Financial Advice

[field2004]

Hi,

I was wondering if anyone could point me in the direction of where to look for financial advice? My husband and I have several issues that I don't feel able to make the best decision on by myself including (but not limited to):

1. What to do with extra money that is sitting in a savings account?
2. What to do about a savings account we have set up for our 16 month old daughter that I will only allow her access to (upon adulthood) if she proves she will be responsible with the money - or alternatively we may use it as an education fund. We are expecting another child soon and will do the same for them.
3. What to do about a (probably) slightly underwater mortgage? We bought in MI in 2006 and are still feeling the repercussions of the downfall. Not sure if it makes sense to just ride out our affordable mortgage or try to pay off early.
4. Are we putting enough away for retirement/have enough life insurance? We are at this point only going through work. Not sure we are being aggressive enough with this.

I am sure there are other things we need help with. The thing is that I don't want to go somewhere to an advisor that has ANY interest in what we do...I am willing to pay a fee for advice. I just don't want to get information that benefits our advisor more than us. Does this make sense? Is there such a thing? A CPA? A fee based financial advisor? I am really ignorant on this and any advice on how to find someone to help us would be appreciated.

[disneysteve]

Welcome. Honestly, I think the best place to get free unbiased advice is right here. Lay it all out for us and I guarantee you'll get great feedback on your situation.

[Petunia 100]

Hi,

I was wondering if anyone could point me in the direction of where to look for financial advice? My husband and I have several issues that I don't feel able to make the best decision on by myself including (but not limited to):

1. What to do with extra money that is sitting in a savings account?
2. What to do about a savings account we have set up for our 16 month old daughter that I will only allow her access to (upon adulthood) if she proves she will be responsible with the money - or alternatively we may use it as an education fund. We are expecting another child soon and will do the same for them.
3. What to do about a (probably) slightly underwater mortgage? We bought in MI in 2006 and are still feeling the repercussions of the downfall. Not sure if it makes sense to just ride out our affordable mortgage or try to pay off early.
4. Are we putting enough away for retirement/have enough life insurance? We are at this point only going through work. Not sure we are being aggressive enough with this.

I am sure there are other things we need help with. The thing is that I don't want to go somewhere to an advisor that has ANY interest in what we do...I am willing to pay a fee for advice. I just don't want to get information that benefits our advisor more than us. Does this make sense? Is there such a thing? A CPA? A fee based financial advisor? I am really ignorant on this and any advice on how to find someone to help us would be appreciated.

Yes indeed, there is such a thing. You want to see a good fee-only Certified Financial Planner (CFP). You can search for one in your area on these sites:

http://www.napfa.org/

http://garrettplanningnetwork.com/

Also, you can ask specific questions right here on these forums.

[bjl584]

Welcome. Honestly, I think the best place to get free unbiased advice is right here. Lay it all out for us and I guarantee you'll get great feedback on your situation.

That being said, please don't take offense to any advice, suggestions, or criticisms that you may receive. There are a lot of passionate people here and they are all just trying to help in their own way.

[MonkeyMama]

Just a few thoughts:

1 - I am really wary of free online advice (you do get what you pay for!), BUT the boglehead forums have some really knowledgeable people. I would personally start there as you would get some excellent overall financial advice. You would get some high-end finance and tax advice that would be hard to find even if you paid for it.

2 - Do you mean you only have life insurance through work? The problem with that is jobs change and life insurance falls through the cracks. (Or, you get sick and are ineligible for a new policy). Term life insurance is really cheap and I would shop for a private policy ASAP.

3 - I've seen too many people swindled by their financial advisors so I really do NOT Like. I tell my clients I'd recommend a trusted advisor if I knew one. So, this is why I recommend #1 (above). In addition, take control and start learning what you can about personal finance - the internet is a trasure trove of info.

Where there is money, there are people lining up to fleece you. It just is what it is. If you do go that route, just be really careful. Don't blindly hand over your finances. You need to dig deep sometimes to find hidden fees and commissions. & if you feel more comfortable going the "paying for advice" route, ask for second opinions of online forums like this or bogleheads. We are good at pointing out high fees and bad advice.

[field2004]

Wow, everyone thanks for the feedback. I have contacted a fee based financial planner and I will see how I feel about their fees, etc. I will look into private life insurance for me and my husband asap - I have been having a bad feeling about neglecting that one, especially since we became parents.

In the meantime, to organize my thoughts and to see if anyone has any quick advice I will give you some of our information:

I am 35 and my husband is 39. As I mentioned we have one 16 month old child and are expecting again in early January. We are not planning on any more children. Our incomes are not expected to go up - we are both in pretty stagnant fields. I am tempted to go back to school to try to earn more money, but scared to take a risk with student loan debt, loss of income etc.

Our monthly take home income is approximately $3,500. I work 20 hours/week and my employer provides health insurance for the family. My husband works full time and his employer provides a company car (+ gas and insurance), internet access and a smartphone. He gets quarterly bonuses typically around $1,000 - $1,500.

I am trying to save $600/month for our savings account - there are some smaller things we are saving for and some larger things that I am sure will come up (down payment on new car, etc.) Plus I put $100/month into our daughter's savings account and my husband and I have separate accounts for spending money that each get $100/month. So that accounts for $1,000/month.

We have very few expenses (just utility bills) and no debt except for the house. We bought it in 2006 for $167,500 and owe about $110,000. I am guessing we could sell it easily for about $100,000, but I am not really sure of the true market value. We have put some money into it - mainly smaller updates, but did remodel the kitchen and put in a new paver patio. We have an escrow payment built into the mortgage and pay about $816/month. The interest rate is 4.5% on a 30 year fixed.

We have about $40,000 sitting in a low interest savings account. This is the thing that really bugs me. I feel like it is just silly to have that money sitting there. It makes us a little more spendy than we should be (overspend the checking account a little?...just pull a little out of savings!) and is doing nothing for us. I am thinking that we would like to keep at least $10,000 accessible, but more than that seems excessive.

So really my big questions are:

1. Should we try to throw money at the house to get it paid off more quickly? Perhaps stop saving and just pay it off as quickly as possible? Or is this ineffective since the payment is fairly low?

2. What kind of account should I have set up for my daughter? I don't want her to automatically get access to it when she turns 18. And I also would like to avoid being taxed on it if possible. It is less than $2,000 right now, but eventually should yield about $18,000. We will need to start another fund for the expected child too.

3. What to do with the money sitting in savings? I think I am fairly cautious with money, but realistically as we are raising the children I don't expect to be able to add much more to it for a while...unless I go back to work full time which is not desired. Much of the savings was accrued while I worked full time. We have not added to it significantly in a year. The $600 I am trying to save right now I expect to go to projects like new siding for the house, new roof, new appliances eventually...

4. I don't know anything about our retirement savings status. Honestly it is embarrassing. My employer matches my 5% pre-tax contributions and that is all I know. I would have to look into more detail to see what kind of 401 it is. I can tell you neither of us expect a pension so we will be living on (fingers crossed) social security and our retirement savings (I think).

If you made it through all this I really appreciate it! Sorry to be so wordy. Please give me any advice you might have and don't hold back. If you think I am doing something wrong please let me know. My husband is pretty hands off about our money situation and sometimes I feel like I am making lots of mistakes!

[snafu]

I suggest a straight forward read like The Automatic Millionaire [David Bach] likely available at your library as a starting point. Getting advice from a fee based adviser is excellent from the knowledge base and secondly because it requires that you put your entire financial picture together and open to various choices. This site can be very enlightening as we have different backgrounds and different experiences so offer suggestions in an effort to help you fully understand your options.

Repeating DS 'lay it out' and see what the feedback results.

[jIM_Ohio]

Wow, everyone thanks for the feedback. I have contacted a fee based financial planner and I will see how I feel about their fees, etc. I will look into private life insurance for me and my husband asap - I have been having a bad feeling about neglecting that one, especially since we became parents.

In the meantime, to organize my thoughts and to see if anyone has any quick advice I will give you some of our information:

I am 35 and my husband is 39. As I mentioned we have one 16 month old child and are expecting again in early January. We are not planning on any more children. Our incomes are not expected to go up - we are both in pretty stagnant fields. I am tempted to go back to school to try to earn more money, but scared to take a risk with student loan debt, loss of income etc.

Our monthly take home income is approximately $3,500. I work 20 hours/week and my employer provides health insurance for the family. My husband works full time and his employer provides a company car (+ gas and insurance), internet access and a smartphone. He gets quarterly bonuses typically around $1,000 - $1,500.

I am trying to save $600/month for our savings account - there are some smaller things we are saving for and some larger things that I am sure will come up (down payment on new car, etc.) Plus I put $100/month into our daughter's savings account and my husband and I have separate accounts for spending money that each get $100/month. So that accounts for $1,000/month.

We have very few expenses (just utility bills) and no debt except for the house. We bought it in 2006 for $167,500 and owe about $110,000. I am guessing we could sell it easily for about $100,000, but I am not really sure of the true market value. We have put some money into it - mainly smaller updates, but did remodel the kitchen and put in a new paver patio. We have an escrow payment built into the mortgage and pay about $816/month. The interest rate is 4.5% on a 30 year fixed.

We have about $40,000 sitting in a low interest savings account. This is the thing that really bugs me. I feel like it is just silly to have that money sitting there. It makes us a little more spendy than we should be (overspend the checking account a little?...just pull a little out of savings!) and is doing nothing for us. I am thinking that we would like to keep at least $10,000 accessible, but more than that seems excessive.

So really my big questions are:

1. Should we try to throw money at the house to get it paid off more quickly? Perhaps stop saving and just pay it off as quickly as possible? Or is this ineffective since the payment is fairly low?

2. What kind of account should I have set up for my daughter? I don't want her to automatically get access to it when she turns 18. And I also would like to avoid being taxed on it if possible. It is less than $2,000 right now, but eventually should yield about $18,000. We will need to start another fund for the expected child too.

3. What to do with the money sitting in savings? I think I am fairly cautious with money, but realistically as we are raising the children I don't expect to be able to add much more to it for a while...unless I go back to work full time which is not desired. Much of the savings was accrued while I worked full time. We have not added to it significantly in a year. The $600 I am trying to save right now I expect to go to projects like new siding for the house, new roof, new appliances eventually...

4. I don't know anything about our retirement savings status. Honestly it is embarrassing. My employer matches my 5% pre-tax contributions and that is all I know. I would have to look into more detail to see what kind of 401 it is. I can tell you neither of us expect a pension so we will be living on (fingers crossed) social security and our retirement savings (I think).

If you made it through all this I really appreciate it! Sorry to be so wordy. Please give me any advice you might have and don't hold back. If you think I am doing something wrong please let me know. My husband is pretty hands off about our money situation and sometimes I feel like I am making lots of mistakes!

There are 3 types of planners
transactional
fee based
fee only

and they are all different. You want FEE ONLY, not fee based. A fee only planner will only receive fees from you, a fee based planner will earn commissions on products they sell, and that does not lend itself to objective/unbiased advice.

1. Should we try to throw money at the house to get it paid off more quickly? Perhaps stop saving and just pay it off as quickly as possible? Or is this ineffective since the payment is fairly low?

A few other points:
Have you considered short selling your house? The bank will likely forgive the debt you owe. That was one of best moves I did in last 3 years to improve my financial situation.

The issue with the house is you will pay more for it than it is worth for two reasons:
1) you are underwater by $x
2) you are paying interest on loan- for a 30 year loan, you generally pay 2X the loan amount in interest (so for a $200k house, a person pays about $400k in interest over 30 years- so a person pays $600k for an asset not even worth the $200k it was purchased for in this example

2. What kind of account should I have set up for my daughter? I don't want her to automatically get access to it when she turns 18. And I also would like to avoid being taxed on it if possible. It is less than $2,000 right now, but eventually should yield about $18,000. We will need to start another fund for the expected child too.

Look up
UGMA, UTMA, 529 and coverdell accounts, does one of the descriptions fit your need? If your daughter fell out of favor, you could swith the 529 to another child's name (this is how I handle it for my kids). Also look up JTWROS (joint tenants with rights of survivorship) for the savings account. Your question borders on estate planning and college planning, so realize JTWROS is more estate planning, the first four are college planning.

3. What to do with the money sitting in savings? I think I am fairly cautious with money, but realistically as we are raising the children I don't expect to be able to add much more to it for a while...unless I go back to work full time which is not desired. Much of the savings was accrued while I worked full time. We have not added to it significantly in a year. The $600 I am trying to save right now I expect to go to projects like new siding for the house, new roof, new appliances eventually...

I would have 3 months-24months expenses in savings. Depends on types of employment in household if you are closer to needing 3-6 months or 18-24 months cash. The focus on setting goals and building an investment plan.

4. I don't know anything about our retirement savings status. Honestly it is embarrassing. My employer matches my 5% pre-tax contributions and that is all I know. I would have to look into more detail to see what kind of 401 it is. I can tell you neither of us expect a pension so we will be living on (fingers crossed) social security and our retirement savings (I think).

A good retirement plan for a family starts with saving 20% of gross income. Some of that could be short term savings (emergency fund), but realize the sticker shock of 20% being 4 times what you are setting aside now. I would solve the other issues before you go into this deeply. Beware of any advisor which encourages you to invest without examining #3 first. For example, when you meet with planner, don't tell them about #3 and see if they ask about it.

[msnln]

2. What to do about a savings account we have set up for our 16 month old daughter that I will only allow her access to (upon adulthood) if she proves she will be responsible with the money - or alternatively we may use it as an education fund. We are expecting another child soon and will do the same for them.

I wanted to chime in on this because when my daughter and son were born, I had similar idea and set up an UGMA accounts, now to realize that when applying for college financial aid, the college will expect this account to be fully depleted for education and at the end, there will be no funds available for the kids. For example, if you have $10,000 accumulated, they will expect $2,500 of the fund to be used each year over four years in calculating financial aid. Without this fund, your daughter may qualify for additional financial aid.

So, I started taking the funds out slowly to pay for my kids' activities and such. One upside I am seeing is that for the first $1,000 of earnings each year is tax free, between 1K and 2K are at child's tax rate, and over $2K at parent's rate. So, I sell shares so that earnings are below $1K each year for $2K of tax free income.

You might want to set up an account in your name separately and give as gift when your kids are grown up.

[cardtrick]

Should we pay off the home? - Depends on what the interest rate on your mortgage is. Mine is a 30 year 3.75%. I don't plan on ever making even a penny extra in payments. Why? Because if I were to put my money into a 30 year bond right now, I'd get 3.89%. Pretty much everyone agrees that rates will be much higher in the future. Just a matter of figuring out when that will happen. Ignoring the effects of taxes, I'd be better off not paying the mortgage early. Doesn't really matter how much in interest I'd be paying over the next 30 years.

My reasoning also is that stocks over the long run return more than 8% a year. If I just accumulate those extra principal payments and put them into stocks, I'd be much better off.


No financial advisor can predict where the markets will be. You're better off learning a bit about the markets and investing for yourself. Everything else that the advisor can tell you, you can learn from here or from bogleheads. So, my suggestion would be to spend some time learning about retirement accounts, investments etc.

[ZZZ]

I would set up a tiered emergency fund with your savings.

Leave about 2 months living expenses in savings, than put the rest in I-bonds or CDs. The I-bonds and CDs earn a slightly higher rate of return than your savings. It normally takes a little longer to access those funds though, which supports holding 2 months or so in living expenses in savings. The only downside to the I-bonds and CDs is the penalty for withdrawing early. However, if you have a low risk of job loss, the higher rate of return outweighs the chance of penalty.