Andrew writes in:

My girlfriend and I bought a home last year and qualify for the First Time Homebuyer Credit. When you include my share of this, I will be getting back around $4500 in my tax refund. This is a lot of money to me and I’m trying to decide what to do with it. About half will go toward an engagement ring, but I’m torn between investing the other half or paying off my $2,000 in credit card debt. I currently have a very low APR on the credit card and can pay more than the minimum each month. As a licensed broker, I am very involved with the markets and believe I can make 10-15% a year. If I can get a higher percentage return on the investments than the APR I pay on the card, doesn’t it make more sense to invest?

In essence, Andrew is comparing two rates of return here.

First, there’s his credit card. An investment in paying off a credit card has a guaranteed rate of return – the interest rate on the card.

On the other hand, there’s the stock market. An investment in the stock market might have a higher hypothetical payoff, but it’s not guaranteed at all.

Regardless of whether the year was 2008 or 2010, paying off a 9.9% credit card will net you a 9.9% annual return on your money. Alternately, if you were able to get a 10% return on your stock investments in 2008, you were an absolute magician.

The reason that the standard advice is to pay off your high interest debts before you invest is because paying off high-interest debts is a far better investment than the stock market. Why? That rate of return is guaranteed – no stock market investment is ever guaranteed.

Here, Andrew might argue that he can invest in the stock market and return a bit better than average. That may or may not be true – we won’t argue that point here.

Even if Andrew can beat the market by 2% at any given time, his investment is still tied to the ups and downs of the stock market as a whole. In 2008, when many indexes lost 40% of their value, Andrew would have lost “just” 38%, for example.

Obviously, then, the investment Andrew is talking about is a long term investment, one that will likely pay off with a profit over a long stretch of time. If he can actually beat the market a bit, it’ll earn him a tidy return.

But that’s still not a good reason to throw money in in the short term.

Here’s what I propose, Andrew. Pay off that credit card debt, then cut up the credit cards until you can use them without accruing a balance. Then head down to your local bank and set up an automatic withdrawal from your checking account equal to the amount you were paying on the credit card debt. Channel all that money into your stock picking expertise.

If this is truly a long-term investment – and that’s when most people should invest in stocks unless they’re actively day trading – then it doesn’t matter exactly when you get into the stock market. Putting in a bunch of money now versus putting it in slowly over the next year makes little difference when you look at a fifteen year timeframe with unknown ups and downs.

Good luck.

Jenny writes in:

I work at an office park about forty five minutes from where I live. I live in a highly populated suburban neighborhood.

In order to save some money on gas and wear and tear on my car, I want to start a carpool, but I don’t know anyone who lives near me who works in the office park. I don’t mind stretching my hours a bit to make this work, as I could go in with them a bit earlier and do some busywork (email and the like) to start the day or read a book at the end of the day.

The only problem is I don’t know how to get this kind of thing started and I don’t have any obvious people to ride with. Any ideas?

Carpools are a tremendous way to save money. My wife is in a (semi-functional) carpool with a coworker and often has a ride to work two days a week. We estimate that it saves us at least $100 a month in gas and maintenance costs. It would be truly great if she could get another person or two into the carpool.

How can Jenny get a carpool started in her situation? Here’s the game plan I would use.

First, I would make up a very clear flyer that stated my first name, my cell phone number, and the fact that I wanted to start a carpool from the neighborhood or city where I lived to that office park. I’d probably make some “tear-off” tabs on the right hand side of the flyer so that people could yank the number off and put it in their pocket. Put “car pool” above the number.

I would then take a copy of this flyer to each office in the office park. There may be a lot of offices there, so you may need quite a few copies. Ask for permission to hang the flyer on the office bulletin board in each of those offices. Given your situation, I would imagine most would let you do this.

Ideally, you’ll get a few calls within the next few days. You’ll need to get some key information from each person, so you may want to carry a notepad with you.

From each caller, get the following:
+ their name
+ their cell phone number
+ their address (so you can map their location)
+ their approximate work schedule (so you know when they would need to depart/arrive)
+ any “special” days they have (like my wife’s carpool, where it doesn’t happen on Fridays due to a special need of her carpool mate)
+ what types of vehicles they have and how many it can seat

Once you have this information from a few callers (give it a few days), set up a schedule. Figure out a departure time (both from your town and from the office park) that works for everyone (or at least for the largest number of participants). Also, figure out a rotating driving schedule.

Once you have this information, call each person in the pool back and let them know when the pool will begin. I highly recommend you drive the first day.

When you do the first day, pick up the other people on the route and give each person a list of addresses, phone numbers, and schedules for everyone in the pool. I recommend that you make the schedule as simple as possible, even if it inconveniences you. The best way to do this is to say that Person X drives on Mondays, Person Y drives on Tuesdays, Person Z drives on Wednesdays, and Person A drives on Thursdays, with Fridays handled on a rotating basis. If you have five people, this is really easy. If you have three people, have Thursday and Friday rotate. If you just have two people, have each person drive two days and have Friday rotate.

Yes, this is a lot of set-up work. But you’re the one who has the initiative to start the carpool and you will save a lot of money on it. It may take a bit of extra effort in setting it up and an occasional headache when someone is sick, but it will be worth it in the large savings you get, especially with a four or five person carpool.

Good luck!

Mary writes in:

My husband and I have been debt free for seven years. Hooray! We cancelled all of our credit cards in 2001 and paid off our home mortgage in 2002.

A few weeks ago, our homeowners insurance premium went up substantially. I called our agent to ask why and he told me that our premium was automatically raised because our credit score was low.

I got worried and checked our credit report at annualcreditreport.com (as you suggested before) and found nothing at all on our credit report. So, I called our agent back and told him the story. He did some follow-up and found that because we didn’t have any outstanding credit of any kind on our credit report, they couldn’t verify that we were responsible payers, thus we were placed into a higher risk category.

This seems nonsensical! I am shopping around for new insurance but I wanted to know what you thought of this policy.

Obviously, on an individual level, this is nonsensical. A person with no debt at all and a long history of never having debt is the type of person that ought to be considered a great client for an insurance company. I can’t think of anything that screams “stable and reliable” than a person without any debt.

Yet, if you step back and look at the broader view of society, this policy does somewhat make sense.

First of all, the insurance company has to have standard rules and practices for setting their rates. They have to know cold the risks associated with different factors, from the color of the car to the reliability of the driver. When they know these risks, then they can calculate the exact rate to charge to simultaneously be competitive with other companies and earn a profit for themselves.

Hand in hand with that is a society that lives and thrives on personal debt. Between automobile loans, student loans, consumer loans, mortgages, and credit card debt, the vast majority of Americans possess some form of debt in their lives. Given that as a baseline, it’s reasonable to argue that a person who pays their debts in a timely fashion is more reliable – and thus less of a risk – than a person who does not.

That information is packaged up nicely in our credit reports and usually calculated down to a single number that represents how efficient we are at paying our debts – our credit score. Insurance companies will often take this score and run with it, using it as a basis for determining our premiums.

Unfortunately, a person’s credit score is higher if they have small, reasonable debts and always make their payments instead of having no debt at all.

The next question, obviously, is how can a debt-free person improve their credit score without getting into additional debt? There is no easy answer to that question.

The simplest solution is to simply use credit for the most routine of purchases – groceries, gas, and so forth – and to pay off that debt in full each and every month. One way to do this – to keep things under control – is to simply get a credit card at your preferred gas station, use that card just to fill up on gas and nothing else, and then pay off the card each month. So, for example, you might have a BP card, and you would only use that card at BP.

A second option would be to stop by your local credit union and talk to a loan officer. They may be able to develop some form of no-risk personal loan for you based on using some of the assets you have as collateral. You then just leave the money at the credit union in an account and have all payments for your loan deducted from that account. If you have such assets, the actual cost of this would be minimal.

Yes, society has stacked the deck a bit against people with no debt, as there are many financial incentives to carry debt. With a little clever thinking, though, such risks can be pushed back.

I thought I’d update you on my progress with my 2010 resolutions.

Resolution #1: Lose 40 pounds I lost three pounds in January, so I’m more or less on pace with this one. My biggest challenge here is the weather, which makes it very difficult to just get outside and take a long walk, something I love to do every day when the weather is nice.

Resolution #2: Pay cash for a replacement for my truck I have an adequate amount of cash ready to go. I’m just merely waiting for the right replacement vehicle to come along. Oh, and I’ve had additional truck troubles in the last month, so I have even more incentive to switch.

Resolution #3: Learn to play the piano After testing out two piano teachers, I’ve been taking weekly hour-long lessons from a teacher for the past three weeks. I’ve also been practicing a lot at home. So far, I can read most simple sheet music if I go slowly and I can play a few simple songs at a reasonable tempo.

Resolution #4: Reduce my entertainment and hobby spending by 50% This is going really well so far, as I spent just a few dollars on entertainment in January. If the rest of the year goes anywhere near this well, this one will be easy to do.

So, to put it simply, #2, #3, and #4 are very much on pace, and #1 arguably is. I’m pretty happy with that.

Here are some personal finance posts to enjoy.

Star Trek and The Time Well Spent Continuum In the last Reader Mailbag, I argued that MMORPGs like World of Warcraft and Star Trek Online could be potentially good ways to reduce your entertainment spending. This article actually makes the opposite argument. (@ debt free adventure)

The Hypocrite Test: Should Rich People Pay More? As with many such fundamental political issues, I think there are valid arguments on both sides of the coin and that some reasonable compromises can be reached. The only problem is that people don’t sit down at the table and rationally discuss such issues today – instead, they resort to arguing, insulting, and “straw man” representations of the opposition. I have little interest in that, whether it’s Keith Olbermann or Glenn Beck – I wish they’d both shut up. Whatever happened to the Lincoln-Douglas debates? Such thoughtful coverage of the issues of the day went away with the advent of fifteen second news blips. (@ awake @ the wheel)

Does Renting Make Sense? J.D. pulls out the P/R ratio to take a look at whether renting is more worthwhile financially than buying. The problem, though, is that it doesn’t really take into account individual financial situations. (@ get rich slowly)

How is disorganization and clutter affecting your job performance? In my own case, I notice a serious downturn in productivity when my office gets disorganized and messy. I’m far better off just stopping for a bit to get things in better order than I am just charging ahead. (@ unclutterer)

Iris writes in:

I was wondering if you could comment on the debt reduction/elimination ads I keep seeing on tv. Are these companies reputable? Are they doing anything that I can’t do myself? I would hate to pay a huge fee for something I could do myself. I would really like to reduce our debt load so I can free up more funds in our budget every month for, say, groceries. Advice?

The first and most important thing to note is that not all debt reduction and elimination programs are the same. Although they’re often collected under the same grouping, these programs tend to provide an array of services.

Unfortunately, all of the services provided are either dangerous or easily replaced by free materials.

One common service provided is education inhow to pay off debt. They explain, in great detail, how to create your own debt repayment plan and stick to it. They provide workbooks and other information to make the process as painless as possible.

The catch here is that you’re paying a lot for materials that can be found at the library or online for free or even at your local bookstore for a much lower price. If this is what you need, start off by checking The Total Money Makeover out of the library.

Another common service provided is direct management of your debts. Instead of teaching you how to make a debt repayment plan, they essentially take charge of all of your debts, do it for you, and provide you with a single monthly bill.

The catch here is that the fee for their service is often very high, usually running into the thousands of dollars. Considering that a person can make up such a debt repayment plan themselves for free, this is a pricey service. There can be some merit here, though, if a person simply wants an “enforcer” or a “coach” to help them do it.

A third common practice is renegotiation of debts. This is often the tactic used by programs that promise very rapid elimination of your debt. They’ll negotiate your debt for you, often functioning as a debt collection agency themselves, then you pay them a lower, negotiated amount.

The catch here is that this functions as a nuclear bomb on your credit report. Your credit score will be in the trash for years if you take this approach. The actual amount you have to pay for this debt is less, but any debts you take out in the next seven years – or any insurance you take out – will cost you more, and any applications you make where your credit report is used as a factor will not reflect well on you.

In short, all of these plans do what they advertise, but they often cost far more than they’re worth.

The key thing to remember is this: no debt reduction or elimination plan is worth anything if it’s not paired with a sincere, long-term change in your own spending. If you’re merely using these services to give yourself some breathing room without changing your spending behaviors into a more frugal spend-less-than-you-earn attitude, it’s just a matter of time before you’re back in the same boat again – and often in worse shape if you’re back in this boat with poor credit.

On the other hand, if you first get your personal spending habits into shape and truly go forward with a “spend less than you earn” mindset, you can handle the debt repayment plan yourself. They’re easy to set up, won’t destroy your credit, and don’t cost an arm and a leg, either.

Good luck.

Chris writes in:

We are friends with another couple that is around our same age, income level, status, and number and age of children. When I was mentioning to them that we were planning to pay off our car this year (leaving us with our mortgage and a small student loan) and the starting to put $50 to $100 per into 529s for each of our kids (currently aged 1 and 3), she mentioned that they were not starting 529s, but rather had a different philosophy….. They were going to contribute up to the company match in the 401K, max out a roth IRA (every year) and then pay off their house in 15 years, which would be just when their oldest is about to start college. Then they would use any excess from their income (that was now free because they no longer had a mortgage) in order to help with their child’s education. She also mentioned that she did not believe that her children would qualify for much (if any) financial aid. This would be the case for us as well. We are currently putting approximately 10% into our 401K and we plan to put approximately $3,000 per ear into a Roth IRA starting this year. Can you comment on what might be the pros and cons of either financial philosophy? I suppose that I should also mention that I do not forsee us having any issues with having enough $ for retirement and my philosophy is that I would like to contribute to 25-33% of my children’s college costs.

First things first: with all things being equal, you’re better off putting your money into retirement savings than into college savings. There are several reasons for this.

First, your children can make college happen even if you don’t have a dime saved for them. Between student loans, scholarships, and other aid, most students who are accepted to a school will be able to find some way to go there. They may end up with a lot of student loans in the process, but it won’t prevent them from getting an education.

On the other hand, you can’t make up for missed retirement savings. Nothing can undo missing the early years of your retirement plan, because those are the years when compound interest is at its most powerful. The money you put away right now will be much more valuable than any money you put away in your 50s or 60s.

Another factor to consider is that many retirement plans allow you to “borrow” against them for educational expenses. You can withdraw some amount, agree to a repayment schedule, and use that withdrawn money to help pay for your children’s college education.

A final note: if you haven’t saved adequately for college, you may end up being a financial burden for your children late in life. You might not ever ask them for money, but they’ll see that you don’t have much money and will stretch their wallets to help you when they can. I have seen this many, many times.

In short, if you’re unsure, I recommend saving for your retirement over saving for your child’s education.

The next question, then, is why should one ever save for their children’s educational expenses?

We’re saving for that purpose. That’s because we have plenty of money to save at this point – our retirement savings are fully covered, plus we have extra money beyond that to push towards long term goals. One of those long term goals (for us) is to pay for some significant portion of our children’s college education. After doing the math, we decided that saving $100 per month for each child from the day they were born to the day they leave for college is the best bet.

In other words, if you can save for college without short-changing your retirement, go for it.

What about that third factor, though? Where does paying off your house rank?

When it comes to using your home as an asset for college savings, you’re betting on two things. First, you’re betting that the payments you make on your home mortgage are more financially efficient than money socked away in your 529. If your mortgage interest rate is 6%, then your money channeled into that is effectively earning a 6% return. If you put that amount in a 529 instead, you could earn more or less than 6%, depending on your investment choices and the risk you’re willing to take on.

The second (and more challenging) bet comes later, when you want to tap your home equity. You’re betting on the interest rates at that future date, because your loan will charge you some interest rate. Will you need the money at a time like today, where the Federal Reserve is keeping rates low? Or will you need it at a more challenging time, when interest rates are higher?

If saving for college is important to you and your family, I would probably do things in this order: retirement savings, then college savings, then mortgage.

One final note: I would never rely on future earnings to pay for college education. Our lives are far, far too uncertain to bank on your professional income in fifteen years as a source for college savings – or savings of any type. People radically change careers. People are downsized. People are disabled. People stumble into great opportunities. These things happen all the time. To bet on stability there would be the biggest gamble of all.

Good luck.

You read that right. Shade trees.

One of our plans for the spring is to plant a shade tree or two on the southwest side of our home. These trees won’t be very large now, but in several years, they will grow to a reasonable size, providing some nice shade on summer days when our children are about ten years old or so.

Originally, we decided to do this purely for aesthetic reasons. Both Sarah and I grew up in the country in houses surrounded by trees. We sat under them to read on nice spring days. We climbed them. We used tire swings hanging from lower branches.

In short, we loved the trees around us and want trees around us now. We have a few small trees in our yard, but they’re all of the very slow growing variety, so we decided to plant a couple fast-growing varieties to balance it out.

What surprised me is the number of ways in which these shade trees will pay for themselves over the years.

Energy savings A shade tree on the south or west side of your home can trim $25 a year off of your energy bill. It works for the same reason that you feel cooler in the shade in the summertime. Large trees block the sun’s rays from reaching your home, making it easier to cool your home during the hot summer months.

Increased property value A healthy, well-maintained shade tree in the yard provides additional value to your property. The Christian Science Monitor reports that trees add 7% to 25% to a property’s value merely by being present. If you plan to sell in ten years or so (as we do), a fast-growing shade tree can really add to the value of your home.

Increased composting and mulch For us, those fallen leaves are golden. We’re proud composters and leaves compost beautifully, turning fall rakings into spring nutrition for the garden and lawn. Much of the nutrients provided by leaves comes from deep soil, far below the level of grass and garden, so it’s much more than merely recycling the same nutrients.

Reduced mowing area Once the tree is planted and appropriately bordered, the tree reduces the square footage of mowable space in our yard. While the change is a small one, it’s a small one that’s repeated thirty or forty times a year for a decade or so. That adds up to gas, oil, and wear savings on the lawnmower.

Sap Our primary choice for a fast-growing shade tree is a red maple, which has the secondary benefit of producing delicious sap in the early spring before it buds. That sap, when boiled down, becomes amazingly delicious maple syrup, which can be stored for use throughout the year. Although this is more of a “hobby” choice, it will save us from buying syrup for our waffles and pancakes.

These items exclude the tertiary benefits of having a tree in your yard: aesthetic appeal, shade, environmental benefits (trees clean the air), and so on.

Yes, trees add work to the equation. I’ll be out in the yard raking and storing leaves in the fall, which is certainly a time cost, since I could be doing other things. Yet, quite often in the fall, I spend multiple days doing winterization tasks anyway, and as my children grow, these are the types of tasks that easily become family tasks.

If you own your own home, consider planting a tree. It’ll end up being well worth it in the long run.

This is Reader Mailbag #100. With this mailbag, I’ve decided to start naming the mailbags based on an interesting question or two answered within the mailbags, making it easier to find such mailbags (in theory).

I refuse to buy gas from BP [due to various political reasons]. In my town, however, the BP station almost always has gas prices that are a nickel per gallon lower than the prices at other stations.

As a frugal person, I’m constantly torn about whether or not to go back on my stance and save a dollar or two on each of my fill-ups. At the same time, I really don’t want to buy gas from BP. Do you have any thoughts or guidance here?
- Shane

(I excised Shane’s political reasons because they’re not really germane to the discussion and they would cause a long political sidebar that doesn’t really need to be brought up.)

To put it simply, Shane, you’ve reached the very point where you’re putting your money where your mouth is when it comes to political beliefs. Are you directly willing to put your dollars on the table due to your political beliefs or do your more direct needs (saving money) supercede it?

This is pretty much entirely an internal issue. Do you believe in these political causes deeply enough to literally start putting your dollars on the table for it? I can’t answer that for you, but I can say that it’s never a cut and dried issue for anyone because everyone has different experiences, different values, and different ideas.

There are certain stores and businesses that I will not give my business to for various reasons, political and otherwise. Usually, the reasons have to do with atrocious customer service or poor products, but I can think of at least one case where I made the decision to stop using a particular company’s service because I didn’t like their overt sponsorship of certain political activities. I don’t really care whether or not it costs me a few dollars because it’s tied to a belief I hold quite dearly.

You need to ask yourself how deeply you truly hold these views – it’s not a question I can answer for you. I’ll just say that I think it’s perfectly reasonable to not spend your money at a business that engages in practices you don’t believe in.

What do you think of MMORPGs like World of Warcraft as a frugal gaming option?
- Emily

Games like these require a monthly fee to play – in the case of World of Warcraft, it’s between ten and fifteen dollars – which is a bad thing. However, the good aspect of such games is that the amount of gameplay available is enormous, plus such games also develop a strong social pull because of the interactions with real people.

If you assume that playing such a game slows a person’s other gaming purchases down significantly – from, say, a new $50 game a month to one per quarter – then it’s obviously a good way to save on a hobby that a person enjoys.

The danger with any such game, though, is overplaying. The social connection – the fact that you’re playing with friends and people you know – often adds a “keeping up with the Joneses” mentality, which means that people can often get absorbed into playing such games excessively. You play and play and play in order to socialize and also to one-up your friends with various in-game achievements.

If MMORPGs like World of Warcraft are played a reasonable amount and result in decreases in the overall entertainment budget of a person or a family, I say they’re a good thing. However, if they are overplayed and cause disruptive behaviors or simply beocme another bill tacked onto spending that isn’t cut in other ways, they’re a problem.

I’m a fifty four year old widow with four adult children. A year ago, my husband suddenly died in a vehicle accident. He left behind enough life insurance money to pay off everything and to give me some time to figure out what’s next in my life, which was a blessing. I decided to sell our house and move closer to my sisters and our children.

Now, though, it’s time for me to start over with things. I haven’t worked at all in thirty years and I simply don’t know how I’ll ever find a job in the working world without any experience at all. Do you have any suggestions?
- Lily

Your best approach as you re-enter the workplace is to be very clear and straightforward about your experience. Don’t hide it. When you’re asked to provide an employment history, tell your situation clearly. Don’t try to hide it or anything like that.

It sounds like your financial situation doesn’t require you to immediately work, but that you’re going to need to work in the coming years and you find yourself in a psychological position to be ready to go back to the workplace. What you choose to do likely depends both on your financial needs and also on what your interests and talents are.

If you’re seeking entry-level work to fill the hours, you likely already have everything you need to find work. If you’re seeking a position with higher financial rewards, however, you may need to go back to school in some regard.

The real question is what do you want to do? How would you ideally like to fill those working hours in the coming years? Spend some time thinking about it and come up with an answer that’s true to you and your skills and talents and interests. Once you know what that is, go for it – it certainly sounds like you have the resources you need to make what you want out of this situation.

One of my family members actually found herself in a very similar situation. She found an entry-level job and spends her spare time pursuing freelancing opportunities that relate to her hobby, which is a form of art. She’s absolutely happy with the way she fills her hours.

You sometimes review books that are pretty far from personal finance. How do you decide whether or not to review a book on here?
- Shawn

I mostly use my gut. If I see a lot of material in the book that I think is in some way connected to what I talk about on The Simple Dollar, I’ll consider reviewing the book, no matter what it is.

So, for example, I consider time management to be a very relevant area, because the more effective you are at managing your time, the more time you have to earn more money or to simply enjoy what life has to offer for you. I feel similarly about books on psychology issues, particularly common issues among the people I know. We all seek happiness, after all, and money is just one tool to help us get there (or keep us from it).

There are many books that I pick up and think, “There might be something in here relevant to The Simple Dollar.” When I read books like that, I usually consider them personal reading and don’t read them during my work times. I save my reading during that time for books I’m much more confident about in terms of their focus on personal finance and career issues.

Basically, if I find something interesting in a book or think it’s relevant in some way to the things I talk about on The Simple Dollar, I’m likely to at least consider reviewing it, no matter what the book is.

My brother believes strongly that the U.S. dollar is about to collapse. He is buying lots of gold coins and other such things. I bacially think the entire thing is ridiculous, but I’m curious as to how you would prepare if you believed the dollar was going to be worthless in a year.
- Ann

I wouldn’t buy gold, for starters. If the dollar suddenly enters hyperinflation or something, gold won’t suddenly become the currency du jour on the street.

What do I think will be the currency you need? Food and skills. I would focus my money and energy on stocking up on non-perishable food items as well as useful skills. I’d probably practice my home repair skills and carpentry skills by fixing my home up as well as I could.

I would also focus on as much self-sustainability as I could, setting up a backbone for it. I’d buy a generator – but that’s something I intend to buy for myself anyway. I’d probably buy a wind turbine, especially if I lived in a rural environment.

I’d start growing a lot of vegetables and items that were very easy to replicate and sustain on my own – potatoes immediately come to mind. I wouldn’t worry that much about non-hybridized seeds because, frankly, it takes a lot of skill to not have them go to waste.

In short, I’d make sure that my family had the things they needed to make it through rough years – food, shelter, water, clothing, and so on. Gold might help, but I tend to trust actually having the food on my shelf a lot more than I trust having an investment.

Of course, I already do a lot of these things. We have a lot of food in the pantry. I know how to garden and produce plenty of food. I have quite a few tradeable skills that would pop up in that situation.

Would The Simple Dollar ever endorse a candidate for political office?
- Willie

Unless Amy Dacyczyn decides to make a run for the Senate, no, I wouldn’t endorse a candidate.

Here’s the flat out truth: I don’t believe that either major political party actually has my interests at heart, nor the interests of most of you reading this. The current political climate doesn’t do much at all to reward people who are truly careful and thoughtful with their money.

A person who is debt free with a lot of cash on hand would want things that would be political suicide today. They would want the Federal Reserve to jack up interest rates – this would make the most secure investments, like CDs and treasury notes, return a lot more. Of course, that would also make all debts have a much higher interest rate, which would be devastating to people who spend money like water (and the businesses that rely on such spending). I’d want the elimination of the capital gains tax (which I guess would be more like the Republicans in theory) but I’d also want more security for my cash investments, like better FDIC insurance (which I guess would be more like the Democrats in theory).

In truth, neither party speaks to the financially responsible and frugal among us. If a candidate arose that truly spoke along those lines, it would be political suicide for them. However, that candidate might actually get an endorsement from me. Good luck with that, though – I don’t believe a lucrative Simple Dollar endorsement would really help against a wave of negative ads funded by big banks and large manufacturing companies.

What do you consider to be an excessive emergency fund? My husband and I have more than a year’s worth of living expenses in cash savings. We don’t have any children living at home with us any more. We have no debt and we both have solid jobs in careers that are at least somewhat in demand.
- Andrea

In your shoes, I would consider an emergency fund that large to be a bit of an overkill.

However, there’s another really important factor in play here. Does the emergency fund make you feel more secure? Does it help you or your husband to sleep better at night knowing your money is safe?

I don’t see any problem for risk-averse people to keep a lot of their money in cash. It might simply be that your husband is very risk averse and he does not relish the idea of putting the money at risk in the stock market or the real estate market. To me, that’s thoroughly understandable.

Sit down and talk about it. If it’s the risk that you’re worried about, consider putting some of the money into inflation-protected treasury notes from the U.S. Treasury Department or buying some CDs with some of that money. You maintain the security you have – owning things that are fully backed by the federal government – but you at least earn a bit more than you would in your typical savings account.

My brother makes amazing homemade wine in his basement. He’s won several tasting contests with his wines and I think he should get into the business of selling it and producing larger quantities of it. Every time I bring it up, though, he really doesn’t seem interested in it, but he’s obviously deeply passionate about the wine making. Do you have any suggestions on how I could convince him to turn this into what would be a surefire business?
- Donald

First of all, it may be that he simply doesn’t want to turn something that is a fun hobby for him into something that is his life’s work. Another issue might be that he has zero interest in the business side of winemaking – things like cataloguing inventory, selling the wine, paperwork, and so on.

Sit down with your brother and see if you can figure out what he wants to do with it. If he does have some interest in expanding but he’s held back by a lack of interest in handling the business side of things (something that many hobbyists feel), perhaps you could help him to find a business partner for the endeavor.

Work through what his concerns are before you do anything else. If he simply loves it as a hobby, let it be. If he does have true interest in making something happen but is held back by some specific fear or concern, do what you can to make that concern go away.

You obviously believe in this wine that your brother makes – if nothing else, just make that really clear to him, because even if the business doesn’t happen, such genuine care will really mean a lot.

My twenty seven year old son still lives at home. He was laid off from his job in early 2008 and moved back into our home for what was supposed to be a short period while he looked for work. He’s no longer bothering to even look for work. Most days, he just sits down in the basement in his pajamas, surfing the web. I don’t know what to do.
- Chloe

Obviously, something needs to change about the current situation or else it will continue for a very long time. That change might come from within him, but that could take a long time and is wholly unreliable. Most likely, you’re going to have to provide the change in the situation.

One common method is to simply lay down an ultimatum – make him move out. Many parents are loathe to do this because it would likely mean that their child would go through a very rough period, potentially even including homelessness. Alternately, you can allow him to stay provided he meets certain criteria – he looks for a job a certain number of hours a day, he sends out so many resumes a week, or he gets involved in something that pushes him toward career progress (perhaps going back to school or something along those lines).

This situation needs a wake-up call, but that wake-up call can take a lot of different forms. If you want something to change now, you’re going to have to be the one to provide the wake-up call. If you “can’t” do it because you’re too worried about the consequences of it, then you don’t truly want change now.

Really, the decision is up to you far more than it’s up to your child at this point.

Spring training in baseball is about to begin. What are your predictions for the coming season? Let’s see how good of a prognosticator you are.
- Jimmy

OK, here goes.

AL playoff teams: New York, Boston, Minnesota, Oakland
NL playoff temas: Philadelphia, Los Angeles, Saint Louis, Chicago
World Series champions: New York
NL MVP: Albert Pujols
AL MVP: Joe Maueer
NL Cy Young: Tim Lincecum
AL Cy Young: Ben Sheets (seriously)
Stories of the year: a big turnaround in Oakland thanks to Sheets’ veteran leadership of a bunch of talented young guys, Pujols chasing 61 home runs, and a current Hall of Famer confessing to steroid use (I have three possible names in mind)

Let’s make fun of these predictions in November, shall we?

Got any questions? Ask them in the comments and I may address them in a future reader mailbag.