Reader Mailbag: Christmas Prep

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. Separating business and personal finances
2. Roth IRA over income limit
3. Replenishing emergency funds
4. “Date night” Christmas gift
5. IRA or 401(k) first?
6. Building responsibility in children
7. IRA or student loans?
8. Keeping up energy in winter
9. Inheritance worries
10. Learning programming for free

Every single year, the week before Christmas is completely crazy at our house. Sarah and I are both jamming in as much work as possible so we can enjoy some family time without interruption on Christmas Eve and Christmas Day. Plus, there are countless last minute things that need to be done to prepare for the big day.

Inevitably, one or the other of us gets sick during this period and then ends up having a miserable Christmas. This year, so far, neither of us has fallen sick.

Let’s hope it stays that way.

Q1: Separating personal and business finances
Over the years I have been trying to manage my debt and finances and somehow, never seem to fully succeed. As I reflect on the situation, I find that one of my challenges is that I run my own work-from-home business and charge a lot of my expenses to the business and find it hard to draw the fine line between personal and business finances. It almost feels like I need to carry two wallets on my bag – one for business and one for personal. Do you have any advice on this?

– Dave

I have one credit card for work-related expenses. I keep it in my personal wallet and use it only for work-related expenses.

If you find that you have to have multiple business credit cards when you’re out and about, I’d suggest that you sit down and take a longer look at how your business is operating. You shouldn’t need a fistful of cards for your business – at least, you shouldn’t need to carry them with you all the time.

Keep the extra cards at home and only take them with you if you know you’re going to be going on a big spending trip related to your business.

Q2: Roth IRA over income limit
Late last year, I got a huge promotion at work that raised my income level to a point where I no longer qualify for a Roth IRA, so I stopped contributions to it. What happens to it now that I’m making too much money? Do I have to roll it over into a Traditional IRA?

– Nathan

Nope. The only thing that matters is what your income level was when you were contributing to the Roth IRA. Once the money is in there, it stays there.

This is one of the reasons why it’s a great idea for people who are eligible to contribute to a Roth to take advantage of that eligibility. If your income is low enough to contribute, a Roth is a great way to reduce your tax burden in retirement.

Also, congratulations on your promotion.

Q3: Replenishing emergency funds
I just have a quick question about emergency funds — if you have to use part of the fund for a car repair, medical emergency, etc, how do you prioritize replenishing it? Do you slowly add money back into it until it is full again, or do you drastically reduce contributions to debt repayment/retirement/other savings to make sure it is fully funded more quickly?

– Jill

I reduce extra debt repayment and other savings contributions to replenish it quickly. You do not want to go without an emergency fund.

Sure, an emergency might mean that you’re a bit slower in reaching your other goals, but an emergency fund means you don’t go into debt for those emergencies. You don’t worry about them, either. You just pay cash and keep rolling forward on your plans.

A well-stocked emergency fund is always the highest priority for me.

Q4: “Date night” Christmas gifts
I thought I’d share this frugal idea with you. I gave my niece and her husband a “date night” for Christmas this year. They have two young children, so I told them to send them to me for a night. I also gave them a gift card for two movie tickets and a gift card to cover a good meal at a local restaurant. It didn’t cost me that much, but my niece was so happy with the gift that she actually burst into tears when she figured it out, because they don’t have a whole lot of extra money and don’t get to spend much time together since the kids arrived.

– Carla

This is a splendid idea, particularly for parents of young children who are tight on money.

I speak from experience here. Being a parent of very young children is incredibly trying and stressful. The time you once had to spend with your spouse is drastically reduced. You’re facing stress from the responsibility of caring for little ones. You’re getting less sleep than before. Naturally, there’s going to be an impact on your relationship.

A gift like this is a gift that alleviates all of those things. It gives parents of young children a worry-free evening to spend together without costing them any money. They get to bond with each other and, for once, have an interruption-free evening and night.

If you can give a gift like this to a young couple, do it. It means more than you think.

Q5: IRA or 401(k) first?
I read that the “smart” way to save for retirement is to max out your company’s match for your 401K (in my personal case putting in 6% so that the company puts in 3%) with every check and throw whatever $$$ is left into an IRA. Once you reach the $5,000/year max to the IRA, then (and only then) put more than the minimum required to get all your company’s match into your 401K. Do you agree with this?

– Marvin

That’s a general strategy I completely agree with.

The only exception might come from the last stage, which might vary depending on the quality of the 401(k) on offer and your tax strategies. Instead of pumping more money into a bad 401(k), it’s worth considering simply putting the money into a diversified investment account on your own, where there are no restrictions on withdrawal and you have full control over the investments.

The key, though, is to save. The more you save, the better off you’re going to be down the road.

Q6: Building responsibility in children
How do you make your children be more responsible for their things? My kids just leave their toys out everywhere and it becomes a war to get them to clean them up. The same goes for their clothes and coats.

– Sandy

My approach is to take everything they leave out on the floor, put it in a giant tub, and let them know that they won’t get it back for a long while – and they don’t.

If it’s stuff that they need, like their coat, they lose privileges if it’s found on the floor, such as dessert or their bedtime musical choice.

There are things that children should be expected to do in order to maintain a household. It’s not only important for the maintenance of your current household, it also teaches them how to maintain their own future household.

Q7: IRA or student loans?
I have over 130K in students loans. I have been more then tripling my payments towards them.

Here is the thing, I am self employed so at the beginning of this year I started putting 1K a month towards by IRA. $400.00 a month towards a Roth and $600.00 towards a SEP.

I would like to by a home in the next two years. I live in an area ( i can not relocate due to my career) where home prices are between 500K and 600K.

My issue: Should I keep going with the IRA or push as much as I can towards the student loans.
– Marcus

Given that you have $130K in student loan debt, you’re seeking a $500-600K home, you’ve not mentioned a down payment, and you’re making a low enough income to qualify for a Roth IRA, I think purchasing this home is a disastrous idea.

Making minimum payments on this debt, along with the required insurance and property taxes, is going to eat every dime you have and leave you walking a financial tightrope for at least the next decade.

Don’t do this to yourself. Just don’t. Live in cheaper housing for a while, save until you have a firm down payment, and focus on building your career up to the point where you’re earning significantly more than you are now.

I would not have a home purchase on a two year horizon right now. Before you buy, I would strongly urge you to have at least half of the student loans gone and a full 20% down payment in your savings account.

Q8: Keeping up energy in winter
This is my first winter in Iowa and this is the sixth straight day in a row where the sky is completely gray with no direct sunlight. This coincides, of course, with the shortest days of the year. How do you guys do this without feeling constantly exhausted? I want to sleep all the time!

– Ken

Seasonal affective disorder – of which you have a mild case – is a somewhat common thing in the winter in northern climates. I do a number of things to help with it.

First and foremost, I use a light therapy lamp for the worst periods of the winter. I set it on my desk next to my computer monitor and run it for the first hour or so that I’m awake and working.

Second, I keep a lot of healthy snacks around, particularly citrus fruits. I find that if I don’t do this, I tend to eat carb-heavy foods that add to the problem.

Third, I take a few specific vitamin supplements. I take a B-complex and Vitamin D to directly help with the seasonal affective disorder, and I take Vitamin C and zinc to help avoid getting a cold, because a severe cold in late December can wreak havoc.

If I do these things, I can skate through a winter quite nicely. If I do not do these things, early December to mid February can be absolutely miserable around here.

Q9: Inheritance worries
I (and 12 cousins) just received a small inheritance ($1000 each) from the estate of my grandmother. My first impulse was to say well, I will just put it in my retirement account. I talked it over with my partner who suggested I also set aside some of it for a gift for myself, which I thought was a very nice idea. Later on, I felt guilty that I hadn’t offered to buy something we could both enjoy, and his response was basically that it is my inheritance and my money and he would never presume to tell me what to do…plus it is such a small amount that he would never presume he should have a share of it. However, he is one of only two grandchildren in his family and when his grandparents pass away, he will inherit much more—enough to buy a car or a house or both! Does the same rule still apply when it’s such a big amount? I would not presume to tell him how to spend his inheritance, but for that large an amount, I think I would at least be entitled to be a part of the conversation, no? Just wondering what your thoughts on this are. Does there come a point where, inheritance or not, it’s a big enough amount that it becomes family money and not a personal bonus? If so, when is that point?

– Leon

It really depends on your relationship. There is no right or wrong answer here.

I will say that at some point your economic lives are going to be linked together. If you have a debt, it’s going to affect what you’re able to afford together as a couple. The reverse is true, too – a windfall should help you both.

If you’re sharing bills and expenses on a monthly basis, then I think windfalls are something that should help both of you.

Q10: Learning programming for free
Was wondering if you had any thought, opinions, resources or ideas about learning how to code for free, at a discount or good resources for learning for absolute beginners or complete novices.

With the development of mobile devices, web apps and mobile apps, the blogosphere and Web 2.0, learning how to use a computer both as a user and a developer isn’t just for ‘geeks’ anymore. I was wondering what your thoughts were both on it’s evolution and cheap, easy, or affordable resources for learning from the ground up…for those of us completely foreign to development and programming. I’m not just talking about using Blogger to create your own blog…fyi.

Any insight, thoughts or help would be appreciated!
– Anders

There’s no better resource I’ve found for getting started with programming than Codecademy. It’s just amazing.

Once you’ve finished all of the Codecademy stuff – and that will take you a long while – there are a lot of avenues available to you. It’s really more of a matter of what you want to do next, as you’ll have the foundation you need to move in a lot of different directions.

Dig into Codecademy and see if programming is really for you.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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 many, many questions per week, so I may not necessarily be able to answer yours.

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