Reader Mailbag: Sick Daughter

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. Future self and children
2. Blog as passive income
3. Transitioning to self-employment
4. 401(k) rollover worries
5. Repair or replace a car
6. Preserving books while taking notes
7. Preparing for fasting
8. Housing wants versus needs
9. Investing crossroads
10. Which mortgage comes first?

This past weekend, my daughter was terribly sick. On Saturday evening, we followed the recommendation of the nurse and took her to the hospital, where they gave her IV liquids due to dehydration and started her on some anti-nausea medication.

The painful part was her complete lack of energy. She’s usually our most rambunctious and energetic child, so to watch her lay there and not even want to move a little bit was heartbreaking.

Thankfully, she seems to be doing somewhat better this morning, but it made for a very long weekend.

We live in California, which is expensive. We want to stay here to be near family, but we moved to an area that is not metro so that we can afford to buy. Our home is modest & our payment (plus an additional $165/month extra onto the payment) is about $350 less than when we were renting in Orange County. However, where we live makes our job schedules rather strange. It works well for us as childless adults (& we really like the flexible lifestyle), but if we added older children to our home it would become unmanageable.

We met later in life than most people. We’ve had 3 miscarriages. We’ve looked into assisted reproduction & chosen not to go that path for many different reasons. Adoption is also expensive, but because we are over 40 now, the possibility of having someone choose our family to place their child is rather low. We had planned to do a homestudy anyway, thinking it would be about $2,000, but were shocked to learn that it is more in the range of upward of $6,000. Given our low prospects, it didn’t seem reasonable. There are other complications with medical issues as well. Because of our lifestyle/work schedules, fostering or adopting older children is not possible.

So, much as it breaks our hearts, we are struggling to accept that we will not become parents. We have looked at other opportunities in our lives to be a part of the lives of children, thru mentoring, Boyscouts, etc. This is never going to be something that is easy for us, but it seemed to be something we just have to accept. We do recognize that this is a combination of choices (of our lifestyle) & circumstances, but we just don’t see any way out of the situation in which we find ourselves.

So it was a surprise to us when we have very recently had the opportunity of adoption (from someone we know) arise. But we don’t have the cash on hand to do this adoption, even if it truly becomes a possibility. We are looking at an amount of at least $15-20,000. We don’t have a large credit-card debt, tho we do have a couple of car payments (taken before we started using your principles). We are hesitant to go into further debt, but it seems that this kind of debt (for a child) would have long-term benefits for us, as opposed to a thing like a car. It is, of course, time limited, so we won’t have the chance to save for this in advance.

So, is having a child worth having to mortgage our future selves? I recognize that this in its entirety is too long & much more complicated than what you would want to address in a post, but i thought you might want to do a post on future self/children.
– Kat

I really can’t answer that question for you. For some people, the answer is categorically “yes,” while for others the answer is categorically “no.”

To me, the biggest factor is whether you want to be parents. When you think of things like staying up all night with a sick child, does that fill you with a sense of caring and at least a moderately positive feeling, or does it fill you with dread? Are you financially ready to handle the constant flow of expenses that comes from a child – clothes, food, toys, and so on? Do you (or can you) have the time to be actively involved in their lives, from their education to their emotional needs? Do you want to give up that time that you currently give to other endeavors – friendships, social engagements, personal hobbies, etc.?

If you’re absolutely positive that you want to be parents, you should be adopting now and not later. The longer you wait, the harder it will be for you to be there for them as they approach adulthood. Already, you’ll be nearing retirement age as they finish high school and will be on the cusp of it if they graduate college directly after high school.

How have you managed to turn your blog into a source of passive income?
– Katie

For me, blogging is mostly a source of active income. I have to actively write the articles that you see each day – that requires a constant work input.

However, there are many regards with which blogging is a passive income. The “downloadables” – 31 Days to Fix Your Finances, The One Hour Project, Twenty Great Ideas, and Building a Better Blog – earn a (very) small amount of revenue. My in-print books – The Simple Dollar and 365 Ways to Live Cheap – also are a passive income stream, via royalties.

My best passive income stream, though, is probably my blog archives. All of the posts I’ve written in the past are indexed in Google and show up as fairly trusted results for Google searches. People visit posts buried deep in the site’s archives all the time, picking up ideas and advice from articles I’ve long ago written. The revenue earned from ad views on those pages would surely qualify as passive income.

My story: I’ve been working in the hi-tech/entertainment sector for about 20 years. In that time I have moved up and down the corporate ladder, made pretty OK money and generally earned a decent middle class existence. My wife has been able to stay home and raise our 2 children, we have 2 cars (older models, but we’re the sort that run cars into the ground), a nice 4 bedroom suburban home and we can afford the occasional luxury. Other than our house we are debt free. It’s the American dream more or less, except that my life is out of line with my values and I NEED to make a change.

I recently was laid-off (luckily I found comparable work and income in just 3 weeks – I am a very lucky man). But the trauma and the fear I experienced because of it made me seriously confront my life choices, and made me realize that having a job does not ultimately provide a sense of security. I realized that I was 6 months away from losing what had taken me 20 years to build. I really want to “right-size” our lives so that my family will be much more resilient in the face of future turmoil.

The work I do is generally soul-sucking. I am good at what I do, and do it willingly to support my family, but it actually takes me energy to just get to work everyday. The tedium of my career is draining and I constantly dream about getting out of the rat race and doing what I am passionate about. Beyond that, I find our home, our neighborhood, our way of life at odds with my evolving values. What I (and I should add my wife and kids are on-board as well), is a more pastoral existence: a little land, a little house (ideally a sustainably built and self-sufficient home), a garden and some animals to provide some percentage of our sustenance.

I believe have sufficient skills to eventually support myself as a freelancer (I am an illustrator/graphic designer), and my wife is in school and in the next 3 years or so will be entering the workforce and should be able to start replacing my income and benefits. I think we will be able to make the income swap work out after some transitional period. We already live in an area that borders on some lovely country and so moving to a new patch of ground wouldn’t be THAT hard, so it seems that the dream is just around the corner.

The difficulty I’m having though is seeing how to make that transition without jumping off a proverbial cliff. I am usually quite good at planning, but this large-scale transformation in our way of living seems hard for me to get my head around. The poor housing market makes me leery of making a move sooner than later. My current job does not necessarily have a long time-horizon, and I’m not certain that should this job fall out from under me sooner than I’d like, that I’d be able to get as lucky as I did this time around. My gut tells me I need to be working toward my freelance goals NOW, but time is not always easy to find, so it’s been slow going. All these combine into what becomes a rather tangled web of dependencies and “what-ifs” that seem to lead no where. I am in a rut and want to get out of it, but it seems that I can’t see beyond the rim of that rut.
– Marc

You should be spending every spare second you have right now looking for freelance work. Not later. Now.

If you have a strong resume and portfolio for your illustration and graphic design work, start looking for freelance opportunities. Start at sites like Upwork.com and look for small projects you can do in your spare time to earn a bit of extra cash and also to really spruce up your resume with a lot of completed work.

Start hitting the contacts you have at media companies and ad companies, asking if there are freelance opportunities available. The key thing, really, is to build upon relationships you already have and cement them with early, excellent work so that your reputation begins to precede you.

Freelancing works best if it’s launched while you’ve got a 9-to-5 job elsewhere.

I recently was blessed with a job offer at an employer in my hometown that I have been trying to land a job with for the last three years. I am very excited to start but of course it brings up the whole what do I do with my 401k issue. What scares me isn’t so much the question of whether to roll it into my new employer’s plan or into an IRA, the thing that worries me the most is having my money out of the market for the time it takes for the check to be cut and then deposited into the new account. I am just afraid if I pull it out and the stocks are low and they have went up by the time I am able to get the money into a new plan that I am missing a huge opportunity. Is this something to be concerned with or am I worrying too much? If it helps my balance is around the $35k mark.
– Anthony

The solution here is simple: contact the investment house where you want to set up the IRA and discuss the matter with them. Ask if they can help you facilitate the fastest rollover possible so that you’re not missing a potential market uptick while the transfer is happening.

Remember, though, that the market is effectively random on a day-over-day basis. It’s guided by so many pieces of information unknown to you that it amounts to randomness. You might just as easily make that move on a day when the market does nothing (no effect) or when it drops 1% (a great effect – for you).

I wouldn’t sweat this too much, in other words.

I’ve recently graduated university, and (thankfully) found a job pretty quickly. My problem is that I have a 10 year old car, that needs about £1000 spending on it for it to pass its MOT.

My current job pays OK (£18,500 a year), and I have about £150 spare each month, which I’m currently using to pay of credit card debts that I have (totalling about £4000). I am looking at getting a newer car, as I think spending £1000 is pretty much throwing money away? I should hopefully be getting a fairly big raise in the next 6 months, and would have been looking to upgrade my car around that time anyway.

My question is, should I get a newer car on finance (0% if available) now, or fix my current car and get a new one in a year or so?
– Michael

Fix your current car. Having a car that is capable of passing the MOT (the Ministry of Transport test, for those unaware, which decrees whether a car is road-worthy or not) increases the value of that car as compared to one that does not.

It also gives you a year with which to get rid of those debts and to start saving for a replacement car, so I would spend the next year focusing financially on that.

My opinion generally is that if you don’t have the cash to buy a replacement car, you should keep driving your current car until it falls apart under you. My impression is that your car isn’t at that point yet.

I’ve been reading a lot of books, many from PaperBackSwap (thank you for the recommendation) and I know that one of the things to do when reading a book to get the most out of it is to mark it up, using highlighters, shorthand, adding your own notes in the margins, etc.. But if I’m going to put the book back on the PBS market, or if it’s from the library, those kind of things are not allowed. I know you read a lot of books from PBS and the library and write a weekly book review so I was wondering if you could give us an in depth look at how you read and take notes on books and still are able to not mark them up.
– MJ

I simply assume that any book copies that I’m going to hand-annotate are mine for the long haul. Thus, I save such hand-annotation for books that I am getting a great deal out of.

What about the other books? I keep a notebook for such book notes and copy out key passages, personal thoughts on the book, and other such material. That way, I can easily trade away the book if I feel it doesn’t have any additional value for me.

Remember, when you highlight, you’re assuming that the book has enough value that you’re going to be returning to it to absorb the passages you’ve highlighted. I simply suggest holding off on highlighting and annotating directly in the book until you’re sure that the book holds significant value for you.

In our culture, we have one month that is special, because people on this month fast for religious purposes. The problem is that the price of food increases about 30 ~ 50%. What should I do ?
– Rahman

There are a lot of solutions to this problem. Here are three that immediately come to mind.

If this fasting month occurs during a growing season, plan ahead by planting a garden timed such that the vegetables will be available to you during the fasting month.

Buy as many dried foods in advance as you can, such as dried beans, dried rice, and so forth. Similarly, buy any meats that you can well in advance and freeze them. These can provide the backbone of most of your meals.

Find a vegetable co-op that you can join that has controlled prices throughout the year. Get on a routine of using these vegetables in your diet both during the fasting month and outside of it.

you may not remember me from three years ago, but I was broke, jobless, my car died, and in debt. I made a plan, got a job, got a car and a payment, ultimately declared bankruptcy (but not on my car payment) and started fresh. It took a long time to get to that place and I am working hard to re-establish credit and keep my new healthy money habits going. Now I am in a different sort of predicament–a much more positive one.

Here is the deal. My salary is such I can throw triple payments at the car and be done with it in about 15 months. I’ve started that and am one month in. Meanwhile, a neighbor is looking at moving and has offered me first refusal on the home. I am torn between waiting a year to look at buying a house and going for this offer, since the house is well suited to my needs in many ways, including closer to work!

It will be harder to get financing now for the house, but not impossible, and my car payoff would go back to normal timing. On the other hand, if I wait, I have better credit and will likely qualify for “more house”, my car payment is gone–plus this deal may not be available.

What’s your take?
– Amity

Do you need “more house” or do you merely want it? Are there tangible ways in which your current living situation does not meet your needs – or is a bigger residence merely a desire for “more” (and “more” is never something that can really be sated)?

This is something we really struggled with for a long time. We looked for a house while my wife was pregnant with our first child, believing that our apartment could never handle that life change. Eventually, our financial situation forced us to stay in that apartment – and we did just fine. We didn’t move until we were on the cusp of a second child.

Do you really need to move? Will it save you money compared to your current arrangement? Does it offer you benefits that are worth that extra cost? If you can’t answer those questions clearly, stay put and keep saving.

I am 37 years old, have two children ages 12 & 8, and I am recently widowed. The fog has just begun to lift, and I am trying to look to the future for my finances. I am fortunate that my husband and I were in good financial shape and that he was well-insured. However, I am concerned that with only one income and two children to raise that I be a good steward of the money my husband left for us. I want to be able to help my children through college, retire in 20 years or so, and live comfortably, but not extravagantly.

I know I want to keep some money relatively safe, and I know that I should invest some money. I just don’t know how to get started. At the moment, I have no mortgage and no car payment. I have no plans to move and my vehicle is new. I bring in a little over $5,000 a month. I am currently tracking my spending to make sure that I am spending less than I’m bringing in each month. I have approximately $180,000 in a money market account (earning 1%), $110,000 in savings bonds (earning 1.5%-2%), 20,000 in a Roth IRA, and 160,000 in a traditional IRA. I also have $12,000 in 529s for each of my children. I am adding $500 to the money market each month to save for some of the bigger expenses that I wouldn’t be able to pay out of the monthly budget (property taxes, home insurance, home/auto repairs, etc.) At the moment, I am not adding to the IRAs or the 529s. I think I can set aside anywhere from $500-1000 a month (depending on the month) to add to either of these, but I’m not sure which I should add to. Also, I know that I should probably take some money out of the money market and invest it. I really don’t know where to begin there. I have never invested in the stock market before and don’t know who to trust to help me with that process.

Do I start adding to one of the IRAs again (the Roth would be my preference)? Should I begin adding to my children’s 529s regularly? (I added $5,000 to each this year, so from what I’ve read I may not be able to add anymore until next year?) What should I do with the extra money in the money market account? How much should I leave in it? Any advice at all would be appreciated.
– BH

The money market account would be your emergency fund. Since you’re a single parent, I would keep six to nine months’ worth of living expenses in that money market account and move the rest elsewhere. Use that money market for emergencies only.

As for the bigger expenses that you can’t handle each month, I would either just start keeping that monthly extra in my checking account or open a different account for that purpose.

What about the rest of the money market account? I would sit down and figure out some goals. What do you want to use that money for? Are you going to travel with your children while they’re young? (If so, keep it in cash.) Are you going to pay for their college with it? (If so, fund their 529s like crazy.) Are you going to use it for retirement? (If so, stock your Roth IRA as much as you can and invest the rest.)

If you do choose to invest it, I would open an account at a brokerage and put all of it into a low cost index fund that indexes the entire stock market. I recommend Vanguard, simply because that’s the brokerage I use.

My reader question is about prepaying our mortgages. Here is our current financial situation:

* We have $50,000 in emergency savings and $25,000 in a separate brokerage account invested in various stocks, bonds, and index funds. My husband fully funds his Roth 401(k); we both fully fund our Roth IRAs each year. We’ve also started a 529 plan for our daughter with about $3000 invested in it so far.

* I am a stay at home mom; my husband’s position, although new, is relatively stable.

* We recently moved to a new state. Because the market tanked, we decided to keep our old home, refinance, and rent it out. After our mortgage, taxes, insurance, property management fees, etc., we net about $150/month. This home has a 4.25% 15-year fixed mortgage with a current balance of $127,000. Our payments are $1150/month including taxes and insurance. I would guess the current value of the home to be about $250,000, and we bought it at $317,000. We hope to sell this house when the market rebounds, but who knows when that will happen?

* We also purchased a home when we relocated. This home has a 4.5%, 30-year fixed mortgage with a current balance of $280,000. Our current payments with taxes and insurance are $1750/month.

* We have no other debts.

Which mortgage should we focus on prepaying first? We could obviously pay off the rental much sooner, but I don’t know about all of the tax implications of the rental income and expenses. Psychologically, it appeals to me to get this payment out of the way, but I don’t think it makes sense financially. Any input you or your readers might have would be appreciated.
– Sarah

It’s hard to say what the full picture is of the rental expenses and taxes because I don’t know what states or municipalities you’re living in or the home is in or the condition of the home or other such factors. All I know about are the two mortgages.

Given what I do know from this message, I would focus on the 4.5% mortgage, simply because it has a higher interest rate and because the impact on your life due to foreclosure would be much greater on the house you live in versus the house you’re renting out.

I think you’re in a very solid financial place, however, and either one you choose will work out well for you.

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.