Updated on 04.05.10

Reader Mailbag: iPad?

Trent Hamm

In the last week, I’ve received about ten emails from readers and marketers simply assuming that I’ve already purchased an iPad.

While I can see how it might be useful for reading documents and things while I’m out and about, I certainly don’t feel like it’s worth hundreds and hundreds of dollars, at least for the types of uses I would have for it. I might someday buy a tablet, but it’s much more likely to be a Microsoft Courier or something similar, which hits a lot more of my needs (particularly in terms of notetaking, with an integrated stylus and a deeply integrated “journaling” function).

If someone were to spring and buy me one as a gift, I’d certainly use it and play around with it a lot, but buying it for myself? I’ll take a pass. I’m just not a member of the cult of the new any more.

I am a single mom, and have been for about 18 months. I have a professional job, and all compensation totals about $80,000. (I’m currently looking at a job with more opportunity that may boost my income to $90,000 or even $95,000.) I live in Tampa, Florida, but in 2005 bought a house in Shaker Heights, Ohio (when I was married and living there). I am the sole owner of the house. It was purchased for $250,000 and I now owe $201,000 on the mortgage. My payments were just increased to $2330 a month. Homes in the area are selling for around $200-210,000.

My tenants are leaving the house in mid-April, and they are several months in arrears with me (owing me about $4400, none of which I expect to get because of their poor payment history). I will be listing the house on the market for $220,000 in the hopes of getting something around $210,000.

Without my mortgage payment, my income exceeds my revenue by about $1500. Paying the mortgage eats into my savings at about $900 a month.

I have begun the hardship process with the bank to proactively handle the time when I may not be able to pay, or more ideally, to get on their radar for accepting a potential short sale.

I am living very lean – cut cable and only use the $9 netflix and hulu on my internet service; I started a side business that gets me anywhere from $100 to $300 a month; I am frugal in every regard. I am getting very fatigued, however, with the constant frugality as it’s for the purpose of just paying my mortgage on a house I just want to sell. I find myself telling my mother that I can’t come visit because I have to put the money to the mortgage—who wants to live like that?

I want to meet my obligations on this mortgage. My question for you is how low should I let my savings go in this instance, before potentially stopping payments? And fyi, the new homeowner support programs do not include rental properties.
– Emilie

First of all, it sounds like this is all a fairly short-term situation that will be resolved when you sell the house in Ohio. With that in mind, what I would do is set a “target date” by which you intend to have the house sold and paid for and keep that date front and center in all that you do. It makes it easier to make very hard cuts when you see that date all the time – it gives you a very clear finish line and a big psychological boost.

As for depleting your savings, it really depends on how much you have in savings. I would be very wary of allowing the balance to go below a month’s worth of your personal living expenses. I think that this situation does qualify as an emergency, but emergencies can sometimes come in bunches.

The biggest reason I can see selling this house short is the costs associated with the sale. Given that you don’t live locally (thus, you’re likely having a local realtor sell it for you), you’re probably going to be paying some fees on the sale, up to about 6% or so. For perspective’s sake, 6% of $200K is $12K. From my perspective, that’s what you’d be avoiding by selling short and, depending on your situation, it might be worth it, because otherwise you wouldn’t really be holding on for any financial gain unless you extended the timeframe by quite a bit.

In other words, I think you’re handling things correctly right now and I would stick to that gameplan.

I’m very interested in reading more about your advice via your blog. However, in the meantime and to get help quickly, my husband I would like to meet with a budget counselor locally to help us work on our budgeting. We have a bit of credit card debt, and a car loan. Our problem is partially debt payoff, but we’d also like to have someone work with us on establishing, and sticking to, a realistic budget. Are there services providers like that who don’t want to sell you financial products? Our main concern is establishing and working with a monthly family budget. We are 49 and 50 and have 3 kids so we have had time to work on this on our own, but we fail every time. We need help from a counselor that is not interested in selling us financial products as their main goal.
– Susan

A financial planner will certainly help you with creating a budget that works for you, though usually their primary service revolves around investing advice.

The first thing you need to do is start contacting financial planners in your area. The first question you should ask is whether the advisor is fee-based or commission based. If the person is commission based, move on immediately.

Once you’ve whittled down the pool, it wouldn’t hurt to meet with a few of them and see which one seems to “click” with you. Quite often, success with things like this comes down to the personalities of the people involved – if you rub each other the wrong way, it won’t work.

Don’t settle for one that you don’t fully believe in, though, because in your situation, you’re going to need someone that understands you well. Without that, you won’t follow through.

I would like to do a better job of investing my 401K money. Can you recommend a book or website that can give me some basic investing information to start with? I am truly a novice and in the past have relied on others to advise me, but I would like to learn for myself and make these decisions independently.
– Kay

My favorite book on investing is The Bogleheads’ Guide to Investing (click through for my review of it). It’s information-rich, but it also doesn’t make any assumptions about the reader at all.

That’s really the best book I’ve found in terms of a one-volume all-around investment book. I would visit your local library and check out a copy – most libraries have a copy of the book.

If you’re looking very specifically at 401(k) saving and don’t really care about anything else, The Bogleheads’ Guide to Retirement Planning might be a better fit. It’s not as well-rounded as the other books, but it does offer a ton of good information geared towards 401(k) plans.

I’m recently married. I was laid off in January and have been getting unemployment benefits, $1276 a month. My husband works and makes $1914 a month. Much of his salary has been eaten away by his student loan wage garnishment, 401k loan, and other deductions. Our take home pay is about $38,000 annual. We have about $5000 in our emergency fund. We haven’t had to dip into it since my layoff, but we also have not been putting anything in it since then. We have a $8300 car loan, at a 40 month, 4.8% interest. My husband has a $5000 student loan at 4%; we have been paying $50 a month since I lost my job. Then, he has a bigger student loan at $26,000, 2.5% interest. My husband’s wage garnishment goes towards that last loan, and $280 a month goes towards that. Additionally, he owes $2000 to two good friends of his, and I am really pressuring him to consider paying them back quickly, for the sake of their relationships. What kind of game plan can you suggest? I want to keep building our emergency fund (especially in this down economy), but it makes me sick every time I think about the interest we are paying on the principal each year.
– Fran

The first question I’d ask is whether you’re actively seeking work. I’m going to assume that you are and that finding some sort of job is just around the bend.

The big question is how much money you guys actually spend each month. How much goes out of your coffers each month? Is it $3,000? $5,000? The reason this is important is that you should have at least two months’ worth of living expenses (the amount going out) in your emergency fund.

Once you have that, start hammering the debts. I absolutely agree that the first thing you should pay off is the debts to your friends. Debts and friendships simply don’t mix very well and you need to eliminate that as fast as you can.

After that, I would spend the time to make up a real debt repayment plan. Get your debts in order and knock them down.

My parents are in a situation where they want to pay off the mortgage as soon as possible. Reasoning aside, I’d like to lend them a substantial amount (and have been asked). It’s my duty to the people who raised me and who would never hesitate to help me if I really needed it; it’s mostly because of support and opportunity from them that I even have the cash now to spare. However, the amount is over the gift tax exemption. I am personally fine with a verbal agreement (to avoid formal paperwork and interest income) but don’t want to trip any legal wires. I see how, if $X goes into their account on one day (from me) and $X leaves the next day (mortgage payment), those are high dollar, questionable-looking transaction records, but what if I paid the mortgage lender directly so that it never hits their account? What if they repaid within the year so that it’s basically balanced by tax time?

Most articles I’ve found on the internet talk about being willing to risk default. It may sound like famous last words, but I’m really not concerned. If we’re counting dollars, technically I still owe them for funding a few early years’ worth of Roth IRAs when I needed the income for living expenses. They also covered college tuition minus scholarships, and even though repayment was never an expectation, I wouldn’t object if they needed some of it back. It might delay my nebulous plans to buy a condo/house “in a few years”, but having a ton of actual student loans would have as well.
– Amy

If you’re not concerned about your parents defaulting on the loan, then set up a simple loan agreement with them. Write it up in as much detail as possible (you can ask a lawyer for help if you’d like, or use a template online), then have both of you sign it in the presence of a notary.

However, according to IRS Publication 550, you have to charge a fair market rate of interest on the loan. If you do not, you still have to pay taxes as though you did charge a fair market interest rate on the loan. If you don’t do that, the tax man will hit you.

Yes, Uncle Sam doesn’t really like people giving money to each other. He wants his share of the pie, too.

One of the things I have been doing is using coupons matched up with sales to stock up on products and food. At this point, I probably have enough food and other products in my house to last for a month without going shopping (except for a few perishibles). Sometimes, I’m good about skipping a week, but it seems that the lure of the “good deal” is hard to beat.

Also, I wonder at what point this behavior turns from being a savvy shopper to being a hoarder? I live by myself, and at times when I look up and see 10 boxes of cereal on top of my fridge or go in my bathroom and see 5 things of toothpaste, I wonder.
– Claudia

I don’t think there’s any problem with having five tubes of toothpaste in the closet if you bought a “six pack” of toothpaste as a bulk buy.

What borders on compulsive buying is if you have five tubes of toothpaste in the closet, but can’t resist buying another six pack because it’s such a good deal.

Our philosophy usually is to take inventory of our supplies of things like toothpaste once a month. If we’re down to our last tube or only have one tube in the closet, we add the item to our grocery list. Otherwise, we don’t buy it – we don’t even look.

In other words, we give our grocery list a lot of power. If it’s not on the list, we probably shouldn’t be buying it, either because we already have plenty or because we actually don’t need the item.

I am a teacher who does not work during the summer months. I am on a 10-month salary. Every summer without my paycheck has always hurt us. The intent this year was to put away a certain amount every month so money wouldn’t be so tight next summer. Unfortunately, things came up as they always do and the money was never put away. I was wondering if you had any advice on what we can do now to prepare for the loss of my income in July and August? We really don’t want to have to put expenses on a credit card as we have had to do in the past. We were thinking of getting rid of cable as one option, although the kids would be really angry.

The other question I have is do you have any advice on how to avoid this situation next year?
– Wendy

My wife is a teacher and I have a highly uneven income, so I’m pretty familiar with this problem.

The real key to making this work is to make the withdrawals automatic. Let’s say, for example, that your paychecks get deposited automatically on the 1st and the 16th of each month. You should have two monthly automatic transfers set up, one on the 3rd and one on the 18th (or so) of each month. Those transfers should move an amount equal to about 15% of your take-home check into your savings account.

Once that’s in place, saving for the lean months is easy. Just don’t touch the savings account and live out of the checking account until July.

As for cutting back and making the kids angry, it’s April. The weather is beautiful outside. Turn off the television, disconnect the cable, and go out in the yard. Hit the park and throw the football around until the sun’s about to go down, then go home and collapse in a heap of good exhaustion from the fresh air and exercise.

I’m trying to live minimally, paying off a little less than $3000 in debt and have enough to live off of. I’m actually a little shocked by how much money I have left over, I thought I had more. I used to buy and cook for people all the time and was a little extravagant on my own spending, but I’ve pared down and am now looking to see if this budget I’ve set up looks reasonable. My take home pay is $1800 without overtime, and right now we’re on an overtime freeze. I do have a personal trainer that I know is a little needless to most people, but I had a gastric bypass less than six months ago, so it’s essential for me as he keeps me in line and has been a great asset to my weight loss (or is high on my priority list). The following is my monthly expenditures. My credit card balances are less than $1000 together, and I also owe about $2000 from taxes when I was young and stupid in 2004.

Housing: $450
Car Insurance: $82
Cable: $15
Electric: $50
Gym: $22
Personal Trainer: $200
Taxes: $150
Credit Cards: $120
Cell Phone: $50
Savings: $350
Food: $100
Gas: $160
Discretionary: $50

My credit cards have an average of 20% APR (even though I’ve never missed a payment) and I’m paying just barely more than the minimum balance. My taxes are also killing me in interest. I know you (and everyone reading this) is screaming, “Drop the trainer,” but he’s giving me a REALLY good deal, only $25 a session, and like I said, it’s REALLY high on my priorities. The credit card companies refuse to lower my interest rates, and I don’t have the resources to pay off the credit cards in full to cancel them.

Do you have any comments or words of wisdom, or does this look like I’m on track?
– Stephanie

It looks like you’re on track, for the most part. I can pretty safely assume from this that keeping in shape is pretty much your primary value in your life for the moment, so I think the $22 gym expense and the $200 trainer expense, while pretty large, is reasonable.

Aside from that, your budget looks really good to me. I don’t know what else you could really change. If you find that you’re having trouble keeping within the discretionary money, don’t be afraid to adjust it a bit and make the monthly discretionary $100 and cut the savings accordingly.

After all, one of the biggest reasons people get frustrated and stop budgeting is that the budget is too constraining. They turn the perfect into the enemy of the good and just fall back to bad habits.

My husband and I share an account with an internet bank in Germany. His salary goes into this account every month. We get a credit card and a debit card directly linked to this account. This means when we pay using the debit card (DC) it gets directly withdrawn from our account and when we pay using the credit card (CC) it gets withdrawn from the account once a month.

I have no overview of the account. We see a daily balance and we get a monthly statement but because the CC debt goes off automatically and everything is deducted on different days, there is no real amount I can say, “Ah-ha! This is my debt,” because everything revolves all the time. I have a list of our monthly/ quarterly/ annual costs that go off directly from the account but there is no “monthly CC balance” to pay off. That that throws me off completely, because I feel like I don’t know where we’re standing.

I have tried setting up “imaginary accounts” in Excel but I don’t trust my own memory/ notes because I feel like I’m always forgetting to key in something or another. We have tried zeroing the account with our savings but because of the lack of an overview we keep slipping back into red, since we think we can afford X/ Y/ Z when there is actually another payment coming up and we didn’t factor it into our calculations.

Right now what does work to keep our finances more or less in check are the following:
1. Only 1 person handles the finances (me).
2. We use exclusively the envelope system with CC use only for internet purchases (seldom, 4-5 times per year).
3. We only tank up/ do groceries once a week with cash from envelope system.

I think it’s a mental barrier but it’s really hindering our debt pay-off/ road to financial success, without an end goal in sight, because we’ve been revolving in minus for 3 years now. Do you have any tips for us?

My ideas:
a) Calculate monthly costs that are directly deducted and immediately transfer whatever is leftover from salary into a separate account. Whatever is in minus = debt.
b) From the 2nd account, take the money out for the envelope system for expenditure.
c) Whatever is leftover from 2nd account at the end of the month split into emergency fund/ savings and 1st account (to pay off debt).

What do you think? Thanks for your help in advance if you do decide to answer my question!
– Zhenlin

My first reaction is that your bank is doing something dodgy. You should be able to see your individual transactions when you log on to your online bank. If you have no way at all of getting transaction statements from the bank, how do you know they’re not up to chicanery with your account?

If you truly cannot get such statements from them, I would change banks. That sort of behavior is the poorest kind of customer service.

I would start this by contacting their customer service and finding out about getting proper statements that detail each transaction into our out of the account.

I have a 1993 Toyota Corolla which is coming up on 190K miles. It is getting to the point where the car is costing me more to keep than it is worth (both financially and time wise). In Nov 2009 I spent $800 on repairs, in Jan 2010, $400, and today I spent another $400. I am currently saving $200/month for a new car and putting $200/month in an “emergency” savings account. The problem is, every time the car breaks down, the money spent to fix it comes from the emergency fund. After today my emergency fund will be at about $300 (I just graduated from school and started a FT job, this is why it was so low in the first place).

Ideally, the Corolla would last me through the fall (repair-free) and I would have a decent size downpayment to put on a new car (I would like a 2011 Scion tC), but at this rate it doesn’t look like that is going to happen. What would you suggest I do in this situation?

Just to give you some background on my current financial picture, I just started a FT job in Jan making $45K a year. I have three credit cards. The only one I use is a Chase BP which I pay in full every month. I have a Chase card which has a balance of $4500 and a 23% interest rate. I pay $250/month on this card and it should be completely paid off in about 32 months. I have another CC, which is a Bank of America card that has a balance of $8800 and an interest rate of 3%. I pay the minimum balance on that and plan to roll over the money I use on the Chase card once that is paid off. I also have $37K of student loan debt and those payments ($250/month) will begin in July.
– Andre

If your car is that unreliable and causing that many unexpected expenses, then you need to be moving on to a different car sooner rather than later.

Your solution is easy: get another used car that’s newer than that 1993 Corolla. Shoot for something that’s more of a late model used – an ’05 or an ’06 for example. Then drive that one for several years until it begins to give you problems, but during those years, keep saving $100/200 a month for the next car.

What’ll happen is you’ll have a stable, decent car for the next few years. Then, in 2015 or so, when that car begins to give you problems, you’ll have the cash on hand to write a check for your next one. Trust me, doing that feels so good that you’ll never want to do anything else again when dealing with cars.

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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  1. Moby Homemaker says:

    Full disclosure: I am a Mac/Apple guy…

    And I am sick to death of the iPad!!! What is this Day 3??? I’m already sick of hearing about this god foresaken thing!!!

    I’m happy that Steve Jobs & Co. have designed another piece of wonderful technology– and I’m just sick of hearing people crowing and bitching about it incessantly!!!!

    Plus I am disgusted by the applications for the Maxi iPad.

  2. Kristen says:

    Another possible avenue for Susan, who is looking for advice on creating a budget. My church has a financial planning ministry, called Good $sense, that guides people toward creating and sticking to a budget. It is faith based, but the advice is sound whether you are Christian or not. You might look into similar programs in your community (library, churches, or other local groups might have similar programs). For our program, I believe the church asks for a donation to cover the cost of printed materials, but it is minimal, and other programs like this would probably be similar, and you wouldn’t get a hard sell for additional services or investments. Good luck!

  3. LIOR says:

    I love – reader mailbag
    it is making me see my life with so much clarity

  4. Johanna says:

    @Emilie: It sounds like what you should be aiming for is to sell the house as soon as possible, since it’s nothing but a drain on your finances at this point. If you sell it while your savings are still intact, you can bring that cash to the closing if you need to. If you wait until your savings run out, you don’t have that option.

    So I’m not sure what you’re hoping to gain by listing the house $10,000 higher than the highest comparable sales. I’d say to list it lower so that you can get an offer quick.

    And Trent: Whatever is the point of setting a target date for selling the house if you’re not suggesting she do anything in particular to meet that target? You might as well set a target date for winning the lottery.

  5. Ellen says:

    Stephanie – Now that you’ve been with the personal trainer several months, maybe you could just cut back the # of sessions/month? Even cutting out 2 would give you another $50/month. I agree with Trent that you seem to be doing great – saving 20% of your income at your age is an excellent habit to get into, but on only $1800/month it might be more realistic to ease back on that a little bit until some of your debts are paid off.

    @Zhenlin- if the bank is paying the “CC charges” in full each month (but it sounds as if they are listing them individually & paying 30 days after the charge is made instead of as a lump sum, which makes it hard for you to track them) then you need to come up with a method you & your husband will use to keep track of all the charges you make in the month. For some people, this would be recording all debit & CC amounts in their checkbook (maybe coded D & CC); others might just collect the CC slips & keep a running total – each of you could keep an envelope for those that you tally each week, for example.

  6. Johanna says:

    @Stephanie: Something you might consider is putting less money in savings for right now, and more toward paying off your debts. As it is, you’re on track to pay off the credit cards in less than a year, which is pretty good, but if it feels too far off, you could shorten it by a lot. As an extreme example, if you took all $350/month that you’re currently saving and put it toward the credit cards (in addition to the $120/month you’re already paying), you could have them paid off in about two months. And then you won’t have to worry about them anymore.

    Normally, I don’t think it’s a great idea for someone with basically no savings to stop putting money in savings. But in your case, it sounds like your debt is weighing heavily on your mind, so going for the quick psychological victory would be good for you. And no matter what you do, you’ll be in trouble if you lose your job in the next two months, so you just have to hope that you don’t.

    All of this is assuming, of course, that you’ve stopped using the credit cards, so that you’re not adding to your debt anymore. But you know that already, right?

  7. George says:

    Stephanie – I’m with Ellen. $200/mo for a personal trainer is pretty dang steep for your budget… it’s 11% of your takehome pay! Take a timeout from that expense for a year while you get rid of one of the $2,000 debts.

  8. Debbie M says:

    @Stephanie – I also think you may be able to phase your personal training out to fewer meetings per month as you get into your new habits.

    I don’t see a lot of other room for improvement. Maybe look into ways on saving a little on gas–make fewer, efficient trips; try to walk or bike (from home or work) for some of your errands; let your foot off the gas long before you need to brake and accelerate gently; don’t exceed the speed limit on freeways (except for safety reasons); don’t carry extra weight in your car; keep your tires fully inflated; that sort of thing.

  9. Johanna says:

    @Fran: I’m not sure what kind of game plan you’re looking for. If you’re just treading water right now (neither adding to your savings nor withdrawing from them), there’s not much you can do other than keep treading water and keep looking for a job that pays more than your unemployment benefits.

    Even if you’re not able to pay back your husband’s friends just yet, at least talk to them about it. You need to make it clear (if you haven’t already) that you haven’t forgotten about the loans and that you do intend to pay them back. If they’re in decent financial shape themselves – and if they’re really good friends – they’ll probably understand that you can’t pay them back right now. Maybe you can sugggest that once you find a job, you’ll pay them back $200 a month, or something like that.

    But if they’ve suffered job losses recently too, then you should make an effort to pay them back ASAP – even if that means dipping into your savings.

  10. A.M.B.A. says:

    @ Wendy-I have been in your situation. I was paid once a month on a ten month schedule. I figured out my monthly expenses plus a bit more, so my paychecks were pretty even year round. I then auto deducted that amount from my check to a separate account. I vowed not to touch it. If I did, I’d pay myself a 10% penalty. Then in July and August on “payday”, I’d transfer the monthly amount to my checking. I padded the amounts for those two months to allow for some fun stuff that comes w/Summer.

  11. aryn says:

    @ Claudia – If you’re able to regularly get good deals and worry that your stockpile has grown too much, especially for personal care items like toothpaste, donate them to a food drive. Although food banks usually ask for food, I’ve worked with enough of them to know that they need personal care items, too. Toothpaste, women’s hygeine products, soap, etc. Basics that most people don’t donate but charities desperately need.

  12. partgypsy says:

    Zhenlin: one answer. Stop using your credit card with that bank entirely. If you can’t live without a credit card, get one from elsewhere where you have to pay a monthly bill. This will give you both a full accounting of your transactions, and especially if you don’t replace your credit card, forces you to live within your means.

  13. J says:

    @Amy — you are confusing a business transaction (a loan) with a gift (which is money you never expect to see again). Trying to set up a gift as a loan is likely illegal and can get you in hot water with the IRS.

    For gifts, you can transfer a certain amount per year (something like 12K), or a one-time lump sum (something like $2M) tax free. I must emphasize again that this is a GIFT and not a LOAN.

    Regardless, I’d suggest consulting a CPA who does estate planning to figure out what to do and how to handle the tax situation — and to know what kind of financial arrangement you are setting up.

    Also, on a personal note it seems like setting up a loan with your parents to pay down their mortgage more quickly is kind of odd. I can understand the gesture of paying off their mortgage entirely, no strings attached, but it seems that by you becoming their new bank it’s not really helping them with their goal, either. While you might be a nicer banker who they know and love, you are still charging them interest and making money off the deal.

    I would also highly recommend having the loan terms written down and agreed upon. Verbal/handshake agreements have a way of being forgotten and mis-remembered, and can lead to a lot of problems. Heck, even when you have a written document people can argue over it, even after they signed it!

  14. Nicole says:

    To the teacher: I’m also on a 9 month income. When we were starting out, I would put money in CDs that came due in the summer right when we needed the money.

    Another trick is to not cash out the HSA or daycare savings account until May or June. (You lose interest, but it’s nice to get that money when you need it.) This year we’re also getting an unexpected tax refund in May because we had to file it paper… had we known I’d rather have gotten it earlier and put that money in a cd or something but it will be useful in May when we don’t have wage income.

    Automatically deducting is also important– you don’t want to overspend your income, which is what you’re doing if you don’t have money for summer. It’s technically better to get the money on a 9 month schedule because you get it earlier, but it’s harder to plan. Getting the automatic deduction helps you live within your means better because you don’t feel like you have so much money.

    Now we have enough slush (dividends instead of debt is AWESOME) that we’re ok and I can just stick money for the summer in savings. But it takes a lot of living below your means to get to that point.

  15. reulte says:

    Stephanie — Keep the trainer. He is helping you to reach and maintain a level of fitness which you have never before had (I suspect).

    Call your insurance company and see about raising your deductable or what else you can do to lower your rate. Get rid of cable. Do what you can to lower your electric bill over the next couple of months or even permanently (A moratorium on using the stove for cooking more than once a week? Dressing more for the outside weather while inside?). Cut the savings temporarily and make a larger payment to your credit cards. Use your car less (if you can) and walk more often.

  16. chacha1 says:

    Re: “Amy,” I’m wondering if she is an only child. If so, and if she fully expects to “take care of” her parents as they age – which appears to be the case – why not consider having the parents sell the house to her?

    In any case she needs to consult an estate attorney with experience in real estate and trust transactions. It seems to me that either the gift scenario or the loan scenario is likely to end in heartache.

    Having a paid-off mortgage is a great goal, but if these people are not already retired, they should be doing it with their own income, not leaning on their child so soon. If they ARE already retired, and asking her to take care of them, they need to be willing to arrange things so that her contributions don’t damage her own financial security (or put her on the IRS radar screen).

    The house is part of her parents’ potential estate. Whether they expect to use the value of the house for funding long-term care or supplementing income, such as by a reverse mortgage, is a question that really needs to be answered before she proceeds.

    And by that I mean, if they want the house paid off so they can then take all the value out of it to pay their other bills or live a more indulgent lifestyle, she might want to reconsider her willingness to bankroll that operation.

    There’s a lot of issues at work there. It’s not just a question of can she afford to lose the money or how best to avoid unnecessary paperwork.

  17. Courtney says:

    Stephanie – Do not get rid of your personal trainer! It is clearly something that is a priority to you and brings you a lot of personal satisfaction as well as health benefits. I think people are just freaking out because it’s basically your second-largest expense other than your mortgage. However, if you look at the big picture and compare your budget against the Balanced Money Formula, you are doing quite well – on a take-hope pay of $1800 you should be spending 50% on needs, 30% on wants, and 20% on savings (debt repayment is a form of savings). Your needs are exactly at 50% and you are only spending 15% on wants!

    If you have a little bit in your savings account already ($500-1000) I would stop or greatly reduce saving for three months. That plus a tiny cutback in your discretionary income (or somewhere else) would eliminate the credit card debt entirely. You can then re-establish your savings at the previous rate as well as divert more money towards your tax repayment with the $120 you free up in your budget.

  18. Leah says:

    Stephanie, I agree with Johanna. Normally, I’d go huzzah for all the savings. But you need to knock that CC out, and the end is completely, easily in sight if you take a break of two months from your savings. Or, maybe cut your savings amount in half, and then you just have 4 months to get that CC gone. Then, you’ve got that extra money ($120 a month) to put toward the tax debt — that means just 8 more months on the tax debt!. Once you’re done with all that debt, you have plenty of play in your budget.

    If the trainer is important to you, by all means, keep it. You will thank yourself for years to come. Two years ago, I spent a summer doing PT and going to therapy. I made $10 an hour, and I paid $45 a week ($15 copay) for 3 PT visits and $15 a week for therapy. I do not regret the “lost income” because I invested in myself.

    I applaud you on taking the time to make a budget and get your financial house in order. Realistically, you can knock out all your debt in less than a year and have much more discretionary income or savings. You’re looking good!

    To Claudia, I think the buying becomes a problem when it is compulsive and starts to infringe on your space. If you’ve got 5 tubes of toothpaste and only go through a tube every 2 months, you can relax a bit. Toothpaste sales come up frequently enough that can start scouting a good one when you’ve got a tube or two left. I’m honestly surprised that Trent’s family doesn’t stockpile at least a little bit. Seems like it’d be cheaper to always have a few tubes on hand rather than need to run to the store one morning/night when you just can’t squeeze any more out of that tube. I live in a little one-bedroom, and we always look for the next sale on non-perishables when we notice we’re getting low.

  19. Ruby Leigh says:

    @Claudia: I never try to have more than a year for things like personal goods and never more than 6 months for food. (I’m not saying I could eat for six months if I stopped buying food – but I simply don’t buy cereal if I know I have at least six months worth) Which argubly is a high limit but is a limit indeed… I also have the space for it. Is your stuff infringing on your living space? Do you find yourself wondering if you need additional cabinetry? If the answer to these questions was no – then you are mostly likely okay.

    All that being said – deal sluething is not everyone’s cup of tea (even amongst frugal people), but don’t be ashamed if it’s yours. I think it’s fun and love the thrill of a good deal – however I am careful to realize what I need and don’t need. A good deal on fancy air freshener that I don’t normally use – is NOT a good deal.

  20. Kathryn says:

    Susan..looking for credit/budget counseling: Try checking out the credit unions in your area. Ours has a counselor on staff to work with members. She helped us out a few years ago when expenses exceeded income. If it’s included…it would be worth joining?

    – K.

  21. Amy H. says:

    @ Wendy . . . how old are your kids? If they’re teenagers, you could suggest that if they want to keep a certain level of cable, they can pay for it with babysitting or part-time jobs.

  22. Kat says:

    To the one who asked about the gift tax and the house, note that one can gift up to 1 million in their lifetime before the annual gift tax amount applies to them.

  23. spaces says:

    Emilie: Why not advertise the house now as ‘coming soon’? Your tenants ought to be understanding considering they’re not bothering to pay rent and you’re letting them still be there. You’re going to have to use a realtor; your realtor can handle the advertising. I wouldn’t recommend putting it on MLS until it’s ready to go, as ‘days on market’ is a factor. However, your realtor and his/her agency ought to be mentioning your property to prospective purchasers.

    Amy, you should actually see a CPA for help on this. As others have pointed out, the gift tax lifetime exemption is quite large and that does not seem to be what you’re talking about. You seem to be talking about the annual exemption. You can structure a loan the forgiveness of which over time could qualify for the annual exemption. You do need to paper it up correctly, which is something a CPA or estate planning / wealth transfer attorney can help you with. These kinds of arrangements are routine, except it’s usually the parent transferring property to the child.

    Stephanie, I would call the tax man and see if you can get a deferment or delay in payment b/c of hardship, and, if you can, throw the extra money at that 20% credit card. I wouldn’t get rid of the personal trainer, either! Or the gym expense. But I would seek part time employment at a gym or with an employer otherwise related to health and fitness: The YMCA on nights and weekends, something like that. It sounds like you’re doing the lifestyle changes that so many folks want for themselves, you may fit in well working for that kind of place (and you may find that you get a discounted or free membership out of it). I would also take a look at whether you need your car. Your car represents your single biggest recurring expense, outside of rent and savings: Gas plus insurance. Is there a public transportation option available? Could you carpool, ride a bicycle or walk on some days, to cut your gas costs down?

    Andre, I would look at the maintenance costs on the Scion before buying. I have a 2006 xA that I love, love, love, except the maintenance costs are killer. Unusual tires, spendy spark plugs, that kind of thing. I was in a Corolla before this car, which was cheap and easy to maintain, and the costs for my Scion caught me by surprise. I would have picked a different car (the Honda Fit, fwiw) if I’d done my homework better on this one. Congrats on the job!

  24. Jordan says:

    I’m amazed that anyone would assume you’d bought an iPad after reading more than, say, 15 columns on this site. I would be more surprised to find out that you had one. Not that you bought on eventually, mind you, after trying someone else’s, researching the best price over three to six months and then scoring a mega sale plus coupons plus credit-card-loyalty-program points incredible price for it, once the iPad had been in the hands of enough users to get some quality metrics out there on its reliability and performance…but there’s no way I’d expect you to have bought one yet! :-)

  25. deRuiter says:

    Dear Amy, Seems like your patents’ situation needs a bit more discussion as to why they want to BORROW OR BEG to pay off their mortgage. You could GIVE them each $12,000. this year (total $24,000) and if you wished, Jan 2, 2011, you could GIVE them each $12,000 (or whatever the annual tax free gift figure is) again. To become their banker instead of a real bank which currently owns their loan, is inviting trouble in the family. Suggest your parents each get part time job and apply that to the mortgage.
    Susan, You could do this yourself with a Dave Ramsey book, or call your local churches (even if you’re not a member) and sign up for financial peace university. If you inisit on hiring a planner, get a FEE FOR SERVICE planner, not someone who charges a percentage of your worth. Think Dave Ramsey either way would solve your problem, also you need part time jobs to boost your income. You can get out of debt.

  26. Jessica says:

    To Wendy:
    Does your payroll system have an option to be paid 22 v. 26 times per year? My mom is the payroll coordinator for my hometown’s school system, and all teachers are given an option to be paid 22x per year (every two weeks during the school year) or 26x per year (every other week all year). Their salary is divided out based on their pay option, and they can change it any time.

    Alternatively, what about a summer job? I work retail to fund my “rainy day money” account on the occasional night or weekend. It’s not much, about half the hourly pay I get at my full-time 9-to-5 for only a few hours a week (if that), but it’s something.

  27. Joanna says:

    @Andre: I have a ’92 Corolla that has also cost me more in the last 9 months than I expected. I agree with #23 that you should look at repair costs for the Scion because even though I was annoyed by the repairs on my Corolla, they were regular maintenance costs that I failed to factor into my budget. And my repair guy called older Toyotas “tanks” that can easily reach 250k+ miles. You’re doing the right thing setting aside car payments for a down payment, but what about setting aside “car maintenance” savings that can be used on your current car now and your new car later? Then you can separate “car repair” from “emergency.”

  28. jim says:

    Fran: Those interest rates are all quite low. You’re paying about $100 a month in interest total. (not counting the $2000 from friends) Is $100 a month really something to feel “sick” about? It shouldn’t be. I’m not saying debt is good and I do think its good to want to pay it off, but your debt interest costs are not bad at all.

    I notice that Emilie is owed “several months” of back rent totaling $4400. This kind of situation is the reason why I think landlords really should begin eviction proceedings sooner rather than later when tenants start getting behind on rent. If a landlord lets a renter pay late and the rent starts to get behind then it can very quickly turn into several months worth of lost rent.

  29. Steve says:

    @Stephanie (and Trent) – 20% interest is high enough that it’s worth trying really hard to get rid of it. It’s worth skipping savings for a few months or cutting back whatever you can to pay it off.

    Also, it’s totally OK to make the gym and personal trainer a priority in your life. But you have to realize it will mean some compromises in other areas.

  30. heather t says:

    @Claudia – As long as you are not overextending your budget to get those coupon/sale deals (yes, I’ve done that!) I have to echo those who recommend donating the surplus! Keep what you can reasonably use, and donate the rest to a food bank or shelter. That way you get the thrill of the deal hunting, and a bonus thrill out of helping others.

    Not sure how much you’ll use? Schedule a day on the calendar each month to check expiration dates. Anything getting close (that month or the next month) gets donated. Within a couple of months you’ll have a better idea of how much you can use before it expires.

  31. Johanna says:

    @Steve: 20% is a high interest rate, but Stephanie’s debt is not that high, and she’s already on track to pay it off in about nine months. If she sticks to that plan, she’ll pay about $85 in interest. If she skips the savings for two months to pay off the credit cards, she’ll pay about $25 in interest, for a savings of $60. That’s not peanuts, but it’s not a really big deal either.

    I think the more important factor is psychological. I get the impression from her letter that her debt is really stressing her out and that she doesn’t feel like she can see the light at the end of the tunnel. If that’s the case, then moving the light closer could make her feel a lot better. But if I’m wrong about that, and she’s comfortable with the nine-month timeline, then there’s nothing wrong with what she’s doing.

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