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. How to find a housemate
2. Getting neighbors involved
3. Building credit from nothing
4. Charities and taxes
5. A 203(k) mortgage
6. Suggest some board games
7. Investing extra money
8. Writing online for money
9. Giving up cable for Netflix
10. Dealing with bad credit

Due to some medical results and the recommendations made to me because of them, I’ve been eating a plant-based diet for a month now (that’s right – no meat or animal products, at least as far as I could reasonably tell).

It’s actually been easier than I thought it would be. The first two weeks were the hardest. At this point, I’m not really bothered by it at all, though cheese still sounds really good. I really wonder if I’ll feel the same way in a few months.

Q1: How to find a housemate
I have thought about this for about a year and I think I am finally ready to rent out a spare room in my house. I have a 3 bedroom, 1 bath home near Pittsburgh PA. The house and room are great: can be fully furnished, lots of living space, large yard and ample off street parking. The problem I am having is how to go about finding a housemate. I have asked all my friends and family if they know of anyone looking for a place, unfortunately no one does. I put an advertisement up on craigslist. I put really nice pictures and tried to showcase how large the room was and hardwood floors. I had a few people interested, but no one ever showed to see the place. Do you have any suggestions on where I can list my room? Or should I just keep posting on craigslist? The room is 120 sq feet with a large closet and ALL utilities are included for $450 a month.
- Barb

If the $450/month rate is comparable to what similar rooms are renting for in your area (and Craigslist can help you figure this out), then the problem is probably with your salesmanship.

If you say “you get a 120 square foot room,” that’s going to sound like a prison cell to some potential renters. What other amenities is the person going to have if they rent the room? Will they have bathroom access? What about a kitchen? How much is the square footage including the closet? Is there parking available? What other amenities are nearby?

If you want renters, accentuate every positive you can think of about the room and the area you’re in. You want to entice them to check your room out.

Q2: Getting neighbors involved
I live in a high-rise in suburban NJ — great building, nice neighbors, love my apartment — we’ve just been told that due to neglected maintenance, we’re being hit with a special assessment and the recent condo board meeting was not pleasant.

I’m very interested in frugality and going green, both for the planet and to save $$$$, but am stumped as to how to make this effort larger than just my one-bedroom.
- Jay

If you have a good relationship with your neighbors, talk to them about fixing this “neglected maintenance” problem together from a saving money perspective, as it’ll help everyone involved not only avoid future assessments, but also likely reduce their own cost of living.

I’d start the ball rolling by talking to the neighbors you know the best and seeing what they think. If they’re all positive, have a meeting somewhere and come up with some plans for addressing it. You can utilize the condo board meeting or do it on your own.

I would advise not pitching the “green” aspect of this as being environmentally conscious is apparently very politicized and can get a very negative response from some, as has been my experience recently.

Q3: Building credit from nothing
I am a recent college graduate who is engaged to be married in June of 2011. My fiance also also graduated recently and was lucky enough to obtain a job making 50,000 to 60,000 dollars a year (varies based on the availability of overtime). I have not found a full time teaching job yet and currently make approximately 1,500 dollars a month working part-time. Financially, we are doing well and have about 18,000 dollars in savings. Our only debt is my student loan debt; he has none. The problem we are facing is credit. We want to buy a home before June; however, my fiance has absolutely no credit to speak of. I have been building my credit since I graduated highschool but have no full time job. The mortgage broker we spoke to practically treated us like children and left us feeling pretty hopeless! I feel like we have spent the last year putting the pieces of a puzzle together to realize we were missing the center piece! Without rambling any longer, my question is: What should our next step be? Try to build his credit (he has been denied a loan, credit card, etc)? Wait until I secure a full time job? Your input would be greatly appreciated!!
- Priscilla

You will have some difficulty building a strong credit rating for your partner before June, no matter what you do. A strong credit rating comes from having a long positive credit history.

The best way to get the ball rolling on that, of course, is to start immediately. If he has already been denied for a loan and a credit card, his best move is probably to attempt to get a secured credit card. A secured credit card basically means that he pays the credit card holder a deposit in advance of getting the card, which protects the issuer from this person with poor or no credit from charging up the card and then refusing to pay.

Get that card, then use it regularly for some routine purchase, like gas, and then pay the full balance off each month. What you’ll find is that over time, his credit will improve and he’ll eventually be able to get an unsecured card.

The key is for him to keep paying his bills on time. Gradually, his credit will go from nonexistent to good and he’ll be eligible for other loans.

Q4: Charities and taxes
I made some contributions to a charity for a few years. I stopped giving to this charity about 3 years ago. I want to know if I can still claim tax benefits.
- Javier

Sorry.

IRS Publication 78 reports the following:

Contributions must actually be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method.

In other words, to claim a deduction on your 2010 taxes (due next April 15), you have to make the deduction within the 2010 tax year.

Q5: A 203(k) mortgage
I have been dating a wonderful girl for the last 6 years and we have recently gotten engaged. Now that we are engaged we can seriously consider one of the things that I have looked forward to for a long time, getting married and buying a house. I have been doing a lot of thinking on the matter and I have developed some questions. Currently she lives with her parents and I live with mine (it is a great way to save money) and we are both financially responsible as we are on aggressive plans to pay off our student loans as well as saving for retirement and the short term. I feel that I have a good idea of what we can reasonably afford without putting us in a bad spot. Let’s say we have $10,000 for a down payment.

So one might say that buying a ‘fixer upper’ is a no-brainer for someone like me….The problem: How does one finance these expenses? I am still in the early stages of my research on mortgages and buying a home (hence this email.) One thing that I found interesting is the FHA 203(k) mortgage, it appears that with some restrictions and a few steps, the government will back the mortgage, which will be more than the cost of the home, to allow for repairs. To me the 203(k) loan sounds like it’s right for us but I am hesitant. The information on HUDs website is informative but I need an opinion. Another option would be to put a small percentage down on the home and take the remainder of our savings and put it toward the upgrade costs. The problem with this is the time it might take to get the upgrades done. What are your thoughts on the matter? I feel that either way we are looking at an $80-$100k mortgage but the difference in houses could be big (given the potential cost savings of doing the work on our own.)
- Bill

A 203(k) loan is more or less what you describe. A lender lends you an amount greater than the value of the home (but backed by the government), with the additional money going to make repairs on the home. Ideally, this brings the value of the home up more than the costs of the material for the repairs (you’re adding sweat equity).

There are some risks here, though. The big one is that if you’re unable to follow through with the repairs for whatever reason (health, etc.), you’re underwater on that mortgage. You’ll owe more than the house is worth if you can’t put in your own sweat equity.

If you’re willing to accept that risk – and it sounds like you’re in the best position you could be to accept it – then I’d go for it. It’s a great opportunity for someone with home improvement skills to turn those skills into home value.

Q6: Suggest some board games
Some friends of ours invited my husband and I to dinner a few months ago. After dinner we played some board games of theirs that I’d never heard of and had a blast! Since then, we’ve dined and “gamed” with them several times and tried a lot of games. I found out eventually that they got the idea of playing board games and having dinner parties with them from The Simple Dollar, which is how I found your site!

I am wondering if you could suggest some games for us. We would like some games that could be played in an hour or less that my husband and I could play and we could also easily play with another couple. What would you suggest for us?
- Kelly

Here are four board games that can be played in an hour or less, work well for two players and also work well with four players, and don’t have overly complex rules. I own all of these and enjoy playing them all.

Ticket to Ride involves planning a journey around the United States (or Europe, if you get the Europe version). Each player has a set of secret goals (say, “Houston to Seattle”) and earns points at the end of the game if they’ve completed those secret goals by connecting enough cities together to build a path between those cities (say, “Houston to El Paso to Phoenix to San Diego to Los Angeles to San Francisco to Portland to Seattle”). You have to “build” each leg of that route simply by drawing cards and collecting sets of the same color (say, to build “Houston to El Paso,” you might need a set of three cards of the same color, or another one, like “San Diego to Los Angeles,” might require a set of four yellow cards), and when you complete that set, you discard that set and mark that route on the board.

Dominion is a card game where each player assembles their own deck of cards while the game goes on. There’s a set of available cards for all players to buy from, and those cards each have special abilities on them (like “draw two more cards”). Once you’ve bought a card, you add it to your deck. You buy new cards using cards in your deck that have coins on them, so you might play three 1-coin cards (called Coppers) to buy a card costing 3 coins (“Village,” for example). Some cards are worth victory points and, at the end of the game, each player counts up the number of victory points in their deck. The game ends when a certain number of cards have been purchased from that shared pool.

Pandemic is a game in which you’re trying to prevent the spread of a few terrible diseases across the world – in effect, you’re acting as a member of the CDC. You do this by traveling around the map (the board is a world map) and “disinfecting” cities that have disease markers on them. Each turn, though, the diseases grow and expand to more cities. You’re working with the other players as a team in this game.

Carcassonne is a game where you build the board as you go along. The board is made up of 72 little tiles and each turn, you turn over a tile and play it next to one of the tiles already in play and build what effectively looks like a town. You also have a small number of little “people” tokens; you can play one of them on the board each turn. The more ‘stuff’ (road, buildings, fields) around your little people at the end of the game, the more points you earn.

Q7: Investing extra money
I’ve just started doing this roughly 1 year after buying my first house. Every quarter year I’m taking any money in excess of $5k out of my bank account that I use for paying bills/etc. and putting it into online savings. The money there is split into 25% to pay extra on my mortgage, 25% ‘me money’ which will likely not be spent often anyway, and 50% to TD Ameritrade. With the TD Ameritrade 50%, I am using 20% for individual stocks I choose, 20% for index funds, and 10% on bonds or something else secure. I’d buy these in probably $2k chunks so the fees don’t eat up the profits. So far I’ve got enough to put an extra $500 towards the mortgage for awhile every month and made 10% on XOM. The only part I’m not sure about is if I should be investing in bonds as a 27 year old when I’ve already got and employer who contributes 15% of my pay whether I match or not to a profit sharing retirement plan that invests in mutual funds. This is already a pretty stable investment and it dwarfs my TD ameritrade account so I’m thinking maybe I should be more aggressive with trading. I’m also a bit conflicted trying to define what counts as ‘me money’ but thats a different subject.
- Rob

Whenever you invest money, you should have a goal in mind for what you’re going to do with it. That way, you can make intelligent investment decisions with that money.

If you don’t have a goal in mind for money you’re thinking of investing, I would invest that money in whatever offers the best possible return without putting your balance at risk.

For many people, that means paying down debts. It sounds like you have an outstanding mortgage, so if I were you, unless you have a specific goal with that extra savings, I would sock at least some of it straight into that mortgage (or other outstanding debt).

Why do it this way? If you have a 6% mortgage, an extra mortgage payment in essence returns 6% a year until the mortgage is paid off (and you get the money back at that time in the form of not having to make the last few payments). You won’t lose principal on that investment, either, which you very well might in other investments.

Q8: Writing online for money
Seeing as how I’m only 23, I realize I’ve got some time on my hands to get started on my career. The thing is I just don’t know where to turn. I feel so lost. I love the outdoors, I love photography, but most of all, I want to start a family. I’m only 23 but my boyfriend and I are ready to get married. We’re just in the process of getting our financial situations in order (as I discussed in my previous question you answered). I dream about being a wife to the best man and friend I’ve ever had, and raising our children together. This possibility is always in my mind when I think about possible careers. I’ve thought about starting a blog or some sort of online free-lance writing (so that hopefully once I have children I can have an established at-home business) but I just don’t know what sites to trust, or where to get started.

I’m currently majoring in journalism in school simply because I think it’s a broad, widely useful major, and not because I’m especially interested in it. My dream would be to hike trails across the US, and when I begin having children, I would love to write about my experiences and post photographs of my travels. Seeing as how I’m a student and must work as much as possible to support myself, traveling and writing at this point in my life is just an impossibility. I suppose my question to you is: How would you get started? I’m not looking to be rich or work my life away, having a family has always been a dream of mine. I just want to get into the blogging or web writing field, but I’m not sure which sites are trustworthy, or how to pick a focus for my blog.
- Rhiannon

For a blog to be successful, it needs two ingredients. It requires enough passion from the creator of the blog to keep updating it consistently. It also requires a topic and an angle on that topic that provides some sort of value for the reader: it helps them with their problems, it entertains them, or something along those lines.

Those two points have to be addressed before anything else. If you don’t have those two, you’ll never be able to build an audience for your blog because there will never be anything there worthwhile enough for them to visit.

If you have those two, then everything else flows from that. If you’re providing something people want, people will come, and if you have passion, you’ll be able to keep doing it.

Find those two things before you do anything else or you’ll find yourself wasting your time.

Q9: Giving up cable for Netflix
I read in your post that you are giving up cable in favor of netflix. We are considering doing that, but I have a couple of questions. There are a few TV shows that we love and follow. Mostly Supernatural on CW and Haven and Warehouse 13 on SyFy. I’m not sure how we could follow those shows without cable. Right now we DVR them and watch them on the weekends. Any suggestion for that?
- Christina

Is your ability to watch those few programs worth your cable bill? I can’t answer that question for you.

What I can say is this: you’re effectively paying to watch them now. If you join a service like Netflix, such shows will eventually be available on DVD, allowing you to watch them in that form a year or so after their air date.

It’s because of Netflix that my wife and I are finally watching Battlestar Galactica all the way through. Sure, it’s not fresh and hot, but it’s just as entertaining as it would have been a few years ago.

Q10: Dealing with bad credit
Back in 2006, i opened a wellsfargo gold card and in sept 2007 i got offered to upgrade to a platinum card. I took the offer of course and end up having a $4 balance on the gold card that i was never aware of. Found out about it almost a whooole year later. Paid it off but now it is showing a charged off. I think it is hurting my credit score so what can i do about this?

I attached the overview just so you can look at it and see maybe it’s not the card but the Debt to credit ratio instead?? I’m not sure and that is why i’m asking for you help.
- Sam

First of all, never send deeply personal information to someone you don’t personally know. I wouldn’t send anything like this electronically, period, unless it was encrypted. Sam did edit some key pieces out of his credit report, but there was potentially enough info there for me to dig into his identity if I so chose.

Now, as for his question. Your routes out of this are to either wait on the card to fall off of your credit report, which should happen in about four years. Alternately, you can contact Wells Fargo and/or the credit reporting agencies and request that the item be removed from your credit report, which they most likely won’t do.

Your best time to get this removed has already passed, which was the moment when you first discovered and tried to resolve the problem. Now that you’re considered fulfilled in Wells Fargo’s eyes, there’s not much incentive for them to issue such a change on your behalf (this is true of any business).

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.

This week, I’m going to take a look at a few of the longer questions that have been languishing in the reader mailbag. These questions were too long for a regular mailbag post – and deserve a longer answer – but are well worth discussing on The Simple Dollar.

Nick is thinking deeply about two mortgage offers on the table before him:

I’ve been at my job for about 2.5 years, my fiance at hers for about a year and a half. We’re getting married next month. We have a combined gross income just shy of $90,000 annually. Within the next month or so, both credit cards will be paid off. Remaining debt is $9500ish on a car loan @ 9.24% (30 months remaining @ $342/mo). We have a combined amount of around $40,000 in student loans with rates between 2.75% and 5.8% – payments are $505 monthly. My fiance has had some financial issues in the past, but she finished paying off delinquent accounts last year. We are currently paying $1100/month in rent for a 2br/1.5ba townhome, plus about $200/mo in utilities. I’ve missed one utility/loan/credit card payment in the last 7 years, and it was only by 3 days so I’m not sure if I even get dinged for it.

Anyway: We’re ready to start looking at purchasing a home. I majored in personal financial planning in college. In my PF classes before the housing bubble burst, the instructors unanimously said it was a terrible idea to buy a home with no money down. As a general rule of thumb, I cannot say I disagree with them. However, being a finance guy, I also like to look at numbers. With the current state of the housing market and crazy low interest rates, to me it almost seems like purchasing a home NOW would be a great choice, even though I don’t have any money to put down. That is, assuming my fiance and I could get approved for such a loan.

No matter how we do it (0% down or ~10% down), PMI and property taxes will be the same. Waiting for a full 20% down is not something we’re wanting to do when purchasing. We’d be paying rent for far too long.
PMI @ $160 / mo.
Estimated property tax @ $250/mo

Now for the mortgage bit:
If we could buy now, 0% down:
Value of loan: $280,000
Interest rate: 5.25% fixed
30 year mortgage, likely to make extra payments
PMT on mortgage = $1539.44
Total if we paid for 30 years: $554,198.40

Let’s assume 3 years from now (time it would take to get 10% down) that home prices go up 7% and interest rates go up 1.5%. I may be right or it may swing the other way. We don’t know what home prices will do, but we do know that interest rates cannot realistically go down any further. In this time period, we could manage to save up $30,000 for a down payment, which also likely would lower our interest rate slightly (6.25% instead of the new value of 6.75%).
Value of loan: $266,800 (New value of $296,800 minus $30,000 down)
Interest rate: 6.25% fixed
30 year mortgage, likely to make extra payments
PMT on mortgage = $1634.22
Total if we paid for 30 years: $588,319.20
PLUS initial $30,000 down
Total mortgage + down pmt = $618,319.20

Paying $554,198 plus a few extra years of PMI (est. $6000 over 3 years) for a house sure sounds better than $618,319.

Now…..I understand the whole risk thing associated with buying and putting no money down — you have no equity so if you need to sell and the market slumps, you’re liable for THAT much more. I grew up in this area – both of our jobs are relatively secure, we love the area. It has great schools for future children, great public facilities (libraries, etc), and lots of walking paths and parks. We don’t plan on relocating anytime soon.

I understand that we’d pay somewhere around 3 years extra of PMI (rounded up to $6000 total). I understand it would take a while and some extra payments to really get some equity in the home. And I also understand that this might all be a moot point if we can’t get approved for a mortgage with less than 10% down. But my question is…am I missing something? Is the market THAT much of a buyer’s market right now that the math on this looks the way it does? Or is this still a terrible idea?

Nick’s two offers give us an interesting comparison between the different benefits and risks that a potential homeowner needs to think about. Let’s walk through some of them before I offer up my specific thoughts on what Nick should do.

Where will interest rates go? Right now, interest rates on home loans simply can’t go much lower than they currently are. The difficulty, of course, is predicting when interest rates will begin to rebound. Three years from now, interest rates might be just where they are right now… or they might be higher. It depends on a multitude of factors, many of which simply boil down to a question of whether or not the economy will improve.

To put it simply, waiting is a risk in terms of interest rates.

What will happen in your future? Will you remain employed in the current area? Will you want to live in that area in the future?

It’s very hard to tell what a person’s future holds for them. We like to see a future that’s bright and is a direct positive continuation of what we’re doing now, but that’s rarely what happens.

The best way to mitigate this risk is to minimize one’s monthly payments, which is itself a careful balancing act between the small down payment and low interest rates now and the larger down payment and potentially higher interest rates later on.

What will the housing market do? Will the home you buy retain its current value? Will it go up, or will it continue to slide in a weak housing market?

Again, it’s hard to tell what will happen here, but it is important because if you need to sell the home for some reason, as Nick mentioned, you may be faced with a loss compared to what you bought it for. If you buy the house with no money down, then you will have built very little equity in the house, meaning the sale won’t net you anything and you might even have to come up with some shortfall.

The real crux of this matter is an uncertain future. You can easily create a model for a future in which buying now is the right choice. You can just as easily create a model for a future in which waiting to buy is the right choice.

Given a scenario like this, I would almost always choose to be conservative. If I were you, I’d start aggressively saving up for that down payment and keep an eye on interest rates. If you start to see any indication of a significant uptick in rates, that’s the moment I would start shopping for a house, because that’s the point when you combine the best of all worlds. You’ll have a down payment, you’ll still have very low interest rates, and you’ll also have a year or two more under your belt so that you have a better grasp on where your life is headed.

If you want to follow the progress of the novel I’m writing for National Novel Writing Month, I’m posting daily updates of the work-in-progress at http://trenttsd.posterous.com/. Each day that I make notable progress, I’ll be posting a Word document that contains the whole novel to date. Hopefully, at the end of the month, it’ll be a finished work – a novel with at least 50,000 words in it.

Journal Records a Friendship I wrote this essay about how one of my paper journals in college helped me build a very close friendship. (@ reimagine roi)

Handling Your Business To-Do List Here, I took a look at expanding the principles I’m talking about on here with regards to Making It All Work and expanded them into small business management. (@ open forum)

I thought I was supposed to be rich This article really lays out why I don’t always think a college education is the best choice for everyone, particularly when your educational path involves extensive study after acquiring an undergraduate degree. (@ paying myself)

7 Reasons to Rent Instead of Buy a Home I don’t think buying a home is the best choice for some people. This article makes the case very well. (@ christian pf)

What to Do When Personal Finance Becomes a Chore To me, it’s all about finding goals that excite you. If you aren’t excited about where you’re headed, it’s going to be very easy to be distracted. (@ get rich slowly)

This week, I’m going to take a look at a few of the longer questions that have been languishing in the reader mailbag. These questions were too long for a regular mailbag post – and deserve a longer answer – but are well worth discussing on The Simple Dollar.

Alice writes in with a tale about an excessive amount of short term debt:

I was married to a man who spent every penny he thought was available – and if he didn’t know of any that was available, he spent more – with no regard of how we were going to pay bills or buy groceries. I read Dave Ramsey and got excited, knowing that we made enough to cover bills and save and have some free money each week. As soon as I mentioned the “B” word (budget), he balked, yelled and pretty much threw a fit saying that he felt like a kid on an allowance.

Because of many bad decisions, we had terrible credit. When it got to the point where we had to have a better vehicle, we had to have my mother put it in her name so we (she) could borrow the money to pay for it. We also agreed to make the payment on her car and used her old car as a trade in on the newer ones. He would spend money from our checking account via the debit card and never tell me, so when it was time to pay bills, there was no money left. If he ever worked over time, instead of paying more bills with that increase in cash flow (my idea), he would want to spend more – since he worked hard for that money (his idea). I was also working on finishing my degree and my classes were free. We were so behind on our bills, that there were many semesters that I took out student loans just so we could make it through. If there was ever a time when the money was tight, I typically ended up putting our groceries on my mothers credit card – for which I would give her the money when I could.

We ended up getting a divorce and losing our house to foreclosure. He is paying about 12K that was still due on the second mortgage, and a few very small doctor and hospital bills, maybe around $2K. I ended up with two hefty car payment (yes, I do have my car, though) – on which I owe more than either of them are worth. I am paying (or trying to pay) on my mothers credit card bills (which probably total around $15K – not all groceries, mind you) and have a hefty balance of student loans – about $36K. So much of what we owed was in my name due to the student loans or in my moms name. Even if I thought bankruptcy were an option, it’s still not since the bulk of the amount owed is either not in my name or is in the form of student loans.

I make fairly good money, but my paycheck has recently been garnished and will be for another six months or so. Right before that happened, I made an agreement to pay off an old credit card bill in three months. First payment of $300, with two subsequent payments of $275 for a total of $850 – when the original total owed was $1,450. I have tried and tried to find part time work for evenings and weekends. Either they are wanting more availability or someone younger or they just think I’m over qualified.

Since the garnishment, my paycheck is $1,709 a month. I just recently started receiving child support of $450 per month. I have the following bills:
Rent $600 – which is extremely low for the area. I got a great deal from someone I attend church with.
Car payments $505
Car Ins $135 – for my car only, but high since it has a lien against it.
Renters Ins $15
Cell phone $170 – I pay for four phone lines: mine, my moms and my two teenagers – with no home phone.
Electricity $100 – In the summer, I had the thermostat set to 78 so that we wouldn’t use the A/C any more than absolutely necessary. In the winter, I put it on 67 for the same reason.
Water $30
Moms credit card $300
My credit card $45
Credit card agreement $275 (only two more months)
Internet $45 (necessary for school work or getting work things done from home) – we have no home phone service or TV
Food $300
Gasoline $150
As for the student loans, they are in forbearance for another year and a half.

Before the garnishment started, I was just squeaking by and now am pretty much devastated with the level of debt. At least for the next six months. How do people survive things like this? I thankfully did start a separate checking account at another bank for the child support deposits and I have been able to use that for food and gas for the month. If I scrimp on food, then I have enough left over for any small incidentals that the kids might need.

I had to purchase new tires last month and that wiped out my small savings. My paycheck is gone as soon as I get it, or before that you could say and I only get paid once a month. I’m on salary, so no overtime pay is available.

I do not have any idea what to do.

If you run the math on Alice’s bills above, you’ll find that it adds up to $2,670, while her monthly take-home is $2,159. This means that, for the time being, she’s spending $511 more than she’s bringing in each month.

In two months, the credit card agreement will end, but that will still leave her with a $236 monthly shortfall. In six months, her wage garnishment will end and she’ll be back ahead of the game.

The tough question, though, is how to handle this six month period. From what I can tell, Alice’s solution lies in going through her expenses and cutting some of them out.

The first thing I spy that can be cut is that $505 monthly car payment. You need to get rid of that car as soon as you can and get a low-end model that will just serve to get you back and forth to work. Are you underwater on the car? If you’re not, take it to a dealership and see if you can negotiate an arrangement that leaves you with a fully paid-for old car that will work for the time being. Not only will this eliminate or drastically lower your monthly payments, it will likely reduce your auto insurance as well.

I would hold off on the payments on my mother’s credit card, too. $300 a month on your mother’s debt when you’re struggling this mightily is not a wise choice. I do admire you for stepping up to the plate and helping your family, but when that help is causing you to drown, you’ve got to cut back. You’re not going to be able to help in the future at this rate, so pull back on that $300 a month until your finances recover a bit.

Look into public transportation as an option. If you’re in an area where $600 rent is considered a huge bargain, you’re likely in an area that has some public transportation available. Find out if you can use this for some of your transportation needs, which will reduce the gas usage and maintenance on your car.

Visit local food pantries to supplement your food requirements. Food pantries exist to help those in hard times who want to help themselves, and that certainly describes you. Stop in, pick up some food for yourself and your family, and trim your food spending a bit. If this makes you feel guilty, pledge to donate to the pantry when your financial situation is better.

Keep in mind as you’re making these choices that you’re addressing a short term situation. In six months, you’ll return to a situation where your income significantly exceeds your expenses – you’re making moves to help you get through this rough patch.

Keep your chin up. Things will get better.

This is the ninth entry in a twenty part series discussing the wonderful time and priority management book Making It All Work by David Allen. New entries in this series will appear on Tuesday mornings and Friday mornings through December 10.

Engaging?

To put it simply, the fifth (and final) element of positive engagement with your world is just that – actually doing stuff instead of planning. The question, though, is why this has to be mentioned at all. Isn’t the whole point of all of this to set us up to work more effectively?

I like looking at it this way. All of the collecting and organizing and reflecting serves one very specific purpose: it creates a situation so that at any given time, you have a good grasp on the things that are actually worthwhile and important to do. The question then becomes which of those important things you choose to do right at this moment.

Allen calls this a “next action.” On page 172:

The most common cause of a list becoming listless and unispiring is the lack of clarity about what to do about what’s on it.

Imagine you have a to-do list in front of you with twenty five items on it (something that’s a common occurrence for me). They’re items you’ve actually went through the process of determination with and have recognized each of them as being something important. How exactly do you determine which of those twenty five items should actually be done right now?

Allen’s first line of defense here is to make sure that your to-do list actually represents thought-out next actions. On page 174:

The best criteria to determine whether or not you’ve actually thought something through sifficiently to act upon it is how clearly you can answer these three questions:

+ What has to happen first?
+ What does doing look like?
+ Where does it happen?

In short, if you have something on your to-do list that doesn’t have immediate answers to these three questions, then your to-do (or “next action”) list has a problem.

What do you do if you find an item that doesn’t have immediate answers to these questions? You resolve them. Take the item completely off your to-do list and reprocess it. Make sure these three questions are resolved before you re-add an item to your list.

On my own to-do lists, I usually make a direct note of where the thing will happen, because I’ll often group things together by their location. Allen refers to this as “context,” and touches on it heavily on page 182:

There is never a moment at which you could do everything you’ve decided you need to do, simply because most of those actions require a specific tool or location. You have some tasks at your office and others at home, and unless they happen to be in the same place, you are limited in your choice by where you are.

A great example of this is the errands you have on a to-do list.

I live in central Iowa. I run some errands in Ames. I run other errands in Des Moines or a surrounding suburb. It makes sense, when I’m assembling a to-do list, to clearly mark “Ames errand” and “Des Moines errand” next to errands that occur in those areas so I can group them together easily and make only a single trip to Des Moines to take care of several things.

Another “context” I often use is “email.” For me, opening up my email is a gigantic black hole of time, so I often try to do it once a day (or twice a day at most). To make sure I remember to send key emails, I clearly note “email” next to items that require an email to be sent or replied to.

You can use whatever contexts you’d like. The idea is just to make it easy to group obviously related tasks together off of your big to-do list.

Another big question, of course, is how you set the priority of such a list full of items. How can you tell at a glance which one is the most important out of these important things? Allen addresses this on page 190:

Ultimately, you must trust a combination of your intelligence and your intuition. You’ll never be able to integrate enough information consciously and then apply to it some logical or mathematical formula whose results you will always trust implicitly.

In other words, you should just purely trust your intuition. I used to stress out over this part of it quite a bit, but I often find that if I just glance at my list, one particular item will stand out to me pretty quickly, so I do that (and possibly other items in the same context). Then I rinse and repeat.

In other words, the two big keys to having a successful to-do list (once you’ve actually processed everything you need to be doing) is to have very clear things to do (so you don’t have to think about them) and to trust your intuition once you have a list of these clear tasks. I find that it really works for me.

This week, I’m going to take a look at a few of the longer questions that have been languishing in the reader mailbag. These questions were too long for a regular mailbag post – and deserve a longer answer – but are well worth discussing on The Simple Dollar.

Jennifer writes in with a horror story of a financial entanglement that’s holding back her future:

When I was 20 I was very responsible, great job, went to school full time with dreams of being an attorney and my only debt was from school. All I had ever wanted from the time I was 16 was to own my own house and I had about $13k saved so I decided to take the plunge. Somewhere things spiraled out of control from there.

2 days before I was supposed to close on the house I was told I didn’t qualify for the 30 year conventional loan that my underwriter guaranteed me I would, I was about to back out but somehow he convinced me to add my then common law husband onto the loan/house and to get an ARM so that I could qualify. I was dumb enough to go along with it because we had planned to live together and eventually refinance in both our names anyway.

Well, if that wasn’t dumb enough, I also let the underwriter convince me to put no money down since it “would barely change your interest rate.” So I had one loan for 163k with an interest rate of 5.84% and a 2nd for $40k with an interest rate of 9.69% (yes, I know realize how crazy and stupid that was.) My total mortgage payments were $1,344. I spent the whole $13k to pay off all my debt, closing costs and stuff for the house.

Well, 2 months later I found out my ex had been cheating the whole 3 years we were together, we broke up and fought about whom would keep the house. He made considerably less than I did and wasn’t at all financially responsible so I knew if he kept it, it would definitely go into foreclosure and hurt my (at the time) almost perfect credit. We finally settled that I would pay him about $3000 and I would be able to keep the house and refinance in just my name.

Well that was right around the time that the mortgage bubble burst and I spent a few hundred dollars trying to refinance and it was not happening. My mortgage payments went way up but I was able to modify so that my payments went back down to the original amounts. However, the problem is that the interest rates for both loans are still very high and my payments are barely more than the interest and escrow so now, 4.5 years later I still owe basically $200k.

For the last 4 years I have been doing everything I can think of to keep the house, I barely spend money I have a roommate, I work any extra jobs or overtime that I can but the problem is I just don’t make enough compared to the amount of my house related bills. I have racked up over $7k in credit card debt and spent all my savings trying to just keep my house hoping that the market would turn around and I could sell (even if it was a short sale.)

Meanwhile, everything in my house is falling apart to the point that I even feel guilty charging my roommate rent we have a broken dryer, microwave, sprinklers, swamp cooler…the list goes on and on, but I just can’t afford to fix or replace them. Zillow.com values my house at $185 but I believe it is much lower as the house across the street which is the same size but in much better condition sold for $180.

I’ve considered renting out my house but I really don’t think that I could get more than $1000, I would have to pay rent somewhere else and lose the $400 from my roommate so I would end up paying about the same that I am now (but less in utilities) but it would break me to not have tenants pay for even month. Plus I would have to spend considerable money beforehand to fix up the house and replace appliances which I just don’t have.

I have researched short sales but haven’t had much luck getting info from my mortgage company and people that I know who have tried short sales ended up getting foreclosed on anyways. At this point my bills are about $2200 (this includes barely the minimum on my credit cards, all house related bills, car payment and insurance, the only “extras” are $25 for a gym membership and ½ the cable bill for $25.) I only take in about $2400 (including rent) which means that I only have $200 for groceries, gas and anything that comes up, I have no savings.

I have stopped going to school because I just can’t afford it which breaks my heart and is affecting my future. At this point I just want to walk away and move into an apartment close to work with my roommate which would eliminate my need for a car and many of my bills. I am willing to deal with the hit to my credit as well as the shame and disappointment that comes along with foreclose but the problem is that my ex is still on the mortgage.

I have forgiven him for the cheating (and I am still in the process of forgiving myself for being dumb and easily influenced) and we are now friends. He has been working hard for years to get his credit back on track and trying to get his finances in order. In my research, I found out that the only way to get him off the hook is to refinance which I am unable to do. I really don’t want to hurt him after fighting bitterly to keep the house when we broke up. Do I have any other options? If not what is the best way to present this to him? I really am lost here.

So, let’s summarize your situation.

1. You and your ex-husband both have your names on the mortgage of the house you currently live in.
2. You are in a financial situation with poor credit which makes it difficult for you to refinance the home.
3. You can just barely afford the mortgage payments if you squeeze every dime, including abandoning your education.
4. The expense of the mortgage payment is causing you to fall deeply behind on home maintenance, which is decreasing the value of your home.

The obvious solution is to walk away from this situation, but the drawback here is that your ex-husband’s name is still on the mortgage and you don’t wish to sink his credit.

The first thing I would do is play some serious hardball with the mortgage company. I would contact them and inform them that you simply do not have the money to maintain the mortgage at this point and that if refinancing is not available in some fashion, you are going to be forced to walk away from the property and let the home enter foreclosure.

Frankly, that’s the truth of the situation. The situation you’re in is not sustainable over the long term. If you don’t change anything, you’re going to be middle aged, without an education, and with a house that’s in very poor shape around you. That’s a far worse alternative than most of the other options available to you.

If you can, request manual underwriting. Why? If they put your situation into the typical kinds of computer models used by lenders, they’re going to just reject you. Without a deeper look at the situation, there’s no case for refinancing you. Why should they, if you’ve been keeping up with your payments?

What if your hand is forced by the lender? If you cannot convince the lender to refinance, then you’re going to have to sit down with your ex-husband and discuss foreclosure on this house. He may want the house instead of you at this point, depending on what he’s doing and what his skill set is. He may also have other suggestions based on your personal history and relationship that might make sense.

Regardless, you have to leave this current housing situation behind you. If that means simply handing the key to the bank, so be it. The credit impact will eventually go away, but if you stick with your current situation, it will crush your freedom for a very long time.

At the same time, get back to your education. Walking away from your education at your current age is something you’ll regret for a long time, as it will not only negatively impact your earning potential for life, but it also represents other lost opportunities because of the relationships you build during those college years.

How can you go back? It’s not going to be easy in your situation. I would look into community colleges in your area, for starters, until you can resolve your housing situation. Once you’re free, look for hardship scholarships and grants, as it certainly sounds like you would be in a hardship situation.

One final note: I find online property value estimators like Zillow to be almost useless. Over and over again, I find that you get much more realistic estimates by looking at similar homes in your area and finding out what they sell for. Over and over again over the past few years, Zillow has shown housing prices that have been very poor reflections of the realities of specific local housing markets. I think the site has value in a very broad sense, but in terms of figuring out exactly what your house is worth, I’d trust the local market much more.

Good luck. Today is a great day to turn the page on this chapter of your life.

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. Trust fund family problems
2. New job, retirement issues
3. Long term care insurance
4. How do CDs work?
5. Book on blogging
6. Paying ahead on mortgage
7. Books on fatherhood
8. Roll over my TSP?
9. World Series redux
10. Voting

As I mentioned before, I’m going to publicly write and share a rough draft of a novel during the month of November. It’s going to be a rough draft, so expect it to be rough. Having said that, I also think it’s going to be a solid read. More details on Wednesday, as I should have a few thousand words uploaded by then.

Q1: Trust fund family problems
My sister-in-law suddenly and unexpectedly passed away this summer. She named her youngest sister, Mary, as the sole beneficiary of her life insurance. Mary has made a lot of poor choices in her life. She has no job, no education, no money, and no sense of responsibility. Now suddenly she has $200,000.

The family believes my sister-in-law wanted to give Mary one last chance to set her life straight and learn responsibility. Mary has promised to set aside money for Bobby, but so far all she has done is go on a spending spree and show off to her friends. The family is concerned that she will just blow through the money. Is this where a trust fund would be helpful? How can the family make sure there is money left to take care of Bobby?
- Katie

If you’re asking for my opinion, she’s probably going to blow through the money. If she were serious about setting aside money for the boy, that would have happened before anything else.

Now, what should you do about it? You can’t make her do anything, but you can make it as easy as possible for her to commit some portion of the money to a trust for Bobby. Assume that a relatively small portion of the money will go into the trust ($20K to $50K is what I’d assume), then get the paperwork drawn up yourself and make it so that all she has to do is sign on the dotted line and transfer the cash.

Make all of the decisions about the trust yourself. Should it allow a certain percentage to be withdrawn each year for Bobby’s care? Should it just sit until he reaches adulthood? Who should be the trustee? That’s a personal decision within your family.

Having said that, I would not be shocked if she refuses to sign it, at which point I would assume Bobby won’t get a dime of it.

Q2: New job, retirement issues
I’m 23 and have been working in medical sales for 17 months (I was one of the lucky few to get a job right out of college). I just bought an engagement ring so after I propose (and hopefully she says yes) I’ll have to start looking at the cost of a wedding and also a place of our own. My girlfriend and I are each living with our parents still (nice of them to invite us back after college, eh?) so with no living expenses, low food expenses, and overall wise spending habits I save around 70-80% of my post-tax salary. She’s going to school for her MSW so she has no income (but her parents have taken care of school payments so very few expenses too).

As far as the rest of my financial situation, is there anything you would change about where I have my money? I feel like having $25,000 in 2 accounts that are only gaining roughly 1.3% isn’t wise if there’s something I could be doing to increase my return.
- Sam

I say you should do this, for two reasons.

First, rolling into a Roth you control gives you much more freedom over what investments are chosen, which means you have the capacity to choose lower-cost investments with better returns.

Second, rolling over now means you’ll pay taxes on that money now, which is a period of rather low income tax rates compared to historical numbers.

As for how to do it, this post at Good Financial Cents offers a very nice, simple description.

Q3: Long term care insurance
So my question today is, what’s your opinion of investing in long term care? I’m 54, in very good health, and have an opportunity to get $450,000 LTC if I sign up now and pay about $3700 a year in premiums. Part of me thinks it’s a wise investment, another part swallows hard when I think of how that money will add up over the years. Any thoughts?
- Lisa

Long term care insurance does patch up a potential risk for a person’s future, I’ll agree with that.

However, compared to the cost of the insurance, the risk is small, and for most people with reasonable incomes in the United States, the cost as a portion of their annual income adds too much risk in other aspects of life to be worth it. In other words, if you’re buying that insurance on an “average” income, you’re giving up and/or risking too much in other avenues of life.

I think it’s a great idea if you have an exceptional income or accumulated wealth, but without that, this is a risk I’d put on the back burner.

Q4: How do CDs work?
How do CD’s work? Pros and Cons? Short term = Long Term??
- Sherry

The best way to think of a CD is that you’re promising to give a certain amount of money to a bank for a certain amount of time. In exchange for that money for that period of time, the bank offers to pay you a better interest rate on that money than they’re offering in their basic savings accounts.

So, for example, a bank might have a basic savings account that pays 0.5%. They might also offer a 12 month CD that pays 1.5%. So, if you put $10,000 into the savings account, you’d earn only $50 in interest over a year, but if you bought a CD with that money, you’d earn $150.

What’s the drawback? That money is locked down for whatever term you agree to, and if you want the money before then, you’ll lose most of the interest earned, making it worse than a savings account (usually).

Right now, I don’t think CDs are worth it. Their rates are barely better than a savings account and, to me, it’s not worth the lock box you have to put your money into.

Q5: Book on blogging
What book would you recommend for someone that wants to start a blog and website? I need something easy to understand. I am not necessarily wanting to host my own website and would consider someone hosting it for me but am just not sure which way to go.
- Bobbi

Most of the information on how to blog is spread out across a ton of websites on the internet. There really haven’t been that many good books on blogging available to date.

My recommendation of the ones available is Darren Rowse’s ProBlogger: Secrets for Blogging Your Way to a Six Figure Income. It’s probably the best all-around starter guide for someone who wants to take it to a professional level.

I would definitely pair that book with a lot of online reading from blogs like Copyblogger.

Q6: Paying ahead on mortgage
I know it’s good to pay the mortgage every two weeks as you end up paying an extra month a year as well as saving interest. How does paying a month in advance stack up next to this method?
- Millie

These two methods end up being very, very close to each other over the course of a calendar year, with the “pay a month in advance” method coming out on top by just a bit.

Of course, in order to keep on top with the “pay a month in advance” method, you have to make an annual extra payment on your mortgage. It is easier for most people just to make a half payment every two weeks.

In either case, the real advantage is getting in an extra full mortgage payment each year, regardless of how you do it. Simply making that payment is far more important than stressing about which way to do it.

Q7: Books on fatherhood
Trent, my wife and I are expecting our first baby in May. I assume that you applied the same level of research and study to fatherhood that you have applied money decisions, buying a car, etc. Did you come across any particularly good books about pregnancy/fatherhood?
- Geoff

The single most valuable book I read on being a parent was The Read-Aloud Handbook by Jim Trelease. The focus of the book was on how to best read books and other materials aloud to your children, but it branched into other topics of parenting very effectively as well. For me, that book had the most impact.

Another book that had a big impact on me was Girls Will Be Girls: Raising Confident and Courageous Daughters by Joann Deak. I grew up in a household with only brothers around me, so I was very uncertain about having a daughter. This one helped a lot.

A final book that’s helping a lot now with my four year old and three year old is Mindset by Carol Dweck. Why this one? I want my children to always have a mindset that they can pretty much do anything that they put their mind and effort towards, and that’s the sole focus of this book.

Q8: Roll over my TSP?
I was employed by the Federal government for only 9 months, but fully funded my TSP to the tune of about $3700. I’ve just become eligible at my new employer to enroll in their Roth 401k plan and am wondering if I should roll over my TSP. I plan on funding my new retirement account to the max that they’ll match (plus a little extra if I can). I haven’t read about any penalties to keeping my TSP which is invested 72% in the 2040 L fund, 24% in the G fund, and 4% in the 2030 L fund. If you think it wouldn’t hurt to keep it, are there any redistribution changes you’d suggest?
- Bill

It depends on what you’re rolling it over into, but I’d lean towards the Roth simply because that would make the money be after-tax, which would mean it will grow without tax implications and you can withdraw it at retirement without paying taxes.

One thing I would do first is to sit down and look at the investment options available for the Roth 401(k) as well as detailed information on the TSP plans. Which ones have a better history? Which ones charge more in fees? You’re trying to tease out the best investment here.

If they’re roughly equal, I’d convert to the Roth 401(k), simply because if I have a roughly equal choice between pre-tax retirement savings and post-tax retirement savings, I’ll choose the post-tax.

Q9: World Series redux
Care to retract your World Series prediction (Rangers in 7)?
- John in SF

It feels to me like the Rangers gave it all they had to beat the Yankees and they just have nothing left in the tank for the World Series.

They looked so sharp in the ALCS and look so incredibly tired and lethargic in the World Series. It’s almost painful to watch.

I’d guess Giants in 6 at this point.

Q10: Voting
Could you remind your readers to vote on Tuesday?
- Shawn

If you’re a United States citizen, spend a few moments right now studying up on what races are going on in your district, then spend a few moments tomorrow voting.

The midterm elections are just as important as the presidential elections. In most states, governors are being elected. Every seat in the House of Representatives is up for grabs, as is a third of the Senate. Here in Iowa, we also have a key vote with regards to our state Supreme Court justices that’s been intense to say the least.

I’ll go so far as to say that voting tomorrow is probably more impactful on your day to day life than your vote in the presidential election of 2008 was. Add on top of that the fact that voter turnout will probably be lower and not only is the election more important than in 2008, but your vote will have more weight than in 2008.

Hit the website of your best local newspaper. Find out what’s going to be on your ballot and learn about the major races on it. Then take a few minutes and vote tomorrow.

As one of my best friends always says sarcastically before Election Day, “vote early and vote often!”

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.