Reader Mailbag: Stephen Strasburg

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I’m in a pretty competitive fantasy baseball league this year. During our draft, I made the most controversial pick, drafting Stephen Strasburg (who has yet to make his major league debut) with my fifth pick in the draft.

He has been utterly unhittable in the minors. Every day, I get up and look at the sports news, wondering if the Nationals have called Strasburg up yet. Every day, so far, I’m disappointed.

My team is solid without him, riding in fifth place in a sixteen team league. But it’s painful to know that my fifth pick is that good, but he’s not helping me at all yet.

Please, Washington, bring him up!

I’m in a bind. I’m twenty years old and had a plan to spend the summer studying in Jordan but a lack of preparation on my part left me with no way to pay for it–so, I’m spending the summer with my parents. I seem to have literally all the time in the world–with no worries about room and board, how can i improve my life in three months? What would you do to focus and improve your existence with so much time and so little pressing responsibility?
- Fernando

If I were you, I’d spend the summer focused on completing a large, high-quality project of your own choosing in whatever your field of interest is. Devote fifty or sixty hours a week (at least) to it, building your skills up along the way.

Spend a week or so figuring out exactly what you want to do so you can clearly state what you want to complete and develop a plan for getting there. Plus, you’ll want to also know if it’s something that you can bring that much passion to.

It could be anything from producing a creative work to starting a charity – or countless other things. Just focus on bringing it to completion and make sure it’s something that’s going to really stretch you and make you work to get there.

When you’re finished, share it! Make a website about it and put it online. Add it to your resume.

I was hoping for your advice regarding the topic. I am an attorney. Should I blog about something I am interested in (sports) or something I may know more about (the law). Of course, I am also interested in various legal topics as well, but I have a greater interest in sports, although I have no expertise in that area.
- Bruce

The best topic for a blog has three elements: you’re interested in it, you have some particular knowledge or experience to share about it, and other people will want to read it. The last one varies a lot in importance depending on your goal with blogging.

If I were you, I’d start with a topic you’re passionate about – probably the sports one. I’d try writing some blog posts, then I’d read them and ask yourself whether you, as a reader, would have any reason to read this instead of, say, Deadspin.

Basically, what you’ll be doing is cultivating a voice – a unique perspective on the topic at hand that others will be interested enough to read. I have a “voice” on The Simple Dollar – it’s very earnest and conversational and family-oriented and speaks heavily from personal experience.

I am 74 years old and have been a nurse for 40 years I have been employed. I have had a business – small assisted living for elderly. My husband and I have had 3 business devistating things happen to us thus took our nest egg and now find ourselves living from social security check to social security check. We are still paying a home mortgage and had borrowed equity on that. We have only $16,000 left in a mutual fund, with a $75,000 mortgage to pay and $1400 in SS income. My husband will be 80 and still works at a job 2 days a week simply because he has to. I have become disabled. We do not know how to manage this situation. Do you have any ideas?
- Norma

You have to immediately get your monthly spending below your monthly income. If that means selling your home, that’s what you’re going to have to do.

Find a small apartment, perhaps in low-income housing. Start using services like the local food pantry for your food needs. Sell your car – there are often services that will help you get to any medical appointments if you need it.

What you’re sadly facing is the reality of a society that chooses to neither take care of the elderly nor make it possible for lower-income folks to build security in their golden years.

I found a federal credit union (Aspire Federal Credit Union) that pays 3.5 % on checking, and 2.5 % on your linked savings. You have to make 12 debit cards transactions a month to get the rate, which putting gas in each car, and buying grocerries, I can easily do. You have to make one automatic payment and get e-statements. It has the NCUA seal, but what other way can I verify this bank, before I open an account?

I thought about opening both, but keeping most of the money in checking for the higher rate. We are debt free, and finally have an emergency fund and cash saved for taxes. We’re now starting to save for our next car. I track savings with an excel spreadsheet. I love the idea of smarty pig, but this higher interest rate is very attractive! Any thoughts?
- Cheryl

Aspire Federal Credit Union is a closed union, meaning you have to be an employee of one of the organizations that participate in that union (or a partner of an employee).

This is one of the reasons why “rate hopping” can be really time consuming. A lot of the offers are limited or restricted in some way, so you often have to look at several offers before you find one you’re eligible for and isn’t restricted in some way that makes it difficult for you to earn the rate.

As for the “you have to use the debit card X times to get the rate,” I simply don’t like it. It puts a behavioral requirement on my spending – I have to spend enough times each month using that card in order to make it worthwhile. I don’t want to waste my time keeping track of it or have to remind myself to use it to buy a pack of gum I don’t really need to make sure I hit my number of transactions for the month.

I have tried to do some careful calculations about buying used vs new … but one of the difficult factors is that buying the used car saves (purchase price) money in the short run — but you have to buy a replacement sooner; so how do we deal with the money saved by buying used? I’m really thinking about total value of my investments: if I spend $25 k for a car, that is gone, forever. If I spend only $20k, I keep $5 k in the money pot, but I have to draw out another $20 k sooner than I would have if I’d bought a new car.
- Tony

The general belief is that after buying new, there’s a rapid depreciation period right after the purchase. In other words, a new $20,000 car immediately depreciates to $15,000 (or so) as soon as you drive it off the lot.

Because of that quick initial depreciation, the argument usually is that the best bang for the buck is in late model used cars, where the actual wear on the car hasn’t caught up to that huge initial depreciation yet.

Now, whether that belief is entirely true is a long source of argument. Many cars – Hondas, for example – simply don’t depreciate much when they’re driven off the lot.

Another factor that pushes people towards used is that it’s a lot easier to come up with the cash to buy an $8,000 used car than it is to pay cash for a $25,000 new car. If you have to take out a loan on a car, that’s a losing proposition no matter whether it’s new or used.

My belief is that if you have the cash in hand and have done the research, you should simply buy what’s best for you based on the factors you’re looking for.

What are your thoughts on the Move Your Money project?
- Justin

Move Your Money is a political group encouraging people to move their money out of the large “too big to fail” banks and into smaller community banks and credit unions.

I’m completely fine with this type of protest against the actions of large businesses. It’s a great form of protest and protest is an important part of a thriving society.

Would I participate in it? No. The banks are just doing what they should be doing to survive and thrive. If their behavior is seen as detrimental to the public, then there needs to be more banking regulations. Thus, if I were outraged, I would be putting my effort towards getting people in office who will truly work for better banking regulations.

I expect a business to operate within the law and within their agreements with customers. The banks did that. The problem is that the law and their customer agreements made for behavior by the banks that, viewed on the whole, many people find distasteful. The solution there is to change the law and/or to change the customer agreements. Since I have the power to choose whether to sign such an agreement, I think the real place for activism is changing the law.

About a year and a half ago my husband (45 y.o.) was diagnosed with a chronic medical condition that will require him to take a medication daily for the rest of his life that is astronomically expensive….around $8,000.00 per month. Due to his health insurance, we just pay a co-pay of $50–yes, we feel incredibly blessed! His prognosis is good as long as this medication continues to work as well as it has been. My question is this: is he “stuck” at his current job for the rest of his life (assuming they want to keep him)? For a multitude of reasons, he would like to look around for some other job but we’re not sure how the insurance thing would play out. He is the sole breadwinner and being without his salary and insurance for even a short amount of time is really not an option. We realize that given the current state of our health care/insurance system, you may not know the answer to this, but thought it was worth it to ask your advice. We really don’t who else to ask about this as he obviously can’t go in to his HR person at work and ask her!
- Laurie

Obviously, a major criteria for any job change would be insurance. Would you be guaranteed entry into the insurance program at the new workplace? If he’s applying elsewhere, he needs to figure out the exact insurance benefits before moving (and maybe even before interviewing or applying).

The question you need to be asking isn’t at your current workplace, but at the workplace that you might move to.

Again, as mentioned above, this situation points to some societal problems that could be solved if people of lots of different political stripes would actually sit down at the table and solve problems together.

As a U.S. citizen, if I live abroad, and do not work for a u.s. company or
hold property in the u.s. do I still have to pay taxes to the U.S.
government?

- Parth

As a citizen, you do need to file your taxes. However, you probably don’t have to pay any taxes.

The Foreign Earned Income Exclusion basically is meant for people like you. It basically says that money earned in your situation is excluded from federal income tax.

Now, that doesn’t mean you don’t file your taxes – you still have to do that as a citizen. Instead, you basically file with an enormous deduction that reduces your tax bill to zero.

I’m a 20 year old college student, and I still have a piggy bank full of coins from when I was much younger. So far I’ve really only kept it for some sort of sentimental value, but I feel like I should be able to do something better than just having it sit there at this point (even though it’s only about $10). What would you suggest doing with the money?

Also I have some coins saved from when they were doing the 50 states quarters and $1 Sacajawea gold coins. Will these increase in value in the years to come or are these only for coin collectors (a related question: is a “two dollar” bill worth more than $2 since it’s now rare)? My dad is the coin collector in the family and although I sometimes find it nice to look at all the different coins, I’m not sure it’s worth it to keep them just for the sake of having them. What would you suggest? Again, in all I probably only have around $10 from these coins.
- Alaina

You’re talking about very small sums of money in both cases. With the change, putting it in a savings account that earns 1% means you’ll earn a dime for every year it sits in the account. That’s not a stellar return, but it’s a better return than it would earn sitting in your piggy bank.

The same largely holds true for the other money. The state quarters may have a small premium value if you can find a buyer, but there are so many sets in circulation that their premium value is extremely limited. The $2 bills aren’t nearly as rare as people think – they’re still being actively printed, but people often snatch them up and hoard them under the false impression they’re rare. You’ll likely only be able to sell them for more than $2 if you find a mark.

In short, you’ve basically got the cash value you see. With that small amount, I’d just put it in a savings account and let it be.

This year I got serious about punching out my debt. I have (gulp) a nearly 24 percent car note with a balance of $12,700. My car payment is $486 and starting June 1, I will be putting an extra $390 or $800 per month (depending on the pay period) towards reducing this debt. This debt is my number one priority as the interest rate is appalling!

At the same time I’m paying $500 towards my student loans ($36,913.54 at 2.5 percent variable apr and $12,253.21 at 6.8 percent). I’ve applied for a student loan consolidation for these loans and the estimated fixed apr is 3.85 percent with a monthly payment of $250 for a 30 year period.

My question is two-fold. Should I move forward with the student loan consolidation and just plan to pay this off aggressively and well before the 30 year time line?

My car note and student loans are my only debt.

The second part of my question is related to retirement funding. My employer offers a 401K, but no match. I have a small emergency fund ($2500), but nothing saved towards retirement. While I do continue to put some money in savings it’s not a lot and once I start my debt repayment plan in June, my deposits to savings will sink to $200 or $300 a month max. This concerns me, being that I’m almost 35.

What suggestions do you have regarding my plan?
- Tara

I would absolutely not do your consolidation – you’ll regret it big time over the long run. Right now, the effective interest rate on your two student loans is 3.51%. With every extra payment you make on the higher interest loan, your effective interest rate goes down. Compared to the 3.85% interest rate on your consolidated loan, your consolidation is a bad deal. The only reason to consolidate is if you can’t make your current monthly payments (which doesn’t sound true) or you’re concerned that your rate is going up in the next couple years (not very likely, either). If I were you, I wouldn’t consolidate.

As for your retirement, if your employer doesn’t offer any matching, you’re better off putting money into a Roth IRA than into that 401(k). A Roth IRA uses after-tax money, which means you won’t have to pay taxes on any withdrawals come retirement age. Better yet, you have the choice of which company you want to manage your Roth – you’re not just stuck with your employer’s choice for a 401(k) partner. I use Vanguard for my Roth and I love it.

If I were you, I’d just pay down all of your debts in order of their current interest rate, throwing as much cash into them as possible. If a rate adjusts, that might adjust your priority for payment, but I wouldn’t worry too much about it.

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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62 thoughts on “Reader Mailbag: Stephen Strasburg

  1. Re: Strasburg– The Nationals will not bring him up until June 1 at the earliest. They would be obligated to pay him more $$ if they called him up. I believe it is part of the MLB CBA and how Rookies are handled.

  2. As a writer of a financial blog, you should be happy to know that the Nationals haven’t brought up Strasburg because by bringing him up June 1 (as opposed to before then), they can delay arbitration by one extra year, allowing them to pitch him an extra 2/3 of a season before having to renegotiate his contract.

  3. Your answer to Parth is a little off the mark.

    There is a foreign earned income exclusion, but you still have to pay taxes. The exclusion will reduce the amount of tax owed and you may owe nothing, depending on your income.

  4. Can the sports enthusiast who is an attorney blog about legal issues related to sports? Athletes, entertainers, and doctors all seem to make spectacular financial errors (usually in a quest to reduce taxes) and probably make some unintentional legal errors too. Professional and amateur athletes might appreciate some easy-to-follow legal guidance. Just a thought.

  5. The sports blogging lawyer, if s/he has friends or colleagues with similar interests, might start a group blog a la Popehat, which is mostly a law blog but does lots of other interesting stuff.

    I admit I am not the average reader, but I would bookmark a half law, half sports blog, if both subjects were covered in an interesting, regular way..

  6. “What you’re sadly facing is the reality of a society that chooses to neither take care of the elderly nor make it possible for lower-income folks to build security in their golden years.” Yes, it is sad that our society does not take care of the elderly, but you just listed a bunch of ways that our society does make it possible for them to have security in their later years. Security is knowing that they can get food at the pantry and a car ride to the doctor. Continuing the entitlement mantra to be supporting a couple who still have amortgage into their 70s and 80s doesn’t make sense to me.

    Cheryl, did you already look if they are FDIC insured? That would be the way to verify that they are legit. And just because Trent does not use his debit card 12 times a month and would have to buy gum to make up the transactions, doesn’t mean you have that problem. Look at your last 6-12 months of statements, if you consistently have made that many transactions without trying, you are likely to continue.

    Aren’t there calculations one can do to decide on the used-vs-new car issue, similar to what companies do when determining investments that include the replacement timing? Anyone a financial manager?

    Laurie, rather than complaining about politics, Trent could have pointed out that as long as you do not lapse your husband’s coverage, as long as there is no time period that he DOESN’T have insurance, he would be able to get the new insurance at a new company. The limit therefore is to make sure the new company’s policy is to allow employees to be eligible for the new insurance before the eligibility on the old expires. So, any company that allows employees their insurance benefits on day of hire, without a wait period.

  7. I think the key thing is that if the Nats wait until June to call him up they get another yet out of him before free agency.

  8. If Parth earns more than $91k in wages he’ll have to pay taxes on the amount above that. And he’ll have to pay taxes on income from investments, business etc. wherever they are located. Even if you renounce US citizenship the IRS will want to charge you taxes for 10 more years… Most countries don’t have such draconian rules. It’s a big disincentive to becoming a US citizen or green card holder.

  9. For the working abroad question: I’m a US citizen currently working abroad. If you meet the Foreign Income Exclusion criteria, you can exclude up to $91,400 (this year) of your income from FICA. But as long as you are a US citizen and employed I believe you still have to pay Social Security and Medicare. I definitely have to, but I work for a US company operating overseas. There is a publication for US citizens working overseas, you should search for it on IRS.gov.

  10. I certainly hope that you’re playing in a keeper league. Not only do I think Strasburg is ridiculously overhyped, there just is no chance he provides fifth round value this year.

  11. Strasburg is most likely to be called up on June 4. By leaving him in the minors the Nationals are attempting to avoid having him reach what is caleld “Super 2 Status.” That essentially means that a player becomes elible for contract arbitration once MLB deems that a player has two full years of service. By waiting until June to call him up the Nationals are basically delaying Strasburg’s arbitration by a year until after the 2012 season instead of the 2011 season. This way, Strasburg will make the $3 million his current contract calls for in 2012 instead of the $18-20 million he would likely make after arbitration.

  12. @Tony – in the past we ended up buying new because the difference between a car with 30k miles and 0 miles was $1k. It seemed that the $1k was worth paying for since we keep our cars a long time.

  13. “The problem is that the law and their customer agreements made for behavior by the banks that, viewed on the whole, many people find distasteful. The solution there is to change the law and/or to change the customer agreements.”

    Well, yes, and also to take your money out of a situation you find distasteful. You keep more than three times the money circulating in the local economy with a local business versus a national chain. Fees and dings aren’t being tacked onto your account to pay for huge television ad campaigns and bloated CEO pay (http://www.aflcio.org/corporatewatch/paywatch/ceou/database.cfm#WX). Sure, it would be great to get laws changed, but in the meantime there’s no reason for your money to be used to participate in bad behavior.

  14. “What you’re sadly facing is the reality of a society that chooses to neither take care of the elderly”

    I’m confused – Norma clearly said she’s receiving $1,400/month in government benefits. So society *IS* taking care of her, to the tune of $1,400/month. Sounds like society’s being pretty generous to her, in my book.

    I don’t really think it’s society’s fault that $1,400/month is insufficient for the lifestyle Norma and her husband have created for themselves. One item that caught my attention was the fact that even after working 40 years in a stable career, they haven’t paid off their home. Eliminating the mortgage before retiring would have allowed her meagre investments to have lasted much longer.

    I don’t mean to be disrespectful. The subtle, socialist bent in Trent’s comment really gets my fire going. It’s really easy to be generous with OTHER peoples’ money.

    Norma should sell the house.

  15. @Tara — we were able to refinance our car loan through AAA. We still paid it off early, but this might be an option for you to get away from that high interest rate with very minimal fuss. Generally they can tell you over the phone if it’s even possible to do and what’s available. Of course, this also requires a decent credit rating, too.

  16. For Laurie and her husband – yes, that’s a tricky one to navigate. My husband and I faced a similar problem – he also had a chronic medical condition that required medicine to the tune of ~$6k/month. I don’t think it’s helpful to ask the HR people at his potential employer about the scope of the health benefits. They often just don’t have the detailed information to give – that’s a question for the insurance company. Also, asking detailed questions about the health insurance early in the interview process might get your husband’s application nixed. Not fair (or legal), but that’s how it is.

    However, what you can do is educate yourselves on insurance regulations in your state. That way you can figure out which insurance benefits are particular to your current plan, and which are benefits that any insurer in your state is legally obliged to provide. (This is good advice for anyone dealing with any chronic medical condition!)

    Also – and this is the biggest piece of advice – if his insurance did not cover the medicine, it’s highly possible that the pharmaceutical company could give it to him for free. My husband benefited from such a program – he was part of a clinical trial right before a drug came to market. When the trial ended, my husband needed the medicine, but our insurance would not cover it. One of the nurses at his doctor’s office assisted us through the application process with the pharmaceutical company. I suspect that your husband’s doctor’s office offers similar assistance to patients.

    I hope that helps …

  17. @Kat – FDIC doesn’t insure Credit Unions, only banks. NCUA is the credit union version. Cheryl mentions that the CU “has the NCUA logo”, but the next step would obviously be to contact NCUA and verify that the CU is indeed legit.

    Laurie – I would do a google search on COBRA. This is a law that allows you to keep your insurance after leaving your employer. The catch is that you have to pay for it. There is a bit of sticker shock that comes with realizing how much money a month your employer was spending on your insurance, but in your case it seems like it would be worth the cost.

  18. Laurie – one thing to think about with regard to a new job and new insurance for your husband: how much will a new policy cover for the cost of the medication? If you suddenly had to pay $500 or $1000/month for medication it could significantly impact your finances. This is a very real consideration and one that I’ve seen have devastating consequences.

  19. Just want to comment on 401K versus Roth. Despite not getting a match, that decision really depends on the tax bracket you are currently in versus the tax bracket you expect to be in when you would start drawing from the account. Basically, if you are the 15% bracket now and expect to be in the 25% bracket at retirement, then yes the Roth would be better because you pay less taxes overall resulting in the largest appreciation of your contributions. However, if that role is reversed (which is the most common), and you are in high bracket now but will be in a lower bracket at retirement (usually because you need less income in retirement), then the 401K is a better choice because you defer paying taxes until you withdraw the money.

    A common strategy for most people is to max the 401K to the match, then (with any remainder) max the Roth, then (if any remainder) max the rest of the statutory limit in the 401K, then invest any remainder in a normal brokerage account.

    Most companies aren’t matching very much anymore. A healthy investment program will generally include a combination of the 401K and Roth at a minimum. If you max both, I believe they are 15,500 and 5,000 respectively, you are only contributing 20,500 toward retirement each year. Depending on how old you are, this may not be enough.

  20. @Ryan – actually, the 2010 federal contribution limit for 401k is $16,500, and Roth IRA is $5,000. Both have catch-up provisions for those over 50 (an additional $5,000 and $1,000 respectively). However, there can be other limits – employers can impose rules on how much employees may contribute to 401ks, and there is an earning threshold for Roths.

  21. I agree that the problems Norma & her husband are facing are not society’s fault. SS was never intended to be all of one’s retirement. They got caught in a bad economy & whatever the business catastrophes were they had to use up some of their investments for. Assuming they have a lot of equity in their home, then selling it would be first route to getting more liquidity. However, if their total mortgage is for 75K, they may not be able to find adequate safe housing with rent that’s less than their mortgage payment. Between SS, their savings, low-income resources for housing, food, transportation & medical care, they’re just going to have to deal with living on the income they have. It’s sad they they are going to have to go on a bare bones budget after all those years of work, but life isn’t always fair.

  22. @ Fernando- I am the mom of a 20 yr old who almost had his summer plans fall through too. I would suggest you attempt to get a job to try to save up some cash so you don’t have to pass up future opportunities, or else you could help out your parents by spending some of your time helping out around the house.

  23. Fernando – Read Norma’s question (& some of the others that are farther down the road of life than you) & then seriously consider getting a job for the summer. You say you had no way to pay for the summer you wanted this year; & apparently have free room & board with your parents instead. If you work the 3 months, you can sock all your earnings away toward any of the big expenses you’ll be facing once out of school, or even better, protect you in your retirement!

  24. Regarding the 401K vs Roth… It’s not uncommon for employers to offer Roth 401ks. I wouldn’t jump to the conclusion that Tara wasn’t talking about a Roth 401k. I’d suggest sticking with the 401k, especially if roth is an option because her employer might begin matching sometime in the future and she wouldn’t have to go through this analysis again to take advantage of that.

  25. Wow I hope it was a keeper league. Otherwise, there are bad 1st rounds picks….and then there is your pick.

  26. All new cars depreciate significantly in the 1st year. Some depreciate less than others. Honda’s may lose ‘only’ 25% of their value compared to 30-40% for other makes however. But all cars including Hondas still depreciate significantly in that first year. Average car models lose about 66% of its value over 5 years. A car that holds its value well will lose about 50% and a car that loses lots of value might lose 80%.

    Bruce: Could you blog about the legal side of sports?

    Norma: Depending on the details, they might be a good candidate for a reverse mortgage. If they have some equity and want to stay in the home then it would really help their expenses and allow them to stay there. I would be wary about the fees on reverse mortgages and shop around to find a respectable bank with reasonable rates.

    Tara: I strongly disagree with Trents advice against consolidating. I think consolidating to lock in that low 3.85% rated is a great idea. Your current 2.5% rate is a variable rate which IS *definitely* going to go up. Interest rates are basically as low as possible right now so they have nowhere to go but up. Its not a question of if rates will go up but when. Rates could easily go up 0.5-1% in a year or two and if they do then you’ll be better off for sure after consolidating. Long term you’re almost assured to pay less interest with that fixed 3.85% rate. So locking in a 3.85% rate for 30 years is definitely a good idea in my opinion.

    Consolidating will also allow you to an extra $250 /month into the high interest rate car loan to pay it off faster. You’ll most definitely come out ahead within a couple years if you consolidate the student loans and use the $250 difference to knock out that car loan faster.

  27. “What you’re sadly facing is the reality of a society that chooses to neither take care of the elderly nor make it possible for lower-income folks to build security in their golden years.”

    Between SS and medicare, ours society does take care of its elders. It can not however do it all for everyone. The letter write says she was a nurse for 40 years! Nurses make an excellent salary. Somehow they managed to not save, or blow their savings on failed business ventures. She is in her current situation because of poor decisions on her own part. No because of society letting her down…

    (This is not aimed at the letter writer, who was merly asking for help. This is meant for Trent)

  28. Trent – How are you comfortable giving advice to people like Tara, when you know just a fraction of her finaicial picture? She has a 24% loan on her car. 24%! I would think that trading a .37% increase on her student loans for paying down her auto loan earlier could be a good thing. Could be? Yes, because of the small sliver of what we know about her doesnt give enough information to give her a good answer.
    People are making big financial decisions based on the advice that you give them. How do you know that you are giving the right advice?

  29. I have a question regarding 401ks in the context of my own situation, possibly for a future mailbag:

    In late 2008 I was laid of from a fairly well paying job. I found another job fairly quickly, in a field I’m happier in, making $20,000 less than previously. My mortgage payment is 1/2 of my monthly salary and I’m barely making ends meet month to month. I owe more on my house than it’s worth, so selling isn’t an option, and I haven’t qualified for any loan modification programs. I haven’t been able to make any headway in rebuilding my emergency fund after that month of unemployment. Some months I can find $50 or $100 to add to it, other months I have to dip into it to get through the month. Right now my emergency fund is at $10K and I’d feel safer if it was more like $15K.

    Currently I contribute 8% of my salary to my Roth 401k with no company match. (I’m 30 and 8% doesn’t feel like it’s enough) We just learned the my company going to be offering a 3% match starting next month! My question is: Should I reduce my contribution to %5, which doesn’t change my retirement situation, but would help me a tiny bit in breathing room each month and allow my emergency fund to grow a bit faster? Or do I not change anything, watch my retirement grow and continue to look for ways to be more frugal to make ends meet?

  30. @Norma: I second jim’s suggestion of looking into a reverse mortgage. It might not turn out to be a good option for you (especially if you don’t have much equity) but it’s worth finding out.

    Could you rent out a room in your house (ideally to someone you know and trust)?

    Reader Mailbag #93 had a question somewhat similar to yours (a disabled person on a fixed income trying to make ends meet) – the comments thread there has lots of suggestions of ways you might earn or save a few extra dollars.

    You don’t say what kind of mutual fund your $16K is in, but if that’s your only savings and if any of the money is invested in stocks, I suggest taking it out.

  31. @Tara – $500 is too high to be paying for that amount of student loan debt when you have another high interest loan. Think of it like this… if all of your debt was combined and you made a single payment, you would always want as much of it as possible to go against the 24% rate.

    If that’s the minimum payment, you can reduce it temporarily (for about 5 years) by switching to a graduated repayment plan. It would basically reduce your student loan payments right now to interest only. Over time the minimum payment (NOT the interest rate) will increase until it is higher than it is now. If you are serious about your debt repayment, you should have the debt paid off by then anyway.

    For now, though, you would be able to move any excess $ that this frees up to your high interest car loan. I calculate that changing to a graduated plan would reduce your minimum student loan payments to $150 per month total, leaving an extra $350 to put toward the car.

  32. @Jackie — selling is most certainly an option! You are treading water and the mortgage is a giant weight tied to your feet. Right now you are able to keep our head under the water, but eventually that emergency fund is going to be drained by a thousand cuts, or one big one and you are going to really be up the creek — trying to sell a house with a leaky roof, a furnace that doesn’t work or paint that’s in horrid shape, etc. Then the house will be worth even less because it has been so neglected.

    Or at some point you are going to need to replace your existing car and will need to come up with several thousand dollars.

    You need to look at what you can sell the house for and what the difference is you need to make up to get out. It sounds like you aren’t interested in changing your career, so your spending needs to adjust since the income isn’t there to support your old standard of living any longer.

    Other options — taking on a second job (or coming up with a $20K income stream), renting out room(s), getting a job that pays $20K more, reducing your lifestyle even further (if possible). I’m betting you already tried all or some of this stuff and it isn’t working for you. Something’s gotta go.

  33. @Jackie: If you give yourself the extra 3% for “breathing room,” will it actually go into the emergency fund? Or will you start being less careful about your spending, so that the 3% vanishes into thin air (or, it goes into the emergency fund, but it comes right back out again when you need it to get through the month)? Only you can answer that, but if it were me, I’d lean more toward the certainty of an adequately funded 401(k).

    It seems to me that no matter what you do with the 3%, ultimately you’re going to need to figure out a way to either spend less or earn more. And you’re going to need a more specific game plan than “try harder to be frugal,” since you’ve *been* trying, and you’ve been making little headway. You’re in a tough situation with your mortgage payment taking up so much of your income, but it sounds like you’re very close to making it work.

    It’s hard to offer specific suggestions without knowing more about how you’re currently spending your money or your time, but I’d guess that you’ll have better luck with earning more than with spending less. You don’t need to replace the whole $20K – just earning an extra $100-200 a month could really help tip the scales in your favor. If an actual part-time job isn’t an option, is there something you can do within your neighborhood for just a few hours a week? Mowing lawns, yard work, housework, tutoring, lessons, babysitting, petsitting, housesitting?

  34. Affordable Senior Housing:

    To find affordable senior housing by state(meaning you are only paying 30% of your income towards housing) go to this website:

    http://portal.hud.gov/portal/page/portal/HUD/topics/rental_assistance/local

    After picking state, choose ‘find subsidized housing’ then, choose your county, and on #2 choose “elderly”

    Most of these apartments will be modest, but safe 1 bedrooms. They are typically near bus lines or offer vans so residnets don’t have to drive. I highly recommend that senior take a look at these if htey find themselves in a bad position.

  35. “What you’re sadly facing is the reality of a society that chooses to neither take care of the elderly nor make it possible for lower-income folks to build security in their golden years.”

    I think there is some confusion regarding this statement, or at least some difference in terminology. Social Security, at least in my opinion, is not the same as society taking care of the elderly as others have suggested. Norma worked as a nurse for 40 years (she doesn’t specify what her husband did or for how long). Its very unlikely that they are going to even get out of Social Security what they paid in. So SS isn’t society’s way of taking care of them, it is what is left of their ‘investment’ after others have been taken care of.

    Society is not the same as government. It is a shame that our society doesn’t do a better job of taking care of the elderly. This doesn’t mean that the government needs to do more to support them, however. In some cultures the elderly are cared for by their descendants (children, grandchildren, etc). There are also non-profit organizations that help the elderly. These are examples of society caring for the elderly, and it is a shame that we don’t do more of those things in our society.

    That’s not to say that I think people should rely on handouts to survive. That is certainly not my retirement plan, and I don’t believe it is Norma’s intent either. Sometimes things go wrong and hard-working people end up in bad situations. These are the cases where I’d love to see society offer more help.

  36. Regarding the jar of old money… you’re mostly right in that Sacajaweas, state quarters and $2 are only worth face value. But it might be worth looking for any old coins with high silver content. A silver dime (pre-1964) has $1.30 of silver in it. A pre-64 quarter has about $3.40 of silver in it. A WWII-era nickel has a dollar’s worth of silver in it.

  37. June 1st my friend – that’s the earliest someone with no major league time (other than a September call up) can be brought up and it not count against their free agency.

    I picked Strasburg, too, but in the next to last round. I knew he’d last that long. Can’t believe you had the kahunas to take him in the 5th round! Of course the first pitcher I took (there were keepers in this league) was Javier Vasquez and I’ve already sent him packing – so I don’t have much room to talk. But Matt Cain, David Price and even Brian Matusz (all are better long term pitchers than Stras) before I drafted God…I mean Strasburg.

  38. To the lawyer who’s considering writing a blog: my dad is a lawyer and he writes a legal blog. That was the best career decision he ever made. He’s really gotten a lot of business from it, and now he can choose to focus on the jobs that are more lucrative and easier/quicker/more enjoyable. He’s going to be hitting retirement age in a few years, and his blog has really helped to make sure that’s looking positive instead of scary.

    Also new cars don’t always lose much value. I have a 2008 Honda Fit that I paid $16k for, and now Kelly Blue Book says that $14k is a fair price for in in a private sale now. Not that it really matters, I’m not selling it.

  39. Regarding the Move Your Money project, I disagree with your conclusion, though I mostly agree with your reasoning. When corporations behave reprehensibly, they ought to be punished. I agree with your idea that action ought to be taken to change things from a legislative perspective. I disagree, strongly, with your idea that’s the only change to be participated in. The fact is, you are right that the way to change the situation is “to change the law and/or to change the customer agreements” but you somehow missed the fact that this is exactly what Move Your Money is all about. The most direct way of changing the customer agreements is to remove yourself from them and find another business that has an agreement you can live with. That is precisely what I did years ago, when I left Bank of America in favor of a local credit union. The agreements are more favorable to the customer in general, and I personally am better treated when I enter the establishment than I ever was when I was wrapped up with the BOA. Everyone should make such a change. Not just as a matter of principle, but because they will in fact be better served by using a smaller, local bank than they ever were with the multinational predatory lenders.

  40. Way to not answer Laurie’s question! Laurie- check out what is going on in your state with pre-existing conditions. Check out what prospective employers offer for insurance, and cal those companies to see what they would cover under Company A standard plan. Check out public options, and even moving to Canada and becoming a citizen. You should know all your options, not just for job searching- but what if he lost his job tomorrow during a company downsize? You need to know asap, as you are precariously perched.

    Fernando- get a job!!!

  41. I agree with J #8. Used cars are simply not worth it in my opinion, since the last time we looked, a brand new car with 4 miles on it was less than $1k more than a previous year used car at the same dealership with 60,000 miles on it (and the new one had a 6 year warranty as opposed to no warranty).

    I also agree with the other comments about the nurse. With 40 years at a good paying job, not to mention $1400/mo, they should not have any trouble living comfortably if they kept their expenses in control and had planned ahead.

  42. I don’t see what the big deal is with doing the 10 or 12 debit transactions a month to get a great rate on a checking account. I have two of these types of accounts myself. I just stop by a gas station four days month and do three small gas purchases at the pump, like .03, .02, etc. That’s the most my cards will let me do in a row per day. I’ll happily do that each month for 3+ percent on checking. Sure do miss the 6% though. Also, just set up a recurring $1 payment to yourself to meet the required ACH transaction.

  43. Trent, I think you’re missing one of the points about the move-your-money movement, which is to deprive financial institutions of the opportunity to “fee” their customers to death, by simply putting one’s money into banks that don’t do that. “Working to get laws changed” is necessary too, of course, but it’s a long-term strategy with an uncertain outcome, whereas pulling your money from Big Evil Global Bank and putting it with, say, a credit union or community bank is quick, effective, and solves the problem right NOW.

  44. Trying to anticipate what a new employers health plan will cover for you as a new hire is almost impossible. Thanks to the newly voted in national health care, supposidly, you MUST be covered, by someone, but at what cost? My husband stays in a job that is very taxing physically, because he has some major health issues that we could never hope to pay for out of pocket. If the new national plan guarantees that he will be covered, it doesn’t guarantee that the premiums will be something we could afford!

  45. Trent’s advice to Fernando on what to do with his summer left me cold.

    The first thing I’d advise Fernando to do is grab a notepad and pen and walk around his parents’ house looking at what needs to be done. New paint job? Window-washing? Gutter-cleaning? Replacing fixtures? Minor repairs you can learn to do by watching You-Tube? (If nothing needs doing there, how about the disabled neighbor’s house, or your grandmother’s? Charity begins at home.)

    Then dedicate at least one full day a week to taking care of those projects, and if there’s a big one, like painting the exterior, spend a day at the library learning how to do it and make THAT your creative project for the summer. If you’re not as close with your parents as you’d like to be, try to make some of them projects you can do together and that will let you learn from them. You’ll show your appreciation and respect for your folks, learn a new skill, get great experience in tackling a major project, and get a sense of pride for years every time you come home for a visit.

    I agree with the critical comments on Trent’s response to the disabled nurse. It is not society’s fault that she and her husband had bad luck with their businesses; our society offered her the opportunity for a well-paying career and a “safety net” that will keep a roof over her head and food on the table, but it can’t be expected to stand guard over her to prevent the taking of excessive risk, or make it up to her when it goes wrong.

    I also agree with Johanna that if her mutual funds are invested in stocks, she should get out of them. At her age and in her circumstances, the stock market presents too much risk and volatility.

  46. @Jonathan, you share the common mistaken belief that what we pay into Social Security is supposed to pay for our future benefits. That is not true. What we pay goes for the benefits of people collecting now, and we are given no legal rights in our future benefits, which will be paid for by people who are working then. Any part or all of our benefits can be taken away by Congress. When I started paying (at much lower rates than today), I supposedly had a right to collect at age 65 and my benefits were supposedly going to be tax-free. Now its age 67 and taxable.

  47. Parth- It also depends on how much of the year you are living overseas. The first year we moved overseas we ended up paying income tax in TWO countries because of certain requirements about the number of days you must be out of the country. We had NOT budgeted for that reality, so I would consult with an accountant.

  48. 1. Fernando: Get a summer job and save money so when the next opportunity arrives, you’ll be financially prepared. A website isn’t any big resume enhancer, a job is.
    2. Bruce the attorney: What’s your point in doing a blog? Want to make money? Do a legal blog, get advertisers, get more customers through the blog. Want to have a hobby? Then blog about sports. You need to know what you want to accomplish by writing a blog before you can choose what the blog subject is. Anyone with no knowledge can dither on about sports, that’s a dime a dozen and no one cares about the opinion of a novice. A good, sound, USEFUL legal blog could make money and generate business.
    3. Norma: Sell the house. Move to tiny apartment in cheaper area. $1400./ month is a generous amount of income if your husband works two days a week and you are thrifty with money. I’d consider $1400./ month plus medicare insurance to be a pretty good contribution by society towards your upkeep, especially since you’re the one who cashed out your home equity so you’re foolishly paying a mortgage at your age. Sell that house!

  49. Laurie, two pieces of reality: 1. Your husband is almost certainly not going to be getting a new job,and if he does, when his chronic medical condition comes to light, he will most likely be “released” promptly on some pretext or another. It is indeed illegal, but it is also indeed reality. If you start with checking on the health insurance benefits, I guarantee that he will not get another job.
    2. The chances that he will find a new job with health insurance that gives him a $50 copay on $8,000/month medication are vanishingly small. Typically you’ll have to pay, in a best-case scenario, 25% of the medication. And assuming that the pharmaceutical company will give you the medication for free is extremely foolish. Their criteria for this help generally include living at poverty level.

    In a word, yes, he is stuck with his current job. You cannot assume that his medication will continue to work effectively for the long term, either. He is 45, and it is very unlikely that he will be able to continue to work to 65.

    Furthermore, if he doesn’t already have disability insurance, you guys are SOL. If he changes jobs, it is highly likely that he will be unable to get another employer-paid disability policy, if he has one now. And you had better hope he has one now! If he has one now, that is another compelling reason to stay with his current job.

    When you look at a serious chronic illness, the only intelligent way to make your decisions is to look at the WORST CASE SCENARIO.

    That being the case, I STRONGLY advise you to get your act together and get some kind of job skills that will let you earn a good living when he is unable to continue to work. You may have time to go back to school to get a USEFUL degree that will enable you to easily get a job. And you are seeing why it is equally critical that you get a disability insurance policy as well.

    My husband became disabled at age 37, permanently and totally. He had an employer-paid policy, as well as a private disability policy. His life insurance policy had the disability rider, so those premiums are being paid for him. I have job skills that will let me support us should we have to. And I have my own disability insurance policy, which I may have to start collecting from soon at age 54.

    Living without a disability insurance policy is a foolish gamble. Don’t do it, other readers!

  50. “if you renounce US citizenship the IRS will want to charge you taxes for 10 more years”

    No, if you are a “covered” expatriate (essentially $2 million or more net worth) then you must pay tax on all unrealized gains UPFRONT (including those in retirement accounts) before the IRS releases you from future tax liability.

    And you face a 30% withholding tax, forever, on any U.S.-sourced income (that includes SS or any other retirement benefits)

    Unless you are a multi-millionaire with all income coming from outside the U.S. formal expatriation makes little sense.

  51. Trent, thanks for answering my question. I did go to the Aspire site, and you can join by donating $5 to one of their member charities, and they just process it with your opening deposit. I think this will be a good fit for me, if I decide to switch to mainly online banking. I do think I will keep a small balance in my local bank for convenience…

  52. I’m not entirely sure the “too big to
    fail” banks were just doing what they had to do to
    ‘survive and thrive’, when you look at their
    business practices (and executive pay). I admit
    I have more of my money with big banks than I want
    to, but that might well change soon.

  53. TO THE KID W/O MONEY TO TRAVEL AND WITH LOTS OF FREE TIME: I can’t believe you didn’t make the connection. No money and too much free time = GET A JOB. Really we have to tell you this?

  54. To Fernando: try getting a summer job! nothing will prepare you for the real world like a real job!
    I find Trent’s suggestion really strange……. an indecisive person cannot easily find himself a project where he will put “at least” 50-60 hours a week (that is 10 hours a day for 6-day workweek). Come on!

  55. Regarding the Foreign Earned Income Exclusion:

    For those who have exclusively foreign earned income in countries with tax rates at least as high as those in the US, it is usually much better to claim the foreign tax credit. The exclusion reduces your adjusted gross income (in many cases, to $0), which disqualifies the person from such things as the additional child tax credit and the making work pay credits from last tax year (which are refundable credits).

    Using the foreign tax credit keeps the AGI at its “normal” level while still eliminating the tax burden because you’ve already paid taxes to a foreign government and allowing the taxpayer to count the refundable credits.

  56. @Laurie, HIPAA was enacted in 1996 and keeps health plans from discriminating against preexisting conditions as long as there is not a “break in service” of more than 61 days (I think?). Wikipedia has a good basic explanation of HIPAA.

    All things being equal, try to find a large employer. $8K/mo prescription will have a devastating impact on a small employer’s health insurance premiums. A large employer (+1,000 employees) could much more readily absorb these large claims. It’s generally illegal to dismiss someone b/c they cost a lot to the health plan, but an employer can find another reason for letting someone go.

    It’s completely appropriate to get details about a potential employer’s health plan AFTER an offer is made. If you need the info before interviewing, see if you can get a copy of the ‘plan document’ under the pretense of doing research on employer plans for a school project or something similar. May take some creativity, but definitely seems worth it.

    Best of luck!

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