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. Quality of life in retirement
2. Angry relatives over estate
3. Credit score challenges
4. Neighborhood culture shock
5. Odd bank behavior
6. Pyramid scheme addict
7. Loan payments and emergency funds
8. Trusting Wikipedia
9. Roth IRA as savings account?
10. Changing role of motherhood
One of the most amusing parts of parenthood is teaching your children how to groom themselves. They make such spectacular mistakes along the way.
My daughter, for example, has learned that de-tangling spray makes her hair easier to brush. When Mom or Dad use it to brush her hair, we use just a squirt or two.
Well, she wanted to try to use it herself this morning. I watched her at first as she used a couple of sprays and started to brush. Everything seemed good, so I went to help my youngest find his shoes and put them on.
When I came back to her, she had sprayed her hair so many times that it was almost dripping. I actually dried her hair with a towel after that and it had a bit of an unusual smell… but there were certainly no tangles in it.
Lesson learned, I suppose.
Q1: Quality of life in retirement
I’m turning 60 this year & thinking about retiring & where I will be living in the future. [...] I have to tell you quality of life is a BIG issue. My friend retired last year & saved a ton of money in purchasing & insurance costs & so forth. She is fairly central to family, but not really near anyone she knows. Saving money was her main consideration, yet she is never home, has put many miles in her car visiting friends & family. What is the use of saving in one end if you are going to spend in in another? My mother had an expression “penny-wise, pound-foolish.” She was from Scotland where they knew that value of a dollar (or pound or shilling or pence).
I agree that living in one location when you are traveling to another on an extremely regular basis is never a good idea. It’s not too different than what commuters do when they live in the outer suburbs of a city and drive into the middle of the city every day.
Commuting is a major cost, no matter how you do it. Even if you’re able to commute via mass transit, it often adds up to $100 a month. If you’re driving a new car in from the suburbs on a daily basis, that’s easily $1,000 a month in total commuting costs.
I don’t know how often your friend drives back and forth, but if she stuck in one place and then sold off her car, she would be in much, much better financial shape, even if she stayed in an area with a reasonably higher cost of living.
Q2: Angry relatives over estate
When my aunt died, I knew I was executor of her estate, so the first thing I did is I went to her house, opened it with the key she gave me, and had a locksmith come and change all of the locks. My cousins and other relatives were very mad at me because they said I was keeping them from the things that belonged to them in the estate, but I was pretty sure that some of them just wanted to grab anything that wasn’t bolted down. Did I do the right thing? How can I fix it?
As far as I’m concerned, you did the right thing. You are the executor and it is your job to make sure everyone gets what they’re supposed to get from the estate as stated in the will. If you’re worried about the security of the items, then changing the lock is a strong first step.
I assume that there will be (or has been) a public reading of the will. When that happens, then you should personally hand out every item described in it. You should also do your best to follow any other directives you were given by your aunt. If anything is conflicting or problematic, consult a lawyer.
Families can (and do) get very nasty during processes like these. Your best chance at maintaining family unity is to be as transparent as you possibly can during this process.
Q3: Credit score challenges
I have a question about my little brother, who is 21. He works full-time in construction (not sure about his income), and just sold his pickup truck for $8500. He still owed a little under $3000 on the truck. He’s now looking to buy another truck for around $6000. He would like to buy a house in the next few years, but being so young he doesn’t have much of a credit history. Other than the loan for his truck, he doesn’t have any other debt, and he could have paid that off earlier, but he has been told that making payments on that loan is helping build his credit history. To my knowledge, he has a credit card which he pays off monthly, and a monthly cell-phone payment, but otherwise he isn’t making any payments on anything. Additionally, he has begun to save for a down payment on a house (though I don’t know exactly how much).
Any advice for him? He is mature for his age, understanding that debt is not a great idea, but wants to put himself in the best position he can to buy a house sooner rather than later.
He’s actually doing pretty well for his situation. His truck loan likely established his credit enough to qualify for the credit card, and his regular payments on that card are maintaining his credit report. I don’t think he has a thing to worry about.
If he’s saving anything at all toward a house down payment, that’s a good step. If he’s saving anything at all for retirement – yes, even at 21 – that’s even better. If he puts away $1 at age 21 into retirement and it earns a 7% annual return, it will be worth $27.53 at age 70.
If he truly has no other debt, he is in far better shape than most 21 year olds in the United States right now.
Q4: Neighborhood culture shock
We just moved into a new house in what seemed like a wonderful neighborhood. One of our neighbors had a cookout and invited us along with some other families nearby. Everything was great until the conversation started and I discovered that there were some rather extreme and in my opinion rather sickening political views held by most of my neighbors. I want to be friends with the people around me but whenever I see them I think about the crazy things they said.
First of all, politics is usually a terrible subject to talk to a neighbor about unless you already know them well. The last thing I’d do is talk politics with a neighbor with any more detail than a yard sign supporting a candidate unless I happened to have built a strong friendship with that neighbor.
Now that you’re in that situation, though, you’re going to have to deal. If I were you, I’d maintain cordial relations with the outspoken ones, but not build anything too close with them. It does not hurt to be polite and kind to someone you disagree with, but you can still keep them at arm’s length.
At the same time, I’d try to reflect on that cookout. Were there any people who just didn’t say anything at all? Those people might hold stances closer to your own or, at the very least, have enough tact to not bring up polarizing political views in that kind of situation. If you can recall any, build stronger relationships with them.
Q5: Odd bank behavior
The bank in question was bought by a new financial institution. Out of curiosity, I clicked on their online account button, and sure enough the information that I thought had been closed down a couple of years ago was still on there. I called about it, and a manager got aggressive, told me that they had changed my gender on the account, and subsequently flagged it with fraudulent behavior. So while the account is still open and accessible with personal info online, it has a flag on it (I never had any problems before I asked them to close it). Because of this flag I cannot use the old account but I cannot get them to shut down the personal info online either. I got pretty freaked out by that and closed another account I had with the current financial institution before the merger. That closing appeared to go OK. The second rep told me that the first institution has a lot of problems.
Is this type of situation common? Will it affect my ability to open accounts with other institutions in the future, and can I do anything about it?
No, this is not common. This is very strange behavior, and you should get to the bottom of it.
When you ask to close an account with a financial institution, that account should be closed, period. All deposits and withdrawals regarding that account should be denied. The information on that account should be put into long-term storage and not regarded as an active account.
It may be that someone attempted fraud on the account after you closed it, which may explain some of what happened. The changing of the gender may have happened due to some sort of account theft attempt, and when they look at that record, they may be seeing that fraud attempt. When you called, they may have viewed it as another sort of fraud attempt on the account. Still, I think they handled it very poorly. The account should have never been accessed in any way after you closed it.
I’d check your credit report just to make sure that there’s no mention of it. Aside from that, I’m not sure how this would affect your other financial needs.
Q6: Pyramid scheme addict
My sister seems to constantly jump from one pyramid scheme or network marketing business or multi-level-marketing business to another. One week, she’s selling soap. A month later, she’s trying to get me to buy children’s books. She’s been involved with every one I’ve ever heard of. I tried a couple of these in the past and I know that she’s probably losing money on each one. What can I do to get her out of these?
I’ve known a few people like this and they all have a few things in common. They’ve seen the celebratory nature and the rah-rah “you can do it” attitude of the people high up the chain in these groups and they really buy into it. They see people who have made a lot in the organization and dream of themselves being there. What they don’t see is what kind of effort it takes to go from someone starting out to getting to that location. They start out, see it doesn’t work really easily, then they become disenchanted… until they see another rah-rah pitch.
This is a lesson they have to learn for themselves, unfortunately. Eventually, they’ll realize either that it takes more sustained work than they are willing to put in or it takes a different skill set than they have to offer.
It can take a lot of time, though, because those organizations tend to feed on people’s dreams. When someone wraps up your hopes and dreams into an easily-digestable package, it’s hard for some to turn away.
total monthly expenses = X Dollars.
total monthly EMIs = Y Dollars (includes all loans: home,car,education,credit-card everything that has a monthly payment)
So, for the 6-month emergency fund, should it be 6*X dollars or 6*(X+Y) dollars ?
Presently, I have an educational loan EMI that is 23% of my monthly take-home pay. And I have saved an equivalent of 3-month EMI and kept in a separate bank account.
And, I have saved 3months of my living expenses and kept in 2 Fixed Deposits (includes everything: rent,utilities,food,basic travel, etc essentials).
For those unaware, EMI refers to “estimated monthly installment” or “equated monthly installment.” It’s a term used in some parts of the world to refer to the monthly debt payments that person owes.
An emergency fund should include everything you would need to pay your bills and maintain your way of life for whatever number of months you intend to save for. It sounds like you have a three month emergency fund in full, as you have money to cover your loan payments for three months and your living expenses for three months.
The biggest reason for such a measurement is because emergency funds are often used for that biggest of emergencies, the unexpected job loss. If you have a few months of living expenses and bill payments sitting in the bank, you don’t have to move into outright panic mode when you lose your job. You can focus rationally on a job search.
Wikipedia is a great way to get a grasp on a basic concept. However, it’s not rigorous enough to use as an actual source on an academic paper – it’s not meant to do that. It’s meant for people to get the basics of a topic before they move onto more advanced material.
I pretty much entirely agree with Harvard’s stance on using Wikipedia:
“There’s nothing more convenient than Wikipedia if you’re looking for some quick information, and when the stakes are low (you need a piece of information to settle a bet with your roommate, or you want to get a basic sense of what something means before starting more in-depth research), you may get what you need from Wikipedia. In fact, some instructors may advise their students to read entries for scientific concepts on Wikipedia as a way to begin understanding those concepts.
Nevertheless, when you’re doing academic research, you should be extremely cautious about using Wikipedia. As its own disclaimer states, information on Wikipedia is contributed by anyone who wants to post material, and the expertise of the posters is not taken into consideration. Users may be reading information that is outdated or that has been posted by someone who is not an expert in the field or by someone who wishes to provide misinformation. (Case in point: Four years ago, an Expos student who was writing a paper about the limitations of Wikipedia posted a fictional entry for himself, stating that he was the mayor of a small town in China. Four years later, if you type in his name, or if you do a subject search on Wikipedia for mayors of towns in China, you will still find this fictional entry.) Some information on Wikipedia may well be accurate, but because experts do not review the site’s entries, there is a considerable risk in relying on this source for your essays.
The fact that Wikipedia is not a reliable source for academic research doesn’t mean that it’s wrong to use basic reference materials when you’re trying to familiarize yourself with a topic. In fact, the library is stocked with introductory materials, and the Harvard librarians can point you to specialized encyclopedias in different fields. These sources can be particularly useful when you need background information or context for a topic you’re writing about.”
The broader a subject is and the more editors are involved with it, the more accurate it’s likely to be.
Q9: Roth IRA as savings account?
A friend of mine recently suggested something that really set off some alarms in my head. He thinks that it is a good idea to use a Roth IRA as a savings account for longer term, low-priority goals. His argument is that even very conservative funds have much higher returns than savings accounts and there is no tax penalty on removing the contributions from the IRA, as long as I’m not contributing more than the IRS limits I should be fine. This flies in the face of my conventional thinking that once money goes into a retirement fund I can’t touch it without some serious penalties. If I’m aggressively funding my retirement through my work’s 401(k), is it ok for me to use an IRA in this manner?
You can use a Roth IRA in this manner if you so choose, with a few catches. For starters, you can only withdraw up to the amount you contributed without penalty. So, for example, if you put in $5,000 and it grows to $8,000, you can only withdraw $5,000 without incurring a penalty. The rest must wait until retirement.
If you want to have access to those gains before retirement, you shouldn’t be using a Roth IRA – you should be using a taxable investing account. That way, you can access the money without penalty, merely paying taxes on the gains, which is what you would do with the Roth IRA except that you’d also have an early withdrawal penalty.
Which way is better? It really depends on what you intend to do with that money. If you’re focused more on the retirement savings, then the Roth is better. If you’re saving for a non-retirement goal, then an ordinary brokerage account is better.
Q10: Changing role of motherhood
I really enjoyed this great article at the Atlantic on the changing role of mothers and how it affects family finances and more. What did you think of it?
I enjoyed it, too. Almost every chart in that article revealed something interesting to me.
For example, mothers are spending more time on child care per week than in the 1960s through the 1980s, but the amount of time spent on housework has gone down by almost 50%. Does that mean that fathers are picking up a lot of the household work? Yes. Does it also mean that the average house is messier than it was thirty years ago? I’d bet yes on that one, too.
The mothers of this generation of babies are far more educated than previous generations. What will that mean for the babies? We’re going to have far more children growing up this generation as the product of two parents with college educations. What will they be like?
Also, I found it fascinating that the only group of women who are getting married more often than in the past are the top 5% of wage earners. All other women are getting married less often.
That article has tons of interesting stuff in it and is well worth reading. What does all of it mean for the next generation or two? I guess we’ll find out.
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.