Reader Mailbag: Stephen Strasburg

I’m in a pretty competitive fantasy baseball league this year. During our draft, I made the most controversial pick, drafting Stephen Strasburg (who has yet to make his major league debut) with my fifth pick in the draft.

He has been utterly unhittable in the minors. Every day, I get up and look at the sports news, wondering if the Nationals have called Strasburg up yet. Every day, so far, I’m disappointed.

My team is solid without him, riding in fifth place in a sixteen team league. But it’s painful to know that my fifth pick is that good, but he’s not helping me at all yet.

Please, Washington, bring him up!

I’m in a bind. I’m twenty years old and had a plan to spend the summer studying in Jordan but a lack of preparation on my part left me with no way to pay for it–so, I’m spending the summer with my parents. I seem to have literally all the time in the world–with no worries about room and board, how can i improve my life in three months? What would you do to focus and improve your existence with so much time and so little pressing responsibility?
– Fernando

If I were you, I’d spend the summer focused on completing a large, high-quality project of your own choosing in whatever your field of interest is. Devote fifty or sixty hours a week (at least) to it, building your skills up along the way.

Spend a week or so figuring out exactly what you want to do so you can clearly state what you want to complete and develop a plan for getting there. Plus, you’ll want to also know if it’s something that you can bring that much passion to.

It could be anything from producing a creative work to starting a charity – or countless other things. Just focus on bringing it to completion and make sure it’s something that’s going to really stretch you and make you work to get there.

When you’re finished, share it! Make a website about it and put it online. Add it to your resume.

I was hoping for your advice regarding the topic. I am an attorney. Should I blog about something I am interested in (sports) or something I may know more about (the law). Of course, I am also interested in various legal topics as well, but I have a greater interest in sports, although I have no expertise in that area.
– Bruce

The best topic for a blog has three elements: you’re interested in it, you have some particular knowledge or experience to share about it, and other people will want to read it. The last one varies a lot in importance depending on your goal with blogging.

If I were you, I’d start with a topic you’re passionate about – probably the sports one. I’d try writing some blog posts, then I’d read them and ask yourself whether you, as a reader, would have any reason to read this instead of, say, Deadspin.

Basically, what you’ll be doing is cultivating a voice – a unique perspective on the topic at hand that others will be interested enough to read. I have a “voice” on The Simple Dollar – it’s very earnest and conversational and family-oriented and speaks heavily from personal experience.

I am 74 years old and have been a nurse for 40 years I have been employed. I have had a business – small assisted living for elderly. My husband and I have had 3 business devistating things happen to us thus took our nest egg and now find ourselves living from social security check to social security check. We are still paying a home mortgage and had borrowed equity on that. We have only $16,000 left in a mutual fund, with a $75,000 mortgage to pay and $1400 in SS income. My husband will be 80 and still works at a job 2 days a week simply because he has to. I have become disabled. We do not know how to manage this situation. Do you have any ideas?
– Norma

You have to immediately get your monthly spending below your monthly income. If that means selling your home, that’s what you’re going to have to do.

Find a small apartment, perhaps in low-income housing. Start using services like the local food pantry for your food needs. Sell your car – there are often services that will help you get to any medical appointments if you need it.

What you’re sadly facing is the reality of a society that chooses to neither take care of the elderly nor make it possible for lower-income folks to build security in their golden years.

I found a federal credit union (Aspire Federal Credit Union) that pays 3.5 % on checking, and 2.5 % on your linked savings. You have to make 12 debit cards transactions a month to get the rate, which putting gas in each car, and buying grocerries, I can easily do. You have to make one automatic payment and get e-statements. It has the NCUA seal, but what other way can I verify this bank, before I open an account?

I thought about opening both, but keeping most of the money in checking for the higher rate. We are debt free, and finally have an emergency fund and cash saved for taxes. We’re now starting to save for our next car. I track savings with an excel spreadsheet. I love the idea of smarty pig, but this higher interest rate is very attractive! Any thoughts?
– Cheryl

Aspire Federal Credit Union is a closed union, meaning you have to be an employee of one of the organizations that participate in that union (or a partner of an employee).

This is one of the reasons why “rate hopping” can be really time consuming. A lot of the offers are limited or restricted in some way, so you often have to look at several offers before you find one you’re eligible for and isn’t restricted in some way that makes it difficult for you to earn the rate.

As for the “you have to use the debit card X times to get the rate,” I simply don’t like it. It puts a behavioral requirement on my spending – I have to spend enough times each month using that card in order to make it worthwhile. I don’t want to waste my time keeping track of it or have to remind myself to use it to buy a pack of gum I don’t really need to make sure I hit my number of transactions for the month.

I have tried to do some careful calculations about buying used vs new … but one of the difficult factors is that buying the used car saves (purchase price) money in the short run — but you have to buy a replacement sooner; so how do we deal with the money saved by buying used? I’m really thinking about total value of my investments: if I spend $25 k for a car, that is gone, forever. If I spend only $20k, I keep $5 k in the money pot, but I have to draw out another $20 k sooner than I would have if I’d bought a new car.
– Tony

The general belief is that after buying new, there’s a rapid depreciation period right after the purchase. In other words, a new $20,000 car immediately depreciates to $15,000 (or so) as soon as you drive it off the lot.

Because of that quick initial depreciation, the argument usually is that the best bang for the buck is in late model used cars, where the actual wear on the car hasn’t caught up to that huge initial depreciation yet.

Now, whether that belief is entirely true is a long source of argument. Many cars – Hondas, for example – simply don’t depreciate much when they’re driven off the lot.

Another factor that pushes people towards used is that it’s a lot easier to come up with the cash to buy an $8,000 used car than it is to pay cash for a $25,000 new car. If you have to take out a loan on a car, that’s a losing proposition no matter whether it’s new or used.

My belief is that if you have the cash in hand and have done the research, you should simply buy what’s best for you based on the factors you’re looking for.

What are your thoughts on the Move Your Money project?
– Justin

Move Your Money is a political group encouraging people to move their money out of the large “too big to fail” banks and into smaller community banks and credit unions.

I’m completely fine with this type of protest against the actions of large businesses. It’s a great form of protest and protest is an important part of a thriving society.

Would I participate in it? No. The banks are just doing what they should be doing to survive and thrive. If their behavior is seen as detrimental to the public, then there needs to be more banking regulations. Thus, if I were outraged, I would be putting my effort towards getting people in office who will truly work for better banking regulations.

I expect a business to operate within the law and within their agreements with customers. The banks did that. The problem is that the law and their customer agreements made for behavior by the banks that, viewed on the whole, many people find distasteful. The solution there is to change the law and/or to change the customer agreements. Since I have the power to choose whether to sign such an agreement, I think the real place for activism is changing the law.

About a year and a half ago my husband (45 y.o.) was diagnosed with a chronic medical condition that will require him to take a medication daily for the rest of his life that is astronomically expensive….around $8,000.00 per month. Due to his health insurance, we just pay a co-pay of $50–yes, we feel incredibly blessed! His prognosis is good as long as this medication continues to work as well as it has been. My question is this: is he “stuck” at his current job for the rest of his life (assuming they want to keep him)? For a multitude of reasons, he would like to look around for some other job but we’re not sure how the insurance thing would play out. He is the sole breadwinner and being without his salary and insurance for even a short amount of time is really not an option. We realize that given the current state of our health care/insurance system, you may not know the answer to this, but thought it was worth it to ask your advice. We really don’t who else to ask about this as he obviously can’t go in to his HR person at work and ask her!
– Laurie

Obviously, a major criteria for any job change would be insurance. Would you be guaranteed entry into the insurance program at the new workplace? If he’s applying elsewhere, he needs to figure out the exact insurance benefits before moving (and maybe even before interviewing or applying).

The question you need to be asking isn’t at your current workplace, but at the workplace that you might move to.

Again, as mentioned above, this situation points to some societal problems that could be solved if people of lots of different political stripes would actually sit down at the table and solve problems together.

As a U.S. citizen, if I live abroad, and do not work for a u.s. company or
hold property in the u.s. do I still have to pay taxes to the U.S.
government?

– Parth

As a citizen, you do need to file your taxes. However, you probably don’t have to pay any taxes.

The Foreign Earned Income Exclusion basically is meant for people like you. It basically says that money earned in your situation is excluded from federal income tax.

Now, that doesn’t mean you don’t file your taxes – you still have to do that as a citizen. Instead, you basically file with an enormous deduction that reduces your tax bill to zero.

I’m a 20 year old college student, and I still have a piggy bank full of coins from when I was much younger. So far I’ve really only kept it for some sort of sentimental value, but I feel like I should be able to do something better than just having it sit there at this point (even though it’s only about $10). What would you suggest doing with the money?

Also I have some coins saved from when they were doing the 50 states quarters and $1 Sacajawea gold coins. Will these increase in value in the years to come or are these only for coin collectors (a related question: is a “two dollar” bill worth more than $2 since it’s now rare)? My dad is the coin collector in the family and although I sometimes find it nice to look at all the different coins, I’m not sure it’s worth it to keep them just for the sake of having them. What would you suggest? Again, in all I probably only have around $10 from these coins.
– Alaina

You’re talking about very small sums of money in both cases. With the change, putting it in a savings account that earns 1% means you’ll earn a dime for every year it sits in the account. That’s not a stellar return, but it’s a better return than it would earn sitting in your piggy bank.

The same largely holds true for the other money. The state quarters may have a small premium value if you can find a buyer, but there are so many sets in circulation that their premium value is extremely limited. The $2 bills aren’t nearly as rare as people think – they’re still being actively printed, but people often snatch them up and hoard them under the false impression they’re rare. You’ll likely only be able to sell them for more than $2 if you find a mark.

In short, you’ve basically got the cash value you see. With that small amount, I’d just put it in a savings account and let it be.

This year I got serious about punching out my debt. I have (gulp) a nearly 24 percent car note with a balance of $12,700. My car payment is $486 and starting June 1, I will be putting an extra $390 or $800 per month (depending on the pay period) towards reducing this debt. This debt is my number one priority as the interest rate is appalling!

At the same time I’m paying $500 towards my student loans ($36,913.54 at 2.5 percent variable apr and $12,253.21 at 6.8 percent). I’ve applied for a student loan consolidation for these loans and the estimated fixed apr is 3.85 percent with a monthly payment of $250 for a 30 year period.

My question is two-fold. Should I move forward with the student loan consolidation and just plan to pay this off aggressively and well before the 30 year time line?

My car note and student loans are my only debt.

The second part of my question is related to retirement funding. My employer offers a 401K, but no match. I have a small emergency fund ($2500), but nothing saved towards retirement. While I do continue to put some money in savings it’s not a lot and once I start my debt repayment plan in June, my deposits to savings will sink to $200 or $300 a month max. This concerns me, being that I’m almost 35.

What suggestions do you have regarding my plan?
– Tara

I would absolutely not do your consolidation – you’ll regret it big time over the long run. Right now, the effective interest rate on your two student loans is 3.51%. With every extra payment you make on the higher interest loan, your effective interest rate goes down. Compared to the 3.85% interest rate on your consolidated loan, your consolidation is a bad deal. The only reason to consolidate is if you can’t make your current monthly payments (which doesn’t sound true) or you’re concerned that your rate is going up in the next couple years (not very likely, either). If I were you, I wouldn’t consolidate.

As for your retirement, if your employer doesn’t offer any matching, you’re better off putting money into a Roth IRA than into that 401(k). A Roth IRA uses after-tax money, which means you won’t have to pay taxes on any withdrawals come retirement age. Better yet, you have the choice of which company you want to manage your Roth – you’re not just stuck with your employer’s choice for a 401(k) partner. I use Vanguard for my Roth and I love it.

If I were you, I’d just pay down all of your debts in order of their current interest rate, throwing as much cash into them as possible. If a rate adjusts, that might adjust your priority for payment, but I wouldn’t worry too much about it.

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.