Free Financial Advice

Financial Questions from Our Visitors - Page 12

The examples below are from some of the visitors to Free Financial Advice. The questions below mostly represent word for word the questions asked by the visitors (sometimes including bad punctuation and spelling), but occasionally the questions will be edited on this page. And even though these people have shared their personal finances with Free Financial Advice, we have stripped out any names or other personal information to protect their identity. If you see one of your questions on this page and it makes you uncomfortable, please contact us and we will remove it immediately. Also, please note that any advice or suggestions made from this site are only suggestions and should not be deemed as professional, legal advice. Please see our disclaimer for more information. I apologize for continually mentioning our disclaimer, but this is a very litigious world that we live in.

Question:

I am 47, to be 48 this year.............I am in a delima..............I have eight years left on my house, only one big bill, a car payment with about five years left on it, my wife works and so do I..........I have a 401K with about $50,000 in it for retirement someday. I have several stock investment with harley-davidson and walmart worth about $4,000.....I have about $10,000 worth of very low yielding cd's (but safe), I am a BIG chicken with my money.....I am invested in the Janus Fund for about $4,000, plus have about $1,000 in Ameritrade.................I would love to do something with my cd money to earn more money, but like everyone else I am really scared to invest...........any suggestions, I have thought about annuity, but do not know enough about those....................your BIG chicken fiend, thanks

Response:

Given the length of your investment horizon (time until retirement), I would suggest that you only hold enough money in cash (or CDs) to fund any emergencies that you may need (say 2-6 months living expenses). The rest of your money should be invested in stocks and bonds. For your age group, I believe the norm is to invest about 60-80% in stocks and 20-25% in bonds, but you can adjust it to your risk preferences. The easiest and safest way to achieve this is to buy mutual funds, both stock funds and bond funds. Do your research and find funds that you trust and that invest in the types of stocks and bonds that aren't too risky for your taste (you can go to etrade.com and look under investing and then under mutual funds to screen thousands of funds). Invest in several different funds to further limit your risk. Then, sit back and try not to worry too much. Even if stocks go down for a while, if you keep investing you'll be able to buy more shares at lower prices, thereby getting in at a decent price. And given the amount of time you have to invest before retirement, if history holds true, stocks have never underperformed cash (or CDs) over a 10+ year period, so try to keep a long term focus.

So, to give some specific guidance, I would recommend: Keep your individual stock investments (Harley and Wal-Mart - they'll help you feel good about investing). Keep your 401K but make sure it's diversified across several funds. Move the CDs into your brokerage account and buy funds that meet your risk standards, but remember, the more risk you take, the higher your return will likely be.

Question:

I have an inheritance of stock coming to me. Would it be possible to obtain this stock to avoid unnecessary death taxes or cost before my relative becomes deceased? Any information would be appreciated.

Response:

The best way to get the stock tax free would be to receive it as a gift before the person passes away. Each person is allowed to give away up to $11,000 (check the amount as it rises each year) per year in non-taxed gifts. If it is more than $11,000, I'm pretty sure the tax liability will lie with the gift giver. Here are some links that give more information on the subject:

http://taxes.yahoo.com/guide/begin/gifts.html
http://www.fairmark.com/stockbas/gift.htm

You could also check with your accountant or a local H&R Block office for an answer.

Question:

My husband and I make about $95k combined before taxes, 401k contributions and medical/dental insurance payments. We have $7000 in credit card debt at 4.9% and a car loan of around $12,500 with 0% interest. Together our retirement accounts total close to $45k.

We thought we needed to buy a house since we rent an older home in a neighborhood that floods easily. I have tried so many times to get rid of debt and save but this time I had a plan to be debt free by this month and I am not. Back in March we decided to build a house in a new neighborhood in town. We put $1000 down for earnest money, paid $2600 in upgrades, $350 for mortgage app and $350 for an appraisal. Turns out the house was not built good enough for us and we decided to back out of the deal instead of live in a house we felt would cause us more problems in the first place. We pretty much lost the money but hoped to get it back based on shotty workmanship. The house we were going to buy was $170k, we were going to finance it using an 80/20 split with 0 down making our payments around $1550 a month. We currently pay $1100 in rent. Since we had no down payment money and I was trying to pay off debt by sending the credit card companies $2000 a month, to make sure we had closing costs, I took out a $3000 loan from my 401k account so really we owe $10k, which is no closer to being out of debt than before. 

We thought we had to buy a house to live someone so we looked at a better builder. We found a much nicer, brand new, completed house for $184k. We thought the house was a great deal and that we should jump on it, even though it was more than we wanted to spend more. We thought we could afford it and we also just loved the house and location. We put down another $1000 earnest money and applied for the mortgage and paid another $400 for the app. fee. We are supposed to close on this house next week but I am very very nervous. The mortgage co. has not even approved us, we don't have home owners insurance in line yet (storm in gulf of mexico), we don't know exactly what we will owe in closing costs and don't know what our monthly payments will be--we expect closer to $1700.

I am worried that I got out of the other house because I was scared and not really ready to buy a house and now I am doing the same thing with the second house.

We have a 10 year old daughter that I feel needs a real home to call her own instead of living in apartments and rent houses and moving all the time.

Suze Orman says people first then money then things. If that is correct, am I ready to buy the house? Can I afford it with only $5k in a savings account for closing costs and no idea how to pay for blinds and furniture?

Suze also says to
 1) get out of debt - $22K
 2) save 8 months of living expenses as a cushion - $24K
 3) save at least 20% of the cost of a home for a down payment and only get a 15 year mortgage and not a 30

I also have to think about my daughter. Her expenses are always growing each year and college is not that far off. We also would like another kid and to buy a truck for my husband.

What do we do? I really need advice.

Response:

Sounds like you are very stressed out about this decision, but don't worry, buying a house and all the other financial planning you're going through is a very stressful situation. I am going through the same thing right now, and I am also very stressed and I also doubt myself and change my decisions frequently.

Although I can't tell you what to do, I can give you some comments that may help you decide:

- First, If your income is going to grow over the years, then it is easier to justify spending more money on a house today. And if your income grows over the next 30 years, the mortgage payment will get smaller and smaller (relatively speaking).
- Second, In your case the mortgage payments will force you to save money (by building equity). According to your email, it sounds like it has been difficult to save money. Having a mortgage may help you save money by forcing you to make payments on the house. You should also use it as an excuse to stop spending your money on anything else that isn't absolutely
necessary.
- Third, Interest rates are so low right now (at a 45 year low) that you can afford to buy more house today than you may be able to in a few years (or whenever interest rates rise). For example, the mortgage on a $184k house at 6.0%, is exactly the same as an 8.0% mortgage on a $150,000 house. So, if interest rates increase just 2%, the same mortgage payment
will buy 20% less house.
- Fourth, the financial benefits of owning a house are vast. Not only will you build equity in the house as you pay down the debt, but you also build equity as the value appreciates. In addition, the interest on your mortgage payments is fully tax deductible and will save you thousands of dollars each year in taxes.
- Fifth, the non-financial benefits of owning a house are also vast. The increase in lifestyle, home pride, and a better atmosphere for your family all measure into the value of owning a home.
- Finally, if you're really worried that you won't be able to afford the new home, then you definitely shouldn't buy it. However, if you are honest with your lender and they approve you for the loan, then you obviously pass the lender's strict requirements. And if they deem you able to afford the house, that is a good sign.

Question:

I have two mortgages on my home. They add up to more than the house is worth. I would like to re-finance the loans. The company I'm with said they can't do it. What should I do?

Response:

If the mortgages are for more than the property is worth, there's no getting around it. Because your debt is greater than your equity, your debt ratio is likely too high to refinance with any kind of a decent rate.

Unfortunately, lenders only give you the credit when you don't really need it. As soon as your debt ratio increases and you've taken out more than 75% of your home equity, it's almost impossible to get a decent rate on a new or refinance mortgage. The reason it's so hard has to do with some recently adopted rules on what mortgage lenders consider a "cash out" loan.

I've run into some of the same problems lately and haven't been able to circumvent them. My advice is that you try to pay down the debt to below 75-85% of the property value before you try to refinance again.

Question:

I have a question and I could not find it on this site I was recently disabled from my job at a railroad after 28 years and am only 49 I get 2300 a month disability and will get between 2 to 4 million dollars in the next few months and know very little about how to handle that kind of money and I am going to have to live on it the rest of my life what should I do any advice would be appreciated.

Response:

With that kind of money, you should see a financial advisor. They will be able to help you personally model how to invest and protect the money so that it will last you the rest of your life. Be careful not to pay them too much though. You may be better off opting to pay them by the hour rather than as a percent of the assets managed. Also, it wouldn't be a bad idea to subscribe to a few magazines such as Money Magazine or Kiplingers Personal Finance. They are good magazines with lots of useful tips, and they are aimed at beginning to intermediate investors.

Question:

Within the next month I will get a trust fund of approximately $250,000 turned over to me and my family. My husband and I are 25 years old and we have a debt of $20,000 (student loans mostly and one credit card of $900) We are setting up a trust fund for my daughter starting with approximately $30,000. We are also setting up a college fund for her. My main question is, I want to invest approximately $100,000 dollars of it but how? I am scared to death of losing it all. This has been keeping me up at night because I want to retire with this money when I get older and do not want to see it go down the drain. HELP.

Response:

First of all, I have a page on my site that discusses how to begin investing, but another option is to see a financial advisor to help you get started. They can probably help you make specific recommendations, but remember they are often incented to put you into funds that benefit them. Here is the link to the page that covers how to start investing:

http://www.free-financial-advice.net/investing-beginners.html

In your case, I would recommend that you start with a diversified portfolio of low cost mutual funds. Buy one or two large cap funds, one or two small cap funds, and one or two medium cap funds. Try to find funds in that cover a little bit of tech, some international, and some stable, blue chip companies, as well as stocks that just track the markets.

Because you are so young, I would not recommend investing too much in bonds or other less risky assets at this time, but if you truly can't sleep at night, feel free to invest some of the money into CDs or diversified bond funds. To pick the actual funds, I would recommend going to etrade.com and going to their mutual fund page to help you choose some funds. Here is a link to that page:

https://us.etrade.com/e/t/invest/mutualfunds

If you get stuck or are uneasy picking funds, don't worry about. Keep doing your own research over time and you will get more educated and more comfortable with your decisions. If you can't decide on your own, take a list of funds you like to a financial advisor and ask for their help.

Question:

Can you tell me what the expression "strong dollar" means when you discuss it against another dollar?

Response:

Strong currency refers to the relative strength of one currency versus another. For example, if the dollar is strong, then it buys more goods from other nations than if it were weak. So, for example, if the dollar strengthens against the British Pound, then you could buy more Pounds for each dollar. Or in terms of the US Economy, goods from Britain would appear cheaper to the US and the US would be able to buy more goods for less money.