Updated on 06.29.11

Reader Mailbag: Art Museums

Trent Hamm

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. Am I oversaving for retirement?
2. Same-sex marriage and taxes
3. Pricing of e-books
4. Handling a complex debt snowball
5. The very first step
6. Next steps for young programmer
7. Sharing costs of electronics
8. Calculating cost of bread
9. When should I begin investing?
10. Unexpected retirement funds

Over the last year, my children have absolutely fallen in love with Vincent van Gogh and impressionist and post-impressionist art. Sometime in the next week, they’re going to go to an art museum with a huge impressionist and post-impressionist exhibit.

Of all of the things we’re going to do this summer, a trip to an art museum is easily in the top five for both my five year old son and my three year old daughter. (And, yes, they know what an art musem is and, yes, they know they should be relatively quiet and sedate while there.)

My son says, “I want to get up close and see the brush strokes.” Me, too.

Q1: Am I oversaving for retirement?
I’m 31 years old and have worked in IT at a mid-western university for the last 10 years. I now make $52k/year. My university puts 14% of my income into a retirement fund with no matching required. Many years ago, I started my own Roth IRA and at this point I put aside another $333 into this Roth IRA.

But here’s the catch. I feel like I’m not saving for other things that might be necessary like home improvement projects and emergencies (I do have another $6k as an emergency fund).

I’m mostly looking for some sort of affirmation that maybe I’m putting too much into retirement.
– Aaron

If you’ve been putting 14% of your income away for retirement since you were 21, you’re almost assuredly in very good shape today. By my back of the envelope math, you should have somewhere near twice your annual salary in that account (depending on a lot of factors). That’s a very good amount to have at age 31.

At this point, if you feel your retirement savings is keeping you from other goals, you’re probably okay cutting back on the Roth contributions. Your 14% in your retirement plan is a very good amount for retirement and will leave you in very good shape if you stay in your position for thirty years.

Before you switch, though, I’d make sure that you know why you’re switching. What are your goals with the money if you make a change in your savings? If you can’t identify a clearly stated purpose, leaving the contributions in the Roth is just fine.

Q2: Same-sex marriage and taxes
My partner and I now have the opportunity to marry in the state of New York, but we are confused as to how this will impact things like filing taxes. I know that other states have allowed same-sex marriage before this, but it seems difficult to find firm answers for how this will work. Since Iowa has granted same-sex marriages for the last two years, I wonder if you can speak to it at all?

For example – one particular hurdle that comes to mind is what filing status do we even use on the Federal return? Can we even say that we are married? Or do we file as two single people?

Any information you can point me (and I’m sure the many other similar couples that read your blog) towards would be greatly appreciated.

Thank you so much for all of the help you give to so many people. I was always pretty good with money, but mine and my partner’s lives (we’ve been together for over 6 years and celebrated a wedding, though not legal, one year ago) have benefited greatly from so much of what you have written and shared freely.
– Sarah

First of all, responses about the morality or legality or constitutionality of Sarah’s marriage are not welcome here, whether in favor of it or opposed to it. She’s asking a relevant question about taxes, nothing more, nothing less, and this should not turn into a battle over the morality or legality or constitutionality of same-sex marriage. If you wish to engage in that battle, try this site or something similar.

In Iowa, and the same certainly should apply to New York, same sex couples may file their state income taxes as “married filing jointly” or “married filing separately.” However, federal law does not recognize the marriage (for now), so you will have to file federal taxes as “single.”

The Iowa Department of Revenue has special calculating rules for people who are filing “single” federal returns along with state “married” returns, as our state income taxes are directly based on data entered on the federal income taxes. The calculations are pretty straightforward and will likely be handled in common tax filing programs such as TurboTax.

Q3: Pricing of e-books
i’m in the process of writing an e-book. been reading John Locke’s book on self-publishing ebooks. He says that he only charges $.99 for his ebooks and that this strategy has helped him outsell many more well-known authors.

Just curious as to your strategy of charging only $2 for your ebook on blogging (which i bought and found very helpful by the way). Was there a specific reason you priced it so low? Also, if you are comfy sharing it, how many copies have you sold at this price?
– Mark

I originally priced it low for the same reason that Locke did: if you price it low, you’ll get a lot of buyers because the book is a bargain. Plus, there’s the added factor that the content in those e-books is already available on my website (but spread across a large pile of posts). The e-book is just a convenient way of packaging those posts all into one place.

I sell an average of about six a day. It tends to sell more on weekdays, with a peak often coming on Tuesdays.

It’s not a big revenue stream. The six e-books add up to $12 total each day, but when you subtract out the PayPal transaction fees, the occasional people who try to play games by revoking their payment, and the cost of the e-commerce setup, my daily gains on it are quite low. I usually roll that money straight into upkeep costs on The Simple Dollar.

Q4: Handling a complex debt snowball
I’m wondering if we should start contributing to my husband’s 401K through work or wait. The past few years have been very tough financially; one blow after another. Most recently he was injured and was out of work for almost 6 months. Thankfully, he is back now and even got a raise. We expect to net about $75 extra per week due to the raise. We intended to pay down credit cards before beginning a retirement plan (at least the high interest ones), but now with the raise, I’m not so sure. His company will match half up to 3%. So if he contributes 6%, they will contribute 3%. How do we balance debt vs. free money in retirement.

I am a teacher so I have an automatic pension. We both plan to work as long as possible (he does not like to be idle) and we have not made retirement a priority. We have $30,000 in IRAs at our credit union (low interest rates but no fees).

Credit card debt is as follows:
Home Depot – $772 – 0% but goes to 25% in Dec.
Sears – 417 – 25%
Chase – 10,443 – 8.9% fixed (account bought from countrywide and closed)
Lowes – 4,040 – 4.9% fixed and closed to preserve low rate
Penneys – 3,081 – 6.9% fixed and closed to preserve low rate
Capital one – 5049 – 0% until next May, then 18 %
Credit Union – 4840 – 7.9% variable, but always good rate
Chase (TRU) – 503 – 19%

I usually use a hybrid snowball plan, meaning I focus on the highest rates first, unless there’s a low rate with a really small balance I can just pay off. I’m just unsure how to use the extra $75 each week; all on debt repayment, or part to retirement, and if so, how much?
– Emily

The only time I would ever suggest that someone forego matching money in their retirement plan is if they’re on the verge of bankruptcy. If you say no to it, you’re saying no to free money.

Another way to think of it is this: when he deposits that 6% into his retirement savings, he immediately gets a 50% return on that money. That 6% turns into 9%. That $100 turns immediately into $150.

Unless you are absolutely desperate, don’t turn down that free money.

Now, as for your debt snowball, I would always order debt by what they’re going to be. Ignore the “teaser” rates that are low for the moment, because if you ignore them, they’ll rebound on you and you’ll essentially be charged painful interest on the high balance that you didn’t touch earlier.

Q5: The very first step
Prior to 2002, I had a good job, earned about $48,000 year and was happy. In 2002 I was diagnosed with breast cancer, which changed my life drastically. I no longer liked my life, quit my job and went to massage therapy school and now I am finally back to a normal life as life can be normal. During my cancer treatment, I made some horrible financial decisions and it is going to take me a long time to dig myself out but I am confident I can do it, just need some guidance. I now have a steady income plus extra income coming in, so I want to see if there is a book and a good budget form to use to help get me started. I currently work full time for a hospital and make about $1,200.00 per month, plus my massage income and I just published a book on amazon.com. I have already noticed that as the money for the book comes in I have been paying bills but not really seeing any income for me to save. I have sold 250 copies but feel the money is going out as quick as it is coming in. I am a single mother and my son is going off to college this fall, but thankfully his college is covered by financial aid this year.

I have decided this week is the week that I really understand my finances so I am taking each bill as I open it and looking but it gets frustrating. If you know of computer program that I could download or a form I can copy off that will help me get started I would appreciate any assistance. I do have microsoft excel to design a spread sheet but don’t know what to put on it.
– Kelly

I’m not sure you’ve exactly figured out what you’re looking for in a computer program. A computer program usually solves a specific problem that you have, but I’m not sure you’ve really sat down and pieced out what that problem is yet.

The first step I would take in your case is to simply start jotting down every purchase I make of any size in a pocket notebook. If you put a quarter in a parking meter, jot it down. If you spend $2 at a coffee shop, jot it down. If you spend $50 at the arcade playing Pac-Man, jot it down.

At the end of the month, go through all of the things you have written down and figure out which ones were useful and which ones were not, then strive to cut out the activities in your life that led to the ones that didn’t bring you much value in life.

That seems to be what you’re going for here, and a pocket notebook solves that problem better than a computer program because of the portability and flexibility.

Q6: Next steps for young programmer
I am 24, I have a full-time job as a programmer. But my salary is low for this type of position, about $2800/month before taxes. I rent a studio with my husband, we don’t have join budget, but we pay a half for rent (about $400 each). I don’t have any student loans, I got my bachelor’s degree outside of the US, I bought a used car for cash and don’t have any other debts. I am trying to buy just necessities, don’t go out very often, try to save as much as I can. I have a good credit, about 720 and about $7000 in savings.

I am a little bit confused what I should do further. I am able to save about $700 each month, but I don’t have any investments, IRA accounts, etc. My question is.. what is your opinion by looking at my situation would be a smart way to manage my money. Should I open an IRA account and start saving for my retirement, or.. just saving to get a mortgage in the future, or maybe I should go back to school to get a degree in the US? I am afraid of having debts and loans, and would like it to be smooth. I am also trying to do some side-programming, to increase my income, but it doesn’t go pretty well yet. At the same time I want to have a kid eventually and I have a goal to earn at least $6K by that time when I will ready to have it.

Is there anything you an advice in my situation? Right now my money is just sitting there without bringing me any profit. But also I read that we should always have an emergency-money just in case.
– Nina

$7,000 amounts to an emergency fund of roughly four months of living expenses (based on what you’re describing), which is appropriate. If you feel it’s a bit on the large side, though, it’s fine to cut your emergency fund down to two months (or so) of living expenses and invest the rest. It’s hard to tell exactly how much that is from your email – you’ll have to run the numbers yourself.

So, what do you do with the excess? The first thing is always to set a goal with it. If you don’t have a goal when investing your money, you’ve got an incredibly good chance of incorrectly estimating your risk. The longer term your goal is, the more risk you can tolerate right now.

If you overestimate your risk (meaning you need the money earlier than you expected), for example, you would put your money into something with too much risk and you’re likely to find that investment with a loss when you actually need it. If you underestimate your risk (meaning you don’t need the money as soon as you expect), you’ll be where you’re at now.

Figure out what your goals are, how long the term is with those goals, and how much risk you can tolerate with those goals. This will lead you right to the appropriate investment.

Q7: Sharing costs of electronics
My boyfriend and I started living together a year ago. We don’t have plans to get married at this point. Other than groceries, all items in our condo are “owned” by one person or the other. Because my boyfriend owns the mortgage, he generally pays for any home repairs or upgrades.

However, we recently decided to mount both of our flat screen TVs, one of which is his and the other is mine. Because it is my TV that is being mounted, and the cost of doing this is pretty high, I volunteered to pay for my portion of the cost of mounting (the mount itself, labor, additional parts, etc.). We decided that if anything is to happen to us, that my boyfriend will pay me back for these costs and purchase my TV from me.

Do you have any suggestions for how we put this to paper? Will he owe me the exact amount I paid for the mounting + an agreed upon price for the TV? Or should the cost of the TV degrade over time? Does this need to be a legally binding document or will a simple agreement signed by the both of us work? Any other suggestions?
– Anna

The concern here isn’t just the television. How much of your arrangement is actually on paper? If your answer is none, your arrangement is a much bigger problem than just your television.

If you feel you need legal documents to ensure the future of this television, then you should ask a lawyer to help you draft an agreement that clarifies your entire property arrangement, because there are clearly some property ownership issues going on here.

Don’t just solve the television problem. Solve the problem in a broader way.

Q8: Calculating cost of bread
I’m trying to calculate the cost of making my own bread vs. store-bought. I’m having to make bread every 3rd day and it takes right at 3 hrs. 40 min. to bake from start to finish.

I have the cost of the bread flour figured out and the cost of the yeast. The salt, sugar and oil are negligible, so I’m not counting them, but the only other high cost would be the electricity used in my bread machine.

Which also brings to mind another question — which is cheaper, bread machine vs. manual bread making? With my machine, I can make one, 2.5 lb. loaf of bread. Making it by hand, I can make 2 to 3 loaves (2 loaves plus some rolls).

Am I getting too critical about the cost of this?

I thought you mentioned that you made your own bread. Do you still do that? Do you make it by hand or with a bread machine? If by machine, do you have a favorite recipe that you follow?
– Carol

I think you’re worrying about it too much. My experience has been that making my own bread is less expensive than buying it, but not inexpensive enough to make it worth the time investment.

If you want to calculate the energy use of your bread machine, the easiest way to do that is to look in the instruction manual for wattage use. If you no longer have the instruction manual, search on Google. What you’ll want to do is convert it to kilowatts (if the unit given is in watts, divide it by 1,000), multiply that kilowattage use by 3.7 (the hours you’re using it), then multiply that by about $0.11 (the cost per kilowatt hour).

For me, though, it’s really all about the enjoyment of making homemade bread. The process is fun for me, so the fact that it saves a bit of money is just icing on the cake.

Q9: When should I begin investing?
My question for you is at what point would you recommend that someone begin investing? By investing I mean stocks, bonds, mutual funds, etc… My current financial picture is this: I have $13,000 in a Roth IRA, which I contribute $50 to every month. I have an ING emergency fund of $4,000, which I contribute $75 to every month. I don’t have any other savings account. I am 26 years old, single, and will be finishing graduate school next year, after which I can expect to earn around $40,000 in my first post-grad school job (in education). I do have student loan debt: $17,000 at 4.2% IR from undergrad (in deferment) and will have about $36,000 at 6.8-7% IR from grad school. The recommendations I have heard regarding investing in stocks/bonds/mutual funds is that you should have eliminated all of your high-interest debt before you do invest. However, if I wait until this happens, it will likely be ten years before I can invest. My long-term goals are pretty simple – be debt free, get married, own a home, be able to contribute a little to my future children’s education, and have enough to retire in my 60s and spend my time volunteering, spending time with family, and traveling. Based on my financial picture, do you have any recommendations on what I could be doing to put myself in a better position as I move towards my goals, and would this include investing in the next 5-10 years?

I currently work part-time while in graduate school and bring home about $1000/month. This goes right to rent, groceries, and the contributions to the emergency fund and Roth IRA. I will also one day inherit approximately 140 acres of land, which could potentially be a great financial asset, but this will be upon the death of my parents and hopefully that is still 20-30 years down the road.
– Katie

The word “investing” is a tricky one. Most people associate it with the things that you mention, but that’s just one part of it. Money sitting in a savings account is invested – it’s about as safe as can be and is incredibly liquid, but earns only a small return. You can look at almost any financial investment from the same light. Beyond that, there are investments in things like bulk food (which saves you money by exploiting the marketplace on things that you consume) or in things like education (which earns you more money over the long run).

Debt repayment is certainly a form of investment. If you make an extra debt payment, it’s the same as making a very secure investment that returns an amount equal to your interest rate on your loan for as long as you hold the loan, but one that isn’t liquid at all. If you owe $40,000 and you make a $1,000 early payment, you now only owe $39,000. 10% interest on a $40,000 debt is $4,000 per year, while on $39,000, it’s only $3,900 per year. That $1,000 investment reduces your interest by $100 for each remaining year of the loan – a 10% return on your money. That’s a very good investment that you’ll never consistently beat in the stock market.

Aside from an emergency fund and a bit of retirement savings, your focus right now should be on wiping out those debts. Every extra payment you make on those debts is one of the best investments of your money you could possibly make.

Q10: Unexpected retirement funds
I was working outside the US for three years. The laws of that country dictated that I contribute 4% of my salary to a pension, and my company contributed 8%. I had assumed that these were pre-tax contributions and I would be able to roll over this sum to my existing 401k. I have just moved back to the US, and right before I left I found out that my pension was post-tax rather than pre-tax, and as such, was paid out to me directly.

So I have a chunk of money that was intended for retirement, and I’m really confused about what to do with it. I have no credit card or non-mortgage debt and an emergency fund of six months expenses, so I don’t need it for those things. I am not eligible for a Roth, and there are limits to how much one can contribute to a regular IRA per year. I have always liked the essential nature of a 401k in that it is untouchable. I need to find an investment option that makes the money less easy to access, isn’t as risky as stocks but has better yields than bonds. Any advice on options to consider?

I know this is a good problem to have, I’m not complaining. I’m just confused.
– Kevin

The better the returns you get, the more risk you take on. If you’re looking for something with the security of bonds, you’re going to have to accept the returns that bonds give you.

If you’re looking for a stable stock investment, your best bet is probably in a large company that has a very long history of paying dividends – or, even better, an index fund of nothing but a set of those companies. The Vanguard Dividend Appreciation Fund is a great example of this.

If I were in your shoes, though, I would probably put this money into a savings account, then max out my IRA contributions with that money for the next few years. This effectively locks it away for retirement, which is how you invested it in the first place.

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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  1. Johanna says:

    Q1, Aaron: Your Roth IRA can double as an emergency fund, since you can withdraw your original contributions without penalty at an time. There is no reason I can think of why you should stop contributing to the Roth and instead direct that money to a separate emergency fund. Just put some of the money within the Roth into a relatively safe investment such as a money market fund.

    You mention “things that might be necessary like home improvement projects.” Are the projects that you have in mind things that are really “necessary,” like fixing things when they break, or are they things like upgrading your kitchen? For me, personally, I’d rather have the extra security for retirement (and thus the option to retire early, etc.) than an upgraded kitchen, but that’s a choice you have to make for yourself.

  2. valleycat1 says:

    Q1 – Johanna #1 commented exactly as I had planned to.

    Q7 – If I had that many concerns on this one issue, instead of leaving this for resolution later on, I would either let the boyfriend pay for the mounting expense & for the TV now, or leave the TV unmounted so I could take it with me. For the other items, I disagree with Trent – for major purchases, I would keep the receipts/proof of purchase in case any disagreement about ownership comes up; but whatever you purchase outside of or before a marriage is yours to keep if you split.

  3. NMPatricia says:

    Q8: Although you touched on it, I think there are other considerations beyond just money for baking bread. One is the enjoyment of the process (or not). The other is health reasons. You can absolutely control what you are putting in your body. Quantifying healthy eating (i.e. not getting sick – especially long term) is hard to do. But definitely counts on the balance sheet of living.

  4. Deborah says:

    Q8: I think the savings on baking your own bread vs buying quality bread (on sale) is negligible. I live in the Deep South, so I have to take into account the fact that A) I don’t have a bread machine, and B) using the oven heats up my kitchen, living and master bedroom. But I really do enjoy the process of baking bread, so I often find time later at night to do it. I just wish I could get a light and fluffy sandwich bread…

  5. Jonathan says:

    Homemade bread tastes so much better than anything that I’ve bought in a store that I would be willing to pay extra if necessary for it. I realize that in some areas it is possible to get this quality of bread from local bakeries, so the quality of homemade vs purchased bread may not be a consideration for anyone living in one of those areas.

  6. Mary says:

    Trent, could you please include people’s ages in relevant questions? In Q4, for example, if the couple is 25 v. 50 the answer to the question could really vary. Thanks.

  7. Johanna says:

    Q6, Nina: Start saving for retirement, definitely. It seems like a long way off, but it’s a big, big goal, and you need a lifetime of consistent savings to get there. Open an IRA (I have mine through Vanguard, they make it pretty easy to set everything up) and start contributing at least 10% of your income. 15% or more would be even better, especially if you plan to take any time out of the workforce (to raise children, for example).

    Other than that, are you enjoying life to the fullest? You say you only buy necessities and don’t go out very often – is that a life you’re happy with? If so (and it is for some people), that’s fine, keep doing what you’re doing. But if you feel like you’re depriving yourself, or if you’re pushing fun things off into the future (if you often find yourself thinking “one of these days I’d like to buy this thing or have that experience”), then take $100 or $200 every month and do something fun with it. Remember: You’ll never be 24 again. (Which is not to say that you can’t do fun things when you’re 25 or 35 or 55, but still.)

  8. Laura in Seattle says:

    Q2, Sarah – I used to live in NY and I know they’re pretty good about collecting your tax money! The NYS Tax Office is probably in the process of drafting information for new married couples in your situation for this year’s income taxes. Check their website once a month or so and keep an eye out – they will probably put together a document with FAQs.

  9. WhiteCedar says:

    Q4: Debt Repayment

    I’d be very cautious about the Home Depot debt.

    Home Depot credit typically offers the no interest promotion where “Interest will be charged to your account from the purchase date if the purchase balance is not paid in full within 12 months…” If you don’t pay it off in full before December, all that accrued interest will suddenly appear on your bill once again.

    If that’s the case, I would make it a priority to pay off that debt before you are charged all the back interest. Twelve months of interest at 25% can be significant.

  10. Johanna says:

    Q4: A few months ago, another commenter here (I forget who) made the really great point that it *can* make sense, from a pure numbers perspective, to give up matching retirement funds to pay off high-interest debt. The key question is, how long is it otherwise going to take you to pay off the debt?

    If you have a debt at 25% interest that you’re on track to pay off two years from now, then every extra dollar you put toward the debt today will save you more than 50 cents in interest (because of compounding). So it may make sense to give up a 50% employer match and instead put some extra money toward that debt.

    Also, to comment on Trent’s answer: If you’re actually on the verge of *bankruptcy* (meaning going to the courthouse to declare bankruptcy), then stopping your retirement contributions in order to pay down credit-card debt should be the *last* thing you should do. You’d be taking money out of an asset that’s (probably) going to be protected in bankruptcy in order to reduce debts that are just going to be discharged. That makes no sense.

  11. Jonathan says:

    I read Trent’s comment regarding bankruptcy to mean that it is a good idea to stop contributing to the retirement account if it will allow you to avoid bankruptcy. Obviously if you’re going to file anyway, then paying anything towards the credit card debt is just throwing money away.

  12. Des says:

    Comparing homemade bread to store-bought bread is really apples to oranges. Its like doing a comparison between a McDonalds hamburger and a homemade, fresh off the grill hamburger. They taste different, they smell different, they feel different in your mouth, they cost about the same, but you pay a price in time and effort for that superiority. I LOVE homemade bread (and I love making it), but with our (fairly typical American) schedule it is a treat rather than a staple.

    Carol, you’re stressing over pennies here. Unless you are VERY badly off at the moment, it is probably costing you more in time to do the math than you will save by making it yourself. Do it because you love it, not because grocery store bread costs too much.

  13. Katie says:

    It is accurate to say, though, that buying bread of comparable quality to storebought bread will cost you a lot more. I can buy bread much more delicious than that which I can make at home (since I don’t have an awesome oven or awesome baking skills), but it’ll cost $4 or $5 a loaf, which is a huge difference over homemade bread.

  14. valleycat1 says:

    Regarding art museums & kids – when my daughter was in the preschool years, she did better & enjoyed herself much more at quiet, cool, calm places like museums & caves than she did at more kid-oriented places that were noisy and high-energy.

  15. Borealis says:

    Whenever you make financial arrangements with friends, family, or significant others, put them down in writing. The point is not to make them legally binding, but to make sure both sides understand the agreement now and in the future when it becomes important.

    Most breakups have huge fights over stuff because each side remembers the agreement differently and thus both sides insist they are morally right.

  16. Paul says:

    Regarding Q2, I live in Virginia. We are required to file our Virginia state taxes with the same filing status that we use on our federal 1040. So if you have to file single for the feds, you would have to file single for Virginia as well. I wonder if other states, and in particular, those that recognize same-gender marriage, have similar tax filing restrictions?

  17. Suz says:

    Q2: i would recommend that once the tax laws are put into place, go online to the IRS calculator and see what the differences are for filing married vs married but withhold as single. I am newly married (hetero) and was unpleasantly surprised that I would owe a ton of money if I filed married, so I have to file married but withhold single and I am barely getting anything back.

  18. Andrew says:

    In Massachusetts, same-sex married couples file as “married” on the state return, and as “single” on the Federal return. As far as I know, there have been almost no bureaucratic problems on the state level.

    I trust NY will implement similar procedures. It’s really just a matter of computer code and paperwork.

  19. Ally says:

    I hope your children have a wonderful time at the art museum. Since my school budget doesn’t include trips to places like NYC, I often take my students on virtual field trips via Google Art Project. It allows them to see get closer than they might ever get in real life. It’s also a lot of fun!

  20. Ditto on WhiteCedar’s response to Q4: Check the Home Depot deal carefully; I’ve seen a number of store “0%” deals that retroactively charge 25% all the way back to the start of the loan if you don’t pay all of it off by the deadline. If that’s the case, you may well get hundreds of dollars of interest dumped on you all at once if there’s any balance on the loan the day the deal expires. So you’ll probably want to attack that debt first if you can.

    As Trent mentioned in a previous post, you’ll also want to look at cash flow issues carefully. Is the minimum payment going to go up when the Cap One rate goes up? If so, is that something you can handle, or is that going to put you ina crisis? If so, reducing that debt balance (or refinancing it) to avoid a cash flow crunch may be more important than contributing to the retirement account at first, even if the latter would yield you more eventually.

  21. Tom says:

    To Paul: Trent mentioned that Iowa has a special tax table for same-sex married couples in their state, as they would file single federally. I would imagine this is how states that allow same-sex marriage (or civil unions with marriage tax status, though I’m not sure if this actually exists) will handle it.

  22. Bill says:

    @1 question and #1 response, the problem with using a Roth IRA as an emergency account assuming you are maxing it out. Is you can’t put the money back and once you have some cash built up (and it is your only cash) then every things starts to look like an emergency. Car needs a new transmission? 2K? that 2k will no longer compound interest till you retire.

    You need real cash to level out lives bumps. Really bad emergency’s I would raid the Roth IRA’s contributions before the 401(k)’s but there really needs to be a substantial cash barrier that gets rebuilt after each hit.

  23. Johanna says:

    @Bill: That objection has come up before, and you’re wrong. Compare the two situations:

    On the one hand, you put the emergency money ($2k in your example) into your Roth IRA, and risk POSSIBLY having to withdraw it later (and thus not have it compound tax free until you retire).

    On the other hand, you could put the money into a regular savings account instead of into the Roth IRA, in which case you will DEFINITELY not be able to have it compound tax free until you retire.

    From a pure numbers perspective, there is no possible way that the first situation will leave you worse off than the second situation. (Taking additional things like psychology into account, there may be a reason why it would make sense to keep your emergency fund separate from your Roth IRA, but I can’t think of what that reason would be.)

    Also, in Q1, Aaron says he’s currently putting $333/month into the Roth IRA. That’s $4K/year, which means he’s already not maxing out the Roth. And he’s asking whether he should *decrease* his Roth contributions to build up a separate emergency fund (in which he already has $6K). So your “assuming you are maxing it out” assumption does not apply here.

    If Aaron’s question had been “I’m already maxing out my Roth IRA and I want to have all of that money available for my retirement, and I want to save some additional money for emergencies – where should I put it?” then of course the answer would be “in a regular savings account or CD, not in the Roth IRA.” But that’s obvious – by definition of “maxing out,” you can’t put any more money in the Roth if you’re already maxing it out.

  24. Jeff says:

    I would suggest looking at I-Bonds. You can contribute $10,000 a year (5 electronically, 5 in paper bonds), the money is untouchable for a short period of time (1 yr I believe) and then has a penalty for withdrawal before 5 years (3 mo of interest penalty). They are bonds, but they are indexed to inflation, so they are guaranteed to rise in real terms, as opposed to nominal bonds, which may not keep up with inflation.

  25. jackowick says:

    #1 Johanna, judge much? Here’s another way to look at “Necessary home improvements”. These can be a scheduled new roof (I’d rather replace mine before it goes bad but late into the amortization of the prior roof’s costs), baby conversions (changing to solid/less open railings, nursery), elder care considerations for older parents if they live with you (knowing that someday you’ll have to put in a ramp to the porch or a first floor bathroom).

    These are things that people can schedule that they do “need” but don’t have to keep in a highly liquid asset for withdrawal on 24 hours’ notice. Now if you want to nitpick the wording and say that a roof is maintenance, not an improvement, you’re still making the judgement that this person just wants to get the newest/latest kitchen and not trying to offer advice.

    To Q1, this is pretty old school, but make a needs/want list for the house and other things that are larger purchases. Then see what your retirement discount would be for each of those if you were diverting funds. Maybe some new paint or paying for a hardwood floor conversion is something that is reasonable, or maybe you have to save X dollars for a future Mother-in-Law suite conversion, but your retirement would have to be delayed by a year. But maybe some repairs/rennovations would also pay you back in home value if you plan on selling prior to retirement. Making a long list and playing mix and match is the first thing I would do, to help define the wants, needs, and costs.

  26. jackowick says:

    #10 Q4 I couldn’t agree more with Johanna, you do have to look at the numbers sometimes to see that giving up part of a match might make sense in some scenarios.

    Also look outside the numbers: are you looking to reduce debt because you may be doing something where your credit report is going to be reviewed i.e. getting a mortgage or car payment in the near future? Losing a little matching funds may pay off if it helps you lower debt or increase the down payment on a 30 year mortgage. Is your job and employer stable? If you think they are in murky water and benefits may be reduced, you might want to take the bet that killing your matching upside now vs in six months when HR hands out the new “benefits handbook” may not feel as bad.

    I’m a big fan of lists. Play around with the numbers. While being efficient with money is usually a black and white issue of “greatest return”, if the numbers for your are “close”, go with what makes you FEEL better. If choice A is a net return of 5% and choice B is a net of 6%, but choice A helps you sleep better, then do it!

  27. Carrie says:

    My family went to see the Monet Water Lillies triptych at Kansas City’s Nelson-Atkins Museum. It was an excellent show! They loved being able to get right up close to these huge paintings. I’m sure it made the docents and guards nervous, but we kept an eye (and a hand) on the little ones so they could learn appropriate behavior in a museum (aka look with your eyes, not with your hands). I think taking kids to a museum is an excellent idea!

  28. Stephanie says:

    I make dinner french bread for my family and find what makes it cost effective timewise is that I make it in bulk–never less than 8 loaves and a time and sometimes 12. It takes the same amount of time and mess to make 8 loaves of bread as it does to make 2.
    This way, I’m able to make a “batch” about every other weekend and it’ll last our family of 4.

    Like you, though, I would make it whether or not it was cost-effective timewise because I love doing it. It’s a nice way to enjoy making something with your hands. Also, it’s the best bread ever–I’ve had high end-bread, french bread in France, all good but nothing breats it. It’s my husband’s family tradition, family recipe and it’s on my blog here:http://wordamour.wordpress.com/2009/04/12/the-one-with-the-french-bread-recipe/

  29. tentaculistic says:

    Wow, I’m so impressed that everyone is playing so nicely in the sandbox! I was so not expecting that when I read the questions today :) Good job folks on all the civility!

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