Reader Mailbag: Draft Copies

Over the last few weeks, I’ve been sweating over a lot of the little details of my upcoming book. What will the cover look like exactly? What will the text be on the folds? What will the acknowledgements look like? What about a dedication (it wound up being dedicated to my high school English teacher, by the way)?

It’s time consuming – and fun – to watch as these details come together, transforming a long Microsoft Word document that I sweated over for countless hours into a final product appearing on bookstore shelves.

I’m 24, college grad, working a corporate job. I put 15% into my work 401k with a 7% match. I put 15% direct deposit into my ING savings. My only debt is 5K on my Honda accord (5.7%) 2006 with 40K miles so it will last me a while. I have over 10K saved up to more than cover my emergencies. Should I pay off the car loan? I think it won’t save me a ton (3.5 years left for such a small loan), but I’m only earning 1.1% in ING and don’t have any plans within 3 years to really need that money. Or should I start a share builder account (I read a lot about no or low-load broad index funds and would probably pick one or two and set up a recurring payment) or Roth IRA and start contributing to that?
- Logan

First of all, you’re doing a great job saving 15% of your take home. That’s a fantastic start to financial success, even if you just stick it in a glass jar and bury it in your back yard.

One thing I would make sure, above all, is that you keep at least a couple months’ worth of your spending in that ING account. It needs to be easily available in the event that you lose a job or have another major crisis. You don’t want to have to tap long term investments in these situations, so you’re better off losing a bit of investment income to gain that stability.

Once you’re past that, you have to ask yourself what you’re saving for. What’s the goal here? I can’t answer that for you – that comes from inside of you.

If I went back to my pre-married early professional years and looked at your situation, I would pay off the car first. Instead of banking that 15% into ING Direct, I’d put that money into an extra payment on the car loan, paying it off early. Look at it ias an investment that returns 5.7% guaranteed after taxes, which is pretty solid.

Once the car is paid off, I’d look at where my life was. Do you want a new career? Are you looking towards marriage? Let those types of questions lead your investment plans.

My question to you is why don’t you own rental property? I know that you reviewed Rich Dad, Poor Dad, but I never hear you talk about owning rental property. Do you think it is not an excellent source of “passive” income? I would love to know your thoughts!
- Jeremy

I think there are benefits and drawbacks to having a rental property. It certainly can be a source of steady income, but there are enough drawbacks that I usually don’t recommend it to people.

For starters, it can be wrought with headaches. You can either handle all of the property management yourself, which potentially increases your income but eats up your time, or you can hire a property manager, which decreases your income significantly but also (might) reduce your time investment.

In either case, you’re exchanging headaches and time for money – or the potential to make money.

Rentals tend to do better in strong housing markets. Right now, there aren’t a lot of strong housing markets out there. In a weak market, rentals are often competing in a race to the bottom, meaning that rental owners make less than they would in a hot housing market. Like many other books written in the era, Rich Dad assumes that housing markets will always be going bonkers. As we learned, that’s not true.

You can make money from owning rentals, but if you have the capital to swing that way, there are lower risk and more straightforward ways to spend your money and time, in my opinion.

I am in the military and I am currently debating on my retirement options. I am putting money into both my TSP and a Roth IRA. I have no debt and I’m putting about $300 each into both accounts and I’ve accumulated about $6000 in my TSP and $8500 in the IRA. My question is that I got promoted and I’m trying to decide where I should put the extra money before I get tempted to spend it. I have the TSP money allocated for the 2040 target fund and my IRA is towards the Cornerstone Strategy Fund at USAA. Any advice would be greatly appreciated.
- Joseph

Since we’re not exactly blessed with the gift to see the future, it’s basically impossible to say that one option is better than the other.

The best option, obviously, is to start putting it in one or the other immediately. Don’t be indecisive and wait. Waiting even a month can wipe out the difference between the two accounts, even if you choose wrong.

If I were you, I’d probably max out the Roth IRA first and if you still have some left over, put the rest into the TSP. My reasons why are detailed in my answer to the next question.

I know how you feel in general about Roth IRAs. I’m curious what you think the chances are that withdrawals from a Roth IRA after 59.5 years of age WILL be taxed in the future? I know that the tax code now states that withdrawals aren’t taxed, but that same law doesn’t guarantee that in 40 years. I’m 27 years old and given the state of our national debt and the amount of money invested in Roth IRAs, I can’t imagine the government letting go of all that potential tax revenue. I also think that since people with Roth IRAs are a minority; they’ll be an easy target in 40 years for tax revenue because they won’t have the political clout to stop laws that dis-advantage them. Thoughts?
- Craig

My strong belief is that currently invested Roth IRA money is a sacred cow and it will be left alone. If the government wants to start tapping more income from such individual retirement accounts, they’ll just end further investments in the accounts with a law that says “After 20XX, you won’t be able to put more into your Roth and you won’t be able to start one, either.” There would be far too much backlash against altering already-existing Roth investments – politicians wouldn’t risk it.

The real question about Roths is whether or not they’re a better place to put your money than a 401(k). I argue they are for three reasons.

First, since you fully control the Roth, you have much more power over where your money goes. In a 401(k) or 403(b) or TSP, you have to put your cash into whatever plans your employer makes available to you, no matter how poor the optinos are.

Second, the tax rates are currently at historical lows. Check out this chart. Even during the supposedly great Reagan years, the top tax rate was 50%. There were periods where the top tax rate bumped into the 90% range. Given the debt you mention, these rates have nowhere to go but up.

Third, most people – particularly younger people – are in a lower tax bracket now than they will be at retirement age. I’m almost positive my tax bracket will be higher in retirement than it is now.

Add all of this up and a Roth IRA seems like a clear choice.

Apparently banksimple.net is a new kind of “social” bank.

I wanted to know what you thought of this.
- David

From what I understand of their business model, it’s a bank that doesn’t intend to make money by charging you fees. Instead, they intend to make money by connecting you to services offered by other businesses. Their website talks about continually adding “competitive banking services,” which likely means easy access to brokers, different savings account models (likely backed by other banks who pay them referral fees), and so on.

It’s too early to say how this will work. It has the potential to be very useful. It also has the potential to cause you to be constantly bombarded by “offers” you don’t really want. They have to find the right balance to maximize their profit (meaning the most offers they can put in without alienating customers).

As of yet, there is no compelling reason to switch banks, at least for me. I haven’t been charged a fee in years and I’ve never had even the slightest problem with customer service with ING Direct.

Help me out with a great cheap graduation present.
- Brian

The best gift comes from knowing the graduate well and giving them something that actually meets their needs. If that doesn’t work, I usually tell people to give cash.

I think the reason a lot of people don’t want to do this is that they don’t want to look cheap by giving only $10, but they’re happy giving a gift that might somewhat appear to be more expensive while only costing $10.

The problem there is that if you don’t know the graduate, you’re going to be giving a gift that they probably don’t want or need.

Thus, my encouragement is to either give a thoughtful gift to a graduate you know or simply slip a $10 or a $20 into a card. They’ll appreciate it more.

Briefly, I purchased two items of clothing from a store website using the
store’s credit card last September. Because I had moved since I last used
the card I updated the shipping address and assumed that this also updated
the billing address while I completed the online order. The garments arrived
with no problem, but a bill never followed. So, this past February I
received a call from a collections agency, which has never happened to me
before as I pay off all balances at the end of every billing cycle. I paid
the bill and the fees and made sure the account was closed all in that
initial call. In April, my husband was shopping for a refi on our house and
saw the effect this had on my credit score, low 700s. Thus, I am disputing
the charges because I never received a paperbill or email notice, so I
assumed that I had paid with my general use card.

My question is, is there anything I can do to improve my credit score while
I am waiting to hear from CitiBank Credit Bureau Dispute Dept? Since both
letters I have sent to the address provided, by two different customer
service reps on two different occasions, have been returned to me I am
looking for other ways to improve this situation.

- Leanne

There’s not much you can do to improve your score at this point other than resolve the current complaint. Your score is already in the low 700s even with the complaint, which means that you’ll either still be getting prime rates or just slightly subprime rates.

My suggestion would simply be to wait it out. You’re already doing everything right, it sounds like. Make sure your debt levels are low and avoid carrying a balance on your credit card. Don’t try opening up new lines of credit for a little while.

I actually think your letter is indicative of a much bigger problem – the power credit scores have over so much of one’s financial life. That a score based on a formula that isn’t known to the public can have that much impact is really, really shady and it needs some sunshine on it. Good luck with that, though – the credit agencies and the banks would fight such changes tooth and nail.

Last year my older brother moved back to India from Qatar. My brother, who has been diagnosed with bipolar disorder, has a wife and a son, but he’s made some terrible decisions: he quit a great job in Qatar because he fell in love with a younger woman, eloped with her to Thailand, then was forced to return to his family when the money ran out. When they moved to India, he pretty much squandered all his savings away renting a fancy apartment, buying all sorts of stuff, because he was confident he would find a job soon. He did find one that was not very well paying, but months later he quit saying they were not paying him on time.

Now, months later, he is desperate. He just can’t find a job. All the money has run out, his wife has moved in with her son into a friend’s home, and my brother is penniless and wandering the streets. The last time I spoke with him he told me he’s been sleeping on the streets.

My husband and I have sent him money a few times to help him get back on his feet. The problem is, we don’t know when he’s telling us the truth. I do believe him when he says he’s aged out of the market– in his early 40s, he’s too old in a country filled with 20-year-olds looking for jobs. Unfortunately, he also has a bad drinking habit — when he visited with us a few years back, I found him drinking whiskey at 6 in the morning and he used to spend most afternoons and evenings drinking. His wife has often told me that he used to spend a good deal of his income on alcohol. And although he swears he has given it up, he’s a very skilled liar and I find it hard to believe him.

It breaks my heart to think of him living on the streets– there are no support groups there for alcoholics or for the homeless, like we have here. But it is also really difficult for me– given our shaky jobs situation– to keep sending him money I desperately need to save to secure my own family’s future. There is no one in India I can ask for help, or to keep an eye on him. I’ve even been trying to search for jobs for him back in India, without luck so far.
- Vai

I don’t think financial support is the way you should be helping him at this point. You can write him letters, call him on the phone, help him find work, and the like, but your responsiblity is to your own immediate family, not to a brother who is continually repeating a cycle of poor choices.

IF you continue to help him, he won’t bother to help himself. He is fully capable of finding work – he is healthy and of reasonably sound mind. He chooses not to help himself and sending cash with no strings attached enables those choices.

Offer him help, but only in a form that leads him to helping himself. Gifts of cash don’t do that.

I am struggling with revolving debt and can’t control expenditures. Here’s a glimpse of my money. I bring in typically 1200-1350 (after taxes) every two weeks. My rent is $925. Car payment and insurance is $540. $500/mo in student loans (several with rates ranging from 3% to 7%). 4 credits cards with interesting in the low 20′s% with a total balance of $8400. And a consolidated credit card with a balance of $8600 with a blend of 3%-6% of interest (Some of this money belongs to my parents, but I am paying for it because they have a “Parent loan” for me that they pay for) Finally utilities bills total around $200/mo.

By the time I pay all my bills (at just over the minimum – as I usually round to the next highest hundred) I am left with nothing.

Every time I get money to pay down some bills something happens. (i.e. I got a holiday bonus and then hurt my knee and foot and had doctor bills, then I get my income tax back and throw it down on a credit card and then I had to fly to Florida to be in a wedding so those expenses brought my credit card bill back up)

I just don’t know what to do. Are there consolidation loans available to consolidate the credit cards? Is that even an option? I am so scarred that if something happens one month and I lose some income I will fall behind. I have a great credit score in the low 700′s (well at least prior to buying the car which was when my old lease was up a month ago) I don’t want to ruin things.

This is very frustrating to me because my friends and family are constantly looking to me for financial advice (bachelors in Finance and worked as a financial adviser for a little while) yet I can’t fix my own problems. At 25yrs old I should be enjoying myself and having fun with friends and family, not just hiding away because I cant afford to go out.
- Julian

My alarm bells go off when I see “my rent is $925.” There has to be a way to lower that number. Seek out a roommate or two. Move to a smaller apartment. Do both.

People often balk at this because of a need to “keep up appearances.” Keeping up appearances bankrupts people, leaving them with wage garnishments and broken relationships.

Yes, there’s no problem with “enjoying myself and having fun with friends and family,” but when your rent bill is 35% of your take home and your car payment and insurance gobbles another 20%, you’re not in a position to do that. Your income doesn’t support that kind of lifestyle, so start by adjusting the big things so you can enjoy the little things.

The series finale of Lost is on Sunday. We need your predictions.
- Carrie

I think the “climax” (the “defeat” of fake Locke) will happen about halfway through the episode.

I predict that Jack eventually decides to not be Jacob any more and rounds up some new “candidates,” and among those candidates will be Ji Yeon (Jin and Sun’s daughter) and Aaron.

I also think that Locke will walk again.

No idea about anything else.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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53 thoughts on “Reader Mailbag: Draft Copies

  1. Katie says:

    I’m guessing what one thinks of Julian’s situation depends on where one lives. As a D.C. resident, $925 seems pretty cheap for rent to me, but $540 on a car seems absurd. Presumably that is reversed if you live in a non-urban area with cheaper rents but no public transport.

  2. Kat says:

    Question about these “historical lows” in taxes…during the Regan years someone making over $200,000, adjusted for inflation, was in the 50% tax bracket (which doesn’t say anything about the actual % they paid in taxes, just the money they made over the $200k). When retired, I hope to not have a mortgage and thus spend less than I do today, and since today I don’t make over $200k now, I doubt I will need to take out over $200k (inflation adjusted) then. What were the tax rates like for someone who is living off of, say, $50k a year, at the peak of tax rates for that amount? (when the top tax rate was 90%, it was only on income over $2.5 million—again, not too worried I’ll need $2.5million a year in retirement). Are there websites that have all the tax brackets and not just the top ones?

    And, to be snarky: if you think TV is such a great thing to get rid of, why are questions about Lost in the mailbag?

  3. M says:

    Vai – if you want to help, help your sister in law and your nephew. Their lives have been completely upended by your brother’s bipolar and poor decision making, and they are both deserving of, and capable of benefiting from, your generosity.

  4. brad says:

    if you decide to discuss the outcome of lost, please make sure to break the page up with a spoilers warning. i know you’ve stated that your personal belief is that it’s not a spoiler if you’re talking about something that has already been released/aired, but that’s a pretty selfish viewpoint that assumes everyone is on the same timetable as you. again, im not saying dont discuss it, just give a little heads up, and please dont lump a lost discussion (with spoilers) right in the middle of a reader mailbag :)

  5. In the letter about the brother in India, the question-writer says right off the bat that the brother has been diagnosed as bipolar. And yet your response is:
    “He is fully capable of finding work – he is healthy and of reasonably sound mind. He chooses not to help himself and sending cash with no strings attached enables those choices.”

    Now, I’m not saying sending cash is the answer, but I don’t think someone who’s bipolar and has a habit of drinking whiskey at 6 a.m. has a very good chance of landing and holding down a job.

    I wonder if there’s any way for the letter-writer to bring her brother back to the States (or wherever it is that she lives, as she says there is help for the homeless and alcoholics there). Even if she cannot provide monetary help, she could get him connected to some programs that might get him back on his feet.

  6. Johanna says:

    “My alarm bells go off when I see “my rent is $925.” There has to be a way to lower that number. Seek out a roommate or two. Move to a smaller apartment.”

    I laughed when I read this. Trent, rents are not the same everywhere as they are in Iowa.

    What makes MY alarm bells go off is the car payment – and Julian says he just bought this car a month ago. Julian, what were you thinking?

    I don’t actually have any advice on this one, though. Sorry.

  7. matt says:

    brad – did the question in bold not tip you off that he was going to talk about lost? If you read the question then don’t read his answer. I’m not sure what else you want Trent to do.

  8. alilz says:

    Trent your privelage is showing again.

    Also your lack of knowledge about psychological issues. The advice you gave about the brother with bipolar disorder is so far wrong it’s harmful. First he’s not in sound mind and thinking correctly nor is he able to work. Besides having bipolar disorder he could also be an alcoholic, or he could be self medicating and if he ever gets stable stop abusing alcohol.

    The person seekign advice should contact NAMI they are a great organization and they also have support groups for families of mental health consumers (ie people with mental illnesses). THey have international chapters as well and they may be able to help you with your brother. But it doesn’t hurt to contact them for suppot for yourself.

    Unfortunately until he’s ready to seek help and get treatment there’s not much you can do except offer emotional support.

  9. Johanna says:

    @Leanne: I’m also having trouble feeling sorry for you. You bought the clothing with the store card, and then you “assumed that (you) had paid with (your) general use card.” What does that even mean? Did you check the statements for your general use card to see if the purchase was there? Did you try to check the balance on your store card, either online or by phone? Or did you just figure that since you didn’t get a bill, you didn’t have to pay? Because it doesn’t work like that.

    And Trent, what’s up with all the “your letter is indicative of a bigger problem” comments you’ve been making lately? Seems to me like a pretty big break with your previous philosophy of “stop complaining and get some personal responsibility.”

  10. KAD says:

    Julian needs to sell the car and buy a used car for cash, in addition to getting a roommate. He is living above his means, plain and simple. If he cut his rent in half and got rid of the car payment he’d have an extra $900 a month, first to build up an emergency fund (so unexpected costs won’t set back the debt repayment), and then for debt repayment.

  11. Des says:

    @Leanne – I’m sorry to say but you are going to lose your dispute on this one for the reasons Johanna states above. I’m not making judgments, I’m just saying from experience that “I didn’t get the bill” won’t cut it with a credit report dispute. You knew you owed money (or, at least, you should have known) and you didn’t pay it.

    @Trent – I’m with brad on the Lost spoilers. I happen to have already seen Tuesday’s episode, but if I hadn’t watched it last night I would be fuming about what your wrote. Even the news sites put spoiler alerts, I would think you would appreciate the mystery and allow your readers to experience it too. I agree that if it happened in a show several years ago, it’s fair game. But at least give people a week to catch up. Poor form.

  12. Kat says:

    Got to agree with a few comments:

    $925 can be a very reasonable price for a hole in the wall studio in some markets.

    Untreated bipolar disease + untreated alcoholism does not equal “reasonably sound mind.”

    If you purchase something with your store card, why would you assume it magically was paid with a different card? And why does Trent think it is indicative of a bigger problem that not paying a bill lowers a credit score? Well, duh, not paying your bills SHOULD lower your credit score! She still has a good score, it’s not like the one missed payment made her score drop to 500. Being an airhead about not checking whether a bill got paid is just as much a risk to a creditor as purposely not paying—either way, the creditor has to chase you for the money you were supposed to pay and didn’t-they don’t really care your motivators for not paying. It was a one time mistake for Leanne, and thus her score will rebound after time goes by in which she shows that she isn’t skipping payments anymore—this makes perfect sense. I am not saying that there aren’t any problems with the credit scoring system, but using this letter, showing the scoring system working exactly as it should be, as an excuse to complain is odd.

  13. kansascitylandlord says:

    I disagree with Trent’s position on rental property. I have found that we have more and better potential renters when is housing market is not strong. It makes sense that if fewer people are able to buy, more people will need to rent. Everyone has to live somewhere! As far as trading time/headaches for money, that is what people do everyday when they work for a living. In our case, we have a property manager who takes care of the headaches for a very reasonable rate. It is true that rentals are not terribly profitable until the mortgage is paid off, but once the mortgage is paid, they provide a great revenue stream.

  14. Josh says:

    I agree that Roth Withdrawals will never be taxed as they are a sacred cow as you say.

    However, I think there is a risk that there will be a national sales tax or VAT in the future. Ideally, this would replace the income tax but if something like this was ever implemented it is hard to say if there would be any additional credits (or refunds on the taxes you already paid in a roth) to offset this.

  15. Ryan says:

    $40k a year salary and you’re spending $540 a month on car/insurance. I guessing this is a 5-6 year loan. You should not be driving a low end BMW/Audi/Lexus on a 40k salary. You shouldn’t be driving a new Civic/Corolla for that matter. Sell the car, buy something used in the 3-5k range, and use that extra $475/mo (your insurance will be cheaper too) and start paying off the highest interest rate credit cards. If I was in this much debt, I’d also get a roommate.

  16. reulte says:

    Logan — You say you don’t have any plans for 3 years . . . what do you plan after that? Close your eyes and make a wish; something grand, something amazing. Then open an account (like an emergency acount) and start funding your wish.

    Joseph — What I told Logan! Actually, you might want to add an addition % to your TSP but in a different fund. Currently, I have about 75% G fund and the other 25% divided between S and I funds, but I change the ratios occasionally. Congrats on your promotion and thank you for serving in the military.

    Leanne — a very good reason to keep on track of bills especially when moving. I don’t see how you can dispute it since you admit that you purchased the garments and have already paid. However, it looks like it is the only ding on your report and may go away in several months if it even affects the refi.

    Vai — as much as you love your brother, can you look at this from another perspective? He has deserted his wife and child, deserted a second wife (eloped, right?), run through his money, his family’s money, all money you’ve sent him, is an alcoholic, and lies to you sufficiently that you don’t even know if/when he’s telling the truth. Any money you save ‘for him’ should be put into an emergency fund for yourself and, maybe shared with his child at some future time when you are financially secure. I also wouldn’t let him ‘visit’ me at my home unless I kept all the valuables locked up. Good luck and my sympathies.

  17. brad says:

    matt – thanks for replying! that answer was not the solution to my issue though, since i tend to scan the page, rather than read a word at a time (though in the case we are discussing, your particular reading style comes in handy!). also, to help you with your question, i outlined what else i want trent to do in my original comment. thanks again for the input! :)

  18. laura says:

    Agreeing with Matt#6:

    Good grief, people. ;-)

    If you see a question/discussion about LOST here or other places, don’t read the answer! Easy! Especially if you are one or two or more episodes “behind” the rest of the viewing nation . . . at this point you should just assume that ALL conversations on the internet about LOST are going to include references to previous eps. People can’t continuously fall over themselves putting ‘spoiler’ at the beginning of each and every post. Save yourself some grief and just avoid them. ;-)

  19. J says:

    @Julian — I agree with Trent. Look for other housing options to get that rent number down. I also recommend you sell that car, too. Pay cash for something or trade down to something cheaper. You’re likely going to lose money, but you can call that a “harsh life lesson”. The credit cards are killing you, too. And having been in my mid-20′s once, I’d recommend setting up some “rules” on wedding attendance — for example, you will only fly to a wedding and get a hotel if it’s a family (or even a sibling’s) wedding. Otherwise, attending every wedding you get invited to all over the country (as well as the odd “destination” wedding) for college roommates, frat brothers, etc becomes a very expensive proposition. If you do have to travel to a wedding, try and cut expenses by sharing a room with some other guests, too.

    Maybe you can pick up part time work. If you’ve done financial planning in the past, perhaps you can pick up clients on the side.

    It sounds, though, like you are living well beyond your means — and you are going to need to correct your lifestyle starting today. There are many books you can refer to for how to do this, my personal favorite is Dave Ramsey’s Total Money Makeover.

  20. Des says:

    I don’t think it is an unreasonable request to ask someone to type the word “spoiler” before information that aired 36 HOURS ago.

  21. eva says:

    Agreed, $925 will get you the barest minimum POS apartment in some places–I am thinking of Boston, San Francisco, New York…these are the same places that rental properties can be profitable (for the person wondering about owning rental property). And please, spending money on a property manager? I’ve never lived anywhere where maintenance was actually done.

    No offense, but you’re really out of touch sometimes.

  22. Jill says:

    My parents’ favorite high school graduation gift for someone who is moving out of the house afterwards is a $25 surge protector. Even newer apartments and dorm rooms never seem to have enough electrical outlets in the right place, and you don’t really think of that until after you start putting your new home together.

  23. Lenetta says:

    We only had one graduate to think about this year, and I told her we’d send her something about once a month. Likely some homemade goodies and a picture colored by my 3 year old.

  24. Jules says:

    $925 gets you a hole-in-the-wall in NY. I agree, it might get you a bigger place in other cities that would be amenable to sharing, but, well, my friend lived in a literally-closet-sized “apartment” (as in, there are closets bigger than her apartment) when she worked in New York, and that cost her $900/month.

    And Trent–did you read Val’s letter? The guy has bipolar. He needs medication, and someone to shove that medication down his throat. And then maybe some heavy-duty counseling. People with bipolar don’t make rational decisions. Come to think on it, neither do many people who don’t….

  25. chacha1 says:

    @ Julian, it would be helpful to have a clue where that rent is being paid, but I think the big problem is the car. Generally speaking, cities where rents are that high for a single are cities with public transportation.

    Seems that changing addresses and getting rid of the car are key, the car is a great big WWYT but then, clearly Julian doesn’t have a savings habit so when his lease was up he had to finance. That said, that car payment?? WTF is it, a Mercedes? If you’ve only had it a month, try to take it back – and then get a used car with a payment under $200/mo.

  26. Ken says:

    I think what Trent is saying in regards to the $925 rent is that it is 35% of Julian’s take home money, which is fine when you are tying up another 20% with your car payment. Maybe if Julian is spending $925 for a hole in the wall apartment in NYC he should rethink where he is living if he can only bring in $2500 there.

  27. Johanna says:

    Regarding the $925 rent: I was thinking not so much of places like NYC where there are no cheaper housing options, but more of towns (like, say, mine) where you can get a room in a house for well under $925, but $925 itself doesn’t get you anything fancy by any means. So, “try to get a cheaper place” would be appropriate advice, but “where do you live, the Taj Mahal?” would not.

    And I stand by my amusement at the notion that anyone would find a $925 rent more alarming than a $540 car payment. But I spend $1250 on rent and $0 on a car, so I’m not exactly looking at this from a typical point of view either.

  28. Sara says:

    I think Julian needs a budget! The rent may be hard to reduce if he lives in an expensive area, but the car payment is more than he can afford. The real problem seems to be his sense of entitlement to enjoy himself and have fun while driving an expensive, brand-new car. Julian, you can’t have it all. With your educational background, you should be perfectly capable of putting together a budget and figuring out just how much you can afford to spend on fun stuff. If you had a lower car payment, you could afford to go out more. If it’s important to you to drive a nice car, sorry, but you’ll have to sacrifice on other things like going out with your friends. You need to learn to prioritize and cut spending on things that are less important so you’ll have money to spend on what is important to you.

  29. Keri says:

    “He is fully capable of finding work – he is healthy and of reasonably sound mind. He chooses not to help himself…”

    This is 100% untrue. Of reasonably sound mind? He is bipolar. Do you know what that is? My sister is bipolar. She literally can’t function without her medication. I have major depressive disorder. Without my medication, I am unable to get out of bed in the morning, let alone have the ability to look for a job if I needed one.

    It’s highly offensive that you presume to know the capabilities of people with disorders that you know nothing about. This man is lucky he is still alive and hasn’t killed himself.

    You’re right in that he doesn’t need cash thrown at him- He needs psychiatric help and medication. Without that, nothing will help.

  30. Johanna says:

    OK, I’ve calmed down now and I will try to offer some constructive advice for Julian.

    Julian, you don’t say what the payments are on your credit cards, but if we assume 2% of the balance, that’s $340. So all the bills you list add up to $2505/month – and that’s before you’ve had anything to eat or put any gas in that $540/month car.

    So you weren’t kidding when you said you had nothing left after paying bills. And even if you managed to cut your rent in half, you still wouldn’t have a whole lot of breathing room.

    Since about half of your income is going toward debt, it may be that you’re just in over your head regardless of what you do. So my advice is to talk to a credit counseling organization. Liz Weston’s site can help you find a reputable one.

  31. Rani says:

    Trent, like others who have commented, I have to say that your response to Vai didn’t appear to take seriously the most important clue to his brother’s behavior — namely, that he has been diagnosed with bipolar disorder. The disorder can help to explain many of the brother’s choices mentioned here. In fact, out-of-control spending is a hallmark of bipolar mania, well-documented in studies and first-hand testimonials such as Dr. Kay Redfield Jamison’s _An Unquiet Mind_.

    Vai says nothing about whether his brother is receiving the medical help he needs. Without medical assistance and intervention, whether it be a program of medication from a psychiatrist or cognitive-behavior therapy sessions, there’s no way that his brother will simply snap out of it, “take responsibility,” or make any of the other life changes that a person without a mood disorder is more fully capable of doing. You have mentioned, Trent, that you occasionally suffer from bouts of depression. I hope that you can channel the empathy you have developed from your own battles into an understanding of how serious mood disorders are, including what Vai’s brother is fighting.

    And Vai, I hope you can continue showing your brother and his family your love for them, and perhaps point them all to psychiatric resources, insofar as it is possible from afar. Treatment is much more important than handing over a wad of cash. I was diagnosed with bipolar disorder four years ago and have my family’s abundant love and support to thank for the fact that I’m not babbling to myself on a street in a huge city right now. (They don’t always get it — frankly, neither do I — but they love me through thick and thin.) It’s a rocky path trying to find the correct medications and good therapists, but it’s imperative to embark on those steps. Without them, your brother will not have the solid footing he needs to develop a “normal,” independent life. Good luck, yaar.

  32. SZCZEBRZESZYN says:

    Rental property: One reason I don’t own it is poor liquidity. Selling it is a slow process.

    Another reason is that it ties you to a locality. You can manage a stock and bond portfolio from anyplace that has internet access. Like Bundu Tuhan.

    http://lostborneo.wordpress.com/2009/01/12/bundu-tuhan/

  33. Rani says:

    P.S.: OK, I am so embarrassed that I’m Desi and kept referring to Vai as “he.” Apologies! It’s been a long morning.

  34. SZCZEBRZESZYN says:

    Vai — Aren’t there drugs for bipolarity nowadays?

  35. Gretchen says:

    The spoiler was totally uncalled for.

    Ditto #7 to Lehanne. Did you just assume you didn’t have to pay the bill ever since you didn’t get it?

  36. Courtney says:

    @Vai: I’m with Kat: Untreated bipolar disease + untreated alcoholism does not equal “reasonably sound mind.”

    I have a sister-in-law who was diagnosed as bipolar, and then borderline personality disorder. Trust me, that is no fun.

    Here’s what I would do:
    1) contact your sister-in-law, and ask what I can do to help her, and your brother. She’s closer to the situation and might have some perspective. Plus, her son is one of your closest relatives, and helping them could prove to be very rewarding. In fact, my husband and I ended up adopting my sister-in-law’s oldest child, since the father was deceased.

    2) See if you can arrange for a place for your brother to stay, even if it’s a mat on a floor. As long as it’s clean and safe, that means he has a place to go, when he can remember that it exists. Arrange for meals there, be they ever so humble. Just food and shelter are helpful.

    Other options will probably flow from there.

  37. alilz says:

    My first comment is in moderation I hope this goes through.

    First Trent you are way off the mark. The brother is not in his right mind he has untreated bipolar disorder and is either an alcoholic or self medicating. Neither of which is a good thing.

    He’s probably done all these impulsive things while he was manic.

    Now, the first thing I’m going to suggest is the letter writer contact NAMI. It’s a great organiziation and they have support groups for families of people with mental illnesses. They can also probably help you with resources.

    The biggest thing, though, is as much as you want to help your brother there’s only so much you can do. Unless he wants help you can give him money you can take him to therapy you can get him medicines but unless he’s willing to take the steps to take the meds and get help there’s probably very little you can do.

    for the person who said he needs pills shoved down his throat – well, even if she could get her brother committed and taking meds if he didn’t want to stay that way as soon as he left doctors care he’d go right off of them.

    The biggest thing I think is contact NAMI also the Depression and Bipolar Disorder Support Alliance they can offer you assistance, even if it’s just support.

  38. K.sol says:

    Trent, someone with unmanaged bipolar disorder is not “healthy.” It’s no more realistic to expect him to pull it together without medication and help than it is to expect someone with a broken leg to run a marathon. Overspending, impulsiveness, running off with someone — all pretty typical for someone in a manic state. The drinking is likely an effort to self-medicate, which is very common with this disorder. Bipolar also has one of the highest suicide rates of mental illnesses. Please keep in mind that this is an illness, not a character flaw. That doesn’t mean the writer is obligated to keep supporting him financially, but it does mean recognizing that he’s not 100% in control of himself.

  39. Gretchen says:

    Also ditto on the bipolar comments.
    He’s not making bad choices because he wants to. He’s making bad choices because he’s bipolar.

  40. Steve says:

    I don’t think that Roth IRAs will go away because they allow politicians to borrow from future revenues, while pretending all they are doing is helping out the taxpayers.

    Also, I don’t think that we will ever switch away from a progressive tax structure. Therefore, I think it is wise to put part of your money in tax-deferred investments, so that later you can withdraw it at the lowest tax bracket rates. Even if they create a national sales tax, I expect it would be dwarfed by income tax, which we’re all already used to paying.

  41. jim says:

    Kat: “What were the tax rates like for someone who is living off of, say, $50k a year, at the peak of tax rates for that amount?”

    Generally the bottom 2 brackets were in the 9-20% and 15-22% range over the past 60 years. In the Reagan years the bottom bracket was 11-16% and the 2nd bracket 18-22%. But that doesn’t tell you a whole lot since you ahve to look at the size of the standard deduction and the top income rates for each bracket.

    I dug into historical tax rates for a family of 4 making median income on my blog a while ago. If you look at just that specific family making median income with a standard deduction then the effective tax rate has varied between 6-13% from 1946 to 2006. In 2006 it was about 9%. In fact in the middle of the Reagan years it hit about 12%. This is the EFFECTIVE tax rate which I think is a better apples to apples measure over the decades since exemptions, standard deductions and the size of the marginal brackets all changed over the years.

    But over the same time period the social security withholding tax has increased up and up. So if you add the effective income tax rate and the social security tax for median income family then the combined tax has trended up from 7% in 1949 to level off at a rate of 16-19% for the past 30 years.

  42. deRuiter says:

    Julian, get a second job and devote all that extra income to paying down debt. Stop going out with friends where it costs money, sell all superfluous items, dump the expensive car and get a beater, and you’ll get caught up and then ahead.
    The ROTH account is funded with money which is POST taxes, it has been taxed already, which would make it difficult for our government to tax it a second time. A ROTH is better than traditional IRA because in emergency you can withdraw the original amounts with which it was funded (do NOT do this!) at any time with no tax penalty to you as taxes were already paid. The ROTH gives you the flexibility to invest in anything you wish: stocks, bonds, real estate, gold.
    The taxes on a traditional IRA funded with pre tax money have the potential to be sky high in the future as our country, possibly so high as to negate all the savings. The United States of American and at least 48 of the 50 states, are now bankrupt with no signs, except for Christie in NJ of anyone being prepared to spend less and get their state or the country out of debt. Unless you’ve been asleep, you know that the amount the USA owes has about quadrupled this year, with no signs of any spending cuts. This is unsustainable, and the greedy government has the potential to wipe out your traditional IRA, while being unable to swallow your ROTH. No one has a crystal ball, but even I can see higher taxes in the future.

  43. Kate E. says:

    Brian– One of the best gifts I received for high school graduation (besides cash) was a really nice umbrella. I would never have thought to give that as a gift or probably even to pack that to take to school with me had I not received it, but it came in so handy since I was walking to class everyday–rain or shine. If the person you need a gift for is going to school in a state where it rains frequently (i.e. not southern California) I thought the nice umbrella made a lovely gift and I still have it and use it 10 years later.

  44. getagrip says:

    @ Julian I did much the same thing when I graduated, new cars (for me and the wife), new apartment, new furnishings, and lots of new debt added to the old debt. Feels great to be working, with a decent paying job, getting nice things, doing lots of fun things at the drop of hat. Amazing how expenses rise to meet income. Now though, you have to pay the piper.

    Fair advice given above. Something in the same lane I’d also recommend is Ramit Sethi’s “I will teach you to be rich”. Borrow the book at the library or take an evening or afternoon at Barnes and Nobles and read some of the chapters and see if you like it. Also, if you want a kick in the pants Larry Wingit’s (probably butchered the last name) “your broke because you want to be” might also be worth a look. In the end you have to make some choices. Choose to live like you are for the next few decades, or make some tough changes now and in the near future to live better in the next few decades. Good luck.

  45. Tall Bill says:

    Via; Comments 25, 26, 27 & 28 are straight to the point in that this is a very serious situation. First; Stop sending cash! If he does not find help there & want’s to return to the states (once agreeing to help), purchase a ticket for will call at that location & it can only be used for travel – not cashed out which is a scam addicts try. Meet him at the airport & drive straight to that help only. No going home to “freshen up, etc” as he’ll continue to scam you from the get go. Only when he’s under proper medication and balanced can he really help his situation over there, which can take a year or more to get things together. It’s no quick fix & several online sites await you for support in the path. Take care..

  46. Crystal says:

    Logan, I’d pay off the car and build back up your emergency fund over the next couple of months.

    Jeremy, I was considering rental property, but I just can’t get past the headaches involved. If you can handle bad renters as well as the good ones, it might be an idea for you. Good luck!

    Craig, I’m 27 too and do not believe that the tax status of the Roth IRAs would be changed down the road for what’s invested now. I agree with Trent – they may change Roth IRA contribution rules in the future, but current investments will probably be grandfathered in.

    Vai, you have your own family to worry about. Your brother needs emotional support but you need to keep your money for your future.

    Julian, I agree with Trent – you need a roommate or a cheaper apartment. I’m 27 now and live with my husband in a house we bought…our mortgage is $740 a month and we need $300 a month for property taxes and homeowner’s insurance. After college, we lived in a $399 a month 1 bedroom apartment. $925 a month on your salary is a killer.

  47. Matt says:

    @Jeremy, regarding rental properties. Here’s my story for anecdotal information, for what it’s worth.

    A few years ago, I moved from central Illinois to Chicago for a new job. The new job was risky (a startup) and in case things didn’t work out, I didn’t want to sell my house (in my hometown).

    Right as I moved, a friend I trusted needed a place to stay, so I rented my house to him. Since he was a friend, the agreement was that he would handle most house-maintenance-related issues on his own, and I would charge him a fairly low rent. I think I charged him $650/month. Later, his brother moved in, and they paid me $850/month. Consider that, at the time, the mortgage was costing me about $1200/month (that includes an escrow account that paid property taxes and insurance). My friend-tenant paid all the utility bills. Obviously I was losing money (but not as much as if the house was left empty). However, I figured I was coming out ahead, since the rent covered all the interest, taxes and insurance portion of the mortgage payment.

    My friend finally moved out and the house sat unoccupied for several months. This was extremely stressful for me, as living 150 miles away, I couldn’t check on it regularly. So in addition to the mortgage, I had to pay a caretaker to regularly check on it and shovel snow (I didn’t want it to look vacant).

    Living so far away, I also had to hire a property manager to (1) help me find tenants and (2) take care of the management once a renter was found. If you don’t hire a property manager, ask yourself this question: are you willing to take emergency phone calls at 2:00am in the morning because there is a flood or some other emergency?

    Fortunately, my new job has worked out, and I’ve been able to completely pay off the mortgage on this house. However…

    My property manager takes 7% of the rent, which is $1200/month. I paid $164k for the house in 2004. Property taxes are around $4600/year (there is additional tax because it is non-owner occupied). I’m now on the second tenant placed through my property manager, and both tenants requested a number of smallish repairs whose net costs added up to about one month’s rent.

    Also, insurance on a rental property is higher; I pay around $700/month. Finally, for tax purposes, a rental property is considered a capital asset, and has to be depreciated. There is a cost for depreciation, payed when taxes are filed.

    So, $1200/month in rent is $14.4k/year. That’s $13.3k after management fees, $8.8k after property taxes, $8.1k after insurance. Maintenance and repairs will be at least $1k this year (likely more), so I’m looking at a net profit of $6k to 7k for the year.

    Is it worth it? Since the house is payed off, it’s basically “free” (i.e. passive) income, especially considering that the property manager handles the bulk of the management-related tasks. I look at it this way: 6 to 7k/year on a $164k investment works out to a return of over 3.5 to 4%. Given today’s low rates on CDs, money market and savings accounts, that’s a decent return. But that assumes the house is rented 100% of the time.

    Overall, my take on being a landlord is that it only makes sense if you have a lot of capital. And I mean so much that your rental is an equal part of a diversified investment portfolio, that is equal parts stocks and other long-term investments.

  48. Matt says:

    Correction to my above comment: rental dwelling insurance is $700 annually, not per month as I mistakenly typed.

  49. K.sol says:

    deRuiter – yes, the government debt has gone up this year, but it has not quadrupled. Not by a long shot. Not sure whether you’re just exaggerating for effect, but this is not accurate.

  50. SLCCOM says:

    Before becoming a landlord, you also need to consider that one meth lab will eliminate your entire net worth. Research, research, research before getting into the rental business.

  51. anne says:

    about rentals-

    we’re new at this, but we bought a multifamily w/ a fha mortgage about two years ago. we found the house and started in january of 2008, but didn’t close until june of 2008.

    we did it the “wrong” way. fairly early in we were told by our lawyer there was a lien on the house from the fire marshall- the owner couldn’t even sell it to us. the realtor knew all along- she even had the paperwork from the fire marshall, and she gave it to us once we asked for it.

    plus, the property card for the city listed the house as a 3 family w/ 3 kitchens and 3 bathrooms. the house was actually a 4 family with 4 kitchens and 5 bathrooms. everyone told us it would be easier and faster to change the house to match the piece of paper, than to try and change the paper to match the card.

    so we hired a licensed builder and had a hold harmless clause written up, and we did the work to the house the owner couldn’t afford to do. the fire marshall didn’t even have the paperwork anymore- it was in a different city office because a warrant had been served, so we gave it to him and he LOVED us- he was so relieved to have someone finally fix the problems. and the owner could stop worrying about the warrant for his arrest- the city had given him 30 days to remedy the 14 fire code violations, and it had been over a year, so it was a scary problem for everyone.

    the place is still a bit of a fixer upper in some respects, but we’re so happy. we kept the tenants that were here before. their rent is still crazy low. because they had to do all of the work w/ snow removal, lawn mowing, and whatever their apartment needed, their deal w/ the old landlord was very low rent. so we made an agreement to keep their rent the same if they’d keep doing the snow removal and lawn mowing.

    the very nice “owner’s apartment” we rented out right away. we’ve had the same tenants in there for almost 2 years.

    we moved into the two apartments we combined to make one apartment. it is finally no longer a disaster- we could rent it out now if we wanted to. we might do that and find another place soon. or maybe not. i think now we know we have very good long term tenants in both apartments, we’d feel comfortable renting out the one we live in.

    when the family moved in upstairs the place didn’t need painting, but i told them i’d pay for whatever paint they wanted, so they could decorate how they wanted and make the place theirs. one bedroom is a crazy shade of magenta, and another is tan w/ black trim. yikes. but it makes them happy, the rent is very reasonable for the 5 bedrooms they have, and i know they’re not going anywhere any time soon. i’d rather take in a little rent less rent each month and know i’m probably not going to have to show it for a while, than try to squeeze out evey penny and then have them move because they can find a less expensive place somewhere else.

    anyway, we’re happy we bought this multifamily house. and we even did it WRONG. imagine how happy we’d be if we had bought a house w/ fewer issues???

    before we bought this place, we were paying $1250 a month for a tiny little attic apartment. it was ridiculous. i’m 5′ tall, and i was too tall for the shower. i still work in the town where we used to live, but 40 miles away we bought this house.

    our mortgage payment is about $2200 a month, for the principle, interest, and insurances- mortgage and homeowner’s. we take in $1330 for one apartment and $625 for the other. ours would rent for about $1000.

    our apartment is a million times better than the tiny little attic one we were living in. sometimes my husband and i will be arguing about something and i can’t even focus and we stop arguing because i’ll say something like “wow- i can’t believe how high these ceilings are- look at how much space there is over your head.”

    jeremy- if you’re renting now, and are thinking about owning rental property, then i’d look into an fha mortgage on a 2-4 family. you’ll only need a small down payment. and if you don’t have the down payment, there are programs to help w/ that. we had been saving for a 20% down payment, but used the $$ to fix up the place before we bought it, and then put down a 3% down payment. i didn’t look into the down payment assistance program, because we already had enough money.

    also, one thing i learned that could be really helpful if you are looking for a bargain in the winter months- you can’t get a fha mortgage on a house that has peeling paint. your real estate agent will most likely tell you to not bother w/ houses like that, because you won’t be able to get the mortgage approved. and if the owner doesn’t have the $$ wait unti spring to fix the house before he sells it, then lots of buyers won’t even try to buy the house either, because only people who can pay cash for the house or get a different mortgage will be interested.

    here’s the thing we learned- you can still get an fha mortgage on a house like that, if you put 150% of the cost to cure the peeling paint in an escrow account, and then you’d have the work done in the spring, when weather conditions will permit that kind of work.

    you might be the only buyer who knows this and comes along who will pay a decent price for his house, and he might sell to you. it will be more than he would get from an investor who is in a position to pay cash, and will pay a rock bottom price. and it will be less than another similar house w/out peeling paint. you’ll save some money, he’ll make a little more money, and everyone will win.

    it’s hard enough to sell a house in the winter months, and one that’s got peeling paint will be almost impossible to sell.

    and about buying a multifamily- i know some people prefer to rent out single family homes, because the tenants will usually be responsible for all of the yard work and snow removal and utilities. but we were thinking it would be nice to have a multifamily because even if some of the tenants flake out and don’t pay their rent, they would hopefully not all flake at the same time, and there would always be at least some money coming in.

    i imagine eventually we’ll buy some single family homes, but before then i want to make sure we have a huge amount of money set aside, just in case we get problem tenants.

    this was long. yikes. anyway, i hope you do it jeremy!! i’m so happy we did.

  52. AnnJo says:

    I agree with those who say that someone with untreated bipolar disorder is not of “reasonably sound mind” but wonder whether it is true to say that, because of his disorder, he is not responsible for his behavior.

    Bipolar disorder is very amenable to treatment with inexpensive medication, but even when medicated and “in their right minds” many bipolar people make a choice to stop taking their meds, knowing full well the consequences. In doing that, this man abandoned his wife and son, lied and stole from his family, etc. None of this will make Val stop caring about his brother or spare him the grief of the likely outcome of his brother’s situation, but I agree that the help, to the extent he can afford it, should be going to the wife and son, simply because that’s all that will really do any good. In his right mind, I imagine that’s what Val’s brother would want too.

  53. christine a says:

    @Rani – sorry to come in so late with this post but I just wanted to thank Rani for resetting the perspective on Vai’s problem. I hope Rani’s family have read her wonderful tribute to them.

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