Reader Mailbag: Budgeting Systems

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. Financial complainers
2. Seasonal affective disorder
3. Giving gift of time
4. Writing about others
5. Beating the market
6. Parents kicked me out
7. 401(k) basics
8. Real estate going up?
9. Wallet safety?
10. Using inheritance

There are lots of budgeting systems out there. The “envelope system.” You Need a Budget. Mint. I’m just scratching the surface.

All of them can work. All of them can fail, too. Some systems are easier for some people and harder for others. It’s often pretty hard to tell which system is the “best” for any person.

What matters more than the right system, though, is the true desire of the person to succeed at getting their finances straight. Most systems can work. The desire for success is the magical ingredient.

Q1: Financial complainers
I have a cousin who constantly complains about not having enough money. She and her husband live in a small house paid for by her parents. They have a lot of debt, and even get calls from the credit “sharks” when they visit us on weekends. Both she and her husband love the fancy lifestyle and own several vehicles, a boat, a jet ski, among other toys they can’t afford to keep up. Then they complain to my husband and I about how they need a brand new home for their new baby on the way. My husband and I recently paid off all our student loans and became 100% debt free. Listening to my cousin complain about her lack of money is beginning to drive me nuts. They have so many freebies handed to them, but blow all their money on expensive vacations, organic food, fancy clothing, and toys. I am finding it difficult to be around them because it’s so irritating to listen to their complaining, while not buckling down and putting in the hard work to make money and save money. Any advice?!

– Shari

Don’t be around them?

It sounds like you have some incompatible values. People with incompatible values can still get along well as long as the strive to avoid those issues where their values are incompatible.

If money constantly comes up as a conversation topic, then you should either practice being deft at changing the subject or you should spend less time together. It’s very, very unlikely that talking about money issues is going to persuade either one of you to change your beliefs.

Q2: Seasonal affective disorder
In 2009 and 2011, you mentioned that you’re affected by seasonal affective disorder aka the winter blues. You recommended using a light box but the ones I’ve found all cost a lot of money. Do you have any other tips for overcoming the winter blues without spending money on an overpriced light bulb?

– Joachim

A light box isn’t an overpriced light bulb. It uses full-spectrum light that’s reflected to point maximum light at your eyes, convincing your brain that you’re in strong daylight. It can be really useful during this time of the year where days are short in the northern hemisphere. I’ve found mine to be really worth it.

Two other things work well, too. One, get lots of exercise. I like doing bodyweight exercises (push-ups, sit-ups, yoga, etc.) and I try doing them for half an hour each day at least. Two, take some vitamin D supplements. They really seem to help me, although I’ll be the last person to deny that the placebo effect might be happening with them.

A final note: I’ve found my SAD to be almost nonexistent so far this year, though, for me, January and February are usually the hardest months.

Q3: Giving gift of time
I’ve decided to start spending an afternoon a week going to my grandmother’s house and helping her with tasks. I’d like to “give” this to her as part of my Christmas present but I don’t know how to do it without being corny.

– Larry

You can tell her, but I think the best way of doing it is to simply start coming over.

Just start making it a routine rather than making it a big announcement before you’ve established a habit. If you tell her about it now and then are unable to come through with what you promised, you’re going to disappoint her.

Your best approach is to commit to yourself and then just start doing it. She’ll notice and recognize the time you’re spending with her.

Q4: Writing about others
I just read your post from Oct 20 called Hiding. I have to ask, aren’t you afraid that your lunch partner will read that article and take offense? I would think that if you know her well enough to have lunch with her she would know that you have a blog. It stands to reason that there is a very good chance she will read it and put 2 and 2 together.

Or, was this story made up to make your point? If so that is dishonest writing because you led your readers to believe this event actually happened. I’m thinking it was made up because the details are too perfect. The expensive drink. The expensive clothes and car. And of course the iPhone.
– Joe

The post you’re referring to is


Most of the content of that post came straight from an email conversation I had with that friend. After the dinner, I couldn’t stop thinking about her story, so about a day later I emailed her about it. I started off mostly by saying I wanted to help, being an old friend, and I made a few suggestions so they could get their ship straightened out, like driving a cheaper car. I pointed out that I drive a rather cheap car (a ten year old Honda), so it’s not a bad thing. I also told her that I spent way too much money eating out when I worked at my previous job and that it helped a lot when I started bringing in lunch each day. This was an email to an old friend.

This pretty quickly changed into a conversation about their situation and, eventually, I asked if I could use what happened in a post. I sent her a late draft of it (intentionally written to make her as anonymous as possible without losing the value of the story) and she was fine with it.

If I write anything about anyone that isn’t purely positive, I check with them first. I also “anonymize” the posts by eliminating personal details and sometimes changing non-essential details about the specific person so that I’m not spilling the beans about people on The Simple Dollar. I have no interest in “outing” anyone on the site, ever, and I’d rather make myself look foolish than ever do that.

Q5: Beating the market
The idea that people who buy index funds “match” the market makes sense to me. But why not shoot for more? In theory, shouldn’t half of investors “beat” the stock market and the other half not? Why not study and try to beat the market?

– Jim

The problem is the fees. If there were no fees to buy and sell stocks, then theoretically it would be much like you describe, with a lot of people beating the market.

However, with brokerage fees, some of the money you make on every single trade disappears, regardless of whether you’re making money or losing it. To actually beat an index fund, you have to do substantially better than the stock market to make up for the big difference in investment fees.

Even more than that, the people that beat the market in one given day or month or year aren’t necessarily the ones who will repeat that performance next year. Past performance has little relationship with future performance in stock investing.

Q6: Parents kicked me out
After I graduated from high school in May 2011, I kept working at Target to try to save some money for college because the idea of being in debt scares me. I have been working there ever since and living with my parents and I am building up some savings. However, my parents are convinced that I’m doing nothing with my life and kicked me out in October. I’ve been couchsurfing with friends since then. I’m not sure what to do next and I stumbled on your site. Help?

– Andrew

You’re at a crossroads. If you attempt to live on your own using just your income from 38 hours a week (or so) at Target, you’re going to struggle to continue to save for college. It is going to be hard to keep making forward progress there, no matter what you do.

On the other hand, if you go to college in August, you’re probably going to be taking out student loans to do it, which means debt.

Honestly, if your academic history is fairly strong and you are certain of what you would study, I’d take the student loan debt and go to school. Otherwise, I’d find some roommates and keep saving as well as possible.

Q7: 401(k) basics
I am working in the USA in immigrant work visa and will be here for 3 years before returning to my home country. I would like to know
a. what benefits investing in 401K can provide me ?
b. Is it easier to withdraw the investment and the interest while leaving US
c. What is the tax rate for withdrawal before the retirement age or immigrants
d. Is it possible that the investment amount can go down as the 401K is invested in stocks, and due to the short duration of investment, stock market crashes?

– Joe

The answers to your questions depend entirely on (a) whether you ever plan on returning to the U.S. and (b) what country you’re coming from.

Your best approach is to stop in with the 401(k) representative in your office and have a talk with that person about these issues. That person should be equipped to answer your questions related to your situation.

I can answer the last two questions, though. If you withdraw from a 401(k) before retirement age, all money is taxed at your current income tax rate, plus there is a 10% additional penalty. Also, when you have money in a 401(k), you choose what to invest it in, and if you choose to invest in stocks, there is investment risk. If stocks go down in value, the value of your 401(k) drops.

Q8: Real estate going up?
Over the last twelve months, the price of houses in our area has gone up about 5%. That rise has basically matched our savings for a down payment. Should we just buy now so we’re not further in debt?

– Lana

Just to clarify, I think you’re saying that the price of the type of houses you’re looking at went up by 5%. Since you’re trying to save for a 20% down payment, the price increase on the house caused your target down payment to go up enough that you essentially didn’t make any progress in saving this year. So, if you were looking at a house that cost $200,000, that meant you needed a $40,000 down payment. That house went up to $210,000, which requires a $42,000 down payment, and you only saved $2,000 this year.

If that’s the case, that means you’re only saving about $175 a month or so for a down payment. This makes me wonder if you can afford the house you’re looking at. If you’re looking at a cheaper house, that means you’re saving even less each month for a down payment. It means you’re living pretty tight as it is and, for most renters, owning a home means a lot more money out of pocket each month (though you’re building equity in the house to help make up for it).

My suggestion would be to re-evaluate how you’re saving and what your goals are. I just don’t think you’re currently on a good trajectory to own a home in the near future.

Q9: Wallet safety?
My wallet was stolen on vacation last year and ever since I have been really paranoid about it. What do you do to keep your wallet safe?

– Carl

I keep a full inventory of my wallet contents at home. I don’t carry anything with me that I don’t need – just one or two credit cards and my driver’s license.

I only buy pants with fairly deep front pockets and keep my wallet in there, firmly against the front of my leg. If the pants have even a hint of my wallet showing out of the front pocket, I don’t wear them. Since my wallet is thin for reasons described above, it’s not really noticeable.

In a lot of travel situations, I use a money belt. The only thing I keep in my pocket then is a bit of cash. If I need more, I go into a bathroom stall and extract the items I need from my wallet, like a credit card. Sometimes, when on trips, I will keep a single credit card in my front shirt pocket for paying for things.

These steps have done a pretty good job for me, all things considered.

Q10: Using inheritance
My husband and I would really like to upgrade to a nicer/bigger home. Currently the only debt we have is our current home ( we do purchase everything on our CC, but we pay those off each month). The area we live in is decent, but the prices of homes are on the steeper side, so in order to upgrade we are looking in the 250-300K range. My question is, should we use a portion of my inheritance to use as a down payment on a new home, (mainly to avoid PMI and pay off home sooner). We would like to rent out our current home, so when we pay it off, we will start having passive income. That would be ideal.

We really just do not know if it would be wise to use that money, or save it for something else. It is not our emergency fund, and it is just sitting there. Are ultimate goal is to have a nice home with more space.
– Mindy

It depends on what form your inheritance takes. Is it simply a lump of cash you have stored in a savings account? Is it in a trust? Is it in stocks? I’m not clear on the specifics of the inheritance.

If it’s something you have total control over and you already have an emergency fund, I think your plan for using it for a down payment on a new house and then converting the old one into a rental is completely reasonable, given one thing.

Does the idea of being a landlord appeal to you – and, if not, do you have a company that will handle property management for you that will still allow you to cover the mortgage? I’ll be honest – I really have no interest in ever being a property manager in any way, so this does not sound appealing to me. If it’s not a problem for you, I’d go for it.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll 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 many, many questions per week, so I may not necessarily be able to answer yours.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.