Reader Mailbag: Fishing

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. Getting started as a writer
2. Graduate school impact on savings
3. Pre-set spending limit question
4. Great advice
5. Challenging religious beliefs
6. Re-entering the workforce
7. Student loans or down payment?
8. Justifying expenses
9. Collecting problem
10. Outdoor games

Every once in a while, I get a desire to go fishing. For me, that means casting a line in the water, leaning back against a tree, and dozing until the pole twitches in my hand.

I want to go fishing.

Q1: Getting started as a writer
I currently work at a law firm. Lawyering is not something I want to do until the day I die. I place a high priority on traveling and immersion in other cultures, and I would like to spend a year (or more) vagabonding around the world while I am still young and relatively healthy (I’m 26). I’ve figured out how much it’s going to cost, and barring some catastrophe like losing my job, should have enough to do so in 4 to 5 years. The few people I have talked to about quitting my job in order to travel the world have reacted very negatively. What about my house (rent it out)? What about my horse (big fat savings account and a person I trust to care for him)? What about my student loans (Income contingent repayment)? What about my career?

I don’t have an answer for the last one. Or, well, I do. But I am not informed enough to make it happen. I would like to work odd jobs part time and freelance travel write to supplement my income while I’m gone. Perhaps maintain a travel blog, produce a manuscript for a memoir, or a how-to guide out of this experience, as well. After I finish traveling, I hope to use my writing skills and international experience to get another job, and if I cannot do that, go back to lawyer work. I have experience working for a legal publication, but that work is very specific to the legal field and not similar to the area I’m interested in breaking into at all.

I don’t know how to get published outside of the legal field, and I don’t know how to become a better writer, but I have 4 years to work on it in my other 5 hours a day (3 for the horse, I compete). I would feel much better about leaving on this adventure if I had paid published work before I go. Should I just start a blog on something (horse competition and training?) in the meantime as writing practice? Should I take night writing classes at my local college? I can produce written material now on my own, but I’m not sure how to do so in a constructive way so that my skills improve.

Do you have any advice?
– Valerie

Don’t worry about night classes on writing. Don’t worry about finding an editor. Don’t worry about any of that. Just write. Just focus on actually getting words down on paper. Write something, finish it, stick it into a desk drawer, and repeat. It can be a blog if you’d like or it can be entirely offline.

In a few months, dig out your older writings and read the stuff with fresh eyes. Look for the things that feel wrong to you and correct them. Try to understand why you found them wrong and put that into your writing.

An awful lot of writing classes essentially boil down to these things, and you can’t get anything published if you don’t have anything to publish. Focus first and foremost on writing. Get words down on paper. Refine them. Do it over and over again.

Worry about the classes (for refinement) and the business end of it (for good finished pieces) when you’ve mastered the actual process of writing. Just write and the others will follow if they’re meant to.

Q2: Graduate school impact on savings
I currently work as an analyst and during the time since my college days I have done a pretty good job of putting away savings. I have a ROTH IRA, a 401(k), a little money in a 529, a few stock investments I use for my own entertainment, and a rainy day fund/future down payment fund in a savings account at a bank. I’ve been working in my field for several years now though and find myself debating going back to grad school either to further my career or to switch fields. My undergrad degree was in physics so if I go back for that then I’m golden (you don’t really have to pay for grad school in physics), but if I choose to change fields, which I’m considering doing, then I’d be in the same boat as anyone else in grad school. My question is, how do all my savings to date count when applying for scholarships/financial aid for grad school? I would find it immensely frustrating to have saved up a bunch of money only to have it be held against me for grad school and then have all my hard work wiped out at a time when others are being handed free or low interest money. Is this what will happen? In general, do my holdings count against me for this kind of thing and if so what can I do to minimize the risk?

I’ve done some research on this and my initial findings would indicate that my IRA and 401(k) might be protected from counting in financial aid applications, as would a home if I owned one, but any “liquid” assets such as my future down payment account would have to be wiped out before I’d be eligible for any need-based assistance. I’ve heard stories of people buying ridiculously expensive cars right before applying to grad school to avoid this but I’d rather find a more useful way to put all my hard work to good use than blowing it on something I don’t much need. Is there a better way to approach this moment when it comes? Any ideas what I might do in the meantime to be better prepared?
– Terry

Most financial aid is need-based, as you describe. It goes first to the people who need it, not to the people who have money in their savings accounts.

Of course, it’s important to note that the vast majority of financial aid comes in the form of student loans, which means that those students are buried in debt up to their neck. You are far better off paying cash for your graduate school costs than taking out a loan for them. As for scholarships and grants, you’ll have to look for ones in your field of interest and see whether or not you qualify.

There are no good ways to “hide” your money in this kind of process. They usually boil down to either just spending it or doing something that’s basically illegal with it (not reporting it).

Q3: Pre-set spending limit question
I recently pulled my credit reports from the 3 agencies. My oldest card carries an annual fee of $49, and I have been wanting to close it. In the meantime, I opened a new card with no fee and transferred my usual spending to that card. I was confused because on my credit report that the new card did not list my credit limit of $15,000, and thus it is not factoring into my debt-to-credit ratio. When I asked the issuing company about this, they explained that the limit is not reported because I have no “pre-set spending limit.” Essentially, I can charge more than $15,000 on the card. My feeling is that I would be better off asking the company for a set limit, so I can get the limit listed on the credit report. I have 3 credit cards with $18,000 (the one with the annual fee) and $8000 limits on the other two and $7000 remaining on a car loan. The mortgage and student loans are in my husband’s name only. We have $42,000 in emergency funds, which is at least 6 months for us. I don’t have a recent credit score for myself, but it is usually above 750. I can not think of a scenario where we would need to charge more than $15,000 on that card, since I feel we are well covered for emergencies. I would love to hear if you can think of other benefits I should consider before giving up the no pre-set spending limit.

– Natasha

Unless you are carrying a large balance on your other cards, I would not worry about this “no pre-set spending limit” card at all.

Your debt-to-credit ratio is the total of your debts compared to your total credit limit. It’s not entirely clear how debts without clear limits (such as yours) are handled in such calculations, but they seem not to have a tremendous impact. Usually, what matters are only the debts on credit sources that have specified limits.

In any case, the best solution is to always have low balances on your credit cards. Do that and make regular payments on your other debts and your debt-to-credit ratio will always be good.

Q4: Great advice
My next door neighbor had moved back in with his mom while he started his first job after college. He was hired as a broker for a small brokerage firm in Atlanta. Although he was ten years older, he became a mentor to me. He showed me the magic of compound interest and suggested that I start investing $25 dollars a month in a mutual fund. I could open a money market account to get started. He told me that I could become a millionaire by the time I was thirty-five. (He did the math and everything).

It was 1981 and I was only 14. Where was I going to get $25 a month? He convinced me to go to the local pizza joint and get a job…any job. I was hired at $1.00 an hour to bus tables in the evenings Thursday, Friday, & Saturday. I was to also get a tip share.

Two weeks later, my neighbor asked if I wanted to go to Six-Flags over Georgia. I told him I didn’t have any money. He asked, “Didn’t you get paid?” “Yes,” I answered. Then he asked me the million dollar question: “What do you have to show for that money? Show me what you traded your time and labor for.” He said he’d wait while I ran home to show him the “stuff” I’d bought.

I could only produce some trash. I had spent my first paycheck on frozen pizza, Cokes, and junk food when a buddy came over to spend the night. I felt humiliated and ashamed. My neighbor then said, “Always have something to show for your money.”

I did open those accounts. I have always lived on 80%. (10% to God, 10% to savings). I funded those accounts until I needed the money for college. (This was in the days before state sponsored lottery funded education.) It was a great lesson and one I have passed on to countless employees over the years. (I used to own several restaurants.)
– Dan

I really, really enjoyed Dan’s story and decided that the reader mailbag was the best place to share it.

What do you have to show for the money that you earn? It’s a really powerful question to ask yourself.

For the longest time, I tried to avoid that question. As time goes on, I grow more and more proud of my answer to it.

Q5: Challenging religious beliefs
You’ve mentioned before that you have often challenged your own religious and spiritual beliefs? Why would you do that? How do you do that? What’s the point of doing that?

– Connie

I don’t believe that any religious or spiritual belief is strong if it’s not regularly challenged with conflicting views. Doubt is a very large part of that equation. It’s only by studying further and dealing with the issues raised by that doubt that I can come through with a much stronger understanding of my religious and spiritual beliefs.

Because of that, I read books on atheism fairly regularly and when issues come up that I can’t address, I dig into them, both within myself and from other books. I’ve sat in the spirituality and religion section of my local library more times than I can count, just leafing through books trying to find answers.

What are my conclusions? My biggest one is that the golden rule really trumps just about everything else. Treat everyone else as you would want to be treated.

Q6: Re-entering the workforce
I am currently pregnant with my first child (a little girl, due this July) and my husband and I are on the fence regarding whether or not I’ll come back to work. Looking strictly at the numbers we could afford for me to stay home by making some sacrifices but given my income it is financially beneficial for me to work. Even after increased cost of commute, clothing, day care, etc. we’d have about $20k left over to put towards additional retirement savings (over & above what we’d be saving w/ just my husband working), college savings, increased emergency fund, etc. That said, we both value the opportunity to have one parent at home both for child rearing & family stress easing purposes & are ready to take the plunge financially at least for the short term with the idea that I would eventually go back to work. My question, though, is do you actually know anyone who has left a job without another lined up, then successfully re-entered that field, 2, 3 or even 5 years later? I have several friends that decided to be SAHMs, including some who have intentions of going back eventually but I don’t actually know anyone who’s actually gone back to work yet. And talking to friends who stay at home, I know their professional confidence has definitely waned while they’ve been at home. I’ve heard comments like “who would hire me?” All this worries me that we won’t be making a short-term sacrifice but potentially a very long-term sacrifice. At the end of the day, this is one of those decisions that will get made after the baby arrives since we really don’t know exactly how we’ll feel once she’s here, but knowledge dispels fear and a little preparation can go a long way so I’m trying to arm myself with the experiences of others as well as all the facts (e.g. impact on our budget, impact on social security/retirement, etc.) so that our decision will be as informed as possible.

– Kelly

If you’re leaving a business, it’s likely that the job you left will not even exist in five years. It is extremely unlikely that anyone leaving the workforce for five years will walk back into the exact same position – or the same type of position – after five years away.

My experience has shown me that many stay-at-home parents wind up in a completely different career path when they return to work or they wind up in a more entry-level position in their previous career path. It’s not realistic to expect to return to the same rung in the ladder that you once climbed to, though you should be able to climb right back to that rung.

The key is to keep your skills sharp or else devote time just before returning to the workforce to sharpen the skills you’re going to need. Another key is to maintain your contacts in the field by staying in touch with old coworkers – and not just by sending them baby pictures. Ask about what’s going on in the field and be abreast of changes.

Q7: Student loans or down payment?
My fiancee and I (with a 2 1/2 yr-old daughter) are about to go through a pretty big change in our lives– within the next 1-2 months it looks like we will finally be able to relocate from the Boston area to the Philadelphia area, something we’ve been wanting to do for quite a long time to be closer to family. We are fortunate enough that we will be able to make very comparable, if not the same or slightly more, in salaries as we do in Boston, with much, much lower housing costs. We rent currently in MA and will definitely be renting for 12-13 months in PA as we save to buy a house in PA. Currently we have about $17000 in savings, however while living in MA this amount has only very slowly crept up within the past 2-3 years– our cost of living just hasn’t allowed us to save as much as we’d like.

A huge contributing factor to that is the very, very large amount of student loan debt we have– still over $110,000 in debt combined, amounting to about $1100/mo. That payment rate has my debt (about $35,000) being paid off in about 8 years, with her $75,000+ being paid off in 11 1/2 years. I suppose that’s not a terribly bad timetable (although we’ll both be 39 in 2022!!!).

Although our cost of living will be several hundred dollars lower in PA, there will be several things which will eat into that difference– we currently do not own a car, and will need to buy one in PA (public transportation is fine in southeastern PA, but not as good as Boston). That eats say $5000 of our savings maybe to pay for a reliable used car in cash. Then add gas, car insurance, and a more expensive commuter rail pass as opposed to a subway pass. We’ll still be about $300-400 better in cashflow than in Boston. If we were able to add $100-150/mo to our savings in Boston, this means that we could probably conservatively assume we’d be able to add $400-450/mo in PA. However, you can quickly tell that our $12,000 savings (after buying a car) might only grow back to its original $17,000 amount over the course of a year– not enough to put anymore than about 7% down on a $225,000 house.

This leads us back to our student loans. My fiancee really wants to extend our payments out further so that we can save more money now– her argument being that we have a greater need for money now and that as our salaries presumably grow, we’ll be able to gradually increase our payments again. I see her point– $1100/mo is a HUGE dent in our cash flow, and also the more money we put down on a house, the less we’ll pay over time in mortgage insurance (PMI). However, I can almost guarantee that as our salaries grow (and we want to have at least 1 more child), our costs will grow too. I also worry that we’ll get comfortable paying the lower amount and never see any need to increase, especially once we have a mortgage. I’ve relented that at the very least we should lower our payments some, however we disagree over how much. A relatively modest decrease (say $150/mo) might get us to a $20,000 down payment. Better, but would it be worth it? That’s still less than 10% down. If $23,000 was a savings goal before buying, we’d have to add over $900/mo to savings if we assume a starting point of $12,000. This would mean lowering our student loan payments to only $600-650/mo. I haven’t done the math on how long we’d be paying loans, but that’s a decrease in payments of over 40%. I DON’T want to be paying off student loans when our daughter starts college, but we’ve really wanted to buy a house for a long time– we want to give our daughter a yard and have a space that is ours, and we want our housing costs to eventually go towards building assets, not some landlord’s bank account. (Don’t worry, we don’t view owning a home as a pot of gold, just something we want in life).

What are your thoughts? There’s a number of directions our cash flow situation could go (and this is admittedly a pretty simplified breakdown), and it’s overwhelming sometimes to think about. There’s sure to be additional ways we can save which we would enact which I haven’t figured in, but I don’t want to rely on an assumption of frugality when we haven’t managed to make any more than modest commitments to frugality in the recent past.
– Nick

What your partner is proposing is a bad idea. It falls right into the old trap of relying on your future self to solve your problems of today. Your future self is completely unreliable.

The best option you can take at any point in your life is to minimize your monthly expenses. This is the best way to prepare yourself for whatever may come. The plan you’re suggesting does the opposite – it fattens your monthly expenses by stretching out your student loans and eventually adding a mortgage on top of it.

You pay for that in the form of more interest paid to the banks, less flexibility in terms of your career path (since you have to have a minimum salary to make ends meet – a job loss is apocalyptic), and more stress (you can’t lose your job), all in exchange for having a mortgage-laden house a few years earlier than before.

Forget that. Rent, get rid of your student loans, and leave your options open as wide as possible.

Q8: Justifying expenses
Howdy. I’m in my mid-30s, single, have a reliable job at about $50K/yr. No debt and own outright my home (about $150K). I save pretty well for retirement and consider myself careful with my money, though not quite frugal.

There is one thing, though, that I spend a lot on that I just can’t be at peace with: I spend about $1,300 a year on yard service. Between some physical limitations and an utter lack of desire/motivation to do any yardwork myself, I’ve had the service for several years now. But I just can’t accept it; every month when I pay my bill I kick myself that so much money is flitting away. Should I look at it as one (of few) vices–unnecessary but worth the result?

I value pride in ownership, so I don’t want to just let my yard go. But I do want to either change my actions or accept them. How can I reconcile my actions with my mind? Any thoughts?
– Shelby

The first question I’d have is whether or not you’re in a situation with a homeowners association where there are standards for lawn upkeep. If you are, then you’re most likely stuck with the bill. If you’re not, then read on.

The question then boils down to how much you value having a nice lawn. I would worry more about whether it’s something you value or something that you do to keep up with the neighbors. It’s really about what you want if you can afford the expense.

If you’re happy with minimal lawn care, I would not be surprised if there were lower-cost services out there that would do a bit of fertilization and take care of the mowing and any trimming for you for less than $100 a month. There are certainly services in our area that charge less.

Q9: Collecting problem
I tried following your advice with regards to selling off the things you’ve collected and just enjoying the items you most enjoy and getting others from the library.

My problem is that I’ve found that this isn’t really fun for me. I don’t so much enjoy reading or watching DVDs as I enjoy collecting them. I really like organizing my collection and seeking out new ones to add to it.

How do I handle this with any good personal finance results?
– John

Put some restraints on your collecting bug. That’s the easiest way to do it.

The most common way to do that is to put some serious restrictions on the situations in which you buy. For example, restrain yourself to never spending more than $1 on a DVD. Then, instead of DVD shopping at Best Buy or Amazon, start DVD shopping at thrift stores and Goodwill stores and yard sales.

One good friend of mine collects board games and uses this exact same approach. He won’t buy a game unless he’s saving 80% or more off of MSRP (or what he could sell it for online). So he hits lots of yard sales, estate auctions, and so on to build up his game collection (and he’s got a pretty good collection of just the stuff he’s thrifted).

Q10: Outdoor games
I’m hosting a large outdoor barbecue for about 30 families. There are going to be a lot of teenagers and young adults there. Can you think of a way to get these people having fun instead of just sitting around waiting for it to be over?

– Shaun

My suggestion is always to come up with some sort of activity for them to be engaged in during the length of the event.

Here’s what I would do. When they get there, take everyone between the ages of 16 and 23 (or so) and divide them into teams of four. Then give them each a scavenger hunt list and tell them that the team with the most items turned in at X:00 wins the prize. The prize should be something they’d want, like four smallish iTunes gift cards or some other item you can relatively easily acquire. Tell them they can turn in prizes whenever they’d like and you’ll check them off the list when they do. Another approach is to just have them take digital pictures of the items.

Mix up the teams so that they’re forced to get to know each other a little bit in the process and make sure that there’s at least one driver for each team (a person who could borrow the car they came in).

I went to a party once where the young people (ages 15-23 or so) did this and it was a blast. I remember it fondly and I made a couple friends along teh way, wich far exceeds my expectation for such a party. From what I understand, the older people at the party were pretty entertained by it, too, with groups stopping in to drop off items regularly and everyone sitting around commenting on and talking about the scavenger list.

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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