Reader Mailbag: Dreams

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. Cross country move
2. Building credit without cards
3. Quick repayment and credit scores
4. Income generation in retirement
5. 401(k) manipulation
6. What’s your day like?
7. Fix it up or not?
8. Emergency fund vs. financial aid
9. Handling proceeds from sale
10. Epic board games, not D&D

I have had consistent dreams lately in which we have a fourth child, a little girl with strawberry blonde hair. She keeps showing up in dreams of all kinds as if she’s naturally part of our family. I’m not sure what to even make of it.

Q1: Cross country move
You may have covered this before. I am about to embark on a cross country move with three small children. My husband is going for a job where he will make significantly more money. We will have the opportunity to pay off our very high student loans in a few short years and save for the future. I am not too excited about the place we are going and I love my life here – job, career, friends, etc.

I am struggling with what to take. I grew up with borderline hoarders so I have a skewed perspective on what is trash, clutter and useless. Once we paid money for things, we used them way past their life expectancy and tended to keep them forever. I still feel guilty throwing away things that may be useful one day or that I spent money on.

I have spent a good deal of time over the past two years decluttering and I feel that this move will help a lot to finish up getting rid of things that are not useful or not treasured. I also have the mindset that I want to be frugal and not have to repurchase things once we arrive. The salary my husband will earn will allow us to afford the option of getting new things, but I am not sure that is the best option. I am concerned that I will miss items from this life that I love where I am now. Perhaps they will help me adjust to my new life – or perhaps new items will help me.

Here are some general items that I am conflicted about.

Linens – sheets, towels, kitchen towels, etc – do we take with or purchase new?
Dishes and other kitchen items from our wedding 15 years ago? Have I used them long enough to justify getting new ones?
Kids toys – how do I decide what to bring?

- Elizabeth

With each item, ask yourself a few questions.

First, will we really use this item after we move? Is it something we’ll actually use a lot upon our arrival? If the answer is no, leave it behind.

Second, will it cost more to ship the item there than to replace it when there?

Third, does the item itself have sentimental value or does the sentiment reside mostly in your mind?

Finally, does this have any resale value right now?

You’ll find that those questions, as a whole, will really filter your items. The ones that make it through this type of thought process will be the ones you want to take with you.

Q2: Building credit without cards
My question: how to get non-bankcard credit when I don’t need anything?

My credit scores now average 760 and yet can’t manage to get a second non-secured credit card to help me build additional credit.

I did have bad credit up to several years ago but that has all been wiped off my report for at least 3 years. I currently have one Mastercard (about 3-4 years, started out as secured and is not unsecured at $4500 credit – the limits went up incrementally from $500 over the years). When I applied for a second card (twice) I was refused not only for short credit history but for lack accounts that were NOT bankcards. So now I have a secured Visa for $900. (I don’t actually need the credit, I just bill my Netflix through it and pay it off each month; it’s purely to help me build a credit history with various accounts and a higher credit limit.) Also, the Visa doesn’t seem to want to let me know when they plan to transition me from a secured card to unsecured. My Mastercard was much better about this. But my Visa seems to be a little – amateur in their online systems and communications? I don’t plan to keep the card if they plan to keep it as secured because I pay $10/month for it (horrible deal, but it was all I could get, strangely.)

Re diversifying my credits: The thing is – I don’t want a mortgage, I don’t need a car lease or insurance (NYC!), my apt can’t have a washer/dryer. I don’t need expensive furniture. The only thing I could see using is upgrading my 8 year old tv to a much larger and better one on a payment plan but I’m afraid that that will just be considered bank credit if the electronics store card is filtered through a bank?

I’m really at a loss as to what non-bankcard credit IS and if I don’t need a mortgage/car/lease/washer/dryer — how am I going to get it?!

Please let me know if you or your readers can shed some light as to how the classification of these things work (is a bank loan different than a bankcard?). And what kind of credit I should be aiming for? Non-bankcard credit ideas?
- Jesse

Something seems strange to me. If you have a credit score of 760, you should not be having trouble getting an unsecured credit card with a low credit limit.

If I were you, I’d check my credit report as soon as possible and make sure there’s nothing incorrect or out of order on it. Use the Federal Trade Commission’s site to do this.

If your credit is in order, apply for a different unsecured card quickly. You shouldn’t be paying $10 a month for the “service” of a secured credit card if you have a 760 credit score.

Q3: Quick repayment and credit scores
I am 24 years old, making 60k a year plus bonuses with usually equally around 15k a year. I have no debt in the form of student loans nor do I have any credit card debt. My only debt is on a new car that I recently purchased when I moved to a city where a car was necessary. The loan is for approximately 21k and the interest rate is 5.99% and the term is 5 years. I have $7,000 in an emergency fund which covers about 3 months expenses. My question is that I am about to receive my spring bonus which will be around 9k after taxes. My thought is that I should just put all of this toward the car so that I am paying less in interest over the next couple years and just continue to pay off the car as soon as possible. This seems to make sense to me as the most financially prudent decision but I just wanted to get your take. The only consideration is that having taken out zero loans and generally avoiding credit cards my whole life, I have very little credit. That is one reason that I was keen to take out a car loan. But if I pay it back quickly does that have any negative effect on my credit score. I’d obviously rather pay down the car so I’m not paying as much in interest but I just want to know how that will affect my credit.

- Daniel

It won’t have an immediate negative effect on your credit score, but as time passes without any outstanding lines of credit, your credit will gradually go from “good” to “neutral.”

Given the number of things that businesses use your credit score for, such as determining trustworthiness when applying for a job, determining your insurance rates, and so on, it’s worthwhile to keep your credit score up.

My usual recommendation for people is to get a good rewards credit card that’s tied to some specific purchase they do routinely, such as a credit card for their gas station, then use that card for that routine purchase and nothing else and pay the card off each month. This keeps your credit high, doesn’t give you time to start incurring interest, and often gives you a few perks via the rewards program (such as gas rebates).

Q4: Income generation in retirement
I’ve been working with my dad to help him figure out his finances as he approaches retirement. My mom is recently deceased and he’s about 5 years away from retirement. He’s making good money and has plenty in the bank, but I’m struggling with what he should do to actually create the income that he needs to pay for retirement. He currently holds about 75% of his assets in equities (it was over 90% until recently) that don’t kick off dividends or anything to create an income stream. I’m wondering what else you’d suggest. I think he needs about $3k (after Social Security) in 2011 dollars. My concern with an annuity or a long term muni bond is that they’ll create a revenue stream but they won’t protect against inflation. He recently sold his house to free up about 1/2 his total net worth and is now a renter, so he does have to deal with inflating rents over a couple of decades or more (potentially). Dad is currently 65 and self-employed (but does not expect to make much if anything on the sale of the business, which is service-driven.

Also, his greatest concern is that he’ll outlive his assets, given the lifespans of his parents, etc. He’s heard about “longevity insurance,” which I think might be just a form of a variable annuity. Do you know anything about that?
- Robin

By “$3k,” I’m assuming you mean $3,000 in additional income per month beyond Social Security.

It’s hard to offer up a real answer here without some real numbers. Certainly, inflation is a concern. However, inflation is a manageable concern unless you’re worried about things like hyperinflation, which seems to be an underlying thread here. If you’re worried about possible economic calamities at an advanced age and aren’t a millionaire many times over, there’s not much you really can do.

My honest suggestion is that your father spends his time now doing what things he enjoys doing that have some potential of earning him future income. For many self-employed people, that often revolves around whatever they’re self-employed to do, because self-employment requires a lot of initiative, desire, and focus.

If he’s not able to do it any more, has he considered hiring someone to do the grunt work for the business while he handles other aspects of it?

Q5: 401(k) manipulation
I lost my job on Friday. It’s unfortunate, but I’m viewing it as an opportunity to leave behind a job I wasn’t enjoying and find something that may make me feel excited to get out of bed. Thankfully I have a strong support group, and I received a bit of severence to help me look without having to be desperate.

I had a 401K at my previous job that I certainly want to make sure I retain its maximum value as I move on (although it isn’t much as I’m still young and hadn’t been contributing [tsk tsk, I know]). Additionally, my wife has a 401k that we never did anything with when she left her employer two years ago. I assume whatever we do with mine we could also do with hers, although I suppose the situation may be difference since it’s been so long since she left the employer. I understand these are questions for a financial planner, but given the situation (I was the primary earner) I’m not sure if I can justify paying someone to answer these questions unless it’s really warranted.

Do you know anything about any ‘gotchas’ I should avoid in this process? Is possible to combine her 401k and my 401K into a single IRA (be it Roth or Traditional), or is that not a good idea? Finally, do you have any recommendations for someone who would be able to help us figure this out, or a financial institution that makes the transition very easy?
- Jon

IRAs are tied to individuals. You can roll your 401(k) over to your IRA and your wife can roll her 401(k) over to her own IRA, but you can’t directly merge them.

One solution for “merging” them would be to name each other as secondary beneficiaries on your IRAs. If you have a large net worth, you may want to start moving your assets to a trust of some sort, so you may want to name the trust as the secondary beneficiary.

Typically, you roll a 401(k) into a Traditional IRA (since they’re both pre-tax money), then you look for opportunities to convert a Traditional IRA into a Roth IRA (pre-tax to post-tax, which means you’ll have to pay taxes on it now but save yourself tax bills later on).

Q6: What’s your day like?
Do you find that your new lifestyle allows you enough time to do the things that bring you joy? Are you rested in the morning, and satisfied with your day at night? Do you feel less rushed than you did when you worked outside the home, or is your day just as crazy now, but in a different way?

I would be curious to know what a typical day is like for you….How you basically structure your day. And your wife too, since she works out of the home, what is her day like? After all the changes you have made, do you both feel you have reached your optimal work/life balance, and what do you do when you find yourself leaning too far one way or the other?
- Micki

There is no “normal day,” really. My two oldest children go to preschool most days of the week, but they’re on different schedules. The youngest child is often with a babysitter when the other two are in preschool (but not always). My role is usually the “emergency” handler. If one of them is sick, I almost always take care of that child. If there’s a doctor visit to be had, I take the child to the doctor.

When I’m at home without the children, I try to fill my time with as much productive work as I can, hence my need to eliminate distractions and focus on the work. These work periods can happen at any time, though, and they do. Sometimes, I’ll be working early in the morning. At other times, I’m working in the mid-afternoon. At other times, it’s in the late evening (which is actually when I’m writing this).

I wouldn’t trade it for anything. Because I’m doing this, I am always there for my children – and for my wife – when they need me.

Q7: Fix-it-up or not?
Our family has our house listed for sale so that we can relocate from the suburb where we live into urban St. Paul where we work and send our kids to school. It’s a great family home (we have 6 kids) with a walk-out basement, 5 bedrooms, 2.5 baths, 2 fireplaces, a three season porch and a deck that looks out over the park. It was built in the 1960s so it has nice hardwood floors and is a basic quality home. However, during the 8 years we’ve lived in the house it has aged. The windows are old, the siding is nicked up, the driveway is getting holes, the kitchen is old school…. From what I’ve read, it’s better to try and fix all the worn and broken things when selling rather than to sell as is and take a lower price. The problem with that is that we can’t afford to put in new windows or replace the siding. Our fourth child is now in college and the only way we could do any of those fix-ups would be to borrow the money. At this time our asking price is below what we paid in 2002. If it sells, we will most likely have to rent our next home since we won’t get a significant amount of money out of this one. What do you think about the common wisdom that it’s better to fix the house up even though you won’t recoup your expenses? I don’t think of our home as a “fixer-upper”. It’s absolutely livable as is – just a little worn around the edges.

- Laura

For me, I think the value of a “fixer-upper” depends heavily on the personality of the people doing the fixing. Are these types of projects something you relish? Or are they something you dread?

Everyone is wired differently. Some people love painting and putting up drywall and replacing roof tiles. Others loathe it.

If you’re a lover of this type of work, a fixer-upper is a great choice. You can bury yourself in these projects and usually find yourself turning a profit when you sell.

If you don’t enjoy them, you’re setting yourself up for years of unhappiness. It’s not worth it.

Q8: Emergency fund vs. financial aid
I’m a single mom with two young teenagers, both of whom I am lucky enough to send to private school. One child is in the school where I work, and the other is in a school for kids with learning disabilities (he’s dyslexic). Neither school would be possible for me without generous financial aid.

Financially, I’m in a pretty good place. We live fairly frugally, I have no consumer debt, the mortage will be paid off in 8 years, and a small rental property, while not making money, is almost break-even (I bought it as a long term investment rather than current income). I’m putting about 10% in TIAA-CREF and have been for 20 or so years. I would like to try build a substantial “emergency fund” in case I lose my job or other disaster happens (I am my children’s only parent), but I worry that having that much liquidity (should I ever get to $25/30K!) will negatively affect how I qualify for financial aid, both for high school and college: if I have that much cash on hand, schools will consider it available for tuition, not “rainy day” money. I don’t have any college savings (other than the option to sell the rental house) — the kids know that college will be a mix of working, scholarship aid, community college maybe, or living at home.

Do you have any thoughts on how to handle this dilemma?
- Anna

If you have a few months of living expenses in savings, it won’t dramatically affect your financial aid situation, simply because it’s not that big of a number in the big scheme of things.

The big numbers – the ones that will impact things – are your salary and your other assets. Those things are often able to be tapped into for educational needs.

An emergency fund with several thousand dollars in it is a minor issue compared to the equity in your home or your retirement fund or your annual salary.

Q9: Handling proceeds from sale
In the past my finances were a disaster. Since I’ve been with my girlfriend, 8 years, she’s assisted me with cleaning up my debt and setting goals. She’s the “banker” and does our budgeting cutting out things we really don’t need to focus on our future security. She’s 50, not working right now but earned $18,000 last year and has been paying off her loan from the wreckage of the past. Her loan balance is $5300 and will be paid off by 10/2012 without making extra payments. Her payment is $148.30 bi-weekly and she’s been paying it herself along with contributing ½ to the food budget, paying for her gasoline, etc. She should hear from unemployment this week and is continuing to look for work.

My situation: I have a current mortgage of $136,000 at 5.62% with 23 years left to repay, an equity loan of $36,000 at 5.99% with 12 years left to repay. The plan is to pay $3800 toward the principal of the equity loan at the end of this year. The bi-weekly payment is $177.10 and I’d like to get this paid off early. I have no credit card debt. I recently purchased a used 2003 Honda Civic DX with 78,000 miles on it. The monthly payment is $156 for 3 years. I have $4000 in savings. The house is worth about $200,000, I own a 2006 Mazda 3 (paid off), and a 2005 Harley FLHT motorcycle (paid off). My girlfriend drives the Mazda.

I’m 55 and have worked for the post office for 27 years as a letter carrier. I’m in the Thrift Saving Plan and I upped my contributions to my 401K this year to 12% of my yearly income. My yearly contribution is now $6663.60. The current balance in my account is $125,000. I plan on retiring at 64 with a pension, SSI, and a 4% draw from my 401K.

So here’s my question: I’m thinking of selling my motorcycle which is worth $9000. Where should I put this money? My thought was to place it in savings, up my yearly contribution to the 401K, and use this money from the savings to cover my mortgage/equity loan. My girlfriend says to put the $9000 onto the equity loan balance owed.

I agree with my girlfriend to get the mortgage paid down, pay off the equity loan early and continue with the 12% contribution for now. She says I should focus on paying off the equity loan over the next 3-4 years then use the money I was paying for the equity loan and split it between my 1st mortgage and 401K.

What do you think?
- Ellen

Assuming your retirement date is inflexible, the best thing you can do for your retirement is to maximize your monthly cash flow when that day arrives. This means focusing on what debts you can eliminate between now and then. You’re nine years from retirement. What can you eliminate between now and then? That will have more impact on your ability to retire than having a few thousand dollars more in your 401(k) balance.

In other words, if you’re flat-out retiring at age 64, focus as hard as you can on getting your debts out of the way. Your timeframe between now and retirement is short enough that investments in high-risk high-return investments have a solid chance of backfiring. You’re better off getting rid of debts and maximizing your cash flow with a shorter timeframe.

If your retirement date is a bit flexible, then the 401(k) becomes more noteworthy. Let’s say you’re not retiring until age 68, at which case you don’t need to make accelerated payments at all on that equity loan to get rid of it. This allows you to bank more into your 401(k) along the way and give you a more secure retirement at that time (a higher income level with the same debts eliminated). It’s also important to note that the longer time frame you have for 401(k) investments, the more likely it is that you’ll see good returns on stock investments within that 401(k).

Q10: Epic board games, not D&D
You’ve mentioned many times that you enjoy board games, and you’ve also mentioned that you enjoy reading fantasy novels. I don’t think it’s much of a leap to assume you’ve probably played D&D or some other role playing game as a teenager.

I miss playing games like those. I love the epic adventurous feel that they have. I just don’t have the time to play them as an adult. I do still play D&D on occasion with some old friends who are in the area, but we have a hard time committing several hours a week to it.

Do you know of any board games that capture that feeling but can be played in shorter sessions?
- Eric

There are a lot of games that can fulfill this “itch” for you.

For example, if you want to get the D&D experience in about an hour, you can try something like Castle Ravenloft, which is exactly that – D&D, playable in an hour.

There are other games along these lines that are great to pull out if you find yourself with a longer stretch, but at irregular times. The best of these is Descent: Journeys in the Dark.

Both of these games provide the fantasy-oriented rich themes you’re looking for in a much less time-intensive fashion than D&D. They’re also a lot cheaper, considering you don’t need to constantly buy books to update your play experience.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. Mister E says:

    I’m not really sure that you answered Q7.

    She asks about the value of fixing up the house that she already HAS and the answer seems to speak to BUYING a house that needs fixing up.

  2. Adam P says:

    Question 8: The woman has a dilemma about whether she should save for a rainy day if it means losing her “free money” from financial aid.

    So she would rather take a hand out than pay for the tuition at the private schools herself if she doesn’t qualify for the aid; taking that aid away from someone who actually needs it?

    Eesh. If you’re “financially well off” as you claim in your own words then maybe let someone else who isn’t “financially well off” take the aid? It is morally suspect to take aid that you don’t need when so many do need it. What are your options? Spend the money on diamonds and vacations so you don’t have it to report? Lie on the aid application form (commit fraud)?

    There is no dilemma here, Anna.

    Put your money away in savings and fill out the form honestly. If you deserve the money, take it. If you are denied financial aid, pay for the school yourself and be grateful you don’t need it.

    As for college savings for the kids, I’m of the dissenting opinion that your kids can pay for their college themselves like I did and like my siblings did because my parents didn’t have the money. It is not the end of the world if children take out student loans to help pay for it. There are guidelines, like “don’t borrow more than you will reasonably expect to make in the first year of working”, but it’s generally considered one of those rare forms of good debt. Don’t sell your rental property to put them through college.

  3. Kevin says:

    Q9:

    I agree with your analysis for Ellen, although I would add that the debt on that Honda Civic should also be included in the mix. I’d sell the Harley, pay off the Civic, and put the rest on the equity loan. Then take the old Civic payment and “snowball” it to accelerate paying off the equity loan completely.

  4. Johanna says:

    Q8: I assume that when you say you’re “putting 10% in TIAA-CREF,” you mean you’re putting it in a 403(b) retirement account, not an IRA or taxable account. So one solution would be to open a Roth IRA and put your emergency money in that, since you can withdraw your contributions penalty-free. It’s my understanding (based on a quick google search, so I may be wrong) that retirement savings aren’t considered in the formula colleges use for financial aid eligibility.

    And @Adam P, Anna specifically said that she’s made clear to her kids that they will be responsible for covering part of the cost of their college education. She didn’t mention loans, but I imagine that she and they both realize that that’s a possibility too. I never cease to be amazed by people who assume that just because a parent is thinking about helping with the cost of her children’s college, that she must be planning on paying the whole bill. College is expensive, and paying for it generally means drawing on many sources of money, and kudos to Anna for realizing that. There’s a lot of middle ground between “paying all” and “paying none.”

  5. valleycat1 says:

    Q7 – You might want to consider working on small things that will increase your house’s curb appeal & enhance first impressions. Fill in the holes in the driveway if that won’t mean a huge complete repaving job, paint the front door (if you have a screen on it, be sure it’s in good shape or replace it), keep the front yard & plantings neatly trimmed, maybe add some fresh flowering plants. Be sure all window coverings are spotlessly clean (especially in the first room people enter). A somewhat dated or well-used kitchen can look fine with the clutter cleared & some fresh accessories (linens, a new toaster, or whatever you keep out on the counter). A bowl of fresh citrus looks good, smells good, and is easy to maintain. Be realistic as to how your house looks compared to others in the neighborhood – don’t try to compete with newer, more upscale homes on the market. You might talk with your real estate agent about just how much some of the other issues you cite might impact a potential sale.

  6. Tracy says:

    @Q2

    Your best bet to get an installment loan is just to go to your bank and take out a small, personal loan. What the companies are looking for when they look for an installment loan is something where you make regular, equal payments over a period of time and a bank loan is fine for that.

    The question I have, however, is what you’re trying to accomplish? Your credit score is in decent shape (good enough for any rent or job check) and time would just continue to improve it – and it doesn’t seem like you *want* anything. The only point of improving it even further would be in order to take out loans … and that’s not something that seems to be on your radar in and of itself, since you don’t want either a mortgage or a car.

    @Q7

    Like others, I’m not sure Trent read the question – he’s answering as if the writer was wondering if *they* should buy a fixer-upper.

    Personally, I think it’s only worth it to fix the things that are very cheap – maybe some fresh coats of paint. If you can’t recoup the cost of the expenses in the sale, it’s absolutely not worth it.

  7. valleycat1 says:

    Q8 – For financial aid, the parent’s money availability takes into consideration the # of other children you have, plus they figure only a portion of the parent’s money as available for your child’s schooling. If the money is in the child’s name, then ALL of it is considered available for schooling. So save the $ in your own account. If your children are good students, they can also qualify for merit based scholarships & grants in addition to financial need based ones – in our experience, the private colleges our child applied to basically provided enough scholarship/grant aid to offset any added expense over what a state college would have cost.

  8. Adam P says:

    Johanna, Anna#8 never mentions student loans at all as a means for her children to go to college. Which is very odd, considering she has given out every other option to pay for college except that, and it’s likely the most common way for people without sufficient savings to do so.

    She DOES however mention “selling the rental property” which is what set me off; that rental property could be a key part of Anna’s ability to retire in comfort. I don’t like when people trade off their future to pay for their kid’s retirement. Student loans would be a better option in my opinion than selling off her income producing asset. Sorry if that “amazes you” for me to suggest it.

  9. Tracy says:

    @8

    Considering all of the horror stories about kids graduating with massive amounts of student debt, I’m not surprised that she wants to avoid that for her children’s future.

  10. Adam P says:

    Straw man argument, Tracy. No one is suggesting they borrow hundreds of thousands of dollars to go to Harvard and get a PhD in Philosophy then work at McDonald’s afterwards.

    Her children should use their savings, work during school, financial aid, grants and anything else to make tuition at a good school. Any shortfall should be covered by student loans. Not by selling the mother’s rental property. That’s all I am saying. I don’t think any of us disagree on that point?

  11. Liz says:

    @7: If I lived where you live, a chance to buy a house like yours would be a dream for me. My husband and I had been looking on and off for more than 2 years, but recently just decided to stay where we are, renting from my parents, because way too many people watch HGTV.
    By this I mean that people tear out old wooden windows and replace them with vinyl, carpet over hardwood floors that just need to be refinished, and turn a kitschy kitchen into a hulking stainless steel monstrosity. I realize that it’s all about one person’s taste over another’s, but very simply, I would prefer to buy a house that costs a little bit less and allows me the opportunity to fix it up (or not–my choice) with the money I’ve saved on the purchase. I do not want granite counter tops or stainless steel appliances — my current refrigerator is from the early 1940s (yes, I know it uses some extra electricity, but the seal on the door is still good).
    In short do what #5 and #6 suggested, and take care of the easy things that look the worst. Someone may be grateful for the chance to buy a house that hasn’t been “fixed up” to within an inch of its life.

  12. Johanna says:

    @Adam P: Anna says she’s been saving 10% of her income for retirement for 20 years – which probably constitutes the entirety of her working life so far. If she continues to save that much or more (once her mortgage is paid off in 8 years, she might be able to save more), it sounds like she’ll have adequate retirement savings.

    Given that she’s been saving adequately for retirement but has been saving nothing for college, I don’t see anything wrong with considering the *option* of selling the rental property to help pay for college. See, another thing that amazes me is how any time a parent even considers paying something toward her children’s college, she must be “trading off her future.” What about her kids’ future? Isn’t a mother allowed to care about that?

    In your earlier comment, you said Anna claimed to be “financially well off.” What she actually said was “Financially, I’m in a pretty good place.” That could mean just about anything. From what follows, it sounds like Anna means that she’s not struggling and she’s able to put something away for the future – not that she’s rolling in dough. Given what she says about her financial picture, I don’t think it’s at all reasonable to conclude that she doesn’t “need” financial aid, or that there’s anything wrong with wanting to consider the impact of her financial decisions on her aid eligibility.

  13. Tracy says:

    @Adam

    It wasn’t a strawman argument until you turned it into one with “No one is suggesting they borrow hundreds of thousands of dollars to go to Harvard and get a PhD in Philosophy then work at McDonald’s afterwards” – because I wasn’t suggesting anything close to that sort of extreme scenario.

    Even people going to 4 year public universities are graduating with tens of thousands in debt and an insecure future right now.

  14. Adam P says:

    She “needs” financial aid if she answers the forms honestly and the result is she qualifies for it. The answer is black and white. If she saves money in an emergency fund at ING (or opens a Roth IRA for it, your suggestion is good) and now no longer qualifies for it, then she she does not “need” it, at least not as much as someone else does. Is that really up to debate? You really like to argue don’t you?

    I guess we agree to disagree with the rental property, I’d look at how much they would need to borrow after everything else (her savings, their savings, working while in school, grants, aid), THEN if they couldn’t take moderate student loans out I’d sell the property.

    And you really think saving 10% is enough for retirement? I don’t. Personally I try to save closer to 20% But we don’t have enough information here to know if 10% will have her eating cat food at age 80 or caviar.

  15. Adam P says:

    Tracy – I guess I don’t view tens of thousands of dollars of student loan debt as “massive amounts of debt”. I graduated with 25,000 or so in debt, and paid it off in 6 years (starting salary around 70,000). To me “massive amounts” of student debt approaches 6 figures worth and implies private colleges. I suppose it is all relative. I apologize for misinterpreting you though.

  16. Ginger says:

    For question 8, I went to private school and I would recommend not having a fully funded EF because they will count it against you. I would open a Roth with a small amount and over 5 years but the EF in there. Keep in mind that you need the Roth IRA open for 5 years before you can take the contributions out without a fee. I would give yourself a small EF, like $1000-one month’s expenses until then.

  17. Johanna says:

    @Ginger: “you need the Roth IRA open for 5 years before you can take the contributions out without a fee”

    Based on my reading of the relevant IRS publication, that’s not correct. You can withdraw your contributions at any time without paying any taxes or penalties. The 5-year timeline refers to how long you must wait before you are eligible to withdraw the *earnings* on your contributions without paying taxes or penalties. (You must also meet certain other criteria, like being old enough to retire, being disabled, or using the money to buy a first home.)

  18. Interested Reader says:

    @Q1- I JUST moved across country – approximately 1400 miles — I’m single so I didn’t have much stuff. And I had a tight budget and ended up with problems with the actual shipment of my stuff.

    First – Craigslist is a great way to either sell things OR buy used stuff that you decided not to take with you. Furniture, housewares, toys, can all be found on Craigslist.

    Also when getting rid of stuff if you want to donate it to a thrift store to get rid of it, see if there’s a local thrift store that support a local cause. You may feel better donating to a thrift store that supports a local shelter than just Goodwill. (for example where I moved from there were 2 local thrift stores 1 supported and run by an organization helping teens in crisis, the other supported the shelter for abused women and children).

    Do you know if your belongings are going to get to your new city before you? Are you going to stay in a hotel or stay the first night in your new house? If you are staying in your new house make sure that your stuff will get there before you do. But also either make arrangements for someone to stock it with basics (toilet paper, soap, paper towels, trash bags, etc) before you get there or take them with you.

    I had a hard time cutting back on books. The last time I moved I had 30 boxes of books. Just books! But I pared down – I culled anything that I either had only read once or was easy to replace or find at the library.

    When I moved this time I had about 40 boxes total. Honestly if I had it to do over again I would have left all my furniture except 1 piece, shipped everything in boxes via UPS or USPS flat rate. And bought furniture when I got up here. As it was my stuff got here after I did, and I knew it was a possibility so I had to drive up with things to “camp out” in my new place.

    In the time it took to get my stuff and furniture, I could have replaced most of it using Craigslist and for less than what it cost me to ship everything.

  19. Katie says:

    Adam, a $70k starting salary for a college grad is pretty rare these days, isn’t it?

  20. Interested Reader says:

    One more thing -if you have housing arrangements already made make sure to get the measurements and make sure furniture will fit.

    I had to leave 3 pieces behind because there’s no way I could get them to fit in my current place. This place is temporary rental to get me started and before I moved I had visions of having those things shipped up here (a family member has them now) but I realize that’s going to be more trouble than it’s worth. And it will be less hassle just to replace them.

  21. Johanna says:

    @Adam P: And I save more than 30% of my income for retirement. So what? Just because I do it doesn’t mean I think everybody needs to, or should.

    The main reason why saving 10% is not enough for most people is that most people don’t (or can’t) save 10% each and every year of their working lives. Maybe they get a late start, or maybe they have to put their contributions on hold for a while during a rough patch. But if Anna’s in her early 40s (my best guess given that she’s the mother of two young teenagers), that means she’s been saving consistently since her early 20s. That, in combination with a paid-off mortgage, should at least cover the basics for her.

    “I guess we agree to disagree with the rental property, I’d look at how much they would need to borrow after everything else (her savings, their savings, working while in school, grants, aid), THEN if they couldn’t take moderate student loans out I’d sell the property.”

    It sounds more like we’re agreeing to agree, since this sounds like a perfectly sensible plan to me.

  22. Adam P says:

    Johanna…I usually agree to agree with you, so no surprise here. You’re completely right, 10% of savings could be plenty of money for her, but it may not be (sold equities during the bottom of the crash, missed recovery?). We just don’t know from the limited info given.

    Katie – I googled starting salaries and checked the first article that came up. Ranges from a low of $36,600 for athletic trainers to a high of $260,000 for Physician – Anesthesiology. Looks like the median income among those is close to $70,000 (this was from a Mint article with 2006 salaries, 5 years ago). I dont know that it’s “rare” these days. Depends on the degree and location?

  23. Katie says:

    Yeah, but if they’re including people with actual MDs, then those people had to do an extra 4 years of school and usually had to incur a couple hundred thousand of debt (and then do another four years of lowly paid residency). The outlook is very different for people with four-year college degrees.

    (And Harvard always comes up in these discussions, but actually, taking out a pile of debt to attend Harvard or Yale might not be a bad idea; if push comes to shove, you can get a highly paid finance job to pay it off. But the fact is, these days, much lower ranked private schools are charging the same prices as the very top ranked ones, without leaving kids with the same job prospects. Just something for people looking at colleges to think about.)

  24. Jayme says:

    #7 – I don’t think he answered the question. They aren’t looking to BUY a fixer upper, but whether to sell their house as a fixer-upper. For the answer to that, I’d talk to a real estate agent and get some hard facts on what it would cost to fix something vs. the return. If it’ll cost you $10K to fix something, but only raise the asking price $5K, don’t do it.

    My gut says fix what you can and what’s reasonable and don’t worry about the rest.

  25. jim says:

    Q4 Robin : You CAN get an annuity that has an inflation adjustment built into it. You’d have to pay more up front for the same starting payment but of course it would then grow over the years. You might also look buying TIPS which are Treasury securities that have inflation protection. Depending on your dad’s exact income and expenses you may not need to build inflation protection into 100% of his retirement income. If his basic expenses are met by Social Security then that should be OK as far as inflation.

    Q7 Laura : Ask your Realtor. They know the local market best and can tell you what will be needed to sell your house.

    Q8 Anna: Ask the schools. They should be able to tell you how increasing your savings will impact your financial aid. If you are lucky enough to have money and assets then you may have to accept lower financial aid. Financial aid isn’t for people with large amounts of money in the bank and assets.

  26. jim says:

    According to a Forbes article from June 2010, the average starting pay offer for new college grads was $47,673. Thats only among people who got jobs and many didn’t.

    There are certainly new college grads who make $70k though, depends on field and city.

  27. Johanna says:

    @jim: I guess I just don’t see what’s wrong with wanting to know how to play within the rules to maximize the financial aid you’re likely to get. To me, it seems similar to wanting to play within the rules to lower your tax liability.

    I mean, we talk at length about whether it’s a better deal to use a pre-tax or Roth retirement account if you want to maximize your after-tax retirement income – we don’t say “If you’re lucky enough to have retirement savings, leave the tax breaks to the people who need them.”

    Of course, with both taxes and financial aid, you can cross the line into outright dishonest and violations of the letter or the spirit of the rules. But it doesn’t sound to me like Anna (who’s basically just asking about what the rules are) is anywhere near that line.

    I also don’t understand how people are getting the impression that Anna is so filthy rich that she doesn’t need to worry about financial aid. Everything she says in her letter gives me the exact opposite impression.

  28. Carmen says:

    For Elizabeth, Q1: I would generally take those items you mentioned with me, unless they need replacing. I would however use the move as an opportunity to reduce excess. In terms of toys, I’d take those which are treasured and/or played with often.

    I generally replace household items when they are worn out/broken. However I have recently replaced our mugs, since I really dislike them, use them on a daily basis and have had them since I went to college 21 years ago! So I wouldn’t replace wedding crockery just because you’ve used it for 15 years. I suppose it comes down to how you choose to spend your money. We tend to prioritise private education and overseas travel over new plates and bed linen. There are no right or wrong answers here though.

  29. Sara says:

    Q2: If you already have a good credit score and you don’t need any loans, why do you feel the need to raise your credit score? A high credit score is mainly good for getting the best rates on loans. It can also affect your insurance rates, but I’m guessing that you wouldn’t do any better than what you’re getting with your current credit score. That unsecured card is a horrible deal! You are paying them $10/month to lend you money that you already gave them? Get rid of that.

    Q7: I think this is another case where Trent didn’t read the question. She’s not asking if she should buy a fixer-upper, but if she should fix up her home before selling it. I am by no means a real estate expert, but I have read some things that suggest that it’s not worth trying to renovate your home to increase the price. If you have to borrow more money to fix it up, the extra money from the sale won’t help you much. The only way you could benefit is if the renovations help you sell the house more quickly. I know those shows on HGTV make it look easy and profitable to do home renovations, but in reality it’s a hassle and often a financial loss. You could consult a realtor with your question, but keep in mind that a realtor’s commission is based on the sale price, so it’s in his or her best interest for you to sell at a higher price — even if you have to take out more loans to do it.

  30. Carole says:

    Trent, I think your subconscious is trying to tell you that another child is wanted in the future. Hopefully, a girl. Now let’s hope your wife is getting the same message.

  31. Amanda says:

    Sorry, haven’t read the other comments yet!

    Q7-talk to a local real estate agent.

  32. Amanda says:

    Q5-You don’t necessarily want to convert a Traditional IRA to a ROTH IRA. Many financial experts suggest having some taxable/some non-taxable retirement accounts available.

  33. kristine says:

    Q8- federal aid does not consider retirement accounts as an asset to be raided for college money. However, if you fill out the profile form- for top tier colleges- they are much more intrusive, and want to know how much you have in your retirement funds, and when it went in, only to make sure you aren’t stuffing max oodles in there to lower your touchable assets as you apply. They can go back years if they are suspect.

    Here’s a little known fact: MIT will not ask the parents for more than 10% of their gross. If you get in, they make sure you can go. Some ivies do this as well. I say this because had I not known this, I never would have let my child apply there because the tuition is so high. The do not advertise this formula, to avoid an even bigger glut of app than the already get. But if 10% of the costs is feasible with loans and such, then go ahead!

  34. deRuiter says:

    Q7, List the house now, as is, and take what you can get. After these years of not getting around to updating / fixing / decorating, there is no point in doing it now. If you paint, paint white so no one hates it. but if you remodel to sell, you will not recoup the amount of money spent on the remodel, and you may make changes for whitch others don’t want to pay. You’ve gotten use out of the house, list at a reasonable price, take what you can get and move on with your life.

  35. deRuiter says:

    Q1, Sell EVERYTHING at a house sale, except for a couple of each child’s favorite toys, a new tv if you’ve got one, and the clothes you will really wear, your bed linens. As for everything else, you will do better financially not paying to move it. A couple of weekends at yard sales in your new town will supply you with the basics of furniture and accessories for next to nothing. Used household goods, furniture, kitchenware are worth practically nothing, pennies on the dollars they cost. Do not pay to move all this valueless stuff to the new home. Don’t buy new when you arive, yard sale and get all the gently preowned things you need for next to nothing at sales. With all the bankruptcies, forclosures, short sales, house and yard sales are LOADED with good, almost new things, for a pittance.

  36. Andrea says:

    Q1: Regarding the list of items you are struggling with. Here is my take on them.
    Linens: keep your best set, you know the ones that are broken in really well, but arent torn. Sell or donate the rest. When you get to the new house, you can choose to buy one more set to coordinate with the room (if that is important to you) or just be really prompt with washing, drying and remaking the bed when it is time to wash the sheets while living with the one set.

    Same idea applies to the bath and kitchen towels. Keep the best ones, decide if any are worthy of a ‘good’ rag and let the rest go.

    If your kids are of an age to have strong interests, let them help in the choosing. Stick with Trent’s regular advice of creative play items like blocks and legos, things that can be used in multiple ways, not just single use items if you’ll be making the decisions. In my house we do a lot of ‘pick three things because you are three’ and that works pretty well. Pick your favoirte seven toys to move (if you are seven). If you can do that a few weeks in advance then knowing those seven are the ones that will make the move can be good for the kids, or help them realize they’ve made a wrong choice and want to change. If the stuff is temporarily moved to the garage as a transition place, they can retrieve the item without too much angst.

    If you treasure the dishes, keep them, if you don’t this is a great time to update your cabinets with something that is more along the lines of your taste now. Who knows what dishes will be ‘good’ when they are just getting married? I didnt. I’m thankful to have been able to make a choice on that about 6 years into marriage, due to a move. However, I was very satisfied with my sheets and kept those. :)

  37. valleycat1 says:

    Also on q1 – it does seem counterintuitive to sell as much as you can (especially heavy and bulky stuff). However, I moved our household cross country about 15 years ago and the bill was at least $5K – which would have replaced most of the items even new. The really important stuff probably would have fit in a small rental truck. You might want to get an estimate from a mover for what you think you want to move, then decide how moving vs replacing balances out (estimates are free).

  38. Amy P says:

    “I also have the mindset that I want to be frugal and not have to repurchase things once we arrive.”

    “Linens – sheets, towels, kitchen towels, etc – do we take with or purchase new?
    Dishes and other kitchen items from our wedding 15 years ago? Have I used them long enough to justify getting new ones?
    Kids toys – how do I decide what to bring?”

    I’m at a very similar life stage (13 years into marriage and about to move in the next year, although in my case hopefully just a few blocks away). This is right about the point where a lot of newylywed stuff (bedding, towels and dishes) starts to give out. I’m missing a lot of my original IKEA dishes (due to breakage) and I’m in the process of buying some really nice Spode stuff (about $10 per 10″ plate–woohoo!). I’m getting rid of mismatched dishes, but keeping a lot of the old IKEA set for microwave use and informal kid meals. I’ve got a lot of ratty little plastic cups for the kids, but I probably won’t move with all (or even half) of them.

    My suggestion for you on bedding is to keep a small core set of bedding and towels that you really like, and move with those. That way you won’t be stampeded into emergency buys after your move that you may not really like that much. It’s going to take a while to work up a plan and a color scheme for your new place. Give yourself some time. Also, experiment to see how few sheets you need (especially for the master bedroom). I currently just wash the set on my bed and do the same for my older daughter (almost 9). I think you’d want a spare set for emergencies, but you don’t really need a huge set of linen for each bed.

    When looking at your stuff and deciding whether to take it, ask yourself, would Goodwill be able to sell this? Is this item in good enough condition that you would buy it at a yard sale? If the answer is no, you shouldn’t move with it either (with the exception of a very few rags for garage and possible pet care use).

    I suggest moderation with the kids’ stuff. When we moved 4 years ago with a 2-year-old and an almost 5-year-old, it was very helpful to their adjustment to be able to create a replica of the kids’ old rooms very quickly after our move. That said, here are a few suggestions for dealing with bigger kids:

    1. Cut them into profits from any sales of their stuff on Craigslist. People will buy anything from Craigslist, including stuffed animals. I just sold a huge underused play tent for $10 to a neighbor. The kids got $5 each and were quite happy.

    2. I go through the kids’ books and toys with them about twice a year, looking at every single item in their rooms. Then we do Craigslist and Goodwill.

    3. More frequently, I tell the kids to find 30 things in your room that you don’t need. Their sibling gets first pick of the discards, so this process helps recirculate toys and give everybody something new to play with.

    4. The kids get to keep one box or drawer of paper art treasures and no more.

    I’ve been very pleased with my younger child. He disposed of just about all his baby and toddler toys last year and he got rid of just about all his baby and toddler books last weekend (I diverted a number of the books to my babysitting collection, but his bookshelf is immaculate). He also did a bang up job helping his dad clean the garage. “Do you really need that?” he asked many times.

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