Reader Mailbag: Competition

Several people have asked me recently why I have a “weekly roundup” (where I link to sites that write about similar things as me) and why I have a big list of blogs I like on every page of The Simple Dollar. Isn’t that just helping the competition?

Maybe. But I don’t really view those sites as competition. My entire purpose for linking is to share what I consider to be useful and interesting websites and articles with my readers. I figure that if you find value in them, you’ll come back here eventually to find more value.

If you don’t, at least I know I improved your life and reading experience.

I recently started seeing a Psychiatrist, and was diagnosed with depression. I’ve probably been living with it for about 6 years now, and now that I am receiving proper treatment, I feel like I just woke up from a coma. Its not that I don’t remember anything I did over the past six years, or that I didn’t do anything, its just that whatever I did had no forward thinking to it. I had no goals. I didn’t really care about anything except eating, playing video games, and making money so I could eat and play video games.

The problem now is, I feel overwhelmed by the amount of things I suddenly care about again. I’m thinking about looking for a relationship, I’m thinking about finally moving back out of my parents house, I’m thinking about changing jobs, I’m thinking about moving out of state, I’m even getting evaluated for bariatric surgery. I’m thinking about all of these things, and I don’t know which to make a priority – but more to the point, I don’t know how to recover my finances to the point where I can realistically do any of them. I have about $70,000 in school loans that cost me $500 a month, I have a car payment that is $400 a month, and the payments for a pension loan I took out which is $235 a month. I have about $13,000 in debt across various credit cards, varying in interest from 18% to almost 30%, totaling up to $415 per month in payments. After those bills, and the $300 monthly cost I pay for a personal trainer (which I don’t want to stop as it has really improved my quality of life a lot over the past 1.5 years). I end up with about $500 left over.

The good thing is, both the car loan and the pension loan (I have a state pension through my job) will be over within the next year. I have 4 months left on the pension loan and 8 on the car loan. I’m pretty much living month to month at this point, and I’m wondering – where would you start the digging out? How much should I try to save a month? How much should I put into paying things off, and what should be the priority for that be?
– Jeff

You’ve got to knock out those credit cards. I can’t imagine that your student loans are anywhere close to the interest rate on your credit cards.

What I would do in your case is make a simple debt repayment plan. At the top would be your highest interest debt, and after that all of your other debts are ordered in order of their interest rate.

Whenever you have extra money, you throw it into an extra payment on the highest interest loan (after making minimum payments on all of the loans, of course).

That’s really the best way to approach this. Once you have only a few debts left – all with interest rates under 10% – you can start really looking at other options. Of course, at that point, your monthly minimum debt payments will be eating a lot less of your income.

It seems that quite often there is a conflicting viewpoint between Consumer Reports (which bases its ratings on testing, and its reliability on consumer surveys) and the reviews/comments I see on the site from actual consumers, or from other comments on sites like epinions.com. Consumer Reports may say a certain model of vacuum cleaner is great, for example, while I’ll see many consumers say just the opposite.

How do you think is the best way to research the purchase of a particular model of appliance (like a vacuum cleaner)?
– Chris

I have a hard time giving a lot of trust to wide-open consumer review sites like Epinions and, frankly, Amazon. I trust Consumer Reports far more.

The reason is simple: when it comes to reviews on websites where anyone can post a review, you often have no idea who the person posting the review is. Sometimes, it’s an individual who has a vested interest in you not liking a particular product or liking another particular product. Given that such anonymity on accounts is easy to achieve, it’s hard to really trust any specific review.

I tend to trust reviews from individual reviewers much more. If I can establish a long history with that reviewer, then their reviews have merit for me. That’s why I love book review blogs and websites – I tend to trust the individual reviewers.

Consumer Reports is more of the “trusted” source. They have a reputation to uphold for unbiased reviews. They can’t afford to write biased ones because they have a reputation at stake. “Sandra from Ohio” on a review website doesn’t have a similar reputation to uphold.

Combined, my wife and I have about 50k in money market accounts (emergency, travel, repairs), about 100k in our 401k’s, 8k in our IRAs and my wife has an additional 10k mutual fund and participates in the ESP plan (roughly 10k). We are both 33 (no kids yet).

We reduced our 401k contributions (up to the company match) in 2008/2009 to bolster our cash reserves. We’re planning on bumping our 401k contributions back up for this year, but I struggle with the IRA.

If we cannot contribute to the Roth IRA, is it worth it to max out a traditional IRA and convert to a Roth every year? Everything I read says this is fine to do (though you pay taxes on conversions). Are we better off just putting that money into our 401k? I’m confused as to the tax implications on converting IRAs every year vs. the tax savings on future withdrawals of the Roth.
– Sean

Essentially, your comparison is between the tax bracket you’re in right now versus the tax bracket you’ll be in when you retire. That involves some guesswork.

One great way to start is to estimate how much income you plan to have in retirement compared to your current income. Are you aiming to bring in the same amount? Substantially less? Figure that number.

My assumption is that if you’re making the same in retirement as you’re making now, you’re better off in the Roth. That’s because it is my belief that income tax rates are going to have to go up.

How many emails do you get a day? (How many do you answer?)
– Bryan

I get between 300 (weekend) and 500 (weekday) non-spam emails a day. I do my absolute best to keep up with them, but there are times where I simply cannot.

At this point, it would be somewhat reasonable for me to actually have an assistant whose job it is to deal with the deluge. However, that’s really an expense that we can’t swing at the moment.

I typically answer about 50 emails in a given day. I also usually use 3 to 5 of them directly for posts on The Simple Dollar – twenty a week for reader mailbags and maybe five more for other posts.

I have no current debt except for my mortgage which I make extra payments on each month. I have 8 months of emergency living expenses saved up. I have a 401k which I contribute up to my employer’s match and I have a Roth IRA which I contribute to continuously. I have also saved up over 30k in high interest savings account. My problem is that I am dying to buy a BMW 335. I sit in front of the computer everyday and read countless professional and consumer reviews and sometimes ride out to the dealership to look at the work of art in the lot calling my name. I just can’t come to terms with emptying out all my savings for a car that depreciates in value yet I want to have the car so bad. I guess my question is how can I deal with this? Should I buy the car if I want it that bad? Should I finance it and then just pay it off really quickly to help break the impact of draining my savings in one swoop? Thanks for your help.
– Christopher

Look, I want things like this, too. I’d love to just drive down to the dealership and buy the car of my dreams.

If I’ve learned one thing over the years, it’s that if you do that, it isn’t long before you want something else. And something else again. We all always want something.

If the BMW is truly the thing you want the most in the world, the thing that will add a ton of value to your life and make everything else pale in comparison, then you should buy it. I would not deplete all of my savings to do it because of Murphy’s Law – the second you empty it, something will come up where you need that money.

I think my wife put it best when she said, “He’d be giving up ten trips to Europe for that car.” That’s certainly another way to look at it.

I am currently carrying around a lot of credit card debt. In college, I never wanted to ask my parents for money so I just charged stuff. It also was the first time I cared about keeping up with what other people were wearing & doing. There began the habit of using credit cards for everything. Outside of college, I kept at it. I got a great job & salary however, did not know how to budget. Honestly, my parents never taught me about money and when I told them I needed help with a budget, they told me I should know how to do that already. But, can’t blame your parents for everything! haha.

Anyway, I’m in my late 20’s and have just had enough. I’m at the point where my minimum payments are so high and I can barely start to ‘snowball’. I’m cutting back my on expenses and trying to spend less than I earn. However, it always seems that I use cc’s as a crutch. If I feel like giong to out dinner but know I wont have enough money to pay for my gym fees, Ill just charge dinner. I know this has to be a lifestyle change.

Honestly, I dont think I can change without closing the credit cards. If I only have cash to rely on, I will be too scared to overspend or not save. I would close the cards but have balances to pay off. I know this could affect my credit, but really, I would rather not have the opportunity rack up more debt and deal with a lower score than keep on my path of using the cards.

What do you think? I’ve tried freezing the cards, cutting the cards, hiding the cards…nothing works.
– Alexis

How do you charge dinner if all of your credit cards are cut up?

Seriously, cut up all of your cards so that they’re completely unusable. Cut them into tiny, tiny pieces. Then see where you’re at.

If you find that you still can’t control the credit card spending, then close the accounts. However, if you’re still able to use a credit card to buy dinner, you haven’t actually cut them all up yet.

Should my HSA (Health Saving Account) be included in my net worth?
– Bryan

I don’t include our health savings in our net worth.

Essentially, I don’t include anything that I can’t easily liquidate in our net worth. If I can’t get cash out of it in less than a week, then it doesn’t go in.

Although you can get money out of an HSA pretty easily, the fees associated for doing so are crippling. Instead, I just ignore it in terms of our net worth. Then, if I actually need to use the account, I’m pretty happy that the medical expense isn’t causing a negative impact on our net worth.

How do you balance your finance goals and your health goals?

My husband and I have just over one year before our student loans come due. We are hoping to save up as much into an emergency fund (current balance of $0) over the next year as possible. After our mortgage, health insurance, car insurance, utilities, monthly expenses (food, medicine, etc.), and so forth are paid we’ll have $600/month to save. The mortgage and our student loans are the only debt we’ll have.

I have health problems which have plagued me since I was 16 (half my life). They are affecting my day to day life and I’m out of commission for 2-3 days a month and have limited ability to do anything physical several days a week. I have the opportunity to get them under control and regain my health. I’m doing as much as I can on my own but I do need medical attention and assistance, both of which cost money.

I feel guilty because in order to get healthy we won’t be able to save as much money. We know we’ll have to replace both the A/C and water heater over the next two years, as well as one of our cars within the next five. We want to have enough cash to cover all that plus several month’s emergency funds. That’s important to us, but so is my health.

How do you make a decision when there’s no “right” answer? How do you decide what’s best when neither is the obvious choice? Financial health and physical health are both important.
– Liz

Your health is more important than your finances. Without your health, you won’t be able to get your finances into proper shape. Your health is already keeping you from financial success.

If there’s a way that you can truly restore your health, do it. Get your health in order. Once you have that, any financial problem can be fixed later on.

Get yourself right. Everything else will follow.

I’m about to graduate from college, and I have no debt and enough in my savings account to cover my expenses for at least 4-6 months (maybe more if I made some lifestyle changes). I want to relocate to another city because I like the climate, the culture, and pretty much everything else about it. I have spent time in this city, but I only know one person who lives there. The cost of living and wages there are similar to where I live now, but I have no job prospects and only somewhat shaky connections. I will have a B.A. and lots of work experience, and I’m pretty confident I could find a job before my emergency fund runs out. Financially, do you think it would be a mistake to go ahead and relocate after graduation?
– Alex

In my eyes, it depends on two things.

First, do you have employment there? If you’re going there without any route to employment, I view that as a mistake. If you’re unemployed, you’re far better off living in an area where you have a strong social network. So, I’d suggest job hunting there before you move.

Second, do you build relationships easily? Some people do, some people don’t. If you have a hard time establishing new relationships, then such a dramatic move will likely leave you feeling very lonely – and that can create all sorts of problems.

If you can safely answer yes to both of these things, I’d go ahead and make the move.

The question is this: I am 31 years old, married, no children, and have the opportunity for a job that would put me in a position to earn $25-$27,000 per year. This, with my husband’s income is more than enough to cover all of our bills and get the emergency fund where I’d like it. The twist? It requires a security clearance and good credit. I have one bill that is about $1000 to pay off. My only option at this time for doing so is to either take an old 401k from a previous job with about $1200 and close it, or withdraw the money from my existing emergency fund which is a Roth IRA w/about $2100. I am unemployed at the moment and was wondering what your take is on which of these 2 options is the better of two evils,since my husband’s income is currently going to all the bills. Once my credit is cleared, and I can start the job, I can repay/re-save the amount within 2-3 months.
– Stephanie

When you say “good credit,” what does that mean? Usually, it just means that your credit report doesn’t have any major delinquencies on it. A single $1,000 outstanding debt usually doesn’t mean bad credit unless it’s way overdue.

The first thing I’d do is get my credit report and check it over. Use annualcreditreport.com to do this – it’s run by the federal government and is actually free with no strings attached. See if you have anything delinquent on it.

If you don’t, I’d say your credit is what I would consider “good.” If you’re actually worried about this, ask your potential employer.

You’ve talked about how you enjoy writing fiction. What do you write? How often? Have you ever published anything?
– Leon

I try to write fiction at least two days a week, usually three. Each time, I attempt to get at least a thousand words on paper, and I try to finish (at least in rough draft form) a short story every week.

For now, I don’t publish them. They’re not what I consider to be “good enough.” I don’t feel comfortable with others reading them at this point, though I do feel that they’re getting better.

If I do publish some, I will certainly mention it on here.

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.