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. Handling low interest student loan
2. Endless justifications
3. Paying escrow balance early
4. Measuring success
5. Finding ways to save more
6. Internet service question
7. Criticism of day trading
8. How long for leftovers?
9. Interesting free software
10. Marriage advice
We have no rain for a month. Sarah and I thus feel good about planning a trip to the zoo and a picnic with the family.
We wake up on the day of the family excursion? Rain.
This seems to happen constantly during the summer months for us.
Sometimes, I honestly wonder whether or not our plans actually triggered the rainfall. Maybe we should plan events on a regular schedule.
Q1: Handling low interest student loan
I am 33 years old. I have $18000 saved in an emergency fund and I have $40,000 saved up in two retirement accounts and a pension fund. Should I use some of my emergency money to pay off the remainder of my Federal Subsidized Student Loan totaling $9000? I know I should just keep up with the payments because it is a low interest loan (under 2.9%), however I am torn between being debt free vs having more money after four years. Also, my monthly expenses total $2500. What should I do or what questions should i ask to myself?
If you have monthly expenses of $2,500, you’re probably okay paying off that debt out of an $18,000 emergency fund.
The only exception to that is if you have several dependents. If you have more than two children at home, I probably wouldn’t pay it off this way, but that’s just because I’m a big believer in parents having sizeable emergency funds. A good rule of thumb to use is 1 month of living expenses per adult dependent and 2 months per child dependent.
If you’re single, I’d write the check today.
Q2: Endless justifications
For the past year, I’ve been trying to get my husband to take our finances seriously, but every time I get him to sit down and talk about it, he always has a reason for why we shouldn’t worry about it yet. Christmas is coming. We need to visit his sick parents. We need a new car. Every time, he has something that provides a reason to avoid thinking about it. Our finances aren’t getting better. How can I get past these justifications?
Sit down and tell him that there will always be a reason to avoid solving your personal finance problems. Always.
Our lives are never perfectly smooth. If you’re waiting for a perfectly smooth period to make changes in your life, you’re basically never going to make a change in your life.
If you’re going to start looking seriously at your finances, today is the day to do it. It doesn’t matter what’s happening later this week or this month or this year. Change needs to start today.
Q3: Paying escrow balance early
Is there any benefit to paying your escrow balance (only my property taxes) in advance, separate from your mortgage payments? Currently my property tax is incorporated with my mortgage payment every month but I have the option of paying the escrow balance in advance whenever I choose.
Unless you’re earning interest on that escrow balance that’s better than what you’d earn in a savings account or you’re really concerned you won’t have the escrow money when you need it later, there’s no real reason to pay ahead.
In fact, I largely don’t think it’s worth it to make escrow payments separate from your mortgage payments. By doing that, you’re making things more complicated and adding some risk that you won’t have money in your escrow when you need it, and you don’t gain very much.
Just make the escrow payment with your mortgage payment.
I think net worth is a really good metric for seeing how you’re doing financially, but it’s not perfect.
The number I like to use is the difference between my net worth right now versus a year ago. Why? It makes sure that I can’t just coast. I have to keep working in order to make sure this number stays high.
Of course, in order to know that number, you have to calculate and record your net worth consistently. I think it’s worth it.
Q5: Finding ways to save more
I have read your site for nearly a year and have made great strides in raising our savings account from $500 to near our goal of $5,000 in just a few months and have worked on finding ways to pay off our credit card debt. I was so pleased with our success, until, we had our second baby.
I agree with my husband that I should work. The future benefits that we will have for me returning to work outweigh the mommy guilt I have, but the financial aspect is a killer.
Our daycare center gives us a big discount because of where I work, they offer state employees a discount and its almost the cheapest daycare that is still safe, nuturing and a good preschool for our older child. We looked extensively.
I have tried a few different budgeting tools the 50/30/20 and Kiplingers site as well. Its a shame because after we pay all our bills, mortgage, utilities, debt repayment, car and food alotment, and daycare, the money is exhausted. Not that we ever spent gobs of money on entertainment or lavish goods, but we can’t even go to mini putt putt. And, the worst of all is that we can no longer put money into the savings and in reality we have spent $800 out of the savings since I returned to work 2 months ago.
I stretch our food budget farther than any website – I could probably give people tips! I just worry that we will continue taking money out of the savings, then where will we be when something really breaks? Car, furnace etc? Do you have any budgeting tips or advice for people when their needs are are about 80% of their budget? We can only drop cable completely and switch our cell phone plan to save more money, about $60 a month savings. Any ideas are greatly appreciated.
I really hate to say this, but that’s the reality of having two kids in child care. It’s really expensive and it stays that way until they reach school age. There’s no special trick for budgeting during this period – it’s simply going to be tight.
I speak from experience. We had three children at once that were not yet school age a few years ago. Today, two of them are enrolled in school and the third attends a preschool. It’s like a night and day difference for our finances. Money was tight back then, especially compared to now.
You’ve got to ask yourself what you actually need. Do you need a cell phone right now? Do you need cable? Do you need home internet access? Drop them for a while and bring them back later on when things loosen up (when your children start school).
It depends on how you use it. Do you watch streaming video like Netflix? If you do, does it ever time out or do you have badly pixelated video that you can’t watch? Do you ever have to wait for truly important downloads?
If that never happens, then you have no reason to get the faster speed. If it happens all the time, then it might be worth it. Even then, I probably wouldn’t make the leap just for streaming video if I also have a cable subscription, because at that point the two are overlapping an awful lot.
Two megabit speed will work perfectly fine for most home uses.
Q7: Criticism of day trading
I have been trying to find information about critisicm of daytrading for a while, since i am a firm beliver in passive trading. Do you know if there are any good books or articles about criticism of day trading ?
The best argument I’ve ever read for passive trading is Burton Malkiel’s A Random Walk Down Wall Street. It does a brilliant job of taking apart technical analysis and arguing against many of the principles people use when promoting day trading.
That being said, I think day trading can work, but it requires a very large bankroll, a lot of research, and a willingness to lose a lot of money sometimes. Very few people have that.
If you have your life savings in hand and want to become a day trader… I’d recommend not doing that.
I’m a pretty big believer in “three days and out” for virtually every leftover. If it’s more than three days old, I toss it.
I know that there are exceptions and special rules for certain types of food items, but I’ve found that the effort in keeping track of these things is rarely worth it.
Three and out has served me well. I’ve never gotten sick from leftovers nor had them spoil when I’ve followed that rule.
Q9: Interesting free software
Do you have any new software out there that’s worthwhile? Weatherspark has become my go-to for weather forecasts, and Ninite is on all of my computers. I love the occasional tech updates!
I generally only find new tools when I can articulate a specific need for them, then I’ll try a bunch of different options until I find the right tool to fix that problem. I’ve not really had a need for a new tool in a while, so I haven’t really discovered anything new lately.
When I do find useful tools, I usually include them in the weekly roundup or in the pieces of inspiration list each week.
So, nothing new to report… but I am watching for new ones all the time and I’ll let you know of any that I find personally useful.
Q10: Marriage advice
This isn’t really a personal finance question, but about your marriage. You clearly love Sarah. I’ve been dating a guy for a few years now. When did you know you wanted to marry Sarah and spend your life with her?
Sarah and I were close friends before we started dating. Thus, I had some idea of what kind of person she was even before our first few fledgling dates.
I felt pretty confident right off the bat that I wanted to be with her for a long while, but the longer we dated, the less certain I was. I always had pictures of everything in the “best” relationship always being perfectly smooth, but that’s not how it went. That’s not how it goes in any relationship. It’s going to be hard sometimes.
What convinced me that she was the one was after a long period of dating and a realization that we knew how to work together well enough to fix whatever problems came up. I felt good talking to her about whatever was wrong and while we might argue sometimes, we could figure out a solution and get ourselves back on the right track. We still can. I attribute it to the friendship far more than the romance.
It took a few years, really. If you can’t have those kinds of conversations with the person you’re dating, then it’s probably going to be difficult to make it really last.
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.