The Women of Amphissa
An original painting by Alex Ferrar
Welcome to the fifth post in the Q&A Series where we take a look at some of the more interesting and entertaining questions and answers found in the post comments around here. As with the first four, it is named after the featured painting above.
In this edition we talk about:
- Identity Theft
- Emergency Funds (twice!)
- How I am a “beautiful unicorn”
- Employer Retirement Plans
- How I sound in a podcast
- Rock Stars v. Gurus
- Obsessing obsessively
As you’ll see, not all dry financial stuff. 😉
From:
Debt – The Unacceptable Burden…
Dear Jim,
A few months ago I finished repaying $212,000 in federal student loans from medical school. I am 31 and have a low net worth and hardly any retirement savings, but at least I am debt free. I was never foolish enough to carry credit card debt or the like, but I could have made better choices to get a cheaper education. Dealing with the student loan debt was so difficult and bitterly unpleasant that I have no plans to have any type of debt again – none of that “good” debt you talked about either.
Not long ago, I received a notice from the Office of Personnel Management (the federal government’s HR department). I was one of some 21 million people whose social security number, fingerprints, and other biographical data were stolen by hackers. My information was stolen because I had been credentialed for practice at a VA hospital. The government offered me three years of free identity theft protection.
No one has tried to steal my identity so far, but I worry about it happening someday. The thought that someone could take out more student loans in my name, credit card debt, mortgages, undergo medical treatment in my name, etc., and push me back into wrongful debt is a nightmare. This makes me feel hopeless again because I know how hard it was to repay student loans that were rightfully mine (the loan servicing system does NOT want you to repay early). To get rid of fraudulent student loans or other debts would probably take a lawsuit and a lot of time, if my past experience is any indication.
It seems like ID theft could be a major impediment to any plan for financial independence. Do you have any thoughts or encouragement on how to deal with this type of risk?
Thanks.
-
Andrew, my partner has also been in the security rodeo with the federal government. He also works at one of the local VA hospitals here in St. Louis. Like you, we’ve received the notification saying his PII (P)ersonally (I)dentifiable (I)nformation) may have been compromised.
I urge you to get a credit freeze on your credit file at all major credit bureaus asap. With this action, no one will be able to check your credit much less open a new line of credit without this information. It can be temporarily lifted when applying for mortgages, auto loans, a new credit card, etc. I believe it’s around $5.00 per agency to initially set it and $5.00 to lift it for a short amount of time based on a request from you. You will be assigned a personal pin when requesting the freeze that you’ll need it in the future for a temporarily lift.Keep it confidential in a safe place. The credit bureaus also offer Identity Theft Protection if you decide to go that next step. We have chosen the security freeze as our preventative action so far. I’ve added the freeze links to the three major reporting agencies are below:
Experian Credit Freeze – https://www.experian.com/freeze/center.html
Trans Union Freeze – http://www.transunion.com/personal-credit/credit-disputes/credit-freezes.page?
Equifax Freeze – https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jspIt’s unfortunate that stories like yours are becoming common place. It could have been much worse for you but you’re taking proactive next steps to prevent tragedy. The bad guys are always looking for new ways to obtain this type of information. Once your information is stolen, it’s sold to other hackers for profit. Everyone needs to have credit freezes in place in order to protect their personal data.
I’ve been in the IT Security career for 17 years. One more thing everyone should be doing is making sure they’re running up to date AV and malware protections on their computer. Malware comes in all forms but keyloggers and botnet clients on our computers are the most vicious. You can inadvertently download these from infected web pages and you will never know it. They record information while you type it and send it off to the bad guys without your knowledge. Personal information protection should be multi-layered. If you take care of these two items, you’re off to a good start. Hope it helps.
Hi Andrew…
Fortunately, Bill has provided a great primer on ID theft for you.
Thanks Bill!
So all that is left for me to do is the fun part of offering my congratulations on your successful debt slaying efforts!
Now you are in a perfect position to turn that cash flow stream to your benefit by investing it.
ID fraud is certainly a risk and a pain if you need to deal with it, but it is no reason not to pursue your financial freedom.
From:
Stocks — Part 5
we touch on Emergency Funds
Richard
Hi Jim,
I am a new follower of yours and recently started taking action on my 401k, and savings plan.
I just changed my contribution of 3% to my 401k to max of 50%. Btw, my 401k has horrible options. I placed 80% in (large/multicap) Putnam S&P 500 Index Fund (No Ticker symbol), expense ratio of 0.35% and 20% in (midcap) VEXAX, expense ratio of 0.10%.
My next step is starting a Vanguard account, VTSAX.
Aside from this, I have an emergency fund of $10,000.
Should I go ahead and use that $10,000 to open up the VTSAX account? Or just save up another $10,000, which will take a long time. Probably a year.
Thank you.
-
Welcome Richard….
Glad you found your way here.
How big an emergency fund do you need? This depends on a range of personal factors:
—Is your job secure?
—Do you own a house? (houses are prone to require unexpected and expensive repairs)
—Do you own an older car?Unless your job is at risk, $10,000 seems a very large EF to me. Maybe something less and the rest into VTSAX.
If you don’t have the initial $10,000 for VTSAX, you can open an account using VTSMX which has only a $3000 minimum. It is exactly the same portfolio with a bit higher ER (expense ratio). Once you hit 10k Vanguard will roll it into the lower cost VTSAX for you.
From:
When you write about F-you Money…
…you just might get called a “beautiful unicorn” This was a first!
Hi Jim!
Long time reader, first time caller… 🙂
Quick question as Brian and I fully digest the Chautauqua and are looking at our budget in YNAB and are coming up with ways to be even more badass. We were told a while back that your FU money/Emergency Fund should be kept out of the market and not thought of as investment money and should rather be thought of as insurance. We’ve kept ours in a bank account just sitting there and it stings when we think of the opportunity cost of not having it in the market. Should we keep it out? Put it in? Curious of your thoughts.
Also, we keep our emergency fund at 6 months of our monthly budget so it’s a hefty amount. Are we going overboard? Right on target?
Thanks so much for the insight! You are a beautiful unicorn, sir.
Joan
-
Joan!
I’m honored to see you commenting here and I’ve never been called a unicorn (or beautiful) before. That’s a good thing, right??
Emergency funds are one of those things that financial writers love to issue pronouncements upon:
–Have six months worth of expenses!
–Hold it all in cash!I (as usual) beg to differ. ????
It depends on your situation.
–Do you own a house (with the likelihood of sudden large expensive repair needs)?
–Is your job secure?
–Are you living paycheck to paycheck or do you have substantial investments to draw upon?These are the kind of questions you should ask in deciding if you need a EF and if so, how much.
If your situation is such that sudden expenses are likely and would jam you up; keep 6 months in cash. If not, you can play a bit.
Personally, I don’t have one at all. But none of those risk factors apply to me.
As a middle ground, you could use a conservative Betterment portfolio of 50/50 or 75/25 or more bonds/stocks. This would outperform cash and be more stable than your long-term stock investments.
Great meeting you and Brian in Ecuador! Hope to see you soon!
From:
Employer retirement plans are a frequent topic:
Hi Jim,
First of all, I have no words to express gratitude for you putting all this information on this blog for us (for free). You and your advice have been an eye opener and my spouse and I are excited to finally take control of our finances.
I’m relatively new to your website but have already read quite a bit of it. I have also just recently woken up to the fact that I am making many mistakes and at this rate, I will end up working till 65. My biggest mistake has been ignorance; and thanks to you and others alike, I hope to correct that asap. I do not yet have a retirement plan available to me at work, but my spouse does, and I would like to make smarter decisions.
Currently she has 14k in her 403b, and she is not contributing to the max (which we will quickly fix) but I also do not like the investment choices she has (that due to our ignorance, were simply assigned to her). She is 34 years old btw.
This is what her portfolio looks like:
- BlackRock LifePath® Index 2045 Fund Class K Shares (LIHKX ) – about 10k (70%)
- Vanguard Balanced Index Fund Institutional Shares (VBAIX ) – about 4k (29%)
- BlackRock LifePath® Index Retirement Fund Class K Shares (LIRKX ) – 0.05%
Here are the Vanguard options in her plan:
- Vanguard Balanced Index Fund Institutional Shares (VBAIX);
- Vanguard Institutional Index Fund Institutional Shares (VINIX);
- Vanguard Extended Market Index Fun Institutional Shares;
- Vanguard Total International Stock Index Fund Institutional Shares (VTSNX);
- Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX).
My questions to you are:
1. Should we leave whatever she already has invested in those 3 funds and simply assign all new contributions to other Vanguard Funds such as VINIX?
2. Should we exchange all the existing Black Rock and eliminate it from the Portfolio and substitute it for Vanguard instead? And if we do that, are there any fees or taxes we need to pay in order to do that? She has held those funds for about 5 years.
3. Which of the above Vanguard funds that are available to her would you recommend?
-
Hi Bianca…
Your words say it wonderfully well. Thanks!
1. I’d move it all to Vanguard
2. Because these are all in a 403 (b) there will be no tax consequences. There should also be no fees unless Black Rock charges a backend load (sales charge to exit the fund). Such things are despicable and hopefully going extinct. Should your funds have one, all the more reason to dump them. You’ll just have to bite the bullet and chalk it up to buying freedom.
3. Depends on the allocation you want.
VBAIX will give you 60/40 stocks/bonds
VINIX = Total Stock Market Index
VBTIX = Total Bond Market IndexWith those last two you can customize whatever allocation works best for you. This will help you decide: Selecting your Asset Allocation
I don’t see the need for International for reasons I outline here: International Funds
But if you do, VTSNX is a fine option.
Her plan has some great choices!
From:
Great article, I have been reading a lot on this site and it is a literal treasure trove. My wife and I are going to be making some big decisions in our immediate future and articles like this are invaluable.
Also James sounds exactly like how I imagined him
I listened to the podcast included on this article, addendum 4.
Since you already have me typing I want to throw my praise in for the Stock Series as well.
jlcollinsnh
Thanks DJ. Praise is always welcome!
From:
Why you need F-you Money
Or this one from Cameron…
Love the subliminal message of the far queue pic…
Here from MMM also (UraniumC!). He’s like the rock star of early retirement, but to me you’re the guru. Thanks (to you both) for sharing your wisdom.
From:
And some are just fun….
I started using Personal Capital and I find it depressing. I used to get such joy logging into all of my accounts. Now, it’s just so easy. I really don’t get it. I’m able to do the same amount of ‘work’ I was doing before, the market is just fine, yet it makes me want to go back and do everything manually… I don’t know why I’m so weird about it!
Unrelated, but here’s what I’m currently or have just finished reading and enjoyed:
“Crime not objected to.”
One of my favorite characters from a favorite author. If you like it, here are two more:
Jack Reacher roams around the country carrying only a folding toothbrush. When his clothes get dirty he buys new ones. Oh, and he kills lots of bad guys. “Make Me” is the most recent in the series, but not the best. That might be this one:
Last Line: “This ends my true account of how I avenged Frank Ross’s blood over in the Choctaw Nation when snow was on the ground.”
How we came to be what we are, behave the way we do and believe what we believe. My favorite in this group.
Where people who live to be 100+ live, how they live and what they eat.
Why the future might be incredibly good. Unless the grey goo gets us.
This might be the most enlightening and entertaining take on American history I’ve yet to read.
And here are some of my all time favorites:
The book that has most influenced how I live my life.
“The Fall of Edward Barnard” is very possibly my all-time favorite short story.
Perfect for the readers of this blog.
“Bartleby the Scrivener” is very possibly my all-time favorite novella. Don’t be put off if you struggled with Melville’s “Moby Dick.” This is a much better and easier read. Plus it will teach you the most important phrase in the English language:
“I would prefer not to.”
*If you click on the books you’ll go to Amazon, an affiliate partner. Should you choose buy them, or anything else while you there, this blog will receive a small commission. This doesn’t affect what you pay.
