Reader Mailbag: Junk News

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. The downsides to cash
2. Math tools
3. Mortgage questions
4. Hobbies by the hour?
5. Bank consolidation worries
6. Politics and house sales
7. Online bank thoughts
8. Fast breakfasts
9. Student loans and kids
10. First time selling on eBay

Whenever I read the news, I usually find that most of it is of little interest to me. I don’t care what’s happening in the life of an entertainer or an athlete. I just don’t. Wow me with your performance, but I don’t care what you do off of the screen. I don’t care about petty political squabbles. I don’t care about the latest and greatest product some company wants me to buy.

Amazingly, that eliminates the vast majority of what qualifies as news.

Q1: The downsides to cash
I am very frugal and great with my money but I absolutely do not like using cash because I fritter it away. If it’s in my wallet I will spend it. If my wallet is empty nothing gets spent. I am 48 so grew up with cash but I truly feel using plastic is much better when you know how to use it properly. I used to use a debit card only, which is the same as cash, but won’t pay fees so switched to using a credit card. When I use my credit card (which I pay off every day and earn cash back) I can easily see exactly what I’ve spent. I also don’t overspend. When using cash many people spend ‘up’ so they’re not carrying around a lot of change. When using a debit or credit card if an item is $1.79 that is exactly what I pay. I don’t throw in a pack of gum to make it an even $2.00 which I know I used to do and many people still do. I see it all the time.

Of course banking online is the key to all this..at least for me. I have to be able to ‘see’ where I spend my money which I can’t when I use cash. Also, the world is changing and we are going to a cashless society so younger people need to learn how to manage their money using plastic, online banking, and even phones. For me, paper in my hand is like monopoly money and a credit card is a responsible tool. The whole ‘you’ll spend less if you use cash’ just doesn’t work for everybody – especially me!
– Lena

This is a perfect example of the differences in money psychology between people.

For me, cash is something to be preserved carefully. If I see cash, I’m really hesitant to spend it. On the other hand, plastic can be really dangerous for me because it’s not cash.

A lot of it, I’m sure, has to do with how you were raised and what many of your early money experiences were like. My conclusion? No matter what you’re doing, if you don’t like the outcome, try something different. You can’t keep doing the same thing and expect a different outcome.

Q2: Math tools
When you “run the numbers” on something, what tools do you use to do the math?

– Jared

I usually use Microsoft Excel.

If you’re looking for an inexpensive (read: free) alternative to Excel, I strongly suggest checking out Google Spreadsheets, which has most of the common features of Excel that people would use in running numbers on various financial questions.

Of course, for this to work you have to understand what you’re doing with the numbers. Understanding the underlying math is key. Excel and other spreadsheets are just a tool to save you the effort of lots of addition, subtraction, and multiplication. You’ve got to know how and why you’re doing those things.

Q3: Mortgage questions
With the mortgage rates so low I would like to buy a place within 2-3 years, however, I can’t seem to find answers to several questions.

I was told as a single person I could apply and get better rates on mortgages. How does it work when one applies for a mortgage loan as a single person versus a married couple? Other than basing it two incomes, is there any other differences between applying as a single person versus a married couple?

When you factor buying a place as a couple, do you take into consideration what happens if your spouse passes away or is unable to work? Should I take on mortgage that I can afford with my salary alone? If I do take on a mortgage with my spouse, is this when life insurance is needed?

I always read that home buyers should get the 20% down so you don’t have to pay for the PMI. What if I’m close to the 20% down but not quite there? If I have about 15% already saved, would it make sense to try secure a mortgage with the low rates that are currently available and pay the PMI? Is it better to wait until I have the 20% and possibly risk having the mortgage rates go up?

Also, if I manage to save up more than 20% for a down payment, is it a good idea to pay more that 20%? Or is it best to only pay the 20% down and save the extra money in a savings account? I thought it would be good to have more than 20% down so my monthly payments would be more affordable. Is there a disadvantage to paying more than 20%?
– Janna

When applying for a loan, the lenders are going to consider the income level of the applicants as well as their credit. Most of the time, a couple applying together is going to be able to present a better case for a loan than a single person simply because of raw numbers. You’re not out of luck as a single person, though, especially if you have a good job and solid credit.

If one of the people in a couple were to suddenly pass away or be unable to contribute to the mortgage, the most common response would be to downgrade one’s housing. You’d sell and move into something less expensive, in other words. A healthy emergency fund makes this transition possible. Emotionally, you might not want to even stay in the same home if a partner were to die.

The PMI issue is a risk either way. If rates stay low, you’ll wish you’d waited and avoided the PMI. If rates go up, you’ll wish you had signed up for a mortgage earlier. There is no right answer. I will say, though, that even with PMI wrapped in, mortgage rates are still very, very low right now, so I’d probably lean toward going ahead with things if I was close to 20%.

If you have more than 20%, it’s not a bad thing to have a larger down payment as long as you still have a healthy emergency fund outside of the down payment. It’s a bad idea to empty out every drop of savings just to put down a slightly bigger down payment.

Q4: Hobbies by the hour?
My main hobby in my life has been building sculptures out of Legos. Over the last several years, I’ve moved on to building more interactive sculptures using Mindstorms and Nxt Legos. I probably invest $100 a month into this hobby for various pieces. I do some traveling shows with them and I’ve actually made some money back via a tip jar.

This is pretty much my only hobby. I fill weekends in my garage/workshop building things along these lines.

So why am I writing? A few weeks ago, my wife began to have a big money epiphany. She decided that my Lego hobby is a big waste of money and has to go. I said that’s fine and agreed to drastically reduce my Lego spending if she agreed to cut her own hobby spending (DVDs and knitting supplies). She said that she spends far less than I do per hour on her hobbies.

Do you think the money spent per hour on a hobby is a good metric?
– Jeff

If you’re choosing among your own hobbies, money per hour is a pretty good metric to consider when trying to pare down some of your activities. I certainly used it in my own process of deciding which hobbies to give up.

However, it’s not necessarily a good metric to use when comparing with your spouse. The disagreement here is deeper than just the cost per hour of a hobby. You’re going through a process of rethinking what each of you value in terms of both money use and time use.

My suggestion isn’t to bust out a spreadsheet and start counting hours. Instead, sit down with your wife and talk about all of this carefully. Set some goals and look at how you can achieve them. Are you each spending too much time with your respective hobbies? How about money? Are those commitments keeping you both from other things you might want?

Q5: Bank consolidation worries
I have three credit cards, targeted ING savings accounts, and checking and savings accounts at my local credit union. (I also have investment & retirement accounts with Edward Jones.)

My very first credit card was a Capital One card. It’s my oldest credit account, with the best interest rate, but has an annual fee and only a $500.00 limit, which Cap One has repeatedly refused to raise. I never use it except for my Hulu subscription, which I charge to the card and pay off monthly just to keep it active so that I don’t lose my oldest account on my credit history.

My second card is an HSBC card. $1000.00 limit, 19% interest, no fees, no rewards, and I only use it (and then pay it off) occasionally.

My third card is also Capital One, $2000.00 limit, 22% interest (though I’m in the last month of the intro 0% rate), no fees, and decent cash rewards. This is the card that I use for plane tickets, research expenses, car repairs, etc. I currently have an $360.00 balance.

I just got a notice in the mail that Capital One has acquired my HSBC account. Captial One has also acquired ING, so now everything except my local credit union and investment accounts are all at Capital One. I know many people don’t like the company, but I’ve never had any customer service problems with them of any kind. But I do wonder if there are any pitfalls I should be aware of that come from having all of my credit cards and a substantial chunk of my cash savings at a single company (be it Cap One or any other company). Would you be comfortable with that situation for yourself? What should I be thinking about here?
– Justine

There are advantages and disadvantages of having so much business at one company. One big advantage is that your identity theft risk is lower. If you have accounts at lots of banks, you have more routes to identity theft. Another advantage is (potentially) the convenience of centralized account management, where you can handle everything at once pretty easily.

However, I’m not sure I would want all of my assets and lines of credit with one bank, simply because it would make your life difficult for some period of time (hopefully a short one) if that bank found itself in trouble. Banks do fail (yes, even ones that are “too big to fail”) and there is real advantage in diversification.

If you rely on your credit card for day-to-day use, I would probably open one with another banking institution and move the transactions to that one from at least one of the Capital One cards, just for diversity’s sake.

Q6: Politics and house sales
My wife and I have always been pretty vocal about supporting political candidates. We put several signs in our yard for the candidates we like.

Anyway, we’re about to put our house on the market and we’re wondering whether having the signs up will do anything to our property values. What do you think?
– Andrew

While I think it’s great that you’re willing to step up and express your support for candidates you care about, the issue is really about the value of your home and what you can do to maximize it.

As soon as that “For Sale” sign hits your yard, you want to minimize anything that might drive away potential customers, and political issues are sure to do that. If someone disagrees with your views, they might visit your home with the wrong mindset and have incorrect assumptions about your neighborhood, causing them to have a much more negative impression of your house.

You’re better off without the yard signs (or anything else potentially controversial) if you’re trying to sell. Ask your realtor if you’re still unsure.

Q7: Online bank thoughts
It seems that the interest rates on any type of savings account is not going to change in the near future. A couple of online banks have rates that are slightly better than our our local banks but I’m kind of nervous about putting monies in an account that that is not readily available to me. Do you have an opinion about online banks or can you recommend a favorite?

– John

I have been a user of ING Direct for many years and I’ve never had any sort of problem with them. I do also maintain an account with a local bank.

Having both allows me the best of both worlds. There are certain things online banks do better than my local bank (online banking, interest rates, ATM networks) and there are other things my local bank does better (teller services, handling of unusual banking situations).

I just make sure to have an adequate buffer in both accounts to ensure that I’m fine in case of a forgotten check or ATM withdrawal. It all works just fine.

Q8: Fast breakfasts
What kind of morning routine do you have that enables you to fix breakfast for three children and get yourself ready in the morning? There seems to be almost no time for a decent breakfast in the morning! Most mornings, I just give them some fruit and a cup of milk. What do you guys do?

– Chandra

My personal favorite tactic is to start a crock pot with steel cut oatmeal before I go to bed. I season it and leave it on low all night and we wake up to wonderful steel cut oatmeal that can be spooned right into a bowl for a quick breakfast.

Another thing my children often have along with some fruit is a piece of toast with peanut butter on it, which provides some protein to start the day. To make that convenient, I get everything as ready as I can before I go to bed – saucers out, peanut butter out, butterknife out, bread right by the toaster. This makes the prep very quick in the morning.

We also pre-make things like breakfast sandwiches and breakfast burritos and freeze them. We then just wrap them in a paper towel and microwave them in the morning as we’re getting ready. These also work really well for getting breakfast on the table quickly with minimal time investment that morning.

Q9: Student loans and kids
I’m 28 and married. My husband is 24 and just finishing his bachelor’s degree. I have a bachelors and a Masters degree. Nearly all of our degrees were paid with student loans, and total we will owe about $85,000. I have had my loans in deferment while I paid off my credit card debt ($10,000) and got settled in my career as an academic librarian. The credit card debt is paid off now, we share 1 car that is paid off, and we rent our house. We have emergency savings of $2000, and I have retirement savings of about $10,000. Our annual income between my low-paying entry level job and my husband’s part-time job is $35,000/yr. We are ready to start a family- can we do that now financially? I expect our income to go up somewhat in the next year, as my husband will finish college and (hopefully) get a full time job. So our projected income for the next few years is $35k – $50k each year. To put a further twist on this, we would really like one of us to be able to stay home with our children while they are young, and if we do that our annual income will be back to around $25k. Can a family of 3 or 4 live on $25k/year and also pay off $85k in student loans? Somewhere in the next few years I would like to buy a house, but it is not a requirement. I consider myself to be pretty frugal at this point, having learned my lesson on the $10,000 of credit card debt I paid off, but even to me this sounds impossible.

Also, another possibility for the student loans is that since I am a librarian, after 10 years of employment in a library and minimum payments the rest of the loan will be forgiven. Should I just pay the minimum for those 10 years? However if I am the stay at home parent, those years will not count towards the 10 required for the loans to be forgiven.
– Juliette

Whether or not you can pull this off depends on where you live. This would work in a rural town. This would not work in New York City or Washington D.C. or San Francisco.

The reason is cost of living. If you can get a decent place to live for a few hundred a month in rent or several hundred a month in house payments, you can make this work. If there’s nothing available for housing that doesn’t eat the majority of your income, it’s not going to work.

You need to look at your real expenses. How much are you paying for housing? Food? Automobiles? Loan repayments? Could you realistically pay for all of this stuff – with some breathing room – on just one salary? The answer depends heavily on where you live, but it does also depend on your own personal choices, too.

Q10: First time selling on eBay
I’ll be moving from a medium sized house to a much, much smaller apartment next year. I am excited for the (forced) opportunity to go through all of my possessions and significantly pare down my accumulation of stuff. I already have several items that I know would sell well on eBay, but every time I’ve looked in to getting set up to sell items it seems complicated and intimidating. Do you have any advice or a resource you would recommend to someone selling items on eBay for the first time?

– Monica

I’d visit your local library. There are a lot of great books on how to start selling items on eBay, and most libraries have a lot of them. Almost all of them cover the same materials, so I’d just go there, look at a few of them, and pick the one that seems the easiest for you to understand.

Start slow. Don’t list fifty items at once or you’ll be overloaded. List one or two items and see how the process works, then ramp up from there.

The biggest thing to watch out for is payment. Make sure that when you ship anything, you have delivery confirmation and/or tracking on it so you can prove that you shipped it.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. Kevin says:

    @Q3: You should have life insurance sufficient to pay off the mortgage completely.

  2. Kevin says:

    Q9 is a disaster waiting to happen. 2 people with 3 degrees behind them should set their sights a lot higher than $25k/year. Why spend all that money on a bachelor’s and master’s if your dream is to stay home and raise kids?

  3. a.k. says:

    Q3: when you are ready to buy, you need to talk with a mortgage broker who can walk you through the options. if you are close to 20% but not quite there, you can get a second mortgage to bridge the gap. Cheaper and easier to get rid of than PMI.

  4. Nate says:

    Q9: I agree that you need to set your sights higher for income than just $25k. Depending on what your degrees are in you should be able to do much better than that. Living on one income is difficult even when making a lot more money than that. Once your husband gets a full time job, start living on one of your incomes right away and save the other.

  5. kc says:

    Coupon. Moderation.

  6. Johanna says:

    Trent, I thought you were a political junkie?

  7. Jessica says:

    I have a bachelor’s and Masters degree and quit my $64k/year job as an epidemiologist to stay home with my kids. My DH earns less- way less- than I did. I got to where I hated my job and was making everyone miserable. We’re all a LOT happier now. Having been hospitalized in a psych ward due to depression, I know full well what my mental health is worth. And it’s worth a lot more than what I netted at my job after taxes, transportation, childcare and incidentals.

    We planned for it, though. We lived on my DH’s income for 8 years and used mine to pay off our mortgage in 6.5 years (after childcare and work expenses, that’s what we used my salary for).

    When I quit to SAHM, we had no debt. We’re not rolling in money but we don’t have any debt and plan to keep it that way.

  8. Johanna says:

    Kevin, maybe she wants to raise kids then go back to work.

  9. Johanna says:

    Also, because plans change and it’s always good to be employable.

  10. Johanna says:

    Q4: It usually bugs me when one spouse says “YOUR stuff is a waste of money, but MY stuff isn’t”…

  11. Johanna says:

    …and $100/month isn’t that much if you can afford it. But I wonder if there’s more to this story…

  12. Johanna says:

    …Maybe Mrs. Jeff would like to spend more on knitting and DVDs, but feels she can’t b/c of Jeff’s Legos…

  13. Johanna says:

    …or maybe the real issue is time, not money…

  14. Johanna says:

    …and she’d rather he spend his weekends differently for whatever reason.

  15. MARIA says:

    Q9 – ..we would really like on of us to be able stay home…
    I think the key word is “like”. With 85K in student loan debt and a spouse that only makes 25k might mean being a sahm (or dad)is not doable at this time.
    I applaud you for educating yourselves, however now its time to pay for all that education and tough decisions have to be made.

  16. maria says:

    Q9 Can you financially start a family on your current household income of 35k? Sure!
    On a projected 25K with a sahm? Sure!
    Just expect to live in a low end neighborhood, eat low cost food, shop at thirft stores for all your clothing and household items, perhaps skimp on healthcare, do with out cable, cell phones, latest tech gadgets, dining out, use public transportation etc.
    Definately can be done you just have to make sacrifices.

  17. jim says:

    Cost / hour is a bad way to determine spending on hobbies per spouse.

    Equal spending on hobbies would be fair.

  18. getagrip says:

    Q9 Why not wait until you’re both working full time, see if you’re better off moving depending on where your husband gets a job, if you can really make it on one salary while paying the loans, etc.? After a year of that you should have a good idea of how it goes and what kind of sacrifices you need to make.

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