Why Not Walk Away from My Mortgage?

Kelli writes in:

My husband and I are sitting on a thirty year mortgage (with twenty six years left to go). We still owe $330,000 on our home. A week ago, a very similar home to ours two blocks away sold for $220,000, so we’re under water by at least $100,000. We are thinking of just walking away from this mortgage and renting an apartment for a while until our credit clears up. What do you think?

First of all, there’s a strong personal moral element to this type of decision. Is it morally wrong to walk away from a mortgage? You’ll get strong, impassioned answers on both sides of the question. Some will argue that if you make an agreement with another entity, you’re obligated to stick to it to the best of your ability. Others will argue that banks know what they’re getting into with a mortgage and that foreclosure is a risk they accept in the agreement, so you’re just doing something within the bounds of the agreement.

As with most morality questions, I can’t tell you what to think. I personally feel walking away from your agreements when you have the capacity to fulfill them is morally wrong, akin to lying. If I were a lender, I would never lend to someone who walked away from a mortgage because I would simply view them as too big of a risk. But I’m not a mortgage lender.

Aside from that moral concern, though, is it really a good financial choice? I think it can be, but it depends on the other choices that the person makes.

First of all, walking away from a mortgage will drop your credit rating by 150 points and it will take several years to recover. Such a drop has a huge impact if your credit is good, but a much smaller impact if your credit is already bad.

What kind of impact? It will become incredibly difficult to get a car loan or another mortgage with any sort of competitive interest rate. Lenders will look at your credit score and if your score is low, they won’t offer you a prime loan (if they offer you one at all). You have to accept that you’ll either be paying for cars and homes in cash for the next several years or you’re going to be taking out loans with incredibly painful interest rates and down payments.

If you’re going to do this, your best approach is to make sure you have housing and automobiles lined out for the next several years before your credit collapses. If you’re going to get a mortgage on a second home, do it now and get a fixed rate mortgage while your credit is still good. If you’re going to rent, get your rental agreement set up now before you walk away. If you’re going to need a car in the next seven years, you might want to make the move now (unless you’ll have the cash to do it later).

Another impact is that many other services use your credit ratings to determine what to charge you and whether to do business with you. Insurance is one example of this – most insurance companies regularly do a “soft pull” of your credit and use declining credit as a reason to raise your rates. Many upscale renters will do the same thing and not rent to people with poor credit, which may limit the places where you can rent your housing. Potential employers often pull your credit (I’ve had two employers in the past do this) and use that as an element of their hiring decision, often leaning towards people with good credit over people with poor credit. These are all serious additional costs of walking into foreclosure.

In the end, I don’t think Kelli should walk away from her mortgage as a first response. She should try several other avenues first that would preserve her credit and perhaps even allow her and her family to remain in the home.

First, I’d simply talk to the lender. Explain your situation and discuss options available to you. It’s often easier for a lender to just refinance with you (sometimes even removing some of the principal) than it is to put the homes in foreclosure. Many lenders are currently focused on refinancing in this way rather than taking on more foreclosed homes, so it’s certainly an option.

Second, I’d look at the extra financial costs of what will happen if you do foreclose. Run the numbers carefully here. Include all the extra costs – a serious bump in your insurance rates, for example – and make sure you also include some estimate of the cost of the risks mentioned above – the extra cost of a new car or the challenge of finding a rental home or a new job. Those things have serious financial costs if they occur – or they might have no cost at all. A good way to appraise it is to figure out the cost if it does happen, then estimate the odds of it happening. So, if something has a cost of $100,000 and has a 40% chance of happening, it’d be a $40,000 cost.

You might be surprised to find that staying put is the best option, even if you happen to be underwater in your mortgage. If you still find that abandoning is the best option. then it becomes the moral question discussed above – and moral questions are things we all have to decide for ourselves.

Continue reading Why Not Walk Away from My Mortgage? …

From The Simple Dollar.

Reader Mailbag: Competition

Several people have asked me recently why I have a “weekly roundup” (where I link to sites that write about similar things as me) and why I have a big list of blogs I like on every page of The Simple Dollar. Isn’t that just helping the competition?

Maybe. But I don’t really view those sites as competition. My entire purpose for linking is to share what I consider to be useful and interesting websites and articles with my readers. I figure that if you find value in them, you’ll come back here eventually to find more value.

If you don’t, at least I know I improved your life and reading experience.

I recently started seeing a Psychiatrist, and was diagnosed with depression. I’ve probably been living with it for about 6 years now, and now that I am receiving proper treatment, I feel like I just woke up from a coma. Its not that I don’t remember anything I did over the past six years, or that I didn’t do anything, its just that whatever I did had no forward thinking to it. I had no goals. I didn’t really care about anything except eating, playing video games, and making money so I could eat and play video games.

The problem now is, I feel overwhelmed by the amount of things I suddenly care about again. I’m thinking about looking for a relationship, I’m thinking about finally moving back out of my parents house, I’m thinking about changing jobs, I’m thinking about moving out of state, I’m even getting evaluated for bariatric surgery. I’m thinking about all of these things, and I don’t know which to make a priority – but more to the point, I don’t know how to recover my finances to the point where I can realistically do any of them. I have about $70,000 in school loans that cost me $500 a month, I have a car payment that is $400 a month, and the payments for a pension loan I took out which is $235 a month. I have about $13,000 in debt across various credit cards, varying in interest from 18% to almost 30%, totaling up to $415 per month in payments. After those bills, and the $300 monthly cost I pay for a personal trainer (which I don’t want to stop as it has really improved my quality of life a lot over the past 1.5 years). I end up with about $500 left over.

The good thing is, both the car loan and the pension loan (I have a state pension through my job) will be over within the next year. I have 4 months left on the pension loan and 8 on the car loan. I’m pretty much living month to month at this point, and I’m wondering – where would you start the digging out? How much should I try to save a month? How much should I put into paying things off, and what should be the priority for that be?
- Jeff

You’ve got to knock out those credit cards. I can’t imagine that your student loans are anywhere close to the interest rate on your credit cards.

What I would do in your case is make a simple debt repayment plan. At the top would be your highest interest debt, and after that all of your other debts are ordered in order of their interest rate.

Whenever you have extra money, you throw it into an extra payment on the highest interest loan (after making minimum payments on all of the loans, of course).

That’s really the best way to approach this. Once you have only a few debts left – all with interest rates under 10% – you can start really looking at other options. Of course, at that point, your monthly minimum debt payments will be eating a lot less of your income.

It seems that quite often there is a conflicting viewpoint between Consumer Reports (which bases its ratings on testing, and its reliability on consumer surveys) and the reviews/comments I see on the site from actual consumers, or from other comments on sites like epinions.com. Consumer Reports may say a certain model of vacuum cleaner is great, for example, while I’ll see many consumers say just the opposite.

How do you think is the best way to research the purchase of a particular model of appliance (like a vacuum cleaner)?
- Chris

I have a hard time giving a lot of trust to wide-open consumer review sites like Epinions and, frankly, Amazon. I trust Consumer Reports far more.

The reason is simple: when it comes to reviews on websites where anyone can post a review, you often have no idea who the person posting the review is. Sometimes, it’s an individual who has a vested interest in you not liking a particular product or liking another particular product. Given that such anonymity on accounts is easy to achieve, it’s hard to really trust any specific review.

I tend to trust reviews from individual reviewers much more. If I can establish a long history with that reviewer, then their reviews have merit for me. That’s why I love book review blogs and websites – I tend to trust the individual reviewers.

Consumer Reports is more of the “trusted” source. They have a reputation to uphold for unbiased reviews. They can’t afford to write biased ones because they have a reputation at stake. “Sandra from Ohio” on a review website doesn’t have a similar reputation to uphold.

Combined, my wife and I have about 50k in money market accounts (emergency, travel, repairs), about 100k in our 401k’s, 8k in our IRAs and my wife has an additional 10k mutual fund and participates in the ESP plan (roughly 10k). We are both 33 (no kids yet).

We reduced our 401k contributions (up to the company match) in 2008/2009 to bolster our cash reserves. We’re planning on bumping our 401k contributions back up for this year, but I struggle with the IRA.

If we cannot contribute to the Roth IRA, is it worth it to max out a traditional IRA and convert to a Roth every year? Everything I read says this is fine to do (though you pay taxes on conversions). Are we better off just putting that money into our 401k? I’m confused as to the tax implications on converting IRAs every year vs. the tax savings on future withdrawals of the Roth.
- Sean

Essentially, your comparison is between the tax bracket you’re in right now versus the tax bracket you’ll be in when you retire. That involves some guesswork.

One great way to start is to estimate how much income you plan to have in retirement compared to your current income. Are you aiming to bring in the same amount? Substantially less? Figure that number.

My assumption is that if you’re making the same in retirement as you’re making now, you’re better off in the Roth. That’s because it is my belief that income tax rates are going to have to go up.

How many emails do you get a day? (How many do you answer?)
- Bryan

I get between 300 (weekend) and 500 (weekday) non-spam emails a day. I do my absolute best to keep up with them, but there are times where I simply cannot.

At this point, it would be somewhat reasonable for me to actually have an assistant whose job it is to deal with the deluge. However, that’s really an expense that we can’t swing at the moment.

I typically answer about 50 emails in a given day. I also usually use 3 to 5 of them directly for posts on The Simple Dollar – twenty a week for reader mailbags and maybe five more for other posts.

I have no current debt except for my mortgage which I make extra payments on each month. I have 8 months of emergency living expenses saved up. I have a 401k which I contribute up to my employer’s match and I have a Roth IRA which I contribute to continuously. I have also saved up over 30k in high interest savings account. My problem is that I am dying to buy a BMW 335. I sit in front of the computer everyday and read countless professional and consumer reviews and sometimes ride out to the dealership to look at the work of art in the lot calling my name. I just can’t come to terms with emptying out all my savings for a car that depreciates in value yet I want to have the car so bad. I guess my question is how can I deal with this? Should I buy the car if I want it that bad? Should I finance it and then just pay it off really quickly to help break the impact of draining my savings in one swoop? Thanks for your help.
- Christopher

Look, I want things like this, too. I’d love to just drive down to the dealership and buy the car of my dreams.

If I’ve learned one thing over the years, it’s that if you do that, it isn’t long before you want something else. And something else again. We all always want something.

If the BMW is truly the thing you want the most in the world, the thing that will add a ton of value to your life and make everything else pale in comparison, then you should buy it. I would not deplete all of my savings to do it because of Murphy’s Law – the second you empty it, something will come up where you need that money.

I think my wife put it best when she said, “He’d be giving up ten trips to Europe for that car.” That’s certainly another way to look at it.

I am currently carrying around a lot of credit card debt. In college, I never wanted to ask my parents for money so I just charged stuff. It also was the first time I cared about keeping up with what other people were wearing & doing. There began the habit of using credit cards for everything. Outside of college, I kept at it. I got a great job & salary however, did not know how to budget. Honestly, my parents never taught me about money and when I told them I needed help with a budget, they told me I should know how to do that already. But, can’t blame your parents for everything! haha.

Anyway, I’m in my late 20’s and have just had enough. I’m at the point where my minimum payments are so high and I can barely start to ’snowball’. I’m cutting back my on expenses and trying to spend less than I earn. However, it always seems that I use cc’s as a crutch. If I feel like giong to out dinner but know I wont have enough money to pay for my gym fees, Ill just charge dinner. I know this has to be a lifestyle change.

Honestly, I dont think I can change without closing the credit cards. If I only have cash to rely on, I will be too scared to overspend or not save. I would close the cards but have balances to pay off. I know this could affect my credit, but really, I would rather not have the opportunity rack up more debt and deal with a lower score than keep on my path of using the cards.

What do you think? I’ve tried freezing the cards, cutting the cards, hiding the cards…nothing works.
- Alexis

How do you charge dinner if all of your credit cards are cut up?

Seriously, cut up all of your cards so that they’re completely unusable. Cut them into tiny, tiny pieces. Then see where you’re at.

If you find that you still can’t control the credit card spending, then close the accounts. However, if you’re still able to use a credit card to buy dinner, you haven’t actually cut them all up yet.

Should my HSA (Health Saving Account) be included in my net worth?
- Bryan

I don’t include our health savings in our net worth.

Essentially, I don’t include anything that I can’t easily liquidate in our net worth. If I can’t get cash out of it in less than a week, then it doesn’t go in.

Although you can get money out of an HSA pretty easily, the fees associated for doing so are crippling. Instead, I just ignore it in terms of our net worth. Then, if I actually need to use the account, I’m pretty happy that the medical expense isn’t causing a negative impact on our net worth.

How do you balance your finance goals and your health goals?

My husband and I have just over one year before our student loans come due. We are hoping to save up as much into an emergency fund (current balance of $0) over the next year as possible. After our mortgage, health insurance, car insurance, utilities, monthly expenses (food, medicine, etc.), and so forth are paid we’ll have $600/month to save. The mortgage and our student loans are the only debt we’ll have.

I have health problems which have plagued me since I was 16 (half my life). They are affecting my day to day life and I’m out of commission for 2-3 days a month and have limited ability to do anything physical several days a week. I have the opportunity to get them under control and regain my health. I’m doing as much as I can on my own but I do need medical attention and assistance, both of which cost money.

I feel guilty because in order to get healthy we won’t be able to save as much money. We know we’ll have to replace both the A/C and water heater over the next two years, as well as one of our cars within the next five. We want to have enough cash to cover all that plus several month’s emergency funds. That’s important to us, but so is my health.

How do you make a decision when there’s no “right” answer? How do you decide what’s best when neither is the obvious choice? Financial health and physical health are both important.
- Liz

Your health is more important than your finances. Without your health, you won’t be able to get your finances into proper shape. Your health is already keeping you from financial success.

If there’s a way that you can truly restore your health, do it. Get your health in order. Once you have that, any financial problem can be fixed later on.

Get yourself right. Everything else will follow.

I’m about to graduate from college, and I have no debt and enough in my savings account to cover my expenses for at least 4-6 months (maybe more if I made some lifestyle changes). I want to relocate to another city because I like the climate, the culture, and pretty much everything else about it. I have spent time in this city, but I only know one person who lives there. The cost of living and wages there are similar to where I live now, but I have no job prospects and only somewhat shaky connections. I will have a B.A. and lots of work experience, and I’m pretty confident I could find a job before my emergency fund runs out. Financially, do you think it would be a mistake to go ahead and relocate after graduation?
- Alex

In my eyes, it depends on two things.

First, do you have employment there? If you’re going there without any route to employment, I view that as a mistake. If you’re unemployed, you’re far better off living in an area where you have a strong social network. So, I’d suggest job hunting there before you move.

Second, do you build relationships easily? Some people do, some people don’t. If you have a hard time establishing new relationships, then such a dramatic move will likely leave you feeling very lonely – and that can create all sorts of problems.

If you can safely answer yes to both of these things, I’d go ahead and make the move.

The question is this: I am 31 years old, married, no children, and have the opportunity for a job that would put me in a position to earn $25-$27,000 per year. This, with my husband’s income is more than enough to cover all of our bills and get the emergency fund where I’d like it. The twist? It requires a security clearance and good credit. I have one bill that is about $1000 to pay off. My only option at this time for doing so is to either take an old 401k from a previous job with about $1200 and close it, or withdraw the money from my existing emergency fund which is a Roth IRA w/about $2100. I am unemployed at the moment and was wondering what your take is on which of these 2 options is the better of two evils,since my husband’s income is currently going to all the bills. Once my credit is cleared, and I can start the job, I can repay/re-save the amount within 2-3 months.
- Stephanie

When you say “good credit,” what does that mean? Usually, it just means that your credit report doesn’t have any major delinquencies on it. A single $1,000 outstanding debt usually doesn’t mean bad credit unless it’s way overdue.

The first thing I’d do is get my credit report and check it over. Use annualcreditreport.com to do this – it’s run by the federal government and is actually free with no strings attached. See if you have anything delinquent on it.

If you don’t, I’d say your credit is what I would consider “good.” If you’re actually worried about this, ask your potential employer.

You’ve talked about how you enjoy writing fiction. What do you write? How often? Have you ever published anything?
- Leon

I try to write fiction at least two days a week, usually three. Each time, I attempt to get at least a thousand words on paper, and I try to finish (at least in rough draft form) a short story every week.

For now, I don’t publish them. They’re not what I consider to be “good enough.” I don’t feel comfortable with others reading them at this point, though I do feel that they’re getting better.

If I do publish some, I will certainly mention it on here.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Continue reading Reader Mailbag: Competition …

From The Simple Dollar.

Reader Mailbag: Competition

Several people have asked me recently why I have a “weekly roundup” (where I link to sites that write about similar things as me) and why I have a big list of blogs I like on every page of The Simple Dollar. Isn’t that just helping the competition?

Maybe. But I don’t really view those sites as competition. My entire purpose for linking is to share what I consider to be useful and interesting websites and articles with my readers. I figure that if you find value in them, you’ll come back here eventually to find more value.

If you don’t, at least I know I improved your life and reading experience.

I recently started seeing a Psychiatrist, and was diagnosed with depression. I’ve probably been living with it for about 6 years now, and now that I am receiving proper treatment, I feel like I just woke up from a coma. Its not that I don’t remember anything I did over the past six years, or that I didn’t do anything, its just that whatever I did had no forward thinking to it. I had no goals. I didn’t really care about anything except eating, playing video games, and making money so I could eat and play video games.

The problem now is, I feel overwhelmed by the amount of things I suddenly care about again. I’m thinking about looking for a relationship, I’m thinking about finally moving back out of my parents house, I’m thinking about changing jobs, I’m thinking about moving out of state, I’m even getting evaluated for bariatric surgery. I’m thinking about all of these things, and I don’t know which to make a priority – but more to the point, I don’t know how to recover my finances to the point where I can realistically do any of them. I have about $70,000 in school loans that cost me $500 a month, I have a car payment that is $400 a month, and the payments for a pension loan I took out which is $235 a month. I have about $13,000 in debt across various credit cards, varying in interest from 18% to almost 30%, totaling up to $415 per month in payments. After those bills, and the $300 monthly cost I pay for a personal trainer (which I don’t want to stop as it has really improved my quality of life a lot over the past 1.5 years). I end up with about $500 left over.

The good thing is, both the car loan and the pension loan (I have a state pension through my job) will be over within the next year. I have 4 months left on the pension loan and 8 on the car loan. I’m pretty much living month to month at this point, and I’m wondering – where would you start the digging out? How much should I try to save a month? How much should I put into paying things off, and what should be the priority for that be?
- Jeff

You’ve got to knock out those credit cards. I can’t imagine that your student loans are anywhere close to the interest rate on your credit cards.

What I would do in your case is make a simple debt repayment plan. At the top would be your highest interest debt, and after that all of your other debts are ordered in order of their interest rate.

Whenever you have extra money, you throw it into an extra payment on the highest interest loan (after making minimum payments on all of the loans, of course).

That’s really the best way to approach this. Once you have only a few debts left – all with interest rates under 10% – you can start really looking at other options. Of course, at that point, your monthly minimum debt payments will be eating a lot less of your income.

It seems that quite often there is a conflicting viewpoint between Consumer Reports (which bases its ratings on testing, and its reliability on consumer surveys) and the reviews/comments I see on the site from actual consumers, or from other comments on sites like epinions.com. Consumer Reports may say a certain model of vacuum cleaner is great, for example, while I’ll see many consumers say just the opposite.

How do you think is the best way to research the purchase of a particular model of appliance (like a vacuum cleaner)?
- Chris

I have a hard time giving a lot of trust to wide-open consumer review sites like Epinions and, frankly, Amazon. I trust Consumer Reports far more.

The reason is simple: when it comes to reviews on websites where anyone can post a review, you often have no idea who the person posting the review is. Sometimes, it’s an individual who has a vested interest in you not liking a particular product or liking another particular product. Given that such anonymity on accounts is easy to achieve, it’s hard to really trust any specific review.

I tend to trust reviews from individual reviewers much more. If I can establish a long history with that reviewer, then their reviews have merit for me. That’s why I love book review blogs and websites – I tend to trust the individual reviewers.

Consumer Reports is more of the “trusted” source. They have a reputation to uphold for unbiased reviews. They can’t afford to write biased ones because they have a reputation at stake. “Sandra from Ohio” on a review website doesn’t have a similar reputation to uphold.

Combined, my wife and I have about 50k in money market accounts (emergency, travel, repairs), about 100k in our 401k’s, 8k in our IRAs and my wife has an additional 10k mutual fund and participates in the ESP plan (roughly 10k). We are both 33 (no kids yet).

We reduced our 401k contributions (up to the company match) in 2008/2009 to bolster our cash reserves. We’re planning on bumping our 401k contributions back up for this year, but I struggle with the IRA.

If we cannot contribute to the Roth IRA, is it worth it to max out a traditional IRA and convert to a Roth every year? Everything I read says this is fine to do (though you pay taxes on conversions). Are we better off just putting that money into our 401k? I’m confused as to the tax implications on converting IRAs every year vs. the tax savings on future withdrawals of the Roth.
- Sean

Essentially, your comparison is between the tax bracket you’re in right now versus the tax bracket you’ll be in when you retire. That involves some guesswork.

One great way to start is to estimate how much income you plan to have in retirement compared to your current income. Are you aiming to bring in the same amount? Substantially less? Figure that number.

My assumption is that if you’re making the same in retirement as you’re making now, you’re better off in the Roth. That’s because it is my belief that income tax rates are going to have to go up.

How many emails do you get a day? (How many do you answer?)
- Bryan

I get between 300 (weekend) and 500 (weekday) non-spam emails a day. I do my absolute best to keep up with them, but there are times where I simply cannot.

At this point, it would be somewhat reasonable for me to actually have an assistant whose job it is to deal with the deluge. However, that’s really an expense that we can’t swing at the moment.

I typically answer about 50 emails in a given day. I also usually use 3 to 5 of them directly for posts on The Simple Dollar – twenty a week for reader mailbags and maybe five more for other posts.

I have no current debt except for my mortgage which I make extra payments on each month. I have 8 months of emergency living expenses saved up. I have a 401k which I contribute up to my employer’s match and I have a Roth IRA which I contribute to continuously. I have also saved up over 30k in high interest savings account. My problem is that I am dying to buy a BMW 335. I sit in front of the computer everyday and read countless professional and consumer reviews and sometimes ride out to the dealership to look at the work of art in the lot calling my name. I just can’t come to terms with emptying out all my savings for a car that depreciates in value yet I want to have the car so bad. I guess my question is how can I deal with this? Should I buy the car if I want it that bad? Should I finance it and then just pay it off really quickly to help break the impact of draining my savings in one swoop? Thanks for your help.
- Christopher

Look, I want things like this, too. I’d love to just drive down to the dealership and buy the car of my dreams.

If I’ve learned one thing over the years, it’s that if you do that, it isn’t long before you want something else. And something else again. We all always want something.

If the BMW is truly the thing you want the most in the world, the thing that will add a ton of value to your life and make everything else pale in comparison, then you should buy it. I would not deplete all of my savings to do it because of Murphy’s Law – the second you empty it, something will come up where you need that money.

I think my wife put it best when she said, “He’d be giving up ten trips to Europe for that car.” That’s certainly another way to look at it.

I am currently carrying around a lot of credit card debt. In college, I never wanted to ask my parents for money so I just charged stuff. It also was the first time I cared about keeping up with what other people were wearing & doing. There began the habit of using credit cards for everything. Outside of college, I kept at it. I got a great job & salary however, did not know how to budget. Honestly, my parents never taught me about money and when I told them I needed help with a budget, they told me I should know how to do that already. But, can’t blame your parents for everything! haha.

Anyway, I’m in my late 20’s and have just had enough. I’m at the point where my minimum payments are so high and I can barely start to ’snowball’. I’m cutting back my on expenses and trying to spend less than I earn. However, it always seems that I use cc’s as a crutch. If I feel like giong to out dinner but know I wont have enough money to pay for my gym fees, Ill just charge dinner. I know this has to be a lifestyle change.

Honestly, I dont think I can change without closing the credit cards. If I only have cash to rely on, I will be too scared to overspend or not save. I would close the cards but have balances to pay off. I know this could affect my credit, but really, I would rather not have the opportunity rack up more debt and deal with a lower score than keep on my path of using the cards.

What do you think? I’ve tried freezing the cards, cutting the cards, hiding the cards…nothing works.
- Alexis

How do you charge dinner if all of your credit cards are cut up?

Seriously, cut up all of your cards so that they’re completely unusable. Cut them into tiny, tiny pieces. Then see where you’re at.

If you find that you still can’t control the credit card spending, then close the accounts. However, if you’re still able to use a credit card to buy dinner, you haven’t actually cut them all up yet.

Should my HSA (Health Saving Account) be included in my net worth?
- Bryan

I don’t include our health savings in our net worth.

Essentially, I don’t include anything that I can’t easily liquidate in our net worth. If I can’t get cash out of it in less than a week, then it doesn’t go in.

Although you can get money out of an HSA pretty easily, the fees associated for doing so are crippling. Instead, I just ignore it in terms of our net worth. Then, if I actually need to use the account, I’m pretty happy that the medical expense isn’t causing a negative impact on our net worth.

How do you balance your finance goals and your health goals?

My husband and I have just over one year before our student loans come due. We are hoping to save up as much into an emergency fund (current balance of $0) over the next year as possible. After our mortgage, health insurance, car insurance, utilities, monthly expenses (food, medicine, etc.), and so forth are paid we’ll have $600/month to save. The mortgage and our student loans are the only debt we’ll have.

I have health problems which have plagued me since I was 16 (half my life). They are affecting my day to day life and I’m out of commission for 2-3 days a month and have limited ability to do anything physical several days a week. I have the opportunity to get them under control and regain my health. I’m doing as much as I can on my own but I do need medical attention and assistance, both of which cost money.

I feel guilty because in order to get healthy we won’t be able to save as much money. We know we’ll have to replace both the A/C and water heater over the next two years, as well as one of our cars within the next five. We want to have enough cash to cover all that plus several month’s emergency funds. That’s important to us, but so is my health.

How do you make a decision when there’s no “right” answer? How do you decide what’s best when neither is the obvious choice? Financial health and physical health are both important.
- Liz

Your health is more important than your finances. Without your health, you won’t be able to get your finances into proper shape. Your health is already keeping you from financial success.

If there’s a way that you can truly restore your health, do it. Get your health in order. Once you have that, any financial problem can be fixed later on.

Get yourself right. Everything else will follow.

I’m about to graduate from college, and I have no debt and enough in my savings account to cover my expenses for at least 4-6 months (maybe more if I made some lifestyle changes). I want to relocate to another city because I like the climate, the culture, and pretty much everything else about it. I have spent time in this city, but I only know one person who lives there. The cost of living and wages there are similar to where I live now, but I have no job prospects and only somewhat shaky connections. I will have a B.A. and lots of work experience, and I’m pretty confident I could find a job before my emergency fund runs out. Financially, do you think it would be a mistake to go ahead and relocate after graduation?
- Alex

In my eyes, it depends on two things.

First, do you have employment there? If you’re going there without any route to employment, I view that as a mistake. If you’re unemployed, you’re far better off living in an area where you have a strong social network. So, I’d suggest job hunting there before you move.

Second, do you build relationships easily? Some people do, some people don’t. If you have a hard time establishing new relationships, then such a dramatic move will likely leave you feeling very lonely – and that can create all sorts of problems.

If you can safely answer yes to both of these things, I’d go ahead and make the move.

The question is this: I am 31 years old, married, no children, and have the opportunity for a job that would put me in a position to earn $25-$27,000 per year. This, with my husband’s income is more than enough to cover all of our bills and get the emergency fund where I’d like it. The twist? It requires a security clearance and good credit. I have one bill that is about $1000 to pay off. My only option at this time for doing so is to either take an old 401k from a previous job with about $1200 and close it, or withdraw the money from my existing emergency fund which is a Roth IRA w/about $2100. I am unemployed at the moment and was wondering what your take is on which of these 2 options is the better of two evils,since my husband’s income is currently going to all the bills. Once my credit is cleared, and I can start the job, I can repay/re-save the amount within 2-3 months.
- Stephanie

When you say “good credit,” what does that mean? Usually, it just means that your credit report doesn’t have any major delinquencies on it. A single $1,000 outstanding debt usually doesn’t mean bad credit unless it’s way overdue.

The first thing I’d do is get my credit report and check it over. Use annualcreditreport.com to do this – it’s run by the federal government and is actually free with no strings attached. See if you have anything delinquent on it.

If you don’t, I’d say your credit is what I would consider “good.” If you’re actually worried about this, ask your potential employer.

You’ve talked about how you enjoy writing fiction. What do you write? How often? Have you ever published anything?
- Leon

I try to write fiction at least two days a week, usually three. Each time, I attempt to get at least a thousand words on paper, and I try to finish (at least in rough draft form) a short story every week.

For now, I don’t publish them. They’re not what I consider to be “good enough.” I don’t feel comfortable with others reading them at this point, though I do feel that they’re getting better.

If I do publish some, I will certainly mention it on here.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Continue reading Reader Mailbag: Competition …

From The Simple Dollar.

Reader Mailbag: Competition

Several people have asked me recently why I have a “weekly roundup” (where I link to sites that write about similar things as me) and why I have a big list of blogs I like on every page of The Simple Dollar. Isn’t that just helping the competition?

Maybe. But I don’t really view those sites as competition. My entire purpose for linking is to share what I consider to be useful and interesting websites and articles with my readers. I figure that if you find value in them, you’ll come back here eventually to find more value.

If you don’t, at least I know I improved your life and reading experience.

I recently started seeing a Psychiatrist, and was diagnosed with depression. I’ve probably been living with it for about 6 years now, and now that I am receiving proper treatment, I feel like I just woke up from a coma. Its not that I don’t remember anything I did over the past six years, or that I didn’t do anything, its just that whatever I did had no forward thinking to it. I had no goals. I didn’t really care about anything except eating, playing video games, and making money so I could eat and play video games.

The problem now is, I feel overwhelmed by the amount of things I suddenly care about again. I’m thinking about looking for a relationship, I’m thinking about finally moving back out of my parents house, I’m thinking about changing jobs, I’m thinking about moving out of state, I’m even getting evaluated for bariatric surgery. I’m thinking about all of these things, and I don’t know which to make a priority – but more to the point, I don’t know how to recover my finances to the point where I can realistically do any of them. I have about $70,000 in school loans that cost me $500 a month, I have a car payment that is $400 a month, and the payments for a pension loan I took out which is $235 a month. I have about $13,000 in debt across various credit cards, varying in interest from 18% to almost 30%, totaling up to $415 per month in payments. After those bills, and the $300 monthly cost I pay for a personal trainer (which I don’t want to stop as it has really improved my quality of life a lot over the past 1.5 years). I end up with about $500 left over.

The good thing is, both the car loan and the pension loan (I have a state pension through my job) will be over within the next year. I have 4 months left on the pension loan and 8 on the car loan. I’m pretty much living month to month at this point, and I’m wondering – where would you start the digging out? How much should I try to save a month? How much should I put into paying things off, and what should be the priority for that be?
- Jeff

You’ve got to knock out those credit cards. I can’t imagine that your student loans are anywhere close to the interest rate on your credit cards.

What I would do in your case is make a simple debt repayment plan. At the top would be your highest interest debt, and after that all of your other debts are ordered in order of their interest rate.

Whenever you have extra money, you throw it into an extra payment on the highest interest loan (after making minimum payments on all of the loans, of course).

That’s really the best way to approach this. Once you have only a few debts left – all with interest rates under 10% – you can start really looking at other options. Of course, at that point, your monthly minimum debt payments will be eating a lot less of your income.

It seems that quite often there is a conflicting viewpoint between Consumer Reports (which bases its ratings on testing, and its reliability on consumer surveys) and the reviews/comments I see on the site from actual consumers, or from other comments on sites like epinions.com. Consumer Reports may say a certain model of vacuum cleaner is great, for example, while I’ll see many consumers say just the opposite.

How do you think is the best way to research the purchase of a particular model of appliance (like a vacuum cleaner)?
- Chris

I have a hard time giving a lot of trust to wide-open consumer review sites like Epinions and, frankly, Amazon. I trust Consumer Reports far more.

The reason is simple: when it comes to reviews on websites where anyone can post a review, you often have no idea who the person posting the review is. Sometimes, it’s an individual who has a vested interest in you not liking a particular product or liking another particular product. Given that such anonymity on accounts is easy to achieve, it’s hard to really trust any specific review.

I tend to trust reviews from individual reviewers much more. If I can establish a long history with that reviewer, then their reviews have merit for me. That’s why I love book review blogs and websites – I tend to trust the individual reviewers.

Consumer Reports is more of the “trusted” source. They have a reputation to uphold for unbiased reviews. They can’t afford to write biased ones because they have a reputation at stake. “Sandra from Ohio” on a review website doesn’t have a similar reputation to uphold.

Combined, my wife and I have about 50k in money market accounts (emergency, travel, repairs), about 100k in our 401k’s, 8k in our IRAs and my wife has an additional 10k mutual fund and participates in the ESP plan (roughly 10k). We are both 33 (no kids yet).

We reduced our 401k contributions (up to the company match) in 2008/2009 to bolster our cash reserves. We’re planning on bumping our 401k contributions back up for this year, but I struggle with the IRA.

If we cannot contribute to the Roth IRA, is it worth it to max out a traditional IRA and convert to a Roth every year? Everything I read says this is fine to do (though you pay taxes on conversions). Are we better off just putting that money into our 401k? I’m confused as to the tax implications on converting IRAs every year vs. the tax savings on future withdrawals of the Roth.
- Sean

Essentially, your comparison is between the tax bracket you’re in right now versus the tax bracket you’ll be in when you retire. That involves some guesswork.

One great way to start is to estimate how much income you plan to have in retirement compared to your current income. Are you aiming to bring in the same amount? Substantially less? Figure that number.

My assumption is that if you’re making the same in retirement as you’re making now, you’re better off in the Roth. That’s because it is my belief that income tax rates are going to have to go up.

How many emails do you get a day? (How many do you answer?)
- Bryan

I get between 300 (weekend) and 500 (weekday) non-spam emails a day. I do my absolute best to keep up with them, but there are times where I simply cannot.

At this point, it would be somewhat reasonable for me to actually have an assistant whose job it is to deal with the deluge. However, that’s really an expense that we can’t swing at the moment.

I typically answer about 50 emails in a given day. I also usually use 3 to 5 of them directly for posts on The Simple Dollar – twenty a week for reader mailbags and maybe five more for other posts.

I have no current debt except for my mortgage which I make extra payments on each month. I have 8 months of emergency living expenses saved up. I have a 401k which I contribute up to my employer’s match and I have a Roth IRA which I contribute to continuously. I have also saved up over 30k in high interest savings account. My problem is that I am dying to buy a BMW 335. I sit in front of the computer everyday and read countless professional and consumer reviews and sometimes ride out to the dealership to look at the work of art in the lot calling my name. I just can’t come to terms with emptying out all my savings for a car that depreciates in value yet I want to have the car so bad. I guess my question is how can I deal with this? Should I buy the car if I want it that bad? Should I finance it and then just pay it off really quickly to help break the impact of draining my savings in one swoop? Thanks for your help.
- Christopher

Look, I want things like this, too. I’d love to just drive down to the dealership and buy the car of my dreams.

If I’ve learned one thing over the years, it’s that if you do that, it isn’t long before you want something else. And something else again. We all always want something.

If the BMW is truly the thing you want the most in the world, the thing that will add a ton of value to your life and make everything else pale in comparison, then you should buy it. I would not deplete all of my savings to do it because of Murphy’s Law – the second you empty it, something will come up where you need that money.

I think my wife put it best when she said, “He’d be giving up ten trips to Europe for that car.” That’s certainly another way to look at it.

I am currently carrying around a lot of credit card debt. In college, I never wanted to ask my parents for money so I just charged stuff. It also was the first time I cared about keeping up with what other people were wearing & doing. There began the habit of using credit cards for everything. Outside of college, I kept at it. I got a great job & salary however, did not know how to budget. Honestly, my parents never taught me about money and when I told them I needed help with a budget, they told me I should know how to do that already. But, can’t blame your parents for everything! haha.

Anyway, I’m in my late 20’s and have just had enough. I’m at the point where my minimum payments are so high and I can barely start to ’snowball’. I’m cutting back my on expenses and trying to spend less than I earn. However, it always seems that I use cc’s as a crutch. If I feel like giong to out dinner but know I wont have enough money to pay for my gym fees, Ill just charge dinner. I know this has to be a lifestyle change.

Honestly, I dont think I can change without closing the credit cards. If I only have cash to rely on, I will be too scared to overspend or not save. I would close the cards but have balances to pay off. I know this could affect my credit, but really, I would rather not have the opportunity rack up more debt and deal with a lower score than keep on my path of using the cards.

What do you think? I’ve tried freezing the cards, cutting the cards, hiding the cards…nothing works.
- Alexis

How do you charge dinner if all of your credit cards are cut up?

Seriously, cut up all of your cards so that they’re completely unusable. Cut them into tiny, tiny pieces. Then see where you’re at.

If you find that you still can’t control the credit card spending, then close the accounts. However, if you’re still able to use a credit card to buy dinner, you haven’t actually cut them all up yet.

Should my HSA (Health Saving Account) be included in my net worth?
- Bryan

I don’t include our health savings in our net worth.

Essentially, I don’t include anything that I can’t easily liquidate in our net worth. If I can’t get cash out of it in less than a week, then it doesn’t go in.

Although you can get money out of an HSA pretty easily, the fees associated for doing so are crippling. Instead, I just ignore it in terms of our net worth. Then, if I actually need to use the account, I’m pretty happy that the medical expense isn’t causing a negative impact on our net worth.

How do you balance your finance goals and your health goals?

My husband and I have just over one year before our student loans come due. We are hoping to save up as much into an emergency fund (current balance of $0) over the next year as possible. After our mortgage, health insurance, car insurance, utilities, monthly expenses (food, medicine, etc.), and so forth are paid we’ll have $600/month to save. The mortgage and our student loans are the only debt we’ll have.

I have health problems which have plagued me since I was 16 (half my life). They are affecting my day to day life and I’m out of commission for 2-3 days a month and have limited ability to do anything physical several days a week. I have the opportunity to get them under control and regain my health. I’m doing as much as I can on my own but I do need medical attention and assistance, both of which cost money.

I feel guilty because in order to get healthy we won’t be able to save as much money. We know we’ll have to replace both the A/C and water heater over the next two years, as well as one of our cars within the next five. We want to have enough cash to cover all that plus several month’s emergency funds. That’s important to us, but so is my health.

How do you make a decision when there’s no “right” answer? How do you decide what’s best when neither is the obvious choice? Financial health and physical health are both important.
- Liz

Your health is more important than your finances. Without your health, you won’t be able to get your finances into proper shape. Your health is already keeping you from financial success.

If there’s a way that you can truly restore your health, do it. Get your health in order. Once you have that, any financial problem can be fixed later on.

Get yourself right. Everything else will follow.

I’m about to graduate from college, and I have no debt and enough in my savings account to cover my expenses for at least 4-6 months (maybe more if I made some lifestyle changes). I want to relocate to another city because I like the climate, the culture, and pretty much everything else about it. I have spent time in this city, but I only know one person who lives there. The cost of living and wages there are similar to where I live now, but I have no job prospects and only somewhat shaky connections. I will have a B.A. and lots of work experience, and I’m pretty confident I could find a job before my emergency fund runs out. Financially, do you think it would be a mistake to go ahead and relocate after graduation?
- Alex

In my eyes, it depends on two things.

First, do you have employment there? If you’re going there without any route to employment, I view that as a mistake. If you’re unemployed, you’re far better off living in an area where you have a strong social network. So, I’d suggest job hunting there before you move.

Second, do you build relationships easily? Some people do, some people don’t. If you have a hard time establishing new relationships, then such a dramatic move will likely leave you feeling very lonely – and that can create all sorts of problems.

If you can safely answer yes to both of these things, I’d go ahead and make the move.

The question is this: I am 31 years old, married, no children, and have the opportunity for a job that would put me in a position to earn $25-$27,000 per year. This, with my husband’s income is more than enough to cover all of our bills and get the emergency fund where I’d like it. The twist? It requires a security clearance and good credit. I have one bill that is about $1000 to pay off. My only option at this time for doing so is to either take an old 401k from a previous job with about $1200 and close it, or withdraw the money from my existing emergency fund which is a Roth IRA w/about $2100. I am unemployed at the moment and was wondering what your take is on which of these 2 options is the better of two evils,since my husband’s income is currently going to all the bills. Once my credit is cleared, and I can start the job, I can repay/re-save the amount within 2-3 months.
- Stephanie

When you say “good credit,” what does that mean? Usually, it just means that your credit report doesn’t have any major delinquencies on it. A single $1,000 outstanding debt usually doesn’t mean bad credit unless it’s way overdue.

The first thing I’d do is get my credit report and check it over. Use annualcreditreport.com to do this – it’s run by the federal government and is actually free with no strings attached. See if you have anything delinquent on it.

If you don’t, I’d say your credit is what I would consider “good.” If you’re actually worried about this, ask your potential employer.

You’ve talked about how you enjoy writing fiction. What do you write? How often? Have you ever published anything?
- Leon

I try to write fiction at least two days a week, usually three. Each time, I attempt to get at least a thousand words on paper, and I try to finish (at least in rough draft form) a short story every week.

For now, I don’t publish them. They’re not what I consider to be “good enough.” I don’t feel comfortable with others reading them at this point, though I do feel that they’re getting better.

If I do publish some, I will certainly mention it on here.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Continue reading Reader Mailbag: Competition …

From The Simple Dollar.

Re-decorating with what you’ve got

Last month, my husband and I arranged for the biggest house project since we moved in six years ago. The kitchen, living room, dining room and basement stairwell all got a painting job.
While most of our pretties are going back on the walls where they used to be, we did make some minor changes. I [...]

Continue reading Re-decorating with what you’ve got …

From Monroe on a Budget.

The Simple Dollar Weekly Roundup: Single Weekend Edition

A weird sequence of events has caused me to find myself all alone over the coming weekend. My wife is visiting her sister, while my two children are visiting their grandparents. This leaves me with two full days without any real responsibilities.

Of course, me being me, I already have a long list of stuff to do – things that simply require some focused hours and are difficult to do when the family is around. Five years ago, I would have been headed to the golf course or to Prairie Meadows. Times change, I guess.

Lessons for you and me from Warren Buffett’s annual letter Warren Buffett’s annual letter to Berkshire Hathaway shareholders often has a lot of interesting personal finance thoughts in it that go far beyond mere investing. (@ pop economics)

The High Cost of Clutter Every time you buy something new and bring it home, you’re adding to the clutter of your home. It’s one more thing to stuff on a shelf. It’s one more thing to dust. It’s one more thing to maintain. It’s one more thing to take up space. Those are costs, both in terms of money and time. (@ get rich slowly)

6 Ways To Keep The Fire In You Burning This can be a challenge for anyone at times, no matter how much they love what they’re doing. (@ pick the brain)

My Valuable Downgrade “Upon completion of the final draft of my latest novel three years ago, I sent out an e-mail to my family and closest friends. Subject heading: “What Has Mark Been Doing for the Last Six Years?” The message field was empty.” Something about that opening really struck me. (@ soul shelter)

Save Money! Get a College Degree In Three Years If I had not been blessed enough to get scholarships to cover my tuition, room, and board, this is likely the college path I would have chosen. Whether I would have been successful at it is another story. (@ free money finance)

When Your Friends Become Social Sellers and Multi-Level Marketers Quite honestly, I view such a thing as directly cashing in on a friendship, far worse than asking me for a favor. I’d far rather spend an afternoon helping a friend patch up his roof than spend two hours at a Lia Sophia party. (@ consumerism commentary)

Continue reading The Simple Dollar Weekly Roundup: Single Weekend Edition …

From The Simple Dollar.

Interview Notes

Earlier today, I did a lengthy interview with Dean Voelker on his Improving Your Financial Health radio show. Dean’s very much into preparation, so I actually wound up doing a substantial amount of prep work for the interview.

Since I had accumulated such a pile of notes for the interview in advance and Dean asked so many worthwhile questions, I made something of a transcript of the interview and am sharing it with you.

Tell us about your background.
I grew up in rural Illinois. My parents didn’t have much money and, sometimes, they struggled to make ends meet. I learned a lot about frugality from them, but I didn’t learn as much about pure money management skills. I attended Iowa State University and graduated with a degree in the hard sciences, after which I spent about six years working in various jobs in research fields. Recently, I’ve been a full time writer.

How long have you been writing The Simple Dollar?
I started writing the blog that would become The Simple Dollar in October 2006. I launched The Simple Dollar publicly in November 2006.

How did you decide to do that?
In April 2006, I experienced a personal and professional meltdown of sorts. I had always dreamed of being a writer, but it felt as if my dreams for doing that were slipping away in the flow of my professional life. I was unhappy with some aspects of my current job. To make things worse, we were in dire financial straits, with a large pile of consumer debt over our heads.

I decided that things had to change. After a while, I began to see that a lot of people my age were going through similar crises – a “quarter life crisis,” if you will. They were finding themselves in serious financial problems and sometimes were deeply questioning the path they had chosen in life. However, most people my age were very reluctant to actually talk about these problems with anyone outside of their immediate family and maybe a very, very close friend or two.

I started The Simple Dollar because I felt that this was a conversation that people needed to have. I felt that by sharing my story and my experiences, both in the positive sense and in terms of my own failings, I would open people up to think about their finances and career more and talk about it, whether by sending me emails or comments or by talking to people in their own lives.

Where did the name ‘Simple Dollar” come from?
One night shortly before the launch of the site, I just brainstormed a long list of names. I crossed some of them off that I didn’t like and my wife took a turn at the list, too. Eventually, The Simple Dollar is the name that stuck out.

Looking back, I’m glad I didn’t choose a name like “Trent’s Financial Failings.”

About how much time do you spend on this per week?
On The Simple Dollar alone, I probably spend fifteen hours purely writing and composing posts. I spend another five to ten researching posts and doing reading related to it. I probably spend another ten hours on site management, approving comments, and answering emails – but, frankly, I have more emails and comments and other things like that than I can cover in ten hours, so I sometimes have to pick and choose.

I spend additional time on other writing projects, such as my upcoming book.

Where do you get most of your information?
Books. I’m a voracious reader. I read, on average, three books a week, of which one is usually something geared towards personal finance or careers.

What are your “14 Money Rules”?
My 14 Money Rules is simply a list of what I think are the true core values and ideas of what I talk about on The Simple Dollar. I keep these rules posted on every page on the site, in the right hand bar. The 14 Money Rules are:
1. Spend Less Than You Earn.
2. Don’t Over-Think Your Investments.
3. Stop Wasting Time.
4. Eliminate (and Avoid) High-Interest Debt.
5. Talk About Money (And Be Honest).
6. Stop Trying to Impress Other People.
7. Watch Your Progress (But Make It Fun).
8. Take Care of Your Things.
9. Do It Yourself.
10. Plan Ahead Every Time You Spend.
11. Find and Work Toward Your True Passions.
12. Build Real Friendships and Relationships.
13. Improve Yourself Every Chance You Get.
14. Give Without Strings or Regrets.

Which ‘Rules’ generate the most discussion?
Doing it yourself tends to generate the most discussion. Many people argue that it’s better to pay someone else to do something for you if you’re earning more than that person’s hourly wage. My argument against that is twofold: first, you only earn more than that person’s wage if you’re earning more post-tax and you actually spend the time you’ve hired someone in gainful employment. Two, and perhaps more importantly, doing things yourself teaches you things and makes you more resourceful. Almost every skill you have in life has value – if nothing else, it can help you build relationships with others. If you know how to fix a toilet, for instance, you can share that skill with a new friend or acquaintance in an effort to forge a stronger bond.

Tell us about your free E-Book “Everything You Ever Wanted To Know About Personal Finance On Just One Page.”
A long time ago, I wrote a very popular post entitled “Everything You Ever Really Needed to Know About Personal Finance on the Back of Five Business Cards“. After posting it, several people contacted me and suggested that I try to turn it into a book of some sort.

Over the next several months, I tossed the idea around and eventually developed it into a fifty page short book, intending to use it to shop around to various book publishers. I incorporated a lot of original writing, pieces of various Simple Dollar posts, and lots of other interesting elements.

At some point, I just decided that it would be a very worthwhile move – in terms of helping people with their finances and encouraging people to think about it and talk about it – to simply give the short book away, which is exactly what I did.

What are your thoughts on the new credit card regulations which just went into effect this week?
I think, on the surface, they protect consumers. However, the credit card companies are businesses that are out there with the purpose of making money. If you close one door on them, they’ll open another.

I think we’re in a period where they’re going to try different methods of earning money, since some of their previous methods have now had the door shut on them (such as young card holders). What form will that take? Whatever it is, the end consumers will be the ones paying for it. It might be the return of annual fees. It might be higher interest rates. It might be something entirely new, like a minimun number of uses required per month. Only time will tell.

You also have some downloadable books. What can you tell us about that?
The “downloadable books” on The Simple Dollar are simply collections of older posts on a common theme. I’d write a series of posts on a certain topic – say, building a blogging business – and then I collected all of the posts together, edited them a bit so that they made sense as one long document, and turned them into a downloadable PDF. Since the posts are available for free anyway, I have a minimal charge on these donwloadabe books – they cost two dollars a piece. Some people buy them because it’s convenient for the purpose of printing them out for a trip or something like that; others buy them simply as a way to support the site.

The Simple Dollar has some great open discussions which readers participate in. How were you able to come up with 25 Gadgets That Save Money?
One big thing I like to do when writing an article is look for things that have something interesting in common, sometimes in an unusual or unexpected way. In that case, I simply collected a list of items that can actually save you money, including paying for themselves, over a long period of time.

The idea started from looking at programmable thermostats. If you buy one of those and set it so that your furnace doesn’t run when you’re not at home or when you’re asleep – or the same thing with the air conditioning during the summer – your energy bill savings will add up to much more than the cost of the thermostat after a few years.

A few of the items in the article were a bit extreme, such as a wind turbine, and I think most of the discussion came from those items. You can, indeed, save money with the purchase of a wind turbine, but it takes quite a while.

I loved the McDonald’s article! You compare a McDonald’s double cheesburger to making a cheesburger at home. What did you learn?
If you take all of the short term costs into account – time and money, in other words – the two roughly balance out. The homemade burger is slightly more expensive, but it’s also more tasty. Of course, I did add a lot of toppings to the homemade burger that weren’t on the double cheeseburger from McDonald’s, such as lettuce and such, but it wouldn’t be a homemade burger if I didn’t.

If you’re making just a single burger for yourself, then there’s a decent argument that McDonald’s provides a better value in the short term. If you’re making several burgers, the homemade ones are much less expensive. The real advantage of fast food is the convenience – it’s not really all that cheap, as you get lower quality food than what you can make at home for a similar price.

How long did it take to gather your research?
It took a surprising amount of time. I had to plan out what I intended to do – make a burger and compare it to the McDonald’s one. I had to shop for the ingredients for the homemade burger. I had to visit McDonald’s to get the double cheeseburger. I had to make the actual burger at home. I also spent time documenting all of this with pictures and time recordings as well. I spent on the order of six hours on the post.

Have you seen the documentary film “Super Size Me”? (2004 by Morgan Spurlock)
I think that movie touches on what would be my real concern with eating fast food – it’s unhealthy. It causes you to gain weight. The high amount of salt in the food can cause high blood pressure. It can definitely leave you feeling lethargic. It’s not exactly good for your heart.

Thus, the long term costs of that double cheeseburger is quite a bit more than the ninety nine cents you paid at the drive-thru. You’ll have health care costs and lost productivity costs as well.

I see the “Rich Dad, Poor Dad” books and seminars by Robert Kiyosaki everywhere. What should people know about him and these books?
I am not a fan of Robert Kiyosaki’s work. For starters, he severely underestimates risk in nearly everything he discusses. He paints a picture that makes it seem as easy as a run down to the courthouse steps to make thousands of dollars. It’s no different than any other “get rich quick” scheme – there are opportunities out there, but it takes a lot of hard work to find them and there’s a lot of risk for failure along the way.

The biggest problem, though, is the utter disdain he has for people who make the choice not to do things the “Rich Dad” way. He actually refers to people who work at a job and make an honest wage as “hamsters,” right in print in the book.

He’s right in that a steady job will not make many people wildly rich. A 401(k) will not make a person wildly rich. What it will do, however, is make a person secure, both in the sense of not having to worry about the future and in the sense that their future life won’t have financial need. That’s the goal that a lot of people have in their life, and achieving that goal revolves around low-risk choices. Kiyosaki ignores risk and calls such people “hamsters.” I don’t really have much respect for that attitude. Different people value different things in life, and an awful lot of people value steadiness and security – that doesn’t make them “hamsters,” it makes them the backbone of America.

Have you met anyone who said that his advice really worked for them?
I’ve never met people face to face who have said positive things about Rich Dad, Poor Dad. I’ve read many positive comments from Simple Dollar commenters about the book, but it’s often hard to tell whether the people are legitimate or whether they’re people who have paid thousands of dollars for a seminar and want to feel as though they’ve made a good decision.

You also wrote an article about buyng your car – 2009 Toyota Prius. What were some of the main reasons you bought it?
We bought the car for two reasons: fuel efficiency and reliability. My wife commutes almost forty miles one way to work about three days a week, plus all of our family lives about four hours away from where we live and we visit them regularly. Thus, we rack up a lot of miles on our cars.

We sat down and ran the numbers several times on a multitude of cars available, both new and used. We took the Consumer Reports reliability data on makes and models into it, and we also calculated fuel costs up to 200,000 miles on the car’s odometer assuming gas prices at $2 a gallon and at $3 a gallon. We simply couldn’t find a better deal than the Prius that we purchased, even after a multi-month hunt. We found ones that exceeded it on total cost of ownership questions – the cost of buying the car, getting it road-worthy, and paying for fuel up to 200,000 miles – but they all had reliability concerns.

What types of concerns have you had with recent news about Toyota?
Every large manufacturer is going to eventually have some sort of product problem that warrants a recall or a fix. You simply cannot test everything – you just have to do as much due diligence as you can and ship the product.

The current Toyota issue is a tricky one because it’s apparently very hard to replicate. I’ve read on messageboards where one person claims to have caused the problem by doing some specific thing, then another person can’t replicate it.

The real question is how Toyota deals with all of this over the next six months. They have to absolutely make it right by their customers, but we won’t know the full story for a while yet.

I know you are not an advisor, but what are your thoughts on municipal bonds?
I think they’re good choices for people in a high tax bracket who want something pretty safe that has returns that aren’t a big tax burden. Municipal bonds definitely have a place in a larger portfolio. However, I’m not sure that they’re the best choice for beginning investors who are often not in a really high tax bracket and would often be better off chasing larger returns with a bigger risk.

There is a lot of information out there. What is ONE THING someone listening today should do if they are having financial difficulty?
Talk about it. Don’t be ashamed of having financial difficulty. There are many, many people out there going through similar problems to what you’re going through. If you feel you can’t talk to your friends about it, go online and look for others sharing your problems.

Knowing that there are people out there who share your concerns and are willing to offer you helpful words and helpful advice can make an enormous difference when it looks as though the chips are down.

Continue reading Interview Notes …

From The Simple Dollar.

I Want Something, But I Don’t Know What It Is

Six years ago today, I wrote that in my personal journal.

It was the first sign that I was able to find that there was some level of serious unhappiness with my career, my financial state, and my spending choices.

Over the next two years, I spent a lot of my time – and a lot of my money – chasing things. I would throw myself into something I had discovered, toss a lot of money (and often a lot of time) at it, and then discover that it really didn’t bring me much happiness at all.

So I’d chase something else with my money and with my time.

Golf. Video games. Gadgets. Alcohol. Trading cards. Sports equipment. Audio equipment. Piles of new books. DVDs. Trips.

The list goes on and on.

I wanted something, but I didn’t know what it was.

It turns out, after digging myself into an even larger debt hole, that the very thing I was searching for was a simpler life, one with fewer debt responsibilities and with more career and personal freedom.

Many readers of The Simple Dollar stumble across this site because they’re in that very situation. They’re drowning in debt. They’ve got a job that they have to keep, putting them completely at the mercy of their boss. They’re unhappy with how things are, so they find themselves leaping from thing to thing, throwing money into fleeting interests. I see it over and over again in the emails I receive.

Here’s the solution. Sit down and figure out where you want your life to be in five years. Sketch it out in detail. Specify the things you really want from your life in that period. Focus on the core things that you truly want when you think about where you want your life to be in the future.

When you’ve set down those key things on paper, let everything else go (unless it’s a required responsibility). Stop spending money on things that don’t bring you closer to that goal. Every time you spend a dollar, look at it in terms of that big picture you want.

Nothing else matters.

When you start putting that kind of attitude front and central in your life, it becomes much easier to do things that might otherwise seem difficult. Instead of just jumping from thing to thing and feeling a lot of stress and unhappiness about the state of things in your life, you begin to feel a unity in your work, your financial choices, and your personal choices.

It took me two years to really figure this out, and it took a few more to really bring it to fruition.

But when I compare my life now to the way it was then, I can’t believe how far I’ve come. I don’t really care about – or even remember most of – the things that seemed so important to me at the time. Instead, as I began to really figure out what my real goals were – what I really wanted in life – and put those goals front and center in every aspect of my life, all of the distractions and unnecessary spending just melted away.

Start today. Spend an hour thinking about exactly how you want your life to be in five years. Focus on the things that actually bring you happiness. Break it down to the real key elements, the biggest things that you’d like to have in your life then.

Then put those things at the center of your life and discard everything else. It’s surprisingly easy to do it if you sit down and start.

Continue reading I Want Something, But I Don’t Know What It Is …

From The Simple Dollar.

Eight Tactics for Dealing with Professional Burnout

Carlos writes in:

I’ve been working at the same job for the last six years. I used to love it but lately I’ve started dreading going to work. I can’t really put my finger on a reason why, either. I’m considering quitting but I am very afraid to take that leap with the economy the way it is. Got any suggestions?

Once upon a time, I was in a similar situation. For me, it really boiled down to three factors, two of which had little to do with the job. First, I felt like my dream of being a writer was slipping away from me. Second, I felt like I wasn’t spending enough quality time with my children. Third, the aspects of my job that I loved (my great coworkers and the creative work) were often buried behind minutiae, maintenance, and paperwork.

Even in this situation, it took me more than a year to choose to walk away. Much like Carlos, I was very afraid to take that leap for financial and career security reasons.

That year was not miserable at all. In fact, when the time came where I could walk away, I found myself having a lot of last minute second thoughts because I actually liked my job so much. It was the non-job aspects that finally called me away.

Here are eight key things to try when you’re feeling professionally burnt out.

1. Reconnect with your core work.
You were hired to perform a certain task, right? Get back to that task, which is often the part of your job that you love the most. Take a break from all of the extra stuff – the paperwork, the committees, the office politics – and just focus on the work that you enjoy.

You might have to get a bit of buy-in from your boss on this, but most bosses will be receptive. After all, you’re requesting to focus on the task that they hired you for.

2. Plan for the next step.
If you were to quit, what would you do? Develop a detailed plan for doing this. On one level, it might just be escapism to help you deal with a rough patch. On another level, you might be putting together the blueprint for a powerful life goal for yourself.

Make the plan as detailed as possible, then start taking action on those little details. Actually moving forward on such a goal can bring it to life in a very powerful and life-affirming way.

3. Build new relationships.
If you’re feeling burnt out with the circle of people you work with (and office politics in general), reconsider the group you’re associating with. Look for new people in your office – and outside your office – to adopt into your inner professional circle.

New people offer new insights. They offer new opportunities and connections and ideas. More than anything, though, they offer new attitudes and new perspectives, which might be exactly what you need right now.

4. Share your gifts.
Open up a Twitter account. Start a blog. Link to interesting things that you’ve discovered. When you’re on Twitter, follow and converse with people in your field. On your blog, link to articles by people in your field that you find interesting.

Most importantly, share the things that you know. Over a long period of time, with consistent activity, a thoughtful blog becomes a powerful resume in and of itself. Never mind the fact that it’s also a potential way to earn some money, too.

5. Learn something new.
Jobs can sometimes become frustrating because you’re stuck in an intellectual loop, doing the same thing over and over again. Many jobs can change radically if you take the time to learn new ways of doing things.

Look for opportunities to expand your education. Take some classes. Read some books. Focus on learning some new techniques. They’ll breathe new life into your current job and open the door to better ones.

6. Talk with your supervisor.
This works particularly well if you’re a longstanding productive employee, because a supervisor will actually pay attention to what you have to say. If you’re chronically underproductive, this is a bad route to take.

Just have a meeting with your supervisor and lay your concerns on the table. Ask for some help in coming up with a plan to solve those concerns. Your supervisor may be able to handle some of them and offer solid advice on how to handle other aspects.

7. Build an emergency fund.
Sometimes, the pain of a job comes from a sense that you’re completely tied to it financially: that without the job, you can’t possibly survive financially. Take a hard look at how you spend money. How much of that spending is really necessary and life-fulfilling?

Learn some frugality. Cut down on your needless overspending. Start socking away some of your money. Build up a cushion – and don’t give into the temptation to spend it just as you start building it. Quite often, the long-term presence of a healthy emergency fund can make life seem a lot more tolerable.

8. Build an exit strategy.
If none of these tactics work, it might actually be time to leave – and leave soon. Polish up your resume and get in touch with the people you know in your field. Seek out that next position so that when you make the leap, you leap into someplace safe.

Good luck.

Continue reading Eight Tactics for Dealing with Professional Burnout …

From The Simple Dollar.