Reader Mailbag: Spring Rain

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. Car loan versus mortgage
2. Childhood identity theft
3. Shopping in Wal-Mart community
4. Tax refund questions
5. Change fonts to save money?
6. Phantom energy?
7. Are CDs worthwhile?
8. “Fuel saver” programs
9. Early retirement
10. Mortgage escrow account question

This past Saturday was the most beautiful day of the year by far. I spent several hours doing yardwork, playing Frisbee with my children, and eating a grilled dinner outside.

Then Sunday arrived, bringing a 50 F drop in temperature (from 90 to 40) and a bunch of rain. It’s been largely rainy ever since.

This really feels like spring in Iowa, where the temperature varies widely from day to day but cold weather is no longer the rule. I love it.

Q1: Car loan versus mortgage
I did my budgeting calculations and project saving up until the end of the year, $22,000, that can either pay 20% of our mortgage (at 12% now, paying PMI of $148 since 2011), thus reducing our PMI. Otherwise, we can put this savings to pay in full our car loan (5 yrs started in Sept 2013, 1.9% interest, $575 monthly expense). Additionally, my company is changing the pension plan and is allowing me to contribute 6% more (w/o their match), for the past 5 yrs of service, yielding a fixed 3% interest; and upping my previous 23% pension to 29%. I understand the long-term vs short-term implications and the car depreciation factor in this decision. If you were in my shoes, where would you put your money? We don’t have any credit card debts and we have 2 months of emergency fund and hubby & I are both 30 yrs. old, with one child.

- Daisy

If those are your three choices, I’d pay off the PMI.

I wouldn’t deal with the car loan because the interest rate is so low. That would definitely be behind the mortgage. I probably wouldn’t put unmatched money into a pension fund in any situation. I’d much prefer to open a Roth IRA if I’m investing my own money.

So, given the information you’ve provided, the PMI is the winner by default. An extra payment on a home mortgage that also happens to do away with PMI payments that you would have otherwise had to make over the next few years seems like the clear winner here.

Depending on what else you have for retirement, a Roth IRA might also be a solid choice for some of that money.

Q2: Childhood identity theft
My grandmother suggested I write to you for help with this problem. I am seventeen years old. For most of my childhood, I just learned that my mom has been using my Social Security number to get credit cards, charge them up, and then not pay them. I was working with my grandmother to figure out how I was going to pay for college and our guide suggested that I look at my credit report to make sure it was clean because many private student loans require a credit check. That’s how I found all of this stuff. How do I get rid of it?

- Sharon

Your mother has committed fraud against you. The only way you’re going to be able to resolve this is with the help of the law. In order to dig through the mess, you’re going to have to file police reports for each of these debts. If your grandmother is able, contacting a family lawyer before doing this is probably a solid move, as that lawyer (or someone he or she recommends) can guide you as to how to handle this best in your state.

At the very least, you’re in a situation where active credit monitoring is appropriate. I have been unsatisfied with credit monitoring services, so my suggestion is to just make sure to manually check your credit history at AnnualCreditReport.com every four months.

You need to get this fixed. Without a reasonably clean credit history, many landlords won’t rent to you, so you won’t have the option to rent an apartment.

Q3: Shopping in Wal-Mart community
I am really bothered by how Wal-Mart pays low wages and restricts hours in my community, but it’s the only department store in town and the only other grocery store is an expensive food co-op. How can I be frugal without supporting this business?

- Andrea

The first thing you should do is take your grocery list and look for all other options for buying those items.

For non-perishable goods, buy them online. Look at Amazon.com, for starters, but there are many other options for doing that. If you can assemble $35 or more in goods into a single order, the shipping is free. If Amazon doesn’t meet your standards, look for other options. It does require you to plan ahead a little, but you can surely notice when you’re getting low on trash bags or shampoo.

For perishable goods – meat, produce, and the like – carefully plan your trips to grocers in a nearby town. Use their flyers, make a meal plan, and make a trip that covers two weeks of groceries in one stop. Freeze some of the produce and use it the following week.

It might be convenient, but you certainly don’t have to shop there if you don’t want to. Just use your frugal principles, but cut Wal-Mart out of the equation as much as you can.

Q4: Tax refund questions
I was not living in the USA until the last year. I am writing to you because I just moved to the USA at the end of 2012 and have been working since that time. This year is the first time I am going to file a tax return and have several questions about it and I wanted to see if you could provide me with some guidance. I have talk to people at work and gone to one of those places that file your taxes, but it seems that my situation is not quite common and they do not now what to do. I have read a lot about tax refund here in the USA but the more I read the more confuss and frustrated I get. My biggest concerns are the followings:

Apparently I was suppose to do file returns to the USA government for all the years that I was living and working outside the USA, is this correct? If it is how do I file them?

I had a small partership in a business outside the USA which might had some losses or gains in 2013, do I have to declare this in my 2013 tax return? If so how do I do it?

I had a retirement account in the country I was working, which might had suffered some losses or gains in 2013, do I have to declare this in my 2013 tax return? If so how do I do it?
- Steve

There are many factors that relate to these questions that I can’t extract from your email.

However, I have two strong suggestions for you. First, use a solid software package for your taxes. I have been using TurboTax Home and Business for years and it’s worked splendidly for me. I know it also handles some common international issues for U.S. residents, too.

Second, call the IRS directly. They can walk you through any broader questions, particularly your first one. Their telephone assistance is really busy this time of year, however.

My suggestion would be to roughly estimate your taxes for the year to the best of your ability, then file an extension.

Q5: Change fonts to save money?
What do you think about this article? Apparently, you can save 25% or so on your printing costs just by switching fonts.

- David

This is a really cool article. It basically shows that if you’re printing a lot of text, you should use Garamond as your font. Doing so will save you a surprising amount of ink, because printing individual letters in Garamond uses less ink than printing in Times New Roman (for example).

If you print a lot of written documents at home, this can save you money, especially if you’re not particular about the font. Just switch the font in your word processing program to Garamond before you print. If it’s a web document, save it, open it in Word, and then change the font before you print.

For us, it’s not a huge money saver. We don’t print a lot of documents that are text-heavy – most of our printing is images. Still, it’s a useful thing to know that might help you squeeze more pages out of your ink cartridge.

Q6: Phantom energy?
Is phantom energy really a real thing? I saw a special on the news last night talking about how devices that are just sitting there but plugged in are still eating energy. How true is that? Is it enough for me to care about it? The news reporter was all alarmed about it but they seem to get worried about stupid stuff on the news all the time.

- Gerald

It exists. It can add up to about 10% of your total energy usage, adding something like $5 to $20 to your home energy bill (depending on your devices).

However, leaving stuff plugged in is generally more convenient than unplugging it all the time. It’s sometimes not easy to access outlets and even unplugging two or three items from a single outlet won’t change things too much.

It’s probably worthwhile to go around and unplug reasonably convenient things before you travel, but in terms of worrying about it every single day, it’s probably not worth it. You’re saving maybe a nickel of energy per device per day. So, if you can unplug 20 devices over a ten day period, you’re saving $10.

Q7: Are CDs worthwhile?
I have no debt and am starting to build up some pretty good savings. I do 10% to my 401k and max my Roth IRA. I have about $15K Emergency Fund (expenses at $2K per month), $15K House Down-payment Savings, and about $5K in a savings account set aside for travel. I have everything just sitting in Ally Bank Savings accounts. Should I be doing something else? CDs? The rates aren’t much better than the savings account so I’m not sure what to do.

- Andrew

Right now, CD rates aren’t much better than savings accounts. Interest rates are simply so low on everything that it doesn’t make sense for the banks to distinguish much between CDs and savings accounts – they can’t really afford to pay out much on either one.

When interest rates go up, you start to see a bigger difference. Several years ago, when I was really paying attention to rates, you could often find CDs that were 2% or even more higher than the same rates on savings accounts. You could find a 5% savings account, but there would also be 7% CDs.

CDs become much more compelling when the Federal Reserve is keeping rates high. Right now? They’re not a great deal.

Q8: “Fuel saver” programs
The local grocery store has started a fuel program with the gas stations in town where if you buy certain items, they give you a coupon that’s worth a few cents off of each gallon at the gas station. This seems like a good deal to me. What am I missing?

- Harriet

It’s a good deal if you actually want the product that has the coupon attached.

Our local grocery store, Hy-Vee, has a Fuel Saver program with Casey’s (the local gas chain) that works exactly like you describe. You buy certain items in the store and they reward you with coupons discounting a few cents per gallon from your next gas purchase (the coupons have a 20 gallon limit).

The drawback is that the discounts are rarely associated with stuff I want to buy. My list is usually made up of the stuff that’s on sale in the flyer which usually provides a bigger discount than the fuel saver discounts. Frequently, the discounts are attached to things like frozen pizzas, which I simply don’t buy.

If you can get some discounts while sticking to your grocery list, it’s basically free money, but I don’t think they’re usually worth changing your grocery shopping habits.

Q9: Early retirement
I am 59 years old. My company just offered me an early retirement package that includes a small lump sum now plus it adds ten years to my employment count which means a much bigger pension.

- Sam

I am always a little cautious about pension programs. The first thing I would check is whether or not your employer’s pension program is covered by the Pension Benefit Guaranty Corporation. In other words, is it insured in some way against the failure of your company?

If it is, then I would try to run the numbers on your situation. Can you survive on what your monthly income would be under the pension? Are you thinking about getting another job after retiring (to keep yourself busy)?

If both of those check out and you feel it’s time to go, then I’d feel okay taking it if I were in your shoes.

Q10: Mortgage escrow account question
I have a question about managing my home mortgage escrow account. For the past couple of years, my homeowners insurance has increased (no surprise), and rather than have my payment go up I would rather pay the difference to my lender in a lump sum. Property taxes have not changed signifcantly, so I don’t worry too much about that difference.

I have to really press hard to get this done. My lender is always very resistant to this practice, and this year raised my escrow deposit $50 per month. They didn’t properly project the amount last year, and they tell me they cannot let me catch up my escrow and that I just have to let my payment increase.

Personally, I would much prefer to pay my own taxes and insurance, but my lender is not open to that option.

Why would my lender not want me to pay the difference in a lump sum in order to keep my monthly payment steady?
- Daniel

Your mortgage company is resistant to this because it drastically increases their liability. They want to make absolutely sure you’re paying for your insurance.

Let’s say they agree to your plan and then you choose not to pay your part of the insurance. The insurance lapses. Then your house burns down. Suddenly, there’s a worthless asset – a mostly-burnt house – with a huge mortgage on it and no insurance to cover the damage. They’re not going to bet that you’re ultra-honest and will keep paying the mortgage after that. If your house burns down, they want to be sure you’re getting the insurance money which you would then use to complete the mortgage.

The same is true for taxes. If you choose not to pay, then the lender is in trouble.

They’re protecting themselves from these kinds of situations. That lowers their risk in dealing with you. If you choose not to pay into the escrow, then they can handle it as they see fit (possibly by repossession). They do the same thing to most of their mortgage holders and, truthfully, I think it’s completely reasonable. They have an investment to protect, just like you do.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. IĆ­ll 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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