Reader Mailbag: A Weekend Away

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. Building credit
2. Commuting car for grad school
3. Favorite biographies
4. Moving back to big city?
5. 401(k) rollover or not?
6. Follow-up to Ticket to Ride
7. Homemade bug spray for gardens
8. Preparing for layoff
9. Student uncertainty
10. Maximizing rewards

I spent this past weekend visiting my wife’s extended family. The location was so rural that there was barely a cell phone signal and a decided lack of internet access. It was so quiet and peaceful that I found myself wanting to stay for longer.

The highlight was a leisurely walk to a nearby natural spring with my wife, my children, and some members of my wife’s extended family. We tossed rocks into a lagoon, explored the woods, wandered through a freshly harvested corn field, and played fetch with an excited dog.

What more does an afternoon need?

Q1: Building credit
My husband and I recently started looking into buying a house and found out that it is not currently possible. I have great credit (above 720), but no income and my husband has a good income, but no credit history, so we cannot get approved for a loan. The finance guy at the real estate company suggested that we get three credit cards & start using them immediately and then come back in six months. I had cancelled all of my credit cards about a year ago after attending FPU. But we have decided to go back to credit cards since neither my husband or I have ever had an issue with spending money we don’t have or going off budget. I recently got a Chase Freedom Rewards card, which I added my husband as a joint account holder to, since he’d never be eligible on his own without a credit history. Plus this way all of our purchases affect both our credit scores. My husband is trying to get an AMEX Costco Rewards card since we buy all our gas from Costco (apparently you can’t have a joint account holder on this particular credit card) so it would only affect my husband’s credit score, but his is most important since he has the income.

I know that keeping good credit is important, and at the top of the list is having credit, using it & paying it off every month. However, when it comes to specifics, I have no clue what we should do. Do you agree with what the real estate finance guy said? Should we get three cards? If so, does it matter if this card also comes from Chase, or should it be from a different company? Does the credit limit matter? Or how much of the credit we use every month? Since I won’t be a joint account holder on the AMEX card, should I get my own credit card that I don’t share with my husband? How long do you think it will take my husband to build a credit score that is approx. equivalent to what mine is? Do you have any other suggestions for building credit?
– Lindsay

If your goal is to have good enough credit to qualify for a prime mortgage loan in six months, your best bet is to do more or less what your real estate finance guy said. Get some credit cards, use them, keep the balance paid off, and the go back in six months.

The idea behind simply cutting up your credit cards as described by programs like Financial Peace relies on the assumption that you’re never going to go into debt again. Getting a mortgage is going into debt.

So, how do you buy a house without any credit? You either already have the mortgage before you chop up your credit cards or you pay for the house in cash.

Q2: Commuting car for grad school
I’m a single mom of three kids who has been running a daycare center in my home for nearly four years. Although I love my daycare kids and am making a decent living, I am starting to feel desperate for more mental stimulation and adult interaction. I already have a master’s degree, but it’s in a field that no longer interests me very much, and it would require 12+ hour days away from home. That’s just not feasible for me in my position, so I’m planning to go back to school for a degree in speech pathology next year. I think that it would be good to model study habits for my children as well (they are in 4th, 8th, and 10th grades), and I think my schedule will be more flexible in general both while I am in school and after graduation. Thanks to frugal living and an inheritance from my father, I am completely debt-free with a year’s emergency fund, and the sale of more property from his estate is currently being negotiated, that will finance a significant portion of the education costs (about $60k). I will probably still need some loans, but I have always paid off my debts early, and all my research tells me that the shortage of speech therapists should result in excellent job prospects upon graduation.

Going to school will require a 56-mile round-trip commute most or all days of the week. I currently own a 2002 Toyota minivan that I use primarily for very local travel. My oldest child will be 16 in March and my second will be 16 in the summer of 2013 (although getting their license is largely dependent on their academic performance). So I am considering buying a small, economical car for commuting. Do you feel that the gas savings will offset the additional costs of the car purchase, insurance, and maintenance? I think there will also be a convenience factor in having kids who can drive and help with household tasks, that will also be offset by the safety concerns of a mother!
– Shanda

Well, let’s do the math on this. Let’s say your current minivan gets 16 miles per gallon and you replace it with a car that gets 32 miles per gallon. With gas at $3.50 per gallon, you’re going to save $30.63 per week in fuel, or $120 per month.

Now, does that make purchasing a small economy car worth it? Unless you buy a very old car (and thus an unreliable car), you’re not going to be spending less than $120 a month on the payments and insurance on it. In terms of pure dollars and cents, buying an economical car right now will cost you more, not less.

If your plan involves having your kids start driving the van for local use, though, this may still be a good decision.

Q3: Favorite biographies
What are your favorite biographies? I’ve started reading a few and I’ve found some are amazing and some… not quite so much.

– Ben

I can name a lot of biographies I’ve loved. I’ll just stick with two more recent ones.

Open by Andre Agassi may be the best sports autobiography I’ve ever read. The openness with which he addressed personal failure was stunning.

Einstein by Walter Isaacson humanized the science genius in an amazing fashion. He moved Einstein from mythical figure to real person with a steady hand.

I’m actually currently reading West on West, an autobiography of basketball legend Jerry West and his struggle with depression, and I’m really looking forward to Steve Jobs, written by the abovementioned Isaacson.

Q4: Moving back to big city?
I moved from Phoenix 3+ years ago after selling my small business (a Montessori preschool) and buying a cabin in the mountains for cash. I also went to graduate school and earned an MFA in creative writing in Dec. ’10. When I first moved here, I loved the small town atmosphere. I still do on many levels. When I moved here, my boyfriend also moved here. We lived together initially, then lived separately but still dated and have now split up for good.

My question is whether it seems sane to move back for social connections and job opportunities…or is this magical-the-grass-is-always-greener-on-the-other-side thinking?

My current job is writing for an online company which can be feast or famine financially. I don’t have a house payment up here and would have to pay rent down there…but is it worth it to give it a shot? I have a friend who is willing to rent me her guest house at a moderate price. Or should I just dig in here and make it work?

Currently, I’m frequently strapped financially and lonely up on the mountain without that man in my life (who I no longer want in my life). I have one good friend here and multiple acquaintances. My grown kids live in Phx.
– Sarah

Two questions. What do you want to do? And, more importantly, which route has the most potential for something great to come out of it?

My feeling, from your email, is that you want to move back, but you’re worried about having the finances to make it happen. I suggest that you follow your heart. I’d seek other freelance opportunities to fill your hours when you’re underemployed.

Life is too short to sit where you don’t want to be, lonely and waiting for something better to happen. It’s time to go make it happen.

Q5: 401(k) rollover or not?
Should I leave my money (401k) in my bank or roll it over to either Vanguard or Fidelity? My banker is kind of evasive about what the fees are. He said I have already paid the up-front fees. I feel like I should move my money for lower fees and get a better return, but I’m not sure.

– Cindy

If your banker is being evasive about fees even after they were requested, then I would roll things over to another bank. That’s just not good behavior.

I’ve had experiences with financial professionals who seemed to spend their time avoiding giving straight answers to the questions of their customers. Every time I’ve encountered this, I’ve exited the stage as quickly as possible.

A big part of personal finance is the numbers. If you can’t get the numbers, don’t trust your money with it.

Q6: Follow-up to Ticket to Ride
I followed your suggestion last Christmas and picked up a copy of the board game Ticket to Ride for me and my wife last Christmas. Since then, we must have played it a hundred times! It’s a great game! Of course, with having played it that much over the last nine months, it’s starting to be just a bit stale. Do you have any good game suggestions for us?

– Charlie

It really depends on how it’s getting stale. If you’re just getting tired of the map and you seem to be just exploiting the same routes over and over, try getting one of the Ticket to Ride Map Collections (here’s the other one). That will give you plenty of fresh terrain to find routes on.

If you’re looking for a new game with a similar complexity, I would suggest trying Carcassonne, which is a game where you build a map together of the French countryside, or Thebes, where you’re excavating an archaeological dig.

Another approach would be to simply find a gaming group, like Des Moines’ own Community Game Night. Many larger cities have these, where adults gather once a month or so simply to play a wide variety of board games. It’s a great way to meet people who also enjoy gaming and try out a lot of games.

Q7: Homemade bug spray for gardens
Do you have a mixture for bugs in the garden? And/or something that is eating at my squash plants – something to mix up that we can spray on them. I used to have one but can’t find the recipe. It was dish soap & something?

– Rajiv

There are lots of bug sprays that work with varying degrees of success, depending entirely on what bugs are attacking your garden.

The one we use as a general purpose spray is a mix of four parts water, one part dish soap, and one part rubbing alcohol. This seems to get rid of a lot of pests.

If this doesn’t work, we take a bunch of leaves from our tomato plants, mash up a few garlic cloves, and let the leaves and cloves soak in a mix of four parts water and one part alcohol for a few days. We then strain the liquid and spray it on with a spray bottle.

These two take care of almost everything save the dreaded Japanese beetle.

Q8: Preparing for layoff
I am going to be laid off at the beginning of next month. I’ve been applying for jobs but there’s a good chance I won’t have anything lined up by then and will have to go on unemployment. My husband is self-employed and his pay is variable. There’s a good chance that we simply won’t have enough income to pay our bills, even though we are doing everything we can to reduce them.

My credit score is currently 805 (hubby doesn’t have credit) and so I got a $4000 personal line of credit at my bank for emergencies (at 7%). I’m worried that if I am actually unemployed, my credit score will drop and the bank may revoke the credit, AND I may not be able to use my credit cards either as they may lower my limits. Other than saving as much as possible, what do you suggest I should do to prepare? Should I simply borrow money now and put it aside (we won’t spend it unless we need it)? We will have about $4000 in expenses each month (since I’ll have to get Cobra at $1000 a month) and we will only have about $3300 coming in, as long as my husband has work.
– Rachel

Obviously, your first line of defense is to start living as cheaply as possible. The more cash you have on hand, the better.

If you’re expecting unemployment, you should start your job hunt today. Not next week or next month. Polish that resume until it shines and start sending it out right now. Don’t wait around for the official pink slip. Also, don’t be afraid to accept a position in the short term that’s “beneath” you.

You also should check into unemployment offered through your job, as well as any severance packages. Employers prefer that you don’t get such things as it saves them money, but you have the right to it.

Q9: Student uncertainty
I graduated with my degree and $8000 in debt. When I graduated I could not find a position (retail or anything) for quite some time. Emotionally, this frightened me: I’ve been working since I was a teen and saving for my education. Since that time I have found a decent position which pays alright. I also cut my budget down to a minimum. During this time I really questioned what I wanted out of life and was really honest with myself – and I want to go into teaching. To do so, I essentially have to do 2 more years of university for teachable subjects and then the professional development program for another year. During the 2 years of “upgrading” my degree I will continue to work – but at a bit of a lesser rate.

I’ve cut down costs as much as I can. I’ve moved back home and pay a modest food and boarding amount. By December I would have paid off all debt and have $1000 in emergency savings.

Essentially my conundrum is what to do… I have two options – get my pre-requisites completed in two years. Or get them done in three years… With my current projections and modest lifestyle I will still have to take out $7000 in student to cover the cost of training to be a teacher with the first option. However, the longer I stay out of getting into teaching, the longer it will take me to get a classroom in the province I live in. Do I work the extra year and try to save more money to cover the costs? Or do I take the leap and get the training done and hope to get a position after? Since the world seems to be in such a tumultuous state (or may be it’s just the reality of the real world work setting in) – I don’t know how to quantify and qualify the opportunity costs. I feel that I will feel worn out by the amount of work, schooling and volunteering I have to do either way. However, I don’t want to stretch out the route to a professional career which would put me on the track to better earnings…

How do I go about this choice? I will have no retirement savings and I feel like I am penny-pinching (I track every cent and will more often than not decline coffee nights/ restaurants and re-evaluate every purchase). My social life has been slashed as I’ve moved away from my friends for work and school. Stress levels are high but currently manageable. This question is as much about finances and it is about keeping mentally healthy.
– Chris

Choose the path that you feel leads you toward the best mental state. If that means going to college right away and putting on a bit of extra debt, do it.

Mental well-being and a sense that you’re moving in the right direction in life is incredibly valuable and is usually worth a bit of student loan debt. I know far too many people who put off education, found themselves getting slogged down, and wound up on a track in life that led straight to unhappiness.

You’re living frugally enough that you’ll minimize your expenses, which means that you’ll minimize your debt load during this situation, too.

Q10: Maximizing rewards
I have a Mastercard that gives me Airmiles on all of my purchases, which I use for basically all of my purchases and pay off each month in full. I use these points (if I have enough) to buy flights home several times a year. I get 1 Airmile per $20 spent on the Mastercard, plus any bonus points offered at the stores I visit. These bonuses range from 1-50 Airmiles, and I only partake in the bonus offers (eg. buy 3, get 20 points) if it’s an item that I will use and already buy, like shampoo. One-way flights range from 500-3000 points plus service taxes.

I have several friends who swear by the President’s Choice Mastercard. This card gives you 10 points per $1 spent, and 20,000 points gets you $20 in groceries at any Loblaws store (Great Canadian Superstore etc). They like it because they get free groceries every couple of months from the points they’ve earned. I’m thinking about getting one, but using it would decrease the number of Airmiles points I could earn.

My question is: is there a good strategy to maximize my rewards, like flights and groceries, with two or more rewards programs? Should I just worry about saving the most money/earning as many points as I can with one program? How do you choose? Are point-based rewards programs really worth it?
– Anna

The President’s Choice card actually isn’t that good of a card. Let’s say you run $2,000 through that card, earning you 20,000 points. That 20,000 points becomes a $20 discount on groceries. You’re essentially earning a 1% reward, which is lower than you can get on a lot of other cards.

Your Airmile card seems even worse. 1 Airmile per $20 spent is a horrible rate. Most airline travel credit cards offer one mile per dollar spent, with additional bonuses for other purchases. The bonuses described here make up for it, but the baseline rate is bad enough that I would avoid the card for most purchases.

I would suggest researching some cards carefully and moving to one that offers a return of at least 1% of your purchases in value. My card from the local gas station, for example, returns about 3% on every dollar spent.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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