For the first time in almost two years, I didn’t set my alarm this morning. I woke up about an hour and a half later than I usually do and I felt really groggy. I’m not really sure what to make of that, considering that by now I figured my biological clock would have been set to just wake me up at the appropriate time.

Anywyay, on to some reader maibag questions.

In 2009 we exceeded the income limit for our Roth IRAs. Here are our current yearly investments:

1. Would we be better off increasing our 401k contribution (which may put us under the Roth income cap), maxing out a traditional IRA and converting to a Roth every year or a combination of both?
2. Should we be focusing some of our disposable income on the car loan or mortgage or adding it to one of our savings/retirement vehicles?
- Sean

If you’ve exceeded your Roth limit, I would increase my 401(k) contributions by an appropriate amount so that your after-tax income is reduced by an amount equal to what you contributed to the Roth IRA. So, if you’re in the 30% tax bracket, for example, you should contribute about $7,200 more to the 401(k).

Since I don’t know your overall balances in your various investments, I can’t really say whether or not you’re on good pace for your retirement. However, I think your current level of retirement savings adds up to 12-13% of your income in a year, which is an appropriate amount. Your emergency fund (according to my envelope math) should cover at least three months’ worth of living expenses, so if the balance in that is much above $25,000, I would redirect the excess toward debt freedom. The travel budget is more a matter of personal taste and value.

Overall, I think you guys are in very good shape from what I can see. Good work!

You often advise couples to figure out a post baby budget when they ask you about having their first child or adding an additional. That is at least 5 years away for us and really hard to pin down. If we wanted to be sure we could still afford all of the “fun” things we want and children, it would be easier to save ahead of time and let our bank accounts do the talking. If you tried to set a savings goal for covering the costs of a child, maybe the 1st year of expenses?, what would it be and what would it be comprised of?
- Becky

It depends on the level of quality you want for your children. Are you going to stay at home with them? Are you going to send them to an average day care center? A top day care center? Are you going to hire a nanny? Are you going to have a Graco crib or a custom-made one? Are you planning to breastfeed or are you going to use formula? Each of those things is going to have a radically different cost.

You don’t have to make any sort of final decision at this point, of course. The reason for talking about such things, in your case, is so that you have at least a good estimate on what you need to save. The child care question will be the biggest one, as those options have vast differences in cost – tens of thousands of dollars annually.

Saving ahead for this is a really good idea. If I were you, I’d make the whole thing automatic. I’d probably use SmartyPig for it. Identify a number that you’re shooting for, set it up with a target date five years in the future, and make contributions to that goal automatic. You could even share that goal with overbearing in-laws who keep asking when the baby is going to come.

I quit my job back in January (variety of reasons) and am now signed up with a particular international company. When I am finished with my current job I will be doing something I have NEVER ever done before…commission only sales. *gulp* I am very nervous, but also excited. I really like this new company and I *think* I can do this even though I have no sales background. I’ll be my own boss, which is great, but also overwhelming. My question though is this…how in the world do people who earn non regular income budget and save???

My husband is still working and we’ll get his paycheck regularly but I’ve crunched those numbers and we will be in the red if I don’t make any money. So…on the assumption that I will do a good job and hopefully make some sales, how do I budget?!?!? Again, I’ve never been in this sort of position before. I’ve always had a regular paycheck. I’d like to be as un-stressed as possible when I finally start in my new role and having a plan for budgeting will help (I think).
- Megan

I have a non-regular income. Here’s how I do it.

First of all, I have a really hefty emergency fund. I keep several months’ worth of living expenses on hand in the form of cash. There simply are months where my income is not very high, and during those months, we live out of that emergency fund. It’s fine, though, because those down months are usually months when I’m working on some sort of project that will help turn things around.

How do you get there? When you have a great month, don’t spend it all. Instead, take a very large chunk of it and put it straight into your emergency fund, then forget about it. Keep doing it this way until you have at the bare minimum six months’ worth of total living expenses for you and your husband in that account. In other words, you could make nothing and your husband could lose his job and your account would cover everything from food to bills to even some entertainment – what you spend in a typical month.

During the down months, you may contribute less. During really down months, you may be taking money out of the account. Both of these are fine when you’re working a job with a variable income.

I purchased a car second had about 7 or 8 years ago now, it was $9000 then but it would be lucky to be worth $1500 now. I have full comprehensive insurance on it which comes to a little more than $500 a year. I can’t imagine keeping the car for more than another year, what do you think of changing my insurance to 3rd party instead and saving a couple of hundred? At what point is comprehensive insurance no longer worth it?
- Dan

At this point, comprehensive insurance is overkill. If you do more damage to your vehicle than the blue book value of the car, they’ll just “total” the car and issue you a check for that value. So, in other words, you’re paying more than $500 a year so that, if you get in an accident, they’ll give you a check for roughly $1,000 (depending on your deductible). Unless your odds of a major accident are approaching the 50% mark over a given year, that’s a pretty poor deal, particularly if you have an emergency fund of any kind.

My general rule of thumb is this when it comes to deciding whether to carry comprehensive insurance on a vehicle. Look up the blue book value of the car. Subtract your deductible from that. Then divide that by the annual cost of your insurance. If the number you get is less than 3.5 or so, I would stop carrying the comprehensive insurance.

Why? Even if you were in a serious accident that required a lot of repairs, your comprehensive insurance would likely just pay you the blue book value of the car (minus the deductible). If it’s 3 or less, you might as well cut the insurance and start saving that money in your own savings account.

I have a question that I hope you can anwer from your personal experience with Le Cresuet. I have been saving up and plan to buy an LC enamel french oven and want to purchasse the right piece. My question is about the difference between a round or oval oven. Does the round one heat more evenly and consistently than the oval? Have you tried both, and if so, what do you think? I have read reviews on every site immaginable, but no-one mentions round vs. oval.

I question this because I have used a slow cooker for 20+ years, and have noticed a difference in how things cook in my relatively new oval crockpot. I used a large round crockpot for many years, but unfortunately it broke in the sink. When replacing it, I decided on oval so that larger cuts of meat would fit better. I am using the same recipes, so I know how the dish should turn out. My theory is that the oval shape does not circulate the heat evenly as a round one does. I don’t want to make the same mistake with the french oven, since it would be a very costly mistake.
- Cherie

I have used both round and oval-shaped enameled cast-iron pots. They are spectacular. I use them for virtually everything in my kitchen.

With a round versus an oval shape, what I’ve noticed is that the metal heats up very evenly in the oven. Thus, they do cook a bit differently. There tends to be a slightly cooler spot (usually unnoticeable) right in the middle with either one of them, but that’s true of anything you use. The round pot tends to have a bit of a round cool spot, whereas the oval tends to have more of an oval shaped spot that’s not quite as big around as the circle. For most practical uses, there is no difference between the two (I won’t say ALL practical uses, but I haven’t seen a practical difference).

I think the issue with the slow cooker is more of a brand thing. It’s likely made quite a bit different than your old one and perhaps produces more or less heat than your old one. That likely accounts for much more of the change you’re seeing than the shape of the pot.

How would you recommend adapting the “work hours” [...] for someone who has an instable job, or who is currently seeking employment? My plan was to use a 40-hour “work week” and to pretend my time at home, cleaning, working on my research, etc, is all working towards my greater goals, because finishing school is a gateway to generating income for my dreams.
- Deborah

If you’re in a situation where you have the money to keep the bills paid for the moment, then you should absolutely fill that time with whatever activities put you in place for the career you want.

In your case (as this question was excised from a long email), you’re clearly filling that time with educational purposes that seek to push you not only towards learning valuable things, but towards a degree. That’s unquestionably a valuable use of your time.

I think it makes a lot of sense to, in effect, start getting used to a regular work routine. Putting in forty hours a week (or maybe even a bit more) in a schedule that will match what you’ll experience professionally is a great routine-builder.

One of my long-term goals is to read 1,000 books. While I have plenty of academic works and classics in mind, in terms of finance, personal growth, or any other subject, what would you recommend to a young woman who has just finished an undergraduate degree?
- Deborah

Here are three titles (all linked to my longer reviews) that I would add to your list for personal finance and personal growth.

Your Money or Your Life by Joe Dominguez and Vicki Robin is the single personal finance book I would recommend that you read. It is the book you’ll find at the foundation of my personal finance philosophy.

Mindset by Dr. Carol Dweck is probably the best book I’ve read on what I would generally term “success.” To succeed at anything, you need an appropriate growth-oriented mindset and this is the best scientifically-backed book I’ve read on it.

The Creative Habit by Twyla Tharp discusses making creative thinking routine in your life. Given that professional life is valuing ideas more and more and more, I think this is essential for being a complete, thriving person today.

I would strongly encourage you to check out some of the many books I’ve reviewed on The Simple Dollar. Almost universally, they’re good – though I’ve reviewed a couple of blatant train wrecks, too. Additional selections really largely depend on where you’re going on your life’s journey, but I think those three really are good for everyone to read in your situation.

A plea to share your kraut making experiences?
- Wayne

My father made sauerkraut almost annually when I was growing up and I helped him with the process several times when I was in high school and in college. It’s pretty straightforward, but what set his making apart is that he had a large earthenware crock in which to age the sauerkraut.

I’ve attempted it on my own twice and it’s been a complete failure both times. I attempted making it without the crock, which I think is the chief problem. The first batch I made was inedible. I believe I did not make it briny enough and some sort of growth occurred in it. The smell alone told me I shouldn’t even try it.

The second batch was closer, but it was incredibly, incredibly sour. I could eat it in very small amounts, but it was so far beyond the level of sour that would be enjoyable on anything that I tossed that batch out as well.

I am going to attempt it again later this year after investing in a similar crock to what my father has and following his procedure to the letter rather than attempting to “make do.”

I am a 21 year old college student, I work part time and still live at home.

About a year ago and half ago I totaled my paid off car and had to get a new one. Basically I had to start over. I ended up leasing a car( I know how you feel about leasing a car) however I did it because my parents thought it would be a good idea for me to have a new reliable car and I needed a car right away. Except for registration and such I did not have to put anything down for the car. My monthly lease is about $360.00 for the car. I struggled to make the payments every month as I go to school over full time and work about part time. I told my parents I didn’t want the car anymore as the payments were to much and I was very frustrated that the car would never really be mine even after I made all these “payments” on it. My dad decided that he would agree to make half the payment every month. Well I still have another 17 months before the lease is over. I also have DMV registration coming up which will be about $350 plus a maintenance that will be about $300-400. I guess right now the decision I am trying to make is should I just keep the car for another 17 months and suck it up making half the payment every month and the maintenance and DMV coming due or should I try to find someone to take over the lease and figure something else out?( My parents and I were considering the possibility of having my dad take over the lease and driving the car) I have some savings however if I bought a car cash it would probably eat up all my savings, which is really frustrating Right now I have a lower payment (plus maintenance and DMV of course) however payment toward what…?( as its not really my car) I am not really sure what the best thing to do at this point would be.
- Alan

The real question I have is whether or not you actually need a car. Do you need it to get back and forth to your classes or would public transportation suffice?

If you can survive easily without a car, I’ve got to wonder why your parents convinced you to buy one. I also don’t understand why a college student would purchase a car that has a $360 a month lease on it. That’s the cost to lease a Lexus. If you were going to lease something, I would have thought it would make much more sense to lease a low-end car at $180 a month or so.

I don’t think you should continue the lease on that car if you can possibly do so. You would be much better off in a used car at this point, one with low payments. Your monthly income on a part-time job does not equate to a new car unless you’re spending every dime you make on that car and you’re working 30 hours a week (figuring in gas, DMV, oil changes, maintenance, etc.). I would sit down with your parents and show them the real dollars and cents of all of this.

My husband and I live in SoCal – Long Beach, to be exact. My question is about gardening for SOME of us. We live with – seriously, now – 8 different grocery stores (Fresh & Easy, Stater Bros, Ralphs, Albertsons, Pavilions, Vons, Food4Less, and Trader Joe’s) within minutes of our house. Actually, there are a couple more than that, but those are the stores DH and I frequently go to, in addition to Costco. Because of this, we have a tremendous opportunity to “shop the specials” at grocery stores. Drug stores are the same: several to choose from, in addition to “super-stores” like Walmart, Target, K-mart, etc.

So, considering this, do you feel it’s worth it for us to continue with our yearly container gardening ritual (which neither of us particularly enjoy, but don’t dislike, either), or should we just aggressively and consistently shop the store specials at multiple nearby stores for produce, the way we already do for our other groceries? We do not garden organically, so that is not a factor in our decision.
- Lisa

I think, in your situation, gardening doesn’t save money. Even with a small ground-level garden, there’s an argument to be made that it doesn’t save money in terms of the pounds of food produced (although there’s a real premium on pulling a strawberry from the vine and popping it into your mouth).

Gardening shines when it’s in line with other values that you have – eating well (produce eaten immediately from your garden is more nutritional than produce eaten from your local grocery store that was picked a week ago), the act of gardening itself, or a firm belief in organics and controlling what goes into your plants (we basically grow organic, using a compost bin as the source of our fertilizer). Also, the larger a garden gets, the more cost-effective it becomes to garden because the food density goes up and the cost of tools per square foot is lower.

If it’s not in line with your personal values and it doesn’t save money, I wouldn’t garden. In my own situation, however, it saves us money and it’s in line with some of our beliefs, so we love spending spring and summer days out there.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

The more of life I experience, the more I realize that the most valuable thing a person has in their life is time. The cost of a book is trivial compared to the value of the time spent reading it. The cost of raising a child in terms of dollars is far less than the value of the time spent rearing the children.

Time is the one thing I wish I had more of.

I just found out that I will be unemployed come mid-August and I am just wondering what steps I should start taking in savings and job hunting until then. I am currently an Americorps*VISTA, which means that I cannot start a second job until the completion of my term (again, August). I live very simply, but only make about $800/month take-home and have about $1400 in CC debt (started the year at $4000; I’ve been working to get rid of it) Your thoughts?

Related to that, my position generally only winds up taking about 25 hrs/week, while I’m required to ‘work’ (be in the office) for 40. How would you utilize those extra 15 hours?
- Tessa

The first thing I’d do is figure out what I would like to be doing with my time come August. What exactly is the next step for you? If you don’t know, start investing those fifteen extra hours a week (and more) to figuring out what comes next for you.

Once you know, then you should be able to fill in the blanks as to how to fill your time until the change happens. It might mean building up a resume. It might mean spending a lot of time firming up old connections and relationships. It might mean applying for college or for scholarships.

In short, you need to figure out what comes next, make a plan for how to get there, then spend the remaining time executing that plan as strongly as you can. The key, though, comes from you. What do you want to do next?

My husband is irresponsible with money. I knew when we got involved that he had a student loan and some credit card debt (about $5000 dollars combined), and that he felt no obligation to pay these off. He also hadn’t filed his taxes for several years. I probably should have listened to my gut then and run for the hills, but i didn’t, and I’m not looking for marriage advice here. Once we became seriously involved, I made sure his taxes were filed. The government garnished his refunds until the student loan was paid off, and we paid off the cc debt too with the understanding that he is unable to control his spending and should not have access to a cc in the future.

Once again, he got another card, and now has a $2000 balance, and is not making payments. I am done bailing him out. I am just wondering how his bad credit is going to affect me if he doesn’t pay this off? Whether or not we stay together, what can I do to protect myself from his debt? Is there anyway a spouse at the end of her rope can call the credit card companies and get his cards cancelled or say “Stop issuing this man cards!” If we do split up at some point, am I going to be responsible for half of his debt?
- Michelle

The important question is to consider whose names the debts are in. If he’s applying for credit cards on his own, are they just in his name? If they are and you file for divorce, they will remain his debts and are not your concern. If they’re in both of your names, you need to get your name removed from as much of it as possible if you’re considering a separation.

That being said, I think some professional counseling is in order in this situation. Clearly, there are serious trust issues going on in your relationship and your husband has some significant self-control problems. These are the types of issues that need counseling – they will not go away due to your sheer force of will.

If you care for him at all, seek help for him and for your relationship. I can’t tell from your email whether you’re beyond that point or not.

After I finished school I went to work for an outdoor education center for nine months. I loved the job but, wasn’t happy with the management so I came back to my parent’s house and found a job there. It is in a similar field but most of the work is in an office. I originally planed to stay at this job for three or four years but now the program might lose its funding. This wouldn’t affect the funding to my job but it would nearly make it pointless. My supervisor encouraged me to be on the lookout for other jobs. I sent out several resumes to some outdoor education centers and have interviews soon.

Do you think it would be foolish to go back to that type of work?
- Beth

Your father’s frustration is probably stemming from the fact that he does not see you heading down a path that leads you to financial independence. He wants to see you being at least successful enough to fly under your own power through adult life. If you take another minimum wage job and continue to live at home with your parents, you are shifting a significant portion of your life’s expenses off to your parents as well as intruding on the privacy of their adult lives. He likely sees your choice as not moving at all towards repairing that situation.

Regardless of what job you choose, you should be working on a plan to be independent and they should be in the loop about that plan. What form that takes is really up to you, your situation, your skill set, and your passions.

Recognize, though, that your parents are people, too. They’re providing for you now because they care deeply about you, but every time you drink from that well, you leave them less water.

We took up a mortgage of $200k, with $140k being fixed and $60k in what’s called a revolving credit account here in New Zealand. We thought the revolving credit facility would allow us more flexibility if we are disciplined enough with our spending.

For all these, we are paying a service charge of $12.50 a month. To me, the revolving credit facility seems like another good alternative, what do you think?
- Art

It sounds an awful lot like a money merge account, something I wrote about in detail in the past.

In the United States, such accounts are generally pretty expensive and can ring you into the thousands of dollars. For that kind of cost, I don’t view such an account as being worth it unless you have little financial discipline. In your case, I think it actually might be worth it, though.

I’m not entirely sure, though, why you’re taking money out of the account and putting it into a savings account. I’m assuming that this is for extra payments on the mortgage, but if I understand the account correctly (based on my understanding of money merges and the documentation on revolving credit accounts in New Zealand), leaving the money in the account has the same effect of paying down your mortgage faster, plus it decreases the risk that you might go over your credit withdrawal limit. If that’s the case, I would put a severe cap on how much I transferred out of the account, only keeping enough to serve as a true emergency fund.

You don’t talk about Lost enough in your mailbags so I’m going to keep emailing you Lost questions until you answer one. So here goes. Who is the good guy of the series? Jacob or UnLocke?
- Kelly

Neither one is. I think you have a prison-like situation where the inmate (UnLocke) has been held in solitary confinement for a very, very long time. He’s like a rat in a cage. But does that mean the guard (Jacob) is a saint?

I still think there are two real heroes in this series: Jack and Locke. I still believe that to be the case. My belief is that Locke on the island will come back to life at the same time as Locke off the island walks again thanks to Jack’s spinal surgery, and Locke will eventually become the guardian of the island. Jack has been searching for something to fix for the entire series – he will get to fix Locke.

Or maybe I have no idea what I’m talking about and the series will end with a “Cop Rock”-esque singing montage.

My partner has about $8000 worth of credit card debt and I’ve been trying to help her figure out the best way to pay it off. We’re in the process of refinancing our mortgage (to 5.25%) and are wondering if it makes sense to wrap it into our mortgage, since she pays a higher interest rate on the credit card. She also make the monthly mortgage payment (I made the down payment, and am making the monthly payment on a second property we own, so she says it’ll still be her responsibility, as we’re keeping track of who put how much into each property). I’m skeptical, not wanting to add any more debt to our mortgage (and feeling that HER debt being added to OUR total will make keeping track messy), but can you clarify just how much this is or isn’t an okay thing to do?
- Heidi

Yes, in a strict sense, it makes sense to wrap that credit card debt into the mortgage.

The challenge comes in when you look at the self-control issues. If you guys have no credit card debt at all, will she have the spending control to resist simply charging those cards up again for purchases you don’t really need?

I’m not sure about your domestic arrangement, however. You seem to want to distinguish heavily between HER debt and YOUR debt. If this person is genuinely your partner, then that includes your finances. There is no HER debt or YOUR debt. There’s OUR debt – you deal with it together because the debt is affecting you both.

I just realized that paying extra every month decreased my minimum payment amount and not the length of the loan. (Mostly because I just started paying extra.)

I’ve been trying to figure out how early my auto loan will be paid off if I add extra in every month. All of the loan calculators I’ve found online that calculate don’t seem to take into account that the minimum payment amount decreases every month while my payment does not. I keep paying my original amount that included the extra. Is there a formula to figure all this out?
- Susan

It’s simple: ignore the minimum payment. Instead, calculate what your payment should be right now. Tack a small amount on top of that. Pay that amount every month, regardless of what the bill says. Soon, your loan is gone.

If the minimum payment is getting smaller, it’s because the lender wants you to pay on the loan for a longer period in order to maximize the amount of interest they get from you. They don’t mind receiving smaller payments in the short term if it means more income in the long term. Thus, they’ll show you the minimum amount you’d need to pay to stick with your original payment schedule – and if you’ve overpaid in the past, that minimum amount will be nice and small.

Ignore it. Use Bankrate’s great loan calculator and figure out when you’ll get the debt paid off if you add in some extra to each payment.

My husband and I both have student loan debt of $10k each at around 3%, and a mortgage for $140 k at 6.75%. We have the option to refinance down to 5.1% but it would cost $3,000 into the principle. We’ve been paying the mortgage for 2 1/2 years, but have no plans to ever sell. The house is a rental property that we also live in, so the amount of mortgage, taxes, and fees and repairs we pay after the rents come in is only around $400/month, therefore allowing us both to save alot. We have no other debt.

Or would it be better for me to open a Roth IRA, or put my money somewhere else, or even pay my student loan off?? I doubt we would pay the mortgage down because we use the expenses against the income we get from the rents. My personal cash savings is earning no interest in my checking account (i know, i know, but this is why I’m working on this.)
- Danielle

First of all, funding a Roth IRA won’t get you a tax reduction, at least not today. Roth IRAs are funded with after-tax money.

Second of all, if you’re six months away from buying a property with a $25K down payment and have only $32K in joint cash savings, it is probably prudent to hold onto the cash until you have the purchase in hand. You do not want to find yourself in a position without a cash emergency fund, because when things go wrong at an inopportune moment, they can seriously snowball.

If I were to do anything with the savings, I would take $3,000 of it and refinance the loan. If you can drop the interest rate on $140,000 by 1.65%, you’ll be saving yourself a couple hundred a month in loan payments, which would pay back that $3,000 in a year or so and then leave you in better financial shape for the length of the mortgage.

Other than that, I’d sit tight until you’ve bought the property. I don’t see any major reason to change anything, assuming that the property buy is a definite thing.

Read this in your March 5 post: “…when my contract expires, I’m going to simply cancel the phone and get a pay-by-the-minute el cheapo phone.” I’d be curious to know how you go about choosing a pay-by-the-minute cellphone plan when the time comes. My husband and I would like to switch to a prepaid option as well, but each company structures their charges so differently that it’s hard for me to decide which plan would be best for us.
- Lynn

This is one of those times when I turn to Consumer Reports. What do they recommend when it comes to such pay-by-the-minute plans?

Right now, looking it up wouldn’t really help as I won’t be doing it for at least a few months yet. When it gets close, I’ll visit my library and start digging through the back issues of CR to find their most recent article about such cell phones (likely, it’ll be found in their most recent cell phone roundup). I’ll move on from there.

My choice will probably be the best “bang for the buck” phone rather than the cheapest one, at least with the “bang” being call quality. It’s not worth my money if I can’t easily place calls with the phone at my convenience, after all.

I’ve just read a document on “travel hacking” that gives tips on how to maximize your frequent flyer miles for free tickets. One of the tips is to “cycle” credit card applications where you are applying for a new Citi card (to get the American Airlines miles) every 60-90 days. It’s legal, but I wonder what it will do to my credit score. If I don’t need to apply for any loans in the near future, does a decrease in my credit score (now 790 I think) really matter? Thanks for your help!
- Jill

This will have a mild negative effect on your credit rating. However, with a credit rating near 790, I don’t think the negative effect will be strong enough to affect anything you might use your credit rating for.

My concern with such rampant credit card hopping is identity theft. To get each of these cards, you have to apply for a new card, which is another opening you’re giving yourself to identity theft. The threat of theft on any one application or card you have is minute, but if you have lots of cards and applications floating around out there, the chance multiplies.

Unless I’m already flying a lot and can directly save a lot of money by doing this, I would not view it as being worth the combination of time and personal risk. If you fly several times a year already as a normal course of life, then the benefits might outweigh the costs here, but if you’re only doing this to try to build up miles in case you might choose to fly somewhere someday, then it’s not worth it.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

My two year old daughter is showing a tremendous nascent interest in making music. She sings constantly. She uses her hands as percussion all the time on her knees, on the table, and anywhere else she can use them. She climbs up to our keyboard and attempts to play songs.

Right now, I’m trying to figure out some ways to encourage it in ways that might actually build into a lifelong love of creating music. (Yes, I’m the type of parent who would be thrilled to hear their child choosing a musical career.) However, I’m finding it difficult to reach out to her at this stage, so I’m mostly just encouraging her strongly whenever she completes a song or something similar.

Anyway, on to the questions.

I’m 23 and my husband is 24, therefore we are “newbies” in the credit card scene, making our credit limits pretty low (mine is 4000 and his is 2000). Is the ratio computed based on balances carried over month to month, or is it at any point in time? We pay off our credit cards each month, therefore never carrying over our balance. However, at some points in the month, our credit card balance is over 50% (easy to do with a 2000 credit limit). So if we charge over 1000, are we being adversely affected, or are we fine as we pay off our balances?
- Jena

I’m assuming you’re referring to your debt-to-credit ratio.

A big problem with how credit scores are calculated is that they’re effectively calculated in secrecy. FICO, the most commonly used credit score, is a secret formula held by the Fair Isaac Corporation, and they’re not talking. We can only believe tham (and rest on observations of scores and credit reports) when they tell us that the debt-to-credit ratio is important.

Based on my own observations, it appears to me that the amount that credit card companies report to the credit bureaus – and thus the amount that appears on your credit report – is your balance that is carried forward from the previous month. So, for example, if you pay off your entire bill each month, a $0 balance is reported. If you carry a balance of $2,000 forward from the previous month, $2,000 is reported.

I’ve looked far and wide for information on this and have even contacted my credit card company for writeups about it in the past and have never received a truly straight answer about this issue. However, this seems to be the case based on my repeated checks of my credit report and my own credit card statements.

My wife and I currently owe $119,000 on our 5/1 ARM. This is our ONLY debt. We are looking to refinance as our five year fixed period is up March 2011. We currently have $140,000 in savings and $100,000 in retirement assets. We are both 33 years old.

Is it better to eliminate the mortgage in one fell-swoop or should we refinance and then use our savings each month to pay the mortgage? Or refinance the mortgage and put some of the savings down to lower the loan amount.
- Greg

The best move you can possibly make as you prepare for a stay-at-home period is to minimize your monthly expenses, and paying off your mortgage would certainly do that.

If you completely eliminate your debt, you’ll be left with $21,000 in savings and six months of work time in which to build that up some more without the burden of a mortgage payment. Given that you’ll own the home free and clear at that point and could, ptentially, use it as equity in the future if you absolutely needed to, plus you have the retirement savings as well, my choice would be to pay off the entire mortgage and get it over with.

I don’t think there is a major advantage in keeping your mortgage and retaining a lot of money in savings at this point. If you were continuing to work or were perhaps saving for a different major goal (such as starting a business), the answer might be different, but you’re heading into an income reduction.

I was not lucky enough to find “the one” early and am now in my forties with no one and feel like it’s over. I am frugal as hell but have no one to share my life with and for some reason, maybe it’s an age related thing, find myself pining for marriage. What do you do when you’re not lucky enough to find the one early in your life and hanging out bars, church or synagogue(where there are mostly married men in your age group or single people but in their twenties)or other social groups does not seem appealing nor worthwhile? In DC there are lots of attractive women and very few single men and moving is not really an option for various reasons.
- Renee

I don’t think you’re doing anything wrong, necessarily.

If I were you, I would focus on finding and attending social events that really reflect your values and what you enjoy doing with your life. I don’t know what that might be. For some people, it might be the bar scene. For others, it might be their church. For others, it might be political activism or volunteer work or book clubs or countless other things.

What would you want your life partner to be passionate about that parallels your own passions? That’s where you’ve got to start in this journey. You’re much more likely to find true happiness by meeting someone whose passions match your own – a person who is already out there chasing them.

People often mention the “bar scene” when they talk about meeting people. I always find that really strange unless the bar is a major source of happiness in your life. It’s fine, I suppose, if you’re merely seeking short-term flings, but my eyes would be elsewhere if I were looking for a long-term mate.

There’s too many mixed messages out there! Which do I do first?? Save for an Emergency Fund? Snowball debt repayments? Pay off our Mortgage? Save for retirement? The kids college? Save for a bigger house? What about travel?

Suze Ormand says 8 months of savings? Dave Ramsey says snowball bigger balances first, David Bach says no lattes, Kiyosaki says buy your home outright – PF bloggers everywhere say a whole stew of things – the budget is sliced too thin already.
- Gina

I don’t think there necessarily is a perfect right-or-wrong answer here as long as you are spending less than you earn. That extra money can be used in a lot of productive ways, whether it’s paying off debts, saving for retirement, or saving for the kids’ college fund. None of these options are the best option for everyone.

The big difference in these choices really is your values. If you want to just follow someone’s plan, you’ve got to find someone who shares your values and who makes sense to you.

Dave Ramsey offers some strongly Christian values and emphasizes debt freedom. I value my family and discovering your passions and I usually advocate in favor of maximizing your day-to-day stability, which means building up an emergency fund first and foremost. Others speak from entrepreneurial values.

I don’t think any of these options are perfectly right or perfectly wrong. I think they click for different people because everyone thinks differently and is motivated differently. The important thing is that you’re motivated, too, and you’re making choices in line with what’s most important to you.

What is most important to you? Minimizing future risk for your family? Giving back to the community? Building a business? They all have different routes to financial successs. You have to figure out what you want first – otherwise, it’s like flailing around with a chainsaw.

Have you ever done a post on “How to host a game night” — I know from the blog that you do this from time to time, and lately my husband and I have become fans of playing board games as well. We like “Power Grid” and “Robo Rally” both really well. We’ve got a small group together that likes these games too – however getting everyone together at the same time / should we have food / will there be room for everyone when they come? (i.e. many games have a max of so many players). It seems like you play all sorts of games so where do you find the “right people” to play with and how do you bring them together. I mean the last time we hosted a game night, one of my friends walked out right in the middle of it – she didn’t say why – but I got the sense that this game was too much for her ( as you know some of the games have a lot of rules, and strategy involved.- which I enjoy, but some people don’t.) Ok – so what are your “keys to success” with this.
- Erin

First of all, Power Grid is one of our favorite games around here and RoboRally is on my wish list. We have a game group of about five people that meets about three times a month to play such board games and it’s a social highlight of the month.

I stick to three big things to avoid this type of scenario that you describe.

First, I make sure at least one person knows a game cold before we play it. Someone there should be able to always explain the game and answer questions throughout on your first play-through or two. It rarely ends well if everyone is new to playing a particular game. I often do this by playing a new game through a few times solo, meaning I lay out pieces for multiple people and play all the roles myself with the aid of the manual.

Second, if someone is new to such strategic games, I don’t throw them into the deep end of the pool. I simply wouldn’t sit down with my mom and play Agricola, not without having played a lot of other lighter strategic games first. I’d play Stone Age first so that the worker placement idea was familiar to her, for example. If someone has never played board games beyond Checkers or Monopoly when they were a kid, I’d play something like Ticket to Ride with them the first few times.

Third, if someone is really apprehensive, play one-on-one with them a few times first. If you’re a good friend and you know the game cold, invite just that one friend over and play the game just with them. Go through it nice and slow. Play with your cards/pieces revealed and explain why you’re making the moves you’re making.

Friends have been trying to convince us lately to switch our checking account from the bank where it’s been for over twenty years to a credit union. Ours isn’t a mega-bank, but it’s not local, either. However, the people AT the bank have been there through three changes in ownership in the last decade, and they know us. (Our son dated one of the tellers when they were both in high school… it’s a small town.)

What do you think of the differences between banks and credit unions? Which do you recommend, and why?
- Kate

Whenever I hear that banks still charge a fee just to maintain a checking account there, I’m shocked. There are so many banks out there that now offer free checking that paying $8 a month just for the checking service seems akin to just throwing $96 a year – or $960 a decade – out the window.

Unless there’s a compelling reason that you’ve not mentioned here for continuing to use your local bank, I would probably switch banks. However, I wouldn’t necessarily switch to the credit union just yet. I’d spend some time looking at the various options available to you, including online-only banks like ING Direct and so on. Look at their features and look at the fees they charge, too.

If having a local “anchor” bank is important, open up a checking and savings account at the credit union (if it’s the best local option). However, you don’t necessarily have to use that as your primary bank – you could just maintain small balances locally for the convenience of cashing checks and other purposes and keep your main banking at an online-only bank.

I am a recent college graduate who just married a wonderful man with $20,000 worth of student loans and no degree (he was studying English). He dropped out after his dad stopped paying financial aid, but not before getting depressed and flunking a few last courses. Right now, he really hates his tech customer support job and is having trouble finding a better job, like everyone else. Also, I was just laid off and the unemployment checks have just started coming in. Should he go back and get a degree in the field he wants to work in (Computer Science)? He has about 5 years of work experience. I don’t feel like adding on $40,000 more loans, but at the same time, I feel like his career will have a slow start because of this hindrance.
- Frances

If he’s figured out what he’s passionate about, then he should go back to school and get his degree. It will be worth the expense and the economy will be in better shape by the time he graduates.

However, you need to be absolutely sure that he’s not just picking this career because he thinks it’s something that he likes (but doesn’t necessarily love) that can earn him a lot of money. That’s the very mistake that I made and it wound up putting me in a very hard spot about seven years down the road.

I’d suggest that if he’s not 100% sure that he loves computer science, he spends some time figuring out what he really loves and then following that. It’d not be a smart move to put $40,000 towards a degree that he’s not really passionate about and is just doing for the money.

I recently read a article by Christine Benz, of Morningstar, about opening a Roth IRA and using it as your emergency fund, when necessary. She would rather you had both, but for someone just starting out and short on cash, it seems as though it is a good idea. Do you have any thoughts on this?
- John

I wouldn’t do it.

The big disadvantage of using a Roth IRA as an emergency fund is that when you make withdrawals from it, you can’t put that money back into the account later. You have a $5,000 window each year for contributions, period. Once you take money out, there’s no putting it back other than through your normal contributions to the account.

The last thing you want to do is sacrifice your long-term retirement savings because of a short-term problem like a temporary job loss or a car breakdown. I’d build up at least a month’s worth of living expenses in a savings account before I started to worry about a Roth IRA at all.

Anyway, when we bought our house about six years ago, we also took out whole life insurance policies on each other for $250K each, as well as some larger term-life insurance policies. My thinking at the time was that the term life policies were in the nature of income replacement, while the whole life policies were bought with the specific purpose of ensuring the surviving spouse would have the ability to pay off the house. The cash value of the policies builds at a guaranteed minimum of 4.25% per year, and I view them as additional house payments, since our intention is to cash them in when the cash value is sufficient to pay off what’s left on the mortgage, and then pay off the mortgage. At the time we bought the house, I figured that would enable us to pay off our 30-year mortgage in about 18-20 years, and I still think we’re on track for that.

The problem is that I keep hearing that whole life is a bad investment choice, I should instead pay for more term insurance and invest the difference, etc. Is (seemingly) the rest of the world right? Should I get out now, before I spend another dozen or so years continuing to pay for these policies? Or does my logic remain sound? I think the total difference in cost for the two whole life policies versus two term life policies with the same coverage would be something like $200/month – is that a worthwhile price to pay for what we’re doing?
- Mike

If you’re sitting at a crossroads and trying to decide whether to open up a whole life insurance policy or a term policy, I would go for the term policy. You can take the difference in cost between the two (since the whole policy will cost more) and invest it yourself into index funds or other such things.

However, once you’re into a policy for a number of years, the situation changes a bit. Quite often, the return you get in further contributions to a whole life policy versus the return you get on a term policy plus investments are similar once the first few years of payments are out of the way. Whole life policies tend to improve a bit in later years, returning better than they do early on (when the policies are covering the commissions of the salespeople).

You have to ignore the past when making these decisions. Don’t let what might have been influence you right now. Sit down and look at where you’re at with the policy. Right now, starting with your next contribution dollar, what puts you in better shape? Another dollar into the whole life policy, or starting over with a term policy and some investing with the additional money?

Without specific numbers, I can’t tell you that for sure. I can just tell you to ignore your contributions up to this point and look at what puts you in better shape starting right now.

My husband just started a post-doc position. There are two types of post-docs through the university. One gets paid officially by the university, taxes are taken out, and benefits are paid for. The other type of post-doc (the one my husband has) is paid for by a federal grant, so you get paid, but no taxes are taken out, it’s not reported to the IRS, etc. We will pay estimated taxes on it, of course, but a little wrinkle has come up that I wasn’t expecting.

It just doesn’t seem fair that we have what looks like a lot larger income in terms of taxes – most people do not pay any taxes on their employer benefits. Have you ever heard of this type of situation before? I suppose we could not report it but I don’t want to get in trouble with the IRS down the road.
- Amanda

IRS Publication 502 states that insurance premiums on health insurance are tax-deductible. In other words, when you go to file your taxes, the premiums you’ve paid in yourself can be deducted from your taxes, reducing the amount you need to pay in.

Most employers simply use pre-tax money to cover this insurance because it simplifies things for pretty much everyone. For some reason – probably related to the fact that they’re passing the tax management on to you – they’re not doing this in your case.

I would strongly encourage you to use a program like TurboTax when filing your taxes, as they help you greatly in discovering big deductions like this and applying them properly.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

I find that, whenever I get busy with things in my life, the first thing I cut out is the hour or two a day I spend reading. If I do that for a few days, I begin to intensely miss it.

Just yesterday, I was talking to a friend of mine who’s a stellar athlete. He expressed to me the exact same thing about training – if he skips a couple of days due to personal issues, he REALLY misses his daily hours in the gym.

Exercise your body, exercise your mind, I guess.

I’ve always been very financially responsible and rather frugal. I might occasionally allow myself to purchase a bottle of wine at the end of a week or a new book once a month or so, but I’ve never been a spender. I very much believe that I’d rather struggle (not that my husband and I really struggle) now and relax when I’m older.

I had such a tight string on my wallet for long it felt good to just buy stuff for the first couple of months. But now I’m afraid I’m going to fall into some kind of spending spiral. I would like to find a balance between incredibly frugal and lightening up a little bit. I don’t know what tomorrow is going to bring I don’t want to live entirely in the future any more. I need to enjoy the life I’m living now too. Do you have any advice?
- Dana

I edited Dana’s question a bit to eliminate some of the more personal elements, which weren’t really relevant to the issue at hand but might be embarrassing if someone she knew were to read the question.

I don’t see anything to be concerned about in your email, Dana. As long as the things you’re spending your money on in the now are things that are genuinely important to you, there’s no problem with spending money today.

Of course, you should always keep a few basic principles in mind. Even if you’re spending more than before, you should still strive to spend less than you earn – keep that as a firm cap. You should also reflect on the things you’ve spent money on to make sure that they’re bringing you genuine happiness.

From your email, you’re clearly already doing the reflecting, and it seems as though you’re spending less than you earn. All that’s happening is that your values are shifting a bit due to changes in your life – and that’s completely normal, even healthy.

We have $5800 in a money market account for savings. After a recent look at that account, I noticed that it’s returning 0.5%. Obviously, I want to improve that rate of return. I’ve contemplated a CD ladder, but CD rates at my credit union are well below the return I get on my checking account (with very simple stipulations to meet) that gets me 3%. Is there any reason to not move this money into my checking account? We have another $4000 in savings in the checking account currently and don’t have a problem with keeping the mental separation of savings vs. spending money being in the same account.
- Joseph

The entire purpose of a CD – and thus a CD ladder – is to earn rates that exceed what you can get in your checking or savings account in exchange for losing some liquidity (i.e., you can’t just remove money from a CD at will without paying a penalty).

If you’re earning more in your checking account or savings account than you can earn with a CD, then you shouldn’t have that money in a CD. It’s earning less (a negative) and you have less access to it (a negative), with no corresponding positives.

You’re doing things right.

I have been reading a while and looked around a lot on the “should I cash out my 401k to pay off debt?” question. I’m still stuck as to whether I should or should not. I have reduced my expenses, stopped using cards, have a $1,000 safety fund/savings, but still have $18,851 in credit card debt. I am not depositing in to my 403b now so i can use that to pay down debt, but at this rate, it looks like 5 years for all of it. I have a 401K from an old job valued at about $11,380 right now. I was thinking about waiting till it’s at about $12k, that way, after tax and penalty, I would have enough to pay off one card, $7791 at 19.99% ! and then snowball the other card payments from highest interest down and that would take overall two years (or less depending on refunds etc that could be applied). I’m in a better paying job now and employer is putting a tiny amount in to 403b even though i am not contributing right now. I am 32 yo, have a condo and car payment, and once credit card debt is paid off (about 500 a month), i could put a lot into savings, start an IRA, and resume 403b contributions. I guess I just want to see some more rapid progress on paying off this debt, but am I betting my future by cashing out the 401k?
- Christopher

If I were you, I would not touch the 401(k) and I would also start contributing more to the 403(b), even if it adds some time to the debt payoff.

Why? You can never get those contributions back into your retirement plan. If you take that money out of your 401(k), you have permanently hindered your retirement. The only way to approximate it is to contribute quite a lot extra to your 403(b), but that would be even later, after your debts are gone, so it would require a lot of contributions.

In fact, I would contribute to my 403(b) up to the top of the employer’s match, starting right now. Again, you can’t ever get this contribution opportunity back – it’s free money that your employer is handing you that you’re turning down right now.

Yes, your credit card debt might take a little longer, but a 20% loss on your credit card interest rate is well worth a 100% gain on your 403(b) contributions from the match.

My husband and I are trying to decide when we should start a family, he is 28 and I am 27. One of us plans to stay home with the baby so we need to be able to live off of one income. I am a registered nurse and he is a Commercial Truck driver with a class A. The issue is we have debt and need to fix our house up, our current plan we would have this done in 2 1/2 years, 3 1/2 and we could have no mortgage. We are starting to feel this is too long to wait to try to start a family. Total income 2009 $90,000, debt: CC $4500 9.8%, car $14,000 7.8%, student loan $24,000 5.5%, Mort. $42,000 6%, about $15,000 needed in home repairs. In 2009 we paid off $12,000 in CC debt and put $5,000 into our home. We both do 6% of our income to 401K, emergency savings is $2000, and I am furthering my education and we are paying cash for it. I am starting to feel that we are overly preparing to have a family. Any thoughts?
- Lindsay

I think you should move forward with your family plans when you’re sure you can make it financially after having the child. For you, this means not only adding the child costs to the equation, but it also means one of you staying home with the child.

You should spend some time planning out exactly what will happen in that case. You mention that you’re getting further education (to be a nurse practitioner, I’m guessing?) – if you’re going to be the one that stays home with the child, cut that expense right now.

It’s also worth noting that even when you decide to go forward with trying to have a child, that child won’t arrive in a stork tomorrow. Even if you conceive almost immediately, you still will have most of a year before you lose one or the other of your incomes.

My suggestion? Right now, make up a very detailed plan for how you will do things after the child is born. How much income will you have? Will you be able to cover the bills? Who will stay at home with the child? How many years will that person stay at home? Some of these questions may alter what you’re doing with your money and time right now – if you’re staying at home, for example, you may not want to invest a lot of money into furthering your education at the moment.

If it looks like you could make it with the way things are right now, then I’d start trying to conceive. If it doesn’t look possible, I’d wait a bit longer, then re-evaluate.

There’s a lot of conflicting information out there and I’m curious what you would do. When I go on vacation I often rent a car and never know what to do about insurance. I don’t own a car at home and therefore don’t have any auto insurance policy for myself. I have the option of getting non-owners auto insurance from my insurance provider for $20/month but, based on the explanation of the coverage, my understanding is that all that covers is medical and damage liability if I hit someone else. I do have a visa that could presumably provide collision and damage insurance beforehand but doesn’t cover liability for another person if I collide with them. However, I’m not ready to pay $240/year so that I have that coverage for the 2x a year I drive a car. What do you suggest I do when I rent a car? Just use my credit card coverage? Get one month of liability coverage (if that’s even an option)? I paid an arm and a leg last time I rented because my parents and boyfriend freaked me out and demanded I get it but from my research they don’t understand what sort of coverage I need either. What would you do in my situation?
- Arlene

Most likely, you won’t be able to buy that policy on a month-by-month basis. Most policies are drawn up to cover six months or a year and your monthly payments are fractions of what you owe for that policy.

My first suggestion would be to look at the insurance offered by the rental companies. Typically, such policies are redundant for people who have auto insurance themselves, but they may not be redundant for you.

I would also take a look at what exactly your credit card offers in terms of coverage. It seems that your card just offers liability coverage, so I would look at the company you typically rent from and get quotes on insurance for the passenger and rental car. This will probably be in the ballpark of $10-15 a day, so this will save you money if you rent only for short periods, but if you rent for two weeks a year, it won’t be much of a savings.

If you have a well-stocked emergency fund, you may want to consider just having liability coverage (as provided by your card) and calling it good enough. After all, if you’re not driving the rental too much, your risk of a major accident is relatively low – and that’s what we’re talking about here, risk.

I have been working as a software developer for around two years. It’s a steady job and pays fairly well and I do enjoy it at times. I find though my concentration span really holds me back from enjoying this more and from progressing in my programming ability. Sometimes I can almost do a full day doing no work. I just can’t keep focus long enough.

I have recently pondered the idea of hypnotherapy but to be honest I’m a little scared of this. Do you have any suggestions to improve my concentration span?
- Ben

I’ve thankfully never really had this problem. In fact, I tend to have the opposite – when I bear down on a task, I can lose all track of time and even reach the point where I literally don’t hear people around me.

Anyway, one of my mentors once suggested a five-prong plan for maintaining concentration. He used the word FOCUS as an acronym for it. I’ve seen variations of it floating around online, but here’s how my mentor defined it.

Five more means that if you’re doing something and feel your focus wandering, always challenge yourself to do five more. Five more pages. Five more minutes of coding. Five more emails. It’s like endurance training for your mind.

Only the thing you’re working on means that you should try to look at the task you’re doing with fresh eyes if you find your mind wandering. Look at what you’re doing and ask yourself if you’re doing it well or why you’re doing it. It often refreshes the task.

Complete the little things now means that if you have a task you’re putting off, start working on it immediately. This helps with concentration because a task that’s been put off is a task that’s weighing on your mind.

Understand the details means that, instead of thinking about the big picture of the project you’re working on, you should try to break it down into the smallest detail you can, then just focus on that detail. It makes the task seem much shorter and manageable, which again helps with concentration.

Silence means that you should cut off interruptions. Unplug your phone. Close your web browser. You can even go so far as to rest your face on your hands and cup your hands around your eyes so that they function as peripheral blinders.

Good luck!

I’ve been reading The Simple Dollar for about a year now and really enjoyed the series you did a while ago on cooking. Quick question, I’ve tried Eggplant several times (never as Eggplant Parmesan) and not had much luck, however I found a recipe for Eggplant Parmesan and wondered if you’ve ever attempted to cook it at home. The particular one I found says to peel the eggplant and I’m wondering if that’s the reason all my other eggplant attempts have failed. Any thoughts?
- Shawna

You didn’t really specify what the problem was with the eggplant. For the most part, the peel makes little difference – it’s mostly a matter of personal preference, like a potato peel (I prefer them, myself). My guess is that the problem is not with the peel, but with the sweating.

Sweating? Try salting the outside of your eggplant about a half an hour before you tend to use it. Just take some table salt and rub it on the outside. When you’re ready to use it, you’ll find that the outside of the plant is now moist with some very salty and bitter water. Rub the water off and slice it.

I don’t know if that’s the solution for your problem, because I’m not entirely clear on what’s wrong with the eggplant when you cook it. I’m just assuming that the problem is bitterness.

It may also be that you simply don’t like eggplant, for which there is no real cure other than just trying it in different ways on an irregular basis.

My husband and I are in our late 20s and don’t yet have any kids but are thinking about it – we’d like to have a baby in the next year, but obviously there are no guarantees on timing. I’m currently making about $45k and my husband $75k; when we have a baby we plan on me staying home, so we’ll be losing that income.

That’s the scoop – thoughts?? Also, input on whether to do traditional IRA vs Roth IRA would be helpful, I think. We’re in a very blessed and pretty fantastic stage of life right now, and really want to take every advantage that we can while we can.
- Marisa

As I mentioned above, the first thing you need to do before considering going ahead with a child is to make a post-baby budget. Spend some time really contemplating how your life will look at that point. Is one of you going to stay home with the child? What will child care costs be like? Do some research and find some real answers here, then figure out what things will look like financially for you. I encourage you to estimate high, because it’s going to cause a lot less problems than estimating low will.

If you make that budget and decide that things look doable but close post-baby, put that $10k into savings for now. It may wind up being a “baby emergency fund” as you find that there are lots and lots of baby expenses you didn’t consider. If you get through 2011 without a child, then contribute to the IRA.

If you make that budget and decide you’re good to go with a fair amount of room to breathe, I’d sink it into the mortgage, mostly to get you below the PMI mark, which will make breathing even easier for you.

In the two years after graduating college, I learned a fantastic lesson about living on credit cards (badidea!) and living without health insurance, and had to go through CCCS to pay off the impressive debt that I accrued– About $20k in credit cards and $10k in medical bills. During this time, I had to sign a agreement with CCCS that I would not use any credit card until my debt was paid off.

Would you recommend that I open a new credit card and pay it off each month? And if so, what advice can you give me about going back into the world of credit?
- Jamie

If you’re truly living paycheck to paycheck, the first thing you need to do is either increase income or cut spending (or, ideally, both). Perhaps you need to change your living situation or your energy consumption or your food consumption (do you constantly eat out?). Maybe you can get a second job. Whatever it is, you need to be spending a bit less than you earn or you’re always in danger of getting into financial trouble when something unexpected happens – and it will happen.

If I were you in this situation, I would get an extremely focused credit card that you use for just one specific purpose so that you’re not tempted to use it outside of that context.

The idea that comes to mind for me is a credit card (Visa or Mastercard) offered through a gas station chain that you frequently use. Sign up for one of those cards, but use it ONLY for gas. The giant gas chain logo on the card should be a strong reminder of that. Then, at the end of the month, pay off the bill in full.

This simple step will allow you to re-establish your credit without opening the floodgates. Just keep that card for one purpose and one purpose alone.

I would not use it for any other purpose – don’t “pay up front for trips” with it or anything like that. Use it simply as a means of improving your credit and maybe reducing your gas costs a bit.

My husband and I own a reasonable home in Pennsylvania, and are hoping to move to Maryland to be closer to my family in the next couple of years. We also just welcomed our first child about 7 months ago. I am a full-time working mom and am growing weary of being away from my home and family 10 hours a day, but my family relies on my income (which is significantly higher than my husband’s: $56k to $38k) and my health insurance.

And (2), would it be a bad idea to rent for a while once we move to Maryland in order to save money? Housing is substantially pricier there, so we were planning to build on family land, but that could take a while since my husband would do much of the building himself, while also working a full-time job.
- Jen

(1) It is not selfish of you to want to stay at home with your child. Having a child is an intensely personal and emotional thing and, for many people, staying at home is something they strongly desire simply because of the emotional attachment and quality of care that they would provide to the child. It’s your child. You love that child. Wanting to care for that child and protect it is completely normal.

(2) It is never a bad idea to rent housing, particularly if you don’t plan to live in the house for seven years or more. It’s the first years of the mortgage that are the most painful ones – most of your mortgage payment goes towards interest and the power of compound growth on your home’s value really hasn’t had time to work yet. If you can find a good deal renting, renting absolutely should be on the table.

As for the building, a close friend of mine did that (and I’ve asked him for a guest post to discuss it). It can work and it can save a lot of money, but you really need some serious passion about carpentry and plumbing and electrical work to make it happen.

Good luck.

Got any questions? Email me or leave a comment and I’ll try to answer it in a future mailbag. Please note, however, that I get many more questions than I can answer in any sort of reasonable mailbag length.

It’s Monday again, and that means it’s time for another Reader Mailbag.

I think I read an old post where you gave a suggestion into when it is good to utilize a credit cards rewards program and when it isn’t such a good idea. I don’t remember too much about the post but I think it’s somewhere along the lines of “you should sign up for the rewards program only if a certain condition is met”. I am trying to see whether or not I should keep my bank’s (Wells Fargo) reward program and it has an annual fee of $20.
- Raymond

Here’s my philosophy for rewards credit cards in a nutshell.

First, if you’re not earning multiple percentage points in rewards, don’t bother. A good rewards card will earn you more than 1% back in rewards. Some cards in some situations can earn you as much as 4% back. Don’t waste your time with a card that earns less than 2%.

Second, if those “rewards” are intrinsically tied to points that are very limited in terms of what you can use them for, don’t bother. If your “rewards” are tied to some catalog of consumer goods set up by your credit card holder, don’t bother with the card unless there’s some explicit way of maximizing that. For example, our Amazon card requires us to explicitly go to a catalog site and choose to use our rewards on Amazon gift certificates, which we can then use on all sorts of things.

Third, if the card’s rewards program encourages you to spend more at retailers that you normally don’t use, don’t bother. A rewards program should never cause you to alter your spending habits in the direction of spending more. Instead, look for cards in line with how you already spend your money, such as cards tied to the gas stations you use, the grocery stores you use, or aren’t tied to any retailer at all.

Use those three rules and you’ll filter out the vast majority of rewards programs. Stick with one that makes it through that trial by fire.

How did you get over the fear of introducing your blog to those closest to you? Weren’t you afraid they were going to know how deep your financial hole was? Did anyone judge you when you did reveal it?
- Gina

I really didn’t worry about it at all.

One big reason I started The Simple Dollar is I wanted to convince my friends and some of my family that it was okay to talk about money issues, particularly with me. I decided the best way to make everyone feel more comfortable about it is by confessing my mistakes right off the bat.

It actually worked. While it hasn’t wound up causing many big roundtable discussions about money, I have had many money-related one-on-one conversations with my family and friends about financial issues. They already know that I’ve messed up badly when it comes to finances and they also know I’ve done the footwork to figure out how to fix it. Add that into the fact that they know me personally and (most) judge me to be reasonably trustworthy (I think, anyway), they’re willing to talk to me about it.

I’m thrilled about it.

Another thing: if someone is going to look down at me because I’ve confessed my mistakes publicly and am working to fix the problems, I don’t really think too much of them. No one is perfect. Every single person you see makes mistakes – and they’re often big ones. If they simultaneously look down at me but, at the same time, don’t have the courage themselves to publicly share their life mistakes, I don’t really have a whole lot of respect for that.

How do you decide where to draw the line when discussing elements of your life?
- May

With an audience as large as The Simple Dollar has, this is an issue I’ve considered quite a lot over the years. I have a pretty set policy at this point.

If it directly affects just me, I’m pretty open about it. If it affects my wife, I know what boundaries she has about discussing elements of her life. The same goes for my kids – my wife and I have a policy when it comes to sharing about them.

I have a few minor disabilities that I don’t usually discuss because they usually don’t affect anything and I’m so used to them that I roll straight through it (for those curious, I am completely deaf in one ear, almost completely blind in one eye, and basically have no thyroid gland), although they have affected some of my financial decisions on occasion. In fact, those three minor issues might actually fill in a few little gaps for long-time readers.

When it comes to my family and friends, I obfuscate heavily. I will combine elements of different people. I will check with people before I write about them in any way that’s specific at all and allow them to read it first and veto it if they choose (no one ever has). I don’t feel it’s right to invade their privacy or dignity. I do have some blanket permissions from a few people very close to me to write about them (John being one).

I’m also careful with specific pieces of information that are irrelevant to the issue at hand but which could be used for identity theft. I often completely substitute false information in these cases.

There are times when these concerns can sometimes interfere with a full discussion of a financial issue on The Simple Dollar. In those cases, I usually do the best I can to make do while steering clear of those concerns. More than once, this has caused me to be strongly attacked by readers.

I am 31 years old with a comfortable income and no kids. I currently max out my Roth IRA contributions with a standing withdrawal from my bank account. I recently moved to Finland, so I am no longer receiving any 401(K) benefits. My 401(K) investments I had accrued with my employer in the U.S. is now just sitting in a Fidelity account. Is there any reason to roll this into a regular IRA? Or do I just move over some of it to the Roth IRA and stop contributing for 2010?
- Angela

The reason one would want to roll over a 401(k) is so that one has better access to investment options for that money. If you’re really happy with the options that Fidelity gives you for the 401(k), leave it there. Otherwise, I’d roll it over into a traditional IRA with an investment house that you trust (I usually recommend Vanguard).

A separate question revolves around converting a traditional IRA into a Roth IRA. 2010 is the year to do this if you’re going to do it because there’s no income test for a conversion in 2010. Anyone can convert to a Roth, pay the taxes, and secure untaxed income in retirement. Should you convert? If you believe your tax rate in retirement will be lower than your tax rate now, then it’s probably worth your while.

No matter what, it shouldn’t affect your contributions for 2010. You should absolutely continue to contribute towards your retirement.

I have question about closing a Roth IRA to pay off debt. Currently I have 7500 in credit card debt and my wife has about 11,000 (once we use our tax return to pay off some of her debt). I had a mutal fund that isn’t performing very well, I have had it for 10+ years ($1600). I’m closing the account and adding it to an emergency fund that has about $150. I also have a Roth IRA with about $1600 in after an intial investment of $4000 (during the tech boom). My question to you is should I close this Roth IRA and use it to pay off debt, knowing that I will get penalized for closing it and taxed or should I just transfer it to a another account (Vangard or Fedelity Roth IRA)? Can I write off the Roth IRA loss ($4000 to $1600) on my tax return?
- Oscar

Your only penalty here would be losing the balance of your Roth IRA without converting it. Your basis for the Roth is the amount you put into the account – $4,000. If you take out the full balance – $1,600 – it’s just a straight loss of $2,400.

Can you claim that on your taxes? You can only claim it if you close ALL of your Roth IRA accounts at the same time. This sounds like it’s your only Roth IRA, so you would just need to close this one.

If you wish to move your Roth IRA, contact the business to which you want to move the account and explain your situation. They will be able to help you move the account.

I will be getting back a substantial reimbursement from he IRS but I owe just as much on a credit card which has an interest rate of 23%. Since I do not have any emergency fund, I was thinking of just banking that money and continue paying my credit card at approximately $500. a month. I know the logical thing to do is pay off the credit card and save the $500. monthly but I’m actually almost afraid of doing that. I live with my boyfriend and he is currently facing the possibility of a lay off. What are your thoughts on this. Should I save the large sum or pay off the credit card with it?
- Yomaira

If you’re facing the strong possibility of a layoff and you would have to support both you and your boyfriend with your savings, then you should bank the money and keep making minimum payments on that debt. A job loss is a significant risk with some pretty strong consequences.

Once the situation is clear, however, you should keep an emergency fund of about $1,000, take the rest of it, and make a giant payment on that credit card.

The most important thing you can do in this situation, though, is get out of the habit of using credit cards. Put them in a place where they’re hard to reach and learn how to live without them for a while. One common suggestion is the old “block of ice” trick, but that’s often fixed with a hammer. I like the “put them in a coffee can and bury them” trick better.

My husband and I had a wonderfully misspent youth and much of our older lives. We were not financially wise and the way things worked out we moved around a lot to stay employed. Moving takes money and we find ourselves at the brink of retirement with insufficient savings. Worse, we do not have a house that is even close to paid off. And finally, my husband is being forced to retire in June pushing us to make some financial decisions.

The bottom line is that where we are we have one good job but living expenses beyond our means. We could move to where life is cheaper but would then have no additional income or guarantee of job. What to do….?
- Delores

The first thought that comes to mind when I read your story is cohabitation. Do you have a room or two in your house that you could rent out to someone, perhaps a college student or someone in town for a short period for a consulting job? That’s one efficient way to reduce the burden of your mortgage.

The second option I would suggest is polishing up your resume and seeing if you can find work in the areas where you would consider moving. There’s no penalty in at least trying to find work, even if you aren’t successful. If you do find a job there, problem solved.

The final thing I would do in your situation is encourage your husband to do the same thing you’re doing. He should be beating the pavement hard looking for opportunities. Now is the perfect time to hunt up old colleagues to see if they’re aware of any work opportunities.

Good luck!

When I bought my car almost 3 years ago, I had 2 90-day late marks on my credit report. I didn’t know about them until I got my car loan. At that moment I was in a bad spot – my home and lifestyle mandate that I have a vehicle and my old one was dead in the parking lot (and yes, I was also young and dumb, excited to be buying a new-used car, and fresh out of college making good money while my student loans were still in deferrment). So I got stuck with 11% interest rate and was too stupid to do anything about it for a while.

Anyway, I thought you might be able to provide some insight about negotiating a lower interest rate on an existing loan.
- Julie

The first thing you need to do is go take a look at your credit report. Visit annualcreditreport.com and find out what your credit report looks like. You need to at least know what facts about you are being shared.

If you find anything on there that’s inaccurate, chase it down and get it off the report. This might take some time and some phone calls, but it’s usually not too terrible and it can make a big difference.

Once you’ve verified that the report is accurate and as good as it can be, you’ll want to head to a local credit union. Explain that you signed a very poor car loan and would like to refinance it. I don’t think direct negotiation with your current loan holder will do you much good here.

Good luck!

My husband and I and 2 kids love to go out to eat, especially Chinese or Thai food. We have done a great job in curbing our 4 times a week going out to once a week. Although both of us work, we are working to get debt free and any money saved goes to paying off debt. Hopefully we will only owe a mortgage by August. I am not too worried about the mortgage b/c interest rate is 4.75%. Back to my question: I really thinks my Dear Hubby believes that he is a king. When we go out to eat, he has to have the most expensive dinner and soup and salad and appetizer or sushi. The kids have come to expect this also, but we end up only ordering one thing between the two of them. I have finally convinced my dear hubby to drink water so the kids will not want a drink either. Our bill comes out to be $45 or more sometimes. And that is after I end up eating very light to compensate for his extravagance. We discuss this all the time and he feels I am wrong wanting to limit the amount he wants to eat. I feel that we should be able to indulge on special occasions (bdays and anniversaries) and on other going out days, eat sensibly. So who would you say is in the right?
- Nisha

If going out for a nice meal is something that your husband deeply values and he’s frugal in other areas of his life, you’re spending less than $50 to feed your whole family, you’ve cut dining out down to one night a week, and you’re spending quite a bit less than you earn, I think I have to side with your husband on this one.

Small extravagances, if done with forethought and moderation, are part of the spice of life and can contribute greatly to one’s enjoyment of life. If your husband’s one real splurge in a week is a very nice meal – one where the total family bill is still less than $50 – I see nothing wrong with it, particularly if you’re still spending substantially less than you earn ater that meal.

If your husband spends money left and right, then there’s a bigger problem at work here that involves overall responsible use of money and deserves special treatment and long conversations. But that doesn’t sound like the case here.

Why won’t you review [personal finance book X]?
- Sheila

First of all, there are thousands of personal finance books I’ve never reviewed and there are more printed every week. I have a single review slot each week to fill.

Because of that, I have to be somewhat selective about what I review for the site. I try hard to pick books that say something interesting to me and also to my readers.

At the same time, I try not to review books that engage in practices I dislike, like selling fear as part of the financial message or offering up highly questionable tactics without discussing the risks or drawbacks of those tactics. I don’t think books like that have value and I won’t waste editorial space on them.

After that, a major factor is availability. Does my library have it? Will the publisher send me a review copy of it? If one of those two is true, I’m much more likely to review it.

Got any questions? Ask in the comments or send me an email and I’ll try to include it in a future reader mailbag.

Welcome to today’s reader mailbag!

My husband and I are currently a two-car family looking to make the transition to one car for awhile. My husband will be telecommuting for work at least through the end of the year (we are moving to a different state where he will continue to work for his current company). Our new city will also have significantly better public transportation options (the Twin Cities area). We own his car (2004 Chevy Malibu with about 75,000 miles on it) and have $7,000 left on the loan for my 2006 Chevy Malibu Maxx (45,000ish miles) with 6.8% interest. We will pay this off before the end of the year.

Our question is, does it make sense to sell his car? If he switches jobs around a year from now we might need to purchase another vehicle, depending on where it is located. If we don’t sell it, it will just sit in the garage.
- Ashley

Congratulations on moving to the Twin Cities? I live just a couple hours south of there and I really enjoy visiting there (my wife has family in the outer edges of the metro area).

When you say “switches jobs around a year from now,” I’m assuming you’re referring to the move to the Twin Cities and not leaving his current company. If that’s the case, I would sell the car. Then, when you move to the Twin Cities, I would give public transportation a genuine shot before jumping on board buying a replacement car.

Once you move, it may make sense also to carpool. I’m not sure what you’re doing in terms of work, but if you can both get into carpools at your work on different days, you may be able to both use the car for commuting. Of course, you might be staying at home, too – it’s unclear from the email.

Anyway, I don’t believe you’ll necessarily need the car when you move and if you don’t need it now, I would sell it. Even with leaving it in your garage, you may have to maintain a minimal insurance on it (depending on laws in your state), and if there’s a good likelihood you won’t need it again, I’d sell it.

Given all the uncertainty in today’s economy, what methods do you use to keep fear from creeping into your financial decision-making process? Is there any such thing as “healthy” fear?
- Jesse

I’ve always been a believer that the only thing we have to fear is fear itself. I don’t feel that there is anything to truly fear in this economy that doesn’t exist at other times in our national life.

The biggest thing that I do to keep fear from creeping up on me is I ignore fear peddlers. I don’t waste my time listening to or thinking about people who try to make me afraid of the future. For one, those people are usually salesman in some regard, trying to sell you books or magazines or gold investments or long-term food products, so they have a personal economic interest in making you afraid. For another, you can still get the facts you need without the fear by acquiring your information from a variety of sources. This eliminates the salesmanship and political angles (or at least neutralizes them).

There are some things people should always do to ensure a secure future. A healthy emergency fund – at least a few months’ worth of emergency expenses in cash – is one. A well-rounded set of transferable skills is another. Those things should be done in strong economic times or poor ones.

Just take a critical eye to the reasons you’re afraid. Who’s delivering those reasons to you? Is it a person or business that has financial incentive to make you afraid? Often, it is.

I am a 23 year old female college graduate. I graduated with a degree in mathematical science. When I first graduated last May, I had an extremely hard time landing myself a job because of the economy. Finally, I found a position doing A/P work (although I was over-qualified) in a corporate HVAC office. I do not like my pay and continued my side jobs with tutoring and waitressing to help cover my college credit card debt. An old boss offered me a position to replace his current office manager making $10G more a year of my current salary. His office is a private, family owned company. I accepted the offer. What an exciting challenge I thought to myself, to be 23 and offered such a high position! When I handed in my letter of resignation, my current job matched the offer. Both parties said they see a lot of potential in me. It was honestly, one of the nicest (yet hardest) compliments I have ever received.

Now, here is my big decision: do I go corporate? or private? The big advantage of the private position is that he is willing to match a 401K and the corporate position does not. Other than that, all offers on the table are the exact. Should I allow these two factors (an old boss, and a 401K) to sway my decision?
- Erin

I think the factors you should care about don’t have to do with compensation at all. I would go for the position that puts you in the best long-term situation for your career.

Since I don’t know about your career or the two positions in any detail, my suggestion would be to find someone in your field that you trust – maybe an old professor or something like that – and have a long conversation where you lay all of the details down. You want to choose the one that will give you the best platform for a great career for a long time.

My feeling would be that the office manager job would probably fill that requirement better. When you leave your current job, make that reasoning very clear. They may just suddenly promote you to something better to keep you – it sounds like you’re valued there. There is nothing wrong with both companies trying to get you / retain you and competing over you a bit.

Put yourself where you need to be for the long term.

I just read your archive post about making breakfast burritos in bulk. I love the idea and look forward to trying this.

I’d appreciate any advice you may have about this.
- Maya

I have made that burrito recipe (or variations on it) many times, along with other “convenience foods in the freezer.” Each time, I either wrap them individually in Saran Wrap or freezer bags.

In my experience, the items are usually good for a couple of months and edible after that if you haven’t finished them off.

There are two big keys, though. First, package them as well as you can. Make sure they’re minimally exposed to the conditions of your freezer. Second, when you cook them later, wrap them in a paper towel or a hand towel when cooking so that you don’t lose retained, frozen moisture to the microwave. These two things will make all the difference in the world.

You mentioned you’ve started using EA Active instead of Wii Fit for simple exercising on your Wii. How is it working for you?
- Billy

I use them both, actually.

I find Wii Fit to be more fun, but provides less actual exercise. The games in Wii Fit are more enjoyable than the other game and there’s much more of a sense of trying to beat your high score while also moving around quite a bit.

On the other hand, EA Active provides a much better workout, but doesn’t have as much of a “fun” factor. I can actually get sore with EA Active (provided one replaces the elastic band the game comes with with a band with much more resistance or with wrist weights) and the exercises are enjoyable and clear, even if they’re not as “fun” as Wii Fit. My one complaint is that the leg band with EA Active slips like crazy. I fixed this by wearing cargo shorts when I do it and just putting the nunchuk in a pocket.

I play them both a few times a week. I can actually get sore from EA Active but I usually have more fun trying to beat high scores on Wii Fit.

Long story short – my husband is on a 10-year payment schedule for about $130K in student loans from undergraduate and law school. The bulk of his income goes to those loan payments, leaving us enough to pay utilities bills, groceries and such. But we also have a combined credit card debt balance of close to $10K.

It’s a discussion that comes up every few months with no solution or agreement on how to handle this. Sure it’s great to pay down debt, but are we paying off the wrong kind of debt? Shouldn’t we extend the student loan payments in order to pay down the credit cards and start saving for unforseables and other investments (namely a home)???
- Lauren

The obvious answer here is to tell you to re-evaluate your spending and look for some ways to spend less, because that’s the best method you have for improving your situation.

Beyond that, though, I think it’s reasonable to take a look at extending his loans, depending on what the interest rates on the various loan options are. If the loan extension causes the interest rates on the loans to jump up, it’s not a good idea to extend them, even if it reduces your monthly payments by a little bit.

I’d probably say your best plan would be to throw your credit cards in a blender and live without them for a while. Use your debit card (as a credit card, of course) for purchases.

Is it better to pay one extra principal payment a year or pay half your mortgage twice a month? I paid our typical payment Feb 1st, but then paid half of our normal payment on Feb 15th and will continue paying half on the 1st and 15th…

I know I am ahead by approximately half of the principal now and will make up the rest on each payment a little at a time. I just thought it would be better because it drops down the principal every month which would mean less interest.
- Krissy

Many people argue that it’s better to pay half of the mortgage payment early in the month. On paper, that can make sense, but it only makes sense if your lender is compounding interest daily (rarely) or using a daily average to calculate the interest on a monthly basis (much more likely). If they are truly just compounding the interest monthly based on the balance at the end of that month, it won’t help a bit.

Thus, your first step is to either read through your mortgage or call your lender to find out how the monthly interest is calculated. Many lenders do a daily average with monthly compounding, which means they calculate the balance of your mortgage each day over the course of a month, add them all up, then divide by the number of days in the month. If you get a half-payment in early, you reduce the balance of your mortgage for half of those days, thus reducing the calculated interest at the end of the month.

You just need to know how your lender calculates these things. Once you find that out, you’ll quickly be able to figure out whether an early payment will help you out.

I am going to be voluntarily jobless for the next 3 months without much income (oddjobs and part time stuff here and there but nothing substantial). I have 2 credit cards with about $1000 on each and one with $2000, would it be better to pull out my money from my retirement (Im 25, its not much, but after taxes it would be right at 2k) and pay off the 2 cards, or leave the money in the bank and just make payments slightly above the minumum?
- Will

I would leave the money in the account and make minimum payments on the credit cards for these jobless months.

For one, you’re suggesting pulling money out of retirement to pay off debts. The only time you should take money out of retirement is when you’re legally allowed to pay it back or you’re absolutely forced to do it. Neither case is on the table here.

For another, if you use that money now for credit card debt, it will not be there when you’re actually in a situation where you genuinely need it, and it won’t be there for retirement, either. Since I’m not sure what “voluntarily jobless” means – do you actually have a job lined up in a few months? – I would be very hesitant to take out that money.

I’m a 26 year old reader, I’ve been reading since 2006. I saw this story on Huffington Post and it blew my mind. If she is the poster child for a “broken system that needs to be corrected” they need to pick their stories better. It kind of made me want to pull my hair out, and, for some reason, I’ve chosen to give you that same frustration by linking the story below, haha. Overview- she chose to go to Tulane instead of a local state school that would have “basically paid me to go there”, and now she’s complaining because she’s racked up 100,000 in debt on an English degree and traveling abroad. Le sigh…

http://www.huffingtonpost.com/sara-tobin/college-debt-100000-in-de_b_471034.html
- Cortney

Here’s the problem with confessions like this: hindsight is 20/20.

At her current stage in life, she’s very worried about money. Looking back, she can see a lot of situations where she made choices that were very poor in terms of the immediate financial consequence, such as going to Tulane and studying abroad. She regrets it, because her current concern (money) is now the focus.

At the earlier stage, her focus was not on money, but on receiving the best education she could get. She made choices solely with that in mind and it sounds like, even today, she recognizes that she receives value from it.

The problem is that today, with her new realization that money is a scarce resource, she’s faced with choices that she doesn’t like. It’s now time to pay for that education.

There is absolutely no point in looking back at the past and getting angry with yourself over the choices you made. It’s a waste of time. Instead, you need to look at where you are now and ask yourself what choices you can make today – and tomorrow – to put yourself in a better position in the future.

Today isn’t the day to sit back and whine. Today is the day to step up and take action.

My wife and I are 26 years old and we are getting about $3k in tax refunds and work bonuses this year. We’re trying to decide how best to use it.

My thought is start a Roth IRA, I’ve been talking about it forever and this is a good opportunity to start with $3k to avoid fees with Vanguard and start a Target age fund. Then we scrape to reduce the mortgage as it has the highest interest rate and work to get rid of the PMI as soon as we can and build equity in the house we plan to sell in 5-7 years. We then can also funnel a higher percentage of pay to the emergency fund as there is some room with the credit cards now paid off to do that.
- Jay

I think there are valid arguments for a lot of different ways you could spend your money here. You make the case yourself for the Roth IRA. There’s also a good argument for putting the money towards your mortgage, since it’s your highest interest remaining debt and you’re thinking about upgrading in the future. There’s also a good argument for simply supplementing your emergency fund.

I would step back and look at your situation more deeply. What would you do if you lost your job? Do you have resources to help you manage that situation well? What if one of you got sick and had to go on an extended FMLA leave?

This pushes you either toward the emergency fund or the Roth, I know, which is where I would go.

Since Roth saving is for long-term saving, I think what I would do is take the $3,000, put it in my emergency fund for now, and then keep trying to fund it to build it even bigger. At the end of the year, I would look at my emergency fund and ask myself how much of it I could reasonably afford to put into a Roth IRA without putting myself at risk.

Good luck!

Got any questions? Ask them in the comments and I’ll try to include them in a future reader mailbag.

It’s Monday morning… that means it’s time for another reader mailbag!

My girlfriend bought a 2006 Chevy Cobalt in March 2009 because she wanted dependability and good gas mileage. She has put 31000 miles on it since then. She wants to settle down near school and doesn’t need the car anymore/can’t afford the insurance that goes with it. The problem is that she has had it for such a short time that she still owes most of the principle. Here are the numbers:

What are her options, if any?
- Michael

15.95% APR is practically extortion on a car loan. Based on that number, I’m going to have to assume her credit was pretty poor at the time and is probably still not great.

The problem with this situation is that she is deeply underwater on the loan. I went to Kelley Blue Book and looked up values on several different variations on the ‘06 Cobalt and found that they averaged around $5,500 in resale value.

If she’s really not intending to drive it any more, her best bet is to find a garage to park it in, remove the insurance, and keep making the payments for a while. She should also look into refinancing that horrible loan – she should try visiting a local credit union to find out what her options are.

I’m a 21 year old 3rd-year college student, looking to be in college for at least another 6 years (graduate school) and I’ve had to take out loans to pay for it. Currently, I owe about $2500 in unsubsidized loans and $6000 in subsidized. I’ll be making about $2000 between my taxes and a research project I signed up for, which is almost enough to pay off this year’s unsubsidized loan. Alternately, this is enough to go on a trip to England with my friend and pay for a tour of all the old English castles (I’d only need a few hundered dollars for shopping money and I’d be set with breathing room). This is a rare chance because I want to travel, but I don’t want to do it alone and this is one of the only times I know that I’d have a partner I trust ready to come along. Also, since I’ll be adding to my debt with each year of college, my unsubsidized loans would only be paid off for a year. I’d like to go to Europe now, before I get a career or family to hold me here, and it sounds like a wonderful opportunity, but I know the responsible thing to do is pay off what I can of my debt so I don’t have a problem later. What should I do?
- Kat

Obviously, a trip to England right now isn’t the financially strongest choice. Travel is pretty obviously one of those things that is in the “want, but not need” category that gets many people into financial trouble.

However, your situation is a bit different. You are not going into further debt to make the trip (it seems like) and, apparently, the trip is only costing you a few hundred dollars in spending money. I’m not sure how exactly you worked out that opportunity, but it sure sounds like a good one to me.

If the total cost of that trip really is only in the $300 range and you’ve been dreaming of this kind of travel for a while, I’d encourage you to go on the trip. However, if that’s not a true picture of the cost and you actually are paying for the airline ticket, lodging, etc. (which would blow $300 out of the water), I’d probably reconsider it.

I’m a third-year college student on track to graduate in 2011. I started out my first two years at community college, living with my parents to save money, and then transferred to an extremely prestigious state school last semester and spent last fall away from home. Unfortunately, the school was a bad match for me, and having no income, I was having to live on the surplus of my student loans, which struck me as really dumb; I couldn’t live so frugally that my expenses matched my income of $0, so I transferred again. Now I’m living at home to reduce expenses, attending a a school that allows me to tailor my educational activities to more strongly match my career goals. I’m also trying to find work in freelance web design and writing, and considering taking on a part time (or full time) job once I start at my new school and see what the work load is like. By my graduation I want to start a business and be self-employed freelancing & writing history educational materials for homeschoolers, private schools, and other independent learners.

If I continue receiving similar financial aid in my next two semesters, my debt will total something around $15,000. I don’t want debt payments to overshadow my future or force me to work jobs I don’t want because freelancing won’t support a debt payment and living expenses. I want to pay my debts off before I move out, and I’d like to be out within a year of my graduation, so by 2012. What’s the best way to handle this debt when my income isn’t certain? Should I just throw all the money I do get at paying off my debts as fast as possible? Should I wait until I’m done with my education, save all my income now, consolidate my loans, and try to pay off as much as possible with the benefit of interest? Should I be seeking a regular job and put all the income from that job into a loan payment? I can’t seem to figure out the best way to get to my goal of freedom from my debts and independence to head out on my own with so many variables.
- Kari

You are putting the cart way, way before the horse here. Do not invest even a single drop of energy counting your chickens before they hatch.

Focus exclusively on making this business work. When you have income from this business, keep it in a savings account and make sure you have the income taxes fully covered.

Don’t even worry about investing it until you have a substantial amount of money built up in that savings account because, quite likely, that account will have to be used for expenses related to your business – replacing your computer if it breaks down, for example.

Once you do have that money, if you want debt freedom, throw some/most of it at your student loans. That, however, is something to not worry about right now. Get your business functioning first.

I’ve tried following your bread recipe a few times, but every time, the dough doesn’t really rise at all, or just a little bit. This seems to happen with other bread baked goods that involve yeast as well.

As a result, the bread/crust/whatever ends up being super doughy and chewy, not at all the consistency of what a bread should taste like. Do you have any suggestions on what I could change in order to keep the yeast from dying or not working? What sort of steps do you think would most impact the yeast and allowing the dough to rise properly?
- Eric

That sounds like bad yeast, to tell the truth. Have you had the yeast for a long time?

The best way to prepare yeast for use in a recipe is to put the yeast in warm water (with a little bit of sugar diluted in the water) and let it sit for fifteen or twenty minutes. It should start making little bubbles near the end of that timeframe as the yeast grows, eats the sugar, and produces gas.

If your yeast doesn’t produce any bubbles when you do that, toss the yeast and buy some new. In terms of the active dry yeast you typically buy in a store, I’ve had the most success with Red Star.

I am a 50 year old woman, laid off last year from a dying industry (newspapers). I have health insurance through my husband’s job, so I’ve been free to start my own freelance business. Through word of mouth, I have done very well. My hourly rate is double what I made at the newspaper. I’m good at what I do, and it’s fun, and I have all the work I can handle.

So, what to do? Freelance, freedom, flexibility, procrastination, disorderly life? Or stability, low pay, retirement fund, lifetime benefits, regular hours and weekends free? They’re both good. I’m going nuts deciding.
- Francesca

Different people have different strengths in life. Office work doesn’t click with everyone. Entrepreneurship doesn’t click with everyone, either. Some people succeed with absolute hands-off freedom, while other people succeed under a strict regimen.

Based on your email, I think the job is right for you. I would go for the job. I would also try to fill some of my spare time with a small amount of freelance work, which might be easier for you to focus on if you have a lot of social interaction during the day at your office.

I am getting married this summer and my fiance and I want to open a joint bank account. Any advice?
- Jeff

By “bank account,” I’m going to assume you mean both a checking account and a savings account, likely at a new bank.

If you haven’t had a joint account before, I would suggest getting a free checking account at a local bank. I would ask your social circle for bank recommendations – what they use, whether they like it – and follow their lead towards the local bank with the best reputation.

Why use a local bank instead of an online one? When you first get a joint account, there’s going to be some adjustment for both of you to get used to the spending habits of the partner. Having access to personnel at a local bank can make this transition a lot easier, as you can actually talk to a person face-to-face if you have issues with account managment or overdrafting.

Once you’re in sync, you may want to move to one of the many online checking/savings account combos that offer more interest and fewer fees but less customer service.

I have several long held mutual funds.

This would make some sense to me, and I’m probably not the only one thinking this. Therefore, would you expect a heavy sell-off at the end of this year (from investors implementing this strategy) and thus a negative impact on the market as we near December?
- Kevin

That plan makes sense to me. However, I don’t necessarily think that selling in December would be a wise choice. Quite a few people seem to be thinknig the same way you are, and that means there’s an opportunity.

It might make more sense to sell earlier than that – say, the middle of the year – and then buy the mutual funds back at the end of the year when lots of other people are selling for the tax gains and, in theory, the market is lower.

This makes complete sense from a game theory perspective, but it has no connection to other economic indicators. If the economy is really booming at the end of the year, the upwards pressure will be greater than the downward pressure (from selling) and might convince some to just hold it through the tax changes.

Honestly, my buying and selling of stocks and funds isn’t influenced a bit by a 5% bump in capital gains tax. You blow the tax away by selling at the right time (either for you or when you’re ready to take a big gain).

For those of us considering starting a blog of our own, I am hopeful you might be willing to share your insight as to the best free or very inexpensive places to build that first site. Then, after readership grows, what would your recommendations be for upgrading to a more costly site? I have read your downloadable “Build a Better Blog,” and the tips there were wonderful. With your computer/technology savvy, I’m sure you’ll have some great thoughts and recommendations as to the most cost effective way for a beginning blogger to build their initial site.
- Susan

I started blogging at Blogger. The service is completely free for anyone to use and quite a few well-known blogs use it.

The big advantage it offers is that it allows you to discover if blogging really clicks with you before you start investing money in it. Lots of people think blogging is easy – “I just write a post every day, how hard can it be?” – but it’s a lot harder than you think. A daily post means 365 interesting ideas a year, each fleshed out. Some people can do that – others can’t, at least not over the long term. Starting on a free service like that helps you figure out which group you’re in.

If you’ve actually stuck with it long enough to build a readership, you might want to move to a self-managed domain that gives you a lot more control over site design. There are thousands of such hosts out there. I’d mostly suggest reading through lots of plans, reading reviews of different hosts, and finding the one that works for you.

I just got my Social Security report, yes my birthday is coming up. I am currently a stay at home parent raising 9 children ages 0-20. I did work for 10 years, so I have qualified for social security at age 65 and will receive some income (if it still exists). However, because I do not have enough work credits in the last 10 years, I am not eligible for disability. Any suggestions?
- Jennifer

I’m guessing that you are concerned about not having Social Security disability coverage.

The real question you need to ask yourself is whether or not you could live comfortably without the income or work you provide for your family. Since you’re a stay-at-home parent, you’re not bringing home any income directly, but you do provide countless services to make your family work. If you were suddenly disabled, would most of those services still be fulfilled? Could your children, for example, pick up the slack of the things you do?

If that’s the case, I wouldn’t worry about losing the Social Security disability coverage.

Of course, as the children grow older, you may find the answer to that question changing as your children move out. Of course, at that point, you may want to find work – and thus you’ll eventually get that benefit back.

I have a couple of CD’s set to expire in March with ING – are they worth transfering to SmartyPig just for the better rates? I am not trying to save for anything, just looking to find interest!
- Tim

I’m a big fan of SmartyPig. I use it myself for specific savings goals. Plus, the guys are local (Des Moines) and I’ve met with them a few times, so I know there’s good people working there.

SmartyPig has great rates, but their website is strongly set up for saving for specific goals. One method would be to simply set up a very, very large goal and then set up an automatic savings plan for that goal (which is SmartyPig’s strong suit). That way, you can watch it build slowly towards that goal while still earning their nice interest rate.

In your situation, that’s probably what I’d do. SmartyPig has a history of being very competitive with their interest rates, so if you’re just looking for rates, they’re a good choice, too.

Got any questions? E-mail me with them or ask them in the comments and I’ll try to get to them. However, I do get dozens and dozens of questions a week, so I can’t always answer every question I get – I usually just go through questions until I find ten or so interesting ones for a given mailbag.

Lots of questions this week dealing with the workplace. Let’s dig in.

My work is now offering a Roth 401(k) option in addition to the normal 401(k). We’re down to one income right now so I reduced my contribution to 6% which still gets me the full company match. Raises come out next month so I was thinking of adding a percent or two to my contribution. Would it be worth it to start a new Roth 401(k) with only 2% contribution, leaving my initial 401(k) as is? I’m at around six figures now, barely, but don’t want to assume I’ll be in a lower tax bracket in retirement… I do have a Roth IRA with ING, but I rarely contribute to that since it requires a lot of extraneous paperwork related to my job. I hope to continue increasing my contribution rates, but I’m not sure if I should go with the new option.
- Christina

The Roth 401(k)’s advantage is that it’s funded with after-tax dollars, which means that you’ll pay the taxes on the money now instead of later. If you have a high income and anticipate it dropping significantly in retirement, then there is no real benefit to the Roth 401(k) in comparison to a normal 401(k) – in fact, the latter is probably better, assuming investment choices are the same.

If I were you, I’d probably just contribute more to my normal 401(k) at this point, unless you have reason to believe yuor income in retirement will be comparable to what you make now.

Also, I’m not sure why an external Roth IRA requires paperwork for your job. The usual method of funding those is to simply withdraw money from your personal checking account, which shouldn’t involve your employer at all. If your employer makes this difficult, don’t involve your employer in it at all.

My husband has a Citi credit card for about 20 years. This was his first and only credit card until they started increasing the rate about 5 years ago. They would also charge for random things like credit protection services that were never authorized. He would call and get the charge removed, but all the actions just felt very smarmy. We decided that we wouldn’t close the card due to the long history, but he just wouldn’t use it anymore. He opened a credit card with his credit union five years ago and usually pays it off each month. Yesterday we received a letter from Citi saying that they would begin charging a $60 annual fee, but he could avoid the fee if he charged $2,400 annually on the card.

My question is would his credit be greatly affected if we closed the card?
- Tina

Given that you have a credit card with a five year history, an outstanding mortgage, and a solid credit score right now, I’d assume you must have a history of making payments on time and likely don’t have a big outstanding balance on either card.

If those things are true, I wouldn’t worry a bit about canceling the old card. You might receive a small negative bump right after the cancellation, but that bump would be small and temporary, vanishing over the next year or so.

The truly frustrating thing about credit scores is that we don’t know exactly how they’re calculated – all we can do is make best guesses based on observations and the guidelines the credit agencies provide.

My husband and I have the opportunity to sell our long time business that is actually still doing ok here in MI. We want to relocate and have picked out a place to go, Raleigh, NC. I interviewed for a job down there two weeks ago. This is with a major company that actually does what I do (only in a different way and with a little different philosophy). At the end of the interview, they sent me for a urine test and said they would also do a background check.

I don’t mean to take up your time but I don’t know who else to ask. You don’t have to write back a long note, just do you think I should call them again, write them,ignore them? I really want the job but if I appear too eager, they would surely offer me less, if I ignore them, they will think I’m really not that interested.
- Millie

Given the current job market and the fact that they posted the job on Monster, my guess would be that they have a fat pile of applications and they’re sifting through them.

You may or may not be their leading candidate – that’s hard to determine from this information. My suggestion would be to be patient with it and give it a little more time. They may be interviewing several people before making a decision.

One other thing: never put all your eggs in one basket when it comes to a job search. Keep looking and keep applying. The businesses you applied to are certainly going to look at plenty of applicants – there’s no reason you shouldn’t apply to plenty of businesses.

What is your opinion on life insurance – do you need term or whole life and how much?

I would appreciate your thoughts on this. My husband and I will be meeting with our insurance representative on Friday this week so a quick answer would be appreciated if it could be done.
- Connie

If you’re just starting out, the best move is usually to buy term life insurance. In general, the first few years of investment-based insurance models have pretty poor returns.

However, once you’ve been through that first decade or so with a whole life policy, you have to tack those first years up as water under the bridge. Those years are lost. You can’t worry about them now.

In your current position, the whole policy might actually be a good thing. It sounds like you’ve had the whole policies for a while. I would spend some time looking at the actual returns they’re providing today and see whether or not you feel that it’s giving appropriate value.

The key, though, is to recognize that the past years are past. The choices you make today can’t alter what happened then. Make the choice based on where the policies will go from here.

We are expecting $50,000 inheritance shortly and we don’t what to do with it. At issue is that we have a balloon note for our second mortgage coming due next October in which we will owe about $45,000. We are underwater on our house so it seems to me that I should try and negotiate this loan instead of paying it off since we will still be underwater, effectively throwing the money away for nothing. I was thinking about putting half toward debt (we have about 80K in various types of debt at various interest rates) and half in savings in anticipation of the bank not willing to work with us and demanding the money. The money we save each month from eliminating debt, combined with the other half we put aside should give us some options when the note comes due.

What do you think?
- Eric

If your lender is open to negotiation or refinancing, that’s the road I would go down before doing anything else. Balloon notes are mighty dangerous things for both the lender (risky) and the borrower (painfully expensive).

I would hold off on making any decisions about the money until the refinancing is finished up. Put the money in a savings account for now and sit on it until that’s taken care of (except perhaps to use some of it to cover any fees related to the refinance).

Once everything is in place, I’d then look at all of your finances and see where the remaining money should go.

In 2004 I bought a condo. I knew at the time I would only need it about 2 yrs, as I was just using it as an office. Had I put it on the market a few months earlier in 2006 I would have made about $40K, Today, I am underwater $40K.

Currently, I rent an apt on the other side of the state, with no desire to ever live in the town the condo is located in again. Financially, the condo is draining and burdonsome. Morally, I don’t feel comfortable to think about turning the property back over to the lender. My credit score is in the 750 range. What would you do if you were in my shoes?
- Mary

Sell it and take the loss.

All of those extra costs are adding up quickly. You’re losing $500 a month to this situation – for what? Every month you hold onto it, the financial situation gets worse and the only way you’ll recoup any of it is if the housing market suddenly undergoes a tremendous rebound, something which I don’t anticipate happening in the next couple years or so.

Much like the previous question, you have to ignore what might have been and look at the situation as it is now. What nets you the most money? Selling it now? Or holding onto it, watching $500 a month vanish, and hoping the housing market rebounds enough that you can recoup that $500 a month in lost money?

I wouldn’t bet on the housing market.

How is your “losing weight” resolution going? What strategies are you using?
- Sammie

It’s going fairly well. I set a goal of losing an average of a pound a week in 2010 with the knowledge that it would be harder for me to lose it in the winter months than the summer months because, where I live, you can’t really do a whole lot outside in the winter unless you want to freeze or you want to bundle yourself up like that younger brother from A Christmas Story. So far, I’ve lost an average of 0.6 pounds a week, which I’m happy with.

I’ve decided to use the idea that Michael Pollan proposed in his excellent In Defense of Food – namely, I’m acting as a vegetarian until 6 in the evening, at least during the week. That means that my breakfasts and lunches are strictly vegetarian right now.

As for exercise, I’m mostly just playing exercise games on the Wii (mostly EA Active, lately) when I can fit them into time gaps in my day. I’m at a point where I have a nearly-overstuffed schedule of things to get done each day so this is a convenient way to simply get my heart rate up.

I look forward to more outdoor activities when the huge piles of snow on the ground melt and spring comes to Iowa. I vastly prefer to take long walks.

I have a secure job (I know I’m not irreplaceable, but my work is unique) with good pay and benefits, while my husband is laid off for the second time since we’ve been married (12/01 & 9/09, economy both times). I have no education beyond high school, while he has an MBA. We live in the second largest city in Michigan but even so, his employment prospects are not good. We are at least $20K underwater on our mortgage and we couldn’t get enough in rent to cover the mortgage payment, so we are unable to move to where the jobs are.

We could almost live on my salary alone but our mortgage payment would eat up a little over 2/3 of my monthly pay. We’re hoping it doesn’t come to that, but we just don’t know if my husband will be able to find a job before his unemployment runs out. Not having that debt would give us at least $300 more breathing room each month, but $10K would give us about 8 months of mortgage payments. Both options have benefits as well as drawbacks; which one makes the most sense to you?
- Cassandra

I would choose the path that keeps your head above water the longest in the event that your husband doesn’t find work. From my perspective, that would mean leaving the cash in the emergency fund for now and using it to cover the mortgage payments down the road.

The enormous uncertainty of your husband’s job is the real crux here. At this point, I think you have to bank on the idea that he’s not going to be bringing in a large income for the near future. In that situation, your best bet is to have the cash on hand to cover your mortgage payments and not worry as much about paying off unsecured consumer debt – that can wait a bit.

I would also suggest that your husband try to find any work he can during this rough stretch, even if it means working at a store or something like that. Income is income. When he’s not actively working – and even during the evenings right now – he should also be trying to make a name for himself in his career path online. Start a blog. Find people on Twitter in his career area and interact with them. He needs to get his name out there as much as possible.

How do I find paid blogging work on the internet that’s not a scam? My neighbor blogs once a week for amazon.com giftcards which would be the most awesome thing ever since it would make it so much easier to be able to buy books for my family guilt-free (I re-read almost every book I own so paperbook swap and the library just make me grouchy) guilt-free. Unfortunately, my neighbor won’t tell me what the name of her site is, for some reason or other. So, how do I find these things on my own? Thanks so much.
- Erin

Hello, I live in Canada and I am looking into ways to boost my income. Can you recommend any websites that promote legitimate work at home opportunities, websites for bloggers (who want to be professional), or any other reasonable possibilities?
- Tina

I’m combining these two questions because I get them – or some variation on them – all the time. I’ve even answered similar ones in earlier mailbags. This is going to be my definitive answer on the subject.

There are very few legitimate work-at-home jobs that can be found on the internet for people to simply show up and apply for. Most of the legitimate jobs are either self-made (like mine, where I started The Simple Dollar from scratch and built it in my spare time) or take more of a “we’ll call you” approach (where people approach you with writing opportunities).

There are many ways to earn a little bit of money online via things like Mechanical Turk, but those are good to earn a few supplemental dollars while watching television or something like that. They don’t earn enough to actually be a functional income.

How do you get involved in opportunities where they will want you to work for them? For starters, you have to show what you can do. Start your own blog. Write your best stuff there. Then, you have to get the word out. Join Twitter and talk about your area of interest. Converse with people there. Share links to your best stuff – and links to stuff you really like.

It takes time. It doesn’t happen overnight, no matter what you want to do.

Most importantly, ignore the people who tell you that you can start earning tons of money quickly via a work-at-home opportunity. Think about it – if that legitimately worked, wouldn’t they be doing it over and over again themselves instead of trying to sell you some shifty product? If something is a guaranteed money maker, it’s not sold as a product – it’s used by the person who throws their energy into the money maker, not into packaging something up to sell to you.

Got any questions? Ask them in the comments and I’ll try to include them in a future reader mailbag.