Reader Mailbag: Tomorrow

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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. Investment choices
2. Changing one’s mindset
3. Tea Party thoughts
4. Angry at myself
5. Thoughts on interest-only loans
6. Importance of debt-to-credit ratio
7. Free running music
8. Christmas gifts from fixed-income folks
9. Can I afford a house?
10. Consequences of Facebook de-friending

You can’t live a perfect day without doing something for someone who will never be able to repay you.
John Wooden

There isn’t a day that goes by in which there isn’t some sort of regret – something done wrong, something left undone. Yet each of us is given the gift of a new day over and over again, and we have the chance to try again and make it right. I can’t undo the past, but I can always try to make the most of the gift of tomorrow.

I am a 22 year old recent grad who is lucky enough to have no school debt and a stable income. I also have a large emergency fund that could take care of most problems that I would face. A few years ago I was given a decent sum of money from my grandparents that I used to set up my first brokerage account. Given my lack of knowledge and income at the time, I invested the money in a simple individual account at one of the online brokers. Now, however, I have a steady job and am saving about $1000 / month that I would like to go towards my retirement. Unfortunately my firm has a policy that you have to be an employee for a year to be eligible for the 401(k) matching program, so I wanted to start a Roth IRA in the meantime. The problem is I would lose money if I liquidated my portfolio in the Individual brokerage account due to the transaction costs. So, I guess my question is: Should I simply ignore the account I already have and begin purely funding a new IRA account with my savings? Or should I continue to use the individual account until the 401(k) kicks in? Any help would be great.
- Jeff

I’m guessing that the “individual account” is simply a normal brokerage account and not a Roth IRA or a normal IRA or any other tax-advantaged account.

If that’s the case, and you haven’t made investment changes in that account in the past year, I would liquidate it and open up a Roth IRA using the money. It sounds from your description like there will be a net loss on the account after the brokerage fees. Remember, such fees are tax-deductible.

The only real reason for an individual to have a brokerage account like that is if you’re saving for a specific long-term goal that’s not retirement, like a home you want to build in ten years or so (which is why I’m using one).

I am 23 right now, recently graduated from college with a well-paying job at a good company. I have a roommate who is in exactly the same situation as me (though he’s a year younger…but we work at the same place, and get paid the same amount) with two exceptions:

1 – I was fortunate enough to have my parents pay for my education out of their own pocket. Unfortunately, my roommate wasn’t so lucky, and he has a student loan payment that I don’t have.

2 – He recently bought a new car (before graduating) and has a car payment that I do not have.

We both are very interested in personal finance and I try to ‘coach’ him on things I feel comfortable about. I always encourage him to do his own homework and remind him that I’m not a finance expert, but he appreciates my feedback and opinions. I enjoy helping him out too, but lately I’ve noticed an underlying problem: he spends too much. We make fairly good money – enough that I never have to worry about if I’m going to have money to pay utilities or go out for a night on the town if I want. But since he’s got the extra expenses that I don’t have, he has less cash to throw around – that doesn’t stop him. Since we started working three months ago, he’s purchased some things that he admittedly can’t afford including some items that he’s returned to the store to get his money back so he can pay off his cards.

How can I help him get into the mindset of spending less, when he’s got such a consumerist mentality? He’s saving for his 401(k) but that’s it, he has no other cash at all on hand. He is living paycheck to paycheck, and when you’re making about $50K in Minnesota (not a super-expensive part of the country), I just don’t understand how he is at the position he is. Any tips on how I can give him some advice without sounding rude or condescending would be great.
- David

It sounds like your friend is very much living in the now, which isn’t exactly atypical for people in their early twenties.

I can speak from experience: when you’re freshly out of college and single, it can seem like you have the rest of your life ahead of you, so why not enjoy what life has to offer today and leave that stuff for “old people.”

That works only if you have no real goals for the future. Some people don’t; they literally drift from one thing to the next for at least some portion of their life. The problem is that eventually you begin to realize that the time you have for all of those dreams is shorter than you think – and you’ve already dug yourself a hole.

I think it’s very much a personal philosophy and personal maturity thing. The best thing you can do as a friend, I think, is to focus on goals. Where do you want to be in five years or ten? Tie that to what you’re doing now – your choices to not spend recklessly build up the path to that goal.

I know you’re politically involved, though you don’t talk about it much on The Simple Dollar. Are you a Tea Partier?
- Shane

I am not a Tea Partier. There are elements of what could be described as the overall Tea Party platform that I don’t agree with for various reasons.

However, having said that, I consider the Tea Party to be an example of what is good in American politics, even if I don’t agree with the political solutions being offered. The Tea Party represents people who are genuinely interested in the political process and are working to make sure their voices are heard.

It’s easy to point to political divides in this country as a reason for why nothing gets done, but the truth of the matter is that the real villain is apathy. The large “middle” of the American political spectrum – meaning people to the left of the Tea Party and to the right of the Communist Party – is mostly apathetic. The only elections where you ever see more than 50% of voters turn out is the presidential elections. Midterm elections fall way below that. Local elections? A lot of them don’t even get 10% of the voters out.

Politicians talk in extremes to the left and to the right because that’s, frankly, where most of the activists are and the groups that produce the highest voter turnouts. They should be doing that – they’re talking to the people who are actually politically active. If someone is “talking crazy” but they keep getting elected, then that “crazy talk” is representing the people who bother to participate and bother to vote.

I might not agree with the politics of the Tea Party, but I do give them a big thumbs up for not being apathetic. They’re out there trying their best to be involved in the political process, which is something every American who cares at all about the future of this country should also be doing.

This last weekend, I gave into a bad impulse when I was out with my friends. I blew $300 in the blink of an eye without really thinking about it at all.

Today I’m just sitting around here [angry] at myself for doing that. That money could have paid the rent or it could have paid off some of my credit card debt.
- Tessa

Being angry at yourself for something you cannot undo is both a waste of time and a waste of energy. It is water under the bridge at this point.

Instead, focus your energy on something positive. Look back at what transpired and figure out what exactly went wrong that caused you to needlessly spend that money, then ask yourself what you can do right now to make sure that never happens again.

You can also take direct action to undo the financial damage. What can you do today to save some money and reduce some of that financial impact? Can you make yourself a brown bag lunch and save $10 on eating out? Can you turn off the heat or the air conditioning before you go to bed and leave it off until you come home from work? Can you simply stay home next weekend and watch a movie with friends instead of going out again?

It’s about the choices moving forward. Looking back does nothing but bring you down.

I’m a 28 year old IT professional, and three years ago I inherited about $65k from my grandparents’ estate. At the time I had about $20k in student loans outstanding, and $9k on my car. I promptly cleared both of those debts and also decided to use a chunk of my inheritance as a down payment on a house. Today, my only debt is the mortgage on my house (no credit card debt or anything).

I ended up buying a house for $265k and I put $15k down on it, leaving me with a $250k principle balance on my mortgage. My lender talked me into getting into an interest-only loan (first 10 years interest only), as this offered the lowest monthly payment (for the first 10 years anyways!) and I was pretty close to my ceiling. My lender presented this as a valuable option because if I planned to move within 10 years, I could sell before the loan readjusted after the interest only period. Or, if I thought I’d be making significantly more by the time the 10 years were up, I could afford the adjusted payments after the interest-only period.

For the last two years I’ve put the nice tax returns from being a home owner straight into savings, helping me to maintain a nest egg. In addition, I’ve also used some of the remaining inheritance money on renovations to the house which I feel are pretty significant. I added a bathroom and a walk-in closet, and also a roof top deck with gorgeous views of the Baltimore inner harbor and skyline. After all of this I still have about $20k in savings.

Anyways, finally getting down to my question for you. Sorry if I’m a little long-winded. I’m not comfortable in my interest only loan and have been trying to refinance into a conventional 30 year fixed mortgage. Since I bought the house in 2008, home prices have fallen and my house has lost value. Since I’ve paid down no principle, this puts me in a difficult position to refinance. I suppose I could have an appraiser come out since I’ve made significant additions to the house, and perhaps it would be appraised at more than what I have on the principle, giving me some equity to refinance with.

I’ve also been approached by companies about “restructuring” my loan, basically hiring attorneys to go to the lender and negotiate out of my interest only loan since the government frowns on these kinds of loans nowadays. I’m scared to do this though, as I feel like it might also be a scam.

How do you feel about either strategy? I’m very uncomfortable being in my current loan and want to get out of it ASAP for peace of mind. I love my house and the last thing I want to do is lose it. I still have plenty of time left before the readjustment, but it’s still looming in the back of my mind.
- Andrew

If you’re interested in restructuring your loan, your first step should be to contact your lender directly and see if there isn’t a restructuring that you can directly work out with each other. As you said, lenders are happy today to get such loans off of their books, so they are likely to want to work with you, particularly if you have a great payment history.

You are in the sticky position of having your home worth less than you paid for it. Your improvements may help in this regard, so a reassessment of the value might be in order. However, if you’re looking to restructure, you may want to hold off until you discover if their organization wants to do the reassessment.

Your best move in any regard, though, is to simply live lean and save some cash. Clearly, you love this home. Now’s the time to fight for it through your purchasing decisions. Live lean. Buy generics. Buy $2 wine from Trader Joe’s. Sock away your money for a down payment, for your mortgage adjustment, or for whatever the future may bring.

I just checked my Equifax credit report, and I am concerned that my debt to credit ratio is 78%. This is because the only credit I really have is my mortgage ($67,000 on original $70,000 loan), my car loan ($5,000 balance on original $7,000 loan), and a $6,000 revolving line credit card with a $0 balance. Even though I have very good credit history, with no late payments or anything else negative, I just don’t have much credit. I did not get my credit score, just the free report. So maybe I don’t need to worry. What do you think? Short of applying for more credit cards, what can I do to increase the credit available to me?
- Kevin

This is one of the tricky areas, isn’t it? The problem with a credit score is that the exact formula for calculating it isn’t made public, so we don’t know for sure how various things impact your credit rating.

From what I’ve read, in most credit score calculations, debt-to-credit ratio does not include your home mortgage. Note that this isn’t set-in-stone fact because, as mentioned above, groups like Fair Isaac do not reveal how scores are calculated.

In short, unless you need significant loans in the near future, I really wouldn’t worry about it. If you do need significant loans, seek out a firm that does manual underwriting on their loan products.

About ten years ago, I used to jog all the time with my Discman. For some reason, I gave up that routine, but I’m about to start up again. I have a pocket MP3 player that’s perfect, but I don’t have many mp3s to listen to. Do you know of any low-cost sources for good running music?
- Emily

The best sources I’ve found for free running music is podcasts. There are several podcasts out there that cater to this very need. Here are several of them:

Podrunner: (website, iTunes)
fitMusic: (website, iTunes)
TechnoSweat: (iTunes)
Power Music Workout: (iTunes)

Yes, most of this stuff is instrumental, but it’s often done at a fast pace that encourages you (quite strongly) to get moving. I find it easier to just get in the zone and lose touch with what’s going on around me if the music pushes me forward.

My husband’s grandparents send him a modest check for his birthdays and Christmas, which is terribly sweet, but he’s 34! We both feel very awkward about this – they’re senior citizens on a very fixed income, and it just doesn’t feel right to accept the money, but they mean well of course and we are not ungrateful – is there any way we can tactfully, graciously end this practice, or would the tactful, gracious thing be to continue to accept their generosity?
- Mandy

This is something that troubled me for years with my own grandmother.

After a lot of soul-searching, I finally came to a realization when I was having a conversation with her during a Christmas visit. She got a lot of personal value and joy out of giving me that small gift. It was something that she could still do for me, and during the year she could think that I had done something fun, just for myself, with it, and that made her feel quite good.

After that, I simply realized that it was her decision to do that with her money and that the best thing I could do is to simply respect her wishes. I would usually take that money, do something purely fun with it, then send her a note telling her about it and how much I enjoyed it. Those notes meant a lot to her, I think.

I am 22. I currently live in an apartment (lease expires at end of may next year). I am getting married next year in June (future wife graduates in December). I would like to be able to live in a house once we are married.

After putting enough money for a 401k match by my employer, I bring home about $1,500 biweekly (that’s with health and dental insurance already taken out). I should be able to have $20,000 or $25,000 next June saved up. At my current apartment, I pay $600 per month plus about $70-$100 for electricity. Other monthly bills include car insurance, phone, and cable Internet/TV. I can usually save about $1,000 of the $3,000 I bring home a month to be put into my savings account. I would like a $200,000 house. A quick look at mortgage calculators show me that the monthly payments for a 30-year mortgage would be about $1,000. But I know I will be paying a lot more for electricity/utilities/property tax, etc.

So my question is two-fold: Let’s say my future wife doesn’t have a job. Is this possible? I don’t think I would earn enough, but I would like your input.

Now let’s say my future wife does find a job after she graduates and is able to save $500 per month for the house payment. Is it possible then?

I know I may not have included nearly enough details, but what all do I need to consider during this?
- Tim

From what I’ve seen here, you could likely only pull off a single-income family if your stay-at-home spouse was deeply devoted to methods of saving money during the time when she wasn’t working and even sought out small amounts of low-income work that was flexible to her needs.

If your spouse does have work, you could likely pull off your plan, especially if your spouse is also thrifty in her choices and is able to contribute to the saving for a down payment.

The important thing, though, is that if you decide to get married, you completely combine your finances as soon as possible and then view your future decisions through that single combined pool of money, income, and spending. Spend plenty of time making sure you’re both on the same page and you’re both coming to the same conclusions – and if you’re not, tend towards the more conservative option. Do that consistently and you’ll be fine.

You talk about using online tools like Facebook to build up your networking. I decided to take that advice in hand, so I joined Facebook, learned how to use it, and “friended” everyone I know. Now I’m “friends” with one person whose updates disgust me and I no longer want to be “friends” with that person. Are there real-life social consequences for de-friending someone? Or should I just put up with it?
- Ronnie

You always have the option of ignoring that person’s updates while still maintaining a “friendship” with that person – Facebook allows that option pretty easily by just clicking on the X in the upper right corner of someone’s update and marking that you want to ignore their future updates.

However, if I don’t want to be friends with someone on there because I don’t like or agree with the content of their updates, I de-friend them. If someone is posting madness, I really don’t think it’s a social positive for people to go to that person’s profile and see my name on that person’s friend list.

More than anything, though, don’t worry about it. Focus on positive relationships and spend less time worrying about negative ones. Good things will come from the positive relationships; rarely will anything come from a cesspool of negativity.

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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33 thoughts on “Reader Mailbag: Tomorrow

  1. Ronnie, I have a simple rule for deciding who my facebook friends are. I call it “the hi test.” If I wouldn’t say hi to that person if I saw them on the street, I de-friend them. I have de-friended a number of people because of this rule–probably at least 50. Not once have I ever had any negative real-life (or online) consequences come of this. De-cluttering makes my facebook usage much calmer and happier; I don’t have to sift through tons of irrelevant garbage. If there are people who do pass my “hi” test, but I find their facebook updates annoying, I do as Trent suggested and just hide their updates.

  2. Concerning the debt to credit ratio on your credit report…apparently home mortgage does not include mortgage. 2 years ago my husband and I were shopping for a new house (moving to a new state). At that time we had no debt other than a $115k mortgage. Our credit scores were 813 & 809. We took out a mortgage 3Xs what our previous mortgage was and sold our other home. Recently we looked at our credit scores – nothing has changed – only loan we have is a mortgage – except this time the mortgage is much larger obviously. But our scores were 806 and 804. So apparently mortgage has nothing to do with the debt to credit ratio. Pay your bills on time, all the time and keep your debt/credit ratio low on credit cards and you’ll have a good score. Use (don’t abuse) your credit and pay it on time (or better yet pay it off monthly) and you’ll have a healthy score.

  3. sorry that should read apparently debt:credit doesn’t include home mortgage (too much coffee this morning)

  4. @Mandy,

    My grandparents do the same for all of their grandkids. We do what Trent does and spend the money on something fun and tell the tale to them in thanks (instead of paying for bills etc)

    The other practice I have begun is to use some of that money as a spontaneous gift back to them (without them knowing it). I usually end up sending them a bouquet of flowers or a huge fruit basket a few months later. They are happy for the surprise and I feel good about sharing their generosity.

  5. @Tessa and @David (and David’s roommate): I suggest taking a look at the 50/30/20 spending plan (50% of your after-tax income for needs, 30% for wants, 20% for savings and debt reduction) presented in “All Your Worth.” David, maybe you and your roommate could go through it together. See how your spending lines up against the balance they suggest. If it doesn’t quite fit, maybe there’s a slightly different balance (55/25/20, say) that works for you. (But if your needs are eating up way more than 50% of your income, that’s a sign that you need to make some big changes in your life.)

    The idea is to give yourself permission to spend a certain percentage of your money on whatever you want, so that your “wants” money never has to compete against your rent money or your student loan money or your pay-down-the-credit-card money. If you lose your mind for a minute and overspend on wants, the worst that can happen is that you’ll have less money for wants for the rest of this month. Once next month rolls around, you get a fresh start and don’t have to feel bad about yourself.

    If you don’t trust yourself to keep your wants spending within 30% (or whatever percentage you decided on), then do your wants spending with cash and leave your credit, debit, and ATM cards at home.

  6. @Emily – If you still have your CDs from your discman days you can rip any of those to your computer and from there transfer to your MP3 player. Itunes can do that. Also check and see if you local library loans MP3 and WMA audiobooks. Also, as Trent mentioned, podcasts are a great source of entertainment. You can find one on just about any topic of interest to you.

  7. David – maybe you could interest your roommate in Trent’s blog or some of the ones he recommends/links to. Or if he’s a reader, Trent’s and/or one of the current personal finance books. There are also some good tv shows (that are also streamed online) that give real life examples – one has been a useful wake-up call to me as I watch week to week.

    Mandy – what Trent said – your parents/ grandparents choose to do this & Trent’s idea of writing them to tell them how you took pleasure from the gift will mean a lot to them.

    Tim – Part of the whole housing fiasco right now is that people wanted to buy more house than they could comfortably afford. I was raised on the idea that you didn’t buy more house than you could afford on one income, and it today’s economy I think that’s even more valuable advice than it was 30-40 years ago! Also, you don’t mention whether you also have an emergency fund already set up – & the amount you mention you’re saving is only a 10% downpayment.

  8. Another option other than facebook defriending is hiding their news feed–on the right hand side if you click the x you can then chose to hide all of their posts.

  9. @Emily: In addition to Trent’s and Melissa’s suggestions, you could check out emusic. Even if you don’t decide to subscribe (and their subscription plans are very reasonable), you can get some free MP3s for taking the free trial and cancelling within 14 days. (I did the free trial several years ago and was able to cancel with no problems. A few years after that, I became a paid subscriber.)

    And in addition to that, there are MP3s all over the internet. Check out the web pages of your favorite artists or record labels, and you might find some songs or performances you can download for free.

  10. Trent, thanks for your commentary on the tea party. You’re right, even if you don’t agree with the politics it’s still good to see people getting involved.

    I’ve tried to get involved with local politics and it’s disheartening to see how few people really care about what happens in their communities. Here’s a way in which everyone can have an immediate and visible impact on their government and yet very few people take it.

  11. @Mandy – You don’t say how far away you live from the grandmother nor how often you visit. I think that making a point to visit, then spending part of that time helping with yard work or repairs/cleaning in the house would also be a good idea to sort of pay back for those checks.

    For the mp3′s, there are lots of places to get free, legal downloads of music. http://www.largeheartedboy.com is one. Not specific to music for exercise, but free and legal.

  12. Christmas gifts from fixed-income folks

    My grandmother used to give me such small monetary gifts when ever I used to return home. Personally I used to love having those gifts. I realized that giving that small gift gives her an enormous satisfaction and who am I to deny her that satisfaction. Instead when ever I went home, I used to bring her small gift that she can use in everyday life, like a shawl or small tv (that she kept in her bedroom to watch). It is not that value of the gift that touched me but the value of the thought and emotion behind it. Because she was fixed income the gifts were small and that was okay. Now she is no more and every time I return home I miss her giving me those gifts. So my suggestion is cherish those gift in anyway you can. In return you can give small token gift (not monetary) but something that they can use in daily life.

  13. @Emily I’d like to 2nd the call for listening to audio books. I find they take more concentration than music, if you start worrying about what you got to do later in the day you find you have ran a hundred yards and have no idea what the speakers are talking about. It really helps me relax my mind, I don’t want to think about work while running, that is my time. I have a rule that I only listen to these audio books while running, I have extended runs just to hear what was happening. Oh and I only listen to pure fluff entertainment, the stuff I would feel like I was wasting my time reading.

  14. RE: Defriending. I don’t know Trent, I defriended my father-in-law (and several other in-laws) about a year ago, few the same reason (I couldn’t stand reading his crap anymore) and I STILL hear about it. I don’t regret doing it, my facebooking is much less stressful now, but I would say to think about who it is. If it’s someone you have to interact with and who isn’t going anywhere, blocking might be better than defriending.

  15. With the ability to ignore people’s posts and to also block them from seeing whatever you want on your account, there is really no reason to defriend people on Facebook. I found myself early on stressing about whether or not I should accept friend requests from people I barely remembered from high school. Then I just decided to accept any request I receive (within reason, I don’t accept requests from people I can’t place like that guy recently from Bosnia who wanted to friend me). I just promptly block those people and forget about it.

  16. Good discussion on the Tea Partiers. Very diplomatic.

    I don’t know about anyone else, but I don’t personally invest much energy into politics. It’s too depressing. I’ve seen enough elections – and subsequent supposed “change” – to realize that nothing ever really changes. Politicians are only in it for the money and power, they don’t really want to help fix things.

    And as for picking up the ball and getting involved myself, well, I sure could waste a lot of energy trying, but in the end, nothing would change. I’m not so arrogant as to think that I’m the only one who’s ever wanted to change politics. Others have tried, and are drowned out by the corruption and politics of the status quo, or succumb to the corruption themselves.

    We only get one trip through this life, and I’m not going to waste it railing in futility against a broken system that’s beyond fixing. Better to just accept that our system has flaws, and make the most of what we’ve got.

  17. RE: Gifts from relative on fixed income

    One of the great difficulties of people of any age on a fixed income is the issue of gift-giving (I saw this with my own mother whose first grandchild was born when she was almost 70 when my brother’s child was born. His wife’s family was not only several decades younger, but fairly well off. My mother always felt bad that she could not do more, and my nephew was too young to appreciate the true value of what he was getting (and too busy unfavorably comparing the extravagant gifts from his mother’s family with that of his other grandmother).

    It’s really tough in this day and age of “more is more” for most families to be the one who simply cannot afford the big items. (Too many recipients, including adults who should know better, are ungrateful and unappreciative.)

    Adults who receive such gifts should indeed just accept them and then share how they are used and how much they are appreciated. These folks more than others really want to hear how even the smallest gift has helped you, no matter how small.

    The other idea is to find ways to “give back” during the rest of the year, in a way that does not embarrass the giver (you don’t want to be too obvious). Find out what they love/like, and give them a “no reason” gift.

    Best of all, spend time with those folks. Share some activities that they can do. THAT more than anything else is what they want/need.

    And if they don’t give gifts, because they can’t afford to, in a family with younger children, you could talk to them about finding ways to purchase gifts and give them in their name.

    Anything to avoid them being embarrassed at family gatherings where presents are opened in public!

  18. Regarding monetary gifts from grandparents: In return I think the nicest thing you could do would be to write to them occasionally. Yes, a thank-you, but also a note when you spend it, and then some ‘just-because’ notes, maybe with photos and stories that let them into your world. Maybe every couple months (how long can that take to write?). The older generation often prefers the letter in the mail to a phone call or any other electronic communication. And it works well with frugality – just the cost of a stamp.

  19. Kevin – If you are really curious about your credit score go to myfico dot com. I think it costs $14.95 or so. It’s the only place to get your *real* FICO score.

    Based on what you’ve said I bet your score is respectable if your payments have always been on time.

  20. Andrew: If you are doing ok financially otherwise then putting money into the home to refinance might be an option. But only if you can really afford to keep the house with a normal loan and want to live there long term. I would not give any money to people who offer to try and restructure your loan, they are likely scammers. Look your house up on zillow to see what they say the value is. That gives you a starting point. You could alsolook into makinghomeaffordable.gov they have a program to help people refinance even if theres no equity. I don’t know if your loan would qualify but won’t hurt to check.

  21. Ronnie: Just use the ‘hide’ feature and you’ll safely ignore them. Its the easiest option for your relatives and actual friends. I ‘hide’ several friends and relatives as their innane chatter is really annoying and I have a cousin who is a giant idiot.
    Or if you really don’t care about that person and they are no real relation to you then unfriend them. You don’t need to be friends with people who aren’t really your friends.

  22. re: #5 Andrew – You didn’t mention the interest rate on your I/O loan, which is the most important factor. As I read your question, I was expecting you to say something like “and it expires next year”. I can’t believe you’re upset about having and I/O Loan with eight years left! (Assuming a low interest rate.) You got a loan that allowed you to buy to your max and you can make the payments comfortably. This is a plus, not a minus!
    Interest rates for fixed mortgages will probably stay low for an extended period, and housing prices will recover, especially in places like Baltimore. You should sit tight and wait for the sweet spot when your home rises in value enough for you to re-fi into a fixed rate mortgage with no PMI. Don’t do anything desperate right now. If you’re worried about principle (and I’d advise you not to be, for many reasons), see if your current loan has any provision for principle reduction. If not, save the money in a separate account. You can always use it to cover closing costs when the time to re-fi is right.
    You are in a much better situation than you realize. Here’s a personal example, if you will: My 4.65% 5/6mo. ARM expired in Dec. 07. After two nerve-wracking resets with little to no rate change, I decided to seek out the stability of a 30 year fixed loan. I took out a new 30-year loan at 4.875% in December ’08. At the time I thought it was a screaming deal. But – If I’d kept the ARM, I’d be paying less than 3% now! Also, at 4.875, it’s not really worth it to re-fi again.
    So, my advice is to calm down, wait, SAVE, enjoy your home which is made affordable by your I/O loan, and re-fi when your LTV gets to less than 80%. Also, when you do re-fi, don’t get a 30-year loan. Calculate how many years would be left if you’d gotten a 30-year loan in the first place. I had no idea I could have asked for a 25-year loan. (Insert sound of palm smacking forehead here.)

  23. Mandy, I agree about accepting the modest monetary gift. The notes that Trent suggested are a wonderful idea. Also, you could have your DH save that money in an account and if his grandmother ever needed money, you could help her out. When my grandmother reached 90, her life insurance company cashed her out (I guess–don’t know how that works), and she gave the $ to my mother. My parents had plenty of $ so they saved her gift in a CD (higher interest than now, for sure) and when my grandmother had to go into a nursing home, my parents gave her back the money plus the interest.

    Tim, I think you should always assume that one member of the couple won’t be able to work for whatever reason and live off one income. Buy as much house as you “need” rather than as much as you want. A smaller house has less associated costs (maintenance, utility bills, taxes, etc.) with it, but make sure the home is in the best location possible. Always make a 20% down payment so you can avoid PMI.

  24. there’s a site called creditkarma dot com that gives you your credit score free every month. I don’t know if it is a FICO score or not, but I have the same score I checked from a paid site there.

  25. Andrew, aparently you have savings. See if you can send the mortgage company money towards your principal. If so, consider sending them a chunk of your savings, and a seperate check every month towards the principal. Then when it is time to refi, you will owe less principal, and it will be easy to get a normal loan where you amortize interest. With this plan you might be able to go for a regular mortgage sooner, and start paying off principal. Since you love the house, that way you would actually begin owning the house. Now you are mostly renting. I know, I know, your name is on the deed, you get a tax write off, but you do not own more of the house each month with this system. I bought my house with a 20 year conventional mortgage, and paid it off in eleven years by scraping and sacrificing. never regretted this. Better not to have to send in a mortgage payment than to get a tax deduction saving you a small portion of that amount.

  26. @Jeff
    You are overthinking this. If you have $1000 a month available to save just start the Roth IRA with that and don’t worry about doing anything with the regular brokerage account. In fact,just set up a regular contribution so it goes on autopilot and you save the max every year. When the 401 K kicks in max that out too. I advised my son to do just that and he recently thanked me for helping him save a huge amount of money in 10 years with almost no effort on his part.

  27. Mandy – My grandmother sends everyone in the family $20 for their birthday. We look forward to “Granny’s check”. She tells us not to pay bills but to go buy something for ourselves. I always call her and tell her what we did with it. It makes her feel good – so just take the money!!!

  28. Tim, it does not sound to me like you can afford a $200K home. Are there any cheaper options available, maybe a townhome? I would be careful not to get a loan for more than 2-3X your gross annual income (The Millionare Next Door book gave the rule-of-thumb as 2X). And I would only purchase by qualifying using one income. You just never know.

    Where I live, property taxes can add $300-500 per month to ownership expenses (sometimes, in fact, nearly doubling the payment, esp. as around here home prices have fallen and tax assessments have not so much). Point being, those extra expenses can really add up.

    One last thought. A lot of people associate marriage with homeownership, when really, it’s totally ok to rent after you get married. So I would also ask questions like: Why do you want to buy a house? Is this something both of you actually want? Do you want the additional responsibility that comes with ownership, or would you be happier if you upgraded your rental? I’ve seen people make commitments to homes because it seemed like the thing to do when they got married, and it turned out to be a bad move. It’s impossible to tell if that’s what you’re doing, but if you could avoid the kinds of traps my friends have fallen into, well, good.

  29. I have a question about how to deal with a recently turned negative work environment. The company I work for has been dealing with slow business and the bad economy and has had several rounds of layoffs over the last year. Although that is understandable the last round was much harder to take as we lost a fantastic long-time co-worker and yet still have one poor/mediocre co-worker left. The mediocre employee just happens to be a good pal of my boss and is also the newest and least trained of anyone in the group. Everyone else in the group was shocked and upset at the unprofessional decision and the environment has turned poor fairly quickly.

    Is there any positive way to address this issue and hopefully reduce some of the bitterness, low morale and uncertainty that seems to be facing everyone in the group? To complicate matters my boss is a former co-worker who was promoted recently and the management above my boss is also new to the position (with mixed reviews from those around him). I’d love to address the issue head on, but don’t want to make the situation worse or put myself on the chopping block.

    I am now actively seeking a new job/career. I had been considering a change and this tipped the scales for me, but it will take time. I’d love any advice and opinions you might have on how to deal with or improve the current situation. Thanks.

  30. to #24 Lisa: Considering how “new” all of the people are to management, I don’t see a way to positively and honestly talk to them about your concerns. They do not have enough experience in how to deal with these types of issues and it appears that they are not acting in the best interest of the company and employees, but rather, acting in their own best interest. They will see any constructive criticism as a direct attack and react accordingly. This could have disastrous results for you. I recommend that you try to do the best you can to deal with the situation as you actively look for a new job. It’s not going to be easy, but keeping a job is the priority.

  31. Trent – your answer to Jeff is wrong and you say why it’s wrong in your answer. Did you read your own answer? He’s 22. At some point, he’s going to want to buy a house. It’s worth leaving the money in the brokerage account alone until he’s ready to buy a house. I would actually keep saving some money into that (or some other non-retirement) account in addition to the retirement funding.
    You’re going to need someplace to live when you’re retired too. If you can afford to put more down on your house and pay it off faster, your “salad” years (the ones where you’re raising kids and money is tightest) will be a lot easier. While retirement is important, putting $900 a month into retirement and $100 a month into shorter term savings that he can use when he’s ready to buy a house (which he will probably want to in the next 5-10 years) isn’t going to make that heavy a dent in the retirement fund and it might mean being able to pay off a mortgage years earlier.

    Just my opinion as someone who is currently living in a 1000 sq feet rental apartment with 2 kids and a husband who has decided one room is his “juggling studio.” (and I work from home on the dining room table – where there are currently 2 all-in-one printer-scanner combos)

  32. @ Andrew,
    Debt decisions are first and foremost about cash flow. Can you comfortably make the monthly mortgage payments? My personal opinion is that is is almost always unwise to paydown your mortgage especially if you plan to stay in the home. I did a series on home ownership and mortgages at my blog: http://bit.ly/bbBuu9

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