Pay your pops.

A reader asks…

My husband and I are doing fairly well financially, but we wanted to see what we could be doing better. My husband is very big into investments and I was always very big into liquid savings (I watch a lot of Suze Orman). After meeting with our financial adviser, he said he felt like we should only have 5-10k in an Emergency Fund and max out our Roth, invest more in our 401k and lastly invest in our mutual funds. I can get behind this, it makes sense to invest our money as opposed to having it sit in a savings account not earning interest.

The one area I’m unsure of though is that he told us there was no need to be throwing money at our debt because the interest rates are so low and we are making much more in our investments. He didn’t say it was “bad” to pay off the debt, just said he thinks we should focus on the investments.

As far as debt, we have our home, two cars and then about 25k in student loans. My father paid off my student loans, so I’m actually just paying him back at 4%, so it is fairly “secure” debt. I personally would rather get rid of all of our debt, but also see his point on the fact that we would be earning more on our money if it is invested.

As of right now this is a rundown of our finances, we make about 140k combined gross income, our house is 216k with 3.5% interest on 30 year mortgage, one car has 4k left and the other 13k both under 4% and then the 26k in student loans i’m paying my father for. Right now we have about 18k in liquid cash, although we are expecting to have to pay 5k in taxes this year. 

What are your thoughts on investing vs paying down the debt?

As always, I’ll provide advice on what I would do in this situation, and then you all should chime in with what YOU would do in this situation.

1) Is your financial advisor fee-for-service or commissioned base? If he works off a commission fire his butt and find a fee-for-service advisor. Seriously, do that.

2) I’d be cautious of the sales pitch your advisor gave you about the stock market. Yes, it’s true savings account interest is pathetic. Yes, the stock market was up 25% last year. But don’t forget, the markets just lost 326 points yesterday. They were down heavily from 2007 to 2011.

Tread carefully when you write things like “but I also see his point on the fact that we would be earning more on our money if it is invested.” Sometimes that’s true. Sometimes it’s not.

3) I would pay off my student loan ASAP. Even though the interest rate you’re paying poppa bear is ony 4%, I’d get rid of it fast. Why not the car or mortgage first you ask? One reason.

I hate owing family money.

Super nice of him to offer to cover your loans for you, so why don’t you return the favor and pay him back quickly. This immediately removes any potential awkward business/family relationship. With $140k/yr in income you can knock this out in a few months.

4) After paying dad back, do whatever the heck you want. I’d probably pay off my cars and then start investing more heavily. That said, if you want to focus on investing and keep the car loans around a little longer I don’t have much beef with that. Contrary to what many may say, you can have debt and still be financially stable.

That’s all I got.

What say you dear readers?

Are you a loaner.

Pop quiz hot-shot, your mom, dad, sibling, child, best friend, or other person of whom you are bound to by affection or obligation, approaches you and says “Hey, I have an unforeseen bill coming due and was wondering if I could possibly borrow some money to cover it?”

What do you do? WHAT DO YOU DO!!!!!!!????

Obviously I made this hypothetical situation vague for a reason.

  • If your brother comes and asks for a $20 loan to put gas in his car so he can make it to his first job interview, you’ll probably loan him the money.
  • If your best friend asks for a $500 loan so they can fix a leaking pipe in their basement, would you help out then?
  • What about if your mom or dad needed $2,000 to catch up on mortgage payments they fell behind on?

Shades of gray. There is no one size fits all strategy when it comes to loaning money to close friends and family. Fortunately, I haven’t yet been faced with a situation where I’ve been asked for a loan, but I’m sure at some point in my life that day will come. While I don’t know exactly how I will respond, I assume the level of emergency will directly correlate to the amount of money I’m willing to loan. $500 loan for a new computer? Heck no techno. $500 for a new alternator so you can make it to work? I’ll probably help ya out.

You ever been asked for a personal loan before? How did you respond? Was it awkward?

Flashback

I’m currently in the middle of nowhere Canada with Girl Ninja and 50 high school kids watching them experience the best week of their lives. I imagine I’m having more fun than you right this moment so be jealous. In the meantime I’m upcycling a former post of mine. Enjoy.

I was talking with a man
yesterday who said, “I was raised with a strong German upbringing so I don’t mess around with debt and am proud to be debt free.” As we continued chatting about his finances he eventually told me he has both a mortgage payment and a car payment. Wait, hold the phone.

Hate to break it to ya buddy, but you’re not debt free if you have a mortgage and a car payment. Have these types of loans really become such a standard in our culture that we forget they’re still debts?

I get it. Some people think certain debts are “good” and others are “bad”. This man has obviously decided for himself that mortgages and car loans can be classified as good debt, but last time I checked, my blogs name wasn’t Punch Bad Debt In The Face. No, it’s Punch Debt In The Face, because I believe “good” debt is a term we Americans use to feel better about ourselves and our financial situation (It’s like being called festively plump instead of fat). I don’t discriminate, I punch all debt in the face, regardless of how “good” it might be.

What I think this man

, and many others, mean when they refer to things like mortgages and student loans as “good” debt is that these types of loans are not as bad as credit card balances or payday loans. How about we change your perspective though and admit that “good debt” is really just another way of saying “not-as-horrible-but-still-pretty-sucky debt” (has a nice ring to it doesn’t it).

Obviously this gentleman is comfortable maintaining a car payment and a mortgage as part of his personal finances, and to be perfectly honest, I have no authority to tell him to change his ideology (contrary to popular belief one can have debt and still be financially responsible), but I can definitely call him out when he tries to pretend that he is debt free. I am debt free sir, you are not.

Has our culture become so numb to consumerism that we think we can have a car loan and be debt-free at the same time? Do you believe in good debt?

Why or why not? Should I have punched this man in the face for being so naive?

.

Thursday poll: college debt

College debt has been making headlines these last few weeks for a multitude of reasons, none of which I particularly cared about. So today I figured I’d check in and see just how much college debt the average Punch Debt In The Face reader graduated with.

[poll id=”13″]

For extra credit share you debt amount, when you graduated, and what your major was below.

 

Try to be not broke.

Over the last two weeks I’ve purchased six round trip plane tickets. It’s insane. Between baby showers and weddings, we knew we’d be dropping some serious coin on flights this summer. But dang, $1,600 disappeared from our bank account faster than a Twinkie at fat camp.

Fortunately being not broke is pretty awesome. It allows you the ability to take advantage of incredible deals when they pop up. It gives you peace-of-mind in the event of an “Oh $#@!” emergency. And it gives you the freedom to experience things you may have otherwise missed out on like weddings and graduations.

There really is nothing else to be said besides…

Financial freedom rocks my face off.

Don’t be discouraged if you aren’t there yet. Stay the course. Work hard. Focus on the end goal. You didn’t get in debt overnight, and you probably wont get out if it overnight. Patience and perseverance is the name of this game.

Being not broke is awesome. I hope you are either right there with me, or plan to join me soon.

On a scale of broke to loaded where do you fall? Has your financial freedom allowed you to take advantage of any incredible deals or opportunities lately!?

Thursday Poll: Debt

A few instructions:

1. Don’t include mortgage debt, but do include HELOC’s

2. Include 401k loans.

3. Don’t include credit card bills you pay off in full every month.

4. Include school loans, car loans, etc.

5. Participate

[poll id=”4″]

Extra credit points if you share/break down your debt totals in the comments.

p.s. IF you are viewing this via email you will need to click through to my blog to see the poll. 

I apparently have really crappy timing.

I called our agent the other morning to express interest in a house that  was newly listed (click here to see the listing). After a few back and forth emails, we decided we would look at it that evening (the same day it came on the market). A couple of hours later, my agent called to inform me we wouldn’t be looking at the house. Our appointment was for 5pm, but the listing agent had already received four cash offers, well above asking price, and had five more offers expected. What’s more, they were accepting one of these offers by 4pm, an hour before our appointment to see it.

I was frustrated. 

Not because I didn’t have a chance to even compete for the house – we probably wouldn’t have put in an offer – but because of the timing of our house hunting journey. Seriously annoying.

As I started thinking about it I just got more and more depressed. So depressed I compiled a list of other frustrating things that have happened during my, relatively short, 5-year PF journey:

I graduated college in 2007 with $28,000 of student loan debt. My sister, who graduated just a few years before me had a similar amount. But between her college graduation and mine, student loan interest rates nearly quadrupled.  Her $20,000+ student loan had a 2% interest rate, mine a 7% rate. There was nothing I could do about it. You can’t refinance student loans like you can a mortgage when rates drop. For no other reason than graduating in 2007, I had to pay four times as much interest as those who finished up just a couple of years before me. Did you know I actually considered NOT paying these loans off early, because part of my thinks when the student loan bubble bursts (which it surely will), student loans will get special treatments…possibly forgiven altogether. 

I graduated college in 2007. Wait. Didn’t I just say that? Yeah I did. I was fortunate to get a job right out of school, but many of my peers weren’t. I got my degree just in time to watch America take a dump on itself. I finally had an income and an ability to contribute to my retirement accounts. Too bad that virtually every dollar I invested during my first few years working, dropped in value. I get that investments will go up and down over time, but having my first exposure to Wall Street be during the Great Recession wasn’t exactly ideal.

I also decided to be a good Ninja and save up 20% for a down payment. Girl Ninja and I reached that threshold in January, right in time to kiss the buyers market goodbye. Inventory is at an all time low. House prices are up a stupid 18% year-over-year. And interest rates are ticking up. Had we just been irresponsible and bought a place last year (with only 10% down), we would have gotten waaaaaaayyyyy more bang for our buck.

We have a ton of money in a savings account. Why is this a bad thing you ask? Well, when I had just a few thousand in my high-yield savings account, I was earning 3% or more on my money. Now that we finally have a substantial amount of liquidity, my high-yield (can you even call it that anymore?) savings account pays a paltry 0.75% APY…FOUR TIMES LESS!!!! There’s nothing quite like having money in the bank, when the bank is arguably the worst place for it to be right now.

Ugh, I could keep going, but I can only wallow in my own self pity for so long. As frustrating as some of these circumstances can be, I gotta keep my head up and fight the good fight. Hindsight is always 20/20 and some of these things I really had no control over.  You can’t let an unfortunate thing, like a recession, totally rock your world and keep you from doing what you know is right.

I’d love to hear some of the frustrating things you’ve experienced during your financial journey. Share them below!