Reader Mailbag: Songs of Your Youth

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. How valuable is living space?
2. Meditation and money
3. Using multiple investing houses
4. Cheating wife
5. First investment steps
6. Cynicism about financial success
7. Caught in credit card cycle
8. Children in less lucrative careers
9. First steps of financial life
10. Dating people with bad credit

It’s amazing how songs can take you back to different points in time when you hear them.

Everybody Wants to Rule the World reminds me of the day that a family I had known all of my life was moving away.

Don’t Dream It’s Over takes me back to sitting in the bedroom of the brother of one of my closest friends.

I could list several of these, but the theme is the same for all of them: music has a powerful ability to take us to another place and time.

Q1: How valuable is living space?
My family lives in a small space too – one that is free of rent and utilities cause it is at my work (community for disabled folk). One child and about 500 square feet of apartment – but we can use some of the rest of the house at times for parties, exercise equipment, etc. Small bedrooms – and a small kitchen/living area. So, maybe we have enough space – but it feels too small. Especially as my daughter gets bigger. But the price is right! It is in the area we want to live in, though.

So, just listing ones needs… isn’t there something about a felt sense of not being cramped – which can be very different for one person than another? Any other measuring sticks to go by? Perhaps my discomfort is partially from comparing our space to other families in our neighborhood.
– Mark

I think that the grass is always greener on the other side. If you get a house big enough to have the living space that you’re thinking that you need, it will seem too big and you’ll wish you had a smaller place to live with lower utilities and less maintenance.

Right now, if I’m honest with myself, I’d say we’re pretty happy with the house we live in, but I wish the kitchen were a bit bigger (or at least laid out differently) and I wish there was a main floor bedroom and I wish it was in a more rural area. With the small apartment we once had, I wished it was bigger in most regards, but we got along just fine there.

There will always be something “better” than what you have. The trick is to realize when those things are just wants and when those things are genuine needs.

Q2: Meditation and money
You’ve said many times that you find meditation and prayer to be valuable personal finance tools. I don’t get it. How?

– Sloane

They help greatly with my mental focus and alertness.

After I pray or meditate, I feel very calm and collected. I feel incredibly able to focus on whatever task happens to be at hand. I’m also much more mindful about my decisions. This usually lasts for several hours after the meditation, and it’s usually a very productive part of my day.

Because I’m more mindful, I’m much less likely to make spending mistakes and I’m much more likely to make wise financial choices.

Q3: Using multiple investing houses
Hello! I know you are a fan of Vanguard because of their low fees, and my Roth IRA is with them. If I found myself with some extra money to invest, should I use a different company for diversity’s sake? Better to have IRA through Vanguard, Index fund through Fidelity, individual stocks through ShareBuilder, etc. Or am I just over-thinking and it is just as safe to buy multiple funds through one company?

– Jeff

It makes sense. I view it as reducing one form of risk a little while increasing another form of risk a little.

The form of risk you’re reducing is the danger of a single financial house collapsing and taking all of your money with it. If you spread your money across several financial houses, the risk of a single house collapsing decreases, plus you’re likely to be covered by the SIPC for that individual house.

The form of risk you’re increasing is identity theft, because by having accounts at multiple institutions, you’ve shared your key personal data with more people than you would have with one institution.

Which danger is greater? I think they’re both pretty small risks and I’d weigh them about equally.

Q4: Cheating wife
Several months ago, I discovered that my wife is having an affair, one that seems to still be ongoing. At first, I tried to deal with it because of our kids, but as time goes on, I’m finding this harder and harder to deal with. Do you have any suggestions for personal finance steps I should take in preparation for a potential divorce?

– Alan

Because marital and divorce laws vary in each state, my suggestion to you is to very discreetly contact a divorce lawyer in your area and ask for advice on how to proceed to provide maximum protection of your assets.

I would make sure that I had my financial ducks in a row and that I understood the financial situation thoroughly before confronting my wife. Reacting with pure emotion and diving into a marriage-destroying confrontation could cost you money for the rest of your life.

Ideally, you can work on this and find a way to repair the marriage, but it sounds like the damage is pretty deep.

Q5: First investment steps
You often talk about receiving 7% return on long-time investments, such as money placed in retirement savings. I am looking into what to do to save money long-term, for something such as retirement or to become financially independent a few years before I retire. The problem is I don’t know anything about investing or what to do with the money. I have a retirement program through work, and I’m currently depositing the maximum I can. So any other money I save has to be done through some other program. When I look at banks, things such as savings accounts, CDs, and bonds seem to be offering horrible rates of return right now. As far as investing or putting money in the stock market, I have no idea what I’m doing and I don’t even know what is a reputable financial advising/investment company to contact. Can you offer some advice? Are there other ways to get an expected 7% return besides working with an investment company?

– Mark

The 7% long term annual return that Warren Buffett talks about refers to a very broad-based index fund that covers the whole domestic stock market, like the Vanguard Total Stock Market Index. Such an investment means you’re holding a tiny amount of every publicly-traded stock in the United States, so your investment truly goes up and down with the stock market as a whole.

That 7% figure is a very long term figure – fifteen or twenty years, at least. If you invest for a shorter time frame, you increase your chances of having an annual return that’s higher – 8% or more – or lower – 6% or less. The longer you just sit on that investment, the greater your chances of locking onto a long term average of 7% per year.

I do almost all of my investing through Vanguard, and the money I have at Vanguard is either in their total stock market index funds or in their target retirement funds. It’s very easy and it lets me sleep at night.

Q6: Cynicism about financial success
I make about $22,000 a year. My wife makes about $20,000. We have two children at home. I simply don’t see how we ever realistically reach a point where we can live off of our savings. It’s about all we can do to keep our emergency fund fully funded.

– Derek

If I were in your shoes, I would look at your current situation as a time where you’re keeping your head above water, paying down any debts you have, and not incurring any more debts. In other words, you need to do everything you can to firm up what you have.

It can feel like a real struggle where you’re not really going anywhere, but you are making progress. Every time you knock down a debt a little, that’s progress. Every time your emergency fund helps you deal with a crisis, that’s progress.

When you move on to the next stage of your life, whether it’s a different job or a promotion or a second job, you won’t be saddled with debt. You’ll have an emergency fund. You’ll be ready to run with it.

Q7: Caught in credit card cycle
I recently moved to a new apartment. Prior to moving I saved $1000 to cover moving expenses such as truck rental, security deposit, partial months rent from my old place, and other various fees.

While the $1000 helped, it did not cover all the expenses and my checking account was drained pretty quickly after moving in. As a result, for the next month I had to put all my expenses on my credit card which I have been paying off every month. I am now in a frustrating cycle of having very little in my checking account and a balance on my credit card for most of the month.

I am uncomfortable with this as I am more susceptible to overdrafts for most of the month (I have not had any yet).

I have been trying to figure out the best way to get out of this cycle. I have an income of about $3800 per month with $2000 of living expenses and $750 of debt payments. I have $1000 in an emergency fund. I currently save about $200 per month. I have roughly $30,000 of debt between student loans, car payment, and credit cards. The credit cards make up about $2000 of the debt.

I have come up with two scenarios for getting out of this cycle:
1) Stop using the credit card and added it to my existing debt that I am currently paying down.
2) Use some of the money from my emergency fund to “get ahead” of the cycle so I’ll have some money left in my checking account after paying off the credit card and rebuild the emergency fund.

Neither scenario is very appealing. Do you have any suggestions for getting out of this cycle?
– William

What is the $200 per month in savings going for right now? Unless it’s for something highly urgent, I would use that money, for the time being, to get your financial state back in better balance.

Cut that savings for three months or so and allow your checking account to build back up to a healthy state so that you’re “ahead of the cycle” as you describe. Then, when you feel more confident about things, resume the savings.

In my eyes, this is mostly a matter of moving about $600 from your savings into your checking account. If you’d rather do that from your emergency fund, feel free.

Q8: Children in less lucrative careers
Is it appropriate to give more financial assistance to children who choose careers with lower income potential? We have one child who is an engineer and another who is a social worker. Both attended college. We decided to pay for our younger child’s student loans because she is barely making it while our engineer child is making plenty of money. While we think this is the right thing to do, we also understand how the older child will feel if he ever finds out. Thoughts?

– Linda

I understand both sides here, mostly because I’ve witnessed this situation in many families. I understand why you’d want to aid the child with lower income potential. I also understand why the other child would feel hurt by this and feel as though they’re the child that matters less to you.

In the end, though, it is your money and your choice as to what to do with it. If your older child cannot accept what you choose to do with that money, it’s his problem, not yours.

Eventually, your older child will find out about this. My suggestion would be to talk about it sooner rather than later. I would include him in the discussion about how to help make his younger sister’s career easier to survive.

Q9: First steps of financial life
I was never taught anything about personal finances in school or from my parents, so I’m very, very glad I found this blog. Speaking of my parents, I live with them, which at 20 isn’t the weirdest thing in the world, but it’s not exactly desirable for me. I live in a very suburban city and have a 10 mile commute to both of my jobs, which eats up my gas money. Right now I work retail in a mall part time, but I don’t get many hours, I have like one shift a week, earn around $200 a month, no benefits. I also work in community theaters seasonally as a wardrobe assistant, which nets me about $3,500 a year, but it’s a lot of labor intensive hours, also with no benefits and it’s not my passion. My parents help me out by paying my car insurance (and letting me live with them.) I am looking for a third job, but the job market in my city is extremely tight. I can’t swing another long commute out of my area to work, and I have trouble scheduling around the theater job. I have a few college credits but no degree. I’m not sure whether to press on with working, find another job and save up enough to start renting with roommates, or if I should go to college. I’d have to pay for university almost entirely with loans and I’m not sure going into debt is worth it. My dreams are to travel internationally and to own a clothing store. I’m working on goals but I feel kind of lost. What would your advice be for a single young person just starting out?

– Jerry

Identify what your professional dream is – which you’ve already done – then study what you need to study to make it come true.

In this case, you want to own a clothing store. The best course for you is to study business with a focus on the clothing industry. There’s a lot of knowledge you need to have to make a business like this succeed.

Focus on making the clothing store a success. What do you need to do today to work toward that goal? If the clothing store clicks, the other dreams you have will follow.

Q10: Dating people with bad credit
I was wondering your take on this article about people who stop dating others when they find out they have bad credit.

– Diana

I don’t think it’s that odd. Everyone has certain traits that they’re looking for in a partner, and often the traits you see when you’re dating aren’t necessarily the ones that come out during a long-term committed relationship.

If you value financial responsibility in a partner and discover that they have a horrendous credit score, that’s a pretty big warning sign.

Since a credit score is often related heavily to one’s true personality traits, I consider it completely reasonable to use it as something with which to evaluate a potential partner.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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