Parents and Children and Other Things

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. Parents and gifts
2. Balance transfer question
3. Best free children’s educational programs
4. Non-monthly budget items
5. Acorns?
6. Product codes
7. Mortgage strategy
8. Frustrated with sister’s family
9. Clothes overload!
10. Suggestions for using fine dishes
11. Cheap cell phone plan?
12. Building a website
13. Getting my deposit back
14. Medical bill question
15. Outdoor grill life

I’m a member of the “sandwich generation” – people with children and living parents.

By definition, the “sandwich generation” tends to worry. Not only are we responsible for raising our own children, we’re often also watching our parents start to decline just a little. For the first time, we see our parents’ mortality – and that will only have more and more impact as time goes on.

When I was younger, I was able to see how my parents – and Sarah’s parents – worked through the decline of their own parents and it gave me a lot of insight into being in the “sandwich.” I hope that our handling of our own parents’ decline will provide a similar useful lesson to our own children when the time comes.

Q1: Parents and gifts

I am a 30-year-old woman living with my boyfriend. We’re planning on marrying in mid-2015.

Currently, my boyfriend has student loans (approximately $40,000) and a car loan (approximately $15,000). We both use the car, but it’s in his name. I am debt-free with a fully funded Roth IRA last year and this year as well and approximately $25,000 in savings.

We recently moved to a state where real estate is booming, especially in the area in which we want to buy. When we moved, I had a job whereas my boyfriend has not yet found one (but is searching!). He’s on my health insurance (we live in a domestic partnership state where he is considered covered) and is looking for a job. We both have great credit (in the low 800s).

My parents have always saved well, and they have offered to buy us a house. They have offered to take it out of my inheritance (which will be a healthy amount with or without this offer, but is not something I’m counting on when making long-term financial plans) by giving us $50,000 and then financing the rest for us and we pay them instead of a bank.

My questions are about the implications of this. I know that, under current laws, I can receive $14,000 per year tax-free from my parents. In addition, I know some loans we receive can have a gift from family as part of the down payment. I am wondering which of the following scenarios makes the most sense:

1) Take the $50,000 from my parents and pay taxes on $36,000 of it. On any house we would purchase, we shouldn’t have to worry about PMI as we’re mostly looking in the $300-350,000 range and we could use some of my cash to cover the PMI. Take out a loan for the rest.

2) Allow my parents to purchase the house without involving us taking out a loan. This means we would likely lease-to-own with $14,000 a year up to the $50,000 given to us and then paid back to them during each year of the “parental loan.”

3) Wait until early 2015 so we can receive two gift installments and pay fewer taxes, then ultimately go with option 1.

We’re anticipating my significant other will have a job soon. He has several great prospects. In addition, the neighborhood in which we want to live is about to get a train into the downtown area, meaning home values will likely rise greatly over the next 1-2 years as they open more sections of the track. Even without him, however, I can likely get approved for the entire amount based on my salary alone.

Obviously there are a lot of options, and I’m sure I’m not thinking through the entire thing. Do you have any insight?
– Karen

There are several misunderstandings of gift taxes in this question. I really need to do a thorough post on gift taxes at some point.

The biggest issue here is that neither you nor your parents would have to pay taxes on this gift. A person has a lifetime exclusion of $5.25 million in gifts. Unless your parents are very wealthy, they will never hit this limit. The gift tax exemption of $14,000 per year is simply a bonus beyond that $5.25 million.

Of course, if your parents wanted to keep the gift within that gift tax exemption, they could split up the gift over five years, essentially giving you five $10,000 gifts at once and claiming them on their taxes over the next five years. Alternately, you could have each of your parents give you a $12,500 gift this year and next year, which takes care of the entire balance.

This is probably worth calling in a tax professional to make sure you and your parents get the forms right, but no one should be paying any gift taxes at all on a $50,000 gift and you likely won’t even have to touch the lifetime exemption.

For more details, there’s a great post over at Intuit’s tax blog that spells this all out.

(As an addendum, I find the tax laws in the United States to be ludicrously complicated and confusing. Something as simple as giving earned income to your children shouldn’t be confusing at all.)

Q2: Balance transfer question

I have a great career path and will make a big jump in salary this fall when starting a new job I’ve accepted, with a sizable signing bonus paid when I start. I am 29. The only debt I have is approximately $37,000 in student loans from grad school, at 6.55%. I would like to pay this off as soon as possible, so that I can divert the cash flow for those payments to establishing a healthier emergency fund (currently only $1,000), really ramping up on retirement (currently around $22,000 in a Roth), and starting a down payment fund.

After browsing your site and others for the best option, I have opened a Discover It card with a no-fee balance transfer (before August 10, 2014) and 0% APR for one year. The limit is $14,500, though I also have two other credit cards (no balance) with limits of $10,000 and $1,800. It would seem to make sense to move portions of the student loan to the Discover card so that I can save on interest, but continue to make the same (or higher!) payment to the credit card each month rather than to the loan company. However, I have two questions:

(1) Is it a bad idea to max out this credit card to save on interest? My credit score is around 775, and I am not in the market for a home, car, or other line of credit in the near future, so I am less worried about a temporary dip if it’s good for me long term. I understand it will push my total utilization rate over 50%, which is a big downside.

(2) What is the difference between transferring a balance before August 10, versus making a large payment to the loan company using the credit card at anytime during the 0% interest period? The balance transfer deadline seems arbitrary if I could accomplish the same goal of 0% interest by paying on the loan with the credit card as a new payment at any time.

Obviously, my plan is to pay off any balance on the card before the 0% year is up. I live frugally and am going to work hard to keep my lifestyle the same despite the jump in salary. I have a great track record, so I am not concerned about the temptation to build up a balance on this card and then ignore it, or lose track of time and let the 0% year fly by. I am so excited to pay this loan off; I’m just looking for the most cost-effective way!
– Daniel

To answer your first question, it will probably hurt your credit score somewhat as this will adversely affect your credit utilization. As you mention, your utilization rate will be pretty high. However, as long as you’re not applying for new stuff over the next year, it won’t have too much impact on you.

You do need to be sure what happens if you don’t pay all of this off within the year. Are you hit with any back interest? Some offers will hit you with the full year’s interest on any unpaid balance.

For your second question, there really isn’t much of a difference. There may be some separate terms for the balance transfer (giving you more time at 0% APR, perhaps), but I don’t have the full details of your offer in front of me.

Q3: Best free children’s educational programs

We’re looking to cut our cable, but we also want to maintain a nice selection of children’s educational programming for our kids (ages 5 and 3). If they’re going to watch television, I want it to reinforce educational principles rather than just sell toys and the programs on over-the-air stations are all about toy sales. I remember Saturday morning cartoons! Any suggestions?
– Callie

Do you get PBS over the air? Where I live, we get a strong PBS signal which includes three channels, one of which is largely children’s programming. Almost everything on there is educational.

My children particularly like Word World, Word Girl, and Martha Speaks, all of which do a great job of teaching vocabulary (albeit at different levels) and spelling. They’ve also lately enjoyed Peg Plus Cat, which focuses on math skills. My two sons are big fans of Wild Kratts, too, which focuses on science and nature – my four year old knows an absurd amount of animal ecology information. All of these are on PBS and all of these are available over the air here for free.

Figure out if you have good PBS coverage over the air in your area. If you do, that likely solves your problem. If not, Netflix has many of those PBS shows available on their service.

Q4: Non-monthly budget items

I’m sure I’m like many others who are trying to budget and live within my budget. I’ve tried many budget techniques and there is one aspect I always fall short on….non-monthly expenses. Some of them I have identified and have figured into my monthly budget, holding money aside for when they come up (car insurance, life insurance premium). Do you have a comprehensive list to work with of items that people need to budget for that are not monthly expenses? Any techniques other than identifying them and holding the money aside?

– Sloane

I don’t have a list myself, but Erin Huffstetler over at About Frugal Living has a great list that would come very close to matching any list I would make.

We handle irregular expenses by having a line item for “irregulars” just to cover things that come up. If they don’t, we’ll bank that money. As soon as an irregular item does come up, we add it to the monthly budget, planning to set aside enough each month so that we can easily pay the bill when it arrives.

Our worst irregular bills are always taxes, though. Property taxes, income taxes… sigh.

Q5: Acorns?

Looking through some Tech news today I stumbled Acorns, an investment product that invests your “spare change” form CC and Debit purchases.

While there is next to no information out about HOW it does this, I was hoping that your blog may keep an eye out as this seems both interesting and dangerous at the same time and I’d be interested to see your take on it, maybe in a reader mailbag soon and a more in-depth look once it has been released to the wild.
– Shawn

It seems like a connection of two good ideas into a potentially awful mix.

The Acorns mentioned in this article are basically the coins you receive in change for a purchase. Let’s say you pay $3.30 for a burrito for lunch. This service rounds that up to $4 and takes the extra $0.70 and invests it for you.

The idea of rounding up and saving the change is a great idea for people struggling to make ends meet, but that is generally not the same group who would make use of investing in a taxable investment account. This idea only really makes sense for people who are already debt free and have retirement savings well covered already – and the people in that group are already usually pretty smart with their money.

The idea is cool, but I don’t know if there has been a point in my life where it would have made sense. When I was struggling financially, I would have been better off using the change to get rid of debts. By the time I smartened up, I was already budgeting and investing my money in Vanguard, so I wouldn’t use it now, either.

I’ll look at it more closely when it’s released, but for now I’m not quite sold on the idea.

Q6: Product codes

Is it an effective use of your time to enter product codes from packages and pop bottles? Considering that most of the stuff is basically a drawing it doesn’t seem like it would be good.
– Alan

It depends on the program. Some codes are for drawings, sure, but others generate “points” that you can use on things such as coupons and so on.

If you’re putting aside extra time to do this, it’s probably not worthwhile, but if you spend your extra time while half paying attention to a show that you’re watching with your spouse, it’s probably worth it.

The only drawback I see is that I usually don’t want most of the stuff they’re giving away. I looked at the items for Pepsi Points, for example, and the only item I remotely would even want is likely going to require a small mountain of points. I already have a cooler, for example; what good is another one? I’m not going to be able to resell it.

Q7: Mortgage strategy

Which makes more sense? Say you are buying a $200,000 at 3.625%. You have $60,000 in cash. Assume all other accounts (emergency, retirement) are good. You put down the standard 20% ($40,000) to avoid PMI and end up with a monthly payment of $1300. My question is that in the beginning of the loan, so much of the payment goes towards interest instead of the principle; is it better to take the additional $20,000 and have a lower monthly payment, but still paying a lot of interest, or wait a couple of months and make a $20,000 principle payment to lower the loan and have more of your monthly payment going towards principle quicker?

Roughly $600 a month in interest and $300 in principle right now. Using the amortized schedule as a rough outline, theoretically this would have $475 in interest and $425 towards principle from here on out.
– Marcus

When I ran versions of this through my mortgage calculator, it consistently showed that it is far better to take out the larger mortgage, then make a big extra payment in the early days of the mortgage than to make a larger down payment. You end up shaving about 20% off of the total debt that you pay if you can swing an extra 10% payment early on in the mortgage compared to just having a larger down payment.

So, what’s the drawback? If you take out a larger mortgage, you’re going to have larger monthly payments. It’s those larger payments that make the difference. If you have a larger down payment, your monthly minimum payments are going to be smaller and have a higher portion going to interest.

If you can live with the larger payments, your best bet is to take out the bigger mortgage and make a big payment early on. You should also think about a shorter-term mortgage, as that will usually get you a lower interest rate, too.

Q8: Frustrated with sister’s family

My sister and her husband are married with two kids. She’s been largely unemployed for the last three years, having had two jobs in that period but losing them both pretty quickly. He’s employed, but the math doesn’t add up on their lifestyle. They take annual international trips with their kids, have a huge house that still has a mortgage on it, and seem to always have new gadgets and stuff.

I recently found out that our father is giving them some “help” on the side. When I confronted them about this, I was told that I didn’t need their “help” because I was on the “good side of the economy.” Rather than raging, I just walked out.

I don’t know if I can stomach being around these hypocrites.
– Kevin

What’s hypocritical here? Your parents have the freedom to do whatever they want with their money, and if they choose to give it to your sister, it is their choice. It might not be particularly fair and they certainly could have been more open about it, but it’s not hypocritical unless they’ve made some statements about never helping their kids or always helping their kids equally.

I know that it’s frustrating, but it’s an arrangement between your parents and your sister that has little to do with you. You can choose whether or not to let the arrangement bother you. You’re better off not letting it bother you.

My parents have always helped each of my brothers and myself when we’ve needed help. That need for help hasn’t always been equal and it’s sometimes been driven by foolish decisions. The help my parents have given is certainly not evenly distributed over the years. However, that doesn’t cause me to resent either of my brothers and I don’t think it’s caused them to resent me. I just try to not let any inequalities bother me because, in the end, it is my parents’ choice, not mine.

Q9: Clothes overload!

I recently came back from a trip where I went shopping and purchased around $2500 worth of clothes. Even though I already have an entire closet and 3 dressers to myself, I cannot hold all of my clothes. Lately I’ve been thinking about taking the minimalist route and just paring it down to 15-20 pieces and trashing/donating the rest because I’m tired of the visual clutter and stress associated with all of these clothes. That being said, I feel like I would practically be throwing money away if I did that. What are your thoughts?
– Ronda

I’m just blown away by $2,500 worth of clothes. I don’t think I’ve bought $2,500 worth of clothes this century for myself. That’s a lot of clothes.

Anyway, if you have that many clothes, it’s likely that many of the items aren’t particularly worn. Why not take the better items that you no longer want to a consignment shop? You’ll get some return on the sale of those items at least. Yes, it will probably not recoup all of the money you’ve spent, but it’s not a total loss.

Another option is to box up a bunch of the clothes and put them in a closet for a few years. Wait until the rest of your wardrobe is actually worn, then get rid of some of those items. After that, go “shopping” through all of the clothes you have in storage.

Q10: Suggestions for using fine dishes

My Amish mother had a beautiful set of china–pure white with a subtle gray design around the edge. But we always used the second-best set when company came. We called her best set the “President dishes” because she always said, “When the President comes for dinner, then we’ll use them.”

In 1987, my parents’ house burned down. In the ruins, they found the President plates all stuck together–apparently the glaze had melted–and of course completely ruined.

My advice is to break out the nice china for birthdays and other celebrations. If the adults set the table and wash the dishes, there’s less chance of breakage. And better that you make memories with them and break a few pieces than to have them lost someday without ever being used.
– May

You have a great attitude about these dishes.

I’m going to make a commitment to using them before the end of the year, likely sometime during the holiday season. It will actually be quite fun.

If I get energetic, I might even serve up a nice Sunday dinner using them in a few weeks. It feels like they should be used for special occasions, but I have been holding the “special” threshold too high, I think.

Of course, your warning about the melted glaze made me worry, so I went and checked them. They’re still all fine, as far as I can tell.

Q11: Cheap cell phone plan?

What exactly is a “cheap” cell phone plan? With so many offers out there it’s really hard to figure out what’s a good deal and what isn’t.
– Carrie

It really depends on what features you expect to get with that cell phone plan.

Ting, for example, is known for having pretty low rates. You can check out their plan calculator to get an idea of how many different options they have and what they cost. This should give you a good baseline for the type of service you want.

For example, as I write this, if you want a plan that gives you 500 minutes per month, 1,000 texts per month, and 500 megabytes of data per month, Ting charges you $32 plus taxes each month.

Ting uses the Sprint network, so if Sprint works well in your area, then Ting will, too.

Q12: Building a website

My gf is starting a photography business. We both think she needs a website to showcase her portfolio and retain her strong writing skills (from her previous career). I’ve been wanting to learn how to build a site for a while so this is the perfect opportunity for me. How did you build and how do you maintain TSD? Where should I go for guidance and development tools?
– Donald

If I were starting a photography business site from scratch today, I would probably use Squarespace, as they make setting up all of that stuff very easy and provide a lot of classy and elegant designs.

In 2006, when I started The Simple Dollar, I began by using a basic installation of WordPress, on top of which I designed my own templates and logo.

It’s eight years later now and you’re building a completely different kind of site. Go with Squarespace for this one, I think.

Q13: Getting my deposit back

I paid a security deposit on my old apartment. When I moved out, the apartment was in better shape than I left it, so I asked for my deposit back. The landlord said it was no problem, but never sent a check and now doesn’t answer my calls. What’s the best step to take?
– Stephen

If you have documentation of your lease, the security deposit, and the state of your apartment both before and after, you have an easy case in small claims court. You don’t need a lawyer and the cost of a small claim case is $50 or so, which will often be paid by the loser of the case.

The less documentation you have, the shakier your case. As long as you can clearly demonstrate that you didn’t damage the apartment and that you paid the required deposit, your case is strong. The less demonstration you can give, the worse off you are.

The landlord probably thinks that there’s nothing you can do here and that you wouldn’t have a case (or the guts) to go to small claims court and win. It’s up to you now.

Q14: Medical bill question

Can you tell me what you think is the best thing for medical bills? The bills are for hubbys kidney stone from 2012 & it is in collections. The balance owed is around $1200. The collections agency offered to take $700 if he could pay it right then. No can do.
Im still checking into seeing if he qualifies for charity care through the hospital.
In the meantime, the agencies are threatening to put these on our credit report. Do we get a personal loan with 24% interest to keep them from getting on credit report? We were offered $120 a month for 3 years with high interest like that. He gets a kidney stone every stinking year so he will have had several & more bills by the time the 2012 stone is paid off.

– Marvin

It’s likely already on your credit report. You can check it for yourself at the federal government’s free credit report site.

Hal Bundrick wrote an article on The Simple Dollar recently offering great advice for dealing with debt collectors. Follow the procedures outlined there as a first step.

If you follow those steps, you’ll have some time to continue figuring out the charity care issue.

Q15: Outdoor grill life

What can you do to maximize the life of an outdoor grill? Ours always seem to get rusty and beat up in a few years and need replacement.
– Donnie

The best tip is to simply store it out of the elements. A grill cover helps if storing it in a garage isn’t possible, but it’s not a perfect fix.

You also should follow proper procedures for cleaning it. This video offers a great demonstration of what you need to do. I recommend doing this at least a couple times a year.

If you do those things, your outdoor grill will last for several years at least. Such items face a lot of wear and tear and aren’t invincible, but good care can make them last.

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
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

Loading Disqus Comments ...