Reader Mailbag: Flavors of Summer

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. Value of homeowner tax benefits
2. Sports memorabilia
3. Mortgage or full purchase savings?
4. Passive income and ebooks
5. Returning to the workplace
6. Sharing travel expenses
7. What to do with silver
8. Successful child and expenses
9. 401(k) and IRA rollovers
10. Kickstarter and risk

Sweet corn. Fresh tomatoes straight from the garden. Lettuce, again straight from the garden. Watermelon slices.

The flavors of summer are wonderful. They taste even better when they come out of your garden.

Q1: Value of homeowner tax benefits
While I agree with your analysis from a monthly cash flow perspective, one piece that I am factoring in my own decision making is the tax benefits that come into effect around April 15 annually. What are your thoughts on rolling this into the home ownership equation?

– Jeremy

The homeowner benefits on income taxes are very much overblown, in my opinion. Not only are they reducing your tax bill only a fraction of the actual expense, the only way you can claim those deductions is if you forego your standard deduction.

For a family of five, like our own, it wasn’t worth it during the years when whe had five children and still had outstanding mortgage interest. The standard deductions resulted in a lower tax bill for us.

If you’re single or married without children, then the tax benefits of home ownership are greater. If you have children, particularly in multiples, the tax benefits aren’t that big of a deal unless you own a huge house.

Q2: Sports memorabilia
My father worked with the Philadelphia Eagles in some association in the late 1980s. A few years ago I found a bunch of memorabilia in his attic and he said I could have it. There were photos and balls signed by Buddy Ryan and Randall Cunningham and some other stuff. I put it in my own attic and forgot about it until I found it again earlier this week. Any ideas as to what to do with it? The photos are in protective material. The footballs aren’t but they seem in really good shape.

– James

My first step would be to check internet sites such as eBay to figure out what kind of value you might expect from the memorabilia you have. What is the going rate for a Randall Cunningham autographed picture, for example? You should be able to find items that are at least somewhat similar to the items you want to sell.

If you’re unsure after doing this, you can always contact a memorabilia dealer for an estimate. Naturally, many of them will give you low-end estimates, but they can at least verify what you have.

If you have something with particular value, you may want to get the autographs authenticated through an authentication service to ensure the value of what you have.

Q3: Mortgage or full purchase savings?
I have a question I have been trying to figure out for a while and wondering if you could help? I want to know how much I would have to save a year to make it better to save for the total cost of a house than to get a mortgage? i don’t know a lot about finance, but it seems crazy that about two thirds of the mortgage payment (?) is interest. How fast would I have to save to overtake the benefits of a mortgage?

– Janelle

The sole benefit of a mortgage is that it lets you have the house now rather than later. For that, you pay substantial interest.

Let’s say you want to buy a $200,000 home. If you get a 30 year mortgage at 4% interest, you’ll be making payments of about $900 a month and end up paying about $124,000 in interest over the lifetime of the loan.

On the other hand, if you save $900 a month in a savings account that bears 1% starting right now, you’ll only have to save for about 17 years to get there instead of the 30 years in mortgage payments.

I think the best option for most people right now is to start saving today and keep doing so until interest rates start looking like they’re going to go up significantly.

Q4: Passive income and ebooks
You mentioned a while back how a person could make passive income off of Youtube videos. You can do the same thing with ebooks and the Kindle store if you’re patient. It takes a long time to write a good ebook but once they’re listed they can sell consistently for quite a long time.

– Frances

I agree on the ebook idea. In fact, that’s what I would be doing if I didn’t spend a good deal of my writing time on The Simple Dollar and related writing tasks. I’d create ebooks.

Writing a good ebook that will generate positive reviews and keep selling for a long time takes a good deal of work and a lot of time, but once it’s finished and uploaded and on sale, it can earn a nice steady trickle of money, particularly if you promote it. (If you put up junk, it will get negative reviews and not have nearly the same lifespan as something worthwhile.)

Don’t expect to get rich this way, either, but you can do quite well.

Q5: Returning to the workplace
I have been out of the work place for a few years to raise my daughter. I am interested in the possibility of breaking back into the workforce. I only worked one year out of college before having my daughter and have very little contacts. Do you have any suggestions? How do I organize my resume? Do I include that I was a SAHM on it?

– Shelley

I would include the stay-at-home parenting element on my resume as a single line. Employers are going to want to know what you’ve been doing.

The big challenge you’re going to have is with fresh experience. What have you been doing to maintain your skills while you’ve been away? Your older material is relevant, but the thing you need to bring to the table here is recent evidence that you’ve been maintaining at least some of your workplace skills. I’d try to take a class or two as I start this transition and feature them on your resume. Your older experience is worthwhile, but I would consider it very important to show at least some effort in getting back up to speed.

Also, be aware that this is a challenging job market and it may take time for you to find work.

Q6: Sharing travel expenses
About six times a year, I drive back to my parents home for the weekend to help them with weekend projects like cleaning out the gutters or fixing a window or setting up a computer. I live fairly near a university where my nephew goes to school, about twenty minutes in the other direction. So when I go back, most of the time I give him a lift. The trip takes about five hours. Given that he’s a college student, should I be covering the gas here or should I be splitting it with him?

– Alex

If it were my family, I wouldn’t charge a thing for this. I would consider it a normal family thing.

If it were a college student I didn’t know, I’d probably ask for something like a third of the gas. It’s not realistic to expect the student to have resources equal to my own, but I would also think a free ride isn’t quite right, either.

The route you should take depends on your family situation, which I know little about.

Q7: What to do with silver
What to do with silver / cash? We have $45000.00 in cash and about $65000.00 in silver @ todays price of $23. The last we purchased was @ $40. An oz. ) We believe the dollar is about to collapse in the near/ very near future. We want to buy a house now. The problem is my husband wants to sell silver ( at a big loss & pay all cash. I Do Not want to sell any silver now, and the want to finance 50% and keep silver for when it returns to its unmanipulated value. Or at least a rainy day. By the way. We have no debt, he’s disabled and i work full time. Any suggestions ??? We just go round and round and hate apt. living

– Sara

I don’t agree with your assessment that the dollar is on the verge of collapse or that silver will return to an “unmanipulated” value in the future. My perspective is that putting that much of your short-term money into something as volatile as silver was an extremely risky move and that it’s very hard to tell what silver will do in the future. It might go up and it might also go down further. If I were in your shoes, I’d get out of silver as soon as possible. It might rebound, sure, but it might also drop and I would not want that kind of volatility for my short-term savings. As for buying a house, I would keep building cash savings for now until interest rates are on the verge of rebounding or until you can pay cash for the whole house.

There’s nothing wrong with buying silver on the side if you truly feel it’s a good hedge against some sort of economic apocalypse and it helps you to sleep better at night, but putting your short term savings for a house into silver isn’t a wise move. Silver is a hedge (at best), not a wise short term investment for a house.

However, if you do believe what you’re saying about the imminent collapse of the dollar, then you should get a mortgage as soon as possible. If the dollar collapses and silver really does become a hedge, then silver’s value in terms of dollars will skyrocket and you’ll easily be able to pay that mortgage. I consider this to be a poor plan because I don’t agree with the fundamental ideas behind it, but if I did believe in those ideas, that’s the route that would make sense to me.

Q8: Successful child and expenses
Our youngest daughter is becoming really successful at gymnastics. She’s won several competitions and her coach seems to think she should be going to national events. The problem is we don’t have the funds to do this. Many of the other parents who have their child in this class are very well off but we can’t afford this kind of travel unless there’s something we’re missing. Any thoughts?

– Chloe

Such a life is expensive. If you are seriously considering that lifestyle, then you have to accept that it comes with serious sacrifices or that it’s genuinely impossible. For example, are you willing to, say, sell your home and buy a “home on wheels” to help her get on the gymnastics circuit?

To me, there’s a huge difference between someone who has been invited to a national gymnastics competition and someone that’s in line for a spot in the 2016 Olympics. If the latter is true, I’d be willing to take on that risk for my child. If it’s not true, then I wouldn’t.

More than anything, you have to sit down and ask yourself whether those kinds of major life choices would be worth it if she didn’t make a national team. Would you be happy with the situation you were in on the downside, including both your financial losses and the life experience? I can’t answer that for you, but making decisions like this based purely on the possible upside is incredibly risky. I wouldn’t do it for my own children.

Q9: 401(k) and IRA rollovers
I changed jobs about 3 years ago and have about $35,000 left over in the 401(k) from my old job. It’s well diversified (in mostly index funds) and in an account at Vanguard where I like the investment offerings and the associated low fees. I re-balance the holdings once a year, but otherwise leave it alone to grow in silence. Recently, I’ve wondered whether I ought to roll that 401(k) into an IRA so that I can make further contributions to that account. I have not yet, but expect to max out my contributions to my current 401(k) either this calendar year or next and then keep that up for the foreeseeable future.

My question is what are the upsides and downsides of doing that rollover. It seems like there’s no harm since I like the offerings at Vanguard (and appreciate the low fees), and it will give me another vehicle to contribute tax-free money towards retirement.
– Stu

Assuming you do a direct rollover (in which your old 401(k) investment firm writes a check directly to your new IRA investment firm), there really aren’t any serious downsides to rolling over a 401(k) to an IRA. It mostly just gives you more control over the investments.

Having said that, you need to make absolutely sure the transfer is a direct one or else you could end up in a tax pickle. Open your new IRA account first and make absolutely sure your old 401(k) writes a check directly to the new IRA.

You may also want to consider a Roth IRA unless you believe that tax rates in the future will be much lower than they are now.

Q10: Kickstarter and risk
You have talked about Kickstarter before so I thought you might have some advice here. About a year ago I backed a campaign on Kickstarter. A few weeks ago the creator posted a message saying the project had failed and that there would be no end product for the campaign. Since I didn’t back for a whole lot, I’m not out too much, but I easily could have been. How do you protect yourself from this? Is crowdfunding just the wild west right now?

– George

As of now, Kickstarter mostly steps out of the project when the funding is complete, leaving the exchange of backer rewards between the project founder and the individual backers. If a project founder fails to provide those rewards, then it’s a sticky legal issue that, as you say, may not be worth it for individual backers. However, there may be collective solutions to make things right.

I think Kickstarter is a great idea, but as with many things online, great ideas are often out in front of consumer protection laws and I think Kickstarter is currently in that boat.

For me, I’d be wary of backing projects that don’t come from an entity you know in some fashion. I’d be very wary of backing projects from an unknown person.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. 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 many, many questions per week, so I may not necessarily be able to answer yours.

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