Reader Mailbag: Getting in the Zone

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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. Debts versus inheritance
2. Narrowing down your side businesses
3. Mid-term investment
4. Does neat office help productivity?
5. Where do I start?
6. Paring down unused things
7. Homebuying concerns
8. Spousal anger
9. Health insurance honesty
10. Frugal diminishing returns and motivation

Every once in a while, I’ll sit down with an idea in my head and the intent to write about it. I’ve got the materials I need to reference right there in front of me. I pop open my text editor and…

… the next thing I know, hours have passed. I’ve barely noticed the passage of time, but I’ve written a lot of words. Sometimes, it’s a few chapters in my novel. Other times, it’s several thematically linked Simple Dollar posts.

Regardless of what I actually write, those times “in the zone” are just golden. I am never as professionally productive as when I slip into those “zones,” and I’ll put significant effort into creating situations where I can fall into that type of “zone.”

Even more than the productivity, it just feels good. When I finish one of those sessions, I feel somewhat drained mentally, but it’s a good feeling, much like a person can feel after a good physical workout.

Q1: Debts versus inheritance
I currently have the following debt: $7900 loan ($255 monthly payment – runs until June 2015) and $1500 overdraft ($7 monthly payment for the facility + $13 interest per month – NOTE: I’m currently not paying anything off on my overdraft).

I’m shortly due to receive ~$1000 inheritance money following my Grandmother’s passing a few months ago.

My question is, should I use this money to reduce the loan or the overdraft?

If I reduce the loan it will lower my monthly payment to ~$200 freeing up $55 to be used elsewhere (I could put the $55 back into loan repayments and this would help bring the end date forward).

If I reduce the overdraft, the monthly payment may drop to $10 (less interest) and my overdraft will only be $500. Once the overdraft is cleared, I can remove the $20 charge.

At the moment I’m leaning towards the overdraft as it will fit in with Dave Ramsey’s money makeover (pay off the smallest debts first for the snowball effect) but I’d like a second (read: more experienced) opinion.
- Roger

Given your situation, I would agree with Dave and shoot for the overdraft first. The single inheritance will eliminate most of the overdraft and just a bit more additional effort will eliminate it entirely.

Of course, freeing up that overdraft then frees up $20 a month. Instead of looking at that as extra money to spend, just write a $20 larger check each month to the other debt. Write a $275 check instead of a $255, assuming you can’t pay any more extra than that.

You’l shave at least a couple of months off of the other debt, bringing you to debt freedom that much quicker.

Q2: Narrowing down your side businesses
I’m a single thirtysomething that has a full-time job but I also have five or six side businesses going at the same time. They all feel like they could be really successful if I gave them more time and attention but I feel horrible about giving up any of them. How do I decide where and how to focus my time?

- Jerome

I’d focus on the one that you feel you could sustain over a long period provided you were channeling a significant amount of time into it each week.

In other words, which of those side businesses do you feel most often like you would enjoy spending more time working on? Try to rank them in that regard.

I wouldn’t worry so much about profit potential because much of that will come from your continued efforts in building and growing that business. You want to find one that you’re actually going to get maximum enjoyment from investing the extra time and energy into.

Q3: Mid-term investment
My wife and I want to adopt internationally. We are very close to having a fully funded emergency fund. Once that goal is met, we will be able to save around $500 per month towards the adoption. The total cost is going to be in the $35,000 to $40,000 range. A bulk of this cost is going to be due on the front end and then the rest will be due approximately 1-2 years later (when the process is finalized).

Since we are in the 5-7 year range for this goal, what is the best place to put this money? Should I just leave it in a high-yield savings account earning 1%, or is the time frame such that investing it is feasible?
- Shane

Do you have a “firewall” date by which you absolutely must have enough money in hand to go through with this? If you don’t have a “firewall” date, then I’d probably invest most (if not all) of the money in a broad-based stock index fund, like the Vanguard Total Stock Market Index.

If you do have a strict “firewall” date, I’d split it into two groups. For every year away that the “firewall” date is, put 10% of the total into a stock index fund. So, if your “firewall” is six years out, put 60% of your monthly savings into an index fund and the rest into a savings account. At the start of each year, rebalance everything – calculate up your total, figure what percentage should be in each based on the number of years until your “firewall,” and then rebalance among the accounts and adjust your savings accordingly. You’ll have to pay a bit of tax on this each time you rebalance, most likely, but it’s an amount that will probably be in the double digits – something you should be able to easily afford.

In either case, once you start to get close enough to your desired amount that you’re starting to actually move into the adoption process, move everything into your savings account.

Q4: Does neat office help productivity?
Does keeping your office neat help your productivity? Do you find that time spent straightening it up gets earned back in greater productivity later on?

- Chloe

There’s a threshold of neatness for me. If my office gets past a certain point of messiness, it becomes a distraction. A little bit of messiness doesn’t bother me, though.

The real question for me is whether or not I can easily find and access the pieces of information or items I need to find. If I can, then my office isn’t messy. If I can’t, then I need to clean things up and reorganize.

Since it’s my office and I don’t entertain people there, it’s really up to me what constitutes “orderly” and otherwise. If I had guests in there, I would probably strive toward a pretty high level of order at all times.

Q5: Where do I start?
My entire family is horrible with money and I was never taught or instructed on good savings and spending practices. I am 37 years old , have 3 girls (19,16,9) as well as my niece (13), and have been married for 10+ years. Recently I quit a job that I have had for over 11 years because of the stress, commute and lack of family time. I rolled $34,000 from my 401k over to a traditional IRA account. I took about $16,000 out before penalties and taxes to finish my degree. I have horrible credit most of which is medical bills over the years that either slipped through or I didn’t have the money because we were living paycheck to paycheck beyond our means. I did a voluntary repossession of our minivan in August because the payment was 500.00 per month on a 2003 vehicle. I tried to work with the finance company to get the payment lowered or to take a payoff but ran into wall after wall. The car was valued at only $4250.00.When I did the calculations for how much we had already paid on the van it was over $31,560.00 and we still owed almost $12k.

I have about $14,000.00 in collections and debt owed in my name(including the van). My husband’s credit does not have any blemishes on it and he currently has 1 credit card that we are very careful with. How do I dig myself out of this so that I won’t be afraid of collectors, garnishments, ashamed at my lack of financial security and ultimately own a home one day? Do I pay all of my collections off or do I just make sure to stay current on all bills from here on out? I noticed that even though I have paid thousands on past collections it doesn’t help my credit. Do I get a secured credit card? ( I have heard rumors that this may help)

We are living off of only my husbands income currently while I finish school, without the car payment we usually have a little bit left over however that can easily be spent on clothing, hygiene, dining out etc.. He will have a pension and 401k from the company that he retires with.

I am not sure if you can give me any kind of help as I don’t sound nearly as competent with money as some of your readers. However I have the desire and hope that I can fix my mistakes and look forward to being more confident when it comes to money.
- Shari

It’s extremely hard to give you a detailed answer without seeing a full copy of your credit report.

It sounds as though you may be in a bit over your head with the overall state of your credit. In your case, I would probably suggest seeking out a reputable credit counseling service. I’d suggest starting with one of the services approved by the Department of Justice. They should be able to help get you started on the right track.

As for a secured credit card, it is certainly a way for a person wtih a poor credit rating to begin rebounding their credit quickly, but it only significantly helps if they don’t have things that are actively downing their credit, like current outstanding late bills. Your priority should be on eliminating the problems on your credit report to the best of your ability, then focus on rebuilding credit as soon as it’s clear.

Q6: Paring down unused things
I found your blog a few weeks ago and have been reading through your amazing story. It is inspiring. Much like you I have an enormous movie collection that I feel like I should pare down. I have about 1,500 Blurays in the living room. The problem is that I have only watched perhaps a hundred of them and most of the Blurays are in shrinkwrap. It seems really wasteful to just sell them off without watching them. I have interest in and intent to watch them all. What would you do?

- Alex

In your situation, I’d go through the entire collection and identify which ones you could easily watch on another service if you wanted to watch.

For example, let’s say you’re a Netflix member, which wouldn’t surprise me at all given your fandom of movies. If you ever desire to watch most of these films, you could just request them from Netflix.

For me, the way I pared down my collection at first is that I agreed that I would sell off one disc for every disc that I kept. This forced me to sort the entire collection into two large piles. Eventually, I repeated this sort and again sold off the “bottom half” of my collection.

I wouldn’t worry about the sealed ones. They’re more likely to get a premium if you sell them all individually, which will get more money in your pocket.

Q7: Homebuying concerns
My husband & I are planning on purchasing a home & have two questions. 1) Is having our city taxes tacked on to our monthly loan (escrow) better or worse than us saving on our own in the bank where we can make 2.2% interest per month? We heard there is some federal tax write off, but not sure if that will include city taxes or just the interest related to the mortgage. 2) We will have the option of paying our city taxes in either one or two installments. Is there a pro to doing one method over the other?

- Linda

Escrows are useful because they hide all temptation you might have to access that money for other purposes. If it’s just sitting there in a savings account and you know you won’t need it for a while, it can be tempting to use it for other things.

Then, you find yourself without the money you need when taxes come around. It’s easy to say beforehand that you won’t do this… but many people tell themselves that and then do it anyway because something “important” happens. An escrow keeps all that from happening.

As for the installments, it’s generally better to do it in two installments, as that usually lets you delay half of the payment for a while. This, of course, relies on you doing something gainful with that money in the interim and having the willpower not to spend it.

Q8: Spousal anger
We have tried to talk about our money a bunch of times but every time we sit down to talk we start getting mad at each other and accuse each other of spending way too much. We both overspend but I get so mad at him for trying to put all the blame on me and then we never get anywhere.

- Talia

If you cannot contain your emotions for long enough to have a discussion about your money, then you need to seek marriage counseling of some kind, whether through a pastor or a professional marriage counselor.

A lack of communication goes far beyond a money problem. It’s a relationship problem, and there are likely some issues buried in this relationship that need fixing before you can fix the money issues.

Don’t let this sit and fester. You need things resolved to a point where you can openly talk about anything without causing your partner to burst into rage.

Q9: Health insurance honesty
I joined a new company recently and have been asked to sign up for the company’s health insurance. The insurance company in this company is a different one from my earlier company.

The sign-up form asks to declare any previous treatment or surgery. If I only had one minor surgery (which *is* listed in the form) before, should I declare it? What is the legal and financial complications if I do not declare it? Can they find out from my old insurance company?
- George

You’re always better off erring on the side of full honesty.

If you’re not as accurate as reasonably possible, the insurance company has the ability to deny coverage to you later on, which is something you do not need.

Write down everything you can think of. You’re better off that way.

Q10: Frugal diminishing returns and motivation
The first time you find frugal tactics in your home, they’re often big wins as they trim a lot of spending. The problem is that the more tactics you find the less each new one seems to shave off. When does it reach the point of diminishing returns?

- Chris

For me, it reaches the point of diminishing returns when I’m saving less than $10 per hour of sustained effort.

That doesn’t mean I don’t keep searching for tactics, though. I love reading through frugality blogs and ideas and searching for something new under the sun. If I find one that seems to fit my life, I try to run the numbers lightly to see if it will fit.

I’ll sometimes go under that $10 per hour if I’m getting something more out of it, such as an enjoyable family project or some level of personal pleasure.

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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