Reader Mailbag: Parental Visit

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. Buying a car
2. Life insurance when uninsurable
3. Consolidating accounts
4. Selling homemade items online
5. Investing down payment
6. Credit card conundrum
7. Psychological blow of mistake
8. Is bankruptcy the right choice?
9. Lending to father-in-law
10. Fearing financial armageddon

This past weekend, my parents visited us for two full days (Saturday and Sunday) and the better parts of two other days (Friday and… well, they probably haven’t left quite yet as you’re reading this – I’m writing this really early on Monday morning before everyone is awake).

I love it when they visit, and my children do as well (my wife… well, she gets somewhat stressed out, much like I do when her parents visit, regardless of how well we both get along with our in-laws). Unfortunately, it also means substantial extra work – preparing meals, cleaning, prepping the guest bedroom, and so on.

By the time the house is empty again, I’m ready for some sleep!

Q1: Buying a car
So- I have a 1999 Toyota Corolla with ~125,000 miles. The engine has been making noises since last year and now the check engine light is on again. After dumping about $700 into it, plus new tires, plus frequent oil changes, plus 2 cosmetic accidents, the car is still really taking a turn for the worse. I am afraid of dumping more money into it if the engine is a mess… It’s knocking really badly.

I’m a teacher, don’t make much money (2,300/month), have no debt other than $70,000 in student loans, and have become super frugal since graduating in May. I’m working on building up an emergency fund but just started so it’s slow-going as I just paid off a bunch of debt before knowing about the importance of an emergency fund.

I will need a new(er) car in the next year or so but am scared to have to be making car payments and much higher insurance payments with such a small monthly check. I am also afraid of buying a used car because I don’t want to get a money pit. I’ve been thinking about a 2010 Honda Civic ($15,000 and 0.9% financing for 60 months). Do you have any suggestions? My sister is really adamant about me not buying a new car because doing the same thing put her in a bind a few years ago.
- Jenna

Don’t buy new unless you can easily write a check for it. If you can’t, then your sister is right – you’ll be in a bind.

If I were you, here’s what I’d do. I’d start making a car payment right now. Your monthly payment on the loan described above, ignoring sales tax and any other fees, would be $256 a month. I would actually recommend that you start making a $300 per month payment right away.

Pay it to where? Your savings account, of course.

If you’re thinking that you can’t swing such a payment now, how are you going to swing it in a few months when the bump in insurance and the new payment plan for the car will add up to at least $300.

Keep saving that $300 a month and wait to see what happens to your car. Wait until it’s finally finished, then get the best car you can for what you’ve saved. If you have to take out a small loan, that’s fine, but the key is to get yourself a car that will last for a few years while you keep saving.

Avoid a car loan if you possibly can. Such loans are an incredible pinch on your monthly cash flow, one that you’ve got to head off.

Q2: Life insurance when uninsurable
I have most of my financial house in order; no bad debt, only a mortgage, 12 month safety fund, funding my 403(b), etc., and following a budget. The one item that eludes me is life insurance. Ten years ago, I had a kidney transplant and since then, I cannot find a company to provide life insurance. I’ve thought about self insurance but you just can’t build up much at $25 a month. Are there other options or paths I should consider? By the way, even though I’m single now, I figure this is something I should address before I get to the point of having a significant other.

- Andy

The problem is that life insurance after such a major health crisis is going to be prohibitively expensive if you can even get it at all.

When someone quotes you a rate for life insurance, they’re doing so based on a model for how long you’re expected to live. These models are incredibly sophisticated and usually accurate.

When those models show a result that indicates your likely death will occur before your policy finishes out, then they will either deny you insurance or offer you prohibitively expensive insurance.

Life insurance is a business. The people selling it are trying to make a profit, and the way to do that is to hedge their bets on people.

Now, what can you do in this situation? Your best route is to save and keep your financial house as clean as you can, which seems to be what you’re doing. You may also want to see whether or not your employer offers life insurance as a work benefit.

Q3: Consolidating accounts
I think my finances are too complicated–too many different banks, etc. I’d like to consolidate, but I don’t want to end up putting all my accounts at one place. That scares me. I’d really appreciate your thoughts on how to do this.

Here’s the deal:
2 different banks (checking/savings/CDs)
3 different mortgage companies (house, 2nd home, HELOC)
2 different credit card banks (one card for each of us)
3 investment houses (Vanguard, Fidelity, one other)
3 different DRIPs (thankfully not much to manage there)
2 more DRIPs (one for each kid, it’s a stock we really like)

This is alot of paperwork coming in every month (online statements would save paper, but I’d still have to track them all). It gets really complicated to keep track of every month!

Fortunately, our finances are solid (good salaries, solid jobs, low mortgage interest rates, low balances on mortgages, pay the credit cards off every month) so that’s not the problem. It’s just alot of details all fighting for my limited brain power.

My plan:
1 bank for checking/savings/CDs: Keep the friendly bank, ditch the one that keeps making stupid mistakes. Keep the 3 mortgage companies (rolling it all into 1 is an option, but the interest rate would go up). Just keep making extra payments to eliminate them one by one.

Credit cards: I want to close mine (hate the company) and open a new one. Two concerns: It’s a card with a really, really high limit and I like that flexibility. I don’t spend what I can’t pay, but I really sleep better at night knowing I can slap that card down and get out of almost any bad situation. It’s in my name alone, and I like that. Will a new company consider giving me a high limit? I have a great credit score, but virtually no wage income. My income is passive, and my means-to-pay are in the bank. Secondly, the best cards available now seem to all be at Chase. That’s fine, but my husband’s card is from Chase, and he likes it there. I feel like I should ‘diversify’ and have my card from another company. Is that valid?

Investment houses: we can consolidate down to 2: the firm we like + the one his firm’s retirement funds are housed at. Are we allowed to move some funds from his ongoing-employer 401k to an IRA elsewhere? How does that work?

The DRIPs. Are there any consolidators? One statement a month that had all 5 different accounts?
- Ralph

Your plan is very good. I’ll address your specific points in turn.

I’m not sure there’s a need to “diversify” your credit cards by having them held by different banks. A new company may give you a high limit, but that depends on your credit score.

Typically, you have to have some sort of “event” to roll over your 401(k) to an IRA. The most ocmmon event is switching jobs. Without such an opportunity, you have to take a large tax hit to do the transfer yourself, completely undoing any tax advantage from such an account.

You can consolidate all of your DRIPs with a brokerage, but the costs will be much higher. DRIPs typically are run by the individual companies.

Q4: Selling homemade items online
My girlfriend designs healing gems jewelery, I would like to know where to post them.

- Eddie

Your best bet is to use etsy or a similar site that focuses on selling handmade items. I’ll freely admit that I’m a semi-frequent shopper at etsy, as I’d rather give unique homemade gifts at many occasions than giving whatever’s on the shelf down at Target.

It’s important to note that unless you’re doing an extremely high volume of sales, such sales will likely just be a nice perk of a hobby that she’s already passionate about. The exception to that, of course, is if she’s extremely talented, on the order of the top jewelry designers in the world, and can command a very large premium price for her items.

Since she’s probably not at that level and also assuming she’s not interested in running a sweatshop, keeping this as a hobby is probably the best option.

Q5: Investing down payment
I’m not in any financial difficulty and I’m doing quite well financially. As a 25 year old recent college graduate, I was fortunate enough to find a good paying job right out the door. I have a 4 month emergency fund, have no credit card debt, and have my car paid off. My question is this: Within the next several months, I’ll have come into ~$20,000 that I’d like to put away for a down payment on my first house. I don’t anticipate needing this money for another 3 to 5 years. I’m wondering if it’s ever occurred to you to invest this money in REITs? I’ve read in a number of places, and understand the reasoning, for why investing a down payment in stocks is a terrible idea. But if REITs are correlated to real estate, then wouldn’t the down payment money be catching rising real estate prices? (Or conversely, losing money when the market goes down?) Since the $20,000 is explicitly for purchasing a house, then tacking that money to the real estate market doesn’t seem unreasonable. I know this may sound unorthodox since I haven’t found anything written on it – but am I missing something here?

- Kevin

The problem with your plan is that not all areas have identical real estate situations. Some areas were barely affected by the 2008 downturn, while others are so devastated by it (with thousands of McMansions sitting unoccupied) that prices are still tumbling.

If you’re in an area where prices are moving upwards, then if you own a REIT that’s flat or going down, you’re going to be hurting.

I agree that stocks are not a great choice for such a short-term investment. I would probably buy something that retains value, like bonds or CDs. Yes, you won’t earn much, but you won’t be putting your balance at risk, either.

Q6: Credit card conundrum
[A certain large bank] recently sent a notice that I would now be assessed a $59/year annual fee. I have never missed a payment, always pay over the minimum due and have never been late. Yes, my credit report has taken a few hits lately because of my ex-wife going foreclosed on 2 properties that my name was still attached to even though she was granted full control. However, when I called [this certain large bank] they said everyone was gettin this fee even though the letter was written stating there was either; serious delinquency, too high balance, or poor review of our banking relationship.

My question is…do I close this account to show my anger and save the fees, or pay the piper to keep my credit report from dropping even more?
- Andy

I don’t think the bank will notice your anger. Megabanks see many accounts closed and opened each day – losing one probably won’t be noticed at all. I would be much more concerned about your personal situation than making the bank realize their mistake in losing you as a customer.

If you don’t actually need the credit card for your personal finances, I’d cancel that card as soon as possible. There’s no need to have that card hanging around, swallowing down steep annual fees.

It’s hard to tell why they caused the fee based on what you described in that letter, but I will say that the banks have done some scrubbing of people holding accounts with them, tossing fees, reduced credit limits, and sometimes cancellations on them. The best solution, as always, is to ensure that your personal finances don’t rely on having that credit card.

Q7: Psychological blow of mistake
I was humbly wondering Trent, if you would have any advice on surmounting the psychological blow it is when, after making so many fundamental changes in behaviour and working so hard for the last eight weeks, you find you have made a banking error and bounced a cheque costing one $40… While I’ve tried to console myself via “as long as I learn from it (ie. fine-tune my banking systems etc.), I was wondering if you had any sort of sage advice that could propel me over this mental(and connectedly emotional) hump any faster…

- Sarah

Every one of us makes little mistakes like this. I certainly do. I’ll forget to pay the trash service. I’ll forget to plan ahead for Thursday night’s dinner. We all make little mistakes.

My method of handling such mistakes is pretty straightforward. I start off by simply saying “Yep, I made a mistake. It was my fault. I can learn from this.” I then also remind myself that overall, I’m in a great financial position with far more good moves than bad.

After that, I directly address the problem. Why did it happen? What can I do to make sure it never happens again? I try to implement some sort of solution to make sure it never repeats.

Usually, at that point, I feel pretty good about things.

Q8: Is bankruptcy the right choice?
Long story short, I’ve got $50+ grand in credit card debt, $40+ grand in student loans, a mortgage, car loan… Considering a bankruptcy falls off your record in seven years (correct?), and I’ll realistically never be able to pay off my debts (least of all not within seven years), is bankruptcy the smart decision here? For what it’s worth, the majority of my credit card debt came mostly from some unfortunate situations, unemployment, and of course some bad decisions overall. I make decent money now and have a good credit score (703ish), with no late payments on anything. I’m keeping my head above water, but that’s about it, with everything going towards bills and nothing into savings.

Just trying to figure out the best way possible to break out of this hole and start moving forward with my life. Would appreciate any honest, realistic advice.
- Will

Chapter 7 bankruptcy stays on your report for ten years. Chapter 13 bankruptcy (where you basically agree to pay back all of your debts over a longer period) only lasts for seven, but it sounds like you’re in a Chapter 7 situation.

Chapter 7 means that the courts will liquidate most of your non-essential property, then distribute the earned money to your creditors, at which point they go away. The bad news is that student loans are generally not discharged in a Chapter 7 bankruptcy.

In short, there is no magic wand that will make all of the debts you have right now disappear. Since you’ve not actually been late on any debts, if I were you, I would focus on increasing your earnings in any way you can. Get a side job, start a side business – anything to increase income. Throw that extra income at your debts. Eliminate the smallest debt first – I think you’re really hurting for cash flow, and that’s the easiest way to improve cash flow.

Q9: Lending to father-in-law
My husband wants to loan 1/3 (one third) of our savings to his father.

These savings and one paid-off home, that gives a very small income in the form of rent, is ALL we have (we rent the house we live in), no 401k, no investments, nothing!

His father would use the money to build residential apartments to rent out. He made the commitment late in January, but it is causing him anxiety and elevating his already-high blood pressure. My husband, sweet and caring as he is, wants to help his father not worry so much about not being able to make the payments.

My husband is a contractor, I work part-time as a nanny (which I do not enjoy), and study the rest of the time.

I know his father is honest; he even said that if he would get the money (he has refused it so far, but said that he might accept the offer if things get tighter), he would make a legally binding contract to pay it back, with interest, but I still don’t feel comfortable, and knowing myself, I know that the second this money leaves my account, I will start to be very worried and will obsess about it a considerable amount of my time.

My husband talked about this with his parents before he talked to me.

My husband says that I create reasons to be worried, that I agonize about everything too much. He might be partially right on the last one. He also said I’m trying to impose my rationale on him, even when half of the money is his own.

Additional info: my father-in-law is married and has two other sons.

Am I so wrong? If I am, I must be really wrong, because I really resented my husband’s request.
- Sue

I can’t say whether or not you’re right to resent your husband. I will say, though, that he should have discussed this plan with you first before taking it to his parents. I also find it a bit strange that you’re looking at the money as half his and half yours, rather than our money. Such a perspective does not imply a shared future, which makes for a worrisome long term picture.

As for the loan, I usually think it’s a horrible idea to loan money to family members and friends. I have no problem with a gift, but lending money creates a lender-borrower situation, and people typically don’t have warm and fuzzy familial feelings towards their banker – or towards anyone to whom they have to make a regular payment to. Often, the borrower views such an arrangement as being the lowest priority in their financial life, lower than other forms of spending, and this just creates resentment.

Given your respective worries and stresses, you might want to consider gifting a smaller amount rather than lending a large amount.

Q10: Fearing financial armageddon
I can’t sleep because I am so worried about political stupidity here and political unrest abroad sand-bagging my savings and my stocks. I am half-convinced that this country is facing financial Armageddon. The constant loss of jobs worries me too, since I am a sole supporter of an elderly parent. I am saving as much as I can now, but I came to this realization so late in life, I fear it may be too late for me. Although I have credit-card and mortgage debt, I have two jobs that I love (full & part-time). I can’t afford to invest but I have a 401(k) – fully matched. I already do batch-cooking, scratch-cooking, garden, can and sew. I have a stocked freezer. I pay extra on the 2 credit cards every month. I pay an extra mortgage payment every year.

My questions are as follows:

What are my best options to lessen the impact of inflationary prices on food? Should I invest in a 40 lb bag of brown rice? How about cases of razor blades and chocolate like folks did in the Depression?

Is there anything besides skills that I can stockpile now?

Besides not carrying any debt, what’s the best thing I can do to be ready?

I am also trying to read about the depression and about poverty in general to see how people cope. Can you recommend any books that might ease my mind?
- Peggy

What exactly is the scenario you’re envisioning? It sounds to me like you’re attempting to prepare for something, but you don’t know what it is.

If you’re envisioning a return to the 1930s, that is impossible. The jobs that were cut in the 1930s don’t even exist in the United States today – they’re already gone. I don’t think reading books about the depression and about poverty will ease your mind in this situation.

Are you envisioning massive food shortages? A breakdown in the transportation network? A complete devaluation of the dollar? Each of these scenarios has a different course of action.

Personally, I don’t prepare for any of them because, frankly, I don’t believe any of them are likely to happen. Sure, they’re possible, but it’s also possible that Earth is hit by a giant meteor tomorrow, destroying life as we know it.

I do things that make me more self-sufficient, but I don’t do them in fear of some unknown bogeyman. I do them because they make my situation better right now and they have a secondary effect of improving my situation in such a dark future.

I will say one thing: people who promote such a negative view of the future often have a big financial stake in convincing people that such a negative future is about to happen. Such premonitions are usually coupled with advertisements for gold, non-hybridized seeds, a new book, and other such products. Beware people who quickly segue from negative premonitions to product sales pitches.

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. Elizabeth says:

    @ Sarah #7 — I’m usually pretty careful, but I’ve made a couple of goof ups in the past like this. Other than learning from it, I remind myself that if a $15-$40 surcharge is my biggest financial mistake, then I’m pretty darn lucky.

    It’s not a guilt thing — more like counting your blessings. If the mistake doesn’t hurt anyone and it doesn’t prevent you from paying your bills, then learn from it and move on :)

  2. Sheri says:

    Hope your folks don’t read your blog . . .

  3. Jonathan says:

    “Hope your folks don’t read your blog . . .”

    I’m curious about the reasoning for this comment. Do you think that Trent said something negative about his parents that they would be upset or offended by?

  4. Donna Catt says:

    Q4 Artfire is also a nice online venue for selling (or buying) art and crafts.

  5. Courtney20 says:

    Q10 – the thing I always laugh about in regards to the gold peddlers is this: if our currency is really about to be massively devalued and gold is going to be the new standard, then why are these people so willing to take your soon-to-be-massively-devalued paper money and give you gold?

  6. DOT says:

    Q1 – Her question should have been- How/Why did I get myself into $70k worth of student loans to become a teacher and how am I going to pay it off?
    Honey, the car is the least of your worries…Following Trent’s advice would be a good idea though.

  7. Adam P says:

    @DOT, lol…is it bad that I thought the same thing?

    Q9 – sounds like they need some marriage counselling and perhaps her some individual therapy because she sounds very unpleasant to be married to from what I read. The husband should definitely have discussed it with her before agreeing to fund the loan with his parents but they haven’t made the loan yet, so not sure it’s been agreed to in any case.

    Q10 – another therapy candidate. Worried about armageddon? Hoarding chocolate and razor blades? Spend the money on counselling and medication instead.

  8. valleycat1 says:

    Q5 – I don’t know why Trent’s advice on the REITs is tied to where Kevin lives – we had some REIT investments in the past and they had nothing to do with our specific location.

    Also, Kevin, compare REIT projections with ETFs that pay dividends. We’ve had some amazing results with our ETFs – plus you get the dividends in the meantime, which could be added to your house fund (either reinvested in the same ETF or elsewhere).

  9. Jonathan says:

    @valleycat1 (#8) – I don’t think Trent was suggesting that Kevin’s location had an impact on the return he would get from the REIT. Rather, he was suggesting that performance of the REIT may not mirror the performance of real estate in his area. Kevin’s logic was that if his REIT’s go down in value, real estate prices would have dropped in general, so his down payment would still be “worth” as much in terms of the home he could afford. This would work if real estate in Kevin’s area matched the national real estate market. If real estate in Kevin’s location, however, increased in value while his REIT loses values or remains flat, then he is losing purchasing power. If the opposite happens, however, he is gaining.

  10. KC says:

    @ Sarah Q7 – Have you ever heard the phrase “s— happens”? Well it does. We all forget to do stuff sometimes. I did a similar thing last year. I have ample savings and monthly income, but I bounced a check. The bank covered the expense but charged me $40 (I actually got it reduced from $55 by calling them – tried to get it completely canceled, but…). But it just happens. At least you have an excuse – you were overworked and possibly stressed. I was neither – I just made a lazy error.

    At least your mistake only cost you money. I recently heard on the news about a family who neglected to get their dog its rabies shot. The mother was very sick and it got overlooked. Then a dead raccoon showed up in their yard. The authorities made them quarantine their dog for 6 months to see if it had rabies (it did not). Now to me that’s a big error! That poor dog, that poor family!! (Not to mention they had to pay $3500 to have the dog boarded at the vet during that time.) Now that’s something to beat yourself up about. In your case no one was harmed and you made an error just like 90% of the people on this website!

  11. Diane says:

    Q4: Your answer is very mis-leading. If she earns any money at that hobby, it is a business and the income needs to be declared. You are correct that it may not be enough income to be self-sustaining as a primary business, but it’s still a business from an IRS POV and needs to be treated as such. Track expenses, income, etc and see if there is any profit.

  12. Michelle says:

    @Adam – RE:Q9 Interesting persepctive about the wife. I would be FURIOUS if without my knowledge my husband told his parents he would loan them 33% of our nest egg, and then accused me of being irrational for objecting to this scenario. From my perspective, that is incredibly disrespectful, belittling and possibly controling and it would be difficult for me to be married to such a man. Perhaps it’s a gender perspective.

    In any case, I agree with Trent and you that there seems to be a serious disconnect with this couple. He is working more as a team with his father than with his wife when the best thing they could do for their money and their marriage is to work together. Couples therapy could be an ideal way to achieve that.

  13. Adam P says:

    @ Michelle – as I said, I think he should have discussed it with the wife before agreeing anything. But so long as he didn’t DO anything, like give/lend the money, before he discussed it with her; to me he’s still okay.

    Keep in mind, the FIL hasn’t even taken any money. He’s doing it on his own but may need it if he finds himself short.

    She on the other hand sounds extremely controlling,harpy-like and stressful to be around from this letter (in my reading of it). She self-admittedly worries too much over everything, and “really resents” even being *asked* to help out the FIL, even though she concedes the FIL is honest and a good person and is willing to enter a binding contract/etc.

    She writes “I will start to be very worried and will obsess about it a considerable amount of my time.” Sounds like a barrel of fun to me.

    I don’t know if they should lend the dad money or not, Trent’s advice to just give a smaller gift is probably wise given wife’s inability to relax about finances. But I do know think marriage seems to have trouble. And I guess I side with the guy here, except about the “half of it’s mine” business. He’s wrong there. 100% of it is “ours” unless they have separate finances which in this case, they don’t seem to in this case. They have to get on the same side like you say before they do anything.

  14. Nancy says:

    #10
    I live on a farm 13 miles from a grocery store. (Yeah, there’s a gas station 3 miles away, but it doesn’t have a deep selection of groceries.) I want to achieve a level of self sufficiency because I don’t want to make wasteful trips to the store, not because of fear, but because of my interest in being thrifty with all my resources. Yes, I do have a 40 pound bag of rice, 50 pounds of flour, and 20 pounds of sugar among other things. It was cheaper to buy in bulk, and I don’t want to waste time making that 26 mile round trip to the store at 5:30. Bulk buying is thrifty. Don’t watch tv! You’ll be happier for it!

  15. Des says:

    Q1 made me laugh! First, a Toyota with 125k miles on is is barely halfway through its useful life. You should be able to get at least 250k out of it – my parents always ran theirs to 300k or higher. Second, ALL cars need tires and oil changes, that is regular maintenance and I’m not sure why it is included in your question. Third, just take it to the mechanic and see what it wrong. We took out car in last week for weird sounds, and it turned out to be a <$200 axle fix. When you don't know anything about cars, its easy to assume the repairs will be astronomical. They might be…but probably not. Even completely REPLACING the engine would be cheaper than the car you are considering.

    This sounds like a person who either doesn't know a lot about budgeting, or is just looking for an excuse to buy a new(er) car.

  16. Jonathan says:

    #Adam P (#13) – “She on the other hand sounds extremely controlling,harpy-like and stressful to be around from this letter (in my reading of it).”

    This is the type of thing that fascinates me when I read through comments. It is very interesting how different people perceive things so differently.

    I re-read Sue’s letter and just can’t find anything that sounds remotely controlling or harpy-like. Sue had only positive things to say about both her husband and FIL. The only negativity I saw from Sue is regarding her own feelings towards the issue.

    On the other hand, Sue’s husband seems like the type of guy who likes to make decisions without getting his wife’s input (even for something as major as lending out 1/3 of the family’s savings). I also see the potential for the husband being very manipulative, based on the way this situation was handled. It is possible manipulation was not his intent, but its not a stretch to see that as his goal. If Sue does not agree to the loan at this point, then she’ll likely be viewed as the bad guy by the FIL, while the husband gets to play the part of the dutiful son who just wants to help his dad, but is unable to do so because of his unreasonable wife. Note that I don’t think she’s being at all unreasonable, but the husband could very well make her look that way to his Dad.

  17. Andrew says:

    Am I alone in thinking that Q10 (financial Armageddon) was soneone’s lame attempt at satire?

  18. Diane says:

    Q10 -First, If you have credit card debt, why make extra mortgage payments?
    Second, if you think we’re anywhere close to the Great Depression and take Trent’s advice not to read about it, you might want to look for a Museum exhibit. I went to the Museum of CA (with free passes “checked out” from the library) this weekend. What an eye opener! We are so lucky. There is just no comparison between then and now. No exhibit nearby? Google Dorothea Lange for starters.
    Third, I suggest you do read history, but perhaps from a different angle. I’m currently reading “Unwise Passions”, purchased used for $1 (where else? At the library…) It’s a biography that reads like fiction about an eighteenth-century woman who led a scandalous life. She was born into a family of vast wealth. The story’s about her life, but the back story reveals how the vast riches of the tobacco families and their whole way of life disappeared, never to return. As a country, we have survived this kind of upheaval time after time in a variety of circumstances. This is not the end of the good life we know, it’s just a cycle. Repeat until you feel better: it’s just a cycle.

    Another great book to read is “The Worst Hard Time”. It predates the Great Depression and explains how and why the Dust Bowl happened.
    Finally, kudos to you for taking care of an aging parent. That ,along with two jobs, is worthy of much admiration.

  19. Adam P says:

    The controlling hapry/shrew part came from her “really resenting” being asked to help the dad out. Resenting even being asked for something when you agree the dad is a great guy and has done lots of things to ensure the loan would be paid back slash hasn’t even been needed yet sends warning bells.

    That and the general tone of the letter and her self-admitted tendency to obsess made me make that assumption about her.

    However, this is just from the reading of a letter. 100% agree that it’s possible she’s just a joy to be around and sweet as apple pie! My mother taught me tho if it writes like a duck…

  20. Diane says:

    Q9: It’s in no way being a “harpy” to be concerned that lending one’s FIL 33% of your life savings to speculate with is crazy. And “speculating” is exactly what development is regardless of how much experience the person has. I am in the construction field and I’ve seen many people with good intentions go broke trying to do what he’s proposing. So – if he goes broke, even if he intends to pay it back – do you want to be in the position of having your FIL owe you large amounts of money? I wouldn’t. It would completely change the family dynamics.

    If this is a strong business venture, he ought to be able to raise the capital elsewhere. I have many developer friends, and they raise money from investors and banks and other developers – not from family members willing to speculate with their lives’ earnings.

  21. valleycat1 says:

    Q9 – I agree with Trent on this one, except that Sue called the $ “our” savings – it is the husband who’s claiming half of it as his. And regardless of the amount of $ involved & who knew first, if they can’t afford the risk of not being paid back, it should not go to anyone.

  22. Des says:

    RE: Q9 – I think having a husband that would commit that much money without even speaking to his wife creates the tendency to obsess.

    Adam, you seem to view this as “well, yeah, he kinda shouldn’t have done that, but she is REALLY the one in the wrong with that attitude.” I think the whole spend-the-nest-egg-without-consulting-the-spouse part is a much bigger deal, and would cause any spouse anxiety. If they need counseling, that is why.

  23. Johanna says:

    Q9: Sue does *not* “self-admittedly worry too much over everything.” She says she foresees that she’d be worried to have 1/3 of her household’s savings on loan to her father-in-law, but that’s because it’s 1/3 of her household’s life savings. If I lent 1/3 of my life savings to a family member, I’d spend a lot of time thinking about it, too.

    And even if the father-in-law is a good and honest person, and even if he takes out a legally binding contract, that’s still no guarantee that the money is going to be paid back. Stuff happens, and sometimes even good and honest people are unable to make good on their debts.

    I also disagree with Trent’s stock answer of “gift the money instead of loaning it.” Gifting money to a family member who would otherwise be without food, shelter, or other basic necessities may make sense, but this is for the father-in-law’s real-estate investment.

    Also, I’m glad I’m not married to Adam P.

  24. Ginger says:

    For question 10, stop prepaying your mortgage when you have cc debt. Do prepay a low rate, when you have high rate debt.

  25. jim says:

    I generally agree with all Trent’s answers this week.

    Q7 Sarah: Everyone makes occasional mistakes. Don’t beat yourself up about it.

    Q8 Will : We don’t know enough info to tell you the best course. But if you’re keeping your head above water then you still have hope. What have you done to cut cost and improve your income? What about selling your car or house? Also, if your income is > median levels then you will have to pay back the debts anyway so bankruptcy would not be a get out of debt free card.

    Q10 Peggy: We’re actually gaining jobs currently and inflation on food is just something people fear will happen, not a reality. We are already past the worst recession in decades and if we made it through that alive then ‘armageddon’ is not around the corner. Even if we do have another financial disaster of some sort, its virtually impossible to plan for. Be prudent in your savings and keep a well stocked pantry.

    Side comment on Q1: Case in point that Toyotas don’t always last forever. People seem to assume a Toyota or Honda will last 250k miles and thats not true.

  26. Gretchen says:

    Lots of “great guys” have money issues. There’s no saying he will have the money to pay them back.

    I would never lend that kind of money to a family member. IF that makes me a “harpy,” so be it.

  27. Gretchen says:

    Q1: Are the oil changes frequent because something’s wrong with the car?

  28. Bob S. says:

    Regarding Q1…I went through this very same thought as well…I was thinking I needed a new car because of a few increased repairs. However once I realized that my car payments would be nearly 400/month for 4 years which would be around 4800 a year, you can see that you would have to do a lot of repairs to eat up that cost…the great thing about making a “payment” to a savings account is that you get used to making that payment in addition to creating a fund for repairs or a down payment. A friend of mine actually did a similar thing with buying a house(going from a rental)…he calculated the different between a mortgage (plus utilities, insurance etc.) and his current rent and saved the difference which got him used to the payment and helped save for a down payment.

  29. jim says:

    Q5 Kevin, I would not trust REITs to really track real estate values. REIT values generally correlate to real estate but its not a 1 to 1 relationship and REITs are more volatile. Example : During the real estate bust, real estate dropped around 40-50% overall and the Vanguard REIT index dropped more like 75%. Understand that REITs are like stocks and can go up and down based on the market. Individual REITs can go down when real estate goes up. They aren’t just tied to real estate values. If a REIT owner has financial problems then their market value plummets even though real estate values might be going up. Many REITs are highly leveraged and have risks from interest rates and credit availability. REITS often specialize in certain real estate areas that might have other problems. Some REITs don’t even invest in physical properties and may instead just buy mortgages.

  30. Johanna says:

    Q8: Will, please seek advice from a bankruptcy attorney or a forum that specializes in giving advice on bankruptcy. Trent’s recent post on bankruptcy makes clear that he has no idea what he’s talking about, so even if he had answered your question, I would not trust his answer.

    As jim says, we don’t have enough information to know whether bankruptcy is a smart move for you or not. It might be. With his mention of median income, it sounds like jim is alluding to something called the means test for chapter 7 bankruptcy, but I think it’s a little more complicated than he says: If your income is greater than the median income for your state, you can only use chapter 7 bankruptcy if you pass a specific test that’s designed to determine if you can realistically repay your debts. There are online calculators that can help you figure out whether you pass the test or not.

  31. jim says:

    Q9 : This is a tough situation. On one hand Sue is right to worry about such a loan and its not a great idea to loan money to family in general. Her husband should have talked to her before committing to make such a large loan. On the other hand Sue’s husband seems to have his heart in the right place and just want to help his father. And it really does sound like Sue worries about money too much. Sue shouldn’t be resentful that her husband wants to help his father and she should work on her worry level. Sues husband should clear such decisions with Sue first and he may be a little dismissive of Sue’s worries. Of course all we have is Sue’s side of the story.

    I’m assuming their finances are mingled and not split.

  32. valleycat1 says:

    Q8 – With that large a CC debt, I’d pay down the highest interest rate cards first, rather than the smallest amount. And it doesn’t take a huge additional payment over the minimum each month to greatly reduce the payoff period, since the additional amount goes toward the balance, not interest.

    Another option Trent didn’t mention is to sell stuff. And, if you aren’t upside down on the car loan, sell the car, buy a less expensive one, & use any remaining cash to go toward debt. Ditto on the house.

  33. Mike says:

    Q1 – That car probably has lots of life left. If you’re worried about the check engine light and strange noises, take it in (before it gets worse!). It may not even need big or expensive repairs, don’t assume the worst.

    $700 isn’t unusual for a car that age, 100k-120k miles is one of those points where a few things may wear out, but if you fix them, they’re good for another 100k! $700 once or twice a year is still a lot less than payments on a new car.

    Comment 15 (Des) is correct in his advice on this issue.

  34. Debbie M says:

    @Peggy Q10 – I have several (conflicting) answers for you.

    1) Keep increasing your self-sufficiency. The more you can do yourself, the less you have to rely on interdependent networks. I have read books on the Great Depression, too, and one thing that struck me is that family and friends are important. If enough of you work together, than whoever is struck down by whatever happens will have someone to take care of them. Church and other local groups count, too.

    2) Live it up. My boyfriend’s parents always lived in small towns, even though they didn’t like them, because they felt safer there in case of some kinds of armageddon. They are both dead now, and nothing bad happened except that they lived their lives in mostly horrible hick towns (some of them were good). So another thing you could do is live it up while you can and worry about tomorrow when tomorrow comes. If some of the terrible things happen that are possible, your finances will be the least of your worries anyway.

    3) Media fast. The media like to focus on extreme and scary stories because they are exciting and make them money. But sucking those down all the time is bad for your mental health. Some people find that just staying away from news sources is all they need to gain a better perspective.

  35. AnnJo says:

    Q1,

    Are you confident you have a great auto mechanic? If so, take the time to listen carefully to what your mechanic tells you, take a few notes and do your own research online. A Toyota Corolla with 125T miles on it could have many more years of useful life. Or, if it has not been well cared for, it could need an engine rebuild or other major work. But even major work is often less expensive than a new car, and any used car may turn out to be just as big of a problem as the one you have now.

    If you don’t have a great mechanic, find one. Mine is so great I sometimes think about naming him in my Will. He knows my priority is to keep my 1997 car running reliably as long as possible, and makes sure I know what it will take to do that. That takes a few extra dollars as the years go by, but much less than replacing it.

  36. Evita says:

    Q1: in Canada the CAA (similar to the U.S. AAA) can give you for less than $100 a complete diagnostic on your car that will let you know if it is worth keeping it (it may be) or if it will be a money pit.
    You may have an equivalent independant assessor in the U.S.
    If it is better to let it go, do consider an used car, much cheaper than a new one, and have it assessed before buying it.
    Trent’s advice is good by the way.

  37. Evita says:

    Q9: RED FLAG! according to Sue, her family’s only investment income is a very small rental income from a paid house!

    It is obvious that her hubby is very fond of his father but lending a big part of his family’s safety net to a risky business venture makes no sense. Sue is absolutely right to be worried. Anyone remember the housing bubble ?

    Investing in the housing business in these times is courting a financial disaster. I’ll bet that the FIL is realizing this as he seems extremely anxious about it and his doting son wants to spare him further anxiety. FIL should find himself some business partners or venture capital.

    Just my 2 cents…..

  38. kristine says:

    Q10 My long term plans include a well, solar power, and learning life skills to take care of my own property and possessions.

    I am not that dire, but if you read the WSJ, you see more and more odd little items about the next expected economic dive- the student loan crisis- in about 4 years. And you see the very wealthy buying farm land as a security blanket- not gold.

    I do not think Peggy is crazy. These are uncertain times, and sometimes peace of mind is found not in dismissing fears, but in ameliorating worse case scenario through preparation. Then you can relax and enjoy the everyday!

  39. Julia says:

    #7,
    I find a few f-bombs and a shredder work wonders. But I guess that depends on your disposition.
    I let whatever I’m feeling out of my system (when I’m alone, nobody else needs to hear me throwing a fit), do whatever I can to reduce or eliminate the fee, then enjoy the sweet satisfaction of shredding the statement that shows the error (if I ever need it again I can get in online from my bank).

    I once made a mistake that nearly cost $250 in overdraft fees. Forgot about the 2 business day check hold and depositted my paycheck on a Friday. Wrote a big check for rent and deposit on a new apartment, and made several small transactions over the weekend. Come Monday, guess which transaction cleared first? The rent check made me overdrawn and the then 8-9 little transactions I made over the weekend pushed me further overdrawn. My bank covered this but at a fee of $25 per transaction. Then the deposit went through. I was able to talk them down to $25 by admitting my mistake and simply asking them to only count it once. (one of the reasons I’m still with that bank ;-)

  40. Julia says:

    #10,
    I actually think skills really are the best investment for financial armaggedon. If I start worrying about the future, I start looking at the way I live. Any product or service that I rely on others for I ask myself “Can I do this alone?”
    From that I start picking tasks to learn how to do. I’m learning how to cook, grow vegetables, I’ve worked for Habitat for Humanity so I can learn how to build a house. I’m even thinking about hunting (although I’ll probably become a vegan before I can get myself to hunt).

    I bet you would find great comfort by starting a vegetable garden or raising your own chickens.

    Debbie, I like your idea about media fasting. That’s probably something the whole country needs right now.

  41. deRuiter says:

    Jenna, Q#1, GET A JOB. You’ve got the whole summer off, evenings, Saturdays, Sundays. You could easily work 20 hours each week at a second job and BANK ALL THAT MONEY. You would then have money for a car when the time came. After getting a car, keep working that second job and pay off that $70,000. student loans. What makes you think that you need so much leisure? That you can’t earn extra money in the vast amount of free time (compared to private sector workers) with which you are gifted by the taxpayers?

  42. David says:

    I wonder – is it too late for me to retrain as a serial killer? I imagine the skills I should need would be useful in the event of financial Armageddon, but I am not sure whether one can readily obtain student loans for this particular career path.

    Besides, I would not normally hurt a fly. It’s just that when I read posts like #41, it occurs to me that people who moan about the vast amounts of taxpayer-subsidized free time “enjoyed” by teachers really do not deserve to live. And the swifter and more awful their deaths, the better for all concerned.

  43. valleycat1 says:

    #39 Julia – LOL
    Screaming into a pillow or inside your car also work well. Sometimes a tantrum is just what’s called for!

  44. littlepitcher says:

    @Peggy–So far, so good. Yes, purchase in quantity if you are certain you will use the product and you can get it at a discount. Prices have risen substantially on produce over the past month. Do weatherize, keep your car tuned, etc. Unless you have a farm tank, and they have to be EPA approved, you cannot stockpile gas. If you can frugalize your diet without objections from your elderly parent, do it. I can’t, in all conscience, tell someone who’s working two jobs to make two separate menus.

  45. Nancy says:

    Q9 (and subsequent responses, particularly Adam P.’s)– Now let’s turn the tables and say it was the wife that decided to loan her family the money. Then the comments would be–how awful it was that she didn’t consult her husband, and of course the husband has every right to be angry. How selfish and inconsiderate of her!

    Q10– another idea for preparing for bad times is to build community. I think our society has turned to money to take care of problems, when in the past we’ve turned to community. Things like potlucks or food swaps, any other kind of “swap” (babysitting, neighborhood tool borrowing, that kind of thing).

  46. Maria says:

    Q3 Ralph – I also have many accounts. For regular management of accounts I use mint.com despite my initial neurotic concerns with privacy. Identity theft can be accomplished from a catalog label in my recycling bin- so really, I felt the huge impact it has made to my life has been worth the risk.
    Incoming statement can be managed paperlessly – open, scan, file – some scanners come with file management software that will name and file for you. Be sure to shred properly and backup your hard drive weekly or immediately after a scanning session. I have an inbox just for scanning stuff. After tax time and every couple months, my previous years (plural) digital files are put on a thumb drive and taken to Mom’s for safe keeping out of our house.
    It may sound intense at first but after a couple months, it becomes very quick and easy. There are no stacks of papers laying around the house (just the inbox!), no filing cabinets stuffed with papers that need to be sorted.
    Looking for something new? Go to mint.com! Looking for something old? Got to the Bank of America folder and open the file BOA 2008 05 and there is the May 2008 statement!
    Yes, some computer skills are required, but really, what do you do for a living that you don’t need computer skills?

  47. AnnJo says:

    @David,
    “people who moan about the vast amounts of taxpayer-subsidized free time “enjoyed” by teachers really do not deserve to live. And the swifter and more awful their deaths, the better for all concerned.”

    Seriously? Death by torture should be the penalty for commenting on the fact that teachers have the summer and weekends off? The teachers I know (many of whom DO work 2nd jobs or home businesses during the summer) would find your defense of them repugnant.

  48. Johanna says:

    I’m not defending David’s comment, but as my 8th-grade science teacher put it, “We don’t get summers off – we get laid off every summer” – the point being that teachers’ salaries account for the length of the school year.

    As for weekends, I don’t know about the teachers you know, AnnJo, but when my mother was teaching, she’d put in quite a lot of weekend hours – designing lessons, grading papers, and so forth. But didn’t we just have this discussion?

  49. Kathryn says:

    Q#6. I say the bank has shown you no loyalty, and you have no reason to show them any. Save your money and close the account. Your credit score will recover from this little slight. And the bank probably won’t care either way, except that they’re making less money from you.

    Q#7. Yeah, we all do these, and they suck. But don’t let it get you down. I call these “educational expenses” in the school of life. Last year alone my “education” probably cost me around $180. Ouch. This year’s goal is to spend significantly less on that category, preferably $0.

    Q#10. Whether or not the sky is falling, if our economic future is really that bad, there’s probably little we can do to prepare beyond what we’ve already done or are doing now. I would suggest turning off the television and radio, stop paying close attention to financial news. Engage in hobbies and things you love, and for goodness sake, get some rest! Worrying about something that may not even happen means that if it DOES happen, we get to worry twice, so save some energy now. And think positive. If we’re looking for the negative stuff, we’ll probably find some, but if we’re looking for the good stuff? Yeah, let’s go find that instead!

  50. Joan says:

    Q#4 As a business you can lose money for up to three years and take the amount of loss off of your income for tax purposes. That includes all the gas or mileage used for the business. Do keep good records, if you lose money, it will bring down what you owe the IRS, and you can increase your business and knowledge of what does or doesn’t sell during the first three years. Check answer #11 Diane is right.

  51. Joan says:

    Q#4 After three years, you are expected to show a profit.

  52. kristine says:

    Every teacher I know already works evenings and weekends, at job number one.

    Summers off? Teachers may not teach the same thing year to year. Course expectations change constantly, as do tests. Over the summer teachers develop curriculum, retrain, write lesson plans, and gather new and improved interactive teaching tools. And maintain a website.

    It comes out to about 2 weeks off- just like everybody else. Those “breaks” during the year? Grading. Only a teacher who wants to become stale or uninspired crams grading into the day- usually we are finiding new and better ways to get a point across, or helping a child with educational or emotional difficulties.

    In NY, you are required to pay for your own upkeep training, 175 hours every 5 years. This is require not to get ahead, but merely to stay certified. That means many teachers are taking college courses, every summer, that shave thousands off of their salary. Or taking seminars they have to pay for.

    If you want to get ahead, then add another 2 or 3 college classes to the mandatory 2,at night, after school. A teacher can easily spend 15K a year, perpetually, on professional upkeep.

    Few private sector companies expect the employees to pay out of pocket for the mandatory training they recieve, and rarely must they do so on their own time, paying for their own gas, supplies, etc. Teaching is not a cushy job.

    When people ask me what I make, I say, “A But wifference.”

    I used to be a Creative Director of a top publisher- working 14-16 hours a day. Teaching is more demanding. And more rewarding.

  53. Alex says:

    @Q4

    I’ve been selling on Etsy since 2007 and it is one of the worst places to sell jewelry online, because it’s completely oversaturated with the stuff. As I write this there are 1,937,030 pieces of jewelry for sale there, including underpriced mass-market items masquerading as handmade.

    Unless you’re willing to treat an Etsy shop like a real business, which includes advertising, promoting, and bringing in your own customers, it’s a very inadvisable way to bring in a steady income. As hobby incomes go, it’s all right.

  54. Kristine says:

    Oh, and before anyone jumps on my typos, I was writing in a fit of indignation.

  55. Kristine says:

    When people ask me what I make, I say, “A difference.” Jeez. I ought to get detention for not proofing. Sorry!

  56. sofia says:

    @4 We have 4 stores on Etsy (2 supply stores, 1 vintage and 1 handmade) and do very well.My rings sell very well…over 325 sold in February. But it is a lot of work!

  57. Kay says:

    Jonathan is so right. That’s exactly what probably made Sue resentful. Husband talks to parents first, now Sue has no way of being in good graces with the FIL unless she agrees to the loan. If she doesn’t and the loan doesn’t happen, the husband will come out as the good guy, and she will be the witch. That’s why she is resentful, because he put her in a impossible situation, probably undermining her relationship with the in-laws.

  58. Steve in W Ma says:

    @ Q9,

    Your father in law is making a business investment. If he needs the money from you I would hold out for an equity stake. You guys are not a bank and can’t lend $10,000 for every $1000 you have on hand like a bank. Your 10,000 lent costs you $10,000. So I’d insist on an equity stake as well as a a repayment plan.

    First question to ask is what is the business plan, has he done this before successfully, and does everything make sense.

    Second is “can we afford to lend this money”

    third is, “how can we be made whole if there is a problem”
    ..

    this should first be evaluated on a business basis, both for your own benefit and for your father in law. If the business case doesn’t make sense then you are doing nothing but a favor to him to let him know before he is in it too deep to back out.

    The next thing that should be evaluated is “what’s in it for us.”

  59. Steve in W Ma says:

    @q9,

    I sense you are either (a) highly risk averse or (b) don’t trust your father in law’s business abilities or plans. I am guessing the father in law is in the construction business, like your husband.

    Evaluate the business proposal clearly and bring it to your CPA for review. If CPA says it is within guidelines for projects within that industry, then address your issue of not wanting to let the money out of your hands. Keep in mind, this money should be lent at a rate that is more than competetive OR you should get some part of the stream of income from these properties when they are completed. That would make you financial partners in the enterprise with FIL.

  60. Steve in W Ma says:

    @Q1, just buy a used $5000 car on the private market. Buying from a dealer is a rip off.

    Also–your engine is “making noise” but you haven’t had it checked out? Have it checked out.

    there is no reason a normal engine with only 100K on it should be having problems.

  61. Steve in W Ma says:

    @Q7, how to get over financial disappointment:

    you have to mentally decide that nothing can stop you and that you will absorb this and get stronger. Keep doing what you are doing and move forward relentlessly. YOu cannot afford to let a small financial mistake sap your will or your spirit–look forward to your eventual success.

    Form a plan (for this month) of exactly where you are going to be at the end of the month and stick with it.

    And balance your checkbook every day. That should be part of the plan if you are as on the edge as you are. YOu must decide to no longer accept overodraft fees and do what you can to avoid them. Number one thing is to make sure you always record what you spend and earn and maintain a completely accurate checking account register.

  62. Nicole says:

    Wow, I am really bewildered. I got the feeling that Sue was trying to put her family in a fair light while still being honest about her own feelings. I do not think she actually resents the idea of helping her FIL per se, but has good reason to be worried given the stated facts. Adam tries to argue that hubby did not actually do anything yet — well, that is unconvincing. He did do something, which was extending hope. To renege on that now will definitely make someone look like the bad guy whether the FIL ever wanted the money to begin with or not.

  63. Shaun says:

    #10: One might also infer that you, Trent, have a vested interest in advising others on the subject of the American economic status quo. If there is a sea-change in our monetary system on the scale of (not necessarily similar to) the Great Depression, blogging about conventional wisdom perched on the back of a strong dollar suddenly becomes a distant memory. Simply dismissing the issue as being outside of your personal scope of belief doesn’t adress the question being raised.

    I don’t mean to trump up any specific “conspiracy” theory or doomsday way of thinking – but some note of warming is inescapable.

    Fundamentally, our ENTIRE economic system is based on infinite growth, ever increasing demand for fossil fuels diametrically apposed to finite resources and the burden of over population.

    Let’s all just remember that in the same way we trust in our “free” markets to self correct, we can also look to history to see how humanity does the same.

    Use this wonderful resource for personal financial well-being while it’s relevant. Pay off your debt and learn to live well below your means. Then hope and pray.

    Mostly pray.

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