Dear Liz: I have read tons of books on finance and debt repayment, but I'm having trouble deciding what to do next. My husband and I are 52. He receives a monthly disability income, and I work two days a week. We still have about $105,000 left before our mortgage is paid off. We also owe about $7,000 in credit card debt and $5,500 in overdraft charges.
Should I concentrate solely on paying off debt, including the mortgage? Should we modestly renovate our 20-year-old home because after six kids, it is in need of a little TLC? We could downsize, but I'm somewhat emotionally attached to this house, and downsizing would still mean renovating to get the house in shape to sell. At the same time, we'd like to start a small business in our town. It wouldn't be a huge investment of money, but it's an outlay nonetheless. I don't really want to wait five or 10 years to have to do this because it would mean income for one of our children who needs it and sometimes has to rely on us financially. How should I focus?
Answer: You didn't say a word about retirement savings, but that should be a priority for most people.
If you don't make a lot of money, Social Security is designed to replace 40% to 50% of your earnings. (The more you make, the less Social Security will replace, on the assumption that you've had more opportunity to save.) But most people, of any income level, would have trouble adjusting to living solely on their Social Security checks.
You can estimate your future benefit checks by using the Social Security Administration's calculator at http://www.ssa.gov/estimator. Your results will be based on your actual earnings. Then you can use the AARP calculator (in the "work and retirement" section of the website) to figure out how much you need to save to have a comfortable retirement. You may not be able to reach that goal, but you should at least try to put aside something to improve your future life.
You don't need to be in a rush to pay off your mortgage, but you should target that credit card debt and that shocking amount of overdraft charges. You also should know that renovations rarely pay for themselves when you're ready to sell a home. At best, you typically get back 80 cents for every dollar you spend. A better approach is to make some cosmetic fixes that don't cost a lot, such as new paint, clean windows and freshened-up landscaping.
As for opening a store, understand that small businesses can take a while to get off the ground. If you don't have adequate savings or access to a line of credit, the business could fail and take your investment with it. The Small Business Administration at http://www.sba.gov has resources and Small Business Development Centers to help you understand what lies ahead. Do your research before you begin, and consider holding off at least until your toxic debts are repaid.
Finally, you didn't explain why your child needs your money. If he or she is still a minor, that's one thing. If he or she is an adult and not disabled in some way, however, then the parental dole needs to stop. It doesn't sound like you and your husband are adequately providing for your futures. Your kids need to know they have to provide for their own.
Internet bank saving accounts
Dear Liz: You've written about how helpful it can be to have "savings buckets" or separate savings accounts earmarked for different goals such as vacations, property tax payments and so on. I have been trying to do this myself, but every bank I find charges so much in fees that it would cost more money than I would save. Either that, or they tie the savings accounts to a "free" checking account that has a high minimum balance. Can you please pass along any information about free savings accounts that have no minimum balance? I cannot use Internet banks because I cannot deposit cash when I have $5 or $10 in my pocket that I would take to the bank.
Answer: Actually, you can. Internet banks can be linked to your checking account at a brick-and-mortar bank. You can take your money to the bank, then transfer it to one of your savings accounts at the Internet bank. Unlike traditional banks, Internet banks such as ING Direct, Ally and FNBO don't have balance minimums or monthly fees. You can set up several savings accounts without paying extra fees.
You still need a low-cost checking account, of course. You should be able to find one at a local credit union.
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