Reader Mailbag: Books and People

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. Breaking even on income taxes
2. Paralyzed by spending anything
3. Debt with expected income drop
4. GMOs
5. Challenging elderly parent situation
6. Unwanted gifts
7. Pension or not?
8. Children’s clothes
9. Handling weird credit issue
10. Frugal pet for children

I have a difficult time understanding how people can wear the fact that they haven’t read a book in years as some sort of badge of pride. I’ve heard several different people say this in the last few months and I just have a hard time understanding it.

A book is an avenue to stories far richer than you can find on television. A book can teach you about a topic at an incredible level of depth. Why would a person willingly turn away from both of these opportunities?

Q1: Breaking even on income taxes
What, exactly, is a good strategy to go about breaking even? Is it a simple adjustment of the tax forms with my employer? It seems like if it were that simple, more people would be breaking even. I’d love to have the extra money each month to pay towards my dwindling debt.

- Alfred

It’s very difficult to break exactly even. That’s because the tax system tries to break down a very complex calculation to a simple choice of how many dependents to request on your W2. That’s like trying to do calculus with your fingers.

It’s still difficult when you’re self-employed, though in a different way. You have to estimate your future earnings for the year very accurately in order to pay the right amount.

I mostly just accept that I’m going to merely be somewhere close to breaking even. The system is so convoluted that pinpoint accuracy is basically impossible.

Q2: Paralyzed by spending anything
I’ve followed the same logical path as you, but now I’ve reached a point where I basically avoid spending anything at all. I eat at soup kitchens and basically never turn on lights at home. I try to avoid spending anything. I’m starting to feel really weird about it but when I think about buying something I almost panic.

- Aidan

While it’s good that you’re careful with your money, panic attacks at the first sign of potentially spending a little bit can be a sign that there’s something else going on here.

The first step I suggest for anyone in that kind of situation is to have some long conversations with a trusted friend. See if you can piece together why you’re so upset about spending. What experiences have you had that might have pushed you that way?

If that doesn’t help, talk to your doctor about it.

Q3: Debt with expected income drop
I have two main debts in my life – my car ($6500) and my student loans ($14000). The interest rate for both sits at around 6% or so. I also have a small-ish savings/emergency account with about $5500 in it and has at least $200 added to it each month. My question has to do with how smart it would be to pay off the car as soon as I have the money to do so. I know that by paying off the car loan, I’ll be freeing up at least another $290 per month from the car payment. But I’m worried because there’s a possibility that I may have a decrease in income in the near future (possible furlough since I’m a federal worker, or else taking a pay cut to get out of the government and into a more stable industry), and I like the idea of having the savings account there to use if things get tight. I’d know for sure about the status of my current/potential future job by this fall. But the idea of owning my (relatively new) car free and clear and being able to put the car payments towards restarting the savings account is very appealing. What factors would you take into consideration when trying to make a decision like this?

- Lindsay

First of all, you’re not likely to find a private sector employer that’s more stable than a government job. While government jobs might have occasional furloughs every once in a while due to the legislature not doing their job, you’re usually afforded a ton of other job protections and it is often very hard to terminate government employees.

Given that you have a pretty stable job at the moment and an emergency fund with $5,500 in it, I would focus on paying off the debts. If the loans have roughly the same interest rate, I’d pay off the smaller one first. I would not tap the emergency fund for this, but I would stop adding additional funding to that fund and focus that money toward extra debt payments. Go back to funding your emergency fund if you have to tap it.

Once you get the car loan paid off, “snowball” that money you saved into the student loan. You’ll be able to make an extra payment that’s around $500 a month at that point, which should help you knock it down pretty quickly.

Q4: GMOs
How can a person on a limited budget avoid GMOs? They’re poisonous and can kill you but it seems to be the only choice for cheap food.

- Jill

Let’s be very clear on what we’re talking about here. I am going to assume that the GMO you’re talking about is any organism whose genetic material has been directly altered using bioengineering techniques. I’m not going to get into the ethics of whether this material is good or bad because that’s an entirely different ball of wax. Instead, I’m merely going to address what people can do to minimize GMO use on a limited budget. If you wish to know more about the issue, the Wikipedia entry on genetically modified food controversies covers it well.

It is extremely difficult – I won’t quite go to “impossible,” but it’s pretty close – to eat a diet completely free of GMOs. The USDA Organic label certainly doesn’t cover it. The only sure source is from plants from non-hybridized sources that come from your own garden or from trusted producers near you.

The problem is the industrial scale of our food production, and I’m not just talking about processed and packaged foods. Even the fresh produce on our shelves requires traits in order to be able to make it from the farm to the grocer’s shelves without going bad.

In other words, unless you’re very wealthy and can control every element of your food supply, you’re going to be consuming GMOs.

The best steps you can take to minimize your intake are reasonably frugal, though. You should have your own garden that involves just seeds from non-hybridized sources such as the Seed Savers Exchange. Drink water with minimal additives (meaning avoiding sodas, teas, and so on). This is a good start and, while it’s not perfect, it will reduce your exposure to GMOs without incurring significant costs.

Q5: Challenging elderly parent situation
My stepfather recently had his youngest sibling pass away. Due to this, he now believes he has out-lived his own life expectancy. He may be correct: he is over weight, has high cholesterol, eats poorly, and stresses over everything. Recently he has started cashing in life insurance to “spend as he chooses, while he’s living”. He has been an overly frugal man as long I have known him. He and Mom have been married 36 years.

He still uses coupons and bargain shops, but now he visits his local grocery stores twice a day to then deliver his bargains to the local Salvation Army and House of Compassion afterwards. He delivers car-loads of cereal and other “bargains” daily! He enjoys the positive remarks and interest the people there show him. He has always been the shopper in the family, but now he has gone over the edge! He gave me the HyVee receipts for the last month, since our school gets a percentage of sales returned to us. I added them up and just this last month he spent over $1200 in groceries, most of which were donated. The Salvation Army told him today not to bring any more – they were full!

I have talked to both my stepfather and mother. I know that he has another life insurance policy that is intended to care for my mother, if/when he’s gone. Right now his life revolves around getting the best deal and then giving it away. He gets up at 2 am to clip and organize coupons, leaves home at 8 and does not return until after 1 pm. Do you have any other ideas besides committal?
- Alex

There’s not much you can really do about this other than convince him to work through these issues in a healthier way.

Clearly, the root of this is a sense that he doesn’t have much time left and that he needs to help the world before he goes, so he’s doing it in the way he knows how.

He likely needs someone to professionally help him with end-of-life issues, like a trained psychotherapist. It sounds like he has some very strong and very deep unresolved issues and concerns.

Q6: Unwanted gifts
My new husband and I received a lot of redundant gifts for our wedding. We learned the hard way that it’s a bad idea to put the same item on registries at two or three different stores (ha!). Anyway, we are simply going to have to return some of the items we’ve received as we don’t need three toasters. What is the polite way to handle this? Also, is there a way to get more value out of the returns?

- Amy

If you’re returning exact duplicates or very similar duplicates of a particular item, I don’t think there is a politeness issue here. No one on earth expects you to keep three toasters, for example. Just pick one of them and return the others (afer writing a thank you note, of course).

As for maximizing your value, you can certainly compare the relative return policies for each store and the actual return value for each item before making your decision. I would include that in the decision-making process when deciding what to return.

You’re not doing anything wrong here.

Q7: Pension or not?
I was hoping to get some information about the risk/reward when faced with the choice between defined benefit and defined contribution plans with what seems to me to be a fairly generous employer contribution.

I was recently hired by a Virginia state agency which gives me the choice of selecting either a traditional pension plan, based upon highest earnings over a 60 month period and a term of service, or a defined contribution plan where I pay 5% pre-tax each pay period and my employer pays 8.5%.

I’m not terribly risk-averse, so the prospect of the 8.5% employer contribution, paired with my 5% seems very appealing. However, I fully intend to remain in my new position and location for a very long time (upwards of 25-30 years) which may make a pension attractive upon retirement. There is also no danger of outliving my savings, which is important to me.

How should I go about making this choice? As someone who has little to no experience with investments, can a generous match put me in a more favorable position than the sure thing down the road? Are state employee pension benefits generally more stable than municipal employee benefits which have been altered or voided more in recent years?
- Tommy

If I were in your shoes, I would go for the defined contribution plan, particularly if it’s managed by an outside group and was SIPC insured.

The reason for this is that I don’t trust pension plans. I’ve seen too many of them tapped by the company when they get into financial trouble, leaving their workers in the dark. Sometimes the plans are bailed out – other times, it doesn’t happen.

Given that you’re young, I would not pin my hopes for the future on a pension plan. I’d stick with the defined contribution plan.

Q8: Children’s clothes
Got any tips for saving money on children’s clothes? My baby shower was very clothes-heavy and my mother and mother in law have bought tons of clothes but my little one is now into 24M and 2T stuff and we’re having to buy some clothes for the first time.

- Bailey

If you’re just now buying clothes when your child is wearing 2T, you’ve done amazingly well.

Our preferred place to buy children’s clothes is at thrift stores and children’s consignment stores. For play clothes, you can also find some very inexpensive t-shirts at department stores, too (on the order of $2-$3).

I can’t remember the last time we spent more than $3 on an item of clothing for our children. There’s just no need to spend too much on it, not with thrift stores and consignment stores out there.

Q9: Handling weird credit issue
Following your advice, I pulled a credit report a few weeks ago. I saw that I had an outstanding balance at a bank that I haven’t used in over 2 years.

After contacting the bank, I learned that I had a “dormant account fee” that started after 2 years of inactivity. This led the bank to charge a fee to an included overdraft line of credit, which continued to bounce back and forth to my checking account for 3 months. The total fees were $40 or so.

The money is not a big deal. I can walk into a branch and pay that anytime. What terrified me was learning the bank reported me to the credit bureaus twice for having an account 30+ days late. This all came about because I left a $2 deposit (unbeknownst to me) in the checking account, which kept it active instead of closing.

I told the phone help line representative that I had not received a late notice or statement. I had not logged into e-statements because I had not deposited or debited from the account for such a long period of time. I didn’t even know I had a positive balance! The manager said that it’s not the bank’s fault because I should have known to log in and read statements for an account I thought was closed.

I’m trying to apply for a mortgage in the next year. This would be the only blemish on an otherwise healthy report. Am I completely ruined? I don’t want to drag my score down because my bank didn’t like my positive balance!
- Eve

I don’t think you’re completely ruined. However, when applying for a mortgage, I would lean toward lenders that offer manual underwriting on their mortgages, which means they actually read your application and credit report rather than just using a score spit out by a computer algorithm.

Your best bet here is to use credit unions, as they tend to use manual underwriting much more often than large banks do.

If this is truly your only credit issue, you should still be able to find a low-interest mortgage without too much trouble. If I were you, I’d make sure that it was the only issue by checking my credit report. The best way to do that is through the government’s website for free credit report checks, annualcreditreport.com.

Q10: Frugal pet for children
I am looking for a frugal and low-maintenance pet for my two children ages seven and five. You have children close to their age. Do you have any experience or advice when it comes to pets?

- Henry

My honest recommendation would be to get them a fish. A fish is pretty low maintenance, as you mostly just need to feed them once a day and clean their bowl regularly.

A fish is a great first pet as it teaches about the responsibility needed for pet ownership and also teaches about the life cycle issues for a pet in a gentle and low-maintenance way.

My oldest son has had two pet fish that have lived an average of just shy of two years each. He’s fed them both diligently every day and he sometimes talks to the fish, too. This might seem unlikely, but I swear the fish gets excited when my son comes near his bowl, as if the fish can see the boy and responds positively.

You can move onto more demanding pets later on. Start with something simple.

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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