Questions About Goodwill, Credit Scores, Dating, Home Buying and More!

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 discipline and dating
2. Retiring early after bull market
3. Buying a first home
4. Lifetime warranty question
5. Being productive
6. Can’t visualize long term
7. Eight year car loan?
8. Raising credit score
9. Flying or driving 1,000 miles
10. Tempted by bank balance
11. Part time toward “fun” degree
12. When to replace a mattress
13. Misuse of “investment”
14. Goodwill
15. Finding board game clubs

During the winter, I always let my hair grow longer than normal. Mostly, it’s because the thought of cutting my hair short on a February day in which the temperature barely ekes above zero sounds miserable to me.

Now it’s late March. The weather is (mostly) warmer, and when I look in the mirror, my hair looks overly long.

Since I usually keep it very short, I tend to just use clippers at home on myself most of the time. I just use a short setting everywhere, then use a very short setting on the sides with a comb held sideways over the spots where I want it to taper. It takes about half an hour and ends up with me looking just fine.

It’s about time to break out the clippers.

Q1: Financial discipline and dating

About a year ago, I started dating a wonderful woman who I click with in a lot of ways. We have gradually become very close over this year and have been discussing moving in together and perhaps even getting married.

My biggest concern is that she has very little financial discipline. She doesn’t mind doing cheap things or buying generics or things like that. It’s more along the lines of the fact that she doesn’t even really think about the long term consequences of buying something at all. If she has money in her checking account for it (thankfully she doesn’t own a credit card), she just buys it without even thinking twice.

Most of the time she lives paycheck to paycheck. She has a little saved for retirement, but that’s because she signed up to contribute something like 2% to her retirement plan and her employer matches that. She has no emergency fund or anything else.

I am a diligent saver. I have no debts and a big emergency fund (about four months of my own living expenses). I put aside 10% of my pay for retirement, of which half of that is matched, so I’m in great shape so far for retirement. I budget carefully and do the same thing you describe of giving myself an “allowance” of money to spend freely each month.

Is this a permanent incompatibility thing that will eventually drown our relationship? Or are there things I can do to make this all work? I don’t want to tie a lodestone around my neck here, even though I do love this woman.
– Shawn

From what you describe, it doesn’t sound as though she’s a shopping addict or is willfully making money mistakes. It sounds much more like she hasn’t yet had a compelling reason to really think much about money at all and certainly has never had a reason or motivation to develop some financial structures (like a budget).

If I were you, I’d sum up what you hope the long-term goal of all of your financial moves is in just a sentence or two and pitch that to her. Something like, “I try to save about a third of what I make so that I can buy a house in a few years and also retire at age sixty so I can enjoy the world without working while I’m still spry.” Then, ask her what she dreams of in the future and work forward from there.

I don’t think your situation is hopeless at all. What would be hopeless is if she was talking a good game about the future but then spending tons of money along the way while not really working toward that bright future. That’s not what you’re describing.

Q2: Retiring early after bull market

Right now, I have enough money in my retirement account to live basically forever if I take out 4% of the balance each year. The problem is that this requires 5% growth each year to maintain that balance, and maybe even a little more than that to keep up with inflation. I know that over the long haul the stock market should return 7%, but is that true at the end of a long run of positive years like this? Should I expect 7% return over the next twenty or thirty years if I stay in stocks?
– Noah

When you’re actually at the point where you’re considering retiring, I would sit down and calculate out exactly what would happen if the next year was a mirror image of 2008 – a 40% drop in the stock market. What happens to your situation if 2016 is like 2008?

The best way to do that is to drop about 40% off of your balance, then figure that it will grow at a 7% rate going forward. Could you live with that scenario?

The only time I wouldn’t use that kind of scenario is when it has just actually happened. For example, if I were trying to figure out how to retire in late 2008 or early 2009, I would have just figured 7% growth going forward.

Q3: Buying a first home

We live in Tennessee and the cost of living is pretty low compared to some parts of the US. I am 30 years old and my wife is about to turn 26. Over the last 18 months we have paid off 45k in student loans, bought a $4500 used car with cash and built up a 6 month emergency fund totaling $12k. My wife and I are pretty frugal and we went all out paying off our loans. I contribute a matching 3% to my company’s 401k plan but I only have about $3500 saved up in that and my wife has only about $2500 in her 401K. (We are pretty new into our careers and just now getting serious about being in better financial shape.)

Right now we are in a pretty sweet spot where we are making between $4500-$6000/month after taxes depending on my wife’s hours and only need about $1800 to pay all of our monthly expenses. We have no debt whatsoever except for our mortgage. We owe 148K (house cost 160k), 30-year fixed with a 4.625 interest rate. We just finished our first year in the house.

I work as a Registered nurse making $45k a year and have a side job working at a local University teaching nursing clinicals during the fall and spring semesters making about $14k a year.

My wife graduated with an Education degree but hasn’t been able to land a full time position although it looks promising that she will land a job for next school year. Right now she makes about 15k a year working as a teacher’s aid and she probably brings in another 5k a year in babysitting. But hoping for that big raise once she gets a full time position.

So my question is this: Our goal is to have kids (2 or 3) in 3 years and have my wife be a stay at home mom up until they are all school age and then she will go back to work. She may homeschool for a couple of years but then we want to send them to a private school. I work a lot of hours especially during the calendar school year and I want to drop my part time job so I can be off by 3pm every day so that I can be home with the family. But in the meantime we want to prepare for this time in our lives. My current plan is this:

Put all of our extra money into the mortgage and hopefully have it paid off by the time we have children lowering our monthly expense to right around $1000/month. This would mean I bring home roughly $2700/month -pay $1000 for essentials and still have $1700/month to invest and save. This would make our emergency fund be closer to about a years worth as well.

Does this look like a sound plan? Or should we be doing more balanced investing/saving/paying down the house. I believe that if we did more of a balanced approach that I wouldn’t be able to pay off the house thus leaving us with higher monthly expenses and less breathing room for my wife to stay home. What are your thoughts?
– Jim

I think that your plan – which involves losing both your wife’s income and your own side income for several years while also adding the expense of a child or two – is going to be incredibly difficult while you have any mortgage payments.

Your number one focus if you want this to come true is to minimize your monthly expenses. That should be the focus, and that means, once you have a small emergency fund in place, you need to be throwing every dollar you have at every single debt that you have. You have to be deleting some of your bills in order to make this plan work, period.

Even with your house paid off, I don’t know how you get down to $1,000 a month for expenses, though. You’ll have property taxes, homeowners insurance, utilities, food for three people, and commuting costs for work. I’m right on the edge of not believing that it’s possible to pay for all of that stuff for $1,000 a month unless you’re trimming food costs down to about a dollar a person per day. Property taxes alone will eat a quarter of that. Utilities and insurance will likely eat more than a quarter of that (if you have a $160K house). That’s leaving you $400 a month (or less) for food for a family of three and transportation costs.

Having your wife stay at home is possible, but it’s going to be much tighter than what you’re thinking and it’s going to absolutely require that you go into it without any debt on your plate.

Q4: Lifetime warranty question

When you buy something with a lifetime warranty, is it appropriate to exchange it even when you’re just replacing it due to wear and tear because you’ve used it so much? I feel like if I have used an item thousands of times and it’s actually worn out that it violates the point of a lifetime warranty.
– Jen

Businesses introduce lifetime warranties mostly to promote their product. It’s a marketing tool, one that indicates that the business is selling a product they perceive as being long lasting and reliable. That’s a good thing. However, the costs of fulfilling that warranty is wrapped into the item that you buy. Usually, items with lifetime warranties are going to be substantially more expensive than competitor products, with some of that going toward making a better product, but some of it paying for the expense of the warranty – people using that warranty aren’t exactly free for the company.

What I’m saying is that you shouldn’t feel guilty abut using a lifetime warranty if you choose to do so. Having said that, I want to reward companies that produce reliable products with my shopping dollars and I want lifetime warranties to actually be around in the future for the times where I actually need to use them because of a minor (or major) flaw in the product.

Basically, even if an item has a lifetime warranty is wearing out due to natural wear after an exceptionally long life, I don’t mind replacing it out of pocket. (I actually do not recall that ever happening to me.)

Q5: Being productive

How do you manage to write six or seven long articles a week? They’re all like a bunch of pages long and you seem to come out with a new one each day! How do you do that and have time for kids or anything else in life?
– Mary

I have a routine that I follow like clockwork. That’s really the only way that it happens. Four days a week, I focus on writing. On the fifth day, I focus on research and idea generation and a rough schedule for the writing for the coming week.

Every article I write goes through three passes. The first one is what you might call an outline, where I basically write the topic sentence of each paragraph. I’ll usually save that and move on to another article for a while. The second pass is what I would call a first draft, where I fill in a paragraph or two or three around all of those topic sentences to make a full article. I’ll again save it and do something else. The final pass is mostly just for cleaning up and making sure everything makes sense with somewhat fresh eyes, then I post it.

It’s only through this routine that I can keep up with the writing schedule while maintaining some semblance of quality. I don’t claim to be a great writer, but I feel I can write “good” things at a high volume.

Q6: Can’t visualize long term

I am really struggling with getting my spending under control. The problem I have is that I just can’t visualize the long term in the moment. I’ll be tempted to go get a sandwich or a cup of coffee or buy a video game or something and I can easily see myself enjoying that in just a minute or two but I can’t see how not buying that game makes my life better in ten years. I see nothing positive from not buying it which makes it easy to just buy things now.
– Gary

The strategy that works best for me is visualizing the things I want most in the future on a constant basis. What is that great future that I want? I think about that future all the time – when I’m driving somewhere or when I’m taking a shower, for example.

Because that picture of a great future is in my mind so much, it’s easy to call it up when I’m tempted in the moment. I then recognize that I really do have a choice – I can either have this silly little thing now, or I can have this big dream down the road. I can’t really have both.

This choice is also aided by the fact that I budget, and that I have a certain amount that I allot myself each month to spend on whatever I wish. That way, I can choose to splurge – sometimes.

Q7: Eight year car loan?

My sister-in-law just bought a new car – a 2015 Toyota of some kind. Sure, probably not the smartest move, but whatever. What left me intrigued is that she bought it with a 2.5% interest loan. That seemed really low to me so I asked her for more details. Turns out that it is a NINETY SIX MONTH LOAN. Eight years. She’ll still owe on that loan when she’s ready to sell the thing, plus I think it’s going to end up costing her more in interest over the long run. Thoughts?
– Jim

Since I don’t know the model nor how much she paid down, let’s assume her loan was for $25,000 and work from there. If that’s the amount, her monthly payments will be $287.60 a month for the next 96 months. She’ll end up paying $2,609.22 in interest over the length of that loan.

On the other hand, if she got a 48 month loan at the average rate for such auto loans right now – 2.87% – she’d pay $551.92 a month and only pay a total of $1,492.30 in interest. In other words, this loan costs her about $1,200 less in interest than the other one.

Of course, one could make the argument that the first loan is better because of the lower payments, but if you can’t afford the car loan with the lowest total interest because the payments are too high, you might want to consider buying a cheaper car or waiting until you have a bigger down payment.

The only advantage of this loan that I can see is the lower monthly payment. It’s worse in terms of total interest paid and it also sticks around longer, both of which are negatives.

Q8: Raising credit score

In about a year, I intend to borrow money from a bank in order to buy a fixer-upper house. My plan is to invest a lot of my own time and energy into fixing up the house, then selling it. My problem is that I have never had any debt in my life. I had a full tuition, room, and board scholarship for college and have paid cash for both cars I own. I have never had a credit card either. I’ve never had a problem getting an apartment or a checking account or anything. What should I do to make sure I have good credit scores?
– Adam

In your situation, the first thing I would do is visit the federal government’s free tool for checking your credit report, which is found at annualcreditreport.com. See what’s actually on your credit report.

Another thing you can do is stop at your local credit union and talk to them about your situation. Given that you’ve neer had any sort of trouble with getting an apartment or getting insurance or anything, it’s likely that you do have a minimal credit report with nothing negative on it – just enough to have a good credit score, but not a great one. This probably comes from one or more of your utility companies that reports already on your behalf – this happens sometimes. They’ll likely suggest a credit card – a secured one if your credit report is too small or an unsecured one if you have solid but not amazing credit.

My guess is that it won’t take much at all to get you in the “very good” range for credit scores if you’re not already there.

Q9: Flying or driving 1,000 miles

Is it more cost effective to fly or drive for a 1,000 mile trip? Say, from LA to Seattle?
– Joel

Man, there are a LOT of factors here. Are you driving by yourself? What are your time constraints like? Do you value flexibility in your departure and arrival times? Are you traveling by yourself or in a group?

If you are traveling by yourself, minimizing travel time is of utmost importance, and having flexible cheap travel at the other end isn’t important (you’re staying in one place or have an expense account), flying is usually going to be a better deal.

If you are traveling in a group, flexible departure and arrival times are useful, minimizing travel time isn’t a big deal, and you’ll want to be able to move around a lot when you’re there, driving will probably be a better deal.

I don’t know which scenario applies to you. However, I will say that I’m intending to drive from Des Moines to Dallas later this year instead of flying because the second description is much closer to that trip than the first description.

Q10: Tempted by bank balance

Whenever I start building up an emergency fund or I have much money in my checking account, I always slip into a “life is good, my finances are good, I can afford to spend” mentality and then I quickly spend most or all of it. $300 in my checking the day before my next payday means time for splurges. How can I stop doing that?
– Tim

Don’t put yourself in a position where you have cash just sitting in your checking account (or the savings account linked with that checking account) with no purpose. Find a purpose for it and get it out of there.

For example, you might want to open a savings account at an online bank where you don’t have a debit card and have that bank transfer $100 a week from your checking. When you do that, the money just seems to evaporate – but it’s going to a good place.

You might also consider bumping up your retirement contributions, or making a $100 or $200 extra payment on your debts early in the pay cycle.

The goal is to put your money to work so that you don’t have idle cash just sitting around.

Q11: Part time toward “fun” degree

One of the perks offered by my employer is that they pay for up to four credits of classes each semester at a local university (they’ll pay for five if it’s a single class, I think). The problem is that the university has almost no focus on my area of study, so there are basically no classes in my area of expertise to keep growing. Still, I don’t want to leave that perk on the table, so I have been thinking about taking classes in an area that’s a personal passion of mine – history. My employer will pay for any class so that’s not a problem. Thoughts? Is there a better way to use those credits?
– Bob

Honestly, in your situation, I’d encourage you to take some business classes. You might blanch immediately at the idea, but hear me out.

The biggest benefit for technical people taking business classes is that they begin to have a deeper understanding of why business decisions are made. Not only that, business classes almost always improve your chances for career advancement, which can really help with salary.

There’s nothing wrong with taking classes in areas that interest you – that’s a great thing. Having said that, a free college opportunity always has some opportunity for career growth.

Q12: When to replace a mattress

I have used the same mattress for the last fifteen years. I flip it over about once a year. I recently told a friend of mine about this after hearing that he buys a new mattress every two years or so and he stared at me with a look of horror on his face, then told me about how my old mattress is killing me. I’m not overweight and don’t have any back pains and feel absolutely comfortable. I have looked online at information about mattresses but every one that talks about a fast replacement cycle seems to be a mattress salesman. Is there any reason I’m not seeing to replace my mattress?
– Leon

If a mattress is working for you and isn’t causing back pains or uncomfortable sleeping, then you have no reason to replace it.

However, the second you start having regular back pain or can’t get comfortable when going to sleep, the first place I would look is at that mattress.

The key thing to remember is that not all mattresses are made the same way and not all people sleep the same way. There is a ton of variety in mattress design, as well as in human form and posture. Thus, there is no specific “rule” to follow regarding a mattress. Just trust your body and you’ll be fine.

Q13: Misuse of “investment”

The NUMBER ONE thing that irritates me is when people use the word “investment” to talk about the consumer crap that they buy that will never have any resale value. Your iPod is not an “investment.” Your $300 pair of pants is not an “investment.”
– Jenny

I think that you’re looking at “investment” in the narrow sense of the word, in that an “investment” in something means that you contribute some resources and expect a financial return.

A broader meaning of the word “investment” is that you contribute resources of some kind and expect some sort of benefit which doesn’t have to be financial in nature. Under that definition, a pair of pants can be an “investment,” as can an iPod, if those things bring something positive into your life.

I think that sometimes people drastically overestimate the “value” that a material item brings into their life, but that’s another problem entirely.

Q14: Goodwill

I think you should stop talking about Goodwill. Their CEO Mark Curran makes $2.3 million a year and they constantly have high prices.
– Jane

I’ve seen this comment and similar ones a few times this week. It turns out that there’s a popular email/Facebook forward that’s going around that depicts several charities in a negative light, with Goodwill being one of them.

For starters, Goodwill’s CEO for the last several years has been Jim Gibbons, not Mark Curran. You can find info about Gibbons here, on Goodwill’s page about their corporate structure. Here’s their 990 to verify that. I can’t find current information on his salary, but in previous years he earned well under $1 million per year.

On Charity Navigator, Goodwill is broken up into several smaller charities by city and state, but many of them earn a 3 or 4 star rating (on a 4 star scale). Check for yourself. I’ll be the last person to vouch for Goodwill being a perfect organization, but they do good work and are reasonably well regarded in comparison to other charities.

As for their prices, they’re a mixed bag, just like every secondhand store I’ve ever been in. Yes, there are items that are priced higher than I’d ever pay for them. On the other hand, I’ve bought many items there in the $1-$3 range that were worth far more than that.

Q15: Finding board game clubs

How does someone find a board game club in their town?
– Kenny

There are three ways I’d start looking. First, I’d check Meetup.com and see if any are nearby. Next, I’d stop by the local library and see if they have any game nights. Finally, I’d stop by any local hobby shops and see if they know of any such game nights.

Board game nights (of which I participate in two different weekly ones) are a great and very inexpensive way to entertain yourself in a social way. I find board games to be a great “social lubricant,” particularly for people who don’t particularly find the “bar” scene interesting and enjoy thinking while getting to know people.

I hope you find a great board game club in your area!

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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