Updated on 07.08.11

Reader Mailbag: Dog Days

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. Dealing with no credit
2. Handling changing mindsets
3. Spousal disagreements over budgeting
4. Car loan payoff
5. High pay, hate my job
6. House financing question
7. Running for school board
8. Career choices
9. Starting a side business
10. The future of the penny

The dog days of summer are here. That means sun tea, getting really sweaty outside, dry grass, occasional big and noisy thunderstorms, wonderful trips to the pool and to the lake, and falling to sleep with the noise of the ceiling fan.

Q1: Dealing with no credit
Bad credit due to bankruptcy 10 years ago (gone from credit report now). I have no debt and as a result no credit. Grandfather signed for the 2006 car that I drive now. Car is worth ballpark 4k and just paid it off. Now I’m trying to establish credit. When I talked to a loan officer about financing a car last fall the lady pulled my credit history and said “where have you been?” 1 of the 3 reports didn’t even have a score for me :-) I guess that’s a good thing depending how you look at it. Anyway, I have credit cards now and that is helping my score but I’d like to get a car loan in my name. I’ve suggested to a local credit union that I purchase a $1,000 CD and use it as collateral for a $1,000 loan on my car. I realize that i’m going to end up paying for my credit score with the interest I pay the credit union but that’s a price I’m willing to pay. Here’s my question (finally!), I was thinking keep the loan for max 6 months and pay it off. Loan officer is telling me that in order to build my score I need to keep the loan for at least a year. I’ve tried to google research this and I’m coming up with nothing. Is this loan officer just trying to get a little more interest out of me or is there truth to this “at least a year” statement?

– David

It’s really difficult to say. I think keeping it for longer would have a slight positive effect, but not an enormous one.

The problem is that the formula for calculating one’s credit score is not public knowledge. All that’s known are the general guidelines provided by Fair Isaac (the company that developed the formula). They describe five factors in general terms:

How you pay your bills (35 percent of the score)
Amount of money you owe and the amount of available credit (30 percent)
Length of credit history (15 percent)
Mix of credit types (10 percent)
New credit applications (10 percent)

I’m guessing that having the loan will boost your mix of credit types, but that boost may drop when you pay it off, which is where the loan officer’s advice is coming from. However, I don’t think it’ll have a tremendous impact either way.

Q2: Handling changing mindsets
My husband and I got married two years ago. Neither of us had student loans or any credit card debt. My car was a gift from my parents and he had a loan for his car, which we promptly paid off with part of a trust that his grandfather set up for him when he was born. With the rest of his trust, as well as some other savings, we put a down payment on a single family home. We have less than $500 in debt, on interest-free credit cards from buying new glasses and a suit. It will be paid off before the interest-free promotion ends. We make extra payments of $300 (sometimes more) on our mortgage every month to increase the amount of equity we have so that we can get rid of our PMI earlier. We have about $15K in a CD as an emergency fund, and about $10K in savings. My husband has a 401K and a pension plan from work, and I’m opening a 401K this year (I was in school until recently). We both have life insurance policies. We’re in pretty good financial shape for 27 year olds.

But here’s the problem: we can’t get out of our youthful mindset. We both came from families who worked hard to give us everything we wanted- so we’re used to getting what we want. If we want a new camera, we go buy it. If we want to renovate our kitchen, we do it. I’m a bit of a shopaholic (although I really only buy things on sale or used- I definitely buy too much!) and he loves college football and will spend over $1.5K a year for tickets, travel, etc.

We’d like to have kids soon and begin saving for the costs of children as well as saving for their futures so they can start out the same way we did. But we’re finding it very hard to get out of spending habits and we-have-the-money-why-not-spend-it mindset. Do you have any advice for how we can change our ways? Any book recommendations? I don’t feel like the normal “save to reduce debt” ideas apply because we don’t have the burden of debt weighing on us. Thanks for any advice you can give!
– Jennifer

I don’t think any book can really help with your situation. You know what the problem is – you overspend on “wants.” You know what the solution is – spending less on “wants.” It’s up to you and your willpower to make it happen.

One method you might want to try is automating your savings right out of your checking account. Open up a savings account at another bank (like an online bank such as ING Direct) and direct them to automatically withdraw a small amount from your checking account each week. This alleviates you from the responsibility of remembering to save each week and having to make the choice to save.

The biggest factor here is simply personal growth. The more time you spend thinking about what you truly want from life, the more such inconsequential purchases begin to fade into the background as they become completely unimportant.

Q3: Spousal disagreements over budgeting
Do you and your wife ever disagree over budgeting? My boyfriend is a pretty frugal guy (doesn’t care about nice clothes, or cars, even thinks we can downgrade our one bedroom apartment to something less expensive), but is stubborn about certain things. I’d like to get rid of our cable as I feel we spend more time watching netflix and hulu and basic cable channels, but he disagrees. We spend a total of $161 for cable (we get only basic cable, no movie channels), phone and internet and my estimation is that if we cut the cable it would probably save us about $70 a month. What do you and your wife do when you disagree about cutting something from your budget or not?

– Kat

My wife and I budget in a pretty flexible fashion. We generally agree on certain bills that we both use – electricity, cell phones, the mortgage, and so on. Beyond that, we each have an informal “allowance” of sorts that allows us each to spend a certain amount each month on whatever we choose to spend it on.

As long as we each stick within our “allowance” (or stay close to it), there’s no problem. We each have separate interests that we maintain.

So far, there really has been no conflict with this arrangement, at least not in several years. We’re both happy with the arrangement.

Kat had a second question.

Q4: Rapid car loan payoff
Should I try to pay off my car loan faster? From everything I’ve read on your site I should be paying all debt down as soon as possible. However, I’ve also read that having a car loan (as long as you are making all the payments on time) can actually look good when you are applying for other loans as having “diverse” credit is good for your credit score. If I’m planning on getting a mortgage in 3 years or so, is it better to have a car loan that I’m consistently making on time payments on (which will at this point have a pretty low balance), or is it better to have no loan like that at all? I should note that the monthly payments are doable for me, barring an emergency, there is not any reason I should ever have to be late on a payment.

– Kat

If you’re looking at nothing but your credit score, it is perhaps slightly better to have a diversity of credit sources on your credit report. So, in that narrow sense, your plan makes sense.

However, in terms of looking at your finances more broadly, it’s not a good move. Paying off your car loan as fast as possible puts more cash in your hand that you can use for a down payment or for closing costs if you decide to get a mortgage.

The only situation where the credit score might trump this is if your credit score is really marginal and could use any little boost it can get. If your credit is mostly good (or better than that), you’re better off minimizing your debt and avoiding future debts.

The best solution, if you’re worried about this type of thing, is to just request manual underwriting for your mortgage when you apply for it. Manual underwriting means someone actually looks at your credit report and your situation before deciding whether to lend to you or not, so you’re probably better off in that situation paying off your car early and having some cash in hand.

Q5: High pay, hate my job
I currently work as a Technical Service Engineer at a top chemical company. I have worked here since October 2010 and did similar work for 5 years prior to that. I make a salary of $77,000 a year and support only myself ($765 rent payment, $210 car payment, utilities, etc). I live very comfortably and am able to save $400 a paycheck. I have been going to school since January 2009 to become a secondary math teacher. I currently live in Philadelphia and my boyfriend lives in Pittsburgh. His income is less than $30,000 a year but he owns a house (mortgage $700 a month including taxes and insurance). I have to quit and student teach Fall 2012 at the latest due to changes in teaching requirements. I am considering moving back to Pittsburgh earlier and student teaching Spring 2012. I need help figuring out what I should do financially. I have about $25,000 in savings. If I stick it out at my job until March 2012 (which would leave me enough time to go straight into student teaching) I would get a 15% bonus, but I would pay an extra 6 months rent (I can only sign a year lease). I can leave this October and get 25% vested in my 401K match and not have to pay any extra rent. I am really torn because I will likely not make this much money again soon in my life, but emotionally I am not interested in my job or in living away from my boyfriend.

– Christina

You’ve got the traditional dilemma of choosing between money and other life needs. It’s a call that everyone eventually has to make in their life, and different people make different choices.

From my reading of your note, my impression is that you’re leaning towards the personal side of things. If that’s where your heart lies, go for it.

Never forget that personal finance makes your life possible, not life making personal finance possible. You have $25K in savings and are heading right into a career that you want and a life with someone that makes you happy. You’re in good shape.

Q6: House financing question
I currently have a FHA 30 year fixed loan at 5.5%. I bought my town home two years ago. Since then interest rates have dropped including my house value. I called about refinancing to a lower 15 year fixed mortgage and wanted to know some your opinion. One mortgage provider I called said there is a streamline loan through FHA that I can get a lower interest rate as long as I’m up to date on my mortgage and it was an original FHA loan. The mortgage provider said my house was worth about 97,000. the stream line loan doesn’t require an appraisal so I can get the loan for the original amount of 105,000. He said I would need to bring the closing cost, 2600, and the application fee of 400, to the table when I close. My estimated new monthly payment would increase to 934, right now i pay 700.

1) would this be a good choice if my wife and I plan on living here for at least 5 more years?
2) when i originally qualified for the mortgage I was single now I am married and we make about 4500 a month after taxes. would we qualify for the streamline FHA loan?
3) the only debt we have aside from the house is about 27,000 in student loans.

– Nathan

If I understand correctly, you’re saying you would move from a 30 year to a 15 year with lower interest and somewhat higher monthly payments. That loan seems like a good option, especially if you’re going to be living there for a while.

From what I understand of the FHA streamline requirements and what I understand from your story, there’s no reason you wouldn’t be qualified for it.

If I were you, I’d go for it.

Q7: Running for office
I live in a community of about 7,000 people. I am considering running for school board. This is a contested election without party affiliation.

How do I go about winning this election? I know you’ve dabbled in local politics. I’m just not sure where to start.
– Ellen

In a community of that size, your best bet is probably to simply get to know people. Name recognition is enormous in such elections.

If I were you, I’d figure out why I wanted to be on the school board. What are your key issues? Why do you have that stance on those issues?

I’d then literally go door to door in the evenings, knocking on doors and introducing yourself. Take flyers around with you so that they remember you. Be sure that, beyond introducing who you are, that you ask if there are any issues they’d like to see before the school board. Carry a notepad and a pen with you and write down things you learn along the way.

I’d also be sure to be present and as social as possible at any community events between now and then. Talk to people. Get to know them, and let them get to know you.

Q8: Career choices
I’m currently working as a System Administrator and Supervisor. I make a decent amount of money, but I only took this job because I know I’m good with computers and needed the money. The problem is I really don’t like computers. I mean… they are ok, but I’d really rather not. I’m a hard worker and I’ve gotten promoted several times in the last couple years and even doubled my income there. With my current skill set, it would be difficult to move up any further though. I would need to take a few classes, each at around $500-$900 each, and if I wanted to go even further up the chain, I would look into getting a BS in computer science or networking. Whatever career path I suppose I’d want to take, but as I said, I’m mildly interested and I’d rather not.

What I really want to do is be a firefighter. A total 180 in career choice. I like the duties and awesomeness of the job, the variety of work, and the schedule. The money is about the same starting compared to where I currently am; although, it doesn’t get too much better after that, but I’m not really worried about it. Unfortunately, I’ve been trying to get hired for the last three years; although, one of those years, I had to jump out of the application process because I was pregnant! The application is a long process (6-9months) with a slim chance of getting through. About 1400 people apply for about 20 or less spots. Obviously, the odds are against me. I get most of the way through the process to about the last 40 people every time but don’t make it past the last interview. I live in a metropolis where there’s about 7 different companies I can apply to, so I do about 3 simultaneous applications a year, which is a pretty common practice. I know I can greatly increase my chances and most likely make it if I took EMT classes toward becoming a paramedic. This can cost around 900$ just for the basics and takes a lot of hard work. And if I do make it, I’d have to hope to pass through their 3-4 month academy. I’d have to quit my current job to do this academy, and if I fail out, I’m without a job. The pass rate is normally 80-90%. Then after that, I have to worry about layoffs, which is pretty popular nationally due to the government spending cuts. I do have enough saved to get me through a decent period of unemployment, I just wouldn’t like it.

So my question is this, do you think I should increase my skill set with my current job in a field i don’t really care for although tolerable, it’s pretty stable, I’m really good at it, and I’ll most likely double my income again with further education or do you think I should I increase my skill set for a job I might get and hope to maintain but would really love to have. I don’t have money or time to do both, and the firefighter thing is kind of age dependent. The older I am, the harder it can get physically. My husband would also like another child soon, but we can’t even think about it until I decide if I still wanna go for it. Granted, he’s also fine to not have another child. It’s really up to me. So yeah, just wondering what you would suggest?
– Randy

The only thing holding me back from saying “go for it” is the presence of a child in this scenario. The career jump you’re describing is incredibly risky and provides some dangers for your ability to provide long-term care for that child.

I’m not talking merely about the risks of being a firefighter. I’m talking about the economic risks inherent in the path you’re describing. You’re going to take a big income hit and a big job stability hit with that switch.

If you were without dependents, I would absolutely encourage you to take the leap. Given your situation now, though, I’d probably encourage you to take the safer route. It’s not just you that’s involved here.

Q9: Starting a side business
I’m a software engineer, and I’ve been thinking about writing a web application and seeing if I could get that going as a small side-business. I’m comfortable with the technical aspects of doing something like this; it’s the other aspects I feel like I don’t have a clue about. Do I just come up with privacy policies and terms of service by myself? Do I need to ‘create’ the business in some official way? I guess mostly I just feel clueless about the process of starting your own business, and was hoping you could shed some light on the process.

– Sarah

My experience with creating EULAs is that the organization that I was involved with essentially read the EULAs of several respected software packages and more or less cribbed their text as a starting point. They then took this document and had a lawyer review it, which was much less expensive than having a lawyer write it.

As for starting a software business, this is the type of business that has the advantage of having rather low startup costs. You can easily start work on it in your spare time, just to see if anything comes of it.

If I were you, I’d start as a sole proprietorship – no paperwork needed. If you actually begin to create a real product, then I’d consider forming a business. Don’t bother until you’ve created something of worth, though.

Q10: The future of the penny
Do you think the penny will continue to be made in the future, considering that it costs far more to make a penny than it’s worth?

– Vince

If I were President, the penny and the nickel would vanish. Instead, we’d merely round everything to the nearest tenth of a dollar. The exception to this would be online transactions, where cents could still easily be recorded.

What will they actually do, though? My suspicion is that they’ll keep making and using pennies until they’re absolutely deprecated. This has been the policy with past currencies such as the halfpenny and the farthing (a quarter of a penny) in various English-speaking countries.

Why not do it now? I think there’d be resistance to eliminating it and I think that resistance without a real reason for it is why we’ll still have the penny for a while.

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. Karla says:

    @Christina (Q5):

    I played a little with your numbers on this one because I don’t think the differential is as big as it seems.

    A 15% bonus on $77K is $11,550; however, bonuses are usually taxed at a higher rate than normal income. When I receive one, I usually only end up with 50-60% of it in cash after Uncle Sam takes his cut. In that case, you’re walking away with $5,775-$6,930 at the end of the day.

    Your rent is $765/mo plus utilities so I’ll round that to $900/mo. Your total cost for six months would be $5,400 (doesn’t take into account cost of renter’s insurance, groceries, etc.).

    So really, you’re talking about a benefit of between $375 and $1,530 to stay for six months and get that bonus.

    As Trent said, personal finance makes life possible. If you’ll be happier teaching and with your boyfriend, I wouldn’t let this issue delay that move.

  2. valleycat1 says:

    Q5 – & Karla comment 1 – don’t forget Christina also is socking away 400/month into savings, which she could continue an additional 6 months.

    In much of the country, due to state and local budget woes, permanent teaching position openings are getting rarer and much more competitive; even if you get hired, you’ll be on probation for at least a year & subject to layoff – so I’d advise getting as much into an emergency fund as possible. I’d stick it out with the job.

    To me, Trent’s advice to Q5 vs Q1 are contradictory – Q1 is advised to grow up and quit letting feelings drive their spending, Q5 is advised to go with her feelings over fiscal responsibility.

  3. valleycat1 says:

    Q7 – Also, join one or more local service clubs (Rotary, Lions, Toastmasters or a local equivalent). If there are any local restaurants where local businessmen go for breakfast or lunch, start going there regularly too – that’s where the informal connections get made in small towns.

  4. Tracy says:

    @Q5 – Actually, I’m not sure she’s not socking away 800/month … she says per paycheck and while she doesn’t say if she’s paid bi-weekly or monthly, the high income, relatively low expenses makes me inclined to the higher figure.

  5. Johanna says:

    Q2, Q3: Interesting superposition here. In Q2, Trent talks about how “personal growth” leads him (and by extention, everyone) to see spending on wants as unimportant, but in Q3, he talks about how he and his wife each have an allowance to spend on their “separate interests” – which are, presumably, wants.

    I think the author of Q2 would be better served by the answer to Q3: Once you’ve figured out how much you need to spend on your required bills, and how much you want to save for your joint goals (like your children’s futures), then budget the rest of your money for wants, and spend it on whatever you want without guilt.

    If you want a book to guide you, “All Your Worth” is based on this general idea.

  6. Johanna says:

    As for Q3 itself, there remains the question of whether the cable bill is a joint bill that comes out of the household budget, or whether it should come out of one partner’s allowance. I remember a reader mailbag question from a while ago that asked exactly that, and I think the consensus was that it should come out of the household budget, even if it’s mostly used by one partner.

    If you want to have a deeper discussion about this with your boyfriend, I recommend focusing on the question of what you (jointly) would do with the $70/month if you weren’t spending it on cable. Would you spend it on something else (if so, what)? Save it for a specific goal (if so, how much sooner would you reach the goal with the extra $70/month)? Save it for emergencies? Focusing on the tradeoff between specific priorities might be more productive than just saying “We need to cut our spending as much as possible,” which can sound like “We need to cut out all the stuff *you* like, because that stuff is all stupid.”

  7. bogart says:

    Q3 what I ask myself when this sort of question comes up between my and my husband (and we have exactly the same preference set as you and your boyfriend — he wants cable, I don’t) is, “Which is cheaper, cable or [marriage] counseling?” I admit I haven’t priced the latter, but I can tell you we still have cable and I don’t anticipate getting rid of it anytime soon.

  8. Jody says:

    Q5. What about looking into moving out of your apartment when your lease is up, and staying in a month-to-month place for the remaining six months?

    If it was me, I’d sell everything I wasn’t planning to move, move everything that I was keeping to my boyfriends (if that is where I was going to live) and then live out of a few suitcases and boxes for the last six months.

    Living lean means you can move every month if you need to. Look into house-sitting options or perhaps a friend with a spare bedroom would be willing to rent it to you for such a short period of time? Also, look into the monthly rate at hotels/motels in your area. There are lots of options other than signing the 12 month lease and having to pay for an empty apartment.

  9. Kevin says:

    The problem with eliminating the penny is that businesses would take advantage of it as an opportunity to boost profits.

    For example, say Acme currently sells widgets for $9.97, in a region with 13% sales tax (such as mine). The total price currently is $9.97 * 1.13 = $11.27. Without the penny, this would get rounded down to $11.25. The business would be making 2 cents less on every sale.

    The business, of course, would react by raising the price by just 1 cent, to $9.98. Then the after-tax total would be $11.28, which would get rounded up to $11.30.

    Thus, by raising the price by just 1 cent, the business could turn a potential 2 cent loss into a 3 cent gain.

    Now imagine the business running these numbers for every single product they sell. Now imagine every business doing this, everywhere.

    The customer thinks he’s only paying an extra penny, but for some reason, none of this “rounding” seems to be working in his favor. The amounts are so small he probably won’t even notice, but that doesn’t change the fact that the businesses have seized a chance for a quick profit boost.

  10. jim says:

    Q2 Jennifer : Sounds like you’re doing ok overall. You have money in the bank, saving for retirement and making extra mortgage payments. I agree with Johanna that you need to setup some budget for automatic saving and then budget a portion for your ‘wants’ spending.

    Q3 Kat : Its not clear how you’re sharing finances with your boyfriend. Sounds like you’re splitting expenses. But you don’t care for the cable expense so you want to drop it. But cable is something he wants. Shouldn’t he be allowed to spend some money on stuff he wants? Or is it the case that he demands you give up all the stuff you want but then doesn’t give up anything he wants? The two of you need to compromise and let each other have some things that one wants but the other doesn’t. He’s a frugal guy that doesn’t spend money on much but is willing to spend it on cable, so thats evidence that cable is pretty worth it for him. Let him keep the cable. In return you should get to spend some money on stuff you want that he doesn’t.

    Q5 Christina : You say you’d have to pay 6 months extra rent cause you can only sign a 1 year lease. So I take it your current lease is up in October and you’d face moving out or singing a 1 year lease. Then i you move in March the lease would only be half done and you’d owe the remaining 6 months?
    There are other options. You could find another place to live for the 6 months from Oct-Mar. You could negotiate with your landlord for a 6 months lease by offering to pay more. Either would be worth pursuing rather than just paying 6 months rent. Also I don’t think you’re necessarily required to pay the rent if the landlord rents the unit and generally they would rent it within 6 months, but check your state landlord tenant laws for that to be sure.

    Your 15% bonus + the $400 a month you pocket over 6 months should come out to close to $10,000 extra savings for 6 months. Less 6 months rent you’d still be ahead around $5000 or up to $10000 if you find alternate living for the 6 months.

    Is $5000 to $10000 extra cash worth working 6 extra months?

    Q8 Randy : Can you even afford to change jobs and take time off for training? If you can afford to live off your husbands pay and have adaquate savings to get you through that and then still have emergency fund still left then OK… then give firefighter a try and if it works it works. If it doesn’t work then you can go back to the computer field. But if attempting the firefighter job and going through training would burn through all your savings then you can’t afford to pursue that right now, save more money if you want to do it. If you can afford it safely then go for it, if you can’t afford it then .. you can’t afford it.

  11. Dee says:

    Q8: Wants to be firefighter.

    Maybe it’s just me, but I read this response as a bit sexist? I feel like Trent has given men askers the OK to make a risky career change, with the caveat that the family can survive on the wife’s salary, cutting back, etc.

    His response here doesn’t even acknowledge the husband’s income.

  12. kristine says:

    Kevin, I agree. Companies, if given the choice, will round up to change prices- why wouldn’t they? For poorer people, who buy lower ticket items, they could be paying 3 cents more for every separately purchased dollar-priced item- and see a more significant increase in cost of living than those who buy fewer and higher priced items, and tend to order online.

    Eliminating the penny would effect poor people disproportionately more, as they tend to make more and smaller purchases, and order less online. Add in the nickel, and the very poor would see tougher times.

    If you need a weak analogy- think of ATM fees. If you can only afford to take our 20 bucks here and there, vs 100 at a time- you end up paying much more. Each round up is kind of like a tiny fee.

  13. Jonathan says:

    @Kevin – That is an interesting take on the penny issue. I would expect retailers to do the rounding to their prices, so that a $9.97 item with tax would be rounded to $9.95 plus $1.30 in tax (for a total of $11.25). I agree that most retailers would like adjust their prices up instead of down, though, so they might change the price to $10.00, which would then come to $11.30 after taxes.

    It seems that pricing at item in a unit of payment that no longer exists (the penny) would be confusing for customers and an annoyance. The only situation I can think of where this happens now is with gasoline, which is often priced to the tenth of a cent ($3.299 for example).

  14. Johanna says:

    @Kevin: I fail to see why this is a problem. If a company wants the “quick profit boost” that comes from raising prices so that they take in $11.30 after tax, they’re free to set their prices accordingly at any time, with or without the penny. And consumers are free to decide whether they want to pay those prices.

    Furthermore, your assumption that every business will round in its own favor, every time, doesn’t hold up to empirical evidence. At the farmers markets I go to, all the vendors I’ve ever encountered (1) don’t use pennies, and (2) always round their prices *down* to the nearest 5 cents, if not the nearest 25. So if you buy 11.28 pounds of something that costs $1/pound, they’ll charge you $11.25. I am pretty sure I neve never seen a vendor round the other way.

  15. jim says:

    Karla #1 said : “however, bonuses are usually taxed at a higher rate than normal income”

    The tax WITHOLDING is higher on bonuses but the tax rate is not any higher on bonus income than normal pay rates.

    They generally withold more on your taxes from the paycheck to make sure you don’t end up with a bunch of big fat bonuses that push you into a higher bracket. But at the end of the year when your taxes are figured you pay the same tax rates on your income regardless if its a bonus, salary, commission, or other form of income.

    SO they may take out a little extra from the bonus from her paycheck now but she’d get it back later when she gets her tax return. The end result is the same, you don’t pay extra taxes on bonuses above what you pay on regular pay.

  16. kristine says:

    I would not liken farmer’s market vendors to huge corporations. They seem entirely different to me, as farmer’s market vendors appear to have more than the almighty buck and shareholders as their motivator, or they would not choose such a difficult and weather-beholden profession.

  17. Lisa says:

    To Christina in Q5, as someone about to student teach this fall, I think another thing to consider is the timing of getting a teaching job. I know jobs in education are tight right now, but you’ll have a better shot as a math teacher. However, hiring most often happens in the summer for positions that begin in the upcoming school year, August or September. Student teaching in the spring could make it easier for you to transition more quickly into a full-time teaching job, whereas student teaching in the fall leaves you will the spring to try to fill with some sort of work.

  18. Telephus44 says:

    Q2 – Why are you feeling so guilty about spending money that you have? You are in great shape financially. You sock away money for retirement. You pay extra on your mortage. Yet you still feel guilty for spending extra?

    It seems to be that your in the position most people would like to be in – having all your bases covered, in great financial shape, and can afford to spend on your wants. Yet somehow you want to go back to the mindset of “we don’t have enough money so we need to scrimp and save and cut back.” Why?

    On a more practical note, just pick a number that would make you feel comfortable about your future “I’m going to save $500 a month for kids/future/whatever” and set it up with an automatic savings plan and feel free to spend the rest.

  19. Johanna says:

    @kristine: I’m not likening farmers market vendors to huge corporations. I didn’t say a thing about huge corporations, and neither did Kevin – he just talked about “businesses,” a category which, to my mind, includes farmers market vendors. The vendors seem to have pretty much all decided that the good will they gain from rounding prices down more than makes up for the few cents they lose. The huge corporations may come to the same conclusion. Or they may not.

  20. Tom says:

    Q1 WHY ARE YOU TAKING OUT A $1000 LOAN TO GET A HIGHER CREDIT SCORE? WHAT IS THE POINT? Manage your credit cards wisely and your credit score will improve over time.

    Trent- How do you “answer” this question without pointing out that “paying for [a] credit score [through] interest” is a poor personal finance decision?

  21. Adam P says:

    I think it’s specious thinking that all companies would raise their prices by 1 cent–think competition—and again, I challenge that this will have a big impact at all given that it’s 1 or pennies. If you’re so poor that paying another $1 a month (that’s 100 $1 items that cost 1 cent more) is going to break you…well come on now. The US government is in huge debt/deficit, if this will save them money then it’s a good thing.

    I wish Canada would get rid of the stupid penny. No one wants them, they get hoarded in jars and taken out of circulation, so the government has to make more of them, and they cost more to make than they are worth so….yeah. Great thing considering every Western nation has huge national debts.

  22. jim says:


    No, on its own the answer didn’t seem at all sexist to me.

    If he gives men different answers then that could imply sexism. When did Trent give men in similar situations different advice? It could have just been different enough situation to warrant different advice and not due to gender bias.

    Trent often tends to favor the ‘follow your passion’ kind of thinking but he also has put priority on families. Trent (as a man) does seem to talk a lot about doing things for and with his family. If someone is choosing one over the other I could see Trent giving a recommendation either direction depending on the exact situation and circumstances.

  23. MattJ says:

    #9 Kevin:

    I think your concerns are a little overblown:

    1) Your hypothetical business can’t control how many widgets you buy. If you buy a different number than ‘1’ widget, then their evil plan is likely to be foiled.

    2) Now I imagine them running these numbers on every product they sell. Since they can’t control what basket of items I buy, they’re completely wasting their time in trying.

    Walmart can control the price of a can of corn, but they can’t control how many cans of corn I buy, nor how many pounds of broccoli, nor whether I buy butter on Tuesday or wait until next Sunday when I need to come in for charcoal and lighter fluid anyway.

    3) The more items I purchase, the less this even matters.

  24. Brandon says:

    Q7 – The initial suggestion is very basic, but if you just go door to door, you’re going to waste alot of time talking to people who won’t even vote for school board.

    First, is the election held during the primary or general, and what year (2012?). In our area, it’s held during the primary but is non-partisan. The reason this is important, is because you’re dealing with an entirely different set of voters depending on P or G, and what year the election is held.

    Second, go down to the local Clerk or Election Board office, or, if you are affiliated with a local political party, talk to the party chair – even for a non-partisan office. Those people can provide you with voter lists, and if it’s anything like around here, more importantly, with voter history. If the election is held in 2014 in the primary, you don’t need to talk to people who only vote in presidential years, and you need to prioritize talking to people who actually vote regularly in non-presidential primaries (if you have time left over, you can try to persuade new people to vote – but that is very hard to do). If you’re involved at a party level, even for a non-partisan office, both parties have access to a voter database that makes searching for those people much, much easier. The chairman may allow you to do some list printing.

    Thirdly, check out democracyforamerica.com, no matter if you consider yourself a D. Their night school has some great webinars that will help you run a campaign. For a small-area school board, usually all you need are the ones on how to target voters, field work/door knocking. Remember who the voter demographic usually is – seniors, upper-middle class people with kids, angry people, usually tend to vote the most, unless it’s a presidential general, then tons of people vote, but the people most likely to vote for offices down ticket, are still those people. Lastly, door knocking is the most effective persuasion tool. There is simply no comparison. You don’t need to spend a bunch of money – know the issues, pick 3 or no more than 4, have a hand-out for the door. If you have time during the day, you can always knock on senior’s doors – theyre usually home. Don’t forget to target absentee voters early – they typically are elderly, and will appreciate personal touches.

    Lastly, close to the election, you need to get your supporters out to vote. DFA has some info on this, but the short version is that you keep track of your supporters as you talk to them, remove the ones who vote no-matter-what, and then remind the ones who don’t always vote…to go vote.

    Hope it helps. Although, you have no idea what you’re getting yourself into with school board. The problem there is that everyone attended school…which most people seems to think makes them an expert on every school issue. It’s usually a very low paying job with high time/energy demands. It can be rewarding for some people, but just thought I’d warn you.

  25. valleycat1 says:

    #24 Brandon – re your last paragraph, I agree. My dad was on a small-town school board for a few years (with 5 kids, he felt it would be worthwhile) & not only was it a thankless job but the elections were just as full of negative personal attacks then as any current campaigns I’ve seen.

  26. kelly says:

    Q9: Trent, when you say that the organization where you worked “cribbed” the eulas of other organizations, that sounds like a copyright violation. I don’t know that you meant to recommend that . . .

  27. Diane says:

    Q4: You do not need a car loan to qualify for a mortgage and people who tell you that are selling you a bill of goods. I have never had a car loan (and I’m almost 50), I have had only one credit card (until I started a business – now I have two), and I was able to easily qualify for a $450K mortgage. Why? I had 20% down and plenty of savings, and I had always been financially stable and conservative. You can have a great credit score without a car loan.

  28. deRuiter says:

    “My suspicion is that they’ll keep making and using pennies until they’re absolutely deprecated.” Trent, why is it that you see our government as rational instead of driven only by the self serving interests of those who feed at the taxpayer funded trough? The Federal workers who make the useless pennies are paid a handsome salary, benefits, excellent health care, generous vacations, early retirement. They will never willingly stop making useless pennies and be out of their cushy jobs. We can prove this because our Federal Government is making literally hundred of millions, billions, of those unwanted dollar coins with Indian women and presidents on them. These unwanted dollars are stored because no one will use them, we taxpayers pay for the storage of these useless, unwanted coins, glittering mountains of them, with more being made daily. The Federal Government is hunting to buy or lease two more huge buildings to store the continuing flow of these unwanted, useless dollar coins. Look also at the “states” quarters, which require the design of fifty different emblems for the lowly quarter, instead of the single design we used to have. All this gives power to the Federal Government, the creating of 50 useless designs will cost fifty times the production of one design, or the continued use of the older design. The more taxpayer dollars the government confiscates, and spends badly, the more power the government, any government, has. Governments do not do things as well as the private sector, and they cost more to do the things private sector can do better. Want to save a lot of money for taxpayers? Cease production of those dollar coins today, melt them all down and sell the metal for scrap, sell the current buildings where the useless coins were stockpiled. Any private citizen would be smart enough to do that, but not the Feds who are paying poeple to make these useless coins.

  29. moom says:

    The smallest coin in Australia is 5 cents and it doesn’t cause any problems. If you pay with a card, online, or a cheque you pay the exact number of cents and if you pay with cash they round up or down. In New Zealand, the smallest coin is 10 cents. Both dollars are similar in value to a US dollar.

  30. jim says:

    deruiter, theres so much wrong with that its hard to know where to start. The US govt. makes money off coins from seigniorage and coin collectors. THe 50 state quarters generated over $6 billion in seigniorage and another $450 million from coin collectors. They also make money off bullion coins. They netted over $50 million last year on gold & silver coins.

    The $1 dollar coin act was passed in 2005 when congress and the white house were in republican hands. You believe the GOP plotted to expand government employment by intentionally minting useless coins? … really?

    I do agree the $1 coins are a flop. $1 coins *should* save us money. Problem is that people don’t want to use them and govt. didn’t get rid of dollars to force us to.

  31. slccom says:

    #2, you have one big, huge, gaping hole in your finances. I didn’t see any mention of disability insurance. You both need good private policies that are written for your own professions, not any work. Even if your work provides disability policies, you need a private policy since the risk of getting hit by the proverbial bus right after you lose your job would devastate your finances. Don’t count on Social Security Disability, either. At your ages it will be very inexpensive, so never, never, never let it go. Research the heck out of the topic and any companies you are considering. And never, ever, under any circumstances, get “coverage” from Unum Provident or whatever they have changed their name to now.

  32. Julia says:

    Q8: you don’t say anything about your husband’s income. You are looking at taking a big risk, so consider the worst case scenario. If you were out of work indefinitely, can your family survive on your husband’s income alone? Also, is he ok with being the sole breadwinner while you pursue your dream?

    If the answer to either of those is no, than you’re not equipped to take this risk and I fully agree with Trent’s answer. But that’s not necessarily the end of it. If your family can’t survive on your husband’s income alone, than work on that first. Start living as if you are currently unemployed. Reduce your lifestyle to the point where you can put your whole paycheck into savings and live off your husband’s. This will take some work/time. But if you can pull it off, then you’re ready to take the leap (and you’ll have the cash to spend on training).

    Also, if you can’t become a firefighter, would you be happy being a paramedic? Could you take the paramedic training and get into another job that you would be happy in?

  33. Jacque says:

    I live in Singapore. The lowest value coin is 5 cents. All cash transactions are rounded DOWN to the next 5 cents. Credit/debit transactions are charged at the exact amount. Works great and my coin purse isn’t full of pennies. We (the US) should do away with pennies and dollar bills and save millions.

  34. Jacinta says:

    “My suspicion is that they’ll keep making and using pennies until they’re absolutely deprecated. This has been the policy with past currencies such as the halfpenny and the farthing (a quarter of a penny) in various English-speaking countries.”

    Not exactly… England did drop the farthing in 1960 due to their being worthless, but the half penny and the rest were removed over the next decade and a bit as part of an organised move to a decimal currency.

    Australia decimalised its currency in 1966 and changed from using pennies, half pennies etc then. It ended up with the following coin denominations: 1c, 2c, 5c, 10c, 20c, 50c; and notes $1, $2, $5, $10, $20, $50, $100. The $1 note was replaced with a coin (with complete phasing out of the note) in 1984 with the $2 note being replaced with a coin in 1988. The 1c and 2c coins were phased out in 1990, without any massive dramas when the 2c coin was certainly not worth less than the USA penny of that year.

    New Zealand decimalised its currency 1967, again completely dropping the half pennies, farthings etc. It ended up with the following denominations: 1c, 2c, 5c, 10c, 20c, 50c; and notes $1, $2, $5, $10, $20, $50, $100. In 1989 the 1c and 2c coins were phased out (again without dramas, and with the 2c coin again not being worth less than the USA penny was that year). In 1991 the $1 and $2 notes were replaced with coins, with the notes being completely phased out thereafter. In 2006 the Reserve Bank replaced all the coins with smaller, lighter (cheaper to make) versions, and phased out the old versions and did not replace the 5c coin. The old versions ceased being legal tender by the end of that year.

    Monetary change need not be as difficult as the USA makes it seem. You don’t have to wait until something is worthless before you can change it.

  35. Margo says:

    @Q2 – I would set up two savings accounts on direct deposit, called “baby expenses” and “baby education”. Putting a face on that future child might help you be more able to envision your future, and I have a feeling you’ll adjust your spending accordingly.

    Ask your friends what they pay for day care, diapers, etc. Put this amount into “baby expenses” every month. It gives you time to adjust your spending to this new “expense” while letting you build up a special fund for the co-pay/co-insurance costs of having a kid. Once you’re comfortable with meeting this “expense” every month, you’ll know you can have a kid and not pull back your spending all at once (which can aggravate post-partum depression).

    The second account is for the kid’s future – tutoring, summer camp, college, whatever.

    I did the first half of this when I was anticipating moving from very-cheap rent with roommates to a reasonable priced place of my own. I adjusted my “rent expense” for six months while maintaining 401k and IRA contributions, and proved to myself I could afford living on my own and had saved a couple thousand for furnishings that I’d need.

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