Free Money Finance

Help a Reader: Maxing Out after Reaching 401k Limit

Here's an email I recently received from a reader:

Some background info: My baseline gross salary is $74k, but with recent overtime it's looking like I'm on pace to make closer to $85k this year. I've been contributing 30% pre-tax dollars to my company 401k plan. They match 50% up to the first 8% I contribute, so basically I get a free 4%.

On my previous pay period, I hit my max $17,500 pre-tax contribution limit. In that same pay period, there was also a new line item for after-tax contribution spillover, so now I have $280 of after-tax money in my account.

My max employer match is 4% if I put in 8%. I just called my benefits office and they clarified this is applicable to both pre-tax AND after-tax contributions to the retirement account.

I'm 25 years old and don't have a Roth IRA setup yet.

My question is: Should I contribute 8% of my after-tax dollars to my retirement plan so I can get the 4% match from my company? Should I start/max out a Roth IRA? Should I do some combination of both? Any other recommendations?

What's your advice for him?

Help a Reader: Dealing with a Pension

Here's an email I recently received from a reader:

I was hoping to get some help from your readers in determining my best option.

I received an offer from a former employer with whom I am entitled to receive a pension when I turn 65.  I am currently 51.

I have 3 options:

    1. Do nothing.  When I turn 65 I would receive $187 a month for life with a 100% survivor payment for my wife.

    2. Take a lump sum payout now of $13,705 which I could take as cash, rollover to an IRA or Roth IRA.

    3. Take an immediate annuity that pays $67 a month for life with a 100% survivor payment for my wife.

What's your advice for him?

Help a Reader: Retirement Savings

Here's an email I recently received from a reader:

In an attempt to combine Dave's (Ramsey) 15% savings solution with an early retirement I'm stuck with a dilemma.  

If I put 15% into retirement accounts, then I will not be able to touch until I am 59.5 without penalty.  And that is presuming the government doesn't change the rules in the next 28 years.  Likewise, if I don't put anything into retirement accounts and do only investment accounts, I'll have a potentially inconvenient tax burden.  So the question is, how should I divide up my investments between traditional retirement accounts and early retirement accounts?

My employer matches 75 cents on the dollar for the first 8%, so into the 401K it goes.  Take the free money.  The next 2.5% would go to Roth IRAs.  The remaining 4.5% goes into my traditional investment account.  Is that prudent?

What's your advice for him?

Help a Reader: What to Do with Cash

Here's an email I recently received from a reader:

My wife and I are both 30 with no kids and we have a dilemma.  We are planning to retire by 45 and have no debt except our current primary mortgage at $100K.  I have roughly $90K in my 401K and we are not particularly interested in increasing retirement contributions as we plan to retire much younger than is normal.

We just sold a rental house and have $80K to dispose of.  We plan to save $20K for some projects around our current house (major renovations) but are not sure what to do with the other $60K.  

We don't really want to just pay down our primary mortgage as it's at a great rate (3%) and I didn't like how illiquid the money was for a very low rate of return on our rental house.  Some options we've thought about are to 1) Invest in the stock market, 2) Invest in a local business, 3) Put the money into P2P lending, 4) Buy another rental property.  

We don't mind if the money is not liquid as long as there is a good rate of return.  We don't anticipate any pressing need for the money in the next 10-15 years so this could be a long-term investment.  I'm pretty open to something riskier but my wife is not so much.  We would both be ok with some moderate level of risk.  Our previous rental house barely broke even (it was a former primary residence from a move) and we're not so sure we can find a good rental house with the tax and rental rates in our area.

Any suggestions from you or your readers would be appreciated.

What are your thoughts for him?

Help a Reader: Career Move

Here's an enmail I recently received from a reader:

I'm 28 making ~$115,000 total compensation ($85k in salary). Working at a tech company and missed the last cycle of promotions (1.5 years into the role) the next role would be to manager. I would try to negotiate ~50% total comp increase.

I got a high score and at continued pace would be promoted in the fall (never guaranteed but will perform). What is your recommendation on staying versus leaving? I am still learning, but at a slower pace than I would like and management is giving me more responsibility. I like the team. I know I could, with some time and work, get a job at ~$150-200k total comp. at various other companies.

Most career situations are circumstantially based but wanted a discussion on:

•     Tenure at company (does it matter - I still think it does somewhat)
•     Getting to manager role (how did you get there and what skills should I hone?)
•     Should I always be looking for the next best opportunity with highest or higher salary?
•     Have you had situations where you 'waited' to get promoted?

What are your thoughts for him?

Help a Reader: Retirement Tipping Point

Here's an email I recently received from a reader:

I have a question to which I haven't been able to find an answer online. I'm currently 32, have about $25,000 in my retirement accounts, and contribute approximately 18 percent of my income to my employer-sponsored plan and Roth IRA. I'm wondering when, if ever, I can stop contributing to these plans. I've read articles to the effect that people who invest for 10-15 years early in their careers (and then stop) do just as good, if not better, with final balances as those who start at 35 or 40 and contribute for the remainder of their careers.

I'm just curious... what is that "tipping point" where my contributions aren't going to make a significant increase to my final retirement balance. Is there a way to easily calculate this or is this a better question for a financial planner?

What are your thoughts for him?

Help a Reader: Partnership with a Family Member?

Here's an email I recently received from a reader:

One of my family  members offered me to start a business - 4 relatives would be involved.

Do you think it's a good idea?

Entrepreneur.com gives some reasons why it's difficult:

• You know so much about the other person--you've been privy to intimate information about them.
• You've most likely had arguments or negative conflicts with them.
• You have years of experiences with them, both positive and negative.
• You know the other person's "hot and cold buttons," the thoughts, feelings and behaviors that reward, cajole and pacify, or punish, threaten and dismiss the other person.
• Maybe you don't like your relative or, conversely, you're very close with that person, which means you could either be overly critical or overly protective of them.
• You may provide too much supervision or teamwork--or you may provide too little.

There is interesting comment at the bottom of the piece.

I would like to see your opinion about it and FMF readers' comments.

What are your thoughts for him?

Help a Reader: Buying a Home

Here's an email I recently received from a reader:

I have been a long-time renter, but now married with 2 small kids I’m considering buying my first home. I’ve done some research and talked to some banks, but the thing that’s making me hesitate is that I’m worried that houses are overpriced because of the current low interest rates.

The way I’ve approached the home buying process, and the way I think most people do, is to see what kind of mortgage I qualify for, and then use that to figure out what kind of house I can buy. Currently I qualify for about a $500K mortgage at a 4.25% interest rate.  However, if the rate goes up to 6.25%, which is still very low by historical standards, I’d only qualify for about a $400K mortgage, which would mean that the prices of the houses that I could buy would decrease by 20%.

If this is the approach that most home buyers use, if rates went up to 6.25% home prices would fall 20% as everyone would only get a mortgage that’s 20% smaller. I know that if incomes rise along with the interest rates that wouldn’t necessarily happen, but I’m not optimistic that incomes will rise that quickly.

I really haven’t had much experience with this, so I’d appreciate you could point out any faults in my thinking.

What are your thoughts for him?

Help a Reader: Paying Off Debts

Here's an email I recently received from a reader:

I'd like to get readers thoughts on paying off large debts.  In my case, I own rental properties where I would like to pay off the mortgages for long term income.  One mortgage is around 80k and the other 100k.
 
We live off my salary and I earn quarterly bonuses that range from 5 to 15k a quarter after taxes.  The rental properties also generate significant cash flow and will generate around 10k a year but it could easily be 0 or close to 20k based on the improvements and occupency rate.
 
My problem is that I always have a list of 'to do' items for the bonuses.  These could be home related, replacing a car, buying another rental property, family vacation, or a major family event.
 
If I had 6, 30k loans I bet I would have a much easier time paying them off than these two loans totaling 180k.  I know these amounts seem large to some but I think the same pricinple for would apply for 18k in debt versus 6, 3k debts.
 
I can't seem to commit to sending a fixed amount in to pay off the debt as I feel I may want to use the money for something else.  If I was close, I would have no trouble sending a check for the full amount.  Is this crazy?  Any thoughts?

What's your advice for him?

Help a Reader: Tax Accounting for a Bonus

Here's an email I recently received from a reader:

I'm anxiously waiting to get my tax documents so I can work on my return.  Last year I nailed my withholding estimates - we got a small fed refund and owed a bit for our state return.  The net was that we underpayed by ~ $150.  I'm expecting a refund this year though because last year, for the first time in ages, I received a bonus.  My company pays the bonus in Q1 for achievement in the prior year.  I don't like getting a refund - how can I best account for this event in tax planning in 2014?

The bonus comes as payment with your regular check.  If I know the expected bonus amount, should I adjust my W-4 before that paycheck or should I recalculate my withholding for the rest of the year after I get that check?  How have others handled this situation?

Based on the tax withholding it looks like I was taxed last year on that check at ~ 37%.  I figured out that the additional amount in the check resulted in ~ $2000 of additional withholding vs. what I would have had withheld if those bonus dollars had withholding equal to what was withheld on a regular paycheck around the same timeframe.

What's your advice for him?

Help a Reader: Using the Right Card

Here's an email a reader recently sent me:

My parents will be visiting me in Chicago this March. They are coming from South Asia and I would like to take care of their flight fares. I am trying to use points+fare for the trip.

I currently have:

• Chase Freedom
• Amex Blue cash
• Amex Blue cas preferred
• Amex Fidelity

I used to have Chase Sapphire preferred until 2 months ago. But I did a product change on it to get another Chase freedom. When I had CSP, I transferred 60k UR points to Southwest, since I envisioned they are good for domestic travel (Disneyworld maybe) in US for 4 people, if I plan for 2014. I currently have 66k UR chase points in Chase Freedom.

Now in 2014, I would like my parents to visit us. They will come from Asia. This can happen in March or April 2014. Combined airfare for 2 people will be around $2500! I have 66k UR points but I cannot transfer them as I don't have CSP anymore.

But, I have an option to revert back to CSP by Dec 15th and pay the $95 annual fee. Do you think that's a good option right now? There won't be any bonus.

Or should I apply for Amex SPG, Citi AA and Ink bold on a single day? My credit score is just around 750 right now.

To summarize:

1. Pay for parent's tickets roundtrip economy or at least business class one-way from Asia (optional). Strategizing how to do that. Travel dates not fixed, maybe March/earl April.

2. Transferred 60k points in SW airlines for a possible trip to Disneyworld.

3. Switched from Sapphire Preferred to Chase Freedom 2 months ago. Should I go back to CSP and pay $95?

4. Currently have 66k in UR points. How best I can use them for travel and hotels?

5. Any other suggestions you have for applying to new credit cards for upcoming travel?

What's your advice for him?

Help a Reader: How to Allocate Surplus

I recently received the following email from a reader. Please read her note and offer your advice in the comments below.
 
I'm 24 and my husband is 25.  We've been married for a year and half, no children.

I work in corporate finance and he's a computer engineer.  We make in the low six figures combined.

I also coach a travel volleyball team on the side which is mostly for fun but pays about 2000 a year.
 
We live in the greater Baltimore - DC area and recently bought our first place.

Income

• Me - 3,390
• Husband - 3815
• Volleyball (prorated) - 166
• Total - 7317

I contribute 8% of my salary to a 401K matched at 7% (very generous) and my husband contributes 4% of his salary with no match.  I also have life insurance and short term disability taken out of my check.  The above income amounts are after all of these deductions.  My husbands company provides us with comprehensive health insurance at no cost to us.  This huge perk helps make up for the lack of 401K match.
 
Our expenses are as follows:

• Mortgage - 1550
• Utilities - 140
• Phone - 47 - pay as you go plans
• Internet - 50
• Netflix - 7 - don't have cable TV
• Food - 365
• Auto - 380*
• Household - 85
• Entertainment - 125
• Medical - 25
• Gifts - 50
• Travel - 50**
• Misc - 100
• Total - 2974

Annual expenses include car insurance, christmas, and HOA, and cost about 5,320.
 
*mostly gas, I have a very long commute right now which is hard.  I'll be changing locations in January which *should* bring this down.
 **Local trips within driving distance, mostly to see family
 
Assets

• 401K - 41K
• Roth IRA - 15K
• E-fund - 9K
• Taxable investments - 3K
• Home - 285K

Liabilities

• Mortgage - 236K @ 3.25%  This is a 10-1 ARM loan and we're in year 2.
• No student loans, thanks to good financial planning by our parents, large scholarships, and working multiple jobs throughout school.
• We own two paid for cars.

My main question is how to allocate our surplus each month?  We currently max out our IRAs, about 915 a month. We are also currently paying an extra 1450 a month towards the mortgage.  We initially put 10% down on our house so we're paying PMI.  In December we'll be at 20% equity and should be able to remove the PMI.  At that point I'm not sure we should be paying down the mortgage so aggressively. 

Should we try to max out at least one of our 401Ks?  We're not even close to doing that right now.  Should we balance our retirement savings with some taxable investments?  Our current taxable investment is a REIT with a 15% dividend yield (I've used the dividends to buy furniture for the new house!).  However, I'm nervous to commit large sums of money to individual stocks.  Our retirement assets are in either S&P 500 index funds (Vanguard) or small mid-cap stock funds (401K).  Or should we continue to pay down the mortgage aggressively with the intention of keeping this house as a rental when we move to a larger place with kids (5+ years down the road)?  I don't know!!!
 
Goals

We'd like to do a semi early retirement.  I'd like for both my husband and I to be able to work part time when we have kids.  I could work 2-3 days a week and he could work 4 days a week.  Having a strong work life balance is important to us so that we can raise our children and be involved in our community.  To do this obvious we would take an large hit to our income.  This is why we're saving aggressively now.  However, kids are at least 5 years away in my mind.

I'd also like to take at least one big trip before we have kids.  We took a trip for our honeymoon but haven't traveled since then.  I'd really like to take an international trip but currently we're not saving anywhere for this.
 
Also of note:  We give 1200 a month to charity.  We recognize that we have been very very blessed to make the income we do at our age and have no student loan debt.  It's essential to us that we give, to remind ourselves of that blessing, ward off lifestyle inflation, and make an impact on the world.  We give to local churches, international child sponsorship, cancer research, and local shelters, and global humanitarian efforts.  When our income changes we adjust this amount.

Help a Reader: Mom's Financial Plan

Here's an email I recently received from a reader:

I am asking a question on behalf of my mother.  She is 75 years old, retired and lives alone in a rented apartment, having sold the family home within the past year.   She faced the classic "house rich, cash poor" situation, went into some debt and felt forced to cash in her retirement account to contend with merciless repairs and maintenance on the house, until finally having to sell the place.  So:  she has NO separate retirement savings, no pension, no longterm care insurance.   She collects social security and her sole asset is now the proceeds from the sale of the house, which, after estimated taxes, amounts to approximately $650K.  Decent amount, but how to best make that work for her and last for her remaining (20+) years?

She hired a fee-only CPA/financial planner to handle her complex tax situation this year, to analyze her expenses, and to devise a sound investment plan for this nest egg from the property-sale. 

Here's the plan, in brief:

To match her expected annual expenses  (accounting for super-high housing costs in the area where she lives, inflation, etc.) of an estimated $46K with an annual income of roughly $49K to come from:

Sources of Income:

(1)  Proposed annuity - $1500/month ($18K annual withdrawal).

(2)  Proposed stocks/bonds allocation- $1600/month ($19K annually, assuming 5% withdrawal, 5%returns, 3%interest).

(3)  Social security - $1000/month ($12K annually).

Of the $650K, the suggested breakdown for proposed investment product allocation is:

(1) $290K - Fixed Index Annuity Contract, with guaranteed income rider.  Specifically, Guggenheim Partners' Security Benefit "Total Value Annuity" is recommended by the advisor, with allocation among several interest crediting options within the contract.

(2) $360K - Invested and allocated among several Vanguard stock and bond index funds, with emphasis on income.

This plan seems reasonable and appropriately conservative at first glance.  The $360K will be relatively liquid, in case of any unforeseen health (or other) crisis.  I don't fully comprehend all the ins and outs of annuities, but I'm starting to get the picture of how an annuity and its guaranteed income might work for her as a financial base.  I'm not sure how to evaluate this particular choice (Security Benefit TVA) against competitive products.   I trust her advisor but want to do some due diligence to both understand and endorse this plan for my mother's financial future.

I wonder if you have any feedback about this proposal, this specific annuity/company, or questions that you suggest we consider before she signs on the dotted line soon?

What's your advice for her?

Help a Reader: Career Move or Not?

Here's an email I recently received from a reader:

I am a 20 year veteran of a major city police department in the Northeast.  My current base salary is 82,000/year.  Between court time and voluntary overtime I usually make another 25-30 thousand per year.  That also means that I work and average of 60 hours per week.  The minimum I ever work is 50 hours but some weeks I work over 70 hours. 

Due to my seniority I get 5 weeks of vacation and 2 weeks of personal days per year.  I also have enough seniority to pick whatever shift I want with weekends off. 

I have 5 children and a wife who makes about 12,000/year working part time.

I can retire now and have a chance to take a job with a University in my area.  The pay is only 50,000 per year but I can begin collecting my pension right away which is 50% of my base pay or 41,000/year.  There is no cost of living increase so my pension will be fixed at whatever level I retire at for the rest of my life.  Between my new salary and my pension I will actually be making more as a base salary than I am currently.  There isn't very much if any overtime at the new job so technically I'm taking a pay cut but I'll only be working 40 hours a week for the first time in 20 years. 

The real benefit will be in two years when the oldest of my children graduates from high school.  One of the benefits of working at the university is that my children get to go to school there free.  Currently the tuition (without room and board) is 20,000/yr.  Two years after my oldest child graduates high school my second child will graduate and for the next 12 years I will have two children in college each year.  When that happens I'll be getting 40,000/year in tuition (at today's prices) free for my children.  They would just be responsible for book and room and board (if they don't commute from home).  The school is a major university so pretty much any major my children decide on will probably be offered at the school.

Some other considerations are:

1) At the new job, I won't have any vacation for the first year and 2 weeks per year after that with 10 personal days per year. 

2) My seniority will also be low so I can't guarantee my shift or my days off so I could end up on the afternoon shift with Tuesdays and Wednesdays off for example.

3) Currently all 5 children are straight A students so scholarships are a possibility but due to my current income I don't expect much, if any aid if they don't get a scholarship.

4) I will have my mortgage paid off right around the same time my oldest would start college.  I currently put 30,000 per year towards it to pay it off early.  When I pay it off I could use that money to help pay towards the college bills.

I'm currently weighing my options but I would be interested in hearing your, and your reader's opinions on my options.

What's your advice for him?

Help a Reader: Going Back to Work after 12 Years

Here's an email I recently received from a reader:

I am a 50 year old woman who has been at home raising a family.  For a lot of reasons it is time for me to begin working outside the home again. 

I became a stay-at-home-mom in 2001 and have not looked for a job since 1992.  My focus has been raising my daughter and volunteering in my community, not growing my career.  While I have a college degree, a variety of skills that I believe are marketable, and confidence that I am employable, I feel overwhelmed and am not entirely sure where to start.  

Have any of your readers been where I am?  What would be some good first steps, and what are the pitfalls to look out for?

What's your advice for her?

Help a Reader: Buying a Car

Here's an email I recently received from a reader:

So, we paid off our car and we have a growing 'Auto' savings account where we're sending the payments we were making on the car. The idea is that we'd be able to pay cash for our next car when the time comes and our current car falls apart underneath us.

In the meantime we've been able to borrow from the fund for car repairs that keep the car running longer.

Question is: While I love not having the payment and I love saving the money, when the time comes should I invest the saved money if I can get a sufficient return and borrow the money for the car if I can get a low enough rate?

What are your thoughts for him?

Help a Reader: Building a Home

Here's an email I recently received from a reader:

My wife and I just purchased and moved into a property that we have been looking for for years. We bought 7 acres hidden by trees with complete privacy and not too far from both of our jobs/her schooling. We were searching for a home to fix up or land cheap enough to build on. What we found instead was land with a home/apartment/shop with a partially built new home. The previous owners lived in the 'home' that is a little over 800 sqft that is on the second floor of a 900 sqft shop. The 'home' was pretty dated and needed a bit of work, but we ripped out the floors and redid them, redid the whole bathroom, and we plan to redo the kitchen on the ikea budget. The son started building a home next to the existing 'home' and got the foundation, plumbing, walls, trusses, roof, and electric pole done. It needs wire, windows, drywall, and all other interior finishing done, as well as insulating, painting, and the works.

Our plan is to live in the smaller home while finishing the partially built new home (around 2500 sqft). We live off of my income and have a little left over to do a few things at a time. My wife is in grad school and will be graduating this December and should be getting a job bringing in around $2500 a month after taxes. The plan was to use this income to finish building the home. I still really like this idea, but I'm starting to rethink the timing and budget we originally came up with.

Here are the basic numbers:

• Current home/land value: $115000
• Current Loan amount: $80000 (purchased for $100000 and put 20% down, only been in the place for a month)
• Timeline to build: No longer than 2 years.
• Amount of money from second income in 2 years: $60000
• What we thought it would cost to finish: $60-75000.
• What I honestly think it will cost to finish: $100-120000.

So now onto my question (sorry for the length). Do you think our plan is a good idea? Should we use income as generated to build this house? We currently fully fund Roth IRA for me, 10k (including company match) into 401k for me, 3500 in Roth IRA for my wife, so I think the retirement is doing ok.

Or, do you think that I should get a construction loan for $100k, finish the house, and have a $600 a month more mortgage payment?

I'm thinking if we do that, we could use her income to pay down the mortgage quickly and fully fund the retirements, and have extra cushion. Oh, and to throw a curve ball, we want to have children in the next year or so....

What are your thoughts for him?

Help a Reader: Retirement Advice

Here's an email I recently received from a reader:

I'm a 28 year old female, married with two children (ages 3 and 1). I work for a state government agency. Upon hiring, I was set up in the state retirement system to deposit 6.5% of my income into a retirement account (401a). From what I understand, my agency deposits a match of 6% of my salary into a state accumulation account. As of today, I have $12,869.03 in my state retirement account - this account currently earns 5% interest each year. I was also enrolled in a 401K and 457 when I was hired. I have a total of $11,695.52 between both of these accounts. I have my money set up in various investment funds within these two accounts, most of it going to a 2050 Target Fund (any advice here?).
 
Before being employed with the state, I was in the military and I signed up for a Thrift Savings Plan account and have left the money in there. I currently have a total of $5,556,47 in TSP. This is also distributed among various investment accounts.
 
Here's, a little backstory for you. Growing up, my parents never really taught me anything about finances. We lived paycheck to paycheck and often struggled to make ends meet. They were pretty bad with money and as a result, I sort of followed in their footsteps (my husband had a similar experience throughout his life). When I joined the military, a lot of my peers advised me to start saving for retirement and so I did. However, I never really learned much about investing. As I've gotten older, I've started to gain interest in finances and investments though I have much more to learn. I'm glad that I did at least start saving for retirement early, but I'm really at a loss about what steps I should take next. I'm thinking of finally rolling over my TSP account into one of the other investment accounts but I'm not sure which - the 401a (I'm not sure if I can even roll funds into this account), 401k, 457, or start a new investment account with it? Any advice?
 
Regarding the rest of my financial situation, I am currently in debt. We purchased a house in 2010 but the local market hasn't really driven the price up much so we're upside down on our mortgage (~$154,000). We also have a car note for about $13,000. And, we are in credit card debt - owing about $14,000 to several creditors. I earn about $3,000 a month from my job. Since my husband and I are both prior military, we both received a GI Bill that pays for our education. He goes to school full time and earns about $1,350 - $1,400 monthly in stipends. I also go to school online and receive about $650 monthly in stipends. We have no student loans and alternate our schedules (he goes to school in the evenings) so we don't currently have any day care expenses. We have put together a budget and with it, we believe we can pay off all of our credit card debt within the next two years (hopefully sooner). We've made getting out of credit card debt our first priority. Afterwards, we will really focus on building up our savings and paying off the car. Does this sound like a good plan? I know we've made mistakes especially with getting ourselves into so much debt so early in life, but we are working hard towards digging ourselves out of the hole.
 
I hope you can offer some insight into my situation and hopefully guide me in the right direction. Thank you in advance for any suggestions you can provide.

What's your advice for her?

Help a Reader: Paying Off Low-Interest Loans

Here's an email I recently received from a reader:

Is paying off low-interest debt always the best choice?

I am very fortunate in that I only have one source of debt: a car loan. No student loans, nothing on my credit cards, nada. My interest rate for my car is about 2.8% over 5 years (I'm 1.5 years into it).

My plan had been, once I got to July 2013, to switch my emergency fund savings to paying double on my car payment, to kill the debt faster. I thought that was a good idea, and everything I read seemed to suggest it was. But then I read an alternate view in a book sample I downloaded for my Kindle. That author suggested that if your interest rate is less than 3%, you are better off investing your extra money rather than putting it toward your debt. (I'm sorry I can't remember the book, the title had to do with finances in your 20s and 30s; I deleted the sample as I didn't find it very helpful, but the above idea stuck in my head.)

What do your readers think? Should I double up on my payments to destroy the car debt? Or should I funnel the money into my IRA? Right now I'm not quite yet at the point of making regular payments to my IRA: I am saving up for two more mutual funds (a bond fund and an international stock fund; right now everything is in domestic stocks, and I know I need to diversify). If I diverted that extra $220 to the IRA, I could reach my investment goals a lot faster, and I know time is money (as a reminder, I'm 26). But of course, debt is slavery, and I'd love to get rid of that car debt sooner, plus save on interest.

I'd love to hear your opinions!

What's your advice on this subject?

Help a Reader: Using an LLC

Here's an email I recently received from a reader:

My wife and I own 2 rental properties.  Both homes were our primary residences before we were married and we have mortgages on both properties.  She lived in a one bedroom condo in a popular, very walkable neighborhood and when we married in 2010, she moved in to my home which is a 3BR 2BA home in a first ring suburb.  We immediately rented her condo and despite being unable to cash flow the property, it has gone well and we are very likely underwater on this property so I suspect renting it out is far preferable to selling right now.  This year, we moved into a new home to raise our family in an outer suburb and we've rented out the previous home.  This is cash flow positive by quite a bit and we're doing very well with it so far.  When I bought this home 8 years ago, it had always been my intention to rent it when I left though I didn't anticipate living there 8 years.

I viewed our relative risk on the condo as limited.  There are immediate neighbors and an association and the type of tenants have been young professionals or graduate students.  I view the risk on the home as much greater as my applicants tended to have poor credit and were walking a bit of a tightrope financially.  In addition, this is a single family home so they have more privacy if they were into nefarious doings (We did do a relatively thorough background check to avoid such a circumstance).

In the past, I'd looked at forming an LLC to protect my personal assets in the event something went wrong in this process.  At the time, we were only renting the condo and the biggest risk I really saw was our inability to cover the mortgage if we had a long vacancy.  We never went down that path because the mortgage was in my wife's name and we could come up with no scenario where a bank would let us transfer the debt to an LLC because the only reason we'd want to do that would be risk of default.  Furthermore, our assets were somewhat limited so we didn't take the discussion further.  Since we now have a second property, greater risk IMHO, and more personal assets, I would like to reconsider this.

I've spoken to a financial advisor and he suggested creating the LLC, leasing our properties to the LLC and then creating all of the leases with our tenants through the LLC so that if we have issues with tenants or face a lawsuit, only the LLC would be at risk. 

My question is this:  Have any of you done this?  Is this reasonable or is there a better way?  Does this even alleviate my concerns from a legal standpoint (obviously I'm not avoiding the default risk, but that is far less of a concern these days than when we were first married)?  Lastly, would I need to have something drawn up by a lawyer or can I find a lease between myself and the LLC for free on the web?

What's your advice for him?

Help a Reader: Need Cash

Here's an email I recently received from a reader:

I need to see how everyone would proceed in the following situation:

• I’m 27
• I make around $85k from my regular job
• I own a side business with my business partner investing in rentals and real estate (relatively new, but want it to become more serious)
• I own a rental house that cash flows around $1k per month.
• Home value is around $210k, owe $140k on loan
• I have a variety of accounts setup 401k, IRA, taxable, savings, checking (401k value - $65k; Roth IRA value - $30k; Taxable investment account value - $40k; Checking/Savings value - $13)

Here is my dilemma.  We recently purchased some land at a significant discount.  When I say significant, I mean cents on the dollar.  We got lucky and ended up with a buildable lot with limited cost.  The plan is to build on the lot and sell the home.  We will require roughly $140k for the construction.  Neither of us want to go get a loan for the construction and would rather do it all in cash.  As you can see by the outline above, I would need to pull from a number of sources to come up with my half of the cost.  We stand to make around $100k total when the house sells, assuming all goes as planned.
 
With that being said, I know taking loans against your 401k is typically never a good idea.  I really don’t want to cash out my taxable account and take a loan against my 401k, but given that it would only be for a short window of time, I am really considering this option.  Is this a viable route or am I missing something that could potentially come back to bite me?
 
Open to any and all suggestions.  Help me out.

What's your advice for him?

Help a Reader: 401k vs. Roth

Here's an email I recently received from a reader:

My company just announced a series of changes they are making to our benefits, including our 401(k) plan. Currently, they match $0.50 on the dollar up to 3% of your annual salary (so, if you contribute 6%, they kick in 3%), and they do this with every paycheck. They are now changing this from contributing every paycheck to only contributing once in a lump sum at the end of the year. The amount stays the same, but the timing changes, so I feel like I will be losing out on any gains I may make during the year. (In addition, if you leave the company prior to the end of the year, you forfeit the match for the year.)

I had been contributing 8% of my salary to the 401(k), with an automatic 1% yearly increase. I don't currently have a Roth IRA, but had planned to start one this year. My question is whether the matching contribution change makes it more attractive for me to put more money into the Roth and just put enough into the 401(k) to get the full match, or, since I already have a fair amount in the 401(k), should I continue to increase my contributions to that and just put what I can into the Roth?

What's your advice for him?

Help a Reader: Anniversary Challenge

Here's an email I recently received from a reader:

I am writing you with a simple example of a goal but also a challenge for suggestions. As a long time reader of FMF I now believe in setting a goal. (Thank you, FMF) This goal is to do something for our 25th wedding anniversary. In June we will celebrate our 23 wedding anniversary. Friend's of ours will be celebrating their 25th this year. They are doing nothing because they will have two in college and you can guess the rest. Money is tight for them. Blah. Blah. Blah.
 
I do not want this to happen to me. I want to do something for our 25th that will be nice but not extravagant. So I have set up a separate online account and will transfer $25 from my pay and $25 from my wife's pay for the next 25 months. So the next 25 months worth of  savings would yield around $2700. To help this out even more I am taking my money set aside for emergencies/college/escrow/car insurance and putting the interest toward that account. So roughly another $20 a month or so. We are looking at $3000 to $3500 for this 25th anniversary vacation. And who knows, I might be able to pull some more money from somewhere but not much.
 
Now for the challenge.
 
Where can I go for $3000 (and having a little fun money of $500) knowing full well that I will have two young men in college and the costs associated with that and I just want to be with just me and my wife?
 
FYI Where I have been:
 
I have been on three cruises. I have been on an Alaskan cruise for our honeymoon, the Disney cruise with our kids and a Carnival cruise for my in-laws 50th wedding anniversary. I am done with cruises.

I do not like crowds so big cities like New York, Chicago, and Los Angeles are out. I have been there for work and do not like them.

I would prefer to stay in the USA but the Caribbean might be OK. Definitely not Jamaica. I have been there on the last cruise and that was worse than Detroit and I live in the Detroit area.

We have been to Disney World three times with the kids and WE ALL LOVED IT however I want something new.  We also went to Paramount one time when we were at Disney and loved that also.

We love amusement parks but our 50 year old bodies are telling us we just can't do that high adventure anymore.

We love fine dining but are not into gambling.

I also love being unplugged and having a picturesque sunset to look at and a whole lot of nothing to do. My wife could go either way. 

My wife is a teacher so it would have to be during the summer and I do not like excessive heat or humidity. My wife is getting the same way. Since we live in Michigan, travel by plane/car/whatever would have to be included.
 
So I am open for suggestions from your readers.

What's your advice for him?

Help a Reader: Blended Family Life Insurance

Here's an email I recently received from a reader:

I am divorced and about 6 years ago I bought a 20 yr term life ins. policy for my son (now 17) so I would have something to leave him if I died unexpectedly. 

I just re-married and my wife and I are shopping life ins.  She has 3 grown children and 1 age 14.  I want to keep that policy for my son, solely for him.  He has been diabetic for 12 years so he could have medical costs, also he is planning on medical school. 

I don't want to appear to play favorites, but her family has inheritance money that she will get someday.  Not knowing if my son will be included or taken care of fairly, I want to make sure I leave my son something. 

How do I approach this sensitive topic with logic and yet not appearing unfair or selfish?

What's your advice for him?

Help a Reader: How Much Life Insurance to Buy

Here's an email I recently received from a reader:

How much life insurance do my wife and I need?

My spouse and I are in our mid-50s, we both own our own businesses.  Currently, my wife’s business throw’s off about $250k, mine about $50k, total income~$300k.  This should remain steady for the next 10 years, anyway.  We are in the healthcare industry, not medical people (i.e., MDs)  but niche service providers to private industry.

We started our family of 3 boys late in life, our first born when we were ~ 39 years old and our last ~ 47 years old.

Assets:

• Liquid non-qualified (cash, stocks, mutual funds): $238K
• Liquid qualified (IRA, 401k, HSA): $456k
• Real Estate home: $500k    
• Real Estate other rentals, offices: $1,300,000

Debts:

• Home Mortgage: $325k
• Real Estate Rental (residential): $236k
• No other debts.

FMV of businesses NOT included above.

I currently have $1,000,000 term policy, due to renew next month….thinking about 20 year term, same amount. My wife currently has $1,500,000 term, due to renew next month…thinking about 20 year term, plus a boost to $2,000,000 from $1,500,000.

Question is how much should we insure for?

We don’t see retiring for at least another 20 years as we prefer, at this time,  to stay active and work in our businesses.

College funding is up in the air, it is not certain whether our kids will even go to college or not, therefore, we have chosen not to establish any 529 plans, I am not sure these are great savings vehicles anyway given our investment preference to real estate.

If I were to kick before 20 years, a majority of the proceeds would likely be “rocking chair” money, i.e., generating passive income.

If my wife goes before 20 years, that is a different matter for the following reasons: 

• The business is well established, yet, she is the face of the business.
• Having said that, we are beginning to, FINALLY, get a really good management team in place that will allow the business to grow and groom some younger people to start taking a more active leadership role that will ultimately help in succession planning.   Our kids are still too young and it is more likely than not that they will have little interest in the business, (although, you never know!) due to the technical nature.  Although, it really boils down to excellent management/customer service skills, the technical side is a plus….but alone would be a bust.
• The business is well diversified, i.e., no customer makes up more than 10% of revenue.

Does the guideline of insuring for ten times income still apply?  What else should we consider when setting the amount and term for life insurance -- especially on my wife. I thought that perhaps I should “ladder” my wife’s insurance, say start with 4 separate $500k policies and then let $500k expire every 5 years?  With the thought that every 5 years that passes our own assets continue to grow as well as my wife’s business becomes more independent of her skills and knowledge by bringing up younger people and advancing them to higher leadership roles.

What's your advice for him?

Help a Reader: When to Buy a Car

Here's an email I recently received from a reader:

When is the right time to buy a new(er) car?

I currently drive a 2000 BMW 323i with 125,000 miles. I am getting frustrated with spending $1500-2000 a year for maintenance and repairs on a car with a KBB value of ~$5000. I need help deciding if it is time to buy a newer and more reliable car. I will graduate college in a year with an engineering degree and $25,000 in student loan debt. I have worked hard and kept a good GPA and currently have a part time internship that pays $19.25 / hr + overtime. My job will allow me to make car payments and a decent down payment on a used car. I will also soon be receiving a large tax refund and backpay from a raise I recently received.

Please advise me on what I should do.

What's your advice for him?

Help a Reader: Can We Retire?

Here's an email I recently received from a reader:

I want to know if we're anywhere CLOSE to being able to retire comfortably.
 
Here's our story:

Spouse and I are in our mid-50's.  We've got no debt - except our mortgage.  Our mortgage is at $130,000 - 15 year fixed at 3.25%.  We're planning on paying that off in the next 3 years by throwing $4000/month at it.  We're just going to suck it up and get it done. (The house has been appraised at $375,000).
 
Our take home pay is $6600/month - that's after health ins/taxes/investment $ comes out of our checks.  We've got $650,000 in 401(k)'s, a 3 month emergency fund and $20,000 in easily accessible savings accounts.  Spouse makes $116,000 gross a year and I make $50,000 a year.  She wants to retire in 3 years (just as soon as the house is paid off). 

The kids are grown and educated (debt-free) although the youngest wants to go on for his masters and doctorate degrees - out of state - so we will be helping him with day to day living expenses (although his tuition is going to be on his own dime).  He should be finished with these degrees in 4 1/2 years.  We'll probably be sending him $12,000 a year.
 
Are we even close to being able to retire?  We'd like to travel a bit, but mostly want to ensure that we will never be a burden on anyone (parents/grandparents on both sides lived into their 90's and needed a lot of assistance - parkinson's/alzheimer's etc).
 
Thanks for any insight you may be able to offer.

What's your advice for him?

Help a Reader: What to Do with $250k

Here's an email I recently received from a reader:

My spouse and I are 38 yrs old and make about $250K-300K per year.  We are very, very fortunate!  Have two kids under age 5.

Here is our situation:

• We max out 401(k)s (currently have about $700K in non-taxable savings for retirement)
• Can't fund a Roth (although we have about $40K in them from when we could)
• We save about $5K a year in 529s amongst both kids (I fund the 529s enough to take full advantage of the state tax credit for IN)
• Our only debt is a $285K mortgage at 4.5% for 30 years
• We have a brokerage account with $45K invested amongst 3 long term stock holdings (KO, GE, and AAPL)
• We have $255K sitting in a savings account- you could call this our emergency fund, but it's getting a little to big.  We both have very stable jobs in the health-care industry, so one year of funds is a little much I think.

We have been very fortunate and diligent to amass this amount of savings.  I would like some advice on what to do with the $255K in savings that we have.  My risk tolerance could be considered moderate, but I'm reluctant right now to put money into stocks with the market at 5 year highs (though I have made about $10K trading with some of this money over the past two years).  Bonds make me a little nervous right now with interest rates left to go nowhere but up. 

The savings account earns a measly 0.4%.  If we were closer to the kids going to college or retirement, then I wouldn't be too worried- but we have a lot of time for this money to grow before we need it! 

Any ideas out there on how your readers would put this money to work (if at all) if they were in our situation?

What's your advice for him?

Help a Reader: How to Invest

Here's an email I recently received from a reader:

I am 31 and my wife is 30. We have a 1.5 year old son. We have no debt and are currently renting an apartment. We live in Orange County, CA. I am gainfully employed and my wife is a stay-at-home mother to our son and will continue to be so until we are done having children and they are older. I am in the software development industry and don't foresee being unemployed any time soon. We would like to purchase a home in Orange County in the next 3 years. I would like to pay 20% down and avoid PMI if at all possible.

My question is whether I should continue to keep my normal investments (all mutual funds) or sell all or part of them to up my retirement investments or general savings. I'm currently not adding anything additional to them and only to my retirement and 529 accounts. The mutual funds were opened around 2004-2005. They were of course doing really well until the market crashed.

I'd like to not give all the financials as this isn't a profile post. I will mention that on a normal month, ~$415 is for Roth IRA, $100 is for 529, and $300-700 is saved depending on my programming side income.

Current stats:

• General savings: ~$44K (after we receive our expected tax refund...still waiting on all the forms to arrive in the mail)
• Non-retirement mutual funds: ~$41K
• Roth IRA: $17
• Rollover IRA: $19K (2 previous employers)
• 401K: $2K (only employed 6 months)
• Lending Club: $3K
• 529: $3K

Work specifics:

• 401K: 25% match up to 6% for a total of 7.5%
• employee stock matching: I can contribute 15% yearly and 33% of that is matched 1 year later (ie: $1000 in a single year invested after 1 year gets $333 free). I am free to sell the stock after it hits the account immediately and that is exactly what I am doing now.

Possible choices:

1. Do nothing and keep adding money to my retirement/529 accounts. I have not yet opened a Roth IRA account for my wife.

2. Sell all of the non-retirement funds (market is rather high now) and add $40K to my general savings. Houses in decent areas are near $400K thus requiring a large down payment. My wife is putting the pressure on me to get a place before my 1.5 year old is in kindergarten.

3. Sell all of my non-retirement funds and put part into my savings and part into a Roth IRA for my wife. I guess I technically have until April 15th to open one for her to have it apply to 2012.

4. Sell some of the funds but not all of them. I like the idea of having money in the market that is somewhat liquid, although since putting it in around 2005, I have not touched it at all. I don't see a need in the future to touch it and the initial thought was that I'd keep it in there for retirement, but I'd rather not have to pay the capital gains taxes year after year, albeit small.

There are obviously many different scenarios, but those are the first 4 that come to my head. My primary reason for asking for advice is that the market seems to be up at a point that I've never seen before and this might be a good point to dump some of those mutual funds that I've held onto for a long time and put the money elsewhere.

Suggestions?

What's your advice for him?

Help a Reader: What to Do with Savings

Here's an email I recently received from a reader:

I am 29 with a husband and a newborn. We have never had extra money and generally live paycheck to paycheck. We have worked hard on living frugally in anticipation for me going from full time to part time work after my son was born.

We exceeded our goals and finally have a $20,000 savings and I am nervous as to what to do with it: start retirement account (husband is a pastor, I am a teacher, both with no retirement benefits), pay down mortgage debt (85,000, 5%) or student loans (20,000, 3%), invest, or put money in 529 college savings for our son? I am really just lost. Any book recommendations or advice is appreciated.

What is your advice for her?

Help a Reader: Withdraw 401k to Pay off Debts?

Here's an email I recently received from a reader:

My budget is really tight and despite slashing costs as much as possible, I still find myself gradually seeping further and further into debt each month by a couple $100s. Which of course is bad in itself but if there is a large unexpected expense, it will put me further in the hole.

My current debt situation:

• Lending Club - Monthly Payment: $368, Interest Rate: 7%, Outstanding Balance: $5,019
• Credit Card - Monthly Payment: $100-$200, Interest Rate: 16%, Outstanding Balance: $3,500
• Student Loan - Monthly Payment: $272, Interest Rate: 7%, Outstanding Balance: $23,049
• Car Loan - Monthly Payment: $1834, Interest Rate: 2%, Outstanding Balance: $5,500
• Total - Monthly Payment: $924-1,024, Outstanding Balance: $37,069

I changed jobs last year so I don't see myself getting a new job (and a raise) anytime soon, have tried starting a side business for the last two years (with not much success yet) and am starting to grasp at straws. I have considered taking out the 401k money from my previous job ($21,000) to pay off some of the debts and increase my cash flow. After taxes and the penalty the amount would be around $12,500-$13,000. I could pay off the credit card debt, lending club loans, and almost all of the car loan, and be left with an additional $650-750 cash flow per month for wiggle room.

What do you think? Is this a good strategy?

Some more information about me:

• I am in my early 30s and live in a suburb of Washington, DC. I rent a two bedroom apartment with my wife and daughter. Our rent includes utilities ($1,655) and is on the mid-to-low end for the DC area...
• I work full-time and my wife works part-time watching another child in addition to our daughter.

Below is what we have earned and spent on a monthly basis in 2012. One thing that will probably jump out to you is the $1,000 a month for church donations. That is tithing and other donations. Right now that is not on the table for possible cuts.

Thanks for your help!

MONTHLY INCOME - $6,200

FIXED EXPENSES

• Rent & Utilities - $1,655
• Auto Insurance - $61
• Internet - $38
• Phones - $125
• Debt Repayment - $824
• Interest Payments (when credit cards get out of hand) - $35
• Donations to Church - $1,000
• Daughter's College fund - $50
• Gym & Fitness (2 adults+childcare+random races) - $120

TOTAL FIXED EXPENSES - $3,908

VARIABLE EXPENSES

• Food - Groceries - $680
• Food - Eating Out - $165
• Gas - $180
• Car (oil changes/repairs) - $144
• Business (web design, video production - $230
• Entertainment/Dates - $85
• Gifts - $155
• Clothing - $235
• Travel/Transportation - $74
• Parking/Tickets/Tolls - $54
• Home Supplies - $260
• Shopping/Target - $440
• Personal Care - $40
• Medical - $5
• Crafts - $40
• Postage - $25
• Misc - $135

TOTAL VARIABLE EXPENSES - $2,947

TOTAL EXPENSES - $6,855

NET - $-655

What's your advice for him?

Help a Reader: Couple Managing Money

Here's a comment/question left recently on my post titled Marriage and Money: How to Split Up the Money and Bills:

I am in a committed relationship (not married yet, but engaged, got the ring :)) and we are currently living together. I have lived with people before (and usually took care of the bills) but he has never lived with anyone before (I'm 35, he's 33).

Right now I have the 'steady' income (unless I miss work, I'm hourly) .. menaing I make a pre-determined amount every bi-weekly.

My fiance works on commission. He (as a general rule) does generally bring home triple what I make, and he also gets paid weekly, (so nice) .. BUT .. there are weeks when his business is slow that he may end up bringing home lot less. His checks can range anywhere from $200 (lowest so far) all the way up to $1900 (highest so far) per week.

When we moved in together, knowing I made the steady income (and he was new at his job), I set the bills up as follows:

• I pay all the utilities, half of our house(+HO ins/prop taxes) payment (we just bought a house), and the bills I brought into the relationship.


• He pays half the house(+ HO ins/prop taxes) payment, the bills be brought into the relationship, and our groceries.


• After the bills are paid (by whoever they fall on according to the rules set above), the agreement was that should I (or he) need anything, or we need anything for the house he would pay for it (since he basically has all the 'extra' income sitting in his bank account, since 90% of my income is tied up with utilities and house note).


• He is also responsible for alloting part of each paycheck (if allowable, obviously if he makes $200 it's not feasible) into a savings account; so that in the occurance that either of us get sick (since neither are salary) that we still have money to cover the monthly bills .. or if we want to buy something large (like our new TV).

The problem lies not with me, but lately with him. We made the agreement that should I need to purchase something that I could (within reason of course) make the puchase .. lately though, he has been giving me grief about it.

He has basically been trying to micro-manage my spending. He has online banking and after going to the store on one trip, them over charging me then having reverse the charge and re-charge me .. he called me (about 15 minutes later) wanting to know what I was spending money on .. meaning .. he was literally on his phone watching what I was doing as I was doing it (he has online banking).

Basically I now feel like I have to 'ask permission' in order to spend something, then I also feel the need to justify my expenditures once I make them. I don't think I should have to feel this way.

I thought this setup was working until this happened. Now, since this happened(knowing that he was/has been 'watching over my shoulder' while I was out with 'his' debit card) he is completely freaking out about the money situation, and I am seriously re-considering the way that we have things set up.

He offered to give me $150/week to spend, gave it to me .. then hounded me everyday about how much of it I had already spent and constantly asking what I spent it on; although I never question him about his daily spending habits, I honestly don't care .. we make enough money (between us) to be able to buy what we want.

He honestly acts like we are destitute sometimes, and that too is driving me/us bonkers. He also, IMO, trys to put too much into savings at a time; which is why it seems like to him we are always 'out of money'.

I came online, and here, looking for a logical way to split up our bills (since the way I had it set up seems to be failing miserably and causing our relationship uneeded stress) .. so that he isn't always upset because I'm spending money (admitedly, I do go to the store fairly often, buying this and that as we need it), and me getting upset in return; because I don't have any money to spend (the monthly bills I pay take almost all of what I make) and will always have to 'ask' him for it and feel the need to justify why I'm asking (which I never thought would be an issue until he made it an issue).

So I guess my question is .. does anyone have any ideas on how to relieve some pressure on this situation?

Also, what is a good % to put into saving monthly (on average)? So that he isn't stressing himself out (and in return me) about how much he should or shouldnt' be putting away.

What's your advice for her?

Help a Reader: To Convert or Not

Here's an email I recently received from a reader:

I am 29 years old, single and plan to get married in the next couple of years.  I currently have about $110k in my Roth IRA and just shy of $40k in a SEP-IRA.  My question is, later this year my boss will likely cut me a SEP check for about $20k, should I convert that $60k (or a lesser amount) to my Roth?

Obviously I would have to pay taxes in April on this – about 20% of the amount I convert – but do you think it makes sense long-term?

I have done a pretty good job of saving but my ultimate goal is retire in my 50s so if I have to pay a little more out of pocket now then it may be worth it, right?  My dad disagrees and says, "why pay taxes now if you don't have to..."

I have the cash on hand to cover the conversion and I will still have some emergency money but I just want to be sure this is the best financial move for me.  I was just reading that it could get more expensive for these conversions in the future....other things to consider include uncertainty of future tax rates, future value of my portfolio, etc.

What's your advice for him?

Help a Reader: Networking with Executives

I recently received the following email from a reader:

I would like advice on networking at the executive level.  I am at a point in my career where I am getting interest from lower level executives at my company.  I am certainly several steps away from their positions, but I would like to build the relationships into mentoring relationships.  I have met these people for lunch and gotten time on their calendars.  One has agreed to mentor me.  I would like to build the relationships, but am unsure how to pursue.   They are far removed from mentoring relationships that I have built with others and used to understand behind the scenes issues, seek out suggestions when dealing with difficult people, job frustrations, etc.

These are people who have shown interest in me first, for the most part.  They are not viewing my activities day to day, at most they see me quarterly.

What is appropriate here?  How do you break the corporate polish exterior and make a personal connection?  What level of mentoring should one seek out from people in these positions?

What are your suggestions for her?

Help a Reader: Scholarship and 529

A few years ago I wrote What to Do with 529 Money If Your Child Gets a Scholarship. Well, a reader has had this situation happen to them and recently left this comment:

My daughter did receive a full ride scholarship and I have a 529 plan for her (books are the only expense we pay for). Should I take out the amount from her 529 each year for that year's scholarship portion and invest elsewhere for her? I wanted her to be able to use this for a house after college. She might continue with more college after her 4 year scholarship but I don't expect more than 1 year. I feel the penalty for taking it out because of her scholarship is a bit crazy but that's our government. Would appreciate your advice on this.

What are your suggestions for her?

Help a Reader: To Refinance or Not Refinance?

I recently received this email from a reader:

I have about $12k left in a student loan (projected pay off July 2013). I'm currently investing $0 in retirement (Dave Ramsey Plan), but will be contributing what I'm currently contributing to pay off my debt when I pay off my debt. My current home loan is 3.875%/20 years (only 6 months in, refinanced earlier this year), with a balance of 153k.

I squeezed $100 out of my budget this month, and given the current mortgage rates, I'm at a dilemma.

I can currently get refinanced to 2.75%/15 year, that would cost about $100 extra per month, but add about an extra $100 in equity per month, for a given difference of about 13k extra in equity over 5 years.

Should I put the extra $100 in my debt repayment, and then eventually into retirement; or put the $100 into my house equity via the refinance?

• Note 1: I do have an emergency fund (about 30k), and have some retirement (about 30k).


• Note 2: Re the refinance, the closing costs would be about $900, thus the total cost over 5 years (including closing costs, and extra payments), would be about 7k, but I would have about 13k more in equity. The way I view it is I'm spending 7k to get 6k in returns, almost doubling my money.


• Note 3: Re my student loan, it is at the typical 6% interest rate, but I'm projected to pay it off in about 9 months, so they extra $900 ($100 per month over 9 months) towards it wouldn't make too much of a difference in the long run (e.g., pay the debt 1 month faster)


• Note 4: I'm really reluctant to pay down my student loan with my e-fund. I really like the e-fund in place, and by not using it, it forces me to pay down my debt faster.


• Note 5: The only reason I'm considering refinancing is how low the mortgage rates have gotten. 3 years ago (when I bought the house), I got a 5.875%/30; refinance 6 months ago to a 3.875%/20; and now I can get a 2.75%/15. In theory, I would like to refinance after I pay off my debt, but the driving force is i) how low the rate is now and ii) what will the rates be in 2013 when I project to pay off my debts.

What is your advice for him?

Help a Reader: Where to Meet Solid Money Management Mates

Here's an email I recently received from a reader:

A close female friend to our family (to point of being our child's guardian) is a level-headed, sensible, focused MBA. She is 38, single, has no kids, and is still looking for "Mr. Right".

The dating scene is focused on glitz and not substance, and this lady is substance -- but still cute to boot (I realize this statement contradicts itself, but people are people). Her parents have been married for over 40 years, practical "millionaire next door type" father, and a devoted and smart mother. She is busy in her career but not too busy for the right person. So, the issue is, "Where do you and your readers think the best place is in this current day and age to meet a practical person, someone with their financial and life goals in focus and on an upward trajectory?"

As marriage and divorce are IMMENSE financial issues along with emotional issues, meeting the right person (rich, in the middle, or poor) with the right mindset for life growth is an imperative for financial AND emotional happiness. So, any ideas? Does Dave Ramsey have a "singles group":)?

What are your suggestions?

Help a Reader: Repaying Debt

Here's an email I recently received from a reader:

I have finally gotten my fiancé on board with paying off debt. He is currently paying off all of his credit cards and it will be done before we are married next year. However I am not sure how to proceed after that. Here are the remaining debts:

• $20k Car loan at 3.9%, $415 payment
• $34k Student loan at 7.34%
• $6k Student loan at 6.6%
• $27k Student loan at 5%

He wants to focus on paying off his car first in order to free up the large monthly payment. I am more comfortable tackling the student loans with the highest interest rate. Any advice on how to proceed?

Here is some info in case its relevant:

• We are currently well over the max interest tax deduction of $2500 so paying off some student loans won’t affect taxes initially.


• We should have $2-2.5K available to pay off debt each month I know I will get some backlash for this one but selling the car is not an option unless you can fly down to Texas and convince him to give it up.

What's your advice for her?

Help a Reader: Caribbean Trip

Me again. FMF. I need more vacation planning help for those of you who are more well-travelled.

As you probably know, we took a Caribbean cruise last January and had a blast. This winter we would like to return, but have some questions. This is where you can help.

The first question is whether we take a cruise or simply go to one island. Cruising is (generally) more expensive, but you get to see and experience several islands. However, those experiences are only for a few hours each day. Cruises also have a lot of activities going on so even while you are traveling from place to place you can relax and have fun -- there's always something to do.

If you go to one island, you can really get to know it, the people, the food, etc. You can get there, relax for a week, and not have to worry about where you are on any given day. That said, you are in the same place every day -- that could be boring. How many times can you spend all day at the same beach and still be having fun?

If we pick the cruise, we don't need a lot of extra advice because we've been there/done that and know what we would and wouldn't like. But if we decide on a single island, we have a new question: which island?

The ones we liked best on our cruise were St. Maarten, Barbados, and Antigua. Do we go to one of these or another island? Anyone been to one of these islands or another Caribbean island they can completely recommend? I'd especially like hearing from those of you who were on the same island for several days (what you did, etc.)

Finally, if we pick an island, we have to decide on accommodations. Do we go with an all-inclusive resort or do we rent a beach condo on our own and find our own way? Both have pros and cons, and I'd love to hear from people on both sides of the issue.

To recap, the questions are:

• Cruise or one island?


• If one island, which one?


• If one island, what sort of accommodations?

Leave your suggestions below. Thanks for your help!  

Help a Reader: Money Advice

Here's an email I recently received from a reader:

I am a stay at home mother of two children (3 years, 8 months) in charge of the finances brought in from my husband's income as well as a side gig of online sales.  I feel as if I have hit a brick wall in my financial quest. With so much information readily available for the seasoned investor, I feel lost on where to go next.

Currently, my husband contributes his 401k match, with intentions to go from the 4.5% to an additional 6% (we have heard time and time again the golden rule is 15%) once we are out of debt. On paper, that should be reached in less than 12 months.  We have a modest emergency fund that will cover 3 almost 4 months of expenses. We stopped saving to now throw all extra money at debt, with the plan to save more once our highest interest rate debt is killed off.

I have made calls to hit dead ends- I have nowhere near the minimums required or I am told blanket statements such as "I wish I was thinking about retirement at your age. (23)"  Not once have I been given a suggestion on what to aim for or how to get there. Maybe I am asking the wrong things? When I do return to work, I would like to make the most of the two incomes.

Where is someone like me to go for that advice when friends, neighbors and most of our family don't have ahold of their own finances?  Where can I go to learn more about investing, aside from 'the difference between a traditional/roth ira' and other basics, and what would make the most sense for a younger investor? I love the reader profiles, and often want to ask how each one got their start outside of an employer sponsored account, but with two small children even this email is hard.

Is there a company out there to help the little guy like me, who isn’t financially ready for additional investing but wants to know more and not rush in blind? Or is it all up to me to find the answers, while I nurse the baby, for 15 minutes at a time?

What's your advice for her?

Help a Reader: Saving for Retirement

Here's an email I recently received from a reader:

I am struggling to determine the best way to save for retirement now that our income level and earning vs. spending gap are large enough that I am hitting the ceiling of common tax-advantaged savings vehicles. Yes, I realize this is a good problem to have. I have searched around for advice but found little that has helped me figure out the best way to proceed.

My wife and I are both 29, and by working hard to grow our careers we have increased our income significantly over the past couple years to around $210k (before bonuses). We live in a city in the midwest with a low/moderate cost of living, and as such have been fortunate enough to afford a comfortable lifestyle while getting more aggressive with our savings as our income has increased.

I receive a 5% 401(k) match from my company, and my wife receives a profit-sharing bonus each year that goes into her 401(k) which is also around 5%. After recently paying off some debt, I bumped up our 401(k) contributions to a total of 20% of our salaries. This is when I discovered that we will exceed the maximum pre-tax contribution limit ($17,000 per person, as I understand it, for 2012). We can continue putting money in, up to $50,000 per person per year, but it will be taxed after $17,000.

So the question is, what should I do now? It appears that Roth IRAs are off the table because of our income, so I'm looking at a traditional IRA, but since we're both covered by employer 401(k)s and our income is at a certain level it appears I can't deduct contributions to a traditional IRA. I'm thinking of several possible directions but get more confused the more I research:

1. Contribute max pre-tax ($34,000 per year total) into the 401(k)s, then invest in a traditional IRA up to $5,000 (contributions will not be tax deductible), then go back to putting the rest in the 401(k) even though contributions will be taxed

2. Forget the IRA, and continue contributing to our 401(k) plans until we hit the max $100k/year even though the contributions will be taxed after $34k/year

3. Max pre-tax 401(k), (maybe max the IRA?), and then find a new vehicle for the rest...is this what a Roth 401(k) is for? Other advice?

I don't know if it's relevant, but I also currently shunt around 10% monthly post-tax income into a savings account and another 10% into a series of Vanguard index funds and bonds. I'm considering a financial planner to help us sort this out, but wanted to see what the astute FMF readers could offer first. Thanks!

What's your advice for him?

Help a Reader: What to Do with a House

Here's an email I recently received from a reader:

I am married, we are in our mid-30s, and live in the northeast.
 
I purchased a small home in late 2006, right around the peak of home prices.  We now have a baby on the way, and our home is going to get much tighter very quickly.
 
We’d like to take advantage of lower house prices / low interest rates, and purchase something we can grow into in a nice neighborhood.
 
Here is the dilemma: My home (like so many others) is worth less than my mortgage. I owe $146K, and according to local realtors and sites like Zillow.com, the house is probably worth $135K right now.
 
I feel like I have a few options:
 
1. Rent my current house and try to break even until prices come back. Could be many years. (I qualify for a HARP program to refinance that will bring my total payment down to $1,300/mo, which is just about what I can rent it for)

2. Sell my current house at most likely a $15K - $18K loss after debt repayment and Realtor commissions. (Not a great option since I need cash for a down payment on new house)

3. Stay where we are for the time being.

We are in good shape financially and have stable jobs.

The way I see it, option #1 (renting) would not take a lot of cash out of my pocket today, but could over the course of a few years through maintenance, potential rental income loss, etc. I would also assume an overhaul would be needed to sell after renters being in there. However a rebound in prices over the next several years could bring the value back up above what I owe.

In option #2 (selling), I could try and list it for what I owe and hope I get lucky, or take a fairly substantial hit in savings which I need for a down payment.

I have money invested in stocks, bonds, preferreds, etc. that I would like to not touch if possible.
 
Any advice would be greatly appreciated!

What's your advice for him?

Help a Reader: Getting a Grad Degree

Here's an email I recently received from a reader:

I am 23 years old. I live with my parents in New Jersey at the moment, looking to move in with a friend sometime in late 2013- early 2014, probably into Manhattan ($1,300 month in rent. I recently graduated from undergrad-college, and have a very reliable steady job making ~$70,000 a year. I spend ~$1,100 a month in personal expenses.

I am fairly anal about spending.  I try to live below my means.  I have ~3,000 in my ROTH 401k, 10K in my IRA, and 25k in a personal investment portfolio (diversified, doing very well, and about 9k in savings. I have no debt, but my parents are paying my student loans and I would love to help them out - they are 70k.  I have a credit score of 740.

My burning question is I just got accepted into a 50k master’s program and I can most likely get student loans at around 4%. Should I sell my personal investment portfolio and pay off the tuition immediately? Should I continue to invest and just pay off the interest on the loans and make the minimum payment? When do I make the decision to pay off more than the minimum payment?

What's your advice for him?

Help a Reader: What to Do with a Windfall

Here's an email I recently received from a reader:

I would love some advice about what to do with a $20,000 windfall. My wife's grandpa died, and we are getting $20,000. I'd love some input on what's the best thing to do with it.

No credit card debt, and we have enough of an emergency fund (though I'm not against setting more aside). 10% will be paid as tithing.

Debts

Student Loans

• $1,899.59 @ 6.3% ($42.36/month)
• $3,350.04 @ 5.55% ($56.28/month)

Mortgage

• $94,402.92 @ 4.875% ($842.66/month)
• Includes PMI of $51.15/month. We currently have a loan-to-value ratio of 85.8%. The value of the house is estimated to be $110,000.

The Complication

I'm going to grad school this fall and was planning on taking out student loans to cover tuition (I'll cover books and other expenses from my salary). Tuition is $14000/year. My program will take 3 years.

Subsidized student loan rates are currently between 5% and 6.8%. I won't know what rates I can get until late July/August.

Is it better to get out from under PMI and the current student loans, or keep paying them and only need to borrow for tuition for 2 of my 3 years? Is there something else I should be considering doing with the money?

What is your advice for him?

Help a Reader: Where to Keep Emergency Fund Dollars

Here's an email I recently received from a reader. It was in response to comments left on my post titled How is Your Emergency Fund Doing?:

I have an emergency fund that is composed of $3,000 in a rather low interest bearing account. (Small emergency) I have $6,000 in an on line savings account earning 0.85%. (bigger emergency) Then I have $12,000 in CD's that mature each month that are worth $1,000 each. A ladder of CD that earns around 1.25% but getting harder to achieve that with each passing month. I also have $6,000 in Vanguard short term bond fund which is about the safest Bond fund I know giving a current 2.47% rate. So grand total of $27K. My monthly expenses are in the neighborhood of $4,000 a month and my wife works full time and makes more than I do. We can live on one income. Hers or mine.
 
My point is that according to the posts of some people that they have $10k in a stock mutual fund, think that this is part of their emergency fund. Which I do not and I also think you do not. My only questionable part of my emergency fund is the short term bond fund. A little more risk for a little more reward.
 
So I pose the question: how do people have their emergency funds invested (where will they get their funds in an emergency)?

As I noted on that post, I am in line with this reader's thinking. To me, emergency fund money should be totally safe -- even if it earns a small amount. Other (non-emergency fund) money can be used for investing (to get the best possible return) and is handled completely differently (I invest it in index funds).

I look at emergency funds as needing to have two key factors: safety and access. In other words, is the money safe (will it be there if I need it) and can I get to it quickly? I store my emergency funds in places that answer "yes" to both these questions.

 As such, I have my funds spread through savings accounts, high-yield money market accounts, and CDs (which would be the last money I would need at the end of a long emergency.)  They are layered to maximize returns (though the returns are paltry) while also being available (in stages) should I need the money.

Yes, if I HAD to, I could sell some of my investments and turn them into cash. That said, I don't consider these emergency funds and I would not recommend anyone keeping their emergency money in investment vehicles like stock mutual funds. You never know when 1) you're going to need the money and 2) when the market will take a dip down. You'd hate to need $10k of emergency funds just when the market turned your $10k to $8k.

How about you? Where do you keep your emergency funds?

Help a Reader: Pay Off or Don't Pay Off?

Here's an email I recently received from a reader:

I have $21,000 in student loan debt that was consolidated in 2005 and is now sitting at a fixed rate of 1.625% for 20 years (original balance was close to $31,000).  The monthly payments equal $170. 

My question is, with such a low interest rate, does it make sense for me to try to pay it off early, or should I take the money that would go to pay it off and invest it or otherwise make principal payments on my mortgage?  I have no debt other than the student loan and a 30 year fixed mortgage that is at 4%.

What's your advice for him?

Help a Reader: Loan Repayment or Savings

Here's an email I recently received from a reader:

Recently, I've had some issues with choosing whether to repay my college debt aggressively OR pump money into a savings account.  I'll give a little bit of background that may be necessary. 

I'm 23 years old living at home so I do not have any rent expenses although I plan to move out towards the end of the year/beginning of 2013.  I have 10k saved in an online savings account with another 1k in a personal checking account.  I net roughly 3200 a month.  My total loan balance is about 55k.  Minimum payments to the different lenders are at 150, 258, 53, and 126 with rates at 7.8%, 6%, 5%, 5.5% respectively. 

After I reached 10k in my savings account, I stopped 'saving' and pumped about 1400 into the loan with the highest interest rate (this loan as a balance of about 10k) while paying the minimum payments on the rest.  My thinking was that if I could knock that loan out before I moved out it would be one less expense to worry about. 

Recently however I have been second guessing my choice.  I'm worried that if I do not continue to save money I won't be preparing effectively for some of my future goals.  I have just started to put money into my 401k but a very small amount. I'll be increasing the contribution once my company match kicks in.

Any thoughts would be much appreciated.

What's your advice for him?

Help a Reader: Investment Opportunity

I recently received this email from a reader:

I just finished a meeting about fixed index universal life insurance.  I have not heard of it before.  It has been around for about 12 years. 
 
How it works in my example: 

• 41 years old invests $6,000 a year for 25 years ($150,000 invested).


• At that time I start taking out $40,000 a year for life tax free.


• The investment never loses money and will not have more than a 17% gain in any one year. 


• On years that the stock market goes down, the investment earns 0%.

It would seem like this a good investment if I live to 70.
 
There has to be more to it.  I was wondering if the readers have heard of this and what would the downfall be?

What's your advice for him?

Help a Reader: Buying a House

Here's an email I recently received from a reader:

My husband and I are both in our late 20s. He has a masters in business and is currently working on getting his CPA. I work as an engineer. Together we make over $120K a year.

We have no school loans, credit card or car loans. We are very aggressive in our savings for retirement and between mutual funds and 401K have over $200K saved up that we never plan on touching until we are ready for retirement.

My question is we are looking to upgrade our house. Some good deals can be found in our area (Midwest) and we have owned our home for 5 years. It’s valued at ~130K and we have about $80K left on the mortgage.
Since we are (God willing) planning on starting a family in the next 2-3 years, what is realistic price range for buying a home? What should be the max range we are willing to spend? I don’t need a lavish 4,000 square foot house or anything. What size home is good for a hopefully large family? I grew up sharing a room, so kids are OK to bunk together.

How do people plan out their mortgage, knowing that kids are down the road and potentially my income could stop to raise a family? Although we could probably afford a down payment on a large house now, how will the upkeep and taxes change on a single income? When your readers were raising a family did you drastically change the amount you put away each month? Any advice would be helpful.

What's your advice for her?

Help a Reader: Growing a Career

Here's an email I recently received from a reader:

I have been in a purchasing/production management capacity for the past 5 years (my entire career is 8 years). I recently took a new production management position last year but I believe that my specific skill set, in commercial printing, will become relatively obsolete in my lifetime due to the digitization of print literature. So, while I am early in my career I would like to expand my skill set to allow me to work in various fields.  I am looking to obtain my CAPM (Certified Associate in Project Management) and then on to my CPIM (certified Professional in Inventory Management).  I believe that this investment of ~$2K to get the certificates will have a greater return on my career than just hard work alone.
 
I believe that the CAPM will allow me to further develop project methodologies and show potential employees that I can work on sound principals to work through projects, and the CPIM will help me develop better purchasing principals, supply chain understanding, etc.
 
My goal would be to land a supply chain position or some high level procurement position within a number of years (or right now!)
 
My question is, is it worth it?  Are these certificates what I need?  Are there others I should consider?

What's your advice for him?