Reader Mailbag: Shortcut Fixing

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Higher salary or better benefits?
2. Cheap land lines
3. Moving in with parents
4. Prepaying student loans in forbearance
5. The Hindenburg Omen
6. Post-graduation financial independence
7. Mid-college personal finance advice
8. Cherry picking the past
9. Tracking passwords
10. Replacing cable with Netflix

As many of you know, a month or two ago, I changed the format of the reader mailbags so people could just click on the number next to the shortcut above to hop down to the question. On the “back end,” I simply named the questions 1 through 10 (or 11 or whatever), so that when you click on the shortcut for question 1, it hopped down to question 1.

There was a pretty nifty little problem, though. If you had two reader mailbags on the same page, there would be two questions and answers named “1″ on the same page. Thus, depending on your browser, clicking on the “1″ could send you to the right question – or to the “1″ question in a completely different mailbag!

I solved this problem by simply changing how I numbered the questions on the “back end.” Today, if you click on the “1″ above, you’ll actually be jumping down to “1826.” What’s that number? 1 (for the first question) followed by 826 (today’s date).

If I number all future mailbags in the same way, the problem won’t occur. In other words, if you happen to see a bunch of mailbags on the same page in a few months and click on a question, you’ll go to the right question.

I am 24 years old. I was recently laid off from a local government job (with all the benefits that come along with that) making around 60K due to a reduction in force. I was offered a job in the private sector making the same, but with all the lack of benefits and the longer hours that come along with that. I have also been looking around and have been able to go on interviews for several government jobs in which I would be making anywhere from 40K to 55K, but with good benefits. My main concern is the pension and the fact that I could potentially retire at 55 because I’m a veteran if I stick with the government.

I guess my question boils down to: should I shoot for the money or the benefits with lower pay? What do you think is best long term?

Note: I have about 16K in student loans from my master’s, which will probably end up around 24K. My yearly expenses are around 21K. And have a modest emergency fund of around 9K.
- Joan

It depends specifically on what benefits you’re gaining, but likely the benefit-rich job will be superior.

For starters, the salary difference isn’t as big as you think considering that the difference in salary will be taxed at your top rate – 25% or 30% or so will go to Uncle Sam, with some additional amount likely going to your state.

Another reason the benefit rich job will likely work better is that you’ll likely receive some form of compensation into your retirement savings. Many government jobs will match 5% of your pay and some will match 10%. So, if you have a 10% match job and make $50K, you can get $5K more just by investing properly in retirement – and that investment is tax-deferred, so you don’t have to worry about taxes right now.

Add on top of that the health insurance, life insurance, flexible savings accounts, and other benefits and you’ll likely get much more value out of a job with good benefits at $45K than you would out of a job with awful benefits at $60K.

We’ve been trying to cut down on our utilities, especially phones and internet. We have pay-as-you-go cell phones, but we still pay $50/month for our landline and our internet. I’m trying to figure out how to reduce this cost, because $50 a month seems like a lot to me. We currently have internet and phone through AT&T, our local phone company. I’m thinking if we switch the internet to something like DSL Xtreme, we could reduce the internet cost by about $10/month. But what about the landline? I’d like to still keep a land line, because this is the number I give out to anyone who’s not a friend, so I use it to field phone calls from businesses and potential telemarketers, etc. Is there a cheaper way to keep a land line than for $25/month?
- Mylinh

For your use, I would suggest just using a DSL and Skype (I use Skype). You can use your cell phone for 911 purposes.

To have a phone number with Skype costs you about $3 a month, which also gets you unlimited calls in the U.S. All you have to have is a computer with a broadband connection, speakers and a mic or a headset and you’re good to go.

This would save you about $22 a month overall, based on the numbers you provided.

I was just curious about your opinion on moving in with parents. I’m not talking about newly graduated kids, I mean established couples that live with one of their parents “to save money.” Is this something new that couples like to do now? I’ve seen this happen with friends a couple times now (I’m 30, they are about the same age); each was saving for a house or wedding (good things to save for, for sure), and one had a child already. The thing is, neither of these couples are anywhere close to thrifty, to put it nicely. We see a lot of unneccessary spenditure, which if they controlled they could save a lot. So moving in with the parents just seems like a cop-out to me. I’m saving for a wedding that I have to minimalize just to afford, and can hardly save any more, and perhaps it’s only pride, but there is no way I would want to live at someone else’s house. The stress of dealing with in-laws in a less-than-ideal situation doesn’t seem worth it.

Any thoughts? Or is it just that I’m at an age where stuff like this happens?
- Alexandra

I think you’re looking at someone else’s life through the lens of some things you value (thrift, financial independence) and seeing others come up short.

If I’ve learned one thing from The Simple Dollar, it’s that not everyone values financial success. People find success in a lot of ways in their own life depending on their own definitions, and certain kinds of success dominate other kinds. Financial success and material success often oppose each other. Family success and career success often oppose each other.

I’m of the belief – like you are – that financial success creates the foundation for a better life. It doesn’t matter how deeply I believe it or how many times I say it, though, some people won’t buy into it. Or, they don’t buy into it now and will only come around when they fall over a financial cliff and see how scary it can be.

You can’t live other’s lives for them. However, you can pick and choose who your friends are and who you spend time with, so it’s usually worth your while to be selective with your friends if you are having a difficult time accepting their values.

I have placed all of my student loans on forbearance while I seek a full-time teaching position. I have 14 student loans with balances that range from $250 to $20,000 and total $76,000. I plan on taking a Ramsey approach, ranking them according to their balances and paying the smallest first until they are gone. However, since they are in deferment should I pay a small amount on each loan, like $25 which is all I can afford, and whatever remains on the smallest balance. Or, should I use all of my income after mandatory expenses for the smallest loan and make one large payment on the that loan? Thereby, taking full advantage of the forbearance on the larger loans. Basically, is it worth it to pay such a small amount on loans while they are in forbearance or am I just throwing that money away?
- Darren

Your best bet would be to pay against whatever loan has the highest interest rate, because those payments will save you the most interest over the long haul.

You also need to make sure that none of your loans have put their interest into forbearance as well. Most loans continue to apply interest to the balance while in forbearance, but some loan arrangements do not. If you have a loan that is not accruing interest, it still might be worthwhile to pay ahead on it, but only if it’s of a significantly higher interest rate than other loans.

Your best bet, though, is to consolidate that mess. 14 student loans? Just by sheer human nature, you’re bound to run into some sort of issue with one of them. With interest rates as low as they are right now, you should really consider consolidation.

I’ve recently been seeing a lot of references to the Hindenburn Omen on various financial and pf blogs and websites, along with many panicked questions about whether the market is going to crash in September. When I look at the many requirements that go into detecting the Omen, it seems quite technical with a lot of jargon that most regular American (including myself) wouldn’t understand. My questions to you:

* Can you simplify this concept at all so normal people like myself can wrap their minds around it?
* Does the Omen have actual technical merit or is it just an ominous-sounding, overly-complex financial Ouija board?
* Should I be worried and looking into moving my investments into more conservative choices? I understand that this is the kind of thinking that could turn the Omen into a self-fulfilling prophecy, but a crash is a crash regardless of what caused it. The effect of such a drop will be the same on my 401(k) regardless of whether the Omen actually caused it or if the thought of it just got a bunch of idiots panicked and in the mood to dump all their investments.
- Jessie

The Hindenburg Omen refers to a pattern in stock prices that is said to show up in advance of some stock market crashes based on historical data. To put it simply, the Hindenburg Omen occurs when a lot of stocks are reaching 52 week highs and another significantly sized batch of stocks reach 52 week lows on the same day.

If someone goes and looks at the historical data of the New York Stock Exchange, the exact parameters of the Hindenburg Omen usually pop up a few times before a stock market crash (a drop of 5% or more). However, the Hindenburg Omen sometimes pops up nowhere near a stock market crash and at other times a stock market crash occurs without a Hindenburg Omen.

What does that mean for you? If you have investments that are improperly balanced and weighted too heavy towards stocks, you should probably not have as much money in stocks as you do right now. However, that’s true no matter whether there’s an “omen” or not. You should always spend time figuring out how much you’re comfortable with in stocks, invest that much, and put the rest somewhere safer.

Do I believe in the “omen”? I think any time you have a pile of data, you’re going to see patterns in it. Some of those patterns actually mean something. A lot of them do not. I’m not sure which side of the line the Hindenburg Omen lies. I think it’s something that some stock speculators and doomsayers are hyping right now because, frankly, it gets them an audience.

I am a 10′ grad of a high school from my home of Phoenix, Arizona and will be going to Wellesley College (small, all-women’s liberal arts college in Boston, Massachusetts) this fall. My parents will be paying for all my school and basic living costs (room, board, food, books, basic clothes, etc.) for all four years. I will also be receiving an allowance of $250 per month for “fun” stuff (eating out, clothes, etc). I have about $2,500 saved up in an account from various things in high school.

I recently read an article in the New York Times (http://www.nytimes.com/2010/08/22/magazine/22Adulthood-t.html) about kids who are moving back home after school. I don’t want that to me be! My goal is to be financially independent by graduation. For me, this means having enough money to have my own place to live and pay all my own expenses. Basically, after graduation day, I don’t want my parents to be supporting me. What is the best thing I can do in my college years to achieve that goal?
- Erica

The best thing you can do is minimize every possible dime you spend while in college. If it’s an optional expense of any size, think carefully about it before spending it. Try to go “under” the $250 a month as much as you possibly can.

Whenever you can, sock money away in a savings account somewhere. Then, when you graduate, you’ll have some money with which to support yourself during your efforts to find post-graduate work or further schooling.

Kids that move back home after school often don’t have the opportunities you do (everything paid for with a $250 a month “fun” stipend) and often spend everything they have during their college career, coming out the other side with debt and no money saved up to deal with the immediate post-college expense. Don’t let that be you.

I’m 19 years old and will be graduating in two years. What should I be doing right now to prepare for my financial future? What personal finance info should I know?
- Kate

Read my answer to Erica, above.

Beyond that, I would strongly recommend educating yourself about personal finance. Hit your local library, take a look at these four books (all linked to my reviews of them), and check out the ones that seem to match your interests.

You’re So Money by Farnoosh Torabi
Please Send Money by Dara Duguay
Automatic Wealth for Grads by Michael Masterson
Your Money or Your Life by Joe Dominguez and Vicki Robin

All of these are excellent books that will get you on the right path.

10-12 years ago, conventional wisdom said to buy index funds for your investing. And conventional wisdom was right! The stock markets for the preceding years had marched in “lockstep” and indexes could outperform almost any actively managed funds. However, over the last 10-12 years, that wisdom had not been correct. For example, the bellwether S&P500 Index has lost somewhere around a 1% over the the last 10 years, where I can find many managed funds–load and no load–and many diversified portfolios–load and no load that far exceeded the S&P500, even after any loads or other management costs are calculated in. That being said, I humbly advise you to take a look at the statistics a little more carefully, as you tend to advise (and seemingly blindly?) investing in index funds without other thoughts.
- Marvin

Of course you can find funds that earned more over the past ten years than an index fund. Hindsight is 20/20.

The point of an index fund is not to be the best fund out there. It’s to have average returns with very low costs, which means it’ll beat about 60% of the funds out there.

“Well, I want the top fund!” If you can tell me with 100% certainty which managed fund will earn me a better return after costs than a marketwide index fund over the next ten years, I’d love to hear it. You can’t, though. Why? Because you can’t read the future. No one can.

It’s easy to look back and identify funds that beat the market. It’s impossible to look forward and do the same thing. Managed funds with a great record tank all the time. Awful funds start hitting hot streaks.

Index funds are just the average of all of these things, except that they have very low costs, something that managed funds can’t match. As a result, they’re at about the 60th percentile – but they’re always at that percentile, while other funds soar above and crash below.

If I wanted to take on more risk than that, I’d invest in individual stocks of companies I trusted.

Do you have any tools for keeping track of internet passwords and login information? Do you keep it in a safe? I realize this is probably not a question you’d want to answer very specifically (for safety and privacy reasons!). I’m also interested in your tips for constructing a safe password and login name that is secure but still easy to remember. I often get overwhelmed by the amount of internet passwords I need to keep up with.
- Emily

The best solution for most people is probably a program like KeePass. KeePass is a free open source software solution that stores all of your passwords together in a single heavily encrypted file. All you need to remember is one master password (and make it a very strong one).

Another great solution – and the one I use – is to have a “password system” rather than a single password. A “password system” is a way of coming up with and then remembering a unique password for any service that you might use.

It’s pretty easy to do. First, come up with a short, complicated password that you’ll remember – a sequence of five or so characters. I usually encourage people to have an uppercase letter, a lowercase letter, and a number in there. Maybe it could be three consecutive characters on a keyboard, the capitalized first letter in your name, and the number 9 – so for me, it would be sdfT9. That string, whatever it is, would be the start of all of your passwords.

After that, just have a method of including more characters that makes it unique based on the site that you’re at. So, for example, you might just tag on the first four letters of the domain name, but in reverse. Thus, at google.com, with this system, my password would be sdfT9goog. At yahoo.com, my password would be sdfT9ohay. At amazon.com, my password would be sdfT9zama.

I suggest that you come up with your own patterns, but it should use the same system – five letters or so of prefix that you’ll memorize, plus four letters or so of suffix that can be obtained from the website you’re at. If you’re required to use longer passwords for some of your essential services, make the prefix longer – use sdfT9wer or something like that. My own patterns are quite a bit different than these, but this gives you the idea.

That way, you have a tricky password that’s different for each site you use.

I love your blog and appreciate the honesty and thoroughness of your posts. My husband and I have taken a month off from television to re-prioritize, and in doing so, have become more interested in cutting the cable altogether in favor of Netflix and the streaming television option. (Of course- we don’t mind saving about 90.00 a month either- we recently killed our “debt snowball” with the Ramsey plan!) I can’t seem to find any type of listing of the television shows available on Netflix to watch- would you mind expanding on this? I know you’ve mentioned it before. Thanks!
- Elizabeth

It’s pretty hard to get a full list. You can get a bit of a preview by going to Netflix, clicking on “Browse Selection,” then clicking on “Television” in the Instant Streaming box.

Shows we’ve watched using it include Weeds, Arrested Development, Firefly, Doctor Who, Bones, and The Office. There are a ton of other series on there as well. Just use the search box to search for ones you’re interested in.

Given that we don’t watch all that much television to begin with, streaming is a great choice for us.

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: Shortcut Fixing …

From The Simple Dollar.

August 26, 2010 | Filed Under Frugal Living | Leave a Comment

Reader Mailbag: Grandparents’ Week

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Switching to joint checking
2. Transferring a Roth IRA
3. Accounts and goals
4. Which debt goes first?
5. Using HELOC to repay debts
6. Gift card arbitrage
7. Debts or further property buying
8. Getting Things Done for kids
9. Difficulty setting big goals
10. Worries about paying property taxes

Our two oldest children are visiting their grandparents for several days. It’s amazing how much quieter the house is and how much more smoothly the evenings go. Our evenings don’t revolve around corraling children – instead, we’ve watched a movie and played some board games in the evenings.

My husband and I are recently married and we are paying down our debts, he is focusing on his credit debits and being able to pay off his balance every month. I am focusing on paying down my student loans. We also have an a (very small) emergency fund and we have a 529 for our 9 month old that we send money to every month. My husband contributes to his 401k although I don’t know the details and I will be eligiable to contribute to mine the in spring. We currently have a townhouse and we are saving money for a down payment on a bigger house (we plan to expand our family and we have out grown our townhouse). We have to options, keep the townhouse as a rental or sell and put the equity to the new house. Ok, having said all of that, my husband suffers from the “Keeping up with the Jones’ ” symdomn and maybe I do too a little bit, but I am a pretty savy and I have really turned my husbands mind on to saving and trying to prioritize spending as well as, spendng it wisely. However, I am considering a joint checking account. Right now we split the household bills and them we are responsible for our own debt. Quite a few of the successful couples we know have a joint account and they say part of what makes their marriage work well for them is the amount of communication that goes into a joint account and those communication skills slip over into the other areas of their marriage. I don’t want to police my husband on what he spends “his” money on, but I think if we both saw what comes in and what comes out it might realign our financial priorities. Also, if we do decide to do this, how does this even begin to work?
- Chandra

I’m not sure what you mean by “how does this even begin to work.” If you have a joint checking account, the money in that account pays for the bills and also provides for the “spending money” for both of you. If one of you just spends like crazy, there’s not enough money left to pay the bills.

Because of that, it often forces couples to start communicating more about their money and realizing that they really are in the same boat when it comes to their finances. It’s often a big step forward for setting goals and planning for the future.

If this feels really uncomfortable for you, you need to ask yourself why. Do you not trust yourself? Do you not trust your partner? You need to dig deep into whatever is holding you back and get it straight with yourself and your partner or else this will just cause further problems.

I am a 26 year old, newlywed, with a 1,000 house payment, no other liabilities, 90,000 total income; 15,000 emergency funds in cash. We have worked hard to save money and our spending behaviors are great. I am just unsure we are doing the right things. I have opened and funded a Roth IRA for the past 2 years (have about 10,000 in assets). As I learn more about mutual funds, I’m becoming disappointed that I chose “loaded funds” through American Funds from a financial adviser/broker. I don’t know that I feel comfortable being sold financial services; I’d rather pay for good advice. Anyway, I own AGTHX and NEWFX. I recently became a husband and am working with my wife to get some investments going. We would really like to max out our Roth IRA’s. I’ve read so much about “no-load” funds and think I want to go with Fidelity funds (“no-load”) for the both of us (either target date funds or something else). My question to you is, what do I do with the American Funds, keep investing in them, stop future contributions but keep the balance, sell them and put them in Fidelity “no-load funds”. Any advice would be great.
- Randy

If you don’t like the offerings that your current broker is giving you, you can easily move your Roth to a new custodian broker.

All you have to do is contact the investment house you want to move your money to, explain your situation, fill out the paperwork (they’ll be happy to provide it), and wait a few weeks. Your Roth money will have moved to an account at the new custodian broker and you can allocate that money as you wish. It’s typically referred to as a transfer.

I have no comment about specific investments, other than to say I have my own Roth IRA with Vanguard and I’m very happy with Vanguard in every way.

I have been reading your site now for the past few weeks and had a question about preparing for my future. I am 21 years old and going into my junior year of college, I current work full time but once school starts it will drop down to part time. I have some savings set aside and trying to find a why that would best suite by needs. What I was looking at doing was to keep my savings account I have for sort term goals and as an emergency fund, open a high yield savings account for long term goals, and a IRA account (not sure which one is the best to use) for retirement. Here is my dilemma I don’t have a lot of money so would it be worth it to go with the plan I have or is there some better alternative I could try? I make enough money to cover all of my bill and can save up to 30-40% of my income. Is it worth it to open the above accounts even though the amount of money in them would be very small?
- Geoff

I think it very much depends on your personal situation. Are you in a field of study that will lead quickly to a job after college? Is your academic and extracurricular performance building towards a good career? Do you have a significant other and post-graduation plans that involve that significant other? Can you move back in with mom and dad if you don’t find a job?

In other words, you need to be able to make some estimates of what your immediate post-graduation cash needs will be. If you have a lot of needs, keep the money in a high interest savings account and sit on it. If you don’t have a lot of needs, putting it into retirement savings is a good idea – I recommend opening a Roth IRA because your income as a student is likely really low, so the tax advantages it has work well for you.

Personal finance is personal – there’s rarely a cut-and-dried answer that’s perfect for everyone.

Starting next month I will be having an extra $300 per month to put towards one of two remaining debts…which would you recommend paying off first?

Vehicle Loan – $15,000 at 1.9% interest (we just bought it last October, 60 month loan, pay $320 per month right now).
Student Loans – $40,000 at 6.5% interest (currently paying the minimum of $200 per month due to our low income).
- Jamie

If your job is looking stable for the short term (next year or two), I’d put money towards the student loan because that will give you the best return for your dollar, but will take longer to pay off.

If you don’t have an emergency fund and aren’t confident about the stability of your situation, pay off the vehicle loan first because it’ll disappear much quicker and will improve your monthly cash flow.

In other words, if you don’t see any big icebergs on the horizon, go for the student loan first.

I am a 53-year old man with a total of 5 months of living expenses in a checking account, earning 3.01% APY, as my emergency fund.
I agreed to pay my daughter’s student loan off in full. She graduated in May, so the loan repayment plan starts in November. I have set aside the money to pay this off in full. Or I could use my home equity line of credit (currently 2.25%) and cash flow the repayment as long as rates remain unchanged. Currently without retirement contributions, positive cash flow of $2500 per month.
I suspended my contributions to my retirement accounts (401K with 3% match on first 6%) and any other IRA in order to increase my emergency fund.
1) Shall I pay off the student loan from cash or HELOC?
2) Shall I restart contributing to my 401K, and if so, regular or Roth 401K? What percentage?
3) I have a 15-year fixed rate (4.25%) first mortgage with 14.5 years remaining, balance of $150,000.
Should I start to prepay once the retirement is maxed out? What is your opinion regarding Ric Edelman and Dave Ramsey’s view on mortgage repayment?
- Allan

Unless you have a ton of money in retirement, you need to be contributing to that retirement above all of your other goals. I would put sufficient retirement savings at a higher priority than repaying that loan, especially since you’re talking about low interest rates. I would not prepay the mortgage, either, unless you’re saving plenty for retirement.

How much should you put away for retirement? I’d use a retirement calculator to figure that out. I personally like the MSN retirement calculator. Just fill out the forms to figure out roughly what you should be saving each month.

You should pay the student loan from cash. There’s no need at all to use a HELOC and put yourself in further debt, especially when you have the cash to pay the student loan. Keep the HELOC in case you actually need it for something else.

My husband is an absolute freak about gift cards. He HATES them. I recall you feel they should be sent soon after received also. Well, today I bought 12 gift cards of various denominations and tonight there’s going to be [trouble] because I don’t think my hubby will ever understand. So I thought I’d plead with you to consider my thinking and see what you think.
First, you should know I am by education an accountant and financial planner. By experience, and accountant and auditor. My brain thinks in numbers, statistics, patterns, ROI, future uses etc.
Second, we are in the long, slow process of remodeling our house DIY style – WHILE we live in it… and trying to stay married!

I purchase several gift cards from big box home improvement stores at a discount of 8% or more. My total purchase was about 60% of what our average home improvement purchases have been at those stores for the last three years. The cards don’t expire. The money I’m using is sitting in my savings account earning 1.25%. We normally use credit cards to shop and pay them in full every month. Our cards pay cash back of 1% on this type of purchase unless there is a special for the quarter. We currently have no credit card debt, only mortgage and student loan, this is pretty much a loan against the next 6 months of DIY spending. Oh, and I WILL put the money back in the account.
I will not loose them – Hubby will carry one at a time and I will carry one. The others have a special place in plain sight so they won’t get lost, misplaced or forgotten – maybe even a calendar reminder just in case?
Am I missing something here? Is there any reason this wouldn’t be a good deal?
- Maria

The only problem I see is that you’re locking your spending in at those big box stores, meaning that if you discover a better source for the items you want to buy, you don’t have the flexibility to use that other source.

I know that from personal experience, you’ll never always find the best prices at one particular store when you’re shopping for hardware. Whenever I have a project, I usually shop around at the “big three” hardware stores around here (Lowe’s, Home Depot, and Menard’s) as well as check in at a few small local ones that sometimes have astonishing prices.

In other words, the big disadvantage here is the same disadvantage that all gift cards have – they (almost always) lock you into one retailer.

My wife and I just moved and have $100,000 that came out of the closing of our old house. I wanted to try and pay cash for a forclosed home, fix it up, and resell it. We owe $40,000 on one filled rental property; $110,000 on another filled rental; $80,000 on an undeveloped land lot; and $230,000 on a 15 year mortgage for our new home. Should we use this money to pay off some of the above debt or invest it by getting a deal on a foreclosure with cash? (I have a good realtor and contractor who work for me…..I can get a house in a good neighborhood for 70% asking price.) Or should we just invest this money in mutual funds; stocks; or savings?
- Doug

You owe a lot of money. I generally think it’s a very bad idea to owe two times your annual income in overall debt, so if you’re making less than $230,000 a year in your household, I’d be very wary about my situation because of the pressure the monthly payments are putting on your cashflow. If your monthly income slips, even a little, you’ll be in a world of hurt.

Because of that, I’d encourage you to pay off some of that debt with the $100,000 you have. Consider it a cash investment that returns a percentage equal to the highest interest loan – the one you should be paying off.

Unless I had a lot of income, that much debt would scare me to death.

Have you thought about teaching your kids about “Getting Things Done”? What would be a good age to start? And how can the lessons be tweaked to become more kid-relevant?
- Cho

I’ve thought about this quite a bit. For our situation, our kids are just too young to really get anything out of it.

I think that GTD starts to come in handy when you have commitments and a to-do list that extend beyond today. Eventually, that happens with most everyone, and when it does, GTD is a good system to learn.

The big teachable skill, I think, is simply getting all of the stuff out of your head and onto paper, then routinely dealing with that stuff you’ve written down. That means learning to use a calendar and having some degree of organization with one’s personal papers.

I have no specific goals. After graduating last year, I moved back home, so I have few expenses. While I’m good at not spending, I’m not sure how to plan for the future. I don’t know if I should be making higher payments on my student loans to get rid of debt, or if I should save money for my goal of moving out. But I have no timeframe for moving out, and as much as I’d like more privacy and independence, I’d save a LOT of money living at home, especially since I live in Los Angeles. I try to save, but I don’t know what I’m saving for, where I should be putting my money, and when will be the right time to spend. Also, I don’t see myself at my job for more than two years, but I have absolutely no idea where I’d move on to. I’m not gaining many skills from the job, but it pays decently for a first job out of college.

Some background on my finances. I earn about $2,000/month after taxes working ~30 hours/week. I have about $15,000 in student loan debt, most of it at 6.8% interest. The minimum payment is about $200/month, but I pay off $400/month. I put away $500/month into an online savings account, which I just opened two months ago when I got my job. I also have about $6,000saved up.

I know I need to set specific goals, but I’m hesitant to dedicate myself to future big financial changes with so much uncertainty about what I will be doing (grad school? Stuck at my job? Still trying to find my passion?). What kinds of goals would you recommend I set when I don’t have any urgency to make big changes, and how should I be managing my money in the meantime?
- Erich

To be frank, it sounds like you’re doing a bit of post-graduation drifting. You don’t know what life really holds for you. You have a degree that interests you, but it’s not something you’re passionate about. You have a job that’s okay, but you’re not passionate about it.

If you’re in this boat, my suggestion to you would be to live as lean as possible and save as much as you can in cash for when you do find your passion. Many people who “drift” like this fall into a lifestyle where they buy stuff to match their income and eventually find themselves unable to make a big shift and jump on board their passion when they discover it.

Avoid that outcome if you can. Live lean now, save, and try lots of new things. You’ll eventually find something that fills you with excitement, and then you’ll be ready for it.

My mortgage is now at the point where I have the right to elect to discontinue the escrow for taxes and insurance. I believe I have the discipline to put aside funds for taxes and insurance in a savings account that I control, and to pay the taxes in a timely manner. And of course I’ll enjoy the flexibility I’ll have in putting aside the funds on my schedule and not the bank’s.

My only concern is that if the taxing authority goofs up and posts my payment to the wrong property, or they claim they don’t receive my payment, I’ll essentially be on my own to resolve it. In the 20 years I’ve been paying property taxes (through an escrow) to this taxing authority I’ve never had a problem, so maybe my concern is unfounded. Just though I’d get your thoughts about this.
- Laura

Your concern is that if you make a payment to the tax authority and they “goof it up,” you’ll be on your own to resolve it? I would consider that a very minor concern.

Just make your payments on time and keep a record of what check you used, what day you mailed it in, and so on. If you’re particularly nervous about the payment, contact the tax authority a week or two after submitting payment, or submit the payment in person and get a receipt for it.

If all else fails and they did goof it up, you have your records to prove that you did issue a payment to them.

Continue reading Reader Mailbag: Grandparents’ Week …

From The Simple Dollar.

August 19, 2010 | Filed Under Frugal Living | Leave a Comment

Start

If we don’t start, it’s certain we can’t arrive.
- Zig Ziglar

One of the biggest themes of The Simple Dollar is goals. I find goal-setting – figuring out a specific goal, writing it down, coming up with a specific plan to get there, and following that plan – to be incredibly empowering. Diving head-first into such planning has quite literally changed my life, as it made The Simple Dollar and my subsequent writing opportunities possible. It made paying off all of our credit card debts, car loans, and student loans possible, leaving us with just a mortgage. Goal-setting gave me a framework for writing two books in the past three years, and it’s giving me a framework for learning how to play the piano and countless other personal objectives.

If you roll back the clock five years, I was buried in debt. I had vague dreams of being a writer. The Simple Dollar hadn’t even popped into my mind yet.

What took me from there to here? I attribute it to goals, of course, but there’s something much more specific than that at the core here.

The start.

The Simple Dollar was born because I sat down one evening and decided to stop dreaming about it and start doing it. I threw together a rough site design on Blogspot and wrote my first article within a couple of hours.

I started paying off debts because I sat down one evening and decided I needed to get my financial life under control. I studied all of my debts, came up with a plan for tackling them, and started cleaning out my closets within the first few hours.

When I look around my life, there are so many other things I would love to accomplish. I have several big household projects that are just sitting on the back burner. I’ve got ideas for two future books and at least two blogs I’d love to start. I’d like to run a 5K next fall.

Big goals, big dreams. None of them will happen until I sit down and make the decision to get started with them. I can dream all I want, but until I get started, nothing will happen.

Which brings us back to you.

Almost all of us have a dream or two floating out there. A big home project we’d like to pull off. A career change. A lifestyle change. A diet change. A change in our social circle. A new skill we’d like to learn.

It is so easy to dream about these things. But it’s not the dreaming that changes a life – it’s the doing and the accomplishing.

Today is the day to get started on one of those big goals.

Here’s my challenge to you. Tonight, go home and spend two hours on the big thing you’re dreaming most about in your life. Sit down, figure out a plan for how to get from where you’re at to where you want to be. Write out that whole plan. Then take the first big step towards getting there, whatever that might be.

You’ll feel so good about things that you’ll barely be able to wait until your next opportunity to take a whack at it. Soon, you’ll find yourself moving towards a goal that you thought was out of reach – and growing as a person at the same time.

That’s a big win, no matter how you slice it.

Continue reading Start …

From The Simple Dollar.

August 16, 2010 | Filed Under Frugal Living | Leave a Comment

Reader Mailbag: The Cost of Friendship

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Balancing limited income and values
2. Getting started with a Roth
3. Balancing social obligations and money
4. Investing for non-retirement goals
5. Economical recipe collections
6. Overpaying for life insurance?
7. Student loan dilemma
8. Daycare options
9. Cloth diaper recommendations
10. Huge student loans versus retirement

Just a rhetorical question to think about: if you moved into a new home and discovered that your best friend was allergic to some aspect of that home that you couldn’t change, what would you do? Would you try to move again? Would you accept that the friendship would probably end?

Those kinds of things are never easy to answer, but I see those kinds of situations pop up all the time. We are all faced with really hard choices in life, no matter what our specific situation is.

The more reader emails I read, the more sympathy I feel for everyone involved. The situations usually come about as a result of a lot of choices. A little more understanding never hurt anyone.

My wife and I are in a quandary. We live in coastal (read: expensive) California and bought our first house, a modest townhouse in a nice neighborhood, in October after finding out we were expecting our first child. A while back we went through some of your exercises to determine our values and priorities.

The main ones upon which we agreed are:
Quality time together with family and friends
Sharing great food experiences (cooking/dining/entertaining)
A home to call our own
A strong foundation/stable future for our child(ren)

To make a long story shorter, ever since we bought our place, we’ve watched our $40,000 cushion dwindle to now just shy of $7K. Part of that money was invested in furnishing our home and a few niceties for ourselves, but mostly it feels like it’s been death by 1,000 cuts. I think part of the problem is that we never adjusted our expenditures to meet the higher costs of homeownership and baby, my wife leaving her job to care for our newborn, and my salary cut (I’m furloughed 10% since July of 2009).

After months of this slow budgetary attrition, we finally broke down and crunched the numbers last weekend. It was pretty grim. I bring home about $3500 a month after taxes. Our fixed costs including mortgage, student loans, retirement savings, insurance, utilities, gas, and formula/diapers total about $3,000. This leaves us $500 for everything else including dining out, entertainment, groceries. We’ve basically talked about using cash only and when it runs out we have to make do, but the thing is we truly value entertaining friends (my wife is a chef) and dining out. We generally encourage pot lucks when we entertain, but somehow we always wind up making the expensive entree.

I’ve done everything I can think of to reduce our fixed costs: reduced insurance coverages, pared back our cell phone plan, minimized our internet service, made energy efficiency improvements to our home, etc, but the savings aren’t enough to free up money for our interests. I feel like maybe we’ve exhausted other remedies. With the money remaining to us, some of our favorite things feel like an impossibility. We can’t afford to shop at more expensive natural grocers anymore, farmers markets bleed us dry because we’re like kids in a candy store. Blogs like “Cheap healthy Good” are helpful, but even those ingredients tend to add up, and that still doesn’t solve our dining out issue, which we’ve agreed to cut out entirely to our extreme displeasure. Any suggestions you could offer on how to balance our value of food with our newly restricted budget would be much appreciated!
- Brad

If you’re living in a coastal California community, live in a furnished home, and are making it on $3,500 a month, you’re doing incredibly well for yourself. I’m genuinely impressed that you’ve managed to make ends meet while retaining any ability to entertain guests at all.

The difficulty is that you’re living in an area with a very high cost of living. Maintaining a life in an expensive community while also entertaining and dining out regularly is a set of choices that is simply beyond your means.

This leaves you with a few hard choices to make. You can live in a less expensive community. You can reduce the amount you spend on entertaining (probably through entertaining less). You can reduce the cost of each time you entertain by moving more towards potlucks, etc. than dining out. You can do something to raise your income level, whether through another job or a business or something.

I can’t tell you which choice to make, but one of those choices will have to be made. You seem to be consistently spending more than you’re earning and it’s eaten through your savings and is about to start sinking you into debt. Make the choice before you go down that road.

I graduated from college in ‘09 and was blessed by my grandparents to have my federal student loans immediately paid off. Since then I have begun a 5-year graduate program. In my field, we are paid to go to grad school so while I have a rather small budget I do have income. At the beginning of the month I immediately pay rent (my only monthly bill), send 10% to my church and sock 20% away for savings. I have always been a frugal person so even on a small budget I find that I usually have a couple hundred dollars left at the end of the month that gets added to savings. In the last year I have a sizable emergency savings account ($5,000) which seems more than adequate considering that I am single with no dependents or debt and a paid graduate program.

My thought was to stop saving more for an emergency savings fund and start saving so that I can open a Roth IRA retirement account. From what I can see it will take ~$3000 to open an account which will take me roughly a year to save for. I do not intend to put the whole 20% I had been saving directly toward retirement, but rather portion it out into other financial goals. Am I missing anything to consider before I begin routing 10-15% of my income to retirement?
- Rachel

Why would it take you $3,000 to open a Roth IRA?

I’m guessing that you went to Vanguard (that’s who handles my Roth), looked at the funds available, and observed that virtually all of them have a $3,000 minimum. I would suggest starting with the Vanguard STAR fund, which has a $1,000 minimum balance and is well-diversified. Once you reach a $3,000 balance in the STAR fund, you can move the money to whichever fund you wish to have your money in.

Before the $1,000 mark, you’re probably better off just keeping the money in cash.

We are in our mid-30s and have a 1 year old daughter. We live in a small condo outside a large city and our daughter goes to daycare 11-hrs a day, 4-days per week (my husband works 5-days, I work 4). We are both only children with hobbies we love and most enjoy spending our free time together with our baby at home. Exhausted at the end of the work day, our main free time is on weekends. My question for you surrounds the myriad of social invitations we receive: not only weddings, baby showers, etc…, but going out for dinner with friends, visiting others’ homes, staying with my parents for the weekend (they live 1.5 hrs. away). It may sound as if I don’t appreciate having a great social network, but it has become overwhelming for us and our friends and family do not seem to grasp that we need time to ourselves and that many of these outings are costly. Given the choice of attending a graduation party at a catering hall with 100 other people and loud music or spending time at home, enjoying each other, reading to our child, engaging in our various hobbies, we’d pick staying at home every time! (The graduate, in this instance, has basically threatened us into attending her party even though she knows it’s not really our thing.) I have slowly been attending graduate school to begin a career in elementary school teaching, but have put it on hold due to expense, so we’re really trying to cut back. In addition to not really being excited about attending these outings (perhaps we’re just anti-social), the cost really does add-up. Before we alienate everyone by declining their incessant requests to visit, attend parties, etc…, any suggestions?
- Beth

If it’s something that’s not fulfilling to you, don’t attend the event. Being close to your family is not a requirement. If it does not bring positive value into your life, don’t throw time or money or effort into it.

Having said that, I think there’s a happy middle ground here. To put it simply, if I want someone at an event, I don’t care if they bring a gift or anything else. If I invite someone to a birthday party, they don’t have to bring a gift. They can if they want to, but they don’t have to. The same goes for any event in life. Gifts should never be an obligation – if they are, then they’re a cost of admission, not a gift.

The best thing you can do is talk these things out. If you feel uncomfortable doing so, then there are other problems at work in the relationships beyond the ones mentioned above.

My question is on investing for something other than retirement. I recently opened a High-Yield Checking Account and Brokerage Account with Schwab in an effort to both earn some interest on the money in my checking account and get some investing experience. I don’t have a lot of money to devote to this at the onset (between $1,000 and $2,000 when I fund the Brokerage Account, adding about $100 a month thereafter), and I’m not terribly well-versed on the finer points of investing. What I’m wondering is, if I’m looking to potentially use this money before retirement (say, to buy a house in 5 or 6 years), how should I go about investing it? Most of the information I’ve been reading has been geared towards investing for retirement, and this money is separate from my retirement accounts, as well as my more short-term savings goals.

Just for the sake of background, I’m 24 years old, have a steady job, contribute to my 401(k) and Roth accounts, and have a sufficient emergency fund, as well as an ING account for more immediate savings needs.

I’d love any advice you could give me, even if it’s just to suggest a book or two that would give me more information on this. I would really like to have a solid understanding of the different types of investments before I dive into this venture, but I’m not sure how exactly to go about finding the information I need.
- Katie

Your best bet is to just pick up a general investing book and read it cover to cover. I recommend The Bogleheads’ Guide to Investing as a great book to get started with.

As for a more specific answer, the best approach is to treat your investing as though you’re going to be retiring in five or six years. In other words, your investments should be fairly conservative at this point. Why? If the stock market has another 2008 in a few years, your five to six years will become ten to twelve years because you’ll lose half of what you’ve saved.

I would probably stick with index funds (which are basically big collections of investments, so you own only a little bit of a ton of different stocks, different bonds, or different commodities, depending on the specific index fund). Buy mostly conservative ones – bond funds and the like.

My biggest challenge is in the area of finding reliable, “you don’t need to be Cordon Bleu trained”, recipes that actually contain protein and no tater tots!

Seriously, rice and beans would be great, we even like them, we cannot seem to locate good recipes that are also economical to prepare.

Do you have any thoughts/cookbooks to recommend?
- Celia

I’m guessing that you’re vegetarian. The best cookbook for beginning cooks with a focus on vegetarian dishes is How to Cook Everything Vegetarian by Mark Bittman, which focuses pretty much exclusively on easier dishes with fresh ingredients. It’s the only strictly vegetarian cookbook on my kitchen bookshelf.

The most important thing to learn about cooking is that recipes are generally just suggestions. You’re almost always well-served by substituting things in-and-out as you desire. The advantage of being skilled in the kitchen is that you easily understand how to substitute things, like how to substitute a few grated potatoes for tater tots, for example.

Practice in the kitchen is more important than recipes.

What is a good resource to learn about different kinds of Life insurance?I’m paying almost 1500 dollars for our family of 5 in universal life insurance that a friend sold to us but feel that its the wrong thing for us.But I don’t know who to ask for more info and would just like to know more about all types of insurance.Any suggestions?
- Preethy

Over what period are you paying the $1,500? That makes a huge difference.

I generally don’t recommend that people get anything other than term life insurance. The only exception to that would be insurance for newborns, often purchased by a doting grandparent.

The reason is that the investment potential of the insurance isn’t very good, especially during the first decade or two of the insurance. Almost any diligent investment plan will beat the investment potential of such insurance.

Why do people still get it? It can be good in a few situations, like a grandparent picking it up for a grandchild. At first, it’s a gift to the parents, protecting them from the financial burden of losing a child early. As it grows, it becomes a gift to the grandchild. Also, it’s often a product that earns a very nice commission for the salesperson, so they often pitch it whenever they can.

As it stands now, my tuition for the next eight semesters will be around $9086. I have four more semesters of state financial aid and a university scholarship at $6000. I also qualify for a Subsidized Federal Direct Loan at $4250 a semester and an Unsubsidized Federal Direct Loan at $6000 a semester.

I could accept only $3086 worth of Subsidized Federal Direct Loan, which means I would be declining $1164 worth of subsidized loans.

When my state and university scholarships run out, I don’t believe that my Subsidized Federal Direct Loan awards will increase at all, which means I will have to pay the difference either from my savings account or using Unsubsidized Federal Direct Loan (something I do NOT want to do).

Should I go ahead and take the full amount of Subsidized Federal Direct Loan and put the excess in my savings account to gather interest and then use it when I need it after my scholarships run out? Is there some other option you believe would be more advantageous?
- Justin

That’s probably the best option available to you. It’s essentially taking out a student loan this year for your education bill next year.

There are a few things I’d worry about. First, I’d make absolutely sure that you never touched a dime of this during the passing year. Don’t get tempted to spend it or else things will end badly. Second, before you take it out, make sure that you will have enough to cover your schooling during the following year.

In short, you don’t want to take out this debt and then not wind up in school the next year.

My wife and I have a 1-year old who goes to daycare (one that is very hard to get in). I’m currently unemployed and have been freelancing while looking for a permanent position; my wife works full time but is worried she may get the axe. We have a large chunk in savings (ING at a decent rate) that we are loathe to use except for emergencies.

For most of my life, I have had a sense that I need to be prepared, so when I was single, I often paid ahead for services (electricity, phone, etc.) by a few months should I become unemployed. My wife is more concerned with money earning interest. She is also more learned about investing.

We had a discussion last night in which we asked ourselves what would we do if my wife lost her job. W/out her job (and if I hadn’t found a job), we would have to take our child out of daycare b/c it is the largest expense outside our mortgage. I proposed that we use our savings to pay for an entire year (or half year) of daycare (if they permitted that) so that we could look for work w/out having to also care for a toddler all day. She nixed that idea right away b/c we’d be losing money. I think she is too short-sighted, but is she correct in her thinking? She’d also love to be a stay-at-home mom, so I believe that factors into her thinking.

She also recognizes that if we take our girl out of daycare, she’d lose a lot of the constant interaction and attention she receives, and wouldn’t see her new friends as often.

What do you think about this? Have you already discussed this? I’m betting it’s a discussion many new parents are having.
- Choi

I wouldn’t worry about the friends at your child’s age. I have a four year old and a two year old and their friendships are extremely fluid at this stage. Even my four year old just moves on with life if he doesn’t see his friends or they move away. What’s important is the social skills – the ability to meet people, interact well, and form new friendships.

As for whether it’s better for your child to stay in daycare while your wife seeks another job, I think that more depends on what her goals and values are – and yours, too. Does she want to be a stay-at-home mother? If she does – and you can financially swing it – why not use that opportunity to let her be a stay-at-home mother?

More than anything, this seems just like a value conflict between you and your wife that you should talk through carefully so that you’re on the same page. It may be that your wife really does wish to be a stay-at-home mother but isn’t doing it for various reasons.

You often refer to how your family uses cloth diapers for your kids. We do this as well. I have kept track of all the diapers I have bought and sold, and I figure with my first son, we will just about break even over the cost of buying disposables. Now that my second son is due in about a month, we will finally start to actually save money! But I’m trying to figure how the cost of water and electricity figure into the equation. We have a top loader washing machine, and just the standard dryer. I wash the diapers in hot water with two cold rinses to get them really clean. Have you ever figured out what the cost is to wash the average load of laundry? I would also be curious to hear what brand(s) of diapers you use — there are a ton of options out there!
- Juli

There is such a huge variance in the cost of a load of laundry that such a calculation is almost meaningless. You have to pro-rate the cost of your washer into each load. Water prices vary greatly, as does the amount of water used in a given load (though in any case, this is still a small cost). The cost of detergent varies enormously. There’s just no consistent way to calculate it.

A friend of mine wrote a guest post on The Simple Dollar about such costs and she basically concluded that the first child is a wash and that the second child generates very nice savings, even with all sorts of costs figured in. Disposables really, really add up.

As for what we use, we use BumGenius diapers. They were initially expensive, but they’ve held up through three kids very, very nicely and are about as convenient when using them as disposables are.

Currently I owe $95,955 in student loans – all loans are issued through the federal government and have been consolidated. My current interest rate is fixed at 5.250% and the loans are in forbearance until March 2011. The only other debt that I have is $1300 dollars in monthly credit card bills that I pay off in full each month – I use my credit card because it earns me airline miles, and so far I’ve booked 2 free tickets back home to California!

In terms of employment, I’m one of the lucky few at my graduate school that have landed a job working for the federal government. While my starting salary is $52,527 – as long as a meet expectation in all 4 of my six-month reviews, I will receive a 7.55% raise. So in 2 years my salary should be around $70K.

My problem: I don’t know what to do first. Part of me wants to start paying my student loans, but part of me wants to wait until I’m making $70K to start paying them off. My rational is that since I’m a public employee my loans can be forgiven after 120 consecutive payments (http://www.finaid.org/loans/publicservice.phtml).

What I’m currently doing is putting $200 dollars a pay period – which is $400 dollars a month – into a savings account with my credit union. I contribute 5% of my salary to my TSP – Thrift Savings Plan – since the government matches me dollar for dollar up to 5%. Other than that I don’t really do much with my money. The worse part is that my credit score is at about 654. I really want to raise my score because I eventually what to buy a house, but I have no idea where to start, or how to start chipping away at my debt.

Can you please help me!
- J. P.

Your credit score isn’t devastatingly bad at all. You’re in an area where you probably wouldn’t get the absolute best home loan, but you’d likely get a pretty good one. The best part is that your credit rating will slowly go up as you consistently keep your bills paid.

I think your plan in paying off your student loans slowly is a good idea considering you have that payoff option. Make sure you know exactly how that plan works (it seems straightforward).

I think you’re doing the right things overall. Keep it up. When you get your raise, amp up your savings for the house down payment and make sure you have no other debts.

Continue reading Reader Mailbag: The Cost of Friendship …

From The Simple Dollar.

August 5, 2010 | Filed Under Frugal Living | Leave a Comment

Reader Mailbag: The Cost of Friendship

Those kinds of things are never easy to answer, but I see those kinds of situations pop up all the time. We are all faced with really hard choices in life, no matter what our specific situation is.

The more reader emails I read, the more sympathy I feel for everyone involved. The situations usually come about as a result of a lot of choices. A little more understanding never hurt anyone.

Why would it take you $3,000 to open a Roth IRA?

Before the $1,000 mark, you’re probably better off just keeping the money in cash.

The best thing you can do is talk these things out. If you feel uncomfortable doing so, then there are other problems at work in the relationships beyond the ones mentioned above.

Your best bet is to just pick up a general investing book and read it cover to cover. I recommend The Bogleheads’ Guide to Investing as a great book to get started with.

My biggest challenge is in the area of finding reliable, “you don’t need to be Cordon Bleu trained”, recipes that actually contain protein and no tater tots!

Seriously, rice and beans would be great, we even like them, we cannot seem to locate good recipes that are also economical to prepare.

Do you have any thoughts/cookbooks to recommend?
- Celia

Practice in the kitchen is more important than recipes.

Over what period are you paying the $1,500? That makes a huge difference.

I generally don’t recommend that people get anything other than term life insurance. The only exception to that would be insurance for newborns, often purchased by a doting grandparent.

That’s probably the best option available to you. It’s essentially taking out a student loan this year for your education bill next year.

In short, you don’t want to take out this debt and then not wind up in school the next year.

What do you think about this? Have you already discussed this? I’m betting it’s a discussion many new parents are having.
- Choi

As for what we use, we use BumGenius diapers. They were initially expensive, but they’ve held up through three kids very, very nicely and are about as convenient when using them as disposables are.

Can you please help me!
- J. P.

I think your plan in paying off your student loans slowly is a good idea considering you have that payoff option. Make sure you know exactly how that plan works (it seems straightforward).

I think you’re doing the right things overall. Keep it up. When you get your raise, amp up your savings for the house down payment and make sure you have no other debts.

Continue reading Reader Mailbag: The Cost of Friendship …

From The Simple Dollar.

August 5, 2010 | Filed Under Frugal Living | Leave a Comment

Reader Mailbag: Birthday Celebration

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Starting a garden from seed
2. Losing my job next summer
3. Splitting rent and utilities
4. Dealing with a challenging year
5. Time to have a child?
6. Double disabilities: what now?
7. Budgeting and taxes
8. Prioritizing student loans
9. Child now, with payoff?
10. How much for retirement?

The best birthday parties I’ve ever seen are simply ones where a person gets to spend time with people they truly care about and value. If you want to make someone’s birthday special for them, give them time.

I’ve been trying to start a garden from seed for the last two years and I just cannot seem to get strong plants. This last year, I started the seeds in peat pods in late January, which I moved to medium size pots once the seedlings were about 2 inches high (these pots were kept inside until mid-May). However, most of those plants didn’t grow at all or died in the medium pots. The ones that survived did not transplant in ground very well. Is my timeline too compact, do I need to start the seeds earlier? When transferring the peat pods to should I remove the webbing to allow the roots to expand?
- Nikunj

First thing: were you using any sort of grow light with the indoor peat pods? Grow lights are absolutely essential, because there is insufficient sunlight during the winter months (in the northern hemisphere) for most outdoor garden plants to survive indoors.

I don’t think your timeline is too compact. It just takes practice, adequate water, adequate light, and perhaps a bit of fertilizer as well.

Your best bet is to visit gardening message boards and simply ask for advice on creating the best possible early growth environment for the types of plants you’re trying to raise. While you won’t be able to fully imitate that, you should be able to approximate it well enough to have success with your seedlings.

I am going to lose my job. In one way, I am lucky, because I am finding out about 10 months in advance, but I’m still worried about my future. My entire department has learned that we will not be funded next year. Because we work for one department of a large university, there is always the possibility that I will be able to find a new job before I become redundant, however it is not likely that I will find one at my current pay rate. I have been debating starting my own business for a while, and could move forward with that plan if I cannot find another job at the university, or I have considered renting my house out and going to work overseas for a year or two. I wouldn’t build any wealth doing that, but it would be a great experience.

I am single with no children (or plans to have them), and I purchased a house in July 2009. I currently rent out the second bedroom to a grad student who will be finishing school around the time my job ends. I can afford to live in the house on my own, but having a roommate gives me more financial flexibility. I own my vehicle outright and have some minor credit card debt which is usually paid in full each month. I have been putting extra money toward the mortgage and estimate I have made about 5 extra payments in the year I have owned it. I also have a vacation planned for this winter. I’ve already purchased the tickets, and my on-the-ground costs will be around $1K, so I do not plan to cancel it.

I have about $7500 spread out among various bank accounts, plus $15K in a Roth IRA, $13K in a 401A and $5k invested in a stock fund. I do not want to touch the investments at all.

With the time remaining until my job ends, should I continue to invest in the Roth IRA? Continue to put extra money toward the mortgage? Or should I instead put as much money as possible into my savings accounts?
- Mary

Your first step is to figure out what your next step will be once your current job goes away. Are you going to actively job-hunt? Are you going to attempt to launch this side business?

Whatever you decide, start focusing on it now. If you’re seeking a new job, now is the time to get your resume straight, because the job market is rather soft (to say the least). If you’re thinking of launching a business, start the launch process now, not later, so that things are in place and running by the time you walk away from your current job.

If you’re switching jobs, I would halt the Roth payments and direct them towards an emergency fund until I had a job locked up. Once a job is in place, I’d move all of the saved money into the Roth. If you’re starting a business, keep contributing to the Roth.

My question is this, my boyfriend and I have been living together for a little over two years and now we are both beginning our careers. However, his income is substantially less than mine, I make about $700 more a month. We live in Los Angeles, not a cheap town by any means and I’m beggining to reconsider our financial situation. I have heard from other people that we should split our rent and utilities based on our difference in salary, however, I have some serious school loans, about $32,000 to pay-back and I was hoping to use a good amount of my ‘extra’ money (I live well below my means) to do so. What would you do?
- Lauren

Are you in this relationship for the long term?

If the answer is yes, then your financial futures are tied together and it benefits you to look at your combined state and make whatever choices will put you together in the best financial place. There is no “who pays more rent” to the question at that point. You keep the rent paid and focus on getting rid of the highest interest debt that either of you have.

If the answer is no, then you should absolutely go for equal rent. Living together is a financial arrangement in this case and your personal wealth has no bearing on the rent arrangement.

I have been a very fortunate person in many regards. Through the generous assistance of my parents and grandparents, I was able to graduate from university with no debt and was also able to major in a subject that I loved. While this major (theatre) did not lead directly into a high-paying career, I was able to leverage many of the skills I learned at university into valuable on-the-job skills. (Theatre is a subject chock full of transferrable skills and many of the people I went to school have found satisfying and lucrative work outside the entertainment industry.)

I worked for a construction company for three years and gradually kept earning more money, although the work was very hard and I was often depressed. After work, I would often shop to make myself feel better if I had a tough day. During work, I was constantly browsing websites for little treats for myself. I managed to save some money, but I also racked up some credit card debt. It didn’t seem worth it to me to pay that debt down – what was the point of working a job I disliked if I couldn’t also have nice things? Mind you, I had a very nice life – but this wasn’t enough. I was always looking for something else to want. I was almost relieved when I was laid off as a result of the market crash. The past year has been transformative for me. I moved to another country to get a Master’s degree in another subject that I love, and managed to get accepted into one of the top PhD programs in the world. Now, here comes the hard part: I can’t afford it. The solution at the moment is for me to return home and spend the year working and applying for scholarships in order to return to school in 2011. I know that this is the smart thing to do and that the short term pain will yield long term gain.

The question I have for you is more personal than financial. This is going to be a tough, challenging year and I have a lot of daunting tasks ahead of me on the path towards getting funding for my dream school. I will be a couple thousand miles away from my boyfriend, and there is no guarantee that anything is going to work out as I have planned. What advice do you have for staying positive, focused, and productive in a difficult situation? I am certainly going to take advantage of counselling services, and I already exercise regularly, eat well and am careful about my alcohol intake. I do, however, get the blues. I know that what is happening to me is part of life, but I also feel very scared about the future. I am afraid that returning home will put me in a rut.
- Slaney

The absolute best thing you can do is establish a very positive routine right off the bat and stick to it. The old saying “the devil finds work for idle hands to do” is true in that time spent just wandering or bored is time that often develops into dangerous and negative habits and routines.

Fill your spare time with personal goals. The exercise routine is a start, but keep your mind exercised as well. Set some sort of reading goal for yourself, an ambitious but reachable one. Fill your time achieving those goals.

If you “escaped” a negative situation with your personal life when you lived with your parents, avoid falling back into it. Do not re-establish contact with anyone that was part of that negative situation.

My wife and I are both gainfully employed. I work as a teacher and my wife works for a non-profit here in Florida. My question is that we are strongly considering children but want to do things different then both of our parents and some friends are doing. We want to give our children a better childhood then we had. Don’t get me wrong we had fun as kids but we both come from households where statements like “we cant afford that” was the norm for items that were paltry in cost. We make about 80k combined and live pretty frugally albeit going out to eat a few times a month and traveling frequently.

[...] My question and concern is this. My job is very stable as a teacher but my wifes job with her non profit works off of grant-funded contracts, so when the money runs out this fall they will be laid off if it the contract does not get extended which it possibly will be through June of 2011 we don’t know yet.. She has received an offer from another non-profit but they to are grant funded also but their grant goes through Sept. 2011 with a strong possibility of extension(Its in the green industry).

We have about $2,000 in emergency savings that we are continually adding to, about 50k worth of student loans currently in forbearance until next year, and debt from earlier in college that have just about reached the 7-year statue of limitations mark so it should be falling off of our credit. Would it be ok in your opinion given the circumstances to go ahead and start having our first child?
- Faith

What do you mean by “giving your children a better childhood”? What will be better about it than what you had?

Spend some very serious time thinking about that question. The best childhood you can give to your children is one where they’re not having to compete with distractions – careers, substance abuse, personal interests, etc. – for your attention. It’s not about buying them an armload of stuff – for children, stuff is merely a distraction from parents who aren’t paying attention to them.

You can give your children the best childhood in the world on a shoestring budget earning much less than $80K. It’s not about stuff. It’s about time.

My wife and I are both disabled and are on disability pensions I am on Canadian one and she is on Social Security. She is not allowed to work at all as a requirement of here pension while I am allowed to work a modest amount on top of the pension. All of our income came to 42000. We have availed ourselves of the Canadian Registered Disability Savings Plan and have together 37000$ which can’t be touched until we are 65. My doctor says that he believes that neither of us should return to full time work, If I was to go off of my pension I would have to pay 13000 in prescription costs for an experimental medication for my disability. We have been thinking of purchasing a low end rental property or two for our retirement. We own our home outright except for a line of credit that we used to purchase our adaptive car. We only have 14000$ left to pay on it. This month we are scheduled to receive a 5400$ settlement and a9000$ in january. Our income this year will likely go down by 7000$ this year. We intend to pay off the line of credit as soon as possible. Should we borrow the down payment for the purchase of the property and then purchase the property or should we wait? Property prices seem to be going up here. We do not have an emergency fund but over the last five years have always paid off our credit card bill at the end of the month. We live simply. For four years after our marriage we did not have a car because we wanted to pay off our mortgage a quickly as possible. We buy everything at a discount and thrift stores. On top of everything else we just had a major flood but are not in trouble because we received the first check from the insurance company and we had the money that we were formerly paying on our mortgage. I would like to start with the property investment before prices go up. We are looking to rent them out over the long term. We would hope that the investment property is paid off by the time that we reach 65 when our income will drop. Is this a good plan?
- Austin

With all of these numbers, the one that would concern me the most isn’t here: your monthly cash flow. You have $42,000 a year coming in. How much is going out?

From what I can gather, you’re breaking even right now and are about to experience a $7,000 reduction in your income. If that’s the case, you should not be borrowing additional money. You should take the settlement money and use it to pay off the line of credit to free up your cash flow so that you can survive the downturn in your income.

If owning a rental property is your dream, you’re going to have to make some other cuts in your spending to be able to afford it (since earning more isn’t an option). If you can’t, then it’s not a realistic dream.

Every financial blog/book/article I have read on budgeting talks about figuring out your gross pay and then breaking it into percentages e.g. 60% of gross for living expenses, 10% for debt reduction, 10% for short term savings, 10% long term savings, 10% for fun.

So WHERE do taxes fit into all of this??? I have never seen a good answer–or even anyone addressing this. If you want to use this on the blog–feel free–but I would love a response back personally if you are able. And maybe you already have answered this but I have overlooked it.
- Leigh

The obvious answer here is that they’re talking about post-tax dollars, not pre-tax dollars.

The best way to make this type of “60% solution” actually work in a person’s life is to apply it to each paycheck after the taxes are already taken out. You utilize 60% of your take-home for living expenses, 10% for debt reduction, 10% for long-term savings, 10% for short-term savings, ant 10% for fun.

In fact, I’d go even further and look at it as post-tax and post-401(k) money. This really should be used in the context of your paycheck that you bring home, nothing else.

I’m in graduate school this year-last of 2 years. My tuition has been covered by a scholarship, and I live about an hour away from the school. I’m a working adult with 3 kids, so I can’t really take on much more work. The fees and books come in around $1500-2000 per year. Last year I used our credit card for this and it’s really bitten us in the butt! So two questions:
1. Would you recommend taking out the Stafford Subsidized Loan? The rate is much lower than the credit card-6% to 28%, but that’d be another payment.
2. Do I take out all the Stafford money I’m eligible for to help with last year’s credit debt? It wouldn’t get rid of the credit card, but would be similar to a transfer.
- Samuel

Yes, you should use the subsidized loan here to pay for your credit card debt. In effect, you’re using this year’s loan to pay for last year’s textbooks.

That’s the purpose of having student loans that cover more than your tuition – they also ensure that you have the textbooks and supplies that you need if you don’t have the cash to pay for them.

If I were you, I’d take all of the Stafford money, buy your books, and pay off as much of the credit card as I possibly could. That student loan debt is better than that big pile of credit card debt.

I am 27, living in Brooklyn and married. I have a very high-paying job that I absolutely hate, and my husband has a lower paying job that he’s frustrated with but is dealing. I have about $70,000 in law school debt and we have another $20,000 in debt from a business that my husband started right before the crash (we have, incidentally, whittled that debt down from $60,000). My question is when I should leave my job. Put simply, I can’t stand it. I work at a large law firm and the work is both mind-numblingly boring and incredibly stressful. I want to start my own small business as either a lawyer back in Austin (where I went to law school and have friends and connections) or earn money online through e-books and affiliate marketing. I believe that I can be reasonably successful at either of these options (eg run with a very low overhead, come out in the black, and make enough to at least make my loan payment each month). My husband can do his job from anywhere and would be able to support us on his salary alone in an inexpensive city like Austin (but with essentially no savings). Right now our emergency fund is pretty much nil.

We are expecting a large tax refund soon and we have been steadily paying off the business debts so that we should only have my student loan debt (6.5%) by January of 2011. Alternatively, the refund should be enough to pay off the remaining business debt. At that point we will be able to save several thousand dollars a month. I have basically come down to two choices. 1. I could try to get pregnant and work at my job until I give birth, at which point we would move in with my parents during my (very generous) maternity leave to save money. Then I would quit my job and we would move to Austin. This path would net us about 90,000 in savings, but I would have to work until early to mid next year and of course we would be parents, which would be a huge change. 2. I could quit in November when our lease is up and we would move to Austin. We would have pretty much no savings and we could live off my husband’s salary while I try to make a small business work. In that scenario we would put off children until we are more financially stable.

I am frankly scared to have a child (but then I think I always will be), but I am also ready and so is my husband. It also seems really unwise to pass up a really generous maternity policy at my firm when we know that we want kids soon anyway. I know that there is never a “good” time to have children, but I am worried about the stress of moving across the country with a brand new baby and trying to get a business off the ground. On the other hand, I do really want children, we are both ready and $90,000 is very hard to pass up.
- Cara

There is a good time to have children. It’s when you and your partner want one and have the financial ability to make it work.

Right now, it sounds like you’ve got a strong “yes” on both counts, so I would absolutely go for it. Right now is probably your best opportunity in your life to have a child.

Yes, you’re a bit scared. Guess what? Anyone who thinks about the monumental job of parenting with any level of seriousness is a bit scared.

If you want it, go for it. There will probably be no better opportunity.

First, some background: I’m married, and my husband is in his second year of medical school. He is on a Navy scholarship, so they are paying for his very expensive education, and providing us with a monthly living stipend. I have had a difficult time finding work in my field since we moved, but finally got a steady job for this coming year. Together we only make about $3100 a month, but we have learned to live on about $2000 monthly. We have no debt, about $15,000 in savings, and $3700 in a 401(K) from a previous employer.

Here is my question: Knowing that my husband will have a much higher income about three years from now, what should we be focusing on right now? We’re putting as much as we can in savings, but would it make sense to put more money away for retirement? What percentage should go into retirement each month?
- Madeline

Put as much into retirement as you can possibly afford to right now, preferably in a Roth IRA or (if you can) into a plan that offers some matching funds from an employer. The matching funds should come first.

Why save now? If you have matching funds, you should always be taking them. Also, if you have a chance to get money into a Roth IRA, particularly if you expect your income to skyrocket in the future, you should take it.

If you have no debt and a big emergency fund (which you do), you’ll never ever regret socking away money for retirement right now.

Continue reading Reader Mailbag: Birthday Celebration …

From The Simple Dollar.

August 2, 2010 | Filed Under Frugal Living | Leave a Comment

Ten Big Mistakes #1: Student Loans as Lifestyle Support

Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

I financed an unnecesary lifestyle in college with extra student loans.

My first few years in college were supported by a collection of scholarships that covered my tuition, room, and board. However, it was up to me to come up with the means of supporting myself over my final two years in school. As is the case for a lot of college students, that meant student loans.

Up to the start of that first “loan year,” I was very conservative with my money in college (for the most part). I had lived in the dorms most of the time and also spent a year living in an apartment with several other people, which reduced the rent for each of us down to a pittance.

So, when it came time to take out student loans for that first year, I took the advice of my financial aid adviser and did the calculations to see how much money I would need to live for that coming year. The number I came up with was pleasantly small and so I felt confident that I would be able to survive on the tiny living stipend I expected from my loan.

What surprised me was that one could easily take out a much larger stipend than I could ever possibly need. The financial aid office allowed me to apply for a loan that gave me a living stipend somewhere around five times what I actually needed to live on, which escalated the total of my student loan for that year by more than $10,000.

I thought about all the stuff I had done without over my years in college. I’d lived in some awful places. I’d held back on buying a lot of things that I wanted. And here, I thought, the college was practically giving me a bunch of money to do with what I pleased. I could have that stuff – I didn’t need to live hand-to-mouth any more.

So I took it all. I took out the maximum possible loan both years, adding somewhere around $25,000 to my total student loan bill.

The consequences of that were painful. My repayment period was ten years and the interest rate on the debt was around 7%, so my extra money alone caused me to have an extra $300 month payment every single month for the next ten years.

When you’re freshly out of college with your first post-college job (meaning that it’s fairly low salary) and considering marriage, an extra $300 per month out of your monthly cash flow quite simply hurts.

The long-term effects of this debt were painful. That unnecessary $300 a month coming out of my take-home pay meant that I was trying to do all of the things I wanted to do with even less money to work with. I was left with a choice of living fairly lean or to make a financial mistake that would compound this one, take out more debt to continue an expensive lifestyle (and I’ll discuss this mistake later on).

I really was offered two great solutions to fix this problem – and I failed to take on either of them.

First, I could have kept my spending within what I was used to in college. I could have taken out a much smaller living stipend when I was there and gotten by doing all of my shopping at Goodwill and Fareway. This would have worked just fine, as it took care of all of my actual needs as a college student.

Later, I could have kept my post-graduation spending in check and paid down that student loan debt. Again, this would not have impacted taking care of my needs or even many of my wants – after all, I did have a good full-time job. I could have easily become more picky about my clothes and my food and bought many other things that clearly fall under “want” instead of “need.”

In both cases, I chose to spend that money with reckless abandon, which eventually brought me to the brink of financial ruin.

What can you do to avoid this trap?

If you’re a student, take out the minimum amount you’ll possibly need on your student loans. Don’t be afraid to shop for clothes at Goodwill or buy your groceries at the low-end grocery store. Get your entertainment fix by participating in on-campus events and community events. Focus on the relationships you build, not the specific things you do or the stuff you accumulate.

If you’re out of school, focus on debt freedom as a very early goal in your life. Cash flow is so important with regards to achieving your goals and having a big monthly debt payment just clogs up opportunities. Pay it down as quickly as you can, even if it means delaying some of your goals. Your ability to easily achieve those goals will be amped up incredibly high through freedom from debt.

Continue reading Ten Big Mistakes #1: Student Loans as Lifestyle Support …

From The Simple Dollar.

July 19, 2010 | Filed Under Frugal Living | Leave a Comment

Reader Mailbag: Notes and Some Questions on the “Getting Things Done” Series

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. GTD and privacy
2. Planning for a long trip
3. GTD and prioritizing
4. Overcoming jaded partner’s money attitudes
5. GTD and daily routines
6. Hopping into an IPO
7. Reporting a tiny income
8. Stagnant savings
9. GTD and “books to read”
10. Student loans and house savings

It’s strange – there haven’t been many comments on the posts, but I’ve had more reader comments and questions directly emailed to me about the Getting Things Done series than almost anything else I’ve ever done on The Simple Dollar.

This further mystifies me, because I have a hard time figuring out what ways to tell if a post is a hit or not. I usually rely on comments, but quite often the number of comments have little to do with whether the post actually provides valuable information or entertains readers.

In the end, sometimes I just have to guess what you’d like. In truth, that starts by just thinking about what I’d like to read. I very rarely post something that I wouldn’t enjoy as a reader.

So, today, I’m including a few of the better questions I’ve received over the course of the GTD series, along with plenty of non-GTD questions, too.

I´d like to ask you about GTD and what you do to keep your privacy, since you have your life, your wants and to-dos on one inbox, someone can see when entering your office or home, or when some friend ask you to see your cool new phone with your tasks in there.

Also on this issue, how do you keep your spouse/girlfriend from seeing your task/project about her surprise party or to buy some gift for her? Because I keep this out of GTD so she doesn’t see it but since it’s out of GTD I tend to forgot and would like to know how you deal with it? And since your series is finishing I thought that’s a good thing to talk on the GTD series.
- Marcio

I generally don’t keep what I would call private information in my inbox. Virtually everything in there is pretty mundane – I guess if snoops want to know about my desire to read Reality Hunger, they can know.

If you do have a lot of personal information in your inbox and it worries you, keep your inbox offline and in a locked drawer in your desk.

As for such surprises, I usually handle all of that in my calendar. I have most important birthdays in my calendar, as well as reminders two weeks in advance of really important birthdays. I don’t think it would spoil a surprise for my wife if she knew I was thinking of her birthday two weeks out (in fact, she’d probably be happy to know it). If I’m doing something complicated that requires secret planning, I just keep those plans in a project folder put in a private space where she’d never look.

I’m transferring from a nearby state college to a private college in the fall. I will be graduating in either two or three years after that, depending on how some of my credits transfer. I paid very little in tuition at the state school, and only had to take out a loan for $1500 with 6.8% interest. I paid the loan down to $700 over the last year, even though I don’t have to pay anything until after I graduate (though the interest still accumulates). At the school I am transferring to, I’ll owe almost $3000 on a subsidized loan (the government pays the interest until I graduate) and and another loan for $1000 at 6.8% (not subsidized). I’ll also have to pay another $4000, but it looks like my uncle is going to contribute the $4000 so all I’ll have left are the loans.

I have $5000 in a savings account earning between 1-2% interest, which I accumulated entirely from working two jobs last summer. I’m planning on traveling to Europe for a year or so the fall after I graduate, and will be doing so very cheaply (by couchsurfing, WWOOFing, and the like), and want to have $15,000 saved for the trip.

My question is what I should do about paying off the loans vs. saving for the trip. I haven’t touched the $5000 since I deposited it, and like having that money there as both an emergency fund and assurance that I’ll be able to take the trip. But I can’t help but feel that it makes more sense to pay off the loans, or at least the two I’m paying interest on. However, I’m nervous that if I put that money toward my loans, I’m going to have a hard time rebuilding to $15,000 plus paying off the other loans I’ll likely acquire within the next 2-3 years. I really don’t want to put off the trip any longer, it’s one of those things that has to be done before I actually settle down or I’ll never end up going. I’m hoping you’ll have some insight and the kick in the butt I’ll need to do the financially sound thing.
- Sarah

You don’t have what I would ever call life-stifling student loans. The $1,000 at 6.8% is a little high, but even that one isn’t bad at all. Your total debt (just shy of $5,000) is an amount you can pay off in a year when you start your professional career.

If you were in a truly bad student loan debt situation, I’d encourage you to rethink your Europe trip plans. But those aren’t bad student loans.

Focus on saving for the trip. Make the minimum payments on the debt. Enjoy this opportunity in your life. Come back refreshed and ready to take on the world.

Thank you for writing your series on GTD.
I have a dilemma that perhaps you and your readers can help with.
Here’s the scenario:
It’s 6pm. I’m not yet done with the task I’ve been working on but it’s my usual time to go home. I have 3 choices. Part of me wants to stay and keep working cause I know I’ll feel better when it’s done.
Part of me wants to go home and tackle my next actions list there.
Part of me wants to go to the gym.
How to pick which of these 3 to do?
- Julia

Allen spells out how to decide between such choices on page 92 of the book:

1 | Context
2 | Time available
3 | Energy available
4 | Priority

You’re currently at your desk with your supplies out, which means that the context of the current situation suggests that you finish the task.

I’m assuming that you have a healthy workplace, of course. If you have a draconian workspace with inflexible hours and a boss that is going to essentially punish you for stepping up to get things done, context really doesn’t matter. In that case, context doesn’t really matter and you move down to the next criteria – time available. If you don’t have anything scheduled for that evening, that criteria goes out the door and you move on to energy available.

Do you have the energy to go to the gym? If you do, I’d go to the gym. If you don’t, I’d go home and do household chores.

So, here’s how I’d do it. If you have a good workplace and a job you value, stick around and finish the task. If you’re in a worse position professionally, go to the gym if you have the energy for it. If you don’t, go home and handle what chores you have energy left to do.

Several years ago, his parents filed for bankruptcy – his dad lost his job, though found another briefly, but they also had a few years of back taxes and poor spending habits. During that time, my boyfriend would sometimes even pay for groceries and Christmas gifts from money he earned. Though he was skeptical, his parents encouraged him to go to college, telling him that he will be able to get by with jobs and loans, and if anything bad happened they would be there to support him. He’s been struggling financially for years, but it has finally hit him hard now. This is the third time he’s been unable to pay rent (He has been able to make payments in the past, they were just late). He offered to pay what he has now, a little less than half, and the landlord is generously okay with that for now. This only leaves him with $66.

In addition, he recently found out he doesn’t have a job anymore, as the test prep courses he was scheduled to teach were canceled due to low demand. Both parents are unemployed: his father has been for a while but has been attending school as well as getting by on odd jobs. His mother recently lost her job and is considering going to school so she can get by on loans. She often had to borrow money from him for necessary medications and other expenses she couldn’t afford at the time. So, they are both in no way able to support him. (He also has a teenaged sister living with his mother).

He’s been living off loans and what jobs he can get teaching and tutoring but those are meager. He has thousands in debt; some is credit card debt but most are student loans. He has thought about dropping out and finding a full time job, but that would also mean he would have to start paying those student loans, and he would need to find a well paying job quickly on just a high school diploma. Every now and then he gets slapped with something unexpected, such as a parking ticket. He also needs a new tire and new brakes. As you can imagine, he has no safety net.

Understandably, he is very jaded and very depressed, which makes it even harder. It is difficult for him to focus on school (as well as even get courses that he needs to graduate). I almost forgot to mention, he hardly has any extra expenses- just rent, food, utilities, etc. I think I covered everything. It seems like there isn’t anything he can do- he’s completely trapped.
- Ellen

First of all, sitting at home being jaded and depressed will absolutely not solve these problems. That is usually the worst possible response a person can make to a difficult situation. Everyone faces challenges in their lives – those that allow themselves to be jaded because of them tend to succeed much less often than those who do the best they can to overcome whatever hand life has dealt them.

The first thing he should do is go seek steady employment, even if he views the job as “beneath” him. There are lots of jobs out there if people are willing to work them, but in a world where almost every high school graduate goes on to college and then expects a college job with a college degree, a lot of jobs are seen as being “beneath” people. I see this all the time from people who write to me complaining about their unemployment in a career path where the entry-level wage is $30,000 a year. They’ve not looked outside of this path for work.

He shouldn’t be afraid to look for minimum wage work. It will get him out of the house, interacting with people and earning some money with his time. Yes, the job might be boring or he might see it as demeaning or something like that. Here’s the thing: it’s not demeaning. It’s an opportunity to turn the ship around. When you’ve fallen to the ground, you don’t jump back on the ladder several rungs up. You grab on to the bottom rung and start climbing again, looking for every chance you have to pull yourself up.

He should take that money and stick it in a savings account and continue to live as cheaply as he can. Then, the next time when one of these emergencies hits, he can just handle it without blinking an eye. The first time a car failure or something like that happens and you can just handle it, the world seems a lot more manageable.

Just take it a step at a time.

How much detail do you put into your calendar and your to-do list? Do you list everything that you intend to do in a day, like taking a shower?
- Mark

I don’t include established habits – like bathing – on my calendar or my to-do list. These things are just part of my morning routine and come naturally without even really thinking about them.

What I do add is a reminder of any routines that I’m trying to build. For example, if I’m attempting to establish a habit of a daily three mile walk, I make sure this is constantly on my to-do list (and marked as important).

If something reaches the point where I’m just doing it anyway, then I eventually delete it from my to-do list.

Currently my only form of investing in the stock market is through a moderately aggressive 401k at work, and my wife similarly is investing in a 403b. Neither of us know much about the specific make-up of these allocations. I know very little about actually buying a specific stock through a brokerage, and I only keep up with news on the stock market as much as the mainstream news covers it. However, a company that I have been a customer of for about 8 years, and which I believe in very strongly, is about to go public. My wife and I have always thrown out the idea of buying stock in the company when it became available, and now that time is here. We could potentially feel comfortable investing $1000 to $3000 of our current savings into this company as a long-term investment and still leave us with over 3 months expenses in our emergency fund. We have alot of student loan debt, and although we arent paying it off aggressively, we do make our payments and contribute a bit extra here and there.

The question is not necessarily should we do this, although that could be up for debate. However, any advice or resources a beginner in this kind of investing could turn to? Aside from this strong inclination towards a certain company, I don’t think we’d ever feel inclined to gamble in the stock market, and I know little about the logistics of actually buying a stock. We’re not considering this in order to make a quick gain (I realize those type of expectations are foolish), but in reality would be in with this company for the long haul.
- Nick

Oh, come on, Nick! You’ve got to tell us what this IPO is! (I’m kidding. A little.)

If I were you, I wouldn’t really view this as an investment per se, because the risk involved in investing in an IPO is pretty stiff. However, if you truly believe in the company and have the discretionary income to invest, I encourage you to go for it.

In 2002, I knew a few people working at Google and was absolutely convinced that I should invest in their IPO, but I convinced myself (right or wrong) that I didn’t have the adequate funds to do it. I still regret it.

If you can swing an investment without upsetting the ship – and it certainly sounds like you can – give it a shot.

I am working in the US from last 3 years on a work visa and have a stock trading account with Scottrade with a portfolio of few stocks. I also get quarterly dividends on some of the stocks I own.

I wanted to check on how the US IRS Tax rules apply on these dividends once my work assignment completes and I return to my home country? In that scenario, I will have no income to report in the US but will have some dividend income (approx 500-600 USD per year) thru the stock portfolio i have with scottrade. Does that qualify me to report and pay the taxes in the US as my income in US would be way below the tax bracket where income taxes are applicable.
- Sandeep

You are required to report it. You almost assuredly won’t have to pay any taxes on it.

Dividends are taxed as ordinary income. If you file a return on this income (which you should), your standard deduction will be significantly larger than the $500-600 a year you’re earning in dividends. End result? No taxes.

Yes, you should report that income to the IRS. No, you won’t have to pay taxes on it.

My mother and father are retired and they are selling their home. They will be walking away with a nice chunk of money which I have referred to as their NEST EGG. My mother is 63 and my dad will be 65. They are not huge money gurus and don’t really have any plans for the potential $250K-$300K they could walk away with from the selling of the house.

What should they do about reinvesting this money? I would love to see this money work for them and live off the interest.
I would hate to see it sit stagnant in a savings account and get taken away little by little by Uncle Sam.

Do you have any advice/suggestions?
- Alex

For starters, it’s not going to be taken away little by little by Uncle Sam. Let’s say they have $250,000 in a savings account that earns 1% interest. That means they’ll be taking in $2,500 in interest each year. They will only be taxed on that interest earned. Depending on their tax bracket, Uncle Sam would take somewhere around 15% of it. In the end, they’d still earn about $2,100 a year from that money after taxes and the balance wouldn’t be touched.

If you want better returns than that, you’re going to have to take on some risk in some form or another. They could use that money to buy a very long term treasury note that would return about 3% on their money – $7,500 a year. The risk there is that the rates on treasury notes will probably go up in the next five years or so, so one option would be to wait with the money in savings for a few years and hop in later on.

Another option is to put it in a riskier investment, like a stock index fund at a brokerage. What happens there is that you’re at the mercy of the stock market. If the stock market has a good year, it will probably make about 15% a year and sometimes more. If it has a bad year, it could lose 15%. If it has a disastrous year (like 2008), it could lose 40%. Over the very, very long term, Warren Buffett has publicly estimated that a person should average out to about 7% a year going forward, but that’s a prediction (albeit one from one of the best investors on earth). The problem is, though, that some of those years are going to be +18% and others are going to be -18%.

You could also mix the investments. If you put half of it in savings earning 1% and the other half in the stock market, a good stock market year would earn you 9% overall and a bad stock market year would send you down 10%.

The problem with the risk is if your parents are relying on this money to support them. If they are and the money’s in the stock market, a swoon at the wrong time would be devastating. If they at least have a healthy Social Security check coming in, then they can feel at least a bit better about it.

You mentioned that whenever you have a book you want to read, you make a note of it and toss it in your inbox, then you keep a list of them? How does that work? I don’t get it.
- Erica

I do keep a list of books I want to read, films I want to watch, and games I want to play.

My “films I want to watch” list is actually my Netflix queue. If I see a note about a film, I just add it to our queue (we’re thinking strongly of going cable-free and are seeing if Netflix streaming and 1 disc at a time for $9 a month works for us).

For my books and games, I usually just add them to my Amazon wish list (with a comment if I wish) and/or to my library queue. In the past, I kept these in a Word document. The advantage of using a wish list is that if a family member is stymied as to a gift to get me, my wish list usually has a giant bundle of things on it.

I am 24, two years out of college, and have pretty good job security making $52.5K per year. Including rent, car payments, student loans, and everything else, my monthly fixed expenses are about $1570. I put gas, food, and weekend expenses on my credit card, and pay it off each month. That ends up being around $700 or so per month. I end up saving around $500 per month after all expenses, including my 6% 401k contribution which is the max my company matches.

Now, here is the issue: my loans. I have a little over $50K in student loans, and about $11K in car loans. Half of the student loans are at 2.8% interest, while the other half is at 6.5%. My car loan is at 5.74%. I would like to have enough money to put a down payment on a house in the next five or so years. So, should I continue making the minimum payments on my loans and putting that $500/month into a savings account for a house, or should I use it to put a little extra into my loan payments? Right now I am just putting that money into a savings account. Basically, what should I be doing different in order to better prepare myself for the future?
- Kevin

The interest rates on your loans are low enough that if you’re considering buying a home in the next five years, you’re better off just making the minimum payments on your loans and saving for a down payment.

Here’s why. As the money sits in your savings account, it’s earning about 1% return. Then, when you go to make that down payment, you’re reducing the amount of your mortgage by some significant amount, which means that the money you invest at that time will essentially earn a return for you equal to your mortgage interest rate. The absolute lowest amount you’ll likely get for a mortgage rate is 3.75% (on a 15 year) – and in five years, I’ll almost guarantee it’ll be more than that, probably significantly more. If you don’t have the 20% down, you’re likely going to be taking on an extra loan at a higher rate or paying PMI, which means an interest rate higher than your base rate because you didn’t save.

In other words, you’re better off saving for that down payment now and paying minimum on those loans. Even if your plans do change, it’s still not an enormous loss if you choose to channel that saved money into debts later on.

Obviously, the best choice in terms of maximizing every dollar would be to live in the cheapest apartment possible, pay down your debts ASAP in order of interest rate, and then start saving, but that plan may exceed your time frame depending on what else is going on in your life.

Continue reading Reader Mailbag: Notes and Some Questions on the “Getting Things Done” Series …

From The Simple Dollar.

July 12, 2010 | Filed Under Frugal Living | Leave a Comment

Going Up?

Today, Seth Godin (one of my favorite bloggers who usually talks about marketing) posted a great piece about consumer debt. Two great excerpts:

Here’s a simple MBA lesson: borrow money to buy things that go up in value. Borrow money if it improves your productivity and makes you more money. Leverage multiplies the power of your business because with leverage, every dollar you make in profit is multiplied.

That’s very different from the consumer version of this lesson: borrow money to buy things that go down in value. This is wrongheaded, short-term and irrational.

It takes discipline to forego pleasure now to avoid a lifetime of pain and fees. Many people, especially when confronted with a blizzard of debt marketing, can’t resist.

Resist. Smart people work at keeping their monthly consumer debt burden to zero. Borrow only for things that go up in value. Easy to say, hard to do. Worth it.

The general point of the article is that any time you go into debt for something that decreases in value, you’re making a bad move. This is a pretty clear take on “good debt versus bad debt” philosophy and using that perspective as a central rule of thumb helps you to make much better choices about your money.

Virtually anything you put on a credit card is bad debt. The stuff you buy with a credit card is either consumed (like food, for example) or decreases rapidly in value after you buy it (like a DVD, for example). Once you own food, you eat it and it no longer has any value. Once you own a DVD, you open the shrink wrap, turning it into a used DVD, which has much less value.

Student loan debt is (usually) good debt. Provided that you finish a degree program, student loans are usually good debts because the value of the degree you bought with that loan is much more than the face value of the loan. As we discussed yesterday, an education has such a huge positive impact on your lifetime earning potential that it blows away the value of your student loan. Of course, this requires that you take schooling seriously and complete what you start.

A car loan is bad debt. An automobile decreases in value with every mile you drive it – it will never reclaim the original price that you paid for it. Yes, it does provide transportation which can help you earn more money, but in that case, you’re talking about absolute minimal transportation – a mid-’70s Honda Civic bought for a few hundred dollars from a junkyard will get you from point A to point B.

Mortgage debt is (sometimes) good debt. A home will usually hold its value over time and perhaps increase a bit, but a home mortgage still isn’t always a good debt if you’re paying more in interest than you would be paying in rent living elsewhere. You should always strive to minimize the amount that you “lose” each month to housing, whether it’s in the form of rent or in the form of mortgage interest.

Financing any consumer purchase is bad debt. Furniture? A television? A riding lawn mower? All of these things are often bought with a financing plan – and all of them are bad things to go into debt for because they drop steeply in value as soon as you buy them.

But I need all of this stuff that depreciates! If you need a lawnmower and can’t afford it, buy a very low-end push mower and start saving for a better one. You need only to mow your yard, so get the item that covers what you need, not what you want.

If you need a car, head to the used car dealership and look at the $1,000 section. You need only to get from point A to point B, so get the car that covers this basic need, not the shiny features you want.

If you need a new couch, head down to Goodwill. You need a place to sit, but you only want something shiny and expensive from the furniture store.

I don’t begrudge anyone a nice shiny car or a great riding lawn mower or some new furniture or a flat-panel HDTV. But those things cover your wants, not your needs. Don’t go into debt for them. Cover your needs, then save up for your wants.

The most interesting thing? Once you start separating your needs from your wants, you discover that you don’t actually want a lot of that stuff too much after all. If you have a working lawn mower, after all, the desire for a replacement is quite a bit lower.

Continue reading Going Up? …

From The Simple Dollar.

May 5, 2010 | Filed Under Frugal Living | Leave a Comment

Reader Mailbag: Golf

I spent a good chunk of yesterday attempting to teach my children (four and two years old) the fundamentals of golf. The results were interesting.

The younger one, my daughter, thought the best way to get the ball in the hole was to pick up the ball and put it in the hole.

The older one would swing every time with as much power as his little body could muster and would either miss entirely or knock the ball quite far, often much further than the hole.

Maybe they need one on one lessons.

I am searching for an excel spreadsheet template, or similar product, that will produce an combined amortization for several “parents plus” student loans. We have a total of five such individual loans, and we make a single payment monthly to Dept of Ed. that is applied over the several loans. They each have different Int rates, and staggered starting dates, as we have not consolidated the loans related to our youngest, who has one more year of college remaining. I would like to start snowballing (as Dave Ramsey would put it) these loans, and would like to chart the best candidates for prepaying principal, if that is possible.

I have looked at MS at Home, Templates, page and asked this question on a forums page, but did not see anytype of response.
- Sandy

If you’re looking for just a debt reduction calculator, I’d look at the spreadsheet available from Vertex42, a site that just makes lots of Excel templates. I downloaded it and it seems at least close to what you’re looking for.

If you’re doing that, though, it’s vital that you also prepare an overall budget so that you have some idea of what you can realistically afford to put towards the snowball. The best free spreadsheet for that (by far) is Charlie Park’s PearBudget spreadsheet, which is really good.

Excel really can do many of the tasks that you might want to use Quicken or other software for if you don’t mind manually filling in the data.

It’s older parents with dementia. When older people start with dementia they can’t handle their finances like they used to (or maybe worse than they used to). They often will hide it too. I have personally seen this in some friends and also in our own family. They will run up huge credit card debt which they think they can pay but can’t. The credit card companies will then take advantage of them by calling and demanding huge payments by intimidating them. Then, often, they don’t even remember authorizing payments and can’t make it until next payday. They let sorry family members and friends take advantage of them (with “loans”) because of their generous nature or because, in their mind, they still have that unlimited income. Sometimes a family member will move in with them “to help them out” when they are actually helping themselves to their income and free-loading. If would advise any responsible child of an older adult to keep their eyes open for clues that this could be happening. It’s hard to get the parent to admit it and a pure nightmare to get it cleaned up.
- Cindy

This is absolutely true. I witnessed this in my own family within the last few years, as my grandmother began to slip into dementia a bit during her final year or two of life.

She began making lots of strange choices, spending money in very strange ways, and often failing to make ends meet at the end of the month after having no problem whatsoever doing so for decades beforehand. It caused untold problems.

The best thing to do to prevent this is to talk about it now, before dementia ever even has a chance to begin. Plan for this with your parents. Come up with a power of attorney arrangement that allows you to protect your parents from themselves when the time comes.

Please would you let your readers know how you’re progressing with your Rubik’s cube challenge. I was really intrigued when you first mentioned this in The Simple Dollar.
- James

I can do most of the solving of a Rubik’s Cube very quickly. I can solve a single face in about twenty to thirty seconds and line up the adjacent rows with about another ten. After that, I get really, really slow for some reason.

The thing is that I haven’t really mastered (or figured out) about half of the solution, but I’m really fast at the other half. I’m not really sure why this is, other than I need to practice a lot more mostly at the second half of the solution.

I practice with it on occasion even now.

What are your thoughts on pre-paying a mortgage if the person does not plan on owning the house for very long?

I bought my place in Nov. 2008 and plan on staying here maybe another 5 years. I currently owe $143,350 on a fixed 30-year loan at 6.375%. Lately I’ve had an extra $100-200 at the end of the month, and I am trying to decide whether to pay down the mortgage or invest the money. I have no other debt, have a very comfortable emergency fund, and am maxing out my Roth IRA. I am 27 and single with no kids, so I am comfortable taking some risk with the money. I feel to some extent like I should be paying the mortgage off, but it is not a huge stressor for me, and knowing that I will never pay it off entirely is not really motivating me to put more money toward it. I think I would be happiest with whichever route saves/earns me more money in the end.

What I would love your help with is calculating how much I could save in interest vs. how much I could earn by investing at a reasonable rate of return (either way, assuming $100/month for 5 years). There are lots of amortization calculators online but they all seem to show savings over the life of the loan, not a shorter period. I am struggling with how to calculate this.
- Andrea

If you put extra money into your mortgage, you’re essentially buying an investment that says “I return 6.375% a year (or maybe less, depending on your tax situation) but I am very illiquid.” In other words, it’s a solid, steady return, but in exchange for that, you don’t have the opportunity to get that money out very easily.

As a short term investment (five years would be short term), the stock market is akin to gambling. It’s truly impossible to estimate how much your five year return would be in a broad-based stock investment. It might be 0%. It might be 15% per year.

If you’re looking for a very stable investment over that time frame, your mortgage is probably your best bet. Other highly stable investments don’t return as well as your mortgage does right now.

My husband took a buy-out/retirement offer from his work, after 33 years of service. He’s 51 and has wanted to retire for about 25 years now. (semi joking)

His original plan was to find a part-time job earning about $5,000. per year, continue to pay some taxes and contribute to Social Security. From what we were told, if he does not pay into SS, he will be penalized when he reaches retirement age.

He is loving his life right now and really has no desire to find a job. Is it possible to pay into SS on your own? We live quite well off his pension and have ample money to contribute to SS. I can’t seem to find this info anywhere!
- Kelli

For your husband’s situation, the comment that he has to keep working in order to receive Social Security benefits likely isn’t true. You need to check out the annual document you receive from the Social Security Administration to make sure, but it’s likely that if he has been working full time for 33 years, he’s accumulated more than enough work credit to earn his full benefit when he retires.

You might want to read through this great Social Security primer from CNN Money for more information on that.

If he doesn’t want to work and doesn’t have a financial need to work, working just to pay more into Social Security isn’t really necessary.

I’ve begun the search for a used car somewhere in the range of $7-12K. One problem that I feel I will encounter is how to pay for the car. I fear that I may not be able to get a loan with a decent rate, or at all, because of the fact that my debt is very high, even though I’ve never missed a payment, I wouldn’t have a co-signer, and my FT employment history is very short at only 4 months. Do you have any suggestions for finding a decent loan with a decent rate for someone fresh out of school?
- Andre

My first suggestion would be to get a co-signer. I had a co-signer on the first vehicle I ever purchased (thanks, mom and dad!); without it, my student loan situation (and likely my burgeoning credit card debt) would have made such a loan a complete non-starter.

If you don’t have anyone who can co-sign the loan with you, your best avenue is to just keep building your credit in a positive direction right now. Keep making your loan payments on time (each time you do this and your debt goes down a little, that’s a positive). You should also make sure you’re seeking out a full time position in terms of employment, both for the higher income and for the stability.

I don’t know exactly what your credit looks like, but you may be eligible for a car loan now. You might want to check your credit report from the government and then use a FICO score estimator just to see where you’re at.

I am in my early twenties, and for some time now I’ve been dating this man and things look promising. What worries me about him is that he has a “spender” mentality- he’s had his parents’ financial support for most of his life (and his mom’s pampering), and his idea of “holding back” is not spending who knows how much on collector comics, etc. His paycheck is small. He’s listened to me about reducing his spending (eating out once every week and a half is an accomplishment), but the root of the problem seems to be that he likes to own stuff- something I can’t wrap my mind around. It is not enough to watch a movie, for example, but the more fancy the purchase is the happier he is (HD, blue ray, etc.) In a few months he is enlisting in the armed forces, something I hope helps. Regardless of how this relationship turns out, what can I do to help him overcome this destructive mentality?
- Katherine

Very rarely can someone else force a person to change their behavior or mindset. The need to change has to come from within.

Maturity might be part of the answer. He might also need to hit financial bottom at some point, or have his pampering cut off from his parents. Something has to change for his mind to change and if he’s able to survive doing what he does now, he really doesn’t have that motivation.

The military might help with this, but it also might not make one bit of difference. It depends on how his mind processes what he picks up there.

The best thing you can do is keep your finances separate for as long as possible and don’t bail him out of trouble. Yes, it’s a “sink or swim” mentality, but if you give him a life raft, he’ll think he can keep on “swimming” the way he always has.

I knew that I had some old debt sitting in collections but I had been ignoring them, focusing instead on the current debt I’ve had. I recently pulled my credit report so I could focus on paying down these debts and was shocked at what I found. I owe over $6,000 to one hospital for medical expenses from when one of my daughters’ was a month old, and $2,500 to the medical group and hospital system we are a part of.

The hospital debt is broken up into 2 collections. At the time, we had Medi-Cal (low income health insurance in California) who said if we paid the first $1,800 they would pay the rest. I don’t know if that still applies because it’s gone to collections.

The medical group is a lot of little debts, ranging from $50-200 with only one debt being significantly higher than that ($700). I honestly don’t know what they were for at this point. The medical group itself doesn’t seem to care much because we still see them regularly and no one has even mentioned how much I owe or that I owe.

I really want to take care of these debts, but I don’t know where to start. I don’t get harassing phone calls or letters about these debts. I’ve been told that I can settle for less than I owe, but since it’s the same companies for multiple debts, I’m not sure how they would settle. I really want to pay these off, but I don’t know where to start. Right now I could pay lump sums on a lot of the little debts, paying one off every month. There is no way that I could pay off the lump sum of the larger debts right now and I wouldn’t have a lump sum to pay the $6,000 to the hospital for at least a year.

Do you have any advice on what to do with all this medical debt?
- Jacqueline

I’m going to assume that you’re committed to paying these debts off instead of just trying to dodge them.

The first thing you need to do is go through your records and figure out what all of these debts actually are. Make sure that they’re legitimate and not based on identity theft or other mistakes.

Once you’ve done that, call up Medi-Cal and find out if the debt consolidation still applies. My guess is that it does not if they’ve sold off the debt to someone else, but I’m not entirely sure what the situation is based on this question.

After that, you’re probably using the right approach in just paying off each of these debts as you can afford to.

Good luck. This is going to just take some time and patience to resolve.

I’m in my late 20’s and currently between jobs. I have no debt, no big financial responsibilities, and $75K in savings. I’m also in a long distance relationship with my boyfriend of 3 years. He lives in Europe. We are trying to be together, but it is very hard.

I moved to his country for a year to be with him. I had a job that I liked, but it was low paying and not something I’d want as a career. So I moved home, worked, and saved some money. He is looking to move here with me, but he is not as mobile as I am. I also live in a city that has a high cost of living, so living here on 1 income is hard enough, let alone no income.

Now I’m considering giving up on my local job search and moving back to be with him. I am not 100% certain that he is “the one”, but he is important to me and I am willing to give it a shot. My problem is that I know it is not a financially-responsible thing to do. We have talked about it and he is able and willing to support me. But I read blogs like The Simple Dollar and have many financial goals for myself, and do not like to be financially dependent on my partner. I could earn more working here than living and working in Europe – but then I would be without him.

Is this worth it?
- Ginger

If you have $75K sitting in the bank, there’s no question what you should do: go. Go there, get a low-paying job for a year, and just spend that time figuring out if he is the one for you.

If you are in a situation where there is a life-altering decision in front of you and you have at least some economic stability, you should always take the road less traveled.

If you don’t, you’ll regret it for the rest of your years, and that’s not something that’s worth holding in your head.

A background on me: 28 years old, no wife, no kids, great stable job. I now only have two pieces of debt: a mortgage with a $165K balance @ 5.25%, and a $21K student loan that still has about 15 years left, but it has an interest rate of only 2.13%. I now have about $7K in my emergency fund, good for around two months of expenses. I’ve also got about $16K in a brokerage account. I currently contribute about 9% of my $90K base salary to a 401(K) and my company throws on an additional 3%, and I also contribute another 4% to a Roth 401(k). On top of my base salary I get an additional $30K to $35K a year in cash and stock bonuses.

As of right now I have a little over a grand left to spend each month after all of my expenses. My question for you is, what should I do with it? Should I bump my emergency fund up a couple months? Pay down my mortgage? Increase the money I put in my 401K or my brokerage account? Surely I shouldn’t pay off the 2.13% student loan, right? Any help would be greatly appreciated!
- Nick

Again, this is all about goals. Where do you want to be in five or ten years? Your answer to that question changes what you should do here.

Do you want to switch careers or go back to school in five years? If that’s the case, you want to hammer your debts hard, as reducing your monthly expenses is the best thing you can do for that, and bolster your cash emergency fund quicker.

Do you hope to be considering marriage and children? If that’s the case, cash savings or even investing would probably be the best thing to do.

Do you hope to be earning as much as possible and be shooting for retirement as early as you can? I’d have every dime possible jammed into retirement accounts and what you can’t jam into there jammed into brokerage accounts.

It’s all about your goals. Where do you want to be in five years? Figure that out first.