Reader Mailbag: Old Songs

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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. Helping Mom
2. Getting rid of credit cards
3. Credit card help
4. Buying a house?
5. More thoughts on GMOs
6. Gap year
7. Small business launch options
8. Staying at home?
9. Dealing with influx of money
10.

Every couple of months or so, a little snippet of a song from my childhood floats into my head, usually a song that had some moderate degree of popularity between 1984 and 1991 or so.

The bass line of the song will stick in there somewhere and I’ll find myself humming or whistling it. Maybe I’ll remember a bit of the chorus, too.

Eventually, I have to figure out what the song is, so I spend an hour or two on Youtube and I eventually discover it. I listen to the song two or three times and then the song is lodged deeply in my brain for the next week.

The song this is currently happening with is Rise by Public Image Limited. Please, please help me. I can’t get it out of my head.

Q1: Helping Mom
Mom is in a nursing home 800 miles away. My brother is her Power of Attorney. Mom has Alzheimer’s and Parkinson’s and is 91 years old. She’s in a nursing home. I received the following SOS from my brother.

I checked the Medicare application status and as of now they are several, maybe as many as 9 months from even processing it. I guess Cook County is over a year backed up. There is approximately $4,000 left in Mom’s account. That includes the $15,500 I put in personally. However, there still is an income from SS and The Vet fund totaling, $ 2,703 per month which as of now is direct deposited in to 2 accounts in which I make payments with. The people at her home have been good and now only charging about 3/4 of the approx $ 7500 per month and internally accruing for the future Medicare approval. I suspect I have maybe 2 months left before it’s all gone except her monthly income.

Over and above the nursing home cost is about $ 355 per month of outside expense ( Humana at $105, Prescription meds of about $125 and hair appts at $125 per month). That also doesn’t include and clothes or supplies or payments for special treatments (air nebulizer twice and special medications that go with that that AREN’T covered by insurance).

It’s time for my husband and I to help. We need to know the best course of action to take. I have $1,000 in savings and $43,000 in a 401K. I am 60 years old so I can take money out of it without penalty but my tax man has said to withhold 25% Federal and 8% State taxes if I “gift” money to Mom ($14,000). My husband suggests refinancing the house to fund Mom’s assistance. I think that is a better plan because at least that interest paid is tax deductible.
- Mari

If you’re certain that you’ve exhausted all avenues and you need to step in at this point, refinancing your home will likely get you the money you need at a low rate.

If I were you, I would head straight to a local credit union and discuss the situation with them. This is a bit different than a usual refinance situation and some sort of revolving line of credit may be more appropriate. You want to get into whatever will provide you with the lowest interest rate and fees, of course.

Remember, though, that by making this choice at this stage in your life, you’re ensuring quite a few more years in the workforce for both you and your spouse. You’re incurring debt at a time where debt does nothing but push you toward working longer. Do not start using your Social Security until you’ve reached the age of maximum benefits.

Q2: Getting rid of credit cards
What’s the best way to get rid of an old credit card without risking identity theft?

- Karen

Melting it, honestly. If you have a chance to throw it into a camp fire, that’s likely your best option.

If you wish to do this in an oven and you have a junk pan, credit cards will begin to melt at about 325 F.

You can also do this with a candle – use tongs and steadily hold the credit card over the flame until it begins to melt and bend and seriously warp, then keep doing it until you have a gooey ball.

Q3: Credit card help
I am a recent graduate who is now helping to support my parents at my 25k job. They are struggling to keep up with a mortgage on a house they bought when times were better. When helping them build a budget, I learned that my mom has a credit card payment she’s paying the minimum on and otherwise treating as “just another monthly bill”; her way of ignoring the problem. There is about a $5,000 balance on it, and she gets mail all the time about giving a smaller lump sum to pay it off. What steps would you recommend taking in this situation?

- Archie

For her or for you? The best option is to get rid of that debt if at all possible, but the path to getting there differs depending on whether you’re helping or not.

If you’re going to be the one to make sure that card gets eliminated, your best bet is to just make payments beyond the minimum on the card. The lump sum offers are tempting, but if you save up for one, that offer may or may not be on the table by the time you save enough money. I’d focus on making extra payments.

The reason she’s getting such offers is because she’s viewed as a potential credit risk for the company and they want to get out of the situation.

Q4: Buying a house?
I’m a thirty six year old male who has no interest in dating or marrying. I have no debt and have enough in savings to make a 20% down payment on any home I might reasonably buy, but I don’t see the benefit. My family keeps telling me this is what I should do… but I don’t get why. All I see is added expenses.

- John

The big reason many people think buying a home is a wise financial move is the equity that builds up. However, along the way, you’re also paying property taxes and homeowners insurance and maintenance costs to go along with the mortgage.

I consider it worth it if you can just write a check for a house or you can get a mortgage payment that’s significantly below your rent payment. Otherwise, all of the expenses of home ownership really add up.

I don’t consider home ownership to be a “no brainer” for anyone because of all of those extra expenses. You’re only going to be making money if the housing market is taking off like a rocket ship.

Q5: More thoughts on GMOs
A clarification for the gmo food comment in the recent question/answer post: GMO foods are, indeed, almost everywhere. All human crops are genetically modified through our artificial selection of the best plants to get seed from. Even an organic, fair-trade, home-grown, heirloom tomato from my backyard is a GMO, as the cultivar was selected from many seedlings and improved through multiple generations of traditional breeding. Just my constant selection of the best tomato to collect seeds from at season’s end is enough to make my tomato a GMO.

- Larry

I agree with your viewpoint, actually.

Many people want to separate “GMOs” from crop selection by arguing that “GMOs” are ones where this process happens in a laboratory, but essentially all that happens in a lab is skipping a bunch of generations of crop breeding. You can get pretty much any trait you want with enough plant breeding and careful crop selection – using selection techniques in a lab is just a cost and time saver.

To me, the “GMO” line is much too blurry to make a broad judgment about what to eat and what not to eat. I want the things I eat to be raised in a safe fashion, of course, but I’m less worried about the sourcing of the seeds.

Q6: Gap year
I’ve been thinking of taking a gap year to go back to school and finish up my masters in computer science. I have a job that pays about $65K per year. How should I prepare?

- Aaron

I would make sure that I had enough money in the bank to cover all living expenses for that period, the cost of the schooling, and the cost of at least a few months after graduation while you look for another job.

I don’t know what that number is for you because I don’t know the cost of your schooling or the cost of your living. You’ll have to figure it yourself.

I wouldn’t make that leap with much less than that number, though.

Q7: Small business launch options
I have a job that pays me a lot of money and allows me ample free time. I live in a high cost of living area, but my expenses are low because I live with my partner and work from home. I like the company I work for, but I don’t particularly like my job and my boss is very difficult. There is a lot of turnover in my field and ample job opportunities. I could probably earn a 20-30% salary bump by switching employers, but would have to go into an office every day and work longer hours.

I have an idea for a small business. Start-up costs would be about $10,000 but could be as high as $15,000. It is a high-risk, low-margin business that would require me to put in a lot of working hours. I would also definitely need to buy medical insurance, because I have some chronic conditions that require daily meds and regular (every 3 months) doctor checkups. I have also considered going back to school to become a naturopath or alternative medicine practitioner.

I currently have $17,750 in savings and am able to save about $1,500/month and still live a VERY comfortable lifestyle. My only debt is student loans: a $6,400 private loan at 4.25% and $11,200 in Stafford loans at 4%. I work for a non-profit and have for the last six years, so if I continue to do that through 2017 I will be eligible for loan forgiveness for the Stafford loans. I earn too much to deduct student loan interest on my income taxes.

As I see it, I have two options:

1.) Pay off my private loan in 2013. Continue to work for this company, or another non-profit, for the next 4+ years. Wait until 2017 to start my small business or switch to work in a different field. Save for a home in the meantime (2 bedroom homes in my area go for about $600-700,000 and prices are only going up! I don’t even live in one of the expensive areas of this city).

2.) Continue working for the next 6 months and save as much money as possible. Don’t worry about paying more than the minimum on my loans. Quit in Jan 2014 and focus on launching my business.

My head says stick with option #1, my heart says option #2 is the way to go. I am very risk-averse so a potential failure and more debt is very scary.
- Kevin

To me, the decision comes down to “what would you do if the business fails?”

Think about that scenario for both cases. What’s the exit plan? If you went for option 2 and the business didn’t work out, would you be homeless? How big is the real risk there?

If the downside for option 2 is too big to stomach, then go for option 1.

Q8: Staying at home?
My wife is four months pregnant with our first child. We’ve been talking about plans for after the baby is born. We agree that one of us should stay home with the child, but we’re uncertain which of us should do it. I know you switched to writing The Simple Dollar so you could spend at least part of the time at home with your children. What went into that decision?

- Adam

I switched to The Simple Dollar full time because I felt a distance growing between myself and my family. I felt like I was missing them growing up. I also knew that it would take some significant weight off of Sarah’s shoulders because she wouldn’t have to pick up the slack with my work trips and late evenings.

I didn’t make that leap until I felt our financial situation was very solid. I knew I could make at least some income from The Simple Dollar – enough, for that moment, to ensure that we were fine. In other words, I didn’t switch until I knew that our family’s income after the switch was more than adequate.

If you’re not sure whether or not a single income would be adequate for you guys, you need to sit down and seriously budget. Map out what it would look like for each of you leaving the workforce and see whether it works.

Q9: Dealing with influx of money
This month has seen me receive a large lump sum and an annual allowance, which equates to around 1.5 months of salary. I’ve also just been given a 20% raise at my job.

I have no debts, am already contributing to a retirement account, and have long-term index fund investments as well. I’ve decided to set aside the salary increase to contribute more to the retirement and investments but I’m not sure what to do with the once-off receipts.

Because I don’t need the money for anything urgent, I’ve been thinking of just setting aside the money for the rest of the year and then deciding what to do with it around January. It might be nice to go on a proper vacation in 2014. Or should I be thinking of saving up for a house?

I’m really confused because my desires aren’t particularly strong either way. I don’t really need anything so a part of me thinks it might be nice to treat myself to something. But I also want to be responsible.
- Jeff

It’s a good idea to set it aside and let it build for a while as you figure out what to do with it.

Give it some serious thought. Think about what you want your life to look like in five or ten years and ask yourself what you need to do to get there. That money is “seed money” for whatever that vision may be.

Perhaps having a number of worldly experiences is part of your vision for the future – it might be, I don’t know. If it is, then it makes sense to use it for travel.

Q10: Games with children
I have an eight year old and a six year old at home. Do you have any family game suggestions that are a little better than the usual Candy Land and stuff they sell at Target?

- Roger

My immediate first suggestion is Forbidden Island, which is a cooperative game in which you work together to find four treasures on an island that’s gradually sinking. The game is really easy to teach, but will make everyone (kids included) have to make some very tough (and fun) decisions about whether to let parts of the island sink to grab a treasure piece or to shore them up and play it for the long term.

I’d also look at King of Tokyo, which is a dice-rolling game a bit reminiscent of Yahtzee, but with special powers. Players play a monster attempting to attack Tokyo (a la an old monster movie). During the game, the monsters gradually gain special powers that aid in their conquest of Tokyo and their ability to keep other monsters at bay.

My seven year old son loves both of these games, and my five year old daughter can play them both with just a bit of help. You will find both of these games enjoyable enough that they work with other adults, too.

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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