Free Financial Advice

Financial Questions from Our Visitors - Page 6

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:

Hello, I'll try to condense this as much as possible, although it's complicated. My husband and I live on a farm in upstate New York and we are 68 years old. About 20 years ago he started selling garden tractors on our farm and he also repaired used ones and then added chain saws and attachments for the tractors. The business grew and now people are coming from all around the county and beyond. This should not be a problem, but my husband is not a businessman at heart. He has gone further into debt each year until he now owes more than $100,000. Actually people take advantage of him, I think, because he is good-hearted. They trade him wood or junk tractors for something better or they go bankrupt or they simply don't pay their bills. The floor plan interest is enormous and people are not buying much because the economy in our area of New York is terrible. I am no longer able to hold down a full time job. When I did work, I was able to save a little money which I put into CD's. This grew to $17,000. I hope I didn't make a mistake, but I withdrew one of the CD's and invested it in Corning stock when it dropped to $2. I have no idea what else I can do to help reduce this debt. Of course, what I was really hoping for was that Corning would rebound (our friends who work there think it will) and I could use that money to reduce his business debt.

He says if he could pay off his debt, he would get rid of the business, an excellent idea. He is getting a loan from a local bank to consolidate all his debts and I think that will take place this week. However, $80,000 in monthly payments will take us way beyond any good years we might still have. Is there anything I can do, or we can do to get rid of that debt quicker?

Tough question, I know, and I'm not expecting you to be a miracle worker.

Response:

I'm sorry to hear of your situation. My grandfather was a farmer who was continually taken advantage of because of his good heart, so I know how you must feel. And, unfortunately, I can't work any miracles but can maybe help you become aware of what some of your options are. Here are some bulletpoints with some of the alternatives I can think of. Remember, there are lots of other options available so don't let this list limit you.

You could hire a consultant or experienced accountant to help you scrutinize your business and find ways to make it profitable. This would include the following: 1) Make sure you are pricing your products and services properly (stop being taken advantage of!), 2) focus only on the profitable products (whether its the new tractors, the repair work, the chainsaws, etc), 3) lower your expenses somehow, 4) find ways to capitalize on your losses (tax writeoffs, use customer non-payments to negotiate with your creditor / suppliers), 5) negotiate for lower costs from your supplier(s) and raise your prices if you think you are underpricing and finally, 6) don't make unprofitable barter trades in your business just to help another person / friend. As hard as this sounds, you have to think about your own well-being before you go into further debt just to help another person.

If you decide to turn your business around, make a five year plan that offers the chance to pay a lot of your debt off. And remember to include a more aggressive business forecast for years 3 to 5, as the economy should have recovered by then.

If you do not think you can turn the business around, then your best option is to dispose of it right away:

If the business is legally set up under its own business name, then you should be able to declare the company bankrupt and thereby pay the creditors the money you have remaining in the business and leave the business altogether. I assume this probably isn't the case, but if it is, you should talk to an attorney, a tax attorney or even an accountant to explore these options. Although the business would suffer, your credit and personal property would be protected.

If the business is not separate from your other finances, then you still have the option of declaring bankruptcy. You could surrender the assets you have in the business and likely get rid of most of the $80,000 in debt. Your credit would be hurt and it might have some other negative consequences depending on how the loans are secured (by your house, your business assets, the land, etc). It wouldn't hurt to contact a local attorney that specializes in this, or swing by your local city hall to see if they have any brochures that would help you learn more about these procedures in your area. Bankruptcy, although often seen as a terrible thing, can sometimes offer a lot of financial relief. Quite simply, it works by having you and your creditors meet with a judge at which point you work out a deal to pay off your debt. Depending on the level of bankruptcy you declare, you could get rid of almost all of your debt, or you could at least reduce it substantially.

You also mentioned purchasing the Corning stock. Don't be discouraged by low stock prices. If you remember how high stock prices were 2 years ago, you know that times change very rapidly. Remember, at some point the market will turn around and stocks should see healthy rebounds for years to come. A lot could change between now and two years from now. With that said, it's always risky to invest in only one stock, so understand that you bare lots of other risks besides the market risk by just holding one stock. In fact, it's possible (I'm not making a prediction here) for the telecom sector (which Corning is part of) to continue to fare poorly for a long period after the market recovers. You may wish to invest instead in a market-related portfolio or mutual funds. If you believe in tech stocks, the QQQ (Nasdaq 100) tracking stock is a great way to participate in the market and get lots of exposure to the fastest growing companies.

These are all the options I can think of right now. I hope you find a solution to your worries and wish you the best of luck in whatever path you follow!

Question:

I'm not sure if you are the person I should be asking this question. If not, please give as much advice as who you think can help me. My husband plays professional Basketball overseas. We were recently talking to our parents about getting a house. They said something about we must pay taxes before we can get a house or basically anything. I don't think my husband has ever paid taxes. We are still young 23 and 24. This is his 3rd year playing overseas. Are we suppose to be paying taxes? How do I get info on what we need to do? Overseas is not our home, we are only here 8 months out of the year. What track should we be on, as far as paying taxes and using that info to get a home. My parents say that many basketball players who play overseas don't have anyone to tell them about filing taxes, and financial planning. And they end up later on in life paying the government thousands of dollars.

We don't want to be one of these people. Please lead us in the right direction.

Thanks,

Response:

I am not a tax expert, but I do know that you are legally obligated to pay taxes in the US if you are a US citizen. If you are paying taxes overseas then you will likely have an exemption from many of the taxes, however you will still need to file a return with the US each year. I've attached some links below that will help you learn more:

This link is to the IRS site. If it doesn't work (link will likely get broken in two from this email), go to www.irs.gov, click on "individuals", then "overseas taxpayers".

http://www.irs.gov/individuals/overseas/display/0,,i1%3D1%26i2%3D10%26genericId%3D12236,00.html

Here is a link to H&R Block overseas offices. If you can locate a local office, they should be able to help you.

http://www.hrblock.com/taxes/doing_my_taxes/international.html

Good luck,

Question:

Help! if you can. I am having trouble deciding what to do. I am 46 soon to be 47. I have 9 years left on my house @ 6.5%. I have $8,000 in CD's earning a whopping 3% interest., I invest in a Janus fund every pay period $75. I have a 401K here at work that I put about $200 a month into. I have a modest $5,000 in harley-davidson, walmart and international paper stock. I have got about $50,000 in my 401K here at work. I am wracking my brain (little as it is) trying to decide what to do, with the CD money, leave it in a nice and safe CD or start up an annuity or buy more stock (really scared to). the way it is going now.

I am not sure that when I reach retirement in about 15 years, whether we will have enough money to retire on. My wife also has a 401k and she puts in about $35 per pay check, she just started and has about $3,000 in hers. plus we have a modest savings of about $1,000...........the only bills that we have are our new truck payment $522 per month and our house payment $803, oh we also have two cute money sucking daughters (LOL!)..................I just want to be ready when I hit 62 (preferably 60) to retire comfortably. I do not seem to trust investment counselors, they scare me, they loooong term commitment and some of my money..................could you please help!.............thanks,

Response:

I do have some financial advice for you to help you decide what to do with your money:

First of all, to figure out how much money you'll need to retire, check out the following page on my site:

http://www.free-financial-advice.net/retire-early.html

The chart shows that to retire with a residual income of $30,000 per year, and with a life expectancy of 30 years from that date, you'll need to save about $400,000 in order to retire. Look at the chart to find how much you think you'll need, for this email, I'll assume $400k.

The good news is that you are mostly on track to accomplish your goals and you seem to be asking the right questions. Here is the approach I would take in order for you to reach the $400k you need.

Here are your current assets (excluding your house):

$53k in 401K, $8k in CDs, $5k in stock, $1k in savings

Total is $67,000

Here is how much money you could expect to have given a few different scenarios. Remember, these are based on assumptions using historical rates of return and may or may not hold true in the future. My guess is that things are going to return to normal in the not too distant future.

Scenario 1 - Continue as you are, stock market returns 6%, in 15 years:

Your 401k grows from $53k to $127k

Your stock grows from $5k to $12k

The $310 per month you invest in stock and your 401ks grows to $90k.

Your CD (assuming 4% average return) grows to $14k.

Your total retirement funds are $243k, a little shy of what you need.

Scenario 2 - Continue as you are, stock market returns 8%, in 15 years:

Your 401k grows from $53k to $168k

Your stock grows from $5k to $16k

The $310 per month you invest in stock and your 401ks grows to $107k.

Your CD (assuming 4% average return) grows to $14k.

Your total retirement funds are $305k, probably a little shy of what you need.

Scenario 3 - Continue as you are, stock market returns 10%, in 15 years:

Your 401k grows from $53k to $221k

Your stock grows from $5k to $21k

The $310 per month you invest in stock and your 401ks grows to $128k.

Your CD (assuming 4% average return) grows to $14k.

Your total retirement funds are $384k, which is probably enough to retire, especially with your house paid off.

Adjustments to Scenarios - Make the following modifications to your investments to maximize your retirement savings. Add these adjustments to Scenarios 1-3 to calculate your expected retirement funds.

Invest your CD in a higher yielding product (mutual funds). Will add between $8k - $20k depending on if you earn 6-10%.

In 9 years, when your house is paid for, contribute the $803 payment to your investment account (invest in mutual funds, bond funds and cash, but try to keep your portfolio diversified). This will add between $69k and $78k depending on whether you earn 6-10%.

If you can increase the amount of money you invest each month, add $29k - $41k for each $100 you can increase your monthly investment.

Upon retirement, you will always have the equity in your home to fall back on. There are tools such as reverse mortgages that you can use to withdraw money and subsidize your retirement income.

Also, you will likely receive money from Social Security once you retire, you can find out how much this will be by looking at your annual statement. Annualize these benefits and subtract them from the annual retirement income you need to retire (from the webpage table), you may find that the amount of savings you need to retire drops from $400k to as little as $300k.

Similarly, subtract from your retirement income (on the table) any employee pensions that you may be eligible for upon retirement. I hope this isn't too confusing, but there is no easy way to answer a question like yours without looking at all your options. Also, look at the long term when making your calculations, not at what today's market is doing. In fact, if things return to normal, equity returns could rise to 12-14% and you may be able to retire earlier, or with more money than you expected.

Question:

I currently have self directed IRA with financial planner (currently worth one hundred thousand dollars) with Scott and stringfellow. The IRA is predominately mutual funds and some stocks. I am unhappy with a loss of 45% over the last three years. I don't know if switching planners will ease my pain. What are my options other than another financial planner?

Do I open an account online? Open an account with an accountant? I would like to recouped my losses post haste,next 3-5 years. Any suggestions would be helpful. We have spoken to our planner about the losses we have incurred and she says stay the course. Very difficult to stay the course if your getting your financial head handed to you. How do I determine if the financial course we are on is the right one. Thanks

Response:

I don't blame you at all for being discouraged by your financial losses. I don't think anyone would have expected things to remain this ugly for this long, and you are definitely not alone in your feelings.

With that said, my advice would be for you to stick with your long term plan, or in other words continue to invest your money. Even though the last three years have been remarkably terrible for all of us with money at risk in the markets, changing your investment strategy during a market downturn (which is likely near a market bottom) would probably be worse than holding onto your current investments. Although it's true that you could pull your money out of investments and then return when the market recovers, this almost never happens because, like the downturn, nobody (not your advisor, not the strategists, not even Alan Greenspan) can see the market bottom and by the time everyone realizes that the market is recovering, it will have already risen 15-35%.

Whether or not you are happy with your advisor is a second issue. If you feel that your advisor is dishonest, gives bad advice or just want to move on, that is fine. If you are angry at your advisor because your portfolio is down 45% (which by the way is much better than the NASDAQ has performed), then you may want to reconsider. If you decide to drop your advisor, you could open an account online at any of the brokerages (etrade, schwab, MSDW, etc). You wouldn't have to pay any fees (other than commissions), but you would have to choose your own investments. With one of these accounts, you can buy almost any stock, mutual fund or bond fund you can think of.

So, to answer your question: In my opinion, the best way for you to recoup your losses is to continue to invest your money in the same manner you've been investing during the downfall. Try to view the current low stock prices as a way to lower your average cost by purchasing more shares at this level. If you contribute enough to your savings now, you can recover your losses faster once the market starts to rise again, which should be sooner than your 3-5 year goal.

Anyway, those are just my thoughts. I am an eternal optimist on the US economy and long term market prospects.

Follow Up Question:

How does one who has just started reading money magazine evaluate info provided by a financial planner? I would like to ensure that the best decisions are being made on my behalf with our money. Thanks.

Follow Up Response:

Tough question! Typically one has a high level of trust with one's financial planner and the financial planner is able to explain and convince you as to why the decision is optimal. If you don't trust the decision or just feel that something is wrong, you could take the following steps to help ensure that the decisions are the best:

Find another financial planner and ask their advice on what they would recommend for your money. This could cost you some money but may be worth it.

Talk to your friends and family to see what their financial planners are recommending (or what they are doing with their finances) and see if they have the same issues as you.

Ask your financial planner for a list of references - both professional references and other customers. You can then contact some of these people to find out if they are comfortable with your planner's methodologies.

Also, ask your financial planner to better explain why he/she made the decisions he/she made for your money. If you have questions or concerns, force your planner to either remedy them or lose you as a client.

Keep reading money magazine, kiplingers personal finance magazine and all the other money management info you can get your hands on (including research on the internet) and decide for yourself what you think is right. If you want hands on experience, enroll in a local junior college class.

Question:

Dear Sir/Madam

It has occurred to me that instead of paying a mortgage of 50K with interest of-say- another 50K I would be able to walk into my agents and offer them 50K on the table and not have to pay the interest, however I don't have 50K in cash sitting in the bank and the people I know that do have that sort of money are too closer friends to be mixing business with pleasure.

I am not asking you to fund me £50,000. I am asking you if you could help me in my search to find a way around this problem I have with understanding why I have to pay more than twice of the amount that is agreed that the house is worth!

If you want to contact me please do I would encourage your input in this matter and appreciate any help I can get, alternatively you could pass this on to a friend that you think could help me!

Many thanks (from the UK)

Response:

I am somewhat perplexed by your email. If I understand it correctly, you are saying that you have trouble understanding why you are obligated to pay back more than the original loan amount in which you borrow from a lender. If this is the case, I'm not sure that I can accurately explain the answer to your liking, but I'll give it a shot anyway...

First, the reason you have to pay back more than the original loan amount is because you have to pay back the loan amount, plus an interest rate. The longer it takes you to pay back the loan, the more interest you will pay. Also, the higher the interest rate is, the more interest you will have to pay.

So then the question becomes, Why do you have to pay an interest rate?: Interest rates exist for many different reasons. Here are a few that I can think of:

To compensate the lender for the time value of their money. In other words, the person that loaned you the money could have, instead of lending it to you, invested it in the stock market or a savings account and earned money on it. By giving you the money they forego other earnings and therefore deserved to be compensated for the loan.

To compensate the lender for any risk of the loan not getting paid back.

So that a lender can stay in business. If a lender only received the original loan amount back, then there would be no banks in business, as they would run out of money and could not afford to pay out interest on their savings or to manage the documents associated with a loan. This is especially important considering all the people that never pay back their loans.

Interest rates encourage borrowers to pay back the loan. By charging a fee on the outstanding loan balance, a borrower has incentive to pay the loan off quicker than if there were no interest rate.

If you can find the right lender, you may not have to pay any interest rate at all. For example, if a family member loans you money they may not care if you pay them interest. Other interest free loans could include a credit card that offers 0% interest for a period, or even sometimes when buying a new car they offer 0% financing.

I hope this helps explain why interest rates exist. Best of luck,