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. Painful consequences
2. Starting a blog
3. Saving for international college
4. Financial plan feedback
5. Separating personal and business money
6. Buying a vehicle
7. Cutting expenses and paying debt
8. Rent or buy?
9. Equal interest rate loans
10. Gencon meeting
Right now, my hair is the longest it’s been in a long time.
And it’s annoying. It rubs on my ears. It itches the back of my neck.
How do people have long hair? I had fairly long hair at one point in the late 1990s.
Where are the clippers?
Q1: Painful consequences
As I write, my daughter in another state is attending the funeral of a good friend who committed suicide last week. “Husband” left behind a young wife pregnant with their second child and a 5 year old son. Husband had been caught in the trap of keeping up with the Joneses (a wonderful circle of successful friends) while in a lower paying job in the public sector. Wife had lost her job. Although they had been receiving letters and calls from creditors, Husband would tell his wife that it was a case of mistaken identity and not to worry. Wife didn’t know the house had been foreclosed until the sheriff and new owner arrived to evict them. They only had time to pack a few personal things and leave the premises. After dropping Wife and Son off with family, Husband drove to a secluded spot and took his life. It turns out that in addition to losing their home, they are over $100K in debt with liens on everything possible. Husband leaves behind a devastated family, a wife with virtually no assets raising the children alone, and children without knowing their father. Husband may have thought he was protecting Wife and Son but wound up hurting them in the worst way possible.
What is doubly sad is that if they had known about the dire situation, his extended family and wonderful circle friends would have helped in any way possible – legal help, paying a bill – you name it. Husband kept the mountain of debt hidden from everyone – maybe from shame, depression, denial – who knows!
There’s not really a question here, but it’s a story I felt needed to be shared.
At my lowest point, I never committed suicide, but I certainly did feel incredibly low and I can see how someone who has some issues with depression could potentially swing themselves in that direction.
Do not keep debt from your family. If there are financial problems, they affect everyone directly and indirectly through spending choices, emotional fluctuations, and so on. Even more importantly, you’re better able to solve these problems with the help of those around you than by yourself. Don’t hide your debts.
Q2: Starting a blog
I have a great idea for a blog, one that no one at all is doing and i am in the process or being or trying to be an expert on this such topic. Problem is, time, i don’t have any or enough to do it. I went out and bought a website all gung ho to do it, and never got around to it. I was able to get a refund from the web-company for the service but not for the domain name. Which i believe i technically still own for a year, since i did pay for it.
My question to you is, is there a way i can start up a blog that wont cost me anything or much at all, and then maybe one day move it all over to my own site.
Also, is there ways to make money blogging when your on or using a free blog site?
I’m an IT professional and have been for 17 years so i know all the tech speak. I’d really love to get out of this field and into a full time job of blogging such as you do. Its just really hard to find the time. Did you start out on a free blog spot?
I started blogging on Blogspot. The first few posts of The Simple Dollar were there until I decided that I wanted to host it myself.
You certainly can make money blogging on such free sites. You’re allowed to include Adsense ads in such sites and can make your own affiliate links if you choose to go that route.
However, I’ll tell you that if you don’t feel you have time to make blogging a success, you won’t be successful at it. It takes a significant audience to make much money at all when blogging, and if you’re not able to invest time in it, you won’t build that audience. If you don’t care, why should they?
Q3: Saving for international college
We’re an international family. My husband is Dutch and I’m American. We have a two-year-old son. Seven years ago, I sustained a traumatic brain injury and can no longer work. I was finally approved for SSA disability in January. We used the backpay to pay off all our debts, give to charity and establish our emergency fund. As part of my disability, my son also gets a bit a money each month. We’d like to use this for his college fund. Here’s where it gets tricky. As a Dutch citizen, D can go to college in the Netherlands (he is bilingual, but some colleges there are taught in English). Tuition in Holland at my husband’s alma mater is currently about $1600/year, with the government supplying an annual stipend of about $2,000 (all euros, of course). So, clearly, it would be much better financially if my son attends college abroad. If he does, we’d use his college fund to help with his first house or wedding. If he opts to attend stateside, we want to grow his account as much as possible (we intend to match what he earns through his own work and scholarships). We love the idea of the educational IRAs, but do they have to be used at American colleges? What are our options to invest for either possibility?
Educational IRAs (and other accounts, such as Coverdells and 529s) only allow you to use the money for approved educational expenses. Generally, such expenses are going to be domestic expenses. Otherwise, it makes no sense to offer a tax shelter if that money is just headed overseas.
Given that there’s a strong chance your child will get schooling overseas, I’d probably put such money in a normal brokerage acocunt. Yes, you won’t get tax benefits if you use the money for education, but you won’t get penalties if you use it for anything else, which seems to be more likely than the educational use.
I would absolutely have your child go to the best Dutch college he or she could go to. That’s still a far better deal than sending him or her to an equivalent American school.
Q4: Financial plan feedback
I am 21 years old and working full time at a credit union, and going to school part-time through correspondents. I currently have student loans of about $6,500 (at 1.78% due to my rate discount as an employee) the monthly payments were about 270 but I recently changed that to 300 bi-weekly to knock it down faster. I pay for my current classes without student loans as I just pay for one class at a time. I also contribute 5% of my monthly salary to rsps which is 100% match by my company (this equals about 317/month) I also contribute an extra $100/month to additional rsps. Right now these are in GIC’s at 3% but I am considering mutual funds as I won’t need them for a while. What do you think? I also contribute $100 into a pay yourself first GIC. I also pay my credit cards completely off every two weeks. After these expenses I am left with very little spending money – the main thing is that once I get paid most of my money goes towards my credit cards so I need to use my credit card for purchases since I have no cash. I know the obvious answer is to not use the cards but it’s easier said than done. I also do not have a vehicle but am wanting to buy a newer model soon (but definitely used!). Do you think that it was a good idea to change my loan payments even though the interest is low? Should I put my rsps into mutual funds? Am I contributing enough? How can I make myself have spending money after payday without needing my credit cards? And how can I afford a car?
What is the goal with your “pay yourself first” account? The purpose of paying yourself first is so that you can handle expenses in the future without relying on debt.
Beyond that, it’s self-defeating if you’re just continuing the debt cycle. Once you have a small emergency fund (say, $1,000 or so), you should be wiping out the high interest debts as your top priority.
However, you should not attack them so strongly that you’re forced to use the credit card again at the end of the month. That just perpetuates the cycle.
Step back from the “pay it yourself” account and hammer those debts downward, particularly the high interest ones. Get yourself in a position where your income exceeds your required monthly bills by a significant margin, then focus again on paying yourself.
Q5: Separating personal and business money
When I met my partner nearly 3 years ago and we fell in love and bought a house 6 months later. Neither of us had any money really I had $4000 savings and Mack well!!!! We are 53 and 58. We got a home loan that we did not have to prove savings but had to find $20000 at the time which we did. I was on good wage. Macks books showed a good income but that turned out was not the reality. Well no that is not quite right. He had started to earn good money but for all the previous years he had been living on CC’s debt. Sole Trader. He had $35000 on his CC’s and owed the tax dept.
We bought our house (thanks Universe) and then I left my job through bullying but got work 2 days later. I got sick and we were living on his income. I got a boarder in, then 2 and they paid for food and elec. They left. I had up to then unbeknown to me encouraging him to pay off his CC but it was not his money!!! It was the tax depts and other bills!!!!! Not good communication I know but it was his business so I thought I should leave it to him. I got the all clear for health and went back to work. He will not let me use my money to pay his debts. He finally came to me so stressed and it was all revealed and he owed the tax dept quite a bit of money as well as having to find the ongoing tax money and pay his costs of running the business.
I took over the money for the business last Sept and rearranged how he does it all. He pays himself a wage first $2200 a monthly contract paid 1st month. This is for personal expenses mort, spending, personal car rego etc. Then tax/gst worked out and transferred. (Not touched) Pay back money paid out for parts. Every invoice is now done this way. Then his bills money is allocated to pay for the month. He uses the CC only after paying the money in first. I have built up his money into a working account and separated the tax/gst into another account. ( I paid back all his tax he owed by calculating the tax/gst at the highest rate and the arrears was paid in full last month). I now get him to transfer the tax money into our mortgage monthly as he pays tax every 3 months and we redraw it. As this has been well over the amount needed this money has gone to pay his largest CC and now has been reduced to $15000. do you think this is a good idea?
This is outstanding and it’s the way you should be handling it.
When you have income from a business, you should keep it in business accounts. When you have business expenses, pay for them from that business account.
Then, when you need money, pay yourself from that business account. I usually recommend that people live as lean as possible and pay themselves as little as they need.
Penny’s story continues in the next question.
Q6: Buying a vehicle
All going well for the next 3 month period we should reduce it by $3000 and hopefully the same for the following periods and have it paid off in 12 months. It is 3.99% interest for only 12 months but will renegotiate it again then as I did that 2 months ago. I got him to renegotiate his CC’s interest and in one day saved him $3300 just in interest. The business money now is working really well and without using CC. (Then we can work on second CC of $1500 which is low interest 2.9% for 18 months. This actually comes out of his personal money)
He currently undercharges for his time and I have been working on that. He gets a lot of calls from people for free help and I have tried to convince him to send them invoices for it. He has done it a few times. I suggested he set up a phone consultation but he refused. He is in IT and only charges $50 hour for some clients and $75 for others. His competitors charge nearly double that. I have tried to say that he would have to work less if he increased his prices as he was getting very depressed working so much with so little to show for it. He has agreed to increase his fees on 1st July for all except his contract which is $50 guaranteed income monthly. Work in progress.
What finally turned it all around was your story and the psychology of why we have debt. Mack was an older version of you so to speak in many ways. Image and what people would think and low self esteem and guilt. It helped me understand him better and with strategies how to achieve my goal without upsetting him too much. (That image stuff. I got him some new monogrammed work uniforms as well and that has done his self esteem a treat. ) He still finds it hard when I take the money out of the account $2000 at a time. I have to keep reminding him that it is not his money!! I keep telling him its ok to think like a millionaire just don’t spend like one. He always thought that one day magically that he would pay off those debts. How? He did not know. I guess I am part of that magic. LOL
He also lent money or gave money to his exs and her husband when they rang. I eventually convinced him that he needed to take care of himself and let them live their own money mistakes. They had both gone bankrupt and they knew he had a massive CC debt and still keep asking him for money. They keep coming to him but the last two times he has thankfully declined to help. A whole other story!! Guilt
Next month is the last repayment on his work van. Eeek he was talking about buying a new one!! I have allowed money to do up the old one. Doing that has delayed that plan. (image). He is thinking the longer he keeps it now the better. It is $312 per month. We are going to pay that into a new account each month called New Van. Should we pay cash if we can for a new van or get finance? Maybe a personal loan? Last time he could only get finance that was really high. There are tax benefits as he could claim all his van etc.
You should pay into the “new van” account like you’re planning, but you should also keep the old van as long as possible. Then, when you’re forced to buy the new van, hopefully you’ll be able to just pay cash for it and not have to incur any debt.
This is a good plan for buying a vehicle regardless of whether it’s a business vehicle or a personal one. You should try to avoid going into debt for any such purchase if at all possible.
Penny’s story finishes up in this next question.
Q7: Cutting expenses and paying debt
We also have been working on an emergency fund which is in a different bank harder to access. Have $840 working towards $1000. Have emergency cash of $300 and then we will work on our debts. I have a hecs debt which I pay $40 per f/nite and still owe $1000. I may get $1000 in tax back this year. Would you pay that off? The interest is very minimal $90 for the year. We have $19000 in our house redraw separate to the tax money. I paid in $8000 after bought the house – a gift from Mum and we have always paid more than we needed to every week. Mack has no super and I have only $11000 but I currently pay $40 per f/nite and the tax dept pay in the equaliviant up to $1000 per year. We have money in a savings account that we contribute to for house bills etc. I have a food storage in place and I make soap etc and our food money is $120 per week and that includes all our shopping = meat, food, toilet paper, personal etc. I only work 4 days a week (due to health and have high maintenance job – work in high care dementia locked ward) Once my hecs is paid off I plan to put that $40 into mortgage rather than super. Do you think that is a good idea? My gut says that there will be another money crisis and don’t think super is safe. I think I can make my money work better putting into property than my super. The house is Macks super. Our house has lost value unfortunately due to current money crisis in Australia. We will have to sell our house eventually (23 years left on loan) keep for as long as we can (loan of $299000) but hoping to make enough to go out country and owner build on a cheap block of land ($30000). Would like to be debt free when we go on pension. Can get kit home for aprox $17000. Long term plan. At best only about 7 – 10 working years left. Is this a good plan?
I think your plan is a good one for improving your financial situation while also taking care of your personal worries (about the stability of the dollar).
However, I am a bit concerned about your statement that you have at best seven to ten working years left. Does this mean that you anticipate disability at that point, or just that you want to stop working at a “traditional” retirement age?
If it means true disability and an inability for either of you to work, I would start investigating disability programs right now while things are relatively good so that you’re ready for them. If it’s not, then I would not view a “traditional” retirement age as a requirement.
Q8: Rent or buy?
I live in Hawaii where I was born and raised but the problem living in “paradise” is everything is so expensive especially housing.
I am very fortunate to live rent free currently with my boyfriend and his family and I am working on saving to buy a place. I estimate in 3 years I will have the 20% I need to buy a small condo.
However, since my boyfriend and I are not planning to have children, would it even be ideal for us to buy a place with no one to leave it behind.
Rent prices in Hawaii for a 1 bedroom (not all utilities included) start at $1000. To actually buy a 1 bedroom condo starts at minimum $200,000. This is current market prices so I’m not sure how prices will be in a couple years when we are ready to buy.
With mortgage, taxes, insurance and maintenance fees, we could end up easily playing $1500 to $2000 a month on a 1 bedroom condo.
Together my boyfriend and I net about $3500 a month.
Would it better off in the long run for us to just rent a place for $1000 or more than to buy a place for $1500-2000 to only pay it off and have no one to leave it to?
The difference we save in rent versus a mortgage could be put away for savings for retirement instead.
My opinion is that if you can’t get a mortgage where the interest on that mortgage is less than you’d be paying in rent for somewhere you’d actually life, then you shouldn’t get that mortgage. You should rent.
In your situation, I think renting is the best option for now, but you absolutely should save the difference between your rent and what the condo would cost each month in a savings account.
Then, in a few years, you’ll be able to buy that condo with a down payment, which would lower the monthly payments on that mortgage to a level that would be comparable to your rent.
Q9: Equal interest rate loans
I’ve been reading your blog for about 5 years, and it really helped me get my finances turned around. My question is this: I’ve paid off about 70k of my almost 100k of student and consumer debt that I began with (I was really stupid in the past). My wife and I make about 60k a year, and I put 12% into retirement and 10% into charity, and live frugally to continue paying off debt. What I have left are about 40k of student loan debt from myself and my wife, an 18k car loan, and after reading a lot and doing the spreadsheets, we decided to stop renting, saved up a downpayment, and bought a house in the amount of 118k. The cost is very close to our rental situation, and I plan to live here for at least 15 years.
I used the “highest interest rate first” method to get where I am now, and everything possible has been refinanced to take advantage of lower rates. At this point the interest rates are all very close, in the 4-5% range. My question then, is this: What are the benefits of paying off each loan type first? For example, student loans can’t be walked away from in hard times, but can be deferred. Should I go for a pure snowball strategy, or continue with the interest rate method, or are there other issues that I should consider now that I have a mortgage too?
If interest rates are nearly the same, the first type of debt I would pay off is anything with collateral, such as a car loan or a home loan. The reason here is that the asset you bought with that loan can be repossessed if you’re unable to make the payments.
After the collateralized loans, I’d pay off the student loans next, because those have special legal protections that tend to make them more difficult to get rid of in a bankruptcy-type situation.
After that are the remaining debts, which are mostly just uncollateralized credit like credit cards or personal loans. Pay those off last.
I’ve already got a very full schedule for Gencon. Mostly, I go to this convention to spend time with friends and such and participate in scheduled events with them.
However, I’m happy to say hello to any readers who want to meet me there. If you happen to see me wandering around, don’t hesitate to stop me and say hello. I’ll also be happy to sign any copies of my books that you have with you, too.
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.