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. Encouraging college-age money skills
2. Managing online gaming
3. Buying a condo
4. How important is expense ratio?
5. Moving for child’s school
6. Turning down unwanted gifts
7. Children and gifting relatives
8. Wearing out decks of cards
9. Cashing out 401(k)
10. Buy a house now?
My children love to draw, especially my daughter. The challenge is what to do next.
Almost every day, they spend an hour or two drawing and creating these wonderful and elaborate pictures. Naturally, they want to hang them on the fridge. They’re also disheartened if we get rid of any of them.
You do the math. After ten days of this, we have thirty pieces of art. After a month? Ninety. Few refrigerators can hold ninety pieces of art. If they keep this up for years, we’d be flooded out of our home.
So, what do we do? We do save the best ones, but most of them are quietly rotated while the children are asleep. That way, they always see some fresh art and some of their best pieces displayed around the house, while other pieces quietly go away.
Q1: Encouraging college-age money skills
I would like some tips on helping my college age son to save and budget. He just finished his freshman year and is job hunting for the summer. He got scholarships that cover his college expenses with some $ leftover, which he used for gas costs, which were high since he commuted a long way. We are telling him semester by semester, that if he saves a certain amount, we will pay his expenses the NEXT semester. He has a paid for truck, bought with summer job $ over the past few years. He pays his own gas, most of his eating out expenses, his own cell phone, and things he wants that are not necessities. We pay car insurance and clothes, support him, etc. He has had lot of extra money and has blown almost every cent of it, except what we required and has no self discipline. However, he is on track to graduate with no college debt and a little savings (which is good) but with the way things are going, he will blow that savings once he graduates and has learned nothing about budgeting. He is not open to listening to advice very good.
You can lead a horse to water, but you can’t make him drink.
At the very least, it sounds like he’s not digging himself into a big financial hole while in college, which puts him in a better place than most graduates. He’s also at an age where listening to mom and dad isn’t something that a lot of people are wired to do.
My suggestion? Do what you can to keep him from sinking. If you can get him through college without student loan or credit card debt, then he’s going to have a great platform to start life from. Keep hitting him with the good advice now and then, and when he reaches the right level of maturity, he’ll begin to listen. The thing is, you can’t make him mature to that point. You can just help guide him there.
Q2: Managing online gaming
In the evenings, my husband often plays Diablo 3 with his friends. I usually browse Facebook or read a book while he’s playing. I don’t mind it – since the game is already bought, it’s a free entertainment for him. The problem is that I’m bored when he’s doing this. When I mentioned to him that I thought he was playing Diablo 3 too much, he just go t mad at me. Do you have any good suggestions on how to approach this?
There’s nothing wrong with people having a hobby that takes up some evenings, but when it takes up all of their spare time, it’s damaging to their other relationships. Balance is always the key.
Just sit down with him and explain that you’re lonely because he’s spending every evening playing that game. Offer a reasonable compromise, where he plays the game some evenings and you do other things on other evenings. It sounds like your first attempt went down a bad road where, from his perspective, you were demanding that he stop doing something that he enjoys.
If he reacts in an angry fashion to this, then there’s a deeper problem of psychological addiction going on.
Q3: Buying a condo
I’m married to a PhD student but I myself am employed with a pretty good salary, totally debt free, and renting my home. We have a max’ed contribution to our 401k, 2 Roth IRAs (one for each of us), and a modest stock portfolio, and that’s about it. 32 yrs old so still have a long way until retirement, but things are looking pretty good right now.
So the wife and I are thinking about buying a Condo in the city to rent out. We found one that’s listed for short sale that we can afford and we think we would make a pretty decent return. Because of religious reasons, I prefer not pay or get interest in any transaction, but it’s not entirely out of the question. We actually could pay for this condo in cash (it’s 119K, which we could do and still have a respectable separate emergency fund). My question is should we? I mean, this condo, I would prefer to just buy cash and that’s it. I would be working without a buyer’s agent so hopefully I could get the commission back on the price of the house. BUt does it make sense to just get a small mortgage? Are there any protections for the home owner that gets a mortgage that a cash buyer wouldn’t have? Is it OK to buy it cash?
If you can do this while still maintaining a reasonable emergency fund for the two of you, then I’d go for it.
Buying a condo to rent is an investment, but it’s an investment that isn’t very liquid. If you were to suddenly hit a financial rough spot, you could find yourself in a very tough situation. You’re better off having a small cash buffer.
How big should the emergency fund be? I’d make sure I had cash on hand to cover three months of living expenses.
If that would force you to get a small mortgage to buy the property, then that’s a separate decision. If it’s a mortgage where the payment is far smaller than the amount I was able to save each month, then I’d probably still go for it.
It’s one factor among many. The biggest factor for me would be a comparison between the fund I’m looking at and similar funds offered by other investment houses. I would want to invest in something that’s reasonably competitive (it doesn’t necessarily have to be number one, but it has to be near that level).
Once I’ve identified some possible funds, then I start looking at things like expense ratios. I’d also consider the history of the fund (does it have a long history? does it have stable management?).
I would not necessarily start off by filtering investments by their expense ratios, but if I were looking at two or three similar funds, expense ratios would be one of the factors I would use in deciding between them.
Q5: Moving for child’s school?
My husband and I purchased our home in PA 10 years ago for $140,000 and renovated the entire house. It is now worth about $290,000. The problem is, we live in a terrible school district. We only have $112,000 left to pay on our home and we just refinanced our loan to have our house paid off in 10 years.
Our dilemna is, do you think we should move to a better school district or just stay put and spend $9,000 a year for a private school tution. We have three children and the $9,000 includes all of them. If we move, we would have to take on at least a mortgage of $220,000 to purchase a four bedroom home in a good school district.
Also, we have a three bedroom house right now and would love for our youngest son to have his own bedroom. My husband had to share a room his entire life and it is important for him to give our youngest his own space. So, if we decide to stay in our current home, we would like to put on an addition. The good news is, my husband is a contractor and could build the addition himself. Still, we would have to take a loan (or save for a few years) for about $50,000.
We live in a beautiful neighborhood and the majority of people around here send their kids to private school.
So, would you move and send your children to public school or should we stay, add on and send our kids to private school?
For me, it would really depend on the difference between the public and private school options.
I don’t know how good the private school you’re sending your kids to really is, nor do I know the quality of the district that you’re considering moving to.
One thing to consider is that a $220,000 mortgage, right now, would have monthly payments on the order of $1,000 a month. Interest rates are incredibly low. That would mean you’d be paying about $12,000 a year for the new house versus $9,000 a year for the schooling.
If this was the only consideration for the move, I would truly go with whichever option provided better schooling. I’d do the research on the schools in question and choose the best option.
Q6: Turning down unwanted gifts
There’s an elderly man who lives down the street from us. His wife passed away a few years ago and he seems to be lonely, but he’s channeling it in an odd way. He keeps giving me stuff, as well as giving stuff to my daughter and son. At first, I really appreciated it, but now it’s moved to a point where it’s weird. I’ve asked the other neighbors about him and they all just seem to avoid him. What should I do?
I know that a lot of people would respond to this by encouraging you to stay away as well, but take a moment and look at things from this guy’s perspective. If he was married for a long time, he probably lost the love of his life. He might not have any other close connections out there in the world at this point.
I’m not saying you should befriend him, but unless he does something truly uncomfortable, there’s nothing wrong with being polite to the guy.
If he gives you something, accept it politely. If you see him on the street, say hello.
Q7: Children and gifting relatives
We have 2 small children that are constantly being given toys and clothes by one side of the family. Unfortunately, the clothes and toys are very poorly made and don’t hold up well. Think dollar store plastic toys and yard sale clothes that are stained or ripped. We do not have space for all this stuff, and have asked them to limit the quantity. We have also asked them to purchase toys that are sturdier, for holidays or birthdays, etc… Ordinarily, I would just weed through everything and donate the excess BUT the catch is that these relatives *check* to make sure we have kept all these gifts when they visit. Do I toss it and hurt their feelings? Keep this stuff in a box in the shed and pull it out only when they visit?
Even if you view it as misguided, this is a situation where relatives are trying to express that they care for someone in your family. It’s not harmful, so I would just let it be.
I’d vote for the “keep it in a box” strategy for the time being. In a year or two, sell the items (if they have value) and simply tell your relatives that they outgrew the items.
It is also worth talking to your children to make sure they understand that this type of giving is not to be expected.
Q8: Wearing out decks of cards
Each summer, a bunch of us get together for a few days at my grandpa’s old farm. We usually take care of some odd jobs around the place for him because he’s old, but a lot of the time is spent playing cards. We usually have three or four tables of cards going on in the evenings and people play until dawn.
The problem is that we usually wear out several decks of cards by the end of the weekend. They’re not useless, but they’re grimy from being shuffled so much, so we just toss them. My grandpa usually just buys a bunch of decks before we come, but there’s got to be a way to make decks last longer. Any ideas?
Most of the wear on playing cards comes from repeated riffle shuffling. If you want to minimize the wear on the cards, try shuffling in a different way, such as pile shuffling (randomly putting the deck into four piles, stacking them up, and doing it again) or overhand shuffling.
Another thing all players can do to help the situation is to wash and dry their hands just before playing. This will minimize the oil from their skin that gets onto the cards.
Even doing these things, all you’re going to do is reduce the wear, not eliminate it. As inexpensive as a deck of playing cards is, there is no cost-effective way to drastically reduce the wear on the cards. Remember, if you can get two summers out of each deck, that’s halving the overall cost of the cards.
Q9: Cashing out 401(k)
I am currently working full-time and attending school at night for elementary education. I will be getting my bachelor’s degree in elementary education in December 2012. However, I will not be getting my teaching certificate because I haven’t figured out a way to student teach for three months without any income. I live alone, am responsible for all my bills and have consolidated my debt (the payment is $465 monthly) which will be paid off November 2013. I have a little over $12,000 in my 401K. If I were to cash that out, I would be able to continue to pay my bills, including the debt consolidation, rent and all my other expenses. Is this the right move? I want to be a teacher and quit my current job but I just don’t know how to support myself during those months of student teaching and this is the only option I can think of!!
My suggestion would be to try to take out a student loan for your fall semester. Use that money to pay for your education, bank as much money from your job as you can, and use that savings to get by during the three months you’re student teaching.
If that doesn’t work, I would discuss the situation with your school and see if they have any programs that might be appropriate for you. You’d be surprised at the magic a financial aid office can sometimes work.
I would try every possible avenue with your college and with lenders before cashing in that 401(k).
Q10: Buy a house now?
My husband and I are 26 and seriously considering purchasing a house. We’ll be staying in our current location for another 2.5 – 3 years at least while my husband finishes his schooling. We may move, depending on his job market. If we do move we would plan to rent out the house (local property management places in our area charge between 6%-8%/monthly rental fee) and use it as a rental property. We’ve estimated we can afford a $130k house and end up with a mortgage around $600-$750, including insurance and taxes. We currently rent a house for $1000/month with another couple (although we can afford the rent on our own and plan to only purchase a house we could afford on our own with plenty of “wiggle room”) and at this point they would move with us into a new house and we’d put their ‘rent’ as extra towards the mortgage each month.
Current financial picture:
Student Loans: $6k @ 12.75%, $18k @ 12% (both private)
Vehicle Loan: $13k @ 5%
Emergency Fund: $2k
For the past year we’ve been putting every extra cent towards the student loans (paid $15k off in 14 months), which is why we have a small emergency fund. We would have no down payment towards this home, but we are eligible for a VA loan. If we move forward and decide to purchase a home we would stop contributing towards the student loans for a few months to build up the emergency fund to have 3+ months living expenses. Once the student loans are payed off we would put that extra money towards the mortgage each month. My question is, should we purchase a house now while prices and rates are low, build equity and eventually have a rental house, or continue renting for a few years until we’re sure we’re staying in one area? In the past we’ve discussed waiting until we’re both employed, living on one salary and saving the other for an entire year so we have a great down payment and a super low mortgage. It’s really tempting to buy now and stop paying someone else’s mortgage.
It seems from your description that your monthly mortgage payment would actually be lower than your monthly rent payment. If that’s the case, then you should absolutely make the move.
My usual rule of thumb for people is that you should do whatever is going to cost less for you per month in terms of housing. Sometimes it’s renting, sometimes it’s home ownership. It depends on the financial state of the couple and the housing market in their area, mostly.
One final thing to consider: home ownership has costs beyond the mortgage. You’ll owe property taxes. You’ll have homeowners insurance. You’ll have a full suite of bills (which you may already have at the current house you live in). Those are real costs that you should make sure you can afford before you make this move.
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.