Reader Mailbag: The Nascent Musician

My two year old daughter is showing a tremendous nascent interest in making music. She sings constantly. She uses her hands as percussion all the time on her knees, on the table, and anywhere else she can use them. She climbs up to our keyboard and attempts to play songs.

Right now, I’m trying to figure out some ways to encourage it in ways that might actually build into a lifelong love of creating music. (Yes, I’m the type of parent who would be thrilled to hear their child choosing a musical career.) However, I’m finding it difficult to reach out to her at this stage, so I’m mostly just encouraging her strongly whenever she completes a song or something similar.

Anyway, on to the questions.

I’m 23 and my husband is 24, therefore we are “newbies” in the credit card scene, making our credit limits pretty low (mine is 4000 and his is 2000). Is the ratio computed based on balances carried over month to month, or is it at any point in time? We pay off our credit cards each month, therefore never carrying over our balance. However, at some points in the month, our credit card balance is over 50% (easy to do with a 2000 credit limit). So if we charge over 1000, are we being adversely affected, or are we fine as we pay off our balances?
– Jena

I’m assuming you’re referring to your debt-to-credit ratio.

A big problem with how credit scores are calculated is that they’re effectively calculated in secrecy. FICO, the most commonly used credit score, is a secret formula held by the Fair Isaac Corporation, and they’re not talking. We can only believe tham (and rest on observations of scores and credit reports) when they tell us that the debt-to-credit ratio is important.

Based on my own observations, it appears to me that the amount that credit card companies report to the credit bureaus – and thus the amount that appears on your credit report – is your balance that is carried forward from the previous month. So, for example, if you pay off your entire bill each month, a $0 balance is reported. If you carry a balance of $2,000 forward from the previous month, $2,000 is reported.

I’ve looked far and wide for information on this and have even contacted my credit card company for writeups about it in the past and have never received a truly straight answer about this issue. However, this seems to be the case based on my repeated checks of my credit report and my own credit card statements.

My wife and I currently owe $119,000 on our 5/1 ARM. This is our ONLY debt. We are looking to refinance as our five year fixed period is up March 2011. We currently have $140,000 in savings and $100,000 in retirement assets. We are both 33 years old.

In addition, we are looking to transition from 2 incomes to 1 when we have our first child in Oct. We currently live fairly frugally, but my income alone is not enough to make ends meet without dipping into our savings. If we eliminate our mortgage, we would be able to live on one income comfortably.

Is it better to eliminate the mortgage in one fell-swoop or should we refinance and then use our savings each month to pay the mortgage? Or refinance the mortgage and put some of the savings down to lower the loan amount.
– Greg

The best move you can possibly make as you prepare for a stay-at-home period is to minimize your monthly expenses, and paying off your mortgage would certainly do that.

If you completely eliminate your debt, you’ll be left with $21,000 in savings and six months of work time in which to build that up some more without the burden of a mortgage payment. Given that you’ll own the home free and clear at that point and could, ptentially, use it as equity in the future if you absolutely needed to, plus you have the retirement savings as well, my choice would be to pay off the entire mortgage and get it over with.

I don’t think there is a major advantage in keeping your mortgage and retaining a lot of money in savings at this point. If you were continuing to work or were perhaps saving for a different major goal (such as starting a business), the answer might be different, but you’re heading into an income reduction.

I was not lucky enough to find “the one” early and am now in my forties with no one and feel like it’s over. I am frugal as hell but have no one to share my life with and for some reason, maybe it’s an age related thing, find myself pining for marriage. What do you do when you’re not lucky enough to find the one early in your life and hanging out bars, church or synagogue(where there are mostly married men in your age group or single people but in their twenties)or other social groups does not seem appealing nor worthwhile? In DC there are lots of attractive women and very few single men and moving is not really an option for various reasons.
– Renee

I don’t think you’re doing anything wrong, necessarily.

If I were you, I would focus on finding and attending social events that really reflect your values and what you enjoy doing with your life. I don’t know what that might be. For some people, it might be the bar scene. For others, it might be their church. For others, it might be political activism or volunteer work or book clubs or countless other things.

What would you want your life partner to be passionate about that parallels your own passions? That’s where you’ve got to start in this journey. You’re much more likely to find true happiness by meeting someone whose passions match your own – a person who is already out there chasing them.

People often mention the “bar scene” when they talk about meeting people. I always find that really strange unless the bar is a major source of happiness in your life. It’s fine, I suppose, if you’re merely seeking short-term flings, but my eyes would be elsewhere if I were looking for a long-term mate.

There’s too many mixed messages out there! Which do I do first?? Save for an Emergency Fund? Snowball debt repayments? Pay off our Mortgage? Save for retirement? The kids college? Save for a bigger house? What about travel?

We have over $80 000 in debt (credit cards & family loan), $230 000 mortgage left, no retirement savings, nothing for the kids, $500 in savings, and we have to visit overseas family every other year and just had another baby.

Suze Ormand says 8 months of savings? Dave Ramsey says snowball bigger balances first, David Bach says no lattes, Kiyosaki says buy your home outright – PF bloggers everywhere say a whole stew of things – the budget is sliced too thin already.
– Gina

I don’t think there necessarily is a perfect right-or-wrong answer here as long as you are spending less than you earn. That extra money can be used in a lot of productive ways, whether it’s paying off debts, saving for retirement, or saving for the kids’ college fund. None of these options are the best option for everyone.

The big difference in these choices really is your values. If you want to just follow someone’s plan, you’ve got to find someone who shares your values and who makes sense to you.

Dave Ramsey offers some strongly Christian values and emphasizes debt freedom. I value my family and discovering your passions and I usually advocate in favor of maximizing your day-to-day stability, which means building up an emergency fund first and foremost. Others speak from entrepreneurial values.

I don’t think any of these options are perfectly right or perfectly wrong. I think they click for different people because everyone thinks differently and is motivated differently. The important thing is that you’re motivated, too, and you’re making choices in line with what’s most important to you.

What is most important to you? Minimizing future risk for your family? Giving back to the community? Building a business? They all have different routes to financial successs. You have to figure out what you want first – otherwise, it’s like flailing around with a chainsaw.

Have you ever done a post on “How to host a game night” — I know from the blog that you do this from time to time, and lately my husband and I have become fans of playing board games as well. We like “Power Grid” and “Robo Rally” both really well. We’ve got a small group together that likes these games too – however getting everyone together at the same time / should we have food / will there be room for everyone when they come? (i.e. many games have a max of so many players). It seems like you play all sorts of games so where do you find the “right people” to play with and how do you bring them together. I mean the last time we hosted a game night, one of my friends walked out right in the middle of it – she didn’t say why – but I got the sense that this game was too much for her ( as you know some of the games have a lot of rules, and strategy involved.- which I enjoy, but some people don’t.) Ok – so what are your “keys to success” with this.
– Erin

First of all, Power Grid is one of our favorite games around here and RoboRally is on my wish list. We have a game group of about five people that meets about three times a month to play such board games and it’s a social highlight of the month.

I stick to three big things to avoid this type of scenario that you describe.

First, I make sure at least one person knows a game cold before we play it. Someone there should be able to always explain the game and answer questions throughout on your first play-through or two. It rarely ends well if everyone is new to playing a particular game. I often do this by playing a new game through a few times solo, meaning I lay out pieces for multiple people and play all the roles myself with the aid of the manual.

Second, if someone is new to such strategic games, I don’t throw them into the deep end of the pool. I simply wouldn’t sit down with my mom and play Agricola, not without having played a lot of other lighter strategic games first. I’d play Stone Age first so that the worker placement idea was familiar to her, for example. If someone has never played board games beyond Checkers or Monopoly when they were a kid, I’d play something like Ticket to Ride with them the first few times.

Third, if someone is really apprehensive, play one-on-one with them a few times first. If you’re a good friend and you know the game cold, invite just that one friend over and play the game just with them. Go through it nice and slow. Play with your cards/pieces revealed and explain why you’re making the moves you’re making.

Friends have been trying to convince us lately to switch our checking account from the bank where it’s been for over twenty years to a credit union. Ours isn’t a mega-bank, but it’s not local, either. However, the people AT the bank have been there through three changes in ownership in the last decade, and they know us. (Our son dated one of the tellers when they were both in high school… it’s a small town.)

OTOH, I’m not sure if that’s enough reason to stay there. I’ve also considered getting an ING checking account to match the (tiny) savings account we’ve got there. But I suspect we’ll still need a local account, just for an anchor, so that leaves the question: stay we’re known and pay eight dollars a month, or go to a credit union where we know no one. That, btw, involves opening both a checking AND savings account in order to get the free checking.

What do you think of the differences between banks and credit unions? Which do you recommend, and why?
– Kate

Whenever I hear that banks still charge a fee just to maintain a checking account there, I’m shocked. There are so many banks out there that now offer free checking that paying $8 a month just for the checking service seems akin to just throwing $96 a year – or $960 a decade – out the window.

Unless there’s a compelling reason that you’ve not mentioned here for continuing to use your local bank, I would probably switch banks. However, I wouldn’t necessarily switch to the credit union just yet. I’d spend some time looking at the various options available to you, including online-only banks like ING Direct and so on. Look at their features and look at the fees they charge, too.

If having a local “anchor” bank is important, open up a checking and savings account at the credit union (if it’s the best local option). However, you don’t necessarily have to use that as your primary bank – you could just maintain small balances locally for the convenience of cashing checks and other purposes and keep your main banking at an online-only bank.

I am a recent college graduate who just married a wonderful man with $20,000 worth of student loans and no degree (he was studying English). He dropped out after his dad stopped paying financial aid, but not before getting depressed and flunking a few last courses. Right now, he really hates his tech customer support job and is having trouble finding a better job, like everyone else. Also, I was just laid off and the unemployment checks have just started coming in. Should he go back and get a degree in the field he wants to work in (Computer Science)? He has about 5 years of work experience. I don’t feel like adding on $40,000 more loans, but at the same time, I feel like his career will have a slow start because of this hindrance.
– Frances

If he’s figured out what he’s passionate about, then he should go back to school and get his degree. It will be worth the expense and the economy will be in better shape by the time he graduates.

However, you need to be absolutely sure that he’s not just picking this career because he thinks it’s something that he likes (but doesn’t necessarily love) that can earn him a lot of money. That’s the very mistake that I made and it wound up putting me in a very hard spot about seven years down the road.

I’d suggest that if he’s not 100% sure that he loves computer science, he spends some time figuring out what he really loves and then following that. It’d not be a smart move to put $40,000 towards a degree that he’s not really passionate about and is just doing for the money.

I recently read a article by Christine Benz, of Morningstar, about opening a Roth IRA and using it as your emergency fund, when necessary. She would rather you had both, but for someone just starting out and short on cash, it seems as though it is a good idea. Do you have any thoughts on this?
– John

I wouldn’t do it.

The big disadvantage of using a Roth IRA as an emergency fund is that when you make withdrawals from it, you can’t put that money back into the account later. You have a $5,000 window each year for contributions, period. Once you take money out, there’s no putting it back other than through your normal contributions to the account.

The last thing you want to do is sacrifice your long-term retirement savings because of a short-term problem like a temporary job loss or a car breakdown. I’d build up at least a month’s worth of living expenses in a savings account before I started to worry about a Roth IRA at all.

Anyway, when we bought our house about six years ago, we also took out whole life insurance policies on each other for $250K each, as well as some larger term-life insurance policies. My thinking at the time was that the term life policies were in the nature of income replacement, while the whole life policies were bought with the specific purpose of ensuring the surviving spouse would have the ability to pay off the house. The cash value of the policies builds at a guaranteed minimum of 4.25% per year, and I view them as additional house payments, since our intention is to cash them in when the cash value is sufficient to pay off what’s left on the mortgage, and then pay off the mortgage. At the time we bought the house, I figured that would enable us to pay off our 30-year mortgage in about 18-20 years, and I still think we’re on track for that.

I’m trying to accomplish two goals here – make sure the house is safe in case one of us dies (a concern that a term policy would resolve), but also find a way to keep from completely throwing money away, since we’re both relatively young and healthy, and thus the policies are unlikely to pay (which term insurance can’t address). This is why we decided to invest more money in a whole life policy instead of a term policy, vis-à-vis this specific need/concern.

The problem is that I keep hearing that whole life is a bad investment choice, I should instead pay for more term insurance and invest the difference, etc. Is (seemingly) the rest of the world right? Should I get out now, before I spend another dozen or so years continuing to pay for these policies? Or does my logic remain sound? I think the total difference in cost for the two whole life policies versus two term life policies with the same coverage would be something like $200/month – is that a worthwhile price to pay for what we’re doing?
– Mike

If you’re sitting at a crossroads and trying to decide whether to open up a whole life insurance policy or a term policy, I would go for the term policy. You can take the difference in cost between the two (since the whole policy will cost more) and invest it yourself into index funds or other such things.

However, once you’re into a policy for a number of years, the situation changes a bit. Quite often, the return you get in further contributions to a whole life policy versus the return you get on a term policy plus investments are similar once the first few years of payments are out of the way. Whole life policies tend to improve a bit in later years, returning better than they do early on (when the policies are covering the commissions of the salespeople).

You have to ignore the past when making these decisions. Don’t let what might have been influence you right now. Sit down and look at where you’re at with the policy. Right now, starting with your next contribution dollar, what puts you in better shape? Another dollar into the whole life policy, or starting over with a term policy and some investing with the additional money?

Without specific numbers, I can’t tell you that for sure. I can just tell you to ignore your contributions up to this point and look at what puts you in better shape starting right now.

My husband just started a post-doc position. There are two types of post-docs through the university. One gets paid officially by the university, taxes are taken out, and benefits are paid for. The other type of post-doc (the one my husband has) is paid for by a federal grant, so you get paid, but no taxes are taken out, it’s not reported to the IRS, etc. We will pay estimated taxes on it, of course, but a little wrinkle has come up that I wasn’t expecting.

While we have health insurance through the university and the university pays for a significant chunk (they pay about $800/mo for a $1100/mo family plan), they do so by paying him a “health insurance stipend” of about $800/mo and then take the entire $1100 out of his paycheck every month. I didn’t realize that and when I calculated our estimated taxes, I just did it based on the income put in his contract (about $37k) plus my PhD stipend (about $30k), also with no taxes taken out. He asked around at work and everyone pays taxes on the entire amount – which increases our income and taxes substantially. I realize we can recoup that partially by itemizing (we don’t own a home, so itemizing has never made sense for us before) since our medical expenses will be enormous. Is that our only option? We probably would have considered a different post-doc if we had realized what our tax burden would be.

It just doesn’t seem fair that we have what looks like a lot larger income in terms of taxes – most people do not pay any taxes on their employer benefits. Have you ever heard of this type of situation before? I suppose we could not report it but I don’t want to get in trouble with the IRS down the road.
– Amanda

IRS Publication 502 states that insurance premiums on health insurance are tax-deductible. In other words, when you go to file your taxes, the premiums you’ve paid in yourself can be deducted from your taxes, reducing the amount you need to pay in.

Most employers simply use pre-tax money to cover this insurance because it simplifies things for pretty much everyone. For some reason – probably related to the fact that they’re passing the tax management on to you – they’re not doing this in your case.

I would strongly encourage you to use a program like TurboTax when filing your taxes, as they help you greatly in discovering big deductions like this and applying them properly.

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. Pete says:

    Regarding the reported balances on credit cards where you pay them off each month: actually, even if you pay in full each month, most if not all credit card issuers will report your actual balance on the day they report to the bureau. I subscribe to a credit report/FICO score monitoring service, and I can tell you that, the reported balance on my American Express card fluctuates from month to month (and it sometimes effects my FICO score) even though I pay the bill in full monthly. The only way to be safe is make sure that you never go above about 30% of your credit limit — even less is better.

  2. MattJ says:

    I agree with Christine Benz. For someone who does not have the money to fund both a Roth IRA and an emergency fund, the best thing to do is to put the money into the Roth. If an emergency comes up, take that money back out and spend it. If NO emergency comes up and you refused to put the money in the Roth, then you’ve lost the opportunity to fund a Roth for that year, FOREVER.

    If an emergency (one that uses the entire amount of your contribution, mind you) comes up, then putting the money into a Roth or an emergency fund is equivalent – no difference whatsoever. If no emergency, or an emergency that only requires a portion of the funds to cover, then you will always be better off having put the money into a Roth, because you will at least utilize some of this year’s opportunity to fund your retirement account.

  3. Johanna says:

    Your answer to John doesn’t make any sense. It’s true that if you use a Roth IRA as an emergency fund, any money you take out can’t be put back in. So if you have a $5000 emergency, you lose a year’s worth of contributions forever. But if you’re lucky enough not to have a $5000 emergency, then that money stays in the account and is available for retirement.

    On the other hand, if you delay starting the Roth IRA for a year so that you can build up a $5000 emergency fund, then it’s a *certainty* that you’ve lost that year’s worth of contributions forever. How is that supposed to be the better option?

  4. Strick says:

    Amanda is probably going to discover that most of her health insurance premium is not practically deductible. The practical deductibility will likely be lessened by both having to itemize (if they would normally benefit by taking the standard) and by the 7.5% floor. Their floor will not allow them to deduct about half of thier premuim costs given their income. And all their other itemized deductions have to be greater than the standard for even this remaining amount all be pratically deductible.

    I’m not sure what benefit the employer has by doing this this way, I guess there is one.

  5. Johanna says:

    Or, what MattJ said. I type too slowly. :)

  6. Adrienne says:

    @Strick
    The 7.5% is for medical Expenses (co-pays, deductibles, etc.). Insurance premiums are deductible from the first dollar.

  7. Anne says:

    That’s so cool your daughter is showing interest in music! If you’d like to encourage her, there are usually some local classes aimed at young children and parents making music together. Look for Kodaly or Orff programs. She could also start piano or string instruments in a couple years!

  8. Stacey says:

    Pete’s right. We’ve never, not once, carried a credit card balance, but each year our credit reports show a “balance,” the amount that was on the card on the day they sent in their monthly report.

    If you can’t stay below 30% credit utilization, try asking for a credit limit increase. You may not get one in this environment, but it’s worth a shot.

  9. dangermom says:

    As far as music goes, I hope you sing around the house yourself and often sing with her. :) I would encourage you to look at Musikgarten classes or similar–they have been a wonderful thing for us.

  10. Maureen says:

    Renee, life is full of surprises. My sister married almost a year ago. She and her husband are both over 50. This is the first marriage for both. Nobody ever thought either one of them would marry. They happened to meet at church, but it could happen anywhere for you.

    Trent, I would suggest that you and your daughter just have fun with music. Sing along with her. Sing her lullabies at bedtime. Let her pound on the piano keys. Make instruments like shakers and tupperware drums. Buy her a cheap recorder (and earplugs for yourself). Play a variety of types of music during playtime.

  11. JonFrance says:

    To Frances, I think he should absolutely not go back to school for computer science–because there’s no need to! Instead, he should just do what other English majors do and start studying directly for certifications (from Microsoft, Sun, Oracle, or Cisco, depending on his career goal). For a $50 book to study with and a $250 test he can start building a resume in a lot less time than it takes to earn a BSc, and employers will respect the initiative.

    I work in computer science and very few people here actually studied it in college. It’s an easy career to transition into, and with a few professional certifications and maybe a side project or two, he can get there without the debts.

  12. Shevy says:

    Regarding the credit card balance affecting the FICO score, presumably if you could find out or figure out when in the month the credit card company reports to the credit bureau you could plan not to be over 30% at that point in time. That might mean not using the card as much until after a certain date each month or paying down a portion of your charges in the middle.

    As for the Emergency Fund/Roth issue, I’d like to point out that the situation is quite different for Canadian readers. The Tax Free Savings Account (TFSA) has a $5,000/yr limit, is funded with after tax dollars and the interest is not considered income. However, you don’t lose the $5,000 contribution room if you don’t fully contribute in any year (unused room carries forward) and you can take money out and put it back without penalty, so long as you don’t exceed your contribution limit for that particular year.

    So, if it was the first year the TFSA existed, you put in $2,500 and had an emergency that required you to take out $2,000, you could still put it all back that year. But your contribution room the next year would be only $5,500 rather than $7,500. Still, it’s a great plan.

    Finally, as for Frances’ husband, two words. Oh. Well. So he “hates” his job and hasn’t been able to find a better one. So what? He’s got $20k of student loan debt with nothing tangible to show for it. He already dropped out once. He’s now part of a couple and his wife just got laid off. Now is *not* the time to go back to school. Suck it up, keep working at his job and be glad he has one! Work on paying down as much of the $20k as possible as quickly as possible, even now while the wife is on UI/EI. Once she has a secure job he can think about whether he will really adore computer science and whether it makes sense to go back to school for that. Now he just needs to grow up and behave like a responsible adult. And, yes, I say this as someone who has been a single parent, working a job I hated through physical disability, Post Traumatic Stress and depression. I understand how tough it can be when you’re depressed. But you do it because there are bills to pay and you’re the one with the job at the moment.

  13. Kevin says:

    @Shevy:

    In the interest of avoiding any confusion, I just wanted to correct Shevy’s inaccurate information regarding the Canadian TFSA accounts. Some of his information is completely wrong.

    The TFSA does indeed have a $5,000/year contribution limit, and any gains in the account are tax-free, like a Roth IRA. Contributions are not tax-deductible. Shevy is correct that you can take money out, without penalty. Where his information goes off the rails, however, is his suggestion that you have to put the money back in that same year. In fact, it’s exactly the opposite. You CAN’T re-contribute the money that same year. You can put it back, but you have to wait until the next year to do so. Money you withdraw is added to next year’s contribution limit. Unused contribution room rolls forward.

    Thus, to correct Shevy’s example, say you contributed $2,500 to your TFSA in year 1, then had an emergency that required you to take out $2,000. Assuming you don’t do anything else in year 1, then next year, your limit will be $9,500 ($2,500 unused contribution room from year 1, plus the $2,000 you took out in year 1, plus your new, $5,000 limit for year 2).

  14. Des says:

    JonFrance #11 is right – If Computer Science is what he wants to do, great! But there is absolutely no reason to spend $40 on and education to do it. Certifications are MUCH more valuable in this particular industry than a degree. (Experience, too, but I imagine that is true for all industries.) Granted, studying for tests alone out of a book isn’t as much fun as going to classes with could-be friends, but its a heck of a lot cheaper, much more practical, and will be worth more in the end.

  15. triLcat says:

    Trent: play music a lot, get her a xylophone. We got the Moo-Sical Piano -To-Xylo by Fisher Price b/c it plays like both a piano and a xylophone and has a whole octave. (There’s a Little Tykes one that is similar but much cheaper, but I haven’t had one so I can’t attest to its quality.)

    @Frances: sounds like your husband needs anti-depressants more than a career change… however, if he really wants to become a computer guy, yes, go for certifications rather than a degree. Do freelance work – try something like programming outpost or elance to get some projects and build up a portfolio. If he manages to make a go of that, then you can consider building up more debt for long-term options. Personally, I’ve struggled with depression and no matter what I’ve done, I’ve never been that happy with my job. I’m glad that most of my career changes haven’t cost me anything, because I haven’t found anything I love to do past the first three months. That said, I’ve been doing the same objectively “blah” job for about 2 years now, and appreciating the perks and the steady salary.

  16. Debbie M says:

    @Greg—don’t forget that once your mortgage is paid off, you will still have to pay property taxes and you will quite likely want to keep paying for homeowner’s insurance.

    @Gina—advice varies because people vary. And although only one strategy might be the very best one for you, any strategy at all is better than no strategy. It sounds like you have a lot of debt and a lot of expenses. But actually, for most people, the first step is to figure out how to spend less than they are earning (or earn more than they are spending).

    In your position, that means my first priority would be to find a way to stop using my credit cards. How do you do that? Some people can just cut up (or hide) their credit cards and then find that their spending automatically adjusts to having less money. If you are like that, great.

    If you are not like that, track your spending for a month. Pick categories that make sense to you like housing and baby expenses. Try to guess ahead of time how much you spend in each category or think about how much would be reasonable in each category. Then see how you match up. At this point, you will probably find some areas with a lot more spending than you expected or think is reasonable. Then you can start brainstorming (and googling) ways to reduce your expenditures in these areas and use those savings to reduce and eventually eliminate your need to use credit cards.

    I would say the next thing that will most help you feel richer is to have an emergency savings fund. Yes, eight months of expenses would be great, but that might not be realistic. Even that $500 you have in savings now is likely enough to take care of your next surprise. But I would move into budgeting a certain amount each month to go into that fund. You may find that transferring money to your accounts right after your paycheck gets you to magically spend less. If so, pick an amount to transfer in, keep increasing it until the magic doesn’t work anymore, then back off slightly until it works again. Otherwise, keep looking for ways to save money.

    I like the idea of always adding to emergency savings, even once the account has gotten big because sometimes emergencies come in threes! But once you have a good solid base, think what other savings areas are most important to you. You can save a little toward each one. I’m guessing that travel savings and retirement savings are high on your list. Education savings is less important. And remember that as you pay off your credit cards, your minimum payment is reduced, so you will always have more money available for other things. If you keep making your current minimums, you will pay off your credit cards, and thus free up lots of money, much more quickly. If you apply all the savings to your highest-interest-rate card first, you will see results the quickest. If you apply all the savings to your card with the lowest balance first, you will be able to have a completely paid-off card the quickest, which is quite motivating!

    Once you get started, you will gain a greater understanding of what works best for your family and what you most want. We all keep making little tweaks as we hear about new ideas. The important thing is to try something and see what you think about it. Then decide if you want to keep going that way or try something different.

    @Erin, Robo Rally can make people feel really stupid. My parents both kept throwing themselves into the nearest pit repeatedly when they played!

    The games parties I’ve been to have had enough people for several games at once. And the guests bring some of the games. People can then group themselves around the sorts of games they like. (So people who can’t spell aren’t stuck with word games!) These game parties do all have food, but the food is provided by both the hosts and the guests.

    I agree that someone should know each game cold before playing it, if it’s at all complicated. Another hint would be to play an easier beginner version first and then move into the final crazy version. Or, for a game like Robo Rally, at least have a few demonstration turns before the real game actually starts (you know, the way people have practice throws in bowling!).

    @Frances, your husband can take programming classes for cheap – look for a community college or even an online informal class. Then he can use these skills to build a portfolio of programs.

  17. Kat says:

    @Renee. Hang in there. You never know when ‘the one’ is going to put in an appearance. I was in my mid-forties when a sweet guy I had dated briefly in my twenties – on the other side of the country! – re-appeared in my life. We have been happily married now for almost eight years! (We might not have been this well-matched and happy if we had continued to date back then – it something we debate every now and then for the mental exercise.)

    In the meantime, stay busy with group activities, keep yourself open to possibilities, and NEVER settle for just a ‘pretty-good’ match. The right person is enormously different from the almost right one!
    Good luck!

  18. Jen says:

    Your credit card company reports several pieces of information about you to the credit bureaus on a fixed date each month, including credit limit, last payment, and current balance as of that date. Here’s an example of what that means. Say you charge $400 on your $1000 limit card in the February billing cycle, so on your statement date (say it’s February 26th), your statement balance is $400. Say your due date is March 10th, and your credit card company reports to the credit bureaus on the 1st of each month. If you pay your full balance on March 9th, your credit card company reports a $400 balance (40% utilization). If you pay your full balance on February 26th, your credit card company reports a $0 balance. You do not have to carry a balance to have utilization reported to the credit bureaus.

  19. A.M.B.A. says:

    Renee- Same as #10 and #17-you never know! I got married at age 42 to a man (10 years younger) I met while I was on a LOA to teach overseas. I, too, was at the point where I thought I’d never be married, and I came to terms with that. We adopted an infant (first of two) when I was age 46. A good friend of mine first married at age 56 and ten years later they’re still going strong.

    Do and be involved with things you love and are interested in. It often seems when one relaxes and quits ” looking”, a marriage partner finds them.

  20. Strick says:

    Adrienne – I’m pretty sure health insurance premiums are included in the “medical expenses” definition in Pub 502 and therefore subject to the 7.5% floor. The self-employed can deduct them above the line per pub 535.

  21. Nicole says:

    #6 I don’t see where it says insurance premiums are treated differently than any other medical expense when paid for with after tax money. We’re in the same situation this year for my DH and DS’s benefits paid for after tax (Cobra and separate dependent policy) but even with itemizing were not able to deduct their premiums because we didn’t hit the medical expense limit. Are we missing something? (Yes, we should have taken out an HSA for the premiums, but didn’t think of it at the time.)

  22. Diane says:

    @Jena – First, congratulate yourselves for getting a solid start in the credit market and understanding how things work!

    Second, RELAX already. You seem to have a good understanding of the fundamentals. A key element of your score is length of credit history. Keep doing what you are doing. Use the accounts you have responsibly without opening a bunch of new ones. Consider setting up an auto pay plan so you are NEVER late on a payment and let time work in your favor. Your score will improve as life goes on.

    If you’re concerned about your scores because you want to buy a house, for example, what you have saved for a down payment is going to have as much or more impact as your credit score (providing you have no major blots on your report.) Take care of the fundamentals and the score will take care of itself.

  23. CB says:

    I second and third comments about not going back to get a computer science degree (on-the-job training, productivity, and coursework make the difference). I have a master’s degree in English and experience in the computer field. Just having a degree in anything and solid work experience is what makes me hirable.
    There are lots of courses available in all aspects of computer science. I bet the free MIT ones (or the Apple U. ones) are top notch.

    As for finding a life’s mate. I and several friends found one when we decided to life productive lives without actively seeking a partner and happened to meet someone who was involved in our same interests without going out of our way. Hiking, lectures, classes, meetups, etc. Someone on the same path.

  24. Ruth says:

    Like others above, I don’t agree that not being able to “put money back in” to a Roth IRA means that you shouldn’t use it as a STARTER emergency fund. I do agree that you shouldn’t shortchange your retirement because you didn’t plan for emergencies, but I think that a person who approaches it wisely can use a Roth IRA as an emergency fund and come out ahead.

    Whether you put the money in a bank account or in an IRA shouldn’t change how much you contribute. So I say, start by putting your emergency fund in the IRA where you could potentially reap tax benefits at retirement. If you run into the contribution limit but have money to put in, put it in a separate emergency fund and next time use that first!

  25. Teresa says:

    Trent- We are a family of musicians..except me. From the moment our kids showed that they loved music and had an inclination for it (which was quite young) we went out of our way to encourage it. That meant keeping instruments down where they had access to them as well as us growing a strong tolerance to noise. We started with a second hand acoustic guitar with nylon strings and a couple of picks, a couple of drum sticks and an old snare drum, and a keyboard that we felt comfortable with them banging away on. In our case they were all in the house anyway and they knew to leave Daddy’s equipment alone unless they asked permission. The girls are now nearing 11 and 13. We still have instruments around the house for their use, an actual studio dedicated to Dad and his band (but they have access with permission that we give freely) and encourage them in every way possible to follow their musical hearts. They are both involved in their respective schools’ advanced choirs and our eldest is involved on a district wide advanced choir as well as the school musical. Keep that baby playing! Music is such a wonderful learning tool, academic and life lessons bound.

  26. Adrienne says:

    @strick
    Oh – got it. I’m self-employeed and knew we got to deduct our medical premiums (didn’t realize it was only because of self-employment).

  27. Andrea says:

    SO COOL that your daughter is showing interest in music and that you want to encourage it. Here’s my advice: Get a ukulele!

    You can get an inexpensive but high quality Makala ukulele for around 40 dollars. A reputable seller is MusicGuyMic on eBay — he will set it up with good strings and make sure you don’t get a dud. Then learn to play it yourself — ukulele is very easy to learn quickly, as there are the same number of strings as fingers. Many, many free resources are available on the internet, including ukuleleunderground.com and ukulelehunt.com, with forums, songs, lessons, and community.

    You can play kids’s songs and your daughter can sing along. You can play chords for her and let her make up her own songs that go with what you play. Once she is a little older, she’ll be able to start playing ukulele too!

    Fun for the whole family, and unlike the inexpensive plastic recorder, it is not shrill and ear-killing. :)

    Ukulele. Do it. :)

  28. Leslie Lang says:

    You might check out Kindermusik for your daughter (www.kindermusik.com). She would probably love it and she’s the right age. They will let you sit in on a free class to see if it’s right for you. My daughter loved it and I found it to be a really intelligent, interesting program.

  29. Joseph says:

    I’m going to go against my fellow commenters, and defend Trent’s answer to John. You should start your emergency fund with a boring old savings account; start investing in a Roth IRA later.

    Sure, if you do start with a Roth IRA, you can pull the money out if there is an emergency… assuming the money is still there when you need it. But there are no guarantees. You can lose money in a Roth IRA.

    IRA’s are for retirement investing: money you can afford to lose. Savings accounts are for emergency funds: money you CAN’T afford to lose. Start with a savings account.

  30. Courtney says:

    Joseph – cash/money markets are investment options in a Roth IRA. Yes, you can lose money in a Roth IRA. But you can also *not* lose money in a Roth IRA by taking on (essentially) risk-free investments.

  31. Krista says:

    @ Frances – I have to say, I agree with Shevy (#12), although I wouldn’t have put it so harshly. He’s an adult and needs to deal with the situation he’s put himself in. To quit a paying job when his wife has just been laid off AND they have debt is asinine.

    Don’t get me wrong – I can sympathize. I have a job I don’t like and I’m planning to retrain. BUT I’m waiting until we have all 4 years worth of tuition saved in the bank before I do it because I’m a grown up and I need to be responsible even when I’m following my passion.

  32. jim says:

    Renee – Have you tried online dating services like match.com or eharmony? They have ~20M people in them which is about 20% of the unmarried adult population. I also wouldn’t rule out people in other cities. If you meet the right person then maybe you will want to move or maybe they’ll want to move to you.

  33. Nicole says:

    Mike has a fundamental misunderstanding of insurance.

    You do not WANT insurance to pay out. That would mean that one of you has died. You’re paying for security in the face of risk. That has value even if the insurance never pays out. It isn’t wasting money.

    Whole life IS a waste of money (except in a few situations where it’s a tax dodge or you have disabled dependents who will outlive you) because the investments you’re paying into don’t do as well as investments that aren’t being managed by a life insurance policy group. You can do better with low fee index funds. Whole you’re paying for both the same risk and for a lousy investment.

  34. Jeannette says:

    As a female friend of many single men of all ages, I’ve heard the other side of this, with them lamenting the difficulty in finding “Ms. Right” as it were.

    Let’s assume you aren’t acting desperate about finding someone (really, people come across this way and it just turns people off), something you may need to think about and reflect on in your own behavior.

    LEt’s assume you are enjoying your life, exactly as it is, and pursuing both work and free time activities you enjoy.

    The guys mentioned that they like when a woman approaches them in a non-threatening and sincere way. They also like women who don’t come with shopping lists of “must haves.” (yea, it works both ways. Neither sex should come with such a list, because you miss out on a lot of great people.)

    They also appreciate women who are not looking for prince charming or someone who has no history. Everyone has some sort of baggage, especially if they are out of their 20s. And no matter how much money they have, or don’t, they really are turned off by women who view a man’s appeal based on his job or income. And they know, they always know.

    Basically, they suggest being the kind of person you want to find. Because really, like does attract like when it comes to values, shared interests, etc. Does that mean you, like Sandra Bullock, will find a wonderful guy who does not fit what you thought you’d like? If you are lucky, yes. A lot of women don’t meet guys simply because they ignore the good ones right in front of them, because they are not “packaged” in a certain way. (Yes, same applies to men looking for women. Too many pick with the P—-.)

    Nobody is saying settle, but often both men and women approach dating with lots of limits and not a lot of genuine openness. Yes, it’s risky being yourself and being open, but every woman I’ve known who’s met a guy after their 20s did so almost by accident, when they stopped “looking” and were so focused on just being.

    I’m hesitant to recommend online dating. However, all those single guys I know are trying it. IT can be brutal because apparently a lot of folks lie about a lot of stuff (I never understand this, but whatever) but my guys have met some women, who while they didn’t end up as “the one” became really good friends. (You can never have enough male friends.)

    Finally, if you have friends who really get who you are, there’s nothing like an old-fashioned blind date. And male friends often make incredible matchmakers.

    So hang out with people you like, live the life you want to live and just relax.

    If where you live is truly not conducive to living the lifestyle you want, independent of finding a guy, consider moving.

    But no matter where you are, except maybe the wilderness, there are generally some guys around. It’s a question of thinking about where the kind of guys you want might be.

    It’s not about the number of guys but finding guys who are interested in what you’re interested in, etc.

    Being active in your community, volunteering, etc. are also terrific ways to meet people.

    And if, along the way, you don’t meet Mr. Right, you WILL meet some great guys. Every woman I know who met Mr Right did so when they simply said: Enough. I just can’t focus on finding somebody. They also all had great male friends and terrific relationships with them and their female friends.
    And for them, and myself, some of those friendships blossomed into something more (and I’m NOT talking about friends with benefits, either)

    These are the kind of folks that most people are attracted to.

    Great people don’t always meet “the one” but that doesn’t mean you can’t have men in your life in a meaningful way.

    Be yourself, but your most open, kind, compassionate and engaging one. If you wouldn’t date yourself, no one else will either. And if you have any “princess” bits, which may be a possibility, put them aside. Relationships are not about entitlement.

  35. Shevy says:

    @Kevin
    Wrong, wrong and oh so wrong!

    First, I was startled to be characterized as a male! I post a lot of comments here and I think most people are aware that I’m female. Also, Shevy is a girl’s name (it’s Hebrew). You were thinking of Chevy Chase, perhaps?

    Second, I never stated that you *have to* repay any money you withdraw from your TFSA in the same calendar year! Being *able* to do something and being *required* to do it are 2 entirely different things.

    Third, my example (as stated) was entirely correct! Kevin, in an attempt to “[avoid] any confusion” has muddied the waters considerably. It is only in the case where you have used up all of your contribution room for the year and then withrdaw money that you must wait for the next calendar year to repay it.

    The example I gave of a person who had a $5,000 contribution limit, deposited $2,500, withdrew $2,000 and then wanted to repay the $2,000 that same year is fine. At the end of the year this person will only have used up $4,500 of their $5,000 contribution room. (Of course, they’ll only actually have $2,500 in the account.)

    The CRA doesn’t consider that $2,000 to be the repayment. Rather they see it as contributions the person was still entitled to make for that year.

    The following year the person will receive another $5,000 limit plus the $500 not used the previous year, plus the $2,000 for the withdrawal for a total of $7,500. Add $7,500 plus the money actually in the account and you can see it totals $10k (which is the amount everyone is allowed to have at the end of the second year).

    So what’s the advantage to paying it back sooner rather than later, assuming you have the money and the contribution room? You’re earning interest on it earlier and for longer. It’s less likely to get diverted to something else. It helps reinforce the habit of setting that money aside.

  36. anne says:

    renee-

    i’ve remarried, but when i was single, i used to get asked out ALL OF THE TIME- i’m not kidding. i used to go out early or in the middle of the week by myself, because i couldn’t stand crowds, and because my friends thought it was nuts to go out on a monday or a wednesday.

    i’m frugal too- i’d go to lectures at the museum of natural history in nyc, or to a comedy club, or even just a movie. i dressed nicely, but conservatively.

    i’d get asked out on the train, then where ever i was, and then on the train ride back. i’m not a flirt- i’m quiet and reserved- once i was asked out while i was reading a book- a guy on the train wrote me a note and slipped it on to the page i was reading.

    anyway, i had a friend who was lonely and looking for a boyfriend, and she asked if she could go out w/ me, and maybe my luck would rub off on her.

    so we went out and NOTHING happened.

    later i read somewhere that men are afraid to approach women who are in a group- being rejected one on one might be bad, but nowhere near as awful as being rejected in front of a group of women.

    so i had been inadvertently and innocently doing something to drastically improve my chances of being asked out- just by going out alone. if my ex husband hadn’t wanted to have visitation during the week, instead of the weekends, or if i hadn’t been too cheap to pay for a babysitter and go out on the weekends, or if i liked bars and crowds and clubs, i’d have never had such good luck.

    and i wasn’t looking to get asked out- i was already divorced w/ a child, and i really was just eager to finally be able to get out of the house for something besides work or grocery shopping or errands.

    so what i mean to say is go out and do the things you like to do, and you’ll probably find someone who likes what you like. but if you’re w/ a pack of other women, you might make yourself unapproachable.

    also, it helps to become a “regular” at a place you enjoy- there might be someone who wants to work up the courage to talk to you, misses his chance, and then hopes you’ll be there again so he can finally meet you.

  37. cynthia says:

    Hi Trent,

    My daughter loved being in MusicTogether and Musicgarten. The programs involve the parents and are a lot of fun. MucicTogether is a very research-based program on how children learn.

  38. spaces says:

    Lemme pull out my BM and my years of teaching young students music, singing, instruments, etc. and say: Trent, that thing you do where you’re all methodical about your own piano practice? Where you work for the long goal, even if it’s repetitive and tedious? Where you’re willing to forgo short-term gains for more meaningful long-term gains? DON’T be like that with your daughter. She’s too little. Music needs to stay fun for her in all the now moments, else you’ll risk turning her off forever.

    I second Kindermusic / Musicgarten / whatever is available locally. The programs are geared to young kids and integrate listening, moving, playing and singing, and are fun fun fun.

  39. Shelly says:

    Good for you in encouraging your musical star!

    My 4 year old has had several music classes at the local community center. The current one is run by Musikgarten — 5 classes for $33. A good deal when I compared rates to the private music programs around here.

    I liked all the suggestions about getting kid instruments like a xylophone, which they can just play on. But unless you know how to play something yourself, buying any real instrument needs to wait until she can take lessons.

    My sister-in-law bought a piano thinking she would teacher herself and the kids. A few years later she finally realized this wasn’t going to happen by osmosis and sold it.

  40. de Ruiter says:

    Jena, Pay your credit card balance off 2 or three times a month. Pay it online on the first and fifteenth. That way you’re carrying a smaller balance.
    Renee, Go where men go, and go alone. Want to meet other women and gay men? Take acting lessons. Want to meet straight men? Take stand up comedy classes. The world abounds with decent single men. Join the Chamber Of Commerce which has programs and mixers morning, noon and night, with the added benefit that the members will have a job. Go to gun shows, hunting and fishing expos, NASCAR events, boat shows, arms and armament shows, cigar clubs, dude ranches, white water rafting, beer tasting, Octoberfests. You can meet men at the grocery store, hardware stores, lumberyards, book store (think business section, NOT the self improvement section!). Eat lunch if you lunch out, at a steak house, not a salad bar, not a place with all bleached wood and hanging ferns. Walk a dog, a real dog, not some mop of fur and not one of those dogs you keep in your purse. Always dress nice, not sexy, just attractively in real fibers. Do not go out with another or a gaggle of women and expect to meet men. It’s like hunting white tail deer, you don’t search under water for your quarry, you look where the deer are, and you hunt alone so as not to spook the deer! Bars and clubs are not good places to look unless you want a companion who spends all his time at bars and clubs. Work in a man oriented industry, like construction, computers, mathematics, wine, beer, heavy manufacturing, science. Do not go into social work, work for non profits, get hired by a gynecologist, or a pediatrician. Actually, the best job for meeting men would be the receptionist for a doctor with an upscale practice treating male health problems. You’d have access to the records so you’d know who was really single, who had money, what they did for a living. Also the men are vulnerable at that time, and the sight of pretty, well dressed, sympathtic, friendly you will make you look very desireable. Spiff up your product (you), smile at normal looking men, be alone in public (means you’re approachable) and enjoy what you’re doing all the time, men will find you. Everyone wants to be around a happy person, it makes them feel good. NEVER, UNTIL AFTER THE WEDDING, TALK ABOUT HOW LONELY YOU ARE, HOW VULNERABLE, HOW EMOTIONALLY DAMAGED, NEVER DISCUSS HOW BADLY YOUR PAST MEN HAVE TREATED YOU, NEVER WHINE, ALWAYS SMILE UNLESS HIS DOG OR MOTHER DIED, AND STOP TALKING ABOUT YOUR “ISSUES.” Actually, this last sentence is true for after the wedding also. An emotionally healthy man doesn’t want a damaged loser, he wants an attractive winner as his mate. Men are competetive, they don’t want the dregs. NEVER, ON THE FIRST FEW DATES, TALK ABOUT YOUR EX. Talk about the future, what fun things you’re doing, ask him about himself, keep the conversation light and amusing. You’ll do fine!

  41. Geoff Hart says:

    Renee notes: <>

    There are three important misconceptions in that one sentence, each of which may be stopping you from getting to where you want to be. First, “lucky”: there’s no luck involved. Finding someone requires effort, and looking in the right places. Second, there’s no “the one”. There may be people who are 90% perfect for you and people who are 10% perfect for you, but that’s not the point; the larger point is that there are hundreds of people who will be between 80 and 90% perfect for you. Last but not least, believing “it’s over” is a self-fulfilling prophecy.

    The solution is not easy, but it’s feasible — and I say this as someone who’s been there, post-divorce. Find things you want to do for recreation or self-improvement and that you would do whether or not you’re actively seeking a partner. Pick one, two, or half a dozen of these things that get will you out of the house and give you a chance to meet new people who share your interests. Then get to know some of these people. One thing we aren’t taught is that a life partner will be your best friend for the rest of your life — we tend to look for raging flames at the start of the relationship, and forget that these inevitably calm down into coals that will warm you for the rest of your life. (It’s not as boring as that sounds. Coals can be coaxed into flames again — repeatedly!) That’s a far more productive approach and attitude. At worst, you’ll find a few new friends; at best, one of those friend will become “the one” for you.

    Don’t get hung up on being 40-something. That’s about the age by which many divorces have happened, and there will be many divorcees out there looking for someone. The ones worth knowing are looking for someone their own age, not a trophy partner half their age. We recognize that it takes time to turn perky young grapes into a fine wine.

  42. Tracy says:

    Wow, comment #40 makes me want to NEVER get married. What a sexist load of bull.

    No one should EVER lie about who they are, or pretend to be someone they aren’t to “catch” a husband. It’s dishonest and you’ll be miserable forever. Love me, love my issues and STFU about it.

  43. leigh says:

    Amanda, this is not atypical for a federal grant situation. postdocs are not acutally university employees, and the funding source will determine the way that the university will pay salary and benefits. this is determined by the contract between the funding agency and the lab/department/university administration. if i were to acquire my own funding through one of the NIH institutes, i would be in the same boat at my present position. so you can see it is a significant financial disincentive for me to do this, though if i were to continue on the academic track it would be a service to my career.

    overall, postdocs are tricky because they are such transient positions and nobody is really willing to make a solid commitment to you.

    you are doing well for a phd stipend, though, if that is any consolation.

  44. Shevy says:

    Tracy, some of de Ruiter’s advice was common sense. Things that translate basically to put your best foot forward (which successful people *do* when they first start to date) and go where the single men are, are simply logical. Unfortunately, they’re things that many people who *say* they want a relationship don’t do.

    Everybody is like a jewel with many facets that reveal interests, abilities and so on. There’s nothing wrong with showing someone the facets that actually exist in you and that speak to some kind of commonality between the two of you. Pretending an interest in hunting or smoking cigars just to meet a guy is stupid and dishonest and will leave you alone and disgruntled when he spends all of hunting season in the woods, with the guys, drinking beer and smoking cigars.

    As for the bar scene, I’m always amazed by the people who think you can find someone at a bar! Sure, guys who drink a lot and flirt with lots of girls, while spending a ton of money. If that’s what you want in a man, okay, but it’s pretty much the antithesis of what I wanted.

    Where de Ruiter really lost me and I started to throw up in my mouth was where he suggested becoming a golddigger and using a job (with access to medical and financial records) to determine who would be the best victim.

    But learning not to spout negative comments about what jerks men are in general and how awful one’s ex was in particular will make *everyone* more comfortable around a woman, not just the men. Women vent with their friends every so often but some women just never turn it off and then wonder why they don’t get a lot of social invites.

  45. Karen says:

    @ Renee – I meet my SO in my 40s at a local sports bar that I have visited on/off for 20 years. Very unexpected!

  46. Andrew Stevens says:

    Trent, please fix your response to John. You really dropped the ball on that one. As MattJ (#2), Johanna (#3), and Ruth (#24) have pointed out, your argument makes no sense.

    Joseph (#29) responded with the point that “you can lose your money in a Roth IRA.” There is an easy answer to this, however. Don’t invest the money in anything risky. You can put it in a Roth IRA and still keep it in cash. A Roth IRA is a compartment for investments; it is not itself an investment of any kind. It is not true that Roth IRAs are risky and bank accounts aren’t. Only investments can be risky.

    If you can manage to build up your emergency fund before you have to tap the Roth, then all is great and you got your investment in the Roth that you otherwise wouldn’t have gotten. If you do have to tap it, then you’re no worse off than if you took Trent’s (incorrect) advice. You lost the opportunity to invest, but Trent’s advice lost that for you anyway.

    When I was first starting out, I had a choice between putting my money in an IRA and draining my emergency fund or just keeping the emergency fund. I drained the emergency fund every year for a couple of years, never needed it, and got a couple of years head start on my retirement I wouldn’t have gotten had I followed Trent’s advice. Christine Benz’s advice can never hurt you; it can only help. Just remember not to invest the money in anything risky until you can afford to.

  47. Shanna says:

    Trent, your response on taxation of health premiums is wrong. For people whose health insurance premiums aren’t paid as a pre-tax deduction by their employer, the premiums are lumped together with other medical costs and only the amount over 7.5% of AGI is deductible. The publication you refernced lists everything you can add together to get the lump sum. I agree with the mailer that this is unfair! And it is a double-whammy to people like myself whose employer does not offer benefits. Paying for health insurance out-of-pocket with after-tax earnings when other people get to use pre-tax earnings to pay for theirs, perhaps even for a share that’s only a percentage of the total bill, is not fair. It’s a big reason people go uninsured. And another reason we need health care reform.

  48. SLCCOM says:

    If Mike has had the whole life insurance for a few years, he should keep it. The upfront fees have been paid, you can’t lose money on it, and the premiums will never go up. He also doesn’t have to worry about becoming uninsurable.

    Also, many of these policies offer money up front if a terminal diagnosis is made later in life, which can pay off medical expenses. Then the surviving spouse will probably have a paid-off house (from payments made over the years) and no medical bills.

    I assume that he knows that you don’t want to collect on insurance, but his heart and mind are in the right place, wanting to protect his wife should the worst happen.

  49. John S says:

    @Renee – If you want to attract someone, you need an attitude overhaul. Walking around with the attitude “I’m in my forties with no one and I feel like it’s over,” is only going to repel people. No one likes a Negative Nancy. Very few people meet the right person expressly with that intent; more often, we meet the right person incidentally while we are out living our lives, either at work or while doing an activity we enjoy. “Seeking a match” shouldn’t be your prime directive in every group activity you attend. If it is, I would seek counseling; that probably isn’t healthy.

    You don’t seem to have an issue with getting advice from people on the Internet; so, why not expand your search to common Internet dating sites? If you want to cut right to the chase, the ‘net is probably your most direct path to meeting people who want what you want. The ‘net is rife with people who are expressly looking for a relationship, even at your age. For example, my dad, who is in his 50s, has had quite a few successful relationships over the past decade from Internet dating, including three that lasted for multiple years. You might get lucky and end up in a “’til death do us part” situation, but barring that, at least you’d have companionship for however long the relationship lasts. (Some experts would argue that we aren’t wired for lifelong commitments anyway, but that isn’t a can of worms that I particularly care to open right here.) The point is, your life is not “basically over”, so get over it and get a move on. Good luck.

    @Gina – You’re $80,000 in debt, plus a mortgage, and you’re deliberately having more babies? Your problem is *not* that there are too many confusing financial strategies; Your problem is that you clearly don’t have one. You don’t “have” to visit your overseas family every other year, that’s a choice. You don’t “have” to impregnate yourself with babies you can’t afford, that’s a choice. You don’t “have” to spend more than you earn. That’s a choice. Pick any strategy that involves spending less than you earn, and *choose* to stick to it. Stop pretending the financial world is “sooooo confusing” like you’re some sort of victim. Start to make better choices. Today.

    @Mike – Whole Life insurance policies are not the evil deception that most financial guri will tell you they are. It is a perfectly valid, legitimate, low-risk investment vehicle. The nice thing is that the guaranteed minimum return is a known quantity. Unlike a stock or mutual fund, it can not lose money when the economy tanks (unless the insurance company itself goes under, but even then, the company’s reinsurance usually covers that.) Trent’s argument against it because the seller makes a commission is weak; stock brokers, fund brokers, bond brokers – these people ALL make a commission on the products they sell. Part of your principal and/or returns are ALWAYS recaptured by those people as either commissions or operating fees. That does not, per se, invalidate the vehicle as a good financial option.

    I took out whole life policies in my early 20s, and I bought a house in 2009 when the stock market was still way down. Rather than sell stock funds at a loss, I used life insurance policy loans to help make the down payments. The nice thing about owning whole-life insurance was that unlike my 401k, my IRA, and my non-retirement stock funds, the cash value in the whole-life policy continued to grow at its reliable old 4.5% pace, even when the market crashed in 2008. It is essentially a hedge fund, akin to buying bonds, but with more flexibility. It is a great source of “creditless credit” at a very decent rate, with no approval process, in a down market. (And yes, I am now in the process of paying it back.)

    In an endlessly rising market, like we saw in the 20th century, your overall return will be better buying term insurance and investing the difference in stock funds. So I suppose the true answer to your question is: Do you think the 21st century will feature the same “endlessly rising market” that we saw in the 20th century? If you are confident that it will, then buying term and investing the difference would be consistent with your belief. On the other hand, leaving it where it is could be a decent hedge in a stagnating or falling market. (Hint: if any of us could predict that with certainty, he or she wouldn’t be sitting hear reading a frugality blog.)

  50. John S says:

    sitting *here*^

  51. Amanda says:

    Thanks for the responses about taxes and the post-doc. It was what I expected, but at least I know to file it next year. I’m not thrilled about paying taxes on the health insurance stipend, but oh, well. And my grad stipend is really great. I have a fellowship from NSF and am really lucky because my advisor is flexible, so I stay at home and watch my two kids during the day, work at night, and just have a babysitter a couple days a week to get some quality hours in. It’s like being a stay-at-home mom most of the time but getting paid to do it (well, and work on my dissertation …). It helps make do with a low postdoc salary.

  52. SLCCOM says:

    Amanda, if you have elective procedures that need to be done, and need to stock up on medical supplies, do them all in 2010. Get extra pairs of glasses, hearing aids, whatever. Then you should be able to deduct some things in the next tax year.

  53. Sharon says:

    Renee- I live in the DC area and got married in my 40s. I wasn’t looking but became friends with the man who eventually became my husband.Follow all the great advice to focus on doing what you enjoy rather than on finding ‘the one’.

    Jena – credit utilization is part of what makes up your FICO and determines your credit worthiness. even though you pay off your balnce you may be using a high percentage of your availalbe credit. Try getting another card and rotating some purchases on it.

  54. Jeremy says:

    I totally agree with the other commenters. I think that using a Roth IRA as your initial emergency savings account is a fantastic idea!

    Trent, I almost always agree with you, but you got this one dead wrong.

  55. Bonnie says:

    I know I’m really late to the game, but @Amanda – Trent was talking about Schedule A deductions, but if your husband is self-employed (which it sounds like he is, given that he receives grant money through a contract w/ the university), you’d be including the health insurance premium as a business expense on Schedule C. In other words, he receives $800/mo in income from the university to pay for the insurance and he pays out $1100/mo for the insurance premium, so he has a net expense of $300/mo or $3600/yr, which will reduce the rest of his income by $3600/yr. In the future, PLEASE consult a CPA or other licensed tax advisor for this type of question. Turbo Tax won’t help you if you don’t know how to answer the questions in the software properly and aren’t even clear on the difference between employment income and self-employment income. Also, if you’re not even sure what to include as income and what’s considered a business expense, you should really use a CPA to calculate your estimated taxes, too.

    @Mike – What do you mean by “cash in” the whole life policies? Are you planning to terminate the policies or just take a loan? If you terminate the policies, then any gain above the premiums you’ve paid in will be considered taxable gain. Not the best idea. If you’re just planning to take a loan and keep the policy, then your plan could work. In your case, since you want a lump-sum to pay off your mortgage in 20 years, it actually sounds like a 20-year ROP term policy would be the most appropriate. That’s the exact type of use that ROP term was designed for. And the lump sum you receive in 20 years would be tax-free, since it just represents the total amount of premium you’ve paid in over 20 years, plus you would’ve had the death benefit coverage for 20 years. Often the internal rate of return on an ROP policy comes out to around 5% tax-free, depending on your age and health rating.

  56. Sarah says:

    I’ve read that you can remove a portion from an IRA and that you can return it within 30 days (or some other short period of time) and not undo a past contribution. I’m not about to do it, as I’d like that money to stay precisely where it is, but theoretically it could be used as a very short-term penalty-free loan. Is this true?

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