Reader Mailbag: Spring Allergies

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. Mortgage tax deduction calculator
2. Private school worth it?
3. Advice on inexpensive business clothes
4. Is home ownership necessary?
5. Fantasy writing progress
6. Learning about neighbors
7. Expatriate estate worries
8. College summers and internships
9. Big changes needed
10. Door-to-door salespeople

I’m always amazed how I can go through an entire winter without even having a hint of a cold, but when spring truly blooms, I end up feeling miserable, with a sore throat and a runny nose.

I know that it’s just allergies because it happens every spring on the dot. As soon as the nice weather starts, I can wait about four or five days and I’ll wake up with a sore throat and a runny nose that persists for a couple of weeks and then vanishes.

It’s the price I pay for the beauty of spring.

Q1: Mortgage tax deduction calculator
My fiance and I are buying our first home. We rent in NJ just outside Philadelphia and we’re considering the city or a NJ suburb. I grew up in FL with only federal income tax so all the new taxes are confusing me, making it hard to compare apples to apples. We’re 99% sure to get a 30-yr fixed mortgage around 3.5% (pre-qualified). I know you can deduct mortgage interest (pretty much the first 10 years are interest from what my mortgage broker brother and accountant sister-in-law tell us) and just recently found out we can deduct property taxes! Here are my scenarios:

1. Buy a condo or townhome in Philadelphia. Here we would have state income and city income tax. Property taxes will probably range anywhere from $150 (new construction tax abatement) to just around $2000. Philadelphia is also in the process of reassessing all property and chances are taxes, except for the abatements, will go up about $1000 – $1500. We can look on a website to know the final figure.

2. Buy a single family home in Camden County, NJ, known for having some of the highest property taxes in the country. Taxes could range anywhere from $7000-$11,000, on average. Here we would have state income tax but no city tax, unless I get a job in Philadelphia, then I would have to pay the Philly tax regardless.

My question is: How do you go about estimating how the deductions will impact your taxes? Fiance makes about $56k a year and for now he’s taking the standard deduction. We plan to marry this year but I don’t know how that affects taxes. I could secure a job making anywhere from $35k to $55k.
– Emily

You have several different layers of taxes to worry about here. First, of course, there’s income tax deductions on a federal and state level. You can calculate your federal tax deduction here. For state and local taxes, you’ll have to seek forms in the specific areas where you’re considering moving to.

The same goes for property taxes. You’d have to check with the various tax assessment websites to try to get a bead on the property taxes for the specific properties you’re looking at.

Your best route is to assemble a spreadsheet for all of these things. Have a column for each property you’re considering and a row for each different kind of tax. Almost always, property taxes and mortgage interest are deductible from your federal taxes, and they’re often deductible from your state income tax as well. However, it’s not just pure savings – in order to get the interest deduction, you’ll usually have to forego your standard deduction.

Q2: Private school worth it?
My wife and I live in an area with poor public schooling. We are trying to figure out if private school is a worthwhile investment for us or whether things will work with after school supplements which are far less expensive. Do you have any insights? Is this something you’ve thought about for your own children?

– Brenda

I’m lucky to live in an area with a very good public school system, so I haven’t had to worry about this.

If I were in your shoes, it would really come down to my financial situation above all else. Would the cost of private school put my family in a genuinely precarious financial position? Or is it something that will work if we cut back on some of the non-essentials in life?

You would also want to make sure that the private school you’re looking at actually reflected your values. One private school in our area revolves around a curriculum that Sarah and I would be uncomfortable with, for example.

Q3: Advice on inexpensive business clothes
I worked for years as a prof in [a well-known university]. This is a group of very well dressed people, mostly suits, even for women. It took me a while to figure out what I can modify to add funk to my wardrobe. Now, it’s not a problem at all anymore. Here is some advice:

– Ask around in your family (if you have people who dress well and are the same size as you): I often have clothes that I don’t wear much but that I’M not ready to give away to strangers – I’d be happy to give to a family member. This will get you started

– Buy a navy blue and a black suit jacket that fit well – they can be bought at discount stores or second-hand shops. They work with most dresses, skirts and pants.

– Buy a few skirts with a pattern – this is the variety of your wardrobe; make sure they go with the jackets. Again, discount stores (Forever 21 has very cheap but decent looking stuff) and second-hand.

– A few solid color pants: gray, beige, navy, black. The navy and black will not match perfectly the jackets so wear them without jackets but with a button –down shirt (with or without pattern)

– Keep tops simple – solid colors. Fitted Ts work for women if under a suit jacket.

– One pair of black pumps – plain.

– Learn to do small sewing repairs: buttons, hems, fixing an undone seam. When you get better, you can take in pants at the waist (I have a shape that needs this). This gives you a much larger choice of clothing.
– Sandra

Sometimes, a reader will drop a great email full of good tips on me. Although it’s not a question, I certainly feel like it deserves to be shared.

Sandra’s email is exactly that. If you’re struggling to maintain a business wardrobe because of the cost, those techniques will save you some serious coin.

The techniques work pretty well for men, too (other than the suggestion for pumps).

Q4: Is home ownership necessary?
My family is pushing us to buy a home, but we really don’t think it’s the best move for us right now. We’ve looked at a few in our area and they all seem very expensive. We pay less in rent each month than the mortgage payments would be and we aren’t paying for property taxes or insurance or anything. Are we right here?

– Andrew

You are, with a few assumptions.

The big question is whether you are actually saving money each month. Yes, your rent might be lower than the monthly cost of home ownership, but it makes no difference if you’re just spending that money on unnecessary stuff. If the money you’re saving from renting is just going to pay for eating out every night, you’re not really ahead.

For renting to actually beat out home ownership, you should be saving/investing the difference between your monthly rent and the total monthly cost of owning a similar home. That way, you’re actually gaining far more in the bank each month than you would ever be gaining in home equity.

Q5: Fantasy writing progress
A while back you mentioned that as an experiment that you’d create a blog that would oultine your experiences writing a fantasy novel (except you’re not going to mention it on TSD). Is this something you still work on a regular basis? If so, how is that doing, do you have a following?

– Sean

I am working on a fantasy novel. I have a first draft I’m happy with that’s largely complete. I have shared large portions of it with test readers. Portions of it are out there anonymously on the internet.

I am currently searching for a literary agent to help me sell the thing to publishers. If I am unsuccessful in that search, I’ll consider self-publishing it.

If I do reach a publishing arrangement, The Simple Dollar will be one of the first places I talk about it.

Q6: Learning about neighbors
My wife and I are looking at several houses that we like. For us, the big deciding factor is the neighborhoods. What will the neighbors be like? What kind of place is the neighborhood? How do we figure that out?

– Adam

We were in this same boat when we were shopping for houses. Our solution was to simply talk to the neighbors of the houses we were interested in. If we saw neighbors around when we looked at a house, we introduced ourselves, chatted, and asked about the neighborhood.

We drove around the neighborhoods at different times of the day, even at night, to assess what levels of activity and noise we could see. Were people out doing yard work? Were there children playing? Was everyone in their homes? Was it noisy at night?

Also, we took into consideration how well kept all of the properties were. Were the properties all reasonably well maintained? Or were there a lot of messy properties?

Those clues helped us figure out which areas were better for families and which ones weren’t.

Q7: Expatriate estate worries
I am from the US but I’ve lived in both Europe and Hong Kong in the past couple of years. I figured that I needed to compile an estate plan due to the number of bank/pension accounts I have in these different countries. I went to HSBC in Hong Kong yesterday and they said that my accounts would have to go through a 6 month probate process if I didn’t have a will but things could be shortened to a few months if I had a will and/or trust. I’m trying to determine the best way for my loved ones to control my assets if I were to pass away prematurely. I could just provide them with a sheet with all of my login information/passwords and then they could transfer funds online to the US after I’m gone to mitigate the hassle of dealing with the Hong Kong or UK governments. If I go down this route I wouldn’t want them to know the amounts in each account or the login information until I pass away. I could also get a trust drawn up but I’m not sure if I would need separate trusts drawn up in each country where I have assets. What is your suggestion for dealing with a situation such as mine?

– Angie

Giving them all a sheet with your login information would get them the money the fastest but would also result in the messiest legal situation for them. I would probably skip that unless you want to also hand them all a legal headache.

If I were you, I’d probably keep all of my funds in the country that I anticipate living in for the longest time over the next several years. I would also probably contact an estate lawyer who can help you get all of this set up the right way.

Regardless, it will probably be most convenient for you to have all of your funds in one place or at least one country, then transfer those funds to other countries as needed. This is assuming, of course, that you’re not wealthy enough to have your own full-time money manager who can handle all of this for you.

Q8: College summers
My oldest child has an unpaid internship for this summer. It’s not entirely unpaid as they are providing living quarters and food. It seems to be related to his career path and he’s excited. My concern is that he’s earning nothing this summer, as I figured he’d work this summer to earn tuition.

– Donald

It really depends on the internship. Some unpaid internships look great on a resume when a person graduates, while other internships are largely useless.

If this is truly an internship that matches his chosen career path, it’s probably worth it in terms of making himself marketable in his field upon graduating.

If I were you, I’d research the details of this internship and figure out whether it’s actually a valuable thing or not. It’s really hard to tell from the bit you’ve written here. I had what amounted to internships in college and those were usually paid via a tiny stipend.

Q9: Big changes needed
My problem is personal change. I agree with everything you say, but I don’t even know where to begin. Every day I think ok, tomorrow I will make changes; stop wasting money on $5 lattes, stop buying items I don’t need and so forth. I have been pretty good about talking myself out of items, and I’ve cut back from a daily $5 drink to a weekly. But there’s still so much waste.

We made $164k last year combined and saved only 2% of my husbands earnings in a 401k. No other money was saved! We spent $50k traveling, took a second honeymoon to Bora Bora, took the kids to California 6 times, went to Ohio and splurged on my husbands “poor” family, went to Vegas for some shows. We did a lot of traveling.

But it makes me sick we don’t have the $7000 for the IRS. We live paycheck to paycheck and as I read your articles, it occurs to me, we make a lot more than the “average” American family. We have a modest house based on our income, we owe $178k. Only my Honda Pilot is financed at 1.9% but it’s still $507 a mo. Our house bills aren’t bad. I could see our dish network bill of $90mo is a waste since all we watch is reruns or nonsense and now I wish we hadn’t committed to 2 years. We got it in Dec, prior to that we honestly hadn’t paid for cable in over 5yrs. But my husband and I had an insane impulse shop at Costco in December and bought not one, but 2 amazing giant flat screens, one for our family room and one for our room. We were always teased by friends for “doing so well” but having 1 older clunky TV set. So once we upgraded, well obviously we needed cable right? Wrong! The cancellation fee is insane so it seems like keeping it now would make more sense. Idk.

Anyway our only other big expense that could be cut is a $440 mo Kumon bill for our 2 kids tutoring. We feel public schools don’t provide enough and though this money isn’t tax deductible, it’s worth it. They’re much smarter, well I should say faster and more fluent, than their peers, and maybe even us, when it comes to math. But our monthly “bills” are only about $3500 and Idk where the rest goes? It seems there’s always a birthday party, baby shower, bridal shower etc; heck there were 5 total just this month! But even spending between $30-50 each, that doesn’t account for the thousands that disappear.

When it comes to food I think we waste a lot of money. We eat out way too much, buy expensive meats & other foods; I spend an average of $400 a week at Costco then make a few trips to Frys or Whole Foods for specialty items midweek. There are 5 of us, my mom lives with us to nanny, saving us on childcare. A friend of mine recently hit by hard times found herself on food stamps and her family of 5 gets $605 from the state of AZ. It makes me wonder how I would manage on such a small amount but she’s doing fine. So I know not everyone must spend $1600 a month on food.

I would like to add aside from the Amex we have no credit card debt. We pay cash for everything. But we are major over-consumers. Obviously. I need serious help and just don’t know HOW to fix myself. My husband leaves it all up to me. He actually spends an allowance while at work and I kill the rest so it really is “all my fault.” 17 years of me deciding everything (yes since high school) and he still just hands over the paychecks and I do as I see fit. So I need the help!

Two weeks ago we was told that this fall he is to expect a major promotion which is salaried at $315k a year. I just took a full time position at $72,000 a year. We will be in a horrific tax bracket. But the scariest part is knowing that we could be living the same way! How can successful people be so stupid when it comes to money?

Just tell me exactly what to do, please! From day 1 tomorrow until I can be like you and Sarah. I’d appreciate ANYTHING you can offer, and I will continue to read your emails as financial gospel….it’s applying the knowledge that’s tricky.

Oh, and how do I explain it to my kids, ages 11 and 14? We just took our family, plus my mom, and a real nanny (to give my mom a break) to Hawaii for 9 days to celebrate our 14yr olds bday last month and spent $10k. So now our 11yr old expects that in June for his bday. He keeps talking about Costa Rica. How do I explain we are making changes meaning “Hey son, we love you as much as your sister, but here’s a playstation 3 instead?” How do I put a positive spin on that?
– Rebecca

It’s pretty easy for me to tell where the money goes each month. You spend $400 a week at Costco, then make another expensive grocery stop mid-week, likely jacking it up another $100. That’s at least $2,000 a month on food alone. You state that you also have $3,500 per month in additional bills – that, I assume, includes your mortgage, your child’s tutoring, and your utilities. So, between just those bills, you’re looking at $5,500 a month, which adds up to $66,000 per year. What about property taxes? What about income taxes? You just took a trip to Hawaii that cost $10,000 for your child’s birthday. You’re adding up very quickly to your pre-tax income here.

You need to sit down right now and figure out what it is you actually want. What is your goal here? You seem to realize that spending so much isn’t a good thing, but what would you do with the extra if you were spending, say, half as much each month? What would you do with $5,000 unspent each month? What kind of goals do you have?

At the very least, you should both be putting 10% of your income into retirement. That’s an immediate thing. Beyond that, you should strive to have no debt, because with that income level, you shouldn’t have any. You should also have a pretty good cash reserve in the bank in case of emergency.

Aside from that, it’s really all about what you want out of life. What I want, more than anything, is to simply leave behind the need to work for income as early in my life as possible. I do not want to be working until I’m 70. What is it that you want? Security? Children that are successful in adulthood? Your money should be working toward whatever it is that you most want from your life. It may be that you most want travel and other such amenities. If so, your financial planning should be all about making them as stable as possible.

Once you have a goal, it becomes much easier to attack the areas in your life where you’re overspending because then you have a focus.

Q10: Door-to-door salespeople
How do you handle door-to-door salespeople or religious people? I feel really rude just closing the door on them, but if you just let them talk they’re usually convincing.

– Adrienne

If I don’t recognize the person, I’ll usually just say, “Thank you, but I’m not interested,” and then I just close the door and walk away. I do that for pretty much everyone who might be considered a salesperson, and I don’t feel guilty about it in the least. They’re on my property without invitation, after all. If you wish, you can put up a “no solicitors” sign.

Sometimes, I’ll end up debating religion with missionaries. I have some knowledge of the teachings of some of the groups that go door-to-door for missionary work and I actually enjoy discussing things with them, though they have zero chance of recruiting me. I just enjoy the discussion.

If I know the person, I’ll listen. If it’s a child from the neighborhood trying to sell something on behalf of their youth group, I’ll usually buy an item.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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 many, many questions per week, so I may not necessarily be able to answer yours.

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