Reader Mailbag: Soccer Season and Preschool

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. Adding partner to credit cards
2. Partners and rentals
3. Healthy use of emergency funds
4. Services you’re not knowledgable about
5. Short-term investment choices
6. Low-income money advice
7. Pre-tax or post-tax retirement
8. Outspending your income
9. Mortgage prepayment at low interest?
10. GTD without a partner

My two oldest children are enjoying two new experiences this week.

First, their fall soccer league is starting and they’re both on the same team in that league. They’ll be competing against other preschool aged children in some friendly three-on-three soccer matches in the coming weeks. Our four year old has participated before, but this will be the first time for our daughter.

We also enrolled both children in a private preschool. In Iowa, the state funds private preschools up to a certain limit, meaning that the cost of a private preschool is minimal or nonexistent (depending on the specific school). We’re both happy with the school we’ve chosen and next year, when we have to make choices about kindergarten and so forth, we’ll revisit what we want to do for education (likely public schooling, because our local school district is incredibly strong).

I’m recently engaged, but we won’t be getting married until after I finish graduate school (2 years). Currently I have 2 credit cards that I’ve had for a couple of years. I’ve never carried a balance, always pay on time, etc. and though I have a relatively short credit history, what I have is good. I was thinking of adding my fiance as an authorized user on these cards because I was thinking it might improve our collective credit scores for down the line when we’re looking at applying for a mortgage. He wouldn’t even be using the cards, but this would be more in the interest of adding his name in order to improve his credit history (what he has is good, but since we’re both fairly young, it’s not much). My questions for you are: do you think this is a good move? is it worth it to do this now, or would the effects be negligible? can you add someone as an authorized user if they’re not related or married to you?
– Kelly

Most cards allow you to add anyone you wish as an authorized user, provided you give permission for it.

The thing I would make sure of is that you’re both using the card wisely, because this card is tied to both of your credit scores. If one of you makes a “mistake” with the card, it hurts both of you. I would encourage you to actually use the card a bit, but be careful what you do with it. Use it to buy gas and things like that and keep track of what you’ve put on it.

A note: at various times, FICO has considered dropping authorized users from their credit score calculation formula. Although it hasn’t happened, it may happen at some point in the future. Also, some credit companies don’t report authorized users at all when reporting credit information to the credit bureaus, so this may not help your partner’s score at all.

I am planning on moving in with my boyfriend within the next few months. This has been a long time coming and we are not taking it lightly. We’ve been together for nearly 5 years and have talked about doing this for years, but don’t want to rush or do it for the wrong reasons (saving money is the wrong reason, it had to be about our relationship). Of course money does come into the discussion because we’ll both free up some money. We each own our own homes and we’ll be living at his place because we both vastly prefer his neighborhood to mine and my place will attract more stable renters. The agreement we both think is fair is that we’ll each pay our own mortgages and we’ll split the rental income 50/50. So if my house is ever vacant, then I don’t give him anything in rent, and when I do have renters I give him 50% as my rent to him. It seems perfectly fair and like a great solution. But now I’m not so sure. Moving to his house is across a state line for me, and my income taxes will go up 8%. Also, I set aside some money each month in a targeted savings account for home maintenance, with renters I feel I should increase those savings since any repairs must be done more urgently and more professionally than with me living there. Based on other rentals I’ve seen in my neighborhood, I expect to rent my house for around $1000 (mortgage payment is $1450 – housing bubble hit hard around here) so bf and I would each get $500, but the net income for me would be closer to $300 plus the stress of being a landlord. Suddenly our agreement seems less fair and I find myself a bit resentful. Any suggestions? (These numbers don’t count any of the significant savings we’ll both enjoy from not driving back and forth 20 miles each way several times a week, having only one set of utilities between the two of us, no more pet sitter to medicate my cat when I have to travel for work, and likely much less eating out.)
– Jackie

It seems like you have a very strange arrangement.

In my eyes, the fair way to do this would be for you guys to let go of the idea of “mine” and “his” and look at this as a mutual situation. You have a shared pool of money. From that pool comes all mortgage payments. Into that pool comes all rent checks. You’re responsible to each other for what comes in and out of that pool.

In the end, if you’re that serious about the relationship, these things are effectively both of yours. If one of you is in a financial situation, the other one is in it, too.

My husband and I are both 25 and working to get our finances under control. We currently have about $5,500 in credit card debt, and $2000 in an emergency fund. Every month, we contribute approximately $1,000 towards erasing our debt, so we plan to be out of debt in the near future. However, the unexpected expense pops up every now and then. This month, it is a $300 dentist bill. Do you suggest paying for expenses like these out of an emergency fund, or paying less on our credit card for the month? (At this point we have no “regular” savings account, and won’t until we are debt-free.) We just arent sure which is the lesser of two evils: depleting a very modest emergency fund or putting off complete debt freedom.
– Lauren

If I were you, I’d just have a certain amount – a small amount – going into the emergency fund each week or month. Let’s say it’s $50 a week.

Whenever you hit a speed bump like an unexpected dentist bill, you certainly can pay it off from your emergency fund. If you’re adding constantly to your e-fund, you don’t have to worry about replenishing it and you also don’t have to worry about that bill.

The reason for doing this is so that if a big emergency hits you, it doesn’t force you to backpedal into more debt. That’s the exact kind of situation that halts the forward progress people make, over and over again. They begin to believe it’s impossible to pay it off because they see every step forward being met with a step backward.

Don’t fall into that. Keep an emergency fund.

Recently, my kitchen faucet handle came off. I could put it back on but when I looked under the sink the faucet was leaking and I found black mold around the pipe.

I don’t know how to repair plumbing, have no equipment, and I can’t get under the sink because of arthritis and knee replacements. I don’t know any local plumber so I called one with a big truck comes to your house with everything including the kitchen sink in it.

Last year I had a friend put in a laundry sink that cost about twice as much as I was expecting.

These truck people quote you a price. It was more than $400, so I had him put it in. Then he asked about the water heater. He said it had a pinhole leak in the intake valve that had calcium around it. He said it could spring a leak at any time. Since all my books are in the same room, I told him to replace it. (He did show me the pipe old pipe). So my bill was adding up.

I had a $35 off on phone book magnet. If my bill was over $500 I could pay $50 service contract and get a 10% discount and a free inspection in 6 months.

Confusing? What options do I have if a semi-emergency plumbing incident again.
– Linda

$400 to replace a kitchen faucet and a pipe under the sink? That seems high to me, even if you’re in an urban area where plumbers charge an arm and a leg. That’s a pretty simple repair.

Your best bet is usually to get estimates from multiple plumbers for non-emergency situations like this, especially the second one.

For most people – those who are able to get under the sink – I would usually suggest having some plumbing tape at home so that when such a leak occurs, you can wrap the leak thoroughly in plumbing tape for a short-term fix before calling around for estimates. However, in your situation (with arthritic knees), that may have just been an emergency you had to deal with.

I recently received a severance package from a layoff and am re-employed. From this severance, I paid off credit card debt and my car and now have $33,000 remaining in savings. I would like to ear-mark this for my 16-year old son’s college education which is coming up in a couple of years. Where should I put this money in the mean time? CD’s are earning awful returns!
– Jenny

Cash is probably the best place to keep it if you want to retain the balance.

There are no conservative investments that are returning very well right now, for various reasons. Thus, it’s not surprising that people are trying to find a better return for their money than would be offered in cash or CDs or bonds.

The problem is that the options that have the potential to return more are pretty unstable, especially over the short term. I would not put my money into stocks or real estate if I had to pull the money out in just two years – the risk is too great.

Your best bet is probably to open a 529 college savings account, put the money in there in something conservative, and wait.

I just graduated from school in May. I’m trying to make it as a writer because it’s what I love to do. At least to start, I’m not going to be making a lot of money. I have about $1,800 in my checking account. I’m still living at home, but will be working full time for a magazine, where I’ll get $750 dollars a month for 6 months. Then, the position hopefully will turn into a salaried one. I just opened a checking and savings account with ING. How much money should I keep in each account? Also, is there any way I should be saving for retirement now? I have about $4,000 in stocks and bonds from my grandparents, as well as $2,000 in another account from them. Would you recommend moving this money anywhere? I’m kind of lost right now. I’d really appreciate any advice.
– Ryan

Writing – especially early in a career – has extremely uneven income. There’s just no way around it – you’re not a known entity, so you’re going to have a heavy luck factor when it comes to finding work. You might get a bunch of it – or you might get nothing for months.

Because of that, I wouldn’t jump the gun on retirement savings until I had some sort of income stability. Instead, I’d hold the cash as an emergency fund.

As for the other assets, since you’ll probably be needing them for living expenses in the next year or two, your best bet is to move the money to someplace safe. I’d put all of it into savings for the time being, then perhaps move it into retirement or elsewhere if you find yourself in a stable financial position.

I am 23 and I started working at a new job, straight out of college and I am maxing out my retirement account contributions. My question is, should these contributions be going in pre-tax or after-tax? My income is very high for my age (~75K), so I am not sure of the benefits of pre-tax vs. after tax. I am currently contributing pre-tax money. I have heard this is a greatly debated topic. I also have a Roth IRA that I have maxed out since I was 18. I would like to take the money out tax free when I retire, but would that hurt me since my tax bracket may be a bit high right now?
– Eric

My gut feeling is that if you possibly can, you should be putting the money in post-tax accounts, like a Roth IRA. The exception to this is if you are getting matching in your 401(k)/403(b)/TSP at work, in which case you should get every dime of that before contributing to a Roth.

Why? Every indication is that income tax rates are at historic post World War II lows. There’s really nowhere for them to go but up. Our nation’s budget has an emormous annual deficit and at some point, it’ll have to be repaid. Social Security will have to be propped up. The way to do that is simple. Raise income taxes.

Thus, I’d always bet on post-tax investments right now so you avoid paying taxes on the gains later on.

My dearest childhood friend is in a situation that makes her miserable. She and her long term boyfriend both work less than 40 hours a week at low paying jobs. They want to have more money to spend, but they are both unwilling to seek a second job or find work on the side. Although they have a lot of free time, all of the things they want to do cost money. When we go out together, I try to make suggestions of cheap or free things to do, but they are not interested.

I don’t want to see my friend unhappy, but she and her boyfriend have unrealistic expectations. They don’t want to work more hours. They don’t jobhunt for a higher paying positions, and they are not interested in going back to school or otherwise improving their earning potential. Yet they are constantly strapped for cash and are not interested in a frugal lifestyle. They live hand to mouth with no savings, and they will finance any unexpected expenses on their credit cards. They are frequently depressed and feel trapped. How can I help my friend in this situation?
– Sara

I don’t think there’s anything you can do to help them. They feel depressed and trapped by their own actions. At some point, they have to come to the realization that they’ve created their own problems through overspending.

Your best option is to just be supportive. Don’t fight them on how they choose to spend their money – just make wise decisions about your own.

One move you could make is to just drop a copy of a strong personal finance book on their laps, something like my own book or Your Money or Your Life. You’d want one that discusses people extracting themselves from tough situations and finding financial freedom. However, it’s up to them to drink from the water.

I recently refinanced my mortgage (Just over $100k) to an adjustable rate mortgage that won’t change rate for 5 years. This gave me a very low interest rate (in the 4% range) and a monthly payment of $500, a $230 per month savings (and I was actually paying an additional $100/month toward the principle, so in reality, I have an extra $330/month). My plan with the mortgage is to pay it off in 5 years, which I think is a very manageable goal for me at this time. (My annual salary is around $110k, I already have $40k that I could pay toward the mortgage at this moment, and I have no other debts.) In retrospect, I should probably have paid the $40k and just remortgaged $60k but for some reason that thought did not occur to me until too late. Should I pay toward the principle bit by bit or save the money myself in an account that I would not touch until the time comes to pay it off? I’m leaning toward the 2nd option because I’d get to keep any interest generated from the money, rather than allowing my mortgage holder have the money early. I am very disciplined and do not think I would be tempted to use the money for some other purpose. If I should save the money myself, what do you see as the best way to do so? I think I could put the $40k somewhere and deposit $1000/month for the next 5 years and that would make my goal. (This $40k is basically money I’m not needing for anything else, I wouldn’t consider a part of my emergency fund or retirement funds, and I don’t have another use for it at the moment)
– Laura

There’s nowhere out there that will return 4% to you without taking on significant risk right now. So, if you just want a riskless 4% return on your money, prepaying the mortgage is a good idea, especially when you consider that the rate will adjust in the future.

The big benefit of being rid of the debt is the monthly cash flow. It eliminates a huge monthly required bill, which gives you a lot of freedom, career and otherwise.

Don’t second-guess or dwell on missed opportunities. It’s really a waste of time. Just learn what you can from it and move on with life. Dwelling on past mistakes means your vision is looking backwards, not forward to the opportunities ahead of you.

The one thing I’ve struggled with since adopting the Getting Things Done tools is that I really struggle with watching my wife NOT using these strategies and knowing that many things she agrees to will slip between the cracks and never get done, or if they do get done, it will only happen when it’s an emergency (i.e. car maintenance, paying bills, etc.). Do you have any suggestions on enjoying the benefits of GTD but not allowing frustrations with others in your life not using the system to boil over into arguments? I would love to help her adopt the system, since she is incredibly busy and could really benefit from the lower stress level that results from using GTD, but she doesn’t seem to have any interest. Any advice would be appreciated.
– Matt

You have to determine which one of you is responsible for which things within your marriage, then use GTD to take care of the things you’re responsible for. You can’t both pay the water bill, for example.

Then, focus on taking care of the things you’re responsible for. Leave it up to your spouse to determine a plan for the things she’s responsible for.

Obviously, if you’re bothered by her inability to complete some of the tasks she’s responsible for, you need to sit down and have a conversation about it. The best solution may be to trade responsibilities around a bit.

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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