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. Starting a small business anywhere
2. Challenges with life and education
3. Guilt about financial position
4. Handling major debt situation
5. Ads or not?
6. Advice on tree planting
7. Lunch staples for my desk
8. Inexpensive hosting
9. House hunting on our own
10. High expense 401(k)?
A few times in my life, I’ve seen things that I personally have no rational explanation for. I saw a very unusual plane in the sky when I was a teenager. I saw several hundred people congregated in an empty field in the middle of nowhere with no lights on at about four in the morning once.
If I were to just tell these stories in detail, it might sound like I was crazy. I saw UFOs! I saw a crazy cult!
In both cases, though, I’m quite sure there’s a rational explanation. I just don’t have nearly enough of the facts in either of those cases. I could jump to a crazy conclusion, but it’s not really backed up by the facts. I need a lot more detail than what I have from a few observations.
There’s a good result here, though. Whenever I’m about to jump to a conclusion, particularly on something important, I usually try to think about that plane or that crowd of people. Do I really know enough to jump to that conclusion?
I can’t specifically identify a small business that would work for you in Sri Lanka because I don’t know the national culture, the local culture, the economy, and so forth. Instead, what I can do is suggest a few principles that always work when starting a small business.
First, look around for an unmet need. What are people doing that’s taking up an unnecessary amount of their time? What kind of services do people wish were available? If you can identify these things, then you already have a business model.
Second, look for what you would like to see. What service or item is unavailable in your community that you would love to have?
Finally, which of those needs can you start easily fulfilling yourself?
Q2: Challenges with life and education
I’m 25 and my wife is 23. We both graduated from undergrad last summer and have been working full time this year, both making about 35k each. We have about 30k in savings, no retirement fund yet, and about 45k in stocks (up from 17k when my parents handed me control of the account 4 years ago, but I admit I got very lucky with a few stocks and don’t expect my future returns anywhere near this rate).
I’m starting medical school this fall with a tuition at 30k a year. We’re moving so that I can attend, and it’s unsure if my wife will be able to keep her job. She might only be offered to stay on part-time, but has also been toying with the idea of going to graduate school (she participated in a program that offers her a free degree, but she’s trying to decide if it’s the right move for her career).
My question is how should we be paying for school, living expenses, and focusing on retirement. It looks like I will have to take out loans regardless, but graduate loans now are all unsubsidized and start accruing interest immediately at 6.8%. Assuming best case scenario, and my wife is working and her salary goes toward and can cover our living expenses, should I start paying tuition out of pocket so that I can avoid two years of loan interest racking up? On the other hand what about saving for retirement, and lost stock returns? Your advice would be greatly appreciated.
Whatever you guys decide to do, your best move is to always minimize the highest interest debt you would be accruing. However, that decision should be secondary to your career choice.
For example, if one of you can get a loan at 3% while the other can only get that 7% loan, you should maximize the 3% loan and use some of that extra money to pay for part of what that 7% loan would be for.
Your goal should be to exit this period of schooling not necessarily with the lowest possible debt total, but with the lowest interest rates on most of your debt. That will result in the least amount owed by you over the long haul.
Q3: Guilt about financial position
I’m in great financial shape. We own our home with no mortgage, we own both of our cars, and all of our student loans are paid off. We spend only about 60% of what we bring in, with the rest going to investments. We’re just doing great.
The problem is that I feel terribly guilty about it. My parents are in a pretty rough financial position and they will not accept help from me. Every time I see them, they’re struggling, and it really, really upsets me. I try to find subtle ways to help them, like buying them household things when I can, but they usually get rather upset with me for doing so.
Should I talk to them about it? Should I keep my mouth shut and deal with it? I’m just not sure what to do.
There’s no reason not to talk to them about it, but I wouldn’t expect them to completely change course in how they feel to accomodate how you feel.
Most parents do not want to be a burden in any way on their child. They would far rather struggle a little than see themselves take away from the success of their child. I know that my parents are very much that way, as are Sarah’s parents.
You shouldn’t feel guilty about that at all (as long as you’re not actually taking from them). This is their way of still being your parent.
Trust me, if you have children, you’ll understand how being a parent is kind of a lifelong thing, at least for many people. You’re going to want to always be there for your child, but you’re not going to want to be a burden on your child, either.
Q4: Handling major debt situation
I am a Physical Therapist’s assistant. I am 40 years old. I live in the Midwest. After high school, I attended college and earned a bachelors in business. I used it for a few years, got married, had kids and worked with my husband part time til I was 35. By that time, we had racked up a load of debt – living on credit cards. He is self-employed, but his business progressively over the last 10 years has declined. When I was 34, I decided it was time for a career change. I went back to college and earned a degree as a PTA. I make $30/hour and average 37 hours per week. I now have health insurance for the family (we only had major medical when self employed) – we have 3 children ages 12, 11 and 8. My husband brought home about $10 – 12,000 last year. Our 2011 adjusted gross income was $68,260.
We have 4 credit cards – in our personal name – that was used for business purposes. Currently, they are paid out of the business checking account (however, if the business closes, we are responsible for them…). These cards have a total balance of around $38,000, with interest rates between 8.9% and 30%. We have four personal cards with a total balance of about $13,000, with interest rates betweeen 3.25% and 25%. We have two other cards that are currently on a 0% interest offer that will expire in a year or so.
Our other monthly bills total $2096.52 a month. We are currently current on all our payments.
We need to get out of debt. We have been exploring options – debt consolidation, bankruptcy, debt forgiveness/settlement. We know we got ourselves in this mess, but how do we get out?
The first thing you need to do is reassess whether your husband should continue spending all of his time on this declining side business or not.
If his income has fallen to $10,000 a year, he’d be contributing more to the family in a minimum wage job, even on a part-time basis. A part time job at 35 hours per week, earning $8 per hour, earns $14,000 a year.
Plus, there’s no reason he couldn’t continue to take odd jobs related to his business during his off hours.
Your biggest problem right now is income and the biggest challenge for that is the fact that his business isn’t contributing a lot to your household. That’s the biggest fix you can apply to your situation.
Usually, you can’t. That’s one of the challenges of reading online.
The best approach you can take online is to mistrust by default. You have to build up trust for a specific source over time.
That means the first time you read an article from a particular source, check it with lots of other sources to make sure the person is saying sensible things. The same is true for the second or third article from that source.
Over time, you’ll gain a sense of whether that person is telling the truth or not. The more times you find that they’re telling the truth or telling a sensible interpretation of the truth, the more trust you can give to that person or source.
Q6: Advice on tree planting
Your suggestion about trees for shade is good, but you will also not want to plant the tree too close to the house as the roots can crack the foundation and cause plumbing problems. I love to garden. We currently live by creek property and have countless natural trees. The former owner planted many trees too close to the house, so we had to take out 4 trees as they would cause damage to the house!
This is great advice. You do not want a tree too close to your house or else the tree roots will eventually damage your foundation.
A good rule of thumb is to research the type of tree you’re considering planting. Find out the diameter of the adult canopy (the width of the upper branches from one side of the tree to the other), then plant your tree at least three times that diameter away from your home.
So, if you’re looking at a tree with a twelve foot canopy, plant it at least thirty six feet from your home.
For most larger trees, your home will still receive some significant shade, particularly in the morning or evening.
Q7: Lunch staples for my desk
I’m trying to come up with some staple foods I can keep in my desk at work so that it’s easy to assemble meals whenever my schedule allows and not just order in food or go out for lunch. What would you keep at your desk for easy and cheap lunches?
There are a lot of things that work here. I used to keep several such items like this in my desk.
My default staple was protein bars. I kept a handful of these around all the time. These would sometimes be a snack, but would often replace lunch.
Other things you might have found in my food drawer included canned soups, a few fruits (bananas and grapefruits for me), crackers, peanut butter, cans of tuna, and a loaf of bread. I’d usually bring in a loaf on a Monday then focus on eating peanut butter and banana sandwiches several times that week, then I’d skip out on the sandwiches for a while.
It wasn’t a great lunch, but it was reasonably healthy, very inexpensive, and more convenient than anything else.
Q8: Inexpensive hosting
We moved to Denver about a year ago. A lot of our friends have come to visit and we are expecting more as people want to check out this “foreign” place. We are expecting a baby on the way and we’re both in low paying starter jobs as we work towards our career goals. I am in AmeriCorps while he may end up subbing in schools as he looks for a teaching job. As you can imagine, our money is tight.
Do you have any recommendations for showing our guests a good time and not blowing our credit cards?
Do a survey of the Denver area and look for everything that’s interesting and free. I’m not familiar with the Denver area at all, but I’ve never been to a metro area that didn’t have quite a few free attractions that were well worth going to.
I also recommend getting them involved before they come. Know several options that you can do for free, then email that list to them before they come. This will “set” their mind towards these free options, making it much easier to stick with them instead of expensive things.
If they’re staying with you (or even if they’re not), try to prepare as much food as you can in your home. If you’re going to spend a day out and about, prepare a picnic lunch at least. Food can really add up.
Q9: House hunting on our own
I don’t trust using a realtor when it comes to house hunting because they’ll just try to guide us to whatever house will earn them the best commission. How can I effectively shop for a new home on my own?
One good place to start is realtor.com, which is a clearinghouse for real estate listings. You might also want to look at fsbo.com, which is where individuals who are trying to sell their home themselves often list their homes.
If you want to visit a home, contact the agent who is listing that home and request a visit. If you like it, you can easily put in an offer yourself.
The advantage of having an agent help is that they’re pretty good at finding houses that match what you’re looking for. There’s no reason not to supplement what they’re doing with your own searches, though.
Q10: High expense 401(k)?
You just answered a question from a guy wondering about 401(k) fees at his first real job. I’m in the exact same position but instead of expense ratios of 0.45%, my company’s plan (through The Hartford) has ratios of 2.0% – 3.0% (those are WHOLE numbers!). Is it even worth it to put money into this plan if I get 3% matching from my company?
That’s a painful expense ratio, but it still doesn’t overcome the free money you’d get from the matching. If you can put in 3% and have that immediately turn into 6%, that’s an immediate 100% return on your money. You would have to be stuck in that 401(k) for a very long time to undo that kind of benefit (on the order of decades).
If you change careers or jobs, roll over that 401(k) into a different one with better expense ratios.
It’s still worth it to get that match, but I wouldn’t contribute more than that. Instead, I’d look for other retirement savings options, such as a Roth IRA.
Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.