I’m never going to play in the NBA.

That’s an unrealistic goal for me, and I knew it to be an unrealistic goal when I was ten years old on the playground. I wasn’t fast enough and didn’t have the natural reflexes of the other ten year olds on the court.

It was a painful thing for me to realize. I loved playing basketball. I still do. For me, basketball is a beautiful game.

The realization that I wasn’t NBA material didn’t mean I couldn’t be an effective basketball player. I had other skills that I could certainly utilize at the playground level. I was very solid and could plant my feet well, which meant that I could be a good defender, especially under the basket. I was willing to scrap for the ball. I was often more proud of a rebound or an assist than I was of a basket. I wasn’t fast and I couldn’t hit the broad side of a barn more than ten feet away from the basket, but I did have at least some skills I could utilize and work on.

It also didn’t mean I couldn’t enjoy playing basketball. I wasn’t going to be the next Michael Jordan. So what? That doesn’t mean playing basketball wasn’t – or isn’t – enjoyable. As I grew older, particularly during my later high school years and especially my first two years in college, I really enjoyed playing basketball. I knew what my areas of expertise were and I focused on maximizing those and being part of a team. It was a lot of fun and I had a set of experiences from those days that I’ll always remember.

It also didn’t mean that, if I committed to it, I couldn’t have spent my life around the game. Sure, I couldn’t actually play the game at a high level. However, I could coach. I could be an announcer. I could be a scout. I could be a basketball blogger. I could be involved in sports marketing. I could be involved in physical therapy. All of these were options that could have kept me close to basketball throughout my life. Each would have required me to add some additional skills to my repertoire beyond just the ability to play ball, of course, but that’s to be expected.

What’s the point of all of this?

First, some goals are too audacious. It is not realistic – nor has it ever been – for me to set playing in the NBA as a goal. It simply is not going to happen. It would simply be a path to failure for me to set being in the NBA as a goal.

Having said that, there is often some large element of even the most audacious of goals that you can achieve. It might not be realistic for someone to be President of the United States, for example, but it is certainly realistic for that person to aim to be mayor of the town in which they live or to be part of the White House press corps. It might not be realistic for someone to be an astronaut, but it is realistic for someone to become a NASA engineer.

If you find those initial but still fairly audacious goals easy, then aim higher. For example, if you decided that being President wasn’t going to happen, but you found yourself going from nothing to assistant Parks and Rec director to full Parks and Rec director to city council to mayor in a six year span, you might just have a gift for politics and might want to look higher. If you’re young and you decided to not shoot for the NBA but just be the best rebounder on your high school team and you set state records for rebounding during your sophomore year of high school, you might just want to aim higher.

One way to achieve this is to set goals not based on achievement, but based on performance. Let’s say you dream of a political career but are just getting started with a chance to be an assistant parks and recreation director, look at that position and ask yourself what kinds of things you can do in that position to hit a home run in that position while also setting yourself up for higher steps. Make a plan to succeed in just that regard. Set specific short term goals that will define your success and build the relationships you need to climb from there.

Similarly, let’s say you decided you wanted to be a basketball announcer. As I mentioned before, I have a friend who goes home in the evenings, turns the television on mute, and practices announcing the games he sees on television. It turns out that he records these sessions and then listens to them, noting what he’s doing wrong along the way. He’ll watch games while listening to his recorded coverage of them, and he’ll also listen to the straight audio in the truck.

His big goal might be to be announcing games on TNT and hanging out with Charles Barkley, but his short term goal is the priority. His goal, every single day, is to record a play-by-play of a basketball game, listen to another play-by-play, and critique it. Beyond that, he’s making connections in sports broadcasting at every level, using Twitter and personal interactions to meet people who are actually in the business, particularly production folks.

Those are goals that are based entirely on the process of achieving his big goal. Even if his big goal doesn’t come true exactly as he envisioned it, I don’t think anyone would argue that he’s not creating a very compelling path for himself in sports broadcasting.

It gets better. His medium-term goal is any paid job broadcasting basketball games. Anything. It can be for a local radio station broadcasting high school games. It can be voiceovers for a website. Whatever it takes. Again, he has a plan for that goal that’s loaded down with the things he can do today.

If you’re reading this, you probably don’t have the skill set needed to be president or the skill set needed to be a Major League Baseball all-star or the skill set needed to be CEO of a Fortune 100 company. That’s okay. There’s still nothing keeping you from having a life filled with doing the things you love. Focus instead on who you are, what skills you can build, and what you can do.

You might just find a better path than you expect.

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Ralph Waldo Emerson on the “good old days”
Unemployment is at 9% or so and the media bemoans financial apocalypse. A few years ago, unemployment was at 5% or 6% and everyone talked about prosperity. I don’t seem to remember having mountains of money then, and I certainly don’t have mountains of money now.

“Can anyone remember when the times were not hard, and the money not scarce?” – Ralph Waldo Emerson

Yes, some people have lost their jobs in the last few years, but for most Americans, 2006 wasn’t a period where we had fistfuls of money to throw into the air. The median income level then was largely the same as it is now. Emerson hits a home run here (as he often does – he’s one of my favorite writers of all time).

2. Tulips and the arrival of spring
For me, one of the surest signs of the wonderful arrival of spring is the presence of tulip bulbs at local gardening stores.

The sight of a tulip makes me ready for the steadily-growing warmth of spring. One particular highlight of spring for my family is a trip to Pella, Iowa, for their Tulip Time festival, which usually occurs on the first weekend of May (or so). I’m ready.

3. Albert Einstein on audacious ideas
Every big goal you set in life seems absurd when you start out.

“For an idea which, at first, does not seem absurd, there is no hope.” – Albert Einstein

The Simple Dollar seemed absurd when I started it. At best, the whole thing was a lark, an excuse to talk to my friends indirectly about personal finance.

Every big thing worth doing in life seems absurd at the beginning.

4. Weatherspark
I’m a weather fanatic. I’m constantly studying forecasts from lots of sources, trying to use those forecasts to plan when we’re going to take family excursions, when I’m going to plant the garden, and so forth.

Weatherspark (at http://weatherspark.com/) is just amazing. It’s a tool that basically merges weather data and forecast data for your location from a bunch of different sources and shows them to you all at once.

When you first look at it, it’s information overload. Start playing with it and studying it, though, and it will quickly become an indispensable tool.

5. Oscar Peterson’s piano solos
Oscar Peterson is one of the greatest jazz pianists of all time. His solos are stunning. Here’s a particularly amazing one.

It sounds, to my ears, like this is a piano trio, not just one person. The skill and artistry on display here is stunning, even if you’re not a fan of jazz piano.

If you liked this, be sure to check out the Oscar Peterson mix on YouTube.

6. Thomas Edison on work and opportunity
I find that, over and over again, I’m rewarded by working hard for something. I am very rarely rewarded by taking the easy path to something.

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas Edison

Edison states this so well. It’s quotes like this that convince me to spend more time and effort looking for great ideas, great answers, and better ways to express them.

7. Daniel Pink on motivation
This is a great short speech on motivation from the 2009 TED Talks.

Motivation is a key part of moving yourself towards doing something amazing. Pink presents the ideas in an entertaining and enjoyable way.

8. Laura Czaja at FT Press
Dealing with PR people is simply part of my life. Simply because I’m a fairly high-profile blogger, I get MOUNTAINS of emails from PR people who want to tell me about the product they’re representing, some person they’re representing, or something like that.

I’ve complained on Twitter quite often about PR people who are, well, annoying. They send me these horribly impersonal emails that are full of marketing-speak and feel about as cold as an icebox. These emails sometimes match something that might be of interest to me – at other times, they’re completely useless to me. Whenever I attempt to interact with one because they mention something of interest to me, they respond with something that sounds like it was written by a robot. It’s awful and off-putting, and more than once it’s convinced me to not bother to look at a potentially interesting service or book or something like that.

Because of that, I really want to highlight someone who does it right – Laura Czaja at FT Press. She’s a PR person, obviously, but she does her job in a way that actually causes me to pay attention to her emails. For one, she’s really selective in what she sends me because she actually has a clue who I am and what I’m doing. At the very least, she’s bothered to take note of The Simple Dollar with enough detail to know about things that might actually match and things that won’t. For another, her emails aren’t impersonal. They’re friendly and polite and to the point in language that doesn’t sound like a machine. Brief and friendly are what works for someone like me – I want the point in a sentence or two, and she gives me that without sounding like a machine. When I reply to her, I either get a clear response or, magically, what I request just happens.

Laura, you are a shining example of how the PR industry can actually work by being selective and being human, and because of that, you’re one of the very few people I pay attention to from the PR industry. PR firms, you’d do yourself a great favor by having Laura on your staff. Laura’s employers, you need to give her a raise.

People who do their jobs well are always an inspiration.

9. Jump for Joel
I wrote about Jump for Joel a few years ago, but every time I have an interaction with someone involved with J4J, I’m thoroughly impressed.

As I stated then:

Jump for Joel‘s mission is to directly improve the baseline living conditions and educational opportunities for impoverished children in sub-saharan Africa, particularly in orphanage situations. They do this through directly sponsoring volunteers to travel to that region in Africa, as well as directly buying supplies for children in such situations (school supplies, toilets, etc.).

The charity was started in 2007 by a University of Illinois – Springfield student who spent two weeks on a volunteer project at the Gathiga Children’s Hope Home in Nairobi, Kenya. The conditions that the orphaned children lived in shocked her into action, bringing her to start Jump for Joel (named after one of the children in that orphanage).

I became aware of Jump for Joel through my sister-in-law, who spent much of the summer of 2008 volunteering in an orphanage in Romania. It was through this experience that she became acutely interested in what she could do here at home to help out children in such impoverished situations, and through that she became a part of the Jump for Joel team.

I absolutely love their Tumblr blog, outlining what volunteers are actually doing while they’re working in the field for Jump for Joel. It’s the humanity of the whole thing that comes shining through.

10. Barry Schwartz on the paradox of choice
This is another TED talk I enjoyed this week. Barry Schwartz talks about the challenges that the overflow of choices has added to our lives.

I think he’s on to something here. When there are 175 choices of salad dressing at a grocery store, it becomes much more difficult to make a great choice about them. Great food for thought, thoughtfully presented.

Each week, I’ll present a low-cost meal (or a meal that demonstrates a lot of options for cutting costs) that my family eats for dinner and enjoys. Many of the recipes will be vegan or vegetarian, with options to add other ingredients for non-vegetarians.

I’ll be the first to admit that when I heard of the idea of curry pumpkin soup, I thought it sounded dreadful. Pumpkin soup? Are you kidding?

My wife really wanted to try a curry pumpkin soup recipe she found in our copy of Mark Bittman’s How to Cook Everything Vegetarian, though, and we often eat each other’s culinary experiments.

I was shocked when I found out the soup was good. I was doubly shocked when my wife modified it a bit and the second version was bordering on great.

The soup is the main attraction here. We just accompany it with a simple sandwich or two to dunk into the delicious soup (in this case, pumpernickel sandwiches with cheese and some leftover salad spread on them).

I usually take more pictures than you’ll find in this post. Part of the reason I didn’t is because I was unexpectedly blown away by Sarah’s curry pumpkin soup version 2.0 and I wanted to share it as soon as possible. In other words, this wasn’t initially planned to be a meal post, but I really wanted to share this surprisingly good recipe.

What You Need
Most of this stuff is easily acquirable at any local grocery store.

2 cans pumpkin (canned pumpkin is just that – 100% pumpkin – but if you’d like, you can bake a cooking pumpkin here)
1 can coconut milk (again, you can extract the coconut milk yourself, but few people will realistically do that)
3 tbsp. vegetable oil
1 medium onion, chopped
4 cups vegetable stock or vegetable broth
1 tbsp. minced garlic (or garlic powder)
1 tbsp. ginger (preferably minced fresh ginger)
1 1/2 tbsp. curry powder
cayenne pepper to taste
salt & pepper to taste

This was about $7 worth of ingredients for us and it made enough soup for eight adult meals.

The Night Before (or Early That Day)
The best thing to do in advance is to chop the onion, then store it in a sealed container in the refrigerator for use in the recipe.

There’s really nothing else to do the night before unless you’re preparing fresh pumpkin, fresh coconut milk, fresh ginger or fresh garlic for use, in which case it can be quite helpful to prepare those elements as well. I highly recommend doing the fresh ginger and fresh garlic, though, as they don’t take long and really add to the meal.

Preparing the Meal
Simply saute the onions over medium heat in a large saucepot (capable of holding at least three quarts) with the vegetable oil until they begin to be translucent. At that point, toss in the garlic, ginger, and curry and keep sauteing for another two minutes (or until your kitchen begins to smell wonderfully).

Add the pumpkin, coconut milk, and stock directly to the pot and stir continually until the liquid is bubbling. At that point, add the cayenne, salt, and pepper and stir, then allow it to simmer for five minutes (or a bit longer if you need to for other meal preparations).

This is a fairly hearty soup, so sandwiches are a great side to serve with it.

Optional Ingredients
The biggest variation you can make with the soup itself is to add 1/2 cup chopped cilantro to the soup. This adds an unusual flavor to the soup that some will really like.

However, most of your options with this meal come from the sandwiches. Mix it up a little with a variety of breads (rye, pumpernickel, potato, etc.) and toppings of all kinds (different meats, cheeses, condiments, and so on). Sandwiches can provide limitless flavors, so experiment here.

One of my biggest splurges each year comes in August, when I travel to Indianapolis with a few friends and attend GenCon, a gaming convention. During a given year, my wife usually goes on some sort of trip by herself as well, often to visit family in the Pacific Northwest.

I usually pick up a new game and a new book about once a month, on average. Sarah’s more of a reader and tends to pick up two or three.

We go out to eat perhaps twice a month as a family.

Sarah and I tend to buy each other fairly nice gifts for gift-giving occasions.

All of these things are splurges. Each of them are expenditures that are purely for personal enjoyment that would be easily cut out of our lives if we were to do so.

I’m absolutely in favor of some degree of splurging in everyone’s life. The ability to freely experience the things we enjoy is a wonderful aspect of modern life, and eliminating it completely from our lives leads only to misery.

The challenge comes in when the cost of splurging begins to interfere with other aspects of one’s life. It’s particularly dangerous if splurging actually makes it difficult for you to pay your bills, but it’s also an area of concern if splurging is keeping you from moving forward on your goals and plans for those goals.

I’ll use my own life as an example. One of our biggest goals is to eventually buy a home in the country, hopefully before our children grow up. We’d like to build a home that includes a nice home office (rather than the small reconstituted bedroom I currently use) and a few other features, as well as a small barn in the back.

In order to achieve that goal, we had to establish a savings plan that would pay for that home in eight or so years (ideally paired with a rapid payoff of our current home’s mortgage). It’s an aggressive plan, but it’s a big goal that both my wife and I want to achieve.

Splurging is not allowed to interfere with that goal. Covering our monthly savings for that goal comes first before any splurging.

In other words, we treat our financial goals as bills that have to be paid. Once those bills are paid, we can then focus on the splurges we want in our life.

So, for example, I save slowly throughout the year for my GenCon trip. I put away about $20 a week all year long and when the trip arrives, I can easily afford the whole trip – the food, the travel, the hotel stay (usually, I’m in a room with several other people), and the event participation, often leaving myself with enough cash to pick up a game or three.

How do we determine how much we have each week or each month with which to splurge? Sarah and I each have a “splurge” line in our effective family budget. We’re each allowed to spend a certain amount each month without question. If we don’t spend it (or aren’t saving it for some specific goal), it just rolls back into the general pool, helping all of us.

Family-wide splurges usually come out of our excess money at the end of the month, as we constantly come in under budget (since I usually budget for the maximum for almost every bill).

An important thing to note is that I could easily define things like cell phones, television service, and internet service as splurges. All of these services are useful to us, but all of them are also, in essence, splurges.

Again, if splurges get in the way of your long term goals, cut back on them. Yes, that might mean your cell phone or your cable box.

Another good rule of thumb I’ve found is that if a splurge no longer feels like a splurge – in other words, it no longer feels special – it’s time to cut back on it.

My GenCon trip is a highlight of my year, so it always feels “special.” On the other hand, if I get a new book more often than once a month or so, it begins to feel routine (especially considering I can read public domain books for free quite easily or just pick up something on PaperBackSwap).

In the end, splurges come around after your goals are taken care of. If you find yourself splurging without taking care of your goals first, your future won’t be what you want it to be.

Yep, you read that right. Homemade yogurt, in our crock pot.

Of course, before we get started, it’s worth noting that I’m sharing something we do routinely in our own home, and if you choose to do this in your own home, I assume no liability over the results. We’ve done this many times and have never had a problem, but if you were to use unclean equipment or use old milk or something, you could create something inedible in this process. Clean your stuff thoroughly before making anything like this – or cooking anything in your kitchen, for that matter.

The reward? We made this much yogurt using just $2 worth of material.

We actually made ten containers – Sarah and our children were sharing the first container while this picture was taken. Each container contains about twice as much yogurt as a typical store-purchased yogurt container.

So, how did we make it?

Our procedure was very similar to the crock pot yogurt recipe at Crock Pot 365.

You’ll need a functional crock pot, a clean towel, half a gallon of milk (preferably whole milk, though it works with soy milk), 1/2 cup store-purchased yogurt (any kind will work – even soy yogurt), and any flavoring you wish to add – vanilla, fruit puree, etc. You may also want to add a single packet of unflavored gelatin (for thicker yogurt) or a cup of nonfat milk powder (for a creamier taste).

The procedure itself is simple. Just put the milk in a cleaned crock pot and let it cook on the low setting for two and a half hours, then unplug the crock pot and let the milk sit for three hours (covered), for five and a half hours total.

At that point, remove a couple cups of warm milk from the crock pot and add the yogurt to that cup, stirring them together thoroughly.

Add the milk-yogurt mix back to the crock pot and thoroughly cover the crock pot with a towel. If you’re going to add nonfat milk powder or gelatin, do it now, stirring it in thoroughly. Then, let the crock pot sit (unplugged) for eight more hours (we left it overnight).

In the morning, you’ll have plenty of yogurt!

You’ll want to flavor the yogurt at this point. I strongly recommend being conservative with the flavoring, as it’s surprisingly easy to overdo it. I also recommend using smaller individual containers like the ones you see above.

Yes, this even works if you’re a vegan. You can use Stonyfield Farm O’Soy soy yogurt as your yogurt starter and use soy milk or almond milk as your milk.

The yogurt lasts for about seven days, so expect to be eating it as a snack pretty heavily after you make a batch. If you’re like us, where yogurt is a regular part of meals, this is easy to do.

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. Banking troubles
2. Getting rid of a timeshare
3. Scholarships and taxes
4. Housing money for the future
5. Loan arrangement question
6. Where should we keep savings?
7. Wanting to be a parent
8. Savings account activity fee
9. Prioritizing low interest debt
10. Closing credit card impact

My children just spent five days with their grandparents. I missed them and was thrilled to see them yesterday.

I haven’t seen my sister-in-law in months. I missed her and was thrilled to see her today.

Does absence make the heart grow fonder?

Q1: Banking troubles
I am having trouble with [large bank #1]. They posted a check twice to my account, once as an electronic transaction and second as a physical check. This was a rent check. The rental complex says that [large bank #1] needs to contact [large bank #2]. [Large bank #1] is blaming the company and I just want my money returned. Is it really possible for the same check to be cashed twice?

They told me they would reimburse the money but have failed to do so and it has been over two weeks. Is there anything you can do to help me or to point me in the right direction?
- Kwame

You need to keep hammering away at the customer service with your own bank. Call them and keep escalating until you get answers. This should be fairly straightforward, as both payments should have the same check number on them.

Once this is resolved, come up with a better way of paying your rental complex. Somewhere along the payment path, there was an error, and it’s really hard to tell where that error is. The best step you can take to avoid it in the future is to look for a direct payment method.

This right here is the reason why I focus so much on customer service when selecting a company to do business with, particularly with larger financial concerns. If the company you bank with, buy your computer from, buy your car from, buy your furnace or air conditioning unit from, or any other major purchase has poor customer service, then the “deal” they give you really isn’t a deal.

Q2: Getting rid of a timeshare
My husband came into our marriage with a time share he purchased with his girlfriend at the time. He owns it 100% as he bought his girlfriend out of it. They are on good terms and agreed that he owns it 100% (although it’s still in her name). We now pay $1000 a year towards owner dues as it’s “mortgage” is paid off.

Can you let me know what’s the best way to sell a timeshare (not looking to make any money) or any advise on what to do with it? That $1000 is something I’d like to put towards a vacation we’d actually go on!
- Tricia

First of all, you need to have the timeshare in your name before you can make such moves. If the timeshare is in his ex-girlfriend’s name, you need to legally obtain it from her before you sell it or else have her involved in the sale.

Unwanted timeshares are a market where there are many more sellers than buyers, so you’re going to have to sell at a pretty low price to get it off your hands in a reasonable amount of time. This article provides some advice on selling a timeshare.

If you price it low enough using such methods, you will eventually sell it.

Q3: Scholarships and taxes
I have a quick question on taxes for scholarships. A friend who comes from a really poor family (single mother, 2 children, youngest with heavy incidence of downs and ~15000 of income) went to an exclusive college on the east coast on a full ride (its a ull-need college) with the standard federal loans. Junior year, she was told that she was filling her taxes wrong and that she owed the IRS thousands.

I just question whether its right that she owes taxes, since her income is in essence money that the college agreed not to charge her. Isn’t that the same as say buying a computer on sale? What’s stopping an enterprising college that wants to up its tax deductions from deciding to up the room and board charge by say 1,000 and then giving all of its entering students a 1,000 deduction on that cost as a door prize?
- Marlie

A scholarship (or portion of a scholarship) that covers room and board is a taxable scholarship. It’s no different than someone working at a job, earning money, and using that money for food and rent. They don’t get a deduction for that.

She should consider negotiating with the IRS before paying anything. Often, you can state hardship and make the IRS an offer and they’ll accept the offer.

I’m not sure what you mean by that plan you describe. Are you saying that they essentially offer a room and board scholarship that also includes the tax costs on that scholarship? It’s possible, but most colleges would probably prefer to cover more students with scholarship money than worrying about the taxes of fewer students.

Q4: Housing money for the future
My wife and I are co-pastors, splitting one position. Just over a year ago we accepted the call to our current church. We moved from one part of the country to another. In our old town, we had purchased a house. We were fortunate to sell it before moving here. We had purchased the house for $199,500 and sold it for $182,500. Our equity ended up being about $32,000. My wife and I agreed not to make any substantial moves with the 32K for a year and that time is up. It’s in a low-interest savings account. As part of our call and compensation here, we live in a parsonage. We hope to be here 8-10 years. Each year we put $2,000 each into a Roth and we have a retirement plan with our denomination. For lack of a better term, the 32K is “housing money for the future.” Any thoughts about what to do with it?
- Charlie

Since you’re on the cusp of where the stock market becomes a good investment with that ten year time frame, I would probably encourage you to split it between something conservative (like your savings account) and a broad-based index fund. Index funds are basically collections of large numbers of stocks in one investment, which protects you from the failure of a single company. I buy index funds through Vanguard.

Another option to seriously consider is to use that remaining “housing money” to bump your Roth contributions up to the maximum each year for the next several years. Contribute $2,000 out of pocket as you were doing, then add enough to it to maximize your Roth contributions for the year.

The advantage of doing this is that you can always pull out the contributions later, but if you put them into the Roth IRA, they’re helping you build for retirement. If you move on to another calling that also has a parsonage, this will have been the best move, in my opinion.

Q5: Loan arrangement question
I am going to finance a loan for my “significant other”. We have been together for 10 years but are not married, so I do realize that I need to get an Attorney involved to draw up a legal agreement that would protect me. Here is the financial scoop:

My question is this: Is there some type of software out there (preferably free) that would calculate the interest on this loan in the same manner that the bank would be calculating interest plus also calculate what is applied the principal, what is applied to the interest and display the new principal balance due after each payment is made? It would also need to be able to apply payments to principal only as I do have him convinced that the best thing with a loan is to pay as much as you can on the principal in order to save on paying excessive (and unnecessary as far as I am concerned) interest. These calculations would be done either monthly or every two weeks (however he prefers to set up the loan) and then again when he pays on the principal. Yeah, I know that I am asking for a lot here. Any suggestions you could make would be appreciated! Thank you!
- Kelly

You can use pretty much any mortgage calculator to get the numbers you need for most of those scenarios, plus a little bit of simple calculator math. You would have to re-run the calculator after each payment, of course, to adjust things based on the extra amount he’s paid. You’ll also have to determine an initial term for the loan.

So, for example, let’s say you lend him $40,000 at 3.5% over 10 years (120 months). You’d just toss those numbers into a mortgage calculator, like the one at Bankrate, and find that he’d owe you $395.54 per month. Click on the “Show amortization table” button and you’d see that the first payment would include $116.67 in interest.

He then makes a payment that month, probably equal to at least the $395.54 amount stated. You then take that payment he gave you, subtract $116.67 from it, and then subtract that amount from the $40,000 principal. So, if he paid you $500, you’d subtract $116.67 from that, meaning he paid $383.33 toward the principal. Now, subtract $383.33 from the principal ($40,000) to see how much he still owes – $39,616.67.

The next month, you do the same calculation. He still owes $39,616.67 in principal at 3.5% over 119 months. You do the same thing again with the Bankrate calculator, tossing those numbers in, and you’d see that the interest on that month’s payment would be $115.55. Just keep going with that – subtract it from what he pays you, then subtract that principal payment from the current principal balance, then recalculate for the next month.

Since you’re describing a variable payment system, there’s no automated way to do it. You have to recalculate each month. However, it’s pretty easy to do it.

Q6: Where should we keep savings?
We live in the San Francisco bay area, so our emergency savings is fairly large ($30k with the goal to be $60k eventually). This is a huge amount of money that is not being put to much work in terms of earning interest. It’s currently in a regular savings account earning next to nothing.

It feels like I could make more interest in a CD since there is only a small chance that we’ll have to pull out the money for an emergency anyways. Is there a big penalty on pulling out money from a CD?
- Kate

I would not put all of it in a CD. I would at least keep a couple months’ worth of living expenses in cash before doing anything else with the rest, because the penalties for cracking a CD make it not worth the benefit you’d get.

Now, for the excess: there’s no reason not to do something with it that would earn more money. A CD is one route – it’s very stable and safe, but it doesn’t earn potentially as much as other options.

If CDs are the choice for you, then I would suggest staggering them, even if it minimizes your return. Put 25% of your money in a 6 month CD, another 25% in a 12 month CD, another 25% in an 18 month CD, and the rest in a 24 month CD. This way, you have a CD maturing every six months, helping you with changes in your life as they come along. If a CD matures and you don’t need it, just buy a 24 month CD as soon as it matures to keep the “every six months” cycle going.

Q7: Wanting to be a parent
My husband and I have no non-mortgage debt except for ~5k in student loans whose interest rates are around 4%. We aren’t too concerned about paying those off immediately. We have 250k in a mortgage (1700 monthly payment), 26k in a savings account, and about 8k in a 401k that we just started last year. I am 25, he is 29. He makes about 70k and I make about 65k.

I know that one alternative would be adoption, however, it is just as expensive, takes longer, and since I was adopted I have some strong feelings about having children that are genetically related to me. We aren’t opposed to adoption but want to try getting pregnant before we move on to that.
- Emily

I would wait. You do not want to have a child in a situation where your finances are less stable than you would like, and it sounds like both a loan and spending your emergency savings would do that. Focus on living cheap and saving more for the time being. Whenever you choose not to eat out, view that as the first gift you’re giving to that future child.

You are 25, which means that you do have some time left on the biological clock. I would give it one year of intense saving before making the leap into doing this.

I’m not going to dig into the morality of adoption versus in vitro fertilization, as that’s a personal choice that is clearly influenced by some personal life experiences here, and I would ask that the readers do the same.

Q8: Savings account activity fee
I have an interest bearing savings account and was just ‘dinged’ for $15 for ‘excessive activity’ — having more than 6 transactions in the account during one month. I was shocked. I had never had this happen before, and so was very surprised. I called the bank to ask about it, asking if they could waive the fee since this is my first time, and they said it was a Federal law and they couldn’t waive the fee.

You might want to warn people to be careful of hidden fees if they’re using their savings as a back-up to their checking account (I had no clue about this one). I had been moving money from savings to checking as I went through the month. And, when I got extra income, I put it back into the savings account. Little did I know…
- Carol

This isn’t a standard fee across all banks. There are federal restrictions with regards to the maximum number of withdrawals from a savings account in a month (six). Some banks just handle that internally, issuing a warning to the customer. Other banks charge fees. Your bank’s policy may be something different.

However, there are restrictions that require banks to close accounts that repeatedly cross the “six withdrawals a month” limit.

Every bank has different policies with regard to fees of all kinds. The best thing you can do is carefully research various banks and find comments online about them. Remember, of course, that the comments you read online will be strongly bent toward the negative, as people tend to complain about bad service and rarely talk about good service.

Q9: Prioritizing low interest debt
I am 24 years old and currently employed by the college I graduated from two years ago. I make a decent salary (over $30,000) and have been socking away payments to my HUGE student loans (~$40,000 in student loan debt at various interest rates between 2.5-6%). I’ve paid over $6000 off in 1.5 years, in addition to being VERY close to paying off my only credit card with a balance of $800 (previously at over $3,000) via a modified snowball method. My credit card has an AMAZING 1.25% APR with a $4,500 limit. It’s been like that for a few years, and I’m not about to ask any questions about why my rate is so low just in case it is a mistake by the company – I only pay $2 a month in interest! I have a big tax return coming, which could wipe out my credit card debt OR be directed to other debt or savings.

My questions are: With an interest rate so low on my credit card, should I just pay my minimum payments and direct my focus on building savings? Also, if I DO pay off my credit card and have a ZERO balance, how likely is it that the credit card company notice it and hike up my interest rate? If I want to buy a computer on credit (I KNOW I should save, but I think I can pay it off on credit rather quickly!) should I put it on my 1.25% card even though the rate may someday go up, or get an 18 month 0% card?
- Megan

My experience has showed me to never, ever trust a credit card interest rate. All it takes is a slight change in corporate policy at a credit card company for your 1.25% APR to go to 19.9% APR and your $2 a month in interest quickly becoming $50. There are some debts that are stable and reliable, like a fixed rate mortgage – this is not one of them.

Saying, “I want a computer now so I’ll buy it on credit because my APR is low” means that your balance and payment history just became more tempting for the credit card company to lift your interest rate. Yes, it might push you to seek out a balance transfer or something, but they’re likely going to make more money in the short term than they would have in the long term leaving your rate alone.

Simply put, I don’t trust credit card companies in terms of interest rates and fees. Credit cards are useful tools for convenient buying, but if you’re carrying a balance, you’re asking for rate hikes and annual fees.

Q10: Closing credit card impact
I recently heard that you can hurt your credit score by opening and/or closing a credit card? Is this true?
- Steve

Each credit card you obtain or close has some impact on your credit score. It’s usually a small impact, though, and it’s not always negative.

MyFico notes that credit scores are made up of five components: 35% payment history, 30% amounts owed, 15% length of credit history, 10% new credit, and 10% types of credit used. Generally, opening or closing a credit card has no impact at all on 65% of your credit score.

A new credit card will affect the “new credit” part of your report, generating a slight negative that goes away. It does not impact the length of your credit history. It does alter the types of credit used a bit, but the impact is minimal.

Closing a credit card won’t affect the “new credit” part of your report. It alters the types of credit used a bit, but that impact is minimal. It might impact the length of your credit history if you’re cancelling your oldest card; otherwise, it will have no impact.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Yesterday morning, I posted an article discussing our decision-making process with regards to deciding whether or not to become named guardians for several children. Is it something we could handle?

After posting that article, several parents emailed me to state that they had been struggling with the guardianship question in their own lives. They were unsure who to select as a guardian for their own children. So, I thought I would revisit this question.

This was an issue my wife and I struggled with a great deal in the past, and I wrote an article about it in 2009. For us, the decision to choose a guardian came down to these questions:

Does the potential guardian share your values?

Do you believe the guardian will raise your child in accordance with those values? Is that potential guardian a good person?

Does that potential guardian have a strong family network around them to help with the burden of having unexpected (and likely traumatized) children?

Will that potential guardian teach your children the basics of success in life?

Does that guardian have the financial security to ensure that your child’s needs are met?

Will that guardian have an expected natural lifespan that will allow them to remain as guardian until your child enters adulthood?

During that time, we were considering five different options for our guardianship issue.

Option A is a couple without children at home in their mid fifties. They strongly share our values and are closely tied to our extended family.
Option B is a couple in their forties with three children at home, all older than our children. They share our values pretty well and have some ties to our extended family, but they live far away from both sets of grandparents.
Option C is also a couple in their forties with three children at home, all older than our children. They weakly share our values, but have very close ties to our extended family.
Option D is a couple close to our age that’s unable to have children. They very strongly share our values and probably fill me with the most confidence to raise our children well, but there is virtually no tie at all to our extended family.
Option E is a single female younger than us with values that perfectly match what we want and close ties to family. However, her income level is extremely low and her future and life path would be greatly altered by the burden of children. Likely, Option E will grow in likelihood as time goes by and she figures out where her life is going.

Since then, “Option D” has vanished from the table due to marital issues, and “Option E” is now part of a committed relationship that’s going to culminate in marriage sometime in the fairly near future.

Currently, we have “Option A” listed as guardians, with a strong likelihood of switching to “Option E” in the next year or two, particularly if their plan of moving back to the Midwest takes hold.

So, how did we reach that decision?

First of all, values trumped everything else. It’s not about lip service, either. The actions that a person takes tells you loud and clear what the priorities and values in their life are. In this regard, I would put “Option E” easily on top of the pile, followed by A and B. In fact, “E” is so far ahead in this regard that “E” wins the day, even though “E” isn’t winning in other respects.

Second, financial security was much less of a priority due to our own life insurance situation. Again, we weren’t as concerned about income level as we were about the values expressed by the person. Were they frugal? Did they spend money seemingly beyond their means? Were they happy with wearing clothes until they were actually worn out? Do they routinely get themselves into precarious financial positions? Are they willing to go out there and get a job – any job – if they need income? Did they have at least a bit of an entrepreneurial bent, especially one that didn’t damage their financial situation? I’m more concerned about these things than about their current bank statement.

Third, the capacity of parenting was also a major concern. Are the people (reasonably) young and in reasonably good health? This, of course, isn’t a guarantee of future good health, but it’s a start. More importantly, have they shown the ability to care for others? Option E doesn’t have children, but has done other things in life that shows me that “E” is capable of such a task.

Finally, do they want to do this? I don’t expect a person to immediately say “yes” if I ask them to be a guardian for my children, but I do expect that they take the choice seriously and give me a real answer at some point. I’m more trusting of a delayed “yes” than an immediate one, in other words, because that person has taken the time to think about the challenges of the situation.

It isn’t all about the money for us. It’s about the people. If you have good people and adequate life insurance, you’re creating a good place for your children in the future.

My sister-in-law and her soon-to-be spouse are coming to visit us for several days starting later today. I actually quite like my wife’s sisters, as they all have fairly similar personalities, intellects, and humors, so it should be a fun period.

Finding the Path Toward Your Perfect Day This is pretty similar to my oft-stated idea of making a sketch of your life as you would like to see it five years down the road. Erica’s approach is to simply sketch out what your “perfect day” would be like in the future (not an exceptional day, just what an ordinary day would be like if your life went where you wanted it to go). (@ erica douglass)

Peak Debt and Income This is a great little argument (using real numbers) that spells out why it makes sense to help lower-income folks get jobs rather than cutting tax rates for the rich in terms of getting the economy going. (@ philip brewer / wise bread)

The “7 Childrens’ Book MBA” I’ve already had several really good discussions with my oldest child about some of the meaning of “The Lorax” – not just the environmental message, but the business message, too (since banking your whole business on a non-renewable resource is a bad idea). (@ jonathan fields)

Do You Give to Panhandlers? I don’t give them money directly, though I might give them a sandwich or something like that, particularly a homeless child. Instead, I contribute to services that help people who are willing to help themselves (like food pantries, etc.). (@ man vs. debt)

Survival Tips for a Sole Proprietor These are all great pieces of advice if you’re considering a path of self-employment. (@ the digerati life)