Reader Mailbag: Presentation Video

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. Save or pay off debt?
2. Friends burdened by my frugality
3. Motorcycle questions
4. Basic tax questions
5. What’s next after debt payments?
6. Writer’s block
7. Tax moves
8. Credit card cancelling maneuver
9. Impact of credit card change
10. YouTube channels

Over the weekend, I posted a presentation video that several people wanted to see, but their browsers or email readers don’t support embedded YouTube videos.

To remedy that, here’s a link to that video.

Q1: Save or pay off debt?
We have a four month emergency fund. I know the rule of thumb is generally six months. We also have some debt but thankfully none of it is credit card debt. We have:

Student loan: 22K @ 3%

HELOC (fixed): 38K @ 3%

Mortgage (fixed): 169K @ 5.625%

My questions is this: We have about $1,000-$2,000 to spare at the end of each month. What should I do with this money? My wife and I both have employer matched 401K’s that we contribute to monthly. I have an IRA already. My wife does not.

I was thinking of aggressively attacking our debt and just dumping every spare penny we can into the student loan to start. What do you think? Or should I save up six months worth of emergency fund money? Or maybe get an IRA going for my wife? Or 529K’s for my two daughters? Or maybe just blow it on a shopping spree???? (just kidding)
– Tony

At this stage, it’s really more about personal goals than anything else. None of the routes you named are particularly bad, nor are any of them clearly financially superior to the others. The route that should be on top is the route that best matches what you hope to do in the future.

If I were you, I’d spend some time thinking about your goals. Don’t just devote a few minutes to it. Return to the idea regularly and talk to your wife about it. Figure out what you want to be doing in the future. What’s more important to you? Do you have dreams of a small business? Do you want to retire early? Would one of you like to try a completely different career path?

While deciding that, I would simply sock the excess cash away in a savings account and sit on it.

Q2: Friends burdened by my frugality
In the spirit of a lot of the challenges I read about on a lot of personal finance blogs, I decided to create a challenge for me and my live-in girlfriend. Just seven months ago, we were spending nearly $1000 a month on food (eating out and at home). Since then, we have cut dramaticaly and are down to $300 a month. Starting Feb 10th, we challenged ourselves to eat for $100 a month. We weren’t looking to post it online or make it impossible, so we didnt put crazy stipulations on the challenge. We had access to a full pantry, a freezer stocked with hundreds of pounds of free-range beef, plus any giftcards we had to restaurants. Its been going fantastic and we are on track to beat our $100 goal. We are going to continue the challenge for another month or so.

The problem from all of this is that our friends and family members have started footing the bill so that we will go out with them. Im torn because I dont want to become anti-social and unfortunately a large part of our socialization has traditionally been food related. I have tried making suggestions like a pot luck or cookout, but they are stubbornly sticking with restaurants. Shoud we just let them pay for us and thank them, or should we refuse? Im not sure making personal finance headway at the expense of others really “counts” (not that anyone is keeping score).
– Jason

The solution here is to sit down and have a chat with these people about it. Clearly, you enjoy each other’s company – they’re willing to pay for you to go out with them. You shouldn’t let go of a social bond like that.

My suggestion is that you talk to the people you’re currently spending time with and suggest some sort of rotation of hosting. When they host, you could go out to eat and they would pay for you. When you host, you could prepare a meal at home for them. Each of you would have the option of doing whatever you wanted when you host, including the choice of menu, restaurant, and so on.

If you’re talking about a group of three or four couples, you might talk to all of them about this arrangement. This way, there’s no more quibbling over bills or anything like that. The host just grabs the bill for everyone at the end of the meal.

I actually did this with some friends in college for a while, where we mixed up serving meals at our apartments and eating out at various ethnic restaurants. If the person was energetic and confident in the kitchen, we’d eat at their place; otherwise, we’d eat out.

Q3: Motorcycle questions
I had a question regarding mopeds vs motorcycles as a means of frugality. My husbands commute has changed significantly since he had purchased a truck several years ago — now that he is nearing payoff, we are looking to make efficient use of our vehicles. We will be ‘trading’ where he can drive my 2-door car and I will use the truck for my commute (1/4 the drive) to save on gas. His truck is about double the cost of my car to fill. Initially, we talked about the two of us simply trading and/or getting another small used car but now, especially with gas prices and summer approaching, we were contemplating a moped or motorcycle for me to drive when the weather is nice. We can pay cash for a reasonably priced moped or motorcycle.

I ultimately have wanted my motorcycle license for a while but a 49cc moped does not require additional licensing or registration. We live in a rural area that has (mostly) adequate bike lanes for a moped but I have a few reservations. Does it make sense to get the moped that’s immediately cheaper and resign myself to 35mph on the side of a few stretches of posted 55 rural road? Or do I look at used motorcycles that would allow me to ride in the regular flow of traffic but will require additional costs (safety course, license, etc) and more upkeep?

Do you have any resources for selecting the right moped or motorcycle?

Lastly, do you have any insight on how to choose either option in regards to how it may (or will?) alter my professional image? I want to be economical and do what makes personal financial sense but I work in an office with a few direct reports. I dont want to lose credibility. Not many people in this area have mopeds (I’ve seen 3).
– Sarah

I don’t think your questions can be answered with just the information you provided.

For starters, how long is your regular commute? The longer it is, the more a motorcycle makes sense because it allows you to keep pace with traffic. If your commute is ten minutes and a moped turns it into fifteen, it’s not a big deal and I’d go for the moped. If your commute is an hour and a moped would turn it into an hour and thirty minutes, it is a big deal.

As for your professional appearance, it depends on what your profession is. Are you going to be transporting people around town? If so, a moped probably won’t cut it. For an awful lot of professions, though, the vehicle you have in the parking lot has little impact on your impression inside the walls of the business. Read TSD’s motorcycle insurance guide to get you started.

Q4: Basic tax questions
I landed in USA in May 2010 for work. I worked in San Francisco for 2 months (May to June 2010) and in Chicago for 4 months (July to Oct 2010) for a total of about 6 months – exactly 180 days.

Lot of tax was deducted as I got my SSN after nearly 1 month, and California taxes were high compared to Chicago taxes.

I returned back to India in Oct 2010 and I want to file my taxes. I got my W2 form from my employer. Should I file taxes in Chicago and California seperately ?

Also can you help me with the some Tax agencies who can help me in filing taxes.
– Naveen

If I understand your situation, you would file California state taxes for the period worked in San Francisco and Illinois taxes for the period worked in Chicago. You would file federal taxes for all of it.

This is, of course, assuming that you worked for two distinct businesses in this period. If you were working for one business and were “on location” part of the time at the other site, you’d be filing state taxes only for where you were actually employed.

Most of the major tax filing businesses in the United States can easily handle this. I have worked with H&R Block in the past with success.

Q5: What’s next after debt payments?
I am currently able to save 45% of my after-tax income (45% = $1,480). All of this money – except for $99 – goes toward paying off my student loans. (The $99 is my contribution to my 401(K) at work, as my employer matches this contribution dollar for dollar up to that amount.)

In a few months, I will have paid off all of my debt (!). I’m wondering: how do I start saving that money? My long-term goal is to be able to afford a piece of land to build a home. With that savings goal in mind, how do I determine what percentage to save for retirement, what percentage to save for the land, and what percentage to invest? Do you have any recommendations?
– Rebekah

My back-of-the-envelope math says you’re saving – even with your employer’s contributions – somewhere around 5% of your salary for retirement. I would add to the 401(k) until that amount is around 10% of your total annual salary. Since I don’t have all of your numbers, I can’t say how much that would be.

The rest of your money should be used for whatever future goals you have, which appears to focus heavily on purchasing land and then building a home on it. I would make sure that I had an emergency fund first, one large enough to carry you through at least a few months of unemployment.

Once those things are taken care of, start saving in earnest for your land. Figure out how long, at your current savings rate, it will take to get the amount you need, then invest appropriately. If the timeline is less than ten years, keep it in cash. If it’s more than ten years, put some of it – say, 50% – into an index fund using a major brokerage.

Q6: Writer’s block
What do you do when you get writer’s block?

– Tanya

For starters, I try to have articles in the bank so that if I do have writer’s block, I don’t miss an article here on The Simple Dollar. Sometimes, you’ll read an article and it’s something I’ve written shortly before it’s posted. Other times, it might be something that’s been in the bank for a month or two.

When I have writer’s block, I usually read. I’ll sit down with several books that I know have material inside of them that gets my mind spinning on topics related to personal finance and personal growth and I’ll just re-read them with an open notebook and a pen near me. Sometimes, I’ll engage in activities that produce similar thoughts, like grocery shopping or cleaning out the pantry. Whenever I have the first semblance of an idea, I jot it down. I just keep doing that until I have a good page or two filled with ideas.

I then sit down with each of those ideas and brainstorm and research. Again, I’m not trying to write – just trying to collect ideas. Some of them are non-starters, so I toss them. Others, I grow a bit.

By that point, the juices are flowing enough that I can usually start writing an article. Of course, all of the ideas are out there in front of me already.

Q7: Tax moves
Myself: Earning $83K per year, not currently contributing to 401K because I’m paying off $40K of credit card debt
Husband: Earning $56K per year, also not contributing to 401K because of his student loan

My husband just found this job in July of 2010. Prior to that, he was working part-time making under $20K per year. We have always received a refund during tax time. However, this year, I found out that I have to pay taxes because not enough money was being withheld from my paycheck even though I claimed the same exemptions/deductions (1) on our W-4s as in previous years and even have additional money withheld. I’m trying to understand how this happened: is it because of my husband’s new job, so now we’re in a higher tax bracket? I was playing around with a W-4 calculator and if I completed the questionnaire correctly, it says to claim 0 (which I was planning on doing this year anyway) and have an additional $325 withheld every paycheck! I was stunned. I am now not motivated to make more money because I feel Uncle Sam is taking it all away from us.

We were planning on opening an IRA account – will this help with our tax liability?
– Sally

I’m almost certain it’s because of your husband’s new job pushing you into a higher tax bracket. Is your husband having anything deducted from his check for taxes? I’d also double-check the tax math just to make sure.

I think the questionaire you filled out is assuming that your husband is not deducting a dime from his paycheck in the coming year and that you’re shouldering the full tax burden for both of you.

An IRA will help just as much as 401(k)s would. In fact, just using your 401(k)s at work will probably be more helpful if your employers offer any sort of matching.

Q8: Credit card cancelling maneuver
I was wondering if signing up for a credit card, getting the reward, and then canceling it will effect my credit score. Right now I have one credit card, which I pay off every month, but I want to sign up for a couple of good airline travel credit cards.

There are some where the annual fee is waved for the first year. Will it effect my score if I just use them enough to get the rewards, then cancel them before the year is up? I’ve never had a late fee and I always pay off my balance, but as I will be looking for a job in a tough economy next year, I wouldn’t want to have a lowered credit score just to get a few thousand miles.
– Nikki

It’ll negatively affect your credit score in the short term, but the impact will be quite small and within a year you’ll be back to normal.

I would read the offer very carefully before I did this, though, to make sure that you are allowed to cancel in this manner. Many introductory offers like this have subtle strings attached, requiring certain uses before cancellation.

Companies aren’t out there to just hand out rewards, after all.

Q9: Impact of credit card change
Last year my US Bank College Rewards VISA was “upgraded” to a US Bank VISA without a rewards program but with an annual fee ($95).

I’ve had the credit card for about 6 years and because the card no longer has a rewards program but does include an annual fee I would like to switch credit cards. Rather than keeping the US Bank VISA I would like to cancel it and open a Delta Skymiles Credit Card.

Can you give me idea of how this change will affect my credit? If I’m looking to make a big purchase soon (car, or home) would it be best to postpone this change?
– Cassie

Do you have any other credit cards? If you do not, then this move will have a mild negative impact on your credit that will last for a few years.

Why? It’s all about the length of your credit history. If that credit card is the oldest form of credit you’ve obtained, cancelling it will reduce the length of your credit history, and the shorter your credit history is, the lower your credit score.

If I were you, I’d get the new card, keep it for a few years while paying the fee on the old card, and cancel the old card in a while.

Q10: YouTube channels
What YouTube channels do you subscribe to?

– Benny

I subscribe to several, but none of them are strictly money-related. Personal finance doesn’t translate really well to video, as far as I can tell. The ones I do subscribe to generally fall into two categories: food and gaming.

Food channels I subscribe to include Foodwishes, Yellow Saffron, Cooking Light, Show Me the Curry, and HungryNation.

Gaming channels I subscribe to include The Dice Tower and Drakkenstrike.

Mostly, I use YouTube for live musical performances, to tell the truth.

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. Brittany says:

    Some companies will let you switch between their credit card offerings at will with out changing or canceling the account. See if your bank will let you change to one without an annual fee, even if it doesn’t have rewards, and keep it open for the credit score.

    Also, CreditKarma (google it, so this doesn’t get stuck in moderation forever) is a great resource for seeing how various actions will affect your credit score.

  2. Adam P says:

    @Q#2 – Jason
    In your shoes, I would not let another couple pay for my dinner. You don’t mention where you are at financially. If you’re in a big deep hole of toxic debt, then your $100 a month frugal eating challenge is warranted. If this is the case, simply tell your friends “no, we can’t afford to eat out. We want to see you guys but we have to do something less expensive.” That is way less embarrassing than having them pay for you in my opinion.

    But if you’re only being frugal for the sake of the personal finance blog “challenge” bragging rights????? A race to the bottom of the cheap barrel and making your own toothpaste in your crockpot while buying $3 swimsuits?? While not in any consumer debt whatsoever?? STOP. Sickening.

    Go out with your friends, pick reasonable restaurants and split the bill. The whole purpose of life is to build social bonds with friends&family and breaking bread together is one of the most primal needs we have.

    Denying it so you can be the “most frugal” person on the bloggosphere and keep score is just stupid. Also, your friends are most likely going to expect you to pick up the bill or resent you for it if you keep letting them buy your dinners. Then you risk losing your friends. I’d rather have my friends than all the money in the world, personally.

  3. Johanna says:

    Q2, Jason: If you’re going out to restaurants as a social activity rather than because you don’t feel like cooking, it probably makes more sense to count that cost as part of your entertainment budget rather than your food budget.

    That might or might not solve your problem, depending on how big your entertainment budget is, and whether you can cut back on other entertainment expenses to make room for your dinners out.

  4. Johanna says:

    Q7, Sally: I’m almost certain it’s not because you’re in a different tax bracket. If you’re married filing jointly, have no dependents, have no one else claiming you as dependents, and take the standard deduction, it looks to me like you were in the 25% tax bracket both before and after your husband’s job change.

    And even if you did get pushed into a higher tax bracket, that’s not as big a deal as people often make it out to be. For a married couple, the cutoff between the 15% and 25% tax brackets is $68,000 in taxable income. But if your taxable income goes from $67,999 to $68,001, that doesn’t mean that your tax bill jumps from $10,199.85 (15% of $67,999) to $17,000.25 (25% of $68,001). That’s because the 25% rate only applies to the amount you earn over $68,000 – the first $68,000 is still taxed at the same rates as before (mostly at 15%, some at 10%). So in this case, going from $67,999 to $68,001, you pay 15 cents in tax on the first dollar of extra income and 25 cents in tax on the second dollar: Increasing your income by $2 increases your tax bill by 40 cents.

    In general, the tax code is set up so that the more money you make, the more you get to take home. So no, Uncle Sam is not “taking it all.”

  5. valleycat1 says:

    Q7 – Either you or your husband’s human resources department can help you figure the best way for both of you to update your W4. The IRS has tables that will show you, given your total AGI, how much tax burden is projected to be next year, and then you can work on your individual W4s to try to hit that as closely as possible.

    A tax advisor can help you determine how much benefit you might see from setting up the IRAs.

    Yes, your husband’s jump in his pay has bumped you way up. However, paying an additional 33600 or so in taxes on an additional 36,000 is far from ‘having it all taken away.’ There are a lot of people out there that would love to have that problem.

  6. lurker carl says:

    #3 Sarah – You will spend as much or more money on the motorcycle/scooter and gear as you are likely save in fuel cost during the relatively few weeks per year that you’ll use it as a commuter vehicle. Because of ever changing weather conditions, they are not well suited for daily transportation in most of the US.

    Before spending any money to buy a moped, try commuting several weeks on a bicycle. It will provide a good idea the traffic you’ll need deal with at a slower pace along with weather and road conditions you probably haven’t considered yet.

  7. Tom says:

    Q9 – Just cancel the card and open the new one. Trent’s advice is horrible. He is right that it will have a *mild* negative affect (like 10-20 points) that overall won’t be a bother. Your payment history and % of credit used (how much you owe divided by the credit limit) are much more important.
    If you pay bills on time and have low or no balance, the history portion won’t have a substantial impact.

  8. Lisa says:

    For Q9. Call the credit card company and ask about switching to a no fee card with the same issuer. Let them know that cancelling the card is your other option. That should be enough for them to find an no fee option.

  9. Tom says:

    To Q7: Most two-income households that don’t itemize should have the lower wage earner claim zero on the W4 form.

    Your total tax due for the year is probably somewhere in the area of $21,800. So between your two paychecks, make sure the federal tax withheld is in that area for the entire year.

  10. Tracy says:

    @Q9 I agree with Lisa and Tom. Try to switch to a different line with the credit card company and if they won’t bite, get a new card (so that you have one for credit inquiries) and cancel the old one. There is absolutely no reason to be spending 100 dollars on an annual fee.

    If you’re planning on buying a car VERY soon, you may want to look into doing that first, as car loan rates seem to be impacted the most dramatically by credit – but if you’re looking at doing it after six months, I wouldn’t bother waiting.

    And in either case, prompt payment history and low credit utilization is going to have a more positive impact overall.

  11. Gretchen says:

    Mopeds drive in the bike lane?

    #9, cancel the card or at least try to get them to waive the fee.

  12. Gretchen says:

    Jason’s problem makes no sense to me. He’s decided to cut back on what they spend on food so he’s making other people pay the bill?

  13. Gretchen says:

    making= having.

  14. Interested Reader says:

    I’m pretty sure Mopeds are vehicles and have to drive in the regular lanes. You may want to check your state laws again, I know in my state mopeds are motor vehicles and go with regular traffic.

  15. Elizabeth says:

    @ Jason Q2: There’s a reason it’s called a challenge ;) I think you’re right to feel that others shouldn’t be paying for your sacrifices. When a lot of people do challenges there’s a stipulation that others can’t buy them things or give them gifts to compensate. It’s not a true test.

    I wouldn’t worry so much about challenges and instead focus on sustainable habits that you’ll stick with in the long term. For instance, what happens when that huge stock-pile of food runs out or your friends and family start to resent all the bills they’ve covering? Short-term challenges can be fun, but it’s the long term we really have to worry about.

  16. Tracy says:

    @Q2
    I think it’s contrary both to the spirit of friendship and to the spirit of the challenge to accept invitations where your friends and relatives buy, at least consistently (this is different from accepting food invitations from friends where you can’t afford to pay and they know it and want your company.)

    If you’re only doing it for a short term challenge, just let them know you’re trying not to eat out in March but you’d love to do something non-food related or to catch up with them in April.

    But overall, I think you need to decide what you want to do after this personal challenge is over – are you going to stick to the 300 dollars or something else? You can always set a smaller food budget that is entirely grocery-based and treat the restaurant budget separate – and it could be budgeted or it could be limited by ‘we’ll go out xyz number of times a month.’

  17. spaces says:

    Q3, Sarah, please do NOT ride a moped or any other motorized vehicle in the bike lane. We bicyclists need those lanes to be free of the deadly dangers posed by vehicle operators, including moped drivers. It’s typically illegal because it is amazingly dangerous.

  18. Courtney20 says:

    Q7 – Wrong, wrong, wrong again. An IRA will NOT help “help just as much as 401(k)s would.” The AGI limit for deducting contributions to a traditional (i.e. pre-tax) IRA is $110K for married filing jointly. With the standard deduction and exemptions their AGI is over $120K. Only contributing to a 401K will reduce their taxable income. 15 seconds of googling would have told you this, Trent.

  19. AK says:

    Q3 – There are a lot of factors to consider when deciding whether or not to buy a motorcycle or moped. A motorcycle will be much more expensive, as you said. The motorcycle itself will cost more plus insurance, registration, licensing plus gas isn’t THAT much cheaper.
    As for the moped, I have a friend who bought a moped to save gas money but quickly became a burden to her friends who had to go pick her up all over town when it started raining (costing them more money in gas to support her frugality). What are your weather conditions like? How many months per year would you be able to ride it? The same friend is a lawyer and rode her moped to work in a business suit. People around town thought it was cute, but is that something you’re willing to do? Think dust, mud, bugs, bird poop… Also, consider helmet hair. While the vehicle itself probably won’t affect your professional image, coming to work with a dusty face, bird poop on your shoulder and bugs in your teeth may. Lastly, can you carry the stuff you need for work in a backpack comfortably and safely?
    I’m not trying to discourage you from doing it; I just don’t think it’s as ideal as many people think. I second the opinion to try riding a bike to work and seeing how it really is PLUS you’ll get exercise and may want to go with that option instead.

    Q2: My husband and I have discussed this exact problem. The conclusion we’ve come to is that we’d rather have friends than an extra [dollar amount of dinner out]. Plus, we’ve found that making a full meal for another couple and sometimes their kids will be much more expensive than just us paying for ourselves to eat out with friends. You said that you’re trying it for another month or so, so tell your friends thanks, but no thanks for the offer; we’ll meet up with you next month. However, you also said you’re coming in under budget, so why don’t you use the extra to go out? Or meet the friends just for dessert? Or invite them to your house for dessert and games (or just games)?

  20. sarah says:

    On Q2, I actually really like Trent’s advice. I get frustrated with his typical, “if your friends don’t like it, you need new friends.” We have friends (and family) that are big on eating out (even when you suggest eating in), and I feel that the choice does often come down to choosing to spend money we don’t want/have to spend (ie we have it, but at the expense of paying off debt) or not seeing people.

    I really like the idea of rotating hosts, the hosts pay and that can be restaurant or someone’s house. It rids the guilt of someone else paying for you to eat out (and should rid any resentment for those who choose their ‘hosted event’ to be at a restaurant), allows people to fit their budgets and still allows for get togethers.

  21. jim says:

    Q2 Jason : No, don’t let them buy you dinner. Why are they doing that anyway? What do you they think your situation is? Do they even know you’re just doing a challenge? Or do they think you may be having financial problems?

    Q7 Sally : “I am now not motivated to make more money because I feel Uncle Sam is taking it all away from us.”

    That is wrong thinking. You’re in the 25% bracket right now. 25% is not “all”. So if you get a $10,000 raise then you pay $2500 in taxes and take home an additional $7500. Don’t turn away money or stop working hard simply because the government collects taxes. The more money you make the higher your tax bill will be. Thats called being successful. If you can’t bear the burden of a 6 figure income and the taxes that go along with it then go tell your boss you want a pay cut, problem solved.

  22. Aaron says:

    Q7 and Courtney20,
    Courtney – nice catch!
    To the original poster, you might want to look at other ways to lower your taxable income. Besides contributing more to your 401k, you could also consider making use of an Medical Flexible Spending Account if you don’t already, and either of your employers offer one.

  23. Aaron says:

    Q5,
    Instead of putting more money into a 401k as Trent suggested, I would instead open an IRA. You would have the advantage of being able to pick whatever investing house and investments you wish, and you probably would pay less fees provided you picked a good place to open it. I recommend Vanguard or Fidelity.

  24. Erin says:

    Sally, I disagree with the earlier poster, I think that you probably did get pushed up into a higher tax bracket. I’m guessing that with deductions, in the past your AGI was $68k or less, which would put you in the 15% tax bracket, and now you are in the next tax bracket which is 25%.

    The exact same thing happened to my husband and me when we got married. We had both always gotten about $500 back and after we got married we owed over $1000. We were shocked. I think at that time I made about $45k and my husband made in the high 60s. My husband went back and did 2 separate returns as if we were single and yes we both would have gotten a refund, but together we owed quite a bit because of being in a higher tax bracket. For several years we both claimed 1 on each of our W-2s and had about $200 extra taken out each month, and we still usually owed about $1000 in taxes.

    You don’t say if you own a home. We got a break once we owned a home and had kids because of the mortgage deduction and the deductions and credits associated with having kids, and also because we were contributing more to our 401ks as we made more, which reduced our taxable income.

    It may be worth it to you to consult a CPA for planning purposes to find out how much you really need to withhold to avoid any more nasty surprises next year.

  25. jim says:

    Erin, They were making combined $103k before. THat would usually put a family into the 25% bracket. If they had pretty high deductions or several kids then $103k might fall into 15% bracket, but that doesn’t seem very likely. Without knowing more detail we can’t say for sure. I think its most likely they were already in the 25% bracket but its possible they might have been in the 15%.

    Either way its mostly academic.

    Bottom line is their W4’s appear to be wrong and need to be fixed.

    p.s. if this is a duplicate than sorry, I tried to post it once but it didn’t appear.

  26. Mel says:

    A note about the motor bike. I had one for a few years, and for about 6 months of that I was riding regularly to work – about 30 minutes each way. I was lucky in that my office was very casual – jeans were pretty much standard. I just put my protective gear over my regular clothes for the ride, and stripped them off when I arrived. I generally walked round the office in socks anyway, so I only wore my boots for a small part of the day.

    For a more formal office, perhaps one approach to the clothing problem could be to keep one or 2 sets of nice clothes and shoes at the office (assuming you have the space), and changing immediately when you arrive. I don’t have an answer to helmet-hair though!

    Also in the office I mentioned, the bike actually worked quite well for me – I think I got a bit of respect from some of the guys because of it, and some ‘bonding’ moments with the older ones telling me about ther (mis)adventures on bikes. So again it depends on your profession and the type of people who gravitate towards it, but you might be surprised by who had a bike in their youth, or who ride on weekends, or who always wanted one but never had the guts to do it! (My mother’s boss – a very proper woman – swore me to secrecy when she told me she’d had one, she didn’t want her sons to know!)

  27. Courtney20 says:

    @ Jim – you’re right. I come up with a tax bill of $22,250 with hubby’s new job, and a tax bill of $13,256 with his old job (I put in $20K). Hubs got a $36,000 raise and they will now owe $8994 in additional taxes, which is just about exactly 25% (since all of his additional income is taxed at the highest bracket).

    @ Sally (Q7) writer – if you feel that badly about it, feel free to donate the extra $36,000 to charity; then you won’t have to pay taxes on it. Personally I’d rather let Uncle Sam ‘take’ the $9K in taxes and have the other $27,000 for myself (I realize I’m simplifying here because there are also state taxes and FICA, but you get my drift – it’s still about $22K after accounting for those). Also, getting a refund or not getting a refund in previous years is irrelevant. You can set your withholdings however you want and get a huge refund or a tax bill the following April (though if you underpay too much there will be penalties). What you have to look at is the overall tax paid.

  28. Sabine says:

    Q4: Naveen
    as Trent said, you have to file a tax return for both states. But note that you need to file as a non-resident alien for your federal return. If you are married, you can only file separately on thefederal return. I suggest you look for a tax preparer familiar with doing returns for aliens. H&R Block is most often not.

  29. Steve in W Ma says:

    @Q1, with your debts at 3%, I’d be allocating the maximum of my income I could towards those debts, but only applying the minimum payment on a monthly basis. The rest I’d invest in a widely diversified index fund strategy. This gives the advantage of probable higher growth, plus the flexibility of a large and building chunk of assets that you can use whichever way you want–whether that means using it to pay off the debt at some point, or leaving it invested.

    this is if you have a system in place (not discipline, a system) that lets you keep track of this chunk of assets and you are not the type to suddenly decide “I’m going to Barbados” . Although really that’s none of my business actually, if you want to go, go. But if you are asking what is the financially most advantageous thing to do, I think what I have suggested is it.

    @q2, “. I have tried making suggestions like a pot luck or cookout, but they are stubbornly sticking with restaurants.”

    If you’ve explained that this is important to you and that it’s temporary, but they don’t respect your decision and as people aren’t flexible enough to do something less expensive some of the time, I’d be reevaluating how much I really want them as friends.

    In any case, I’d say stick to your guns and just tell them you’re busy this month since they haven’t shown interest or care enough in your goals to support your decision in any way.

    You might want to just invite a few of them over one night this month, with no referece to cost or budgets, though. They might just have no clue that there’s another way to have fun.

  30. Steve in W Ma says:

    Sally, you poor thing!

  31. Steve in W Ma says:

    the Q2 issue of friends not wanting to change their manner of socializing does point something up, though. Changing your level of consumption and priorities can affect your social life. In life, you make choices. If there’s a severe disconnect between you and your friends in terms of values, and to some degree in income, then it will change your relationship.

    I’m not saying this is the case here, but that in general it is true.

  32. Jennifer says:

    #18 Courtney20—so glad to see you pointed out how very wrong Trent’s response was on this question. I seriously hope no one who reads this site takes what Trent says to be professional advice. And I wish Trent would focus a bit more on improving the quality of information he shares as well as the quality of his grammar/spelling. I know his intent is good, but I do have concerns about the so-called “advice” he hands out.

  33. Mark says:

    Q3. I’ve done motorcycles, scooters, bicycles, cars, trucks, RV, and walking, all as a mode of regular transportation, especially to work. My favorite two are my 1989 Honda Pacific Coast 800cc motorcycle that gets in the mid 50’s mpgs on the highway, and my Roadtrek Agile SS, a 19 ft RV diesel that gets about 22-25 mpgs on the highway. Two of the best lessons I have learned from Trent here at TSD are find a job you love, and spend your money on things that are meaningful to you. I changed jobs recently to one that I actually could ride a motorcycle to. Once I did that, I realized I didn’t need my truck anymore, a gas hog at 12 mpg. So I leveraged that payment by trading it in for the most fuel efficient RV I could find, the Roadtrek Agile. I drive that to work on Fridays, so when the work day is done, I hop in the drivers seat and leave for a vacation every weekend that I can get away. How much you spend is important, but what you choose to spend it on is just as important. Thanks Trent.

  34. Carol says:

    I don’t know, it seems to me like the last 2 weeks your posts have been, maybe, ”from the bank,” of extras you keep. I am stopping my daily read for a while. Hoping for something fresh. :D

  35. Bill says:

    Trent or others: Does anyone else have any Youtube channel suggestions? Or DVDs/videos for that matter?

    I think a lot of the articles could be really valuable to my girlfriend and some friends my age (I’m 25). However, she has a reading disorder that makes her take almost 4 times as long as me to read and digest written information. Every article I send just seems to end up in an endless queue it seems. Can anyone recommend any alternative learning sources for someone like her? She’s learned to be a very “visual” person, so any videos, Youtube channels, etc might be great for her.

  36. Credit cards don’t disappear off your credit report when you close them. Typically, they stay on for 10 years.

    Which means that, for many people, there’s not much downside to canceling a credit card that’s starting to charge you just for carrying it, provided you get a better credit card before you cancel the first one.

    By the time the old credit card (and the length of time you’ve had credit with it) rolls off your credit history, you’ll hopefully have 10 years’ worth of history with the new, better card. Which is actually more than you have with your card now (since you say you’ve had it for 6 years).

  37. Jonathan says:

    @Adam P (#2) – It may be hard for you to believe, but not everyone who takes on personal challenges does so for bragging rights. I don’t know why Jason and his girlfriend have taken on this challenge, but it seems quite cynical to suggest they are doing it simply for bragging rights. Some people do enjoy working on personal development, which can include using challenges to improve discipline. For you the most important part in life may be social interactions, but for Jason and his girlfriend it may be personal development. If you find this sickening, then that says more about you than Jason and his girlfriend.

    As Steve in W Ma suggested, the larger issue here may be that Jason and his girlfriend are beginning to develop different priorities than the others in their social circle. This seems to a common problem.

  38. VickiB says:

    To the first couple, with the surplus they’d like to use to pay down debt: GET RID OF THE STUDENT LOAN DEBT. Despite the low interest, IMO, it is the worst debt to carry. Your life can literally spiral out of control and student loan debt NEVER leaves. I have a friend in his early 40’s who is STILL PAYING – even after a job loss and CC debt contributed to a bankruptcy. If you are comfortably making the payments on your home, continue, but get rid of the student loan debt. Hopefully you will always be in a good financial situation and make good choices (my friend did not, obviously). But if things ever really go horribly for you financially, you won’t have a never-discharged debt over your heads ! Sorry to all for being so fired up on this one, but I think student loans are responsible for a lot of ills – not being able to afford a home down payment, a car, etc. Young couples starting out their lives together WAAAY over their heads. (Sighs, steps down from soapbox . . . )

  39. KC says:

    Q3 – If you are on rural 55 mph roads NO WAY would I consider a moped. It is too slow and too dangerous – even with bike lanes. All it takes is one little old lady, who wouldn’t see a Mack truck coming down the road much less a tiny moped, to pull out in front of you and you are dead.

    I see people all the time where I live, which is a combination of city and rural, on mopeds on highways. You are on top of them before you know it and there is nothing they can do about it. At least a motorcycle can go with traffic.

    However the little old lady argument goes with the motorcycle as well. You can be as safe a motorcycle driver as you want, but it’s other people you have to worry about.

    Personally I wouldn’t get on the highway on anything on the highway that isn’t surrounded by steel, including a bicycle. It’s the other guy you have to watch out for and the consequences of an accident are way, way too high. Drive the truck for your shorter commute and have your husband drive the more efficient car.

  40. David says:

    Three facts, quite easy,
    should be known to all
    would-be survivors
    who set out on wheels:

    that roads are greasy,
    safety margins small,
    and fellow drivers
    fellow imbeciles.

    Piet Hein

  41. Lauren says:

    Q7, I haven’t read all the comments yet, so forgive me if this has already been mentioned. If you returned your W4 with a status of “married”, your companies’ payroll systems are supposed to calculate your taxes as if you were the only wage earner in the couple, which results in much less tax being taken than is appropriate (IRS rules). At least one of you, and probably both, should be having taxes withheld as “single”, or you *will* have to have the additional money taken in order to not owe. It’s just the way the calculations work.

  42. Cindy Brick says:

    Q39: Why in the world would you want to pay $95 or so for the privilege of having a credit card, if you didn’t have to? Trent, you goofed up on this…unless there’s something you didn’t tell us that was in the original note. (Like repairing a lousy record.) I can think of much better ways to use that money.
    We don’t keep a card unless we get rewards off them, either. Paying off your cards every month gives you the freedom to focus on things like that, rather than interest. That is the most important lesson I learned early on — if you can’t arrange a no-interest or low-interest payment plan, or be able to pay the card off every month, then you should probably just be saving for that item. (College, vehicles and homes excepted.)

  43. Aryn says:

    Q7 – the issue is that the total income is taxed together, but your individual employers only deduct the portion of the salary they’re aware of. If you are married and don’t have a mortgage or children, you should both claim 0 and will likely still owe. It’s simply the nature of the dual-income marriage. You can split the under withheld amount between both your paychecks every pay cycle, or just take it all from one.

    The alternative is to claim 0 and then figure out what you will owe in November and have the rest of it withheld from your December paychecks. I’ve done this and it resulted in no pay for December, so make sure you budget for it!

    A 401K or FSA may reduce your taxable income, but you will likely still not come even just by adjusting your allowances.

  44. AshleyR says:

    Sarah,
    I was wondering the exact same thing a years ago. I had moped fever something awful.
    Try to talk yourself out of it, but IF you decide to go that route, don’t settle for a 49cc. Get at least 125cc but I recommend getting a 250cc. Don’t buy a cheap “Chinese” scooter. Do some research and know which brands are reliable. For the same money you can spend on a new 49cc, you can get a great, broken-in used 150cc that you know will start every morning, haul you and your gear to work, and do the reverse that evening. Look for one that has storage under the seat for your gear and/or a trunk.
    Spend the money and take the motorcycle safety course. I don’t know anyone who regretted taking it.

    $1000 – scooter
    $250 – MSF Course
    $250 – Safety Gear + rain gear
    $100 – tags/insurance per year

    Are you sure you will save money? You can get a lot of gas for $1500.
    I did ride a scooter last summer, and I loved riding. I did it because I loved it, but I put (lots) more money into it than I saved in gas. Also, keep in mind that you’ll be getting 60-80 mpg but stopping to get a gallon of gas every 50-100 miles. I drive a car now, and save my scooter (a 600cc Honda) for weekend fun.

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