Reader Mailbag: Family Weekend

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. Married couple getting started
2. Investing for 11 year olds
3. A debt and family mess
4. Dealing with discouragement
5. 457 or Roth IRA?
6. Fixing credit
7. No-knead bread
8. Cash-only budgeting
9. Which debt repayment plan?
10. Selling stuff before moving

Since Thursday, we’ve had family as guests at our home, culminating with a Sunday brunch and early afternoon where we had twenty or so guests at our house. It’s been fun – and tiring, too.

I recently married. My now-husband and I have lived together for several years, so we’ve already merged some of our finances and have had candid discussions on financial goals. Fortunately, we have similar goals, saving and spending habits, and general outlooks on money. We’d like to create a strong financial plan to help us pay down my husband’s student debt, save for a house, and save for retirement. We just don’t know where to start. Do you have any books or resources you would recommend to help us get smart and build a strong financial future?
– Tori

It sounds to me that you’re wanting to create a formal financial plan on the order of a business plan. That’s really a good idea, especially for people who are very plan-oriented.

If that’s your goal, I’d suggest reading How to Be the Family CFO. It essentially takes the elements of personal finance and treats them in a business context – plus it’s a pretty readable book. It does a great job of transforming one’s financial situation into a clear business-type plan.

I think it’ll meet your needs quite well.

My [eleven year old] son is close to reaching $1000 in his savings account and is interested in investing it. Any suggestions? I’ve recommended either his college 529 or perhaps a Roth IRA in his name but he seems more interested in investing it in a company.
– Tas

If he’s interested in individual stock investing, I’d say go for it. It’s his savings, after all.

The first thing I’d do is sit down and make sure he understands that there’s a lot of risk involved in investing in individual stocks. They’re very volatile and he could easily end up losing most of his money in a day or two. Make it clear that it will be his loss and you won’t wave a magic wand to fix it if he loses it. Talk about diversification a bit – the idea that if you don’t put it all at risk in one place, you won’t lose everything if that one place goes down. You should also mention that individual stock investing comes with fees every time you buy stocks and every time you sell stocks.

If he still wants to go through with it, open an eTrade (or other brokerage) account together. Encourage him to read and study and learn. Do it together, but let him make the decisions about the money.

Yes, he might lose some of the money. He might gain some, too. In either case, he’ll be learning and spending his time on something positive.

I am 25 years old, and I live in Denver, CO. I am renting an apartment with my boyfriend, there are times when I cover majority of the rent, because of his medical bills (he has terrible back problems, even though he has insurance, we still pay quite a bit out of pocket). We have separate checking and saving accounts. He is a bar manager, and makes a decent hourly wage, plus tips. I am still in school, taking yet another attempt to finish my degree. My parents divorced two years ago, and my father is not in the picture, left my mother penniless, and every once in a while I try to help her out. I also pay her cell phone bill (mine and her total at about $110 a month, we are on a family plan with t-mobile). My father also bought me a car for my 21st birthday, financed it, and I was the co-signer on a loan. He said he would help me build my credit. After he left, he stopped paying for the car, and didn’t even tell me about it, let alone forward the bill. The car got repossessed, he filed for bankruptcy, and I am left with $10,000 debt which I am unable to pay off. Me and my father are not on good terms, since then. I got behind on my credit cards, to a point where I could not catch up. Some of them I am paying off through Credit counseling, others are charged off. The total amount is hovering right about $4500, I have a list with all the phone numbers and addresses to the creditors/collections. I am a full time student, I was lucky enough to get scholarships, so my tuition and books are paid for. At the beginning of the summer I have decided to go back to my old, short lived stunt with exotic dancing. It proved to be profitable. I know I made a lot of money, yet I have no idea where it went. I spent it, somewhere. My nightly earnings can be anything from $200 to $1500 a night, depending on a night. Then a friend of mine offered me a job as a middle manager at a local movie theater. I would be making $10.25 an hour, 40 hours a week, on top of 18 credit hours at school. I am comfortable working at a strip club, until I finish my degree, as it is flexible schedule, and I can focus on school. But even with my income, even at it’s highest I still struggle financially. My share of the rent is $475, sometimes more, depending on his situation. My credit counseling costs me $129, and cell phone $110. I do not drive, but do get a bus pass for about $50 a month, unlimited to go anywhere (Denver has a great public transportation system). Any suggestions?
– Kasha

I think you’re doing well. You’ve clearly got a good deal of self-awareness and understanding of the issues going on in your life and what you need to do to fix it.

The solution, obviously, is to maximize your income, doing the work you choose to do, and directing that income towards clearing all of the debt that’s in your name. It’ll take some time, but it’ll be worth it – you’ll come out on the other side with a clean slate and a clean conscience.

The only obvious suggestion I can make is that your cell phone bill seems really high. Are you using an iPhone? If I were you, I’d downgrade to something basic and use a more basic plan with limited minutes and limited data usage. The $60 (or more) you would save per month can help you to make a real dent in your debt load.

Good luck.

My husband and I had a huge savings and the only debt we have is my student loan debt and our mortgage. I was laid off but my husband found a position that gave him enough of a pay increase that we had very little net income loss. Our emergency fund had over 20K and we were starting to move more towards retirement savings. After I was laid off I got pregnant (not planned/not unplanned and very welcomed). After looking at my pregnant belly I was always passed over for some ‘other qualified candidate’. Ultimately this was a blessing as our son arrived 3 months early. Due to his and my medical bills we saw our emergency fund drop to half of what we had previous (we did pay as much as possible out of our monthly income but this is what you plan on the emergency fund for right?). This was/is still plenty for us – more than 3 months expenses etc. However after July and August our emergency fund is at 0. HVAC clogged and flooded our downstairs and while homeowner’s insurance is helping we are still left with the bulk of the expenses plus my son needed medical care and other unexpected and budgeted expenses.

My question is – HOW do I prevent myself from being discouraged? At the moment I know I should be thrilled that we did not put a dime on a credit card but I”m terrified of having no savings. At the same time it almost makes me wonder why we worked so hard and had so much in savings just to see it quickly go away. Lastly I’m of course worried my son will require some other treatment that is expensive and now we have no option but to do a payment plan with the hospital or incur credit card debt.
– Katharine

Instead of being depressed at how quickly your savings went away, imagine your situation if you had no savings at all. What would you have done if you had not had an emergency fund with the early birth of your child, the HVAC clogging, and the insurance not paying up?

Your emergency fund turned a situation that could have been completely disastrous into something that you easily handled. Yes, you now don’t have an emergency fund, but this experience alone should tell you how valuable such a fund is.

Start socking away for that new emergency fund right now. Throw every dime you can spare in there. That way, if/when the next emergency happens, you’ll easily be able to handle that one, too.

Both my husband and I work for a local governments and participate in a 457 plans (there is no match from either employer). We are married with two young children and are 37 and 39 respectively. Between the two of us we make about $95,000 per year. I have a retirement plan at work but my husband does not. My question is – I have read a lot on your blog about people saving for retirement and that Roth IRA’s are great options. I know we contribute to our 457 pretax dollars so there is a benefit there. I also know that the Roth IRA’s have tax benefits on the other end when you take the money out. How do you know what is a better use of your money. Which plan is really the better “deal”.
– Lisa

There’s no way of knowing for sure because we don’t know what tax rates will look like in thirty years. If you have a crystal ball and can tell me, I’d love to know!

The reason I tend to encourage the Roth IRA is because income taxes seem to be pretty low right now compared to historic numbers, and on top of that, we’re spending much more than we bring in. What’s the inevitable solution to both of these situations? Higher income taxes.

I believe income taxes will be higher in 30 years than they are now. Because of that, if given a choice, I’d rather pay taxes on the money now (at a lower rate) than in 30 years (at a higher rate). This leans me towards a Roth IRA.

I have recently started back to college on the 23rd to obtain my degree in nursing. I already have about 2k in student loans so far and this semester I decided to take out another thousand in subsidized student loans, about 200 of that will go to cover books. This is mainly what my question is about. I have been asking friends and family but they really can’t give me any advice: Is it a good idea to use the remainder of this student loan and partial amounts of other student loans to make sure that my car is in good working order, that I have insurance for the car, make sure I can pay for an internet connection during the semester and things of that nature while I am in school? I have a part time waitressing job, but when I figure out my hourly rate plus tips, it doesn’t even equal out to minimum wage, and I still have rent and electricity to pay for. Also, at some point, would it be a good idea to use a student loan to pay down on my consumer debt so that I can get my credit looking good enough to secure a job once I graduate? There are a LOT of places that are using credit as a qualification for employment and I’ve already been having trouble finding work as a result of how bad mine is at this point.

So far, I have kept my student loans at a minimum (I have about 68 credit hours on my transcript) and I’d like to keep it that way, but I am having a very hard time keeping things going while I am in school, and this time, I just want to graduate and move along with my life. I need to do a lot of things, but don’t want to hurt myself in the long run. Could you please help?
– Ami

My first question would be whether or not you actually need that car for school. Do you? Is it possible that you could use public transportation or a bicycle to take care of your travel needs? If you can get by without a car, that’s exactly what I’d do. I’d either sell the car to help pay for school or get rid of all insurance and taxes on it and park it somewhere for a while.

Of course, given your shaky credit situation, the proceeds from your car might be better served going towards your consumer debt, simply to make sure you’re up to date on it.

You need to minimize now and, for most students, a car is a want and not a need. Get rid of it if you can.

I’ve been researching no-knead bread to save money on buying loaves. Have you ever tried this technique? If so, what are your thoughts on the method? How about storage? We are a family of two and we don’t eat a ton of bread every day.
– Rita

I’ve tried it twice. Both times, I thought it was good, but I preferred my regular bread-making techniques because I felt they produced better bread.

A lot of the “oohs” and “aahs” about no-knead bread (read about it) comes from the fact that it’s seemingly pretty easy and thus less daunting for a new baker. Add in the fact that it does taste better than the bread you typically purchase at a store and it seems like a winner.

I’d just rather do the kneading and produce the wonderful loaves I make using my own techniques.

My wife and I are considering moving away from the use of credit and/or debit cards and going cash-only. My concern with doing this, however, is the added difficulty with keeping track of our spending. We keep a monthly budget, and track all of our spending. Currently most of our spending is via credit/debit so I simply download the recent transaction history once a week or so, import into MS Money and spend a few minutes putting each transaction into the appropriate category. I do a very bad job of tracking our spending when cash is used, and worry that this will be worse if we move to a cash-only system.

Do you have any suggestions on how to best track cash spending? We do not like the Dave Ramsey envelope system for various reasons. So far the only thing we have come up with is saving receipts, and going through them later to record the amounts spent towards each category, although not all places give receipts (such as the farmer’s market). I also considered keeping a small notepad with me to record the transactions. I do not have a Smartphone, otherwise I would probably try coming up with some method of tracking using that.
– Jonathan

I used the notepad solution myself when I was attempting to get a strong picture of my spending. I found that it really did the trick.

For me, though, one side benefit was that I hated to write stuff in the notebook. It felt like a failure if I spent cash and had to write it in the notebook. Thus, the mere presence of such a tracking notebook made me more careful about my spending.

I don’t trust my ability to keep track of the receipts, plus, as you mentioned, not all cash transactions generate a receipt.

We’ve started attacking our debt, Dave Ramsey style, beginning with the car loan first. We have $4,300 left to pay on our car loan – should we dip into our savings and pay it off with some of that money (we have a 7-month emergency fund saved up). OR are we better to keep that money in there, untouched, and pay off what we can each month? Once the car loan is paid off, should we attack our student loans next or are we better off saving as much money for the new baby? Since our interest rates are so low on the student loans, we’re not sure which strategy is better.

We have the following debt:
Mortgage ($175,000) at 5.875%
Car loan ($4360) at 2.9%
Student loan ($10,267) at 2.6%
Student loan ($20,394) at 1.6%

– Erin

Generally, I feel a family should have two months’ worth of living expenses for each person in the household saved as an emergency fund. If you have more than that, I would consider doing something different with it.

Your interest rates on your debts are so low, though, that you don’t need to be rushing to pay them off. My priority really would be the mortgage here because the interest rate is so much higher than the other ones. Yes, you get the “success” feeling from paying off a debt, but the interest rates are low enough that you’re not gaining much over simply leaving cash in a savings account.

However, if you’re expecting a baby, I would save for baby expenses before tackling any of these debts. I also wouldn’t lower the emergency fund below six months’ worth of post-baby expenses.

I am a incoming college freshman. As part of my packing process, I went through all my stuff and decided what to pack and what not to pack. I am also an aspiring minimalist, so I am getting rid of a lot. About half my walk-in closet is filled with stuff I no longer need. I have outdoor equipment, books, clothes, shoes, and jewelry to sell. I am wondering what the best way to get rid of it is. I was weighing the options of Ebay v. a physical garage sale. I think I’d probably be able to get a better price for my lightly-used outdoor gear online, but a better price for some of my clothes in a garage sale. What do you think?

Also, another complicating factor is that I am going to college across the country, so ebay may not be a good option because I won’t be able to ship right away.
– Erica

Don’t worry strictly about price – keep in mind that there will be effort involved in selling the items either way you go. However, if you decide to have a yard sale, the additional effort per item will be very small. If you sell on eBay, the additional effort per item will be larger – dealing with buyers, packaging each individual item, and so on.

Whether that additional effort is worth the money is really up to you. For me, honestly, it wouldn’t be unless I was sure I was going to make a lot more on eBay. Of course, there’s also the possibility that you could price items at your yard sale at a price close to what you would net on eBay (after all the fees and shipping costs) and only use eBay if that doesn’t work.

In any case, I encourage you to sell as much of the stuff as you can. You won’t need or have room for most of this stuff at college and the cost to ship it is prohibitive. Sell it and move on.

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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