Reader Mailbag: The Little Things

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. Car leasing question
2. Separate savings accounts
3. Handling reduced income
4. Relationships and honesty
5. Why savings accounts?
6. Planning for debt freedom
7. Upgrading credit card
8. Trusting product reviews
9. Funding retirement
10. Figuring out priorities

Opening up the window and feeling a cool breeze when your office is stuffy.

Hearing a child laugh because of the sheer joy of life.

Eating a handful of strawberries straight out of the garden.

These little things have filled my day. These little things fill my life.

Q1: Car leasing question
I have been on my own, graduated from college for a year now. I just recently moved into an apartment with a friend after living with my parents after graduation. I am asking for some advice for a newly grad.

I have been reading the simple dollar for about 6 months now trying to figure my way around the adult world. When I went to college my parents were nice enough to pay for my gas and groceries on a credit card to build credit. However, the economy has hurt even my seemingly invincible parents and I am left with $3000 left in credit card debt.

Now I know that its not terrible, but still something I am now paying off. My parents also are being very generous and paying the minimum, and I am throwing $200 extra to help them/myself with the payments. The interest rate is 20% on the credit card debt. Also I have roughly $24000 in student loans with $186 monthly payments and 6.5% interest.

I also contribute 4%, about $50, to a ROTH IRA since I have to be in my position for a year to get 401k matching. I put about $100 a month to a savings account also. Now is it worth it to continue contributing to my IRA, or put the extra $50 towards my credit card bill? I know that it is good to start investing when I am young, but does that 4% make sense right now?

I also just started leasing a car in February since mine was going to need a lot of repairs. The monthly payment on that is $200. Now I was reading an article that you wrote about the differences in buying used or buying new, but you never mentioned leasing. You said buying new would be worth $63000 over 15 years. If you do the math it would only be $36000 to drive a brand new car if you figure $200 monthly payments for a new car.

Now I am young, but is it worth it to lease a new car for $200 a month? It is a Honda Accord so it gets excellent gas mileage.
- Pat

The difference between buying new and leasing is that, when the payments are finished, you’ll wind up with a late model used car that you can drive for as long as you want if you buy new, but at the end of a lease, you don’t have a car at all unless the dealership decides to sell it to you.

The only time a lease makes sense is if you absolutely must have that new car smell. For example, it makes sense for some salespeople to be driving new cars as it’s part of the sale to the customer. Since you need the shiny “new” effect, the ability to return a car at the end of the lease and getting a new one is enormous.

Having a lease is like always having a car payment, a payment you can never escape from. The reason to actually own your vehicle is that you can go for years (sometimes many years) without a payment.

The best option is always to pay cash and own the vehicle. This eliminates the money that’s lost to interest on the loan. Used cars are usually the best deal, but you should always be doing the numbers and the research.

Q2: Separate savings accounts
I have a mundane question about logistics. when you say you put away 4% to education, and $100 a month for vacation… WHERE do you put them? separate bank accounts? smarty pigs? how do you keep money separate for specific purchases? that’s the way I think of my finances, and I end up with lots of different accounts!

- Jimena

Why not have lots of different accounts?

I use SmartyPig and ING Direct. Both of these companies allow you to open several separate savings accounts under the same service. Both pay a decent interest rate on the money you save.

If all of the separate savings are listed under one login or two, it’s not really all that inconvenient. You can manage them from your home computer with ease.

Q3: Handling reduced income
My husband works in residential real estate (he’s a builder) so needless to say our cash flow has been hammered over the past several years. Before our daughter was born in 2007, we upgraded to a larger home which was completely within our budget at the time, but I was hit with a layoff a year later. I luckily landed a job I love six months later, but I’m currently making less than I was at my old job.

A smaller paycheck, combined with a husband making much less in a troubled economy, has equaled about $15,000 in credit card debt a couple of years later. I don’t see the home market getting back to where it was in the next couple of years at least. Selling the home isn’t an option: we just refinanced and any equity in the home was wiped out during the recession based on the new appraisal.

Hammering away with extra payments on the credit cards isn’t feasible with our current cash flow. If I could just make the credit card payments go away, most of my cash flow issues would be resolved. We have just under $150K in retirement savings between monies contributed to Roth IRAs, Traditional IRAs and a whole life policy. Am I totally crazy to think about hitting the retirement savings to pay off the debts? I can withdraw monies initially invested in my Roth IRA without penalty, right? We have the mortgage and one car payment, but no student loans or anything. BTW, I’m 34. Your thoughts?
- Jennifer

If you hit your retirement to pay off these debts, you’re pretty much adding a couple years of work directly onto the end of your working career. When you’re 70 (or so), you’ll be working when you could be retired.

That’s the real exchange you make when you empty out your retirement to pay off a $15,000 credit card debt. You’re going to lose 10% of your retirement savings. Over the course of your life, that will add up to about 5% of your total when you’re older (depending on your later rate of saving, of course). There’s also the income taxes and penalties and other factors (like loan costs from borrowing from a life insurance policy).

I would be very careful before taking retirement money for credit card debt. The total cost of early withdrawal of retirement money is enormous and often stacks up to the interest rate on credit card debt when you account for the total cost of withdrawing it and the lost returns over your lifetime. If I were you, I’d try to make lifestyle changes and pay off the credit cards without tapping retirement savings.

Q4: Relationships and honesty
I know that you’re married and have been for awhile and I have been in a relationship myself for over 6 years. I was wondering, do you think that total honesty is necessary for relationships? If something has happened, the event has passed, everyone has moved on, lessons have been learned, is it necessary to bring up the truth with your significant other simply to relieve yourself of some guilt even though it would just make them temporarily upset? Or is that just selfish? Who doesn’t make mistakes right? As long as you’ve learned from them and are truly apologetic and remorseful, is it okay to move on and not speak about it? This has been bothering me for a long time. There is something I want to tell my significant other but I’m afraid I only want to tell him so I don’t have to think about it anymore–I acted selfishly (though somewhat unknowingly) and I feel like I’d be doing that again just to make myself feel better.

- Robyn

Dishonesty, especially when guilt comes from that dishonesty, often affects your relationship in more ways than you think. It changes a lot of your interactions. It makes it seem more plausible to be dishonest at other times. It makes you feel guilty, which changes your interactions and alters your relationship today.

Think about it. Right now, you feel guilt toward your relationship. I’m sure there have been times when you’ve bitten your lip and chosen to not say anything or say something else. Each of those things alters your relationship – and not in a good way.

I think you should be honest. Every moment when you’re trying to choose your words carefully with the person you should be closest to in the world is another gulf in your relationship and you should strive to have as few of them as possible.

Q5: Why savings accounts?
This is both a question and an observation. When I see people describe the benefits of Savings accounts, they always seem to use big numbers. For example, “If you use a savings account with 3% interest…” is a common one. The thing is, there are NO accounts available that deliver that kind of interest. In fact, my credit unions offer .1, and .3% APY for sub $10,000 accounts, and going up as high as .4% for >$100,000. Searching around, the very best savings account I can find offers 1.25%, but isn’t FDIC insured. ING offers 1%.

Where do people get these inflated example numbers from? Was there a time when people actually could see >1% interest on a savings account? I’d really like to store my emergency fund somewhere where it can garner some decent interest considering I’m not using it for anything for now. Most of these banks seem to be wasting my time. I know its safe, and I am earning SOME interest, but honestly seeing a whole 25 cents coming into my account each month seems insulting since I know I could make far more money off of monthly dividends should I put the money in a real estate trust. Is this something to do with the economic climate? Or have banks always had a pathetic return on savings accounts?
- Marty

Yes, there was a time where people saw interest rates higher than 1% in savings accounts. It was called 2007.

Savings accounts tend to reflect the prime lending rate, which sets interest rates on a whole bevy of things from mortgage rates to returns on government bonds. That rate has been very low since 2008. When that rate is low, savings accounts return very little – between 0% and 1%, typically. At the same time, mortgages are very low.

When the economy rebounds, the prime lending rate will eventually go up. At that point, savings accounts will begin to inch up in order to attract savers so the banks can keep lending money in a hot economy.

In other words, in our current economy, you won’t find a good interest rate on investments that are both very stable and very liquid (which is what savings accounts are). In order to get a better return, you have to either give up stability (by buying stocks, for example) or give up liquidity (by buying land, for example).

Q6: Planning for debt freedom
I have $5,000 invested, $2,000 in savings and I make net $~ 2000 a month. I am planning on going back to school and would like to have some savings as it is an out-of-state move. I have been driving the same car for the last 12 years and I know it will last me until I go to graduate school in 2012.

Here’s the thing, I have debt! The good news is I have paid off 3 credit cards in the last few years. I still owe about $5,000 in personal line of credit and this year I owed in taxes because I was an independent contractor and there was very little I could write off. I actually saved up money for the taxes, but due to a job change, and my new employer taking over 4 weeks to pay me (and not receiving that pay retro and getting it after I end the position), I had to use up what I saved for taxes to live on.

So now I owe $ approx 5,000 in my personal line of credit, $ approx 5000 to the feds and $ approx 1,000 to the state. I have $5,000 (approx) in my investments and $2,000 in savings. My goal is to be debt free by the time I enter school in Fall 2012 and I need a chunk of savings for the big move to the school and a (newer) used car. Because I am driving my car to the ground, I was not planning to sell it, was hoping to just give it away and save up for $5,000 or so for a car when I get to the new school.

Oh and I have student loans which I pat $180.00 into every month. I plan on deferring it while I’m in school.

Do you have any advise on what I should do? Getting another job right now is not an option, I am busy as it is trying to prepare to get into school.
- Erika

The only way to make these debts go away is to pay them off. If you don’t have adequate income to pay them off before you start school, then they’re not going to be paid off. If you can’t get another job right now, then you’re denying yourself routes to a more adequate income.

I am a bit confused by the “busy trying to prepare for school so I can’t get a job” bit. What sort of preparation are you doing that keeps you from getting another part-time job doing something like being a nighttime gas station clerk?

What I see here are two priorities that are in conflict: getting rid of your debt and preparing for school. Which is the higher priority? It sounds like both are very difficult. I can’t tell you which is the higher priority. That’s a decision you have to make for yourself and live with.

Q7: Upgrading credit card
I have a Chase +1 student credit card. It’s a fine card, but I’m sick of points rewards and want to switch to something else. I have seen people talking online about “upgrading” from a student card to a normal card. Can you actually do this? How do you do this? And most importantly, when you upgrade to a new card if it’s possible, is it equivalent to opening a new account and closing the old one (thereby killing my oldest credit line in the credit report)?

- Kevin

You can. What they mean by “upgrading” is simply applying for a card with a better rewards system, switching to that as a primary use card, clearing the balance on the old student credit card, and either sitting on it (which is what I’d do since it’s the oldest card I have and beneficial for one’s credit history) or closing it.

Is it a good move? If you don’t close your old card, particularly if you don’t have other sources for your credit history, it’s not too big of a deal. If you can get significantly better rewards from the new card, it’s probably a good deal, particularly if you keep your balance paid off each month.

The only thing you can do is find the card that you want and apply for it.

Q8: Trusting product reviews
Can I trust product reviews on Amazon, or are people paid to write positive reviews to help sell their product? Any experience or research with this?

- Albert

Amazon reviews are a mix of different things. There are lots of reviews from real people legitimately describing their experience with a project. There are some reviews from people who are paid to write positive reviews (often employees of the company selling the product). There are also negative reviews from competitors or from sources with unrelated problems or axes to grind.

Of course, the same thing is true (to a lesser extent) with reviews from other sources.

When I want reviews, I usually stick to a few sources I really trust – a handful of bloggers, Consumer Reports, and so on. I use other sources as secondary sources, and Amazon reviews fall into that camp.

Q9: Funding retirement
I have started a new job and I’m trying to decide how to set up my retirement account. I have the option of a 401k or a Roth IRA. My only choice of companies is Vanguard, which is great. I get to choose which fund/s I invest in no matter if I choose the 401k or Roth. My problem is choosing which program. My employer does not contribute so I feel that I should choose the Roth but I already own a Roth account through my insurance company, USAA. Can I have more than one Roth account or should I role over my Roth to my employer’s account? I’m 36 and have not been able to save for retirement the way I want to. I would ideally like to put 15% of my income towards retirement. The contribution limit of a Roth would not allow me to do that. My first thought is to contribute 10% of my income to the 401k offered at work and then put the other 5% towards my Roth through the insurance company. I could also max out my Roth and make up the rest through the 401k at work. I would appreciate any advice you have.

Pre-tax income is around $100,000
Post tax is about $81,000
I have $63,000 in student loan debt

- Leslie

A Roth IRA is typically not tied to a specific employer. You can independently open a Roth IRA wherever you choose. You may only have one Roth IRA account, but that account can be hosted by multiple companies. So, you could open a Roth IRA here, but it would essentially be an extension of your earlier account and you’d have the investing limits spread across both investment houses.

If you’re happy with the USAA Roth, I’d leave it there and follow your second plan.

Note, though, that you’re close to the income limit for Roth IRA contributions. If you’re single and earn more than $107,000 per year, you can’t contribute the full amount that year to your Roth IRA. In that case, I’d probably just put more into the Vanguard 401(k) you have.

Q10: Figuring out priorities
I started a new job in September 2009. I am 28 years old and did not have a job before that I could fund a 401k, so I decided to try to max my contributions and contribute the max $16500. I figured that will help me catch up with my peers that have been saving since they left college. I currently make $87,700 (pre-tax) and I put $635 per bi-monthly paycheck in a 401k fund (about 19% of my pay). Since I started, I have been able to get $38,000 saved. However, I also have student loans and a car loan to pay off and I would like to set aside an emergency, house deposit, and wedding fund. I was wondering if I should put less money into my 401k (just put the 5% that my company matches) and pay off my debt and build my funds or just continue to do as I am doing and slowly pay off the other debts. I guess my question is which is better: put my savings towards things in the immediate future or put savings toward my retirement? I feel like I will lose on compound interest if I don’t save lots now for later but then again I will lose if I pay compound interest on my loans now. (student loans: $800 (5%), $1900 (3.75%), $15,600 (2.6%); car loan: $21000 (2.9%); 401k rate of return (22%); savings: $1000 (1%))

- Monica

For starters, your 401(k)’s rate of return won’t hold up over a long period of time. You’ve had a nice run recently, but that’s an incredibly good rate of return, one that doesn’t hold up over years and years. Don’t base your calculations on a 22% rate of return.

Based on your comments, you seem to be concerned about your cash flow in the future. You want to get rid of these debts so that you’re not responsible for those monthly payments, which will make it easier to save for other goals. If that’s the case, I see nothing wrong with cutting back your retirement contribution so that your contribution plus your employer’s contribution is 10%. Use that remaining money to wipe out those debts as quickly as possible.

Once those debts are gone, your monthly cash flow will be much higher. I would then return to your original contribution plan and use the additional cash flow you have to start saving for your other goals.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. Telephus44 says:

    Q#9 – Trent worded this awkwardly, but you CAN have multiple Roth IRA accounts – but the annual limit applied to all of them. So if you have 2 accounts, you can put $2000 in one and $3000 in the other to meet the annual limit of $5000. I would find it easier for me to roll over the USAA one into the Vangard one just for simplification, but you don’t have to if you really like the USAA one.

    If you truly want to put aside 15% of your income, you can put $5000 into your Roth and $10,000 into the 401K. Actually, putting money into a 401K reduces your AGI, so that might help you qualify for other tax benefits (like being eligible for a Roth!).

  2. Jessica says:

    Q#3: Your cash flow problem is that you spend too much money. You bought more house than you could afford, just because you could do it. I have no sympathy for you. My husband and I paid off our house within 6.5 years because we bought less house than we could afford. This included him being out of work for 6 months, us having two kids, dealing with medical problems, serious home repair issues, paying cash for a “new” car, contributing to our retirement, paying childcare for two kids… but spending less than what we earn.

  3. Katie says:

    Jessica, nobody asked you for your sympathy. The fact that you feel the need to deny it unprompted doesn’t really say anything good about your character, however good you are at handling money.

  4. Derek says:

    Q#4 – That question may be better for Dan Savage, a real relationship advice columnist. He often advocates “taking it to the grave” – if you’ve done something selfish in the past and bringing it up would only hurt your partner and the only gain is you feeling better about yourself, many times it’s better to take it to the grave for your partner’s benefit. Yes, you should be truthful and your SO has a right to know, but really think about the consequences before bringing it up.

  5. Gimena says:

    Q#3- One thing trent didn’t metion here but metions often is increasing your income. Since you already have a child, first thing that came to my mind is babysitting other peoples kids at your house. If you did this you might be able to make some extra money to put towards your debt. Also, you didn’t mention what you do for a living but maybe you and your husband could do consulting or freelance work.

  6. kristine says:

    Q1- You did not answer the question:

    “Now is it worth it to continue contributing to my IRA, or put the extra $50 towards my credit card bill? I know that it is good to start investing when I am young, but does that 4% make sense right now?”

    It is likely she cannot do anything about the leased car until the lease is over-you offered no actionable remedy such as transfer the lease, thal to the car co. But she can do something about the 4%. The actionable question was overlooked.

  7. valleycat1 says:

    Q3 – One step I’d take if in your shoes would be to ditch the whole life insurance (those policies typically have a high premium), replace it with term insurance and use the difference toward debt repayment.

    Q1 – this isn’t an all or nothing situation – you could split the extra $50 and keep putting, say, half toward the IRA and $25 toward the CC bill. Your CC statement probably shows what impact just a little bit extra over the minimum can make in the payoff time.

  8. tentaculistic says:

    Q8: Trusting product reviews
    I think Trent summed up the answer well – to add to it (as an Amazon Review fiend – both a reader and a writer) a rule of thumb I keep in mind is that if there are only a few reviews of a product, I take all the reviews with a grain of salt, as one ecstatic/furious person can really skew ratings. When there are only a few reviews, I’ll Google other reviews if I can. The more reviews, the more I trust the rating. Some people will get a great product with no flaws, but if reviews consistently indicate that when it breaks it does so in “x” way, that’s a good heads up. You can also get heads up about poor customer service that gives you the runaround (or the opposite), or recommendations on better products for specific uses.

    I love Amazon reviews. If I buy a product elsewhere, I’ll often still write a review on Amazon as it’s the main review site out there.

    One last recommendation – the same product can be listed multiple times (such as by different sellers, or different editions – digital vs hardback vs paperback) so if you’re looking for a review, search for that product within Amazon to make sure you get all the reviews.

  9. Johanna says:

    Q3: I disagree with Trent. If withdrawing 10% of your retirement savings will make your cash flow problems go away, then you should do it. To answer your question, yes, you can withdraw your Roth contributions without penalty at any time.

    However.

    If getting rid of the credit-card debt would make your cash flow problems go away, how did you run up the credit-card debt in the first place? You need to be honest with yourself about what you’re actually spending. If you work out a budget that looks balanced on paper, but an unexpected expense here and there is enough to push you over the edge (and back into credit-card debt), then no, you haven’t solved your cash flow problems, because unexpected expenses here and there are a fact of life.

    The biggest danger with your plan to withdraw 10% of your retirement savings is that it might not stop at 10%. In another few years, when you’ve run up the credit card again, it’ll be another 10%, and then another, and then another, and then you’ll really be in trouble. *That* is the situation that it’s most important to guard against.

  10. Monica says:

    Most of the time I agree that leasing is not the best option. However, sometimes it is. My decision to lease had nothing to do with “new car smell”. My parents and I together researched new cars, used cars and leased cars. I leased an Accord because it was the best financial option at the time – I had a guaranteed reliable car for college with a very managable payment. (It was a few months before the new model came out, so the price was great). I also didn’t just throw money away … 9 years later I’m still driving the same car. When it was all said and done, I paid less doing the lease/buy option than I would have if I bought the car new outright.

  11. Johanna says:

    Q6: Why do you want to pay off your debt before you start school? Do you have a particular reason, or is this just an arbitrary timeline you’ve set for yourself? From the numbers you’ve given, you’d need to put nearly half your take-home income toward your debt (including the student loan) to pay off the line of credit and back taxes by fall of 2012. Whether that’s even possible will depend on your other expenses, which you haven’t mentioned.

    Will you have any kind of income while you’re in grad school (fellowship, teaching assistantship, part-time job)? If so, can you use some of the money from that to continue to pay down your debt?

    I’ll take you at your word that you’re too busy to get another job right now, because I know how much of a time drain it is to put grad school applications together (and probably even more so if you’ve been out of school for a few years and you have to study for things like entrance exams). But will you be equally busy for the whole period from now until fally 2012? There’s usually a few months between when you submit your applications and when you hear back – could you get a second job during that time, maybe?

  12. Q9: Consider self-directing your retirement dollars into investments that you create and understand. Take a look into a “Truly Self-Directed IRA”. Not many people know they are real and completely legal. It’s no gimmick, just requires special skills on the administrators part. Check out Entrust New Direction at ndira.com. I use them personally and it really changes your perception.

  13. Johanna says:

    Q10, Monica: I think you’re absolutely right to want to save as much for retirement now as you can to make up for getting a bit of a late start. The 10% figure gets floated around as the right amount to save, but that only works if you save 10% each and every year of your working life, and you’ve already missed a few years.

    Trent is right that there’s no way that your 401(k) investiments will continue to give you a 22% return, but that’s no reason to cut back on the contributions. You should still get an average return that will handily beat the interest rate that you’re paying on any of your debts.

    And those interest rates on your debts are *tiny.* I would not be in a hurry to pay any of them off. Maybe pay a bit extra on the smaller student loans, if it would make you feel better to have them out of the way, but leave the larger loans (with the lower interest rates) alone. Pay the minimums and put the rest of the money in savings.

    The problem I see with the plan Trent recommends – cut back on 401(k) contributions for now so you can put the money toward other priorities, then start them back up again later – is that you’ll *always* have other priorities. Right now, it might be paying off student loans and saving for a house. Later, it might be taking time off work to spend with the kids (if you choose to have kids, which I realize is not a given). After that, it’s saving for the kids’ college (ditto), or buying your next new house or new car, or a vacation home, or whatever. If you keep pushing retirement savings off until “later,” “later” might never actually come.

  14. Courtney20 says:

    Johanna – I think your comment at #12 is a good point. My own general rule of thumb is that if it’s a short-term goal (6-12 months) with a net positive on the balance sheet, then it would be okay to temporarily divert retirement contributions. If those were my numbers I would only divert the unmatched funds to the two smallest loans. And *maybe* a wedding fund if the wedding is going to be soon and the expenses would otherwise end up on a credit card.

  15. jackowick says:

    Q1 I wanted to comment on the “Honda Accord gets excellent mileage”. I think this is part of the confusion that can happen as a younger independent person when trying to weigh decisions. Knowing your own requirements for a car help you choose which car to buy. If you need good mileage due to amount of miles driven or economy or just “want to reduce my dependence on oil” whatever, that’s why you choose the car. Fuel is an ongoing cost, but so are, say, oil filters. If you drive high miles, you’ll burn through oil changes much faster. If you live in a muddy snowy area, you may find yourself buying new floor mats every six months.

    What does this have to do with leasing vs buying? Very little. Granted, these costs may make you able to afford one car vs another (buying a 17mpg pickup for 2000 miles of monthly driving vs a 35 mpg compact for the same driving, yes) but this should factor into how much car you can buy i.e. this would help you decide between an Accord lease vs a Civic payment.

    I know we do like to “own” things and use them past their amortized life if possible, but for a young person, a lease can be beneficial IF they do need something about that car. It’s not just about “new shiny” or some vanity, it’s also about some leases that include free maintenance (which is in the interest of both the owner and the lease holder, who wants a quality car when returned) or if you need a new car to drive clients vs your 10 year old Pontiac with ripped seats.

    I’m trying to broaden the discussion, because I do think it was a little whitewashed. I’ve seen both sides of the argument. I have a friend who had their old car turn into a money pit with repeated $500-800 repairs, 3 within a year, and he said “I wished I had car payment and a warranty”. Leases help remove some of that x-factor by giving you a more constant cost of ownership.

    And FYI, I own. But I can still look at a strategy and say “it doesn’t apply to me, but I understand”. We need more of that in the world, and on here. I see lots of negatives showing up more and more in the comments. Myself included.

  16. jackowick says:

    Q4 Robyn: I’d like to say “depends”. You say you did something unknowingly, and that makes me think it’s something you can just clear the air about. But I have heard many times people deferring responsibility and saying “I couldn’t help it” or “I really couldn’t do anything else” to make them feel better only. Think about this: you left the house unlocked and it got robbed and you never admitted it. That’s an accident, a mistake, and that doesn’t hurt the relationship.
    Now think about “I got drunk and I didn’t know what I was doing and I went home with someone else while in a relationship”. That doesn’t fly as saying “it’s not my fault”. We have to take responsibility for our lives, and that includes not PUTTING ourselves into situations beyond our control. And I like drinking, but you gotta know when to flag yourself sometimes.

    So very broadly, I just say you should think about if this is truly your own fault, and if so, will it damage the relationship to tell about it? Sometimes admitting you did it to yourself can be enough the help you make the right choices. And how would you feel, HONESTLY, don’t try to justify, if your partner admitted this to YOU?

  17. Des says:

    Q3 – Why can’t you sell the up-sized house, again? You say you just refinanced, so you must owe about what the house is worth (I don’t know of any banks that will still refinance underwater mortgages). So, you could get out from under that debt and rent a place until you get back on your feet. It sounds like you only have 1 child, so a two bedroom apartment would hold all of you and would help fix your cash flow situation. I would definitely do that before cashing out retirement accounts.

  18. Des says:

    Q5 – Trent’s answer is (unsurprisingly) incorrect here. I am 28 and I haven’t see savings rates over 1% my entire adult life. A quick google search of “historical savings account rates” would reveal that the last time the average savings account rates were over 1% was the early 90s.

    The answer to Marty’s question is: these “inflated” rates are a holdover from an era gone by. There used to be a time when regular savings rates were this high – it was called the 80s.

  19. EJ says:

    Des, online savings were paying >5% up until mid-late ’07; my HSBC Direct accout and First National Bank of Omaha accounts paid this until the recession started

  20. Erik says:

    @Des, Q5:
    I think you are only looking at the basic savings accounts, which you are correct in saying they have paid less than 1% for our lifetime. I am 25 and recall 2005-07 when the interest rates on high-yield, FDIC insured, savings/money market accounts at many institutions was 3-5%. In 2007, there were more than 20 institutions paying more than 4% interest (http://www.bankrate.com/brm/news/sav/20070410_passbook_statement_savings_study_a1.asp). http://www.bargaineering.com/articles/historical-online-savings-interest-rate-comparison.html
    http://www.bankrate.com/brm/news/sav/20060418a1.asp

  21. threadbndr says:

    Q5 – some credit unions and small regional banks are still paying over 3% on checking accounts with some fairly undemanding rules (direct deposit, e-statements, a single ACH payment and a dozen or less ‘debit run as credit’ charges a month). That’s on deposits up to about 25K or so – plenty for a basic emergency fund.

    ING was over 5% when I set my initial savings account up in late 2005 or early 2006.

  22. Johanna says:

    Q4: When you say you’re “apologetic and remorseful,” it sounds like what you’re seeking from your partner is forgiveness. By telling him about whatever you did, you’re putting him in the difficult position of having to either grant you that forgiveness (which he may not truly be willing to do) or not (which would turn him into the “bad guy”). That’s the heart of the matter, as I see it, and why being honest (and/or apologetic and remorseful) can be a selfish thing to do.

  23. almost there says:

    Des, I can remember sawings rates at smartypig in 03/08 to be 4.3%apy. Most banks pay very low interest but it was a bit of a broad statement on your part to say that you haven’t seen savings rates over 1% in the past 7-9 years because they were out there you just were not aware of them. The 80s has high savings rates that lagged the inflation at the time, so people still lost to the inflation. (Look at the CPI percentages at the social security website) I’m in my early 50′s and it was common for passbook savings accounts in banks to earn a standard 6% rate in the 1960s as a cost of doing business because they had their way with customers when it came to loans. Through that time until the 90s they would charge double digit interest on home loans and no one batted an eye.

  24. Courtney20 says:

    Des – My ING account only shows history back to 2009, but I just looked myself and in Jan ’09 they were paying 2.4%, and I’m pretty sure it was upwards of 4% when we opened the account in 2005.

  25. Laura in ATL says:

    @Des, I got great rates, 3.5% to 5+% back in 2007, 2006 . . . and not just online.

    I remember the days of 8% returns on one year CDs.

    Laura

  26. Des says:

    @almost there (et al) – Sorry, I should have been more specific. I didn’t mean to say that such rates couldn’t be found anywhere, only that they *average* savings rates have been sub-1% for a very, very long time, long before this most recent recession. Again, that information is available online.

  27. Andrew says:

    Ha! I’m old enough to remember 1980, when I was getting 17.5% on my savings account (of course, the inflation rate was about 14%, but still–)

  28. Nick says:

    Q8 – I find Amazon reviews generally are pretty reliable. Sure, there are some people that are paid to write reviews for products, but Amazon has a few “safeguards” that can help indicate the REAL user reviews.

    1) Watch for the “Amazon Verified Purchase” label at the top of the review. This means that the item is in the reviewer’s Amazon.com purchase history. If they’re sent a product by the mfr, they won’t have this unless they bought a second one.

    2) Next to the reviewer’s username, there’s a link that says “See all my reviews.” If a review sounds too good to be true, check out this link. Real reviewers often will NOT have only five star reviews for products. If they do, read through them. Even a five star review should at least mention something that could use improvement.

    3) Watch for the “Amazon Vine Program” reviews. These reviews are from top reviewers who are able to get pre-release copies of books and some other products. In my experience, these reviews tend to be mostly positive, but most of them are very thorough and well written.

    Hope that helps!

  29. kim says:

    Trent,

    Given the news last week of Capital One acquiring ING Direct in the U.S., can you do a comparison of the online banking options available that are comparable to ING now? Similar to the one you did a few years back where you compared ING to HSBC Direct?

    I am a Capital One customer via one of their credit cards and really despise the customer service and sales tactics (like not approving a credit increase but giving customers multiple lines of credit so that they are more likely to default/ have multiple missed payments). The only reason I keep the card is because of the credit history and I make sure to charge only very little to it and of course pay it off every month.

    Appreciate you looking into this if feasible as I’d love to know what else would be a good opportunity versus supporting Capital One.

    Thanks

  30. Lisa says:

    For Question #6:
    I think it depends a lot on what your expenses are every month. Only you know what this number is once you add up your student loan payment, rent, utilities, gas for your car, groceries, etc. If your monthly expenses are pretty low, then it might be possible for you to get a lot of your debt paid off. I’m not sure about all of it, but that might be possible. If your expenses are pretty high, then you probably won’t be able to afford to pay off your entire debt by the time school starts. You just have to be realistic about how much you make versus how much you spend.

    It also depends on whether you will have a job lined up once you get to school. Obviously, you don’t want to incur more credit card debt once you move. If this seems like an issue, then I’d say pay less into your debts and save more for the move in case you’re unemployed for a while or your student loans/grant/scholarship/assistantship/however you’re paying for school doesn’t cover everything.

    You could look into possibly changing your payment plan on your student loans until you start school. I don’t know what plan you have now, but if you can lower the monthly payment that would give you more money to put towards your savings and other debts.

  31. Lisa says:

    Also, that “new car smell” is the result of volatile organic compounds. Look it up; it’s not a good thing!

  32. Brittany says:

    Question #3–If you upgraded to a larger home for a family you’re still building, can you rent out a room before your family grows anymore and while you’re struggling financially?

  33. On upgrading credit cards: If you like the current bank you’re with, but would prefer to switch to a different kind of card that they offer, it doesn’t hurt to call them up and ask if you can just change your current card to the kind you want.

    I’ve done that with my oldest card twice; once to change it from a student card to a “regular” card (actually, the bank may have done that on its own after I graduated), and once years later to change from a phone-call rewards card to a cash rewards card. If you qualify for the card you want, and the bank wants to keep you as a happy customer, many banks will change your card if you ask.

    If you instead decide to just open a new account and close the old one, the old one should still stay on your credit report for another 10 years, so you may not have to worry much about taking a hit on credit history length.

  34. valleycat1 says:

    Q8 – Amazon reviews: I’ve found Amazon reviews pretty reliable. I look to see what the issues/specifics are that the reviewer likes/dislikes, and read all reviews if I’m seriously considering the product. I also go by how many people have rated the product & the spread/comparison of how many liked or disliked. Also, sometimes the star rating doesn’t match what the reviewer says (a 3-star rating but a rave review or strong problems with the item, for example), and I’ve found a lot of the 1 star ratings have to do with delivery issues or a broken item that ended up being replaced at no charge, etc. If I’m making a major purchase on Amazon, my research ranges far beyond Amazon beforehand.

  35. JS says:

    Q7: Keep the old card open, and try to charge something to it every month (and pay the bill of course). Some credit card issuers are terminating accounts that have no activity on them.

  36. deRuiter says:

    Q6 Erika, Take your savings and pay off 1. The back Federal taxes and 2. the back State taxes, these are the most crucial. They are not dischargeable by bankruptcy, they are piling up fees, penalties and taxes, and the governments are relentless and powerful when they begin to collect. These are your worst obligations. Take your savings, pay off the Feds and the State, or your entire life can be ruined by these institutions, financially and emotionally. You can go to jail if you don’t pay your taxes, credit card and other companies to whom you owe don’t have that incentive to make you pay!

  37. Matt says:

    I don’t understand the purpose of needing multiple excessive accounts to separate your spending/saving, vs just having one account and having a little Excel file, that you should have to track your budget anyway. If you set aside $100/month to your “spend on whatever” savings account, why not just treat it as giving yourself $100/month to spend, and track it accordingly in your budget?

  38. Allie says:

    I agree, Matt. Our vacation fund isn’t a separate account, it’s just another column in our Excel spreadsheet. I picked up that kind of column-based budget splitting from my dad, who does his on paper instead but it’s the same concept in principle.

  39. Katie says:

    Because if you have little sub-accounts you don’t have to keep detailed Excel spreadsheets? Potato, Potahto, depending on what method is easiest for an individual.

  40. Riki says:

    I like to have separate accounts for everything. It’s a few more accounts to manage (I have 9 accounts in total!), but it keeps everything nicely separated in my mind. I wouldn’t do it unless they were free accounts and I totally acknowledge that I tend to be a little bit OCD about organizing things. I could never relax knowing my differently targeted funds were all mixed together . . . but yeah, like I said, a little OCD.

  41. Derek says:

    I keep separate accounts for everything too. I’d never want our travel fund in with our emergency fund, or our car fund mixed in with our “blow” money. Plus, having automatic transfers to each account every pay period saves a lot of hassle of moving money around and keeping track of spreadsheets.

  42. Mister E says:

    I like seperate accounts because it keeps my Excel spreadsheeting to a minimum.

    Plus I can look at my accounts even if I don’t have my Excel spreadsheet handy.

  43. valleycat1 says:

    We are of the fewer accounts persuasion & it works fine for us.

    I can see that separate accounts would work better for some people, as long as you use your common sense about it. We have a friend who has separate accounts for everything, but she considers these accounts so separate that she will put off needed dental care because her medical fund is depleted, (or car repairs til she saves up in her car fund) but feels free to go ahead and spend $1K she has in her (much larger) splurge fund on a splurge & keeps speading the same amount to all the accounts. That just doesn’t make sense to me.

  44. jackie says:

    You don’t need an Ing or Smartypig account to have multiple sub accounts. Just about any bank or credit union has the capability, you probably have to talk to a person to get it all set up. I’ve had multiple shares in my savings account at a small local credit union since the 90s. My mom set me up with multiple accounts when I was a kid and taught me to distribute my allowance between them. In that way I was saving up for 3 or 4 goals at a time as a kid.

  45. Jayme says:

    Q1 – I’d stop contributing to the IRA and the savings account (as long as you have $1000 in the savings account already) and get the CC paid off. That’d give you $150 more to put against the CC and you’d knock it off much faster. That’s just me.

  46. jim says:

    Q3 Jennifer : I second Valleycat’s idea to dump the whole life insurance. Your premiums are probably 10x what a term policy would cost you. You have better uses for that money than investing it in an insurance cash policy

  47. TheBudgeteer says:

    Q3 – Building a solid budget is a better alternative than raiding the retirement account. You may think you have a good pretty good budget. Why not have your budget reviewed by a Professional Budget Coach?

  48. Bonnie says:

    Q9 – Are you maybe confusing your options within your employer’s 401k plan (traditional vs. Roth 401k contributions/deferrals) with a 401k (tied to an employer) and a Roth IRA (an individual account not tied to an employer)? If what you have is the former, you’d have to decide whether you prefer to make pre-tax “traditional” 401k contributions and pay the tax upon withdrawal in retirement or after-tax “Roth” 401k contributions, get no tax benefit now, but have your earnings be tax-free upon withdrawal in retirement. There’s no right or wrong answer and would be based on your personal tax situation. Keep in mind, though, that your max deferral into the 401k (both traditional and/or Roth deferrals) for 2011 is $16,500 total, so if you’re wanting to set aside even more, you should put that into your Roth at USAA ($5000 max for 2011).

  49. Julie says:

    Q7: Yes, you CAN upgrade your credit card, at least I did it with Citibank when I got out of college. Just call Chase and ask nicely. You may or may not qualify for every card, but it won’t hurt to try. I ditched my student card for something with lower interest and cash back, and got to keep my account number and everything. The upgrade had no effect on my credit reports.

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