Welcome to Ask the Bills, where every two weeks Helaine Olen answers readers’ questions about their most nagging personal finance and financial etiquette dilemmas. Seeking advice on a money issue? Email helaine.olen@slate.com.
Helaine,
How should I change my long-term financial plans based on the election? Before Nov. 9, my husband and I had about $200,000 in equity in our small, less-than-800-square-foot suburban home (in a neighborhood that’s been taken over by the tech sector and its salaries), about $70,000 in 401(k)s, and $10,000 in savings. We only finished our degrees a few years ago, so we are proud of how much we have managed to sock away while raising two kids and paying for day care. We have kept our expenses low and only recently became comfortable spending more money. Our goals prior to last week were to add space to our very tiny house—something that would cost about $150,000—and continue increasing our contributions to retirement and college funds as quickly as we can. This election complicates a lot of our plans. I work in the nonprofit sector. My husband does research in renewable energy, much of it funded through federal grants. He vastly outearns me. If funding is cut and he loses his job, he’d most likely find work again quickly, but we’d have to move out of the state or possibly the country. What should we do? Should we stop funding our 401(k) and keep money in cash, both as a cushion in case of layoff and to shield it from the volatile stock market? The value of our home is dependent on the continued health of the tech sector. But, again, it’s smaller than 800 feet. It would be easy to sell, but we’d have nowhere to go in the region because everyone takes all cash offers here. Building an addition would make our lives easier. Should we take out a home equity loan now, before values and rates change?
Why do you say, “Before Nov. 9?” I agree the election was a ghastly shock, but so far the markets haven’t seen it that way: Your net worth should be similar to or even slightly higher than it was before Election Day, unless you forgot to mention the part where you went to Vegas to gamble away your sorrows. Stocks are up, and there’s been no sudden plunge in the price of housing. Yes, your situation is at least somewhat precarious thanks to your husband’s job. But you’re also employed, so it’s not like you need to worry about losing everything.
If you didn’t have small children, I’d tell you to not bother renovating, since you have more than enough space for two adults. But since you do, it’s perfectly acceptable to admit you’re at your wit’s end, which would be true no matter who won the election.
So go ahead and renovate—after you consider a few things. First, take a few months and explore other homes in your area. In most parts of the country, the holiday season is famously slow. The properties that remain on the market are frequently owned by people who need to sell quickly—they’re “motivated,” in real estate industry parlance—and can’t afford to be as picky about such things as all-cash offers. You could get lucky. Second, I would make very certain you aren’t getting in over your head financially.
Contractors are known to underestimate the cost of a renovation. I would hate to discover several months from now that you needed to turn to those wonderfully funded retirement accounts to finish the job.
Finally, predicting the future is a fool’s game. I would urge you to think about your long-term goals and short-term needs and plan your finances accordingly. And I would have said the same thing last week, before the presidential election. We have no idea how the economy will perform under President Trump any more than we would know how financial things would have shaken out under a President Hillary Clinton. There are plenty of people who suspect a Trump presidency will be good for the overall economy, even if not for our civic life. It all seems overwhelming and shocking now—and who knows what the next four years will bring—but I assure you that by the end of the year, many of us will be back to fighting on Facebook over parenting practices and strays bits of nonsense. Life does go on.
Helaine,
My husband has spent the past 10 years working long, stressful hours at a fairly small company. The firm is being sold, and as one of the three original employees, he is getting a lump-sum payment for the percentage he owns. I’m in my mid-30s, and I stay home with two young children. We just signed off on a 30-year mortgage earlier this year. With this sum, we could pay off the mortgage and still have a little left over. I feel like every financial article I read breaks down the math of paying off a mortgage and emphatically advises against it. I understand that in the long term, a well-diversified stock portfolio will likely have a higher payoff. But both my husband and I feel at a gut level that paying off the house would be such a stress reliever. While things will probably get easier at his job under new ownership, there are no guarantees, and I feel like his stress level would be lower if he knew he would have the option to walk away if things got too bad. He also worries about the kids and me if anything were to happen to him. Would we be crazy to dump the majority of this payoff into paying off our home, and start putting the money we normally pay for our mortgage into investments instead?
What a lucky break! Congrats. I totally understand the urge to pay down the mortgage. Unlike other financial investments, we see and feel and experience houses. As a result, they feel safer to us even if we intellectually know that other investments are likely going to do better for us over time.
Your husband’s concern about his firm’s new management is valid, of course. Once the sale is complete, the new management might decide they don’t want old-timers around. Or they could turn out to be people he doesn’t care to work with. Or maybe nothing will change. You just don’t know, which means now is not the time to put available cash into a home. It might make you feel more secure, but it will actually make you less so. Homes are not liquid assets. You might need money, but the bank doesn’t need to give you a home equity loan or line of credit. And if you put it on the market, it might not sell for the price you paid for it.
You need to keep that money close at hand for now. It’s possible you’ll need it—to pay the mortgage while your husband looks for a new job or to buy another home if you need to relocate and the housing market doesn’t permit you to sell easily. I suggest you find a decently paying savings account, money market fund, or short-term certificate of deposit and park the funds there until the situation settles. NerdWallet regularly updates its lists of products offering the best interest rates.
A last note: Your husband is right to worry about your well-being should something happen to him. He should look into life and disability insurance policies. And you need to look out for your welfare, too. Try to keep your résumé alive in some way, if at all possible. I’m not suggesting you return to full-time work unless you want to, but you may well want to resume paid employment one day, and the more connections you’ve maintained to your profession, the easier that will be. Think of it as another form of insurance.
Helaine,
My wife has filed for divorce. When our son attended college, I took out a Parent Plus Loan to help pay the tuition. It’s in my name but not hers—her credit was in the tank at the time. We lost our home to foreclosure, but there is no other debt. Neither of us is asking for support from the other—in fact, she’s living with a boyfriend. So my question: Is that Parent Plus loan considered marital debt, or is it mine alone?
I contacted David Steerman, a family law attorney in New Jersey and Pennsylvania, to get the right answer to this one. Thirty-nine states, including those ones, are what are known as equitable-distribution states. (The others are community property states). That means the debt most likely belongs to both of you even if it is only in your name, though there’s a decent chance that would change if you took on the loan in the period immediately before the separation and end of the marriage. It would strengthen your case if you had any emails or texts or other documentation between the two of you discussing this and agreeing you both wanted to take on this loan but did not because of the situation you outlined, since not all states require parents to pay for college and never know what will happen if you go to court. And I am sorry. It sounds like you’ve had a couple of hard years. Best of luck.
