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. FAFSA worries
2. Steam sales
3. Business effect on credit score
4. Is raising chickens worth it?
5. TSP loan concerns
6. Savings or 401(k)?
7. Craigslist diving
8. Concerned about partner and retirement
9. Christmas gifts
10. Debt payoff and credit score
For anyone out there who is thinking of an exercise-related New Year’s resolution (I’m going to write more about resolutions tomorrow), I have a few quick tips from experience.
First, don’t wear yourself out on the first few days. There can be a tendency to overdo it at first. Don’t. Ideally, you should have spent some of your time in the gym sweating and breathing hard, but you should be feeling good when you walk out the door. If you leave the gym feeling miserable, you simply overdid it. It is very hard to continue a routine of misery.
Second, drink plenty of water. If you’re starting a new exercise routine, you should drink more than enough water. I suggest drinking a tall glass at least four times a day, then also draining a water bottle at the gym.
Third, you’re going to be sore. Take an ibuprofen and don’t worry about it too much. If you’re in genuine pain that actually limits your ability to move, then consult a doctor, but the first few weeks of exercise for anyone that’s out of shape can be painful.
Fourth, your diet is going to have more impact than your exercise. Going to the gym isn’t going to matter much if you leave and go through the McDonalds drive-thru. Couple exercise with eating better or you’re not being effective with your time and energy.
Q1: FAFSA worries
My husband and I have three kids, one in community college, one a junior in high school, and one in fifth grade. My husband has a private practice netting somewhere in the 110-120K range, and I make a little money teaching one day a week (12K a year). My husband has the luxury of being able to work a little more if we have an extra expense coming up. I’ve always worked part time because I really value the quality of life we get with someone based at home. I’ve been offered a job with flexible part time hours that would increase my income by 20K or so a year. My worry is the FAFSA. Our middle child longs to attend a private liberal arts college similar to the one where we met. I worry the extra money would diminish our eligibility for aid and ultimately do us no good. Any thoughts?
If your husband is currently netting around $120,000 and you’re netting $12,000, you’re at an income level where a bit of additional income isn’t going to matter too much with the FAFSA anyway. Your aid is going to largely consist of loans regardless of whether you take the job or not.
In fact, the additional income will likely be more important to your family’s situation than the FAFSA impact assuming that the money will go to help with college.
If I were you, I’d be encouraging your child to apply for as many scholarships as he or she possibly can. The more scholarships he or she receives, the lower the financial burden on both you and your child.
Q2: Steam sales
Have you ever talked about the Steam holiday sales before? If you like playing computer games, these sales are absolutely essential things to check out. You can get mountains of great games for just a few bucks if you just wait on those sales.
If you’re a computer game player, the quarterly (or so) Steam sales are a great way to save money on your computer gaming. It’s rare where I spend more than $5 on a computer game, and that’s been true for years.
Another great place to find games is the Humble Bundle, which occurs fairly regularly. The Humble Bundle is a collection of computer game titles with a “pay-what-you-want” price. If you want to pay nothing, you can. There’s usually a perk for beating the average (which is usually around $5). Without the perk, you usually get five to seven games; with the perk, you can get as many as twelve. Amazingly, the games are all usually really good.
You don’t have to spend too much at all to enjoy computer games, provided you stay away from the latest releases.
Q3: Business effect on credit score
I travel a lot for my job, and the travel expenses are up to me to cover up front until I get reimbursed for them at the end of the month. As I travel, I frequently rack up anywhere from $2,000-$4,000 per trip in expenses on a credit card which I have reserved solely for business expenses. The problem is, it seems to be having a yo-yo effect on my credit score. I pay for a credit monitoring service, and every month, I get the “credit card balance increased, there was a drop in your credit score” alerts. Then I pay off the balance, and I get the “credit card balance decreased, increase in credit score” alert. Is this yo-yo effect on my credit score a bad thing in the long run? Will banks see the constant up and down as a lack of stability? Or is the constant utilization viewed as a good thing?
The portion of your credit score that’s impacted by your debt-to-credit ratio (which is what’s being affected here) is pretty small. As long as you’re paying all of your bills on time, it’s not having a very big impact on your credit score at all.
In fact, I’d be willing to bet that your credit score is trending upward slowly all the time, assuming you’re paying your bills on time.
This alert is giving you unnecessary concern, and I wouldn’t stress out about it. Consider this alert unimportant and keep your eye out for other alerts.
I wouldn’t raise chickens solely as a money saver. You can save money in the long run raising chickens – or even turn a bit of a profit – but it takes a lot of work to get there.
Raising chickens is a messy and time-consuming job, and it’s one that doesn’t generate a whole lot of proceeds unless you have a whole lot of chickens.
I’d recommend raising chickens more to people who are interested in small-scale subsistence agriculture as a hobby or who are very concerned with hormones and pesticides in their eggs and poultry.
Q5: TSP loan concerns
Most of my interest rates are around 10%, and my total balance is around 60K. It is a huge source of anxiety and worry for me, and I realize I am throwing money away each month. I can take a loan from my federal TSP at about 1-2%, and pay-off that credit card debt in whole, and repay the principal and interest back to my account over 3-5 years. This seems to me like a sensible way to wipe the debt and interest away quickly, and set a concrete deadline to eliminate the loan amount within 3-5 years. The loan payments would come out of my pay, so there would be consistent, regular payments until the loan was paid. I know you often advise against these loans based on the fact that if you lose your job, you are expected to pay the loan back in full, but my job is pretty secure for the foreseeable future. I am hoping that by not paying these cards off slowly over time, and getting them paid off in full quickly, I will save by not paying the higher interest rates.
Do you think this is wise, and would I be losing money given the compounding interest I would lose out in while I had that loan out?
Your TSP loan costs you more than that 1-2%. It also costs you the gains that the money would have made had it been sitting in your account that whole time. Your gain is going to be relatively small if you do this.
Another problem is that if you did lose your job, the money you owe would be due in full very quickly. It’s easy to feel one’s job is secure in the short term, but it’s very hard to tell over the long term. Could you easily come up with the cash to pay off that loan if you suddenly lost your job? What if another great job came along but you couldn’t take it because of the penalties associated with this loan?
Loans like this seem good because of an optical illusion of sorts: you’re taking money from something you don’t see (your retirement) and applying it to something you do see (consumer debt). The problem is that the retirement money is just as real as the consumer debt and borrowing against it brings up a whole host of additional problems.
Q6: Savings or 401(k)?
I am a 28 year old “young professional” working in Iowa. I paid off my only debt, student loans, a little over a year ago. The first two years of my first job after graduate school, I paid off $60,000 in student loans while living off approx 30% of my salary. I am now debt free.
Even while paying down my student loans, I put money into my 401k to meet my company’s match, up to 6%. But, after finishing my student loans, I have upped my contribution to about 18%. This hasn’t maxed out my 401k, but that’s mostly because I have made a ton of purchases the last twelve months (furniture, well-fitting clothes) that were delayed for years. For the most part, I was living entirely with what I brought with me to college. A lot of that had to be replaced.
I’m currently making a little over $70,000 and have a bonus this year of about $10,000. I am putting half of my bonus into my 401k to maximize my contribution for 2012. My total vested 401k will be around $46,000 as of the end of the year. My problem is that my savings will “only” be about $15,000 or so. Doesn’t it seem like I am putting too much into my 401k? I feel like I should have at least $25,000 in savings, given our current economy.
Any thoughts on the balance between tax-saving retirement funds versus cash savings?
I don’t think you should worry about it either way. Right now, you are making so many good financial moves that neither option can really derail you.
If I were in your shoes and contributing that much to a 401(k) this year, I’d probably take that bonus and put it into savings so that I reached an amount I feel comfortable with. Once you have that, keep channeling into your 401(k), but also start saving for other potential long-term goals. Do you want a house? Is there any chance of marriage or children in your future?
You are doing everything right so far. Don’t second guess yourself.
Q7: Craigslist diving
A tip for your readers: the first week of the year is usually a great week to check out Craigslist. People are getting rid of all kinds of stuff for a lot of reasons. Some people got upgrades for Christmas. Others received gifts they didn’t want. Others are trying to fulfill New Year’s resolutions. Others are trying to pay for their holiday bills. Craigslist is well worth watching this time of the year.
I usually notice a big Craigslist uptick during the first full workweek of the given year, usually for the reasons described above. It’s really a good time to watch Craigslist.
As always, though, don’t just buy something you don’t really need because it’s a “bargain.” It can be tempting to do that, but avoid it.
An exception: feel free to do it if you’re sure you can very quickly turn a profit. I’ve picked up certain types of collectibles from yard sales and from Craigslist in the past just because I knew I could immediately flip them.
Q8: Concerned about partner and retirement
I am 29 years old, in a long term relationship (5 years) with intentions to get married in the next two years. My boyfriend has gone back to complete his college degree and is expected to graduate this spring. Currently, I contribute 6% to my 401k in order to meet the company match (25%). My company contributes an additional 5% of my salary to a ‘wealth builder’ retirement account. This year, I will max out my Roth IRA contributions. Additionally, I have a high deductible health plan with an out of pocket maximum of $3k per year. In previous years I have funded my HSA, but now I rely solely on my company’s contributions (about $50/month), since I have saved up the out of pocket maximum. My current account balances are $60k – 401k/Wealth Builder, $6k – Roth IRA, and $4k – HSA.
I am focused on contributing as much as possible to retirement, especially knowing my boyfriend has nothing saved to date. With that in mind, what would be your recommendation as a next step? Contribute additionally to my 401k, or fund the HSA as a retirement vehicle?
Is saving for the future something your boyfriend actually values? It seems to be something you value, and if it’s not something he cares about, you’re going to bump up against some money issues when married.
Although I think it’s never going to be a mistake to have plenty in savings for retirement, I would make absolutely sure that you’re both on the same page when it comes to financial concerns before making any move. You need to talk about these things, because few things can cause relationship problems like money can.
If you’re sure things are good, my recommendation would be to fund the 401(k) rather than the HSA if your HSA is already getting company contributions.
I received an acoustic guitar, which I hope to teach myself. I attempted to learn the piano, but we simply don’t have room in our home for a piano, so I’ve been trying to find another musical outlet that I can easily practice at home.
I received a scale that updates via wi-fi to a private website where I can track my weight over time. I’ve had some health concerns in the past several months that have caused radical weight fluctuations due to a number of things (hint: there’s a reason I’m doing an investigative piece on Synthroid) and I want to start accumulating reliable data on the subject, both for my own health and to understand the side effects of medications.
I also received a few board games that I’m really looking forward to playing more in the coming months.
Q10: Debt payoff and credit score
I’m single, 31, well-employed. I rent, so I have no mortgage debt, and I’ve never had credit card debt (with one exception – see below). My credit score is moderately high – 725.
I finished graduate school in May 2009 with 40K in student loans (10K at 7.55% and 30K at 6.55%). I paid off the 10K loan in March 2011. In March 2012, I had to buy a new (to me) vehicle, so I now have an auto loan too at 3.9%. Since buying the car, I’ve worked hard to minimize my debt and start saving some cash. Currently, my student loan balance is $2575, and my car loan balance is $6510. My minimum payments are $90 for the student loan, and $250 for the car loan. I have about $2000/month that I’ve been directing toward debt repayment beyond the minimum. I contribute 10% to retirement, and I have $1000 as my (admittedly small) emergency fund.
My original plan was to pay off the student loan in December or January 2012 and finish debt repayment in February or March of 2013, depending on end of the year bonuses in 2012. However, this month, I paid off one of the subsidiary student loan, and my monthly payment dropped from $155 to $90. Having my monthly payment be so negligible made me start thinking….
All of that background, for my question: should I pay off the student loan or keep paying it to build my credit score? My credit score is dinged for three things – first, I have a shorter history of debt repayment because I got my first credit card about 7 years ago, and my student loans and auto loans are obviously younger too. Second, I have limited diversity in my credit history; the auto loan from this year should help this issue. Third, I had one late payment on a card about 3 years ago when I moved and failed to check on a store card. That third issue while diminish with time, and I know there is nothing that I can do to improve it other than to continue to pay my cards on time and in full.
What I’m considering is only paying the minimum on the student loan and redirecting the $2000K/month to the car loan. I’m curious whether paying the roughly $250 in extra interest on the student loan over the course of the next 3 years or so is worth it to boost my credit history and diversity of loans. What are your thoughts? Does a long history of payment really boost the score much?
You should pay off your student loan. The benefit of having such an outstanding debt on your credit report is very small, whereas the benefit of being free from that debt is sizeable.
I’m not sure whether you still have credit cards – I think you do. If you do and you pay off the balance every month, there’s basically no benefit for you at all to maintain your student loan.
Your credit score is going to be pretty solid no matter what you choose as long as you aren’t late with debt payments.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.