Reader Mailbag: Distractions

Yesterday, my father had emergency surgery to relieve a big infection that started when he got a fish hook embedded in his hand and he didn’t clean the wound properly immediately. I spent most of the day distracted and worried about him (he seems to be doing okay).

I mostly wandered around in a daze. I did some work, but I had a hard time staying focused. I played with my kids. I took a long walk. Mostly, I wished I was there at the hospital.

We all go through things like this. The best thing you can do to prepare is to make sure you always have breathing room in your work and in your life.

I’m confused about how to calculate what I need in an emergency fund – it is 6 months expenses for normal life or 6 months expenses minus what you wouldn’t spend if you weren’t working (like extra debt payments, commuting costs)? Should you count potential unemployment earnings in your plan? Is the emergency fund for dealing with unemployment or dealing with an accident?
– Michele

I usually use six months of minimal expenses – what you would need to keep food on the table and keep the bills paid. I do assume work costs because such emergencies might not necessarily be a job loss – there are lots of different kinds of emergencies that might happen. Similarly, I don’t include unemployment earnings in that number.

If you feel that six months’ worth of that is somehow too much, then don’t save it. However, I’ve moved to the idea of the “bottomless” emergency fund, simply because I just don’t know what the future holds and I want to be prepared for anything.

I do that by simply saving a small amount each week in my emergency fund and I simply don’t worry about the balance. If it grows beyond some arbitrary level, all that means is that I’ll be extra relieved when an emergency does happen.

I was reading your article on preparing your information for disaster and was wondering what your thoughts are on dead mans switches? I assume you’ve heard of them, basically all the information you highlighted in your article would be kept encrypted on an e-mail server and if you don’t press an electronic button once a week or so to let the server know you are alive it will send out your information to your beneficiaries (usually after 3 failed attempts or so). Do you like this idea? I am a little hesitant about having a binder laying around with all my personal & financial information in it in case it gets misplaced or fell into the wrong hands.
– Chris

I don’t like “dead man’s switches” simply because there are times in everyday life when you won’t necessarily be able to get to that switch in time. Not only do you always have to remember it, you have to be in a place to be able to push it when you think of it.

My solution is to keep the information in a safe box at the bank. I keep an unmarked key in a safe place and I’ve told the small handful of people I deeply trust where the key is and what it’s for. In my will, I state who has access to the document and encourage the executor to contact them. That’s really, truly good enough for me.

My husband and I have decided that it’s probably time to refinance. We think we can get a rate about 2 points lower than what we currently have, which would really help our monthly expenses, particularly since we’re expecting a baby in September. We’re not having any trouble making the mortgage now (and frequently pay extra), but that bit of extra flexibility will be helpful since we don’t know exactly what my work situation is going to be, post-baby (but I’ll probably be making less money than I am now).

The problem is, we don’t QUITE know what we’re doing. I was wondering if you could do an article on how to refinance your home without getting screwed. When we did our mortgage initially, even though we had done some research, we really felt like we were at the mercy of the brokers and real estate people and everyone. We got jerked around a lot, and it was super stressful. The crowning moment was when they called to tell us our official, finalized closing costs–the evening before we were supposed to close–and the number was around $2000 more than the “good faith estimate.” It wasn’t until then that we understood that there was nothing “good faith” about that estimate, and no legal requirement that it be even in the same ballpark as what they would actually charge us. We asked around and found out that this had happened to a number of our friends–I wish we had asked those questions earlier! I don’t want any similar unpleasant surprises, so I’m asking anyone I can think of to give me a talk-through of what to expect, and what warning signs to look out for.
– Alisha

There’s really no need for a full article on refinancing your home. The process is incredibly similar to shopping around for a mortgage, except it’s even easier because you already have the collateral in hand – your home.

All you do is simply go get quotes from various home lenders, do your own research into their reliability and customer service (trust me, it’s much better to work with a local credit union with a great reputation for customer service than MegaBankCorp where you’re just a number when you’re having problems with your mortgage), and select one based on those factors. Usually, lenders that overshoot their “good faith estimate” have a pretty poor reputation online, so just research your lender before you ever sign.

If you feel you need more detailed guidance, there are tons of books at the library that can walk you through this more carefully.

One final tip: don’t deal with a “broker.” Go get the quotes yourself directly from institutions that you’re willing to work with. Yes, it takes time, but it helps you figure out the deal that’s best for you.

I was wondering about your thoughts on the morality of short sales when a person can afford their payments but want to sell and are underwater. I know you agree with me that walking away and foreclosing is wrong.

Here’s our situation: I’ve been offered a job across the country that would include a 30 percent raise an would be a good career move. The problem is that we are underwater on our house and would need to do a short sale to sell. We can easily afford our mortgage and I wonder if it’s right to make this move and leave the bank shortchanged.
– Nate

I don’t think that’s “walking away from a mortgage” at all. You’re moving for a legitimate reason – a different career path – as opposed to merely trying to make someone else hold the bag on a bad investment you made.

Is it the right thing to do? That’s really up to you and your bank. If your bank is willing to accept a short sale in this situation, I’d go for it. Sometimes banks will do that and sometimes they won’t.

This is the normal type of risk that banks account for when they create mortgages, so I wouldn’t worry about it.

Hi Trent: I have long followed many of the principals of your Forum but now find one coming back to haunt me. I loathe debt and have been debt free since the year 2000. I use a debit card or cash to pay for everything. I purchased my condo and car both for cash. I live and work abroad. I recently thought of purchasing a home in California. Was going to put 75% down and thought to borrow the balance. The loan broker said I would not qualify for a normal loan as I had no credit history despite owning a home in the USA in the 90’s! I have a net worth of 1.7m/ annual income of 200k but that was not good enough. Needless to say I was shocked.

So I find mind myself now having to use credit to gain “credit worthiness”. I signed up a for Fidelity Amex credit card. Can you suggest any other way I might establish a credit history? I don’t want to take out a mortgage but you never know. I want the option of access to credit. I would appreciate your comment.
– Matthew

You absolutely need to go to a home lender that does manual underwriting instead of this automated nonsense that gives a pretty poor picture of one’s true credit worthiness. A credit score is a great quick check for simple things (like figuring out insurance rates), but for big things like a home mortgage – especially in your case – manual underwriting is best.

When someone does manual underwriting, they actually investigate you instead of scanning a credit report. You’re obviously a person worth lending to – your credit report, on the other hand, is a blank slate.

If you’re looking to build a positive credit rating (just because it can be generally useful, like for insurance rates), a credit card is a good way to do it, particularly if you have self control when it comes to using it (which you obviously do).

Any recommendations for baby carriers? We have a six-week-old baby boy and so far we have our eyes on both the Ergo and the Baby Bjorn (leaning towards the Ergo since I have back pain and don’t want to exacerbate it). I figure you’ve probably done your research on this.
– Justin

My wife and I chose the Baby Bjorn in 2005 for our son and we’re still using it for child #3. It has worked extremely well as a hands-free child carrier.

It doesn’t appear that the exact model we purchased is still for sale (or maybe it’s been redesigned). After looking at dozens of such carriers on Amazon, it looks like this one is the most similar to the one we have.

The biggest problem we have is that I’m more than a foot taller than my wife, which means that for us to switch users, we have to make a ton of adjustments to it. If you vary greatly in size from your wife, two of them wouldn’t be a bad idea.

I was interested to see your recipe for chicken fingers the other day, and I hope you post more food-related articles in the future. I am curious, since you have two preschool kids, are they picky eaters? Are there any foods they won’t eat or that are hard to get them to eat? How do you and Sarah get them to eat fruits and veggies, or meat? Try new foods, or exotic/ethnic/”weird looking” foods? I hope they aren’t stuck in the chicken fingers/mac n’ cheese/pbj rut too many kids their age are in. I myself was a very picky eater and can recall many heated fights for many years. I am sorry for now as my stubbornness resulted in bad habits and a limited palate on my part. Thank you.
– Lorraine

They have preferences, without question. There are some foods they really like and some foods they do not.

Our goal as parents is usually to just expose them to a lot of different things – and, most importantly, demonstrate an interest in and enjoyment of a wide variety of foods.

For the most part, this has worked well. Among my son’s favorite foods are crab legs and black olives – fairly unusual for a four year old. My daughter has a passion for “spicy” salsa – and the funny part is that her definition of “spicy” is pretty intensely hot.

Whenever we have a meal with an unusual dish, all we require is that they try one bite of it – that’s all. If we have three courses (which is typical), we usually fill their plate with a small amount of each item, then tell them they have to clean up two of the three items and take one bite of the third. That usually takes care of the “ewww…. I don’t like it” problem pretty well.

I have a question that I bet many of your readers may be interested but I am unsure where to post it where it may generate further comments and input from you as well. I will give you the basics and if you can point me to the correct area of your site I will be happy to place my question there.

After poor budgeting, poor planning, unexpected medical bills and a couple of lay-offs after the events of 9/11 – I found myself filing bankruptcy around 4 years ago. Since then I have rebuilt my credit to the point I was able to buy a home at a good interest rate, purchase a good used car and set up a budget that covers my expenses and leaves me a little left over at the end of each month. Here is the problem. At 39 years of age I have NOTHING saved for retirement and I only have a few thousand dollars in my emergency fund. Now certainly I am not in completely dire straits as some may be but the reality of not planning at an earlier age for retirement and how to move forward currently is at the forefront of my mind. I have two young children but I remember hearing a financial planner saying at one point, “if you can only fund a college fund or your retirement fund – save for retirement unless you want to be living with your children when you retire.”

I have a feeling there are many my age who may be in the same boat I am – starting a retirement plan at a less than optimal age. I see many letters in the mailbag regarding 20-somethings’ wanting advise on how to start their financial lives (smart folks) but I have not seen older individuals or families writing in for opinions on this kind of situation. I certainly believe that getting my emergency fund up to a 6-month cushion is paramount but what would you recommend after that?
– Allen

There’s no easy way out here – you simply have to double down on your savings.

If you start retirement savings when you’re 25 years old, you can get away with contributing a lot less per year over your lifetime. This is not only true because you have more years to contribute, but because the earlier contributions have a lot more time to add value.

You’re 39. The numbers are a lot different, but they are doable.

Spend some time looking at a good retirement calculator, like this one at MSN. You’ll find that if you start plugging in numbers, there are ways to get yourself to the retirement level you need at age 65. However, it’ll either take a lot more savings each year or some extremely lucky years on the stock market to make it.

To be on the safe side, bet on the “more savings each year” side of the equation. You most likely need to be socking away 20% of your pretax income starting now in order to be ready for retirement when it rolls around.

I have a question for you about valuable property insurance. My husband and I purchased a very expensive rug at a bankruptcy liquidation sale (original price ~$4,500, but we got it for 10% of that or $450). It was simply a deal we could not pass up and I have been looking for a quality rug for about 7 months now. With the exception of some family jewelery and our house, this is most valuable piece of property we own. We currently have insurance on the jewelry and the house, but we’re unsure if we should insure the rug as well. My husband feels at a certain point we can’t keep paying a separate policy for each valuable item we acquire. I think that we probably will acquire more items that will need to be insured, but since we have so few items right now, it’s not appropriate to adjust our full homeowners policy to cover just a few valuable items. I’d be interested on your opinion on this issue.
– Elaine

You need to read over your homeowners insurance policy very carefully. Almost every homeowners insurance policy has an item included in it that covers loss of contents of the home, so in the event of a fire or other disaster, your rug is most likely covered.

For most people, the default amount of the value of the contents exceeds the value of the contents by quite a lot. This is usually done so that the “value” of the insurance is higher and thus the insurance companies can charge you a higher rate for your insurance.

If you wish to insure the rug separately against other events (like a stain), you can probably do this, but you will likely be paying pretty high premiums for it. If I were you, I’d just bank those premiums instead as a “replacement fund” for the rug so that if something did happen, you’d be ready to replace it on your own without giving money away.

I’ve enjoyed reading your blog and have gained a lot of insight from them.For some reason I always thought that you were not a Christian from the little I could gather about your spirituality from The Simple Dollar.But having read your article today about you being in the committee of your church,I believe that you are.Is that true?If so,why would you comment that a certain book that you reviewed had heavy ‘Christian overtones.’When I read that, I felt you were not endorsing that book because it was “Christian.” If you don’t mind me asking,please tell me more about your spiritual life.
– Preethy

I’ve mentioned quite a few times on The Simple Dollar that I’m a Christian. I am heavily involved in my local church, particularly in terms of helping to organize their money and direct it towards the needy in the local community by giving to the local food pantry and so on.

I don’t waste my time judging other people and I certainly can’t tell them what to believe nor will I berate them for not believing what I do. All I can do is try to help them improve their lives and solve their financial and professional problems so that with a clearer mind and greater opportunities, they are open to finding whatever answers life has in store for them.

If someone writes to me asking for help, I don’t care whether they’re a Christian or a Muslim or a Hindu or an atheist or a Zoroastrian. They’re a person and that, to me, is more than enough to offer my help in whatever way I can. Unless they’re seeking spiritual guidance, talking about religion does not help them – it just likely alienates them from whatever help I might be able to offer.

Most people don’t care what I believe or what you believe, but they don’t like it when someone uses that belief like a weapon of judgment. When a person comes to a point in their life when they’re looking for spiritual answers, they’ll ask the people they trust. That’s a private conversation that doesn’t need to be in a forum like this, so I keep it out of here.

Whats your suggestions on explaining frugal living to friends that don’t want to hear it but are clearly living beyond their means? Or they give excuses why it wont or cant work for them.
– Marvin

My answer to this question is actually pretty similar to the one above. Don’t waste your time preaching the “gospel of frugality” to someone who doesn’t want to hear it. When their life hits bottom and they’re ready, you can talk all you want about it.

What can you do, then? Take action. Invite them over to your home quite often so that they can see how many frugal things are simply a part of your daily routine (without making any show of it). Talk happily about the frugal stuff you do and invite them along to things like community concerts. Offer to help them fix a minor plumbing or electrical problem themselves so they don’t have to call a plumber. When an emergency happens, don’t go into panic mode – simply say, “Wow, glad I’ve got an emergency fund!” and just take care of it with cold, hard cash.

In other words, don’t waste your time talking the talk – people don’t want to hear it. Walk the walk. People see that and when they’ve reached a point in their life when they’re open to hearing more, then you can talk the talk all you want.

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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