Today, I’m pretty busy with family events. My son is graduating from his preschool today. We take him to a private preschool that has a great blend of academics and constructive play time that we just love, but this is his final day there. In August, he’ll be moving on to kindergarten. Three of his four grandparents are traveling to go to his graduation, and afterwards we’re going to a dinner with the families of several of his classmates. (I’m writing this in the morning after he’s gone to get ready for his graduation ceremony (apparently, a song and a speech will be involved) but before the grandparents will arrive.)

This morning, I wanted to ask him about the things he’s learned so far in his life. He’s a fairly bright five year old, so I expected some interesting answers.

I asked him if he knew what Mom and Dad did all day when he was at preschool, and he told me that Dad writes stuff and Mom teaches.

I asked him why we did those things, and he told me that we like doing most of it and we make money doing some of the stuff we don’t like to do. That’s pretty much spot-on.

I asked him what we did with our money, and he said that we use it to pay for our house and to buy food and to buy books and to give him and his sister allowance.

I asked him what he wanted to do when he grew up. He thought for a long time – fifteen seconds or so – and he said he wanted to be a painter.

I actually tried to make a video of this question and answer session, but he turned really shy and ran away from the camera, as he often does when he realizes the camera is on and filming him.

* * *

When my wife and I first had a child, shortly before I started The Simple Dollar, I thought that raising children mostly involved putting up with problems. You were the parents. You were the providers of discipline and basic instruction on how to behave. You changed diapers and wiped away tears. I viewed it as being almost like a car mechanic, where you did the basic things needed to get the car road worthy and then watched it scream away from you.

Instead, what I’m learning as I go along is that in a parent-child relationship, both people grow.

This site is called The Simple Dollar, right? I’m often seeking ways to break personal finance concepts down into very simple pieces that are easy to apply to life.

My children make that process easier.

I’ll be in the basement, typing away on my laptop, and my oldest child will pop in and ask me what I’m writing about. I realized not too long ago that if I can’t quickly explain it in a way that he understands, the post probably isn’t that good.

For example, if I’m talking about why it’s okay to put your retirement funds into stocks when you’re 25 but not when you’re 65, I’ll say something like, “If I gave you $5 and told you that you had to give it back to me tomorrow, you’d be careful with it, right? But if I gave you $5 and told you that you had to give me $10 back when you were thirty, you’d probably find something else to do with it, right? You’d try to buy something that might be worth more than $10 when you were thirty.” He understands it, and thus I know I’m on the right track for a post.

* * *

So why am I telling you about this? What does it really have to do with personal finance?

Here’s the real deal. Personal finance is simple. There are a lot of people that make this all far more complicated than it ever has to be. Why? They make money doing it. Financial advisors can make a mint if they make you believe that this is all really complicated.

The personal finance that 99% of us will ever deal with in our lifetimes is all really simple stuff. Spend less than you earn. Put the difference somewhere safe if you’re going to need it soon, or invest it if you’re not going to need it for a while. It all more or less boils down to that.

The simplicity of personal finance – and the real simplicity of so much going on in the world – is the most valuable thing I’ve learned as a parent. Most things really are simple when you start breaking them down into their key components. Even things that seem really complicated are actually quite simple when you break them down.

Don’t make money – or life – too complicated. If you’re getting lost in all of the terms, back off. There’s no rush. Learn what you need to know at your own pace.

When you translate some idea you’ve just learned down to the simplicity that a five year old can understand it, and it no longer seems scary. It seems easy, in fact.

The biggest challenge in personal finance is not something complicated. It’s overcoming our own poor choices that we make in the heat of the moment. That’s also the biggest challenge we face in our lives as a whole.

There’s a lesson to take home on graduation day.

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. Combining budgets
2. Considering major life changes
3. Board games with wife
4. Nervous about adjustable rates
5. Starting business with debt load
6. Low-yield savings account
7. Self-employment and debt
8. Emergency fund use
9. Psychological trick with online shopping
10. Employer bankruptcy and 401(k)/403(b) status

Several people have asked me what food I miss most since switching diets.

Easy. Cheese and eggs. I really don’t miss the meat too much at all, but a cheese-and-egg sandwich still sounds wonderful to me.

Q1: Combining budgets
I am recently married and we are interested in combining our finances soon. I’m first in the process of selling my house. When this happens (hopefully soon…my agent expects an offer from another client this evening actually) it will free up about $900 a month for us. (The payment, insurance, taxes, utilities, etc.) We’ve maintained seperate accounts since we were married a few months ago and decided it would be a good idea to combine them when we were free of my house responsibilities.

We both have kids, and are expecting another soon. We both really got after our cc debt the last year and have decided that paying down any debt is the most important thing before we either buy or build another house or add on to our current one. But the truth is I don’t think either of us has a real great idea of what the other actually pays out each month. I don’t think we’re being deceptive but we’ve both been independent for so long that sharing this or even starting to work on a budget has kind of been shrugged off.

Is there a budget form or method you could recommend that would lay it all out on the line for us? Call it lazy or what-have-you, I feel like we’d be both more willing to set a budget and be more upfront about everything if we had something pre-made to work with. I would even settle for a book or another site that would help me explain and feel more confident in this.
- Erin

Generally, I don’t think budget forms really work aside from just creating a picture of how people spend their money. They either create too many categories or not enough categories and result in confusion or difficulty for the people involved.

If I were you guys, I’d sit down together and look at your last few months of bank statements and credit card statements so you can see where your money actually goes. Talk about these things openly, not defensively. If you can do this without trying to hide things or getting anxious or angry, you’re probably in a very good place when it comes to money.

If you’re find you’re having trouble making ends meet, I suggest “automatic budgeting,” meaning that many expenses are automatically withdrawn from your checking account. Set up an automatic transfer to your savings account each week. Set up online bill pay and have many bills paid automatically. In other words, take care of as much stuff as you can automatically so that you can feel more free to use what’s left for what you want.

Q2: Considering major life changes
I am a 28 year old girl who is at a crossroad in her life and clueless of which direction to take. 8 months ago I quit my software job of after six years, as I found myself procrastinating endlessly at work. I was also medically diagnosed with anxiety depression at the time. I quit my job and started mediation about the same time and the next 3-4 months were pretty good sans the occasional bouts of depression and feeling of ‘what am i doing with my life’.

I took up art classes, something which I always wanted to do and travelled a bit and the introvert that I am the meds made me feel more talkative and confident of myself. My doctor slowly stopped my medication and I continue taking therapy on and off. I moved back to my home town (where I had been living most of my adult life with my parents. I had moved overseas 3 years ago after I got married) last week and I felt the time was right for me start working again.

I had been considering other career options all the while during my break but I could never feel motivated enough to go and do something about it. I enjoyed painting but I would procrastinate to paint on my own at home when I stopped the classes. I enjoy writing but I would again procrastinate when it came to writing a blog post and not to mention my fear of being ridiculed. I found myself being drawn to design (graphic, well designed products, art) but I couldn’t figure out what to do about it.

I enjoy crafting and always dream of making the next best craft but I never get around to actually doing it. The rare once that I do, I do almost in secret since I worry about being laughed at. So anyway after my return last week, with a bit of influence from the people around me, I was convinced and I convinced myself too that I was not able to figure out what to do with my life for 8 months so if I sit idle now the same routine will continue so let me get back into a software job for now and slowly plan on a career change.

But as I started applying for jobs and attended interviews I realized I was not at all interested in it just as I felt 8 months ago and I am not at the top of my technical skills right now so all the rejections hurt my confidence bad. I do believe if I brushed up my skills a bit I could very well find a decent job but I don’t feel motivated to read anything technical. I put the book/monitor in front of me and I find myself distracted in 5 seconds.

I have been trying to convince my husband and parents that software is not for me and I want to do something else. But obviously the first question everyone asks me is “but what DO you what to do” and I have no answer. I have some vague ideas of wanting to be a painter or doing a design course or starting my own craft store but no concrete plan to get there. And I am not even sure if I will enjoy doing that full time and I feel like I cant take another chance at this stage. So in the end I feel like I am back where I started 8 months ago. So my question to you is do you have any suggestions of how I can get started on getting my life back on track? I should also mention that my husband and I are pretty financially stable so money never motivated me either.
- Satya

My immediate response to this is to ask you what things you can actually do with sustained focus. What do you spend your time on (that’s not purely entertainment, like television) where you’re not bored or distracted quickly?

If you can’t think of anything, I suggest getting a very simple job, like a checkout clerk, and spend your free time finding what it is that you want to do and can actually do with some degree of success.

It doesn’t sound like the technical field you were in is the right field for you now. If you can’t focus for more than a minute on it, you’ll never really succeed in that field. Take this crossroads in your life as an opportunity to figure out what comes next.

Q3: Board games with wife
I have been making a concerted effort to spend more time with my wife lately.

I was wondering if you could recommend a boardgame that my wife and I could maybe enjoy by ourselves?
- Ron

I could give you a long list of suggestions here, but it’s often hard to tell what will “click” with people. It depends a lot on their personalities: their patience, their willingness to think about a situation, their attraction to well-produced components, and so on.

For two players who haven’t played a lot of board games, I would probably blindly suggest Ticket to Ride: Nordic Countries. It’s a game with well-produced components that can be played in about an hour in which players are trying to build connections between cities. It’s very simple to learn and involves quite a bit of bluffing when you get good at it.

Another choice, one my wife and I played a lot before we had kids, is Lost Cities. It’s an easy-to-learn card game in which you’re trying to make sequences of cards and is playable in about thirty minutes. There’s some arithmetic involved, but aside from that, it’s really easy to pick up and enjoy.

I can’t guarantee you’ll love these, but they’re good starter suggestions for a couple wanting to play board games together.

Q4: Nervous about adjustable rates
I’m currently living in a house with two (non-FHA) mortgages owing approximately $400k in total. One is a HELOC at 125k and the other is a 5/1 ARM that’s not in the adjustable rate portion of the the loan. This loan readjusts the rate every year. Last year it was 3.125% and this year it’s 3%. After taxes and insurance, I pay about $2500 per month on the two loans. Now, most likely, the house could be sold for $400k (I would lose 5% or $20k on commissions unless I did FSBO). It’s also inevitable that interest rates will start climbing again and I will start owing considerably more than $2500 per month, just to live there. Even now, I generally live paycheck-to-paycheck on $70k paying either the mortgage or all the other bills.

Besides trying to find a higher paying job, what’s my recourse? Should I walk away from the home? Should I hope that housing values recover more quickly than interest rates? Should I try to sell now at a loss? Should I play the lottery?
- Tom

Can you find a place to live that’s cheaper than the interest you’re paying each month right now? If you can’t, then I’d keep paying the mortgages. If you can, then I’d sell.

You’re right – eventually, interest rates are going to rebound and then the interest rate on your mortgage will go up. When that happens, it will probably change the equation for you in terms of what the least expensive living option is.

However, if your situation now points toward your current low-interest mortgage being the best deal for you, stay put for the moment. Sell when it’s clear that rates are actually rebounding and there’s an actual cost to you. Don’t move into a more expensive situation out of fear.

Q5: Starting business with debt load
I borrowed approximately $125,000 (which is now approaching $140,000 when you count the interest) to attend a good law school in New York. I graduated last year, with good grades, and passed the bar, but the only job I found was working part-time for a professor at my old law school. My fiance found a job in Canada, and we will be moving up there this summer. In the meantime, I’ve moved back in with my parents, and am continuing to work remotely for my professor. I’m also trying to start a business – I’ve been operating it as a side business since 2007, but I’m gearing up to turn it into something full time.

Since I moved back in with my parents, I’ve been able to save some money (approximately $7000). However, I am reluctant to use it to pay off my student loans for two reasons: 1) I’m afraid we will need the extra money to buy furniture, etc. when we move to Canada and 2) my position with the professor ends at the end of June, so I won’t have any predictable income coming in after that. My fiance’s postdoc job will pay approximately $40K, and he has told me that I don’t have to contribute to the rent.

So, here are my questions:
1) Should I use what I’ve saved up to start paying off my loans, or should I wait until I have more steady income?
2) Should I try to invest the $7000 (or part of it), instead of letting it sit in my checking account?
3) Do you think it’s really wise of me to try to start my own business now, with such a heavy debt load, or should I look for a job when I get to Canada? (I can’t practice law immediately up there – so I’d be looking for jobs in journalism, biology (my undergrad degree) or as a paralegal.)
- Michelle

First, I would not use that money to pay off your loans. Stick with the minimum payments. That $7,000 is your emergency fund and you know you have a big emergency (job loss) coming up.

Second, I’d at least get it in a savings account so that it’s earning a little bit of interest, but I wouldn’t put it at risk (in stocks) or lock it up (in CDs). Keep it liquid and safe.

Finally, starting a business right now depends on the business. If it has low startup costs and a clear path to profitability, sure. However, few business plans have that. If you don’t have both things with your business plan, I would get my personal finances in better shape before launching a business.

Q6: Low-yield savings account
After a relocation for a new job and a few medical issues, my savings account has all but disappeared. Expenses eat up almost all of my monthly paycheck, even though I have a good job with a good salary. My question for you is, where can I put some extra money aside every month that will give me, and pardon the pun, the biggest bang for the buck? My current savings account only kicks back .25% every month. I am hesitant to purchase CDs, because with all the ordeals I’ve been through lately, I realize that I need this money to be available to me in case of emergency. However, I understand that I may not be taking advantage of the highest-yielding savings account that I could be, and would like to look into other options.
- Kristin

There are many savings accounts out there that earn a much better rate than 0.25%. However, you’re going to struggle to find one that offers a rate above 1.5% without some strings attached (such as the rate being for a short promotional time only or the account only being available to people in certain areas or a minimal balance requirement).

What’s the difference between the two rates? Let’s say you have $1,000 to save. The 0.25% account will earn you $2.50 a year. A 1.5% account will earn you $15 a year. That’s $12.50. It’s not going to make you rich.

As long as that’s clear, I recommend doing some rate searching. The Simple Dollar has a page that lists savings account rates. If you find an account that seems appealing to you, I’d research that account a bit using Google to make sure the bank is a good one with strong customer service.

Q7: Self-employment and debt
I’m 30 years old and largely self-employed (read: irregular 1090 income), with about $4,000 in 401k from a previous retail job that I haven’t contributed to in years, and about $22,000 in consumer debt (over half of which is from an extremely stupid “business” move). I live very frugally and want nothing more than to pay off the debt as quickly as possible. Would it be a good or bad idea to pull money from the 401k to help pay off debt? I’m not contributing to it – and probably won’t – until the debt is gone and I have a few months’ worth of living expenses in savings.
- Trevor

Just because you’re not contributing to an account doesn’t mean it’s a great idea to empty out the account. I would leave that money where it is.

Furthermore, you’re already on a bad track when it comes to retirement savings. At age 30, you should be approaching somewhere between half a year and a year’s worth of living expenses in retirement savings.

I don’t know the interest rates on those pieces of consumer debt you have, but I would first get a small emergency fund into a savings account ($1,000), then I’d tackle that fund by interest rate. If everything is below 10% or so, I’d start saving for retirement even if there are big debts left.

Q8: Emergency fund use
I have a question about the emergency fund. We used to have one. We have a lot of debt and eight children and my husband got laid off at Gateway several years ago so we went from a 60,000 plus a year job to nothing for more than six months to a 20,000 a year job to my husband not being able to work more than twenty hours a week(muscular dystrophy) and making less than 8,000 a year. Thank goodness we had savings and we were approved for disability. I have thought about looking for a job but taking care of a disabled husband and eight kids while homeschooling is pretty much a full time job. We had an emergency fund but never got beyond that on our plan to get out of debt and now that we have had hospitalization and major car repairs and so on we have no emergency fund and no savings so we started not paying all our bills which just leads to penalties and fines and a bigger hole. Once you have a certain amount in your emergency fund should you be funding another one for when you use it or pay it back after you use it. Is this what your living expense thing is for?
- Laura

Yes, your first step should always be to rebuild a small emergency fund, up to about $1,000. That amount is enough to handle many emergencies that a family might face.

However, if building that emergency fund is causing you not to pay your bills, then you need to look at a different approach. Something has to be cut from your spending or you’re going to go bankrupt. Spending more than you’re bringing in is not sustainable.

An emergency fund and a debt repayment plan are useless if you have more money going out than coming in. Something either has to be cut or there has to be more income coming in.

Q9: Psychological trick with online shopping
I just wanted to share something I’ve recently discovered. I’ve gotten hooked on Etsy; I love looking through the jewelry. Of course, my wallet wouldn’t appreciate it if I bought everything I liked. So instead of buying, I add the pieces I like to my favorites. By doing that, I know I won’t ‘lose’ the one I like and have to worry about finding it again. It also gives me a little bit of the good feeling or high you get when you buy something for yourself, except I’m not actually spending any money. Of course, I can always go back later and buy one or two of those pieces or decide I don’t want them. It’s really helped to keep me from overspending.
- Charlene

I do this exact same thing, both on Etsy and on other sites. If I see an item I want, I add it to a “wish list.”

I find it does the exact thing that Charlene describes: it takes the edge off of the immediate desire. I can also return to those “wish lists” at a later time and determine if it was a “whim of the moment” desire or something I actually have a use for.

Often, my wife will check out my “wish lists” on various sites that I frequent and use them as a source for gifts for me at holidays and such. I often forget the things I’ve put on those lists, so the gifts are almost always a pleasant surprise.

Let’s just say whenever I find myself in the kitchen section on Amazon, I usually wind up adding a thing or two to my list.

Q10: Employer bankruptcy and 401(k)/403(b) status
My former employer has filed for bankruptcy. While it’s not been determined by the court whether or not they are allowed to file nor which type of bankruptcy they are allowed to file for (Chapter 7 or Chapter 11–each with different implications for their union and nonunion employees), I wondered if this could effect the 403b account I had with them. They didn’t contribute a match to it while I was an employee, it was all my money. The fund is through Vanguard. I left it there because I didn’t know what else to do with it and I know Vanguard is a good institution. Currently, I have TIAA-CREF through my employer and TIAA-CREF made it sound like they could easily get those funds for me (I talked to them prior to this bankruptcy activity). Do you think I could lose my 403b money in Vanguard because of this bankruptcy? What are the positives/negatives in putting all my 403b money in one place?
- Suzanne

You shouldn’t lose a dime of the money in your 403(b) because of the collapse of your employer. The money in that account is yours and yours alone. The account was merely provided to you by an arrangement that your previous employer set up. Just because that employer is bankrupt doesn’t mean anything about the investment house.

If you’re concerned about the stability of the investment house – which you should have no reason to be in this situation – you can take out the money, but it’ll be taxed as regular income plus an additional 10% tax hit. Generally, that’s not worth it.

I’d just stay put with everything if I were you.

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.

It took me most of a decade to figure out what things really mattered to me in my adult life. My family. My closest friends. My sense of right and wrong. My values and morals. Writing. Reading. Playing a game with someone whose company I enjoy. Cooking and then enjoying a good meal. Teaching my children something new – or just playing with them. Enjoying the outdoors.

As long as I have those things in my life, my life is good. I don’t need anything beyond those things. Almost all of my time and energy is absorbed by one of those things – and when I’m absorbed by those things, I’m at the very least content.

These things are my foundation. Much like the foundation of a house, they’re the things upon which my life rests. If I provide that foundation with care and love and support, it will last throughout my days. Everything I build upon it can grow tall, crash to the ground, and be built again, but if I stay true to that foundation, it will remain, no matter what comes.

Even at the lowest point of my financial journey, I had my family. I had my friends and my values. I had access to books and to paper upon which to write. I could always go outside and take a walk.

These things were constants. They were there for me at the times of greatest need in my life. They have been there for me every day since, when I’ve seen success and when I’ve seen failure. They provide me constant joy and value, each and every day.

Thus, it makes sense that with my time, my energy, and my money, I do all I can to preserve this foundation while still enjoying it.

How do I do that? Simply put, I minimize the energy and money and time I spend on things that aren’t directly part of that foundation. I don’t desire or need a new car, so I’ll keep driving my ’04 Pilot until the thing’s falling apart. I don’t need new clothes, so I’ll wear my t-shirts until they’re starting to get holes in them. I don’t need to go out to expensive places when I can just make a meal or a drink at home.

Instead, I try to spend the extra money, time, and energy I have preserving that foundation. I’ll spend time with the people I care about.

For example, I’ll call my parents a few times a week, an experience I enjoy. In theory, I could be doing things that might on the surface be more fun than talking to my mom about a long-forgotten third cousin, but that relationship I have with them runs deep, and they’re there for me whenever I need them.

I could buy myself a new computer, as the rusty bucket of bolts I’m using right now has some ongoing hardware problems that cause me to reboot it regularly and makes it so I can’t use any programs that tax the processor much at all. But why? I don’t really need to use it for anything beyond writing and accessing the web.

What do I have instead? I have a well-stocked emergency fund which will help feed my family during a short-term emergency, and I have life insurance that would help with other situations. I have no debts other than my mortgage. I have a good marriage and three kids that squeal with delight whenever they see me because they know they’ll have my attention for the next few hours. I have a circle of close friends who are there for me when I need them and share a laugh with me all the time. I have a pile of books to read and a pile of ideas in my head to write about.

My foundation is secure. It brings me joy and fulfillment.

What else do I really need?

What else do you really need?

Over the past few weeks, my wife and I have been doing a great deal of spring cleaning around our home: cleaning out my office, cleaning out some closets, and so on.

The biggest project, though, was our garage. I spent an entire day getting it into some sort of sensible order. As I moved forward, though, I couldn’t help but enjoy the sense of a job well done.

Why Goal Setting Is A Complete Waste Of Time (unless you do this) The argument here is that the traditional idea of a goal is littered with a lot of negative weight. I agree, but I think a big part of that negative weight comes from biting off more than the person can chew. (@ pick the brain)

Never Go to Bed Angry About Money I’d suggest going even further: never go to bed angry about anything. (@ dinks finance)

When an Adjustable Rate Mortgage Makes Sense This is a good argument, but I still believe that almost all of these factors involve predicting the future. I do not like to base my personal finances on predicting what I’ll be doing in five years – or what the economy will be doing. (@ my dollar plan)

The future of the library I would love a library like this. I would financially support a library like this. (@ seth godin)

12 Cases When a Pay Cut Might Make Sense Getting a higher-paying job often has other costs (doing work you don’t love, having all of your free time devoured, etc.). (@ pf advice)

In a small independent bank several hours from where we live sits a savings account. That account is in our names. It earns a solid interest rate but does not have an ATM card associated with it. It has about a month’s worth of living expenses in it.

In order to access this account, one of us would have to actually go to the bank and present identification to make a withdrawal.

Why do we have this account at this point? It’s simple. It’s our “hidden” emergency fund for when things go deeply awry.

Why? Here are some reasons we have it.

It’s convenient, but with an obstacle in the way. At any time, one of us could drop in at that bank, pull out the cash, and do with it what we wish. No questions asked. At the same time, there’s a pretty significant obstacle to overcome: getting to that bank. It’s about four hours from where we live.

This is a much different obstacle than that blocking some of our other savings, such as retirement savings. I could get those with just a few mouse clicks, but I’d be paying a steep financial penalty for that opportunity. On the other hand, I could retrieve this money without financial penalty, but it’s tricky to get to. I would have to basically make a special trip (or take a side journey on another trip) to access that money.

That obstacle keeps us from wasting the money. Because we’d have to go out of our way to get it, we’re naturally prevented from wasting this money on a spur-of-the-moment thing. We can’t conveniently get it with a few mouse clicks or a stroll to the ATM or even a trip to the local bank.

This emergency reserve gives us peace of mind. If all else fails and we manage to get through everything we have on hand easily here, we still have that month’s worth of living expenses in the hole if we really need it. Not only is it cash, it’s also security and breathing room. It’s the ability to sleep a little better at night.

Here’s how we set it up.

My wife had a savings account in high school, to which she later added a checking account. This account was in a city not too far from where she lived during her junior high and high school years.

When she went to college, she never closed the accounts. In fact, she used them for her primary banking during her college years. When we eventually combined banking, she closed the checking account but left the savings account intact with the savings in it, intending to eventually pull it out and move it to our own accounts.

We never truly needed it. That cash remains from what seems like a lifetime ago, when my wife and I were both still single and both still childless.

In our minds, it’s something of a loan from our past selves. That money was socked away during a completely different time in our lives, left there for a time when we would need it. That time hasn’t come yet, but when it does, our past selves will have done us a big favor.

This exact same plan could work for anyone, really. Just open an account not too far from a place you regularly visit, like your hometown. Fill it with a bit of cash, then walk away. Keep the account information somewhere safe and let the money quietly build there, waiting for a moment when your life is really in a pinch.

Consider it a loan from your past self, one that you can cash in when you really need it.

This morning, I woke up and looked out my window to see the dawning sun peeking between the horizon and a cloud.

Last night, I turned off all the lights in the bathroom and took a warm shower, letting the lack of light and the extra heat remind me of the wonderful feeling in every part of my body.

Yesterday afternoon, I went on a long walk. I enjoyed the fresh air and the feeling in my body from the gentle exertion.

Yesterday morning, my one year old son woke me up in bed by tapping me on the cheek and saying “Dad” over and over again. When I opened my eyes and looked at him, he laughed and clapped his hands.

Two days ago, I spent an hour looking at an art book at the library with my five year old son and my three year old daughter. We looked at the works of impressionists, post-impressionists, and abstract impressionists while my son relaxed his head on my shoulder and my daughter pressed her face close to the book to see the details.

A few days ago, I sat on a park bench and listened to an amazing guitar player in the park, playing a few songs for his own enjoyment.

It is so easy in our busy lives to overlook the abundance of wonderful free experiences that life has to offer. The gentle beauty of nature. The amazing feelings generated by our own body when we exert it. The aromas available in a restaurant district. The warmth of companionship. The feel of warmth on your skin. The intellectual challenge of a book or a conversation. The look in a loved one’s eye.

Take today and spend some time enjoying the free things your life gives you. Take a walk outside instead of firing up the television. Turn off your cell phone and have a face-to-face conversation with your neighbor. Watch the sun set. Make yourself a meal that fills your house with wonderful aromas. Take a hot shower and feel the warmth on your skin. Turn on a radio to an oldies station, pull your wife into your arms, and dance with her for a while as you whisper in her ear how lovely she is today.

It is through the experience of the infinite beauty of the free things available in our lives that we can deeply appreciate what a dollar is and what you can use it for.

Me? I’d rather use that dollar to secure my ability to enjoy these things for the rest of my years than to seek out an item or an experience that just provides me with merely a fleeting rush of joy. There is so much more to be had from the sensation of a child holding your hand or the smell of freshly-grown grass than there is from almost anything I could throw my money at. Why not preserve those experiences and give yourself countless opportunities to enjoy them by being careful with your spending?

Since our third child was born, I’ve found that it’s been more and more difficult to find time for some of the more routine and mundane personal finance tasks. For me, tops on that list of “mundane personal finance tasks I can postpone because there are three kids who each need some Dad time” is filing away papers.

Over the past few months, papers of all kinds – bills, statements, receipts, documents, and other things – have just slowly accumulated in the two inboxes I keep in my office (one strictly for filing and one for all kinds of things). As the pile got larger, it became ever so much easier to just worry about it later.

This past weekend, I finally faced the giant pile of papers and took on the large task of filing things. Here are some of the things that I learned.

An orderly electronic filing system is worth the startup cost. A scanner with an automatic document feeder might be a notable expense, but it’s honestly a similar expense to a high-quality filing cabinet. The advantage is that such a scanner makes it very easy to transition to an electronic filing system, where you simply drop documents into the scanner, have each page saved as a document on your computer, and then you name and identify each file appropriately and save it in the right folder on your computer (obviously, this goes hand in hand with backing up your data with great regularity).

Quite simply, this takes up far less space than a filing cabinet. You can just scan the documents you wish to scan, then shred them. Only the most vital of documents need to be retained in their original form.

If you’re scanning with a high-quality system, all of the documents are searchable on the computer, which means you can just search your entire stored document folder for, say, “Target,” and get a list of all documents that contain that word. This makes actually using the stuff you’ve filed much easier than before.

I use a “everything alphabetical by whatever letter makes sense” filing system. Seriously.

When a set of documents makes sense together, I just name that folder in the way that makes the most sense to me, then I just alphabetize all of those folders. Then, when I get a document, I can usually figure out where it goes within a guess or two, and finding that folder I’m looking for is usually very easy.

I’ve tried a “standardized” system in the past, but it always required me to remember names for specific things to find them. Frankly, I don’t look at the stuff I have filed every day – or every month, for that matter. Having to remember specific names or patterns to make the filing work is a mistake because I’m simply never going to remember it for my purposes. It might work for an office environment where you use the filing system many times every day, but for me, it’s just not worth it.

If you’re starting from scratch, a large body of documents makes it easier than just a few. It is incredibly easy to overlook some set of documents or records that you wish to retain if you start with just a few documents. In fact, a later influx of unexpected items can make it easy for you to just throw out your filing system entirely and start over from scratch.

Don’t get me wrong – a large mountain of documents to file can seem intimidating. However, they also give you the advantage of getting your system right. Spread out, make piles that make sense to you, and file them away in a way where it’ll be easy to know immediately, when you receive something new, where it will go.

If it’s old or unimportant, don’t be afraid to toss it. I don’t keep any non-essential documents more than seven years old in paper form. I do keep old stuff in electronic form, but that’s because hard drive space is increasing at a far faster rate than my document archives are and it’s easy to just stick documents I don’t want to look at in another folder where I don’t have to be bothered. Electronic documents don’t take up physical space after all.

Old documents take up space with no real purpose. Unless it’s a birth certificate or a Social Security card or something similar, don’t waste space in your home keeping it more than a decade.

Know why you’re keeping stuff. I like to keep old energy bills so I can track our energy usage over time as we change things. It’s really hard to tell a difference with small things, but as we do bigger things (particularly those related to heating and cooling), I can see a year-over-year difference.

However, I don’t keep things like cell phone bills from previous cell contracts. I might keep the last one just to verify that the contract is cancelled and the plan is resolved, but why keep the other statements? There’s virtually no positive reason to have a cell phone bill from two years ago from a different provider than the one you have now.

It took me six hours to file everything in a way I was happy with, but the end result was a much cleaner office and a sense of a necessary job completed well. I call that a win.

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. How much for college?
2. Information security
3. Repay loans? Save for retirement?
4. Investigating a mutual fund
5. New central air while retired
6. Vision coverage
7. Trading by mail
8. Helping Mom
9. Credit type question
10. Habitual borrowing

Our two oldest children have recently discovered a treasure trove of the childhood toys of their parents. Watching our children play with the things we played with during our childhood has been quite fun for Sarah and myself, particularly when they mix them in with their own toys and create all kinds of crazy new adventures.

Q1: How much for college?
How much do you expect to contribute to your children’s college experience? I’m not a big fan of the idea of paying the whole bill b/c I think they need to take some ownership and I’m also not planning on pushing them to college right away if they don’t show that they have a really concrete idea of what they want to study etc. But I also adored my college experience so I want it to be available to them.
- Andy

Like you, I don’t intend to pay for all of the college education of my children, for several reasons.

For one, I don’t think it’s financially good for myself or my children for me to sacrifice retirement savings for their college education. This causes me to have to work for longer and have a higher likelihood of being a burden on those children when I’m old.

For another, I think there are valuable lessons learned when you’re facing the real cost of a college education instead of just believing someone else is paying for it. Either you have to pay for it yourself or you have to earn it from somewhere.

I do intend to help them significantly with their costs. I’m not going to just write a check, however.

Andy had another question of interest, too.

Q2: Information security
Do you feel like all your online financial interactions (bank accounts, transactions, investments) are secure? I think the movie The Net (with Sandra Bullock)from my college days has had a lasting impact on my confidence with all my information being ‘out there’.
- Andy

There’s virtually no way you can live today without some amount of your information online. Yes, that does mean we all have some small risk of identity theft.

I personally try to minimize that risk whenever I can. I avoid signing up for services that require me to share personal data without providing some enormous benefit in return. Mint is a good example of this, where you’re sharing personal data with a middle man for what I consider to be a very small benefit.

All you can do is be vigilant. Look at your credit report regularly. Watch your credit card bills for strange payments. Don’t slack off with this, either.

Q3: Repay loans? Save for retirement?
I just graduated with my masters, have not found a full time job yet, and am debating what to do with my student loans. I have $67k worth of loans that I start paying in November (given that I find a job). I am going to be a teacher and worried that my salary won’t be enough to cover the monthly loan payment unless I consolidate or do the income based payment plan. I also obviously want to start saving for retirement as soon as possible. However, I also realize that extending the life of the loan will mean owing a lot more in the long run. Should I try to make the regular payments and pay them off in ten years? Or is that too unrealistic?
- Ellen

Your first priority is to find a job. Don’t worry about choosing between retirement and student loan repayment yet. A bird in the hand is always worth two in the bush.

Once you have that job, I would make sure that I was picking up all of the matching funds from my employer. For example, if your employer offers a match on the first 4% of your salary, contribute 4% so you can get that match. After that, I would contribute enough so that your total contribution including matches is 10%. Beyond that, I’d hammer on the student loans.

If you don’t find a job, keep those student loans in forbearance. While this won’t help with the overall cost of the loan, it will help you from getting behind on your debts.

Q4: Investigating a mutual fund
What procedure do you use to investigate a mutual fund?
- Sharon

Most of the information I look for is in the prospectus for that fund, which you can often find online or, in a few cases, request from the investing house that’s running the fund.

Key things I look for are the investment philosophy behind the fund, the fees they charge, and the types of investments the fund contains. I tend to stick to index funds, which typically have a very straightforward philosophy, low fees, and clear delineations on what’s invested.

I don’t put much value into “superstar” fund managers or the things that are said in the financial press about the funds. Those are usually just the result of PR.

Q5: New central air while retired
I need to get a new furnace and while I’m at it, central air. I just retired April 1st. I do have enough money in my retirement fund to pay for this. But i wonder if I should get a home improvement loan at 8% interest from my states housing development office instead. I’m 64, will be 65 in a few months, and I’m afraid to start chipping away at the retirement fund. What do you think?
- Kathy

It’s really hard to give an accurate answer here without a full picture of your retirement situation. Is your retirement just Social Security plus the money you have in a 401(k)? Do you have a pension, too? Does your monthly income in retirement greatly exceed your monthly expenses, or are you cutting it close? All of these factors would change which decision you should make.

My conclusion would generally be that the less dependent you are on the regular income from your retirement savings, the more I would lean toward using it instead of taking out an 8% loan. The interest on an 8% loan is almost always going to be higher than what you’ll earn in your retirement account.

If you’re really tight, a loan might be unavoidable as long as it’s coupled with cutting back on expenses. You may find, though, that you have to get some additional income to make ends meet.

Q6: Vision coverage
We had our yearly benefits meeting at work this week, which has caused me to take a look at my various insurance coverages. Here is some background: I am a divorced mother of 3 (1 in college no longer living at home, 1 in middle school, 1 elementary). My ex-husband passed away three years ago. I live together with my fiance; we own a home. He recently lost his job and is in the process of applying for disability due to a chronic illness from which he suffers.

Through work, I purchase medical insurance (with includes a vision benefit), dental insurance, and I also pay for additional life insurance (very cheap – $6/pck?) on top of the small amount that is provided to me free by my company. (It has no cash value but if I die, it will pay 3 x my salary.) I also (through my employer) pay for additional AFLAC policies – cancer, accident, and hospitalization.

I have the opportunity to buy additional vision coverage for about $7.00/month (note that only one of us wears glasses and even those are just for reading) and also short-term disability (which I had when I was still child bearing, but stopped purchasing after I had my last child). We are changing companies so I could reenroll in short term disability now during the “open enrollment”.

My questions are: should I buy the additional vision coverage? (I think I just answered that question for myself…) Should I buy the short-term disability? And what are your thoughts on the AFLAC coverages? Being a “single parent”, I am really trying to make sure we would be covered in all possible scenarios. But money is also tight, I do have some debts I am paying down, and I don’t want to pay for something I really don’t need.

All of these things would run me a little over $200/pck. Thoughts?
- Shanda

I don’t think the vision insurance is worthwhile at this point.

The question of further insurance is a tricky one that has more to do with your own comfort level than anything. You can never insure against everything. The best you can do is cover yourself against the most common calamities and assume the risk of some of the less likely ones.

Where’s that cutoff line? It’s different for each person and it has more to do with your ability to sleep at night than anything else. The more you insure, the more “what-ifs” you’re preotected against, but the less money you have for your everyday life. That’s a balancing act, and everyone has a different balance that’s right for them.

I can’t tell you what’s right. All I can say is that you are insuring against a lot of risks that others aren’t insured against. You have to decide for yourself where the line is.

Q7: Trading by mail
You’ve mentioned that you do a lot of book and video game and DVD and board game trading through the mail. How do you do this?
- Robert

I do my book and DVD trading through PaperBackSwap and SwapADVD. I just mail out ones I don’t want to watch or read any more and get new ones in the mail in exchange.

I usually trade video games at a local used video game store. I found that, if I traded by mail, I often got very scratched disks.

As for board games, I usually participate in online “math trades” organized by BGG. In these trades, you just list some games you have that you’re willing to trade, look at the list of games that everyone has posted, and then mark down which of your games you’d be willing to trade for some of the games listed. After that, a computer program makes the longest list of trades possible (many of them involve person A sending a game to person B, B sending to C, C sending to D, and then D sending a game to A, for example).

Q8: Helping Mom
I am 26 years old and work in the insurance industry. I have been reading your posts religously now for about a year now. Thank you for your wonderful posts. I currently make 46,000 with great benefits like a paid company car and 6% 401k match. Since reading your post, I have started contributing 6% to my 401k and 5% to a Roth IRA thorough employer w/ Vanguard. Currently I have just over $7000 in retirement savings, $8500 in savings (of which I will be using 5k for furniture and move to East Coast w/ my boyfriend). I also have $2500 in an HSA accout as I carry a high deductible health plan. My credit score is currently 641. I wish it was a lot higher, but I’m working to repay some old debts that my ex-boyfriend and I took out. Totally dumb, but that’s the topic of another conversation. In debt, I have $15,000 in student loans that I pay $125/month at 5.8%. $3,500 in a credit card (the debt w/ ex-boyfriend). I also have an auto loan on an 07 vehicle my mother currently pays $305 w/ $10,000 left in loan. I transfered the car to her as my new company gave me a company car, and selling it made no sense since I was upside down on loan. All I pay on company car is $67 every two weeks for taxes and insurance.

I feel as though I am on the right track financially. Sadly, I cannot say the same for my family. My family all lives above their means. My mother recently came to me with the request for me get a loan approved for “her home” in Las Vegas, NV. The home would be in my name and my mother would pay all costs. My mother has a bad credit score after a lenghty divorce and poor decisions. We currenly live in San Francisco, but she would like to move to LV to be closer to family. I have a married older sister, uncle, and dad that live there. As you know, with the housing crash, there are a lot of empty homes in LV. My mother has her heart set on moving into a home valued at $40-50k. She could provide 8K down. She feels this would be a comfortable payment for her. In fact, much less than she’s currently paying to rent. With my move to east coast, and no other family around, I am starting to feel guilty. While I would like to help her, I feel as though this is LARGE responsibility. I can only think of cons to this arrangement. Is there any way we can arrange this so that there is a benefit for her and I? Is it even a good idea?
- Kelly

Most of the discomfort you’re feeling likely comes from a sense that your mother isn’t financially reliable, and you seem to have good reasons for feeling that way. If her credit is in poor enough shape that she can’t get a $32,000 mortgage loan, then I’d be worried about lending to her, too.

I think it’s reasonable to assume that there’s a good chance your mother might not make the payments she’s promising. Can you financially handle the situation in which your mother doesn’t pay? If you can’t, then you shouldn’t go forward with this. You have to simply tell your mother that you don’t have the means to make it work.

You can discuss a contract, but in the end, you’re still going to be on the hook for the house unless you pursue legal action against your mother. Are you really going to do that?

Q9: Credit type question
My husband and I have just paid off our car note. We have 2 credit cards which we use sparingly and pay in full each month. We also have 3 mortgages. One is for our primary residence. We also did an 80/20 on our retirement home, which we also use as a vacation home/weekend retreat. In hindsight, I know we should have waited to buy the retirement home, but we can’t change that now.

In about a year, we will need to refinance the 20% note for our retirement home. It’s a 5 year with a balloon payment (another mistake). Although we have been trying to pay it down, a laid-off has hindered that and refinancing is necessary. Currently, our credit scores are 798/800, something we have strived to achieve and want to maintain. How is the lack of different types of current credit accounts going to hurt our credit score? We don’t want to borrow money just to keep our credit scores up, but we don’t want them to go down because we have so few types of credit.

I know that the types of credit only account for about 10% of the credit score, but that would knock our scores down to the low 700′s, which I have a hard time accepting. Is there anything we can do about this?
- Lilith

If you have multiple mortgages and multiple credit cards, you won’t lose too much due to lack of diversity in your credit score. I’ve had only a mortgage and some zero-balance credit cards for quite a while now and my credit score is quite high.

Generally, this portion of your credit score only suffers if you have a ton of debt and it’s only one type of debt. Even in that case, it does not have a significant negative effect – 10 or 20 points, perhaps.

Remember, this is all anecdotal. Credit agencies do not release the exact methods for how credit scores are calculated.

Q10: Habitual borrowing
I have a friend that often asks to borrow $5 or $10 at lunch or when we’re out for drinks. At first, I did this without asking, but I’ve come to see he never pays anyone back. How should I handle this?
- Lenny

For starters, don’t loan him money. This is a black hole for you and it’s not worth continually dumping in cash.

If you want to recoup some of the money, go out to lunch and ask to borrow money from him. Recoup the money as best you can through borrowing. Make it clear that he can knock it off the tab of what he owes you.

If that feels uncomfortable, just stop going out to lunch or out for drinks with this person, or else just say you don’t have the cash to spare. He’ll move onto someone else pretty quickly.

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.