Dear Moneyist,
I read your advice column a lot, and I hope you can help me. I feel like most of your columns are geared more towards the middle and upper classes, but I’m hoping you can help a low-income person like me as well.
I don’t have a college degree, and I doubt I’ll ever make more than $30,000 a year, but over the past six years I have paid off absolutely all of my debt, including my car, and have saved up a three-month emergency fund.
I don’t have a college degree, and I doubt I’ll ever make more than $30,000 a year, but over the past six years I have paid off my debt, including my car, and saved up a three-month emergency fund.
I have been at my current job for 5 years and make $15 an hour, but I currently have a side job that pays $10 an hour to help me save up for a house. I live in Texas so those are actually pretty good wages for someone without a degree.
The advice I need is what to do with the $150,000 inheritance I am getting in the next few months. At my age (36) I do not have a desire to go to college and try and break into a career that will pay more.
I hate working in an office. The thought of being a nurse makes me a little queasy, there’s no way could I be a teacher with how out of control today’s youth are, and I hate technology so IT is out. So college and different career is pretty much a no-go.
I have no children that I need to provide for, but I also only have that three-month emergency fund and no other retirement or investments to my name. I’m at the point where safety and stability are what interest me most.
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I am spending one part of my inheritance on something that I would call frivolous: $30,000 to get my teeth fixed. They are in terrible shape, and sadly the extensive dental work I will need is that expensive. Other than that, I have no plans to spend any of the money towards anything other than securing my future.
Should I save a small portion of the inheritance and invest the rest and hope it drastically raises my income so I can save for a house and retirement over the next few years? Or should I use the money to buy a house outright in a low-income state to drastically reduce my living expenses?
What would you do in my position? I always assumed I’d be working until I die, but I feel like this money is my chance to finally be financially safe and maybe have a shot at retiring.
With the state of our country and economy, investing all of it and losing the chance to finally own a house and not have to worry about paying rent (I currently pay $1,050 a month) really scares me.
As I said, I live in Texas and already have to drive about an hour and half round trip to get to work, but I have been researching the housing and job markets in Mississippi and Alabama and you can buy a decent house for around $60,000 with plenty of similar jobs to the one I have now within driving distance.
If I do buy a low cost house outright around $60,000 my only expenses will be health insurance, home owner/car insurance bundle, food, gas, electricity, phone, and internet. In these low-income areas those expenses won’t be much, so a job like I have now would cover them, and I could get a second job and use that to invest in a Roth IRA and to go towards savings.
With the house costing $60,000, my teeth costing $30,000, and maybe $5,000 to $10,000 for various moving expenses, that should leave me with roughly $50,000 to add to my emergency fund and to catch up on my retirement fund.
What would you do in my position? I’m a simple person and never expected to receive this kind of money. I always assumed I’d be working until I die, but I feel like this money is my chance to finally be financially safe and maybe have a shot at retiring. I’m just not sure which one will get me there safely and hopefully before I’m 70.
Sincerely,
Minimum Wage Woman in Texas
Dear Minimum Wage,
This is one of the most heartfelt and moving letters I’ve ever received. It’s a timely reminder to all people to be grateful for what they do have and to appreciate that there are millions of Americans who live paycheck to paycheck. In fact, some 50 million American households can’t even afford basic living expenses.
This is one of the most heartfelt letters I’ve ever received. It’s a timely reminder to be grateful for what they have and to appreciate that there are millions of Americans living paycheck to paycheck.
This $150,000 inheritance could, indeed, be a life-changer for you. There’s nothing like having your own home and the peace of mind that brings. Knowing that you will have an opportunity to reduce your living expenses and, hopefully, stop work completely or, at least, scale back is something no one should take for granted.
You also have a great deal of self-awareness and idea of your risk tolerance. You don’t want to invest this money in stocks, especially given the recent volatility in the stock market and, frankly, after a 9-year bull market, I would not advise you to invest all your money or even a large chunk of it in something that has no guaranteed return.
Also see: Should I sell my $565,000 duplex and invest the money—or continue to collect rent?
Dave Totah, senior wealth adviser at Exencial Wealth Advisors in Frisco, Texas, commends you on your work ethic and suggests nine months of emergency expenses. I’ll split the difference with you both and say six. Once again, it’s important to do what you feel most comfortable with.
“You may not necessarily have to move to find lower-priced housing as many small to medium sized Texas cites have very affordable housing and a good job market,” he says. “You may want to check with your dentist to see if the expenses for your teeth can be paid over time. Use cash from your side job to pay the bill for your teeth if possible.”
He also has concerns about you locking up all your cash in your new home. If you financed a $60,000 house with a 20% down payment at 5% interest over 15 years, your repayments would be around $380 per month. Totah also suggests paying 50% down and finance the rest over 15 years, so your payment would be about $238 per month, excluding insurance and utilities.
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Assuming you pay $30,000 on your dental work — that’s one of the best things you can do for yourself, but I have another suggestion further down — a house with a 50% down payment, $15,000 moving expenses, and a 12-month emergency fund ($22,000, assuming you already have money saved) leaves you with $53,000 to be invested in retirement, Totah says.
Education brings social mobility, opens up your world to ideas and untold possibilities. It could be a gateway to a new career. Don’t ever believe that going to college is not for you.
I grew up in Ireland in the 1980s. We had everything we needed, but we were seven people in a small four-bedroom house and like “The Brady Bunch,” we too had one bathroom. Dublin was not exactly a dynamic place economically. It could have been a lot worse: It could have been any other previous decade in that country’s history.
But my mother always had one priority for her children and I can some it up in three words: Education, education, education. It brings social mobility, opens up your world to ideas and creates untold possibilities. It could be a gateway to a new career. Find something you love: English, history, economics, politics or whatever it is in life that floats your boat.
Please don’t rule out using some of this money for college. Read this story about a man who went back to college as an adult to do an associate’s degree at a college that focuses on adult learners. Don’t ever believe that going to college is not for you. That expectation is so precious and important, and you only need one person to say that the opportunity to seek further education includes you.
Well, it does include you. If there’s one thing you take away from this column, let it be that.
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