Reader Mailbag: Soccer Season and Preschool

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. Adding partner to credit cards
2. Partners and rentals
3. Healthy use of emergency funds
4. Services you’re not knowledgable about
5. Short-term investment choices
6. Low-income money advice
7. Pre-tax or post-tax retirement
8. Outspending your income
9. Mortgage prepayment at low interest?
10. GTD without a partner

My two oldest children are enjoying two new experiences this week.

First, their fall soccer league is starting and they’re both on the same team in that league. They’ll be competing against other preschool aged children in some friendly three-on-three soccer matches in the coming weeks. Our four year old has participated before, but this will be the first time for our daughter.

We also enrolled both children in a private preschool. In Iowa, the state funds private preschools up to a certain limit, meaning that the cost of a private preschool is minimal or nonexistent (depending on the specific school). We’re both happy with the school we’ve chosen and next year, when we have to make choices about kindergarten and so forth, we’ll revisit what we want to do for education (likely public schooling, because our local school district is incredibly strong).

I’m recently engaged, but we won’t be getting married until after I finish graduate school (2 years). Currently I have 2 credit cards that I’ve had for a couple of years. I’ve never carried a balance, always pay on time, etc. and though I have a relatively short credit history, what I have is good. I was thinking of adding my fiance as an authorized user on these cards because I was thinking it might improve our collective credit scores for down the line when we’re looking at applying for a mortgage. He wouldn’t even be using the cards, but this would be more in the interest of adding his name in order to improve his credit history (what he has is good, but since we’re both fairly young, it’s not much). My questions for you are: do you think this is a good move? is it worth it to do this now, or would the effects be negligible? can you add someone as an authorized user if they’re not related or married to you?
- Kelly

Most cards allow you to add anyone you wish as an authorized user, provided you give permission for it.

The thing I would make sure of is that you’re both using the card wisely, because this card is tied to both of your credit scores. If one of you makes a “mistake” with the card, it hurts both of you. I would encourage you to actually use the card a bit, but be careful what you do with it. Use it to buy gas and things like that and keep track of what you’ve put on it.

A note: at various times, FICO has considered dropping authorized users from their credit score calculation formula. Although it hasn’t happened, it may happen at some point in the future. Also, some credit companies don’t report authorized users at all when reporting credit information to the credit bureaus, so this may not help your partner’s score at all.

I am planning on moving in with my boyfriend within the next few months. This has been a long time coming and we are not taking it lightly. We’ve been together for nearly 5 years and have talked about doing this for years, but don’t want to rush or do it for the wrong reasons (saving money is the wrong reason, it had to be about our relationship). Of course money does come into the discussion because we’ll both free up some money. We each own our own homes and we’ll be living at his place because we both vastly prefer his neighborhood to mine and my place will attract more stable renters. The agreement we both think is fair is that we’ll each pay our own mortgages and we’ll split the rental income 50/50. So if my house is ever vacant, then I don’t give him anything in rent, and when I do have renters I give him 50% as my rent to him. It seems perfectly fair and like a great solution. But now I’m not so sure. Moving to his house is across a state line for me, and my income taxes will go up 8%. Also, I set aside some money each month in a targeted savings account for home maintenance, with renters I feel I should increase those savings since any repairs must be done more urgently and more professionally than with me living there. Based on other rentals I’ve seen in my neighborhood, I expect to rent my house for around $1000 (mortgage payment is $1450 – housing bubble hit hard around here) so bf and I would each get $500, but the net income for me would be closer to $300 plus the stress of being a landlord. Suddenly our agreement seems less fair and I find myself a bit resentful. Any suggestions? (These numbers don’t count any of the significant savings we’ll both enjoy from not driving back and forth 20 miles each way several times a week, having only one set of utilities between the two of us, no more pet sitter to medicate my cat when I have to travel for work, and likely much less eating out.)
- Jackie

It seems like you have a very strange arrangement.

In my eyes, the fair way to do this would be for you guys to let go of the idea of “mine” and “his” and look at this as a mutual situation. You have a shared pool of money. From that pool comes all mortgage payments. Into that pool comes all rent checks. You’re responsible to each other for what comes in and out of that pool.

In the end, if you’re that serious about the relationship, these things are effectively both of yours. If one of you is in a financial situation, the other one is in it, too.

My husband and I are both 25 and working to get our finances under control. We currently have about $5,500 in credit card debt, and $2000 in an emergency fund. Every month, we contribute approximately $1,000 towards erasing our debt, so we plan to be out of debt in the near future. However, the unexpected expense pops up every now and then. This month, it is a $300 dentist bill. Do you suggest paying for expenses like these out of an emergency fund, or paying less on our credit card for the month? (At this point we have no “regular” savings account, and won’t until we are debt-free.) We just arent sure which is the lesser of two evils: depleting a very modest emergency fund or putting off complete debt freedom.
- Lauren

If I were you, I’d just have a certain amount – a small amount – going into the emergency fund each week or month. Let’s say it’s $50 a week.

Whenever you hit a speed bump like an unexpected dentist bill, you certainly can pay it off from your emergency fund. If you’re adding constantly to your e-fund, you don’t have to worry about replenishing it and you also don’t have to worry about that bill.

The reason for doing this is so that if a big emergency hits you, it doesn’t force you to backpedal into more debt. That’s the exact kind of situation that halts the forward progress people make, over and over again. They begin to believe it’s impossible to pay it off because they see every step forward being met with a step backward.

Don’t fall into that. Keep an emergency fund.

Recently, my kitchen faucet handle came off. I could put it back on but when I looked under the sink the faucet was leaking and I found black mold around the pipe.

I don’t know how to repair plumbing, have no equipment, and I can’t get under the sink because of arthritis and knee replacements. I don’t know any local plumber so I called one with a big truck comes to your house with everything including the kitchen sink in it.

Last year I had a friend put in a laundry sink that cost about twice as much as I was expecting.

These truck people quote you a price. It was more than $400, so I had him put it in. Then he asked about the water heater. He said it had a pinhole leak in the intake valve that had calcium around it. He said it could spring a leak at any time. Since all my books are in the same room, I told him to replace it. (He did show me the pipe old pipe). So my bill was adding up.

I had a $35 off on phone book magnet. If my bill was over $500 I could pay $50 service contract and get a 10% discount and a free inspection in 6 months.

Confusing? What options do I have if a semi-emergency plumbing incident again.
- Linda

$400 to replace a kitchen faucet and a pipe under the sink? That seems high to me, even if you’re in an urban area where plumbers charge an arm and a leg. That’s a pretty simple repair.

Your best bet is usually to get estimates from multiple plumbers for non-emergency situations like this, especially the second one.

For most people – those who are able to get under the sink – I would usually suggest having some plumbing tape at home so that when such a leak occurs, you can wrap the leak thoroughly in plumbing tape for a short-term fix before calling around for estimates. However, in your situation (with arthritic knees), that may have just been an emergency you had to deal with.

I recently received a severance package from a layoff and am re-employed. From this severance, I paid off credit card debt and my car and now have $33,000 remaining in savings. I would like to ear-mark this for my 16-year old son’s college education which is coming up in a couple of years. Where should I put this money in the mean time? CD’s are earning awful returns!
- Jenny

Cash is probably the best place to keep it if you want to retain the balance.

There are no conservative investments that are returning very well right now, for various reasons. Thus, it’s not surprising that people are trying to find a better return for their money than would be offered in cash or CDs or bonds.

The problem is that the options that have the potential to return more are pretty unstable, especially over the short term. I would not put my money into stocks or real estate if I had to pull the money out in just two years – the risk is too great.

Your best bet is probably to open a 529 college savings account, put the money in there in something conservative, and wait.

I just graduated from school in May. I’m trying to make it as a writer because it’s what I love to do. At least to start, I’m not going to be making a lot of money. I have about $1,800 in my checking account. I’m still living at home, but will be working full time for a magazine, where I’ll get $750 dollars a month for 6 months. Then, the position hopefully will turn into a salaried one. I just opened a checking and savings account with ING. How much money should I keep in each account? Also, is there any way I should be saving for retirement now? I have about $4,000 in stocks and bonds from my grandparents, as well as $2,000 in another account from them. Would you recommend moving this money anywhere? I’m kind of lost right now. I’d really appreciate any advice.
- Ryan

Writing – especially early in a career – has extremely uneven income. There’s just no way around it – you’re not a known entity, so you’re going to have a heavy luck factor when it comes to finding work. You might get a bunch of it – or you might get nothing for months.

Because of that, I wouldn’t jump the gun on retirement savings until I had some sort of income stability. Instead, I’d hold the cash as an emergency fund.

As for the other assets, since you’ll probably be needing them for living expenses in the next year or two, your best bet is to move the money to someplace safe. I’d put all of it into savings for the time being, then perhaps move it into retirement or elsewhere if you find yourself in a stable financial position.

I am 23 and I started working at a new job, straight out of college and I am maxing out my retirement account contributions. My question is, should these contributions be going in pre-tax or after-tax? My income is very high for my age (~75K), so I am not sure of the benefits of pre-tax vs. after tax. I am currently contributing pre-tax money. I have heard this is a greatly debated topic. I also have a Roth IRA that I have maxed out since I was 18. I would like to take the money out tax free when I retire, but would that hurt me since my tax bracket may be a bit high right now?
- Eric

My gut feeling is that if you possibly can, you should be putting the money in post-tax accounts, like a Roth IRA. The exception to this is if you are getting matching in your 401(k)/403(b)/TSP at work, in which case you should get every dime of that before contributing to a Roth.

Why? Every indication is that income tax rates are at historic post World War II lows. There’s really nowhere for them to go but up. Our nation’s budget has an emormous annual deficit and at some point, it’ll have to be repaid. Social Security will have to be propped up. The way to do that is simple. Raise income taxes.

Thus, I’d always bet on post-tax investments right now so you avoid paying taxes on the gains later on.

My dearest childhood friend is in a situation that makes her miserable. She and her long term boyfriend both work less than 40 hours a week at low paying jobs. They want to have more money to spend, but they are both unwilling to seek a second job or find work on the side. Although they have a lot of free time, all of the things they want to do cost money. When we go out together, I try to make suggestions of cheap or free things to do, but they are not interested.

I don’t want to see my friend unhappy, but she and her boyfriend have unrealistic expectations. They don’t want to work more hours. They don’t jobhunt for a higher paying positions, and they are not interested in going back to school or otherwise improving their earning potential. Yet they are constantly strapped for cash and are not interested in a frugal lifestyle. They live hand to mouth with no savings, and they will finance any unexpected expenses on their credit cards. They are frequently depressed and feel trapped. How can I help my friend in this situation?
- Sara

I don’t think there’s anything you can do to help them. They feel depressed and trapped by their own actions. At some point, they have to come to the realization that they’ve created their own problems through overspending.

Your best option is to just be supportive. Don’t fight them on how they choose to spend their money – just make wise decisions about your own.

One move you could make is to just drop a copy of a strong personal finance book on their laps, something like my own book or Your Money or Your Life. You’d want one that discusses people extracting themselves from tough situations and finding financial freedom. However, it’s up to them to drink from the water.

I recently refinanced my mortgage (Just over $100k) to an adjustable rate mortgage that won’t change rate for 5 years. This gave me a very low interest rate (in the 4% range) and a monthly payment of $500, a $230 per month savings (and I was actually paying an additional $100/month toward the principle, so in reality, I have an extra $330/month). My plan with the mortgage is to pay it off in 5 years, which I think is a very manageable goal for me at this time. (My annual salary is around $110k, I already have $40k that I could pay toward the mortgage at this moment, and I have no other debts.) In retrospect, I should probably have paid the $40k and just remortgaged $60k but for some reason that thought did not occur to me until too late. Should I pay toward the principle bit by bit or save the money myself in an account that I would not touch until the time comes to pay it off? I’m leaning toward the 2nd option because I’d get to keep any interest generated from the money, rather than allowing my mortgage holder have the money early. I am very disciplined and do not think I would be tempted to use the money for some other purpose. If I should save the money myself, what do you see as the best way to do so? I think I could put the $40k somewhere and deposit $1000/month for the next 5 years and that would make my goal. (This $40k is basically money I’m not needing for anything else, I wouldn’t consider a part of my emergency fund or retirement funds, and I don’t have another use for it at the moment)
- Laura

There’s nowhere out there that will return 4% to you without taking on significant risk right now. So, if you just want a riskless 4% return on your money, prepaying the mortgage is a good idea, especially when you consider that the rate will adjust in the future.

The big benefit of being rid of the debt is the monthly cash flow. It eliminates a huge monthly required bill, which gives you a lot of freedom, career and otherwise.

Don’t second-guess or dwell on missed opportunities. It’s really a waste of time. Just learn what you can from it and move on with life. Dwelling on past mistakes means your vision is looking backwards, not forward to the opportunities ahead of you.

The one thing I’ve struggled with since adopting the Getting Things Done tools is that I really struggle with watching my wife NOT using these strategies and knowing that many things she agrees to will slip between the cracks and never get done, or if they do get done, it will only happen when it’s an emergency (i.e. car maintenance, paying bills, etc.). Do you have any suggestions on enjoying the benefits of GTD but not allowing frustrations with others in your life not using the system to boil over into arguments? I would love to help her adopt the system, since she is incredibly busy and could really benefit from the lower stress level that results from using GTD, but she doesn’t seem to have any interest. Any advice would be appreciated.
- Matt

You have to determine which one of you is responsible for which things within your marriage, then use GTD to take care of the things you’re responsible for. You can’t both pay the water bill, for example.

Then, focus on taking care of the things you’re responsible for. Leave it up to your spouse to determine a plan for the things she’s responsible for.

Obviously, if you’re bothered by her inability to complete some of the tasks she’s responsible for, you need to sit down and have a conversation about it. The best solution may be to trade responsibilities around a bit.

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

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34 thoughts on “Reader Mailbag: Soccer Season and Preschool

  1. Eden says:

    As someone who likes the “keep finances separate” method, an alternate approach Jackie could look at would be to figure out with her boyfriend what he could rent a room at his place out for. They could look at similar houses with a single room to rent in a shared housing arrangement on Craigslist as a start. That could be used to determine her “rent” that she pays to him each month (don’t forget a share of utilities if rooms in the area don’t typically include that). Then she can manage her rental completely on her own, profit or loss all going to her.

    This method may come out to be more expensive for Jackie if her boyfriend lives in an expensive area or has an expensive house, but it is probably the most “fair” method.

  2. Hannah says:

    Jackie and her boyfriend don’t sound ready to merge their finances like a married couple, and there’s nothing wrong with that. The fact that they both own their own homes complicates things, but to me it would make sense to me for them to pretend that they are just like any other couple renting an apartment together. Split the “rent” on the home they are living together in according to income (in this case, that would be the boyfriend’s mortgage). From there, Jackie’s income property is her own responsibility to manage, and her own income to collect.

  3. Johanna says:

    @Ryan: If you have any money to spare at all, it would be a very good idea for you to put some of it into a Roth IRA. If it turns out that you need the money back, you can withdraw your contributions penalty-free at any time. But if you don’t end up needing it, that money can grow tax-free for the rest of your life.

    You should also be aware of something called the “retirement savings contributions credit,” which can give you up to $1000 back on your taxes for saving for retirement. If you were a full-time student until May, you don’t qualify for it for the 2010 tax year, but you might qualify for it for 2011 if your income is still quite low and if your parents don’t claim you as a dependent.

  4. Des says:

    I second Hannah’s suggestion. I don’t think Jackie’s situation requires prematurely merging finances. She should split the mortgage like it is a rent payment and deal with her renters separately. Merging finances too soon could place additional unnecessary strain on their relationship, and it sounds like Jackie is trying to be very wise and cautious in that area already. They should merge their finances when their relationship is ready, not because it would make bookkeeping easier.

  5. Johanna says:

    @Eric: First of all, good for you for maxing out your retirement savings. That’ll give you a lot of flexibility down the road in life.

    Am I understanding you correctly that your employer-sponsored retirement plan gives you a choice between pre-tax (like a regular 401(k), where the money is taxed as regular income upon retirement) and post-tax (like a Roth 401(k), where the withdrawals are not taxed at all)? If so, then consider yourself fortunate, since a lot of people don’t have that option.

    It’s almost always a good idea to have a mix of pre-tax and post-tax retirement savings. (So, since you’ve already got the Roth IRA, which is post-tax, go for pre-tax with your employer-sponsored plan.) That’s because a certain amount of your income is exempt from income tax, and a certain amount beyond that is taxed at a very low rate (lower than what you think of as your “tax bracket”).

    Even if tax rates in general go way up, that exemption is unlikely to ever go away. So if you have no taxable income in retirement (because all of your retirement savings are in post-tax accounts), you’ll be wasting your exemption.

    But don’t take my word for it. If you’re good with numbers (and I’m guessing that most high-earning 23-year-olds probably are), spend some time learning about how your tax bill is actually calculated, and you’ll be setting yourself up for a lifetime of informed financial decisions.

  6. valleycat1 says:

    Kelly – I advise against adding your fiance to your cards at this time. Too much can happen in 2 years. If your fiance needs to build up his credit because he doesn’t have any card,s then he needs to get his own for the time being. If you both continue building good credit individually, you’ll be fine after you’re married.

  7. valleycat1 says:

    For Jackie – if you’re uncomfortable with the agreement you reached with your boyfriend, then before you move in, talk with him about the additional factors that you’ve thought of & renegotiate a deal you’re both happy with.

    And I ditto the others – your rental income/mortgage expense should be kept separate from whatever rent (or share of your boyfriend’s mortgage) that you agree to pay. Agree to a fair monthly amount you’ll be responsible for; then if you’re between renters in your place & he wants to give you a pass, that’s his decision.

  8. Scott says:

    I am earning 4% on my checking account. There are ways to earn higher interest rates, with no risk.

    Scott

  9. Ruth says:

    @Kelly –
    When you add an authorized user to your card, the way it works (right now) is that your history for that card shows up on their credit report the next time the card sends a report to the credit agencies. That person’s score is adjusted immediately, not over time. Therefore, if you are considering this in order to improve your fiance’s credit 1 or 2 years down the line, there is no need to do it now. Two or three months before you need the improved score will be plenty of time. I wouldn’t do it right now if you don’t feel totally comfortable about it.

  10. Steve says:

    I think Jackie should pay her boyfriend a flat rate every month as if she were splitting the rent/mortgage with him. It’s her decision to keep her house so all of the risk and all of the potential profit should stay with her.

    Alternatively, they could (figuratively) combine their mortgage payments and split the remainder after any rental income.

    The biggest perk of moving in together is convenience. It’s not very convenient for him to wonder if you can pay rent each month (even if he doesn’t “need” the money) he’s taking on your risk and that goes against your premise of staying financially independent. There’s no possible way to live together without overlapping your finances.

    Jackie, you may have to decide if you want to live with your boyfriend in his house or if you want to own your own house. Not many people have the luxury of doing both.

    There are a lot of options here but none of them jump out at me as being the best solution. You’ll have to discuss this and decide what is most equitable for both sides.

  11. jim says:

    Jackie: If you split the rent then I would split the profit AFTER expenses not before. If your rent is $1000 and expenses $200 then you’re netting $800. I’d then split that $800 so give the BF $400.
    I disagree with Trent about merging your finances. You aren’t married so don’t merge your money.

    Eric: $75k for a single person would be the 25% bracket. That a very middle tax level no matter how you look at it. YOUR taxes are not historically low. Your current marginal tax rates are very typical for what we’ve seen in past decades giver or take a few %. There isn’t a very strong need for you to go pre-tax or post-tax. If you had a very low income then post-tax would be better, or if you had very high income then pre-tax might be best. But you’re in the middle. Definitely contribute to your employer 401k up to any matching funds they offer. After that I’d hedge my bet and just put some money in pre-tax and some in post-tax. There is a definite benefit to having at least some of your retirement in pre-tax savings since you’ll get some of your income tax free in retirement due to standard deduction and exemptions.

  12. jim says:

    Linda: Couple things to consider. First I would look to see if you can find a good handyman in your area. Ask around to see if anyone you know has a handyman they can recommend. Generally a handyman is someone who can do basic small repairs to most things in your home for a reasonable price. They might be able to repair your leaky sink for $100. Second I would look for online reviews for any contractor before you hire them. You can do ‘google’ search for the contractor and often find reviews from their past customers. Look to see if Angies list is used much in your area. That would be a good reference for getting quality reviews of contractors in your town. If you are in a larger city then Angie’s list will be more useful, but a smaller town I wouldn’t bother with it.

    A trusted handyman can save you a lot on little repairs and you won’t have to worry about them upselling you on major costs. If a good handyman comes and says: “sorry I can’t fix this, you need to replace it” then you know you really need to replace it all. Then if you do need to spend a lot for a major repair/replacement then Angie’s list can help you find dependable contractors to do major work.

  13. Gretchen says:

    Lauren says they have an emergency fund, but then doesn’t want to use it? That’s the whole point of the EF. Dentist bills, etc.

    Something about the whole Jackie seems off to me. The word resentful strikes me as odd.

  14. Wren says:

    I think Hannah made a reasonable and fair solution to the rental/property situation. Don’t make it more complicated than it has to be or it will become fuel on any future disagreements.

    There is no way in h*** I’d add someone who was not a spouse or blood relative as an authorized user of a credit card. (Come to think of it, there are no blood relatives I’d make authorized user either.) I’ve seen too many people do it and regret it.

  15. Courtney says:

    Trent, have fun with the soccer! It’s great to get kids involved with sports and fitness at such a young age. I’ve noticed at my kids’ school that by fifth or sixth grade, you really begin to see the difference between kids who are physically active and those who aren’t.

  16. Isaac says:

    Jenny – there are plenty of high yield type savings accounts available for balances over 2500, 5000, or 10000…your 33000 definitely qualifies. Another option would be a straight mutual fund (not an IRA), but you would need to get a good broker that woulsd be able to keep it liquid for you. Another option would be short term corporate bonds…just make sure their maturity is up before you will need the cash…those will pay you an interest check twice a year. You can use a screener like yahoo finance to find some ideas…again you need a good broker.

    Jackie – your house has a cashflow of negative $450…why would you keep that? My advice is to find a good agent and sell it because it will basically suck money and energy out of you. There’s no point being a landlord if you’re not making a profit. So if you can’t rent it out for at least 1650/month (to cover your mortgage payment and possible expenses) then you should just sell it. Then you can discuss rent with your boyfriend without the extra complication.

    Good luck!

  17. Jenny says:

    For Jackie, there’s no reason that you have to combine finances. I know many couples who have been in committed relationships for years (married or not) who still keep finances seperate. If you do not feel what you originally agreed to is completely fair, renegotiate that, based upon half of his mortgage or what he could rent out a room for w/utilities etc. My bf and I are in the same situation, with me moving in with him and renting my home. We are still trying to figure out what is the best solution for that. Good luck

  18. GayleRN says:

    @Jackie
    There is a reason it doesn’t quite feel right to you. You are $450 in the hole for starters as your mortgage is $1450 and the rent is $1000. Add in the $200 in projected maintenance costs and you are now $650 in the hole. Give boyfriend $500 and you are now down $1150 for the month. Now boyfriend is up $500 and you are still down $1150. In addition you are assuming the risk of there being no income from the place and you still owe $1450 a month with only a potential benefit of selling at a profit someday, which is unlikely right now. You are also assuming all of the risk of damages to the house, and all of the burdens of homeownership and the burden of finding and dealing with renters.

    Does nobody else see the boyfriend is enjoying all of the benefits of an easier life plus a $500 cash bonus every month? Five years is more than enough time to decide if the relationship is worthy. Jackie, do you not see that you are doing all of the work here? The only benefit that I can identify is a possible saving in gas and not having to pay a catsitter. Jackie if this is such a great deal for you why are you even putting the question out there for people to comment on?

    This will probably be yanked for “negativity” but I think it is looking at reality which isn’t always pretty or positive.

  19. Randy says:

    @GayleRn

    You are neglecting to account for his cost in the equation- he is paying the mortgage for the house they are living in, so he does not come out $500 ahead.

    I agree that if they want to maintain separate finances, and they want to rent her house, he should care in the cost of repairs in the responsibility of being a renter if he wants to share in the profits.

  20. Daria says:

    I agree with GayleRN. Of course the boyfriend comes out $500 ahead each month. She is contributing $500 “rent” towards his house if she continues with this plan while she is $450 plus expenses in the hole on her house each month. She doesn’t have any “net income” that she should be sharing. This house is a loss for her until she figures her income tax. With the mortgage interest deduction, property tax deduction, depreciation deduction and any repairs, she “might” get a tax refund which she could then split with the boyfriend. Renting the house also means that two years down the road, she will lose her ability to not pay any taxes on any gain if the housing market comes back and she will have to pay taxes when she sells on the depreciation she took while it was a rental property.

  21. GayleRN says:

    His mortgage is a sunk cost, he has to pay it whether or not he has anybody else living there. Her mortgage is also a sunk cost, she has to pay it whether or not she lives there or has a renter or not. IF she has a renter she gets to offset her mortgage payment by $500 (her share of the rental income) but still has projected maintenance costs of $200. He gets $500 of the rental income free and clear.

    There is NO advantage to her to do this. He gets $500 he would not otherwise get. She makes no mention of the arrangements for utilities or food costs or other expenses incurred at his house. She still has all the expenses associated with owning her home and some unknown share of the expenses associated with his home.

    I am guessing that she will end up doing all the cooking and cleaning at his house, struggling to maintain her own house, and wondering where all her time and money is going. Does she really want to pay for the privilege of living with him? I still maintain that 5 years is more than enough time to figure out if the relationship is viable. Definitely maintain separate finances. I hope that she does not end up in the unenviable position of wanting to leave his house, but not being able to return to her own home because the renters lease is not expiring any time soon. Then she would have the expense of a home she can’t live in, plus the apartment she would have to rent. Very worst case scenario.

    I know this all sounds harsh and trollish, but it is what I would tell my own daughter if I had one. You really don’t want to hear what I would say to my son if he were taking advantage of a woman that way.

  22. Katie says:

    GayleRN, wouldn’t you expect her to split the rent if she moved in with her bf and he was a renter? I’ve certainly never met of a couple where this wasn’t the case. A mortgage doesn’t seem so different to me. Except they’re not even splitting the mortgage. They’re both paying their own, and then splitting the money she’s getting from the fact that she’s not living in the house that she owns. She’s still coming out ahead of where she would be if she was living in her own home. That seems reasonable to me.

    Or, at least, potentially reasonable. There are other arrangements if the couple doesn’t feel this one is fair (and them feeling it’s fair is the most important one). But I think it’s silly to think that moving in with one’s boyfriend = free place to live, or else you’re a slave who will do all the cleaning and cooking for no reward.

  23. reulte says:

    Jackie — If you feel resentful, then there is something about the situation that you need to explore more / understand better or talk to your boyfiend about. I think GayleRN may have a finger on the pulse of your concern. otherwise, my take is that I’d split the costs evenly (assuming fairly equal incomes). If he is not paying anything towards the house you’ll be renting out, then he shouldn’t receive any of the income from this.

    Linda – I don’t know. Your situation sounds a little like horse gone, close the barn door. Perhaps you can check out a library book about plumbing — see what kinds of things are likely to break (you now have a new water heater and sink so those shouldn’t give you any problems) and then weigh the possible costs. Or go though your house and see what might pose a problem. Evaluate your home first, then consider the service contract. I think Jim’s advice to find a handyman is really great. Perhaps he could go through your house and point out possible trouble spots.

    Ryan – Try to have a part-time job until you have a regular gig. Good luck.

    Sara – They know what to do, they just chose not to do so. Their happiness is not your responsibility.

  24. Jackie says:

    Thanks for the tips everyone. I completely disagree with Trent about merging finances. That is not even on the table at this point!

    I think I’m probably not going to take everyone’s advice. There is no way I could afford to pay my mortgage of $1450/month, plus a competitive rent to my boyfriend if I wasn’t making rental income. And I’m not confident that I’ll find renters in any reasonable amount of time. I fully expect the house to be vacant for at least a few months with pre-rental repairs and then competing with the dozens of other rental houses in the neighborhood (housing market is a disaster around here).

  25. Jackie says:

    @Steve, I don’t consider it a luxury to be able to keep my house when I’m ready to move on. I owe nearly $40,000 more than my house could be sold for! I’d sell it in a heartbeat if I could qualify for a short sale. The last thing I want to continue to do is throw away more than $1200/month on mortgage interest as my house get’s further and further into the red each month!

  26. John S says:

    Wait a minute, all you feminists who only want to see this from Jackie’s point of view:

    Why is it her boyfriend’s problem that Jackie is underwater on her mortgage? That has absolutlely nothing to do with him. If Jackie sold her house, and took a $30,000 loss on it, would you expect boyfriend to kick in $15,000? (I certainly hope not; that’s absurd.)

    What if Jackie could rent out her house for $2000 per month instead of $1000? Would you expect Jackie to pay her boyfriend $500 more per month? Of course not. You’d say, “Good for her, she owns a side property that is making profit which she gets to keep.” And you’d be correct.

    The only mistake here is tying what Jackie pays in rent, to what she collects in rent on her house. Those things are completely unrelated.

    Her boyfriend is giving her a very sweet deal. Half of his mortgage is almost assuredly more than $500, and $500 for half a house in a good neighborhood (or even a bad one) is very cheap rent indeed.

    Yes, it sucks that she’s losing money on her house. But that is not her boyfriend’s fault. If she doesn’t want to merge finances (and I don’t see why HE would, either) then great. She obviously wants to keep her finances separate from his, so I don’t even see how this is a grey area for some of you people. She needs to be responsible for her own debts and liabilities, such as her underwater mortgage.

  27. Annie says:

    This message is for Eric.
    WOW! WOW! WOW! I would love to know what you did at 18 to max out your Roth IRA and also what you do now for a living. There are people in their 60′s that i work with that save 5-6% only in their 401K’s and IRA’s. I think that is pityful. That is so impressvie that you make 75K at 23 and you max out your 401K and Roth IRA. What kind of job will you have when you are 30? You are a good example for all young graduates to learn from. I am assuming no student loans, no credit card debt no mortgage payments yet??
    Good Job! Your parents must be super proud of you for being so responsible with your money.

  28. reulte says:

    John s – Well, this feminist sees it from Jackie’s point of view because (1) she asked the questions, (2) she has concerns. Why should she pay the boyfriend half his mortgage when he receives the same benefits she does when she moves in (I’m making the assumption that she’ll be responsible for half the living expenses and duties). He’s already purchased the house – if he sells it at some point in the future who benefits? He receives the entire proceeds from sell – she receives nothing from her ‘input’ that she does not already have (she does not NEED to move from her home). She also will not be able to move HER stuff into his house – so it is ‘HIS’ house. It’s not her boyfriends problem that she is underwater on her house and I don’t recall any other feminist suggesting it was his problem (unless/until they choose to merge finances).

    The point is that this appears to be neither a totally business- or marital- type question. Did he ask her to move it because he loves or because he’s having financial problems paying for the house? Is she moving in because she loves him or because she could use the extra cash? Are they planning on getting married? The original email reads as one of those sorta grey, not totally black or white situations where you have to play it by ear and negotiate unspoken expectations.

  29. Deb says:

    Kelly,

    I just added my husband to my Bank of America card as an authorized user. The way it was explained to me by the guy on the phone is that there were two options for adding him to my card: authorized user and co-applicant.

    As an authorized user, he is just that – authorized to use my card. BoA does not pull his credit history and does not contribute this account to his credit history. This is MY card, and solely MY responsibility to maintain. If he were to run up the bill and run off with some other woman, *I* have to pay the card, and it does not impact his credit at all. (The up-side of this for me is that I am the math-loving “saver” in the relationship and constantly checking my bill & charges online, and if there is a worst-case problem I can cut him off right away without consulting him.)

    If we wanted this card to add to his credit, then he would need to be a co-applicant. BoA would send us application paperwork that we would both have to sign, and they would pull his credit report. The down-side is that if there were a problem, we *both* would have to approve one of us leaving the account.

    Since you are not married yet, I would not add your fiance to your card in either situation. A lot can happen in two years. If he has his own independent card and manages it wisely, it will be very easy for him to bring his credit up from ok/good to great in that time. In that case, having him on your cards as well will really be a negligible improvement. If he manages his credit poorly using your card, it will affect you negatively. IF the worst-case scenario hits, and your relationship sours and he runs up the bill, you will be dealing with collections agents for his mess. Depending on how he was added to your card, it may not even affect his credit at all.

    :) My opinion is to not add him. He can bring his own credit up quite easily with his own cards if he changes his habits slightly, or he can bring yours down quite easily if he does not change his habits. Whichever you decide, be sure to talk to your bank about the definition of authorized user and co-applicant, to see which applies to your situation and goals.

    Good luck with school and with the marriage. :)

  30. Johanna says:

    @Jackie: If I were you, I’d make it a priority to sell your house ASAP, assuming you don’t think there’s a chance you’ll want to live in it again. Is there any way you (and/or your boyfriend) can come up with the $40K to bring to the table? If you don’t have it right now, can you save it up in the near future?

    As it is, you’re losing $8K a year on the house even in the best-case scenario, so it’ll only take five years of that before you’ve lost $40K anyway. (And you’ll almost certainly still be underwater then.) Plus, the sooner you sell, the sooner you’ll be rid of the stress of being a landlord.

    And I’m hesitant to open this whole can of worms again, but it might also be worth talking with a lawyer to see if it would make financial sense for you to walk away.

  31. Jackie says:

    @john s. My boyfriend’s place is a one bedroom condo, 900 square feet. $500 isn’t even close to 1/2 his mortgage, but he also doesn’t have the option of renting a room to anyone he’s not sleeping with so it’s not like he’s loosing out on potential income.

  32. Pattie, RN says:

    ..anyone he’s not sleeping with…

    Jackie, do you not see that this arrangement is not only fiscally a mess, but also involves selling yourself short?? If you see a long term plan with this man, then quit acting like children playing house, get married, and combine all of your finances.

    If not…why are you so eager to lose money on your property for the chance to cook, clean, and be an always available sexual partner to a man you don’t see a future with?? And we didn’t even look at the very real failure rate of contraceptives in young, healty adult couples.

    I know this is a money blog, but you are about to make a horrid mistake on so many levels that it saddens this (young) grandmother’s heart. Is this all you think you are WORTH????

  33. Johanna says:

    @Pattie, RN: Do contraceptives work better for married couples than for unmarried couples, then? That would be very interesting if they did.

    It seems to me that people very often overlook the fact that just because two people get married doesn’t mean they’re interested in having as many children as nature (or God, or the fates) is willing to provide.

  34. Grace says:

    @29: If you let your man treat you like your purpose is to cook, clean, and be available for sex, the person to blame will be mostly yourself(I’m aware of exceptions). I am living with my boyfriend so he knows *not* to expect that. It is not the 1950s. My worth is far greater than that, and by living with him, I am making sure he is helping with cooking and cleaning. A man can promise you anything. Talk is cheap. I’d rather live with him to make sure he’s not all talk before it’s too late.

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