Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

23. Maximize your car’s fuel efficiency.

Over the last five years, we’ve put an average of 20,000 miles a year (combined) on our vehicles. When you’re driving that many miles, even a little bit of fuel efficiency makes a huge difference.

For example, if we’re getting 15 miles per gallon and I discover a way to get that mileage up to 16 per gallon, suddenly we’re burning through 83 gallons of gas less per year. At $3 a gallon, that’s $250 a year in gasoline savings.

If you can make a bigger jump – from 15 to, say, 20 miles per gallon – you’re saving more than $1,000 per year if you drive as much as we do.

That can be a huge savings, particularly when most of the choices you make don’t really impact your day-to-day life. Here are eight specific steps you can take to improve your fuel efficiency.

Shop for fuel efficiency. When you’re looking for a replacement for your current car, keep a serious eye out for fuel efficiency. Use sites like FuelEconomy.gov to find out the fuel efficiency of the models you’re considering and give an extra look to models with better fuel efficiency. If you can buy a car with 5 miles per gallon more efficiency, you’ll save significant money every year you own it.

Don’t speed. When you’re speeding, your car uses fuel much less efficiently. A car traveling 75 miles per hour is much less fuel efficient than a car traveling 55 miles per hour. Beyond that, you also run the risk of acquiring traffic tickets if you speed, which not only have their own cost but also increase the cost of your insurance.

Maintain even acceleration. You eat gas whenever you press down the gas pedal in your car. The most efficient way to drive is to maintain even acceleration, meaning you don’t push the pedal down and you don’t let it up, either. Cruise control works for this if you’re driving where it’s flat, but if you’re in a hilly area, you’re better off doing it yourself, speeding up on the downhill slope and slowing down when going uphill.

Air up your tires. Fill up your tires to the maximum recommended pressure in the owner’s manual in your automobile, which takes into account the mass of your car. Every pound of pressure that you’re low in any of your tires results in a 1/8% reduction in fuel efficiency – and almost everyone’s tire pressure is at least five pounds low per tire. If that’s true for you, just airing up your tires would result in at least a 2.5% increase in fuel efficiency – it’s like going from a 20 mile per gallon car to a 21 mile per gallon car. I check my pressures every month.

Minimize your car’s weight (unless it’s winter). The more weight your automobile is carrying, the more work the engine has to do and the less fuel efficient your car is. The best solution is to minimize your car’s weight, which is a good idea when the roads aren’t slick.

Use the right kind of motor oil. Read your car’s manual and make sure that whatever service you’re using to get your oil changed is putting the right kind of oil in your car. Using the wrong kind of oil can result in a 2% loss in fuel efficiency for your car (on top of other potential problems).

Turn off the ignition instead of idling. If you’re sitting for more than fifteen seconds, turn off your car’s engine rather than just idling. Idling eats up gas – it’s essentially burning money. I turn off the engine even at some stoplights, but I always turn it off when waiting on trains, in traffic jams, or waiting on accidents.

Use a warehouse club. This is the single best principle I’ve found for saving money directly on the gas you buy. Over the course of a year, we pay for a Sam’s Club membership solely through the gasoline savings. Our local Sam’s Club offers gas at least $0.04 per gallon less expensive than each of their competitors. If we use 1,000 gallons of gas over the course of a year, there’s the $40 for our membership. Any savings we actually get for anything else is subsidized just by the gas.

Saving money on your car’s fuel efficiency is a great way to cut down on your costs in the coming year. Best of all, most of the methods are things you can do just once and reap the rewards from for a long time.

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. Pets, roommates, and repair costs
2. Gift receipts
3. Why get married?
4. Lonely Christmas
5. College athletic compensation
6. Preparing for a layoff
7. Why Christmas?
8. Diversifying retirement savings
9. Career in music industry
10. Christmas carols

The biggest highlight of this time of the year is the opportunity to spend time with people that you just don’t get to see that often during the year.

We have some friends that we rarely are able to see during the year because of conflicting schedules. Today, we’re going to have lunch with them.

Over the next few days, I’m going to see several other people that I see maybe once or twice a year and really look forward to seeing again.

That’s the point of this season, and that’s why I love it so much.

Q1: Pets, roommates, and repair costs
I have a question for you that you may or may not be able (or want) to answer. I’m 25 years old and about two years ago, I saved up and bought my first piece of furniture–a couch from a local upholstery store. I chose the couch from this store because my parents had bought one from the same store when they were first starting out and STILL have it now 23 years later–good quality if you ask me. Fast forward to February of this year and I’m living with a roommate who had just adopted a dog. Over the course of a few months, the dog started to chew on things around the house and I noticed that he started to work on the hem of my couch. I asked my roommate if she would mind keeping the dog in the crate when we weren’t around the house because I was worried that he might destroy my couch. For a while she did this. Then one day as we were both leaving for work, she decided to leave him out and put a throw over the couch saying that it would prevent him from chewing on the couch, even though I expressed concern. When we returned from work that evening, the dog had shredded the arm of the couch all the way down to the frame.

My question is this: I feel like I’m stuck between a rock and a hard place. I saved up and used my hard earned money to buy a couch (it cost $1600) with the expectation that I would have the couch for years and years to come. I bought it new and am not really interested in having it look like a patchwork couch, otherwise I would have bought a used couch and fixed it up. I ideally would like to have been able to find the same fabric. Is it unreasonable for me to ask my roommate to pay for the cost to completely reupholster the couch since her dog destroyed it? If I had had the couch for longer, I would have maybe been willing to pay for the cost of a new fabric with her paying the cost of repair, but since I had the couch for less than two years, it was nowhere near being ready for new fabric. What’s your opinion? If my dog had destroyed something of hers, I expect that I would be responsible for cost of replacement (because my dog is my responsibility). But it makes me uncomfortable to ask her to pay close to $1,000. We’ve kind of tiptoed around the issue for a while now, but I’d like to address this sooner rather than later, and definitely before our lease winds down.
- Courtney

You are not out of line at all to ask her to pay to repair the couch. However, unless your roommate is a very good person, be aware that your request will likely have a negative impact on your roommate relationship.

Her objection likely won’t be to paying you for the repair. The objection will probably come in the high cost of the repair.

For example, I don’t think the total cost of every couch I’ve ever owned in my life adds up to $1,000. I would be scared to own such a couch because of the possibility of damaging it. I have actually not sat on the couches and chairs of friends because of the cost of it and the implication that I would be liable if I inadvertently damaged the couch.

Those types of feelings have a very strong chance of popping out in this conversation – that the presence of such an expensive couch made your roommate uncomfortable. How do you respond to that? It depends heavily on your roommate, but it’s something I’d think about before having the discussion.

Q2: Gift receipts
What do you think about taping gift receipts to the bottom of items given as gifts?
- Annie

I encourage it whenever possible. If you’re buying that person an item that comes from a store where it can easily be returned (like a department store), then you should give that person the option to do so.

For example, if I buy a DVD for a friend, I usually look at it as, “I bought them this DVD because I think they’ll like it. If they already have it, though, I do want them to have some DVD they would like.” Thus, it makes perfect sense to tape the receipt.

I extend a similar feeling to matters of taste. If I buy someone a vase because I think they’ll like it, I know that I might be pushing my tastes on them, so I’ll attach a receipt so they can pick out a home decor item that they would like.

I have absolutely no problem with someone returning a gift that I’ve purchased for them.

Q3: Why get married?
I am 25/f, never married, not in a relationship, no kids.

I don’t want to sound like a person who doesn’t believe in love, but really, is a marriage based mainly on love? Can you really have love if you don’t have respect for your partner or if you are financially strained or if you and your partner are looking in different directions?
- Nona

I can’t comment on other people’s marriages, but I can comment on my own.

Sarah is the one person in my life that I can rely on completely. There is nothing in my life that I think or feel that I can’t or won’t tell her. Nothing. Because of that, she’s a constant part of my thought process on everything I do, from decisions about The Simple Dollar to who we’ll visit this Christmas season. The closest description I can give is that of a best friend, but it goes so far beyond any “best friend” I have had prior to her in my life that such comparisons are like comparing the moon and the sun.

Because of that deep reliance, I am quite willing (as is she) to incorporate her as a deep part of everything I want for my future. Simply put, my future isn’t a future I want if she’s not in it.

Marriage, to me, is simply a public way of saying that to everyone. I’m publicly telling others that Sarah is someone I trust that deeply and intend to spend the rest of my life with, for better or worse. I don’t take that pledge lightly, and I don’t intend to ever break it.

I think there are a lot of people who do not take it that seriously. I don’t know what marriage means for them.

Q4: Lonely Christmas
I’m going to be spending Christmas Day alone. While this does have a good side – no Christmas gifts to buy! – I am left feeling rather lonely and depressed about this state of affairs. Do you have any suggestions for making this day go any better?
- Marcus

It sounds like you want the “people” part of Christmas without the “gift” part of Christmas (at least in part).

If that’s the case, make the “people” part of Christmas part of your day as much as you can. Place a call to the people you care about most that day and wish each of them a wonderful Christmas.

Often, the reason people give gifts is to express that they care for someone in a way that they have difficulty expressing with words. I don’t think that’s an entirely bad thing, as long as the gift genuinely comes from the heart and doesn’t come from the Wal-Mart discount rack. If this causes you to re-think Christmas gifts, go get a few small items and then distribute them quietly and anonymously on the doorsteps or mail slots of people you care about on Christmas day, just to remind them that you care for them.

Another idea: spend Christmas day helping out at a soup kitchen or some other type of volunteer work. Every time I do such work, I find it very deeply fulfilling.

Q5: College athletic compensation
Do you think college athletes should be directly compensated beyond their scholarship?
- Rodney

I believe that the NCAA should not allow direct compensation of athletes for their play at the university.

However, I believe the NCAA should allow schools to sign athletes to personal service contracts that become valid when they graduate, enabling them to receive whatever compensation the university sees as being fair for promoting the university, appearing in university advertising, and helping with future recruiting.

So, for example, a prized athlete is considering going to school A. That player would receive a scholarship, but they might also recieve a contract from the school for the time after they graduate for personal services such as recruiting and school promotion.

This serves a lot of purposes. One, it helps to push away some of the underhanded dealing in college sports. Two, it does allow the player to receive compensation for their school using their likeness in future promotion after they’re no longer a student-athlete. Three, it encourages students to actually graduate instead of just leaving school and turning pro in their sport of choice, which is somewhat the point of college athletics (at least on paper). Four, it gives those kids some insurance on their talent – if you’re a great athlete, go to college, and get hurt because of that choice, you’ve just lost a huge portion of your financial future.

Yes, I’m sure top athletes would get ridiculous personal service contract offers from universities who want top-notch programs. On the other hand, those athletes will help sell expensive seats at the sports stadiums, help drive university merchandise sales, and aid in recruiting at a later time.

Q6: Preparing for a layoff
I’m looking at a potential layoff in the next few weeks and can’t help but feeling panicked about it, though looking at things on paper has part of me thinking we should be “fine”. I thought I’d send our basic numbers to you, in hopes that you could serve as an impartial judge of if I’m crazy to be nervous and panicked. Our combined income is 175K, 95K for my husband and 80K for myself. Our take home pay falls a little over 8K a month, and my husband contributes the full $16,500 to his 401K each year. (I had been contributing 10% but dropped to 1% when I learned of the likely layoff). The remaining balance on our mortgage is right at 290K and the monthly payment (PITI) is $2146. (Our original mortgage was 332K, we have been here 2 years, and our interest rate is 5.625% – best available at the time. No PMI as we did a buyout as we put 10% down.). Our total monthly expenses, including the mortgage but not including food, falls in around $3200 a month (includes things such as cable tv, xm radio, that I know we could cut if needed). We have no credit card debt, and our cars (a 2007 and a 2009) are completely paid off. I should also mention that we have 60K in savings, 20K in IRA’s, and my husband has at least 80K in his 401K, probably more.

I realize many people are in worse situations and on paper this seems like it should work, but I can’t help feeling like this is going to be awful. I did go through my father being laid off in my early teens which was devastating for our family and probably the reason I am so panicked over this that I feel like things will never get better.
- Jennifer

It is going to be awful, but you’re in pretty good shape to handle it right now.

Job loss is never easy, no matter how much you prepare for it. It sounds as if you and your husband are in pretty good shape with regards to planning for it.

If I were you, I would cut those nonessentials. You’re not going to want to dip into that savings unless you have to, so I would ask myself, for each expense, whether that expense is really worth digging into your savings. Is XM radio really worth digging into your savings?

Remember, even in this situation, inevitable negative things will happen. A car will break down. A hot water heater will need repair. You’ll still need to be able to cover those things, and the best way to handle that is to trim the non-essentials for now.

Q7: Why Christmas?
I don’t understand Christmas at all. I mean, I understand it from the sense of giving things to your loved ones to show how much you care for them and I understand on some level the whole birth of Jesus thing, but why do we have a Christmas tree? Why do people put up lights outside their home?
- Erin

The Christmas tree’s origins are shrouded in the mists of time, but it’s fairly clear from what we do know that, like a lot of other pieces of “tradition,” it was incorporated into Christmas from cultural elements already existing in an area. There are indications of this in medieval Russia and Germany, plus there are stories of St. Boniface cutting down a tree in the Christmas season in “defiance” of Thor (a Norse god) sometime in the 700s. It’s more of a cultural heritage thing than a Christmas thing, though they are amalgamated together.

The idea of Christmas lights actually has a religious root, harkening back to early Christianity when a worshipper would place a candle in the window to signify that there was some service going on in this building. Over time, as the Christmas tree came into prevalence, the candles were moved to the trees. Electric lighting transformed that tradition into the modern one with lights.

In a modern sense, I view Christmas lights as a greeting, a way to say “happy holidays” or “merry Christmas” to anyone who passes by.

If you look at any mass social event, you’ll start realizing that the rituals are fairly odd and usually peppered with a very long history.

Q8: Diversifying retirement savings
When considering diversification of retirement funds, should I spread my retirement funds across separate investment banks, or is simply buying into a set of diversified mutual funds at one institution enough?

I have a retirement account at Vanguard, and I’m considering moving my fiancee’s retirement funds over there as well. Is having all of our eggs in one investment bank basket risking anything significant?
- Stephen

It’s not a bad idea to do this if you easily can.

Here’s why: if your investment house goes under (like, for example, Vanguard) and that house is protected by SIPC insurance (as most of them are), you’ll get up to $250,000 of your investment returned to you, most likely in the form of an account at another institution. Anything above $250,000 is likely lost. Note that this does not protect you against investment losses, just against the failure of your investment house.

For the end user, it’s much like FDIC insurance.

In the end, your best bet is always to diversify. Too many eggs in one basket is never a good idea.

Q9: Career in music industry
I graduated college with my bachelor’s in May of 2009, majoring in finance. Despite my education, I have made terribly poor financial decisions. I have $6000 of credit card debt, $20,000 in student loans, and $8,000 principal left on a 2003 Subaru Forester I bought used. I have been working for a year and half in Commercial Real Estate doing accounting, making a salary of $28,500. I lived with friends for a year and just moved home in September (the first smart decision I have made in years!). I am working to pay my credit card balance down as quickly as possible.

· Pay off my credit card, and try looking for my career in Nashville from Cleveland.
- Jenny

Think about it this way: if your company is in Nashville and there are lots of good candidates in Nashville, why would you pay for someone to relocate from Cleveland? Why would you pay for an interviewee to fly in from there?

If I were you, I’d relocate to Nashville with a job in hand – your first option. You can then spend your extra time seeking out your dream job. I don’t think I would move there with no job opportunities in hand.

Chase your dream. You’ll never regret it, even if you don’t completely grab the brass ring.

Q10: Christmas carols
What’s your favorite Christmas carol?
- Amy

Let me put it this way: for most of December, the soundtrack to “A Charlie Brown Christmas” is pretty much on constant play around here.

I don’t have any particular favorite carols to sing, however. I am learning to play quite a few on the piano right now.

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.

Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

22. Start a potluck circle.

One of our favorite social events is the potluck dinners we have with our friends. At these events, everyone in our group congregates at someone’s house, the host makes some sort of main course, and all of the attendees bring some sort of supplement to it – beverages, side dishes, desserts, and so on. Since everyone’s together, we usually make a long evening of it by watching movies, playing board games, or doing something else socially together.

Having these events as a regular part of our social calendar cuts our entertainment budget significantly while often reducing our food budget a bit as well. If you add on top of that the fact that we’re building our friendships while also having a very enjoyable evening with them, then you can easily see the value of a potluck circle.

A potluck circle is simple to start. Just host a potluck dinner and invite some compatible people. Tell them what you’re going to serve and invite them to either bring a side dish, a beverage, or a dessert of some kind.

What should I serve? Keep it simple! Don’t worry about having some perfect seven course meal for a potluck dinner. Prepare a huge cauldron of soup. Make burritos or enchiladas. Serve up a giant batch of chili. Whip up some homemade pizzas. Focus on main dishes that can easily carry an entire meal with minimum accompaniment and you’re likely in the right area for this.

If you want, you can get very complicated with meal selection and preparation, but there’s really no need to do so.

Have something in mind for post-dinner entertainment Have a few interesting movies on hand. Have a few simple board games or card games on hand. Between the two of these, you can usually entertain your guests, no matter who they are.

Our circle almost always chooses to play games, and the games usually go on until late in the night. It’s perfect for us because we’re all sitting around a table conversing about random things as the turns pass.

Carrying the circle forward The biggest challenge for many people is simply making sure that the circle will move forward – in other words, ensuring that it doesn’t end up being just a one time thing or that you aren’t stuck always being the host.

My suggestion for solving this problem is to mention it up front. Simply state that you thought it would be fun to start having regular potluck dinners with the group you’re inviting and volunteer to host the first one. Suggest that the group can talk about future potlucks at the first one.

When you’re all together, it’s a good idea to come up with a schedule of hosts with a little bit of flexibility. Obviously, some people are going to have conflicts some weeks. My suggestion is to just rotate the potluck amongst possible hosts on a regular basis so that it’s easy for everyone to figure out the schedule and who is hosting the next one at any given time.

It’s also useful to suggest that whoever is hosting share what they’re planning on having for a main course so that appropriate side dishes and beverages can be selected and brought by the attendees. A Facebook group or an email list is a perfect way to do this.

A potluck dinner circle is a great way to maximize your entertainment and food dollars at the same time while also enjoying the friendship of others. In other words, it’s a win in more ways than one. Give it a shot.

This week, I went through the archives of several of my favorite personal productivity and personal finance blogs and found some of my favorite articles they had written about the Christmas season. I hope you enjoy them as much as I do.

A Non-Consumer Christmas: Simple Gifts for Kids and Grown-Ups Our biggest challenge, honestly, is limiting who we give gifts to. We have deeply enjoyed giving our homemade gifts to neighbors, people who provide services for us, and countless others this year. (@ get rich slowly)

What to do with holiday cards? Recycle! I’m going to save a pile of this year’s cards for use in 2011. (@ unclutterer)

Happiness is…a Beautiful Scent: Fireplace, Baby Powder, Christmas Tree. This absolutely hits a home run in terms of expressing why I love real trees at Christmas instead of artificial ones. It’s the aroma. (@ happiness project)

Holiday Safety Tips for Home and Away I really advocate for people asking their police department for a “vacation watch.” (@ frugal dad)

5 Ways To Deal With Holiday Stress & Battle The Christmas Blues My biggest problem is a mild case of seasonal affective disorder that I seem to get each winter no matter what I do to try to prevent it. (@ the digerati life)

What Christmas Is NOT About The reason I write about Christmas so much is because it’s the best opportunity I have during the year to reconnect with a lot of people in my life and show them that they’re appreciated. There are many, many friends and family members whose schedules make it difficult for us to meet up, but almost all of us have time off at Christmas for each other. (@ man vs. debt)

The Case Against Buying Christmas Presents Absolutely. Make some instead. (@ zen habits)

35 Gifts Your Children Will Never Forget Even better, these are gifts you can give your children all throughout the year. (@ becoming minimalist)

Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

21. Find out what’s going on in your community.

I am constantly astounded as to the wide variety of activities going on in my own community and in surrounding communities. Quite simply, there are more interesting activities going on than I possibly have time to participate in or attend. Ultimate frisbee leagues. Free concerts. Free golf. Free lectures.

Once upon a time, I always felt like there was either nothing to do or that the only activities I could do outside of the home were expensive – go to a movie, go to a club, or something like that. In truth, though, most communities are teeming with things to do.

You just have to find them.

Here are some of the techniques I use to keep abreast of the events going on in my own community.

Use the internet Search the internet for your town name (and nearby communities, too) and the words “community calendar” or “activities” and see what you find. Many cities maintain a web site that includes some sort of community calendar and, beyond that, local newspapers often have similar pages as well that note upcoming local events.

That, of course, leads right into my second tip…

Check the local newspaper Local newspapers are usually treasure troves of event listings of all kinds. Browse through a local newspaper or two to see what sort of events are mentioned. Some newspapers – like the one my parents subscribed to as a kid – actually have a “community calendar” section loaded with interesting stuff.

Visit the websites of nearby colleges and universities If you live near a large university, you’re in luck – most of them have an abundance of activities available to the wider community. I live fairly near Iowa State University, so I regularly attend lectures and other events held there in the Union. You can find out what’s going on there by simply visiting the website of those universities and colleges and reading their calendar of events.

Stop by the post office Many activities are posted on the bulletin board at your local post office. At the same time, the local postmaster will often have great ideas as to where to go to find more event listings.

Visit the parks department In many towns and cities, the parks and recreation department runs ongoing activities of all kinds, from sports leagues you can participate in to youth leagues you can coach and referee in.

Stop by city hall The city hall in many towns often has a community calendar on display, listing activities in the town. Even if such a calendar isn’t available there, asking the people working at city hall for further ideas can be a great boost to your search.

Stop by the library The library in many towns offers group meetings, lectures, and activities of various kinds. Stop in there, check out their calendar, and see what’s on offer.

If you do all of these things, I virtually guarantee you’ll have a giant list of low-cost entertainment and activities in your community, most of them free and most of them completely outside of your bubble of awareness. From that list, I’m willing to bet there’s quite a few activities you will enjoy.

Throughout the fall, I ran a series of posts on homemade gifts with enough lead time so that interested parties could make some of the gifts on their own if they so chose. I wanted to top off the series by listing all of the items in the series, showing off the small mountain of stuff we made, and providing some pictures of some of the ways in which we packaged items.

Here are the homemade gift items we covered in the series:
Vanilla extract
Homemade soap
Caramel apple jam
Homemade beer
Wine jelly
Meals in a jar
Crocheted hat and scarf
Personalized cards and stationery
Handmade ornaments
Homemade cookies and gift bundling
Photo cubes

That’s our collection of completed gifts. A few of them (some of the beer and a few of the jars) had already been given as gifts when we took this picture.

As you can see, we made quite a bit of everything. The handmade greeting cards are the one thing that’s not very visible here – they’re in the white boxes near the back of the picture, with white ribbon (which I’ll show again below).

Beer and ornaments

As you can see, we made custom labels for the beer, depicting me with a Santa hat drinking a pint. We entitled the beer “Nit Wit,” mostly as a self-deprecating joke but also because the type of beer we made is a witbier.

Since we were reconstituting six pack boxes for this, we simply took extra Nit Wit labels and affixed them to the side of the carriers.

Also, something worth noting with the homemade ornaments: we’re using a ribbon to attach them to some of the jam, jelly, soup, and brownie mix jars that we’re giving as gifts.

Vanilla and mailing

We found some food-safe jars for the vanilla from an old friend who had extra jars from a food laboratory that were never going to get used. They hold eight ounces of liquid with screw tops.

For them, we made up labels entitled “Super Joe’s Super Homemade Vanilla Extract” (referring to our oldest son’s superhero alter ego).

A few of our gifts are traveling through the mail. For those, we’re packing up the soup in Ziploc bags so that they’ll ship easily.

Handmade cards

For the greeting cards, we wrapped each bundle (we made two bundles of 38 cards each) in tissue paper as you can see above, then sealed each bundle with a small snowflake sticker.

We then put these bundles into small garment boxes, closed the boxes, and wrapped some red ribbon around them, creating an understated look.

This was actually my favorite packaging of all of the gifts we made.

Soap

As we had a wide variety of soap sizes (including some “ball” soaps, which are something of a part of soapmaking tradition), we packaged them in different ways, as you can see above. Three soap balls make a cute little snowman!

Around each soap bundle, we wrapped a small piece of paper entitled “Princess Katie’s Handmade Castille Soap” (after our daughter).

We actually ended up with a lot of these, so there are many people who are getting two or even three bars of this soap as a gift.

Final thoughts
My wife, Sarah, deserves a lot of credit for helping all of these gifts reach completion. Some of the gifts were largely her project (like the scarves). Others were almost entirely my project (like the greeting cards). Others required both of our efforts (like the jams and jellies).

In any case, these gifts were made as a team, and without working together, we would have never been able to complete so many gifts.

Throughout the month of December, The Simple Dollar is posting a daily series focusing on specific activities you can do right now to set the stage for a great 2011. Out with the old, in with the new.

20. Prepare your will and your master information document.

If you have no dependents, no descendents, and no one who would value having any of the items you possess, you can skip this one.

If any of the above applies to you, though, pay attention. The worst thing you can do to the people you care about is die suddenly with no sort of estate plan left behind and no indication of what and where all of your accounts are. Not only is your family grieving, but they’re left to deal with confusion in figuring out where all of your accounts are, talking to a lawyer about intestacy, and hoping that a judge can resolve things reasonably.

You don’t want that, not if you care for those that you leave behind. I’ve watched it happen before and, to put it simply, it’s a depressing mess.

The minimum I would suggest for anyone in terms of an estate plan is a will and a master information document. Let’s address these in order.

A will A will is simply a document stating what you wish to happen to your property and assets should you pass away. This usually handles everything for small estates; if you’re not a millionaire, a will should handle everything you need.

I do not recommend using a software program to prepare your final estate. It’s a great tool for getting your ideas in order and ensuring that you have everything taken care of, but get your final will checked over by a lawyer who can make sure that it’s legally binding in your area. I would also make sure that your executor, whoever you designate that to be, has a copy.

Get it done. You won’t regret it.

A master information document Hand in hand with a will, in my opinion, is a master information document, something I discussed in detail a while back.

Essentially, a master information document outlines all of your account information and other information someone would need to know about in the event of your passing. Much of this information will be highly private, so you want to make sure that when you prepare such a document, you store it in a secure place and let only the most trusted people know where it is.

Having such a document can be incredibly valuable in the event of sudden death, as it makes it very easy for your survivors to close out accounts and so forth instead of having to hunt for information. Rather than digging through mountains of statements, they can just simply refer to your document and have all of their concerns well in hand.

Other things to consider While you’re at it, you may want to consider some other items.

An advance health care directive states your wishes with regards to medical procedures intended to prolong your life in medical situations where you are incapable of making such a decision for yourself. I have ceded all such choices to my wife, but many people may want to have control over such decisions.

A durable power of attorney states who you wish to make legal decisions on your behalf if you are similarly incapacitated.

If you have a large estate, there are many other options to consider. I would strongly encourage you, if you have a net worth in excess of one million dollars, to consult a lawyer with regards to estate planning.

In any case, you owe it to the people you love to take some time to get these pieces in place. No one likes to think about their own mortality, but when you don’t think about it, you push that burden off onto the people you love at the very moment when they could really use your helping hand.

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. Joint expenses and loans
2. Buying a house right now
3. Keepsake distribution
4. Savings or student loans?
5. Homebuyer’s tax credit repayment
6. Emergency fund size
7. Investing baby steps
8. Underwater questions
9. Saving priority before moving
10. Savings rates and journeys

The longest night of the year in the northern hemisphere is tomorrow night. After that, the nights begin to get shorter again, a pattern that continues until late June.

Where I live, this time of the year basically means that it’s barely light out when I wake up and dark again before I’m done with my typical day’s activities.

I much prefer the long summer days.

Q1: Joint expenses and loans
My soon to be fiancé and I recently started living together. We live in a very expensive part of the country in a small apartment. He is currently in grad school. It is an expensive program, and he has some student loans to cover tuition and living expenses. We did Financial Peace University after he had accepted the loans. Neither of us have any consumer debt. We have budgeted so that he is spending way less than the loan money he has been given (about $4000 less each term, so about $12 K less each year of a two year program), and I am spending less than I earn as well. The extra money from his loans is sitting in his bank account, and he will use it to immediately start paying down the loans after graduation. I currently work full-time at a stable job, making about $46K. We currently split the expenses down the middle—me paying for my half with my paycheck, him paying for his half with his loan money. I am currently putting about $1000 into my savings each month. He has about 20K saved in his savings from before grad school, not including the student loan money. I have about $15K in my emergency fund and feel comfortable with that number. My questions: Would it be better for me to pay for all of our joint living expenses for the remainder of his degree, so that he can use less of his loan money, or is it more important that I continue to save that 1000 per month? What would be the best way for us to jointly manage our money and the loans? For whatever reason, it seems like a really confusing decision for us.
- Samantha

You’re moving from a situation where you have separate finances to a situation where your finances are essentially joined together. In that event, you should be choosing whatever path results in the best overall financial picture for the two of you.

If your fiance is taking out extra loans solely to pay for the rent, that’s not a great long-term financial move, particularly if you have an emergency fund large enough to cover a few months’ worth of living expenses. Assuming the two of you are really in this for the long haul, the smartest move would be for you to cover most or perhaps all of the rent, minimizing his loans.

Before you make that move, though, be absolutely sure that the two of you are in this for the long haul. If you continue to date until he has his degree and then you break it off, you essentially just paid for part of the college degree of your ex-boyfriend.

Q2: Buying a house right now
We live in the Washington, DC area and are considering buying a house. We plan to stay in the area for at least the next 5 years, though there may be a 1-year break for me to go to grad school (we’d rent out our place). If it worked financially, we’d consider keeping this property as a rental even after moving out of the area.

As a follow up question, should we be focused more on paying off the student loans than on funding retirement plans?
- Tori

With that big of a student loan over your head, your housing option should be the one that costs you the least amount, whatever that may be. I think you need to sit down and investigate the complete cost of home ownership for the home you’re considering.

How much will insurance be? How about homeowner’s association fees? Property taxes? These are three areas that you can get an estimate for right now – and I’m almost sure you’ll find that the cost, even with these categories, goes way up from what you’re spending right now.

If you can find an option that costs you less than what you’re spending right now, go for it.

As for your retirement plan versus your student loans, I would make sure that you’re socking away 10% of your income towards retirement. Anything beyond that should be going towards the loans.

Q3: Keepsake distribution
My mother is going to be entering a retirement home after the Christmas season. She will be selling her home and some of the possessions in it. This will be our last Christmas at the old house.

She’s told me, my siblings, and all of her grandchildren that she’s going to be distributing all of the family keepsakes and personal items in the house this Christmas. We don’t know how she’s going to go about it and some of us are a bit concerned that there will be fighting over a few key items. Do you have any suggestions on how to handle this in advance so that our last Christmas there isn’t ruined?
- Millie

I would suggest that your mother decide before you all arrive what items she’s intending to distribute to whom. Let it be entirely her decision – after all, it is her things.

If there are items people want that aren’t claimed, I would suggest having a drawing to determine an order of people. The first person in that drawing gets to claim an heirloom of their choice, followed by the next person and so on.

All of you love your mother and her home and all of you will want an item to remember things by. Keep that in mind and it’ll go smoother.

Q4: Savings or student loans?
My fiancee and I are both 23 and living separately at our parents’ houses. As such, the only expenses we really have are student loans and car payments. She makes less than I do, and has about the same in student loans, with a smaller monthly car payment. In the past year, because I’ve had little other expenses, I’ve been putting as much as I can on the student loans as possible, to the tune of $12,000, or $1000 a month, which is well above the minimum payment. Also, I’ve been putting 8% of my paycheck to my 401(k), which is a little more than the company matches. Again, I’m taking advantage of the fact I have few other expenses now, so I’m doing as much as I can in other areas. My fiancee and I opened a joint savings account together, which grows $600 per month, and we’ve got about $3500 in there. It’s our wedding/house starter money.

My question was this: should I keep paying off the student loans at $1000 per month, or should I slow it down a bit and ramp up my savings? Also, one of my savings accounts (about $6000) has been sitting around, doing nothing but earning minimal interest. I was thinking about either Treasury notes (which ties up the money for a year) or a shorter CD (higher interest than my regular savings, but with the ability to get to the money after a shorter time). My fiancee doesn’t really like the idea of either, because she thinks we’ll need that money VERY shortly, when we haven’t really looked at houses or anything.
- Josh

This is a moot question if you and your fiancee aren’t on the same page about what your financial future holds. The first thing you need to do is sit down together and talk about where you two intend to be in a year, in five years, and so on. Without knowing that – and knowing when you intend to buy a home together, get married, and so forth – you can’t plan appropriately with your money.

If your home ownership is more than two years or so away, I’d probably spend 2011 knocking off those student loans. Being debt free is something you’ll never regret, plus it’ll give you the freedom to start saving in earnest for whatever may come.

If your wife-to-be is seriously thinking of buying a home in the next few months, then make minimal student loan payments and save every drop of cash that you can. You’ll need it.

Q5: Homebuyer’s tax credit repayment
My husband (fiance at the time) bought a house in March 2009 for 160,000 and qualified for the 8,000 home tax credit. It had been his dream to remodel an older home and so for the past year and a half, we have completely replaced and updated everything. Unfortunately, although we love our house, we have really grown to dislike the neighborhood (broken into once and have had several items stolen from the sheds, yard, etc) and are looking to move to a nicer neighborhood. Anyway, we have probably put $40,000 into the renovations and since we will be selling (hopefully!) before having lived in the house for 36 months, we will have to pay back that 8,000. However, IRS form 5405 states that we would not have to pay back the credit if we do not have a “gain on the sale (as figured after reducing the basis of my home by the credit I claimed in 2008)”. We are hoping to sell our house for 190,000 and so, would be losing money with all the renovations. We still have our receipts and everything. My question is, do we have to pay back the tax credit?
- Emily

I consulted a tax professional friend of mine and he stated that he believed you would have to pay back the credit.

In his words, “the rule is written to prevent exactly what they did which is increase their home value through renovation then flip it quickly.”

If you sell it within the 36 month time period, expect to pay back the credit.

Q6: Emergency fund size
We have a $65K emergency fund, which represents about 9 months of expenses. We also own a rental property that is completely paid for. Our only debt is a truck payment of $394 a month (0% interest; 3 years left on the loan). Since we have the emergency fund in placed, I have been paying $1K extra a month on our mortgage principal. As I read your blog, especially about the readers who are struggling financially to cover basic necessities, I’ve become a little paranoid and I’m now wondering if we should stop paying so much money on the principal and add more to the emergency fund. I’m a teacher and my husband is a school bus driver. Our combined monthly net income is about $7k, from September through June and this amount does not include the income we make our rental property, which is about $1,500 when both apartments are rented. We pay about $5K every five months for our son’s college tuition. He opted for a community college and will be attending a public university nearby to save on room and board. What’s your take? Should we put more money in the emergency fund and reduce the amount paid on the loan pricipal?
- Deborah

I would make sure that you have enough in your emergency fund to cover at least three months’ worth of all of your expenses. The cash total in your account should cover every bill that you would expect to come your way over a three month period – mortgage payments, utilities, taxes, food, car payments, and so on. I would encourage you to perhaps even have four or five months’ worth.

I don’t know what that number is – you’ll have to calculate it yourself. However, I think your emergency fund is probably large enough in this case.

However, if you do feel uncomfortable with the size of your emergency fund, it does not harm anything to increase the size of it.

Q7: Investing baby steps
I’m a young student (around 20) and I’m starting to invest my hard earned income. I’m lucky to live in my parents’ house, so I don’t have rent or grocery to pay. Therefore, I think the timming is right to start. What book would you recommend me to read to get a better knowledge of investment (read here placement, investment fund, bond, etc.)?
- Gabriel

For starters, you need to set a goal, and I’m going to speculate that one of those goals is to move out from your parents’ house.

If you have enough extra money that you’re starting to sock it away in “investments,” you need to be looking at a timeline for your independence from them.

My suggestion is to sit down with them and have a face-to-face talk about what the expectations are and what the plan is for you becoming fully independent. That will help you to figure out what exactly you should be saving for.

Q8: Underwater questions
Two and a half years ago, my husband and I purchased a house. The market in our area was just beginning to show signs of faltering, but we got a house we love for an affordable monthly payment. At the time we only put down 8%, got a 30 year mortgage at 6% and do not pay PMI (our credit union does not charge PMI on any mortgage it issues). With the interest rates being so low now, I was considering attempting a refinance. However, looking at the recent home sales in the neighborhood, there is a good chance that our house will appraise at or below the amount we owe on it. So onto my questions.

Let’s say our house appraises better than we hope. My understanding of PMI is that it is effectively an higher interest rate for the years of payments before you have paid off 20% of your home’s value. Is it worth it to move to a loan with PMI if the PMI plus the interest paid is less than the interest we’re paying now? Is PMI tax deductible like mortgage interest is?
- Margot

If your home appraises for less than you owe on it, it means you’re underwater. It doesn’t directly change a thing about your mortgage agreement.

The problem is that it will be very difficult to move your mortgage elsewhere, as a home mortgage relies on having an asset behind it that’s worth at least somewhat more than the amount loaned out. They’re not going to loan you more money than your home is worth.

If your home is appraised for more than the mortgage, then you may be able to move it elsewhere. There will be different kinds of offers on the table, some with PMI and some without (but with higher interest rates). I wouldn’t move it unless you get one that reduces your interest rate by more than 1% and has a combined interest plus PMI rate that’s lower than your current rate.

Q9: Saving priority before moving
I try to be very diligent about saving. Every month I automatically contribute to the follow accounts

My company has an office in New York and would likely provide me with some sort of stipend for moving.
- Joe

Whenever you move, it’s always a great idea to have some liquidity. If you think that a move is coming up soon, I would start buffing up your cash savings.

Why? Every move I’ve ever seen involves tons of little expenses, from restocking a household to utility deposits. There will be a healthy outpouring of cash during that timeframe and if it’s in the near future, you need to have the cash to cover it.

Your index fund can wait – it’s long term anyway. Prepare for this short term spending situation.

Q10: Savings rates and journeys
I started reading the archives of your blog, and came to the realization that we are in a similar situation as you were when you started the blog – credit card debt, student loans, a decent household income, auto loans, a little savings, bought a house a year ago, first child on the way. We have tried to start paying down debt aggresively in the past, but something always derailed us (saving cash for a down payment for our house, travel, a job loss). We are now in what I feel is a great position to start paying down debt and to get our financial lives started in the right direction.

My second question is more about the financial journey. I really enjoy reading your blog, others like it, and have previously read a few of the books you’ve reviewed in the past. I’m constantly looking for ways to save money, create more income, and seeing when certain debts will disappear. My problem is that I just can’t wait for these things to happen. I’m confident enough in my job, my wife’s job, and our plan, that I can see the day when we’re debt free (except for our mortgage and some very low-interest student loans) and can begin expanding our emergency fund to cover 6 months of expenses, and then begin investing. The problem is, I want to see it now. For some reason, I’m becoming somewhat obsessive over this (I happen to enjoy the subject, the reading, and the numbers), and just can’t wait for these plans to become a reality. It’s not adversely affecting my life, or relationship, or anything like that, but I always seem to be running numbers in my head. Maybe I’m being perfectly normal about it, but any advice on patience? I know this is supposed to take years. I just can’t stand to wait that long…
- Kevin

Those rates existed in 2007. Thanks to the economic conditions since then and the Federal Reserve’s response to them, these rates have dropped through the floor. The best you’re going to find that isn’t some sort of teaser or isn’t combined with some sort of restrictions is probably in that 1.3% range right now.

As for having patience when it comes to watching your financial progress, my suggestion is to calculate your net worth very, very frequently and chart it in comparison to your previous calculation. Do it each and every pay period.

There was a time in my own financial journey where I felt very frustrated by the slow progress. An intense focus on my net worth, particularly in terms of comparing it to my previous net worth, helped me get through it and really understand how my little steps were becoming bigger and bigger and bigger.

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.