Reader Mailbag: Winter Blues

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. Helping a rock bottom friend
2. Moving around the world
3. Easing a tax burden
4. Financial wedding propriety
5. Small claims court question
6. Deeply worried about parents’ future
7. Credit report issues
8. Goals regardless of money
9. Haircuts
10. First time home buyer tips

The end of January and the month of February are usually a time filled with longing for me. I’m looking so forward to the start of spring that I can almost smell the new plant growth, hear the twitter of the birds, feel the warm sunlight on my skin, and taste the asparagus and mushrooms that I harvest.

It’s also during this period that I tend to get very productive and write a lot of posts in advance, so that I can take days off in the spring to hunt for mushrooms in the woods and plant the garden, as well as days off in the summer to enjoy time with my family.

Q1: Helping a rock bottom friend
My long time best friend, Jim, has been struggling with some repeating problems which he can’t seem to break out from. Jim regularly gets himself into heavy credit card debt and is often bailed out by his parents. His parents have not been the greatest example in this regard as they too have debt problems and have already declared bankruptcy. Jim seems to spend money in order to distract himself from other problems, and often spends student loan money as soon as it is released from the University he attends.

The second problem is school related. His mind seems set on becoming a doctor although he is struggling to keep up in school. He has already had to retake several of the required classes and continues to struggle with procrastination. His Professors are always willing to give him extra leeway and extensions on assignments. He talks about how he dreams of graduate school, but I don’t see the actions required of him to get there, and I worry about how he will be able to handle the next level when he is struggling to get past basic courses now.

Jim is my best friend, I don’t want to tell him he may need to explore other options because I’m the one he leans on for support and encouragement towards his goals. I’ve tried pointing him to resources such as this blog trying to get him to realize that he needs to snap out of this rut. I am so worried for his future if he’s not able to turn this around soon, but don’t know what to say or how to help him.
- Wes

The problem with situations like this one is that if you approach him with this, you’ve got some chance of triggering resentment and damaging the friendship. On the other hand, if you don’t tell him, you’ll sequester this feeling inside of you, and that won’t have a good result, either.

The best approach in situations like this is to simply pat the person on the back and tell them sincerely that you’re worried about them. Ask them if there’s anything you can do to help them make it to where they want to go. If they say no, back off.

This, at the very least, makes it clear that you care, and you can have a clear conscience that you gave it a shot. It also might just open the floodgates.

Q2: Moving around the world
My family and I live in Melbourne, Australia. There is my husband and I both aged in our 30′s, a son aged 4 and a daughter aged 2.

My husband has been on work trips to the USA a few times now; visiting San Diego, San Francisco and Austin. Since his last trip, he has decided we should move to the US, so he can take the next step in his career. While I would love the opportunity to move overseas, I am not sure this is a great idea. My husband likes to be challenged at work and becomes bored if there is not enough to keep him mentally stimulated.

We have no debt other than our mortgage. We owe $195K (all figures in AUD, and at the moment is almost on par with USD) and the house is worth about $290K – $300K. We would have to sell our house in order to afford the cost of immigrating. We also have $27K in a savings account, which is our emergency fund. I am the one who does the accounts, my husband is a spender in a BIG way. He was in debt when we got together (more than $10K) and he has also since then racked up his credit card to $3K, which I had to use most of our savings at the time to pay off. He likes his disposable income and does not really want to give it up…

He is currently on a good wage, approx $100K per annum plus 9% superannuation. If we were to move, the equivalent wage would be $70K – $90K USD, possibly up to $115K if we chose a major capital city (which we do not want to do). I am currently a SAHM, and I was not planning on going back to full time work until our little girl was in Primary (Elementary) School. I do have Business/Accounting qualifications which would help me I also think that we would nit be able to afford to buy the land we want and be able to
find a job if we did move.

We had planned on staying in our current house for another 3-5 years so we could continue to save and eventually have enough to buy a small acreage where we could have our own orchard, veggie patch, chickens etc and be more self sufficient.

My reservations on moving are that we would only be moving because we don’t like the current town we live in (there is not a lot to do here for teenagers and they are often destructive; smashing windows, burning the play equipment – all in all not a place we want our own children to grow up) and because my husband is bored at work (this is his third job in the 10 years we have been together, and this is his second position within his current company). I do not think moving half way around the world for these reasons are good ones. I also don’t think the amount of money we could get together is enough when moving so far away. I think a move like this would wipe out our dream of finally buying land and working it.

Am I being too negative? My husband believes it will all work out, but I am not comfortable with just going blindly forward not knowing as much as I can. We would only know one couple (if we moved to the same town as them), otherwise we would be completely on our own. We would not have a company helping us to move, we would have to pay for it all ourselves.

We have just found out that we have been accepted for the second round of the Green Card Lottery. This is $440 per person ($1760 for the four of us) to continue with the application. I don’t think we should take it any further, but my husband says we should spend the money to see if we can at least get in. It seems like a lot of money to spend when I don’t think I even want us to go.

So, do you think financially, we have enough to make such a major move? Should we spend the money on the green card application (knowing that if we do get it, it is only valid for us to enter the US in the year 2012, otherwise we have to re-apply)?
- Ellen

Financially, I think you’re reasonably ready to make the move. It’s not the finances of the move that worry me at all.

What worries me are statements like “He likes his disposable income and does not really want to give it up…” and “My husband likes to be challenged at work and becomes bored if there is not enough to keep him mentally stimulated.” Those two things are a mix that would make me nervous about making radical life moves. A person who becomes bored when the environment isn’t right at work doesn’t mix well with a person who “must” have disposable income. That’s a recipe for disaster down the road.

Basically, his spending habits demand a high-paying job, yet he gets bored at work (and thus his performance slips – anyone who is bored in the workplace isn’t performing up to their ability). In this economy, the latter signals job risks and the former signals huge financial problems in the event of a job loss.

I would be nervous about making this move. If I did do it, I would insist on having a very healthy emergency fund that doesn’t get touched to pay for the move.

Q3: Easing a tax burden
I’m 26 years old, work in advertising sales, and in 2011 will make anywhere from $320K – $360K (my overall compensation includes base, commission, and equity [my company was recently acquired]). I have roughly $120K in a savings account, and another $110K in a 401K and Rollover IRA. I own an investment property in Southern California and am going to buy a place to live in in my current city (top 2 most expensive in the US sadly).

Here’s where it gets tricky. I have a 2 year old son from a previous relationship (his mom and I were never married). I pay roughly $1300 a month in child support unofficially, but since we never married, have not received any tax breaks for having a kid.

Being in this bracket is daunting, and I’m looking at paying over $100K in taxes if I don’t improve my tax diversification strategy. I will max out my 401K this year and will most likely buy a home so that should help. I am also planning on putting at least $5K in my son’s 529. What else can I do, all things considered, to help ease the tax burden?
- Alvin

For starters, unless you are buying a very expensive home and putting most of the cost of it on a mortgage, buying a home won’t help much with the tax issue. To have a mortgage big enough to really provide tax assistance is a significant financial risk in itself.

Your best bet, honestly, is to start a business and sink a lot of that money into the business. This is the reason people often become silent partners in businesses – the business is a tax sink for them in the short term and ends up returning a lot to them further on down the road.

What that business is is up to you. I have a friend who owns a significant interest in a comic book shop and the only operations he’s involved with is that he occasionally goes in there and browses through the wares just as a nostalgia thing.

Q4: Financial wedding propriety
I recently accepted the invitation to be the Maid of Honor at a close friend’s wedding, which will take place in about a year. I am very excited about this, but on the financial side I am also very nervous. The wedding takes place in England (I live in California), so I know that I will already be spending a chunk of money on the plane ticket and lodging, which is ok because I have a Travel Account that I put money into monthly. I’m more concerned about the other expenses– My frugality matches my mediocre paycheck, so I live well within my means, so the idea of spending money on my bridesmaid dress, the Bachelorette Party, gifts to the bride and groom, and all the other unexpected expenses are not only outside of my budget but outside my personality!

My friend, the bride, makes significantly more that I do, and knows that I am on a tight budget. How should I approach the financial issue here? Would it be appropriate to ask her to pay for my dress, at least?
- Janine

I’d sit down with the bride and talk to her about what she wants or expects from the wedding. Ask her what you can do to make it great, with the obvious understanding that you don’t earn a lot of money.

In your situation, I’d make it clear that you’re willing to give your time above and beyond what might be expected but that financial concerns might be difficult.

I would actually be much more concerned about the cost of the lodging than the cost of the dress, as a dress can be resould to recoup some of the money. If the wedding is in England, isn’t there someone you can stay with? I would approach savings from this angle. This way, if there is a housing opportunity for you, go over there a few days early and spend all of that extra time doing what you can to make the wedding go off perfectly. That’s the best gift you could give them.

Q5: Small claims court question
Like many others, I constantly find myself in situations where I feel that I have wrongfully lost money– A dentist recently overcharged me for dental treatment ($800 over the agreed upon amount!) and refused to refund the money. A few months ago an auto parts company sold me a $500 part that turned out to be broken, and would not refund the money or exchange the part. A car rental company overcharged me by $450, and– you guessed it– refused to refund the money.

In cases like these, I’ve always written a letter to the company and filed a complaint with Better Business Bureau, but have rarely gained satisfactory results. And although I have avoided court (because I hate the reputation that Americans sue anyone who annoys them), I’ve decided that I can’t afford these kinds of mistakes and have decided to take matters to Small Claims Court.

My question is about your ethical stance on suing companies or individuals that you feel have wrongfully taken your money. At what point do you think it’s legitimate and/or ethical to sue?
- Jamie

It depends on the agreement between the buyer and the seller. Was there a written agreement between you and the dentist? Was there a written agreement between you and the rental agency? Was there a warranty on the car part, and did you have a dated receipt for the item?

If you have these things, then you are likely entitled to some compensation. If you do not, then, frankly, you didn’t protect yourself as a consumer.

If you have clear proof that a company violated a written agreement with you, then you’re justified in suing. Most lawsuits are missing one element or another of that statement, though – no clear proof or no written agreement.

Q6: Deeply worried about parents’ future
My problem is that when I look down the road at my parents’ financial situation, it is enough to cause an anxiety attack. In their mid-50s, they have over $100K in consumer debt. They make more than that annually, and their mortgage payment is less than $500 per month. Their cars are paid off, although barely running. They do have significant retirement savings and adequate life insurance, but I cannot imagine their spending habits changing. I believe that they could change their situation with drastic changes, but even after a series of wake up calls they haven’t done so, which means it probably will not happen. Several years in a row they have had to borrow money to pay their tax bill from my grandparents, who never made even 1/4 of what they make in a year, and whose financial independence was and is hard-won through frugality. I myself gave them some money when I was in college at a time when they needed a cash infusion.

My husband and I are very responsible with our money, but our income is around 1/3 of my parents’. At no point do I intend to bail them out. Their choices are theirs, and they need to be accountable for them, not to mention that we simply cannot afford to help them while pursuing our own goals of retirement savings, paying off my student loans, 529 contributions for our two children, etc. At the same time, I know that the day will come when they will not be able to borrow from my grandparents anymore and will seek us out as lenders. (My siblings are in even less of a position to help them than I am.) This, coupled with worries about what would happen if they encountered a genuine emergency or had a devastating illness haunts me. Efforts to have honest conversations about these issues with them are usually cut off before anything meaningful can be said. I love them, and I know I will have a hard time watching them struggle, which they eventually will be doing unless they themselves make changes. Do you have any thoughts about how to make this situation easier? As an aside, I owe them a lot in that they provided an extremely loving home and all my necessities growing up, but they did not help me pay for college or with a down payment, so I don’t think I will feel guilt about owing them anything when it comes to that.
- Katie

As I’ve said before in such situations, it comes down to the relationship between parent and child and the long-term expectations of that relationship. There is no cut-and-dried answer to how a child should handle the December of their parents’ years.

If this is how you feel, you need to be prepared to simply say to them that you do not have the money to give to them when they come calling. Make that statement and stick to it.

The only reason guilt comes into the picture here is because you’ve not adequately resolved the situation in your own mind. You’re still unsure, and no answer I can give can make you sure. Keep searching and figure out what you consider to be the best route.

Q7: Credit report issues
When I was in college, my mother issued me a credit card on one of her accounts to use in case of emergency. I rarely needed the card, and put no debt on it that I did not immediately repay to my mother. However, a few years later, my parents hit a very bumpy financial road. My mother lost her job, and my father had to downgrade to a lower salary. Their credit cards were mostly closed, including this account. However, there is now a very high balance on the card (around $15,000), as well as several months of non-payment, with non-payment still continuing today. Despite many calls to the credit card company, this card, debt, and problem continues to show up on one of my three credit reports (the other two agencies removed it after my mother made the request). I am now 25, married, with children, and the stain on my credit report continues to be a problem. Almost all our finances have to go in my husband’s name, without even me as a co-applicant, because our interest rates increase with my bad credit report. My parents are very close to filing bankruptcy, so I know that they cannot afford to pay off this debt right now. I’m worried that this will continue to have a negative impact on my financial future, and am trying to decide what to do about this. My husband and I are financially capable of paying off the card ourselves, but I worry that we will never see that money back, and I’m not sure that it’s worth $14,000 to clean up my credit report (or that my husband would be very happy about it). What do you think I should do?

- Mary

You need to continually harass that final reporting agency until the situation gets resolved. There’s really no other route that you have to follow at this point if the account is closed.

You can request that the holder of the closed account remove your name, but they have absolutely no reason to do so and it would make their own position worse to do so, so they’re very unlikely to make such a change.

Another option would be attempting to settle the debt by contacting them and discussing a smaller lump sum payment to make the debt go away.

If you cannot get your name removed and no one can afford to pay off the debt all at once (or settle it), the best thing that could happen with regards to your credit is that your parents never pay off this debt. Any payment to that account makes the debt current again, which means that the seven year “clock” that measures how long the debt will sit on your credit report restarts. From your perspective, your parents making a small payment on the account doesn’t help at all.

Q8: Goals regardless of money
What would be your primary goals if money were not an issue? If you had enough money in the bank to take care of your family for a long time, what would you do with your time?

- Erin

I would still write, but it wouldn’t be as focused and as often. I’d probably become a contributing writer on another blog or slow down the rate of The Simple Dollar, or I might start another lower-intensity site entirely.

I’d probably commit to some heavy level of volunteer work on a local basis. I’m not sure entirely what that would be since I’ve never actively considered such a situation. A degree in social work might help, considering I would be doing these things on a volunteer basis.

I’d fill my other hours with making sure my kids were in school and that they had a parent at home with them if they were ill or had other needs.

Q9: Haircuts
How often do you get your hair cut and why? I’m trying to find the right balance between appearances and frugality.

- Kevin

I cut my hair roughly every three months. I usually cut it very, very short, then just let it grow out evenly until it begins to itch the back of my neck, then I cut it again.

If I know I have something major coming up (like a wedding or something like that), I’ll pay someone to cut it prior to the event. Otherwise, I just use clippers and trim the whole thing down pretty evenly myself. It’s actually fairly simple to do with a mirror and a sink in front of you.

Of course, I do have the added advantage of working from home, which means I don’t need to keep up a perfectly coiffed salesman’s appearance.

Q10: First time home buyer tips
I have a question for you: If you could advise in regards to home buying, what should a first-time buyer know before buying a home? (Please tell me your must-know tips or books you recommend) I know you’ve done posts on this topic before, but with this economy, maybe your thoughts/ideas have changed.

- Adrianna

I could actually write a book on this topic, as the list of things that are worth knowing can go on and on.

I’ll simply state that I asked this very question of a lot of people and that I read a lot of books during the months leading up to our own home purchase and that, believe it or not, the best all-around helpful book for answering our questions was Home Buying for Dummies by Eric Tyson, supplemented by some of the recommended additional reading from that book.

It answered, in simple terms, pretty much every question we had, and in the areas where we wanted to know more, the book made it clear where to go. That’s pretty much all you can ask for a general topic like this.

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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51 thoughts on “Reader Mailbag: Winter Blues

  1. valleycat1 says:

    Q7/Mary – You can at a minimum file a written dispute and attach a letter of explanation to your credit report with this company, explaining the situation as you did here. Then, even if they continue to refuse to remove it (after all, the report is technically accurate since you were responsible for the card, as a registered user), anyone checking your credit ratings would also see the explanation/dispute. I recently checked my report with one credit company & they plainly state that they will not remove accurate information until it ages off the report.

  2. valleycat1 says:

    Q10 – in a nutshell: The purchase cost is more than just the price you decide you can afford; lowball the purchase price when you tell an agent what you’re looking for, because they’ll show you homes at that level and higher; be very firm with yourself about the most you’re able to pay (& if possible get preapproved for a loan in that amount); be prepared for routine maintenance and unexpected repair expenses in addition to the monthly mortgage payment – in addition to a lot of added fees at closing. My grandfather was in banking & he advised everyone he knew to buy a house you can comfortable afford on one income, not at the high end of what you think you can afford. Don’t buy the nicest house in the neighborhood (surrounding lower-priced houses will deflate its value). Get a fixed rate loan, never a principal-only home, and one you can afford on one mortgage. Be willing to buy a ‘starter home’ and move up in future years – most people probably can’t really afford the dream house as a first-time buyer. If you can’t actually pay cash for the house, at least have 20% or more as a downpayment.

  3. Johanna says:

    Q3, Alvin: If your letter is even real (a 26-year-old making $360K?) how about this: Pay the taxes you owe and stop whining about it. Or take a lower-paying job. That’ll lower your tax burden for sure.

    If you want real advice, you’re probably better off getting it from a tax attorney rather than from a bunch of random schmoes on the internet.

  4. Tracy says:

    @3
    I agree with Johanna.

    Also, why not formalize the child support agreement for your 2 year old?

  5. Johanna says:

    Q2, Ellen: It sounds like you are not really clear on your husband’s reasons for wanting to move. First you say it’s so he can take the next step in his career. Next it’s because the teenagers in your town get bored and break things (guess what – there are teenagers like that in the US too). Then it’s because your husband is bored in the job he has now.

    It seems to me like you and your husband need to do a better job of communicating about this. Maybe you could sit down with him and make lists of the pros and cons of moving versus staying – that might help each of you understand where the other is coming from.

  6. moom says:

    Q3 Doesn’t make sense to get involved in a business to save taxes. This seems to be assuming that the business makes losses or something. You should see an accountant who deals with tax for tips on how to structure things to minimize tax.

  7. Vanesa says:

    For the Australian Reader (Q2): The US Diversity Visa Lottery is FREE. The State Dept. charges no fee for it. There is also no first or second round – only one drawing. I know this because that’s how I immigrated to the US years ago. The people you are dealing with are SCAMMERS. There are many such organizations that claim they can (for a fee) guarantee you a visa etc. None of it is true. Check out this official document from the US Dept. of State website: http://travel.state.gov/pdf/1318-DV2012Instructions-ENGL.pdf. On page 6 it clearly says that there is no fee for the visa. I am so sorry that your family was scammed like this.

  8. valleycat1 says:

    Q2/Ellen – If you’re trying to keep the same standard of living with a move to the states, Austin is much more affordable living than anywhere in California. And, if you don’t like the town where you’re currently living, why not move elsewhere in Australia instead of repatriating?

  9. Sara A. says:

    Q5: If you had a written agreement and you paid by credit card, you can contact the credit card oompany and ask them to issue a chargeback. Now if you don’t have a written agreement and you issue a chargeback, you could still be on the hook with the company and they could send your debt to collections.

    Also, with the dentist, there might be some kind of regulatory board you could contact. Might be a dead end, but it is still an avenue to explore.

  10. Patti says:

    Q3: The reason people in higher tax brackets start businesses is you can deduct what you spend on your business, such as a computer, copier etc. However, I would not recommend starting a business or getting involved in a business just to reduce your tax liability. The savings is not that great and even a business where you are a “silent partner” requires oversight.

    My husband and I are also in a high bracket. We have a small business as well as an investment business and, still, we pay high taxes. We get a deduction for our child and for our mortgage interest. Still, we pay a lot. It’s frustrating, because I don’t like how my state and federal government spends my money, but I don’t dispute having to contribute more because I have more.

    My advice is to get comfortable with how much you have to contribute and adjust your lifestyle accordingly. When you see famous people like Toni Braxton or Nicolas Cage declaring bankruptcy multiple times and losing homes to foreclosure, I suspect it’s because they assume they can spend with reckless abandon because they have a high income.

    An attorney can help you work out an arrangement to provide for your son, and a good CPA can help you get the deductions you are legally entitled to. A 529 does not help you tax-wise in the present, but you get a tax benefit over time as the investment grows. You might also look into something called deferred compensation if your employer offers it.

  11. Ryan says:

    Agree with Johanna on Q3.

    I don’t see how taxes are a burden when you can easily afford them.

    If I was making a quarter of a million dollars at 26, the last thing on my mind would be taxes.

  12. Jane says:

    “Like many others, I constantly find myself in situations where I feel that I have wrongfully lost money–”

    Honestly, I don’t think this is that common. I have lots of friends with whom I discuss finances, and these types of extreme overcharges happen rarely. Either Jamie has the worst luck in the world, or there’s more to this story.

    Re the 27 yr old with the high salary. Is the mother of your child happy with that amount of child support? Based on your salary, that is really a low amount.

    Maybe I’m just in a bad mood today, but am I the only one who finds what Katie’s parents are doing to her outrageous? How dare they ask you for money when they make so much more! You shouldn’t feel an ounce of guilt for saying no in the future. Compassion certainly and sadness for their self-inflicted predicament, but absolutely no guilt.

  13. Julia says:

    Q7: Are you an authorized user or a joint owner on the card? There is a difference and it affects how easily you can remove the card from your credit report. If you are an authorized user (which should show as an “A” on the report), you or your parents should be able to call the company and have your name removed from the card and it will stop reporting. Authorized users are not responsible for paying the bill. If you are joint, then you are responsible for the debt and either need to pay it or allow it to go to collections and continue to negatively affect your credit. The first step is to know exactly how the card was issued to you and what your responsibility is for the debt.

  14. Kevin Wilson says:

    Q2: The Australian family should also look very carefully at healthcare costs in the US vs Australia. If you live in a country with civilised healthcare arrangements, you may not even think to consider how much of a burden the US system will be.

  15. Pat S. says:

    Question 10: Absolutely accurate that there are so many different factors in this decision. I believe that too many people rush into the purchase of a home because they don’t want to rent anymore. But in a lot of cases, renting is truly the better financial decision. We all love to build equity, but as a homebuyer, you need to make sure you are making the right decision, and are financially and emotionally prepared.
    Pat
    http://compoundingreturns.blogspot.com

  16. Adam P says:

    Wow..a haircut once every three months? I need to go every 3-4 weeks or I look like some sort of Yeti. I thought only women had the luxury of going months between haircuts.

  17. Charles says:

    OMG, a haircut every 3 months! But I guess with kids, that’s understandable… Do your kids even recognize you in between hair cuts? =)

  18. Carmen says:

    Q10 – I haven’t read this book, but the one thing I have learned as a homeowner is that you have to budget a reasonable amount for home maintenance. If you have not been a homeowner before, this will be a new expense for you and will vary a lot based on the size and age of your hoke and the land. When looking at how much you can afford on a monthly basis, include that home maintenance cost!

  19. kjc says:

    “The end of January and the month of February are usually a time filled with longing for me.”

    Well, let’s hope this applies to Sarah alone. ;-)

    Perhaps, “For me, the end of January…” would have better expressed what you were trying to convey.

  20. Amanda says:

    Q3: Appropriate response would have been go see a CPA, not sink money in a random business.

    Q4: It’s highly unlikely the dress could be sold for much, if anything. (Spoken from experience!)

  21. Wes says:

    Q4:

    If you’re in the wedding, you generally aren’t expected to provide a gift to the bride and groom. All of the other expenses you’ll have to put up for being a brides maid are your “gift” to them. Now, you still may want to give a gift, but the etiquette of weddings does not demand this gesture of you as it does for other guests.

    I know that’s just one of the millions of things that will cost you money in this situation, but at least it’s one less thing to buy.

  22. Amanda says:

    Q5: Did you pay with a credit card? If so, contact the credit card company to see if they can give any assistance related to disputed amounts.

  23. kristine says:

    According to Emily Post, the marring couple should provide lodging for an out of town bridal party member. But these days it seems to have gone by the wayside in favor of the couple spending more on the party, and in some cases, vulgar self-centered aggrandizement.

    Why does a bachelorette party have to cost a fortune? Get some racy chick flicks, some margarita mix, some disco CDs, rent a hotel room, have a huge feast of pre-made hors douvres you birng, and behave like silly teenagers! Even better if the hotel has a pool!

  24. jim says:

    Q2 Ellen, I would not move to the US unless you have a good job lined up ahead of time. Unemployment is nearly 10% here and jobs are not easy to find. If your husband can line up a good job then you might consider it. But for the reasons you cite crime & bored at work, it sounds like you should make a smaller move locally at Australia. Crime is not low in the USA so avoiding hooligan teenagers is not a good reason to move here. Our murder rate is 3-4 times yours.

    Q3: Alvin, Like others have said: You should talk to a CPA or other tax professional. If you don’t have one already go find a good one and then get a consultation on your tax situation.
    Also, its not clear if your $300k plus salary is mostly a one time only deal due to a large payoff from the sale of the company or if this is going to be your normal salary level. If its a one time only large pay out then that is different then steady year to year income. Talk to a tax professional.

    Losing money in a business doesn’t seem like a very smart way to avoid taxes. I’m not sure what Trents logic is there but it seems like we got a fraction of an explanation.

  25. jim says:

    Q3 : Alvin said: “I own an investment property in Southern California”

    Is that a rental? Are you depreciating it? Again… talk to a CPA. Rentals have some tax benefits.

  26. Tom says:

    Q2: The “green card lottery” (also known as the Diversity Visa Program) is a US Department of State program, and it is absolutely FREE to apply to this program. Anyone who is asking you to pay any amount to enter the “green card lottery” is a SCAMMER. Just search for “diversity visa program” for more information.

  27. Anuj Joshi says:

    Q9:I have a similar hair cutting schedule, once in 3 months or may be more(Don’t believe? check the picture).Not because of frugality (Hair cut here in India is around 1$).In my case it is laziness and I am also working from home and living with my own rules :)Does working from home make a person laid back over time ?

  28. Steve says:

    @Q3 you don’t have to have been married to someone to have a formal, legally binding child support arrangement. In fact should the mother of your child decide to take you to court, one would be created whether you want it to or not. You could also see if you could pay for tax deductible expenses on behalf of your child, rather than just giving money to his/her mother.

    Anyways with so much money at stake, you really need to pony up the few hundred bucks to talk to a CPA.

  29. marie says:

    Q4

    I was a bridesmaid to my best friend last spring and I know from experience how everything can get so expensive and how the minute friends start talking money everybody goes crazy.

    The thing with being a bridesmaid is kind of like the part at the wedding where they say “speak now or hold your peace forever”. When your friend asks you to be in her wedding, you have to ask her right then and there what kind of wedding it’ll be, how far to travel, and approximately what she expects you to pay. Then you have to make a decision and once you are in, you are in, and you will need to suck it up.

    I know that seems totally non-nonsensical, but brides are very emotional and “crazy” when the wedding plans start happening, and there is really no way (unless your friend is extremely understanding), to make any kind of comments or requests without seeming like ‘the party poopper’ or the ‘bridesmaid that’s trying to ruin everything’.

    So from what I have learned, it is expected of you to go with the flow, to pay for whatever expensive bachelorette party, ugly dress, or 1-inch thick make up that the bride wants you to pay for. As for accomodation, rides, etc., you can always try to split a room with the other bridesmaid or stuff like that, but unless offered by the bride’s family, do not expect to be lodged and fed.

    As for gift-giving, unfortunately, unless again specifically instructed by the bride that she doesn’t want you to give her a gift and that spending a ton of your money and growing out your hair for months on end is enough for her, you are expected to give a gift at the shower and wedding.

    The thing is too, if you talk to her now and tell her that its too much/too expensive, odds are she will see it as some personal attack and you will wind up on her hate list and probably won’t even be invited to the wedding.

    Where you can save money:
    -unless the bride insists everybody goes to the salon the day of, do your own hair and make up.
    -wear a pair of shoes you already have
    -by all means, try and sell the dress, but if you get $50 for that $400+ gown you will be lucky.
    -share a hotel room when you are there and avoid going out to eat (get some groceries instead)
    -give smaller, more thoughtful gifts or get into a bigger gifts with a few friends.

    *Now I know that many people will say this is exaggerated, and that she shouldn’t have to do all this, spend all this money. I’m just saying things as I have witnessed them from past experiences. Personally, I’m going to elope and/or won’t have any bridesmaids because I don’t want to put my friends though all this*

  30. Des says:

    RE: Q3

    A high-income earner asking for tax advice from a PF blog is a bit like a polygamist asking for marriage advice from a relationship blog – it is so far removed from the experience of the average person that you are unlikely to get good information.

    My advice for the young and wealthy: don’t tell anyone what you make, live like a college student as long as you are able, cash is king, and you’ll never regret a large savings account.

    You make enough to warrant hiring a tax adviser, and the sooner the better.

  31. JJ says:

    Re Q3: You know what one good way to reduce your tax burden is? Charitable deductions.

    I’m sure there’s a non-profit near you that would love a five-figure (or more!) gift. And think of how good you’ll feel giving it…

  32. Looby says:

    @ Q2- Honestly I think the financial implications of such a move are the least of your concern. Moving halfway across the world is stressful, and challenging to relationships, both within the family unit moving and with other people left behind.
    As someone who moved such a distance 5 years ago for my partner’s work, I’d recommend that you both get on the same page fully, because as expensive as it is to move once, it’ll be a whole lot worse if all or some of you decide to come back after a short time.
    You really sound like you are not convinced by such a move so I’d suggest you try and find another way for you and your partner to be happy without an international move.
    Also as others have said, now is not really a good time to move halfway round the world without a great job opportunity lined up.
    We were lucky that our move worked out but I have seen other families struggle and many move back within six months. I suggest you find some good expat forums and talk to others who have made similar moves.

  33. SwingCheese says:

    @25 (Marie): Right on!! My bff and I got married within 3 mos. of each other, and both weddings fell into a time when my husband was a full time student (with a minimal part time job) and I was student teaching, with no outside job. I was in my friend’s wedding, and I had to pay for my dress and alterations. Luckily, she understood my financial situation and was kind enough to buy my shoes for me. Instead of staying at the hotel, we made arrangements to stay with another friend, I did my own hair and make-up, I went in with some others on a very expensive shower gift, and we gave them a nice bottle of wine as a wedding gift. As I said, though, I was dealing with a bride who was very understanding of where I was coming from. I’ve heard stories of brides who were not as kind.

  34. Stacy says:

    Some advice for the bridesmaid going to England – if the bride doesn’t pay for your lodging, you could always stay in a hostel in England (if you’re under thirty) for about $20 a day. It would probably be cheaper than sharing a hotel room, and depending on the hostel and the number of bridesmaids, you may still be able to get a room for yourself. A lot of hostels have single rooms for a little more if you don’t want to stay with strangers. I’d be more worried about the dress, shoes, party, etc. Either way, you should probably talk to the bride about what is expected – which would be a good idea even if you weren’t worried about money. Even though she already knows you aren’t rich, people tend to have different ideas about what is affordable. She may think that means a $300 dress, and you think $100. Also, since the wedding is in England, she may have someone else handling a lot of the stuff that is traditionally reserved for the Maid of Honor. Something similar happened at my friends wedding, because the Maid of Honor lived in a different city. At the very least, the wedding isn’t for a year so you have some time to save up for it.

    @moving to USA: I think this is a very bad idea. From your letter, your husband seems kind of impulsive. I personally don’t think 27K is a big enough emergency fund for immigrating, especially since you would HAVE to sell the house. I know from experience that houses don’t sell when you need them too all the time. Also, as Kevin said, healthcare cost in the US can be huge, especially in Texas where there is little if any government support. The Kaiser foundation found that in 2009 the average family spent $13,000 on health insurance alone. On top of that, you have the deductible, which on my boyfriends plan is $3000, meaning he has to spend 3000 before the insurance pays anything. And that’s if your husband is able to find a job, and we do have some pretty sever unemployment in the US. Also, our education system is ranked (at least at pre-university levels) well below the Australian system. Especially in Texas, which is ranked #32 in education in the US (and California is ranked #42). You could go for private school, but that’s even more expensive. And depending on where you live, you may have to purchase one or two vehicles, along with insurance for them. Not liking your neighborhood isn’t really a good reason to move to the US. And honestly, it sounds from your letter that you don’t want to expatriate anyway. You definitely need to talk it over with him.

  35. Rob says:

    Q2 — have you considered moving somewhere in Aus? There’s “nothing” for teenagers in Melbourne (a city of 4 million people) sounds ridiculous. But if your house is worth $300K – then I imagine it’s in a pretty bad area in the outer suburbs.

    You could look at Geelong/Ballarat/Bendigo.

    // For reference – the median house price in Melbourne is now $600,000. A $300K house is not going to be in a very good area.

  36. Sarah says:

    Question for the Reader Mailbag:

    My husband and I are in our mid-30′s and have four kids. We had a couple small financial bumps in our 20′s that made us smarten up and pay more attention to our finances. It was hardest for my husband since he really wants to be a musician but because we live in Japan (he is Japanese and I’m American) a full-time job means at least 60 hours a week leaving no time for his music which is awful since he is a fabulous musician. A few years ago we made the decision to quit his time-consuming job and found an awesome full-time job that allowed him to work from home three days a week and go to the office three days a week. That was great until the economic downturn and because of lay-offs at his company he had to start going to the office five days a week so we were back to no extra time for him. We have come to accept this as our reality, try to be thankful that at least he has a job that covers our expenses and are working on making ourselves more financialy stable so we could eventually both work part-time so he could focus on his music.

    Recently a young couple in their early 20′s came into our lives. They are both Japanese, the guy attends Berkley School of Music (paid for by “friends of family” loans) and the girl just got back from a YWAM missions trip to Taiwan, and they had planned on getting married this summer, move to Boston while he finished college and then move to LA to try and get a job in the music industry. Unfortunately her parents have taken back their support of the wedding and want them to wait until the guy has finished college, has a job and can support the two of them. When they came to us and asked for advice we were really conflicted. While we want to support their dreams we have hit that point in our lives where reality controls our decisions and when we look at where their decisions are taking them it seems unrealistic that they’ll actually make it. Part of us wants to tell them to quit Berkley, since he clearly can’t afford it, and rethink their future but another part of us thinks that maybe we’ve become too jaded by our reality and should just let them go for it whether they succeed or not.

    What do you think?

  37. Steve in W Ma says:

    Katie, maybe you need to have a real heart to heart with your parents. They are squandering their income and putting you in the position of feeling guilty because, in fact, you can’t afford to help a couple who make 100K per year but haven’t built any savings (if they have 100K in savings, subtract the 100K they owe in consumer debt and it comes out to zero.)

    There’s probably no reason they couldn’t live on LESS than you and your husband make, and save the rest, given that you two are managing to do it and save for the future at the same time.

    Truthfully, though, I doubt this situation is going to change.

    I do think you ought to be honest with them about your concerns. If I were you I would be feeling angry and scared about this situation.

  38. Steve in W Ma says:

    Why is is that some of the people who make the highest incomes seem so –dare I say it–self-entitled and greedy?

    Q3, you don’t have a tax problem. What you have is 250K in take home income after taxes.

    You are fortunate enough to gross more than 5 times the U.S. median income. What you take home in a year is half of what a lot of people in this country manage to save in their entire working lives.

    If you want to minimize your taxes legally (and who doesn’t) that’s one thing but characterizing a 100K tax bill that you can easily afford as a burden seems a bit bizarre to me.

    As for practical advice and tactics to maximize your net income, you need to talk to a tax accountant who deals with either wealthy or high-income clients.

    It’s not clear to me that Trent’s advice is correct about becoming a silent partner as a tax shelter. Business investments are made with after-tax moneys.

    In any case, in the long term a successful business will INCREASE your taxes along with your income. If you can manage to become a principal in an LLC or a Chapter C corporation, those have special characteristics that DO have the capability of deferring taxes to the future. Still, the investment is made with after-tax income so in essence I believe Trent’s statement is incorrect.

    If your investments do increase your taxes, that’s ok though. In that case YOU”LL BE ABLE TO AFFORD IT. Just like you can afford your current tax bill right now.

  39. Steve in W Ma says:

    Q3, this won’t lower your current taxes on your income, but may lower your eventual total taxes on your entire estate and investments over time:

    Look into establishing a trust with your after-tax assets, with you as the trustee and the current primary beneficiary. Make sure the trust is modifiable, once established, in the ways that are important to you

    The assets can grow within the trust as an entity and ,depending on the type of trust, you only need to take out what you need to spend in the year, which will be taxes as income to you.

    The trust itself pays taxes as well but, as I recall, at a lower marginal rate than you are currently paying. I’m guessing in the end (the years of your career) the total tax billon your investments will be far lower with this kind of setup, because you can shelter a lot more money per year in it than in your typical IRA setup.

    That being said, I’m not up to date about the specifics about various types of trusts and the tax and legal rules around them.

    Again, tax accountant and and CPA time for you.

  40. ChrisD says:

    100k tax for a 320k income is only 31% tax. That is nothing. In the UK anyone earning over ~40k is already on 40% and there is a 50% bracket somwhere above that.
    Re charitable donations, the website thelifeyoucansave.com suggests that poverty in the third world is SO appalling and so fixable that we should all pledge 5% of our income (that’s simplified I recommend checking out the website). According to them you could also give 24,600 US$, still bringing your ‘tax’ bill to way less than in any other developed country.

  41. Shannon says:

    Q10 – Check out first-time homebuyers programs in your city and county. For example, Fort Lauderdale was recently giving 0% down payment loans, up to $35,000, to first-time homebuyers based on income. If you stayed in your home for 15 years, you never had to pay back that loan. I think the payback was prorated if you sold or didn’t use it as your primary residence before Y15. Also, you had to use designated banks for your mortgage but there were plenty to choose from and the employees knew everything they needed to know for these programs. In addition, some states have closing cost assistance as well. This has probably chnaged since the Great Recession affected state, county and city programs. Make sure to find out the starting dates each year b/c money runs out fast. Good luck!

  42. getagrip says:

    Q1 The friend is not struggling with problems. He is making no effort to fix things since he is bailed out repeatedly. Sure he might complain, but like a heroin addict saying they wish they could stop using as they stick the needle in, he won’t stop because he doesn’t have to, he keeps getting his “fix” from his parents, his professors, etc. The best you can do is ask him a wake up question now and then. Like how’s he going to take care of his parents when they run out of money? Or how much he likes the idea of being in his 20′s with a 30 year mortgage payment equivalent in student loans? Maybe ask if he really needs more “of whatever he’s spending on the credit card” (don’t ask too often or you’re a nag). For studying mention that you found life less stressful when you get the work done during the day between classes or before dinner so your nights and most of your weekend are usually free. With luck he may come to realize that some of what he’s doing isn’t working for him and make a change on his own. It took me to my Junior year in college before I figured a lot of that out on my own.

    Q6 Your parents will do what they do. The only thing you can do is, tactfully, make it clear you have neither the means, the resources, or the desire to fund their lifestyle, and that if they demand you do provide such support, they’re stealing from their grandchildren. Sounds harsh, but so is guilt tapping you for thousands of dollars you both know they didn’t need to spend in the first place, they aren’t really planning paying back, and which you have to take out of hide. Make it clear now, before it’s a problem, and chances are they won’t come to you. Then also have a plan for when they do. I recommend you don’t just say no, you say sure but you have to do x. For me I let a sibling know if they came to me for serious money (they were in trouble and feeling me out for about $40K), I would lend it after they signed their only viable assest (their home) over to me, with the understanding I’d sell it to recoupe my money and hand them the difference after they were out of the property. Amazingly they never asked me for money and somehow managed to squeak by. Best of luck with this, it’s hard not to worry, but if you have a plan at least you have something to fall back on, even if they don’t like it.

  43. Jonathan says:

    I think that Q3 and the comments regarding it illustrates a major issue. People in different situations view incomes such as Alvin’s so differently. On the one hand, you have someone who is paying out $100k or more in taxes, trying to figure out how to keep more of that income. Think about that, $100k is more than most of us earn in a year, so its easy to see how such a tax bill would seem daunting. On the other hand, many people can’t even imagine a take home pay of more than $200k, so get annoyed when someone who is taking home that kind of money complains about their finances.

    If we look at the situation, however, without considering the actual $ amount, it seems different. Would the reactions to this question have been the same had the question read something like this:

    “I am 26 years old and work in advertising. I am looking for ways to reduce my tax liability. I currently have savings equal to approximately 37.5% my expected 2011 salary and nearly that much in a retirement account. I also have a rental property. In 2011 I will pay 5% of my earnings for “unofficial” child support, yet since the mother and I were never married I get no tax deductions. I expect to pay 31% in taxes this year and was hoping you could give me some thoughts on how reduce that tax burden”

    I expect that we can all sympathize with this situation. I doubt that anyone here is happy paying as much as he/she does in taxes. Its only when we hear that the individual has a high income that many people lose their sympathy.

    For the record, I fall into the group who annual salary is less than the amount Alvin expects to pay in taxes this year.

  44. ChrisD says:

    I think a lot of the questions re how happy you are to pay tax, come down to whether you think the money is well spent.
    In Sweden they pay something like 50% tax, but they get a lot back for that. I think that I want to have roads and schools and hospitals and I am glad to stump up for that. However, probably that stuff doesn’t need all my taxes and I am certainly not happy to pay for the wrong kind of subsidy, overpriced consultants and politicians (I think MPs wages are reasonable though). However on the whole, for anyone earning more than a certain amount (~£40K ~$64k), I think 31% tax is very reasonable.

    I’m just trying to get hold of the book, ‘the spirit level’ which says that equality is important for a well functioning society and that having a big gap between rich and poor is bad even for the rich people, so I do think progressive taxes are for a good purpose.

    P.S. I know that in the states income tax does not cover schools, that comes out of taxing business. If industry and jobs leave an area, that seriously impacts on the education in that area. Seems quite a pity to organise it that way.

  45. CindyD says:

    @ Sarah, Tell your friends that getting married while still in college is not a good idea for anyone, and he should finish college. Even if he tries to pursue a musical career in Ca, if he has a degree and never hits it big he will have something to fall back on. Possibly as a music teacher. They should pursue their dream while they are still young with no other responsibilities. I don’t want to sound harsh but as for your husband, he made the commitment to get married and have 4 children. That is his priority now. It may be time to realize music is a hobby if he can’t make income from it.

  46. Shelly says:

    Q3 Trent, you really missed the mark in addressing Alvin’s question. As someone who is a family man and seems to have a great connection with his wife and kids, you should have immediately identified the real issue here. Alvin needs to make formal arrangements regarding his kid FIRST and worry about his taxes later for a couple of reasons:

    1. It doesn’t matter if he was married to the mother or not, if he is the legal father on the birth certificate, he can claim the kid on his taxes. The mom can claim him too, however they will need to make arrangements for one or the other parent to do so each year. A lot of parents alternate years. In some cases, the higher income parent claims the kid and give the lower income parent the additional $ they would have received on their refund by claiming the kid.

    2. At his income level, and only paying $1300/mo in child support, he’s a deadbeat. In most states, child support is calculated using income. They take both parent’s combined income and compare it to a table that gives the monthly amount the state govt thinks it costs a family to raise a child in the standard of living for that income level. Then, each parent is assigned a percentage of that monthly amount based on the total. If both parents are at the same salary level, it’s 50/50.

    I suspect if the child’s mother had the courts calculate his child support, he would have to pay a significantly larger amount of money. It varies by state, but they can determine he owes child support at the new level going back several years. He’d then find himself in a situation where he had both a higher child support payment than what he is paying now AND was having to make additional payments to catch up with the back child support as well. Then, he’d be writing in with a totally different type of PF question!

    3. It’s the right thing to do. What kind of person worries about their tax deductions before ensuring their child is properly supported? If he were doing the right thing, he would already have known about #1 above and come to some sort of arrangement on claiming the child for tax purposes.

  47. jim says:

    Johanathan, No. I don’t sympathize with Alvin’s situation. I am happy to pay my taxes and we
    don’t pay a small amount either. I have no sympathy for his “daunting” “burden”. Also it kind of sounds like he feels he ought to get tax benefits from his “unofficial” child. 5% of your pay towards your kid sounds almost miserly. No sympathy from me. Don’t get me wrong, I’ve got nothing against Alvin and he is paying child support which is OK. I am just not going to get all teary eyed thinking about his plight.

  48. jim says:

    ChrisD,

    “I know that in the states income tax does not cover schools, that comes out of taxing business. If industry and jobs leave an area, that seriously impacts on the education in that area. Seems quite a pity to organise it that way.”

    Well no thats not really right.

    You are right that the federal government income tax doesn’t fund much of our education costs. Probably 90% of the cost of primary/secondary education comes from the state and local government levels. But the cost is not paid for by business specifically.

    States and cities get their money from a variety of sources. They have state income taxes, sales taxes (like VAT), property taxes, excise taxes and property taxes. Every state and city has a different mix of taxes.
    At the state level only about 5-6% of revenue comes from corporate income taxes. Over 80% of state tax revenue is from personal income taxes and sales taxes.

  49. Jonathan says:

    @ Jim (#41) – In regards to the child support payment, I agree it doesn’t look like much when taken as a percentage as I suggested. When you look at the amount, however, it seems sufficient (possibly even generous). I believe that when parents are separated each should be responsible for paying 50% of the costs of raising the child, up to a reasonable amount. If the custodial parent insists on things beyond what would be considered normal, they should have to carry those costs on their own. I also believe that each parent should receive 50% of the tax benefits related to their child. In this situation, if the mother is also contributing $1300 then the child must be living a pretty sweet life. If the child is living a more normal life, however, then Alvin is likely covering the majority of the costs and getting no tax benefits in exchange. Of course there are situations where this might not be true, such as if the child requires expensive medication or medical treatment, etc.

  50. Tarnum says:

    “We have just found out that we have been accepted for the second round of the Green Card Lottery. This is $440 per person ($1760 for the four of us)”

    Scam alert. The GK is free.

  51. Annie says:

    I looked up many websites to see is advertising sales jobs pay that high and this is what i found.
    The median expected salary for a typical Advertising Sales Director in the United States is $165,984 – this is for a director. I can’t imagine where alvin works i am sure there are advertisments that pay a lot for ads etc but 360K a year is very impressive. You must own it. The
    last thing i would worry about is taxes when you have lots of money saved. Your child is only getting 1300 a month, it seems odd that the courts/the baby’s mother is not forcing you to pay more.

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