Reader Mailbag: Winter Hands

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. Splitting up retirement contributions
2. Surveys at retail shops
3. Investment or debt?
4. Gum as impulse buy
5. Outsized medical bill
6. Breadmaking tip
7. Avoiding Christmas
8. Savings bonds and student loans
9. Mortgage ballon payment difficulty
10. Investing in class

I get what I call “winter hands” when the temperatures during the day drop into the thirties or below. Basically, my fingertips and palms get a bit puffy and raw simply because of the weather. I know I’m not alone in this.

If I don’t nip this in the bud, my hands are in bad shape by February or so, so I splurge on something each December: hand cream. I’ve tried tons of different things, but this is the only thing that does anything to stop my “winter hands.”

Just thought I’d share for the sake of others who find their hands getting raw in the winter.

Q1: Splitting up retirement contributions
Let me start by saying I started at an engineering job coming right out of school 3 years ago, I was used to living on almost nothing as I did in college so I kept it that way when I started my job and put a large chuck of my salary towards retirement. I recently received a promotion and put it all towards my retirement so now I am to the limit of what the government allows you to contribute to a 401k (I put it all towards a Roth 401k if that makes a difference). Also, because of some other circumstances I cannot currently contribute to a Roth IRA.

So my question: Is it smart to put all 16,500 in my company 401k plan or would I be better off only putting only part of it in my company plan and investing part of it myself where I could pick individual stocks etc. My company matches 75 cents of each dollar up to 6% (basically 4%). I am 25 years old and don’t have any future need for the money (until retirement) that i know of and have a good emergency fund already. Thanks for your help!!
– Mark

You should put enough into the 401(k) to get the match, then after that you should contribute to a Roth IRA up to the contribution limit.

Why? Having money in both a 401(k) and a Roth IRA hedges your bets when it comes to taxes in retirement, plus a Roth gives you far more investment freedom (as you get to choose your investment house and your specific investments).

If you still have money to save, go back and contribute more to your 401(k). It should be noted, though, that you’re almost assuredly in splendid shape for retirement, so if you have other life priorities that come up in the future, don’t be afraid to cut back a little on the retirement savings.

Q2: Surveys at retail shops
I have noticed that many of the fast-food restaurants, office supply stores, and other businesses are urging the consumer to go to their website and fill out surveys. Some of them promise the customer a rebate or a coupon or an entry into a drawing for some cash as a reward for doing the survey. What do you think about these surveys? Are they just a means to getting your email address or do they really ever award those cash prizes? Are they worth bothering about? Have you ever heard about anyone actually benefitting from completing these surveys?

– Jennifer

They’re probably not worth the time invested in filling out the survey. Let’s say that the company is giving out one $5,000 gift card a month. During that month, 50,000 people fill out that survey that takes 5 minutes to fill out. You’re essentially burning 5 minutes in exchange for a 1 in 50,000 shot at a $5,000 gift card. There really are better uses of your time.

If you read the fine print of those offers, they usually have a method by which you can contact the company and receive a list of the winners of the survey contest. Such contests are pretty heavily regulated and it would not be worth it for the company to commit fraud.

In the end, I think they’re legit, but they’re just not a good use of one’s time.

Q3: Investment or debt?
A little over a year ago I got married (we’re in our mid-20s) with my wife’s graduate school student loans just coming out of deferment. We have been making the full payments for the past year, and have thrown several thousand extra when we’ve had the chance, like my annual bonus and our tax return. She had been working full-time though quit her job 4 months ago due to the terrible working conditions…14-16 hour days, spending additional time working on the weekends from home, etc. She has since been seeking out new employment, but with obvious obstacles at this time.

Our balances on the 10-year plan are: Stafford $20,470 @ 6.05% ($245 per month) / Stafford $19,804 @ 6.55% ($245 per month) / PLUS $34,800 @ 7.75% ($446 per month) / PLUS $30,900 @ 8.25% ($457 per month)…for a grand total of $1,393 per month. I make $70,000 per year, we completely own our apartment and our monthly expenses for maintenance, utilites and the like are around $1,000. We have $85,000 in cash/savings in the bank and my wife also has $35,000 in stock that she inherited from a relative. I currently contribute 7% – my company matches a full 6% – to my 401k which is worth around $30,000; I also have a small pension worth around $20,000.

I want to use the $35,000 in stock to knock off one of the large PLUS loans. We’re paying over $200 a month in interest per PLUS loan, so at 12 months x 9 more years, it seems like there is a significant amount of real savings to be had by doing this. My wife strongly believes that we’re better off having that stock available in case we ever have a serious need for it, but with how much we already have in the bank, it seems ridiculous to me that we also need the stocks at this time in our life. Is there really any good reason not to use the stock money and get rid of a big chunk of loan? I think we’re better off putting that money towards retirement, starting a 529 for a future child, and getting to enjoy ourselves more (we haven’t taken a real vacation besides visiting family in over 2 years). If you don’t recommend using that stock money, is there anything else you would suggest to help make our loan payment more bearable?
– Sam

I think that your savings (both stock and cash) are outsized when compared to the debts you’re holding.

If I were in your shoes, I would calculate your shared cost of living for four months, keep that much in savings, and put the rest – both saved cash and stocks – toward getting rid of as much of that debt as possible. I’d hit the highest interest debts first (the one above 8%, for starters).

There are almost no emergencies in life that will be helped by having more than four months of living expenses in an emergency fund. If one of those extremely unlikely emergencies did come along, the cost would likely be far more than what you have in the fund right now anyway. You’re better off putting that money to better use. Remember, you’re getting an 8.25% return paying off that largest debt early versus a 1% return in your savings account.

Q4: Gum as impulse buy
I like to keep gum in my car as a breath freshener, as I’m often worried that my breath smells badly. Thus, whenever I’m in the checkout, I tend to pick up a pack of gum. I’m trying to figure out how much this adds up to and whether there’s a cheaper way to go about it.

– Evan

If you chew gum on a daily basis, a bulk purchase is probably the best option for you.

I would figure out which brand you like the best, then buy it at a warehouse club in bulk (or have a friend buy it for you there). That’s probably the least expensive way to get the gum in significant quantities.

Then, just leave a few packs in your car at all times. If you know the gum is in your car, you won’t need to buy it at the checkout. You’ll save money just from the cheaper gum, but don’t be surprised if you’re actually chewing less, too.

Q5: Outsized medical bill
For the past 3 years, my husband and I have been working very hard to be financially responsible. We have paid off 39k in student loan debt (12k to go), put a good down payment on a modest house, drive paid-for cars, taken extra jobs and never incurred any other debt.

Last month my husband ended up in the ER with a partially collapsed lung. A month later it relapsed, and he had to have surgery. We went to our in-network hospital which was supposed to be covered 100% by insurance (except for our 75$ deductible). We tried to asked if the surgeon was in-network and found out he wasn’t, but the doctors assured us that in emergencies our insurance pays 100% of usual and customary. It turns out that there is a very large difference between what our insurance deems usual and customary and what the surgeon billed.

We now owe the surgeon $14,000. There were a few charges the insurance denied that we are appealing, but even if those are approved our bill will still be over $10,000. I was tempted to be mad at the insurance company, but when I looked up the procedure codes on the American Medical Association’s web site, it turns out they have already paid 4-5x the medicare reimbursement rate for these procedures. I feel like we are being extorted by the surgeon. Basically, he could bill ANY amount he wanted!

What kind of recourse do I have? Should I go to the insurance company? The provider? The state health insurance regulator? My employer (self-insured large company)? Do you think I could settle this with the provider for a couple thousand dollars (we have our first child on the way, so we can’t afford to empty our emergency fund)?
– Linda

Your best bet is probably to negotiate with the provider for a settlement.

You can try to appeal through other means, but you’ve likely hit a limit on what your insurance will provide for this. If the insurance is going far above and beyond Medicare, your state health insurance regulator probably won’t be much help, either.

I would suggest trying to negotiate yourself. If you find that you make no headway, you can attempt to use a lawyer to help, but you’ll likely end up with legal fees that exceed the cost.

Q6: Breadmaking tip
I’ve been baking my own bread for the last few months thanks to your extremely helpful blog post. However, I’m having an issue and hope you might be able to help. When I follow your directions to use 1/4 c. milk, I find my dough doesn’t bind together and I need to add more. For example, today I added 3/4 c. of milk. Am I doing something wrong to have to add more liquid?

– Candace

My guess would be that it has to do with the humidity in your kitchen. I’ve noticed that when the air is damp in my area, I don’t need as much liquid for any dough I make. When things are dry, I need significantly more liquid (and the dough tends to dry out more).

Another factor might be your brand and type of flour. Some flours make a dough with relatively little liquid, while other flours require a lot of liquid.

I don’t think you’re doing anything wrong here, as you’re not using what I would consider to be extraordinary amounts of milk. Just remember variations like these can cause things to work out in unexpected ways.

Q7: Avoiding Christmas
Early this year, I hit my financial bottom and since then I have paid off a lot of my debt. I’ve also moved on to a lifestyle where I don’t buy many things that I don’t need and I find this lifestyle really fulfilling.

My family, though, is moving forward with the same consumerist Christmas they’ve always had and it just doesn’t appeal to me at all. I’m trying to avoid it altogether, but it’s pretty tough to do when it’s your family. Any suggestions?
– Nelson

Remember why you’re getting together with them at Christmas. The real reason for the season has nothing to do with the stuff at all. It has to do with the people.

Many people express how they feel about each other during this season through buying gifts. It’s a convenient way to say “I care” to others without having to let your emotional guard down too much.

You can do much the same thing with a handmade gift. Make a soup mix with a handwritten note attached to it. Bake everyone something delicious, like a Dutch letter. These things won’t cost you much in ingredients, but they do require time and are made better with a bit of love for the recipient. That last ingredient is really what it’s all about.

Q8: Savings bonds and student loans
My husband and I have about $74,000 in student loan debt combined ($8,000 from my undergrad and $66,000 from his undergrad.) We make about $75,000 combined and try to save the equivalent of his income every month which is about $2000. We own a home (a duplex) with a mortgage of 76,000, about half of the assessed value and two thirds of the appraised value. We have about $12,000 in an emergency fund. The $2,000/month in saving that we try to pit aside each month first went to buy two new furnaces and water heaters for the house, the we used it to build up our emergency fund, now we are thinking of splitting it and using 3/4 of the money to snowball our student loans and the other 1/4 to build our seam vacation fund. I also have about $3500 in a mutual fund that I have had since I was a kid and pretty much forget about it as its value jump around with the market. We also have about $3,000 combined from Savings Bonds. We would like to start snow balling the student loan debt but also want to start saving about $6000 to fund a european adventure next september before we start trying to have a baby. The interest rates on the student loan’s are $8,001.49 @ 4.00%, $30,490.56 @ 4.88%, $6,144.89 @ 4.19% and $29,659.26 @ 4.86%. We haven’t really done anything with the Savings Bonds before because they had a good interest rate at 4% and we liked the idea of having that money liquid. But now that we have a health emergency fund and realizing that three of our loans are incurring more interest that we are earning on the bonds, do you think we should just go ahead and cash them in to make a dent on the loans, or would the debt be miniscule enough not to really matter? Or alternatively, should we use them to put a big dent (half of our goal) in our European adventure fund?

– Sheila

If I were you, I’d consider the bonds to be part of your emergency fund. I would use them last, meaning I’d zero out the emergency fund before using the bonds, because they’re earning such a nice rate compared to the savings account.

Then, I’d make sure that I had the right amount in an emergency fund. I would try to target four months of living expenses across all of the emergency fund money. I don’t know what your total monthly budget looks like, but it may be that the cash you have right now (the $12,000) is pretty close to that.

Once you know how much four months of living expenses actually is, I’d add together the $12,000 in savings and the $3,000 in bonds, then subtract the living expense estimate from that. I’d then withdraw that calculated amount from the savings account and throw it at the debt. Leave the bonds where they’re at, earning 4%.

Q9: Mortgage balloon payment difficulty
My wife and I purchased a home in 2010. We were able to avoid having to pay PMI each month by putting a 10% down payment and taking out two mortgages, one main mortage that is a 30-year fixed at 4.75% and a second that has 15 year term at a 6% rate but is a balloon payment of $60,000. Yes, you read that correctly. It is a 15-year balloon payment with a maturity date of 15 years, making the lump sum balance due in 2025, which by my math (and if I just pay the amounts due each month would be a total of $20,500).

My question to you is how to appropriately factor for the lump sum balloon payment. The easy answer is to say that we’d be selling the place before then at a price that will cover the balance and no need to worry about it (which was the lender’s line of thinking). We do live in a great location (suburb of D.C.) and comparable properties have retained, if not increased their value since we purchased. However, I come from a more conservative mindset and am looking at this from a long-term standpoint so I want to make the assumption that we will stay at the place for the long-haul (which would make refinancing the balloon payment an option when we become eligible in about 5 years when we’ll have 20% in equity).

The balloon payment has a daily interest rate where the amount of interest owed is the daily rate times the days that have passed since last payment. Any amount paid in excess goes towards principal. Our current method is that we pay $100 extra a month to go towards principal, plus I save $350 in an combination of Roth IRA and ING Savings accounts so that by the 2024 date, we will have enough liquid cash to pay the lump-sum payment due. Is this the right approach?. One thought I have is to pay the $350 immediately each month to lower the principal (and thus decrease the overall interest paid throughout the lifetime of the loan) but we currently keep the savings in the Roth & ING account in the event of a financial emergency and need access to that cash (even though we do have a 3 month emergency fund so I don’t know if this is overly conservative). We also keep it in the Roth because then the earnings can grow/compound year over year and I can withdraw the contributions later. Right now we have about $5k in the Roth (contributions that can be deducted) and $1500 in the ‘Balloon Payment’ ING account.

Should I continue to pay an additional $100 in principal every month and save/accrue $350 in savings accounts, or should we just put all of the $450 into the balloon payment each month to reduce our future liability? Our current method will mean we’ll have enough cash to pay off the balloon payment by 2020, making a lump sum payment of $40,000.
– Ronald

If I were in your shoes, I’d probably make sure the Roth was fully funded for the year (meaning that you’re putting in about $420 a month) and then put the rest toward additional principal on the balloon payment. This will maximize the value of your Roth, which will return better for you over the long run than a savings account.

If things go well, your income will go up as time moves forward, which means you can slowly contribute more to the balloon payment. This is the best outcome, of course.

If things do not go well, you can use your Roth contributions when the time for the balloon payment arrives. You’re still in good shape and you’ll retain the Roth earnings.

Q10: Investing in class
I am a high school accounting teacher and want to teach my students about the how the stock market works and how to invest wisely (and cautiously). I thought about having them (with their parents approval, of course) set up an account at Sharebuilders because you can invest for as low as $25 a month. The downside is four dollars each monthly contribution goes towards commissions (almost 20%). Are there any other investment options (with low entry and monthly fees) that I should consider?

– Margie

If I were you, I’d have them all sign up for and play The Stock Market Game or something similar. This is essentially a stock market simulation that enables students to invest virtual money in stocks.

In order to build interest, I would make the thing laden with extra credit for your class. If they manage to beat the S&P 500, they get some bonus points, for example.

At the end of the year, I’d have each student (or team of students) present their investment strategy and how it did to the class.

I wouldn’t mix real money into this. You want to teach them how to do this, not have them start taking on real financial losses. The students that are interested will likely move into some level of investing on their own, and it’s probably a good idea for those not interested to not have actual money involved at this point.

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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