What do you do when you have a family commitment on the same day as something you’ve been planning to do with a friend for months? What if the two events are two states away from each other?

My solution right now involves a one-way flight and an extremely tightly booked day after my family commitments are complete. Family comes first, of course, but some creative thinking (and a bit of hyper-rushed travel) can make everything work.

Q1: Using wedding money wisely
I am getting married in June (huge wedding, not our choice!) and we conservatively anticipate receiving about $15,000 in gifts from our family and friends. In the past year, we have moved across the country to be closer to family and have finally in the last 6 months or so settled into our new routine. We bought a home, actually the one that we were renting. The owner wanted to sell and offered us first chance, she gave us owner financing, and counted all of our rent as a down payment. The house is livable but needs significant updates to all of the bathrooms and the kitchen. I found employment, but have significant travel everyday. Because of this, we had to trade in my car and get something more reliable for the winter weather and the route that I drive.

Our debt is as follows:
Student Loan 1: 10,000 @ 8.5%
Student Loan 2: 10,800 @ 6.8%
Student Loan 3: 7500 @ 6.8%
Car Loan: 14,000 @ 4.99%
Mortgage: 143,000 @ 5%

I am the breadwinner, my salary is $43,000. My fiance works part time at a university and is going to school for his master’s degree (free while he is employed there). We live off of my salary and save his. We do have an emergency fund saved up ($1000) and then other money in an online savings account for any other life events (approx 15,000). I pay $1000 a month towards debt (not counting the mortgage), which is the minimum on everything except for the SL at 8.5%. We have lived very frugally for the past 4 years and will probably always do so.

My question is: should we use the wedding money to pay down the loans as much as possible, or should we put that into savings and use it for repairs on the house? I feel guilty using the money to pay down the debt, but I know it’s probably the better choice for now and repair/update the house at a later time. I would love to buy new bedroom furniture (everything we have are hand-me-downs and nothing matches, plus we need a new mattress) and possibly renovate 1 or 2 of the bathrooms. It is MY student loan debt, but I’m also supporting the whole household. My fiance is fine with paying off the loans, but I’m feeling guilty.
- Marjorie

It really depends on how urgent the updates you need to make are. You say the house is livable, but that it needs updates. Is this for the purposes of decor? Or are there really important functions missing?

If it’s mostly decor, I wouldn’t make that a high priority unless you’re looking to sell the place fairly soon. I’d pay off the debt first.

If you’re in a position to sell soon or these repairs will make a significant functional improvement, then I’d go for the home repair.

Q2: Percentage of savings for retirement
We often hear of retirement savings goals such as: if you begin saving for retirement at age 20 you should strive to save 10% of your gross salary, if you begin saving for retirement at age 30 you should strive to save 15% of your gross salary, etc. When you think of the percentage of savings, should this be for a pre-tax account such as a 401K, a 457, or a pension plan or a post-tax account such as a Roth IRA? Or is it a combination of both?
- Kelly

Those numbers are very simplified “rules” for people who just want a quick answer without digging in deeper.

If you want to break down those numbers, my impression is that they assume you’re talking about an equal mix of pre-tax and post-tax savings. I would assume that of any simplified numbers bandied about for retirement.

I would never bank my entire retirement plan on such a number, though. Use some retirement calculators and get a strong sense of what you need for retirement.

Q3: Asking for wedding money tactfully
My fiancee and I have been dating for ~4 years. We both went to college and thanks to incredible parents, both managed to graduate without student debt. We’ve had our small debt struggles with credit cards, but we’ve got our act together for the most part. We currently rent in a not-too-desireable part of town, and as we both have fairly entry-level positions, it’s difficult to save the kind of money necessary to make a down payment on a house in a better area.

Her sister, who herself has been through 2 weddings, reccomended that for our wedding, we should ask for ONLY what we ABSOLUTELY need for our registry and ask for the rest in cash to put towards a home. This struck me as great advice, as in our 4 years together, we’ve accumulated more than we need without registering for things like tortilla warmers or color-coordinated coffee makers. However, I’m stuck trying to figure out how to ask in a classy, tactful way that doesn’t come off as a charity case. Do you have any reccomendations on how one might go about mentioning, on an invitation or otherwise, that this is our gift of choice?
- Pete

There is no real classy, tasteful way to say “give me money.” Not only does saying so imply that you’re expecting a gift, it’s also implying that you’re dictating what type of gift to give.

The best thing you can do is say nothing at all about gifts in the invitation. Set up a simple registry at a common place like Target. Then, tell your innermost circle that you’re hoping for money to help for the down payment. The word will get out to a lot of people.

Then, just be happy with the gifts you receive. After all, people are giving you things. If you don’t like them, return them and use the store credit on essentials, then bank the money you saved on essentials.

Q4: What to do with savings?
What should I do with the money I have in my savings account? I know it is low yield to keep it in a “high yield” savings account, but I am already maxing out my contributions to my IRA. Should I invest it? Where should I invest it if I do?
- Shelley

It depends on how much risk you’re willing to take on and how “locked down” you’re willing to allow that money to be.

Savings accounts don’t offer a great return, but there’s virtually no risk involved and you can take your money out as you please. With other investment options with a better return, you tend to lose one or both of those things.

For example, with stocks in large blue-chip companies, you take on risk in exchange for a higher average return. With a certificate of deposit, you lose the ability to take the money out freely for a somewhat higher return. With real estate, you lose on both counts but have some very nice long-term potential with the money.

The real question to ask yourself is why you’re saving this money. If it’s still more or less an emergency fund, leave it in the savings account.

Q5: Self-employment advice
My husband is about to graduate from grad school and will be self-employed upon graduation. I am wondering if you have any good resources for self-employment, and especially regarding affordable health insurance options for the self-employed. He is currently getting health insurance from his school, and I am on my employer’s policy, but I too would like to make the switch to self-employment (most likely working with my husband) within the next few years, or even being a stay-at home mother if we are able to afford it. We live in an expensive part of the US, and want to watch our expenses as much as possible. Going without insurance is not an option for us–I had a very expensive health situation over the last 5 years that has proven to both of us the need for good insurance. My health issues have recently been resolved, so I do not have any pre-existing conditions anymore. My husband has been healthy since I have known him.
- Catherine

I would start with the National Association for the Self-Employed when looking for options. There are a lot of options out there, and those options vary wildly from state to state.

I explored the options available in Iowa several years ago and we made the decision to stick with my wife’s work insurance for as long as she continues to choose to hold that position. Prior to that, I worked at a job with mediocre health insurance, so we were already using her insurance.

That’s not to say there aren’t good options available for the self-employed – there certainly are. I found the most luck starting with the NASE, though.

Q6: Retirement Roth versus 529
We are hesitant to put money into a 529 fund for our daughter when retirement amount may still not be enough. There are no loans available for retirement, as they say.

A Roth is almost as good as a 529 – except you can’t take the earnings out tax free for college, and it counts as income for the child – so no financial aid can be obtained. The upside is it can be used for school (I will be over 59.5 when daughter enters college) or retirement – whichever is needed more.

Certainly we could look for ways to save and afford to do both 529 and Roth, but I am not sure my family feels that is the way they want to live. We already do live fairly simply, but we could do much more. It might not feel like a positive to them, so I plan to identify areas one by one and see how far I can get them (and truth be told- myself) to agree to change.

Any advice?
- Oswald

You’ve basically summed up the benefits and drawbacks of a 529 versus a Roth for education. It’s flexibility versus better tax benefits.

If you’re asking which is better, you need to sit down and assess what your retirement looks like if you put all of your Roth money towards your child’s education. Assuming you do that, do you like your retirement picture?

If you do, I’d put that money into a 529 instead and then benefit from the taxes. If you don’t like that picture, then I’d try to balance it, probably committing more toward the Roth knowing that it’s more flexible.

Q7: Repayment troubles
I wrote to you last spring about advice regarding student loan repayment and starting a new business. Since then, I’ve moved to Canada, gotten married, and started my business, which I now work on full time. I have a steady client base, and am planning to expand more this year. I make approximately $300-$500/month at the moment.

Thanks to the low cost of living in our city as well as a wedding gift from my parents, we’ve actually been able to save nearly $30,000 in the 7 months we’ve been here. I have started to make payments on my student loan debt (all from law school) of $145,000. However, my husband’s contract may be ending at the end of June. I’m not sure if I should continue making payments on my loans or if we should continue to save for our potential “emergency” (unemployment). If we continue to save and defer the loans (the loans are currently on forbearance/income-based repayment, although I’m still trying to pay down interest), we’ll probably have approximately $35,000 saved by the time his contract ends.

My questions are the following: Should I stop making payments on my loans for now? Should I try to find some sort of part-time job to add to our emergency fund/throw at the loans (keeping in mind that most jobs here require you to be bilingual in French and English, and while I can speak French proficiently, I’m not bilingual)?
- Monica

My big question is whether or not you’re going to stay in the area you’re in when your husband’s contract runs out in June.

You seem to be in Quebec. Does it look likely that you’re going to be leaving Quebec at that time? Is your client base local or is it internet-based?

If you can retain your business through this transition and your business is growing, I’d put all my efforts into building it. You already have a start, after all. If you’re going to lose that base, I’d get a part-time job as soon as I could to get more short-term cash on the table before you leave.

Q8: Windfall options
My wife and I were gifted $15,000 by my grandmother recently and have a couple options. This is half of what we make in a year together so it would be easy to blow it on a bathroom remodel, but instead, I’d like to do something smart. We have only two debts: my wife’s $8,000 student loan and our $132,000 mortgage. The loan could be paid off instantly and the $150 to $200 we pay on that monthly would be freed up and that would be wonderful, but I could also refinance the house. We have a 4.875% rate, but rates are even lower than that at the moment. Our current mortgage payment is $1,004. But even if we only shave $50 off our monthly mortgage payment, that seems like it would add up to a whole lot more saved in the end compared to paying off the student loan, no?
- Charles

The question is would you honestly save that extra $50 a month, or would it end up being spent on something unimportant?

The best thing you can do right now is put yourself into a repayment plan that will take you to debt freedom the fastest. Refinance not into another 30 year, but into a 15 year or something. This would actually raise your payments a bit, but it would get you in a far better position sooner rather than later.

If I were you, I’d pay off the $8,000 debt, then refinance into a shorter term mortgage with a much lower rate. You’ll probably not see much change in your monthly payments for now, but you’ll be free from debt a lot faster.

Q9: Debt snowball or not?
I’m pretty new to your site but I have enjoyed it for the last couple of months. I have a couple of questions for you. My wife and I, along with our 4 young children have recently started on Dave Ramsey’s plan. We are currently on Baby Step 2 (debt snowball). We have approximately $14,000 in CC debt, and about $4,500 in student loans, along with about $4,000 left on our van payment.

I have also been trying to save a little money for different expenses I know we will have at some point (future car, car/home maintenance, etc). This is where my question comes in. Is it wise to do this while going through the debt snowball? Or since I already have the $1,000 EF in place, should I be putting every other possible penny towards the debt?

I mentioned the $4,500 in student loans my wife and I still have. I also have about $40,000 in other student loans but I do not have to currently pay on them because of the income based repayment plan I am on. My wife makes decent money but it is all “under the table”. So they only look at my salary when calculating my monthly payment. I am hoping to get through the debt snowball in about a year, then build up the EF to about $15,000 then try and payoff the $40,000 extra in loans I have. The loans are accruing interest but I am not obligated to pay anything on them unless our household income jumps. My wife plans to go back to teaching in 3 or 4 years so at that point I would have to pay at least something on them. My other question is would you stick with the plan I have in place as far as paying the loans back, or would you lump them in to the debt snowball?
- Andreas

First of all, you need to be very careful with “under the table” income. If the IRS hears of it from anyone – and there are a lot of people out there who quietly report such things – you guys will be in a world of hurt.

That being said, I would lump all of your debts into the debt snowball. If the interest rate on those debts is higher than the ones you’re currently paying, then I would make extra payments toward those student loan debts.

Eventually, you will have to start repaying them, and if you can keep that interest in check now, you’ll be better off for the long haul.

Q10: Prioritizing reading
I know you’re a voracious reader like me and I’m going to guess that you have a long list of books that you want to read like I do. How do you prioritize them? How do you decide what needs to be read next?
- Ivan

I keep a stack of about ten or fifteen books on my bedside table or on the front page of my Kindle. These books are ones that have been on my mind lately that I’m wanting to read. I rotate books in and out of this grouping pretty regularly.

When I finish a book (which happens once or twice a week), I just look through the books that are right there and pick the one that intrigues me at the moment.

That’s really all there is to it. I don’t really prioritize beyond that, but I’m usually happy with what I’m reading.

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

Sarah and I attended a Super Bowl party yesterday hosted by a couple who have two giant Saint Bernards as pets.

I love the dogs. They’re like children in a very big body. They want to hug you and play with you and they wear themselves out from all the excitement.

Q1: Vacuum sealed bags
I was wondering what your take on vacuum seal bags is. We have 2 freezers and stock way up on meat and frozen vegetables when we catch a really good sale. Especially since we live way out in the boonies with the closest store being 17 miles away. My question is, with the price of the vacuum seal rolls (we make our own bags) how much are really saving by doing this. I do wash, sanitize and re-use the bags until they get too small to use. So, I get 3-5 uses out of each bag depending on what the size of it was to begin with.
- Megan

I used a vacuum sealing system for a while. I found that they merely make it possible to store food in the freezer for just a little while longer than ordinary Ziplocs. Eventually, the freezer burn gets to the vacuum sealed stuff, too.

Dollar for dollar, I’m pretty happy with the gallon freezer Ziploc bags that we use. We get at least a dozen uses out of them (using masking tape for the labeling) and there’s no equipment.

The only disadvantage with freezer Ziplocs is that the food doesn’t stay protected from the freezer burn for quite as long, but if you’re reasonably consistent about eating your frozen goods, it’s not a big deal.

Q2: Boardgame with new couple friends
You’ve probably run into this, so I figure I would ask you. My wife and I play board games and card games with each other quite a lot and we also play with other friends. We’re going to have a couple over soon that’s open to trying some games, but have never played anything other than things like Monopoly when they were kids. Do you have any “go to” games for this situation?
- Shawn

My default games for these situations is either Ticket to Ride or Settlers of Catan. I usually bring them both out and give a one-sentence explanation of each, then let them decide.

However, I throw that out the window if I know there’s a game that will really fit the other interests of the people involved. For example, my wife has a friend who is really into the “zombie apocalypse” subgenre, as is the friend’s husband. We’re already planning on inviting them over to play Last Night on Earth after dinner.

Remember that you never want to overwhelm someone with a game if they’ve never played many games. Some games are just more complicated than others, and when in doubt, go for the one with simpler rules.

Q3: Investing for house down payment
I am 26 and my soon to be fiancee and I want to buy a house in 5 years. We are debt free, already have an adequate emergency fund, and I recently got a raise from 62k/yr to 85k/yr. I had been saving $100/month for the down payment, but that’s not nearly enough and I intend to take the difference in my paychecks and put it all to saving for this goal. I have been using SmartyPig to save for this, but the interest rate of 0.7% is bumming me out. Would you recommend investing in bonds? I know bond duration should be less than my investment time frame, but I’m also concerned about the tax implications (as I’ve never invested in bonds, and only know that they are less tax efficient than stocks). I already max out my Roth IRA contribution in an aggressive portfolio, and I contribute another 5k/yr to a similarly aggressive portfolio at my employer (no match there, sadly). Is there any tax sheltering I can do for my house down payment saving? I know IRAs allow you to withdraw for a first time home purchase, but I’m concerned about losing out on my retirement goals if I do that (plus 5k/yr is not enough to get me where I need to be for this down payment). Am I worrying too much about taxes and should just go for a short- to intermediate-term bond index fund at Vanguard (where my Roth IRA is)?
- Rick

I think you’re worrying far too much about the taxes here.

The real reason people worry about tax sheltering is that they’re trying to minimize their total tax bill taking into account a lot of years. For example, they might want to pay minimal taxes on their investments in a year where they earn a lot of income from other sources, and pay more of the tax load in a year where they earn little income from other sources. Eventually, you do have to pay the income tax on your investments – and it’s only on the gains, anyway. If you invest $100,000 and earn a 2% gain on that investment and find yourself in the 25% tax bracket, you’re talking about only $500 in taxes.

It sounds like you’re looking at a fairly short term period where you’re worrying about this, and it doesn’t sound like you’re expecting significant changes in income during that period. The only real advantage that such tax manipulations might get you is if you think you won’t be prepared to pay such an amount one year, you expect huge changes in how income taxes are assessed, or you think you might see a big income bump. If neither of those is true, you have very, very little to be worrying about.

Q4: Roth IRA versus Roth 401(k)
My employer gives the option to contribute to a regular 401K and/or a Roth 401K. I currently contribute 14% to the Roth 401K, 0% to the regular 401K, with my employer matching the a percentage of the first 6%. My employer matches the first 4% and I currently do not contribute to a Roth IRA. My yearly contribution comes out to about 12,000.

Should I instead be contributing in the Roth 401K up to what my company matches, then maxing out the Roth IRA at 5,000, and then anything leftover going back into the Roth 401K?

The past couple of years I have put any increases in my salary straight to retirement contributions. I should be on pace to be able to max out the Roth 401K and Roth IRA contributions within the next 4 years so it’s more of a short term problem for me.
- Sully

The first thing I’d do is make sure I was milking every single drop of possible employee matching, as the value of that blows away any tax benefits you might get.

Once that’s covered, I would max out the Roth at $5,000 and contribute the rest to the normal account. This diversifies you in both pre- and post-tax retirement savings, which hedges your bets against whatever may come in terms of taxation changes.

You seem to be completely on the right path here. Good work.

Q5: Hedging bets for retirement
My husband (31) makes $120,000 and I (26) make $70,000 per year, so we are well over the income limit to contribute to a Roth IRA. We would like to take advantage of the Roth accounts at least in part to hedge our tax burden in the future. Currently my husband contributes the max in a non-deductible, traditional IRA and I contribute 5% of my income to my Roth 401k. My employer matches that 5% dollar for dollar and has a discretionary extra contribution which has been 10% of my salary per year for a number of years. Since all of my employer’s contributions are pre-tax and we are not eligible for Roth IRA or deductible traditional IRA accounts as it stands now we are only contributing 5% of my income on a Roth basis.

Should we put more money in the Roth 401k or convert some of the money in the traditional IRA to a Roth in order to hedge our tax bets for retirement? Additionally, would it make sense at all to convert the traditional IRA to Roth since we are already using after tax money to fund it, even though it is treated as pre-tax? That seems like we’d be paying taxes twice on the money.
- Kendra

Converting a traditional IRA to a Roth IRA more or less means that you’re paying the income taxes on the money now rather than at retirement age.

By paying now, you’re providing yourself some level of tax-free income in retirement. If you can shoulder that tax hit now, it can be a good idea.

I usually recommend that people do as you suggested and hedge their bets between pre-tax and post-tax (Roth) retirement investments. This way, you’re spreading out your taxes between now and retirement since you don’t know for sure which point will have the higher tax rate.

Q6: Multiple savings “funds”
One thing that I’ve noticed through reading your posts is that you mention you several ‘funds’ that you put money back into. Savings, emergency, appliance replacement, etc. My question is: how do you manage these various funds? Do you have multiple bank accounts, one bank account and a spreadsheet showing the balance on each fund, multiple piggy banks, etc? That’s one of the biggest problems we’ve had when it comes to allocating money to specific funds. No matter what method we try, it takes more time to put money in each one, or maintain the balance in each one.
- Calista

I do use multiple savings accounts for this. I handle all of the transfers automatically from one bank which makes the automatic transfers really easy from their online banking servies.

ING Direct, to name one specific bank, also allows you to open as many savings accounts as you wish under your name and handle them all through one login. You can set up all kinds of transfers using their service – it’s one I’ve used for years.

It really comes down to how convenient your bank’s online services make such tasks. If you have great online services, this type of thing can be really easy.

Q7: Extra mortgage payment impact
I have a $107,895 mortgage that I have 23 years left to pay on (it is a 30 yr mortgage) at 5.5% interest. If I make two extra payments a year (that go to principle only) how quickly can I get it paid off?
- Leona

For starters, I’d highly suggest playing around with a mortgage calculator like this great one at Bankrate.

As for your specific situation, the exact answer depends on when exactly you started paying your mortgage off and exactly how long ago that was. I guesstimated that your original mortgage was for $120,000 and you’re just a little over seven years into the mortgage.

Given that, making two extra payments a year would shave just a bit under six years off the end of your mortgage. For just making 17% in extra payments, you’re shaving about 25% off the length of your mortgage. That’s money ahead, no matter how you slice it.

Q8: Car selling advice
My husband recently bought a new car, and now we’re in the process of getting his old car ready to sell. We’ve checked the Kelly Blue Book value for it, which says in its condition, we should be able to fetch about $3,500 for it in a private sale. Neither one of us has sold a car before, and we’re not sure how to go about doing it. What would be the best places to list it? How should we go about negotiating? Should we start at $3,500, higher or lower? We both find it hard to believe we could sell it for so much just because it has so many miles, but it’s in pretty good condition otherwise. Plus, we have proof for why we would ask that much; it’s not like we pulled a number out of nowhere. We need to get at least $2,000 out of it because our emergency savings recently took a hit when we had a plumbing emergency, and that will get us back to where the savings needs to be at, but is going down all the way to $2,000 ridiculous when supposedly we can get $3,500 for it?
- Tessa

First of all, the Blue Book value of a car is what you should consider a reasonable selling price for the car. It’s not a guarantee or anything at all. In order to sell a car, you have to have a willing buyer for the price.

My suggestion would be to define what you consider to be the minimum amount you’d sell the car for, then add at least 25% of that price to the car without exceeding 10% more than Blue Book value. If you exceed Blue Book value by too much, very few shoppers will bother looking at your car.

Pricing a car fairly high gives you plenty of room for negotiation, and buyers that can negotiate the price of a car down some is more likely to buy it. Just don’t put it so high that you scare away people to begin with.

Q9: Dodgy mortgage lender behavior
A few years ago I fell behind on my mortgage. My mortgage company was “good” enough to restructure the mortgage even though it took almost 2 years to get everything settled with them. The initial lapse was my fault, but it took them 9 months between 2 separate decisions to let me restructure the mortgage. The whole time they’re adding fees. The original loan amount was $169,000. I had paid on it for 2 years when this happened. Now the loan amount is $203,000 and I can’t get any information from them about why this is. I’ve called a number of times over the past 6 months, each time they promise to send me all the information, and I never get it. Is this illegal what they are doing since they can not provide me with the information?
- Mark

If I were you, I’d contact a lawyer.

My initial impression is that you’re dealing with a financial institution that’s struggling in some fashion or another. The current climate of the real estate lending market is a mess, and some companies are not handling it well.

$35,000 is a significant amount of money. A decent lawyer should be able to help you resolve this situation.

Q10: Going back to school
I currently have a student loan of $14,700 at 4.5% fixed interest rate. I have a master’s degree in marine biology and work in my field, but my salary is quite low. I’m playing with the idea of going to nursing school in the fall of 2013, which would give me job security and a better income (very important in my rural area). I love my job, but I want to go in a different direction. Nursing school tuition would be about $11,000 (3 semester program, since I already have a degree), would require increased use of my car, and because it’s an accelerated program, I would not be working. Of course there will be books, and normal living costs as well. I’m wondering if I should save every penny for nursing school, or pay as much of my loan down as possible?

I pay $200/month to my IRA. My minimum student loan payment is $132 (I have no other debt). Right now, I can probably pay about $350 towards that loan monthly. Is it best to pay off this loan, or save for school, and thus decrease the amount of a second student loan that I will need in the future? Should I decrease my IRA contribution and put it towards my loan?
- Erin

If I were in your shoes, I would continue the IRA payments and the minimum student loan payments for now and save as much as I possibly could to have a fat chushon in your savings account for when you start school.

Having that cash in your savings account will make it much easier to make ends meet during this period of reduced income. That’s really the key – you need to make sure you’re still paying your monthly bills. Your best friend is improved cash flow and access to an easy cash reserve, and since the first doesn’t really seem possible, your best bet is to maximize the second.

I would also look into forbearance on that student loan for any period where you return to school. If you can eliminate that monthly payment during your crunch time, all the better.

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

What does our version of a Super Bowl party look like?

It’s a potluck dinner. The game is on in the background, but largely ignored. People sit around and play board and card games.

This year, my parents are actually going to babysit our children so we can do these things without children (meaning less distraction and less concern about child-unfriendly topics of conversation).

Q1: Repeatedly failing to achieve goals
All the time, I set these powerful goals for myself. I’m really inspired to get out there and start taking action on them. Then, about two weeks later, the fire just dies out and I stop making any progress on the things I want. I’ll sulk on it for a while, then set new goals and start off like gangbusters again, only to fail again. How do I break out of this cycle?
- Leon

First thing: stop making multiple goals. Focus instead on just nailing one goal at a time.

Second thing: stop making sweeping life changes to achieve your goals. Instead, focus on one manageable thing that will move you towards that goal. Work on nothing but that one specific thing for a while until it becomes second nature. Then, move onto the next specific manageable thing.

For example, if you’re trying to lose weight, pay off all of your debts, read a lot more than you were reading, and redo the entire interior of your house, pick one. Say that you pick weight loss. Focus wholly on eating no junk food for a month and replacing it with something healthy, like carrot sticks. Ignore the rest of it. Don’t even think of them as goals.

Q2: Handling bill collectors
I am working part-time (less than 20 hours a week) and currently seeking more gainful employment. I don’t make enough to get by and rely on help from others to pay my bills right now. I’m truly broke (like using coffee filters for toilet paper broke). I have debts that are in collections, and I can’t make payments on them. Is there something specific I need to do in regards to those accounts? Should I call the agencies and tell them there is no way I can make payments right now, or will that just encourage them to begin harassing me again (at the moment they seem to have given up on getting anything out of me)?
- Kevin

I’m not sure using coffee filters as toilet paper is a highly cost-effective solution unless you have a lot of coffee filters bought in bulk and no toilet paper on hand, in which case it’s a financial delay tactic of questionable hygiene.

The honest route is to contact the agencies and tell them that you can’t pay right now. Make it clear that you do not have adequate employment.

At the same time, however, I do encourage you to negotiate with them. Use your employment situation as a tool to play hardball. Tell them that you’re willing to pay a much smaller amount and suggest one. Debt collectors typically buy debts from large companies for pennies on the dollar, so anything they get from you is likely to be a profit.

Q3: Rethinking mortgage payoff goal
Our situation is this: We have ~153k left on our mortgage and we pay $320 extra each month. We also save $500 each month in a fund that we plan to use as a down payment for a new house. Our current house is pretty small. We have a toddler and another baby coming soon, thus the saving for the next down payment. The down payment fund has around 26k in it. In addition to the down payment fund, we have around 40k in cash.

The way I see it we have three options:

1) Continue on as we’ve been doing. Pay the extra $320 on the mortgage each month and save $500 for the next downpayment.
Disadvantage: Much more interest payments because of the longer loan. House not paid off until March of 2028.
Advantage: More liquidity, next down payment is not tied to current house.

2) Stop saving for the next down payment and divert that $500 to the current mortgage, so we’d be paying an extra $820 each month.
Disadvantage: The money isn’t liquid and if/when the value of our home continues to drop, the money is tied up until we can sell the house.
Advantage: Our house would be paid off in October of 2021, by my calculations, with far less interest payments.

3) Stop saving for the next down payment AND empty the next down payment fund to quickly lower our current mortgage down to 127k.
Disadvantage: Money tied up in the house AND we lose the liquidity of the next down payment entirely.
Advantage: The mortgage would be paid off 14 months earlier, August of 2020, with even less interest paid.

One idea in this whole situation is that if the mortgage is paid off, we don’t really need to worry about the next down payment. Once the mortgage is paid off, we can aggressively save for the next house and we would certainly have some equity in our current house, even in spite of the horrible market. What are your thoughts?
- Brian

It depends on whether or not you’re underwater on your current house, which I’m not exactly clear on. Do you still owe more than your home is worth?

If you do, then you’re going to have to get your mortgage down to the break-even point before you do anything else.

If you’re not underwater, then I would make minimum payments on the debt and start stockpiling for the next down payment.

Q4: Handling extra cash
I have a friend who I have sort of “taken under my wing” in terms of finances. He does fine with his money, he just isn’t very organized.

Background: He is single, early 30′s, base pay about $50k. He has no debt, old car, rents an apartment, probably has $30k in a cash cushion, and at least partially funds IRA/401k every year. He may move to another country in a few years, either with his job or to start a different career.

The question: He just received a gross bonus of about $140k, after taxes about $80k. He went ahead and fully funded 2012 401k with that (in his words, $13k to 401k), so that leaves about $65k to work with.

I am meeting him for dinner next week to help brainstorm about what to do with that $65k in his situation. He says he doesn’t want a new car at this point (he can walk to his job, weather-permitting, and I think he just doesn’t care about his car/cars in general).
- Andrew

Your dinner should be focused on what his goals are. What does he intend to do with his life in the future? Does he want to start a small business? Is there potential for marriage in the future? What about home ownership? These goals have different investment paths.

He may also want to consider using it to fund a Roth IRA for the next several years so that his retirement savings get a giant boost. That really depends on what other retirement savings he’s got to this point.

If he doesn’t have a goal, then he should sit on that money. Since he has a cash cushion, I would suggest that he puts most of it somewhere where he can largely forget about it for the time being, something that has some risk but also has some potential for a decent return. I’d probably put it in a very broad stock market index fund.

Q5: Paying taxes at year end
My husband did our taxes this year, and in the end, we owe the federal government money. It’s mostly due the unforeseen consequence of using an education award from my service with AmeriCorps, which pushed us into the next highest bracket. Is there any way for you to outline the process of repayment to the federal government? What are our options? Luckily it’s not an earth-shattering amount, and we’ll be able to cover it, but I am curious if there is a way to set up a payment plan or something like that. How would you avoid a windfall like this in the future, when we so often rely on a tax refund for extra “fun” money (to pay for vacations and incidentals)?
- Kelly

You certainly can set up a payment plan with the IRS. It’s easy to do and they’re pretty good about working with you if you’re clearly trying to pay your taxes.

My rule of thumb is that for every dime you bring in that isn’t already taxed, you should save a nickel of it for your tax bill. I do this with every dollar I bring in.

If you owe less than that (and you most likely will), treat the remaining savings as your tax refund.

Q6: Online business and credit cards
I am a small business owner. I have accepted credit cards for 15+ years, but only process a handful of credit card transactions per month.

My credit card processing company keeps raising their fees, raising their fees, raising their fees…..and lowering their level of service; they will no longer even send me a monthly statement, without charging me a “statement fee.” At this point, due to their fees, if I process NO credit cards, my annual costs are $500+! Add in the transaction fees (3% or more per transaction), and it’s just become outrageous.

I would like to be able to continue accepting credit card payments as a convenience to my clients, but these fees have become unbearable.

Besides Paypal, are you aware of any way to accept credit cards without these high fees?
- Shelley

My immediate suggestion would be to use Google Checkout, which seems to be just what you’re looking for here. It will handle your transactions easily, Google takes a small cut, and you move on with business.

I’ve been using Google Checkout for a while now on a project I’ve helped some other people with and it’s worked great.

Paypal is convenient, but as a seller, I’ve heard a lot of stories about frozen accounts and the like and that makes me fairly nervous. I’m assuming you’re wanting to avoid it for similar reasons.

Q7: Buying home for parents
My boyfriend Jim and I have been together for 4 1/2 years and are planning on marriage in the next couple of years. My question is about Jim’s parents. Their real estate business went bankrupt when the recession hit and they have been having a very difficult time making ends meet. Jim’s father is now underemployed doing factory work and looks for minor home maintenance work on his days off. His mother has been disabled for the last few years due to extremely debilitating arthritis. She cannot work. They’re making it, but barely. Jim has been helping his parents out financially since he started working – roughly the amount of their mortgage payment monthly. I know this is something we will need to do for the remainder of their lives unless we do something like buy them a home.

Jim and I are financially solvent enough to buy their home, due to a large inheritance I received – it would cost us less than 5% of our assets. We would like to keep it in our names, and we would let them live there, free. The reason we hesitate to put it in their name is because we do not want them able to take a loan out on the home. Jim’s father has been irresponsible with money in the past. If we bought their home, it would fix all financial problems they are having, barring catastrophe. They would be able to save for an emergency fund, retirement, have enough money to make ends meet, and have a little something left for themselves to enjoy. It would be a very large increase to their quality of life.

Do you think I should buy their home for them? If I buy it, should there be strings? Would “strings” of “forced savings for retirement/emergency fund” be unreasonable? I tend to think strings are a poor idea because of the way it would affect the relationship between us and his parents. I don’t want them to view us as their landlords. I badly want to turn their situation around, but I want to do it in a way that will allow them to remain self sufficient after we do so, and cause us to not need to intervene in their financial lives on a regular basis.
- Kathryn

If you buy it, I wouldn’t attach any “strings” on their behavior. You’re opening the door wide for future conflict.

If you can easily afford it, buy the home and just let them live there without rent. When they no longer use the home, you can fix it up and sell it, possibly turning a small profit on it.

One thing I would suggest from personal experience, though: make sure you establish who’s responsible for property taxes and insurance. Given the situation, it’s likely you’ll be responsible for it, but be sure you’re aware of that before you jump in.

Q8: Heroes
Who are your heroes? What people inspire you greatly?
- Charlene

Most of the people I think of as “heroes” aren’t famous. There are so many people out there doing things quietly in their community, changing lives in a positive fashion, and they never get lauded with celebrity or fame.

I admire the couple in our community that run the food pantry. They spend quite a lot of time on it, collecting food, keeping the doors open, and making food available to the needy in the community. It’s a constant commitment of time with no real reward. They don’t get fame from it. They barely get any recognition from it. Yet they do it, week after week, month after month, year after year, because people in the community need help.

To me, that’s a hero.

Q9: Repair or replace used car?
My wife and I plan to look for and hopefully purchase a house this spring. We have been pre-approved for a decent amount (~$400K). Although we are looking now, current inventory is lacking and we feel after the new reality season in our area (traditionally the week following SuperBowl Sunday) we should be able to find something we like and can afford. With the market being what it is, we are determined to find a house that we can easily live in for at least a decade.

In the meantime, we currently have two automobiles that eventually need to be replaced. We plan to replace them with newer used cars.

My 1997 Mustang needs $1200 worth of repairs to make it safe to drive. This includes brakes (~$400) and new tires (~$400). It would be a game of Russian Roulette to continue navigating Chicago Winters (read: snow) with my current set of tires. [I actually ended up putting in $400 in repairs to the clutch cable and a few other things the other day.]

My wife’s car, a 2002 Trail Blazer, is in better shape but has worse gas mileage than the Mustang. I currently drive her car 26 miles to work (one direction). Her transmission is starting to fail. Our future perfect world scenario would be to replace the Trail Blazer with an Element and the Mustang with a more fuel efficient car to be determined later, perhaps a hybrid or even an electric car if we have the infrastructure, though we’d likely replace the Mustang first and get an Element.

The question is, do we repair the Mustang or use the $1200 toward purchasing a new used vehicle. As I see it, if we invest the $1200 into the car, we reduce our emergency fund and/or downpayment fund (both separate at the moment). However, if we take on even a small auto loan, the interest rate we get for our house might be slightly higher than we could get otherwise and over the life of the home loan, even a quarter percent higher equates to ~20K extra interest paid.
- Ron

It really depends on the reliability of the Mustang other than the things you’ve mentioned.

Has it reached a point where you can barely go three months without something going wrong with the car? Or is this just a conflux of things that’s fairly unusual for an otherwise reliable car?

If the car can’t get you reliably to work and back, you need a different car. Yes, that might slightly postpone your house plans, but if the alternative is having your boss tell you to take a hike because you can’t consistently get there on time, then you don’t really have a choice.

Q10: Using emergency fund during schooling
I am a LPN in my late 40s who will be returning to school in the Fall pursuing the additional education to become a registered nurse. My children have completed college and are out of the house. My husband and I have a house payment of $850 (for another 4-5 years) but otherwise no debt. We have about 6 months of our monthly income in savings, and I have about $150k in a 401k.

When I return to school for the year, I hope to either quit working altogether or work no more than 20-30 hours per month. (I make $20 per hour). My husband will be changing his withholdings from his check once I stop/reduce working, as we both claim zero dependents and have additional money taken from each of our paychecks. So his checks will increase to some degree when I reduce my hours. I will attend a local community college, so educational costs will likely be $4000 -$5000 for the year, and I intend to pay out of pocket for this.

My question is this, if we are financially strapped during the course of my year of schooling, is it better to take out a student loan (since they are at such a low interest rate for 10 years) or potentially deplete/reduce our saved money? Should our savings be used only for “emergencies” ? or do you feel that is precisely what a “savings” is for? I have considered taking out a student loan and putting it in savings and only using it if we are strapped. If I don’t need it, then I’ll repay it immediately after I finish school and have returned to full-time work. (It isn’t always a quick process to obtain a student loan, which is why I have thought about doing it whether or not I need it initially. If I wait until I need it, it might take too long to obtain the funds needed.)

(By the way, I’ve been “couponing” for about 6 months and have nearly a year’s supply of all toiletries and paper products that we will use during the course of my schooling. I also garden and have a significant supply of frozen and canned produce to help us get through this time.)

I’d appreciate your thoughts and insight. I’m excited, but nervous, to be returning to school. RNs in our area typically make 10-15k more per year than LPNs, so it won’t take long to see a return on my educational costs, but more importantly, there are probably 10 RN job opportunities for every 1 LPN job opportunity, because so many facilities are no longer employing LPNs.
- Linda

Don’t even think for a second about what you might earn after this schooling. Betting on earnings that your future self might make is a route to financial despair.

Instead, look strictly at the difficult year. Make a budget for that year. What is your family income during each month? What are the required bills that are going to have to be paid?

If it doesn’t add up, delay this move for a year or two until you can save enough to make it work. Remember, this does not constitute an emergency, so you should not deplete your emergency fund for it. If you do deplete it and then something goes seriously wrong, you’re going to be in a desperate pickle.

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

About three times a week, one of our children wakes up really early. It’s often due to a bad dream, but sometimes it’s due to a noise in the night or simply stirring to wakefulness.

Usually, the kids come into our bed for a while, but I don’t get any more sleep once they arrive due to their moving around and restlessness, so I’ll get up with them sometimes.

I’m writing this early in the morning. There are Legos all around me. One of our children has fallen back asleep on the carpet.

Welcome to parenthood.

Q1: Paying off low interest debt
Two sentence summary of question: What should I do with my money when I already have a significant amount of money saved and my only debt has a very low interest rate? Is it a bad decision to pay off low interest debt?

I am 30 and married. My wife and I hope to start a family this year. We are both lawyers and we currently make approximately $350k a year (combined). Once we have a child (God willing), my wife will attempt to work part time and we expect our combined income to drop to approximately $250k. We currently rent ($2200 a month) and we are looking to purchase a home in the next 12-18 months. We have $116k in student loan debt ($66k at 2.625%, 36k at 1.63%, 13k at 2.25%). We were fortunate to have low interest rates on this debt. We also owe 11k on one vehicle (.9% financing). So, we owe $1,110 a month for our debts (education and car). We have approximately 350k saved for a house in our ING account and I have 30k in a Vanguard account (investing in index funds). We both max our our 401k contributions.

For the past year, I have been making minimum payments on our debt. For this year, I am thinking about paying off one of my wife’s two remaining loans (the 13k one) in order to free up our cash flow when she no longer works full time.

We currently save $6k a month. Would you continue to make minimum payments on these student loans or would you start to aggressive pay them off. I know that I have a lot of money saved up for a house etc. I just do not know whether I should save more or get out of debt (even though the interest rate on the debt is low).
- Vince

It is never a bad decision to pay off debt, even debt at a low interest rate.

The best way to think about paying off low interest debt is to think of it as an investment that’s guaranteed to return that interest rate through the original length of the debt.

So, let’s say you have a car loan that is at 4.5% and it has three years left to go. If you pay it off now, you’re essentially doing the same thing as buying a three year CD that returns 4.5%, with the advantage that the returns aren’t taxable but with the disadvantage that it’s a bit less liquid than a CD.

Is that a good choice for your money? I think that most of the time, the positives outweigh the negatives.

Q2: Refinancing question
I currently have a mortgage with a rate of 6%, but I have seen rates offered as low as 3.5% to some of my friends when they refinanced. Because I was curious, I called up my current bank and they offered me two options:
1.) 4.25% on a 30 year loan. This would reduce my mortgage by about $60-$80 a month. But, I would lose the $12,000 that I already paid off on the house, which I don’t like.
2.) 4.00% on a 20 year loan. This would save me approximately $35,000 over the life of the loan, although my mortgage payment would go up about $25 a month.

The numbers above include the $3000 I would pay for closing costs and another $3000 I would have to pay off (from a grant i rec’d when I purchased the house). Both these would be wrapped up in the refinancing loan above.

SO, now the big question…should I choose #1, knowing that the extra money would help in paying off my $27,000 in credit card debt (which we are trying to dig out of now) and about $25,000 in student loans. OR, do I choose #2, even though I would like to move within the next 5-7 years (so I don’t know how much of a real savings I would get). My husband and I think #2 may be the better option but it will just take us that much longer to pay off our debt. Our budget is a bit tight at the moment – we have enough to live month to month, but extra spending like presents for Birthdays or Christmas, do put quite a burden on the finances. And, we have no savings or emergency fund to speak of – aside from taking a loan against our 401K.

What do you think?
- Eve

You should look at the results of a detailed mortgage calculator, like the one over at Bankrate.

I don’t know what your balance you’re hoping to get a mortgage on is, but let’s say it’s $200,000. At the seven year mark (the point at which you think you might sell), your balance would be $172,726.96 on the 30 year loan. At that same seven year mark, your balance would be $146,519.38. Simply put, at the seven year mark, you’ll have $26,000 more in equity in your house if you choose the 20 year loan over the 30 year loan now. The point is that taking the shorter-term mortgage will result in a lot more equity in your house in a few years when you choose to sell.

Is that the right choice to make? It’s really hard to tell. I think it depends on other factors such as job stability, the size of your emergency fund, and the career opportunities you have. The more stable you are, the more I’d lean toward the twenty year loan.

Q3: Coaching youth sports
Coaching youth sports seems like something really interesting to me. It’s a way to give back to the community and get myself outside, plus it’s a free form of entertainment. The only thing I’m unsure about is how to get started.
- Marvin

The first step is to contact your town’s parks and recreation department and find out if they have any openings for youth sports.

You’ll find, though, that if you’re not a parent, you’ll probably have significantly more luck serving in other roles, such as a referee. My experience in several communities has been that the coaches in many early youth sports are parents of some of the children involved and the coaches of more advanced youth sports are professionally trained to do so.

Regardless of what role you fill, there are few things better that you can do in the community. It means physical activity, lots of fresh air, and providing great opportunities for kids.

Q4: Building credit from scratch
My brother-in-law has recently turned 18, moved out of his home with his parents, and into a home with a school friend. He is finishing high school, and will graduate in May. At that time, he will be moving closer to us and attending one of the local junior colleges for at least a year. I am trying to give him some budgeting and credit advice but my own path in each of these areas was initially flawed at that age.

My question is this: being that his income is comprised of social security (until he graduates high school), and should have a job within a few weeks, what is the safest and smartest way for him to establish and then build his credit? His initial solution was to open a credit card, but I am afraid the allure of spending will be too much for him to control.
- Jenny

One option is to have him open a credit card, but give the card to you. Then, use that credit card for things like gas only when you’re with him, and have him give you the cash to cover it. This will build his credit without any risk.

Another option is to contact your card issuing company and ask about adding him as an authorized user on your own card. Make sure that such information is reported to the credit agencies and will benefit his credit before you do so.

A final key is to remember that he won’t be listening to a lot of the things that you tell him. The best thing you can do is make sure he knows you’ll be there for him whenever he needs you. While stuff about “credit” and “Equifax” will likely go in one ear and out the other, making it clear that you care and support him as he finds his own path will stick around.

Q5: Buying home without down payment
My husband and I would like to buy a house. This is our dream and we have been trying to buy but unfortunately prices were always too high for the places we wanted to buy. This time around I’ve finally convinced my husband to look in an area which he previously didn’t want to live in (no real reasons) and where prices are a bit more affordable. The houses are around $400,000 for something decent. This is a bit expensive for us, but I think we can do it.

The problem is he wants to put down a 20% deposit, which we don’t have. We only have about $50,000 and we can maybe reach $60,000. So he becomes stubborn and asks me to look for cheaper homes, which is impossible because for $300,000 we would get nothing or a house in a crime infested neighborhood. We have a 3 year old! My thinking is, let’s put down less. 10%. His thinking is let’s put down 20% or we don’t buy the house. Because of his thinking we still don’t own a house.

What do you think? If we both really want a house, how much is really PMI going to be in the long run and is it right to make PMI such an important factor. I understand that it would be nice to have the whole 20%, but if you don’t have it and if you know it would take at least another 5 years to get that money together, what would you do?

I have a toddler and I would like her to have her own backyard, her own home and such… Also, if this makes a difference, I am not planning on being in this new house for more than 4 years, so the PMI wouldn’t be as substantial as it would be in a 20 years home…
- Linda

I don’t think you should get a house at this point. Essentially, if you’re only going to stay in the house for four years, you’re basically going to be renting for that timeframe as you’re not going to build much equity given the current housing market.

That “rent” will include your mortgage principal, your PMI, your property taxes, your homeowners insurance, your lawn care costs, and increased energy bills, at the very least. That’s a lot of money each month for a home that your child will barely remember when they get older.

Rent as cheaply as you can for four years and sock every dime away for a down payment that you can. When you reach the four year mark, then you’ll be in a much better position to buy the house that you’ll be in for the long term.

Q6: Breakfast question
I need a breakfast of some kind in order to get going in the morning. However, most mornings, all I have time for is grabbing something through the drive-thru on the way to work and that adds up quickly (both in the wallet and around the waist). Any suggestions?
- Jill

Plan ahead for that breakfast.

My solution to this problem was to make giant batches of breakfast burritos on the weekend and store them in the freezer. Then, in the mornings as I got ready to go, I’d grab one from the freezer, wrap it in a paper towel, and microwave it. I’d grab this on my way out the door and eat it on my way to work.

The cost per burrito was much lower (helping with the wallet), the ingredients were healthier (helping with the waist), it was pretty tasty, and it actually cut five or ten minutes off of my commute time because I wasn’t stopping at a drive-thru.

Q7: What happened to WaMu?
I’m a college student that’s starting to look around at banks to see which one might be best for me. In reading some old articles, I discovered a bank by the name of WaMu that was very popular and apparently a fierce competitor to ING. However, when I went snooping to their website, I discovered that they were now becoming a part of Chase. Do you know if this has changed much about the experience of using WaMu?
- Mark

WaMu is short for Washington Mutual. Washington Mutual was a bank chain that failed during the banking crisis of 2008. It’s now out of business. JP Morgan Chase wound up with most of the assets and accounts of Washington Mutual.

Most of the features that made WaMu distinct – good rates, a very unique floor plan in the branches, aggressive and quirky marketing – have not really continued under the new ownership. It’s just a part of Chase.

WaMu made a lot of poor business decisions, but it made some good ones, too. More competition is always better for customers, so I’m kind of sad to no longer see WaMu in the mix.

Q8: Handling my first large paycheck
Taking advice from your blog and several others, I’ve recently quit a low-paying job in the education field (about $19K a year, September to June) to take on a position as an office admin assistant (for about $30K a year). I feel good about the move: while I’m not using the degree that put me into such debt, I enjoy office work, I’m good at it, and it both pays better and is far, far closer to home (hour commute compared to fifteen minute commute!). I’m looking forward to no longer living paycheck to paycheck within the next two months, and have a plan in place for getting rid of my debt a bit faster and creating a more solid emergency fund (it’s currently about $1,000).

While I know I’ll still be living on a tight budget for some time, I’m looking forward to having a bit of “breathing room” – no longer living paycheck-to-paycheck, having an emergency fund, etc. Talking with friends has raised what I think is a good question, even though it might not apply to me for several years. I’ve witnessed (and even succumbed to) the “first paycheck” trap: the “hey, look, I’m making a ton more money than I’m used to – that means I can splurge and treat myself to xyz!” Obviously, until I’ve paid down my student loans in the coming years, I won’t be able to fall into this trap, and I’m hoping that after my loans are gone I can begin saving for a house.

But I was wondering: what, if anything, do you consider worth splurging on once you’re comfortably making more money than you’re used to? Assuming debts are paid off, emergency funds are more than adequate, retirement is funded, and you’re already saving towards whatever goals you have in mind, etc. Obviously, the trap of just splurging on instant-gratification items isn’t the way to go, nor is pitching out everything you’ve “made do” with until this point to buy bigger, better, brand-new whatevers. But once you’ve achieved that leeway, what do you think would be worth spending that extra in your paycheck on?
- Ben

If I were you, I would focus your “splurging” on replacing items you already use with very well made and reliable replacements.

There’s not really an exact answer here, as it depends a lot on what you do with your time and the lifestyle choices you make. If you spend a lot of time preparing high-quality meals, for example, you may want to focus on upgrading your kitchen tools slowly. If you have a lot of guests, you may want to slowly upgrade your flatware and dishes.

Don’t buy “new” things – or, if you do, be wary. Instead, slowly upgrade the stuff you actually use to high quality and reliable versions.

Q9: Collectible toys for kids
How do you handle it when your children get into some sort of collectible toy that never seems to end, like Pokemon or Pokemon cards?
- Andy

They buy such things out of their allowance. Because of that, it somewhat limits itself.

My son got heavily into Pokemon cards for a while, as it was heavily spurred by a cousin who gave him several hundred cards and some older kids at school who played with the cards in the cafeteria. He received a few packs as stocking stuffers and bought some more with his allowance, but eventually the fad passed.

This isn’t really a problem if you don’t give into your children and constantly buy them things.

Q10: Retirement fund on low income
I am 24 years old and renting in NYC. I have roughly $11,000 in student loan debt, and only $1000 in an emergency fund. I don’t have any credit card debt because I hate the idea of spending money I don’t have. I am aggressively paying off the loans (5 separate loans, averaging a 5.5% interest rate) paying close to 3x the minimum payment. I hope to have it all paid off in 3 years. Even though I have a masters in social work, the field doesn’t pay too well. Luckily I do LOVE what I do. My job offers a 403b but I am afraid to invest my contribution because I know nothing about investing, however there is a savings account type option. Then I hear all about IRAs and other retirement fund options, which, again, I know little about. I feel like I don’t have too much disposable income to even begin to put towards retirement. I still feel like I’m so young, but I don’t want to struggle to catch up later in life. What type of retirement fund is appropriate for someone who potentially can only contribute $100 or so a month?
- Fred

Your best option is probably a Roth IRA, as you can set it up yourself quite easily, keep control of it yourself, and it’s pretty simple when it comes to taxes.

However, where you save your retirement money is less important than the fact that you’re saving it. You are better off saving $100 a month in a sock drawer for retirement than you are saving $0 a month in the perfect retirement account with the best possible choices.

Just save. That one right decision dominates any small wrong decisions you’re likely to make.

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

On my desk, I keep a stack of papers that reflect “important but not urgent” tasks I need to get taken care of, like submitting an invoice for some work done or cancelling a subscription we’re no longer using.

About once a week, I take a few hours and clear out that “important but not urgent” stack. The day I do that usually ends up being one of the best days of the week because I feel as if I’ve accomplished a lot.

Q1: Strange credit card fee
I have Mastercard credit card linked to American Airlines miles rewards. I’ve had this card for about 15 years, and over the years the available credit limit has gone up to $54,000. We never used up even remotely that much, and currently the card has $2,000 on it which will be paid off by summer if not before. It’s a 0% transfer sum, so no interest is being paid on this amount presently. We have not charged anything to this card in over a year.

Anyway, this months’ statement is the second where I noticed a small fee added to it, 50 cents. It is not a late charge or anything related to a purchase (since there hasn’t been one made). I wonder if this is an “inactive” fee, meaning that they aren’t making money off of us since we are not buying anything and therefore aren’t paying any interest, and the card company needs to get some money out of us and thus is charging this kind of fee. I wouldn’t be surprised if this is one of the card companies work-around to get additional money out of people who pay their bills on time…

I am annoyed by this fee, of course, but am reluctant to cancel the card (we really don’t use it, and once the current amount is paid off, it’ll basically just be laying there in its file.) It is my oldest credit card and with the high available credit limit, it is good to have on my credit report, right? I do pay an annual fee of $50 because it’s a mileage reward card….

I know I can call the card company and complain about this extra fee, but I was wondering if other readers/people have the same fee appearing on their statements. My only other credit cards are a corporate AMEX credit card that I use once or twice a year and pay off promptly and a Discover card that is paid off every month and only has very few dollars charged to it every month (gas). Both these cards are relatively new, less than 3 years and the available credit limits are less than $10,000.
- Bill

You should call your credit card issuer and ask them what the fee is for. It’s hard to tell what it’s for, though an “inactivity fee” is probably a good guess.

However, if the card is often inactive, I’m not sure I would want to pay a $50 annual fee for the card. I would only pay it if I were clearly getting more than $50 worth of value from this card beyond the cards I could get for free.

If it is an “inactivity fee,” I’d assess whether or not you’re going to need spectacular credit in the next couple of years. Do you have a car loan or a mortgage coming up? If not, cancel the card. If you do, hold off until the big purchase is finished, then cancel the card.

Q2: Handling sudden income increase
I have something of an unusual question, particularly during these times. After college, as well as several years of alternating unemployment and minimum-wage jobs, (we’re both 27) my fiancee and I are now both employed in extremely well paying (six figures each) positions for the foreseeable future. We are incredibly lucky to be in this position, especially in the current economic climate and given our lack of debts (we both attended college on full scholarships, and each bought our cars used for cash). We’re already setting aside enough for our 401ks to max them out by the end of the year, and have been fortunate enough to give sizable amounts to several charities we favor. The only problem is… what else should we do? Besides filling up an emergency fund, should extra money just go into a savings account? Should we look at CDs and IRAs?

Most of all, are there any books you would recommend that are more tailored to our situation? Personal finance seems split between getting out of debt and playing the stock market, neither of which really apply to us; since we don’t really have problems with overspending, I feel like we’re sort of left adrift. Adrift and extremely extremely lucky and fortunate, but adrift nonetheless. Thanks for any help you might be able to offer.
- Ron

You need to sit down together and assess your goals. Do you want to buy a house? Do you want to have any children? Where do you guys want to be in five years? In ten years?

Your plan for the extra money should follow the answers to those questions. If you’re saving for a short-term goal (less than, say, five years), I would just keep all of the money in cash or in CDs, as the volatility of other investments probably isn’t worth it.

For a book to read, I’d suggest The Bogleheads’ Guide to Investing, which is my favorite book on investing I’ve ever read.

Q3: Great job, next financial move?
At 25 I landed my dream job. Its fun flexible and has a great six figure salary. When I finished school in May of 2011, I racked up a few thousand dollars in credit card debt to bridge me over to my first paycheck, which came in September. As of January this year, I’ve paid off all credit card debt and have 54,000 left on my student loans (at 6.7% and 7.6% interest) and about 1,000 in emergency funds. I’m still living like a poor college student and am planning to pay all my student loans by January 2013. I haven’t been able to invest in a 401(k) because my employer only offers it after you’ve been with the company for 6 months. Because I only worked several months last year, I am in a smaller tax bracket than I will be in 2012. I’d like to invest some money in an IRA or Roth IRA before I file my taxes for 2011. Basically, I’d like to take full advantage of being in a lower tax bracket while I can (for instance, next year I won’t be able to claim up to 2,500 plaid toward student loan interest) and was wondering if I should divert money I’m intending to pay toward my student loans to open an IRA or Roth IRA and which type one would would be the wisest choice for my 2011 income.
- Lana

If you qualify for a Roth IRA based on your income, I’d choose a Roth IRA. I think it’s a good idea to diversify your retirement money in both pre- and post-tax retirement accounts since no one knows what the future will hold.

As to whether you shoud divert loan repayment money into a Roth, it’s really an apples-and-oranges decision. There are good arguments to be made both ways on it.

If I were in your shoes, I’d probably fund the Roth fully before making extra payments on the student loans. The big reason is that, if push came to shove, I could always withdraw the contributions from the Roth at a later date if I so chose.

Q4: Children’s movies
What movies do you let your children watch on your “movie nights”?
- Alex

If it says “Pixar” on the label, we’re generally okay with it. Many of our family movie nights involve Pixar films.

We also often watch Studio Ghibli films, but we’re a bit selective on those as some can have scenes that might frighten really young children (like the fate of the parents at the start of Spirited Away).

These two categories give us about 25 movies to choose from, so we just rotate them. We also have a few additional Disney movies in the mix.

The thing to remember is that movie night with my family isn’t about the move so much as it is about the whole family cuddling up under blankets together, laughing together, and enjoying time together.

Q5: Keeping papers
I’ve got a well controlled financial situation, but I’m overwhelmed by the paperwork. I get statements from multiple bank accounts, investment accounts, 401ks, etc. I get bills for the utilities and my credit card and such. I’ve got my tax returns. Some of these “papers” are actually digital, but most of them are paper still. I’m planning to get a house in the next year, and I imagine there will be a ton of paper involved with that as well.

How long do I need to be hanging on to the various paper and digital copies of all of this paper work? Do you have a preferred method for handling the onslaught of papers?
- Alan

If you’re just keeping paper copies, I’d keep most of them for seven years. I would keep tax returns and other truly key documents forever.

However, I think the best solution is to just make digital archives of everything. Scan all of the paperwork onto your computer using a document scanner. Then, just keep them forever on backed-up hard drives and other formats.

This can take up some serious hard drive space, but then you have an archive of all of your documents. It takes some time, but I think it’s really worth it.

Q6: Determining ownership percentages
My fiance and I are getting married next fall. We will most likely be purchasing a home before we get married. I currently make about 70k per year and she makes about 26k per year. We will be looking to purchase a home in Southern California in the price range of 365k-400k. I will have roughly 80k saved for a down payment/closing costs and my fiance will have roughly 8-10k saved for the down payment/closing costs. She is currently working on paying off 8k of student loans. My question is, what is a fair way to determine percentages of home ownership with the varying amounts of money that we have available for a home purchase and considering our difference in annual income?
- Mike

I would be extremely wary about taking on a mortgage that’s more than double your combined salaries, even with low interest rates. Such a situation is practically begging for Murphy’s Law to take effect.

I don’t think there is one fair way to determine ownership percentages in this situation. It has far more to do with your relationship than anyone else’s ideas of fairness.

My wife and I have had income inequality since the day we were married, but as far as we’re both concerned, everything is a 50/50 split. We’re in this together for the long haul and we’re constantly helping each other in terms of emotional support and other assistance, so it just makes sense to have a 50/50 split.

Q7: Taking control
I recently turned eighteen and my parents are slowly turning over control of my finances to me. However, I have no idea what to do or where to start! Do you have any suggestions for getting started on the right track to ensure financial stability in the future?
- Shawn

I would start with a basic personal finance book. I’m not sure exactly what experiences you’re going through right now, but I would guess that college is either a current experience or one that’s in the near future for you.

If that’s the case, I’d probably suggest Please Send Money by Dara Duguay. It’s a great “getting started” personal finance book.

On the other hand, the book that had the single greatest impact on my thinking with regards to my money was Your Money or Your Life by Joe Dominguez and Vicki Robin.

I feel both are well worth reading in your situation.

Q8: Stuck in a condo?
When housing values started to slide we started making larger principle payments on our condo to stay above water. Eventually the value was going down so quickly we couldn’t keep up. We borrowed $340,000 in 2004 and the current value of our condo is around $200,000 on a good day. We still owe $250,000. Two years ago we stopped putting money toward paying down the principle and started living even more frugally and managed to save up $100,000. The plan was to pay down the principle and refinance into a loan that allows us to rent out the condo then save a down payment to purchase a house. This is due to our family doubling in size since our condo purchase. Now that we have saved up the $100,000 and lived so lean to make it there the idea of throwing it away for a place we have grown out of anyway is pretty painful. Short Sale or Foreclosure don’t seem to be options since we can afford our payments. What other choice do we have?
- Randall

Sadly, your options are fairly limited.

You can just hand your keys to the bank, which will severely damage your credit and make it difficult to borrow anything for the house you want for quite a while.

You can keep living where you’re at and keep saving until you can simply pay off the condo. If you do this, I’d start making extra payments on the condo mortgage rather than sticking the money into savings. Then, you could save for a down payment for a house while trying to sell the condo.

You can also just pay down your condo right now so that you’re at a break-even point on it, then start focusing on your next house immediately.

I don’t know which is the right choice. The second one is probably the safest and most conservative option, which is what I’d go with because that’s how I usually react to such situations.

Q9: 529 plans and multiple children
We have two kids but only 1 529 account setup. Should we increase the contribution to that one account or open another one for the 2nd child? I am not sure if it matters or quite frankly if two kids can even share one account – but I know I didn’t find the answer easily on the web page for the Iowa 529 plan.
- Espen

You would simply open up a new 529 account with your second child as beneficiary.

With many college savings plans, you’d basically manage them together, as they’d appear under the same login name online and they’d send paperwork together. This is exactly how Iowa’s plan works.

I have three seperate 529 plans, one for each of my children. They’re easy to manage together.

Q10: Saving old magazines
I have this tendency to save old magazines, particularly cooking magazines and project magazines. The problem is that my closet is starting to get full of them. How do I get rid of this clutter without losing that information?
- Jill

I have this exact same problem with food and project magazines. They tend to really build up over time!

What I do is once a year or so, I go through the magazines and look for things I’m actually going to use. In a food magazine, for example, there might be five or ten recipes I actually want to save. I actually cut out the pages, scan them onto my computer, then throw all of it away.

It takes some time, but I have this wonderful archive of pages on my computer to browse through. I give the files sensible names so I can easily find them again.

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

I’m typing this while holding a sleeping one year old on my shoulder. He’s been up most of the night with some sort of intestinal illness and has only slept in fits and starts.

Sleep deprivation and worry are fundamental parts of being a parent.

Q1: Investing advice
My husband and I have a 14 month old son. We have 15k that we would like to put towards his college education but unfortuantely we just aren’t sure how to go about investing the money.

My husband and I are great savers, but really know little about investment even when it comes to our own money. We have some money in a mutual fund and the rest in a money market. Do you have a good book that you suggest reading for financial advise, really just a good overview of the options for investment?
- Shanda

If I were you, I would look at the 529 plans offered by various states – you don’t necessarily have to be the resident of a state to use their 529 plan, though they do offer some additional state income tax benefits if you’re a resident of that state. For example, the plan in Iowa is run by Vanguard and I’ve been incredibly happy with it.

If you invest money in a 529, then take all of it out for educational purposes, you don’t have to pay taxes on any of the money – even the money you earned on the investments. It’s all tax-free if you use it for education.

Beyond that, one book I would definitely read if I were in your shoes is Debt-Free U by Zac Bissonnette. It’s a great look at how to save for college and some clever ways to reduce costs there.

Q2: Good advice for college student
My daughter is 20 years old and a sophomore in college. I pay all of her college expenses (tuition, books and living expenses). She has a part time job and is paying for her incidental expenses (gas, coffee, iTunes, moves, etc.) I have taught her a great deal about personal finance and have been a good example by living well, saving money and keeping out of debt. I talk quite a bit with her about finances and using money smartly. However, I am wondering if you could recommend a good baseline book for her to read about overall finance strategy.
- Margie

The book Please Send Money by Dara Duguay is pretty much the perfect book for the situation you describe. It addresses the college stage of financial maturity, as students grow toward financial and personal independence.

Even with that book in her hands, she’s not going to magically begin understanding her financial situation unless she wants to, and that’s a decision that’s internal to her. You can’t make someone care about their finances.

The best thing you can do is what you’re doing – making the information available. It’s up to her to take the next step.

Q3: International mortgage question
I’m currently planning to invest in a house in a different country. I won’t be able to take any loan in that country as I don’t work there. I want to know if there is any way I can take a house loan here to buy a house in a foreign country. By the way, I’m not a US citizen.
- Ama

It is very rare for a bank to take out a loan using a house in another nation as collateral. The only banks that might consider doing it are large multinationals that operate both in the United States and in the nation you’re hoping to buy the house in.

If the bank does not do business in the nation that you’re buying the house in, the risk the bank takes on in offering the mortgage is incredibly high – likely far outside the realm that any bank would take on.

If you’re going to look further into this, start with the huge banks like J.P. Morgan Chase or Bank of America that might be operating in that nation or have close relationships with banks in that nation.

Q4: Favors as gifts
For our baby shower, our friends and family all gave us certificates for a night of babysitting. We have a pile of about twenty of them from various people. The problem is that now I feel sort of guilty using them. We’ve just left them in an envelope.

Should I feel guilty about using them? Should I expect that people would feel guilty if I gave similar things as gifts?
- Annie

You shouldn’t feel guilty at all about using these certificates. They were a gift to you, likely from people who understand how important an occasional night out without children is to new parents, and they likely want to fulfill that certificate.

If someone gives you a gift, there’s an intent that you will use that gift. If they didn’t want you to have that night of free babysitting, they would have given you bags of diapers for your baby shower or something similar.

Use the certificates and enjoy some date nights with your husband.

Q5: Allowance strategies
We are talking about starting allowances with our two children, ages 9 and 5. I would just like to read your ideas and strategies, then compare them to ours. We would just like a second opinion, if it’s not too much trouble. Thanks so much!
- Mel

We start allowances at age four and plan to discontinue them at age sixteen. The allowances are not tied to any particular household task, but the amount given isn’t very large. The amount given is equal to fifty cents times the age of the child.

We use a Money Savvy Pig for our allowances. The children are required to put one quarter in each of the slots and then are free to put the rest of the quarters wherever they see fit.

The entire point of an allowance for us is to get our children talking about money and also to provide a method by which they can make spending decisions themselves instead of just directly asking Mom and Dad for everything.

Q6: Life insurance for children
What is your take on life insurance for kids? I would assume that someone taking life insurance on their children isn’t in it for the financial long haul.
- Charlie

The only reason I can see for having a life insurance policy for your child is if you’re unsure if you could afford the costs of a child funeral upon their death or if you’re purchasing some sort of whole life policy for your child that extends into adulthood.

I’m not particularly a fan of such whole life policies. They tend to really only pay off if you find that your child has some condition not obvious when they’re young that causes them to become uninsurable later in life, which is a reasonably rare occurrence.

Currently, we have very small whole life policies for our children for this exact reason. The amount is very small – just enough to cover funeral costs. Most of the money we’re investing in our children is going into college savings.

Q7: Buying local
I really love the main street in my town, but most of the shops sell things for much higher prices than I could pay online. How can I justify paying $50 for a pair of shoes when I can get them for $25 online?
- Emily

The reason is so you can have the opportunity to stroll down the main street of your town and not see boarded-up windows and shabby businesses that are barely surviving.

A thriving main street in a town is an indication that the citizens of the town value having such a main street and are willing to pay somewhat higher prices there than they could find online. That is a town I would want to live in. It’s one of the things I admire about towns that have thriving main streets and town squares.

The cost of keeping a physical location open in an average town simply drives up the prices in that store because online retailers don’t have to worry about a traditional storefront. They just have to keep the servers up and they can ship out items from a tightly-packed warehouse.

If you value having that main street, be a patron of the stores there. If you would rather save $25 on your shoes, order them online and accept that the main street you profess to value is likely soon to be a thing of the past unless everyone else in the community steps up to support something that you supposedly value but don’t actually bother investing in. You can’t have it both ways.

Q8: Retirement savings challenges
I am 27 years old and have been working for two and a half years. My current income is $52,000 (pre-tax), take-home pay is about $3000 per month. I only have student loan debt from medical school: $47,587 at 4.25% and $135,179 at 6.625%. My parents generously paid for my undergraduate education, and although they don’t expect repayment, my hope is to assist with my brother’s college tuition. My fixed expenses each month are rent ($750) and student loan repayment ($500); I also spend about $300 per month on groceries, gas, utilities and laundry. The remainder goes into savings. I currently have $6500 in an emergency fund, $10,000 in a traditional IRA and $27,000 in a catch-all savings account at 0.9%. I signed up for my work’s 401(k) this year and will start contributing 15%, but do not get matching from my employer. I plan to get married (budget $15,000, split between me and my fiance) and buy a house in the next five years. I have guaranteed employment for the next three and a half years, but will be making less than $65,000 a year. I am hopeful that once I am done with my training in four years, I will be making $150,000+. I still feel like I am not saving enough. How much should I be saving? What should I do with the money in my savings account that is earmarked for retirement (about $10,000)?
- Ron

I think you’re saving well given your current financial reality.

You need to ignore what you think you might be making in the future and focus on what you’re making now. Relying on your future self for income or anything else is almost always a mistake because when we visualize the future, we tend to rarely visualize what will actually happen. Instead, we usually visualize something better than what will actually happen.

Making financial moves now that relies on you earning a truckload of money later on puts a greater burden on your future self. It adds stress and pressure to your future that doesn’t need to be there.

Q9: State retirement plans
I was wondering what you thought about the following retirement plans that are available to me as a fairly new State of Connecticut employee. I started working for the state in August of 2011, and I need to choose a plan by February 28 of this year.

As a bit of background, I am 37 and married with two children. My husband is self-employed, and contributes 10% of his income to a retirement savings account. I have a very small retirement account with Fidelity, left over from my last job (around $20,000), which I haven’t rolled over or cashed out yet. My plan was to just keep it in Fidelity if I choose one of the SERS plans below, or roll it over into ING, which is the State’s ARP funds management company.

I plan on working for the State of Connecticut for the rest of my career, so I’m leaning toward option 1 or 2 (but which one?), and contributing an additional 10% of my income to my own IRA each year. In the old days, I know you were supposed to take a pension if you had the chance, but with budgets and politics as they are these days, I’m not so sure. After seeing my Fidelity account shrink with the market, though, I’m not sure if the Alternate Retirement Program would be any better.

Here are the three plans from which I must choose:

1. State Employees Retirement System (SERS), Tier III – This is a defined benefit plan qualified under section 401(a) of the Internal Revenue Code. The employee contribution to this plan is 2% of your salary and contributions are made on a pre-tax basis. Should you meet the requirements for receipt of a retirement benefit under this plan, the benefit you receive will be calculated based on a formula which uses the number of years you participated in the plan and the average of your five highest years’ salary. Under the Tier III plan, retirement credit may be granted for some prior employment service, including military service and municipal employment. Restrictions apply. See the SERS Tier III Summary Plan Description for more details.

2. State Employees Retirement System (SERS), Hybrid Plan – This is a defined benefit plan with a “cash out” option qualified under section 401(a) of the Internal Revenue Code. The employee contribution to this plan is 5% of your salary and contributions are made on a pre-tax basis. At the time of retirement you will have the option of receiving a retirement benefit calculated based on a formula which uses the number of years you participated in the plan and the average of your five highest years’ salary or in lieu of such benefit a one-time lump sum payment with a five percent employer match and four percent interest. Under the Hybrid Plan, retirement credit may be granted for some prior employment service, including military service and municipal employment. Restrictions apply. See the SERS Hybrid Plan Summary Plan Description for more details.

3. Alternate Retirement Program (ARP) – This is a defined contribution plan qualified under section 401(a) of the Internal Revenue Code. An ARP member’s benefit is based upon their contributions to the plan and investment earnings. The employee contribution to the plan is 5% of your salary and is made on a pre-tax basis; the State of Connecticut contributes an amount equal to 8% of your salary. Plan contributions are invested at the direction of the member in investment funds available under the plan. ING is the State’s administrator for ARP. Information on ARP is available at www.CTdcp.com.
- Jan

I tend to be very hesitant to trust pension plans that are run by the government – actually, I don’t trust pension plans of any type. Governments and businesses will often start pillaging their pension plans if they need cash to stay afloat, no matter the promises they’ve made.

If I were you, I’d choose the plan that allowed you the most independence possible from the state, which sounds very much like the third option. I did some reading on the plan and it sounds as though your money is held in an independent account managed by ING.

If I were you, I’d also start up my own Roth IRA, which enables you to save money for your retirement completely independently of your job.

Q10: Podcasts
What’s your current list of podcasts you listen to? I know you change your rotation regularly (as do I) and I’m always looking for new ones to listen to.
- Evan

I listen mostly to NPR programs – Marketplace, Fresh Air (I pick and choose episodes), This American Life, Wait, Wait – Don’t Tell Me, and Radiolab.

Aside from that, I listen to The BS Report with Bill Simmons (which mostly covers sports and pop culture) and The Dice Tower (which covers board games).

That, along with some music, is what I listen to in a given week.

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

Two days ago, we had our first significant snowfall of the winter. The amount of snow on our driveway was right around the minimum amount we usually need for us to break out the snowblower.

In order to make sure that our children could make it to one of their activities on time, I had to get the driveway cleared as fast as possible.

I chose the shovel. I got it done in time, but I found myself coughing a great deal (due to the very cold winter air and a touch of the cold I already had) and found myself with a sore back as well.

As I type this, I’m thanking Advil for the help.

Q1: Puzzling through hourly pay rate
I am about to accept a new job and I am working on the hourly pay rate that you discuss. I have in detail created a Pro/Con chart about this opportunity and the Pro’s do out weigh the Cons, but the largest Con is commute time. I will be increasing my commute by 15 miles each way (30-40 minutes depending on traffic). In your original calculation I am to include that drive time and gas in my hourly calculation. However, I have decided to attempt to learn a new language during that travel time. Would you still add this time for travel even though I am partaking in a personal development project? What if it is to help my career?
- Andy

You should still include the travel time. Although you’re finding a use for that commute time, you’re still stuck in your car. You’re still having to divert a significant portion of your attention to the traffic around you.

On the other hand, if you were learning the language in a focused environment for an hour each day, you would pick up on the language much more deeply and thoroughly.

There’s certainly some value in using your time in the car to learn things, but if it had an equal value to non-car time, would you choose to drive around in order to listen to your language-learning CDs?

Q2: Career path concerns
My situation:
I’m living in Germany and studying for my BA in Social Science (class of 2013)
I have two subsidized loans one beeing 5800$ and the second 3500$ both will only kick in if I earn more than 30,000$/year after taxes.
I got 12000$ on the hand which is great, but I when reading the mentioned article I asked myself what will I have after I graduate.

Do I want to work as a scientist in social science, I dont, I never planned too, I had median grades but can maintain an A-Average at the moment. Still I dont have collected skills that are transferable to a degree mentioned in your article. I have no idea what my dream should or could be and the only thing I can relate to is the wish for financial independence for a foreseeable future.

I am thinking about taking up a job that would pay me 10000/year as a computer guide at the university so that I will save more to pay off my loans and maybe save up for a small apartment.

Any ideas how to change my worries about me beeing stuck with a formal but no-use education? I mean I really enjoy my time at the university but its more like readying a book you like about personal finance or philosophy it educates you but its nothing that will really help me at the job market… at least thats what I am afraid of.
- Ben

If I were you, I would spend my remaining time in college trying to figure out what exactly I wanted to do with my life. Clearly, you’re not enthusiastic about the field you’re studying for. What are you enthusiastic about?

College is the perfect time to figure this out. The restraints you have on your life are likely never going to be this light again.

Take advantage of it. Sit in on classes related to anything that might be of interest to you. Join some campus organizations. Try new things and see what clicks with you.

At the very least, attempt to supplement your degree with extra projects and jobs that will appear to be a good complement to potential employees.

Q3: Working with children
How do you get work done with children at home? I’ve been trying to transition to staying at home to work, but with my children at home I get almost nothing done. I don’t mind this, but I’m trying to find a way to stay professionally productive while still being a good mom.
- Erin

On days when I need to get work done and have children at home with me, I tend to try to get them involved in focused projects. I then set a timer for them that they can clearly see and tell them that I want to see what they’ve come up with in that timeframe.

For example, I’ll get out a giant bucket of Legos and ask them to build me the coolest castle they can build. I’ll set a timer for thirty minutes and then tell them I want to see what they’ve come up with when the timer runs out.

I usually make a big deal out of the project. We’ll take pictures with it, talk about it, and so on. Then we’ll have a snack, use the bathroom, and then I’ll come up with another project – say, a big art project where they need to draw a picture of something.

This works really well for my four year old daughter and my six year old son. For my one year old, I usually just contain him in a small spot with some toys for short sessions and he largely occupies himself.

Q4: Speed reading
[Recently] you talked about your reading skills. You said…“I can read pretty quickly, allowing me to go through more books than I would if I didn’t practice so much.” Is there any proven way, book or method for increasing reading speed that you can recommend? Is it just practice?
- Jeff

I’ve been reading on the order of 100 books a year for most of my life. I actually still have my reading list from sixth grade, where the teacher had all of the students keep one, and it numbers at about 100 or so. That pace has been more or less constant ever since.

The best way to become a good reader is to read. The more you read, the stronger your reading skill becomes and the faster you can absorb written material.

I find that reading challenging stuff tends to improve me the most as a reader. I’ll get a nonfiction book on a complex topic that I don’t understand well, and that forces me to read more slowly and absorb more of what I’m reading just to make it through.

Jeff had a follow-up question.

Q5: Getting less sleep
This seems like an offbeat subject but I have several relatives who can THRIVE on only 4 – 5 hours sleep. I need 8. Think of the productivity increase if I could gain 3 to 4 hours a day! Is there any way to learn to sleep less but still be productive or do you have to be born with it? How can dome people exist on 4-5 hours and others need 7-8 or more? I have never heard anyone address this and thought if anyone would know you would!
- Jeff

I think there are a lot of elements that make up the amount of sleep that a person needs. Genetics is certainly one of them, as is stress level, the amount of interruption of one’s sleep, and the comfort of one’s sleeping environment.

I can be productive with things that don’t require a lot of thinking on four or five hours of sleep. However, whenever I do thinking-intensive tasks with that little sleep, I perceive the results as good, but I later discover that they’re pretty poor.

Sleeping for three more hours than someone else, but being able to be thoughtfully productive during your waking hours, is well worth it. Don’t mess with what your body needs.

Q6: Netbook or tablet?
I have a laptop and until recently I had a netbook. I used the netbook for most of my day to day computing needs at home to save ware and tear on my laptop which is much more expensive.

I have been looking around for a replacement but the market seems to have went much more in the direction of tablet computers. As far as I can tell the tablets generally are more expensive, seem to be less powerful, have less memory and are simply an unnecessary gadget that is popular at the moment. Everyone around me is recommending a tablet but what I see and my intuition is saying to go with a netbook again.

Would you have any thoughts?
- Chris

I find that tablets tend to have more appeal for people whose typical computer tasks involve mostly mouse work with only brief bits of typing. That’s because the finger is a more intuitive pointing device than the mouse. It’s just more natural.

The more typing you do, the less appeal a tablet has. Even when you find ways to couple a tablet with a keyboard (many tablets allow you to use a wireless keyboard with them), it’s still not as good as the setup with an entry-level laptop.

If that describes you, get an entry-level laptop or netbook. It’s probably the best solution for you.

In either case, the processing power on both a decent tablet and a lower-end laptop today drastically exceeds what’s needed for what most people do on their computers. Web surfing and emailing do not require extensive computer power.

Q7: Risk Legacy and evolving games
I took your advice and picked up Risk Legacy to play with my brothers and sisters over Christmas. It was a blast and we had so much fun that we’ve gotten together twice in January to play it. Thanks for the idea! It was well worth the money to have all of us sitting around a table talking and spending time together again.

I was wondering if there were other games like it that “evolve” as you play them, with permanent changes to the game.
- Eric

Not that I’ve seen. However, I think that Risk Legacy is an awesome game experience. It has become an absolute staple for my gaming group, even overcoming a strong aversion to Risk. Five people are probably going to get 30-40 hours of entertainment out of that box, and at the end there’s a unique memento of those 30-40 hours spent. That’s pretty cool.

You also hit upon the big reason why I love board games so much. It gets people around a table doing social things. Whenever I get together with friends and we just watch a movie or something, the room is quiet and there’s very little interaction. I can do the same thing when I’m by myself.

Social gatherings are meant to be social. Board games are inherently social.

Q8: Saving for multiple goals
In one of your recent posts in the 365 days section you talked about having money automatically transfered into savings accounts for different things you are saving for. I have a regular checking, a short term savings and a long term growth account (the PNC Virtuall Wallet is AMAZING by the way and makes this all very streamlined). But you talked about an account saving for a car, and I know I should have an emergency fund, but I’m not really sure how to set all this up.

What do your account setups look like? Do you save for more than one thing in the same account or have a separate account for every savings goal? And where do you put money for things like a new dish washer or other larger item that might break before you get around to proactively replacing it? Does this come from your emergency fund?
- Paul

I use ING Direct for most of my specific savings goals. ING Direct allows a person to set up as many savings accounts as they’d like (I’ve never hit a limit, anyway). You can have automatic savings plans tied to each one of them.

Thus, I’ll have a savings account that’s tied to saving for a car, another tied to saving for a new dishwasher, another that’s just an emergency fund, and so on.

I usually try to start saving for things as soon as I get an inkling that they’re going to need replacing soon. Most of the time, failures of things like cars and appliances provide some hint beforehand. I usually try to rely on those hints.

Q9: Paying someone to prepare taxes
I was wondering what you think of paying someone to prepare your taxes? In the past 30 years, my husband and I have always had someone prepare our taxes at a cost of $175.00 I keep all the tax forms in a file folder and sort through it before I bring it to the preparer. We also just have the basic write offs such as our mortgage and donations. Nothing ever really adds up to being able to write anything off because we make too much and don’t donate enough. Plus we’re healthy, so we don’t have any medical expenses.

My question is how are the tax preparation people that you see on commercials all the time? Right now they have a new program that you can work on your taxes from home and they have an instant question/help line available if you have any questions? Also what about Turbo Tax? I saw it advertised for $45.00 at Sam’s Club and was wondering if that’s the way to go.
- Susan

I use TurboTax for my own taxes. It does the job really well and hasn’t failed me yet.

Most of the time, when I’ve observed what a tax preparer does, they’re generally using TurboTax or a TurboTax-like computer program to prepare your taxes for you. They just take the numbers from the documents you’ve given them, put them into a program, and out pops your forms.

I’d rather just do that myself. I’d try out TurboTax if I were you.

Q10: Setting microgoals
You’ve mentioned many times that you set “microgoals” for yourself. Could you elaborate on what exactly that means? What’s the difference between that and a short-term goal?
- Ellen

I usually set “microgoals” on a weekly basis. Typically, I’ll think about a goal that I want to complete for the week – usually some task that will take me a few hours that’s outside my normal routine – over the weekend.

On Monday, I’ll set my “microgoal” (or pair of them) for the week. I’ll figure out how to fit them into my week and have a plan for making them happen.

Usually, I strive to complete them by Friday afternoon, but sometimes goals run over into the weekend. If I find that I can’t complete one for the week, I spend some time trying to figure out why I didn’t get it done.

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

There are so many times that I’m grateful for the friends and the family that I have. They support me in so many ways, both subtle and obvious.

I don’t know how to express it without sounding mushy other than through my own actions: I try to be a good friend in return. I don’t backstab people or try to hurt them. I try to help them when I can. I try to be an entertaining and fun person to hang out with.

In other words, I try to be the friend or family member that I wish that I had.

Q1: Housing challenges
My wife and I currently live in condo that we have a mortgage on. We purchased 4 years ago, rate is 5%. We purchased for $140,000 and have about $135,000 remaining on the mortgage. When we purchased the condo we took the $7,500 housing grant that we have to pay back over a 15 year time period or when you sell the house. The stipulation is if you do not make a profit then you don’t have to pay this back. We have already paid back $1,000 of this. The purchase price is adjusted for any improvements or commissions you have paid in the process. We put in more than $10,000 of improvements so if we were to sell for anything over $143,500 we wouldn’t have to pay back any of the remaining grant. We could also choose to rent, which is what I would do if we didn’t take out the grant, but if we were to do this we would have to pay the remaining balance of the grant back at that time since it is no longer our primary residence. This was the $7,500 home buyer credit, not the $8,000 that you don’t have to repay and can rent after 3 years.

So our current situation, my wife and I are both 27 have no debt (no credit card, no student loans) besides our mortgage and 2 car loans. Car 1 – 1 year remaining $250/month, Car 2 – 2 year remaining $350/month. We make a combined $115,000/year. We currently put about $1,000 a month in retirement (+ company match) and have a combined $40,000 currently saved in our retirement. We also have $10,000 in our savings for a future down payment on our house. We are expecting our first baby in February and at that time my wife will take off 12 weeks of work, she will get 50% pay during this time. I am going to lower my retirement to just the company match during this time period to make sure we have enough money, although I think we should be fine and and will increase the retirement once she goes back to work. We will be incurring day-care costs once she goes back to work of roughly $800 per month.

Here is our dilemma. We have our condo currently listed at $144,000 however we may only be able to get $135K or even less for it, which after commissions would barely break even on our mortgage and could possibly even take a little loss. We want to continue to save and build our savings account up to around $15K before we buy our new place. For us to do this we can’t really afford to lose that much when we go sell. The condo we are living at will probably be too small once the baby gets to about a year old so we are looking at houses in our area at around $200-$250K, (I realize we wouldn’t have 20% down but this is what we are wanting for now). We also want to take advantage of the lower interest rates that are currently in affect right now (I personally believe they will be low until 2013).

Looking back I now realize we should have probably just rented 4 years ago but hindsight is 20/20. Anyway, I guess our options are stay in the condo until we can get a buyer that is willing to give us a decent offer, take a loss on our condo and not have as much to put in a downpayment, or pay out the remaining grant and rent out the condo ourselves until the market turns around in our area (this would also lower our down payment).

It is frustrating because I feel like we are responsible with our money and didn’t necessarily do anything incorrect yet we may end up losing money on this decision to buy our first place, however I realize this is just the times we are living in and going forward I will think more indepth of our decisions. Any advice would be greatly appreciated.
- Kevin

You didn’t do anything particularly wrong. You were simply caught by the collapsing bubble of the housing market.

If I were in your shoes, what I’d do is investigate rent prices in your area compared to the mortgage payments you’re making on your home. If you can find housing that suits you that’s significantly less than the interest on your mortgage payments, you’re going to be money ahead getting out of that condo and then channeling the money you’ll save each month into your down payment fund for the house you really want.

Once you’ve resolved your condo, I would sit on that savings for as long as you can. Build it and wait until your life changes in such a way that a house of your own is really necessary. You’re going to be in far better shape for the long haul if you have a small apartment for several years now before you buy a home than if you tried to swing into one quickly.

Q2: Employer-matched IRAs?
I have an employer retirement plan with Vanguard that allows me to automatically direct a portion of my paycheck to both Roth and traditional IRAs which they will match to an extent. I also have a separate Roth IRA I set up with extra job money in college that I’d like to add money to. My question is, do I need to count the contributions to the employer sponsored accounts towards my $5000/yr limit on IRA contributions?
- Charlie

I tried to find the specifics for the plan you described, but after thorough searching of the Vanguard site and a few emails to people at Vanguard, I found nothing that seems to match up with what you’re saying here. I’ll admit that I’ve read about thousands of retirement plans and I’ve never heard of employers directly contributing to the Roth IRAs of their employees.

The people to ask about this is Vanguard themselves. They would be able to give you a straightforward answer based on how exactly this IRA matching plan is set up

Contact them with your specific plan information and make sure that you understand the taxes and contribution limit issues before you make any major moves.

Q3: Paying ahead on credit cards
In the questions section people mention often that they pay off the credit card monthly. Do you know people who ‘pay on’ or ‘pay up’ the credit card? DH and I do most of our payments with debit card, but when we need the credit card, we discuss it beforehand, then send the money from our account to the credit card, then pay with the credit card. We have about 150 euro positive on the credit card as a cushion; the credit card company gives us about the same interest as the savings account. I was just wondering if we are the only ones to use the card ‘proactively’.
- Stephen

You absolutely can keep a positive balance on a credit card. The drawback to that is that you’re not able to earn anything from that positive balance. Instead, the credit card company is.

Let’s say you had that 150 euros in a bank account instead of sitting as an extra balance on that credit card. Over the course of a year, that 150 euros would generate 1.5 euros straight into your pocket. If it sits on a credit card, you don’t earn a dime.

Perhaps that relatively small loss is worth it for the peace of mind it gives you, and if that’s the case, stick with it. It’s certainly not hurting anything by doing this.

Q4: Bus pass math
I usually take the bus to work. It costs $1.20 for a round trip fare and it’s about two miles each way from work. Since I have a very old car I had somewhat decided that it would be cheaper for me to drive to work rather than catch the bus each day.

Where the math has thrown me is with the bus passes. You can get a bus pass for a month of unlimited riding for $20 and an annual pass for $175. Do you think that this is now cheaper than driving my car to work?
- Larry

Let’s assume you work five days a week and you work forty eight weeks out of the year. That would mean that paying each day, you’d pay $288 in bus fare. The monthly pass is a bit cheaper than your monthly bus fare, and the annual pass is a tremendous savings.

The real question is how much it costs you to commute every day in that car. You can use an online calculator to estimate this. As you can see, the calculation gets complicated really quickly. After playing around with the numbers, I estimated that in your situation, you’d probably be spending about $0.37 per mile driving your car to work, taking into account all of the factors mentioned there.

In other words, you’re still spending more driving to work each day than you would be just paying for the bus out of pocket at that rate. If you buy the annual pass, it falls even more in favor of the bus.

To get that $0.37, I assumed quite a few things, such as not paying toll, that you’re going to keep up your license and registration and insurance whether you drive it to work or not, and that it’s depreciating very slowly because the car is already very old (I estimated a nickel a mile).

Q5: Selling a small business
I am a software developer, I have traditionally worked as a regular W2 employee but I have recently been doing some freelance side work. I am really unhappy at my current day job and I am leaving as soon as I find the right opportunity. I am very lucky in that respect because the market for my skills is really on fire right now.

An opportunity has come up to work on a very exciting project as a 1099 contractor. I have two things I am trying to work out about this opportunity. First, I am trying to figure out how to compare an hourly rate between a W2 job and a 1099 job. I am paid hourly even at my current W2 job (I get no benefits), and I was offered the same hourly rate for the 1099 job. I know that even at the same rate the 1099 offer is worth less in total because I will have to pay the self employment tax, but I cannot figure out exactly how much less. My understanding is that as a 1099 contractor, I will have to pay an additional 7.65% tax, however I can also deduct half of that tax from my income, which makes the calculation more difficult. I get even more confused when I factor in tax-deductible retirement contributions because as a 1099 contractor, it seems like my tax-deductible contributions are worth approximately 7.65% more because I would not being the SE tax on them. I looked at some online calculators, but I could not tell if they took into account the 50% tax deduction. What I really want is a formula that tells me how much an hourly rate under W2 status is worth under 1099 status.

I have a second, unrelated but interesting question about the same 1099 job. I have an LLC which I try to use for my freelance jobs, and every resource I find says that as an independent contractor, I should use the LLC for all my contracts. With this new opportunity, they asked me to sign the contractor agreement personally, rather than through my LLC. Their reasoning was that my LLC has no assets and is worth nothing (which is true), so I basically have nothing on the line when I sign the contract. They are also concerned that potential future investors would be scared off if they can’t guarantee that the company’s intellectual property (the software I would work on) was not protected by a strong contract, and my contract under the LLC would not provide any real protection to the company’s assets. I offered to purchase professional liability insurance for my LLC, but they still want me to sign personally.

I am not really too concerned about having to sign personally, but I cannot find anyone who has ever encountered this problem before. Do you have any insight? Are they being unreasonable by asking me to put my personal assets on the line, or am I being unreasonable by trying to hide behind what essentially is a shell company?
- Charlie

Their reasoning is correct when it comes to the contract, and it’s also the reason why you’d prefer to sign the contract through the LLC rather than personally. The LLC limits your risk and increases their risk.

I don’t think they’re being unreasonable to request this given the current market. I’m assuming that your field does have some level of competition with a lot of people seeking work. If that’s the case, then the power is more in the hands of the employer and they’re able to make such requests.

If you’re wanting to stick to your guns on the LLC issue, you’ve got to be willing to accept that the company may just find someone else for the position. That’s part of the risk of sticking to your guns here.

If I were you, I’d sit down and do a risk assessment. What is your real risk from signing on the dotted line yourself? What is the worst possible outcome? You may wish to contact a lawyer for assistance in reading through the contract you’re being offered.

Q6: Negotiating a promotion
My responsibilities at work have changed significantly over the past year. I have taken on not only more areas of responsibility, but also higher-level responsibilities such as strategic planning. My boss agrees that I deserve a promotion. Today I received a copy of my new job description, which spells out all the things I have been doing plus what else I’ll be expected to do in my new position. Unfortunately, the position title wasn’t the one I was hoping for. I believe I should be promoted to the manager level, but the job description says “junior manager.” My question is, what is the best way to negotiate for the position and pay I think I deserve?

Here’s what I’m thinking to do:
1. Be straightforward and tell my boss that I was hoping for a manager position, and invite her to explain her reasoning for only promoting me to junior manager. I would then try to counter her reasons with concrete examples from my performance this year and my potential for future growth. (My main weakness is that I have relatively low experience and am slightly underqualified; my counterargument is that my instincts have been spot-on so far, and my ability to think through problems has helped me perform well despite my lack of experience.)
2. If that doesn’t work, I will point out that my responsibilities are on par with what other managers are doing, plus I have been assigned to lead those managers on several team projects despite currently being the lowest-ranking member of the team. Thus, I should be promoted to the manager level if I am expected to do manager-level work.
3. If that doesn’t work, I will ask what steps I would need to take to get a full promotion and when we can meet again to discuss my performance. I will try to get a concrete timeline from my boss. If it is within a year, then I will accept the position and work my butt off to get that full promotion. If it is more than a year or if she refuses to specify the steps or set a timeline, then I will accept the position and work my butt off while keeping my eye open for opportunities at other companies.

What do you think? Is this a good plan for negotiation?

One more thing: I have found an interesting job listing at another company. It is in the same field with the same responsibilities, but with 15% more pay, a full manager title, and the possibility of working from home. These are big incentives, but I have not applied yet. I’m rather torn. I enjoy working for my current employer, I am getting a promotion (just not the one I hoped for), and I don’t know if I can get this other job (I would be more confident with 1 more year of experience under my belt). I don’t have pressing financial obligations that are forcing me to search for higher-paying work. In short, it would be safer to stay with my current employer and work toward a full promotion. On the other hand, I am young, hungry, and ambitious, and that job listing is dangling a lot of carrots.

Should I apply for this position? What if I requested an informational interview instead?
- Sandra

If I were you, I’d stick with the third option. I’d go in there, simply state that I would like to have a certain title, and ask what I would need to do over the next six months to achieve that title.

You already have your answer to the first option, and honestly, the answer to the third option is basically what you stated in the second one. If you talk about a gameplan to get you the title you want and you’re already doing the work for that title, then it’s going to be easy. Plus, sticking to the third option makes it appear as though you’re hungry and an up-and-comer, not someone who demands a reward.

As for the other job, there’s no reason not to feel out other opportunities, particularly if you feel like you’re hitting a glass ceiling at your current job.

Q7: Finding a community group
You talk a lot about finding groups in the community to join and participate in and find people that are potential friends. But how do you even go about finding such groups? I don’t even really know where to start.
- Angie

The best place to start is on the website of the community you live in and on the websites of surrounding communities. Look for their parks and recreation departments, their libraries, and their community calendars. Many communities also maintain a list of community groups of interest.

If you’re looking for opportunities, these resources will likely give you more than you could ever want.

If you have difficulty finding these opportunities, simply go to city hall and ask for assistance in locating such resources in your town. They’ll be glad to help you out.

Q8: Thrift stores in Des Moines
I’m going to be in Des Moines in a couple of weeks for business. Can you recommend any good thrift stores in the area? Thanks!!
- Annie

In the Des Moines area, I’ve had success with three thrift stores in particular.

The Goodwill at 1982 Grand Avenue in West Des Moines usually has a pretty interesting selection of stuff. I’ve had quite a few interesting finds in there, including some clothes that fit me well and some vintage video games.

Once Upon a Child is a great place if you’re a parent looking for items for your children. I’ve found some great clothes and a few toys there at awesome prices.

The best place I’ve found for used larger items in the Des Moines area is Changing Places Consignment. They mostly carry used furniture, lamps, prints, bookcases, and the like. If you’re driving a larger vehicle through the area, this is a place well worth stopping at.

Q9: PMI or student loan debt?
I am having a hard time trying to understand what interest rate is higher, my current student loan interest rates, which are pretty clear – 6.55%, 7.65%, and 6.8%. Or my FHA loan, which is locked in at 4%, but I am also paying PMI. I want to know if I should be making my additional monthly payments to my home loan so that I can remove the PMI by reaching 20% in equity or if I should pay down my loans? What makes more sense? My husband and I owe about $90,000 in student loan debt and our home loan is $220,000. We put down only 3.5% when we purchased in December.
- Richard

Unless it is an egregious amount, the PMI on your loan is likely not boosting the interest rate on your home loan to the point where it compares to the other loans. My experience has been that PMI amounts to an increase of roughly one percentage point in one’s annual rate.

For example, on our original mortgage, we had a 5.875% rate, but when you added in the PMI, our rate went to 6.601%.

My suggestion to you would be to call your lender and ask about the effective rate of your loan including the PMI. My speculation is that it will be somewhere close to 5%. Use that rate when comparing all of your loans.

Q10: Pocket change
What exactly do you do with your pocket change? I don’t accumulate much of it and it mostly just seems to take up space. I’m never really sure what to do with it.
- Ed

I keep all of my pocket change (and loose dollar bills) in a jar on my bedside table.

About once every year or two, I take the contents of that jar down to my local bank, fish out the dollar bills, and have them count the change using their change-sorting equipment. That money is then just deposited into my checking account.

I’m lucky in that my bank accepts change and counts it without skipping a beat. This is apparently a feature that many banks don’t offer. If you don’t have a bank available to you that offers this service, there are change-counting services such as Coinstar, but they take a large fee off of the top.

I’d probably try to seek out a bank that accepts loose change.

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

On Monday at about noon, my stomach took a giant lurch. I quickly began feeling tired and mentally out of it. By Monday evening, I barely wanted to leave my bed. I spent most of Tuesday crawling back and forth between the bathroom and my bed.

As I write this Wednesday evening, I’ve lost about twelve pounds, I still hurt all over, and I’ve realized how important it can be to have posts written in advance. I spent most of my “advance” posts over the Christmas holidays, which mean that when I got sick, I didn’t have more than two or three posts written ahead.

This is one of the realities of writing for a constant deadline. Sometimes, you just get sick. Sometimes, your kids get sick. You’ve got to be able to plan for it and deal with it.

Q1: Helping partner build credit score
My boyfriend is 29 years old and has never had any significant financial accounts in his name. He’s had savings and checking accounts with two different banks over the years (currently at my Credit Union), but no credit cards and his credit report does not show any reports (either positive or negative) from his previous bank or any utility companies. In fact, it has very little on it at all other than his previous addresses and an old debt from a medical bill that is paid and just hasn’t fallen off the report yet. We tried using Credit Karma and they said he had too little credit history to even give him a credit score. He recently applied for a credit card (the Chase Amazon card) and was turned down because he had no credit history.

I plan to sell my house (I own it and he lives with me and pays half of the bills) in the near future and we will be moving to a neighboring town, where we will rent for a few years and eventually may want to buy a house together. I have very good credit and could easily get approved for an apartment or mortgage on my own, but if we go in on something together we don’t want his lack of credit history to hurt our chances of being approved. What should he do to start building a credit history? Would a “starter card” with a yearly fee be the only way to go? It doesn’t seem like he’ll be eligible for any decent cards. He’s extremely conservative financially, we’ve lived together for several years and I trust him with money. Could I put some of the utilities in his name? Would that even affect his score?
- Annie

There are a lot of things you can do in this situation.

For one, you could get a card yourself and add your boyfriend as a user on that card. Check with your credit card company to make sure that authorized users you add to your cards have the credit reported to the credit bureaus.

You could also get him his own secured card. This wouldn’t have a yearly fee, but it would require you to pay money up front as a security deposit on the card. Most large banks have such an offering.

Don’t worry about the interest rates on such cards. He shouldn’t be using it for many purchases (though using it for a few is a good thing) and he should be paying off the balance in full each month. If he does that, then there’s no reason to worry about the interest rate because he won’t be paying any interest.

Q2: Rechargeable batteries
I have been thinking lately about getting some rechargeable batteries and wondered if you have posted anything about the cost comparison between getting some decent rechargeable batteries and just buying the standard type. I guess just the standard sizes are what I’m most concerned about (AA, AAA, C, D, and 9volt). I have also been concerned about how well they would perform if you don’t use them frequently (I.e. Flashlights that you only use periodically during power outages etc.)
- Greg

I am a big fan of eneloop batteries, made by Sanyo. I have had good experiences with them over and over again.

Most of the time, rechargeable batteries for “C” and “D” size come in the form of an adapter, which looks like a “C” or a “D” battery, but just contains two or three “AA” or “AAA” batteries. There are eneloop adapters for both of these sizes.

I do not have any experience with 9 volt rechargeables. The only items in our home that use a 9 volt is our smoke detectors, and I don’t use rechargeables in those.

Q3: Job and heavy course load
Right now I’m 19 and a sophomore at a college studying mechanical engineering. It’s a rigorous college, but I like it and I’m doing pretty well. The only part I don’t like is the undue financial strain it’s putting on my parents. We’re not a rich family. My dad’s getting up there in years and being a firefighter is starting to take a toll on him. My mom is self employed in property management, and while it brings in some money it’s sometimes not enough, especially now as she’s trying to refinance her buildings.

I want to get a job. Right now I have some scholarships helping me out but it still comes down to about $12,000 a year for college, not including living expenses, food, etc. I feel guilty every time I get money from my mom and I know that they could be using it to help elsewhere, as my little brother still has to get through college. Every time I try to bring the subject up, my parents tell me it’s not a good idea, and that school is my job until I graduate and I must concentrate on that.

What do you think I should do? My average course load is between 17 and 19 hours for the next two years, and I also have a position as a service coordinator for the local chapter of Alpha Phi Omega service fraternity. Is it worth it for me to get a job to help with the cost of school?
- Sam

During my fourth semester in college, I took on a 19 credit course load and worked an 18 hour a week job and another 12 hour a week job. It was a complete disaster. I didn’t do either of the jobs well and I had my worst academic semester of my entire college career. I was stressed out constantly and exhausted by the end of it.

If I were in your shoes, with a similar courseload to what I had and a job as a service coordinator, I would not add additional responsibilities to the pile. I’d stick with what I have, use student loans to finance the experience, and try to create fantastic results for both the classwork and the service positions. (A reminder: an “A” alone isn’t necessarily the best result from a class. You’ll get much more value out of building relationships with classmates and with the professor and teaching assistants along with the good grade.)

If you come out of college with a solid GPA, a lot of professional contacts, and an interesting resume with a variety of activities and accomplishments, you’ll be primed to get a good job. That is the focus here above all else.

Q4: Renting a mailbox
I started blogging myself in August and ocassionally have readers or sponsors send me packages in the mail. This looks like it might increase a bit in the coming months, but practically we’re looking at two to four parcels a month, average. I feel a bit uneasy about always giving out my home address to people, many of whom I only know online and only a little at that. I would feel more comfortable with a PO Box, but am concerned about the cost.

The local post office rents their smallest size box for $13 per 6 months, which is quite reasonable, but it is significantly out of my way and annoying. I had a PO box there a few years ago and hated going there to see if there was anything I wanted, and the junk mail piled up so that it filled up fast and I usually had to wait in line to get a pile of my mail–most of it circulars that I would toss.

I’ve called around to most of the private mailbox rental stores in my area and the best price I could find is about $10/mo, which is significantly more, but they do have an email service to let me know when something comes and it is directly on my way to work. It is a local shop and I know the people who own it, and like supporting local businesses.

My question is, is it worth it to spend the extra to get a convenient mailbox (that’s $120 per year!!!) or should I go with the annoying but cheap option? Or not sweat giving out my home address for a few packages a month? I’m trying to save money and pay down my debt, not spend more. Am I making too much out of this? I would appreciate your perspective.
- Hannah

For me, it would really depend on the volume of mail I was receiving. If I was making a trip to pick up a package once a month, the trip out of my way to the post office would be worth it.

On the other hand, if this is a daily or a thrice-weekly occurrence, I would go for the more convenient pick-up option, even if it were more expensive.

Let’s say, for example, that the more convenient pick-up saves you ten minutes per package. If you’re receiving one package a month, that’s two hours (120 minutes) of time over the course of the year. The box is costing you $94 more than the post office, so you’re spending $47 per hour of time saved.

Now, let’s say you’re receiving packages three times a week. That’s 26 hours (1,560 minutes) saved by having a more convenient pickup spot. That breaks down to $3.61 spent per hour saved over the course of a year.

For me, the cutoff for something like this would be between $5 and $10 an hour, depending on environmental factors and other concerns. So, for me, if the packages were coming in much more frequently than weekly, I’d rent the more expensive and more convenient box.

Q5: Reading time
How do you find the time to read so many books? I find that a typical book takes me eight or ten hours to read. Where do you find the time for it?
- Angie

I make it an effort to set aside one hour each weekday for reading related to The Simple Dollar. I shut off all distractions and read a personal finance or a time management book.

Also, every single day, I set aside at least an hour devoted to reading for my own enjoyment or growth in other areas. I often exceed this because I’ll take a book with me whenever I go out and about, so I’ll get in fifteen minutes at the doctor’s office or something like that. Usually, this hour is in the evening when other households might be watching television or something.

This adds up over time. On top of that, because I’m such a practiced reader, I can read pretty quickly, allowing me to go through more books than I would if I didn’t practice so much.

That’s really all there is to it.

Q6: Thrift clothes for tall folks
I have been selling clothes on Ebay for about two years. I make about $500.00 per month and am looking for a way to earn more. In your article today you mentioned that tall clothing for men are scarce or hard to find, so that led me to wonder if that’s a niche I should research. If you don’t mind, my question is: how much do you pay in the thrift stores for shirts, tshirts, pants, shorts etc for tall men? This would also help me decide if buying these items for resale would be worth it.
- Alvin

Finding good tall clothes at thrift stores is completely luck-based, but when I do find them, they’re not usually premium priced over anything else. They’re usually hung on racks alongside non-tall items.

The question for you would be whether or not the additional time you spend seeking out good tall clothes that you could likely eBay at a small premium is worth it.

My perspective is that it probably wouldn’t be worth it if you were just hunting for tall clothes. However, if you use thrift stores as a general resource, identifying both tall and regular items that are sell-able, I think you could turn a reasonable profit. You’re essentially acting as a clothes filter in that situation.

Q7: To sell or not?
My fiance and I are living together in a house in Toronto, Canada, which we bought one year ago. We bought it for $415,000, which for our neighbourhood, is a great price. I absolutely love our community – very warm, supportive, good shops etc, and good schools (for the children we’re planning to have in the next 2 years). I’m 30, he’s 32. We have a great relationship (lots of love, and good teamwork), and I’m so excited for our life together. There are two issues for me: current stress based on our present situation, and difficulty knowing what to do for future planning.

Currently: My fiance has no debt (aside from our shared mortgage; $1800 per month, variable rate… a good one, just can’t remember the number at the moment). My fiance makes a good salary (80,000) and has started some investments for our future. Me, on the other hand, I don’t have a good track record for being smart with money, but I’m working hard to change that now in my life. I have a large student debt (40,000 interest at prime through my father’s line of credit, and a personal line of credit 12,000 interest at prime). In addition, my employment has been unstable (a difficult market at the moment for Social Workers) so I’ve been building a Private Practice (which I love, and wish to grow!). Luckily I have a small client base, and I’m working right now on increasing this through an Online Counselling service. I’ve also been working odd jobs part-time for extra income, but most of the money goes towards paying my debt payments, and not towards our life (which causes me frustration). And to top if off, we’re getting married in April … luckily with financial help from our parents… but we’ll have to cover a large chunk ourselves (10,000). I’m not sure there’s any more solutions, per se, for this current situation other than continuing to work hard and communicate with my fiance about finances. What do you think?

WIth regard to the future: as I mentioned, I love our home and our neighbourhood… and I don’t want to move anytime soon. I know from our friend’s experiences that house-hunting in this area is very difficult, and we’d never be able to find another home with these perks for this price. There were lots of strange factors that led to our home purchase, which I won’t go into now… but it was unique, and not likely to happen again. However, my fiance wonders if we should sell our home in the near future and use profits to pay down some of the debt (which I admit, is huge and weighs on us). If it were just me, I’d say sure… but given we want to start a family, I feel being in a good neighbourhood is more important. But I don’t want to push for staying here if there are reasons I’m not seeing which could damage our future financial situation. Finally, when we do have children, I will not be eligible for social assistance because of my unstable employment, therefore we’ll only have one income (and maybe some extra from my private work, if I can afford the time). If you have any insights or advice, I’d appreciate it.
- Claire

The thing you need to keep in mind is that working to pay off your debts is working toward your shared life. Every hour you spend paying down those debts is an hour that will eventually improve your situation. It reduces that debt load and also brings forward the date that you’ll be able to be rid of all of them.

I am worried that you are living a bit beyond your means. The debt load you have is pretty high, you’re working at a job that seems to be relatively low income, and you’re spending more than $10,000 on a wedding.

If you’re feeling like your debts are insurmountable, which seems to be the reason you wrote this, part of it might be your lifestyle level. There are ways to reduce your lifestyle level without selling your home, particularly if it is somewhere you want to live long term.

Q8: Car search in new location
At the end of October, we moved about 150 miles away from our then current home to pursue a new job in a new market that offered significantly more opportunities then where we were. Along with it came a 50% raise (and minimal increases in living expenses) – plus my old job (that I quit to move) is still paying me to consult. In a lot of ways, I have more money than I’ve ever had in my life and projects that were on hold (new bed for the kids, clothes, etc) due to money are finally getting fulfilled.

However, being 150 miles from “home” has presented its own difficulties. We find ourselves driving back to visit family and friends every couple weeks (especially during the holidays). However, because everyone we knew was within 20 miles of us, our car was never purchased with all the miles we’re putting on it in mind. Plus, it’s not all that comfortable for long trips, and lacks adequate trunk space for packing for overnight trips.

So here is the basis of my question(s): how do we even start the car searching process? I want decent gas mileage and decent leg room in the cabin and would like something we can fit more than a few blankets and a suitcase into. Since it will also be my wife’s primary vehicle, reliability is a must as well. I have to admit, I’m overwhelmed just looking at the options and not sure where to start.

The other half of my question is: We had to take out a small loan (4,000) to move here – knowing we would be able to pay it off quickly. I have the money to pay off the loan, plus some savings, plus some extra money in my checking account, which would give me about 10,000 to pay on a vehicle (if I didn’t pay off the loan). Would it be better to pay cash for the vehicle and make payments on the loan, or better to take out a small loan for the vehicle and pay off the moving loan? I have no idea what interest is on a car loan (have never had one), but the moving loan is at 11%. Otherwise, the only other debt we carry is school loans which are currently in deferment.
- Fred

Your best move would be to pay off the loan, buy a lower-end vehicle that you can afford to pay for with cash, and then start saving right now to replace it. That way, you avoid debt, which is just money lost to the bank, and you also avoid depreciation on a higher-end car.

As for your specific car choice, we find ourselves in a similar boat. All of our extended family lives about four hours away from us, so we often find ourselves on road trips to visit people. That’s a long car ride, particularly with three kids.

What we’ve found is that the two most important factors on the trip are reliability and fuel efficiency, assuming that we have minimum space for our legs and our belongings. Most of the time, we make that trip in our Prius, which gets great gas mileage and is very reliable. It has enough leg room for me, too (I’m 6′ 6″).

I’d suggest just going to the lot and focusing on fuel efficient cars that you fit comfortably into. Test drive a few to get an idea of what you like in terms of comfort, then shop around for the best deal on some of the models that fit your needs.

Q9: Sell now or later?
I am potentially facing the issue of selling my condo at a loss or renting it out at a loss. I have applied for a job within my current organization in another city roughly 1.5 hours away so commuting for me would not be an answer. The city I would be moving to is a lower cost of living area but my salary would also drop approximately $5000.00. I figure I will be bringing home $1450 ($200.00 less) every two weeks after taxes and pre-tax items. I have lived in my condo for 5 years, but I just refinanced in April to a 20 year mortgage with a 4.875% interest rate.

If I would sell today I think I would break even on what I owe on the mortgage $140,000; however, to pay realtors, closing costs etc. I think I would have to bring $8,000 to $12,000 to the closing table. I have that amount but I would be left with little or no emergency fund. If I try to rent the condo I would probably get $1100-1125 per month in rent. My known costs would be the mortgage of $1048, condo fees of $335 and payment to someone to manage the place of $125. I would be short approximately $485.00 per month. I believe I can make up the $485.00 by changing some lifestyle habits, not paying extra principle on the mortgage and cutting back on saving for a new car which I will not need in the next 4-5 years.

The big kicker is if I took this job it would probably only be for 5 to 7 years and I would likely move back to where I live now and move back into the condo if I keep it. Strictly on the basis of money would you sell at a large loss now or have the losses over a few years? I don’t expect rents to go up that much because of the size of the condo, the lack of a dishwasher (I can’t add one) and the laundry is down the hall. Also as an FYI the condo is not underwater but I have lost approximately $75,000 (all equity from the sale of a previous property I put in at closing) in value since my purchase.

In the new job I would be doing what I actually want to be doing in my career right now. I would be away from a lot of the bureaucratic issues I am facing right now and I would get out of a job situation that I am not a 100% happy in. The job is in a city I use to live in. I have friends there, a church family that I miss and I will be closer to my immediate family. I miss the sense of community I use to feel in that city. There is a lack of that in the metropolitan area I live in right now.
- Connie

The decision of whether to sell would hinge on a lot of factors that you haven’t really specified here.

How likely is it that you’ll move back there in five to seven years? Are there other opportunities besides the career path you’re on that would cause you to move back there? How is the market for rentals in that area? Are there a lot of rentals sitting unoccupied or are they in high demand? How much of a shortfall would there be on the mortgage payment if you rented out the property (after taxes and after management fees, assuming you go that way)?

The less likely I was to return to the area, the more I’d lean toward selling. The more likely I was to rent it, particularly at a price that would pay most of or all of my mortgage, the more I’d lean toward keeping it.

This is one of those situations where there is no strict right or wrong answer because we can’t see the future. We don’t know where our path leads. All we can do is give it our best guess and move forward from there.

Q10: How do you find bargains?
What I’ve never really been able to understand about frugality is how people find all of these amazing bargains. Let’s say I need a new kitchen knife. I do some research and find some potential knives that I might by. Then, I go on amazon and a few other sites and find prices and then I do the same thing in local stores. Usually, I just buy the lowest priced one I find, but I never seem to find these amazing discounts people seem to find. How do they do it?
- Darla

When you hear about a big discount, it’s often on an item that the person wasn’t necessarily planning on buying. They just happened to find that bargain, had enough sense to see it for the bargain that it was, and had the resources to pounce on it.

It gets much trickier when you’re looking for a discount on a very specific item. The more narrow the item you’re looking for, the harder it is to find a big bargain in that specific area.

What I often do is wait. If there’s an item I would like to replace but I can hold off for a while, I sit on it and look for a bargain for as long as I can.

Sometimes, it pays off. For example, I mentioned how I waited around for the right price on a blender. Our old blender had a broken lid (which meant that it would splatter if you used it) and a motor that had a very loud whine to it that started after my son dropped it on the floor. However, it was still usable, so we kept using it. I started watching a variety of places very carefully for a discount on a really good reliable blender that wouldn’t easily break and might survive a bump and would also blend anything we threw in there (our old one was dodgy at times when it came to blending perfectly), but I knew I could just go buy a $30 replacement for it at Target if we needed to switch it.

What happened? After some waiting, I found a wonderful new blender on sale at a local food store that was going out of business and had marked it way down – something like 70% off the sticker price. About a day after that, I found an even better price on Craigslist for a similar blender.

People find bargains through a mix of serendipity and patience. You can’t wake up one morning and expect to find a huge discount on the specific item you want.

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

Yesterday, my wife and I took a long walk in the park with our kids. The grass was green and there were people jogging and riding their bikes.

We stopped at the playground and played for an hour. Several other kids joined them at various points.

This is mid-January in Iowa, remember.

Q1: Trading cars before a move
In May 2011, I bought a 2008 Certified GMC Acadia for $28,5000. Currently we are paying 2.5% APR loan, a very comfortable $400 monthly payment, and owe $16,000. The problem is my husband just received news we are moving to Italy. Italy has small roads, lots of mopeds, and tiny parking spots. A SUV that has a lot of blind spots is not ideal when it comes to driving in traffic, mountain areas, or parallel parking in the city. Not to mention the likelihood of accidents and the high cost of repairs in not good. I also have a child and back issues. So considering all of this I am thinking about trade-in my GMC Acadia for a BMW X3 or something similar. My car is on only worth around $23,000. A total depreciation of $5,500 in 8 months. We do not have time to private sell, only about a month til we ship the vehicle. Am I making a huge mistake trading in the car? Can I ask the finance company to finance the other car, and will the dealership trade in a more expensive car for a cheaper one?
- Kelsey

I agree that large SUV is really not a good choice in that environment. If I were in your situation, I would probably sell the Acadia.

Your challenge, of course, is the short time frame. If I were you, I would list the vehicle on Craigslist immediately for something approaching the list value of the car. We purchased our car on Craigslist and were able to go from listing to completed purchase in about two weeks, so you do have time for that.

If that doesn’t work for you, your best option is probably to trade in the car. You’re much more likely to get some value approximating the trade-in value in the United States rather than in Europe, so I would trade in the car for something smaller before I left. If you downgrade enough, you should be able to make the trade-in work without incurring a big lump sum expense.

Q2: Handling an old retirement account
My husband had a retirement account for his post-doc that ended in march. It was in a TIAA-CREF account. We are no longer making contributions to it and am wondering what to do with it. We will be leaving the country in 2012 and will be working in a different economic structure, therefore, we don’t know our future regarding coming back to the states or staying out. I think the balance last we checked was around $8000. We also have a state fund with maybe $300 or something in it. I honestly have no idea how these things work and the money is sitting. What would you advise us to do?

Our finances are simple: $1800 monthly income, about $1200-$1300 expenses, $6000 in student loan debt at 1.65%. no other debt/expenses.
- Monica

I would leave the money for the time being. When you reach an appropriate retirement age, you can withdraw it as normal income in the United States.

The other option would be to empty it out right now, but you’re going to take a tax penalty for doing so. From what you’ve described, there really isn’t any sort of rollover option that would provide you any real benefit.

I would just leave the money there and consider it a start on your retirement. You’ll be able to get the money out of it wherever you’re at.

Monica had a follow-up question.

Q3: State income tax after leaving
Leaving the country, we are required to pay income taxes. I’m aware of the $92000 income limit on federal tax exclusion on foreign income. Virginia (where we live, we rent) requires tax on all income, regardless. This is what I know. However, we will be leaving and probably will forward mail to my parents (who live in VA). Would you happen to know how this works? We don’t own property and won’t rent so technically we aren’t residents anymore. Does that mean we still need to pay VA taxes?
- Monica

In order to maintain U.S. citizenship, you have to continue to file federal income taxes each year, and you’ll have the income tax exclusion you mentioned.

However, it is often very difficult to get rid of your “tax domicile” status in states once you move abroad. You will need to remove all evidence of your residence in the state, including voter registration, addresses, your driver’s license, and so on.

If I were you, I would consult a Virginia tax attorney to help with this process. The cost of it will be more than made up by the taxes you’ll save by doing this correctly.

Q4: Student loan repayment plan
I’m a 25 year old college graduate that took out $29,500 in student loans (no credit card debt). In 28 months of repayment, I’ve gotten my outstanding balance down to $17,925. I’m fortunate enough to be able to afford my payments and even have some money left over to eat and have fun, but I want to start paying down this debt aggressively, and I’d like some help gaming the system. I’ve been running some numbers, but I’d appreciate getting them double checked by someone who knows a bit more than I do about the subject.

Now for the numbers (rounded to the nearest $5):
$3,545 @ 4%
$9,790 @ 4.538% (weighted average)
$3,180 @ 6.55%
$1,410 @ 2.625%

My current minimum payments are $277.53 and I’ve decided I can pay an additional $300 every month (which I’ve been applying to the loan with the highest interest rate). No matter what my minimum payment becomes, I’m going to continue paying $577.53 per month and applying the excess to principle.

The last three loans I listed are serviced by the same company and I’m eligible for an income contingent loan repayment option that would cut my total minimum payment to $173.40 (and possibly extend the repayment term up to 25 years).This seems to be the best option to me because what I didn’t tell you is that I’m planning on applying to graduate school in fall 2012 and will (hopefully) begin school again before my loans are fully repaid (in which case the lower monthly payment will be really helpful). Or should I consider consolidating all my loans and just pay that down aggressively.

Lastly, is there any way I could get in trouble for what I’m trying to do? I can’t imagine that I would, but I don’t want to get blind-sided by something I can’t imagine.
- Lily

You should not consolidate your loans into a loan with a higher interest rate than any of the loans you consolidated. So, for example, unless the consolidation offer is less than or equal to 2.625%, I wouldn’t consolidate that bottom loan.

The reason for this is that the higher your interest rate, the more you’re going to pay over time to that financial institution in pure interest. You want to do what you can to minimize that interest.

If you’re not sure you’re going to be able to cover the payments in graduate school, save that additional $300 a month for now and use it to have a healthy emergency fund.

No, you’re not going to get in trouble for any sort of consolidation that you do.

Q5: Unexpected job offer
I have been at my current job for 6 months and I love it, but the pay is not great but I knew that going in and is enough to support my family especially when my wife finishes nursing school.

Recently though I have been approached by 2 separate companies about working on the private side in the same field for considerably more money. These jobs would require a few more hours and less flexibility. I was not searching for the jobs and had no idea before hand that they were available. They both would have me doing almost the exactly the same things in the same area.

If the money was not a good bit better I would not consider them because I am happy but that kind of pay increase would make a difference. MY main hesitation is I have only been here 6 months and don’t want to burn bridges because the new jobs would interact highly with the people I work with now.

Should I pursue these offers or stay? I would hate to leave and regret it if there is something I do not like. I would also hate to stay and wonder what if.
- Annie

You never have to burn bridges when you leave one position for an obviously better position. If you’re open and candid about your reasons for changing positions, virtually all rational people will understand. If you leave in a way that makes the transition easy for your previous employer, that’s even better.

That doesn’t answer the question of whether the grass is greener on the other side of the fence, though. If you have enough to support your family, is the additional money worth the risk of having a worse job environment?

I can’t answer that question for you, but if I were in your shoes, I would lean toward sticking with the good thing.

Q6: Job change and unfinished mortgage
I’m soon to begin the final semester of my Master’s degree program in Public Administration. With this goal nearly accomplished, I (along with my wife) am facing a difficult decision in looking for a new job. I am interested in entering the field of city management upon graduation. Initially, this change is likely to force us to move to a smaller, more rural community. We currently live in a suburb of the Twin Cities metro area. While I’m not so concerned about the culture change, I do worry about the housing situation in potentially having to continue paying the mortgage for our current property while also either renting or purchasing a home in a new area. Is there any advice you can give on making such a transition given the current housing market? Would we be wise to try to find renters for our current home or put it on the market as soon as we know where and when we may be moving?
- Ron

I would put it on the market now, actually. List it for the price you would like to get, then gradually lower it as your expected moving date nears.

If you get it sold for the price you want, just move into an apartment for the remainder of your stay in the Twin Cities. It will have been worth it because of the extra money made from the sale and the fewer months spent paying interest on your mortgage.

Also, the longer it’s on the market, the more likely you are to simply find a buyer, which can be difficult in the current housing market.

Q7: Reconnecting
Is there really value in reconnecting with people you haven’t seen in a long time? I recently got an email from someone I used to work with but haven’t seen in ten years. She’s coming through town in a few weeks and wants to know if we can have lunch somewhere. I’m trying to figure out if this is even worth my time for my career. Any thoughts?
- Lindsay

If you have no interest in seeing this person beyond a questionable amount of career improvement, it’s probably not worth the time. You’d be better off spending your lunch shoring up a connection you actually value than this one.

Having said that, there is value in maintaining professional connections, even ones that don’t seem to be specifically beneficial to you at the moment.

I’d ask myself if there was something better I could genuinely do for my career during that lunch than meeting with the old contact. If there is, I’d do that. If not, I’d meet that person for lunch.

Q8: 401(k) loan for debt?
I hope you have time to answer this question. Here’s the info: I have some credit card debt. $2500 on one card with 10% interest and $2000 on another card with 8.9% interest.

I am considering taking a loan from my 401K of $2500 to pay off the one credit card. Then I would concentrate on the other one, making $500 payments per month to pay it off.

The 401K loan would be for 6 months. The interest would be $67 and the fee to take out the loan would be $100. The payments would be automatically deducted from my paycheck.

I have $1400 in a savings account and approximately $100,000 in my 401K and IRA.

Part of me thinks I should take the money out of savings, pay down the smaller amount and keep paying monthly until it’s paid off and then focus on paying the other one and NOT take the loan.
- Elizabeth

I would not take out the loan. 401(k) loans work okay if everything goes perfectly, but even in that case, you’re still borrowing money to pay off other borrowed money. You’re not really getting ahead.

If it doesn’t go perfectly, the drawbacks can be pretty bad. The interest you paid already is lost. The loan is taxed as normal income, plus there’s a 10% penalty that you have to pay to the IRS. That’s far worse than the small amount of interest you’re saving.

If I were you, I would keep at least $1,000 in savings, use the extra $400 to pay down the loans, and just focus your energy on wiping them out through small steps and good choices.

Q9: Which insurance policies?
I have recently (November 2011) transitioned from a full-time position to three part-time (online) positions in order to allow me more flexibility (while I complete my doctoral dissertation). My wife is stay-at-home mother to our (almost) six children. We expect to remain in this situation for up to 6 months. Each of the current income streams are considered part-time employment (W2; not 1099). None come with benefits.

I’m comfortable with not contributing to any retirement plan during this short-term situation (particularly since its a 40% pay-cut for the short term). My concerns and inquiry relate to insurance coverage.

We currently have health insurance in the form of a HSA account with a HDHP. That was/is separate from my employer. We lose vision/dental coverage and I’m comfortable with that for the short-term. Life insurance plan (both the base employer-provided plan and the additional rider) are gone (at least I assume they are). Disability insurance plan is gone. I do have a liability policy that was/is separate from my employer but it specifically notes that it is secondary to the policy previously provided by my employer.

During these next 6 months, what sorts of policies should I be getting?
- Robbie

If you have six children, you absolutely need life insurance coverage. You need a term policy that will take care of those six kids in the event that something happens to you. This is without question. Get this now and don’t relinquish it even after you’re employed.

The other plans are more or less connected to the actual state of your finances at the moment. I’m not clear as to whether you’re going to be struggling to keep your head above water during this period or if you’re spending far less than you earn. If you’re cutting it close, the one I’d consider most strongly would be the disability plan.

The biggest thing you need to be concerned about is making sure those kids are protected if something disastrous happens to you. Life insurance is the 800 pound gorilla here.

Q10: Best books of 2011
Over the past few years, you’ve often made a top ten list of the books you’ve read from the previous year. Did I miss it or did you make one for 2011?
- Charlie

I did make such a list for 2011, but I posted the list over at my other blog that focuses on my other writing endeavors and non-personal finance stuff.

Anyway, here’s the list. It’s the ten books I read that were actually published in 2011 that I have a desire to read again at some point. Pretty simple, huh?

Steve Jobs by Walter Isaacson
1Q84 by Haruki Murakami
Moonwalking with Einstein by Joshua Foer
REAMDE by Neal Stephenson
Ready Player One by Ernest Cline
The Information by James Gleick
These Guys Have All the Fun by James Andrew Miller and Tom Shales
A Dance with Dragons by George R. R. Martin
Blue Nights by Joan Didion
In the Plex by Steven Levy

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

My salary at the time of this realization was about $40,000 a year, so let’s use that as a baseline.

Now, on the surface, that’s really good money. If I worked 40 hours a week for 50 weeks a year, I would be earning $20 an hour, right?

Well, that’s not entirely true.

First of all, we have taxes. Federal income taxes, state income taxes, and FICA taxes. Federal taxes would eat about 11% of my paycheck, state taxes would eat about 4% or so, and FICA would eat about 2%.

Second, I had to pay for my commute. This was about ten miles each way, and it was the primary reason I owned a vehicle. So, let’s tack on top of that a monthly car payment of about $200, about $40 a month in gas, about $30 a month (prorated) in maintenance expenses, and about $40 a month in insurance, just to keep that car on the road.

I also had to wear a nicer wardrobe. I spent $200 a year to make sure I dressed appropriately for meetings, conferences, and the like – and that’s a low-end estimation.

There were at least two meals eaten out a week, costing $10 each. There was travel about three times a year where many of the expenses would be challenged, meaning each of those trips set me back about $100 out of pocket.

Not only that, there were a lot of times where I would put in extra unbilled hours to meet a deadline. I easily averaged 50 hours a week there.

Plus, there’s the time spent traveling – another 50 hours spent places where I didn’t want to be per trip. There’s the time spent commuting – about 40 minutes per day. There were also work-related meals and other activities to attend, eating down another four hours per month.

When you start running the math on this, the equation starts to change.

After receiving my $40,000 salary, I’d pay out $6,400 in taxes each year. I’d pay out $3,720 in commuting costs each year. I’d pay out $200 in wardrobe costs each year. I’d pay out $1,000 in extra meals each year. I’d pay out $300 in extra travel expenses each year.

Suddenly, my $40,000 salary became $28,380, just like that.

Now, I’d work 40 hours a week, totaling 2,000 hours per year, right? On top of that, I’d add ten hours of unbilled work a week (over 50 weeks), three hours of commute a week (over 50 weeks), 150 extra travel hours a year, and 48 extra hours of activities a year. This would bring my total up to 2,848 hours, or an average of 57 hours a week spent devoted to my job.

My job is suddenly paying me less than $10 an hour.

Of course, there were other job benefits that had some significant value, but frankly, I wasn’t actually using them. My wife and I sat down and compared the health insurance offerings at our two jobs and her insurance was far better than my own, so we used her insurance. I had no use for their life insurance option, either, and their retirement plan wasn’t particularly strong. These things do have value when you’re comparing jobs in this way, but only if you’re using them.

Amazingly, I was actually earning more money that I could keep with my part-time job as an undergraduate. I earned $12 an hour. There was no travel costs, no wardrobe costs, no extra activities, no unpaid work (I kept a diligent timesheet), no commute (I worked really close to where I lived). I would be left with more than $10 per hour working at this job.

On a per-hour basis, my part-time job in college was more lucrative than my first “good” job after college. It was also certainly less stressful and far less intrusive on my time.

One of my closest friends at the time made $7.50 an hour working at the night shift at a local gas station right after college. The gas station was just down the block from his apartment, and he’d spend most of his time there reading or practicing his sketching, as he’d have a customer maybe once every fifteen minutes. He didn’t have a car and on the rare occasions where he needed to go somewhere, he would just take the bus for a quarter or two.

It often seemed that he had more money to spare than I did. At the time, I thought it was just an illusion, but when you start running the numbers this way, it’s not entirely surprising, particularly if he was paying lower rent and lower utilities than I was.

It was realizations like this one that convinced me to make a scary career leap and start working on my writing full time. Doing that meant that I no longer had a commute (saving on car maintenance and fuel and time), nor any wardrobe costs, nor any eating out costs. My time spent on work was actually spent on work. There was no more travel – I’ve only been tempted to travel related to it once, and that one time was cancelled due to a family illness.

On the surface, my salary dropped through the floor when I made this move, but when I started running the numbers like this, I began to realize that my hourly income really wasn’t going down that much.

Whenever you’re thinking about your next job or your next career move, you need to think through these kinds of things. Often, a job that looks like it earns you great pay or is a great opportunity really isn’t either, and a job that seems like you won’t be earning much actually leaves you with a lot of money in your pocket. When you take into account things like stress and schedule flexibility, sometimes the “low-end” job is just the job for you, particularly if you’re simply working to earn a paycheck and are focusing your energies on making a side business or another opportunity get off the ground.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

When I’m writing, sometimes I write in Microsoft Word and other times I write in a normal text editor. There are things about both that I do not like – Word often interferes too much, and the text editor interferes too little.

I’ve tried lots of writing programs over the years and they all fall on one side or the other of that fine line I’m always looking for. There are some online text editors that are very close, but there are a lot of things I write that I don’t feel good saving online.

One day, I’ll find the perfect program. Until then, I’ll just switch back and forth between the two options I have now, depending on my task.

Q1: Mess of debt and taxes
I’m a 29 year old woman. I was in a relationship for a number of years with someone who was horrible with finances. There are a few issues regarding some financial decisions that I made that will result in my tax bill being quite large. The first thing was, I let my desire to make him happy overshadow my common sense and acquired a large amount of credit card debt in my name. I broke things off and he, of course, left me high and dry to handle the large credit card bills alone. I just didn’t make enough money to pay off all of the debt on my own.

There were quite a few credit cards, so I made the decision to stop making payments to the larger cards and paid off the smaller balance cards one by one. Then I reached settlement agreements with the few larger cards. I’m going to have to pay taxes on the forgiven amount, around $17,500 in total, which is the first item that will affect my tax bill.

The second issue is I bought a house, ugh, if only I could go back. Anyway, I ended up doing a short sale and roughly $10K was forgiven by the lender. Also, I got the $8K tax credit and didn’t live in the house for 3 years, so I believe I will be required to pay that back as well. The last piece of the puzzle was a 401K loan. I took it out for the down payment on the house, because I thought my job was secure (I had worked for the same company for 7 years). Then in October my company decided that they no longer wanted me to work remotely and asked me to move back to San Diego, I live in Milwaukee. I respectfully declined, since the reason I moved was to reduce my living expenses and to be closer to family.

No longer working for the company meant I either had to pay back the 401K loan, which I didn’t have the savings to do after dealing with all of the credit card debt and the expenses associated with keeping my house and property in shape while I was trying to sell it. I transferred my 401K into a Fidelity account, the loan was paid back but I’ll still have to pay taxes on the $13K that I still owed on the loan.

In summary, I have to pay taxes on the $17,500 in credit card debt that was forgiven, the $10K that was forgiven by the mortgage lender, the $8K tax credit and the $13K 401K loan. Obviously, this is not a pretty picture but it’s the last financial hurdle leftover from my previous poor financial choices. I’m planning to hire a tax accountant to help me make sure I get every possible deduction, but I know it’s still going to be a hefty bill. I’m still unemployed, so paying it back won’t really be possible currently but I’m hopeful I’ll get a new job before I file my taxes.

My question is about whether you think I should use the money I rolled over into a Fidelity account to pay off as much of my tax bill as I can. I only have about $13K, so it would wipe out all of my retirement savings and I’d still owe more. Obviously, I won’t use the money in my 401K if I’m still unemployed, but assuming I’m employed and I’m able to get some savings together would you recommend I use my 401K money to pay down my tax bill? Or should I just set up a payment plan and not touch my 401K? I recently began a new relationship with someone who makes much smarter financial decisions, luckily, and I want to take care of my financial issues sooner rather than later so they don’t hinder the progress of our relationship (he’s aware of my pending tax issues and the past poor financial choices I made). I just want to make a smart decision in handling this last issue and would like some advice. What do you think I should do?
- Monica

If I were you, I would set up a payment plan as soon as possible so that you’re not paying anything late. The EFTPS program actually makes this pretty easy. You can get started with EFTPS here.

Believe it or not, even though they have a bad reputation, the IRS is often willing to work with taxpayers if they’re also willing to play ball.

It sounds like you’re trying to make this right and being proactive about it. You’ll be fine.

Q2: Renting out a room
I bought my home 2.5 years ago and have rented a room to a friend for most of that time. I anticipate that my friend/roommate may want her boyfriend to move in with her sometime soon. I’m not opposed to this as it would be another person to split bills with and he is a nice guy. What might be an appropriate way to think about how to charge them? The current deal is $500/m plus 1/2 utilities (up to about $120 per person in winter or summer, more like $60 per person the rest of the year). He would be living with her in the room she’s in now, so not really taking up more space in the house but it doesn’t feel right to have him live there for the same rent that just she pays. On the other hand double the rent to $1000 plus 2/3 of utilities seems overly harsh. What should I consider when trying to find a fair middle ground here?
- Jill

I am always uncomfortable with situations where there’s money and friendship involved, particularly when one person is the lender (you, here, in essence) and another the borrower (your friend, in essence). You always have to tread carefully in these situations.

If I were you, I would not double the rent. Are they going to be using any more real estate than they were using when it was just her? How much more? I’d think about that and raise the rent proportionately, if at all. You may also want to think about property taxes and such – if they’ve gone up a little, a slight bump in rent might be appropriate.

If you do raise the rent, I’d explain exactly why in very clear terms. If you’re clear about why you’re raising it, particularly when there’s now an additional renter in the equation, you should be fine.

As for the utilities, I think equal shares among all of you is fair. All of you are going to be using energy, heating, cooling and so forth. Those bills will go up.

Q3: Settling on retirement philosophy
I am having somewhat of a philosophical crisis with regard to saving for retirement in general as well as the specifics involved with being overseas.

First the general: In reading many of your mailbags, you often praise the tax-advantaged instruments (either tax-deferred or those with reduced or no tax on withdrawal) for retirement savings while at the same time pointing out the inherent problem with trying to guess future tax rates, future income and other conditions which would affect the choice. Also complicated the thought process are the various options for actually investing the retirement money: funds, bank accounts, pension plans incl. annuities etc. I was feeling confident with my choice but I feel like the fees are too high to justify the continued investment in front-load mutual funds, not to mention the fact that active funds rarely beat the market. Finding ETFs for retirement funding is next to impossible here. Maybe the correct path would be retirement insurance/pension plan, but they may be too conservative.

The path I am on now is investing in a fund-based “Riester-Rente”, which to summarize is a grant-aided annuity plan. The grant essentially acts as an alternate tax deferment mechanism, but is otherwise similar to a traditional IRA in most respects. The major problem, though, is that if one is not taxed in Germany during retirement, any grants and additional tax deductions provided must be paid back. Since I can’t even guarantee that my family will be in Germany much longer than another 5 years or so (gotta go where the work is ;-) ), I cannot see investing 30 years into a tax deferred instrument only to lose that significant advantage in the end. The other issue is that the invested capital is simply lost if I were to die after retirement, similar to many annuities in the US.

I think, in the end, the major problem is information. I try to approach things empirically and I think this may not be an empirical question, but rather an emotional question about motivation. I am just unsure of the correct way to go. What is the correct general philosophy when planning for the future?
- Carl

I agree with you that the major problem is information, both in the sense that we have imperfect information concerning the world around us and no information concerning what unexpected events will happen in the future.

For my own retirement, I’m hedging my bets. I have money both in pre-tax investments (401(k)s and the like) and post-tax investments (Roth IRAs).

We don’t know what the future holds, so I think that diversity is the best option. If you have retirement money in both pre- and post-tax investments, you’re doing the right thing, in my opinion.

Q4: Long games
Over Christmas break, one of my brothers brought home a board game called Twilight Imperium. We usually play a few games of Risk over break, but he told us that Twilight Imperium was way better. And he was right. It was awesome.

The only thing is that the games took about six or seven hours to play. Most of the time, I don’t have that much time to put aside for a game like that.

Have you played Twilight Imperium or any other game that long? How do you find time for it?
- Luke

I’m in a weekly gaming group that meets at the house of a close friend of mine. He has a spare table in one room of his home that he allows us to leave games on during idle weeks.

Thus, if we were to meet at 6:30 or 7 (which is our usual meeting time) and play Twilight Imperium (for example) for four hours, we could just leave the game on the table and return to it next week, finishing it up.

You could do this in your own home if you have an extra table to spare for a while. Set up a game, play it for a while, and leave it. Once upon a time, my roommate and I would do this with a chess board, leaving an ongoing game in the living room all the time and making moves after giving them sufficient thought.

Q5: Hotel disappointment
The recent new years eve my wife and I went to Disney World at the request of our son. I searched out a room online based on price, location, and reviews. When we got there the room turned out to be less than we had hoped for but served the purpose. We definitely would not recommend it to any of our friends. If we go again I will probably spend the $ and stay at one of Disney’s “value” resorts unless you or your readers have a better suggestion?
- Andrew

Any time you stay in a hotel without having actually visited it first, you’re taking your chances. A hotel might be beautiful in January, be sold in February, and be sort of run down by May if the new owners aren’t committed to it.

I generally give lower value to hotel reviews that are older than about three to six months. There is ownership turnover, staff turnover, and countless other things that can change a hotel’s standards and conditions in that timeframe.

How do you protect yourself against it? We usually chase price, but there have been times where we’ve either just refused to stay at a place or deeply regretted it.

Q6: Future state retirement benefits
I’m vested in the Florida Retirement System (FRS) for government employees. I no longer live in Florida, and am not contributing to the system or earning additional benefits.

I’m entitled to a small monthly pension. I intended to wait until age 62 before collecting it. At my current age (57), I could claim early retirement and receive a reduced pension. (The benefit amount is reduced 5% for each year my age at retirement is under normal retirement age, which is 62. Retiring at age 57 would reduce the benefit by 25% [5% multiplied by 5 years].)

I’m self-employed and don’t need the money for current living expenses. I’m in good health. However, FRS is not completely funded, and its website warns that the legislature may reduce future benefits.

I’ve asked friends in Florida (FRS retirees) whether they think this is likely to happen. One says she doesn’t believe so; the other urged me to file for retirement benefits now to lock them in. I’ve done some searching online but don’t have a good sense of the political climate in Florida.
- Marjorie

If I were you, I’d ask about the statements on that website in more detail. Their phrasing makes it unclear whether or not they would just deny new beneficiaries or they would cut benefits from applicants or both. I would clarify the possibilities of what they could do and then make a decision based on that.

One thing I’ve learned about government is that, if they think they can get away with it and be re-elected, they’ll tap any source of money they can find for their pork projects. I have found it best to never rely on something that is promised to me as a benefit by the government. If I get that benefit, great – it’s a wonderful perk. I plan as though it’s not happening, though.

You’re lucky enough to be in a situation where it won’t break you one way or another, but an awful lot of people aren’t that lucky. My advice is that if you’re older and reliant on such government services, live lean and get yourself in a situation so that you’re as independent from the money as you can be through savings. If you’re younger, fund your retirement.

Q7: Lacking the “spark” for change
I enjoyed your article this week on the motivation to improve one’s situation. In the article, you take the perspective of an individual who is attempting to help or motivate a third party. My question comes at this issue from the point of view of the individual being motivated.

Personally, I feel that I lack the ‘spark’ that you speak of, to instigate lasting change and yet there are changes that I wish to make in my life. I am seeking that spark.

How would you recommend capturing this energy for someone that does not come by it naturally, but wants to make changes?
- Nate

I think there’s a difference between something you’d really like to do and something that’s a life-changing situation.

I struggle with this myself. There are a lot of things that I’d love to be able to do with my life, but when the rubber hits the road, I can see clear separation between the goals that are just ones I’d like to do and the ones that I feel are really central to my life.

The ones that are life-changing don’t come along nearly as often as the others. I usually find that they burst into my life when I finally hit some sort of “bottom” related to that thing, where life grabs me by the chest and demands that I make a change.

Keep doing things and living life. Eventually, the important things will reveal themselves.

Q8: Taxes and online work
I’m trying to pay off my credit card debt and save a large chunk of money this year. I feel like I’ve cut all I realistically can at this point, so I’ve been searching online for ways to make extra money – even an extra $100-200 per month would help out immensely. I’ve come across options like MTurk and usability testing like usertesting.com which seem like they can provide the possibility for some additional income. My question is not around these two examples specifically, but online endeavors like this in general in relation to taxes. Most places put the burden on you to file your taxes, and I’m wondering if you think there is a specific threshold where it actually makes sense to invest the time into these things to make the extra money, or if the tax part of it is not worth the potential of a few extra bucks?
- Jeff

The tax part of it is pretty simple, especially if you use something like TurboTax. You usually enter one line on one form, your total taxes go up by some percentage of what you earned from the endeavor, and you either get a bit smaller refund or have to pay in a bit more.

The challenge with endeavors like MTurk is to recognize that you’re going to – at best – earn minimum wage for the time you invest. The advantage is that you can do it irregularly. You can do it during commercial breaks or when you have insomnia or when you’re using the restroom.

In some situations, I think things like MTurk can be a real help to people who need some extra income very quickly.

Q9: Renting for long road trip
Trent, just read a piece you wrote about renting a car for a long road trip a couple of years back. I liked the math, but how did you convince a rental car company to let you make that long trip? I am planning a trip from Missouri to Florida, where the car will set in a lot for a week while we take a cruise.
- Andy

It was fairly expensive, but the advantage was that it enabled us to take only one vehicle on the trip, whereas without the rental we would have had to take two vehicles. Once we did the math on the gas, maintenance, and wear on two cars, the single rental became the better option.

There really wasn’t much convincing with regards to the long-distance drive and the rental agency. They said “sure” and tacked on another fee.

In your situation, I would run the numbers and see if a flight wouldn’t be a comparable option. In our situation, we had a group of seven uf us traveling from Iowa to Texas, so flights from Des Moines to Dallas for seven would have been cost prohibitive. For two or even three people, the equation may be different.

Q10: Caucus thoughts
You’ve mentioned a few times that you attend the caucuses in Iowa. What is that experience even like? I know that the candidates campaign in Iowa for a long time before the caucus. What are your thoughts on that whole process?
- Will

It depends on whether you’re attending a Republican caucus or a Democratic caucus in Iowa. I’ve attended both.

With a Republican caucus, it’s pretty straightforward. All of the attendees sit in the same room. They announce the candidates, then volunteers are able to speak for five minutes on behalf of each candidate. After that, there’s just a ballot vote, followed by a very open counting of the ballots.

With a Democratic caucus, things are different – and much more entertaining. At a Democratic event, there are no chairs. Instead, everyone stands around while a representative from each candidate gets to speak for a few minutes. After that, you simply go stand beside the representative of your preferred candidate. Then, they dissolve all groups that have less than 15% of the people in the room and those people have to pick another candidate. During this process, there’s usually a lot of politicking and pleading and the room can get quite loud.

The process is really fun, though it does usually feel like the culmination of several months of craziness. If you’re registered for a party that is having a contested caucus, you’re absolutely inundated with political mailers, robo-calls, push polls, and other such things. That’s been our experience, anyway.

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

How long does it take for you to stop dating checks and other documents with the previous year after the calendar flips?

I’ll admit that it will probably take me most of January to get used to writing 2012.

Q1: Investing in light of default
I have a small IRA, with half in a mutual fund, which has topped out, and the other half in two stocks which are near to bottoming out, from a lag factor associated with recession and reinvestment.

I anticipate a currency devaluation as an effect of renegotiation or default on national debt limits. Would overseas money markets be a safe place to stash funds from the sale of the mutual while I wait for it to drop so I can repurchase it? If you believe that our debt problems will negatively impact overseas money markets, what is an alternate spot, exclusive of index funds, which will drop as the market does?
- Monica

I don’t think I would trust overseas money markets more than domestic ones, as I think a lot of economies are facing some sort of currency devaluation due to the ongoing economic conditions.

I also wouldn’t bank my entire plan on market timing, particularly when you’re making moves based on a sense of a fund having “topped out” or “bottoming out.” If I were you and I moved forward with this plan, I’d set some thresholds on when to buy back in. For example, you might want to say that you’ll buy back in after three months if either the value of the fund is down, say, 15% or it matches the value you sold it at.

Don’t worry about what the absolute top of the market is or what the bottom is – worry about making money for yourself.

Q2: Debt eradication
I’m a 22-year old student who will graduate with a B.A. in December. I took out some federal and private loans to pay for school. I saved for the past year and paid off the private loans while in school. I’ll be left with $16,000 at 6.8% when I graduate. I have no other debt and a 3-month emergency fund ($6,000). I plan to make payments well over the minimum to pay this balance off in 2 years or less.

Is this a good thing? The more I research credit and credit scores, it seems that a relatively low-balance loan isn’t a bad thing to keep around for ten, even fifteen years. However, having a positive net worth is my #1 priority. Should I be making aggressive payments or simply using that money to pad my retirement and savings while keeping the loan around? While paying the loan aggressively I’ll still be contributing 15% of my net income to an IRA. I have one credit card with a $500 limit; never carried a balance. I pay bills on time every month. I currently rent. A house isn’t on my to-do list, and I’ll buy a car outright if I get one in the future. Is it enough to build my credit without a credit card balance, mortgage, car payment, and (soon) no student loan?
- Belinda

I don’t think the value of having a 6.8% student loan (in terms of your credit score) is worth the financial cost of having to pay 6.8% interest on the balance every year. If it’s within your means without causing other financial troubles, I would pay it off sooner rather than later.

Given that you do have a continuing line of credit in the form of your credit card, your credit report won’t go completely empty after you pay off the student loan. I would consider using the card regularly (and paying off the balance) and being open to moderate raises in your credit limit.

You’re doing very well. Keep along your current path and you’ll continue to do very well.

Q3: Loans or emergency fund?
I’ll graduate from grad school this May with $25,500 in federal subsidized loans (spouse and I also still have $27k combined undergrad debt at 5.3%). I haven’t technically needed these loans for the last year of school but because they’re subsidized I’ve been storing the money in a rewards checking account earning about 3%. It will be around 12,000 total in November when the subsidization ends and 6.8% interest kicks in. This is the extent of our short-term savings/emergency fund right now (my spouse and I are also saving for retirement). So, since we are looking to save for life’s big things in the next few years (car, family, and house, probably in that order), and we don’t have a defined emergency fund amount, I wonder how much of that 12k should we pay back immediately? We’re currently steadily employed though I’m seeking new full-time work in my desired field instead of my current part-time job. We have roughly $1000 extra/month to put to good use on student loan repayment and savings (we’re a pretty frugal couple), but I’m not sure what the best combination would be. We have to pay minimum $400/mo on our student loans. Is it best to pay more on student loans and postpone more emergency/car/baby/home savings? Is it best to pay back the entire $12k “savings” (which is really borrowed money) and start our “real” savings from scratch? I’m lost and confused and would be interested in your and your readers’ opinions.
- Danika

If I were you, I would establish a new emergency fund and fund it with enough money to provide three months or so of living expenses for you and your partner. I would then use the remainder to pay off your highest loan and then use the subsequent $1,000 per month toward minimum payments and whatever loan has the highest interest rate.

I would count that 6.8% loan as already having that rate and make “payments” on that debt to a savings account. Then, when the subsidization ends, I’d pay the entire balance of that savings account to that 6.8% loan.

In terms of balancing emergency protection and a path toward debt freedom, I think this is a very good plan.

Q4: Repetitive questions
I’ve noticed that there are a lot of consistent shall we say themes in your reader mailbag questions. Student loans come up a lot for example and so does retirement. Why repeat so much?
- Shaun

The reason these stories show up so often is because they’re the type of concerns that cause people to really start thinking about their finances and because they are so common among people. A lot of people leave college with student loans and they worry about paying them off.

I use a lot of these types of questions because there are a lot of variations in the story and because it’s a genuine concern that a lot of people out there have.

I try to choose questions that reflect the whole of the questions that I receive. I do often pick out specific interesting ones, but I also see from my email inbox that I get a LOT of questions about student loans, so I cover those questions.

Q5: What’s next on my path?
I’m now fortunate to be in a position where I’m (finally) earning a great wage at a company I have no intention of leaving anytime soon, living in a city (NYC) that I love, and living well below my means.

It’s been drilled into me for years that paying off your credit card(s) and building a healthy emergency fund are the first foundation steps to a healthy financial life. I’ve accomplished both (finally!), and have $0 credit card debt (only one credit card), and $11,000 in savings. I still have outstanding student loans, which I’m paying back and contributing more than the minimum on each month – these are at a very low interest rate, and the total repayment each month comes to $350. Paying off one would save me about half of that amount as the payments are pretty much equal between the loans.

I’m also putting $12,000/year into a 401(k), and am planning on continuing to contribute $1,000/mo into my savings account for the next 9 months – until it reaches $20,000. Since I live in NYC, I plan on renting for quite a few more years and I’m planning ahead for when I’ll want to move (moving into a new apartment here typically costs $4-5,000 upfront in costs for my price range – first month’s rent, last month’s rent, possibly a broker’s fee and a security deposit). 6 months of my bills (if I were laid off) comes to about $15,000, and that’s my emergency fund savings goal since I don’t have close family in the area and wouldn’t want to have to move due to prolonged unemployment. The $20,000 goal for this year assumes that I’ll want to move within the next year, which is a possibility (but not set in stone).

I’m not in a hurry to change my plans right now as I still have a bit of time left to contribute to my savings account, but I’d like to have some solid steps in place when I get there.

So – what comes next? It seems like after the savings account, credit card and retirement account are all healthy (or being contributed to healthily), that any number of options open up. I don’t get an employer match on my 401(k), so it’s 100% my own money in there, and I’d like to max it out for a few years, due to not being able to contribute anything in my younger 20′s (4 years of working w/o the spare $$ to contribute). But, I’ll still have a good amount of money that I’m now putting into savings left over after maxing out my 401(k), and I want to make sure I’m investing it wisely, if that’s even the right first step after this.

Are there any recommended steps after this point, or does it depend on the individual and their goals?
- Jill

It really comes down to goal-setting more than anything else.

Simply put, there is no general right way to invest. There are only good ways to invest to help you reach a specific goal. If you don’t know what you’re saving for, you’re probably going to save in an inopportune manner.

Let’s say, for example, that you decide to start investing in stocks because you heard they have a great return, not because you had any goals in mind. Let’s say you make this decision in January 2008. In December 2008, you decide to buy a house because you got pregnant and you decided you needed a house for that child. Your money has now lost 40% of its value.

You would have been far better off in a savings account had you incorporated the idea of buying a house in the next one or two years into your plan.

Spend some time thinking about where you want your life to be in five years or ten years. Where are you headed? Your investment choices should really follow that.

Jill also had a follow-up question.

Q6: Time for a financial advisor?
At what point does a financial advisor become wise? I’ve never had the need of one before, but is there a certain point that someone should start thinking about consulting with one, if only to make sure they’re on the right track and not missing anything they should be doing?
- Jill

I’m of the belief that given all of the amazing tools available to individuals online, most people don’t need a financial advisor. You would have to have a lot of money in the bank in order for the benefits that an advisor can provide to make up for the amount you’d be paying this person for advice.

For most people, particularly those without a ton of money in the bank, doing it yourself is a much better option.

What’s the dividing line? I think some of it comes down to your gut, but if you’ve got enough money that a percent or two of it is a significant amount of money itself, that’s when I’d get an advisor.

Q7: Polite hygiene advice
How do I politely tell a coworker that they have really bad breath? It’s bad enough that it’s distracting in the workplace. I don’t know how to properly approach it.
- Anna

Unless the relationship with that person is poisonous, I’d quietly bring it up with that person directly. There’s a very good chance that the person does not know this and the vast majority of the time that person will be very glad to have that advice as it helps their career chances.

If you have a bad relationship with this person, then you might want to consider going to their supervisor. I wouldn’t register it as a complaint, but instead encourage that supervisor to have a chat with the employee about it.

The purpose of all of this is to improve the office environment on the whole. Candor without negativity or snark is almost always a good way to go.

Q8: Wedding and financial planning
I am 28 and currently in the process of saving for a house with my fiance who is 25. We both currently work at the same company where I am a full time employee, and he started this year as an intern working 30 hours a week. We are looking to buy a house next year after we come up with the necessary 20% down payment for up to a $200k house. So our goal is to have $40k + closing costs saved by early next year.

When it comes time to purchase, unfortunately the mortgage will be in my name alone since he has bad credit; whereas mine should be immaculate by the time next year rolls around. I have no debt, and pay off my credit card balance every month. He has about $5.2k in subsidized student loans that are currently in deferment until he graduates at the end of 2012. All his other delinquent accounts have been more or less settled.

Right now we have $11k saved in our emergency fund and have $9.7k in the down payment fund. I’ve set the ambitious, but attainable goal to set aside at least $2.5k a month. We would be projected to have saved just about $30k by the end of the year. My mother has offered to additionally gift me $10k which I can use as my “new” emergency fund if I have to dip into my current one.

I earn just under $50k a year, and he is set to make $25-$27k depending on if he works the full 30 hours a week. So our net income is about $4.5k-$5k a month depending how many business days there are in a month. My company matches 75% of my 401k contribution up to 7% of my annual salary which I am currently taking full advantage of, but since he’s not a full time employee, he does not get the same benefit.

Right now all his income (lesser $200/month into another account that will be for when the student loan comes due) goes straight into the down payment fund, and we live off about half of my gross salary. We have a few things in the pipeline that would be advantageous for us to have a house by first quarter of next year. Our wedding is slated for the end of May 2012, and our goal is to have the wedding reception at home with just family and a few friends. This would be about 30 people at most, and the total wedding costing less than $2000 (I hope).

Should I set up a Roth IRA for him and myself now? I had planned on waiting until we purchased the house. But the best contribution for retirement is time, right? Starting a Roth IRA would set back the time frame of when we would purchase our house.

We likely will have additional expenses such as furnishing and/or appliances for the house. Should I use my emergency fund to buy appliances? Should I save for longer, so that when we close, we can pay for furnishings in full? Or should I live using our existing, aged pieces until we save up enough to buy those new furnishings later? My mattress is over 10 years old and is due for replacing.
- Jean

You’re currently contributing about 12% of your salary to your 401(k) including match, which is a very good number given your age. I don’t think you need additional retirement savings when you have other such pressing financial goals. It might be worthwhile for your husband to have one, which could just be routed from the money he’s contributing to the down payment fund. $500 a month would get him past the annual Roth cap. Given his salary, I would probably shoot for about $200 a month, giving him about 10% of his salary toward retirement.

When we bought a house, we used a lot of the furnishings we had at our apartment at first. Supplement that with whatever low-end furniture you need to fill out, then slowly begin replacing it as you need to. This is exactly what we did and we were quite happy about it.

If your mattress needs replacing, replace it, particularly if it’s interfering with your sleep in any way.

Q9: What are readers like?
Do you ever get visual images of your readers or add in more details in your mind than what they give you in their emails?
- Connie

I imagine details about readers all the time.

I usually do that so that I can see them as a person rather than as a dry question. I try to imagine the best picture I can of the person asking the question so that I want to help them.

Sometimes, that can backfire because I’ll put more positive details with the person than there really should be. Most of the time, though, I find that if you make an effort to look at a person’s best side, they’ll step up the plate.

Q10: 2012 predictions
What do you think 2012 holds in store for our world? Got any big 2012 predictions?
- Kenny

I think Barack Obama will win re-election, not because he’s done a stellar job, but because he’s done a “good enough” job compared to what the competition is. I think we will see a significant third party impact in this election, too, because the Republican party’s coalition of social conservatives and fiscal conservatives is becoming more and more frayed.

I think the American economy will show continued signs of rebounding and will look comparatively stronger (economically) than Europe throughout the year.

I think that December 21, 2012 will pass without any significance other than perhaps a few reactionary people overreacting to a quirk in the Mayan calendar.

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

Because our close group of friends mostly has this week off of work, we planned a day where we would get together and just play board games all day long, sharing lunch and dinner.

That day is today. I have some friends to laugh, think, and play with.

Q1: Conflicting messages on spending money
We are encouraged to spend money because spending helps our economy. Then again, we are also told to spend wisely. How can these two viewpoints/ideas be reconciled? Is it possible to believe and act on both of these concepts?
- Megan

Those two viewpoints are coming from two different groups with different goals.

It is obviously good for retail businesses and commercial product manufacturers if you go out there and buy as much as possible. The more you spend in this way, the more jobs are created in the retail and manufacturing industries. On a national scale, the best thing you can do is spend.

On the other hand, on a personal scale, the best thing you can do is save. Spending with reckless abandon does not help your personal finance situation. People who recommend saving are generally more concerned with this end of the economic scale.

Which is right? They both make good points. The solution, I think, is balance. Spend with some sense, but don’t be completely tight-fisted in every aspect of life. Be discretionary and spend less than you earn, but don’t avoid all splurges. Support businesses that make good products and have good business practices. That way, everyone wins.

Q2: Career options in conflict
I am an educator currently at a university 45 minutes away, instructing first year physics students in a laboratory setting two days a week. With the other 3 days I try to substitute teach at local school as much as possible. One of those schools is literally a 1 minute drive from my apartment and will have an opening in February covering for a teacher whose course load is grade 11 and 12 physics along with an upper level math course. Those courses would be my dream to teach if I were to get the position.

Timing is the real issue. The 2nd semester for the university starts in January and they need to know if I will be continuing on very soon and I can not do both the university work and the high school one.

My conflict is this: do I NOT take the university course and HOPE that I get the position at the high school?

I really enjoy the university work and subbing since it allows for a lot of freedom in the evenings but is less pay and more commuting (and more temptation to eat out on the way in). The high school classroom would be wonderful too and would allow for a meatier paycheck, but would involve much more time in the evenings planning and marking.

Do you have any advice or questions that I should be asking myself?
- Ron

A bird in the hand is worth two in the bush. Take the job that’s available to you now, then cross the bridge of other options when you get there.

The worst case scenario if you take the university job is that in February the other job becomes available. In that case, what are your options? Is there any reason you couldn’t walk away from the university job for a better opportunity?

Unless there’s some sort of clause preventing this, I would suggest taking the university job and seeing what happens next.

Q3: Extreme cutbacks
Currently I am working on my 2012 budget. I am very fortunate to be the mother of five children (ages ranging from 3 to 12), I hold a pretty good job for which I am sometimes frustrated but always grateful, but unfortunately, my husband’s business has not made any money over the past three years and has cost a little. Yet, I have made ends meet, saved some and several years before we had paid off all mortgage debt.

This year we need to save for a major improvement to the land where our home is located. We need to put in major revetment to protect the property from further erosion. The project will cost $150,000. Currently, I make pre-tax $75,000. Total expenses have been about $55,000. I track EVERY penny. Expenses include about $5,000 in business costs and $5,000 in work to the house that my husband does each year (our house was a serious fixer-upper, and we’ve worked on it for 15 years).

This year to accelerate savings I have created a budget, but it means we must really cut back on all expenses…including gas and food. The projected budget brings spending down to $40,500 — allowing me to save more for the revetment and also still put money into my ROTH.

I have strange feelings about this budget. It will require real sacrifice, and we already live frugally. We do not eat out, go to movies, take a vacation…we do have indulgences like a sailboat that was given to us that costs $1500 a year for a mooring, but that is our summer fun for the family. I admit that I have spent too much on clothing for work in the past, but not outside the realm of moderate – just not frugal.

Entering this new phase of finance feels like starting a really strict diet…I wonder if it’s realistic, or if I’m setting myself up for failure. The budget would require me bringing food from $688 a month to $625 — which might not sound like much, but I already make most food from scratch — and it’s not like I’ve been buying any expensive items. Also, it will require monitoring fuel for the van carefully…an item that sometimes I cannot control.

Anyway, how realistic is cutting back so extremely, and do you have any recommendations for keeping these goals and remaining positive even when it seems insurmountable.
- Shannon

Without seeing your budget, it’s hard to know whether it’s realistic or not.

However, if your gut is telling you it’s too tight and you already carefully watch the numbers, your budget is probably too tight. A person’s gut feeling is often right in matters like this.

So, what do you do from here? I’d suggest looking seriously at solutions you might not have considered before, like selling the property or selling another asset that you have with significant value.

Q4: Sports salaries
Do you think professional athletes and entertainers are over paid?
- Lucien

They’re paid exactly what the market will bear for them.

Think about it this way. If you knew that your boss would pay you $10 million for your job, would you not accept that $10 million? Very few people would turn down that level of income.

So, should the owners be paying that much? Well, they make more money if they put a competitive and entertaining team on the field. They do this by hiring skilled players that people want to watch. People want to see Chris Paul throw an alley oop pass to Blake Griffin. They don’t want to see Joe from the YMCA. If the owner hires entertaining players, more people attend the games of his team and more people buy their products (like shirts and posters and jerseys and trading cards…).

In the end, it comes back to the fans. As long as they buy tickets, shirts, jerseys, and other materials at the prices charged for them, the athletes will be highly paid.

Q5: Confusing tax code
Why on earth is simply paying your income tax so confusing? Every time I try to read an IRS document, I just get confused. I pay someone else to do my taxes for me and it’s ridiculous that I should have to do that.
- Shawn

I agree with you wholeheartedly.

What we have now is a tax system that’s a compromise between a lot of different interests. You have some who want to make the tax burden lower on huge numbers of lower income people. You also have some who want to minimize the taxes on the rich people who will (in theory) invest their money.

Give these people lots of years to compromise and negotiate and insert clauses to help their groups and you get the tax code as it is right now.

Does it need a reboot? Yes. Do enough people in Congress and in the executive branch have enough courage to make that reboot happen?

You make the call.

Q6: Saving on a fixed income
At the age 30 I became severely disabled with a mental illness and had to go on Social Security disability. Since then I have tried to work several times part time unsuccessfully. Now I am trying to save money just to get a car because, since then, I have developed back problems which make it impossible due to the pain to ride a bus which would have been a good way to save money.

So, saving $400 a month is half of what I live on which is $800 per month. In addition, I am trying to save for an emergency fund. I have been able to save the money for the car and the emergency fund due to ending my eating out, cutting out my cable, finding the best price possible for my car insurance, but retirement savings seems impossible. Is there any alternative for people like me who find themselves on a limited budget at such an early age?
- Ron

Set goals. Recognize that it’s going to take a long time to get there. Celebrate the little victories as you approach your goals.

There’s really not much else you can do. You have to figure out what’s really the most important thing for your life situation and work diligently toward whatever that goal is.

Each person’s life is going to be different, with different needs and different values. The best thing you can do is figure out what you most want and focus on that like a laser beam.

Q7: Best books of 2011
What was your favorite book of 2011? No cheating – just name one!
- Linda

That’s a tough one and it depends on what you’re asking.

My favorite book published in 2011 is Moonwalking with Einstein by Joshua Foer. It’s a great book about the realities of memory and how to improve your own memory, backed by great anecdotes and science.

My favorite book I read in 2011 was A Way of Kings by Brandon Sanderson. It’s the most enjoyment I’ve had from reading a fantasy novel in a very long time.

Q8: Getting started with blogging
My question is how you built such a robust following on The Simple Dollar. Was it largely through the guest posting model advocated by sites like “Blog Tyrant?” Or did it happen more organically through the quality of your writing and posting frequency? The “romantic” part of me would prefer for the second option to occur, but I fully realize that some more active promotion is probably necessary to get my blog to the level I want it to be. I promote it among my friends on facebook, but beyond that, I’m a little unclear on how to approach fellow bloggers regarding guest posting and whatnot, especially in a field (“self-improvement” or “lifestyle design”) that is dominated by a few big names like Tim Ferriss and Chris Guillebeau. Is it better to start as a commenter and work up a repoire that way? Or is cold e-mailing people okay, too? It’s a lot of the little personal interactions on the internet that I could really use some help with.
- D. J.

I did very little guest posting in the early days of The Simple Dollar.

My early success, I think, was due to writing some articles that were heavily linked on some very popular blogs. I did that with some degree of intent, of course. I looked at the popular blogs I read and asked myself what kinds of things they linked to and what kinds of links I clicked through on, then thought of post ideas accordingly, wrote them, posted them, and submitted them.

At this point, you might want to shoot for Twitter mentions from those guys to get the ball started, but you’re going to find that popular bloggers are BURIED in material like this. You reach a point where you absolutely have to filter what you look at and do because if you didn’t do that, you would never, ever get anything done. Keep that in mind and make it very easy for them to see what you’ve done.

I think the sustained success has come from having a large backlog of posts. There are a LOT of terms you can type into Google and find pages from The Simple Dollar as a result. I’ve made a conscious effort all the way along to try to write in an approachable fashion.

So, get the attention (and a link from) big names and write lots of good posts.

Q9: Getting off the treadmill
I am 27 years old living with his mom, lots of experience in different fields but nothing to back it up (jack of all trades, no specialty). I did a mistake 3 years ago (realizing this now) getting a 15 000$ loan for a nice Cadillac & to cover my credit card. I now have 8 000$ left on this debt paying 330$/month, but with interests i am really giving about 230-250$ towards the actual amount.

Seems my monthly bankroll is tied up in car paiments (330$) + insurance (75$), high speed internet (60$), cellphone (70$), a bad smoking habit (160$ more or less), newly acquired Gun hobby.

Any suggestions to help me get out of this never ending loophole? I want to move out and move on with my life without always paying bills and feeling stuck!
- Alan

Get rid of the smoking habit and the gun hobby?

Right there, you have two expensive things that are gobbling down significant chunks of your money. If you want to escape from your never-ending loophole, you have to look for things that aren’t necessary that are gobbling up your resources.

Quit smoking. Enjoy the guns you have. You’ll find yourself with a couple hundred more a month. Apply them to extra payments on your car loan and you’ll get rid of that payment in half the time. At that point, you’ll have almost six hundred more a month than you have now.

Q10: New Years party hosting
I’m hosting a New Years party this year and I’m kind of unsure what to serve to people. What’s appropriate to serve at a New Years party without spending a ton of money?
- Jean

It depends on the type of party you’re having. Finger foods are usually appropriate – at our New Years parties, we tend to serve plenty of finger foods. One way to get started is just to ask some of the people what kinds of finger foods they like and choose frugally from those options.

As for drinks, you really don’t need to splurge. A bottle of bubbly or two is appropriate for the turning of the year. Guests often bring bottles to such parties, though.

There’s nothing wrong with asking some of the guests to bring something simple, either. A simple request to bring a bottle of wine or a simple snack food is completely appropriate and trims costs for you.

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

I’m actually finishing up this reader mailbag late on Christmas Day, after the rest of the family has collapsed in a heap of exhaustion.

There are few things more fun than watching a pile of grandparents, parents, and children all huddled together in a room, sharing memories and gifts and excitement and laughs.

Forget the presents. The best part of today was the people.

Q1: Adding another credit card user
I was thinking of adding my partner of 2 years as an authorized user on my credit card (low limit) to use for gas and household expenses – all budgeted items. The reservation I have is that she just recently walked away from her house (after 3 years of nonpayment and a dismissed bankruptcy). She is unemployed due to a medical condition but is covered under COBRA. Her debts are 4-5+ years old and are considered uncollectable. My credit is outstanding and my only debt is the mortgage. Anyway, do you have an idea of what it would do to the interest rate, credit report, etc for her and myself?
- Veronica

It shouldn’t affect your credit report at all, except perhaps an indirect effect.

As for the impact it will have on your card, it has more to do with the policies of the specific bank you’re working with than anything else. Generally, my experience has been that an authorized user doesn’t impact the interest rate or the credit limit of the card at all, though there are certainly quite a few anecdotal cases out there about limit reductions and the like.

This is where the indirect effect might happen. If your credit limit lowers, this will have a small negative impact on your credit score, but it shouldn’t be enough to drastically impact the loans you might get or other things.

Generally, adding someone as an authorized user has little impact on the main cardholder and a positive impact on the credit of the new authorized user, assuming the new authorized user uses the card responsibly.

Q2: Re-selling debt
I have an old credit card account which was charged-off years ago. I recently found out the debt was sold to another debt collection agency with a “new” charged-off date of 2009. Is it fair practice for creditors to keep re-selling old debt just to remain within the 7 year limitation before the debt must drop from my credit report? If not, what should I do?
- Fred

That’s generally not an acceptable policy. However, actually tracking this down and fixing it is next to impossible. Neither agency involved has any interest in changing this for you – it’s not good business for either of them – and trying to sue them to make them change it will probably cost you more than it’s worth.

Companies that buy and pursue old debts are generally not the most fun businesses to work with. They’re in a business of pursuing debts from people who don’t pay their debts. They’re debt collectors. They’re going to turn what screws they can to get their money.

The best way to get rid of this permanently is to negotiate with the company that holds it. Make them a low offer to pay it off and have it removed from your report. This is the best permanent solution to the problem.

Q3: Figuring out life insurance
I’m 25 years old and make a nice salary but I am really very very tight budgeted. My wife is in college and watches our daughter all day. I want to get life insurance but I’m not sure which one is good for me. I could get 30 year term for a 700 dollars a year. Or i could get universal for $4360 a year. The perk with the universal is that it is like a savings account where after 20 years I’ll have money in the account to use towards my childrens wedding or college. Plus I’m paying for private schooling which is a whole diffrent ball game. Should I get universal and be tight with my money or should I get term and free up my now funds but not have the same security in the future.
- Andy

You should get a term policy, then open up a 529 college savings plan for your daughter. That’s the plan I would follow.

If you lock yourself into a more expensive policy and then lose your job, you have a good chance of losing that policy. If you have a term policy and are contributing to a 529 and lose your job, you can cut contributions to your 529 and not lose your insurance.

Besides that, most of the numbers I’ve seen comparing a universal policy to a term policy and an investment shows that the term and investment combo tends to win out both in the short run and (usually) the long run.

Q4: What makes people negative?
I’ve been dreading my family’s Christmas celebration this year because it’s always so negative. Everyone just sits around and ridicules people that aren’t there, famous people, and when the drinks start flowing they often ridicule each other in a very hurtful way. I don’t enjoy it at all. Why do people do this?
- Emily

Everyone channels their feelings and emotions toward the world in a different way. This is definitely a negative channeling of emotions, but it’s how some people vent.

I generally prefer to vent in a positive way. When I’m frustrated, I work it out alone. Sometimes, I work it out through my writing – some of the characters in the fiction I write are truly deplorable people.

When I’m around others, I try to see the positive in each situation. (The only thing I tend to be sarcastic about is politics, actually.) I find that the more effort I put into channeling my feelings into something positive, the more positive I generally feel about my life and the things around me. Positivity breeds positivity and negativity breeds negativity.

Q5: Babies and emergency funds
We are expecting our first child any day now. We have been very good at budgeting very well so far. We’ve budgeted for or been given all the furniture, clothes, diapers, etc. that we will need, at least for the first 6 months or so. We’ve been good about not over buying everything the baby industry claims you “need.” We have also budgeted for all the medical expenses that we will need to pay for. However, there is still a number of last minute things popping up that we just didn’t realize we would need to pay for. Part of this is probably part of being new parents and not knowing what to expect. Do you think it will be easier to budget better for subsequent children? Is it ok to use our emergency fund to pay for those purchases we didn’t budget for?
- Lauren

It will be much easier to budget better for your subsequent children. The biggest reason is that you’ll already have an awful lot of things on hand, and the second reason is that you’ll actually know what you need through experience rather than the advice of others.

Each parenting experience is different. Some parents find certain things very useful, while others find them useless. It has a lot to do with the house you live in, your neuroses about hygiene, and other such factors.

As for the emergency fund, this pretty much falls under the umbrella of what I would use it for. I would just focus on replenishing that fund as quickly as possible after you tap it.

Q6: Paying for pet medical expenses
We have a 4 year old dog that we love to death and that we consider part of our family. She is going through some health issues and the vet thinks that she may have an auto-immune disease that is very difficult and costly to treat.

We have already decided that we will pursue the treatment (we are not putting her down). The biopsy procedure along cost me $1200 and the treatment (steroids) are expensive and could last for 6 weeks (or for the rest of her life in 25% of the cases).

I charged the $1200 to a no interest credit card (for about a year) and I have $1700 in savings. I am wondering if I should use my savings to pay the credit card and try to pay the treatment out of pocket or if I should keep my savings and hopefully build more until my no interest period is up? My husband is unemployed (has been for a year), but I make enough for us to survive on my pay. The minimum payment on the card is only about $20 a month.
- Monica

It really depends on how much the steroid treaments are going to cost you and whether they’re permanent.

If I were in your shoes, I would probably leave this amount on the zero interest credit card for as long as I possibly could and see what happens with the steroids. If they’re needed permanently, then I’d spend some time focusing on reworking your budget so that you can afford these as a normal monthly expense. This might be a difficult shift and you might find emergencies during that period very painful, which is why I’d keep that emergency fund intact for now.

I’m going to assume that no cost is too expensive for this dog. Given that’s the case, there’s a good chance that this experience is going to push you into debt. If the steroids are a permanent thing, work with your doctor (and with comparison shopping online) to find the best possible price on the maintenance medication. Also, your husband shouldn’t be afraid to seek employment below his station. There are lots of jobs to be found out there if you’re willing to work them.

Q7: Unwanted gifts
What exactly do you do with an unwanted Christmas gift? I’m never sure what to do when someone hands me something weird.
- Ernie

When I open anything, I try to be polite and thankful about it, whether it’s something awesome (making it easy) or something awful (making it hard).

I don’t feel bad about re-gifting if the gift is really appropriate for someone else I know. I view it as simply passing along a good idea.

If it’s something that I don’t want and I can’t regift it, I’ll hold onto it for a while and eventually take it to Goodwill.

Q8: Handling pet cleanup
I have two pugs, and no yard. Both dogs are walked three times a day and each will do their business 2-3 times per day, so I’m using up to 6 bags per day and that gets expensive. Currently, I purchase the generic “Bags on Board” bags, but I cringe at the thought of paying so much for something that I’m just going to toss. I’m wondering if you have any ideas for a more frugal disposal of dog waste. Grocery bags/bread bags are not an option – I don’t buy that many groceries and I already reuse these bags as trash bags. I don’t take the paper, so I don’t have those types of bags either. It needs to be something that I can bring with me on our walks. Do you have any suggestions?
- Jeff

A friend of mine used to use a Dirt Devil type device with a hose attachment for this purpose. She had a small dog and this worked great for her.

Another friend of mine would carry a cloth bag and used a rubber glove to pick the waste up and put it in the bag. She’d then clean the bag at home (I think she had several of them and would just keep them in a bin in the garage and wash them all together).

You could also use the rubber gloves with something like a Rubbermaid container that you use just for this purpose.

Q9: Planning for after graduation
I will graduate in May with my bachelors degree and want to start getting together a plan for financial stability.

After graduation I’m hoping to move to Washington D.C. where I know I’ll probably have to intern for a while to get a full-time position. It’s very likely that these internships won’t pay anything so I’m starting to save up now. At the moment I have about $1,000 saved and anticipate a tax refund of $2,000 will go toward the fund as well. I save about $50 a week. As it stands now, my boyfriend will be moving with me and we anticipate that he will be able to find a full-time position to help support us. But of course we know that you can never bank on getting hired right away.

I will have about $30,000 in loans (all federal but both subsidized and unsubsidized) and no credit card debt (because I don’t have a credit card). A few questions-

1. Should I get a credit card? I’m afraid that if I get one I will start spending more than I’m earning with the mindset of “oh well I’ll pay it back.” I just really don’t want to fall into that trap especially when I know money is going to be tight.

2. How much should I plan on saving up if I anticipate interning until around January?

3. As to student loans- have you ever published a guide for students graduating college on steps to take to start out on the right foot with repaying student loans? What can I do now to prepare for repayment?
- Shawn

Effective credit card use is about willpower. If you doubt your willpower, I’d either not get one or get one and put the card somewhere where you’ll never use it (just to build a bit of credit). If you don’t think you can do it responsibly, don’t do it.

Housing in D.C. is insanely expensive. You need to start looking at housing opportunities right now. If you’re lucky, your internship will help you with this. If not, with your current savings, you’re either going to be building up debt or living in a car or living in a large group apartment.

The best thing you can do right now for repayment is simply to minimize the amount of debt you take out. The less debt you’re in when you graduate, the better. The next most important step is to make your choices toward securing good employment.

Q10: Favorite Christmas gift
What was your favorite gift that you received this year for Christmas?
- Elaine

I received an Arduino.

If you’re confused as to what I’m talking about, it’s a programmable microcontroller.

If you still have no idea what I’m talking about, think of it as a small piece of equipment that you can program with your computer to independently do simple tasks. For example, my first project with it (which I started earlier), was to make an electronic set of dice where all you have to do is touch a button and a dice face lights up, showing a random number between one and six. I hope to eventually build a Christmas light controller that takes the audio from a radio station of my choice and converts it into light patterns on the lights.

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

It’s mid-December and we’ve had barely a dusting of snow. This is in complete contrast to the last few winters, when I had already run the snowblower several times.

I went back and looked through my journals and it looks like winters are really on a seven year cycle. We happen to be on the “mild” end of that cycle, which should include next winter as well.

My journals noted that the winter of 1997 and 1998 were bad ones, 2003 and 2004 were bad ones, and 2010 and 2011 were bad ones. In between them were mild winters, so we may be in for a pretty mild one.

Q1: Credit card limits
I have three credit cards at the moment. Two with balances that I am paying down as quickly as I can and one without a balance that I use occasionally for things I will pay off immediately. Recently two of my cards’ limits were increased. I am wondering if that affects me negatively at all. Should I call them and ask to have it lowered? (Both went from around $5,000 to $7,000). I know at one point in the past I had a huge limit of $18,000 on a card with no balance and I was almost denied a car refinance because of the potential to go into debt there. At that time I lowered the limit to $5,000. What do you think?
- Emily

This is a prime example of where credit scores and credit reports can be really confusing.

Normally, an increase in your credit limit is good for your credit score. It improves your debt-to-credit ratio, which makes up a big component of how your score is calculated.

However, some lenders do manual underwriting, where they just pull your credit report and do their own analysis of it, not relying on credit scores. In those situations, one thing they often look for is a comparison of your total credit limit to your salary, and if you have a lot of potential room to borrow and a relatively low salary, that will look bad to them.

What’s the solution? I’d probably keep my total credit limit to somewhere between 25% and 50% of my income.

Q2: Pest control options
I am constantly trying to cut back some of the expenses that we have so that we live within our means. We have a Pest control company come and inspect our house once every 3 months for pest and termite. They spray the outside of the house and lawn at each visit(to kill roaches and fire ants). They do spot treatment inside the house if there are any pests. This costs me about $85 every 3 months A few months back they inspected the attic and found some rat poop.They set up traps and caught a couple of rats.. The sealing of the house and setting up the rat traps cost me $500! Now this is one expense I am trying to cut out. Also I am concerned about the health impact of all the spraying they do out of the house and inside the house. Will you be able to suggest how I could prevent pests in my house without employing a pest control company. I am hoping to save some money and also eliminate use of harmful chemicals from our lives.
- Leon

There are lots of home remedies for getting rid of pests. The problem with them is that they generally don’t work as well as the stronger methods that pest removal services use.

If you have consistent problems with pests, you should probably keep hiring an expert to deal with them. However, if you’ve gone a period without any pest problems, you can certainly look into methods for preventing the types of pests you have.

For example, if you’re having a roach problem, boric acid and catnip are common solutions to send them scurrying away. Orange oil is often a good measure against ants. For rats, the best solution is what they did – trapping and sealing holes.

Q3: Returning to work
My husband and I live very frugally, but the cost of living in our area is quite high. It’s a rural area, but rent is $1100/month (cheap for around here), food is expensive (we live in Alaska), and electricity is even more expensive. So all of my pay (just under $2000/month) goes toward living, with maybe a few hundred dollars into savings every couple of months. We rarely drive, and the vehicle we do have (an old truck, in great condition but very fuel inefficient) is on long-term loan from my in-laws so we don’t pay anything other than fuel.

We have a decent emergency fund built up (just under $10,000) and my husband has about $35,000 in student loans. We also have about $35,000 in investments, which are making more in interest than the student loans are so we’ve decided to keep that money invested.

After being unemployed for most of the last year (minus 3 1/2 months during the summer–most of that money went to savings or paying off some medical bills), my husband has decided to go to graduate school and will be taking some classes in the spring. I work for the university so we won’t have to take out more loans. Additionally, he’s also been promised a part-time student job at $10.50/hour.

So here’s my quandary: what should we do with the extra money? We have quite a few goals. I’m investing the maximum amount to my retirement fund (I get a 50% match), but since I’m the only one with retirement savings I feel like it’s not enough for our future goals. (We’re in our mid-to-late 20s.) We would also like to buy a house sometime soon, since we like our area and want to stay here long-term. (After pricing it out, a mortgage would be comparable to our rent, although utilities are included in the rent so we’d have to figure those into the price.) We’d also like to start a family in the next year or two, and we love to travel so we’d like to go to Europe again in the next few years. Finally, I’d like to save up some money and buy a vehicle of our own. I know my in-laws have loaned us this truck in the best spirit and with no hard feelings (when we give it back, it will mostly be sitting in their driveway as a backup vehicle since the selling price wouldn’t be worth their time and effort) but I feel like I’m taking advantage of their generosity. Additionally, when we do drive it costs us a lot to fill up the tank. (We’ve got it down to about one tank each month at about $80-90 to fill it up.)

When we start getting the extra money, would it be best to split up our savings into different goals accounts? After all is said and done, we’d be saving around $800/month, probably a little more during the summer. Should we keep our investments as a sort of backup retirement savings and focus on our other goals? Or would it be best to open a RothIRA and fully fund that during the year, keeping the investments for a down payment on a house? Or should we plan to wait on buying a house until after my husband has completed graduate school? Should we fund our goals in any order, or just put a little bit of money toward each of them all at once? I’m certain that we’ll be making much more money within the next 2-4 years.
- Monica

The one statement that causes me worry is the last one. “I’m certain that we’ll be making much more money within the next 2-4 years.”

It is always a mistake to make personal finance moves based on what you think your future self will be doing. Your future self is incredibly unreliable. Careers change, health changes, personal circumstances change.

What would your life look like if your current income level remained the same for the next ten years? I would plan for that, and then treat any raise in income as a big bonus.

Q4: Watching football without television
I’m on board with your idea of eliminating cable except for one thing: football. I love watching football on Sundays and Mondays (and Thursdays) and I’d hate to lose that. Any ideas?
- Shane

I like watching football, too, but I almost never watch it on television any more.

What I usually do is use something like ESPN.com. I’ll watch the “gamecast” of a game and participate in the messageboard discussions while the game is going on. Plus, I have easy access to statistics for my fantasy football team.

If you’re willing to pay some for it, NFL.com offers some pretty good streaming packages. I have a friend who uses this – the only thing he watches on television is football.

There isn’t a legal way to watch football online for free, though. Yet. I wouldn’t be surprised to see an ad-supported NFL stream in the future online.

Q5: Hints of identity theft
I recently received a bill in the mail for $69 from a scooter store in Dallas, TX. I do not have and have never had a scooter, live in NY, was not in Dallas on the date specified. I have visited TX twice a year for the past 5 years to see my son, although not Dallas.On the bill, my address was slightly off, the street name had an extra e at the end and my PO Box was not listed, but everything else was my info. I called the store and they said they would take my name off the account, but that was the name and address given to them by a customer. I am very careful with all my info, shred all mail, check my one credit card each month ( paid off in full every month) and credit report. Since someone is obviously using my name and address, is there anything else I could be doing? This has kept me awake nights, thank you very much for your input.
- Cindy

My immediate suspicion is that someone connected to your son somehow got your address and tried to use it. I’m not saying that your son did it at all, but that someone your son knows got your address and somehow managed to use it at that store.

If I were you, I’d start keeping a close watch on my credit report. You can do that for free through the federal government at annualcreditreport.com. Just examine everything on it and make sure you know where those statements are coming from.

That’s far and away your best defense against some kind of fraud.

Q6: Daytime heating and cooling
We’re first-time homeowners and i also work for a major water heater/HVAC company. Daily, customers ask me for tips on reducing their hydro/gas bill with respect to the water heater which, according to industry estimates, makes up about 60% of the hydro bill (electric water heaters, I mean; I don’t know about natural gas) until the winter when heating costs factor in.

Our hydro bill can easily hit 3-400 in the winter if we had to heat with electricity.

Right now, we have a dual electric/wood furnace which is *highly* efficient. we’ve been burning wood and 4 to 6 pieces a day is enough to keep our house nice and toasty but the hydro bill is still around 200 which is far too much for a couple with 1 child (4-1/2yrs old).

Hydro has a program called “peaksaver” which sends a signal to major appliances such as the AC to turn things down by x% (i think it’s 15) but i’m wondering if it would be worth it to shut the WH off completely during the day – i’m on the phone working all day and there’s only my husband who is off doing his own thing. wouldn’t be difficult to reschedule showers, baths, etc to bef 7am or after 7pm and we already do all our laundry in cold water and wait until after 7pm to dry if we have to use the dryer.

Currently, the rates are as follow:
Mon-Fri 7am-11am and 5pm-7pm = 10.8c/KWh, 11am – 5pm = 9.2c/KWh
Mon-Fri 7pm-7am and all wkend = 6.2c/KWh

The water heater is 3000KW, takes roughly an hour to an hour and a half to fully heat.
- Reg

If you have an opportunity to shut such things off, it’s almost always worth it.

Think about it: doesn’t it make sense that it takes a lot less energy to heat up water once than to keep it hot during the day? Instead of having your heater kick on for, say, ten minutes every hour, it would just run for twenty minutes or so at the end of a much longer period.

Unless the temperature is extreme, for example, I turn off both the heating and cooling in our house during the daytime and just flip it back on for a comfortable evening for our family.

Q7: Value of a Kindle?
I’ve been considering getting one of the $79 Kindles. I read quite a lot and I’m trying to figure out if it would save me money over the long run.
- Shannon

It depends on what you read. If you’re very picky about your books and will only read one or two specific books when choosing a new one to read, you probably won’t save a whole lot of money.

However, if you’re willing to mix it up a lot and try out new authors and patiently wait for and then pounce on sales, you can get a lot of great reading in for not much money.

For example, I keep a close eye on the Kindle Daily Deal and check out books from my library all the time using my Kindle. I don’t always get the book I want to read, but I always have something worthwhile to read.

Q8: First budgeting steps
I’m 25 years old and just started my first job. I’m married and was wondering what do you reccomend i do to start budgeting? Alot of people i talk to have no clue what to do and where to start, are there programs that are better then others. My parents never worried about budgeting and now im stuck. PLEASE HELP!!!!!
- Bill

The first step is to simply keep track of every dime you spend for a while. Every cent that leaves your pocket, whether it’s a bill or a soda at the gas station, needs to be recorded for a whole month.

Once you’ve got enough information, sort all of that spending into groups that make sense to you. Rent, utilities, entertainment, food, and impulse expenses are all good categories, but use what you like.

Total up each of those categories, then figure out which ones you could control a little better (like your entertainment spending or your impulse spending). Then, at the start of the month, just withdraw the cash for those categories you’re trying to cut back on and use only that cash for those expenses until the end of the month.

That’s budgeting in a nutshell.

Q9: My budget
I would love to know what other people’s budgets are, for those with certain lifestyles. For example, my husband and I do not have children but our food budget is still higher than the FDA charts because we eat organic, free-range meats and local. And as a reformed bookworm, I’ve tried hard to curb my spending at Amazon but what do average people spend on books and magazines? I find this information educational and fascinating.
- Camille

Here is a great infographic that depicts the budget of the average American family, both in raw dollars and percentages.

Of course, that’s the average. You’ll probably never find anyone that perfectly matches it.

Having said that, I don’t think our family’s budget is too terribly different than that one.

Q10: Movie night
You’ve mentioned before that your family regularly has a “movie night.” How on earth do you pull that off with three young kids? Doesn’t it just turn into chaos?
- Kim

Our six year old often sits through a full movie, and our four year old will if it’s a movie that really draws her in (like The Princess and the Frog). It’s really our one year old that makes for challenges.

If the one year old is nowhere close to a nap time, we’ll often just choose a shorter program for our “movie night.” We’ll watch an episode of Sesame Street or something like that. If he is napping, we’ll try to get him to nap during a lot of the movie.

Mostly, it’s just an excuse for all of us to cuddle together in the basement.

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

The days leading up to Christmas are always filled with excitement and energy. There are tons of little things to remember, checklists to fulfill, items to wrap and prepare, and last-minute emergencies to handle.

I’m actually thankful that Christmas comes just a little bit after the shortest day of the year (December 21). It gives us something to occupy our minds when the days are grey and very short.

Q1: Retiring at age 50
I’m 31 and I have a goal of retiring at 50. Like any other goal, I have a realistic plan to make it happen, and metrics to track my progress.

We’re a family of 5 and our monthly expenses are about $8k/month. I figure when the kids leave the house, it’ll be around $5/month (in today’s dollars).

Our current retirement savings are in the low 6-digits. 401k and Roth IRA, invested in Vanguard’s Target Retirement 2040 Fund. I add about $25k per year, depending on how much I can bring in. The IRA is maxed out, and the 401k is funded well beyond my employer-match level.

My question is what investment strategies/products should I use to “bridge the gap” of about 15 years between when I retire and when I’m able to draw out of my 401k and Roth IRA? (I’m able to draw the principal out of the IRA at any time, right?)
- Cael

Yes, you can withdraw your contributions from your Roth IRA at any time.. That’s certainly one possibility for bridging that gap.

It’s also important to note that you can begin making “retirement” withdrawals from your Roth IRA at age 59 1/2, assuming you’ve had the IRA for five years or more (which you will have). This shortens the “gap” that you’re trying to cross.

If I were you, I’d probably keep saving along the same path that you’re on without changing much at all. If you do reach a point where you think you can make the leap into retirement before a traditional retirement age, then I’d rely on Roth IRA contributions to bridge that gap.

Q2: Return to work or not?
Here’s our situation: our first child, a girl, was born with a rare bone marrow disease. I did not return to my work as an administrative assistant to take her to her many, many doctor appointments. We decided a year and a half ago to try to have a sibling, through in-vitro fertilization, who is a donor match for our daughter in case she needs a transplant (not a likely scenario for her since she’s stable on drug treatments, but certainly a possibility). Insurance did not cover most of it. I am now pregnant and due in April. The enormous medical bills, even with the help of family, have left us with about $12,000 in debt and monthly payments we can’t quite cover on my husband’s salary. It seems like we’re slipping behind, not cutting down the debt. We still allow ourselves very small luxuries (a Christmas present or two, an occasional evening out, even a two-day vacation this Christmas). Do we cut these out entirely, or should I look for work?? I don’t want to leave a small infant with a nanny but hate paying the interest on all this debt. I think the stress of our debt is making me a less fun parent anyway. There is no guarantee I can find a job in this climate, but at least it would help a little towards dragging us out of this mess we’re in. Or should we just try to get by, paying just the interest, on our debt for a year until I consider my son old enough to be left at daycare (much cheaper than a nanny)?
- Ellen

Unless you get a job that pays quite well, you’ll be losing money on a nanny for your child. You’ll have to make substantially more than you’d be paying a full time nanny to make that work.

Most people in your situation – a situation not too different than the one we were in not that long ago – usually wind up using some form of daycare for their child. Our experience with our daycare was overwhelmingly positive, but I would highly recommend spending plenty of time finding the right one before putting your child in.

One way to do this is to set yourself a “deadline” for when you plan to enroll the child, then start shopping for one now. Many of the good daycares have a waiting list to get in, so you’ll probably want to get on some of those lists.

Q3: Handling an inheritance
When my father passed away last year, we found out that he had name me, not my mother, as the beneficiary to his IRA. I have a choice of small annual payments until retirement (I’m 37) or taking out all the money now and assume the tax hit. I know that he worked hard at building up the value of the account so that, if he should pass, my mother and I could pay off the mortgage on the house we own jointly and live in. We currently owe approximately $96,000 and his account, before I get hit with both federal and state taxes, is $105,000. After taxes, we expect what’s left from my father’s retirement account to be less than what we owe and will still have a couple year’s worth of payments left to go.

The house is a split level with no bathroom on the main floor. My mother is 70, and we expect her not to be able to navigate stairs by the end of the next decade (as it is now she gets winded sometimes due to her asthema). Putting on an main floor addition of a master bedroom suite would make the house more comfortable for her. We’ve gotten some rough quotes, and such an addition would be between $70,000 and $100,000. Also, there are some other repairs and improvements which need to be done on the house. For example the roof will need to be replaced within the next 5 years, and some of the insullation needs to be replaced as well.

Here’s my question(s):
Where should I invest this money my father left us?
Should we follow his wishes and put it all into the mortgage, and have only a few more years of payments, as opposed to over 20 years? (this would delay paying for any major repairs and/or additions for quite some time).
Should we pay to have an addition put on and make the house more comfortable and practical for her in the later years of her retirement, and take the risk that the addition could cost more than the money we have in hand? (and still have over 20 years of mortgage payments)
Or should we use the money to take care of those major repairs, and put any remaining money towards the mortgage?

I’ve asked friends, family and co-workers what they would do and the responses are all across the board, each with seemingly good rational.

What would you do if you were me?
- Jill

If your father wanted you to put it into the mortgage and you’re sure of his wishes, you should follow them.

The question for me really is whether or not that was really the spirit or intent of his wishes. He wanted the money put into the mortgage, but why did he want that? What you should do with that money is fulfill the why part of the question, and that will probably take some soul-searching.

My guess, based on your story here and similar stories I’ve heard, would be that he wanted comfort and security for his wife and thought you were the best person to ensure that. If that’s the case, you should do what will make your mother’s life the best down the road. Adding a room like this will likely increase the value of the home significantly, so when you do eventually sell it, you’ll be able to pay off the mortgage and have some left over.

Q4: Christmas games
In past years, our family has had Christmas at my mom and dad’s house. This year, we made a family decision to have me and my wife start hosting Christmas to take some stress off of my parents.

One of our family’s traditions is to play some board and card games in the afternoon on Christmas day. We usually play Monopoly or Risk or bridge. We have a deck of cards, but no other games. I thought it might be fun to have some different games to play with my family instead of these old classics. I know you play a lot of these games. Any suggestions?
- Randall

One interesting option might be to pick up a copy of Risk Legacy. This takes Risk and adds some interesting twists to it in that you actually customize the game as you play it. For the first fifteen games, everyone who plays it is involved with actually modifying the game through small gameplay changes, the naming of continents, and other such things. It’s really fun – my wife and I are playing this with a group of our friends right now. This would take the classic feel of Risk and add a new twist to it.

There are a handful of really great games that I recommend to almost every family: Ticket to Ride, Carcassonne, and Settlers of Catan immediately come to mind.

Honestly, you might want to also just have copies of the classics, too. Games are really about socializing, and well-played games have a lot of nostalgia to them, which is a wonderful socializing spur. You can often get these classics at thrift stores for a dollar or two, though I suggest buying two copies just so you can be sure you have all of the pieces.

Q5: Money and relationships
You always seem to have similar goals to the ones I aspire to in life. And you seem to have found a perfect soul mate for this. I am French and live abroad, though I aspire to come back soon and start a life there, and a family. I am just over 30 now, and really envy people who found a perfect match at 23, have a mortgage and other financial goals together with a spouse, like fixing up a house or investing towards financial freedom. I sometime feel like when I save money or plan financial things it would be so much easier to be a couple.

I own two properties, and they rent nicely. I do freelance writing for a living but have come to a point where I do not need that income to live. My dream is to find someone like minded and be able to dedicate all this freedom to raising children, I am even considering homeschooling, and other activities that would be a real perk to a man who wants to invest in his career, like fixing up the house, optimizing meals, and so forth, so we could easily live on one income and have a happy family.

I have been on relationships before who lasted anything from a few months to a few years but every time I felt like the financial agreement would fail us and ended the relationship. Any advice on that? I read that every relationship success, whether business, family, friends, or love, was based on a sound economic agreement. Yet I have a hard time when I start dating someone putting the finances on the table to see if we are bound to have a future.

It is taboo over here, or when I say I dream of being a housewife and raising my children they look at me like a 50s wannabe wife or like I want to take advantage of their income to live for free (I am very independent, financially from my parents since I am 17, graduated debt free with grants, have about 200K net worth before turning 30, and able to maintain myself without incurring any debt, pay my credit card and loans in full each month and so on). I have thought about turning to church to find a christian man since those values are important, but not being very religious myself I am afraid we would have disagreements on that topic.

What are your thoughts?
- Susan

I don’t think finances need to be on the table at the start of a relationship. However, when a relationship becomes serious enough that both parties are entertaining thoughts of joining their lives together, then finances should be brought up.

Communication is always the key. If you’ve communicated a lot with this other person and you feel your relationship is strong, bring up how you feel and talk it through. That’s always the best approach in a relationship.

As for looking for someone who would respect you in the housewife role, you’re right that a Christian church might be a good place to start. However, if you’re finding that dating someone of a particular religion is going to bring up other problems, you probably shouldn’t seek someone there. Seek out groups that match your values in some ways, then look for individuals in those groups that match your values in other ways. It’s all about the filtering, and it takes time.

Q6: Housing predicament
My wife and I currently live in condo that we have a mortgage on. We purchased 4 years ago, rate is 5%. We purchased for $140,000 and have about $135,000 remaining on the mortgage. When we purchased the condo we took the $7,500 housing grant that we have to pay back over a 15 year time period or when you sell the house. The stipulation is if you do not make a profit then you don’t have to pay this back. We have already paid back $1,000 of this. The purchase price is adjusted for any improvements or commissions you have paid in the process. We put in more than $10,000 of improvements so if we were to sell for anything over $143,500 we wouldn’t have to pay back any of the remaining grant. We could also choose to rent, which is what I would do if we didn’t take out the grant, but if we were to do this we would have to pay the remaining balance of the grant back at that time since it is no longer our primary residence. This was the $7,500 home buyer credit, not the $8,000 that you don’t have to repay and can rent after 3 years.

So our current situation, my wife and I are both 27 have no debt (no credit card, no student loans) besides our mortgage and 2 car loans. Car 1 – 1 year remaining $250/month, Car 2 – 2 year remaining $350/month. We make a combined $115,000/year. We currently put about $1,000 a month in retirement (+ company match) and have a combined $40,000 currently saved in our retirement. We also have $10,000 in our savings for a future down payment on our house. We are expecting our first baby in February and at that time my wife will take off 12 weeks of work, she will get 50% pay during this time. I am going to lower my retirement to just the company match during this time period to make sure we have enough money, although I think we should be fine and and will increase the retirement once she goes back to work. We will be incurring day-care costs once she goes back to work of roughly $800 per month.

Here is our delimna. We have our condo currently listed at $144,000 however we may only be able to get $135K or even less for it, which after commissions would barely break even on our mortgage and could possibly even take a little loss. We want to continue to save and build our savings account up to around $15K before we buy our new place. For us to do this we can’t really afford to lose that much when we go sell. The condo we are living at will probably be too small once the baby gets to about a year old so we are looking at houses in our area at around $200-$250K, (I realize we wouldn’t have 20% down but this is what we are wanting for now). We also want to take advantage of the lower interest rates that are currently in affect right now (I personally believe they will be low until 2013).

Looking back I now realize we should have probably just rented 4 years ago but hindsight is 20/20. Anyway, I guess our options are stay in the condo until we can get a buyer that is willing to give us a decent offer, take a loss on our condo and not have as much to put in a downpayment, or pay out the remaining grant and rent out the condo ourselves until the market turns around in our area (this would also lower our down payment).

It is frustrating because I feel like we are responsible with our money and didn’t necessarily do anything incorrect yet we may end up losing money on this decision to buy our first place, however I realize this is just the times we are living in and going forward I will think more indepth of our decisions. Any advice would be greatly appreciated.
- Jim

You didn’t do anything incorrectly other than not prophetically predict what the housing market was going to do. You made a move based on the information you had at the time and you’re largely responsible with your money. Don’t be frustrated with yourself.

If I were in your shoes, I would stay put for the time being and make it work with the child for as long as you possibly can. Sarah and I shared a very tiny apartment with our first child until he was almost 2 and our second was on the verge of arriving. If it weren’t for that second child, we might still be living there.

This will allow you to not only save for the down payment for the house you want to buy, but will also allow you to get more and more above water on your condo. Even if you don’t time the market perfectly, if it begins to rebound, your condo will also go up in value, meaning the rebound won’t hurt you as badly as you might think.

Q7: Pie options
Is it less expensive to make your own pies or to buy them from a good baker? I don’t like to buy some of the cheaper pies because they taste artificial but there are several bakeries around here that make good pies.
- Linda

Sarah and I have made quite a few pies over the years. My experience has been that a truly great homemade pie takes about two hours of work and uses between $10 and $15 in ingredients, assuming you have very little of the ingredients on hand. A simpler homemade pie – one with a pre-made crust – can be done in much less time, but isn’t quite as good.

So, how does that compare to pies that you might purchase? There’s a bakery here that sells pies that are roughly as good as the pies we can make with a pre-made crust for about $15. There’s one bakery that supposedly sells mind-blowing pies (though I’ve never tried them) for about $20.

You’ll save money by making it yourself, but not enough to make it worth the time unless you really enjoy the process of making pies. I actually do if I’m in the right mood.

Q8: 40/30/30 question
I have a question about the 40/30/30 rule you spoke of in November of last year. You say it basically means you should spend 40% of your income on basic bills, 30% on saving for the future and 30% on enjoying life. But how do you do the math? For instance, if I save $16,500 through my 401(k) at work, that’s money that I never see in my bank account, but it is money that’s going towards saving for the future. So do I just take my net bi-weekly pay, annualize it, add $16.5k to the total, divide by 12 months and then use the 40/30/30 formula on that number to figure out my monthly ‘budget’?
- Regina

That’s what I would suggest doing. I would simply ignore taxes entirely. If I used pre-tax money for savings, I’d just count that normally.

It’s important to remember with things like 40/30/30 that they’re just guidelines to get you moving in a healthy direction. They’re not absolute rules that work perfectly in all possible situations. Almost all personal finance advice is just like that – everyone’s specific situation is different.

If you’re putting $16,500 into your 401(k), you’re probably doing really well with your finances. Keep it up.

Q9: Wanting frugal gifts
I was just wondering if you could give some advice, it’s only a small problem, barely a problem really but I thought you might have an idea that I haven’t thought of. With Christmas coming up presents have been a topic of conversation here and there. My mum has always bought one or two big things for me for Christmas and then a few little stocking fillers (I’m an only child so she always goes a little overboard). The stocking fillers always used to be useful things, socks, underwear, occasionally toiletries. I always loved this, I went through a stage of about four years where I didn’t have to buy my own underwear because I always got new ones at Christmas!

Of late though she’s been buying more trinket type things that don’t have any use. It’s not that I mind her buying things like that, it’s more that I feel bad that she’s spending money on something that is just going to get (eventually) thrown out because I have no use for them. I think she’s doing this because I’ve become more frugal over the past few years and she thinks I’m depriving myself, when the truth is I just laugh at the prices they put on things that have (in my mind) no value. Any ideas on how I could suggest to her that I much prefer the socks and undies route? I’ve tried commenting how awesome it was when she was doing the socks and underwear thing but that didn’t work.

As I said, it’s not a huge problem, it’s not that I mind that much getting those sort of things, I know that the thought is there, it’s more that I feel bad that she’s essentially wasting her money.
- Lauren

I think the key is communication, but I wouldn’t do it right in the face of the Christmas season.

Accept whatever you get this year, then have a conversation about this in April or in June or in September. Sit down with your mon and simply say that you actually do not want a lot of those “trinket”-type things. Reinforce it by simply not commenting on or even gently deriding the materialistic things you don’t value outside of the context of gift-giving.

The key is to make sure that you’re not bashing your mother’s gifts. The purpose of this isn’t to hurt her feelings but to make sure she understands what you actually value. Tell her what you value and make it clear to her through your actions.

Q10: Sleep remedies
You almost always seem to have great frugal ideas for life’s problems. My big challenge as of late is insomnia. I often can’t get to sleep until one or two in the morning and when I have to get up at six, I’m exhausted. Do you ever get like this and if you do, how do you deal with it?
- Evan

Whenever I’m having a hard time sleeping, I do two things.

First, I exercise a lot in the morning. Not in the afternoon or evening. The morning. I do something around the house that requires a lot of exertion or I’ll go on a brisk walk or jog for a long while or I’ll go on a bike ride. The key is to really wear myself out in the morning so the endorphins and other responses wear off before bedtime, leaving me with physical exhaustion.

My other tactic is my old standby of warm milk with nutmeg. I just take some milk, heat it until it’s warm (bordering on hot), and sprinkle several dashes of nutmeg on top. This puts me to sleep really well, for some reason.

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

For those of you who don’t know, Kickstarter is a website where people or groups can pitch a project for funding from the public. For example, you might have a game you want to publish, a book you want to distribute, or something else.

The site allows people to ask the public for support of their project. For that support, supporters are usually given some sort of reward: a signed copy of the book, an early release copy of the game, and so on.

Kickstarter has become my (no longer so) secret passion of 2011. I love the entrepreneurial spirit. I love the great ideas people come up with. It’s just fun for me to browse the projects and watch human ingenuity and creativity at work.

Q1: Facebook alienation and human interaction
Earlier this morning I was reading an article on the New York Times (source: http://www.nytimes.com/2011/12/14/technology/shunning-facebook-and-living-to-tell-about-it.html?_r=3&hp=) about people who refuse to use facebook. Their reason is that in this modern day and age, they feel its actually driving a wedge between their closest friends and themselves. Where once they would call one another, now they shoot a quick message on facebook. Instead of calling to announce something, they would just post an open message announcing it. After giving it some thought, I actually agree with them a lot. I know you frequently write about the value of friendships and relationships, so what are your thoughts? Do you think that social media like facebook helps, or hurts our relationships with other people over time?
- Dale

From my perspective, Facebook is roughly as personal as a phone call. With a phone call, I can’t see the person and I can’t share an experience with the person. Quite often, I find myself leaving a voice mail, which means the conversation isn’t synchronous. Phone calls do have the voice element to them, but as with Facebook, you’re still chopping away big pieces of communication when you can’t see someone.

Both Facebook and phone calls are trumped by face-to-face interaction, though. With that, you get the full experience: you can see the person, you can hear the person, you can share ideas, and you can share experiences.

For me, the sole purpose of Facebook and phone calls is to lead in some way to face-to-face interactions. It’s nothing more and nothing less than that.

Q2: Save or pay debt?
I live in Costa Rica in central America, I’ve always lived here and probably will always live here so there’s no going back to usa to live or retire.

I’m married and have two kids a 3 and a 9 year old, our currency is the costa rican colon, and the exchange rate is approx. 510 colones to a dollar.

My financial situation is this. (All the money I’ve translated into dollars for ease of explanation, but we use colones.)

My salary is 4000 dollars per month take home pay this is after taxes and retirement (a pension plan), my wife brings about 2100 dollars a month after taxes and retirement, our living expenses including mortgage and car payment, school for the kids, food, entertainment etc is about 2500 dollars/month.

My savings are about 36000 dollars in cash, my debt is 33000 left on my home with a loan at 14% (the rate is high because is in colones not in dollars) with 14 years to go, mortgage is about 500 dollars a month, also a car loan of 28000 dollars at 6% (this is actually in dollars, I know our rates are insanely high) with 8 years to go and a monthly payment of 455 dollars including insurance. I have no cc debt or any other debt.

I am able to continue saving about 1800 dollars a month, I know that there might be a chance (50%)my income will go down to about my expense limit in early 2014, this means I’m going to be able to cover my expenses but not save, only about 200 dollars a month.

Also education for my kids is not very expensive here, Medical school for instance can be about 20000 dollars for the whole career, I’m also saving about 100 dollars a month toward college for my kids.

My question is this. Should I:
(1) continue to save $1800 every month (I can get about 8% in a CD, our stock market its not good)
(2) pay down my house (which I don’t intend on living for the rest of my life as it is, I want to either buy a new one or completely remodel mine in a period of 3-5 years, my house has about 100% equity which means that’s worth double what my original loan was)
(3) Pay down my car loan (In Costa Rica the cars depreciate not as bad as in the usa but pretty rapidly)
(4) A combination of the above, and if so in what %
(5) Or something else
- Ron

If I were you, I’d follow a very simple plan.

First, I’d set aside about $1,000 for an emergency fund. This would help you in the event of a personal crisis or other such issue.

Next, I would take the rest of your savings and apply it to eliminating debts that are above the 8% you can get in a CD. I would start with that 14% mortgage. I would just eliminate the whole thing with your savings.

If you have all of your debts eliminated that have an interest rate higher than the CDs available to you, then I would return to a focus on savings. As long as you’re getting a return that’s higher than the interest rate on your debt, keep saving. If your debt interest rate is higher, pay off debt.

This will get you into the best financial shape for the future, I think.

Q3: Thoughts on inheritance
I was just wondering…how much of the the economy and growth in the U.S. depends on inheritance (in your opinion)? People dying, other people getting their money/house, adding value to it, then passing it along when they die? And I don’t mean millions of dollars in inheritance–even smaller sums like a few thousand dollars. I feel that I hear an inordinate amount of stories from people who are only able to have a down payment for a house or fund their child’s education due to an “unexpected” inheritance from a late family member. Is that really how money works from a bird’s eye view?
- Jessica

I think that receiving an inheritance from a parent or grandparent that passes away is a fairly common thing, and that people who receive such windfalls often put it towards a major purchase, such as a house down payment.

I think the entire process of parenting, from the birth of the child to the death of the parent, is a transfer of wealth and other resources from the parent to the child. Obviously, there are things that an adult child can give back, particularly late in the life of the parent, but the largest transfer is from the older to the younger.

That’s always been the case, I think. Since the earliest civilizations, resources have been kept within families. Farms, homes, and other assets were passed from parent to child and on down through the generations. What you see with such inheritances is just the modern version of that.

Q4: Privacy and blogging
You mentioned that you shut down your popular parenting blog due to “privacy invasion issues.” Can you tell me about some of those issues — specifically, what advice do you have for other bloggers who are trying to maintain a balance between being open/transparent and protecting their privacy?
- Ellen

In 2005, I started a parenting blog as I prepared for the birth of my first son. I continued it after his birth for a while, into early 2006, when I made the decision to take it down. There were a few personal threats made toward me and my child that went beyond what I consider normal internet “trolling.”

My suggestion to new bloggers is twofold. First, never post anything on your blog that you would not be perfectly comfortable with a stranger knowing about you. Hand in hand with that is to be extremely careful about what you post regarding people besides yourself. I often edit specific details of people I know and specific situations in order to protect the privacy of people I care about. The Simple Dollar isn’t about invading the privacy of people.

Second, get a thick skin. If you start writing about yourself and gain any degree of popularity, people are going to come out of the woodwork to say negative things about you, often unbelievably negative things. People can and will try to hit you where it hurts. Most of the time, they’ll use a curtain of anonymity to do it. My advice is to just ignore most of, if not all of it. There are sometimes valuable things that are said in there, but if it’s truly a valid concern, it will become apparent in other ways.

Q5: Slow student loan repayment?
My fiance is moving from San Francisco to New York in a month to begin grad school. I had hoped to move with her but I don’t want to change companies and my ability to move with my current employer is in doubt. As a result, I will be moving back in with my parents for perhaps as long as two years when she will graduate and move back to SF. At that point we would get our own apartment again.

I was planning on saving a good chunk of money to help pay down her debt, or save enough to reduce the amount she would have to borrow in her second year. At the very least I was thinking I would be able to pay a big chunk of her debt (15 to 20K) right as she exits school. I was explaining this to a friend recently who said I should research because I may be able to write off loan interest.

My question is two parts; 1) Is my friend’s assumption true and is there upside to paying off debt slower? and 2) Is it better to not spend that money on paying down debt so we can use it toward a down payment on a small 4 to 6 unit apartment building (my dream) or our first house (more realistic). I’d expect we might look to buy a home in as soon as 4 to 5 years.
- Leo

If I were you, I’d hold onto the cash until you’re ready to buy a home together. One big reason is that you’re entering what is going to be a challenging period for your relationship.

Long distance relationships are very difficult to maintain – I’m speaking from experience here – and you don’t want to have invested a lot of money into paying off your partner’s loans only to find that your relationship has not survived.

If you do find yourself together after this period, then I’d sit down and figure out what your shared goals are and what your realistic job opportunities are. These will provide you the clues you need to decide what to do next.

Q6: Parenting blogs
Question for you – do you have any parenting blogs that you read on a regular basis? I’m a new parent, and now and ex-pat, and am looking for a few to keep me motivated in that part of my life.
- Kristy

I had a lot of parenting blogs that I used to read that slowly went defunct over time. It’s very hard to keep the fuel behind a focused blog over a long period of time.

The one blog I’ve enjoyed for a very long time that’s still going strong is Parent Hacks, which I occasionally link to in my weekly roundup. I find useful tips there all the time and I often find myself searching through the archives for ideas.

I don’t read most of the “big” parenting blogs that people often mention.

Q7: Loan or no loan?
I am going to school for my MBA (Master’s of Business Administration). My work has a policy to where they will pay for my schooling, but I have not heard a definate answer one way or another. The VP has approved it but the President has not, and until the President approves it, I may or may not get reimbursed for it. My dad has offered to pay for school until work pays me back, if they do so. If not, then i’ll owe my dad for the tuition. My dad is about to retire in the next few years, so I feel bad taking a loan him, especially since if work does not pay for school, it’ll take me a couple years to pay my dad back. My question is this: should I take my dad up on his offer or go ahead and take out a student loan to cover the remainder of my MBA? Oh and a few other things, my dad “gifted” me first semester’s tuition already. I don’t have a whole lot of credit either. I am working on that with my first credit card this year. A secured card. I have zero debt. Would a student loan boost my credit? is it worth the risk, if work doesn’t pay for school? Or should I take the “safer” route and take out a loan from my dad?
- Ed

First of all, I wouldn’t borrow money from your father who is on the verge of retirement. I’m sure that he’s quite willing to loan you the money, but this is a time where you need to stand on your own two feet and not inject a lender-borrower relationship into your relationship with him.

That being said, if I were you, I’d probably directly ask the company president about the situation before I do anything else. If he denies it, then you’re working for a company that doesn’t stand by their word and I would start looking elsewhere for work, because they’re likely to change their mind about other things, too.

If you’re forced to take a student loan, that’s not necessarily a bad outcome. Student loans do help your credit. They can just feel like an albatross around your neck after you graduate and get your first post-graduation job.

Q8: Savings versus complexity
Over time I’ve picked up specific credit cards that offer a 5% discount at specific locations, two airline cards, and three general cash back card (1% on everything plus 5% on rotating categories). In total I have 10 total cards and charge roughly ~$1000/month combined on the cards. So over the course of a month I can “save” between $10 and $50, but I add a lot of complexity to having to pay multiple cards at the end of the month and I worry that any “savings” that I get will be eaten up by the first mistake I make when I miss making a payment. The additional time isn’t major (maybe 15 minutes a month to pay the bills online) but how do I put a cost on the mental energy that that keeping track of this requires. I have a spreadsheet where I record all of my spending (and have for the past 3 years, a marketer’s dream) so I know what needs to be paid every month, but that doesn’t stop me from worrying that a mistake will still be made. I really think that I need to find a way to look at this issue just beyond any potential financial savings, any advice or suggestions?
- Martha

If this is causing you significant stress – and it seems to be – then it’s not worth the $10 or $20 a month that you’re saving due to this plan.

If I were you, I’d simply decide on the one card that seems to rack up the most rewards for you based on how you spend, then just use that one card for everything. I would then close most of the other cards, keeping only the card I’ve had for the longest (to help with credit history).

For me, playing such games has never been worth the time or the concern about mistakes made.

Q9: A “getting started” checklist
I’m about to graduate with a bachelor’s and go to law school. I’m also about to get married. Up until this point my parents have been so supportive and generous even to a fault. As a consequence I haven’t thought too much about money or done much about it. Considering I’m going to be really on my own soon I was wondering if you could offer a concrete checklist for people who are just starting out. I think this would be helpful for a lot of people.
- Jim

One could write a “checklist” a mile long in this case because there are so many variations and contingencies in the type of situation that you describe here.

If I were you, I’d hit the library and check out a few books targeting your position in life. Two books that immediately come to mind are Automatic Wealth for Grads by Michael Masterson and Smart Couples Finish Rich by David Bach.

On top of those, I’d also read Your Money or Your Life by Joe Dominguez and Vicki Robin. It’s the book that changed my life in terms of my finances.

Q10: Third child
I read a few of your articles and found them very interesting! we are also trying to pay off debt AND decide about a 3rd child. I notice you decided to stop at 2 but then changed your mind? What did it?
- Jessie

Sarah and I had long ago decided to have all of our children relatively close together in age so that they would feel roughly like peers as they grew older – or at least have a sibling or two that they could consider a peer.

Sarah had a very close relationship with her sisters, particularly one that was born less than two years after her. I had a more distant relationship with my siblings, mostly because the closest one to me in age was nine years older than me. We wanted a dynamic more like the one she had with her siblings.

As time passed after our second child, we just kept talking about this subject more and more, and we basically decided that if we were going to actually ever have another child, we were either going to do it now or never do it. I think the immediacy of it convinced us to just go for 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 (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Sometimes, when you see someone you once spent a lot of time with but haven’t seen in a while, the interactions can be awkward.

At other times, you’ll fit together like nothing ever changed.

I’ve experienced both in the last few days.

Q1: Investing in a taxable account
I match my employers contribution of 5% in my 401k (started last year I’m currently 29). I’m planning to open a Roth IRA with Vanguard on my 30th birthday. I have a checking account with Charles Schwab which includes a brokerage account the question is what kind of funds do I invest in? My 401k has an asset allocation of 30/70 Pimco Total Return Bond Fund/Spartan 500 index fund, for the Roth I was thinking of using a target fund, but I’m clueless as to how to use the Schwab brokerage account, I was interested in something that would give me passive income. I’m 29 with a 401k, Schwab brokerage account, and soon to be established Vanguard Roth IRA and I’m earning about $30k/year, less than $180 in debt, and maybe $7k in precious metals, my emergency fund is less than $300 but I’m working on it. What do you say? I started late but am I on track? I’m tired of spending I want to be a saver. Again what do I invest in a taxable account? Thanks
- Ron

The first thing I’d do is figure out what my goals are. Why are you saving? Do you want an early retirement? Do you want a well-off retirement? Do you want a nice home in ten years?

Investing without a goal in mind is like spending four years at a university without a major. You’ll have accumulated a lot, but you won’t necessarily be ready to take the next step.

I’d suggest figuring out your goals before you do anything else. A taxable investment account may be a big part of achieving those goals, but it’s not a goal in and of itself.

Q2: Pushy mother of child’s friend
I left my job earlier this year to stay at home with my two daughters. I left a well paying career because of stress and in order to spend more time with my girls. I’ve taken on a number of volunteer roles as well as enrolled in a co-op preschool with my youngest daughter which takes up two days of my week. Suffice it to say that I’m busy during the week. My older daughter has a friend at school who really likes to come over and spend time at our house so much so that she routinely asks if she can come over after school. This bothers me because I’ve always believed that you wait to be asked over to someone’s house.

Recently, the friend’s mother has started asking me to watch her daughter for several hours at a time sometimes multiple times a week. She is in college and has recently broken up with her fiancee who helped with her childcare. She also waits to ask me until an hour or so before school lets out. This has really started to bother me on multiple levels. She has never offered to pay me or even watch my children in return. I don’t mind helping out but it doesn’t seem fair that she asks me so often. I also don’t like being put on the spot at the last minute. So I started not answering the phone when she calls or making up excuses about why I can’t watch her daughter. However, I feel bad about it. She is in a tough spot right now. I’ve tried to explain to her that I don’t mind helping but I need advance notice but that doesn’t seem to do anything. I’m starting to feel rather resentful. So what should I do? I quit my job for a less stressful life not so I can be the on-call, unpaid babysitter for other people. Do you ever find yourself in a similar situation since you do not have a normal 9am to 5pm job?
- Carla

The mother is taking advantage of the situation, no doubt about it. The solution is for you to simply put your foot down and say that you’re not available to babysit at her convenience.

One thing worth noting, though, is the impact this is all having on the young friend of your daughter’s. She’s clearly got to be aware that her mother is going through a hard time right now and may be looking for some steadiness in her life, something you might be providing for her.

If I were you, I’d help out some, but I would not do it at the drop of a hat. That’s the role of a paid babysitter, which you’re not.

Q3: Buying furniture
My husband and I recently moved into a 3-bedroom house, which we are renting. We have very little furniture – a mattress, a hutch, a couple bookshelves – because we recently finished an extended travel sabbatical, and we gave away all our old furniture before we left. We are in our mid-30′s, have no debt, and no kids (though we hope to start a family in the next year or two). One well-behaved dog. Our 401Ks and IRAs are funded, and our emergency fund is stocked. We plan to eventually buy a home, probably in the next five years, but haven’t chosen exactly where we want to settle down yet (the 20%+ deposit is already in the bank) and we live in an area where the housing costs are very high. We are allergic to debt, and prefer to spend our money on experiences over material things…which leads to our dilemma: spending money on furniture.

Our challenge right now is figuring out our strategy for furnishing the place. Do we buy a few quality pieces that we plan to keep for our future home (sofa, dining table, dresser, end tables) and furnish the rest with inexpensive and/or “disposable” furniture? Or do we furnish the whole place as inexpensively as possible, saving our cash for when we do buy a home? Since you live in a house that is not your long-term dream home and have children, I’m interested to hear your thoughts on acquiring furniture.
- Anne

Our method for this was to furnish our entire home as cheaply as possible, then start upgrading pieces as they wore out or opportunity struck us with higher quality pieces.

For example, our original dining room table was an ancient and well-worn hand-me-down from my great grandmother. One of the legs was a bit wobbly and when it reached a very bad state, we replaced it with a much more long-term dining room table.

I can tell a very similar story about our couches, our chairs, and so forth. Of our first batch, many came from Goodwill or were hand-me-downs. Over time, we replaced them with much better versions, but not all at once.

Q4: Going back to school
I am a 25 (soon to be 26) year old who graduated from my undergrad about 2 years ago. I originally went with the intent to get a degree in education and along the way became involved with a residence life organization (a group of students who work with college students who live in the residence halls on campus) and decided to look for graduate assistantships that would pay for graduate schooling while I worked with residence life and college students. I dropped my education major and graduated with Spanish and English majors.

I received a graduate assistantship in another state (I am originally from the Midwest) and decided to go work out East and enjoyed my time working with the college students. However because of the heavy workload, homesickness and an unwavering feeling that I should be working with different students I decided to leave after one year. Following that decision, I decided to move back to my home-state and take a year off and figure things out.

During that year I decided that I wanted to go back to school to get that education degree but more specifically for Special Education. There have been numerous instances that have pointed me in the direction of working with students that have disabilities. This upcoming year I will be attending graduate school for Special Education. I have started to pay off (very slowly) student loans that I acquired while I was taking my undergraduate degree. I guess I am wondering (since I know that Special Education won’t make money) what the best way about getting funding is. Or if you think this is a wise decision financially? I guess any direction would be greatly appreciated.
- Emily

You can’t make your career choice based on finance alone unless you want your career to be mired in unhappiness. A career that you solely get into for the money will either lead you to a life you don’t like or to a wasted degree.

If you’ve figured out what you want to do, then I would go for that degree. Go for it with relish, get every valuable bit of education and experience you can, and put yourself in the best position you can to get the job you want.

As for funding it, your best route would be to start seeking out scholarships and aid specifically for that area. There tends to be aid available for people who want to take on educational and career paths such as these. Start with the education department at your institution and also check with the financial aid office.

Q5: The burden of care
If everyone takes steps to prevent health care facilities from “taking all their money” then who is supposed to pay for all of that very expensive care? Are you and I supposed to help bear the burden of someone’s care (should he need it) while his children benefit from his [...] windfall? I have a parent who is in Assisted Living which costs almost $4000 per month. Because my parents were frugal there was money in the bank as well as a home that will be sold to pay for my Mother’s care for as long as possible. This is her money—not mine – not an inheritance for the Grandchildren. If she did not have these resources she would be (and will be if she outlives her money) receiving Medicaid and living in a Nursing Home although she does not need to be in a Nursing Home – she just needs some help with daily living. My family was not wealthy—they scrimped and saved all their lives and I am sure paid their fair share of taxes to help take care of those people who somehow made sure their children would inherit their money..

Have you considered this aspect of people trying to “hide” or gift that money so that healthcare facilities don’t “get it”? Who IS supposed to pay those (underpaid) medical professionals who care for us when we are old and infirm – especially if we do not or cannot move our parents into our own homes and care for them ourselves?

I could not live with myself if I knew I had all of my Mother’s money while she was forced to live in a Nursing Home when she could no longer live alone but did not need 24 hour nursing care. And Medicaid will NOT pay for Assisted Living – only Nursing Homes.
- Rhonda

It really doesn’t bother me too much, to be honest. If a person has accumulated significant wealth in their life, then they’ve had to pay taxes during that accumulation, likely at a higher rate than people with less wealth. They’ve often paid a lot of taxes over the course of their life.

That money they’ve accumulated is their after-tax money and they should feel free to spend it as they wish. If they choose to spend it by gifting it to family members, then rely on a lower level of senior care as is made available through government programs, that’s their choice. If they want to hang onto that money and have a higher level of care, that’s also their choice.

There’s also the case that you’d be punishing the frugal. If someone can blow every dime they’ve earned throughout their life and then the state takes care of them at the end, but someone who carefully saved throughout their life has to pay for that care out of pocket, the situation is encouraging people to just blow their money.

Q6: Idle computer energy drain
I have become very intent on saving electricity where ever I am able to. Several blogs have told me that saving electricity by unpluging or switching off devices with a constant power draw, such as laptop and phone charger, can save me a few dollars from my power bill every month. All of my devices are on one power strip, but it is a pain to switch it off every time I am not using it (under the desk, hard to get to, etc etc). Am I really saving a significant amount of money by doing this? Or am I crawling under the desk for nothing?
- Craig

It will save you a few dollars every month, but just a few dollars. Is it worth it for you to climb under that desk several times a month to save $2 or $3 or $4? I can’t really answer that for you.

For me, it would be worth it to rewire things so that such a switch is easily available without a lot of effort. What I did with my main computer setup is get a power strip with a “master” plug-in where if the device on the “master” plug-in isn’t drawing electricity, then nothing else on the strip gets any power. I plugged my main computer into the “master” and devices like the monitor and the printer and the USB hub into the other slots.

If the only option is to crawl under the desk repeatedly for $3 a month, it wouldn’t be worth it for me. I would probably look for other solutions to the problem, though.

Q7: Considering a job change
I am in an interesting position right now as a full-time graduate student. I cut back on my hours at my loan servicing job to go to school full-time this fall. (Library Science) I absolutely love my program and being a student again, but I’m struggling because I am very unhappy with my current job. I’ve been at the same job for three years due to the bad economy and the safety net of a job with health insurance. To be perfectly honest, this job also helped me decide to return to school after I realized how unhappy I was working there!

I seem to run into the same problem every few months. I’ll tell myself I need to count my blessings because I have a job with insurance and can go to school full-time. Having this job takes off some of the financial stress as a student, and I’m able to volunteer to gain experience in my graduate field of study. But then I run into a stressful period or become upset with something that happened at work and I find myself dreading the next work day. I’m very frustrated with some aspects of my job that are beyond my control, but it mainly boils down to some business practices emphasizing quantity over quality and the lack of opportunities to advance in my current position. It’s strange because I consistently receive good reviews from my managers but I just hate the job itself. I don’t find very much personal satisfaction with my work, and I don’t like working for a large corporation.

I feel terribly guilty complaining about my job when so many people do not have jobs or health insurance. I also feel that since I repeat this same cycle every few months, I should try to address these feelings and at least think about finding a different job. But I just don’t know if it is smart to try and find something else now that I am a student.

Do you have any advice for me on how I can improve my attitude? Or is it really just a better idea to try and find a different part-time job that will be more tolerable?
- Louise

In your situation, this job is a blessing, but I think you’re looking at it from the wrong perspective. This job is a paycheck. It’s nothing more and nothing less. It is not furthering your career ambitions. It is merely making your path to the degree you want much more comfortable.

Compare it to the other part-time options you have, such as working at Burger King or being a checkout person at your local Target. The compensation would most assuredly be less, you would be without insurance, and you’d probably have many of the same complaints.

Go there, do your work, and conserve your energy and thoughts for your Library Science degree and your career after that. Ignore the politics of the job and other factors. Just do the work, but keep your focus on what your passions are.

Q8: Low interest debt?
I work full time and go to college part time. I have to work in order to pay for school. I am faithful in saving for my tuition every semester, as well as saving for retirement and putting towards an emergency fund. Since I am 27 years old, I know that now is the time to save for retirement in order to take advantage of compounding interest. This is my question: Since my income is not high and I qualify for financial aid, should I just use the financial aid (at a low interest) to pay for school – even though I have the money saved up for it. Furthermore, I would use the saved money to max out my Roth IRA for the year. I think of this because I feel I will be able to pay back my loans when I graduate while taking advantage of about 2 more years of compound interest. On the other hand, I am nervous about having a student debt. What do you think?
- Mike

I would avoid going into debt, even with relatively low rates. Having that debt after you graduate will restrict your options and your career mobility by raising your monthly required bills. This is not something you want to have freshly out of college.

My single biggest financial regret in my life is taking out more student loans than I needed. Student loans became an albatross around my neck for the last decade.

If I were you, I wouldn’t sweat the retirement savings at this point. If you get out of college with a degree and without debts, you’ll be far ahead of the financial game anyway.

Q9: Secret Santa difficulty
At my office, we have a “Secret Santa” exchange each year. Rather than drawing names, everyone puts a $20 gift into a box, then everyone draws a gift out of the box.

This seems like a waste of money to me and I don’t want to participate in it this year. How exactly can I get out of this tactfully?
- Megan

It depends greatly on the culture of your office environment. At many offices, such a gift exchange is just a way to have a social encounter with coworkers, often a lengthy one. The gifts are secondary – the reason for doing it is coworker relationships. If this is a job you value, that kind of relationship building is well worth the $20.

This is also a great opportunity for “regifting.” If you have an item around your home that’s unused that you could easily put into the exchange, do so.

Of course, there are other offices where this is just something people do very casually, without much social interaction or a big deal made of it. If that’s the case, just simply bow out with the person running it. Talk to them privately and just say that Christmas means something different to you.

Q10: Road trip music
Like you and Sarah, my wife and I go on lengthy road trips when we visit family. Along the way, we listen to music. However, my wife and I have very different tastes in music. I like Muse, she likes Adele. I like Tool, she likes Norah Jones.

To put it frankly, I’m not a big fan of “her” music, nor she mine. How do you guys handle music selection on your road trips?

I know this isn’t a typical “reader mailbag” question, but it’s something that we’ve bickered about off and on over the years.
- Andrew

Sarah and I do have different tastes in music, and this causes occasional difficulties on road trips. We have two solutions.

First, we often listen to podcasts. While we don’t like the same music, we do have other interests in common, such as current events. I’ll just get a bunch of podcasts on current events and other shared interests before we go and we listen to those.

Another thing we do is seek out artists that we both like. The way we do that is that we both occasionally build eclectic lists of stuff we each like, then we listen to these together and the other person listens for things that they like. Through this, we’ve built at least one good-sized list of stuff we both like.

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

I get two or three book suggestions from readers a day. Usually, one of them is related to personal finance, while the other one or two could be anything.

I just wanted to give a shout out to three great books readers have recommended to me and I’ve enjoyed in the past year: Where Men Win Glory: The Odyssey of Pat Tillman by Jon Krakauer, The Way of Kings by Brandon Sanderson, and Moonwalking with Einstein by Joshua Foer.

Reading a great book is one of my favorite experiences.

Q1: Investing in tax liens
I have heard a lot about investing in tax liens as a risk free (?!) method to get an 18% or more return on your money or acquire the property. I am interested in seeing an evaluation of investing in tax liens. What do you think about tax liens?
- Roger

Investing in tax liens means that you’re purchasing liens held against a property, usually from the state. This is usually due to unpaid taxes and accrued interest.

It is not a risk-free method of investing. If you don’t know the exact procedures for the process in your state, you can very easily end up losing your deposit or find yourself holding a worthless lien. For example, you often have to pay the full amount within 24 to 72 hours of agreeing to buy a lien and putting down the deposit, and if you fail to do so, you lose the lien.

There are also risks involving the property you’re holding the lien against; you can’t insure it, for example, and if the property has environmental problems, you could be responsible for the cleanup.

Tax lien investing works well for institutions that have the bankroll to handle the risks inherent in such investing. If you don’t have a lot of money and a strong legal understanding of what you’re getting into, they can be dangerous.

Q2: How much for housing?
How do you determine how much you can afford for a mortgage and/or rental payment? For instance, I’ve read that you shouldn’t pay more than 25% of your monthly take-home pay for housing costs. But does this include taxes, insurance, and utilities?

Here is my specific situation. Background info: I have an emergency fund of $7,000, I have no debt, I am 26, female, and I currently rent (living alone), paying $860/month for a one-bedroom apartment. Heat and hot water are included; I pay the electric bill, which averages $22/month.

It has my been my lifelong dream to own a dog, and I finally found a dog-friendly apartment in my city. The rent is $950/month (for a one-bedroom apartment), but no utilities are included. Per the current tenant, the gas bill runs about $160/month in the winter. I would still have to pay electric (about $50, as this apartment does have a washer/dryer).

After contributing 15% of my income to my 401K and Roth IRA, I have about $1300/month to put into savings. If I rented this apartment, that would be a hit of $300/month from that savings, plus the cost of caring for a dog.

My ultimate question is two-fold: First, what percentage of your income should go toward housing costs? Second, am I better off saving the full $1337 for a home? Or going for the rental situation? Am I losing out if I decide to rent?
- Lauren

There are a lot of “rules of thumb” out there regarding how much of your income you should put toward housing. From my perspective, if you’re putting much more than 25% of your income toward your housing, you’re starting to put yourself in a risky situation.

As for renting versus buying, if you’re paying more in interest on your monthly mortgage payment than you would be paying in rent, then I would probably rent.

The easiest way to figure this out is to get a mortgage quote, then run some calculations on it. The housing market is depressed enough right now that I would not look at a home as an investment in the short term.

Q3: Stuck in a rut
I’m unable to leave my home due to health issues, I’ve lost my job, but I have my finances taken care of, that isn’t an issue, nor is housing, etc. Everything is in order.

My issue now is that I’ve lost my way regarding what to do with my life. Everyday is like the movie Groundhog Day for me. I’m on the internet looking at sites or watching a movie, not really doing anything. I write for a local political site from time to time, but do not get paid. It gives me something to do.

Even with the little writing I do, I feel like I’m wasting away. I want to make a contribution to society or at least do something that I feel makes me a better person. I’ve thought about starting my own website, doing more regarding social media, but I don’t know if it’s for me.

I’m in a rut and don’t know what to do. I want to get out of the repeating cycle but don’t know how. Any advice would be welcome. I don’t want to keep looking back and seeing that I’ve done nothing.
- Gary

My suggestion would be to try something new every day.

Try knitting one day. Read a book of philosophy the next. Try a new computer game. Learn how to do acrostic puzzles. Try cooking a challenging recipe. Learn how to write the code to make a website. Learn how to use Photoshop. Learn how to speak French. The list is never-ending.

I’m not entirely sure what your health situation limits you to doing, but if you’re able to use the internet, you’re able to read and write, which opens the doors to a lot of things. Keep trying things until you find something that really excites you, then start hammering away at that thing.

Q4: Choosing an investment house
I am 23, married and my husband & I just graduated from college this past May. I want to go ahead and start saving for retirement ASAP and I have spoken with a friend of mine, who is older and has worked in the financial field for many years. He advised that we open an Roth IRA account (in my name initially) and put in $50/month, increasing that as we are able and eventually open another account in my spouse’s name. So that is the plan, but my question is where should we open this account? He mentioned Vanguard, T. Rowe Price, and Fidelity as well as a few others. Advise would be greatly appreciated! How do I decide where to open this account/what should I take into consideration? We don’t make a lot of money right now; however, I plan to just take that $50 and the money we give to church out before we even consider what to use our income on as if it was never even there in order to be disciplined in saving. I also have a set amount from each pay check that is going towards building an emergency fund that is nearly complete.
- Kelly

I can’t tell you where to invest. Most of the major investment houses have their good points and their bad points.

What I can tell you is what I use and why. I use Vanguard for my personal investment purposes. I chose them because I believe strongly in using index funds for passive investing, which is their strong suit, and their hands-off approach to dealing with investors. I don’t feel like they’re trying to sell me stuff.

What’s a drawback to using them? Many of their funds have a $3,000 minimum before you can start putting funds in. This means if you want to diversify across, say, five funds, you need $15,000 to start with. There are a few ways of getting around this (not starting until you have $3,000 in the bank, for one), but it can be a limitation for many.

Q5: Turning the economy around
Have you noticed people shifting their thoughts about their financial lives in the last 12 months? It seems like a financial turn-around in the U.S. will require more than just money, it will require a change of spending habits and how people think about money. Do you see any evidence that people are changing in those ways?
- Emily

I feel like there’s been some change since I started this site in 2006, but I don’t feel like too much has changed over the past year.

In a nutshell, I think 2008 woke up about 5% of the American public to keeping better care of their money.

The other 95% are still doing pretty much exactly what they were doing before the financial downturn began.

Q6: Investing for youths
Our 10-year-old has saved $500 from his odd jobs around the neighborhood and within our household. He wants to start investing. What would you suggest for him?
- Amber

It depends on whether he’s actually investing for a specific goal or whether this is going to be an experience in learning about investing.

If it’s about learning, I’d get an account at a brokerage and let him manage the money himself. Get him a basic investing book and let him invest it as he chooses. If you’re unsure of things, learn along with him.

If it’s about a specific goal, I’d figure out how far out that goal is and how much risk he’s willing to take on. The closer the goal and the lower the risk, the more likely I’d be to just put it in a savings account (a low-risk investment with a low but guaranteed return). If the goal is long term and some risk is acceptable, I’d do something more high-risk like investing it mostly in stocks.

Q7: Reactivating old card
I just finished paying off my debt management plan (DMP)! I am looking to have one or two credit cards to charge small bills to and pay off each month to boost my credit score. Many of my unused lines of credit were closed when I started my DMP program but there is an inactive account with a small credit limit that it still showing as open on all 3 credit reports. This inactive account was opened in 2003.

Do you think it is better to open a new credit card for my plan or should I call the bank to see if they will reactivate this old account?
- Charlene

It’s likely that the business has closed the account, but failed to notify the credit bureau. It’s probably a net positive for you for it to remain open in this fashion, as it extends the length of your credit history.

If I were you, I’d try to establish credit elsewhere, keep it paid off for a while, then contact this company to get it straightened out.

Once you don’t need the account any more to establish the length of your history (in a few years), you’re better off closing the old account.

Q8: Auto loan credit question
I graduated with my Bachelors in May of 2010 and have been working full-time since making about $50k/year. I currently live at home with my parents but am moving out soon. I had been using my junker car I got when I was 16 until I recently totaled it in a snow storm so now it is time for a new car. I have plenty of cash on hand to pay for the car (about $40k in cash) but because my current types of credit on my credit report are so low and limited (2 student loans, a credit card, and that’s pretty much it, no auto or home loans) that I want to improve by credit score. Types of credit and amount of accounts seems like one of the most glaring negatives on my credit report. I want to upgrade from my previous junker but nothing too crazy (I’m thinking about $15k). I was thinking I would make a large down payment of around $5,000 and get a $10,000 loan at a low percentage like 2.99% through my local credit union and pay it off quickly. Does this sound like a good plan or is there a more ideal plan to build my credit while avoiding the interest and debt? It seems like I have several options in this situation. Should I pay it off immediately or will this not be as good for my credit as paying it off over a few years? Should I just take an auto loan for the full $15k and pay it all off immediately? Should I take out a loan for the full $15k and just make the monthly payments while investing my cash elsewhere (hopefully at a rate higher than 2.99%)? What is the ideal way to handle this?
- Kevin

Assuming your card is in good standing, I don’t actually think your credit is too bad. If you have a large down payment on your car loan in hand, you’re likely going to get a very good rate on your car loan.

Now, as for the question of how much you should put down, if I were you, I’d pay as much as possible down except that I’d keep a thousand or two for an emergency fund.

Having debt means that you’re leashed to a monthly debt payment for the foreseeable future. That means you’re required to keep a job that can cover all of these payments, meaning you’re not free to make many career changes and you’re in complete panic mode in the event of a job loss.

Unless there’s a compelling reason to do otherwise, it’s always best to minimize one’s debt.

Q9: Handling an inheritance
Short back story…

I am in my late 20′s with student loans (about $40k left @ 6%) and a mortgage ($220k left @ 6.5%). My husband and I have worked hard to reign in our spending and have paid off about $25k in credit cards, $30k in car loans, and are saving money for our future in terms of an emergency fund and our retirements. We plan on renting our house out next summer(just enough to cover the mortgage costs) by living in a tiny house on our 6 acre property to further reduce our living costs. I will be leaving my job next month and my husband makes about $60k/year and our living expenses total about $1k without the mortgage.

My question is this:

My great aunt passed away in October after a very long battle with cancer. I have learned I will be inheriting about $500k from her estate after taxes (estate is paying taxes).

I would like advice on how to invest this money in a way that allows me to live off the interest without touching the principal balance for the remainder of my life.

I understand if you cannot offer specific investment advice, but it would be greatly appreciated if you could point me in the right direction on whom I should contact (attorney, financial planner, investment broker, etc.), books to read, and what I should be looking for as I don’t want this money to fall into the wrong hands and would like to maintain as autonomous with it as possible. If you need any further details or information, please let me know.
- Jill

$500,000 is not enough money for you to live on the interest for the rest of your life. You can invest it in a way that will pay you some nice supplementary amount for the rest of your life each year, but it will not be enough to sustain yourself.

For example, Warren Buffett suggests that a 7% annual return is a good estimate of long-term stock market returns. That would mean an annual return of $35,000. While that would provide for a moderate lifestyle today, with inflation, you would not be able to live that lifestyle for long.

You have a lot of options for this money. If I were in your shoes, I would take that $500,000, pay off all my debts, and then buy a diversity of high dividend paying blue chip stocks in very large, stable companies, and I’d just collect the dividend payments.

Q10: Philosophy reading list
I was just wondering what’s on your philosophy reading list.
- John

I’ve actually been trying to read through Boston College’s MA Philosophy reading list. I’ve been reading them in the order listed there in order to try to see how ideas have evolved over time.

So far, it’s been quite enjoyable. I tend to read it in fits and starts, picking up a piece or two here or there, then reading other things for a while.

Mostly, it’s caused me to reflect a lot on how I behave and how other people behave.

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