Reader Mailbag: Thanks

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Selling jewelry
2. Auto loan refinancing
3. Rolling over a 403(b)
4. Next generation’s big mistake
5. Gift for newborn
6. Handling personal injury settlement
7. Not caring about future
8. Off-topic topics
9. Emergency fund in a CD?
10. Retirement savings or debt payments

Earlier this week, I came across information for someone that, when I was younger, moved away before I had the opportunity to tell them thank you for being a friend and telling them goodbye. It was one of those little things in life that bugged me for many years, but I was never able to this person. I simply could not locate that person at all.

I was hesitant to say anything to that person because it had been so long, but another old friend of mine encouraged me to say something. I bit my lip and did it, and I’m extremely glad I did.

Thank you to both of my old friends: one, for encouraging me to say something, and another, for being so friendly and gracious when I decided to do it.

Q1: Selling jewelry
This coming year my husband and I are trying to slim down our spending and make a little extra money too. I have a bunch of jewelry that I no longer wear and doesn’t have meaning. While I don’t believe anything is tremendously valuable some of it is gold and silver with small stones. I received most of the jewelry as gifts from previous relationships, and at this point, I’d just like to de-clutter and make a little money. Do you have any information on reputable places to sell jewelry? I’ve heard of online places like (recommended by Dave Ramsey’s website), but I don’t know if that’s the best place to send my jewelry. Your thoughts would be most appreciated.

– Melissa

An online gold broker would be my option of last resort for selling my old jewelry.

My first line of attack would be to do what I could to clean up and “beautify” the jewelry. Depending on what you have, there are many different ways to do this. Use Google and look for ways to clean gold jewelry, gems, or whatever else you have.

I would next take the jewelry to a reputable jewelry store, preferably a local one. Overall, they’re the most likely place to get a good deal, as they have a vested interest in correctly appraising your jewelry and offering you a reasonable value for it. Virtually all other businesses have little vested interest in correctly appraising what you have or giving you a reasonable offer for it.

If the jewelry store does not want it, they should at least be able to describe it clearly for you. I would then attempt to sell the item online. Ask the jewelry store for any advice on that if they’re not interested in buying it. Most local jewelry stores with solid customer service will offer you some advice in that area.

I would only use a pawnshop or, even worse, an online gold broker as an avenue of last resort.

Q2: Auto loan refinancing
I purchased a used vehicle in April 2010 for $36,000 and have been aggressively paying down the 36 month auto loan at my credit union. The loan balance was originally for $32,000 in April and the balance at the end of December is $21,000 at an interest rate of 3.99% (which I refinanced a couple months ago down from 5.25%). At this rate, the loan should be paid off in less than 2 years (around 22 months). My payment is about $965 a month which I could very easily cover before, but due to a new job my finances are much tighter and I could use extra cash flow each month. I have the opportunity to refinance my loan again with my other bank for 3.5% for 36 months and can take cash out (I was thinking about $5,000-$9,000) and the vehicle is blue booked around $34,000. I would use all of the cash out to pay down my student loans, which are at 6.8%. Also I would plan to continue making the same payment (about $1,000) each month but I think it would be nice to have some “breathing room” in case my funds get tight, but I understand I am essentially adding another 12 months onto my loan and additional interest if I just make the minimum payments. I was wondering what your thought are on this plan?

– Erik

I think that’s a reasonable plan. My only concern is that you’re going to be able to make those car payments in the future, because your car loan is a loan with collateral, meaning they can repossess your car if you fail to pay.

On the flip side, this reduces your interest rate on the car loan and helps you pay off several higher interest loans. According to a few different models I just tried out in Excel, virtually every variant I could think of for this scenario saves you money in the long run.

Is it worth the risk? It depends on your own situation. Are you actually going to be able to make the car payments at the adjusted rate in the future? I can’t tell this for you, but if it looks as though you can easily pull it off, I’d make the move.

Q3: Rolling over a 403(b)?
I have a 403(b) which I put $100 a month into (I have state retirement as well). I don’t have the best relationship with the company and get frustrated with some of their marketing techniques. At any rate is there any benefit to rolling the 403(b) into a Roth? I am not sure how long I will stay a state employee. Is the Roth going to just sit there if I change careers and can I still contribute to it? There are many options out there. I’d like some clarity. Thanks. I am a teacher.

– Amity

Unless you are leaving your current position or are of retirement age, you can’t roll over your 403(b) without paying some very stiff tax penalties for doing so. Usually, your window of opportunity to do this comes when you switch jobs.

If you are switching jobs, then I would highly recommend a rollover for almost everyone. Not only is a Roth IRA post-tax (which means you won’t have to pay taxes on it in retirement), but you have much more control over the investments and who it’s invested with.

Of course, you do have to pay income taxes on the withdrawn money when you move it over. Typically, you convert a 403(b) into a Traditional IRA, then convert that IRA into a Roth IRA as two separate steps, but your investment house of choice can help you with all of this.

Q4: Next generation’s big mistake?
I’m wondering if you have any insights into what we should be warning our kids about doing wrong financially?

See, I think part of the reason for the current personal debt crisis (consumer debt, mortgage debt, and student debt) is that our parents (I’m 32) didn’t have access to massive streams of easy credit the way we did, so they didn’t warn us about it, and we didn’t grow up with the example of what not to do with debt. I’m not begging off of responsibility, and there’s a good chance I’d have ignored my parents’ warnings anyway, of course.

I guess what I’m getting at is this: my parents’ parents, some of whom lost everything in bank crashes during the Great Depression, would have warned against keeping your money in a bank- EVEN THOUGH the FDIC renders that particular risk moot at this point. We’re likely going to warn against taking on debt to fuel your short term gratification, EVEN THOUGH (pure speculation here) it will likely be tough (by the time my 15-month-old daughter is in a position to GET credit) to get as much easy credit as we got.

What do YOU think the next big mistake will be? Have you considered this at all? Read anything about it?
– Mike

My biggest concern with the next generation is that many of them are going to have weak face-to-face communication skills. I can easily see this translating into them being taken in by the smaller subset of people who can communicate well, convincing them to invest in substandard insurance, investments, and so forth.

If you want a taste of what I’m talking about, watch the film The Social Network.

My suggestion: if you have children, do everything you can to encourage them to have face-to-face interactions with their peers. Don’t let them hole up in their room to sit on Facebook all day. Get them out into the community doing something that involves significant interaction with their peers and with adults.

Q5: Gift for newborn
I am a recent, first time Aunt and I am really excited about it. I have been trying to figure out a way to give a meaningful gift this year, but also for future years, to my nephew. I don’t intend for this to replace a small, appropriate gift to him on his birthday each year but as a supplement (one that he won’t appreciate until he is older).

My sister and her husband are hard working folks in the education field (he is an elementary school PE teacher and she runs the before/after school enrichment program for the school district) so I know that education is important to them. I was thinking I could put aside a little bit of money each year to help fund my nephew’s college/technical school education. I don’t have a lot of money to put aside for this, but I think education is important as well.

What’s the best way for me to do this? Can I start a 529 account for my nephew? I will probably need to talk to my sister and brother-in law about this but I am afraid if I say “so sister, have you thought about your son’s college education?” she might just freak out (she only had her son a week and a half ago).

Any suggestions or ideas you have are greatly appreciated.
– Ani

You can absolutely start a 529 account for your nephew. All you do is open one with him as the beneficiary and start socking away money according to whatever plan you have in mind.

If I were you, I would start it quietly, then bring it up to them when the routine of having a child is familiar in their life. I wouldn’t try to have this conversation with the parents of a newborn, as they’re going to be frazzled as they watch all semblance of a home life go topsy turvy.

If they reject the plan, you can just change the beneficiary to yourself and sit on that money to see if you eventually have children, then change the benficiary to them, or to see if you return to school for some purpose in the future.

Q6: Handling personal injury settlement
I’m about to come into some money from a personal injury lawsuit settlement. I’m 24, living at home rent free with my father to save money, own my car, and have almost no debt (other than about $7k in Stafford loans from college). I currently make about $35,000/year as a production assistant for film and television. I don’t have any work retirement plans or healthcare plans available to me in my current line of work. I have always been really good at saving my money but I have yet to really start investing for the future. I’m pretty new to the whole investing idea but I think I want to open up a Roth IRA. Is that a good place to start? Anything else you could recommend?

– Ashley

A Roth IRA is a great place to start.

My first move with that money would be to clear all debt from my name. This will simply give you more freedom for the future no matter what you choose to do.

After that, by all means, invest it. A Roth IRA is a good start as it is a wonderful vehicle for retirement savings that also allows you to pull out your contributions penalty-free if you choose to do so at a later time. I have a Roth IRA myself, through Vanguard.

Q7: Not caring about future
My 48 year old (single w/no children) daughter graduated with a bachelor’s degree in 2000. She has yet to earn her first nickel as the fruit of her education (Creative Writing). She has managed to survive without our assistance in the meantime by working at various high school grad type jobs, sometimes seasonally at around $20.00/hr but more often at around $10 to $12. Without our knowledge because she decided to not include us as supportive or nosey parents in her life, she now has (she says) a little over $50,000 balance due on her student loans, including accumulated interest, which she borrowed while in college, now over 10 years ago.

She recently fell on especially hard times and could no longer endure them without asking for our assistance. So far, not to help pay off the student loans, but to give her an opportunity to recover by affording her totally free room, board, use of a car etc. We are doing this for her, and it is at marginal increased expense for us, but nevertheless, because of our age and her own future, think it should not and cannot be indefinite and long term.

We want her to find a way to earn an independent living, but that seems unlikely with her present skill sets and the current economy. She works on call as a substitute teacher in the local school district and has been able to save about $6,000 since she moved home. She is not a certified teacher and cannot be employed as such. Now, she is hoping to be readmitted to the University as a grad student to obtain a Master’s degree in English, thinking that credential will enable her to find employment as an instructor at a community college; confident she could thus earn a salary large enough to not only live on, but repay her student loan debt(s) . On that prospect, she is preparing to ask for more student loan money to finance another year at the University. Because doing this will require that she will have to move to another city, acquire her own living quarters and attendant expenses at a minimum in addition to the cost of the expected year of education, I estimate she will need about another $25 K of borrowed money.

She seems to have no idea of her own but and seems unconcerned that (1) the loan will not be available to her and (2) that it will be insufficient to finance all expenses. As of now, she has not yet repaid a single dime of the previous student loans – she says she has been given “forbearance” and/or another type of debt payment relief all these years. So, I calculate that if she does borrow another $25M, her total will be between $75 and $80 if and when she does get a master’s degree, but still without a secure job in hand that may pay enough to make all this worthwhile. Can you provide information and insight that might help us in this situation?
– Kenneth

You can lead a horse to water, but you cannot make them drink.

For me, this is the whole trickiness of personal finance right in a nutshell. You can’t make others behave in the ways you want them to. You can only push them in that direction. Quite often, the nudges you give in that direction are painful ones that seem to go against our instincts for caring for others.

The first thing you should do at this point is sit down with your wife and figure out what your long term goal is, both for getting your daughter on track and making sure she doesn’t adversely affect your life at this point. What is the minimum state you expect from her in five years? Living independently? Having a job?

You need to then ask yourself if you are willing to let her sink or swim on her own. If she falters again, will you take her in again? Does she know that, and is she banking on that? If she knows that you’re a permanent fallback, why would she not take the “fun” route that has a high chance of failure rather than the mature route that establishes an independent life?

This is a hard discussion to have, but whenever I hear about parents letting older children move back in until they get their act straight, I can’t help but think that this action enables the children to make further poor moves in life. At some point, the children have to swim alone.

Q8: Off-topic topics
What topics do you avoid at and why?

– Andrea

A long time ago, my wife and I set down some basic guidelines of what lines not to cross in our life to discuss in front of a wide audience. There are simply some aspects of our life that aren’t appropriate for and don’t need to be discussed on this site. More than once, this has caused some controversy on the site because some of the elements that have led us to certain decisions are on the other side of that line. I’d rather anger a thousand readers than to cross such a personal line.

I am as diligent as I can be about protecting the identity and privacy of readers, even to the point of retroactively editing posts to protect them. More than once, this has caused controversy because I’ve deleted elements of the story of a reader but left my response to that reader unchanged, leading to all sorts of crazy conclusions. I’d rather have 1,000 readers calling me wrong and unethical than to destroy the privacy of one reader.

I don’t like talking about the specifics of my religious or spiritual beliefs other than to say that I’m a Christian, that I greatly value science (which tends to be the big controversy these days (a great summation of my thoughts on science and Christianity is in )), and that I believe strongly in separation of church and state, which is another hot button issue these days.

I try not to write much at all about my family and friends beyond my immediate family unless they give me specific permission to do so.

I try to avoid specific political statements, other than to say I consider an awful lot of the political discourse today to be poisonous and detrimental to all of our futures (this goes for the far left and the far right). I used to cross this line on occasion, but it’s just not worth it.

That mostly covers it in terms of topics I avoid.

Q9: Emergency fund in a CD?
I am very fortunate to be in a place where I don’t need to worry about money. I’m 21 years old, enrolled in an undergraduate program in engineering. My parents are well-off, and have been paying my tuition and rent, so that I do not have debt after I graduate. On top of this, I work 10-15 hours a week as an administrative assistant to pay for my food, sorority dues, and any other spending I want. However, I generally spend as much as I earn at work so I have almost no savings. I have $500 in a Sharebuilder account that I’m using to get to know the market, and so far I’ve done nothing but lose money in it so I am hesitant to put any more money in. I have not been paid in the last couple weeks from my job because of some HR issues, and this, combined with Christmas, has put me in about $400 in credit card debt that the first payment on it will be due in the beginning of February.

My dad passed away in May, which was devastating, but he left me a trust fund that I start getting money from this January. My dad had expressed that he didn’t want me to spend any of the money, and instead use it to one day use it for a down payment for a house. Because of this, I had wanted to leave it in the account until I was ready to do this, so I wasn’t tempted by having the money to spend, but I found out recently that this wasn’t an option and I would be receiving payouts from it annually instead.

I am planning on using my first payout to pay off all my debt and pay for the rest of my sorority dues for this year, but this still leaves me with about $2000. My question is: should I put this in a savings account as an emergency fund or put it in another account such as a CD so that it can gain more interest? I read your blog all the time, and if I didn’t have the luxury of having my rent and tuition paid for, I would put it in a savings account as an emergency fund immediately. However, I’m graduating in two years, and maybe putting it in a 2 year CD would allow it to grow so that I would have a more substantial emergency fund when I graduated and therefore no longer would receive money from my mother.
– Katie

A CD right now is not a high-growth option. You might earn 2% on the money if you find a great offer.

If you want to keep this money in a form that doesn’t lose principal, I would probably encourage you just to keep it in savings, because savings offer liquidity that CDs don’t offer. The difference between a good savings rate and a good CD rate are so low right now that the liquidity that savings offers trumps the interest rate difference, in my opinion.

If you have almost no savings, I think having a cash emergency fund would be a solid idea anyway, just for unexpected events like a travel emergency and so on.

Q10: Retirement savings or debt payments?
I am 29 years old and have been out of grad school for 18 months. I am very fortunate to be well-employed because I have about $27K left in student loans ($23,600 at 6.5% interest and $3,400 at 7.5% interest). I have saved three months’ expenses in a high interest savings account and $40K in my 401K (mostly from employment prior to going back to school at age 25). I have a 1996 Honda with 180K miles on it, which I hope to drive to 200K before replacing. I rent my apartment and don’t have any credit card debt.

Currently, I am contributing $625/month to my 401K with no employer match, and I am paying $1380/month toward my student loans, which means that I am paying an extra $920/month toward the higher interest loan. I also save $150/month in personal savings towards a new car.

My goals are to get rid of the student loan debt and start saving for a car and other big expenses. I put about 1,000 miles on my car per month, so at this rate, I’ll pay off the loan shortly before the car hits 200K, and there won’t be a lot of time to save up for a car. If the car dies in the meantime, I’ll have to use the emergency fund.

This situation leaves me with a couple of questions. Should I could quit contributing to my 401K to increase my debt payments and savings for the car? What about a loan from my 401K basically to “refinance” my student loan at a lower interest rate (my employer’s rate would be 4.25%)? And what do I do with the fact that I actually don’t like my job and would like to seek new employment within a year?
– Annie

At the rate at which you’re paying down your student loans, a “loan” from your 401(k) to accelerate the paydown isn’t worth it in my opinion, especially if you’re considering switching jobs as such debts will be counted as taxable income upon moving to a new employer.

As for whether you should cut your 401(k) contributions to save more for the car, it depends really on how much you’re making and expect to make in your career. If you multiply your contributions by 12, you get $7,500 per year. Are you making more than $75,000 per year? What about employer contributions?

If I were you, I’d cut your retirement contributions to 10% of your annual income. So, if you’re making $40,000 a year, that means you’d contribute $4,000 a year and you’d thus contribute $333 a month. This would leave you with an extra $300 per month with which to save and pay down debts.

Got any questions? Email them to me or leave them in the comments and I’ll 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.

Loading Disqus Comments ...