Money
Staying on the Right Financial Track

Q: I'm a single mom who will retire in 10 to 13 years. I pay into the state retirement fund but have no other investments. My house will be paid off this fall, freeing up about $1,200 a month that I could save. I have no debt, but I'd like to trade in my car in the next few years and pay cash for the difference. Do you have any suggestions?

A: Congratulations. You are doing a wonderful job managing your money. Paying off your mortgage, getting out of debt, and contributing to the retirement fund are excellent building blocks.

I wonder how much you will have to pay in cash when you trade in your car. It might help to start with estimating that. You should definitely tuck that $1,200 away every month. But where you put it will depend on how much you need for your new car.

If you save the money for two years, that's $28,800 plus whatever interest you earn. I would start conservatively. To invest your money, you need a time horizon of at least three years (five is better). Short timers don't belong in stocks or stock mutual funds, because you need time to ride out the ups and downs.

But that doesn't give you an excuse to delay putting money away. You might choose a money market fund at one of the large no-load mutual fund companies (no-load funds come from fund groups that do not charge commissions). A money market fund keeps a stable price of $1 per share and pays interest on your principal, much like a bank account, though it is not guaranteed. However, your interest from a money market fund is a little bit higher, you can write a check on the account when you buy your new car, and you can get your feet wet as an investor.

Once you've accumulated some money in the money market fund-- say after six months--you might consider having $100 per month of that money invested in a conservative balanced fund, which invests in both stocks and bonds.

Because interest rates are low now, many people think it's foolish to save. That's silly. I think you're doing the right things to ensure your future.

Q: I recently accepted a teaching position in a lower- income community. Do I qualify to have my student loans repaid by the school or the government?

A: Teachers working full time in low-income and subject-matter shortage areas may qualify for cancellation or deferment of some or all of their federal student loan debt.

Up to $5,000 of Stafford loans and 100 percent of Perkins loans may be "forgiven." Specific provisions apply regarding loan origination dates, consecutive years of service, and teaching of specific subjects. For Stafford loan cancellation, you must have completed five consecutive years of service. For Perkins loans, you get a specific percentage break on your loan debt for each year of service. Find the details at www.ed.gov/offices/OSFAP/Students/repayment/teachers.

Q: I am a 55-year-old widower with 27 years left to pay on a $55,000 mortgage. I'll be eligible to retire at age 65. My credit union wants me to pay off my debts by taking out a second mortgage for $82,000 at 6.95 percent with a $935 monthly payment for 10 years. Is the interest on this loan tax-deductible? What should I do?

A: You need to get a little more information. It sounds like the credit union would roll your mortgage along with whatever other debts you have into one mortgage loan to be paid off in 10 years.

If that is the case, the interest would be tax-deductible, and the plan makes sense because you could be free of debt at retirement. A lot depends, though, on your spending habits. If you run up more credit card bills over the next 10 years, you will not have accomplished much. Do not charge more than you can pay off each month. Also, ask the credit union if the loan will be a mortgage qualified for tax deductibility.

Q: Should husbands and wives have separate bank accounts?

A: Many of my friends do. I suspect some do it because one spouse has prior obligations for children or parents or perhaps just because the two have separate spending and saving styles.

I'm not opposed to it if it works and the marriage is better as a result. I've never done it myself because it seemed like too much trouble.

My husband and I have never disagreed about money. I hate bookkeeping chores, and additional accounts would make them more complicated. But we do have separate charge accounts so I don't know every detail of his financial life, nor he of mine. This is a question that you must answer for yourself based on the role of money in your relationship.

Q: Our son wants to major in comparative French literature, but my wife thinks he should pick either French or English and get a teaching degree.

A: It's a complex question: How practical should we be when helping our kids plan their future?

I tutor a young Korean woman who plans to attend graduate school in the United States. In Korea, she says, students are pushed to achieve academic excellence in high school and then to attend a top college in Seoul. Majors are selected for them based on their academic record. She ranked at the top of her class, was told to major in management, and got a good job right out of college.

Now she's an au pair in New York and marveling about the differences between Korean and American education. Koreans, she says, take it more seriously but leave no room for creativity. American parents, she believes, are lax about education yet Americans are more creative and entrepreneurial.

She has recently been offered a wonderful management job in Korea, but now she's not sure she can go back to the "safe life."

These are the kinds of things we must think about in preparing our kids for college. Maybe we need to stand back a little bit and observe them, watch how they react to different environments, schools, and subjects. No easy answers, I'm afraid.

Thrifty Educator

This month's tips come from Robert K. Nulf, a special education teacher in Battle Creek, Michigan, and Rhoda London, Teacher of the Gifted, Jacksonville, Florida.

Nulf: Sometimes to get what you need for your classroom requires creative acquisitioning. This past summer, my class acquired two new corporate sponsors. I received five boxes of varsity football jerseys from Michigan State University to give to students of the month, and PETCO is donating an iguana and products and experts to teach students about the care and management of animals for our class. The iguana will receive a lot of attention from the kids, and in the meantime, we will sneak in a lot of living skills when they are not watching.

London: My elementary students often get out games and discover that playing pieces are missing. They also design games and make up review questions on various topics, and there are never enough of these student-created playing pieces to go around.

My solution? When I throw away old dried-up markers, I save the lids! They are small, flat, come in different colors, and work perfectly as game pieces.

Got an Idea?

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

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Happy Holidays!