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. Balancing savings and risk
2. Cheap automobile situation
3. Finding auction deals
4. Property and income tax
5. Children and careers
6. Archiving old magazines
7. Trying to avoid more mistakes
8. Prepping for a home sale
9. Long road trips?
10. Smart phone or cheap one?
One of the clearest signs of the arrival of spring in my family is the presence of morels in the woods. Morels are a delicacy and can easily be sold for $20 a pound when fresh, but why would you sell them? They’re a spectacular treat.
Over the next few weeks, our family will find lots of excuses to head out into the woods and look around for morels. I’m perfectly happy to find just a few as I love to scramble them with eggs, but I’ll happily take as many as I can find.
Even if we don’t find any, the day isn’t a loss. It’s really hard to say that a day is spent badly if you spend a nice spring day walking around in the woods.
Q1: Balancing savings and risk
I’m in a pretty good position with my finances – single woman in her 20s, debt free, 3+ month emergency fund, stable employment in tech – and I want to purchase a condo/apartment of my own in the next 5-8 years in a vibrant neighborhood in my city. To do so with a 20% deposit, I’m looking at saving a huge amount: $80,000. (And yes, that’s the low end).
Saving all this in a regular savings account isn’t the most efficient way of doing this, so my question is: when I should move the amount I have into more volatile investments? Should I hold back a percentage of it in cash (beyond my emergency fund)? Should I start putting it in stocks/bonds right away so the current amount I have has the most chance to grow?
Having your down payment savings in a volatile investment – say, the stock market – runs the risk of having a downswing occur when you’re on the “home stretch” of saving. When you’re most of the way toward your goal, it’s incredibly painful to see the stock market take a 40% burp. Generally, the further you are away from your goal, the more sense it makes to be in a higher-risk higher-return investment. The closer you are, the less sense it makes.
To feel confident that you’re going to ride enough of a stock market upswing to make it worth the risk, you need to have your money in stocks for a decade at least. For timeframes shorter than that, you’re essentially gambling. Bull markets and bear markets go in a cycle, but that cycle is pretty irregular, with upswings and downswings each lasting anywhere from one year to six or seven years.
It really comes down to one simple question: are you comfortable with increasing your chances with taking less time to reach your goals if it also means increasing your chances of taking more time to reach your goals? If you’re looking at a short-term (less than ten year) stock investment compared to a savings account, that’s the question you’re really asking. I don’t know whether that’s acceptable to you or not.
Q2: Cheap automobile situation
I live in a city where mass transit is available to me but I don’t really like riding it particularly in the evenings. I have a cheap car with just liability insurance on it that I use to do things in the evening and sometimes to commute to work. Isn’t it worth the money to have the car even if I have mass transit as a backup? It makes getting around and doing things much easier.
If you look at the dollars and cents of any situation like this, going without the car is going to be cheaper over the long run. A long-term mass transit pass is almost assuredly not going to come close to the fuel, maintenance, title, insurance, and parking costs of your own automobile.
That being said, very few people live their lives based on what the “cheapest” option is in every situation. I certainly don’t. I just strive to do the “cheapest” things in situations that are less important to me so that I can spend more (without worry) on the things that are more important to me.
The trick is distinguishing between the things that are genuinely important in your life and those that just seem to be important. It’s a distinction that’s really tough and requires a lot of reflection to really figure out. What is that car really doing for you that mass transit can’t provide? That’s the question you really need to ask yourself. If you conclude that the car is really providing enough for you, then it’s worth it.
Q3: Finding auction deals
Can you really find deals at auctions? My experience has been that everything worthwhile at auctions gets bid up to really high prices by people who seem to mostly thrive on “winning,” not on getting a bargain.
That’s certainly true at some auctions, but not all of them. I’ve been to ones where rusty tools go well into the three figures and rusty old signs go for over $1,000. I’ve been to others where vintage trading cards go to the first bidder who pays the minimum and entire sets of fine china go for only $100 or so. It just depends on the crowd and how well advertised the auction is.
Generally, you can’t expect to go to an auction and get a cheap price on everything. Everyone else is there for the same reason you are – to find a deal on something. You’re just looking for the things that fall through the cracks.
I tend to like the ones that aren’t advertised as well. If I find a public posting of an auction in the places I usually look, I don’t bother. The best way to find out about less publicized ones is to visit the website of auctioneers and brokers in your area and see what they’re doing in the future. I’d rather visit a small one than a big one, myself.
When you sell a property, you’re only paying taxes on the “gain” – in other words, how much more did you sell it for than what you paid for it? If it’s your primary residence, you can even pocket some of the gains before worrying about taxes – up to $50,000 in gains.
If you do end up having a “gain” that you have to pay taxes on, the best thing to do is to look for “losses” to counterbalance it. Are you holding onto some stocks or bonds that have dropped in value since you bought them? That’s the time to sell them.
Those losses directly reduce the gains you have to pay taxed on. If you have $40,000 in capital gains and find $20,000 in capital losses (loser stocks you’re invested in), you’re only going to be paying taxes on $20,000, plus you’ll have your money out of those bad stocks.
Q5: Children and careers
My oldest daughter is 17 years old. She has expressed interest in going to school to study social work. I am worried that I will have to pay to support her throughout her adult life so that she can have a decent standard of living in that career path. Is it wrong for me to push her to try a different course of study?
I don’t think you have any obligation to support your daughter if she chooses a low-income career. She’s choosing this path with her eyes wide open to the income prospects, right?
If you are concerned that she’s harboring the idea that you will help her pay the bills into adulthood, you need to sit down with her and correct that idea.
You should not feel guilty that she might have a lower standard of living than you in terms of material goods. She’s making that choice with her eyes wide open. If it bothers you, then it’s an internal issue that you should reflect on. You absolutely have no obligation to financially support her any more than you would financially support a child who happened to choose a lucrative career.
Q6: Archiving old magazines
I have thousands of old woodworking magazines. I often buy collections of them at yard sales and other places. Problem is that I have so many I don’t know what to do with them. Do you have any suggestions?
If I were in your shoes, I’d digitally archive all of them. There are scanner and software packages out there that handle this kind of project. You’ll be able to turn issues of your magazines into single searchable computer files with relative ease.
Which one should you buy? If you don’t mind handling a page at a time, almost any flatbed scanner will do the job. However, a scanner that will do both sides at once and also has an automatic page feeder will make the job orders of magnitude easier – but they’re far more expensive. For example, this Epson document scanner will work marvelously for what you’re trying to do… but it’s pricy.
Once you have the magazines in digital form, there’s no real need to keep them in print form unless you enjoy leafing through them. You seem to be more interested in reference, though.
Q7: Trying to avoid more mistakes
I am 24 years old, living at my parents’ house with my fiance. I am a teacher and I make $42,000 before taxes and deductions. My fiance has a great job and he makes about $46,000. Together we almost make $90,000. At the age of 24 I think that’s pretty solid, especially for this market.
Living at home reduces our living costs tremendously. We only pay our bills, no rent payments or anything. So you’d think we’d have some serious cash in savings or something, right? I mean, what the heck else do we have to pay for?
The bane of our existence can be stated simply in two words: Student. Loans. We both picked our college of choice in 2006, before the market crashed. We went to expensive schools thinking “the better the school, the better the opportunities we will be presented.” That terrible, yet simple misconception has left us $150k in the hole. We pay $1500 a month for student loan payments. We will be paying that for the majority of our lives. We could have a vacation home for that monthly price tag. Most of the loans are my private student loans. Consolidation is not an option without cosigners, and our parents are maxed out and get denied. I feel like we’ve tried everything and gotten nowhere.
The path we are currently following worries me. We are both jacking up MORE student loans so we can get Master’s degrees. BUT – master’s degrees in each of our fields will significantly raise our income. About 25% just the first year actually. But in the meantime, we’ve added on about $15,000 more in loans. Are we just digging our hole deeper? What do you think the next step is for us? Should we dedicate the next ten years to paying off those loans? Or pay them off slow and steady and just consider it a life-altering financial error? Do we invest in a home and try to make some equity on it? Or is driving up our debt just another mistake? But living at my parents’ house also has puts an emotional burden on all four of us – we all hate it.
I guess at age 24, it’s hard for us to see the future. We think about “the now” and we feel like we’re missing out on life. It’s very difficult for us to imagine how we will feel when we’re 30, 40, 50. For some reason it just doesn’t seem as important as “the now,” and I’ve read enough of your posts to know that that mentality is foolish. We’d love to know what you think, and (unfortunately) I’m sure there are many stories out there that are just like ours.
Student loans are the one form of debt that I have a hard time truly begrudging anyone, particularly if they’re studying a field that they genuinely care about. As you said, student loans give people the opportunity to earn substantially more income throughout their life. I would not feel bad about having that debt if you’re pursuing a worthwhile degree.
That being said, I would virtually never suggest that anyone put themselves in a situation where their total debt load exceeds two times their annual income, which rules out a home of your own at least for a while. You’re begging for a financial disaster in a situation like that.
If you find the home situation to be tolerable, I’d continue living there and throw everything but the kitchen sink at your debt. When it becomes intolerable, I would rent the smallest apartment you can live with and continue to throw everything but the kitchen sink at the debt. The less debt you have over your head, the more flexible your life becomes in terms of bold career moves, career shifts, the choice to be a stay-at-home parent, and so on. It just opens up incredible freedom down the road.
Q8: Prepping for a home sale
We are thinking of selling our home in the next year or two. Are there any good low-cost home improvement projects that will increase value without costing us too much?
Right now, the biggest steps you can take are the touch-up tasks – fresh paint, replacement of poor carpet, and so on. It’s the presentation details that often sell a home and most of those involve elbow grease.
You should also take plenty of effort in making the lawn look great, which will maximize curb appeal. Again, it’s mostly about applying some elbow grease. Dethatching the lawn manually can take a ton of work, but it can really make the lawn look spectacular as can touching up any landscaping.
A major remodeling effort will absorb a significant amount of money, but most of the time, it doesn’t pay you back. It’s the smaller details, such as getting rid and covering up bad carpet or nicked-up walls, that can really produce a bargain.
Q9: Long road trips?
Do you have any ideas for handling a very long road trip with children? We have a nine year old, a seven year old, and a five year old. We’ve never attempted a road trip this long (17 hours two days). We have lots of stuff to take to keep them occupied like CDs and magazines but do you have any other ideas (not like buying an iPad for each of them)?
Have a number of road games in mind to play. Two that work particularly well are the “alphabet game” – spying a sign that starts with “A,” then one that starts with “B,” and so on – or the “I Spy” game, where someone “spies” something that has a particular trait, like color or some other attribute, and then everyone looks for it.
You may have already figured this out, but it is a great idea to stop for meals at a park and let the children play hard for a while. Let them run amok on the playground in the fresh air and sun for a good hour. After that, once they’re back in the car, they’ll often nap or at least settle into a quiet state for quite a while.
Another surprisingly good approach is to have one of the parents read a chapter book aloud to the children – or, if the oldest one is a good reader, assign that task to him/her. A library visit can take care of this need. If you’re not sure your voice can hold up, split it up into sections, with one section read earlier in the trip and other sections coming later after breaks (during which games can be played or CDs can be listened to).
The plus of a smart phone is the access to information wherever you’re at, as they provide you access to the internet pretty much wherever you are. The minus is the cost. It really boils down to that.
Is the cost of a smart phone really worth the ability to access data anywhere? It’s not just the phone’s cost, but also the cost of the data plan from your provider. That can add up to a hefty annual cost.
There’s no question that such data availability is convenient, but for some, it doesn’t provide enough value to be worth the cost. For example, my parents simply would not get enough value from a data plan to make it worthwhile.
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.