海角大神

What鈥檚 inside? Here are the questions answered in today鈥檚 reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
Rent-to-own apartments and homes
Retire now or later?
Roth IRA for teenager
Managing money while traveling abroad
Life insurance misinformation
Moving forward in bad economy
Pay off line of credit?
Motivation to live, not exist
Painful breakup advice
Quitting alcohol addiction

Don鈥檛 look at Monday as a bad thing. Look at it as a good thing. If you go out and hit a home run today while everyone else has a big case of 鈥渢he Mondays,鈥� you鈥檒l really stand out.

What is the deal with 鈥渞ent to own鈥� apartments/houses? My husband and I have been weighing the rent vs. own situation for several months. How does rent to own fit in and what are the pros and cons?
- Rachael

Rent-to-own apartments and homes are similar to car leases. It鈥檚 basically a contract between a renter and a seller that the renter will have an option to buy the property at the end of the rental agreement.

Most of the time, the agreement specifies a buying price for the property up front, as well as applies some portion of the rent towards reducing that price. When the agreement ends, the renter has the option to buy the home at the adjusted price or walk away, leaving the owner with what amounts to a unoccupied rental.

The exact specifics depend heavily on the actual rent-to-own contract between the renter/buyer and the seller. They can vary quite a bit, but that鈥檚 the general idea behind them.

I am an employee of the federal government. I鈥檓 56 years old and have 32 years of service. I鈥檓 in the CSRS (Civil Service Retirement System). I am eligible for retirement based on my age (55 or higher) and years of service (30 or more). My organization recently offered an incentive program to retire ($25K). I acknowledged my interest in the incentive program. Now, they鈥檝e made the actual offer. I have about two weeks to accept or turn it down.

I make around $115K a year. In retirement, my annuity will be around $60K per year (pre-tax)鈥�that鈥檚 about 60% of my high three years鈥�which is a little less than the $115K. I could stay and continue to earn 2% more annuity for each year I stay. Or, I could accept the incentive and go to work for one of our contractors for about what I make today. That would help me to get to that debt free status in about 3 years.

Ashamedly, I have about $60K in credit card debt, $35K in home equity debt, and about $70K in mortgage debt. Yes, it鈥檚 ugly!

I鈥檇 really like to retire around 60 鈥� 62 years of age鈥�and debt free. It鈥檚 clearly a long, tough road to debt free if I stay. But I feel like I鈥檇 have a nicer annuity when I do retire. Or, if I leave and can earn what I make today, I could focus a lot of money towards retiring all my debt.

The question I have is (1) do I stay and work harder/longer on becoming debt free and increasing my lifelong retirement income or (2) take the incentive, increase the amount of money to eliminate all my debt? Additionally, I鈥檇 like advice on the best way to utilize the incentive money. After Uncle Sam takes his cut, I鈥檒l probably end up with around $15K 鈥� $17K. I could take the incentive in increments or as one lump sum. My initial thought is to put it in my savings/emergency fund and pay significant extra amounts on my debt(s) each month while earning a little interest on it. My second thought is to pay off one of the 3 credit cards that are in the $18K 鈥� $20K range and use that approx $600 per month to work down the other cards/debt.
- Rick

What this really boils down to, in my eyes, is whether or not you enjoy your work and whether you have a game plan for what to do after retirement.

If you are a person who really enjoys their work, gets great value out of work camaraderie, and has only vague ideas about what to do in their next act in life, keep on working and build up a better retirement for you. You don鈥檛 have to walk away.

On the other hand, if you鈥檝e got big plans for the things you want to do after you retire and you view your work as complete drudgery, take the path to earlier debt freedom and earlier retirement.

This is a case where, in my eyes, personal finance is really about the 鈥減ersonal.鈥�

My son has earned a few hundred dollars this summer and I have encouraged him to put this money in a Roth IRA because 1) he has savings for his 鈥渨ants鈥� and 2) because we often talk about the importance of investing for retirement. Is it possible for a 17 year old to open a Roth?
- Lisa

He sure can, as long as he is reporting income on his 1040 that is equal to or greater than the amount being deposited in the Roth IRA (and he鈥檚 paying taxes on that income, of course).

In fact, that鈥檚 probably a pretty solid move, provided that you鈥檙e confident that your son won鈥檛 take advantage of the ability to withdraw Roth IRA contributions at will.

I would do the entire process as a collaboration, in which you research what a Roth is, what investment house you want to use, what investments to choose, and so on. Talk about the pros and cons of each. Empower him to make the choice himself, though.

At the end of this month, my wife and I are taking our honeymoon in Rome! Both of us love travel, and Rome has been near the top of my list of places in the world to visit for a long time. We鈥檝e booked a flight and hotel already through Travelocity and that鈥檚 100% paid for. We鈥檝e budgeted $2-$3k for incidental spending while traveling (food, tours, souvenirs, anything that catches our eye and we want to experience). This money is also already set aside too, so we鈥檙e not going into any debt for this trip.

However, I鈥檝e never traveled in Europe and had to manage a large chunk of spending money (previous trips were with family, and they handed the cash). I鈥檓 not familiar with ATM availability (or fees), or whether Rome is a cash or credit city (and if credit, which cards). I know I鈥檓 going to be paying fees either on cash exchange, or on any credit cards I use. What is the best way to handle spending money when traveling abroad? I want to make that pool of cash go as far as it possibly can and could use some help.
- Mkie

The first step I鈥檇 take is contacting my bank to find out about overseas ATM availability. What are the fees for using an ATM in Rome? It varies a lot from bank to bank, so call to find out their policies.

I would do the same thing with your credit cards, though Visa and MasterCard are pretty widely accepted throughout Europe.

Ask about the currency conversion for each card. Find out which one does the best currency conversion (after fees) for you. So, for example, say 鈥淚鈥檓 going to spend/withdraw 100 euros in Rome tomorrow. What will be the total cost for me, including fees, in dollars?鈥� Whichever card/cards offers the best rates should be the ones you use.

I鈥檓 very, very concerned about the many queries you seem to get about whole life insurance and, most especially, insurance on the lives of children. In my view, this sort of product is a scam and it鈥檚 sold to ignorant people who can least afford it. (I use the term 鈥渋gnorant鈥� in it鈥檚 neutral sense, meaning people who simply are uneducated about the product and don鈥檛 know anything excepting what the salesman is telling them.)
- Dorothy

This is a problem with a lot of personal finance (and other) decisions.

The reason you find so much conflicting information about things like life insurance for children is because you have people with different motivations saying different things. If a person鈥檚 primary incentive is to sell a product, they鈥檒l give you advice that results in you buying that product, even if it鈥檚 not necessarily from them.

Your best best with any financial question, particularly when it comes to insurance, is to seek out sources of information that don鈥檛 have a vested interest in selling you on insurance. Read an assortment of personal finance books and Google the authors to find out if they鈥檙e insurance salesmen. Figure out which people have a vested interest in helping you versus a vested interest in selling product, and trust the people who want to help you.

My mom is only charging me $350 a month for rent and all totaled my fixed bills are $505 which include internet (I have online courses so it鈥檚 a need right now), cell phone (we don鈥檛 have a landline), and storage rental. I also have a payment agreement I will be paying to my old apartment but I don鈥檛 know the amount as of yet. I am very worried about what will happen after I graduate. I want to have a job lined up and ready to go, but I鈥檓 worried with the economic troubles we are facing. My friend graduated 2 years ago and has yet to land a professional job in the field. While I have a lot more going for me I still worry.It is almost assumed I will be relocating for a job as it鈥檚 just one of those things that comes with my field. As well it could take up to 2 months during the hiring process and the time you start, I could be hired in May and not actually start till August. So I鈥檝e started saving up a good chunk of my stipend, to the tune of $800 from each check, by the end of the program if I kept that up I would have $8,000. But I don鈥檛 know if that鈥檚 too much and if I should be paying off debt and saving less. I don鈥檛 live outside my means, and usually research and save for any purchase over $50. But I do have a bad habit of lending money to family.
- Jai

The big thing you need to do is start your job search early. If you鈥檙e going to graduate next May, start searching now. If you are a good candidate, most employers will wait a month or two for you to begin work versus hiring a poor candidate.

Another concern is your propensity towards lending money to family members. Stop! You鈥檙e a college student, for goodness sakes! If anyone should be borrowing money, it should be you. Besides that, lending money to family members often ends with strained relationships and mistrust, something you don鈥檛 need in your life.

Aside from that, I think you鈥檙e doing well.

My questions is regarding how to categorize our Line of Credit loan. Our story: my husband and I both did the College/ credit card/ unwise use of money thing in our 20鈥瞫 & early 30鈥瞫. Over the past few years, we鈥檝e been improving our financial 鈥渉ealth鈥� 鈥� paid off those credit cards, got way more in touch with our spending, spend less than we earn, do a good job with our budget, and carry no credit card debt. We have a mortgage of $350,000, and a home equity line of credit of $44,500. The LOC was opened several years ago (before we wised up) to re-fi part of our mortgage, and to give us some house project money. We did the projects (patio, yard & kitchen improvements), paid some credit card debt, bought a fancy dog鈥� you get the picture 鈥� it wasn鈥檛 all responsible spending.

Now that we have no other debt, I waffle about how to approach/categorize our LOC. I want to lump it in with the mortgage, and call the debt pay-off/booty-busting part of our life done. But I鈥檓 wondering if that鈥檇 be 鈥渃heating鈥�. The LOC has higher interest and part of that spending really was in the same vein as our credit card abuse. Should we consider it a credit card, and continue to bust booty to pay down the LOC? The thought makes me want to cry.
- LeAnn

I would consider it a credit card, particularly since it has higher interest than the mortgage. Focus on paying it off sooner rather than later.

Here鈥檚 the truth: people virtually never regret paying off a debt. The freedom from that monthly payment is a tremendous boost, even if it鈥檚 not mathematically the best solution. The increase in monthly cash flow also enables people to work more quickly towards their goals and withstand major setbacks more easily.

Go for getting rid of the debt, and don鈥檛 look back.

I was paid three days ago. After we paid the mortgage and car insurance, we only have $150 to our name until the 15th. With that, we have to buy gas and groceries for two weeks and pray that no emergencies come up in the meantime. For months we have been cutting back more and more and more. My husband of five months has been unemployed since December. We had savings and emergency fund but it was depleted a month after the wedding when we suffered a very serious legal issue that required us to hire an attorney. The retainer took every penny we had. When my husband is not looking for work, he spends his time learning how to make foods from scratch, like bread, bagels, pasta. He鈥檚 gotten good at stretching the food budget (what of it there is). We don鈥檛 go anywhere. We don鈥檛 do anything outside the home because we can鈥檛 afford to waste gas. There is no 鈥渇un money.鈥� Today, he is calling the insurance company to reduce our coverage to as little as possible and I will be calling to cancel the cable. I make enough to cover the bills, but there鈥檚 not a lot left over for gas and groceries, let alone savings. At the end of the month our property taxes are due 鈥� $1700. I had the money saved for it, but all of that went to the legal retainer. It won鈥檛 get paid. We have is a credit card with a $1k balance, racked up over the summer to make ends meet, payments are manageable. We鈥檝e placed ads to sell valuables, but there鈥檚 not much interest. I鈥檓 feeling so low right now. We are just existing. Not living. This is no way to live. It鈥檚 not a debt issue. It鈥檚 an income issue. Moving wouldn鈥檛 make sense. Our mortgage payment is lower than rent in this area and there鈥檚 a custody arrangement in place which must be considered. We have to ride this out, but man, this is painful.
- Tara

This almost exactly describes : bills without enough money to pay them. For me, it was a financial bottom and it led to a real turnaround.

My sincere suggestion to you is to not give up hope. It鈥檚 hard, I know, but this trial is an opportunity to figure out what really matters to you and your husband. Cut away everything and see what you genuinely miss 鈥� you鈥檒l be surprised how little of it actually matters in your day-to-day life. What you鈥檙e learning right now will stick with you and help you for the rest of your life.

As for your husband, he should get a job. Any job. I know there is work out there, but it鈥檚 often work that people don鈥檛 want to do. Check your pride, get a job, and start bringing in some income before you lose what you have left.

I just broke up with someone I鈥檇 been seeing for six years and engaged to for two years. I鈥檝e made multiple career decisions and lots of financial decisions based on the idea that we would be together for the long haul. Right now, I鈥檓 sitting in a city I don鈥檛 want to live in and a job I don鈥檛 want. I have a signed lease and a lot of debt, too. I don鈥檛 know what to do.
- Kelly

Right now, stop looking backwards with regret and anger. Looking at the past does not help you with the future.

You need to assess where you鈥檙e at right now and where you鈥檇 like to be in a year. Obviously, you鈥檇 like to be living elsewhere. That will probably require a different job. You鈥檒l also need to be out of your lease.

Start building a to-do list to take you to that place where you want to be. Polish up your resume. Start hunting for something else. Cut back on your spending 鈥� I鈥檓 going to speculate that if you have a lot of debt, you probably have a lot of excess spending going on. This doesn鈥檛 just mean less shopping, it means doing things like trimming back on your cell phone plan, consolidating your debts, and so on. Figure out where you want to be going and direct your life towards making that happen.

Over the last few months, I鈥檝e been following your personal finance advice to a tee and it鈥檚 really helped me to see what I鈥檓 doing right financially and what I鈥檓 doing wrong.

The big shock to me though is how much I am spending each month on alcohol. In June, I spent $450 on alcoholic beverages. That鈥檚 a payment on a new Lexus!

I鈥檝e finally come to terms with the fact that I am an alcoholic. The amount of money I鈥檝e been spending is a wake-up call. The question is 鈥� what鈥檚 next? I think I have the willpower to stop cold turkey and my wife is being really supportive as she鈥檚 quitting too, though she didn鈥檛 drink nearly as much as me.
- Dan

First of all, a huge congratulations on turning a major corner in your life, personally and financially. That takes a lot of guts.

I would strongly encourage you to find some additional support as you work through your alcoholism recovery. Alcoholics Anonymous is worth at least a look.

One big thing I would encourage you to do is buy a simple wall calendar and start keeping track of your successful days for a while. At the end of each day you manage to stay alcohol free, put a big red X over that date on the calendar. As you move forward, keep doing that, and you鈥檒l begin to admire that big long row of Xs on your calendar. You won鈥檛 want to break that chain.

Got any questions? Email them to me or leave them in the comments and I鈥檒l attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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