Reader Mailbag: Book Shelves

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Newly widowed and worried
2. Overwhelmed by money stress
3. Money book for late teens
4. Toning down big dreams
5. Emergency fund and debt snowball
6. Laundry service
7. No shampoo?
8. Freemium
9. Frugality in expensive area
10. The value of a piano

I love completing little home improvement projects, like installing hanging shelves. I get this strong sense of satisfaction from finishing little projects like that.

This weekend, I’m planning on installing a wall-mounted bookshelf for my office. I intend to keep about 15-20 books on it along with a few knick knacks.

It’ll take an hour or two to do it right, but when it’s done, I’ll feel good, as though I’ve actually achieved something.

Q1: Newly widowed and worried
I was widowed a few months ago. During my husband’s unexpected illness, we spent down much of our child’s college fund for living and medical expenses. I am 58 and unemployed, I have not worked outside the home for 10 years. I have been looking for work but so far have not found a job. Our only child is currently finishing up sophomore year of college.

I have about $100,000 in an IRA and about $200,000 (life insurance disbursement) in a money market account that earns 3% though that can change. Of course I am living off this money for now, so the total declines monthly. I have cut expenses such as cable, cell phone and so on. The house and car are paid for, though both are in need of significant repairs.

I’m struggling to figure out the smart thing to do in these and other money situations:

1. An old equity line is nearing the end of its draw-down period. I owe $29,000 on this loan which is at 2.98% (the bank tells me this rate could change). Should I pay this off in its entirety, pay minimum amounts monthly, or something else? How does a person figure out–do the math–in a situation like this? There seems to be so much to consider: interest lost in the money market account, interest saved on the equity line, the tax angle…probably other things I have not thought of.

2. As part of the financial aid package, our child is offered both secured and unsecured Stafford loans, along with a grant and a merit scholarship. Is it more cost effective to accept these lower-interest loans that will not come due until after graduation, or to pay when billed out of the $200,000 mentioned above? For figuring purposes, I’m assuming I will be paying back any loans my child accepts. Hope not, but I’m most comfortable privately preparing for the worst while hoping for the best.

3. When I do find employment, what should I do with the life insurance disbursement? Leave all or part of it where it is? The liquidity is a reassuring safety net, but surely it would be better to invest it elsewhere for a better return?

When my husband died, everything about our previous financial plans went out the window of course. Now I need to quickly figure out how to best manage this money, deal with college expenses, and prepare for my own retirement. I’m terrified of making an expensive, irreversible mistake.
– Monica

The question of paying off debt or not is a tricky one because the true “right” answer depends on what happens in the future. Does the return on your investment improve or does it go down? Do you get a job tomorrow or do you not find one for a year? Those factors change the “right” answer. My gut sense is to always pay off any debts that you can afford to pay off because doing so lowers your monthly bills and makes it easier to make ends meet with a lower-paying job.

I think you need to reassess whether or not you want to pay for your child’s full education. Given the change in family fortunes, I would consider it reasonable for your child to take on at least some debt. Right now, covering those student loans is going to very directly impact your retirement plans in a very negative way, as there aren’t many years separating today and your hypothetical retirement date. If your child is thoughtful at all, they’ll understand this.

As for investing that money, I would, at the very least, be moving the money into a Roth IRA as fast as possible. I would move the maximum amount allowed each year, which is $6,500 for you. That way, you can let it grow tax free and invest it in other things as per your discretion. Given your relative age, I wouldn’t really encourage you to put the money into anything very risky at all, as a big dip in the stock market would have a really strong negative impact on you. If you’re really concerned, you can seek out a fee-only financial advisor for help.

Q2: Overwhelmed by money stress
Whenever I start really thinking about our money issues and going through our bills, I get incredibly stressed out. I almost hyperventilate and I start feeling really uncomfortable with my whole life. So I never get to the point of actually making a budget or a plan or anything like that. How do I get past this?

– Olivia

It sounds like you have an anxiety issue when it comes to finances, and that can be tied to any number of things.

Your best bet would be to have some conversations with a trained psychologist to dig into the issues. I tend to be wary of psychopharmacology in a lot of cases, but a person who is trained in helping people conversationally work through their problems can be a tremendous help.

Trust me, though – the upside of getting your financial situation in shape is a tremendous help.

Q3: Money book for late teens
I think a lot of people want to help their almost grown children, or relatives, manage personal finances successfully. They may not have had parents like you who started teaching money lessons early.

Is there a book that you’ve read that you’d recommend for young adults? I am coming from the perspective of being a parent of an 18 year old who will be going off to college this year.

My kid’s expectations are not at all grounded in reality because my ex has no money management skills, and has convinced her that “you can’t walk around with no money” so he carries close to $30k in credit card debt despite having close to $50k in stock and an ING savings account. A real basic book that lays it out step by step would be helpful!
– Lizzie

The best book I’ve read for college-age people is Please Send Money by Dara Duguay. It just hits that late high school/early college age very, very well.

The challenge with that age group is to convince them to learn new things about life skills because, often, they already know everything about it.

Your best approach is to drop that book on them, give them a bit of encouragement to read it, then stand back. If they don’t have the self-interest and personal responsibility yet to learn more about it, any pressure you apply will go for naught.

Q4: Toning down big dreams
My son is pretty much convinced he’s going to be a famous novelist – and sooner rather than later. He does write all the time and has sold a few short stories, but he’s still in school and I don’t think he grasps that it’s going to take a while to even sell one novel let alone become a “famous novelist.” He has no plans other than this. Help!

– Donna

First of all, never crush his dreams of being a novelist. Don’t do it. Encourage that dream.

Having said that, you’d be doing great work if you simply showed him stories of writers who did other things before they were able to be full-time writers. Stephen King was an English teacher. Charles Bukowski was a postal employee. Pretty much every great writer had to do all kinds of things before their writing enabled them to do nothing but write.

Find some of those stories and share them with your son. Encourage him to find some training in something he can tolerate and then spend his spare time writing. That’s what many, many great writers have done before him.

Q5: Emergency fund and debt snowball
My wife and I have an emergency fund that would allow for us to fulfill our monthly obligations and maintain our existing lifestyle (not that we would) for 6 months, were we to have no other income coming in. We’re in our mid-20s, both work, rent (so no mortgage), fund our retirement accounts to the company match, max out our Roth IRAs yearly, have various targeted savings accounts, and only have student loan debt outstanding (we don’t carry a credit card balance, no car payments, etc).

We recently paid off one of our student loans in full, and that monthly payment will be snowballed into further student loan repayment. My question is in how to handle our emergency fund. Should we factor this snowball amount into our emergency fund calculation, or should we “rebalance” our emergency fund and move the money out of the fund (newly-freed monthly loan payment*6) and use that money as a one-time larger sum to continue paying off student loans?

Keeping the money in the emergency fund (which we’ve never removed funds from before) would add more cushion/security, but using that extra cushion for debt repayment would obviously be more attractive from an interest rate/investment perspective.
– Leslie

An emergency fund should be completely separate from your month-to-month spending. It needs to be rock solid and reliable. When things go down, you want that money sitting there.

The situation you describe essentially adds up to spending some of your emergency fund each month and then replenishing it. Let’s say that the day you send in one of those big payments, your car dies and someone loses a job. You’re in a pinch, one that an emergency fund could have easily solved.

Yes, it’s frustrating to see cash just sitting there and not earning much money (it will earn a little, just not much), but the point of that money isn’t to earn a return. It’s to prevent a big loss. It’s protection, not investment.

Q6: Laundry service
There’s a new laundry service in town that’s offering next-day laundry service for $0.80 a pound for the first ten pounds as an introductory offer, and then it’s $1.25 a pound after that. You can also buy a “suds champion” card for $25 that takes the price per pound down to $1 permanently. You drop off dirty clothes and then pick them up the next day cleaned and folded. Is this worth it? I currently live in an apartment with a washing machine that costs $1.75 per load and about $1 per drying.

– Jim

Most washing machines are pretty full when you have a load that weighs 6 pounds or so depending on capacity and so on. So, if you’re using that as your load size, it’s costing you $3 to wash and dry it, plus $0.25 (or so) in soap expenses.

To wash six loads with the service, you’re spending $4.80 per load (at first) and then $7.50 per load (later). It’s clearly more expensive.

However, there’s also a time factor. Having used both quarter-based machines in an apartment building (where, half the time, you go down there and it’s already in use, you’re having to run clear across the building to move loads around, etc.), I know quite well that there’s a real time investment. The effort involved in dropping off laundry and picking it up is about the same as running one load assuming no one else is already using the machine.

So, is it worth it? It depends on how much time it’s really taking you and what else you’d actually be doing with that time. If it’s just freeing up uninterrupted time so you can watch television, do it yourself. If it gives you an uninterrupted hour to build a business, it’s probably worth it.

Q7: No shampoo?
As a frugal guy, I thought you might be interested in the concept of “no poo” – a method of hair cleaning that doesn’t involve commercial shampoos or conditioners. I was a little skeptical at first, but my partner and I have been washing our hair with diluted baking soda and vinegar (what CAN’T you do with these products? ;) for months now and it’s been great. I was concerned that my hair would be greasy or smell like vinegar but neither has been the case – just clean, healthy hair.

Anyway, you’ve probably heard about this already, but in case you hadn’t, I just thought I’d share. I’d be curious to hear your thoughts about it.
– John

Here’s the article on “no poo” at Wikipedia, for those who want a background.

As long as you’re cleaning the excess oils and skin cells (and other things) out of your hair in some fashion, this seems completely reasonable. Shampoo wasn’t a widely used thing in the past, after all.

Honestly, I often just use water in the shower when “washing” my hair. I do have really short hair, but I’ll often just run a lot of water on it and massage my scalp while water runs over it. The reason is that if I use shampoo too often, my hair feels really dried out and akin to straw.

Everyone’s hair is different, though. I don’t think it hurts to try something like this – unless, of course, you’re coloring your hair or using other chemicals on it.

Q8: Freemium
You’ve told us before that you use Evernote and that you actually pay for the “premium” service. Why? Do you use it that much?

– Dennis

I do use Evernote a lot. I’m not sure I use it more than the “basic” Evernote features, but I do use it on a multiple-times-a-day basis.

My feeling is that if I rely on something that’s made available with a “freemium” model, then I know that the continued existence of that tool relies on using at least some of the paid services. If no one used the paid services, the service would fold entirely.

I try new services pretty regularly, many of them using a “free” and “pro” model. If I don’t find the “free” version useful, I don’t pay. However, if I find myself using that tool a lot, I’ll happily kick a few bucks toward the “pro” features. They’re usually useful and, even better, they ensure that the tool I love stays available.

Q9: Frugality in expensive area
What if you live frugally, stick to a budget, and still have to struggle paycheck to paycheck?

My wife and I live and work in Los Angeles. I am a producer for a visual effects studio, and she is an entrepreneur.

We live in a modest one-bedroom apartment, drive a used car that we had to take a $1800 loan out for, are paying down student debt from a modest college, and still scraping.

A big part of the issue is that rental costs in Los Angeles are outrageous and the industry I’m working in is known for being taken advantage of, making budgets and salaries shrink by the day. Our 1-bd costs roughly $2k/month and I only make $40k.

With my career path being what it is, there’s no place but LA to be. I hope for a bright future of pay raises and try to be thankful, but with a brand new baby I worry about living in a one-bedroom for more than the next year or so.
– Leonard

You’re making a career choice that requires very lean living at the start.

If you’re in that situation, you need to live like a miser. That’s just part of the equation. Live cheap, smile, and bear it.

You certainly can live with a child in a one bedroom apartment until they’re several years old at least. I would start to get worried about multiple children, but it works perfectly well with one. I have friends who live in an efficiency with a child, after all.

A final thought: are you still sure that this career path has a genuinely lucrative future? It sounds like you’re pretty uncertain about it. Make sure the path you’re on leads to where you want to go.

Q10: The value of a piano
My daughter is seven years old. She has been taking piano lessons since she was five. We have an old keyboard at home that she practices on and she practices a lot but lately she’s really been enjoying going over to the church and playing the piano in the church basement. I have to admit that the piano sounds a lot better. We have space for a piano, but it’s a huge expense. Do you think it’s worth it?

– Marv

This screams “birthday gift” to me. If your daughter really is passionate about the piano and you have space for it, I don’t see any problem.

That doesn’t mean you need to drop a mint on a new piano. If I were you, I’d learn more about what you’re thinking of buying first. Is a used piano acceptable? Are there any decent used pianos available in your area.

One great way to start is to quietly talk to your child’s piano teacher. Do they have any suggestions or directions? Piano teachers are often great sources for finding used instruments that work well.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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 many, many questions per week, so I may not necessarily be able to answer yours.

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