Reader Mailbag: Critical Mass of Stuff to Do

My biggest problem in terms of personal organization: whenever my “must be done” list reaches a certain length, I have this incredibly strong desire to just shut down and give up.

If I can handle things in manageable chunks, things are good. When things build up, though, and alter my routine, I run into trouble.

Right now, the birth of our child is the big “deadline” sitting just down the road and there is so much to do. Focus, Trent, focus.

Over the course of the past year or so, thanks to your advice, my live-in boyfriend and I– both about thirty years-old– have cut back a LOT on our eating-out spendature– instead of having brunch with our friends every weekend, we cook breakfast at home and meet up with the friends for post-brunch board games. Instead of eating out at medium-priced restaurants every night, we go out to one nice meal per month and cook at home the rest of the time. Instead of exercising our sushi-obsession at sushi restaurants in town, we go to the wharf and buy fresh sashimi-grade fish and cut it up at home. And we almost NEVER buy expensive drinks when we go out anymore, but sometimes have drink-themed nights at home.

The problem is, we still have expensive taste, and this is displayed in our grocery shopping. Although we do compare prices and try to be thrifty, we only buy organic produce, top-grade seafood and meats, quality alcohols, and our recipes are so complicated that we end up buying a lot of ingredients that we never (or rarely) use again.

Do you have any suggestions for simplifying our recipes, critiquing generic brands, and just reducing the overall cost of our grocery bill?
– Jamie

We somewhat fall into the same situation you do. We tend to buy high-quality ingredients for our meals and we’re fairly picky about what we eat and consume.

There are really three things that guide us. First, we recognize that eating well is something we value. I’m willing to pay more for organic produce, good cheese, or other specific ingredients. Second, we don’t shy away from at least trying lower-cost alternatives sometimes. We rarely spend more than $10 on a bottle of wine – in fact, most of our wine purchases are straight from a local winery we quite like. Third, we don’t strive to spend a lot on food or drink – we focus on the meal and appropriate beverages to accompany it, not on “expensive.”

In short, if good food is something you deeply value, don’t sweat it too much. That doesn’t mean you should ignore the sticker price, but it does mean you don’t have to feel too guilty about it.

I need some advice. I am 24 and have been working as a freelance theater lighting technician in New York City since graduating from college in 2008. I have about $17,000 worth of debt in student loans which my parents are helping me out with and $3,000 owed to my dentist (I’d neglected my dental care during college resulting in more cavities than I feel comfortable disclosing. Get those twice-yearly cleanings!). I made roughly $21,000 last year but thanks to your blog and Your Money or your Life I’ve managed to scrape by without using credit cards and have created a two-month emergency fund.

I am not particularly happy in my line of work and am barely able to make due money-wise, so it is pretty clear to me that I need to find another career. I applied to a two-year MFA program (Design Criticism) at a prestigious art school in New York and was accepted! However, I haven’t found any scholarships that apply to my degree and the school doesn’t offer teaching assistantships like most universities. At this point, in order to attend I will go into debt to the tune of $100,000. The program is only two years old so there is no data regarding the employability of its graduates although possible post-grad careers include “design writer” and “design curator.” The potential income of this kind of work is widely variable. But the program has remarkable connections within the design community and some really excellent instructors. I know that I would receive a good education and would challenge myself.

I feel caught between staying where I am in a job I dislike which barely pays me a livable wage or attending this amazing program which could change my life but put me into more debt than I can wrap my head around.

Would love to hear your thoughts.
– Barb

Go for the education.

Education is one thing that I don’t mind telling people to go into debt for. When you couple that with a career you’re unhappy with and an educational route that deeply excites you, then you need to chase that.

Don’t worry about employability too much post-graduation. Instead, just throw every ounce of energy you can into learning, creating, and making connections. Throw your passion out there and run hard with it when you’re in school. Dive in deep and don’t be ashamed of it.

If you don’t do it, you’ll spend an awful lot of time regretting it. Go.

I really love your blog and have taken a lot of advise from it. I was wondering, what you think about school portraits and their costs. When I was young, we got our pictures taken every year and got a few pictures, group pictures and wallet sized pictures for a reasonable price. And it’s also a great memory and we love to look at our pictures.

Now my son is in daycare and they offer school pictures. However, the price for one picture is $20 up front and additional costs for additional pictures (and you probably would need to order additional pictures for grandparents for example). I’m not from the US originally so I have nothing to compare, but isn’t this price too high?

I didn’t order any picture, but the decision was really hard for me since I have only good memories from my pictures when I was in school. Also, aren’t school portraits a little outdated? When I was young, not everyone had a camera and the school pictures were a nice way to have a record of how the kids grow up. But now everyone has a camera so that’s not really an issue anymore (I’m trying to convince myself I made the right decision not to order the picture ;-).

I also don’t wont my son to feel left out when everyone gets a picture taken except him.

Would love to read your opinion about this.
– Sabine

This is very much a personal value thing. I don’t think there’s a strict right or wrong when it comes to school pictures.

They are unquestionably overpriced for the item you get in the end. On the other hand, they’re very convenient (compared to the effort it would take to produce professional-grade stuff at home or to take the kids to a studio) and they have the benefit of those class pictures (I still enjoy my class pictures from grade school).

If you can take some good “portrait-style” photos at home and have a chance to capture a lot of your child’s playmates in other images, it’s completely fine to skip out on the portraits at daycare. It’s really up to you, I think.

I have a question about “renting out” a room & capital gains. I am considering renting out a room in my primary residence, to generate some extra income. It would probably generate about 7000/yr, less taxes. I’m assuming I would pay taxes on that money as rental income. My question is if I rent the room does this make my property a rental (for capital gains purposes)? I would still be living there & likely living at the property until I sell it. I would only anticipate renting the room for a year or two max. If doing this makes me have to potentially pay capital gains in the future, it’s probably not worth it to me to do so. I have read some things that say if you take a depriciation on the property, that will make you have to pay cap. gains. Can you just declare the extra income & not take a depriciation? I need an answer sooner than later, because I have a potential renter/colleague who is looking for a place now.
– Jenny

I contacted a friend who not only rents two homes he owns, but also rents out part of his own home.

He told me that the correct way to do it is to, on paper, divide your home into two separate properties. Calculate how much of your home’s square footage you’re actually renting out (what portions will they be using? what portions will you share?). Then, figure out the fair market value of your home before you begin to rent and calculate the market value of that portion of your home.

So, for example, if you’re renting out 800 square feet of your 2,000 square foot home and the home’s fair market value is $200,000, then the value of the part you’re renting is $80,000.

Once you’re done renting, figure out the fair market value of your home again, and again figure out the value of the rented portion. So, let’s say your home’s value went up to $250,000 during the rental period. The value of the part you rented would thus be $100,000, meaning your rental unit gained $20,000 in value. You would then have to pay capital gains tax on that $20,000 gain. Obviously, you’d have to be renting for quite a while to see that kind of jump given how housing markets are right now, but you get the idea.

His explanation made perfect sense to me, plus it logically makes sense within how I would expect tax laws to work.

I lost my job about 3 months ago and have not been able to find another position. Meanwhile, my wife and I have pared back expenses so that we are able to live on her salary (which isn’t much) and my unemployment. We have not dipped into our emergency fund yet, which is $50,000. This is about 10 months of expenses for us.

Now our dilemma is that before I lost my job, we were thinking of taking $20,000 of our emergency fund and paying off a car note we have. The interest is relatively low (3.9%), but we were looking forward to paying it off and having extra money every month to allocate elsewhere.

We put that off for a while, but now that it seems like we are able to meet our expenses without dipping into the emergency fund, I wonder if it would be a good move to go ahead and pay off the car, or just keep the money in the emergency fund until I at least secure another job.
– Bruce

If you are able to meet your expenses without tapping your emergency fund and your emergency fund accounts for about ten months worth of expenses, I think it would be reasonable to take four months of those expenses to pay off that debt to improve your monthly cash flow.

In the end, that’s really what this question is about: cash flow and discipline. If you can improve your cash flow without letting your emergency fund get too low, you should do it. Why? If your cash flow is better each month and you already have shown financial discipline, you’ll have less likelihood of actually tapping that emergency fund in the future.

You clearly have the discipline. You’re clearly in a situation where cash flow will help you out. I’d go for it.

I am a 31 yr old living in NYC (Manhattan) for the past 13 yrs. I have been living downtown all those years in a tiny apartment averaging around 450 sq feet to where the rent averaged around 1700-2000 per month. I had roommates majority of the time so in average, my rent plus utilities came out to be $1000/month. For the past 2 1/2 years, I have been splitting the rent plus utilities again, costing us each $1000/month. Both of our jobs are pretty close to us where we can either walk or ride a bike and get there within 25mins max so we don’t have to rely on the subway. Note, a monthly subway cards would add $178($89 each) to our expenses.

6 years ago my mother passed away and I had inherited some money that would be enough for a 20% down payment and still leave some emergency fund for myself for a home $450-500 max but that’s really pushing it.

I have been looking at real estates in the city for a while now and with what I can afford in my price range, the apartments are averaging to be about 500sq feet big which is tiny and doesn’t make sense to invest into since I eventually want to have babies so now I started to look in parts of Brooklyn where you can get a little more for the money. There, I am hoping to find a 2 bedroom apartment, at least 1000sq ft in size, $500,000 max (idealistically something in the low 400s will be perfect for me but I can’t find a 2 bedrooms in that price range). I have been looking for a while now and of course have had missed opportunities as well as experiencing certain relief to not being bound to such big commitment. If I succeed in finding a good 2 bedroom, with tax & maintenance, my mortgage would probably be around $2300-$2500 not including utilities nor the subway cards. I am looking at 2 bedrooms because if I ever have babies, they can have that room. If my boyfriend and I broke up, I can always get a roommate so I don’t get stuck paying $2300+ on my own. We also think we can get a roommate for the first 2-4 years till my boyfriend and I settle down with babies to pay more towards the mortgage if we really had to.

My question is, at this moment in my life, 31, not married, no kids, no real attachment to my job, should I be purchasing a home? With the rent vs mortgage calculations, I feel like I can go either way but I can’t help but to think I am throwing money down the drain with rent but I also feel like I am not stuck although I don’t know where I plan on going since I’ve been in New York forever. I am looking to do this solely under my name. My boyfriend and my plan is to be together (but really who can predict the future). Instead of looking for a 2 bedroom (mortgage of 2300-2500), should I be looking for a one bedroom (mortgage of 1700-1900) or should I just keep renting since realistically I’m just paying $1000 a month for an good location apartment that fits my needs in my life right now?
– Rika

Keep paying rent on the apartment and keep socking away for the house.

Right now, you don’t need the house. Yes, that might change in a year or two or five, but if you went for the house now and things didn’t turn out exactly like you’re dreaming they will, you’ll be stuck in a house that will be sucking every dime from your wallet.

Don’t make a $450,000 purchase based on what you think might happen. If I were you, honestly, I would probably wait until you were pregnant to start apartment shopping, because the bigger the down payment is, the easier the move will be.

Another factor: owning a home has many more expensive factors than renting. You’re usually in charge of maintenance, whereas in an apartment you usually have a landlord to call. That’s an additional layer of expense.

A big change is coming up – we´re moving with my husband to Virginia, from Latin America, where we currently reside, because of a great job opportunity for me.
It as been a difficult stretch, since the exchange rate is 8.5 to $1, so we`ve been saving like crazy, and managed to put together a nest egg of about $4000. I will start working about two weeks after we arrive, and will earn about $50 k a year.

Do you have any suggestions to make this move less traumatic? Is our nest egg enough, or should I accept a loan my family has offered (which we have tried to avoid – we`ll still be paying off about $4000 in CC debt from abroad).

And, what bank would you suggest for us to open our accounts in?
– Mel

It sounds like you have a job in place already, which is a great boon.

My biggest advice for making the move is to go minimal at first. Take as little stuff with you from Latin America to the states, then when you arrive, furnish your home minimally. Shop at Goodwill stores and buy very low end stuff, just enough to provide the very basics at home. You can upgrade all of that stuff as needed later on.

As for a bank, I would find one in your community. I would start by checking into the credit unions in the area, as credit unions often have very good banking choices as compared to the large for-profit banks. From there, once you’re settled, you can look at online banking options if the credit union doesn’t match your needs.

My wife currently operates a small business from our home. In late 2008 we obtained a personal loan through our credit union to procure the initial startup equipment and supplies. This loan currently has a balance of $14k at 11% interest. We are currently making full payments towards this account but wondered if there would be a benefit in taking out a home equity loan (HEL) to pay off the loan with a much smaller interest rate.

Do banks (or credit unions) typically allow a HEL to be used to pay off personal loans?
– Bill

Usually, HELs can be used for pretty much whatever you please, and a personal loan at a credit union falls under that umbrella.

Does the initial loan have any collateral (I’m not sure based on your email)? I’m guessing by the interest rate that it does not. If that’s the case, you’re essentially swapping a high interest no-collateral loan for a low interest loan that uses your house as collateral.

There are risks and benefits on both sides of this. Obviously, if you default on either loan, your credit is shot, but your HEL can put your home ownership in danger. On the other hand, the high interest loan is eating away more at your raw dollars.

If you have a very steady source of income that exceeds your bills by quite a bit, I would probably go ahead with the HEL. Otherwise, I would consider it too big of a risk.

We have very little non-tax deductable debt left and all our spare money goes into paying off the last 10K of that loan which should be paid off by November. This money is in a flexi-mortgage from which we can withdraw or pay off as we want to. We also have a $140K mortgage which is on a rental property, and in Australia is tax deductable against the rental income. After we pay the 10K off, we will then concentrate on paying this $140K off as soon as possible.

Regarding the emergency fund. Do you think we need to have savings or would it be best to leave the flexi mortgage open and concentrate on paying the rental property mortgage off? This is what our accountant has recommended, but you are very big on recommending the emergency fund. I figure if the worst happens, we can redraw on the flexi mortgage and if it gets really bad we can always sell the rental property, which is worth multiple times the value of the loan, allbeit not very portable.
– Louise

The big problem with using a line of credit as your emergency fund is that it’s trivial for a bank to close that line of credit at the very point where you’re having a true emergency. For example, if you lose your job and are suddenly struggling with bills, the bank may see this on your credit report and clamp down on your line of credit, leaving you in a very serious pickle.

That’s why, for emergency funds, nothing ever beats cash. This money is for genuine emergencies and do you trust your bank, which likely has policies right now to cut lines of credit at the first sign of trouble, to be there for you when you need them?

I don’t. You shouldn’t either. Cash is king. Keep a cash emergency fund.

I am a 20 year old college student who is having a lot of trouble trying to build up credit. When I was 13 years old, some debt collections were put on my credit report (these were medical bills put under my name that my mother was not aware of. She isn’t aware of her finances AT ALL). I was not aware of this until I was 18. I fought those debts but they were counted as legitimate under the law even though they were established when I was still under 18. At the end of last year and the beginning of this year, I finally paid off those medical debts. However, I am still being denied for a credit card, even those that are targeted towards college students! The only other way I can start building credit is by paying my student loans but early payments to those aren’t counted (I have to officially start paying after I graduate in June 2011). In the meantime, how else can I build credit without a credit card? Also, the new laws requiring that parents co-sign with children for student credit cards if the latter doesn’t have any income will only serve to hurt me because my parent has really bad credit. I feel very frustrated that I worked hard to pay off bills that weren’t really my responsibility from when I was 13, and yet am still being punished by lenders for it. Is there any way out? I have heard of secured credit cards but I am unsure which ones are trustworthy. What do you recommend?
– Valery

A secured credit card is one way to help you build credit in this situation. Unfortunately, they’re pretty expensive.

In order to get a secured credit card with a $500 limit, you have to deposit $500. You only get that deposit back when you cancel the card and have made all payments on it. Once you’ve made that payment, the card works like a normal credit card.

If you decide to go that route (and, yes, your options are pretty limited for building credit in your situation), I would start by looking at offerings from one of the large banks, like Citi or Chase. The biggest reason here is that you want a bank that has a strong standard of accurate credit reporting, which sometimes doesn’t happen at smaller banks.

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.

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.