Reader Mailbag: Birthday Celebration

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. Starting a garden from seed
2. Losing my job next summer
3. Splitting rent and utilities
4. Dealing with a challenging year
5. Time to have a child?
6. Double disabilities: what now?
7. Budgeting and taxes
8. Prioritizing student loans
9. Child now, with payoff?
10. How much for retirement?

The best birthday parties I’ve ever seen are simply ones where a person gets to spend time with people they truly care about and value. If you want to make someone’s birthday special for them, give them time.

I’ve been trying to start a garden from seed for the last two years and I just cannot seem to get strong plants. This last year, I started the seeds in peat pods in late January, which I moved to medium size pots once the seedlings were about 2 inches high (these pots were kept inside until mid-May). However, most of those plants didn’t grow at all or died in the medium pots. The ones that survived did not transplant in ground very well. Is my timeline too compact, do I need to start the seeds earlier? When transferring the peat pods to should I remove the webbing to allow the roots to expand?
– Nikunj

First thing: were you using any sort of grow light with the indoor peat pods? Grow lights are absolutely essential, because there is insufficient sunlight during the winter months (in the northern hemisphere) for most outdoor garden plants to survive indoors.

I don’t think your timeline is too compact. It just takes practice, adequate water, adequate light, and perhaps a bit of fertilizer as well.

Your best bet is to visit gardening message boards and simply ask for advice on creating the best possible early growth environment for the types of plants you’re trying to raise. While you won’t be able to fully imitate that, you should be able to approximate it well enough to have success with your seedlings.

I am going to lose my job. In one way, I am lucky, because I am finding out about 10 months in advance, but I’m still worried about my future. My entire department has learned that we will not be funded next year. Because we work for one department of a large university, there is always the possibility that I will be able to find a new job before I become redundant, however it is not likely that I will find one at my current pay rate. I have been debating starting my own business for a while, and could move forward with that plan if I cannot find another job at the university, or I have considered renting my house out and going to work overseas for a year or two. I wouldn’t build any wealth doing that, but it would be a great experience.

I am single with no children (or plans to have them), and I purchased a house in July 2009. I currently rent out the second bedroom to a grad student who will be finishing school around the time my job ends. I can afford to live in the house on my own, but having a roommate gives me more financial flexibility. I own my vehicle outright and have some minor credit card debt which is usually paid in full each month. I have been putting extra money toward the mortgage and estimate I have made about 5 extra payments in the year I have owned it. I also have a vacation planned for this winter. I’ve already purchased the tickets, and my on-the-ground costs will be around $1K, so I do not plan to cancel it.

I have about $7500 spread out among various bank accounts, plus $15K in a Roth IRA, $13K in a 401A and $5k invested in a stock fund. I do not want to touch the investments at all.

With the time remaining until my job ends, should I continue to invest in the Roth IRA? Continue to put extra money toward the mortgage? Or should I instead put as much money as possible into my savings accounts?
– Mary

Your first step is to figure out what your next step will be once your current job goes away. Are you going to actively job-hunt? Are you going to attempt to launch this side business?

Whatever you decide, start focusing on it now. If you’re seeking a new job, now is the time to get your resume straight, because the job market is rather soft (to say the least). If you’re thinking of launching a business, start the launch process now, not later, so that things are in place and running by the time you walk away from your current job.

If you’re switching jobs, I would halt the Roth payments and direct them towards an emergency fund until I had a job locked up. Once a job is in place, I’d move all of the saved money into the Roth. If you’re starting a business, keep contributing to the Roth.

My question is this, my boyfriend and I have been living together for a little over two years and now we are both beginning our careers. However, his income is substantially less than mine, I make about $700 more a month. We live in Los Angeles, not a cheap town by any means and I’m beggining to reconsider our financial situation. I have heard from other people that we should split our rent and utilities based on our difference in salary, however, I have some serious school loans, about $32,000 to pay-back and I was hoping to use a good amount of my ‘extra’ money (I live well below my means) to do so. What would you do?
– Lauren

Are you in this relationship for the long term?

If the answer is yes, then your financial futures are tied together and it benefits you to look at your combined state and make whatever choices will put you together in the best financial place. There is no “who pays more rent” to the question at that point. You keep the rent paid and focus on getting rid of the highest interest debt that either of you have.

If the answer is no, then you should absolutely go for equal rent. Living together is a financial arrangement in this case and your personal wealth has no bearing on the rent arrangement.

I have been a very fortunate person in many regards. Through the generous assistance of my parents and grandparents, I was able to graduate from university with no debt and was also able to major in a subject that I loved. While this major (theatre) did not lead directly into a high-paying career, I was able to leverage many of the skills I learned at university into valuable on-the-job skills. (Theatre is a subject chock full of transferrable skills and many of the people I went to school have found satisfying and lucrative work outside the entertainment industry.)

I worked for a construction company for three years and gradually kept earning more money, although the work was very hard and I was often depressed. After work, I would often shop to make myself feel better if I had a tough day. During work, I was constantly browsing websites for little treats for myself. I managed to save some money, but I also racked up some credit card debt. It didn’t seem worth it to me to pay that debt down – what was the point of working a job I disliked if I couldn’t also have nice things? Mind you, I had a very nice life – but this wasn’t enough. I was always looking for something else to want. I was almost relieved when I was laid off as a result of the market crash. The past year has been transformative for me. I moved to another country to get a Master’s degree in another subject that I love, and managed to get accepted into one of the top PhD programs in the world. Now, here comes the hard part: I can’t afford it. The solution at the moment is for me to return home and spend the year working and applying for scholarships in order to return to school in 2011. I know that this is the smart thing to do and that the short term pain will yield long term gain.

The question I have for you is more personal than financial. This is going to be a tough, challenging year and I have a lot of daunting tasks ahead of me on the path towards getting funding for my dream school. I will be a couple thousand miles away from my boyfriend, and there is no guarantee that anything is going to work out as I have planned. What advice do you have for staying positive, focused, and productive in a difficult situation? I am certainly going to take advantage of counselling services, and I already exercise regularly, eat well and am careful about my alcohol intake. I do, however, get the blues. I know that what is happening to me is part of life, but I also feel very scared about the future. I am afraid that returning home will put me in a rut.
– Slaney

The absolute best thing you can do is establish a very positive routine right off the bat and stick to it. The old saying “the devil finds work for idle hands to do” is true in that time spent just wandering or bored is time that often develops into dangerous and negative habits and routines.

Fill your spare time with personal goals. The exercise routine is a start, but keep your mind exercised as well. Set some sort of reading goal for yourself, an ambitious but reachable one. Fill your time achieving those goals.

If you “escaped” a negative situation with your personal life when you lived with your parents, avoid falling back into it. Do not re-establish contact with anyone that was part of that negative situation.

My wife and I are both gainfully employed. I work as a teacher and my wife works for a non-profit here in Florida. My question is that we are strongly considering children but want to do things different then both of our parents and some friends are doing. We want to give our children a better childhood then we had. Don’t get me wrong we had fun as kids but we both come from households where statements like “we cant afford that” was the norm for items that were paltry in cost. We make about 80k combined and live pretty frugally albeit going out to eat a few times a month and traveling frequently.

[…] My question and concern is this. My job is very stable as a teacher but my wifes job with her non profit works off of grant-funded contracts, so when the money runs out this fall they will be laid off if it the contract does not get extended which it possibly will be through June of 2011 we don’t know yet.. She has received an offer from another non-profit but they to are grant funded also but their grant goes through Sept. 2011 with a strong possibility of extension(Its in the green industry).

We have about $2,000 in emergency savings that we are continually adding to, about 50k worth of student loans currently in forbearance until next year, and debt from earlier in college that have just about reached the 7-year statue of limitations mark so it should be falling off of our credit. Would it be ok in your opinion given the circumstances to go ahead and start having our first child?
– Faith

What do you mean by “giving your children a better childhood”? What will be better about it than what you had?

Spend some very serious time thinking about that question. The best childhood you can give to your children is one where they’re not having to compete with distractions – careers, substance abuse, personal interests, etc. – for your attention. It’s not about buying them an armload of stuff – for children, stuff is merely a distraction from parents who aren’t paying attention to them.

You can give your children the best childhood in the world on a shoestring budget earning much less than $80K. It’s not about stuff. It’s about time.

My wife and I are both disabled and are on disability pensions I am on Canadian one and she is on Social Security. She is not allowed to work at all as a requirement of here pension while I am allowed to work a modest amount on top of the pension. All of our income came to 42000. We have availed ourselves of the Canadian Registered Disability Savings Plan and have together 37000$ which can’t be touched until we are 65. My doctor says that he believes that neither of us should return to full time work, If I was to go off of my pension I would have to pay 13000 in prescription costs for an experimental medication for my disability. We have been thinking of purchasing a low end rental property or two for our retirement. We own our home outright except for a line of credit that we used to purchase our adaptive car. We only have 14000$ left to pay on it. This month we are scheduled to receive a 5400$ settlement and a9000$ in january. Our income this year will likely go down by 7000$ this year. We intend to pay off the line of credit as soon as possible. Should we borrow the down payment for the purchase of the property and then purchase the property or should we wait? Property prices seem to be going up here. We do not have an emergency fund but over the last five years have always paid off our credit card bill at the end of the month. We live simply. For four years after our marriage we did not have a car because we wanted to pay off our mortgage a quickly as possible. We buy everything at a discount and thrift stores. On top of everything else we just had a major flood but are not in trouble because we received the first check from the insurance company and we had the money that we were formerly paying on our mortgage. I would like to start with the property investment before prices go up. We are looking to rent them out over the long term. We would hope that the investment property is paid off by the time that we reach 65 when our income will drop. Is this a good plan?
– Austin

With all of these numbers, the one that would concern me the most isn’t here: your monthly cash flow. You have $42,000 a year coming in. How much is going out?

From what I can gather, you’re breaking even right now and are about to experience a $7,000 reduction in your income. If that’s the case, you should not be borrowing additional money. You should take the settlement money and use it to pay off the line of credit to free up your cash flow so that you can survive the downturn in your income.

If owning a rental property is your dream, you’re going to have to make some other cuts in your spending to be able to afford it (since earning more isn’t an option). If you can’t, then it’s not a realistic dream.

Every financial blog/book/article I have read on budgeting talks about figuring out your gross pay and then breaking it into percentages e.g. 60% of gross for living expenses, 10% for debt reduction, 10% for short term savings, 10% long term savings, 10% for fun.

So WHERE do taxes fit into all of this??? I have never seen a good answer–or even anyone addressing this. If you want to use this on the blog–feel free–but I would love a response back personally if you are able. And maybe you already have answered this but I have overlooked it.
– Leigh

The obvious answer here is that they’re talking about post-tax dollars, not pre-tax dollars.

The best way to make this type of “60% solution” actually work in a person’s life is to apply it to each paycheck after the taxes are already taken out. You utilize 60% of your take-home for living expenses, 10% for debt reduction, 10% for long-term savings, 10% for short-term savings, ant 10% for fun.

In fact, I’d go even further and look at it as post-tax and post-401(k) money. This really should be used in the context of your paycheck that you bring home, nothing else.

I’m in graduate school this year-last of 2 years. My tuition has been covered by a scholarship, and I live about an hour away from the school. I’m a working adult with 3 kids, so I can’t really take on much more work. The fees and books come in around $1500-2000 per year. Last year I used our credit card for this and it’s really bitten us in the butt! So two questions:
1. Would you recommend taking out the Stafford Subsidized Loan? The rate is much lower than the credit card-6% to 28%, but that’d be another payment.
2. Do I take out all the Stafford money I’m eligible for to help with last year’s credit debt? It wouldn’t get rid of the credit card, but would be similar to a transfer.

– Samuel

Yes, you should use the subsidized loan here to pay for your credit card debt. In effect, you’re using this year’s loan to pay for last year’s textbooks.

That’s the purpose of having student loans that cover more than your tuition – they also ensure that you have the textbooks and supplies that you need if you don’t have the cash to pay for them.

If I were you, I’d take all of the Stafford money, buy your books, and pay off as much of the credit card as I possibly could. That student loan debt is better than that big pile of credit card debt.

I am 27, living in Brooklyn and married. I have a very high-paying job that I absolutely hate, and my husband has a lower paying job that he’s frustrated with but is dealing. I have about $70,000 in law school debt and we have another $20,000 in debt from a business that my husband started right before the crash (we have, incidentally, whittled that debt down from $60,000). My question is when I should leave my job. Put simply, I can’t stand it. I work at a large law firm and the work is both mind-numblingly boring and incredibly stressful. I want to start my own small business as either a lawyer back in Austin (where I went to law school and have friends and connections) or earn money online through e-books and affiliate marketing. I believe that I can be reasonably successful at either of these options (eg run with a very low overhead, come out in the black, and make enough to at least make my loan payment each month). My husband can do his job from anywhere and would be able to support us on his salary alone in an inexpensive city like Austin (but with essentially no savings). Right now our emergency fund is pretty much nil.

We are expecting a large tax refund soon and we have been steadily paying off the business debts so that we should only have my student loan debt (6.5%) by January of 2011. Alternatively, the refund should be enough to pay off the remaining business debt. At that point we will be able to save several thousand dollars a month. I have basically come down to two choices. 1. I could try to get pregnant and work at my job until I give birth, at which point we would move in with my parents during my (very generous) maternity leave to save money. Then I would quit my job and we would move to Austin. This path would net us about 90,000 in savings, but I would have to work until early to mid next year and of course we would be parents, which would be a huge change. 2. I could quit in November when our lease is up and we would move to Austin. We would have pretty much no savings and we could live off my husband’s salary while I try to make a small business work. In that scenario we would put off children until we are more financially stable.

I am frankly scared to have a child (but then I think I always will be), but I am also ready and so is my husband. It also seems really unwise to pass up a really generous maternity policy at my firm when we know that we want kids soon anyway. I know that there is never a “good” time to have children, but I am worried about the stress of moving across the country with a brand new baby and trying to get a business off the ground. On the other hand, I do really want children, we are both ready and $90,000 is very hard to pass up.
– Cara

There is a good time to have children. It’s when you and your partner want one and have the financial ability to make it work.

Right now, it sounds like you’ve got a strong “yes” on both counts, so I would absolutely go for it. Right now is probably your best opportunity in your life to have a child.

Yes, you’re a bit scared. Guess what? Anyone who thinks about the monumental job of parenting with any level of seriousness is a bit scared.

If you want it, go for it. There will probably be no better opportunity.

First, some background: I’m married, and my husband is in his second year of medical school. He is on a Navy scholarship, so they are paying for his very expensive education, and providing us with a monthly living stipend. I have had a difficult time finding work in my field since we moved, but finally got a steady job for this coming year. Together we only make about $3100 a month, but we have learned to live on about $2000 monthly. We have no debt, about $15,000 in savings, and $3700 in a 401(K) from a previous employer.

Here is my question: Knowing that my husband will have a much higher income about three years from now, what should we be focusing on right now? We’re putting as much as we can in savings, but would it make sense to put more money away for retirement? What percentage should go into retirement each month?
– Madeline

Put as much into retirement as you can possibly afford to right now, preferably in a Roth IRA or (if you can) into a plan that offers some matching funds from an employer. The matching funds should come first.

Why save now? If you have matching funds, you should always be taking them. Also, if you have a chance to get money into a Roth IRA, particularly if you expect your income to skyrocket in the future, you should take it.

If you have no debt and a big emergency fund (which you do), you’ll never ever regret socking away money for retirement right now.

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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