Reader Mailbag #45

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. Here are some thoughts on preparing to add an additional child to your family.
The Financial Implications Of A Second Child
The Financial Implications of a Third Child
Money and the Two Year Old Child

And now for some reader questions!

My daughter graduated college in May and has a pretty good job working for salary plus commission. She is still living at the college level – sharing a house, living low on the status chain, etc. She has no debts. She is also saving 10% of every paycheck (it’s in CDs and ING at the moment). Where would you suggest she invest her savings? I figure she is in a great “no lose” situation with regards to the current stock market and should be buying in, since it’s so low. Is this a good idea? Where would she go to accomplish this?
– Debbie

I don’t particularly believe in market timing when it comes to personal investments. We do not know what the future holds, though we can make some reasonably educated guesses about it.

The question one should really focus on is their personal risk tolerance. Are you okay with putting your savings at risk in the stock market given ho turbulent it can be? Take a look at the annual returns of the S&P 500 from 2003 to 2007 – -23.37%, 26.39%, 9.00%, 3.01%, 12.80%, and 3.81% – and I’m not even including the nightmarish 2008 return in that. That kind of turbulence is enough to make many people’s stomachs churn.

Talk to your sister about her goals and find out about how much risk she can tolerate. Those will be your best signs as to how she should invest.

What games do you usually play with your wife during the kid’s nap time?
– Ed

For those unaware, I mentioned before that on days when my wife and I are both at home and the children are napping, we tend to play a game together while they sleep if there’s nothing pressing that needs to be done.

We usually play board games, actually – ones that work well with two players. Our favorites include Ticket to Ride and Puerto Rico.

On occasion, we’ll play video games, and when we’re playing together it’s almost always Wii Sports or Guitar Hero: World Tour.

Aside from making more money, do you have any advice for someone who might suddenly have a school-age child to take care of?
– Griffin

Spend as much time as you possibly can with that child. Quality time, too, where you’re both engaged in an activity together. Communicate extensively. Ask lots of questions about what the child is doing and let the child follow up.

At the same time, don’t be a pushover – you are the guardian and you need to set boundaries and rules.

A strong relationship with the child is far more important than having plenty of money. Many career-oriented parents who focus on working themselves to the bone so their child can have “everything” sometimes forget that, even though their hearts are often in the right place.

Do you ever find it difficult to come up with topics to write about?
– Meg

Not usually. I sometimes have a hard time getting back on track after I take an extended break from writing, like when my family goes on vacation. The week after such a trip is usually pretty painful, as I’ve fallen out of my writing routines.

The best antidote for that is to simply keep my idea notebook with me at all times. I just keep a little notebook that fits in my pocket along with a pen, and whenever I have the nucleus of an idea for a post, I grab that notebook and jot my idea down quickly. Then, when I’m faced with a period of writing, I simply turn to my notes and I’m ready to go with plenty of ideas.

How do I deal with parents who have absolutely no idea how to manage money? They have declared bankruptcy once, and are close to doing it again. My mom literally has a room full of clothes, but not enough money to fix the car when it breaks down. My husband and I have our financial house in pretty good order, and sometimes I just want to shake them and yell, “It’s not that hard!” What can I do? Is there anything I can do? I hate seeing them head down this path, but I honestly feel very hopeless. Thanks!
– Michelle

You can’t make people have a money epiphany – they have to find that path for themselves. The best thing you can do is keep your financial house nice and tidy and set a good example as to how to manage your money.

The question I would have in your situation is how your parents are planning for retirement. Do they have any plans? Are you their plan?

Other than that (because it will impact what you’re doing in the future), you need to let them live their own life. Just make it clear to them that if they want to talk about money, you’re ready, willing, and able to talk about it.

Is the new version of Your Money or Your Life worth picking up if you have the old one?
– Bill

In the new version, virtually nothing has changed conceptually from the earlier book. Based on my browsing of the new version, there seems to be just a bit of updating and modernization, but Dominguez and Robin’s message is basically untouched.

You know what? That’s how it should be. Your Money or Your Life – or at least the basic message of it – is timeless. There’s no need to update it. There’s no reason to update it, other than to polish up a few numbers and specifics.

It’s simply the best personal finance book I’ve ever read, and I wouldn’t change a word (unless it were to polish up a fact).

What back-up is there [for online banking] if there is an overall problem with the internet? Or satellites? Will you have a record of your money, and be able to get at it easily?
– kristine

This isn’t just a concern with online banking. Virtually every bank is run electronically – all of their records and data are stored in databases, and there are many disasters that could put a serious crimp in your ability to clearly and fairly access your money.

My solution is to just print off regular statements from my online banking account (I use ING Direct). I have a printed-off record of transactions, account information, current balances, and so on.

In the end, this is the same protection you have with your local bank. The mere fact that there happens to be a branch office down the road doesn’t really make that much of a difference. You can march in there and demand all you want, but if an apocalyptic scenario happens, the door will likely be locked.

When you went away to college, did you have friends that you knew from high school at college or were you “on your own”? How did you make friends? I’m leaving for university in the fall and I know no one that attends the school. I’m not particularly social, but I have nightmares about sitting alone in my dorm room all the time.
– Len

I was “on my own.” I knew no one at the school I attended, at least for the first year (the next year, my wife-to-be started attending and I had already known her before college).

I met most of the people that I became close with on my dorm floor. I simply made a conscious effort to meet everyone on the floor and eat with all of them in the cafeteria a few times to see who I clicked with. One of the people I met on my dorm floor wound up being the best man at my wedding seven years later – another one drove ten hours to attend the wedding.

I also joined a lot of groups on campus that were centered around my own interests. I wound up becoming heavily involved with one of them, built friendships with two other people who attended my wedding (each driving about three hours to attend), and that group wound up paving my way directly into my first post-graduation job.

What are your feelings about investing in gold bullion?
– Arne

While I can see the use for investing in rare metals if you have a very large portfolio and you want to diversify further, I don’t see a strong case for actually having gold coins or gold bars in your home. How exactly will you easily liquidate those assets? Will gold coins and gold bars suddenly become valuable?

The only scenarios I’ve seen where a good conclusion comes from owning a bunch of gold at home are ones that involve a global financial meltdown like the world has never seen without a resulting civil war or other catastrophe.

Natural disasters don’t cut it, either – did you see people trading in gold after Hurricane Katrina hit New Orleans?

While it might be symbolic to directly own a bit of gold bullion, if you’re going to invest in it, just buy a rare metals fund from a reputable brokerage (like Vanguard).

What personal finance guru do you like the most? The least?
– Charlie

For the most part, I think most of the “personal finance gurus” provide sound advice, and I don’t really have anything against most of them. Your Money or Your Life is my favorite personal finance book, but I’m not sure if I’d call Vicki Robin a “personal finance guru.” I’d probably have to vote for Dave Ramsey – his debt plan is simple and easy to follow and he’s got the “coaching” aspect of it down cold.

My least favorite is Robert Kiyosaki. I found Rich Dad, Poor Dad to be largely insulting, although I can see how it might be inspiring to people who are entrepreneurial but haven’t actually invested any time in deep reading or deep contemplation about what they want to do. I have no respect for anyone who refers to people who choose to work a 9-5 job as “hamsters”.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

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