Reader Mailbag: Valentine’s Day

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. Student loans after marriage
2. Parents in financial trouble
3. 401(k) and index funds
4. Best PS3 game bargains
5. Furnace savings?
6. Used cell phones
7. Buying board games
8. Financially irresponsible parents
9. Achieving goals
10. Roth investment questions

For me, Valentine’s Day is another one of those days in which people cram sentiments they feel they should have throughout the year into one day. Much like Mother’s Day and Father’s Day, for example.

Instead of going out for some exorbitant dinner or tossing some sort of expensive “romantic” gift at your partner, why not do a little thing or two each day to show your partner how much you love them? Write a little note for him or her and stick it in a coat pocket. Make a batch of your partner’s favorite cookies. Do the dishes so your partner can relax after a stressful day.

A little bit of consistent love means a lot more than an ostentatious display once a year.

Q1: Student loans after marriage
My wife and I graduated in May of this year, and were married a week later. She has 5 student loans in her name, which her parents promised to pay. She owes around $215 per month in student loans for her. Unfortunately, her parents are unable to afford that much, and send us a check for $175 each month to help pay for the student loans. I recently spoke to her father, and he intends to apply for a tax deduction for the loans. However, based on what I’ve read, it sounds like her parents cannot claim anything– the loans are in her name, and we technically pay it each month. He claims to be a cosigner on the loan, but I don’t see it in any of the paperwork. We are married, filing joint, and they cannot claim her as a dependent.

My primary concern is that we follow the law, here. Am I correct to assume that, since our arrangement with her parents is completely off-the-books, we will be eligible for the deduction– and they will not? Her father is asking me to send him statements so he can see interest paid/principal remaining. Should I be concerned that he will attempt to claim some of that interest, or will he legally be able to? If they are not legally eligible for the deduction, should their tax attorney (they use an actual attorney, not online software) catch it, or do you think I should speak with him personally?
– Zach

If the loans are in her name, then she’s the one who can claim the deduction for the student loans. You cannot claim deductions for people who are not listed on their income tax as a dependent.

In this case, I’m guessing her parents haven’t quite realized that she’s no longer their dependent or don’t realize that the student loans do not have their name on them.

If they attempt to claim the deduction, either their attorney or their software should catch it. If they go ahead and push it through, the IRS might then catch it, too.

Q2: Parents in financial trouble
My husband and I just celebrated our first anniversary last month. I work full time and am a part time college student, he works part time and is a full time student. College is of course a challenge but my company pays for my tuition and we do all we can to cut costs. We have our own apartment, manage fine and haven’t had an overdraft since we were married. But I’m not writing to you about us.

My parents are in their 50s and are struggling. And by struggling, I mean failing miserably. Their monthly mortgage payments cost nearly 3 times what their home is worth, they often miss mortgage and other bill payments. In the past 2 years they have lost their internet at home, had their cell phones turned off three times, had their home put on the market, and been severely late on at least one payment every single month. They have quite a bit of debt built up, including payments on their home and hospital bills from my mother’s stay in the hospital last year.

My father has a full time job that offers plenty of overtime and he holds a part time job at our church while my mother works part time. They make nearly 30,000 a year but neither has a penny in a retirement fund. They are very private about their finances and only rarely ask for assistance. However, when they do ask people to loan them money, it is rarely if ever less than a hundred dollars that they need and they usually wait until the last possible second to ask for it.

Painful though it is for me to admit it, my father needs at least a beer or two before he can relax enough to fall asleep and my mother always asks him to buy her some scratch offs when he goes to the liquor store. I am afraid that he has an alcohol addiction and that she has a gambling addiction. They never talk about it and change the subject when someone mentions it. And for some reason, I have yet to gain the courage to admit how I feel. How worried I am for them and how terrible their finances really are.

We don’t intend to for several years but I am afraid that by the time my husband and I decide to start a family, my parents will not be able to stand on their own and will need us to support them. I cannot think of anyone in our immediate family and friends that have the resources (or a home large enough for that matter) to put them up if they lose their home. I constantly worry that one day they will lose their home and be forced either into our one bedroom apartment or onto the streets.

I am considering organizing an intervention of sorts with their close friends and some immediate family members to confront them about this. My parents have had financial problems for years and have learned how to cope and how to hide the problems. I suppose my question is do you have any advice for me? Would an intervention do more harm than good? Are there any strategies you would use? And how can I work up the confidence to talk to my parents about this?
– Katrina

An intervention may help, or it may make things worse. I would strongly encourage you to do some deeper research into how to make an intervention work before trying one. Hit your local library and look for books on interventions, like Intervention by Vernon Gray.

I would also encourage you to sit down and do some serious soul searching about your own position on the subject. You seem to be just assuming that you’ll be carrying the load for them when they get older. Is this really a burden you want to assume?

Do not even start to take on that burden if you’re not willing, without resentment, to take on that burden for the long haul. If you try, you’ll build up resentment and emotion like floodwater behind a dam, and eventually that dam will explode, putting all of you in a much worse position.

Make sure this is something you’re fully willing to do, and decide it sooner rather than later.

Q3: 401(k) and index funds
When I first set up my 401K five years ago, I was fresh out of college and had very basic knowledge of investing. I picked an investment mix of roughly 5% cash, 20% bond funds, and 75% stocks (which were further diversified into small-cap, large-cap, value, growth, and international). Outside of allocation and diversification, I didn’t have a particular strategy for picking a specific fund. I think I just picked the one with the highest 10-year average return in each category.

Now that I’ve learned about low-cost index funds vs. the cost of actively managed funds, I want to invest in the index funds available through my employer’s plan. However, I’m not sure what’s the best way to start implementing that. Do I simply set my contributions to go to the new index funds? What about all the shares I bought over the past 5 years? Do I just leave them there, where they will continue to incur a 1.25%-1.50% annual operating cost? What happens if I sell those shares and put the money into index funds with a 0.25%-0.5% annual operating cost? Are there any tax implications for doing that?
– Kate

There aren’t any tax implications for such moves within a 401(k). The only tax implications occur when you withdraw money from the account, at which point you have to pay income tax on everything you withdraw.

In other words, when you want to switch things around in your 401(k), feel free to do so.

My only concern would be to make sure that you’re keeping a good overall portfolio in there for your age. You’re young, so a heavy stock portion isn’t a bad thing, but as you near retirement, you need to start moving most of that money into safer investments, like bonds and treasury notes and cash.

Q4: Best PS3 game bargains
I received a PS3 from my wife as a Christmas gift (I think the Blu-Ray player was part of the reason). Anyway, I started throwing my loose bills and change into a jar with the intent of buying a game or two for it in a few months. That time has arrived and I have about $80 to spend. What are the best PS3 game bargains?

– Clint

First of all, buy used if at all possible. The Blu-Ray format that PS3 discs use seem to be practically invulnerable. My daughter has done unspeakable things to a couple of my PS3 discs and they’ve never had a problem. I’ve traded for dozens of used discs without a single problem. So, when you go to spend this money, buy used games at your local used game store.

I would start by first knowing what genres of games you actually like. Think about the video game experiences you’ve enjoyed the most recently in your life. Are they platform games, like Super Mario 64? Racing games? Action games? First person shooters? Role playing games? Open world games?

Next, I’d hit Metacritic’s list of PS3 games, sorted by score and start looking at the top ones. Make a list of ten or fifteen or so that match the genres you like, starting at the top of the list.

Then, take that list to your local used game store and get as many of the games on your list as you can for your $80. You’ll likely be able to get three or four of them.

Q5: Furnace savings?
Thank you very much for the time and effort you invest in your blog! I’ve found it tremendously helpful. In fact, your blog and Get Rich Slowly are the only two financial blogs I follow. God has truly blessed me financially (always been debt free, always paid cash for cars and even a house) and yet I want to be a faithful steward with what He has entrusted to me, both now and in the future.

Anyways, I saw your blog post with your evening routine. I have an evening routine too, but I’ve wondered quite a bit about the furnace routine. I do the same thing (turn it down 5 degrees at night and back up in the morning), but I wonder how effective it really is due to the morning “catch up” factor? When the thermostat is turned down 5 degrees there is a definite savings throughout the night, but when the temperature is raised 5 degrees in the morning the furnace will have to run longer to catch up. And it won’t just be the “first” running (raising the temp from, say, 61 to 66), it will then run more frequently over the next hour or so as not only the air is warmed (that’s the first phase), but then the furniture/fixtures/flooring has to be warmed, too. In other words, the furnace first heats the air (which will take a while), but then the furniture/fixtures/and even the flooring will cool the just-warmed air rather rapidly, and the furnace will have to run again. Once everything (air, furniture/fixtures/flooring) has warmed up to 66, then the furnace will go back on a regular schedule.

I’ve always suspected that if the furnace avoids running 2 hours overnight, how long does it take to fully (not just the first cycle) take to catch up in the morning?
– Christopher

During the winter, when your home is warmer than the outdoors, your home is constantly losing heat to the outdoors. That’s why we have insulation, of course, but insulation is never perfect. There is always some significant heat loss. Also, basic thermodynamics dictates that the greater the difference between the indoors and the outdoors, the greater the heat loss.

So, during the night, when the temperature is coldest outside, your house is losing the most heat to the outdoors. If you leave your furnace running at your normal temperature all night, it’s actually running more at night than it is during the day because your house is losing more heat to the outdoors due to the greater temperature difference.

In the morning, the temperature outside is going up thanks to the rising sun. There’s less heat being lost to the outdoors and your furnace does not have to run as much. You’re far better off heating your home to the desired temperature (and keeping it there) when the temperature is higher outside than when it’s lower.

The big reason to turn off your heat at night is that it minimizes the difference between indoor and outdoor temperature, thus minimizing the heat lost from your home. The less heat you lose from your home, the lower your heating costs.

Q6: Used cell phones
It it a good purchase to buy a “used” cell phones”? And why when i try to buy one in ebay, there will always something that will come out lower than the price I am trying to buy, that is after a few days after I paid for an item. How doest it work?

– Eileen

It can be a good purchase to buy a used cell phone as long as it works with your particular provider’s network. You need to make absolutely sure that the phone will work with your service provider before buying it.

Now, as for the issue of “a cheaper phone coming out as soon as you buy one,” that’s always going to be true with any technology purchase. If you buy a phone now, it’s going to be cheaper in a few months. The same thing happens with computers and monitors and televisions.

The key is to wait until you actually need to buy a replacement because your previous one is not working. Barring that, you should wait until a truly exceptional deal comes along, like a free phone with signing a new contract.

Q7: Buying board games
I really liked your article last week about board games. I agree 100% that the most valuable thing is the experience, and not the material goods themselves. I used to be so ardent about collection video games, but I just decided I was spending too much money, and not receiving enough satisfaction from them. Yesterday, I had a gathering at a friends house, and instead of playing video games, we watched “Scott Pilgrim vs the World”, which I borrowed from my public library. Short story: We had a great time. The great thing about the NYPL is that it has all the new releases, and I get the watch them less than a month after they come out. I just request them online and I go pick them up at my local branch. Besides, it doesn’t cost a thing!

What I realized yesterday was that we were seriously lacking in board games. The only games we ever had were the “classics”, Monopoly, Life, and the like. I looked up some great games that I might enjoy playing but they are so expensive. Currently, I”m looking at the following:
1. Wits and Wagers
2. Settlers of Catan
3. 7 Wonders
4. Diplomacy

I thought it might be a great idea to ask you where a good place to get these games would be. I would love to buy them new, but they are just so expensive. I wouldn’t mind buying them used, and I suppose that would be alot cheaper. Do you know of any great places to get board games more affordably?
– Kent

I use Cool Stuff Inc. for my board and card game purchases. I save my nickels and dimes until I have enough to surpass their free shipping minimum, then I pick up a few games all at once. Buying all four of those in one order would get you just over the free shipping threshold there at the moment.

There aren’t any online shops that sell a wide array of used board games that I know of. Local shops will sometimes carry used copies of popular games, and I’ve had some success finding good games at thrift stores, but you can’t go there and expect to immediately find a used copy of the specific game you want at a great price. The games you’re looking at are good ones that people will want to play again and again, not a copy of Monopoly that hasn’t been touched in a decade and is happily sent off to Goodwill.

My only comment on your list is with Diplomacy. I really wouldn’t recommend playing that game unless everyone in your group understands it’s just a game. It really is a lot like the television series Survivor, where you have to eventually twist the knife in someone’s back to win. There’s a common joke among boardgamers that Diplomacy has been destroying friendships for fifty years, and I’ve witnessed people in tears over the game. It can be very cutthroat – the rules make it that way.

I would strongly suggest replacing Diplomacy on that list with Ticket to Ride until you know how truly cutthroat the people in your group are – and how they accept such gameplay from others. Diplomacy can be a lot of fun, but you have to approach it with the understanding that it is just a game and that if someone backstabs you during the game, it’s just part of the game, not some sort of personal affront.

Q8: Financially irresponsible parents
I’m 25, single. Have 20,000 in student loans but no other debt. Currently working a full-time temporary assignment making $15/hr, live at home with parents, and am enrolled in school – planning on taking out another 6k in loans to pay for my classes and classes this summer so I can apply to med school. I have a BA and some credits toward an MA but never applied officially until recently. Still waiting to hear if I will get into the program. Then the recruiters started calling. Now I have two job possibilities making about 60-70k in reasonable cost of living areas in the Midwest w/relocation, etc.

Options:
1. Take one of the jobs and work full-time for a year or two and save as much as possible to be in a better financial position for med school, possibly defer the MA if I get in.
2. If I get into the MA (find out next week or the week after), go back to school and apply for a different job very similar to the other two I am considering – make about 50k and work full-time and attend evening classes
3. Apply for med school this cycle and take my old job where I was making about $13-15/hr working in a hospital.

Issues: my dad has prostate cancer and kinda “checked out” for 6 years. They are in the middle of a Chapter 11 case where it might convert to Chapter 7 because they cross-collateralized all their business and personal stuff and might lose their house soon. They own a lot of real estate, basically, and might lose all of it – all income property save for the house they’re living in (which they remodeled but couldn’t sell, couldn’t get a new loan even though they rented it and had positive cash flow – basically got screwed by the bank who got them their construction loan). I will lose my health insurance in May of this year when I turn 26. I want to be able to help them but when I have it hasn’t come back (gave 20K to them – now gone). I want to buy income property, probably in the area where my family is, but currently don’t have much in savings (just an emergency account totaling about 1000). If I were to move to the area where I want to do the MA I would buy a duplex and remodel one and rent out the other. I want to be able to get ahead from where I am. I have the knowledge and understanding needed to make money in real estate including my license and would qualify for a 203 k (that’s the type of loan – FYI – not the amount) FHA rehab loan. The property is listed for 110,000; I would offer something like 85K at most. One unit is currently vacant but easily rentable with work, the other is currently rented for 710 a month (way under market value for rental). I would live in the vacant one, remodel it as early as this summer, and get it ready for August 1 (college town). Then I’d kick out the tenant (lease is up August 1), and live in the other unit while I remodel it over the course of the next year while working and attending school. The remodeled currently vacant unit would rent for 850 easily, and the other unit maybe 1350 when done. I would need to do about 35K in repairs – which includes my sweat equity. Part of me says I just drop my classes, take the job NOW, work for 6 months, and that way I’d have enough cash to buy something if I were to do the MA this fall.

After the MA I’d apply to med school. What do you think is the best route to go?
– Margaret

If you’re going to go to medical school, you’re better off doing it when you’re as young as possible so that you have few entanglements as you go through the process and the energy to make the best of medical school. The longer you wait on medical school, the less worthwhile it will be for you because you’ll have fewer years as a practicing doctor to pay off the mountain of debts.

If you’re not going to do that, then I would take the good job offer you have on the table right now and make the most of it. A bird in the hand is always worth two in the bush. See where that job takes you and use the money you’re earning to eliminate your debts. If you later decide that it’s not a path you want to continue to follow, then go back to school.

So, my order would be option three (contingent upon how serious you are about the challenge of medical school), followed by option one.

Q9: Achieving goals
Our goals are 1) pay off all but our primary mortgage within the next two years, 2) have at least 50K in rainy day funds, 3) start contributing to our IRAs monthly, 4) start saving for our two sons college expenses (they are 6 and 9), 5) and saving for a minimum of 1 family vacation trip and 1 for the wife and I each year.

My wife and I currently have been working very hard to get out of the debt we have built up over the last 10 years. As of 5 years ago after finally putting to paper a 5 year plan we are happy to say that things are going mostly as planned. However, I feel that we are missing a couple of things in our ultimate plan or at least possibly short changing ourselves given our current plan.

Together we earn about 160K to 170K per year. I work as a software engineer and she as a teacher’s assistant. I am the only one with an active 401K which I contribute 10% (increasing 2% each year) to and my company gives me a 50% match on the first 6%. We both have IRAs that we rolled over from previous employers which we have yet to contribute to. All together our retirement accounts total about 160K.

We have $0 in credit card debt (paid off 4 yrs ago), no car payments (paid off 2 yrs ago), a mortgage balance of around 191K @ 3.9% @ 30yrs, a loan of around 5K @ 8.9%(to be paid off this year as we are applying extra payments), and a timeshare mortgage (which we purchased this year) with a balance around 38K @ 12.9% (when said loan is paid we would then apply that amount to this balance thus more than doubling our current mthly payment).

We currently have 15K in two different MMAs, 10K in CDs, and save 2K mthly (starting last month) into said MMAs. The money in 1st MMA and CDs is our rainy day fund and the 2nd is for covering year end/yearly expenses such as HOA fees, VOA fees, property taxes, life insurance, etc. Also, at year end I can usually expect an incentive bonus around 10K -12K but I try to keep that out of our plans and mostly just use that money towards paying debt, adding to our savings, and covering vacations.

I guess it is worth mentioning our major planned expenses for this year. They are 1) summer vacation to Hawaii (everything is already paid for and spending money is already banked), 2) xmas vacation to Australia to visit my brother (about 15K since we will be travelling the whole time there), 3) expenses for two marathons and 2 triathons and also a couple other racing events, 4) extra curricular activities for the kiddos. And let me be the first to say that taking two trips such as these in a single year is just a one time thing – it just costs too much to do it ever again.

We think we are on a pretty good track to achieving our goals, but we would like to know what your thoughts are on what we should do with the extra 2K savings each month that we are socking away? My first thoughts are to save half of it each month and then start applying the other half across the remaining goals. If that is reasonable then I guess what sort of distribution might you consider across the remaining goals? Thanks for the great advice you have already provided and I hope to hear from you.
– Harold

First of all, I’d make sure that all of the expenses this year are covered, first and foremost. Make sure you can get through the pile of expenses that 2011 is bringing you before anything else, as it sounds like you have a lot of expenditures lined up.

In other words, I would probably keep putting all of that $2K into savings for the time being. Make a large emergency fund, because vacations are often the time when emergencies strike and you find yourself spending far more than you ever planned to spend.

Your goal should be to emerge from this year with minimal debt. At that point, start thinking about long term goals and figuring out what you want to be doing next.

Q10: Roth investment questions
I was just reading a few posts you made back in 2007 about funding your Roth IRA through Vanguard. I am 25 years old and due to my risk tolerance I max funded my Roth IRA ($5,000) but instead of choosing a Target Retirement Fund, I simply chose Vanguard’s Balanced Index Fund, which after reading your posts, made me slightly concerned and I am now second guessing my decision. I am wondering if I should plan to start a Roth via a Target Retirement Fund next year or just continue making contributions to the Balanced Index Fund I set up.

– Karl

I went and looked at both funds. Right now, the 2055 Target Retirement Fund (the one I assume you’d have your money in) is far more aggressive than the Balanced Index Fund. Over time, though, the Target fund will slowly become more and more conservative.

For right now, the bigger question of the “right” fund to have comes down more to your personal risk tolerance than anything else. I don’t think there really is a “wrong” move if you’re putting aside the money in the first place. Can you stomach watching your Roth IRA take a big loss for the year if it’s counterbalanced with other years where you get 15% gains? Some people can. Others can’t stand seeing their retirement balance drop so precipitously.

If you prefer to be more conservative and balanced with bonds, there’s no imperative to switch. Your money will grow at a slower rate during the good years, but won’t take a gigantic drop during the bad years. Overall, this usually averages out to slightly slower growth overall.

Of course, at some point in the future (age 50 or so), you may want to go even more conservative than the Balanced Fund, but you can cross that bridge when you get there.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. I have some money in a Vanguard target date 2050 fund and this past year have made excellent returns of 18%. I realize this fund has more risk involved than others, but I feel like with the timeline I have until retirement, the risk is mitigated. I do keep a good eye on the fund by checking where it’s at a few times a week. I know there has been literature as of late discussing that target date funds are misleading, but if you have a good idea of what your fund is invested in, have low fees (love Vanguard for that), and make some return every year through dividends and capital gains, you should be ok. It all comes down to understanding your investments, and taking calculated risks here and there. Hope this helps.

  2. Wes says:

    Q7:

    I usually get my games from amazon, but the prices on Trent’s recommended site blow amazon out of the water. Thanks for the tip, Trent. I know where I’m getting games now!

  3. Maureen says:

    You sound so cynical about Valentine’s Day!!

    Of course it is always wonderful to express our love for our valentines throughout the year. It is especially nice to pull out all the stops and celebrate your relationship on Feb. 14th. These special expressions of affection need not be outrageously expensive. Think of sharing a plate of chocolate dipped strawberries. Set the mood with candles and romantic music. Play ‘your song’ on the stereo. Write your valentine a love letter. If you want to ‘say it with flowers’ a single rose can be as romantic as a dozen.

    Be creative. One year I stomped out a valentines greeting in the deep snow in the side yard and took my husband upstairs to see it.
    Perhaps you could have a romantic picnic dinner at the spot where you first met.

    Now I’m off to decorate the heart-shaped cake I baked for tonight’s dinner.

  4. Tom says:

    Q7:

    You’ve recommended trading sites for books before, there’s also a few for games, like Goozex. I’ve gotten quite a few games from there that I’m glad I didn’t pay full price for, instead I traded them back to the system and gotten things I enjoyed. You have to buy tokens to trade, they’re $1 each and then you pay for shipping (and packaging) which is usually less than $5.

  5. SwingCheese says:

    For Question 2: If you end up having your parents living with you, you need to be sure that you are prepared for it. My father-in-law is living with us, and although he is an easy houseguest, it is very difficult to have someone who is always there. Always. I never have time alone in the house with my husband or son, and my husband very rarely goes anywhere by himself, as the only time his father leaves the house is with him. We’re making it work, but it is very difficult, and I feel resentful occasionally, as this is not what I imagined my life would be. However, I am pleased that my son is able to spend time with his grandfather, so it works both ways. He pays us a token rent, and we take care of food, laundry, transportation, etc. Also, we sketched out at what point he will no longer be able to live with us (mainly dependent on his health care needs). So you may want to consider having a token exchange of money – we did not for the first three months, and I was furiously resentful, as my husband and I do not have a lot of money – and a plan for the point at which you’re no longer comfortable having them there. Since you are concerned about addictions, you might want to have a discussion about what sort of behavior is acceptable and what is not, as this would become very important once you have children. If you have/had a contentious relationship with your parents (as my husband does with my fil), it will be far better to have all expectations laid out from the beginning. Also, there are several reduced-expense living options for folks nearing retirement age (usually the age requirement is somewhere between 55 and 65). You might want to look for elder care facilities in their area (or your area) and have that knowledge in the back of your mind as an option for them if they lose their home. Before we decided on this arrangement, we looked into several apartments (usually costing around $500 a month) and discovered that he could apply for income-based help with his energy bills as well. There are feasible options out there if you decide against having them live with you.

  6. Des says:

    RE: Q2

    “They make nearly 30,000 a year but neither has a penny in a retirement fund.”

    That’s because they only make $30k! They work a combined three jobs and make just over half what the average US household makes.

    And 2 beers a night with occasional scratch-offs are hardly addictions. 2 drinks a night for a man is considered moderate drinking by doctors, which has been shown to be more healthy than abstaining. Scratch-its are a waste of money, but buying them doesn’t indicate addiction.

    My mother is a recovering alcoholic, and my father a gambling addict. Unless you have additional reasons to suspect addiction that aren’t mentioned here, and you might, an “intervention” seems way out of line. You might try finding an Al Anon group (the upport group for the families of alcoholics) and ask some of the members what they think you should do. They have experience with such situations and can offer the best advice and support.

  7. valleycat1 says:

    Q5/thermostat adjustment – I know Trent’s answer is the standard justification of the practice, but does anyone know of an actual real-life trial/cost comparison on the two tactics?

  8. Gretchen says:

    Why does Valentine’s day have to be “ostentatious”?

  9. Gretchen says:

    Meaning, I don’t think it has to be a big deal, but I certainly don’t see anything wrong with celebrating the ones you love.

    There’s a holiday for everything else, why not your spouse?

  10. Jonathan says:

    We shouldn’t need a holiday to celebrate those that we love. I would be very concerned if February 14th was the only day on which my wife realized how much I love her.

  11. Squirrelers says:

    For point #2 above, regarding parents with financial problems, it’s very important to think of all consquences to taking on a big burden like supporting them. One needs to think about how your spouse would feel about that, with the lack of privacy if they live with you AND working hard to pay for their mistakes while your financial lives might be impacted. Many a spouse would not be happy with that, while some could deal with it. Just something to strongly consider.

  12. Tracy says:

    I agree with Des – “Nearly 30k” is an incredibly small income for 2 people (who until recently were raising at least one child). Add in the mother’s hospitalization and it’s not surprising that they don’t have a retirement fund.

    And to consider an intervention based on 1-2 beers a night and a couple of scratch-off tickets just … boggles my mind.

    You have to think about how much and to what extent you want to support your parents in the future, without sacrificing your own life to it. With their current state of affairs, they may really need to go into bankruptcy and it may be the healthiest thing for them to lose their house now, while they’re still earning and able to get a less expensive apartment and begin saving. Or it may not. But that is not the situation for a family intervention, it is their own decision. As their child, you may want to have a heart-to-heart with them about their situation but I highly suggest not getting anybody else involved (unless you have brothers or sisters)

  13. Kevin says:

    Wow, Harold (Q9) and his family really seem to have a plan for managing their finances. He really seems to know his numbers, and while he’s spending a lot more than I’d be comfortable with (Hawaii *and* Australia, in the same year?), it seems he has his head on straight.

    Which is why I was so surprised to see a $38k mortgage on a timeshare, at 13% interest! That seems very out of character for Harold. Why would anyone finance a timeshare at 13% interest?

    Heck – why would anyone pay full price for a timeshare AT ALL? You know you can buy them on eBAy for $1, right?

    I’m not exaggerating – you can literally buy timeshares on eBay for $1. That’s how bad of a deal they are. People get locked in, then realize the maintenance fees are killing them, and they will do anything to get rid of the stupid things – including literally giving them away!

    How can someone who seems so money-savvy let himself get talked into paying $38,000 (at 13%!) for something you could buy on eBay for literally $1?

  14. Lex says:

    I have to agree on Valentine’s day! We already celebrate the day we met and our wedding anniversary, adding an “extra” day where everyone else is also celebrating is “too much” and expensive, too because of the holiday premiums. When I was single the day always made me sad for what I don’t have, and now that I’m not I could hardly care less because we celebrate our relationship in different ways.

  15. Michelle says:

    It’s my personal experience that the people who actually do let their significant other know they are loved on a regular basis do not mind going just a little bit further on Valentine’s day. And those who don’t do very much to appreciate their partner tend to be the ones who resent “being told to be romantic.”

    It’s sadly true that people neglect to tell their spouse (or in Trent’s other examples their mother and father) how much they are appreciated. The point behind these holidays is to for one to stop and reflect upon those relationships and extend a sentiment of love. Yes, the holidays have been co-opted by commercialism, but that doesn’t mean you’re obliged to buy into it. Resenting Valentine’s Day because it’s a holiday of expensive dinners and extravagant gifts is akin to resenting Christmas because it’s a holiday of Wii’s and iPad’s.

  16. Michelle says:

    Q9: Harold, that timeshare is the biggest albatross for you. Put your extras toward that. But it also seems like a $7500 “rainy day fund” (by which I assume you mean emergencies) is not enough for someone with your income/household expenses. I’d make building up emergency money my second highest priority. I’d also check your spending. Doing some back of the envelope math you’re probably taking home $7-8,000 a month (after taxes and 401k), your mortgage payment is probably no higher than $1500 a month, and you have no car payment or credit card debt. So where is all the money going??

  17. Courtney20 says:

    My opinion on Q1: The “correct” answer is no, your in-laws cannot claim the tax deduction for student loan interest. The “right” answer, is that if they are paying 80% of the student loans, they should also receive 80% of the benefit of the deduction. I am completely guessing, but a standard 6.8% interest rate and 10 year repayment term means that the balance is somewhere in the neighborhood of $20K and you are paying about $1300 a year in interest. At a 15% federal tax bracket that’s about $200 in tax savings; I think that morally your in-laws are entitled to roughly $150 of that regardless of what the letter of the law says.

    I think after you file your taxes you should write them a check for their share (or deduct it from a payment they would otherwise make).

  18. jim says:

    Q2: Your parents seem to be stuggling but they only make $30k a year which is not much at all. Especially considering they have 3 jobs between them including your dad working 2 jobs + overtime work. If they are unable to keep their house then that doesn’t doom them to homelessness. They can probably find a place to rent and if they still make $30k then they can probably ‘get by’. 2 drinks a night and a lottery habit are not necessarily signs of addiction.

    Q5: Reheating the home in the morning doesn’t cost more than not heating it all night. If you have a well insulated home then it won’t make as much difference. But keeping your heat constant temp all day/night isn’t going to save money versus turning it down for 8 hours at night.

    Q8 : If you want to go to med school then apply and go to med school now. If you don’t want to go to med school then cross it off the list and then focus on something else. Frankly you seem to be going in 8 directions at once. Focus on one.

  19. jim says:

    #7 valleycat1 asked: “Q5/thermostat adjustment – I know Trent’s answer is the standard justification of the practice, but does anyone know of an actual real-life trial/cost comparison on the two tactics?”

    Yes there have been trials. One article I found on STrait Dope (I’ll post link separate) did an experiment over 3 years and saved 28% and referenced 2 different trials in Canada & US that saved 13% and 6%.

    “My indefatigable assistant Una conducted a long-term research project in which she installed a programmable thermostat in her house, aggressively dialed back the nighttime setting for winter, then tracked her energy use for three years, using data from the National Oceanic and Atmospheric Administration to correct for outdoor temperature differences before and after installation. Result: she saved about 28 percent on her winter gas bill, enough to recover the thermostat’s $120 cost in three months.”

    “A study of two identical Canadian test houses showed an 11-degree setback overnight and during work hours generated a 13 percent savings in gas and a 2 percent savings in electricity (the furnace blower ran less). My guess is that’s better than most people will get. A U.S. study of 2,658 gas-heated homes using programmable thermostats found a 6 percent reduction in energy use.”

  20. Kathryn says:

    RE Q5: I’ve seen a variety of “experts” (e.g., the Dept. of Energy, local utilities, respected environmental blogs) cite a 3-4-hour rule of thumb for this kind of situation. Reduce the temp–or raise it, in the summer–for at least 3-4 hours, and the energy saved will be more than what’s required to bring the house back to temp. So, if you’re just going out for a couple of hours, leave the thermostat alone; but if you’re going to work, going to bed, or going on an extended outing, adjust the thermostat.

  21. kristine says:

    Re; Board Games- Here is where a Borders or BN membership pays off, if you prefer new.

    Get the e-mailed coupons around the holidays for 40% off, and buy one! (30% off is standard). I do online surveys during lunch, or on my laptop when waiting for the kids somewhere, and every year get $15 borders bucks (plus the Wall Street Journal, Food and Wine Mag, etc.). It is effortless. E-rewards.

    OK, this was a DVD, but here’s the idea. Used a 40% off Borders coupon, plus my rewards membership jacked that up to 47%, plus my 15 in Border’s bucks- and got the complete Black Adder DVD Box Set for $35 instead of 80 bucks, just yesterday. It is hubby’s Christmas present- I will just save it till then!

    But I have a cunning plan…

    Buy used! I just got “Urban Tales” game- old but unused, for 2 bucks recently. Thrift stores are great for games- just check thoroughly.

    We also got the anniversary (completely gorgeous) cast iron figure edition of RISK a few years back at Goodwill for 10 bucks. Only one piece was missing- the rest still in plastic bags-pristine. I think the donator must have kept one figure as a token.

    Thrift stores are your best bet. Or post on Freecycle for games- people give them away when tired of them, or when their kids leave.

  22. kristine says:

    Q8: The med insurance ceiling for adult kids living at home may have, or might, go up to 29, as part of the recent health care reform. Not sure, but it’s definitely worth checking out.

  23. kristine says:

    Maureen- I love the snow idea! I am going to to do that tomorrow.

  24. Michelle says:

    The reason to buy a used cell phone on eBay is to avoid a contract. That’s how I have an iPhone without a data plan on a pre-paid SIM card. I have had some pretty bad experiences with cell phone contracts, so I choose to go pre-paid, and I spend a lot less, and avoid the hassles. If you don’t have any issues with a contract, then there is no good reason to buy a used one. You can get a new one subsidized by your carrier for much cheaper.

  25. jim says:

    The link I posted is stuck in moderation limbo. You can find it by searching Google for : “Does turning down the thermostat at night save energy straightdope”

    Another detail on the topic, I’ve seen it stated that turning down the temp with a programmable thermostat doesn’t work as well or can be inefficient if you have a heatpump.

  26. Courtney20 says:

    @ Kristine – it’s 26. The health insurance reform just removed the qualifiers. You used to only be able to stay on your parents’ plan while you were unmarried and in school, now it’s just an age cutoff without any other qualifiers.

  27. SLCCOM says:

    #8, DON’T GO TO MEDICAL SCHOOL!!! It is an economically disastrous decision. There are no scholarships, and tuition is crazy expensive.

    “Answer: According to the Association of American Medical Colleges, the median tuition in 2010-2011 was $28,685 at a public institution and $46,899 at a private institution. Note that tuition does not include books, lab fees, etc. In 2010-2011 the median total cost of attendance was $49,298 and $66,984 for public and private universities, respectively.

    In 2010, the median debt at graduation was $150,000 at public institutions, $180,000 at private, and $160,000 combined.”

    Note: the expenses do not include living expenses.

    How much will you earn when you graduate? Probably about $60,000. You’ll be in a residency anywhere from 3 to 10 years, depending on what you select for a specialty. You’ll be working 80 to 100 hours a week, and the divorce rate for medical school graduates is high.

    “Divorce

    Divorce rates among physicians have been reported to be 10% to 20% higher than those in the general population.[20] Furthermore, those couples that include a physician who remain married reported marriages that are more unhappy. Much has been written about the “medical marriage,” and some problems have been reported as widespread among physicians’ marriages. For many years in pre-med college, medical school, and residency, physicians focus on getting through the next hurdle. They may postpone the pleasures of life that others enjoy. It has been hypothesized that this psychology of postponement may be related to compulsive traits. In particular, the compulsive personality traits that are widely heralded as being key ingredients in professional success may have the unwanted consequence of leading to more distant relationships. Many physicians place work above all else, and it has been speculated that this may serve the purpose for them of helping to avoid intimacy, thus placing strain on intimate relationships.[21] ”

    The chances of your making enough money to pay off your loans are small. We are headed towards pushing physicians’ salaries and payments lower and lower and lower.

    If you want a happy life, take the good job offer. If you make a wad of cash and decide later to blow it on medical school, do so then. Medical schools are admitting older students, and as we get a larger shortage of physicians, there may actually be some financial support available for the education costs.

  28. AnnJo says:

    Harold, I might have been more diplomatic than Kevin was, but I have to agree with him that the purchase of the timeshare, leaving you with debt of 38T at 13%, was probably not the wisest move, especially when your emergency fund is currently so low.

    However, on the assumption that you can’t easily get out of it (which would be the first choice if you can), the next best thing is to get out from under that awful interest rate. You don’t have the cash to spare because your emergency fund is so low, but here’s an option: Borrow from your 401(k). Most such loans are at rates between 5-8%, the term is typically no more than five years, and you are paying the interest to yourself. At 8%, you’d save almost $1,900 in interest the first year. At 5%, you’d save $3,000. All of which, of course, should be applied to paying off the 401(k) loan ASAP.

    RISK: If you lose your job, the entire loan must be repaid at once or will be considered a premature distribution subject to the 10% excise tax in addition to ordinary income taxes.

    The other thought I have is that some of your goals seem a little vague and there’s no mention of a retirement goal. Without specific goals in place, it’s hard to realize when you’re falling short and it’s very hard to recognize when major spending is subverting your goals.

  29. Jamie says:

    I love Wits and Wagers, but I also have not bought it because of the price. One of my cousins however, bought it from another cousin for like $5 b/c he just wasn’t playing it anymore. You may want to ask around to friends or family who may have just grown tired of their games if they would be willing to part with them for a good price. I know I mentioned once when my wife and I first got married we were short on board games. The next 3 Christmas’ I got over loaded with board games. I have several I would now be willing to part with if someone were to ask me.

  30. Evita says:

    It is too bad that you feel the need to put down Valentine’s Day Trent… it is a great day for so many.

    Valentine’s Day is the only time hubby and I celebrate our couple without any kids, extended family or aging parents so it is precious to us.

    Hubby loves the ostentatious Belgian chocolates that I buy him at a secret store.

    and I love the ostentatious lemon meringue pie that he bakes from scratch just for me.

    Of course, we send each other totally corny and ostentatious electronic Valentine cards too….

  31. Tom says:

    “If they attempt to claim the deduction, either their attorney or their software should catch it. If they go ahead and push it through, the IRS might then catch it, too. ”

    Turbotax won’t catch it. It doesn’t ask for a federal ID or account number or anything of that nature. One would hope that eventually the IRS would catch it.

    Even if they are co-signers, I don’t think co-signers are entitled to the tax deduction of Student Loan Interest. They’re just liable for on time payment. Whether you want to reimburse your in-laws for money they thought they’d be getting back at tax time, well that’s your personal decision.

  32. Dana says:

    Regarding Q#4: Little Big Planet 2 offers *fantastic* bang for your buck in terms of repeat gameplay – it’s very new, so unlikely to be found used just yet, but you could probably rent it to try it out – it is $60 new. It starts out as mostly a platformer, but the gameplay evolves over the course of the levels, and then, since users can create community levels, there are literally thousands upon thousands of additional levels! These levels are all types of gameplay – shooters, recreations of classic arcade games, adventure platformers, racing games, etc. I was never much of a video game player, but my husband and I LOVE playing LBP together. We’ll be playing this title for years to come, I am quite certain.

  33. Mary says:

    Thanks #19Jim (and #7 Valleycat for the question). I’ve been having a ridiculously hard time getting facts other than “but its common sense” to convince my building that it isn’t necessary to keep all condos at 78-80 around the clock.

    I suggested a setback thermostat and was told, “Oh, we tried that and its more expensive. So we just keep it around the clock.” There’s no reasoning with the board, so I really need some data! The post you suggested (with references!!!) is perfect. I’m hoping to argue them down to a toasty 74, maybe even 70 overnight.
    **And before people yell at me, I have no control over this. I think it is entirely inappropriate to keep a building at 80, but I’m in the minority and have no access to the thermostat.

  34. Todd says:

    It’s nice, on Valentine’s Day no less, that so many people are thiking about and wanting to help their parents. I want to do lots of things. However, it’s important to realize that many of us simply are in no shape to give money to those who aren’t in good financial shape. I also think that people should not be guilted into thinking they owe their parents money. I would help my parents with any extra money I had, after my own children are taken care of, but it would be a gift not an obligation.

    “But they raised you,” some would say, and I understand that. But we are repaying our parents by raising our own children. Our parents already had parents who raised them. They shouldn’t need to be raised/supported twice.

    Please don’t take this as an anti-parents rant. I just think we should give money to financially-unfit parents out of kindness, not out of guilt or obligation. As Trent says, that will just bring resentment and often outright hostility.

  35. LeahGG says:

    #33 @Mary, 78-80?! That’s awful. When my dad was in the army, we were allowed to cool down to 78 in the summer and heat up to 68 in the winter.

    The army guidelines were a bit harsh, in my opinion. Now that we pay our own bills, my husband and I heat up to 71 and cool down to 75. Considering that I’d cool down to 73 if money/energy weren’t a concern, I think it would be crazy to heat much higher than that.

  36. Amanda says:

    Question 5: You have until 4/18/2011 to make an IRA contribution for 2010.

    Trent, don’t give legal or tax advice unless you’ve verified it!

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