Reader Mailbag: Taxes

Today is the official due date for federal income tax returns in the United States. It’s also the due date for the first quarter of estimated taxes for those of us who are self-employed or run small businesses.

Thus, for a lot of us, April 15 is the most expensive day of the year. It certainly is for us – we had to pay in on our returns and pay the quarterly estimated tax. Ouch. It always hurts to watch that much money go away.

Not only that, the whole process is overly complicated, with all kinds of rules and deductions and exceptions. Frankly, if one’s taxes are even remotely complicated, I don’t know how a person would do them in reasonable time without a tax preparer or without tax software (we used TurboTax).

But enough about that. Here are some good ol’ fashioned reader questions.

I’ve been a long time reader and learner of your blog and I was wondering if you ever posted an update regarding high yield savings accounts. I currently only generate 1.10% on my ING Direct account now, far below what they used to give. Is this still the most effective way to save for my ROTH IRA contribution? I am 23 and currently making $35,000 at a tech startup with stock options. Basically I was wondering if you had an updated thought on savings accounts.
- Anthony

The yield on those online high yield savings accounts isn’t anywhere near as good as it used to be. Unfortunately, there isn’t really a greener pasture elsewhere – no accounts are offering above 3% at this point and the only ones offering anything much at all are doing it promotionally.

The reason for this is our friends at the Federal Reserve. As their rates go down, banks lower the rates that thy offer to customers on their savings accounts. Most brick-and-mortar banks still just hold their rates really low – at 0.5% or so – no matter what the Federal Reserve does. Online banks, though, have to keep their rates lower than what they could simply borrow at will at the Federal Reserve rates, otherwise why bother with the expense and hassle of offering savings accounts?

Don’t worry, as the economy takes off, most such banks will begin raising their rates again.

On one level, it’s kind of crazy. When the economy is bad, the interest rates are low but more people have the initiative to actually save. When the economy is good, the interest rates are high but fewer people have the initiative to save.

My 31-year-old boyfriend is currently at a place in his career as a graphic designer where he either needs to find a new workplace or take a break and get his B.A. He is the manager in his current position but doesn’t enjoy being a manager and did not get a pay increase for his most recent promotion. As a graphic designer, he doesn’t need a B.A. to get work but would like to get his degree for job security and personal goals. However, he recently paid off all of his debt and is worried about incurring more loans for school (and delaying his career and his savings to buy a house). What advice would you give him to help with this decision?
- Joely

He needs to decide what’s more important to him – buying a home or going for what he wants to do in terms of his career. Given that he’s debt free and has a good job right now, there really isn’t a “right or wrong” answer here. It has much more to do with what he wants to do.

It’s going to take some soul searching. Both choices have serious risks. Choosing the current job and the house risks severe job dissatisfaction, and given that our job takes up half (or more) of our waking hours and often invades our thoughts in the other half, such dissatisfaction can really poison one’s life. On the other hand, going back to school means giving up that steady job and getting some student loan debt as well.

I encourage him to think about his life in five years. Which side of that fence would he rather be on?

I’m 33, a single mother of two young children, and currently owe $175k on my first mortgage and $39k on a second mortgage. I have about $10k in credit card debt and receive, at best, $800 per month in child support from my ex (my ex is unemployed so I receive a portion of his unemployment check). I have a decent job and make around $50k per year. I have no savings and my 401k only has about $5k in it. To offset my mortgage payment, I have a renter who pays me $400 per month as the home I live in with my children is large. Despite this, I’m completely house-poor. The problem is that my children and I love our home, we entertain and have friends and family over all of the time instead of going out for dinners, etc. The house has been on the market for 6 months, but I haven’t received any offers. I recently found out the company I work for may be laying people off. Am I better to foreclose on the home and start over by living with my parents (who have generously offered to let us do so), or continue to scrape by each month in hopes I can sell my home? Should I consider only making partial payments on my mortgage and put the rest into an emergency fund, again, in hopes that the house will sell?
- Kristine

I think this really depends on the situation with your mortgage. Do you currently owe more than your home is worth? If you do, then talking to your mortgage holder about simply selling the house to pay off the mortgage in full might be the best move. This might also be true if you’re close to even or just barely in the profit.

If you owe a lot less than the house is worth, I’d still try to sell it. I’d probably lower the asking price a bit. One thing you might want to do is research similar homes in your area that have actually sold and see what they sold for. You might simply be pricing your home too high.

All things being equal, I would try as hard as I could to get out of the house sooner rather than later. If the house is simply too big for you and the bills are, too, you should be making every effort to change that situation as the payments for all of that unused space is eating far too much of your finances.

My husband and I have been into science-fiction, gaming, comics, etc. for many years, and we’ve accumulated a lot of stuff. We have been paring down on some items through yard sales and giving to friends (some nice Star Trek costumes went to the local club), but some things I’m at a loss as to where to sell them (example: we have LOTS of Magic: The Gathering cards). What websites or venues would you recommend?
- Lisa

The real question is how much time you want to invest in these sales.

I sold off several collections when I first got into financial trouble. At first, I was like you – I have a collection of things that, according to price guides, is worth $X, so I should be getting $X for that sale.

Of course, as you’re now seeing, the problem is finding someone willing to pay $X for the item. That takes time. Stores with a large inventory of items have the time to wait on a buyer willing to pay $X because they have thousands of items on sale and each of those items finds buyers every day because of a steady flow of customers. That’s a convenience you don’t have.

In order to sell them, you have to put in the footwork to reach the customers, and that can be quite time-consuming. After looking at a lot of options, what I wound up doing is essentially eBaying most of my collections. I took out the individual items that had significant value on their own and sold them individually. The rest I sold in large lots.

28 year old Married couple with no kids.
Finances:
401k – both maxing out
Emergency saving – 6 months of living expenses
Additional savings – 40k

Liabilities and Upcoming expenses:
Home Mortgage – Loan1 – 280k@ 5.2%, Loan2 – 35k @8.7%
Booked an apartment in the home country for 52k. Advance of 10k paid two years back. Monthly payment of $600 starts by Dec 2010. We dont’ want to pay monthly payment. We want to either buy it with cash or cancel our booking loosing the 10k deposit.
Driving an old car, planning a used car purchase for 20k
Planning to have kids next year.

Our biggest dilemma is which way to spend the additional savings of 40k. Can you give your inputs and thoughts on which is better ?

1. Buy the apartment for long term investment. Take 10k loan for car purchase and cope with child related expenses starting next year.
2. Cancel the apartment losing 10k and finish off the second loan that will save us $275 a month (can be used for child expenses). Buy the car with cash next year.

- Anu

You’re spending $20,000 on a used car? I spent less than that on a new Prius not all that long ago.

Anyway, if you’re about to have a child, you’re about to experience an abrupt change in your way of life. Whenever an abrupt change happens, the best thing you can do is insure that your cash flow is stable and that you can handle any changes in that cash flow.

One thing I would certainly do is sit on that apartment deposit until December and see where you’re at then. Are you still anxious to have children in the coming year or two? If you are, I’d forget about the apartment. If you’ve decided that a child perhaps isn’t the right choice right now, I’d buy the apartment, since you have an emergency fund and a good grasp on your expenses.

Look at it this way: your $10K is water under the bridge at this point. You’re not getting it back – all it has done is change the options you have now. Look at your options right now and ignore what you once paid.

Anyways, here’s our background: DH -55 – recently laid off. Me-SAHM. Daughter – in kindergarten.

Mortage is under 100K at 5%. We currently pay $1400 month, which is about $200 more than we are required to do. We have no debt other than the mortgage. We have about $100,000 in liquid savings and probably close to a million in stock investments, etc. We have about $50K in daughter’s college fund. DH is working on trying to find a job in his field. He’ll get 6 months severance. I haven’t tallied our bills yet to see what we would need to live on…but we live pretty frugally. We don’t eat out too much, I bake bread from scratch, daughter gets second hand clothing. DH and I are in agreement on not spending more than we make…but not living a pauper’s life, either. We are blessed and we know it. Many people who have been laid off do not have the savings we do.
Our question: should we pay off our mortgage now? It would be nice not to have to factor that $1400 into what we need to live on. If we don’t pay it off, do we re-amortize it and pay just the minimum?

- Linda

This question again boils down to cash flow.

It seems to me that you have plenty of savings and assets to get you through almost anything that might be thrown your way. If I were you, I would try getting by without paying off the mortgage. Make a sincere effort not to tap your saivngs and see how things are going.

If you find that you’ve reached a point where you’re purely living off of savings, then I would strongly consider dipping into your assets to pay off the mortgage. This way, you’ll eat through your more liquid savings much more slowly – $1,400 a month more slowly. You also have the time to think about what assets you want to sell instead of having your back against the wall and being forced to sell quickly without careful consideration.

I am a 25-year-old young professional and I love kids, I grew up in a large family, and I have lots of experience (but am not certified in any way). A few times a month I babysit for coworkers, friends and sometimes new people through referrals. I do this partly for fun and partly as a small boost in spending money, so I’m not looking to make gobs off of it or use it as income I depend on. So far I have left it up to the parents to decide what to pay and I am never dissatisfied (usually around $6-8/hr). However, I know that I could probably ask for more, but I just don’t know what the “going rate” is for babysitters who are older than the young teen age range. I am on a pretty tight budget right now while I work on paying off debt so maximizing this income stream could help me out a lot.

Often when new people ask me to care for their kids, it’s awkward for both parties coming to a conclusion because I don’t want to ask too much, and they don’t want to offer too little (especially if they haven’t had many babysitters before and don’t know what’s fair either). I feel like having a set rate would make things easier for everyone, it’s just so darn awkward to discuss. Any thoughts? Might be useful to note that I live in a small/medium-sized city in the Midwest.
- Noelle

Given that you live in a small to medium sized city in the Midwest and the babysitting work is not your primary source of income, I think the $6-8 range per hour is reasonable. I would probably raise it a bit in other areas of the country and also if it is your primary source of income. I would lower it a bit if you were younger.

Part of the challenge here is that you’re babysitting for coworkers. If you suddenly started asking for a high rate, you might end up poisoning a valualbe workplace relationship.

If I were you, I would pick a rate in the range that you’re talking about – say, $8 an hour – and then just make it clear the next time you’re contacted about sitting. Simply tell them that in order to avoid confusion and uncomfortable discussions, you just decided to set a clear rate for everyone.

My hubby and I just became parents recently. As part of our daughter’s baptism this past weekend, we ended up receiving some money from relatives. I didn’t even think people gave presents for a baptism, but here we are…..Now, I wonder how best to save the gift money for her future….I would like to avoid weird paperwork, and/or being forced to use the money for XYZ college “or face huge penalties”.

Any ideas??

If I set up a simple interest bearing account in her name, can she avoid paying taxes on the interest?
- Rachel Rose

If you set up a simple interest bearing savings account in her name, in most situations she would be responsible for taxes on the interest. Of course, unless your relatives gave amounts totaling in the six figures, we’re talking about a small amount here. If you put $10,000 in an account earning 1.5%, she would make $150 a year and pay taxes on that at a 15% rate – $22.50. If the $22.50 is breaking you, take the money out of the $150 in interest earned.

The best choice would probably be in an open-ended 529 savings plan that allows you to use the saved money for any form of education spending. The College Savings Iowa plan that we use is open to everyone, run by Vanguard, and is easy to sign up for. Money accumulated in that account isn’t taxed. When you withdraw the money for use on any approved educational expense (textbooks, tuition at any school, etc.), you don’t have to pay taxes then, either.

I was wondering if your website is now your source of income, or do you still have a day job?
- Jeremy

Our family’s income is based on The Simple Dollar, other projects that I take on (like my upcoming book), and my wife’s current 9-to-5 job.

The biggest benefit of this is flexibility. My schedule is extremely flexible at this point, enabling me to take care of lots of things.

The biggest drawback is very, very uneven income. We have to budget incredibly carefully to make all of this work.

What do you eat for breakfast? You’ve mentioned how you eat breakfast each day to get yourself going and I’ve seen a lot of news about how it’s really good for you. But I haven’t eaten breakfast regularly since I was six! What do you eat each morning?
- Allie

Most mornings, I eat a piece of fruit for breakfast, like a banana. Sometimes, I’ll eat something like a bagel or something like that if the situation calls for it.

The biggest reason is convenience – it’s really easy to just grab a banana or an apple and munch it as I begin my daily routine. Along with that is the health reason – eating fresh fruit is pretty good for you.

On Sundays, we usually have a larger family breakfast, but those are the exception rather than the rule.

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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  1. James says:

    Just file early and you don’t have to worry about being pressed for time.

  2. I just wanted to point out that your response to the first question is not entirely accurate. There are high yield accounts still available. I currently have one paying 4%, and know of some at 5%. To get that higher rate you do have to make a couple of transactions with a debit card, but I like to swipe mine for stuff $1 or less (Redbox, soft drink, gum, etc.). Just thought you (and your readers) might like to know that there are still options for a pretty nice return. If anybody has trouble finding those banks, you are welcome to contact me, and I can point you in their direction.

  3. Babs says:

    Regarding a savings account for a child – the child is not required to file a return or pay taxes on interest amounts less than $600 per year, so you’d be fine setting up a savings account using your child’s social as the primary and yours as the secondary.

  4. Matt says:

    I have a question for you and Christine. How much money is necessary to “scrape by” with a $175K mortgage and a little bit of debt? Because $4500/month take home income seems like plenty.

  5. Nicole says:

    Wow, lots of variations on a theme today.

    Anu– Ditch the apartment. Pay off the second mortgage. 8.7% is ridiculous. Wait on getting a new car until you actually need one– if you haven’t actually got a child on the way, you may find you need to save cash for fertility expenses or who knows what else. I don’t really understand why you want to pay for a second piece of real estate with cash but have a second mortgage on the primary home. If you have a second mortgage, you really can’t afford more real estate, a new car, etc. You also don’t really sound sold on the apartment anyway– long distance ownership can be a big time suck, whether you rent it out or not. Not something fun to do if you have kids. Otherwise it sounds like you’re doing well!

  6. Ram says:

    Trent,
    regarding “The College Savings Iowa plan that we use is open to everyone,” -> any idea if this fund can be used outside of USA? i know laws can change between now and another 10 to 14 years, but as of now, any idea if that can be used outside. Does it depend on the tie-ups the institutions have with these plans organizations or US government?
    -Ram

  7. Sue says:

    Trent,

    I would advise you to always combine some protein with your carbohydrates (fruit). Carbs alone spike your blood sugar. Adding protein helps level it out. So, have a hard boiled egg with your banana. I have been able to manage my diabetes without medication by counting the carbs I take in and combining them with protein, fiber and healthy fats. I am also at the ideal weight. You may want to do a little research on this, it may help you with your weight loss goals.

  8. Johanna says:

    The answer to Linda doesn’t make sense. If she pays off her mortgage out of savings, she won’t *have* any more savings (or she’ll have very little, depending on how far under $100K her mortgage balance is). Doing this after her husband’s severance has already run out means she’ll have to start liquidating the stock investments almost immediately.

    On the other hand, if she keeps making the monthly payments, the $100K will last for many months, if not years.

    Here, Trent, I’ll help you out: For almost all questions of the form “I’m going to need my savings for something very soon – should I pay off all my debt out of savings now?” the answer is “No.”

  9. spedsal says:

    Regarding savings interest rates, I get 2% on my savings account with my credit union. They also gave me a better rate than I could find elsewhere on a car loan 4 years ago (paid it off a year early!). Maybe that’s another option folks should consider?

  10. Rowenna says:

    As a young twenties woman who babysits on the side, I am pretty surprised to hear someone is only making $6-8! I babysat as a preteen/teen (in a mid-sized midwestern town) and made more than that!

    Now that I’m pretty established as a babysitter, I set my rates based on a number of factors:
    -how many children
    -what ages are the children
    -extra responsibilities involved (driving, activities outside the home, help around the house, meal prep)
    -time of day (am I there all night? Am I there just through naptime, with minimal work put in?)

    I charge a base of $10/hour, and add on to it depending on those factors. It’s good to discuss things like this with the parents, and let them know exactly what you’re charging for, instead of making up a number based on assumptions.

    Admittedly, if you’re already established with certain families, I would not recommend asking for a change in rate unless your responsibilities change, especially if they’re close friends/coworkers. But if you get new referrals, I would not hesitate to ask for a higher rate! Just because it’s a side job doesn’t mean you should be making sub-minimum wage numbers!

  11. Jane says:

    I also think that when you are unemployed, you should never be prepaying a mortgage with savings. Pay the minimum on ALL debt, especially mortgage debt. You need to keep any saving you have left liquid to pay for the essentials.

  12. aleisha says:

    To Noelle, Agree that for those you’ve already sat for to keep it around $8 is okay b/c to change rates might be weird. However, I think for anyone new, you need to charge at least $10/hr. As a parent, I can’t tell you how much it would mean to have an actual adult watching my daughter. I pay $10 for a college student. Don’t underestimate your value and the value of the service you’re providing. And you do have experience b/c of your family and the fact that you’ve been babysitting for friends, etc.

  13. Emily says:

    Breakfast – fruit isn’t a good sole source of nutrition in the morning either. Your morning breakfast should be full of protein – it’s good for your brain and focus. It also sticks with you so you don’t snack or eat too much at lunch.

    Pour some Egg beaters in a little ramekin, cook for a minute or so in the microwave, while you toast an English muffin and put the egg, a slice of canadian bacon on it and then eat the fruit – and you’ve got a great breakfast – that you can eat on the run and will get your brain moving!

  14. Michelle says:

    Are you charging per hour only, or per kid, per hour? I think $6-$8 per kid, per hour is way to high. My local childcare center has hourly care available and they only charge $3 per kid per hour. As a parent, if you were charging me $6 per kid, per hour, I’d never hire you again. I also live in a mid size midwestern city. If you’re charging that for all kids per hour, then that’s probably about right. I wouldn’t charge any more than that though. I’ve had no problems finding qualified sitters at $4-$6 an hour, and I would NEVER pay more than $8.

  15. Des says:

    @Emily – Your brain can’t use protein as fuel. It can only use carbs. That is not to say your shouldn’t eat protein with breakfast, but if you want something “good for your brain and focus” you’ll need something carb-y.

  16. Nicole says:

    @Des– but you digest many carbs too quickly, leading to crashing and burning. Proteins slow digestion (as do acids).

    Kids, eat a balanced breakfast.

  17. Des says:

    That’s why you need complex carbs like fruit and whole grains, not simple ones. No white bread or sugary cereal.

  18. chacha1 says:

    Agreement: protein with every meal is a must, o/w you do the up/down hunger thing all day and overeat starches and sugars. A hard-boiled egg is even easier than a microwaved egg-muffin thingie. If you’re having a starch bomb like a bagel, for pete’s sake put nut butter or cream cheese on it!

    Disagreement: taxes aren’t that hard. Many filers in the US can use the 1040EZ, which takes about ten minutes to fill in. Our joint 1040 return included the HSA accounting form, Schedule B, two Schedule Cs, home office expense accounting form, and Self-Employment Tax accounting form. It took less than two hours.

    The easiest way to prepare for doing your taxes next year is to take this year’s return, set up a recordkeeping system for each document you need to submit, and maintain it during the year. The only “hard” part of doing taxes is keeping track of your records and if you wait till the end of the year to do it, then yeah, it’s a pain.

  19. Ellen says:

    I’ll jump into the breakfast thread too! I need carbs to get going + some protein to keep going (I don’t normally snack before lunch). So my go-to breakfast is a toast sandwich using high fiber bread with peanut butter & a fruit spread (not jam/jelly); sometimes add a banana or other fruit; plus tea with sugar; occasionally a little yogurt. This is a quick, no-brainer breakfast.

    If you’re going to eat fruit for breakfast, you need more than one piece!

  20. Bryce says:

    Breakfast? My brother-in-law got me hooked on green smoothies. They look weird as heck, but if you do them right they’re quite tasty.

    Oh, and I agree with the other “unemployed” comments – when you’re not bringing in new cash, you have to make what you have last as long as possible. But I think that “never pay off the debt” may not always be the right answer, either. You’d have to crunch the numbers for your situation and how long you reasonably expect to stay out of work. Remember – if you pay off the house you can always get a new mortgage at todays obscenely low rates if you really need the money.

    And Seth – where are you getting those rates?

  21. Vivianne says:

    Going rate for babysitters on the East Coast is $9-$12 an hour for young sitters, $11 and up per hour for older sitters. Nannies charge $12-$15 an hour. Childcare centers that do drop-ins are $25 for 2-3 hours for the first child, $10 each additional child. We tend to pay our sitters well, too, because they are then more likely to be available at short notice or in an emergency. Good childcare is expensive, but my children are the most valuable thing in my house.

  22. Ashley says:

    It sounds like Kristine (and others) would be best speaking with a housing counselor (or foreclosure counselor) at a non-profit housing organization or to contain the Hope Hotline (http://www.995hope.org/). Although Kristine is not yet at that point, they can offer better direction on what options may be. If she does need to speak with the bank, they are qualified to help with that and can often get much better results. I’m not sure why Trent doesn’t ever recommend this path.

  23. bethh says:

    To Joely: there’s a third way – your boyfriend could keep his job AND go to school. Tons of people do it, and if nothing else it might give him time to explore his options both school- and career-wise. He could at least get some of the credits out of the way to shorten the amount of time he’d need to go full time later. Yes it takes a lot longer that way, but he can pay as he goes and avoid debt. He could also try changing to a part-time job or freelancing, but my point is, he has more choices than just deciding between work OR school.

    Noelle – you could also charge a flat fee if that made you more comfortable. How about $8/hour or $40/babysitting job?

  24. Leah says:

    In terms of breakfast, I eat an english muffin with jam and a 1/2 cup of yogurt for breakfast. I’ve got a banana for morning snack. That works pretty well for me most days.

    In terms of babysitting, I guess it depends on where you live. When I lived in Seattle (4 years ago), I made $10 an hour + when I was 20-23 and babysitting (usually for 2-3 kids). That was a minimum. I now live in Minnesota and got paid $5 an hour by a family; I won’t babysit for them again, because that’s too low, even if it’s just for one kid.

    To Michele (#9):Yes, you could pay less, and it’s the parents’ choice for how much they want to pay. Certainly, you can find someone to watch your kid — I got paid $3-5 an hour for 2-3 kids when I was 12-15. But you definitely get more if you pay more. I do science experiments and games with the kids (no TV allowed when I babysit), I will cook dinner, and I help the kids clean up their rooms and stuff. I have also done tutoring while I babysat. I’ve found that a parent might sometimes think the $10 per hour was steep the first time . . . until they saw what I did with their kids for $10 an hour. If I babysat during the day, we played at the park, rode bikes, and ran around. Once you return tired, happy kids to their parents, many won’t think twice about paying you $10 an hour.

  25. Bridget says:

    @ michelle. Ugh. Why doesn’t anyone value child care? Nasty people doing it for $3 an hour!! Raising the next generation is one of the most important jobs in the world. Sure, you can park them in front of the boob tube, but if you value relationships and hard-wiring kids for success, you need to value the time you spend with them. Isn’t this part of what Trent’s blog is about? Day cares are probably the cheapest employers out there. Students here go to school for three years to get their ECE and they are lucky to get $8 an hour for their knowledge and commitment. It is Folks like yourself that perpetuate this attitude towards what they obviously consider “lowly woman’s work”. Please rethink your perspective.

  26. Arshes says:

    Isn’t there a basic exemption of $ 3650 for US tax filers? I really dont think Rachel Rose has to worry about paying tax on $150 of interest.

  27. Nicole says:

    re: babysitting, we paid $8/hr in a mid-size southern town for a college student to watch our only child– that was on the high end and they were always very grateful. Out in this coastal city, the going rate is $15/hr for a legal grown-up (usually an actress) though I understand some college students students will take $12/hr.

    We always negotiate up front… I think it is easier for both parties that way.

  28. Diane says:

    So Bryce, you almost had me, but the wheels fell off after “Remember”. In this lending climate, a person with NO JOB (or even a short employment history) is not going to get a loan at the most favorable rates.
    Linda, can you just pay less ($1200) without having to re-amortize the loan? If not, can you re-amortize at no cost and get your payment below $1200? You can always accelerate the payback later, when things improve. Save your cash. You will sleep better with the money in your control, I assure you. Right now, you can make payments for years and years without worry of running out of funds. What if you pay it off and then something major breaks in the house (or in your life, God forbid) and you have no money to fix it? What if the great job is found elsewhere and you need money for a deposit and a move to a new area? Check out Ric Edelman’s website for a great article on why it’s BETTER to have a big, long mortgage and never prepay it. For now, concentrate on paring your budget and saving as much of the severance as possible. Taking positive steps in this direction will help you worry less. Finally, you can always promise yourself that you can pay the house off LATER, once hubby is gainfully re-employed and your life has settled down again. Good luck to you and please keep us posted. I’m rooting for you.

  29. Mel says:

    10 years ago, when I was a teenager, I got paid $3-5/hour per kid in a largeish city in Oregon. That was actually low for my area; older teenagers and college students typically got $8-10. In the Southwest, when I’ve looked, it appears that adult (over 18–yes, college students ARE adults) sitters tend to get $10+/hour, depending on number of kids, age of kids, and whether the sitter is First Aid/CPR certified.

    You’re watching their children. If a parent thinks it’s only worth $3/hour to watch their kids (that’s less than minimum wage! And those kids will get MUCH less personal attention and quality interaction in a daycare than with a sitter), that’s a parent I, personally, would not want to sit for, and definitely not with the level of attention I always gave the kids I sat.

    I’d charge at least $8/hour, depending on how well I know the person, and at least $10 if there’s more than one kid.

  30. Emily says:

    Eating protein raises the levels of another amino acid called tyrosine, which prompts the brain to manufacture norepinephrine and dopamine, other kinds of chemical messengers in the brain. Not as well known as serotonin, norepinephrine and dopamine can keep you energized because they promote alertness and activity

  31. marta says:

    A piece of fruit alone is not enough to start your day! An apple has about 60 Kcal, and a banana has about 90 Kcal. That’s simply not enough fuel to get you going.

    I prefer to have a more filling breakfast – oatmeal and fruit, something like that. Depending on the day, I might need a morning snack – an apple or a small yogurt — but I won’t be starving by lunchtime (and overeat).

    I have never been able to understand how some people can function without a good breakfast.

  32. Ameila says:

    To Noelle, $6-8 sounds really low to me – I suggest at least being in the $10/hr range. For the kids I regularly watch I charge $15 for the 1st kid and $8 for the 2nd, 3rd, etc.

  33. Gretchen says:

    What kind of situation, exactly, calls for bagels?

    I’ve never understood the light breakfast eaters. Give me a banana at 7 and I’ll be ready for my real breakfast at 7:30.

  34. jim says:

    re Anthony, he asks in reference to the ING savings : “Is this still the most effective way to save for my ROTH IRA contribution?” I’m not 100% sure what that means. He may be piling up money in an ING savings account and then making annual contribution to the Roth IRA. If so, why not just deposit the money directly into the IRA on a monthly basis? Or he may be using the ING savings as his Roth investment vehicle, and if thats the case he should really put it into something more long term like stock index funds. Saving your retirement in cash savings will not grow it sufficiently.

  35. You should really be eating more for breakfast. It is the most important meal of the day and you are basically giving it the middle finger.

  36. Heck, I’ll even recommend a book for you to read about eating healthy and nutrition…Tosca Reno, The Eat Clean Diet (Recharged), which isn’t really as much a diet as it is a total change in how we look at the food we are eating. It focuses on provided adequate nutrition and hydration and avoiding process, refined garbage in exchange for natural, nutrient dense foods. Give it a shot, it sounds like you need some help with this.

  37. Gretchen says:

    Breakfast like a king and all that.

    I didn’t get the ING for a Roth part either.

  38. EF says:

    $4 an hour for childcare? Is that even legal to pay so far beneath minimum wage? I’m at a loss as to why any responsible person would work for $4 an hour, unless they were severely desperate.

  39. Jackie says:

    @Johanna,
    I think Linda wanted to pay the mortgage using her investments not out of her savings. In this case, Trent’s advice makes sense.

  40. J says:

    We live in the Boston metro area and babysitting rates are $10/hr for one kid and $15/hr for two. Michelle is likely having trouble breathing.

  41. Monica says:

    Re: breakfast – I agree that eating breakfast is important. But everyone is different early in the morning and so what works for one person may not work for another. I fall in the “as long as you’re eating something” category.

    Re: babysitting – I babysat from middle school through college. Going rate was $8-$10 an hour and I had anywhere from 1-4 kids at a time. $10 was more common, esp. as I got older. I think it depends on where you live and also on socioeconomics. Rate was the same across several states I lived in, but all were in upper middle class suburbs of major metro areas.

  42. Nicole says:

    @27– Jackie: I don’t see how that makes sense. Investments are still more liquid than mortgage, given the way the banks are not as generous with HEL and HELOCs and how long it can take to sell a house. If you don’t know how long the unemployment spell is going to be it makes sense to keep things as liquid as possible. It might make sense to move investments into shorter term (principal saving) savings or bonds, but it doesn’t necessarily make sense to move them into mortgage payments. (Personally I think I’d take the risk of keeping them in the stock market until they’re needed, hoping for re-employment before other savings run out.)

  43. SZCZEBRZESZYN says:

    Child’s income tax: I think you’ll find that a child can make about $6000 without triggering an income tax. Just play “what if” with your tax software.

  44. K says:

    There are plenty of online calculators that wil help you figure out how much to pay/charge for babysitting. Generally, take into consideration the location, the age and experience of the sitter, the number and age(s) of the child(ren), and so on. I live near San Francisco, and $6-8/hour is maybe what you’d pay a high school student looking after one child. I’m 26 and look after two kids a few days a month, and am paid $17/hour.

    The calculators I have found useful are at babysitters[dot]sittercity[dot]com[slash]rate_calculator[dot]html and care[dot]com[slash]child-care-babysitter-pay-calculator-p1140[dot]html

  45. Carey says:

    The recently baptized baby will not have to pay taxes on $150 per year in your example, Trent. That’s way below the minimum income that would be taxed by the IRS (unless the baby has multiple income streams), even as a dependent. Your state may have different rules.

  46. Adrienne says:

    Babysitting rate vary a lot (as you can see by the comments). I would look on craigslist and see what others similar to you are charging. I would looove to pay someone $6/hr….

  47. Johanna says:

    @steven (#24): I’d think that on the spectrum of “natural, nutrient-dense foods” to “processed, refined garbage,” apples and bananas would fall pretty close to the former end.

    I really wish that people (in general, not just here) would quit the moralizing about nutrition. An apple isn’t enough for breakfast for me either, but if it works for Trent, what does it even mean to say that he “should” be doing something different?

  48. NZ Chick says:

    Hi I highly recommend to Joely to get her bf to work and study. I worked full time and studied part time for 8 years and it is awesome to come out with a degree with no student loans. My work contributed to my uni fees and were very flexible with my working hours as they wanted me to complete the degree!
    In that time I also managed to go on 2 overseas trips and purchase a house at the end of it all which shows that anything is possible.

  49. Johanna says:

    Re: Anthony saving for a Roth IRA: I took that to mean that he wants to open a Roth IRA in something that requires a minimum initial investment – most Vanguard funds require a $3000 investment, for example. I think Trent wrote an article once before where he recommended keeping the money in a high-interest savings account while you save up the $3000.

  50. Steve says:

    Regarding the ” apartment in the home country.” Would the apartment be something you could sell? That might be a way to get some of the sunk cost/deposit back. I agree on the $20k used car though.

    @chacha1 (#12) – maybe taxes aren’t quite as difficult as everyone makes them out to be, but they are definitely complicated and error prone. (I would add stressful, but that’s an individual’s response to the complexity and error-prone-osity.) Thank goodness for TurboTax.

    For breakfast I usually eat whole-wheat cereal with milk. It’s another way I can get the 1000mg of calcium I (and you all) need daily. Even so, I am usually hungry again a couple hours later, at which point I eat a banana.

    I agree that the advice about paying off the mortgage seems backwards. The questioner did not say the payoff would come from assets, but from savings, which to me implies liquid. And if you are really are going to pay off the mortgage out of savings, it almost seems to me that the sooner the better.

  51. Katy says:

    I have my savings with a local bank (First State in Nashville, TN) that offers 4.25% interest every month as long as I do several credit transactions with my debit card and have direct deposit. It’s not a promotional deal…They have had this program going for four years now. So it IS possible to get a higher interest rate, you just have to be willing to do something to earn it. :)

  52. Leah says:

    @21 – Gretchen, I was wondering the exact same thing!

    Re: taxes on the baby’s savings account, I agree with Carey that there’s no way that’s right. Even if the parents claim the baby as a dependent, a dependent only has to file a tax return on unearned income if it’s more than $950. See IRS Pub. 929.

    And here’s a question for your consideration for a future reader mailbag. I’m graduating from law school in one month. Over nine years of college (I’ve got an MA as well), I’ve accumulated $34,000 in student loan debt. All loans are Subsidized Stafford Loans with a fixed interest rate of 6.8%. My question is this. I often see people writing in giving you financial info, and they’ve got X amount of student loan debt at 2.3% or something ridiculously low. Where are they getting these rates? Is there anything I can do to get mine from (what I consider) the absurdly high 6.8% rate to something that’s more of a steal?

  53. almost there says:

    #36, Leah. Why don’t you transfer your student loan to a fixed rate credit card and turn it into unsecured debt that can be disolved in a BK if things get really bad. As it stands, one can never get out of student loan debt. I did this by transfering a car loan to a cc debt at 2.99% for life of BT. Not that I plan on BK, but I told my spouse that if I expire prior to balance being paid off to not pay it because the debt is uncollectable at death. Many credit cards are still offering lower interest rates for life of BT hoping that one will screw up and charge something else on it. Though, now the interest doesn’t always apply to the lower rate borrowed first. Just a thought. Bankrate should have info on cc rates,

  54. almost there says:

    #36, Leah. Why don’t you transfer your student loan to a fixed rate credit card and turn it into unsecured debt that can be disolved in a BK if things get really bad. As it stands, one can never get out of student loan debt. I did this by transfering a car loan to a cc debt at 2.99% for life of BT. Not that I plan on BK, but I told my spouse that if I expire prior to balance being paid off to not pay it because the debt is uncollectable at death. Many credit cards are still offering lower interest rates for life of BT hoping that one will screw up and charge something else on it. Though, now the interest doesn’t always apply to the lower rate borrowed first. Just a thought. Bankrate should have info on cc rates.

  55. @ Johanna (#32)- I seem to remember reading that Trent struggles with certain health issues (can’t remember what they are right now) and is also on a quest to lose weight. Eating a healthy, balanced diet can do wonders to improve certain health issues and also help a person lose the weight. Eating only a banana or apple is more or less getting a natural dose of sugar and not much else. Doing this leads to fluctuations in blood/sugar levels which causes spikes and crashes in our energy levels. My girlfriend was doing the same thing as Trent with breakfast and ended up fainting and feeling dizzy all of the time. When she went to see a nutritionist, they told her to eat more protein (with each meal) and not to eat just fruit.

    I wasn’t implying that a banana or apple are refined foods in my comment, I was discussing the thesis of the book. If you consider your comment, nobody should be giving advice to anyone, for any reason. Afterall, wouldn’t that just be “moralizing”? People offer advice in an attempt to help people, not criticize…well, maybe some people criticize but I think most do it to help.

  56. Katie says:

    @Leah: the law changed in 2005 or 2006. I was able to consolidate my Stafford loans at 2.875%. That’s just not possible under the current law.

  57. Kate says:

    @Allie It is so important to eat breakfast! Making the time to do so will improve your health. If you are pre-disposed to diabetes, eating a healthy breakfast is an important way to cut your risk. Plus you’ll have a good head start to the day, and not overeat during the day.

  58. Stacy says:

    In Seattle I make $15 to $17 per hour babysitting. People are willing to pay this to me because I am a professional level child care provider — Early Childhood Education Degree, First Aid/CPR Certified, have references.

  59. Jen says:

    If eating a piece of fruit for breakfast works for Trent, then it works for Trent. Some of us just aren’t breakfast people–our stomachs aren’t ready at the available/accepted hour. :-)

  60. Jeroen says:

    Trent,
    In the answer to the first question you state the following:
    “On one level, it’s kind of crazy. When the economy is bad, the interest rates are low but more people have the initiative to actually save. When the economy is good, the interest rates are high but fewer people have the initiative to save.”

    It’s not crazy at all, it pure logic from the POV of banks. If people already have a reason to save, as in a recession, why pay them more to do so? On the other side, if people aren’t saving in a good economy, they will pay to get that money.

    Not to mention that -for the economy, not for the individual – saving is bad during a recession, people need to spend, spend, spend. And entrepreneurs need to have access to cheap credit too.

  61. deRuiter says:

    Answering Linda you’ve used “saivngs”. Trent, professional writers use spell check and edit their work. Spell check would have caught this in a flash. I know you’re making money without editing and spell check, but your work could be more polished with a bit of effort.

  62. Cheryl says:

    I know what a SAHM is, but what does DH stand for? And gosh folks, take it easy on Trent’s breakfast habits… He’s got to find what works for HIM!

  63. Cheryl says:

    And yes, going back to school and taking a class or two while working is a great way to do things. That way you have a secure paycheck, and are building towards your future. At 44 I went back and got my associates, just because I wanted to finish something I started years ago, and enjoyed it tremendously… With no student loans, because I had 3 kids in college already…

  64. Mel says:

    @Cheryl (#46): I believe DH is “Dear/Darling Husband”. Likewise, there’s DS (son), DD (daughter), DW (wife).

  65. marta says:

    @45: Don’t bother.

    People have already called him out on that many, many times before. They’ve even pointed out typos, sentences that end abruptly and so on. No corrections have been made.

  66. Steffie says:

    Remember what ‘taxes’ pay for and it’s not so bad. Yes they go to people who scam the system but also to maintain the roads you use to go to work, visit family, go on vacation etc. They pay for the libraries that this site and commenters are always praising and using to save money. Taxes pay for the fireman and policeman who come when you call them. You used to need a ‘plaque’ on your house for the firemen to put out your fire. And you may not agree with the places our soldiers are sent but taxes pay their salary. Yes, this may seem Pollyannish but it works for me.

  67. Carrie says:

    In regards to babysitting, I used to babysit to contribute to our finances before I had our first child when I was 27. Families *loved* that I was an adult babysitter with my own transportation. This was 11 years ago and I charged $6 per hour (for the job—not per child!) and I made it clear that it was $6 an hour which was $1.50 for every fifteen minutes. That eliminated a lot of confusion so they wouldn’t have to round up to the next hour.

    If two families went in together for me to keep their kids, I charged each family $5/hour (or 1.25 per fifteen minutes), thus it was beneficial to them and to me. They paid less and I was making $10 an hour.

    I live in the rural South and this was over 10 years ago, so if I were you I would charge $8-$10 per hour. I used to make around $3000 a year and it really came in handy. Good luck!

  68. Nicole says:

    @49 That’s got to be my least favorite part of this blog. I feel like it isn’t respecting the readers, no matter what the content is. I hope he was more respectful of his editor. The 400+ page book I’m currently reviewing is rife with typographical errors on page one. Really makes me not want to read the rest of it. It’s just impolite, like not cleaning your house before company comes, and not cleaning up spills when someone notices.

  69. marta says:

    @51: Exactly. Sure, some of us might be more “sensitive” to such stuff — judging from some past comments complaining about the grammar & spelling police — but it really screams “sloppy”.

    I’d be far more likely to buy the book if the posts here were treated with more care and professional pride, which should be expected from a professional, *full-time*, writer. Oh well, this will fall on deaf ears, once again…

  70. imelda says:

    Youch. During college in NYC I got paid $14-$18/hour for babysitting 1 kid. I can’t believe there’s such a different in COL that earning a third of that in another city is a fair wage! I guess I’ve got to get out of my bubble more often.

  71. Erin says:

    @Noelle – Google “Sittercity rate calculator”. They have a calculator where you put in your zip code, experience, age, # of kids and they give you an idea of the going rate in your area. Here in the greater Boston area a 20-something professional with childcare experience would get around $15/hour for 2 kids. A high school student gets about $8-$10. I would pay a young college student something in between.

    For the person who talked about the hourly rate their daycare center charges, that is less because the daycare teacher is typically watching several kids at a time. I think it varies a little by state but infants are usually something like 2 adults to 7 infants ratio, toddlers 2:9 and preschoolers 2:20. So it’s not really comparable to compare that rate to the rate you pay where someone is in your home watching only your kids.

  72. Brittany says:

    Man, I knew this thread was going to get sidetracked by nonsensical discussions on what Trent eats for breakfast.

  73. matt says:

    RE: breakfast When I was in college I did the apple for breakfast when I was on a diet, lost a ton of weight just by cutting cereal down to that, you really don’t need much more. I’ve also done the ‘can of V8 breakfast’ when I had the money, but wasn’t often in college, now I do the bowl of cereal/normal breakfast and am back up the 60lbs or so I lost on my apple breakfast… you healthy breakfast thumpers can chew on that, an apple is just fine.

  74. AJ says:

    #36 Leah – rates were variable until 2006, at which point they were fixed at 6.8%. When I consolidated my loans last summer, I had three years at something stupid low (can’t remember exactly what, but I believe under 3%) and my last year’s loan was fixed at 6.8%. (I graduated in 2007.)

    Since my last year’s loan was fixed, it didn’t go down with the rest of them, but I was still able to lock everything in at 3.8%, which is where I’ll be until I get them paid off.

  75. DB Cooper says:

    Regarding taxes – I consider my income tax paid to the state and federal government to be my charitable donations for the year. The government takes my money and redistributes it to lower income individuals, families, and communities through various programs, and as far as I’m concerned, that covers me for charitable giving. Not that I approve of the wealth distribution program that our government is involved in, but as long as I don’t have a choice – that’s my giving.

  76. JM says:

    #36, Leah – What everyone else is saying about fixed percentages for student loans now. I finished college in 2004 and consolidated $21K in the summer of 2005 at 2.875%. After 36 on time payments that rate dropped to 1.875% for 20 years. Barring any kind of extreme extra cash available, I will not even attempt to pay off the loan early. It is definitely used better elsewhere.

  77. Brittany says:

    Wow, DB Cooper. You pay your part of the roads you drive on every day, the schools you and your family members use, the police and firemen who protect your community, etc. You’re a freaking saint.

  78. Kim says:

    Now you’re eating fruit for breakfast? I thought you ate breakfast burritos that you make ahead and freeze. I even watched the video. Why the change? Myself I prefer a protein shake that I mix w/ skim milk. Cheap, tasty, healthy and portable.

  79. “now I do the bowl of cereal/normal breakfast and am back up the 60lbs or so I lost on my apple breakfast… you healthy breakfast thumpers can chew on that, an apple is just fine.”

    Could it be because when you deprive your body of the nutrients it needs, it goes into survival mode and slows down metabolism and tries to store fat? That is the bodies natural response to food deprivation and when you start eating more, it is still stuck in survival mode, storing away fat. That is why so many people yo-yo diet (which sounds like your situation). Up and down but never understanding why. Don’t deprive your body of proper nutrition and a balanced diet and your metabolism will function as it should and you will reach an equilibrium.

    I don’t think this has anything to do with being “breakfast thumpers”. It is just common sense once you break yourself of restrictive dieting and the mindset that you must eat less in order to lose weight. Eat more but healthy foods, boost the metabolism, exercise, drink plenty of water and get adequate sleep.

    The problem I think most people have is how we define healthy and we are blind to the ingredients in our foods. There is sugar in practically everything we eat. Eliminating sugar is going to be the most difficult thing in changing how a person eats but I am convinced that it is the most important way to begin losing weight and is the first step towards a more healthy lifestyle.

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