Errors, like straws, upon the surface flow;
He who would search for pearls must dive below.
- John Dryden

Humans are creatures of habit. We fill our days with lots of little routines that we often go through with scarcely a thought.

I can still describe my typical daily routine from the days when I worked outside my home. I’d wake up, brush my teeth and hair, get dressed, wake up the children, get them dressed, take them to daycare, pick up some breakfast, and go to work. I’d do my required daily tasks first thing in the morning, then fill the rest of the day with incidental stuff. I’d go home – usually stopping at a bookstore or an electronics store along the way and usually pick up a coffee. I’d relax for an hour until everyone else came home, then prepare supper, have some family time, put the kids to bed or do housework if it was Sarah’s night, do something with Sarah for an hour or two, then go to bed.

Day in and day out, my days would follow this routine. Once the pattern became established, I stopped thinking about the pattern too much. I just did it – and I didn’t take too well to disruptions in that pattern.

We also fill our lives with broader routines, too. I would eat out with my wife four times a week, like clockwork. It wasn’t devastating if I missed one of these, but it did feel a bit out of my routine. I had a “boy’s night out” once a week as well.

The things I bought at the store were (and still are) routine, since I can recite most of my usual grocery list and my plans for filling in the rest of the blanks by heart. My reading habits were (and are still) something of a routine.

Over and over again, routines pop up in my life – and in your life, too.

Most of the time, routines are good. We establish them so that we’re sure we’re meeting all of the things we need to do in a given day: practicing hygiene, getting enough food and water, and earning enough money so that we ensure our basic ability to continue doing these things.

Sometimes, they’re not. Usually, that’s because our basic needs are so well covered that we lose sight of them and we begin to focus our energy, time, and money elsewhere. Do these things frequently enough and they become part of our routine, as normal as brushing our teeth.

My old routine included things like going out for drinks with friends (costing money and time), going out to dinner with my wife (costing a lot of money), stopping at bookstores and electronics stores (a money and time waster), stopping for coffee (money), and idly watching television (time).

If you waste enough time, you begin to feel as though you don’t have enough time for the things that are truly important to you (at the expense of your routine). If you waste enough money, you begin to feel as though you’ll never get financially ahead.

It’s important to note that wasted time and wasted money is not the same thing as leisure time and leisure money. Doing something you enjoy that you’re actively engaged in is a valuable part of life. Doing something because it’s part of your routine and is the path of least resistance is what I’m talking about here.

What I eventually had to do is to start critically evaluating all of my routines. Why did I do these things on a typical day? Why did I stop at the bookstore? Why did I stop for coffee almost every day? Why did I eat out so often? Most importantly, were my answers to these questions compelling – or were they merely excuses for my own wasteful behavior?

My routines on any given day are far from perfect. I tend to still waste time reading messageboards that I don’t need to be reading, and I’ll sometimes purchase things that I don’t really need.

The key is that I’m not afraid to evaluate my own routines, admit that I’ve messed up, and seek a better path. I look for the places where my money and my time tend to leak and I make a conscious effort to remedy that problem.

Facing my routines head on eliminated most of the meals I eat out and virtually every bookstore and coffee and electronic store stop. Those changes alone saved me countless dollars and countless hours, both of which I now spend on more fulfilling things.

What are your routines? Which of those really matter to you? Which ones gobble up your time and energy and money?

Which ones can you let go of to put yourself in a better place?

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. Guilt for every little purchase
2. Handling partner without money skills
3. Auto insurance challenges
4. Handling elderly relative in decline
5. Preparing for a growing relationship
6. Handling student loan repayment progress
7. Used car decisions
8. Partner with terrible credit
9. Housing choices in expensive area
10. Gencon thoughts

For once, I’m going to break my stance against politics and offer up a few thoughts about the debt ceiling issue.

After watching the debt ceiling debacle of the past month and doing some research of my own, I’ve come to the conclusion that virtually everyone involved with the negotiation is much more interested in furthering their political ambitions than solving America’s problems. This goes for Obama, Boehner, Reid, McConnell, and virtually everyone else involved with it.

The root of the problem is pretty obvious if you look at our federal budget. Our entitlement programs – Medicare, Medicaid, and Social Security – are simply unsustainable. If we continue them as-is, our nation will go bankrupt.

Social Security created a “retirement age” of 65 at a time when the life expectancy of the average American was 63. Today, the life expectancy of the average American is approaching 80. Even worse, each generation now is smaller than the one before it, whereas back then generations were growing larger.

Programs like Pell grants are tiny in comparison to things like Social Security. When you’re speaking about the budget and spending more than a word or two about Pell grants, you’re missing the boat on solving our nation’s real problems.

The solution is also pretty obvious, but it takes a lot of political courage to do it. They simply have to restrict these programs. In simplest terms, this means raising the age requirement for Medicare and Social Security and lowering the income requirement for Medicaid.

We don’t have to do this all at once. It can be graduated in slowly, as they did in the 1980s when they raised the entrance age for Social Security a bit. Someone who is 60 today won’t have the carpet pulled out from under them – they may just have to wait until 63 for the first level of Social Security and 68 for the highest level of Social Security. For someone in their early 30s (like me), it might mean waiting until age 75 for the first level of Social Security and 82 for the highest level of Social Security – or even higher. I am absolutely fine with this if it means getting our nation’s financial house in order. When you start running numbers like that, Social Security quickly becomes sustainable and our budget concerns look far less scary.

Show me a politician with the courage to work directly to make this type of thing happen (not just pretty speeches, but actual legislation) and I’ll show you someone who will vote for that politician.

Q1: Guilt for every little purchase
Here’s my specific situation: I’m a recent college grad, living at home with my parents, working full time while paying off student loans. I really dislike living at home and want to move out, but the cost of living in Los Angeles is so high, I feel so afraid. Especially when there’s a lot of uncertainty in my future–I have no idea what I want to do for a living, but I know I don’t want to be at my job forever.

I feel guilty every time I spend money, even if it’s just on a bag of chips–I think to myself, those few dollars could go towards a down payment on a house. I know I need to reward myself once in a while or I’ll be miserable, but when I have such a large financial goal in such an expensive city, how am I supposed to decide when and how much I’m allowed to spend money on unnecessary wants?
- Marissa

At first, I faced this exact same problem. I felt guilty every time I spent any money on anything that wasn’t absolutely necessary. After a while, I somewhat resented that guilt and would sometimes spend money just to show that I “could” do it.

As time passed, though, I began to realize that guilt and resentment weren’t taking me to where I needed to go.

My solution was to simply budget a certain amount per month for frivolous purchases. I usually did this by keeping that amount in cash in my wallet. Once a month, I would withdraw that amount from my checking account. Then, if there was cash in my wallet, I knew I could freely spend it without guilt or worry.

I still do this, except without directly using cash. I’ve just become accustomed to keeping my frivolous spending in reasonable check.

Marissa has a second question.

Q2: Handling partner without money skills
I’m in a relationship of almost three years, and we believe we’re in it for the long haul, although we’re nowhere near ready for marriage (both still living at home, not ready financially, etc.). He has $50,000 in student loan debt, and his part time job barely covers the payments. I’m really concerned for his financial well being. Although he isn’t a reckless spender, I still feel that he’s not saving enough, earning enough, or making large enough payments on his loans (at his current pace, interest will add on over $20,000 by the time they’re paid off).

I’ve nagged about finances, but he feels comfortable with how things are. But I think the only reason he’s doing okay is because his parents are supporting him. He plans on going to grad school and would like to move out of home as well, which would add to his expenses and debt. I feel like his financial decisions now will affect both us in the future, but what is my role, given that we’re not married or living together? Do I have a right to tell him to spend less money, when he doesn’t even splurge much in the first place? (I do feel like he should be spending even less–as little as possible–since he’s $50,000 in the red)
- Marissa

Your role is to figure out whether this is a person that you want to be with over the long haul, given both his good traits and his bad ones. Trying to “mold” someone to be something you want does both of you a disservice.

The most impact a partner can really have on the other person is to help them find new channels for the person that they are. You can’t really change the person, but you can change the situation.

It sounds as though you’re deeply concerned about his personal finance decisions. Is that a deal breaker for you? I can’t tell you that, particularly since I don’t know what you value and I really don’t have a full picture of his behavior from your description. It’s going to require some soul-searching.

Q3: Auto insurance challenges
We are getting quotes from several different companies for home and auto insurance. Company A consistently ranks among the best in customer service and satisfaction, but its premiums are more expensive than Company B for a similar level of coverage. Company B offers cheap coverage, but has a mediocre reputation. Is it better to pay more for a policy from a reputable company, or is it better to save money now and keep your fingers crossed that you won’t need to file a claim any time soon?
- Charlie

It depends on why you’re buying the insurance. If you’re buying it just to fulfill a legal requirement and don’t really value the insurance itself, go for the cheap one.

However, if you’re actually buying it with regard to protecting yourself against the unforeseen, your insurance company is not one you want to battle with in a situation where you actually need home or auto coverage.

If I were in your shoes, I would probably get the more reputable coverage.

Q4: Handling elderly relative in decline
My 88 year old grandmother has lived in a senior apartment complex for some time, but it’s clear that she needs assisted living now (she’s had several falls, my father brings her medications to her every day because she can’t manage them on her own, she can’t really do her laundry or clean her home anymore…). She’s not really sick, just elderly and fragile. My parents pay her rent, and it is the maximum they can afford living the lifestyle they do now. They are in their 60s, well established in their careers and have made a lot of money in the past, but they just started a new business this year that has the potential to make money but is restricting their cash flow now. Additionally, they spend a LOT of money on “lifestyle upkeep” (luxury vehicles, hobbies, trips, a big mortgage, maintenance services, etc) that they don’t even get to enjoy very much because they work all the time and spend a lot of time taking care of my grandma. I have no idea what their plans are for retirement, and I’m not sure they do either.

When I see the way they are spending, I get really angry. How can they keep spending all this money on these things that don’t seem to matter to them very much, and aren’t willing to give anything up to give my grandma a better living situation? My grandma took care of me when I was young so they never had to pay for child care. Why aren’t they willing to help her now? It’s true, they’ve taken care of her for a long time, and maybe they are tired of it. But would they want me to make a decision like that when they are elderly and dependent on me?

They might try to get her in a nursing home if Medicaid will pay for it. She has spent time in nursing homes before, and she gets more depressed. She also doesn’t really need that level of care yet. I think they should either bring my grandma to come live with them in their large house, or give up some of their ongoing expenses to pay for assisted living in a small apartment for her (which Medicaid won’t pay for).

My husband and I don’t make very much money, and our home is too small for her, but we’ve offered to put what we can afford toward my grandma’s care. My parents have flatly refused. We visit my grandma frequently and try to help out by cleaning her home, taking her meds to her when my parents can’t, and other things, but what she really needs is assisted living or a daytime nurse.

My questions are these: is there anything else my husband and I can do to help my grandma while my parents dither around not making any decision and my grandma’s care just keeps getting worse? I’ve tried talking to my parents, both together and separately about this situation, but not with this much honesty. They are pretty touchy about how they spend their money, and hate talking about it with me.

Trent, what do I do? I want my grandma to have a comfortable, peaceful life. I want my parents to be less stressed out because they spend a lot of money on her and provide her so much care, when it still isn’t enough.
- Ellen

There’s a lot more going on here than just money.

Most likely, your parents are so used to your grandma being a steady and strong fixture in their life that it hasn’t really clicked for them that she is fragile now and that her life really won’t continue forever. It is often difficult to imagine our parents growing old and it often sneaks up on us without us really realizing it. Mom and/or Dad have just always been there. They’re the constant in our life, from infancy onwards.

I witnessed this happen with my own family, where an elderly great grandmother who had been such a rock in so many people’s lives began to weaken and many people simply failed to acknowledge it.

Since this is not your money we’re talking about here, you have little control over the situation. I think you are already doing what you can, and all you can do from here is keep the subject alive in the mind of your parents.

If your family is like mine, it’s not so much a money issue but a “not wanting to face the real situation with grandma” situation. That just takes time.

Q5: Preparing for a growing relationship
I have been in a relationship with my boyfriend for over 2 years. We moved in together a few months ago. I know that eventually we will get engaged and married, and this was something we discussed multiple times before cohabitating. We are in no rush to get married. I am very happy with our relationship, and so is he. We are in our mid-twenties, and I feel so young. I have seen my friends marry young and divorce already. So I do not want to put unneeded stress on our relationship by setting demands to be engaged or married within a certain period of time. Another reason that I am not pressuring him to propose to me is that weddings cost so much money.

My boyfriend and I have stable jobs, and we make $60K and $72K. Our financial situation is pretty good. We each contribute 12-15% of our gross salary to retirement funds. We have emergency funds. Our only debt is student loans and his car loan. He has $13K in student loans and $10K on a used car he bought in December. I have $32K in student loans. (It was $40K 3 years ago, but I am making progress!) We have no credit card debt. We put all our living expenses on one credit card that is in his name, but I am an authorized user. We pay that off in full every month. I also have a car/house fund, and one of his benefits is money towards our first home purchase. We are not big spenders, and we do a lot of research or give a lot of consideration before purchasing any big ticket items (e.g., vacations, furniture). Our primary long-term goals are paying off our loans and saving for a house.

So my question is how we are supposed to afford a large, glamorous wedding that people keep hinting about? If I had $20-30K extra laying around, I would love to have a big wedding with all our friends and family. The reality is that we do not have such funds. My family also does not have the money. My dad passed away a few years ago, and I would never ask my mom to pay because she needs to focus on her retirement plans. My boyfriend once suggested that we borrow the money from his parents to pay for the wedding. I cannot get comfortable with borrowing that much money from anyone for a wedding. I feel that given our financial situation and all the uncertainty in the economy these days, we should have a small, intimate wedding with just close friends and family or even a destination wedding with just a handful of people that are closest to us. I think there will be a lot of pressure for us to have a big wedding, particularly from his family. His sister was married last year, and it was a large wedding with about 150 guests and cost $30K. And I feel like his family will be disappointed if we do not have something similar so that all his extended family can attend. That is another dilemma – his family is from the North and mine is from the South. So neither location is convenient for everyone, and weddings are even more expensive where we live (DC area).

I know it may be a bit early to be asking these questions, but I just want to be prepared to have these conversations once we get engaged so I can get people to see my side. My boyfriend has gone back and forth on big or small wedding. We could save the money ourselves, too. But saving that much money for a wedding as opposed to a house is not in line with our priorities. How would you handle this potential situation?
- Kelly

You do not have to have any sort of “large, glamorous wedding.” If it does not fit with the values that you and your boyfriend share – and it sure sounds like it doesn’t – don’t have one.

The nature of your wedding is no one’s decision but your own. Have the event in a park and make it a potluck dinner. Go with your parents and a few close friends and talk to a justice of the peace or your preferred religious leader. Get married privately, then have one small reception-type event with your husband-to-be’s family and another one the next weekend near your family (or vice versa) to save everyone travel costs.

Who cares if someone’s extended family is “disappointed” by your big day? Their thoughts about your wedding can take a long walk off of a short pier.

Create a day that reflects who you are and who your husband-to-be is. If his extended family doesn’t like it, that’s their problem, not yours. Don’t spend a second of your life or a dime of your money trying to live up to such nonsensical expectations.

Q6: Handling student loan repayment progress
So here’s my situation: 31 year old female, bought first home last year with long term domestic partner (we hope to be married in the next year or so). Total mortgage payment $1000 which we split equally, so I pay $500. We have a shared checking account that we use to pay all common expenses (bills, dog food, trips etc). We each keep separate checking accounts.

I owe $10,740.84 in student loans broken down as follows (graduated in ’08 with a BS):
acct 1: 6.8% variable owe $3,991.53
acct 2: 4.399% mixed owe $4,331.04
acct 3: 1.36% variable owe $2,457.89

I pay $500 a month total towards this debt. I think my actual payments are supposed to be around $250 but I chose to start paying $500 at the beginning of this year so I could be debt free in 2 years (inspired by your blog!).

What I want to know about my student loan situation is how should I pay this debt off? Should I divide the $500 payment equally among the accounts or pay off the one I owe the most on first? I’ve been putting $200 into each of the first two and $100 into the third as it has the lower interest rate.
- Kathy

Make minimum payments on all three, then take the remainder of that $500 and throw it toward the highest interest rate debt. This will eliminate that set of debts the quickest.

At the rate you’re paying, you’ll probably have a lot of this paid off before there’s a rate adjustment. These interest rates are relatively low, as are the balances.

Kathy asked a follow-up question about her car.

Q7: Used car decisions
I save $260 per month that I put into a separate savings account for car/house insurance and taxes. I also have been saving about 20% of my paychecks for the last year or so into another savings account as an emergency fund. These two accounts total ~$11,500. I have no credit cards. I have no car payment.

Per one of your recent posts, I just started a 401k at 12% (since I’m not debt free I chose a lower percentage) which my company matches up to 7%. Retirement savings has my mind totally boggled but I opened the account and keep reading about so I figure I’ll eventually get a grasp on it.

Ok so now to my question! (well it’s in there at the end!) I drive 500 miles a week for work as a consultant dietitian in nursing homes. I am paid ~$1000 a month by my company for mileage expenses which I don’t count as my income, I pay myself back for gas and oil changes and put the rest in savings. My car was a gift from my boyfriend’s parents and is a 1996 toyota camry with ~175K miles. I’ve owned the car for about three years and it is fairly dependable. I have recently replaced the alternator and the timing belt, both costly items. I’ve asked one car rental chain about renting a car for the month and was given an estimate of ~$1300 per month (rental plus optional liability insurance). I currently only have liability insurance on my own vehicle, not collision.

What I want to know about the car situation is when I buy a new (used) car, what would be my best option? Should I look for something low-cost that’s dependable that may only last a few years? I just worry about buying a relatively newer car at a good price just to put so many miles on it! Should I shop around more at the rental places and try to find a place that will get close to my reimbursement level?
- Kathy

I would buy the best car you can with the cash you have on hand. Do not take out any debt for the car. Use the balance of the “emergency” account minus $1,000 (meaning you should leave behind a $1,000 emergency fund).

Focus on reliability with that purchase. Look for the car that will last the longest at your price point. It’s going to be used and it’s going to be older, but the point is that it gets you reliably from point A to point B for the next few years.

Yes, you’ll probably drive it into the ground. That’s fine. Remember that driving a car is the point of owning a car. If you didn’t have a need to get from point A to point B, you wouldn’t own a car.

Q8: Partner with terrible credit
I am 53 years old and divorced. Recently my ex-husband and I got back together. He owns the house that we built together and I bought a new house after our divorce. Currently, we are living in my house as it is smaller and more practical for empty nesters like ourselves. My husband has put our old home on the market but there has been little interest in it so far. His salary barely covers the mortgage and utilities so he can’t really contribute to our current living expenses much. He is wondering how long he should struggle to make the mortgage payments before giving it up to foreclosure or a short sale. I feel if we have no offers before winter, we should give it back to the bank. My question is this, I am in good financial shape with savings and no debt except my house. He may have a foreclosure and has 10′s of thousands (he won’t give me a number) of credit card debt. He wants to get remarried but I am afraid of the financial consequences to me. My credit score is 814 and I would like to keep it that way. I also don’t want to be responsible for any of his debt that he accumulated during our divorce period. Any advice?
- Marjorie

As long as your name doesn’t wind up on any of the debt, you should be okay.

The problem comes with things like insurance (if you get insurance together, your rates will be higher because of his likely poor credit score) and future loans (if you get a loan together, his credit score will raise the interest rate). Any financial arrangement you enter into with him will likely find his credit being a problem.

Most likely, your credit score won’t be affected, but you’ll still feel some of the financial consequences of his score unless you keep your finances very separated.

Q9: Housing choices in expensive area
After 3 years of unemployment, my husband has received a job offer and plans on taking it. Our combined income is close to $200K but we live in a very expensive city. We have a condo that we rent (rent doesn’t cover the entire mortgage and HOA dues – about $150 short) and a house that we live in. We are currently underwater in both of them due to the turn in the real estate market.

We have about $20K in student loans (at 3% interest), $6K on a car loan, $4000 in credit card debt and the mortgages on both our properties (currently paying interest only on all 4 – 1st and 2nd mortgages). I’m on track with my 401K (we’re both 38 years old) but my husband falls behind due to not being employed for a couple years. We have about $10K each in IRA and plan on adding $5K a year to each of these and about $10K in savings.

We need a larger house (we are about to have our 3rd child and our current house only has 2 bedrooms), we need a new-used car as one of our cars is about to die and is too expensive to keep fixing (neither one of us can take public transportation to work as there isn’t any) and I’d like to start adding more to our retirement and 529 plans. My plan is to pay off the credit card debt first, then tackle the car loan and then start to pay down our 2nd mortgage on our house. This would free us up to one day rent the house to cover the mortgage. Then save up for a down payment on a house. Given where we live we’re looking at a HUGE down payment to get the 20%. We can’t count on selling our current places to make up for the down payment.

Can you let me know if my plan is a good one or should we be putting our focus on something else first?
- Patricia

We have three children in our current home and use only two bedrooms. It is certainly doable, particularly when the children are younger.

That being said, I think your plan is a good one, but expect that it will take a few years to reach it.

My recommendation is to do what we did. Put a free-standing loft (with a railing) over the crib in the children’s room and have the oldest child sleep in the loft. This has worked wonderfully for us and still will even when the crib becomes a toddler bed.

Q10: Gencon thoughts
I know you went to Gencon this year. Did you see any new board games that you really liked?
- Mark

My favorite game I saw at Gencon this year was Eminent Domain. It’s a card-based game where you (and one to three other players) are exploring a previously-unexplored region of space. You’re looking to colonize (or conquer with your military) the planets in this region and utilize them for resources. It’s very thought-provoking with little downtime for any of the players (meaning you’re not sitting around waiting for others to take their turn) and plays in about forty five minutes.

Honestly, though, I spend most of my time there actually playing games. When I’m not doing that, I sit in the auction room looking for bargains. I don’t wander around the relatively expensive dealer hall too much or else I’ll start convincing myself to buy things I really don’t need.

At least in the auction room, if I convince myself to buy things I really don’t need, I’m only out $5 or so. I usually bring along a certain amount of cash I allow myself to spend on games and it lasts much longer in the auction room.

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.

A week or so ago, a friend of mine purchased a house with cash. It’s a bit of a fixer-upper, but it’s more than roomy enough for his needs.

How did he manage to come up with the cash to just buy a home without a loan? Small steps. Nothing more, nothing less.

He doesn’t go out to eat very often. Instead, he makes most of his meals at home. He goes out if there’s a situation with friends or family, but without that, he doesn’t bother.

He doesn’t go “out on the town” very often, either. His social calendar mostly revolves around free community organizations and sports as well as events at the homes of friends. If he wants to do something, he does it, but his schedule is usually full enough that when he does have a free evening, he rests up and reads a book at home.

If there’s a service he doesn’t use very much, he doesn’t have it. Thus, he doesn’t have internet access at home and just uses it at work for fifteen minutes or so after he’s done with his tasks if he needs to.

He doesn’t buy a soda at the gas station after filling up (in fact, he usually bikes to work, as it’s about a mile away from his home). He doesn’t toss stuff into his cart in the checkout aisle. He doesn’t stop at Starbucks for a “quick pick-me-up.”

He does not need these things for happiness in his life. They are just products that are well marketed or services where you pay out the nose for the right to sit down.

Every time he makes one of these little choices, he saves a bit more money. The “expenses” part of his balance sheet is a little lower, meaning there’s more money left at the end of the month.

Month after month, that money builds up in a savings account until, a few years down the road, he’s suddenly writing a check for a home of his own.

Little steps. Little steps are the key to victory. Big, grandiose steps might look good, but without the little steps to sustain them, they fall flat. Little steps, day in and day out.

Little steps lead to better health. Going on a walk instead of watching a TV show. Ordering a water instead of a double mocha latte. Eating one sandwich instead of two. Eating fish instead of a giant burger.

Little steps lead to a bigger skill set. Spending an evening learning a new protocol instead of watching American Idol. Choosing the challenging path instead of the easy path at work.

Little steps lead to a healthy retirement balance. They lead to a better job. They lead to a career you dream of. They open you up to completely unexpected opportunities.

The only difference between the successful and the unsuccessful is the willingness to take those little steps over and over again.

When you see someone who is successful – even if the impression they give is of someone who is talentless – often you’re seeing the result of a lot of these small steps hidden behind the scenes. They were choosing certain things over and over again that might not have been the easy road in some way or another.

There’s nothing stopping you from doing it, too. It just takes willpower, regular good choices, and time.

I spent several hours yesterday just catching up on some of my favorite personal finance and personal growth blogs, bookmarking interesting posts and the like. These are (some) of my favorite articles that I found along the way.

Athletes Are Not Overpaid, Stop Whining About It I completely agree with this. Athletes are paid what the market will bear for them. Owners of professional sports teams choose to pay those huge salaries because they get a large net positive return out of those contracts. If someone were willing to pay you $10 million a year to play baseball, would you not sign? Also, if you could hire an agent for $1 million that could turn your contract into a $15 million a year contract, wouldn’t you hire that person? If you want to gripe about player salaries, don’t blame the players. Blame those who created the marketplace (the owners) and the people who support that marketplace with billions of dollars (the fans). (@ financial uproar)

Defining Quality Quality is worth paying more for, but what is quality? The real key is to figure out what traits you care about, judge just the quality of those traits, and largely ignore the rest. For example, when I’m buying a car, I care about reliability (1), fuel efficiency (2), and how my six-and-a-half foot frame will fit into the vehicle (3). iPod attachments? OnStar? Acceleration speed? The perfect color? I don’t really care, so I won’t pay for them. (@ seth godin)

How Much Do You Spend on Food? It depends a lot on what you choose to eat. If you eat nothing but the food on sale or what you can get with coupons, you can lower that number a lot. If you eat out a lot, or if you put restrictions on your food purchasing (organic produce, etc.), it’s going to cost more. (@ get rich slowly)

How do you move past a fear of regret when purging clutter? For me, I usually rely on the recognition that if I do end up regretting not having the item, I can re-purchase it if needed. Almost always, I never need that item again. (@ unclutterer)

How to Get Motivated Again When You’ve Lost Your Enthusiasm For me, I usually just go back to the core things that I loved about the thing in the first place. It’s easy to get off track (@ pick the brain)

Over the past three weeks, I’ve taken a long vacation.

My family and I traveled to the Seattle area to see the sights, visit family, and take our children to Mount Rainier and the ocean.

We attended my sister-in-law’s wedding and reception and a few other events surrounding it.

After that, we hosted several family members who visited us.

After that, I attended a convention while my wife and children visited family members.

During that period, I intentionally tried to avoid checking The Simple Dollar. I set up a service that sent me messages if the site was having major issues. I checked my email once or twice. My largest effort was an idea notebook I kept with me where I wrote down ideas for articles if they happened to come to me.

As I sit here writing this, I’ve just sat down to write material for The Simple Dollar for the first time in a long while.

Most importantly, I feel really excited about doing it. I have a ton of ideas built up (some of them being good ones that will turn into posts). My only writing in the past few weeks has been on my fantasy novel, so it will feel great to write about the subject of personal finance and growth again.

In short, I feel reinvigorated for my work.

So often (and I was certainly guilty of this in the past), we get so caught up in our work that we fail to take vacations. We never turn off our cell phone. We do work in the evenings. We never get time off.

After a while, that grind can turn even the most exciting job into drudgery. It can sap away your spirit and your creative energy and your willingness to really push yourself at work. It becomes routine – and often, a routine you dread.

A vacation doesn’t mean a trip and it doesn’t mean a pile of activities that wear you out and it doesn’t mean just sitting around doing nothing, either.

A vacation means doing whatever it is that you do to recharge your energy and your enthusiasm for your life’s work. For me, that’s spending time with my family, reading, playing games, and, yes, writing, but writing in an area completely different than my usual work.

During the last week or two before this vacation, I felt like I was pulling double time getting all of the articles ready in advance for the trip. By the end, it all felt like drudgery and I felt drained.

Right now (other than a bit of tiredness from not getting adequate sleep the last few nights), I feel as enthusiastic and ready to go with my work as I ever have.

Don’t ever think of vacation as meaning that you’re avoiding your job. Instead, think of it as putting yourself mentally into the position you need to be in to dominate at your work.

This goes for supervisors, too. If you have a key employee and you need that employee to be hitting on all cylinders and putting out great work, give that person vacation time and do everything possible to not bother that person when they do their own thing. What you’ll get in exchange is an invigorated and loyal employee who will churn out a lot of great work.

In short, we all need time away from our work, no matter how much we love it. That time away makes us better.

(Obviously, because of this sojourn, comment approval and emails are way behind. I’ll get to them as efficiently as I can, but it may be a while.)

This is an issue that I’ve discussed a few times in reader mailbags, but I continue to receive so many questions about it that I think it needs to be thoroughly discussed.

Over and over again in personal finance writing, you’ll find references to investment returns on the order of 10% to 12% per year (and sometimes even higher).

Over and over again in his books, Dave Ramsey makes statements like “Invest the $200 difference each month at 10 percent for the next seven years of the car loan. That $200 a month will grow over those seven years into $24,190.” (from The Total Money Makeover Workbook, emphasis added).

Entire books, such as Millionaire By Thirty by Douglas, Emron, and Aaron Andrew, proudly proclaim that rates of return as high as 15% are not only possible but probable over the long haul.

These are just two examples among many. The reason is that there’s a lot of reward in suggesting amazing stock market returns. It makes your financial plan, whatever it might be, look brilliant. You can suggest almost any old ludicrous thing, but if you’re eventually putting it into an investment that returns 12% a year for a significant period, well, your “plan” turns people into millionaires like it’s nothing!

Too bad it doesn’t really work that way.

Over the last decade, the stock market (as estimated by the S&P 500, an index of 500 stocks) has returned about 3% annually. It’s not been the best decade, with two strong downturns in it (2001-2002 and the almost apocalyptic 2008), but it’s an extreme far cry from 12%.

The housing market was producing returns of around 15% per year for the first part of the past decade. The last part? More on the order of -15% per year.

If there’s anyone I’d trust to make long-term calls on the stock market, it’s Warren Buffett. In his own words: “I would expect now to see long-term returns run somewhat higher, in the neighborhood of 7% after costs.”

Here’s the truth. You can sometimes stumble on investments that return 10-12% – or even better – for a few years. Eventually, however, there’s a correction. Speculators get out. People head for the hills. The reason is that the investment becomes overpriced.

(Warning: economic theory approaching. If you’re uninterested, skip this paragraph.) Things increase in value because it produces more than it once did. Most of the time, this is due to an increase in productivity. According to an awful lot of metrics and studies, human productivity does increase over time, but it doesn’t increase annually at a rate of more than 7%. If anything, it increases at a slower rate. (Productivity is difficult to accurately measure.) If you add productivity and inflation together in a very stable economy, you’re probably getting somewhere close to 7%, maybe a bit higher. In other words, the natural value of something fueled by human ingenuity’s actual value increases at a rate less than 7%. When something begins to gain value at a faster rate than that, you’re witnessing a bubble in action. There are speculators involved and, by the time you’ve heard about it, the speculators are usually itching to take a profit.

Add all of these factors together and I think Buffett’s long term prognosis is accurate. I would use 7% annual returns as my long term estimate for an investment with the risk level of the stock market. You might be able to beat that annual return over a short period due to luck, but volatility will eventually eat that return up. You might even be able to beat it over the long term, but you’re taking a lot of risk to do that.

Because of this, I’ve recently started sticking to 7% annual returns for my long-term financial estimation. I calculate a 7% annual return on my retirement portfolio for a long while, eventually going down to about 4% as I move it into secure stuff at retirement age. I use a 7% annual return for every bit of long term savings. I use less than that for short term savings, usually basing that on my current savings account rate, with the advantage that short term savings is essentially riskless. I would suggest you use similar estimates in your long term calculations and be very wary of people proclaiming plans with much higher returns involved.

Madeleine writes in with an interesting thought:

When I was younger, my mother used to buy generic versions of things and put the contents into name brand packages. She would refill a ketchup bottle with generic ketchup so that guests would see the name-brand label.

I understand why she did this. Many items are very similar whether you’re buying the generic version or the name brand version. At the same time, though, it’s dishonest. It also tells people that you’re the type of person that cares about having that name-brand ketchup on the table. Not only that, it makes the ingredient lists wrong, which can be an issue with food allergies in some cases.

What do you think? Is this a good way to go or is it dishonest?

Well, the area that actually concerns me the most is the food allergy issue. Regardless of how I felt about the generic versus non-generic issue, I wouldn’t do this with any food that I was going to serve my guests unless the generic and the name brand were an ingredient-for-ingredient match. There is no price that’s worth having a friend glance at a container, think a food is okay, and then get very sick because you bought the cheap version and disguised it.

I have friends with some very severe food allergies, including lactose intolerance and a frighteningly severe nut allergy. We are very careful with the foods we serve, and putting items in bottles with false labels can sometimes be a huge mistake.

So, aside from the food allergy concern, there’s still an interesting question here.

More than anything, the question is about the value of the perception of your guests. Is there really additional social value in serving a name-brand ketchup to your guests versus a generic one? Or is it simply something you’re perceiving and not something that’s real?

Speaking personally, I can’t conceive of being upset with someone who invited me into their home and served me generic ketchup – or practically anything else they served me, for that matter. If they were insulting someone’s religious practices or pointedly serving a food that violates someone’s known food allergy, that’s a different issue. Having generic ingredients is not a spiritual or physical bias for anyone (unless, of course, there are food allergies at work).

It might be a psychological bias for some, but if you’re going to make household decisions based on guessed insignificant biases of your guests, you’re going to open up a giant can of worms.

I have friends who obsessively clean their homes because of their fear of houseguests finding a speck of dust anywhere, for example. There are times when you can’t visit their home because there is a stain on their carpet. Personally, I could not possibly care less, as I would visit them to see the people, not their home (and this goes for the vast majority of houseguests). Again, they’re operating based on a perceived psychological bias of their guests, not a real one.

Simply put, at some point, you have to stop caring what other people think. You can’t let what your idea of what others think of you and your home rule how you behave and what you serve. Naturally, you do want to be a good host and please your guests.

If you have guests that would storm out of your home because you served them generic ketchup instead of a name brand, then you need new friends.

If you’re still uncertain, serve the item in an unmarked container, such as a bowl. Serve your ketchup with a bit of pepper in it, stirred carefully, along with a brush for applying it to the sandwich (or a spoon for dipping, if needed). It looks far more classy than any bottle could look and allows you to save money.

For me, I have no problem serving generic items to any of my houseguests. I’m the type of person who uses generics and is proud of it. That’s who I am, and these people are guests in my home. Yes, sometimes I’ll do things like make a special ketchup preparation as described above, but most of the time, I’ll just put whatever container we have in the refrigerator out on the table and move on with life. My friends and family seem to love coming to visit, so I must be doing something right.

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. Torn between work and kids
2. Considering career options
3. Diet plans
4. Student loans? Retirement? Other options?
5. Domestic partnerships
6. Cleaning up credit report
7. Used car buying tactics
8. Rent or sell?
9. To buy or to rent?
10. Adult wanting to attend college

My oldest child starts kindergarten this year and the start of the school year is inching near. It’s quite interesting to watch how he’s excited about some things (picking out school supplies, sitting by the friends he knows are in the same class as him) and apprehensive about others (meeting all of the new children and the new teacher, riding the school bus).

I have no doubt that he’ll be just fine. It’s been fun talking to him about it and telling him some of the things I remember from kindergarten. Coloring contests were one thing I remembered, so he’s been practicing his coloring a lot lately.

Q1:
I have a masters degree in my field, and nearly 8 years of experience. I work in state government, where we’ve been subjected to 4 years of frozen wages during my 8 years of employment, plus two years of furlough days (a 3.1% pay reduction the past two years). I am a union employee and enjoy job protection because of that. I also do some freelancing for examiner.com and Demand Studios Media, which I greatly enjoy. My husband is also employed by state government, but he is not a union member. He also gets paid less than I do- I earn 57% of our family’s income (excluding freelance earnings, which are a few thousand a year).

We have no debt: we paid off our mortgage in just 6.5 years, we have two paid for cars (one is 5 years old, the other is 12 years old and will soon need replacement with a “new to us” used car). We have paid cash for significant home repairs in the past six years, including foundation/basement work, new windows, installation of a fence, a new furnace and heat pump, new hot water heater and three new major appliances. We have a 1 year emergency savings and fully fund our Roths each year (we do not get 401(k) due to being government employees in our state). We also have started 529 accounts for our children.

I earned my masters degree because ever since I was a young teenager, I wanted to do this type of work. However, 3 years ago the job I was doing, was eliminated because of funding cuts, and thanks to my union protections, I was put in an equal paying position doing different work. I enjoyed the previous position’s work duties, but I do not like the work duties I currently have. I have applied for openings but due to funding cuts, each of those positions has been eliminated before the interview process. My degree, a masters of public health, is very specialized and few places hire people with this degree besides government. I have totally lost interest and passion in my work. I don’t care about my job performance. All I like are the paycheck and my coworkers. My husband loves his work, is challenged by it and has no complaints. He feels confident that there will not be any layoffs especially at his level, and he has very high performance ratings.

We have two children, a 4 year old and an infant. I would like to quit my full time job and stay home with my children while continuing to do some freelance work. I experienced a severe mental health issue (postpartum depression) shortly after the birth of my baby last year, which resulted in my hospitalization for several days.

However, I grew up in a poor household, and giving up 57% of our family’s income is not an easy decision. As a child, I lacked for necessary things like shoes and clothes that fit. I did not have enough food to eat. Medical care was too costly and was therefore avoided.

I feel torn. My heart is in my home, with my children. Having experienced postpartum depression, I know how precious and short life is and how quickly my children will grow up. We are in a great financial position right now. But I have all these “what-ifs” about actually quitting. What if my husband got laid off and we lost health insurance and his income? What if we have another major problem with our house? Can we afford to move to a nearby area, which we want to do in a few years, with just his income?
- Jessica

This is an intensely personal decision that you have to make. It’s one of those situations that really trumps the “ideal” of building up personal wealth. You can’t take back this moment no matter how much you save.

I essentially faced the same decision you did. My son was two and my daughter was an infant and I felt like I was not spending nearly enough time with them. When I quit my job, we lost the majority of our household’s income and we’ve only been able to supplement it through the success of The Simple Dollar and my other writings (such as my books). We’ve done okay.

If your heart tells you to make the leap, make it. You’ll have to really tighten your spending for a while and you’ll want to do whatever you can to keep your freelancing resume polished, though.

Q2: Considering career options
I’m a writer and editor in my early thirties. I met my husband in college and we both dropped out of school after moving in together. I lucked into a data entry position at a national entertainment company soon after leaving school. I’ve worked for that company for seven years, eventually being promoted to a copy editor. My job involves proofreading descriptions for movies and TV episodes. It’s an easy job, and as far as easy jobs go, I’ve got it pretty good. My base salary is $40K, plus I get a yearly bonus that amounts to 10% of my income. Health benefits are very good, the vacation policy is generous, etc. In addition, I’ve been given a restricted stock award that vests in September every year from now until 2013. The company stock is doing well, and if it stays at this level, the restricted stock payout should be around $7K each year before taxes.

However, I don’t feel challenged in my current position, and there’s practically zero room for upward mobility in the department and company. In the past three years, only one new position has opened up, and there have been no openings for positions above my current level for at least five years. In addition, our department has been “reorganized” a few times, resulting in several layoffs. I’ve been lucky enough to be spared so far, but they obviously make me nervous.

Because I don’t have a degree, it’s extremely difficult to get another writing job. I freelance in my off hours and have considered making a full-time business out of it, but the idea of having to pay for my own health insurance is a turnoff. My husband was laid off from his banking job two years ago and has only been able to find work temping and working part-time, so getting health insurance through his job isn’t an option right now. I hate feeling so dependent on my current job with no other viable options, and I’d like to improve my position in life. What I’d really like to do is pursue a career in technical writing or corporate communications. However, in order to do this, I’d need to leave my current job (and give up the restricted stock awards) and return to school full-time. The state university in my area offers an excellent professional writing program, but it’s not available via distance learning or night classes and the university is at least an hour’s drive from my office—so working and going to school part-time just isn’t possible.

It should take me about four semesters, plus an internship, to finish my degree. It’s just my husband and me; we don’t have any kids yet. Between the two of us, we already have about $30,000 in student loan debt and $3000 in credit-card debt, which we’re working to pay off. We currently rent an apartment. If I’m going to quit my job and go back to school, I want to do it soon, before we have kids and a mortgage to deal with. But it’s difficult to give up the security of my current position, especially with the monetary bonuses and benefits. And the idea of adding more student loans to our current debt load makes me nervous. What would you recommend doing?
- Angela

Look at the work you’re doing right now and ask yourself what lessons it can teach you for your side (and hopefully soon-to-be main) career. What can you take from your job that will apply to and improve those things? Are there work tasks that you can learn from? Do you have any workplace opportunities for education?

Look at every dollar you spend as a choice. You can choose to spend it on a want right now, or you can bank it so you can have the career you’ve dreamed of.

You should look at your real job as something you do to support your real dream, which is the freelance writing and/or the technical writing you want to do. Every day, look at that job as what you do so that you can eventually live your dream.

Q3: Diet plans
My fiance and I are trying to lose weight for our upcoming wedding and haven’t made much progress on our own. We both work full time and go to school full time, so when we try to cook healthy meals for ourselves it usually turns into ordering out because we can’t find the time to shop for groceries, plan a menu, and cook healthy meals. Nutrisystem offers a family plan that covers both of us for $500 a month, all meals included. When I tally up how much we’re spending on groceries and eating out just for the two of us, it easily tops out at over $600 a month in unhealthy choices. It seems like a no brainer to spend LESS money on food per month, and get healthy meals that don’t require any planning, cooking, or a trip to the grocery store. How do you feel about these dieting plans? We feel all the time saved planning and preparing meals is more time we can allocate to exercising and is worth the expense.
- Alan

The dieting plans work if you stick to them. The problem is that the vast majority of people that end up receiving the prepackaged meals find themselves at a large calorie deficit. They’re hungry and they wind up supplementing it with other foods that they buy themselves, which are often convenience foods (since they don’t really have groceries at home). This quickly escalates the cost.

Be honest with yourself. Have you been 100% successful in sticking with diets in the past? If you can truthfully answer yes, then this will be a money and somewhat of a time saver (prepackaged meals are not without prep time). If you can’t truthfully answer yes, the money savings will dissipate quickly (and probably result in even more spending).

Besides that (and I’m speaking from experience here), the foods you get in these plans aren’t exactly the peak of tastiness. Blech.

Q4: Student loans? Retirement? Other options?
I have a small student loan: the balance is $5,300, interest rate 6.8%, minimum monthly payment $104. I need to repay it by 2017. I try to pay a bit more every month, and when I have extra money I pay even more. That is the only debt I have, and I hate having it hang over my head. I’m single and make a decent salary, but live in an expensive area. Although I’m in my mid-30os, I share a rental apartment with a roommate. I am paranoid about saving for retirement. I have 11% of my paycheck deducted for my 401k, and this year am trying to put another 2% or so of my gross into a Roth IRA. My employer is very generous and puts an additional 12.5% of my salary into the 401k. However, I will not stay in this job forever! I’ve worked here for 4yrs, but previously had been underemployed or unemployed for quite a while, so I feel that I’m doing a lot of catch-up for retirement savings (current value of all retirement accts is about $73k). I recently met a financial planner (fee-only, of course) and mostly she said I was on track. But I just can’t shake the feeling that 6.8% is a lot to be paying for this stupid piddly loan and that I’m not saving enough. I do also have some emergency savings (about $8k) and own a few stocks (worth about $6,800, and they pay dividends). Do you think I should be paying more toward the student loan, or saving more for retirement, or trying to figure out some way to worry less?
- Dee

Let’s add up your retirement contributions. You’re contributing 11%, your employer is contributing 12.5%, and you’re putting another 2% into a Roth IRA. That’s a total of 25.5% of your salary that’s going into retirement savings. That’s plenty, and it will set you up extremely well in retirement. I wouldn’t save more for retirement if there are any other financial concerns in your life at all.

This leaves your options at “worrying less” or paying more on the student loan. I vote for the student loan. A 6.8% loan right now is pretty high and the interest rate eclipses what you could get elsewhere as a return on your money.

If I were you, I’d focus my energies on that student loan. I think you’re definitely on track, but I’d get rid of that student loan as soon as possible.

Q5: Domestic partnership
One thing I’ve often seen you and others write regarding the financial benefits of marriage has to do with health insurance.

“The biggest benefit in your situation for marriage is that many employers make it very difficult to share benefits with anyone other than an actual spouse. This is vital if either one of you loses your job or chooses to switch jobs.”

I’m 25, in one of those cohabitational relationships that is heading for marriage, but we’re not quite there yet. As someone with chronic health conditions and very poor health insurance provided by one of the nations largest employers, I understand the very serious value of the above statement. But it’s worth noting that marriage isn’t the only option. My boyfriend and I became legal domestic parters (involves a trip to City Hall and $35) so that I might obtain his health insurance. In our experience, we have found that several of the nations largest health insurance companies allow for this agreement. Not sure if this option is decided by the employer or provider (and I understand it’s not available in every state), but it’s worth noting in future posts!
- Anna

This is certainly an option in some states. Other states offer civil unions.

The issue, though, is that the rules and laws in this regard tend to vary from state to state, and what insurance companies choose to recognize is up to them.

The only solution that seems to work across the board is marriage. Virtually every insurance company recognizes it and every state offers it in some form.

I hope for a day where there’s a more consistent solution across the nation, but I fear it will be a long time coming.

Q6: Cleaning up credit report
I am 24, own a small condo, have a credit card limit of 3k which I pay off the balances every month (never missed a payment!), and have a small car loan. Two years ago, I was diagnosed with cervical carcinoma in situ, and required surgery. I had the best insurance in the world, Tricare, which paid for everything. However, last year(age 23) I aged out of tricare. I lost my insurance, but I still had to have frequent checkups and biopsies. I was able to pay the doctors bill out of pocket (nearly 2k) for these exams/tests back in July. Fast forward to Feb of this year. I totaled my car and needed a new one. When I applied for loans, I was turned down 3 times before I finally found out what was going on. I pulled my credit report and found two collection agencies were on my credit report. I called them up, and they were from the pathology lab for my test results. Apparently they bill separately, who knew? I never received a bill, and they had never tried to contact me. They confirmed they had the wrong address for the bill, and it took a month for me to finally get a bill. It is small ($450), so I can pay it. However, when I inquired about getting the agency off of the credit report, they said they would do it once I paid the bill…but absolutely refused to give me that in writing. I haven’t paid the debt, but Ive made it clear I want to. They haven’t called me once to try and get it paid….strange. I feel that if I pay the debt, that I will have no legal ground to get it off of my report. What should I do to get this off my credit report?
- Alice

Get the arrangement in writing. If they won’t provide it, I would contact a lawyer just to see whether this is something worth legally pursuing.

It should be easy for them to state for you in writing that they’ll remove it if that’s something they actually intend to do. Without it in writing, it comes off like an empty promise.

Even worse is that by paying it, you cause that debt to become up to date, meaning it’s actually worse for your credit score to pay it (if they don’t remove it). The specific debt’s status becomes somewhat better, but it also becomes new, which is worse.

Q7: Used car buying tactics
My wife and I are about to buy our first car together– we’ve been living a relatively urban lifestyle ever since college and have managed without a car for years. We are soon moving to a different metro where we will be closer to family and have decided that we will wish to and need to drive more frequently, thus we will be buying a (used, but reliable) car. I’m hoping to pay for as much of the car as we can in cash (although some financing will probably be necessary). Since neither of us has owned a car since we were in high school, I have three questions:

1) About financing– As I mentioned, I hope to take on as small of a car payment as we can manage without putting too big of a dent in our savings for a house down payment. A friend of ours paid for her car with some type of no-interest loan– she simply made her payments and then the car was hers and she had never paid any interest. My internet searching seems to suggest this is only done for new cars (the no-interest part). Is that correct?

2) I know there is no hard and fast rule to this, and condition is everything– but is there any suggested mileage threshold I should avoid (70k,80k, etc) when buying a used car?

3) I’m very tempted to buy a hybrid car for many reasons– vastly superior fuel economy, avoiding adding to our country’s reliance on depleting quantities of fossil fuels, helping the environment in some small way, and the fact that Consumer Reports lists the Toyota Prius as one of the most reliable car brands. Obviously, fuel economy is at a premium in the used car marketplace, and I’d have to take on a larger car payment in order to buy a Prius. Do you have any suggestions or resources for determining if the money saved on gas is worth the higher car payment? Additionally, does the federal government still offer tax incentives for the purchase of a hybrid?

We plan to keep this car for a minimum of 5-6 years an presumably will keep it until the end of its life.
- Nick

No-interest loans for used cars are very rare. I know of no examples of them.

There is no hard-and-fast rule about mileage on used cars. It has a lot to do with the specific make and model and the reputation of the car manufacturer. Some manufacturers are more reliable than others – Honda and Toyota tend to be very reliable, while other manufacturers (like Volkswagen) sometimes have reliability issues, at least according to Consumer Reports.

You have to sit down and look at your own fuel usage to determine whether there is savings for you in buying a more fuel efficient car. The more you drive the car, the more worthwhile it is to pay a little more for fuel efficiency. The federal tax incentives for buying a hybrid have expired.

Q8: Rent or sell?
Currently my wife and I own a home in the South Central PA area. We paid 169,000 for it and owe about 160,000. We’ve had it for two and a half years now. We got a 30 year fixed rate mortgage at 6.125%. Our monthly payment is right at 1,400 (including taxes etc.). We make about $90,000 a year with some overtime from my job, our monthly income is about 5580 (sometimes higher).

My wife’s job is about to become more demanding and will require her to spend more time at her work/school (she’s in a PhD program right now) and she commutes 120 miles round-trip. We’re considering a move so she will be closer to her school. That will allow her to be there more, and not waste as much time driving as she does now. Based on our current mortgage, it doesn’t look like we would be able to sell the house for what we owe.

So we’re trying to decide on whether we should try to sell it and take a bit of a loss (take a loan out to pay the difference), or rent it out and hope to either pay it down or wait for housing prices to climb back up. I’ve been doing some reading about renting a house and it seems doable for us. I’d be able to keep an eye on the property because I still work in this area. At the same time, housing prices in the area we want to move are very low. I don’t want to miss an opportunity to buy a home for a good price. Would it be worth while to consider buying another house? The rent for a few of the homes would be similar to what we’d pay on a mortgage. I don’t want to bite off more than we can chew if you know what I mean. I’m leaning more towards renting a home than buying. A big issue is that we don’t have much for cash reserves so we’d have to do 0% down and get the seller to pay closing costs.

What do you think?
- Brian

If I understand right, you’re considering moving into a rental unit while also keeping your old home and renting that old home out to someone else? Given what you’ve stated, that actually is probably the best plan, considering you’re still underwater in the first house and moving will drastically reduce a commute.

I would not buy a second home while sitting on an underwater mortgage without a 20% down payment in hand. Unless you guys are bringing in a huge income right when you apply for the mortgage, the banks won’t exactly view it as a good idea.

You may also find that being a landlord isn’t as much fun as you’d like. It depends a lot on who is renting from you. If they’re good people, it’ll go smooth. If they’re problematic, they’re likely to destroy your home.

Q9: To buy or to rent?
Here’s the scenario in a nutshell. I’m 45 years old, divorced twice. The last divorce put me in a financial mess. In order to get out of my marriage, I assumed the lion’s share of the debt. (The marriage was damaging to the health of my children.) I struggled for two years to try to stay ahead, worked two jobs, mothered two teens; however, it was too much. I ended up filing for bankruptcy last year. The date my debts were dismissed was in November, 2010 (that included house, car, and several credit cards). I also had to move out of my hometown as the availability of renting a decent house in a decent location was slim. My 19 year old son moved out on his own, but my 16 year old daughter did not want to change schools so she moved in with her godparents. I moved in with my partner/boyfriend. I still work in my hometown which is a 35 minute drive and allows me to see my daughter somewhat regularly. This worked out okay, but as a mom/parent I miss her terribly. Actually, I am needing to get back and be a family again. I can’t stand not being in her life regularly!

Here’s the question: I have an opportunity to purchase a house on contract with very little down. My former boss wants to sell a small house that he owns, in a nice neighborhood close to my work and close to school. Because he knows my financial situation, he is willing to sell me the house on contract with the contract coming due in 3 years. This would give me time to get my credit rating back up (I’ve also started re-paying my student loans). He is asking $117,000 with $2,000 down at 4% with it coming due in 3 years. The house is assessed at $124,000 as of last year. It is in a neighborhood that is popular. I make $46,000. I have student loan payments of $200 and $56 and a loan against my 401K of $98. I can afford the payment, insurance, taxes, etc. though I will still need to be frugal. I will also receive $600 a month in child support.

I am going to go talk to a banker soon to find out if indeed I will be able to get a mortgage in 3 years. (By the way, my boyfriend is really worried about this as am I.) My question to you is: what do you see as my risks? do those risks outweigh paying rent which allows for no equity to build? Now that I am starting over financially, I want to make sound financial decisions.
- Lisa

Financially, it’s not a bad idea. Since you didn’t really provide a full financial picture here, I would probably listen to what the banker suggests after he/she reviews your finances.

Your best bet is to simply follow the advice of that banker, as that person will know your full credit history, your credit scores, your full income picture, and so on.

My only concern is that this financial relationship is with your boss. You’re essentially ceding more financial power in your life over to him. If you are involved with a bad situation at work, it might not just be your job that’s under fire. If something goes wrong with the house, it could affect your perceived level of trustworthiness at work. I would not ever enter into such an arrangement with any boss I’ve ever had, no matter how much I trusted them. It just adds an element I don’t need to the equation.

Q10: Adult wanting to attend college
I always hear about adults who worked their way through college. Due to very poor planning on the part of my husband and myself, none of our three children had college funds. We realize now, too late, that we should have handled finances quite differently over the years. We are now on a much better financial path, but too late to help our kids with school. Our boys both joined the military both to get money for college and because they truly want to serve their country. Our daughter, the youngest, has no interest in military and just finished her freshman year of college. She did get some scholarships for academics and talents as well as community service, but they didn’t come close to paying for school. She has Stafford loans for her freshman year and is looking at 3 more years of student loans. I also have taken out parent PLUS loans this year and know I will have to do the same for the rest of her college years. She is working part time and hopes to increase her hours to full time for the summer while she is home, but this still won’t offset the need for loans. The school she is attending is rated as one of the least expensive in the country and state. She does not spend much money when she’s at school; rarely even going out for pizza. She buys her books used and then resells them to pay for the next semester’s books. She doesn’t shop for clothes and lives very frugally. She didn’t go on a “Spring Break” road trip and stays on campus most weekends instead of coming home. My question is, what are we missing, if anything? How do others “work their way through school” and end up with little to no student loan debt?
- Nancy

You’re not missing anything.

People who “worked their way through school” either spent years before school (or during school by taking a year or two off) working for money to pay for school (my father-in-law more or less did this and I really respect that) or they took out loans to supplement what they could earn through working.

I did the latter. I had some good academic scholarships, but they didn’t cover everything. I had a good job that covered my living expenses, but I still needed loans to pay for my tuition for my last two years in school. It can be done.

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.