Reader Mailbag: The New Year

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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. What does “savings” mean?
2. Getting out of a lemon
3. Dealing with multiple debts
4. Is a prenup needed?
5. Investing help
6. Best movie of 2010
7. Working on a goal
8. Saving for someone else’s college
9. Using multiple companies for investing
10. Best books of 2010

2011 has begun. I’ve been to the gym. I’ve practiced on the piano. I’ve read almost one book on my long list.

The goals are moving forward. It’s going to be a great year.

Q1: What does “savings” mean?
I read an article in Money that says that we need to save at least 25% of our after tax income. I agree. What I am not sure is what can I categorize as a saving. Here is my list:

My savings:

* Investment: General
* Investment: Retire
* Emergencies: Serious
* Emergencies: Day to Day
* Car: Insurance
* Car: Inspection
* Pet: Vet
* Baby
* Home Projects
* Gifts
* Vacations

This are savings that I don’t spend monthly. I use some of them every 4 or 6 months. Investment: General, Investment: Retire, Emergencies: Serious and Emergencies: Day to Day are the only ones that I don’t touch regularly.

My question is: What really is a saving? You know, I save for vacations. But I now that I will spend that money at some point during the year. Do I include vacation as a saving to calculate % of money on savings?
- Fernando

Generally, I define “savings” as meaning any portion of your monthly pay that you’re not spending within a month or so of receiving it. In other words, take your monthly take-home income, subtract all of your normal bills and all of your normal monthly expenses and all of the frivolous spending that you do. What’s left is what you’re saving.

I think most of what you listed above would be considered “savings.” They’re sitting around making sure that a major expense you’re going to face later on doesn’t sink you. That’s really the heart of what “savings” is – it’s making sure that you don’t get sunk by something unexpected.

Eventually, we wind up spending almost everything that we save. We save for retirement – and we will eventually spend it. We save for a down payment – and we will eventually spend it. The idea behind savings is that you’re saving for significant important things that you know will occur later on and that you’re financially and personally mature enough to begin preparing for it now.

Q2: Getting out of a lemon
I purchased a used car in 2008 (2004 Mini Cooper). I bought it from a dealership with an extended warranty which is now expired (time & mileage-wise). The car cost $22,000 (that price includes an extended warranty). The dealership’s finance manager told me I wasn’t able to get a traditional bank loan and could only finance through a subprime lender (15.9% interest rate). (I discovered this was a false statement as a month after closing the deal I rec’d a letter from a bank wanting to know why I turned down their loan offer.) Anyway, I used my Jeep as a $5500 down payment and went ahead with the purchase. I admit now, this was an ‘ego’ purchase and have vowed to leave my ego at home in the future.

The car started giving me problems, mechanically speaking, 9 months into ownership (the dealership said they no longer had any responsibility as to their warranty; the NYS Attorney General’s office agreed). I had to deal with the extended warranty co directly and AAMCO and borrow thousands for dollars worth of rentals while my car was in the shop. The transmission is acting up yet again (replaced twice with new, not rebuilt, in the last 2 yrs). Obvioulsy, I owe much more than the car is worth. Having gone through a lengthy and ridiculously expensive divorce my credit was terrible for years but I have recovered (good job/no late payments for 4+ yrs) and fear giving the car back to the loan company is going to damage my credit once again. That’s a really long, hard road to walk down and the idea of revisiting it makes me anxious. I’ve already gone to a few dealerships but due to the excessive amount owed, it’s not a viable trade-in at this juncture. I’ve taken on additional work, selling what we don’t need, etc., trying to pay this loan down so I can trade in the vehicle and start over. The way the engine is performing, it’s most likely going to break down before I reach that point. I don’t have a savings account or own property so throwing more money at a losing proposition is miserable. What do you think? Give the car back to the loan company and call it a lesson learned?
- Barbara

You’re in a pickle. This car is a lemon, and it’s something that is always a concern when you’re buying a used car that’s out of warranty. Sometimes, it’s a rust bucket full of imminent problems. That, unfortunately, is part of the risk, which is why I start to get hesitant about buying used cars that are on the verge of going out of warranty.

If you walk away from this car, it will be an absolute bomb on your credit history. Your credit score will go through the floor and stay there for years. This will cause higher insurance rates, inability to get future car loans (or, if you can get them, they’ll have very high interest rates) and/or loans of other kinds, and other credit issues. I’m not going to get into the morality of defaulting on loans by choice, but that’s another concern.

I know you have all sorts of reasons for not wanting that car, but it’s going to cost you no matter what you do with it.

Q3: Dealing with multiple debts
I’m about to get married, and my fiance and I have really been working on a budget and ways to tackle a little debt and to save some money at the same time.

Current debts:
$990 in credit card debt (mine)
$3000 credit line debt (my fiance works in the auto service industry and their tools are over 15K, this is how the mechanics get tools and buy doing this they get their tools at 1/3 of the cost even with the interest)
$200 debt to Kay Jewelers in Month 3 of 12mos no interest (started at about $500)
~$30,000 student loans combined but not yet in repayment because i went right to grad school and he is still in his undergrad

I feel like we’re doing everything we’re supposed to, but at the end of the month I always find myself thinking we could be saving more or spending less. We go out to eat once a month only, and grocery shop for the rest (about $50 a week at most). The only money we’ve been spending is on the wedding. We save almost $800 a month to savings and have been for a few months now so we have almost $2k in savings for emergencies (we had to buy some furniture so that was purchased instead of all our savings made one month). My fiance has started his 401K only recently because he hadn’t met all the criteria to start contributing (amount of time at the job, just turned 21, etc) so they don’t let you. We pay about $100 a month to Kay to get rid of that debt so we can put it towards his other credit line. My fiance has been working into the sales and business aspect of the auto industry and no longer needs most of his tools, so he will be selling them and will end up making a profit, and all money will be first applied to paying off the tools and the rest will go into savings. I pay 2x my minimum on the credit card. We desperately need a new car (we’re downsizing to one, but my car is currently not even safe to drive and his car has 130K on it and is starting to have expensive problems) and even though we don’t want to have a car payment we’ve already been putting it in our budget for awhile so we’ll have money towards it and plan on buying used (i think cars are a waste of money!).

We end up with a surplus at the end of the month even with all of this, but I don’t feel comfortable if we do not have a cushion in our checking account–it just makes me nervous. Are we doing what we’re supposed to? Am I just worrying about it too much? Is there something we should be doing differently?
- Stephanie

I think you’re doing things as well as you can. You’re making progress on the debts each month, which is a good thing. I think you’re mostly just facing the long and painful slog of debt repayment.

One approach you may want to take is to use the Dave Ramsey method, which is to pay off the small balance loans first. I would probably wait on the jewelry loan for a few months since it’s interest free at the moment, but instead focus heavily on the credit card debt.

The idea behind that plan is to get rid of a debt payment as quickly as you possibly can so that you have more breathing room in your monthly budget. Of course, ideally, you roll that extra breathing room into larger extra payments on your remaining debts.

It’s an option that might help with the debt-related stress you seem to be feeling.

Q4: Is a prenup needed?
I want my bride-to-be to sign a prenupital agreement. She tells me it’s not necessary. What do you think?

- Ronald

My feeling is that if a prenupital agreement is a wedge issue in your relationship, then you probably need to season that relationship a bit more.

People have a prenupital agreement as a hedge against potential divorce down the road so that they have a legally binding plan for separating their assets. I understand that some couples want to have a hedge against that, but it works if the couple is in agreement about that hedge. It means they have a similar view of the commitment they’re about to enter into.

If one person wants a prenup and the other does not, there’s obviously some conflicting views about marriage going on. You need to sit down and explore those differences. Likely, if there’s one difference on a key issue like this, there’s more than just that, and if you’re finding you’re not on the same page on a lot of issues, it may be that marriage is not the right choice for the two of you.

Take it slowly. Make sure you’re compatible and you have similar views on key issues – or at least understand and respect each other’s views.

Q5: Investing help
In the past few years I have begun investing and basically I am self-educating on the topic. It took me a while to figure out that in order to invest my money that is sitting in an IRA, it needs to be with an IRA that offers a way to invest in the stock market. Currently my IRAs are with ING Direct, and as far as I can tell you get the small interest rate or you can put funds into a CD, but that’s about it. So, I need to transfer the IRAs to a place that can do what I want (I am looking at Vanguard currently from everything I have read).

Here’s the rub: my current IRAs are Traditional, which was done to reap the tax break at the time of filing. However from reading your site and others, I know Roth is the way to go. What is the best approach to both convert to Roth and move the IRAs to Vanguard so I can start on some retirement investing (I am looking at index funds by the way)?

What am I looking at as far as fees/penalties etc. For the Traditional to Roth conversion, and what order should it be done in? How do I pay the taxes on the money once transferred?

I have under $10K in the Roth IRAs, but also have some savings in a nominal (about 1.25%) interest bearing account with ING. I’m considering also putting that to work for me over at Vanguard as well. Any suggestions for someone just branching out of the beginner stages?

I’d like to see the money I have just sitting in the savings recoup some higher interest rates, but also need to be safe enough that in case I need some of that money I can get access to it as I can with the ING savings accounts.

And for a little background, I have been self-employed for the past two years as an illustrator. All my student loans, car and debts have ben paid off, save for some gadgets I have on a 36-month no-interest plan that I pay automatically each month (less than $1500). Being self-employed I need to handle my own retirement as you I am sure are familiar with. I am basically looking for something that gives me a better return than the 1.25%, but still conservative as I am just dipping my toes into all of this.
- George

My honest suggestion is that if you’ve settled on Vanguard, call them up and ask what plan they suggest for minimizing your effort and your tax burden. It is in their best interest to identify that plan for you, because the smaller your burden, the more you’re likely to invest there and the more money they can collect instead of Uncle Sam (Vanguard earns the money to keep the doors open by taking a small percentage off the top each year, often a fraction of a percent).

When you convert a Traditional IRA to a Roth IRA, you’ll have to pay income taxes on the amount you converted – it’ll be treated as additional income for the year. You’ll be liable for that. The best approach is to convert early in the year and then take some of your usual retirement savings and channel them into a different account for your tax bill at the end of the year.

It’s worth it, though, because you’re paying the income taxes now as opposed to paying them in retirement when, in theory, they will be higher.

Q6: Best movie of 2010
What was your favorite movie of 2010?

- Antonio

People might expect me to name Inception or The Social Network or something like that. While I did enjoy Inception (and, unfortunately, I’ve yet to see The Social Network), my favorite film was a bit more obscure.

My favorite film in 2010 was Exit Through the Gift Shop, a documentary about the commercialization of street art. I watched it mostly due to the recommendation of a friend and a vague interest in street art, but the story told in this documentary – about an individual who masters the commercial nature of an art movement – was utterly fascinating and, in places, hilarious. I’ve watched it twice and spent more time discussing it than virtually any film I can name in the last several years. Is it a hoax or not? I lean towards hoax, my wife leans towards not. You need to see it to know what we’re talking about, but it’s well worth seeing.

If you have Netflix streaming, it’s available on there.

Q7: Working on a goal
You often recommend ways for people to change their lives – transition to new careers, decrease spending, and pursue goals.

I am confounded because the goal I want most of all at this point in my life (I have a home I love, a job that brings me joy, and enough money saved to sleep well at night) isn’t something I feel like I can go out and work on. I want to get married and have kids. This isn’t a goal I feel like I can break down into steps (like for weight loss – I could walk 10 min today and work my way up to 45 min). I can’t exactly set up a timeline – go out on a date on Friday; in 3 months have a conversation about being exclusive; in a year or two get married, etc. This is becoming much more of an issue because I’m a woman and approaching 35 – I know if I want to have biological children, I don’t have unlimited time.

I do follow most of the conventional advice – I talk to people around me (at the store, the bus stop, church). I participate in activities that I love (church, karate, social time with friends). I have a life that makes me happy – except that I want a family. I am close with other kids in my life (nephews, children of friends), but it’s not the same. I’ve done online dating – and even had friends help me with how I’m “selling” myself.

I know we don’t all get to have every part of our dream but when I look at big questions about my life (what would you regret if you died tomorrow, what can you give to the world) it’s the part of my that feels missing/unfulfilled. And, deep down I know it’s not a goal I can seek in a traditional manner. Any thoughts?
- Mary

I think what you’re asking me is how you would go about finding the right person to marry, settle down with, and have children with.

I’m going to say something that goes against a lot of the “relationship” advice out there. I dated my best friend and eventually married her.

Sarah was my best friend before we even thought about dating. We had conversations about not wanting to be single all of our lives and how we each wanted to eventually have children, but we knew each other for years before even the slightest hint of dating occurred.

I think at some point we simply realized that we enjoyed spending a lot of time together and we decided to try dating, just to see how it would work out, and what we found is that we loved each other deeply, especially over the six years that we dated before marriage. I would not have anyone else in the world by my side. Sarah is my wife, but she’s also my best friend. I would rather just hang out with her than anyone else that I know.

When people ask me for relationship advice, I’m never sure what to say because that experience with Sarah is simply what worked for me. My best friend and I sat down, decided that we really enjoyed spending time together even though there wasn’t initially that big romantic “spark” that is lauded in the movies, and decided to give dating a try. If it fails, so what? You have something to laugh about with a close friend. If your friendship is fragile enough to not survive that, then how deep is that friendship?

Who do you really enjoy spending time with? I would start there, because that is what worked in my own life.

Q8: Saving for someone else’s college
A couple friends of mine recently had a baby. They used to live in my state and have been friends with me since junior high school. They recently bought a house and neither one has a great job, but they are not struggling financially. However, I don’t think they have much money to contribute to a college fund for their new daughter. I am going to fly and visit them later this year and wanted to get something for their daughter, like a college savings account. Neither one of them finished college, so I am not sure how much importance they will put on sending their daughter to college. I don’t want to ask them beforehand as I want it to be a surprise, but I don’t want to put money into a college savings account that will never get used. I am thinking about putting about $500 in it to start, then contributing smaller amounts every birthday and Christmas and hoping they’ll contribute a bit here and there. So my question is: Is contributing to a 529 the best idea? Is there another type of account that could be used either for college or just be good for general getting off her feet expenses when she grows up? And is $500 as an initial investment sufficient to get a good amount in 18 years?

- Dan

A 529 is a very good idea in this case, I think. Make sure that it’s an “open” 529 that can be used for any educational expense, not just a prepayment program. Iowa’s college savings program is a very good one.

If I were you, I’d tell them about the plan, start it yourself, contribute $500, and have that child as the beneficiary. After that, don’t mention it until the child is close to thinking about college, then let that child know that you started this for her when she was a baby so that she could make a go of having the life of her dreams.

I am always hesitant to encourage people to turn over control of such accounts to parents in situations like this because I have personally seen such gifts horribly misused.

$500, after 18 years at a 7% return, would add up to about $1,700, which will certainly help. You might also put a small amount each year into the account on her birthday.

Q9: Using multiple companies for investing
Is there anything wrong with doing my 401k with Fidelity and my Roth IRA with Vanguard? I searched through your blog history and never specifically read about utilizing two different companies. Do you foresee any issues with this? OR, is it better to stick with Fidelity exclusively? I always worry about spreading out my funds too much, as it seems easier to have everything consolidated with one company.

I’m 24 years old, contributing 12% to my 401k (with 6% match from my company) , and have decided to use the money from my most recent promotion to go exclusively towards a Roth IRA. I also have 27k in savings and zero debt (i’m living home rent-free).
- Jenna

I don’t see any issues with this at all. The only concern I would have is simply making this arrangement clear in your personal papers, so that anyone who might inherit your money is aware that you have both of these accounts open. There’s also minute identity theft concerns, but I consider them to be negligible.

There’s also an additional benefit that both companies are separately insured, meaning that you have $250,000 in insurance with Vanguard and $250,000 in insurance with Fidelity. Insurance means that if the investment house fails, up to $250,000 of your investment is protected and will just appear in an account at another investment house (you’ll be informed of this).

Fidelity is a good company. If you feel more comfortable with Vanguard, then use them for your Roth.

Q10: Best books of 2010
I know you read like crazy. Give me your top ten books for 2010.

- William

Aside from personal finance (a genre where I try to be objective), I read about eighty books in 2010. After looking through my list, I’d name these as the top books of the year. These eight were clearly ahead of the pack for me – whenever I tried to find two more, they just weren’t up to the others, in my opinion.

The Big Short, by Michael Lewis, is a brilliant retelling of the financial crisis of 2008, with some deep insight as to who was ahead of the curve in figuring out what was going on (leading to Goldman Sachs profiting from it).
The Lacuna, by Barbara Kingsolver, is the tale of a novelist lost in Mexico in the 1930s. I didn’t like the novel when I first read it, but it has stuck in my head like few others.
Chronic City, by Jonathan Lethem, works for me because of Perkus Tooth, one of my favorite literary characters in a long time.
Manhood for Amateurs, by Michael Chabon, is a wonderful collection of essays on fatherhood, a theme that ran through my reading in 2010.
Rabbit, Run, by John Updike, was easily the best “classic” literature I read in 2010. Updike’s writing style draws me in. I’ve read a lot of his books over the years, but never this one (arguably his most famous one).
The Kingdom of Ohio, by Matthew Fleming, is a wonderful chunk of historical fantasy involving alternate universes where history didn’t go quite as it did here (hence the title).
Are We Winning?, by Will Leitch, pairs with the next book in a way as a look at how baseball impacts the life and the relationship between father and son. This is a modern take, while…
The Boys of Summer, by Roger Kahn, covers much the same material, just a few generations earlier. It is that longstanding thread of baseball, fathers, and sons that draws me in.

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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41 thoughts on “Reader Mailbag: The New Year

  1. To Mary: This may seem like a silly idea or maybe you’ve even tried it, but make a list of all the characteristics you want in a man. Be specific. Dream big. Put the list somewhere where you’ll read it regularly–once a day or once a week. Then stop trying to find Mr. Right. Just enjoy living your life. You might pick one or two items that you feel you could improve upon in your own character and work on those, but just assume that great guy will show up in your life when you’re ready. I know it seems like magical thinking, but I think it has more to do with putting the specifics clearly in your head, so you’ll recognize him when you see him. Anyhow, it worked for me.

  2. Did Q6 refer to movies that would be eligible for best picture for this year?

    Q8 – My grandmother bought savings bonds for me. They are much more liquid than a 529 once they mature. I know they have a low interest rate, but its another investment idea. I used them to buy my books for several semesters and they even helped me study abroad for a month.

  3. Re Q9: Fidelity and Vanguard, both excellent companies with low expenses and a large offering of funds, are huge. If either or both goes under, it will likely be a reflection of a collapse of the financial system. That is, if they go under, heaven help us all! I like the convenience of having “all” my money in one company (one statement, easier to keep track of asset allocation etc.).
    I believe Trent’s answer understates the amount of coverage provided by SIPC. According to the SEC web page:
    “If your brokerage firm goes out of business and is a member of the Securities Investor Protection Corporation (SIPC), then your cash and securities held by the brokerage firm may be protected up to $500,000, including a $250,000 limit for cash. Some firms obtain private insurance policies to provide protection beyond SIPC limits. When a SIPC member becomes insolvent, SIPC will ask a court to appoint a trustee to supervise the firm’s liquidation and to process investors’ claims.
    SIPC covers most types of securities, such as stocks, bonds, and mutual funds. But SIPC does not protect you against losses caused by a decline in the market value of your securities. And it does not provide protection for investment contracts not registered with the SEC.”

  4. Barbara:

    I feel your pain regarding being stuck making payments on a lemon. The dealer definitely took advantage of you, and I’m glad to read that you’ve apparently learned your lesson about trusting salesmen.

    That said, you keep saying you want to “give the car back to the loan company,” but unfortunately, that’s not how it works. The loan company doesn’t WANT the car. They want the money you borrowed from them.

    I’ve seen people use that kind of terminology before, as though there’s some sort of “voluntary repo” or something. But there’s not. There’s no such thing as a “volutary repo.” A repo is a repo. You can’t call them up and tell them to come take the car. You’d have to stop making the payments (thus breaking your promise), and ignore their phone calls and letters prodding you to keep your word. Then, eventually, they’d send a tow truck to come take the car. But on paper, it will look exactly like any other repo, and it will trash your credit, as Trent said.

  5. To Mary: I just wanted to say “Good Luck”, and I hope 2011 is the year for you. I was in almost the same position – feeling like time was running out for me. I was with someone who didn’t want a family. Then I looked again at someone I was working with, and we both slowly realised there was something there. I left my boyfriend, gave it a bit of time, then started ‘dating’ the guy from my work. We’re now planning our wedding for April, and looking forward to trying for a family.

    I felt like it would never happen, or wouldn’t happen in time. Somehow it happened at just the right time.

    In the worst case, have you thought about options for a single woman to get pregnant? For me that didn’t really feel ‘right’, and I don’t know what the options might be (beyond the obvious), but maybe it would work for you.

  6. Q3, Stephanie: It sounds to me like you would benefit from taking a look at the 50/30/20 budget laid out in “All Your Worth.” One of the main ideas with that is that you allocate a certain amount of your income for savings and debt reduction, and a certain amount for spending on fun stuff. You then give yourself permission to spend the fun money however you want, without feeling guilty about it, and without feeling like you “should” be saving it instead. If you don’t give yourself space in your budget for fun, then you either spend nothing and feel miserable, or you spend something and feel guilty.

    The “All Your Worth” authors recommend 30% of your after-tax income for fun, because that amount is sustainable over the long term. If you want to budget a little less than that amount while you work on paying down your debts, that’s fine, but you should try to allow yourself something.

  7. Q4, Ronald: It’s hard to have an opinion about your situation without any details. Why do you want a prenuptial (not prenupital) agreement, and what do you want it to say? Why does your fiancee think it’s not necessary?

    The Bankrate site seems to have a pretty good article on prenups and when it’s worth considering getting one. Maybe sit down with her and look at their list of criteria and talk about why you think they do or don’t apply to you?

  8. Q5, George: Please realize that when Trent says “Roth is the way to go,” without any qualifications, he is incorrect. If you’re paying a non-zero (and non-negative) amount in income taxes right now, it’s almost always a good idea to have some of your retirement savings in a pre-tax account, such as a traditional IRA or non-Roth 401(k). This is true even if tax rates go way, way up.

  9. @ George
    When I rolled over my 401k to a Scottrade Roth IRA, there was a line on the application form for federal and state taxes to be taken out of the lump sum before being deposited. I would think that other providers would have a similar option. I thought it was easier than trying to save the money in the 3 month left of 2010.

  10. Q3 – sounds to me like you’re doing ok – working toward paying down your debts, saving toward a future anticipated major expense (car), and having a money left over at the end of the month. You’ll have the Kay amount paid off in 2 months.

    You might want to consider going ahead and paying off the CC debt in full, as it’s likely you’re paying a higher interest rate than you’re getting on the savings account. Then rebuild your savings fairly quickly by putting the amount you’ve been making on CC payment back in ths savings. [During the initial debt snowball phase that Dave Ramsay promotes, he recommends $1000 for the emergency fund until the debts are gone.]

  11. I watched “Exit through the Gift Shop” over the weekend on streaming netflix. It was seriously fascinating.

    Banksy was such a cool character and the fact that he’s a real person made it even more awesome.

    I loved every bit of that documentary. Good pick.

  12. Q7 – Mary. I’d take Laura’s advice (comment 1) a step farther – figure out the important traits in your dream guy, then look at yourself to see if you’re this guy’s dream girl (& decide whether that’s the person you are or want to be). Modify the dream description or yourself as appropriate. Continue to enjoy your great life as it is now, and take advantage of the time available in your singlehood to work on being your best self. Sometimes you have to be content with your life just as it is before there’s room for someone else to come into it.

  13. Q1 – I somewhat disagree with Trent’s definition of savings. I think savings is money that has no other function but to grow and create wealth (net worth). Retirement and investments would be savings. But setting aside money for things like car insurance, pet expenses, vacations is not saving, it’s preparation for an upcoming expenditure. Those set-asides are the fiscally responsible thing to do, but they are not savings.

  14. Q3 Stephanie: You’re doing OK. Stop worrying so much. If you diverted your savings to debt then all your credit cards would be paid off within 6 months.

    Q4 Ronald: I don’t think theres enough detail there to really say too much. Maybe Ronald is stinking rich and his wife is a mail order bride. Or maybe Ronald has no assets and has no reason for a pre-nup. In any case convincing someone that a pre-nup is necessary is hard. If you truely need one then I’d just make sure they understand that the agreement would be fair and that the intention is just to handle any unforseen circumstances. Its not an expectation that divorce is likely at all. But stuff happens. Trents answer also kinda implies to me that disagreement over a prenup could be a red flag that might even mean they shouldn’t get married. That seems to be assuming a lot from a 2 line question with no details.

    Q5 George says “I know Roth is the way to go”
    Maybe you’ve done this but if not then I would strongly recommend that you reexamine the decision to convert to a Roth and make *sure* that converting to a Roth is the right choice for you. Whats your current tax bracket, retirement savings level and expected situation at retirement? All of these are very relevant to converting to a Roth so you should know your situation and how it matters before doing a Roth conversion just cause Trent thinks Roths are neat.
    If for example you’re 58 years old with $100k in retirement total and $48k annual income then converting to a Roth would likely be a bad idea.

  15. Just another detail on Roths. The assumption / opinion that “taxes must go up in the future” first is not a fact or unavoidable destiny and is not alone reason for anyone or everyone to use Roths for retirement.

  16. re Q5 IRAs. Just as it’s beneficial to diversify investments, it’s also beneficial to diversify retirement savings. Especially with an amount less than $10,000, why go through the hassle of converting to Roth? Transfer your ING IRA to a regular Vanguard IRA. Simultaneously open a Roth IRA with Vanguard and allocate your future retirement savings to that (or the regular – yea options!!). Both Vanguard accounts should show up on the same statement so you still know what your total savings is at a glance.

  17. Q7 Mary: The advice earlier commenters have given is great. Let me add one thought based on a lifetime of experience — including watching friends and family struggle with the issue: You must stalk the beast in his lair.

    By this I mean, you have to go where the sort of men you’re interested are. Of course, the way I phrased my advice is meant to be humorous — I’m not suggesting you “stalk” a prospective husband, of course! Here are a couple counter examples:

    I had one friend who groused that she wanted to find a nice man, settle down and buy a house. But she spent much of her free time in bars. Nope, the house-with-the-picket-fence guy doesn’t hang out in bars.

    A middle-aged friend said she wanted to find someone and settle down. But her all-consuming hobby is quilting, so she spends most of her time with quilting friends (other women). Nope, you’ve gotta go where the men are. As someone once said, the man of your dreams is not hiding under your living room couch (unless he’s really odd, and that’s a whole other discussion!)

    You don’t say where you live. In some parts of the country church isn’t a fruitful place to find men since more single women than single men (in some areas and in some denominations) tend to be active in church functions. You mention hanging out with friends. If this is a group of all-women friends, that’s not going to help with your “goal”.

    I understand your frustration, but there’s a lot to be said for the “he’ll come when you stop looking” advice you’ve seen here. Like most worthwhile prey, the marriagable man is wily and senses desperation and fear.

    All the best!

  18. Q7 Mary: Actually, you *can* set goals related to finding and developing relationships. When I was looking for Mr. Right, I had a goal of going on three dates per week that I sustained for 5 weeks or so before taking a few weeks off to think over my experiences. I met a *lot* of different people that way, and had a much easier time identifying what I liked and didn’t like in a person after that. And I got really creative with the dates!
    What you can’t do is set goals about someone else’s feelings, a la “have a conversation about being exclusive.” Stick to goals that are really about you and your actions.

  19. Q5 IRAs: I agree with Michelle(#16). With less than 10K, it’s not worth the hassle to convert your existing IRA to a Roth. Leave it as a traditional, and just open a new Roth IRA for this year.

  20. What is considered saving does depend on the time frame, but when people talk about saving 25% or whatever, I don’t think they are talking about saving for goals like going on vacation or buying a new car but for long-term investment that you wouldn’t actually spend over decades – retirement saving (whether in a retirement account or not) – investment in housing or in business etc. The most clear savings/investment is money you’d plan never to spend in your lifetime but only use the benefits from whether it is living in your house, earning an income from a business, or spending dividends or interest from investments. If much of someone’s saving is for meeting goals within a year or so then they shouldn’t think that they are doing OK if they are saving 25% or whatever the percentage is.

  21. RE: Kevin comment #4 – That is incorrect. There is most certainly a such thing as a “voluntary repo”. It happens all the time, and it is less costly for the borrower than allowing the car to go through regular repossession proceedings. (A quick google search will give you all the details.)

    That being said, however, she will still owe the difference between the loan amount and what the car eventually sells for at auction, and it will still damage her credit.

  22. Q7 Mary
    I don’t know if it is any help at all, but your situation could have been me three years ago, except I was one year younger and had just broken off an engagement. I knew I wanted a family, and started the process to adopt a little boy. About one year into a two year long adoption process, I met the man of my dreams. I really wasn’t looking for a relationship at all at that point, just a friend to go out with from time to time so I wouldn’t be a complete hermit. Long story short, I am now married with a darling six year old son and a precious 4 month old daughter. I had truly given up on finding my soul mate, and I was completely at peace with that, but then suddenly – there he was!

    Just as an aside, we met via Internet, but the site never matched us. My husband just got tired of the people that were showing up as his matches and searched through the site by hand. I showed up, we e-mailed and then met in person, and we were together every weekend until I left to complete the adoption.

    I guess what I’m trying to get at is to be open to many ways to create a family and don’t ever give up on the universe surpassing even your greatest expectations.

  23. It’s so rare I disagree with you that I had to write LOL – I see I’m not alone
    Saving for irregular but KNOWN expenses is not saving, in my book . . . it’s just paying an expense. The fact that I pay my car insurance annually and save for it all during the year ahead so that I can is not so different than someone who pays it monthly. Just ahead in time.
    However I wouldn’t count that towards a savings goal percentage.

  24. I also disagree with the classification of irregular expenses as savings. I’m actually in the process of setting up a separate account that I’ll pay into monthly to cover such irregular expenses. This will include gifts (Christmas, birthdays, etc), car/house insurance and propane (which we buy twice a year). I may very well put the money into a Savings Account, so I get a small return on it, but I do not consider this money savings. Its more like pre-paying for a service that you know you’ll use. In this case, I know I’ll be spending the money within 12 months.

  25. @Des

    Giving up your car “voluntarily” may indeed result in lower costs for the borrower (because the lender tacks on any extra charges, like towing and storage fees, onto the outstanding balance owing), but I still disagree that it does any less damage to your credit report.

    In your credit report, they’ll look exactly the same. It will show up as a repossession. A breach of a loan agreement. It will make future borrowing, insurance, and even job and apartment hunting, more difficult and costly for you.

  26. Ronald wondered: “I want my bride-to-be to sign a prenupital agreement. She tells me it’s not necessary. What do you think?”

    Many people seem to think that a prenup is a cold and heartless intrusion into something (marriage planning) that should be joyous and emotional. If handled wrong, it certainly can be, but given that the divorce rate is pushing 50% in many parts of North America, it’s not an unreasonable precaution. Not to mention that sometimes a partner dies unexpectedly, and then a prenup must integrate with whatever will you’ve created.

    In addition, something resembling a prenup may actually be a legal requirement in some jurisdictions (i.e., full disclosure of your assets and liabilities). In other jurisdictions (including Quebec, where I live), a prenup is necessary because if you don’t have one, the government will decide how your assets should be divided. Prenups can also be an important way to protect the children of one partner from a previous marriage after the death of that parent.

    All that being said, a prenup should be created the same way you create your wedding ceremony and marriage vows: with love, respect, and a concern for the other person’s needs. That attitude is a great way to start a marriage and a good precedent for how to be good to each other in the future. Should the marriage eventually fail, that same attitude can help you end it gracefully and without the kind of festering pettiness that dogs so many divorces.

  27. Here’s the thing about prenups. Yes, they are, as Trent put is, a “a legally binding plan for separating [a couple's] assets” in the case of a divorce.

    But guess what? You already *are* operating under a legally binding plan for separating your assets in the case of divorce.

    It’s the one that your state has put into place. Think of that as the “default” plan that you get if you both decide not to do a prenup.

    So a prenup is only basically saying “we don’t think the default plan suits us, so we’re specifying another one.” It doesn’t mean you’re planning for a divorce or that one of you doesn’t trust the other one. It just means that you want to customize the default plan.

    JJ

  28. Note that in some jurisdictions (like Ontario, Canada, for example), Family Law supercedes pre-nuptual agreements.

    So say a couple gets married, and they both sign a pre-nup that says in the event of a divorce, the husband will keep any assets he inherits during the marriage.

    While they’re married, the husband’s parents die, and he inherits $4 million.

    Then the marriage breaks down and they divorce. The wife takes him to court requesting half of the husband’s $4 million inheritance. The husband holds up the pre-nup and says, “we agreed that I’d keep this money.”

    Since Family Law in Ontario says that spouses are entitled to 50% of any assets acquired DURING the marriage, the judge will side with the wife. He will disregard the pre-nuptual agreement and award the wife $2 million (in addition to half of whatever other marital assets are part of the dispersement).

    Heck, in BC a judge has already ignored a man’s last will and testament, and divided things up how HE felt was fair. Aren’t wills just as sacred as pre-nups?

  29. @Kevin: The example you give just speaks to the importance of doing a prenup right, if you’re going to do one at all. You make it sound like judges are just disregarding people’s wishes willy-nilly. But presumably, the areas in which Ontario law takes precedence over any prenup are no secret – or should be no secret to any competent lawyer. So you need to make sure that when you draw up your prenup, it doesn’t say anything that would render it invalid.

  30. Johanna:

    You’re right, of course. There are certain things that can be successfully included in a pre-nup, and other things that cannot be. Things that are open to negotiation can be included in a pre-nup, and they’ll likely stand up in court.

    However, you cannot sign away your right to something guaranteed to you by law. So if Family Law guarantees you a 50% share of any marital assets, than a pre-nup that sought to alter that formula would be invalid and ignored.

    On the other hand, you’re more than welcome to specify who gets your grandmother’s earrings (under the assumption that an asset of equal value would be surrendered to the spouse), as long as the total division of all divided assets remains 50/50.

  31. RE: Kevin (#26) – No one said it wouldn’t damage her credit. My only point was that voluntary repossession is a thing, and if her car is going to be repossessed it would be in her best interest to work with the loan company during the process. No one said it was an ideal solution.

  32. I would like to recommend a \(non pf) book I recently read: The immortal life of henrietta lacks. It is about the HeLa cells, and the woman who “donated” them, and is a nonfiction book that reads like a novel.

  33. Ronald – I’m not sure about where you are in life, but it’s always important to mention that divorce rate are over 50% for the population as a whole, for younger demographics, it’s typically higher than that. Divorces are initiated 70-75% by women as well, and the typical loss of net worth is around 75%. The average marriage lasts 3-5 years, or, around the time the chemical high from being “in love” is usually over, and reality sets in. It’s important to protect your financial security, as a divorce can destroy a lifetime of wealth building, and a marriage contract, is the largest contract most people will ever enter into their lives. While a pre-nup may seem unromantic, a marriage license is a legal contract, not a spiritual one. You can be spiritually married without the government telling you that you are, but you can lose the farm and quite a bit of future income based on that government contract. Family and Divorce Courts are usually fairly unkind to men as well – 97% of Alimony goes to women, and 90% of Child Support does, even if the father is a superior parent, there is quite a bit less chance you’ll have custody of your children. People may not like them, but those are the facts of marriage and divorce in our country. Tread carefully, it deserves careful consideration not based on a feeling that could be fleeting (although it could last a lifetime).

  34. Q7 Mary – If you are ready to find love, ask the Universe (aka God) to send your Divine Right Love to you. Sometimes we tend to be very specific in our list of characteristics we want in a partner, and we meet someone who has all of those, but there is no spark, it is not a good match. Trust that God knows your type, leave your request open to a few surprises, and ask for your Divine Right Love. Then continue to do what you do to make yourself the best person you can be.
    This path you are on is a journey, not a sprint. I wish for you love and light.

  35. Q7 Mary – as someone who is 51, single and childless and who’ve been where you are at one point, I’d imagine what I write would be quite different from the comments above (most of whom I bet are from people who are happily married and with kids). I was slim and quite pretty, and no, it doesn’t help all that much.

    I don’t like Laura’s (#1) advice – this is what I did. No, Mr Right doesn’t just appear. You have to look for him. It may involve being engaged in activities where you could meet the guy, online dating, whatever. Making a list and “dreaming big” is OK, but after you made this list ask yourself – are these things REALLY important? Are they really going to help during family life? Because ultimately, the most important is that he is a good person, honest, someone you can trust, someone who’d be with you when you are sick, someone who cares for you. Yes, you need to have chemistry, but common hobbies and such aren’t that important, neither are looks, they fade anyway (of course there has to be attraction). As you want kids, it’s important that he wants them too. Ask yourself why the online dating didn’t work: could you’ve been too picky? How were you choosing guys? When you were together, how did the conversation go. It didn’t work out for me either by the way, but there were a couple of guys that I thought had potential if I had been a bit less picky.

    One interesting thing that I noticed is that my friends who got divorced found the new boyfriend or even husband relatively quickly than those of us who’ve been single for long. I don’t think it’s an accident, I think that people who are married are less picky, they know what is important and what is not, and they also really don’t want to be alone. Whereas those of us who’ve been single for a while are pickier, on some level we don’t want to give up our freedom. Think about it, think if you really want to find someone and what you’d be willing to give up for it. Also to expect someone to care for you, you need to be caring person yourself. You need to show to the guy you like that you are interested in what he has to say and that you care for him.

    You don’t know how long you’ll be able to have kids. I had premature ovarian failure at 38 (though given the symptoms I’d imagine I actually had the problems starting at 32). Bottom line -you don’t know how much time you have left if any. So if you really want kids – consider having them by yourself. It’ll take the pressure of of having to find the guy soon. In hindsight, I wish I had.

  36. Re: Mary
    I met my husband through a matchmaker (and it was quite a few yrs that I admitted that to anyone-LOL) This was before internet dating. I couldn’t meet anyone through work (worked alone)and didn’t live close to my family (lived in transient area,no close friends nearby). I saw an ad in the newspaper,paid $500( which was not in my nature to do,being very frugal)and after being horribly matched up with 2 idiots, met my husband.

  37. @Q5, Roth Woes,

    It is not true at all that Roths are “the way to go”.

    They are the way to go for people who expect to have large amounts of money available to them in their retiremnent that would put them in a high tax bracket.

    Are you likely to have that amount of money?

    I think for most people who aren’t going to have more than, say, 1.5 million per person in IRA investments at the time of their retirement, standard IRAS are actually a good deal because their tax bracket will be low anyways when they retire.

    You really need to run the numbers of (a) how much you can reasonably expect to invest over the rest of your working life and (b) what is a reasonable expectation of investment gains within your IRA accounts, whether Roth or Traditional,

    how much of your money you will be pulling out for each year, combined with how much other income you will have available to you, and what the comparative tax hit will be.

    there are LOTS of factors involved in the Roth vs Traditional decision, including the fact that Roth accounts can be used for some other purposes besides retirement. You owe it to yourself to sit down and do some of the figuring yourself.

    You can also max out a Traditional IRA in a year and add to a Roth as well because there are combined contribution limits. For most people who are not high income people that kind of combination will work to their advantage. I would suggest leaving your traditional Roth account as a traditional Roth account, transferring it to a brokerage firm, investing it in equities, and ALSO opening up a Roth account with that brokerage firm and contributing to that. I make this recommendation without knowing your financial status, however.

    Keep in mind that you can convert to a Roth at any time. The best time to do it taxwise (if you want to do it) is in a year when you have low income. Unemployment is a great time to convert a Roth at if you have the cash to cover the tax bill.

  38. Barbara, the next time you buy a car, used or new, car– make sure it is one known for reliability. Honda and Toyota for example.

    Also, try to keep your car purchase costs to $5000 and under. You can usually do well with a used Honda or Toyota in the 5-10 year old range. Preferably a standard transmission as they don’t tend to fail like automatics. (My own car’s standard tranny is going on 19 years old now–same tranny, same clutch since the car was new).

    Now, for practical advice about your car–if you have had two failed transmissions, I suspect there is a motor mount issue that is wearing the transmissions. If the motor is not properly mounted then it puts strain on the drivetrain.

    Have you looked into putting the legal heat on the shop that did the work on your car? Transmissions should not be failing left and right.

    Have you been to an online mini cooper forum and gotten experienced enthusiasts’ perspectives on it?

    These are all things I would be pursuing. I would start with joining an online mini cooper site and posting about your problem to see what kind of feedback you get and how common this may or may not be for this make of car.

    If your engine fails, as you fear it will, I would start investigating now how to get a used engine into the car. It shouldn’t cost more than about $1500-$2000 total for a good junkyard engine and installation. Aslso price out a new engine from retail sites like Autozone and from the dealer. Ask for the parts price from the parts desk.

    I am a bit baffled by these kinds of problems because i have never spent more than $3200 for a car in my life and I’ve never had these kinds of problems once I learned what cars to get. Honda Accord, Honda Civic, some Toyotas–there are lots of cars out there that will run 26 years without problems. In the future try to stick to them, or at least stick to cars that are no more than 12K new.

  39. Look seriously into stopping payment and having the car repossessed. Determine how much you will be liable for if you default.

    I doubt your credit history is worth 15K in cash to you, , which is what i’m guessing you owe. Especially when you can build it up again in 4 years and in 7 years the debt will disappear.

    The title company took a gamble on collateralizing a car against a loan of cash so let them take the hit, they are equipped to do that and that’s what business they are in.

    My other suggestions involve dropping 4K off the value and selling it as a private party sale to someone who knows what they are doing with cars, likes Coopers, and who won’t care about the engine and the tranny. These people exist all over the place.

    Option C is for the mechanically unafraid and involves buying a $1500 beater for cash and driving that while you do the mechanical work on the Cooper with your won hands. Probably not practical for you but I’m going to list it as an option. For $500 in tools and a few weekends of your time you’ll be done. engine hoists and transmission jacks are available for rent.

    None of these last options will help you much though if you don’t have cash to cover the gap in the sale price of the car and your loan.

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