Reader Mailbag: Paper Journal

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. Fee-free prepaid debit cards
2. Peer-to-peer lending
3. 401(k)s and dividends
4. Favorite board games
5. Borrowing money and cultural conflicts
6. Preparing for a home purchase
7. Making financial learning fun
8. Super Bowl predictions
9. Dietary changes
10. Target Retirement fund? Or not?

After keeping an electronic journal for about twelve years, I decided, at the start of 2011, to switch back to using a paper one. Why? For conciseness.

Whenever I would make a journal entry electronically, I was able to go on and on and on… and on… and on. Because many of the entries were so long and rambling, I had a hard time really grasping what I was deeply concerned about or what was really going on in my life at that point when I would look back at these entries.

I’ve been using a pocket Moleskine diary which lets me get about 125 words in per entry, in handwritten form. This does two things. First, it keeps the daily entries short, meaning that they’re distilled down to something readable and manageable. Second, the art of handwriting makes me think much more carefully about my word choice.

The entries so far have been so much better (in terms of re-readability) than the long wandering diatribes of the last several years.

Q1: Fee-free prepaid debit cards
I’ll be moving out of state soon and want to manage expenses related to the move. I’d like to get a prepaid debit card, load it once with the amount I’ve dedicated to the move, and then cancel it easily after I’ve used all the money on it. Are there any cards out there that don’t have fees associated with them and are easy to cancel? I plan to use all the money on the card within the next 3 months so I don’t want to pay any fee associated with holding the card longer than 30 days, or any transaction fees etc. I also need to be able to cancel it easily and I know some of them are extremely difficult to cancel.

– Maria

I think you have to choose one or the other.

You can easily get prepaid debit cards that aren’t tied to your identity at all and carry the Visa logo on them for a roughly 5% service fee up front. You can just use them pretty much anywhere on the planet until the balance runs out, so after you take care of moving expenses, you could use them for groceries or gas. Of course, the problem is the 5% upfront fee.

You can get a much lower fee than that, but you have to tie it to your identity and, as you noted, it can be difficult to cancel such cards.

Honestly, why not just put the cash in an online checking account like ING Direct Electric Orange, get the debit card issued for that account, transfer whatever money you wish to that ING Direct account, and just use that for this purpose? That’s what I’d do if I wanted to keep money separate like this.

Q2: Peer-to-peer lending
I was searching your site today for your opinion of P2P lending sites such as lendingclub.com and prosper.com but could not find anything. It’s definitely a riskier investment but I thought this may be another way to diversify my investment portfolio. What do you think?

– James

Quite honestly, if I were going to invest my nickels and dimes into peer-to-peer lending, I’d probably do it with Kiva and not worry that much about a return.

From what I’ve seen, on such peer-to-peer sites, the returns on the few good loans they offer are really low, while the failure rate on the higher risk loans are so high that you’re going to have a challenge making a good return through all that noise. From my eyes, it becomes akin to gambling at that point, since you really have limited information on who or what you’re investing in.

If you like the idea socially and conceptually, go ahead and use them, but view it as a very speculative part of your portfolio.

Q3: 401(k)s and dividends
Why don’t 401k plans pay dividends, in the same manner as funds held at other institutions?

My husband and I are in our 30’s and have each had several jobs at various corporations throughout our careers. I have worked for a teeeny tiny mom & pop, and am currently working for one of the largest corporations in the world. At no point have any of our 401k plans ever paid out a dividend. The individual share prices rise and fall with the markets, but that’s it. So the only way to increase our balances is to add more funds.
– Tanya

Many investments within many 401(k) plans do pay dividends. The exact mechanism varies a lot, however.

What you’re probably seeing is that you’re invested in funds that reinvest the dividends within the fund automatically, which raises the value of the investment. The value of your dividends is reflected in an increase in the sticker price of the shares you hold rather than in a dividend payment.

You’ll want to look much more closely at the statements and documentation provided to you by your 401(k) investment house.

Q4: Favorite board games
You obviously play a lot of board games, and you regularly offer recommendations for “starter” board games to others. What are your favorites, though?

– El

7 Wonders, my favorite short game, is a game of competing civilizations. Each player controls one civilization of the ancient world and your goal is to essentially create the most culturally, militarily, and scientifically adept civilization. It’s all card driven and the game takes between fifteen and thirty minutes.

Modern Art, my favorite medium-length game, is a game in which players are speculative art brokers. Throughout the game, the players take turn auctioning off paintings to the other players, collecting the proceeds from the auctions and then spending those proceeds in other auctions. Painters who have more paintings sold will have more valuable paintings at the end of the game, but you don’t know (for sure) what paintings will be sold throughout the game because everyone has a hidden hand of paintings that they will sell (sold paintings stay face-up on the table). It takes about an hour and fifteen minutes to play and is heavily an exercise in reading other people and convincing them to pay more than they should for the painting you’re selling.

Le Havre, my favorite longer game, is a game that basically simulates the growth of a port city in France. You’re an investor who invests in buildings and ships in order to take best advantage of this growth. Unlike Monopoly, this game has a fixed number of turns, so the only variation in the length of a game is the slow or fast play of the players. It plays very well as a solo game (taking about 60 minutes) and works with up to five people (which takes about three and a half hours).

Of course, ask me again in six months and you might have a completely different list.

Q5: Borrowing money and cultural conflicts
My boyfriend and I own a home together. We are waiting to have the cash for our dream wedding. However we plan to go to City Hall and get a marriage license before I start my second graduate degree in August.

Currently I work in a government job that makes $43k a year, I also teach one class a semester at a University which pays $3k/semester. It is not a guarantee that I will teach each semester. My boyfriend makes about $70k a year as an engineer once you factor in his bonuses and overtime. We have $50k in retirement savings ($7k is mine), and $8500 in joint savings. We hope to increase this to $10k and invest in Roths for both of us. After that we will begin the savings cycle again with the aim of having $10k in emergency funds, and another $3k for a trip to China to visit his aging grandparents by August. After taxes and deductions we bring home about $6200 a month. $2200 of this (more or less my income) goes directly into our savings, and we spend the rest on our mortgage and living expenses. This savings method usually works for us. We had to pull money out of savings this year during December (I got accepted to graduate school and had to pay a deposit along with the holidays and birthdays) and July when we decided to pay off the rest of our home remodeling bills.

Our mortgage is $1700 a month (we pay an extra $100 towards the principal monthly). Cable and internet are $100, gym memberships $100, and utilies average $250-$350. I also have a personal interest free loan from his mother that paid off my loans from my first graduate degree. We pay $500 a month on this and owe another $9500. We have no other debt. We are frugal in areas that work for us, research our purchases, but rarely feel like we can’t afford the things we want. We go on road trips, eat out a few times a month, and spend money on our hobbies (fishing, kayaking, camping etc.) My grandma will be moving in with us soon and she will be contributing some rent ($400 total). When I start grad school, one of my classmates will move in with us and pay $500 in rent.

Tuition is going to be expensive. I picked a local school rather than one with a much higher ranking because I did not want to take out cost of living loans and leave my boyfriend. The total cost is $67k which does not include books and supplies. My boyfriend’s mom is offering to extend us another interest free loan to cover tuition. Our culture is very against paying interest and loans in general. My parents also plan to help in other ways, but they don’t have the same financial means.

This is a very generous offer, and our families are very supportive of my career goals. The job outlook is good and the lowest graduate starting salary I’ve seen for this program (physician assistant) is $64k+ with many other grads making between 70-100k. Financially this is the best decision, but are there methods to make sure that there won’t be interpersonal problems in the future regarding money? Since we have the means to tighten up our expenses a little bit, should we just take out students loans instead? We plan to have a contract signed, but these are very informal handwritten pieces of paper based on my past experience.

Our families have developed great relationships with each other. My boyfriend’s mom has been wonderful to me, and I would like to keep things good like they are now.
– Lorrie

To me, the answer to this whole problem would come down to whether or not your boyfriend’s parents can easily afford this expense. If it is not going to significantly burden them, then take advantage of the opportunity.

On the other hand, if it is going to significantly burden them, then you may be opening the door to some significant challenges down the road and may want to look at student loans instead.

I usually encourage people to not borrow money from family members, but I think if there is an exception to that rule, it’s a wealthy older relative loaning money to a young relative who is a student to pay for tuition. If you’re actually getting married to this fellow, then his mother is family.

Q6: Preparing for a home purchase
My fiance and I are buying a house in August or September (our lease is up August 31). We live in metro Boston so our budget is probably going to be about $350K. In liquid assets right now we have about $36K for a down payment, or just over 10% (this includes me wiping out my new car and rainy day money). He’s admitted to me that he’s not good at managing money, since, in his own words, “I’ve been overpaid since I started working”. (He was making more at at his graduate internship than I do now.) We’ve compared numbers and have been talking about ways to make this work (PMI, automated savings, etc.) but he wanted me to advise him on a course of action for the next six to eight months, money-wise. He overpays his car loan (only $325/month) when he thinks of it, and throws the occasional $500 or so into savings when he thinks of it, but I’m not sure what to tell him besides “stop buying lunch at work!” What advice do you have for me to pass on?

If it helps, he makes about $70K as a software developer for a huge info security company, and I make just over $38K as an admin assistant for a consulting firm. I also have part-time retail income that goes directly to my emergency fund. We both have good credit scores: mine is in the 760s and his is probably closer to 800. I’m 24 and he’ll be 26 next month.
– Jessica

A person has to be open to learning about personal finance before any such material is of any use at all. I’m not sure he’s open to learning. I think he just wants you to tell him what to do so you’ll get off his back about this whole personal finance thing.

What that means is that on a fundamental level, his behavior won’t really change that much. He’ll make some specific actions to please you and follow what you suggest, but when he’s faced with the choice of going out to lunch with the boys, he’ll likely do just that.

Personal finance success has to come from within. If he doesn’t care about it, you’re not going to be able to make him care. My suggestion? Get control of as much of the family finances as you can and keep the reins.

You can preprogram his car radio to the Dave Ramsey station, but there’s nothing stopping him from just flipping the channel.

Q7: Making financial learning fun
I currently have a major impediment to my financial health, namely my boyfriend! We live together and split our bills, but as a result of some long-term unemployment (although he’s currently employed), he has many bills in collections. He has several bad financial habits, such as overdrafting his bank account on a regular basis, that threaten his ability to provide his half of the bills — and thus threatens my financial health! In the past, he never took care of his own finances and is now attempting to learn how to do it on his own. I’ve tried to help, but I think he’s both embarrassed about his situation and wants to finally learn how to do it himself. We have had many talks about financial matters and we agree that we have the same goals and are committed to spending less than we bring in, but he has problems following through with those ideas.

I think it would really help him to learn more about personal finance and to become interested in it, like I did. I’ve tried to forward him some interesting articles from your site, but he hasn’t taken to it. Similarly, he’s not a big reader so I’m hesitant to drop a Dave Ramsey book in his lap. I was hoping you would have an idea for a fun, maybe interactive, website or other learning tool that he could explore that would get him interested in personal finance. Basically I think he needs something to both educate him on personal finance and show him that it’s not all scary!
– Ardy

In your case, it seems that your boyfriend is starting to become aware of his personal finance situation and actively wants to change it.

If I were you, I’d stop at the library and check out an audio copy of a strong basic personal finance book, like Dave Ramsey’s Total Money Makeover – or, even better, the audio version of my own book, The Simple Dollar.

Ask him to listen to them in his car during his commute instead of whatever he listens to. I think you might be pleased with the results.

Q8: Super Bowl predictions
Who’s going to be in the Super Bowl? Who’s going to win it?

– Charlie

The two teams in the Super Bowl will be the Green Bay Packers and the New York Jets.

The game will be close until the fourth quarter, where New York pulls away to win 28-14.

The real winners of the Super Bowl will be, as always, the television networks and the advertisers.

Q9: Dietary changes
I was curious if you’d felt significantly different since the last time you had a dedicated post about your dietary change.

My father (68) has been having recent health problems, which I’m convinced are related to diet, but every doctor he goes to just prescribes meds for him to take (blood pressure, cholesterol, diabetes), and they don’t seem to care about him making lifestyle changes — I’ve been vegan for 15+ years and he refuses to listen to me re: dietary choices and health. I’m hoping to send him blogs, stories, etc. of people who have recently changed their dietary habits and noticed changes in their health.
– Paul

I’ve noticed several positive changes since changing my diet to a mostly vegan diet (vegan with the exception of occasional fish, maybe once a week) in October.

First, I have more energy. I didn’t notice a change for the first two weeks or so, but it definitely jumped after that, up to a new normal.

Second, I’m slowly losing weight without additional exercise effort. I’d estimate that I’m losing about a pound a week on average.

Third, I’m no longer having night sweats. For several years, I had night sweats terribly and they’ve absolutely vanished.

Finally, my cholesterol is down about 40%.

The only thing I’ve changed in my life is simply excluding meat and animal products (with the exception of weekly fish). Nothing else is different. I don’t get paranoid about it, either. It’s pushed me to try new foods, and it’s had some very nice medical benefits.

Q10: Target Retirement fund? Or not?
I just opened a Roth IRA last year to start saving for retirement, as my company (a start-up) doesn’t offer a 401K. I started to contribute towards the end of the summer of 2010, so although I’m not sure I’ll max out the 5,000 for 2010 before April 15th, I fully plan on doing so going forward, having the payments taken automatically out of my checking account after each paycheck. I’ve been doing some reading on the best investment strategies, and since I’m far from a seasoned investor (basically a newbie), target retirement funds seemed like they were right up my alley.

However, I’ve also read some information that seems to imply that if you go with a target retirement fund (such as one of Vanguards), that this is basically what all your IRA funds should be in. I’d love to invest in these funds as I increase my knowledge of investing, but I’d then like to start looking into investing in individual stocks, bonds, index funds, etc within the Roth IRA. Is this a bad idea – should I just stick with one fund for my retirement, and leave the other investing to a separate brokerage fund? Or can I have, say 50% of my allocation in a target retirement fund, and then spread the other 50% out as I see fit? For context, I am 26 so I have some time to take some risks.
– Matt

A target retirement fund is basically made up of several different funds at once. For example, a target retirement fund might be 50% in domestic stocks, 20% in international stocks, 20% in bonds, and 10% in cash. Those four components are likely shares of other funds sold by the same company, so the 50% in such a fund at Vanguard would be the Vanguard Total Stock Market Index.

Over time, a target retirement fund gradually becomes more conservative if you just leave your money there and your retirement date approaches.

For most people who don’t want to try to balance their own retirement portfolio, a target retirement fund is a great choice. The only reason not to use it is if you don’t like the balance that it provides and you want to do the balancing yourself. For example, if you decide you want more risk and more aggressive investments, you might have 50% of your portfolio in a target retirement fund and another 50% in international stocks. A conservative investor might have that second 50% in bonds.

You can balance and mix however you’d like. Target retirement funds really are just a convenience that matches what most investors should be doing with their retirement funds anyway.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. LeahGG says:

    @Jessica: Try going over his regular expenses with him, without cutting anything out. Take whatever’s left of his weekly/monthly/whatever income, and tell him to put that into automatic savings as soon as his paycheck hits his account. If it’s not quite enough, encourage him to name one thing he can cut out or cut back on to make the number a little higher. If his bills are all paid in full on time, there’s no need for him to make radical lifestyle changes before he’s ready.

  2. Lucas says:

    @Matt

    Don’t forget to check the fees for the target retirement fund. I don’t have experience with Vanguard’s target funds, but my workplace offers T. Rowe Price target funds. Their fees are considerably more than the fees associated with the remaining fund choices (mutual and index funds). It may be a pain in the rear to rebalance once a year, but it might save you considerable money.

  3. Rebecca says:

    Go Packers!

  4. Tracy says:

    @Jessica: I agree with LeaGG. It sounds like he’s not going into more debt, just that he’s not actively saving and that’s simple enough to solve and doesn’t involve any dramatic rethinking of his life. If he’s able to throw in 500 dollars into savings ‘when he thinks of it’, just have him set up an automatic deposit into one or more savings accounts.

  5. JJ says:

    Re Q5: My advice, FWIW? NEVER borrow money from a friend or relative. I don’t care how rich they are. It’s just bad news all around.

    If they want to pay for it outright as a gift, that’s fine. But if you really want to borrow money (which is an important, but separate, question), do it from a bank, even if it costs you more money and inconvenience in the long run. I repeat: NEVER borrow money from a friend or relative.

  6. JJ says:

    Re Q7: Dave Ramsey also had podcasts of his show. You can get one segment (about 45 minutes) of each show each day for FREE on iTunes. If you listen for a couple weeks, you’ll get pretty much 90% of what’s in his books.

  7. JJ says:

    Re Q10: Your “assset allocation” (the way your investment dollars are divied up among various asset classes such as stocks, bonds, etc.) is probably the single most important thing that will determine your success in investing–outside of the motivation to invest in the first place, of course.

    As Trent said, these Target funds have a “premade” and automatically-adjusting asset allocation. If you also invest outside of the Target fund, you are essentially throwing off that mix of assets. The result could be a final mix that’s not the best one for you. It might be weighted too heavily in a certain type of stocks, for example. Or be too bond-heavy.

    Think of the Target fund as a premade pancake mix. It already has the right amount of flour, sugar, baking powder, etc., in it. Would you use the mix and then also add in your own flour and sugar and such on top of that? Probably not.

    Well, maybe you might add a little bit of sugar if you liked sweeter pancakes. Or maybe some extra flour if you liked thicker pancakes. But these would be SMALL additions that took into account what’s already in the mix, allowed for the fact that your taste is a bit different, and (most importantly) required a good bit of cooking experience and understanding.

    I recommend that you pick up Rick Ferri’s “All About Asset Allocation” before you venture out beyond the Target funds. It’s a brilliant read.

    JJ

    P.S. to Matt. Good point about the fees. I think Vanguard is one of the good ones though. Their Target funds have very low expense ratios (the same as if you did it yourself, IIRC).

  8. Doug says:

    My understanding is that Vanguard Target Retirement funds have lower fees because they consist of index funds, while T Rowe Price uses actively managed funds.

    From Wikipedia: Target Retirement funds are cheap by any reasonable standard, with Vanguard Target Retirement Fund expense ratios varying from 0.18% to 0.19%. In fiscal year 2008, the average peer group expense ratios ranged from 1.11% to 1.32%. Other mutual fund companies’ Target Retirement Fund expense ratios may include an additional expense ratio on the Target Retirement Fund itself, in addition to the expense ratios of the underlying funds. Vanguard does not charge this type of fee, but investors using Target Retirement Funds in their workplace plan from another mutual fund company should look in the prospectus for this possible extra expense.

  9. Evan says:

    @Q7: As someone who used to not pay attention to money and needed my wife to forcefully and patiently bring me around, the first step isn’t budgeting or cutting back expenses. He needs a WHY before anything else will change.
    One of the hardest things for me was making the switch from short-term to long-term thinking.
    Start talking about future plans, shared goals, etc. Start creating the lives you want to have, then work backwards.
    “You shouldn’t buy sandwiches” won’t help.
    “If you don’t buy two sandwiches a week, we’ll pay for our house 8 years faster” is much better.
    Find the WHY, then worry about the WHAT and the HOW.

  10. Johanna says:

    Q5: In the accounts I’ve read of loans causing interpersonal problems within families or between friends, the problems almost always result from a failure to communicate clearly what each person’s expectations are. So if you want to take your boyfriend’s mom up on her offer, I suggest talking with her about how she’d like to be repaid (a fixed amount per month? or some percentage of whatever salary you end up earning when you graduate?) and about every contingency you can think of.

    For example: What if you graduate but you don’t get a job right away? What if you’re met with unforeseen expenses that make it difficult or impossible for you to make your payments as planned? On the flip side, what if you receive an unexpected windfall – should you continue making the payments as agreed (and use the windfall money for whatever you like), or should you use some of the windfall money to pay extra on the loan?

    Something else you’ll want to look into are the tax consequences of large interest-free loans like this. It may be better for your boyfriend’s mom to charge a small amount of interest just to keep you both out of trouble with the IRS (assuming you’re both in the US).

  11. Pat S. says:

    On the subject of peer to peer lending… I’ve done some thinking on this subject recently, as the volatility of the stock market and the dismal returns on bonds got me thinking about alternative investment strategies. My verdict, I cant do it. Putting aside the high risk of default, I think my biggest problem with these micro loans is a moral one. As a lender, charging large interest rates to otherwise non-credit worthy people, you are perpetuating the credit reliance problem that many people have.
    Pat
    http://compoundingreturns.blogspot.com

  12. valleycat1 says:

    It looks to me like Trent’s answers to Q6 & Q7 got switched & both seem rather incomplete whether or not that’s the case.

    On Q6, why are you planning to buy a house instead of getting another lease? Until your fiance has a better grasp on responsible budgeting, and you don’t have to wipe out your savings, it might be the better choice. Also, I’ve heard too many stories of houses purchased before the marriage, and the marriage not happening & the problems that leads to, for that to seem like a good idea to me any more. As far as helping out your fiance in getting a handle on personal finance, there are a lot of interesting personal finance blogs for a wide range of audiences – Trent’s & his bloglist is a good place to start. Since your fiance’s credit rating is so high, he’s apparently not totally irresponsible; maybe you just need to sit down & go over all your required expenses, discretionary spending & goals – whether you actually set up a budget or not, he may just need to get a context for his spending habits.

  13. Milehimama says:

    I think getting a separate debit card for moving is an excellent idea.

    When we moved across country, we had a definite budget but also needed to keep track of every penny for tax and legal purchases.

    So we used our debit card – from our local bank. (We don’t have credit cards).

    At one truck stop the cashier copied our number and went on an eBay and Amazon shopping spree. We didn’t catch it for 3 days (because we were traveling, and didn’t have internet access for online banking) and when we DID find out about it, our debit card was tied to a bank in another state and it took forever and a ton of faxes to get it straightened out. AND we had no $ in our account until all the paperwork was done – no money to get our utilities turned on (fortunately we stayed with relatives, so we didn’t have to worry about paying for food and lodging with an empty checking account.)

    So, just a word of warning.

  14. Johanna says:

    Q6: To answer the question you didn’t ask: If buying a house involves taking your liquid assets down to zero, you can’t afford a house right now.

    To answer the question you did ask: What advice would be appropriate for your fiance depends on where his money is going right now. Is he spending a lot on little stuff like lunches and books and nights out? Or is he overcommitting on the big, fixed payments? There’s not necessarily a single cut-and-dried answer to that question, but he may find it helpful to compare his spending to the 50/30/20 budget in “All Your Worth.”

  15. nickel says:

    Beyond not liking the mix of investments, another reason to not hold Target Retirement funds is that they’re not particularly tax efficient. If you have on or more tax advantaged (e.g., IRA) accounts as well as taxable investments, it’s best to separate tax inefficient investments (e.g., bonds) into the IRA and hold the mor tax efficient investments (e.g., stocks) in the taxable account.

  16. Jules says:

    I’m a sucker for nicely bound journals with smooth paper, and good pens. The act of writing should be just as beautiful as the words, no?

  17. Rebecca says:

    Jules, I totally agree. I feel the same about books, reading them online does nothing for me.

  18. kitterlee says:

    Q4 – board games. Another fun one, if you have mixed ages, is QWIRKLE. The min. recommended age is like 6 yrs – and it’s fun for adults too. Great starter game.

  19. kristine says:

    Q5: I would not tie up your only savings in a retirement account and leave you starting from 0 with an emergency fund. What happens if an emergency arises when you are at 0-1000 bucks? Are you counting on family? Given the loans, that is a bit much to ask. I would wait till you have 11K or 12K, THEN take the 10K and stick it in a retirement fund.

  20. jim says:

    Q5: Lorrie, good career choice.

    Q6: Jessica, tell your fiance that he is not overpaid. Average wage for computer programmers in Mass. is more like $90-100k.

    Q10: Matt, you won’t really hurt anything by having a combination of a target date fund and other investments. The target date fund is an ‘all in one’ fund so you can get by with just that. But having additional funds in stocks or bonds is OK too. Its just a matter of preference in how you want your own money split up.

  21. Jeff says:

    @Q3: I believe you misspoke here. Funds that reinvest dividends reflect this in an increase in the number of shares owned, not the value of those shares (which changes on a day to day basis).

  22. jim says:

    Q10 additional… What I mean there is that your funds can be split up any way you want. You don’t “have to” put everything in a target date. You can split it up how you want. Theres no right or wrong answer. If you want 50/50 stocks bonds or 90/10 or 30/70 or 60/40 then thats your choice. If you’re looking to try and get a specific balance in assets then a target date fund will do that automatically. Buying other assets will change your overall asset mix. That might defeat the purpose of the target date fund in a way.

  23. Patti says:

    Q5: My husband and I borrowed $28K from my mother in 2006 to cover adoption expenses. I think we had just enough in the EF to cover it, but we didn’t know what my income situation would be, as I was switching from newspaper staff writer to freelance writer. I was very uptight about it, because I had always heard it as a hard and fast rule not to borrow or lend money from/to a relative or friend. But, seriously, it was no big deal. We drew up a payment plan at about 3 percent interest. She had the money sitting in “investments” not doing anything. She was happy to help us out. I have always been the kid who didn’t need help, and it gave her great pleasure to be able to help us. We paid the loan back over 24 months.

    My middle sister has received money from my mom, but it is a gift not a loan, because she doesn’t have any realistic way to pay it back. No regrets from my mom, and no resentment from me. We are different kids with different situations.

    As long as you believe you can pay your MIL back, I would accept the money with warmth, gratitude and an agreement spelling out expectations.

  24. JJ says:

    One more point about these “target” funds. You don’t have to pick the fund that’s named after the actual year you plan to retire.

    The best way to go about it is to first figure out the asset allocation you want (based on your own goals and risk comfort level), then pick the Target fund that best matches that. It may or may not be named after your retirement year. Someone who wants a more conservative portfolio might pick an earlier retirement year and someone who wants something more agressive might pick a later year.

    JJ

  25. slf says:

    GO STEELERS!!!

  26. Gal @ Equally Happy says:

    @Q2 I’ve used prosper and it seems to work really well. It allows you to select your risk profile and even hand pick loans if you want. I’ve been using it for a year and I’m quite happy with the results.

  27. Mel says:

    @JJ: Your advice may be good for someone in your circle or culture but it’s definitely not for everyone. Money in my immediate family is fairly free-flowing, to the point I was able to call my sister when I was stuck in an awkward place (travelling, main and backup cards decided to fail, not enough cash left, plane leaving in 40 minutes) and get her credit card number with no questions asked.

    My boyfriend’s family (Central European) are putting us up for an indefinite amount of time until our house is ready. They also lent us most of the deposit, and will lend us more for the reconstruction of the house. It’s what they always planned to do for their son, it’s what their parents did for them and what we’ll do for our children. It’s just how life works here! To refuse – unless it was because we could easily afford the house – would cause much bigger problems. We don’t have a repayment schedule, but we will set one up when everything’s a little more settled. They know we plan to pay them back, they don’t/won’t need it urgently and that’s enough.

  28. Shannon says:

    RE: Q5. I’m pretty sure the IRS requires an interest rate on loans, even if it’s to family members. A family member can gift up to $13k or so per year without any tax penalties. But if it’s a loan, an interest rate must be charged.

  29. deRuiter says:

    Dear Ardy, Don’t comingle funs with or marry this man until you see if his desire to “spend less than he earns” is real, or if he is parroting your statement to make you leave him alone. Do you want to spend the rest of your life unable to pay bills on time because he is spending on junk and not conserving money, not saving for the future, not getting debt free? I’m sure he’s cute as a button, but unless he changes radically, financiall, he is conning you by telling you what you want to hear but not doing anything about changing his spending habits. LOOK AT WHAT HE DOES, NOT WHAT HE SAYS. He is “yessing” you, but he is not on board with saving.

  30. Angie says:

    Regarding the intro, it seems that Trent is saying he even goes on too long for himself sometimes :)

  31. Aaron says:

    @Matt and #2 Lucas,

    Matt, Lucas gave great advice. You also may want to check your 401k plan’s website, too. I also have T Rowe Price Target age retirement funds as choices, which have much higher expense ratios than rolling my own portfolio. On top of that, my current employer’s 401k is with Suntrust, who allow you to rebalance your portfolio with a single click, or even schedule it to automatically rebalance on a regular basis for me!

    Like you, I started off with Target Age funds in Vanguard in my IRA because I didn’t know what I was doing. Once I saw the high expense ratios in my 401k for those type of funds, I decided I’d use the Vanguard Target Age fund in my IRA as a benchmark to roll my own portfolio in my 401k, picking the most appropriate funds for each section of my portfolio. For example, I think my Target Age fund in Vanguard invests 40% in US Large Cap, so I found the most broad Large Cap index fund with lowest expense ratio my 401k offered, and allocated 40% of my contributions to that. You get the idea from there.

    You can then go in periodically, and the portal offers a rebalancer that will in one click rebalance your portfolio according to how you’ve set your contributions, or schedule it. I scheduled mine to happen quarterly.

    Viola. It’s the same thing basically as a Target Age Retirement fund without the high costs for these particular ones in my 401k!

    If your 401k plan offers that feature, it’s a no brainer to roll your own.

    With that said, don’t let the paralysis of making a choice from either one stop you from contributing ASAP. Sure, lower expense ratios are better, but what’s most important is contributing.

  32. Kelly says:

    I’m with #25 slf

    GO STEELERS!!!

  33. Steve in W MA says:

    @ Shannon,
    #28 [Quote] I’m pretty sure the IRS requires an interest rate on loans, even if it’s to family members. A family member can gift up to $13k or so per year without any tax penalties. But if it’s a loan, an interest rate must be charged.[/quote]

    ********************

    It is possible to loan a large amount to someone up front, charge them nominal interest, then forgive $13,000 of the remaining loan balance per year. The debt forgiveness counts as a gift to meet the gift exclusion, but the recipient gets the benefit of the much larger amount that is put forward at the beginning. I believe it is even possible to defer interest payments and in the end forgive all of the interest as well as the principal, up to the level of $13,000 per year. In that case the total gift is the amount of the initial loan plus the total interest charged on the loan.

  34. Penny says:

    Hi Trent,

    Do you try to “eat locally”? In that do you try to buy local produce where possible? I try to do this but find that often the local product is more expensve than a cheaper product from a far away country. This leaves me with a dilemma with regards to my wallet vs my ethics.

  35. littlepitcher says:

    Far as I know, all prepaid debit cards require identity upon activation, because of Patriot Act requirements.
    I use a prepaid for all Internet commerce to prevent phishing. Mine is a buck a purchase, but many come with flat-rate monthly fees, some of which may be waived if you direct deposit all or part of your paycheck. Sounds like an expense, but it definitely is far cheaper than having your bank account stolen.

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