my entertainment and hobby spending by 50%, which has been really, really successful. I’ve succeeded at this thanks mostly to lots of trading of books, games, and other things. I’m at about 40% of my pace from 2009.

So, the only resolution that needs a little extra focus is the weight one, which I think is headed in a good direction. I’d also like to find an electronic piano to really make my piano resolution go into high gear.

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.

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