Learning:
Paying Down Debt; Post-9/11

Q: My husband and I have $38,000 in student loans. We also want to start saving for a house. What should we do?

A: Paying down debt should be everyone's top financial priority. But flexibility is important if you want to meet your goals.

I would make a distinction between credit card debt and student loan debt in that the latter did not result from overspending. If you told me you owed $38,000 in credit card debt, I would say it was critical to pay it off fast and reform your spending habits at the same time. That is not the case for you, though.

You know you can't buy a home without a down payment. If I were in your situation, I would save for the down payment at the same time I paid on the debt. The best way to save is to have money deducted from your paycheck or bank account each week or month before you get the chance to spend it.

Putting money aside in tax-deferred retirement plans is another top priority even for those who are in debt. If you get some kind of match on a 403 (b) or 401 (k) plan, you should contribute enough to capture that match.

There are endless rules for getting your finances in shape. But the overriding one is that you must have the discipline to save and then the flexibility to see where it will do you the most good right now.

Q: I plan to retire next year. How much of my money should be in stocks?

A: An old rule of thumb says to take 100 minus your age and put the result into stocks. So if you are 60, that would mean 40 percent of your retirement pot goes into the stock market. Like other yardsticks, this one is both useful and flawed. It's been around for a long time and was more useful when life expectancies were shorter. Today a 60-year-old might live to be more than 100, and I think he needs more than 40 percent in stocks for growth.

But you also should think about your Social Security benefits and the other pension income you will have. You don't want money in the stock market that you will need for living expenses over the next five years. Money that you won't need for more than five years can go into stocks.

Q: The terrorist attacks have made me worry about my family's security. I read that life insurance should equal eight times income. Is this true?

A: Everyone is thinking about this right now. I was in New York on September 11, and I wondered what regrets I would have had if I had been a casualty of that disaster. The answers all had to do with my family. I felt I hadn't organized things properly for them and--more importantly--that I hadn't articulated core beliefs to my children as I should have done.

As for life insurance, the seven-to-eight-times income rule is the one I hear most often. That's more than I have and more than I can afford. Further, a financial planner would say it's too vague, that you must list all of your family's financial needs first.

I agree and I disagree. One of the problems with financial rules is that they get so complex that many of us just throw up our hands in despair. It is much better to get some level of coverage in place. The idea of life insurance is to provide a cushion for a young family while assets build. So as equity grows in your home and your retirement account, the amount of insurance coverage you need goes down. If you can afford seven to eight times your income until then, good for you.

Q: Our daughter has been offered a summer internship that pays nothing. Last summer, she earned $5,000 as a waitress. What should she do?

A: Five thousand dollars is a lot of money. But an internship often makes the difference between snagging a job right out of college and spending a long, frustrating period of looking for work. If the internship is at a place she would like to work after graduation, I suspect she'd regret passing it up.

We don't know what the job market will be like in the spring of 2003, but it is very tight right now. Every one of us should be considering the ramifications of that and what it means for our career paths.

Mary Rowland is an author and contributor to several financial planning magazines. E-mail your personal finance questions to MoneyQuestions@neamb.com.

Thrifty Educator

This month's money-saving tips come fromCarla Herbert, a fourth grade teacher in Leavenworth, Kansas, and Lois Barreto, a third grade teacher from Detroit, Michigan.

Herbert: "Here is an idea on how to get free stuff from Highlights and U.S. Kids magazines.

These magazines have applications that they expect teachers to send home and get parents to sign. Instead of sending them home, I ask parents to sign them during our first parent/teacher conference.

I explain to them that it's up to them whether or not they want to purchase the magazine, but we can get free stuff with even just their signature saying they do not wish to purchase.

They don't need to write their address if they don't wish to buy it and they gladly do this for me. I usually have enough signatures to get a year's subscription and some free stickers."

Barreto: "I go to the armed services recruiting offices and ask for book covers and pencils. They are usually glad to oblige. They have other free things for classrooms too. I use the free pencils as rewards for 100% on tests."

Got an Idea?

If you have a suggestion for how your colleagues can save money at school, send it along to neatoday@nea.org.

Heads Up from NEA Member Benefits

Assuring the security of our families is foremost in the minds of people today. Advance planning is the key to safeguarding our loved ones, and NEA Member Benefits offers two newly enhanced insurance programs to help meet those needs.

The NEA Term Life Insurance Plan now offers an optional rider that provides added coverage for loss of life caused by an accident. For an additional small monthly premium, this rider doubles the amount of the Plan benefit. The Plan offers basic coverage amounts from $50,000 to $150,000, and because it's term life insurance, the premiums are attractive to the most cost-conscious of individuals.

The new NEA AD&D Plus Insurance Plan provides an expanded array of benefits to further protect members and their families. The more than 10 new benefits include a Spouse (or domestic partner) and Child Tuition Reimbursement Benefit, a Loss Due to Coma Benefit, and a Day Care Reimbursement Benefit. The enhanced Plan also provides an additional $10,000 in coverage each year for the first five years of enrollment for accidental death that occurs while on public transportation.

Like the original NEA AD&D Insurance Plan, acceptance is guaranteed without a medical exam or any health questions. Members may obtain up to $120,000 in coverage and purchase coverage for spouses or domestic partners and/or dependent children.

For more information on the enhanced NEA Term Life and NEA AD&D Plus Insurance Plans, please call the NEA Member Benefits Member Service Center toll free at 800/637-4636, Monday - Friday, 8 a.m. to 8 p.m. (or Saturday, 9 a.m. to 1 p.m.) ET.