Reader Mailbag: Thanksgiving Week

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. A scary future
2. Effects of Kindle giveaway
3. Hiding savings from spouse
4. College accounts for grandchildren
5. Too much retirement, too young?
6. Snowblower?
7. Helping a financially distressed friend
8. Improving my wife’s credit
9. Reducing family stress
10. Winter exercise

Just a quick note about the week of Thanksgiving (next week). I’ll be running a lighter schedule that week, with just one post per day on Wednesday through Sunday (with the Thursday one being particularly short), and I’ll be skipping next Thursday’s Reader Mailbag. The same will be true during Christmas week next month. These are two holidays during which I spend a lot of time with my family and my wife’s family and I know many of you do as well – quite a lot of you will be taking those five days off of work and traveling to be with family for at least some of it.

Enjoy the holidays!

Q1: A scary future
There have been a few articles on [various websites] regarding inflation, astronomical food prices, and projected food shortages. What do you think about these? I find them scary and reactionary, but I trust your take on the subject. Any information you would share might help ease my mind

– William

There has never been a point at any time in history where you couldn’t have made some extremely negative projections about the future. Projections about the future are just that – guesses based on only some of what we know now that attempts to state exactly what the future will be like. Remember, in the 1890s, they wanted to close down the US Patent Office because everything that can be invented had already been invented. Since then – the airplane, the computer, plastics, and a nearly infinite flood of other such things.

I don’t put stock into global projections like this. Nearly every day, something happens that will alter it. A catastrophe. Political upheaval. An invention. A discovery of new resources. An idea.

Projections don’t include such things because they cannot include such things. We simply don’t know what the future holds, good or bad.

There are very few things I’m certain of with regards to the future. One of them is human ingenuity. There are more people living now than ever before, which means more ideas are being generated now than ever before, and it’s easier to communicate and share them than ever before.

I think I’ll bet on that.

Q2: Effects of Kindle giveaway
I bought a hard copy of your book and enjoyed that as well. Thanks so much for releasing it for free on the Kindle which is my preferred method of reading. I would be interested to hear how that affected your book sales. It seems like a good idea to do what you did for the sake of promotion. Has the giveaway had a positive effect as a whole? Any thoughts?

– Matt

It certainly had a positive effect – one only needed to watch the Amazon sales rank for the print version of the book in the days during and after the Kindle giveaway to see that. Not only that, now the “free” Kindle version is floating around out there. More people are reading it than ever before and some of them are probably thinking, “Hey, this book would make a good Christmas gift for person X.”

I will say that as more and more book companies try doing this, it will get diminishing returns. If every book had a free week on the Kindle, then it would be very hard for a single book to get any sort of sales spike from it. The more books doing this, the less effective it will be.

For me, I’m just glad more people read it. That’s enough for me, since that’s the real reason I wrote a book and sold it to a major publisher in the first place.

Q3: Hiding savings from spouse
My husband and I have always had joint accounts for everything. After squeaking by with a child for the past 5 years, we’ve been aggressively paying off debt (specifically student loan debt) for the past 18 months and also aggressively setting aside for retirement (for us this means about 12% of income). Whenever we get a little push of money (a raise, etc), it seems to fall in the bill abyss. Our budget is very tight. We set aside $200/month for savings but this seems to evaporate every few months from some emergency. For this reason, when we stopped paying for preschool when my daughter started kindergarten, I decided to open a new savings account through work that is deductible from my paycheck ($50/biweekly paycheck)….the rest of that money has already fallen into the bill abyss. I plan to increase this to $150 per paycheck after my payraise and once my child care FSA is reduced in the new year. I’m hoping to use this for much needed house repairs once it accumulates and as emergency savings.

The catch is, I haven’t told my spouse about the account, as I feel as though it could become part of the bill abyss if he knew. While we don’t dine out and are fairly frugally, my husband insists on a fancy phone plan and fancy satellite (which I feel is acceptable given our other sacrifices—about $100 more than I would like to spend. How do you feel about keeping funds secret from your spouse (which I feel will be mutually benefical)?
– Heidi

First thing: hiding anything beyond a present from your spouse is a bad idea that will pay some sort of negative consequence in the long run. Hiding things erodes trust, which is what relationships are built on. You need to have this conversation with him now rather than later.

Having said that, if I were you, I would explain it just as you did above: you are taking the money from your raise and directly putting it aside for emergencies. I think that’s completely reasonable, and if you’re calm about it and explain it in that way, he likely will, too.

If he doesn’t, then you’ll need to sit down together and have a long talk about what your financial goals are together and how you’ll get there. It sounds like you’re already doing this, but if you’re not, it might be a good idea to do this anyway.

Q4: College accounts for grandchildren
My mother, who is not rich by any stretch of the imagination, wants to put away some money for each of her four grandchildren to help with their college expenses. (The grandchildren are 18, 16, 9 and 9 respectively.) My sisters are both financially irresponsible married to men who are even more so. What kind of account do you suggest that my mother open for the grandchildren? The 18-year-old is currently going to community college. My mother’s biggest fear is that the other children will want to go to college (the 16-year-old is very bright and does well in school) but will not be able to afford to because their parents will not have the money.

– Sharon

I would suggest she open a 529 for each child. They can immediately use the money in that count for educational purposes, as well as any financial gains made by the account. If they end up not ever having educational expenses in their life, they can withdraw the balance without penalty, but will have to pay an extra 10% tax on the gains.

There are lots of 529 plans available – most states offer one. Search “529” and your state in Google to see what you get. You’re going to want a 529 plan that allows you to choose any school – some 529s lock you into certain schools by prepaying tuition there, and that’s usually a bad idea.

If your state doesn’t offer such a plan, you can use the one here in Iowa – College Savings Iowa. I use it for my own children.

Q5: Too much retirement, too young?
I am a 23 year old recent graduate making $67k in my second year as a software designer in California. I have no debts at all (yay for scholarships/grants and a 15 year old car). I have funded both my Roth IRA and 401k (no match) fully for this year and am just shy of 10k in my emergency fund. I feel like I could be saving too much for retirement (possible?) and not putting enough priority on a down payment for a house, or car, or just a higher emergency cushion. Right now I pay ~$1200 for rent. I feel that a decent mortgage payment isn’t that far away from my current rent and could possibly be a better choice. My net worth goes up every month, due to retirement savings, but the numbers in my savings accounts doesn’t really increase. I don’t feel like I’m “penny pinching” too much, but of course it’d be nice to get a new car sometime soon or have a house sooner than later. What do you think some possible routes I can take? Lower retirement savings and redirect that money into a down payment? Not change my retirement savings plan and slowly build that down payment?

– Joseph

Given your great start financially, I think your best move would be to simply shoot for 10% of your annual income in retirement savings for the next few years and channel the rest into saving for a down payment.

Since you’ve hit the limit on the Roth and the 401(k), that means you’ve contributed $21,500 to retirement this year – about 30% of your income. That’s plenty. Slow down a bit.

If you contribute just $6,700 next year – $5,000 to your Roth and $1,700 to your 401(k) – you’ll have $14,800 to save for your down payment. That’s an excellent start.

Q6: Snowblower?
This is our first winter in a home of our own. We live in an area with significant snow many times during the winter. Do you suggest buying a snowblower? If so, which one do you recommend?

– Kevin

It depends on how much area you have to clear. Does your home have a double-width driveway or a single-width driveway? Is it very long? Are you responsible for clearing any sidewalk? What exactly does “significant snow” mean?

If you don’t have much to clear and you get 6″ of snow over the course of a winter, then use the shovel. If you have a long double-wide driveway with some sidewalks and you have storms that get 15″ of snow, like we do… get a snowblower.

We purchased a Troy-Bilt that was on an end-of-season sale a while ago. It has been very much worth it, as we’ve been able to turn four hours of shoveling into fifteen minutes of snowblowing several times a winter. Last winter, we had a very rough winter with lots of snow and the snowblower saved us approximately 40 hours of hard labor last winter. If it lasts for ten winters, that’s 400 hours of hard labor saved, making it worth it for us.

Q7: Helping a financially distressed friend
My close friend is currently in (since May 2010) chapter 13 bankruptcy in order to keep her home from being foreclosed. She has unpaid medical bills dating back several years from a stroke at age 40. She has a neck injury that has kept her from working since June 2010. It looks like she will have to convert to a chapter 7 in January 2011 and lose her home. How would you help someone in this situation? What do you say to them?

Some things we’ve done so far: gone over her budget with an eye to cutting expenses – got rid of cable, etc; sold some collectibles at garage sale and online – brought in about $400; gifted money solely to pay insurance premium and medical copays (about $100 for 6 months)…
– Vicki

That person needs you to be positive and helpful, and that person needs strongly to focus on getting themselves into a position to recover financially from this. That means healing up, building whatever skills she can during her recovery, and being as ready as she can to return to the workforce when this all finishes up.

It sounds also like your friend has a powerful story to tell. She should spend some of her energy getting her story out there, as it may make a strong case for why we need a better healthcare system. Contact politicians in her area that are involved with healthcare legislation. Doing this may be incredibly empowering to her.

Most of all, she needs you to be a constant and loyal friend right now. She might be moody and upset and depressed – but can you blame her? Cut her some slack and be there for her. People always remember who stood by them when the chips were down.

Q8: Improving my wife’s credit
Im 26 years old, I just got married, (my wife is 25). Im wondering how to build her credit so in the future if we want to buy a house we will get a better rate. She just finished paying off her car, so her credit score is good, however not better because she does not have that much history. She has a checking account she opened 3 years ago and a car loan which she opened in 2009 and we just paid it off. Other than that no credit cards or anything. I opened up an american express blue cash credit card and added her on and got her a card, however the account is still in my name. Will her having a card (even under my account) increase her credit? Should she apply for her own credit card? Also we have a joint checking account now, so i guess i was wondering now that we are married, if something increases my credit, will it also increase hers since we are married?

– Tip

Even though you’re married, your credit histories are still distinct and your credit score is calculated individually. Marriage means that you’re more likely to have co-ownership of debt, but it doesn’t combine your credit histories.

As for whether the card in her name will help her credit, it depends on how that specific contract is set up. Your first step is to get a copy of her credit report using the federal government’s website and see what’s on there.

If she needs to build a credit history, the easiest way is to get a credit card, pay off the balance each and every month, and just sit on it. Use it for only ordinary charges, like gas, and pay the balance in full each month. This will slowly build up her credit.

Q9: Reducing family stress
I read one of your articles (Low cost methods for Stress Relief) about choosing who you spend your time with and got me thinking. You said the following:

Spending time with people who care about me The ongoing process of eliminating negative people from my life and keeping positive people in place has been a major positive influence in reducing stress. I simply ask myself regularly if there are people in my life that are causing me to stress out because of their behavior (not because of my own worries reflected on them). If they are, then I strive to reduce the role that they have in my life, plain and simple.”

What if the people who cause stress due to their unhappiness is your Mother in Law ? It brings constant stress into our lives to the point where I don’t want to be around her but have to because of my husband. Also, it is very likely that once she gets her permanent residency she might stay with us during her old age and I do not want to put my children through an unhealthy environment at home. Though she is healthy she refuses to do anything at home or even watch my daughter when she is sick if we cannot take time off from work. I am almost sure that if I choose to keep away from the husband’s family and do not do what’s expected of me that we could end up in divorce. How do you reduce this kind of stress ? Currently I feel suffocated, confused and angry with a lot of situations that I have faced in the couple years of marriage.
– Sunny

Your first step is to sit down and express these feelings clearly to your husband. If you won’t or can’t do that, then you don’t have any recourse here. Your husband has to know exactly how you feel.

You also do need to understand that your husband will feel torn by this. He’s being put between two women he likely cares very deeply about – his wife and his mother. Making him “choose” is deeply unfair to him and is likely to cause resentment.

You mention “permanent residency.” This sounds as though there’s a cultural barrier here – your mother-in-law is from some distinctly different culture than you’re from. Try to understand that culture as much as you can. Is your mother-in-law’s behavior normal for that culture? Or is there something else at work here?

In the end, all three of you are going to have to recognize that your mutual presence is irritating each other (you’re likely irritating her as much as she’s irritating you). Your husband will have to be an integral part in this solution, so the discussions start with him. The next step is up to you.

Q10: Winter exercise
I know you walk a lot for exercise. What do you do during the winter months when it’s too cold out there to walk? I started walking daily this summer, but I live in Minnesota and it’s getting awful cold out there!

– Eli

I do a lot of different things to keep up my walking during the winter. I often volunteer to do the grocery shopping and make an effort to maximize my walking doing it. I’ll focus on home exercise and do things like pushups and situps and light weight training. I’ve even mallwalked.

These aren’t perfect solutions for everyone, though. Quite often, keeping in great all-around shape in a cold winter environment requires use of a gym, simply because the ability to exercise outdoors is so limited.

It all depends on what your needs are. If you’re an intense trainer and live in a very cold winter environment, a gym may be your best option.

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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