What to do with inheritence?

sparksalsFebruary 6, 2007

I just got a $25K cheque in the mail from the estate of my mom's best friend who died last year. I knew it was coming eventually, but was surprised when I opened it today.

Anyway, we want to use the money wisely. We have no c/c debt, but we do have a zero % c/c with a zero balance. We have a HELOC at prime minus 1 (7.25% right now) and owe around 12K on it for some renovations we just did to the house in anticipation of selling.

Our mortgage payment is $750 per month. We owe $130K on a home worth around $250K. We will be selling sometime this year once dh's job transfer is finalized, so we were thinking of paying off the HELOC when the house sells rather than using this money to pay it off now. Another alternative is to move the HELOC balance to the zero % card.

My concern with moving it to the zero card is the limit is 15K, and moving the HELOC there to save money on interest would put it at a high balance in terms of it appearing close to maxed, which I fear it will harm my FICO score. I would much rather pay interest on the HELOC than have a negative mark on my credit.

Instead, I want to put about $15K into a high yield savings account like Emigrant direct for our emergency fund. The remainder into Roth IRA's and/or traditional IRA's for me. We already contribute $800/month to the Federal govt TSP and are getting agency matching which makes the total montly contribution close to $1000. We could actually increase our contributions for the tax break because dh is moving to from GS9 to GS11 payscale this month.

I want to use a small portion of the money, around $3K to buy a new bedroom suite. I'm 40 YO and don't have decent bedroom furniture. In fact, I am still using the same nightstand and drawers from my room as a teenager. I need something more grown up and I think Auntie Bev would be really pleased that I bought something nice for myself.

Does this sound like a feasible plan?

Keep the HELOC til we sell, keeping in mind I would much rather preserve my credit score than save money in interest on a zero card.

Put a large portion in a secure high interest savings/MMA/CD for an ER fund.

Buy IRA/Roth for me, the amount determined by the tax savings.

Buy Bedroom suite for $3K max, but could be much less depending on what I find.

Oh, I just thought of something. My husband is getting the calculations for buying back his military time, which will add to his retirement. The cost of it will be around $5K, interest free for the next year, with interest starting after that til it's paid off. We figured since it's payroll deduction, we won't miss $50/pay for the added retirement. So, thinking quickly, I don't think we'd use the money to pay the military time in a lump sum, but it's something we could consider. The interest on the high yield savings/MMA/CD would offset interest paid to buy back the military time.

Am I on the right track?

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My husband was in a similar situation several years ago. He absolutely had no idea what to do and didn't want to blow the inheritance. I suggested to him that he simply put it into CD's (with different maturity rates) until he figured it out.
Eventually he used about 1/3 of the money to purchase the lot we built our house on and put the rest into an account with our financial planner where it's diversified and invested.

Last year my son received an inheritance from his father's estate. When he asked for my advice, I suggested that he pay off his mortgage, open an IRA account, and give himself a small splurge.

You seem to have thought this through and your plan sounds totally sensible to me.

    Bookmark   February 6, 2007 at 9:29AM
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have you considered any tax implications from the inheritance?

    Bookmark   February 6, 2007 at 10:25AM
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I don't think there are tax consequences on $25K.
The estate tax doesn't kick in until it's 2 mil.

    Bookmark   February 6, 2007 at 11:14AM
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I stand corrected. Seems there are 11 states that still have an inheritance tax.

Inheritance and Estate Taxes
An inheritance tax is an assessment made on the portion of an estate received by an individual. It differs from an estate tax which is a tax levied on an entire estate before it is distributed to individuals. It is strictly a state tax. Eleven states still collect an inheritance tax. They are: Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. Connecticut will be phased out after 2005. In all states, transfers of assets to a spouse are exempt from the tax. In some states, transfers to children and close relatives are also exempt.

I very much doubt that there'd be tax consequences for an amount as small as 25K, however.

Here is a link that might be useful: Taxes by state

    Bookmark   February 6, 2007 at 11:30AM
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I don't like the idea of paying extra interest just to avoid reducing your credit score. Moreover, does your 0% credit card allow you to apply it to a HELOC or just to a balance transfer from another credit card?

    Bookmark   February 6, 2007 at 11:39AM
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Do you itemize on your tax return? If so, the HELOC interest is deductible. If you transfer it to the cc, the interest will not be deductible. So the savings in interest may not be as much as you might think. You'd have to crunch the numbers. And that's ifthe cc will let you transfer the HELOC bal

    Bookmark   February 6, 2007 at 12:05PM
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zone8grandma - I have thought of ladder CD's to give the money a chance to sit. I thought it was funny when you said your husband was in the same "situation". Tough situation to be in receiving this kind of money, eh? ;)

qdognj - This inheritence isn't taxable. The person who died was Canadian, as am I, but I live in the US. I can bring as much money via interitence into the US tax free, but of course, whatever I do to make it grow will be taxable. I also have to file a special form on our taxes to let the IRS know about this money, but it is not added to income, it just has to be declared.

alphacat- the zero card provided me with cheques, so I presume I can move it over from a HELOC. It's a good question.

I don't want to reduce my FICO score because I have only established credit here in the US in the last two years. I am from Canada and my credit didn't carry over from there. I had to start from scratch. Luckily, my husband made his cards joint, so they report on me too. However, they show them only as being open from the time they were made joint. Considering the short period of time, that high balance on the c/c could affect my FICO score and I don't want to take that chance.

zone8grandma - yes, we do itemize our taxes. Since our HELOC balance is relatively small (it has a $75K limit) and will be paid off when we sell, I think everything will pretty well even out. If we had a huge HELOC balance, I would apply some of this money to it.

    Bookmark   February 6, 2007 at 1:46PM
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Hi Sparksals,

Instead, I want to put about $15K into a high yield savings account like Emigrant direct for our emergency fund. The remainder into Roth IRA's and/or traditional IRA's for me. We already contribute $800/month to the Federal govt TSP and are getting agency matching which makes the total montly contribution close to $1000. We could actually increase our contributions for the tax break because dh is moving to from GS9 to GS11 payscale this month.

I want to use a small portion of the money, around $3K to buy a new bedroom suite. I'm 40 YO and don't have decent bedroom furniture. In fact, I am still using the same nightstand and drawers from my room as a teenager. I need something more grown up and I think Auntie Bev would be really pleased that I bought something nice for myself.

Does this sound like a feasible plan?

YES! Sounds like a very well reasoned and balanced way to optimize that windfall!

FURTHER, now that you've established a solidly funded emergency reserve account, you may look at a no-cost refi of that HELOC balance to a fixed loan in the mid-6%'s. No reason to pay the higher rate for the redrawability feature when you have your liquidity secure & safe in your side accounts.

LASTLY (and optionally,) you MAY want to talk with a Planner who knows how to rebalance some of that exposed real estate equity into more prudent long-term retirement vehicles. You are likely already topping out your qualified plans (IRAs, 401ks, and or government-provided plans,) so there are other tax-advantaged savings plans that will keep you safer than the trapped equity.

Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   February 6, 2007 at 2:24PM
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If I were in your position, I would not pay off the HELOC or transfer it to a credit card (unless you could pay off the entire balance during the 0% period, which is probably limited. They're not going to let you use their money interest-free for a long time!) Besides, the HELOC will be paid off when you sell the house.
I would do exactly as you propose - treat yourself to some new bedroom furniture, and put the remainder in a CD or IRA, as you desire.

    Bookmark   February 6, 2007 at 3:23PM
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Hello sparksals,

First off, may I suggest that you waited too long to start your learning-how-money-works pigrimage.

You learned a while ago that there'd be a cheque ....... later.

Wouldn't it have been a good idea to have started planning then?

That said - it looks as though you've developed a fairly good one.

I am Canadian, and don't like earning interest. Mortgage interest here is not deductible, but the capital gain on sellng an owner-occupied home is tax-free.

Employment earnings, resultant pension, or interest earnings - all attract income tax at top rate.

However ... when I earn dividends on Canadian stocks, there's a major tax reduction on such income.

The Canadian dollar has increased in value in recent years in relation to the U.S. Dollar: as you know, if U.S. folks had bought Canadian dollars three or four years ago, they'd have paid about 65 cents for one.

Now, if they were to convert it to U.S. Dollars, they'd get 87 cents U.S. for each (recently over 90 cents each) - that cost them in the mid-60s recently.

I'd suggest that you have a good look at what you expect that you might need in terms of emergency money, and possibly invest a substantial portion of your bequest into some stocks.

As a parallel holding to retirement preparations, and especially if you don't own stocks now, some solid, strong companies, which have good prospects for the future.

Such stocks have a tendency, despite short-term fluctuations, to grow in value over the years - plus, dividend rates grow, as well.

For example, I heard recently that Johnson & Johnson's dividend has increased annually for the last 40 years, and the rate on some other stocks almost as long.

As a personal financial advisor for a number of years, I've recommended that folks have 3 - 6 mos. value of emergency money available in case of urgent need.

But I haven't always had such myself - even at nearly 80 years of age, about 80% of my assets are held in stocks. I have a line of credit at the bank, fully secured by some of those stocks, which I can draw on as needed.

The unfortunate part is that if I use the proceeds for consumer issues, the interest is not deductible.

Part of my reason for holding them outside of a retirement account is that I can't use investments inside those accounts as collateral for loans.

I am much less enthusiastic than many Canadian financial advisors about the tax-deferred retirement accounts, for various reasons mainly relating to the Canadian scene.

If I borrow to invest in an RRSP, the interest is not deductible: to invest outside of one, it is.

As the U.S. govt. has built up such a huge debt and is running such a major deficit (part of it to finance tax cuts, isn't it?), and U.S. consumers have a huge debt, plus there are large balance of payments concerns ...

... many feel that the U.S. Dollar may be due for possibly substantial losses in value. And that before too long.

It might be well for you to consider buying some foreign-based stocks, for the U.S. Dollar value has deteriorated relative to other currencies, in recent years.

One problem might be that, should you need to use them as collateral to undergird your loans, U.S. lenders might sniff at them, maybe even refuse to allow their use.

Just a few thoughts from a furriner that may be of help.

I hope that you make wise use of the money - and are pleased with your choices, later.

ole joyful

    Bookmark   February 6, 2007 at 4:49PM
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I was hoping you'd chime in! I'm glad we're on the right track!

Thanks for suggesting locking into the fixed rate from our HELOC. Our HELOC is through USAA and the hybrid is an option with absolutely no charge. I can't believe I didn't think to lock it in because we have no plans to dip into the HELOC anymore because we're done with the renos. We can actually lock in the 12K at around 6ish% and still have the rest of it open to us as a HELOC.

I'm a bit confused about your final comment. Are you suggesting we use our HELOC (aka our equity) for investment purposes so that all our funds are not trapped in the house? I didn't know such a thing was possible. Can you give some examples?

hrajotte - you're right, the zero card is for a limited period of time. To avoid being in the position of going to the interest portion of it, that's why I want to pay off our HELOC when we sell our house.

joyfulguy - believe it or not, I was expecting someone to point out what you did about not figuring this out in time. I honestly wasn't expecting the cheque this soon. I was just home in Calgary for Christmas and while I knew I was left some money, my mom told me that the probate was not close to being finalized, so I thought I had alot more time to figure this out. Well, actually, it appears I do have it somewhat figured out, as I had thought about it, but was surprised I had to execute it so quickly! I'm sure a camera would have captured my facial expression very nicely when I opened the envelope last night as I was completely shocked and surprised it came so soon.

We don't have to worry about capital gains on the sale of our home because we are moving for dh's job within the federal govt. He works for dept of homeland Security, but moving to a different agency within it.

I know what you mean about CAnadian Retirement accounts, especially when you have to start drawing from them. My parents are your age and I don't know if it was a poor planner, but the RIF they put their funds into has not been doing so well. Add in the tax of pulling the money out, they are not doing as well as they thought. They won't run out of money, but even with the best planning, which they did work very hard to do, they've had roadblocks.

I'm not that savvy with the stock market at all. I don't know the first thing about getting involved in that. However, the TSP - Thrift Savings Plan through the US Federal govt to their employees - is based on different stocks/bonds/mutual funds, as I understand it. One of the funds is international in scope, the other medium business, large and the G fund is the really secure one.

I have joined an online group devoted to the TSP where I have learned alot about it. I have learned to start watching the funds, move them around a bit based on the different indices - S and P/Wilshire/Dow. I'm still learning how to watch and figure out the markets so I can make solid decisions to make dh's retirement grow.

As an added monkey wrench, I went to the bank today to deposit the cheque into a high yielding account. I was fully aware that there would be a hold on it because it was in foreign currency from a foreign bank. I was hoping they would see it being drawn from a lawyer's trust account as positive. I even thought they would outright refuse the cheque because it was from a foreign bank in foreign currency. I was quite surprised that they were willing to cash it, albeit with a hold.

They told me there would be a hold on it. No problem. Expected that. They told me about the exchange rate. Check. They would accept it for deposit! YAY!

What I didn't expect was that the exchange rate would be different because it is a cheque. If I had cash, it would have been 89 cents on the dollar. For the cheque? Less than 80 cents on the dollar. The difference in cash to me after exchange rate? $2800! At the higher exchange rate for cash, I would get approx $22,250. For the cheque exchange rate? $20K. I couldn't believe it.

I told the guy I was going to sit on it a few days and see if I could get a money wire instead. To me, that was an unreasonable amount to lose solely because it is a cheque, when it's obvious it was drawn on a good account. Hold it no problem, but don't double the exchange rate!

I came home and called USAA. We have investments with them, our mortgages and a few savings accounts as well as our car insurance. I told them the situation and the girl checked for me and said the information she was given is that they do not charge a different exchange rate for cash/cheque. There will be a hold, but I don't mind about that as I did expect it.

She said I had to call back during business hours tomorrow to be sure, and I plan to do that. If it will save me $2800, I will do it.

If USAA does this without the additional exchange rate, then I will certainly be calling Bank of America to tell them that they lost out on a $23,000 deposit. I was going to put it in an account there and was even thinking of a CD until I could research the best avenue to deposit it for the long term. Because of the money grab, they lost my money. I wonder if he will play a different tune after I tell him what USAA is planning to do that will save me $2800?

    Bookmark   February 7, 2007 at 2:32AM
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Hi Sparksals,

I'm a bit confused about your final comment. Are you suggesting we use our HELOC (aka our equity) for investment purposes so that all our funds are not trapped in the house? I didn't know such a thing was possible.

No.... probably not at current HELOC costs of funds.

Can you give some examples?

Well... hate to be evasive (you know better from me ;~) but it's rather difficult (if not impossible) to structure prudent & responsible financial examples without knowing a lot more of your specific variables, let alone your family desires & preferences.

There are varieties of ways to adjust cashflows (incomes against budgetary costs and savings,) as well as balancing and structuring savings/investments accounts with a best-fit relative to your family's safety, growth, and tax profiles.

A) You're already thinking in the right direction,
B) To get even better mileage, you'll need a deeper, more complex review & strategy.

Again... you're already on the right track!

Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   February 7, 2007 at 11:34AM
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Dave, What I am confused about is this:

LASTLY (and optionally,) you MAY want to talk with a Planner who knows how to rebalance some of that exposed real estate equity into more prudent long-term retirement vehicles.

I originally thought you meant exposed equity to mean the HELOC in terms of using it to invest to get a better return. After thinking about it, are you saying to build a more diversified portfolio because we have so much tied up in our house?

I understand the rule of thumb in the US is to have as little tied into the house as possible and to instead be investment savvy in order to get a better rate of return than the equity in the house.

It's hard for me to get around that notion because in Canada, it's best to pay off your mortgage as soon as possible because there is no tax benefit to keeping it. When I told my friend about the inheritence, she said that would be a good lump sum payment towards principal. She nearly fell off her chair when I told her that paying down teh mortgage is not beneficial here.

Moreover, dh and I wouldn't be in the financial position we are in terms of maxing retirement funds, no debt if we had a large mortgage payment. We are able to afford a decent lifestyle, eating out, taking trips etc. We also don't have kids, so we live quite comfortably. If we didn't put the profit from our previous house into this house, our mortgage payment would be double and our lifestyle would have changed considerably. This $25K would have probably go down to pay off credit cards instead since we would have been house poor with a maxed mortgage.

Our FP asked us a question and it was an important one. She asked us if we wanted to be struggling to save, make ends meet and then whoop it up in retirement or did we want to have a comfortable lifestyle now and in the future? We chose the latter because neither of us wanted to scrimp and save or miss out doing fun things because we tied up all our money into retirement. As it stands, we live a pretty decent lifestyle and are able to save for the future.

I do agree that it is time to look into other investment options in addition to what we already have. We definitely do need to diversify our assets and we actually have an appt with our FP in early March to discuss what to do. I haven't told her about this money yet, so she may have some reccos similar to which you illuded! ;)

    Bookmark   February 7, 2007 at 12:44PM
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Hi again Sparksals,

The comment about learning about the use of money was meant as an observation aimed at instruction, or, rather, reiteration of something that most everyone knows, deep in their heart - not as criticism.

Another suggestion - if your folks in Calgary have time, call them to have them ask around to see what rates they might be able to obtain if doing the exchange there.

Calgary is a metropolitan city and financial institutions there are used to that game, so rates are competitive.

Many small banks (or even larger ones) in the U.S. aren't ... and some are rather leery of that furrin stuff - and don't do it often, so it's more or less a PITA to them.

I've found that the best exchange rate (for cheques, at least - and that's what you're dealing with) here in London is at a currency exchange office, in the Canada Trust Tower. There are several listed in Yell. Pgs. here, but I think that the one that I used is Custom House (if I remember correctly).

My hunch is that you'll get the best rate there.

For a cheque valued at $25,000., a few cents difference makes quite a difference in the bottom line.

Many U.S. banks feel a lot more comfortable dealing with cheques in U.S. Dollars ("real money"?).

I applaud your idea of letting the people who are unwilling/unable to offer better service find out what their lack of diligence/awareness/study has cost them.

When you deal with mutual funds, their management expense eats up a substantial portion of your annual growth (if there is any - but even if there isn't, they get paid: almost always at the usual rate).

One of my major holdings (a Canadian bank) was bought 40 years ago for about $4.25, and I could sell it now for about $102.00 (haven't checked for a while - I don't expect them to suffer serious loss, or to want to sell right away).

In choosing a stock with enduring value, I have achieved a major portion of the benefit available using RRSPs. I have not been required to report that built-in change in value, and won't until I either sell them (or die), neither of which I'm contemplating at the moment.

When they're sold, I deduct the amount that I invested, and the rest is capital gain. I pay tax on half of that, then, at regular rates - but I get half of it tax-free. I like that.

Every dollar that I remove from an RRSP/RRIF is taxable - at regular rate. I'd rather avoid that, when possible.

Not only that, I am forced to remove a predetermined amount, at least (more if I choose), from my RRIF account each year, percentage increasing annually till 20% at age 90 and beyond.

A couple of the stocks that I own were liquidated last year (not at my choice, companies were sold), so if I'd had a choice, I'd have not added to my income by removing money from my retirement account, had there been any choice ... but there wasn't. Fortunately, I don't think that it pushed me into a higher tax bracket (some blessings emerge, on occasion!).

That bank stock paid me about a nickel or a dime annually, 40 years ago, and the rate has increased through the years till it pays me $2.80 per share annually, now.

Quite likely your folks have some investments that earn interest.

Since that's taxed now and at top rate, maybe they'd be wise to swap some of those assets for equal value of equities that they're holding in their RRSP/RRIF, for currently-realized capital gains and Canadian-source dividends are taxed at much lower rates than is interest earnings, outside of RRSP/RRIF accounts.

And quite likely some of their capital gains will be deferred until they liquidate.

Are you familiar with the rule of 72? Divide the rate of return that you are getting into 72, and it tells you how many years that it'll take for your asset value to double.

Double my $4.25 goes 8.50, 17., 34., 68., 136. ... so $102. means about 4.3 doubles, divide 40 years by 4.3 doubles ... about 9.3 years to double, divide 72 by 9.3 gives 7.74% average annual growth rate. Plus I was getting sometimes under 3%, sometimes more, in dividend annually - taxed at a low rate.

No complaints here - but there are a number of other assets that haven't done nearly as well, to be fair.

Good wishes for finding the best value when cashing your cheque - and for the use of the funds, in the years ahead.

ole joyful

    Bookmark   February 7, 2007 at 1:41PM
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Hi sparksals,

After thinking about it, are you saying to build a more diversified portfolio because we have so much tied up in our house?


You bring up the Lifestyle question (and I am glad that you do,) which is the most dramatically under-analyzed... but often CRITICAL CORNERSTONE piece of any functional financial strategy.

All the best in your upcoming meeting with your Financial Planner!
Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   February 7, 2007 at 2:51PM
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I hope your FP is familiar with the federal retirement systems. From your comment about matching TSP contributions, I assume your husband is under FERS.

Anyway, while I cannot answer your questions directly, I suggest you also post your questions at Fed Soup. It's a forum of federal/military/postal employees and advisors.

You will have to join, but it doesn't cost anything. The forum is a great site for federal empolyees.


Here is a link that might be useful: Fed Soup

    Bookmark   February 8, 2007 at 10:01AM
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joyfulguy - nope, didn't take it as criticism at all. I expected someone to pipe in about not being prepared. You made a fair statement! lol

Dave - if you're still here?? Thanks. We really want to maintain a certain lifestyle in such a way that we're not living beyond our means, but we're not giving up things we enjoy or want to do. Some sort of balance.

Ellen - Yes, my husband is under FERS. Our FP is somewhat familiar with the TSP system, but not entirely. She recco'd to keep a balance in each fund, but I have also been learning about watching the market and moving the funds around to maximize gains. We have been looking for someone to help us with that.

Funny you mentioned Federal Soup. I just found it about a week ago. It has been quite helpful!

    Bookmark   February 12, 2007 at 4:54AM
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Hello again sparksals,

Any update info?

We're interested in what you decided.

And why, and how ... and are you still pleased with the decision (I hope)?

ole joyful

    Bookmark   June 7, 2007 at 3:35PM
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Hi Joyful,

I wound up sending the cheque back to the lawyer and he issued me a US$ draft. It was perfect timing because the US$ had gone down and the Canadian was on its way up. I wish I held out until today's rate, but you can't win everything, eh? As it turns out, I netted $22K doing it this way where I would have only got about $19K exchanging it here.

I bought a brand new bedroom suite and new bedding. We're really pleased with it. I also finished my good china which was discontinued and now I have a baker's dozen of place settings. I was also able to get some of my crystal, but I'm still searching for more to finish that off as they were discontinued years ago. When I find it, I will use some of this money for that as I only need 6 wine goblets.

Aunty Bev would be very pleased with the purchases and I know she would have wanted us to buy something nice with at least a portion of it.

I put the remainder, about $15,500 into a high yield savings account at USAA at 5.2%. It's a liquid account, so if I need access to it in an ER, I can get to it. Essentially, it is our ER fund right now and I converted the HELOC to a fixed rate. I could have paid it off completely, with a few thousand to spare, but we decided the payment is small enough for us to handle and we will be selling sometime this year, so it will be paid off anyway. Having the ER fund was the most important.

We are contributing over $550 biweekly (that's with govt match) to dh's TSP. It's not quite maxing, but it's what we can afford. We've got over $16K in about one year with contributions and growth.

We also started contributing to ROTH IRA's for each of us. The amount is small, but at least it's something and we can increase the amount to maxing as his income increases and I start working once we are settled in MN.

We will be moving from AZ to MN sometime this year and will be able to get more house for less money. I prefer to have a smaller mortgage payment, so we will roll over most of the money from this house into the new one to keep our mortgage payment at about $750. I know Dave is probably cringing at that, that we should use some other investment options, but I really don't feel comfortable with a huge mortgage payment. We can afford more, but then that would force us to reduce our TSP contributions and we feel that is really important to contribute as much as we can to that.

The only drawback with selling soon is Tucson market has cooled and the property values have gone down a bit, so we will most likely only break even - I'm hoping we don't lose money after realtor's fees/closing costs, but it is a possibility.

So, how'd we do? ;)

    Bookmark   June 8, 2007 at 5:32AM
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I'm not joyful, but it sounds to me like you did just fine :)

    Bookmark   June 8, 2007 at 6:12AM
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Thanks Grandma! It gives us a bit of a secure feeling to have that money in an ER account.

I forgot to add that we allocated $200 per month to go into that account to add to it as it's only about 4 months of dh's total income in there. We want it to get up to about one year's salary to have a more comfy ER fund.

    Bookmark   June 9, 2007 at 2:29PM
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I agree.

And I'm pleased that you ended up with so much more by using a different exchange system.

One of these days when I'm going through Grand Forks on my way to my brother's in Regina, I think I'll drop in to see you - I think that you owe me a dinner!?

I'm not sure that I'll suggest buying equities now, as the market is high, but I'd advise turning most of your long-term investments into equities (stocks) over a period, buying small pieces at a time, in companies in various parts of the economy. When you buy pieces spread over a period of time, you get some when markets are high and some when they are low.

I'd suggest some holdings in various parts of the world, as many of us feel that the U.S. economy will not maintain its pre-eminence in the world, given its huge balance of payments, deficits and debts, the latter both governmental and private. As you know, three or four years ago One Dollar Canadian would buy only about 69 cents U.S. - now it's around 93 and 94 cents.

Being from Calgary, you're familiar with the oil and gas situation, and I think it would be wise to buy some Canadian oil and gas stuff, plus pipelines - and some ion the oil sands, maybe ... more reserves there than in Saudi, they say ... and managed by friendly govt., as well. Maybe rather high priced, right now. As you know, Canadian banks have done well, but I think their stocks may be a bit overpriced just now.

I've written a number of posts here and on Money Saving Tips about the preference that I have for owning stuff rather than lending my money to the bank - and having them make more on my money than I do!

Plus paying me back the same number of dollars that I loaned them - each of which will buy a lot less than when I gave it to them!

I hope that you're having a lovely summer weekend.

Son and I went to a networking seminar yesterday, and the church had a big yard sale today. I took a loaf of bread-maker bread, 25% whole wheat flour, some flax, banana and cinnamon, that I figure cost me under 50 cents ... and they sold it for $4.00!

So I guess I'll take half a dozen loaves, next year!

Took a plastic kid's potty that I found in like-new condition in garbage on the side of the road - wrapped in plastic, yet. Don't know how much they got for that.

ole joyful

    Bookmark   June 9, 2007 at 4:57PM
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joyful - how far is GF from the TC's? You're more than welcome to drop by once we move there.

Our TSP plan allows for diversification in stocks/equities/international. There are five different funds with the G fund being govt treasuries and the most secure. I have our funds in the Common stock index (C fund), small cap tracked by the Wilshire (S fund) and international funds (I) tracked by the EAFE.

I've got 60I, 30S, 10C. The S fund did the best last month, but typically the I fund has done better. Over the course of a year, the I fund has had a 26% return, the S 22% and the C 21%.

I have thought about investing in Canadian oil companies. My friend works for Encana and gets great stock options. She has paid off her very nice home solely with her stocks.

I'm leary of joining the stock market because I don't know anything about it and have no idea where to start.

Here is a link that might be useful: TSP funds

    Bookmark   June 11, 2007 at 3:43AM
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This may not mean much now, but don't CC companies charge a minimum of 3% of the amount borrowed even if it's at a 0% interest rate?

You may have didged a bullet there.

    Bookmark   July 5, 2007 at 11:53PM
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Some do charge a one time transaction fee, but there are many that don't.

    Bookmark   July 6, 2007 at 1:32AM
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I assume that your CC means Credit Card ... and I'm wondering if I missed something, as I didn't think that there was a reference to credit cards in the present discussion.

Sparksals took her bequest cheque, drawn in Canadian dollars, to a local financial agency (in AZ?) and was rather distressed that they wanted a rather hefty fee for the exchange.

It was suggested that she have the money exchanged into U.S. funds in Calgary, as they have a large number of U.S. folks up there and do that all the time. As she said, the exchange rate had the Canadian Dollar increase in value relative to the U.S. one in the meantime, so she ended up getting something better than US$22,000. for her CA$25,000., rather than better than $19,000. which she was offered originally in her area.


As you begin (to learn about and) investing, especially when you have small amounts, mutual funds are useful vehicles.

In the meantime, I suggest that you begin to learn how the money markets work, with a view to buying your own stocks directly, later.

In Canada, the managers of equity-based mutual funds usually charge more than 2% of the funds managed annually as their management fee ... in the U.S., it's usually aound 1.5 - 1.75%, I think. Still, when long-term average rate of growth runs around 8%, that means that the mutual fund managers are pocketing a substantial portion of that increase ... and they get their percentage, even in years when there is no growth. I'd suggest that you visit the business and investment section of a major library and ask the people who know that section of the library to suggest some materials for you to study.

I think that the 332. section will have some useful materials.

If they have the Value Line evaluation system, that gives an in-depth study of a large number of companies.

There's another program of investing that is comparable to mutual funds, but the annual fee is much lower, called Exchange Traded Funds. Quite a number of mutual fund managers use them, some rather extensively

You can buy one issue that includes shares of a number of major companies in, say, financial, or medical, or mining, consumer, transportation, utilities and other sectors. Or you can buy a piece of a number of shares of major companies in a number of countries or areas of the world ... look under "ishares" in the NYSE listing.

As the management is much less, their annual fee is much smaller - usually about 0.5% or so.

While the rates of return on your CDs remains approximately the same over a number of years, there are a number of companies that have increased their dividends annually for many years ... I think that Johnson & Johnson (JNJ) have increased theirs every year for the most recent 40.

And their rates of payment usually run at a similar percentage rate, which means that, usually, the share prices have advanced, as well.

If you look at any financial paper, you can see the symbol that the stock market uses to designate each stock, and the prices that each is selling at currently, plus, usually, report of their recent earnings, and the dividend that they pay. If you go to a financial section on the internet, e.g., I use Yahoo, and if you go to www.yahoo.com, near the top of the page is a box with a number of topics. Click on "Finance", and when that page comes up, it offers a substantial amount of info on the general market.

There's a box that says, "Get quotes", and if you enter the symbol for a given stock (e.g. "F" is Ford, "GE" is General Electric, it will give you the range of prices that people paid today for that stock.

At the right there is a chart that shows the various prices today, and below it you can click on "5d" to find a chart showing the prices over the most recent 5 days, "1y" to show the price ranges for the most recent year. Above the box there is a choice that lets you choose "Line" (which is likely the one that shows), showing the closing price of the stock over a given period. Or, you can choose, "Bar", which will show the high, low and closing prices daily for whatever period that you choose.

Over at the left, near the top, is a choice, "Historical prices", and you can choose daily, weekly, etc. for what length of times that you choose.

You'll get a list of open, high, low and close prices over a length of time ... and dates and amounts of dividend payments (most pay quarterly).

EnCana (ECA.TO for pricing in CAD in Toronto, ECA for pricing in USD on NYSE) is, long term, a good stock, mainly involved with natural gas ... I don't know whether investing in it just now is a good idea (nor do I mean to imply that it isn't), but if your time horizon is several years, I'm pretty sure that you'd be happy with it.

I hope that this gives you some ideas of how to begin your adventure of learning about your investments.

Learning how money works ... an interesting hobby ... *that pays well*!!

ole joyful

    Bookmark   July 6, 2007 at 1:51AM
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joyful.. 2nd and 3rd paragraph...

***Quote***Anyway, we want to use the money wisely. We have no c/c debt, but we do have a zero % c/c with a zero balance.....
we were thinking of paying off the HELOC when the house sells rather than using this money to pay it off now. Another alternative is to move the HELOC balance to the zero % card. ***Quote***

The OP was referring to a credit card with a 0% offer. I was just pointing out that they may have a fee included in the offer. Not really trying to rock the boat. Just want others to see that it isn't a no-brainer and should read the fine print on the CC offers.

Sparksals, looks like you're well planned and on your way. Keep it up and Good luck.

    Bookmark   July 6, 2007 at 12:29PM
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Joyful - thanks for that info!

Funny you mention Encana. My friend has worked for them for years and she paid off her house with her stock options. I didn't realize I could buy stocks for it here in the US. Maybe I will watch it and then make a small buy.

    Bookmark   July 7, 2007 at 7:55PM
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I spoke of EnCana since it was the one that you mentioned that your friend was using.

It's available through NY broker, check at its symbol, ECA, and in Toronto, as ECA.TO ... and the price variations are usually close to paralleling the exchange rate variations at the time.

Some diversification not only in types of business that the companies whose shares one owns, but internationally, as well, is a good idea, I think.

The U.S. Dollar has lost some of its value relative to a number of other currencies, in recent years, and some international companies are asking for payment in Euros, Swiss Francs, Yen, etc. these days, as many are concerned for the long-term stability of the U.S. Dollar. That would have been unheard of, a number of years ago.

Good wishes for increasingly skilled investing.

ole joyful

    Bookmark   July 9, 2007 at 6:47PM
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