Reader Mailbag: Personal Projects Undone

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Reader Mailbag: Personal Projects Undone

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. Is more retirement savings necessary?
2. Netflix streaming series
3. Imminent financial disaster
4. Loan debt and house purchase
5. Paper books or e-books?
6. Mixing and matching investment firms
7. Quit claim deed and taxes
8. Starting a professional support group
9. Roth tax imbalance
10. Lethargy after the sale

I spend significant time each day (at least a couple of hours) engaged in personal projects. I’ll work on learning about something new, reading a really challenging book, or building something.

Yet, I find that my list of “projects to be done” grows longer rather than shorter. I have so many things I’d like to try or like to spend my time doing that I never find time to do them all and instead discover more I’d like to do than I have time to do them in.

When I was a teenager, I would often be bored. I don’t think I’ve been bored in years.

Q1: Is more retirement savings necessary?
I am 25 making a little over 40k a year. I was very lucky my parents were able to pay for my college education, have no reason to get a car, and am not looking to pick up a mortgage right now. I have a very healthy emergency fund and everything is looking pretty rosy. My employer contributes 5% to a traditional IRA regardless if I put anything in. I am currently putting in an additional 12%, but worry that I should be putting money into a separate Roth IRA, while I am being taxed at a lower rate than what I anticipate later in my life. Any advice?

- Charlie

I agree with you, Charlie. You should be putting at least some of your money into a Roth IRA to supplement the traditional one.

However, I don’t think a person should just go all Roth or all Traditional/401(k)/403(b). The reason for that is that we simply don’t know what tax rates are going to be like in the future. If I were in your shoes, I’d hedge my bets and have money in both.

One final note: I would make absolutely sure you’re not bumping up against any contribution caps. My quick math based on what you said above indicates that you might be very close to your IRA contribution cap.

Q2: Netflix streaming series
You talk a lot about how the most television you and your wife watch are series on Netflix streaming and how that’s enough to make you strongly consider dumping cable. Can you give me some examples of what you’re talking about?

- Alan

OK, here’s forty series well worth watching on Netflix streaming. Remember, these are series, making up many hours worth of viewing each. I tried hard to mix up genres here so there would be something for everyone.

30 Rock. Archer. Arrested Development. Battlestar Galactica. Bones. Breaking Bad. Cosmos. Doctor Who. Downton Abbey. Eureka. Family Guy. Firefly. Friday Night Lights. Ken Burns: Baseball. Ken Burns: The Civil War. Ken Burns: The War. King of the Hill. Life on Mars. Lost. Mad Men. Man vs. Wild. Mythbusters. The Office (U.K.). The Office (U.S.). Parks and Recreation. Portlandia. Rescue Me. Sherlock. Sliders. Sons of Anarchy. South Park. Stargate SG-1. Star Trek. Star Trek: Deep Space Nine. Star Trek: Enterprise. Star Trek: The Next Generation. Star Trek: Voyager. Torchwood. The Walking Dead. The X-Files.

If you have a good internet connection, you already have access to news and weather. Add this mountain of good programs (and more) for $9 a month on top of that and the reason for having a cable box and internet access begins to seem questionable.

Q3: Imminent financial disaster?
I am due in a few days with our first, a little girl. I am the major bread winner in our household I make about 48,000 and my husband makes about about 22,000. There are days where i have no clue how we can spend all that money… Now we are not huge spenders and we avoid credit cards unless we can get 0% for a year, like we did with our range and washer/dryer.

Our major bills are the mortgage $706, my leased Prius $280 and my husband truck $330, and our grocery bill… but I’ve been working hard on our grocery spending because at times I think we were spending 1000 a month on groceries, and takeout…

Two days after we bid on our now home we found out that we were pregnant… and all of our savings went into our down payment. We haven’t been able to save what we need to cover my salary when I’m out on maternity leave…. we live in ny so I will get 170 a week for 3 of the 4 weeks I’m out on disability. we have been able to save 1800 so I’m so worried about not being able to pay all are monthly bills. I plan on working right until i go into labor, Ive been feeling pretty good at this late stage, so we’ve been lucky.

I feel like we’re in such a rut. I can’t imagine what one month of no pay is going to be like. It seems like every time I project our costs I’m still spending more than expected so we won’t have as much savings as I expect to have…

Please your advise is greatly needed
- Marcia

You just explained why an emergency fund is vital. Sometimes life just knocks you for a loop.

If I were you, I’d rely on that $1,800 for an emergency fund to get you through that month. In the run-up to the baby’s arrival, don’t buy a bunch of stuff. Keep your purchases to the minimum. Don’t buy random things like wipe warmers that you basically don’t need. Buy clothes for the baby at a secondhand shop. Don’t be ashamed to have a baby shower or two and tell the person that’s hosting it that you really need functional stuff like diapers.

You’ll make it through. You just have to be on the ball with smart choices between then and now and you also have to not be down on yourself.

Q4: Loan debt and house purchase
I am a graduate student with $25k in subsidized Stafford loans. I am still in school; thus, the loans are not accruing interest and I don’t have to pay them back yet. I recently got a full-time job and have been able to save up the full $25k to re-pay the loans. However, my husband and I are hoping to buy our first home by April 2013. I am due to finish school in another couple of months, so taking the six-month grace period into account, the loans will start accruing interest in November.

The money I have saved for the loan repayment would be a big help in our house savings fund, because it could make the difference between us having to rent for only one more year (April 2012 thrugh April 2013) versus having to sign on for another full year after that in order to save up a minimum of 20% down payment (we are in a relatively high cost-of-living area).

1) Since my loans are not accruing interest and are not due yet, can I put my savings (or part of my savings) into our housing fund? This would necessitate accruing some interest on the loans since we won’t be ready to buy until spring of 2013 and the loans will start gaining interest in November 2012. The interest rate on the loans (after the grace period) is about 6%.

2) Which option is better for our mortgage application? In the banks’ eyes, is it better to (a) have less money in savings, but no debt or (b) have more money in savings but with student loan debt?

Other details: My husband and I have no debt other than my student loans and we both have excellent credit scores (over 750); we also have our emergency savings account funded (only for about three months’ worth of expenses though…we’re still working on it) and are contributing 15% of our salaries in retirement.
- Amanda

A person’s first job out of college often doesn’t wind up being their permanent job. In fact, if I were in your shoes, I would anticipate some career changes in the next five years as you find what really clicks with you.

Because of that, I wouldn’t buy a house just yet. It’s great that you saved for it, but I would hold off. The last thing you want to do is buy a house early next year just to have your department cut and you find yourself being the lowest person in seniority, or to discover that you actually don’t like your job situation. Then you’re stuck in your current location with a house and don’t have the flexibility to move.

Hold off on the house for a year or two, rent, and save up some more money. I’d pay off that whole loan when the interest starts just to get it out of the way. You’ll find that doing these things gives you the life and career flexibility you’re going to want in the next few years.

Q5: Paper books or e-books
My lovely wife Amy gave me a Kindle for Christmas along with a bunch of credit to Amazon to buy some books. I really like the reading experience on the Kindle and I’ve read several books on there already.

You’ve owned a Kindle for longer than I have and so I have a few questions for you. Do you buy many books on your Kindle? Do you buy more than paper books? How do you decide which to buy? Has having a Kindle made you spend more on books?
- Devin

Most of the books I buy on the Kindle are from the Kindle Daily Deal or from the discounted Kindle book list. I also have it loaded up with classics and other items from the Kindle free book collection. Most of the relatively expensive books I buy for the Kindle are from gift cards that people sometimes give to me as gifts.

I still use the library for most of my new releases – and often for older books, too. The library is just an enormous bargain.

I don’t buy many paper books for reading at this point, though I do buy them for reference. For instance, if I see a great cookbook, I’ll add it to my collection. It just functions really well in the kitchen.

Q6: Mixing and matching investment firms
Wondering your thoughts in investing in a simple firm – stocks, mutual funds, roth ira, savings account, 529, etc. all in one firm – such as Schwab, Vanguard, TRowe, HSBC – or mix and match depending on the firm – TRowe for roth IRA, HSBC for online savings, USAA for insurance, Schwab for brokerage.

- Linda

I think it comes down to what you’re comfortable with. There is no right answer, and there are pros and cons with each option.

The pros for having consolidated accounts are that you have all of your info in one place under one login, so you don’t need lots of passwords. It’s much easier to manage everything. It’s also usually much easier to transfer between the account types.

The pros for having accounts spread across multiple firms include the fact that you can find the “best” firm for each of your specific needs instead of hoping that one firm offers the best value in all areas.

I don’t think there is a right answer here.

Q7: Quit claim deed and taxes
My father in law bought a duplex outright that my husband and I live in and manage. What we are trying to figure out is what kind of tax implications are there if he quit claims deeds the duplex to us? (In English please :)) Do we get dinged for the amount the duplex is worth as income? Also what are you required to claim as income as far as the rents?

- Susan

A quitclaim deed is a simple way for someone to transfer their interest in a property to someone else. No money changes hands.

Instead, the property is considered to be a gift from the original owner to the new owner. This triggers the gift tax. That basically means the value of the house will be taxed to the new owner at the same rate as normal income tax. Now, there is an annual gift tax exclusion of $13,000. So, if the duplex is worth $100,000 and he gifts it to your husband, you would be hit with a bill for a gift tax on $87,000 – probably around $20,000 in taxes. As a married couple, you can pool your exemptions and reduce the bill by $2,000 to $3,000 more. Your best bet will be to take out an equity loan on the mortgage to pay for the bill if you don’t have the cash on hand to pay it.

Rent paid to you on a property you own is reported as normal income. You may want to consider forming a corporation to own the property instead of you, however. I would contact a property lawyer about these matters.

Q8: Starting a professional support group
A long time ago, you wrote about how you have sought out people who are doing the same thing you’re doing, just so you have something of a support group.

I have a side business that involves woodworking and I’d love to get a small group of woodworkers going in my area, but I have a couple of concerns. First, how do you make sure no one is stealing customers from you? Second, how do you even get the ball rolling on such a thing?
- Eddie

On some level, you have to trust that the people in the group aren’t going to actively poach customers from each other. If you don’t trust each other on that level, it’s going to be hard to trust each other enough to share techniques and challenges with each other. I think you either have to accept this risk and just live with it or not bother with the group.

If you want to get the ball rolling, the best bet you have is to simply post about it in any local businesses that woodworkers might use as well as online. Start a Facebook group and invite people you think might be interested. Set up a meeting in your shop and tell everyone to bring a woodworking question they might have (a great way for this type of group to get to know each other).

Eventually, you could work on group projects together for charity or other such things, as a way to build skills and reputation while helping out the community. There are a lot of possibilities with this type of group.

Q9: Roth tax imbalance
How do you balance out the problem of being able to put $17,500 a year in a 401K – which will be taxable in the future – and only $5,000 in a ROTH IRA – which will be tax exempt? It concerns me that my husband and I have easily 5x the balance in our 401Ks than we do in our ROTH accounts.

Are there any options we are missing here, to hedge the future taxation problem, other than converting a big chunk of our 401K into a ROTH and paying taxes now? That seems like a bad gamble, as we are a fairly high tax bracket now, and we don’t know if tax rates will go up or not. Personally, I think they will, but its a risk I’m not comfortable betting several hundred thousand dollars on.

Thoughts?
- Eric

You are diversified at least a little bit. You do have money in pre-tax and post-tax investments, though it’s not perfectly equal.

You’re actually not betting several hundred thousand dollars on this – that’s a bit of an exaggeration. In retirement, you’ll be withdrawing an amount each year to live on, some from the Roth and most from the 401(k). The WORST case scenario is that you put all of your eggs in the wrong basket from a taxation perspective and had to pay 10% (or so) more in taxes each year. Assuming you’re withdrawing, say, $100,000 a year, you’re talking about perhaps $3,000 per year in extra taxes due to your mistake. Unless you’re withdrawing millions of dollars per year, that type of mistake is not going to cost you hundreds of thousands of dollars. In a worst case, it might cost you tens of thousands, and you’re not in the worst case. You’re at least somewhat diversified.

Not only that, this is all guesswork. We do not know what the future holds when it comes to taxes. For all we know, the 401(k) might end up being the better bet with regards to taxes.

If I were in your shoes, I wouldn’t worry about it too much. The key thing is that you’re saving plenty for retirement, and if your main problem is that you’re hitting the contribution caps, then that’s really a great problem to have.

Q10: Lethargy after the sale
When I sold my business in 2006, I felt good about it at first. After that, though, I sunk into a bit of a funk. It was almost like a mild depression and I felt like a big aim in my life had suddenly vanished. I felt empty. Have you felt like that since selling The Simple Dollar?

What got me out of it was finding things to do. I eventually realized that I was just wired to keep busy doing something.
- Colin

I’ve gone through the same thing. It was exhilirating right after I sold The Simple Dollar, but I went through a rather deep funk for a while right after the sale.

Part of it might have been my seasonal affective disorder – the winter blues always get me down. Still, I know that at least some of it was mixed feelings about having sold something that I put countless hours into over the past several years.

Much like you, I dug myself out of it by working on lots of projects. I am happier when I’m busy.

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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71 thoughts on “Reader Mailbag: Personal Projects Undone

  1. The advice you gave regarding the gift tax is incorrect. The DONOR is responsible for paying any gift tax. In addition, unless the FIL has already made significant taxable gifts, he will not owe any taxes as a result of the gift. The taxable gift will merely be subtracted from his overall unified credit amount (currently ~$1.7M). He’ll have to submit Form 706 with his tax return but probably won’t owe any additional taxes.

  2. Semi-weekly reminder that the first $19.5K per year you take from a Traditional retirement fund is taxed at 0% and the next $17.5K is taxed at 10%. If you’re in the 25% bracket, it makes sense to put enough into your traditional accounts to take advantage of the lower rates.

    DISCLAIMER: This is for a married couple with no dependents, standard deduction, under the current tax laws. Changes in future tax rates and laws would affect this decision.

  3. Q1: This is the second time I’ve noticed a reader mailbag question referring to an employer-sponsored retirement plan as an IRA. Are there really employers that set up (and match contributions to) their employees’ IRAs? Or are these readers confused about the difference between an IRA and a 401(k)?

  4. Re: Q3: What does Trent mean by “Don’t be ashamed to have a baby shower or two”? Is this something that some people are ashamed about? Plus, one can’t just “have a baby shower” unless someone offers to throw one for her. She only has a few days till her due date, so there’s not much to do at this point, but at least she’s not going to be going out spending money much while at home (at least the first 2 weeks, probably, if her experience is anything like mine), and I certainly hope they have everything they need to get started at this point so late in the game. It sounds like there should be enough funds to cover just one month’s expenses, if that’s all the leave she’s taking. After this, they should probably figure out where all that money is going so this situation doesn’t happen again. Maybe that’s something she can tackle while the baby naps (yeah right).

  5. My employer offers an IRA, with matching. We are a small organization, so I suspect that has something to do with it.

  6. @Liz: Thanks. I hadn’t heard of this before.

    Does the $5000 contribution limit apply to just your own contributions, or your contributions plus the employer match? Because if it’s your contributions plus the match, Charlie is already over the limit – 5% + 12% of $40K is $6800.

  7. Q3: I love how babies “just happen” on the personal finance blogger’s internet.

    This has to be at least the 10th question I have seen where a baby just randomly appears, bringing financial ruin and reaking havoc.

    Buy a house, and WOW, there’s a baby coming. 2 for 1!

    HOW do these things just “happen”?

  8. Buying houses just happens when people pay money in exchange for a house. As to the other question, seek advice elsewhere.

  9. @K: Abstinence-only sex education might have something to do with it. So might the political climate we find ourselves in, in which even contraception is somehow controversial.

  10. Q4

    Trent’s answer makes no sense to me – he’s talking as if he thinks the writer is 22 years old and about to graduate from college and get their first ‘real’ job. But there’s nothing in the person’s letter to indicate that … she’s already employed, is graduating from *grad* school and there isn’t anything about her planning to switch jobs or look for another one.

  11. Q4: Also, Trent’s answer has nothing to do with the question that was asked. But maybe that’s not worth mentioning at this point, since it’s not exactly a rare occurrence

  12. Q4
    The “Oh, you didn’t know what you really wanted when you went to college” advice drives me nuts.

    Not everyone changes careers – personally what a waste of college education $ if you do.

    Just cause Trent did not have the self knowledge to do what he should have in college DOESN’T mean many people don’t pick a career and stick with it.

    Most of the people I know picked what they wanted to do at 18 yrs old and are still in those fields 25 years later and quite happy. I know I am.

  13. Seriously – is anyone else seeing these intrusive banner ads, right in the middle of the blog posts? In my browser, Amanda’s question (Q #4) has a banner ad smack in the middle of her bolded question text. Even worse, it’s an ad for one of those shady “Settlement Loan” organizations.

    Is this what we should expect from The Simple Dollar now that it’s been sold to corporate interests only concerned with milking maximum monetization out of this once-great blog?

  14. I see an ad there too, Kevin, though it’s for something else. Hopefully this is something that can be remedied with Ad-Block, in which case I’ll no longer be checking the comments during my breaks at work (I am not stealing time from my employer; our employment contracts mandate two scheduled 15-minute breaks to do as we please) and instead using just my home computer, where I can actually install add-ons and use different browsers.

  15. @Q2: Another great thing about Netflix Instant Viewing is that they are always adding new tv series and movies that are available on instant view. My husband and I have such a list going I’m not sure that we’ll ever get through it! We love having Netflix, and we haven’t had cable for years.

    And I didn’t get the impression that the baby in Q3 just “happened”. All she said is that they found out they were going to have a baby relatively close to when they closed on the house. It’s possible that a married couple may have been trying to have a baby and, not conceiving immediately, continued with the other aspects of their lives, then discovered they were pregnant. I have a friend who tried with her husband for years to have a baby. When it didn’t work for them, they started the adoption process, only to find out (when the adoption was almost complete) that she was indeed pregnant.

  16. No contraception is 100% failsafe. Not even abstinence – we are human beings, after all.

    I was born ten years after my siblings, as my mother came off the Pill after years and years and had to give it a month before sterilisation. However, some women come off the Pill and it takes a year or more before their fertility is back to normal, allowing them to conceive. And of course, condoms break, chemicals don’t always do their job, timings can be out, and people aren’t always truthful. Plus you have to pay for birth control in the United States (you don’t here) so if you can’t afford it, the more likely you are to get pregnant.

  17. @ Liz #5

    Is yours a traditional IRA like the commenter in the question?

    I worked for a small organization years ago, but I had a SIMPLE IRA. I think my employer had the choice of either contributing 1% for all employees, or 3% for only the employees who contributed as well. Or something weird like that.

  18. Johanna – sounds like a SIMPLE IRA; they are pretty rare as they’re only available to companies with less than 100 employees. The contribution limits for a SIMPLE is $11,500 for the employee, and that is not related to Roth/Traditional personal limits.

  19. Q1 : There is no strong reason for you to put money in a Roth right now. YOu’re in the 25% bracket today which is very typical tax rate, neither high nor low. Are you a doctor currently doing your residency? If you are and expect your salary to skyrocket in the future then OK do a roth today. If you aren’t a doctor then.. no you don’t need to do a Roth. Given your savings rate your tax rate would be about the same when you retire.

    Q3 Marcia : Sounds like you really need to sit down and examine all your costs and figure out where the money is going. Then you need to stretch hard to find ways to cut back spending. You should certainly be able to cut back on food spending easily. Is your husbands car worth more than the loan? If so then consider selling it and buying something cheap.

    Q4 Amanda: Whether or not the debt or money in the bank will look better to the bank depends on how much money you make and how much the house costs. The banks look at debt to income ratios. So if you’re under the thresholds then you’re OK but if you’re over the thresholds then thats bad. Since we don’t know half the numbers that impact you we can’t know how your debt will look to the banks. But you can figure it. The ratio of your future annual mortgage payment / gross income should be under 0.28. The ratio of your total annual debt payments / income should be under 0.36. Without knowing your income or the cost of the homes in question we can’t know the answer for you.

    Q7 : Comment #1 from Savvy is exactly correct. Trent is wrong about the gift taxes.
    Also Trent recommends forming a corporation and I don’t know why. Rental income is offset by all your rental expenses including depreciation and its usually pretty favorable tax wise. Setting up an LLC will help you with liability but I doubt it will help much in a duplex where you’re clearly directly attached to the rental in question. Plus setting up a company has cost and its a hassle. I don’t see a good reason to do that here and Trent gave no reason.

  20. I fully expected to see Trent advise the pregnant woman NOT to throw a baby shower, lest she have to pay gift tax on the presents she receives.

  21. Q5 – I have an ereader but also use the library, especially for quick reads I know I’ll only go through once. The main kind of books I still purchase as hard copy books are those heavy on illustrations or charts, since my ereader is a basic one & doesn’t handle those well – although if you use the ereader software on a computer you could work around that.

    As far as buying cookbooks as Trent mentioned, I have a couple of big cookbooks on my ereader & love having them there – easy to search through, right at hand (since my ereader is usually with me), easy to bookmark favorites, easy to reference while cooking,etc. I’ve also emailed several of our favorites to my ereader so they’re right there too.

  22. Why is it that when people want to have a baby, the advice always given is that there’s no right time, just go for it, but when someone wants to buy a house you either are too young, don’t have enough saved, have too much debt, don’t make enough, haven’t thought about the maintainence?

    Trent NEVER advises anyone that it’s ok to buy a house, but it’s always ok to have a baby because “you’ll find a way to make it work” Why is that?

  23. I too am very annoyed that babies seem to “just happen”. No they don’t. It’s pretty well known how babies happen. And while we do have to pay for birth control some are available for as little as 9$ a month. If you can afford a house, you can spare 9$ a month to stop that “just happens” thing. And no I don’t think babies are planned for, I know dang well that in this country 50% of them are not planned for at all. And that in other first world countries this is not the case (perhaps real sex ed and national health care DO have uses)!

    Johanna: I have a simply IRA through my company with a 3% match. So they exist, just not very common.

  24. In the “simple dollar” universe, many of the “reader questions” re kids and finances have babies that “just happen”. Which is why I said in “perosnal finace bogger internet” world.

    Of course, not all babies happene exactly when you expect them. but normal people can plan for accidental things.

    And it seems in “simple dollor world”, there isn’t a 9 month “baby incubation” period to prepare.

  25. Q#3- Better advise than don’t buy a baby wipe warmer would be to seek out a better budget. $1000.00 a month for groceries for two people is crazy… especially if you know you need to save.
    More troubling is you “think” you are spending a $1000.00 a month.Knowing you are going to loose almost 75% of your income and you *think* you know what you are spending it not very good planning at all. How about a reputable credit counselor to help you establish a budget. More and more churches are also starting to have seminars on budgets and finance.
    Your husband also needs to come up with a way to generate more income.

  26. Q6 concerning Mixing and matching investment firms is one that I have experienced. When I was younger we had our investments spread among different firms for, in our opinion, offered the best mix. However, I handle the larger part of the family finances and as we get older (we are now in our 60s) I have consolidated to Vanguard. It is much easier to create an allocated portfolio between qualified and unqualified money and will make is much simplier for my wife when I kick the bucket.

  27. Q3 – I was surprised Trent didn’t make a bigger point about the need to set up a budget together & for the couple to make the effort to figure out where the money’s going & where to cut back. They need to address the long-term issue more than how to survive maternity leave.

  28. @Tom, @CNP76: Thanks. I have heard of SIMPLE IRAs. I guess since the question just refers to it as an IRA, I wasn’t making the connection.

  29. @Telephus44: “Trent NEVER advises anyone that it’s ok to buy a house, but it’s always ok to have a baby because “you’ll find a way to make it work” Why is that?”

    I’d offer my opinion, but it lacks credibility because I hate all men.

  30. Yes, abstinence-only sex education MUST be the reason people are surprised by their pregnancy! Or wait, maybe it’s because contraceptives are controversial and not widely available at every corner gas station!

    Even my tiny rural school didn’t teach abstinence only. And if contraceptive use is so controversial then why are there pill and Trojan commercials all over the TV and internet? Birth control is widely available and it’s not difficult to get information for how to use them properly if you aren’t sure. For all we know the couple from question 3 had the world’s most detailed health class, used the pill, a spermicide and a barrier device and STILL got pregnant!

    I think what K was referring to (and I’m not trying to speak for them) is that pregnancy isn’t really that huge of a surprise – if you’re doing the deed it’s always a possibility. And even once you find out there is a whole nine months to get ready, yet many of these people writing in are expecting their baby within a couple weeks. It often seems like they are just getting their game plan figured out and act like they just found out they are having a baby next week.

  31. So true Sam, but I think we all agree that if you are writing “the Simple Dollar” for advice, you may have trouble figuring out things.

    For god’s sake, that chick last week couldn’t handle buying a couch.

    #31 Johanna – That comment is really funny. Best one yet!

  32. I often sink into a bit of a funk, experience mild depression and feel life is empty while reading The Simple Dollar.

    Perhaps I need a yellow Neon to cheer me up.

  33. Sam’s school didn’t teach abstinence-only, therefore abstinence-only doesn’t exist. Thanks for clearing that up, Sam!

  34. No, that’s not what I’m saying and you know it. If my small school teaches a comprehensive class then I’m certain that it’s not as rare as some like to make it seem. Even if abstinence-only is more common there are those pesky parental units that can step in a let their dear uniformed child know where babies come from. Either way, it’s no big mystery that if you have a physical relationship with someone that there is ALWAYS a risk that there will be undesirable outcomes – so the idea of total surprise is kind of silly. Also, there is no reason for someone not to use contraceptives if they want to reduce the risk of pregnancy – they are available in gas stations, grocery stores, and drug stores everywhere.

    And more importantly, what does abstinence-only education and contraceptive use have to do with people not planning for the arrival of their baby (and the necessary changes to their lives) until the absolute last minute and acting like it’s a surprise (which I believe is where the conversation started)?

  35. #25 Sure, but there isn’t one single contraceptive method that is 100% guaranteed. Trust me, I know this – I have to absolutely avoid pregnancy for medical reasons as well as by choice, so I researched them all.

    I went to Catholic school and we had no education whatsoever on contraception, whether within marital relationships or not. And that’s in the UK where contraception (and abortion) isn’t the hot button topic it is in the US. It’s no surprise girls wrote to teen magazines asking whether sex standing up or a Coca-Cola douche prevents pregnancy. You and I may use contraception, but we know where to find it, know what to use, and (I presume) aren;t from backgrounds where such things, or even sex itself, is frowned upon. It was always the poorer girls or those from very religiously conservative families who got pregnant early.

    But whether the question asker should have put something on the end of it or not, she’s still got a baby on the way and has to deal with it, so chastising her for poor planning isn’t entirely useful now.

  36. @4 – Make sure you triple check the grace period on your loans. I’m not sure how different types of student loans vary, but having gone through undergrad and grad school I know that I had a 6 month grace period after undergrad, but NO grace period after grad school. My payment was due within two weeks after I graduated. Just a heads up!

  37. A lot of people make head-scratching financial decisions. Sometimes a baby is involved, sometimes its a car, sometimes its a life insurance policy, sometimes its involving penny stocks.
    Let’s try not to read too much into an anonymous letter. They probably spend too much on food (“groceries, and take out”), it seems like they have crappy maternity leave policy, and it also sounds like they used all their savings on a house downpayment. Basically, she and the husband need to make an accurate determination of wants and needs.

  38. Plus, they did manage to save $1800 over nine months. Maybe they should have done more, but it’s not like they were doing nothing.

  39. In the United States, which has abstinence-only sex education and a somewhat ambivalent attitude to contraception, about half of all pregnancies are unplanned. In the United Kingdom, which has real sex education and a national health service, about half of all pregnancies are unplanned. In France, which has Catholicism and mistresses, about a third of all pregnancies are unplanned. You need to look elsewhere for the reasons underlying the rate of unplanned pregnancy. I suggest you try the immigrant ghettoes.

    Of course, if Johanna’s method of contraception – hating all men – was more widely adopted, we would not have these problems. Nor, now I come to think of it, several others.

  40. Marcia’s plea at Q3 got short shrift.

    Here are some concrete suggestions:

    Marcia and her husband should both look at their W-4 forms at work and adjust their witholding to recognize they’ll have a new dependent and major new deductions with mortgage interest and taxes. That may put a few extra dollars back into their paychecks pronto.

    If they have a refund coming from last year, they should file their 2011 taxes ASAP to get that money coming in.

    They could check their car loan/lease and see if they signed up for disability waivers that might give them a break while she’s off work.

    They could sign up for Freecycle in their community and list what they need for the baby, if they’re still short any major items.

    They should check their state’s Unclaimed Property site; it only takes a second, and many people have small refunds coming from old terminated rentals, utilities or the like.

    But probably the biggest possible source of added income is considering whether Marcia’s husband can up his earnings, either in a different job, a side job or by requesting a raise, if that’s an option.

  41. The policy on sex education varies from state to state. At last count 30 of the 50 states have policies that mandate that if sex education is given that it must stress abstinance. Only 20 states actually mandate sex ed be taught and some of those are abstinance only.

    On top of state laws the policies can also vary within the state across cities and the thousands of individual school districts. There is no single policy covering the nation. Theres probably 100′s or even 1000′s of different policies.

    The federal government influenced the growth of abstinence training by paying for it starting with Reagan. Abstinence only requirements grew a lot in the past 10 years or so because Bush Jr. tripled the federal funding of such programs. That funding has been cut after Obama took office.

  42. Johanna, some small businesses have SEP-IRAs (Simplified Employee Pension-IRAs) to which both employer and employee can contribute. I think the maximum employer contribution is around 15% of salary, and the employee can also contribute in the same amount they could contribute to a traditional IRA. But the employee’s contribution may not be deductible, since he/she is considered to be covered by an employer retirement plan.

    Or at least that’s my recollection. I should know, since I have one for myself, but I stopped contributing three or four years ago, and haven’t contributed near the maximum in many years, so it’s been a while since I checked.

  43. Re: Quit Claim Deed Answer: [b]The donor is responsible for the gift tax not the recipient.[/b]

  44. @AnnJo #44 – Wonderful suggestions. I’ve enjoyed your comments a great deal in general. They always seem to have a lot of good information.

  45. Re: Q3, if they aren’t upside down on the truck, can they sell the truck and used the proceeds to tide them over? Is it possible for them to be a one car family or use public transportation more often?

    One way to minimize food costs after the baby is born is to start freezing meals now so that there will be less temptation to order out.

    The numbers don’t seem to add up – if the mortgage is only $706 (does that include property taxes?) and they are making $70K annually (gross or net?), they should still have a lot of room in their budget to save more.

    What are their plans for childcare? If they are barely making it now, who’s going to take care of the baby when she returns to work?

  46. “There are days where i have no clue how we can spend all that money…” and “I can’t imagine what one month of no pay is going to be like.”

    Trent did not address this at all! You are making 70K a year, living paycheck to paycheck (otherwise you could afford a month off), and you have NO idea where your money is going?

    Start keeping track of every penny. Quit eating out at all. Start paying yourself first, because the money is going somewhere, and it might as well go to you first.

  47. @27 Maria: Excellent point, and one that seems to have gotten overlooked. $1000 a month on groceries for two people is incredible. We are a family of four and our grocery bill sits around $700 a month. And I’m still pretty sure that we could trim that down if we tried! Also, we made far less than 70K a year, I was the primary breadwinner of the family, so we took a pay cut when I stayed home with kiddo on maternity leave, and we had nowhere NEAR $1800 saved up. But we had figured out a budget that included taking care of the kid and worked within those parameters and it was fine. That would be my advice for Q3: to first figure out WHERE their money is going. Then figure out where to make cuts. Offhand, I’d start with the groceries. (Seriously, $1000? Are they throwing away a lot of food or something?)

  48. Q3 –

    `There are days where i have no clue how we can spend all that money`

    Start here. Figure out PRECISELY how you spend all of that money.

    `but I’ve been working hard on our grocery spending because at times I think we were spending 1000 a month on groceries, and takeout…`

    Same thing, track every penny. That`s the only way to tell where you can cut, and at that level of spending you have a LOT of room to cut. My wife and I feed ourselves quite nicely on 110 dollars a week. In fact we could cut THAT by a fair margin if we needed to.

    `Now we are not huge spenders`

    Yes. You are. At least on groceries. Very, very big spenders.

  49. I go through the credit card bill EVERY month and if the food/takeout/eat out amount is crazy, I watch out for the next several months and wind it down.

    But with family visiting, my kids “shopping” in my pantry and travel related meals, sometimes its a crazy number. But some months, its all meals at home and eating from the pantry and freezer. Balance and reason help get you out of bad habits and into better ones.

  50. Q3 So much bashing and pointing out the married couple who is expecting a child. Some suggest that they reverse the situation and start using contraceptives STAT. ($9per month only!) As if they were two 16 years old teens. Somehow pregnancies are not unusual and often times follow marriages. Not everything is measures with a ruler and a piggy bank. Seems like adults nowadays are not ready for marriage(or never will be) and are overwhelmed with otherwise natural life events like having a child. The young lady asks for help, apparently she does;t know how to manage her family income. Instead she is lectures of consequences of unprotected sex.
    Trent is right, they will survive somehow but is not going to be easy now or 5 years from now if they don’t change some life strategies. Reading frugality blogs is a good start. Maybe learning cooking(both) and living below the means is next. They both work and are in reality are better off then many young people out there.

  51. #9 Johanna, Contraception isn’t controversial, anyone may practice contraception in America. It’s asking me as a taxpayer to pay for contraceptive devices for someone else which is controversial.

  52. deRuiter, not only do you seem confused about how health insurance works, perhaps you are unaware of the significance of the “personhood” laws being brought up in various states, which would outlaw hormonal birth control. Just because none of them has passed (yet) doesn’t mean it’s not profoundly disturbing that so many lawmakers and would-be lawmakers (including, I think, all four of the Republican presidential candidates) think they’re a good idea.

    And then there’s the Obama administration’s bizarre and condescending reversal of the FDA decision to make Plan B available without a prescription to people of all ages.

    So yes, we’ve got a political climate in which contraception is controversial.

  53. #55 Emma: I am saying I am tired of folks on frugal blogs being surpised that babies “just happen”. It gets old when people continually fail to take responsibility for their actions and then wonder how it all “just happened”. And if she doesn’t figure out how they “just happen”, it will happen again. And that IS important. And a LOT of folks are unaware that contraception is available for as little as 9$ a month so I think knowing that is actually helpful.

  54. If I click on a reader mailbag number in your e-mail, they all lead to Netflix advertisement, not the subject you wrote about. Coming here to your website the reader mailbag number clicks work, but not in the e-mail.

  55. “And a LOT of folks are unaware that contraception is available for as little as 9$ a month so I think knowing that is actually helpful.”

    You can get a 40 pack of condoms for $10 at costco. I think that’s more than a month’s worth of contraception for many couples.

  56. Someone wrote that abstinence isn’t necessarily 100% safe? LOL!!!!!!!!!!!!!!!!!!!!! I guess not if you’re the virgin Mary.

  57. Mary and Eric: Every contraceptive method has an effectiveness rate for “perfect use” and one for “typical use.” Abstinence doesn’t get special treatment in that regard. The “typical use” rate includes couples who use the method inconsistently or incorrectly. Surely you can imagine how abstinence practiced inconsistently or incorrectly can result in pregnancy?

  58. Well, one of the problems with contraception is that all methods, including sterilization, have a FAILURE RATE. This means that some babies will, in fact, “just happen”, no matter how “careful” you are.

    People talk about contraception as if it always works and then “blame the victim” when it doesn’t. The personal finance lesson to take from this is that if you absolutely can not accept a baby at this time, then you’d be wise to abstain. If you don’t abstain (is that a double negative?) then you ought to be prepared to accept the possible consequences.

  59. If one defines abstinence as “abstaining from procreative activities while engaging in non-procreative activities,” one might be mistaken about which activities are procreative and which are not.

  60. What Tom S. said in #64– contraceptives ALL have failure rates. So unless you’re willing to use abortion as your “back-up” method, which many of us simply are *not*, then yeah, sometimes unplanned babies happen.

    Back to Q3– as previously mentioned, it’s a straight-forward matter to set up on Mint. It’s free. You’ll at least have some picture of where the heck the money goes each month. You’d be surprised.

    Further– yes, do sign onto Freecycle. Also, if your local neighborhood or church has a mom’s group, get on their email list. Don’t be bashful. Lots of people have lightly used clothing, furniture, etc. to give away. Packages of NB diapers that they only used one or two out of before realizing junior really needed up move up to size 1 diapers. Etc… Most folks are so much happier letting go of their “stuff” if they know it will be put to good use in a new home.

    Best of luck, and in case nobody on here has said it, CONGRATULATIONS on your baby.

  61. Does abstinence only sex ed actually explain how sex works? Cause if it doesn’t that would be a pretty major flaw in the instruction.

  62. jim, if you don’t understand how the distinction between procreative and non-procreative activities is not always trivial, there are a number of excellent sex education websites you can visit. I’m not going to spell it out for you.

  63. #61 Mary

    Someone wrote that abstinence isn’t necessarily 100% safe? LOL!!!!!!!!!!!!!!!!!!!!! I guess not if you’re the virgin Mary.

    Sister Lucy Vertrusc was, one supposes, practicing abstinence as well as one might expect anyone to do. Events and mass-raping Serbian soldiers somehow overcame her determination, however.

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