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. Elderly in financial trouble
2. Crafting projects
3. After bankruptcy
4. Making money with music
5. College savings or not?
6. Changing friends
7. Basic investing questions
8. Cheap golf
9. Difficult housing question
10. Establishing a reading habit
On Tuesday, my primary work computer suffered a hardware failure. The only data I lost was two videos and an audio recording. Everything else I needed was backed up in some fashion.
Anyway, I was able to recover everything I needed for professional work pretty quickly. I was actually amazed how fast I was able to recover, to tell the truth.
If you do not have a backup system for your key documents, get one. You can use an external hard drive (pretty secure) or an encrypted off-site backup, but do something
Q1: Elderly in financial trouble
My parents have never saved for retirement and are in their 80′s and living a 1 bedroom apartment, $600/month rent, struggling with trying to get transportation to grocery, laundry and just get out of the small apartment. Between the 2 of them they have $1500 social security and somehow seem to manage. They are on a waiting list for subsidized senior housing but those lists are often a year or longer wait. I wish I could help but live out of state. I have considered purchasing a condo for them but we really do not have the money to do that either. There are plenty of programs for seniors. Find your local Senior Center and they can help. http://www.mid-eastaaa.org/ They will end up relying on the government subsidies but will survive. Don’t be discouraged.
I would also strongly encourage any elderly folks who are struggling to make ends meet to look at their local churches. In our area, the churches are all constantly running “free will” meals, which means that the hot meals are completely free and they have a jar set up for giving whatever you want to pay for the meal.
The churches themselves encourage their members to “give” enough to cover not just a meal for themselves, but at least one meal for someone who can’t afford it.
Not only that, pastors at most churches know of tons and tons of community resources, many of which are helpful to low-income people.
If you’re struggling financially, whether you’re elderly or not, investigate what your local churches have to offer. Don’t cloud your impression of churches with the sometimes contradictory statements and actions of the larger church bodies. In local towns, most churches do great work in the community.
Q2: Crafting projects
I wanted to give you a suggestion for your readers for a cheap hobby: crafting projects. I constantly find little things I can be making that are really useful, from drawer organizers or handmade greeting cards. It’s a hobby that costs me very little and usually ends up either making my life easier or replacing something I’d just buy or making something really nice for a friend.
I actually do a lot of crafting myself. Lately, for example, I’ve been making tuckboxes out of card stock to help organize some of the cards for games that I play. I’ve also put together some print-and-play games out of paper and cardstock as well.
I’ve also made tons of greeting cards over the years using bulk blank greeting cards, construction paper, and photographs.
If you can find little things that you can make around your house, it’s well worth the time to figure out how to make them and make them yourself. Not only is it time spent doing something constructive and learning how to do it, the cost is usually really low and it often replaces something you’d just buy.
Bankruptcy doesn’t mean a “clean slate.” It does mean an organized and clear path to freedom from your creditors, though.
Your focus should be entirely on following that path. You want to be completely free from all of this and the court system has given you a path. Follow it.
Once you’re free from your bankruptcy settlement, don’t change the lifestyle you were living that enabled you to follow that path. Instead, channel that money into other things: an emergency fund, then retirement savings. Figure out where you want to be in five years and start saving for whatever that vision is.
Q4: Making money with music
My twin daughters are ten years old. One has been taking piano lessons for five years, the other has been taking guitar lessons for three years, and they have both been taking singing lessons. This is not being pushed by me at all – all I’ve told them is that if we get the lessons, they have to practice every day.
Anyway, I don’t know what the first step is in making this into a musical career for them. What should I be thinking about that doesn’t involve expensive recording sessions and so on?
If I was you, I’d record at home in your family room. I’d find some software for recording audio – nothing too complicated or fancy at this point – and learn how to use it. A freeware package like Audacity is a starting point. A low-cost microphone would be a good idea, as would a good webcam (the one on your laptop is okay, but even a low-end one at the store is better).
Then, just start making some audio recordings and video recordings of them performing. Start a Youtube channel and put up some of the videos, particularly if they are original songs. If you’re doing a cover, you’d need to get a mechanical license for the song, but you’re better off sticking with originals.
The most important thing right now, though, is to keep it fun for them. As long as it remains fun, they’ll keep getting better and wanting to do it. Just encourage them to try recording what they do – at least a little – and experiment with coming up with their own songs. If it’s good, share what they’ve recorded. That’s what I would do with two young musicians.
Q5: College savings or not?
My husband and I are expecting our first child very soon. One of our concerns is setting up a college fund for the child. While both my husband and I have college degrees, neither of us value those degrees much. While college was fun, we both chose degrees based on what we enjoyed only to find out that our respective careers didn’t actually require or quite honestly even respect them. Therefore, we are extremely skeptical of making additional cuts in our current budget to set up a college fund. Instead, we are considering to continue to pay off our mortgage as aggressively as possible (our only source of debt), increase our emergency fund, and then invest in our retirement fund. We would be interested in setting up a trust that can either be used for housing or starting his own business at 25. If our son chooses to go to college, we could take out loans at that time to assist him. What say you?
You’re right that college savings is based on the assumption that your child will seek some sort of post-secondary education, whether it’s trade school or community college or university. If your child seeks any sort of education, college savings will have been the best choice because the income on those savings will be tax free. It’s really hard to beat that.
A trust – or other savings method – has the advantage of being far more flexible, but it doesn’t have the tax advantages of a 529 college savings account.
The problem for you and for every other parent is that you’re attempting to forecast what your child will be doing twenty years from now. If you knew that, this would be an easy question… but you don’t. I don’t think there is a truly right or wrong answer here as long as you’re saving. Don’t skip the savings, regardless of how you do it. 95% of the value is created solely by making the choice to save, regardless of how you do it.
Q6: Changing friends
After college, we maintained the same friends that we had during our college years. For the first few years, this was fine, but both my husband and I have worked hard to establish careers and good financial sense, while most of our college friends seem to have no ambition other than to work at Burger King and go to movies and drink a lot. I am getting really annoyed by and tired of their directionlessness and want to spend more time with coworkers and other people in the neighborhood we moved to. My husband says that those college friends are the people he feels comfortable around and can relax with. With only so many social hours in a given week, how can we balance this?
Balance it! You don’t have to spend all of your social time with new friends nor all of your social time with old friends, either.
I know what you’re getting at here, though. Most people wind up being the average of the people they spend the most time with, and if you spend most of your time with directionless people, you’re going to be influenced to be directionless, so you want to spend time around people with direction.
That’s a great thought, but it doesn’t mean you have to abandon old friends in the process.
It sounds like your husband is uncomfortable with the friends you’re cultivating and you’re uncomfortable with the friends your husband wants to stick with. If I were you guys, I’d split the time. I’d try to find ways to make your husband comfortable with your new friends, but I’d also do what I could to open doors and encourage your old friends to move on to bigger and better things in their own lives.
Q7: Basic investing questions
I’ve been reading a lot on personal finance recently as well as investing. It seems there are a million investment options, with varying degrees of risk. I’m somewhat risk adverse, so things like daily trading and growth stocks are out.
Here is some background: my wife and I have been focusing on paying off our sizable debts (house, two cars, student loans, and some other smaller debts) as quickly as possible. I have also started building an emergency fund which has a reasonable $1200 in it. Within the next 2 years, we should have paid off both cars and the smaller debts, leaving only a mortgage and student loans. I want to start investing in our future, and generating some alternative income sources as you’ve mentioned several times.
I see a lot of articles about dividend paying stocks. These seem like a great investment, especially if I pick solid companies (like AT&T or Coke Cola). From my readings though, it looks like these investments get taxed heavily (full income tax on dividend payments?), but seem to be safer due to the dividend payments. Is this the case?
As a followup, what do you think of this approach to investments, assuming I can invest $2000 a year. Take $1000, buy stock in one strong dividend company, like AT&T, and the other $1000, in a strong index fund (say the vanguard fund you keep mentioning). The next year, do the same with a different dividend company, but the same index fund. Start the cycle over every 5 years. This should leave me with a sizable chunk in the index fund, and 5 strong dividend paying companies.
Finally, do you know of any good resources (books or websites) to explain the various investment vehicles? I greatly appreciate any advice you can give me.
You’ve assessed dividend income pretty accurately. Dividend income is taxed as ordinary income (right now – they change tax laws all the time), but if you invest in big, safe companies with a long dividend history, such investments are pretty stable.
Your plan is pretty good, but I would try to get into at least ten different companies rather than five. This is for diversity’s sake – one of the big advantages of the index fund is the automatic diversity it provides. I would be nervous holding more than about 5% of my investments in the stock of any one company.
My favorite book on investing is The Bogleheads Guide to Investing by Larimore, Lindauer, and LeBoeuf. It taught me a ton about investing from a relatively risk-averse perspective.
The biggest expense for me was the constant need for new gear. There was always a new club or something else to buy. You’ve just got to stop doing this. If you want to get better, new clubs are going to have a very tiny impact. The best way to improve is to improve yourself. When I golf today, I use the clubs I have. I’ll also pick up any “lost” balls I find on the course and toss them in my bag for use.
Once you have your clubs, the big expense is tee times. My suggestion is to never overlook the cheap courses in your area. It might be fun to golf on the higher-end courses, but the low-cost courses tend to have a ton of charm and are lighter on the pocketbook.
I find GolfNow to be a great site for finding cheap tee times if you’re willing to be somewhat flexible with your golfing schedule.
Q9: Difficult housing question
I put my house up for collateral $80,000 (it was paid off in 1999) for my son’s business which was pretty successful ( a building contractor with some government contracts and built homes) UNTIL he got involved in selling and using drugs. He walked away from everything and is now cruising the Florida Keys living on a boat with his wife and kids. In the meantime, I am 66, and teaching in a job 1000 miles from home trying to pay off this loan in order to get my home paid off hopefully before I die! I do have a pension of about $25,000 a year. I know I can make the $562 monthly payment but thought taking this job would help me pay it off faster. I thought in a year or two. It has been a year now and I still owe $28,000. I’m tired and want to be at home enjoying my garden and the rest of my life. Although I hate to admit it, I feel resentful towards my son, who has not even bothered to acknowledge that I am paying on his loan while he is scuba diving and having a high time…which is irrelavant to the question. In your opinion, would it be better to work another two or three years here (I figure I’ve only paid about $8,000 on the loan this year with living expenses out of state and maintaining my home in Iowa) or should I just go home?
What happened to the assets of the business? Did they get sold? If I were in your shoes, I would sell every remaining asset of this business (if there’s any left) to pay down your debt. This shouldn’t even be a question in this situation.
If that’s not an option, you really don’t have much choice other than just paying off the debt as fast as you can. I don’t know which path will actually get you there faster. If you “go home,” it sounds like your living expenses will be lower but you won’t be employed. Could you find employment of some kind when you “go home” and continue paying things off remotely?
Another question: could you sell your house and buy a lower-cost home to get rid of the debt? Do you need that specific house? Do you need that space? It sounds like you’re single, which means you don’t need a ton of space.
(I don’t blame you for resenting your kid here, by the way.)
Q10: Establishing a reading habit
I’ve been trying to establish a reading habit by reading in the evenings, but I find that every time I start reading, I fall immediately asleep. I don’t find the books boring, I just find myself conking out immediately. How do you read in the evenigns without going to sleep?
First of all, if I read a book or a magazine right before bed, I usually get really tired in about ten minutes or so. If I read on my laptop or on something else with a backlit screen, it takes quite a bit longer. So, one technique might be to read a book electronically from your computer.
If that’s not an option, you might want to read at another point in the day. Keep your book with you in your vehicle and look for chances to read. I’ll read when waiting on an oil change or while I’m at the doctor’s office, for example.
Another note: if you’re falling asleep that quickly, it’s probably a matter of not getting enough sleep as it is. I know that I often don’t get enough sleep, particularly during the week (I usually “catch up” a bit on the weekends).
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.