Updated on 05.25.11

Reader Mailbag: Bizarre Weather

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. Unplugging the microwave?
2. Morality and employment
3. Loan modification versus refinancing
4. Saving for vehicle replacement
5. Living expenses and college debt
6. Unequal chess skills
7. Handling banking errors
8. Repairs to increase equity?
9. Ahead on student loans
10. Investing without worry?

The Midwest has been loaded with weird weather for the last month or so. The tornadoes have captured the headlines, but most of the middle portion of the country is seeing oddly strong thunderstorms, exceptionally windy days, torrential downpours, and flash floods.

It’s enough to make a person really paranoid that something is going to strike them soon.

Q1: Unplugging the microwave?
Re: unplugging from the power switches.. you do not mention microwave….. does this use up more of the electricity and is it advisable to unplug it each time.

– Ben

It really depends on the microwave. Many microwave units do slowly sap energy. For example, if it has an LED clock on it, it’s probably sapping a bit of juice constantly.

How much juice, though? It depends quite a bit on the model. Some models have almost no “phantom” use and the trouble to unplug them and plug them back in isn’t worth it. Others use quite a bit.

I use a Kill-A-Watt meter to check on these devices. I simply unplug them, then plug the meter into the outlet and plug the device into the meter. The device tells me pretty quickly how much phantom electricity the device is using. Unless it’s more than about fifteen watts, I don’t bother unplugging it, even on trips.

Q2: Morality and employment
Now that my life is a little more under control, I am seriously thinking about my career and what I want to do with my life. I am 24 and thought I wanted to be in politics. That led me to my toxic job and taught me the hard way that it’s just not for me. In an effort to fix my situation, I took a job that meant little to me but offered a much higher salary. I like it just fine but I know it’s not my life’s work. I’m learning some transferable skills (like marketing and business development) and it puts food on the table. The main problem? I seriously disagree with the fundamental goal of my company. As in, it goes against all of my values. Although I am not directly working toward our product, it makes my stomach flip to think I am contributing.

So my question for you is: what do I do? I am so afraid to quit my job in case my finances spiral out of control again. Yet, I know I can’t stay where I am. I don’t want to take another random job that comes along. That only perpetuates my problem. My parents and friends are encouraging grad school, but I’ve learned enough from you that grad school is probably the worst thing I could do if I don’t have a plan. All that debt makes me shudder. My compromise plan is to figure out what to do with my life over the next year and in the meantime save, save, save so I can confidently quit my current job. Yet, I still have the fraud feeling and the problem that I don’t exactly know what I would rather be doing. I love to cook and want to do something with some “meaning”, that I believe in. Yes, I realize that is idealistic but I can’t kick the idea of service (which, I believe, is what led me to politics in the first place). I just feel stuck knowing what I don’t want, yet unable to decide what to do instead. Any advice? I guess I’m also looking for reassurance that if I stay in my job short-term, it doesn’t make me a horrible person.
– Meg

There’s nothing wrong at all with taking a job in the short term just for the money. When someone employs you, they’re giving you money in exchange for some work. If you’re holding up your end of that bargain, then there’s nothing at all wrong with that.

I’d suggest you use this period doing some real soul-searching, as well as exploration of areas that you might be interested in. Figure out a path while you have this good-paying job, then follow it.

No matter what, don’t get used to the high pay. Live lean and bank as much as you can so that when you do discover the right path, you’ll have the financial resources to make it happen.

Q3: Loan modification versus refinancing
We are looking to refinance our home only to take advantage of a lower interest rate. We are not in financial trouble of any kind and have the cash to cover closing costs and fees. After shopping around for rates, I found that our credit union (who the loan is currently with) has the lowest interest rate. I called to inquire about a refinance and they offered us a loan modification instead of a refinance. They do not require that we be late on any payments (in fact they won’t do a modification if there are any late payments).

It cuts the fees in half, the process is much simpler and we get the same interest rate as a refinance. I’ve heard a lot of negative things about loan modifications though and I am worried it will hurt our credit score somehow? We are fully able to do a refinance if that is better for our credit.
– Sarah

The two biggest elements that people usually worry about with a loan modification are impact on one’s credit due to late payments and large processing costs and legal fees. You seem to have both of these elements well in hand.

You’re entering into a loan modification from a different angle than most people enter loan modifications from. Many people who get a loan modification are in a very poor financial position. They’re often late on mortgage payments and are worried about foreclosure. A loan modification does not get rid of those problems for you.

Similarly, many modifications are loaded down with a pile of fees and other costs, which you seem to be avoiding here. I’d call it a good move for you.

Q4: Saving for vehicle replacement
I am writing to find out your advice on how to save to replace a vehicle. My wife and I just paid off our ’08 Ford Escape (40,000 miles – shouldn’t have bought it in the first place, but that’s in the past), and last year I paid off my ’05 Chevy Cobalt (115,000 miles). We both work and two vehicles are necessary.

Our current situation:
Monthly take home = $5,300
Debts = two student loans (total $23,500), mortgage ($125,000), no credit cards or other consumer debt
Monthly allocation to debts = $2,800

I generally follow the Dave Ramsey debt snowball plan, and by my calculations, we will be debt free except for the house in 12 months. But I have now become worried if one of the vehicles gets totaled or otherwise stops running. I believe Dave Ramsey advocates paying yourself a car payment each month to save up for a replacement, but that will greatly slow down my snowball. I could cross my fingers and hope there are no catastrophes for at least a year.

What do you recommend? Reduce my debt snowball by $300~/month or stick to my plan?
– John

I would absolutely consider saving for the next replacement car by socking at least a couple hundred away a month because I would consider that car loan that you know would be coming as part of your snowball.

The advantage you have by saving, though, is that the interest is working in your favor. If you were to continue your snowball without saving, you’d face a debt in a few years at, say, 7%.

Now, if you instead made payments to a savings account right now, you’d earn 1% on those payments. In effect, those early payments are like tackling an 8% debt – the 7% your car loan would likely be in a few years plus the 1% you’d earn on the early payments.

I’d stick that 8% “debt” into your snowball and see where it fits.

Q5: Living expenses and college debt
I currently have $16K in student loans at 6.5% rates. I have no other debt, I have a comfortable emergency fund, and I already contribute substantially (although not the maximum) to a Roth IRA (my employer does not offer a 401K plan). I have also built up an “extra money” savings account of $8K over the last three years that I think can be put to better use.

I expect to begin a Master’s program within the next 2-3 years. With the exception of three remedial classes, I am able to complete this program without paying tuition through a full-time work/study type of program. However, I will need to cover my own living expenses, books, and the other miscellaneous expenses that pop up in life and the program that I am enrolled in does not realistically allow for me to work any extra hours to earn additional income- the “free time” I have between attending work and class will be spent completing homework and assignments to get the most out of this education!

Does it make sense to use my “extra money” to pay down my current loans so that I have a reduced amount of debt going into the program or should I continue to stockpile this money and attempt to pay expenses out of pocket while in school so that I don’t have to add on any additional loans to repay?
– Jennifer

If you know you’re going through a period without any income in the near future, the best thing you can always do is buff up your emergency fund before that period.

The reason for this is simple. If you have expenses and no income, your cash reserves are going to drop. When it gets low, you’re going to have to turn to some other source and, often, that other source is credit, because credit is so easily available. Unfortunately, easy credit often has a terrible interest rate, something you want to avoid.

Thus, your best approach is to save now so you don’t have to incur that high interest debt later on. You’re far better off saving too much and carrying a bit of unnecessary lower interest debt than not saving enough and having to dip into credit cards.

Q6: Unequal chess skills
You mention board games an awful lot, so I thought I’d run this by you. My roommate and I both like to play chess, but he’s at a much higher skill level than me. We tried a piece handicap, but it seems like every one we try unbalances the game, either leaving him far better or making it easy for me. Do you have a suggestion to help us play chess on equal ground?

– Robbie

For one, you can play Chess960. This is Bobby Fischer’s preferred chess variant, in which the home row pieces are randomized using a few simple rules. This almost completely eliminates the advantage of knowing opening books, which is one thing that good chess players often know. They know a handful of opening move sets that put them in a very strong position. Chess 960 wipes out that advantage.

For another, you can simply try playing another abstract game (which chess definitely is). Go, shogi, YINSH, Arimaa, and Hive are all wonderful abstract games.

If none of those work, you can always try studying chess yourself using some strong chess-playing software. I used to use Shredder.

Regardless, abstract games are a great way to really exercise your mind. Kudos for keeping with it.

Q7: Handling banking error
Basically, back in December PayPal charged a transaction on my fiancé’s PNC bank account which caused an overdraft fee. We had switched to Bank of America a few months earlier, so we weren’t really keeping track of the account (and she had mail going to her parents house anyways so if they did send notices, they got lost in the shuffle). PNC of course started charging fees daily, and ended up closing the account and sending it off to collections. We just received a notice from a collection agency that we owe over $200.

I contacted PayPal, who gave me a form letter explaining to the bank that it was a mistake, but PNC doesn’t care because they already sold the debt. Of course, the collection agency won’t care that it was a mistake.

What should we do? All I can think at this point is to try and negotiate a deal with the collection agency.
– Cory

The best thing you can do is just get rid of the debt quickly, which probably revolves around negotiating with the collection agency. You want to get this paid off as soon as possible to minimize the damage to your credit report.

Again, none of the other businesses have any reason to be involved here. At this point, you need to focus on the business that holds your debt.

An aside: this is yet another example of why I dislike how credit reports are handled in the United States. It is incredibly easy for a misunderstanding or a record-keeping error to result in someone having damaged credit, higher insurance rates, and so on.

Q8: Repairs to increase equity?
In 2007, my wife and I bought a new house that was probably above our income level. It wasn’t a huge thing; it was about 1/3 of our monthly take-home, and we had no children and no plans for one. Bills, groceries, gas, etc, took up about another 1/3 of our income, so at the end of the month, we had about $1500 to $1700 of unbudgeted money left over, which went into savings. Flash forward to spring ’08, and we found out my wife was pregnant. Of course you know, having a child means many more new expenses, and that $1500 in monthly spare cash quickly dropped to around $400, if we were lucky. The money we had been saving before mostly disappeared due to an incident largely beyond our control. After basically a year of trying to make all this work, I told my wife a few months ago that I believed our biggest problem was the house and it’s large payment, and that I thought we should spend a year fixing it up, making some needed repairs, and put it on the market next spring. My reasoning was that I figured it would sit on the market for a few years, and since we are still able to comfortably make the payments, it would give us the ability to build more equity, give the housing market time to recover some more, and give us the freedom to turn down offers as needed. My wife agreed, so we’ve started slowly fixing things around the house.

Here’s where it gets hairy. There is a house for sale down the street that has the exact same floorplan as ours, listed for $25k less that what we’d have to get out of ours just to break even, and it’s been listed for several months (although our lot is MUCH bigger). I suggested to my wife that we not just make repairs, but make targeted upgrades to certain areas to really blow away potential future buyers (around $8,000 to $10,000 worth of upgrades). My wife is for the idea, but now isn’t sure if she wants to list the house next spring, because we may not make the money we spend back on a sale. I should mention that the costliest upgrades would be to things we have to repair anyway (for instance, the carpet in our great room needs to be completely replaced, due to muddy dogs, spilled milk, and just general wear and tear. As long as we’re ripping up the carpet, why not just lay down new hardwood floors?).
– Chris

It is often hard to tell if you make the money back on a sale after doing home improvements.

For one, the market changes over time. During the time in which you’re doing these improvements, the market might shift in ways that raise the price of a given house or lower it.

For another, the reasons why people buy particular houses are often inscrutable. The person that buys your house might be attracted to the larger lot and not care about the improvements at all. Another person that might buy your house might love the improvements you’ve made.

Home improvements generally make a profit for the homeowner when there’s a lot of sweat equity involved and they target things that buyers will really like. In other words, do it if you enjoy home improvement. Otherwise, I would bank my money elsewhere.

Q9: Ahead on student loans
Other than our mortgage, we only have one other loan payment: my student loan, currently around $18,000. The monthly payment is $150, but since August I’ve been making payments of $200 every two weeks. Currently I’m so far ahead that my next payment is not due until August 2012. However, even at this rate, it would still take me over 4 years to fully pay off the loan. Would you stop or reduce these payments in order to pay for house repairs/upgrades (or some other purpose) or continue making these payments?

– Chris

If you have another goal to fulfill, sure. Go ahead and divert some of that money into whatever project you’ve got in mind.

However, if you don’t have anything clearly in mind that you’re shooting for, keep knocking down that debt. It’ll be gone before you know it and that will be a tremendous thing for your net worth.

It sounds like you have some nebulous ideas for the future. Unless those are really clear and important to you, I’d keep paying down the debt.

Q10: Investing without worry?
I’m extremely concerned that the U.S. dollar is going to be rapidly devalued in the near future. What should I invest in?

– Kelly

I don’t agree with you that the U.S. dollar is going to be rapidly devalued. Many people point to the huge national debt, but the real way to look at the debt is in terms of GDP. How much money is the nation bringing in in comparison to how much debt we’re carrying?

The truth is that we’ve had worse debt in the past. Right now, we’re fighting two foreign wars that are winding down and we have an economy that’s starting to rebound, both of which are great signs for the debt-to-GDP ratio.

Still, if you’re under the belief that the dollar is about to be rapidly devalued, your best bet is to buy things that are tangible assets. Land and food are good places to start. If inflation goes rampant, the prices of both of those things will go up very quickly. Land and food are things that are always needed.

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. Michelle says:

    Q8: Just my experience here. We bought our house 2 years ago, and we found out that the owner had done about 10K worth of “upgrades” to the house. We took out almost all of it. We redid the floors, we painted everything, and we put in an almost entirely new kitchen. We felt really bad, because we paid what we thought the house was worth, knowing that we would have to put some money into it to make it what we wanted. I wish they would have saved themselves some money and just done some repairs rather than putting tons of money into “upgrades”. In fact, I would have paid more for the house if it had a new roof rather than new carpet.

    What I’m saying is, don’t get caught up in the idea that “upgrades” = more money. It’s a matter of taste, and those are the kind of things you can’t really predict, no matter what HGTV tells you. Spend your money on making sure the bones of the house are in good shape (good roof, good heating/cooling, etc).

  2. Ryan says:

    Q9 – Maybe I misread it, but it sounds like Chris’s student loan lender is just holding onto the extra payments he’s making and only applying them when they’re actually due.

    AFAIK, this doesn’t save you any on interest. You need to tell your lender to apply those payments so that your principal balance goes down, which is what you pay interest on.

  3. Kerry D. says:

    Q4: My husband and I were just a few months out from paying off his car loan–mine had been paid off for a couple years. Though our cars weren’t ancient (2001 85k miles, 2004 150k miles) we were hit with multiple car repairs… over $6,000 in about 6 months… For months we were terribly frustrated; there’s no way we can set aside enough money for repairs when we were constantly hit with them. Finally we decided to buy new cars! This is crazy, but at least we can get to work reliably now, and because we are saving on gas and car insurance, it’s only a little more than the old car payment. We plan to really baby these cars and maybe we can keep them running longer.

  4. Jan says:

    Q1. Both my 20 year old microwave and the one I bought to replace it have the ability to not set the clock. I have a clock on my stove, and another one the wall (battery operated) and have no need for the microwave clock. If the time is set, try unplugging it,the LED will flash with numbers. Hit the clock button, then Off/Clear button. At least on mine, the screen goes blank. I ran a kill-a-watt meter (my church provides them to borrow) and this ended any excess energy usage.

  5. Jackie says:

    you don’t unplug anything that uses less than 15 Watts? What, if anything do you unplug? I can’t think of anything that uses even close to that in off/standby, maybe a wifi TV? At my electricity prices 15 W for a week is 20 cents. Worth pulling the plug for me. But pretty rare. My microwave uses only 2.5 W in standby. That’s not worth losing the clock functionality to me.

  6. jim says:

    Q1 Ben : Microwaves tend to use 2-5W in standby mode. So thats like 15-35 cents a month.

    Q3 Sarah : Ask your credit union to make sure that the loan is not part of the government program and that it won’t hurt your credit score. They can answer that. If its not the government program (probably isn’t) then you should be safe.

    Q4 John : Do you need a new car any time soon? DOesn’t sound like it. If not then pay off your student loans then worry about the cars later. Theres always a risk your car will break down or something, thats what emergency funds are for. Or if you do need a car soon and your student loans are very low interest rate (2-4%) and a car loan would be fairly high rate (7%+) then you might want to save for the car and delay repaying the student loans.

    Q7 Cory : Pay the debt now. I’d also tell Paypal that their error cost you fees and ask them to pay the fees. They may refuse or they might offer something. Won’t hurt to ask, you could push them too if you want. Depends if you want to fight em for it.

    Q8 Chris: Can you wait it out a few years where you are? May be cheaper in the long run to hang on to the house you’ve got. Have you talked to a Realtor? Sounds like you’re probably under water at this point. Doesn’t seem like a great time to sell unless you have to. Throwing money into the house to sell at a loss isn’t great idea if you don’t have to. If you can afford the house then why put a bunch of money into it to dump it at a loss today? Would moving save you that much monthly compared to what you spend now if you factor in the costs of selling? If you move you’ll have to pay to move, pay to close on a new loan, pay mortgage payments/rent etc. THeres a lot of costs there.

    Q10 Kelly : I don’t see any reason to worry about rapid devaluation of the US dollar. Why are you worried about that? Please don’t dump all your money into shotguns and freeze dried food because of some unfounded fears.

  7. Tom says:

    @Q3: A coworker of mine did a loan modification with his CU, because it was within 2 years of getting the loan from them. It was just the benefit of doing business locally. I would guess that there may be something similar going on with you.
    @Q7: you guys messed up, regardless of the excuses (we switched banks.. her mail was going to her parents.. etc). If it’s been so many months that PNC charged you off, sounds like you need to suck it up and pay it off. Trent, it’s not the fault of credit reporting that these guys were negligent for months on their account.

  8. Amy says:

    Sarah–our credit union offered to do the same thing for us last year. We were in the same boat–a mortgage we could afford, good credit, no late payments. I talked to several people at the bank and a friend at a separate bank because it just seemed too good to be true. Ultimately I was convinced that it was just a nice service our credit union was offering us. It also helped them because the paperwork is so much smaller and they were really busy trying to close all of their refis on time. I hope your bank is offering what I thought the best part was–it didn’t add any time to our existing loan. We were just over a year into a 15-year mortgage, and we didn’t start over on the repayment clock.
    Good luck!

  9. Stephanie says:

    I’m not sure why Trent thinks that the two foreign wars that the U.S. is involved in are winding down….Obama just sent more troops to Iraq AND Libya. Why *wouldn’t* you worry about the rapid devaluation of the dollar and the U.S. debt?
    If the U.S. national debt (more than 14 trillion dollars) was reduced to a stack of 5 dollar bills, it would reach three quarters of the way to the moon. The U.S. government borrows about 168 million dollars every single hour. If Bill Gates gave every penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days. So how in the world can our politicians tell us that everything is going to be okay? More importantly, why *aren’t* you worried about this?

  10. Johanna says:

    @Stephanie: Do you have any arguments other than “OMG, big numbers are big”?

    For the record, I *am* concerned about the US military involvement in Libya (“days, not weeks,” my patoot) and the budget deficit (too many tax breaks and giveaways to people and corporations who don’t need them), but I don’t think that either of those things is a sign that disaster is right around the corner. Why do you?

    And for the record, in times like this, when unemployment is high, a moderately devalued US dollar is a *good* thing, because it makes US-made goods more competitive in the global marketplace. A lot of people these days are running around saying “The dollar must be kept strong no matter what,” but these people have no idea what they’re talking about.

  11. Des says:

    “If the U.S. national debt (more than 14 trillion dollars) was reduced to a stack of 5 dollar bills, it would reach three quarters of the way to the moon.”

    So, what you’re saying is we should print thinner money right? :) Seriously, the fact that you think this is a relevant piece of information strips away all your credibility.

    Ditto what Johanna said.

  12. Stephanie says:

    @Johanna…How about “OMG the numbers are big and what’s the plan for ever paying this back?” Since the U.S. “borrows” all it’s money from the Federal Reserve the country starts paying interest on it from the moment it’s borrowed…therefore making it impossible to ever pay back the “actual” money plus the interest.
    Also, what “US-made goods” are you referring to? America has now become a consumerist society and my weakend dollar does not help me to buy more goods.
    Here’s an except from Reuters:
    “The United Nations warned on Wednesday of a possible crisis of confidence in, and even a “collapse” of, the U.S. dollar if its value against other currencies continued to decline.

    In a mid-year review of the world economy, the UN economic division said such a development, stemming from the falling value of foreign dollar holdings, would imperil the global financial system.”

    Why aren’t you worried again?

  13. JS says:

    Q2: I don’t think it makes you a horrible person. Having once been in a similar situation, I agree with Trent’s advice and would also add: create an exit plan ASAP and focus on it. Working at a job that bothers you that much can really sap your energy and motivation. It’s easy to fall into a routine of either sitting in front of the TV for hours after work, or a routine of spending money to make you feel better.

  14. SMB says:

    Re: the loan modification–is the credit union receiving any benefit (from the government) by structuring it this way? Or, since these folks getting a loan modification, is it possible that a family in financial trouble might not? If the answers to either of these are “yes,” I think that would be a huge ethical breach.

    I don’t know the answers to either of these questions but am very curious. Why would the credit union offer this option when a refinance would be so much more beneficial to them?

  15. Amy says:

    SMB–for my personal situation, the only benefit to my credit untion was (1) less paperwork for them at a time when they were working hard to close all of the refinances they had already committed to on time and (2) a very happy customer who is unlikely to move my business absent a significant issue. If the bank down the street is offering a quarter percent more in interest than my credit union, I’m going to stick with the credit union who offered me a chance to save money. There was no governmental benefit and the program I participated in and it was not available to folks facing financial trouble. So, can’t speak to any other programs, but I didn’t see any ethical concern with my personal situation.

  16. SMB says:

    Thanks for the clarification.

  17. David says:

    I don’t think it strips away anyone’s credibility very much (or at all) to try to describe some number, vast beyond most people’s comprehension, in terms that might bring it within people’s comprehension.

    Still, I’m not sure I’d have chosen Stephanie’s analogy – most people who don’t really know how large 14 trillion is don’t really know how far it is to the moon either (and if they did, might resent being asked mentally to multiply that number by 3/4 while also contemplating the thickness of a five-dollar bill).

    Instead, it might help to say something like “to pay a debt of 14 trillion dollars at the rate of a dollar a second would take about half a million years.” The actual figure is closer to 440,000 years, but anyone who knows that does not need an analogy in the first place. Besides, anyone charged with the actual task of paying off the Federal Debt at the rate of a dollar a second might be excused for wanting Sundays off, in which case half a million years would be close enough for Government work.

    Still, what matters to Governments as well as citizens is not so much the amount you owe as the amount you owe compared to the amount you have. The Federal Debt currently stands at about 98% of the Gross Domestic Product of the United States, a level that is held by some economists to be cause for mild alarm and by other economists not to matter very much at all. Nor is it cause for particular concern that Standard and Poor’s has recently warned that it might (in effect) reduce the credit rating of the United States; the recent financial crisis has established beyond controversy that Standard and Poor’s has absolutely no idea at all what it is doing, or what it is supposed to do, or how to do either of those things.

  18. AnnJo says:

    Sarah at Q3,
    There’s nothing wrong with a loan modification, and you are lucky to have a credit union that is looking out for your interests. A loan modification adjusts the terms of the Promissory Note (your promise to pay the debt) without changing the priority or terms of the Deed of Trust (your pledge of the property as collateral for the debt). I’ve done them a few times to lower interest rates, and they have no negative effects on your credit rating – if anything, they help it, by keeping the debt with a longer positive history, instead of replacing it with a new debt with no history.

  19. imelda says:

    Q2: What about trying to score a job at a university? It will probably pay less than your current position, but you can score a graduate degree for a really low cost.

    That’s if you know what you want to study, that is.

  20. AnnJo says:

    Q10, Kelly re: dollar devaluation,

    I don’t know why Trent finds reassurance in the debt data to which he links.

    Granted the debt to GDP ratio has been higher in the past – once, and not by all that much, during the height of WWII when about 30% of GDP was being devoted to war efforts. The amount of GDP being devoted to war efforts today is less than 1% so “winding down” those wars is going to be of little economic consequence.

    As if that weren’t bad enough, during WWII, we had very little “off the books” debt. Now, we’re swamped with it: unfunded or underfunded public entitlements and guarantees like Social Security, Medicare, Obamacare, federal retirement programs, federally insured student loans, FDIC, SPIC, NCUA, Freddie Mac and Fannie Mae, PBGC. Estimates on what that amounts to range upward of $60 Trillion – four times the amount of our “ON the books” debt, and that’s only the liabilities, not the guarantees.

    In working toward personal financial wisdom, I think Trent sometimes ignores the reality that to live a stable financial life, you may have to be both wise and lucky.

    My great-grandparents in the old Austria-Hungarian Empire were hard-working, entrepreneurial and frugal as all get-out, but they thrived only because they were lucky enough to catch the wave of immigration to America and had a little gold set aside to do it with. Those who stayed behind ended up losing everything and hiding in caves from the Nazis or as slaves on Soviet collective farms or in genocidal ethnic conflicts.

    Of course, we do have an option my ancestors didn’t – the vote, but our current financial situation is the outcome of that option, so that’s not particularly comforting.

    If Kelly is worried about devaluation of the dollar, the obvious investment options are those against which the value of the dollar is measured, i.e., other nations’ currencies, debt or corporate stocks (assuming those nations are in better shape than we are); commodities and/or the stocks in companies needed to produce or deliver them (for example, mining, fertilizer, oil servicing, shipping).

    Trent’s recommendation of food (I assume he means a well-stocked pantry) is an excellent one but even a year’s worth of stored foods “invests” only $2,000-3,000 if done frugally.

    Land has carrying costs in property taxes, insurance, maintenance, so it’s not something you can just buy and put away while you wait for it to appreciate. If you want to buy land as an investment but don’t want to be a farmer or landlord, you can buy a land-rich agricultural company’s stock, or an REIT.

    All that being said, I personally think about 15-20% of one’s investments should be in whatever is the opposite of what you think will happen. For me, that means I have about that percentage in investments that will prosper in an economic recovery or a deflationary scenario. Even if you agree with Trent that our debt is manageable and our economy is recovering, not all of your eggs should be in that one basket.

  21. partgypsy says:

    Re: Q8. Sounds like you are panicking because your finances are tighter after having a child. But there’s no reason to throw the baby out with the bathwater. Have you done the step of creating a budget and seeing where the money goes? Is your financial picture likely to change, such as once the child goes to school? Is your house otherwise working for you (can you still make the payments, has enough size for your family, close to work). It’s NOT good time to sell a house and it’s unclear when things will get significantly better. Because of the current situation making cosmetic upgrades won’t necessarily make you sell your house faster, or for a higher amount of money but it’s definitely going to put you in a tighter financial position. If I were in your situation I would cost cut where you can and stay where you are. If you do decide to sell your house, don’t expect to make a profit but do it because you may be able to downsize to a more afforable monthly situation.

  22. AnnJo says:

    Q2, Meg,

    If your company makes a product desired by its consumers, you are already meeting your goal to be of service to others. You may be looking to make your service more vital and direct, which is fine, but that may require skill sets you don’t have and further training.

    The fundamental goal of every company is to make a profit. If you find that goal abhorrent, then you may be confusing ideology with values, and a deeper exploration of the difference may be in order.

    If you mean, instead, that it is the METHOD your company uses to make a profit that you find unacceptable, then you should ask yourself some questions before deciding whether it is morally acceptable to stay there:

    If honesty is a value and your company engages in fraud, then of course you must leave. Yes, you would be a horrible person if you didn’t. Beyond that, you should report it.

    On the other hand, if it’s more a matter that the company sells a product you don’t particularly believe in, that raises a different set of questions. Just because the product is not of value to you personally doesn’t mean there is anything wrong with providing it to others, and there’s nothing wrong with deferring to their judgment about their own lives, even if you would decide differently for yourself.

    Just speculation: Given your age and past interest in politics, is it possible your dilemma is a result of reality confronting theory for the first time? Ideological purity is a hard value to maintain in the real world. But running away from the real world isn’t necessarily the answer.

  23. J says:

    Q9 – Chris – as another commentor mentioned, it sounds as though your loan servicer is applying your extra payments to your future required payments, rather than reducing your principle balance. That means you may not be recieving the reduced interest charges that you would if the payments were appl;ied to the principle. If you continue to make extra payments, you may need to submit a statement with each one stating the payment should be applied only to the principle and that your due date should not be advanced.

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