Gather Little by Little

Each week I give the readers of Gather Little by Little a chance to ask me anything. The only real rule is that I can decline to answer. I’ll do my best to answer as many questions as I can though. Have a question you would like answered? Just drop me a line or leave a comment!

Eric writes:

I have a question for you (well more like a favor). Since you work in the
financial industry, I was wondering if you could talk a little bit about the
work environment. I know the industry is wide and varied but any insight you
could give would be wonderful. I’m a college student right now who recently
became very interested in a career in finance. It’s still relatively wide open
and I’ll have to do more research but it would be nice to hear from someone like
you who has plenty of experience.

Well, right now it’s a bit of a roller coaster ride! To be fair Eric, I work for a bank but in IT  (i.e. computers) not on the business side. I’m not much of a financial person as it pertains to corporate finance and only really know what I’ve learned through working with my business partners and on the applications I am responsible for.

Working in a bank is really no different than any other company, with the exception of it being far more regulated than most companies. There are far more controls and separation of duty requirements due to SOX, GLBA and other federal requirements. These things add quit a bit of “red tape” to the day to day job, but like anything else you get used to them.

Other than that though, it really isn’t that much different. We are driven by our customers and investors just like other companies and our course the primary focus is making sure our accounting is accurate. Even tough an incorrect posting of $250.00 to us is nothing, to a customer that only has $150.00 in their account it could mean not being able to eat the next day. That is probably the most stressful part of the job is focusing on having zero negative customer impact.

Anybody else work in the financial industry and want to chime in? Given I don’t work on the business side, I doubt seriously I was able to provide Eric the answers he was looking for.

A reader that asked to remain anonymous asks:

I just read your “Ask me anything” post and have a question. First, some
background info:

-Husband and I are in our mid/late 20s.
-I’m in school (again) and work part-time and DH works full-time.
-We have a fair amount of student loan debt. Most is consolidated at around 6%, some is at
5%, very little (less than $1000) is at 0%, and my current loans are either not
earning interest right now or are at 6.5%. My student loans from when I went to
school previously are in deferment and are not earning interest.
-We also have credit card debt (less than $10,000). Two-thirds of the CC debt
is at 2.99% for the life of the balance and the rest is at 5.99% for 12 months
(we’re looking at moving that to the 2.99% card as well).
-We owe my parents some money (less than $1000), but they are not in a hurry to
have us pay it off. They tell us to pay off our other stuff first and worry
about other “life stuff” and to pay them when we can. This is the debt we’ll
worry about paying off last (yes, I understand that it goes against conventional
wisdom, but my parents do not want us paying them back right now and it’s not
causing any problems between us).
-We have no car payments (paid off the car this month! yay!).
-We currently rent, and fairly cheaply at that.
-We keep an emergency fund of around $1000.

On to my question: I’ve read that you should start retirement savings when
you’re young so you can take advantage of compounding interest, but that debt
should be paid off first. The other day, however, I was reading an article (I
can’t even remember what exactly it was about) and it mentioned that with the
person in question had debt, but the debt was at very low interest rates. Since
the debt was at such low rates, it was recommended that the person not dumb
every extra dollar towards debt payoff, but instead use some of that money to
start saving for retirement. What would you do in a similar situation? I
really badly want to get this debt gone, and we should have our credit card debt
paid off in the next year or so, but I also don’t want to make a dumb mistake
just because I’m so focused on paying of our credit card debt. Any thoughts?

Great question. I’m all for postponing retire savings for short time period to accelerate the debt snowball, but the key point is only for a short time. My rule of thumb is 1 year or less. Financially, it makes no sense to me to stop investing with average 10-15% return to pay off debt that’s at 5% or less faster. Even if your debt was at 20%, I wouldn’t stop contributing to my retirement for more than a year.

My rule of thumb for paying of debt is to continue investing in retirement. The percentage should be up to whatever your employer matches. For me, that would be 6%. The order of payoff is: family loans first, then credit cards, car loans, student loans, mortgage. I always stress paying family loans first regardless of the current relationship or interest amount. Family and loans just aren’t a good mix and can cause wonderful relationships to quickly go down the drain. Just not worth the risk to me.

I am pretty confident my advice is right in line with Dave Ramsey as well. I know many don’t care for Dave, but when it comes to debt payoff, in my opinion, he is the expert.

Stephanie wrote:

Can I tithe by sending in money to a church I watch on television? I really
like a pastor that’s on tv and very far away from me. Can I send his church
money and still call it tithing? Thank you.

Absolutely. Based on my knowledge of the Bible and tithing, there is no requirement on how it should be given. You should give from the heart and by joyful when you give/tithe. Beyond that, the decision is between you and God. If you’ve prayed about the TV ministry and feel comfortable in your heart that the church is legitimate and that your contributions truly go towards the ministry and God’s work, than by all means tithe to it.

Be careful though, as I am sure you know, not all television ministries are on the up and up. Do a little research and make sure you’re giving to a ministry that is doing the will of God and not the will of some person who wants to take advantage of people in the name of God.

I would encourage you to find a local church to get involved with and tithe to it though. The Bible says “forsake not the assembly of one another”. God wants us to attend church and fellowship with other believers. Doing so not only brings us closer to Him, but closer to other believers who can help us, befriend us, support us and grow with us. You can’t get that through a TV ministry.

Thanks for asking Stephanie, great question.

Wendy wrote me and asks:

Hi!
I have a home buying question for you…

We are selling a commercial property that we own with a bunch of family
members. The closing is set for early January, to maximize tax benefits. My
husband and I expect to receive approx $330,000 after taxes from the sale.

We have about $25,000 in debt, which we plan on paying off, and then we are
moving to buy a house. We are looking at homes in the $350,000 – $400,000 range.
I say to put down as much as possible, leaving about $20,000 in savings. We will
need to buy an entire household of new furniture, where we live now is
furnished. Is is smarter to put down whatever is left as a down payment, or to
put down less, and have a bigger savings account? I am a stay at home mom, and
want to keep our expenses low so that I can continue to stay home.

By the way, I love your blog. I get a lot thru e-mail that I no longer read,
but almost all of yours are saved, or forwarded to friends. I’ve learned a lot
form you, and appreciate the christian tone of your blog. We are going to try
and use the budget software your suggest as soon as we on track. Thanks for some
fine reading!

Great timing as we are right smack in the middle of buying one! I’m not sure if you’ve provided me with enough detail to fully answer your question, but I’ll try.

I always recommend putting a minimum of 20% down. There are arguments on both sides that would advocate more or less, but I think 20% is sufficient. The remainder should go towards your debt, furniture and then savings. Be careful on furniture and don’t buy more than you really need just because you have the money. I’d buy the minimum furniture required, then add more over time as you need it.

Depending on how your emergency fund is, I’d make sure that contains at least 3-6 months worth of income in savings. If you pay off your debt and have 3-6 months worth of savings, then the remainder can either be applied to your mortgage or invested. Personally with the housing market the way it is and the investment market tanking I would probably take the extra and apply it towards the house. If the market was doing better I might do otherwise. Taking into consideration the declining housing market and low return on investments right now, I would think paying more on the house is the better option.

Other readers have a different opinion? If so, please chime in.

Wendy, thank you so much for your kind comments an for forwarding my articles to your friends! I’m so glad I’ve helped and thank you so much for reading! I’ve learned a great deal from my readers as well!

Photo by: llamnudds