Reader Mailbag: A Bit of Auden

“You need not see what someone is doing
to know if it is his vocation,
you have only to watch his eyes:
a cook mixing a sauce, a surgeon
making a primary incision,
a clerk completing a bill of lading,
wear the same rapt expression,
forgetting themselves in a function.
How beautiful it is,
that eye-on-the-object look.”
– W.H. Auden, Horae Canonicae

I’m a 30 yr old professional and have saved up about $40k from living within my means sitting in my savings account (I know, I could put it to better use). I contribute about 10-15% in 401k off and on (due to job jumps and 6-12 months working period for eligibility) and have approximately $20k in it. I recently read “rich dad poor dad” and realized it would be a dream come true to no longer have to “work for money”. The book talked about buying “assets”, as in things that would generate more money for me, and use the money generated to buy more “assets”. But I don’t know what to buy. I’d like to keep $10k as emergency money and put the rest to generate money for me. I know I can always buy index funds, but are there any ideas on what I can buy that’ll immediately start making money for me?

I live in Northern Virginia (DC suburbs), so rental property is out – real estate is expensive and rent is a lot cheaper than mortgage.
– Paul

First of all, be aware that Rich Dad, Poor Dad paints an insanely optimistic picture of “making your money work for you.” Remember that it is supposed to be a parable – in his own words, Kiyosaki compared the book to Harry Potter (in the Feb. 2003 issue of SmartMoney).

The idea that you should really take home from the book is that there is a lot of merit in purchasing investments that earn you money without continued work input from you. Fully managed rentals are one type of this. Another type is a stock that has paid dividends over a very long history (and thus will likely to continue paying dividends). Treasury notes are another very stable example of this – they don’t pay as well as the others, but they’re rock solid.

The book essentially proposes that you look for bargains on such assets and keep accumulating them until they produce enough income for you to live on.

If you have about $10K to start with, one place to start might be stocks that pay a strong dividend, as you don’t have enough to really buy rental properties yet and you don’t need the rock-solid stability of treasuries, either.

It’s important to remember that such “income-paying investments” aren’t necessarily the best investments for the long-term growth of your money. They’re simply nice in that they provide a steady income for the owner.

I am very upset. Our Chevron gas card that we’ve had since 1987 is now handled by GM Money Bank. Our joint account now lists my husband as the account holder with me as an authorized user. I didn’t notice this until they start calling to verify purchases as part of their fraud prevention program. If you don’t respond, they block the card and won’t talk to me about anything. I handle the billing and payments on all our accounts, and am incensed that they won’t talk to me. They wouldn’t even let me report fraudulent purchases posted to the account. Are there no longer joint accounts available? What happens if he is incapacitated and unable to speak?
– Cindy

Many credit cards have moved to a single cardholder with additional authorized users, mostly in an effort to standardize accounts. It’s not really anything to worry about.

If you are the main cardholder’s spouse, you should have power of attorney over his affairs in the event that he is incapacitated. This will give you the right to make choices and administrative decisions about his credit card.

I really wouldn’t worry about it too much. For now, it doesn’t change anything about how you two use the cards. If he did wind up being incapable of managing the card, you would be able to do it for him.

When my wife and I got married, we took ‘control’ of a 40K full-service/managed investment account that had been set up for her in the past by her parents. I have been considering turning that into a self-directed account, as the managers of that account just about matched the stock market, and i prefer to just invest in a long term, low fee indexing strategy.

However, we are also underwater on our mortgage by about 15-25K. We have no trouble paying our mortgage and in fact put a couple hundred extra towards principle every month. We are securely employed, although of course you never know what will happen, and ive been considering putting a chunk or most of the 40K towards the principle of our mortgage, to get us above-water and guarantee the roughly 6% return on that money. It also might give us a better shot at refinancing to today’s really low rates. Also might put 5K towards auto loan at 3.9%, which will cut that loan in half.

We also have 15K in liquid savings and another 45K in IRAs and CDs. Any advice?
– Brian

Honestly, your two choices are a wash in terms of long-term gains. There’s no way to tell for certain that over the long haul, you’ll be able to exceed a 6% return after taxes on a taxable investment account. I usually tend to stick with Warren Buffett’s prediction that the stock market will return 7% annually over the long term in the future, which means that after taxes, you’re pretty close to a wash (since we don’t know what capital gains taxes will look like down the road).

Given that it’s a wash, I’d probably put that money into the mortgage. This would have the advantage of ensuring that you get your 6% return and it has the potential to help you pay it off very early, which is a huge boon to your personal cash flow.

Note: I originally misread Brian’s question and thought he wrote 401K instead of 40K in the opening sentence. Here was my original answer, based on that misreading.

That seems good on paper, but there are very painful tax complications to doing that.

If you take $20,000 out of a 401(k) before retirement, not only will you have to pay income tax on whatever you pull out, you’ll also have to pay a 10% early withdrawal fee. This will quickly eliminate about 30% of your savings (depending on your exact tax bracket, of course).

You’re better off leaving the money there. The 10% penalty alone will eat up any potential “extra” return you might earn versus leaving it in the 401(k).

My boyfriend and I live together and he makes a lot more than me because I’m in graduate school. We split bills 50/50 for the house we rent right now, but we’re moving into a bigger house soon and he will pay more of the rent than me. He also has money saved for when we one day decide to get married and buy a house. Since we’re not married or even engaged at this point, I feel a bit guilty that he will be paying more of the rent than me. How do unmarried couples (or married couples, for that matter) reconcile differences in income? It really bothers me when wives expect too much from their husbands financially and I never want to turn into that.
– Kate

I think it’s completely reasonable to proportion bills in proportion to the incomes of the household members. Of course, that proportion would have to change every time there is a change in income for either household member or in household bills.

So, let’s say you have a $15K a year stipend, while your boyfriend makes $45K a year. A completely reasonable split would be that he handles 75% of household bills and you handle 25%. Then, if you get out of school and get a $30K a year job, the split on all bills would become 60/40. Or, if he lost his job and then just got a full time job working at McDonalds earning $15K a year while you were making $30K, you’d be responsible for 66% and he’d only be responsible for 33%.

This way, you’re both handling what you can each handle, but doing it in a way that does tie you together and does benefit you both if one of you achieves financial success, but also makes you both work harder whenever one of you is in a time of need.

Life’s too short to drive a used car.
– Kevin

I love comments like this.

For me, life’s too short to be kept up at night worrying about my car payments.

Life’s too short to have to skip out on a trip to Italy because I don’t have the cash because it’s all tied up in my car.

Life’s too short to get six credit card bills in the mail that you can’t pay.

Life’s too short to trade it all for a new car smell that you don’t have the cash in hand to pay for.

I realized I need sharper skills to get ahead in my industry of landscape architecture. Basically, I need to improve my plant knowledge and my drafting expertise. The problem is, I am having a tough time deciding which skill set to improve first. Plant knowledge is very important, but it’s more of a soft skill because its just all in my head, and would be hard to demonstrate beyond a line on my resume. I could earn a Master of Ornamental Plants certificate over a two year period(about as fast as possible). Drafting is a great hard skill but I would be taking classes on, and it would be difficult to stay diligent with my work schedule. Finally, I love carpentry, and I was thinking of building some simple furniture to sell to neighbors and friends. This would be great because I really need the money right now, and it would be a really handy skill set for life. Also, you often mention starting a side business with hobbies in your writings.

They are all great skills and would each be very helpful in my life and career, I just can’t seem to make up my mind and pull the trigger. Any thoughts?
– Ryan

It’s simple. Pick the one that seems like the most enjoyable to you when you’re sitting around twiddling your thumbs.

It’s the enjoyable things that you’ll go back to time and time again. For example, writing is something I simply enjoy doing and I would do it every day whether or not there’s income. For me, the work is the other stuff – dealing with advertisers, dealing with comments, and so on.

If you’re not happy doing something, you won’t excel at it unless you are prodigously talented.

You often suggest that people focus on doing whatever they would do if money was no object. What would you do if you had a liveable income guaranteed for life?
– Kellie

Assuming I had a nice quiet place out in the country, I’d spend a lot of my time focused on being a great dad. Aside from that, I’d have a giant garden and I’d continue to write, but likely I’d focus on fiction writing at least for a while. I’d master the piano and slowly build up my running ability until I could run a good 5k.

I’d also spend a lot of my time doing volunteer work. There are several projects in my community that I’d love to participate in, but they get squeezed out because of the raw number of obligations in my life.

I like to travel on occasion, but I’m mostly a homebody.

What personal finance gurus do you like? Which ones do you not like?
– Emma

I like most of them. For the most part, almost every “personal finance guru” says very good, sensible things: spend less than you earn, invest the difference, build your own skills.

I tend to have more positive feelings towards some than towards others only because of some of the specifics in what they say. For example, I tend to think more highly of Joe Dominguez and Vicki Robin (who focus on a message of using money to support what you most value in life) than I do of, say, Robert Kiyosaki, who refers to wage earners as “hamsters” in his book Rich Dad, Poor Dad.

The differences between personal finance “gurus” lie in how they present their message and the 20% of their message that differs from the rest of them. Since 80% of their messages are identical and are simply good advice, I generally like most of them (I would say “all,” but I’m sure there’s someone out there that’s preaching something that’s not very cool).

My husband and I are having a small disagreement on how to pay for a neccesary purchase that has come up. Our HVAC (heat and air conditioning) system has reached the end of it’s useful lifespan and needs to be replaced. It is still working at this point with yearly service, but just barely (thermostat needs to be set 5 degrees cooler/warmer to maintain comfortable temp) and is costing a fortune in energy costs. I am a new stay-at-home mom so we are living off of one income. We have $17,000 in savings and are making it fine off of my husbands income, but it is tight, and our savings rate has been reduced to about $100 a month. We plan on having one more child and me returning to work in the next 5 years.

A new system installed will cost $6000 and last 15-20 years. I have applied for and been accepted for a personal loan from my bank at 3.25% interest with term of 60 months, so a payment of about $109 a month, which we can swing. I think this is a great deal, and justify the cost of financing with the fact that the unit will last 4 times as long as the loan, and that with the $1500 energy tax credit we will be able to pay it down more quickly.

My husband thinks we should pull the money from our savings and pay cash so as to avoid “wasting” money on interest, even at such a low rate.

I am apprehensive about pulling this much money out of our liquid savings with only one of us being employed, and figure I could make many many months worth of loan payments with what we have in cash. And after all, if it comes down to it, we can’t eat an HVAC system.

I know you are wary of credit, but what is your thought on this? Our only other debt is our mortgage. (oh, and going without is not an option- here in Carolina it’s 100 in the summer and 20 in the winter!)
– Erin

This is probably something that falls under the umbrella of an emergency, but I don’t think I would completely wipe out my emergency fund for it.

You currently have $17,000 in savings. Spending $6,000 of that would reduce you to $11,000 in savings. Looking at the average cost of living stats for North and South Carolina, that likely equates to at least a few months’ worth of living expenses for you.

Given that buying the HVAC completely out of savings would still leave you with a few months’ worth of living expenses in your emergency fund, I’d recommend that you go that way instead of putting it on credit.

I saw your summer reading list over on Why did you pick those books? Do you really think you can read them all by the end of summer?
– Fiona

I was looking for a reason to cross-post my summer reading list here, so I’ll do that. By the end of summer (Sept. 21), I’m aiming to read the following 20 books for personal enjoyment and growth.

1. The Lacuna by Barbara Kingsolver
2. The Big Short by Michael Lewis
3. The Children’s Book by A. S. Byatt
4. Freedom by Jonathan Franzen
5. Shades of Grey by Jasper Fforde
6. The Selected Works of T. S. Spivet by Reif Larsen
7. The Beautiful Struggle by Ta-Nehisi Coates
8. Atonement by Ian McEwan
9. Austerlitz by W. G. Sebald
10. Cloud Atlas by David Mitchell
11. Wonder Boys by Michael Chabon
12. The White Tiger by Aravind Adiga
13. Netherland by Joseph O’Neill
14. The Progress Paradox by Gregg Easterbrook
15. American Nerd by Benjamin Nugent
16. The Savage Detetives by Roberto Bolano
17. The First Tycoon by T. J. Stiles
18. Tinkers by Paul Harding
19. Little Brother by Cory Doctorow
20. The Book of Basketball by Bill Simmons

Honestly, I’ll probably not get all the way through this list, but I will wind up slipping in a few additional books along the way. I will also probably read them somewhat out of order, too, because some of the list will depend on library availability and the Franzen book (#4) isn’t available until August (unless I get lucky with a contact I have within the literary community who might be able to get me an early one).

So why this list? I usually have a “summer reading list” each summer where I challenge myself to get through a pile of books. I usually pick a few purely fun ones, but also some challenging ones that will push and stretch me. I draw this list from the ongoing “books I’d like to read” list that I keep, which is made up of books I hear about from various sources.

I’m mostly putting this here because I encourage everyone to have a summer reading list. It doesn’t have to be twenty books long – even a three-book summer reading list made up of books that will push you to grow is a great way to spend the idle hours of your summer in an intellectually productive fashion. Grow your mind. Have a summer reading list.

I keep a “what I’m reading / what I’ve read” list going over at Goodreads, if you’re interested. It’ll show my progress as I wind through these books, as well as star ratings of most of them.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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