Updated on 07.30.14

Reader Mailbag #98

Trent Hamm

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.

If I have to get an auto loan to finance purchasing my next car, I can get one through my credit union (running about 5%, with an active checking account) or through the dealership (special 3%APR on 2010 models). I prefer your route if saving up and paying cash for a late-model used car. However, if one has to choose between loans, which is better – the credit union or the dealership? My parents always strenuously argued against dealership loans, and I had the vague impression it’s like buying batteries at the gas-station convenience store: you can do it, but you’ll pay a premium. OTOH, the dealership rates look awfully tempting. What are the pros and cons of each?
– Kathi

The big disadvantage of dealership loans is that they almost always carry more hidden fees than a credit union loan. Before you sign any contract, read the agreement carefully. It only takes a few fees adding up to a few percent of the car’s price to undo any interest rate advantage you might get.

Your parents’ wariness against dealership loans is probably largely based on such hidden fees. Added on top of that, unless you buy when there’s a strong financing deal going on, dealership loans don’t offer great rates, either. Thus, the general consensus is that if you’re not digging in and studying what you’re doing, you’re better off using a credit union for such purchases.

The big thing to remember is this: read the contract before you sign. If you don’t know what something is, find out – preferably from an independent source.

I appreciate the idea of shopping bulk and then cooking and freezing, but this plan depends on two things: having a car to do the shopping, and having a good-sized freezer to do the storing. What frugal cooking advice would you give to someone who has neither? (I live in a city, so no car needed, and I have a mini-fridge with a freezer about 12?tall x 18?wide x 45?deep)
– Enma

In your situation, one of the best things you can do to reduce your food bill at home is to buy plenty of dried beans and rice and use them in lots of different meals. Buy these items in bulk rarely when you have access to appropriate transportation – especially the rice, since a big bag of rice can be heavy, but it can save you a lot per pound.

Complement these items with plenty of fresh vegetables. Use your grocery store flyers and choose items that are on sale to make the centerpiece of your meals that week.

Given your situation and the fairly short shelf life of fresh vegetables, I would suggest perhaps shopping just for fresh items two or three times a week, hitting the specials at different stores each time. This will allow you to eat very fresh stuff, have some variety, and keep it cheap.

In your last Time Machine post I was following a few links and came to your post of 101 goals in 1001 days. I was very inspired and started my own list. I noticed that the end of your 1001 days is coming up in January. Are you going to give us an update?
– Sarah

It’s close enough to the end that it’s probably appropriate to comment on my 101 goals in 1,001 days list, so here goes.

I accomplished 52 of the items. The biggest reason I didn’t accomplish the rest of the items was the change in family dynamics after the birth of our second child, which actually altered things more than the first one did (since just trading off with the child didn’t just leave the other parent free to do things). Some of them – like the travel-related ones – became more difficult after changing careers and buying a house, both moves that were done to allow me to focus more on my family. A few were complete pipe dreams, but I still came surprisingly close to reaching them, anyway. One, for example, was to reach 100,000 subscribers to The Simple Dollar when, at the time, I had 8,212 of them. I really didn’t expect to ever accomplish it, but I came much closer than I would have guessed, as I now have about 72,500 or so.

When the deadline hits, I’ll do a final count and then take care of #26 – donating to a charity for each item I missed.

I’ve been thinking of changing from the Fidelity debit card I have to a similar credit card with cash back. I’m worried about possibly losing my debit card and having money hijacked out of my account. Should I make the switch?
– Dale

If the debit card has a Visa or MasterCard logo attached to it, it affords the same protections as credit cards of the same type. Most of the horror stories floating around out there concerning debit card fraud occurred in the early days of such debit cards before Visa and MasterCard had extended such protections to the cards. However, you should always use your debit card as a credit card when making purchases. Tell the retailer and sign the receipt – don’t use your PIN, ever.

If you are uncertain exactly what protections you have, check out your bank’s web site – in this case, Fidelity.

That being said, no matter what card you’re using, you still need to be vigilant. Keep an eye on your account and make sure you know exactly what every charge is. The second you see a charge you don’t know, call your bank.

My view is that, all things being equal, cash back credit cards are a bit safer than debit cards. For example, MasterCard’s liability statement clearely states: “Zero Liability does not apply to MasterCard cards if a PIN for a debit transaction is used for the unauthorized purchase.”

I have 4 student loans which have gone into default and been thrown to the collection agencies, roughly a couple of months ago. I had been granted economic hardship deferments for the last 4 years, but the time came to make the hard decision to just default – especially since I moved out of the country (yes, I was one of those people, but not just to escape debt – it was also a personal career move).

The loans are 1 federal Perkins direct loan [excised specific info]. The other 3 are Federal direct Stafford loans [excised specific info].

My questions are: if the loans have already gone into collections, are they still collecting interest? I think they are, but aren’t sure. What would your plan of attack be for getting rid of this debt? I think about the way of doing $1000 in emergency savings, and then using the debt snowflake and starting with the smallest debt first\, but there are so many options to choose from.

How would you handle it?
– Jessi

Once your debt is in collections, it begins to function a bit differently. In essence, the people that originally held your loan have given up hope of collecting anything from you. Usually, they sell your debt to a collection agency for some small amount of what you owe and then that agency tries to play hardball with you to get you to pay up – that’s their business.

When you’re in that situation, you do have some bargaining power. Since they paid a discounted rate for your debt, you can negotiate with them to pay a smaller amount to get rid of your debt. Try negotiating. Offer what you have. Insist that they mark the debt as paid on your credit reports, however, so that this episode can be put behind you.

The problem, however, is that your credit will be damaged for seven years for going into default. It will be hard to get loans in the United States, your insurance rates will be high, and you may have some difficulty getting a domestic job, since many employers look at credit reports to get a bead on your reliability.

I’ve recently discovered your blog and all thanks to you have learnt quite a bit about money. I’ll be glad if you can devote a post to fixed monthly income for young people. Let me elaborate a bit.

I’m 24, single and have made around $500,000 through my business. Unfortunately I’m not money savvy and can’t handle the stress of managing it. So I was thinking how great it would be if I could just invest the money somewhere for fixed monthly income to pay my expenses.

I’ve searched annuities and it seems like they’re only offered to old retired folks. Is there a monthly fixed income option available for young folks like myself? I don’t want the stress of handling the money myself, I’ll just blow it all off on friends and end up in debt. This has happened before and I can’t trust myself again. Please let me know what you think. Thanks!
– Keen

Annuities are marketed to older folks, but they’re available to everyone. They’re usually marketed to older people because they’re often the ones who have significant money in the bank and also yearn for the simplicity of an annuity.

If this is a path that’s of interest to you, do some research and find a few reputable insurance houses that sell annuities. Contact them, get some quotes, and find out what sort of deal you can get.

I would probably not put all my eggs in one basket, however. Consider putting some of the money into something else, like a long-term treasury note, that pays out money over time.

Regarding kids and cars: My wife and I both have two very small 2-door cars (both fairly new). These were purchased when we had just first met each other, and we were both in a pinch with our old vehicles. Our cars both work great and there’s no immediate need to replace them. However, in the long term we will obviously be wanting to get something slightly larger for when kids arrive (in about 5 years). Our biggest concern is that we don’t want car payments with kids, or have to worry about getting something else when kids arrive, since income might be dropping with only one of us working. Hence, we’re thinking of selling my car (which is worth a fair bit more than what I owe on it), and getting something slightly larger. When kids come, we have exactly what we need, and no car payments.

Some people tell us that’s good planning, yet others say that we’re buying a vehicle when we don’t need to. We’re both in good financial shape with 2 good incomes, so we’re fine with the slightly higher payment (now). Is this good planning, or jumping the gun a little? My ‘gut’ tells me it’s worth it to do it this way.

I was just curious about your thoughts regarding longer term planning and kids (another example, is it worth getting a bigger house right off the bat if you know you’re going to need the space in the long term).
– Scotty

If your cars are fine right now and you don’t have kids right now, I would just sit tight for the time being. There’s no reason to upgrade.

Instead, I would suggest driving the cars until they’re starting to show significant real problems, then sit down and have a discussion about the purchase. Are you actually close to having children, or is it still a mirage in the future (as it is now)?

Another note: unless your cars are two-seaters, you’ll be fine with a child at first in a small car. We fit two adults and two kids in a Toyota Prius without any difficulty and plan to fit our third child in there as well.

What do you think about signing up for bank accounts at banks that offer bonuses (say, $100 for a new checking account) and then closing the account after meeting the requirements (500 dollars in the account for six months or whatever) to get the bonus?
– Sean

I don’t have any problem with this. You’re doing exactly what is asked of you in exchange for the value in question.

Banks spend this money in order to acquire new customers and have more cash sitting in their reserves. A growing bank is also more appealing for mergers and the like, even if that growth is sometimes a bit of a mirage.

In other words, by having your account open for that time, you’re providing the value that they need for that account. They need a customer for a certain period – you need the cash. I see no reason not to do this.

Besides, you might actually discover that the bank is better in some ways than your current one, so there would be no reason not to switch at that point.

Where do you suggest you should invest your money? We have been investing in the stock market for the past 15 years (in stocks, bonds and mutual funds) and have not made any money (and have lost a significant amount over the years). I have read that investing in CD’s or a savings account will not keep you ahead of inflation. So we are at a loss as to where to invest our hard earned money. Thanks!
– Robert

If you’re looking for an investment that’s just guaranteed to beat inflation by a little bit, TIPS (Treasury Inflation-Protected Securities) are exactly what you’re looking for. When you buy a TIPS, it promises to pay you a certain (pretty low) interest rate for whatever period you buy it for. However, the federal government adjusts the value of that TIPS upward in times of inflation (and downward in times of deflation). That adjustment is directly tied to the Consumer Price Index.

The stock market is notoriously risky, and it looks like you happened to sit on the market through the end of a bull market, a big bear market, another bull market, and then the biggest downturn since the Depression. Quite often, people make the wrong moves at the wrong time in a panic – they’ll sell out of stocks and buy bonds right at the time it’s starting to get close to the bottom and most professional investors have already switched gears to buying again.

If you’re just looking to match inflation and aren’t worried about the big gains, put your money in TIPS and don’t worry about it.

I am just out of college and was recently offered the option to invest in a Variable Universal Life Insurance plan as a retirement/investment vehicle through my workplace. The investment plan seems reasonable, but I had never heard of these vehicles before. Preliminary Internet research seems to indicate they are beneficial under a certain set of circumstances, but I’m looking for some disinterested 3rd-party gut-check opinions.
– Alex

This article from the Consumer Federation of America is the best summary I’ve read on VULs. To put it simply, they’re not worth it, because often their benefits rely on an assumption that the tax laws in the United States will never change – and they change all the time.

Even if everything did go as assumed, such policies are at best comparable with buying a term life insurance policy and a Roth IRA with the money tossed into premiums.

Unless your employer is paying for a lot of the policy, I would probably skip it and find other ways to insure and invest.

My 10 month old daughter got hurt in her day care. They called us promptly and we went and picked her up. She had a bump right in the middle of her forehead (about the size of a quarter) with a minor scratch in the middle of the bump. Her teacher told that she might have fallen against the edge of a wall or another kid might have pushed her or something. The center manager said it happens all the time and expressed surprise saying that my daughter didn’t get hurt sooner. I found that to be odd. We called the doctor’s office and they said my daughter’s situation does not warrant a visit and she should be fine (and she is). The reason i write this is because of the way the manager talked to us and they weren’t apologetic at all. I felt that is kind of rude…What should i do in this situation?
– Amy

I felt similarly the first time my child was bumped at daycare. My son was about a year old and got a nice scratch on his cheek from another child wielding a block.

Here’s the thing, though. Not long afterwards, our son spent some time playing with another child his age right under my own supervision. Guess what? Even though my eyes were right on them, the other child inadvertently swung around and bumped my son on the nose really hard, resulting in a lot of tears and a slightly bloody nose.

Children are going to get bumps even if they play by themselves. When children play together, that’s even more likely. Unless you literally stand at your child’s side constantly, at some point, they’re going to get bumped or scratched while under your supervision. The same is true no matter who is watching your child.

My son is four. I’ve seen him get whacked, bruised, bumped, and scratched more times than I can count. I’ve seen bloody knees, bruises, and scrapes. Most of them happened while I was watching him. Just yesterday, he slipped and fell on some ice and wound up with a very red elbow.

Given that, I do think the daycare provider probably handled the situation poorly. My reason for being concerned with the daycare would have nothing to do with the bump itself, but in the dismissive attitude toward parental concern. I would probably continue to use the center if I had no other thing to be concerned about, but I would also watch how other parental concerns are handled.

My husband and I made the decision that after we had our second child, I would transition to being a full-time parent. This would have many benefits: great quality time and quantity time with our children, a household manager to make sure everything is running smoothly, and less stress on the family as a whole. We have a strong social support system, and I truly love being a full-time mom to the girls which I was able to experience during maternity leave. Of course, it will have a financial impact as we both earn roughly the same amount. We are not quite able to spend less than he earns, but we have planned for this gap. We have been attacking our debt for a few years; we carry no credit card balances and both cars are paid off. We only have our mortgage and some student loans left. We have a healthy emergency fund, some retirement savings, great life insurance, and a fund to cover the “gap” for three to four years. I do earn some additional income which is very part-time, and I plan to gradually increase my efforts in this area. In addition, I noticed during my maternity leave that we are able to cut more costs when I am home (e.g. less convenience foods, less fuel purchases, etc.). I feel like we have thought about our decision from all angles and have covered the bases, but obviously I am no longer objective. I know financially this decision flies against some traditional wisdom (Dave Ramsey would probably say to keep going on the debt), but we can never get back this time when our children are little. What are your thoughts?
– Heather

In my opinion, you should go for it. As you said, you can never get the time back, no matter what you do.

Some suggestions, though. First, I would try very hard to maintain connections within your career path and stay up to date on what’s happening in your field. Don’t fall out of touch with these people and these connections as you’ll probably need them in five or ten years.

Second, spend some of your time making sure your relationship with your partner doesn’t suffer. The dynamics are going to change dramatically, in ways you can’t see yet. Set aside some time to spend with just your spouse doing something you both enjoy – and don’t feel guilty about it. Talk about how you’re both feeling when it gets tough, and there will be times when it is tough.

Finally, don’t feel guilty about your choice. There are going to be times where you’re going to feel the pinch and you might feel some regret about quitting. Don’t dwell on what could have been and let it bring you down.

Got any questions? Ask them in the comments and I’ll try to include them in a future reader mailbag.

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  1. kristine says:

    re: Debit Cards- It is ironic that the PIN is the safer method (no one ever checks ID), yet the signing option is where they offer fraud protection. Why? As an incentive. If you sign, the card carrier gets a much higher fee than they do if you use the PIN. So if we all sign, eventually the merchants will raise prices across the board to compensate. So you might save the ATM fee, but eventually the cost will get passed down anyway. My solution? I take out cash at the bank teller once every week or two, based on budget, and use that! Non-regular expenses go on my cc, which gets paid off monthly.

    re: buying in bulk- I have casually compared costs on a number of items in BJs vs the grocery store or Walmart, and the generics come darned close to the bulk price. Try them out. Some stink, but most are just fine.

    also: Shop in wealthy neighborhoods. The food is cheaper at the standard grocery stores. (Not Whole Foods or boutique grocery stores).

  2. J says:

    @Keen — another option would be to hire someone to assist with managing your money, managing your business, or a bit of both. The cost of hiring a CPA who is familiar with personal finance, business finance and the tax code to help out could be very good use of money. It would lessen your stress level and let you spend more time on your business.

    There’s a reason annuities are aimed at old people — they are safe investments with a low rate of return. You are 24 years old! That money could be put into investments or even plowed right back into your business to make it grow! Sure, these are riskier than an income, but you have forty or more years till you retire!

    I’m not advocating that you give up control of your finances — far from it — but talk to a professional with a lot of experience helping small businesses out. It will probably cost a few hundred dollars to get things sorted out, but you will likely come out much farther ahead than just picking out an annuity, and if you DO pick an annuity, at least you will have made an informed choice about it.

    My life has been considerably less stressful since we hired a good CPA to help with taxes and finances. I consider it akin to hiring a plumber to come and fix a leaky pipe. Is it something I could have learned to do myself? Yes, absolutely — but given the demands of family, work, etc I don’t have the time to do it — so for an amount of money I can hire a skilled professional and know the work is done correctly.

  3. Beth says:

    @Enma — I’m in the same boat only I have just the freezer that’s part of my fridge :)

    I second Trent’s idea of having lots of dried staples on hand — I love my lentils, and I experiment with other grains like millet, spelt and quinoa as well as rice. (Buying them in bulk is much cheaper than buying packages.)

    As for freezing meals ahead of time — I mostly don’t bother preparing meals just to freeze. I usually cook enough to feed four or five people, so I stick a container or two in the freezer for convenience meals when I find I’m not eating the leftovers up fast enough. The savings comes in not wasting any ingredients.

    My other favourite trick is cooking up all the vegetables in my fridge (and topping them off with rice and lentils) just before I go on a trip. It uses everything up, and then I’ve got a few meals to come to.

  4. @Enma – In your case, a little meal planning is probably more practical than buying and cooking in bulk.

    Making a menu for the week (before you go shopping!) reduces waste and helps you use food more efficiently (like stretching certain ingredients over several meals).

  5. M says:

    @Heather – It sounds like you are very well prepared and it’s time to go ahead and JUMP and ENJOY! With a plan to cover the gap, life insurance, and an emergency fund, you’ve covered the basics, and the fact that you have planned so thoughtfully suggests that no matter what life throws at you you’ll be able to adapt and make another plan. (Your ability to plan, in my opinion, is a better security blanket than a second income). So now it the time to reap the results of all your planning, through yourself into learning to be the best at home parent and wife you can be, and enjoy the time with your daughters!

  6. Johanna says:

    @Emma: In your situation, cooking in bulk probably means eating the same thing (or the same 2 or 3 things) for several meals in a row, since you don’t have the storage space for too many bulk batches of things.

    A lot of people balk at the idea of eating the same thing over and over again. Me, I find that I don’t mind it so much, as long as it’s something that tastes good. So, I’ve learned to cook things that taste good.

    You do have to pay a little bit more attention to nutrition, though. If you’re making a one-pot meal to sustain you for several days, you need to make sure that that one-pot meal is a balanced meal. A good rule of thumb is to always include a green veggie, an orange veggie, and a protein-rich ingredient.

    I don’t think it’s worth worrying about getting the absolute best price on rice and beans. Even relatively expensive rice and beans are really cheap. And no, not all fruits and vegetables have such a short shelf life that you need to buy more every 2-3 days. Winter vegetables like pumpkin, squash, potatoes, sweet potatoes, onions, and apples can be kept in storage for months.

  7. Matt says:

    RE: Hidden loan fees.

    I just ran into this a few months ago. I bought an engagement ring and took advantage of the seemingly generous 12 month no-interest credit offer. I had the cash for it in the bank, but figured I may as well earn some return on it while paying back slowly (0% interest, after all!).

    After 2 months, the numbers just weren’t adding up with what was left on my account and how much I’d already paid. Then I noticed a small fee being tacked onto my bill in the form of “Credit Insurance”. They gave me 0% interest all right, but lesson learned: 0% interest does NOT mean $0 fees! (I paid the remaining balance off the next day)

  8. Michelle says:

    @Scotty – I disagree with the car advice. I would say buy it now, and then when you have kids and the car is paid off, you’ll have more flexibility. And I don’t care what Trent says, you can not fit 3 car seats in the back of a Prius. And you will want a car with 4 doors at the least. We had to drive my husband’s 2 door car while my larger car was in the shop with 2 car seats, and we could not fit the carrier seat through the door, not to mention that I had to learn to buckle it backwards. You will want a bigger car, or at least a 4 door. If you’re stable now, buy a larger 4 door car, pay it off and then that’s one less thing to worry about when you have a baby.

    @Keen – Have you considered just putting your money in a secondary checking account and having a certain amount of money transfered automatically each month? My husband and I did that in college when we would get a large payout a couple times a year. Open the account with another bank, so it doesn’t show up with your regular account. The hope being that you’ll kind of forget it’s there. It might be easier than opening up an annuity.

    Trent – I would like to see pictures of 3 car seats in the back of your Prius. With the doors closed.

  9. Erika says:

    @Amy Based on what was written, it seems to me the daycare did a great job handling the situation. As long as the daycare workers were comforting to the child, it seems like they did everything they needed to. Sometimes it is hard for a daycare worker to remember that these minor problems are all new to first-time parents when they deal with bumps and bruises all the time. They probably didn’t mean to be dismissive. If you are otherwise happy with the daycare, spend some time chatting with the workers, observing the group, and getting to know the other parents. Those things will go a long way to helping you feel comfortable leaving your child in their care.

  10. Emily says:

    @Scotty: I agree with Michelle, wrangling a child into a carseat in a 2 door car is no fun.

  11. *sara* says:

    as an adult and regular childcare provider, I am amazed to see how kids are able to, in the blink of an eye, get themselves into the most dangerous situation possible. I was watching a 15 month old in her own home, and while in the other room for literally 30 seconds, she was able to find a sharp plaster scraper (where in the world she found it I don’t know) and put it in her mouth to chew on(!?!) She wasn’t hurt, but if I felt I was going to be held responsible every time a child did something foolish and dangerous I’d be a nervous wreck. I do my absolute best to give excellent care, but part of being a kid is getting bumped and hurt. I’d be really nervous watching a child if I was worried that the parent might take some sort of action against me for their child bumping or hurting himself.

    Likewise, I don’t judge the parents when I see the kids come in with minor bruises, scrapes, and scabs. Last week 75% of the kids I saw came in with some sort of face bruise. I know its not bad or careless parenting, its just part of being 2 years old.

  12. Michael says:

    @Scotty — Why not start a fake car payment till you do have kids? If you’re planning on paying off the car by then anyways, you can save up and pay cash at the same time you have kids. Stick the fake car payment in a savings account or CD each month and hold on to it.

    Odds are good that there will be new safety improvements by then, and you’ll save on the interest you would’ve paid on the car loan.

  13. matt says:

    Just a note on buying rice in bulk, Look into your local asian grocer. I typically get a 25# bag of rice for the same price as a 2# at wally world at the o-mart around the corner. Additionally the quality is vastly superior, and it is fresher (date of harvest typically marked on bag, and who knows how long the rice at the big box mart has been laying around)

  14. Nick says:

    @Amy I’m gonna back up #9 Erika. Your kid is strong and resilient and will bounce back very quickly from all sorts of bumps, bruises, and scratches.

    It’s true that the manager didn’t give you the gentlest, most supportive reaction, but what were you expecting him/her to apologize for? An everyday bump? Your kid’s a tough cookie. She can scrap with the best of em.

  15. Scotty says:

    I’m the person (Scotty) who posted the question about the cars… I want to personally thank Trent for taking the time to answer the question…

    That said, I asked the question a couple weeks ago and we’ve since come to a decision – we sold one of our two cars and will be moving into something slightly bigger. I agree with Trent in that the most immediately prudent thing to do is sit on them for a while until they show more signs of age. That’s a perfectly reasonable option. And I do appreciate that you can indeed fit kids into smaller cars, even 2-door cars. However, every single person who we’ve talked to who have small kids all say it’s one of the worst experiences that they tried to bear. Trying to juggle small children into the back seat of a 2-door, plus managing groceries and other items is not fun.

    Even the people who first told us that “we dont need a new car” also have come around to admit that getting it taken care of now is a wise option. With income dropping substantially, the LAST thing that we would want to worry about is a car payment. Right now, it represents only about an extra $100/mo to get into something much larger.

    Thanks for the help and advice though! One of the first things that came to my mind when making the decision was ‘I wonder what Trent would think…’

  16. leslie says:

    Scotty: A friend of mine has two kids and a mustang. That situation works perfectly fine for her. I agree with Trent’s advice especially if you both currently enjoy your cars.

  17. Kevin says:

    Jessi – To answer your question, yes, loans continue to accrue interest even after they’ve been sent to collections.

    Amy – Blame the lawyers. The care worker couldn’t apologize, because if you decided to sue, an apology could be construed as an admittance of culpability.

  18. Desi says:

    Student loan question…The collection agent will not take a smaller amount than you owe and the interest will continue to accumulate. And you cannot bankrupt them. You’ll have to come up with some type of payment plan if they even take that. A lot of student loans require full payment after defaulting. If that is the case, save up the cash in your savings account and save it up until you can pay off the loan in one payment.

  19. Sheila says:

    I always wonder about staying home when kids are young, then going back to work when the kids are older. Not that anyone said they’d be going back to work, but that’s what often happens. Frankly, after having gone through the teenage years with my kids, I think it should be the other way around. Daycare provides great supervision (despite bumps and bruises, etc.) when a kid is younger. It’s when they’re older that they really need the supervision, IMHO. Those hours between 3:00 pm and 6:00 pm are when teens get into trouble.

  20. Anne KD says:

    We bought a house over a year ago, and I want to grow a vegetable garden. I decided last year to just wait and see how the current perennial flower/shrub garden grows and how the sunlight moves through the year- and besides, I had more than enough to do around the house and learning about my new community. Now I know the best place to set up the veggie garden. I’m hoping to grow enough stuff to sell somewhere which would help pay for the setup of garden beds, seeds, soil, etc. Should I go for broke and set up a medium-sized garden (say, about four or five 4×4 beds) in the hopes that I can sell what we don’t use, or should I start smaller and gradually build on the garden and the selling over the next few years?

  21. Erin says:

    Amy – I know it’s hard when you’re a first-time parent and your kid starts to get mobile and gets bumped. Especially when it happens at daycare and you didn’t see it happen. I’ve been there. But I do think you are overreacting a bit. I’m surprised you went and picked her up for a bump on the forehead. Believe me, in about 6 months you are going to think nothing of this because it is going to happen all the time. Last week my 20 month old had a bruise on her cheek from climbing into her high chair and falling out while my back was turned, and another on her forehead from tripping and bumping her head hard on the hardwood floor. Welcome to toddlerhood!

    Michelle – Someone I know puts 3 carseats in her Prius. You specifically have to look for the brands that are narrower than standard. I think one is called the Radius or Radian.

  22. jim says:

    Keen : Good job on your business success. I wouldn’t buy annuities at such an early age. Most annuity quotes have no inflation increase which you’d definitely need. You’d be lucky to get $15k-$20k /year out of that $500k if you have an inflation increase.

    Scotty: Why not save up cash for the next few years in anticipation of your future kids? You don’t need a bigger car now so drive the cars you’ve got. You said you’ve in good financial shape with 2 good incomes so I don’t see why you need to finance a car at all. Buy with cash.

  23. Sharon says:

    I cannot stress this enough. Student Loans are not your run of the mill loans. The rules are different. As a previous poster said, smaller amounts are less likely to be accepted. Your tax refund will be applied to the loan, everytime the loan changes hands the interest is rolled into the principal along with fees.
    The rules are NOT the same. They don’t go away. And if he is living and working abroad he needs to check out the tax situation on his income. If his employer has ties to the US he may owe US taxes as well.

  24. Marc says:

    @ Keen RE: Annuities

    You should consider putting the funds in a low-fee mutual fund that invests in dividend paying companies – but instead of reinvesting the dividends, use that as your income.

    You should be able to find funds that pay out between 5 and 7% annually of the invested amount while at least maintaining what you put in. This would give you a good starting point from which to budget.

  25. Mary W says:

    #20 Anne KD – If you’ve never vegetable gardened before you should start small and later expand. You can determine what grows best in your yard and with your care. What works for your neighbor won’t always work for you…sometimes for unexplainable reasons.

    Get started on the cheap…construct beds from scrap lumber rather than more expensive commercial plastic beds. Grow as much as possible from seed rather than 6-pks.

    With 80 sf of beds (5 4×4 beds) you’re unlikely to grow enough to sell much…trade with a neighbor, maybe.

  26. karishma says:

    @Heather – Along with everything else you’ve planned, make sure you have some sort of social support for yourself.
    It is impossible to understand how much social interaction you lose once you stop working until you experience it. I always planned to stay home once I had kids, but my boss convinced me to return to work part-time. I am so glad I chose to do that, because as much as I love being home with my kids, I would have gone out of my mind without the interaction and responsibility that come with work.

    I’m also part of a mom’s group in our area which organizes regular playdates and other events, and a frequent comment at our events is how much of a blessing and sanity-saver the group is. And of course, it’s better for the kids too to have social activities with other kids.

  27. rob says:

    @Scotty – My advise would have been: The smaller caps probably cost less to run – save up that extra cash, put an extra $100/month towards that car and pay it off quickly.

    Then start saving all of those payments you would have been making on The old car plus $100/month plus the lower fuel bills etc. Buy the time 5 years rolls around – you will have the cash saved to buy the car you want – and it will be 5 years newer!

    @heather – Dave Ramsey would say to go for it – but to live on Rice and Beans and work your budget tight.

  28. David says:

    On the 101 goals in 1001 days:

    After reading this reader mailbag and your original article on your own goals, I decided to try it. At first I thought it would be easy. I looked to my own financial short, mid and long term goals and hobbies. I quickly began to run out of ideas after #3o or so. Any advice?

  29. guinness416 says:

    Probably the best way, David, is to just brainstorm a bunch of things under several headings and see where you’d like to be in 2-1/2 years with them – Health & Fitness, Family, Education, Marriage or Relationships, Finances, Career/Work, Hobbies, Travel, Culture.

    Then top it up with some “fun” stuff like reading all the Booker prize winners or eating at all of the top ten restaurants in your city or climbing the CN Tower steps or whatever. That’s what I did anyway, although like a lot of people I abandoned the project part way through. You can also google other people’s lists. I agree 101 is difficult!

  30. aaron says:

    Student loans in default are bad, bad news — it’s not like a defaulted credit card balance. You can’t discharge them in bankruptcy without an adversarial hardship hearing; they can take your wages; they can take your tax refunds; they can take your social security payments. It’s a little more like not paying taxes.

    And yes, interest is still building up — plus the borrower has almost certainly had collection fees of 18.5% of the outstanding balance added at around 120 days after default. And yes, those fees are also now collecting interest.

    There are ways out of default: Call the Department of Education since they’re holding your loans now. They will work with you, and and it won’t hurt to ask for a break on the principal… but they’re not required to give it. They will renegotiate the size of your payments based on what you can afford (ask about Income-Based Repayment).

  31. MattJ says:


    I suggest you call up Vanguard and tell them your situation, and see what they offer you. They will probably try to steer you away from variable annuities (though if you’re dead-set on buying one, they offer them in low-fee, non-commission form) and they’re the only financial services company I would trust not to push me into something that’s better for them than it is for me.

    What I’m saying is that if you pay them a small fee for some advice (there may be no fee considering the assets you’re bringing to the table) then considering your goals they will likely try to get you into some income-producing Admiral share funds, even though they would make more money if they just did what you want and sold you a variable annuity. On the other hand, if you just call them up and say you want to drop $500k into a variable annuity, they will assume that you’ve done your homework and decided that it’s the best thing for you, and probably just sell it to you.

  32. Danielle says:

    I’d be very skeptical about putting three car seats across the back row of any car. You literally need to demonstrate to yourself that your car seats will fit in that car. That said, I have a 2010 Chevy Traverse that we bought because our 2003 Ford Focus hatchback would NOT fit two car seats in the back seat and still allow for two adult passengers. Hubby’s car is a motorcycle, so that isn’t an option for children either… and we didn’t want to take both the Focus and the motorcycle everywhere we go as a family.

    I should add that the timing of this was critical because we’re expecting baby #2 in May. We decided to buy a bigger car (8 seats) instead of a smaller car (5 seats), because with our family plans, we could easily outgrow the smaller vehicle before it’s paid off. And we needed to upgrade to something, so the timing worked.

    My advice on the car front is to stay exactly where you are for now, but pay into a savings account whatever the difference between your current payments would be and the higher price of a bigger car. If you can afford to make a payment to yourself for the full cost per month that the bigger car would be… good. Do it and put it all into savings. Wait until you are at least expecting the first one to upgrade, though honestly, one infant carrier for a child under a year isn’t hard to put into a small car; most of those carriers come with bases that you can just install and snap the carrier into place anyway.

    As it is, if you buy now, you lose a lot of benefits that waiting gives. You don’t know exactly when you’ll have kids. You don’t know if there will be infertility issues (I know more than a dozen couples who took 5+ years to conceive.) Your smaller car is probably more fuel efficient. Maintenance on a slightly older vehicle that is smaller and in good condition will probably cost you less than a brand new big shiny car. Registration and insurance will cost less. And the reliability of a new car will go down year by year… and then it may not be as reliable as you like when you are actually traveling with kids in it.

    As for Heather… I highly recommend being a SAHM. It is worth the sacrifice to me, and we really don’t miss the second income more than I’d miss spending such great time with my daughter.

  33. J says:

    @Danielle — search for “sunshine kids 3 in a prius” in Google and you will indeed see three child seats installed in the rear of a Prius.

    The Sunshine Kids Radian series child seats are specifically designed to fit three in the back of most cars.

    I’d post links, but this post would then go into “Your Post is Awaiting Moderation” purgatory, never to be seen by anyone.

  34. Cheryl says:

    For Heather, we have 5 kids, and I was a SAHM until my youngest turned 2, when I took her to work part time with me in the church office. No regrets at all about being home, finances were always tight but my oldest is 24 and married and my youngest is 15. My kids are secure, fun, independent and amazing! Almost done with the 3rd one going through college. Mortgage was paid off last year, this winter we are eliminating car payment and the last of our credit card debt. My hubby is looking at a layoff this spring, and I plan to stick with my part time job and enjoy the time together, instead of diving into a full time job while he is hunting for work. Quality of life definitely trumps having tons of excess money! You sound so well organized about it, so enjoy your kids and don’t feel guilty. You’ll love it when you’re sitting by the pond with the kids instead of carting them to day care. You’re right, you can’t get this time back. Cutting corners is a small price to pay…

    For Anne KD, about the garden, start small. I am really good about planting in the spring, I can put a huge garden in, but the real work comes in the weeding, watering and picking, in the summer when you would rather be at the beach… Have fun with it this year, and if you still love it, try to expand next year. Who knows if you have a green thumb or not? I’m bad with houseplants but do ok outside, where God waters everything.

    Trent, thanks for all your practical advice every day!!!

  35. Karla says:

    @Beth: can you share some spelt, quinoa, and millet recipes that you’ve enjoyed? I use spelt as a substitute for rice and have found a handful of good quinoa recipes but struggle a bit with the millet.

  36. Steve says:

    Scotty’s ship has already sailed, but in case someone else is reading this in the same situation: There’s really no reason to upgrade your car before you need to. I think your problem is (was) in equating “new car” with “car payment.” If you put that $100 a month in a savings account, and later (after your current car is paid off) your current car payment + the extra $100, you would be most of the way to saving up to pay cash for that larger car, if and when you have kids.

    That’s what I did. DW waited until that “Big Fat Positive” before we bought a new car, with the cash we’d been saving for years for just that purpose.

    I personally wouldn’t try to fit a car seat in a 2-door car if I could avoid it. However I would strongly disagree with anyone that claimed you need an SUV or minivan just to put two car seats in. That’s ridiculous. It’s even possible to put three car seats in most vehicles, though you have to put some effort into selecting just the right car seats. Just search for “three across in a [car model]” and you’ll find pictures, specific seats to buy, advice, etc.

    Also, on another topic, the reason VULs are a bad idea has (almost) nothing to do with tax law changing, and (almost) everything to do with high fees and hidden gotchas.

  37. Johanna says:

    @Karla: I don’t know about spelt, but the basic recipe for quinoa or millet is the same as for rice: about 1.5 cups water per 1 cup grain, add salt and other seasonings, bring to a boil, reduce the heat, cover, and simmer for 20-30 minutes until the water is absorbed.

    I like quinoa a lot, and I find that it goes well with semi-sweet seasonings like coriander, cardamom, cloves, and so forth. I also like to add a little dried fruit (raisins, currants, cranberries, or cherries) and some chopped nuts (almonds, cashews, or walnuts). You can add them before or after you cook the quinoa, although the textures will be different.

    Cooked quinoa grains are nicely translucent, so you can work with that to make some really visually appealing dishes. For example: Adding a few saffron threads while the quinoa is cooking will stain some of the grains yellow. Then, if you add some cooked, finely chopped beet to the cooked quinoa, it’ll stain some grains pink. Then you can mix in some cooked, finely chopped spinach (or other leafy green) – the green won’t come off on the quinoa, but it makes a nice color contrast. You can serve the mixture cold as a salad (with a light vinaigrette dressing) or hot.

    Millet has a different sort of texture that takes some getting used to. The grains cook unevenly, so you might get some that feel overcooked and some that feel undercooked. That’s just the way it is – doesn’t mean you did anything wrong. I tend to cook millet with lots of dried herbs (like oregano, sage, or thyme) and serve it with a rich tomato-based dish with lots of olive oil. But I’m not really sure why I do this.

  38. spaces says:

    @Kevin — That’s a nasty, unfounded allegation … Unless you can put up some proof. Can you?

  39. Amy B. says:

    I agree that Heather should make the leap to becoming a SAHM. It seems that you have good backup support and money to do this.

    The year before I left the workforce, we paid the credit cards and banked the remainder of my salary. After four years, only about half of that money is left in our account. It does take a lot of adjustment to wean yourself from two paychecks to one. In our case, we moved four times for my husband’s job – which was a large source of drain on that pot of funds.

    I agree with a previous commenter that time with children who are older is at least as important as time with them during the earlier years. Wouldn’t it be nice if work arrangements that accommodate afternoons with children were more widespread?

    Question for Trent: Can you suggest some ways to best adjust your income tax withholdings? We have over the past several years gotten large tax refunds at tax time, and despite our best efforts to adjust this, we haven’t quite cracked the code.

  40. Mary W says:

    Amy B. – I’m not Trent, but here is my tip for tax withholding. When I do my taxes for 2009 I’ll use the total owed for 2009 and then adjust my withholding for 2010 to equal that.

    For example, if I owe $10,000 for 2009 and have already paid $2000 in 2010 then I know I need to pay another $8000 for the remainder of the year. Divide $8000 by however many pay checks are left in 2010 and adjust withholding as necessary. My problem is the opposite of yours. (I have non-W2 income so I need more taken out to preclude penalties for under withholding.) The same idea should work for over withholding.

  41. Mary says:

    Hi Trent,

    I have a question for you for the next reader mailbag. My husband and I bought a house in February 2009 and got a 30-year mortgage at 5.5%. The mortgage amount was for $62,100.

    We both have neither student loans nor outstanding consumer debt. As a result, we send two full mortgage payments to the bank every month in an effort to reduce the principal as much as possible, while still contributing to IRAs and an emergency fund.

    Through my own ineptitude as to how the bank was withdrawing the funds for these doubled payments, our next payment is due June 1, 2010. However, I have managed to work it out so that the second payment I send each month goes directly to pay down the principal and isn’t applied to the next outstanding mortgage payment.

    We are also anticipating a hefty tax return for 2009, as we bought the house (qualifying for the 10% of purchase price tax credit), were having taxes withheld at the single rate for the whole year, and have maxed out our IRA contributions for the year. We plan to apply this large return directly to the mortgage principal.

    After all this background, my question is: Should I apply my doubled mortgage payments directly to the principal until June, which is when the payments will be caught up; or should I just keep doing what I’m doing and prepaying the payments as well as paying on the principal?

    Please let me know if you need more clarifying information – I’ve tried to explain this as best I can, but I know it’s not a typical situation.

  42. Megan says:

    My husband and I are getting a substantial tax refund this year and we plan to spend the bulk of it to completely pay off my student loans (our last debt, which means we can start putting our pay-off-debt money into savings each pay period). This will leave us with $800 or so, which we plan to use to purchase new tires for his truck and to pay off the tiny credit card debt that we’ve been trying to shake since Christmas (we overspent, as usual, and have been doing the pay-off-card-charge-back-up cycle since then–we do pay it off each paycheck, but always end up with roughly the same balance.) Anyhow, does this sound like a good plan? We’ve been advised by a few people that we shouldn’t worry about paying off the loans b/c of the “low” interest rates.

  43. Megan says:

    @ Kathi: You say that the dealership deal is for 2010 models. As soon as you drive that new car off the lot, you’ll be making payments and paying that 3% interest on a vehicle that has just lost 50% of its value. So that 3% “deal” sounds a bit like steak served on a traschcan lid to me.

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