Reader Mailbag: Super Bowl Plans

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. Update on “dream home” savings
2. Heroes?
3. Gift tax question
4. Discount glasses
5. Buying house without mortgage
6. Door locks
7. Business as retirement plan?
8. Robert Kiyosaki
9. Evening MBA good idea?
10. Emergency fund or debt repayment?

We had plans for a great Super Bowl party. Then, gradually, they fell apart for a number of reasons. A nervous pet cancelled one host. A logistical nightmare blocked another host.

So, for the first time in many years, we’re going to simply be at home during the Super Bowl. Although it might be on in the background, no one in our family is a big football fan, so it probably won’t be the focus of our afternoon.

Instead, we’ll probably sit on the floor and play Crazy Eights.

Q1: Update on “dream home” savings
As I was researching places to invest our IRA money and then convert to a Roth since we exceed the income cap and I came across your post from September 28, 2007 titled “From Goals to Investments: How Im investing for our dream home” (I didn’t realize the article date until reading through it the 4th or 5th time.)

Have you done any updates on that post since then? I tried searching your website but couldn’t find anything related. Obviously there have been some violent market swings and I was wondering how it all shook out and if you would adjust any of your percentages in your Vanguard portfolio? There were several comments mentioning an overlap in funds and whether that was worth it or not.
– Andrew

We currently have enough saved that we could go forward with a land purchase and the building of a modest home without any trouble at all. We still have our money invested in Vanguard funds that are currently pretty aggressive, but we may dial it back into something less aggressive soon as we’re getting closer to making the move.

The sole factor that’s keeping us from doing anything is land availability. We’ve looked at several pieces of land, but we’ve yet to make a move on any of them because they each had a significant factor that we didn’t like. The one we liked the best, oddly enough, came with a 6,000 square foot garage that the owner had used to store his car collection, but that was the only building on it, but someone moved very quickly to buy it for a business headquarters. We have no reason to rush into this purchase, after all.

As for our savings since 2007, we saved very slowly through 2011 until we had our current home fully paid for and we made it through a vehicle cycle. Since late 2011, we’ve been saving for this home pretty heavily.

Q2: Heroes?
I deeply enjoy your “Pieces of Inspiration” columns. Who do you look to for inspiration in your life?

– Janice

First of all, no one out there has a perfect life. If you look deep enough at a person, you’re going to eventually find some flaws and some imperfections and some contradictions.

Having said that, there are a few people that I really look up to in life. Fred Rogers, John Wooden, and Norman Borlaug are three I can think of immediately.

I also have a ton of respect and admiration for people who quietly handle problems on a local level, like the people who spend their days volunteering to run local food pantries and counsel people who are in personal crisis.

Q3: Gift tax question
A family friend gave us a check for $25,000 for our wedding. It was completely unexpected. After some discussion, we did decide to keep it. How do taxes work on large gifts like this? I know that small private gifts are not taxed, but this is a very big one and I don’t want to get into trouble.

– Dan

Your friend is the one liable for any taxes here, as the donor is the person who has to pay taxes on a gift.

Legally, your friend should file Form 709 when filing his or her taxes this year. Single people are only allowed to give gifts up to $14,000 in value tax-free.

In this situation, provided that the family friend hasn’t made other large gifts in the past few years, he or she likely won’t owe any taxes, as individuals are allowed to make single gifts up to $70,000 if there are no other gifts within a five year period.

Reliable tax software should make this very easy for your friend and he/she shouldn’t owe any additional taxes because of his/her generous gift.

Q4: Discount glasses
I have a question for you regarding the purchase of glasses and/or contacts. I have needed corrective lenses for most of my life. I switched from glasses to contacts when I was a teenager. Though I much prefer wearing contacts, the cost of purchasing them is starting to be an issue. I am currently paying $50 for one box and I need a box for each eye since the prescription is different (can usually get more than a year out of these two boxes). I have considered going back to glasses. I know you can purchase relatively inexpensive glasses at some stores (America’s Best) or online. I’m wondering though what the true benefit would be in getting discount glasses?

In my experience, those cheap prices are always for basic lenses with no coatings. Once you start adding on anti-glare, UV protection and scratch protection (not to mention the “thinner” lenses for me since I have a pretty heavy prescription in one eye), the cost starts to climb. If I were to use a pair for everyday wear (as opposed to back ups for my contacts), I would want some level of protection on the lenses.

I recently found a pair online that I liked. The basic cost (frames + basic lenses) was $68. To get the next level up for lenses (thin lenses with the coatings mentioned about) was an additional $39.95. Now we are $107.95 which is about $8 more expensive than my contacts. One could argue that the glasses would last longer than the contacts so the cost over the lifetime of the glasses would be less. That’s assuming these discount glasses survive more than a year. I have little doubt the frame will survive if cared for, but will the lenses survive basic wear and tear (or scratch as the the caes may be)? Just for clarification – my prescription really hasn’t changed much in several years so for me personally I am really only concerned with the longevity of the lenses.

So my question – is the quality of discount glasses high enough to make them a good choice for multiple years of use?
– Danielle

It really depends on how you use them. Are you an active person who will be wearing them when you run around in the forest or engage in lots of outdoor work? Or do you leave them on a bedside table and only use them for reading?

The more active you are while wearing the glasses, the greater the likelihood of scratching them.

Given that, in the past, I’ve had rather cheap lenses that have lasted for multiple years without acquiring too many scratches. I’m not a crazy outdoorsman, but I do like to wander around in the woods and I wear my glasses almost constantly.

Q5: Buying house without mortgage
Is it a realistic goal to buy a house without a mortgage? My husband and I earn $180,000 combined per year. We currently live in an apartment for $1200 per month. We are saving about $4,000 a month and have enough for a down payment but we don’t want to ever be in debt.

– Janelle

It’s a realistic goal, especially given your income.

The thing you’ve really got to ask yourself is what kind of home you’re planning on buying. Are you going for the “dream home” right off the bat, or are you willing to buy a smaller home and live there for a while first?

If you’re saving for that dream home, you may be in an apartment for a long while. As long as you’re okay with that, it’s not a problem at all.

Q6: Door locks
Should I spend extra putting a deadlock on my front door? It seems to me that it doesn’t make any difference unless you have a full home security system. Couldn’t burglars just go in through a window?

– Danielle

The thing to remember is that thieves prefer low-hanging fruit. If they go up to your house and find that it’s not real easy to get into, they’re likely to move on to another house.

If you have a good deadbolt on your front door, that’s an obstacle. They can’t quietly enter your home quietly and quickly if they can’t get through the lock easily. If your windows are locked and your door is securely locked, they either have to spend at least some time breaking the lock or they have to make noise breaking a window. For most home burglars, it’s just easier to move on.

That doesn’t mean your house is invasion-proof if you have locked windows and deadbolted doors, but it does mean you’ve reduced the chances. Many burglars will just move on to an easier house to break into.

Q7: Business as retirement plan?
My husband and I are both in our mid-thirties and own a business and do not have other jobs besides this. Our business is a trucking company, where we own several 18 wheeler trucks and trailers. We sub-contract through one company for our work, so we don’t have to worry about looking for work or about collecting payment from customers. There are many other companies we could sub-contract through, as well, if needed. We currently have three employees and want to expand and hire more in the future. My husband handles the employees and any truck repairs, etc. and I handle payroll and the accounting/paperwork aspect of the business. Neither of us do any actual driving (my husband used to drive a truck when we first started).

My question is, since we can run the business, in theory, until we pass away, or at least hire someone to oversee it if we are unable to, do we need as much retirement savings as most people? There will always be a need for our line of work, but we can also easily adapt to any changes. If we are able to earn as much as we earn now when we are “in retirement”, is there really a need for the standard amount of retirement savings? Ideally, we would like to leave the business to our future child, but could also sell it (or at least sell the (quite expensive) equipment).
– Linda

I would view your business as an undiversified investment. Without other investments, you’re betting everything on the health of your business.

If your business is healthy, that’s great. You’ll come out smelling like roses. If your business fails, then you’re in real trouble.

I’d consider your business a valuable asset for retirement, but I would have investments in other things. If you have a chance to easily extract some money from the business without harming it, I’d invest that money in other things simply to diversify.

Q8: Robert Kiyosaki
Why do you hate Robert Kiyosaki so much? Rich Dad Poor Dad is a great book that has changed a lot of lives!

– Sharon

I don’t argue that the book is inspirational to some, but there are a lot of inspirational things that have far better value than Rich Dad, Poor Dad.

First of all, the investing advice in the book is very vague. You can’t actually take action based on the advice in the book – believe me, I looked into it. It’s both vague and dated.

Second, the book fetishizes consumer culture. Large portions of the book are devoted to “looking” rich and making fun of people who are frugal. If you compare that side by side with a book actually backed up with some research like The Millionaire Next Door, you’ll find that the reality of being rich is actually the opposite of Rich Dad – most people who flaunt wealth don’t have it, and many people who have wealth don’t flaunt it.

It might be inspiring, but it’s also vague and loaded with ideas about money that don’t match reality.

Q9: Evening MBA good idea?
I live about ten miles from a major university with a good business school. They offer an evenings and weekends MBA program that’s highly respected. I’ve been thinking about signing up for this but I’m unsure whether it’s really worth the cost. Thoughts?

– Lee

Do you want to be in business management? If that sounds like something you really want to be doing, this is probably a great program for you. If you don’t want to be a business manager, then you should avoid this.

Remember also that MBAs aren’t guarantees of work. They just bolster your resume and make you look much better in terms of management positions. You should expect that you’re opening the door to management in whatever industry you’re currently in.

In the end, though, it comes down to you. Does it seem like something you truly want to do?

Q10: Emergency fund or debt repayment?
Here’s the quick and dirty on our situation: We are a one-income family ($120,000/yr) of four living in the bay area. We currently have an emergency fund of $20,000. We are currently contributing 20% to retirement (playing catch-up) but plan on bumping that down to 15% in the new year. We also have several targeted savings accounts. Some of my husband’s student loans are currently on the 6 month grace period and we’ve been paying down during that time, but the balance is $30k federal loans and $20k private loans. We adopted a child this past year so we are anticipating a $12,000+ tax refund. I’m contemplating the sensibility of using the tax money and $15,000 of our emergency fund to pay down the federal loan (higher interest rates than the private loan). Some days this seems like a great idea and other days these seems like a horrible idea. The student loans are our only debt. What are your thoughts?

– Stella

I wouldn’t empty out your emergency fund to do this, especially since you have a child.

I’m not sure what your living expenses are. How much do you spend each month on your basic living expenses? Rent, utilities, food, household expenses, required bills, and so on?

If I were in your shoes, I’d figure that number, make my emergency fund equal three times that amount – three months of living expenses – then use the rest to pay down the loan a little. I wouldn’t feel good, in your situation, having an emergency fund lower than that.

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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