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. Using the company car
2. What constitutes an emergency?
3. Robert Kiyosaki and Suze Orman
4. Higher interest on savings accounts
5. Getting lower credit card rate
6. Awful customer service
7. Move now or later?
8. More ideas than time
9. Student loans and life insurance
10. Charity guilt
This past weekend, we spent almost every moment at home.
We thoroughly cleaned a particularly messy area in our home. We moved the rabbit hutch from the outdoors to the garage for the winter (along with some minor hutch repairs). We carved pumpkins. We played board games. We made a giant batch of from-scratch hot chocolate (starting with a chocolate bar).
It was honestly the most enjoyable weekend I’ve had in a while.
Sometimes no test cars are available, and I must drive my old truck. I feel like a loser when I get in my old truck, after leaving a shiny nice car.
The old truck is a 99 ford f150. Its fully depreciated worth only $2500 or so. I have not debt on the truck and I pay $150 a month in car insurance, but rarely drive it. Parts are cheap and easy to get.
The old truck has starts and runs fine but sucks gas and needs brakes bled every 3 months. The back glass leaks some water and the cap too. The radio sucks too.
I bought a back-up car. An old 1986 toyota 2 seater. This car also occationally breaks down and overheats. The catalytic converter just plugged last night. The toyota has classic car insurance for $29 a month. Insurance is only for weekend and pleasure use.
My friends all say that I should get a new car or a lease. They say I’m wasting money and time on all these old cars.
I’m a poor mechanic. Still learning and make mistakes. Sometimes I don’t know what’s wrong and other times cannot remove a rusty bolt. Every time I mess up I get scared and angry at myself. Once I fix it, I’m happy and relieved. Sometimes one car sits broken for a few days and I drive the other. I have a 3rd car, an old mustang with no insurance, but also starts and drives.
I just got a promotion at work into management and all my friends and family say I should stop working on old cars and buy a new car.
I already feel silly paying $150 a month insurance on a car I hardly drive. Paying an additonal $300 for a new car I don’t drive sounds downright silly.
So I’m stuck. I have 3 old cars to work on, and barely drive any of them. When they break I get grief from family and friends and I feel like a loser. When they all work everything is cool.
I live alone, so no other drivers use these cars. I’m a homeowner.
What should I do? Get a new car? Sell the truck? Stop insurance on the truck, save $150 a month and drive the toyota on the weekends? Drive a rental on the weekends?
I’ve got a few choices. I have an emergency fund, no debt, and save about 1000 a month in savings acount and 401k.
You are worrying way too much about what other people think. No one really cares that much what you drive except for you. Right now, stop worrying about the opinions of others regarding your car.
Your primary focus should be on whatever gets you from point A to point B in the most cost-efficient way. If I were in your shoes, I would keep the vehicle with the lowest cost of ownership over the next few years, which sounds like the Toyota, and get rid of the others.
If you enjoy repairing cars as a hobby, keep one around to work on, but don’t keep insurance on it until you’re sure it’s roadworthy.
Q2: What constitutes an emergency?
This past weekend, I fired up our home furnace only to discover a problem with the blower. After talking with my wife, we decided to use our emergency fund to take care of the cost, so it wasn’t a major crisis.
Still, it left me wondering whether or not this was really an emergency. I think we could have paid for it without touching our emergency fund, but we would have had to make minimum debt payments this month to pull it off.
I think you were fine either way because, in the end, they will more or less work out to the same thing.
Right now, you have a depleted emergency fund, which you’ll be refilling out of your income. Ideally, you’re refilling it quickly, which means that you’re either making a much smaller payment or a minimum payment on that debt you’re focusing on.
In either case, the impact of this event shows up in the long term in the form of not being able to pay off that debt quite as quickly. Your emergency fund just made it easier when the emergency hit home.
Q3: Robert Kiyosaki and Suze Orman
While I appreciate your blog and mission to educate people, I have to question your articles on financial advisors. Why give high marks to someone like Suzie Orman who expounds on common sense basic savings strategy, makes inaccurate blanket statements, gives advice contrary to what she does, and misses benefits of leverage and other tools that those less well off can take advantage, all while killing Robert Kiyosaki.
I get “Rich Dad” fails to give actual advise on how to do anything, made a horrible decision on carrying out the truth of Rich dad, and has had numerous failures (including bankruptcy). However, he got casual and serious investors interested by making bold statements (a good strategy in itself). He stated some basic principals in way that make sense to the non-investor (explaining assets, etc). It was actually a unique view on a lot of things and some of them really make a lot of sense.
Your article kills him for using a network that he built, which MANY investors do. I also miss the point where you say he ignores risk because he favors business and investment to being an employee. Yes, it easier to get a job than to create your own business, but our country does reward ownership and taking risks. Puting money into the stock market has more risk than placing it in a savings account, but you would be hard pressed to find a successful person w/ more in savings than in investments. You also look speak if it is outragous what he says about formal education, but I disagree w/ your take. As you mentioned yourself, the point he is making is not that formal education is bad, but it is training for taking a job. There are definately points for some people that have a plan, where spending money elsewhere would be much more valuable. Take me for instance. What value would a degree from Yale bring me if I plan to work for myself?
In closing, I just want to remind to always keep an open mind and think about the message any advisor gives. If there was any one size fits all way to riches, it would be easy and none of us would have to worry about. Also, I want to ensure that none of this comes off negative towards, because as I mentioned, I like what you are doing. I ask that you take a look at the advantages of passive income, leveraging, benefits of a hedge, the value of financial education, and some of the other messages that Kiyosaki tries to deliver- and I think you might be surprised on what your missing.
First of all, I basically feel indifferent to Suze Orman. I think she does a solid job when it comes to fundamental personal finance issues and her attitude/persona appeals to some people. I don’t see anything strikingly “wrong” about what she talks about, though she falls into the same problem of anyone who produces a lot of content in that you’re going to inevitably write about topics that people don’t agree with and that will bring about debate. The more you write, the more debate there is.
Now, as for Robert Kiyosaki, the only reason people keep bringing him up is because he’s good at marketing himself. Rich Dad, Poor Dad might be a fine book for inspiration’s sake, but there are countless books out there on investment and entrepreneurship that blow Kiyosaki’s work out of the water, as they bring both the inspiration and the plan.
Just off the top of my head, I’d suggest reading any book by Michael Masterson. Ready Fire Aim is a far more helpful look at entrepreneurship than Rich Dad is while still being very inspiring. So is The Reluctant Entrepreneur. So why aren’t these books as famous as Rich Dad? Marketing. Nothing more, nothing less.
Q4: Higher interest on savings account
I’m looking at moving to a different bank for both checking and savings. One bank that I’m looking at has a very nice interest rate on the savings account compared to the others, which puts it ahead of the pack. Is there anything else I should be looking at?
Lots of things. Are there minimum checking account balances? Do the checking accounts earn interest? What are the bank’s lobby hours? What is their ATM network like? Do they have a good reputation? Do they do currency exchanging (i.e., accepting quantities of coins) without a fee?
Any of those things will end up having more impact on you than comparing a 0.5% versus a 1% interest rate on a savings account. If you have $1,000 in savings, then the difference is $5 per year. Two out-of-network ATM withdrawals will add up to more than $5. A bank with awful service will end up costing you in terms of frustration on a regular basis.
Savings rates are certainly one factor in comparing banks, but I don’t consider it the factor or even one of the prime factors.
I was told by other credit card companies that I had a higher debt to income problem. I did co sign for my son and though he is always on time, it may be a block to try to get a lower fiance rate.
I am retired and a widow. Can you suggest anything else I may do ?
Right now, to the credit card companies, you appear to be a risky proposition. Your personal debt adds up to a large amount of your income, so they’re nervous about lending more because if you default, they’ll have trouble getting money back.
If I were you, I’d head down to a local credit union and talk to them about a personal loan to consolidate this kind of debt. They may have something that will make things more manageable for you.
I’d also check out my credit report using AnnualCreditReport.com, which is the government’s website for doing that. Make sure that everything on your report is actually accurate.
Q6: Awful customer service
When do you give up on customer service and just buy a new item? I’ve been trying to get [a company whose name I won't mention] to send me replacement parts for my vacuum for several months. I bought it a year ago and it failed three months or so after I bought it. I called their customer service and I’ve literally been jumping through hoops for months.
I chose to redact the company name because I have no way of verifying Jim’s story as being fact and thus it’s not particularly fair to that company to be derided like this.
Having said that, if I were in Jim’s shoes and this story were accurate, I would move on to a new vacuum and never ever do business with that first company again. This is a shoddy way of doing business.
I’m sure that if I asked the company for their side of the story, I would hear a much different tale. I’m also sure that the actual truth is somewhere in the middle, with Jim’s frustration amplifying the company’s missteps and the company’s PR glossing over them. The reality probably comes down to some overworked customer service representatives.
It’s situations like these that remind me to value companies that do great customer service.
Q7: Move now or later?
I recently got married and my wife and I are both 30 years of age. We make a comfortable living but have little saved up so far – about $20,000 total. Our total take home income is around $7000. We’ve had a lot of expenses so far that seem to have come to an end. We have no debts. We do not plan to have a baby for the next 2 years at least.
I live in a luxury apartment and my roommate moved out last month as my wife moved in. Our rent is $2100/month without utilities. While we can afford this, we feel this is eating into our savings. Our lease ends in June 2014.
My question to you is two fold:
1) Should I break the lease effectively losing a month’s rent and move into a cheaper apartment for a year and save up. I’ve looked around and we’ll probably have to pay agent fees to find something decent. From what I understand, we could move into something smaller and pay about $1500 in rent. We are also toying with the idea of finding another roommate to fill the extra room, but both of are not very inclined to sharing the apartment post marriage.
2) Alternatively, we are considering buying a house by December 2013 if we can find something. We plan to put 20% deposit (borrowed interest free from family). However we cannot seem to come to settle on what are we looking in a house.
- I feel like we should buy a house that is convenient going into work. Stay there for 5-7 years and by the time the child comes of age to go to school, we can move.
My wife feels like we should only consider areas with a good school district. She feels like the future is uncertain and we might not be able to move when the time comes.
We both work in downtown Boston and anything with a good school district is way* outside our budget or a little too far. We would either have to settle for a really tiny apartment or do a 1.5 hour commute each way to work. 3 hours commute a day is a deal breaker for us.
I’d love to hear your opinion on this. I agree to a great extent to my wife’s point of view. But I also strongly feel that we’ll be “throwing” money towards a good school district that we don’t plan to take advantage of for the next 5-7 years.
If you’re not putting down permanent roots and you don’t have enough cash in hand to make a 20% down payment on a house, I would continue to rent. I would certainly not pay more money to move into a good school district before you even have children.
Your best move is to rent where your total cost of ownership is the lowest. This might mean lower rent far away from where you work or higher rent closer to work. It depends on the commute options, whether or not you can get rid of a vehicle, and other factors like that.
If I were you, I’d start shopping around in the areas where you might consider living using those things as criteria. If you find the right place and you’ll end up money ahead by breaking the lease, do it, but the longer you wait, the worse the odds are that it will make sense to break the lease.
Q8: More ideas than time
I have tons and tons of frugality ideas clipped and saved all over the place, but I never seem to have enough time to implement them. I’m always busy at work or taking kids back and forth or keeping the house from being a disaster. How do you do it?
For one, I’m lucky that researching some of this frugality ties directly into my professional work. When I try out a new tactic, I can usually get an article out of it, so it amounts to professional research as well as personal usefulness.
Having said that, what you should do is just focus on one really useful tip at a time. Pick one tip that you’re going to implement and just focus on that one today. Make sure you just get that one tactic done. It might be a one-shot thing that saves you money over the long haul, like installing more energy efficient light bulbs, or it might be something like making a triple batch of dinner and freezing the rest.
Try to just do one extra thing a day that will lead to long term savings. Add it to your to-do list. Don’t try to do five or ten, even if you have a ton of ideas, because that will make it easy to just throw up your hands and give up. Just do one.
Do one every day and they’ll really start to add up.
Q9: Student loans and life insurance
I just read “Should I buy life insurance for my children”. And the question I have is what if you are co-signer on 3 large college loans. What would be the thing to do then? If something would happen to 1 of all 3 I would be trying to pay off those loans until I’m dead.
This is a situation where I think it makes sense to continue to carry insurance on a child. If you’re a cosigner on someone’s debt, it makes sense for you to have life insurance on that person.
You explain the case very well: if that person dies and you’re a cosigner, you’re going to be dealing with that debt. If you’re not easily able to handle it, it’s going to be a weight around your neck for a long while.
A term policy for the length of that debt is a good solution. It does mean a bit of monthly expense for you (assuming you’re the one buying the policy), but it protects you against an undesirable result. Great tip.
Q10: Charity guilt
I feel really guilty whenever I hear about a charity or see an ad for one on television. I think about people who are in a desperate situation and I know I could find a few dollars to give to them but doing so would keep me in a financially precarious situation. So I feel bad either way. Help!
This is a pretty common feeling. I feel it, too, to a certain extent.
My solution to the problem is simple. First, we’ve chosen a small number of charities that we not only give money to, but we give time to as well. Those are the charities that we focus on.
When I hear pitches from other charities, I basically just remind myself that I’ve already carefully selected the ones I give to and focus on those instead.
Now, how do I cap giving to those that I’ve decided to focus on? Sarah and I talk about our finances separately from those charities and agree on a charity budget, which is more or less an agreement of how much we’ll give over the course of a year.
We can always feel guilty about not giving enough, but I’ve found that spending time really helps with this. It allows me to directly contribute effort to the cause and also see how my giving is actually helping people.
It’s not a perfect solution, but it really does help soothe that feeling.
Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll 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.