What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Perpetual homeowners insurance
2. College loans for school abroad
3. Simple ways to calculate interest
4. Comparing credit scores
5. Starting a home daycare business
6. Paying off spousal loans
7. Closing credit card accounts
8. Poor maintenance by other homeowner
9. Emergency fund or debt paydown?
10. Book publishing basics
11. Basic camping advice
12. Reusing old cardboard boxes
This past weekend, while we were camping, my youngest son had a bad dream in the middle of the night. He happened to be curled up in his sleeping bag next to his oldest brother, so in the middle of the night, he climbed out of his own sleeping bag and into his brother’s bag, sharing it with him.
When I woke up in the morning, they were still in that sleeping bag together, the oldest boy with his arm around his younger sibling, keeping him safe from the things that go bump in the night.
Love is the simplest thing in the world sometimes, something as simple as putting your arm around someone you love and comforting them when they are scared.
Q1: Perpetual homeowners insurance
I’ve been seeing ads for perpetual homeowners insurance. They estimate that your premium is around 10x you current yearly premium. then you dont have to pay anything ever again, and you can cancel the policy at any time and recoup your initial premium. im considering doing it and paying myself back over 10 years. are there any downsides to using this type of insurance other than tying up your money for 10 years?
– Philip
The biggest drawback with perpetual homeowners insurance is that it tends to be offered by “fly by night” companies who will take your large one-time payment and then “go out of business,” taking your money with them.
Perpetual homeowners insurance can be a good policy, but it relies even more heavily than normal insurance on the long term health of the insurer. If you buy a policy and that company goes out of business quickly, you’re out of a lot of money, and that money is uninsured money.
I would only do this policy if the company has been around for a long time and has very stable financials and a strong insurance rating. Do a lot of homework on that company before diving in.
Q2: College loan for school abroad
My daughter is looking at a graduate school opportunity in The Netherlands. The uni says it does not participate with US Federal loans. I am correct then that our only option besides grants or scholarships is private loan? Just want to be sure I am understanding that correctly.
– Nadine
You’re correct. If a school doesn’t participate in the US federal student loan program, loans are going to have to come from private lenders outside of that program. Other means of funding that education – grants, scholarships, and out-of-pocket money – are perfectly fine.
In general, the federal government doesn’t like to guarantee loans to send students abroad, as the value of that loan money is exiting the United States. Part of the advantage for the government of guaranteeing a loan for a student that stays in the United States is that the money stays within the United States, bouncing around from place to place and generating revenue both for people and groups in the United States but also for the government in the form of taxes. If a loan is given to an institution overseas, that money leaves the country and doesn’t continue to benefit US citizens. I think their choice to largely only guarantee loans for US schools is a sensible one.
Unfortunately, that doesn’t help you in your current situation. I would suggest seeing if there are any scholarships for students studying abroad, as those are revenue sources that domestic students won’t be able to tap.
Q3: Simple ways to calculate interest
I haven’t had a credit card for close to six years now. Recently I got myself a PayPal debit card, since my wife and I like to go to tour the convention circuit, and we thought this might be a good way to keep our con spending under budget. (We load the cost of the hotel, plus souvenirs, autographs, photo ops, and food onto the PayPal balance and pay for everything with the debit card. I can even tell PayPal NOT to draw from my bank when the balance runs out!) Today I had a brilliant idea. Why not keep a small emergency stash on my PayPal balance, and use the debit card as a credit card? If we HAVE to use it, fine. But we’ll pay it back with interest. My question is, what’s the simplest way to calculate how much interest to charge myself when I borrow money from myself?
– Seth
The concept of using a debit card linked to your Paypal account as a potential emergency fund is a solid one. My only concern is that occasionally Paypal does like to lock accounts, sometimes for the barest of reasons, but I still lean toward this being a good idea overall.
I wouldn’t worry about repaying money borrowed “with interest.” Instead, I’d establish a certain dollar amount for an emergency fund that you want to keep ($1,000? $2,000?) and keep that in there as a balance. If interest is earned, take it out of the account and use it elsewhere or else just leave it in there for the time being. That way, if you do need to use it, you won’t have to “pay back” as much.
So, for example, let’s say you decided on a $2,000 emergency fund. Over time, that built a little interest and wound up at $2,040. Then, you had to spend $500 in an emergency, bringing the balance down to $1,540. At that point, you’d just need to put in $460 to bring it back to $2,000.
In essence, you’d treat any interest earned in that account as additional emergency fund savings that you don’t really have to think about until you’re rebuilding the account after an emergency. That’s the strategy I’d use.
Q4: Comparing credit scores
I googled to find the average credit score and the number range was different for FICO, etc.than the 250-900 for Equifax. My Equifax was 799. How does that compare to the others?
– Daniel
It’s really hard to know how it compares to others. Different credit bureaus use slightly different methods of calculating credit scores and they don’t release the formulas to the public.
In general, if you have a good credit score with one company – and 799 with Equifax is a good score – then you’ll have a good score with the other companies on their particular scale.
That’s because the actual elements of a credit score are basically the same from credit bureau to credit bureau. If you get almost all of the answers right on a test, it really doesn’t matter how exactly it’s scored – you’re going to get a good grade, regardless.
Q5: Starting a home daycare business
I read the article on running my own business as a home day care but I don’t know how? How can I start first? How can I register the home day care? Please can you help me give some tips.
– Jenny
The rules and regulations for home daycares vary incredibly widely from state to state. You’re going to want to start by searching Google for “how to start a home daycare in [STATE]” where [STATE] is just whatever state you happen to be in.
Given the huge variance in licensing requirements, rules, educational requirements, facility requirements, and so on for home daycares, I really can’t offer any sort of sensible advice on what to do as a first step beyond simply learning about and understanding the rules in your state and also learning the basics of running a business – because, like it or not, this is a business.
Most states offer pretty clear documentation on what you need to do to open a daycare in your home. Just follow those instructions – and be prepared to run things like a business.
Q6: Paying off spousal loans
My husband and I have been married for two years. He came to the marriage with $50,000 in student debt, of which, with my pushing, we have paid off about $8,000. He comes from an upper-middle-class background (private college paid for), and I come from a lower-middle class background (my parents didn’t go to college…I got lots of scholarships). Recently, my (beloved) grandfather died, and I found out that I stand to inherit about $90,000. My grandfather was a very simple man who never earned much money, and he saved diligently his whole life. With the inheritance, I feel compelled to do the “rational” thing and pay off my husband’s (and now my) debt, but despite myself, I find somewhat resentful. Should I use my grandfather’s hard-earned and hard-saved money for that purpose? As a student, my husband had a nice apartment to himself…while I pursued my own graduate studies working full-time and sometimes living with up to 4 roommates. Should I get over my resentment and do the rational thing? Is paying off my husband’s somewhat frivolous loans a disservice to the simple, no-frills life of my grandfather? I suppose that’s what worries me most.
– Monique
First of all, before we talk about anything else, your feelings of resentment toward your husband are something you’re going to have to resolve or else they are going to get worse and worse and create real lasting problems in your marriage (if they already haven’t). You seem deeply bothered with the spending choices your husband made before your marriage and how those choices have an impact on your collective finances now – because, like it or not, your finances are linked at this point, no matter how separate you try to keep them.
This is water under the bridge. Once you made the choice to marry, you accepted what happened in that person’s past – if you were unable to accept that, you should have never chosen to marry.
What matters right now is your financial situation – and your spending habits – going forward. Obviously, the wisest financial move is to pay off the debts with the inheritance. That puts the two of you collectively in the best financial position going forward from here. That debt exists from the start of your marriage. It does not matter why that debt exists at this point.
The other factor that matters is the current spending choices of both of you. While neither one of you should expect the other to completely fold to the other one’s beliefs, you should both expect your partner to compromise a little and find a place somewhere in the middle where you can both be joyful and work toward your individual goals and especially the goals that you share. It takes time and a lot of communication to find that happy medium ground. Give it time. Give it communication. It’s the best thing you can do for your marriage.
Q7: Closing credit card accounts
Should I close my credit card accounts now before I initiate the bankruptcy process? Currently none of my credit card payments are more than 30 days past due. However I don’t have the extra money to pay them.
– Nadine
I don’t believe that closing the accounts will make a bit of difference in your bankruptcy proceedings. You’ll still owe money to each of those companies and they’ll still line up among your creditors during the setup of your plan to emerge from bankruptcy protection.
If you’re sure that you’re going to file for bankruptcy, you likely have a lawyer already in hand to help you through this process. I would ask that lawyer about the specifics in your state.
My guess would be that you’ll be better off in terms of your own finances to leave those lines of credit open rather than closing them so that you can have potential access to them in the future.
Q8: Poor maintenance by other homeowner
In my fathers trust he is leaving 2 houses to be split eqally between his 3 children. Now 1 sister lives in one house and the other 2 siblings live in the other house wich well call house #2 . house #2 was originally supposed to go to the male sibling before my father sold one therefore leaving us only 2 properties. My male sibling doesnt do any maintenance on the house he lives in but continues to bring all kinds of stuff he finds in dumpsters. The state and city and county authorities have come to site us on numerous ocations and we had to clean up the property. My sister and i are at our wits end with how he makes the property look. Is there some kind of legal action we can take to make him see he cannot cintinue on this course or he could stand to be fined or something.
– Lois
I’m assuming that you are the other tenant in the second house.
It really depends on the legal standing that you and your brother have regarding the property. I’m assuming that you have a joint tenancy arrangement, where if one of you dies the other one becomes sole owner of the land.
Honestly, if I were you, I would contact a property lawyer in your area who would know the local and state laws and guidelines involving joint tenancy arrangements and what your rights are if the other tenant of the land (the brother) is abusing the property, which is what sounds like is happening here.
The best long term solution may be to find some way to split the property, or to have one of you sell your portion of the property to the other.
Q9: Emergency fund or debt paydown?
My husband and I have been aggressively paying down his student loans over the last five years and we have about $42,000 left. $13,500 @ 4.55% and $28,700 @ 6.55%. (We have no other debts except a mortgage – next on the list to pay down!) We have $30,000 in savings, but we’re expecting to replace a car in the next year or two (we’re estimating the cost will be between $10K & 15K for the car we are looking for). We’re also expecting another little one in a couple of months. Since I’m self-employed, I won’t get a paid maternity leave but I’m hoping to stay home with the baby 4-6 months, so I will be working very little, but trying to get some business in the pipeline toward the end of that period. I say all of this because we won’t be bringing in as much income to continue aggressively paying down loans or save for the car, but I am wondering how much is too much to have in savings? Should we put some of that money towards the student loans now? Or save it for the big ‘what if’s’ – something major happens where an emergency fund is needed or the car dies prematurely?
– Nina
Given that you’re heading toward an unpaid maternity leave, my strong encouragement would be for you to cut out the extra debt payments for now and instead start building up as much savings as you possibly can.
The reality is that you don’t know for sure what will happen during this unpaid period, except for the fact that your family income is going to drop drastically and your expenses in some respects are going to rise with the arrival of the baby (though they’ll also drop in some respects with the reduction in work-related expenses while on leave). There is also a strong possibility of some significant unexpected expenses during this period, as babies seem to always have unexpected expenses.
There really is no such thing as “too much” savings right now. Save as much as you possibly can. If you happen to have some left over at the end of that period, great – use it for a big fat extra payment on your remaining debts. That’s a far better outcome than finding yourself in a financial panic four months into the maternity leave.
Q10: Book publishing basics
I need to publish a book and I don’t know where to start. Can you help?
– Kenny
The answer to this question really depends on your goals for publishing this book. Are you wanting to sell this book to a wide audience, or is it for more personal or self-promotion use? Are the benefits of having a major publishing house behind you – promotion, etc. – worth the time that it will take to get such an arrangement (if that’s even possible)?
There are really two main routes you can follow. Self-publishing is something that pretty much anyone can do. You can start at CreateSpace and self-publish pretty much any book you want at a minimum cost and it will appear on Amazon and you’ll have copies available to you for whatever use you’d like at a low price. This generally won’t lead to your book being in bookstores, though, unless it’s a huge runaway success, and it will be up to you to promote it.
On the other hand, you can try to get a book deal with a major publishing house. If you can get a deal like that, they’ll handle quite a bit of promotion for you, offer editing and cover design and manufacturing, and get your book into bookstores. However, they’ll also take the majority of income from your book along the way – you’ll have more sales, but you’ll earn fewer dollars per sale, in other words. Getting a book deal can be tricky, though, and often requires an agent to help you get your book concept picked up by a major publishing house.
There are, of course, many variations on each of these avenues. These are just the two main avenues for getting a book published, and the advice for each path can make up several books on their own. My suggestion? Figure out in general which path you want to follow, then hit the library for resources on how to make that happen.
No matter which path you follow, though, you need to have a good book behind it. Keep polishing that manuscript!
Q11: Basic camping advice
You’ve mentioned many times that camping is a summer activity you do all the time with your family. Do you have a “getting started with camping” guide or anything like that? Any suggestions for getting started?
– Paul
Camping is something that fills a lot of weekends during the summer. By the end of July, we will have gone on four different multi-day camping trips as a family, and we’ll probably get at least one more in during August and probably another during September. We love camping in state parks, national parks, and even private campgrounds or on someone’s private land that gives us permission.
With three children, we tend to do a lot of “trunk” camping, which means that we set up camp with the aid of our vehicle and don’t carry everything on our backs. This usually means that we have a “base camp” (think tents, sleeping bags, etc.) at a campground somewhere and we go on a lot of day trips (daylong hikes) from there. While I have done some multi-day hiking in the woods before and deeply enjoyed it, it’s not something I want to do with three children under the age of eleven.
You don’t really need that much stuff to do this kind of “trunk” camping – a tent (you really don’t need anything fancy), some sleeping bags, pillows if you want them, some simple food, the means to start a campfire… that’s about it. Most of the stuff you need is probably already around your house except for the tent and perhaps the sleeping bags.
I’d highly recommend starting in a state park that you’ve investigated on a day trip beforehand so that you know what to expect on-site. Do they have firewood available? What about potable water?
The big advantage of camping is once you have a handful of gear (your tent, your sleeping bags, and so on), it’s all reusable, so the actual cost of camping is pretty cheap. Most campsites have a pretty small daily cost for usage and if you’re eating basic food, it’s probably less expensive than just sitting around the house.
This would make for a really good post someday…
Q12: Reusing old cardboard boxes
I have a hard time leaving my home so I often order groceries and things through the mail so I don’t have to go out. I accumulate a lot of cardboard boxes. I don’t have recycling in my area so they usually just build up in the garage until my grandson comes and takes them. I am looking for smart uses for cardboard boxes. Thank you.
– George
We reuse cardboard boxes for lots of things. We use them to provide boxes with which to wrap gifts. We use them to ship things through the mail. We’ve used them to build giant cardboard castles for our children (one that actually spread into multiple rooms, once upon a time). We’ve used them for campfire kindling. We’ve used them as an aid in pantry storage to keep items separated (cutting them open so that the stuff in side can be seen and accessed).
I’m not sure which of these uses apply to you, but cardboard boxes have a ton of utility for storage and package wrapping alone, which are things that almost everyone has at least some use for.
You may be exceeding realistic levels of usage with your intake of boxes, however. If that’s the case, direct recycling rather than reuse is probably the best option for most of your boxes.
Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.
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