Reader Mailbag #79

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

I have a very good friend, who is also very frugal. She has recieved this habit from her parents, who have told her to study hard, work hard, get a good, steady job and save your money. This is working out really well for her so far, and in our peer group, she actually has the highest savings ( most of the group still living from paycheck to paycheck).

My concern for her is that she is not really enjoying herself and the money that she works so hard for. In the past, I would invite her out for a coffee, and although I offered to pay for her she would only buy water as she wanted to save money. She has improved since then, but she always feels guilty about spending any money on herself. Moreover, she is extremely risk averse and when I suggested that she look at investing some of her money in an indexed mutual fund, she simply kept repeating that the stock market is down, and I don’t want to lose any of my money. However, her family regularly ask her for money and she has actually lent a family member $30,000 for a house deposit however I’m not sure when she’ll ever see it as this family member is still working part -time, and is looking to start a family soon with her husband.

How do I get her to see that she should look after herself more and that it is okay to start enjoying your money guilt free?
- Donna

At first, my impression of the friend was that she was in fact living “too tight” and was in danger of becoming a miser who misses out on life-fulfilling experiences in an effort to conserve every dime.

Then I read the part about loaning a family member $30,000 with little expectation of getting it back – I’m sure she was aware of this – and my opinion changed quite a lot.

It sounds to me like your friend has her values figured out – and it’s just that those values are fairly different than yours. Your friend’s values center around her family and she’d rather do without little things in life to help out her family – and possibly her close friends, too.

I know a couple people who do this – they scrimp and save, then occasionally help the people they care the most about in a big way, swooping in to do things like make down payments on houses or buy new cars. They also often do things like write $50,000 checks to charities when those charities most need it. At the same time, they won’t go out for coffee because it’s too expensive.

Is that miserliness? I’m torn. On one level, I think that these people are missing out on some of the joys in life. On the other hand, I think that perhaps they’ve just figured out what really makes them happy – helping their family and closest friends and the causes they care about.

It’s not a tradeoff I would make, but it’s a tradeoff I understand.

At last NBC began streaming Days of our Lives full episodes online, so theoretically, there’s no reason for me to subscribe to cable anymore, since this is the last of my “must have shows” to become available this way. I am considering giving up cable, in favor of a combination of internet and TV with rabbit ears. I live in an apartment, so indoor antennae is my only option, and since my TV is digital, would I even need a converter box? I am very low tech, but the reading I have done indicates no, however higher tech friends say I would. Also, I am thinking a VGA cord to attach my PC and TV would give me TV size streamed programming, any other considerations?
- Mary

Days of Our Lives? I actually watched that one summer almost two decades ago when I was convalescing. All I remember is that Satan was actually a character on it, which I found hilarious.

Anyway, if you have full access to the programs you want to watch, I see no reason to not abandon cable/satellite television. You can get emergency weather from a weather radio, local news from the internet, and there are lots of sources for the programming you want to watch.

Frankly, I’ve been watching almost no television over the last several months. I’ve watched some programs, but almost all of them have either been on sites like Hulu or on DVD.

On Twitter, you mentioned seeing District 9. Did you enjoy it?
- Ev

Very much so.

The best science fiction is basically just a morality tale on modern life where one element is altered in a fantastic way in order to make you consider the situation in a new light.

District 9 is essentially about immigration and looks at an individual’s change in perspective if they go from being the established citizen to being the immigrant.

In the end, I thoroughly enjoyed the movie and the questions it raised floated in my head for a good week. That, to me, is a sign of a very good movie.

i have a work offered HSA (health savings account) and high deductible health insurance. They take the money (i decide how much) out of my paycheck and put it into an account that i can then use to pay my deductible and other health related expenses. this is all pre tax money, its a great deal for me,a nd i can keep it as a sort of ‘health nest egg’ of sorts. what I guess I was wondering is, how should this affect my emergency fund, given that I have a fund which is of equivalent size for health emergencies alone?
- akb

I would consider that account to be a useful tool, but given the many restrictions on how the money can be used, I would not consider it part of my emergency fund.

To put it simply, many, many serious emergencies in life happen in situations where a health savings account won’t be able to help. It can’t help with a serious engine problem on your car. It can’t help with a job loss. It can’t help with a big unexpected personal expense. It can’t help with a forgotten tax bill.

It also can’t help with any big opportunities that come your way, either.

Thus, I would not count a health savings plan towards one’s emergency fund. That being said, I’m not sure putting a “cap” on an emergency fund is a good idea. I’ve been moving more and more towards looking at my cash savings as an emergency fund and an opportunity fund, so I don’t hesitate to continue to add to it over time.

If you don’t mind me asking, how do you promote the site, just seo or do you market as well? all tips gratefully received.
- Lee

I don’t promote The Simple Dollar directly at all. My audience has been built by word of mouth. I didn’t have any “connections” in the blogosphere to tap, either – no one has helped me with traffic because they’re an “old buddy.”

I also don’t worry that much about SEO. My only real concern in that area is just to write meaty articles. If I write meaty, thought-provoking, and useful articles, they’ll naturally attract links and search engines.

In the end, it comes back to good content.

Why do you think Skype is better than Magic Jack? Doesn’t Skype require you to have your computer on all the time?
- Kelly

I’ve used Skype and Magic Jack and personally found Skype to be the superior service. I’ve had fewer problems with it (using it for more than a year versus a few problem-plagued weeks with Magic Jack). I can use it on pretty much any computer, for starters, and I can use it for videoconferencing, too.

As for having a computer on all the time, I tend to do this anyway. My desktop machine does several different automated tasks (collecting data at certain times, mostly), so I just leave it on and have Skype run on startup. Thus, Skype is almost always running.

Skype’s not a great telephone solution for everyone, but it works pretty well around here.

I’ve been accepted to a MBA program and got a two year deferral so I can work for a couple years. My school’s website says that they don’t consider retirement assets up to $100k in their aid decisions. I’m looking about $50-55k per year in MBA expenses.

I’m maxing out my 401k and Roth IRA this year and plan to continue to do so until I enter the program. My question is how I should invest the new money in my Roth IRA over the next two years (three years of contributions)since I could potentially take it out to pay for the MBA.

I have about $30k in other savings and expect to put $2.5k per year (state tax deductible) in a 529 plan.
- AK

Since you’re investing for a short term goal, you should invest in something very stable, like bonds or even cash.

Markets that don’t have a guaranteed return (stocks, metals, commodities, currency, etc.) aren’t stable short or medium-term investments – over a three year period, there’s enough fluctuations in those markets that you have a very high likelihood of simply losing money. Most such markets do gain money consistently – and quite nicely – but that’s over a long period, much more than just three years.

Just go conservative. It might seem like a small return, but it is a return, after all.

We purchased our home 6 years ago with 100% financing split between our 1st mortgage and a HELOC. We are able to make both payments. The 1st is at a 6.375% APR and the floating HELOC rate is 2.75%. We have an emergency fund equal to 105% of the HELOC balance. My question is this, should we: 1) take advantage of low rates to consolidate the 1st and HELOC, or 2) just pay the HELOC off and use that as our emergency fund?
- Michelle

I’d lean towards the first one, provided you don’t have to get PMI or other such insurance. Contact your local credit union and see how you can consolidate.

On the surface, that might not seem like a great idea because of the very low HELOC interest rate, but that rate is floating, which means that from here it’s got almost nowhere to go but up. I’m also assuming that the HELOC has a much smaller balance than the primary mortgage.

I would not tap your emergency fund to pay off debt, especially debt with this low of an interest rate. It’s a great goal to get rid of it, but Murphy’s Law pretty much guarantees that if you were to wipe out that emergency fund in this way, you’d need that emergency fund the next day.

I was just wondering how you first got into blogging, and what you used when you first started out.

Did you start with your own domain or did you start of with something like a Blogger account?

Reading your blog and seeing your passion for writing about frugality and life has made me rather inspired to perhaps start blogging myself.
- Kayla D.

Whenever I start blogs – just to see if I can write consistently on a topic – I start on Blogspot. That was true for The Simple Dollar – I played around with some ideas on Blogspot in October 2006 before launching the main site.

I’ve also started a lot of blogs on Blogspot that never really went anywhere. They just didn’t click.

Once I realized that The Simple Dollar might be something that I could do for a long time, I got my own domain name and my own hosting plan, then migrated to WordPress. However, doing that is overkill if you’re not really committed to what you’re doing.

Your list of books you read last month was really impressive! Do you really read that much? What about the books you review here? Where do you find the time?
- Jason

Yes, I read that much. I read a book for personal enjoyment every three days (on average). I also read about a book a week for The Simple Dollar beyond that.

Most of my leisure time, frankly, is spent reading. My wife does the same thing – in the evenings, 90% of the time, we’re either both reading or we’re playing a board game against each other.

I also make a point to read in front of my children for at least a little while each day. This serves a lot of purposes. For one, it shows them that reading books is part of a normal adult life – I do it as a role model. For another, it gives them time to play independently and make up their own games, which I consider vital for child development.

I also usually take at least an hour out of my work day each day to simply read. Perhaps once or twice a week, I’ll read a book for personal enjoyment – the rest of the time, it’s reading for The Simple Dollar.

Add that up and it’s clear how I manage to read so much.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

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  1. Johanna says:

    I disagree with your answer to Donna. If Donna’s friend’s values truly centered on helping her family, then her family would not be regularly *asking* her for money (as Donna says they do), and she probably would have made the $30,000 officially a gift, not a loan.

    Now, we don’t know the whole story, because Donna might not know the whole story, but those two things really jumped out at me and made me think that Donna’s friend is probably not acting within a well-thought-out set of values, but instead might be suffering from low self esteem, inability to stand up for herself, and inability to shake the feeling that other people have more of a right to her hard-earned money than she does.

    As for what to do about it, though, I’m not sure.

  2. Gabriel says:

    Johanna has a point, but of course we don’t know the situation. But if her family is asking her for money, rather than the friend simply giving it to them, I wonder how much of her frugality is based on guilt rather than a true value set.

    On the other hand, I think Donna is a bit off base. I am absolutely in sympathy with her desire to change her friend. Unfortunately, that’s not something we can do. Trying to “change” a person either blows up in your face, or shows that the person you’re trying to change is simply too plastic.

    Donna, I think the best thing you can do is to listen. I’ve often found that when my friends dump their troubles on me, and I simply remain quiet (supportive, sympathetic, but without putting in my two cents) my friends figure out how to solve their problems. They solve it in the exact way I would have advised them to. But if I had given them the advise myself, they would have become defensive and deaf.

    Life is sometimes a tricky balance, no?

  3. Rachel says:

    Jason, I read a lot too, and it surprises people that I manage to read anywhere from 1-4 books a week. My husband is a television person, he used to watch just anything, but I started buying him crossword puzzle books, and he loves them. We sit together in the evenings on the couch, I have a book open, and he is doing crosswords. We have the t.v. on, I think he really just likes the noise of it. If I am watching the program, I read during the commercials. Try this for just one evening for a couple of hours. You will be amazed at how much reading you can get done just during the commercials. Now that football season is here, I will sit next to him, block out the game and read for hours.

  4. haapai says:

    I think of my HSA savings as future COBRA payments. This relieves me of the necessity of saving several months worth of premiums elsewhere. You could say that it is part of my EF but Trent is right about it’s limited utility.

    If I were older, closer to Medicare or retirement, I might value the account slightly differently as it could conceivably be used for more things.

  5. Laura says:

    You didn’t actually answer Mary’s question – first, she should know that with a newer digital television, she should not need a converter box. If it turns out she does, it’s no more than a month’s cable payment, anyway! :) As for using a VGA cable to get TV-sized streaming video – we do that all the time (also don’t have cable) to watch our favorite shows, and it works very well. Not sure if it’s a VGA cable or something else, because I’m not that tech-saavy, but it’s a cable off of my husband’s computer and it works – even the sound comes through the TV. Our television is a newer LCD TV, though, so not sure whether the same connections are available on hers. :)

  6. Mary W says:

    I’d like to agree with Trent on his answer to Michelle, but add an additional thought. These days it is very dangerous to count on a HELOC as an emergency fund. Many banks are cutting back on peoples limits. Just when you need it most, you may find the limit cut severely.

  7. Little House says:

    It’s great to hear that you read in front of your children. I hope you’re reading to your children too! I’m currently taking classes for a teaching credential, and the more children are read to, the more they’ll understand and be able to read themselves.

    They’ll have ‘print awareness’, meaning, they’ll know which way to hold a book (even if they can’t read the words), they’ll know you read from left to right, and that letters make up words, etc. (If I remember correctly, your children are quite small and not in school yet so this applies to young pre-school children).

    Also, children learn vocabulary from parents reading to them, not the television! So for all those parents who plunk their children in front of TV sets thinking their children are ‘learning’, they’re not!

    -Little House

  8. Prasanth says:

    Trent,

    Here is a question for you. What percentage of your readers are from outside U.S? When you write a blog, have you ever stopped to consider whether certain US centric references that you make may not be familiar for readers outside US?

  9. Matt says:

    I have been looking into HSA’s with high deductible health insurance lately. My new job doesn’t offer health insurance until 9 months after I’ve been hired. From what I understand you can withdraw money from an HSA for a non medical purchase at any time but you have to pay normal income taxes on it. Some HSA’s come with debit cards and checks so you can easily withdraw money.

    HSA’s are interesting because they are not subject to withdrawal penalties like 401k’s and IRA’s and there is no “use it or lose it” like FSA’s. I have read that you could pay for all medical expenses out of pocket, save all receipts and withdraw the money sometime in the future, say at retirement, and allow the money to earn interest the entire time.

  10. Sara says:

    What do you think about bankruptcy? While I realize there are sometimes extraordinary circumstances, it seems like many people who declare bankruptcy could handle their debt like you did: by scaling back their lifestyles, living within their means, and committing to debt reduction. Would you ever recommend that someone declare bankruptcy instead of trying to repay their debt?

  11. patty says:

    Hi,
    Just followed the link on your list of books. Funny, many of the books on there I have read recently. I was quite disappointed in the “Lost city of Z”, though it reminded me of “Endurance” by Lansing because one of the guys on one of Fawcett’s expeditions had been with Shackleton on Endurance . You should really read “Endurance” if you haven’t, don’t have time to review here but several good reviews of it on the good reads website. Amazing story, amazingly well written, so much better than Z

  12. kk says:

    I thought your answer to the first question was spot on. I particularly enjoyed your last sentence: “It’s not a tradeoff I would make, but it’s a tradeoff I understand.” So often in life I have this response, but have not found a nice concise way to say it. Thanks!

  13. Jessica says:

    This is in response to Mary’s question. We cancelled our DirecTV account in July. I ordered a converter box coupon (and bought one) and ordered a “bow-tie” shaped antenna. We have a digital flat-screen LCD TV, and we never even needed to take the converter box out of the box! I’m hanging onto it though, just in case we end up needing it, but so far we haven’t.

    A word of caution though, we ended up needing a “rabbit ears” antenna also because out of all the stations we can get in our area, FOX is the only one that doesn’t come in without the rabbit ears. It is broadcasted on a different wavelength that is harder to pass through walls so it wasn’t getting picked up by our other antenna.

    Otherwise, just put it up as high as you can, and be patient when adjusting it. Any minor changes you make could cause you to gain or lose channels. And whenever a large vehicle drives past our house, it skips a bit. I’m not sure why this is, but it’s a minor price to pay to save us $70 a month!!

    Good luck!

  14. brad says:

    #4 haapai

    i consider it part of my ef. what is an emergency fund? a stash of money for when something goes bad. thats what my hsa is, it just so happens it’s specialized for health emergencies.

    #9 Matt

    youre right in regards the debit card/check book. however some hsa banks will limit the merchant codes that the debit card will work with. so if you try to use your debit card at a ‘tire kingdom’, or whatever your local equivalent is, you will be denied. because of that the only certain way to get money from your hsa is writing yourself a check. theoretically you could give yourself a loan from your hsa and wouldnt have to worry about paying it back until you filed taxes.

  15. ChrisD says:

    Re Skype, you don’t HAVE to have your computer on. For example I have a contract for 12EUR per 3months which gives me free calls to every landline in Europe and a landline number that goes to skype. I can forward this to any landline in Europe at no additional cost. Thus anyone can call me and I can set the call to go to whatever phone I want. I understand that you can get a phone number that you can call at normal phone prices and then use this to access your skype account.

  16. akb says:

    I guerss aprt of the emergency fund/hsa question also has to do with opportunity cost. no, i cannot really use my hsa for opportunity cost things, but if im spening money out of my EF for an opportunity ( as opposed to a true emergency) i have a different limit on what i leave in there than I would if my whole hand was played (in a ture emergency, right? my risk tolerance tends to make me want to leave about 100 dollars in cash in my savings for RIGHT NOW RIGHT NOW emergencies, and the rest in short term investments of which i can get to *if i need to for a real emergency* or easily, with planning (such as for an opportunity). That said.. i guess iw as wondering, given that my health care is essentially covered (i have the deducible covered and after my deductible, its 100% coverage) if an opportunity arises where im spending out lots of cash, how much money would i/should i/ would you (i realize these are three different answers) leave for real emergencies?

  17. akb says:

    thats 1000* dollars (risk tolerance). and man, typoes ahoy!

  18. Sharon L says:

    I would hesitate to use any HSA funds for anything but health issues. You never know when you will be hit by a bus, or cancer, or break a leg. If you have spent that money on tires, you are out of luck!

  19. SP says:

    Mary – we too have had issues picking up FOX with our original antenna and may need a new one (so far, we just don’t watch FOX). If your TV is newer, you should def. be able to hook up your computer to it. We use Hulu and Netflix (instant comes with our monthly subscription) for that.

    Good luck! (PS, NBC is over the air anyway — you shouldn’t have needed cable for Days)

  20. Leah says:

    Glad to hear your idea of an “opportunity + emergency fund.” I’ve always done this unconsciously. I have one savings account, and I use it for everything. It’s where I put money for emergencies, for trips, and just in general. Then, I always have a cushion of $1k in my checking as a “quick emergency” fund. When I started reading personal finance blogs, I was interested to see that people will split out accounts — not that it’s a bad idea, but I’ve never done it that way. I keep it all sort of straight in my mind — as the account increases, I earmark more and more of it “untouchable” except in extreme circumstances. And if I want something (say, a trip), I just save up more money over whatever I already have in there. Granted, I am still young and single, but I’ve found it easier to just have one massive savings account at ING rather than split it all up. This also helps me make sure that I’m continually banking more and more of my earnings.

  21. Michelle says:

    Thank you Trent and Mary W. for your replies regarding my HELOC payoff vs. refinance question. Since placing my question, we’ve discovered that condo financing is now out of favor and that lenders add a point on to their SFR rates giving us an effective rate of close to what we have now on our 1st. Here’s hoping that something new in the stimulus programs goes to help condo owners.

  22. Kellie says:

    Hi Trent, Do you have any books you’d recommend on motivation? Particularly on motivating others? Thanks :)

  23. SP says:

    FYI – blogspot is now blogger. Blogspot doesn’t exist anymore.

  24. re. your Skype discussion. Trent, you mention that you keep your computer on because it automatically collects data at certain times. I was wondering if you are trolling for news articles or something similar to keep up to date on specific topics. I’m interested in doing that myself and was hoping you could suggest the easiest way to “troll” for news or blogger posts using keywords or something. Not sure if this is what you do, but if you have any pointers, it would be much appreciated.

  25. prufock says:

    Mailbag question:

    How much does it cost a company to maintain the record of your debt? Given that they have to pay someone to call you, have to pay for postage to contact you with documents, and any other costs they have to soak to keep your debt on file, at what point would it become less than worthwhile to keep your debt on the books?

    To use an extreme case, suppose I had an outstanding balance of $.01 in debt, and maintained it at that level, it would be more cost-effective for the company to write that off than collect, wouldn’t it?

  26. brad says:

    #25 prufock

    i highly doubt

    a) any company would send a $0.01 debt to collections and

    b) any third party debt collection agency would buy the $0.01 debt.

    and yes, it would be more cost-effective to write it off. i assume the cutoff point would depend on the company’s standards and also legislation/legal requirements. i work for bcbsfl and even if we only overpay a dr by 50 cents (or alternately underpaid him 50 cents) we have to spend man hours (well, more like man minutes) correcting the issue due to legal requirements.

  27. Austin says:

    Hey Trent –

    I have a firm grasp on my finances and would like to start helping other people get their finances in order. Do you have any suggestions on how to get a personal finance consulting gig going?

  28. Mol says:

    I just had a suggestion. You should seriously put links to your oldest and newest post within categories. It took me like 3 days to get to the oldest Morning Roundup. ((I know there is the archive, but I wanted to look at only the Morning Roundups.))

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