Reader Mailbag: Favorite Albums

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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. Checking account buffer
2. Insuring collectibles
3. School now or later?
4. Traveling for music
5. Parents helping with home purchase
6. Piano lessons
7. A messy divorce
8. Hiding a credit card
9. Target Retirement Funds still good?
10. Replacing TV with reading

I enjoy listening to new music, but when I’m working, I often spend most of my time listening to albums I’ve heard a thousand times. It’s almost like they fit like an old glove. I can tune them out effortlessly because of their familiarity if I need to. On the other hand, when I actually pay attention to them, I simply feel good, even if the music is downbeat.

I have albums that are approaching 1,000 plays on iTunes. That’s a lot of playthroughs.

Q1: Checking account buffer
Does the “buffer” that I carry in my chequing account count toward an emergency fund?

To be more precise, we always have $3000 in our chequing account at the end of each month when we’re done paying bills and transferring the excess into various savings account. I find that this gives me peace of mind so that the automatic withdrawals that occur early on in the month are covered even if the first paycheques do not come until the second week of the month.

That buffer ($3000) is pretty much one month’s worth of spending for my husband and I (no kids), and we also have one month’s worth as an emergency fund in a savings account (working to build that up to three months’ worth of expenses).

So does that buffer count towards my emergency fund? If it does, then I’m 2/3 of the way to having your recommended emergency fund for a couple without kids or a mortgage, but if it doesn’t, we still have a lot of work ahead! We’re waiting to have that full 3-month emergency fund before we start saving more aggressively to buy a house (we’re okay renting for a few more years yet).
- Eric

It’s really up to you whether to count it.

Personally, since it’s serving a non-emergency purpose, I probably would not count it. You can’t just tap it without adding to your life concerns, which is part of the reason for an emergency fund.

Still, as long as you have several months of cash on hand, you’re in better shape than the majority of Americans anyway.

Q2: Insuring collectibles
I have a number of sports cards and other trading cards that are all professionally graded and would have a value, if I sold them on eBay, measuring well into the six figures. Currently, I keep most of them (the most valuable ones) in a safe deposit box at the bank and a few are framed in my home.

It occurs to me that I might want to insure them, but I’m not sure how to do that. Any suggestions?
- David

My first step would be to talk to my home insurer about that collection. Depending on the policy, you may be able to cover these collectibles under your disaster and/or theft insurance as part of your homeowners insurance.

If that doesn’t work out, you can shop around for collectibles insurance. Many insurance houses offer policies like these that, depending on the policy, are comparable to adding them onto your homeowners insurance.

The safe deposit box is probably the best place to keep the items, but you should still consider theft insurance on them. A bank vault, while very secure, isn’t inpenetrable. Most insurers will insure the contents of a safe deposit box at a pittance because the risk of payoff is so very low, but it’s not zero.

Q3: School now or later?
I’m a 24 years old girl living alone working full time and I live in Montreal, Canada. I decided to apply to university for the next fall semester and I have some worries regarding living cost and loans. Basicly, we have a grants and loans program from the governement which is pretty decent, the thing is, the lower your income, the more you receive in grants and the less you receive in loans. After calculations, I realised that it’s more advantageous for me to get a part time job and reduce my income, since this amount will be given back to me as a grant when I start school.

I’ve already made plans to move with room mates and live more frugally and such, so everything is making sense, except for one thing. I currently have a 5000$ debt with my bank, paying it back is gonna be near impossible once I get into this process, and since the school grant calculates the prevous year, I can’t really pospone school because my full time income is going to penalize me at some point.

Any ideas on how to deal with the debt? Or make extra income that’s not declared to the governement?
- Nina

If I were you, I’d keep working for now, eliminate that debt as fast as possible, then switch to the part-time job to prepare for school.

You do want to sit down and run the numbers to make sure that working part-time is actually the most cost-effective route for you. You might be surprisingly money ahead by working full time and saving a healthy portion of your income rather than working part-time.

An aside: this is really a poor way to decide who gets aid for education. Any situation that encourages people to “game” the system in this way is not a well-conceived system. I’m very much in favor of merit-based aid, but need-based aid is a much trickier proposition.

Q4: Traveling for music
My son is sixteen years old. He’s been in a band for the last four years and they’re very good. They’ve won a few contests in the area and are signed to a small record label.

Anyway, they plan on spending the whole summer traveling, which I’m fine with. The problem is that it’s unclear to me how they’ll be splitting up the earnings and what my son should do with the extra that he earns because they make more per band member per gig than his food and lodging would cost.

Any suggestions?
- Marvin

He’s sixteen and in a traveling band. I would consider anything that he saves to be a positive.

If he’s being really responsible, he should simply get a savings and checking account at your local bank and deposit extra money whenever he can at whatever ATM he’s near. Then, at the end of the summer, he can address what to do with that money.

If he does that – at age sixteen in a traveling band – he’s doing far better than I would have expected from a sixteen year old in that situation.

Q5: Parents helping with home purchase
Currently I am in a very good financial situation. I’m 29, unmarried and am maxing out employer retirement and Roth IRA, with a very healthy savings account. I have a very stable job, but will likely move to another state in 5-7 years with the same company. I have $40k down payment saved for a $200,000 house. That’s the high end of my budget. However, the location I want to buy a house is very desirable (lots of professionals) so you get less house for the money (2bd/2ba, 1000SF). I could move to a less popular area to get a larger house (3bd/2ba 1300SF), but I don’t feel like I need that with where I am (no kids or husband likely for a long time). However, my parents are willing to pitch in some money towards the down payment to help me buy a bigger house (3bd/2ba 1300 SF for $250k) in the location I want because they say it is a better investment and likely easier to resell when I choose to move. It’s possible I might stay permanently but very unlikely; who knows the future though? I can afford the additional monthly payment in any case witha 30yr conventional mortgage, but I want to avoid PMI. Is it worth going for the better future resale?

- Monica

I’d still be wary about this. Let’s say that you buy the smaller house for $200K. You put your own 40K into the mix and get a mortgage for $160,000. Over a 30 year mortgage at 4%, that’s $763.86 per month for the mortgage payment. You’ll also need homeowners insurance, property taxes, utilities, and maintenance.

Let’s say you borrow $10,000 from your parents to buy the more expensive house. In that situation, you owe a $200,000 mortgage. If you get a 30 year mortgage at 4%, that’s $954.83 per month for the mortgage payment. On top of that, your costs for homeowners insurance, property taxes, utilities, and maintenance will all be between 10% and 30% more in this house, plus you’ll owe your parents $10,000.

If everything goes perfectly, the second option will probably be better. That perfect plan involves waiting several years for the housing growth to push your equity up more than you’re losing in extra interest, extra utilities, and extra property taxes, and it involves you not losing your job or having a career shift in that time frame. If that doesn’t happen perfectly, the first house is better as the overhead is lower and the money lost to interest/taxes/insurance/utilities is smaller.

Q6: Piano lessons
We have a piano in our front room because my wife plays it (every once in a while). Lately, our five year old has started experimenting with it constantly and wants to learn how to play it. My wife doesn’t feel equipped to teach her, so we’re looking for lessons. How do we determine what’s a fair price for private music lessons?

- Alvin

Shop around. Ask for quotes from the people in your community that offer lessons. Ask your local social network for recommendations and suggestions.

Different areas have different prices for lessons. In our area, prices are higher than where we grew up for music lessons, but they’re far lower than a friend of mine is paying where they live.

You just have to shop around and see what the market looks like. There’s no national standard for this type of service.

Q7: A messy divorce
My husband and I divorced after 23 years of marriage a year and a half ago. I was blindsided. Without going into too much detail, before I knew what hit me, my husband had an affair. During the divorce, I learned he had cleaned out our home equity and hidden most of the assets we may have had. He makes Around !35,000 a year.

I have moved on emotionally done my best to recover financially. I am debt free other than my mortgage and car. Our divorce took 3 years and during that time, I saved every penny I could save. I bought a small house and this took most of my savings.

In our divorce decree, I signed a quit claim deed (big mistake I now learn) and he has sole financial LEGAL responsibility for the house. As a result my credit has been destroyed. The house was too big and the the mortgage was too large for me to keep up with on my own.

In July of 2012, I learned he quit paying on the mortgage and the house has gone into foreclosure. I went to see a bankruptcy/foreclosure attorney and was advised to try use any savings I might have to make repairs and purchases in case I was faced with bankruptcy. This brought me to almost zero savings.

I have been through Dave Ramsey’s financial peace, read his books and I read your blog daily. I scour the internet and try to learn everything I can about finances. My learning curve has spiked through the roof since the divorce. I knew nothing about taxes, retirement or budget planning pre-divorce. I am very conservative with my money and have always believed being debt free and having an emergency fund are the best security I can have.

I have around $7000 in savings right now…or so I thought. Last year, I went to an accountant to have my taxes done and ask questions about tax planning. She also did estimated taxes for 2012 taxes which I paid. In doing my taxes this year, I found she made a mistake and I will owe around $7500.00. I will also need to PLAN for next year to catch up so I won’t have the same tax bill again next year.

So, here is my question. I’m 52. I have $92,000 left on mortgage. I have about $80,000 in roth IRA, 403b, 457 and ex husband’s 401K. I will also have around $3200 per month in pension (so far).

I make $46,000 per year as a teacher and have $30,000 per year in alimony until I am 62.

I’m comfortable. I am completely satisfied with my income. It is more than enough to live on and pay bills, but I’m scared and worried. I don’t know whether it would be best to pay the tax bill and completely have NO EMERGENCY FUND or set up payments with the IRS or split and do some of both with a large payment to the IRS. I’ve never been in a situation where I don’t have money to fall back on.

My second question is how do I plan a strategy to shelter taxes and plan for future taxes? If I max out my retirement, along with other withholdings (FLEX and health insurance, etc.) I will have almost nothing beyond that and my current living expenses (monthly nut). (This doesn’t include anything for future savings, extra house payments, clothing, entertainment or travel).

You may not be able to help, but I would greatly appreciate advice for where to turn.
- Mindy

For your taxes, you should talk to the IRS and set up a payment plan. This is not an emergency worth emptying out your e-fund for.

As for planning for future taxes, I’m guessing this is the result of the alimony income. You should ask a good tax person what you should be doing to prepare for it.

I’m uncertain about the $92,000 mortgage. Is it on the house that has been foreclosed on or did you buy another house? If that mortgage is on a home that isn’t your primary residence, you should be selling it as quickly as possible.

There’s nothing here that says your situation is desperate. It just needs a little focus and planning.

Q8: Hiding a credit card
I recently found out that my wife has been hiding a credit card from me. I found an entry for it on her credit report when I was pulling them up. At first, I thought it was identity theft, but then she left her wallet out on the table and I saw the card in there. I’m now kind of annoyed when I see money being taken out of our checking to cover the bills on that credit card and I feel like I can’t trust her as much. Any thoughts on our way forward from here?

- Andy

You need to sit down and talk about the credit card.

Most of the time, people get credit cards in situations like these because there’s something about the spending situation at home that they’re having a problem with, whether they feel they can say so or not. Their response is to just get that card rather than having a hard discussion.

You need to have that hard discussion. There’s really no way around this. This is a trust issue, and it’s also an issue of your shared finances.

You might want to look at the book Difficult Conversations, which can really help in situations like these.

Q9: Target Retirement Funds still good?
I just read your post from 2007 about Vanguard’s Target Retirement Funds. A lot has changed in the financial world and economy since then. Do you still feel this is a good choice for your retirement savings? I am considering the 2030 fund for myself.

- Roger

Target Retirement Funds are still a great choice for retirement savings within a Roth IRA, a Traditional IRA, or a 401(k)/403(b). I wouldn’t invest in them outside of those retirement accounts.

Essentially, those funds just constantly rebalance themselves so that earnings are high well in advance of the target date, but that the money is more secure as the date arrives. It’s a good philosophy that eliminates headaches for individual investors, usually at little cost.

If you invest in one, choose the one with the target date closest to when you expect to retire. I’m assuming you plan on retiring close to 2030, so Target Retirement 2030 would be a good choice.

Q10: Replacing TV with reading
Just wanted to share with you that my husband and I decided to give up television for a whole month and replace our hours of evening television with reading and personal projects and some board games. It has been a wonderful month and we are now seriously considering cancelling the satellite subscription and just getting rid of the television. Thanks for encouraging us to try it!

- Jenny

We don’t quite do this, but we’re pretty close to it. We spend most evenings either reading or playing games. I watch perhaps one or two television programs a week, while Sarah watches maybe one or two more (usually as background noise when she’s working at home).

Books are less expensive than television, especially when you utilize the library. You don’t need a subscription service for programming. You don’t need an expensive device to watch them on. You don’t need lots of energy to power a book, either – an LED clip light will give you all you need.

The average American spends 34 hours a week watching television. If you can shave just ten of that, you have enough time to read a ton of books or learn a musical instrument or take care of countless projects that you’ve left for “someday.”

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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