Reader Mailbag: Summer Vacation

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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. Helping new college graduate
2. Constant complaints
3. The value of trade school
4. Lessons for children
5. Lending Club thoughts
6. Selling off part of collection
7. Finance merging question
8. Rising property values?
9. Shifting mortgage rates
10. Privacy worries

Our children have started summer vacation, which means that the house is now a lot noisier and active during the day than it once was.

My children also have a strong tendency to go find Dad every fifteen minutes or so to show me their latest art, the thing they found in the yard, some new idea they had, or something else.

Often, during the summer on days when Sarah is also off of work, I tend to head to a library or somewhere else to work, as it’s quieter and less distracting.

Q1: Helping new college graduate
My 25 year old son graduated from a state school with a degree in English Lit. Unable to locate a job here in the Northeast, he moved to a city down south and is working at a coffee shop. He is able to manage his monthly expenses but is not saving any money for the future. I would like to help with that and can afford about one hundred dollars per month. Am I best off putting the money in a regular bank account so that when he decides to relocate, he has some funds to start off with? Or should I put it in a Roth account? Or just send him one hundred dollars per month to help with his expenses?

- Sandra

If you’re going to do this, you want to do it in a way that doesn’t interfere with his daily expenses. Your best bet is probably to start a Roth IRA for him. Do it quietly and contribute to it on your own.

When he finds work that enables him to start making financial progress, turn the Roth completely over to him.

You need to be very careful when doing this kind of “economic outpatient” treatment of children. They can grow to expect it and that’s a bad position for them – and you – to be in.

Q2: Constant complaints
My husband and I decided to try to turn our financial situation around thanks to much of the advice on your website. It has gone well over these past few months with only one problem: my husband constantly complains about every little thing we used to spend our money on and now do not. So far, my best route is to just say nothing because if I try to discuss it we wind up in an argument.

- Kelly

My guess would be that he’s at least reasonably committed to the plan, but he’s missing a lot of the little perks and complaining is his vent.

If I were you, I’d ignore it and treat it as his way of blowing off steam.

Instead, I’d focus on the good things you’re doing now. It may take time, but those new things will gradually push away the desire for the old.

Q3: The value of trade school
I saw this video on YouTube of Mike Rowe speaking to the Commerce, Science, and Transportation Committee back in May of 2011 (link included). His reason for being there is to talk about the lack of people in the trade skills professions for two reasons. One is because of the push in society for kids to go to college and not to a trade school. And the second is that the people that are in the different trade skill professions are retiring and have nobody to apprentice and replace them.

- Leon

I agree completely with this video. There are many, many professions out there that are understaffed with quality workers because everyone just assumes that the best thing for their child to do after graduation is to head to college.

There are many, many people who would make great electricians, carpenters, plumbers, and so on who are pushed into going to a four year school and end up struggling to fit into a major that’s not right for them.

Trade school should always be a strong consideration for anyone graduating high school.

Q4: Lessons for children
There are lots of different lessons available for children in our town. Martial arts lessons and music lessons and art lessons and sports lessons. Our friends have their kids in a bunch of them, but to us, it just seems like a bunch of money we don’t need to spend. We’d rather have our kids figure out what they like on their own in a less structured environment like the backyard. What do you think?

- Andrew

My feeling is that if your child expresses a specific interest, it’s completely fine to find lessons for them in that area. For example, our daughter constantly plays on our piano on her own, but she’s completely untrained and is just making up stuff as she goes (often to the detriment of our eardrums). She’s practically begging for piano lessons.

On the other hand, if our children show no interest in a sport or activity, I see no reason to enroll them in lessons for that activity.

I would far rather see our children have plenty of free time to explore and think.

Q5: Lending Club thoughts
While my debt load is more than optimal, am able to make more than the minimal payments each month from my disability check. But have recently learned that I need dental work, some now, some that can be postponed but still will need to be done within the next year. That additional debt is still doable for my budget but leaves no wiggle room. And, need I say – there’s no emergency fund. Was totally broke by the time disability checks started. Received a mailing from Lending Club and their offer is very attractive. I would be able to borrow enough to pay off all my debt except for the pre-paid funeral plan, and cover all the needed dental work while lowering the monthly debt payments. What do you think? I know nothing about P2P lending, googling hasn’t revealed any scams related to the company, but, frankly, it sounds too good to be true – this is a gift horse whose mouth I want to thoroughly examine before contacting them.

- Eric

From the borrower’s perspective, Lending Club is just like any other debt. It’s pretty much exactly like getting a personal loan from a credit union or a cash advance on a credit card. You borrow money. You have to pay it back with interest. There’s nothing really magical or wonderful about it.

I don’t have any particular issues with Lending Club, either positive or negative. I see them as just another lender.

My issue, as always, is with debt itself. If you’re in a situation where you’re falling into debt to handle a relatively minor emergency, then you need to seriously re-evaluate your financial situation.

Q6: Selling off part of collection
We have an enormous DVD and Bluray collection. I want to sell off some of it but I am struggling to figure out the line of what to sell and what to keep.

- Alan

What I did the first time is to sort my entire DVD collection into two equal piles. One pile was the “keep” pile and the other was the “sell” pile. My goal was to have the disc count in each pile be equal.

What this did is force me to differentiate between what I actually wanted to keep and what I didn’t. I eventually wound up making three piles – the pile I truly wanted to keep, the pile I was sure I didn’t want to keep, and the “maybes.”

It took me a long while to process the “maybes,” but eventually almost all of them went into the pile to sell because I realized, although I loved the content, I honestly wasn’t going to watch them again for a long while – if ever.

Q7: Finance merging question
My fiance and I are discussing merging our finances. We are both debt free and have a healthy savings. I’ve heard it is good for your credit report to keep your first credit card open, however my first credit card is a visa with a credit union in a different state. My fiance uses USAA, which I planned to switch to. How exactly would I do this? Should I continue to keep my old credit union account open? If so, should I continue to use that card or just leave it open with zero balance? Any other advice for couples starting their financial life together?

- Lisa

Check your credit report to make sure, but if this is your oldest line of credit, it’s probably worthwhile to leave it open with no balance on it.

Why do this? Your oldest line of credit defines the length of your credit history and by cancelling it, you shorten your credit history.

The length of your credit history is one of the factors used in calculating your credit score, as is your debt-to-credit ratio. Cancelling your oldest card tends to hurt both of those factors.

Q8: Rising property values?
When does it make sense to invest your money in buying property? In my area, property values are rising like crazy. I am thinking about getting a low interest mortgage and buying one of the houses on my block to rent out for a while and then sell. If property values are going up, I can always sell it if needed and the rent will take care of the interest and property taxes. What do you think?

- Andrew

Most people who advocate for renting properties would tell you to go for it. I’m pretty ambivalent, though.

My questions would revolve around the downside. Can you easily make the mortgage payment, property taxes, insurance, and maintenance if no one is renting that house? What if someone trashes the house and disappears? I witnessed a rented house recently where the renters stripped the place in the middle of the night and vanished.

You’re not just going to be investing money here. You’re going to be investing a lot of time as well, even if you do hire a property manager. There’s also risk involved in the form of bad renters and no renters. Make sure you’re ready for it.

Q9: Shifting mortgage rates
My friend and I both have home equity lines of credit currently costing 2.75% (they are indexed to prime less 0.5% and have been stable for quite awhile). We are both recently retired. He chose to pay off his 15-year 4.5% fixed rate mortgage out of his equity line, while I choose to continue making payments on my similar mortgage. My fear is the variable rate: it’s been stable, yes, but there’s no guarantee it won’t climb. I’m tempted by the interest savings, however. Your thoughts?

- Charles

It entirely depends on the future of the prime rate.

You’re in a situation where, if the prime rate stays below 4.75%, you’re better off using the home equity line to pay off your debt. If the prime rate goes above 4.75%, you’re better off staying where you are.

All we know is this: the Federal Reserve has pledged to leave rates alone until mid-2015. I would take that as reliable information in terms of making financial moves until then. After that? I somewhat expect them to start slowly going up.

If you think you can pay off most of the debt before the next presidential election, I’d use the line of credit to pay off the main debt. If you’re planning on making minimum payments, I’d hold off.

Q10: Privacy worries
You’ve suggested using a service like Dropbox or Google Drive to back up files, but I’m worried about privacy. It seems that you’re just trusting these companies with your personal information.

- Adam

That’s why I wouldn’t put anything on Dropbox or Google Drive that contains unencrypted personal information.

I don’t mind backing up family photos or other things like that to Dropbox. I would never put things like tax returns up there, not without encrypting them first.

One easy way of doing this is to use TrueCrypt in tandem with Dropbox. That’s what I do with anything I’m worried about.

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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